February 6, 2019 - Nom Geo
Reservoir to Bowser 2
February 7th, 2019
Energy markets are moving sideways but are largely steady. Brent and WTI are at $62.69 and $53.66 per barrel levels respectively as of today, slightly up from last week. The Western Canadian Select crude is currently holding around $44 per barrel which will be relief to producers in Alberta. Alberta’s state government is likely to relax its enforced statewide production cut if prices, and takeaway capacity holds!
The sanctions and generally parlous state of Venezuela’s crude supply is creating tension in markets but it is not clear if it is helping to lift crude prices. The large number of idled tankers reportedly off its coast suggests that the effects are nevertheless far-reaching.
Also likely to influence market confidence is OPEC’s continuing efforts to enter into a more formal deal with Russia over production restraint measures. OPEC’s average price of its basket of fourteen (sour) crude-oils was $62.07 per barrel as at February 5th.
LNG Asian futures are lower in all zones and imply falls to under $7 per mmBtu by March and April. This parallels a drop in Henry Hub natural gas to $2.69/mmBtu; the lowest levels since March 2018 ago.
US crude oil stocks as reported by the EIA increased by about 2.5 million barrels, gasoline inventories were up 1.7 million barrels and diesel stocks increased by a mere 140,000 barrels. Refining crack spreads are slightly higher with the US Gulf 3-2-1 crack vs WTI nearing $10.34 per barrel; around 10% higher than last week.
Sour Gas Production on the Arabian Peninsula
Abu Dhabi’s ADNOC has let a $1.4bn contract to National Marine Dredging Co. of Abu Dhabi who will build ten artificial islands and two causeways, along with an expansion of Al Ghaf island for the Ghasha sour gas project that will deliver natural gas self-sufficiency to the nation. The project’s international partners are Eni, 25%; Wintershall, 10%; and OMV, 5%. The project includes the Hail, Ghasha, Dalma, Nasr, Sarb, and Mubarraz fields and will produce 1.5Bcf (42mmcm) of natural gas and 120kbpd of liquids daily. Abu Dhabi is also increasing production from the Shah sour gas field to 1.5Bcf per day. Further reserves are contained in the gas cap overlying the giant Umm Shaif oil field.
Developed at an estimated cost of $10bn by a partnership between ADNOC and Occidental, Shah currently produces around 500mmcf (14mmcm) daily of natural gas. Raw gas is of an ultra-sour composition and could be as much as 50% hydrogen sulphide, that translates into technically hazardous and costly producing processing requirements. It is expected that Ghasha’s development will have the same topsides requirements.
Exxon Announces 11th and 12th oil finds
ExxonMobil has added another two discoveries, increasing the total to 12 fields in Guyana’s Starbroek block. While it is too early to define the size of these latest discoveries, the recoverable resource estimates for Exxon and its co-venturers in the former frontier sector easily surpass 5.1Bboe. The field will be developed via five or perhaps even six FPSO (floating production, storage and offtake) units with a capacity of 750kbpd by 2025.
The Tilapia-1 discovery is in the Turbot area that includes the Turbot, Pluma and Longtail discoveries. All are close to each other and are likely to be developed into a common hub. Drilling of the Haimara-1 well occurred during January and is in a new area around 25km from Tilapia. Well testing of the oil-bearing sandstone reservoirs is pending.
Geology side-notes- Gas in Abu Dhabi
Abu Dhabi’s Shah and Ghasha gas reservoirs have very high levels of H2S (hydrogen sulphide) gas, a characteristic of many marine carbonate (CaCO3) or dolomite (MgCO3) deposits. Situated in the Rub Al Khali basin, Shah’s reservoir is an Upper Cretaceous, fractured carbonate reservoir. Fractured carbonates could infer a dolomite composition, where over time the calcium of the CaCO3 has been replaced by magnesium by migrating waters, changing it from limestone to dolomite. As dolomite forms a rhombohedral structure, it shrinks slightly, resulting in a micro-fractured formation that represents the storage volume in the reservoir.
The basin’s petroleum system is fed by dolomitized shale of the Upper Jurassic Dyab formation that underlies the world’s largest conventional oil resource, the Arab Formation and which comprises the source of its hydrocarbons. This calcareous source shale overlies a bio-clastic skeletal barrier reef deposit classified as grainstone. Deposition of the shale occurred during a period of lower water energy in the uppermost Jurassic period.
Ghasha differs from Shah in that the producing reservoirs extend from oil and gas prone horizons in the Arab formation to the much deeper gas-prone early Jurassic Araej formation’s argillaceous limestones that underlie the Dyab source rock. A similar stratigraphy is present in the Umm Shaif field.
Typical porosity varies. Unaltered limestone can exceed 30% porosity with very high, multi-Darcy permeability while dolomitized reservoir porosity is in the range of 5-12%.
The overall geology of the Arabian Peninsula and the Persian Gulf is a freak of nature and deserves its own future article. I will devote a future post to explaining petroleum systems, history and reasons that the region is so rich in conventionally trapped hydrocarbons.
The Future of Ship Building Looking Bullish
Any doubts about the future of global LNG trade would have been dispelled with Qatar entering discussions to more than double its fleet of 50 LNG carriers to 110. Qatar is likely to order its new fleet from shipyards in South Korea. While most of the fleet construction in recent years has focussed on the 160-174,000 cubic metre neo-Panamax size class, Qatar has the world’s largest LNG carriers, the 267,000 cubic metres QFlex. As such speculation is that more of the largest carrier class could be ordered by Qatar.
This focus in super-sized vessels is not a certainty however, as the highly flexible neo-Panamax class vessel is the largest size that is universally accepted and that can pass through the Panama Canal. As such, Qatar is expected to order across a number of different size classes to maximise global reach. The new-build cost for a carrier is in the range of $150 to 200 million. The global order book currently exceeds 130 new-builds mainly for ship yards in South Korea and to a lesser extent, China.
Contracting – in Brief
Contractor McDermott International revealed this week that it has bagged major processing and mid-stream contracts in the US and Australia. Firstly, the week’s largest project announcement, the go-ahead by Qatar Petroleum and ExxonMobil for the 15.6Mtpa Golden Pass liquefaction facility with an estimated cost range of $15-20bn has awarded a “mega-contract” to a McDermott, Chiyoda and Zachry Group consortium. The contract is to “perform engineering, procurement, construction and commissioning of three approximately 5.2 million ton per annum (MTPA) LNG trains”. According to ExxonMobil, Golden Pass is selected based on a low cost basis relative to all global projects. Its development will likely push global supply into surplus, even if briefly when it comes online in 2024-2025.
McDermott also won a contract from Australia’s Woodside Petroleum for development of the floating processing unit (FPU) for the large 7.3Tcf (259Bcm) Scarborough Gas field. Scarborough will provide much needed back-fill feed-gas into Woodside’s long-standing LNG projects in North-Western Australia. The FPU will perform gas separation, dehydration, and compression as well as mono-ethylene glycol (MEG) regeneration and water handling.
Refining and Chemicals
Chemicals continue to dominate new investments
Notable this week was Irkutsk Oil Co (INK) awarding of contracts to Toyo Engineering for a 650ktpa ethylene plant in Ust-Kut, Irkutsk in eastern Siberia, Russia. A quick look at the map reveals a landlocked location that is far from anywhere however the project’s business case is underpinned by ethane gas feed from INK’s Yaraktinsky and Markovsky fields.
Along with ethylene, the plant will also produce 650kbpd of poly-ethylene. These chemicals represent the most sought after plastics by industries around the world, and demand is growing. The project follows on from ExxonMobil’s ethylene expansion project in Baytown, Texas, half a world away, but also underpinned by high regional ethane supply and future demand growth.
Chief contractor Toyo has awarded the ethylene technology contract to Lummus Technology Inc while Univation Technologies LLC will supply proprietary technology for the poly-ethylene units.
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