With oil prices higher than they’ve been in some time, it’s no surprise that the 44 major U.S. exploration and production companies we track reported — as a group — the highest quarterly profit and cash flow since 2014. Regaining a solid financial footing has been a long, painful struggle for crude oil and natural gas producers, who slipped into a river of red ink after the crude oil price collapse in late 2014 and 2015. After implementing a dramatic strategic and operational transformation, the industry returned to the black in 2017 despite a mid-year oil price dip, generally weak gas prices, and lingering write-downs from massive portfolio shifts. Now, strengthening oil prices and continued operational and financial discipline have lifted our E&Ps well above breakeven and suggest a higher trajectory for the remainder of the year. Today, we dive into first-quarter 2018 financial reporting by leading E&Ps to identify the drivers of a remarkable recovery.
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With natural gas production growth outpacing gas-demand growth in both the U.S. and Canada, gas producers in both countries are engaged in an increasingly fierce and costly fight for market share. Until recently, there were only skirmishes. For instance, when burgeoning Marcellus/Utica shale gas supplies lowered Northeast destination prices, TransCanada cut transportation rates on its mainline to help Western Canadian suppliers compete. When Northeast supply eventually exceeded Northeast demand on an annual basis, Canadian producers and shippers redirected more gas exports to the Midwest and West markets. But now, supply congestion on both sides of the U.S.-Canada border is worsening in every border region, to the point where options to maneuver into alternative markets are shrinking. This is war, folks — competition for U.S. gas market share between Canadian and U.S. producers is about to get much stiffer and the price discounts much deeper — deep enough to eventually price some production basins out of the market. Today, we discuss highlights from RBN’s new Drill Down Report on the subject.
Production of natural gas liquids in the Permian has been increasing rapidly, especially in the Delaware Basin, challenging the region’s existing NGL pipelines and other infrastructure and accelerating the development of new capacity. The Permian already had a substantial amount of NGL pipeline capacity in place before the region’s production of crude oil and associated gas took off, and more has been added since. But a number of the NGL pipes out of the Permian also move barrels from other basins, either inbound flows from the Rockies or volumes added downstream of the Permian in the Eagle Ford and Barnett shales. In addition, the vast majority of the Permian’s incremental NGL production is occurring in the Delaware, which had only a limited number of pipes and suddenly needs more. And one more thing: fast-rising ethane demand from new petrochemical plants along the Gulf Coast will reduce the share of ethane that is “rejected” into Permian natural gas. In today’s blog we discuss the NGL takeaway challenges facing producers and processors in cowboy country.
The sharp increase in U.S. crude oil exports over the past couple of years is tied primarily to Texas ports — mostly Corpus Christi and the Houston Ship Channel. Louisiana, a distant second in the crude-exports race, has a long list of positive attributes, including the Louisiana Offshore Oil Port (LOOP) — the only U.S. port currently capable of fully loading the Very Large Crude Carriers that many international shippers favor. It also has mammoth crude storage, blending and distribution hubs at Clovelly (near the coast, connected to LOOP) and St. James (up the Mississippi). In addition, St. James is the trading center for benchmark Light Louisiana Sweet, a desirable blend for refiners. The catch is that almost all of the existing pipelines at Clovelly flow inland — away from LOOP — many of them north to St. James. That means infrastructure development is needed to reverse these flows southbound from St. James before LOOP can really take off as an export center. Today, we continue a blog series on Louisiana's changing focus toward the crude export market and the future of regional benchmark LLS.
Necessity is the mother of invention, and the desperate need to transport increasing volumes of crude oil out of the severely pipeline-constrained Permian is spurring midstream companies and logistic folks in the play to be as creative as humanly possible. With the price spread between the Permian wells and the Gulf Coast exceeding $15/bbl in recent days — and possibly headed for $20/bbl or more soon — there's a huge financial incentive to quickly provide more takeaway capacity, either on existing pipelines or by truck or rail. Are more trucks and drivers available? Is there an idle refined-products pipe that could be put back into service? Could drag-reducing agents be added to an existing crude pipeline to boost its throughput? How quickly could that mothballed crude-by-rail terminal be restarted? Today, we discuss frenzied efforts in the Permian to add incremental crude takeaway capacity of any sort — and pronto.
Two months ago, the Federal Energy Regulatory Commission shook up master limited partnerships (MLPs) and their investors by deciding that income taxes would no longer be factored into the cost-based tariff rates of MLP-owned pipelines. We said then that there was no need to panic — that all this will take time to play out, and that the end results may not be as widespread or dire as some feared. Today, we provide an update, dig into FERC’s other actions on changes in income taxes, and discuss the phenomenon known as “FERC Time.”
The new, larger locks along the Panama Canal have been in operation for almost two years now, enabling the passage of larger vessels between the Atlantic and the Pacific. The timing couldn’t have been better — when the expanded canal locks came online in June 2016, exports of U.S. LPG, crude oil, gasoline and diesel were about to take off, and Cheniere Energy had only recently started shipping out LNG from its Sabine Pass export terminal in Louisiana, with Asian markets in its sights. Hydrocarbon-related transits through the canal soared through the second half of 2016, in 2017 and so far in 2018. But the gains are mostly tied to LPG and LNG — even the expanded canal isn’t big enough for the Very Large Crude Carriers (VLCCs) favored for Gulf Coast-to-Asia crude shipments, or for fully laden Suezmax-class vessels. And there already are indications that the canal’s capacity may not be sufficient to meet future LNG needs. Today, we consider the expanded canal’s current and future role in facilitating U.S. hydrocarbon exports.
U.S. crude oil exports have averaged a staggering 1.6 MMb/d so far in 2018, up from 1.1 MMb/d in 2017, and the vast majority of these export volumes — 85% in 2017 — have been shipped out of Texas ports, with Louisiana a distant runner-up. The Pelican State has a number of positive attributes for crude exporting, though, including the Louisiana Offshore Oil Port (LOOP), the only port in the Lower 48 that can fully load the 2-MMbbl Very Large Crude Carriers (VLCCs) that many international shippers favor. It also has mammoth crude storage, blending and distribution hubs at Clovelly (near the coast and connected to LOOP) and St. James (up the Mississippi). In addition, St. James is the trading center for benchmark Light Louisiana Sweet (LLS), a desirable blend for refiners. The catch is that almost all of the existing pipelines at Clovelly flow inland — away from LOOP — many of them north to St. James. That means infrastructure development is needed to reverse these flows southbound from St. James before LOOP can really take off as an export center. Today, we consider Louisiana's changing focus toward the crude export market and the future of regional benchmark LLS.
Natural gas production in the Permian has increased by about 1 Bcf/d since last November to about 8 Bcf/d today. That incremental gas production has used up virtually all of the remaining interstate and intrastate pipeline capacity out of the region, including the all-important pipes that move gas to the Houston area and East Texas. There’s considerable takeaway capacity still available on pipes from the Waha Hub to the Mexican border, but they can’t fill up until connecting pipelines and new gas-fired power plants are completed within Mexico. Permian supply is coming on faster than takeaway pipelines and demand can’t handle it. Something’s got to give. But what? Today, we continue a series on Permian gas with a look at the effects of Permian and Gulf Coast gas supply growth on Texas gas flows and pricing.
After years in the doldrums, ethane prices are increasing, not so much in absolute terms, but where it counts — relative to the price of natural gas. That means less ethane will be rejected — sold as natural gas — and more will be recovered as liquid ethane and sold as a petrochemical plant feedstock. As still more new ethane-only petrochemical plants come online over the next couple of years, ethane demand will increase, boosting ethane prices and resulting in still less ethane rejection. Does that mean ethane rejection will be a thing of the past? No, not even close. U.S. natural gas production, especially gas with a high ethane content, is growing so fast that ethane supply will continue to outstrip demand for the foreseeable future, with important consequences for ethane prices. Today, we continue our review of NGL market developments.
It’s no surprise that the plunge in crude oil prices between mid-2014 and early 2016 was a five-alarm wake-up call for the 44 exploration and production companies we follow. To deal with the trauma of the crude price collapse — and generally soft natural gas prices to boot — the industry undertook a dramatic strategic and operational transformation that enabled it to climb out of a huge hole and return to profitability in 2017. Key factors driving this impressive turnaround included the high-grading of portfolios, intense capital discipline and a heightened focus on operational efficiencies. However, the trajectory of recovery has varied from company to company because of the pace of their portfolio transformations, their geographic focus and, most significantly, the commodity mix of their production. Today, we look at how specific E&Ps within our three peer groups — Oil-Weighted, Diversified, and Gas-Weighted — have been working their way back to black.
The basis blowout at the Waha Hub in the Permian Basin arrived in full force over the last few weeks, with natural gas prices reaching discounts to the Henry Hub not witnessed since 2009. Available takeaway capacity has been quickly eroding on the existing pipeline corridors out of the basin, leaving many in the market pondering where all the incremental gas production will go before a new greenfield expansion pipe relieves the market in late 2019. Last week, a partial answer came in the form of a pipeline expansion project by Enterprise Products Partners and Energy Transfer Partners slated for completion later this year. While the project’s estimated size is far too small to preclude additional greenfield pipelines beyond 2019, it does highlight the attractive economics of brownfield expansions on the Texas intrastate pipelines at Waha. Today, we analyze announced and possible intrastate pipeline projects around Waha.
Even with crude oil prices down $1.67/bbl yesterday, the wide differential between Permian prices and those in destination markets held up, with WTI Midland trading at $15.60/bbl below the same quality of oil on the Gulf Coast. This has become a red-hot topic for all Permian-watchers. For example, in first quarter earnings calls, a number of producers not only reported their Permian well productivity and drilling plans, they also reviewed how much firm pipeline space they have signed up for in the Permian and how they plan (or hope) to avoid negative financial consequences from the differential blowout. With so much demand for new pipeline space, shouldn’t it be easy to get a bunch of shippers signed up for long-term commitments to fund a new project? Today, we’ll look at what it takes for commitments to pay off massive pipeline projects, the hurdles midstream companies go through to achieve it, and the possibility of new pipeline projects getting added to the development schedule.
Shipowners and refiners are struggling with how to prepare for January 1, 2020, when all vessels involved in international trade will be required to meet significantly stricter limits on emissions of sulfur oxides (SOx), either by using fuel with a sulfur content of less than 0.5% or by “scrubbing” the exhaust of ship engines when using the much higher-sulfur bunker fuel that most ships now rely on. The International Maritime Organization’s (IMO) new sulfur rule isn’t a minor tweak. It’s a game changer that already is causing widening spreads on the futures market between 3.5%-sulfur heavy fuel oil (HFO) — the traditional global bunker fuel — and rule-compliant low-sulfur distillates. The rule also promises to be a boon to complex Gulf Coast and other refineries that can break down residual-based HFO into higher-value, lower-sulfur distillates. Today, we begin a new series on how shipowners, refiners and the markets for HFO and low-sulfur marine fuel are responding (or not) to the coming change in global bunker requirements.
Production of crude oil and associated gas in the Permian continues to rise, despite pipeline takeaway constraints that have widened crude spreads and depressed natural gas prices at the Waha Hub. But while oil can be — and is being — transported by trucks and railroads when crude pipelines are full, natural gas needs to be either piped away or flared, and Permian gas production is now approaching the effective maximum takeaway capacity out of the basin. While a slew of new projects have been announced to relieve the Permian gas takeaway problem, the new capacity won’t arrive soon enough to keep Permian production from hitting the takeaway-capacity wall sometime in 2019. Today, we begin a series examining Permian production trends and their implications for pipeline flows and pricing in Texas.
