February 2012 Archives

It was almost like a bidding war at the Platts North American Crude Marketing conference in Houston on its first day today, with bullish projections flying around the room on the ultimate impact the shale revolution would have on US and North American liquids production.

Private equity appears to be back with a vengeance. The question, will history repeat itself?

Two big deals in the past few days--Apollo Global Management's $7.15 billion for El Paso's E&P business, and Blackstone's $2 billion investment in for Cheniere's natural LNG export effort--suggest an aim further upstream than PE has been attracted to in the past.

Japan faces a dilemma. It has to balance its changed energy needs in the aftermath of the Fukushima disaster with the more urgent matter of cutting its imports of Iranian crude oil to avoid being shut out of the US financial system.

Whatever the outcome of discussions with Washington on the extent of the reduction in imports from Iran, Japan faces longer term energy security issues because of its heavy reliance on Middle Eastern crude, a vulnerability that has been exposed further with recent threats by Iran to block the Strait of Hormuz.

It is clear that gasoline prices will be a major issue in this year's presidential race.

The battle lines are also clearly drawn: Republicans (backed by industry voices such as the American Petroleum Institute) say the key to lowering pump prices is to increase domestic production. They blast President Barack Obama for "closing" offshore and onshore federal lands to drilling.

Democrats say it's not that simple. Gasoline prices are tied to oil prices, which are set globally and react to more complex factors such as Iranian saber rattling and the growing demand in places like China.

There is ample room for genuine debate, of course.

Earlier this month, the Washington, DC law and lobbying giant Patton Boggs announced that recently retired Commodity Futures Trading Commission member Michael Dunn had joined the firm as a senior policy adviser.

The announcement was interesting, considering that Dunn had not discussed his post-CFTC career plans publicly, but was certainly not a shock given the post-agency paycheck choices of nearly every commissioner who left the CFTC since it was created by Congress in 1974.

"The Ethicist" is a column in The New York Times Magazine that handles often tricky questions of morality. It tends not to tsk-tsk, and the issues tend to feature many shades of grey.

Fracking made an appearance in the February 19 issue; here's the discussion.

Last week, the crude glut in the US Midwest became the gasoline glut. Consumers may finally benefit.

For months, as crude supplies pouring out of the Canadian oil sands and North Dakota's Bakken built up at the Cushing, Oklahoma crude market delivery point, refiners in the US Midwest enjoyed tremendous margins. For example, the simple gasoline crack in the Midwest was almost $40/b in early September. It dropped into the single digits from there, but with the collapse in Midwest crude prices, margins soared again; Platts' Jeff Mower reported just a few days ago that the Midwest WTI cracking margin closed Friday at $22.99/b, up $3.60/b week-on-week, while the cracking margin for Canadian Syncrude jumped a whopping $21.88/b to $44.21/b.

That was great for refiners, but there was no sign consumers were benefiting.

But with the same breathtaking fall that saw crude prices slide, product prices in the Chicago spot market have fallen. They've fallen a lot.

As many in the petrochemical industry will tell you, the much-touted shale gas revolution has been a blessing for some and a curse for others.

Count US propylene as part of the latter, some in that market say. That said, if the industry plays its cards right, it doesn't have to be.

For people who cover the US federal government and its sprawling bureaucracy for a living, the roll-out of the president's annual budget request can be a bit like Christmas and a bit like an Easter-egg hunt. Trawling through the thousands of pages of budget documents and sitting through budget briefing can yield charming revelations--and sometimes horrors--large and small.

This year, among the surprises was learning that even though the US Department of Energy has managed multi-billion dollar budgets for decades, and has funded 112 Nobel Prize-winning scientists, it has just recently figured out that it could save money by setting its printers to print on both sides of the paper.

Let's just play make-believe, OK?

Just for a second, pretend about half of the states did not actually ban methyl tertiary butyl ether, aka MTBE. Imagine the nation's half million-plus underground storage tanks (USTs) are all perfectly enclosed and sealed; not a molecule can escape. What if refiners did not dismantle a majority of MTBE plants and US refiners still had those production units?

Is there any possible way that MTBE can find its way back into the US gasoline pool?

Gary Sick's views on Iran have a lot of critics, who tend to view him as an apologist for the Iranian regime. (Here's another example.) 

It's not new: his New York Times piece on the "October surprise" was a sensation when first penned during the 1980 Presidential campaign (Wikipedia has a balanced summary of the theory here). He said Monday evening at the New York Energy Forum that Jimmy Carter was fired by the American people (ed. note: changing from original Jimmy Carter was "fired" from office that year by Ronald Reagan) because of the holding of hostages by Iranian militants; the state of the US economy probably had a lot more to do with that, though the hostage crisis certainly was a factor.

Q: Which is the only one of the world's biggest economies which saw its GDP shrink in the fourth quarter of 2011 but is nonetheless witnessing higher oil demand than a year ago?

Consumers paying gasoline prices derived from roughly $100 WTI or $115 Brent are going to find this hard to believe, but there's one place in the oil market where suddenly, there is way too much crude. And prices are showing it. 

That area is Alberta and North Dakota, and the prices for crudes out of those regions have collapsed in the past two weeks in a fall relative to the rest of the world that is almost unprecedented. Even as WTI moved further below Brent last year, it didn't have the type of rapid collapse now being seen from those regions.

February is shaping up nicely for US Midwest refiners, who are enjoying robust margins courtesy of another Brent/WTI spread blowout.

The Midwest WTI cracking margin averaged $21.82/barrel the first six business days of the month, up from a January average of $15.17/b, according to Platts data and Turner, Mason & Co. yield formulas.

When US state utility regulators meet in Washington next week for their annual winter conference, one of the themes they will cover -- to a larger or smaller extent -- will be states versus the Federal Energy Regulatory Commission.

One state regulator is throwing down a big glove, the Constitution, in what reads like a profoundly felt fist-shaking against efforts to plan and pay for power systems more centrally.

For anyone observing from the outside, Saudi Arabia's petrochemical manufacturers would seem little more than a vast, cash generating machine. Given that it has the world's largest hydrocarbon reserves and a huge line-up of investments (estimates hover in a wide range of $20 billion to $100 billion over the next five years) from both prosperous government and foreign investors, it's an image that's hard to argue against.

However, the financial results for the fourth quarter of 2011 of many of these Saudi companies reveal a very different picture indeed. While petrochemical giant like Sabic showed a drop in net income Q4 2011, others, like Saudi Kayan and Petrochem, in fact showed net losses.

Saudi Arabia's petrochemical industries index dropped 1.65%, or 103.12 basis points year-on-year on December 31, 2011 to 6232.93.

By Margaret McQuaile and Kate Dourian

Who will be OPEC's next secretary general after Abdalla el-Badri, who will finish his second three-year term in the job at the end of this year? OPEC kingpin Saudi Arabia has nominated its former OPEC governor Majid Moneef but it's unlikely that he will be the only candidate.

You might think that choosing a secretary general to run the Vienna secretariat would be a fairly simple affair. But it's not. Politics and geopolitics tend to spill over from crude output policy into the process of filling the group's top job.

Not everyone standing on the sidelines is cheering Australia's play to challenge Qatar as the world's largest LNG producer by the middle of this decade.

LNG is a boom industry in Australia, with eight new projects currently under construction, worth a total of more than $175 billion. The new projects will add capacity of nearly 70 million mt/year to Australia's existing LNG industry, which comprises the Woodside Petroleum-led 16.3 million mt/year North West Shelf joint venture and the 3.6 million mt/year Darwin LNG
plant, operated by ConocoPhillips.