US LNG exports to quadruple in 2 years, use more than half of current gas output if all proposed plants are completed

US oil prices fell for the first time in 3 weeks this week, mostly on news of a surprise increase in US oil inventories, while international prices fell even more, mostly on news of higher global oil output…after rising 8% to $74.15 a barrel last week on US Iran policy and an interruption of Canadian supplies, US crude for August delivery fell 21 cents to $73.94 a barrel on Monday, on news of higher oil output from Saudi Arabia and Russia and concern over the global trade war launched by the US…for those same reasons, the international benchmark Brent crude ended $1.93 lower to $77.30 a barrel, as its late May $11 price premium over US crude has eroded over the past month on higher than expected output from OPEC….US crude prices then rocketed to as high as $75.27 a barrel at the open on Tuesday as oil output from Libya was cut off, but rolled over and fell sharply in mid-morning trading to a low of $72.73 a barrel, before steadying in the afternoon and ending with gain of 20 cents a $74.14 a barrel on the day, while Brent closed 46 cents higher at $77.76 at the same time…after the holiday, US oil prices were rising again on Thursday morning, reaching $74.96 a barrel, before falling steadily in the afternoon to end the day $1.20 lower at $72.94 a barrel, after the delayed EIA oil data unexpectedly revealed the first increase in US crude supplies in a month…US benchmark prices rallied on Friday, however, rising 86 cents to $73.80 a barrel, when data showed that oil inventories at Cushing OK, the delivery point for pricing U.S. crude, fell to their lowest in 3-1/2 years, largely due to an outage at the Syncrude facility in Canada that’s expected to last for a month…at the same time, Brent crude, the international benchmark slipped 28 cents on rising OPEC production to close the week at $77.11 a barrel, thus ending the week only $4.31 a barrel above the US price…

natural gas prices also ended the week lower, initially dropping 6.2 cents to $2.862 per mmBTU on Monday, on data showing record natural gas production, and on expectations for more seasonal weather later in the month, and then ending the week fractionally lower at $2.858 per mmBTU, after the EIA storage report showed a supply increase on the higher side of average estimates….the natural gas storage report for week ending June 29th from the EIA indicated that natural gas in storage in the US rose by 78 billion cubic feet to 2,152 billion cubic feet over the week, which left our gas supplies 717 billion cubic feet, or 25.0% below the 2,869 billion cubic feet that were in storage on June 30th of last year, and 493 billion cubic feet, or 18.6% below the five-year average of 2,645 billion cubic feet of natural gas that are typically in storage after the last week of June…the consensus forecast was for an addition of 75 billion cubic feet to gas in underground storage, so this 78 billion cubic feet increase was fairly close to the consensus, but somewhat higher than the 70 billion cubic foot of weekly surplus natural gas that is typically added to storage at this time of year…however, since natural gas supplies as of end of June were still 1,638 billion cubic feet below the 3,790 billion cubic feet we had stored after the first week of November last year, this week’s 78 billion cubic foot addition to supplies was still short of the 91 billion cubic feet per week we need to see weekly over the next 18 weeks to get our gas supplies back to a normal level before the next heating season’s withdrawals begin…

a few graphics from two different reports on natural gas that were out this week will help put us our natural gas supply situation into perspective…

July 7 2018 first half natural gas supply and demand changes

this first graph is from the EIA’s natural gas weekly for this week, and was part of this week’s feature on natural gas supply and consumption for the first half of 2018, in which they cite data from PointLogic Energy, a natural gas analytical unit of IHS…the blue bar graph shows the change, in billions of cubic feet per day, in US consumption of natural gas between the first half of 2017 and the first half of 2018, while the green bar graph shows the change, in billions of cubic feet per day, in US supply of natural gas between the first half of 2017 and the first half of 2018…according to the accompanying data, total natural gas consumption averaged 87.4 billion cubic feet per day (Bcf/d) in the continental US during the first half of 2018, which was 8.4 Bcf/d (11%) greater than during the first half of 2017….that 8.4 billion cubic feet per day additional demand this year is what’s graphed in blue, and we can see that most of the new gas consumption has been increased residential and commercial use, for electric generation, and for LNG exports…at the same time, US supplies of natural gas averaged 84.8 billion cubic feet per day during the first half of 2018, a 7.8 Bcf/d (10%) year-on-year increase….that 7.8 billion cubic feet per day of new supply is what’s graphed in green, and as you can see, most of it is increased dry gas output from wells, with a small increase of imports from Canada…

what we should take away from that graphic is that US demand for natural gas at 87.4 billion cubic feet per day was greater than our supply at 84.8 billion cubic feet per day, (hence leading to the 25% year over year drop of natural gas in underground storage) and that demand for natural gas has been growing faster than new production is..

at the same time the EIA was publishing that analysis of natural gas supply and demand, S&P Global Platts was issuing a new special report titled Insurgent shale: prospects and perils for US LNG exports (pdf)…suffice it to say that their new report did not consider where new supplies of natural gas would come from, but was largely concerned with the potential for a bottleneck at the Panama Canal if we tried to push all of our proposed natural gas exports through the isthmus at once…while we’re not worried about the potential for a gas tanker traffic jam at the Panama Canal, there were some graphics in that report that should raise our concern…the first is a map and table showing US LNG export plants that have been approved, some of which are under construction or already shipping LNG overseas..

July 5 2018 LNG plants operating and approved

the above map and legend are from page 6 of that Platts report, and show the US LNG facilities that are operating, that are under construction, and those that are approved for construction, but have not yet seen ground broken, and the expected gas processing capacity for each…at the top of the list are the two LNG liquefaction plants that are currently operating and exporting LNG: Sabine Pass on the LA-Texas border, with a listed output of 1.40 billion cubic feet per day, and Cove Point Maryland, with a listed output of .82 billion cubic feet per day…note that since Cove Point just began exporting a few months ago, most of its output doesn’t even show up in the blue bar for increased LNG exports on the EIA bar graph above…according to Platts, we’re currently exporting 2.22 billion cubic feet per day of natural gas in the form of LNG (and more gas exports are also piped to Mexico)

meanwhile, the second grouping on the above list shows the LNG production facilities currently under construction, including another 0.7 billion cubic feet per day at Sabine Pass, 2.10 billion cubic feet per day at Hackberry, Louisiana, 2.14 billion cubic feet per day of liquefaction capacity at Freeport, Texas, 2.14 of capacity at Corpus Christi, and .35 billion cubic feet per day at Elba Island Georgia…together, those plants under construction will represent another 7.43 billion cubic feet per day of natural gas export capacity, some of which will be coming online within a year, and all of which will be completed within two years…that means that by mid-2020, we will be exporting 9.65 billion cubic feet per day of natural gas in the form of LNG, more than quadruple what we are now exporting…recall that during the first half of 2018, our supplies of natural gas from wells and Canadian imports were running at 84.8 billion cubic feet per day, so that means our expected LNG exports will amount to more than 11% of current production by mid-2020…most of these exports are under long term contracts, so they will be supplied first; US consumers who happen to need natural gas for heating on a cold day in the middle of winter will wait in line for whatever gas remains…

in addition, as you can see at the bottom of the table, there are 4 more additional LNG plants that have been approved but are not yet under construction; two at Lake Charles, Louisiana, with a combined draw of 3.28 billion cubic feet per day from our natural gas supplies, another at Hackberry, Louisiana, with a capacity of 1.41 billion cubic feet per day of gas, and another 2.10 billion cubic feet per day at Sabine Pass, on the Texas side of the border…

and that’s just the beginning of what this industry thinks they can do, because there are an additional 16 applications still pending or in pre-filing for LNG export plants, with a combined liquefaction capacity of 28.17 billion cubic feet of natural gas per day, as the map and table below from that Platts report shows:

July 5 2018 LNG plants proposed

should all of these plants be approved and constructed, the total export capacity of all 27 plants shown on the two graphics above would amount to 44.61 billion cubic feet of natural gas per day, if my off top of my head arithmetic is correct…that’s more than half our present daily production, and should we merely continue to use natural gas domestically at today’s pace, it would imply an increase in demand for natural gas of over 50%, far exceeding the most optimistic forecasts for future US natural gas production that i’ve ever seen…in fact, even Platt’s own forecast for natural gas output that accompany this report only indicates a ~23% increase in US natural gas production by 2023, so it appears that the analysts at Platts, like the rest of the industry, have so thoroughly bought into their own hype that they can’t even put two and two together anymore, publishing an inherent contradiction right there in their own data…

The Latest US Oil Data from the EIA

this week’s US oil data from the US Energy Information Administration, covering the week ending June 29th, indicated that due to a big jump in our oil imports and a refinery pullback from the prior week’s record throughput, we had a surplus of oil to add to our commercial crude supplies for the twelfth time in the past twenty-three weeks….our imports of crude oil rose by an average of 699,000 barrels per day to an average of 9,055,000 barrels per day, a 16 month high, while our exports of crude oil fell by an average of 664,000 barrels per day to an average of 2,336,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 6,719,000 barrels of per day during the week ending June 29th, 1,363,000 barrels per day more than the net of our imports minus exports during the prior week…at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 17,619,000 barrels per day during the reporting week…

at the same time, US oil refineries were using 17,653,000 barrels of crude per day during the week ending June 29th, 163,000 barrels per day less than they used during the prior week, while at the same time 178,000 barrels of oil per day were reportedly being added to oil storage in the US….hence, this week’s crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports and from oilfield production was 212,000 fewer barrels per day than what was added to storage plus what refineries reported they used during the week…to account for that disparity, the EIA needed to insert a (-212,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, essentially a fudge factor that is labeled in their footnotes as “unaccounted for crude oil”… (for more on how this weekly oil data is gathered, and the possible reasons for that “unaccounted for” oil, see this EIA explainer)…

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,438,000 barrels per day, which was 6.6% more than the 7,915,000 barrel per day average we imported over the same four-week period last year….the 178,000 barrel per day increase in our total crude inventories was all added to our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve was unchanged….this week’s crude oil production was reported as unchanged despite a 45,000 barrel per day decrease in output from Alaska, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day, to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states, and there was no change in the rounded total….US crude oil production for the week ending June 30 2017 was reported at 9,338,000 barrels per day, so this week’s rounded oil production figure is roughly 16.7% above that of a year ago, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016…

meanwhile, US oil refineries were operating at 97.1% of their capacity in using 17,653,000 barrels of crude per day during the week ending June 29th, down from the 17 year high of 97.5% of capacity the prior week, but still a refinery capacity utilization figure higher than any seen in recent yearsthe 17,653,000 barrels of oil that were refined this week were likewise among the largest refinery throughput figures on record, topped only by the prior two weeks in June and the 17,725,000 barrels per day that were being refined during the last full week of August 2017….this week’s refinery throughput was also 3.0% higher than the 17,141,000 barrels of crude per day that were being processed during the week ending June 30th a year ago, when US refineries were operating at 93.6% of capacity….

even with the reduction in amount of oil being refined this week, gasoline output from our refineries was somewhat higher, rising by 169,000 barrels per day to 10,311,000 barrels per day during the week ending June 29th, after our refineries’ gasoline output had increased by 43,000 barrels per day during the week ending June 22nd....but even with this week’s increase, our gasoline production during the week was still fractionally less than the 10,365,000 barrels of gasoline that were being produced daily during the week ending June 30th of last year…at the same time, our refineries’ production of distillate fuels (diesel fuel and heat oil) rose by 67,000  barrels per day to 5,463,000 barrels per day, after falling by 72,000 barrels per day the prior week…however, this week’s distillates production was still 7.1% higher than the 5,100,000 barrels of distillates per day that were being produced during the week ending June 30th, 2017…

even with the increase in our gasoline production, our supply of gasoline in storage at the end of the week fell by 1,505,000 barrels to 239,691,000 barrels by June 29th, the tenth decrease in 17 weeks, but just the 11th decrease in 34 weeks, as gasoline inventories, as usual, were being built up over the winter months….our supplies of gasoline fell because the amount of gasoline supplied to US markets rose by 138,000 barrels per day to 9,869,000 barrels per day, while our imports of gasoline fell by 340,000 barrels per day to 648,000 barrels per day, and while our exports of gasoline fell by 126,000 barrels per day to 487,000 barrels per day….but even after this week’s decrease, our gasoline inventories still finished the week at a seasonal high for this time of year, 1.0% higher than last June 30th’s level of 240,972,000 barrels, as they remain almost 11.6% above the 10 year average of our gasoline supplies for this time of the year…   

meanwhile, with the increase in distillates production, our supplies of distillate fuels increased by 134,000 barrels to 117,557,000 barrels during the week ending June 29th, the fifth small increase in six weeks…that was as our exports of distillates fell by 426,000 barrels per day from last week’s record to 1,410,000 barrels per day, while our imports of distillates rose by 38,000 barrels per day to 92,000 barrels per day and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, rose by 514,000 barrels per day to 4,126,000 barrels per day, after decreasing by 692,000 barrels per day the prior two weeks…however, since this week’s small inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 29th still remain 21.8% below the 150,422,000 barrels that we had stored on June 30th, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year…  

finally, with our oil imports at a 16 month high and our oil production continuing at a near record pace, our commercial supplies of crude oil increased for the 13th time in 2018 and for the 19th time in the past year, as our commercial crude supplies rose by 1,245,000 barrels during the week, from 416,636,000 barrels on June 22nd to 417,881,000 barrels on June 29th…however, after falling most of the past year, our oil inventories as of June 29th were still 16.9% below the 502,914,000 barrels of oil we had stored on June 30th of 2017, 15.4% below the 493,718,000 barrels of oil that we had in storage on July 1st of 2016, and 3.7% below the 433,714,000 barrels of oil we had in storage on July 3rd of 2015, when the US glut of oil was already well above the nearly stable supply levels of under 400 million barrels of the prior years… 

This Week’s Rig Count

US drilling activity increased for the first time in four weeks, but for 12th time in the last 15 weeks during the week ending July 6th, as drilling for oil widened after two weeks of contraction…Baker Hughes reported that the total count of active rotary rigs running in the US increased by 5 rigs to 1052 rigs over the week ending on Friday, which was 100 more rigs than the 952 rigs that were in use as of the July 7th report of 2017, but was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market…

the count of rigs drilling for oil was up by 5 rigs to 863 rigs this week, which was also 100 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014…at the same time, the number of drilling rigs targeting natural gas formations was unchanged at 187 rigs this week, which down by 2 from the 189 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008…in addition, there continues to be two rigs operating that are considered to be “miscellaneous”, in contrast to no such “miscellaneous” rigs in use a year ago….

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 3 fewer than the 21 platforms that were deployed in the Gulf of Mexico a year ago…there was also a drilling platform deployed offshore from Alaska this week, so the total US offshore count of 19 rigs is now down by 2 rigs from the total 21 offshore rigs that were drilling a year ago, when there was no drilling being done off of the Alaskan coast….

the count of active horizontal drilling rigs was also up for the first time in four weeks, increasing by 4 rigs to 930 horizontal rigs this week, which was also 126 more horizontal rigs than the 804 horizontal rigs that were in use in the US on July 7th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014…in addition, the directional rig count increased by 2 rigs to 67 directional rigs this week, which was still down from the 74 directional rigs that were in use during the same week of last year…on the other hand, the vertical rig count decreased by 1 rig to 55 vertical rigs this week, which was also down from the 74 vertical rigs that were operating on July 7th of 2017…

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 pdf 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 the 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 July 7th, the second column shows the change in the number of working rigs between last week’s count (June 29th) and this week’s (July 7th) count, the third column shows last week’s June 29th active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 7th of July, 2017…      

July 6 2018 rig count summary

a lot of activity is missing from this summary table this week, as we can see just by adding the totals…for instance, since we know there was an increase of 4 horizontal rigs, the net decrease of 4 rigs drilling in the major basins shown above means that 8 horizontal rigs were added elsewhere, outside of the purview of the Baker Hughes summaries…most of those were likely in outlying areas of Oklahoma’s Anadarko basin, since the state saw a one rig increase while the Cana Woodford saw a 6 rig decrease and another rig was pulled out of the Ardmore Woodford…others could have been in states not listed above; for instance, Indiana, Alabama and Mississippi each saw one rig added this week, after Alabama and Mississippi had both seen 2 rigs shut down last week…Indiana now has two rigs operating for the first time since January 2015, and Alabama has just that one rig operating at this time, down from the 3 rigs running in Alabama a year ago, while Mississippi now has 3 rigs operating in the state, the same number of rigs that were running in Mississippi a year ago…

although the Utica shows no change in net activity, that masks the switch of one of the 23 gas rigs that were operating in the formation last week to oil targeted drilling…natural gas rigs, meanwhile, ended unchanged, as the reduction of gas rigs in the Utica and Louisiana’s Haynesville was offset by increases in gas rigs elsewhere, in the Anadarko or other formations not tracked separately by Baker Hughes..

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