Trump orders expedited approval of Keystone XL and Dakota Access pipelines, US gasoline demand at another 35 month low, et al

as you’ve probably heard, Mr Trump has been quite busy this week.  among several other actions, he signed two diktats on Tuesday to advance the construction of the Keystone XL and the Dakota Access pipelines, both of which had been halted under the Obama administration…the Trump Keystone XL Memorandum declared that construction of the Keystone pipeline was in the national interest, formally invited TransCanada to re-submit its application to the State Department for a Presidential permit for the construction of the pipeline, and directed the relevant agencies to expedite the approval of their application….the Trump Memorandum Regarding Construction of the Dakota Access Pipeline also declared that the construction of that pipeline was in the national interest, and directed that “the Secretary of the Army shall instruct the Assistant Secretary of the Army for Civil Works and the U.S. Army Corps of Engineers to take all actions necessary approve in an expedited manner requests for approvals to construct and operate the DAPL”…those two diktats were part of a series of four pipeline related executive orders that he signed on Tuesday: his first Memorandum on Construction of American Pipelines directed that all manufacturing processes of iron or steel pipeline products used in American pipelines should be produced in the US of American materials, and that was quickly followed by an Executive Order Expediting Environmental Reviews and Approvals For High Priority Infrastructure Projects which directs relevant agencies to establish expedited procedures and deadlines for completion of environmental reviews for port facilities, airports, pipelines, bridges, and highways…

a few days after Trump signed the Keystone XL directive, Transcanada resubmitted their application to the State Department to build the Keystone XL…that application would seem to restart the clock on the whole Keystone pipeline approval procedure, since Obama had officially rejected their previous application in late 2015…so despite whatever intentions the administration has to fast track the project, they’d still have to follow the regulations and review processes that are already part of our laws, and then they’d still have to acquire the land they don’t already have by eminent domain, which could lead to lengthy court battles outside of Trump’s or congress’s jurisdiction…moreover, the economics of the Keystone project have changed considerably since it was first proposed, at a time when oil prices were twice what they are now…64 of the tar sands projects that were on the drawing board when oil prices first started falling have since been cancelled, with many of of the oil companies involved writing off huge sunk costs, so the oil that was to fill the Keystone won’t be there…in addition, the two massive Canadian pipeline projects approved by Canadian Prime Minister Trudeau at the end of last year will already give them more takeaway capacity than the tar sands are currently producing…with oil at $50 a barrel, starting up any new tar sands operations would be unprofitable, since they’re barely breaking even on the operations that are already up and running, so i just don’t see where they get the oil to fill that pipeline…furthermore, both Trump and congressional Republicans are on board with a 20% tax on imports, which would further increase the cost of any tar sands oil brought into the US…theoretically, Transcanada could get around a US import tax by shipping all the Keystone XL oil directly to the Gulf coast, to be exported overseas directly from there, or by sending it to be refined by US refineries that are designated as international trade zones, but all such products thus refined would still have to be exported from those refineries to avoid the import tax…

as far as the Dakota Access pipeline goes, as of this week, Trump’s appointment of billionaire Wall Street trader Vincent Viola as Secretary of he Army has yet to be approved by the full Senate, and Jo-Ellen Darcy, an Obama appointee, has been the Assistant Secretary of the Army for Civil Works since 2009, while Lieutenant General Todd Semonite took command of the Army Corps of Engineers on May 19 of last year…so until Trump has his team in place, the directive to expedite the DAPL is unlikely to go anywhere fast…after that, it’s a good bet that the pipeline could be held up by legal action, as both the Standing Rock Sioux tribe and the nonprofit group Earthjustice have vowed to sue….if it is approved, and if it gets past any lawsuit after that, it’d only be a matter of months before it’s operating…the Dakota Access subsidiary of Energy Transfer Partners has trenches dug right up to Lake Oahe on both sides, and have the equipment already in place to drill under the lake, a process which could be completed in a few months…north of Lake Oahe, the pipeline has already been filled with Bakken crude, so once the pipeline is completed under the lake, Bakken crude would start to flow south…if that should happen, it would probably reignite drilling in the Bakken, because transport costs from the most remote areas have been adding up to $12 a barrel to the cost of getting Bakken crude to refineries in recent years..

in the few days that have passed since Trump issued those directives, there was news of two major pipeline leaks, almost appropriately with one in Canada and the other in Iowa, about 150 miles northeast of where the Dakota Access pipeline would pass through the state…the Canadian spill, of 200,000 liters of crude, occurred in Saskatchewan, on the land of the Ocean Man First Nation tribe,140 km (87 miles) southeast of the provincial capital of Regina, in an area where there are so many pipelines they don’t yet know which pipeline is leaking or which company owns the pipeline that leaked the oil…meanwhile, in Hanlontown, Iowa, roughly 140,000 gallons of diesel fuel spilled from a ruptured pipeline and pooled in a farmer’s plowed field near the Hanlontown Slough Waterfowl Production Area…AP calls that the largest fuel spill in the US since 2010, and as of this weekend cleanup is still ongoing, with the cause of the break unknown

The Latest Oil Stats from the EIA

this week’s oil data for the week ending January 20th from the US Energy Information Administration showed that both our imports of crude oil and our oil refining fell substantially for the 2nd week in a row, while we again ended the week with a surplus of crude oil that was added to our stored supplies…our imports of crude oil fell by an average of 568,000 barrels per day to an average of 7,810,000 barrels per day during the week, while at the same time our exports of crude oil fell by 105,000 barrels per day to an average of 599,000 barrels per day, which meant that our effective imports netted out to 7,211,000 barrels per day for the week…at the same time, our crude oil production rose by 17,000 barrels per day to an average of 8,961,000 barrels per day, which means which means that our daily supply of oil, from net imports and from wells, totaled an average of 16,172,000 barrels per day during the week…

meanwhile, refineries reportedly used 16,047,000 barrels of crude per day during the week, a decrease of 421,000 barrels per day from last week, while at the same time, 406,000 barrels of oil per day were being added to oil storage facilities in the US…thus, this week’s EIA oil figures seem to indicate that we consumed or stored 281,000 more barrels of oil per day than were accounted for by our oil imports and production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted that phantom 281,000 barrels per day number onto line 13, which the footnote tells us represents “unaccounted for crude oil”…that is further described in the glossary of the EIA’s weekly Petroleum Status Report as “the arithmetic difference between the calculated supply and the calculated disposition of crude oil.”, and hence we’ve been calling it the EIA’s weekly oil fudge factor...

that same weekly Petroleum Status Report tells us that the 4 week average of our oil imports fell to an average of 8.1 million barrels per day, still 4.3% higher than the same four-week period last year…our crude oil production for the week ending January 20th was still 2.8% lower than the 9,221,000 barrels of crude that we produced during the week ending January 22nd of last year, and 6.8% below our June 5th 2015 record oil production of 9,610,000 barrels per day…this week’s 17,000 barrel per day production increase included an additional 16,000 barrels per day of Alaskan production, and a thousand barrel per day increase in output from the lower 48 states…

US refineries operated at 88.3% of their capacity in using those 16,468,000 barrels of crude per day, down from 90.7% of capacity the prior week and down from the year high of 93.6% two weeks earlier, but up from the 87.4% capacity utilization during the same week a year ago, as refineries typically slow down at this time of year…thus, even though the week’s refining was down by more than a million barrels per day from the first week of this year, it was 2.6% more than the 15,639,000 barrels of crude refined during the week ending January 22nd, 2016…..gasoline production from those refineries fell by 128,000 barrels per day to 8,825,000 barrels per day during the week ending January 20th, its lowest in 54 weeks, and hence was 5.9% lower than the 9,377,000 barrels per day of gasoline that were produced during the week ending January 22nd a year ago, and 3.8% lower than the 9,177,000 barrels per day of gasoline produced during the week ending January 23rd, 2015… meanwhile, refineries’ output of distillate fuels (diesel fuel and heat oil) fell by 138,000 barrels per day to 4,575,000 barrels per day…but that distillates production was up by 2.8% from the 4,452,000 barrels per day that were being produced during the week ending January 15th last year, while it was 2.9% lower than the 4,712,000 barrels per day of distillates produced during the same week of 2015, which was during a colder winter than the last two…     

even with the drop in our gasoline production, the EIA reported that our gasoline supplies rose again, by 6,796,000 barrels to 253,220,000 barrels as of January 20th, for what is now a three week jump of more than 26 million barrels in our gasoline inventories since Christmas week…that happened as our domestic consumption of gasoline fell by 30,000 barrels per day to another 35 month low of 8,069,000 barrels per day, following the two prior weeks of the lowest gasoline demand in a year…further enhancing our supplies of gasoline as compared to a week earlier, our gasoline exports were down 49,000 barrels per day to 874,000 barrels per day, while our gasoline imports were up 5,000 barrels per day to 593,000 barrels per day…so our gasoline inventories are now 1.9% greater than the 248,461,000 barrels of gasoline that we had stored on January 22nd of last year, and 6.2% above the 238,335,000 barrels of gasoline we had stored on January 23rd of 2015   

similarly, even with a drop in distillates production, we still managed to add 76,000 barrels to our supplies of distillate fuels, which reached 169,149,000 barrels by January 20th, for a 4 week increase of 18.4 million barrels, at a time of year when distillates are usually being consumed for heat oil…the amount of distillates supplied to US markets, a proxy for our consumption, fell by 450,000 barrels per day to 3,645,000 barrels per day, allowing for the surplus…thus our distillate inventories are 5.4% higher than the distillate inventories of 160,472,000 barrels of January 22nd last year, and 27.5% above the distillate inventories of 132,687,000 barrels of January 23rd, 2015… 

finally, even with big drop in oil imports, there was simultaneously enough of a decrease in the amount of oil we refined that left us with extra oil to store, and hence our inventories of crude oil rose by 2,480,000 barrels to 488,296,000 barrels by January 20th, a level which was was still 4.6% below the April 29th record of 512,095,000 barrels…nonetheless, we still ended the week with 5.3% more crude oil in storage than the 463,552,000 barrels we had stored January 22nd of 2016, and 30.9% more crude than the 373,140,000 barrels of oil we had in storage on January 23rd of 2015…  

This Week’s Rig Count

US drilling activity increased for the 12th time in 13 weeks during the week ending January 27th, with the two week increase in drilling rigs now the largest increase in the past decade…Baker Hughes reported that the total count of active rotary rigs running in the US increased by 18 rigs to 712 rigs in the week ending on this Friday, which was up by 93 rigs from the 619 rigs that were deployed as of the January 29th report last year, but still down from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

drilling for oil in the US increased by 15 rigs to 566 rigs during the week, so oil rigs are now at their highest since November 13th 2015…oil drilling is also up from the 498 oil directed rigs that were working in the US on January 29th last year, while down from the recent high of 1609 oil rigs that were drilling on October 10, 2014…..at the same time, the count of US drilling rigs targeting natural gas formations increased by 3 rigs to 145 rigs, which is up from the 121 natural gas directed rigs that were in use a year ago, while it is still way down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008… 

however, three drilling platforms that had been drilling offshore from Louisiana in the Gulf of Mexico were shut down this week, which reduced the Gulf of Mexico rig count to 20, which was down from 28 rigs working in the Gulf a year ago…our total offshore count for the week was at 21 rigs, with the ongoing drilling operation that was still in the offshore waters of Alaska, but our total offshore was still down from last year’s offshore US total of 28 rigs…meanwhile, two rigs started drilling off of platforms set up on inland lakes in southern Louisiana, which are the only such inland water rigs now active, up from 1 rig on inland waters at this time last year..

the number of horizontal drilling rigs working in the US increased by 20 rigs to 579 rigs this week, which is now up from the 487 horizontal rigs that were in use in the US on January 29th last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the directional rig count was up by 1 rig to 61 rigs as of January 27th, which lifted the directional rig above last January 29th’s count of 58 directional rigs….meanwhile, a net of 3 vertical rigs shut down during the week, reducing the vertical rig count to 72, which was still down from the 74 vertical rigs that were deployed during the same week last year

as usual, the details on this week’s changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes that shows those changes…the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas basins…in both tables, the first column shows the active rig count as of January 27th, the second column shows the change in the number of working rigs between last week’s count (January 20th) and this week’s (January 27th) count, the third column shows last week’s January 20th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this week’s case was for the 29th of January, 2016…     

January 27 2016 rig count summary

once again, this week’s increase in oil well drilling was driven by the ten rig increase in the Permian, which at 291 rigs accounts for more than half of the horizontal drilling going on in the US today…however, were a lot of changes in gas well drilling that don’t show up in the tables above…to start with, the Louisiana Haynesville added 3 gas rigs, while one oil rig in the region was shut down, netting the two rig increase that you see…another gas rig was added in Oklahoma’s Arkoma Woodford, while in the Cana Woodford a gas rig was pulled out while four oil rigs were added….a gas rig was also pulled out of the Eagle Ford in south Texas, where 6 oil rigs were added…an Arkansas Fayetteville and a West Virginia Marcellus gas rig were also removed, while 3 gas directed rigs were added in other basins not shown above…maybe the only surprise is the decrease of 3 oil rigs in the Denver-Julesburg Niobrara chalk of the Rockies front range, which has now dropped below it’s year ago activity level…of the states not shown above, 1 rig was added in Alabama, where they now have 2, up from 1 rig a year earlier, while 1 rig was pulled out of Mississippi, where they also now have 2 remaining, down from 6 rigs on January 29th of 2016…

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