Nov. 08–Geopolitical tensions around the globe are creating uncertainty that could impact Permian Basin oil and gas producers.
Tom Petrie, founder of Petrie Partners, told those attending Wednesday’s Executive Oil Conference presented by Hart Energy that geopolitical uncertainty was greater in intensity than he had seen in a number of years.
He cited headlines just from October, including the disappearance and presumed murder of Saudi Arabian Journalist Jamal Khashoggi, President Donald Trump reinstating full sanctions on Iran and announcing plans to withdraw from a nuclear arms treaty with Russia, not to mention reports Permian producers were burning $1 million a day in natural gas.
Those increased uncertainties have retriggered price volatility, he said.
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“I do believe the position we have today exceeds the positions we’ve seen in my four-decade career,” Petrie said, citing the nation’s surge in production to more than 11 million barrels of oil per day. In several months, that has exceeded the output of the top two producers, Saudi Arabia and Russia.
He said another piece of good news is that the industry is on the path to easing the takeaway capacity constraints keeping Permian Basin crude from reaching markets on the Gulf Coast and at Cushing and is addressing the challenges that could hinder increased exports of domestic crude to international markets.
But what Petrie called a remarkable balance comes with challenges.
One is the discipline exhibited by Saudi Arabia, other members of the Organization of Petroleum Exporting Countries and allies such as Russia in 2017 to cut production and lift prices. He said that will be challenged by Trump’s hard-line stance with Iran and his request that other members of OPEC increase production to ensure sufficient crude supplies.
Petrie said the controversy surrounding Khashoggi will put another nail in the coffin of Saudi Arabia’s plans for a public offering of a stake in Saudi Aramco.
Yet another challenge will be the result of this week’s elections and how the administration works with a Democratic-controlled House and environmentalists opposed to fossil fuel development and how that will affect the administration’s energy strategies.
Specifically to Permian Basin operators, he said excess natural gas is an issue because there is a need to move the natural gas associated with crude production from the Permian Basin to the Gulf Coast. There needs to be the infrastructure in place to turn that natural gas into liquefied natural gas for export. Without that infrastructure, he said, “you’re just moving the bottleneck.”
In terms of crude oil takeaway bottlenecks, he said new pipelines coming online in late 2019 into 2020 to move Permian crude to the Gulf Coast won’t solve the problem without the export infrastructure to efficiently put that crude on Very Large Crude Carriers bound for international markets.
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