Is The Bakken Heading Toward A Crude Oil Pipeline Overbuild? -- RBN Energy -- July 29, 2019

How desperate is China for more oil? China still taking Iranian oil despite tougher US sanctions. In addition, I bet China is getting a great deal -- a steal, some would say -- from Iran.

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Pipeline Negotiations in Mexico

Updates

August 27, 2019: Reuters is reporting that issues between Mexico and US pipeline companies have been resolved. 

Original Post

 

Mexico: Rigzone has a nice little update. Things do not look good. This has huge implications for the "southern surge," something we've discussed before. This is most concerning at so many levels, not just for investors (in the note below, CFE is the state utility -- think a nationalized Con Ed on steroids):

Although now the go-to fuel for power and industry, there is simply no national gas strategy in Mexico. Instead, the focus of the AMLO administration is on new crude oil production and refineries – both too expensive for Pemex, already over $100 billion in debt. In addition, supported by AMLO, CFE has been using arbitration hearings to try and nullify terms for 25-year contracts in natural gas transportation. The argument is that CFE should not have to make capacity payments for delayed pipelines not yet operating.

Even when a start-up date is announced, there is just too much uncertainty. For example, TransCanada and IEnova’s 2.6 Bcf/d undersea Sur de Texas-Tuxpan, running 480 miles from Brownsville, Texas, to Tuxpan, Veracruz state in southeastern Mexico, should already be in operation. But just on July 3, CFE blocked the start of commercial gas flows until the transport contract that anchored construction is renegotiated. All of this is obviously giving even more pause to potential investors and pushing a mature Mexican gas market farther out of reach.

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Mexico Refinery

Mexico: from Bloomberg, the refinery. I believe this was posted previously but it's still important enough to post again, just in case.

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Back to the Bakken

No wells came off the confidential list this past weekend and none are scheduled to come off today. This is the longest stretch I have seen of no wells coming off the confidential list. We wll see new wells tomorrow, however.

Active rigs:

$56.21	7/29/2019	07/29/2018	07/29/2017	07/29/2016	07/29/2015
Active Rigs	58	62	61	35	73

RBN Energy: is the Bakken heading towards a crude oil pipeline overbuild? Part 2. Archived.

Bakken crude oil production surpassed 1.4 MMb/d this spring and has maintained a level near that since, even posting a new high just shy of 1.5 MMb/d in April 2019. The rising production volumes have filled any remaining space on the Dakota Access Pipeline (DAPL) and prompted midstream companies to step up expansion efforts to alleviate the pressure, even as questions linger about the possibility of a pipeline overbuild if all of the announced capacity gets built. Specifically, the market is weighing the need for the recently announced Liberty Pipeline and a DAPL expansion. Today, we look at these two new projects and what their development means for the supply/demand balance in one of the U.S.’s biggest shale basins.

What we do know is that until new pipeline capacity out of the Bakken comes online, there will be more and more Bakken barrels that won’t find a home on existing pipeline systems. Based on our forecast growth, there could be up to 200 Mb/d of stranded crude that needs to move via rail out of the Bakken heading into early 2020, before either Liberty or a DAPL expansion gets completed. And as more barrels transition from pipeline pricing to rail pricing, Bakken differentials could widen as well, moving in tandem with the higher cost to transport crude via rail.