The Shale Daily Update – 5.27.2020

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10 Things You Should Know About Oil and Gas Today

The Big Story

Russian Oil Minister Alexander Novak told a meeting of major oil producers on Tuesday that his country does not support proposals to extend the May/June production cuts of 10 million barrels of oil per day (bopd) in the OPEC+ deal into July and beyond. Russia prefers to stick with the original agreement, which envisions starting to ease supply restrictions on July 1.

With the world gaining confidence of a high level of compliance by the OPEC+ nations, and demand on a rapid recovery path, Novak said he now believes that global supply and demand for crude oil could come into balance as early as late June. The more rapid than expected drop in U.S. production also contributes to Russia’s position that extending the deeper cuts will not be necessary.

Crude prices fell slightly overnight on Novak’s statements, with WTI trading slightly below $34 per barrel. But the fact that one of the world’s largest producers of oil sees the market rebalancing months sooner than previously anticipated reflects a continuing overall bullish situation for global crude.

As Reuters reports this morning, oil markets are also reacting to the growing tensions between the U.S. and China over the situation in Hong Kong. “As much as oil fundamentals are improving, there are still several flies in the bullish ointment. They include the latest uptick in U.S.-China tensions,” said Stephen Brennock of oil broker PVM.

Though its’ data runs several months behind due to reporting delays, the Texas Railroad Commission released its March oil production report for the state, and it gives a first indication of just how rapid and dramatic the loss in production has been. The RRC says that Texas operators produced 3.4 million bopd during March as compared to 4.1 million bopd in March 2019. Given that Texas produces about 1/3rd of the nation’s crude oil, that would extrapolate out to a nationwide loss of about 2 million bopd during March alone. Stunning.

In a related story in today’s Houston Chronicle, Rystad Energy estimates that U.S. production will amount to 10.7 million bopd for June, down 17% from March. But to show how rapidly this situation has evolved, Rystad had estimated that March U.S. production was still a very robust 12.9 million bopd. That was before the RRC released its March report, which, if accurate, means that March U.S. production was significantly lower than Rystad – and the U.S. Energy Information Agency (11.7 million bopd) – had estimated.

In an important story that won’t get a lot of attention due to the global situation with crude oil, the FERC announced yesterday that it was greenlighting a project that will liquefy natural gas produced on the North Slope of Alaska and export it to international markets. If completed, this project would at long last provide an outlet for the prodigious volumes of natural gas from Prudhoe Bay and other North Slope developments that have always had to be reinjected into the ground due to the lack of a pipeline to take them to market.

Excerpt:

FERC granted a Section 3 Natural Gas Act authorization to the AGDC to construct and operate the Alaska LNG Project. The project will be made up of liquefaction facilities on the Kenai Peninsula and will be able to produce up to 20 million metric tons per annum (MMTPA) of LNG for export.

It would also include an 807-mile-long, 42-inch-diameter pipeline capable of transporting up to 3.9 billion cubic feet of gas per day to the liquefaction facilities, a gas treatment plant in the Prudhoe Bay at the North Slope and two more gas pipelines connecting production units to the gas treatment plant.

The U.S. Department of Energy authorized the project to export 20 MMPTA of LNG to nations with which the United States has a Free Trade Agreement. The DOE also granted conditional authorization for 20 MMTPA of natural gas to be exported to nations that do not have an FTA.

That’s all for today.