The Oil Sands Weekly
- Cenovus warns of more job cuts
- Sturgeon Refinery produces first diesel
- Feds look to raise gas prices, again
- Discounts on Cdn crudes widen to multi-year highs ...
- ... as production hits a record high
- Enbridge warns of too little, then too much, pipeline capacity
- TransCanada tries to cover all bases on Keystone XL
- World Bank cuts funding for oil & gas projects
- EU runs out of gas during cold winter snap
- Eni finds 2 billion oil barrels offshore Mexico
- BP hits a speed bump in Australia
- Brent gets a boost from UK pipeline shutdown
- EIA/IEA/OPEC warn of rapidly expanding US oil output.
Cenovus warns of more job cuts ahead
Cenovus Energy released its 2018 budget and production forecast this week, setting an objective to "reduce costs and deleverage" its balance sheet, while lowering breakeven costs to the low US$40s WTI. Total 2018 capital spend is expected to be in the range of $1.5 to $1.7 billion, with $780 million earmarked for oil sands maintenance activities and $270 million on continued construction of Christina Lake's phase G expansion. Oil sands is forecasted to average 373,000 bbl/day next year, bringing the company's total output to almost 500,00 bbl/day. Oil sands operating costs are expected to decline 8% next year to less than $8/bbl (including energy) while sustaining capital costs are projected to be 12% lower. The company also announced plans to de-staff another 15% of its workforce, or roughly 500 employees. Management did not provided details on timing of this latest workforce reduction or where they would be focused. Cenovus also announced a reshuffling of its management team this week and is currently on the hunt for a new CFO.
Sturgeon Refinery produces its first gallon of diesel - sort of
North West Refining announced first diesel production from its Sturgeon Refinery earlier this week, produced from synthetic crude oil feedstock. The $9.3 billion "refinery" (formerly known as the North West Upgrader) is designed to upgrade 50,000 bbl/day of bitumen into 40,250 bbl/day of ultra-low sulphur diesel for use in local markets. Sturgeon is a 50/50 joint venture between North West Refining and Canadian Natural Resources (CNRL), developed in partnership with the Alberta government. The province will provide 75% of the upgrader's feedstock through its bitumen royalty-in-kind program, with the remaining 25% of volumes provided by CNRL. The company says several more units still need to be commissioned before the refinery is fully operational. Full commercial operation of Phase 1 is expected sometime in the first half of next year.
Enbridge warns export capacity will be crimped until late 2019 at best
At this week's investor conference, Enbridge says its liquids pipelines are already at capacity, and that likely won't change until 2020. The company warned that its $5.3 billion Line 3 Replacement project will likely not be operational until the second half of 2019 at best, possibly as late as November. However, Enbridge says Canada's export capacity "remains unclear" post 2021, depending on how many new pipelines are built. Enbridge's Mainline is currently Canada's largest export pipeline, transporting 2.5 million bbl/day of Western Canadian crude to markets in the Midwest. Once Line 3 is replaced, capacity will increase by another 375,000 bbl/day. The company also says that Mainline has room for another 450,000 bbl/day of added capacity and excess volumes in the Midwest can be funnelled to the Gulf Coast by reversing its jointly-owned Capline pipeline and expanding the Flanagan South/Seaway system.
Canadian crude production hits a record high, but it's not all good news
Canada's total crude output hit a record 4.2 million bbl/day in September, up from 135,500 bbl/day in October and now 445,000 bbl/day higher than the same time last year. Unfortunately, export pipelines are already at capacity, widening both the heavy and light oil discounts to multi-year highs. Enbridge says it will start rationing space on its Mainline network to the Midwest due to unplanned outages in parts of its system. The company's 540,000 bbl/day Line 5 was also disrupted last week due to bad weather. According to the National Energy Board, production is expected to rise by another 20,000 bbl/day through the end of this year as both Horizon Phase 3 and Fort Hills add more barrels to the country's total production.
More expensive but less carbon-intensive fuels in the works
Environment Minister Catherine McKenna released the federal government's general framework for its new Clean Fuel Standard. The new standard will require producers, importers and distributors to reduce the carbon intensity of all types of fuels during production, processing, distribution and final consumption. The government says the standard will be "technology-neutral," giving producers, importers and distributors the flexibility to meet their targets in any way they chose. The minister insists costs will be "minimal" for "ordinary Canadians". A similar system is already in place in California and BC. Clean Energy Canada estimates the new standard could generate as much as $5.6 billion in economic activity, mainly for the construction of new biofuel plants. Once implemented, the standard will add about 5 cents/L of gas, on top of 12 cents/L for the Liberal's looming $50/tonne carbon tax (excluding GST). The new fuel standard will also apply to diesel, jet fuel, natural gas and metallurgical coal. The Clean Fuel Standard is intended to reduce Canada’s GHG emissions by 30 million tonnes annually by 2030, required as part of the country's commitments under the Paris Agreement. A draft legislation is expected to be released at the end of next year.
TransCanada tries to cover all bases on Keystone XL
TransCanada has asked Nebraska's regulator for permission to amend its Keystone XL pipeline application, to reflect the alternative routing approved by the state's Public Service Commission in late November. The company says the amended plan would address issues not included in the original application. The alternative route selected by the state is 8 km longer than the company's preferred route, closer to an existing pipeline right-of-way located along the eastern side of the state. TransCanada has committed to making a final investment decision on Keystone XL by the end of this month.
Enbridge and Phillips 66 team up on new West Texas pipeline
Enbridge and Phillips 66 have launched open season for their proposed Gray Oak Pipeline. The 385,000 bbl/day line will transport crude from West Texas to markets in Corpus Christi, Freeport, and Houston, connecting to over 3 million bbl/day of refining capacity and multiple export terminals. The companies say they will evaluate a further expansion of the system is there's sufficient shipper interest. The pipeline is expected to be placed in service in the second half of 2019.
In this week's Short Term Energy Outlook, the Energy Information Administration (EIA) says the US produced 9.7 million bbl/day in November, up 360,000 bbl/day from the previous month. Gains were mostly seen out of the Gulf of Mexico as offshore platforms returned to normal after being taken offline due to Hurricane Nate. The EIA is sticking to its 2017 average of 9.2 million bbl/day rising to a record high of 10.0 million bbl/day next year, surpassing the 1970 annual average of 9.6 million.
US oil rig counts declined for the first time in six weeks, falling by 4 in the US, to 747. In Canada, oil rig counts surged by 22 to 134.
Brent hits new 2½ year high on UK pipeline outage ...
Brent crude prices jumped over US$65 per barrel earlier this week after the Forties North Sea pipeline was shutdown due to the discovery of a hairline crack. The 450,000 bbl/day line transports crude oil and natural gas from offshore operations in the North Sea into the UK. The outage also forced the shutdown of Scotland's 200,000 bbl/day Grangemouth refinery. Owner INEOS says the pipeline could be offline for several weeks, perhaps as long as a month. The shutdown has steepened backwardation on the Brent futures curve as traders scramble to find alternate crude supplies.
... which is helping OPEC lower global crude inventories
Interruption of the Forties pipeline is sending traders to crude stockpiles, which should help ease global inventories. According to OPEC, global oil inventories have declined to 130 million barrels above the 5-year average, down from 154 million in September. Inventories are expected to fall by another 6-13 million barrels over the next few weeks as Forties remains offline for maintenance.
A symbolic gesture by the World Bank
At this week's One Planet Summit in Paris, the World Bank announced plans to stop lending for oil and gas projects in developing nations after 2019. The bank says it will make exceptions for natural gas developments in poor countries only. Oil & gas investments account for about 2% of the bank's US$280 billion in total assets. Canada's Environment Minister applauded the news and added that Canada will work with developing nations to decarbonize their power grids.
Gas shortages in Europe
An explosion at OMV's Baumgarten gas hub in Austria temporarily disrupted natural gas supplies to Italy this week, killing one person and injuring 21. Gas flows from Norway's Troll field were also curtailed due to an unplanned power outage. The timing couldn't be worse as the disruptions coincided with unusually cold winter weather across the EU and shutdown of the Forties Pipeline, which provides about 10% of winter demand. This week's events sent natural gas and electricity prices soaring, and is expected to sharply increase demand for LNG supplies into Europe.
BP hits a speed bump in Australia
Australian Competition and Consumer Commission (ACCC) says it opposes BP’s US$1.3 billion takeover of 531 Woolworth gas stations, on grounds that BP's gas prices are generally higher than Woolworth's. The ACCC also accuses BP of increasing prices more quickly on the way up, and being slower to reduce gas prices on the way down. Both BP and Woolworth say they are disappointed with the blockade and are exploring all legal options.
Exxon makes big oil discovery in Central Africa
ExxonMobil and the government of Equatorial Guinea announced an oil discovery at their jointly-owned Avestruz-1 well, located 160 km offshore Malabo. The size of the reserve has yet to be determined. Avestruz-1 is located adjacent to Exxon’s Zafiro field, which has already produced over 1 billion barrels of oil in the past two decades.
Eni makes bigger oil discovery in Mexico
Italian energy major Eni says it is boosting its hydrocarbon estimates offshore Mexico by 43% to a new total of about 2 billion barrels of oil equivalent, weighted about 90% liquids. Pending all government and regulatory approvals, the company says it can start production sometime in the first half of 2019.
A new alliance born in Brazil
ExxonMobil and Brazil's Petrobras have signed a memorandum of understanding (MOU) to "identify and evaluate potential business opportunities" in "areas of mutual interest", including exploration and production of oil and gas, both in Brazil and internationally. Petrobras says this deal is part of their 2017-2021 Strategic Plan, which includes over US$74 billion in investments, mostly earmarked for E&P in deepwaters.
Global oil markets according to the EIA
The Energy Information Administration (EIA) estimates OPEC's crude oil production to average 32.5 million bbl/day this year, down 200,000 bbl/day from 2016. The agency is forecasting a slight increase, to 32.7 million bbl/day in 2018. Non-OPEC output is expected to rise by 1.7 million bbl/day next year to 60.3 million bbl/day, with additional production coming from US, Canada, Brazil, Norway, the UK and Kazakhstan. After rising 1.4 million bbl/day this year, global oil demand is expected to rise another 1.6 million bbl/day in 2018.
Global oil markets according to the IEA
The International Energy Agency (IEA) is warning that 2018 may not be "a happy new year" for anyone who was hoping for a balanced oil market. World oil output increased 200,000 bbl/day in November to 97.8 million bbl/day, the highest in a year thanks to higher output from the US. OPEC's output declined to 32.36 million bbl/day last month, on lower production out of Saudi Arabia, Angola and Venezuela. Non-OPEC supply is expected to grow another 1.6 million bbl/day in 2018, while global oil demand will decline to 1.3 million bbl/day, down from 1.5 million bbl/day this year. The IEA says it sees continued oversupply in the first half of 2018, before swinging to a deficit in the second half of the year.
Global oil markets according to OPEC
In this month's Monthly Oil Market Report, OPEC says it expects global GDP to expand by 3.7% both this year and next, upgrading its outlook for the US and lowering expectations for India. World oil demand growth was left unchanged at 1.53 million bbl/day this year, falling to 1.51 million in 2018. Expectations for non-OPEC supply growth was again revised higher to 810,000 bbl/day this year, rising to almost 1 million bbl/day in 2018, reflecting large gains from US shale and higher output from Alberta's oil sands and Kazakhstan. Production out of OPEC members declined 133,000 bbl/day last month to 32.45 million bbl/day. Despite OPEC's production caps, average annual production rose from 32.2 million bbl/day in 2016 to 32.8 million this year, and expected to rise to 33.2 million bbl/day in 2018. OPEC now says oil markets will not rebalance until the end of next year.
- US Secretary of State Rex Tillerson arrives in Ottawa for first official visit
- October Employment Insurance data released by StatsCan @ 8:30am ET
- API Weekly Statistical Bulletin released at 4:30pm ET
- Last trading data for WTI January contract
- October Weekly Payroll, Earnings and Hours released by StatsCan @ 8:30am ET
- October wholesale trade data released by StatsCan @ 8:30am ET
- EIA Weekly Petroleum Status Report released @ 10:30am ET
- October retail trade data released by StatsCan @ 8:30am ET
- November Consumer Price Index released by StatsCan @ 8:30am ET
- EIA Weekly Natural Gas Storage Report released @ 10:30pm ET
- October GDP by industry released by StatsCan @ 8:30am ET
- Baker Hughes Rig Count released @ 1:00pm ET