March 2017, Vol. 244, No. 3

In The News

World News

Douglas–Westwood Offers 2017 Outlook

The past year has undoubtedly been one of the toughest for the oil and gas industry in recent memory. The London–based firm considers three key themes that could shape the industry over the year ahead.

A North America–Led OFS Recovery: OFS markets are expected to bounce back in 2017 and it is expected North America onshore activity will be at the forefront. These projects are characterized by short lead times, and drilling and completion costs have nearly halved since 2014.

Rig activity is recovering fast with more than 600 rigs working in the U.S. now vs a low of 404 in June 2016. New offshore production systems orders to finally emerge: It’s been 18 months since the last order for an offshore floating production system, it appears 2017 will see some ordering activity at last. This includes (among others) FPSOs for Hurricane’s Lancaster development, ExxonMobil’s Liza EPS, Petrobras’ Libra & Sepia fields and a semi–submersible for BP’s Mad Dog 2.

OPEC must remain disciplined to avoid oil glut: It is expected (based on project–by–project tracking of individual fields) an additional 1.2 million bpd of supply to come in 2017 from offshore production. OPEC needs to stick to its cuts to avoid a substantial overhang of production capacity and likely downward pressure on oil prices.

Japan Sees Energy Imports as Tool

Prime Minister Shinzo Abe is considering increasing energy imports from the United States, Reuters reported. President Trump has complained about Japan’s trade surplus with the U.S. Abe’s government is considering options for Japanese companies to invest in infrastructure and job–creation projects in the U.S. Another idea is to offer to increase LNG imports from the U.S. Still another option is to increase imports of U.S. shale oil or gas on top of the investment package.

“(Abe) wants to know what’s the most important thing for Trump,” said an executive, who declined to be identified. Japanese utilities, however, would be resistant to buying more U.S. shale gas because they have already committed to buying large amounts and Japan’s demand for energy is falling, an executive at a Japanese LNG importer told Reuters.

Japan plans to build up to 45 new coal–fired power stations which will utilize high–energy, low–emissions technology that uses high–quality black coal. Japan is the largest overseas market for Australian coal producers, taking over a third of all exports. Japan needs to import 95% of its energy sources and is trying to diversify its fuel sources so that it isn’t too reliant on any one market.

Canada Give First Nations Role in LNG Project

The British Columbia and Canadian federal governments report a deal to give First Nations a role in environmental monitoring of the proposed Pacific NorthWest LNG facility and export terminal.

The pact with the Lax Kw’alaams Band and the Metlakatla First Nation is designed to address indigenous opposition to the project near Prince Rupert, BC by providing the two communities with an oversight role in development and operation of the facility.

The First Nations, which hold the strongest aboriginal title claims to the territory where the facility is proposed, will each have a seat on an environmental–monitoring committee that will oversee compliance with regulations set down in the project’s environmental certificate. Much of the opposition has focused on potential damage to salmon habitat in Flora Bank, a sandbar located next to proposed LNG marine terminal site.

The project received environmental approval last fall, but still needs final approval from its backers, led by Malaysia’s state oil and gas company Petronas. That decision has been delayed due to weak markets and a decision is not expected until later this year.

Chevron Working on LNG Projects in Australia

Chevron continues working to complete construction at its three–train, $54 billion Gorgon LNG project in Western Australia, while still targeting first production from its $34 billion Wheatstone project by mid–year. Once the three liquefaction trains at Gorgon are operational, the focus will shift to debottlenecking the plant in a bid to boost throughput. The first two trains began production last year with the third scheduled to start later this year.

BP: India to lead in Energy Demand Growth

India’s energy consumption growth at 4.2% a year will be the fastest among all major economies by 2035 and even after an increase in domestic production the country will remain import–dependent for its energy needs. India will overtake China as the largest growth market for energy by 2030, reports BP’s latest energy outlook. China will consume more energy than India, but at a slower growth rate.

“India’s demand growth is more than double the non–OECD (Organization for Economic Cooperation and Development) average,” the report said. In India, energy consumption in power generation will more than double. Oil consumption will rise to 9.2 million bpd in 2035 from 4.1 million bpd in 2015. Natural gas consumption is expected to jump to 12.8 Bcf/d from 4.9 Bcf/d while coal consumption is projected to more than double with two–thirds of the coal destined for power plants. 

Shell Sells $4.7 Billion in Fields to Offset Debt

Royal Dutch Shell Plc, looking to pare debt swollen by last year’s acquisition of BG Group Plc, accelerated its drive to shed assets last month by agreeing to the sale of fields in the North Sea and Thailand for up to $4.7 billion. The disposals include sale of about half its North Sea oil and gas assets for up to $3.8 billion to Chrysaor Holdings Ltd. Earlier Shell agreed to sell its stake in an offshore Thai gas field to a unit of Kuwait Petroleum Corp. for $900 million.

Israel May Sit on Huge Oil Reservoir

Last month it was reported that an independent study by the international consulting company Beicip–Franlab, as disclosed by Israel’s Energy Ministry, found that up to 6.6 billion barrels of oil remain to be found in the offshore portion of Israel’s Levant Basin.

TransCanada Must Start Hearings from Beginning

Canada’s lead pipeline regulator has voided past decisions on TransCanada’s application for its proposed Energy East pipeline, forcing the company to start the hearing process from the beginning shortly after competing pipeline projects have been approved.

The National Energy Board’s decision was made by a new hearing panel appointed earlier this year to replace an earlier panel that stepped down amid accusations of bias. Past decisions regarding the proposed Eastern Mainline gas pipeline project were also voided. TransCanada won’t have to submit new applications but once the panel determines that the existing applications are complete, a 21–month time limit for hearings will reset.

The decision is a setback for the C$15.7 billion Energy East project, which involves building a 4,500–km crude pipeline from the oil fields of Alberta to refineries in Eastern Canada and a marine terminal in New Brunswick.

It comes as viability of the line has been thrown into doubt after President Trump signed orders to revive the company’s proposed Keystone XL pipeline and after Canada’s government approved two other major export pipelines late last year.

“I don’t think TransCanada is really hopeful that the project will be approved down the road,” said Steve Belisle, a fund manager at Manulife Asset Management in Montreal. “I don’t think this is key to them going forward.”

Baltic Sea Pipeline has ‘High Political Risks’

Ukrainian President Petro Poroshenko told reporters “there are a number of high political risks” associated with an undersea natural gas pipeline that will run from Russia to Germany. Although he didn’t elaborate, last month a municipality on Sweden’s strategic Baltic Sea island of Gotland rejected a Russian request to rent harbor space after the government warned it could harm the Scandinavian country’s defense and political interests. Gazprom wanted to store pipes in Slite harbor for the pipeline called Nord Stream 2.

Italian Gas Components Maker Buys Land in West Virginia

An Italian company’s first manufacturing facility in the U.S., first announced for Weirton, WV in 2013, is closer to becoming a reality, reports Kallanish Energy. Pietro Fiorentini USA signed to acquire land in Weirton, part of a $9 million project that eventually will manufacture pressure regulators, valves and pressure reducing and meter systems for the natural gas industry. The company said it will create 41 jobs in the project’s first phase, with up to 150 positions when fully operational.

Peru Says Fixing Oil Pipeline Top Priority

Energy and mines minister, Gonzalo Tamayo said repairing Peru’s 40–year–old oil pipeline is a top priority after spills in the Amazon shuttered it last year. He said it would take 12–18 months to fully repair the 1,106–km (687–mile) pipeline and prevent future leaks after four last year. Peru’s small oil output fell to about 37,000 bpd after the pipeline, operated by state–owned energy company Petroperu, was closed last spring.

Tamayo said future output and investments were also at risk. The pipeline is one of several problems in the energy sector – from a stalled natural gas pipeline project to a leaderless Petroperu. Tamayo cited the frequent ruptures in the pipeline in general in recent years – at least 20 since 2011 according to the ombudsman – to wear–and–tear, lack of maintenance, natural disasters and “human acts.”

Environmental regulator OEFA said the latest spill, in a ravine in the region Amazonas, was due to a saw cutting the pipe. OEFA has blamed previous spills on poor maintenance by Petroperu.