Energy Independence

DEER PARK, Texas — Two giant murals, on storage tanks at an oil refinery here, depict the rebels led by Sam Houston. They secured Texas’ independence from Mexico in the 1830s. This week those murals will become the property of the Mexican national oil company. This means acquiring full control of the refinery. Let’s talk more about energy independence below.

The refinery purchase is part of President Andres Manuel López Obrador’s own bid for the independence of sorts. This is an effort to achieve energy self-sufficiency. Now, the president of Mexico is investing heavily in state-owned oil companies. They are placing a renewed emphasis on petroleum production and retreating from renewable energy. This is even as some oil giants like BP and Royal Dutch Shell are investing more in that sector.

Mr. López Obrador aims to eliminate most Mexican oil exports over the next two years. Above all that, the country can process more of it domestically. He wants to replace the gasoline and diesel supplies the country currently buys from other refineries in the United States with fuel produced domestically or by the refinery in Deer Park, which would be made from crude oil it imports from Mexico. The shift would be an ambitious leap for Petroleos Mexicanos, the company commonly known as Pemex.

Firstly, the company’s oil production is comparable to Chevron’s in recent years. As a result, this has been falling for more than a decade. Basically, it shoulders more than $100 billion in debt, the largest of any oil company in the world.

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Source: The New York times

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President Joe Biden announced plans to release up to 50 million barrels of oil from the strategic petroleum reserve. This is to lower retail fuel prices. Many analysts warned that any effect this move would have would be short-lived. Indeed, prices dropped for a very short. On the other hand, it is now on the climb again. This is with the number of three-digit price forecasts growing.

The strategic reserve release was already a desperate attempt to put a lid on gasoline prices, pushed up by crude oil prices, themselves the result of a faster rebound in global demand and production constraints among OPEC members. The Omicron variant of the coronavirus, like the SPR release plans, had a transitory negative effect on benchmarks, but before long, they were once again on the rise.

Morgan Stanley expects Brent crude to reach $90 per barrel later this year. This is also the price forecast of Goldman. JP Morgan recently said that crude could reach and exceed $100 this year, noting the decline in OPEC spare production capacity. The latest to join the bullish choir is Vitol, whose head for Asian operations told Bloomberg last week that oil had further up to go because of tight supply.

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Source: Oil Price

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Wyoming’s economy continued to rebound in the third quarter of 2021, but its growth has slowed down. And thanks to the highest prices of oil and natural gas seen in several years, the mining industry had a relatively good quarter.

On the whole, Wyoming recorded about 6,800 or 2.4% more payroll jobs in the third quarter of 2021 compared to 2020. Leisure and hospitality led this growth with 4,300 more jobs, an 11.9% increase, during that time.

Even with that growth, Wyoming trailed behind the nation as a whole, which saw job growth of 4.6%

On the bright side, the state’s top industry, mining, saw moderate growth, increasing 5.9% in the third quarter thanks to a rebound in oil and natural gas activities. It was the first year-over-year increase for mining since the second quarter of 2019, said Wenlin Liu, chief economist with Wyoming Division of Economic Analysis, in a press release.

In the third quarter, $185.4 million was generated in mineral severance taxes. That was about a 26% increase from 2020, and the highest quarterly amount since the fourth quarter of 2014.

Liu noted that it was due to oil and natural gas, which saw their highest prices since 2014 and 2008, respectively.

Total taxable sales grew by just 1.5% in the third quarter of 2021. Liu attributed this weak performance to the fading activities in wind power construction. Otherwise, both leisure and hospitality and retail trade had strong expansions, passing 2020 levels by double digits.

In Campbell County, taxable sales grew by 18%, the sixth-highest in the state.

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Source: The Sheridan Press

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Global oil and gas investment is expected to grow by $26 billion this year. This is as the industry continues to recover from the worst of the coronavirus. All of this is according to a new analysis from Rystad Energy.

Overall oil and gas investment is forecast to climb by 4% to $628 billion this year. It is a high jump from $602 billion in 2021.

“The pervasive spread of the Omicron variant will inevitably lead to restrictions. This is specifically on movement in the first quarter of 2022. Capping energy demand and recovery in the major crude-consuming sectors of road transport and aviation. But despite the ongoing disruptions caused by Covid-19, the outlook for the global oil and gas market is promising”. This was said by Rystad’s Audun Martinsen, head of energy service research.

Natural gas and liquefied natural gas (LNG) investment is seen leading the way, rising 14% in 2022 to $149 billion from $131 billion in 2021. Although still short of pre-pandemic totals, Rystad sees investment in the LNG and gas segment surpassing 2019 levels of $168 billion in only two years, reaching $171 billion in 2024.

Upstream oil investments, meanwhile, are projected to rise from $287 billion in 2021 to $307 billion this year, a 7% increase, while midstream and downstream investments are projected to fall by 6.7% to $172 billion.

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Source: Natural Gas Intelligence

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Oil rises by 1.5% on Tuesday as OPEC+ producers agreed to stick with their planned increase for February based on indications that the Omicron coronavirus variant would have only a mild impact on demand.

Brent crude was up $1.15, or 1.5%, at $80.13 a barrel, its highest since November, by 13:33. p.m. EST (1833 GMT) and U.S. West Texas Intermediate (WTI) crude rose $1 cents, or 1.31%, to $77.09. So what does oil rises?

“The oil market is bullish today as a result of optimism sourced from today’s monthly OPEC+ meeting, which is helping oil prices trade higher,” said Rystad Energy’s head of oil markets, Bjornar Tonhaugen.

OPEC+, comprising of the Organization of the Petroleum Exporting Countries and allies, agreed to stick to its planned increase of 400,000 barrels per day (BPD) in oil output in February.

Its decision reflects easing concerns over a big surplus in the first quarter, as well as a wish to provide consistent guidance to the market.

Crude stockpiles in the United States, the world’s top consumer, were forecast to have dropped for a sixth consecutive week, analysts polled by Reuters estimated ahead of weekly industry data due at 4:30 p.m. EST (2130 GMT), followed by the government’s report on Wednesday.

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Source: Reuters

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The U.S. became the world’s No. 1 LNG Exporter (liquefied natural gas) for the first time ever last month, as deliveries surged to energy-starved Europe.

Output from American facilities edged above Qatar in December after a jump in exports from the Sabine Pass and Freeport facilities, according to ship-tracking data compiled by Bloomberg. Cheniere Energy Inc. said last month that a new production unit at its Sabine Pass plant in Louisiana produced its first cargo.

A shale gas revolution, coupled with billions of dollars of investments in liquefaction facilities, transformed the U.S. from a net LNG importer to a top exporter in less than a decade. Gas production has surged by roughly 70% from 2010 and the nation is expected to have the world’s largest export capacity by the end of 2022 once Venture Global LNG’s Calcasieu Pass terminal comes online.

But the U.S.’s position as top LNG shipper may be short-lived. Exports were just a hair above those from Qatar and Australia, and any production issues could affect the rankings. Looking further out, Qatar is planning a gargantuan export project. It will come online in the late 2020s. This could cement the middle eastern nation as the top supplier of the fuel.

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Oil and gas’ interest in the Permian Basin of southeast New Mexico and West Texas continued to rise. This is as multiple deals valued at more than $100 million were announced. It was in recent weeks while production ramped up on the heels of COVID-19.

Production slowed as travel and business restrictions stymied fuel demand. This was when the health crisis first hit the U.S. in March 2020. Now vaccines are available, they are lifting restrictions and demanding recovery. This is how production is rebounding.

Minnesota-based Northern Oil and Gas announced it bought out Permian Basin assets. It is by Veritas Energy for about $406 million. It includes assets in the western Delaware sub-basin and the eastern Midland Basin.

Involving the non-operational lands in the sale are in Lea and Eddy counties in southeast New Mexico. It is along with Loving, Reeves, and Ward counties in Texas. There is an expectation that it will generate about 11,500 barrels of oil per day.

“The Veritas transaction marks our fourth significant transaction in 2021 as we return focus to the Delaware basin, further scaling our business and building inventory with premier operators,” he said. “Northern continues to set the standard for non-operated energy management and will remain steadfast in our focus on consolidating high quality, low-breakeven assets.”

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Source: Carlsbad Current-Argus

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The number of active drilling rigs in the United States last week rose by 7, bringing the total to 586 as oil prices remain relatively strong despite the fresh wave of Covid-19 cases brought by the new variant of the coronavirus. Let’s talk more about the US oil rig here.

Last week’s count compared with a rig count rise of 3 for the previous week, which brought the total to 579.

Baker Hughes reported the total active rig figure was 238 rigs higher than the rig count this time last year when the oil industry was just beginning to recover from the worst blows of the pandemic. Yet it was still far from the rig count numbers from before the pandemic.

Oil production in the U.S. last week stood at 11.6 million bpd, according to the Energy Information Administration. That was down from 11.7 million bpd for the previous week but up from 11 million bpd a year ago. The four-week average production was estimated at 11.65 million bpd.

In 2020, the U.S. oil industry saw the biggest drop in production on record, with output slumping from 12.2 million bpd in 2019 to an average of 11.3 million bpd, according to the EIA.

Following the crash in oil prices in March 2020 due to the pandemic, U.S. operators curtailed production and brought fewer wells online. By May 2020, American crude oil production had slumped to a monthly average 10 million bpd from a peak of 12.8 million bpd in January 2020.

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Source: Oil Price

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Texas oil and natural gas job growth grew by 15.4% this November compared to last November. It brought 2,400 upstream jobs last month. This is the data from the Current Employment Statistics report from the Bureau of Labor Statistics show.

What happened in the past 6 months?

  • Employment gains in the Texas oil and natural gas industry have exceeded 2,000 jobs every month.
  • There is an average monthly gain being 2,633, Texas Workforce Commission data show.

With 185,800 upstream jobs in November, jobs in the industry were up by 24,800, or 15.4%, from last November. Since the low employment point in September 2020, growth months have outnumbered decline months 12 to 2, with the industry adding 28,300 Texas upstream jobs.

“The Texas economy continues to rebound and the upstream sector’s addition of two thousand-plus jobs every month for the past six months is a prime example of how critical this industry is to the state’s recovery,” Todd Staples, president of the Texas Oil and Gas Association, said in a statement. “These jobs pay among the highest wages in Texas and the activity of this industry supports communities across the state, whether you live in the oil patch or not. These positive job numbers are good news for all Texans and Americans.”

The upstream sector includes oil and natural gas extraction as well as the industry sectors of refining, petrochemicals, fuels wholesaling, oilfield equipment manufacturing, pipelines, and gas utilities, which support hundreds of thousands of additional jobs in Texas. It also includes some types of mining.

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Source: in Forney

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The average energy stock is on track to gain more than 50% this year, a stunning result for a sector that has lagged far behind the market for most of the past decade. Prospects are looking good for 2022, too, particularly in oil. Oil prices are indeed rising and will continue to rise.

International crude prices have risen 43% in 2021, and U.S. crude is up 46%, climbing out of the hole created during the worst of Covid-19.

But the latest oil bonanza is different from many of the booms and busts that have characterized a century of wildcatting. Companies are bringing production back slowly, both in the States and abroad, as investors demand better returns. Credit research firm Fitch Solutions doesn’t expect oil and gas capital expenditure to return to pre-pandemic levels until 2025.

Sending Back to Investors

So what will energy companies do with all of that money they’re making from higher oil prices if they don’t spend it on drilling wells? They’re going to send much more of it back to investors.

Morgan Stanley analyst Devin McDermott expects oil companies to offer a 6% buyback and dividend yield next year, with the big integrated names offering an 8% yield. He expects the stocks to outperform the broad market, given that they’re trading at a 65% discount to the S&P 500 index, twice their historical discount.

Several other analysts are bullish, too. RBC Capital Markets’ Michael Tran sees Brent crude averaging $79.50 a barrel next year and $86.50 in 2023.

Two big questions are still looming. The first is whether Covid will wane in 2022, leading to a full travel rebound. The other is whether oil companies and the Organization of Petroleum Exporting Countries will really stick to their plans to increase capital expenditure slowly.

Historically, boom cycles end when producers get greedy, plowing money into projects just as prices start to peak. In those cases, the next step can be a wave of bankruptcies. Most analysts aren’t betting on that cycle to repeat.

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Source: BARRON’S

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