U.S. production of propane from gas processing has more than doubled since 2010 and now exceeds 1.1 MMb/d. Together with another 300 Mb/d from refineries, that is far more propane than the U.S can use. Consequently, U.S. exports of propane have been booming, reaching more than 700 Mb/d in July. But that has not been enough exports to keep propane inventories from filling to the brim, now up to more than 90 million barrels, about 10 million barrels over the five year high. About the only thing that has been holding back even more exports is shipping costs. The cost of ships that move most of the propane to overseas markets, called Very Large Gas Carriers, or VLGCs (gas meaning LPG, not natural gas), have been high since U.S. exports started ramping up and then blasted to the moon this summer in response to huge export volumes and logistical tangles in global markets. But that’s all about to come to an end. There is a flotilla of new LPG vessels that were ordered many months ago that are scheduled to hit the market in 2015 and 2016. In today’s blog we review how U.S. LPG exports are likely to respond to the coming massive increase in VLGC shipping capacity.
Crude by rail (CBR) shipments from North Dakota to West Coast destinations peaked in January 2015 at 170 Mb/d – falling since then to average 140 Mb/d in 2015, January through May. The vast majority of these shipments have moved to four refineries in Washington State – providing a cheaper alternative to the Alaska North Slope (ANS) crude staple these refineries have run for decades. There is big potential to expand CBR shipments to West Coast Ports and to California but building the infrastructure has proven painstakingly slow. Today we discuss the long term fate of West Coast CBR.
Crude oil distribution to Houston area refineries is still being re-plumbed to reflect the ongoing transition to domestic supply. Estimates of current crude pipeline flows indicate as little as 43% of inbound pipeline capacity is being used - but new projects could add over 1 MMb/d to inbound supplies by early next year. Today we start a new series reviewing how well crude infrastructure is meeting Houston area logistic challenges.
It’s that time again! Vacation is behind us and it’s time to gather the school supplies and get ready for class. Of course, we are not talking about high school or college. If you want to know about energy markets, the campus is the Houstonian in Houston and the class is RBN’s School of Energy, scheduled for September 28, 29 and 30. This is nothing like other natural gas, crude oil or NGL 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. You walk out the door with the how-to Powerpoints and the Excel models on your hard drive. Warning today’s blog is a blatant commercial for our upcoming Houston conference. But we hope you will read on, because we have a very special addition this time – a full day dedicated to the export markets.
The site of Cheniere Energy’s new liquefied natural gas (LNG) export terminal in Corpus Christi is only a short drive from the heart of the Eagle Ford. But for supply diversity’s sake, Cheniere won’t depend only on Eagle Ford gas for supply—far from it, in fact. Plans are in the works to enable Corpus Christi LNG’s five planned liquefaction “trains” to access gas from a wide variety of shale plays and basins, in some cases moving gas long-distance. Today, we continue our look at the challenges of securing and moving huge volumes of gas to LNG export terminals, the emerging epicenters of U.S. gas demand.
Yesterday (August 3, 2015) Brent crude closed under $50/Bbl for the first time since January 2015. At that price expensive crude-by-rail (CBR) freight costs to the East Coast leave Bakken producers with netbacks not much over $30/Bbl. Yet CBR shipments to the East Coast were still over 400 Mb/d in May 2015 according to the Energy Information Administration (EIA). By 2017 there should be adequate capacity to get all Bakken crude to market by pipeline. But direct pipeline competition against rail to the East Coast is not expected until at least 2020. Today we look at the future of East Coast CBR.
Tallgrass Energy’s Rockies Express Pipeline (REX) opened the floodgates for Marcellus/Utica producers this Saturday, August 1, bringing online its Zone 3 East-to-West (E2W) expansion capacity. The expansion tripled westbound design capacity to a full 1.8 Bcf/d from the Marcellus/Utica producing region to delivery points in Ohio, Indiana and Illinois. Potentially this additional takeaway capacity eases supply congestion in the Northeast and will support beleaguered Marcellus/Utica pricing points. As REX touches nearly every part of the US gas market, the expansion can ultimately be expected to reconfigure gas flows and price relationships across multiple regions as it comes online. Today we review the changes and how quickly they are likely to impact the market.
A proposed BASF plant in Freeport, TX - that would make propylene from natural gas – is expected to be the subject of a final investment decision in 2016. If the plant is built it will have a similar purpose to another 6 Gulf Coast plants being built or planned in the next few years to make propylene from propane. All these plants are designed to make up for lower propylene output from U.S. petrochemical steam crackers using ethane, which yields less propylene from the cracking process. Today we discuss why using natural gas as a feedstock instead of propane might make sense.
The CME/NYMEX Henry Hub natural gas futures contract turns 25 years old this year. The contract is now the third largest physical commodity futures market in the world. The price of virtually every Btu of gas sold in North America is linked in some way to the underlying physical hub at Henry. But over the past five years shale gas has revolutionized North American supply and changed the shape of delivery patterns. These trends have altered the flow of physical gas through Henry Hub and could jeapordize the success of the futures contract. Today we look at why Henry Hub has been so successful.
Bakken crude-by-rail (CBR) volumes are down this year and pipeline shipments are increasing as production levels off in the wake of last year’s price crash. The trend is encouraged by lower price differentials between domestic and international crude as well as new pipelines coming online. Since 2012 a combination of rail and pipeline has given Bakken producers ample crude takeaway capacity but pipelines alone have not had sufficient capacity on their own. However, with production slowing down, pipeline capacity is catching up and by 2017 there should be enough pipelines to carry all North Dakota’s crude to market. Today we start a two part series asking whether pipelines can replace CBR from North Dakota.
How the international market for liquefied natural gas (LNG) expands and evolves is of critical importance to U.S. and Canadian natural gas producers and midstream companies alike. The success of North American-sourced gas in penetrating LNG demand centers--Asia and Europe in particular—will help determine not only how much gas needs to be produced, but how much incremental pipeline and liquefaction/LNG export capacity needs to be developed, and how much upward pressure there will be on U.S. and Canadian natural gas prices. There is a lot of uncertainty about how things will shake out. Today, we conclude our series with an assessment of what we know, what we aren’t sure about, and what we think we’re likely to see happen.
Western Canadian Select (WCS) – the benchmark for Canadian crude sold at Hardisty in Alberta fetched just $32.29/Bbl on Friday (July 24, 2015) down 60% from $81.34/Bbl a year ago in July 2014. That year has seen big changes in the U.S. oil market with drilling rig cutbacks and declining new production rates. The challenges for Canadian producers have not changed much in the short term – with transport capacity to market still top of the list. Trouble is that every time transport congestion occurs it pushes price discounts higher and lowers producer returns. Today we discuss the relationship between Western Canadian crude production and prices.
A few years ago, water-based or “hydraulic” fracturing emerged as a viable, cost-effective technique for coaxing large volumes of natural gas and crude oil out of U.S. shale formations. Calling it a game-changer is not an overstatement. In the shadows, another approach to fracturing was being developed, one that uses a liquefied petroleum gas (LPG) or propane gel and appears to offer some noteworthy benefits over tried-and-true hydraulic fracking. Today, we consider the potential for niche applications (and maybe much more) for fracturing that’s based on a hydrocarbon-based gel—not water.
The Henry Hub in Louisiana is the best known natural gas trading location in the world. There is certainly no more liquid point in the industry. An average of 350,000 Henry Hub natural gas futures contracts trade on the CME/NYMEX each day. The Henry price is used to compute locational ‘basis’ at all other natural gas trading points in North America and thus is the reference price for tens-of-thousands of derivative instruments and other commercial contracts. But the U.S. natural gas industry is changing rapidly. Henry started out as a supply market hub but a natural gas demand renaissance in and around Louisiana is transforming it into a demand market hub. How will this impact Henry and can/will it endure as the national benchmark price? Today, we begin an in-depth series looking at Henry Hub, starting with its origins.
Waterborne crude shipments out of the Port of Corpus Christi are still growing this year – averaging 700 Mb/d as of May 2015. A veritable armada of barges and tankers has converged on South Texas to help move all that crude. A large part of the shipments are on small inland tank barges plying the Gulf Intracoastal Waterway (GIWW) - a 65 years old canal system that forms a vital backbone for Gulf Coast refiners. Today we describe the changing profile of barge shipments along the Gulf of Mexico.