While oil prices have risen in recent months, they are a far cry from the $100/bbl prices of two and half years ago, and there is certainly no guarantee they won’t fall back below $50. In other words, the survival of exploration and production companies continues to depend on razor-thin margins, and E&Ps must continue to pay very close attention to their capital and operating costs. Lease operating expenses—the costs incurred by an operator to keep production flowing after the initial cost of drilling and completing a well have been incurred—are a go-to cost component in assessing the financial health of E&Ps. But there’s a lot more to LOEs than meets the eye, and understanding them in detail is as important now as ever. Today we continue our series on a little-explored but important factor in assessing oil and gas production costs.
Daily energy Posts
During the spring, summer and fall of 2016, U.S. propane inventories grew much more slowly than they did in the same period in 2014 and 2015, in part due to fast-rising exports. The situation isn’t dire––propane stock levels are relatively high as the winter of 2016-17 really kicks in, largely because last winter was a mild one that left inventories in good shape when the 2016 stock-building period started. But even-higher exports and the possibility of a “real” winter this time around raise the specter of an especially big drop in stored volumes over the next three months. Today we assess what the combination of higher exports and even an average winter could mean for propane inventories.
The normal butane market was anything but normal the past few weeks. All’s back to square one now, but in the last week of 2016 the price for normal butane spiked to more than $1.20/gal from only $0.73/gal in November. The differential between isobutane and normal butane plummeted into record-shattering negative territory. And the margin from cracking normal butane to make ethylene and other products fell off the chart—literally, our PowerPoints had to be reworked to show how much the margin had fallen. What the heck went on there? Today, we discuss the recent upheaval, what may have caused it, and why things snapped back to normal so quickly.
The Shale Revolution has had a profound impact on U.S. NGL markets by vastly increasing production and by lowering NGL prices relative to the prices of crude oil and natural gas. That has been good news for the nation’s steam crackers, the petrochemical plants that have enjoyed low NGL feedstock prices since 2012. But NGL markets are in for some big changes as new U.S. steam crackers coming online over the next two years will be competing for supply with export markets, raising the specter of higher NGL prices—a good thing for NGL producers, but not so for petrochemical companies. How this plays out will be determined by the feedstock supply decisions petrochemical producers make as NGL prices respond to rapidly increasing demand. Today we begin a series on how steam cracker operators determine day-by-day which feedstocks are the most economic, and on the factors driving the value of ethylene feedstock prices.
U.S. propane inventories rose by an impressive 55 million barrels (MMbbl) during the spring/summer/fall of 2014, and the mild winter of 2014-15 left propane stocks at well-above-normal levels the following spring. Another impactful inventory build—53 MMbbl—occurred during 2015’s March-to-November stock-building season, leaving propane stocks at a record 104 MMbbl as the freakishly mild winter of 2015-16 started. But propane inventories grew much more slowly through the spring/summer/fall of 2016, due in part to rising exports, and—while stocks are high as this winter begins—even-higher exports and the possibility of real winter weather raise the specter of an especially big drop in stored volumes. In today’s blog we begin a series on the significance of propane inventory levels with a look at why propane stocks rose so much in the 2014 and 2015 stock-building seasons.
The frac spread—the difference between the value of a typical basket of NGLs and the price of natural gas, in $/MMBtu—has averaged a paltry $2.28 for the past two years, by far the longest period of depressed NGL values since the start of the Shale Revolution. That’s bad news for natural gas processing economics, which are most favorable when NGL prices are strong and natural gas prices are weak. But things are about to get a lot better. Today we consider the currently low frac spread, what it means for natural gas producers and processors, and why a big turnaround may be in the offing.
Production of natural gas liquids in the Northeast has been rising sharply for several years now, challenging the ability of NGL producers and midstream companies to deal with it all. Lately, though, drilling in “wet” gas parts of the Marcellus and Utica shale plays has slowed, mostly because prices for NGLs have sagged due to lower crude prices and the high cost of takeaway capacity, thereby reducing the incentive to drill for the wet gas responsible for NGL production growth. However, it is quite possible that total NGL production growth could continue for some period of time as more ethane is extracted from wet gas instead of being “rejected”. Meanwhile, new NGL pipeline capacity out of the Marcellus/Utica has been coming online, providing a relief valve of sorts. Today we begin a blog series on recent developments regarding Northeast NGL production, takeaway capacity and pricing.
The ratio of NGL-to-crude oil prices looks like it will be rebounding, and over the next two or three years could rise to levels not seen since the Shale Revolution brought down NGL prices at the end of 2012, a signal that all of the new NGL-consuming petrochemical cracker projects now under construction may not be as lucrative as their developers had once hoped. Several factors are driving the ratio’s rise: increasing U.S. demand for NGLs; more exports; stubbornly low crude oil prices and a lower trajectory of NGL production growth. Today, we examine the historical relationship between NGL and crude oil prices and the reasons why that ratio may be headed back above 50%.
We are rapidly approaching September 15, when summer blend motor gasoline changes over to winter blend, allowing the increased use of high vapor pressure normal butane in the blending. However, the spread between Reformulated Blendstock for Oxygenate Blending (RBOB, the benchmark unleaded gasoline) and normal butane was down to 85 cents/gal as of the end of August, reducing the incentive to blend as much butane into motor gasoline as possible to its lowest level in recent years. Sure, 85 cents/gal is still 85 cents. But what impact might that smaller RBOB/normal butane spread and other market factors have on butane exports? Today we examine the state of the gasoline blending and normal butane markets, and the effect that current dynamics –– a gasoline glut and strong butane prices among them –– may have.
NOVA Chemicals’ 1.8-billion-pound/year ethylene plant in Sarnia, ON already is one of the largest consumers of Marcellus/Utica-sourced ethane, and plans are in the works to significantly increase the steam cracker’s ethane consumption. In 2018, NOVA will complete a project that will enable the cracker to be fed 100% ethane; the petrochemical company also is mulling a cracker expansion –– again with ethane as the feedstock –– and a new polyethylene plant next door. All these plans are driven in large part by the availability of low-cost ethane piped from the U.S. Northeast. Today, we continue our review of southwestern Ontario’s NGL, petchem and refining infrastructure with a look at the big effects of NOVA’s plans.
The availability of vast amounts of ethane from the nearby “wet” Marcellus and Utica plays is spurring a petrochemical rejuvenation in Sarnia, ON. Two years ago NOVA Chemicals stopped using naphtha as a feedstock at its 1.8 billion pound/year ethylene plant in Sarnia’s Chemical Valley and now relies on a combination of ethane, propane and butane. Next year the company is planning to complete the plant’s conversion to 100% ethane and is considering the possibility of building a big polyethylene plant nearby. Today, we continue our comprehensive review of southwestern Ontario’s NGL, petchem and refining infrastructure, including Sarnia’s NGL fractionation, storage and end-use markets.
U.S. propane production from natural gas processing has doubled over the past five years, but domestic demand has hardly moved the needle. So the only way the propane market has balanced is through exports, and it is no overstatement to say that the ship has really come in for U.S. propane exporters. All those exports have also helped support the U.S.
This week the first Gulf Coast ethane export cargo will depart Morgan’s Point, Enterprise Products Partners’ new export terminal on the Houston Ship Channel. This is a history-making event for at least three reasons. First, it inaugurates ethane exports from the Gulf Coast, only five months after the first-ever U.S. overseas ethane exports out of Sunoco Logistics’ Marcus Hook, PA, terminal. Second, it launches a battle for Mont Belvieu ethane, to be fought between ethane exporters and new ethane-only steam crackers (ethylene plants) that will be coming online along the Texas/Louisiana coast over the next couple of years. And third, Morgan’s Point is not just another export terminal. It is a location steeped in Texas history, known in the 1830s as New Washington, with an important role in the Battle of San Jacinto – decisive battle of the Texas Revolution -- and legend has it, inextricably tied to the Texas anthem “The Yellow Rose of Texas.” In today’s blog we examine the upcoming fight between ethane exporters and U.S. crackers.
Sarnia, ON is one of Canada’s leading refinery and petrochemical centers, and for good reason. From the start –– 158 years ago, with what Canadians claim to be the world’s first oil well in the Western Hemisphere –– the Sarnia area has had geology and geography on its side, and it doesn’t hurt that it’s within 500 miles of more than half the people in North America. But the interconnecting infrastructure that drives Sarnia’s Chemical Valley isn’t nearly as well known or understood as the pipelines, railroads, storage and refineries along the U.S. Gulf Coast. Also, it should be noted, Sarnia has become one of the biggest beneficiaries of Marcellus/Utica production of ethane and other natural gas liquids, the mother’s milk of the petchem sector. That alone makes it worth discussing. Today, we begin a series on a lynchpin of Canada’s hydrocarbon production and processing sector.
Crude oil has always been the big draw for producers in the Permian –– and in the especially prolific Delaware Basin within the Permian –– but the wells there also produce large volumes of “wet” natural gas that needs to be gathered, processed and transported to market. A lot’s been written about the Permian’s still-strong oil production and the infrastructure developed to support it; we’ve also covered natural gas liquids (NGLs) in the play. Now it’s time to delve into the gas processing and gas pipeline capacity out of West Texas and southeastern New Mexico, including pipes into the increasingly important Mexican market. Today, we discuss recent developments on the gas side of the U.S.’s hottest (remaining) oil production area.
Whether or not Shell Chemicals follows through on its plan to build a $6 billion ethylene plant near Pittsburgh, PA –– and when that steam cracker comes online –– will have a significant impact on the U.S. ethane, ethylene and polyethylene markets. By consuming an estimated 90-100 Mb/d of ethane, the cracker’s operation would reduce the volume of ethane that needs to be moved out of the “wet” Marcellus/Utica production area, trim the amount of ethane available for export from marine terminals, and likely push ethane prices higher than they would otherwise be. Today, we examine what’s driving plans for the Northeast’s first cracker, and what effects the plant will have.