The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Total holds the line on cost overruns at Fort Hills
  • Alberta gov't puts a positive spin on higher carbon levies
  • CAPP warns of more job losses ahead
  • "Weather bomb" helps boost natgas demand
  • Trump continues push for world energy dominance
  • Alaskan oil & gas reserves revised substantial higher
  • TransCanada puts Leach XPress into service ...
  • ... and plans another US two natgas pipelines by year-end
  • Russia reports record output in 2017
  • Global oil & gas spending expected to decline again this year.

ALBERTA

Total holds the line on spending increases at Fort Hills
French energy major Total and its partners, Suncor and Teck, have settled their commercial dispute over unpaid bills at Fort Hills. Last summer, Suncor disclosed its spat with Total, who had refused to provide additional funding for cost overruns at the oil sands mine. Capital costs for facility jumped from about $15 to $17 billion last year due to scope changes in its secondary extraction plant. Suncor says more than 80% of Fort Hills is now operational and first oil is expected around mid-January. Once the deal closes, Total's stake is cut to 26.05%, boosting Suncor's and Teck's share to 53.06% and 20.89%, respectively.

CAPP not so positive on employment prospects in energy patch
The Canadian Association of Petroleum Producers warns to expect more layoffs in 2018, blamed on unfavourable government policy. President Tim McMillan says oil majors are redirecting their funds to the US where returns are more attractive, noting "We have positioned ourselves to be less competitive ... and because of that, we’re not going to see the level of investment we saw over the last decade ... When we should be making ourselves more competitive, it seems we’re going the other direction." Although Alberta Premier Rachel Notley says she remains cautiously optimistic on 2018, Alberta is at risk of losing thousands of jobs this year as both the $17 billion Fort Hills Mine and $9 billion NW Refinery projects complete construction in the first half of this year.

Alberta's NDP government grasps at straws
Alberta's carbon tax jumped 50% to $30/tonne on New Year's Day, adding another 2.24 ¢/L at the pump, bringing the total carbon tax levy to almost 7 ¢/L. Wholesale electricity prices will also double as four coal-fired power plants are decommissioned this year. Most of those increase will be passed on to industrial users, but households are set to see a significant rise again in 2020, as the province's PPA subsidy (power purchase arrangements) disappears. The NDP government says the new carbon levy has helped it get several pipelines approved and boosted economic activity in the province. Almost 60% of lower to middle income Albertans are set to receive rebate cheques to offset the added costs.


USA

Alaskan reserves revised significantly higher
The US Geological Survey (USGS) has made a sizeable upward revision in its estimates of recoverable reserves in northern Alaska. After a slew of recent discoveries, USGS now says Alaska's National Petroleum Reserve, the Western Beaufort Sea and adjacent state and federal lands and waters holds an estimated 17.6 billion barrels of oil and 50 trillion cubic feet of gas. US Secretary of the Interior Ryan Zinke says "these assessments show that the North Slope will remain an important energy hub for decades to come in order to meet the energy needs of our nation."

Trump continues to push for energy dominance
The Trump Administration is proposing a massive offshore oil and gas lease sale, including in Arctic, Atlantic and Pacific Waters, which have been off-limits over the past few decades. The National Outer Continental Shelf Oil and Gas Leasing Program would make over 90% of the outer continental shelf available for leasing, including areas put off-limits by the Obama Administration. If approved, the legislation would be valid for 5-years (2019 to 2024) and could open areas off the East Coast from Florida to Maine, and off the coast of California, prompting several state-level officials to explore all legal options to stop the sale. The US government is also proposing new subsidies for nuclear plants and coal-fired power, much at the dismay of natural gas producers.

Sunoco forced to hit pause on NGL line construction
Regulators in the State of Pennsylvania have ordered Sunoco to halt construction of its US$2.5 billion Mariner East 2 NGL pipeline in the southern part of the state. The Department of Environmental Protection (DEP) accuses the company of "egregious and willful violations" of state laws, having already issued dozens of warnings since last spring. The DEP has ordered Sunoco to come up with an action plan before allowing construction to restart. Sunoco says it will comply with the ruling and plans to restart construction "promptly." Mariner East 2 will carry propane, butane and ethane from the Marcellus Shale natural gas formation to an export terminal near Philadelphia.

Old Man Winter gives a big boost to natgas demand
Below-average temperatures across North America's most populated centres have translated into record natural gas demand south of the border. New Year’s Day turned out to be the coldest this century in the Lower 48 states, sparking a record demand of 143 billion cubic feet. According to the Energy Information Administration (EIA), natural gas consumption for the month of October was also a record. The cold snap has moves natural gas prices into bull market territory, gaining almost 20% earlier this week, before retreating by the end of the week. The "weather bomb" knocked-out power across New England, including a nuclear power plant, also giving a boost to heating oil prices. Five refineries on the East Coast were forced to deal with frozen pipes, although no major outages have yet to be reported.  

TransCanada makes progress on expanding natgas pipeline capacity
TransCanada announced that its Leach XPress project was placed into service on New Year's Day. Leach Xpress includes 257 km of pipeline capable of delivering 1.5 Bcf/day of natural gas, connecting to its Columbia Gulf Transmission System and Rayne XPress project, which was put into service last November. The company also announced the receipt of several FERC certificates for its 2.6 Bcf/day Mountaineer XPress and 0.8 Bcf/day Gulf XPress project. If all final regulatory approvals are obtained, both pipelines should be in service by the end of 2018. All three projects represent an investment of US$4.8 billion providing "vital links between Appalachian natural gas supply and growing US markets."

A rare pipeline construction announcement for the West Coast
Midstream-player ONEOK announced plans to build a US$1.4 billion natural gas liquids (NGL) pipeline from the Rocky Mountain region to the company's existing infrastructure in Montana and Kansas. The 1,450 km (900 mile) Elk Creek Pipeline will have the capacity to transport 240,000 bbl/day, but can be expanded to 400,000 bbl/day if there's sufficient demand. The line is expected to be completed by the end of 2019.


US PRODUCTION & INVENTORY DATA

Commercial crude oil stockpiles declined 7.4 million barrels, with drawdowns seen throughout the US except for the West Coast. Production out of the Lower 48 rose 25,000 bbl/day, reversing declines from the previous week and now back to the record highs of mid-December.

Refinery utilization rose again to 96.7% across the US, with Gulf Coast refineries running at almost 98% of capacity.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

JAN 4, 2018

FRIGID COLD WEATHER AND HIGH REFINERY RUNS BLAMED ON CONTINUED GAINS IN PRODUCT STOCKPILES

 

AROUND THE WORLD

North Sea pipeline returns to normal
Pipeline operator INEOS says its Forties Pipeline is now fully operational, lifting all restrictions on oil and gas inflows. The company was forced to declare Force Majeure in mid-December after a small leak and hairline crack was discovered on the line. The 450,000 bbl/day Forties pipeline is a critical piece of infrastructure for Brent crude flows from offshore production facilities in the North Sea to the UK.

Libyan pipeline also returns to normal
After being blown-up by unnamed militants earlier last week, one of Libya's main export pipelines was also put back into service in the new year, allowing the country to restore crude production and exports. The line is operated by Waha Oil Corp, transporting 260,000 bbl/day crude to Es Sider, Libya’s biggest export terminal. According to various reports, all systems are expected to return to normal later this month.

Oil and gas spending declines again in 2018
According to consultancy firm Wood Mackenzie, global spending on oil and gas exploration will decline again in 2018, the fifth consecutive annual declined from the highs of 2013. Global investments will fall another 7% this year to US$37 billion, now down 60% from its peak. Exploration is expected to be focused in deepwaters off the coast of Mexico, Brazil and Guyana, where large discoveries have been made in recent years.

Record oil production in Russia
Russian oil production hit a record average rate of 10.98 million bbl/day 2017, up from 10.96 million bbl/day the previous year. The figures would have been higher if not for the country's collaboration with OPEC to reduce output. Russia's output hit a high of 11.25 million bbl/day in October 2016 after it agreed to curtail production by 300,000 bbl/day in 2017. Russian Energy Minister Alexander Novak says he expects the 2018 average to be roughly unchanged from current levels, as per their agreement with OPEC to extend production cuts to the end of this year.

Fight for dominance in global natgas market
Russia’s natural gas production also rose to its highest volumes ever in 2017, approaching US output levels. Output rose 8% y/y, topping old record highs from 2011. The country has been making sizeable investments in new pipelines and LNG export terminals, aggressively carving out market share in China and even the UK. Russia's gas exports to Europe rose 8.1% last year to a record 193.9 Bcf. Thanks to an explosion in shale gas revolution, the US became the world’s largest natural gas producer in 2009 while China is set to become the world's largest natural gas importer this year, topping Japan, as the country moves to phase out coal-fired power.

Petrobras settles bribery scandal with US shareholders
Brazil's state-owned Petróleo Brasileiro (aka Petrobras) has agreed to pay US$2.95 billion to settle a US-based shareholder lawsuit on corruption charges. Prosecutors for the "Operation Carwash" scandal claimed that several of top Petrobras officials conspired with other companies to overcharge Petrobras for construction and service work in exchange for almost US$3 billion in bribes. The improprieties allegedly involve Brazil's President Michel Temer, several of his close allies, and two former predecessors. Petrobras says it is also a victim in this bribery scheme and will be exploring all legal options to recover the funds from guilty individuals. The settlement will be paid in three instalments and does not constitute an admission of guilt, wrongdoing or misconduct. Shareholders in Brazil are now seeking a similar payout.


NEXT WEEK'S EVENTS

Monday:

Tuesday:

Wednesday:

Thursday:

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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