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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Total's plan to exit Canada, eventually
  • NEB shines a spotlight on Duvernay Shale
  • Kinder Morgan jumps the gun on river crossings
  • South Korea eyes Canadian crude
  • Support for pipelines divided among demographic lines
  • Enbridge's Line 3 Replacement enters the final stretch
  • California looks to China for guidance on environmental policy
  • Tackling fake fracking news on social media
  • Exxon dives deep into Brazil
  • Blocking pipeline exports in Turkey
  • Big banks and oil traders call an end to the oil price slump.

ALBERTA

Total's plan to exit Canada, eventually
At this week's 2017 Strategy and Outlook update, French energy giant Total confirmed plans to exit Canada at some point in the future, when oil prices improve. During Monday's conference call, CEO Patrick Pouyanne says his company is in no hurry to divest its Canadian operations, suggesting he's not likely to get a decent price under the current environment. The CEO confirmed that Total's oil sands operations have the highest breakeven prices throughout the company's entire portfolio. The company remains embroiled in a commercial dispute with Suncor, refusing to pay for recent cost escalations at the $17 billion Fort Hills mine. The French oil major has a 29.2% stake in Fort Hills, as well as a 50% stake in the Surmont SAGD facility, operated by ConocoPhillips.

Suncor's plan to stick around 100 years from now
In a recent interview with Postmedia, Suncor CEO Steve Williams says the oil sands will be alive and kicking 100 years from now. Williams says he's working hard to tear down the industry's reputation for being a "high-cost albatross and an environmental offender," noting that his company can cover its operating costs at just US$37 per barrel. The CEO admits the era of mega-projects has largely ended for now, and future expansion will come from "bite-sized" SAGD expansions. Suncor says it will look at these next phases of expansion late next year at best, once Fort Hills is completely off the ground and running.

Conventional pipeline business going strong at Pembina
Pembina announced plans to expand its Phase V pipeline by another 45,000 bbl/day thanks to strong demand and additional volume commitments. The company says the expansion addresses capacity constraints between Lator and Fox Creek, Alberta, and is intended to support future growth in the Montney and Deep Basin regions. Capital costs for Phase V have been increased from $135 million to $385 million due to the added scope. The expansion is expected to be placed into service by the end of 2018.

Shining a spotlight on Duvernay Shale
The National Energy Board (NEB) and the Alberta Geological Survey (AGS) released a revised estimate of reserves contained in central Alberta's Duvernay Shale, now estimated to hold 3.4 billion barrels of marketable light oil and field condensate, as well as 77 trillion cubic feet of natural gas. The Duvernay Shale covers covers a land mass equivalent to 20% of the province, stretching from just below Grande Prairie to just north of Calgary. Current development has focused on the Duvernay's West Shale Basin, including the Kaybob Field northwest of Edmonton. A full report on the Duvernay Shale deposit is expected to be released this fall.

Another asset sold
Cenovus Energy has agreed to sell its Suffield operations in southern Alberta to International Petroleum Corporation (IPC) for $512 million and up to $36 million in contingency payments. The company says it expects to announce a buyer for its Palliser and Weyburn properties before the end of this year. IPC, a subsidiary of Vancouver-based Lundin Group, says the acquisition more than triples its production and reserves. The assets are expected to produce an average of 24,000 boe/day this year at a cost of less than $10/boe.


CANADA

Making progress on gas processing capacity in BC
Veresen and Encana announced the start-up of the Tower rich gas processing plant earlier this week, ahead of schedule and under budget. The plant has the capacity to process 200 MMcf/day of natural gas, one of three projects being constructed to support condensate production from the Montney basin in northeastern BC. Construction continues to progress on the two remaining facilities, Sunrise and Saturn. Once operational, all three plants will have a total processing capacity of 1.5 Bcf/day.

Support for pipelines divided among age, gender and income
In a recent survey by Angus Reid, a surprising fraction of BC voters support the Trans Mountain Expansion (TMEP), despite the government's effort to derail the pipeline. Overall, 47% of respondents support TMEP while 33% want to see it cancelled. Residents are split along political lines, with only 10% of Liberal voters wanting to see the pipeline cancelled, versus almost 50% of Green/NDP voters. Younger voters with lower household incomes, who make up a larger proportion of Green and NDP supporters, were more likely to be against the pipeline project. Female respondents were also far more likely to be opposed.

Kinder Morgan jumps the gun on river crossings
The NEB has sent a warning letter to Kinder Morgan Canada, reminding the company that its construction permit extends to the Westridge Marine Terminal only, and not other sections of the line. The NEB says it has become aware of the company's recent installations of fish spawning deterred mats in various waterways along the TMEP route, which is in violation of several sections of the NEB Act. Kinder Morgan says it has complied with the order but warned the fish mat installations were key to meeting the line's in-service date of late-2019.

South Korea eyes Canadian crude
South Korea’s Hyundai Oilbank says it is looking to expand its crude supply sources beyond the Middle East, more specifically from Canada, if and when the Trans Mountain pipeline is expanded. Senior VP Chang Ji-hak says his company has already tested Canadian crude and determined it to be "suitable" for processing at its 390,000 bbl/day refinery in Daesan, South Korea. The VP says some non-Middle Eastern grades are "sometimes too light" and "sometimes too heavy" creating processing limitations for its refinery. The company didn't name the exact grade of Canadian crude tested.

Canada's adjustment to lower oil prices essentially complete
In a speech delivered in St. John's, NL, this week, Bank of Canada Governor Stephen Poloz says monetary policy played a "key role" in the country's adjustment to lower oil prices, saving 120,000 jobs and pumping $50 billion into the Canadian economy. Poloz says the oil price shock is still visible in "energy-intensive" parts of the country but is being offset by greater strength in other parts of the economy.


USA

Exxon accelerates methane reduction program ...
ExxonMobil says it has expanded its plans to reduce methane emissions throughout its US production and gathering facilities, particularly those operated by subsidiary XTO Energy. The program includes phasing out high-bleed pneumatic devices over the next three years, facility design improvements and extensive personnel training. The company also says it is looking at opportunities to upgrade facilities and improve efficiency at its existing and future operations. XTO Energy was purchased by Exxon in 2010 and holds the largest natural gas reserves in the US.

.. and doubles-down in the Permian Basin
Exxon also announced the addition of 22,000 acres to its Permian Basin portfolio since last spring, in addition to 250,000 acres purchased in February. The lands are located in the "highly prolific, stacked oil pay zones" in the Delaware and Midland Basins, adding to the company's existing 6 billion barrels of oil equivalent in the Permian.

Tackling fake news on social media
US lawmakers have launched an investigation into whether Russia colluded with anti-fossil fuel groups in the US to spread "misinformation" about the dangers of fracking on social media. The Russians are known to have spent millions backing the anti-fracking movement in Europe, a region held hostage by Russian natural gas imports, despite having significant shale gas reserves of its own.

Line 3 replacement enters its final phase
Regulatory hearings have begun in Minnesota for Enbridge's Line 3 Replacement project. The Public Utilities Commission is expected to make a final decision next April, representing the last regulatory hurdle for the project. Replacement of the 50 year old pipeline will restore capacity to its original 760,000 bbl/day. 

More refinery problems - Part 1
Royal Dutch Shell's 227,500 bbl/day Convent refinery in Louisiana caught fire this week, forcing a shutdown of the entire facility. The fire was started in an electrical substation. The refinery was scheduled to begin a one-month maintenance turnaround next week.

More refinery problems - Part 2
The 185,000 bbl/day Monroe Energy refinery in Pennsylvania ran out of feedstock this week after rough seas prevented the offloading of West African crude. Several other refineries in the region were forced to reduce rates as Hurricanes Jose and Maria delay shipments into the US Atlantic Coast. The rough seas are boosting demand for crude-by-rail from North Dakota.

California looks to China for guidance on environmental policy
Just weeks after China announced a ban on fossil-fuel powered vehicles "sometime in the future," the California Governor Jerry Brown is now considering a similar move to combat climate change. The state registers 2 million new passenger vehicles per year, making it one of the largest auto markets in the world.


US PRODUCTION & INVENTORY DATA

US commercial crude stockpiles declined sharply in the Gulf Coast last week, as crude exports hit a record high of 1.5 million bbl/day. Production has recovered from the effects of Hurricanes Harvey and Irma, now back to the mid-2015 high of 9.55 million bbl/day.

Us oil rig counts rose by 6 this week, the first increase in the past three weeks. In Canada, the number of oil rigs in service fell by 9 to 113.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

SEP 27, 2017

US crude exports power to record highs driving Gulf Coast inventories lower

 

AROUND THE WORLD

Flushing out unodourized gas in Ireland
Royal Dutch Shell and Ireland's natural gas distributor are still working to remove unodourized gas that entered the network last week due to a "technical problem" at the country's Corrib gas field. The mishap has significantly curbed output from the field, forcing the company to flare the unodourized gas and reducing supply to Irish customers. Corrib has the capacity to supply up to 60% of Ireland's natural gas needs. Shell sold the field to a division of the Canada Pension Plan Investment Board for US$1.23 billion last July, effectively exiting the country.

Six down, one more to go
BP announced the start-up of its Khazzan gas field in Oman, reportedly ahead of schedule and under budget. The US$16 billion project is BP's sixth and largest project to be started up this year, owned jointly with the Oman Oil Company. Phase one is expected to produce 1 Bcf/day of gas, increasing to 1.5 Bcf/day once the second phase is operational. BP has one more start-up planned before year end as part of its plan to start-up 7 new mega projects this year, adding 800,000 boe/day of new capacity by 2020. The final project is the Zohr field in Egypt, which will add another 40,000 boe/day (net) of production to BP's total output.

Exxon makes a big bet on Brazil
ExxonMobil drastically expanded its footprint in Brazil this week after winning 10 blocks in the country's 14th round of bidding for offshore exploration rights. The company is mostly partnered with PetroBras in the fields, but other partners include Murphy Oil and Brazil's QGEP. Other big winners in the auction include China's CNOOC and Spanish firm Repsol. Seventeen companies won 37 offshore blocks in total, raising US$1.2 billion in payments for exploration rights in the country. The Brazilian government says results were much improved over previous auctions. 

Australia runs out of gas and coal
According to Australia's Energy Market Operator, Eastern Australia will face a shortage of natural gas next year and in 2019, three times bigger than originally estimated. Prime Minister Malcolm Turnbull is asking east coast LNG operators, including Royal Dutch Shell, ConocoPhillips and Santos, to find a way to fill the supply gap. Australia's coal stockpiles are also dwindling fast due to strong demand from Asian customers. Coal still accounts for 76% of he country's power generation.

Blocking pipeline exports in Turkey
Turkish President Tayyip Erdogan has threatened to cut-off pipeline exports from the Kurdish autonomous region in retaliation against a the region's efforts to separate from Iraq. The US, EU and Iran all oppose the region's efforts to separate for fear of further destabilizing the region. The 600,000 bbl/day pipeline carries crude from northern Iraq and into the Turkish port of Ceyhan. The Iraqi government has asked foreign countries to stop importing crude from the region and instead "deal exclusively with the federal government of Iraq." The region currently produces about 650,000 bbl/day.

India presses pause on Chevron asset sale
India's state-owned Petrobangla has put a wrench into Chevron's plans to sell its natural gas assets in Bangladesh to a Chinese consortium for US$2 billion. Petrobangla has the first right of refusal in the sale and is considering a counter-bid, despite not having the expertise to run the fields or fund future investments.

Calling an end to the oil bear market
Traders, investment banks and oil majors were tripping over each other this week raising their forecasts for crude prices. Oil trader Trafigura warned a supply squeeze is in the cards for 2019, declaring an end to sluggish oil prices. Citigroup says it's time to start preparing for an oil shortage, as several OPEC producers (Libya, Nigeria, Venezuela, Iran and Iraq) are already pumping at capacity. S&P Dow Jones Indices says "fundamentals are changing and the market is rebalancing," potentially pushing oil prices over US$80 a barrel. US oil producer Hess says shale is not enough to meet future demands and more offshore investment is needed to avoid "another supply shock.


NEXT WEEK'S EVENTS

Monday:

Tuesday:

Wednesday:

Thursday:

Friday:

  • September Labour Force Survey released by Statistics Canada @8:30am ET
  • Baker Hughes Rig Count released @ 1:00pm ET
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The Oil Sands Weekly

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