Welcome to this week’s edition of The Buzz, a weekly feature where Kallanish Energy editors select the quartet of stories this past week we feel were the most important – and have the chance to make the biggest impact on the oil and gas — and energy industry as a whole.
US natgas price will plunge to 1970s level: IHS Markit: A continuing natural gas glut will drive the 2020 average price at the Henry Hub down (in real terms) to a level unseen in decades, according to a new report from analytics/information firm IHS Markit.
The oversupply — reinforced by a new surge in associated gas production from the Permian Basin — will push the average price down below $2 per million British thermal units (Mmbtu) for the year, IHS Markit said.
That’s the lowest average price in real terms since the 1970s. In nominal terms, the last time prices fell below $2 was 1995.
Prices are expected to fall despite robust domestic demand — which has increased by 14 billion cubic feet per day (Bcf/d) in annual average demand since 2017 — as well as rising levels of exports. The U.S. is expected to export an additional 3 Bcf/d of liquefied natural gas (LNG) in 2020. It still will not be enough to absorb production that’s grown by more than 14 Bcf/d since January 2018. IHS Markit expects production to average more than 90 Bcf/d in 2019 and 2020.
OSFs should prepare for recession, Rystad warns: The oilfield services (Ofs) sector will shrink in 2020, as oil and gas producers chop spending in response to lower crude prices, ending three years of growth, according to Rystad Energy.
The market will shrink 4%, to $621 billion next year, from $647 billion in 2019, according to the research company.
The outlook is based on a Brent crude oil price of $60 a barrel, close to where it’s currently trading. That’s in “stark contrast” to Rystad’s previous view, which was based on an estimate for crude at roughly $70/Bbl in 2020, with services expanding 2%, said Audun Martinsen, its head of Oilfield Services Research.
Oil prices are down this year amid a persistent supply glut and concerns about global demand. That has put further pressure in particular on U.S. shale producers, many of which are cutting costs. Rystad said the worst of the looming recession in services will be in shale, which is expected to see a 6% decline in spending.
Saudi Arabia remains committed to Opec+ deal: minister: Saudi Arabia’s new energy minister Prince Abdulaziz bin Salman said Monday that Riyadh remains committed to the Opec+ agreement aimed at balancing global oil markets.
Speaking to Saudi-owned Al Arabiya channel, the prince said, “The kingdom is committed to working with other producers inside and outside Opec for the stability and balance of global oil markets.”
The new energy minister was appointed on Sunday after a royal decree dismissed previous minister Khalid Al-Falih, the mastermind behind the Opec and non-Opec producers agreement. (See related story)
The oil industry is watching to see whether Riyadh will stay the course on stabilizing global crude markets, delivering on massive production cuts. A lot of questions remain unanswered.
Big Oil must transition to remain investible: WoodMac: Big Oil must transition into a low carbon economy to remain investible, according to a report published by independent research company Wood Mackenzie.
While the industry argues oil demand is set to rise to 110 million barrels per day (Mmbpd) by 2040, scientists say it will cause a rise in global temperature between 3.6 to 5.5 degrees Celsius without carbon offsetting.
The Paris Agreement of a couple years ago set a limit “well below” 2 degrees Celsius, implying oil demand would sit between 70 Mmbpd and 90 Mmbpd by 2040.
However, companies are focusing on unlocking reserves from existing discoveries rather than focusing on exploration. According to Wood Mackenzie, total recoverable resources could be 2.9 trillion barrels.
