The Shale Daily Update – 7.14.2020

A new report from advisory firm Deloitte finds that the oil and gas industry today might well be facing the greatest challenge in its history.

What You Should Know About Oil and Gas Today

The Big Story

A new report from advisory firm Deloitte finds that the oil and gas industry today might well be facing the greatest challenge in its history. With most countries around the globe still grappling with the impacts of COVID-19 and the uncertainties surrounding global demand and the future direction of the OPEC+ agreement, the oil and gas sector faces an extremely challenging landscape.

“The sharp decline in fuel and power demand has hit an already stressed industry, creating new challenges,” Deloitte said. “The industry will not fully recover until COVID-19 has been successfully contained in most countries, either with the development of a vaccine or the implementation of a widespread test-and-trace program.”

Findings of the “2020 Midyear Oil and Gas Outlook” include:

  • Navigating weak oil demand: While awaiting a full recovery, companies may need to permanently lower their cost structure through discharging debt or restructuring, build in the ability to ramp up and down their capabilities to match external conditions, and ensure capex cuts in 2020 do not reduce their ability to scale production in the near-to-mid-term.
  • Adapting to “lower for longer” in the global natural gas markets: While margins may be tight for the next couple years, larger LNG players could play the long game and invest through the cycle to develop distribution infrastructure, such as regasification terminals and regional pipelines, in global markets in Asia and Latin America. Meanwhile, consolidation opportunities for operators in shale gas plays like the Marcellus and Haynesville could open up as associated gas production drops from lower oil drilling activity and their revenues potentially rise.
  • Balancing priorities in the face of low oil prices and the energy transition: Companies could look to improve the energy efficiency of existing operations and manage fugitive methane emissions, while expanding research efforts into biofuels, carbon sequestration and the like.

Good stuff.

Meanwhile, in other news…

OPEC sees a record rise in crude demand coming in 2021, a virtual inevitability barring 2nd and 3rd waves of the coronavirus. The cartel says demand will likely rise by as much as 7 million barrels oil per day next year in the wake of this year’s record drop, which saw demand fall by as much as 18 million bopd during the month of April before starting to rise again.

Paul Takahashi reports in the Houston Chronicle that natural gas prices hit record lows in the first half of this year. For those of us who remember gas selling for 50 cents in the early 1990s, this means a price adjusted for inflation, post de-regulation of the market, which took place in the 1980s. So, it’s kind of a qualified record, but a record nonetheless.

Also in the Chronicle, James Osbourne has a good story about the increasing use by oil and gas companies of solar and wind power to drive field operations. This is really nothing new – the industry has been doing this for at least 30 years – but it is an accelerating trend.

Hydraulic fracturing service company Hi-Crush filed for Chapter 11 bankruptcy protection on Monday. The Houston-based company specializes in the provision of proppant and logistics services for hydraulic fracturing companies.

The U.S. Energy Information Administration has a new report out projecting that total oil output from shale formations in the U.S. will reach a two-year low of 7.5 million bopd in April. Hard to believe that we are classifying that as a “low” number now, given that the number of barrels of oil produced from shale formations was essentially zero as recently as 2006.

The anti-fracking movement comes up with a new way to count “fracking” events. Just as the energy news media years ago started counting oil spills in gallons rather than barrels in order to achieve a higher number, anti-fracking activists and their allies in the news media have come up with a new way to count frac jobs. In this report at something called “CounterPunch”, the reporter quotes an activist claiming that California regulators just approved permits that will allow Chevron to perform 168 fracking “events” in Kern County, despite the fact that only 12 permits were actually approved. The activist arrives at his number by adding up the number of stages in each permitted frac job.

It would be funny if it weren’t so insidious.

That’s all for today.

 

 

 

 

 

 

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