Saturday, June 25, 2016

Saudi's Crude Oil Inventories Dropping -- Bloomberg -- June 25, 2016; The Tea Leaves Are Swirling

Bloomberg headline: oil glut is fading where you would least expect it -- Saudi Arabia.

Earlier this week it was reported that Saudi said it will not increase crude oil production.

Now let's see what the Bloomberg article is all about.
Saudi Arabia, a country nearly synonymous with plentiful crude supplies, is offering one of the strongest signs yet that the glut that has plagued the oil market since 2014 is coming to an end.

Despite near record production, the kingdom’s oil inventories have declined for six consecutive months, the longest stretch since the Joint Organisations Data Initiative started tracking Saudi supply levels nearly 15 years ago.

“The drop in Saudi crude stocks signals the rebalancing has started,” said Amrita Sen, chief oil analyst at consulting firm Energy Aspects Ltd. in London. “Crude stocks are coming off in places where either the data is opaque or the market isn’t paying as much attention.”

With oil traders focusing on supply changes in the U.S. and to a lesser extent in Europe and Japan, the drop in Saudi inventories has gone largely unnoticed. Since October, when Saudi supplies reached a record high, stocks have fallen by 38.6 million barrels as the kingdom provided more crude to the market than it pumped from its oilfields. Over the same period, U.S. crude stocks increased by nearly 61 million barrels.

“Saudi Arabia cannot continue to draw down stocks forever," said Olivier Jakob at consulting firm Petromatrix GmbH in Switzerland. With inventories down, Riyadh “will contribute to the rebalancing” of the oil market in the second half of the year and in 2017, he said.
Much more at the link. The article is archived.

Remember: the Saudis use oil to generate electricity, and they need a lot of electricity for air conditioning and for desalination plants. Recently Saudi Arabia "postponed" plans for major solar farms to relieve the oil sector. The "postponement" was for eight years which suggests Saudi has significant financial problems (this was going to be a very, very expensive project) or there are technological issues with solar panels where the fine dust storms are legendary. 

Data points from the article:
  • Saudi crude oil inventories have been tracked by an independent agency for 15 years
  • Saudi's oil inventories have declined for six consecutive months -- longest stretch in 15 years
  • Saudi's declining inventory has been largely unnoticed
  • October, 2015: Saudi's inventory at record levels; have since fallen almost 40 million bbls
  • over same period, US crude oil inventories have increased by slightly over 60 million bbls
  • Saudi energy minister: "We may have started inventory drawdowns that will continue for the foreseeable future."
  • current Saudi storage: 290 million bbls; lowest level since April, 2014
  • Saudi's current export, domestic burn: 10.5 million bbls/day
  • Saudi's current production: 10.2 million bbls/day
  • May, 2016: preliminary data: the seventh consecutive monthly drop in crude oil inventories; stocks could be down almost another 6 million bbls
  • Saudi uses significantly more crude between June and September: air conditioning
  • within the last year, Saudi has also increased its own refining capacity
  • April, 2016: KSA burned 500,000 bopd at its power stations, the most for that month since 2009
  • traditionally: peak burn in July to August at around double the April rate
  • even if KSA raises its oil production this summer to the all-time high of 10.56 million bopd set in June, 2015, stocks may fall further
The tea leaves are swirling. First observation: I thought Saudi said they could easily get to 12 million bopd.

This graph has been posted many, many times. It's one of my favorites. For all the talk, day in and day out, about Saudi's production capabilities, the graph certainly doesn't confirm that.  Note: US crude oil production practically matches the entire Saudi Arabian "boe" (crude oil + natural gas). The US then doubles its "boe" with natural gas.

Saudi Arabia uses crude oil where the rest of the world generally uses natural gas to generate electricity.


There may be a couple of ways to interpret the Saudi drop in crude oil inventories. I can think of three ways to interpret that data about Saudi inventories decreasing:
  • it's simply re-balancing (the prevailing view, and what the Saudis would have us believe)
  • they can't increase production to the degree that would be necessary to continue the present course of action (perhaps)
  • they have decided that the present course of action is not working, and they will now move to something completely different (a "stealth" unilateral embargo?), Inshallah.
I can hardly wait for the production data over the next six months. I think it may be very, very fascinating.

Saturday Morning Musings -- If You Skip This Post You Won't Miss Anything On The Bakken -- June 25, 2016

It's interesting how tweaking the layout of a blog can make such a big difference. I am thrilled to have moved the "Featured Blogs" up to the top of the sidebar at the right. There are some incredible blogs out there. I could easily list more than five or six, but I have to set limits. I do list additional blog sites farther down in the sidebar.

I am also thrilled to see the the top ten popular posts on this website -- also linked at the sidebar at the right. The list suggests to me that there is still a lot of interest in the "Bakken."

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Weekend Reading

The highlight of the weekend is always the "Review" section in The Wall Street Journal. There might not be as much in it today that interests me, but surprisingly the other special section "Off Duty" appears to have some great articles. At one time I did not care for "Off Duty" and seldom looked at it, but ever since I started cooking (again), it's been fun to read.

Today there's another Japanese recipe by the chef I wrote about a few weeks ago. I have to laugh -- again, dashi -- the Japanese version of chicken bouillon  -- seems to be a key ingredient. It looks like this chef's "secret" is adding mirin and sake to the bouillon dashi.

On my severely caloric restricted diet, I've given up beer. I may have to reconsider. LOL. I have definitely given up wine at home. I would have wine at the appropriate at a nice dinner out, but I won't have wine at home. I've lost interest. For now. There are just too many wine choices. [The likelihood of me going to a fine restaurant where one might have wine with steak is somewhere between slim and none, and slim just left town.] I think the last time I had a beer was up on the hill overlooking Williston, Fuddrucker's where I had one of the drafts, probably Shock Top, without the orange slice. I was reminded of that with "Bitter Truths" in "Off Duty." William Bostwick talks about IPAs. Here are the five he features today, three of which I am very familiar:
  • Sierra Nevada Brewing Co. Hop Hunter
  • Lagunitas Brewing Co. Hop Special
  • Russian River Brewing Co. Pliny the Elder
  • Mikkeller Aps 1000 IBU 
  • Stone Brewing Co. Enjoy By IPA
I hadn't seen the "IBU" reference in a long, long time. In fact, until just now, I had completely forgotten the hoppy ranking system. From Beer Connoisseur:
Flying Monkeys Brewery of Ontario currently leads the pack with “Alpha Fornication,” which clocks in at 2500 IBUs, blowing runner-up Mikkeller’s “Hop Juice X 2007 IBU” out of the water.
What none of these breweries explicitly state is that the human palate can only distinguish up to around 110 IBUs before it tucks into its shell and retreats down the esophagus.
It could be argued that IBUs have become as much a marketing ploy as a tool for understanding beer. So if IBUs aren’t entirely useful to the common drinker, is there a better scale?
So, there you have it.

***********************************
From The New Great Northern Food Hall 
At Grand Central Station
NYC, NY

From the article, the following words and phrases that might remind some of you of the old country:
  • smørrebrød 
  • kanelsnurre
  • Danish butter
  • smoked slamon from the Faroe Island
  • ymer parfaits
  • light-roast brew
  • aged Danish Havgus cheese
  • shrimp-and-egg smørrebrød
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Hemingway

It looks like we're back to a Hemingway phase. A couple of days ago there was a book review of Hemingway and The Sun Also Rises in the WSJ. It (the book, not the book review) was written when Hemingway was married to his first wife (Hadley); during his/their Paris years. The review fits perfectly with the movie Midnight in Paris which I never get tired of watching.

Today, in the WSJ there is a short essay on Hemingway's home in Cuba. I've long forgotten the story but technically it was his third wife's home, to be honest, who found the Cuban house, Finca Vigia, where he wrote The Old Man and the Sea, Islands in the Stream, and A Moveable Feast. At least that's what I recall from Martha Gellhorn's memoir. I could be wrong.

And finally, coincidentally, I'm reading a book my daughter brought back from Key West: Papa: Hemingway in Key West, James McLendon, c. 2006, soft cover. It covers the "lost years" as the author calls that period or something to that effect, from 1928 to 1940. I don't have the book in front of me, so I have to verify some of that, because obviously the Spanish Civil War -- mid-1936 to early 1939 was certainly a part of those 12 years; it wasn't all in Key West. 

 The home in Cuba, the Finca Vigia, by the way, was restored and is maintained under the leadership of William Dupont, a professor of architecture at the University of Texas San Antonio.

Gasoline Demand Setting New Records -- Now, Why Would That Be? -- June 25, 2016

From Casablanca: "I'm shocked. I'm shocked."

The New York Times seems surprised at the reality that "American drivers regain appetite for gas guzzlers."
The single most effective action that most Americans can take to help reduce the dangerous emissions that cause climate change? Buy a more fuel-efficient car.
But consumers are heading in the opposite direction. They have rekindled their love of bigger cars, pickup trucks and sport utility vehicles, favoring them over small cars, hybrids and electric vehicles, which are considered crucial to helping slow global warming.
So far this year, nearly 75 percent of the people who have traded in a hybrid or electric car to a dealer have replaced it with an all-gas car, an 18 percent jump from 2015, according to Edmunds.com, a car shopping and research site.
In 2008, President Obama set a goal of a million electric cars on the road by 2015 in the United States, but the total is now around 442,000, including plug-in hybrids. This year, electric and hybrid sales have dropped to 2.4 percent of new-car purchases.
By the way, I think this was true in earlier years and had been previously posted: the vast majority of folks who trade in their hybrids or EVs, trade them in for an ICE.

As I've said before, once President Obama leaves office, the global warming scam will need a new cheerleader-in-chief.  Some data points from above:
  • goal: 1 million EVs on the road by 2015; including hybrids, less than 500,000 (despite all the incentives; all the advocacy)
  • EV/hybrid owners: 75% trade "up" to an ICE -- that an 18% jump from the previous year -- it suggests that for some reason, folks are NOT happy with the EVs (range? cost?)
  • EV/hybrid sales have dropped this year
Cost? It would be interesting to see what EV/hybrid owners are trading "up" to? Their new ICE cars may not be more expensive, but they probably get "more bang for their buck."

More from the article:
A preference for big cars is not going to help the country reach the goals outlined in the Paris climate accord, reached in December. To help reach those goals, average fuel economy would need to soar to at least 100 miles per gallon — most likely achievable only through widespread adoption of electric and other zero-emission cars.
President Obama has pushed for stronger federal fuel-economy rules that call for cars to average 54.5 miles per gallon by 2025; the current average is 25.4 miles per gallon.
Though electric cars may be somewhat out of favor for now, that may change. Many are hoping that the Tesla could transform Americans’ views on electric cars, much the way the iPhone did with mobile technology.
"Widespread adoption of electric and other zero-emission cars." To the best of my knowledge there is no such thing: most electric cars worldwide would get their electricity from coal. In the US, from coal and/or natural gas.

Flashback, from April 22, 2015:

Daily Caller is reporting:
President Barack Obama promised to put a million more hybrid and electric cars on the road during his tenure, but new research shows drivers are trading them in to buy sports utility vehicles (SUVs).
The auto-research group Edmunds.com found that “22 percent of people who have traded in their hybrids and [electric vehicles] in 2015 bought a new SUV.”
This number is higher than the 18.8 percent that did the same last year, but it’s double the number that traded in their electric car for an SUV just three years ago.
Only “45 percent of this year’s hybrid and EV trade-ins have gone toward the purchase of another alternative fuel vehicle, down from just over 60 percent in 2012.”
“Never before have loyalty rates for alt-fuel vehicles fallen below 50 percent."
Several story lines:
  • EVs may not be as "loved" as owners say
  • flipping EVs for the tax credit
  • getting rid of an EV before the battery gets any older
  • some argue that Saudi Arabia cut price of oil to $50 to stop the EV movement; if so, it's working
  • not enough charging stations
  • cargo space taken up by battery
  • early adopters bought the EVs; mainstream was to follow; never happened ... for whatever reason 
The most surprising thing: I thought folks loved their EVs so much, they would be "replacing" them with newer EV models; not trading them in for SUVs. So we go from EVs to perhaps the poster child for all that is bad for the environment: gas-guzzling SUVs. 

Week 25: June 19, 2016 -- June 25, 2016

Everything this past week was overshadowed by the "Brexit." It will take years to unwind this .. with five more countries -- including France -- considering an exit -- this may be just the start. One wonders how far back one can trace the history of the "Brexit" -- I don't think it's hyperbole to say that one might be able to trace it back to the Bakken revolution. It sounds preposterous, but when one reads The Oil Kings by Andrew Scott Cooper, finished in 2010, and copyright in 2011, one can connect some interesting dots.

Perhaps more on that later.

The second big story, of course, was the announcement that the Panama Canal expansion, completed, is now ready to be tested. A lot rides on the first neo-Panamanian vessel to transit the canal. There are indications that things may not go all that smoothly. I'm eager to see how this plays out. This is the EIA's assessment.

The other big news is that Saudi Arabia quietly announced that it will not increase production. The announcement was so anti-climactic that one can hardly find a story reporting that announcement, what it means, and any analysis.

The most amazing thing is that for all the talk -- and it's really been not much more than talk since October, 2014 -- OPEC production / Saudi production really hasn't changed that much. After that announcement and the weekly crude oil data, the price of oil was moving up nicely ... and then the Brexit vote.

The other big news in energy was the announcement that the last two nuclear plants in California will be shut down within the decade. Maybe that was news from the previous week; things seem to be moving quickly. I think we're seeing the beginning of the end of the global warming scam.

And finally one more note -- and then I will get on with the Bakken -- MuskMelon is probably thrilled with the Brexit. That story finally took the Tesla / SolarCity debacle off the front page of every newspaper in the country. 

Operations
A laundry list of several energy stories this past week
Is CLR "up to something" in the Rattlesnake Point oil field?
Meandering thoughts o choked back wells, inactive wells, and DUCs in the Bakken
Mike Filloon's update -- June 22, 2016
Although not all rigs are the "big" rigs, the official active rig count in North Dakota got back up to 30 this past week

Fracking
Wyoming judge rules that Obam's attempt to ban fracking was illegal; an AP "Big Story"

Pipeline
Officials allow Dakota Access Pipeline access under tribal lands in Iowa

CBR
Minor update  

Natural gas
Surprisingly, natural gas prices have catapulted well above prices for coal; dispatchable energy is the name of the game now
GE gets into Guinness Book of World Records with its new natural gas turbine; and, here
Electricity grid in California in emergency mode

Miscellaneous
US gasoline demand continues to set records
With gasoline demand continuing to set records, Warren Buffett buys more PSX
GOP has interesting ticket for North Dakota governor/lieutenant governor

Friday, June 24, 2016

What If The Panama Canal Expansion Does Not Work As Advertised? -- June 24, 2016

A reader sent me this link to a New York Times article on the newly expanded Panama Canal and asked whether I had any concerns about the "negative impact" or risks that might be associated with the canal as noted by the authors of that article with regard to the American LNG export industry.

The NY Times article suggests that things are not as rosy as one might think with regard to the newly expanded canal. The writers suggest that things are (very) likely to go wrong, and if they go wrong, the reader wonders if this will affect the American LNG export industry.

By the way, the article is truly a great example of print media (the NY Times) using the internet to best effect to tell a story. It's a must read; the graphics and videos are awesome.

But back to the question. I am the last person to ask. I am an eternal optimist. I am inappropriately exuberant when it comes to energy. I am always looking through oily-stained glasses.

Having said that, I think this is how an optimist would answer the question.

The neo-Panamax vessels are here to stay. Even if the Panama Canal goes away, folks are going to be using these vessels to move LNG to Asia and to Europe.

Even if the widened Panama Canal is not big enough for the new ships PLUS the towboats, they will increase capacity of the overall canal, I assume.

The US LNG export industry is barely getting started; the Panamanians will have plenty of time to work some of the issues that can be worked. (Of course, widening/lengthening the locks are no longer an option; that's been done, for now.)

If the new canal does not work out, it does not affect US LNG going to Europe.

If the new canal does not work out as planned, one wonders immediately if TransCanada, Sempra, KinderMorgan and others might not be huge beneficiaries. There are already natural gas pipelines from Texas to the west coast. They would have to increase the capacity of these pipelines (which seems to go more easily than putting in completely new lines). The biggest problem would probably be adequate "space" for new storage and export facilities along the west coast.

By the way, the best part of the NY Times article had to do with the cost of the expansion. When I saw the figure some months ago, I thought the cost was incredibly low. It turns out that was accurate: the writers suggest it was a "rock-bottom budget."

My hunch is that the canal will have some huge growing pains, and there will likely be some headline stories of incredibly bad mishaps, but in the long run, the engineers will get it sorted out. But, again, I am an eternal optimist.

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Day 5 Of Sailing Camp
Olivia's Crew Coming Into Port

Olivia_Arriving

Nothing About The Bakken -- June 24, 2016

If you came here for the Bakken, scroll down or go to the sidebar at the right.

Over the past few weeks, I have come across new terms -- that without the blog, I would not have noticed. Or I would have noticed, I probably would not have spend much time thinking about.

Dispatchable energy, for one.

Related, economic dispatch.

Another concept or phrase that was new to me: white privilege. It helps me put into context some of the most bizarre policy decisions made by some politicians.

With regard to Brexit, it will be interesting to see when/if some "Peggy Noonan" sees similarities of the Berlin Wall coming down.

Another phrase that was new to me: "first world problem." For example, when folks complain about fingerprints on their touchscreens, that's a "first world problem."

When I think about "first world problems" I find myself smiling out loud when I think of all the conveniences of modern life.

This is one convenience I think of almost daily when I think back to my grandfather. Every day, I simply walk out to the car, open a car door (remotely, electronically), start the car, and drive away. My grandfather had to feed the horses, harness and saddle the horse, and then ride away -- generally not very far, and when he came back, the horses needed to be cleaned, washed down, fed, and cared for. And, of course, all that was preceded by or followed by milking the cows. As it is, the closest most of us come to milking cows these days is adding a bit of white stuff to our Starbucks coffee (for clarification: I drink black coffee with nothing added, no sugar, no Kahlua, no nothing).

This week I had to have the Honda Civic inspected to get it registered in Texas, an annual event. I never look forward to the process, but once begun, I always enjoy it.

First off, I always drive by Firestone in Grapevine and schedule an appointment to have the oil changed. Texas law does not allow one to schedule the state inspection. So, everyone either just drives in unannounced to get the inspection done or they schedule an oil change, at which time they tell the servicing department why they really made an appointment.

When I made the appointment earlier this week, I learned that the Firestone folks now have a new computer application. They print off a summary of routine maintenance items that should be considered based on the mileage of the automobile. I take those recommendations home, study it overnight, and then tell them what needs to be done based on the maintenance history.

I have a very easy way of deciding what to have done. I ask myself: if I knew how, and if I had the tools and the garage, would I do it myself? For example, Firestone or Honda or someone recommends that the brake fluid be changed every three years. It's been a bit more than two years for the Civic. So, I ask myself: if I knew how to do it, and had the tools and garage to do it, would I do it? Of course, I would. So, among the many things I had Firestone do was change the brake fluid.

I always come in early and tell them to take as long as they want; I never want someone working on my car feeling pressured by me. Let them take as long as they want.

After everything is done, I simply pay with a Firestone credit card -- to do so, has certain advantages -- and that's it.

One more step: go up to re-register at the DMV. I love our DMV. It's co-located with the Southlake public library, has wi-fi, and almost never any waiting. Today I did not even have time to sit down before they called my number. The state inspection done by Firestone was already in the system: all I had to do was show my photo ID and write a check for $77 for annual registration. [Our minivans, slightly old, but definitely larger, cost less than $77 -- if I recall, about $65.]

The day after having Firestone do all that work, I always bring them two dozen donuts and a Starbucks gift card to buy $3 - $4 ice coffees for each of the employees.

Starbucks is located next door.

Which reminds me: donuts. I bought ten donuts the night before (50 cents/donut), but the next morning, I stopped to get an additional ten donuts (each for 59 cents). The individual putting the donuts in the box said he would add a couple extra to "fill up the box." He put in a total of fourteen (14) donuts, and charged me for 10.

I guess that's a "first world problem": deciding how many donuts to take to your local garage after getting your car serviced.

Generation Dispatch -- June 24, 2016

Updates

Later, 2:25 p.m. Central Time: see first comment. I brought it up here so that it is browser searchable:
A few observations to add ...
There are continuing improvements in LTO (shale oil or light tight oil) extractive processes that are not so readily apparent due to overall low levels of activity.
The Permian will continue to surprise to the upside as the VERY large number of operators there are becoming more skillful at drilling/ completing wells in that extraordinarily hydrocarbon rich area.
The Canadian oil sector may loom larger in future significance as their SAGD (steam-assisted gravity drainage) procedures continue to become more cost effective in both the extractive activities as well as the infrastructure, ie., mini, modular facilities that are erected when/where needed.

Finally, I've been looking at numerous production profiles from Cabot's Susquehanna county wells in Pennsylvania.
One word ... Wow!
They have increased output on seemingly dozens of wells from 1 MMcfd last year to 3MMcfd now.
Only reasonable way that could happen is if they choked back a bunch last year.
Incredibly productive area. Natgas for generations to come for certain. 
Pennsylvania now reports natural gas production monthly.

Cabot's production in April is here.

Original Post
 
Meandering thoughts on the oil and gas sector. This post is not ready for prime time but it gets the conversation going.

If I had just one 30-second sound bite, one elevator speech for crude oil and one 30-second sound bite, one elevator speech for natural gas, these would be:
  • for crude oil: we are now reaching a steady state, supply/demand for crude oil; that balance is fairly well understood; and Saudi Arabia has probably reached its production/export limitations
  • for natural gas: in the US, with the announced closure of the last two nuclear power plants in California, it's all about dispatchable energy.
There are so many huge stories going on in the world of energy, it's hard to know where to start. There are so many changes occurring. There are so many new concepts to learn. I focus on crude oil and natural gas.

Crude oil
  • the tea leaves suggest that Saudi Arabia has reached its limits of production
  • we now have a better idea of how important the different types of crude oil are, e.g. heavy vs light
  • we've been in a relative period of "calm" with regard to global production; we seemed to hae reach a steady-state of supply-demand; it seems unlikely to see any huge production / supply increase; it is unlikely to see a huge decrease, but an unplanned decrease in crude oil production seems much more probably than an unplanned increase in crude oil production over the next decade
  • the only producers that really count now are Saudi Arabia, Russia, and the US; from here on out, it only becomes more painful for most of the other oil producing/oil exporting nations
  • US gasoline demand is setting new records; at some point RBN Energy will like have a post on how much of this is due to gasoline exports
  • many analysts still misunderstand / do not understand the "Bakken"
  • in the US, the oil and gas industry keeps making progress; in Russia and Saudi Arabia, not so much
  • outside of the US, Russia, and Saudi Arabia, the oil industry seems to take a foot forward, and then two steps back -- case studies: Nigeria, Libya, Venezuela, Iraq, Kurdistan 
  • the Panama Canal expansion could have huge implications
  • the infrastructure in the US to move that crude oil around is in great shape; there seems to be a fairly good match between upstream (E&P) and midstream (refining) capacity; there are huge opportunities to add more petrochemical plants along the Gulf Coast, the East Coast, and inland (North Dakota)
Natural gas
  • without question, this is the big story regarding natural gas: the announced, planned closure of the last two nuclear plants in California; solar/wind as replacement only means increased natural gas requirements
  • with oil, the "aha" was understanding the importance "heavy" vs "light"
  • with natural gas, the "aha" is dispatchable energy; we've talked about it rarely, but today RBN Energy points out the importance -- more on that below
  • the US pretty much as a limitless supply of readily accessible natural gas for the next sixty years; generally speaking, 20 years = one generation of humans, so we are talking about three generations of Americans having a limitless supply of readily accessible natural gas
Dispatchable energy: from today's RBN Energy post. The writers try to explain the "abrupt shift in power burn" this summer:
Theme: There are several factors that likely contributed to this abrupt upshift in power burn in June. 
Higher absolute power burn levels this spring: Sure, temperatures in June have been much higher than in May, which is considered a “shoulder” (or off-peak) month for demand typically marked by mild weather. With higher temperatures, June demand for air conditioning is higher as well. That explains the higher absolute power burn levels. 
Economic dispatch:But what about the jump in temperature-adjusted demand? That can be better explained with fuel economics. Power generation plants are brought on line in order of the variable cost of operating the plant (although there are other factors – notably reliability - that are taken into account). Least expensive units are brought on first and most expensive units last – a process known as economic dispatch. 
Even with the "war on coal" natural gas was less expensive: A major (but not only) factor in generation dispatch is plant fuel cost, and the closest competitor to natural gas-fired generation is still coal. As our regular blog readers know, for some time now low gas prices as well as a regulatory and related structural shift in the industry — gas plant additions combined with coal plant retirements — have favored increased utilization of gas-fired plants. So fuel switching economics was a major factor driving more temperature-adjusted demand.  In February, the Energy Information Administration (EIA) reported that U.S. gas-fired power plants generated more electricity than their coal-fired counterparts through much of 2015. Since last October, natural gas prices have beat out even the most accessible (and therefore cheapest) coal — Powder River Basin (PRB) coal — by an average 22 cents/MMBtu. That’s including the cost of transportation for delivering the coal, which has come down drastically in recent months. Last month, when market participants were out scheduling their physical natural gas nominations for June delivery, the June gas contract was still averaging about 13 cents under the corresponding PRB coal contract, and more than $1.00 under the most expensive coal in the country — Central Appalachian (CAPP) coal. In other words, the economics still favored gas at that point, and with temperatures expected to rise in June, power generators likely expected to utilize their gas plant capacity at exceptionally high rates, providing a welcome boost to natural gas demand
Pricing has changed: The natural gas market, after all, has been waiting on strong, even record power burn to help sponge up all the excess gas in storage. But with the record power demand (and hot weather forecasts) has come significantly higher natural gas prices. And, in turn, with the recent price gains, the coal-gas price relationship has now flipped.
I'm not particularly interested in the natural gas vs coal story.

That's economic dispatch.

What fascinates me is energy dispatch unrelated to cost.

Wind and solar energy is NOT dispatchable. Say that three times: wind and solar energy are not dispatchable. 

For that matter, as we learned this week (or the previous week), nuclear energy for all intents and purposes is not dispatchable. To some extent it might be, but even if one argues that nuclear energy is dispatchable, nuclear energy is not economically dispatchable. Nuclear energy plants were designed to run for one to three years at a constant, 24/7 rate.

Unfortunately, state-mandated renewable energy laws upset the nuclear energy business model, and nuclear plants are not feasible in an era/area where wind and solar are being mandated. Mandate wind and solar, and eventually the nuclear plants have to close.

But because wind and solar energy is not dispatchable, every time a new wind farm or solar farm comes on line, a natural gas plant has to provide backup. Germany has gone that route (turning to coal, rather than natural gas) and the utilities are paying a huge price for that inefficiency. US utilities have seen this and are taking steps to protect themselves; whether they can is yet to be seen.

Enough for now.

Nothing About The Bakken -- Sailing On Grapevine Lake -- June 24, 2016

I apologize for the quality of the video. They will get better over time.

I was trying to find the right camera, yada, yada, yada, so I missed Arianna and Olivia launching their sailboats. I will have more opportunities all next week.

When I finally found the right camera, Olivia was already out on the lake:

Olivia_Water_Sailing

This is a few minutes earlier: Arianna getting her sailing boat and crew together:

Arianna_Sailing

This video is of Olivia getting her sailing boat ready. The lighting is really a pain when taking video from a distance, using the telephoto lens. Be that as it may:

Olivia_Sailng

As noted, I will have many opportunities all next week to get better videos.

June 24, 2016: Natural Gas Prices Have Catapulted Well Above Prices For Coal On A Cost-Per-MMBtu Basis -- RBN Energy

I don't plan to look at the market for a couple of days. Okay, I might take a peek now and then -- especially to see what happens to TSLA, but not much else, until the dust settles. [TSLA continues to drop; pre-market down another $6, and now below $190.]

Natural gas: from a SeekingAlpha contributor -- there's go the surplus -- see RBN note below --
  • Injection of +62 Bcf.
  • Injection came in below 5-year and last year figures.
  • Surplus reduced.
Active rigs:


6/24/201606/24/201506/24/201406/24/201306/24/2012
Active Rigs3077194185210

RBN Energy: the natural gas rally, coal-gas competition, and power burn.
Over the past 20-some days, U.S. natural gas prices have gone from being the lowest in more than a decade to very close to last year’s levels.
The July 2016 CME/NYMEX Henry Hub natural gas futures contract on Thursday (June 23) settled at $2.698/MMBtu, up about 70 cents (36%) from where the June contract expired ($1.963/MMBtu on May 26) and also up nearly 50 cents (23%) from where the July contract started as prompt month on May 27 (at $2.169).
Market buying to unwind short positions initially kick-started the rally, but since then hot weather and a boost in power demand has kept the rally going. National average temperatures have averaged nearly 8 degrees (Fahrenheit, or F) higher in June to date versus May, and in the past week they’ve climbed above the peak summer levels normally not seen until mid- to late-July.
Gas consumption on a temperature-adjusted basis also soared in the first half of June, led by power burn (gas use for power generation).
The combination of hot weather and higher gas usage per degree of demand has been practically made-to-order for the oversupplied gas market, and has led to record power burn in June to date. But higher prices have the potential for bearish consequences—the recent gains have catapulted natural gas prices well above prices for coal on a cost-per-MMBtu basis—making the latter fuel more economically competitive in the power generation sector.
That’s welcome news for coal producers, but what will it do to natural gas demand and in turn gas prices? Today, we look at the shift in the coal-gas price relationship and the potential impact to power burn and the gas market.

CLR's Activity In The Rattlesnake Point Oil Field -- June 24, 2016

See first comment at this post that drove this post.  A big "thank you" to the reader for alerting me to this.

Also note: in a long note like this, done quickly, there will be typographical and factual errors. In addition, I may be seeing things that don't exist. Comments may be interspersed with hard data. If this information is important to you, go to the source. I am only posting it to help me understand the Bakken.

From a May 31, 2016, sundry report, for:
  • 17089, 400, CLR, Bridger 44-14H, Rattlesnake Point, open hole frack with 1 million lbs sand, t4/08; cum 134K 4/16;
CLR plans to re-enter and deepen the existing lateral of the Bridger 44-14H. CLR plans to extend the existing lateral by 336' to a TVD of 11,090' and a MD of 21,194' to the proposed BHL (200' FNL, 1320' FEL). After drilling to the proposed BHL, CLR plans to set a liner top packer in the 7" casing at 10,634' MD and then cement the 4.5" 11.6 ppf production liner in place.

CLR will not be injecting diesel fuel during our hydraulic stimulation activities. 
For newbies: "deepen" the existing lateral -- this does not mean CLR plans to "deepen" the horizontal vertically, but rather to "deepen" it by extending it. From the roughneck's perspective at the top of the hole, it appears the well is getting deeper; in fact, it might be better to say it's getting "longer" and CLR says that when they note the new bottom hole location.

Three wells of interest on the maps below:
  • 17089, 400, noted above, drilled, completed back in 2008, will be lengthened, and re-fracked; a middle Bakken well
  • 31847, SI/NC, parallels #17089, a late Devonian Three Forks 1st bench well;
  • 32781, loc, a new permit issued June 23, 2016; co-located on same pad as #17089, about 50 feet away; legal name suggests a Three Forks 1st bench well
The three-well pad:
  • 31845, an upper Devonian 2nd bench Three Forks formation,
  • 31846, a middle Bakken well,
  • 31847, a late Devonian Three Forks 1st bench well
Once these wells are drilled, fracked, or re-fracked, one is going to get a lot of new information regarding fracking in high-density / infill areas:
  • we will have neighboring middle Bakken wells being fracked, re-fracked
  • we will have neighboring upper bench three Forks wells being fracked
  • we will have middle Bakken and upper bench Three Forks with very little vertical separation
Also note, that CLR was given the opportunity to extend an existing horizontal lateral. The original horizontal was permitted to have the bottom hole location 548 feet from the north line; the horizontal will now be extended to within 200 feet of the north line -- it will be extended 336 feet.

The maps:



Note the multiple formations being targeted: