The oil price rally that wasn’t

We were led to believe that a $100 per barrel oil price was not a case of "if" but "when." Over April, and early on in May both Brent and WTI futures continued their upticks, primarily driven by hedge funds piling into the front end of the futures curve, and OPEC hinting at extending its production cut agreement.

Even six-month dated Brent contract's backwardation streak started to narrow, though it ultimately stayed in backwardation mode, as the Oilholic noted in a recent broadcast. And then it happened – information came out that the Saudis and Russians were no longer keen on extending the existing OPEC/non-OPEC production cut agreement, that has seen 1.8 million barrels per day (bpd) taken out of the global supply pool by 14 OPEC and 10 non-OPEC producers. 

Furthermore, if a Reuters exclusive is to be believed, the US demanded that OPEC production be raised by 1 million bpd. The same story also claimed that President Donald Trump's unilateral slapping of sanctions on Iran only came after the Saudis allegedly promised to raise their output. 

Sidestepping all of this, the Oilholic has always maintained that the barrels OPEC and non-OPEC producers took out of the market to – in their words "balance the market" – had to return to the global supply pool at some point. That was the real "when not if" situation for the market.  

As market sentiment on that happening has gained traction, the predictable result is a visible correction in the futures market with OPEC set to meet on 22 June. Meanwhile, the $100 price remains a pipedream, with both benchmarks still oscillating in a very predictable $60-80 range, only occasionally flattering to deceive with bullish overtones only to slide backwards (see graph above, click to enlarge). 

Away from the crude price, here are one's Forbes posts on US oil producers maintaining their efficiencies drive despite relatively higher oil prices and the UK-France Channel Tunnel operator's latest sustainability initiative of using ozone friendly refrigerants for cooling it landmark tunnel. 

Finally, it's a pleasure to have the Oilholic mentioned and recognised by third parties. These include Feedspot who recently featured this blog in their ‘Top 60 oil and gas blogs to follow’ section. It comes after industry data provider Drillinginfo flagged this blog in its roundup of '10 great oil & gas blogs to follow', as did penny stocks expert Peter Leeds, and US-based Delphian Ballistics. A big thank you to all of the aforementioned. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Graph: Friday closes of oil prices year to 8 June 2018 © Gaurav Sharma 2018.

A Toyota Mirai ride to the 'Hydrogen Society'

Its official – the Oilholic is now a self-proclaimed part member of what some might describe as the evolving Hydrogen Society; that demure lot doing their bit to reach a low carbon Alamo premised on good old H2 as their alternative to fossil fuels. Of course, that’s alongside their – shall we say – more boisterous electric and hybrid mobility solutions counterparts. 

This new membership came courtesy of an 800 km-ride between 16-18 May from Salzgitter in Northern Germany to the Danish capital Copenhagen in a Toyota Mirai; the global automaker's sedan-sized bet on yet another alternative fuel solution, with hybrid and electric cars already on its portfolio.

And along the journey this blogger saw planes, trains and automobile concepts all premised on a hydrogen-powered future, and got views on a zero-emission journey from fossil fuel retailers to politicians, engineers to scientists (see earlier posts).  

Of course, the Oilholic assumes all what you lot want to know is – how was the Mirai ride and what about the perils of big, bad hydrogen spontaneously exploding! Well, the ride was pretty smooth, and the latter point – with 2018 technology in play – comes across as a bit silly (to ‘crudely’ quote none other than a Shell executive). Of course, it was perfectly safe! But more on all that later. 

The entry point should be what is Toyota’s motivation? Agreed, others are in too. For instance Hyundai, Audi, Honda, Indian heavy vehicle manufacturers and British forklift truck-makers are all attempting to harness hydrogen for mobility, but via the Mirai, Toyota is the only mass producer of hydrogen fuel cell vehicles attempting to take things to the next level.  

The company's answer, which this blogger accepts in good faith, is that via the Mirai project – Toyota is putting forward both "a new point of discussion" on alternative fuels as well as "an additional mobility option" in its own march to a low carbon future. 

The company is quite candid that in its backing of hydrogen powered fuel cell vehicles, it is not making some utopian statement about the demise of the dominant internal combustion engine (at least not yet!). Rather, Toyota – the world’s second-largest automaker with its fingers in all modes of mobility fuels including some of the world's best selling petrol cars – says hydrogen fuel cell technology is not only an option, but a viable one. 

Moving on to the car itself – Mirai's chassis might somewhat resemble the latest Toyota Prius model – but riding in it is even quieter than a Prius. Yup, apparently that is possible! 

The front wheel drive vehicle uses Toyota's Fuel Cell System (TFCS), featuring both fuel cell and hybrid technology, and incorporates the global automaker’s proprietary fuel cell (FC) stack, FC boost converter and, of course, a 5kg capacity high-pressure (@ 70 MPa/10,000 psi) hydrogen tank. 

As for those worried about the tank’s safety – it has been rigorously tested since 2012, not just to your average crash tests but has even had bullets fired at it too without failure! The TCFS emits no CO2, but water, which can be released at the press of a button. A tank full of hydrogen can take you to around 500 kms before refuelling, according to Toyota, with only water as a by-product along the way.

En route, the Mirai, by the Oilholic’s calculation, accelerated from 0 to 100 km/h in 10 seconds. The car does have a top speed of around 180 km/h, but yours truly and his companions did not attempt it. 

And over the course of 800 kms, not a single problem or glitch occurred, although a passive eye had to be kept on fuel levels, given hydrogen refuelling points are not around every corner just yet. While fuel retailers hope to change that, Toyota, for its part, hopes the Mirai will captivate drivers' imagination in the years ahead. 

Organisational take-up of the Mirai from police departments to taxi and car hire companies across Europe has been pretty positive since 2015, after the Mirai moved from pilot to initial road deployment stage. Around 5,500 have been sold globally, including 250+ in Europe. By 2020, Toyota is targeting global sales of 30,000 per year.  

What the future holds is anybody's guess, but it was an absolute pleasure to have ridden in the Mirai in order of get a first hand feel of the emerging Hydrogen Society. That's all from this trip folks, with this the last of the hydrogen posts. But keep reading, keep it ‘crude’ and a tad hydrogen-fuelled too!

ADDENDUM: And here is the Oilholic's report on the Toyota Mirai and various permutations its success (or otherwise) holds in relation to the nascent hydrogen economy for Forbes.

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© Gaurav Sharma 2018. Photo 1: The Oilholic with the Toyota Mirai and photo of the car at a site in Denmark. Photo 2: Toyota Mirai console. Photo 3: Toyota Fuel Cell © Gaurav Sharma, May 2018.

Oil giant Shell on revving cars up with hydrogen

After getting a glimpse of a rather splendid hydrogen fuelled train, the Oilholic next had the pleasure of being driven in a hydrogen powered electric fuel cell Toyota model - The Mirai - overnight from Salzgitter to Hamburg, Germany.

Of course, much of the drive had to do with a demonstration of the fuel medium's prowess, the car's performance (come rain or shine of which we had plenty of), and more. We'll touch on that in the next post.

But for now one question well worth asking is – for such vehicles to reach critical mass and wider public acceptance, retail points for filling up them up and keeping them running would be needed; so how is that problem going to be addressed? 

Afterall Toyota has an ambition of putting 1 million emissions free vehicles on the road per year between 2020 and 2030, and rivals such as Hyundai and Audi have plans of their own. Enter oil giant Royal Dutch Shell - which says the fuel retail industry has the answers. 

Speaking to this blogger at Shell Germany's Hamburg hub, regional Chairman Stijn van Els opined that the new "Hydrogen Economy" will indeed require a rethinking of the retail infrastructure but that's "well within the industry's scope" given that major oil and gas companies are already well on their way to exploring the alternative fuels market.

"There is no competition with fossil fuels, there is co-existence as we move to a low carbon economy and Shell is committed to expanding its hydrogen fuel sales points. Furthermore, its not a shift we are attempting on our own." 

Survey data compiled at the end of 2017 suggests Toyota's home turf – Japan – has the largest number of hydrogen fuelling stations worldwide at 91, followed by the US (61), Germany (37) and the UK (18). The German figure is already above 40, at the time of writing this post, according to van Els, and the industry veteran hopes that at a pan-European level they'll be 400 sales points by 2019. 

Fuel retailers are expected to step up to the challenge for both retail and commercial clients over the coming decade, according to Toyota, with the automaker claiming "a hydrogen facility can be integrated into an existing refuelling station as an additional fuel offering."

There is certainly evidence of that. For instance, Shell's FTSE 100 rival BP is already attempting this with electric vehicle charge points, at conventional gas stations, the most recent example being its downstream venture in Mexico. The Oilholic was given a demonstration of a fuel point setting with the Mirai en route to Hamburg via a refuelling stop at a station in Wolfsburg (See below right, click to enlarge). 

Filling up a hydrogen car was not any different from a petrol or diesel car, nor did the "pump" look all that different, even if it was pumping in compressed hydrogen instead of a petroleum product.

Of course, when the hydrogen flows into the tank there's a chilling effect on the pump handle, unlike petrol or diesel refuelling where, well, you simply hear the liquid gurgling.

It's all done in a matter of minutes, and instead of paying per litre or gallon, you pay per kilogram which is on average €9.50 in Germany, €11.50 in France, and around a same-ish post-Brexit £10 in the UK. Roughly around 5kg would constitute a tank-full equating to around 60 litres, according to a Toyota spokesperson. You do the math, but the Oilholic would leave the fuel economy firmly parked for now, and touch on it in a blog post to follow. 

So going back to van Els, Shell reckons hydrogen would "certainly" play its part in the alternative fuels market and so do the oil major's fuel retail rivals. And much of the industry, including world's top 20 fuel retailers have also said they are not averse to establishing hydrogen refuelling stations as greenfield sites as well. So it all depends on consumer take-up, but the "commitment is there", according to both Toyota and Shell. Only time will tell how it all plays out. 

But for now, that's all for the moment folks! Time to load up on hydrogen and conclude the Mirai adventure. Keep reading, keep it 'crude' even if - as one said - the next few posts are going to be about hydrogen! 

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© Gaurav Sharma 2018. Photo 1: A Toyota Mirai in Shell signage. Toyota Mirai being fuelled with hydrogen at a facility in Wolfsburg, Northern Germany, with fuel pump and close-up of car inset. © Gaurav Sharma, May 2018.

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.