Each and every production region in the U.S. has its own unique geology, geography and hydrocarbon assets, but few, if any, are more unusual than the Uinta Basin in northeastern Utah. Physically isolated from all refining centers except Salt Lake City, the region boasts enormous reserves of waxy crude oil that’s been made accessible at a very low cost per barrel via horizontal drilling and hydraulic fracturing. While Uinta Basin crude looks, smells and feels like shoe polish, it has many characteristics that refiners want, including medium-to-high API gravity and very low sulfur, acid and metal content. There are two snags to expanding production, though: waxy crude poses major transport challenges, and Salt Lake City refineries can only use so much of the stuff. So if Uinta Basin producers want to increase production by much, they’ll need to develop cost-effective ways to move large volumes of their waxy crude to faraway markets like the Gulf and West coasts. Today, we continue a series on the prospects for expanding waxy-oil output with a review of Uinta Basin producers and their customers in the close-by “City of the Saints.”
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Daily energy Posts
Extreme makeovers by exploration and production companies over the past five years have resulted in higher crude oil and natural gas production, lower costs and more money for shareholders in the form of dividends and share buy-backs. Despite all this, investors have continued to abandon the E&P sector, with the S&P E&P index sliding to a series of record lows: down 75% from its 2014 peak, down 51% from a year ago, and down 5% from this time last month. Why the major disconnect? Today, we examine the improving financial health of most of the 48 E&Ps we track in this analysis and the reasons why investors remain wary of E&P equities.
The Northeast natural gas market was supposed to have turned a new leaf. After years of pipeline takeaway constraints and constraint-driven prices, the region as of late 2018 had ample, even excess, takeaway capacity on its hands. Regional prices strengthened on both an absolute basis and relative to downstream markets, and Marcellus/Utica producers had room to grow. But bearish fundamentals have rattled the Northeast — and U.S. — market in recent months. In-region demand has lagged, even as production has set new highs. Since August, capacity reductions on Texas Eastern Transmission, a key Northeast takeaway route, have limited outflows. And, to top it off, Dominion’s Cove Point LNG went offline last month for an annual three-week-long maintenance, taking another 700 MMcf/d of demand out of the market for a time — it has since come back online, as of this past Monday. But regional prices in late September and early October were pummeled in the process, raising the question: are the Northeast’s takeaway constraints back? Today, we analyze the impacts of shoulder-season dynamics on regional storage and takeaway capacity utilization.
U.S. crude oil fundamentals have shifted sharply in the past few weeks; some changes were fully anticipated, and others more exaggerated than originally expected. U.S. production has risen again to another record-setting high, while a massive decline in refining activity due to turnaround season — and a number of unanticipated short-term shutdowns — has erased a lot of domestic demand for crude. Meanwhile, export volumes out of a few key Gulf Coast terminals are hitting all-time marks. U.S. crude oil imports, affected by international disruptions and refining demand, have dropped like a stone and are nearing 20-year-plus lows. With School of Energy 2019 now in session, it’s a great time to recap what’s been happening over the past month. Today, we look at the summer-to-fall shift in fundamentals, and how it’s impacted overall inventories.
Despite pipeline takeaway constraints being relieved this year, Northeast natural gas prices have averaged lower than last year through much of the injection season. They’ve been especially weak in recent weeks, with spot prices at Appalachia’s Dominion South hub averaging $1.27/MMBtu in October to date, which is about half of where they stood this time in 2018 and the lowest in two years. And earlier this month, on October 4, regional prices went into apocalyptic territory, plunging 30-50% to less than $1/MMBtu — reminiscent of the deep discounts of recent years when Marcellus/Utica producers were operating under severe pipeline constraints. Prices rebounded the very next trading day, but they remain depressed relative to last year. Today, we look at the fundamentals behind the recent price weakness. Starting today, you can also tune into an audio version of the current day’s blog. Click here to find out how to subscribe or start listening by clicking on the play button above.
Crude oil inventory levels aren’t the only thing in a constant state of flux at the crude storage hub in Cushing, OK. A year ago, we blogged extensively about Cushing’s major players, storage assets and incoming and outgoing pipelines, as well as plans for new pipes that highlight the hub’s continued significance, even in an increasingly Permian- and Gulf Coast-focused energy sector. A lot has changed since then, though. Some pipeline projects into and out of Cushing have advanced to final investment decisions (FIDs), while others have floundered or foundered. Also, brand-new pipeline projects have been announced, as was a big acquisition that will make Energy Transfer a major player in Cushing storage. Today, we begin a short series on recent developments at the Oklahoma oil hub and how they reflect changes in the ever-evolving U.S. energy markets.
New fractionation plants, steam crackers and export facilities are being built along the Gulf Coast, all spurred by rising U.S. production of natural gas liquids. This incremental NGL output and these new projects are putting serious pressure on existing NGL pipeline and storage infrastructure, and prodding the development of new salt-cavern storage capacity for mixed NGLs, NGL purity products, and ethylene and other olefins. Also, new, expanded and repurposed pipelines to enhance NGL-related flows throughout the region are in the works. Today, we continue our series on NGL storage facilities along the Gulf Coast with a look at Easton Energy Services’ plans for more underground storage capacity in Markham, TX, and new NGL and olefin pipelines.
The CME/NYMEX prompt Henry Hub natural gas price yesterday settled at about $2.28/MMBtu, down 40 cents from the summer peak of $2.68 in mid-September. That’s also a long way down from the $3-plus prices seen at this time last year. What’s more, daily prompt-month contract settlements this injection season, from April to present, have averaged the lowest in over 20 years. This, despite the Lower-48 gas storage inventory starting the 2019 storage injection season in April well below year-ago and five-year-average levels. How did we get here? Today, we begin a short series breaking down the supply-demand fundamentals that brought the gas market to its knees in recent months.
With another month of anemic storage injections in September, Alberta natural gas storage levels remain on track to start the next heating season at a 13-year low. Still, while Alberta gas storage has been lagging well behind in terms of average injection rates and storage levels for many months now, forward winter contract prices for the Western Canadian gas price benchmark of AECO have budged only a little. There is potential for an improvement in storage injection rates during October after a recent regulatory approval affecting the Alberta gas pipeline system, but there is little time remaining in the current injection season to make much of a difference in inventory levels going into winter. Today, we conclude this two-part series with a look at why the AECO forward market remains largely unconcerned with low Alberta gas storage levels.
Demand for ethane from U.S. steam crackers is rising as recently completed ethane-only crackers ramp up to full production and additional crackers are finished. To keep pace with demand growth, a portion of the ethane now being “rejected” into the natural gas stream and sold for its Btu value will instead need to be left in the mixed-NGLs stream and fractionated into purity-product ethane. This raises two questions. First, in which shale plays will this shift from ethane rejection to ethane production occur? And second, how much will ethane prices need to increase to encourage the shift and make the required incremental volumes of ethane available? Today, we continue a series on ethane-market developments with a look at where the next tranche of ethane supply will come from and how high ethane prices might need to rise.
The Permian Basin’s crude oil market over the last 18 months has exhibited so many dynamic changes that dedicated observers may be suffering from a bit of neck strain, if not outright whiplash. We’ve seen production rise at an unprecedented rate, followed by a period of slower growth. We’ve also watched the Permian very quickly transform from a region desperate for new long-haul pipeline capacity to a hotbed for midstream investment and infrastructure growth. While we’ve closely tracked these big-picture changes, a lot of other, smaller-scale knock-on effects have been occurring too, with potentially significant implications for the basin’s supply pricing and transportation economics. Today, we explain why the changing fortunes of Permian crude haulers may benefit producers in the basin.
U.S. LNG exports have climbed from zero to about 6 Bcf/d in less than four years. This year to date alone, three new liquefaction trains have come online at three different terminals with an additional train at Freeport LNG and Elba Liquefaction’s first four mini-trains in the commissioning process. The completion of these and other projects around the globe, particularly in Australia, have led to an oversupplied global market, made worse this year by a mild winter and high natural gas storage levels in Europe, and nuclear restarts and slowing demand growth in Asia. These dynamics sent international prices spiraling downward in recent months. Then, in September, prices briefly spiked up as regulatory news out of Europe suggested higher global gas demand. In the midst of all this market turmoil, U.S. export cargoes have remained unfazed. But the shifting fundamentals have played a role in where U.S. cargoes ultimately end up. Today, we begin a series looking into how liquefaction capacity contracts and international prices affect cargo destinations from U.S. LNG terminals.
During the 2010s, the Marcellus/Utica region has experienced an astonishing 16-fold increase in natural gas production, from 2 Bcf/d in early 2010 to more than 32 Bcf/d today. The region’s rapid transformation from minor energy player to superstar came with a lot of infrastructure-related growing pains, many of them tied to the urgent need for more gas pipeline takeaway capacity. Takeaway constraints have largely been addressed — at least for now — but producers’ continuing efforts to develop “wet,” liquids-rich parts of the Marcellus/Utica have resulted in an ongoing requirement for more gas processing and fractionation capacity. Put simply, as wet-gas production ramps up, so must the region’s ability to process that gas and its associated natural gas liquids. Today, we continue a series on existing and planned gas processing and fractionation projects in the Northeast with a look at the growing role played by Williams and its new Canadian partner.
The U.S. ethane market has experienced major ups and downs in the past couple of years. First, there was sharply rising demand from new steam crackers, a fractionation-capacity crunch and soaring ethane prices. Then came an ethane demand slump, plummeting prices and a big jump in inventories. More recently, though, the market seems to have returned to a state of relative equilibrium. Ethane prices have settled in — at least for now — at about 22 cents/gallon (gal), a couple of pennies below where they had been standing rock-steady before all hell broke loose. Ethane demand from existing steam crackers is rising again, and new cracker capacity is coming online. The questions now are, with demand on the upswing, will ethane prices be rising too — and, if so, by how much? And what does that mean for steam cracker economics? Today, we discuss recent developments in the ethane market and explain why there’s good reason to believe that ethane prices won’t be spiking anytime soon.
After months of severe natural gas pipeline constraints, Permian producers and shippers are reveling in the relief of new takeaway capacity. Kinder Morgan’s Gulf Coast Express (GCX) Pipeline, which began flowing initial volumes in mid-August, last week began full commercial service on its 2-Bcf/d greenfield route from the Permian to South Texas. Actual volumes on GCX are hard to come by, but all indications are that flows are ramping to near capacity. That surge in Permian outflows in recent weeks has propelled natural gas prices at the regional benchmark Waha Hub — which traded as low as $5.00/MMBtu below zero earlier this year and fell into negative territory as recently as August 8 — to nearly $2/MMBtu, levels not seen at the hub since last winter. However, with the sting from negative prices only now just fading, many in the market are wondering if this rally is here to stay or just a temporary reprieve. Today, we look at the latest developments in the Permian natural gas market.
Limetree Bay Refining’s plans to restart the former Hovensa plant in St. Croix, U.S. Virgin Islands, at the end of 2019 will add significant refining capacity to the North American stack, helping to offset the loss this year of the 335-Mb/d Philadelphia Energy Solutions plant in Pennsylvania. Limetree Bay is also poised to fill a void in Caribbean refining that’s been left by Venezuela’s economic collapse as well as the International Maritime Organization’s 2020 changes to the bunker fuel market. But the facility is not without its challenges, from high fuel costs and stiff competition from Gulf Coast refineries to tropical storms. Today, we conclude an analysis of the operation and potential markets for the refinery.