Shale Production

With crude prices below $30/Bbl and the price spread between U.S. domestic crude benchmark West Texas Intermediate (WTI) and international equivalent Brent trading in a very narrow range – the economics of moving Crude-by-Rail (CBR) rarely make sense any more.  Rail shipments are down across all regions and railroads are reporting sharply lower revenues from CBR shipments.  Today we start a new series revisiting the regions where CBR traffic boomed a couple of years back and contemplating its future value to shippers and refiners.

Over the past two years, propane production has grown like crazy, and in several past blogs we’ve discussed the impact of those increased supplies on exports.  That has been a very big deal for propane markets. But an equally significant development is the location of that production growth.  Because much of the new propane supply is right next door to the two largest propane markets in the U.S. – the Northeast and the Midwest.  Considering what happened to the propane market during the Polar Vortex winter of 2013-14 (shortages and price spikes), the importance of production growth near to demand cannot be overstated.  It is very good news, both for the market in general and propane consumers in particular.  Today we start a new series examining what has happened to propane supply and what it means to propane markets.

Last Friday (August 14, 2015) the Department of Commerce (DOC) revealed to the press that they would approve a handful of applications to export U.S. domestic light crude to Mexico under a Licensed “swap” arrangement that involves importing the same volume of heavy crude to the U.S. from Mexico. The Licenses are likely to be awarded to Mexican national oil company PEMEX or its affiliates and will last for a year starting at the end of this month (August 2015). Today we update our earlier analysis of Mexican crude swap exports.

In April officials from Mexican national oil company PEMEX expressed confidence that their January 2015 application to the Department of Commerce, Bureau of Industry and Security (BIS) for a license to export U.S. crude under a swap arrangement will soon be approved. The swap would involve Mexico importing U.S. light crude and U.S. refiners buying an equivalent volume of Mexican heavy crude. The transaction would bypass decades old U.S. crude oil export restrictions and indicate a further loosening of the rules after moves to allow condensate exports last summer. In today’s blog “Have Another Swap of Mexican Crude - Will A New Route Open for U.S. Crude Exports?” Sandy Fielden examines the proposed exchange.

By Friday (January 9, 2015) crude prices had fallen 55% since June 2014, natural gas prices are at the lowest since 2012 and natural gas liquids are suffering as well. The potential revenues from U.S. shale oil production in 2015 would be a whopping $66 billion lower at $50/Bbl than when oil was  $100/Bbl last year. In this new world where prices may not return close to pre-crash levels for a number of years, producers are scrambling to reconfigure drilling budgets and locations. The exercise is all about rates of return and figuring out breakeven prices. Today we start a new series looking under the hood at production drilling economics including results from our own models.

Crude prices have been at three-year lows this week as the world appears to be awash with supplies. With OPEC apparently not willing to defend higher prices by reducing their output, attention has turned to the likely impact on U.S. shale production of a lower price regime. Today we explore why shale production is unlikely to slow down rapidly and may even increase as producers move rigs to plays with higher returns.