August 2011 Archives

This week's Energy Information Administration analysis again shows more evidence of SPR crude flowing into the market. But what's interesting is that for an economy that is showing plenty of signs of weakness, diesel demand remains healthy.

Diesel, far more than gasoline, is the fuel of economic activity. And though many signs point to a slowdown in the economy as a whole, diesel consumption isn't falling as part of that bearish barometer. You can see Linda Rafield's analysis here.

There's lots of talk about higher gasoline prices in the wake of Irene.

As we sit here on Saturday afternoon, there is some good news for consumers. A review of some other numbers might be more troublesome for consumers, however. 

In the latest installment of the joint Platts/Oil Council podcast "Oil Matters," the focus is on shale gas.

But it's not one more chapter in the "shale gas is creating an energy revolution" story. Rather, it's how the low price of natural gas in the US as a result of supplies from the shale are about to start hurting some gas consumers. The financing that allowed some merchant power plant to be built sometimes included hedges that assumed a higher natural gas price. With those hedges coming off, it counter-intuitively can be bad news for the facilities' owners, even though they are buyers of natural gas.

Iskender H. "Alex" Catto, a partner with McDermott Will & Emery LLP in New York, spoke with Platts' John Kingston about his forecast. You can listen to it here.

Crude imports dropped and crude runs increased. It's simple math: US crude inventories fell as a result. Linda Rafield's analysis of this week's EIA inventory report is here.

Come September 16, the Northeast US will undergo its annual transition from using costly low RVP gasoline to relatively cheaper higher RVP gasoline, as per rules set forth by the Environmental Protection Agency. RVP stands for Reid Vapor Pressure and simply refers to the ease at which the gasoline evaporates. EPA regulates the RVP of gasoline sold at retail stations during the summer ozone season (June 1 to September 15) to reduce evaporative emissions from gasoline that contribute to ground-level ozone. 

A billion barrels here. A billion barrels there. Pretty soon you're talking about a lot of oil. 

When it comes to ExxonMobil's Julia discovery in the Gulf of Mexico, however, the only projection the company actually has ever provided is one vague word: "significant."

But that didn't stop industry analysts and journalists from freaking out recently at the language used by ExxonMobil lawyers in a lawsuit against the US government contesting rejection of an extension on the company's lease at that prospect. More specifically, in the first paragraph of their pleadings, the legal team charged the rejection is "depriving ExxonMobil of the right to produce a reservoir believed to hold billions of barrels of oil."

Platts' monthly estimate of Chinese apparent oil demand shows a rebound in July compared to June, not surprising given that many refineries came out of maintenance.

But the broader number to keep your eye on is the month-to-month comparison over a 12-month period. That's the figure that consistently ran double digits for many years, but has been sliding recently. For July, it's just under 7%. You can see the full report here.

In this week's Platts Oilgram News column, Washington editor Gary Gentile writes in "Regulation & The Environment" that one post-Macondo perspective is that nothing is significantly different in the wake of the spill.

As the debate continues over whether the US State Department will approve the cross-border permit needed to build the Keystone XL Pipeline (some past stories here and here), there are plenty of other initiatives that can break the logjam at the Cushing, Oklahoma delivery point of the New York Mercantile Exchange crude contract.

(Update: this posting reflects the cancellation by Enterprise and Energy Transfer Partners of its planned Cushing-Houston pipeline, announced shortly after the blog was initially posted.)

There's been a long lament even in these times of high unemployment: you just can't get good people in the oil and gas business.

We're not really sure if this development is going to hurt or help that fact. But we just couldn't let it pass unnoticed.

Addendum: a similar story was passed on, this one from the Eagle Ford.

When the International Energy Agency announced a release of strategic stocks in June -- with the US Strategic Petroleum Reserve providing the biggest share -- there was controversy that continues today. Will it have any impact on prices? Shouldn't this wait for something bigger than just the loss of Libyan crude? Isn't the market well-supplied already?

Those answers are still very much a matter of judgment and opinion. But one thing is clear: the oil is definitely out there. The released barrels from the SPR were front and center in this week's Energy Information Administration inventory report, which Platts' Linda Rafield comments on here.

Amid all the media attention on shale gas drilling regulation at the state and federal levels, much of the real activity is happening at the local -- and sometimes hyperlocal -- level.

If you're confused about the brewing war of words between IntercontinentalExchange and NYMEX parent company CME Group over proposed conditional spot limits in energy and other commodity markets, you're likely not alone.

The proposal, after all, makes up all of three paragraphs of the Commodity Futures Trading Commission's more than 28,000 word proposal to set up position limits for derivatives and has barely been mentioned within the more than 13,200 comments the agency has received on the proposal since it was unveiled in January.

The devastating March 11 earthquake has led Japan to review its energy policy in general, and its nuclear policy in particular, amid ongoing safety concerns. The government's eventual decision on nuclear policy will affect Japan's energy portfolio in general, but the country may also need to review its oil policy, especially regarding fuel oil use, at least in the short term.

It's becoming increasingly clear that Japan will need more crude, fuel oil and LNG as direct-burning feedstocks for power generation over the next few years as more nuclear reactors are shut down for maintenance. No reactors have been restarted since the earthquake.

With crude markets down anywhere from $20/b to $30/b over the last weeks -- depending on where you start to measure -- it's always interesting to see what the rock-hard bulls at Barclays Capital have to say about the market.

The oil market tea leaves are clearly hard to read right now, even for a forecaster as experienced as the International Energy Agency.

In its latest monthly report, published August 11, the IEA raised its estimate of oil demand growth in 2012. If you think this is odd, given the near daily diet of gloomy economic news, then don't worry, it looks like the IEA thinks so too.

Rising oil prices, the loss of Libyan crude exports and, more recently, expectations of higher demand for OPEC crude in the second half of this year have combined to push OPEC production to 30 million b/d in July, according to the latest Platts survey of OPEC and oil industry officials and analysts.

It's the highest monthly volume since December 2008's 30.74 million b/d. Whether production will continue its upward march is questionable, however, given the way oil prices have see-sawed over the past couple of weeks. North Sea Brent crude futures traded at $98.74/barrel earlier this week, the first time they have fallen below $100/b since February.

TransCanada CEO Russ Girling can rattle off a batch of numbers without taking a breath: 20,000 jobs, 118,000 spinoff jobs, $20 billion in economic stimulus and $5.2 billion in incremental tax revenue to states.

Those are the benefits that the pipeline company says will flow into the United States from Canada's oil sands if the Department of State allows it to build the Keystone XL pipeline. The 1,660-mile system would carry crude from Alberta to the Texas Gulf Coast.

Last week, the Commodity Futures Trading Commission's two Republican commissioners sounded a lot like agitated backseat passengers wondering why they couldn't simply stop and ask directions if they were so clearly lost.

Because, CFTC Chairman Gary Gensler responded from the driver's seat, we are not lost.

BHP Billiton's $15 billion purchase of Petrohawk Energy has industry asking who will be the next upstream company to be scooped up by a larger player. Some Wall Street observers are talking of a forthcoming new wave of E&P mergers, as Starr Spencer writes in today's "Petrodollars" column from Platts Oilgram News.

A few weeks ago, a report from Citi projected the WTI/Brent spread blowing out to $40, with the two crudes blasted apart by the growing production of oil out of the Bakken and Canada, with no easy access to the world's oil markets. But it also foresaw the widening ending around 2013, when Keystone XL and other pipelines should (might?) be online. The bottleneck at the NYMEX delivery point of Cushing, Oklahoma would be broken.

Now, leading energy economist Philip Verleger has gone a step beyond that. He too, thinks the spread could go to $40. But he thinks it could go even wider.

The Australian LNG industry's protestations that the federal government's planned carbon tax will put it at a competitive disadvantage to other exporters such as Qatar, Malaysia and Indonesia are starting to ring a little hollow.

There's no denying that a carbon tax is an impost that Australia's regional competitors will not have to bear, but the prospect is clearly not putting the brakes on investment in what has been a booming LNG sector based on conventional and unconventional gas resources on both sides of the country.

By October 1, the three rival groups wanting to develop pipelines to carry Azerbaijani gas to Europe must make their final submissions.

It must be a nightmare, preparing the documentation for their bids. They each know the strengths and weaknesses of their rivals; they each know that none of their bids will perfectly suit Azerbaijan's requirements. How do they know this? They know it because for years they've taken part in countless panels to consider the merits-and faults-of each proposal. If any one of them had even come close to developing a clearly superior system, they would have already secured Azerbaijani agreement for a new export line.

A rather steep decline in natural gas production from US Gulf of Mexico is being overshadowed by the rise of shale gas from onshore plays in several states, a fact made more stark by the first tropical storm this year -- Don -- that impacted output.