Brent-WTI Continues To Widen; Thursday -- March 12, 2015

Active rigs:

	3/12/2015	03/12/2014	03/12/2013	03/12/2012	03/12/2011
Active Rigs	111	193	187	201	173

RBN Energy: Moving Marcellus natural gas through New England, to Canada.

As if there weren’t enough reasons to add new natural gas pipeline capacity through New England, it’s time to consider another: the Sable Island and Deep Panuke gas production areas off the coast of Nova Scotia are quickly losing their oomph, and soon the Canadian Maritimes will need to rely more heavily on gas from other, more distant sources, including the Marcellus. Developing pipelines to move large volumes of Marcellus gas through New England to New Brunswick and Nova Scotia will not be easy though. Today we continue our look at the challenges of supplying gas to New England and its northern neighbors.

The gas supply/demand dynamic in the Canadian Maritime provinces of New Brunswick and Nova Scotia adds another layer of complexity to the situation in New England, which already struggles with gas supply during very cold winter days. The Sable Island Offshore Project (SIOP) and Deep Panuke discoveries once were viewed as the next big things for New England gas supply. SIOP started producing in December 1999, and was the first to use the 800 MMcf/d Maritimes & Northeast Pipeline (MNP), which runs 730 miles from Goldboro, NS to near Boston. SIOP for a time was a big deal, producing more than 350 MMcf/d through most of its first 10 years.

But in the past five years production has steadily declined; in January 2015 it produced only 175 MMcf/d, and gas flows are expected to continue falling until SIOP is shut down a few years shy of its predicted 25-year lifespan. Deep Panuke had been seen as a supplement to--and eventual replacement for—SIOP, but it’s turned into something of a disappointment. For one thing, Deep Panuke came online more than three years behind schedule, producing its first gas in August 2013, by which time Marcellus production was approaching 12 Bcf/d (Marcellus/Utica production now tops 19 Bcf/d). For another, Deep Panuke’s production levels—originally targeted at 400 MMcf/d, then dialed back to 300 MMcf/d—fell short of expectations.

Production peaked in January 2014 at 282 MMcf/d (teal green layer) and owner Encana Corp. has since decided to focus Deep Panuke production on the winter months (when gas demand and prices are higher). In February 2015 Encana also reduced its estimate for remaining gas reserves at Deep Panuke to 80 Bcf, from its earlier estimate of 200 Bcf. All this suggests that offshore Nova Scotia gas production will be playing a smaller and smaller role.

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EIA Note

From the EIA today (dynamic link):

The decline in spot oil prices in the last half of 2014 and first month of 2015 has reduced oil and natural gas production tax revenues in some of the largest oil- and natural gas-producing states…Texas, North Dakota, Alaska, and Oklahoma are four of the five top oil- and natural gas-producing states, and they derive a significant share of their unrestricted operating revenues from taxes on oil and natural gas production. Although California produces more oil than both Alaska and Oklahoma, its economy is much larger, making it relatively less affected by changes in oil and natural gas prices and production.

Well, that's pretty much stating the obvious, but I had forgotten that California produced more oil than both Alaska and Oklahoma. Something to think about.

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Brent-WTI Continues To Widen

It looks like the Brent - WTI continues to widen. Brent up slightly; WTI down due to so much production; constrained capacity. It's hard to believe the spread will not worsen. Saudi is gradually (and quietly) raising its prices, but that will hardly affect WTI. Two cartels: the OPEC (mostly Saudi) cartel and the US cartel.