Energy markets balance — eventually. In the midst of the turmoil we’ve experienced this year, there have been periods when it seemed like markets were going to hit the wall. But even with the historic WTI oil price glitch on April 20, the physical crude oil markets continued to function. That’s the way it is supposed to work, and it’s good news. The bad news is that figuring out how these markets are balancing in these volatile conditions can be challenging if not downright perplexing. Nowhere is that more true than the market for U.S. propane. Production is down, but so is demand. Inventories are up, and so are prices. Propane continues to be exported, even though global demand has been whacked by COVID. In today’s blog, we explore these developments and put the spotlight on RBN’s NGL Voyager, our subscriber report and data service that we have just reformatted, upgraded and generally reconstructed to meet the information needs of today’s NGL marketplace.
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Daily energy Posts
Natural gas prices in the U.S. were under pressure for many years, long before the COVID crisis gripped the world and threw energy markets into flux. Shale gas production, from both crude- and gas-focused basins, has driven U.S. output to incredible levels over the last 10 years. That growth has led to persistently low U.S. gas prices across the Lower 48, with the benchmark Henry Hub being no exception. The upshot of low gas prices has been steadily increasing demand, both in the domestic market and for exports of liquefied natural gas (LNG) to various markets around the globe. Until recently, those international markets had often been viewed as an insatiable demand sink, but reality has set in over the past year. Prices in Europe, one of the most popular destinations for U.S. LNG, have crashed below Henry Hub, and are threatening the once-steady flow of LNG. Market participants in the U.S. and Europe now find themselves poring over the fundamental details of both markets to determine how long the price weakness will last, or if it will only get worse from here. Today, we look at the increasingly interconnected gas markets on both sides of the Atlantic.
Do not try and refine the Brent; that's impossible. Instead, only try to realize the truth...there is no Brent. Then you will see it is not the Brent that gets refined; it is only yourself. For those who are not fans of The Matrix, that sentence may seem a little cryptic, but it makes a point that is little understood outside the rarified world of crude oil trading. The production of North Sea Brent crude oil is down to less than a couple of hundred barrels per day. Soon it will be gone altogether. But 70% of all crude oil in the world is tied either directly or indirectly to the price of Brent. How is that possible? Well, it’s because Brent is no longer simply a grade of crude oil. Over the past two decades, it has evolved into an intricate, multi-layered matrix of trading instruments, pricing benchmarks and standard contracts that is a world unto itself. A world with a huge impact across almost everything in today’s energy markets. Unfortunately, no one can be told what Brent is. You have to see it for yourself. So that’s where we’ll go in this blog series. Warning: To read on is like taking the red pill.
U.S. Northeast natural gas producers may be on the other side of a years-long battle with perpetual pipeline constraints and oversupply conditions. But they’re now facing new challenges to supply growth, at least in the near-term, from low crude oil and gas prices and the decline of a major downstream consumer of Appalachian gas supplies: LNG exports along the Gulf Coast. Most of the U.S. well shut-ins since the recent oil price collapse are concentrated in oil-focused shale plays, and gas volumes associated with those wells will be the hardest hit. However, a number of gas-focused Marcellus/Utica producers also have announced or escalated supply curtailments in recent weeks, as they wait for associated gas declines to buoy prices enough to support drilling. The pullback has had immediate effects on the region’s production volumes and supply-demand balance. Today, we provide an update on the latest Appalachia gas supply trends using daily gas pipeline flow data.
Canada’s energy sector has been hit hard by the recent oil price collapse that was initially set off by the now-ended Saudi Arabia-Russia price war and made much worse by the demand-destroying effects of the global COVID-19 pandemic lockdowns. The impacts on Canada’s crude oil and natural gas sectors have been both dramatic and nuanced. For example, oil supply cutbacks have been rapid and substantial, while there has been virtually zero impact on natural gas supplies. Oil demand has been similarly affected, with refined product demand seeing a large swoon, while natural gas demand has suffered only a modest pullback. And for Canada’s energy exports, these have experienced some jolting swings in a matter of weeks, putting the whole sector under pressure to adapt where possible. Today, we highlight some of the recent market disruptions and their implications.
Through the second half of the 2010s, the Permian Basin’s crude oil supply trajectory was clear: up, up and up. From the start of 2015 to the end of last year, crude production in the world’s leading shale play increased by an amazing 3 MMb/d, from 1.7 MMb/d to 4.7 MMb/d. Three new pipelines with a combined capacity of more than 2 MMb/d were built to move a lot of those incremental barrels to Corpus Christi, which — thanks in part to newly developed storage and docks — has become the U.S.’s #1 port for crude exports in recent months. But Permian producers have trimmed their crude output by at least several hundred thousand barrels a day this spring in response to falling demand and low prices. Has the Permian been thrown off course, and if it has, what would that mean for marine terminals in Corpus? Today, we continue our series of Gulf Coast crude export facilities with a look at the three newest terminals along the Corpus Christi Ship Channel.
Progress for the second wave of U.S. LNG export projects, which already had begun slowing in the latter half of 2019, has come to a near standstill this year, with several developers delaying final investment decisions (FIDs). The economics for U.S. LNG exports have evaporated in recent weeks, and for the first time in the four years or so since the Lower 48 began exporting LNG, cargo cancellations have become a regular part of the U.S. gas market’s vernacular. International prices are signaling that oversupply conditions will linger for a while, likely well after COVID’s impacts on demand ease. Nevertheless, projects that are already under construction are pushing forward, including the last of the first-wave expansions and two facilities from the second wave of proposed projects. There’s also one more second-wave development that could take FID this year. Today, we provide highlights from RBN’s latest LNG Voyager Quarterly report.
Crude oil markets have been anything but dull lately. After imploding to unimaginable, negative values last month, prices have been on a tear since and are now sitting in the low $30s/bbl range. That’s not great for producers, but kind of like social distancing flattens the curve, the current price level should keep production volumes in check and stave off the worst of the potential financial distress for most Permian producers, for now. So, what has been driving the price rise? Similar to the pauses in economic and social activity that many cities have taken lately, many Permian producers have recently decided to take a wait-and-see approach on crude prices and throttle back output. Today, we provide an update on the always-dynamic Permian Basin crude oil market and how producer curtailments have materialized in May.
COVID-19 has created a number of challenges across the energy value chain, including lower demand for motor gasoline and jet fuel and, subsequently, surplus crude oil. However, even with diminished demand, the facilities that produce and process these fuels have to keep operating at some level, as do petrochemical plants. Workers in the energy industry are considered essential due to the importance of having fuel available to power vehicles and manufacturing facilities, natural gas to enable continued operation of power industries, and logistical infrastructure to ensure that feedstock supply can make it to processing facilities and eventually consumers. Given the need for round-the-clock operations, COVID-related social distancing measures have presented a unique challenge for refinery and petrochemical facilities. To maintain adequate staffing while protecting personnel from the coronavirus, these facilities have been making major adjustments. If, as we all hope, things begin moving back toward “normal” in the coming months and refinery and petchem utilization ramps up, these efforts to keep workers safe will only gain in significance. Today, we discuss staffing issues in these key industry sectors during the pandemic.
The Marcellus/Utica production region in the northeastern U.S. is not immune to the upheaval in global energy markets. There, a number of E&Ps are implementing further cutbacks in their natural gas production. That will result in lower NGL production, which may have serious implications for regional supplies of propane for heating this coming winter. LPG exports out of the Marcus Hook terminal near Philadelphia also may be impacted. Today, we look at recent developments in the Marcellus/Utica and the potential effects of lower NGL production in the region.
Very Large Crude Carriers offer economies of scale and are the oil transporters of choice for shippers moving massive volumes of crude from the U.S. Gulf Coast to distant customers in Europe and Asia. VLCCs also can serve as cost-effective floating storage — in the current contango market, a growing number of these 2-MMbbl behemoths are being used to stockpile crude until its value increases in the coming months. VLCCs can be loaded to the gills through reverse lightering at a number of deepwater points off the coast of Texas, but only one facility, the Louisiana Offshore Oil Port, can fill the supertankers to the brim at the port itself. LOOP also can receive fully loaded VLCCs, of course, and another ace up its sleeve is its 72 MMbbl of cavern and tank storage a few miles inland at Clovelly, LA. Today, we continue our series on Gulf Coast export facilities with a look at LOOP.
Cancellations of U.S. LNG cargoes are starting to take a toll on Lower-48 natural gas demand. Feedgas flows to U.S. terminals last week fell to as low as 5.76 Bcf/d, down from the daily peaks above 9 Bcf/d seen as recently as April and the lowest since October 2019. While some of the slowdown may be attributable to domestic outages or maintenance on feeder pipes — or short-lived marine channel weather conditions — the bulk of it is a precursor to the first big round of cancellations by offtakers for June delivery. This, as COVID-related demand destruction and the resulting supply glut in the past month have collapsed what already were weak economics for exporting U.S. LNG to Europe and Asia, wiping out offtakers’ margins for delivery into those markets. Nevertheless, many cargoes will continue to move. What drives offtakers’ decision of whether to lift or cancel cargoes? Today, we wrap up a short series looking at the market and logistical dynamics forcing cancellations, as well as some of the mitigating factors that could prop up cargo liftings more than you’d expect in the current environment.
Back in late March and early April, U.S. refineries responded to the sudden falloff in demand for jet fuel and motor gasoline by quickly ramping down their operations. Similarly, E&Ps in recent weeks have reacted to sharply lower demand for crude oil by slowing — or even suspending — their drilling activity and shutting in wells. Midstream companies’ actions have generally been more muted, though. While many midstreamers have ratcheted back their planned 2020 capital spending plans, the bulk of their major crude oil, natural gas and NGL projects already under construction are staying on-plan. Most of the rest are only being delayed by a few months, and a handful are either being reworked or deferred indefinitely. Today, we consider the midstream sector’s seemingly modest response to the crashes in crude oil prices and demand.
U.S. refinery demand for crude oil is off sharply due to COVID-related impacts on automobile and jet travel, and crude production is being slashed. Crude storage is filling up fast, both on land and on tankers at sea, and may be maxed out by June. That leaves imports and exports as the market-balancing agents, at least until demand for motor gasoline and jet fuel starts to rebound. And with significant volumes of imported heavy and medium crudes still needed by complex refineries, exports are likely to rise from their current, near-record levels this spring and summer. Longer term, though, we expect export volumes to decline, setting up a battle for barrels among export terminals. Today, we continue our series on Gulf Coast crude export terminals with a look at the three facilities in the Beaumont/Nederland area.
The collapse in crude oil prices that resulted from the Saudi-Russian price war in March — made only worse by the oil demand-depressing effects of COVID-19-related shelter-in-place orders — has begun to exact a toll on U.S. crude supplies. The Bakken, America’s #3 oil-producing basin, is a prime example of how quickly the price downturn has begun to negatively affect oil supplies as uneconomic wells there have been shut in and oil-focused drilling has ground to a near standstill. The spillover effects on the Bakken’s associated gas supplies have been just as dramatic with a sharp reduction seen since April as oil well shut-ins began to accelerate. The decline in these natural gas and NGL supplies to date provides a stark example of how quickly gas balances may be shifting in the region and may also be creating an opening for long-suffering Canadian gas exports. In today’s blog, we take a closer look at how Bakken oil supply declines are beginning to impact its gas supplies.
Global natural gas demand disruptions and high storage levels resulting from the COVID crisis have turned international LNG markets upside down. Price spreads for U.S. LNG exports, which were well above $1/MMBtu two months ago, have disappeared and even flipped to negative, with the UK NBP and Dutch TTF price benchmarks — and briefly also Asia’s JKM index — trading below the U.S. benchmark Henry Hub for the first time since the U.S. began exporting LNG in early 2016. Despite the uneconomic price spreads, U.S. cargo liftings have slowed only modestly so far. That’s likely to change in the coming months as both Cheniere Energy and Sempra have confirmed cancellations or modifications to lifting schedules by some offtakers, and other terminal operators are likely facing the same pressure. However, many U.S. cargoes will still move, regardless of prices. What are the economics of cancelling versus lifting a seemingly out-of-the-money cargo? Today, we begin a short series examining the factors affecting U.S. LNG cargo liftings.