Reason #239 Why I Love To Blog: Indications That Prince Salman's Strategic Plan Is To Focus More On Midstream/Downstream; Less On Upstream

Updates

Later, 9:14 p.m. Central Time: Look at the blurb from The Oil & Gas Journal in the original post below. Think about it for a minute. "A fully integrated crude oil-to-chemicals complex in Saudi Arabia." Prince Salman is not thinking of a simple complex; he's going for a world-class, record-setting facility. But that requires cash. Lots of cash. And with oil at $50 his country continues to hemorrhage cash on a monthly basis.

In an earlier post, his energy minister was quoted as saying that he plans / Saudi plans to let KSA crude oil inventories to continue to decline. Once the data comes out showing how far KSA crude oil inventories have fallen, there's a very, very good chance the price of oil could spike.

Idle chatter.

Original Post

 

Earlier today I updated "Trending" over at the "Top Ten Lists."

The first thing I posted was something I have been alluding to for the past week or so and finally said it outright, so it cannot be mistaken:

1. There are indications that Saudi Arabia has changed strategy; will focus on refining; will not increase production; will concentrate on Prince Salman's plan with greater emphasis on midstream, downstream; less emphasis on upstream

Now this, from The Oil & Gas Journal which I just came across, posted over at Twitter, six hours ago:

Saudi Aramco and Saudi Arabian Basic Industries Corp. (SABIC) plan to conduct a joint feasibility study for development of a fully integrated crude oil-to-chemicals complex in Saudi Arabia.

The proposed plant would use a crude oil-to-chemicals process derived from improved refining technology that mixes innovative configurations with proven conversion technologies to create an integrated petrochemical complex capable of maximizing chemical yield, transforming and recycling byproducts, driving efficiencies of scale and resource optimization, and diversifying Saudi Arabia’s petrochemical feedstock mix, the companies said.

Pending a positive outcome of the study, Aramco and SABIC plan to establish a joint venture to advance the project, which if approved, would fulfill Saudi Vision 2030 goals for the downstream sector.

That second paragraph .... "mixes innovative configurations ... yada, yada, yada ...." sounds like it was written by:

a) MuskMelon
b) any recent Harvard MBA grad
c) former CEO of Shell
d) Bill Gates

Exxon's Global Energy Demand Forecast Through 2040 -- For The Archives -- June 28, 2016

For the archives: global energy demand forecast.

This graphic is in line with about almost everything else I see.

Observations:

• energy: all the above -- everything is represented here
• the graph goes out to 2040
• this is global energy demand
• coal: the amount actually increased significantly from 2000 to 2015, and really doesn't decrease all that much (if it does, its almost imperceptible)
• natural gas: the huge winner -- compare 2040 with 2015 (or 2000, for that matter)
• oil: even oil shows a huge increase
• nuclear: increases some (China? India? where?)
• other renewables (wind/solar): although there's a relative increase, it looks like about 25 quadrillion BTUs/700 quadrillion BTUs = 3.57%. I.N.C.O.N.S.E.Q.U.E.N.T.I.A.L. A rounding error at best.

By the way:

• 2015: 575 quadrillion BTUs
• 2040: 700 quadrillion BTUs
• (700 - 575) / 575 =  22% increase in global energy demand over the next 25 years.

Note: this is not an investment site. Do not make any investment, financial, travel, job, or relationship decisions based on what you read here. But this seems to be an open-book test when it comes to looking where to invest for the long term. 

There is no question that solar has some niches (wind has none, absolutely zero) but as a real global player, unreliable, expensive, non-dispatchable energy is irrelevant.

Enerplus Reports Two Nice Wells; Two New Permits -- June 28, 2016

One well coming off confidential list Wednesday:

• 30835, SI/NC, XTO, TAT State Federal 14X-36H, Bear Creek, no production data,

Active rigs:

	6/28/2016	06/28/2015	06/28/2014	06/28/2013	06/28/2012
Active Rigs	30	75	191	189	216

Two new permits -- 

• Operator: QEP
• Field: Heart Butte (Dunn County)
• Comments:

One well released from confidential list:

• 30282, SI/NC, BR, Jerome 21-15MBH, North Fork, no production data,

Seven (7) permits renewed --

• Slawson (4), four Pike Federal permits in Mountrail County
• Crescent Point (2), two Makowsky permits in Williams County
• Resource Energy Can-Am, a Lincoln State permit Divide County

Three (3) producing wells completed:

• 21111, 1,427, Enerplus, Anna G. Baker 6B-7-2H TF, Moccasin Creek, t6/16; cum --
• 32051, 2,066, Enerplus, Dance Hall 147-93-06B-07H, Moccasin Creek, t6/16; cum --
• 32052, 601, Enerplus, Town Hall 148-93-31C-30H, Moccasin Creek, t6/16; cum --

Oil Is Still Headed For $10 -- A. Gary Shilling -- Bloomberg -- June 28, 2016

The contributor must be "short oil" in trading. The article is reprinted at Yahoo!Finance but missing some graphics. The Bloomberg link is here. Archived.

No time-frames are provided in the linked article.

If I follow his analysis correctly: glut of oil leads to drop in price leads to "dot-com-like shock" or a shock like the subprime mortgage debacle that produced the 2008 financial crisis both of which led to recessions.

Others think that a global recession, perhaps brought on by Brexit, could result in price of oil plummeting to $10/bbl.

So,

• glut of oil results in $10 oil and recession; or
• recession results in $10 oil.

 Sic et non.

The good news, I guess: we're never gonna run out of hydrocarbon energy at accessible prices. 

Better news: oil at $10/bbl pretty much ends the unreliable energy scam (wind and solar).

Best news, I guess: at $10/bbl, GM is going to be selling a lot of SUVs.

Update On Bakken Ethane Production -- June 28, 2016

Updates

Later, 1:40 p.m. Central Time: after posting the story below, I went back and did a search on "Hess Ethane Canada" on the blog. Some of the posts:

• updates on all the crackers being considered, back in January, 2012
• expansion of the Hess Tioga plant, October 30, 2011
• Canada's biggest plastics producer will purchase all the ethane Hess produces at its Tioga plant, July 16, 2013
• $4 billion plastics plant announced for North Dakota, October 13, 2014
• connecting some dots, October 1, 2015
• Bakken ethane reaching Canadian feedstock facilities in Alberta, June 24, 2014
• this might have been the first, February 14, 2022

And that's just a small sampling.

Original Post

 

If you have time to read only one detailed report today, make it the RBN Energy post: US ethane exports to Asia and Latin America are about to pop.

Link here.

The entire post is eye-popping.

For newbies, it provides a lot of background to ethane.

When I first started blogging, I had no idea what "ethane rejection" meant. At risk of explaining it incorrectly, ethane is "more valuable" when used as feedstock rather than simply burned. Producers achieve a "higher margin" on ethane when it is used as feedstock for plastics and other derived products, than when it (ethane) is burned for heat or electricity. But because there is not enough midstream infrastructure to process all that ethane, much of it is currently being "rejected" and put back into / or left in the natural gas pipeline. Operators are "leaving money on the table" as they say.

The RBN Energy post at the link above provides an incredible update on the ethane situation. For folks interested in the Bakken, note this:

Let’s take a detailed look at all this capacity, beginning with a recap of the two ethane-only pipelines that for two years or more have been transporting U.S. ethane to Canada. 

Sunoco Logistics’ 50 Mb/d Mariner West Pipeline (blue layer in graph to the right of the figure below) since December 2013 has been moving ethane from the heart of the wet Marcellus/Utica (Houston, PA) to near Detroit (MI), and from there to steam crackers in Sarnia, ON.

Similarly, since May 2014 Pembina Corp.’s 40 Mb/d Vantage Pipeline (green layer) has been moving ethane from the Williston Basin in western North Dakota to the Alberta Ethane Gathering System (AEGS) near Empress, AB, again for use by Canadian ethylene plants.

Pembina is just finishing up a Vantage expansion project that (with a new lateral and pumping stations) will boost the pipeline’s capacity to 70 Mb/d this summer (note that the green layer thickens).

Here's the graphic:

One will find multiple posts regarding Pembina Corporation and its ethane pipeline on the blog. In addition, back in 2013, it made the top ten list for fastest growing energy companies in North America.

From RBN Energy:

As you can see from looking at the mid-2016 points in the two graphs in the figure above, the run-up in ethane demand from exports and from incremental ethylene plant capacity is only just beginning.

By late 2017/early 2018 (a year and a half from now), ethane exports could be approaching 300 Mb/d (200 Mb/d over today) and demand for ethane from new or expanded steam crackers could rise by 300 Mb/d—taken together, that’s some 500 Mb/d in new ethane demand!   

That rising demand will pull a lot more ethane out of volumes being rejected into natural gas today and increasingly move the ethane barrels through fractionators and into pipelines for deliver to petrochemical crackers, mostly crackers along the Gulf Coast.

But there is a catch. 

For ethane to be extracted instead of rejected, the price of ethane must be high enough to make the economics work.  That means higher than natural gas at the processing plant.  And that means high enough to cover the cost of transporting mixed NGLs (also know as Y-grade) to market (from a nickel per gallon all the way up to more than 25 cents per gallon) and fractionating that ethane out  (another nickel or dime per gallon).  And that means that all that new demand will not be satisfied unless ethane prices are higher. 

Perhaps a lot higher. 

One may want to take another look at Badlands NGLS. 

From RBN Energy, October 19, 2017:

 

The Bakken Is In Its Manufacturing Stage -- June 28, 2016; 1Q16 Taxable Sales/Purchases 50% Higher Than 1Q10

As with any manufacturer, there will be ups and downs, commensurate with the economy and the particular sector one is in.

In this case, North Dakota has a diversified economy with a major energy component. How has the Bakken affected North Dakota's diversified economy?

The 1Q16 taxable sales and purchases data has been released by the state and this note: "First quarter 2016 is nearly 50 percent greater than the same timeframe in 2010.”

For newbies, this is the timeframe:

• 2000: the Bakken boom begins in Montana
• 2007: the Bakken boom begins in North Dakota
• 2012: the Bakken hits its stride
• early 2014: the Bakken setting new records, almost every month
• late 2014: the Saudi Surge
• 2015: the Bakken re-trenches
• 1Q16 taxable sales 50% greater than 1Q10
• mid-2016: the Bakken bottoms out -- at least that is what the tea leaves suggest

Wow, think about that: the Bakken was starting to move in 2010, and now, when things appear so dire, 1Q16 taxable sales/purchases are still 50% higher. I find that quite remarkable. I hope I haven't misinterpreted the report but that was a direct quote from the state tax commissioner. 

The full report is here.

By county:

• Cass (Fargo): $643,058,308
• Burleigh (Bismarck): $362,191,851
• Williams (Williston): $280,809,315
• Grand Forks: $262,939,803
• Ward (Minot): $238,532,521
• Stark (Dickinson): $171,710,392
• Morton (Mandan): $56,835,128

Perhaps the most amazing data point is how incredibly stable the Fargo area is. Year-over-year (1Q15 to 1Q16, Cass County's taxable sales and purchases declined less than 4%. The oil counties, like Williams, TSP declined as much as 60%. Williams' decline at 62% was barely better than Burke County's decline year-over-year of 66%.

But you know, when I see 1Q16 taxable sales 50% greater than 1Q10 for North Dakota, I can't get too concerned. A lot of infrastructure has been put in place. We are probably at the nadir of this particular cycle. Yes, it could get worse, but the tea leaves don't suggest that. 

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A Note For The Granddaughters

Wow, this brings back memories: the magic of Britain's least-used train stations. 

We were stationed as a family in England from 1986 to 1989. I was then back to England multiple times between 2002 and 2004. While there alone, I hiked a lot and I took the train frequently. I visited some of those least-used train stations. 

The Brits (or, perhaps, better said, the English) love "the three P's": pets, plants, and planes. I would add "passenger trains" to continue the alliteration, but in fact the English love trains of all sorts, not just passenger trains. Perhaps one could add "the three T's": tea, trains, and taxes.

Wow, wow, wow! Such pleasant memories.

1Q16 GDP Revised Upward To 1.1% Vs Early 0.8% -- June 28, 2016; 2Q16 Estimate/Forecast Dips Slightly

I guess if you give them long enough to "run the numbers," you can get any number you want. Whatever. Bloomberg reports:

The world’s largest economy expanded more than previously projected in the first quarter as improved performance in trade and business investment more than made up for weaker consumer spending.
Gross domestic product, the value of all goods and services produced, rose at a 1.1 percent annualized rate, compared with a previously estimated gain of 0.8 percent, a Commerce Department report showed Tuesday in Washington. Corporate profits at the start of the year were also revised up, giving a brighter picture to gross domestic income.

Meanwhile, for 2Q16, GDP Now forecasts as of June 24, 2016 (last week):

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.6 percent on June 24, down from 2.8 percent on June 17.

The forecast for second-quarter real residential investment growth declined from 3.6 percent to 1.7 percent yesterday (June 23, 2016) after the U.S. Census Bureau released data on new home sales, prices, and construction costs.

The forecast for the contribution of inventory investment to second-quarter growth declined from -0.41 percentage points to -0.53 percentage points after this morning's (June 24, 2016) advance durable manufacturing report from the Census Bureau.

Next 2Q16 forecast will be released tomorrow. 

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The Katie Ledecky Page

Qualifies For The 400 Meter Freestyle -- June 27, 2016

War On Coal -- New Oakland (CA) Terminal Votes To Ban Handling Coal For Overseas Shipments -- June 28, 2016

Updates

August 1, 2016: The WSJ has a nice short update of west coast war on coal. 

 

Original Post

From The Wall Street Journal:

City officials in Oakland, California, late Monday moved to block a proposal that would have made the city a gateway for Utah coal to be shipped overseas, after the issue became a political flashpoint between environmentalists and a longtime political ally to Gov. Jerry Brown.

The Oakland City Council voted to ban the handling and storage of coal and coke at the city’s terminals and bulk material facilities. The unanimous vote came after a long, packed city council meeting; advocates and opponents of the ban demonstrated outside. A second, largely procedural, vote is expected in July.

The ban aims to derail a proposed deal that would have granted four coal-producing counties in Utah rail access to a major commodities shipping terminal under development on city land, adjacent to the Port of Oakland.

The new terminal is part of a major redevelopment of an old Army Base the city hopes will bring thousands of jobs to a city that still has pockets of poverty and violence, even as the region’s tech sector booms and housing costs rise. Utah had agreed to invest $53 million in the project for the right to export its goods.

California ports in Stockton, Richmond and Long Beach export coal, but because of climate change and pollution concerns, such terminals have become highly contested on the West Coast.

Environmentalists have defeated similar proposals in Oregon and Washington.

Is there an opportunity here for Texas? With the expanded Panama Canal? Probably not.

MDU Sells Dakota Prairie Refining To Tesoro -- Press Release -- June 28, 2016; For One Day, MDU Owned The Whole Refinery

Updates

Later, 6:10 p.m. Central Time: by now, everyone who has wanted has done their own back-of-the-envelope calculations on this deal. Everyone who has written me seems to agree that Tesoro got this little refinery that cost $430 million (way over budget) for about $77 million. And considering that most of that may be debt, there may be some tax advantages. Regardless. I am thrilled that the Dickinson folks got a world-class refiner to take over this refinery. I sincerely hope it all works out for all involved. Now ... upward and onward to that $4 billion ethane processing plant. Or in the words of Buzz Lightyear, "to infinity and beyond!"

Later, 9:18 a.m. Central Time: from the AP:

Texas-based Tesoro Corp. has bought an oil refinery in southwestern North Dakota that has struggled to turn a profit.

North Dakota-based MDU Resources Group Inc. and Indianapolis-based Calumet Specialty Products Partners LP spent $430 million on the Dakota Prairie Refinery in Dickinson. It began selling fuel last year but hasn't been profitable due to the slumping oil industry and low diesel prices.

The plant lost $7.2 million in the first three months of the year, and officials in May announced plans to operate it at only 75 percent capacity. The developers also had considered a similar plant in Minot but late last year delayed those plans because of the red ink at the Dickinson plant, which currently totals about $66 million.

Tesoro will assume the $66 million in debt and contribute about $10 million toward working capital, the company said.

Later, 9:05 a.m. Central Time: from SeekingAlpha --

• Calumet Specialty Products Partners sells its 50% equity interest in the Dakota Prairie Refining joint venture to MDU Resources Group, which then sells the entire JV to Tesoro
• TSO winds up acquiring Dakota Prairie Refining in exchange for the continued servicing of DPR's $66M term loan debt and ~$10M towards working capital
• DPR's refinery has a crude oil capacity of 20K bbl/day and produces ultra-low sulfur diesel, naphtha and resid; TSO says it will continue to market the ultra-low sulfur diesel to local customers and utilize the naphtha and resid in its integrated value chain system 

Original Post

 

For one day, MDU owned the whole refinery.

From the press release:

MDU Resources Group, Inc. announced today that its subsidiary, WBI Energy, Inc., has sold Dakota Prairie Refining LLC to Tesoro Refining & Marketing Company LLC, an affiliate of Tesoro Corporation.

WBI Energy had been equal partners in building and operating the refinery with Calumet North Dakota LLC, a subsidiary of Calumet Specialty Products Partners LP.

To effect the sale of the refinery to Tesoro, WBI Energy on June 27 acquired Calumet North Dakota’s 50 percent membership interests.

Dakota Prairie Refining is capable of processing up to 20,000 barrels per day of Bakken crude oil and can produce approximately 8,000 barrels per day of diesel fuel, as well as the byproducts naphtha and atmospheric tower bottoms. Located just west of Dickinson, North Dakota, the refinery began operating in May 2015 and employs approximately 75 people.

That was easy.

We Start The Day With 31 Active Rigs In North Dakota -- June 28, 2016; US Ethane Export To Asia, Latin America About To Pop -- RBN Energy

US Olympic Swimming Trials (or as some call it, the "Katie Ledecky Show"):

• at SwimSwam
• dash / schedule / results

Active rigs:

	6/28/2016	06/28/2015	06/28/2014	06/28/2013	06/28/2012
Active Rigs	31	75	191	189	216

RBN Energy: US ethane exports to Asia, Latin America about to pop. Archived.

Canadian ethylene plants have been receiving U.S.-sourced ethane by pipeline for two and a half years now, and waterborne ethane exports from Marcus Hook, PA to Norway started earlier in 2016. Soon the real fun will begin, when Enterprise Products Partners initiates (and quickly ramps up) ethane exports from a new, 200 Mb/d terminal on the Houston Ship Channel at Morgan’s Point.  The destinations of the ships leaving Morgan’s Point are likely to be places like India, Brazil, Europe, and maybe even Mexico.  Today, we consider the imminent bump-up in U.S. ethane export capacity, the international markets ethane will be headed to in the near-term, and the longer-term question about how much ethane exports can grow.

Just a few years ago, before the Shale Revolution, the thought that sometime soon the U.S. would be piping significant volumes of ethane to Canada and floating ship after refrigerated ship of the lightest natural gas liquid (NGL) to European ethylene plants (steam crackers) would be dismissed as nothing short of crazy. But here we are.  

Ethane exports to Canada via the Mariner West and Vantage pipelines ramped up from zero in 2013 to average 38 Mb/d in 2014, 65 Mb/d in 2015 and almost 80 Mb/d so far this year.  Oceangoing ethane exports started on March 9 of this year when the JS Ineos Intrepid departed Marcus Hook with 175 Mbbl of ethane headed for INEOS’s cracker at Rafnes, Norway.  Since then about 16 Mb/d of ethane has moved out of Marcus Hook, with 22 Mb/d exported in May.

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Walmart Wins Food Stamp Debate?

From The Wall Street Journal:

U.S. regulators are pushing stricter rules for stores that accept food stamps, ultimately determining which retailers win and lose the billions of taxpayer dollars at stake.

The proposal is throwing gas stations and corner stores into a battle with giants like Wal-Mart Stores Inc. and Kroger Co. over the $74 billion Supplemental Nutrition Assistance Program, or SNAP.

By year end, the U.S. Department of Agriculture wants to adopt rules that require stores redeeming food stamps to stock a wider variety of meats and vegetables and sell fewer hot meals, like pizza.

At a time when sales growth is hard to come by, redeeming food stamps is critical for grocers. Last year, SNAP funds comprised an average of 5.8% of sales at participating stores.

Big supermarket chains like Wal-Mart already happen to meet the tougher requirements because of their breadth of inventory.

But some 195,000 smaller stores would have to add as many as 168 items to their shelves—a move they say would be costly and unprofitable, given their limited shelf space and spoilage issues for fresh food.