more on US LNG export capacity additions, another record for crude supplies, et al

oil prices finished lower this week, but still remained in the same $2 trading range that they’ve been in for most of this year… prices barely budged on Monday, as US crude for April rose 6 cents, or 0.1%, to settle at $54.05 a barrel while the expiring April contract for Brent crude, the international benchmark price, fell 6 cents, or 0.1%, to $55.93 a barrel…US crude futures then gave up 4 cents of their Monday gains in trading on Tuesday, as traders anticipated that the after market release of oil industry inventory data from the American Petroleum Institute would show an eighth consecutive increase in US crude supplies…oil prices then slipped 18 cents to $53.83 as the expected inventory build materialized, but its impact was muted by news that OPEC compliance with the pledged output cuts had risen to 94% in February…prices then fell more than 2 percent on Thursday to close at $52.61 a barrel after news that Russian crude production remained unchanged in February, therefore meaning they were still producing 200,000 barrels per day more than they had promised…oil prices then found support on Friday after reports emerged that extra production cuts by the Saudis put OPEC compliance near 100%, and went on to close the week at $53.33 a barrel, up 72 cents for the day but still down 66 cents for the week…

natural gas prices, meanwhile, were up every day this week after Monday, but still ended lower than their February 17th print and more than 28% below their post Christmas high….while there is typically little daily news to indicate the underlying reasons for natural gas price changes, Monday saw April natural gas prices fall to $2.693 per mmBTU, after last week’s March contract expired at $2.787 per mmBTU…from there it climbed to $2.774 per mmBTU on Tuesday, to $2.799 per mmBTU on Wednesday, to $2.804 per mmBTU on Thursday, and finally to $2.827 per mmBTU on Friday, up 5 cents from last week, despite the fact that the weekly natural gas storage report showed a net increase of 7 billion cubic feet for the week ending February 24th, the first time surplus gas was ever added to storage in February

of course, these daily quotes are for April natural gas at the Henry Hub in Louisiana, and actual natural gas selling prices vary widely across the country….at the time Henry Hub gas for March was selling for at $2.62/MMBtu on Wednesday, down 77 cents month over month, gas at the Algonquin city gates in Ontario was trading at $3.26/MMBtu, down $4.13 month on month, gas at the New England border was selling for $2.98/MMBtu, while three large terminals in the Appalachians saw gas below $2…that depressed price for Appalachian natural gas is a function of still inadequate pipeline capacity, which keeps natural gas prices for heating and electricity in our region lower than the rest of the country, while simultaneously slowing further increases in drilling and associated fracking…we can expect that advantage to end soon, given the pipelines that are now under construction, or soon to start….

the EIA’s Natural Gas Weekly Update for the week ending March 1, 2017 featured a ‘news for the week’ headline of “U.S. liquefaction capacity continues to expand“, and since our own focus of last week’s newsletter was on the expansion of LNG exports, we’ll start today with a graph from that EIA weekly report, which will provide us with a timeline for the expansion of that export capacity..

March 4 2017 LNG capacity additions under construction

the above graphic, taken from this week’s Natural Gas Weekly Update, shows the expected completion time and the natural gas capacity for each of the liquefied natural gas (LNG) trains now under construction in the US…each of these trains are color coded as to which LNG plant they are part of, and the size of the bar represents the capacity in billions of cubic feet of gas per day that the train is expected to process when it’s completed…briefly, each of these “trains” takes raw natural gas as it comes out of the delivery pipeline and removes all the impurities that are normally in the raw gas that can’t be included in LNG because they freeze at different temperatures than methane, then lowers the temperature of the pure methane to approximately −260 °F, at which point the gas becomes liquid and thus takes up about 1/600th the volume of natural gas in the gaseous state…it is then stored in supercooled tank farms at the terminal until it is ready to be loaded onto ocean going tankers…(btw, if LNG should ever come in contact with even cold water, it will explode to 600 times its volume)

the sky blue bars above represent trains 4 and 5 of the Sabine Pass LNG facility at Sabine Pass, Louisiana, on the Gulf of Mexico at the Texas border, which now has three LNG trains already in operation…the “nameplate capacity” of each of the Sabine Pass trains is 0.7 billion cubic feet of gas per day, but the three existing trains are now processing 2.3 billion cubic feet of gas per day, so i assume these capacities aren’t cast in stone…the 4th train of Sabine Pass is expected to be operational in the 3rd quarter of this year, and thus will shortly boost our national natural gas exports up to 3.0 cubic feet of gas per day…following that, train 1 of the export facility at Cove Point Maryland, indicated by the brown bar, is expected to add another 0.7 billion cubic feet of gas per day of liquefaction and export capacity in the 4th quarter of this year….Cove Point was originally an LNG import and storage terminal, so what were once distribution pipelines from that facility will now be the pipelines that will be delivering fracked gas from the Marcellus and Utica shales to that terminal for export..

the rest of the liquefaction and export capacity now under construction will not be complete until the second half of 2018 or later…Elba Island LNG, located in Georgia, is shown in grey and featured in  this week’s Natural Gas Weekly Update…Elba Island will be using a new technology that will consist of ten small-scale liquefaction trains, each with a capacity to liquefy approximately 33 million cubic feet per day (MMcf/d), with 6 to be completed in the 3rd quarter of next year, and 4 to be added at the beginning of 2018, for a total project export capacity of 0.35 billion cubic feet per day…at the same time, the first train of Cameron LNG Liquefaction Project in Hackberry, Louisiana, indicated in green, will add another 0.7 billion cubic feet of gas per day of liquefaction and export capacity in the 3rd quarter of next year, with additional 0.5 billion cubic feet of gas per day trains to be added at that facility in the 4th quarter of 2018 and the 3rd quarter of 2019…Cameron trains 4 and 5, currently on the drawing board, are not included in the above graphic of under construction facilities…

in the 4th quarter of 2018, the first train of the Freeport Liquefaction and Export Project, indicated by orange bars, will be completed, adding another 0.7 billion cubic feet of gas per day of liquefaction and export capacity, and they’ll add similar sized trains in the 2nd quarter and 4th quarter of 2019…they already have 20 year contracts to sell the output of that LNG terminal to Toshiba, BP, Osaka Gas and Chubu Electric, which means they’ll have a claim to US natural gas production before Americans will…lastly, the first two trains of the Corpus Christi Liquefaction facility, shown in a wine color, will be added in the 1st and second quarters of 2019…this was originally an LNG import and regasification terminal run by Cheniere Energy, the parent of the Sabine Pass facility, and is being refitted to liquefy and export LNG…when the plants represented by the graphic above are completed, the US is projected to have a 9.4 billion cubic feet per day liquefaction and export  capacity, the third largest in the world, just behind that of Australia and Qatar…that would represent about 10% of our total natural gas production, assuming there no major changes in our own consumption over the next three years..

The Latest Oil Stats from the EIA

this week’s oil data for the week ending February 24th from the US Energy Information Administration indicated that our imports of crude oil increased from the prior week’s depressed levels, that our refinery activity also increased from last week’s two year low but remained below normal, and that we again had a surplus of crude added to our stockpiles for the 8th week in a row, which were thus at another an all time high…our imports of crude oil rose by an average of 303,000 barrels per day to an average of 7,589,000 barrels per day during the week, while at the same time our exports of crude oil fell by 490,000 barrels per day to an average of 721,000 barrels per day, which meant that our effective imports netted out to 6,868,000 barrels per day for the week, 793,000 barrels per day more than last week…at the same time, our crude oil production rose by 31,000 barrels per day to an average of 9,032,000 barrels per day, which means that our daily supply of oil, from net imports and from wells, totaled an average of 15,900,000 barrels per day during the week…

meanwhile, refineries reportedly used 15,664,000 barrels of crude per day during the week, 393,000 barrels per day more than during the prior week, while at the same time, 214,000 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 used or stored 22,000 less barrels of oil per day than were accounted for by our net oil imports and oil well production…therefore, in order to make the weekly U.S. Petroleum Balance Sheet balance out, the EIA inserted a phantom -22,000 barrel per day number onto line 13 of the petroleum balance sheet, which the footnote tells us represents “unaccounted for crude oil”…that “unaccounted for crude oil” 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.”, which means they got that balance sheet number by backing into it, using the same arithmetic we just illustrated.....

the weekly Petroleum Status Report also tells us that the 4 week average of our oil imports fell to an average of 8.185 million barrels per day, now just 5.1% higher than the same four-week period last year…meanwhile, the 4 week average of our oil exports was at 881,000 barrels per day, which is noted as 122.5% higher that a year earlier…that apparent big jump in our oil exports has led some in the media to suggest our oil exports are replacing those oil exports held off the global markets by OPEC…however, that’s a percentage increase off a very small base, and our year to date oil exports which averaged have 763,000 barrels per day only represent 341,000 more barrels per day than last year’s average of 421,000 barrels per day….at the same time, our oil imports have increased by 413,000 barrels per day from a year ago, from an average of 7,871,000 barrels per day during the first 8 weeks of 2016 to an average of 8,284,000 barrels per day this year….what appears to be happening is that we are exporting light sweet crude which we have an abundance of, and importing heavier sour crudes which our refineries are optimized to use…so while our oil exports may rise as we unload our surplus light oil, because we’re importing even more oil to replace what we’re exporting, our exports are not a threat to the OPEC cuts..

meanwhile, this week’s 31,000 barrel per day oil production increase was facilitated by a 32,000 barrel per day increase in oil production in the lower 48 states, while at the same time oil output from Alaska fell by 1,000 barrels per day…our crude oil production of 9,032,000 barrels during the week ending February 24th was the most we’ve produced since mid-March of last year and was only a half percent lower than the 9,077,000 barrels of crude per day that we produced during the week ending February 26th of last year, while it remained 6.0% below our record for oil production of 9,610,000 barrels per day that we set during the week ending June 5th 2015  ..

US refineries were operating at 86.0% of their capacity in using those 15,664,000 barrels of crude per day, up from 84.3% of capacity the prior week, but down from the year high of 93.6% of capacity seven weeks earlier, when they were processing 17,107,000 barrels of crude per day….their processing of oil is also still down by 1.2% from the 15,852,000 barrels of crude that were being refined during the week ending February 26th, 2016, when refineries were operating at 88.3% of capacity….but even with the refinery pickup, gasoline production from our refineries was little changed, rising by just 27,000 barrels per day to 9,456,000 barrels per day during the week ending February 24th, which as it turns out was 1.3% more than the 9,335,000 barrels per day of gasoline that were being produced during the week ending February 26th a year ago, when gasoline output inexplicably slumped for a week…at the same time, refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 288,000 barrels per day to 4,755,000 barrels per day, which was still a bit less than the 4,801,000 barrels per day of distillates that were being produced during the week ending February 26th last year… 

with the nominal increase in our gasoline production, the EIA reported that our gasoline inventories fell by 546,000 barrels to 255,889,000 barrels as of February 24th, as our domestic consumption of gasoline inched up by 23,000 barrels per day to a still below normal 8,686,000 barrels per day, while our gasoline exports rose by 43,000 barrels per day to 891,000 barrels per day and our gasoline imports rose by 90,000 barrels per day to 457,000 barrels per day…however, even with this week’s inventory draw down, our gasoline supplies were at an all time high for the 3rd week in February, as they were up slightly from the 254,989,000 barrels of gasoline that we had stored on February 26th of last year, while they were 6.6% above the 240,060,000 barrels of gasoline we had stored on February 20th of 2015… 

even with the large increase in our distillates production, our supplies of distillate fuels also fell, decreasing by 925,000 barrels to 165,133,000 barrels by February 24th, which was still much less of a drop than the 4,924,000 barrel drawdown of distillates last week…that was as the amount of distillates supplied to US markets, a proxy for our consumption, fell by 479,000 barrels per day to 3,813,000 barrels per day, and as our imports of distillates rose by 81,000 barrels per day to 210,000 barrels per day, while our exports of distillates rose by 277,000 barrels per day to 1,284,000 barrels per day….even so, our distillate inventories are still 0.4% higher than the distillate inventories of 160,715,000 barrels of February 26th during the warm winter of last year, and 33.5% above the distillate inventories of 122,976,000 barrels of February 27th, 2015…  

finally, with the increase in our net oil imports significantly larger than the increase in refinery demand, we again had surplus crude remaining, and hence our inventories of crude oil rose for the 8th week in a row to yet another record, as they increased by 1,501,000 barrels to 520,184,000 barrels by February 24th…thus we ended the week with 8.6% more crude oil in storage than the 479,012,000 barrels we ended 2016 with, 6.9% more crude oil in storage than the then record 486,699,000 barrels we had stored on February 26th of 2016, 26.8% more crude than the 410,246,000 barrels of oil we had in storage on February 27th of 2015 and 56.5% more crude than the 332,453,000 barrels of oil we had in storage on February 28th of 2014…so you can all see what those record supplies look like, we’ll include a picture of the interactive graph that accompanies the ending stocks of crude oil page at the EIA, which is much easier to understand than the complicated graphs on this that we’ve featured recently…

March 4 2017 crude supplies for February 24th

This Week’s Rig Count

US drilling activity increased for the 17th time in 18 weeks during the week ending March 3rd, but just barely….Baker Hughes reported that the total count of active rotary rigs running in the US increased by just 2 rigs to 752 rigs in the week ending on this Friday, which was still 267 more rigs than the 489 rigs that were deployed as of the March 4th report in 2016, but far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014…

the count of rigs drilling for oil rose by 7 rigs to 609 rigs this week, which was up from the 392 oil directed rigs that were in use a year ago, but down from the recent high of 1609 rigs that were drilling for oil on October 10, 2014…meanwhile, the count of drilling rigs targeting natural gas formations fell by 5 rigs to 146 rigs this week, which was still up from the 97 natural gas rigs that were drilling a year ago, but down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008…there also remained a single rig that was classified as miscellaneous, which is marked as a 1 rig increase from a year ago, when there were no such miscellaneous rigs at work…   

one more drilling platform was added to those working in the Gulf of Mexico this week, this time offshore from Texas, which brought the Gulf of Mexico count up to 18, still down from 24 during the same week of 2016…that also brought the total US offshore count for the week up to 18 rigs, all in the Gulf of Mexico, down from 24 offshore rigs a year ago, when they also were all in the Gulf of Mexico…

the number of horizontal drilling rigs working in the US increased by 9 rigs to 633 rigs this week, which is now up by 244 horizontal rigs from the 389 horizontal rigs that were in use in the US on March 4th of last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…at the same time, a net of 1 vertical rig was added this week, bringing the vertical rig count up to 62, which was also up from the 58 vertical rigs that were deployed during the same week a year ago…on the other hand, 8 directional rigs were taken out of service during the week, cutting the directional rig count back to 61, which was still up from the 42 directional 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 March 3rd, the second column shows the change in the number of working rigs between last week’s count (February 24th) and this week’s (March 3rd) count, the third column shows last week’s February 24th 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 4th of March, 2016…        

March 3 2017 rig count summary

as you can see above, the rig count increases this week were in the oil basins that saw their largest expansion earlier in the decade and have been more or less ignored recently, as the Permian and the SCOOP / STACK in Oklahoma’s Cana Woodford have been in ascendancy….the Eagle Ford of south Texas, which once hosted 259 rigs, added 5 this week to bring their total back up to 69 rigs, while the Williston basin of North Dakota, home of Bakken crude, which had 224 rigs at that time, added 3 rigs this week to get their count back up to 38 rigs…meanwhile, the three major gas basins, the Marcellus, the Utica, and the Haynesville, each saw one rig pulled out, while 2 gas rigs were also removed from unnamed “other basins”…since Pennsylvania saw a 2 rig decrease and the Ohio rig count remained unchanged at 19 rigs, it’s apparent that the Utica shale rig which was shut down this week had been drilling in Pennsylvania..

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