Western Canadian Oil Inventories Hit Record High
Western Canadian crude oil storage inventories hit a record high of 37.1 million barrels in April, according to data from energy information provider Genscape, as Alberta government production cuts failed to reduce a glut of oil in the province.
Genscape said the build in inventories was due to lower pipeline flows out of Canada’s main crude-producing province, while crude-by-rail shipments remain below the high levels they hit late last year.
Alberta imposed temporary oil production curtailments effective Jan. 1 2019 after congestion of export pipelines last year led to a buildup of crude in storage tanks and record discounts on Canadian heavy crude versus U.S. oil.
Producers in Canada’s energy heartland were limited to producing 3.66 million barrels a day in April. That will rise by 25,000 bpd in May and a further 25,000 bpd in June.
The sharp inventory increase in April follows a smaller increase in March and raises questions over whether Alberta’s new United Conservative Party government, which was elected on April 16, will increase curtailments.
Stocks rose 2.5 million barrels between the weeks ending April 5 and April 26, an increase of nearly 117,000 barrels per day.
“Record-high stocks in late April were a clear signal that the province’s efforts to control supply had so far been unsuccessful in alleviating the glut,” Genscape analysts said in a note.
Genscape said lower flows on TC Energy’s Keystone pipeline in the week ending April 26 contributed to the inventory build.
Canadian crude-by-rail loadings rose by 47,000 bpd in April from the previous month to total 197,000 bpd, Genscape data showed. That was well below the 350,000 bpd that Canada exported in December, according to data from the National Energy Board.
Crude-by-rail loadings dived at the start of this year after government curtailments boosted Canadian crude prices dramatically, which in turn made shipping barrels by rail uneconomic and contributed to stubbornly high inventories.
- Pioneer Natural Resources to Cut Executive Ranks
Pioneer Natural Resources said it has asked nearly a third of its executives to leave their jobs as the U.S. shale producer continues to trim costs and considers selling more assets.
The company expects to save $100 million annually with the job cuts and a new organizational structure, Chief Executive Scott Sheffield said during an earnings call. The Irving, Texas-based oil and gas producer expects to shed the employees on a voluntary and involuntary basis by June 1.
Shale firms have pushed U.S. oil output to record levels. But years of heavy spending led to investor pressure to reduce spending and use the cash to pay dividends and repurchase shares.
“The big change is to treat capital just as important as production,” Sheffield said.
“I didn’t come back to sell the company,” said Sheffield the company’s founder, who returned as CEO after veteran executive Tim Dove abruptly retired in February. “I personally don’t think that there’s going to be a lot of (mergers and acquisitions) over the next one to two years.”
It plans to sell a share of its gas processing infrastructure and may sell its water infrastructure, Sheffield said. Pioneer disclosed it had sold its Eagle Ford Shale acreage and remaining assets in South Texas for up to $475 million to become a purely Permian Basin producer.
-Italy Opposes Poseidon Gas Pipeline Landfall
Italy will not allow the Poseidon gas pipeline being developed by Italy’s Edison and Greece’s DEPA to make landfall as planned in southern Italy, the Prime Minister said.
The Poseidon pipeline, which has permits to run from Greece to the southern town of Otranto, is the final section of the EastMed pipeline that aims to bring gas reserves from the east Mediterranean to Italy.
“The government is certainly not interested at present in building the final tract of Poseidon as originally planned,” Prime Minister Giuseppe Conte said at an event near Rome.
Two years ago DEPA and Edison signed a cooperation agreement with Russia’s Gazprom to set up joint efforts to create a southern route for gas into Europe.
The United States has been pressuring EU member states to find alternative natural gas supply sources not involving Russia.
But Conte said the pipeline could find a fit with the Trans Adriatic Pipeline (TAP) being built to carry Azeri gas into the south of Italy.
The TAP pipeline is seen by many as a way of weaning Europe off over reliance on Russian gas.
“It could have development potential, a link to Italy,” Conte said.
Italy’s populist 5-Star Movement, part of the ruling coalition with right-wing Lega, has said it wants to phase out fossil fuels by 2050 by ramping up renewable energy production.
-Iraq Close to $53bn Deal With Exxon, PetroChina
Iraq is close to signing a $53 billion, 30-year energy agreement with Exxon Mobil and PetroChina, Prime Minister Adel Abdul Mahdi said, denying any link between the mega-project and U.S. permission for Iraq to do business with Iran.
Iraq expects to make $400 billion over the 30 years the deal will be in effect, the prime minister said.
The southern mega-project involves the development of the Nahr Bin Umar and Artawi oilfields and raising production from the two fields to 500,000 barrels per day (bpd) from around 125,000 bpd now, Abdul Mahdi said.
The project is crucial to supplying water to oilfields in the south in order to boost pressure and keep production steady.
“Talks now between the oil ministry and Exxon Mobil and PetroChina are focused on how to split profits if oil prices rise or decline,” Abdul Mahdi said in response to a Reuters question on the obstacles holding up a final agreement.
“The deal lasts for 30 years and such financial details are sensitive and should be given more discussions,” he added.
Iraq is the second largest oil exporter in OPEC and has long-term aims to boost output curtailed by decades of war and sanctions. Such projects are among the most valuable prizes in the world for international oil companies. An initial agreement would be a big boost for Exxon Mobil’s plans to expand in Iraq.
It is also one of the only countries in the world to have friendly relations with both the United States and Iran. Tehran and Washington, arch enemies elsewhere, are Baghdad’s main allies and vye for influence there.
Exxon Mobil and PetroChina will build a water injection project to feed oil wells in the south, as well as rehabilitate and build new export pipelines, Abdul Mahdi said.
The project also aims to process 100 million standard cubic feet of natural gas per day from the Artawi and Nahr Bin Umar fields.
--Russia Sees Oil Quality Normalizing
The quality of Russian crude is gradually improving after a contamination scandal that rocked oil markets, buyers said, but Russia’s energy minister cautioned that it will take until the second half of May to fix the problem.
A long outage could force refineries in Eastern Europe and Germany to cut operations and prompt Moscow to reduce oil production. It could also trigger claims by Western oil buyers against Russian producers and pipeline monopoly Transneft for lost profits as they struggle to sell contaminated oil.
Russian oil production in early May dropped to 11.19 million barrels per day (bpd) from an average 11.23 million bpd in April, an industry source said, pushed down in part by the contamination debacle.
Another industry source said Russian oil producers reduced their supplies to the Transneft network by some 650,000 bpd on May 1-6 in comparison to April. Transneft handles around 85 percent of all Russian oil.
The tainted oil, detected late last month, has forced Russia to shut the Druzhba pipeline to Central Europe and Germany. The line had been closed for almost two weeks and it was unclear when normal operations would resume.
Energy Minister Alexander Novak told a televised government meeting that he expected clean oil to reach the Baltic Sea port of Ust-Luga, a delay of one day compared with previous plans.
He said the “situation” had not affected oil exports or production as flows had been redirected.
“As far as normalisation of the situation is concerned, we expect that to happen in the second half of May. Work in this direction continues,” he said, adding that “normalisation” meant cleaning both legs of the Druzhba pipeline.
The Russian government had initially promised to fix the problem by May 7 after buyers discovered large volumes of Russian crude had been contaminated with organic chloride, a chemical compound used to boost oil extraction.
“It is improving although it is still not up to normal standards,” one buyer said.
For a factbox on Russian oil flows to Europe, click on
The problem with oil quality in the Druzhba (Friendship) pipeline emerged when Belarus, through which the link is routed, complained about high levels of organic chloride.
--U.S. Natgas Output, Demand Hitting Record Highs
U.S. dry natural gas production will rise to an all-time high of 90.27 billion cubic feet per day (bcfd) in 2019 from a record high of 83.40 bcfd last year, the Energy Information Administration’s Short Term Energy Outlook (STEO) said.
The latest May output projection for 2019 was down from EIA’s 91.00 bcfd forecast in April.
EIA also projected U.S. gas consumption would rise to an all-time high of 84.07 bcfd in 2019 from a record high 82.08 bcfd a year ago.
The 2019 demand projection in the May STEO report was down from EIA’s 84.61 bcfd forecast for the year in April.
In 2020, EIA projected output would rise to 92.19 bcfd and demand would rise to 84.78 bcfd.
The agency forecast U.S. net gas exports would reach 5.3 bcfd in 2019 and 7.6 bcfd in 2020, up from 2.5 bcfd in 2018. The United States became a net exporter of gas for the first time in 60 years in 2017.
EIA projected gas would remain the primary U.S. power plant fuel for electrical generation in 2019 and 2020 after first supplanting coal in 2016.
EIA projected the share of gas generation would rise to 37 percent in 2019 and 38 percent in 2020 from 35 percent in 2018.
Coal’s share of generation, meanwhile, was forecast to slide to 24 percent in 2019 and 22 percent in 2020 from 27 percent in 2018.
EIA projected the electric power sector would burn 555.1 million short tons of coal in 2019, the lowest since 1979, and 512.6 million short tons in 2020, which would be the lowest since 1978. That compares with 636.5 million short tons in 2018, which was the lowest since 1983.
U.S. carbon emissions have mostly declined since peaking at 6,002 million tonnes in 2007 as the power sector burns less coal, falling to a 25-year low of 5,131 million tonnes in 2017.
But in 2018, U.S. energy-related carbon emissions rose for the first time in four years to 5,268 million tonnes due to a booming economy and higher gas consumption during a colder winter and warmer summer than in 2017.
EIA projected carbon emissions would slip to 5,156 million tonnes in 2019 and 5,116 million tonnes in 2020, the lowest since 1992, due to forecasts for near-normal weather.
--- Clean Russian Oil Starts Flowing From Belarus
Pipeline operator Ukrtransnafta said clean Russian oil had started flowing from Belarus towards Ukraine and it was ready to resume oil exports to the European Union following a transit hiatus over contaminated crude.
Flows through the Druzhba pipeline were suspended in late April because tainted crude had entered the system, sending shocks through global oil markets and damaging Russia’s image as a reliable supplier of energy.
The southern spur of the Druzhba pipeline passes from Belarus through Ukraine to Slovakia, Hungary and the Czech Republic. It was not immediately clear if clean supplies were also flowing on the northern spur, which runs directly between Belarus and Poland and Germany.
“The oil with the quality, which is in line with the standard, has started to flow...to the Druzhba pipelines system in the direction of Ukraine for further transportation to the EU countries,” Ukrtransnafta said.
It said that the deliveries of clean oil started at 1417 Kiev time (1117 GMT).
The Russian oil pipeline monopoly Transneft did not reply to a request for comment.
The Energy Ministry in Moscow said clean Russian oil had arrived at the Mozyr hub in southeast Belarus, where the Druzhba pipeline splits to the north and the south.
However, sources at Belarusian state oil firm Belneftekhim and in the trading sector said that Belarus had no idea when clean Russian oil flows would resume. The section of the pipeline inside Belarus is controlled by a local firm, Gomeltransneft Druzhba.
The clean oil is backed up behind millions of barrels of contaminated crude in the pipeline system and there is no clear plan yet on how to discharge the tainted supply, traders and industry sources have said.
The Soviet-built Druzhba (Friendship) pipeline normally transports around 1 million barrels per day of crude, which accounts for some 1 percent of global oil trade.
Transmission via the pipeline was halted due to high levels of organic chloride, a chemical compound used to boost oil extraction by cleaning wells and accelerating the flow of crude.
Options for disposing of the contaminated oil include selling it at a heavy discount or storing it in tanks. But customers are not keen and there is insufficient storage capacity, trading sources say.
Some crude that reaches Mozyr is fed into a refinery there. The Mozyr plant has yet to resume crude processing and is still cleaning tainted equipment, the Belneftekhim source said.
Separately, the Russian Baltic Sea port of Ust-Luga, which is linked to Druzhba, is still loading contaminated oil onto tankers, trading sources said. It was hard to find a buyer for this oil, they added.
The Russian Energy Ministry has said clean oil was expected to arrive at the port on May 7.
----US and EU Concerned by Turkey Drilling Plan
The United States and European Union have expressed deep concern over Turkey’s plans for offshore drilling operations in an area claimed by Cyprus as its exclusive economic zone, adding to tensions between Ankara and its Western allies.
The statements at the weekend came after Turkish Foreign Minister Mevlut Cavusoglu said “we are starting drilling” in the region.
Turkey and the internationally recognised Greek Cypriot government have overlapping claims of jurisdiction for offshore oil and gas research in the eastern Mediterranean, a region thought to be rich in natural gas.
“The United States is deeply concerned by Turkey’s announced intentions to begin offshore drilling operations in an area claimed by the Republic of Cyprus as its Exclusive Economic Zone,” State Department spokesperson Morgan Ortagus said.
“This step is highly provocative and risks raising tensions in the region. We urge Turkish authorities to halt these operations and encourage all parties to act with restraint.”
Cavusoglu said that Turkish seismic research vessel Barbaros Hayrettin Pasa was continuing work in the region.
“We will conduct drilling in areas of Turkey’s continental shelf and we are starting our drilling work at points identified by Barbaros Hayrettin Pasa,” he said in northern Cyprus.
The Cyprus foreign ministry said it “strongly condemns” Turkey’s drilling operations within its exclusive economic zone.
“This provocative action by Turkey constitutes a flagrant violation of the sovereign rights of the Republic of Cyprus,” it said.
Speaking at NATO’s North Atlantic Council Mediterranean Dialogue meeting in Ankara, President Tayyip Erdogan said he expected NATO to support Turkey’s rights in the Mediterranean.
“The legitimate rights of Turkey and the Northern Cypriot Turks over energy resources in the eastern Mediterranean are not open for argument. Our country is determined to defend its rights and those of Cypriot Turks,” he said.
“We expect NATO to respect Turkey’s rights in this process and support us in preventing tensions.”