crude production

The story of crude-by-rail (CBR) in North America is that of a victory of good old U.S. ingenuity over the lack of pipeline capacity that stranded booming shale oil production in 2012. The lower cost to market of “on-ramp” rail terminals allowed surging crude production a route to (mainly) coastal refineries - igniting a building boom over 4 short years that has left 82 load terminals and 44 destination terminals operating today  - many of them now underutilized. Along the way monthly lease rates for rail tank cars that reached $2,750/month at the height of the boom are down to $325/month after the bust – with many lease holders paying daily rent to park their empty cars. Today we conclude our series reviewing the state of CBR today.

Eager to boost oil and natural gas production, the government of Mexico is in the midst of a multi-year effort to introduce more private-sector involvement and competition. The hope is that a series of reforms will lead to more investment and—over time—a Mexican energy sector that more closely resembles that of Mexico’s amigos North of the Border. Today, we continue our look at the ongoing transformation of U.S.-Mexico hydrocarbon trade and what it may mean for energy companies on both sides of the Rio Grande.

Crude production in the Niobrara shale formation is focused on two areas, the Denver-Julesburg (DJ) Basin in Northeast Colorado and the Powder River Basin (PRB) in Wyoming. Production has expanded in both basins (current output is about 435 Mb/d according to the Energy Information Administration) but much of the recent volume growth has come from the DJ basin. Expectations as recently as last year that production would expand to over 700 Mb/d in the next 4 years have been tempered by the crude price crash. A couple of large pipeline projects prompted last year by those production expectations have been cancelled since but others are still being built. Today we assess crude takeaway infrastructure in the DJ basin.

For nearly two months -- Since late July -- WTI crude oil prices have averaged $45/bbl, never once closing above the $50/bbl mark.  Over the same period, the natural gas price at Henry Hub has averaged $2.70/MMbtu and now languishes $.20/MMbtu lower.  Is this a time to be wallowing in misery and self-pity?  Absolutely not!!  This is the time for midstreamers and producers to reposition their businesses with a laser-like focus on the opportunities that low prices have served up.  There are bargains out there in the oil (and gas) patch.  If producers are in the right locations, with drilling costs much lower than last year, there is good money to be made.  And likewise, opportunities abound for midstreamers to pick up assets at very attractive prices to get that production to market.  But to execute such a strategy, you must have a rock-solid understanding of what is really going on in today’s markets for crude oil, NGLs and natural gas.  Our goal for the upcoming State of the Energy Markets Conference scheduled for October 28, 2015 in Denver, CO is just exactly that - to give you a rock-solid market knowledge based on hard data and thorough analysis.  Today’s blog is an advertorial for the conference.

Our recent analysis of Houston area crude infrastructure found new pipelines running half full as more capacity comes online and storage only half utilized as midstream operators continue to plan expansions. Add the current crude production slowdown to that equation and it could spell trouble for midstream companies. Today we ponder the fate of midstream investment in Houston crude oil infrastructure.

Pipelines delivering crude to Houston from the South Texas Eagle Ford are estimated to be half empty. Yet over 200Mb/d of crude is shipped from that basin to refineries in Houston and further east along the Gulf Coast by barge. One of the key reasons appears to be that local traffic congestion and a lack of adequate throughway pipeline capacity past Houston pushes barrels not needed locally onto the water to reach refineries in Louisiana. Today we explain the Houston crude traffic problem.

In 2015 Alaskan crude has enjoyed something of a change in fortunes compared to the past few years – when shale production seemed to threaten its future. Production was up by over 50 Mb/d in the first 4 months of 2015 (according to the Energy Information Administration – EIA). The market share of Alaskan crude in West Coast refineries also crept up by 1% this year compared to 2014 at a time when crude throughput at those refineries increased. Today we discuss the changes and whether they are likely to continue.

According to a new set of data released at the end of March by the Energy Information Administration (EIA), crude-by-rail (CBR) movements jumped from 20 Mb/d in January 2010 to almost 1 MMb/d by December 2014. The big increase in CBR shipments has coincided with a 71% increase in U.S. crude production and has successfully helped alleviate a number of pipeline transport constraints. While overall crude-by-rail volumes have grown in the past 5 years, favored origins and destinations have changed considerably as the midstream industry has successfully re-plumbed the pipeline network to handle new crude flows. Today we review the new EIA report data on rail.

It seems logical to maintain stockpiles of critically important commodities like crude oil, heating oil and gasoline. After all, supply can be cut off suddenly by acts of God or man, causing price spikes, cold houses and empty gas tanks. Worries about supply interruption led to the creation of a federal Strategic Petroleum Reserve (SPR) and Northeast Home Heating Oil Reserve (NEHHOR) and, more recently, both federal and state reserves for motor fuels, again in the Northeast. But does the SPR as currently configured still make sense, given how much has changed in crude production and flows? Should we set up heating oil or motor fuel reserves in regions beyond the Northeast? And what about a strategic reserve for propane—an important fuel for millions of American homes and businesses? Today, we continue our look at the challenges of stockpiling hydrocarbons in a changing, unpredictable energy world.