Daily Energy Post Blog Articles

Tuesday, 11/20/2018
Category:
Natural Gas

Natural gas markets in the U.S. Northwest have been in turmoil ever since a rupture on Enbridge’s BC Pipeline system over a month ago (on October 9) disrupted Canadian gas exports to Washington State at the Sumas border crossing point. Service on the affected line has been restored but at a reduced operating pressure for now, and Canadian gas deliveries to Sumas remain at about half of their pre-outage levels, creating supply shortages in the region. Spot natural gas prices at the Sumas, WA, trading hub have been volatile, soaring well above Henry Hub and rocketing to a record outright price of nearly $70/MMBtu late last week. The outage has reverberated across the Western U.S. gas market, sending regional prices reeling as gas flows adjusted to help offset supply shortages. Today, we examine the knock-on market effects of the outage on Western gas flows and prices, and potential implications for the winter gas market.

Monday, 11/19/2018
Category:
Crude Oil

During the summer of 2018, crude oil inventories at the trading hub in Cushing, OK, dropped to extreme lows. With estimated tank bottoms around 14.6 MMbbl, Cushing stockpiles hit 21.8 MMbbl for the week of August 3. Traders’ alarm bells were ringing, and upstream and downstream observers were wondering if low storage levels were going to cause significant operational issues. But just when it seemed tanks were nearing catastrophic lows, inventories reversed course and started to climb. Since August, crude stocks have increased by 13.6 MMbbl, or nearly 60%, and there is now talk of potentially too much crude en route to Cushing, maxing out capacity there. There are many contributing factors to this most recent inventory swing, with increased domestic production and the tail end of refinery turnaround season being two of the bigger fundamental drivers. But the main catalyst has been the shift from a backwardated forward curve to a contango forward curve in the WTI futures market. Today, we continue our Cushing series with a snapshot of recent contango markets and the impact those prices have had on stockpiles at the central Oklahoma hub.

Sunday, 11/18/2018
Category:
Crude Oil

The race is on and here comes WTI up the backstretch. On November 5, CME Group launched a Houston WTI futures contract, challenging a similar trading vehicle from Intercontinental Exchange (ICE) that started up in mid-October. Ever since crude flows to the Gulf Coast took off five years ago, the crude market has been clamoring for a trading vehicle that would accurately reflect pricing in the region that dominates U.S. demand from refineries, imports and exports. Now there are two. But their features are quite distinct. ICE’s contract reflects barrels delivered to Magellan East Houston, while CME’s contract is based on deliveries into Enterprise’s Houston system. The specs are different, as are the physical attributes of the two delivery points. Will both survive? Probably not. Futures markets tend to concentrate liquidity — trading activity — into a single vehicle that best meets the needs of the market. So, which of these will come out on top?  That’s what the crude oil market wants to know. In today’s blog, we delve into the differences between the two new futures contracts for West Texas Intermediate (WTI) crude delivered to Houston and ponder the market implications of these new hedging and trading tools.

Thursday, 11/15/2018
Category:
Crude Oil

Between new sanctions on Iran and the potential for more escalation in the trade war with China, oil exports from the U.S. have been changing their flows dramatically in the past few months. China from October 2017 through July 2018 rivaled Canada as the largest buyer of U.S. crude; in June, when total U.S. exports hit a record 2.2 MMb/d, nearly one-quarter of those volumes flowed to China. But since trade tensions between the two nations intensified, not a single barrel of U.S. crude has arrived in China since July. Thankfully, the U.S. has found ways to fill the Chinese void by increasing the volumes sold to South Korea and India, two historically prominent buyers of Iranian oil. Today, we lay out the reasons why U.S. sanctions on Iran are helping the U.S. continue to sell crude to Asia, even as relations with China have chilled.

Wednesday, 11/14/2018
Category:
Crude Oil

It’s been well-reported that crude oil pipeline capacity is getting maxed out in many basins across the U.S. and Canada. From Alberta, through the heart of the Bakken, all the way down to the Permian, pipeline projects are struggling to keep up with the rapid growth in some of North America’s largest oil-producing regions. Crude by rail (CBR) has frequently been the swing capacity provider when production in a basin overwhelms long-haul pipelines. While it is more expensive, more logistically challenging, and more time-intensive, CBR capacity is typically able to step in and provide a release valve for stranded volumes. But recently, CBR capacity has been tougher to come by and has taken longer than expected to ramp up. A key aspect of this issue is a new requirement for up-to-date rail cars. Today, we look at how new rail demands and uncertainty in domestic oil markets are combining to create a major hurdle for new CBR capacity.

Tuesday, 11/13/2018
Category:
Natural Gas

The U.S. natural gas market enters winter this year in a delicate balance: production is at an all-time high and growing fast, but gas storage inventories are well below year-ago levels and the five-year average — and at an all-time low relative to consumption. If winter weather is normal or mild, the U.S. gas market will likely begin to settle into a period of sub-$3/MMBtu prices. But this year’s low inventory level means that colder-than-typical weather this winter could spell more gas price upside than the market has seen in many years. Today, we continue our review of the current gas market with a look at the relationship between gas- and coal-fired generation, and at how the combination of low gas storage inventories and low coal stockpiles might play out this winter.

Monday, 11/12/2018
Category:
Natural Gas

With recent project completions, Northeast takeaway constraints have eased, and regional supply prices have strengthened. But now the slate of planned pipeline expansions is dwindling. Between late-2015 and the end of 2018, midstreamers will have completed 23 takeaway projects out of Appalachia, totaling nearly 14.5 Bcf/d of capacity. That leaves just a handful of projects with little more than 6 Bcf/d of capacity to come, most of them facing stiff environmental opposition, regulatory turmoil and higher costs. Yet, as Appalachian gas production continues to grow, these projects will be critical to keeping the takeaway constraints and depressing supply pricing from returning, at least for a little longer. More than half of the remaining capacity would come from two competing projects — Dominion Energy’s Atlantic Coast Pipeline (ACP) and EQM Midstream Partners’ Mountain Valley Pipeline (MVP) — both greenfield efforts tied to growing gas-fired power generation demand along the Mid- and South-Atlantic seaboard and both embattled by a barrage of legal challenges. In today’s blog, we provide an update on the Atlantic Coast and Mountain Valley projects, including the latest status and timing.

Sunday, 11/11/2018
Category:
Natural Gas

The Energy Information Administration (EIA) estimates that natural gas gross production in the Rockies’ Niobrara region increased to a record 5.1 Bcf/d in September 2018, narrowly beating the previous high mark set almost seven years ago. And, with major, crude oil-focused producers in the Powder River Basin (PRB) and Denver-Julesburg Basin (D-J) planning for expanded crude output in 2019 and beyond, production of associated gas is expected to continue rising. All this growth — actual and anticipated — is spurring the development of new midstream capacity, especially gas processing plants, in both the PRB and the D-J Basin. So, what’s already in place, what’s being built and planned, and how soon will it need to come online? In today’s blog, we continue our review of Rockies crude oil, gas and NGL production, processing capacity and takeaway pipes, this time with a look at the gas side of things in the PRB.

Thursday, 11/08/2018
Category:
Natural Gas

Gas-fired power generation in the U.S. has been making impressive gains lately and that trend looks likely to continue. Power demand is growing quickly and generation fueled by cheap natural gas is taking an ever-increasing market share of the new and existing load from more expensive generators like coal and nuclear, which is leading significant numbers of those plants to shut down. The Energy Information Administration (EIA) earlier this year forecast that combined-cycle, gas-fired generation capacity could rise by 6.1 GW between now and 2020, which ­— if fully called upon — would equate to roughly 1 Bcf/d of gas demand. That growth would displace some older gas-fired generation but also fill the void left by retiring coal-fired and nuclear power generators — two sectors EIA expects to decline over the next couple of years by 14.1 GW and 1.7 GW, respectively. What’s more, surging gas production and rapidly filling pipeline expansions in recent months suggest that gas-fired generation demand may be growing even faster than expected. Today, we take a look at how gas generation has been besting coal-fired plants on fuel costs in recent years, and at the string of nuclear and coal-fired generators that are being permanently retired.

Wednesday, 11/07/2018
Category:
Crude Oil

Crude oil production has been increasing in virtually all of the shale and tight oil plays that send their output to the storage and distribution hub in Cushing, OK. A number of pipeline projects are being built and planned to accommodate that growth, and — despite the fact that two-thirds of Cushing’s existing storage capacity is currently unused — several million barrels of new tankage is being installed at the hub, again in anticipation of incremental needs in 2019, 2020 and beyond. So it should come as no surprise that midstream companies also are planning a good bit of new pipeline capacity out of Cushing, some to refinery customers in the Midwest and Midcontinent areas but some to refineries and export docks along the Gulf Coast. Today, we continue our series on the “Pipeline Crossroads of the World” with a review of rock-solid and potential plans to enable more crude to flow out of the central Oklahoma hub.

Tuesday, 11/06/2018
Category:
Natural Gas

U.S. Northeast natural gas producers will soon get another boost of pipeline capacity with direct access to Gulf Coast demand. TransCanada’s Columbia Gas and Columbia Gulf transmission systems are gearing up to place into service their tandem Mountaineer Xpress and Gulf Xpress expansions, which will allow another 1 Bcf/d of Marcellus/Utica gas to flow south as far as Louisiana. The new capacity should further ease takeaway constraints for moving gas out of the Northeast, potentially redistributing outflows across the various takeaway routes, while also allowing Appalachian gas supply to grow. The duo of expansions is also the last of the southbound expansions from the Northeast, at least until late 2019, when the embattled Atlantic Coast and Mountain Valley projects are due online. Today, we detail the upcoming expansions.

Monday, 11/05/2018
Category:
Crude Oil

There’s been a lot of talk lately that the crude oil hub in Cushing, OK, is losing its luster — that it may not be as important as it once was. Folks point to the precipitous, months-long decline in crude inventories that started last fall, or to the fact that just about all of the planned oil pipelines out of the red-hot Permian are pointed toward Gulf Coast refineries and export docks, not central Oklahoma. Then you’ve got ICE and CME’s new WTI futures contracts, both deliverable in Houston — another challenge to Cushing. While Cushing’s role as the epicenter of crude storage and trading may be in flux, rumors of its demise have been greatly exaggerated, as evidenced by the long list of midstream projects under development to transport more crude to — and out of — the Oklahoma hub, and to add storage tanks there. Just yesterday (November 5), in fact, Magellan Midstream Partners and Navigator Energy Services announced plans for what would be the first new Cushing-to-Houston pipeline since 2014. Today, we continue our comprehensive review of the “Pipeline Crossroads of the World” with a look at the many capacity-expansion efforts now under way.

Sunday, 11/04/2018
Category:
Crude Oil

Right now, pipeline capacity out of the Permian is constrained, and consequently some producers have cut back on well completions, more gas is getting flared, and ethane recovery is being driven more by bottlenecks than by gas plant economics.  But even with these issues, there are still 487 rigs drilling for oil in the basin (according to Baker Hughes), and all will come along with sizable quantities of natural gas.    Not only does this production need to be moved out of the Permian, the volumes need to find a home — either in the domestic market or overseas. These were all issues that were considered by our speakers, panelists and RBN analysts last month at PermiCon, our industry conference designed to bridge the gap between fundamentals analysis and boots-on-the-ground market intelligence.  In today’s blog, we continue our review of some of the key points discussed during the conference proceedings.

Thursday, 11/01/2018
Category:
Crude Oil

Refineries along the U.S. Gulf Coast (USGC), which account for half of the country’s total refining capacity, are generally among the most sophisticated and complex anywhere, with configurations that enable them to break down heavy, sour crude oil into high-value, low-sulfur refined products. However, over the past eight years, the USGC has been flooded with increasing volumes of light, sweet crudes produced in the Eagle Ford, the Permian and other U.S. shale plays as new pipelines were constructed or reversed to the coast for domestic refining or export. Still more pipelines will be coming online over the next year. Today, we evaluate how much domestic crude oil has been absorbed into the USGC refining system, the implications to the overall crude slate qualities, and options for increasing domestic crude oil processing in the near term.

Wednesday, 10/31/2018
Category:
Crude Oil

Pipeline capacity constraints are nothing new to producers in the Bakken. Prior to the completion of the Dakota Access Pipeline (DAPL) in mid-2017, market participants had been pushing area pipeline takeaway to the max. When DAPL finally came online following a lengthy political and legal battle, producers and traders were able to breathe a sigh of relief. But with Bakken production steadily increasing over the past 18 months and primed for future growth new constraints are on the horizon. Over the next year or so, Bakken output could overwhelm takeaway capacity and push producers to find new market outlets. The questions now are, which midstream companies can add incremental capacity, how much crude-by-rail will be necessary, and is there a chance a major new pipeline gets built? Today, we forecast Bakken supply and demand, discuss some upcoming projects and lay out the possible headaches for Bakken producers heading into 2019.