1.Oil prices remains 33% percent lower than when OPEC revealed its strategy on Nov. 27.
2.U.S. crude production has retreated about 500,000 barrels a day from the three-decade peak reached in June to 9.1 million a day in the week to Oct. 9, according to data from the Energy Information Administration.
3.The losses will accelerate next year with a drop of 390,000 barrels a day in annual average production to 8.86 million barrels a day, according to the EIA. OPEC's fortunes will improve as the U.S. declines, with the IEA predicting demand for the group's crude climbing to 31.1 million barrels a day next year from 29.3 million in 2014
"As more renewables are installed, coal and natural gas plants are used less...[and] the cost of using them to generate electricity goes up. As the cost of coal and gas power rises, more renewables will be installed. "
The virtuous cycle has begun.
This from Bloomberg:
Solar and Wind Just Passed Another Big Turning Point
Wind power is now the cheapest electricity to produce in both Germany and the U.K., even without government subsidies, according to a new analysis by Bloomberg New Energy Finance (BNEF). It's the first time that threshold has been crossed by a G7 economy.
But that's less interesting than what just happened in the U.S.
To appreciate what's going on there, you need to understand the capacity factor. That's the percentage of a power plant's maximum potential that's actually achieved over time.
Consider a solar project. The sun doesn't shine at night and, even during the day, varies in brightness with the weather and the seasons. So a project that can crank out 100 megawatt hours of electricity during the sunniest part of the day might produce just 20 percent of that when averaged out over a year. That gives it a 20 percent capacity factor.
One of the major strengths of fossil fuel power plants is that they can command very high and predictable capacity factors. The average U.S. natural gas plant, for example, might produce about 70 percent of its potential (falling short of 100 percent because of seasonal demand and maintenance). But that's what's changing, and it's a big deal.
For the first time, widespread adoption of renewables is effectively lowering the capacity factor for fossil fuels. That's because once a solar or wind project is built, the marginal cost of the electricity it produces is pretty much zero—free electricity—while coal and gas plants require more fuel for every new watt produced. If you're a power company with a choice, you choose the free stuff every time.
It’s a self-reinforcing cycle. As more renewables are installed, coal and natural gas plants are used less. As coal and gas are used less, the cost of using them to generate electricity goes up. As the cost of coal and gas power rises, more renewables will be installed.
The virtuous cycle has begun.
Source: Bloomberg
Wind and solar have long made up a small fraction of U.S. electricity—about 5 percent in 2014. But production has been rising at an exponential rate, and those two energy sources are now big enough to influence when coal and natural gas plants are kept running, according to BNEF.
There are two reasons this shift in capacity factors is important. First, it's yet another sign of the rising disruptive force of renewable energy in power markets. It's impossible to brush aside renewables in the U.S. in the same way it might have been just a few years ago. "Renewables are really becoming cost-competitive, and they're competing more directly with fossil fuels," said BNEF analyst Luke Mills. "We're seeing the utilization rate of fossil fuels wear away."
Second, the shift illustrates a serious new risk for power companies planning to invest in coal or natural-gas plants. Historically, a high capacity factor has been a fixed input in the cost calculation. But now anyone contemplating a billion-dollar power plant with an anticipated lifespan of decades must consider the possibility that as time goes on, the plant will be used less than when its doors first open.
Capacity Factors Take a Sharp Turn
Source: Bloomberg, Data: BNEF
Most of the decline in capacity factors is due to expensive "base-load plants that are being turned on less because of renewables," according to BNEF analyst Jacqueline Lilinshtein. Plants designed to come online only during the highest demand of the year, known as peaker plants, play a smaller role. In either case, the end result is that coal-fired and gas-fired electricity is becoming more expensive and the profits less predictable.
The opposite is true of wind and solar, as well as new battery systems that can be paired with renewables to replace some peaker plants. Wind power, including U.S. subsidies, became the cheapest electricity in the U.S. for the first time last year, according to BNEF. Solar power is a bit further behind, but the costs are dropping rapidly, especially those associated with financing a new project.
Latest Solar Costs by State
Source: BNEF, Annotated by Bloomberg
The economic advantages of wind and solar over fossil fuels go beyond price. Still, it's remarkable that in every major region of the world, the lifetime cost of new coal and gas projects are rising considerably in the second half of 2015, according to BNEF. And in every major region the cost of renewables continues to fall.
Iran is preparing to formally open up its economy to Western investment, a prospect that has drawn the attention of the world's biggest oil companies. But Tehran may have more difficulty reviving its oil and natural gas sector than it hopes. On Sept. 24, the organizers of the Iran Oil and Gas Summit announced that the event would be delayed until February 2016. Originally set for Dec. 14-16, the London conference is important because it will officially mark the start of Iran's economic reintegration with the rest of the international community. At the summit, Iran plans to unveil the final draft of its new petroleum contract, which is expected to lay out significantly more attractive investment terms for international oil companies than seen in previous models.
The conference, delayed for the fourth time, will now align more closely with the expected timetable for the easing of sanctions outlined in the Iranian nuclear deal, known formally as the Joint Comprehensive Plan of Action, released in July. According to that schedule, sanctions will probably be lifted sometime during the first quarter of 2016. Because the sanctions have prohibited Western companies from participating in Iran's oil and natural gas sector for several years, their removal is key to Iran's goal of bringing its production and exports back online. But even if the West eases sanctions and Iran successfully attracts the interest of major international energy companies, as will likely happen, Tehran will struggle to meet its long-term goal of producing 6 million barrels of oil per day.
#Opec/ #SaudiArabia has so far won in maintaining market share as U.S. Tight oil production declines, and "with #Iran poised in early 2016 to add almost as much oil as the amount of the U.S. production decline to date, the outlook for tight oil producers could not be worse."
The shale delusion: Why the party is over for U.S. tight oil
The party is over for tight oil. Despite brash statements by U.S. producers and misleading analysis by Raymond James, low oil prices are killing tight oil companies. Reports this week from IEA and EIA paint a bleak picture for oil prices as the world production surplus continues.
The EIA said that U.S. production will fall by 1 million barrels per day over the next year and that, “expected crude oil production declines from May 2015 through mid-2016 are largely attributable to unattractive economic returns.”
IEA made the point more strongly.
“..the latest price rout could stop US growth in its tracks.”
In other words, outside of the very best areas of the Eagle Ford, Bakken and Permian, the tight oil party is over because companies will lose money at forecasted oil prices for the next year.
Global supply and demand fundamentals continue to worsen IEA data shows that the current second-quarter 2015 production surplus of 2.6 million barrels per day is the greatest since the oil-price collapse began in 2014 (Figure 1).
EIA monthly data for August also indicates a 2.6 million barrel per day production surplus, an increase of 270,000 barrels per day compared to July (Figure 2).
It further suggests that the August production surplus is because of both a production (supply) increase of 85,000 barrels per day and a consumption (demand) decrease of 182,000 barrels per day compared to July.
The world oil demand growth picture is discouraging despite an increase in U.S. gasoline consumption (Figure 3).
World liquids year-over-year demand growth has fallen by almost half from 2.3 percent in September 2014 to 1.2 percent in August 2015. This is part of overall weak demand in a global economy that has been severely weakened by debt.
The news from both IEA and EIA is, of course, terrible for those hoping for an increase in oil prices.
U.S. production has fallen 510,000 barrels of crude oil per day since April 2015 while OPEC production has increased 1.2 million barrels per day since the beginning of the year (Figure 4). U.S. production increases in the first quarter of 2015 were partly because of an oil-price rally that ended badly this summer, and because of new projects coming on-line in the Gulf of Mexico.
It appears that OPEC is winning the contest with U.S. tight oil producers to see which can continue to over-produce oil at low prices. IEA ended its September Oil Monthly Reportsaying,”On the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, “inefficient” production.”
Nigeria
has plenty of oil and nowhere to put it. The country produces 2m
barrels per day of a lighter, premium crude that refiners around the
world dislike. After a decade of investment in equipment that can handle
lower quality crudes, refiners feel no need to pay up for lighter
grades.
Nigerian crudes commanded an average $2.50 per barrel premium over
the benchmark Brent price between 2010 and 2014. That spread has
collapsed to 50 cents. This is not just Nigeria’s problem. It could
become one for Opec, as well.
Millions of barrels of untapped oil that U.S. shale drillers discovered during the boom years are about to disappear from their inventories.
Six years ago, the industry pushed the Securities and Exchange Commission to make it easier for companies to claim proved reserves for wells that wouldn’t be drilled for years. Some prospects considered sure-things when crude was $95 a barrel are money losers at today’s $60. When crude
crashed in 2008, 44 U.S. companies wiped 630 million barrels from their books.
Now the stakes are higher. Of all the proved reserves of oil and natural gas liquids found by the 44 companies since 2008, more than half -- 5.4 billion barrels out of the 9.7 billion -- is attributed to wells that don’t exist yet, according to data compiled by Bloomberg.
“We’re going to see a lot of proved undeveloped reserves get vaporized,” said Ed Hirs, a managing director at Houston-based Hillhouse Resources LLC, an independent energy company, who also teaches energy economics at the University of Houston. “It could easily be 10 or 20
years before some of these wells get drilled if prices stay at these levels.”
