#Ulterra’s new design, CF613, drilled the curve in Blaine County in 47.5 hrs with an ROP of 23.7 which thoroughly beat their last two curves.
A slowdown versus a reversal of Mexico’s energy reform legislation is the most likely scenario to emerge following July’s presidential election, according to a number of Mexico energy experts gathered February 15 at the Baker Institute, where they discussed the state of the country’s energy reform and how that law will be shaped after this year’s July elections.
Speaking at the event dubbed “Political Uncertainty and Mexico’s Energy Reform” were Jesus Reyes-Heroles, former Pemex CEO and former energy secretary of Mexico, and now heading his own consultancy; Miriam Grunstein, chief energy counsel for Brilliant Energy Consulting; Lourdes Melgar, former Mexican deputy secretary of energy for hydrocarbons and now a research affiliate with the Massachusetts Institute of Technology; Pablo Zarate, with FTI Consulting; and Francisco Monaldi of the Baker Institute and moderator of the discussion.
Mexico’s leading presidential candidate, Andres Manuel Lopez Obrador – or AMLO, as he’s known – is a so-called populist from the National Regeneration Movement party (MORENA) that some have feared may attempt to reverse Mexico’s energy reform.
Early in his campaign, Lopez Obrador was highly critical of the legislation and indicated he might try to roll it back. But as the campaign has rolled on, his tone has been more measured, but nonetheless, he has indicated he wants changes.
Experts at the Baker Institute discussion pointed to the fact that Lopez Obrador has provided little detail or clarity on his energy plans – other than to say he wants more energy independence for Mexico to free it from heavy imports of fuels and natural gas from the US.
The likely scenario for energy reform, the experts say, is that a Lopez Obrador administration, or any new administration, would slow, delay or disrupt implementation of the energy reform legislation, versus trying to fully repeal the law, as this would legislatively challenging with no presidential winner able to hold a majority in Congress, according to Reyes-Heroles.
The other leading candidates include Jose Antonio Meade, from Mexico’s ruling Institutional Revolutionary Party (PRI) party, who previously served in several key government posts in energy, foreign affairs and finance. The third key candidate is Ricardo Anaya Cortes of the National Action Party (PAN), who is considered a conservative.
President Enrique Pena Nieto of the PRI party will see his six-year term end this year.
While energy was the focus of the panel, Reyes-Heroles said during his presentation that strong pessimism prevails in the country as a result of deep social concerns around a lack of security and pervasive corruption, which he noted is the worst he has seen. “The real discussion in the campaign will not be energy,” he said, but instead security and corruption.
Despite these deep social issues and uncertainties around how a future administration might shape the current energy legislation, Reyes-Heroles and Grunstein noted that investors continue to put money into Mexico.
Some of the potential changes/risks investors could face with a new administration driving the reform could include contractual changes and deeper entitlements for Pemex. Grunstein said that while she doesn’t think Lopez Obrador will reverse the reform, he could make it more nationalistic.
The panel listed a number of areas where Mexico’s energy reform could be made stronger or where implementation could improve, providing greater benefit for Mexico:
• Decrease the power and influence of Mexico’s finance ministry, or “Hacienda” as it is known.
• Remove Pemex from Mexico’s federal budget.
• Improve Pemex governance by depoliticizing the board and getting more oil and gas experience in the CEO chair.
• Further strengthen Mexico’s regulatory agencies overseeing implementation of the reform
• Implement the social aspects of reform, where general public understands the benefits and feels the benefits “trickle down.”
• Implement the reform on a technical basis, not for political reasons.
All the panelists were in agreement that the Treasury’s (finance ministry) influence and power in energy reform needs to be reduced.
Grunstein said she would have restricted Treasury in the legislation, but instead “their hands are in everything.” She said Treasury’s role is really looking at money, not reform.
Making a more radical suggestion, Reyes-Heroles said an initial public offering of Pemex would “defend” it from the Treasury/Hacienda, but Melgar countered that privatization of Pemex is “off the table.”
On the topic of management, Melgar said it was time to “take politics out of the board of Pemex.” As an example, she said that Pemex got into the fertilizer business because of political promises, not because it made business sense.
She was also critical of some of the political sales pitches made to get the reforms through, including the timeline for uplifting the country’s downward trending oil and gas production levels.
“We should not have promised what we knew we could not deliver,” she said.
Prices of all key metals used to make electric vehicle batteries are set to increase, according to market observers, as recent mine investment appears insufficient to cope with the expected uptick in demand over the coming years from the battery sector.
While for lithium expectations are that as we reach 2022 and beyond there should, at current project adoption rates, be enough supply, the picture looks much tighter for nickel where demand is expected to outweigh supply after 2020. As a result, nickel is expected to become the bottleneck that may impede the march of the EV in the coming decade.
There are two main reasons behind the supply shortage in the coming decade: Current underinvestment in nickel projects hindering supply growth while higher adoption rates going forward coupled with a potential switch to the 8:1:1 nickel-manganese-cobalt battery technology would further bolster nickel demand.
Despite the LME cash settled nickel contract having risen almost 20% in 2017, and a further 11% since the beginning of 2018 to just above $13,000/mt in early February, nickel is still in a comparatively low price environment.
Before February 2015 the LME nickel contract had a price floor of $15,000/mt and averaged just under $20,000/mt between 2010 and early 2015. While lithium and cobalt prices are hitting new highs almost every month, nickel remains cheap which makes net present value calculations for investors much trickier and explains why there has been such little interest in investing in new nickel projects.
This is underlined by data from NorNickel showing capital expenditure on nickel projects worldwide has dropped to $2 billion in 2017 from $7 billion in 2012.
The lower capital expenditure on nickel projects started to show in 2017, while between 2013 and 2016 nickel sulfide production remained steady at 800,000 mt a year, the continuous absence of new projects coming online led to a drop in nickel sulfide production of 100,000 mt in 2017, and further falls are expected over the coming years.
Looking at nickel demand in the coming years in more detail, one of the main driving points behind the strong growth expected is the switch to 8:1:1 nickel-manganese-cobalt battery from the current 6:2:2 technology.
Attendees at the advanced automotive battery conference in Mainz, Germany, in January said the 8:1:1 version would not to be commercially viable before 2020.
Data from NorNickel shows that the annual deficit by 2021 will be around 300,000 mt, while a report from McKinsey estimates that demand for nickel will increase to 2.5 million mt by 2025 from 2 million mt.
These production figures include grade one and grade two nickel — grade one is used for batteries while grade two is predominantly used for steel making.
The McKinsey report highlighted that while the stainless steel industry would remain the largest end-user of nickel, its share is expected to fall to 60% in 2025 from 70% now with EVs accounting for the lion’s share of that drop.
Brazilian Nickel is forecasting an even larger deficit by 2025 with nickel supply at around 2.3 million mt and demand of 2.85 million mt (up 650,000 mt) with 400,000 mt estimated from battery production — up some 370,000 mt from 2017.
It therefore seems likely that investment in nickel mining will pick up in the coming 12 months, particularly if nickel prices continue to increase this year and adoption rates remain on an upward trend. This could make 2018 the tipping point for nickel investment.
The technology is clearly pointing to higher nickel content in batteries in the next decade while current nickel supply appears insufficient to cope with this future demand.
Current forecasts should mean mining companies will searching hard for feasible projects this year despite low prices and potentially not very promising net present value calculations.
The post Might nickel be the brake on the progress of electric vehicles? appeared first on The Barrel Blog.
Khalid Al-Falih may be right when he claims the oil industry has nothing to fear from electric vehicles (EVs).
Saudi Arabia’s oil minister unsurprisingly is a robust defender of the internal combustion engine (ICE). Contrary to the views of Tesla Inc.’s headline grabbing founder Elon Musk, the kingdom’s top energy official expects the conventional gasoline powered road vehicle to remain the bedrock of passenger road transport for generations to come.
“Today 6.5 billion people live in the developing world,” said Khalid Al-Falih, in his opening speech at the International Energy Forum in Riyadh last week. “This will rise to 8.5 billion by 2020. The reality is the dream for many of these individuals is to buy a motorbike, then a car. Given the issues of competitive products, these are unlikely to be electric vehicles.”
Of course, Al-Falih has a vested interest dispelling concerns over peak oil demand despite global climate change concerns.
The kingdom draws a large share of its wealth from the Ghawar field—the world’s largest single onshore deposit of crude. Although, critics will argue Al-Falih has his head in the sand he also makes a fair point. EVs are not the only solution to the world’s future mobility needs, or necessarily the best form of low-carbon transport.
Neither is Al-Falih alone in this view. OPEC’s Secretary General Mohammed Barkindo has given an equally strong defense of oil’s role in powering future transport in the S&P Global Platts Changing Lanes mobility report published on February 19 at the London Oil & Energy Forum.
“It is important to emphasize that oil is expected to remain the most important fuel in the global energy mix for decades to come,” said Barkindo in the report. “In the World Oil Outlook 2017, published last November, there is no peak oil demand in the forecast period to 2040. Moreover, oil will remain the main fuel in the transportation sector, although we do recognize that EVs and other alternative transport means will contribute to a deceleration in oil demand growth, especially in the long term.”
Even if EV technology advances mitigate significant consumer concerns over range, recharging and cost they are unlikely to spell the immediate end of the oil era.
S&P Global Analytics estimates that even if EV’s become the motorists’ vehicle of choice reaching 90% of new car sales by 2030, this will only equate to a 5 million b/d drop in average oil demand from road transportation by 2040.
Even then, total global oil demand would still amount to more than 110 million b/d, or about 10 million b/d more than current consumption.
“To date, fuel efficiency standards in conventional internal combustion engines have resulted in far greater demand destruction,” writes Chris Midgley, Global Director of Analytics at S&P Global Platts in the Changing Lanes report.
Nevertheless, EVs arguably pose the biggest existential challenge for the future of oil as the primary fuel in the road transportation energy mix.
INVESTMENT IN TRANSPORTATION ALTERNATIVES
Double-digit sales growth cannot be ignored especially in major markets such as China. All major automakers are pumping billions of dollars into developing new EV models in the search for a Tesla “killer”.
Meanwhile, Musk’s disruptive automaker is busy launching more affordable models and even electric trucks. For an industry starved of investment since oil prices crashed in 2014 the growth of EVs is more than just an unwelcome distraction.
“There is clear evidence that the oil industry has seen a drop off in investment in recent years, but we see little linkage between observed investment and potential changes in the transport sector. The severe investment declines witnessed in both 2015 and 2016 were a result of the severe oil price cycle the industry was undergoing,” said Barkindo in the special report.
Neither are EVs the only plausible solution to the world’s future road transport needs.
Hydrogen could provide an alternative along with ever more efficient ICE powered vehicles and hybrid models. Growing sales above the level of 2% of the total new vehicles on roads annually could also require a radical improvement in supply chains and the production of key minerals and metals used to produce batteries.
“It’s very difficult to see,” said Bold Baatar, Chief Executive of Energy and Minerals at Rio Tinto in the S&P Global Platts Changing Lanes report. “There is a certain demand upswing coming for sure for copper but is it a supercycle coming for some of the other commodities I just don’t know. If you look at what happened in the previous super-cycle it was the mass urbanization of China and we don’t see another China scenario emerging.”
Meanwhile, big oil companies are hedging their bets but still remain closely aligned to the future of crude. Some like Shell are investing directly in the power sector and EV recharging operators. Others in the sector are more cautious.
However, Al-Falih and many of his peers running the world’s oil industry could also be plain wrong.
Concerns over climate change are real and EVs address the concerns of many consumers in developed markets on the issue. A return of volatile and unsustainably high oil prices, which last pushed crude to a record $147/b in the last decade, could also be a risk. Despite the growth of US shale and the creation of strategic reserves, a serious flare up of tensions between Saudi Arabia and Iran in the Gulf still has the potential to trigger a damaging supply shock.
“I’m taking the view that we’re in the middle of a major global energy transition from hydrocarbon molecules to electrons,” said Professor Paul Stevens, senior research fellow and international oil markets expert at the Royal Institute of International Affairs at Chatham House in London.
“The energy establishment is grossly underestimating the potential for electric vehicles. It’s the proverbial ostrich with its head in the sand,” Stevens said in an interview with S&P Global Platts.
The post How soon will electric vehicles make a significant dent in oil demand? appeared first on The Barrel Blog.
Drilling two consecutive runs with EOG, #Ulterra‘s 8.5″ SPL616 FastBack™ drilled 5,815 ft with an ROP of 169 ft/hr and then drilled 5,794 ft with an ROP of 154 ft/hr in Karnes Co.
OPEC is drafting an agreement to tie Russia into a so-called “super group” of oil producers.
Details on the proposal are vague and the Kremlin’s willingness to consider such a betrothal is uncertain, despite some positive vibes between Russia and OPEC kingpin Saudi Arabia at the moment.
In trying to formalize a permanent marriage to a powerful but unpredictable partner like Vladimir Putin, OPEC Secretary General Mohammed Barkindo is no doubt aware of the stakes of a divorce.
Any end to the production cut pact is likely to be messy with several countries having touted in recent weeks their plans to boost their production capacity in short order.
And for Saudi Arabia, it is counting on keeping Russia on side as its highly anticipated public listing of state oil company Aramco looks to be delayed.
Talk of the super group “pushes away the conversation that [OPEC] wants to be avoided: what is the exit strategy?” noted veteran OPEC watcher Jamie Webster, senior director at Boston Consulting Group’s Center for Energy Impact.
As the oil market has tightened, OPEC and its allies have remained coy on outlining how they plan to exit their output cut deal, save some vague pledges not to open the taps all at once.
Rather, they have obfuscated on the matter – first by declaring that their target of drawing down inventories to the five-year average may be changed, and now by announcing that the draft agreement with Russia and the other non-OPEC partners is in the works.
Perhaps it’s not a huge surprise, given that OPEC has never defined any exit strategy from previous production cut accords but has merely looked the other way on cheating until talk of the cuts simply faded away.
Barkindo has made no secret of his desire to “institutionalize… a permanent framework” of cooperation with non-OPEC, as he said in London last October.
The output cut deal, which is scheduled to run through the end of 2018, commits the 24-country OPEC/non-OPEC coalition led by Saudi Arabia and Russia to cutting 1.8 million b/d to help rebalance the market.
Deal members initially talked of aiming to get oil inventories held by OECD nations down to the five-year average.
But as that goal has neared — the IEA estimates OECD oil stocks were 52 million barrels above that benchmark at the end of December, down from 311 million barrels at the start of the cuts — OPEC is now wavering.
Saudi energy minister Khalid al-Falih has suggested that a new metric will be developed at the coalition’s next meeting on June 22, perhaps incorporating regional stock data and consideration of the crude grades held in storage.
There is merit to that idea, given that the oil market is a changed one since the deal was negotiated in late 2016, with surging demand and growing supply from the US.
Keeping the market guessing on how and when the cuts will end is a way for the bloc to ensure that their efforts to tighten market balances won’t be undone in short order, said Harry Tchilinguirian, global head of commodities markets strategy for BNP Paribas.
“My take is that they do not want to tie their hands with the current accord,” he said.
Kicking any hard decisions down the road “avoids getting boxed in in terms of policy, giving them options and ultimately reflects forward thinking,” he added.
All the better, then, for Saudi Arabia as it tries to keep its handle on the oil market’s rudder in anticipation of the Aramco IPO.
The delayed IPO — the pet project of Saudi Crown Prince Mohammed bin Salman — remains very much in flux, and Saudi officials have quietly dropped their target of listing the shares in the second half of this year.
An abrupt end to the production cuts would roil the oil market and make it more difficult for Aramco to achieve the kingdom’s desired $2 trillion valuation.
In fact, Saudi Arabia has doubled down on its market rebalancing efforts, announcing Tuesday that it would slash March crude production by 100,000 b/d from February levels and hold exports to below 7 million b/d.
“Market volatility is a common concern for producers and consumers, and the Kingdom is committed to mitigating this volatility and moderating its negative impacts by responsibly meeting its pledges under the Declaration of Cooperation between OPEC and non-OPEC producers, while proactively working with other producers to stabilize global markets,” the Saudi energy ministry said.
Not the most romantic declaration of love for its OPEC/non-OPEC brethren, but an earnest one. Whether it is reciprocated by its main partner remains to be seen.
Drilling with Statoil & Nabors, #Ulterra‘s 8.75″ CF516 drilled the 692 ft curve in 6.7 hrs with an ROP of 104.8 ft/hr in Williams Co.
Many in the oil and gas industry are wrestling with how their sector will shape up over the long term. How can scenario planning provide some insight for Boards and management? Duration: 12m 11s
The post 48 – Four Plausible Scenarios for a Digital Oil and Gas Future appeared first on Digital Oil and Gas.