Crude oil production in the Denver-Julesburg (D-J) Basin has nearly doubled since January 2016 — only the Permian has outpaced the D-J’s growth rate over the same period — and production there now averages about 640 Mb/d. The D-J has just about everything producers want, including an unusually intense concentration of hydrocarbons within four geologic layers, or “benches,” only a few thousand feet below the surface, low per-well drilling costs, and direct pipeline access to the crude hub in Cushing, OK. Production growth in the D-J has spurred a rapid build-out of crude gathering systems and other infrastructure, especially in Colorado’s Weld County, the epicenter of D-J activity, which is located a short drive northeast of Denver. Today, we begin a series on existing and planned pipeline networks to move D-J crude from the lease to regional hubs and takeaway pipes.
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After months of severe natural gas pipeline constraints, Permian producers and shippers are reveling in the relief of new takeaway capacity. Kinder Morgan’s Gulf Coast Express (GCX) Pipeline, which began flowing initial volumes in mid-August, last week began full commercial service on its 2-Bcf/d greenfield route from the Permian to South Texas. Actual volumes on GCX are hard to come by, but all indications are that flows are ramping to near capacity. That surge in Permian outflows in recent weeks has propelled natural gas prices at the regional benchmark Waha Hub — which traded as low as $5.00/MMBtu below zero earlier this year and fell into negative territory as recently as August 8 — to nearly $2/MMBtu, levels not seen at the hub since last winter. However, with the sting from negative prices only now just fading, many in the market are wondering if this rally is here to stay or just a temporary reprieve. Today, we look at the latest developments in the Permian natural gas market.
Limetree Bay Refining’s plans to restart the former Hovensa plant in St. Croix, U.S. Virgin Islands, at the end of 2019 will add significant refining capacity to the North American stack, helping to offset the loss this year of the 335-Mb/d Philadelphia Energy Solutions plant in Pennsylvania. Limetree Bay is also poised to fill a void in Caribbean refining that’s been left by Venezuela’s economic collapse as well as the International Maritime Organization’s 2020 changes to the bunker fuel market. But the facility is not without its challenges, from high fuel costs and stiff competition from Gulf Coast refineries to tropical storms. Today, we conclude an analysis of the operation and potential markets for the refinery.
There already are indications that newly available takeaway-pipeline capacity out of the Permian Basin is goosing crude oil production growth there. Flows on those new pipes — Plains All American’s Cactus II and the EPIC system — are ramping up, crude exports are setting new records, and the end of big price discounts for oil at Midland versus Cushing and the Gulf Coast are giving Permian producers an economic incentive to produce more. And more takeaway capacity is on the way, including the 900-Mb/d Gray Oak Pipeline, which is slated to come online in the fourth quarter. Fast-rising production is putting new pressure on producers and their midstream partners to build and expand crude gathering systems and shuttle pipelines — especially in the Permian’s Delaware Basin, which has a lot less gathering pipe in the ground than the Midland Basin and which is poised for phenomenal production growth the next few months and years. Today, we discuss highlights from our second Drill Down Report on Permian gathering systems, this one focusing on developments in the fast-growing Delaware Basin in West Texas and southeastern New Mexico.
A build-out of NGL fractionators, steam crackers and export terminals for ethane, LPG and ethylene is actively in progress along the Gulf. This growth is spurring the development of new storage capacity — not just at the Mont Belvieu NGL hub, but in other, nearby areas with access to fracs, crackers and export docks. Much of this new storage capacity is being developed by companies that fractionate mixed NGLs and sell so-called “purity products” to meet their internal needs. However, at least one project is being built by what you might call an “independent,” whose aim is to connect to multiple pipelines and provide storage services to customers, without taking title to products alongside their customers. Today, we continue our series on existing and planned NGL storage facilities along the Gulf Coast with a look at Caliche Development Partners’ new storage complex in Beaumont, TX.
There’s a tough race underway among U.S. LNG developers jockeying for position in the global LNG market. U.S. supply growth has spurred the development of more than two dozen LNG export projects, the bulk of them along the Texas/Louisiana Gulf Coast. But regulatory bottlenecks and deepening oversupply conditions in international markets are creating strong headwinds and slowing the momentum for some of these massive projects, making it harder and harder for them to reach the regulatory and commercial milestones they need to pass before they can progress to the construction phase. That said, several projects have eked out big wins in recent weeks, including Tellurian’s $7.5 billion memorandum of understanding with India’s Petronet LNG Ltd for its Driftwood LNG project, signed just this past weekend, and LNG Ltd.’s 2-MMtpa sales and purchase agreement for its Magnolia LNG, inked early last week. Today, we provide highlights of recent regulatory and commercial developments that are pacing the proposed export capacity additions.
Every week, traders far and wide watch inventories at the storage hub of Cushing, OK, for insight into the U.S. crude oil market. Cushing has long been the epicenter for crude trading in the U.S., and while that role has shifted as the Gulf Coast gains more prominence, inventories at the Oklahoma hub are still a valuable indicator for traders looking for supply and demand trends. Recently, we’ve seen Cushing stocks drop significantly, declining for 11 straight weeks since the beginning of July to their lowest levels since last Thanksgiving. Today, we review the recent drop at Cushing, and discuss how a few changes in supply and demand fundamentals, plus strong pricing motives, helped drag down stockpiles this summer.
You may not know it by the look of the S&P E&P stock index, which has been flirting with record lows in recent weeks, but exploration and production companies are continuing to defy the industry’s legendary boom-and-bust cycles by pumping out increasing volumes of crude oil and natural gas while slashing spending. Some types of E&P companies have fared better than others in this lower-price environment. How are they continuing to generate substantial production growth under sharply lower capital investment programs? Today, we update our analysis of capital expenditures and production growth based on the second-quarter results of the 43 U.S. oil-focused, gas-focused, and diversified producers we track.
The Uinta Basin in northeastern Utah boasts enormous reserves of unusual, waxy crude oil with many characteristics that refiners desire: medium-to-high API gravity and very low sulfur, acid and metal content among them. Moreover, the combination of long horizontal wells and hydraulic fracturing now give producers access to the basin’s waxy crude at a remarkably low cost per barrel. The catch is that the crude’s most notable feature — its shoe-polish-like consistency at room temperature — poses a major economic and logistical challenge: how to cost-effectively transport the stuff to distant markets. Refineries in nearby Salt Lake City have been making good use of the waxy oil for decades, but there are limits to how much they can process, so Uinta Basin producers, midstreamers and investors have been working on ways to move large volumes to faraway places like the Gulf and West coasts. They may finally be making real progress. Today, we begin a series on the prospects for taking waxy-oil production from the often-overlooked Uinta Basin to the next level.
U.S. energy markets are coming to the end of their latest infrastructure cycle just as the reality of tight capital markets is sinking in. Permian crude oil and natural gas takeaway constraints are being relieved by new pipeline capacity. Long-delayed LNG terminals and NGL-consuming petrochemical plants are coming online. Essentially all growth in crude, gas and NGL production volumes is being exported to global markets that — so far, at least — have been absorbing the incremental supply. But there is a chill in the air. Besides the recent bump-up in crude prices tied to last weekend’s attack on Saudi oil facilities, commodity prices have remained stubbornly low. Easy access to capital is a thing of the past. No longer can private equity count on the build-it-and-flip asset investment model. Yup, it’s another inflection point in the Shale Revolution that we’ll start exploring today. All this has huge implications for energy flows, infrastructure utilization and price relationships across all of the energy commodities.
Alberta natural gas storage, one of the largest regional storage hubs in North America, is experiencing one of its slowest cumulative storage injection rates in years and could be headed to a 13-year low for storage levels by the end of the current injection season. That may seem ominous for the chilly Alberta and Canadian winter heating season, not to mention gas exports to the U.S. So far, though, winter gas forward prices for the Western Canadian gas price benchmark of AECO have registered a relatively modest market response, staying in line with last winter’s average spot price. Today, we take a closer look at the market’s apparent lack of concern over low Alberta gas storage.
The ethane market isn’t for the faint at heart — it’s got lots of ups and downs, and it’s impacted by an unusually wide range of variables. A year ago this month, a combination of fractionation constraints in Mont Belvieu and rising demand from new ethane-only steam crackers sent ethane prices north of 60 cents/gallon. For most of the time since then, though, ethane prices were in something close to freefall, bottoming out at only 10 cents in late July before rebounding in recent weeks to 20 cents or so. During the big, months-long price decline, ethane traders and cracker operators did what anyone does when they can buy something they’ll need in the future for next to nothing — they stocked up. Today, we examine recent trends in ethane supply, demand, prices and storage levels, and take a look ahead.
The options for moving Western Canada’s natural gas supply out of the region are limited. This situation has become more acute in the past few years with the upswing in associated gas production from specific areas within the sprawling region, meaning that not all the takeaway pipelines are created equal in terms of being able to move this incremental gas supply to downstream markets. One pipeline system — TC Energy’s mammoth Nova Gas Transmission Ltd. (NGTL) network — is ideally located to help out, given that big parts of it run through the fastest-growing production areas. But it’s been running full and is increasingly constrained. Will the planned expansions to the NGTL system be enough? Today, we continue our series on the Western Canadian natural gas market with a look at TC Energy’s NGTL network, the largest and most geographically advantaged of the pipeline systems in the region.
Limetree Bay Refining plans to restart a former Hovensa plant in St. Croix, U.S. Virgin Islands, at the end of 2019. The refinery’s initial processing capacity of 200 Mb/d represents a significant addition to the North American stack, helping to replace the loss this year of the 335-Mb/d Philadelphia Energy Solutions plant in Pennsylvania. If it opens on time before the year’s end, Limetree will be well-positioned to fill a void in Caribbean refining that’s been left by Venezuela’s collapse as well as the International Maritime Organization’s (IMO) 2020 changes to the bunker fuel market. The plant’s location in the middle of world trade routes conveys some advantage, but it must compete with U.S. Gulf Coast refineries to supply regional markets. While higher input costs compared to U.S. rivals will dampen margins, a tolling agreement with BP could insulate Limetree from market exposure. Today, in the first of a two-part blog series, we review the operations and potential product market for the refinery.
2019 was supposed to be a milestone year for U.S. LNG exports. And to a degree, it has been. Natural gas pipeline deliveries to liquefaction and export terminals have peaked above 6.5 Bcf/d in the past couple of weeks and averaged about 6 Bcf/d for that period, up nearly 2 Bcf/d from where they started this year and more than twice where they stood at this time a year ago. But the growth has come haltingly as under-construction projects have faced a number of setbacks and delays. Moreover, the longer-term, “second-wave” export projects still in the early stages of development and looking to pass “go” are facing challenges of their own, including global oversupply and collapsed margins. Today, we begin a short series providing an update on where U.S. LNG export demand and new projects stand.
Despite last month’s much-publicized start-up of two new crude oil pipelines from the Permian Basin to the Gulf Coast — Plains All American’s Cactus II and EPIC Crude Holding’s EPIC Pipeline — tangible evidence of how much crude is actually moving on those pipelines has been hard to come by. That’s because crude oil pipelines don’t post daily flow data, like some natural gas pipelines do, and shipper volumes are a closely held secret that often only becomes available long after the fact. However, Cactus II and EPIC both deliver into the Corpus Christi, TX, market area, where a number of export facilities have been waiting to move Permian barrels out into the global market. We’ve been keeping a close eye on Corpus-area docks and have noticed a significant increase in export volumes over the last few days — a clear indication that Permian crude on Cactus II and EPIC has broken through to the global market. Today, we detail a recent rise in Corpus Christi oil export volumes driven by new supply from the Permian Basin.