Friday, January 24th, 2020
Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.
Before diving into this week’s content, we’d like to remind you to join our Energized LinkedIn Group. We will be releasing frequent news and snippets of Energized newsletters through the group. We hope to see you there. Also, if you haven’t already, visit our website to gain access to our free Oil 101 introductory course, our popular series of mobile-ready videos describing “How the industry works.” Ready for more? Check out our in-depth Oil 201 course which covers exploration, drilling, production, well completions, and refining. If your company or group is interested in Oil 101, let’s talk. We license our courses for use as internal training for sales, IT and operations teams. Think you know someone who would enjoy this newsletter? Pass it on! They can subscribe and access our Energized archives here.
Now, onto this week’s issue.
Curated weekly oil and gas newsletter
Oil Prices and Markets
+ Fast Facts – Houston Chronicle “Fuel Fix”
Light, sweet crude (dollars per barrel): $ 58.54
Last Week: $59.04
Natural Gas (dollars per million British thermal units): $2.00
Last Week: $2.20
Rig count (United States): 775
Last Week: 759
+ A visual guide to the Wuhan Coronavirus – CNN Health
Oil prices fell around 12% in roughly two weeks, largely in response to fears over China’s fuel consumption demand. The drop marked the lowest level oil has been in seven weeks. Fear comes as the result of a new coronavirus, which has already killed 17 people. The virus emerged in December in Wuhan, the largest city in central China with a population of around 11 million.
For most, it’s a little more than a cough and a sore throat, but for the young, elderly, or anyone with pre-existing conditions, it can be dangerous.
“The country has adopted prevention and control measures that are typically used for major outbreaks such as plague and cholera. This means health officials will get sweeping powers to lock down affected areas and quarantine patients. Wuhan “temporarily” closed its airport and railway stations on Thursday for departing passengers, and all public transport services are suspended until further notice.”
So how does the virus affect oil prices?
Fuel demand will go down if cities restrict access. Closed airports and railway stations also mean less fuel consumption, especially in Wuhan, which is the center of China’s high-speed rail network. Seeing as the virus has already spread “to all but five of China’s 33 administrative regions this week,” things are getting pretty serious.
The oil industry depends on transportation for demand. More international travel, commerce, and exchange all lead to more oil consumption. As of 2018, in the US, 69% of petrloleum consumption is used for transportation.
Measures to prevent a potential epidemic mean less fuel consumption. China is the second-largest consumer of oil behind the United States, but unlike the United States, China is incredibly energy-dependent.
Aside from China, the virus is estimated to have spread to Thailand, Japan, South Korea, Taiwan, and the United States, mostly through the Wuhan Tianhe International Airport.
Natural Gas Prices
+ Natural gas prices fall below $2 – The Wall Street Journal
“Mild weather and oversupply have pushed the commodity down to levels not seen since April 2016.”
Unless you’re living in the Southern Hemisphere, this headline may seem bizarre. That’s because it is. Natural gas prices tend to rise in the wintertime, but a slew of mild weather and record US gas production in 2019 is sending US natural gas prices tanking.
If you’ve been following along with our 2019 Energy Recap or last week’s January spotlight issue “2020 Oil and Gas Outlook” you’re aware that the US really does have more natural gas than it needs. The country is banking on exporting excess supply to foreign energy-dependent markets. Although capital spending is expected to decline in 2020 when compared to 2019, the associated gas produced from shale wells that have already begun to benefit from pipelines coming online suggests that production will still rise, with a goal of exporting gas in liquid form or through pipelines. The question now becomes how much of a demand for gas really is there and how much of the potential demand for developing countries will be shifting from coal to renewables or expanding from the get-go with renewables instead?
“”Gas prices in the U.S. are below break-even levels,” Chief Executive Jeffrey Miller told analysts and investors. Mr. Miller said that he expects a 10% reduction in spending among the oil-field services company’s customers in North America, with the bulk of those cuts coming in gas-producing regions. Halliburton, which is the top provider of hydraulic fracturing and other services that help producers unearth oil and gas, has been idling equipment to match customers’ reduced needs, he said.”
This article tackles the scenario in which the US-Iran conflict escalates to the point when the Strait of Hormuz would be shut down. It also gives some color on the dynamic between Russian oil and the Middle East, as well as how that relates to the US.
“Though unlikely -given the severity of the consequences—such a move would push international oil markets into considerable turmoil, since approximately 21 percent of globally consumed petroleum passes through the strait.”
The saga continues with big tech entering the oil and gas business. In Energized #39, we discussed Google’s dichotomy of renewable-powered data centers on one hand and AI that is helping the oil industry become more profitable on the other. This time around, the focus in on Microsoft, which announced its goal to “take more carbon out of the environment than it emits by 2030, and move rapidly to mop up the equivalent of every bit of carbon it has put into the atmosphere since its founding in 1975.”
Microsoft also pledged to use 100% renewable electricity by 2025.
The article provides an inside look at the different ways Microsoft is offsetting its carbon footprint.
Energy in Transition
This is a great article for those of you who are curious about energy in transition. The article notes the lack of investment in the renewable space by major integrated oil and gas firms, specifically Exxon. Shell gets a shout out for their efforts. The IEA notes that the transition will be a lot slower without the muscle of big oil. Solar is garnering the most attention of all the renewables, but there is also a lot of opportunity in offshore wind for integrated companies.
The IEA also notes the degenerating public perception towards fossil fuels, noting flaring and methane leaks need to be quelled and that there also should be greater involvement in low-carbon projects.
“”With their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options such as offshore wind, while also enabling some key capital-intensive clean energy technologies — such as carbon capture, utilization and storage and hydrogen — to reach maturity,” said the IEA’s executive director Fatih Birol.”
Have a great weekend!
EKT Interactive Managing Editor