Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, July 9, 2017

the great US natural gas exports myth

oil prices rose to a 4 week high on Monday, before the 4th of July holiday, but fell from there to end the week roughly 3.9% lower than where they closed last week...the $1.03 price increase to $47.01 a barrel on Monday was largely attributed to the spate of short-covering that propelled the prior week's rally, but on the holiday prices for August US crude fell sharply in electronic and overseas trading after Russia was reported to oppose any proposal to deepen OPEC-led production cuts, with WTI down $1.94, or 4.1%, to $45.13 a barrel, even though trades made that day did not settle til Wednesday the 5th....prices then jumped to as high as $46.53 a barrel on Thursday after the EIA report indicated major inventory draws across the board, but then collapsed near the close to end the day with a gain of just 39 cents at $45.52 a barrel...Friday brought further price deterioration on reports of higher OPEC exports and a double digit increase in the rig count, with August crude down another $1.29 to $44.23 a barrel, the lowest close since June 26th...

The Great US Natural Gas Exports Myth

Mr Trump was in Europe this week for the annual meeting of the G-20, the heads of government for the world's 20 largest economies...part of Trump/'s agenda on that trip was to promote exports of US natural gas in Europe, with the apparent intention of undermining Russian dominance of natural gas markets on the continent....the groundwork for this natural gas scheme was laid in late June, when the US Senate voted 98 to 2 to impose further sanctions on Russia, with the intention of waylaying the construction of the Nord-Stream 2, a subsea natural gas pipeline planned from Russia to Germany, which international energy firms are involved in...to an extent, the Europeans went along with that scheme, extending their own energy sanctions against Russia to January 31st, 2018.....nonetheless, i found this entire stratagem bizarre and self-defeating; as you may recall, i've previously pointed out that our natural gas supplies are a lot tighter than they appear to be, and there's no way that additional supplies can be developed at the prices that are being promised for these exports...what i'm going to do today is show you the natural gas data that i'm looking at, so you can see how i've come to that conclusion...

the first screenshot below is from the EIA table of US dry natural gas production monthly, which i've lopped off at 8 years because the long history of US natural gas output is not an issue here...we can see that US natural gas production rose each year between 2010 and 2015 as fracking brought on new supplies...but look at the 2016 data starting in March; US natural gas production is lower each month of 2016 after that than the equivalent month of 2015...likewise, for the first four months of 2017 for which there is confirmed production data, our natural gas production was again lower...that means our natural gas production had been falling for 14 months in a row going into April, and since recent natural gas drilling and fracking remains far below that of the boom years, we have every reason to believe that decrease in output has continued to the present...yet even the Reuters article on the Trump promotion of our natural gas exports refers to "fast-growing supplies of U.S. natural gas", a myth that every one in the media seems to believe without question...here's the data; you can see our production is clearly falling:

July 4 2017 natural gas monthly production

next, we'll include excerpts of a few tables on US natural gas exports...first, like the above, is a truncated excerpt of the EIA table of US natural gas exports...no surprise here, they've been rising, and now at a much more rapid pace since Cheniere's Sabine Pass natural gas natural gas liquefaction facilities started exporting LNG in May of last year..

July 8 2017 natural gas exports just to put those exports into perspective, we'll include the top of the table of US natural gas exports by country; while you can see which countries our exports are going by looking at the entire table, we dont particularly care where they're going to, as we're including this table because it shows exports by pipeline (which obviously can only go to Canada and Mexico) and LNG exports by vessel, which are going all over the world...

July 2017 US natural gas exports by country

next, we have a truncated excerpt of the EIA table of US natural gas imports...looking closely at the numbers, you'll see that our natural gas imports generally fell between 2010 and 2014 when our production was rising, but that our imports of natural gas started increasing again as our production fell and our exports rose...comparing this table to the export table above, you'll see that during the winter months, when much of the US is using natural gas for heat, our imports of natural gas exceed our exports of it...for instance, in December 2016, we exported over 250 billion cubic feet of natural gas, and imported over 280 billion cubic feet of it...on the other hand, in April, when the US consumption of gas for heating and cooling is moderate, our natural gas exports did exceed our imports by around 9 billion cubic feet...the EIA projects that we will still be a net importer of natural gas in 2017, and not become a net exporter of natural gas until 2018...

July 8 2017 natural gas imports

next, to put our imports in perspective we have the top of the EIA's table of US natural gas imports by country...what you see here is that almost all of our imported natural gas is now coming from Canada...since we are still importing more natural gas than we're exporting, that means that we are, in effect, importing natural gas from Canada to export it through Texas and Louisiana...without Canadian gas coming in to replace what we export, a shortage of natural gas would develop in the US...it should also be clear from what we've shown so far that for us to export any more natural gas to Europe, much less replace what they get from Russia, we'd have to first import more of it from Canada..

July 2017 US natural gas imports by country

next, let's look at a graph of natural gas supplies that we have stored underground:

July 8 2017 natural gas stocks as of June 30

the above graph comes from the twitter feed of John Kemp, senior energy analyst and columnist with Reuters, wherein the red line shows our natural gas supplies in billions of cubic feet from January 2015 to June 30th of this year...the yellow line, for the year prior to the one shown by the red line, thus shows our natural gas supplies in billions of cubic feet from January 2014 to the end of 2016, thus retracing some of what the red line shows...the light blue band then shows the prior 5 year range of our natural gas supplies, and thus from the left shows the range of our natural gas supplies from January 2010 through January 2014, extending to the right where it ends with the range of our natural gas supplies from the end of 2012 through the end of 2016...lastly, the blue dashes show the average of that 5 year range of our natural gas stocks that's indicated by the light blue shading...note the obvious seasonal pattern; surplus natural gas is injected into storage each spring and summer, then withdrawn for use during the heating season...

just from looking at that graph, it appears that our natural gas supplies remain near normal, slightly above the average of the 5 year range...but next, we're going to pull out an old graph from the heating season that will call that simple visual analysis into question....this is a graph we posted on March 26th, showing heating demand for this past winter in red and heating demand for the winter before that in yellow, and the long term average heating demand as a light dashed line...a detailed explanation of what heating degree days are and what this chart shows is included with the original post, but suffice it to say that what this chart shows is that demand for natural gas for heating was 17% below normal in each of the last two winters...with that in mind, look back at the above graph of our natural gas supplies...by following the red line, we can see that our natural gas supplies were at least at a 5 year high for the time of year from October 2015 through November 2016, with October 2016 being the first time in our history that natural gas supplies topped 4 trillion cubic feet...that's normal, we'd expect a record glut of natural gas with demand for heating 17% below normal...but notice that since December of 2016 our natural gas supplies were falling at a faster rate than normal, despite another warmer than normal winter, and by the end of January had returned to merely average...our supplies then recovered to above average because of a record warm period that led to the first weekly injection of gas into storage in February history, but as of this date they're still nearly 300 billion cubic feet below where they were at the same time in June a year ago....what that means is that at the current pace of natural gas production, we were unable to maintain our surplus from production at a the same pace as last year, even while demand remained below normal....what that suggests is that should domestic demand for natural gas jump to above average levels, either due to increased electrical generation or due to a colder than normal winter, our production plus Canada's imports will be inadequate to meet our export contracts and our own needs at the same time...

March 23 2017 heating demand as of March 17

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering details for the week ending June 30th, showed an increase in US oil exports, a decrease in our oil imports, and a significant increase in operations at US refineries, which thus resulted in the second largest withdrawal from our commercial stocks of crude this year...our imports  of crude oil fell by an average of 274,000 barrels per day to an average of 7,742,000 barrels per day during the week, while at the same time our exports of crude oil rose by 240,000 barrels per day to an average of 768,000 barrels per day, which meant that our effective imports netted out to 6,974,000 barrels per day during the week, 514,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 88,000 barrels per day to an average of 9,338,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,312,000 barrels per day during the cited week...

during the same week, refineries reportedly used 17,141,000 barrels of crude per day, 251,000 barrels per day more than they used during the prior week, and at the same time a net of 957,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's crude oil figures from the EIA seem to indicate that our total supply of oil from net imports, from oilfield production, and from storage was 128,000 more barrels per day than what refineries reported they used during the week...to account for that discrepancy, the EIA needed to insert a (-128,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as "unaccounted for crude oil"...

details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports actually rose to an average of 7,915,000 barrels per day, which was nonetheless 1.0% below the imports of the same four-week period last year...the 957,000 barrel per day decrease in our total crude inventories came about on a 900,000 barrel per day withdrawal from our commercial stocks of crude oil and a 57,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was part of a Federal budget deal 20 months ago....this week's 88,000 barrel per day increase in our crude oil production resulted from a 105,000 barrel per day increase in oil output from wells in the lower 48 states as Gulf production came back online, which was partially offset by a 17,000 barrels per day decrease in oil output from Alaska, which was reportedly due to maintenance ...the 9,338,000 barrels of crude per day that we produced during the week ending June 30th was 6.5% more than the 8,770,000 barrels per day we were producing at the end of 2016, and up by 10.8% from our 8,428,000 barrel per day of oil output during the during the same week a year ago, while it was still 2.8% below the June 5th 2015 record US oil production of 9,610,000 barrels per day...

US oil refineries were operating at 93.6% of their capacity in using those 17,141,000 barrels of crude per day, which was up from 92.5% of capacity the prior week, and well above normal for this time of year...the amount of oil refined this week was also well above the seasonal norm, as it was 2.7% more than the 16,687,000 barrels of crude per day.that were being processed during week ending July 1st, 2016, when refineries were operating at 92.5% of capacity, and roughly 10% above the 10 year average of 15.6 million barrels of crude per day for the last week of June....

with the pickup in refining, gasoline production from our refineries increased by 31,000 barrels per day to 10,365,000 barrels per day during the week ending June 30th, the highest weekly gasoline output this year...that gasoline output was also 3.5% higher than the 10,018,000 barrels of gasoline that were being produced daily during the comparable week a year ago....at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 144,000 barrels per day to 5,100,000 barrels per day, still a seasonal high for the last week of June and 4.3% more than the 5,100,000 barrels per day of distillates that were being produced during the week ending July 1st last  year.....  

even with the increase in gasoline production, our end of the week gasoline inventories decreased by 3,669,000 barrels to 237,303,000 barrels by June 30th, now almost reversing the gasoline supply increases of early June...this week's gasoline supplies were reduced because our domestic consumption of gasoline increased by 167,000 barrels per day to 9,705,000 barrels per day, and because of this week's 278,000 barrel per day adjustment to correct for the imbalance created by the blending of fuel ethanol and gasoline blending components... meanwhile, our gasoline exports rose by 51,000 barrels per day to 713,000 barrels per day, while our imports of gasoline rose by 168,000 barrels per day to 739,000 barrels per day at the same time....with the week’s decrease in our gasoline supplies, our gasoline inventories are now 0.7% below last year's seasonal high of 238,876,000 barrels for this week of the year, but are still 8.9% higher than the 217,952,000 barrels of gasoline we had stored on July 3rd of 2015, and 10.7% more than the 214,321,000 barrels of gasoline we had stored on July 4th of 2014…

with the decrease in our distillates production, our supplies of distillate fuels fell by 1,850,000 barrels to 150,422,000 barrels during the week ending June 30th, the second decrease after increasing by 5,762,000 barrels over the prior three weeks....the major factor in this  week's drop in distillates supplies was the amount of distillates supplied to US markets, which rose by 293,000 barrels per day to 4,322,000 barrels per day...meanwhile our exports of distillates fell by 236,000 barrels per day to 1,150,000 barrels per day, while our imports of distillates fell by 21,000 barrels per day to 108,000 barrels per day....despite the drop in supplies, our distillate inventories are still 1.0% higher than the 148,939,000 barrels that we had stored on July 1st, 2016, and 9.4% higher than the distillate inventories of 137,461,000 barrels that we had stored on July 3rd of 2015...

finally, with the drop in imports and pickup of US refining, our commercial supplies of crude oil decreased for the 11th time in the past 13 weeks, as our oil inventories fell by 6,299,000 barrels to 502,914,000 barrels as of June 30th.. however, we still finished the week with 5.0% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 1.9% more crude oil in storage than the 493,718,000 barrels of oil in storage on July 1st of 2016....our supplies of oil also remain well ahead of those of the same week in prior years; with 16.0% more crude than the 433,714,000 barrels in of oil that were in storage on July 3rd of 2015, and 42.9% more crude than the 350,822,000 barrels of oil we had in storage on July 4th of 2014...    

This Week's Rig Counts

increasing drilling activity returned to the US during the week ending July 7th, with both oil and gas rigs higher, after the prior week had seen the first drilling slowdown in 24 weeks....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 12 rigs to 952 rigs in the week ending Friday, which was 512 more rigs than the 440 rigs that were deployed as of the July 8th report in 2016, and the most drilling rigs we've had running since April 17th, 2015, even though it was still less than half of the recent high of 1929 drilling rigs that were in use on November 21st of 2014....

the number of rigs drilling for oil increased by 7 rigs to 763 rigs this week, which was up by 412 oil rigs over the past year, and the most oil rigs that were in use since April 3rd 2015, while it was still far from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations increased by 5 rigs to 189 rigs this week, which was 101 more rigs than the 88 natural gas rigs that were drilling a year ago, but way down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...

there was no change in the total offshore or Gulf of Mexico rig counts this week, where drilling continues from 21 platforms, up from the 18 rigs working in the Gulf and total 19 offshore a year ago....active horizontal drilling rigs increased by 12 to 804 rigs this week, up by 461 from the 343 horizontal rigs that were in use in the US on July 8th of last year and the most horizontal rigs in use since March 27th of 2015, while they are still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, the directional rig count was up by 3 rigs to 74 directional rigs this week, which was also up from the 36 directional rigs that were deployed during the same week last year...meanwhile, the vertical rig count was down by 3 rigs to 74 rigs this week, which was still up from the 61 vertical rigs that were deployed 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 pdf from Baker Hughes that 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 July 7th, the second column shows the change in the number of working rigs between last week's count (June 30th) and this week's (July 7th) count, the third column shows last week's June 30th active rig count, the 4th column shows the change between the number of rigs running on Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was the 8th of July, 2016...

July 7 2017 rig count summary

note that this week saw the first decrease in drilling in the Permian basin of West Texas and southeastern New Mexico in 16 weeks; you'll recall that up until just a few months ago, almost half of the new drilling was taking place in that region...hence, Texas was limited to a increase of 2 rigs, which could be accounted for by the increase in the Granite Wash of the panhandle border...of the major shale basins, Oklahoma's Cana Woodford saw the largest increase, with 4 oil rigs added this week, while the Haynesville of northwestern Louisiana saw both an oil and a gas rig added....note horizontal rig increases shown in the table above only add up to 7, so there's 5 fracking rigs unaccounted for; some of those may be in Alaska, where recent news articles describe new drilling and fracking in the HRZ shale on the North Slope...of the states not shown above, rigs were added in both Nebraska and Montana last week; Nebraska has had intermittent drilling over the past year, and also had a rig active the same week a year ago, but that Montana drilling appears to be the first in the state since the oil bust at the end of 2014...'

 

note: there's more here...

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