GWPF Newsletter - Historic Energy Milestone: U.S. Oil Output Surges To Record Highs

Russia And Saudi Arabia Forge Energy Pact To Counter U.S. Shale Boom

In this newsletter:

1) Historic Energy Milestone: U.S. Oil Output Surges To Record Highs
Mark J. Perry, AEIdeas, 7 February 2018
 
2) U.S. Oil Exports Pour Into Markets Worldwide
Reuters, 8 February 2018

 
3) Permian Shale Basin: The New Saudi Arabia
Wael Mahdi, Bloomberg, 5 February 2018
 
4) Russia And Saudi Arabia Forge Energy Pact To Counter U.S. Shale Boom
Financial Times, 8 February 2018 
 
5) EU Commission Approves State Air For Coal and Gas Power Plants
EurActive, 7 February
 
6) The UK’s Costly Electricity Could Prevent Further Emissions Reductions
GWPF Energy, 7 February 2018

Full details:

1) Historic Energy Milestone: U.S. Oil Output Surges To Record Highs
Mark J. Perry, AEIdeas, 7 February 2018

US crude oil output surges to new all-time record highs in January. It’s a great day for the US energy industry, a great day for the frackers, and a great day for American-style capitalism.





I haven’t used the Drudge Report siren in a long time, but thought it was appropriate today to announce a monumental and historic US energy milestone: US crude oil production set a monthly record in January of 10.2 million barrels per day (bpd), based on the EIA’s most recent monthly forecast that was released yesterday (see top chart above). January’s crude oil production topped the previous record of 10.04 million bpd established back in November 1970, more than 47 years ago. Today’s weekly petroleum balance sheet from the EIA reports that daily crude oil production last week through February 2 surged by 330,000 barrels from the previous week to establish a new weekly record high of 10.25 million barrels.

The top chart also shows the remarkable and complete reversal in the 40-year decline in America’s crude oil output from 1970 to 2010 that has taken place in less than the last decade, thanks to the revolutionary twin drilling and extraction technologies of hydraulic fracturing and horizontal drilling. From only 5 million barrels per day in early 2010, the rebound in US oil production from the bonanza of shale oil accessed by technological marvels of engineering and scientific innovation brought daily domestic oil output above the 10 million barrel benchmark in November for the first time since 1970, and up to the new monthly record of 10.2 million barrels in January. The new weekly production record of 10.25 million bpd last week further confirms the EIA estimate that US oil output will average 10.6 million bpd in 2018.

It wasn’t that long ago that we were wallowing in an era of energy scarcity, worried about our dependence on foreign oil and constantly hearing dire warnings about “peak oil.” For example, the bottom chart above shows a Google Trends search interest history of the term “peak oil” back to 2004, which peaked back in September 2005 (and again in 2008) but started declining steadily, especially as the shale revolution turbocharged America’s oil production by reaching oil resources that were previously inaccessible with conventional drilling and extraction methods.

The record high oil production this year further solidifies America’s new status as a world energy superpower in a new era of US energy abundance.

The historic and economic significance of the record high oil output goes beyond just reaching a new energy production milestone. While that milestone is certainly important, it also reveals important lessons about American-style capitalism and the American ‘petropreneurs’ who risked their reputations and fortunes, and spent decades trying to “crack the shale code” that finally allowed them to extract oil and natural gas trapped in shale rock miles below the ground when everybody, including the large oil and gas companies, thought that was a crazy and futile exercise.

America’s amazing shale revolution also happened completely independently of any planned government energy policy, and largely without any taxpayer subsidies or government mandates that other more politically-favored energies have received, like solar, wind, and ethanol. 

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2) U.S. Oil Exports Pour Into Markets Worldwide
Reuters, 8 February 2018

NEW YORK/LONDON/SINGAPORE (Reuters) - In the two years since Washington lifted a 40-year ban on oil exports, tankers filled with U.S. crude have landed in more than 30 countries, ranging from massive economies like China and India to tiny Togo.


An oil tanker stands attached to a mooring station near a refinery in Bayonne, New Jersey, U.S., August 24, 2011. REUTERS/Lucas Jackson/File Photo
 
The repeal has unleashed a flood of U.S. shale oil, undercutting global crude prices, eroding the clout of the Organization of Petroleum Exporting Countries (OPEC) and seizing market share from many of its member countries.

In 2005, before the shale revolution, the United States had net imports of 12.5 million barrels per day (bpd) of crude and fuels - compared to just 4 million bpd today.

U.S. producers are making new customers out of some of the world’s biggest oil-importing nations in Asia and Europe, posing a serious competitive threat to the only other countries that produce as much crude: Saudi Arabia and Russia. At home, the export boom has filled pipelines and sparked a surge of investment in new shipping infrastructure on the Gulf Coast.

(For an interactive graphic detailing the global impacts of the U.S. shale revolution, see: tmsnrt.rs/2EtJgen)

U.S. producers now export between 1.5 million and 2 million barrels of crude a day, which could rise to about 4 million by 2022. The nation’s output is expected to account for more than 80 percent of global supply growth in the next decade, according to Paris-based International Energy Agency.

Much of the increased flow will go to China, the world’s top importer and, since November, the largest buyer of U.S. crude other than Canada.

Chen Bo, president of Unipec - China’s largest buyer of U.S. crude - told Reuters that the firm expects to double U.S. imports this year to 300,000 bpd as it seeks to expand sales in Asia and find new customers for U.S. exports in other regions, including Europe…

Most forecasts show U.S. crude output growing about 500,000 to 600,000 barrels per day through the end of 2018, said David Fyfe, chief economist at global commodity trading firm Gunvor Group in Geneva, Switzerland. The U.S. Energy Department is even more optimistic, now expecting growth to rise by 1.2 million bpd - hitting 11 million bpd by year-end.

“The bulk of that growth will likely be exported,” Fyfe said.

U.S. producers are also displacing foreign oil at home.
Total U.S. crude imports have dropped to 7.6 million barrels a day from a peak of 10.6 million bpd in 2006. OPEC’s share has declined from more than half of U.S. imports to about 37 percent as the United States relies more on domestic production and neighboring Canada.

OPEC members Saudi Arabia, Nigeria and Angola have been among the hardest hit. In the second half of 2017, U.S. imports from Saudi Arabia averaged 709,000 bpd, lowest since 1987 and down from a peak of 1.73 million bpd in 2003.

U.S. producers have also broken into the market in India - the world’s third-largest oil importer and home to the world’s largest refining complex, operated by Reliance Industries.

Seeking to diversify its foreign supplies, India first imported U.S. crude in October and bought a total of 8 million barrels of U.S. oil last year, according to Thomson Reuters ship-tracking data and shipping data provided by sources.

In Europe, as of November, the United States had become the fifth-largest oil supplier to France, according to customs data, exceeding Nigeria, Libya, Iran or the North Sea. In November 2016, the U.S. didn’t even make the top ten.

China stopped importing Nigerian crude in the fourth quarter, according to Chinese customs figures, and while China’s overall imports rose by 12 percent in 2017, imports from Saudi Arabia rose just 2.3 percent.

”They’re taking market share really from OPEC nations,” said Olivier Jakob, managing director of PetroMatrix.

Full story

3) Permian Shale Basin: The New Saudi Arabia
Wael Mahdi, Bloomberg, 5 February 2018

The U.S.'s Permian Basin is looking like Saudi Arabia, with as much as 1 million barrels of spare oil capacity ready to go into production, according to Nansen Saleri, former head of reservoir management at Saudi Aramco, the world's largest crude exporter.



Oil producers in the Permian Basin have at least a combined 500,000 barrels a day of idle oil production capacity, according to Saleri, who is now chief executive officer of Houston-based consultant Quantum Reservoir Impact. Saudi Arabia's spare capacity is about 1.5 million barrels a day, according to data compiled by Bloomberg.

The Permian Basin of Texas and New Mexico is the engine for U.S. shale production and acquisitions, helping to increase U.S. output to more than 10 million barrels a day in November for the first time in more than four decades.

Exxon Mobil Corp. is spending billions to triple output by 2025 from the Permian, where its costs are as low as $15 a barrel.

"For decades there was one country and one company that had spare capacity and that country was Saudi Arabia and that company was Saudi Aramco," Saleri said. "Now we are seeing an analog to that in the Permian."

Full story

4) Russia And Saudi Arabia Forge Energy Pact To Counter U.S. Shale Boom
Financial Times, 8 February 2018 

Moscow and Riyadh in unlikely alliance in face of threat from US shale boom


President Vladimir Putin (second right) and energy minister Alexander Novak (left) tour the $27bn LNG plant in the Russian Arctic © AFP

It was below minus 30C in the Arctic Circle but the delegations from Saudi Arabia and Russia tossed aside their gloves for a friendly handshake, smiling despite the cold under their fur hats and padded jackets.

Khalid al-Falih, Saudi energy minister, had come to the port in Sabetta in Russia’s far north to open a $27bn liquefied natural gas plant, in the company of his counterpart Alexander Novak and President Vladimir Putin.

“Buy our gas and you’ll save oil,” the Russian leader tells Mr Falih. “That’s why I‘m here,” Mr Falih replied, patting Mr Putin on the shoulder. “I have a great relationship with Alexander, we’ve become partners,” the Saudi minister adds.

The exchange in December highlights how Russia and Saudi Arabia have over the past 18 months forged an unlikely alliance in energy, despite being on opposing sides on other issues such as the Syrian conflict.

The traditional rivals, which combined produce a fifth of the world’s crude, now speak with a united voice on energy-related matters and frame their relationship in strategic terms.

The trigger for a rapprochement that seemed unthinkable a few years ago was a common enemy: US shale oil. The collapse in oil prices from 2014, as hydraulic fracturing unlocked a flood of US crude that caught other producers off guard, set their collaboration in motion.

The partnership is propelled by Mr Putin and Mohammed bin Salman, Saudi Arabia’s powerful crown prince. But it is up to Mr Falih and Mr Novak to execute the strategy and convince the world of its strength.

Speaking to the Financial Times, Mr Falih says the alliance “has the potential to become one of our strongest energy partnerships around the world”.

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5) EU Commission Approves State Air For Coal and Gas Power Plants
EurActive, 7 February

A European Commission decision on Wednesday (7 February) to approve state aid for emergency power plants – often gas or coal-fired – has been accused of complicating ongoing negotiations in the European Parliament.



Emergency power schemes in six member states are now eligible for public money, according to an announcement by the Commission’s powerful competition directorate.

In Belgium and Germany, the Commission has authorised temporary strategic reserves, mainly related to the ageing nuclear fleet and phase out from atomic power.

In the cases of Italy and Poland, the Commission has authorised market-wide capacity mechanisms, which are more controversial because they open the door to subsidies for gas or coal-fired power plants, which are used as back up for renewables.

“Capacity mechanisms can help to safeguard security of electricity supply, but they must be designed so as to avoid distortions of competition in energy markets,” said Margrethe Vestager, the Danish Commissioner in charge of competition policy.

In a statement, she described the approved capacity mechanisms as “well-designed”, saying they “will foster competition among all potential capacity providers to the benefit of consumers and our European energy market.”

Full story

6) The UK’s Costly Electricity Could Prevent Further Emissions Reductions
GWPF Energy, 7 February 2018
Dr John Constable: GWPF Energy Editor

The UK government’s latest release of production emissions data shows that cuts in all sectors other than power generation have stagnated. However, the cost of further reductions in electricity generation emissions will inhibit the electrification needed to galvanize emissions reduction trends in those sectors, in transport for example, which is now the single largest source of greenhouse gas emissions in the UK. 

Data relating to the release of UK emissions of greenhouse gases in 2016 has been added to the historical series by the Department of Business Energy and Industrial Strategy (BEIS). The following chart, drawn from the new BEIS data, records production emissions of greenhouse gases by source category between 1990 and 2016, omitting the negative emissions (i.e. carbon dioxide absorption) created by Land Use Land Use Change and Forestry (LULUCF):


Figure 1 Estimated emissions (Million tonnes carbon dioxide equivalent (MtCO2e)) of Greenhouse Gases by source category, UK 1990-2016. Source: Chart by the author from BEIS data.

The long term trend towards falling emissions continues, with slightly under half (158 MtCO2e or 48%) of the difference between annual emissions in 1990 and in 2016 coming from the energy supply sector, in other words from power stations, refineries, coal mining and handling, offshore oil and gas, and solid fuel manufacture. Within the energy supply sector, the bulk of the reduction since 1990 is accounted for by power stations, the emissions of which have fallen from 280 MtCO2e to 120.1 MtCO2e per year; and mining, which has fallen from 22 MtCO2e to 0.5 MtCO2e.

This tendency for the energy supply sector to provide the bulk of emissions reductions has strengthened over time, and nearly all (24.2 MtCO2e of  24.5 MtCO2e or 99%) of the reduction in emissions between 2015 and 2016 is accounted for by the energy supply sector, with nearly all of that reduction (22.3 MtCO2e), being accounted for by power stations.

As is clear from the underlying tables, and from the helpful discussion by BEIS itself, the trend in emissions reductions from sectors other than power generation, never strong, has stagnated.

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The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.thegwpf.com.