Monday, July 13, 2015

EIA "energy cookie":

The front-month futures price for crude oil benchmark West Texas Intermediate (WTI) declined 7.7% on Monday, July 6, the largest single-day decline in percentage terms since February 4...With the assumption that daily oil prices are independent (i.e., one day's movements do not influence another day's movements) and are normally distributed, a decline of Monday's magnitude would, in theory, have a 0.05% chance of occurring, or about one in 2,000. Historically, since January 2, 2006, 15 trading days (out of a total of 2,394) recorded a larger price decline. --- EIA

Let's see this: this is July 13, 2015; that was July 6, 2015. Better late than never, I guess.

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Active rigs:

	7/13/2015	07/13/2014	07/13/2013	07/13/2012	07/13/2011
Active Rigs	72	190	186	215	177

That ends that. Some time ago someone suggested that "72" was the "new" low. If it was, I missed it. Regardless, we now have it. This is the new post-boom low in active rigs in North Dakota as WTI oil flirts with $50.

I track active rigs here. 

RBN Energy: Improved Alaska North Slope Crude Prospects in a Lower Price Environment. (archived)

In 2015 Alaskan crude has enjoyed something of a change in fortunes compared to the past few years – when shale production seemed to threaten its future. Production was up by over 50 Mb/d in the first 4 months of 2015 (according to the Energy Information Administration – EIA). The market share of Alaskan crude in West Coast refineries also crept up by 1% this year compared to 2014 at a time when crude throughput at those refineries increased. Today we discuss the changes and whether they are likely to continue.

We’ve posted a number of blogs on the challenging prospects for Alaskan crude oil in the face of the shale revolution. Back in January 2013 we described how the State’s crude output has declined steadily from a peak of 2 MMb/d in 1987 to 512 Mb/d on average in 2012.

By last year (2014) production was down to 497 Mb/d. The vast majority of that crude is a type known as Alaskan North Slope (ANS) from the Prudhoe Bay field on the northern coast of Alaska beside the Beaufort Sea. ANS production is shipped 800 miles south on the Trans Alaska Pipeline system (TAPS) from Prudhoe to the ice free Port of Valdez in Southern Alaska. From Valdez the crude is mostly shipped to West Coast refineries using U.S. flagged tankers from the Jones Act fleet.

Although production has been declining there is no lack of Alaskan oil in the ground. A 2011 EIA estimate of Alaska reserves indicated up to 3.5 Billion Bbl of proven conventional oil reserves in producing fields onshore and 36 Billion Bbl of unproven reserves in federal lands offshore and onshore.

As we explained in June 2013 the State has implemented a new tax regime to encourage new development. The State also plans to invest in liquefied natural gas (LNG) export infrastructure to encourage natural gas production.

But the main challenge for Alaskan producers is that the risks and costs of developing and producing crude in sub-zero northern Alaska are higher than those for unconventional drillers in the Lower 48 – where shale oil has begun to threaten ANS market share at West Coast refineries.

ANS (a medium sour crude with an API gravity of 31.5 and 0.96 % sulfur) continues to be the West Coast’s benchmark crude but surging light sweet crude supplies from shale – particularly the Bakken in North Dakota have begun to compete with ANS over the past three years – pushing prices down. [Comment: wait until Californians decide they don't like sulfur in their oil.]

Narrowing price differentials between ANS and the U.S. Midwest benchmark West Texas Intermediate (WTI) led to rare exports of ANS last fall as producers looked to Asian buyers for better prices. Last year’s crude price crash has added insult to injury for Alaska producers and the State Government that relies heavily on oil royalties for revenue. This time we look at how lower crude prices appear to have actually improved ANS prospects at West Coast refineries.

There is much more at the link. The article is as much about ANS as the Bakken. It's a must-read for those interested in the Bakken. Conclusion:

However the picture is not all rosy for Alaska crudes on the West Coast. In the longer term, it has to be in the interest of refiners to increase their access to domestic barrels.

Even as shale production levels off in response to lower prices and a cutback in drilling, the West Coast remains an attractive market for Bakken producers because of its geographic proximity and the fact that they face less competition there than on the Gulf Coast that is close to massive Texas production. In other words, Bakken producers are not about to give way to ANS in the competition for West Coast market share and that competition is likely to keep the lid on ANS prices.

The same goes for Canada where production continues to increase and we have to assume that routes to West Coast markets will eventually be developed. And in the meantime – even as Alaska producers enjoy a slight uptick in their fortunes – they have to reflect on the fact that much of that uptick has come at the cost of a 50% drop in prices.