Today’s Blog – Thursday 4th August

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Editorial

The Donald’s proposed Energy Secretary, Bakken billionaire Harold Hamm, has recently stated that he will double US oil production under his watch.  As a thought experiment, we consider below the issues involved in such an ambitious target:

  • Current US production is roughly 8 mmbopd – down 1 mmbopd from its recent peak.  Around 5 mm of that is from conventional sources with tight oil making up the balance.
  • Conventional sources have been declining in the Lower 48 on a pretty much un-arrested basis since ~1971.  How could this tide be meaningfully turned?  Reducing Federal green and red tape would certainly help – but likely only to the extent of a few hundred thousand barrels per day.
  • Offshore exploration could be opened up across the Pacific and Atlantic sea-boards.  That would be politically very difficult notwithstanding who was in the White House.  But even assuming it could be done – it would seem unlikely that anything more than 1-2 mmbopd (in a success case) – i.e. a high quality offshore oil province like the North Sea – could be added – over a 10-20 year time horizon.
  • What about more tight oil?  Again a loosening of Federal regulations might help a bit – but would not grant access to millions of barrels per day in any conceivable case.  The best tight oil fields are already in production with only marginal Federal land adds being feasible.
  • As we have noted recently, the opening up of restricted nature reserve lands (ANWR) in Alaska could deliver conventional reservoirs with massive potential – but the best case would be 0.5 – 1.0 mmbopd in our rough guess.
  • So adding all of these up – even with no political opposition and in geological success cases, we do not get anywhere near an additional 8 mmbopd.
  • Over-arching all this speculation is that in the current oil market, finance would not be available to explore in many of these potential areas, even if the regulatory environment was greatly improved.  Even if the money was there – success would likely drive the oil price downwards again – that is, a price ceiling effect probably damps the efforts of any major oil producing country to “double” production.

Commodity prices

Crude markets strongly rebounded over-night, with both Brent and WTI up ~3% to close at US$43.10 and $40.83 respectively.

Yesterday’s blog made a basic school-boy error – we got our weekly EIA report news out a day early and reported last week’s numbers.  Doh!

The actual weekly EIA report released overnight noted that crude stocks increased by 1.4 mmbbls.  However, what the bulls really liked was a decent drop of 3.3 mmbbls in gasoline stocks – these are getting at least as much attention as crude numbers at present.  Distillate was up by 1.2 mmbbls.

Henry Hub also had a strong day – up ~4% to US$2.84.

LNG and international gas

An interesting LNG news story from China – the first LNG train (of the locomotive not liquefaction variety) has just crossed the Kazakh/China border.  This is the start of regular LNG supplies from Kazakhstan to the PRC – initially for 300,000 tonnes p.a. – potentially ramping up to 800,000 tpa.  The economics of such a venture would not appear promising – but presumably geo-political issues have assisted.

Also in China, Sinopec has announced the sale of a 50% interest in its Sichuan to East Coast pipeline – aiming to raise US$6B.  In Australia’s current process of selling infrastructure assets, often the highest paying buyer is a Chinese SOE.  Who is your target buyer when you are a Chinese SOE selling an infrastructure asset?

Company news – Beach Energy (BPT)

BPT’s strategic shareholder, Seven Group, recently publicly stated its desire to use its 23% investee company as a vehicle to acquire East Coast Australian gas assets.  The 77% other BPT shareholders will no doubt be hoping one of the target assets is not Seven’s poorly performing Longtom gas field.

BPT’s CEO has confirmed our speculation yesterday that the “confidential” price it had received for the sale of late life Cooper Basin oil assets was code for “low” – his word was “modest”.

Quote of the day

From an anonymous Australian oil industry executive:

“Our exploration strategy used to be NFE – Near Field Exploration.  It is still NFE, but now it means No Fu**ing Exploration!”

He is no orphan there in Australia or around the world.

 

 

 

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