Fri, 20th January 2017

Anirudh Sethi Report


Archives of “NATURAL GAS” Tag

US oil output to rise 1.3% in 2017, EIA says

US oil production has turned a corner after a long period of weak petroleum prices, the government said, with volumes rising for the first time since early 2015.

The Energy Information Administration forecast that oil output from the US will increase 1.3 per cent to 9m barrels per day in 2017, abandoning an earlier prediction of a 0.9 per cent fall.

In the first forecast for 2018 in its monthly Short-Term Energy Outlook, the statistical agency said US crude production will rise another 3.3 per cent, or 300,000 b/d, to 9.3m b/d. Production hit bottom last September, EIA said.

These Are Barclays’ 13 Commodity “Black Swan Threats” For 2017

In a special report by Barclays’ Michael Cohen, the analyst lays out what he believes are the 13 commodity “black swan threats” for the current year, divided into two “shock” categories: supply and demand, split evenly between bearish and bullish.

Investors, Barclays warns, will have to balance the risks of unforeseen macroeconomic shocks and their effect on demand (bearish price) with potential geopolitical shocks disrupting the supply side of the market (bullish price). A tightening commodity inventory picture, especially in oil, will likely exacerbate how the market prices supply risks even if no physical supply disruption occurs.

The potential threats, which range from a trade war with China, to a default in Venezuela, to riots in Chile, all have a common denominator: politics: “we assess several black swan threats to the supply, demand, and transit of commodities that could potentially move markets in 2017. Our analysis illustrates an important point: politics are likely to matter just as much as economics” and not just any politics: “in particular, the new politics of populism and protectionist trade policies have the potential to disrupt global supply and demand assumptions for various commodities.”

Those who have been following Trump’s twitter feed are all too aware of this.

While we realize the futility of “identifying” black swans in advance, something which is by definition impossible, nonetheless here is what Cohen warns:

In 2016, few people predicted a Trump election or Brexit, not to mention that the Chicago Cubs would win the World Series or that Leicester City would take the Premier League title. And commodities markets were not without their own set of surprises as well. OPEC cut production with non-OPEC countries for the first time in 10 years. Weather whipsawed natural gas, and Trump’s election inspired a late metals complex rally on the basis of hopes for new infrastructure spending. In fact, when all was said and done, 2016 was a pretty good year for commodities, with the asset class posting its first annual advance since 2010.

Commodity market black swan events come in many forms, and the market may take years or an instant to price them in. Technological innovation caused the US shale gas revolution, the Great Recession caused structural demand destruction, while geopolitical strife has disrupted commodity supplies overnight. We all know that markets will surprise in some fashion in 2017, so we attempt this review to shine  a spotlight on the specific commodity market risks that clients should watch.

Where could the surprises come from: “Watch these spaces: China, Russia, the Middle East and Turkey are likely to surprise the commodity complex in 2017.”

Below is the summary list of the proposed “black swans”

Breaking down the list, Barclays says that generally “it sees risks skewed to the upside in 2017, based on several supply-side risks.”

Given the scenarios laid out below we view supply driven disruptions in 2017 as being more likely than demand side Black Swan events. Although commodity price disruptions may mean higher prices in the short-term there is a risk they result in lower medium-long-term prices. A supply disruption that results in a higher futures curve could result in the sanctioning of new projects or increased producer hedging activity, eventually putting downward pressure on prices in the long-dated contracts. There are, of course, supply-side risks that would be bearish for the market as well, such as higher production from Libya or the Neutral Zone.”

Demand events less likely but more structurally impactful. Given the relative liquidity in global commodity markets we see supply related outages being shorter in duration compared to potential demand side risks. We see demand side events, such as those driven by economic weakness, as less likely but events that would have a longer term structural impact on commodity prices to the downside.

As noted above, the two big categories laid out by Barclays are as follows:

Reliance Industries faces $1 bn penalty in dispute with ONGC

The Directorate General of Hydrocarbons is understood to have computed the penalty payable by Reliance Industries (RIL) for exploiting natural gas that migrated to its KG-D6 block from ONGC’s adjacent asset at upwards of $1 billion. The figure has been arrived at after taking into account capital and operational expenditures incurred by RIL in taking out the migrated gas, sources with knowledge of the matter told FE. With the DGH giving the report to the oil ministry last week, the latter is likely to issue a notice in this regard to the Mukesh Ambani-led firm later this week, the sources added.

A November 2015 study by US-based consultant DeGolyer and MacNaughton noted that up to 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to the adjoining KG-D6 block of RIL in the Bay of Bengal between April 1, 2009, and March 31, 2015. Later, former Delhi HC chief justice AP Shah in a report on the issue said the quantification of RIL’s unjust enrichment can either be based on the monetary value of the migrated gas produced, and to be produced, by RIL or it can be the profit it earned, after taking into account its costs and sales figures. But Shah was clear ONGC has no locus standi to make tortuous claim against RIL.

India -Core sector grows 5% in Sept

India’s core sectors – coal, crude, natural gas, refinery products, fertilisers, steel, cement and electricity – rose 5 per cent in September compared with 3.2 per cent in August.

Data showed the eight core industries grew 4.6 per cent in the April-September period.

With a weightage of some 38 per cent of India’s industrial output, core sector index is seen as a barometer of how India’s industry is doing.

 Steel was the best performer despite the downturn in the global market, reporting a 16.3 per cent growth, nearly as much as the 17-month high of 17 per cent reported in August.

Analysts said the range of tariff protection that India has given to the steel sector from dumping by Chinese and East Asian competitors helped.

“Steel growth shows that demand from downstream industries remains and that they are replacing imports with domestic production,” said Sudipto Bose, an independent steel sector market analyst.

The refinery sector reported the second highest growth rate at 9.3 per cent, while cement, which reflects on downstream construction and infrastructure, showed a 5.5 per cent growth.

However, electricity generation grew just 2.2 per cent while fertiliser grew 2 per cent. Three key sectors – coal, crude and natural gas – contracted. Coal output contracted 5.8 per cent, natural gas output shrank 5.5 per cent, while crude production contracted 4.1 per cent.

Baker Hughes US oil drilling rig count 441 vs 443 prior

Weekly drilling rig data from Baker Hughes

  • First decline since June 24 week
  • Prior was 443
  • Natural gas rigs 114
  • Prior natural gas was 108
  • Total rigs 557
  • Prior total rigs were 553

The number of oil rigs bottomed out at 316 in late May but despite the jump, production still hasn’t picked up. It will, it’s just a matter of the time lag.

I wouldn’t read too much into one week of declines because rigs jumped 11 last week so it puts it back on trend.

What is a bit positive for oil is that there isn’t an upward acceleration of rigs in response to higher prices but that might just be a matter of time if crude stays around $50.


Foreign funded group wants to stop Adani project in Australia

Adani’s 21.7 billion dollar coal mine project in Australia was being targeted by a “foreign funded, highly orchestrated” group which influenced the traditional land owners and legal environmental challenges’ to stop it, a new set of emails released by WikiLeaks has said.

In a series of emails, it has been disclosed that the US-based Sandler Foundation funded Australia-based environmentalist group, the Sunrise Project, which offered “Wangan and Jagalingou people” financial support and scholarships if they opposed Adani’s mine project and also boasted of its attempts to hide its funding sources from Australian parliament, according to ‘The Australian’ newspaper today.

According to report, the previously secret briefings as part of Hillary Clinton’s campaign chairman John Podesta’s emails, said Sunrise tailored its advice to indigenous communities in northern Queensland, and that the “whole Galilee Basin fossil fuel industrial complex is in its death throes”.

 It was also disclosed that an associated group, Human Rights Watch, offered to help Sunrise Project by keep its tax-exempt charity status because “the mining companies seem to own the Liberals (in Australia) and they play very dirty”.

Human Rights Watch chief executive Ken Roth further disclosed that his group received “charitable status by special parliamentary bill” in the “waning days of the Labor government”.

Petrobras cut investments by 25% in new 5-year plan

Petrobras, the state oil company at the centre of Brazil’s vast corruption scandal, slashed planned investment by 25 per cent under its latest five-year business plan as it struggles to emerge from the deepest crisis in its history.

The Rio de Janeiro-based producer said on Tuesday it would invest $74.1bn between 2017 and 2021, down from planned investment of $98.4bn in its previous five-year plan, revised in January this year

The plan is the first under new chief executive Pedro Parente, who has vowed to cut the company’s nearly $125bn of debt, the largest of any group in the global oil industry.

Petrobras said on Tuesday it plans to reduce its leverage to 2.5 times its earnings before interest, tax, depreciation and amortisation (ebitda) in 2018 from 5.3 times in 2015.

Petrobras said it plans to be producing 2.77m barrels a day of crude oil in Brazil by 2021 and have total domestic and international oil and natural gas production of 3.41m barrels a day.

The company is expected to hold a press conference later on Tuesday.

Baker Hughes US oil rig count 406 vs 406 prior

Weekly US energy drilling data from Baker Hughes

  • Prior was 406, rising from 396 and 381 in the prior rigs
  • Natural gas rigs 81 vs 83 prior
  • Total rigs 489 vs 491 prior

It’s the first flat reading or decline in oil drilling rigs since the week of June 10 but given that rigs have risen by 32 in the past month and 90 since the May 27 low, it’s probably to be expected.

 Oil prices rose slightly after the data.

EIA US natural gas stockpiles rose 11 BCF last week.

That is an increase of 0.33% say EIA

Inventories rosse by 3.35 trillion cubic feet. The inventories are for immediately available withdrawals.
Below is a table of the changes by region and also vs a year ago and the 5-year average.  As the table shows the inventories are higher.

India -Core sector growth at 5.2%

Core sector output rose 5.2 per cent in June, its fastest pace in two months, largely driven by increased demand for cement, coal and electricity.

The eight infrastructure sectors – coal, crude, natural gas, refinery products, fertilisers, steel, cement and electricity – had expanded 3.1 per cent in June 2015.

The eight core sectors comprise nearly 38 per cent of total industrial production.

 Cumulative growth during the first quarter of the current fiscal was 5.4 per cent.

Cement production surged 10.3 per cent year-on-year in June, faster than a 2.4-per cent rise a month ago. Coal output expanded 12 per cent year-on-year compared with a 5.5 per cent growth in May.

Production of electricity rose 8.1 per cent in June from 4.6 per cent growth a month ago.

Aditi Nayar, senior economist of ICRA, said: “While the pickup in overall core sector growth is heartening, the disaggregated performance was fairly mixed across the constituents with double-digit growth in coal and cement interspersed with continued contraction in crude oil and natural gas.”