📈 US Production to Rise Despite Rig Reductions
US oil and gas firms are pulling the plug on drilling operations, but the Energy Information Administration (EIA) says US output is on track to reach all-time highs in June.
According to this week’s count from Baker Hughes Co., US oil rigs fell by 11 to 575 – the largest decline since September 2021 and the lowest total count in 11 months.
Gas rigs remained unchanged after dropping 17 last week – the largest decline since June 2020.
The EIA, however, added some optimism to the rest of the year’s outlook with this week’s production forecasts.
The EIA expects June oil production to increase by 41,000 barrels per day (bpd) to a monthly record of 9.33 million bpd. That sentiment was comprised of output builds across several major basins.
The report segmented an increase of 15,000 bpd to a record of 5.71 million bpd in the Permian Basin, an increase of 13,000 bpd to 1.23 million bpd in the Bakken, and an increase of 2,000 bpd to 1.11 million bpd in the South Texas Eagle Ford region.
Natural gas shared some of the same positivity as crude in the EIA report. The administration expects June’s total natural gas output to rise by 0.3 billion cubic feet per day (bcfd) to a record of 97.2 bcfd.
🔥 G7 Reverses LNG Sentiment (Again)
The last time Energy Shots highlighted the G7’s energy gameplan, it was with questions about the group’s consensus that fossil fuels have no place in Western energy stacks.
April’s meeting between G7 energy ministers emphasized a renewables-only approach to reaching climate goals. To achieve those goals, ministers argued that wealthy Western nations should forgo investments in new coal and LNG power plants.
As noted in our commentary on that meeting, such policies fail to account for the hierarchy of energy needs that places efficiency after access and reliability.
Europe, in particular, is not positioned to safely drop LNG from its energy stacks while eliminating total dependence on Russia. In 2021, renewables supplied only 21.8% of the EU’s total consumption.
When renewable options fail, another source needs to pick up the slack.
This week, the G7 unofficially acknowledged this near-term reality. A draft document released to reporters shows a reverse from April’s commentary, with the group agreeing that LNG has a place in securing power generation.
According to undisclosed sources, Germany led the charge in reformulating documents to include gas investments again. The country closed its final three nuclear plants in the middle of April to affirm its stance on a solar- and wind-powered future.
That future, however, is currently aided by domestic coal supplies filling gaps. Bringing LNG infrastructure online will offer a more emissions-friendly alternative to securing the grid’s reliability.
Quick Shots:
✅ Appalachian Gas Pipeline Gets Reaffirming Nod
The Biden administration gave its second wave of support to the Mountain Valley gas pipeline this week. The $6.6 billion project from Equitrans Midstream Corp will unlock gas supplies from the nation’s largest shale gas basin, Appalachia.
The Bureau of Land Management (BLM) is expected to approve the pipeline to run through federal land. On Tuesday, the U.S. Forest Service granted a permit for the pipeline to run through the Jefferson National Forest.
The pipeline still requires final federal, state, and other regional permitting. Still, this week’s record-breaking forecasts from the EIA provide another reason for policymakers to expedite energy infrastructure investments out of Appalachia.
⚛️ Nuclear Fusion Survey Says $7 Billion Required
A Fusion Industry Association survey released this week shows stakeholders expect to spend $7 billion to bring the first nuclear fusion power plants online.
Nuclear fusion made headlines earlier this year after researchers created the first-ever net-positive fusion reaction, but there’s a long road ahead to commercialization. Steel, concrete, special conductive materials, magnets, and lasers are among the high-priced items required to make fusion possible.
🛢️ Asian Buyers Losing Interest In Middle Eastern Crude?
Russia might be a member of OPEC+, but the vast volumes of Russian oil heading into Asian markets are softening demand for Middle Eastern sour crude grades to several-month lows.
The restructuring of global crude markets has left little room for the Middle East’s exporters. Europe’s boycott of Russian seaborne shipments allowed China and India to saturate inventories with heavily-discounted supplies.
Those healthy stockpiles are compounding the effects of downtime and weakening refinery margins on Asian refinery output. In China, reduced margins on refined fuels are already causing refiners to consider curtailing exports to focus on domestic needs.
Beijing’s second batch of refined product export quotas decreased from the beginning of this year, signaling further support for refiners to focus in on higher-margin local demand during refinery maintenance season.
OPEC convenes again on June 4th, and while the softened demand might be localized to Middle Eastern exporters, it could cause OPEC officials to deviate from earlier comments that the group will not cut production again.