Crude Oil

Sunday, 02/26/2017

A number of indicators suggest that the energy slump that started in the latter half of 2014 has bottomed out, and that happy days are here again (at least for now).  Who would have thought back in the good ol’ days three years ago this month—when the spot price for crude oil was north of $100/bbl and the Henry Hub natural gas price averaged $5.15/MMbtu—that Friday’s $54 crude and $2.63 gas would be seen as anything but a catastrophic meltdown. But not so. The fact is that in 2017, producers in a number of basins can make good money at these price levels.  Consequently, drilling activity is coming on strong. Crude oil production is up more than 500 Mb/d since October 2016 to 9 MMb/d, a level not seen in almost a year. And gas output has also been poised to rise, if only real winter demand had kicked in this year. What’s going on? Today we discuss the fact that what we have here, folks, is a rebound unlike any we’ve seen before.

Wednesday, 02/22/2017

The SCOOP and STACK plays in central Oklahoma have emerged as two of the most productive and cost-effective plays in the entire U.S.  Rigs are returning, crude oil production is rising, and so is production of associated natural gas. Moreover, the RBN production economics model shows that SCOOP and STACK will continue to be attractive to drillers under all of our various price scenarios—even if crude were to slip back below $50 and natural gas goes back into the dog house, where it has been headed the past few days. Today we continue our look at the side-by-side Sooner State plays with a review of existing and planned gas processing capacity.

Thursday, 02/16/2017

The Shale Revolution has caused big changes in U.S. crude oil production, in domestic flows of crude via pipelines, ships and rail tankcars, and in crude import volumes. Flow changes in particular have negatively affected the Strategic Petroleum Reserve’s ability to accomplish its two primary goals: protecting U.S. refineries from the worst effects of a major crude oil supply interruption, and—when called upon by the International Energy Agency—quickly injecting large volumes of crude into global markets. A fix now in the works would add Gulf Coast marine terminals dedicated specifically to moving SPR-stockpiled crude to those who need it, both within the U.S. and overseas. Today we conclude a two-part blog series on challenges and coming changes at the SPR.

Wednesday, 02/15/2017

As it builds out the nation’s oil and natural gas pipeline networks to keep pace with ever-changing needs, the midstream sector has faced a number of challenges, perhaps chief among them regulatory delays exacerbated by organized environmental opposition. An oft-repeated priority of the new administration has been to make it easier to advance the development of new energy infrastructure development. That raises a few questions. How much difference will this apparent change in attitude make? Should we expect a huge surge in new pipeline projects to be approved and move forward? Today we examine major projects that have faced drawn-out approval processes and evaluate the degree to which a new administration can grease the skids for new pipelines.

Sunday, 02/12/2017

More than a dozen crude oil pipelines can deliver up to 3.4 million barrels/day (MMb/d) to the greater Houston area, with another 550 Mb/d of capacity planned, and as domestic production starts to grow again, a new round of projects is under way to build-out the region’s distribution pipelines, storage and marine-dock infrastructure. The developers of these Houston-area projects include a range of midstream players: from large, diversified midstreamers that own the long-distance pipelines flowing into the region to smaller players planning their first Houston projects. Today we conclude a two-part blog series on the latest round of projects and on the increasingly intense competition for barrels.

Sunday, 02/05/2017

As U.S. crude production ramps back up and larger volumes flow to the Gulf Coast, competition is building among midstream companies for control over the final miles from pipeline to refinery or marine dock. Nowhere is this more evident than the Houston area, where more than a dozen pipelines can deliver as much as 4 million barrels/day to the region’s 10 refineries as well as to export docks. Owners of the long-distance incoming pipelines—seeking to secure terminal, storage and dock fees—are making significant midstream investment in Houston, but smaller players are also developing assets. Today we begin a two-part series describing the build-out and how competitive the market has become.

Sunday, 01/29/2017

Fundamental changes in U.S. crude oil production, crude transportation patterns, refinery sourcing of oil, import volumes and other factors have undermined the ability of the Strategic Petroleum Reserve to mitigate the domestic impact of a world energy crisis. Worse yet, the Department of Energy’s planned fix for the SPR will take at least several years—assuming it’s allowed to proceed according to plan. Today we consider current shortfalls in the SPR’s crude-delivery network, the potential effect on U.S. refineries in the event of an emergency, and the DOE’s plan to fix things.

Thursday, 01/26/2017

A major component of the formula used to set the price of Maya—Mexico’s flagship heavy crude, and a key staple in the diet of many U.S. Gulf Coast refiners—was changed earlier this month, raising new questions about this important price benchmark for nearly all heavy sour crude oil traded along the U.S. Gulf, and points beyond. The change came as Maya production volumes continue to fall, and as Maya is facing increasing competition from Western Canadian Select (diluted bitumen) from Western Canada. Today we conclude a two-part series on Maya crude oil, the new price formula and its potential effects.

Wednesday, 01/25/2017

The agreement by OPEC and several non-OPEC members to cut crude oil production by a total of 1.8 million barrels a day (MMb/d), which caused a rise in crude prices, kicked in on January 1. Now, more than three weeks in, many in the market remain skeptical that the deal will hold, and are on the lookout for the slightest hint that parties to the agreement may be—for lack of a kinder word—cheating. In today’s blog, “Won’t Get Fooled Again—Monitoring Compliance With The OPEC/NOPEC Deal To Cut Production,” we recap the agreement’s terms, examine how participating producers might try to skirt the rules, and discuss ways to check that everyone is acting on the up and up.

Tuesday, 01/24/2017

Plains All American Pipeline announced on Tuesday that it has agreed to acquire Alpha Crude Connector (ACC), an extensive, FERC-regulated crude oil gathering system in the Permian’s super-hot Delaware Basin, for $1.215 billion. At first glance that might seem to be a lofty price, but the development of the ACC system appears to be a classic case of right-place/right-time because it addresses a fast-growing need for pipeline capacity across an under-served area. And, with its multiple connections, ACC is an attractive source of crude to fill currently underutilized downstream pipelines headed to Midland, the Gulf Coast to Cushing. Today we review Plains’ newly announced agreement to acquire the ACC pipeline system in southeastern New Mexico and West Texas.

Thursday, 01/19/2017

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.

Wednesday, 01/18/2017

The capacity of a pipeline built to transport crude oil or refined products is often thought to be tied only to the pipe’s diameter and pumps, as well as the viscosity of the hydrocarbon flowing through it. Increasingly, though, midstream companies are injecting flow improvers—special, long-chain polymers known as “drag reducing agents” —into their pipelines to reduce turbulence, thereby increasing the pipes’ capacity, trimming pumping costs or a combination of the two. The role of these agents has evolved to the point that they aren’t simply being considered to boost existing pipelines, their planned use is being factored into the design of new pipes from the start. Today we begin a series on DRAs and their still-growing influence on the midstream sector.

Tuesday, 01/17/2017

Natural gas production from the oil- and condensate-focused SCOOP/STACK combo play in Oklahoma—one of the most productive plays in the U.S. currently—grew through 2016, even as other producing areas in the state, and in the Midcontinent as a whole, declined. As one of just a handful of locations that returning rigs are targeting, the SCOOP/STACK has the potential to single-handedly offset production declines in other parts of the U.S. Midcontinent and make Oklahoma a natural gas growth state again. Moreover, the RBN production economics model shows the natural gas output from the SCOOP/STACK has the numbers and the proximity to be directly competitive with gas supply from the Marcellus/Utica. Today, we continue our SCOOP/STACK series, with a look at the production economics driving interest in this play.

Monday, 01/16/2017

The five refineries in the U.S. Pacific Northwest (PNW) performed better in 2016 than rivals on the East Coast for two main reasons. First, the changing pattern of North American crude supply has worked to their advantage. Faced with the threat of dwindling mainstay crude supplies from Alaska, refiners in Washington State replaced 22% of their slate with North Dakota Bakken crude moved in by rail. They have also enjoyed advantaged access to discounted crude supplies from Western Canada. Second, PNW refiners face less competition for refined product customers than rivals on the East and Gulf coasts, meaning they have a captive market that often translates to higher margins. Today we review performance and prospects for PNW refineries.

Wednesday, 01/11/2017

Maya, Mexico’s flagship heavy crude, has been a key staple in the diet of U.S. Gulf Coast refiners for a long time, and it has faithfully served as a price benchmark for nearly all heavy crude oil traded along the U.S. Gulf, and points beyond.  Maya’s price, relative to lighter benchmark grades such as Louisiana Light Sweet (LLS) or Brent, provides ready insight into the profitability of heavy oil (coking) refiners. But production of Maya peaked in 2004 and has declined considerably since then, raising questions about its continuing efficacy as a price benchmark. Now it’s come to light that a component of the Maya price formula was changed effective January 1, 2017. Although the change—related to the formula’s fuel oil price component—might be viewed as a relatively minor tweak, it raises new questions about this important heavy oil price benchmark. Today we begin a two-part series on Maya crude, the new price formula and its potential effects.