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Upbeat US shale sector still not primed for growth

  • Spanish Market: Crude oil
  • 28/06/21

A capital-disciplined US shale sector is seeing record free cash flow, but while crude prices above $70/bl are reinforcing confidence and activity in the sector, executives see growing investor, financial and regulatory pressures firmly capping prospects for production growth.

Oil and gas executives remained upbeat this quarter as energy prices rebounded, according to the Federal Reserve Bank of Dallas, although concerns are growing over rising costs. The Dallas Fed's energy survey of 152 companies in Texas, southern New Mexico and northern Louisiana on 9-17 June showed that activity has continued to grow strongly in the past three months. Drillers also plan to step up spending. But respondents voiced scepticism about the energy transition and the possibility of a carbon tax, as well as concerns about a less favourable regulatory environment under President Joe Biden. Three-quarters of those polled see a global crude supply gap in the next two to four years.

A lack of new capital for oil and gas investment could hamstring the industry in the future, according to one upstream executive, who says just one institutional investor out of 400 that their company has worked with is willing to provide fresh funding. "This underinvestment coupled with steep shale declines will cause prices to rocket in the next two to three years," the executive said.

Dutch bank ABN Amro said on 24 June that it plans to exit oil and gas lending in North America, after agreeing to sell its $1.5bn portfolio of loans to investment firms Oaktree Capital Management and Sixth Street Partners.

Shale drillers have had a "fairly tempered" response to this year's rebound in oil prices, Hess chief executive John Hess says. Even if the sector's rig count starts to move up quickly, and shale growth accelerates, Hess estimates that it would take around four years for US oil output to get back to pre-Covid levels of 13mn b/d. That drillers are unwilling to sharply increase production "comes from the shale discipline exercised by investors and oil companies alike", Hess told an industry conference this week.

Low investment and oil prices above $70/bl could help the world's publicly traded E&P companies report record free cash flow of $348bn this year, consultancy Rystad Energy says. Shale, which has struggled to generate positive returns in the past, is on track to make close to $60bn in free cash flow this year before hedging, the firm estimates.

Supercycle me

At the same time, oil service firm Schlumberger sees the potential for a demand-led supercycle as the market rebalances faster than previously expected owing to lower investment, and as the economy bounces back and US drillers and Opec+ exercise restraint. These factors set the stage for a "sustained growth cycle", chief executive Olivier Le Peuch says.

But surplus capacity in the shale services sector means that firms cannot yet pass on their rising costs to drillers. "Cost inflation is killing us," one service company executive says. Independent producer EOG Resources says that falling well costs are in line with its 5pc reduction target. "We have been able to lower well costs even in what is potentially turning into a bit of an inflationary environment," president Ezra Yacob says.

Liberty Oilfield Services, which snapped up Schlumberger's US and Canadian hydraulic fracturing (fracking) business last year, says that the number of fracking fleets working in North America has rebounded from a low of 30 last year and is likely to end 2021 in the "mid 200s", as privately held oil companies boost drilling while publicly listed rivals hold back.

US crude

US lower-48 output and frac spreads

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05/11/24

Voting set to conclude in race for White House

Voting set to conclude in race for White House

Washington, 5 November (Argus) — Voting concludes today in the US presidential contest between former president Donald Trump and vice president Kamala Harris, a race with high stakes for energy policy, trade and climate change. Polls will close by 6-9pm ET in eastern states and by 11 pm ET in most western states, but election officials say it will take time to count votes, including from mail-in ballots that will trickle in over the coming days. As of 3 November, voters who went to the polling stations early or sent mail-in ballots added up to 48pc of the total turnout in 2020, according to analysis by the Washington Post. The presidential race is likely to be determined by voters in Michigan, Wisconsin, Pennsylvania, North Carolina, Georgia, Arizona and Nevada, where pre-election polls have shown no decisive lead for Harris or Trump. Voters are casting ballots at a time when domestic oil and gas production is booming. US crude output reached a record high 13mn b/d last year, while gas production hit a record 103 Bcf/d, according to the US Energy Information Administration. Despite record production and profits in the oil industry, Trump has focused heavily on energy policy — and voter anger over higher prices across the economy — in his bid to win a second term. US drivers paid an average of $3.07/USG for regular grade gasoline in the week ended on 4 November, the lowest price in 10 months — but still higher than at any point during Trump's first presidency. On the campaign trail, Trump has assured oil and gas producers that under his watch they would be permitted to "drill, baby, drill" and has promised to dismantle the energy tax credits in President Joe Biden's signature climate initiative, the Inflation Reduction Act. Harris has committed to support the 2022 law and other energy policies adopted by Biden, including continued support for electric vehicles. Harris has disavowed her 2019 pledge to ban hydraulic fracturing. But oil and gas firms remain concerned about restrictions on federal leasing and efforts to electrify the vehicle fleet if she is elected. The next president will decide key questions on energy policy, such as how to proceed with a "pause" on the licensing of new US LNG export facilities and to manage climate-related rules for power plants, oil and gas facilities and vehicles. The race for the White House will have equally high stakes for companies involved in metals and agriculture , as well as other commodities. Trump is planning a combative approach to trade, with a 20pc tariff on all foreign imports and even higher tariffs against China, and to rescind many regulations. In 2025, the US Congress is poised for a major fight on tax policy because of the year-end expiration of an estimated $4 trillion in tax cuts. Russia's war on Ukraine, and the future of US restrictions on Russian energy exports is also at stake during the election. Trump has vowed to end the war by forcing Kyiv to negotiate a deal with Russian president Vladimir Putin and appears to back the Kremlin's argument that the continuation of US sanctions on Russia would weaken and undermine the dollar. A Harris administration would continue enforcing the G7 price cap on Russian oil exports and, possibly, add to the restrictions on Moscow's earnings from its oil and gas exports. The growing threat of an Israel-Iran war and its potential impacts on oil flows from the Middle East is threatening to overwhelm the final months of Biden's term in office and any foreign policy initiatives either candidate vying to succeed him will pursue in the region. US-China relations are likely to remain adversarial in coming years. Viewing Beijing as the principal economic and geopolitical challenge for the US is a rare overlap in foreign policy priorities identified by Trump and Harris. Of particular concern in Washington is the ability of oil exporting countries such as Iran, Venezuela and Russia to find willing buyers for their crude in China despite US sanctions. Polls also show a tight race in the fight for control of the US House of Representatives, where Republicans hold a slim 220-212 majority. Up to 22 congressional races are up to grabs, with a range of potential outcomes favoring either party, election ratings firm Cook Political Report says. Cook rates 208 seats as solid or leaning Republican, and 205 solid or leaning Democratic, with both shy of the 218 needed for control of the chamber. In the US Senate, where Democrats hold a 51-49 majority, Republicans have a clear path to taking control because of polling leads in West Virginia and Montana. Republicans could win control of the Senate by flipping just one seat, if Trump wins the election, but would need to flip two seats if Harris wins. By Chris Knight and Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US railroad-labor contract talks heat up


04/11/24
04/11/24

US railroad-labor contract talks heat up

Washington, 4 November (Argus) — Negotiations to amend US rail labor contracts are becoming increasingly complicated as railroads split on negotiating tactics, potentially stalling operations at some carriers. The multiple negotiating pathways are reigniting fears of 2022, when some unions agreed to new contracts and others were on the verge of striking before President Joe Biden ordered them back to work . Shippers feared freight delays if strikes occurred. This round, two railroads are independently negotiating with unions. Most of the Class I railroads have traditionally used the National Carriers' Conference Committee to jointly negotiate contracts with the nation's largest labor unions. Eastern railroad CSX has already reached agreements with labor unions representing 17 job categories, which combined represent nearly 60pc of its unionized workforce. "This is the right approach for CSX," chief executive Joe Hinrichs said last month. Getting the national agreements on wages and benefits done will then let CSX work with employees on efficiency, safety and other issues, he said. Western carrier Union Pacific is taking a similar path. "We look forward to negotiating a deal that improves operating efficiency, helps provide the service we sold to our customers" and enables the railroad to thrive, it said. Some talks may be tough. The Brotherhood of Locomotive Engineers and Trainmen (BLET) and Union Pacific are in court over their most recent agreement. But BLET is meeting with Union Pacific chief executive Jim Vena next week, and with CSX officials the following week. Traditional group negotiation is also proceeding. BNSF, Norfolk Southern and the US arm of Canadian National last week initiated talks under the National Carriers' Conference Committee to amend existing contracts with 12 unions. Under the Railway Labor Act, rail labor contracts do not expire, a regulation designed to keep freight moving. But if railroads and unions again go months without reaching agreements, freight movements will again be at risk. By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Canada advances oil and gas GHG cap


04/11/24
04/11/24

Canada advances oil and gas GHG cap

Houston, 4 November (Argus) — Canada is proposing to use a cap-and-trade system to reduce greenhouse gas (GHG) emissions from its oil and gas sector, a long-promised but politically contentious move. The proposed program aims to reduce emissions from the sector by 35pc, compared to 2019 levels, by 2030-32, according to a draft rule published by Environment and Climate Change Canada (ECCC) on Monday. It would cover upstream production activities, both onshore and offshore, including for oil, natural gas and liquified natural gas. After an initial four-year phase-in over 2026-29, entities would then need to meet their emissions obligations over the first 2030-2032 compliance period. While all operators must report emissions, only those producing more than 365,000 b/yr of oil equivalent, equal roughly to 99pc of upstream emissions, would be covered by the trading program. Covered entities would receive free allowance allocations, which would decline in line with their emissions cap. Companies could also buy allowances on the secondary market if needed, use carbon offsets or contribute funds to a decarbonization program. The first three-year compliance period of 2030-31, would be set at 27pc below emissions reported for 2026, which ECCC said would be equivalent to the 35pc target. The federal program will not link with the California-Quebec joint carbon market, known as the Western Climate Initiative, regulators said. ECCC officials stressed that the resulting program would cap emissions, not production, for Canadian oil producers, pushing back at a common criticism from opponents. The federal move will keep the industry accountable to its own promise of net-zero by 2050 and result in a greener and more competitive industry, said Canada Natural Resources Minister Jonathan Wilkinson. "As the world moves to reduce emissions generated by the production and combustion of fossil fuels, oil and gas extracted with the lowest production of emissions will have value in the world," Wilkinson said. But Alberta premier Danielle Smith claimed on Monday that the proposed program violates Canada's constitution. Provinces have exclusive authority over non-renewable natural resource development and the proposal ignores ongoing projects in the province, such as the Pathways Alliance, she said. Canadian Natural Resources, Cenovus, ConocoPhillips Canada, Imperial, MEG Energy and Suncor Energy are involved in the project. The program is a cap on production and will cost the province "anywhere from C$3bn-$7bn ($2.1-5bn)/yr" in absent royalty payments because of a loss of 1mn b/d in production, Smith said, promising future legal challenges against the federal government. "The only way to achieve these unrealistic targets is to shut in our production, I know it, they know it. We are calling them out on it, and they have to stop it," she said. Canada, a major net exporter of oil, has committed to reducing emissions by 40-45pc, compared to 2005 levels, by 2030 and net-zero by 2050. But emissions from the country's oil and gas sector remain an obstacle to meeting those goals. The sector accounts for 31pc, or 217mn metric tonnes, of the country's emissions in 2022 , according to the most recent federal data. Emissions from this sector increased by 83pc from 1990 to 2022. Over the past year Canada's federal government has focused on competitive climate change-related policies, from rolling out investment tax credits for decarbonization technologies to enforcement of the government's new Clean Fuel Regulations. But the road for the Liberal Party-led government to meet the climate goals remains a rocky one ahead of a federal election that must take place no later than October 2025. In September, the Conservative Party, led by Pierre Poilievre, attempted a no confidence measure on prime minister Justin Trudeau's government, fed by discontent around the federal carbon tax. While the motion failed, it highlights the balancing act for the Liberal Party ahead of the election. Trudeau has resisted calls from within his party to cede the field as his popularity waned, to the benefit of Poilievre. ECCC plans to request public comment on the proposal through 8 January 2025 and estimates it will finalize the regulations next year. By Denise Cathey Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Mexico GDP outlook dims in October survey


04/11/24
04/11/24

Mexico GDP outlook dims in October survey

Mexico City, 4 November (Argus) — Private-sector analysts have again lowered their projections for Mexico's gross domestic product (GDP) growth this year, with minimal changes in inflation expectations, the central bank said. For a seventh consecutive month, median GDP growth forecasts for 2024 have dropped in the central bank's monthly survey of private sector analysts. In the latest survey conducted in late October, analysts revised the full-year 2024 growth estimate to 1.4pc, down from 1.46pc the previous month. The 2025 forecast also dipped slightly, to 1.17pc from 1.2pc. The latest revisions are relatively minor compared to the slides recorded in preceding surveys, suggesting negativity in the outlook for Mexico's economy may be moderating. This aligns with the national statistics agency Inegi's preliminary report of 1.5pc annualized GDP growth in the third quarter, surpassing the 1.3pc consensus forecast by Mexican bank Banorte. Inflation projections for the end of 2024 inched down to an annualized 4.44pc from 4.45pc, while 2025 estimate held unchanged at 3.8pc. September saw a second consecutive month of declining inflation, with the CPI falling to 4.58pc in September from 4.99pc in August. The survey maintained the year-end forecast for the central bank's target interest rate at 10pc, down from the current 10.5pc. This implies analysts expect two 25-basis-point cuts to the target rate, most likely at the next meetings on 14 November and 19 December. The 2025 target rate forecast held steady at 8pc, with analysts anticipating continued rate reductions into next year. The outlook for the peso remains subdued, following political shifts in June's elections that reduced opposition to the ruling Morena party. The median year-end exchange rate forecast weakened to Ps19.8 to the US dollar from Ps19.66/$1 in the previous survey. The peso was trading weaker at Ps20.4/$1 on Monday, reflecting temporary uncertainty tied to the US election. Analysts remain wary of Mexico's political environment, especially after Morena and its allies pushed through controversial constitutional reforms in recent months. In the survey, 55pc of analysts cited governance issues as the primary obstacle to growth, with 19pc pointing to political uncertainty, 16pc to security concerns and 13pc to deficiencies in the rule of law. By James Young Mexican central bank monthly survey Column header left October September Headline inflation (%) 2024 4.45 4.44 2025 3.80 3.80 GDP growth (%) 2024 1.40 1.46 2025 1.17 1.20 MXN/USD exchange rate* 2024 19.80 19.66 2025 20.00 19.81 Banxico reference rate (%) 2024 10.00 10.00 2025 8.00 8.00 Survey results are median estimates of private sector analysts surveyed by Banco de Mexico from 17-30 October. *Exchange rates are forecast for the end of respective year. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Oil use still flat to 2030 in TotalEnergies scenarios


04/11/24
04/11/24

Oil use still flat to 2030 in TotalEnergies scenarios

Edinburgh, 4 November (Argus) — TotalEnergies continues to see oil demand plateauing until 2030, and then to decrease slower than natural field decline even in a scenario limiting global warming below 2°C. In its annual energy outlook released today, TotalEnergies updated two different scenarios for energy demand to 2050. The 'Momentum' scenario assumes countries with 2050 net zero targets reach their goals and China hits its 2060 target, with low carbon energy meeting half of developing countries' needs. It has temperature rising by 2.2-2.3°C by 2100, compared with 2.1-2.2°C in the same timeframe last year. The Paris climate agreement seeks to limit global warming to "well below" 2°C above the pre-industrial average and preferably to 1.5°C. "In this scenario, fossil fuels still cover half of the growth in energy demand in the Global South, due to insufficient low-carbon investment," TotalEnergies said. The 'Rupture' scenario assumes global co-operation supports net-zero development in India and developing countries, with energy demand growth met by low-carbon energies and efficiency gains. It has temperature rising by 1.7-1.8°C in 2100, unchanged from last year. "Beyond 2040, all decarbonisation levers are applied globally, in particular the deployment of new energies and carbon capture, use and storage (CCUS)," TotalEnergies said. TotalEnergies still sees oil demand plateauing until 2030 in Momentum and Rupture, reaching around 70mn b/d in the former and 44mn b/d in the latter in 2050. This compares with 63mn b/d in the Momentum scenario and 41mn b/d in the Rupture scenario by 2050 in last year's report. Around 25pc of oil demand stems from the petrochemical sector in 2025 in the Rupture scenario, according to the firm. Oil demand starts decreasing around 2035 in Momentum, but slower than the 4-5pc natural decline of existing fields, requiring new developments. It decreases faster in Rupture — by 3.9pc per year over 2030-50 — but still more slowly than natural decline, the firm said. In the Rupture scenario, the aviation and shipping sector need sustainable liquid fuel supply to rise four-fold compared with today. But a higher EV penetration rate in this scenario reduces biofuels requirements for road transportation, freeing up more supply for aviation and shipping, according to the firm. By Caroline Varin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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