rail

Wells operated by a half-dozen E&Ps in eastern Ohio’s Utica Shale are now churning out more than 100 Mb/d of superlight crude oil — aka condensate — more than twice as much as they were just three years ago, and there’s talk that condensate production in the play’s “volatile oil window” could increase significantly over the next few years. This surge in condensate output raises three relevant questions: (1) how is the condensate being transported to market, (2) where is it headed and (3) what is it being used for? In today’s RBN blog, we continue our series on Utica condensate with a look at the approaches used to transport the commodity to refineries and others in the Midwest and points beyond. 

Necessity is the mother of invention, and the desperate need to transport increasing volumes of crude oil out of the severely pipeline-constrained Permian is spurring midstream companies and logistic folks in the play to be as creative as humanly possible. With the price spread between the Permian wells and the Gulf Coast exceeding $15/bbl in recent days — and possibly headed for $20/bbl or more soon — there's a huge financial incentive to quickly provide more takeaway capacity, either on existing pipelines or by truck or rail. Are more trucks and drivers available? Is there an idle refined-products pipe that could be put back into service? Could drag-reducing agents be added to an existing crude pipeline to boost its throughput? How quickly could that mothballed crude-by-rail terminal be restarted? Today, we discuss frenzied efforts in the Permian to add incremental crude takeaway capacity of any sort — and pronto.

Most Canadian oil sands crude production comes from very expensive mining or underground steam heating operations designed to produce consistently for decades that are costly to shutter in a downturn. Right now the crude netbacks (market price less transport costs) for these projects are more or less under water depending on transport routes. Yet production continues and new projects are still coming online. Today we estimate the netbacks (market price less transport cost) that Canadian producers are realizing.

The U.S. propane industry is evolving rapidly in response to increasing production and the resulting development of new market demand sectors in exports and PDH plants to make “on-purpose” propylene. Two years ago in the winter of 2013-2014 all the new production growth could not prevent a perfect storm of weather events from causing severe shortages and price distress for domestic customers in the Mid-Continent and East Coast regions. Today we describe how the propane market is now much better equipped to endure a similar spell of extreme demand.

A couple of years ago in December 2012 we posted a blog in our Oh-Ho-Ho It’s Magic series covering the bigger Gulf Coast crude oil supply picture. At the time we wanted to provide a summary view of all the changing crude flows happening at the Gulf Coast. Back then the Seaway Phase 2 and TransCanada Cushing Marketlink pipelines from Cushing to the Gulf Coast had not opened up and there was over 50 MMBbl of crude stuck in Cushing inventory. Things are a lot different today.  Today we break down the crude balance for the Gulf Coast - PADD (Petroleum Administration Defense District) III region since the start of 2011.  

Prices for West Texas Intermediate (WTI) crude at Midland, TX -- close to the Permian Basin production region -- traded at a discount of $7.78/Bbl to WTI at Cushing, OK on Monday of this week (3/10/14), even though the pipeline tariff between the two trading hubs is less than $1/Bbl. Soaring production and tight pipeline capacity out of West Texas mean small changes in the region’s supply balance can cause the discount to blow out - a situation expected to continue at least until the middle of 2014. Today we investigate the probable causes.

Since the start of 2014 two competing pipeline projects designed to provide crude producers in North Dakota with additional takeaway capacity have met with very different fates. The first proposal – the Sandpiper project launched by Enbridge in late 2012 has completed a successful Open Season and petitioned federal regulators for approval of its tariff structure. Sponsor Koch Industries quietly canceled the second competing proposal – the Dakota Express pipeline first proposed in July 2013. Looking at rail and pipeline takeaway capacity versus crude production in North Dakota, both these pipelines are “nice to have” not “need to have”. Today we begin a two part analysis of these competing projects.

Four midstream companies are building or planning condensate splitter capacity to process at least 400 Mb/d of Eagle Ford production by 2016.  These facilities will join BASF/Total, who have been operating a 75 Mb/d splitter at Port Arthur since 2000. Gulf Coast refiners are also increasing their capacity to process lighter crudes. These infrastructure developments are being made in response to a flood of condensate range material coming out of the Eagle Ford into Houston and Corpus Christi.  Today we detail these plans. 

Next year (2014) RBN Energy expects Utica natural gas processing plants to produce 43 Mb/d of natural gasoline – more than 3 times 2013 production.  Local demand will only soak up 17 Mb/d – leaving 26Mb/d needing transport to markets outside the region. Midstream companies are building infrastructure to accomplish this – by pipeline, rail, truck or barge. Today we conclude our survey of Utica Condensate and natural gasoline takeaway.

Midstream infrastructure companies are investing heavily in facilities to gather, store and transport condensate and natural gasoline range materials in the Utica. The expectation is that production of these light hydrocarbons from the wellhead and gas processing/fractionation plants will increase significantly in 2014. Today we take a deep dive into two company’s plans for condensate and natural gasoline takeaway.