October Industry Affairs

IEA: Oil market’s rebalancing could come faster if OPEC sticks to target

HOUSTON, 10/11/2016

By Oil & Gas Journal Editors

“The waiting game is over,” the International Energy Agency said in the October issue of its Oil Market Report. This is in regard to the fact that the Organization of Petroleum Exporting Countries has effectively abandoned its free-market policy set nearly 2 years ago, setting a new supply target of between 32.5-33 million b/d.

Critical details apart from the target, such as individual country allocations, production baseline, and implementation date, are still to be determined. The price of oil has risen by 15% to more than $53/bbl since the deal, the first to cut supply since 2008.

However, “global oil inventories are far too high—in the view of some producers—and they aren’t being worked off nearly fast enough,” IEA said.

If OPEC sticks to its new target, the oil market’s rebalancing could come faster. Otherwise, even with tentative signs that bulging inventories are starting to decline, the market may remain oversupply through the first half of next year, IEA said.

Demand

According to IEA’s latest forecast, world oil demand will rise 1.2 million b/d this year, with a similar expansion expected in 2017.

The demand data for 2015 has been revised upwards by nearly 200,000 b/d since last month’s report to 95.04 million b/d, due to the latest US 2015 data being above that first reported and, to some extent, upgrades of Asian demand outside the Organization for Economic Cooperation and Development.

The major upward baseline data revisions have curtailed the growth estimate for 2016. Quarter-based global demand growth continues to slow, dropping from a 5-year high of 2.5 million b/d in third-quarter 2015 to a 4-year low of 800,000 b/d in this year’s third quarter due to vanishing OECD growth and a marked deceleration in China. After unusually mild winter weather in much of the northern hemisphere in fourth-quarter 2015, year-on-year growth should rebound somewhat in this year’s fourth quarter.

Much weaker-than-expected US oil demand data for July pulled down the estimate of overall demand for the third quarter and for

the whole of 2016. Growth estimates fell heavily by 415,000 b/d in July year-over-year, as upgrades to the baseline series further reduced year-on-year comparisons.

Chinese oil demand growth has all but vanished in this year’s third quarter compared with a year ago, pulled down by a substantial slowdown in industrial oil usage. “Some of the slowdown may be temporary due to forced factory closures ahead of September’s G20 meeting in Hangzhou, but the heady gains seen as recently as mid-2015 are unlikely to be repeated any time soon,” IEA said in the report.

Indian demand growth returned with a vengeance, averaging 420,000 b/d in August, according to preliminary data. Strong gains in road transport demand and residential LPG use lent support, more than offsetting declines in naphtha and kerosene.

Supply

Global oil supplies rose 600,000 b/d year-over-year in September. Non-OPEC production in September was up nearly 500,000 b/d from August to 56.6 million b/d on higher volumes from Russia and Kazakhstan. Following maintenance in August, Russian crude and condensate production surged 400,000 b/d to a post-Soviet high above 11.1 million b/d. Kazakh output also recovered from a steeper-than-expected cut during maintenance. Overall non-OPEC output in 2016 is forecast to decline 900,000 b/d to 56.6 million b/d, before rising by 400,000 b/d in 2017.

In the US, while output held up better than expected in July—the latest month for which official data are available—crude oil production dropped below 8.7 million b/d, its lowest since May 2014 and more than 700,000 b/d below 2015.

OPEC crude output rose to a record high of 33.64 million b/d, as Iraq pumped at record rates and Libya reopened export terminals. Saudi Arabia, Kuwait, and the UAE held supply at or near historic highs, while Iran sustained pre-sanctions levels of close to 3.7 million b/d. Output from the group’s 14 members stood 900,000 b/d above a year ago.

 

Drones are coming to squeeze more savings from oil patch

Posted by Bloomberg  October 05, 2016

General Electric Co. has a solution for U.S. oil and natural gas explorers struggling to save more money after squeezing drilling costs by more than a third during the past two years.

Raven, a helicopter drone being developed in part by GE at its new $125 million oil and gas technology center in Oklahoma City, is being tested to sniff for methane emissions at well sites. GE proved during a trial run in July that Raven could find gas leaking from a pair of well sites a half mile from each other in the Fayetteville Shale of Arkansas.

Detecting and stopping leaks, a requirement the Environmental Protection Agency enacted earlier this year, is the first of many planned applications for oilfield drones to make workers more productive in an industry that has suffered billions of dollars in spending cuts, hundreds of thousands of layoffs and more than 100 bankruptcies in North America over the past two years. A broader benefit will come from Raven’s custom software, used to plan flight paths and easily interpret the mountains of data it gathers.

“When you think of Project Raven and the usage of new tools and applications, it’s going to be key to take the industry forward,” Lorenzo Simoneli, chief executive officer at GE Oil & Gas, said in an interview Tuesday from his company’s new research center, a day ahead of its grand opening. “There’s a lot that you can do going forward to help drive productivity.”

The world’s largest oilfield contractors are grappling with new ways to set themselves apart with inventions that not only capture massive amounts of data but also make it user-friendly for oil companies. GE’s foray into drones comes at a time when regulators are still mapping out rules for their commercial use.

“The downturn magnified the necessity of maximizing recovery and efficiency, a pursuit which is blurring the lines between technology, industrials, and oilfield service leaders,” James West, an analyst at Evercore-ISI, wrote last month in a note to investors.

As more advanced sensors roll out, the amount of oilfield data grows faster than companies know what to do with it. Key oil and gas decision makers have access to only about 1 percent of the available data, West wrote. The rest is unstructured or unusable.

GE’s oilfield drone project began last year after some of its other industrial divisions explored how they could use unmanned aircraft. Other applications could include inspecting flare stacks at refineries or checking gear for mechanical wear and corrosion, John Westerheide, head of the Raven project, said in an interview.

“Where GE’s taking this from something a guy in a garage can do to what only GE can do, it’s around the way we’re communicating and planning the flights and the way we’re integrating the data,” Westerheide said.

The test in July was done in partnership with Southwestern Energy Co. and Oklahoma State University. The drone technology looked promising enough that Southwestern’s interested in testing the Raven again, said Douglas Jordan, director of the natural gas and oil producer’s corporate environmental program, said. It’s still too early to say what kind of cost savings the drone could produce, he said.

GE is working on having Raven make methane inspections go three times faster, said Ashraf El-Messidi, a research engineer for GE working on the project. Under the current way, a worker must walk around the well with an infrared camera to check for leaks. And even if one is discovered, it works like a smoke detector, giving only a yes or no answer, but not saying how significant the leak might be, he said.

In another month, GE will launch a third test drone, this one a black-and-red model with six sets of helicopter blades, each 21 inches long. Weighing in at less then 20 pounds, the drone can glide through the air at up to 50 miles an hour, powered by six rechargeable batteries. The true value in GE’s modified drone is being able to fly as long as 40 minutes, carrying a laser-based sensor that shoots back live methane data to an iPad-wielding worker on the ground.

Dustin Sharber, a 30-year-old drone hobbyist who’s also a research engineer on the Raven team, said advancement of the flying robots has climbed “leaps and bounds” from the radio-controlled planes of his childhood.

“People hear UAVs and drones and advanced sensors and they get really excited — that’s really flashy,” Westerheide said. “That is legitimately really cool, fun stuff to come to work for everyday.”