Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, November 20, 2016

US becomes a natural gas exporter, press finds "largest oil deposit ever", rigs jump, DUCs increase

we’ll start by noting that the US has hit a major natural gas milestone as of this week, as our exports of natural gas have exceeded our imports, making us a net exporter of natural gas for the first time in our history....this came about as our ongoing imports from Canada were reduced because the discount for Canadian gas compared to US prices had fallen to 36 cents per mmBTU from a prior average of 60-cents per mmBTU, and because the sole operating natural gas liquefaction facility at Sabine Pass Louisiana began to run a third "train" to liquefy gas for export...not many knew that up until this week, we've continued to import copious amount of Canadian gas despite our own overproduction, because it could be had for even lower prices than our own record lows, even as we exported smaller amounts of gas to Mexico...this switch to being an exporter is just the beginning... recall that 5 weeks ago we published a list of 19 LNG export projects that were at various stages along the regulatory process, and that we noted that should they all be completed, they would require more than 30 billion cubic feet of gas per day to meet their combined capacities...since our current natural gas production has been running at around 72 billion cubic feet of gas per day, production of gas from newly fracked US wells would have to increase by more than 40% from current levels if all those projects would be completed...since more than half of the new natural gas production over the past 4 years has come from the Marcellus and the Utica, that suggests that it would be new wells in our region that would be supplying this export demand...in the Utica, that new gas supply would generally have to come from the counties east and south of Geauga because, as we showed 6 months ago, the hydrocarbons in the Utica underlying most of our county and points west exist as oil..

that news on our gas exports notwithstanding, the fracking patch story that by far received the most mainstream media coverage this week was that "The largest oil deposit ever found in America was just discovered in Texas"...now, of course, the way that headline and many other headlines put it is just plain nonsense; there was no massive oil deposit in west Texas that had gone undiscovered until this week...what prompted the headline was the first assessment of the Wolfcamp shale in the Midland Basin portion of Texas' Permian Basin by the U.S. Geological Survey, which found that the Wolfcamp "contains an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas, and 1.6 billion barrels of natural gas liquids" of technically recoverable resources...the Wolfcamp shale is just one of many shale deposits in the Permian basin; others that you might find familiar include the Delaware, the Spraberry, Bone Springs, and the Wolfberry...and the existence of copious oil reserves in this basin isn't new or "just discovered"; drilling in the Wolfcamp has been part of the rig count increase in the Permian basin that we've been seeing since May, which as we've pointed out, has accounted for more than half of the rigs added nationally over the past 5 months...in fact, the USGS itself notes that their assessment came by way of the over 3000 horizontal wells that had already been drilled and completed in the Wolfcamp, and as a result of those wells they found from that that the reserves in Wolfcamp alone were nearly three times larger than the reserves shown to be contained in the Bakken shale, which the USGS last assessed in 2013....what i found most notable in the description of this shale basin was that it's as much as a mile thick in some places, which is more than 10 times the thickness of the Eagle Ford or the Bakken...compare that to the thickness of the combined Utica-Point Pleasant formation that underlies Ohio, which is only 225 to 245 feet thick where it's now being worked, and which maxes out at 395 feet thick in the far northeastern corner of the state..

so just how much oil is 20 billion barrels?  matched up against the current US oil production of around 8.7 million barrels per day, 20 billion barrels could replace our current production for 2,325 days, or somewhat less than 6 and a half years...but when considering the US, we have to note that our oil consumption is far in excess of our oil production...so, if we take this year's cumulative daily average of our production plus our net imports (i.e., imports minus exports) from line 1 and line 4 of the weekly U.S. Petroleum Balance Sheet, we find that we've been using about 16.2 million barrels of oil per day throughout 2016... thus, at that rate, the 20 billion barrels of oil in the Wolfcamp would last us 1,234 days, or less than three and a half years....but since our oil has just started to flow overseas this year with the lifting of the oil export ban and much more of it may be destined for export once additional facilities to load oil onto ocean going ships are constructed, we have to consider that the oil found in the US has now become part of the global oil supply....in that case, the 20 billion barrels of oil in the Wolfcamp shale is only about 210 days of global oil consumption at current levels, which means that for oil to continue to be a sustainable energy source for entire planet, we'd have to find three world class oil reservoirs the size of the Wolfcamp every two years...

coincidentally, the Drilling Productivity Report for November was released on Monday of this past week, and it showed the first increase in uncompleted wells nationally in the past 7 months, largely as a result of dozens of newly drilled but uncompleted wells (DUCs) in the Permian...you might recall that as of the September Drilling Productivity Report, the EIA began providing a monthly estimate of the number of drilled but uncompleted wells (DUCs) in the 7 regions that the Drilling Productivity Report covers; at that time, they estimated that such wells had decreased by 34 wells during August, indicative of frackers completing more wells than were being drilled... in September, such DUCs were again down by 27 wells, as higher oil prices continued to result in more fracking than drilling...in the current report for October, they showed that completion of wells slowed even as the drilling rig count rose, as the total count of DUCs in the US rose from 5097 in September to 5,155 in October...the Permian basin, which includes the Wolfcamp and several other shale plays in EIA stats, saw its total count of uncompleted wells rise from 1,382 in September to 1,467 in October, in keeping with the increase in drilling that we've seen in that basin...on the other hand, DUCs in the Eagle Ford of south Texas fell by 30, from 1339 in September to 1,309 in October...the Marcellus also saw a decrease in DUCs (which means more wells were being fracked than were being drilled) as the Marcellus DUC count fell from 650 in September to 643 in October...DUCs in other basins were little changed; the Utica showed an increase of one uncompleted well and thus had 115 DUCs in October...for the month, DUCS in the 4 oil basins (ie the Bakken, Niobrara, Permian, and Eagle Ford) increased for the first time in 7 months, as drilling in the Permian picked up, while the DUC count in the natural gas regions (the Marcellus, Utica, and the Haynesville) slipped by 2 wells and has generally declined since December 2013, as new natural gas drilling fell to record low levels and has barely recovered.... 

The Latest Oil Stats from the EIA

this week's release of oil data for the week ending November 11th by the US Energy Information Administration indicated the second consecutive big increase in our oil refining since the fall slowdown began, accompanied by a large jump in our imports of oil, which thus resulted in increases in our supplies of both oil and most of the products made from it...in the same report, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance fell to +256,000 barrels per day, from last week's +450,000 barrels per day, which means that 256,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning that one or several of this week's metrics were off by that amount...that's now the 4th large positive adjustment in a row, and as a result the cumulative daily average of that adjustment has risen to 109,000 barrels per day, meaning the EIA's figures remain out of balance for the whole year, and should by rights be taken with a large grain of salt, if not completely ignored...but these figures still continue to drive oil prices and hence oil field activity, so we'll just continue to track them as long as the market participants continue to believe them...

so, for the week ending November 11th, the EIA reported that our imports of crude oil rose by an average of 981,000 barrels per day to an average of 8,423,000 barrels per day, as our imports still remain inexplicably more volatile than usual after the hurricane induced disruption of 5 weeks ago...those imports were 20.9% more oil than the 6,968,000 barrels per day we imported during the week ending November 13th last year and as a result, the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) bounced back up to an average of 8.0 million barrels per day, 12.6% higher than the same four-week period last year...meanwhile, our exports of crude oil rose by an average of 71,000 barrels  per day to an average of 481,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 504,000 barrels per day during the equivalent week

at the same time, the EIA reported that production of crude oil from US wells slipped by 11,000 barrels per day to an average of 8,681,000 barrels per day during the week ending November 11th, the first decrease in 6 weeks, coming after US production had increased by 170,000 barrels per day last week... that happened as output from Alaskan fields fell by 3,000 barrels per day, and production from the lower 48 states was 8,000 barrels per day lower....that left the week's domestic oil production 5.4% lower than the 9,182,000 barrels we produced during the week ending November 13th of last year, and 9.7% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th 2015...our oil production for the week ending November 11th was also 538,000 barrels per day, or 5.8% lower, than what we were producing at the beginning of this year, which we're citing as an interim benchmark, since our otherwise declining production had also been rising in the last few months of 2015...

meanwhile, the also reported that the amount of crude oil used by US refineries rose by an average of 309,000 barrels per day to an average of 16,126,000 barrels of crude per day during the week ending November 11th, as our refinery utilization rate rose to 89.2% during the week from last week's 87.1%, but it was still lower than the refinery utilization rate of 90.3% logged during the week ending November 13th last year...US oil refining is still down by 804,000 barrels per day, or by 4.7%, in the 10 weeks since Labor Day, as the refinery utilization rate had fallen from 93.7% from then to 85.2% by the end of October .. the quantity of crude oil refined this week nationally is now up slightly from the 16,076,000 barrels of crude per day US refineries used during the week ending November 13th last year, and up 1.3% from the 15,913,000 barrels per day that were being refined during the equivalent week in 2014... 

however, even with the jump in the amount of crude oil being used by refineries, the EIA reported that refineries’ production of gasoline fell by 302,000 barrels per day to 10,456,000 barrels per day during the week ending November 11th, after it had risen by 632,000 barrels per day to an apparent record high prior week, a record which was facilitated by the change in the fudge factor to correct for the imbalance created by the blending of ethanol with gasoline...thus this week's 'drop' in gasoline production reflects the absence of the big change in that fudge factor, rather than a real decrease...hence, our gasoline output for the week was still 6.2% higher than the gasoline output of 9,558,000 barrels per day during the week ending November 13th last year, and 5.4% higher than the gasoline production during the same week of 2014....at the same time, the EIA reported that refinery output of distillate fuels (diesel fuel and heat oil) rose by 200,000 barrels per day to 4,984,000 barrels per day during the week ending November 11th....however, that increase still the week's distillates output 1.0% lower than the 5,032,000 barrels per day that was being produced during the same week last year, while it was 4.0% higher than the 4,793,000 barrels per day of distillates we produced during the equivalent week of 2014...     

absent the big swing in the gasoline fudge factor, the EIA reported that our gasoline supplies rose by 746,000 barrels to 221,709,000 barrels as of November 11th, even as our domestic consumption of gasoline rose by 146,000 barrels per day to 9,359,000 barrels per day, largely because our gasoline imports rose by 321,000 barrels per day to 821,000 barrels per day, which looks to be the largest increase in gasoline imports since July 26th 2013...as a result, November 11th's gasoline inventories were 3.5% higher than the 214,254,000 barrels of gasoline that we had stored on November 13th of last year, and 8.4% higher than the 204,599,000 barrels of gasoline we had stored on November 14th of 2014....at the same time, our distillate fuel inventories rose by 310,000 barrels to 148,912,000 barrels by November 11th, the first increase in our distillate supplies in 8 weeks....however, even after the withdrawal of 16.1 million barrels of distillates from storage over the past 8 weeks, our distillate inventories were still 6.1% higher than the distillate inventories of 140,318,000 barrels of November 13th last year, and 29.7% above the distillate inventories of 114,794,000 barrels of November 14th, 2014…

finally, with that big jump in our oil imports, our inventories of crude oil rose by 5,274,000 barrels to 490,284,000 barrels by November 11th, the third increase in a row, over which time our supplies of crude oil have increased by 22,126,000 barrels....however, with 2 hurricanes interfering with oil imports in the 8 prior weeks, our oil stockpiles are still nearly 5 million barrels below the 495,238,000 barrels we had stored at the end of August, thus slipping at a time of year when oil supplies are usually rising, and remain 4.3% below their April 29th peak of 512,095,000 barrels...however, we still ended the week with 7.7% more crude oil in storage than the 455,074,000 barrels we had stored as of the same weekend a year earlier, and 40.6% more crude oil than the 348,758,000 barrels we had stored on November 14th of 2014...   

This Week's Rig Count

US drilling activity rose for the 8th time in 9 weeks during the week ending November 18th, bouncing back from last week's one rig decrease to post the largest increase in 31 months....Baker Hughes reported that the total count of active rotary rigs running in the US rose by 20 rigs to 588 rigs by this Friday, which was still down from the 767 rigs that were deployed as of the November 20th report last year, and down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014...

rigs deployed drilling for oil rose by 19 rigs to 471 rigs for the week, the most oil rigs we've had working since January 29th, as oil drilling activity has only been down once in the past 21 weeks...oil drilling work is still down from the 564 oil directed rigs that were working on November 20th a year ago, however, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 1 rig to 116 rigs, which still left active gas rigs down from the 193 natural gas rigs that were in use a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...another rig that was active was classified as miscellaneous, an increase from a year ago, when no such miscellaneous rigs were active...

offshore drilling activity increased with the activation of two additional drilling platforms in the Gulf of Mexico off the Louisiana coast, where there are now 22 rigs drilling....another driller is working offshore from Texas, so the Gulf of Mexico count is now up to 23, but still down from 30 last year at this time...that's also true of the total US offshore count, because no rigs other than those in the Gulf were active offshore elsewhere this week or during the same week a year ago....in addition, a single rig was set up to drill through an inland lake in southern Louisiana this week, bringing the inland waters rig count back up to two, same as a year ago...

the number of working horizontal drilling rigs increased by 13 rigs to 470 rigs this week, which was still down from the 581 horizontal rigs that were in use on November 20th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, the vertical rig count increased by 7 rigs to 66 rigs this week, which was down from the 107 vertical rigs that were drilling in the US during the same week last year...meanwhile the directional rig count was unchanged at 52 rigs, which was down from the 69 directional rigs that were deployed during the same week last year... 

the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of November 18th, the second column shows the change in the number of working rigs between last week (November 11th) and this week (November 18th), the third column shows last week's November 11th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this case was for November 20th of 2015...   

November 18 2016 rig count summary

once again, we can see that the Permian basin increase was behind the near record increase in drilling this week, as once again the 11 rigs added in Permian accounted for more than half of this week's jump...note that at 229 rigs, drilling in the Permian is now up by 4 rigs from a year ago, and accounts for nearly half of the horizontal rigs working in the entire nation...also notice that there were 3 rigs added in the Utica, all of which were drilling for natural gas, as are all of the 19 rigs that were active here this week; that's only 1 rig shy of the 20 active in the Utica a year ago, meaning the Utica is close to joining the Permian and the Cana Woodford as the plays seeing the largest rebound this summer and fall....note that in addition to the state changes shown in the first table above, Alabama also saw a rig start up this week, their first activity since October 14th...it's also an increase from a year ago, as there was no drilling in Alabama between mid October of 2015 and mid January of this year



Note: there's more here...

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