Deepwater expenditure is expected to increase by 69%, compared to the preceding five-year period, totaling $210 billion (bn) from 2015 to 2019. This is the headline finding from Douglas-Westwood's (DW) World Deepwater Market Forecast 2015-2019. Report author, Mark Adeosun, commented, "As production from mature basins onshore and in shallow water declines, development of deepwater reserves has become increasingly vital, particularly to the world's oil majors. However, the recent oil price decline has intensified pressure on operator budgets. Consequently, numerous operators have deferred sanctioning of capital intensive developments.
"DW has identified a trough in global expenditure in 2015 and 2016 primarily driven by delays to delivery of FPS units in Latin America. We expect deepwater Capex to rise post-2016, driven by the continued development of deepwater fields off Latin America and West Africa, as well as new developments off East Africa. However, in the short-term, delays as a result of the oil price are causing significantly slower growth than was expected a year ago."
Assistant report editor, Balwinder Rangi, continued, "Africa, Latin America and North America will continue to dominate deepwater Capex, with $173bn set to be spent over the next five years with Africa forecast to experience the greatest growth. The development of East African natural gas basins has not been aided by the plunge in Asian gas prices; however, the development of these gas basins is inevitable. The expected recovery of oil prices will spark a revival in LNG-related activities in the region towards the end of the forecast period. Latin America will, however, remain the largest market and North America is expected to experience the least growth.
"In addition to the low oil price environment and building oversupply, the lack of rig demand will impact Capex growth over the forecast period. Current, industry consensus indicates that an oil price recovery is expected in the mid-to-long term. Whilst the economic feasibility of deepwater fields varies, typically long-term oil prices of $80 per barrel would ensure the viability of the majority of developments."
NYC-based PIRA Energy Group reports that Long haul trucking has been losing market share to rail since 2002. In the U.S., there was another record U.S. commercial stock level. In Japan, crude stocks and finished product stocks built. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
Lower U.S. Diesel Prices Should Limit Further Long Haul Trucking Loses to Rail
Long haul trucking has been losing market share to rail since 2002 when diesel prices averaged $1.75/gallon. This note estimates that diesel prices no higher than $3.25/gallon should stem any further erosion of long haul trucking's competitive position through 2016 even though momentum has set in for rail to displace long haul and possibly medium haul trucking on a long term basis.
Another Week, Another Record U.S. Commercial Stock Level
Total commercial stocks built last week to yet another new record high. With a small draw this week last year, the year-over-year surplus widened again. Crude built again this week. The four major refined products drew and all other oils were flat. The crude stock surplus versus last year stands at 82.7 million barrels. The four major refined products surplus widened to 30.3 million barrels, and the all other oils surplus widened to 45.8 million barrels above last year. Of that "other oil" excess, 43.7 million barrels is in propane & other NGL stocks.
Japanese Crude Stocks and Finished Product Stocks Build, Runs Ease
Crude runs eased again as maintenance continues to pick up its pace. Crude stocks built slightly due to a higher import figure. Finished product stocks also built, notably gasoil, naphtha, and fuel oil, though there was a strong end-of-season draw on kerosene. The indicative refining margin remained strong.
Tight Oil Operator Review
Weak oil prices dominated fourth quarter results and the outlook for 2015. The effect of falling prices rippled throughout the production chain, both on an operational and a financial level. For the companies covered, capex guidance for 2015 was 35% lower than 2014 capex on average. Simultaneously, technology and productivity improvements continued in 4Q14, and are expected to accelerate in 2015. The consensus seems to be a target of a 10% reduction in costs from efficiency gains, and a further 20% cost reduction from service price deflation. PIRA expects U.S. shale oil production to flatten out and slightly decline in 2Q15.
LPG Prices Drop with Season Change
LPG prices fell as U.S. inventories rose for the first time in 14 weeks. April propane futures for Mont Belvieu delivery fell to 50¢/gal, a 6.6% decrease on the week. Butane also lost ground as seasonal gasoline blending demand evaporates. LPG prices should remain under pressure as demand is set to continue decreasing as winter conditions continue to fade.
Manufacture of Ethanol- blended gasoline Jumps
Ethanol-blended gasoline manufacture soared to a 12-week high 8,676 MB/D the week ending March 13, from 8,434 MB/D in the previous week. Inventories declined for the third consecutive week, dropping 353 thousand barrels to 20.8 million barrels.
The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
We're not competing with fixed foundations, we're just creating the future. And that future's not that far away." CEO, Principle Power, EWEA 2015
Several floating wind turbines have been installed in recent years, with operational turbines in Norway, Japan and Portugal. Floating turbines have several benefits over their conventional counter-parts – firstly, they are more economically efficient, as onshore assembly and the ability to tow them into place reduces the need for costly heavy-lift vessels or specialized WTIVs. Secondly, floating turbines can be installed in deeper water (often further offshore) alleviating concerns of visibility from the coast. Thirdly, greater offshore distance increases wind exposure, resulting in comparatively higher electricity generation. We ask, however, whether floating wind turbines will be utilized globally as governments seek to meet renewable energy quotas?
Successful installations provide hope to those championing floating wind turbines. The WindFloat project in Portugal, is a particularly interesting example – currently supporting a 2MW turbine, 6km from shore. WindFloat refers to the floating support structure, which allows wind turbines to be installed in water depths exceeding 40m. The structure comprises three columns, each is fitted with water entrapment plates at the base, resulting in improved motion performance and allowing the use of conventional wind turbines atop the structure. WindFloat has been operational for three years and by end-2014 had delivered 12GWh of renewable electricity to the Portuguese grid, with no issues to date. Other successful projects include Hywind and Sway prototype projects in Norway, and a number of pilot projects in Japan.
DW's Offshore Wind Database shows at least nine floating projects are likely to come online by 2020, totaling 225MW – a further six projects in the pipeline provide upside potential. However, these technologies require significant investment and cooperation (WindFloat involved 60 suppliers), and each project is unique – standardization is key if floating offshore wind turbines are to be rolled out on a large scale. However, with some predictions that floating wind turbines could cut offshore wind costs in half, there are huge incentives for increased use of the technology.
Rachel Stonehouse, Douglas-Westwood London
NYC-based PIRA Energy Group believes that Oil balances remain in surplus with pressure peaking in April/May. In the U.S., last week's data was impacted by fog and now this week marine traffic has been halted. In Japan, crude runs continue to ease but crude stocks were lower. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:
Asia-Pacific Oil Market Forecast
Oil balances remain in surplus with pressure peaking in April/May from rising crude stocks. Product stocks are more balanced but a growing overhang will unfold. The adjustment process to clear the Atlantic Basin crude surplus has been slow to unfold. Increased movements of North Sea crude to Korea occurred for March and April supporting Brent, but Middle East producers remain keen to maintain Asian market share.
Houston Ship Channel Problems Distorting Weekly Data
Last week's data was impacted by fog and now this week marine traffic has been halted in the Houston Ship Channel because of a collision between a chemical tanker and a bulk carrier and resulting MTBE spill. Almost 1.45 MMB/D of refining capacity is located in this vital shipping area. Crude imports and product exports not surprisingly have been delayed, and also runs have been curtailed. With much lower product exports, which were already expected to be low with a closed distillate export arb, reported demand is very low, hitting a new low for the year this past week of 18.61 MMB/D, down 1.0 MMB/D week-on-week.
Japanese Crude Runs Continue to Ease but Lower Crude Stocks and Higher Product Stocks
Crude runs eased again as maintenance gathered steam. Crude stocks drew on a low import figure, while finished product stocks built. All the major products built stocks slightly. The indicative refining margin remained strong. Gasoline and gasoil cracks firmed, thus offsetting declines in the fuel oil, naphtha, and jet fuel cracks.
Latin American Oil Market Report
Latin American light product imports will level off in 2015. New and returning refinery capacity in Brazil, Colombia, and Ecuador will boost refinery runs covering demand growth. Net gasoline and diesel imports in those three countries will decline in 2015.
U.S. Distillate Demand Weakness Due to Declining Long-Haul Truck Traffic
U.S. distillate demand has been weaker than generally expected. PIRA's internal models estimate the loss at roughly 120 MB/D in 2013 and by 125 MB/D in 2014. This note identifies long-haul trucking as the likely explanation for this weakness. Based on a statistical investigation of the decline in long-haul trucking, we estimate the annual average loss in distillate due to the fall-off in long-haul trucking at 118 MB/D for 2014 and 82 MB/D in 2013.
The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.
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