The low oil price is expected to dramatically impact O&G activity on the UKCS. Most notably, the number of wells drilled will decrease – particularly E&A wells. In 2014, drilling campaigns were significantly smaller than forecast – only 14 exploratory wells were drilled from an anticipated 25. This is the lowest number since 1970 and with the current oil price an increase is highly unlikely. However, production is expected to be maintained over the short to mid-term, bolstered by sanctioned projects. Meantime operators are seeking to control costs – BP and Talisman have recently announced large job cuts and many high Capex developments will face delays.

Despite the downturn, the 28th licensing round (November 2014) appears to indicate continued Operator interest. DECC awarded a total of 134 licenses – fewer than the record 27th round in 2012 – but still demonstrating the ongoing attractiveness of the region. This does not mean drilling will return to higher levels: the majority of licenses were awarded on the basis of further analysis of seismic data. Overall, oil companies committed to just five firm wells and four contingent wells. Given the declining oil price and current unattractive fiscal regime, a lack of commitment from oil companies is to be expected. However, the lack of drilling activity still represents a significant concern for the UK industry and encouraging companies into drilling will require careful restructuring of both the fiscal and regulatory framework.

Chancellor George Osborne, in his Autumn Statement, announced plans to revise the fiscal regime and appoint a new regulator. However, given the steep decline in oil price, more needs to be done, particularly on taxation – indeed Lord John Browne recently suggested cutting through the tax complexity and putting it onto a corporation tax basis. However, much depends on the outcome of the general election – anything but a win for Conservatives may delay much needed reforms and suppress the UKCS O&G industry further.

Balwinder Rangi, Douglas-Westwood London
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According to the United States Geological Survey, the area above the Arctic Circle holds approximately 90 billion barrels of undiscovered, technically recoverable oil and an estimated 1,670 trillion cubic feet of technically recoverable natural gas. Nevertheless, due to it being relatively inaccessible, Arctic oil commands the highest breakeven prices, typically ranging between $70 and $120 per barrel. In light of the current low oil price environment, Arctic projects are at risk of being deferred or cancelled.

Statoil has already halted plans to drill in the Barents Sea this year and has also let several Arctic exploration licenses off Greenland expire. In addition, the company's Johan Castberg project could face delay for the third time. As announced in December 2014, Chevron has cancelled plans to drill in Canada's Arctic, and in Russia, Western sanctions have thwarted Rosneft's plans to explore Arctic waters. The Russian state-controlled oil company will not be able to continue drilling in the Kara Sea in 2015 as a result of sanctions prohibiting its cooperation with ExxonMobil; drilling may begin in 2016 at the earliest.

Though there is widespread negativity surrounding projects, there is hope for Arctic oil yet. After a two-year hiatus, Shell plans a return to Arctic oil drilling this summer, in Alaska's Chukchi Sea. The super major will however, need to win permits and overcome legal objections to do so. Shell has already spent $1 billion on preparations for the drilling work. Another company that aims to continue drilling in the Arctic is Lundin Petroleum. The Swedish independent operator will carry on exploring the Barents Sea for new fields despite current market trends and in favour of a long-term view which they believe will deliver value in the future. This year, Lundin plans to drill four exploration wells and OMV, Wintershall and Eni one each.

Hannah Lewendon, Douglas-Westwood London

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As the second largest oil producer in Africa, Angola is heavily dependent on the oil sector, making it vulnerable to oil price fluctuations. In addition, drilling costs offshore Angola are very high, and DW forecasts a resultant drop in deepwater completions in Angola in 2016. Despite this set-back, Angola's deep and ultra-deep projects are key to driving offshore production during a period of reduced spending and retrenchment. We do not expect to see projects that are past FID being cancelled and many projects have been under construction for a number of years and will start up in the coming three years. The recent start-up of Eni's West Hub and Total's CLOV projects form the basis of our positive short-term forecast: DW expects Angola to meet its 2015 target production of 2 million barrels of oil per day.

As cuts to expenditure are announced, operators like BP and Total are looking to core assets in Angola as a focal point for spending over the next three years. Importantly, Total launched the development of the Kaombo ultra-deep project in April 2014, bringing online a potential 230,000 barrels of oil per day following start-up in two years' time. Chevron, ExxonMobil and Eni also have major deepwater oil projects in Angola, collectively adding a peak capacity of nearly 1 million barrels per day. These are all due to start production before 2018. DW forecasts a dip of 2.3% in offshore oil production in 2016, before recovering to 2.2 million barrels of oil per day in 2021.

The downturn offers exploration opportunities for larger oil companies, with potential for expansion in Angola as smaller companies apply for farm-in partners and Sonangol aims to sustain investment. Eni have staked their claim, securing a three year extension for exploration work near their Angolan assets. Repsol has also displaced an exploratory vessel from the Canary Islands for a venture offshore Angola.

A focus on core assets, and even the expansion of assets in Angola has been the message from several major oil companies at the start of 2015, safeguarding Angola through a period of oil price turbulence.

Celia Hayes, Douglas-Westwood London
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www.douglas-westwood.com

Chevron Corporation (NYSE: CVX) has announced a $35 billion capital and exploratory investment program for 2015. Included in the 2015 program are $4 billion of planned expenditures by affiliates, which do not require cash outlays by Chevron. The 2015 budget is 13% lower than total investments for 2014.

"We continue to execute against a consistent set of business strategies which are focused on creating long-term value for our shareholders. Although commodity prices have fallen recently, we believe long-term market fundamentals remain attractive," said Chairman and CEO John Watson. "Our investment priorities are ensuring safe, reliable operations and progressing our queue of projects under construction. Once on-line, these new projects are expected to measurably increase our production and cash generation," he said.

"We will continue to monitor and be responsive to market conditions, and to actively pursue cost reductions throughout our supply chain in order to lower overall outlays. We anticipate growing flexibility in our spend as projects under construction are completed and as supplier contracts are renewed. We are testing our short-cycle investments, particularly base business and unconventional assets, at current prices and are selecting only the most attractive opportunities to move forward," Watson continued.

Highlights of the Capital and Exploratory Spending Program:

Chevron 2015 Planned Capital & Exploratory Expenditures in $billions
International Upstream 23.4
Total Upstream 31.6
U.S. Downstream 2.0
International Downstream 0.8
Total Downstream 2.8
Other 0.6
TOTAL (Including Chevron's Share of Expenditures by Affiliated Companies) 35.0
Expenditures by Affiliated Companies (4.0)
Cash Expenditures by Chevron Consolidated Companies 31.0

For Upstream, approximately $12 billion of planned upstream capital spending is directed at existing base producing assets, which includes shale and tight resource investments (~$3.5 billion). Roughly $14 billion is related to the construction of major capital projects already underway, primarily LNG (~$8.5 billion) and deepwater developments (~$3.5 billion). Global exploration funding accounts for approximately $3 billion.

Roughly 75 percent of affiliate expenditures are associated with investments by Tengizchevroil LLP in Kazakhstan and Chevron Phillips Chemical Company LLC (CPChem) in the United States.

NYC-based PIRA Energy Group believes current Brent crude tightness will not last. In the U.S., crude build drives another record total U.S. commercial stock level. In Japan, crude runs eased and product stocks drew. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast, February 2015
PIRA's outlook for an improving global economy is on track. Current Brent crude tightness will not last. The basic problem is that the Atlantic Basin has no outlet for its excess crude, with Middle East producers aggressively pricing in Asia to maintain market share. The surplus hit Europe first, then North America, and now all prices point supply back to Europe.

Crude Build Drives another Record Total U.S. Commercial Stock Level
The U.S. crude balance structure that has bloated crude inventories to record levels continues unabated. Domestic crude supply is now up more than 1.5 MMB/D over the last four weeks, compared to last year, while crude imports remain stubbornly high, down only 0.55 MB/D over the same period. Weekly crude runs and exports are up a combined 0.7 MMB/D, but not nearly enough to forestall stocks growing at a faster clip than last year. Total commercial stocks built this week, to a new record high. With a draw last year, the year-over-year surplus increased. With falling crude runs but imports remaining around 7.30 MMB/D, crude stocks built.

Japanese Crude Runs Easing; Crude and Product Stocks Draw
Crude runs have begun to ease from maximum seasonal levels, while imports were low and crude stocks drew. Finished product stocks also drew moderately. Gasoline demand eased, but stocks still drew slightly, while gasoil demand was strong and stocks drew for the fifth straight week. The indicative refining margin remained strong. Gasoline cracks firmed, while other major product cracks eased slightly.

European LPG Prices March Higher
European LPG prices rose last week as higher winter demand was met by limited supply, as fewer import cargoes arrived in the region and refinery supplies have dwindled. Barge lots of propane were $39/MT higher at $533 Friday, at a slight premium to naphtha. Weather related export disruptions in Algeria and more expensive naphtha prices have also been bullish catalysts.

Ethanol Production Declines
U.S. ethanol production declined sharply during the week ending February 20 to a 15-week low 947 MB/D from 964 MB/D during the previous week. Inventories built by 510 thousand barrels to a 2½-year high 21.6 million barrels.

A Look at Political Risks in a Low Oil Price Environment
Supply disruptions continued to grow in 2014, but the growth in losses nearly halved relative to recent years, and the vast oversupply in today's global oil market is muting the impact of losses. While PIRA expects slightly lower disruptions in 2015, we believe important risks to supply are lurking. As in years past, violence and political turmoil do remain a threat, but this year risks are also emanating from the low oil price environment. In this note, we look at political risks in the $50-$60/Bbl oil price environment expected this year. PIRA believes the biggest risks to supply in 2015 come from presidential elections in Nigeria; economic deterioration in Venezuela; and fiscal constraints and political tensions between Baghdad and Kurdistan.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

Despite the dramatic recent weakening in global energy markets, ongoing economic expansion in Asia – particularly in China and India – will drive continued growth in the world's demand for energy over the next 20 years. According to the new edition of the BP Energy Outlook 2035, global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4% a year.

The Outlook looks at long-term energy trends and develops projections for world energy markets over the next two decades. The new edition was launched today in London by Spencer Dale, BP's group chief economist, and Bob Dudley, group chief executive.

"After three years of high and deceptively steady oil prices, the fall of recent months is a stark reminder that the norm in energy markets is one of continuous change," said Spencer Dale. "It is important that we look through short term volatility to identify those longer term trends in supply and demand that are likely to shape the energy sector over the next 20 years and so help inform the strategic choices facing the industry and policy makers alike."

US tight oil grows
The Outlook projects that demand for oil will increase by around 0.8% each year to 2035. The rising demand comes entirely from the non-OECD countries; oil consumption within the OECD peaked in 2005 and by 2035 is expected to have fallen to levels not seen since 1986. By 2035 China is likely to have overtaken the US as the largest single consumer of oil globally.

The current weakness in the oil market, which stems in large part from strong growth in tight oil production in the US, is likely to take several years to work through. In 2014, tight oil production drove US oil output higher by 1.5 million barrels a day – the largest single-year rise in US history. But further out, the growth in tight oil is likely to slow and Middle East production will gain ground once more.

By the 2030s the US is likely to have become self-sufficient in oil, after having imported 60% of its total demand as recently as 2005.

Gas rising fast; coal slow
Demand for natural gas will grow fastest of the fossil fuels over the period to 2035, increasing by 1.9% a year, led by demand from Asia.

Half the increased demand will be met by rising conventional gas production, primarily in Russia and the Middle East, and about a half from shale gas. By 2035, North America, which currently accounts for almost all global shale gas supply, will still produce around three quarters of the total.

Coal had been the fastest growing of the fossil fuels over the past decade, driven by Chinese demand. However over the next 20 years the Outlook instead sees coal as the slowest growing fossil fuel, growing by 0.8% a year, marginally slower than oil. The change is driven by three factors: moderating and less energy-intensive growth in China; the impact of regulation and policy on the use of coal in both the US and China; and the plentiful supplies of gas helping to squeeze coal out from power generation.

LNG grows, becoming dominant in trade
As demand for gas grows, there will be increasing trade across regions and by the early 2020s Asia Pacific will overtake Europe as the largest net gas importing region. The continuing growth of shale gas will also mean that in the next few years North America will switch from being a net importer to net exporter of gas.

The overwhelming majority of the increase in traded gas will be met through increasing LNG supplies. Production of LNG will show dramatic growth over the rest of this decade, with supply growing almost 8% a year through the period to 2020. This also means that by 2035 LNG will have overtaken pipelines as the dominant form of traded gas.

Increasing LNG trade will also have other effects on markets. Over time it can be expected to lead to more connected and integrated gas markets and prices across the world. And it is also likely to provide significantly greater diversity in gas supplies to consuming regions such as Europe and China.

Energy flowing east
Energy self-sufficiency in North America - which is expected to become a net exporter of energy this year - and increasing LNG trade are also over time expected to have fundamental impacts on global energy flows.

Increased oil and gas supplies in the US and lower demand in the US and Europe due to improving energy efficiency and lower growth will combine with continuing strong economic growth in Asia to shift the energy flows increasingly from west to east.

Carbon emissions continue to grow
The Outlook also considers global CO2 emissions to 2035 based on its projections of energy markets and the most likely evolution of carbon-related policies. Its projection shows emissions rising by 1% a year to 2035, or by 25% over the period, on a trajectory significantly above the path recommended by scientists as illustrated, for example, by the IEA's "450 Scenario."

To abate carbon emissions further will require additional significant steps by policy makers beyond the steps already assumed, and the Outlook provides comparative information for possible options and their relative impacts on emissions. However, as no one option is likely to be sufficient on its own, multiple options will need to be pursued. This underlines the importance of policymaking taking steps that lead to a meaningful global price for carbon which would provide incentives for everyone to play their role in meeting the world's increasing energy needs in a sustainable manner.

Commenting on the Outlook, Bob Dudley concluded: "The energy industry works on strategies and investments with lifespans often measured in decades. This is why an authoritative view of the key trends and movements that will shape our markets over this long term is essential... and is precisely why this Outlook is so valuable."

Go to www.bp.com/energyoutlook to download the Outlook or additional country & regional insights, and view other material such as videos or an animation.

New research from DNV GL has highlighted that senior oil and gas executives are split over how to tackle the year ahead. Those who are most confident about reaching their profit targets plan to take a long-term approach to riding cost management, while those pessimistic about hitting their profit targets are more likely to take short-term cost-cutting measures.

A Balancing Act is our fifth annual benchmark study on the outlook for the industry, providing a valuable snapshot of industry confidence, priorities and concerns for the year ahead. It draws on a survey of more than 360 senior oil and gas professionals during the week of 19 January 2015, in addition to in-depth interviews with industry experts.

The report also highlights other important expectations for 2015. These include new approaches to cost control and R&D spending, and shifting trends in the industry's shortage of skilled professionals.

Download your complimentary copy of A Balancing Act:

Aberdeen head-quartered Ashtead Technology has announced a 23% rise in turnover and almost 40% increase in profits for the year ended April 2014. The subsea technology company, which specializes in the sale and rental of subsea equipment and associated services, has seen turnover increase from £22.2 million in 2013 to £27.4 million.

In the 12 months to April 2014, the company made its biggest ever annual investment in rental equipment with capital expenditure in the year rising from £9million in 2013 to over £10million, underpinning the goal of supplying customers with the latest technology from a market leading equipment rental fleet.

Operating profits increased by almost 40% to £13.6milion from £9.7million in 2013.

The company now employs 95 people in Aberdeen, London, Houston and Singapore with agents in Abu Dhabi, Perth (Australia) and Stavanger.

Commenting on the results Allan Pirie, chief executive officer of Ashtead Technology said: "These results reflect our achievements in retaining customers and attracting new business whilst positioning the company for continued sustainable growth across all our global bases.

"Considerable capital investment in our rental fleet, coupled with investment in our people and processes, has underpinned revenue and profit growth.

"Recognizing that our customers demand more than a quality equipment rental service, the development of our increased range of added-value services has enabled us to meet and exceed expectation and we are confident of building on these results as we continue to secure new business, particularly through the increasing demand for integrated equipment package support."

Ashtead Technology's service based growth strategy has recently resulted in the launch of the Ashtead Academy offering customers a range of training and a move into equipment sales reinforced by securing sales representation agreements with leading manufacturers such as Seabotix and ECA.

A globally recognized market leader in the rental of specialist subsea technology, Ashtead is committed to further improving and growing its range of value-added services which now include the supply of offshore personnel, equipment sales, asset management, calibration, custom engineering and training.

These accounts are for Amazon Group, trading as Ashtead Technology, which encompasses all global operations and the results from Ashtead Technology Limited which comprises the UK, Norway and Middle-east only.

Cal Dive International, Inc. (OTC: CDVI) ("Cal Dive", or the "Company") announced today that it and its U.S. subsidiaries have filed simultaneous voluntary petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. The Company's foreign subsidiaries have not sought bankruptcy protection and will continue to operate outside of any reorganization proceedings. The Company and its U.S. subsidiaries will continue to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court.

Through the Chapter 11 process, the Company will sell non-core assets and intends to reorganize or sell as a going concern its core subsea contracting business. During the reorganization process, the Company and its subsidiaries will continue to operate in the ordinary course, including completing the existing construction projects in Mexico for Pemex, and other ongoing diving and offshore construction projects for its customers worldwide. The Company anticipates no disruption in its services and its focus remains on delivering excellent project execution and safety performance for its customers.

The Company has received a commitment for up to $120.0 million in debtor-in-possession (DIP) financing from its current first lien lenders led by Bank of America, which will immediately provide additional liquidity to continue its operations during the Chapter 11 process. The DIP financing, which is subject to Court approval, will provide adequate funds for post-petition supplier and employee obligations, as well as the Company's ongoing operations needs during the Chapter 11 process.

Commenting on the filing, Cal Dive's Chairman, President and Chief Executive Officer, Quinn Hébert, stated, "Our business has experienced several adverse events that were beyond our control, and with our current capital structure, we are no longer able to financially withstand the industry downturn. In 2014, our financial performance suffered primarily as a result of delays caused by the suspension of two large projects, weather disruptions and delays caused by other contractors. Because these contracts contain milestone billing provisions, these delays and suspensions impeded our ability to invoice and collect payment for work performed, significantly impairing our liquidity which had already been reduced by declining industry conditions over the past several years. Our efforts to negotiate additional financing to fund business activities and pursue identified strategic alternatives were further impeded when oil prices plummeted, creating an additional, unexpected obstacle to our restructuring efforts. After considering several alternatives, we felt the Chapter 11 process was the most effective way to maximize value for our stakeholders."

Mr. Hébert continued, "We are committed to meeting the challenges of our industry head on. By availing ourselves of the Chapter 11 process, we can achieve an orderly restructuring for our business that has consistently produced competitive results under a more favorable capital structure."

More information on the Company's Chapter 11 process, including access to Court documents and other general information about the Chapter 11 cases, is available at www.caldive

2014 saw the submarine fiber optics market surge to its highest demand for new cable since 2007 and the second highest since the early years of the 21st Century, before the market collapsed in late 2001.

This is the conclusion of the 2015 edition of TSC's Radar Screen Report (RSR), which analyzes the demand for submarine fiber optic cable based on new contract awards.

For the previous five years, the Radar Screen Report identified steady demand, rather than the traditional boom and bust pattern that had been a staple of the market since its inception. This steady-growth period was caused by various pressures pushing the market up, while similarly strong pressures pushed it down, keeping it to a steady middle ground. The result was an annual demand between 40,000 and 50,000 route-kilometers between the years 2009 and 2013 – far from a complete bust but not high enough for the industry to thrive.

Last year's Radar Screen Report noted slight changes in the landscape, particularly in the availability of financing, and correctly forecast the probability of breaking out from this steady-as-she-goes pattern to reach the highest levels of demand since the last boom in 2007-2008. The surge was even greater than forecast, with demand in 2014 approximately 100% higher than the average full-year totals during the previous five years.

RSR projections indicate the market is not likely to maintain this same momentum in 2015 as the surge took several large-scale systems out of the development pipeline. But the shifting dynamics and still-sizable number of cable projects in the pipeline are positive indications that the market is healthy, and in the near term will maintain the potential to thrive.

NYC-based PIRA Energy Group reports that the midcontinent crude stock build continued. In the U.S., this past week saw the largest stock build of the year. In Japan, crude stocks drew sharply. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

Midcontinent Crude Stock Build Continues
The crude price plunge continued in January, with WTI falling to an average of $47.20. U.S. crude stocks rose 30 million barrels in January — 10 million in Cushing, 10 million on the Gulf Coast, and the rest mainly divided between the West Coast and other (non-Cushing) PADD II. The large crude builds will continue in February and likely into March and April, as well. As Gulf Coast tanks fill, and Cushing stocks reach 80-90 percent of operating capacity, stock builds will be pushed further upstream — to West Texas, Patoka, the Rockies and Western Canada.

U.S. Largest Build of the Year
This past week U.S. commercial oil inventories increased, driving the year-on-year stock surplus. The huge build was roughly equally divided between crude and products. Since the first week of the year, overall U.S. inventories are up 27 million barrels; product stocks are down 4 million barrels while crude oil inventories are up 31 million barrels (1.1 MMB/D). Some 55 million barrels of the year-on-year surplus is in crude oil. The bulk of the product surplus is in "other" products, but distillate inventories are now 21 million barrels (18%) over last year while gasoline is just 6 million barrels higher (0.4%).

Sharp Crude Stock Draw in Japan; Finished Products Slightly Lower
Crude runs eased fractionally on the week and crude imports dropped sharply producing a crude stock draw of 5.8 MMBbls. Finished product stocks were modestly lower. Indicative refining margins remain strong, while the expected rotation out of middle distillate cracks and into gasoline appears to be slowly taking shape.

The End of the "Saudi Put"?
The "Greenspan Put" referred to a market belief that the U.S. Federal Reserve would take action to put a floor on equity prices, thereby taking away downside risk and encouraging over-investment. In a sense, there has been a similar market belief in a "Saudi Put," which would take away downside oil price risk. With that "put" at least temporarily eliminated, the risk premium applied to oil investments is likely to be higher in the future, even as prices recover, potentially slowing the volume recovery from high capital cost projects.

Freight Market Outlook
Saudi Arabia continues to supply more crude oil than the market needs, and it is pricing aggressively, especially to Asia, to defend its market share while Iraqi production continues to grow as its government desperately seeks more revenue. For tanker operators this translates into more tanker demand for floating storage in the short term and from higher OPEC output and global crude trade as non-OPEC producers slash their capital expenses to adjust to the new low price environment.

Spot European Olefin Margins Plunge
Cracking economics in Europe plunged for all major feedstocks as their prices rallied amidst stable steam cracker product prices. Spot propane margins fell nearly 20% to 25¢/lb ethylene, but became the most profitable feedstock. Butane margins swooned 25% week-on-week to just 23¢ while naphtha cracking margins fell a remarkable 35% to just 18¢/gal. Persistent strength in naphtha has pulled regional LPG prices higher. This week's changes place spot European olefin manufacturing economics some distance behind those in Asia and North America.

U.S. Fuel Ethanol Exports Grow Sharply
The U.S. shipped over 810 million gallons of fuel ethanol in 2014, up 34% from 603 million gallons in 2013 and second only to 1.2 billion in 2011. This represented 5.7% of total U.S. supply.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

With oil prices having fallen more than 50% in less than six months, the OPEC group's reluctance to cut production in order to stabilize prices reflects the threat being posed by production rises from non-OPEC countries, according to research and consulting firm GlobalData.

Matthew Jurecky, GlobalData's Head of Oil & Gas Research and Consulting, states that over 70% of the 12.7 million barrels of oil per day (mmbd) incremental production between 2008 and 2013 came from non-OPEC countries, led by the US, Russia and China.

However, the fall in prices is now slowing production growth among the least efficient producers with the highest development costs, while the market dominance of the most efficient producers with the lowest development costs, predominantly OPEC members, is being reinstated.

Jurecky comments: "Any production cut from OPEC would be motivated by politics rather than economic conditions and would mean voluntarily ceding further market share to less efficient producers.

"While OPEC countries make up only four of the 17 countries that have seen the most dramatic production declines, they represent over 30% of the overall production fall. OPEC is facing diminishing influence on the overall crude space and encountering new competitors, including some former customers, in previously secure markets."

The US, for example, encouraged by its rapid production growth and lucrative international market, is on course to reverse an oil export ban dating back to 1975, which effectively protected OPEC's markets. Similarly, while Africa used to be the source of over 2 mmbd of crude imports into the US, it now exports only 150,000 barrels per day to the country, with the rest going to Asia.

Jurecky continues: "There are game-changers ready to fuel the next wave of reserve additions and production growth, but in terms of low oil prices, exploration activity will cool. The tight oil floodgates that were opened in the US will be contained internationally for the time being, while ultra-deepwater and harsh environment exploration will be delayed.

"However, other world-class opportunities will be dictated by political interests. For example, inviting greater foreign participation in Mexico's oil industry will further challenge the status quo of export markets, as there remains significant easy oil opportunity in this country, even with low crude prices."

Comments provided by Matthew Jurecky, GlobalData’s Head of Oil & Gas Research and Consulting.

NYC-based PIRA Energy Group believes resource control policies remained in a holding pattern in 2014, despite the collapse in oil prices in the second half of the year. In the U.S., commercial stocks decline slightly. In Japan, crude runs stay high, crude stocks build, and products drew. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

Lower Oil Prices Do Not Yet Affect Resource Control Policies
Resource control policies remained in a holding pattern in 2014, despite the collapse in oil prices in the second half of the year. Some marginal easing of contract terms did materialize in countries including Argentina, China, and the UK, but the majority of oil-producing countries maintained their existing policies toward foreign and private investment. Moreover, history suggests it would take a few more years of depressed prices to trigger a widespread move to ease contract terms and accommodate foreign investment.

Overall U.S. Commercial Stocks Slightly Decline
Last week's large crude stock increase was met for the first time this year with an even larger product stock decline, causing overall inventories to fall, for the first stock decline in 2015, albeit modest. Stocks fell a little bit more last year for the same week, pushing the year on year inventory surplus up. Crude oil accounts for 63 million barrels, or 45%, of the year on year surplus.

Japanese Crude Runs Stay High, Crude Stocks Build, Products Draw
Crude runs rose again and reached their highest level since mid-March of last year. Crude imports remained strong and crude stocks built. Finished product stocks drew with moderate draws for naphtha and kerosene, and lesser draws on the other major products. The indicative refining margin remained strong, with all the major product cracks firming.

Mont Belvieu NGLs Outperform
Strong heating demand drove a major draw in domestic propane stocks and was enough to keep propane prices unchanged on the week, despite a 5.5% decrease in crude prices. Butane prices gave up 1.6% as the end of blending season nears, while natural gasoline fell 1% week-on-week. Ethane was carried higher with natural gas, increasing 1.2¢ to 18.9¢/gal.

Ethanol Prices Rise
U.S. ethanol prices advanced the week ending February 13. Economics held relatively steady for the second straight week, with margins for PIRA's model plant based on Chicago values improving slightly, while those for PIRA's Iowa plant worsening a little.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

NYC-based PIRA Energy Group believes that Saudi Arabian production is likely increasing. In the U.S., another record U.S. crude and total commercial stock level reported. In Japan, crude runs near seasonal maximums and product demands are better. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

Saudi Arabian Production Is Likely Increasing
In discussions with Saudi customers and after reviewing recent U.S. refiner earnings calls, it is becoming clear that production from Saudi Arabia is rising. Saudi production had been averaging around 9.7 MMB/D since last June but PIRA would now guess likely additional demand has pushed output to just under, if not above, 10 MMB/D.

Another Record U.S. Crude & Total Commercial Stock Level Reported
The equation driving the U.S. crude balance is as simple as it is powerful: the 1.4 MMB/D year-on-year increase in domestic crude supply has only been met by a 0.3 MMB/D decline in imports, and the combined increase in crude runs plus exports is not nearly enough to prevent large stock builds in crude from continuing, especially this year versus last. Total commercial stocks built last week to a new record high. However, with a similar build last year, the year-over-year surplus inched up only about 0.1 million barrels.

Japan Crude Runs Near Seasonal Maximums, Product Demands Better
Crude runs rose fractionally, but crude imports rebounded and stocks built. Finished product stocks drew with a pickup in gasoil, gasoline, and kerosene demands. The indicative refining margin remained strong.

U.S. NGLs Stronger Last Week
A large decline in U.S. propane stocks propelled April Mont Belvieu futures over 8% higher to just under 60¢/gal, the highest price for C3 since December 4th. Propane's price relative to WTI rallied to over 45%, the strongest yet this year. April butane was 6% stronger week-on-week despite a disappointing decline in other NGLs stocks as reported by the DOE on Wednesday.

Ethanol Output Increases
U.S. ethanol production rebounded to 961 MB/D the week ending February 6, regaining around half of the sharp loss that occurred in the previous week. The production of ethanol-blended gasoline fell sharply.

Asia-Pacific Oil Market Forecast
Crude stock builds continue at a reduced pace and will give way to product stock builds. Global demand growth, year-on-year, is beginning to look better. The macroeconomic environment in Asia shows no large-scale deterioration in performance that would put our 5.3% Asian GDP growth assumption for 2015 at risk.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

As China's onshore oilfields mature, its three state-owned oil companies (CNOOC, CNPC and Sinopec) are looking to develop the country's sizeable unconventional and deepwater reserves. Whilst more technically challenging to develop than historical oil & gas plays in northern China, these fields provide a chance to revive stagnant oil output as well as boost China's considerable gas potential. China holds the largest combined shale oil and gas reserves in the world, weighing in at 244 billion barrels of oil equivalent (EIA, 2013). In addition, 2014 saw the $6.5 billion deepwater Liwan-3 natural gas field, located in the South China Sea, brought online. This was China's first deepwater development and signals the start of a series of deepwater oil and gas projects over the coming years.

While these signs will be encouraging for China's NOCs, it is likely greater measures will be required to secure China's long term domestic hydrocarbon production. For both deepwater and shale plays, the expertise of IOCs will be crucial for effective development. Saudi Aramco has recognised this in recent years and has signed deals with several IOCs to explore and develop shale resources in southern Saudi Arabia. With respect to Capex-intensive deepwater projects, the financial clout of IOCs has been utilised by various West African NOCs. A major barrier to IOC involvement in China exists in the form of the current production sharing contract (PSC) structure. Currently PSCs in China are particularly demanding on participating foreign oil companies, with the non-state share of produced hydrocarbons subject to a series of reductions and taxes. These include the recovery of the NOC's exploration and development costs as well as corporation tax and special oil levy. The special oil levy varies with the price of oil, with 20% taken when spot prices are in the $55-$60 range and increasing to 40% when prices are above $75. At the time of writing, the Brent crude benchmark stands at $58.52, suggesting sustained low oil prices in 2015 and beyond could represent an opportunity for IOCs and independents to invest in Chinese assets whilst the special oil levy is at its lowest.

Matt Cook, Douglas-Westwood London
+44 1795 594735 or This email address is being protected from spambots. You need JavaScript enabled to view it.
www.douglas-westwood.com

NYC-based PIRA Energy Group believes that low oil prices and cheap money will lead to stronger global economic growth and much stronger oil demand. In the U.S., the stock surplus widened again. In Japan, crude runs rose fractionally on the week and crude imports rose to produce a crude stock build. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast
Low oil prices and cheap money will lead to stronger global economic growth and much stronger oil demand than conventional wisdom would suggest. Nevertheless, for the next six months, oil supply will continue to overwhelm demand, in part because of rapid growth in Iraqi production as its government desperately seeks more revenue. Already wide contango will further widen as crude oil stocks in the three major OECD markets fill to the brim and floating stocks keep on increasing.

U.S. Stock Surplus Widens Again
Compared to last year, U.S. commercial oil inventories are now 125 million barrels, or 12%, higher, as this past week's inventory increase contrasted with last year's decrease for the same week. Crude stocks increased strongly this past week while products drew. So far in January the overall inventory increase has been the largest since 2009.

Japan Crude Runs Near Seasonal Maximums, Product Demands Slightly Better
Crude runs rose fractionally on the week and crude imports rose to produce a crude stock build. Finished product stocks fell with a strong draw on kerosene and lesser draws for gasoil and gasoline. Indicative refining margins remain strong.

Limited Oil Consumption Gains in Northeast Power Sector Despite Low Oil Prices
Despite colder-than-normal January weather, the Northeast of the United States is not seeing much in the way of substitution of oil for natural gas. In fact, oil consumption will be substantially below year-ago levels despite roughly comparable weather.

Can Global Oil Demand Really Grow 1.5 MMB/D in 2015?
PIRA's outlook for global oil demand growth in 2015 may seem quite bullish when compared with the actual growth of 0.7 MMB/D in 2014, but several factors make our forecast very reasonable, with potential upside. Moderately faster world GDP growth should push up demand growth by 130 MB/D, and the 50% decline in prices should add an additional 780 MB/D of demand growth, even using relatively modest price elasticity assumptions and accounting for the significant strengthening of the U.S. dollar.

Expiration of March WTI Contract of Increasing Importance
The expiration of the March WTI crude oil contract, along with the rolling of various commodity indices and ETFs, has the making of an interesting period of price dynamics over the next several weeks, because of the huge open interest in the contract. The March WTI contract will last trade February 20th, with various commodity indices and ETFs undergoing contract roll schedules in the first part of February (fifth to the 10th business day, or Feb. 6th-11th). This could contribute to a decline in flat price, given that the balance of power would seem to be in favor of the shorts because of the mechanical and widely known nature of the ETF and passive index rolls.

Floating Storage Expected to Play Key Role in Crude Containment
Over the next several months, the cost of storage and, in turn, the magnitude of the market contango will be a crucial factor in determining how low the spot price must go. With less expensive onshore storage expected to fill, floating storage is likely to be the market balancing step. The marginal costs of storing crude on VLCCs and Suezmax tonnage are expected to be the critical factors in setting the level of contango in the crude market. So key questions for the oil and tanker sectors are how much tonnage is available for placement into offshore storage and what will it cost?

European LPG Rises with Stronger Naphtha
Regional naphtha rallied to the highest levels of the year as high cracker runs, increased gasoline blending, and arbitrage cargoes to Asia have pulled NWE stocks down significantly. Cash butane barge lots rallied 16% to $398/MT on stronger naphtha and as Shell's Pernis refinery restarted an alkylation unit, which has helped clean up C4 length in the region. Large propane cargoes followed suit, gaining 4% last week.

U.S. Ethanol Prices Decline to Lowest Values in Almost a Decade
During the first half of January prices fell to the lowest level in almost 10 years, inventories built, and margins fell to the worst level in two years. Economics improved during the last half of the month.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.