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Crude And LNG Export Facilities Work To Solve Bottlenecks Before They Can Start

Several recent big items of positive news relating to exports of oil and LNG along the Texas Gulf Coast might come just in time to help allay fears of new, downstream bottlenecks for production coming out of the Permian Basin and Eagle Ford Shale plays.

The current bottleneck, of course, involves a lack of needed pipeline takeaway capacity for oil and gas coming out of the Permian Basin. But a dozen or more pipeline expansions and new-build projects currently in progress promise to quickly alleviate that situation during the course of 2019 and 2020. The vast majority of takeaway capacity in these projects will be designed to move the production to ports along the Texas and Louisiana Gulf Coast, with several of the lines picking up crude and natural gas produced in the Eagle Ford along the way.

This outlook has in recent weeks produced a new concern that, as those new pipelines get filled up with more and more volumes coming out of West and South Texas, new bottlenecks could materialize related to the capacity along the Gulf Coast to refine and export the production. Several recent developments in the Corpus Christi area hold the promise of heading the potential new bottlenecks off before the can form.

Where natural gas is concerned, Cheniere Energy this week was able to load its first shipment of LNG out of its new Corpus Christi LNG terminal . The Maria Energy tanker, which has a capacity of 174,000 cubic meters of LNG, left the terminal with a full load on December 11, the first load of LNG to ever ship out of a Texas-based facility. “Exporting the first commissioning cargo of LNG from Texas demonstrates Cheniere’s ability to deliver projects safely and ahead of schedule, including the first greenfield LNG export facility in the lower 48 states,” Cheniere chief executive Jack Fusco said.

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The Oil And Gas Situation: A Time For Setting Records

They say numbers don’t lie, and the last two weeks for the U.S. oil and gas industry have seen the announcements of some pretty amazing numbers. These are numbers that demonstrate exactly how productive and efficient the business has become, and numbers that must be put into some context to understand how extraordinary they really are.

So, as we move into mid-December 2018, let’s give it a shot:

The U.S became a “net exporter” of petroleum liquids for the first time 75 years. – That’s right, the week of November 30 through December 5 saw the United States of America actually export more crude oil and other oil-derived liquids than it imported from other countries. The key part of that sentence is “other oil-derived liquids,” which include gasoline, diesel and other refined products. Rolling all of those products into the equation, the U.S. exported about 211,000 barrels per day more than it imported for the week, as reported by Bloomberg.

The U.S. did not become a net exporter of “crude oil,” as some others in the energy news media mistakenly reported. As Robert Rapier reported at Forbes.com over the weekend, our country is still a sizable net importer of crude alone, an equation that will not be reversed anytime soon.

Regardless, the fact that the U.S. had higher volumes of oil-derived liquids moving out of its various ports than it had coming for a full week is an extraordinary change of circumstance from just a decade ago, a true sea change delivered by the ability to extract oil from the nation’s shale formations.

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Here’s Why Gas Prices go up Every Year at This Time

If you’re wondering why gas prices go up a this time of year, I explain it all with host Julie Rose on @BYUradio here.

Every year at this time, gas prices seem to go up. Or maybe it’s just that we notice it a bit more, because we’re making vacation plans? You’re not imagining things: the price for regular unleaded gas is at its highest level in three years. Americans are paying an average of $2.74 per gallon of regular unleaded right now, which is 30-cents higher than it was at the start of the year.

https://www.byuradio.org/episode/bd967e47-688e-456e-a4df-b34a80821876?playhead=62&autoplay=true

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On This Earth Day, Thank Mother Earth for the Gift of Fossil Fuels

Today’s Campaign Update

(Because The Campaign Never Ends)

Today is Earth Day, and it is the perfect time to celebrate the natural resources like oil, natural gas and coal, which are gifts to humanity from Mother Earth herself.  These indispensable drivers of modern society will no doubt be demonized today amid all the frightful doom and gloom predictions that will be launched by environmental activists and repeated by various media outlets.

All the vitriol directed at these fossil fuels by the environmental community notwithstanding, it is a simple fact that our prosperous, modern, energy-hungry society was made possible by the existence of these fuels.  Without the discovery of and ability to produce fossil fuels, it is likely that mankind would still be mired in a primitive form of existence, reliant on burning wood for heat, horses for transportation, and still living largely in the dark after nightfall.

Without the miracle of the petroleum-fueled internal combustion engine, there would be no automobiles – or primitive ones at best – dirigibles would probably still be our main mode of air transportation, there would have been no space program to drive all the technological advancement of the second half of the 20th century.  Without those things, there would be no high tech industry to speak of, no Internet, and thus no ability to read what I’m writing here.

But what about wind, solar and nuclear?  The production of modern wind turbines, solar panels and nuclear power plants is extremely energy-intensive enterprises, and is by and large powered by the burning of fossil fuels.  In other words, without the massive energy levels generated by the fossil fuel chicken, the “green” energy eggs would not have been possible.  Few of those gigantic wind turbines you see dotting landscapes across America will, in their entire useful lifetime, generate as much power as was required to fabricate them, transport them to their locations, and erect them.

And on this particular day we should all be doubly thankful for the recent discovery of the means – hydraulic fracturing, combined with horizontal drilling – of producing oil and natural gas from shale rock formations.  Because while Europe continues to struggle with failing “cap and trade” carbon trading schemes that haven’t reduced that continent’s greenhouse gas emissions, those same emissions have been reduced in the US to pre-1994 levels through increased use of natural gas in the power generation sector.  Thus, while radicals in the “green” community have done everything they can to turn “fracking” into their cause du jour for limiting or banning, the product of their boogeyman has done more to clean the air through the free market than any of the myriad command and control regulations issued by the Environmental Protection Agency.

So on this 49th celebration of Earth Day, let’s all try to remember that one of the greatest gifts Mother Earth has ever given us is the fossil fuels that make such worldwide celebrations possible.

Meanwhile, as you will no doubt be assaulted all day today with all manner of frightful scenarios about our future environmental challenges, you might find it edifying to review similar pronouncements made by the environmental luminaries of the day at the inaugural Earth Day celebration:

“Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, PakistanChina and the Near East, Africa. By the year 2000, or conceivably sooner, South and Central America will exist under famine conditions….By the year 2000, thirty years from now, the entire world, with the exception of Western Europe, North America, and Australia, will be in famine.” – Peter Gunter, professor, North Texas State University

“It is already too late to avoid mass starvation.”  – Denis Hayes, chief organizer for Earth Day

“Population will inevitably and completely outstrip whatever small increases in food supplies we make. The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.” — Stanford University biologist Paul Ehrlich

“Most of the people who are going to die in the greatest cataclysm in the history of man have already been born… [By 1975] some experts feel that food shortages will have escalated the present level of world hunger and starvation into famines of unbelievable proportions. Other experts, more optimistic, think the ultimate food-population collision will not occur until the decade of the 1980s.” — Paul Ehrlich

And my very favorite of them all:

“By the year 2000, if present trends continue, we will be using up crude oil at such a rate…that there won’t be any more crude oil. You’ll drive up to the pump and say, `Fill ‘er up, buddy,’ and he’ll say, `I am very sorry, there isn’t any.’” – Kenneth Watt, Ecologist

Have a great Earth Day today.

Just another day in fossil-fueled America.

That is all.

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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ConocoPhillips’ Permian Asset Sale Is Part Of A Well-Received Strategic Plan

We have become so accustomed in recent years to seeing headlines about companies making major acquisitions to either move into the booming Permian Basin or expand their existing operations there that when we read a headline that says “ConocoPhillips Sells Permian Assets and Expands Elsewhere” (Houston Chronicle, April 3, 2018) it really grabs your attention.  In the face of a big independent like Pioneer Natural Resources announcing in February that it is staking its entire business on the Permian, or Concho Resources making the largest-ever acquisition of Permian assets, any news of a big Permian player selling acreage there seems counter-intuitive.

Of course, when you drill down into the Chronicle’sstory, you find that the news about ConocoPhillips (COP) isn’t so earth-shattering.  In fact, the disposition of acreage in the Permian was made up of several small packages of non-core properties that have thus far remained largely undeveloped.  Prior to these sales, COP owned 144,000 net acres of leasehold in the greater Permian region, and the vast majority of that acreage still remains in the company’s portfolio.  Far from leaving the Permian, the company is actually high-grading its asset base there , and using the proceeds from the sales to acquire acreage in other producing areas.

One of those areas is the liquids-rich natural gas play in Alberta and British Columbia called the Montney Field, where COP announced a 35,000 acre acquisition that brings its overall leasehold in that area to 140,000 acres.  Despite being a leaseholder in the Montney since 2009, COP had drilled just 29 appraisal wells there through the end of 2017, and plans to continue its resource appraisal activities throughout 2018.  This new acquisition is a clear indication that the company is seeing positive results there.

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Debating The Permanence Of The Permian Shale Boom

One thing you learn very quickly when studying the nature and history of the oil and natural gas industry is that nothing related to it is permanent. Reservoirs deplete, technologies inexorably advance, means of financing projects come and go, and hot play areas go cold when the next one heats up.

While many in recent years have tried to characterize the production of oil and gas from shale formations, with its repeating processes and low frequency of dry holes, as essentially a “manufacturing” process, it really is not at all similar to the making of textiles, steel and plastics.

All of which is sort of a long way around to getting to a headline that ran in Monday’s Arab News:  “The Big Question for U.S. Shale:  Is it Permanent or Just Permania?”  Given that nothing in oil and gas is ever permanent, the obvious answer to the question is that the current situation related to U.S. oil and gas development is a great, big case of “Permania.”

The real question, as borne out by the discussions atlast week’s CERAWeek conference in Houston, is just how justified the current case of rampant “Permania” happens to be, and more importantly, how long it will last.  If you ask Tim Dove, CEO at the largest Permian Basin producer, Pioneer Natural Resources, it is very justified indeed.  So justified, in fact, that Dove announced just a few weeks ago that his company would be divesting 100 percent of its non-Permian Basin assets soon, and betting its entire future on maximizing the potential from its more than 700,000 acres of leasehold in the massive Permian region.

“What we’re staring at beneath our feet cannot be replicated anywhere else in the United States. That’s a given,” Dove told the IHS Markit-sponsored conference last week, “We have a golden goose right before us.”

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Trump Giveth, and Trump Taketh Away

It is hard to imagine a more effective means of slowing the nascent oil and gas drilling boom in the United States than to artificially increase the price for steel via import tariffs.  Everywhere you look in the oil patches around the country, you see massive amounts of steel being employed.

Oil storage tanks? Made from steel. Dehydrator units and compressor stations and heater-treaters and amine units? Made from steel. Drilling rigs? Made from steel.  All those pumpjacks moving up and down across the landscapes of the Permian Basin, the Eagle Ford Shale region and the Bakken Shale?  Made from steel.

The Dakota Access, Keystone XL, Colonial, Transco and every other oil or natural gas pipeline constructed anywhere on the face of the earth? Made from steel. Those massive deepwater platforms being fabricated at Ingleside, Texas?  Made almost entirely from steel. Those gigantic ships exporting crude oil out of Houston and Corpus Christi and LNG from Sabine Pass? Made from steel. Those oil refineries arrayed along refinery rows in New Orleans and Pittsburgh and Houston and Corpus? Made almost entirely of steel.

Just as natural gas and petroleum liquids are the fundamental feedstocks for an array of manufacturing processes in the U.S. and across the globe, steel is the fundamental, indispensable foundation of the oil and gas industry .  No steel, no oil, no gas.  It really is that simple.

So it should come as no surprise that, after President Donald Trump announced last Thursday that he would be imposing new tariffs on imports of steel and aluminum, industry representatives immediately began to voice concerns. I started to say “unexpectedly announced” in that previous sentence, but it also should not have surprised anyone that the President made that announcement. After all, he had promised on many occasions during his 2016 campaign that he would take this exact action, which he believes will create stronger steel and aluminum industries in the U.S.

As the oil and gas industry is well aware, this is a President who is very focused on keeping the promises he made throughout his campaign. Indeed, Trump spent a great deal of time and energy throughout 2017 following through on a broad array of actions he had promised to take that are quite positive for the industry: the rescission of a group of Obama-era regulations and executive orders the industry opposed; pulling the U.S. out of the Paris Climate Accords; issuing executive orders restarting the stalled Dakota Access and Keystone XL pipeline projects, along with one rescinding the Obama Clean Power Plan; speeding up energy-related permitting processes at EPA, The Department of Interior and the Commerce Department;  Implementing a new 5-Year Plan that opens up vast new areas of federal waters to oil and gas leasing; and passing a tax bill that is hugely beneficial to the oil and gas industry.

The result of this rapid sea-change in energy policy has been to help stimulate investment in an industry that had spent 2015 and 2016 pulling in its sails to try to weather a perfect storm of low commodity prices and a flood of new regulations coming down from Washington, DC. It isn’t hard to understand that some in the industry thought this honeymoon might go on forever.

 

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Illinois Is Going Broke, But The ESG Movement Is Here To ‘Help’

Don’t look now, but the so-called ESG movement is now coming to Chicago.  As if the Windy City and State of Illinois didn’t already have enough problems to deal with, the Wall Street Journal reports that Chicago’s Treasurer, Kurt Simmons, who manages the city’s various pension funds, is now “seeking permission from the city council to use environmental, social and governance (ESG) factors to inform investment decisions.”

As I pointed out in early January, this approach to investing based on social issues rather than return on capital has worked so well in California and New York that it has played a significant role in pushing state and local retirement systems in those states to massive deficit situations.  As the Chicago Tribune recently reported,  Illinois’ “unfunded pension liability is growing faster than taxpayers’ ability to keep up. With about a quarter of general fund revenues going to the pension system, other priorities get crowded out.”

The current situation with unfunded pension liabilities has the Illinois legislature searching for increasingly radical solutions, such as forcing local communities to start sharing in the funding of teacher’ pensions.  Indeed, the state’s predicament is so dire that it has some speculating that Illinois could become the first state to actually declare bankruptcy.

Into this breach steps the ESG movement, with its demands that pension fund managers de-emphasize anticipated rates of return as their main investment priority, and instead begin making investment decisions based on an array of social issues that the ESG movement prefers.  Where Chicago’s public pension funds are concerned, doing this would create an entire new level of risk, as the funds have traditionally been conservatively invested in highly-rated government and corporate bonds.

For those who are unaware, the ESG movement is basically the second generation of what began as the “Divestment” movement.  That movement, pushed for the last decade by radical environmental activists like Bill McKibben, sought to convince cities, states, universities and pension fund managers to overtly divest any investments in fossil fuels stocks or other entities that the activists found to be objectionable.  That movement has suffered a long string of failures over the years, in places like VermontSan FranciscoSeattle, and The University of Colorado, as responsible fund managers chose to continue basing investment decisions on returns on capital rather than engaging in virtue signaling exercises.

 

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Clearing Up Some Confusing Headlines About The U.S. Oil And Gas Industry

In the oil and gas industry, sometimes it is hard to figure out what is real and what isn’t – what is really happening, and what really isn’t happening.  I spent 38 years in the industry, and still have a hard time figuring it all out.  Here are some good recent examples of stories whose headlines made bold claims that, upon reading the entire stories, turned out to be quite nuanced:

  • Are investors really abandoning the shale industry?
  • Did the World Bank really cut off funding of oil and gas projects?
  • Has the business case for building the Keystone XL pipeline really passed?

All are good questions, all of which have been the subject of multiple media reports in the past weeks, and all have more complex answers than the simplistic media headlines that are all most people actually read.  So, let’s clarify some things.

Are Investors Abandoning The U.S. Shale Industry?

We’ve seen many reports alleging that investor funds are drying up for the shale industry during the second half of this year, yet shale producers somehow keep managing to get their business done.  Indeed, in recent weeks we’ve seen a series of announcements of major new investments in domestic shale by private equity and institutional investors, and the Fall debt redetermination season passed without noticeable major hiccups.

So, what gives?  A look at recent presentations by the CEOs at corporate shale producers, like this one from Encana’s Doug Suttles, shows a focus on responding to demands by investors that these companies dedicate more of their resources towards actions that will increase returns on investment capital, a pressure I wrote about in early November.  One result of this investor pressure has been the announcement of a wave of stock buy-back programs since August.  Investors are also pressuring companies to change executive compensation programs that have been, in their view, too focused on increasing production at the cost of profits.

Read The Full Piece Here

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