RBN Energy

Thursday, 2/27/2020

The Bakken was among the first plays to benefit big-time from the Shale Revolution, experiencing a 400%-plus increase in crude production in the first half of the 2010s. The play has had more than its share of challenges, however, including a serious lack of takeaway capacity that spurred the first rapid deployment of modern-day crude-by-rail, followed by a rig-count collapse and major production decline after the mid-decade crash in oil prices. But the Bakken has been roaring back. Crude output there now tops 1.5 MMb/d — some 250 Mb/d higher than its late-2014 peak — and producers have been planning for continued production growth in 2020, though many may be reassessing those plans in light of this week’s coronavirus-related price slide. In any case, production growth is only possible if there’s sufficient gathering infrastructure in place to handle it. Today, we continue our series on crude-related infrastructure in western North Dakota with a look at a leading Bakken midstreamer’s assets.

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Daily energy Posts

Thursday, 02/27/2020

The Bakken was among the first plays to benefit big-time from the Shale Revolution, experiencing a 400%-plus increase in crude production in the first half of the 2010s. The play has had more than its share of challenges, however, including a serious lack of takeaway capacity that spurred the first rapid deployment of modern-day crude-by-rail, followed by a rig-count collapse and major production decline after the mid-decade crash in oil prices. But the Bakken has been roaring back. Crude output there now tops 1.5 MMb/d — some 250 Mb/d higher than its late-2014 peak — and producers have been planning for continued production growth in 2020, though many may be reassessing those plans in light of this week’s coronavirus-related price slide. In any case, production growth is only possible if there’s sufficient gathering infrastructure in place to handle it. Today, we continue our series on crude-related infrastructure in western North Dakota with a look at a leading Bakken midstreamer’s assets.

Wednesday, 02/26/2020

Back in 2013-14, a run-up in demand for Jones Act tankers and large articulated tug barges –– and a spike in time charter rates — spurred orders for a flotilla of new vessels. By the time the new tankers and ATBs were built and launched, however, demand for them had fallen off. That decline was mostly due to the mid-decade slump in U.S. crude oil production and, with the lifting of the ban on most U.S. crude exports, the drop in crude shipments from one U.S. port to another. Term charter rates plummeted and ship owners stopped ordering new tankers and large ATBs. Now, for the first time in more than five years, there are barely enough Jones Act vessels to go around, and charter rates are on the rise. Today, we discuss recent trends and how they’re impacting crude oil and refined products transportation costs.

Monday, 02/24/2020

Oil-production restraint by OPEC and 10 cooperating countries grows more challenging with time, and just when market projections began to hint at relief for the OPEC-Plus group, the spread of the new coronavirus in China and beyond became a sudden and possibly serious impediment to global economic growth and oil demand. Yesterday’s slide in crude oil prices amid newly heightened concern about the potential pandemic’s effects will only add to the challenges that OPEC-Plus countries will face in managing crude supply. So far, the OPEC-Plus group has achieved unprecedented compliance with its production ceilings, which it implemented in January 2017 and has adapted a few times since in response to market pressure. That effort has kept the crude price above the ruinous levels of 2015, memories of which have encouraged quota discipline. But the threat of a major, coronavirus-related slowdown in global oil demand could seriously undermine OPEC-Plus’s efforts, which already had been hurt by dissent within its ranks. Today, we continue our series with a look at Monday’s price drop, the latest supply and demand forecasts and a discussion of the obstacles that might affect OPEC-Plus going forward. 

Monday, 02/17/2020

Crude oil production in the Bakken Shale, which slumped after the 2014-15 crash in oil prices, has increased by more than 50% in the past three years, and now tops 1.5 MMb/d. Just as important, producers in the core of the crude-focused play in western North Dakota have been ratcheting down their drilling-and-completion costs and making plans for continued production growth in 2020. Also, midstreamers are addressing a gas processing capacity shortfall that had threatened to slow drilling activity; in addition, some of them are developing crude oil takeaway capacity, including the planned Liberty Pipeline to the crude hub in Cushing, OK. Today, we begin a series on the Bakken’s expanding network of smaller-diameter crude pipelines and their role in further improving the shale play’s economics.

Thursday, 02/13/2020

On January 1, 2020 the International Maritime Organization (IMO) implemented new fuel standards for oil-powered vessels, except those equipped with exhaust scrubbers to remove pollutants. In the absence of a scrubber, the IMO 2020 rule stipulates that ships' bunkers contain less than 0.5% sulfur. Using a scrubber allows the vessel to burn cheaper high-sulfur fuel. Last March, a shipowner’s estimated $2.5 million scrubber investment for a 2-MMbbl Very Large Crude Carrier (VLCC) would take just over three years to recover, based on average fuel prices during the first quarter of 2019. This year, barely a month after the new regulation came into force, the payback period has shortened dramatically, to less than a year, though the coronavirus’s effect on shipping demand and fuel prices, among other factors, could again put payout timing at risk. Today, we look at changing price spreads between high-sulfur and low-sulfur bunker and the scrubber payback economics that suggest a rosier outlook for vessel owners who invested in scrubber installations, at least for now.

Thursday, 02/06/2020

U.S. shale oil production and exports have contributed to global oversupply in recent years, which, in turn, has amplified pressure on OPEC to implement production cuts to keep crude oil prices from collapsing to untenable levels. That’s led to an agreement among most OPEC countries and nearly a dozen other non-member producing countries — together known as OPEC-Plus — to limit production, an accord that’s remained in place since January 2017. However, oversupply conditions now are also prompting U.S. oil and gas producers to pull back on their planned capital expenditures for 2020, suggesting a slowdown in U.S. production growth later this year and into 2021. Recent global oil supply and demand forecasts by the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) and OPEC itself suggest that such a slowdown, if it materializes, could present a window of opportunity for OPEC-Plus to relax its quotas and potentially reclaim some of its lost oil market share, at least for a time. Today, we examine what the recent changes in monthly data from IEA, EIA and OPEC indicate about potential shifts in the OPEC versus non-OPEC oil supply and demand balance and what that could mean for OPEC’s role in meeting global demand.

Tuesday, 02/04/2020

In the global crude oil market, at least some degree of coordinated management of supply has been the norm since the end of World War II. From the mid-1940s to the early 1970s, the cabal of oil companies known as the Seven Sisters jointly managed production to keep crude prices at levels that accommodated their interests. Then it was OPEC’s turn. More recently, the efforts to keep supply from overwhelming demand — and help prevent oil prices from crashing — have been led by a combination of OPEC and some other major producers, including Russia. U.S. shale producers — who’ve contributed significantly to the global supply growth in recent years — have both benefited from this supply management and partially thwarted it by continuing to increase production to offset cuts by “OPEC-Plus.” But a projected slowdown in U.S. production growth in 2021 may change these market dynamics. Today, we begin a short blog series on global oil supply and demand trends, supply management efforts by OPEC-Plus, and what it all means for OPEC, U.S. producers and the broader oil market.

Wednesday, 01/29/2020

The Denver-Julesburg Basin in northeastern Colorado and southeastern Wyoming has been producing crude oil for many decades now, but there were only a few crude gathering systems there until just the past three or four years, which were marked by a rapid ramp-up in production associated with the Shale Revolution. The development of these systems was spurred by producers’ desire to more efficiently and cost-effectively transport increasing volumes of crude from their new horizontal wells to new and expanded takeaway pipelines. The gathering systems have been built and added to over time by a combination of entities –– producers themselves, midstream affiliates of producers, and independent midstream companies, many of them backed by private equity. Today, we discuss highlights from our new Drill Down Report on D-J Basin crude oil gathering systems.

Monday, 01/27/2020

To say that Permian crude oil quality varies is an understatement at best. In fact, there’s as much variety in the crude coming out of West Texas as there is in the arsenal of a major league pitching ace. Handling those varied crude qualities is the challenge of midstream operators, who, like batters facing down a Randy Johnson or Pedro Martinez in their prime, need to do the best they can with what they’re given. With the start of spring training only a month away, we begin a series detailing the current mix of Permian crude oil qualities, how pipelines are handling them, and what it means for exports, the end destination for much of today’s incremental Permian oil production. Today, we discuss Permian crude quality variations and the steps new pipelines are taking to deal with it.

Thursday, 01/23/2020

Transporting crude oil from the lease to refineries and export docks is like a long-distance relay race. The crude oil gathered from several wells is handed off to shuttle or takeaway pipelines, which then pass it on to regional crude hubs like Cushing, OK — from the hubs, crude is transferred to still other pipes. To get the relay going, the developers of crude gathering systems work closely with their takeaway pipeline counterparts to figure out the most efficient way to effect the first baton pass. Today, we continue our series on crude-related infrastructure in the Rockies’ Denver-Julesburg (D-J) Basin with a look at Outrigger Energy’s existing and planned gathering systems, and their connections to Tallgrass Energy’s still-expanding Pony Express takeaway pipeline.

Tuesday, 01/21/2020

Fear about supply interruption isn’t the frantic force it used to be in the crude oil market. A deadly confrontation that might have pushed the U.S. and Iran to the verge of war raised the spot Brent crude oil price to above $70/bbl early in the week of January 6. Despite continuing regional concerns, the price quickly subsided. By January 13, Brent spot had fallen to $64.14/bbl, its lowest point since December 3. Before the Shale Era, a U.S.-Iranian face-off may well have launched Brent crude to well over $100/bbl as oil traders blew fuses over the heightened possibility of disruption to Persian Gulf oil production and transportation. There’s nothing like adequacy of supply, globally dispersed, to keep things calm —  or at least calmer than they would have been if the U.S. and Iran had drawn so much sword a dozen years ago. In this blog, we’ll discuss where U.S. crude exports have been heading, how close the oil gets to strategically touchy areas, and whether the market still has reason to worry about disruption to oil supply.

Monday, 01/13/2020

Occidental Petroleum’s recent acquisition of Anadarko Petroleum made Oxy the #1 producer in the Denver-Julesburg (D-J) Basin and gave it a majority stake in Western Midstream Partners, which owns crude-gathering and other midstream assets in the D-J, the Permian and the Marcellus. While Western Midstream’s gathering focus had been on helping Anadarko meet its own midstream needs, Oxy sees the partnership taking on a broader role as a provider of gathering services to third parties as well. Toward that end, Oxy and Western Midstream a few days ago announced a series of agreements designed to allow Western Midstream to operate as an independent company. Today, we continue a series on crude-related infrastructure in the D-J with a look at Western Midstream’s gathering and related assets owned in part by the basin’s largest oil, natural gas and NGL producer.

Monday, 01/06/2020

With 2020 already in full swing, some things in the Permian Basin’s oil and natural gas markets have changed dramatically since this time last year, others not so much. When it comes to crude oil, new pipelines that came online during 2019 had a huge impact on differentials: Permian barrels are now pricing very close to other regional hubs, versus massive discounts a year ago. That has enabled Permian producers to fully benefit from the recent run-up in global oil prices. On the gas side of things, the start of the new decade won’t look much different than the end of the last one. There is still way too much supply and not enough takeaway capacity. That means that regardless of what happens at Henry Hub, the U.S. benchmark for natural gas prices, Permian producers should expect dismal values for their natural gas in 2020. Today, we take a look at the year ahead for Permian producers.

Sunday, 01/05/2020

For the first time since late September 2013, the ratio of crude oil to natural gas (CME/NYMEX) futures on Friday hit 30X. That means the price of crude oil in $/bbl was 30 times the price of natural gas in $/MMBtu. Such a wide disparity in the value of the liquid hydrocarbon versus the gaseous hydrocarbon has huge implications for where producers will be drilling, the proportion of associated and wet gas that will be produced, the outlook for NGL production, and a host of other energy market developments. The ratio has been moving higher for the past couple of years, and recently has been boosted by the combined impact of increased tension in the Middle East (higher oil prices) and a warm winter so far in many of the largest gas-burning population centers in the U.S (lower gas prices). But it’s pretty likely that the trend will be with us for the long term. So today, we’ll begin a series that looks at the implications of this price relationship.

Thursday, 01/02/2020

Crude oil trading dynamics in West Texas and along the Texas Gulf Coast have experienced a whirlwind of change. Permian production was skyrocketing in 2018, but has now started to slow. It seemed for a time that crude takeaway pipeline capacity wouldn’t get built fast enough; now it looks like we’ll have far too much too soon. And along the coast, the once-overlooked Port of Corpus Christi is quickly becoming the epicenter of export activity, overtaking Houston, Beaumont and Louisiana — sometimes all three combined — for most volume moved on a monthly basis. With new export terminals coming online and increased connectivity, Corpus appears poised to continue its recent string of record-setting export numbers. In today’s blog, we review some recent breakthroughs in Corpus cargoes and shine a light on the new terminals in the area.