The mere mention of the phrase -- Bakken shale -- conjures and facinates oil and gas exploration companies and exasperates shale skeptics. In 2005, for 7 counties in Bakken shale country in ND, crude oil production averaged 33 thousand-bpd. In Q2 2010, according to ND Industrial Commission's oil and gas division, oil production in these same 7 counties averaged about 210 thousand-bpd. The seven-fold increase in oil production in this area is the tip of the iceberg for continued increases in crude oil production from the Bakken formation in the Williston Basin -- but only IF exploration into expanded areas of the Bakken formation is as successful as we have seen during the past 5 years.
On another note, many midstream companies have joined the shale gas frenzy. The oil & gas exploration industry's foray into shale exploration is still in its infancy and exploration may encounter obstacles and challenges in extracting the anticipated very large volumes of very rich gas from the array of shale formations in North America. Nature does not give up her bounty so easily. For example, while crude oil production from the 7 county region in ND continues to increase, natural gas production from these same 7 counties was 12-14% lower in Apr and May 2010 versus year-earlier volumes. However, we are cautious to become pessimistic on rich gas production in ND because the most current data points tend to be revised upwards as producers submit revised and corrected production data to the regulatory agency in ND.
Finally, 5 years of exploration activity yielded 181 thousand-bpd of additional crude oil production and 148 MM Cfd of additional gas production in the 7 country region. Major midstream infrastructure commitments have been made that are premised on gas production reaching levels that 10 to 20 times current production levels within the next 5 years. As an industry, we may need to temper our enthusiasm with a moderate dose of caution.
We submitted our current composite wellhead gas price forecasts to the Natural Gas Week Price Forecast Scoreboard. The Scoreboard for Q3 will be published in the July 26th issue:
Q3 2010: $4.80 per MMBtu
Q4 2010: $4.30 per MMBtu
FY 2010: $4.60 per MMBtu
FY 2011: $4.50 per MMBtu
Commentary: Gas prices for Aug/Sep are forecast to move to $5.00-5.50 per MMBtu based on expected tropical storm and hurricane activity in the Gulf of Mexico. However, with onshore production continuing to grow, the impact of storms in the Gulf of Mexico will have less impact than in 2005 and 2008. Furthermore, inventory accumulation so far has bee in line with expectations and peak inventory in working storage is on track to peak at 3.8 TCF. We note that EIA's final inventory number for the end of April was 2.01 TCF and was almost 100 BCF higher than April 2009 -- itself a record high for the end of April. Further, demand in the electric power generation sector during March/April was below expectations and March was almost 10% below year-earlier volumes. Temperatures in the Gulf Coast were moderate during the first half of July and power generation demand is likely to be below bullish expectations for the peak demand months of Jul/Aug.
As we move out of hurricane season and inventories continue to build to a new record high, we see the bullish camp pulling up stumps and the bearish camp taking control of price trends during late Sep through early Dec. Even if winter 2010-11 is as cold as 2009-10, inventories will again most likely become a major bearish consideration for Q1 2011.
If your company operates gas plants, please contact EIA to provide current contact information for their emergency response data base.
EIA Requests Updated Contact Information
As the traditionally most active months of the hurricane season are approaching, the U.S. Energy Information Administration (EIA) is planning its emergency response. In this effort, EIA is asking GPA members and natural gas processing plant operators to submit any updates to emergency contact names, telephone numbers and e-mail addresses. Of particular interest to EIA are any emergency contact staff changes that may have occurred, namely the staff that can provide status updates to EIA on operations during a supply emergency. In addition, EIA is asking that all processing plant operators report any ownership or operator changes, plant decommissions and/or acquisitions. Contact information and additional plant information was initially requested on Form EIA-757, (http://www.eia.doe.gov/pub/oil_gas/natural_gas/survey_forms/eia757af.pdf).
Prices for all major global benchmark crudes rose gradually but steadily during late January through the end of April. The bullish trend pushed WTI prices to a weekly average of $84.10 per barrel during the week of April 26. The bullish trend ended abruptly in early May and prices fell almost $15.00 per barrel (about 18%) during the first three weeks of May. We note that fundamental considerations became increasingly bearish during the 3 month bullish trend but the market clearly ignored bearish fundamentals. Crude traders with a financial/currency orientation generally have a bullish view of WTI prices when the Euro strengthens against the USD. This trend in the currency markets came to an abrupt end when the Greek financial crisis threatened to push the European Union into crisis. During the first half of May Euro values dropped relative to the USD. During this period, prices for WTI as well as other major benchmarks fell sharply.
The bearish correction ran its course within three weeks and a modest recovery boosted WTI prices to almost $80.00 per barrel before the end of June. Fundamentals for all global benchmarks, however, became increasingly bearish. Control of price trends is likely to swing between financially oriented traders and fundamental traders for the next six to twelve months. We expect to see a bearish bias in crude oil price trends for the remainder of 2010.
Prices for all major global benchmark crudes rose gradually but steadily during late January through the end of April. The bullish trend pushed WTI prices to a weekly average of $84.10 per barrel during the week of April 26. The bullish trend ended abruptly in early May and prices fell almost $15.00 per barrel (about 18%) during the first three weeks of May. We note that fundamental considerations became increasingly bearish (rising inventories in the U.S. and at Cushing, OK and rising U.S. crude oil production) during the 3 month bullish trend but the market clearly ignored bearish fundamentals until early May. Our evaluation led us to conclude that other factors tipped crude oil prices into a bearish trend.
Crude traders with a financial/currency trading orientation generally have a bullish view of WTI prices when the Euro strengthens against the USD. This trend in the currency markets came to an abrupt end when the Greek financial crisis threatened to push the European Union into crisis. During the first half of May Euro values dropped relative to the USD. During this period, prices for WTI as well as other major benchmarks fell sharply.The bearish correction ran its course within three weeks and a modest recovery boosted WTI prices to almost $80.00 per barrel before the end of June. Fundamentals for all global benchmarks, however, became increasingly bearish. Control of price trends is likely to swing between financially oriented traders and fundamental traders for the next six to twelve months.
Will the bearish bias continue to dominate trends in crude oil price trends for the remainder of 2010?
We answer these and many other questions about crude oil and refined products for clients who subscribe to NGL Markets in North America.
Before Q4 2007, demand for ethane in the ethylene feedstock market in the U.S. Gulf Coast was limited by supply. Ethane prices routinely yielded variable ethylene production costs that were 1-3 ¢ per lb premiums to costs based on light paraffinic naphtha. During 2007, midstream companies constructed 4 large gas plants in Wyoming and Colorado. These plants were based on state of the art processing technology and were deep cut ethane recovery plants. When these plants started up, gas plant ethane recovery in Wyoming and Colorado began a period of sustained growth that persisted through the present day.
The increase in ethane recovery flowed via NGL pipeline grid into Mont Belvieu. Since Q4 2007, ethane markets in Mont Belvieu and the Gulf Coast at large were no longer supply limited but were demand limited. The swing from a supply limited market had the predictable bearish impact on prices. Since Q4 2007, variable ethylene production costs based on ethane were consistently lower than costs based on propane and light paraffinic naphthas.
This fundamental change in the ethane supply/demand balance caused buyers and sellers to adjust their day to day behavior. In today's ethane market, no one wants to accumulate ethane inventory.
Sellers want to sell every gallon of ethane production every day. Buyers now purchase only what they need this month -- secure in the knowledge that ethane supply will remain plentiful next month and the month after ....
As with all markets in transition, plentiful ethane supply at attractive prices prompted knowledgeable ethylene producers to retrofit naphtha plants with substantial ethane cracking capability .. the pendulum will eventually swing the other way .. the key question is when ...
We answer these and many other questions about ethane, other natural gas liquids, and petrochemicals for clients who subscribe to NGL Markets in North America.
