Every time you turn around there is something new being built that is being powered by natural gas. One recent example is three cruise ships being built for Carnival Cruise Lines. They’ll be powered by liquid natural gas, which is far cleaner a fuel than what a lot of them are powered by, bunker oil.
Drilled but uncompleted wells (DUCs) are being completed. Rumors are that by January the DUCs in the Marcellus area will be gone. The EIA has begun publishing the estimated number of DUCs, and the Marcellus numbers don’t indicate zero DUCs by January 2017. In fact, as of the end of August 2016 there were still 642 DUCs, down from 658 in July for a change of -11. Even if you count January 2017, that’s only six months at 11 wells per month for 66 wells total, leaving 592 wells. Obviously the rate of change is going to change month to month, but it’s going to have to grow an awful lot to get to zero wells left by January 2017.
A deep-water project by Statoil in the North Sea is producing oil at $10/bbl. That’s competitive with Saudi Arabian oil. It’s all because of standardization. Previously, a lot of oil industry equipment was made to order. Efforts have been made to use off-the-shelf components. The savings are huge. The implications are also huge. Deep-sea projects were the most expensive projects, and consequently the first to get the ax in the recent price wars. If they can all be made this cost-competitive, the Saudis are going to have to worry about deep ocean oil reserves affecting the market as much as they have to worry about American reserves.
An article at ArabToday.net does a good job of summarizing the supply/demand balance for natural gas in the United States. I was a little surprised by the source, since Arabs are in the business of producing oil, but hey, guess they keep tabs on the industry at large.
The National has a good analysis of the Septmeber Algeirs OPEC meeting and its ramifications.
One thing I’ve often wondered about is why fracking hasn’t caught on better in other places? The answer is a bit complex, involving governments, politics, investment capital, and geology. The latter appears to have killed shale drilling in Poland, which was very excited about the prospect for a number of years. Other countries are still working on it, such as China, but aren’t having great success as yet. It’s something to keep an eye on.
So, after OPEC announced that they were going to agree on a price freeze at their next meeting in November, the price of a barrel of oil worked it’s way up to $52/bbl. Then, Russia announced that it was not going to cap production and the price dropped to (so far) $50/bbl.
Saudi Arabia played everybody. This article from the Wall Street Journal says that the Saudis were going to cut production anyways, so getting other countries to agree to a production cut really didn’t change anything for the Saudis! The Kingdom was already producing at record highs, and those high production numbers were apparently not sustainable. If no deal had been reached, production would have dropped off anyways. This way, it looks like OPEC still has power to influence world oil prices.
This article over at Fortune.com says that OPEC’s influence is significantly reduced from what it used to be. It also points out that quite a few OPEC countries would have reduced output naturally if the recent agreement had not been reached.
Just like that, there’s news that rig counts in the United States have risen. That news is keeping oil prices from rising any farther, in fact, as of today, October 17, 2016, at 10:00 a.m., the price of oil is under $50/bbl. After the news of OPEC’s agreement to cut production, the price of oil rose to about $52/bbl, then started a slow, steady decline.
I’ll be shocked if prices stay above $50/bbl until the next OPEC meeting in November. After that meeting, the price of oil will probably rise to about $55 or $60, and then drop off as American companies scale up production. That’s my free prediction for the near future, take it for what it’s worth.