WEEKLY ENERGY RECAP: Pondering Permian pipeline

A pump jack operates in the Permian Basin oil production area near Wink, Texas U.S. August 22, 2018. (REUTERS)
Updated 11 August 2019
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WEEKLY ENERGY RECAP: Pondering Permian pipeline

Oil prices tumbled last week as Brent crude fell below $60 per barrel for the first time in eight months. Brent finished at $58.53 while WTI fell to $54.50 per barrel.
Some analysts suggest that Brent has dropped on fears that the trade spat will expand into a full currency war, overshadowing the risk of supply disruptions in the Arabian Gulf. There has also been much attention paid to gloomy global economic sentiment dragging the oil price down — yet demand continues to be strong in China, the world’s biggest buyer of crude oil, and that has been reflected by record high imports.
We should instead consider the financial fragility of the US shale industry amid tightening of liquidity that has made it clear that US shale requires longer investment horizons than expected. The US oil rig count is at a 19-month low amid a broad drilling slowdown.
Shale risks being left behind by increasingly skeptical US capital markets. Drilling has slowed in the Permian Basin, and the slowdown has been even more acute outside this region.
The key mathematics of US shale oil growth have become more challenging, partly because of the rapid growth achieved in 2018. Decline rates for existing wells have risen, and production growth means the month-to-month decline is applied across a higher base. Changes in Permian well productivity estimates suggest that shale is much less resilient and hence output growth is set to slow sharply amid lower plans for capex.
Small and mid-sized shale producers have suffered from a financing squeeze since late 2018 when oil prices plummeted to similar prices levels. Shale investors are growing weary of a sector that has struggled to generate cash returns.
US loans to sub-investment energy companies fell by a third in the first half of 2019, compared with the same period last year.
Equity offerings were down by two-thirds and bonds by half. Shareholder pressure on larger explorers has dampened interest in acquisitions. This makes the capital constraints facing smaller producers all the more onerous, with investors shunning the space enough to crush equity values and kill off attempts to build scale.
Last year saw midstream operators deftly circumvent anticipated capacity shortfalls through de-bottlenecking and accelerated construction schedules.
Estimates vary, but the market largely expects a major shortfall in Permian pipeline takeaway capacity to persist late into 2019. At that point, Permian producers are expected to breathe a collective sigh of relief, with no further oil infrastructure bottlenecks on the horizon till 2020.
The Permian Basin continues to dominate US shale oil output growth but the rapid pace is becoming increasingly difficult to sustain in the face of pipeline constraints.
So far, infrastructure expansion has failed to keep pace with Permian output growth. So the future sustainability of oil recovery in the Permian is still questionable as shale producers have different levels of exposure to the bottlenecks.

Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq


Huawei in public test as it unveils sanction-hit phone

Updated 44 min 9 sec ago

Huawei in public test as it unveils sanction-hit phone

  • Hit by US sanctions, Huawei's Mate 30 will not be allowed to use Google’s Play Store
  • Household-name services like WhatsApp, Instagram and Google Maps will be unavailable.
BERLIN: Chinese tech giant Huawei launches its latest high-end smartphone in Munich on Thursday, the first that could be void of popular Google apps because of US sanctions.
Observers are asking whether a phone without the Silicon Valley software that users have come to depend on can succeed, or whether Huawei will have found a way for buyers to install popular apps despite the constraints.
The company has maintained a veil of secrecy over its plans, set to be dropped at a 1200 GMT press conference revealing the Mate 30 and Mate 30 Pro models.
Huawei, targeted directly by the United States as part of a broader trade conflict with Beijing, was added to a “blacklist” in Washington in May.
Since then, it has been illegal for American firms to do business with the Chinese firm, suspected of espionage by President Donald Trump and his administration.
As a result, the new Mate will run on a freely available version of Android, the world’s most-used phone operating system that is owned by the search engine heavyweight.
While Mate 30 owners will experience little difference in the use of the system, the lack of Google’s Play Store — which provides access to hundreds of thousands of third-party apps and games as well as films, books and music — could hobble them.
Household-name services like WhatsApp, Instagram and Google Maps will be unavailable.
The tech press reports that this yawning gap in functionality has left some sellers reluctant to stock the new phones, fearing a wave of rapid-fire returns from dissatisfied customers.
Huawei president Richard Yu said at Berlin’s IFA electronics fair this month that his engineers found a “very simple” way to install the hottest apps without going via the Play Store.
Huawei could offer its own app store in a preliminary version, setting itself up as a competitor to the dominant Apple and Google offerings, observers speculate.
Over the longer term, the company could build out a similar “ecosystem” of devices, apps and services as the Silicon Valley companies that would bind users more closely to it.
The world’s second-largest smartphone maker after Samsung, Huawei earlier this month presented its proprietary operating system HarmonyOS, a potential replacement for Android.
The Mate 30 will not yet have HarmonyOS installed.
But it could make for a new round in the decades-old “OS wars” between Microsoft’s Windows and Apple’s Mac OS, then Android versus Apple’s iOS.
Meanwhile, Eric Xu, current holder of Huawei’s rotating chief executive chair, has urged Europe to foster an alternative to Google and Apple.
That could provide an opening for Huawei to build up Europe’s market of 500 million well-off consumers as a stronghold against American rivals.
“If Europe had its own ecosystem for smart devices, Huawei would use it... that would resolve the problem of European digital dependency” on the United States, Xu told German business daily Handelsblatt.
He added that his company would be prepared to invest in developing such joint European-Chinese projects.