Energy Tidbits May 19, 2019 - SAF Group · The Disclaimer: Energy Tidbits is intended to provide...

The Disclaimer: Energy Tidbits is intended to provide general information only and is written for an institutional or sophisticated investor audience. It is not a recommendation of, or solicitation for the purchase of securities, an offer of securities, or intended as investment research or advice. The information presented, while obtained from sources we believe reliable as of the publishing date, is not guaranteed against errors or omissions and no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. This publication is proprietary and intended for the sole use of direct recipients from Dan Tsubouchi and SAF Group. Energy Tidbits are not to be copied, transmitted, or forwarded without the prior written permission Dan Tsubouchi and SAF Group. Please advise if you have received Energy Tidbits from a source other than Dan Tsubouchi and SAF Group.

Energy Tidbits

Dan Tsubouchi

Principal, Chief Market Strategist

[email protected]

Aaron Bunting

Principal, COO, CFO

[email protected]

Ryan Dunfield

Principal, CEO [email protected]

Alan Cooper

Vice President

[email protected]

Ryan Haughn

Principal, Energy

[email protected]

Did Saudi Arabia Just Signal Support To End/Reduce US

Sanctions On Iran?

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

memo and energy blogs. 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 focusing on day to day trading. Our priority was and still is to not just report on events, but 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/guidance.

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

This week’s memo highlights:

1. Oil risk premium likely reduced with big story this morning, Saudi Arabia says “.. including the Iranian people,

have the right to live in security and stability and to move towards development”. (Click Here)

2. A key risk is Saudi confirming Houthis have long range drone capability ie. puts Saudi major oil infrastructure at

risk. (Click Here)

3. No specific recommendation expected from OPEC+ JMMC meeting today in Jeddah, but perhaps indications for

OPEC June 25/26 meeting. (Click Here)

4. Even if no formal change, Saudi can increase oil production by 0.3 to 0.4 mmb/d and keep itself and OPEC under

quota target. (Click Here)

5. 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.

6. 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

May 19, 2019

https://twitter.com/Energy_Tidbits

http://www.safgroup.ca/research/trends-in-the-market/


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Energy Tidbits

Table of Contents Natural Gas – Natural gas injection of 105 bcf, storage now at 130 YoY surplus....................................................4

Figure 1: US Natural Gas Storage ....................................................................................................................4

Natural Gas – US Shale/tight plays estimated up 12.556 bcf/d YoY in June ...........................................................4

Figure 2: EIA - Major Shale/Tight Play’s Natural Gas Production ....................................................................4

Natural Gas – Mild winter; shoulder season drive Japan LNG prices down 42.9% YoY .........................................5

Figure 3: Japan Contract Spot Prices ...............................................................................................................5

Reminder LNG pricing pressures in 2020/2021 with Gazprom’s new pipelines ......................................................5

Figure 4: Gazprom Power of Siberia Natural Gas Project ................................................................................5

Natural Gas – Good news for LNG, Accuweather forecasts warm Asian summer ..................................................6

Figure 5: Accuweather Highlights for Summer 2019 in Asia ............................................................................6

Natural Gas – PNG 7.5 Earthquake did not impact PNG LNG but reminds of risk ..................................................6

Figure 6: Earthquakes 7.0 or Greater Since Jan 1, 2017 .................................................................................7

Oil – US oil rigs down 3 to 802 oil rigs ......................................................................................................................7

Figure 7: Baker Hughes Weekly Rig Count – Total US Oil Rigs ......................................................................7

Oil – Total Cdn rigs flat at 63 total rigs .....................................................................................................................7

Figure 8: Baker Hughes Weekly Rig Count, Canadian Oil Rigs.......................................................................8

Oil – EIA says US oil production down 100,000 b/d to 12.1 mmb/d .........................................................................8

Figure 9: Weekly Oil Production .......................................................................................................................8

Figure 10: US Weekly Oil Production ...............................................................................................................9

Figure 11: YoY Change in US Weekly Oil Production ......................................................................................9

Oil – A slow start to US shale oil growth in 2019 ......................................................................................................9

Figure 12: Major Shale/Tight Plays Oil Production ........................................................................................ 10

Oil – North Dakota Mar oil production up 19.6% YoY, points to strong well performance .................................... 10

Figure 13: North Dakota Oil Production By Month ........................................................................................ 10

Oil – North Dakota crude by rail up in Mar, bounce back from very cold Feb ....................................................... 10

Figure 14: Estimated North Dakota Rail Export Volumes ............................................................................. 11

Oil – Minor relief for electricity risk, NOAA reduces summer temp. forecast for Texas ........................................ 11

Figure 15: NOAA May 16 Updated July/Aug/Sept Temperature Forecast .................................................... 11

FERC reinforces summer electricity risk in Texas ......................................................................................... 12

Figure 16: Reserve Margins for US Regions ................................................................................................. 12

Oil – AAA forecasts 2nd highest Memorial Day holiday travel, only behind 2005 .................................................. 12


3

Energy Tidbits

Oil – Oil input into refineries up 271,000 b/d to 16.676 mmb/d ............................................................................. 13

Oil input into refineries up 271,000 b/d .................................................................................................................. 13

Figure `17: US Refinery Crude Oil Inputs (thousand b/d) ............................................................................. 13

Oil – US “NET” oil imports down 106,000 b/d to 4.265 mmb/d ............................................................................. 13

Figure 18: US Weekly Preliminary Oil Imports By Major Countries .............................................................. 13

Oil – OPEC MOMR, April OPEC production flat at 30.022 mmb/d ....................................................................... 14

Figure 19: OPEC MOMR Secondary Sources Apr 2019 ............................................................................... 15

Oil – Explaining the 269,000 b/d variance in Venezuela’s est vs Secondary Sources ......................................... 15

Oil – IEA OMR, April OPEC up 60,000 b/d to 30.210 mmb/d ............................................................................... 15

Oil – No JMMC supply increase recommendation expected, but maybe indications ........................................... 16

But Al Falih has already laid out a roadmap for increased Saudi June exports ............................................ 16

Oil – Big oil news today, did Saudi signal support for an end to US sanctions on Iran? ....................................... 17

We wonder if Thurs/Fri set up today’s potential Saudi position change ........................................................ 18

We also wonder if Khomenei’s people moves had any impact ..................................................................... 18

Oil – Houthis long range drone hits Aramco pumping station west of Riyadh ...................................................... 19

Houthis have had long range missile attacks for some time ......................................................................... 19

Saudi/UAE missile defense were primarily designed against ballistic missiles ............................................. 20

Figure 20: Typical Trajectory For Cruise Vs Ballistic Missile ......................................................................... 21

Oil – Something did happen last Sun in UAE, 4 tankers “sabotaged” ................................................................... 21

UAE’s Fujairah oil terminal is a critical piece in global oil supply chain......................................................... 21

Figure 21: UAE Select Energy Infrastructure ................................................................................................ 22

Oil – Libya NOC Chair sees 95% of Libya oil at risk without a halt to fighting ...................................................... 22

Oil – Insurers add Persian Gulf/Red Sea to enhanced risk, tanker cost/oil price up ............................................ 23

Oil and Natural Gas – Excellent detailed mapping of all energy information by EIA ............................................ 23

Figure 22: Example EIA Energy Mapping System ........................................................................................ 24

Demographics – Baby boomers clog up single family housing market ................................................................. 24

Energy Tidbits – Now on Twitter ............................................................................................................................ 25

Energy Tidbits – Sign up on our email distribution for tidbits and blogs ................................................................ 25

LinkedIn – Look for quick energy items from me on LinkedIn ............................................................................... 25

Misc Facts and Figures.......................................................................................................................................... 25

Its Queen Victoria’s birthday celebration weekend ....................................................................................... 25


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Energy Tidbits

Natural Gas – Natural gas injection of 105 bcf, storage now at 130 YoY surplus

This week, the EIA reported a 106 bcf injection which was in line with expectations of a 105 bcf injection to bring storage to 1.653 tcf as of May 10. Gas storage is now at a 130 bcf surplus YoY, but down 286 bcf vs the 5-year average. Since 2010, the EIA has only reported 33 net injections above 100 bcf, usually in May or September. This is now the second 100+ bcf net injection of 2019, and we are only two weeks into May, which speaks to the strong YoY natural gas production growth. HH gas prices remain capped and we expect to see continued narrowing in the 5-yr average storage deficit thru to Oct. 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 – US Shale/tight plays estimated up 12.556 bcf/d YoY in June

On Monday, the EIA issued its Drilling Productivity Report May 2019, which is the EIA’s forecast for oil and natural gas production from the top shale/tight oil and gas basins for the current month (in this case May) and the next month (in this case June) and the data continues to show huge growth in US natural gas production. (i) US shale/tight gas plays continue to show strong YoY growth, US shale/tight plays are estimated to be up 12.556 bcf/d YoY to reach 80.663 bcf/d in June from the major shale/tight basins. (ii) To put this in perspective, Canada produces about 16.5 bcf/d of natural gas, compared to one year growth of 12.556 bcf/d from major US shale/tight plays. The new DPR estimates gas production from the major basins to increase 0.790 bcf/d from Apr to May to reach 79.720 bcf/d in May, and then another 0.943 bcf/d from May to Jun to reach 80.663 bcf/d in Jun. (iii) Similar to last month, the largest YoY increases came from the Appalachia which is +4.620 bcf/d YoY, and the associated natural gas from the Permian +3.141 bcf/d YoY. Below is our table showing the running EIA DPR data for the shale/tight gas plays. Our Supplemental Documents package includes the Drilling Productivity Report. Figure 2: EIA - Major Shale/Tight Play’s Natural Gas Production

Source: EIA

2019

mmcf/d June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jun YoY

Anadarko 7,054 7,145 7,321 7,392 7,400 7,379 7,463 7,558 7,633 7,674 7,507 7,547 7,516 462

Appalachia (Marcellus/Utica)27,488 28,083 28,742 29,787 30,420 30,806 30,584 30,620 30,839 31,149 31,862 31,742 32,108 4,620

Bakken 2,336 2,435 2,481 2,561 2,607 2,565 2,705 2,773 2,786 2,801 2,716 2,764 2,786 450

Eagle Ford 6,436 6,504 6,585 6,647 6,689 6,728 6,770 6,816 6,867 6,907 6,853 6,883 6,881 445

Haynesville 8,849 8,975 9,194 9,592 9,464 9,844 9,852 10,006 10,165 10,341 10,522 11,071 11,358 2,509

Niobrara 4,673 4,787 5,001 5,092 5,109 5,204 5,245 5,287 5,344 5,406 5,580 5,544 5,604 931

Permian 11,269 11,608 11,958 12,164 12,438 12,743 13,137 13,399 13,629 13,859 13,890 14,169 14,410 3,141

Total 68,107 69,536 71,282 73,234 74,127 75,270 75,755 76,460 77,263 78,137 78,930 79,720 80,663 12,556

YoY storage at

130 bcf YoY

surplus

US shale

estimated up

12.556 bcf/d in

June

http://ir.eia.gov/ngs/ngs.html


5

Energy Tidbits

Natural Gas – Mild winter; shoulder season drive Japan LNG prices down 42.9% YoY

The continued natural gas negative in 2019 has been low LNG prices with the warmer than normal winter in Asia weakening demand and redirecting LNG cargos to NW Europe. The lingering impacts of the mild winter and now shoulder season for natural gas demand in Asia has pushed LNG prices even lower in April. This week, Japan’s Ministry of Economy, Trade and Industry reported Japan contract-based spot LNG prices for Apr were $5.20, down 42.9% YoY from $9.10 in Apr 2018, and also down from $6.40 in Mar of this year. Below is our table of monthly Japan LNG import prices. Our Supplemental Documents package includes the METI release. [LINK]

Figure 3: Japan Contract Spot Prices

Source: Japan Ministry of Economy, Trade and Industry

Reminder LNG pricing pressures in 2020/2021 with Gazprom’s new pipelines

Weak LNG prices have been driven by surplus LNG with lower demand from a mild Asian winter, and Asian buyers sending excess LNG cargos to NW Europe. Despite the weak winter for LNG demand, we believe the rate of growth in LNG demand will continue to accelerate due to global LNG infrastructure buildouts. However, big increases in natural gas supply is likely to keep LNG prices weak thru 2020/2021. which was the thesis for our May 30, 2019 SAF Energy blog “LNG Price Pressures 2020/2021 With Gazprom Adding ~8.9 Bcf/D Export Gas Pipeline Capacity Into Europe And China” [LINK]. Below is a map of Gazprom’s Power of Siberia 3.6 bcf/d export pipeline to China, which is on track to start up Dec 1, 2019.

Figure 4: Gazprom Power of Siberia Natural Gas Project

Source: Gazprom

2014 2015 2016 2017 2017/2016 2018 2018/2017 2019 2019/2018

Jan $10.20 $7.10 $8.40 18.3% $11.00 31.0% $8.30 -24.5%

Feb $7.60 $6.50 $8.50 30.8% $10.60 24.7% $7.50 -29.2%

Mar $18.30 $8.00 n/a $6.30 n/a $8.80 39.7% $6.40 -27.3%

Apr $16.00 $7.60 $4.20 $5.70 35.7% $9.10 59.6% $5.20 -42.9%

May $14.80 n/a $4.10 $5.70 39.0% $8.20 43.9%

June $13.80 $7.60 n/a n/a n/a $9.30 n/a

July $11.80 $7.90 $5.80 $5.60 -3.4% $10.00 78.6%

Aug $11.40 $8.10 n/a $5.80 n/a $10.70 84.5%

Sept $13.20 $7.40 $5.70 $6.90 n/a $10.60 53.6%

Oct $15.30 $7.60 $6.10 $8.20 34.4% $10.70 30.5%

Nov $14.40 $7.40 $7.00 $9.00 28.6% $10.80 20.0%

Dec $11.60 $7.40 $8.00 $10.20 27.5% $9.20 -9.8%

Japan LNG import

prices down

42.9% YoY

https://www.meti.go.jp/english/statistics/sho/slng/result/pdf/201903_e.pdf

http://www.safgroup.ca/research/articles/lng-price-pressures-2020-2021-with-gazprom-adding-8-9-bcf-d-export-gas-pipeline-capacity-into-europe-and-china/


6

Energy Tidbits

Natural Gas – Good news for LNG, Accuweather forecasts warm Asian summer

Finally some positive news that should stop the YoY lower LNG imports and consumption in Asia in 2019, and help provide a floor for LNG prices this summer. The new Accuweather 2019 Asia summer forecast calls for hot weather in Japan, the Korean Peninsula and another warm summer in central and northeastern China (incl Beijing). Japan’s LNG imports have been down YoY for the last several months, so the hot summer may not increase LNG imports, but should at least keep them on par with last year. LNG imports peak during winter, and the mild Asian winter got the year off to a bad start. A hotter than normal summer won’t offset the mild winter in terms of LNG demand, but it shouldn’t add to the negative. Below is an Accuweather map of the expected summer 2019 weather conditions in Asia. Figure 5: Accuweather Highlights for Summer 2019 in Asia

Source: Accuweather

Natural Gas – PNG 7.5 Earthquake did not impact PNG LNG but reminds of risk

Regular earthquakes, including big earthquakes, in Papua New Guinea is really the norm, which adds to the risk of PNG LNG damage and/or interruption to operations as was seen in 2018. Last week’s (May 12, 2019) Energy Tidbits memo noted the big 7.2 earthquake on May 6, and this week PNG suffered another big 7.5 earthquake. The earthquake was on an outer island and not near PNG LNG, so no reported damages or interruptions to operations. One of the big 2018 stories was the 7.5 earthquake on Feb 26, 2018 close to the Exxon Papua New Guinea LNG facilities that led to the shut down of the ~1 bcf/d LNG project for ~6 weeks. Recent earthquakes remind that the earthquake risk in PNG is real. Big earthquakes are not a fluke in PNG. Our May 12, 2019 Energy Tidbits memo highlighted there have been 27 earthquakes that were 7.0 or greater since Jan 1, 2017 and PNG had 4 of them. With this week’s 7.5 earthquake, those numbers are now 28 earthquakes 7.0 or greater and PNG now has 5 of these.

PNG has most

7.0 earthquakes

Forecast calls for

warm Asian

summer


7

Energy Tidbits

Figure 6: Earthquakes 7.0 or Greater Since Jan 1, 2017

Source: Wikipedia.

Oil – US oil rigs down 3 to 802 oil rigs

On Friday, Baker Hughes reported its weekly rig data which was slightly positive for oil prices. US oil rigs were down 3 to 802 oil rigs as of May 17. Increases were in Cana Woodford +1, and DJ Niobrara +1. Decreases were in Permian -3, Granite Wash -1, and Others -1. Active US oil rigs are down 75 YTD, and Permian oil rigs account for 33 of the 75 decrease. Major services companies are expecting drilling to bottom in Q2/19, which means we should start to see a modest increase in oil rigs moving into H2 of 2019. Below is our graph of the Baker Hughes weekly US oil rig data.

Figure 7: Baker Hughes Weekly Rig Count – Total US Oil Rigs

Source: Baker Hughes, SAF

Oil – Total Cdn rigs flat at 63 total rigs

Baker Hughes reported Cdn rigs were unchanged at 63 total rigs as of May 17. Canadian drilling activity has likely bottomed, as we come out of spring breakup. Cdn oil rigs were flat at 22 oil rigs this week, compared to last year when Cdn oil rigs bottomed out at 32 oil rigs on May 11. Cdn gas rigs were flat at 41 Cdn gas rigs, vs last spring’s bottom of 43 gas rigs on June 1. Strengthening oil prices should lead to higher Cdn oil drilling activity, but weak spot gas prices should prevent big increases in Cdn gas drilling activity. Below is our graph of the Baker Hughes weekly Cdn oil rig data.

Country 2017 2018 2019 Total

Papua New Guinea 1 2 1 5

Peru - 2 1 3

New Caledonia 1 2 - 3

Mexico 2 1 - 3

Fiji - 2 - 2

US - 2 - 2

Russia 1 1 - 2

Philippines 1 1 - 2

Ecuador - - 1 1

Indonesia - 1 - 1

Honduras - 1 - 1

Venezuela - 1 - 1

South Georgia Islands - 1 - 1

Iran 1 - - 1

Total 7 17 3 28

US oil rigs were

-3 this week

Total Cdn rigs

unchanged this

week


8

Energy Tidbits

Figure 8: Baker Hughes Weekly Rig Count, Canadian Oil Rigs

Source: Baker Hughes, SAF

Oil – EIA says US oil production down 100,000 b/d to 12.1 mmb/d

EIA reported US oil production was down 100,000 b/d to 12.1 mmb/d for the May 10 week, which is 200,000 b/d lower than the record high of 12.3 mmb/d for the Apr 26 week. Lower 48 production was down 100,000 b/d to 11.6 mmb/d for the May 3 week, which is 200,000 lower than the record 11.8 mmb/d for the Apr 26 week. The EIA’s new STEO has forecast average Q2 oil production at 12.35 mmb/d, +170,000 b/d higher than the average weekly estimates for Q2 so far. This means the EIA must see huge WoW production increases thru the back half of Q2, or a downward revision in production growth forecast is coming. Below we pasted an excerpt from the EIA weekly oil production data. [LINK]

Figure 9: Weekly Oil Production

Source: EIA

US production

at 12.1 mmb/d

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W


9

Energy Tidbits

Figure 10: US Weekly Oil Production

Source: EIA, SAF

Figure 11: YoY Change in US Weekly Oil Production

Source: EIA, SAF

Oil – A slow start to US shale oil growth in 2019

We should state up front that we believe US shale oil wells are better than being given credit by the EIA and the EIA’s views on US shale oil well productivity gets tractions. We hope to have more on this view on an upcoming blog. Regardless, the main oil takeaway from the new Drilling Productivity Report is US shale oil growth has seen a slow start in 2019. (i) Last month the DPR forecast US shale/tight oil would be 8.460 mmb/d for May, and this month’s estimate for May was revised down by 48,000 b/d to 8.412 mmb/d. (ii) Because of the revision, the June estimate of 8.495 mmb/d is +83,000 b/d vs the downward revised May estimate of 8.412 mmb/d. (iii) The EIA’s estimate for June of 8.495 mmb/d is +1.318 mmb/d YoY, and June of 8.495 mmb/d implies 2019 H1 growth of +269,000 b/d. The current EIA Short Term Energy Outlook forecasts total US oil growth of +1.49 mmb/d YoY in 2019 vs 2018, of which Lower 48 onshore production accounts for 1.26 mmb/d of the YoY growth. The big growth comes in H2/19 due to Permian egress, but seeing as shale/tight oil production represents ~70% of total US oil production, it still looks tough to get to the EIA 2019 growth numbers if the EIA DPR shale estimates are accurate. (iv) No surprise the big YoY growth is the Permian at +802,000 b/d YoY, followed by Niobrara +183,000 b/d YoY, and Bakken +178,000 b/d YoY. Below is our table of running DPR estimates of shale/tight oil production.

Slow US shale oil

growth in H1/19


10

Energy Tidbits

Figure 12: Major Shale/Tight Plays Oil Production

Source: EIA, SAF

Oil – North Dakota Mar oil production up 19.6% YoY, points to strong well performance

The North Dakota Industrial Commission posted its monthly Directors Cut on Wed afternoon, which includes its estimate for North Dakota oil production in Mar. The NDIC estimates North Dakota oil production for Mar was 1,390,138 b/d, which is +19.6% YoY, and was up 4.1% MoM post very cold weather in Feb. Its not just recovering from cold weather, rather the completion data coupled with strong March oil production suggests strong well performance and points to higher production in April. (i) Well completions in March (preliminary) were only 48, down from 62 completions in Feb and 92 completions in Jan. Therefore, increasing production despite modest completions is a positive to the strength of the wells being completed. (ii) Increasing well completion inventory points to stronger future oil production, as the NDIC says “From end of February to end of March: • Estimated wells waiting on completion2 is 968 (Up 74)”. Below is our ongoing table of North Dakota oil production from the monthly NDIC Directors Cut’s. Our Supplemental Documents package includes the NDIC Directors Cut. [LINK]

Figure 13: North Dakota Oil Production By Month

Source: North Dakota Industrial Commission

Oil – North Dakota crude by rail up in Mar, bounce back from very cold Feb

Please note that starting this month, we have gone to the backup excel sheets from the North Dakota Pipeline Authority for more detailed numbers of crude by rail out of North Dakota. The NDPA Monthly Update (graph below) report only provides rounded numbers, and these rounded numbers are not accurate enough to match the graphs. In the backup excel, the NDPA estimates crude by rail in Mar was between 248,280 b/d to 278,280 b/d (low-high range). This compares to the estimated Feb range of 199,400 to 229,400 b/d. Assuming an average of both estimates, Mar was +22.8% MoM. Although the MoM increase seems strong, it is primarily due to the very cold weather in Feb causing crude by rail lower volumes. Below is a chart from the NDPA monthly update showing the crude by rail volumes since 2013. Our Supplemental Documents package includes the NDPA monthly update. [LINK]

2019

Thousand b/d June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jun YoY

Anadarko 512 527 550 561 564 566 571 580 586 586 573 554 548 36

Appalachia 112 113 125 139 143 128 125 128 131 134 131 129 133 21

Bakken 1,242 1,285 1,311 1,374 1,407 1,392 1,417 1,414 1,349 1,441 1,374 1,404 1,420 178

Eagle Ford 1,330 1,308 1,334 1,380 1,383 1,393 1,402 1,413 1,425 1,434 1,422 1,427 1,426 96

Haynesville 41 41 41 43 42 42 43 43 43 43 44 43 43 2

Niobrara 569 581 635 656 669 687 694 702 716 732 742 738 752 183

Permian 3,371 3,416 3,542 3,645 3,795 3,919 3,974 3,960 4,007 4,137 4,094 4,117 4,173 802

Total 7,177 7,271 7,538 7,797 8,003 8,126 8,226 8,241 8,257 8,507 8,380 8,412 8,495 1,318

(b/d) 2015 2015/2014 2016 2016/2015 2017 2017/2016 2018 2018/2017 2019 2019/2018

Jan 1,191,198 27.4% 1,122,462 -5.8% 981,380 -12.6% 1,179,564 20.2% 1,403,808 19.0%

Feb 1,178,082 23.7% 1,119,092 -5.0% 1,034,248 -7.6% 1,175,316 13.6% 1,335,591 13.6%

Mar 1,190,502 21.8% 1,111,421 -6.6% 1,025,690 -7.7% 1,162,134 13.3% 1,390,138 19.6%

Apr 1,169,045 16.5% 1,041,981 -10.9% 1,050,476 0.8% 1,225,391 16.7% - -

May 1,202,615 15.6% 1,047,003 -12.9% 1,040,995 -0.6% 1,246,355 19.7% - -

June 1,211,328 10.9% 1,027,131 -15.2% 1,032,873 0.6% 1,227,320 18.8% - -

July 1,206,996 8.3% 1,029,734 -14.7% 1,048,099 1.8% 1,269,290 21.1% - -

Aug 1,187,631 4.9% 982,011 -17.3% 1,089,318 10.9% 1,292,505 18.7% - -

Sept 1,162,159 -2.0% 971,760 -16.4% 1,107,345 14.0% 1,359,282 22.8% - -

Oct 1,171,119 -1.0% 1,043,693 -10.9% 1,183,810 13.4% 1,392,369 17.6% - -

Nov 1,181,787 -0.5% 1,034,484 -12.5% 1,194,920 15.5% 1,375,803 15.1% - -

Dec 1,152,696 -6.1% 942,322 -18.3% 1,182,836 25.5% 1,402,741 18.6% - -

North Dakota

crude by rail in

Mar up 22.8%

MoM

North Dakota Mar

oil production up

19.6% YoY

https://www.dmr.nd.gov/oilgas/directorscut/directorscut-2019-05-15.pdf

https://ndpipelines.files.wordpress.com/2019/05/ndpa-monthly-update-may-15-2019.pdf


11

Energy Tidbits

Figure 14: Estimated North Dakota Rail Export Volumes

Source: North Dakota Pipeline Authority

Oil – Minor relief for electricity risk, NOAA reduces summer temp. forecast for Texas

The NOAA posted its updated seasonal forecast this week [LINK], and if the forecast holds true, should provide some minor relief to the Texas electricity grid this summer. The NOAA lowered its forecast for summer temperatures. Average temperatures are still forecast a little above normal, but lower than last month. However, a still above average temperature forecast for Texas doesn’t alleviate the risk of higher costs, delays in connecting to grid, and risk of power shortfalls or outages. Power is needed across the entire oil supply chain from production to field batteries to gathering to pipelines to terminal operations. Its not just getting power generation, its also getting the electricity to where it is needed ie. transmission. Transmission is a big problem to get power to the Permian and along the pipeline routes to the Gulf Coast. Several pipelines are starting up early in 2019, but not at full capacity as they can’t get electricity to all their required pump stations so are using temporary (I assume natural gas generators) to power pump stations. Note, higher temperatures put additional stress on the grid not only because of additional A/C usage, but high temperatures can also reduce the efficiency of generation facilities. summer.

Figure 15: NOAA May 16 Updated July/Aug/Sept Temperature Forecast

Source: NOAA

Minor relief for

Texas electricity

problems

https://www.cpc.ncep.noaa.gov/products/predictions/long_range/seasonal.php?lead=3


12

Energy Tidbits

FERC reinforces summer electricity risk in Texas

On Thurs, the Federal Energy Regulatory Commission (FERC) published its 2019 Summer Energy Market and Reliability Assessment Report [LINK]. The report provides a good update on summer weather forecasts, electricity generation, LNG growth etc. However, our main takeaway was FERC reinforcing the summer electricity risk in Texas, which we have been commenting on since Feb 2019. FERC writes “ERCOT anticipates that its reserve margin for this summer will be 8.5 percent, which is below its reference margin level of 13.75 percent. ERCOT’s reserve margin in 2018 was also below its reference margin level, but ERCOT maintained system reliability with no load curtailments. In studying scenarios for the upcoming summer, ERCOT identified the potential need to call an energy alert under various circumstances. When ERCOT declares an energy alert, it can take advantage of a variety of additional resources that are only available during scarcity conditions. These resources are expected to mitigate capacity shortages if they should occur”. Below is a slide from the FERC report, showing ERCOT reserve margins compared to other regions in the US.

Figure 16: Reserve Margins for US Regions

Source: FERC

Oil – AAA forecasts 2nd highest Memorial Day holiday travel, only behind 2005

We are a little surprised with the AAA Memorial Day holiday travel forecast [LINK] given high US gasoline prices and continuing out of service of the 737 MAXX. Memorial Day holiday is considered the unofficial start of the summer vacation season. AAA’s forecast is for higher US travel this year vs last year an the 2nd highest travel season since 2005. AAA forecasts:”Automobiles: The vast majority of travelers – 37.6 million – will hit the road, the most on record for the holiday and 3.5% more than last year. Planes: 3.25 million people will take to the skies, 4.8% more than last year, second only to 2005. Trains, Buses and Cruise Ships: Travel across these sectors will increase by 3.8% to 1.9 million passengers.” Our Supplemental Documents package includes the AAA forecast.

Near record US

travel Memorial

Day weekend

https://www.ferc.gov/market-oversight/reports-analyses/mkt-views/2019/05-16-19.pdf

https://newsroom.aaa.com/2019/05/memorial-day-travel-forecast-2019/


13

Energy Tidbits

Oil – Oil input into refineries up 271,000 b/d to 16.676 mmb/d

Crude oil input to refineries moved closer to normal levels this week, with a 271,000 b/d increase to 16.676 mmb/d for the May 10 week. This compares to last week, when crude oil inputs were up 41,000, and two weeks ago when crude inputs were down 137,000 b/d. Higher crude inputs pushed refinery utilization up 1.6% this week to 90.5% which is 0.4% higher YoY. Refinery utilization and crude oil inputs have been seasonally lower this year, as refineries have been front loading maintenance in preparation for IMO 2020. US refinery demand will still be ramping up seasonally, but will likely be below last year’s levels for the next few months. Below is our graph of the EIA weekly crude oil input to refineries.

Figure `17: US Refinery Crude Oil Inputs (thousand b/d)

Source: EIA, SAF

Oil – US “NET” oil imports down 106,000 b/d to 4.265 mmb/d

US “NET” imports were down again this week, with a 106,000 b/d decrease to 4.265 mmb/d for the May 10 week, compared to 4.371 mmb/d for the May 3 week. Imports were down big, with a 919,000 b/d decrease to 7.612 mmb/d for the May 10 week, from 6.693 mmb/d last week. Exports showed a huge increase, up 1.025 mmb/d to 3.347 mmb/d for the May 10 week, from 2.322 mmb/d last week. Some items to note on the oil import by country data. (i) Canada was virtually unchanged at 3.484 mmb/d. (ii) Saudi Arabia was up 223,000 b/d to 534,000 b/d this week, vs 311,000 b/d for the May 3 week. (iii) Mexico was down big, with a 402,000 b/d decrease to 567,000 b/d for the May 10 week, Mexico seems to go up big one week, and down big the next. (iv) Venezuela was zero again this week, as expected due to US sanctions fully kicking in post the Apr 27 deadline. (v) Iraq was up 351,000 b/d to 521,000 b/d as the country works to offset Venezuela. Below is our table of the US oil imports by major country.

Figure 18: US Weekly Preliminary Oil Imports By Major Countries

Source: EIA, SAF

Mar 8/19 Mar 15/19 Mar 22/19 Mar 29/19 Apr 5/19 Apr 12/19 Apr 19/19 Apr 26/19 May 3/19 May 10/19 WoW

Canada 3,389 3,518 3,447 3,212 3,424 3,396 3,669 3,600 3,481 3,484 3

Saudi Arabia 947 407 490 764 484 423 807 514 311 534 223

Venezuela 112 0 0 0 139 71 191 186 0 0 0

Mexico 615 712 463 574 937 706 311 345 969 567 -402

Colombia 326 421 479 451 389 248 485 589 229 419 190

Iraq 234 405 381 128 156 5 305 551 170 521 351

Ecuador 116 197 96 105 184 49 87 124 161 160 -1

Nigeria 29 136 138 277 0 93 67 142 446 95 -351

Kuwait 47 69 288 124 43 43 82 111 0 118 118

Angola 0 0 0 0 0 0 0 0 0 0 0

Top 10 5,815 5,865 5,782 5,635 5,756 5,034 6,004 6,162 5,767 5,898 131

Others 931 1,067 758 1,128 843 958 1,145 1,252 926 1,714 788

Total US 6,746 6,932 6,540 6,763 6,599 5,992 7,149 7,414 6,693 7,612 919

Oil input into

refineries up

271,000 b/d

US NET oil

imports down

106,000 b/d


14

Energy Tidbits

Oil – OPEC MOMR, April OPEC production flat at 30.022 mmb/d

OPEC released its Monthly Oil Market Report on Tuesday. Overall OPEC production was flat in April vs March, but OPEC quota cut countries produced 404,000 b/d less than quota target, not as good as March where those countries produced 442,000 b/d less than quota. (i) The compliance is driven by Saudi Arabia being 569,000 b/d below quota. (ii) OPEC Mar production per “secondary sources” was 30.031 mmb/d, virtually unchanged from 30.034 mmb/d in Mar. Note, there was an immaterial revision to total OPEC March production of 30.034 mmb/d, which was originally estimated at 30.022 mmb/d. (iii) Iran‘s Apr production was down 164,000 b/d to 2.554 mmb/d, after being basically unchanged for the past four months. Iran’s Apr production was supported by last minute deliveries as buyers prepared for sanctions to take effect, meaning Iran’s May should be much lower. (iv) Iraq was up 113,000 b/d to 4.630 mmb/d in Apr and is back to being a quota cheater. We shouldn’t be surprised that Iraq is up given it is able to help offset Venezuela. (v) Libya was estimated up 71,000 b/d to 1.176 mmb/d with the Sharara back online, but with increasing fighting, we have to believe May will be lower. (vi) Saudi Arabia was down 45,000 b/d in Apr to 9.742 mmb/d. Saudi Arabia has been the reason why OPEC is producing less than quota, April was 569,000 b/d less than quota of 10.311 mmb/d. (vii) Venezuela was up 28,000 b/d in Apr to 768,000 b/d, but May should be lower due to worsening operational issues at PDVSA. (viii) Nigeria was up 92,000 b/d to 1.819 mmb/d and is now the biggest cheater at 134,000 b/d over quota. May should be lower, as some of Shell’s Nigerian assets were under force majeure from Apr 25 to May 14. The OPEC MOMR estimate for Mar 31 oil stocks were 22.8 mmb above the five year average, vs last month where oil stocks were 7.0 mmb above the five year average. Note this is for “oil” stocks and excludes product stocks. OPEC says “Preliminary data for March showed that total OECD commercial oil stocks rose by 3.3 mb m-o-m to stand at 2,875 mb. This was 58.5 mb higher than the same time one year ago, and 22.8 mb above the latest five-year average”. (ix) OPEC’s demand forecasts are unchanged for 2018 and 2019, but we have to expect that the escalating trade war between China and US will lead to lowering of oil demand forecasts in the June MOMR. OPEC said “Throughout the regions, there are revisions which broadly cancel each other out. Some positive upward revisions are accounted for in OECD Americas and China, due to better economic projections than in the previous month. On the other hand, some downward revisions are seen due to lower than expected oil demand data in Latin America and the Middle East during 1Q19, in addition to some downward adjustments to OECD Europe, Latin America and the Middle East for the entire year.” (x) Non-OPEC supply growth rates revised immaterially lower in 2019, immaterially higher in 2018. Non-OPEC oil supply growth in 2018 is revised up by a minor 0.01 mb/d from the previous month’s assessment, mainly due to an upward revision to Canada’s supply in 4Q18, which non-OPEC supply is now estimated to have grown by 2.91 mb/d to average 62.37 mb/d. In contrast, non-OPEC oil supply growth in 2019 is revised down by 0.03 mb/d to average 2.14 mb/d, mainly due to lower than expected output in 1Q19 in the US, Brazil and the UK, which is partially offset by upward revisions in China”. (xi) The call on OPEC is revised up this month. In the new MOMR, OPEC says the demand for OPEC crude in 2018 is 31.6 mmb/d (vs 31.4 mmb/d last month) and in 2019 is 30.6 mmb/d (vs 30.3 mmb/d last month). Our Supplemental Documents package includes excerpts from the OPEC MOMR.

OPEC Apr oil

production flat

at 30.022 mmb/d


15

Energy Tidbits

Figure 19: OPEC MOMR Secondary Sources Apr 2019

Source: OPEC

Oil – Explaining the 269,000 b/d variance in Venezuela’s est vs Secondary Sources

OPEC’s MOMR also includes Apr oil production as per “Direct Communications” ie. some differences to note in the “Direct Communications” ie. what the OPEC member countries report as their production. (i) In the Direct Communications, Venezuela says April was 1.037 mmb/d, or 269,000 b/d higher than Secondary Sources of 768,000 b/d. In every country, there is always a variance in the two estimates. But in Venezuela’s case, there is a factor that drives the vast majority of the variance. We explained this in our Jan 20, 2019 Energy Tidbits. We wrote “Oil – Argus explains why Venezuela says its oil production is so much higher... It always never makes sense how there could be so big a difference, at least until now. This week, Argus Media had an excellent story “Venezuela oil flows inch up behind data fog” [LINK] , which explained why there is such a big difference – the key factor is that Argus says Venezuela includes water volumes ie. not the oil volumes after water is separated. Argus wrote “According to internal PdV analysis, the official figures are inflated by a series of factors starting at the wellhead, including tallying gas liquids, condensates and water into the volumes. The water cut in particular contributes to a systematic gap between operational data — which is reported to PdV headquarters by field managers — and the metered data that is overseen by the oil ministry. Field managers sometimes exaggerate the operational data to meet performance targets or obscure chronic upstream problems exacerbated by a lack of oil services and theft of oil and equipment. A PdV manager says that the data is especially opaque in the company's mature western division around Lake Maracaibo. "In the west, operational production data is manipulated compared with the inspected data," the manager explained. "Because this production goes to the internal market, it's hard to detect the alterations. "Operational data is a lot higher than the inspected data. The question is, what happened to the crude that wasn't metered? The metered data is closer to reality."

Oil – IEA OMR, April OPEC up 60,000 b/d to 30.210 mmb/d

The IEA published its monthly Oil Market Report on Wednesday morning. They only release very limited public info, but the Bloomberg terminal provides the key data tables. (i) Generally a similar takeaway on OPEC Apr production vs quota – a little worse compliance than March, with Saudi overdelivering on cuts. (ii) The EIA had total April OPEC production at 30.210 mmb/d, +60,000 b/d compared to last month, and quota cut countries were 337,000

Why Venezuela

reports higher oil

production

OPEC up 60,000

b/d to 30.210

mmb/d

https://www.argusmedia.com/en/news/1830177-venezuela-oil-flows-inch-up-behind-data-fog?backToResults=true


16

Energy Tidbits

b/d below quota in aggregate (was 467,000 b/d below in March). (iii) The IEA had Saudi Arabia +10,000 b/d to 9.810 mmb/d, 501,000 b/d below quota. (iv) Nigeria was +100,000 b/d to 1.790 mmb/d, which is now 105,000 b/d above quota. (v) Libya was +100,000 b/d to 1.170 mmb/d, but with increasing fighting, we have to believe May will be lower. (vi) Venezuela was down 40,000 b/d to 830,000 b/d, meaning the EIA has Venezuela 62,000 b/d higher than OPEC secondary sources. (vii) The IEA had Iran down 130,000 b/d to 2.610 mmb/d and should be going much lower in May with the end of US waivers. (viii) IEA revised down oil demand forecasts. IEA wrote “Our 2018 oil demand growth estimate has been revised down by 70 kb/d to 1.2 mb/d and our 2019 forecast is reduced by 90 kb/d to 1.3 mb/d. Revisions for 2018 impacted mainly non-OECD Asia and African countries. The 2019 revision is seen in OECD Asia in 1Q19”. (vi) IEA reported positive oil inventory data, as estimated oil stocks fell by 25.8 mmb in March to 2 849 mmb, and the EIA said “In days of forward demand, stocks amount to 59.8 days, their lowest level since July 2018”. (vii) Bloomberg reported tighter medium sour diffs due to contamination in the Druzhba pipeline. Bloomberg wrote “Russia’s contaminated Urals crisis in Druzhba pipeline raises demand on medium sour grades as the market is experiencing supply tightness following losses from Iran and Venezuela, as well as OPEC+ deal, the IEA says in its monthly report”. Our Supplemental Documents package includes the IEA OMR release and Bloomberg terminal tables/stories.

Oil – No JMMC supply increase recommendation expected, but maybe indications

Our cut off for news this morning was 9am MT (6pm Jeddah) so there is no official word yet coming out of today’s OPEC+ Joint Ministerial Monitoring Committee (JMMC) in Jeddah. But the messaging coming out of Jeddah prior to today was consistent and really echoed the comments that first came from Saudi Energy Minister al Falih yesterday morning. The once extra tease was from Russia energy minister Novak this morning. Yesterday morning, we tweeted [LINK] “Saudi Falih ahead of OPEC+ #JMMC, #Oil "inventories are still rising" "so obviously (there is) supply abundance” Doesn’t point to JMMC rec to increase supply Sun, rather wait until June 25/26 meet. But doesn’t mean Saudi won't increase June exports” based on the Reuters al Falih interview [LINK]. Al Falih’s message was echoed by others such as the UAE oil minister Al Mazrouei. The takeaway from these comments were no OPEC+ JMMC recommendation expected today to increase supply, rather wait for any decisions to change quota at the OPEC June 25/26 meetings, but with the Al Falih qualifier ““I am not sure there is a supply shortage, but we will look at the (market) analysis. We will definitely be responsive and the market will be supplied,” and the Al Marzouei qualifier “The Organization of Petroleum Exporting Countries will fill any supply gaps that may emerge from tighter sanctions on Iran, Al Mazrouei said.” But interesting comments this morning from TASS [LINK] on Russia Energy Minister Novak comments. "I think now it is early to speak [about the need to extend the deal]. We need to meet and discuss everything," Novak said upon his arrival in Saudi Arabia. "We need to listen to a report by a technical committee and assess the implementation of the deal over the past four months and also discuss the situation on the market in order to develop proposals for our June ministerial meeting," the minister said”. Our Supplemental Documents package includes the Reuters Al Falih interview, the Bloomberg reports on Al Marzouei comments, and the TASS story on Novak comments.

But Al Falih has already laid out a roadmap for increased Saudi June exports

Notwithstanding Al Falih’s comments for today’s JMMC meeting, he has also clearly laid out the rationale for Saudi to increase oil exports in June as part of the current OPEC+ quota deal. He has been clear that Saudi will respond to customer demand from Iran’s former customers but won’t exceed their individual quota or have OPEC, in total, exceed the total collective quota. But with Saudi being below their quota and

No JMMC

recommendation

expected today

https://twitter.com/Energy_Tidbits/status/1129705310795341825

https://www.reuters.com/article/us-oil-opec-falih-exclusive-idUSKCN1SO03Y?utm_campaign=trueAnthem:+Trending+Content&utm_content=5cdf8a7ca78c46000108d2cc&utm_medium=trueAnthem&utm_source=twitter

http://tass.com/economy/1058958


17

Energy Tidbits

OPEC in total being below their total quota, there is room for Saudi to increase June oil exports to meet customer demand including former Iran customers. We had 3 tweets this week on this road map. The 1st tweet [LINK] “#OPEC+ JMMC doesn’t make formal decision, but expect May 19 Jeddah meeting to clearly indicate OPEC+ will increase #Oil supply to meet customer demand (keep stable market), implying more June loadings. Same as Saudi al Falih said, see SAF May 2 blog ...”. The 2nd tweet [LINK] “… increased #Oil exports to respond to customer demand in light of Iran and other interruptions. But also needed to meet peak seasonal summer demand , Q3/19 vs Q2/19 demand forecast +1.41 mmb/d in yesterday’s #OPEC MOMR and +0.9 mmb/d in today’s #IEA OMR.” The 3rd tweet [LINK] “#Oil market focus on #OPEC+ JMMC Sunday meeting in Jeddah. Even before any JMMC recommendation, Saudi can signal June production increase (+0.4 mmb/d based on OPEC MOMR, +0.3 mmb/d based on #IEA OMR), still stay below its individual quota and keep OPEC in total below its quota.” Our Supplemental Documents package includes out May 2 blog “Saudi’s Al Falih Laid Out Roadmap For Increased Saudi Exports In June, We Think +400,000 b/d Is Likely” [LINK].

Oil – Big oil news today, did Saudi signal support for an end to US sanctions on Iran?

Today could be a major point to reduce geopolitical risk premium in oil. We have to love Sunday mornings because there always seems to be big news coming out of the Middle East to give us big breaking news for our Sunday Energy Tidbits memos. The only problem is that it typically causes some big last minute rewrites. Early this morning, we posted tweet #1 [LINK] “#Oil risk lower. Big change Saudi Iran stance. SPA headline Saudi Foreign Minister Al-Jubeir KSA “does not want a war but will respond firmly and decisively to any threat”. Big pull back from Arab News trial balloon pushing US to surgical strike v Iran …“ and tweet #1 [LINK “… overlooked part of SPA story so far, Al-Jubeir KSA “believes that the peoples of the region, including the Iranian people, have the right to live in security and stability and to move towards development” Did KSA just say they support an end to #IranSanctions? #Oil risk lower” on the big oil news this morning out of Saudi Arabia with the Saudi Press Agency (official news agency for Saudi Arabia) story “Al-Jubeir: The Kingdom does not want a war, but will respond firmly and decisively to any threat” [LINK]. This seems like a big change in position from the what now looks like a trial balloon floated by Arab News on Thurs morning calling for the US to make surgical strikes on Iran like the US did on Syria. We don’t think anyone believe the Saudis want an all out war with Iran. And no war is a great headline. Its not that Al-Jubeir didn’t blame the Iranian regime and its proxies for the regional problems, because he did so in the article. But while we know it’s a Sunday morning (our cutoff is 9am MT), there is a hugely important part of the SPA story that is being overlooked. This wasn’t a direct quote from Al-Jubeir, but it is the SPA reporting so we have to believe they were being precise in their words. SPA also wrote “Al-Jubeir also noted that the Kingdom of Saudi Arabia affirms that its hands are always extended to peace and seeks to achieve it, and believes that the peoples of the region, including the Iranian people, have the right to live in security and stability and to move towards development.” A right to “stability and security” is significant, but the “move to development” is very interesting. How else can Iran move to development unless there is removal or big reduction of US sanctions on Iran?? And there was one significant specific item not in the Al-Jubeir comments – he made no specific mention or regime change. While he blamed the Iranian regime, he didn’t call for regime change. But to be fair, he said that they can avert future problems if they stop doing the items that lead to regional unrest. We should note the stories this morning out of Iran’s official news agency IRNA [LINK], who reported IRGC saying “'The enemies of Iran don't hunt for a war, either. But there is a difference between them and us: they are afraid of war; their limit is where their life is in danger, which makes them easy to be defeated,' said Major-General

Did Saudi open

door to end in

US sanctions on

Iran?




http://www.safgroup.ca/research/articles/saudis-al-falih-laid-out-roadmap-for-increased-saudi-exports-in-june-we-think-400000-b-d-is-likely/



https://www.spa.gov.sa/viewfullstory.php?lang=en&newsid=1925500#1925500

http://www.irna.ir/en/News/83319981


18

Energy Tidbits

Salami in a meeting to introduce IRGC's new top officials, adding that the IRGC is closely monitoring the enemy and has stopped them.” Our Supplemental Documents package includes the SPA story.

We wonder if Thurs/Fri set up today’s potential Saudi position change

Based on this morning’ statement, it now seems like the Thurs/Fri Saudi/US comments may have led to what looks to be a major Saudi position change vs Iran. The Saudi drone attack on the two pumping stations is interesting. Yes they shut the pipeline down but it was for only a day or so. There was no damage to the pipeline itself reported and the Saudis said only minor to the pumping station. In the past, given the limited damage this might have been the type of attack that they pretended nothing happened. As noted later in the memo, Saudi Arabia and the UAE both dismissed last July long range drone attacks and were able to do so given the limited damage. But this time, the Saudis made a big deal out of this. It felt like the the political dynamics were different early in the week, and that the Saudi’s decided it was the time to push the US into delivering on their promise to hold Iran responsible for proxy attacks and to hit back. It felt this week almost like someone was believing it was approaching a now or never moment, in particular with the 2020 elections not too far away. The big surprise then came on Thurs morning with the Arab News editorial. We tweeted [LINK] “Positive for #Oil. Saudi Arabia turns up heat on US to strike Iran. KSA aligned Arab News says sb “surgical strikes” “US has set a precedent, and it had a telling effect: The Trump strikes on Syria when the Assad regime used Sarin gas against its people”. This was another big push on Trump to take military action on Iran. It now seems like the Arab News editorial may be been a trial balloon floated by the Saudis to see how Trump would respond. But it quickly seemed like Trump did not want to do so and his preference wasn’t to initiate war on Iran as, on Thurs/Fri, it seemed like a back away from the momentum to a US military action with Trump’s openness to want to meet Iran leaders and then the messaging from unnamed contacts within the administration that Trump really doesn’t want war with Iran. In a matter of a few days (prior to this morning) it seems like the momentum to war, and that he biggest fear right now is that some accidental event sets up a bigger conflict. We have to believe Trump not embracing the first strike on Iran stance has led to today’s SPA reports. Our Supplemental Documents package includes the Arab News editorial [LINK].

We also wonder if Khomenei’s people moves had any impact

Its not just the IRGC commander comments this morning about Iran not fearing war. One story that didn’t get much attention was the Ayatollah appointing new senior IRGC commanders. It seemed like Iran is sending a message back to the US and Saudi Arabia that they were prepared for the worst case scenario. On Friday, we tweeted [LINK] “Is Ayatollah Khamenei making sure IRGC commanders are hardliners?Appointed new acting commander of IRGD and new deputy commander for coordination of the country's military force. In Apr, appointed new IRGC chief and new IRGC Navy Commander. Message to US? On Thurs, IRNA (official news agency for Iran) reported that “Supreme Leader appoints new IRGC commanders. Tehran, May 16, IRNA - Supreme Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei appointed new Islamic Revolution Guards Corps (IRGC) acting commander and deputy commander for coordination”. Plus a few weeks ago, he also appointed a new IRGC naval forces commander (see our April 24, 2019 blog Iran Sanctions - What are key potential risks to oil by the US putting Iran’s back to the wall?” It seems strange to be making senior position changes at a time of major




19

Energy Tidbits

threat to Iran. We don’t know the backgrounds of these new commanders or the ones being replaced, but we have to believe the Ayatollah is making sure he has his top IRGC commanders aligned with his hardline views. Maybe the message wasn’t just for the US and Saudi Arabia, but also Iran moderates? Our Supplemental Documents package includes the IRNA story.

Oil – Houthis long range drone hits Aramco pumping station west of Riyadh

Everyone knows this big oil story this week – Houthis drone attacks on two separate pumping stations on the East to West oil pipeline to Yanbu, one of which inflicted minor damage on one pumping station. Saudi Aramco shut down the pipeline for over a day. One of the stories that received a lot of attention was the AP story “Bomb-laden drones of Yemen rebels threaten Arabian Peninsula” noting the long range capability of the Houthis drone puts all of Saudi Arabia and UAE key infrastructure in range. There is no question this is significant. But it should not surprise anyone who follows the Houthis. It confirms what we have been highlighting in our Energy Tidbits memos – long range missile/drone capability puts all of Saudi Arabia and UAE at risk including eastern Province oil. But the stories seemed to miss two other key points. (i) the Houthis have done this for a long time but the Saudis and UAE have mostly denied or didn’t note any such event unless they said that their defense systems successfully shot down a missile. (ii) drones or cruise missiles are more likely to get thru Saudi and UAE defense systems (patriot missiles and THAAD) that were designed to focus on ballistic missiles (short, mid and long range).

Houthis have had long range missile attacks for some time

Our biggest surprise was that no one seemed to highlight the Houthis claimed long range drone/cruise missile attacks last summer against Saudi Arabia and the UAE. These are separate from the (likely scores) of ballistic missiles (some long range) launched by the Houthis against Saudi Arabia. (i) Our July 22, 2018 Energy Tidbits had an item “Do Houthis have long range drones, did one hit a Riyadh refinery?” that said “One of the Saudi Arabia/Houthis news items this week that didn’t get much attention was a potentially significant development in the Houthi/Saudi Arabia war. On Wed morning, the Saudi’s tweeted that there was a fire at a Saudi Aramco refinery in Riyadh and the cause was under investigation. The Houthis said they were successful in their first first long range Sammad-2 drone at a Saudi Aramco refinery in Riyadh. The Saudi changed their tweet to delete any investigation and said the fire was due to an “operational incident”. The probable saving grace here for the Saudi messaging is that the Saudi’s fire supposedly didn’t disrupt refinery operations. What is significant is that the Houthis may have a long range drone. The Houthi drone attacks have to date been more at southern Saudi Arabia targets close to Yemen and not long range targets. Plus it’s a drone (cheaper) than a ballistic missile and also potentially more accurate. If the Houthis have a long range drone that can hit Riyadh, it can also hit the major oil infrastructure/export on the Red Sea at Yanbu and likely the big oil infrastructure and exports in the Persian Gulf. The other significant aspect is that the Houthis went after a refinery, a key part of the oil infrastructure. What will drive oil up overnight is if the Houthis hit something in the oil infrastructure that disrupts the Saudi Arabia oil supply chain – an export terminal, a refinery, a major pipeline, etc.” (ii) Our July 29, 2018 Energy Tidbits highlighted the Houthis claimed long range strike on the UAE. We wrote ‘We understand why everyone is dismissing the Houthis claims of a long range drone strike on the Abu Dhabi airport this week or the Riyadh refinery last week (see our July 22, 2018 Energy Tidbits), both denied by UAE or Saudi Arabia. To be fair, the Houthis claims have not always been true. But we believe it is a potential material development that

Houthis long

range drone hits

Saudi Aramco


20

Energy Tidbits

is should be followed to see if true or not. This week, the Abu Dhabi airport denied any Houthi attack, rather, coincidentally, they had an incident with a supply vehicle at the airport. You can never tell what the real story is in the Middle East, but if you take the extra 20 seconds to read part 2 of the Abu Dhabi airport tweets, it sounds like a non-denial denial. A good example of the reporting that makes it a non event is Reuters [LINK], who wrote that UAE denied reports of a drone attack on the airport, and that ““Operations at the airport are business as usual,”. Forbes wrote [LINK] “The Houthi movement – which seized the Yemeni capital Sanaa in early 2015 but whose claim to power is not recognised by most countries – said air traffic to and from Abu Dhabi airport was disrupted following the assault. Officials in the UAE. Subsequently denied there had been an attack, although Abu Dhabi Airport did tweet that there had been an incident at the airport at 4pm on Thursday, caused by a supply vehicle. The airport said it did not affect the airport’s operations or the schedule of incoming and departing flights”. Forbes had a link to the tweet, but their link only linked to part 1 of 2 for the Abu Dhabi airport. We looked at several stories on this drone attack and Forbes was not alone in referencing only this part 1 of 2 for the tweets. It seems like everyone either didn’t read part 2/2 of the tweet or chose to ignore it. We have seen too many instances of he said/she said and thought it its such a non event, why does the Abu Dhabi airport need to “continue to monitor the situation” with “the concerned authorities” and “further updates will be made available in due course”. We wonder what do they have to monitor and who are the concerned authorities. Maybe it was just a truck going on fire or something like that, but if so, what are they monitoring? It really sounds like a non-denial denial or at least it could be”. Our Supplemental Documents package includes our July 22, 2018 and July 29, 2018 Energy Tidbits writeups on the Houthi claimed attacks on Riyadh and UAE.

Saudi/UAE missile defense were primarily designed against ballistic missiles

The other part that is off the radar is that the drones got thru the Saudi missile system. And this is the issue that adds the risk. The key Saudi/UAE defense systems are either Patriot missiles or THAAD and both were designed for ballistic missile trajectory (short, mid and long range, like the infamous SCUD missiles. They weren’t designed to focus on the trajectory of a cruise or drone. Our July 29, 2018 Energy Tidbits also wrote “We recognize that the drone will not have the same speed as a cruise missile, but it interesting to see some of the recent stories that Israel Patriot missiles didn’t take down some Syrian drones. Its hard to know what happened this week at the Abu Dhabi airport, but it brought back reminders of the Houthis claimed cruise missile attack last year. Our Dec 3, 2017 Energy Tidbits noted the then claim by the UAE that it had shot a cruise missile at the UAE. At that time we noted that the “UAE is different than Saudi Arabia – it has a much more advanced missile defense system. It has patriot missiles and the THAAD missile defense system that should take out any ballistic missile a long way away from reaching the UAE. UAE also has patriot missile defense system to destroy missiles, but closer to the final target.” “As everyone knows, there are very different flight paths for a cruise and a ballistic, and THAAD is designed to counter ballistic missiles. The below illustration shows the typical trajectory for a cruise vs ballistic missile.”

https://www.reuters.com/article/us-yemen-security-emirates-attack/uae-denies-report-of-houthi-drone-attack-on-abu-dhabi-airport-idUSKBN1KG23W

https://www.forbes.com/sites/dominicdudley/2018/07/27/houthi-economic-targets-yemen-war-saudi-uae/#5e12036d5842


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Energy Tidbits

Figure 20: Typical Trajectory For Cruise Vs Ballistic Missile

Source: Northwestern Polytechnical University

Oil – Something did happen last Sun in UAE, 4 tankers “sabotaged”

The breaking news last Sunday morning was the reports (being denied by UAE) of what turned out to be attacks (still not confirmed by what) that caused holes in tankers while being anchored off the Fujairah port, the major oil export terminal for UAE and the 2nd largest bunkering facility in the world. We were able to get in the early reports to last week’s (May 12, 2019) Energy Tidbits. There still has been no official reporting by the UAE on the sabotage, but it clearly was the catalyst for oil going in to the week. Most importantly, it has now led to the Joint War Committee putting most of the Persian Gulf into the enhanced risk area and this will impact tanker costs, travel times, and availability (see below item).

UAE’s Fujairah oil terminal is a critical piece in global oil supply chain

The reason why we spent time on this story in the last week’s (May 12, 2019) Energy Tidbits was that Fujairah is a critical part of the global oil supply chain. It is a hugely strategic oil terminal and bunkering facility. What makes this significant is that it on the east coast of UAE and therefore on ocean bound side of the Strait of Hormuz. It is the terminal that won’t be impacted if there is any Strait of Hormuz risk. It is UAE’s major oil export terminal and the world’s 2nd largest bunkering port. The EIA Country Analysis Brief UAE March 21, 2017 [LINK] says ““The UAE has a well-developed domestic pipeline network that links oil fields with processing plants and export terminals. The newest export pipeline, the Abu Dhabi Crude Oil Pipeline (ADCOP), runs 236 miles from Habshan to Fujairah and began operations in June 2012. This pipeline gives the UAE a direct link from the rich fields of its western desert to the Gulf of Oman and from there to global markets. With a capacity of 1.5 million b/d—and a potential capacity of 1.8 million b/d—this pipeline allows the UAE to export a significant portion of its daily production without passing through the Strait of Hormuz. The Strait of Hormuz is the world’s busiest energy chokepoint (*link to Chokepoints CAB*), accounting for 30% of all seaborne-traded oil. Already the world’s second-largest bunkering port, the export terminal in Fujairah will expand its storage capabilities significantly over the coming years. Plans to expand the terminal include several new private tank storage units, with an anticipated capacity of 88

Fake news re

UAE today??

https://www.eia.gov/beta/international/analysis_includes/countries_long/United_Arab_Emirates/uae.pdf


22

Energy Tidbits

million barrels by 2020. The Fujairah port also opened the country’s first very large crude carrier (VLCC) in September 2016, bringing total port loading and unloading capacity to 2 million b/d.21 Refining and storage capacity are growing as a result of ongoing expansion projects, and Fujairah is quickly becoming a critical node in a well-developed refining and export network.”

Figure 21: UAE Select Energy Infrastructure

Source: EIA

Oil – Libya NOC Chair sees 95% of Libya oil at risk without a halt to fighting

Libya oil has surprised by its ability so far to maintain high oil production with reports this week it was at 1.3 mmb/d. Yesterday, Libya NOC Chairman Sanell came out with another warning that Libya oil production is at risk if there isn’t a near term end to fighting. Sanella was widely quoted "Unfortunately if the situation will continue like this I´m afraid that maybe 95% of production will be lost," Mustafa Sanalla told reporters in Jeddah ahead of a ministerial panel gathering on Sunday of top OPEC and non-OPEC producers. This follows last week’s warning (see our May 12, 2019 Energy Tidbits) that Sanella notes its becoming increasingly difficult for Libya to maintain its neutrality. This is the fear we have been highlighting, and he notes a parallel entities trying to export oil. He is also concerned that, even if one side wins, it sets up a return to fighting that will cause production interruptions. The southern oil fields (Sharara, etc) are vulnerable (~400,000 b/d) It is at risk now and even if one side wins. On Wed, we posted a two part tweet. Tweet #1 [LINK] “A must read LiIbya NOC Chair Sanella op-ed warning @LibyaOilandGas at risk now w/o ceasefire and also post a win. “I cannot foresee any scenario, other than an immediate ceasefire, in which Libya oil exports are not severely impacted by the conflict” …” and Tweet #2 [LINK] “… “increasingly difficult” to stay neutral, “alarmingly” illegal attempts to export oil “through parallel entities”, breaking of NOC export monopoly sets up “prolonged civil war with an array of actors arming and funding themselves through oil money.” A return to 2014-2017?” Our tweet included the below Libya oil production graph showing the interruptions period of 2014 to 2017. Yesterday, Reuters reported “Two guards were killed and four others were kidnapped early

NOC sees 95%

of Libya’s oil at

risk




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Energy Tidbits

on Saturday in a suspected Islamic State attack targeting Libya’s Zella oilfield, a security source said. The attackers struck at an entrance gate to the field, which lies near the town of Zella about 760 km (470 miles) southwest of the capital, Tripoli. They killed the two guards before fleeing, the source and local residents asking not to be named told Reuters. Islamic State claimed responsibility for the attack through its Aamaq news agency later on Saturday. The Zella field belongs to Zueitina Oil Company, which pumped 19,000 barrels per day on average in the last quarter of 2018 across all its fields. An engineer told Reuters workers at the field were safe and facilities had not been damaged.”

Oil – Insurers add Persian Gulf/Red Sea to enhanced risk, tanker cost/oil price up

On Fri, we tweeted on the big oil market news this weekend [LINK] “Positive to #Oil. Big change today, insurers #JointWarCommittee enhanced risk areas adds Oman, Persian Gulf & adj waters incl Gulf of Oman: amended to incl Saudi Arabia Gulf coast and Saudi Arabia Red Sea cost excl transits. #OilTanker costs/time going up”. It is important to note that its not just that tanker costs will be gong up, but that there will be some tankers/ships avoiding key oil transit lanes in light of this week’s sabotage/terrorism in the Middle East. One of the big oil market news this weekend was the Fri disclosure by the Joint War Committee on adding key enhanced risk areas that impact most of Middle East oil and LNG tankers. The Joint War Committee “comprises underwriting representatives from both the Lloyd’s and IUA company markets, representing the interests of those who write marine hull war business in the London market.” The JWC evaluates areas for enhanced risk and this is a factor for tankers/ships avoiding areas but also insurance. And the JWC basically put the Strait of Hormuz and Bab el Maneb and a good portion of the Persian Gulf on this enhanced risk list. This will add to tanker insurance costs and delays with longer voyage and times. The JWC release [LINK] said “The Joint War Committee has recently reviewed the Listed Areas, and has agreed the following changes which are incorporated in the new list as attached. Added: Oman, Persian or Arabian Gulf and adjacent waters including the Gulf of Oman west of Longitude 58°E. United Arab Emirates. Amended: Saudi Arabia (Gulf coast), Saudi Arabia (Red Sea coast) excluding transits. The application of this list on individual contracts will be a matter for specific negotiation.” Our Supplemental Documents package includes the JWC notice.

Oil and Natural Gas – Excellent detailed mapping of all energy information by EIA

We recommend bookmarking this link to the EIA by state energy information [LINK], It provides all the key energy info for each state. But the big reason for recommending the bookmark is their mapping system. The mapping is a great reference guide for whenever an event happens such as Houston Ship Channel collision, or an oil terminal expansion, etc. To use the mapping system, just hit any state and then keep zooming in. The mapping system also has different base layers such as a topographical or satellite base. Here is an example for the Houston Ship Channel, but this is only about ½ the level of zoom. Try zooming not the max zoom there is great detail.

Good energy

mapping system

of US

JWC adds key

oil countries to

enhanced risk

list


http://www.lmalloyds.com/LMA/Underwriting/Marine/JWC/JW_Bulletins/JWLA024.aspx

https://www.eia.gov/state/


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Energy Tidbits

Figure 22: Example EIA Energy Mapping System

Source: EIA

Demographics – Baby boomers clog up single family housing market

Any baby boomer or anyone who knows baby boomers can read this article, look at what it is saying about baby boomers and single family housing and say it makes sense. Its not so much the article title “Where are the baby boomers going to live when they get old? We have a serious housing crisis, and it's just going to get worse” [LINK], but the commentary is right on about baby boomers effectively clogging up the single family housing market. They aren’t selling as much as expected, but they are also, thru their home ownership, an effective block to a lot of new development. Ie. “There are lots of existing houses, but the baby boomers are staying put and not putting them on the market — even after their kids have left home. They are grossly over-housed, but hey, they own it and they're keeping it.” “Downsizing for older homeowners, to the extent it happens at all, doesn’t begin until age 75 or so. The oldest baby boomers are just now hitting that age. We probably won’t see significant amounts of housing

Baby boomers

clog up single

family house

turnover

https://www.mnn.com/your-home/at-home/stories/where-are-baby-boomers-going-live-when-they-get-old


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Energy Tidbits

inventory from baby boomer downsizing until the latter part of the 2020s, which is sure to frustrate buyers looking to enter the market before then.” The article doesn’t mention large relative taxation disadvantages in their comments on how baby boomers are selling out of Greenwich to move to Florida. But the concept is interesting, what happens to markets if the baby boomers all decide they want to be sellers. Our Supplemental Documents package includes the baby boomer article.

Energy Tidbits – Now on Twitter

As you have probably noticed in today’s memo, we are tweeting now for breaking news or early views on energy items, most of which are followed up in detail in the Energy Tidbits memo or in separate blogs. We have now been tweeting for over a month, our Twitter handle is @Energy_Tidbits and can be followed at [LINK]. We wanted to use Energy Tidbits in our name since I have been writing Energy Tidbits memos for over 19 consecutive years. Please take a look thru our tweets and you can see we aren’t just retweeting others tweets. Rather we are trying to use Twitter for early views on energy items. Our Supplemental Documents package includes our tweets this week.

Energy Tidbits – Sign up on our email distribution for tidbits and blogs

Please note that we have set up our Energy Tidbits memo on our Stream Asset Financial website alongside our blogs. The distribution for the Energy Tidbits memo will be via the same notification system used for our blogs. To ensure you receive Energy Tidbits memos, please go to our blog sign up. We will be using the blog notification list for Energy Tidbits. The blog sign up is available at [LINK].

LinkedIn – Look for quick energy items from me on LinkedIn

I can also be reached on Linkedin and plan to use it as another forum to pass on energy items in addition to our weekly Energy Tidbits memo and our blogs that are posted on the SAF Energy website [LINK].

Misc Facts and Figures.

During our weekly review of items for Energy Tidbits, we come across a number of miscellaneous facts and figures that are more general in nature

Its Queen Victoria’s birthday celebration weekend

We suspect that every year, there are less and less people who actually know that this long weekend is to honor Queen Victory (May 24, 1819 to Jan 22, 1901, who reigned as Queen from June 20, 1837 until her death. We thought Remberance Day deserved to stay as a national holiday so we are surprised that the same movement hasn’t pushed away Victoria Day.

Look for energy

items on LinkedIn

Sign up to receive

future Energy

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Energy Tidbits now

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http://www.safgroup.ca/research/trends-in-the-market/

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Energy Tidbits May 19, 2019 - SAF Group · The Disclaimer: Energy Tidbits is intended to provide...

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