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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Fire breaks out at Horizon ahead of maintenance shutdown
  • Expansion continues at Hardisty
  • Husky's plan to thrive, not just survive, at US$35 oil
  • Enbridge pipe sabotaged in Hamilton
  • Another BC LNG project bites the dust
  • Competitiveness of Canada's energy sector likely to get worse
  • US rig counts continue to decline
  • Clean up continues in Texas post-Harvey
  • Greenbacks not wanted in Venezuela
  • India haggles Exxon into massive LNG price drop
  • China's plan to dominate EVs
  • UN caps oil supplies to North Korea
  • Energy agencies bullish on oil demand ...
  • ... sending WTI over US$50 for the first time since August

ALBERTA

Ribbon-cutting at Hangingstone
Alberta Premier Rachel Notley and various other government and industry representatives attended a ribbon-cutting ceremony for Japan Oil Sands' (JACOS) newly inaugurated Hanginstone facility, located 50 km south of Fort McMurray. The SAGD facility produced its first barrel of oil in early August and has now begun regular shipments to Edmonton. The $2 billion plant is expected to reach its nameplate capacity of 20,000 bbl/day sometime in 2018. Hangingstone is a 75/25 joint-venture between JACOS and CNOOC/Nexen.

Electrical fire breaks out at Horizon
Canadian Natural Resources reported a fire in one of its electrical buildings last Monday evening. One worker sustained minor injuries and was taken to hospital. The incident coincided with a 45-day planned maintenance shutdown, which also began on Monday. The cause of the fire is still under investigation.

Expansion continues at Hardisty
Gibson Energy announced plans to construct 1.1 million barrels of new storage capacity at its Hardisty Terminal, located about 200 km southeast of Edmonton. Two 300,000 barrel tanks and one 500,000 barrel tank are expected to be placed into service by the third quarter of 2019, increasing Gibson's total capacity at Hardisty to 10 million barrels. CEO Steve Spaulding says the expansion will help the company keep up with additional output from the oil sands, expected to grow another 800,000 bbl/day by 2021. 

Wildfire woes continue
Royal Dutch Shell has shut-in 24 natural gas wells near Pincher Creek, Alberta due to the Kenow wildfire burning in the region. So far, operation of Shell's Waterton Gas Complex has not been affected, but the company says it has reduced the number of staff in the area. Waterton produces about 180 million cubic feet of natural gas daily.


CANADA

Another LNG project bites the dust
After a four-year feasibility study, Nexen Energy announced the cancellation of its Aurora LNG project, located on Digby Island near Prince Rupert, BC. The company says the "current macro-economic environment does not currently support the partners' vision of developing a large LNG business" and will cease all studies, effective immediately. The $20-billion project was meant to produce 24 million tonnes of LNG per year for export to markets in Asia. Aurora LNG is a joint venture between Nexen and Japan's INPEX Gas. The cancellation does not affect Nexen natural gas assets in northeastern BC.

Surviving and even thriving at US$35 WTI
Speaking at this week's Peters & Co Conference, Husky Energy says it's still working towards divesting its legacy assets and lowering breakeven costs to the mid-US$30s WTI. Husky has lowered their sustaining capital budget from $3 billion just a few years ago to less than $2 billion this year. By 2021, the company expects its core business to generate over $3 billion in cash flow, even with WTI at US$35 a barrel.

Enbridge's Line 10 sabotaged
Hamilton police reported several acts of sabotage and tampering on a segment of Enbridge's Line 10 that runs through the city. Police say trespassers drilled holes into the pipe, which is currently being replaced with a newer, stronger pipe as part of Enbridge's Line 3 replacement project. An unnamed group professing "solidarity with the Indigenous peoples" has claimed responsibility for the damage, telling media outlets they also poured corrosive chemicals into the empty pipe. Enbridge says some of its stored piping has been tampered with, but provided no further details on the incident.

Canada's competitiveness being questioned, again
The University of Calgary School of Public Policy thinks Canada's energy sector is at great risk of becoming uncompetitive, especially in light of President Trump's ongoing efforts to reform the US tax code. The think tank says Canada's energy sector has done a good job of attracting international capital despite a higher tax structure and complicated regulatory environment. The authors conclude the US advantage, which includes less regulations, a bigger pool of customers, better access to capital and no carbon pricing, will only get bigger if corporate taxes are reduced south of the border. Republicans have put forward a plan to reduce corporate taxes from 35% to just 15% and allow a 100% write-off of capital expenditures.


USA

Minnesota questions benefits of Line 3 replacement
The Minnesota Department of Commerce (DOC) says Enbridge has failed to demonstrate any economic benefits for its Line 3 replacement project, specific to the state of Minnesota. The DOC argues that Minnesota refineries are already at capacity and Enbridge might be able squeeze out extra volumes from other pipelines already operating in the area. The $8.2 billion project will bring 760,000 bbl/day of Western Canadian crude through North Dakota and the state of Minnesota, before terminating in Superior, Wisconsin. More importantly for Enbridge (and Canadian crude producers), Line 3 connects to the Enbridge Mainline, which connects to refineries in the Midwest, Eastern Canada and the Gulf Coast. Expert witnesses also pointed out that TransCanada's Keystone XL would be a cheaper and more economically viable route for Canadian crude, freeing up capacity on Enbridge's existing Mainline network. Enbridge says it disagrees with the findings.

Clean-up continues in Texas
Gulf Coast refineries are slowly returning to normal after being taken offline during Hurricane Harvey. The Coast Guard and EPA are reporting small oil and chemical spills at about a dozen industrial facilities in the Port Arthur and Baytown areas. Refinery operators are reporting minimal damage mostly limited to flooding of pumps and compressors normally installed at ground level. Motiva says their 603,000 bbl/day Port Arthur refinery, the largest in the US, will be running at just 40% of capacity this week due to plugging of a crude oil pipeline.

More crude released from SPR, but not for reasons you might think
The Department of Energy (DOE) sold another 14 million barrels of crude this week to BP, ExxonMobil, Phillips 66, Valero and Macquarie. Depending on the customer, the average sale price varied from US$47 and US$47.90 a barrel. The sale was reportedly for medical research and federal government funding. The DOE released about 4.5 million barrels of crude during Hurricane Harvey, but those barrels are merely "loaned" to refineries short on feedstock and are eventually repaid back with a premium.


US PRODUCTION & INVENTORY DATA

According to the EIA, August domestic production averaged 9.2 million bbl/day, down about 40,000 bbl/day from the July average due to outages in the Gulf of Mexico. As a result, the EIA has revised their 2017/2018 production forecast lower by 100,000 bbl/day to 9.3 and 9.8 million bbl/day, respectively. Bullish demand forecasts from the EIA, IEA and OPEC released this week helped boost oil prices, sending West Texas Intermediate briefly above US$50 for the first time since August 10th.

US inventories continued to build last week as Gulf Coast refineries were still running at just 60% of capacity (as of Friday September 8). Baker Hughes reported another decline in US rig counts this week, falling by 7 to 749. Canada added 10 oil rigs, to a total of 112.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

SEP 13, 2017

Production rebounds after Hurricane Harvey but refineries slow to restart

 

AROUND THE WORLD

No greenbacks, por favor
The Venezuelan government has stopped accepting US dollars in exchange for oil sales, in an effort to work around the latest round of financial sanctions imposed by the US. The country is instead asking oil traders to invoice their customers in Euros. Government officials say this is part of their "liberation" from the greenback, and there are plenty of other currencies to choose from. Venezuela is the US' third largest crude supplier, selling about 700,000 bbl/day of mostly heavy crude into Gulf Coast refineries.

Strangling crude & gasoline supplies to North Korea
The UN Security Council has imposed a fresh batch of sanctions against North Korea, including a cap on imports of crude oil and limiting product imports to a maximum of 2 million barrels per year. North Korea imports an estimated 10,000 bbl/day of crude (4 million bbl/year) and 12,000 bbl/day of refined products (4.5 million bbl/year), mostly from China. The sanctions are in response to the country's nuclear test a few weeks ago. North Korean officials have promised "a very strong response, with unbearable consequences" and launched another missile over Japan this week.

ExxonMobil slashes LNG prices to India
India's Petronet LNG has agreed to increase its volumes from Exxon's Gorgon LNG project by an extra 1 million tonnes/year to about 2.5 million tonnes/year, at more "amicable" prices than initially agreed in 2009. This marks a very rare contract renegotiation in the LNG sector, sparking concerns that big importers such as China, Japan and South Korea might push for better commercial terms on existing contracts. LNG prices in Asia have declined from over US$20 per MMBtu in 2014 to about US$6.40 as a tsunami of additional supply is expected to hit the market over the next few years. Exxon owns 25% of Gorgon LNG, which produces about 15.6 million tonnes/year.

BP gives birth to a new company in Argentina
BP and Argentina's Bridas Corporation have joined various assets together to form a new 50/50 joint-venture, to be named Pan American Energy Group (PAEG). PAEG now becomes the largest integrated energy company operating in Argentina. Bridas Corp is 50/50 joint venture between Bridas Energy Holdings of Argentina and China's CNOOC. BP CEO Bob Dudley says the deal allows his company "to pursue growth and development opportunities in Argentina, Uruguay, Paraguay and Mexico."

Shell invests in Brazil ...
Royal Dutch Shell and Brazil's Petrobras have signed a long-term agreement to collaborate on the development of pre-salt fields in the Brazilian continental shelf. Shell has agreed to share its deepwater expertise with PetroBras in exchange for the Brazilian company's knowledge of working with pre and post-salt projects. The agreement is valid for five years. Pre-salt and post-salt fields are crude oil reserves located below and above salt layers.

... and divests in Iraq
Shell also announced plans to divest its stake in two of Iraq's largest oil fields, Majnoon and West Qurna 1. The company is reportedly selling the assets due to low margins and will instead focus on expanding Iraqi gas output, which has proven to be more profitable. The divestiture would represent about 55,000 bbl/day for the company.

Saudi Aramco IPO pushed back again, maybe
Saudi Arabia's state-owned oil giant is preparing for yet another delay in its mega IPO, initially planned for the second half of next year. The country had hoped to raise US$100 billion from a 5% stake in Saudi Aramco, which would value the entire company at about US$2 trillion. However, stubbornly low oil prices have led some investment firms to question those figures. The country is still shopping for an international stock exchange to list its shares outside of Riyadh, likely to be London and/or New York. A decision is expected by October.

China set to dominate EV sector
The Chinese government announced plans to put a hard end date on the sale of gasoline-powered vehicles in a bid to accelerate adoption of electric vehicles (EV). China has vowed to cap its carbon emissions by 2030 and is rumoured to introduce a cap-and-trade credit program for EVs in the next few weeks. However, the move may be less motivated by carbon and more related to its desires to dominate the lithium battery sector. The government is inviting the world's largest automakers to "share" their battery technology with domestic auto producers, who receive very generous government subsidies. Both the UK and France announced plans to ban fossil-fuel-powered vehicles by 2040, with Norway, the Netherlands and Germany planning similar initiatives.

World energy markets according to the EIA
In their latest International Energy Outlook, the US Energy Information Administration (EIA) predicts global energy consumption will rise by 28% over the next two decades, driven mostly by higher economic activity in (you guessed it) China and India. Demand for oil is expected to grow from 95 million bbl/day in 2015 to 113 million bbl/day in 2040. Additional supply will come mostly from the Middle-East, with smaller increases expected from Brazil, Kazakhstan, Russia and the Alberta oil sands. LNG trade is set to almost triple by 2040, with 60% of those exports coming from the US. The IEA estimates energy use in non-OECD Asia will exceed all OECD countries combined by 2040. Global carbon emissions will rise 16% by 2040, all coming from developing nations.

World energy markets according to OPEC
OPEC reported a production decline for the month of August, falling 79,000 bbl/day to 32.76 million bbl/day. Declines were led by Libya, Gabon, Venezuela and Iraq, while Nigeria's production increased by 140,000 bbl/day. OPEC expects Canada to add about 190,000 bbl/day this year and next, exiting 2018 at almost 5 million bbl/day. The cartel plans to discuss extending its production agreement ahead of its next compliance meeting in November.

World energy markets according to the IEA
In their Monthly Oil Market Report, the International Energy Agency (IEA) says demand was much better than expected for the first half of the year, but is expected to slow in Q3 due to Hurricanes Harvey and Irma. Global output in August declined 720,000 bbl/day to 97.7 million bbl/day. July global stockpiles were roughly unchanged from the previous month.


NEXT WEEK'S EVENTS

Monday:

Tuesday:

  • July Manufacturing Survey released by StatsCan @ 8:30am ET
  • API Weekly Statistical Bulletin released @ 4:30pm ET

Wednesday:

Thursday:

  • July Employment Insurance data released by StatsCan @ 8:30am ET
  • July wholesale trade released by StatsCan @ 8:30am ET
  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET

Friday:

  • July retail trade released by StatsCan @ 8:30am ET
  • August Consumer Price Index released by StatsCan @ 8:30am ET
  • Joint OPEC-Non-OPEC Ministerial Monitoring Committee meeting in Vienna, Austria
  • Baker Hughes Rig Count released @ 1:00pm ET

Saturday:

  • Third round of NAFTA talks begin in Ottawa, ON

The Oil Sands Weekly

The Oil Sands Weekly

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