Friday, June 24, 2016

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

Updates

April 20, 2018: a first for the newly expanded Panama Canal -- three LNG tankers cross in one day

October 8, 2017: Panama Canal is a huge success -- The Wall Street Journal. Taking business away from the Suez Canal.

February 4, 2017: milestone -- first LNG tanker arrives at Japan from lower 48; from US shale; previously, all US LNG to Japan came from Alaska; 

August 25, 2016: first US LNG tanker arrives in China via Panama Canal.

July 30, 2016: apparently there have been some fender benders in the Panama Canal. It appears The New York Times has assigned several folks a single assignment: report on fender benders in the newly expanded Panama Canal. Currently the team is made up of Walt Bogdanich, Jacqueline Williams, and Graciela Mendez, all of whom wrote both articles, and were listed in the exact same order. This issue will soon become a meme. 

July 5, 2016: this is kind of cool, sort of a "human interest" story on the "historical passage of Cosco Shipping Panama" -- the first Neopanamax container ship through the expanded Panama Canal. 
The Chinese giant Cosco Shipping has made the inaugural transit on Sunday June 26, 2016, through the expanded Panama Canal expansion project, an event appreciated by thousands of people in Agua Clara lock province of Colon. 
Spectators watched as the Neopanamax cargo ship, Cosco Shipping Panama, made its way through the new Agua Clara locks, part of the Panama Canal expansion project, near the port city of Colon, Panama. 
The container vessel had set sail from the Greek Port of Piraeus today on its way to Panama to make history. 
The inaugural ship, Cosco Shipping Panama is a 158-foot-wide, 984-foot-long (slightly longer than three football fields) behemoth that is one of the modern New Panamax class of mega-vessels that are seen as the future of global shipping and will now be able to use the canal.
It carried some 9,000 cargo containers during the inaugural voyage and now heads to South Korea. Originally named Andronikos, the vessel was renamed by China COSCO Shipping to pay respect to the people of Panama and for the honor of the inaugural transit.
This ship was selected during a draw for the inaugural transit through the expanded waterway.
June 27, 2016: I don't think there's much new in this article for regular readers, but it's a nice analysis from The Oil & Gas Journal:
The opening of a new, third set of locks on the Panama Canal will cut the distance between the US and Far East by more than one-third for vessels that can now transit the waterway but hadn’t been able to before. A voyage from the US Gulf Coast to the Far East around the Cape of Good Hope typically takes 45 days vs. the 25-30 taken by passage through the canal.

Old Panamax vessels could measure up to 965 ft long, with a 106-ft beam and 39.5 ft draft. Neopanamax ships can measure 1,200 ft by 160 ft by 50 ft, boosting capacity to 400,000-600,000 bbl from 300,000-500,000 bbl.

This increase will allow passage of the very large gas carriers typically used to carry propane and other LPG and products tankers but falls short of the scale needed to accommodate fully loaded very large and ultra-large crude carriers, the vessels that haul the majority of crude shipments. VLGC passage will be far more efficient than the ship-to-ship transfers required until now to move LPG across the isthmus.

Distillate and gasoline led Atlantic-to-Pacific petroleum traffic through the canal last year, with a respective 9.5 million and 9.1 million long tons, according to the US Energy Information Administration. But net US length in these markets doesn’t compare to that in ethane and propane, for which the ability to move more volume more quickly will be a welcome relief. The continued strength of demand for refined products in western South America also is questionable.

China is already the biggest single customer for US propane and second-biggest for LPG and the ability to move these volumes more efficiently will likely only increase that flow.
EIA data show trade to both China and Japan having already accelerated before the canal expansion’s opening. LPG shipments to Japan more than tripled to 166,000 b/d in the first 3 months of 2016 from 49,000 b/d for the same period last year. Shipments to China jumped to 161,000 b/d from 66,000 b/d in the same window.

The first VLGC to pass through the new locks will be the Lycaste Peace, carrying propane from Enterprise Products Partners for discharge in Tokyo Bay in Japan. By 2018 US exports of LPG will likely equal those of Qatar and the United Arab Emirates combined.
June 26, 2016: if you can get pass the paywall (good luck), The Los Angeles Times had a great article on the highly successful inaugural "crossing." 
Chinese freighter laden with nearly 9,500 metal cargo containers transited the expanded Panama Canal on Sunday, inaugurating the interoceanic waterway and opening a new era in global trade. 
As midmorning clouds dissipated over the 50-mile-long canal, the vessel Cosco Shipping Panama began moving through the new Caribbean-facing Agua Clara locks, part of a $5.4-billion expansion to allow for the passage of bigger ships through the historic waterway. The expansion has been nearly a decade in the making.
Whereas the original canal opened in 1914 to accommodate ships carrying as many as 5,500 cargo containers, the new locks can handle ships ferrying 13,000 such containers. Operators say the expansion was necessary to keep the historic canal competitive in a global freight market.
The expansion ostensibly makes the canal a more efficient option for freight companies shipping goods from China to the Eastern Seaboard, which is the canal’s most important and lucrative commercial route.
June 26, 2016: so, how did the inaugural "crossing" go? Savannah Now is reporting:
Fireworks exploded as a huge container ship made an inaugural passage through the newly expanded Panama Canal on Sunday, formally launching the Central American nation’s multibillion-dollar bet on a bright economic future despite tough times for global shipping.
After crossing the Atlantic locks at Agual Clara under a cloudy sky in the early morning in the northern province of Colon, the Chinese-owned Cosco Shipping Panama, carrying some 9,000 cargo containers, approached the Cocoli locks near the capital in the afternoon under the guidance of several tugboats.
The Cosco Shipping Panama is a 158-foot-wide, 984-foot-long behemoth that is one of the modern New Panamax class of mega-vessels that are seen as the future of global shipping and will now be able to use the canal.
The waterway’s capacity doubles with the new locks, and canal authorities are hoping to better compete with the Suez Canal in Egypt and tap new markets such as natural gas shipments between the United States and Asia.
From the linked New York Times article below: 
But the locks’ size is the captains’ biggest concern — and they illustrate it on napkins, sheets of paper and blackboards. The new locks are 1,400 feet long and 180 feet wide. Big container ships are 1,200 feet long and 160 feet wide. Tugboats fore and aft measure nearly 100 feet each. Do the math, they say.
Okay, so now you can do the math.
Original Post
 
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, "First World Problem" -- 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

Updates

October 2, 2017: we now have some more information (API: 33-025-00731). According to FracFocus, this well was fracked 4/28/2017 - 5/19/2017, 10 million gallons of water, 14.75% by mass, sand:
PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare
BAKKEN8-20173127510274882742728501217386763
BAKKEN7-20175210220478371178851093
BAKKEN6-2017151923013063170317
BAKKEN5-20170000000
BAKKEN4-20170000000


It appears the wells in the neighboring pad (31845, 31846, 31847) were fracked at the same time and had some great IPs.

February 17, 2017:
  • #17089 is now off-line -- off-line since July, 2016 -- are they about to frack the neighboring well?
Original Post
 
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, SI/NC, 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, SI/NC, an upper Devonian 2nd bench Three Forks formation,
  • 31846, SI/NC, a middle Bakken well,
  • 31847, SI/NC, 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: