Tuesday, December 30, 2014

Global Warming Hits Denver -- December 30, 2014; Earthquake Hits The Homestead; No Fracking In The Immediate Area

Tweeting now:
The temperature at Denver International dropped to a record -19° at 9:05 pm MT, breaking the previous mark (-11°) set on this date in 1898 - @NWSBoulder
1898 AD. That's like more than a hundred years ago. 

Just think, with global warming, the record -19 would have only been a -17.

A Note to the Granddaughters

That's cool, but this is even cooler. I felt my first California earthquake todayThe Los Angeles Times is reporting:
A shallow magnitude 3.9 earthquake was reported Tuesday afternoon 12 miles off the coast from San Pedro, according to the U.S. Geological Survey. The temblor occurred at 3:26 p.m. Pacific time at a depth of 1.9 miles.
According to the USGS, the epicenter was 14 miles from Rancho Palos Verdes, 15 miles from Long Beach and 16 miles from Seal Beach.
Shallow earthquakes do not result in tsunamics, if I recall correctly; it's the deep earthquakes.

We're spending Christmas in San Pedro. My son-in-law, younger daughter, and I were visiting a hobby store in downtown San Pedro when the earthquake shook -- about 3:20 p.m. (I see the article gave the exact time. Sorry.)

it was very, very, short, maybe measured in one second -- maybe two seconds, but that might be a stretch. We thought it was construction workers on the roof of the building. Our daughter saw the huge front department store window "move." No damage. We really didn't know that it was an earthquake until we heard it on the news moments later (the store owner had his television set on). 

Prior to visiting the hobby store, we were out visiting Cabrillo Beach Aquarium and Research Library, perhaps one of the best marine research libraries in the United States. We were told that the aquarium has the largest student program in the US. It's a small museum in one sense, but a huge museum in another sense. For all its press, the aquarium at Woods Hole, Massachusetts, is about the size of a large closet compared to the very good-sized Cabrillo Aquarium. Just saying. In addition, at Woods Hole, there's really nothing to visit unless one is a research scientist from what I could tell after a couple of visits; on the other hand, the Cabrillo Aquarium is all about hands on.

The Cabrillo Aquarium is free, though it's nice to donate $5/adult to visit. Parking: $1/hour. 

I took advantage of the opportunity to learn a bit more about the history of the San Pedro area. It turns out that the whole southland (from Compton and Torrance, south to the Pacific Ocean; east to the Los Angeles River (separating Wilmington and Long Beach); and west to the Pacific Ocean, began as one large Spanish land grant to a Manuel Dominguez, or at least I think it was Manuel. It was definitely Dominguez. The area was composed of two Spanish ranches, Rancho Palos Verdes and Rancho San Pedro. The "ranch" encompassed about 118 square miles. Manhattan Island, in comparison, bought for $24 in trinkets and beads (obviously an apocryphal story), is 23 square miles in comparison.

By the way, there is no fracking in the immediate San Pedro area. At least as far as I know. There are a few vertical wells that were drilled a long, long time ago, but no rigs in the immediate area either.

As long as I'm rambling, I might as well mention we also visited the marine mammal care center at the southern tip of San Pedro, overlooking the Pacific Ocean. There are seven such centers up and down the California coast; the largest is in Sausalito; the San Pedro care center is the second largest. They are expanding, building two more pens. The fur seals were sleeping, seemed content. A few sea lions were enjoying the water, but most were also dozing. I think I can finally tell the difference between seals and sea lions: think ears and the two rear extremities. The marine mammal care center is one of my favorite places to visit when in San Pedro.

The UE Boom

By the way, the other day I mentioned how "perfect" the UE Boom speaker is -- the gift I gave my wife. She was curious whether it works with the MacBook Pro laptop. It does. At first I couldn't get it to work, trying to figure it out intuitively. A quick google search provided the answer. Done. It's an incredible speaker.

Gotta Know The Denominator -- December 30, 2014

This must be a fact. I read it elsewhere. Bakken.com is reporting:
There have been 25 traffic crash fatalities on the U.S. Highway 85 corridor in the past two years. The Department of Transportation this month launched a safety review that officials say will continue into January and February.
The review will include an evaluation of the portion of the highway between Williston and Watford City, which officials are spending about $300 million on to make it four lanes. The review will be done by a team of local law enforcement officials and local, state and federal highway officials.
“The recently constructed portions of the US 85 corridor were designed to meet all federal safety requirements."
I can't recall if the $300 million includes the four-lane bridge that will have to be built across the wide Missouri southwest of Williston. 

It would be interesting to know the number of crash fatalities per passenger mile traveled in the two years between Williston and Watford City and compare it to the crash fatality data between Bitburg, Germany, and Trier, Germany.

Just What We Need -- More Oil -- December 30, 2014

Disclaimer: a lot of stuff in my blog is opinion. Just 'cause I say it or write it doesn't mean it's a fact. It can be difficult telling the difference between fact and opinion in a blog. Sometimes even in Washington, DC. If something seems wrong, it probably is. On the other hand, if something seems wrong, it could be an opinion. If this stuff is important to you, go to the source. This is not an investment site. Do not make any investment, financial, or relationship decisions based on what you read here. And always assume there are typographical and/or factual errors. This site is for entertainment purposes only; mostly to entertain the author.

Yes, .... oil down to $30.

Just what we need, more oil.

First, from Reuters at Rigzone:
BP has started producing oil from its Kinnoull field in the central North Sea bringing on stream a new field that feeds into BP's existing Andrew platform off the coast of Scotland.
Oil and gas produced at Andrew and Kinnoull is expected to peak at over 50,000 barrels of oil equivalent per day and will be transported to the mainland via the Forties oil pipeline and CATS gas pipeline.
The contribution from Kinnoull should help to offset some of the decline in Forties production from the Nexen-operated Buzzard field. Forties is the biggest of the four crude streams that underpin the price of dated Brent and Brent futures so fluctuations in Forties supply can impact global oil prices.
Traders said that Buzzard is becoming well-constrained and is currently pumping at about 180,000 barrels per day (bpd), down from its previous maximum operating capacity of about 205,000 bpd. The latest updates on the Forties Pipeline System website indicate a smaller contribution to the Forties blend from Buzzard in the first quarter of 2015, dropping to around 30 percent in April from 43 percent in the week Dec. 22-28.
BP said it was investing, together with project partners, more than 7 billion pounds ($10.9 billion) in the North Sea over the next five years and that it had won licences in 7 new North Sea blocks in the government's latest allocation round.
And even more oil, from Rigzone:
BG Group announced Tuesday that its partner Petróleo Brasileiro S.A. (Petrobras), as the operator of block BM-S-11 in the pre-salt Santos Basin, has submitted the Declarations of Commerciality (DoC) to the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) for three separate oil and gas accumulations in the Iara area, offshore Brazil.
As part of the DoC, the consortium has suggested that the new fields be designated Berbigão, Sururu and Atapú West.
The Iara area is located approximately 155 miles (250 kilometers) off the coast of Rio de Janeiro, in water depths of around 7,448 feet (2,270 meters). All fields contain good quality oil, of approximately 24 to 30 degrees API. The DoC submission follows an exploration and appraisal program which began in 2008 and consisted of acquiring 3D seismic data, drilling seven wells as well as performing an extended well test. The encouraging results from this program continue to reinforce BG Group’s view of gross recoverable volumes in the BM-S-11 Iara area. The DoC notification to the ANP includes the operator’s estimates of total recoverable volumes of the three accumulations.
Peak oil? What peak oil? Drill, baby, drill -- this would make that old guy on the Kudlow Report happy. 

Seriously, this is very interesting. It seems back in 2008 or thereabouts, the oil companies were investing a lot of CAPEX into deep-sea drilling. Now, just as shale oil hits its stride, deep-sea oil projects are coming on line. Let's hope they keep having problems in Kashagan. Can I say that without anyone getting angry with me?

By the way, there are winners and losers in all of this. Also from Rigzone:
The slump in international oil prices and increased domestic output will reduce Argentina's energy trade deficit by 16 percent next year to $5.6 billion, the government said on Tuesday, helping to ease strains on the balance of payments. Argentina is grappling with pressure on its foreign currency reserves after being largely shut out from global debt markets for more than a decade and with tight trade and currency controls stifling investment and stunting exports. 
Maybe the slump in the price of oil will also help Greece. LOL. 

So Many Story Lines In This Article, Starting With "Mid-Term Elections" -- December 30, 2014; Will He Or Won't He: "Ban Oil Exports?

Printed in full now, but will be truncated in a day or so.

From Rigzone:

WASHINGTON, Dec 30 (Reuters) -
The Obama administration on Tuesday bowed to months of growing pressure over a 40-year-old ban on exports of most domestic crude, taking two steps expected to unleash a wave of ultra-light shale oil onto global markets.
The Bureau of Industry and Security, or BIS, which regulates export controls, said it had granted permission to "some" companies to sell lightly treated condensate abroad. Condensate is a form of ultra-light crude.
Some two dozen energy companies had asked the agency for clarification on permissible exports earlier this year, but until Tuesday those requests had been put on indefinite hold.
The BIS also released guidance in the form of frequently asked questions, or FAQs, to explain what kind of oil was generally allowed under the ban, the first effort by the administration to clarify an issue that has caused confusion and consternation in energy markets for more than a year.
The two measures are clearest signs yet that the administration is ready to allow more of the booming U.S. shale oil production to be sold overseas, where drillers have said it can fetch a premium of $10 a barrel or more.
They follow a year of murky messages and widespread uncertainty over what is or is not allowed under a trade restriction that critics say is a relic of a bygone age, when oil was seen as scarce after the 1970s Arab oil embargo.
A domestic drilling boom of the past six years has transformed the United States into an energy powerhouse, boosting U.S. production by more than 50 percent and reversing decades of decline.
Output of very light oil has been especially strong, leading to a glut that threatens to overwhelm domestic demand. The constraints helped fuel bumper profits for refiners such as Valero Energy Corp and PBF Energy Inc, but angered drillers such as Hess Corp that say they were selling at a discount.
Jamie Webster, the senior director of oil markets at research firm IHS, said the FAQ "takes the leash off of (the U.S. Department of) Commerce" and signals it may take additional action on crude exports after several months of inaction.
While likely to draw broad support from many quarters, the measures also open the Obama administration to attack by environmentalists and Democrats who may see it encouraging more hydraulic fracking and as a sop to big oil companies.

Steps to Clarify

How the measures will affect flows of condensate is uncertain, particularly given the dramatic slump in global oil markets, where prices have nearly halved since the summer.
An administration official said that the oil market - not a "fairly arcane clarification" in guidelines - would ultimately determine how much oil is exported. That echoed the Obama administration's policy on exports of liquefied natural gas, or LNG, which are also now generally allowed.
The steps on Tuesday were "certainly not designed to add or detract from what can be exported. We are trying to make the boundary line clearer," said the official.
In its FAQ, which the agency has been working on for most of this year, the BIS confirmed or clarified a number of nuanced issues related to the rules, including:
* Confirmation that lease condensate processed through a distillation tower is considered a petroleum product, and therefore can be exported without constraint.
* Clarification of what constitutes "distillation" for export, including the fact that pressure reduction alone, and flash drums with so-called heater-treaters or separators, would not be sufficient to qualify oil for overseas sales.
* A reminder that most petroleum products may be "exported to most of the world without a license," a message seen by many analysts as blessing the process of self-certification.
* And clarification that "a minimum amount of mixing" between exportable foreign crude and restricted domestic crude may be allowed, a note likely making it easier to ship Canadian crude through U.S. pipelines and ports.
(For the FAQ, see: http://www.bis.doc.gov/index.php/policy-guidance/faqs)

Frustration Building

Uncertainty about what kind of petroleum can be shipped abroad has frustrated oil market players since the BIS, an office of the Commerce Department, quietly gave permission in 2013 to a small company, Peaker Energy, to export minimally treated light oil called condensate.
Last spring BIS gave permission to export treated condensate in private letters to two other companies, Pioneer Natural Resources Co and Enterprise Products Partners LP .
The private nature of the communications between the government and the three energy companies left a wide range of other drillers in the dark about investing in expensive infrastructure to process condensate.
One company, Australia's BHP, said last month it would press ahead with exports without having received a formal approval from the BIS, but other energy companies have been reluctant to follow suit without further guidance.
Domestic pressure has also grown. Several lawmakers in the House of Representatives and Senate have said that unless energy companies can export oil to Asia and Europe, the drilling boom will eventually choke on its own output.

"They Didn't Build It" -- December 30, 2014

Disclaimer: an op-ed. Just an opinion. Nothing more, nothing less. Numbers rounded. This and $1.89 will get you a cup of Starbucks coffee. 

I doubt anyone cares; it's just a number, but I think it's pretty remarkable: 3,000 oil and gas permits in 2014. The boom was supposed to have ended two years ago according to The Atlantic Monthly.

3,000 permits in 2014. I thought last year was supposed to be the big year. I thought the year before that was supposed to be the peak of the boom. And the year before that? Every year, until this year: about 2,000 permits.

This year: 3,000 permits.

That's a 50% increase in the number of permits. You can argue the effect the price of oil had either way -- either it affected the number of permits or it didn't. The price of oil started to slide in June, 2014, which was more than enough time for permits to drop off; they didn't drop off (in fact, they surged in October, November, December).

Or you can argue that the real plunge in the price of oil began after the OPEC meeting at the end of November, clearly not enough time to make a huge effect on the total number of permits this year. So, say what you want. I think 3,000 permits -- for a 30-second sound bite, almost 50% more than each of the previous three years -- is pretty remarkable. For newbies: permits are only issued by the NDIC if "they" think the operator has the capability of drilling those wells in the "near future," which generally means in the next 6 to 12 months.

And remember, the drilling is much more effective in 2014 than it was in 2011. I've discussed this before; won't go through it again.

Of course, if you told some folks in Washington, DC, that North Dakota did that much work in one year, I'm sure we would get ....

They Didn't Build That

By the way, what a great way to finish the year with regard to Statoil IPs. Did you all see this in today's daily activity report:
  • 26155, 4,076, Johnston 7-6 6H, Banks, t11/14; cum --
  • 26156, 3,657, Johnston 7-6 5TFH, Banks, t11/14; cum -- 
Disclaimer: if you feel IPs mean squat, ignore the last couple of bullets. 

Did "We" Do It? Did "We" Get Nine (9) More Permits --- December 30, 2014

I haven't looked at today's daily activity report until ... now ... let's see if we got nine (9) oil and gas permits which would put "us" over 3,000 permits for calendar year 2014 ... here we go ..

... but first ..

Active rigs:

Active Rigs170187187197156

Twelve (12) new permits --
  • Operators: Hess (4), Hunt (3), Enduro (2), CLR (2), Samson Resources,
  • Fields: Beaver Lodge (Williams), Writing Rock (Divide), Mouse River Park (Renville), Dollar Joe (Williams), Ambrose (Divide)
  • Comments: Nothing to necessarily indicate the slump in oil price is having a specific effect on permits (note number of permits, and locations of permits)
Wells coming off the confidential list were posted earlier; see sidebar at the right.

Three (3) producing wells completed:
  • 26155, 4,076, Johnston 7-6 6H, Banks, t11/14; cum --
  • 26156, 3,657, Johnston 7-6 5TFH, Banks, t11/14; cum --
  • 27709, 1,440, BR, Haydon 44-22TFH-ULW, 4 sections,  Elidah, t12/14; cum --
Four (4) permits were canceled, none of which excites me one way or the other. Enduro canceled two permits in Renville and one permit in Bottineau County, but they have new permits today. OXY USA canceled one permit (#24682, Carrol Jones) in Dunn County.

A New Record! 3,000 Oil And Gas Permits For North Dakota In One Calendar Year -- December 30, 2014

Link here.

More Of The Same -- Saudi's Deficit -- December 30, 2014

This whole crude oil price "thingie" has me stumped. "Everyone" seems worried about Saudi Arabia and about the Bakken now. We should be seeing stories about how this -- the slump in oil prices -- is going to help the global economy. Something feels weird this time. Something doesn't feel right.

What we need is a commentary from the silver-haired oracle, no, not WB, but Louis Rukeyser -- but like that's going to happen. He died one year before the Bakken boom began in North Dakota.

If not Louis Rukeyser, then how about Peggy Noonan? She would get it right. She could probably take one of her old columns and substitute "slump in oil price" for  "George W. Bush" or "Barack Obama." I'm thinking of those columns in which she said, "there's something not right with Barack Obama's platitudes." She could just say, "there's something not right with the slump in oil prices this time."

Out here in California, gasoline seems as expensive as ever, about $3.00/gallon, but that's because when I was last here I saw signs for $5-gasoline in west Los Angeles and out in the desert. Back in Oklahoma and 17 other states, gasoline is selling at/below $1.99, or so I've read.

I think the reason the slump in oil prices feels weird this time: no one believes that Saudi Arabia is going to give their only resource away for the next ten years. The question is whether they continue to give it away for the next ten months?

See also: losing $110 million/day.

From OilPrice.com:
The nearly 50 percent plunge in the price of oil during the past six months is expected to leave oil-rich Saudi Arabia with its first budget deficit since 2011 and the largest in its history.
The budget, announced on Dec. 25, will include spending during fiscal 2015 of $229.3 billion, higher than in 2014, despite revenues estimated at only $190.7 billion, lower than in the current fiscal year. That would leave a deficit of $38.6 billion.
Oil prices have been dropping since June because of a market glut, caused in part because of prodigious oil extraction in the United States from shale formations.

As a result of this glut, OPEC was urged to cut production levels at its Nov. 27 meeting in Vienna in an effort to shore up prices, but wealthy members of the cartel, led by Saudi Arabia, decided to keep production at its nearly two-year-old level of 30 million barrels a day.
Saudi Oil Minister Ali al-Naimi has since explained that the OPEC strategy was to reclaim market share. Fracking has made the United States, once the cartel’s largest customer, nearly self-sufficient in oil. But fracking is expensive, and many believe it can’t be profitable if the price of oil falls much below its current level of around $60 per barrel.
Oil is the principal, if not the only, resource in Saudi Arabia, so it’s clear that the price of oil has a strong influence on how the country’s annual budget is drawn up. Different analyses, however, provide different answers to how Riyadh has forecast the commodity’s value. Four of these reports say the Saudi budget is predicated on oil averaging $55 to $63 per barrel in 2015.

Re-Posting From This Past Weekend -- December 30, 2014

Re-Posting (with some editing)
Original Post
Over the past couple of years everything I have posted on the blog has been done in good faith, and for the purpose of getting a better understanding of the Bakken.

I now have a good feeling for the Bakken, so as of January 1, 2015, I will be closing the blog. (I closed it a couple days early due to some concerns.)


December 28, 2014: just to clarify -- shutting down the blog has nothing to do with anything that was said. It has to do with other issues.

December 28, 2014: as expected, I'm getting a fair number of e-mails about the blog "going off the air." I appreciate that. I won't reply to any e-mail now. I apologize. I'm at a Starbucks and do not have a power cord for my computer so I am on limited power. I will probably reply to some of the e-amail later. I apologize for not replying to everyone.

December 28, 2014: I'm going on hiatus with regard to the blog for awhile. I don't know if after this week I will start it up again or not, but I had a few concerns about the site, so I decided to bring it down.  So, we'll see. The number of page views would have gone over 7 million in early January, 2015, but my concern for the site was not worth waiting for that milestone.

For all I know the Bakken will implode and the state will go broke, but the more I've learned about the Bakken in the last few weeks suggests that the Bakken is in much better shape than people realize. Investors in companies that are operating in the Bakken are doing badly, of course, and I can list a lot of bad things going on in the Bakken, but what list I develop would hold true for the entire oil and gas industry.


I will keep track of some metrics at a new site.

It's A Bit Cool Here In Southern California -- December 30, 2014

A reader sent me a link to an NPR interview with POTUS on the collapse of oil prices and its effect on Russia. Tell me if this is not simply bizarre. President Obama implies he was singularly responsible for the collapse in oil prices for the purpose of destroying Russia's economy.

The linked article comes from Russian Times; it makes me wonder to what extent the NPR "interview" was paraphrased to fit the Russian story line.

If accurate, it sounds like President Obama is taking credit again for something he had nothing to do with. It would not be the first time. This is so bizarre unless one understands the nature of the narcissistic mind. Or the entire article is fabricated by Russian Times.

Specifically what could President Obama do to cause the collapse of world oil prices? Harold Hamm isn't listening to Obama; Harold Hamm will pump as much oil as he wants. The US shale program is producing a tsunami of oil -- this has nothing to do with Obama.

The Saudis are no friends of the Obama; I doubt if Saudi Arabia coordinated with Obama at the last OPEC meeting. And Saudi did nothing but maintain current production.

I think Obama, in that interview, is blowing smoke. Again, exactly what did he do to increase the supply of global oil and push down global demand?

Global Warming
Climate Change
Ice Age Now

AccuWeather is reporting:
A storm and cold air forecast to develop at the end of 2014 and linger into the start of 2015 will deliver snow, rain and a frost or freeze to portions of California.
The coldest air of the winter months so far will settle over California during the middle part of this week.

A New York Times Update On Ebolaland -- And It's Not Good -- December 30, 2014

There are two interesting stories coming out today about Ebola. Remember: these stories need to be taken into context. The Obama administration has an embargo on Ebola information coming from the CDC. Not all information is embargoed, but he has strict rules about what may be released, and how it may be released.

When you read these two stories, remember that the Obama administration has not addressed this issue in quite some time.

First, a most concerning story, because it is likely occurring in the United States but we are not hearing about it. CNN is reporting: an Ebola patient has been moved from Scotland to London, and two more possible cases are suspected:
A health care worker who was diagnosed with the Ebola virus after returning to Scotland from Sierra Leone was transferred early Tuesday to the Royal Free Hospital in London.
The woman was working with Save the Children at an Ebola treatment center in Sierra Leone, according to Michael von Bertele, humanitarian director at that organization.
She traveled via Casablanca, Morocco, and London Heathrow Airport before arriving at Glasgow Airport on a British Airways flight late Sunday night, the Scottish health agency NHS Scotland said.
After feeling unwell on Monday, she sought medical attention and became the first person to be diagnosed with Ebola within the United Kingdom. 
 She has been named by British media outlets as Pauline Cafferkey, a public health nurse in Scotland's South Lanarkshire area, who was part of a 30-strong team of medical volunteers deployed to West Africa by the UK government last month in a joint endeavor with Save the Children.
She was reportedly transferred to London in a military aircraft fitted with an isolation pod.
The Royal Free Hospital is equipped with a high-level isolation unit, with access restricted to specially trained medical staff. A specially designed tent, with controlled ventilation, is set up over the patient's bed.
A British volunteer nurse, William Pooley, was successfully treated in the unit after he was brought home from Sierra Leone in August having been diagnosed with Ebola there.
The second story is from The New York Times. It requires a subscription, or going through google with exact phrasing from the lede, you should be able to access it. I am reading the entire story without a subscription through google. I think using the link above will require a subscription. Googling this should get you to the story: http://www.nytimes.com/2014/12/30/health/how-ebola-roared-back.html

This is an incredibly long article. It does not explain, at least in my mind, why this outbreak is different than all the rest. As good as the article is, it fails to put into perspective exactly how much bigger this outbreak is and how much longer this outbreak is. To do that, use the data in this NYT article and compare it to past outbreaks delineated by wiki.

I'm not in the least worried about an Ebola outbreak in this country. What irritates me is being told by POTUS that the disease "is not easy to catch." That's why health care workers wear HAZMAT suits when treating these patients, I guess. The second thing that concerns me is the POTUS embargo on news coming out of the CDC regarding the current Ebola outbreak. 

We last heard that the Pentagon now has a military mission in Ebolaland but I haven't heard a thing about how that mission is going. Something tells me the deployed military members have also been advised to stay quiet on the subject. 

I think it's a fascinating story on so many levels. This NYT article is incredibly long, and incredibly good. 

I do think that a photograph of a tired, exhausted Dr Pierre Rollin would have been more appropriate rather than the smug, book-jacket photograph that was provided. Something tells me he is being handsomely rewarded for his efforts. He looks like a celebrity in his own time. An Albert Schweitzer? Probably not.

In Anticipation Of New Year's Eve -- Be Safe Out There

With the holidays upon us I would like to share a personal experience with you all about drinking and driving after a "social event" with friends.

This past Friday, I was out on a post-Thanksgiving evening with several friends. I had a few cocktails, followed by several glasses of wine. Despite my jolliness, I still had the sense to know that I was over the limit. That's when I decided to do what I have never done before: I took a cab home.

Sure enough, there was a police road block on the highway but, since it was a cab, they waved it past. I arrived home safely without incident.

This was both a great relief and surprise because I had never driven a cab before. I don't even know where I got it from and, now that it is in my garage, I don't know what to do with it.

Be safe out there.

Update On LNG Global Exports - Imports -- RBN Energy -- December 30, 2014; Excelerate Energy's Texan LNG Terminal Canceled Due To Price Slump

The RBN Energy story by Housley Carr down below  was posted early on the morning of December 30, 2014. Later that afternoon Reuters was reporting that Excelerate Energy's Texan liquefied natural gas terminal plan has become the first victim of an oil price slump threatening the economics of U.S. LNG export projects.
A halving in the oil price since June has upended assumptions by developers that cheap U.S. LNG would muscle into high-value Asian energy markets, which relied on oil prices staying high to make the U.S. supply affordable.
The floating 8 million tonne per annum (mtpa) export plant moored at Lavaca Bay, Texas advanced by Houston-based Excelerate has been put on hold.
The project was initially due to begin exports in 2018.
Excelerate's move bodes ill for thirteen other U.S. LNG projects, which have also not signed up enough international buyers, to reach a final investment decision (FID). Only Cheniere's Sabine Pass and Sempra's Cameron LNG projects have hit that milestone.  

Spouse of the Rising Sun—No LNG Divorce Imminent, Despite It All Monday, 12/29/2014 
Published by: Housley Carr

It would be an understatement to say that the worldwide market for liquefied natural gas (LNG) is in flux. LNG production is up and heading higher, oil—and LNG--prices are down sharply from a few months ago, and Japan and other big consumers of LNG are more interested than ever in mitigating price and supply risk. All this comes as Japan, a primary target of prospective U.S. and Canadian LNG export projects, is grappling with the need to restart dozens of idled nuclear units so it can reduce the oil and LNG imports that have hurt its trade balance since the Fukushima disaster nearly four years ago. Today we consider recent developments and how they may affect Japan and its potential LNG suppliers on the North America side of the Pacific.

Despite recent setbacks, Japan remains an undisputed economic powerhouse, the third-largest economy in the world behind the U.S. and China. But the island nation depends more than ever on imported oil and natural gas (in the form of LNG) to run its power plants and factories and to heat its businesses and homes. As we said in the First Episode of our “Spouse of the Rising Sun” series, Japan was already the world’s leading LNG importer (accounting for about one-third of all LNG imports) in March 2011, when a 9.0 earthquake triggered a tidal wave that devastated Tokyo Electric Power Co.’s six-unit Fukushima Daiichi nuclear station northeast of Tokyo. Within two months of the disaster, most of Japan’s other 48 nuclear units were offline, and by September 2013 all of them were. Given that nuclear power had been providing 30% of Japan’s electricity prior to Fukushima (with fossil-fired units providing almost all the rest), the industry-wide nuclear shutdowns forced wrenching change. Oil and LNG imports rose to fill the nuclear gap and, as we said in Episode Two, the pace of nuclear-unit restarts is likely to be slow and the heightened need for oil and LNG is likely to continue. What’s changed over the past few months though, is that a lull in LNG demand (in Japan and elsewhere in Asia) has created a supply surplus and a buyer’s market. Also, as we know all too well, the price of oil has fallen precipitously and shows no sign of a quick rebound. These changes (and rising LNG production in Papua New Guinea, Australia and—soon—in the U.S.) have given Japan the hope of reining in its fuel-import costs in general, and its LNG costs in particular.

The very liquid worldwide market for oil enables Japan and other Asian oil importers to take advantage of currently low oil prices. In addition, because the vast majority of Asian LNG contracts index LNG prices to a basket of imported oil known as the Japanese Crude Cocktail (JCC - see “Courtesy of the Red, White and Blue”), LNG-importing countries also are benefiting from much lower prices in recent months. Figure #1 shows an approximation of the JCC based on Brent prices since the start of 2014, falling from close to $20/MMBtu in July to $10/MMBtu in December. Add to that the facts that demand for LNG in Japan and South Korea this past summer and fall has been flat, and that new LNG production expected online soon will add to market supply (fully one-third of the output of Chevron’s mammoth Gorgon LNG project in Australia—set to start exporting in mid-2015—is not under long-term contract so will hit the open market) and you have yourself an LNG price-sag of major proportions. In December 2014, spot LNG prices in Asia (a better leading indicator than the JCC contract price) are below $10/MMBTU and they could fall even more by the spring of 2015 if it’s a mild winter and LNG stockpiles continue to build.

Figure #1

Source: RBN Energy (Click to Enlarge)

That’s great news for LNG importers, of course, but it’s a real headache for companies trying to develop new LNG export facilities—and for U.S. and Canadian natural gas producers hoping to lock in long-term deals to sell gas for export as LNG. Consider a 20-year LNG contract that a Portuguese utility, Energias de Portugal (EdP), reached in December 2014 with Cheniere Energy’s planned Corpus Christi LNG export facility. Under the deal, EdP will take up to 0.77 million metric tons per annum (MTPA) of LNG (the equivalent of 108 MMcf/d of natural gas) and pay Cheniere a liquefaction and LNG loading fee of $3.50/MMBtu plus 115% of the final settlement price for the Henry Hub natural gas futures contract for the month in which the LNG shipment is scheduled. If a Japanese buyer made an identical deal, and if the Henry Hub gas price were, say, $4/MMBTU, the cost of gas delivered to Tokyo would be $4 (for the gas) plus $3.50 (for the base liquefaction fee) plus 60 cents (15% of $4, the supplemental liquefaction fee) plus $2 for shipping (roughly) and plus $1 (again, roughly) for regasification in Japan. That comes to about $11/MMBTU--a buck or more above the current LNG price in Asia. Then (for the Japanese LNG buyer) there’s the risk that U.S. natural gas prices could rise, putting U.S.-sourced LNG further out of the money in a low-price LNG market. It’s all more complicated than this, of course. For one thing, despite efforts by Japan, Singapore, China and others to establish a liquid trading market for LNG, that goal has proved elusive. For another, as part of Japan’s effort to mitigate LNG price and supply risk, its utilities and other buyers have been actively seeking U.S. (and Canadian) sources of LNG. Still, the current slumps in oil and LNG prices (and in Asian LNG demand) are generally not good news for companies trying to develop U.S. and Canadian LNG export facilities.

That doesn’t necessarily mean, however, that Japan (and South Korea, China and India) won’t commit to buying additional LNG from the U.S. and Canada in the future. As we said, LNG buyers (Japan being a prime example) want supply diversification, and adding a few gas-price-indexed LNG contracts into their mix wouldn’t be a bad thing from a risk-mitigation perspective. Also, it’s reasonable to predict that oil prices will be higher four to six years from now than they are today, and that’s the period in which most new Asia-focused LNG export projects in the U.S. and Western Canadian projects (like Veresen’s Jordan Cove project in Oregon; see “New Kid in Town” and below) would come online.

Jordan Cove LNG

 Source: Veresen (Click to Enlarge)

Then there’s the issue of Asian LNG demand—and, given the focus of this blog, Japanese demand in particular. Sure there’s been some recent softness in Japan’s demand for LNG (mostly tied to mild weather), but LNG imports in the Land of the Rising Sun remain well above their pre-Fukushima level (about 89 MTPA now, versus 71 MTPA in 2010), and its likely they will decline only slightly–or even stay flat--as most of Japan’s nuclear units are restarted over the next few years. (You may be wondering if, with oil prices so low, Japan will ramp down its use of gas-fired generation and ramp up its use of oil-fired generation. The answer is, “Not to any significant degree.” Japan has been trying to reduce its oil dependence for years, mostly with emission-reduction and climate-change goals in mind. And all of the new, highly efficient generating capacity being developed in Japan is fired by gas, not oil.) The bottom line is that while all this is clearly a challenging time for those interested in selling LNG at a solid profit to the Japanese, Japan is not in any way inclined to end its long-time marriage to LNG. As we said, LNG imports in the current Japanese fiscal year (FY2014, which ends March 31, 2015) are expected to total 89 MTPA (according to a December 2014 estimate by Japan’s Institute of Energy Economics), and even with the oil price decline and LNG demand slump factored in, LNG imports are only seen slipping to 85 MTPA in FY2015, which runs through March 2016. So, as Japan’s older, oil-indexed LNG contracts roll off and Japan seeks more supply diversification, there is probably room for a few more LNG-supply deals with the U.S. and Canada. Patience may be required though; the oil price collapse has everyone taking a deep breath and a second—and third—look at everything we previously assumed to be true in this market.

Tuesday, December 30, 2014

Wells coming off the confidential list today:
  • 26623, 1,095, Liberty Resources, Erling 14-7H-0607-15895-MB, Temple, t7/14; cum 69K 10/14;
  • 26624, 1,001, Liberty Resources, Alvin 14-7H-1819-15895-TF, Temple, t8/14; cum 46K 10/14;
  • 26825, 955, Liberty Resources, Yogi 14-7H-0607H-15895-TF, Temple, t7/14 cum 50K 10/14;
  • 26826, 729, Liberty Resources, Edna 14-7H-1819-15895-MB, Temple, t7/14 cum 36K 10/14;
  • 27382, conf, XTO, Berquist 31X-2C, Garden, no production data,
  • 28154, 1,361, XTO, Gilbertson 34X-26G, Charlson, t11/14; no production data,
  • 28178, conf, Hess, HA-Rolfsrud-152-96-1720H-2, Westberg, no production data,
  • 28433, drl, Zavanna, Tomahawk 10-3 4TFH, East Fork, no production data,
  • 28621, drl, Slawson, Mooka 5-29-20TFH, Big Bend, no production data,
Active rigs:

Active Rigs170187187197156