From the depths of despair in the first quarter when WTI crude collapsed to $26.21/bbl on February 11 and Henry Hub gas crashed to $1.64/MMbtu on March 3, we are back, sort of. Growth in the rig count has been nothing short of spectacular, up 249 or 62% from the low point in late May. Crude oil, natural gas and NGL prices have all more than doubled since the lows of Q1. Yes, 2016 has been quite a roller coaster ride for energy markets. Here in the RBN blogosphere, we’ve documented this saga every step of the way. Now at the end of the year, as we’ve done for the past five years, it is time to look back. Back over the past 12 months––to see which blogs have generated the most interest from you, our readers. We track the hit rate for each of our daily blogs, and the number of hits tells you a lot about what is going on in energy markets. So once again we look into the rearview mirror at the top blogs of 2016 based on numbers of website hits in “The 2016 Hydrocarbon Top 10 RBN Blogs”.
What we really saw in 2016 was an industry adapting to a world of low prices. Granted, prices now are double what they were in Q1, and that has certainly improved drilling economics for all producers. But today’s prices are still only half what they were in 2014, and yet exploration and production firms (E&Ps) are adding rigs at a weekly rate faster than the heydays of 2011-12. The real driver here is that E&Ps––at least those operating in a few prolific basins––have figured out how to make drilling and completion economics work at these prices, and in some cases, work quite well. Of course, everything is not all rosy. There was a lot of infrastructure built in anticipation of big growth in production volumes that today is not in the cards. There were a lot of companies that built their balance sheets in anticipation of much higher prices that did not materialize, and today these companies are either bankrupt or substantially restructured. Let’s see what the top blogs of 2016 can tell us about how these events impacted the market, and what we might expect in the coming year.
Here are the top 10 blogs of 2016 (in reverse order, by date posted):
#10 – 7/5/2016 – Natural Gas: What's Going On? - Supply/Demand Factors Driving Natural Gas Price Volatility
If you like volatile gas markets, 2016 was the year for you. The average Henry Hub gas price was $1.98/MMbtu in Q1, averaged $3.15/MMbtu in Q4 and peaked at $3.93/MMbtu in the last week of the year. In this blog we examined the transition gas markets when through during the mid-year timeframe from a massive oversupply to an increasingly balanced market with slightly lower supply and growing exports from Cheniere Energy’s Sabine Pass LNG terminal plus increasing pipeline exports to Mexico.
#9 – 9/192016 – NGLs: Do It Again - NGL-to-Crude Ratio Heading Back To Pre-2012 Levels
This blog was a big hitter on the day it was posted, and folks kept coming back again and again. Not hard to see why. In this one we laid out the rationale for why the ratio of NGL-to-crude oil prices looks like it will be rebounding, and over the next two or three years, rising above 50%, a level not seen since the Shale Revolution brought down NGL prices at the end of 2012. If it plays out that way, it is good news for producers, buty not so good news for petrochemical crackers. Several factors are driving the ratio’s rise: increasing U.S. demand for NGLs, more exports, crude prices staying on the low side, and a lower trajectory of NGL production growth.
#8 – 6/19/2016 – Crude Oil: Flirtin' With Disaster - The Coming Oversupply of Jones Act Tankers and ATBs
In another instance of potential infrastructure overbuild, a large number of new Jones Act tankers and large ocean-going barges are rolling out of the shipyards, just as the demand for these vessels has hit the skids. During the last half of 2016 and into 2017, a total of 17 of these vessels with a combined capacity of more than 4.5 million barrels (MMbbl) will be delivered, boosting the total fleet capacity of these types of vessels by 20%. These new-vessel orders were made a few years ago in response to increased shipments of crude oil within the U.S. that, at the time, had resulted in a shortage of Jones Act product tankers and large articulated tug barges (ATBs). Now the market has too many ships for not enough crude oil.
#7 – 8/28/2016 – Natural Gas: Too Much Pipe On My Hands?? - Marcellus/Utica Takeaway Capacity
Starting to see a common theme yet? How about the possibility of an infrastructure overbuild, this time pipeline capacity out of the Marcellus/Utica? Of all the demand markets in the U.S., the biggest prize eyed by Marcellus/Utica natural gas producers is the Gulf Coast region, where a combination of industrial demand, LNG exports and power generation projects is driving a need for more and more gas. And beyond the Gulf Coast states, there lies another market capable of gobbling up even more of the excess Northeast gas supply: Mexico’s rapidly growing gas-fired generation sector––that is, assuming pipelines in Texas can get it all the way there. But there is over 4.0 Bcf/d of Marcellus/Utica-to-Gulf-Coast takeaway capacity planned to be completed over the next few years, adding to the capacity that already exists. In this blog we examine the status and timing of Northeast pipeline takeaway projects targeting the Gulf Coast.
#6 – 1/4/2016 – Crude Oil: Yesterday (All My Exports Seemed So Far Away) – The Brent/WTI Spread
This blog was posted in the first week of January, and there have been a lot of developments since, not the least of which was the September OPEC agreement. But even back at the first of the year, large-scale crude oil exports looked pretty unlikely and the Brent-WTI differential seemed destined to remain quite narrow for the foreseeable future. In fact, the differential averaged only $1.70/bbl for the entire year, and 2016 U.S. crude oil exports averaged less than 100 Mb/d above 2015, albeit moving to markets “far away”. That’s because in 2015 most crude exports went to Canada while in 2016 most crude exports went to Europe and Asia.
#5 – 4/13/2016 – Hydrocarbons: The Good, the Bad and the Ugly— How Eagle Ford Drilling Varies By Location
The oil price collapse opened a wide rift between high-quality “good” E&P assets, breakeven “bad” assets, and ruinous “ugly” assets. The consequences will impact energy markets for decades to come. In this blog we demonstrate the differences between good, bad and ugly wells by examining the diversity of production economics across the Eagle Ford basin and why producers there have been zeroing in on the counties—and areas within those counties—where initial production (IP) rates are highest, and preferably where large volumes of associated natural gas and natural gas liquids can be found as well.
#4 – 4/10/2016 – NGLs: Spinning Wheel – Prices for Natural Gas Liquids (NGLs) Headed Back Up!
This blog is a different spin on #9 above, focused on how the big increases in the demand for ethane––both from new petrochemical plants and export terminals––will ricochet through all of the NGL markets, from propane to butane. The bottom line? New steam cracker projects will encounter a market environment far different than what was expected when they were being planned. Instead of an oversupplied market driving NGLs lower relative to crude oil and natural gas, the projects will confront a tight market, with NGL prices higher relative to the other hydrocarbons.
#3 – 1/10/2016 – Financials: Zombies: Shrinking Cash Flow And Rising Debt Turn E&Ps Into The Walking Dead
The dramatic and sustained plunge in hydrocarbon prices ravaged the finances of oil and gas producers to the extent that some observers have labeled the weakest of these “zombie” companies. These firms cannot sustain themselves on current pretax cash flow and look to be shuffling slowly toward their ultimate demise. This blog is based on our survey of the income statements and balance sheets of over 50 U.S. independent E&P companies to see which ones might fit our criteria for the walking dead. In the months since this blog was posted, some of our zombies had stakes driven through their hearts (works for both zombies and vampires, right? Anyway, they went bankrupt), while others have come back from the dead.
#2 – 2/7/2016– Crude Oil: Just My Imagination - How Full Is Cushing Crude Oil Storage Capacity, Really?
No matter how energy markets twist and turn, blogs that address crude oil storage and pricing are always big hitters. Back in February, inventories were high, but not over the top. Nevertheless, we were hearing rumors of storage operators turning away customers, which was contributing to the impending mega-collapse of crude prices that played out just a few days after this blog was posted. The culprit? A likely possibility we examined was the shifting quality mix of Cushing crudes, and what storage operators must do to accommodate crudes of different qualities, especially when such qualities are not what was expected.
And the #1 blog of the year? First, a word from your sponsor.
Well, for the second year in a row our most popular blog of the year was our first: the annual Top 10 RBN Energy Prognostications. Again, we feel pretty good about our track record, which included these predictions for 2016:
- We will finally start to see meaningful declines in U.S. crude oil production––we did.
- Midstream infrastructure is overbuilt––it was.
- Crude oil exports will be a yawner––they were.
But 2016 is ancient history, right? It is now time to look into the crystal ball for 2017. And that is exactly what we will do in our next blog, coming on Tuesday morning, January 2, 2017.
Deeper Meaning from the Top 10.
Caveat. We need to mention a caveat to RBN’s Top 10 blogs. Hits for individual blogs accumulate throughout the year, so that means that blogs posted early in the year generally have more hits than those posted at the end of the year. That’s why you see many of the blogs with posting dates in the first few months of 2016.
Common Theme. While our top ten blogs covered a range of topics this year, the most common theme seems to be transition––from a vastly oversupplied market with prices driven in to the dirt, to a market more in balance, where supply growth has slowed or reversed. That sounds like good news for most market participants, and it is. The catch is infrastructure ––the petchem plants, Jones Act vessels, pipelines, export terminals and other assets that were planned for a world of much higher prices and increasing supply, now facing a market with much more modest supply growth where they must compete aggressively with other midstreamers for throughput volumes. But this too shall pass. Because the energy markets are moving toward A New Hope (sorry, could not resist a Star Wars reference), where producers can make money at market prices, production volumes increase, and midstream assets start to see some of those volumes they were built to handle. Sound too good to be true? We’ll explore this possibility and much more in our first blog of the New Year on January 3rd in The Top 10 Energy Prognostications for 2017 – Year of the Rooster. Cock a doodle doo!
Happy New Year!
We hope our 2016 blogs have been useful to you. We are always open to suggestions so if you have ideas for topics we should cover, please fire them off to email@example.com. Have a safe and happy New Year’s holiday. We’ll see you back here in 2017!