crude oil prices jumped 3% on Monday morning on comments from Vladimir Putin, but stumbled lower the rest of the week to end not too far from where they started...after closing last week at $49.81 a barrel, oil traders awoke to Putin's comments in Istanbul that Russia was ready to join OPEC in limiting oil production with either a freeze or a cut, and quickly drove prices to well over $51 a barrel on Monday morning, where they meandered the rest of the day before closing at $51.35, the highest oil price in a year...but on Tuesday, word that Libya had started exporting oil again put a damper on the rally, and oil prices fell back to close at $50.79...prices were further depressed on Wednesday after OPEC said it pumped a record 33.39 million barrels per day in September, up by 220,100 barrels per day from August and closed at $50.18...oil prices then initially fell on Thursday after the EIA report indicated the largest crude inventory increase in 6 months, but recovered and closed higher at 50.44, after traders turned their attention to product inventory drawdowns in that same EIA data...oil prices then rose to top $51 again on Friday morning, but fell amid concern about the persistent global oversupply of oil to close the week at $50.35, after Baker Hughes reported yet another increase in the US rig count...
meanwhile, natural gas prices, which had spiked to a 21 month high at 3.198 per mmBTU on Friday of last week on forecasts of much warmer than normal weather, were again higher this week, while much more volatile...the rally of last week carried into Monday, as gas prices rose more than 2% to close at $3.275 per mmBTU....prices fell to $3.237 per mmBTU, however, with Tuesday's reports that gas production outside of "the Northeast" had fallen 9% in the year since last September, largely as a result lower gas production from oil directed wells....prices slipped further to $3.210 per mmBTU on Wednesday, then jumped to close at $3.341 per mmBTU on Thursday, after the EIA published its Short-Term Energy Outlook which indicated that natural gas production continued to decline and projected it would go into deficit in December of this year...then, on little further relevant news, gas traders took their profits and natural gas prices closed the week at $3.285 per mmBTU...with gas prices now hitting a 22 month high, we'll include a 2 year graph of those prices, so you can see what the price slump we've been through looks like..
the above graph shows the November contract price for a million British thermal units (mmBTU) of natural gas at or contracted to be delivered to the Louisiana interstate natural gas pipeline interconnection known as the Henry Hub, which is the benchmark location for setting natural gas prices across the US...while trading in contracts for delivery in previous months were typically priced slightly lower, this graph gives us a good sense of the natural gas price trajectory over the past two years...before 2014, it was widely thought that the breakeven price for fracked natural gas the best Marcellus spots was around $4 per mmBTU, a price we've now been below for 22 months...as gas prices fell over this span, the gas directed rig count fell from 340 rigs at the end of 2014 to 81 rigs on August 5th and again on August 26th of this year...as we'll see later, with the recent natural gas price increase, the new drilling for natural gas is now picking up again...
Gas Export Projects and Regional Pipeline Projects Planned
RBN Energy, who does excellent in depth analysis on production and movement of oil and gas in the US and Canada, had an important post this week on the number of LNG liquefaction and export projects now in the planning stages or under construction that are scheduled to come online in the next few years or early in the next decade, titled "Catch a Wave - Market Shifts Could Spur a 'Second Wave' of U.S. LNG Export Projects"...up until this year, our exports of natural gas were limited to those we piped to Mexico, while we continued to import even greater volumes of gas from Canada at the same time, making us a net importer of gas, despite the glut of gas in our area...on January 3rd of this year, in a post discussing our first oil exports, we also explained that the first ever batch of US fracked gas was being loaded on a LNG tanker bound for Europe at the new Cheniere Energy Sabine Pass terminal near the Louisiana-Texas border...in the first six months of operation, the first of six planned "liquefaction trains" from that plant had exported 17 cargoes containing the super-cooled, liquefied equivalent of over 50 Bcf of natural gas, so they've probably exported around 30 LNG tanker cargoes by now...this week, the second liquefaction train, which had been operational since July 28, received approval from FERC to start exporting, essentially doubling the Sabine Pass LNG export capacity from current levels...since the April 1 start of the U.S. gas stockpiling season, through Sept. 9, Sabine pass had taken in 119 billion cubic feet of natural gas; during the same period, the US supply glut of natural gas versus the five-year average fell from 874 billion cubic feet to 299 billion cubic feet, so we can see that just the one export train had put a significant dent in our natural gas glut over that short period (the rest of the drawdown was likely related to air conditioning use in light of record high temperatures)...so it's obvious that once the Sabine Pass facility has all 6 export trains running (2 are scheduled next year), they alone will be sucking up all of the surplus natural gas that we currently produce, even in a year with an El Nino winter...
which brings us back to this week's RBN article, which details the LNG liquefaction and export projects now on the drawing boards...Bruce Oskol, the blogger at The Bakken Oil Blog, dug through that RBN Energy article and produced a list of US LNG export projects at various points along the regulatory process, mostly in Lousiana and Texas, which we will now include below:
- Cheniere: to build a sixth 4.5 MTPA liquefaction train at Sabine Pass LNG site
- Cameron LNG: has proposed two additional 4.5-MTPA liquefaction trains at its Hackberry facility south of Lake Charles, LA
- Lake Charles LNG: has proposed a three-train, 16.2-MTPA liquefaction/LNG export facilty in advanced stages
- LNG Ltd: has proposed the development of the Magnolia LNG project; as many as four 2-MTPA liquefaction plants, near Lake Charles
- Tellurian Investments: developing Driftwood LNG, total capacity up to 26 MTPA; also near Lake Charles
- Louisiana LNG Energy LLC: has proposed construction of a 6-MTPA liquefaction/LNG export terminal on Mississippi river southeast of New Orleans
- Venture Global LNG: two proposed liquefaction/LNG export terminals in Louisiana; one 20-MTPA facility and one 10-MTPA facility
- Southern California Telephone & Energy: developing the Monkey Island liquefaction/LNG export project; south of Lake Charles; at least three 4-MTPA trains
- G2 LNG: has proposed a liquefaction/LNG export facility; up to 14 MTPA; Cameron Parish
- CE FLNG: proposed project; two floating LNG vessels; each vessel up to 4 MTPA
- Cheniere: plans to build three more 4.5-MTPA liquefaction trains at its Cheniere's Corpus Christi facility
- Freeport LNG: developing a possible fourth 4.4-MTPA train at its Freeport site
- Port Arthur LNG, an affiliate of Sempra: leading the development of a proposed two-train, 10-MTPA liquefaction/LNG export terminal along the Sabine-Neches Waterway in Port Arthur; Woodside Petroleum is also participating in this project
- Annova LNG: has proposed a six-train, 6-MTPA liquefaction/LNG export facility planned by Exelon Generation for Brownsville
- Third Point LLC (a NYC-based investment fund) and Samsung Engineering are developing Texas LNG, a proposed 4-MTPA liquefaction/LNG export terminal in Brownsville
- Golden Pass LNG: a joint venture of Qatar Petroleum and Exxon Mobil; a 15.6 MTPA plant at its existing LNG import terminal at Sabine Pass
- Rio Grande LNG, being developed by NextDecade LLC: up to six 4.5-MTPA liquefaciton trains and two LNG loading berths along the Brownsville Shipping Channel
- Kinder Morgan: two 5-MTPA trains in Pascagoula; and, a 2.5-MTPA Elba Island project in Chatham County, GA
- Veresen: a proposed 6-MTPA Jordan Cove LNG project in Coos Bay, OR
according to RBN, if those projects were all completed (which RBN doubts), they would require more than 30 billion cubic feet of gas per day...our current natural gas production has been running at around 72 billion cubic feet of gas per day, down from a high of near 75 billion cubic feet of gas per day early this past year...recently, our daily surplus ran around 3 billion cubic feet of gas per day in the spring, when there is minimal heating or air conditioning, while our deficit in the winter of 2014 was also around 3 billion cubic feet of gas per day, so right now there are not any where near 30 billion cubic feet of extra gas per day to be had for exports...so where do they think they'll be getting the gas for these export projects, which cost billions of dollar and take years to complete? a similar number of planned pipeline projects from West Virginia, Ohio and Pennsylvania strongly suggests that much of that gas will come from our part of the country...while we don't yet have a list of all those pipelines, two series of articles from RBN Energy this summer, links to which we'll incllude here for future reference, probably includes details on most of them:
- One Step Closer - Market Impact of 2016 Northeast Natural Gas Demand Trends
- But I Would Pipe 500 Miles - Risks and Opportunities of Northeast Natural Gas Pipeline Expansions
- But I Would Pipe Five Hundred Miles - Evaluating the Rough Economics of a New Gas Pipeline
- But I Would Pipe 500 Miles - Evaluating Economics of a New Gas Pipeline Part 3
- But I Would Pipe Five Hundred Miles - Evaluating Economics of a New Natural Gas Pipeline (Part 4)
- I Saw Miles and Miles of Texas - Northeast Natural Gas Vs. Gulf Coast Production
- Too Much Pipe on Our Hands? - Northeast Natural Gas Production vs. Takeaway Capacity
- One Way or Another - Western Canadian Gas Producers Still Looking for a Way Out
- Too Much Pipe On My Hands? - Marcellus/Utica Takeaway Capacity to New England and the Mid-Atlantic States
- Too Much Pipe On My Hands? - Marcellus/Utica Takeaway Capacity to the Midwest, Canada
- Too Much Pipe On My Hands? - Marcellus/Utica Takeaway Capacity to the Southeast
- Feels Like the First Time - LNG Exports Impact U.S. Natural Gas Supply, Demand and Price
- Too Much Pipe On My Hands?? - Marcellus/Utica Takeaway Capacity to the Gulf Coast
most of the above articles include discussion of pipelines from our area to elsewhere, ie, "takeaway capacity", whether planned or operational...just to be clear, when they refer to "Northeast Gas", they are referring to West Virginia, Ohio and Pennsylvania gas - ie, when the center of the industry universe is Texas, even Kentucky becomes part of the 'northeast'...again, i haven't yet put together a list of the pipelines that are on the drawing boards in our area or their capacity (maybe later this year), but i recall that as these posts were released this summer, i came away with the impression that their takeaway capacity was far in excess of the current production from the Marcellus and Utica shales, in fact, likely more than double what we now produce...the point is that the industry is putting up a lot of money, tens of billions of dollars, to build natural gas pipelines out of our area and to build export ports for that natural gas, gas that wont be there when these projects are completed unless the local frackers at least double the drilling and double the fracking that they're now doing in the Marcellus and Utica regions..
The Latest Oil Stats from the EIA
the oil data for the week ending October 7th from the US Energy Information Administration again showed a large cutbacks in oil refining activity, which when combined with a modest increase in oil imports, led to the first increase in crude oil supplies in 6 weeks, while the reduced refining simultaneously led to decreases in supplies of gasoline and distillates...however, at the same time, the crude oil fudge factor that was needed to make the weekly U.S. Petroleum Balance Sheet (line 13) balance swung to +415,000 barrels per day, from last week's -130,000 barrels per day, which means that 415,000 more barrels of oil per day showed up in our final consumption and inventory figures this week than were accounted for by our crude production or import figures, meaning one or several of this week's metrics were off by that amount...year to date, the cumulative daily average of that fudge factor has fallen to 18,000 barrels per day, so it appears that most of oil that disappears from the statistics over one period seems to be finding its way back into the data in subsequent weeks...
that fudge factor was the subject of a long post this week by premier oil analyst Art Berman of oilprice.com, which was republished on several websites under the headline "The billion barrel oil swindle: 80% of US oil reserves are unaccounted for"....the use of the word swindle in the headline was unfortunate, and i'm almost certain that click bait word wasn't Berman's choice...there is no swindle in that weekly adjustment, just inaccurate reporting of data...the government simply doesn't have the assets in place to produce exact data on production from every US oil well, exact amount of oil refined by every refinery, the exact oil imports by pipe and by boat, and the amount of oil stored in every tank across the entire country for every Friday by the Wednesday of the next week...most likely, the EIA data is only an estimate in a range, like Census estimates of housing data (which also move markets) which is collected by canvassing Census agents and typically comes up with a 90% confidence range of +/- 15%....since the other numbers which have their accuracy determined by that fudge factor are those that move the markets and the price of oil, that weekly adjustment should likewise be covered by the media, so everyone knows how inaccurate these weekly numbers are...so if you want a better understanding of how these numbers come together, read that Berman piece carefully, as he is exposing that fudge factor that the EIA uses weekly that we've been covering for a year without the detailed explanation that Berman supplies...
moving on to this week's releases, the EIA reported that production of crude oil from US wells fell by 17,000 barrels per day to an average of 8,450,000 barrels per day during the week ending October 7th, as output from Alaskan oil rose by 19,000 barrels per day while production from the lower 48 states was 36,000 barrels per day lower....that left the week's domestic oil production 7.1% lower than the 9,096,000 barrels we produced during the week ending October 9th of last year, and 12.1% below the record 9,610,000 barrels per day of oil production that we saw during the week ending June 5th last year...our oil production for the week ending September 30th is now 769,000 barrels per day lower than what we were producing at the beginning of this year, which was an interim high after our production had also been rising in the last few months of 2015...
at the same time, the EIA reported that our imports of crude oil rose by an average of 151,000 barrels per day to an average of 7,861,000 barrels per day during the week ending October 7th, which was 7.5% higher than the 7,315,000 barrels of oil per day we imported during the corresponding week a year ago...that increase helped the 4 week average of our oil imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) tick up to an average of 7.9 million barrels per day, now 8.9% higher than the same four-week period last year...meanwhile, our exports of crude oil were also up, rising by an average of 41,000 barrels per day to an average of 481,000 barrels per day for the week, in data that is not directly comparable to last year's exports of 526,000 barrels per day in the same week, as the EIA has recently switched to reporting Custom's import data, rather than untimely stats from the Census Bureau..
meanwhile, the amount of crude oil used by US refineries fell by an average of 480,000 barrels per day to an average of 15,552,000 barrels of crude per day during the week ending October 7th, the fifth significant refining cutback in a row and the largest drop since the 22nd of January, as the US refinery utilization rate fell to 85.5% for the week, down from 88.3% of capacity the prior week, and down from the refinery utilization rate of 86.0% seen during the week ending October 9th last year...US oil refining has now slowed by 1,376,000 barrels per day, or by 8.1%, in the 5 weeks since Labor Day, as the refinery utilization rate has dropped from 93.7% over that span ...nonetheless, the crude refined this week nationally was still 1.9% more than the 15,267,000 barrels of crude per day US refineries used during the week ending October 9th last year, and 1.5% more than was refined during the equivalent week in 2014 ...
with that large reported drop in the amount of oil used by refineries, the output of both gasoline and distillates was lower during the week ending October 7th, after output of both had increased during the week ending September 30th, when there was also a substantial drop in the amount of oil refined...the EIA reported that refineries’ production of gasoline fell by 53,000 barrels per day to 9,935,000 barrels per day during the week ending October 7th, output that was still 3.3% higher than the gasoline output of 9,619,000 barrels per day during the week ending October 9th last year, and 7.4% higher than the gasoline production during the equivalent week of 2014....at the same time, refinery output of distillate fuels (diesel fuel and heat oil) fell by 217,000 barrels per day, from 4,713,000 barrels per day during the week ending September 30th to 4,496,000 barrels per day during the week ending October 7th....that left our distillates output 2.5% lower than the 4,613,000 barrels per day that was being produced during the same week last year, and 1.9% less than the 4,582,000 barrels per day of distillates production during the equivalent week of 2014...
with the modest decrease in gasoline production, our gasoline supplies fell by 1,907,000 barrels to 225,498,000 barrels as of October 7th, even as our domestic demand for gasoline fell by 126,000 barrels per day to 9,264,000 barrels per day, partly because our gasoline imports fell by 241,000 barrels per day to 762,000 barrels per day, from last weeks 41 month high of 1,003,000 barrels per day....even with the drop in supplies, however, the week's gasoline inventories were still 1.9% higher than the 221,302,000 barrels of gasoline that we had stored on October 9th of last year, and 9.6% higher than the 205,673,000 barrels of gasoline we had stored on October 10th of 2014...at the same time, our distillate fuel inventories fell by 3,746,000 barrels to 156,972,000 barrels by October 7th, which nonetheless still left our distillate inventories 6.3% above the distillate inventories of 147,630,000 barrels of October 9th last year, and 26.0% above the distillate inventories of 124,622,000 barrels of October 10th, 2014....
now, before we explain how our inventories of crude oil rose this week, we should note that as of this week's release, the EIA is no longer including crude oil lease stocks in U.S. total commercial crude oil inventory data...as they explain it, such oil is stored in tanks at sites where producers are drilling on leased land, and are not yet available for commercial use...since the well operators do not count this oil as production until the oil is transferred off the lease, and since the oil supply metric is for "commercial crude oil inventory", they've decided that such lease supplies should not be included in the official supply number...this will thus reduce the reported inventories of crude oil by about 31 million barrels each week, a figure that has not changed much weekly... after that 'fix', our inventories of crude oil rose by 4,850,000 barrels to 473,958,000 barrels as of September 30th, the first increase in our oil supplies in 6 weeks and the largest increase in 6 months...that left us with 8.5% more crude oil in storage than the 436,750,000 barrels we had stored as of the same weekend a year earlier, and 39.7% more crude oil than the 339,303,000 barrels we had stored on October 10th 2014...(NB: that revised data is from the excel file for Stocks of Crude Oil; the weekly EIA file still has the old figures for prior to this week, which makes it look as if our oil supplies suddenly fell by 31 million barrels)
This Week's Rig Count
US drilling activity increased for the 4th week in a row during the week ending October 14th and has now increased 17 out of the last 20 weeks, after a 39 week stretch that hadn't seen any increases...Baker Hughes reported that the total count of active rotary rigs running in the US rose by 15 rigs to 539 rigs by Friday, an eight month high, which was still down from the 787 rigs that were deployed as of the October 16th report last year, and down from the recent high of 1929 rigs that were in use on November 21st of 2014...the number of rigs drilling for oil rose by 4 rigs to 432 rigs this week, as oil rigs have now been rising for 17 straight weeks without a retreat, but they're still down from the 595 oil directed rigs that were in use a year ago, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...
at the same time, the count of drilling rigs targeting natural gas formations was up by 11 rigs to 105 rigs, an 11.7% increase which was largest jump in gas rigs since 14 were added on October 31, 2014, and likely the largest percentage jump ever, since to have increased gas rigs by 11.7% back when there were more than 1000 gas rigs active would have meant over a 117 rig jump in one week, something we just don't see anywhere in the records...that still left active gas rigs down from the 192 natural gas rigs that were drilling a year ago, and down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008...two working rigs also remain that are classified as miscellaneous, in contrast to a year ago, when no such miscellaneous rigs were active...
while offshore drilling activity was unchanged at 23 rigs, down from 33 a year earlier, 2 rigs were added on inland lakes in southern Louisiana, which brought the inland waters count back up to 3 rigs, same as last year and same as two weeks ago...the number of working horizontal drilling rigs increased by 18 rigs to 431 rigs this week, which was still down from the 591 horizontal rigs that were in use on October 16th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...at the same time, a single directional drilling rig was also added, bringing the directional rig count up to 51, which was also down from the 86 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count was down by 4 rigs to 57 rigs this week, which was down from the 110 vertical rigs that were drilling in the US during the same week last year...
the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes which shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins...in both tables, the first column shows the active rig count as of October 14th, the second column shows the change in the number of working rigs between last week (October 7th) and this week (October 14th), the third column shows last week's October 7th active rig count, the 4th column shows the change in the number of rigs running this Friday from the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this week's case was for October 16th of 2015:
obviously, there were quite a bit more changes this week than in those just past, when we had to look hard to find a change greater than 2...for starters, Louisiana drillers added 6 rigs, including two on inland waters and 2 in the Haynesville, and both New Mexico and Oklahoma saw the addition of three rigs...on the other hand, drilling in Texas was down by 3 rigs, with a drop of 4 rigs in the Eagle Ford of south Texas, and a drop of 2 rigs in the Permian...also note that with the addition of 4 rigs in the Cana Woodford; activity in that basin is now up to 39 rigs, more that last year's 36, as the SCOOP and STACK formations are being exploited...what we don't see here is where the increase of 11 natural gas directed rigs occurred; 2 natural gas rigs were set up in the Haynesville, and two in the Marcellus (one each in PA and West Virginia) but checking the detailed records from all the other major basins, i find the other increases in drilling were all for oil...we should also note that of the states not shown above, both Kentucky and Mississippi saw the addition of one rig this week, that brought Kentucky up to 2 rigs, up from none a year ago, and brought Mississippi back to 3 rigs, still down from 5 rigs last October 16th..in addition, Illinois saw one of their two rigs shut down; as a decrease from the two rigs they had running a year ago..
note: there's more related news here: