The March 2017 CME/NYMEX Henry Hub natural gas futures contract has shed nearly 60 cents/MMBtu (17%) since February 1, 2017, and the rest of the 2017 curve has been slashed by an average 40 cents (12%) in that time. On February 1, prices for all 10 remaining 2017 futures contracts (from March to December 2017) carried $3 handles. Now, all but two contracts are below $3. Weather has been the primary driver of this shift. February 2017 is set to rank as the warmest February since 1970, after January 2017 also came in as one of the warmest in 40 years. Weather forecasts are also showing the warmth extending into March. These developments are signaling a more bearish 2017 than expected. Today, we continue our supply and demand update with a look at the 2017-to-date balance.
Daily energy Posts
The increase in waterborne flows to the East Coast in response to the recent Colonial Pipeline outage illustrated the flexibility of supply in the U.S. motor gasoline market. At the same time, the lack of a lasting impact from the loss of 8.3 million barrels of gasoline to a key U.S. demand region highlighted the degree of oversupply in the market. Today we look at how waterborne flows helped to mitigate the effects of the Colonial Pipeline outage, and how flexibility in the East Coast motor gasoline market enabled it to handle unexpected supply constraints with minimal disruption.
U.S. crude oil prices languish below $50/bbl, but the oil-directed rig count is up by 90, an increase of almost 30% over the past 12 weeks. Natural gas production is down less than 1% from the all-time high hit back in February even though the price of natural gas remains below $3/MMbtu. The price spread between U.S. propane and international markets is far below a level that should justify exports, but LPG exports to overseas markets continue at astronomical levels –– approaching 700 Mb/d, most of which is propane. What’s wrong with this picture? Why does it seem that relationships between energy production, demand and prices have broken down, or at least have undergone some fundamental shift? That is what our upcoming School of Energy Fall 2016 is all about. Warning: Today’s blog includes a commercial for our upcoming Houston conference, scheduled for November 2 and 3 at The Houstonian Hotel.
Higher gasoline imports to the U.S. East Coast and weaker demand in the region have combined to bloat gasoline inventories, raising the question, what would it take to bring the market into balance? East Coast refinery output is down from this time last summer in response to somewhat lower crack spreads, but not enough to make a dent. Part of the problem is that while gasoline demand turned anemic in the Maine-to-Florida region, it is even weaker in many overseas markets. Also, the skill of East Coast blenders in dealing with a wide variety of supplies has always made the region an attractive destination for international product flows. Today, we continue our look at petroleum product cargo flows, and what they are telling us about the health of the market.
West Texas Intermediate (WTI) crude oil at Cushing is languishing back in the low $40s/bbl after a brief period of exuberance in the late spring. The blame for this latest oil-price retreat has shifted from high inventories of crude oil –– both on land and on tankers floating offshore –– to bloated petroleum-product inventories. There is some debate about how concerned the market should be about the increase in product stocks. In the opening episode of this blog series, we take a look at petroleum product cargo flows, and what they are telling us about the health of the market. We start today with middle distillates –– diesel and jet fuel.
Renewable Identification Numbers (RINs) have grabbed the attention of refiners this spring and summer, and for good reason. The price of RINs –– ethanol credits used by refineries to prove compliance with the federal Renewable Fuel Standard –– have soared, and the credits are having an outsized negative effect on some refiners’ costs and profitability. Part of the RIN price spike can be attributed to concerns that there may not be enough to go around this year, and that the situation in 2017 may be far worse. But the rocketing cost of the credits is also raising questions about whether the largely unregulated and opaque RINs market is being manipulated or even cornered by those hoping for a quick, Powerball-size profit. Today, we continue our review of the RINs market with a look at which types of refiners are hit hardest by high RIN prices, and at whether we might be heading off a RIN-availability cliff.
The rising cost of Renewable Identification Numbers (RINs) –– ethanol credits used by refineries to prove compliance with the federal Renewable Fuel Standard –– is putting added financial pressure on the refining sector, which already is squeezed by too-high inventories and thin crack spreads. In fact, for some refiners RIN expenditures may soon be their biggest single operating cost category. (Yes, you read that right.) The cost of ethanol credits is being driven up to record levels by several factors, chief among them the concern there may not be enough to go around this year and next. And things may only get worse from there. In today’s blog, we begin a two-part examination of the 2016-17 market for RINs, a regulatory must-do that rankles and vexes most refiners and gasoline importers.
We are getting into the peak summer driving season and gasoline demand has been hitting all-time highs. You might think that inventories would be drawing down and that the U.S. would need to import more gasoline and gasoline blending components. But not so. U.S. refineries are cranking out the products. Gasoline stocks are up 10% from a year ago—15 million barrels (MMbbl) higher than the top of the five-year range—and last week gasoline inventories made a contra-seasonal move upward, increasing by 1.4 MMbbl. Net exports for the first quarter were up almost five times the same period in 2015. But what does all this mean for refined product markets in general, and gasoline balances in particular? Today, we examine the state of U.S. petroleum product markets.
A few weeks back Rusty Braziel sat down with Don Stowers, Chief Editor of Pennwell’s Oil & Gas Financial Journal, to talk about the big picture – some of the most important issues facing the oil and gas industry, the lasting impact of the Shale Revolution, and Rusty’s thoughts from 40-plus years in the energy business. It turned into the cover story of their June 2016 issue. Today, we recap a few of the interview questions. You can download the full article (along with Rusty’s smiling face on the cover) at the bottom of the blog.
After the $5 billion-plus expansion of the Panama Canal is dedicated this Sunday, June 26, the first “New Panamax” vessel scheduled to pass through the canal’s new, longer, wider locks will be the Lycaste Peace, a Very Large Gas Carrier (VLGC) that is transporting propane from Enterprise Products Partners’ Houston Ship Channel export terminal to Tokyo Bay in Japan. What remains to be seen, though, is how many other supersized vessels carrying propane, liquefied natural gas (LNG) or other hydrocarbons will follow, and how soon. Today, we mark the formal opening of the newly enlarged Atlantic-Pacific short-cut with a look both at the game-changing potential of the expanded canal and the realities of today’s energy and shipping markets.
Crude oil and natural gas prices are back from the abyss, but does that mean the long awaited recovery is underway? Maybe so. But maybe not. Energy markets are fickle, driven by a chain of interactions where one market event triggers another, and then another. Rusty Braziel’s best-selling book, The Domino Effect, explores 30 such market events, which are represented by dominoes – hence the title of the book. More dominoes are falling now and still more will fall in years to come. This book explains the interconnectedness of energy markets through an analysis of energy market fundamentals: prices, flows, infrastructure, value, and economics. And good news for fans of audio books: The Domino Effect is now available on Amazon in Audible format. Today’s blog, an advertorial for the audio book, highlights what The Domino Effect has to say about what’s going on now.
The oil price collapse has opened a wide rift between high quality “good” assets, breakeven “bad” assets, and ruinous “ugly” assets. The consequences will impact energy markets for decades to come. In our recently published Drill Down Report, we demonstrate the differences between good, bad and ugly wells by examining the diversity of production economics across the Eagle Ford basin and why producers have been zeroing in on the counties——and areas within those counties—where initial production (IP) rates are highest, and preferably where large volumes of associated natural gas and natural gas liquids can be found as well. Today we consider Eagle Ford counties in more depth—their IPs, their internal rates of return (IRRs), and the number of new-well permit applications in each county in the first quarter of 2016.
On Monday, September 3, 2007, dignitaries and thousands of Panamanian citizens watched a huge explosion level a hill near Paraiso, a village north of Panama City. That day launched work on a project that would eventually cost more than $6 billion (U.S.) to double the capacity of the Panama Canal and allow for the passage of longer and wider ships. Nearly nine years later on June 26, 2016, the expansion is finally scheduled to be open for business. The new canal capacity will be a major event in global energy markets, especially for growing volumes of U.S. natural gas, liquified petroleum gas (LPG) and petroleum product exports. In honor of this historic development, RBN will take you there! Rusty will be traversing the canal this Thursday, April 14th and will have the skinny on what is happening in Panama right now, with pictures to show for it. In today’s blog we set the stage for our voyage across the Panamanian Isthmus.
A combination of pipelines and ships delivers some 4 MMb/d of transportation and heating fuels to the U.S. East Coast, most of it from Gulf Coast refineries. But there’s always room for improvement in refined products delivery infrastructure, whether it’s pipeline or port capacity expansions, new pipeline spurs, or new storage capability. The aim of these projects is almost always the same: to make distribution more efficient and to hold down the per-barrel cost of delivery. Today, we conclude our series with a look at possible infrastructure improvements and a note about the challenges these projects face.
Most of the gasoline, diesel, heating oil and jet fuel consumed in the U.S. East Coast region is piped in via long-distance pipelines from Gulf Coast refineries, but substantial amounts are moved in by ship—either from the Gulf Coast by Jones Act vessels or from overseas. These shipped-in volumes then need to make their way from port to consumer. Today we continue our examination of how transportation fuels and heating oil are delivered to East Coast users with a look at the ports and connecting pipelines that help move these critically important fuels.
The East Coast consumes more than 200 million gallons of gasoline, diesel, heating oil and jet fuel a day, but produces only one-fifth of that total, most of it at New Jersey and Pennsylvania refineries. To keep the region’s cars, trucks, trains and airplanes moving (and many of its homes and businesses heated) huge volumes of fuels need to be delivered from elsewhere, mostly via two pipelines from the Gulf Coast and the rest by ship—some from Gulf and other U.S. ports and some from overseas. Today, we continue our examination of the infrastructure that moves gasoline, diesel, heating oil and jet fuel to the nation’s largest fuel-consuming region with a look at four major pipelines.