Trafigura considers US shale industry ‘on sabbatical’

  • Market: Crude oil
  • 09/16/20

The US shale industry has taken a breather during the Covid-19 pandemic and will eventually resume normality, although production growth may only emerge towards the end of next year, trading firm Trafigura's co-head of oil trading Ben Luckock said at the virtual Platts Asia-Pacific Petroleum Conference (Appec) 2020.

"It isn't dead, it's just on an enforced sabbatical," Luckock said.

Luckock said that the US crude production forecast has changed drastically. Pre-Covid-19, Trafigura had been expecting firm US production growth this year of around 700,000 b/d.

"That forecast was arrived at by taking as a starting point, the fact that due to the particular realities of shale, you need to replace 4.3mn b/d of production each year just to stay flat. Against that, we expected there to be 5mn b/d of new production coming on," Luckock said.

"The complete collapse in spending means that we now only expect 2.8mn b/d of new production to come on. But that underlying 4.3mn b/d decline does not change. So we are now left with an estimated net deficit of about 1.5mn b/d and that's a massive change to our balances."

This trend, with new additions in shale production unable to offset the natural output decline, will continue into next year. "Now we don't expect to see growth until the end of 2021," Luckock said.

Normal activity for the US shale industry will ultimately resume, although it is not quite clear what that will look like and where exactly the investment will come from.

"With rigs falling as much as they have done, we need to start tapping the DUCs [drilled but uncompleted wells]. That's the DUC inventory we need to get to, to maintain production," Luckock said.

DUCs for a long time have been the trump card of firms that have believed in the inexhaustibility of the US shale industry, as DUCs were considered "ready to go production". But with the recent big fall in rig counts, Luckock said analysts predict the DUC inventories could be exhausted possibly within two to three quarters. This meant that rig counts needed to rebound to keep US production growing.

"But a rebound in rigs means a rebound in spending and right now we're not seeing that," Luckock said, adding that US-focused capital expenditure had collapsed from $77bn initially forecast to just $45bn.

"So something needs to change, this tension between spending and production cannot last. But who is going to be spending that money?"

Many banks and investors had in the last few years suffered losses from the US shale exploration and productions sectors, which may curb their investment appetites. There were some expectations initially that as the US shale industry matured, that oil majors would then get involved in the sector, rationalise the fragmented industry and add scale and efficiency, Luckock said.

But with several majors announcing changes to their strategic visions, while their combined market capitalisation has also fallen sharply lately, it raised questions if they want to get into the US shale industry.

Luckock did not provide an answer, although he implied that a possible solution could be the oil price itself, in the shape of forward curves. Outright oil prices will likely remain low in the prompt months, which would encourage consumption and resolve the current oversupply. But prices should trend upwards in the longer term, reflecting the need for reinvestment, Luckock added.


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
03/01/24

TMX crude linefill starts in April, May: MEG

TMX crude linefill starts in April, May: MEG

Calgary, 1 March (Argus) — The operator of the Trans Mountain Expansion (TMX) in western Canada is calling for a combined 4.2mn bl of crude from shippers starting next month as it prepares to fill the new pipeline, according to producer MEG Energy. Canada's 590,000 b/d TMX pipeline yesterday made a call for 2.1mn bl of linefill in April and another 2.1mn bl in May, said MEG Energy's chief executive Derek Evans today. The combined volume represents almost all of the 4.4mn bl line fill Trans Mountain had previously said it needed for its expansion project. "We see this as incredibly positive," said Evans today. "Good news for not only us, but really everybody in the heavy oil business. That incremental egress will substantially reduce that [heavy crude] differential." Heavy crude producer MEG is a committed shipper on TMX and plans to move 20,000 b/d on the line connecting Edmonton, Alberta, to Burnaby, British Columbia. The now C$34bn ($25bn) project has been mired in construction and regulatory delays, but has only one small section in British Columbia left to finish. Trans Mountain plans by 4 March to start installing the last section of pipe in a tunnel about 100 kilometres east of Vancouver and said this week it intends on starting operations in the second quarter of this year. TMX and the existing Trans Mountain system will combine for 890,000 b/d of capacity for Albertan oil producers to the west coast. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Read More
News

US launches probe into Chinese auto imports


02/29/24
News
02/29/24

US launches probe into Chinese auto imports

Washington, 29 February (Argus) — President Joe Biden has ordered an investigation that could lead to new limits on vehicles made in China, citing concerns about national security and the potential for low-cost imports to dominate the auto market. The investigation, led by the US Commerce Department, will look into alleged national security concerns from the technology in imported Chinese cars and trucks. The technology in those vehicles could collect sensitive data on drivers and domestic infrastructure, Biden said, in addition to giving Beijing the ability to remotely access or disable vehicles. Biden also cited the economic importance of the auto sector to the US, along with Chinese restrictions on importing foreign vehicles, as the basis for the investigation. Biden has heavily promoted the auto sector's transition toward electric vehicles through federal funds for charging infrastructure, expansive tax credits and tougher tailpipe standards. "China's policies could flood our market with its vehicles, posing risks to our national security," Biden said. "I'm not going to let that happen on my watch." US automakers have warned that low-cost auto imports from China — Chinese automaker BYD this month said it was releasing an electric vehicle priced at $14,000 — could undermine their investments in electric vehicles. The Inflation Reduction Act offers billions of dollars in federal tax credits for investments in auto manufacturing, along with a tax credit of up to $7,500 per electric vehicle that is made in the US. Low-cost Chinese auto imports could be an "extinction-level event for the US auto sector," the industry group the Alliance for American Manufacturing said in a report last week. The group called for added tariffs on vehicles made in China, which it says are being manufactured at low prices through "heavy state support." The US already places a 25pc tariff on imports of vehicles manufactured in China, in addition to a 2.5pc tariff on all auto imports. The Commerce Department said it would issue an advance notice of proposed rulemaking that would look at national security risks of "connected" technology in vehicles. It does not take a "lot of imagination" to understand how governments with access to connected cars and trucks could pose national security or privacy risks, US commerce secretary Gina Raimondo said. China's embassy did not immediately respond to a request for comment. China's commerce ministry has vowed to support its electric vehicle sector and recently issued guidelines intended to promote trade of those vehicles. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Vertex plans Mobile refinery turnaround in March


02/28/24
News
02/28/24

Vertex plans Mobile refinery turnaround in March

Houston, 28 February (Argus) — Specialty refiner Vertex Energy is planning a turnaround at its 88,000 b/d Mobile, Alabama, refinery in March as it prepares to run at full rates during the driving season. The turnaround includes a catalyst change for the plant's catalytic reforming unit and maintenance on its crude distillation unit (CDU), the company said on an earnings call today. Vertex did not give a time line for the work but said it aims to run the refinery at full rates by peak summer demand season, which starts on Memorial Day weekend in late May. The company plans to run throughputs of 60,000-63,000 b/d at the Mobile plant's conventional fuel refining operations in the first quarter and run its renewable diesel units at 3,000-5,000 b/d. Vertex processed 71,000 b/d at the Mobile refinery in the first quarter of 2023, prior to starting the plant's renewable feedstock units. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

PdV restarts MTBE plant for domestic supply


02/27/24
News
02/27/24

PdV restarts MTBE plant for domestic supply

Caracas, 27 February (Argus) — Venezuelan state-owned oil firm PdV has restarted a unit that produces MTBE at its Jose complex in Anzoategui state for the first time in five years, the company said. The oxygenate will be used "to optimize the octane rating of the gasoline distributed in Venezuela," PdV president and energy minister Pedro Tellechea said on social media on Monday. Years of underinvestment in refinery maintenance in Venezuela has led to periodic gasoline shortages. The Super Octanos unit, with a nameplate capacity of 600,000 t/yr, had produced MTBE only for the domestic market for many years. It stopped operations after former US president Donald Trump began imposing comprehensive sanctions on Venezuela's oil industry five years ago, which also cut off imports of MTBE from the US. Venezuela imported 562,750 metric tons (t) of MTBE from the US in 2014, but this fell to 30,703 t in 2019 before the flow dried up because of the sanctions in 2020 . By Carlos Camacho Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Brazil boosts foreign spending in energy transition


02/27/24
News
02/27/24

Brazil boosts foreign spending in energy transition

Sao Paulo, 27 February (Argus) — Brazil's climate fund and green transition plan received multi-billion monetary commitments from multilateral agencies during the G20 meetings, as part of government efforts to boost foreign investment in decarbonization. Brazil estimates that only 6pc of funding for its energy transition projects comes from the private sector, compared with an average of 14pc in other emerging markets and 81pc in developed countries. The high cost of long-term currency hedge contracts has contributed to the limited participation of foreign investors in Brazil's energy transition, the president of the Inter-American Development Bank (IDB) and former president of Brazil's central bank Ilan Goldfajn said. To ease the entry of foreign investments, the government launched the Eco Invest Brasil program, which will create currency hedge mechanisms to limit exposure to exchange-rate volatility. Brazil's finance ministry and central bank developed the program with the World Bank and IDB. The IDB has committed a total of $5.4bn to get the Eco Invest program started, including $3.4bn for currency swaps and $2bn for lines of credit. IDB will also help Brazil prepare and structure projects to receive financing. The plan seeks to remove obstacles for foreigners to invest in Brazil's energy transition by reducing risks related to the volatility of the Brazilian real, according to the treasury secretary Rogerio Ceron. As part of the program, the government plans to issue a presidential decree that will create four new lines of credit within the Climate fund. The goal of the plan is to expand Brazil's integration with the international financial system and boost foreign investment in companies and projects that decarbonize the economy. Brazil's Bndes development bank also reached an agreement with the Glasgow Financial Alliance for Net Zero (GFANZ) to expand financing for Brazilian decarbonization projects. IDB will also provide an additional $2bn line of credit and technical support for Brazil's Climate fund, while the World Bank is considering allocating up to $1bn to the fund. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.