Crude Oil Movements and Market Dynamics

Crude Oil Movements and Market Dynamics Trisha Curtis, Director of Research Upstream and Midstream Energy Policy Research Foundation, Inc. (EPRINC) Wi...
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Crude Oil Movements and Market Dynamics Trisha Curtis, Director of Research Upstream and Midstream Energy Policy Research Foundation, Inc. (EPRINC) Williston Basin Petroleum Conference May 20th, 2014

About EPRINC •

www.eprinc.org



Infrastructure Paper http://eprinc.org/wpcontent/uploads/2013/10/EPRINCPIPELINES-TRAINS-TRUCKS-OCT31.pdf



Oil and Gas Journal



Embassy Series



Presentations at Imperial College London, Colombia University, Wyoming Pipeline Authority



Department of Energy – Quadrennial Energy Review



Department of Defense



Rin App http://eprinc.org/2014/02/rinsaround-rosy-app-available-ios/

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The entire strip…

Source: HPDI May 2014

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North American Oil Production 12000

Thousand Barrels Per Day

10000

8000

6000 Canadian Crude Oil Production U.S. Field Production of Crude Oil Mbbl/d 4000

2000

0

U.S. 8 mbd Canada 3.7 mbd

Source: EIA, Canadian CAPP forecast, EPRINC U.S. forecast, EPRINC Mexico , and EPRINC estimates

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Jan 2014 EPRINC’s Forecast for Major U.S. Shale Plays 7,000,000

6,000,000

EPRINC forecasts over 2 mbd by 2020

5,000,000

Periphery

4,000,000

Permian Eagle Ford 3,000,000

Bakken EPRINC's May 2013 Forecast

2,000,000

1,000,000

0 2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2020 U.S. 10 mbd Canada 5.1 mbd

Source: HPDI data with EPRINC forecast estimates

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Total Imports, Production, Canadian Imports

Thousand Barrels per Day

12000 10000 8000

U.S. Imports from Canada of Crude Oil Mbbl/d U.S. Imports of Crude Oil Mbbl/d

6000 4000

U.S. Field Production of Crude Oil Mbbl/d

2000 0

Canadian Imports 2.8 mbd or 36%

Source: EIA

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Drilling Activity and Production

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Permit Activity Williston Basin

Powder River Basin

DJ Basin

Uinta Basin

Anadarko Basin

(Mississippian, Granite Wash, Mississippi Lime and other stacked plays)

(Niobrara Reservoir)

Utica

Permian Basin Eagle Ford Reservoir

Source: HPDI May 2014, Past 90 Days

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U.S. Rig Count 2500

2000

# of Rigs

1500 Oil 1000

Gas Total

500

0

Source: Baker Hughes

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Texas North Dakota Colorado

1/7/2014

1/7/2013

1/7/2012

1/7/2011

1/7/2010

1/7/2009

1/7/2008

1/7/2007

1/7/2006

1/7/2005

1/7/2004

1/7/2003

1/7/2002

1/7/2001

1/7/2000

# of Rigs

State Rig Count ND: 184

1200

1000

800

600

400

200

0

Wyoming

Source: HPDI March 2014, Baker Hughes

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In Context - Shale Oil Play Production 1,600,000 Permian 1.5

1,400,000 1,200,000 Barrels Per Day

Eagle Ford 1.2 mbd

1,000,000 North Dakota 977,000 b/d

800,000 600,000 400,000

Colorado 184,000 b/d

200,000

North Dakota

Permian Basin

Wyoming

Jan-14

Oct-13

Jul-13

Apr-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Apr-10

Jan-10

Oct-09

Jul-09

Apr-09

Jan-09

Oct-08

Jul-08

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Eagle Ford

Jan-13

Wyoming 181,000 b/d

-

Colorado

Source: HPDI May 2013, EIA, NDPA

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Importance of Technology and Where it Will Go

Source: Vern Whitten photography From NDIC Lynn Helms presentations

Source: Cosima Theloy and Steve Sonnenberg, SPE Paper 168870, presented Denver Aug 2013, “Integrating Geology and Engineering: Implications for Production in the Bakken Play, Williston Basin”

Source: Triangle Petroleum Corporation, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012

Source: Continental Resources March Investor Presentation, Permission granted

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Will it change production EURs, decline rates, plateaus…? 450 400

300 250 200

1,600,000

150

1,400,000

100

1,200,000

50

1,000,000

0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58

Barrels Per Day

Barrels Per Day

350

800,000 600,000 400,000 200,000 0

Source: NDPA

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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Infrastructure and Pricing

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March 2014 Williston Basin Crude Transportation Williston Basin Production: 1,054,776 b/d North Dakota: 977,051 b/d South Dakota: 4,712 b/d Eastern Montana: 73,013 b/d

Tesoro Refinery: 68,000 b/d

Truck to Canadian Pipeline: 7,000 b/d

Rail: 715,000,000 b/d (66%)

Pipeline: 293,776 b/d Source: NDPA, EPRINC Estimates

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Pipeline Capacity Ample, But • Plenty of pipeline capacity now, but if more crude should move back to pipe (rail concerns) could see prices further decline in Clearbrook

Source: EPRINC’s article in Oil and Gas Journal March 2014

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U.S. Crude Oil Exports 300

• Canada imported a total of 331,000 b/d (oil and refined products) from the U.S. in Jan 2013

THOUSAND BARRELS PER DAY

250

200

• 110,000 b/d from ND alone •

150

• • •

100

Quebec: 71,000 b/d • Valero’s Jean Gaulin 265,000 b/d Saskatchewan: 7,000 b/d Manitoba: 4,000 b/d New Brunswick: 27,000 b/d • Irving Oil’s St John refinery 300,000 b/d

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Sep-13

Jan-13

May-12

Sep-11

Jan-11

May-10

Sep-09

Jan-09

May-08

Sep-07

Jan-07

May-06

Sep-05

Jan-05

May-04

Sep-03

Jan-03

May-02

Sep-01

Jan-01

May-00

Sep-99

Jan-99

May-98

Sep-97

Jan-97

May-96

Sep-95

Jan-95

May-94

Sep-93

Jan-93

0

Source: EIA

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Pipeline Choke Points

Source: EPRINC Choke Point Map using Hart ArcGIS Mapping software

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All Canadian Pipeline Export Options are Full •



Source: Canadian Energy Pipeline Association

Kinder Morgan’s Transmountain line off BC coast - currently 300,000 b/d capacity- planned expansion up to 800,000 b/d (early 2017) (Now Spectra) Platte line to Wood River 280,000 b/d-full



Enbridge mainline system currently transporting over 1.5 mbd with potential capacity around 2.5 mbd— Northern Gateway off BC coast planned 525,000 b/d, several other planned expansions, light oil access +400,000 b/d to eastern U.S. and Canada



TransCanada’s Keystone 581,000 b/d-full—XL would add 700,000 b/d, Energy East Pipeline Project 500 to 800k 19

Regional Pricing Disparities

Source: Map from AFPM, Flint Hills, EIA, CME Group, and estimates

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Price Comparison $140.00

$120.00

$100.00

$80.00

$60.00

$40.00

$20.00

$5/1/2013

6/1/2013

7/1/2013 8/1/2013 WTI Cushing

9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 WTI Midland Bakken Clearbrook WCS

2/1/2014 3/1/2014 LLS Brent

4/1/2014

5/1/2014

Source: Bloomberg Data

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Daily Crude by Rail Shipment in U.S. and Canada 1,600,000

1,400,000

U.S. Average Barrels Per Day of Petroleum and Petroleum Product

1,200,000

Canadian Average Barrels Per Day of Petroleum and Petroleum Product

Barrels Per Day

1,000,000

800,000

EPRINC's U.S. Daily Crude by Rail Estimate - 825,000 b/d

600,000 EPRINC's Canada Daily Crude by Rail Estimate - 160,000 b/d

400,000

200,000

0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 Source: AAR; Crude and petroleum product includes liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc. U.S. operations exclude U.S. operations of CN and CP. Canadian operations include CN and CP and their U.S. operations. One carload holds 30,000 gallons (or 714.3 barrels).

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Pipeline vs. Rail Costs • New fees for older tank cars • Narrow spreads • From Bakken to Coasts between $10 - $15 • Slight increases due to fees by railroads for older tank cars and testing fees • From Alberta to Gulf $20

Source: CAPP Source: EPRINC Maps using Hart Energy data and ArcGIS Mapping software

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Refineries

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Canadian Still Isn’t Getting to PADD III PADD II

PADD III

300 250 200 150 100 50 0

Jan-Feb 2014

2013

2012

2011

2010

Gulf Coast (PADD 3) Imports from Canada

PADD V Rocky Mountain (PADD 4) Total Foreign Imports Rocky Mountain (PADD 4) Imports from Canada

Thousand Barrels per Day

Thousand Barrels per Day

PADD IV

Gulf Coast (PADD 3) Total Foreign Imports

2009

Midwest (PADD 2) Imports from Canada

Jan-Feb 2014

2013

2012

2011

2010

2009

Midwest (PADD 2) Total Foreign Imports

6000 5000 4000 3000 2000 1000 0 2008

East Coast (PADD 2000 1) Total Foreign 1500 Imports 1000 East Coast (PADD 500 1) Imports from Canada 0 2008

Jan-Feb 2014

2013

2012

2011

2010

2500

2009

1600 1400 1200 1000 800 600 400 200 0 2008

Thousand Barrels per Day

PADD I

1400 1200 1000 800 600 400 200 0

West Coast (PADD 5) Total Foreign Imports West Coast (PADD 5) Imports from Canada

Source: EIA Data

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Good Crude BUT Too Many Light Ends

Source: Continental Resources March Investor Presentation, Permission granted

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Refinery Expansions and Adjustments • Not really about the Bakken • To accommodate rising volumes of light sweet crude and condensate from the Eagle Ford and the Utica: • Flint Hills and Valero in the Gulf making expansions this year and the next; Marathon near Utica (around 200,000 b/d plus) • Phillips 66 has plans but not explicit • Some more opportunity driven expansions in North Dakota, Montana, and Texas in 2015 (around 60,000 b/d), topping plants etc. • Only one condensate splitter active to date in Gulf – BASF/Total • Kinder Morgan and Trafigura under construction in Gulf – 2014/2015 • Several proposed projects in the Gulf • Narrow margins, uncertainty around exports

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“‘The nature of the oil we're producing may not be well-matched to our current refinery capacity,’ Mr. Moniz said Tuesday after an energy conference in Seoul. The administration is studying the issue, though government officials declined to comment on its scope or timing. The statements, paired with similar comments by senior Obama counselor John Podesta last week, mark a notable policy shift inside the administration over the past six months.”

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Crude Exports Timeline of Discussion • Talk during past few years in analyst and think tank community • Adam Seminski publically talks about crude oil exports in 2012 • During the course of 2013 several new pipelines came online to alter the flow of crude from the Permian to the Gulf Coast (historically Permian to Cushing) in addition to new pipeline capacity from the Cushing to the Gulf, Eagle Ford production passes 1 mbd, and refinery maintenance coupled with rising production pressures LLS prices in Nov 2013 • April 2014 Senators Murkowski (R-Alaska) and Landrieu (D-Louisiana) request EIA to look into crude oil exports • May 2014 - White House officials and Energy Secretary Moniz comment on crude oil exports, EIA says they will be working on more detailed production data with API gravities What’s Happening • Large volumes of light sweet crude and condensate of varying grades (in addition to NGLs) came on the market with limited infrastructure options • Refineries in the Gulf are beginning to see the pressure of too many light ends and their capability to handle increasing volumes of condensate and light sweet crude • Gasoline demand is relatively flat in the U.S. so there is only so much need for gasoline blending components and condensate • Natural gasoline from NGLs is in more demand from Canada as a diluent 29

Geology of the Eagle Ford = Varying Liquid Grades

Source: Momentum Oil and Gas LLC, DUG Eagle Ford Conference Presentation Oct 2011; EOG Investor Presentation Feb 2014;

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Those differences are impacting prices

May 16, 2014 WTI $102 Brent $110

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But we are already exporting…refined product U.S. Petroleum Products Exports 3000 U.S. Exports of Finished Petroleum Products Mbbl/d

2500 Thousand Barrels per Day

U.S. Exports of Distillate Fuel Oil Mbbl/d 2000 U.S. Exports of Finished Motor Gasoline Mbbl/d 1500 U.S. Exports of Petroleum Coke Mbbl/d 1000

U.S. Exports of Residual Fuel Oil Mbbl/d 500 U.S. Exports of Kerosene-Type Jet Fuel Mbbl/d 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jan-Feb 2014

0

Source: EIA

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This matters because…

33

Regional Discounts Matter with High Cost Production

Source: ITG Investment Presentation Nov 2012

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34

Cash Flow of the Shalers

Source: WSJ, April 20, 2014, Russel Gold Theo Francis “The New Winners and Losers America’s Shale Boom”

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35

Debt Concerns 3.0

40

2.0

20

1.0

Debt

60

Total Debt, $bn (LHS)

Production, mb/d (RHS)

0

0.0 07

08

09

10

11

12

13

Source: Ivan Sandrea/Bloomberg. Company data, Energy Aspects (In focus – the other tale of shale, Oct 2013) From Earnst and Young Presentation,

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36

Regulatory Uncertainty

37

38

Issues and Regulatory Concerns • • • • • • •

Rail Safety Pipeline and Rail Spills Flaring Water: Spilling, disposing, fracking usage Oil prices/costs/discounts Infrastructure delays Regulatory uncertainty: midstream companies trying to forecast crude exports etc. • Waste disposal • Environmental Concerns

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May 2014 Emergency Orders and Recommendations



April 30, 2014, oil tank cars on CSX derailed and caught fire in Lynchburg, VA (3 of 15 cars that derailed caught fire). Nobody was injured but 300 people were evacuated temporarily 40

Many Entities Involved Issues • labeling • volatility • rail safety • tank car strength

Groups Involved • producers • truckers • shippers • marketers • refineries • railroads • tank car manufacturers

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Not on the same page

Instead, attention should shift to the rail industry's safety record, said Charles Drevna, president of the oil-refiner trade group, some of whose members have made big investments in crude-by-rail infrastructure such as tank cars. "The debate should now focus on the remaining issues—track integrity and maintenance and training for rail operators and responders," Mr. Drevna said.”

Rail executives, including Mr. Harrison, have criticized the moves, warning that such regulation could prove costly and onerous. "Those bureaucrats have no transportation experience," he said, adding that reducing speed further for all cargo, including crude and other hazardous materials, as has been proposed, would be a "nightmare" for the railroad. WSJ, “CP’s Boss: A Too-Tough Love?,” David George-Cosh, May 13, 2014

“Kari Cutting, vice president of the North Dakota Petroleum Council, said she didn't know what had changed since her group met with PHMSA last week…’Our Bakken characterization study is not indicating that Bakken crude oil is more hazardous than other crude oil, and we're thinking that Bakken crude oil is being singled out for political reasons,’ Cutting said in an interview yesterday. EEnews, “DOT crude by rail orders close in on Bakken oil,” May 8 2014

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New York Moratorium •

NY’s Albany County placed a moratorium on crude oil processing expansions in the Port of Albany until health investigations and environmental impacts could be assessed



Global Partners and Buckeye in Albany hub Global had received permits to double facility in 2012





In January Gov Cuomo signed order for top bottom safety review of crude by rail and water and writes letter to Obama

Source: New York Times, Jad Mouawad, “Bakken Crude, Rolling Through Albany,” Feb 27, 2014

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Water Issues “The analysis suggests that a likely contributing factor to the increase in earthquakes is triggering by wastewater injected into deep geologic formations. This phenomenon is known as injection-induced seismicity, which has been documented for nearly half a century, with new cases identified recently in Arkansas, Ohio, Texas and Colorado.”

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Colorado Fracking Ban • Initiative to change constitution in November statewide ballot • Give communities to choose what type of activity would take place despite state laws

Source: Images directly from “In Colorado Local Fracking Debate Holds National Implications, theenergycollective.com, Kate Rosow Chrisman, May 12 2014

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