Crude Oil

Tuesday, 01/21/2020

Fear about supply interruption isn’t the frantic force it used to be in the crude oil market. A deadly confrontation that might have pushed the U.S. and Iran to the verge of war raised the spot Brent crude oil price to above $70/bbl early in the week of January 6. Despite continuing regional concerns, the price quickly subsided. By January 13, Brent spot had fallen to $64.14/bbl, its lowest point since December 3. Before the Shale Era, a U.S.-Iranian face-off may well have launched Brent crude to well over $100/bbl as oil traders blew fuses over the heightened possibility of disruption to Persian Gulf oil production and transportation. There’s nothing like adequacy of supply, globally dispersed, to keep things calm —  or at least calmer than they would have been if the U.S. and Iran had drawn so much sword a dozen years ago. In this blog, we’ll discuss where U.S. crude exports have been heading, how close the oil gets to strategically touchy areas, and whether the market still has reason to worry about disruption to oil supply.

Thursday, 01/16/2020

For a few years now, the Shale Revolution has been opening up development opportunities hardly anyone would have thought possible in the Pre-Shale Era. For example, new crude oil, natural gas and NGL pipelines from the Permian to the Gulf Coast, lots of new fractionators and steam crackers, as well as export terminals for crude, LNG, LPG, ethane and, most recently, ethylene. And here’s another. Thanks to the combination of NGL production growth and new ethylene supply — plus increasing demand for alkylate, an octane-boosting gasoline blendstock — the developer of a novel ethylene-to-alkylate project along the Houston Ship Channel has reached a Final Investment Decision (FID). Today, we discuss how the FID is driven by both supply-side and demand-side trends in the NGL and fuels markets.

Monday, 01/13/2020

Occidental Petroleum’s recent acquisition of Anadarko Petroleum made Oxy the #1 producer in the Denver-Julesburg (D-J) Basin and gave it a majority stake in Western Midstream Partners, which owns crude-gathering and other midstream assets in the D-J, the Permian and the Marcellus. While Western Midstream’s gathering focus had been on helping Anadarko meet its own midstream needs, Oxy sees the partnership taking on a broader role as a provider of gathering services to third parties as well. Toward that end, Oxy and Western Midstream a few days ago announced a series of agreements designed to allow Western Midstream to operate as an independent company. Today, we continue a series on crude-related infrastructure in the D-J with a look at Western Midstream’s gathering and related assets owned in part by the basin’s largest oil, natural gas and NGL producer.

Tuesday, 01/07/2020

For much of the 2010s, the U.S. midstream sector has been on a development spree. New or expanded everything — pipelines, gas processing plants, fractionators, storage facilities, liquefaction trains, export terminals and more — all to keep pace with the production gains of the Shale Era. But now, at the start of the 2020s, the build-out frenzy appears to be fizzling and flickering. Midstreamers’ capital spending plans are on the decline, at least for now, as most of the infrastructure needed to handle current and expected volumes for the next few years is either in place or under construction. But that doesn’t mean things won’t stay interesting — far from it. This new decade brings with it a period of midstream-sector strategizing and portfolio rejiggering. Today, we discuss highlights from East Daley Capital’s newly released “Dirty Little Secrets” report about the next phase of midstream strategy.

Sunday, 01/05/2020

For the first time since late September 2013, the ratio of crude oil to natural gas (CME/NYMEX) futures on Friday hit 30X. That means the price of crude oil in $/bbl was 30 times the price of natural gas in $/MMBtu. Such a wide disparity in the value of the liquid hydrocarbon versus the gaseous hydrocarbon has huge implications for where producers will be drilling, the proportion of associated and wet gas that will be produced, the outlook for NGL production, and a host of other energy market developments. The ratio has been moving higher for the past couple of years, and recently has been boosted by the combined impact of increased tension in the Middle East (higher oil prices) and a warm winter so far in many of the largest gas-burning population centers in the U.S (lower gas prices). But it’s pretty likely that the trend will be with us for the long term. So today, we’ll begin a series that looks at the implications of this price relationship.

Thursday, 01/02/2020

Crude oil trading dynamics in West Texas and along the Texas Gulf Coast have experienced a whirlwind of change. Permian production was skyrocketing in 2018, but has now started to slow. It seemed for a time that crude takeaway pipeline capacity wouldn’t get built fast enough; now it looks like we’ll have far too much too soon. And along the coast, the once-overlooked Port of Corpus Christi is quickly becoming the epicenter of export activity, overtaking Houston, Beaumont and Louisiana — sometimes all three combined — for most volume moved on a monthly basis. With new export terminals coming online and increased connectivity, Corpus appears poised to continue its recent string of record-setting export numbers. In today’s blog, we review some recent breakthroughs in Corpus cargoes and shine a light on the new terminals in the area.

Wednesday, 01/01/2020

Negative Permian gas prices. Wall Street sours on all things energy. E&Ps and midstreamers forced by capital markets to tighten their belts. Infrastructure coming online just as production growth is slowing. Oil, gas and NGLs totally dependent on export markets to balance. The list goes on. Just as producers and midstreamers came to terms with a new normal for oil and gas prices, this new round of challenges hit the market in 2019. And it is going to get a lot more complicated as we enter the new decade. There is just no way to predict what is going to happen next, right? Nah. All we need to do is stick our collective RBN necks out one more time, peer into our crystal ball, and see what 2020 has in store for us.

Monday, 12/30/2019

December 2019 U.S. crude oil production soared 1.1 MMb/d above this time last year to 12.8 MMb/d. It’s a similar story for natural gas, with Lower-48 production climbing to 95 Bcf/d, up 6 Bcf/d over the year. That’s a little off the breakneck growth rate of 2018, but still quite healthy, even in the context of Shale Era increases. And it all happened in the face of continued infrastructure constraints, crude prices that fell from the mid-$60s/bbl in April to average $55/bbl from May through October, and gas prices that in several months were crushed to the lowest level in 20 years. It’s all too much supply to be absorbed by the U.S. domestic market. And that means more pipes to get the supply to the Gulf Coast and more export facilities to get the volumes on the water. What has all this meant for the market’s response to these developments? Well, at RBN we have a way to track that. We scrupulously monitor the website “hit rate” of the RBN blogs fired off to about 28,000 people each day and, at the end of each year, we look back to see which topics generated the most interest from you, our readers. That hit rate reveals a lot about major market trends. So, once again, we look into the rearview mirror to check out the top blogs of the year based on the number of rbnenergy.com website hits.

Wednesday, 12/25/2019

It’s been more than three years since the International Maritime Organization (IMO) fully committed to the January 1, 2020, implementation of IMO 2020, a rule that slashes the allowable sulfur content in bunker fuel used in the open seas around most of the world from 3.5% to only 0.5%. There’s been a lot of angst in the interim, most of it regarding the changes in crude slates, refinery operations and fuel blending needed to meet a flip-of-a-switch spike in global demand for low-sulfur bunker. Also, shippers worried that prices for rule-compliant fuel would go through the roof. Well, it turns out that the transition period in the months leading up to the IMO 2020 era has been largely drama-free. Supplies of very low-sulfur fuel oil (VLSFO) and marine gasoil (MGO) — the bunker most ships will now use — have been building in most places, prices are up but moderating, and while there may be a few hiccups as ships shift to new, cleaner fuels, life will go on. Heck, life will likely be even better for most complex U.S. refineries, which can churn out large volumes of low-sulfur refined products and which will have access to price-discounted high-sulfur “resid” as an intermediate feedstock. Today, we take a big-picture look at the global bunker market as IMO 2020’s implementation day approaches.

Sunday, 12/22/2019

The battle for pipeline supremacy in the Permian is really heating up. From Cactus II, to EPIC, to Gray Oak, to a bevy of upcoming expansions and a couple of longer-term behemoth greenfield projects, there are multiple new takeaway options for Permian producers. But could it all be coming online at the wrong time? If there’s one thing we’ve learned from third-quarter earnings calls and recent conversations with producers, it’s that balance-sheet management and fiscal conservativism are top of mind right now. As a result, drilling plans and production growth expectations have been tamped down considerably for 2020 and beyond. Midstreamers and pipeline companies in the Permian are responding quickly. Tariffs are being slashed, margins are getting cut, and competition for West Texas barrels is fierce. Today, we look at recent developments and what they’ll mean for revenues and market differentials heading into the New Year.

Thursday, 12/19/2019

The midstream sector in Texas is still in the midst of what seems to be a never-ending build-out of new pipelines, storage terminals and export docks, all aimed at keeping pace with rising production and refining volumes and the increasing need to move incremental output to foreign markets. Given the understandable desire of midstream companies to earn revenue and profits multiple times as hydrocarbons move from the lease to end-users, it’s not surprising to find midstreamers at work on a variety of projects along the way. A prime example would be NuStar Energy, whose capital spending plan for 2019-20 is focused on helping to resolve three bottlenecks: between its crude oil gathering system and takeaway pipelines in the Permian, between takeaway pipes and export docks in the Corpus Christi area, and between South Texas refineries and refined products customers in Mexico. Today, we look at a leading midstreamer’s multifaceted expansion effort in the Lone Star State.

Sunday, 12/15/2019

Private equity is playing a critically important role in the build-out of crude oil gathering systems in the Denver-Julesburg (D-J) Basin, where rising production volumes — and the expectation of further growth, especially in and around Weld County, CO — are spurring a number of major projects. For proof, you need look no further than ARB Midstream, which, with backing from Ball Ventures’ BV Natural Resources, has developed the largest privately held crude transportation and storage network in the D-J through a combination of acquisitions and new construction. Producers have dedicated a quarter of a million acres to it. Today, we continue a series on crude-related infrastructure in the D-J with a look at ARB Midstream’s fast-expanding asset base there.

Tuesday, 12/10/2019

As exports of crude oil, natural gas and NGLs have surged, U.S. markets for these energy commodities have undergone radical transformations. Exports now dominate the supply/demand equilibrium. These markets simply would not clear at today’s production levels, much less at the volumes coming on over the next few years, if not for access to global markets. Making sense of these energy market fundamentals is what RBN’s School of Energy is all about. Did you miss our conference a few weeks back? Not to worry!  You’ve got a second chance! All the material from the conference — including 20 hours of video, slide decks and Excel models — are now online. Fair warning: Today’s blog is an unabashed advertorial for the latest RBN School of Energy + International Online.

Monday, 12/09/2019

Crude oil gathering systems play an important role in a matter critical to producers, marketers and refiners alike: crude quality. Well-designed gathering systems can help deliver crude with the API gravity and other characteristics that refiners desire and are willing to pay a premium for. This has become a particularly big deal in the Denver-Julesburg Basin, where a big expansion of gathering capacity is under way, and where the market gives extra value to “Niobrara-spec” crude with an API of 42 degrees or lower. Today, we continue a series on existing and planned pipeline networks to move D-J-sourced crude from the lease to regional hubs and takeaway pipes with a look at Taproot Energy Partners’ system.

Wednesday, 12/04/2019

A little over a year ago, we discussed the rapidly expanding third-party shipper market for crude oil in West Texas. At the time, crude at Midland was trading at nearly a $15/bbl discount to Gulf Coast markets. Pipeline space out of the Permian was hard to come by and extremely valuable, and everybody and their brother — literally, in some cases — were forming a limited liability corporation and trying to secure space as a walk-up, “lottery” shipper. A lot of people made a lot of money, but now, just over a year later, much of that lottery opportunity has dried up. Nowadays, these same folks are looking for new opportunities, or going back to old strategies, only to find that being a third-party shipper today is more expensive and more burdensome. In today’s blog, we recap how lottery shippers made buckets of money in late 2018 and early 2019, only to see their target of opportunity dry up due to midstream investment.