Wow, It Never Quits -- First Ethane Cargo Set To Depart US Morgan's Point Terminal -- August 26, 2016

Update

September 4, 2016: it looks like that ship has sailed. See this Houston Business Chronicle story.

Original Post

 
From EIA update:

The first ethane shipment out of Enterprise Products Partners’ new export terminal in Morgan’s Point, Texas, is preparing to set sail for Norway. As of Thursday morning, the JS INEOS Intrepid was docked at the terminal, preparing to take on its ethane cargo. The terminal, located on the Houston Ship Channel, is the second to open in the United States, and has an export capacity of up to 200,000 barrels of liquefied ethane per day, of which about 90% is contracted.

The United States’ first ethane export terminal, at Marcus Hook, Pennsylvania, has been shipping ethane cargoes since March of this year.

Ethane can either be extracted along with other natural gas plant liquids and sold separately, or left in the processed gas and sold as part of the natural gas stream. Recent rapid growth in natural gas production from resources rich in NGPL has yielded higher quantities of ethane than the U.S. market can absorb, leading to growing amounts of ethane left in the processed gas stream. Increased ethane exports could slow or reverse this trend.

Natural gas produced in the Marcellus and Utica formations, located primarily in Pennsylvania and Ohio, respectively, tends to be rich in ethane. The Marcus Hook terminal sources all of its ethane from these formations. Some of this Appalachian ethane likely will be delivered to Morgan’s Point via EPP’s Appalachia-to-Texas Express (ATEX) pipeline, which moves ethane from gas fractionation plants in the Marcellus and Utica to the company’s storage complex in Mont Belvieu, Texas.

Ethane cargoes from the United States are used as feedstock in European ethylene crackers. Shipments currently go to the cracker in Rafnes, Norway, which is run by the petrochemical manufacturer INEOS. A cracker at Stenungsund in Sweden, owned by Borealis, is expected to begin receiving ethane from Marcus Hook later this year, while another INEOS cracker in Grangemouth, Scotland, is scheduled to come online in the fall and will receive ethane deliveries primarily from Morgan’s Point.

Wow, It Never Quits -- Update Of The Sasol Complex Near Lake Charles, LA -- August 26, 2016

Does anyone remember this post from December, 2012?

December 4, 2012: Link to Oil & Gas Journal.

Sasol will proceed with front-end engineering and design for an integrated gas-to-liquids plant and ethane cracker with downstream derivatives at the company’s site near Lake Charles, LA.

The GTL plant will be the first of its kind in the US and produce 4 million tonnes/year (tpy; 96,000 b/d) of transportation fuel, including GTL diesel and other chemicals.

Sasol’s own feasibility study proposed the Louisiana plant produce GTL diesel, GTL naphtha, LPG, GTL base oils, paraffin, linear alkyl benzene, and medium and hard wax. 

Sasol estimates current project costs for the plant at $11-14 billion. The project will be delivered in two phases, each consisting of 48,000 b/d. The first phase is to begin operations in 2018, the second in 2019.

We now have an update.

Sasol Ltd. has completed a detailed review of its integrated ethane cracker and downstream derivatives complex under construction in Westlake, LA, near Lake Charles, the results of which confirm a $2.1-billion increase in costs from the company’s original estimate of $8.9 billion at the time of reaching final investment decision (FID) on the project in October 2014.

Initiated in March, the review—which involved verifying details and quantities of about 60,000 individual line items based on actual costs, detailed engineering, benchmarking against other projects, as well as actual field construction productivity factors—indicates a revised overall capital cost of $11 billion for the Lake Charles Chemicals Project (LCCP), including site infrastructure and utility improvements, Sasol said.

Back Down To 30 Active Rigs In North Dakota -- August 26, 2016

Active rigs:

	8/26/2016	08/26/2015	08/26/2014	08/26/2013	08/26/2012
Active Rigs	30	75	195	185	189

Six new permits:

• Operator: MRO
• Field: Reunion Bay (McKenzie)
• Comments: looks like two separate 3-well pads in NESE 22-151-94; the wells are Loren, Whitebody, LaMarr, Joshua, Jorgenson, and Jerome.

Eleven permits renewed:

• Zavanna (7): seven Hunter permits in McKenzie County
• QEP (4): four MHA permits in Dunn County

One producing well completed:

• 30389, 278, SM Energy, Robert 1-15HS,

Six permits canceled:

• Slawson (5): two Jeriyote; one Mooka, one Atlantis, and one Submariner, all in Mountrail County
• Hess (1): one HA-Grimestad well in McKenzie County

US 2Q16 GDP At 1.1% -- First Revision (Second Estimate) -- August 26, 2016

Link here at Reuters:

U.S. economic growth was a bit more sluggish than initially thought in the second quarter as businesses aggressively ran down stocks of unsold goods, offsetting a spurt in consumer spending.

Gross domestic product expanded at a 1.1 percent annual rate, the Commerce Department said on Friday in its second estimate of GDP. That was slightly down from the 1.2 percent rate reported last month.

The revision also reflected more imports than previously estimated as well as weak spending by state and local governments. The economy grew at a 0.8 percent pace in the first quarter. It grew 1.0 percent in the first half of 2016.

The revision to second-quarter GDP growth was in line with economists' expectations.

The economy has struggled to regain momentum since output started slowing in the last six months of 2015, which puts it in danger of stalling.

And then the article devolves into how well the economy looks going forward.

I assume Janet Yellen had these figures earlier this week. After all, "the revision to second-quarter GDP growth was in line with economists' expectations" and I would assume she considers herself an economist. 

That last phrase: "puts [the economy] in danger of stalling." And the Fed will raise rates when?

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The Market

This is pretty cool. Overnight and just before the opening bell, Dow futures had been negative or flat, maybe slightly positive.

Just before the opening bell, we get the bombshell:

• 2Q16 GDP revised downward, down to 1.1%
• the economy is in danger of stalling

And the Fed will raise rates when?

I wrote that about an hour ago, then left to go biking. Now, an hour later, I check the market, and it's up 100 points.

Gee. I wonder what can explain the market today? As my dad used to say: you get three guesses and the first two don't count.

Closing: for all the hysteria, the market closed down a whopping 0.3% or about 53 points for the Dow 30. Meaningless. NYSE:

• new highs: 196
• new lows: 11

Mid-day trading: the Dow is down about 100 points. NYSE:

• new highs: 182
• new lows: 9

Mid-day trading: the Dow is down about 100 points ("after Yellen's speech"). Well, that's a pretty superficial soundbite. I think there's much more to this.

• the market is looking to correct
• investors are looking for any excuse to take profits
• with other news released today (2Q16 GDP revised downward; "serious challenge for the economy"), Yellen's speech is already "old news." If it's not "old news" and she made that statement with the knowledge of the "serious challenge for the economy" and 2Q16 GDP revised downward, and she still talks about raising rates, she is seriously out of touch with reality; 
• if we close less than 100 points down, that's only "background noise"

Opening. Dow up almost 100 points. NYSE:

• new highs: 163; XLNX (Nasdaq);
  new lows: 5

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The Apple Page

Tim Cook is on the cover of Fast Company this month, with this banner: "Apple's Moment of Truth."

Really?

Apple's $53 billion in net income last year was greater than the combined earnings of technology behemoths 

• Facebook Inc.;
• Google’s parent Alphabet Inc.;
• Amazon.com Inc.; and, 
• Microsoft Corp.

I don't know what others think, but that is simply astounding. Apple's net income is great than the four of those combined. 

Puts Things Into Perspective -- August 26, 2016

Renewables include hydroelectricity, biofuels, wind, solar, and Willie Nelson's restaurant grease. Note the dramatic increase in "renewables" in 2015 compared to 2009:

Highway And Road Construction Update For Boomtown, USA -- August 26, 2016

From The Williston Herald, updates on Williston road construction:

• Trinity Christian school will delay opening until Tuesday after Labor Day due to nearby road construction.
• Dakota Parkway to 26th street, both directions; paving; the new intersection will be a "T" with stoplights allowing traffic to go both left and right from either direction.
• The small Sixth Street access point to Dakota Access will be eliminated.
• These changes will provide a better, safer approach to the new high school (west side of town). 
• Truck traffic has been moving to the truck bypass around Williston, alleviating much traffic congestion.
• A turn lane will be added at 42nd Street, near Walmart.
• Construction later this year, next for 32nd Avenue; and, at the 26th Street and Second Avenue Intersection.
• Near the new 26th Street and Dakota Parkway access point, there is a city road project that is nearing completion: the frontage road near Sears and Roosevelt Hotel; this stretch will be paved "this weekend."
• The city has just opened the second mile of 11th Street.

China's Peak Oil Problem; We Endorse Renewable Energy -- But Not In Our County -- San Bernardino, California -- Los Angeles Times -- August 26, 2016

Note: there is an interesting convergence of five articles today (which are all linked below):

• the RBN Energy article
• the Permian article
• The Street article
• STACK, SCOOP
• the Iran article

Whether there "is something going on" or whether this is simply coincidental, we will see. I foreshadowed all of this -- purely serendipity -- in a "not ready for prime time" posting on August 19, 2016 -- just one week ago.

And then add this sixth article: China's decline in oil production echoes globally.

China’s struggling oil sector has entered a challenging new phase: long-term decline of its domestic production.

Oil production in China likely peaked last year at around 4.3 million barrels a day, according to new data and interviews with industry executives. The development has significant implications globally, including the potential for higher crude prices over time as China steps up imports to meet rising demand at home.

“The turning point that we’ve been searching for, for years, is happening now,” said Kang Wu, vice chairman for Asia at energy consultancy FGE. As an oil producer, he said, “China is entering long-term stagnation and decline.”

If folks recall, Prince Salman was in China this past week.

From the EIA today:

Members of the Organization of the Petroleum Exporting Countries (OPEC) earned $404 billion in net oil export revenue in 2015. These earnings represent a 46% decline from $753 billion earned in 2014.

Although these net export earnings include Iran's revenues, the net export revenue is not adjusted for possible price discounts that Iran may have offered its customers between late 2011 and January 2016, when nuclear-related sanctions targeting Iran's oil sales were in place. --- EIA

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Active rigs:

	8/26/2016	08/26/2015	08/26/2014	08/26/2013	08/26/2012
Active Rigs	31	75	195	185	189

RBN Energy: E & P upstream CAPEX bottoms, signs of growth emerge.

In their second quarter 2016 earnings announcements, North American exploration and production companies (E&Ps) announced relatively minor changes to the steep reductions in 2016 capital budgets they unveiled around the first of the year. Total 2016 “finding and development” spending for 46 leading U.S. producers was an estimated $41.0 billion, down 51% and 70% from investment in 2015 and 2014, respectively, and slightly lower than the $41.9 billion forecast for 2016 spending in year-end 2015 announcements. The second-quarter reports over the past few weeks also confirmed the initial guidance of a 4% production decline in 2016 after 7% and 6% increases in 2014 and 2015.  However, as we discuss today, a look behind the headline numbers indicates that cuts in capital expenditures (capex) look to have bottomed out, and that the industry may be poised for a turnaround in drilling activity later this year into 2017.

One important sign of this apparent turnaround is a more than 20% increase in the U.S. drilling-rig count since the last week in May. That gain reverses two years of steady weekly declines, although the current count of 496 rigs represents only one-quarter of the number operating at the peak in mid-2014. While the Permian Basin accounts for the majority of the new rigs, signs of renewal are popping up in other basins like crocuses emerging from snow-dusted lawns in early spring.

Before we take a closer look at the current trends, let’s review how we got here. RBN Energy has been closely following industry investment since the beginning of 2015.

Back in May 2015, we provided an overview of the 2015 capital spending and oil and gas production trends for our “universe” –– a select group of the 30 largest U.S.-based E&P companies –– based on guidance given during the first quarter of 2015. Our goal was to understand how companies are responding to the challenge of lower oil prices in their capital spending (i.e. drilling) and expectations for production (productivity). We divided the universe into four peer groups: Small/Mid-Size Oil-Weighted E&Ps, Large Oil-Weighted E&Ps, Diversified Natural Gas-Weighted E&Ps, and the Appalachian Gas-Weighted E&Ps.

Later, we did a deeper dive analysis into the two oil-weighted peer groups in the study. We found that the Large Oil-Weighted E&Ps were cutting back by a lower percentage than the Small/Mid-Sized Oil-Weighted E&Ps because the bigger players are generally more financially secure and are better able to fund investment through the price cycle. The Small/Mid-Sized Oil-Weighted E&Ps, meanwhile, were focused on aligning spending with cash flows, with the aim of self-funding capital investment.

Then, we analyzed the natural gas-weighted peers. Our analysis revealed that the U.S. diversified natural gas companies were slashing capital spending in light of weak profitability, which in turn dampened production growth. In contrast, the Appalachian gas producers were the most profitable group in our analysis because they were slashing costs while still increasing their output.

In August 2015, we updated our analysis to reflect second quarter 2015 guidance and noted that the Small/Mid-Sized Oil-Weighted E&Ps were the only peer group growing capital spending given the weak oil and gas price environment.

Later, we updated our analysis of all peer groups based on year-end 2015 earnings releases and 2016 guidance issued by our 30 target companies. In our most recent update, we highlighted that oil and gas production finally started to level off after nearly two years of crushing capital spending declines.

Permian land rush. Land buyers stampede into Texas oil patch.  Wall Street's rush to Permian Basin is sign that long-awaited recovery in oil and gas prices maybe in the offing.

E & P companies target potential of STACK, SCOOP plays. Rigzone:

Seeking opportunities economic at lower oil prices, some oil and gas firms are ramping up investment and activity in the STACK (Sooner Trend Anadarko Basin Canadian and Kingfisher Counties) and SCOOP (South Central Oklahoma Oil Province) plays in Oklahoma.

In June, Marathon Oil Corp. said it would acquire PayRock Energy Holdings LLC, a producer operating in the Anadarko Basin STACK play, for $888 million from venture capital firm EnCap Investments. Marathon’s acquisition of STACK assets – which Marathon President and CEO Lee Tillman called in a June 20 press release one of the best unconventional U.S. oil plays – is part of the company’s strategy for coping with low oil prices.

Devon Energy Corp. has also expanded its investment and activity in the STACK play; this includes its acquisition late last year of Anadarko Basin assets from Felix Energy LLC for $1.9 billion. Devon plans to deploy an additional $200 million in capital for its 2016 upstream program in the STACK and Delaware Basin, where it said it might add as many as seven operated rigs during the second half of 2016, the company said in an Aug. 3 press release.

Operators are still testing the limits of the STACK play, which was discovered by Newfield Exploration Co. In the STACK, oil and gas companies are testing the oily potential of the Mississippian-aged Meramac moving west as well as the Osage and shallower, Pennsylvanian-aged Oswego northeast. This year, the play – the core of which exists where Kingfisher, Canadian and Blaine counties meet – has been among the most resilient in terms of rig count. Van Slyke attributed this resiliency to operators drilling to test new opportunities and to hold acreage by production.

This will be the last time oil is "down." -- The Street. 

We've tried to work inside a very long-term and a relatively short-term strategy when it comes to investing in the oil space: Inside the long term, we've been identifying the winners from the losers in the coming fresh oil boom, which I believe will send prices above $100 by the end of 2017. In the short term, we've noticed the vagaries of the financially and rumor-driven oil price that has prematurely inflated many of those stocks, and we've taken a break from investing in those companies until a better value price can be found. 

Now that a good part of the rumor mill has quieted down and the speculative trade has as well, we're starting to see oil move again toward the mid to low $40s.
This, however, will be the last time down for oil -- and your last opportunity to target some great oil companies.

Iran oil production stall ahead of OPEC talks. Why does this not surprise me? Iran's production levels have taken on heightened significance in recent weeks, as OPEC gets ready for talks next month on oil output.

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NIMBY

San Bernardino County rejects a controversial solar power plant proposed for Mojave Desert. In The Los Angeles Times:

he San Bernardino County Board of Supervisors has rejected a controversial solar plant proposed for the Mojave Desert’s Soda Mountains, citing concerns that the project would destroy habitat and block ancient trails used by bighorn sheep for thousands of years.

In a 3-2 vote, the board on Tuesday declined to certify documents required under state law in order to issue county permits for the project on public land along Interstate 15 near the entrances to Joshua Tree National Park and Death Valley National Park, and less than a mile from the Mojave National Preserve.

“We endorse renewable energy, but this was the wrong project in the wrong location,” said Supervisor Robert A. Lovingood. 

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America's Mountain Of Cheese

US government will buy a bit of cheese to support prices. There must be a presidential election this year.

I remember not too long ago, it seems, there were stories how expensive cheese had become. Yup, that was back in 2014, just two years ago. Glad to see that the Obama administration is making a decisive move to get back into dairy supports.

Government's purchase of cheese won't amount to anything.