U.S. propane production growth in the shale era and the addition of new domestic and export terminal infrastructure has resulted in a radical transformation of the U.S. propane market. But even as the market responds to these positive developments, the memory of shortages and price spikes during the Polar Vortex winter of 2013-14 lingers. The market response since that crisis, and what further actions the industry might take to be better prepared for future market disruptions are the subjects of RBN’s latest Drill Down report reviewed in today’s blog (click here for a preview of the report: Next To You: A Transformation in Propane Markets).
Daily energy Posts
Crude oil producers in the Bakken region responded to the oil price collapse with drilling cutbacks and a laser-like focus on sweet-spot areas with high initial production rates. It turns out those oil sweet spots also produce a lot of associated natural gas. But there’s not enough infrastructure in place to deal with the extra gas, and that’s slowing North Dakota’s efforts to reduce flaring (burning gas that can’t be utilized for various reasons). Today, we consider the multiple, domino-like effects that low oil prices are having on one of the U.S.’s most important tight oil plays.
With increasing production near demand regions, better connectivity from both pipeline and rail, and export volumes that can be bid away from global markets, the U.S. propane industry is in a much better position to handle a “Perfect Storm” of extreme demand events than it was in the winter of 2013-14. Nevertheless, today’s propane market brings with it a number of challenges, including greater exposure of domestic propane to global markets, more complex inter-regional supply dynamics, a more diverse supply chain, all in the context of limited domestic demand growth. In today’s blog we conclude our analysis of the U.S. propane market.
This Wednesday (September 30, 2015) PBF Energy announced their acquisition of the 155 Mb/d ExxonMobil Torrance, CA refinery that has been out of commission since February 2015 and will not likely return to service until February 2016. This PBF purchase is their second refinery buy this year and their fifth since 2010. The sophisticated Torrance refinery has a lot of upside potential for PBF but may be constrained by California transport fuel regulations. Today we take a closer look at the deal.
The deluge of light (and super light) sweet crude from U.S. tight-oil plays like the Permian Basin, Bakken and Eagle Ford has had many effects, including a push by refiners to rework facilities designed for heavy-crude processing to handle an excess of lighter oils. Many of these projects are underway and expected online in the next two years. Today, we consider refinery infrastructure investments that might not pan out in a low crude price world.
The opening up of Mexico’s retail liquefied petroleum gas (LPG) market could provide significant opportunities for U.S. propane and butane producers, as well as midstream companies and exporters. If exports of U.S.- sourced LPG are to increase, though, it would help to have a more robust and efficient system than presently exists for transporting the fuel to the U.S.-Mexico border and, from there, to key LPG consumption markets within Mexico. Today, we continue our look at Mexican LPG imports with a review of existing and planned pipelines.
A question we get asked all the time these days is whether or not U.S. crude output has begun to decline yet and if so by how much? We don’t actually think the answer makes a lot of difference to the market - especially when you consider changing imports and inventory. But ever since the OPEC meeting last November (2014) failed to take action to reduce output to support oil prices - market watchers have placed a lot of emphasis on when U.S. shale producers would respond by cutting production. So regardless of the merits of the question we are all living in a marketplace where knowing the “real” state of U.S. production – and whether it is up or down – has become a big deal. To that end today we look at crude production data from the Energy Information Administration (EIA).
The U.S. propane industry is evolving rapidly in response to increasing production and the resulting development of new market demand sectors in exports and PDH plants to make “on-purpose” propylene. Two years ago in the winter of 2013-2014 all the new production growth could not prevent a perfect storm of weather events from causing severe shortages and price distress for domestic customers in the Mid-Continent and East Coast regions. Today we describe how the propane market is now much better equipped to endure a similar spell of extreme demand.
This month the North Dakota Industrial Commission (NDIC) indicated they are leaning towards leniency in their treatment of operators that have drilled but not completed wells within the one-year time frame permitted. Instead of assuming such wells are abandoned, which would otherwise mean an expired drilling permit and about $200,000 in plugging costs, – the State plans to give operators more time. That possibility opens up a whole new underground storage option for producers struggling to make ends meet. Today we explain the NDIC plan.
Floating production, storage and offloading vessels—FPSOs, for short—allow for hydrocarbon production in waters too deep for conventional offshore platforms. While FPSOs have been in limited use around the world since the mid-1970s, they remain a relative rarity in the Gulf of Mexico (GOM), mostly because oil and natural gas has been available in shallower parts of the Gulf closer to shore. Now, Royal Dutch Shell will be taking a spanking-new FPSO into the deepest waters yet--9,500 feet, or almost two miles down--for its mammoth Stones development 200 miles off the Louisiana coast. Today, we look at the Stones project, the growing role of FPSOs, and the long-term perspective taken by exploration and production (E&P) companies in the GOM.
Production growth, new processing infrastructure and increased use of rail are shifting traditional flow patterns in the propane industry. New production and processing is adjacent to historic centers of consumer demand in the Northeast and Mid-Continent – reducing seasonal risks of shortage. Rail distribution improves delivery flexibility. The supply chain has to be flexible enough to balance seasonal consumer demand with increased chemical processing and high export volumes. Today we describe improved regional interconnectivity.
U.S. Lower 48 natural gas production is averaging a record 74.2 Bcf/d in September to date, according to PointLogic Energy. Meanwhile, CME’s Henry Hub natural gas futures contract has languished at an average of $2.68/MMBtu this month to date, the lowest for any September since 2001. Much of the recent gain in natural gas production has come from new Utica Shale output. In today’s blog, we drill down into the region’s pipeline flow data to see where exactly the growth is coming from, what’s driving it and what it could mean for natural gas supply.
Another round of big changes are coming to the markets for natural gas, natural gas liquids (NGLs) and crude oil. The surging production growth that has characterized these markets has slowed and in some basins is starting to fall as the mass exodus of drilling rigs begins to take its toll on shale production. But what about all that infrastructure that has been and continues to be built? Billions of dollars are going into pipelines, processing plants, petrochemical plants, terminals, storage, etc. based on a much higher production growth scenario than now seems likely. Where are the opportunities in this new energy market reality? The answer depends on a discernable pattern of events tied to production volumes, infrastructure capacity, commodity flows and project expenditures. Those are the themes of our latest State of the Energy Markets Conference scheduled for October 28, 2015 in Denver, CO as well as the subject of today’s blog – also an advertorial for the conference.
Traditional domestic propane markets were dominated by seasonal consumer demand in the Northeast and Mid-Continent and petrochemical industry demand in the Gulf Coast region. Today domestic demand is still dominated by these two sectors although consumer use is declining slowly while new propane dehydrogenation (PDH) plants look set to boost chemical demand. Meantime the bounty of shale production has swamped domestic consumer needs – making exports by far the largest growth sector. Today we continue our deep dive review of the propane market.
Surging domestic propane production in PADD 1 (East Coast) and PADD 2 (Mid-Continent) over the past four years is unlikely to result in an increase in traditional consumer propane demand in those regions, even with today’s lower overall domestic propane prices. Most propane use in those markets is from the residential and commercial sectors, and that demand has been in a slow, steady decline for years due to competition from electricity and natural gas, efficiency improvements and the general population shift to warmer states. In fact, the only sector of the U.S. market expected to see an increase in propane demand in the next few years is for its use as a feedstock to produce petrochemicals. Most petrochemical demand has traditionally been centered at the Gulf Coast but is projected to expand on the East Coast as well. Today we detail current and projected propane demand.
Blueknight Energy Partners’ 100 Mb/d Knight Warrior pipeline is currently under construction and due online in Q2 2016 to deliver crude from the developing Eaglebine play to the Houston Ship Channel. It complements the 60 Mb/d Sunoco Logistics Eaglebine Express pipeline to Nederland, TX that opened last December. Today we discuss how the promising but relatively complex nature of Eaglebine drilling could scare off producers until prices move substantially higher than today’s levels.