Sunday, December 25, 2016

Merry Christmas & a few crude notes!

Yes! Its that time of the year to wish you the dear readers of this blog the joys of the season and a very Merry Christmas, as another eventful year comes to a close. The Oilholic has been busy these past few weeks scribbling one's crude notes on oil market affairs for the International Business Times UK and Forbes

For starters, here is this blogger's take on US President-elect Donald Trump's nomination of ExxonMobil CEO Rex Tillerson as his Secretary of State

When the news emerged, as usual there were oversimplifications in the media, saying the nomination had much to do with Tillerson being close to Russian President Vladimir Putin. However, the Oilholic believes there's much more to the appointment; Tillerson for intents and purposes would be a formidable top US diplomat, not just Putin's mate. 

Additionally, here is one's commodities market year-ender, and some predictions on gold, silver and of course crude oil for 2017. Finally, here are some reasons - as outlined on Forbes - for why methinks the oil price might not rise further beyond $60 per barrel in 2017, as there is limited upside to such an an occurrence over the next 12 months. 

That's all on Christmas day folks! Keep reading, keep it Christmasy and 'crude'!

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© Gaurav Sharma 2016. Photo: Christmas tree at Rotterdam Station, The Netherlands © Gaurav Sharma.

Thursday, December 01, 2016

The crude question of post-OPEC compliance

The ministers have left town having announced OPEC’s first real-terms headline oil production cut in eight years, sending oil futures rocketing intraday by over 8%. Now that the Oilholic has gathered his thoughts, one feels the significance of such a move cannot be understated, but overstating carries perils too.

Starting with former point first; describing the announced cut of 1.2 million barrels per day to 32.5 million bpd as ‘historic’ is about right. For starters, after many years, OPEC proved that it can get its act together, set aside political differences and come up with a cut. Admittedly, bulk of the production cut would come from Saudi Arabia, which would shoulder 486,000 bpd in cuts. 

However, willingness to participate came from across the OPEC board, with Iran also promising to temper its expectations rather than keep banging on about its stated ambition of hitting a production level of 4 million bpd. Furthermore, Indonesia, a net oil importer, unable to partake in the cut, suspended its membership, although truth be told it was farcical for it to have come back to OPEC last year. 

Additionally, at least on paper, OPEC has managed to extract concessions from non-OPEC producers as well, chiefly Russia. It seems we will see around 600,000 bpd of non-OPEC cuts, of which Russia would account for 300,000 bpd. The market awaits further details after an imminent meeting between the Russians and OPEC takes place, but it all seems positive for now. 

That said the crude world should temper its expectations. Announcing a production cut is one thing, getting OPEC and non-OPEC participants to carry it out is a different thing altogether. If one or more members fail to comply, the domino effect could be others going down the non-compliance path too. In a first of its kind, OPEC has set up a monitoring committee comprising of Algeria, Kuwait and Venezuela to keep tabs on the situation – and it has its work cut out. 

Of course, OPEC has no way of policing non-OPEC compliance and past experiences of extracting concessions from Russia haven’t really worked. We’ll know soon enough when data aggregators such as S&P Global Platts and Argus report back on cargo loadings in January and February. The events in Vienna will support the price for sure over the medium term – lifting it to the $55-60 range. However, what that does is support the US shale industry too. 

Of course, the projected price uptick is unlikely to drag US production levels to the dizzy heights of 2014, but the market should now brace itself for additional barrels from North American producers. Finally, before one takes your leave, here is some additional analysis in the Oilholic's latest Forbes post. With those crude thoughts, that’s all from Vienna folks. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo: OPEC building exterior, Vienna, Austria © Gaurav Sharma, November 2016.

Wednesday, November 30, 2016

OPEC agrees output cut of 1.2m bpd to 32.5m bpd

OPEC has agreed to cut production by 1.2 million barrels per day (bpd) to 32.5 million bpd at the conclusion of its 171st meeting of ministers. If carried out from January, this would be its first cut in eight years.

The oil futures market, which registered a slump of 4% overnight, rallied in response registering a rise of over 8%. 

However, the crude reality is that much of the above cut - i.e. 486,000 bpd - will come from the Saudis. As the Oilholic's report for IBTimes UK outlines, others will pitch in too. OPEC also said it would be counting on 600,000 bpd of non-OPEC cuts, bulk of which would come from Russia. That's where the real riddle is. What sort of compliance will we see from Russia? 

Furthermore, what about internal compliance within OPEC?  Mohammed Bin Saleh Al Sada, Qatar's Minister of Energy and Opec President, said a ministerial monitoring committee chaired by Kuwait, along with Venezuela and Algeria would be established to monitor the cuts.

Al Sada also described the decision as "historic" adding that: "We have no regrets about not having cut production in the summer of 2014. Opec has reacted to current oil market realities in taking this decision and delivered on what we agreed in September [at the International Energy Forum in Algiers]. 

More from Vienna shortly folks, once yours truly has digested this crude bit of news! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo: Mohammed Bin Saleh Al Sada (left), Qatar's Minister of Energy and Opec President unveils an oil production cut of 1.2m barrels per day at the conclusion of its 171st meeting of ministers' in Vienna, Austria on 30 November, 2016. © Gaurav Sharma, November 30, 2016.

He’s making an inventory, checking it twice...

Full of festive cheer, he’s making a crude inventory, checking it thrice, gonna find out whose Iranian (sorry naughty) and nice – Saudi oil minister is coming to town. Nah, not really! 

For what it’s worth Khalid Al Falih actually turned up pretty late on Tuesday, just on the eve of the 171st OPEC Ministers' meeting. Having initially told a Saudi newspaper, an Opec production cut may not be needed, speaking at a pre-conference media scrum, Al-Falih said a deal could be done and would need wider cooperation within OPEC.

Separately, Suhail Al Mazroui, oil minister of the United Arab Emirates, told yours truly, for an IBTimes UK interview, that the ongoing OPEC meeting was not a make or break scenario for the oil market.

Al Mazroui admitted the last few months had seen “intense” negotiations, but added that: "However, from all signs I have seen, things are positive." 

We shall see. The Oilholic believes a final decision would go right down to the wire, and puts the chance of an agreement only at 50%. Watch this space! More from Vienna shortly folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma, November 2016. Photo: Khalid Al-Falih, Oil Minister of Saudi Arabia, speaks to reporters at the 171st OPEC Ministers' Meeting in Vienna, Austria on 30 November, 2016 © Gaurav Sharma, 2016.

A right royal ‘crude’ scrum

The Oilholic is back at Helferstorferstrasse 17, the OPEC secretariat in Vienna, Austria for its 171st meeting of ministers, and boy did a fair few scribes turn-up for this one. 

In the considered opinion of yours truly, there haven’t been that many analysts and media people registering for the event since US President George W. Bush called on OPEC to cut production when the oil price was lurking around $147 per barrel in 2008 before it slid below $40 per barrel. Thankfully, the inmitable Jason Schenker, President of Presitge Economics was on hnad to provide some delightful company and some market insight.

Testing times always attract more scribes! Though this humble blogger as many of your recollect has almost, always turned up in what is now coming up to 10 years. More from Vienna shortly folks! Keep reading, keep it ‘crude’!

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Saturday, November 12, 2016

Diesel powered XPT from Melbourne to Sydney

Before the Oilholic hit Sydney, there was Melbourne. However, given that flying to Melbourne from London, via Hong Kong had given one a fair collection of air miles, it was time get some rail miles into the mix and travel from the heart of Victoria to the hub of New South Wales with assistance of a diesel-powered Paxman VP185 12-cylinder locomotive.

Flying would have taken one up in the air and down into Sydney in little over an hour, but the train journey took 11.5 hours zipping past mountain sides, streams, woodlands, lush green farming country, industrial heartlands, the odd wallaby, countless sheep and towns not normally on tourists’ itinerary accompanied by
with changeable weather.

Leaving Melbourne’s Southern Cross Station at 8:30am, the 'XPT' or express train headed to Benalla, Wangaratta, Albury, Culcairn, Henty and The Rock stations in that order.

If you know your cricket, next came Wagga Wagga, birthplace of Aussie greats Geoff
Lawson, Michael Slater and Mark Taylor, the first major town you hit when the train crosses into New South Wales.  

Following Wagga Wagga, came Junee and Cootamundra (birthplace of the late cricketing great Sir Donald Bradman), followed by Harden, Yass Junction, Goulburn and Mossvale bringing the suburbs of Sydney in sight some 10 hours later.

Forever etched in one’s memory – that where were you moment when Donald Trump won the US presidency – well the Oilholic was in Campbelltown just prior to hitting Sydney central!

There was no Wi-Fi; but a purser on the train bellowed the results to I must say, a very surprised carriage!

The Oilholic’s assessment – the journey might well have been between Victoria and New South Wales, but in a cool eclectic sort of way, a throwback to 1980s British Rail.
 
Afterall, it was the British Rail intercity service that its Aussie cousin was modelled on back in April 1982, and all those years later it still exudes that rustic charm, which may or may not be to your taste.

In 2016, the XPT yours truly got on at Melbourne saw the Paxman locomotive with four low-pressure turbochargers and two high-pressure turbochargers giving it 1,492 kW / 2,000 horsepower lug six clunky carriages (seven during peak times) between Melbourne and Sydney, with one being a sleeper car for those who can’t handle the arduous journey sitting up. Two trains go in each direction dialy. 


There’s a pantry car too, serving hot meals, cold beer and plenty of sausage rolls. This blogger loved a throwback to the old days. Some, including Aussie mates, say it’s for the train buffs only or a dumb touristy move. 

If that’s the case, the Oilholic is guilty as charged. That’s all from Australia folks as an amazing week comes to a close, New Zealand calling next! 

One leaves you with a view of the Sydney Opera House (Click on all images to enlarge); seeing it means one more item off the bucket list. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2016. Photo 1: XPT Melbourne to Sydney service. Photo 2: XPT Melbourne to Sydney morning service destinations and departure board. Photo 3: Australian countryside. Photo 4: Arriving at Wagga Wagga. Photo 5: Train station in New South Wales. Photo 6: Sheep in Australian countryside. Photo 7: Sydney Opera House  © Gaurav Sharma, 2016, Australia.

Wednesday, November 09, 2016

Sun, Sea and Aussie LNG

The Oilholic finds himself 10,600 miles away from London in Sydney, Australia via stopovers in Singapore and Melbourne, for a much needed vacation in the sun. Away from vacationing, one finds oil and gas analysts here in a dour mood given the state of affairs in the market. 

The crude price continues to tumble, and for the record, few here have faith in OPEC’s ability to change that bar a short-term reprieve of some description in tandem with Russia. However, more of an immediate concern to the Aussies is the incremental volume of US natural gas entering the global supply pool to compete with both its and Qatar’s exports to Asia Pacific. Simply put most expect the global natural gas glut to escalate. Long-term contracts seem to be the order of the day, as the Oilholic noted in his comments via a column for Flame conference blog last month.

While pricing arrangements attract a premium to Henry Hub prices stateside, it is prudent to flag up the sub-$3 Mmbtu prices currently being noted. Sources suggest prices for LNG delivery for Asia from Australia aren’t that far off, but a mere $1.20 above Henry Hub, down almost 40% in year-over-year terms from what the country’s exporters were charging Asian importers in 2015.

Problem for Australia is that project sponsors have pumped as much as AUD$200 billion (US$150 billion) to AUD$ 250 billion, over the last decade, towards LNG projects depending on which local industry gauging parameter one uses as a benchmark. Analysts are more inclined to agree with the upper end of the range.

Many of the project commitments and investments were made during the boom times. Some are hard to retreat from in leaner climes. Australian Petroleum Production & Exploration Association (APPEA) says nearly AUD$80 billion worth of LNG projects – namely Prelude, Wheatstone and Ichthys – are under currently under construction.

When in March just as Chevron’s Gorgon LNG project shipped its first cargo, Woodside Petroleum and its consortium partners Royal Dutch Shell, BP, and PetroChina, cancelled the Browse LNG project, having pumped billions into it. Local opponents and environmentalist cheered the decision. However, what ultimately killed the project was the unworkable economics of it all in the current climate.

The decision also came as no surprise to analysts in Australia. There is a natural gas glut, and with the Qataris, Russians and Americans also vying for contracts in the no-longer so lucrative Asian market, most here expect more pain and fewer monetary gains for LNG proponents.

That’s all from Australia for the moment folks! The Oilholic leaves you with a view of the imposing Loch Ard Gorge, part of Port Campbell National Park, Victoria, Australia; a few hours drive from Melbourne, which one had the pleasure of visiting earlier in the week before leaving for Sydney.

The gorge is named after the ship Loch Ard, which ran aground in the region's perilous waters on 1 June, 1878 approaching the end of a three-month journey from the UK to Melbourne. Only two - Tom Pearce and Eva Carmichael - of the 52 passengers and crew onboard survived, creating a local legend. Courtesy of the global gas glut, the Aussie LNG industry faces similar metaphorical perils. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo 1: Bondi Beach, Sydney, Australia. Photo 2: Lock Ard Gorge, Victoria, Australia © Gaurav Sharma, 2016.

Sunday, October 23, 2016

‘Cash-all-gone’ project and [Too Much] Oil and [Less] Money Conference

After billions of dollars being spent, delays and pipeline leaks, Kazakhstan's offshore Caspian Sea located Kashagan oilfield – often dubbed ‘cash-all-gone’ by the wider energy industry – is back onstream with its first cargo having been dispatched and a gradual uptick in production to 370,000 barrels per day (bpd) expected by the fourth quarter of 2017.

Discovered at the turn of the millennium, the much maligned Kashagan has cost at least $50 billion so far. A report by CNN Money back in 2012 claimed a staggering $116 billion had been spent, something that those involved hotly contest. Deemed the main source of supply for the Kazakhstan-China Oil pipeline, the field also has a $5 billion stake in it owned by China.

While its good news all around, the only issue is that one of the most expensive offshore oil projects in the world is coming onstream at a time when the oil price is lurking around $50 per barrel and the market is wishing there were fewer barrels of the crude stuff rather than more.

With all gathering and processing infrastructure in place for a 2013 start, including 20 pre-drilled production wells, Kashagan could have captured the upside of record high oil prices if had production continued as planned back then, say the good folks at research and consulting outfit GlobalData. However, a pipeline leak scuppered it all back then and triggered another protracted delay.

Anna Belova, GlobalData’s Senior Oil & Gas Analyst, says,"Instead, the project has restarted in today's oversupplied market, and while the oil price has rebounded, the current levels would not justify Kashagan's full cycle capital expenditure (capex), which exceeds $47 billion to date."

One thing is all but guaranteed; more oil barrels are on their way to the global supply pool. Belova adds: "Current processing capacity for Kashagan’s Phase 1 with all three lines online targets 370,000 bpd, potentially increasing to 450,000 bpd but under the 495,000 bpd capacity.

"With a large number of pre-drilled wells and a multi-stage processing build-up, Kashagan is well positioned to reach its targeted capacity for Phase 1 by 2018. This paves the way for negotiations on full-field development that has a potential bring over 1.1 million bpd to global crude markets."

Wonder if someone has sent the projections to Russia and OPEC? For a real-terms cut of say 1.5 million bpd – should there by one from the first quarter of 2017 onward coordinated by Riyadh and Moscow – would be more or less made up by Kashagan alone within 12 months, forget other non-OPEC producers. What's more, much of it would be going straight via pipeline to China, currently the world's largest importer of crude.

As for the oil price, despite net-shorts being at their lowest in weeks, if US Commodity Futures Trading Commission (CFTC) data is anything to go by, we are still stuck pretty much either side of $50 per barrel. Here's the Oilholic’s latest take in a Forbes post.

Meanwhile, a veritable who’s-who of oil and gas industry arrived in London last week for the Oil and Money Conference 2016, an industry jamboree that could well have been renamed – "Too Much Oil and Less Money" Conference for its latest installment. Beyond the soundbites and customary  schmoozing, this year's Petroleum Executive of the Year was Khalid Al-Falih, who has been in his job as Saudi Energy Minister for a really long five months, but the accolade one suspects was for his role as Chairman of Saudi Aramco.

However, the good thing about these annual industry shindigs is that you get to meet old friends, among whom the Oilholic counts Deborah Byers, EY’s Oil & Gas Leader and Managing Partner of its Houston Practice as one.

While EY is not in the business of price forecasting, Byers suggests the industry is adjusting to a new normal in the $40-60 per barrel range, one that would be hard to shake-off over the short-term barring a high magnitude geopolitical event.

“Even if OPEC cuts production in November, I believe market rebalancing in its wake would only last for a little while, with non-OPEC production also benefitting from any decision taken in Vienna.”

The pragmatic EY expert also doesn’t buy the argument made in certain quarters that the US either is or could be a swing producer. "In a classic sense, Saudi Arabia is the only global swing producer – it has significant reserves, the tapping of which it can turn up or down at will. You cannot replicate that scenario in non-OPEC markets, including the US. What the American shale sector can do is put a ceiling on the oil price and keep the market in check."

Away from oil prices, one final snippet before the Oilholic takes your leave; Moody's has upgraded all ratings of the beleaguered Petrobras, including the company's senior unsecured debt and corporate family rating (CFR), to B2 from B3, given "lower liquidity risk and prospects of better operating performance" in the medium term.

In a move following the close of markets on Friday, the ratings agency said that Petrobas' liquidity risk has declined over the last few months on the back of $9.1 billion in asset sales so far in 2016 and around $10 billion in exchanged notes during the third quarter, which extended the company's debt maturity profile

However, Moody’s cautioned that plenty still needs to be resolved. For instance, sidestepping existing financial woes, low oil prices, a class action lawsuit, the US Securities Exchange Commission (SEC)'s civil investigation and the US Department of Justice (DoJ)'s criminal investigation related to bribery and corruption will negatively affect the company's cash position. Afterall, ascertaining the settlement amount remains unclear, and won't be known for some time yet. That’s all for the moment folks! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2016. Photo: Abandoned petrol station in Preston, Connecticut, USA ©
Todd Gipstein/National Geographic.

Sunday, October 16, 2016

OPEC’s cut is not an oil market panacea

Manic few weeks of travel and speaking engagements meant the Oilholic could not pen his thoughts on the Saudi-Russian agreement over the need to lower oil production, and other OPEC shenanigans sooner. 

Plus the last fortnight has given much food for thought news-wise, with the oil price registering a noticeable uptick (see chart left, click to enlarge).

Forget, the world’s two leading producers, it appears all of unruly OPEC is onboard for a production cut too, going by recent soundbites. But is it? Really?

For starters, while the market has been told there is consensus among the cartel's members about the need to cut oil production; details on how OPEC would go about it would only be provided on 30 November, after the conclusion of it’s next ordinary meeting. 

It implies that until December, everyone within OPEC can keep pumping regardless, ahead of its pledge to limit “production to a range of 32.5m to 33m barrels per day (bpd).” Seeing is believing, as the old saying goes.

Secondly, how is OPEC going to enforce the quota? That's something it has been particularly poor at going by recent form. The market has not been given individual members’ quotas since 2008, and OPEC's latest monthly report acknowledges the prospect of rising production from Libya and Nigeria. 

So assuming Libya, Nigeria, Iraq and Iran would not partake in either cutting or freezing production – will it be left to Gulf oil exporters, led by the Saudis, to cut production? The Oilholic finds that very difficult to believe, but stranger things have happened. 

Thirdly, will the latest attempt succeed and are the Russians really in agreement this time around? That is anybody’s guess, but if it fails – OPEC and Russia will have a serious credibility problem for the future, as it would be the third attempt at capping crude production this year alone to falter. 

For all intents and purposes, it appears both OPEC and Russia are aiming for a $60 per barrel oil price. If that is their aspiration, it would suit North American players just fine, whose pain threshold - in the Oilholic's opinion - happens to be around $30 per barrel. 

Anyway you look at it, non-OPEC production will rise. So such short-term overtures, should they materialise, are bound to reap only short-term rewards. That's all for the moment folks! Keep reading, keep it 'crude'!

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Tuesday, September 27, 2016

On the Firth of Forth with an ethane tanker

As a mad month of travelling nears its end, the Oilholic was up earlier today in the small hours of the morning sailing on the Firth of Forth, Scotland, observing Panamax tankers load up Forties crude from the North Sea at the Hound Point Terminal at sunrise (see left). 

If you are lucky enough to catch the morning din with the weather holding up, it is quite a sight. However, the main purpose of being anchored in the middle of the Firth of Forth so early was not to see Panamax tankers fill-up, but rather to take a peek at the Ineos Insight; a ship carrying ethane sourced from the Marcellus shale stateside to British waters. Lo and behold she surfaced soon enough too (see below right).

This first consignment of US shale gas to the UK has given yours truly plenty of talking points for better parts of a fortnight. So here’s a take on its geopolitical significance for IBTimes UK, and a chat with Ineos director Tom Pickering. And well here is a spot report of the day’s event too, bagpipes, boat rides, canapes and all. 

However, if the back story is your thing, here it is as described for Forbes, and a more holistic account on this blog

With plenty of column inches dedicated to the event by yours truly to it, there’s little more to be done other than to pass on the links above to you and enjoy a view of oil and gas industry history in the making. That’s all from Scotland folks! It’s on to Edinburgh and then back to London. Keep reading, keep it crude!


Update 29/10/16: Furthermore, since this historic shale consignment arrived in Scotland, which has a moratorium on shale exploration, here is the Oilholic's IBTimes UK column touching on the hypocrisy of the Scottish Government’s stance on shale.

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© Gaurav Sharma 2016. Photo 1: Sunrise at Hound Point Terminal, Firth of Forth, Scotland, UK. Photo 2: Ineos Insight arrives in British Waters © Gaurav Sharma, September 2016 

Friday, September 23, 2016

Fujairah’s new VLCC jetty, oil benchmarks & more

The Oilholic finds himself roughly 3,500 miles south east of London, in Fujairah, United Arab Emirates, for a speaking engagement at the Gulf Intelligence Energy Markets Forum 2016

However, before proceedings began at the event, the Emirate’s administration took the occasion to launch its first Very Large Crude Carrier (VLCC) jetty, built at a cost of AED 650 million (£137m, $177m), with the construction of a second jetty already underway. In sync with the launch, VLCC Kelly, part of the Abu Dhabi National Oil Company fleet, moored at the jetty (see above left).

The move, a part of Fujairah’s drive to catch-up with Singapore as a major oil storage hub on the so-called South-South energy shipping corridor, was accompanied by global price aggregator Platts announcing it would publish independent, outright price assessments for a range of oil products for the Middle East market on a FOB [Free-On-Board] Fujairah basis starting on 3 October, 2016.

The Port, for its part, will also publish weekly inventory data to improve transparency. With the likes of Vitol and Gulf Petrochem bolstering their presence in Fujairah, private tank storage capacity is tipped to exceed 14 million cubic metres by 2020, from an expected 9 million cubic metres by the end of 2016. That’s definitely something to mull over in terms of the global oil storage stakes, considering the fact that less than two decades ago all people saw when it came to Fujairah was a bunkering hub.

The events preceding provided the perfect setting and plenty of talking points for the EMF itself, which is growing bigger with each passing year; a testament to the Gulf Intelligence team. Yours truly, moderated two panels on key subjects – including the crucial need for Middle Eastern benchmarks and strategies for securing oil and gas sector finance amid oversupply.

Of course in the current climate, market discourse would not be complete without touching on the direction of the oil price. Readers of this blog are familiar with the Oilholic’s belief that the oil price is likely to be stuck in the $40-50 per barrel range, and would be no higher than that come the end of the year.

Given the current set of circumstances, we could in fact be stuck either side of $50 for much of 2017; a point one made forcefully at a lively EMF debate. 

Constantly lurking in background is possible cooperation between OPEC and Russia over the issue of freezing and/or cutting oil production. According to Iraq's governor to OPEC Falah Alamri, a featured speaker at the EMF, circumstances were right for oil producers to seal an output freeze deal.

"There was no deal in earlier attempts [in February and April in Doha] because the circumstances weren't right for producers to strike a deal. This time things are different because circumstances are little bit better and would help in reaching a deal," he told the audience. 

However, it’s not reaching a deal that would be the problem. The real problem will arise when the powers that be sit down and try to work out how to implement the deal! Overall, some lively conversations were held about the market direction with a broad spectrum of views. It was great being back here, but that’s all from the UAE folks! Keep reading, keep it crude! 

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© Gaurav Sharma 2016. Photo 1: VLCC Kelly moored at the Port of Fujairah, UAE. © Gaurav Sharma, September 2016. Photo 2: Gaurav Sharma (left) with Matt Stanley, Fuel Oil Broker at Freight Investor Services at the Energy Markets Forum 2016 © Gulf Intelligence.

Saturday, September 17, 2016

Shale gale blows from Appalachian fields to Grangemouth refinery

The Oilholic has bid farewell to the Big Apple, and finds himself visiting a shale gas drilling site in Switzerland Township, Eastern Ohio, via Pittsburgh, where there is something rather unique going on from a European perspective. 

It seems Ineos, the very Alpine and European Switzerland-headquartered petrochemicals firm, and Consol Energy (which owns several Marcellus hale drilling sites), have come together to dispatch shale gas from the US of A to the old continent.

Given serial British industrialist and founder of Ineos Jim Ratcliffe is involved in the enterprise – there are no half measures.

The company has commissioned eight-dragon class ships, with an investment of $2bn (£1.54bn) towards shipping more than 800,000 tonnes a year of ethane from Pennsylvania to Grangemouth (UK) and Rafnes (Norway). 

Each of the ships is capable of carrying over 27,500 cubic meters of gas sourced from the Marcellus shale. Norway has already received its first consignment with the UK tipped to receive its first one on September 27th. 

Ratcliffe’s petrochemicals business needs steady, reliable feedstock and exporters such as Consol, need buyers offering better proceeds than currently on offer stateside. So natural gas from Ohio and Pennsylvania is finding its way via a physical pipeline to Marcus Hook Terminal in Philadelphia, from where it gets dispatched via a virtual pipeline of these eight ships constantly moving the gas to Europe, providing Ineos with gas for the foreseeable future.

While implications for Europe are huge, what it means for US exporters is no less significant. Take Consol itself, a company moving away from its coal mining heritage dating back over 150 years, to natural gas exploration and production. 

It has one of the largest acreage in the Appalachian, and is slowly divesting coal assets, delving deeper into gas exploration. In more ways than one, Pennsylvania itself appears to be going through an economic renaissance along with much of the Rustbelt courtesy of shale gas exploration. 

Moving on from Eastern Ohio, and before hopping on the flight back home, the good folks at Consol took also yours truly to an onstream shale gas extraction facility actually on Pittsburgh airport land (see above right). Process refinements, extraction techniques and automation needed to drill such wells is also moving up in leaps and bounds. Compared to the Oilholic’s last visit to a shale gas extraction facility in 2013, drilling times have halved.

Automation also enables drilling to continue 24 hours a day, seven days a week with fewer personnel. Of course, the basics remain the same – i.e. drillers often drill vertically down 8,000 to 10,000 feet before horizontal drilling commences, followed by fracking.

As for the controversy that almost inevitably accompanies fracking, Tim Dugan, chief operating officer of Consol, says a well planned and thought out fracking process “does not cause earthquakes” with bulk of what's in the fracking fluid being water and rest of the materials fully revealed.

Dugan also says seismic studies have improved in step with the shale gas industry, helping drillers avoid faultlines that could potentially cause tremors.

Ineos is hoping to relay Dugan’s message, and the economic transformation shale has brought to the rustbelt, back to the UK.

Not only is Ineos instrumental in exporting US shale gas, it also holds 30 shale exploration licences in UK that it hopes will one day revive the British oil and gas industry. There's much promise, but its early days yet. That’s all from the USA for the moment folks, its been a memorable visit to another shale extraction site; one's first outside of Texas.

However, just before one takes your leave, a special shout out to Mike Fritz of Consol Energy, who accompanied this blogger over two days with various stopovers from Eastern Ohio to Pennsylvania, enduring traffic jams, pesky questions, site visits and information requests – all of which were met with a friendly smile. Keep reading, keep it crude! Next stop London Heathrow.

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© Gaurav Sharma 2016. Photo 1: Consol Energy's shale gas drilling site in Switzerland Township, Ohio, USA. Photo 2: Consol Energy's shale pad on Pittsburgh Airport Land, Pennsylvania. Photo 3: The Oilholic at a Shale drilling site, Ohio, USA © Mark Simpson, September 2016