Projected growth in U.S. methanol production was based in large part on the expectation that domestic natural gas prices would remain significantly lower (on a per-MMBtu basis) than the price of crude oil, and that Asian demand for U.S.-sourced methanol would continue rising at a fast clip. Today both of those assumptions look dicey. Natural gas prices remain low, but crude prices have languished below $50/Bbl for most of the past two months, and there are worries that China (by far the world’s largest methanol consumer) may be an economic bubble about to burst. Today, we consider recent developments that could slow the long-anticipated growth in natural gas use by U.S. methanol producers.
Daily energy Posts
Even as Houston area crude oil storage – at refineries and commercial terminals – remains just half utilized according to data from Genscape, midstream operators are busy building more tanks. About 7 MMBbl of storage is under construction now and plans have been announced this year to build another 11 MMBbl. Today we detail plans to expand crude storage in the Houston area.
Over the past two years, propane production has grown like crazy, and in several past blogs we’ve discussed the impact of those increased supplies on exports. That has been a very big deal for propane markets. But an equally significant development is the location of that production growth. Because much of the new propane supply is right next door to the two largest propane markets in the U.S. – the Northeast and the Midwest. Considering what happened to the propane market during the Polar Vortex winter of 2013-14 (shortages and price spikes), the importance of production growth near to demand cannot be overstated. It is very good news, both for the market in general and propane consumers in particular. Today we start a new series examining what has happened to propane supply and what it means to propane markets.
For the past several months shippers in Midland, TX – in the middle of the prolific Permian Basin - have been paying premiums up to $2/Bbl over the benchmark Cushing, OK trading hub price for West Texas Intermediate (WTI) crude. That means shipping WTI from Midland to Cushing is a money losing proposition. Historically Cushing WTI has traded at a premium to Midland – usually at least covering the ~$1/Bbl pipeline tariff. Today we explain how traditional price dynamics have been turned upside down.
The U.S. natural gas market has been dogged all summer by uncertainty on both sides of the supply-demand equation and a looming threat of storage constraints and supply congestion by the end of the gas storage injection season. But production volumes have flattened and demand has responded at record levels taking some of the edge off the bearish sentiment. Cash and futures prices at U.S. benchmark Henry Hub in Louisiana have traded in a remarkably tight 60-cent range all summer and averaged $2.75/MMBtu season to date, indicating the market has found an equilibrium. However with just two months of the natural gas summer season left and the hottest, highest-demand months behind us, the price stalemate may come under pressure, with more downside risk in the near-term. In today’s blog, we revisit where the supply-demand balance stands and what it tells us about where the gas market is headed in the near term.
Mexico has become an important market for U.S. natural gas exports, and it is now opening up as a market for U.S.-sourced crude oil exchanges. There’s also potential for more exports of liquefied petroleum gas, particularly now that national oil company Pemex’s monopoly as LPG-import middleman is about to end and Mexico is planning to deregulate retail LPG prices. Today we continue our analysis of Mexico’s LPG market with a look at how the vast majority of U.S. propane and butane is transported to Mexican consumers.
Close analysis of Houston area crude storage indicates it is only 52% utilized today even as regional crude inventories have reached record levels. Meeting refinery operational needs appears to be the main use of area storage – rather than speculative gains from buying today’s cheap oil to store and sell later. Today we continue our analysis of Houston area refinery infrastructure.
There are only three more days to take advantage of the Early Bird Rate for RBN’s next School of Energy, and there are three more reasons to attend! We have finalized the agenda for the first day we are calling Pre-School International Energy Day, with three additional experts joining us to discuss international destination markets for U.S. crude oil, gas, and NGLs, including the regulatory issues involved and the latest developments concerning Federal approval of full-blown crude oil exports. The full three day School of Energy is scheduled for September 28, 29 and 30. As we’ve said many times before, this is nothing like other conferences! The course work is hands-on. In each module we’ll drill down on an important aspect of the market, explain how it works, download a spreadsheet model and learn how to use it. Be forewarned - today’s blog is a commercial for our upcoming Houston conference.
Fast-rising propane production in the Marcellus and Utica shale plays, the reversal and repurposing of the Cochin Pipeline and other factors have exposed gaps in the midstream infrastructure that shuttles and stores large volumes of propane within the U.S. Perhaps one of the most obvious of those gaps is the inability to pipe propane from Ohio/West Virginia/southwestern Pennsylvania to big propane consumption areas in the nation’s heartland. Enterprise Products Partners has been working on a fix—a relatively short pipeline across northern Illinois that it seems would add a lot of flexibility per mile.Today, we consider Enterprise’s planned propane takeaway project and how it might affect the propane market.
As natural gas production growth in the U.S. has shifted from the Gulf Coast region to the Northeast’s Marcellus and Utica shale, some have suggested that time may have passed by Louisiana’s Henry Hub as the national benchmark for all U.S. gas prices, and have questioned whether it can maintain its position as the third largest physical commodity futures contract in the world. Should Henry be replaced by some pricing point in Appalachia? Is Henry really in trouble? In today’s blog, we continue our series looking at what makes Henry Hub tick with a closer look at the implications of changing physical and futures volumes at the hub.
With crude oil prices just over $40/bbl you might think producers would be reducing capex and cutting their 2015 production estimates. But not so. RBN’s analysis of second quarter guidance in 2015 indicates that 31 E&Ps as a group kept their capex outlook at about the same level as they indicated in Q1. And as a group they still expect oil and gas production in 2015 to increase versus last year. But there were significant differences between the peer groups we examined. The Small/Mid-Size Oil-Weighted E&Ps upped 2015 investment by $730 million versus Q1 and now expect 2015 production to be up 16% over last year versus the 13% increase expected last quarter. The Large Oil-Weighted E&Ps slashed capex by another $630 million, yet production is still expected to rise, in this case by 4% versus a 3% growth expectation last quarter. In contrast, capital spending and production guidance were little changed among the gas-weighted peer groups. Today we provide an update to our Q1 analysis of capital spending and production trends.
Pipelines delivering crude to Houston from the South Texas Eagle Ford are estimated to be half empty. Yet over 200Mb/d of crude is shipped from that basin to refineries in Houston and further east along the Gulf Coast by barge. One of the key reasons appears to be that local traffic congestion and a lack of adequate throughway pipeline capacity past Houston pushes barrels not needed locally onto the water to reach refineries in Louisiana. Today we explain the Houston crude traffic problem.
Big changes are coming to the LPG market in Mexico. LPG, or liquefied petroleum gas, is mostly propane but can include butane. Mexico is one of the largest consumers of LPG in the world and imports significant volumes from the U.S. Historically Petróleos Mexicanos (Pemex) has been the only legal LPG importer of record, standing between suppliers and Mexico’s buyers. But in January 2016, Pemex will lose that status, and a year later the regulations that have capped Mexican LPG retail prices will be eliminated. Today, we consider how opening up of the LPG south of the border may affect Mexican LPG importers and consumers, and U.S. producers and exporters.
Last Friday (August 14, 2015) the Department of Commerce (DOC) revealed to the press that they would approve a handful of applications to export U.S. domestic light crude to Mexico under a Licensed “swap” arrangement that involves importing the same volume of heavy crude to the U.S. from Mexico. The Licenses are likely to be awarded to Mexican national oil company PEMEX or its affiliates and will last for a year starting at the end of this month (August 2015). Today we update our earlier analysis of Mexican crude swap exports.
Few factors will have a greater effect on future U.S. natural gas production—or gas pricing—than the degree to which U.S. LNG exporters are successful in penetrating Asian, European and other markets. The dozen liquefaction/LNG export facilities now under construction along the Gulf and East coasts could demand up to 7 Bcf/d, or about one-tenth of current U.S. production. It’s possible, though, that demand could be far less if U.S. LNG can’t compete successfully, or several Bcf/d higher if exporter success leads to development of additional projects. Today, we review our latest Drill Down Report on the international LNG market and how U.S. exporters may fare.
During the first 7 months of 2015 the U.S. experienced record setting refinery crude processing and utilization rates. By the end of July crude inputs topped 17 MMb/d for the first time and nationwide refineries ran at over 96% of operable capacity - reaping the rewards of robust margins. But the party has been marred by a number of unexpected outages – the latest of which brought down a 250 Mb/d unit at BP’s Whiting, IN refinery last weekend – causing a spike in Chicago gasoline prices. Today we ponder why outages may be occurring and the upcoming impact of overdue fall maintenance.