Tuesday, April 8, 2014 -- One More Week Before Tax Deadline

Oil futures: $101. That surprises me; the trend seemed to be turning to the downside the last couple of days.

Warning: Flood advisory issued for Stark County, parts of Billings and Dunn counties. 

Food is inexpensive, but I did not realize this about housing. I've always said that the best deal in America is the price of food. Now, despite all the stories about the high cost of housing, I learn that taxes Americans pay is more than what they pay on food and housing -- combined.  I think the article says more how good Americans really have it.

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Active rigs:

	4/8/2014	04/08/2013	04/08/2012	04/08/2011	04/08/2010
Active Rigs	195	185	208	173	103

RBN Energy: Diluent and bitumen.

Growing Canadian production of oil sands bitumen requires diluent to blend it to pipeline flow specifications. The resulting demand for diluent exceeds local Canadian supply from plant condensate production (aka, natural gasoline) – leading to imports from the US of more than 150 Mb/d in 2013 – a figure expected to grow to 460 Mb/d by 2018. That expectation for future import growth is based on the assumption that Canadian condensate supplies would remain relatively flat at about 140 Mb/d. But could the developing Duvernay gas shale play in Western Alberta turn those estimates on their head? Today we investigate the consequences for US condensate demand.

Canadian demand for light hydrocarbon material used as a diluent to reduce the viscosity of oil sands bitumen - allowing the resulting “dilbit” blend to flow in pipelines - is expected to increase significantly over the next 4 years as bitumen production takes off. The green shaded area in the figure at the linked story represents Canadian demand based on the typical requirement to blend raw bitumen with 30 percent diluent  – doubling from just over 300 Mb/d in 2013 to more than 600 Mb/d in 2018. The only constraint on these demand levels would be the large scale development of crude by rail transport that reduces diluent demand to less than 20 percent – but the extent of this development is still unclear.  We don’t have big time railbit volumes baked into the forecast below. 

When we last looked at sources of supply for diluent back in December 2013 the conventional wisdom was that local Canadian production would peak at about 140 Mb/d and then stay flat over the next four years. The result would be a rising need for Western Canadian bitumen producers to import diluent supplies from overseas – rather neatly coinciding with a growing surplus of such materials in the US.

Diluent supplies are typically sourced from one of the three main branches of the condensate family, namely lease or field condensate produced at the wellhead when liquids rich natural gas is brought to the surface, plant condensate (aka natural gasoline or pentanes plus) produced by natural gas processing plants and naphtha produced from petroleum refining. [Canadian producers also use light synthetic crude oil (SCO) produced by upgrading bitumen as a diluent.] As we explained in "Like a Box of Chocolates – The Condensate Dilemma," supplies of all of these condensate range materials in the US are increasing faster than demand can keep up – providing a ready surplus to supply Canadian needs.

Lease condensate production from US shale basins such as the Eagle Ford in South Texas is already over 1 MMb/d - headed to at least 1.6 MMb/d by 2018. US natural gasoline production will increase from about 340 Mb/d in 2013 to almost 570 Mb/d in 2018.   Refinery naphtha production is also expected to grow rapidly because more lease condensate and very light shale crudes are being processed by US refiners, and those feedstocks yield a greater percentage of naphtha range products.  Those lighter feedstocks must be run in the US because of the ban on lease condensate exports to countries other than Canada. In fact US midstream operators are busily building or planning splitters to process excess lease condensate and export the largely naphtha output. [We detailed four such projects in an earlier blog; and, since that blog Magellan have firmed up their plans to build a splitter in Corpus Christi and Targa have added their name to the project list with plans for a 35 Mb/d splitter in Channelview, TX.] In the meantime US demand for condensate is shrinking because petrochemical plants are using lighter ethane instead of natural gasoline as feedstock and because refineries are getting more naphtha range materials from shale crude and don’t need to blend in as much natural gasoline to produce motor gasoline.

As a result of this imbalance in supplies with the US having a surplus of diluent materials and Canada a deficit, US midstream operators have been busily building out often-complex distribution channels to deliver condensate to Western Canada. We have written blogs on at least three of these routes to market. One involves shipping Eagle Ford condensate from South Texas to Louisiana by barge then up the Capline pipeline to Chicago to connect with the Enbridge Southern Lights condensate pipeline to Edmonton.

A second route is for Eagle Ford condensate to travel by pipeline to Houston then join the Explorer pipeline to Chicago where it will connect with Southern Lights or the soon to be opened rival Kinder Morgan Cochin pipeline to Edmonton. The Explorer pipeline also ships plant condensate supplies from Mont Belvieu on the same route. A third route being developed is for growing condensate supplies from the Utica basin in Ohio and Pennsylvania to be shipped to Chicago and then to Canada.

But now a new wildcard is entering the picture in Canada that threatens to upset the happy diluent balancing act between the US surplus and the Canadian deficit. That wildcard comes in the shape of the Duvernay shale play in Western Alberta.

See rest of linked article for the story. 

The Wall Street Journal

Is this why oil is back up over $101? The top story -- pro-Russian sentiment swells in the Ukraine.  Before John Kerry gets all self-righteous, he may want to have a conversation with Condi Rice about the history of Russia.

Oh, that's a hoot. I didn't see this until I scrolled down. The very next story: Kerry and the military at odds over Syria. I am blown away: Kerry is pushing for more US military action in Syria; the military is asking for restraint. LOL. Kerry: more US military action in Syria. Sort of like the "silent war" in Cambodia or whatever it was for which he threw his medals (except the "most valuable" one) over the White House fence.

Credit-card debt drops again. Americans shed more credit-card debt in February, the latest sign of consuer caution about broowing and spending since the recession. Comment: I wonder how much this has to do with the Target hack. I haven't used a credit card in Target since the security breach, and seldom visit any more.

Long-term unemployment benefits back on the table? Senate says yes.

Maryland lawmakers approve "gradually raising" the minimum wage to $10.10 an hour. Legalizes marijuana.

Experiment: ATT considering cutting land lines to an Alabama town.

Inside America's fracking boom: fracking has revolutionized the energy industry and changed geopolitics. But what does the process of removing natural gas and oil from rock actually look like?

The Los Angeles Times 

Can anyone recall a more boring NCAA championship basketball game?  A blowout would have been more entertaining. As it was, UConn toyed with the Kentucky.

The Dickinson Press

Flood advisory issued for Stark County, parts of Billings and Dunn counties. 

A couple of oil stories (pipelines and refineries) but linked earlier.