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Energy Tidbits

Dan Tsubouchi

Principal, Chief Market Strategist

[email protected]

Aaron Bunting

Principal, COO, CFO

[email protected]

Ryan Dunfield

Principal, CEO [email protected]

Ryan Haughn

Principal, Energy

[email protected]

Does The Unusual Silence Ahead of OPEC+ Mon Meetings Point

To A 0.5 mmb/d Increase for Feb?

Welcome to new Energy Tidbits memo readers. We are continuing to add new readers to our Energy Tidbits

memo, energy blogs and tweets. The focus and concept for the memo was set in 1999 with input from PMs, who

were looking for research (both positive and negative items) that helped them shape their investment thesis to the

energy space, and not just focusing on daily trading. Our priority was and still is to not just report on events, but also

try to interpret and point out implications therefrom. The best example is our review of investor days, conferences and

earnings calls focusing on sector developments that are relevant to the sector and not just a specific company results.

Our target is to write on 48 to 50 weekends per year and to post by noon mountain time on Sunday.

This week’s memo highlights:

1. We wonder if the unusual silence, including from Abdulaziz and Novak, ahead of Monday’s OPEC+ meetings is

pointing to a 0.5 mmb/d increase for Feb. (Click Here)

2. Our 6-pg Dec 29 blog “Russia Says Its a Price Taker at $45 in 2021, May Be the New Strategy Needed For

OPEC+ To Fix Post-Covid Oil Prices For the 2020s”. (Click Here)

3. Libya NOC lowers its 2021 target to 1.2 mmb/d of crude oil, is this a new forecast or just trying to not have

OPEC+ force them to cut back? (Click Here)

4. Good thing US natural gas production is down >6 bcf/d YoY, providing downside support to HH prices. (Click

Here)

5. China’s NDRC warns it’s a tight energy supply this winter and expects to increase thermal coal to help. (Click

Here)

6. Please follow us on Twitter at [LINK] for breaking news that ultimately ends up in the weekly Energy Tidbits memo

that doesn’t get posted until Sunday noon MT.

7. For new readers to our Energy Tidbits and our blogs, you will need to sign up at our blog sign up to receive future

Energy Tidbits memos. The sign up is available at [LINK].

Produced by: Dan Tsubouchi

January 3, 2021

https://twitter.com/Energy_Tidbitshttp://www.safgroup.ca/research/trends-in-the-market/


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Energy Tidbits

Table of Contents Natural Gas – Natural gas draw of 114 bcf, storage now +251 bcf YoY surplus .....................................................5

Figure 1: US Natural Gas Storage ....................................................................................................................5

Natural Gas – NOAA forecasts a very warm Jan .....................................................................................................5

Figure 2: NOAA CPC Weeks 1-4 Surface Temp Anomalies vs Mean for Jan .................................................5

Natural Gas – Jan is normally 23% of winter residential/commercial gas demand..................................................6

Figure 3: HDDs, US Consumption, & Commercial Natural Gas Demand by Month ........................................6

Natural Gas – US Oct gas production down 6.5 bcf/d YoY, 0.60 bcf/d MoM ...........................................................7

Figure 4: US Dry Natural Gas Production ........................................................................................................7

Figure 5: US Dry Natural Gas Production ........................................................................................................7

Natural Gas – US gross withdrawals down 0.165 bcf/d MoM in September ............................................................7

Natural Gas – US October LNG exports +2.2 bcf/d MoM, strength to continue Nov/Dec ........................................8

Figure 6: US LNG Exports (bcf/d) .....................................................................................................................8

Natural Gas – US October LNG exports to Europe down 3.19 bcf/d since February ..............................................8

Figure 7: US LNG Exports by Destination ........................................................................................................9

Natural Gas – US pipeline exports to Mexico stay at record of 6.0 bcf/d in Oct ......................................................9

Figure 8: US Pipeline Gas Exports To Mexico (bcf/d) ......................................................................................9

Natural Gas – Multiple insurgent attacks near Total’s Mozambique LNG ................................................................9

Figure 9: Platts Map of Mozambique LNG Projects ...................................................................................... 10

Natural Gas – China’s NDRC warns of tight energy supply for Jan ...................................................................... 10

Natural Gas – East Asia low temperatures turned lower than normal in mid Dec ................................................ 11

Figure 10: December Temperatures vs Normal For Beijing .......................................................................... 11

Figure 11: December Temperatures vs Normal For Shanghai ..................................................................... 11

Figure 12: December Temperatures vs Normal For Tokyo ........................................................................... 11

Natural Gas – Japan still expects cold January, but not as cold as last week’s forecast ..................................... 12

Figure 13: JMA 30 Day Average Temperature Forecast for Jan 2 – Feb 1 .................................................. 12

Figure 14: Japan Mean Temperature Anomalies Jan 2020 .......................................................................... 12

Natural Gas – Southern Gas Corridor starts natural gas deliveries to Greece/Bulgaria ....................................... 12

Figure 15: Southern Gas Corridor Pipeline starts up .................................................................................... 13

Natural Gas – Reminder why Europe gas storage is the key indicator for LNG markets ..................................... 13

Natural Gas – Europe storage 74.54% full vs 5 year average of 71.58% ............................................................. 14

Figure 16 Europe Gas Storage Utilization ..................................................................................................... 14


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Energy Tidbits

Oil – US oil rigs up 3 to 267 oil rigs ....................................................................................................................... 14

Figure 17: Baker Hughes Total US Oil Rigs .................................................................................................. 15

Oil – Total Cdn rigs down 23 to 59 total rigs and down 30% YoY ......................................................................... 15

Figure 18: Baker Hughes Total Canadian Oil Rigs ....................................................................................... 15

Oil – US weekly oil production flat at 11.0 mmb/d ................................................................................................. 15

Figure 19: EIA’s Estimated Weekly US Oil Production ................................................................................. 16

Figure 20: US Weekly Oil Production ............................................................................................................ 16

Figure 21: YoY Change in US Weekly Oil Production ................................................................................... 16

Oil – EIA Form 914 Oct actuals 81,000 b/d lower than weekly production estimates ........................................... 17

Figure 22: EIA Form 914 US Oil Production .................................................................................................. 17

Figure 23: EIA Form 914 US Oil Production vs Weekly Estimates ............................................................... 17

Oil – Active frac spreads down 3 to 133 as of Dec 30 ........................................................................................... 18

Figure 24: Active Frac Spreads as of Dec 30, 2020 ...................................................................................... 18

Oil – Dallas Fed Energy Survey, first positive for Texas activity index since Q1/19 ............................................. 18

Oil – FT “North Dakota’s shale prospects look bleak after the gold rush” ............................................................. 18

Oil – Cdn crude by rail imports to Gulf Coast down 101,000 b/d YoY in Oct to 72,000 b/d .................................. 19

Figure 25: Canada CBR Exports to US Gulf Coast ....................................................................................... 19

Oil – Oil input into refineries down 2.996 mmb/d YoY to 14.287 mmb/d ............................................................... 19

Figure 26: US Refinery Crude Oil Inputs (thousands b/d) ............................................................................. 20

Figure 27: US Motor Gasoline Supplied (mmb/d) ......................................................................................... 20

Oil – Crack spreads widening but need wider to bring back any substantial capacity .......................................... 20

Figure 28: NYMEX 3-2-1 Crack Spread ........................................................................................................ 21

Oil – US “net” oil imports down 0.764 mmb/d to 1.701 mmb/d.............................................................................. 21

Figure 29: US Weekly Preliminary Oil Imports By Major Countries .............................................................. 21

Oil – China’s supermajor Daqing oilfield still producing 0.60 mmb/d .................................................................... 21

Oil – Not seeing any updates on Exxon force majeure at Nigeria Qua Iboe oil terminal ...................................... 22

Oil – Russia Dec oil production 9.083 mmb/d vs 8.99 mmb/d quota .................................................................... 22

Oil – Russia outlines new price driven strategy for OPEC+ to fix post covid oil prices? ....................................... 22

Oil – Does the unusual silence pre OPEC+ point to a 0.5 mmb/d increase for Feb? ........................................... 24

Oil – Saudi Aramco’s business plan recap to employees ..................................................................................... 24

Oil – Today is the anniversary of Iran’s Qasem Soleimani assassination ............................................................. 25

Oil – Libya NOC lowers his 2021 oil production forecast to 1.2 mmb/d ................................................................ 25

Oil – Floating storage up WoW but still down 111.06 mmb from peak to 100.46 mmb ........................................ 25


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Energy Tidbits

Figure 30: Vortexa Global Floating Storage Level ....................................................................................... 26

Oil – ACC Chemical Activity Barometer increases for eighth consecutive month ................................................. 26

Figure 31: December Chemical Activity Barometer vs Industrial Production ................................................ 27

Oil – No particular oil or energy insights from Xi New Year’s speech ................................................................... 27

Energy Transition – Challenge for EVs in winter climates like Alberta .................................................................. 27

Figure 32: Fuel Economy in Cold Weather by Vehicle Type ......................................................................... 28

Energy Transition – European EV registrations +198% YoY in November .......................................................... 28

Capital Markets – Bloomberg’s updated Billionaires Index ................................................................................... 28

Twitter – Look for our first comments on energy items on Twitter every day ........................................................ 29

LinkedIn – Look for quick energy items from me on LinkedIn ............................................................................... 29

Misc Facts and Figures.......................................................................................................................................... 29

Figure 33: Gilligan’s Island Cast .................................................................................................................... 29


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Energy Tidbits

Natural Gas – Natural gas draw of 114 bcf, storage now +251 bcf YoY surplus

The EIA reported a 114 bcf draw (vs -128 bcf expectations) for the Dec 25 week, which was above 5-yr average draw of 102 bcf and larger than last year’s draw of 58 bcf. The primary reason for decent draws is the significantly lower YoY US natural gas production, along with strong feedgas demand for LNG exports as of late. Storage is 3.460 tcf as of Dec 25, which decreases the YoY surplus to 251 bcf vs 284 bcf last week and storage is now 206 bcf above the 5 yr average. Below is the EIA’s storage table from its Weekly Natural Gas Storage Report. [LINK] Figure 1: US Natural Gas Storage

Source: EIA

Natural Gas – NOAA forecasts a very warm Jan

Winter temperatures are always the biggest wildcard to natural gas prices. Fortunately, this winter, there is the continuing significantly lower YoY US natural gas production providing downside support to HH prices and a buffer against a big collapse in winter gas prices. HH is over $2.50 and no doubt it would be way way lower if not for the big YoY decline in US natural gas production (see below). NOAA’s National Climate Center’s new Jan 1 temp maps show very warm vs normal Jan temperatures. Below are their by week forecasts for Jan. [LINK]

Figure 2: NOAA CPC Weeks 1-4 Surface Temp Anomalies vs Mean for Jan

NOAA expecting warmer than normal Jan

YoY storage at

251 bcf YoY

surplus

http://ir.eia.gov/ngs/ngs.htmlhttps://www.cpc.ncep.noaa.gov/products/people/mchen/CFSv2FCST/weekly/


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Energy Tidbits

Source: NOAA CPC

Natural Gas – Jan is normally 23% of winter residential/commercial gas demand

We have been highlighting that the big advantage for HH gas prices this winter is the downside protection from significantly lower YoY Us natural gas production and significantly higher YoY US LNG exports. Otherwise, if this was a normal year with the warm start to winter and now a warm forecast for Jan, HH prices would likely be well below $2. This is especially so given Jan is the most important month for US residential/commercial natural gas demand with 23% of the normal residential/commercial natural gas demand. Below is our table that shows AGA heating degree days, total US consumption, and EIA residential and commercial gas demand by winter month. It notes the 10 year average for residential and commercial gas demand by month including winter 2019/20. Figure 3: HDDs, US Consumption, & Commercial Natural Gas Demand by Month

Source: AGA, EIA, SAF

Jan normally 23% of winter demand


7

Energy Tidbits

Natural Gas – US Oct gas production down 6.5 bcf/d YoY, 0.60 bcf/d MoM

The major downside support to winter HH gas prices continues to be significantly lower YoY US natural gas production. EIA released its Natural Gas Monthly on Thursday [LINK], which includes its estimates for “actuals” for October gas production. US gas production in Oct was 89.0 bcf/d, down 0.60 bcf/d MoM from September of 90.6 bcf/d. The MoM decrease was not surprising given there were some GoM interruptions in early Oct and late Oct from Hurricane Delta and Zeta. The MoM decrease puts the decline to Oct at -7.5 bcf/d since Nov/19 which is largely driven by a decline in associated natural gas as oil wells were shut in. Below is our running table of US dry natural gas production along with our graph of US dry gas production by year. Our Supplemental Documents package include excerpts from the EIA Natural Gas Monthly. Figure 4: US Dry Natural Gas Production

Source: EIA

Figure 5: US Dry Natural Gas Production

Source: EIA

Natural Gas – US gross withdrawals down 0.165 bcf/d MoM in September

The EIA released its Form 914 for actual US oil and natural gas production for October on Thursday [LINK]. Note this isn’t the normally used dry natural gas production (Natural Gas Monthly noted above), but the form 914 is US gross withdrawals reported ie. a larger bcf/d. EIA reports Oct 2020 at 109.1 bcf/d, which is down 6.1 bcf/d YoY vs 115.2 bcf/d in Oct 2019 and is down 0.165 bcf/d MoM. Note the peak is Dec 2019 at 116.8 bcf/d. This is consistent with the estimates in the most recent EIA Drilling Productivity report released in December which continues to call for declining natural gas production post August as activity levels are not enough to offset natural declines. Low activity levels and natural declines set up a supportive environment for HH prices through winter 2020/2021.

bcf/d 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jan 56.0 60.0 65.9 65.3 67.8 72.6 73.8 71.0 77.9 88.6 95.1

Feb 57.3 58.8 65.2 65.9 67.5 73.7 74.7 71.6 79.4 89.4 94.8

March 57.3 61.5 65.1 65.4 68.2 74.1 74.0 73.3 80.2 89.9 94.6

Apr 57.6 62.3 65.4 66.0 68.6 75.0 73.8 73.4 80.4 90.4 93.0

May 58.0 62.4 65.6 66.3 69.5 74.2 73.5 73.3 81.3 89.9 87.9

June 57.2 62.1 65.4 66.3 69.8 74.3 72.5 73.8 81.8 91.2 88.3

July 58.3 62.5 65.8 67.0 70.6 74.3 73.1 74.7 83.4 91.3 89.8

Aug 58.9 63.2 65.4 67.0 71.6 74.3 72.3 74.7 85.2 93.3 90.3

Sept 59.1 63.1 66.2 67.2 71.7 75.0 71.9 75.8 86.4 94.2 89.6

Oct 60.1 65.1 66.5 67.6 72.2 74.1 71.4 76.9 87.2 95.4 89.0

Nov 60.1 65.9 66.6 68.6 73.1 74.1 72.1 79.0 88.6 96.4

Dec 61.0 65.6 65.8 66.6 74.7 74.0 71.2 79.5 88.9 95.6

Average 58.4 62.7 65.7 66.7 70.4 74.1 72.8 74.8 83.4 92.2

US Oct gas

production down

6.5 bcf/d YoY

EIA Form 914

natural gas gross

withdrawals

https://www.eia.gov/naturalgas/monthly/https://www.eia.gov/petroleum/production/#ng-tab


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Energy Tidbits

Natural Gas – US October LNG exports +2.2 bcf/d MoM, strength to continue Nov/Dec

The EIA Natural Gas Monthly also reported “actuals” for US LNG exports, which were 7.2 bcf/d in October, which was +1.5 bcf/d YoY and was up 2.2 bcf/d from September of 5.0 bcf/d. The uptick in Oct volumes is not a surprise given the ramp up in natural gas flows to LNG export terminals and the ramp up of Sabine Pass LNG which was returned to operation mid September which had been shut in from hurricane related power outages. November and December will be likely be as strong as October with the continued ramp up of feed gas deliveries. Below is our table of EIA’s monthly LNG exports.

Figure 6: US LNG Exports (bcf/d)

Source: EIA

Reminder, LNG monthly exports are available a day earlier from DOE These days, US LNG export actuals aren’t really price drivers as the trends in actuals are fairly well known with the available data like natural gas flows to US LNG export projects. However, we remind that LNG actuals are available a day earlier each month from the US Dept of Energy LNG Monthly report. The data is always the same as the EIA Natural Gas Monthly as the EIA is part of the DOE. On Wed, we tweeted this reminder [LINK] “No surprise, US #LNG exports up in Oct and will be higher MoM in Nov. US #LNG Oct exports 7.2 bcf/d, +1.5 bcf/d YoY, +2.2 bcf/d MoM. Note can get "actuals" a day earlier from @ENERGY LNG Monthly https://energy.gov/sites/prod/files/2020/12/f81/LNG%20Monthly%202020.pdf vs waiting for @EIAgov Natural Gas Monthly tomorrow.” The DOE LNG Monthly provides a lot of detail on LNG, down to by cargo details. Our Supplemental Documents package includes excerpts from the DOE LNG Monthly.

Natural Gas – US October LNG exports to Europe down 3.19 bcf/d since February

The EIA Natural Gas Monthly also provides its “actuals” for US LNG exports by destination for Oct. As noted above, US LNG exports increased off the July trough and should continue to strengthen in both Nov and Dec. The big decrease in Q2 was due to Europe LNG imports dramatically lower post the impact of Covid. The new EIA data shows US LNG exports to Europe were 1.56 bcf/d in October, which is up 0.12 bcf/d MoM from 1.43 bcf/d in September. Below is our graph of US LNG Exports by destination.

(bcf/d) 2016 2017 2018 2019 2020

Jan 0.0 1.7 2.3 4.1 8.1

Feb 0.1 1.9 2.6 3.7 7.8

March 0.3 1.4 3.0 4.2 7.9

Apr 0.3 1.7 2.9 4.2 7.0

May 0.3 2.0 3.1 4.7 5.9

June 0.5 1.7 2.5 4.7 3.6

July 0.5 1.7 3.2 5.1 2.7

Aug 0.9 1.5 3.0 4.5 3.6

Sept 0.6 1.8 2.7 5.4 5.0

Oct 0.1 2.6 2.9 5.7 7.2

Nov 1.1 2.7 3.6 6.3

Dec 1.3 2.7 4.0 7.1

Full Year 0.5 1.9 3.0 5.0

Full Year bcf 186 708 1,084 1,817

US Oct LNG

exports +2.2 bcf/d

MoM

Higher MoM US

LNG exports to

Europe in

October

https://twitter.com/Energy_Tidbits/status/1344410192255934464https://energy.gov/sites/prod/files/2020/12/f81/LNG%20Monthly%202020.pdf


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Energy Tidbits

Figure 7: US LNG Exports by Destination

Source: EIA

Natural Gas – US pipeline exports to Mexico stay at record of 6.0 bcf/d in Oct

The EIA Natural Gas Monthly also provides its “actuals” for gas pipeline exports to Mexico, which were 6.0 bcf/d in October, +0.5 bcf/d YoY and flat MoM from 6.0 bcf/d in September. Pipeline exports had taken a brief hit in April due to COVID related demand destruction, but with Mexico natural gas production continuing to be stuck around 5 bcf/d and the completion of new pipeline infrastructure, the Wahalajara system [LINK], which enhances access to demand hubs in southern Mexico, US exports are likely going to continue to be strong. Below is our table of the EIA’s monthly gas exports to Mexico.

Figure 8: US Pipeline Gas Exports To Mexico (bcf/d)

Source: EIA

Natural Gas – Multiple insurgent attacks near Total’s Mozambique LNG

Attacks near Total’s Mozambique LNG project are continuing and getting closer to the facility. We see these multiple and increasing reports and have to believe it increases the likelihood that the start up of the project will be delayed. Normally, concerns on security from rebels inevitably leads to some longer timeline for any operation. Last week, there was an insurgent attack on the village of Mute, which had also been attacked on December 8 and is ~21 km from Total’s project. On Tuesday, the town of Monjane was also attacked, this may be more significant to the Total project as this village is only 5 km from the project. And yesterday, Bloomberg, and others similarly, reported “Mozambique Insurgents Attack Within Total’s LNG Concession Area. Suspected Islamist militants in Mozambique attacked the area of Total SE’s $20 billion liquefied natural gas concession for the first time, according to three people familiar with the incident, dramatically raising risks for Africa’s biggest private investment project.” And this morning, the reports were that the fighting continued for hours after the Friday night attack. Increasing frequency of attacks in this region had prompted the

bcf/d 2014 2015 2016 2017 2018 2019 2020

Jan 1.7 2.2 3.2 3.9 4.4 4.9 5.2

Feb 1.8 2.3 3.4 4.1 4.5 4.8 5.2

March 1.9 2.4 3.3 4.2 4.3 4.8 5.4

Apr 1.9 2.6 3.5 3.9 4.4 4.7 4.6

May 2.0 2.8 3.7 4.2 4.4 5.0 4.7

June 2.2 3.0 3.9 4.5 4.6 5.2 5.4

July 2.2 3.3 4.0 4.4 4.9 5.4 5.8

Aug 2.1 3.3 4.3 4.4 5.0 5.4 6.0

Sept 2.2 3.3 4.1 4.2 5.0 5.4 6.0

Oct 1.9 3.2 4.2 4.3 4.9 5.5 6.0

Nov 1.9 3.0 4.0 4.5 4.7 5.3

Dec 2.1 3.2 3.7 4.4 4.5 4.9

Full Year 2.0 2.9 3.8 4.2 4.6 5.1

US Oct pipeline

exports to Mexico

flat MoM

Attacks continue near LNG developments in Mozambique

https://www.eia.gov/todayinenergy/detail.php?id=44278


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Energy Tidbits

formation of a pact between Total and the Mozambique government in late August [LINK] to bolster security around the LNG project to ensure safe operations.

Figure 9: Platts Map of Mozambique LNG Projects

Source: Platts

Natural Gas – China’s NDRC warns of tight energy supply for Jan

On Monday, China’s NDRC (National Development and Reform Commission) answered questions on the winter energy supply. Here are the key takeaways. (i) The NDRC outlook is positive support for LNG in Jan/Feb. (ii) A tight energy supply/demand situation is causing them to warn they may have to reduce power to some industrial users to prioritize to people. Note there have been reports over the past week that they have reduced some power to some industrial users. The NDRC said “In order to ensure the heating and gas supply, when necessary, it is necessary to organize precise and orderly reduction of gas consumption that can be interrupted by industrial users.” (iii) Cold weather is increasing demand. NDRC said “According to the forecast of the Meteorological Department , starting from December 28th, strong cold air will affect most of the central and eastern parts of China, with temperatures falling by 6-8 ℃ , among which the eastern part of Northwest China, North China, Huanghuai, Jianghan and Jiangnan will drop by 10 —12 ℃ .” (iv) Electricity demand is up this winter. NDRC said “Answer: Since the beginning of winter, the country's electricity demand has grown rapidly. According to express data, since December, national electricity generation and consumption have increased by about 11% year-on-year, and the growth rate has increased by 6 percentage points over the same period last year.” (v) Good insight on storage and its sendout capacity right now. Entered winter storage +177 bcf YoY. As of Dec 24, it sounds like the working gas storage (they say recoverable gas) is ~350 bcf. Unfortunately, we don’t know what the volume was entering winter ie. how much has been drawn down so far this winter. Interesting comment infers the max send out of the working gas storage averages ~5 bcf/d ie. 70 days of send out. NDRC say ““During the heating season this year, the available gas storage capacity increased by about 5 billion cubic meters compared with last year . To cope with this round of cold weather, we will coordinate the use of gas storage tanks and storage tanks at coastal receiving stations. As of December 24, the remaining recoverable gas volume of the gas storage is nearly 10 billion cubic meters, and it can still be recovered for about 70 days at the maximum capacity.” (vi) Will be increasing coal power generation to help this winter. NDRC said “Since the heating season, the demand for electricity and coal has increased, but the supply is generally stable, which can meet the coal demand for

China warns tight

winter energy

supply

https://www.total.com/media/news/press-releases/total-signs-agreement-government-mozambique-regarding-security-mozambique


11

Energy Tidbits

production and life. On the eve of cold weather , we have prepared in advance, made a careful coal security for contingency plans to protect the people's warm winter.” (vii) Inferred reminder on how supply chains, in this case coal, are integrated. (viii) Our Supplemental Documents package includes the Google Translate version of the 3 pg transcript. [LINK]

Natural Gas – East Asia low temperatures turned lower than normal in mid Dec

It was a good December, weather wise, for LNG with daily low temperatures turning generally lower than normal from mid Dec in all the key East Asia regions. And the temperatures started to go well below normal to end December. Below are the AccuWeather Dec daily temperature graphs vs normal for Beijing, Shanghai and Tokyo.

Figure 10: December Temperatures vs Normal For Beijing

Source: AccuWeather

Figure 11: December Temperatures vs Normal For Shanghai

Source: AccuWeather

Figure 12: December Temperatures vs Normal For Tokyo

Source: AccuWeather

Colder low

temperatures in

Dec in East Asia

https://www.ndrc.gov.cn/xwdt/xwfb/202012/t20201228_1260589.html


12

Energy Tidbits

Natural Gas – Japan still expects cold January, but not as cold as last week’s forecast

December was a good month for LNG with continued supply interruptions and, as noted above, colder than normal low temperatures in East Asia. And with continued forecasts for a cold start to Jan. Every Thurs, the Japan Meteorological Agency provides an updated next 30 day temperature forecast [LINK] and this week’s forecast for Jan 2-Feb 1 is for colder than normal temperatures for all of Japan. This is still good for LNG, but it is less than last week’s Dec 26-Jan 25 forecast that called for extremely cold temperatures. Below is the current JMA forecast for Dec Jan 2 to Feb 1 and their recap of very warm Jan 2020 temperatures.

Figure 13: JMA 30 Day Average Temperature Forecast for Jan 2 – Feb 1

Source: Japan Meteorological Agency

Figure 14: Japan Mean Temperature Anomalies Jan 2020

Source: Japan Meteorological Agency

Natural Gas – Southern Gas Corridor starts natural gas deliveries to Greece/Bulgaria

On Friday, the Trans Adriatic Pipeline [LINK] confirmed the commencement of natural gas flows from Azerbaijan and that “first gas has reached Greece and Bulgaria” and “TAP is a Transmission System Operator, providing capacity to shippers interested in transporting natural gas to multiple markets in Europe. As a new gas import route, the Southern Gas Corridor strengthens Europe’s energy security, its market integration, as well as EU’s decarbonisation efforts.” The Southern Gas Corridor is one of those projects that we haven’t mentioned for years, in part because it took way longer and way more $ to complete than expected. Bloomberg reported “The Southern Gas Corridor, which took $33 billion and seven years to build, includes the Shah Deniz field and more than 2,000 miles of pipelines connecting the Caspian Sea with Europe via Georgia and Turkey. Azerbaijan will ship 10

JMA forecasts cold Jan

Southern Gas

Corridor starts

up

https://www.jma.go.jp/en/longfcst/https://www.tap-ag.com/news/news-stories/tap-starts-transporting-first-gas


13

Energy Tidbits

billion cubic meters of gas to Europe every year over the next quarter-century, with 8 billion of that going to Italy and 1 billion each to Greece and Bulgaria. “Some people were skeptical about the project” at the outset, Socar President Rovnaq Abdullayev said. “Now the mission is accomplished. Azerbaijan’s natural gas has arrived in Europe.” Note that BP’s project overview highlights the total volume is 16 bcm/yr (1.55 bcf/d) to be delivered: Turkey 6 bcm/yr (0.58 bcf/d), Italy 8 bcm/yr (0.77 bcf/d), Greece 1 bcm/yr (0.10 bcf/d), and Albania 1 bcm/yr (0.10 bcf/d). Below is BP’s Southern Gas Corridor map. Our Supplemental Documents package includes the Bloomberg reporting.

Figure 15: Southern Gas Corridor Pipeline starts up

Source: BP

Natural Gas – Reminder why Europe gas storage is the key indicator for LNG markets

The reason why we follow Europe gas storage utilization is that we believe it is the best indicator for the strength and near term direction for LNG markets. We first highlighted this key concept over 3 years ago. On Sept 20, 2017, we posted two related blogs. The first blog was “Shell: “Every LNG Cargo That Could Technically Be Produced In This World Has Been Produced And Has Found A Well Paying Customer”, and the second linked blog was “China’s Plan To Increase Natural Gas To 10% Of Its Energy Mix Is A Global Game Changer Including For BC LNG”. The concept of the blogs was that the market was understating the fall LNG 2017 market strength, China being serious about increasing natural gas, and the surprising market strength would lead to a BC LNG FID in 2018 ie. LNG Canada. The reason for our believing LNG markets in summer 2017 was due to Shell’s LNG head, Martin Wetselaar) explaining the concept of Europe gas storage. As soon as we heard it, we knew it made sense. And when you look at the Europe gas storage utilization for this winter, it fits to the thesis Wetselaar first outlined in Aug 2017. Long term readers of Energy Tidbits know we think the best insights from companies comes from Q&A, not the slide decks, and that was particularly so in this case. Here is what we wrote in Sept 20, 2017 blog “The key data support to Wetselaar is that NW Europe storage is not seeing surplus LNG cargos looking for a home. In the Q&A, Wetselaar said the data support for his comment that the market is absorbing all of the new LNG supply is to look at NW Europe storage. Wetselaar did not use the description dumping ground, but it is the right term. Webster’s defines “dumping ground” as “a place to which unwanted people or things are sent”. He noted that if LNG was in oversupply, there would be surplus LNG cargos looking for a home and these surplus LNG cargos would find their way to NW Europe storage. Shell is not seeing any YoY increase in NW Europe storage. Hence, he is firm in his view that demand was absorbing all the new LNG supply in 2017. We pasted the NW Europe storage data into the below graph and it

Europe gas storage is key LNG indicator


14

Energy Tidbits

shows exactly what Wetselaar said – the monthly YoY changes in storage do not show increases in the net storage withdraw/injections, which implies that there isn’t any dumping of surplus LNG cargos in NW Europe storage. We have not been following NW Europe natural gas storage, but now have it on our regular data check list because of Wetselaar’s comments.” Our Supplemental Documents package includes our Sept 20, 2017 Shell blog.

Natural Gas – Europe storage 74.54% full vs 5 year average of 71.58%

This winter is another good reminder that Europe gas storage is a key indicator for the near term strength of global LNG markets. Its been a good winter so far for reducing Europe gas storage levels and, no surprise, LNG prices have strengthened. Europe gas storage started the winter (Nov 1) at basically full levels at 94.66% and has dropped by 20.12% to be 74.54% at Dec 30. This 20.12% decline since Nov 1 compares to the 5 yr average that would be down 17.80% in the same period or to last winter that was only down 8.79% in the same period. Storage at Dec 30 at 74.54% is 13.99% less than last year and 2.96% more than the 5 yr average. The key factor for LNG and Europe storage so far this winter has been the multiple LNG supply interruptions in Q3 and more in Q4. And now with the price differential in prices to Asia, more LNG will be flowing to Asia and even some likely out of storage in Europe to Asia. Below is our graph of Europe gas storage utilization and our graph of YoY change in net LNG flows to NW Europe.

Figure 16 Europe Gas Storage Utilization

Source: Bloomberg

Oil – US oil rigs up 3 to 267 oil rigs

Baker Hughes reported its weekly rig data on Wednesday this week due to the New Year’s Holiday. US oil rigs were up 3 to 267 oil rigs as of Dec 31. The increases were in the Permian +2 and Cana Woodford +1, while there were no decreases this week. Oil rigs are +95 off the bottom of 172 in the Aug 14 week. The increase in rigs has been driven by three items: stronger oil prices, activity being completed before Biden can put in any restrictions on federal lands, and the vaccine announcements leading to a much stronger view of oil in later 2021. The other factor driving the DJ basin is the oncoming tighter oil and gas drilling restrictions in Colorado. Additionally, the contrast in recovery between Permian rigs and Bakken rigs is consistent with comments that Bakken output is expected to lag significantly behind Permian output as capital allocation to the Bakken continues to fall behind US oil rigs hit their 2020 peak at 683 on March 13 and have since fallen by 416 to 267 oil rigs (-60.9%). The biggest contributor to the decrease is the Permian being down 243 oil rigs from the March 13 peak (-58.1%), and also note the Bakken is down 41 oil rigs to 11 active oil rigs (-78.9% from March 13). Below is our graph of Baker Hughes US oil rigs.

US oil rigs up 3

this week

Europe gas

storage 74.54%

full


15

Energy Tidbits

Figure 17: Baker Hughes Total US Oil Rigs

Source: Baker Hughes

Oil – Total Cdn rigs down 23 to 59 total rigs and down 30% YoY

Every year, there is always a break in some Cdn drilling over Christmas, and this year is no exception to that norm. Baker Hughes reported total Cdn rigs were down 23 to 59 total rigs as of Dec 31. Cdn oil rigs were -13 to 18 rigs. Cdn gas rigs were -10 to 41 gas rigs. Total rigs are now +42 since the June 26 all-time low. Cdn drilling is down big vs prior years - Cdn rigs are down 30% YoY and down 22% vs two years ago. While Cdn drilling has recovered, a year ago Cdn oil rigs were 27 and Cdn gas rigs were 58 for a total Cdn rigs of 85, meaning total Cdn rigs are -26 YoY. Below is our graph of Baker Hughes Cdn oil rigs.

Figure 18: Baker Hughes Total Canadian Oil Rigs

Source: Baker Hughes

Oil – US weekly oil production flat at 11.0 mmb/d

On Wednesday, the EIA reported US crude oil production was flat at 11.0 mmb/d for the Dec 25 week and Lower 48 was flat at 10.5 mmb/d. This puts US oil production 1.9 mmb/d lower YoY and down 2.1 mmb/d from the March peak of 13.1 mmb/d. The EIA Form 914 actuals for October came in 81,000 b/d lower than the EIA weekly estimates for October, a swap from the previous two months where actual came in higher. The difference is likely due to the weekly production estimates missing the quick changes in GoM production in response to hurricanes. The EIA Dec DPR is calling for a continued decline in US oil production through January. However, we have to expect to see the declines stop with the recent increase in rigs and frac spreads and WTI in the high $40s. Much of the rig/frac spread increase in Oct/early Nov was companies wanting to get more work done ahead of Biden. But post Pfizer on Nov 9, the strengthening of oil prices to higher $40s means there won’t be as much of a let down in activity. The EIA December STEO lowered its post shut-in US production 2020 exit by 0.08 mmb/d to 10.99 mmb/d, continuing to show modest growth thru 2021 with the 2021 exit unchanged at 11.29 mmb/d, down 1.49 from Q4/19 peak of 12.78 mmb/d. Below we pasted an excerpt from the EIA weekly oil production data.

US oil

production flat

WoW

Cdn rigs down

30% YoY


16

Energy Tidbits

Figure 19: EIA’s Estimated Weekly US Oil Production

Source: EIA

Figure 20: US Weekly Oil Production

Source: EIA, SAF

Figure 21: YoY Change in US Weekly Oil Production

Source: EIA, SAF


17

Energy Tidbits

Oil – EIA Form 914 Oct actuals 81,000 b/d lower than weekly production estimates

The EIA released its Form 914 data [LINK] on Thursday, which is the EIA’s “actuals” for October US oil and natural gas production. There are a few important takeaways. (i) October was down 0.442 mmb/d MoM to 10.419 mmb/d due to decreased GoM production as there was increased hurricane related downtime in October vs September. This puts October down 2.318 mmb/d from March and down 2.441 mmb/d from the Nov/19 peak of 12.860 mmb/d. (ii) The actuals came in lower than the average of the weekly estimates vs higher in the previous two months. The actuals of 10.419 mmb/d werge 81,000 b/d lower than the average weekly estimates of 10.500 mmb/d (average excludes data for the week ending Oct 2). The slight overestimate in the weekly actuals were likely due to quick changes resulting from the two hurricanes in October and may still be impacted by returning shut-in production. (iii) Also note, compared to the “actuals” it looks like the STEO has not caught up in its downward revisions. As a reminder, the previous STEO had Sept US oil production at 11.25 mmb/d, which is 0.389 mmb/d higher than the September actuals. In the Dec STEO, the EIA has Oct US oil production at 10.62 mmb/d, which is 0.201 mmb/d higher than the Oct actuals. Therefore, we should likely see a small downward revision to Q4/20 US oil production in the EIA STEO for January. (iv) Not surprisingly, substantially all the MoM decrease in October came from offshore GoM production which decreased 448,000 to 1.057 mmb/d due to increased hurricane impact vs Sept. North Dakota was relatively flat MoM in October being +6,000 b/d to 1.218 mmb/d, which is roughly in line with the 1.223 reported by the North Dakota Industrial Commission for October. Also note there was massive revisions to Aug/Sept completions data in Dec with Aug +47 to 66 and Sept +33 to 76 it was no surprise to see October production relatively flat as ~70 completions are needed to keep production flat. Texas was also flat, being +3,000 b/d MoM to 4.634 mmb/d, which puts Texas down 0.803 mmb/d since March. Below is the EIA Form 914 data for oil, and our graph of EIA actuals oil production data vs the weekly estimates.

Figure 22: EIA Form 914 US Oil Production

Source: EIA

Figure 23: EIA Form 914 US Oil Production vs Weekly Estimates

Source: EIA

Thousand barrels per day Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2020 12,755 12,746 12,737 12,010 10,019 10,442 10,973 10,584 10,861 10,419

2019 11,865 11,679 11,937 12,135 12,163 12,088 11,819 12,425 12,495 12,673 12,860 12,802

2018 9,998 10,261 10,489 10,496 10,457 10,605 10,903 11,384 11,463 11,554 11,907 12,004

2017 8,874 9,108 9,192 9,115 9,208 9,134 9,266 9,264 9,534 9,668 10,088 9,993

2016 9,203 9,065 9,089 8,871 8,834 8,671 8,664 8,686 8,544 8,841 8,906 8,846

2015 9,388 9,510 9,585 9,661 9,481 9,362 9,447 9,416 9,491 9,406 9,337 9,281

2014 8,073 8,152 8,293 8,521 8,644 8,746 8,846 8,920 9,082 9,263 9,322 9,566

EIA Form 914

October

https://www.eia.gov/petroleum/production/


18

Energy Tidbits

Oil – Active frac spreads down 3 to 133 as of Dec 30

Every week, Mark Rossano posts a Youtube recap of frac spreads for the week on the Primary Vision Network [LINK]. For the Dec 30 week, Rossano reports US frac spreads were down 3 to 133 frac spreads. Some of the declines were Appalachia down 1, Haynesville down 1, Williston down 1, he also said some smaller basins down. Didn’t give a number but said Permian was up. The overall decline this week was expected based on Rossano’s comments from last week that the decline during Christmas was expected to continue into this week. Rossano did not give a spread of oil vs natural gas frac spreads but believes there needs to be 130 to 140 oil spreads to keep production flat at 2020 exit levels and oil spreads aren’t at that level yet. Below are two of his frac spread graphs.

Figure 24: Active Frac Spreads as of Dec 30, 2020

Source: Primary Vision

Oil – Dallas Fed Energy Survey, first positive for Texas activity index since Q1/19

The Dallas Fed released their Q4 Energy Survey this week [LINK] with the headline of “oil and Gas Activity on the Rebound, Outlook Improves”. Overall, the Q4 survey represents a big shift in attitude from Q3 with many of the major indicators being up, likely due to the positive sentiment from the vaccines. The overall indicator, the business activity index, was up big QoQ, increasing from -6.6 to 18.5 in Q4 which is the first positive reading for this indicator since Q1/19. When asked about expectations for WTI price by the end of 2021, it is interesting to note that over half the respondents were in the range of $50 to $70 per barrel, with the survey average at $49.77/bbl. When asked for HH price expectations, the answers ranged from $1.75/mmbtu to $4.70/mmbtu with the survey average at $2.76/mmbtu. Not surprisingly given the positive sentiment in this survey the capex indicator for E&P firms increased to 12.5 from -16.4 in Q3, meaning firms are expecting to spend more. 52% of the E&P respondents said they expect their capex in 2021 to increase over 2020. One slightly surprising response in the survey was 72% of the respondents expect that they would be able to access capital from nonbank sources in 2021. We have to wonder if this is just wishful thinking of if they have some indications this is possible. The survey data was collected between Dec 9 and 17 from 149 firms. Our Supplemental Documents package includes excerpts from the Dallas Fed Energy Survey.

Oil – FT “North Dakota’s shale prospects look bleak after the gold rush”

Last Sunday’s FT story “North Dakota’s shale prospects look bleak after the gold rush” [LINK] received some attention in this holiday period. This is a well written story recap of how production has declined (but come back a bit with DUCs), drilling is back down to pre shale levels and the outlook is weak. They wrote “Now, as North Dakota emerges from the downturn, the oil industry’s prospects seem far less certain. Investment has dried up, political support is waning, and the future of a key pipeline transporting crude from the state hangs in

Frac spreads -3 to

133

Texas E&P

rebound

FT on the Bakken

https://www.youtube.com/watch?v=Jf5wcOySmCo&feature=youtu.behttps://www.dallasfed.org/-/media/Documents/research/surveys/des/2020/2004/des2004.pdfhttps://www.ft.com/content/399404be-230b-4bd0-832d-1aadc5bcde61


19

Energy Tidbits

the balance.” There was good reminder on the upcoming Biden risk for fracking on federal lands. FT wrote “The shale patch was already struggling to attract investment ahead of this year’s crash, as Wall Street tired of its profligacy and poor returns. Now environmental concerns are making it less appealing still. What money there is has tended to be directed towards the Permian basin of Texas and New Mexico, viewed by an increasing number of companies as having the best growth potential. Meanwhile, Joe Biden, America’s president-elect, has vowed to “transition from the oil industry” and to ban new drilling on federal lands — on which one-third of North Dakota’s well pads sit.” Our Supplemental Documents package includes the FT story.

Bakken has been the laggard in drilling since the Aug US oil rig trough The FT story notes how Bakken drilling is back to pre-shale levels. The Baker Hughes rig count data shows it has also been the big laggard in the increase of US oil rigs off the recent Aug 14 trough of 244 oil rigs. Since then, US oil rigs are +95 to 267 as of Dec 31. Of the oil basins, Permian is the big focus +59 oil rigs to 175, Eagle Ford is +15 oil rigs to 25, whereas the Williston (Bakken) is unchanged at 11 oil rigs.

Oil – Cdn crude by rail imports to Gulf Coast down 101,000 b/d YoY in Oct to 72,000 b/d

The EIA posted it’s monthly “U.S. Movements of Crude Oil by Rail” [LINK] on Thursday, which also had good insights on Cdn crude by rail. Canadian CBR volumes to PADD 3 (Gulf Coast) were 72,000 b/d in October, which is down 101,000 b/d YoY and up 9,000 b/d MoM from September and is the fourth consecutive monthly increase after the huge declines beginning in April. In a late Nov sellside conference [LINK], CP pointed to the expectation for CBR volumes to continue to increase going forward “You mentioned crude by rail. So with the Alberta government's recent announcement in shutting down the production curtailments, we've definitely seen an uptick in terms of activity. Sequentially, October to November we're going to see a nice bump and I think we'll see a further bump as we move into December”. Below is our running graph of Canadian CBR exports to the US Gulf Coast.

Figure 25: Canada CBR Exports to US Gulf Coast

Source: EIA

Oil – Oil input into refineries down 2.996 mmb/d YoY to 14.287 mmb/d

One of the big oil themes this summer was narrowing 321 crack margins leading to lower refinery runs, some refinery capacity shutdowns, and continued large YoY decline in crude oil input to refineries. But as noted last week, we are starting to see some modest widening of the 321 crack spread. Crude inputs to refineries were up this week, with a 0.273 mmb/d increase to 14.287 mmb/d for the Dec 25 week, which is -2.996 mmb/d YoY. Refinery

Oil inputs to

refineries

-2.996 mmb/d YoY

Cdn crude by rail imports to Gulf Coast

https://www.eia.gov/petroleum/transportation/https://s21.q4cdn.com/736796105/files/doc_downloads/2020/11/Scotiabank-2020-Conference-CP-Transcript.pdf


20

Energy Tidbits

utilization also increased this week, being +1.4% to 79.4%, which is -15.1% YoY. Total products supplied (ie demand) increased this week and was +0.229 mmb/d to 19.317 mmb/d for the Dec 25 week, and motor gasoline demand increased slightly, being +107,000 b/d to 8.128 mmb/d. Below is our graph of crude inputs to US refineries, along with a graph of US motor gasoline supplied.

Figure 26: US Refinery Crude Oil Inputs (thousands b/d)

Source: EIA, SAF

Figure 27: US Motor Gasoline Supplied (mmb/d)

Source: EIA, SAF

Oil – Crack spreads widening but need wider to bring back any substantial capacity

As noted above, narrow 321 crack spreads has caused a brutal year for refineries globally, causing mass run cuts, short term idling and closures. Crack spreads have been bouncing around in the


21

Energy Tidbits

Figure 28: NYMEX 3-2-1 Crack Spread

Source: Bloomberg

Oil – US “net” oil imports down 0.764 mmb/d to 1.701 mmb/d

US “NET” imports were down 0.764 mmb/d to 1.701 mmb/d for the Dec 25 week. US imports were down 0.238 mmb/d to 5.326 mmb/d and US exports were up, being +0.526 mmb/d to 3.625 mmb/d. The WoW decrease in US oil imports was driven mostly by decreases from Saudi Arabia and Mexico. Some items to note on the by country data. (i) Canada was flat this week, and was +8,000 b/d to 3.212 mmb/d for the Dec 25 week, which is now ~488,000 b/d below the average levels in Jan/Feb. Also note that PADD 2 imports were up slightly, being +27,000 b/d and Canada is almost all of this market. (ii) Saudi Arabia was down 80,000 b/d to 0.118 mmb/d, remaining at historically low levels. (iii) Colombia was up 18,000 b/d to 86,000 b/d. (iv) Ecuador increased 232,000 b/d to 305,000 b/d. (v) Iraq increased 18,000 b/d this week to 123,000 b/d. (v) Venezuela remained at 0 due to US sanctions. (vi) Mexico decreased 226,000 b/d to 0.589 mmb/d.

Figure 29: US Weekly Preliminary Oil Imports By Major Countries

Source: EIA, SAF

Oil – China’s supermajor Daqing oilfield still producing 0.60 mmb/d

On Friday, Xinhua reported that that the once supergiant Daqing oil field produced around 30 million tonnes of domestic crude (approx. 0.60 mmb/d) and 4.66 billion cubic meters of natural gas (approx. 0.45 bcf/d). Xinhua added “Discovered in 1959, the oilfield has made a significant contribution to China's modern petroleum industry system.” Even at 0.60 mmb/d, this is a pretty good production rate considering the field peaked in the late 90’s at ~1.1 mmb/d. CNPC’s website [LINK] notes Daqing produced 0.73 mmb/d in 2016. CNPC writes “In the late 1980s, most oil fields in the Daqing area entered the late stage of development with a total water cut of up to 90%. However, Daqing managed to stabilize its annual production, thanks to measures such as the comprehensive control of water flooding, accelerating the production boost of peripheral resource replacement areas and reinforcing tertiary oil recovery by means of polymer flooding. In 2014, Daqing Oilfield stabilized its

Oct 30/20 Nov 6/20 Nov 13/20 Nov 20/20 Nov 27/20 Dec 4/20 Dec 11/20 Dec 18/20 Dec 25/20 WoW

Canada 3,143 3,681 3,181 3,277 3,631 3,989 3,530 3,204 3,212 8

Saudi Arabia 206 357 357 293 73 281 73 198 118 -80

Venezuela 0 0 0 0 0 0 0 0 0 0

Mexico 634 433 517 519 534 679 580 815 589 -226

Colombia 286 0 215 94 285 210 286 71 89 18

Iraq 132 186 92 197 0 109 0 105 123 18

Ecuador 46 295 373 100 126 248 168 73 305 232

Nigeria 43 86 98 67 149 83 42 3 159 156

Kuwait 0 0 0 0 0 0 0 0 0 0

Angola 0 0 0 0 0 0 0 0 0 0

Top 10 4,490 5,038 4,833 4,547 4,798 5,599 4,679 4,469 4,595 126

Others 539 461 421 681 601 880 745 1,095 731 -364

Total US 5,029 5,499 5,254 5,228 5,399 6,479 5,424 5,564 5,326 -238

US “net” oil

imports

-0.764 mmb/d

WoW

Daqing still

producing 0.6

mmb/d

https://www.cnpc.com.cn/en/operatediol/201405/f96f221bb538428f9b1b7f4869c8f576.shtml


22

Energy Tidbits

production at more than 40 million tons for the 12th consecutive year through finely controlled waterflood to tap potential, optimized polymer flooding for higher sweep efficiency, massive deployment of ASP flooding and industrial deployment of carbon dioxide flooding. In particular, production by tertiary recovery maintained steady growth to reach 14.02 million tons, exceeding 10 million tons for the 13th consecutive year. In 2016, Daqing Oilfield produced 36.56 million tons of crude through strengthening fine water flooding, promoting tertiary recovery technology, optimizing polymer flooding and rolling out ASP flooding.” Our Supplemental Documents package includes the Xinhua report and the CNPC website review.

Oil – Not seeing any updates on Exxon force majeure at Nigeria Qua Iboe oil terminal

We still haven’t seen any reports yet for the reported force majeure at Exxon’s Qua Iboe oil terminal in Nigeria or any reports of loading schedules therefrom. Last week’s (Dec 27, 2020) Energy Tidbits noted the Reuters Dec 22 report that Exxon declared force majeure at the terminal [LINK] and that Exxon did not know how long the force majeure would last, but also reported “A source told Reuters production is expected to resume in early January.” The force majeure is significant as Qua Iboe is the major Nigeria loading terminal. According to Exxon [LINK], production of Qua Iboe crude currently averages 320,000 b/d of light, sweet crude. In terms of loadings “Qua Iboe crude oil parcel sizes are normally about 950,000 barrels, but up to two million barrels can be loaded. Maxium loading rate is approximately 50,000 barrels per hour through a 42-inch loading line to the SPM”.

Oil – Russia Dec oil production 9.083 mmb/d vs 8.99 mmb/d quota

Tass, Bloomberg and others reported yesterday on Russia’s Energy Ministry oil and condensate production volumes in Dec. Russia does not provide separate oil vs condensate volumes and its obligations under the OPEC+ deal are for oil volumes and do not include condensate. Russia produced 10.04 mmb/d of oil + condensate for Dec, marginally higher than 10.03 mmb/d in Nov. Russia’s OPEC+ agreed quota for oil for Aug thru Dec was 8.99 mmb/d. Bloomberg wrote “In December, Russia produced 42.46 million tons, according to Bloomberg calculations based on CDU-TEK numbers. If condensate output was the same as in the previous month – about 956,000 barrels a day -- its daily crude-only supply reached about 9.083 million barrels, some 90,000 barrels above the promised cuts.” Our Supplemental Documents package includes the Bloomberg reporting.

Oil – Russia outlines new price driven strategy for OPEC+ to fix post covid oil prices?

We recognize the oil focus is all on tomorrow’s OPEC+ meetings, however we believe Russia signaled something more significant in the Dec 21 to 29 period – a potential new strategy for OPEC+ to get what that ultimate want with a visible path to a return to full production ahead of others (ie. US) and higher prices. We outlined this thesis in our Dec 29 blog “Russia Says Its a Price Taker at $45 in 2021, May Be the New Strategy Needed For OPEC+ To Fix Post-Covid Oil Prices For the 2020s” [LINK]. We looked at Russa’s, in particular Novak, comments in the Dec 21 to 29 period as not just setting the stage for Russia’s position for the Jan 4 OPEC+ meeting but also messaging to OPEC+ that Covid and now a view that peak oil demand is coming sooner means that OPEC+ strategy needs to be changed. If peak oil demand is sooner, then it adds an urgency for Russia to see a realistic fix to oil. Russia knows its been 4 years and OPEC+ hasn’t accomplished its goals. So they are coming with a needed new strategy on how to achieve its key oil objectives – return to full production and maximize the value of its oil reserves in the face of peak oil demand coming sooner. They know to do this, they have to stop others (ie. US) from increasing supply until demand has recovered. Novak clearly said they want to restore its production ahead of non OPEC+ countries (ie. US shale) and, to do so, Russia will take lower oil prices (ie. $45 Brent) to ensure that happens. This is Russia laying out an oil price strategy to keep oil supply down.

Russia’s new

oil price

strategy?

Russia 9.083

mmb/d vs quota

8.99 mmb/d

No update on

Nigeria Quo Iboe

force majeure

https://www.reuters.com/article/nigeria-oil-exxon-mobil/exxonmobil-says-it-has-issued-a-force-majeure-on-nigerias-qua-iboe-terminal-idUSL8N2J24EVhttps://corporate.exxonmobil.com/Crude-oils/Crude-trading/Qua-Iboehttp://www.safgroup.ca/research/trends-in-the-market/


23

Energy Tidbits

Targeting an oil price to keep supply off the market Is not what OPEC does so this is a change. Russia is warning oil producers and their capital providers of their preparedness for lower oil prices to keep other oil supply down, it sets up continued oil underinvestment and less post Covid oil supply capacity. It may not impact the OPEC+ Jan 4 decision, but by warning all oil producers they will be a price taker at lower oil prices (ie $45 Brent), they set up continued oil industry underinvestment and therefore a better post Covid oil outlook for the 2020s. On top of that, any bumps in the road or delays to Energy Transition will add the potential for short term price spikes in the post Covid oil outlook. Below are a few of the key quotes from the blog. Please note there are many other comments in our blog. Our Supplemental Documents package includes our 6-pg blog.

Novak, Russia needs to focus on monetization of its oil and gas reserves This is perhaps the most significant new comment by Russia and points to Russia being serious that peak oil demand is coming sooner. And because they believe peak oil demand is coming sooner, it means they have to focus on monetizing their oil and gas assets. Its also a great example of trying to go to original Russian reporting and not reporting on original Russian reporting. And luckily we have Google Translate as its easy to search for stories in Russia on новак (Novak in English) and find stories. Also important to remember TASS original stories are on their Russian news site, and either shortened or not included on their English news site. On Dec 21, TASS had a Russia news story [LINK] that did not appear on the English news site. “In the coming decades, Russia needs to pay special attention to the monetization of energy resources: oil, gas and coal, as demand in developed countries may decrease. This opinion was expressed by Deputy Prime Minister Alexander Novak at the session of the "Russia and the World" project. "My opinion is that in the coming decades [Russia] needs to pay more attention to the monetization Novak, need to expand oil and gas exports in the face of peak oil demand Novak clearly highlights the need for Russia to increase exports in the face of lower future demand. On Dec, the Kremlin posted a transcript of the Putin/Novak meeting [LINK] quoting Novak “I see several trends here. In particular, this is about the climate agenda, which concerns putting in certain requirements for a carbon-free economy and carbon-free neutrality. Some countries have already announced their goals and targets up to 2050. This, of course, will significantly affect the demand for conventional energy resources. The second trend is about an excess of resources around the world as a result of technological advances, which will also lower the demand. So, based on the above trends, I believe that we need to concentrate our efforts on two areas: expanding the domestic market, on one hand, and expanding and diversifying our exports, on the other. That includes exports related to added value from processing hydrocarbons and innovative energy.” Novak, lower oil prices (ie $45 Brent) needed to keep others oil supply down Last week’s (Dec 27, 2020) Energy Tidbits memo included the Novak Dec 25 comments that Russia knows they will need to see lower oil prices to make sure others (ie. US) don’t restore their production ahead of Russia. We had three tweets on Christmas morning on the TASS story [LINK] quoting Novak “To restore our production, which we have greatly dropped, the price range of $ 45-55 per barrel is the most optimal, otherwise we will never restore production, others will restore, and we will be at our level all the time”. This is as clear a warning as there can be on Russia’s priority but also it understands that it needs a price like $45 Brent to keep US from cranking up its drilling. Low $40’s WTI isn’t going to let US accelerate and

https://tass.ru/ekonomika/10313765http://en.kremlin.ru/events/president/transcripts/64707https://tass.ru/ekonomika/10350773


24

Energy Tidbits

isn’t going to attract capital. Earlier in the memo, we noted the Dallas Fed Energy Survey and how the E&P are mostly expected >$50 WTI and also to have access to non-bank capital in 2021.

Oil – Does the unusual silence pre OPEC+ point to a 0.5 mmb/d increase for Feb?

We have been surprised by the total lack of specific comments (either pointing to debate or agreement) by the key OPEC+ players, Abdulaziz and Novak, in the last few days run up to the OPEC+ meetings. Or for that matter, the lack of specific comments from other OPEC+ ministers and OPEC officials. After checking again this morning, we tweeted [LINK] “Unusually silent on #OPEC+ front. Big diff vs Dec meet that had markets on edge on what would happen. No specific comments from key players Abdulaziz, Novak & even other OPEC+ players in last few days. Does silence point to 0.5 mmb/d increase for Feb as RUS prefers?” This is so different vs the leadup to the Dec meeting, when there was a wide range of public statements with different views that pointed to a debate at the OPEC+ meeting and the market having no clear view on what would happen. The debate was real, the big OPEC+ decision making meeting had to be delayed to allow for a consensus. This time, its unusually silent from any quotes either pointing to a debate or to a rubber stamp. This silence and lack of appearance of debate leading up to tomorrow’s OPEC+ meetings makes us wonder if it is pointing to a 0.5 mmb/d increase for Feb. And throw on top of that the rescheduled OPEC+ Joint Ministerial Monitoring Committee meeting was pushed to the same day as the main OPEC+ ministerial decision making meeting. Who knows what the key players are thinking, but we have to wonder if this lack of drama leading up to the meeting points to a 0.5 mmb/d increase, something desired by most of the OPEC+ countries. Our news cut off is 7am MT so we haven’t seen any reports from today’s OPEC Joint Technical Committee meeting. But the big OPEC+ meetings are tomorrow with both the OPEC+ Joint Ministerial Monitoring Committee (JMMC) and then the big full OPEC+ ministerial meeting.

Surely Novak will remind OPEC+ on the positive US E&P 2021 outlook We have to believe OPEC+, certainly Novak, noted the Wed release of the new Dallas Fed Energy Survey (noted in an earlier item) and the changing to positive outlook by E&P companies for oil prices, capex and access to non-bank capital. On Thurs, we tweeted [LINK] “Discussion item #OPEC+ especially Novak at Jan 4 meeting. Dallas Fed Energy Survey “oil and gas activity on the rebound, outlook improves”, 52% of E&P expected increased 2021 capex, most expect >$50 WTI. and 72% of E&P see access to non bank capital”. This plays exactly into the fear that Novak specifically noted why he thinks oil prices have to be lower ie. so others don’t restore production before Russia restores its production. Our Dec 29 blog “Russia Says Its a Price Taker at $45 in 2021, May Be the New Strategy Needed For OPEC+ To Fix Post-Covid Oil Prices For the 2020s” wrote “Dec

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