Turning from diesel to hydrogen trains

The Oilholic finds himself on the road again; this time roughly 570 miles east of London in Salzgitter, Germany, at a research and testing facility of rail transport solutions provider Alstom. 

The French company's testing yard is abuzz for a (relatively) new reason – one of it's most popular Coradia series trains, namely the reliable diesel work-horse the Coradia Lint 54, is about to undergo a transformation like none other.

Meet the 'Coradia iLint', a full emission-free train that runs on Hydrogen powered fuel cells (see above). It only emits steam and condensed water, and no  carbon. To get a perspective, the Oilholic was given a demonstration ride on the train over a one mile track, before its due to enter service on German public transport this year. 

For all intents and purposes, it was a smooth ride and the quietest ever rail journey this blogger has been on. In fact, were it not for the wheel friction din and movement vibration, you wouldn't hear a thing. You'd imagine reducing pollution, also means minimising noise pollution and the Coradia iLint certainly fits that box.

The interior was that of a normal train in service across European public transport networks, meaning no clunky hydrogen tanks in eyesight or internal variations. (Click image below to enlarge and get a glimpse)

According to Alstom, the prototype is powered by an electrical traction drive. Electrical energy is generated onboard in fuel cells and stored in batteries.

The fuel cell provides electrical energy by combining hydrogen stored in the train's tanks onboard with oxygen from the environment, releasing good old H2O. 

While on the test track the train touched 80 km/h, out in the real world Alstom insists it would match the performance of a Coradia diesel unit, including comparable acceleration, braking and maximum speed (of 140 km/h) with the same travel range and passenger capacity as its hydrocarbon fuelled variant. 

Two things spring to mind; first being safety and the second being the infrastructure needed to power up the new train. On the first point, an Alstom spokesperson claimed that high pressure hydrogen reservoirs are actually safer than petrol tanks in comparable hazard situations, a point also made by Japanese automaker Toyota, which has been on its own hydrogen powered vehicle pathway since 2015 via its Mirai model. The technology has been rigourously tested, both mobility providers insist. 

As for the infrastructure needed, Alstom says it is offering the "complete package" consisting of the train itself and its maintenance, and also the whole hydrogen fuelling infrastructure, taking care of all rolling stock and hydrogen related matters, leaving operators to concentrate on their "core competencies."

The company's message chimes with that of other proponents of Hydrogen – intelligent energy management coupled with emissions free mobility.

And to make the point – a Toyota Mirai pulled up alongside the Coradia iLint (see above), with perfect timing. That's all from Salzgitter, as its time to ride the Mirai around Northern Germany and beyond! Keep reading, keep it 'crude', even if the next few posts are going to about hydrogen!

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© Gaurav Sharma 2018. Photo 1: Alstom's Coradia iLint. Photo 2: Glimpses of exterior, roof, interior and driver's cabin of the Coradia iLint. Photo 3: Coradia iLint and Toyota's Mirai hydrogen fuelled car © Gaurav Sharma May 2018.

Crude talk in H-Town

As the Oilholic prepares to say yet another goodbye to Houston, one cannot but help wondering why the new found pragmatism here over the possible direction of the oil price is not reflected elsewhere in the oil market.

Brent is currently within touching distance of $80 per barrel, while the West Texas Intermediate is firming up above $71 per barrel. 

Having spent a whole week deliberating with market participants out here in America's oil capital, including physical traders, few seem to think the oil price can sustain three figures, even if it gets there.

The sentiment was echoed by several delegates at the Baker McKenzie Oil & Gas Institute 2018 with most there, including leading legal and financial advisers, dismissing a sustainable return to a three-figure oil price. In fact, most are advising their clients not to get carried away, and mark a return to the profligacy of the sort we saw in the US oil patch when the price was last in three figures back in 2014.

Their clients, i.e. representatives of leading oil companies and project sponsors also share the sentiment, and while appreciative of relatively higher oil prices, are in no mood to get carried away.

Yet with Venezuelan production heading to a historic dive below 1 million barrels per day, US President Donald Trump's withdrawal from the Iran nuclear deal and the general geopolitical malaise in the Middle East, hedge funds and money managers are piling in to the futures market in the hope of extending a rally largely supported by OPEC's output cuts.

Plenty of food for thought, but the oil market is in real danger of overstretching itself! And on that note, that's all from Houston folks. Time for the ride home to London. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: View of downtown Houston, Texas, USA from Burnett Street on the outer edge of town. © Gaurav Sharma, May 2018.

Thoughts From Baker McKenzie’s Oil & Gas Institute 2018

Earlier today, the Oilholic was delighted to attend the Baker McKenzie 2018 Oil & Gas Institute; an event that grows bigger by the year, and has become a true 'crude' fixture in Houston.

From Big Oil getting to grips with Big Data to capital raisings in mature jurisdictions, emerging market legal considerations to mergers and acquisitions - there was plenty on the agenda to for everyone. Of course lurking in the background to it all is the direction of the oil price and US President Donald Trump's re-imposition of sanctions on Iran, the Israeli-Iranian tussle in Syria, OPEC and all the rest. It's pushed Brent crude above $77 per barrel and WTI above $71. 

While every US shale player would gladly accept the current prices; quite like the Oilholic, few at the Institute felt the elevated prices would last. Given there are several variables in the equation - including, but not limited to, what OPEC would do next month, what sort of levels US producers are likely to record, how many Iranian barrels are likely to be knocked off the market, etc. - getting carried away by the bulls would not be a good idea. 

To quote, Jim O'Brien, Chair of Baker McKenzie's Global Energy, Mining & Infrastructure Practice Group and one of the architects of the Institute, the US oil patch is "feeling good" about itself at the moment, but at the same time there is a fair degree of realism that a return to $100 prices is unlikely.

In fact, one of the key takeaways from the Institute was how oil and gas players, both large and small, were aiming to achieve breakeven at prices as low as $30. 

Underpinning that drive would be digitisation across the board enabled by big data, AI, automation and robotics coming together to bring about the kind of process efficiencies capable of making a tangible difference to the operating expenditure of oil and gas companies. Touching on this very subject was a keynote speech by Paulo Ruiz Sternadt, boss of Siemens-owned Dresser-Rand. (Full Forbes report here)

Representatives of Baker McKenzie, BP, Accenture, Shell and many others also touched on the topic. LNG, employment diversity and private equity in the business were other subjects under discussion, as was the topic of investing in Mexico (Forbes post here) and the latest developments in Saudi Arabia. All in all, another interesting afternoon of deliberations. But that's all for the moment from Houston folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: Delegates at the Baker McKenzie 2018 Oil & Gas Institute in Houston, Texas, USA © Gaurav Sharma 10 May, 2018.

In Houston Town To Trump's Iranian Frowns

The Oilholic is back in Houston, Texas for another round of events and networking. However, getting stuck in one's hotel room watching CNN on a sunny Texan afternoon certainly wasn't part of the plan.

Of course, with US President Donald Trump taking on himself to single-handedly tearing up the Iran Nuclear deal, there was little choice but add to the afternoon news-watchers ranks. 

And with customary aplomb, the Donald annulled the US end of a "very bad deal" with Tehran at 2pm Eastern. It's something he had always criticised, and had promised he'd annul if he won the Presidency. So, the Oilholic wonders, why is the market surprised? 

Here are one's thoughts on what the President's move could mean for the global supply and demand dynamic via a Forbes post. In fact, Moody's Analytics reckons Trump's sanctions have the power to knock off 400,000 barrels per day (bpd) of Iranian crude off the global market. 

But given the President's move is unilateral, unlike Barack Obama's multilateral sanctions, the volume would be less than half of what his predecessor managed inflict on the Iranian before they came to the table (i.e. 1 million bpd).

Of course, both leading up to and in the hours after Trump's announcement, both Brent and WTI fell by as much as 3% only to gain 2%, before ending the day firmly on a bullish note. While this blogger is not offering investment advice, a bit of caution is advised.

The Oilholic, for the moment is minded to stick to his average Brent price forecast range of $65-75 per barrel. These are early days, much needs to unfold here. But that's all for the moment from Houston folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: Billboard in Houston, Texas, USA © Gaurav Sharma, May 2018. 

Oil to touch $300/bbl? Are you having a laugh Pierre?

You have to hand it to hedge fund managers. At the sight of the slightest uptick in crude prices, whether driven by geopolitics, OPEC's shenanigans or dare we say – actual supply and demand dynamics – hedge funds and money managers tend to pile in with long calls in the hope of extending the rally. 

However, when it's a case of all of the above market factors, some tend to get overexcited. Pierre Andurand, whose Andurand Capital Management is often bullish on oil and has been down on its luck for the first quarter of 2018 (according to Bloomberg), is certainly among the excitable creatures.

Earlier this week, in a succession of now deleted tweets, Andurand quipped that concerns over the rise of electric vehicles was keeping investment in upstream oil projects muted thereby extending their lead times over fears of peak demand. 

"So paradoxically these peak demand fears might bring the largest supply shock ever. If oil prices do not rise fast enough, $300 oil in a few years is not impossible," he added. 

Having grabbed the attention of the crude markets, the tweets, of course, were subsequently deleted with no explanation. The Oilholic has an explanation – perhaps rational thinking returned? 

Perhaps a realisation that OPEC's lowering of output has to end at some point? Or perhaps a realisation that the US rig count continues to rise in tandem with American barrels? Or even perhaps a realisation that much of oil demand – as the International Energy Agency notes – is driven by petrochemicals and aviation. In fact, even if one in every two cars is electric, oil demand would still rise. 

Anyway, why should rationality get in the way of a provocative tweet. Or make that a deleted provocative tweet. 

For the record, the Oilholic reiterates his average oil forecast range of $65-75/bbl for Brent for 2018, which is a tad higher than that of many fellow bears in the range of $60-70/bbl, given there still is plenty of oil in the market, and the crude mix of light and heavy is keep the global pool well supplied.

To provide, some content the Brent front month contract closed just shy of $75/bbl on Friday (see chart above, click to enlarge), still in its painfully dull range, albeit lurking near the highest level since November 2014. So only another $225 to stack up in a matter of years Pierre, if the bears get your bullish fever! That's all for the moment folks! Keep reading, keep it ‘crude’!

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Discussing Blockchain at ISTrade 2018

Barely had the Oilholic returned from Panama, that it was time to head 1550 miles east to Istanbul, Turkey for ISTrade 2018: The 3rd Energy Trading and Supply Conference on the banks of the Bosphorus. 

Yours truly was invited to speak and moderate a panel on the digitisation of energy trading here with a heavy emphasis on - you guessed it blockchain; an emerging and perennially hot topic at energy trading events which are rapidly beginning to feel like technology events!

More on that later, but first on to 'crude' thoughts, and it seems feedback from the great and good of energy trading in Turkey, on this splash and dash work visit to the country, reconfirms one's thoughts that oil is likely to stay in relatively predictable price bracket of $60-70 per barrel, even if geopolitical risk briefly props it up to $70 per barrel. 

Away from the crude price, ISTrade 2018 delegates also noted how trading arms of 'Big Oil' companies, and established commodities trading houses like Vitol, Gunvor and Glencore and the likes, are investing in blockchain and are being exceptionally candid about it.

It set the scene nicely to discuss energy trading in relation to emerging technology, and the Oilholic's take was that it's a one way street to process efficiencies and optimisation. The market can expect more of the same. To discuss the subject, this blogger was joined on the panel by Ashutosh Shashtri, Director of EnerStrat Consulting and Serkan Sahin, Manager, Europe and Africa Oil and Gas Research at Thomson Reuters.

Elsewhere, at IStrade 2018, a plethora of crucial topics were discussed. Here is the Oilholic's detailed report for Forbes from the event. One final point, before taking your leave, is to flag up a Rystad Energy research note that arrived over the weekend. The independent energy research and consulting firm reckons US oilfield services have more to lose compared to Chinese peers from current trade tensions between both countries initially fanned by President Donald Trump.

On April 3, the US published a list of approximately 1,300 Chinese exports that could see tariffs in the near future. Not to be outdone, the Chinese government promised and delivered additional retaliation.

These potential Chinese tariffs include plastics, petrochemicals, petroleum products and specialty chemicals. "For an oil and gas industry looking to rebound in a higher oil price environment, these tariffs necessitate monitoring. More specifically, oilfield service companies must now take pause," says Matthew Fitzsimmons, Vice President of Oilfield Service Research at Rystad Energy.

American companies Clariant, Ecolab, Hexion and NOV each have had significant revenues from China in the past few years. NOV brought in revenues upwards of $561 million during 2017 from their fibreglass and composite tubular businesses in China.

"The giant service company NOV was anticipated to have over $650 million in annual revenues from China for the remainder of the Trump presidency. A trade war between the two nations could certainly impact their ability to grow in this market," Fitzsimmons adds. 

Hexion, a chemistry company offering oilfield drilling chemicals, had $309 million in revenue from China during 2017. Rystad Energy estimates Hexion's Chinese business could grow to $350 million in 2019, if it were not impacted by trade tariffs. Continued Chinese and American trade tensions could have an adverse effect on these companies.

While less volume is at stake, the trade tensions also give reason for concern to Chinese service companies. Hilong and Drill Pipe Master are two pipe fabricators that were impacted by initial US tariffs. However, these companies have strong domestic customers and diverse international clients that will soften adverse effects from trade tensions.

Well there you have it, although many here in Istanbul are hoping things would calm down between the Trump White House and China, with cooler heads prevailing eventually. That's all from Istanbul folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo1: Glimpses of ISrade 2018, April 9-10, Istanbul, Turkey © Gaurav Sharma 2018. Photo 2: The Oilholic speaking at IStrade 2018. 

Admiring the Panama Canal: A true engineering marvel

A vessel passes the Panama Canal's Miraflores Locks

The Oilholic finds himself on this glorious sunny day roughly 5,300 miles away from his abode of London town, admiring a marvel of modern engineering – the Panama Canal. In fact, yours truly got to do so both from the shore and on the water aboard the Pacific Queen.

Being a creature of habit, a Forbes piece will follow later down this month. However, this outing is no 'crude' assignment, rather a bid by this blogger to fulfill a long held desire to see the Canal. This maritime shortcut – in operation since 15 August, 1914 built after a decade of construction – serves to connect the Atlantic and Pacific Oceans at the narrowest point of the Isthmus of Panama and the American continent.

The journey, north to south or vice versa, takes around 8 to 10 hours over a distance of around 80km (50 miles) depending on traffic, saving shippers of bulk cargo and commodities, including oil and gas, almost 15 days of circling around Cape Horn.

And for those privileged enough to have travelled on the Canal, as the Oilholic did today, would notice its locks – including the iconic Miraflores and Pedro Miguel locks – serve as water lifts to raise or lower ships from the Pacific or Atlantic Oceans, depending on their North or Southbound routes, either side of the Isthmus of Panama, to the artificial Gatun Lake 27 meters above sea level; the Canal's connecting water body for transit.

The Panama government pumped in $5.3bn towards the Canal's expansion in 2007 following public consultation, and the expanded Canal – inaugurated on 26 June 2016 – saw its capacity double. So atop Panamax vessels, it can now handle Neo-Panamax vessels (or Aframax class).

These days toll fees charged for the largest vessels per crossing could be in the range of $500,000 to $800,000. The Panama Canal Authority, a public body entrusted with running the Canal since Panama took over the administration of the waterway from the US in 1999, argues that a trip around Cape Horn would cost way more both in monetary terms and time of passage.

Not content with visiting the Miraflores center, The Oilholic also lapped up views of the waterway from Cerro Ancon - Panama City's highest point.

But of course, the main show came on board the Pacific Queen, when one got a feel of the Panama Canal going southbound from the Atlantic to the Pacific crossing Gatun, Pedro Miguel and Miraflores locks, being first raised to Gatun lake, and then lowered on the journey to the Pacific, heading under the Centennal Bridge and the Bridge of the Americas before ending a memorable voyage.

All in all, an amazing outing and to have been here and seen it. And with that done, it's time to head back. Photos from the outing - with captions - are spread across this post (and below), along with a video of a tanker crossing the Miraflores locks (above). But alas, that's all from Panama City folks! Keep reading, keep it 'crude'!

ADDENDUM: April 16, 2018: As promised here is The Oilholic’s report on ‘crude’ traffic on the Panama Canal for Forbes.

The Oilholic's glimpses of the Panama Canal:

Miraflores Locks, Panama Canal

Tanker makes its way through Miraflores Locks

Pedro Miguel Locks, Panama Canal

Vessel crossing Pedro Miguel Locks

Gatun Lake, Panama Canal

Bridge of the Americas

View of Panama Canal & Albrook Port from Cerro Ancon

© Gaurav Sharma 2018. Photos © Gaurav Sharma, April 2018. 

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Meeting YuMi & getting Swiss chocolates packed

Technology, especially AI and robotics, were hot topics at the recently concluded IHS CERAWeek in Houston, Texas, US. 

They simply had to be, with a succession of ‘Big Oil’ and utility bosses stressing on the need for a more efficient optimised energy industry.

The annual event itself, now past its 37th year and counting, also saw its tech floor and space grow bigger in addition to the dialogues that took place. In the midst of it all, robotics and engineering giant ABB’s boss Ulrich Spiesshofer insisted that the Oilholic should not leave Houston without paying YuMi a visit. 

That would be the company’s small-parts assembly robot first introduced to the industrials market in 2015; and has been making waves ever since.

It has vowed US President Barack Obama, German Chancellor Angela Merkel, and even conducted Italian tenor Andrea Bocelli and the Lucca Philharmonic Orchestra at the Teatro Verdi in Pisa, Italy. 

True to his word, this blogger paid YuMi a visit and found it vowing and amusing CERA Week delegates in equal measure, by packing Swiss chocolates for them. (See video below)

According to ABB North America spokesperson Chris Shigas, the speed you see in the video is only 50% of what YuMi is capable of.  The company describes it as a ‘co-bot’. 

In Shigas’ own words: “It’s a collaborative, dual arm, small parts assembly robot solution that includes flexible hands, parts feeding systems, camera-based part location and state-of-the-art robot control.”

YuMi weighs 38kgs and is the size of a small human being. It can [and does], operate without a protective cage with in-built health and safety features designed for it to work alongside human co-workers. The thought process and platform collectively give YuMi its name - “you and me” working together to create “endless possibilities,” as ABB suggests.

In fact, the Swiss chocolate nibbles you see YuMi pick and pack are pretty light compared to the 500 gram payload it can currently handle. 

Shigas said that thanks to its compactness, YuMi can be easily integrated into existing assembly lines thereby increasing productivity.

What created the real buzz for oil and gas folks at CERA Week was the fact that YuMi features lead-through programming, which, in simple terms, does away with the need for specialised training for operators. That opens up endless future possibilities for a plethora of industries.

Well, that’s all for the moment folks! But before the Oilholic takes your leave, a photograph with YuMi was in order for a keepsake, given it has rubbed shoulders with presidents and chancellors, and might soon be coming to a facility near you. We both also seem to be in matching attire, more by coincidence than by design, in this blogger's case at least! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo 1: ABB's YuMi at IHS CERA Week 2018. Photo 2: The Oilholic with YuMi. Video: YuMi packs Swiss chocolates © Gaurav Sharma March, 2018. 

Flurry of soundbites & final musings from Houston

As IHS CERA Week came to a close on Friday, the Oilholic published two Forbes interviews with a 'tech twist', given technology enabled process efficiencies and cost optimisation seem to be in overdrive in the oil and gas industry.

First off, it was a pleasure, yet again, to exchange views with engineering and robotics giant ABB’s boss Ulrich Spiesshofer.

In a wide-ranging interview, Spiesshofer noted: "We are taking the oil and gas industry from an automated into an autonomous operations sphere, where you have self-learning processes, where you use AI to augment human potential, to optimize the control loop for operations and maintenance." (Read the whole interview here.)

Secondly, yours truly also exchanged views with Peter Zornio, Chief Technology Officer of Emerson's automation division, who said the inexorable direction the energy sector was heading in via broad spectrum digitisation meant more business for his company.

"We are working on a proposal where we become a turnkey supplier directly looking at client equipment and alerting them when something goes wrong."

While Emerson is offering full-scale outsourcing, Zornio admitted the industry might not be ready for this level of optimisation. The whole discussion is available here.

With bags packed from CERA Week 2018, this blogger's two standout quotes from the event were uttered by BP CEO Bob Dudley and International Energy Agency's Executive Director Fatih Birol. Dudley reminded the audience of the importance of the integrated model in current climate, when he noted: "Our downstream business contributes billions of dollars to the dividend we give to our shareholders."

And Dr Birol, when asked what should US producers make of their new found clout in the oil and gas world with forecasts of American production exceeding that of market leaders Saudi Arabia and Russia, quipped: "They should enjoy!"

Finally, on a week-on-week basis, the oil benchmarks ended Friday (9 March) over 1% higher; read what you will into it – but one reckons, price oscillation in the $55-70 per barrel range is about par. 

That's all from Houston folks, as it's time for the flight home to London. But before the Oilholic takes your leave, here is a view (above) from Houston Rodeo 2018, which this blogger had the pleasure of visiting yet again. 

It's a fantastic affair that draws in thousands every year – with a carnival atmosphere, barbecues, fun rides, livestock on display topping up the rodeo – all with a very unique Texas flavour! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo 1: Houston's Skyline. Photo 2: Houston Rodeo 2018, being held in Texas, US © Gaurav Sharma March, 2018. 

Frackers on the side of geopolitical angels?

IHS CERA Week 2018’s day two and three whizzed by with plenty of more talking points, some predictable, and well some not so predictable, with the oil price seesawing in the backdrop. 

Both benchmarks spent much of Monday and Tuesday on the up, and all of Wednesday and Thursday shedding those gains, with speaker after speaker suggesting US shale and the country's oil and gas exports were not a fad. 

Among them was US President Donald Trump's emissary – Energy Secretary Rick Perry – who emphatically declared on Wednesday that American producers were now allies of energy deficient nations craving energy security. 

Here’s the Oilholic’s report for Forbes with Perry’s...er...Trumped up soundbites. That said the US Energy Secretary is right – even the most pessimistic of shale decline rate forecasts suggest elevated oil and gas production volumes are here to say for at least another 10 years. 

"The U.S. has now become a net natural gas exporter. Our producers export liquefied natural gas (LNG) to 27 nations on five continents. In the coming years, you can expect more of the same," Perry reminded CERA Week delegates and you can expect more of the same. 

On a related note, here’s the Oilholic’s Forbes research into what incremental volumes of US LNG exports mean for the market, and the profound changes new players on the scene are bringing about. It has the thoughts of experts from Baker McKenzie, S&P Global Platts, KPMG, IHS Markit and ABB. 

Switching tack to some interesting soundbites over the last couple of days, Qatar's Oil Minister Mohammed Al-Sada said both oil producers and consumers were losing due to oil price volatility either side of the price slump in 2014. "Neither very high nor very low prices are good for global GDP. So OPEC had to intervene responsibly," he said of the ongoing OPEC and non-OPEC oil production cuts.

Bob Dudley, CEO of oil giant BP, admitted: "Our downstream business effectively funds the billions of dollars we pay in dividends."

Additionally, he noted that the UK oil & gas industry was going through "a renaissance; after remarkable, painful restructuring in the North Sea was behind it."

Dudley, also reiterated his stance from IPWeek a fortnight ago that his company and the rest of the energy industry is in a race to lower carbon emissions, not a race to lower emissions. ‏

Elsewhere, here's the Oilholic's Forbes interview with BP's Chief Scientist Dame Angela Strank on the crucial topic of gender diversity in the oil and gas business, and the vital need for the industry to continue to promote and emphasise the importance of STEM career pathways. 

And before one takes your leave, here's a glimpse of a Formula E car (above right) on display at the CERA Week tech floor. Pretty slick, bring on the electric car revolution! That's all for the moment from Houston folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo 1: US energy secretary Rick Perry at an IHS CERA Week 2018 press briefing. Photo 2: Formula E car on display at CERA Week's technology floor, Houston, Texas, USA. © Gaurav Sharma 2018.

The Fatih & Mohammed show enlivens CERA Week 2018

The Oilholic is back in Houston town, for IHS CERA Week, one of the oil and gas industry’s premier event, and so far its all about the tussle between US shale producers and OPEC/non-OPEC ‘supergroup’. 

Before the things gained traction on the first day of the week-long event, the International Energy Agency (IEA) emphatically declared the US would dominate oil production over the next five years, and is well on its way to becoming the world’s number one oil producer ahead of Russia and Saudi Arabia. (Here’s the Oilholic’s Forbes report). 

The IEA’s inimitable Executive Director Dr Fatih Birol also pointed out that describing the think-tank as an ‘oil consumers’ club’ is becoming clichéd these days as four of its members – the US, Canada, Brazil and Norway, were accounting for much of the world’s oil production growth.

Meanwhile, OPEC Secretary Mohammed Sanusi Barkindo, who is also in town, made it known that the OPEC/non-OPEC production cut underpinned by Saudi Arabia and Russia has been a success, and making a tangible impact in rebalancing the market.

So post-luncheon, both men took to the stage with Daniel Yergin, Vice Chairman of IHS Markit, for  a delightful, somewhat testy but good natured, exchange. 

Barkindo declared the OPEC and non-OPEC production cut has been “efficient”, “surpassed expectations” and “brought optimism to the market.”

Birol said that optimism was most apparent in the US, with shale producers, well...producing at a canter, and positioning themselves to cater to robust oil demand from India and China. Providing an undercurrent to his stance, was the news that India was taking it first US natural gas consignment, a mere nine months after inking an agreement to import American crude. 

Of course, Birol warned that oil and gas investment was lagging, with 2018 investment valuation projected to rise by only 6% on an annualised basis. 

Barkindo declared that was “not in the interest of the global economy.”

Via production cuts, the 24 OPEC and non-OPEC producers were providing “insurance and stability” to the global market; a move that was open to “all producers,” he added. 

Of course, US producers driven by the spirit of private enterprise, are not really queuing up to join anytime soon. So what should they do? “Enjoy”, quipped Birol, to peals of laughter in the room. 

And so it went, but the Oilholic suspects you get the gist. Elsewhere on day one, Total CEO Patrick Pouyanné said in the crude industry size does matter, and that a lower price environment gives bigger players opportunities to make strategic acquisitions. 

“It’s good to be a large integrated oil and gas company. Key to success is stable investment, regardless of oil price,” he added. 

Plenty more to come from CERA Week, but that’s all from Houston for the moment folk. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo: (Left to right) IEA Executive Director Fatih Birol, OPEC Secretary General Mohammed Sanusi Barkindo and IHS Markit Vice Chairman Daniel Yergin speak at CERA Week 2018 © Gaurav Sharma 2018. 

Crude musings at Platts LOF & IPWeek

A plethora of ongoing events meant the Oilholic ditched the comforts of suburbia last week and camped out at London’s Park Lane, with its row of hotels playing host to some crude events. 

For starters S&P Global Platts’ London Oil Forum 2018 made for an interesting Monday (19 Feb). Talk of the forum was, of course, the eastward direction of crude cargoes, as more and more oil tankers from the US head to Asian shores. There was tacit agreement among delegates at the Platts event that North American crude production will continue to grow, dominated by shale, leading to a relative surge in US exports.

Chris Midgley, Global Director of Analytics at Platts, noted: "Lot more US crude will move into Asia, primarily lighter crude for independent Asian refiners with less complex kit."

Platts' own observation, in tandem with those of rival data aggregators, also suggests that global production is growing a lot lighter. That's because the OPEC and non-OPEC production quota cut took heavy and medium crude exports to Asia into a net decline in 2017.

Additionally, Platts expects 2020 to be hugely disruptive from a crude cracking standpoint as nearly 3 million barrels per day (bpd) of fuel oil will have to "produced differently."

Right after the Platts LOF came the International Petroleum Week 2018, Tuesday through to Thursday, where yours truly also donned an event speaker’s hat. More on that later.  

On the very first day of IPWeek, UAE oil minister Suhail Al Mazrouei, said plans for an OPEC and non-OPEC producers’ ‘super-group’ were well and truly underway, and that the producers, while satisfied with the reduction in global inventories, had not quite reached their end-goal of achieving the kind of market balance they were aspiring for yet.

Elsewhere, BP Boss Bob Dudley told delegates the energy industry was in a race to lower carbon emissions, "not in a race to renewables"; which was one of the standout quotes of the event. 

Trump versus Iran, and India's crude oil demand were other burning topics. Platts also unveiled an agreement to track UAE oil inventories using blockchain. And the event ended with a lively debate organised by Gulf Intelligence, with the motion being ‘US Oil & Gas will steal market share from Gulf producers in Asia.’

The Oilholic joined Dr Carole Nakhle, CEO of Crystol Energy, in arguing against the motion, with Amrita Sen, Energy Aspects’ Chief Oil Analyst and David Sheppard, Energy Markets Editor of the Financial Times, supporting the motion.  

In a nutshell, Dr Nakhle and this blogger’s argument against the motion was a simple one – as the demand mix evolves, and much of the incremental demand comes from Asia, there is in fact room for everyone, and the impact of US exports should not be exaggerated or oversimplified. 

At the beginning, the audience was 61% in favour of the motion and 39% against. However, in a final vote upon the conclusion of the debate, the Nakhle-Sharma duo managed to sway audience opinion to 65% against the motion, with those in favour of it down to 35%! 

Overall, a fun end to a crude week. That’s all for the moment folks! Next stop, Houston, Texas for IHS CERAWeek! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo1: Chris Midgley, S&P Global Platts’ ‎Director of Analytics, speaks at the data aggregator’s London Oil Forum. Photo 2: UAE Oil Minister Suhail Al Mazrouei  (left) talks to CNBC’s Steve Sedgwick at the International Petroleum Week, London, UK © Gaurav Sharma 2018. Photo 3: IPWeek Debate Participants at Middle East Energy Summit © Gulf Intelligence 2018.

Crude price fluctuation versus ‘Big Oil’ dividends

It has been another crazy fortnight in the crude markets, with Brent not only having retreated from $70 per barrel, but trading below $65, as the Oilholic pens his thoughts.

In any case, having a $70-plus six-month price target is increasingly odd, given the current set of circumstances, let alone a projection by Goldman Sachs of $82.5 per barrel, as one recently wrote on Forbes.

That said, a possible Saudi-Russian, or should we call it a R-OPEC, reaffirmation of keeping oil production down, accompanied by constantly rising Indian oil imports and stabilising OECD inventories, should give the bulls plenty of comfort. Let’s also not forget the global economy is growing at a steady pace across all regions for the first time since the global financial crisis.

The aforementioned do count as unquestionable upsides for the oil price. But here’s the thing – should you believe in average global demand growth projections in the optimistic range of 1.5 to 1.7 million barrels per day (bpd); such growth levels could be comfortably met by growth in non-OPEC production alone.

For the moment, there’s little afoot to convince the Oilholic to change his view of a $65 per barrel average Brent price, and $60 per barrel average WTI price for 2018. So what impact would this have on ‘Big Oil’.

Interestingly enough, Morgan Stanley flagged up the 'curious case' of Big Oil dividend growth in a recent note to clients, pointing out that despite recent share price declines influenced by crude market volatility, unexpected dividend growth is still being achieved by European oil majors thanks to rapidly improving financial performance.

According to the global investment bank, in 2017, Royal Dutch Shell, BP, Total and Statoil generated $29.6 billion in organic free cash flow; the highest level since 2009. Return on average capital employed is also improving and balance sheet gearing is falling as well.

“Several management teams were willing to translate stronger cash generation in dividend increases", Morgan Stanley added.

The investment bank opined that Statoil’s cash flow and dividend growth remain impressive, so do BP’s, but noted that the latter will not be able keep up with Total and, ultimately, Shell on dividend growth.

Hard to keep up with Shell in any case; the Anglo-Dutch giant has a sterling record of regularly and dutifully paying dividends dating all the way back to the Second World War. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo: Oil well in Oman © Royal Dutch Shell.

On Brent at $70/bbl & crude blockchain moves

Crude year 2017 is firmly behind us, and the Oilholic has summed up weekly closing prices for you on the chart adjacent, along with key points of the year which ended on a high for the oil market (see left, click to enlarge). 

That uptick has extended well into January. It can certainly be said that 2018 has started on a frantic, interesting and massively bullish note for the oil market. Brent, the world’s preferred proxy benchmark, finally closed at $70 per barrel on Friday (26 January); a first Friday-close above the said level since 28 November 2014.

However, that doesn’t necessarily mean yours truly has turned bullish. The Oilholic continues to follow his preferred mantra of being net-short over the long term, and long over the short term. The reasons are simple enough – more US oil, even if purely for domestic consumption – is inevitable.

Inventories have rebalanced, and demand is picking up, but relative to that, there is still plenty of oil in the market. Yet, there is a school of thought out there that the International Energy Agency (IEA) has exaggerated the significance of shale. The Saudi Oil Minister Khalid Al-Falih, among other influential voices at OPEC, has endorsed such a thinking. 

However, with US production tipped to cap 10 million barrels per day (bpd) in the first quarter of 2018, and may even touch 10.3 million bpd, one doubts the IEA has exaggerated things. US rig counts have continued to rise in step with the oil price rise. As such, there's little to have faith in a long-term $70 Brent price, especially as OPEC itself will ramp up production at some point. 

To get an outside-in perspective, on 25 January this blogger spent most of his day interacting with physical crude traders in Amsterdam and Rotterdam. Hardly anyone seemed to buy in to the bullish chatter that was coming out of the World Economic Forum 2018 in Davos. So the Oilholic is not alone, if you take him at his word. 

Away from the oil price, many say the biggest contribution of cryptocurrencies has not been Bitcoin and Ethereum, but the creation of blockchain, which is akin to a digitally distributed ledger that can be replicated and spread across many nodes in a peer-to-peer network, thereby minimising the need for oversight and governance of a single ledger.

This is now being actively pursued by major energy sector players, and developments at their end have kept the Oilholic busy for better parts of two weeks scribbling stories for Forbes. 

On 18 January, Shell’s trading arm unveiled its investment in a London-based start-up Applied Blockchain. Just days later on 22 January, Total and several energy traders joined TSX Venture Exchange-listed BTL's blockchain drive aimed at facilitating gas trading reconciliation through to settlement and delivery of trades using blockchain.

BP, Statoil and other traders such as Koch Supply & Trading and Gunvor have all recently gone down the blockchain path.

Then on 26 January, Blockchain outfit ConsenSys and field data management firm Amalto announced a joint venture to develop a platform to facilitate the automation of ticket-based order-to-cash processes in the oil and gas industry.

The emerging blockchain infrastructure aims automate all stages of the process associated with field services in upstream, midstream and downstream markets. Many of the processes, like field ticketing or bill of lading, are still largely manual and paper-based and primed for the blockchain revolution.

So from back-office functions to gas trading, blockchain is coming to shake-up the industry. Expect to hear more of the same. But that’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Graph: Oil benchmark Friday closing prices in 2017 © Gaurav Sharma 2017.

US, Canada rig counts jump as Brent hits $70/bbl

The latest Baker Hughes rig count is out with the number of US, Canadian and International rigs all on the up. 

The US rig count is up 15 rigs from last week to 939, with oil rigs up 10 to 752, gas rigs up 5 to 187, and miscellaneous rigs unchanged. 

Compared to last year, US rig count is up 280 rigs from 2017's count over the same week of 659, with oil rigs up 230, gas rigs up 51, and miscellaneous rigs down 1 to 0. 

Canada's rig count is up 102 rigs from last week to 276, with oil rigs up 87 to 185 and gas rigs up 15 to 91. The headline figure is down 39 rigs from last year's count of 315, with oil rigs up 15, gas rigs down 53, and miscellaneous rigs down 1 to 0. 

As for the international rig count, it was up 12 in December, compared to the month before to 954 rigs, and up 25 on the same month in 2016. With the West Texas Intermediate firming up around $65 per barrel, and Brent hitting $70 for the first time since December 2014, the latest data does give the bears some food for thought. Happy Friday folks! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2018. Photo: Workers examining offshore rig in the distance © Cairn Energy.