This Side Of Paradise; Producers Paying To Have Their Propane Taken Away, Part I -- Tuesday, June 9, 2015

For those who may have missed it, the EPA says fracking has no widespread effect on drinking water. None. Nada. Nil. Zilch.  Varney and Company over at Fox Business News is apparently going to do a piece on this "ruling" in each of the three hours this morning. I don't know the specifics of Varney and Company, time slot, network, etc. I may be way off, but I know the "Varney" part is correct. Don told me. Fox News video here.

No matter how you spin it, the Obama administration supports fracking. If the administration did not support fracking, the administration could have easily delayed the EPA report, saying the study needed more time and more research or more study or whatever language they wanted to do. They only had to run out the clock, less than two years of delaying a report. Shoot, they've delayed action on the Keystone XL North for six years and counting. The fact that the EPA report was released  on President Obama's watch speaks volumes. Either he personally supports fracking, or he is disengaged going into his last two years and is focused on foreign relations issues. Like Iran.

Active rigs:

	6/9/2015	06/09/2014	06/09/2013	06/09/2012	06/09/2011
Active Rigs	82	192	189	213	169

EIA "energy cookie":

While total U.S. crude oil production increased by nearly 3.2 million barrels per day (b/d) from 2010 to 2014, production in the West Coast region (PADD 5) decreased by 0.1 million b/d, continuing a long-term decline.

With no major crude oil pipelines connecting the West Coast to other parts of the country, refineries on the West Coast adjusted to the declining in-region production by increasing imports of foreign crude oil, reaching an average of 1.1 million b/d over the past five years.

Shipments of domestic crude by rail (CBR) to the West Coast have also increased, from an average of 23,000 b/d in 2012 to 157,000 b/d in 2014. In the first quarter of 2015, West Coast CBR movements averaged 191,000 b/d. --- EIA

RBN Energy: producers paying to have their propane taken away. 

Prices for non-TET propane at Mont Belvieu yesterday fell to their lowest level in 13 years at 31.0 cnts/Gal (source: OPIS). A big part of the recent price decline is to do with surging propane storage inventory. Last Wednesday’s data from the Energy Information Administration (EIA) showed U.S. propane inventory levels increased by 3.8 MMBbl to 77MMBbl during the last week of May 2015. If storage injections increase at that rate for another couple of weeks then levels will surpass the record of 81.6 MMBbl set in October 2014. The trouble is – that record was set at the start of winter – traditionally the end of propane storage build season - but we are still only in June – with several months of storage build left. Today we discuss the growing propane surplus.

We began this series last week by looking at the Edmonton propane market where prices dropped into negative territory in the face of unprecedented oversupply.

The western Canadian surplus follows lower seasonal crop drying and home heating demand than usual for propane in their traditional markets in the U.S. Midwest and Northeast.

That lack of demand was compounded by the reversal of the Cochin pipeline in 2014 that previously shipped up to 50 Mb/d of Canadian propane to the Midwest. Until new rail terminals and storage capacity are built in the Edmonton region, natural gas liquid (NGL) producers are stuck scrambling to find local storage capacity or paying additional rail freight charges to ship their propane to U.S. storage hubs around the country at spots like Hattiesburg, Mississippi, Arizona, at Conway, KS in the Midwest,  Mont Belvieu on the Gulf Coast or just about any location that will take the stuff. The trouble is that supplies are just as abundant in the U.S. as they are in Edmonton this year and so there is no “room at the inn” for much of the surplus Canadian propane in the Lower 48. This time we turn our focus to the worsening U.S. propane supply glut.

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Grinding

US shale oil boom grinding to a halt, one percent / month. Bloomberg is reporting:

The shale oil boom that turned the U.S. into the world’s largest fuel exporter and brought $3 gasoline back to America’s pumps is grinding to a halt.

Crude output from the prolific tight-rock formations such as North Dakota’s Bakken and Texas’s Eagle Ford shale will shrink 1.3 percent to 5.58 million barrels a day this month, based on Energy Information Administration estimates. It’ll drop further in July to 5.49 million, the lowest level since January.

Since January. Six months ago. So yesterday.

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MUD

I cannot, for the life of me, see how MDU could screw up as badly as they did in the Bakken. Here's another story. Remember that MDU-Calumet Dickinson refinery: delayed and over -budget, coming in at over $400 million, if I recall correctly.

Devils Lake wants to build an almost identical refinery for .... drum roll ... $200 million. I believe $200 million was the original cost estimate for the Dickinson refinery; if not $200 million, at least in that ballpark. [I was off a bit, here's the estimate and "final" cost -- MDU says the cost of the plant, initially pegged at $300M, now has been revised to $425M-$435M.]

Of course, if the Devils Lake refinery is built, it, too, will come in over budget -- all big projects seem to come in over budget, but I doubt to the tune of $400 million.

The Dickinson Press is reporting:

The Devils Lake City Commission will review a development agreement next week with the company that plans to build a $200 million, 20,000-barrel-per-day oil refinery on the west edge of Devils Lake.

The refinery, similar to one that just opened in Dickinson, would process oil from the Bakken Formation of western North Dakota, converting it to low-sulfur diesel fuel, which would be marketed in the region for use in agriculture and construction equipment.

The things that stand out for me with regard to MDU:

• headquartered in the backyard of the Bakken
• a company from Oklahoma quietly buys up the mineral acreage in MDU's back yard
• MDU finds a good field; turns it into a mediocre field; sells it to Oasis who turns it into an outstanding field, and makes Oasis what it is today
• the $435 million MDU-Calumet Dickinson refinery, delayed and way over budget
• puts Fidelity on the market the very month the price of crude oil plummets (Saudi's revenge)
• takes Fidelity off the market; then puts it back on the market two months later