crude prices

The prospects for an ever-expanding boom in propane exports from the U.S. Gulf Coast are dimming, even as export volumes stand at near-record levels and as new export capacity continues to come online. Why? It comes down to supply and demand.  With oil and NGL prices at today’s levels, propane production is leveling off, not rising, and U.S. Gulf Coast domestic demand for propane will be increasing—from new propane dehydrogenation (PDH) plants and propane’s use in ethylene steam crackers—at the same time that export volumes out of the East Coast are quadrupling.  In today’s blog we consider the possibility that what goes up must come down.

For the past, year many shale oil producers have defied the expectations of many and kept output at or near to record levels in the face of falling oil prices and much tougher economics. Improvements in productivity, cost cutting and a concentration on “sweet spot” wells that generate high initial production (IP) rates have all helped cash strapped producers survive. But with oil prices so far in 2016 stuck in the $35/Bbl and lower range and with the worldwide crude storage glut still weighing on the market – producers are finally pulling back. Today we look at how increased pressure on North Dakota producers is putting the brakes on Bakken crude production.

Floating production, storage and offloading vessels—FPSOs, for short—allow for hydrocarbon production in waters too deep for conventional offshore platforms. While FPSOs have been in limited use around the world since the mid-1970s, they remain a relative rarity in the Gulf of Mexico (GOM), mostly because oil and natural gas has been available in shallower parts of the Gulf closer to shore. Now, Royal Dutch Shell will be taking a spanking-new FPSO into the deepest waters yet--9,500 feet, or almost two miles down--for its mammoth Stones development 200 miles off the Louisiana coast. Today, we look at the Stones project, the growing role of FPSOs, and the long-term perspective taken by exploration and production (E&P) companies in the GOM.

Blueknight Energy Partners’ 100 Mb/d Knight Warrior pipeline is currently under construction and due online in Q2 2016 to deliver crude from the developing Eaglebine play to the Houston Ship Channel. It complements the 60 Mb/d Sunoco Logistics Eaglebine Express pipeline to Nederland, TX that opened last December. Today we discuss how the promising but relatively complex nature of Eaglebine drilling could scare off producers until prices move substantially higher than today’s levels.

Most of the increase in U.S. propane production in recent years has come from plants processing natural gas to extract natural gas liquids (NGLs). The rich (wet) gas those plants process is either produced with crude as associated gas or from wet gas wells that target NGLs. In either case propane supplies are produced regardless of U.S. demand – and that demand is relatively static although subject to significant weather related seasonal variation. There are two important consequences of this supply/demand imbalance with important implications for the propane market.  First, the U.S. can produce about twice the propane it needs, so the surplus must be exported.  Second, most production growth is next door to the largest propane demand regions in the country. Today we describe the scenarios used to build our model of propane supply and demand used to analyze these developments.

Over the past 4 years, billions of dollars have been committed to building new petrochemical olefin crackers for ethane and export facilities for both propane and ethane. All these projects were expected to take advantage of booming domestic natural gas liquids (NGL) production. Projected returns on these investments were based on the assumption that global crude oil prices would remain high relative to domestic NGLs – providing competitive margins for U.S. petrochemical plants and attractive arbitrage opportunities in export markets.  The oil price crash in the latter half of 2014 has undermined that assumption and now threatens the economics of many of these projects. Today we preview the latest RBN Energy Drill Down Report addressing the consequences for NGL infrastructure of lower crude prices.

Crude oil prices are in free fall – the prompt U.S. benchmark WTI CME NYMEX futures contract was down 24 percent to $81.78/Bbl yesterday (October 15, 2014) from its recent high in June. International benchmark IPE Brent futures were down 27 % over the same period to $83.78/Bbl. Most analysts point to an excess of crude supply over faltering demand as the main driver behind the price collapse. The apparent willingness of OPEC leader Saudi Arabia to protect its market share at the expense of higher prices is also a bearish factor. Today we explain why Saudi Arabia is bucking the trend that has pushed out other light crude imports with a robust and unwavering flow of 330 Mb/d of Arab Light.

NYMEX WTI crude traded at over $100/Bbl for most of March through May this year. With today’s close at $79.21/Bbl, the price is down 28 percent from this year’s highs. Canadian heavy crude bitumen postings fell to $64/Bbl last week. Could a press release from a small Canadian oil exploration company last week be the first indication of investor concern? In today’s blog, we ask whether Canadian Oil Sands production costs are too high to justify new investment.