On the last day of October 2016, the first-ever shipment of Chinese motor gasoline to the U.S. was delivered to Buckeye’s Reading terminal in New York Harbor. The vessel took a circuitous route to New York, taking on cargo in the Hong Kong lightering zone, stopping in South Korea to take on another parcel of clean product, dropping off some benzene in Houston, and then finally heading to New York. That complicated journey suggests that the economics of a regular China-to-East Coast gasoline trade route are not there (at least for now), but the shipment highlights a trend: China is becoming more assertive as an exporter of petroleum products and the implications are global. In an international market defined by oversupply, inroads by China necessarily result in other producers losing market share. In today’s blog, we examine the impact of rising clean petroleum product exports—particularly from China, but also from India—and the corresponding ripple effects both on the world market and on U.S. refiners.
Daily Energy Blog
Global demand for motor gasoline is on the rise, and U.S. refineries—as a group, still the most sophisticated in the world—are poised to play a critical role in providing much of the needed incremental gasoline supply to Asia, Latin America and other growing markets. This important topic was the focus of a recent talk at the Center for Strategic and International Studies (CSIS) by our good friend, Dr. Fereidun Fesharaki, chairman of international energy consultant FGE, who also discussed the International Maritime Organization’s (IMO) new (and controversial) decision to limit sulfur in bunker fuel to 0.5% by January 2020—a move that will test the capabilities of refineries worldwide. Today’s blog provides highlights from this presentation.
The shale boom breathed new life into East Coast refineries that were under threat of closure by their owners between 2009 and 2012. Now some of those same refineries are under threat again, this time due to poor margins as well as the high cost of compliance with environmental regulations. After enjoying three years of improved margins through access to advantaged domestic crude delivered by rail from North Dakota, five East Coast refineries are now paying international prices for imported crude again in 2016 after differentials between domestic benchmark WTI and international equivalent Brent narrowed to less than $1/bbl in the wake of the crude price crash and an end to the federal ban on most crude exports. Today we discuss PADD 1 refinery prospects.
New “Tier 3” requirements to limit sulfur content in gasoline are set to take effect in just over two months — on January 2017. In March 2013, the Environmental Protection Agency (EPA) proposed to limit the sulfur content of gasoline produced or imported into the U.S. to no more than 10 parts per million (ppm) from the current “Tier 2” 30 ppm standard by January 1, 2017. With these upcoming “Tier 3” requirements, refiners have been developing their strategies to meet the regulations and in some cases have already invested hundreds of millions of dollars in their facilities. Today, we look at the various approaches refiners can take for compliance and their impacts on the industry.
For the past month, WTI crude oil prices have averaged $49/bbl, trading within a relatively narrow $7/bbl range. Two years ago, this price would have been devastating for producers, but not so in late 2016. The crude directed rig count is up by 127 since May, +11 just last week. U.S. crude production is down about 1.2 MMb/d since April 2015, but over the past three months has stabilized at 8.5 MMb/d. On the gas side, since the second quarter of 2016 a combination of lower natural gas production and higher demand (from the power, industrial and export sectors) has worked off a big inventory surplus. Consequently, U.S. natural gas prices are up more than 70% since March, even considering the big price drop over the past week. NGL prices are at the highest value relative to crude for any October since 2012. Is this it? Is this what a Shale Era recovery looks like? In today’s blog, we consider a possible road map for the next couple of years. Warning, we have also included a short infomercial for RBN’s School of Energy next week in Houston.
The increase in waterborne flows to the East Coast in response to the recent Colonial Pipeline outage illustrated the flexibility of supply in the U.S. motor gasoline market. At the same time, the lack of a lasting impact from the loss of 8.3 million barrels of gasoline to a key U.S. demand region highlighted the degree of oversupply in the market. Today we look at how waterborne flows helped to mitigate the effects of the Colonial Pipeline outage, and how flexibility in the East Coast motor gasoline market enabled it to handle unexpected supply constraints with minimal disruption.
U.S. crude oil prices languish below $50/bbl, but the oil-directed rig count is up by 90, an increase of almost 30% over the past 12 weeks. Natural gas production is down less than 1% from the all-time high hit back in February even though the price of natural gas remains below $3/MMbtu. The price spread between U.S. propane and international markets is far below a level that should justify exports, but LPG exports to overseas markets continue at astronomical levels –– approaching 700 Mb/d, most of which is propane. What’s wrong with this picture? Why does it seem that relationships between energy production, demand and prices have broken down, or at least have undergone some fundamental shift? That is what our upcoming School of Energy Fall 2016 is all about. Warning: Today’s blog includes a commercial for our upcoming Houston conference, scheduled for November 2 and 3 at The Houstonian Hotel.
Higher gasoline imports to the U.S. East Coast and weaker demand in the region have combined to bloat gasoline inventories, raising the question, what would it take to bring the market into balance? East Coast refinery output is down from this time last summer in response to somewhat lower crack spreads, but not enough to make a dent. Part of the problem is that while gasoline demand turned anemic in the Maine-to-Florida region, it is even weaker in many overseas markets. Also, the skill of East Coast blenders in dealing with a wide variety of supplies has always made the region an attractive destination for international product flows. Today, we continue our look at petroleum product cargo flows, and what they are telling us about the health of the market.
West Texas Intermediate (WTI) crude oil at Cushing is languishing back in the low $40s/bbl after a brief period of exuberance in the late spring. The blame for this latest oil-price retreat has shifted from high inventories of crude oil –– both on land and on tankers floating offshore –– to bloated petroleum-product inventories. There is some debate about how concerned the market should be about the increase in product stocks. In the opening episode of this blog series, we take a look at petroleum product cargo flows, and what they are telling us about the health of the market. We start today with middle distillates –– diesel and jet fuel.
We are getting into the peak summer driving season and gasoline demand has been hitting all-time highs. You might think that inventories would be drawing down and that the U.S. would need to import more gasoline and gasoline blending components. But not so. U.S. refineries are cranking out the products. Gasoline stocks are up 10% from a year ago—15 million barrels (MMbbl) higher than the top of the five-year range—and last week gasoline inventories made a contra-seasonal move upward, increasing by 1.4 MMbbl. Net exports for the first quarter were up almost five times the same period in 2015. But what does all this mean for refined product markets in general, and gasoline balances in particular? Today, we examine the state of U.S. petroleum product markets.
A few weeks back Rusty Braziel sat down with Don Stowers, Chief Editor of Pennwell’s Oil & Gas Financial Journal, to talk about the big picture – some of the most important issues facing the oil and gas industry, the lasting impact of the Shale Revolution, and Rusty’s thoughts from 40-plus years in the energy business. It turned into the cover story of their June 2016 issue. Today, we recap a few of the interview questions. You can download the full article (along with Rusty’s smiling face on the cover) at the bottom of the blog.
After the $5 billion-plus expansion of the Panama Canal is dedicated this Sunday, June 26, the first “New Panamax” vessel scheduled to pass through the canal’s new, longer, wider locks will be the Lycaste Peace, a Very Large Gas Carrier (VLGC) that is transporting propane from Enterprise Products Partners’ Houston Ship Channel export terminal to Tokyo Bay in Japan. What remains to be seen, though, is how many other supersized vessels carrying propane, liquefied natural gas (LNG) or other hydrocarbons will follow, and how soon. Today, we mark the formal opening of the newly enlarged Atlantic-Pacific short-cut with a look both at the game-changing potential of the expanded canal and the realities of today’s energy and shipping markets.
Crude oil and natural gas prices are back from the abyss, but does that mean the long awaited recovery is underway? Maybe so. But maybe not. Energy markets are fickle, driven by a chain of interactions where one market event triggers another, and then another. Rusty Braziel’s best-selling book, The Domino Effect, explores 30 such market events, which are represented by dominoes – hence the title of the book. More dominoes are falling now and still more will fall in years to come. This book explains the interconnectedness of energy markets through an analysis of energy market fundamentals: prices, flows, infrastructure, value, and economics. And good news for fans of audio books: The Domino Effect is now available on Amazon in Audible format. Today’s blog, an advertorial for the audio book, highlights what The Domino Effect has to say about what’s going on now.
The oil price collapse has opened a wide rift between high quality “good” assets, breakeven “bad” assets, and ruinous “ugly” assets. The consequences will impact energy markets for decades to come. In our recently published Drill Down Report, we demonstrate the differences between good, bad and ugly wells by examining the diversity of production economics across the Eagle Ford basin and why producers have been zeroing in on the counties——and areas within those counties—where initial production (IP) rates are highest, and preferably where large volumes of associated natural gas and natural gas liquids can be found as well. Today we consider Eagle Ford counties in more depth—their IPs, their internal rates of return (IRRs), and the number of new-well permit applications in each county in the first quarter of 2016.
On Monday, September 3, 2007, dignitaries and thousands of Panamanian citizens watched a huge explosion level a hill near Paraiso, a village north of Panama City. That day launched work on a project that would eventually cost more than $6 billion (U.S.) to double the capacity of the Panama Canal and allow for the passage of longer and wider ships. Nearly nine years later on June 26, 2016, the expansion is finally scheduled to be open for business. The new canal capacity will be a major event in global energy markets, especially for growing volumes of U.S. natural gas, liquified petroleum gas (LPG) and petroleum product exports. In honor of this historic development, RBN will take you there! Rusty will be traversing the canal this Thursday, April 14th and will have the skinny on what is happening in Panama right now, with pictures to show for it. In today’s blog we set the stage for our voyage across the Panamanian Isthmus.
