Last August, we titled our review of Q2 2022 E&P financial results Camelot after rising oil prices and surging natural gas realizations drove revenues, profits and cash flows to levels that seemed like an unrealizable dream for producers that had teetered on the brink of financial instability just two years before. Recent year-end results revealed the strongest returns in the industry’s history, much of which were distributed to long-suffering shareholders. But dreams fade and prices retreat, and Q4 2022 results suggest a far less idyllic 2023. In today’s RBN blog, we review the record 2022 performance and more sobering Q4 results.
Daily Energy Blog
If you follow developments in the energy industry, you know that news about permitting for major infrastructure projects can sometimes read more like a horror story: 14 years to build an electric transmission line, a decade to get a mining permit, and the reality that some projects can be constructed in far less time than it takes to secure the required permits and work through any legal challenges. It’s a known problem with a lot of contributing factors, but no easy answers. In today’s RBN blog, we look at how permitting difficulties have become a flashpoint for all sorts of stakeholders — industry groups, environmental advocates, the general public, and politicians of all stripes. Our focus today will be on the current poster child of permitting challenges, Mountain Valley Pipeline (MVP), but we’ll also discuss how permitting setbacks complicate the development of all types of projects, from traditional oil and gas pipelines to initiatives at the heart of the energy transition.
From its origins as a specialized energy source sold under long-term, point-to-point contracts to primarily Asian destinations, LNG has become progressively more commodified as its global reach has spread, with 44 countries now importing it. An increasing proportion of cargoes are destination-flexible and can be sent to the market that offers the best price, and the marginal price of LNG is set by supply and demand factors. The spectrum of commercial players has grown and come to resemble more closely the oil market, with not only international oil companies as major participants but also traders and utility buyers, all of whom are contributing to a vibrant international LNG marketplace. But unlike oil and other established commodities, LNG lacks a global reference or benchmark price, and instead is priced regionally, with the divergence in regional market prices giving rise to very profitable arbitrage opportunities for those controlling both product and ships. In today’s RBN blog, we look at the pricing indices used to make LNG trading decisions and two initiatives being implemented by the European Commission (EC) that are intended to improve price transparency for LNG trades and prevent price spikes in European gas markets through a consortium-purchasing approach.
Trading in the highly integrated US/Canadian crude oil market is undergoing a profound transformation, driven mostly by the pull of exports off the Gulf Coast. But the shifts in flows, values and even the trade structures being used today are not well understood outside a small cadre of professional traders and marketers. Consider a few examples: Domestic sweet oil traded at Cushing on NYMEX is not West Texas Intermediate — WTI at Cushing has averaged a hefty $1.80/bbl over NYMEX for the past year. Most spot Houston and Midland crudes trade as buy-sell swaps. WTI in Houston trades at a discount to Corpus Christi and sweet crudes in Louisiana. Crude in Wyoming trades at a premium to Cushing. And the Gulf Coast is the highest-value market for Canadian heavy crude. This is not your father’s (or mother’s) oil trading game. Our mission in this blog series is to pull back the curtain on physical crude trading in North America, explain how it works, what sets the price, and who is doing the deals.
In marking the third anniversary of COVID’s onset, the Washington Post detailed a study that showed most of us are already shedding the virus-impacted memories of that tedious and often traumatic time to concentrate on looking ahead — a trait scientists label “future-oriented positivity bias.” That transition was clearly evident in the 2022 investment decisions of U.S. E&Ps as the capex budgets of the 42 companies we monitor, pared to the bone during the pandemic, expanded through last year from initial guidance of a 24% increase over 2021 to a final 54% reported increase for the full year. They increased production by 9% year-over-year, but producers haven’t forgotten fiscal discipline or a focus on cash flow generation. In today’s RBN blog, we analyze 2023 capital budgets that generally sustain the pace of Q4 2022 spending and eschew additional increases in a lower commodity price environment.
In small steps and giant leaps, Enbridge has been building out two “supersystems” for transporting crude oil to refineries and the company’s own export terminals along Texas’s Gulf Coast, one moving heavy crude all the way from Alberta’s oil sands to the Houston area and the other shuttling light oil from the Permian to Enbridge’s massive terminal in Ingleside on the north side of Corpus Christi Bay. There’s nothing quite like it — first, an unbroken series of pipelines from Western Canada to Enbridge’s tank farm in Cushing, OK, (via the Midwest) and from there to Freeport, TX, on the twin Seaway pipelines; and second, the Gray Oak and Cactus II pipes from West Texas to the U.S.’s #1 crude export terminal. And the midstream giant is far from done. New projects and expansions are in the works, as we discuss in today’s RBN blog.
The buzz and activity around renewable diesel (RD), a chemically identical “drop-in” replacement for traditional petroleum-based diesel, continues to grow. The goals with RD, which is produced from renewable feedstocks, are to reduce the need for petroleum and to lower life-cycle greenhouse gas (GHG) emissions — critical steps in meeting climate agendas in many countries. Canada recently enacted legislation designed to promote the domestic production of RD as part of a broader emissions-reduction strategy. In today’s RBN blog, we take a tour of the newly emerging RD production sector in Canada and examine whether it could one day replace imports from the U.S.
At first glance, the Environmental Protection Agency’s (EPA) proposal to facilitate increased sales of E15 — an 85/15 blend of gasoline blendstock and ethanol — by putting it on the same summertime regulatory footing as commonly available E10 in eight Midwest/Great Plains states might seem like a boon to corn farmers and ethanol producers. But as we discuss in today’s RBN blog, there are a number of economic, practical and even psychological barriers to broadened public access to — and use of — E15 that go well beyond the specific regulatory issue the EPA proposal addresses. As a result, as we see it, EPA’s plan is unlikely to boost E15 demand in any meaningful way, at least for now.
Hardly a day goes by without news related to U.S. LNG export capacity expansions, whether it’s upstream supply deals, offtake agreements or liquefaction capacity announcements. One project is nearing commercialization, another five are under construction and due for completion in the next few years, still others are fully or almost-fully subscribed and will be officially sanctioned any day now, and the announcements keep coming. Just days ago, Venture Global reached a final investment decision (FID) for the second phase of its Plaquemines LNG project. With export development accelerating in the coming years, more natural gas pipeline capacity will be needed, particularly for moving gas supply to the Louisiana coast, where the bulk of the new capacity will be sited. In today’s RBN blog, we continue our series highlighting the pipeline expansions targeting LNG export demand, this time focusing on projects moving gas to southeastern Louisiana, including those designed to deliver feedgas to Venture Global’s under-construction Plaquemines LNG project.
Over the past couple years of energy market turbulence, pretty much everyone has come to acknowledge that the U.S. — and the rest of the world — will continue to require refineries and refined products for decades to come. It’s also likely, though, that U.S. refiners, like their European counterparts, will be required to do more to reduce the volumes of carbon dioxide (CO2) and other greenhouse gases (GHGs) generated during the process of breaking down crude oil and other feedstocks into gasoline, diesel, jet fuel and other valuable products. And, thanks to new federal incentives, it might even make sense for refineries to capture and sequester at least some of the CO2 they can’t help but produce. In today’s RBN blog, we begin a series on refinery CO2 emission fundamentals, the differing policies that are applied here in the U.S. and abroad, and how those policies might ultimately influence refining competitiveness.
As the push for decarbonization in the transportation sector gathers momentum, electrofuels — also known as eFuels, which are produced by using electricity to combine the hydrogen molecules from water with the carbon from carbon dioxide (CO2) — are beginning to attract attention as an alternative fuel with three important selling points in today’s environment. First, eFuels are available now and can be made with current technology, although there is a lot of room for future improvements and growth. Second, because they are considered drop-in replacements, they are essentially indistinguishable from the fossil-based conventional fuels in use today, which means they can be used without any changes to the existing energy infrastructure. Third, they can capitalize on a rapidly growing set of hydrogen and CO2 suppliers eager to secure a diversified set of offtakers. In today’s RBN blog, we look at HIF Global’s approach to eFuels production, its demonstration plant in Chile and its big plans for Texas and beyond.
Russia’s invasion of Ukraine in February 2022 caused panic in European gas markets that were already on the brink due to low winter inventories. Near-term supply/demand balances suddenly took on a heightened urgency, and everyone knew that policy and infrastructure changes were needed, pronto. The most immediate concern was the very real possibility that the winter of 2022-23 could see gas rationing within the European Union (EU) due to supply shortages. However, with winter now in retreat, Europe is emerging with record volumes of stored gas accompanied by prices that have fallen to pre-invasion levels. This is no time for complacency, though. While it’s many months away, the winter of 2023-24 looms, with dire warnings that things could be considerably worse in gas markets. In today’s RBN blog, we evaluate how European gas and LNG markets have managed over the last 12 months and discuss the implications for the next year. In particular, we look at the European Commission’s (EC) efforts to inject reforms into European gas markets, not only to accommodate supply disruptions but also to set the stage for a gas market no longer reliant on Russian supplies.
The wave of M&A activity in South Texas apparently hasn’t crested yet. Over the past couple months, Chesapeake Energy announced two deals totaling $2.825 billion that will almost complete its planned departure from the Eagle Ford — and signal UK-based INEOS’s arrival in the basin and a more than doubling of WildFire Energy’s production there. Just as important, Western Canada’s Baytex Energy a few days ago unveiled a $2.5 billion plan to acquire Ranger Oil, a pure-play Eagle Ford E&P, and thereby triple its South Texas production and gain its first operating capability in the U.S. And international interest in the basin doesn’t end there — Spanish energy giant Repsol, which had previously acquired the share of an Eagle Ford partnership held by Norway’s Equinor, recently bought basin assets held by Japan’s INPEX. (How’s that for multi-national M&A?) In today’s RBN blog, we discuss the latest round of E&P acquisitions and sales in South Texas, where production has been on the rebound.
Oil and gas companies across the value chain are facing new pressures to manage and reduce methane emissions. Their ability to access premium markets and buyers, appeal to investors and avoid costly fees depends on developing a credible plan to measure and reduce methane emissions. At the very least, the industry’s regulatory outlook, its non-governmental quasi-oversight and its access to capital are changing in ways that make understanding sometimes inconsistent emissions data vitally important. In today’s RBN blog, we explore the recent changes and the mounting external pressures around methane emissions.
For the first 10 years of the Shale Revolution, it was a foregone conclusion: High prices stimulated more drilling, and more drilling meant higher production. It worked in both directions. When prices crashed, so did production. The correlation was great. The relationships were right on cue in 2014-15 when $100/bbl crude crashed to $30, rebounded to $60 by 2019, and wiped out in 2020 when the COVID meltdown hit. But then the market shifted. As prices ramped up in 2021 — eventually to astronomical levels in 2022 — the phenomenon of producer discipline kicked in, with E&Ps capping their drilling programs and returning a significant slice of their rising free cash flow to their shareholders. The near-term market implications of this new dynamic have been extensively documented in the RBN blogosphere. But what does it mean for the future? Especially for intrepid energy analytics companies (like RBN) that, by necessity, must project producer behavior far into the future to determine what production will look like next year, next decade and even further over the horizon. In this new RBN blog series, we will examine that dilemma, the assumptions RBN makes, and what our forecasts for the next few years look like.