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Page added on October 19, 2017

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Have the US passed peak shale?

Business

The worm is turning for the crude oil price and American petroleum’s latest reporting season will likely announce a telling maturation of the US shale industry according to Woodside Petroleum chief executive, Peter Coleman.

“The market is feeling pretty positive and we think there will be strengthening of crude prices before the end of the year,” Coleman said on Thursday after the release of Woodside’s wholly predictable but encouraging third quarter production numbers.

“Oil demand is up this year by 1.6 [million barrels a day] and is expected to be up another 1.4 next year. And the US reporting season is going to be very interesting,” he recommended.

“It will signal whether people are still free to chase volumes or capital preservation has started in earnest. Anadarko is first out of the blocks with that buyback. This is going to tell us how far shale has got to go, whether shale is moving from a growth phase to a value phase.”

Anadarko is one of the bigger US shale players and it is routine mentioned in dispatches as a potential bidder for synergistic parts of the onshore US portfolio that BHP Billiton is looking to slice, dice and flog. But late last month it signalled the change of mood that Coleman clearly thinks is now on in the shale business by announcing a $US2.5 billon buyback. That decision arrived only months after management pared $US300 million from this year spending budget.

The US shale revolution over the past decade or so has had a profound effect on US and global energy markets.

Balance of power

Having sucked up a tidal wave of debt and equity capital, the shale boom has left the US, very suddenly, a net energy importer. And that has seen a change in the balance of power in global oil markets. In late 2014, Saudi Arabia forced OPEC to shift to a volume over value strategy, effectively running up the white flag on attempts to defend the oil price.

This strategy was received as an attempt to force discipline on US shale. If Coleman is right, then it could well be argued that Saudi strategy has worked even, given that the cartel, working closely with Russia, has recovered some level of supply-side discipline over the past 18 months.

The reason why the crude market is so important to Coleman and the liquid natural gas producer that he runs is that the oil sets the price for the export gas market. At least, that is the way it works right now.

The global and regional LNG market has been a very stable and predictable place for pretty much all of its history. LNG remains a predominantly bi-lateral market that sees customers help finance new supply through funding and the provision of supply-side security through very long-term contracts that carry binding constraints on both the producer and the customer and that, as we said, use crude oil prices as the cornerstone of what is a very complicated pricing matrix.

The reason for this is that LNG plants have always been hideously expensive things to build and the customers of the operators of these projects depend on the export gas markets to sustain their energy security.

But Woodside’s global, regional and local LNG world is changing, and possibly much more rapidly than some might realise. Understanding and managing this market reformation sits as crucial to Australia’s economic future as it does to Coleman and Woodside.

As early as next year LNG could overtake metallurgical coal as Australia’s second biggest export earner as projects in Queensland, the Northern Territory and Western Australia either enter the system or complete their production ramp-ups.

Short-term momentum

Australia exported about 38 million tonnes of LNG last year. Export volumes are expected to top 74 million tonnes over FY19 as the east coast coal seam gas exporters and the big-wind projects to the west, like Gorgon, Wheatstone, Icthys and Shell’s novel Prelude development, all start hitting or ramping up to nameplate.

By the time that those big four offshore projects hit their straps, Australia’s capacity will hit 88mtpa and, with any sort of pricing tailwinds, LNG might well be outstripping iron ore as our biggest export business.

Just for the record there, back in 2014, Woodside added a 13 per cent share of Wheatstone to its portfolio. So the recent start of production at the Chevron-operated project will increasingly add some short-term momentum to Coleman’s numbers.

Woodside’s boss says that so this year the LNG market has soaked up new supply as fast as it can be introduced. “But next year is tough because there is more supply coming in,” he said.

“Over the long term, well, again, things are looking pretty good. 2017 looks like being the lowest year for many for new LNG project final investment decisions. We might end up with only one new project sanctioned. So the pressure is building on the supply side. We have talked about this for a while and, right now, all the things we have kinda hoped for, they are starting to work their way through.”

Back in late 2014, when oil and gas prices were tanking and a wave of new LNG supply began hitting regional spot markets, one of the clever dudes that reshaped the iron ore market predicted that the same shift to shorter, index-based pricing just had to happen in the LNG market.

Widening gap

He predicted that this change would happen a whole lot faster if the then widening gap between contract and spot pricing was sustained. The theory went that if the short market was reliably cheaper than contracted volumes then Japanese utilities would start pushing for new term contracts that offered customer flexibilities and worked top price gas on its own supply and demand dynamics rather than those of the oil market.

On Wednesday, Japan and India signed an agreement to co-operate in their so far individual quest to force the pace of the changes they want, which is an end to “destination clauses” that constrain where a contract customer might on-sell its gas and more flexibility in the take-or-pay arrangements.

Japan is the world’s biggest LNG customer, while India’s emerging demand base has already seen it become the fourth biggest national consumer in the marketplace. And their push for change comes just months after the Japanese anti-monopoly regulator determined that destination clauses and other restrictions on shipment diversions were likely breaches of Japan’s competition laws.

Now, for his part, Coleman says he sits ready to listen to any clarion call for change that results in export gas markets becoming more liquid, efficient and transparent. “But there are two sides to this street,” he said.

“On destination clauses, you know, I am happy to discuss destination clauses if they are happy to discuss source clauses. I am not seeing a lot of Japanese utilities running to negotiate on the source clauses in existing contracts. This cannot be a one-way conversation.”

The sourcing clauses serve to prevent contracted producers from sensible supply side flexibility. While they might vary, there effect is to prevent, say, Woodside from swapping shipment of Pluto gas with a shipment sourced from another of its production sources or from the increasing liquid spot market.

While the reform train is coming, Coleman seems comfortable that progress is steady and largely anticipated by pretty much anyone in the market.

Demand-side wildcard

Mind you, there is one demand-side wildcard that has come out of nowhere and that Coleman is very interested in indeed. The uncertainties of east coast gas supplies have left AGL planning to import LNG into Victoria from either northern WA or Singapore. We hear there is at least one other re-gas terminal under active contemplation and Coleman sits ready to oblige any and all who might knock on his door seeking spot or new-form contract shipments.

“I don’t mind it at all,” he said. “I have told people publicly I am happy to supply into that market and I don’t charge as much to send shipment as it costs to take it by a pipe from Queensland to Melbourne.

“We have got a lot of flex in our portfolio, we have got enough depth to do that on a regular basis.

“There might be some cabotage issues if a regular supply is required. But, remember, some of those [LNG] ships are Australian flagged already and the perverse thing is that it is about the same distance from Singapore to Melbourne as it is from the North West Shelf, so you could get around those issues by sourcing swaps from Asia.”

In other words, Coleman has already given this a fair bit of thought.

AFR



32 Comments on "Have the US passed peak shale?"

  1. MASTERMIND on Thu, 19th Oct 2017 10:48 am 

    The world’s biggest oil trader Vitol says US oil production will peak in 2018
    https://www.reuters.com/article/us-commodities-summit-vitol/u-s-oil-output-may-be-set-for-last-spike-in-2018-vitolidUSKBN1CF1MZ

    The Mighty U.S. Shale Oil Industry to Lose Another $20 Billion In 2017
    https://srsroccoreport.com/the-mighty-u-s-shale-oil-industry-to-lose-another-20-billion-in-2017/

  2. Anonymous on Thu, 19th Oct 2017 12:01 pm 

    US oil production is up 689,000 bpd since the low of SEP 2016 (SEP16 to JUL17, EIA 914 survey).

    So much for the Red Queen. At $50 oil, she is getting her shiny red butt kicked.

  3. twocats on Thu, 19th Oct 2017 1:04 pm 

    there are so many typos and mistakes in this article I assumed it was a bad translation from a foreign press. nope.

  4. rockman on Thu, 19th Oct 2017 2:17 pm 

    twocats – And also incapable of doing a simple web search. From the EIA:

    https://www.eia.gov/todayinenergy/detail.php?id=20812

    “The United States has been a net importer of energy since the 1950s.”

    So when they said: “Having sucked up a tidal wave of debt and equity capital, the shale boom has left the US, very suddenly, a net energy importer.”

    Fortunately such a blunder a!lowed me to stop reading there. And have we reached peak shale production? Might take 40+ years to know for sure. Most were sure we hit peak US oil production in the 70’s. Had oil prices not collapsed a couple of years ago the US probably would have set a new PO date. About 40 years after we set the date.

    Folks are free to believe we’ve reached peak shale production. Even if it can’t be proven.

  5. twocats on Thu, 19th Oct 2017 3:11 pm 

    agreed rockman – there is very little to suggest that the recent shale oil production numbers are geology based. though I think we are learning a bit about decline rates that do not bode well for a new peak 40 years from now. if we don’t reset peak in the next 10 years I think the window will close on a new US shale peak (though a new global shale peak could be in the running).

  6. Boat on Thu, 19th Oct 2017 5:15 pm 

    US oil is just a few months from setting an all time high. March 2018 ought to do it. Completed wells are on the rise. 283 per month 6 months ago to 355 last month in the Permian.

  7. coffeeguyzz on Thu, 19th Oct 2017 5:27 pm 

    $50 WTI.

    Again, 50 freakin’ bucks for 42 gallons earl … little more than cheap bottled water at the supermarket.
    For anyone closely following the operational end, the cost, precision, increased completion effectiveness has EXPANDED the economic footprint of existing plays and favorably influences the Uinta, the Rogersville, Powder River and – possibly – the Tuscaloosa Marine Shale.
    3 bucks HH will not stop the Appalachian Basin from producing 40 Bcfd by the end of 2018 (14 months out). The already- under- construction Rover, Nexus, Atlantic Sunrise and Leach Xpress pipelines will takeaway 8 Bcf (Rover shipping 1 Bcfd now). The Mountaineer, Mountain Valley. Penn East and Atlantic Coast an additional 7 Bcf.

    You all ain’t seen nothin’ yet.

  8. Apneaman on Thu, 19th Oct 2017 7:33 pm 

    In charts: has the US shale drilling revolution peaked?

    Data show slowdown in rig productivity and drilling time improvements levelling off

    https://www.ft.com/content/e17930dc-b288-11e7-a398-73d59db9e399?mhq5j=e6

  9. deadlykillerbeaz on Thu, 19th Oct 2017 8:43 pm 

    Aint nobody gonna quit using oil.

    Gotta think outside the blockheads’ box of rocks.

    Bunsen and Kirchhoff discovered cesium/caesium spectroscopically in 1860 in mineral water from Durkheim. It is obtain from the minerals Lepidolite and Pollucite (2Cs2O.2Al2O3.9SiO2.H2O), a hydrated silicate of aluminium and caesium. It can be isolated by electrolysis of the fused cyanide and by a number of other methods. Very pure gas free caesium can be prepared by thermal decomposition of cesium/caesium azide.

    Caesium metal resembles rubidium and potassium. It is silvery white in appearance and is very soft and ductile.

    It is the most electropositive and most alkaline element. It oxidises easily in the air and ignites at ordinary temperatures. Caesium reacts explosively with cold, and reacts with ice at temperatures above (–116°C). Due to its high propensity to oxidise it should be stored in vacuum, inert gas, or anhydrous liquid hydrocarbons protected from oxygen and air. It is one of three metals that are liquid at room temperature. Cesium/caesium metal has an excellent affinity for oxygen.

    Caesium has 32 isotopes, more than any element with masses ranging from 114 to 145 g/mol.

    Applications
    Caesium metal is used in the following applications:

    • As a “getter” in low-voltage electron tubes, to scavenge trace amounts of oxygen.

    • Caesium 137, recovered from waste of atomic plants is used as a gamma-ray emitter; it has a half-life of 33 years.

    • It finds use also in teletherapy.

    • Caesium is used in atomic clocks, where a loss of 5s over 300 years is achievable.

    • Caesium may also be used as a catalyst for hydrogenation of certain organic compounds.

    • It has also been considered for in ion propulsion systems, for outer space uses.

    • In photoelectric cells as a photosensitive deposit on the cathode. The caesium metal in this application is also used in the infrared signalling lamp (known as a photophone) in this application it gives infrared waves without visible light.

    Caesium compounds have been implemented on filaments of radio tubes to increase sensitivity.

    Primary author: AZoM.com

    https://www.azom.com/article.aspx?ArticleID=593

  10. Boat on Thu, 19th Oct 2017 8:51 pm 

    So when they said: “Having sucked up a tidal wave of debt and equity capital, the shale boom has left the US, very suddenly, a net energy importer.”

    Lol, exactly, the guys an idiot.

    Drilled but uncompleted well numbers continue to rise. Like around 105 in the Permian. Drilled wells that are completed/355 are still rising even though rig counts have dropped some. That’s the real news that comes from an eia excel spreadsheet.

  11. Boat on Thu, 19th Oct 2017 10:39 pm 

    Amazon’s largest wind farm yet is up and running in Texas
    They have a total of 18 wind farms, with 35 more in the works.

    https://www.engadget.com/2017/10/19/amazon-wind-farm-snyder-texas/

  12. rockman on Fri, 20th Oct 2017 12:05 am 

    Twocats – “if we don’t reset peak in the next 10 years I think the window will close on a new US shale peak” Not a bad bet IMO. As you pointed out the high decline rate of fractured reservoirs needs a steady increase in new wells to not only increase the rate but just to maintain it.

  13. Sissyfuss on Fri, 20th Oct 2017 12:18 am 

    “The guys an idiot.”
    The guy is an, the guy’s an. Both are acceptable. “The guys an” is idiotic.

  14. rockman on Fri, 20th Oct 2017 12:37 am 

    And just so there’s no confusion: it’s the largest wind farm (253 MW) owned by Amazon. The Roscoe Wind Farm in Texas, owned and operated by E.ON is one of the world’s largest capacity wind farms with 634 wind turbines and a total installed capacity of 782 MW.

    What will be interesting is if potential wind power gives Texas the edge in Amazon’s choice for the site of its new center. One criteria is being close to a major university: we have the Un. of Texas in Austin, the lone outpost of liberalism in the state. And don’t forget Georgetown, an upscale bedroom community just down the road from UT and its plan to be the first 100% renewable powered major city in the country. Also lots of relatively inexpensive land nearby as well as some of the most attractive AND affordable housing in the country. And, thanks to our $7 BILLION grid upgrade and management by ERCOT, the facility can be fed directly by wind and solar power. In fact subject to its design the center can employ its own solar onsite with wind as a backup. And don’t forget E.ON is current building grid scale storage to be fed by 2 of its wind farm in Texas. So a chance for Amazon to grab some more bragging rights by employing its own storage if the E.ON project proves to be viable.

    If Amazon is really interested in getting Greenpeace of its ass Texas might be a very good choice.

  15. makati1 on Fri, 20th Oct 2017 12:42 am 

    Sissy, consider the source. lol

  16. tita on Fri, 20th Oct 2017 1:41 am 

    Anonymous “US oil production is up 689,000 bpd since the low of SEP 2016 (SEP16 to JUL17, EIA 914 survey). ”

    Half of the production rise came from Offshore. Also, comparing two picked up months… especially any august-november month, is rather difficult. October 17 US production may well be lower than october 16 due to hurricane Nate.

  17. Sissyfuss on Fri, 20th Oct 2017 7:23 pm 

    Shouldn’t it read “Has the US Passed Peak Shale?” Boat, is this your handiwork?

  18. Cloggie on Fri, 20th Oct 2017 8:40 pm 

    Is the US singular or plural, that is the big question. Now how many states are there…hmmm

  19. Boat on Fri, 20th Oct 2017 9:08 pm 

    clog,

    Only one state. The state of exceptionalism. We’ll let you know how to act and what to do.

  20. Cloggie on Fri, 20th Oct 2017 9:40 pm 

    “Only one state. The state of exceptionalism. We’ll let you know how to act and what to do.”

    It is probably not even intended to be ironically. Boat thinks he can dictate the rest of the world of how they should live: “abolish your nation or we are going to call you raysist” or (Davy) “we are going to kick you ass”, if necessary at the cost of millions of lives.

    Ugly Americans in action. The new Bolsheviks. But, first time a tragedy, second time a farce. Nobody is waiting for you boat or Davy. Your time is up.

    Fortunately this evil empire is about to collapse as a consequence of its own diversity “ideals”:

    https://youtu.be/-03c8MwfpMQ

    They needed to declare the state of emergency for this exercise.lol

    Pull the reserve currency rug from under their feet and it is game over because they will go at each others throat about who has to pay the bills when the hidden subsidy evaporates (hint: whitey).

    Give us a call when the house of cards comes tumbling down and we in Europe and perhaps even China can come over to pick up the pieces.

  21. makati1 on Fri, 20th Oct 2017 10:13 pm 

    Cloggie, there is only one US state, chaos. There is no real US anymore, just factions, decay and a quasi dictatorship where laws are ignored and lies and bullshit flows like the Mississippi.

    When that house of cards goes, it is going to bury most Americans and kill millions. There are some hard core deniers here who believe that they will be the ‘last man standing’ while the rest of the world dies. You and I know that s pure brainwashed bullshit. They will have to experience it to see reality. I don’t think they have long to wait. How many more trillions can they print before the world sends all those worthless dollars home? We shall see.

  22. Cloggie on Fri, 20th Oct 2017 10:42 pm 

    Here you have a whitey with an attitude reporting on his $1500 dollar/month health care insurence:

    https://usawatchdog.com/msm-will-not-cover-treason-north-korea-update-cartoon-markets/

    And that is just health care. There is a far bigger monster bill waiting in the wings: basic income for all, courtesy president-in-waiting Marc Suckerborg.

    The bolshevik order evaporated in 1991.
    The “liberal” order will be evaporated before 2025.

    https://www.amazon.com/Suicide-Superpower-Will-America-Survive-ebook/dp/B004YD36HS/ref=sr_1_1

    Bye-bye US order:

    http://buchanan.org/blog/liberalism-dying-faith-127769

  23. Boat on Sat, 21st Oct 2017 12:37 am 

    clog,

    The Denmark effective tax rate is 55 percent. In the US it is 30 percent.

    You love to be taxed yet somehow you believe the socialist, green, environmentally friendly, government controlled EU right is a good match with the US right cheeto voters.

    The right wants a much smaller government, they think taxes are absurdly high, they love a huge military and care little about clean water and air. They want cheap products made at home. Screw the world. Yes many are racist but your spreading wealth ideas are just as bad to them.

  24. makati1 on Sat, 21st Oct 2017 1:06 am 

    US tax rate for Pennsylvania residents, assuming a $50,000/yr taxable income:

    Federal Income tax: Federal 25.00% 11.09% $5,547
    FICA 7.65% 7.65% $3,825
    State 3.07% 3.07% $1,535
    Local 2.00% 2.00% $1,000
    Total Income Taxes $11,907
    Plus employers added FICA 3,825 equals $15,732.
    Plus sales taxes, etc Now total is $16,932.

    Plus excise taxes, driver’s license fees, car registration fees. dog license fees. building permit fees. gun permt fees, And on and on.

    TOTAL “Taxes” are more than 35% For most, it fast approaches 40%, or more, of the $50,000 income. And taxes ALWAYS go up for the middle income serfs. Always.

    https://smartasset.com/taxes/income-taxes#6DS8PeDOXp

  25. Cloggie on Sat, 21st Oct 2017 3:29 am 

    The Denmark effective tax rate is 55 percent. In the US it is 30 percent.
    You love to be taxed yet somehow you believe the socialist, green, environmentally friendly, government controlled EU right is a good match with the US right cheeto voters.
    The right wants a much smaller government, they think taxes are absurdly high, they love a huge military and care little about clean water and air. They want cheap products made at home. Screw the world. Yes many are racist but your spreading wealth ideas are just as bad to them.

    I have here different numbers:

    http://www.nationmaster.com/country-info/compare/Denmark/United-States/Economy/Tax

    Denmark 52%
    USA 38%
    (personal income tax)

    Americans love to assume that tax money means wasted money, but in highly efficient countries like Denmark, tax doesn’t get wasted. You get something in return for it like tip-top infrastructure, no tent cities or beggars, health care for all, etc. Because of higher taxes there is not this obscene difference between the poor and the rich, like in the US.

    Interestingly Denmark always ends up on top of those feel-good “quality of life” rankings, outshining the US:

    https://www.weforum.org/agenda/2016/07/these-countries-have-the-highest-quality-of-life

    That’s what really matters, not the net income for the higher ups. What is the use of a big fast cars of you cannot step on the gas because of the potholes.lol

    The tragedy of America is that they cannot afford a society like Denmark anymore because there are so many “parasites” who do not contribute to society. But rest assured that these parasites will come to your door and demand “rights” at your expense.

    Unless of course white America will revolt and secede. I do not think they will volunteer to pay these bills that are in the pipeline for them.

  26. Boat on Sat, 21st Oct 2017 4:26 am 

    clog,

    The point was your right wing is not compatible with the US version. The left wing is much closer to the EU right except for immigration. I still don’t think you know the US and where the divisions are politically.

    Learn what effective tax is. It’s not a rate. Google the average effective tax rate for the US.

  27. Davy on Sat, 21st Oct 2017 5:04 am 

    The usual two old men bashing the US over empty facts. So what if taxes are 38% in PA. What are they supposed to be mad katter, Zero? Just because you don’t pay taxes and should is no reason to say taxes are completely bad. One of these days you will get caught and they will garnish your social security. You still have to file a return, mad katter. You don’t pay any tax in the P’s so in effect you are a stupid freeloader. A piece of shit whiner who contributes nothing but hate and discontent while receiving a monthly fee stipend.

  28. makati1 on Sat, 21st Oct 2017 5:31 am 

    Ah Davy, those “two old men have a realistic picture of the world outside Davyland. A perspective you cannot get inside the US Iron Curtain. Its called “Reality”.

    BTW: You will never live to see our ages. You are too obsessive and stressed over the collapse of your dream country. Blind to even the most obvious. You want refs to prove our point and then you dismiss them as not important. Yes, Davy, you are slipping even deeper into those delusions and insanity. Enjoy the trip.

  29. Babtized on Sat, 21st Oct 2017 11:54 am 

    The tax rate in USA is 65 to 70%, when all is combined. BUT what is not talked about is that 65 to 70% of USA people work for the government or are PAID by the USA as a private company.Private prisons, contract work etc. Been that way for decades.

  30. Boat on Sat, 21st Oct 2017 9:29 pm 

    Babtized on Sat, 21st Oct 2017 11:54 am

    You got a link to show 65-70 percent.

  31. Babtized on Mon, 23rd Oct 2017 12:13 pm 

    It was on NBC about a year ago, which means it could be fake news. Except they laid it out very logical. It went into politics,law,courts,prisions,policing,education,health care,infrastrature,military, etc.

  32. Babtized on Mon, 23rd Oct 2017 12:30 pm 

    I live in a 22 house subdivision 70+% are policeman,fireman,teachers,waterservice librian,maintaince worker for secondary schools,& custodian for school system, professor at TSU,school bus driver&MTA bus driver. Garth Brooks seems to be one of the few that are not paid by USA.

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