RBN Energy

New production expected online in December 2017 from the Suncor Fort Hills project in the oil sands region of northern Alberta could increase pipeline congestion from western Canada to the U.S. Gulf Coast market where the oil is in demand. That’s because existing capacity across the Canadian border is running close to full and the only possible capacity addition across before 2019 is Enbridge’s 300-Mb/d Alberta Clipper expansion at the border — assuming it gets a long-sought U.S. Presidential Permit later this year. As a result of this continuing near-term pipeline squeeze, producers are again turning to rail transport to bypass pipeline congestion and ensure their crude gets to market. On June 2 (2017), USD Group announced a new route option for Canadian producers following its purchase of a rail terminal in Stroud, OK, that is connected by pipeline to the Midwest crude trading and storage hub at Cushing, OK; USD will offer direct rail service from its Hardisty, AB, terminal to Cushing. Today we review the economics of this rail transport route for oil sands producers. (This blog is based on a recent note published by Morningstar Commodities and Energy Research.)

By the early 2020s, crude oil flows from the Permian to Corpus Christi are likely to increase by at least several hundred thousand barrels a day and may well rise by more than one million barrels a day. That can only happen, though, if new pipeline capacity is in place to move crude from West Texas to the coast and if enough crude-related infrastructure — storage, distribution pipelines, marine docks, etc. — is developed in Corpus to receive, move and load all that oil. Docks and ship-channel depth are particularly important; the bigger the vessels that Corpus marine terminals can handle, the more competitive Permian crude will be in far-away markets like Asia. Today we continue our series on the build-out of crude infrastructure in South Texas’s largest port and consider Corpus’s ability to load Suezmax-class vessels and maybe even Very Large Crude Carriers (VLCCs).

The accelerating trend toward high-intensity completions in the Permian, SCOOP/STACK, Marcellus/Utica, Haynesville and other key shale plays is sharply increasing demand for frac sand. As a result, there's upward pressure on sand prices and there are shortages of certain grades of sand that may continue into 2018.  There is also increased interest in developing sand mines near production areas. It’s important to remember, though, that (1) there’s no evidence that sand-supply issues will seriously curtail drilling and completion activity, and (2) higher sand costs can be offset by the production gains that usually come from using a lot more sand. Today we continue our surfing-themed series on sand costs and water-disposal expenses with a look at the forecast for 2017-18 demand for frac sand, sand pricing trends, efforts to develop regional sand supply sources and the bottom-line upside of high-intensity completions.

Over the past five years, the Corpus Christi area’s ability to refine or ship out crude oil has increased substantially, driven initially by rising production in the Eagle Ford play in South Texas — growth that has since subsided. Now, Corpus is preparing for a coming onslaught of crude from the red-hot Permian, whose producers see the coastal port as the preferred destination for their light crude and condensates. Today we continue a blog series on Corpus Christi’s crude-related infrastructure with a look at what’s already there and how storage and marine-terminal upgrades made over the past few years will be coming in handy.

For the first time ever, a Very Large Crude Carrier (VLCC) carrying Bakken crude has sailed from the Gulf of Mexico to Asia, and more may follow. With the startup of the Dakota Access Pipeline set for June 1, Bakken producers are only days away from gaining easier, cheaper pipeline access to the Gulf Coast, and are looking for new markets. Asian refineries are willing to pay a premium for Bakken-type crudes, and want other types of U.S. crude as well. And every 18 hours or so, a VLCC arrives at the Louisiana Offshore Oil Port—the only U.S. port capable of handling the mammoth vessels—offloads crude and leaves LOOP empty because the port is currently an import-only facility. Today we consider the potential for transporting more light, sweet crude to Asian refineries on VLCCs, either via ship-to-ship transfers or by reworking LOOP to enable exports.

Crude oil production in the Permian’s Midland and Delaware basins continues to rise, and producers in the red-hot shale play are hoping there will be enough pipeline takeaway capacity to handle all that growth. This is serious stuff—the Permian’s success the next few years will depend to a considerable degree on whether producers and the midstream sector can avoid the major constraint-driven price differentials between the Midland, TX hub, and destination markets like the Gulf Coast and Cushing, OK, that already have hit the Permian twice this decade. Today we discuss the prospects for another round of takeaway/price-differential trouble in the Permian as soon as late 2017/early 2018 and again in 2020-21.

The highly attractive production economics of the Permian’s multistacked, hydrocarbon-packed Delaware and Midland basins all but guarantee that the region’s output of crude oil, natural gas and natural gas liquids will continue rising—possibly at an even faster rate than what we’ve seen lately. That raises an all-important question: Will there be sufficient pipeline takeaway capacity in place to keep pace with all that growth? If there isn’t, some Permian producers will suffer from downward pressure on local prices—and that may cause them to have second thoughts about the big bucks they paid to gain access to the best Permian acreage in the first place. A production-growth forecast and a deep-dive assessment of existing and planned pipeline takeaway capacity are at the heart of RBN’s new Drill Down Report on the Permian. Today we provide highlights from the new report.