Posts from Housley Carr

Tuesday, 12/06/2022

Over the past nine months, the frac spread —a rough-cut measure of the value of extracting NGLs from raw gas at gas processing plants — has taken a terrifying plunge, from $9.82/MMBtu in early March to only $2.16/MMBtu on Monday. Given that the frac spread is the differential between the price of natural gas and the weighted average price of a typical barrel of NGLs on a dollars-per-MMBtu basis, a 78% nosedive like that suggests that something is seriously out of whack, and that at least some market players are taking a real hit financially. In today’s RBN blog, we discuss the frac spread, the drivers behind its recent freefall, and what it would take for gas processing margins to rebound.

Monday, 12/05/2022

It's been almost a year since the co-owners of the massive Capline crude oil pipeline initiated southbound service between Patoka, IL, and St. James, LA, on what for a half-century had been a northbound conduit. How’s it working out? So far, so good, it seems. As expected, for the first several months the volumes of heavy Canadian crude oil flowing down the 632-mile, 40-inch-diameter pipeline to the St. James hub were modest. Since June, however, Capline has been offering a temporary incentive rate to attract more heavy oil, and starting December 1 it’s also been offering a temporary buck-a-barrel rate for light oil too. In today’s RBN blog, we discuss the latest Capline developments, the challenges associated with batching heavy and light crude on such a big pipe, and the prospects for much higher flows.

Friday, 12/02/2022

Alkylate is an important and valuable part of the U.S. gasoline pool, prized for its high octane, low volatility and low sulfur content. There are two primary catalysts that refiners can opt to use in the production of alkylate: hydrofluoric acid, or HF, and sulfuric acid, or H2SO4.  Each is quite popular, with HF and sulfuric acid technologies each representing about half of domestic alkylation capacity — and with those shares varying significantly on a regional basis. While refiners have been safely operating both types of “alky” units for many decades, HF alkylation for some time has been in the crosshairs of the Environmental Protection Agency, which recently proposed that refiners be required to undertake extensive evaluations of potentially safer alternative technologies. It’s hard to know for sure, but if EPA’s proposed rule is made final it could ultimately force many refineries to make very costly changes — into the hundreds of million dollars per unit — or maybe even shut down entirely. In today’s RBN blog, we look at alkylate, how it’s made, and the potentially profound effects of the impending regulation.

Tuesday, 11/29/2022

The Department of Energy’s (DOE’s) $8 billion program to accelerate the development of regional hydrogen hubs is shifting into a higher gear. DOE in early November received an unspecified number of “concept papers” on prospective hubs and is now reviewing their merits, with plans to provide applicants with initial feedback within the next few days. By April 2023 — when full proposals are due — there’s a good chance that, based on DOE’s input, a least a few individual projects will be combined into a smaller set of stronger proposals. A case in point may be two competing but seemingly complementary hydrogen-hub plans in the Pacific Northwest. In today’s RBN blog, we discuss those proposals and the prospects for a clean-hydrogen build-out in the region.

Thursday, 11/24/2022

The U.S. market for distillates has been crazy the past few months — especially in PADD 1 —  and given all that’s going on, it’s likely to stay that way for months to come. Inventories of ultra-low-sulfur diesel, heating oil and other distillates are at their lowest levels for this time of year since before the EIA started tracking them 40 years ago and diesel prices are in the stratosphere, all despite diesel crack spreads being in record-high territory — a strong incentive for refineries to churn out more distillate. In the encore edition of today’s RBN blog, we discuss the many factors affecting distillate supply, demand, inventories and prices and take a look ahead at where the market may be headed next.

Tuesday, 11/22/2022

For several months there’s been a scramble on to consolidate the U.S. landfill gas collection systems, dairy- and hog-farm digesters, and other assets that produce renewable natural gas (RNG) — a drop-in replacement for conventional natural gas that can qualify for federal and state financial incentives. But what really caught everyone’s attention was BP’s announcement a few weeks ago that it would acquire Archaea Energy, a Houston-based company with more than a dozen RNG projects in operation and many more under development, in a deal valued at $4.1 billion. That’s big bucks in the biogas space. In today’s RBN blog, we discuss the BP/Archaea deal and other recent acquisitions of RNG assets, as well as what’s driving the surging interest in RNG.

Sunday, 11/20/2022

Shell’s new, multibillion-dollar steam cracker in Monaca, PA — the first of its kind in the Marcellus/Utica shale play — is finally up and running and breathing new life into a small town on the Ohio River. When it’s running flat-out, the cracker will churn out up to 9 million pounds of ethylene a day to supply three adjoining polyethylene units. Shell Polymers Monaca, as the petrochemicals complex is formally known, is a world-scale giant, consuming about 95 Mb/d of ethane, which raises this question: How is the start-up of the region’s only large ethane consumer affecting the broader market? In today’s RBN blog, we provide the answer.

Monday, 11/14/2022

Way back in 2015, the Eagle Ford Shale in South Texas was big news, duking it out with the Permian and the offshore Gulf of Mexico for the #1 spot in crude oil production and with the then-preeminent Haynesville for top honors in natural gas output. But the mid-decade crash in oil and gas prices hit the Eagle Ford harder than any other U.S. production area — in fact, production there remains below its peak seven years ago. Lately, however, M&A activity in the shale play has been surging, suggesting that the Eagle Ford may finally be on the verge of a serious, sustained comeback. In today’s RBN blog, we discuss this renewed interest in South Texas and whether this time the play’s recovery is for real.

Sunday, 11/13/2022

Infrastructure constraints in the energy sector come in all shapes and sizes, and don’t think for a second that they only involve pipelines. For many producers of crude oil, refined products and other liquids, the Mississippi River is a critically important conduit for barging commodities to market. Lately though, water levels on sections of the river have been near historic lows, reducing both the volume of liquids that each barge can carry and the number of barges the Mississippi can handle. Among other things, the low water situation has been putting a squeeze on condensate producers in the “wet” Marcellus/Utica, who depend on barges to transport a significant portion of their superlight crude oil down the Ohio and Mississippi rivers to refineries and for blending into Light Louisiana Sweet (LLS). In today’s RBN blog, we discuss the situation.

Monday, 11/07/2022

It’s understandable for politicians to want energy markets to bend to their will — especially when it comes to gasoline prices. No one likes spending $60, $70 or $80 to fill up their car, SUV or pickup and, well, drivers are voters. The problem is, there’s no simple way to bring down gas prices, and that puts politicians in a quandary. Faced with public outrage, they feel pressured to respond and, with no easy fix at hand, they strain to develop legislative or regulatory “solutions” that in the end may not solve anything. In today’s RBN blog, we discuss the various efforts in the U.S. and overseas to monkey with market mechanisms and rein in the cost of motor fuel.

Tuesday, 11/01/2022

In our view, there are two or three clear leaders in the competition for billions of dollars in U.S. support for clean-hydrogen hubs — for example, it would be hard to imagine the Department of Energy (DOE) passing over hub proposals in Texas, Louisiana or the Marcellus/Utica. At the same time, there’s a lot to be said for plans to develop hydrogen hubs in California, North Dakota and, we might add, the Rockies, a region with extensive energy-related infrastructure and a long list of prospective clean-hydrogen end-users, not to mention at least two projects to convert coal-fired power plants to hydrogen. In today’s RBN blog, we discuss a multistate push to make the Rockies a hotbed of hydrogen-related activity.

Monday, 10/31/2022

The U.S. market for distillates has been crazy the past few months — especially in PADD 1 —  and given all that’s going on, it’s likely to stay that way for months to come. Inventories of ultra-low-sulfur diesel, heating oil and other distillates are at their lowest levels for this time of year since before the EIA started tracking them 40 years ago and diesel prices are in the stratosphere, all despite diesel crack spreads being in record-high territory — a strong incentive for refineries to churn out more distillate. In today’s RBN blog, we discuss the many factors affecting distillate supply, demand, inventories and prices and take a look ahead at where the market may be headed next.

Wednesday, 10/26/2022

Earlier this month, the price discount for Western Canadian Select (WCS) versus WTI at Cushing blew out to more than $30/bbl — 2.5x what’s typical and a signal that something was seriously out of whack. Well, it turns out that several things were — and to some degree still are — off-kilter, combining to drive down the price of Western Canada’s benchmark heavy-oil blend to its lowest levels relative to WTI in four years. The culprits? Everything from renewed pipeline constraints to a deadly refinery fire in Ohio to the aftereffects of Russia’s invasion of Ukraine, including releases from the U.S.’s Strategic Petroleum Reserve (SPR). In today’s RBN blog, we discuss the recent ups and downs in WCS pricing and the prospects for WCS-WTI differentials to return to a more normal range in the weeks to come. (Hint: This roller-coaster ride ain’t over.)

Tuesday, 10/25/2022

The world will need extraordinarily large quantities of lithium to support the development of renewable energy, batteries and electric vehicles (EVs). The problem is, much of the supply chain for lithium and many other important energy-transition minerals is either owned or controlled by China, whose strategic and economic interests are directly at odds with the U.S. and its allies. In response, the Biden administration and Congress have been taking steps to reduce our dependence on Chinese supplies by providing financial incentives to encourage the development of more domestic mineral production and processing capacity. But that development can only happen if the projects can clear the often-daunting regulatory and legal hurdles they almost always face. In today’s RBN blog, we discuss a few of the leading U.S. projects being planned and the challenges they face in moving forward.

Tuesday, 10/18/2022

It would be tough to find a large U.S. E&P with a clearer, more consistent geographic focus than Diamondback Energy. Over the past four years, the Permian-centric producer has closed on four 10-figure deals — total value $13.7 billion — that together have added more than 200,000 net acres in the nation’s leading shale/tight-oil play. Just this month, Diamondback went to the Permian well yet again, this time with a $1.6 billion deal to acquire FireBird Energy, a privately held Midland Basin producer that has been on a Permian buying spree of its own. When the deal closes later this year, Diamondback’s total production in the Midland and Delaware basins will approach 400,000 barrels of oil equivalent per day (Mboe/d), or more than 100x what it was producing 10 years ago when the company had just gone public. In today’s RBN blog, we discuss the company’s latest acquisition and its rapid rise to Permian prominence.