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Released June 24, 2019 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Last year was a "roller-coaster" year for Oil Producers and Petroleum Refiners, according to Spencer Dale, group chief economist for BP plc (NYSE:BP) (London, England). Look for more of the same this year, he said June 11 in releasing BP's 68th annual edition of its Statistical Review of World Energy. For an overview of that statistical review, see June 21, 2019, article - BP Executives Review 2018 Global Energy Trends, Sound Alarms.
Dale discussed a demand-driven recovery in global oil markets that pushed up prices steadily during the first three quarters of 2018. But in the fourth quarter, global prices shot upward, with Brent hitting $85 per barrel and West Texas Intermediate (WTI) reaching $75 per barrel, before both plunged to end the year at about $50 for Brent and $45 for WTI, Dale said. For 2018 as a whole, Brent averaged $71 per barrel, up from $54 per barrel in 2017.
This is the second in a series of articles that examine BP's 68th Annual Statistical Review of World Energy. Subsequent articles will explore strategic trends and project spending in the natural gas, coal and renewable energy industries discussed in the BP statistical report.
So far in 2019, prices have continued to be volatile: Brent and WTI prices increased nearly 50% during the first four months of the year, before giving back some of those gains in recent weeks.
Click on the image at right to see a graph of Brent crude oil prices for 2018 as well as the first four months of 2019.
Global oil demand rose about 1.4 million barrels per day (BBL/d) last year, with China and India accounting for about two-thirds of that growth, Dale told attendees at a press conference in London. U.S. demand rose about 500,000 BBL/d in 2018, the largest increase in more than a decade and a sharp contrast to the declining demand growth seen in the decade or so prior to the oil price crash of 2014.
"The strength in U.S. oil demand in recent years has been concentrated in first gasoline and then diesel, buoyed by lower prices and economic recovery, respectively," the economist said. "But the further step up in growth seen last year was driven by increased demand for ethane as new production capacity came on stream."
The economist cited strong demand growth coming from the petrochemical sector: The increased importance of petrochemicals in driving oil and natural gas demand growth also was evident in the global product breakdown, with products most closely related to petrochemicals (ethane, liquefied petroleum gas and naphtha) accounting for around half of the overall growth in demand last year.
Click on the image at right to see BP's estimate of global oil demand growth in 2018 and the demand growth for specific refined products.
While the demand side of the supply/demand equation was dynamic and engaging in 2018, Dale said, "all the fun and excitement came from the supply side, where global production grew by a whopping 2.2 million BBL/d, more than double its historical average." Production gains of about 2.2 million BBL/d in the U.S. (including natural gas liquids) accounted for nearly all of the global gains in supply, he said.
"The increase in U.S. production was the largest-ever annual increase by any country," Dale said. "Indeed, since 2011 and the onset of the tight-oil revolution, U.S. production has increased by over 7 million BBL/d--broadly equivalent to Saudi Arabia's crude oil exports--an astonishing increase that has transformed both the structure of the U.S. economy and global oil market dynamics." The shale oil revolution in the U.S. has cut crude oil imports to less than 3 million BBL/d in 2018, sharply lower than the 12 million BBL/d the U.S. imported in 2005, he added.
Click on the image at right to see a chart on global oil production growth in 2018 as well as a bar chart showing the largest-ever production gains by different countries.
Dale noted that Big Oil has substantially missed out on the U.S. shale revolution, as shown by the declining percentages of production coming from the 10 largest companies since 2011. However, Big Oil has increased its capital expenditures (capex) in the U.S. in recent years, which may signal a turnaround in its ability to extract crude from unconventional formations, he added. Big Oil also has been active in mergers and acquisitions (M&A) in recent years.
Dale spent some time detailing last year's production gyrations from the Organization of the Petroleum Exporting Countries (OPEC), as well as non-OPEC countries such as Nigeria and Libya, and the group now known as OPEC+, shorthand for OPEC plus 10 other nations led by Russia. Extending his review through the first four months of 2019, Dale remarked, "It feels like the oil market roller-coaster will run for some time to come."
In an interview, Gordon Gorrie, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries, echoed BP officials in marveling at the dramatic growth in recent years of North American oil production. "There has been a massive increase in U.S. light, sweet oil production, and it needs to find a new home overseas because most U.S. refiners are configured to process a heavier grade of crude."
"That is why we're tracking over $12 billion in oil, ethane and liquefied petroleum gas (LPG) export facilities being developed on the Gulf Coast," Gorrie continued. "Most of the existing U.S. export ports can't handle the very large crude carriers (VLCCs). Until we can get new deepwater export ports built, those VLCCs are getting loaded in an inefficient, two-step process: They get partially loaded at the export terminal, then they move off into deeper water and smaller ships transport additional crude oil."
Turning to refining, Dale, the BP economist, said global refinery throughput increased by 1 million BBL/d in 2018, down sharply from the prior year's growth of 1.5 million BBL/d. "Some of this slower growth stems from the easing in overall oil demand growth, but more important was the strong growth in non-refined liquids, especially the record growth in the production of NGLs (700,000 BBL/d)," which BP broke out separately for the first time.
"Despite the smaller increase in refining runs," Dale said, "measured utilization rates increased for the fourth consecutive year in 2018 to reach their highest level for more than 10 years. Indeed, taking account of the large and growing disruptions to refining capacity in Latin America and Africa, 'effective' utilization rates were even higher, as evidenced by utilization rates outside of Latin America reaching record-high levels. Despite increasing levels of utilization, margins eased slightly relative to last year, as the impact of Hurricane Harvey unwound and product stock levels increased."
Click on the image at right to see a graphic on global refinery throughput and utilization for 2018.
In an interview, Chris Paschall, Industrial Info's vice president of global research for the Oil & Gas and Petroleum Refining industries, said: "There is an active slate of grassroot refinery projects being developed around the world. Globally, we are tracking 140 grassroot refinery projects valued at $374 billion. Most of that project activity is taking place in Asia, where our data show $240 billion of projects are in some stage of development."
While 2018 was a good year for oil companies, it was not a blockbuster year, largely due to crude oil infrastructure bottlenecks, notably in the Permian Basin of West Texas and Southeastern New Mexico, as well as in Western Canada, noted Dale. At one point in 2018, the differential between WTI and Western Canadian Select (WCS) was $45 per barrel, Dale said, though steps taken by the Alberta provincial government have closed those differentials.
Industrial Info's Gorrie said that "the Western Canadian infrastructure bottleneck story is the same as what's going on in the Permian Basin. It's possible that the Canadian government's decision last week to support expansion of the Trans Mountain Pipeline will alleviate some of the bottlenecks that have imposed such a large price differential on WCS."
Industrial Info's Paschall added that three major grassroot crude oil pipelines, valued at about $19.5 billion, are being developed in Western Canada, to try to relieve that area's outbound transportation constraints. One of those projects is the Trans Mountain Pipeline. In addition to those three major grassroot projects, there are dozens of smaller projects that are being considered to expand the region's crude-oil transport capacity.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook-Twitter-LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Dale discussed a demand-driven recovery in global oil markets that pushed up prices steadily during the first three quarters of 2018. But in the fourth quarter, global prices shot upward, with Brent hitting $85 per barrel and West Texas Intermediate (WTI) reaching $75 per barrel, before both plunged to end the year at about $50 for Brent and $45 for WTI, Dale said. For 2018 as a whole, Brent averaged $71 per barrel, up from $54 per barrel in 2017.
This is the second in a series of articles that examine BP's 68th Annual Statistical Review of World Energy. Subsequent articles will explore strategic trends and project spending in the natural gas, coal and renewable energy industries discussed in the BP statistical report.
So far in 2019, prices have continued to be volatile: Brent and WTI prices increased nearly 50% during the first four months of the year, before giving back some of those gains in recent weeks.
Click on the image at right to see a graph of Brent crude oil prices for 2018 as well as the first four months of 2019.Global oil demand rose about 1.4 million barrels per day (BBL/d) last year, with China and India accounting for about two-thirds of that growth, Dale told attendees at a press conference in London. U.S. demand rose about 500,000 BBL/d in 2018, the largest increase in more than a decade and a sharp contrast to the declining demand growth seen in the decade or so prior to the oil price crash of 2014.
"The strength in U.S. oil demand in recent years has been concentrated in first gasoline and then diesel, buoyed by lower prices and economic recovery, respectively," the economist said. "But the further step up in growth seen last year was driven by increased demand for ethane as new production capacity came on stream."
The economist cited strong demand growth coming from the petrochemical sector: The increased importance of petrochemicals in driving oil and natural gas demand growth also was evident in the global product breakdown, with products most closely related to petrochemicals (ethane, liquefied petroleum gas and naphtha) accounting for around half of the overall growth in demand last year.
Click on the image at right to see BP's estimate of global oil demand growth in 2018 and the demand growth for specific refined products.While the demand side of the supply/demand equation was dynamic and engaging in 2018, Dale said, "all the fun and excitement came from the supply side, where global production grew by a whopping 2.2 million BBL/d, more than double its historical average." Production gains of about 2.2 million BBL/d in the U.S. (including natural gas liquids) accounted for nearly all of the global gains in supply, he said.
"The increase in U.S. production was the largest-ever annual increase by any country," Dale said. "Indeed, since 2011 and the onset of the tight-oil revolution, U.S. production has increased by over 7 million BBL/d--broadly equivalent to Saudi Arabia's crude oil exports--an astonishing increase that has transformed both the structure of the U.S. economy and global oil market dynamics." The shale oil revolution in the U.S. has cut crude oil imports to less than 3 million BBL/d in 2018, sharply lower than the 12 million BBL/d the U.S. imported in 2005, he added.
Click on the image at right to see a chart on global oil production growth in 2018 as well as a bar chart showing the largest-ever production gains by different countries.Dale noted that Big Oil has substantially missed out on the U.S. shale revolution, as shown by the declining percentages of production coming from the 10 largest companies since 2011. However, Big Oil has increased its capital expenditures (capex) in the U.S. in recent years, which may signal a turnaround in its ability to extract crude from unconventional formations, he added. Big Oil also has been active in mergers and acquisitions (M&A) in recent years.
Dale spent some time detailing last year's production gyrations from the Organization of the Petroleum Exporting Countries (OPEC), as well as non-OPEC countries such as Nigeria and Libya, and the group now known as OPEC+, shorthand for OPEC plus 10 other nations led by Russia. Extending his review through the first four months of 2019, Dale remarked, "It feels like the oil market roller-coaster will run for some time to come."
In an interview, Gordon Gorrie, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries, echoed BP officials in marveling at the dramatic growth in recent years of North American oil production. "There has been a massive increase in U.S. light, sweet oil production, and it needs to find a new home overseas because most U.S. refiners are configured to process a heavier grade of crude."
"That is why we're tracking over $12 billion in oil, ethane and liquefied petroleum gas (LPG) export facilities being developed on the Gulf Coast," Gorrie continued. "Most of the existing U.S. export ports can't handle the very large crude carriers (VLCCs). Until we can get new deepwater export ports built, those VLCCs are getting loaded in an inefficient, two-step process: They get partially loaded at the export terminal, then they move off into deeper water and smaller ships transport additional crude oil."
Turning to refining, Dale, the BP economist, said global refinery throughput increased by 1 million BBL/d in 2018, down sharply from the prior year's growth of 1.5 million BBL/d. "Some of this slower growth stems from the easing in overall oil demand growth, but more important was the strong growth in non-refined liquids, especially the record growth in the production of NGLs (700,000 BBL/d)," which BP broke out separately for the first time.
"Despite the smaller increase in refining runs," Dale said, "measured utilization rates increased for the fourth consecutive year in 2018 to reach their highest level for more than 10 years. Indeed, taking account of the large and growing disruptions to refining capacity in Latin America and Africa, 'effective' utilization rates were even higher, as evidenced by utilization rates outside of Latin America reaching record-high levels. Despite increasing levels of utilization, margins eased slightly relative to last year, as the impact of Hurricane Harvey unwound and product stock levels increased."
Click on the image at right to see a graphic on global refinery throughput and utilization for 2018.In an interview, Chris Paschall, Industrial Info's vice president of global research for the Oil & Gas and Petroleum Refining industries, said: "There is an active slate of grassroot refinery projects being developed around the world. Globally, we are tracking 140 grassroot refinery projects valued at $374 billion. Most of that project activity is taking place in Asia, where our data show $240 billion of projects are in some stage of development."
While 2018 was a good year for oil companies, it was not a blockbuster year, largely due to crude oil infrastructure bottlenecks, notably in the Permian Basin of West Texas and Southeastern New Mexico, as well as in Western Canada, noted Dale. At one point in 2018, the differential between WTI and Western Canadian Select (WCS) was $45 per barrel, Dale said, though steps taken by the Alberta provincial government have closed those differentials.
Industrial Info's Gorrie said that "the Western Canadian infrastructure bottleneck story is the same as what's going on in the Permian Basin. It's possible that the Canadian government's decision last week to support expansion of the Trans Mountain Pipeline will alleviate some of the bottlenecks that have imposed such a large price differential on WCS."
Industrial Info's Paschall added that three major grassroot crude oil pipelines, valued at about $19.5 billion, are being developed in Western Canada, to try to relieve that area's outbound transportation constraints. One of those projects is the Trans Mountain Pipeline. In addition to those three major grassroot projects, there are dozens of smaller projects that are being considered to expand the region's crude-oil transport capacity.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook-Twitter-LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
