Recent third quarter earnings reports from US refiners have reflected lower refining margins squeezed by higher feedstock prices for inland crudes like West Texas Intermediate (WTI) rising to the same level as coastal crudes like Light Louisiana Sweet (LLS) while product prices stood still. In the past two weeks domestic crude prices have fallen below $100/Bbl in the face of a Gulf Coast supply glut. But despite lower crude costs, refinery margins have continued to weaken. The primary culprit has been sharply falling gasoline prices. Today we review what Gulf Coast refiners could do to improve margins.
Daily Energy Blog
Wednesday, 11/06/2013
With the crude to natural gas price ratio (crude in $/Bbl divided by gas in $/MMbtu) continuing in historically high territory many energy companies are looking for more opportunities to shift from producing cheap gas to producing premium-price oil. For that reason, one tight-oil play long in the background—the Tuscaloosa Marine Shale (TMS) in central Louisiana and southwestern Mississippi—is attracting new attention; particularly from drillers who think they’ve figured out how to deal with TMS’s challenging characteristics. But is TMS all its fracked up to be? Today we begin a new series on TMS with a primer on this 6.6 million-acre shale play that’s said to have seven billion barrels of oil in place deep below ground but only a stone’s throw from the pipeline networks and refineries of the Gulf Coast.
Tuesday, 11/05/2013
A dramatic increase in crude-by-rail shipments over the past two years as well as surging lease rates for hard to come by tank cars encouraged an 18 month backlog of new orders – even while crude shipments only represent a small fraction of total rail carloads. Changes in the crude price differentials that encouraged the growth of crude by rail have reduced both the demand for tank cars and lease rates. Today we present analysis from PLG Consulting that shows rail tank car oversupply is quite possible - barring a few "wild cards".
Sunday, 11/03/2013
If you add up the numbers since the start of 2012 just under 2 MMb/d of transport capacity has been added to bring crude into the Texas Gulf Coast refining region. In the next two years (2014 and 2015) we expect another 2.1 MMb/d of crude pipeline and rail transport capacity to be added. In total that is over 4.1 MMb/d of potential incoming crude – to a region with just under 3.7 MMb/d of nameplate refining capacity. Today we begin a series describing the incoming flood of crude and preparations being made to handle it.
Thursday, 10/31/2013
The oil and gas pipeline industry depends on “Pigs” (pipeline integrity gauges) to verify pipelines. They help avoid leaks, fractures and costly unscheduled service interruptions. As massive new oil and gas pipeline construction continues in the US and as existing pipelines get older the pig business is becoming more valuable. But like anything else, they aren’t perfect; and pigging experts and pipeline operators are motivated to make them better. Today we continue our analysis of the pig business with a look at what some of the movers and shakers are doing to support new demands and challenges in this booming industry.
Wednesday, 10/30/2013
Bakken producer wellhead netbacks now favor shipping crude to the East Coast by rail. That is because Brent crude prices are trading more than $13/Bbl above WTI and nearly $11/Bbl higher than Light Louisiana Sweet crude at the Gulf Coast (October 30, 2013). Loading data from North Dakota indicates that volumes being shipped by rail have returned to levels not seen since April although less crude is going to the Gulf Coast. Today we conclude our two part analysis of Bakken producer transport options.
Monday, 10/28/2013
With Brent premiums hovering close to $10/Bbl versus West Texas Intermediate (WTI) crude in the past month, the netbacks for Bakken producers shipping crude by rail to the East or West Coast are higher than they are for pipeline movements to Cushing or the Gulf Coast. Netbacks represent the crude price at the destination less transportation costs back to the wellhead. Today we show how the market destinations with the highest netbacks have reversed since July.
Sunday, 10/27/2013
Supplies from the three main branches of the US condensate family are increasing faster than demand can keep up. Field condensate production from shale basins is nearing 1 MMb/d - headed to 1.6 MMb/d by 2018. Plant condensate – aka natural gasoline - will increase from just over 0.3 MMb/d in 2013 to more than 0.5 MMb/d in 2018. Because field condensates cannot be exported to overseas markets, more of this material will be refined traditionally or using a splitter – pushing out existing refinery demand for natural gasoline and creating an excess of naphtha range material. Petrochemical demand for natural gasoline has dried up in the face of cheap ethane feedstocks. Canadian demand for natural gasoline as diluent will soak up some but not the entire natural gasoline surplus. With US gasoline demand declining, the only outlet for excess naphtha and natural gasoline will be more exports (beyond Canada). Today we look at changing condensate demand patterns.
Wednesday, 10/23/2013
WTI for prompt delivery closed $10.94/Bbl below Brent on Wednesday (October 23, 2013). Brent prices are disconnected from WTI and Light Louisiana Sweet because the Gulf Coast is awash with light sweet crude. West Coast crude prices on the other hand are supposed to march to a different tune – isolated from new shale and Canadian crude supplies and thus expected to continue tracking international Brent. But ANS prices on the West Coast have fallen to more than $5/Bbl below Brent in the past 2 weeks and seem to be tracking WTI. Is this just a temporary aberration or could it be signaling another step change in the road to US crude independence? Today we take a closer look at what’s going on.
Sunday, 10/20/2013
The Brent premium to West Texas Intermediate (WTI) on Friday (October 18, 2013) was $9.14/Bbl – indicating a new disconnect between US crude prices and international levels. Unlike last time a big Brent premium to WTI opened up in 2010 the price of Light Louisiana Sweet at the Gulf Coast is still tracking with WTI rather than following Brent. This suggests that the US Gulf Coats is long crude at the moment and that imports of Brent priced crude are not required. Today we discuss the current Gulf Coast crude market.
Thursday, 10/17/2013
When Forrest Gump famously said, “Life is Like a Box of Chocolates – you never know what you are going to get”, he might as well have been talking about condensates. The shale revolution has doubled US condensate production since 2011 and we expect those numbers to continue to increase. And like chocolates, condensates come in many varieties. Not just field condensate production from oil and gas wells in basins like the Eagle Ford, but its cousins natural gasoline from natural gas liquids (NGL) processing plants and light naphtha from petroleum refineries. These growing volumes of light hydrocarbons are joined at the hip by their “C5” chemistry and finding a home for them all is proving disruptive to traditional supply/demand patterns.
Tuesday, 10/15/2013
Crude oil production in the Oklahoma and Kansas Anadarko basin increased by 50 Mb/d in 2012 and is expected to increase from 190 Mb/d in December 2012 to 240 Mb/d in December 2013 – another 50 Mb/d (source: Bentek). These numbers are slow and steady compared to the bigger Williston Basin to the north where production jumped by 230 Mb/d in 2012 and is expected to increase by a similar amount this year. And yet a hard core of producers is happily ensconced in the Anadarko enjoying solid returns from drilling. Today we ponder changing approaches to shale production.
Thursday, 10/10/2013
The ratio between crude oil and natural gas (NYMEX) futures yesterday was 27.7. That is crude prices in $/Bbl were 27.7 X natural gas prices in $/MMbtu. The ratio today is far higher than its historical norm of 7.5X before 2007. It started to increase in 2008 and reached 54 X last year when gas prices crashed below $2/MMBtu. This year the ratio has averaged 27 X and has shown no clear trend up or down. The ratio is important because it underpins two of the key features of the shale boom to the US economy – cheap energy in the form of natural gas and higher prices for refined product and petrochemical exports. Today we attempt to discern the future direction of the ratio.
Wednesday, 10/09/2013
Barge shipments of crude oil between the Midwest Petroleum Administration Defense District (PADD) 2 and the Gulf Coast PADD 3 regions reached 126 Mb/d in July 2013 - up 79 percent over the same month last year according to the Energy Information Administration (EIA). The Port of Corpus Christi reported that coastal barge and tanker movements of crude from the Eagle Ford – mostly headed out of Corpus to Houston or St James, LA are up 37 percent so far this year (August) to 387 Mb/d. The crude tank barge trade is booming as producers continue to use waterborne transport to bypass pipeline congestion. Today we look at emerging waterborne crude routes to market.
Sunday, 10/06/2013
The West Coast crude-by-rail terminal build out has been slower to develop than elsewhere in the US. But there are still over 1 MMb/d of unload capacity built or in the planning stages to come online by the end of 2014. Terminals are split between dedicated facilities to serve refineries and merchant terminals that hope to feed multiple refiners. In the absence of pipeline alternatives,,, rail may become the pipeline-on-wheels delivering domestic and Canadian crude to West Coast refineries. Today we conclude our two part review of West Coast crude by rail prospects.
