Making Texas Great Again -- September 5, 2018

Making Texas great again: see notes below regarding Canadian railroad ordering 60 more locomotives from GE. It turns out that these locomotives will be made in the GE plant in .... Ft Worth. Beautiful, beautiful facility and beautiful, beautiful location.


Fast and furious:

• Mother Nature canceled hurricane season this year: Gordon blew through becoming nothing more than a summer shower; next drenching won't enter the Gulf for ten days.
• Open book test: we've been talking about this ever since the TransMountain Pipeline Expansion project was killed -- CN orders 60 more locomotives from GE Transportation. Didn't GE sells it GE rail business?  See next data point.
• Exit. Under the terms of the deal, GE -- in a story dated just four months ago-- will be required to unload its "railroad" stake within three years, making an exit from the rail business.

  GE's rail business was booming in 2014 thanks in part to high prices for metals and oil. However, the industry hit a snag in recent years as commodities slumped, leading GE to decide to back away.

• CNI dropped 1.5% yesterday; paying 1.55% 
• Permian growth to slow: according to Schlumberger; due to takeaway constraints. Saw the same thing in the Bakken at this point in the cycle. Yawn.
• How important is the Trans Mountain Pipeline for Canada? Justin sums it up nicely:
  

  Speaking at an event in Vancouver today, Prime Minister Justin Trudeau said his government is committed to moving ahead on the project "in the right way" — but did not offer a timeframe.

  "All we have to do is look at the headlines to understand that being a prisoner to the United States for our resource exports, knowing that right now we only have one market, the U.S., for our oil exports, is simply not a wise strategy for Canadians moving forward," he said. "We need to get new markets for our oil resources."

  [Comment: his very nuanced/calm response suggests he is, behind the scenes, scrambling to get this done.]

• Graphic of the day: at this link. X-rated; for adults only. Sort of.

Overused but I need some music to feed my brain (with apologies to Hunter S. Thompson) --

I Won't Back Down, Tom Petty
API weekly crude oil inventories, this afternoon: link here. The build of 1.551 million bbls was slightly greater than the 1.460 million bbls forecast. Mostly background noise, in the big scheme of things.

Costs to drill an oil well: from 2016, but looks pretty good.

Making America great again: two Louisiana projects would double US LNG exports -- wow, see below.

Tariffs? What tariffs? From Reuters. China appears set to once again boost its purchases of liquefied natural gas (LNG) for the northern winter, but unlike last year's rush, this time the process is likely to be more organised and stable.

**********************************

Back to the Bakken

One well coming off the confidential list today (it was miserably cold and harsh in North Dakota six months ago):

Wednesday, September 5, 2018

• 34232, SI/NC, Crescent Point Energy, CPEUSC Lloyd 3-27-34-157-100W MBH, Marmon, no production data,

Active rigs:

$69.10→	9/5/2018	09/05/2017	09/05/2016	09/05/2015	09/05/2014
Active Rigs	62	57	33	75	196

RBN Energy: Venture Global's two Louisiana projects would double US LNG exports.

December 15, 2024: Plaquemines up and running. Link here.

The race is on to be the first to reach a Final Investment Decision (FID) for the next round of U.S. liquefaction/LNG export terminals along the Gulf Coast. And like the Kentucky Derby, being first — or, at worst, second or third — is a do-or-die proposition, because only a very small number of these projects are likely to line up the multibillion-dollar commitments needed to push them over the FID line.

The tried-and-true approach of LNG project financing has been to secure a stack of long-term Sales and Purchase Agreements (SPAs) from international LNG trading companies or huge overseas utilities, and that’s the tack being taken by Venture Global LNG, which is developing two projects near the Louisiana coast that, if built, would consume a total of nearly 4 Bcf/d of U.S. natural gas. Today, we continue our series on the next round of liquefaction/LNG export terminals “coming up” with a look at Venture Global’s Calcasieu Pass and Plaquemines projects.

This is the third episode. Earlier we reviewed the dramatic shift in U.S. expectations regarding LNG a few years back. Through the 1990s and the first two-thirds of the 2000s, U.S. natural gas production was close to flat, so the general thinking was that U.S. gas output had peaked, and that over time, increasing amounts of LNG would need to be imported to keep pace with gas demand. In 2005, the Energy Information Administration (EIA) estimated that the U.S. would be importing the LNG equivalent of nearly 12 Bcf/d by 2015 and 18 Bcf/d by 2025, and a number of LNG import terminals were built to handle the expected inflow. 

It became clear by 2010-11, however, that the Shale Revolution — and the resulting boom in U.S. gas production — had eliminated the need for LNG imports. In a flash, many of the companies that had just finished building LNG import terminals started exploring the possibility of adding liquefaction plants at those sites to export LNG instead. Since then, six liquefaction/LNG export projects advanced to FID and construction — Cheniere Energy’s Sabine Pass and Corpus Christi, Dominion’s Cove Point, Cameron LNG, Freeport LNG and Elba Liquefaction — and five liquefaction trains (four at Sabine Pass in southwestern Louisiana and one Cove Point in Maryland) with a combined capacity of more than 23 million tonnes per annum (MMtpa) are up and running. 

Then, we did a deep dive on Tellurian’s Driftwood LNG, a 27.6-MMtpa liquefaction/LNG export terminal planned for an 800-acre site in Louisiana’s Calcasieu Parish, south of Lake Charles. 

Several aspects of Tellurian’s project bear repeating here. One is that, in contrast to the large-scale liquefaction trains now operating at Sabine Pass and Cove Point and under construction along the Gulf Coast (generally with capacities of 4 MMtpa or more each), Driftwood LNG will consist of as many as 20 much smaller, modular-based trains (1.38 MMtpa each). Also, Tellurian is acquiring natural gas reserves that will be tapped to produce gas for the LNG project, and it is developing two 2-Bcf/d long-haul pipelines (Permian Global Access Pipeline, or PGAP, and Haynesville Global Access Pipeline, or HGAP) — and a 96-mile, 4-Bcf/d connector called Driftwood Pipeline — to deliver most of the natural gas that the Driftwood trains will demand. 

Most important, perhaps (and most relevant to today’s discussion of the Venture Global LNG projects), is that to help finance its project Tellurian is seeking a handful of customer/partners that would take a combined 60% to 75% equity interest in Driftwood Holdings, which consists of Tellurian Production Co. (a gas producer), Driftwood Pipeline Network (the pipelines discussed above) and Driftwood LNG Terminal (the liquefaction trains and export docks). Those stakes — at an estimated cost of about $1.5 billion per MMtpa of liquefaction capacity — would give the customer/partners equity LNG at the tailgate of the liquefaction trains at cost, with the variable and operating costs estimated to be about $3.00/MMBtu FOB (free on board — that is, with the LNG owner responsible for shipping the LNG to its destination). Tellurian will retain the remaining 25% to 40% equity interest in Driftwood Holdings, and will market its share of LNG production on its own. It also will manage and operate the pipelines, liquefaction trains and export docks.