Rigs Don't Matter -- Laying Down Rigs, Shutting In Wells, And Still It Rises -- And So Do Exports .... Natural Gas -- Part 2 -- May 30, 2020

In response, I suppose, to my post earlier today: rigs don't matter -- US natural gas production continues to increase, a reader sent me a note. But before we get to that note, a reminder of what I wrote earlier:

Natural gas fill rate, link here. Look at these numbers, simply staggering. And this comes despite the industry "shutting down" as fast as it can:

• working gas storage: an increase of 109 BCF from the previous week
• working gas storage: an increase of 42% year-over-year
• working gas storage: an increase of 19% over 5-year-average (and the 5-year average keeps increasing)

Not entirely true, but from my perspective, the three major US shale oil plays are actually giving the US shale natural gas plays a run for their money.

Over the past few weeks, I have caught some of the stories regarding the US natural gas industry but a reader really, really put it into perspective. So, while protesters tear down the US and drive to their destinations in SUVs running on inexpensive, readily accessible, and consistently pure-grade gasoline or diesel fuel, this is what "their" US energy sector is doing. Again, a huge "thanks" to the reader for putting this all together:

• Deals:
• Ukraine just signed purchase agreement for US LNG for annual out put of one (1) standard LNG train (~5 mtpa); the Ukraine is in Russia's backyard;
• Turkey is not repairing the damaged gas pipeline from Iran and, instead, is purchasing US LNG
• likewise, US LNG is cheaper than piped Gazprom pricing (~$7/mmbtu) and so Turkey is also reducing LNG from Russia 
• the Yamal-Poland gas pipe currently not flowing supply as Poland ramps up purchases of US LNG
• both Algeria and Egypt have greatly curtailed exports of natgas due to low pricing.
• Customers such as Cyprus, Croatia, Italy, Hungary are either now switching to US LNG purchases or are planning to
• Qatar is struggling to extend LNG supply contracts to both India and Pakistan as their ~$7/mmbtu prices are higher than current ~$4/$5 spot mostly sourced from USA 
• Singapore is not renewing contracts to receive piped gas from nearby Malaysian and Indonesian suppliers as  US LNG prices are so much lower 
• the reader's favorite: the world's leading LNG exporter - Australia - may start IMPORTING LNG from US into Port Kembla by next year.
• Reader's comments:
• people seem generally oblivious to the ultra-low cost to extract US 'shale' natgas, liquefy it, and transport it in ships that use the "boil off gas" for fuel (essentially cost free fuel).
• just as the Saudi government is pinched for oil-connected revenues, other global players are starting to be squeezed in a BIG way by competition from US LNG.

My comments:

Those are amazing data points; I had no idea of the "immensity."

I had seen a few of these data points over the past few weeks but I only caught a few of them. When all of them are put together, as you note, it's a reminder (for lack of a better word) how incredibly dominant the US energy sector really is.

Some years from now, I suspect, the current demand destruction issue / COVID-19 pandemic will be seen as a speed bump and at best a footnote in America's energy history.

Boil off gas (link here): 

European Natural Gas: Dutch-German Flows At Record highs -- May 27, 2020

Locator: 10010GRONINGEN.

Updates

January 8, 2024: the Dutch will go back to the Groningen. Worse cold snap in decades in Europe -- Europe could run out of the stuff with which Europeans heat their homes, including natural gas.

July 30, 2021: natural gas prices surging in Europe; severe shortage, and it could get worse. 

May 28, 2020: Natural gas prices cratering.

• pricing:
• HH: Henry Hub, US pricing
• JKM: Asia pricing
• TTF: Netherlands pricing 

Original Post

 

The blog concentrates on US shale crude oil. I've never understood natural gas very well, but, wow, there's a lot going on in natural gas, just as in the crude oil sector.

Without question, when the history is written, the tectonic changes in global energy that occurred in 2020 will certainly merit a chapter of its own.

Some odds and ends.

From ArgusMedia, data points:

• natural gas flows from Holland to Germany are hitting monthly highs, due to:
• German nuclear power plant maintenance; and, 
• incredibly inexpensive natural gas
• Dutch discount on natural gas is widest in a decade
• last year, same month (May): the Netherlands was a net importer of natural gas from Germany
• and get this: German imports increased even as Dutch power demand rose
• see Groningen at this link; or search "Groningen" on the blog; 

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

Groningen

Output at Europe's giant Groningen gas field plunges in December, 2019, dents Dutch stocks -- S&P Global Platts, January 15, 2020, link here.

• Dutch gas stocks fall below 2018 levels; well below the European average
• a production cap has been put in place to prevent earthquakes linked to gas extraction at Groningen and the Dutch government plans to phase out gas extraction at the field completely by mid-2022.
• the rapid decline in production of gas from Groningen will continue to make the Netherlands increasingly dependent on LNG and pipeline gas imports from Norway and Russia

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For The Archives

This is old news but I was not interested in it at the time. But juxtaposed with this, posted a few days ago, makes it very topical:

Natural gas -- who would have thought? Oil plays with major impact on natural gas. This is very, very interesting. Anyone paying attention saw it coming but I haven't seen many analysts talking about it until now, but the monthly EIA dashboards foreshadowed it all.

At the linked article:

• Shell is exiting natural gas play in Pennsylvania
• Swepi LP, E&P arm of Netherlands-based Royal Dutch Shelll
• selling its Pennsylvania assets to National Fuel gas Co for $541 million
• 450,000 acres in northern PA, along with 350 wells
• $541 million / 450,000 acres = $1200 / acre
• in the dry gas area that does not produce ethane
• Shell looking for ethane to turn into plastic at its petrochemical plan under construction in Potter, PA
• the new Pennsylvania Petrochemicals Complex
• 6,000 construction jobs; 600 permanent employees
• and that connects the Bakken dot -- remember all those Bakken stories about ethane rejection?
• Shell burst onto the Appalachian scene in 2020 with a blockbuster acquisition of Marshall-based East Resources
• $4.7 billion deal
• ushered in a wave of megadeals that brought the world's majors to Pennsylvania
• many are now leaving
• Chevron is looking to sell its Appalachian portfolio; 890,000 acres in the Marcellus and Utica 
• Pennsylvania, West Virginia and Ohio

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Very Familiar?

Chris Stapleton's Tennessee Whiskey and Etta James' I'd Rather Go Blind.

Tennessee Whiskey, Chris Stapleton
From wiki:

American singer-songwriter Chris Stapleton recorded an R&B-influenced cover of the song for his debut studio album Traveller released in 2015.bStapleton first sang his version on the spur of the moment while the band were playing during a soundcheck before a show in Charlottesville, Virginia.

Now Etta James:

I'd Rather Go Blind, Etta James
I've posted the Etta James song numerous times on the blog. See Tell Mama / FAME, Muscle Shoals, Alabama at wiki.

I love the ease of finding / playing music with all the new technology (iTunes; Alexa, etc) but I do have to admit when listening to Etta James after midnight, I do miss the days of the vinyl LP. There's something to be said for a library of cardboard slips, with the great cover art, and the liner notes inside.

If I had had all the money in the world, I would have built a huge house with one huge room dedicated to hanging all those great album covers. For one list of the top 50 greatest album covers, link here. See if your favorite album cover made the list. Mine did not. Having said that, it would be impossible to limit the list to fifty.

One section of one wall would have been devoted to the Blondie album covers. I still have four of them stored away somewhere.

Long ago, in a faraway place, in a previous life, a wonderful woman, well before I ever heard of Etta James, but it's Etta James that transports me back to that time and place. Pretty amazing.

Another Day With No New Permits -- February 13, 2020

Congrats!! Lynn Helms gets a shout-out from the EIA. Link here.

North Dakota provides regulatory guidance to reduce natural gas flaring.

Natural gas production in North Dakota reached 3.1 billion cubic feet per day (Bcf/d) in November 2019, a more than ten-fold increase compared with January 2010 levels.

In the first 11 months of 2019, North Dakota flared about 20% of its natural gas production, or 0.56 Bcf/d, which is 40% higher than in 2018. Increases in natural gas production are primarily related to associated gas produced from oil wells in the Bakken formation. Flaring refers to combusting natural gas in the atmosphere instead of capturing and processing natural gas in a processing plant.

North Dakota implemented natural gas capture goals in 2014 to limit the amount of natural gas flared into the atmosphere. Natural gas processing capacity has increased alongside crude oil production but has lagged behind the growth in associated natural gas production. The state natural gas capture target—currently at 88% and set to increase to 91% in November 2020—has not been met in every month since March 2018. In the most recent data month, November 2019, only 83% of natural gas produced in North Dakota was captured.

Insufficient natural gas processing capacity has placed constraints on crude oil production, and oil producers are looking for ways to comply with natural gas capture targets.

According to the North Dakota Pipeline Authority, natural gas processing plant capacity additions in 2019 increased total capacity by 0.71 Bcf/d to reach 3.1 Bcf/d. They expect an additional 0.9 Bcf/d of natural gas processing to enter service during 2020 and 2021. These additions will support crude oil production growth, but the new capacity may fill up faster than anticipated.

On November 15, 2019, the North Dakota Industrial Commission (NDIC), the regulatory entity that oversees the state’s flaring reduction rules, held a hearing to consider both how to raise natural gas capture levels using alternative natural gas capture strategies and how to provide regulatory clarity in natural gas gathering agreements. According to the North Dakota Pipeline Authority, about three-fourths of flaring is associated with oil wells connected to natural gas gathering pipelines.

Much, much more at the link.

Active rigs:

$51.60	2/13/2020	02/13/2019	02/13/2018	02/13/2017	02/13/2016
Active Rigs	55	63	58	36	41

No new permits.

permits renewed: pending.

permits canceled: pending.

Two producing wells (DUCs) reported as completed (see this note):

• 36524, n/d, Slawson, Challenger Federal 9-29-32H, Big Bend, F, t--; cum 13K over 9 days; extrapolates to 42K over 30 days;
• 30177, n/d, Slawson, Muskrat Federal 5 SLTFH, Big Bend, F, t--; cum 10K over 6 days; extrapolates to 48K over 30 days;

Natural Gas Pipeline Constraints -- Update -- January 11, 2020

I don't follow natural gas closely enough to understand all this, but this article over at Platts seems to be fairly straightforward.

The link.

These are the summary data points:

• southbound corridors from Carthage, Perryville becoming constrained 
• estimated 1.5 Bcf/d capacity remains from Midwest, Northeast, Permian 
• summer-2020 Gulf Coast demand growth anchored by LNG liquefaction

Too much natural gas (and that amount is increasing) from Carthage, Perryville; not enough pipeline capacity to get the natural gas to Louisiana and east Texas. Producers have to cut costs to get access on pipeline. From the northeast, natural gas prices are, apparently, running ten to twenty-four cents behind Henry Hub prices. Farther afield, from the northeast and the midwest (think Bakken), the discount is even greater -- Chicago is 22 cents below Henry Hub while Dominion South is as much as 42 cents below Henry Hub.

As summer approaches, the situation will worsen; producers will do what it takes to get their product in the pipeline, and the discounts will widen.

While flow data along much of the North-to-South corridor appears to suggest ample capacity to reach the Gulf Coast, bottlenecks actually exist closer to locations like Henry Hub and Houston Ship Channel.

From the article:

For Midwest and Northeast gas flowing to the Gulf Coast on key interstate corridors – ANR Pipeline, Columbia Gulf Transmission, Natural Gas Pipeline Co. of America, Tennessee Gas Pipeline, Texas Eastern Transmission, Texas Gas Transmission, Trunkline Gas and Transcontinental Gas Pipe Line – congestion south of Carthage in West Louisiana and south of Perryville in the state's northeast will pose serious constraints to gas moving southbound next summer.

According to Platts Analytics, approximately 500 MMcf/d of available capacity remains between Carthage and Houston Ship Channel on Gulf South Pipeline, NPGL, Tennessee and Texas Eastern.

From Perryville to Henry Hub, a combined 83% utilization rate last summer on ANR Pipeline, Columbia Gulf, Tennessee, Texas Gas and Trunkline left about 1 Bcf/d of available capacity along the other key southbound corridor.

Including the eastbound corridor from the Permian Basin, Platts Analytics estimates that last summer, roughly 1.5 Bcf/d of spare capacity to Houston Ship Channel and Henry Hub remained from West Texas, Carthage and Perryville.

Compared to summer 2019, demand along the East Texas and Louisiana Gulf Coasts is forecast to rise about 4 Bcf/d, anchored principally by the growth in LNG liquefaction activity.

[So, if I'm reading this correctly, there may be 1 Bcf/d of available capacity, but demand is likely to rise above 4 Bcf/d -- if I'm reading that correctly -- holy mackerel -- that's a huge gap.]

At Freeport LNG, the startup of commercial service at Train 2 and Train 3 is expected by February and June, respectively.

At Cameron LNG, Train 2 and Train 3 are scheduled to enter service by April and August.

Along with a higher anticipated utilization rate at Cheniere Energy's Sabine Pass, LNG producers will likely require an incremental 3.5 Bcf/d of gas this summer compared to last.

Additional factors weighing on the region's available supply include stronger demand from Gulf Coast power generators and industry, as well an anticipated decline in Gulf Coast and offshore gas production.

Compared to last summer, though, more supply should be delivered to the East Texas and Louisiana Gulf Coast region from Kinder Morgan's 2 Bcf/d Gulf Coast Express, which entered service last September.

Hmmmm....one of my regular readers knows the natural gas pipeline story very, very well from an investment point of view. It will be interesting to see if she/he has anything to add regarding this story.

Disclaimer: this is not an investment site.  Do not make any investment, financial, career, travel, job, or relationship decisions based on what you read here or think you may have read here. 

KMI:

• currently trading at $21.51
• from one year ago, up from $17.32 one year ago
• pays 4.73%
• target: $22.27

See Motley Fool -- ten largest pipeline companies by enterprise value.

WMB:

• currently trading at $23.50
• from one year ago, down from $25.45
• pays 6.36%
• target: $27.46

OKE:

• currently trading at $75.53
• from one year ago, up from $60.96
• pays 4.84%
• target: $75.68

This article is two years old, but provides a nice overview. Look at the discounts (two cents to ten cents) back in 2017 and then compare them to the discounts, in 2020, noted above.

Growing demand along the Gulf Coast from industrial projects and exports have driven up Houston Ship Channel basis relative to Henry Hub from a discount of $0.02 in the summer of 2017 to a premium of $0.11 for May 2017. While Houston Ship Channel and Henry Hub prices are both much stronger year over year, pricing at Carthage and Perryville have seen discounts to Henry Hub widen to $0.10 back.

It sounds like the discounts will be "bad" on the pipelines leading into Carthage and Perryville, but the discounts will be even greater on the pipelines between Carthage/Perryville and Henry Hub.