Daily Energy Post Blog Articles

Thursday, 04/02/2020
Category:
Crude Oil

Just a few months ago, crude oil producers and marketers were wondering whether there would be enough marine terminal capacity along the Gulf Coast to handle the steadily increasing volumes of crude that would need to be exported over the next few years. Now, with WTI prices hovering around $25/bbl and producers slashing their 2020 drilling plans, expectations of rising U.S. production and exports are out the window. Instead, what may be shaping up is a fierce competition among the owners of existing storage facilities and loading docks to offer the most efficient, lowest-cost access to the water. Today, we continue our series with a look at two large Houston-area facilities: the Houston Fuel Oil Terminal and Seabrook Logistics Marine Terminal.

Wednesday, 04/01/2020
Category:
Natural Gas Liquids

If Saudi Arabia and Russia flood the world with their crude oil in the midst of a global demand crisis, it would have impacts and implications far beyond crude. A ramp-up in Saudi and Russian oil production this spring would also increase their output of associated gas and NGLs. At the same time, the opposite will be happening in the Permian and other liquids-rich U.S. shale plays, where producers, stunned by sub-$25/bbl oil prices, already are pulling back on drilling and later this year will see their oil and NGL production gradually level off and eventually decline. All this is already turning the international LPG market on its head — just last week, U.S. propane exports plummeted by nearly 40% versus the prior week, to only 889 Mb/d. Today, we consider recent extraordinary market developments and their effect on the arb between Mont Belvieu and Far East LPG prices.

Tuesday, 03/31/2020
Category:
Crude Oil

The collapse in WTI prices in March has been a crushing blow to the Permian, the Bakken and other U.S. shale plays that produce light, sweet crude oil. But as bad as sub-$25/bbl WTI prices are — especially for producers whose balance-of-2020 volumes aren’t at least partly hedged at higher prices — consider the record-low, $5/bbl prices facing oil sands producers up north in Alberta. Western Canadian Select, the energy-rich region’s benchmark heavy-crude blend, fell below $10/bbl more than a week ago, and on Tuesday WCS closed at $5.08/bbl. Producers, who already had been dealing with major takeaway constraints, are ratcheting back their output and planned 2020 capex, and slashing the volumes they send out via rail in tank cars. Today, we begin a short blog series on the latest round of bad news hitting Western Canada’s oil patch.

Monday, 03/30/2020
Category:
Natural Gas

While the crude oil market meltdown has taken center stage in recent weeks, and for good reason, the natural gas market is bracing for its own fallout. The CME/NYMEX Henry Hub April futures price, which was already at a multi-year low, buckled last week, falling to as low as $1.602/MMBtu on March 23, and expired Friday at $1.634/MMBtu, the lowest April expiration settle since 1995. On its first day in prompt position, the May futures contract yesterday eked out a late-day, 1.9-cent gain that brought it back up near $1.70/MMBtu as traders continued weighing competing market factors. Gas futures earlier in March were initially buoyed by the assumption that the low oil-price environment would slow associated gas production — and it will, eventually. But that initial bullish sentiment was quickly usurped by the more immediate effects of demand losses resulting from the economic slowdown caused by COVID-19, as well as from mild weather. Today, we look at how these developments are shaping gas supply-demand fundamentals heading into the gas storage injection season.

Sunday, 03/29/2020
Category:
Crude Oil

Like everything else in the world, energy markets are undergoing totally unprecedented convulsions. It seems as if everything that was working before COVID-19 is now broken, and an entirely new rulebook has been thrust upon us. Of course, it is impossible to know how crude oil, natural gas and NGL markets will play out over the next few weeks, much less in the coming years. But if we make a few reasonable assumptions, extrapolate from what we know so far, and crunch through a bit of fundamental analysis, it is possible to imagine what energy markets will look like after the worst of the coronavirus pandemic is behind us. One thing is for sure: things will not be anything like they were before. Where energy markets may be headed next is what we will conjure up in today’s blog.

Thursday, 03/26/2020
Category:
Crude Oil

The collapse in crude oil prices and subsequent cuts in producers’ planned 2020 capital spending make it crystal clear that drilling activity in the Bakken will be slowing. Still, even with less drilling, it will take at least a few months for crude production in the North Dakota shale play to fall by much, and Bakken producers will continue to depend on crude gathering systems to give their wells the most efficient, cost-effective access to takeaway pipelines and crude-by-rail terminals. Longer term, it’s important to remember that sweet spots in the Bakken’s four-county core have some of the best rock outside the Permian. Today, we continue our series with a look at another leading midstreamer’s existing and planned gathering systems, as well as its joint-venture central delivery point, shuttle pipeline and crude-by-rail facility.

Wednesday, 03/25/2020
Category:
Natural Gas Liquids

The collapse in crude oil prices has sent shock waves throughout the global energy industry and Canada has been no exception. Sorting through all the impacts will take time, but what’s clear is that any earlier optimism surrounding supply growth in Canada has evaporated, including for propane supply to feed the new propane export terminals on British Columbia’s coastline. Edmonton propane prices fell 58% since the start of March to as low as 10.25 cents per gallon in U.S. dollars on March 23 — the lowest level since April 2016 — and settled yesterday at 13.13 cents per gallon, according to data from our friends at OPIS. A dampened supply outlook means future export expansion plans also are being reconsidered. Today, we explore what the sharp decline in propane prices could mean for the region’s supplies and future propane exports, including from Pembina Pipeline’s nearly completed export terminal in Prince Rupert, BC.

Tuesday, 03/24/2020
Category:
Crude Oil

In the stormiest market environment for crude oil in many years, it’s hard to find a spot where the sailing is smooth. If even-keel conditions exist anywhere in the oil-producing world today, it might be the offshore Gulf of Mexico, where producer decisions to invest in new platforms or subsea tiebacks are based on very long-term oil-price expectations and the production, once initiated, is steady. In the second half of the 2010s, Gulf producers significantly reduced the average breakeven prices needed to justify their most promising new investments — from more than $55/bbl back in 2015 to less than $35/bbl today. Given what’s happened to crude oil prices the past few days, however, it’s logical to wonder whether any of even the best prospective Gulf of Mexico projects will be sanctioned this year. Today, we discuss how cost-cutting and efficiency improvements have made the offshore Gulf a comparatively steady, growing base of U.S. crude oil production that so far has been less vulnerable than shale output to oil-price gyrations.

Monday, 03/23/2020
Category:
Petroleum Products

The collapse in crude oil prices and COVID-19’s very negative effects on global gasoline, jet fuel and diesel demand are putting an unprecedented squeeze on U.S. refiners. Even before the initial coronavirus outbreak in Wuhan, China, started to grab headlines around New Year’s Day, refineries had already been incentivized to shift their refined products output toward diesel, which can be used to help make IMO 2020-compliant low-sulfur bunker. Now, with the COVID-19 pandemic spreading to Europe and North America and stifling consumer transportation fuel demand, the price signals are even stronger, pushing refineries to do everything they can to minimize their gasoline and jet fuel production and enter what you might call “max diesel mode.” Today, we discuss how there are challenges and limits to what they can do, and a number of refineries may need to shut down due to lower demand, at least temporarily.

Sunday, 03/22/2020
Category:
Crude Oil

Statewide shelter-in-place orders, worldwide business shutdowns, market meltdowns, medical calamities. Much of what is going on right now is unprecedented in the modern era, and there are no guideposts to help predict what happens next to the world as we knew it. But in the boom-bust energy sector, it is déjà vu all over again. We have seen steep drops in prices, drilling activity and production enough times to have some idea about how this is likely to play out. Granted, this time around it is particularly bad, but that doesn’t change the sequence of events that we are likely to experience over the coming months and years. Today, we’ll look back at what happens to Shale-Era basins after a price collapse, focusing on the inherent lag between a major reduction in activity level and the inevitable production response.

Thursday, 03/19/2020
Category:
Financial

You wouldn’t know it yet from outright crude oil production volumes, which stood at 13.1 MMb/d last week, but with crude oil prices in the cellar, the situation for U.S. E&P companies has rapidly gone from bad to worse. The double whammy of the coronavirus and the Saudi’s decision to flood oil markets with new production has cast a pall over the U.S. E&P sector, sending share prices plummeting. Producers had already taken a stripped-down approach to 2020 investment, with previous guidance reducing capital expenditures by 14% in order to boost free cash flow and hike shareholder returns. That was on top of the 7% decline in capex seen in 2019. But in the last 10 days, about half of the 42 E&P companies we track have announced further, substantial cuts in planned capex. And with West Texas Intermediate prompt crude oil futures settling at $25.22/bbl yesterday — well below breakeven for many producers — and still-lower prices a real possibility, more industry-wide reductions are looming as first-quarter earnings are announced in April. Today, we break down what the recent announcements mean for capex and production volumes.

Wednesday, 03/18/2020
Category:
Crude Oil

Well, now we all know how it feels when the bottom falls out. In fact, it seems there is no bottom, with WTI crude at Cushing settling on Wednesday at $20.37/bbl, down $6.58/bbl. There is no point in belaboring the sad story here. You can read about pandemics, OPEC price wars and collapsed markets in every periodical on the planet. Likewise, there is no point in trying to predict what will happen next. Any pundit who tries to predict future prices in this environment is picking numbers out of the air at best. But at RBN, we are energy market analysts. As such, we are compelled to analyze something. And in these market conditions, there is one thing we can hang our hat on: No matter how bad things get, hope springs eternal. Thus, the market consensus is that things will be better a year from now, and even better a year after that. The implication? In a flash, crude is in steep contango, and that has repercussions for pipeline flows, regional price differentials and for storage — in production areas, at refineries, in VLCCs on the water, and especially at Cushing, OK, the king of oil storage hubs. Today, we examine one aspect of the chaos that now envelopes all aspects of energy markets.

Tuesday, 03/17/2020
Category:
Crude Oil

Throw out your old production forecasts. Delete your pricing model spreadsheets. Push out the dates on your infrastructure project timelines. Or kill the projects all together. We’ve got a black swan on our hands here, folks. Perhaps a flock of black swans. And while we may see something like normal again in a few months, there is little doubt that it will be an entirely new normal. How do we even think through the wrenching transformations that are working through energy markets? At RBN, we don’t have any more answers than anyone else, but we do have a structured approach to market analysis supported by a set of spreadsheet models that are the core of our School of Energy, scheduled for April 14-15. We think that’s exactly the kind of approach necessary to make sense out of this volatile and chaotic market. And although we have cancelled the in-person conference, we’ve made the decision to GO VIRTUAL! Today, we explain our decision to move forward with the virtual School of Energy and discuss the new material we are incorporating into the curriculum to address today’s market realities.

Monday, 03/16/2020
Category:
Crude Oil

With a number of U.S. producers slashing their drilling plans for 2020, crude oil production may flatten or even decline somewhat in the oil-focused basins over the next few months. Still, large volumes of crude — somewhere north or south of 3 MMb/d — will need to be exported from Gulf Coast docks for the foreseeable future to keep U.S. supply and demand in relative balance. That raises the questions of whether more export capacity will be needed, and if so, how much and when? The answers to these questions depend in large part on how much crude the existing marine facilities in Texas and Louisiana can actually handle. Today, we begin a series that details the region’s export-related infrastructure and examines its capacity to stage and load export cargoes this year and beyond.

Sunday, 03/15/2020
Category:
Natural Gas

The natural gas market dynamics that were expected to turn gas flow patterns and price relationships in the Eastern U.S. on their heads and, in turn, transform supply-demand dynamics in Louisiana — including around the U.S. price benchmark Henry Hub — have come to fruition. LNG exports have surged as new liquefaction and export terminals have come online, injecting a new demand source along the Louisiana coastline. Producers have lined up to serve that demand. And midstreamers have worked to get the gas there, reversing and expanding existing northbound pipelines to move gas south into and through the Bayou State. Now, Louisiana’s gas market is nearing a critical juncture: the pipelines that connect the supply gateways in northern Louisiana to the demand centers along the Gulf Coast are nearing saturation. Today, we begin a series providing an update on Louisiana’s gas pipeline constraints and the projects lining up to alleviate them.