This is the teaser the WSJ provides:
TWST: You expect 2013 to be the year of the pipeline. What developments do you think we will see and who will be the key players?
Mr. Sankey: Yes, so you've had a revolution in U.S. oil and gas, a total revolution.
And what happened is, previously looking at a 30-year trend of falling supply in the U.S. and rising demand, we now have falling demand and rising supply. And essentially over 30 years, you developed infrastructure to increasingly import oil and gas in order to make up for the shortfall between rising demand and falling supply.
What's happened in the last five years is, we've turned into a market where certainly from the unconventional oil and gas revolution, supply is rising right when we've seen the peaking of oil demand and demand has started to fall, and there's also a total reversal of the dynamic of imports coming into the center of U.S. now turning into production coming from the center to the outside. So the net result has been that you had some massive breakdown in prices in various places where there simply isn't the right infrastructure which is designed to be the opposite of what it's required to do. As a result of that, an enormous boom similar to what we saw in natural gas a few years ago is now happening in oil because of the very wide differentials and because of the economics of building pipelines to take advantage of these.
We have 20 major pipeline projects being developed and starting in 2013 alone for about 4 million barrels a day of oil transport into Houston by 2015, which we think is the biggest single oil pipeline infrastructure addition ever seen in the world. And by the way, we have same thing happening in 2014, another 20 pipelines for a similar amount for additional oil transport.
So it's a huge story that I think a lot of people don't fully appreciate.
TWST: What do you expect to be the implications of the U.S. crude export ban?
Mr. Sankey: The current market is less impacted because you are still importing fairly significant quantities of light sweet oil.
The mistake people make is that they look at the total quantity of imports of crude oil, which is about 8.5 million barrels a day, and don't appreciate that the growth in U.S. oil supply is light sweet oil.
There are significant differences between qualities in crude oils, especially in regards to what's attractive and what makes money for refiners, and what we are essentially doing is very rapidly substituting away all our light sweet imports, which is now down to only about 0.5 million barrels a day remaining on the Gulf Coast, which is the main refining center.
And as I said, with the 4 million barrels a day of pipeline capacity that we see by 2015, we expect total substitution of light sweet crude imports into the U.S. by middle of this year, mid 2013. The net effect will be the beginning of significant oversupply...Many, many story lines.
Nice interview with the head man at API and the the Bakken.
ReplyDeletehttp://www.youtube.com/watch?v=BMmOcucG9vo&feature=share&list=PL8wBnMvewAnZtgPJIt3fIl8fZ7q511HRc
I'm listening to the interview now. Very, very good interview.
DeleteNorth Dakota oil boom in early stages ... could go extra innings...
7% extraction rate ... maybe a 15% extraction rate ...
too much time on Keystone...I still don't see the Keystone XL as an issue for the Bakken
adequate refinery capacity? doesn't differentiate between heavy oil refineries and light sweet oil refineries
North Dakota is a leader in wind...
62% of US energy is oil and gas ...
why is gasoline still going up? not sure if right question? regardless answer not helpful.
Nice interview. Thank you.
Someone should ask John hofmiester to weigh in. (his knee jerk response will be 5$ gas)
ReplyDeleteI don't understand all the bullish views on pipelines in 2013 given the strong move to rail we have seen. If compains are profitable using rail then an obvious question would be why commit to long term pipeline contracts. The article presented only a small part of the story and going forward, rail looks to be strengthining it's position and pipelines treading water.
Gasoline is going down thanks to the succes of the Obama energy policy.
ReplyDeleteLOL, as my daughter would text.
DeleteIf prices were going down, it would be "in spite of the Obama energy policy."
In fact, gasoline prices have more than doubled under the Obama administration.
This is the source I use:
http://www.tradingeconomics.com/commodity/gasoline
In January, 2009, the futures price for gasoline was $1.30/gallon.
In January, 2013, the futures price for gasoline was $2.80/gallon.
Those are "futures" prices; prices at the pump will vary.
From that site in words that even an eighth grade public school student could understand:
"Gasoline futures contracts rallied 0 dollars or 2.41 percent during the last 12 months. Historically, from 1998 until 2013, Gasoline averaged 1.6 US dollars per gallon reaching an all time high of 3.6 US dollars per gallon in July of 2008 and a record low of 0.3 US dollars per gallon in November of 1998."
It is interesting, however, and your premise that gasoline prices have fallen under Mr Obama is "correct" in a sense. It is counter-intuitive and the average 8th grader won't see it, but yes, one could argue that the price of gasoline has fallen under this administration but for reasons that even Mr Geithner and Mr Bernanke would not want to go through again. One needs to study the chart at the link.
I look forward to reviewing this chart in four years.
And I do not recall gasoline (futures) as low as 30 cents/gallon as recently as 1998. Wow. "Max" out the chart for quite an eye-opener.
At 134 pence/liter, gasoline costs $10/US gallon in England.
ReplyDeleteSource:http://wiki.answers.com/Q/Current_price_of_gas_in_London_England_in_U.S._dollars
The current price of gasoline in England: 140 pence on average.
Source: http://www.dailymail.co.uk/news/article-2201450/Petrol-prices-9p-months-refiners-bumper-profits.html
Wow, the things I do to help folks out.
Anyway, that's England, not the United States. We are truly blessed to be living in the US, aren't we? Federal tax on a US gallon of gasoline is about 50 cents (slightly less); the UK tax on an equivalent gallon of gasoline is $3.50 (rounded; actually slightly more).
And the Brits are paying for Brent oil, about $110/bbl; compared to the US WTI at $90/bbl.
What a great country.
With regard to the pipeline story, we only have a snippet of the story, so I don't know where the story went from there.
But you could be correct; rail may still be the story in 2013 with faux environmentalists likely to stop new pipelines in Canada; the Keystone will certainly be delayed until after Mr Kerry gets a chance to commission a new study.
However, I think the point the individual in the WSJ pipeline interview was making was this: a huge amount of oil is coming on line this year (2013) because of increased pipeline capacity. I learned a lot from that snippet, mostly the huge difference in supply and demand in this country for heavy oil (imported) vs light, sweet oil (domestic).
The Seaway reversal is not just reversing the flow of oil; it is re-opening a pipeline that has been closed for months. Re-opening a pipeline that has been closed for months! Literally overnight, the US consumer will see 400,000 bopd coming back on-line. If wells were choked back in the Bakken because of a glut of oil at Cushing, the spigots will start to open in the next few months. It will be fascinating to watch. And the Brent/WTI spread will narrow, back to historical levels.
All of that probably deserves a stand-alone commentary. I'll see.
Another thing I learned through the blog: companies do not build pipelines if they don't get a long-term commitment to ensure the pipeline is paid for. We saw a recent example of that fact in play not too long ago when ONEOK canceled plans for a new pipeline because not enough interest.
I think the statement that rail will be the story of 2013 is not about pipelines per se (that train, no pun intended, has left the station). The statement that rail will be the story of 2013 is about the derivative effects of all that increased pipeline capacity coming on line in 2013.
I am truly excited about watching this play out. Thank you for taking time to write. And, wow, I hope Mr Hofmeister is wrong about "$5.00 gasoline" in this country. What a great country.