Propane prices at Mont Belvieu soared above $1/gallon on Wednesday — the first time that’s happened in the month of June since 2014. This buck-and-change price doesn’t come as much of a surprise for industry insiders, however. U.S. propane inventories have been very skinny lately, sitting at 56.2 MMbbl — or only 587 Mbbl above the five-year minimum based on yesterday’s EIA data. At the same time, propane exports have been riding high, averaging 1.3 MMb/d so far this year, up nearly 90 Mb/d from the same time frame in 2020, while production has remained virtually flat over the past 18 months. Surprise or not, the spike past $1/gal raises an important question: How high will U.S. propane prices have to go before exports are reined in so U.S. inventories can increase? Today, we discuss the key drivers behind the current price level and our propane market outlook for the second half of the year.
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Daily energy Posts
U.S. LNG export terminals are running at their operationally available and contracted levels and will continue to do so, with no economically driven cargo cancellations anywhere on the horizon. Global gas prices are well supported by low storage levels in Europe, and it will take time to refill inventories, which means these high prices are not going away anytime soon. The upshot: U.S. LNG will have a very different kind of summer than it did last year, when global prices were at historic lows and many U.S. terminals saw more cargo cancellations than exports. Feedgas in April this year averaged 10.77 Bcf/d, nearly 3 Bcf/d higher than last year, and as we progress into summer, the year-on-year delta will become even more pronounced. Barring any major operational issues, feedgas demand will stay around 11 Bcf/d, which is the level needed for the terminals to produce at full capacity. That’s in stark contrast to last summer, when feedgas demand cratered and averaged as low as 3.34 Bcf/d in July as cargo cancellations peaked. Today, we look at what’s supporting global gas prices, how that impacts export economics for U.S. LNG, and what that means for feedgas demand in the months ahead.
We all hope that by the time you read this the operators of the ransomware-impacted Colonial Pipeline will have been able to restore service to more of the 5,500-mile refined products delivery system — maybe even to all of it. In any case, the shutdown of the Houston-to-New-Jersey pipeline system on Friday both exposes the vulnerability of the North American pipeline grid to malevolent hackers and reveals how, by its very nature, that same grid offers at least some degree of redundancy and resiliency built into it. A lot of that ability to respond to a crisis, whether it be a pipeline leak or a hack by an Eastern European criminal group called DarkSide, involves what you might call “market-inspired workarounds” — alternative suppliers reacting to an anticipated supply void and potentially higher prices by jumping into action. Today, we look at what the ransomware attack on the U.S.’s largest gasoline, diesel, and jet fuel transportation system can teach us.
Plains All American has an extraordinary collection of crude oil gathering systems and shuttle pipelines in the Permian Basin, as well as full or partial ownership interest in a number of long-haul takeaway pipelines to the Gulf Coast and the Cushing hub. As important as many of these individual systems and pipelines may be, it’s the interconnectivity among these assets — and especially Plains’ crude oil terminals in Midland and other West Texas locales — that gives the midstream giant’s Permian infrastructure a value far greater than the sum of its parts. Today, we’ll discuss the important role that Plains’ two terminals in Crane, TX, play in balancing the midstream company’s Permian crude oil delivery network and providing destination optionality.
Here at RBN, we’ve built our analytics around the concept that hydrocarbon commodity markets — crude oil, natural gas, and NGLs — are fundamentally and closely linked. That’s why in all that we do, we emphasize that, in order to have an understanding of one market, you must also be competent in the others. That can be difficult at times when not only the market structure, but the very rules governing the upstream, midstream, and downstream sectors of oil and natural gas transportation are so different from each other. For example, consider the many contrasts between how oil and natural gas pipelines are regulated. Today, we look at how federal oversight of pipelines has evolved and why it matters for folks trying to move a barrel of crude oil or an Mcf of natural gas from Point A to Point B.
It’s been two weeks since our last blog on hydrogen, so we’re back again with the latest installment of what has become something of a “Hydrogen 101” course. As with any college course, the time comes to review some material, in preparation for what will be our “final” on the subject, a one-day virtual conference in late June. No, today’s blog won’t be a repeat of what we discussed before, but we thought it would be helpful to look over the various hydrogen production pathways we have discussed so far this year, this time focusing on the drivers, advantages and disadvantages, and how they relate to each other. Finally, we will also review the general carbon intensity of each approach to producing H2, a method that we think will eventually replace the somewhat flawed hydrogen “color” scheme. In today’s blog, we draw upon our recent coverage of hydrogen production technologies and put them in perspective.
Every day, another 4.5 million barrels of Permian crude oil begin the journey from wells in West Texas and southeastern New Mexico to refineries in the U.S. and abroad. For most of that oil, it’s no simple trek. Not only does it wend its way through gathering systems and shuttle pipelines to nearby hubs, it often needs to be directed between terminals within those hubs to reach the specific outbound, long-haul pipe that will take it to where it needs to go. We get it — you probably don’t need to know about every nook and cranny in the multi-terminal hubs at Midland, Crane, Wink, and elsewhere in the Permian, but it sure would help to understand generally how the flow of oil to market works, and why a terminal’s ability to provide destination flexibility is so crucial. Today, we continue our series on Permian hubs and terminals with a real-world example of how a barrel of Delaware Basin crude oil moves to Corpus Christi, Houston, or Cushing.
Since the long-standing ban on most exports of U.S. crude oil was lifted more than five years ago, major ports and marine terminals along the Gulf Coast have been competing fiercely for the business of crude shippers. The primary weapons in this battle for barrels have been the abilities to provide easy pipeline access to the Permian and other key production basins, ample storage near the water for blending and staging, and top-notch dock facilities for quickly, efficiently loading crude onto tankers, the bigger the better. On that last point, for many shippers the vessel of choice is a 2-MMbbl VLCC, which typically offers the lowest per-barrel cost for long-distance oil delivery. Crude-laden VLCCs are “low riders” that need deep water, though, and so far only the Louisiana Offshore Oil Port can fully load one. Within a year, though, thanks to a long-awaited Corpus Christi Ship Channel dredging project now under way, marine terminals in Ingleside, TX, will be able to do the next-best thing: loading up to 1.6 MMbbl onto VLCCs, and thereby reducing the need for offshore reverse lightering. Today, we discuss the project to deepen the channel to 54 feet and its impact on crude exports.
Outbound natural gas flows from Appalachia over the weekend hit a new record high of 17.3 Bcf/d and averaged 16.7 Bcf/d for April — an all-time high for any month. That’s despite pipeline maintenance season being well underway last month and intermittently curtailing production and outflow capacity. Utilization rates of takeaway pipelines from the region are soaring above 90%, with little more than 1 Bcf/d of spare exit capacity for outflows of surplus Northeast production. Whether that will be enough to stave off severe constraints and discounted pricing in Appalachia in what’s left of the spring season, and again in the fall will depend on how much surplus gas is left after meeting in-region consumption and storage refill requirements. What happens when seasonal demand declines occur in May and June? In today’s blog, we wrap up our analysis of current outbound capacity utilization and where that leaves the Northeast gas market this spring.
In just a few years, the Montney Formation has become the most prolific natural gas production region in Western Canada. Starting from zero in 2005, the Montney has been the primary growth engine for gas supplies and continues to challenge producers to deal with its vast geographic extent and enormous reserve potential. Spread across swaths of Canada’s two westernmost provinces, the formation’s unique geology has meant that its gas production growth has moved at different speeds depending on location, geology, and pipeline access. In this first part of a three-part series, we take a closer look at this important formation.
Permian natural gas markets have never been more interesting, if you ask us. Sure, there are no negative prices at the Waha hub these days, and the triple-digit prices produced by Winter Storm Uri are starting to fade in the rear view. But there’s plenty of action ahead for Permian gas this year and next. For starters, sometime in the next few weeks the 2.0-Bcf/d Whistler Pipeline is scheduled to begin moving natural gas from the Permian to South Texas, further enhancing takeaway options for the basin’s continually growing supply of gas. That’s good news, considering Permian gas production is at record highs and set to grow to over 14 Bcf/d by the end of 2022. Speaking of records, gas exports from the Waha Hub to Mexico have never been higher and should increase further this summer, as power demand increases and a new pipeline across the border is expected to come online. Topping all that off is the recent news that the Permian will soon see a major gas storage facility start up right in the middle of the Waha hub. The latter is the focus of today’s blog, in which we detail the latest addition to the Permian gas infrastructure puzzle.
As governments and corporations around the world evaluate methods of decarbonization across sectors, one focus area has been transportation, since the petroleum fuels used to mobilize economies are significant contributors to greenhouse gas (GHG) emissions. California’s Low Carbon Fuel Standard (LCFS) is one of the longest-running programs for carbon intensity (CI) reduction targeting the transportation sector and provides an ideal case study to review for a better understanding of how one type of GHG reduction policy is anticipated to work. As many of the principles in this pioneering program are being evaluated for replication elsewhere, its results and consequences are still in the making. In today’s blog we’ll provide an overview of the Golden State’s groundbreaking LCFS, looking at its history, how it functions, and its effectiveness at meeting its goals to date.
So far in April, there was an unexpected run-up in propane prices early in the month, followed by a 21% swoon in the past 15 days of trading. The forward curve suggests smooth sailing from now through next winter season, but that seems unlikely, given recent market developments. Propane inventories, which are supposed to be building this time of year, actually fell last week, putting stocks at 16.9 MMbbl below this point in 2020, according to EIA statistics released last week. The data also showed that weekly exports spiked to the second-highest peak of all time at 1.7 MMb/d, while production declined two out of the past three weeks. And just over the horizon, there’s the potential for a big increase in Chinese propane demand as new petrochemical plant capacity comes online over the next three years. Today, we look at how these issues are likely to shape the propane market over the next few months and suggest that you consider attending our upcoming virtual conference, where we will pose these questions to industry leaders from production, midstream, exports, and retail market segments.
Prior to COVID, crude oil and natural gas production in the U.S. had been on a tear, surging in tandem in the years following the 2014-15 price meltdown. But then the pandemic decimated domestic demand, crushing prices. Predictably, producers cut back production, particularly in crude-focused basins, and it was widely expected that associated gas from those regions would suffer in proportion. But that didn’t happen. Gas volumes have dropped somewhat, but not nearly to the extent that crude did. Said another way, the ratio of gas production to oil production has risen — and that’s been true at both the total U.S. level and in the primary unconventional basins for oil production. In today’s blog, we will look at the factors driving the trend of higher gas-to-oil ratios.
Crude oil production in U.S. shale and tight-oil plays still hasn’t recovered fully from the demand destruction wrought by COVID-19 in the last year or so. It could be argued, though, that producers in the offshore Gulf of Mexico (GOM) have faced even tougher times as they had to deal with not only pandemic-related staffing issues and project setbacks but the most active hurricane season on record. Offshore GOM production averaged only 1.65 MMb/d in 2020, a 13% decline from the previous year and the lowest since 2016. By August, production fell to less than 1.2 MMb/d, the lowest for that month in seven years. Many new projects were delayed as well, but things may finally be looking up, with first oil from a number of projects coming later this year or in early 2022 and final investment decisions (FIDs) on two major projects expected soon. Today, we discuss the wild ride that GOM producers experienced in 2020 and whether better days can be expected in the future.
We’ve been writing on hydrogen for a few months now, covering everything from its physical properties to production methods and economics. Given the newness of the subject to most folks, who have spent their careers following traditional hydrocarbon markets, we have attempted to move methodically when it comes to hydrogen. However, we think that things may get more complicated in the months ahead. Why, you may ask. Well, the development of a hydrogen market — or “economy”, if you will — is going to be far from straightforward, we believe. Not only will hydrogen need some serious policy and regulatory help to gain a footing, the new fuel will have to become well-integrated into not only existing hydrocarbon markets, but also some established “green” markets, such as renewable natural gas, or RNG. So understanding how renewable natural gas is produced and valued is probably relevant for hydrogen market observers. In today’s blog, we take a look at the possible intersection of natural gas, particularly RNG, and hydrogen.