OTHER U.S. REGIONS: Cash Waha, El Paso Permian gas trade in positive territory for first time in two weeks; NATIONAL: KBR enters deal to use Baker Hughes turbines for mid-scale LNG projects; Goldman says for a peek into oil’s future, go back to 1990s; The ‘marginal’ producer driving the oil price rally; The indigenous peoples war against pipelines; INTERNATIONAL: Japan’s JERA secures LNG Canada volumes.
OTHER U.S. REGIONS
Cash Waha, El Paso Permian gas trade in positive territory for first time in two weeks
S&P Global Platts
Waha and El Paso Permian cash natural gas prices traded in positive territory Monday for the first time in over two weeks as a decline in regional production and the end of maintenance coincided. Waha jumped $1.71 cents compared with Friday and was changing hands at 42 cents/MMBtu, while El Paso Permian rose 62 cents to 32 cents/MMBtu. The balance-of-the-month contract for Waha was trading at 15.6 cents/MMBtu, 26 cents weaker than the spot market, indicating that prices may dip again. Over the past two weeks, the spot Waha price averaged negative $1.45/MMBtu, dropping as low as negative $5.79/MMBtu on April 4. During the same period, the El Paso Permian cash price averaged negative $1.09/MMBtu, wandering between negative $5.25/MMBtu and negative 19 cents/MMBtu. The support came as production eased. Output is expected to total 8.1 Bcf on Monday, after averaging about 9 Bcf/d over the past 20 days, according to data from S&P Global Platts Analytics. Unplanned maintenance on the El Paso Natural Gas system at the Lordsburg and Florida compressor Stations in New Mexico announced on March 18 was lifted earlier in April, which may have reduced some of the supply glut in the basin, which suffers from limited takeaway capacity. However, cash prices may slip back into negative territory as more maintenance is scheduled for the coming days. [MDN: So the reason prices improved is because drillers let up on the pedal and produced less oil (and gas), plus a pipeline system down for maintenance came back online. We continue to watch this amazing story of drillers willing to pay others to take their gas in West Texas.]
NATIONAL
KBR enters deal to use Baker Hughes turbines for mid-scale LNG projects
Houston (TX) Chronicle
Houston engineering, procurement and construction company KBR has entered into a deal to use turbines made by Baker Hughes when building medium-sized liquefied natural gas plants. KBR designs and builds LNG plants but under the deal announced on Monday, the Houston-based service company will use LM2005+G5 and LM6000PF gas turbines made by Baker Hughes when building mid-scale LNG plants. Mid-scale LNG plants use modular equipment and construction to build medium-sized production units that produce less than 3 million metric tons of liquefied natural gas per year. The turbines made by Houston oilfield service company Baker Hughes in Italy are touted as cost-saving and more efficient than those made by competitors. “BHGE and KBR have a well-established 40-year history and partnership successfully delivering LNG projects,” KBR Hydrocarbons and Delivery Solutions President Farhan Mujib said in a statement. “This allows us to further enhance our cost effective standardized approach to LNG design, minimizing CAPEX and OPEX for our clients.” KBR is regarded as a pioneer in the LNG industry. Over the past 40 years, the company has designed and built one-third of the world’s LNG production. Monday’s deal with Baker Hughes builds upon a September 2018 agreement with oil giant ConocoPhillips. Under that deal, KBR agreed to use ConocoPhillips’ optimized cascade process technology when building modularized and medium-sized LNG plants. Combined, the two deals are expected to bring down development and construction costs. “We are delighted that KBR has selected our highly efficient and reliable gas turbine technology as part of the development of its standardized mid-scale LNG design,” Baker Hughes Turbomachinery Process & Solutions President & CEO Rod Christie said in statement. “We welcome the opportunity to strategically work together with key partners like KBR, looking at our collective solutions across the value chain to develop a more competitive solution for customers.” Headquartered in Houston with roots going back more than 100 years, KBR reported a $281 million profit on $4.9 billion of revenue during 2018. With services ranging from government contracting to the oil & gas industry, the company employs more than 36,000 people in 40 nations. [MDN: Interesting development that KBR is partnering with Baker Hughes to help them build LNG plants.]
Goldman says for a peek into oil’s future, go back to 1990s
Bloomberg
The future of the oil market may resemble the past — specifically the 1990s — according to Goldman Sachs Group Inc. That’s when prices remained steadily in backwardation, a market structure where near-term futures are costlier than later contracts — reflecting tight supplies in the present and ample barrels further out, analysts including Damien Courvalin wrote in a April 8 report. The phenomenon may persist as OPEC exits its current output cuts aimed at averting a global glut, adding supply back to the market in a move that would weigh on long-dated prices, Goldman said. That will maintain backwardation and lead U.S. shale drillers to limit activity, according to the bank. “We view this as the most compelling outcome for OPEC, and the market structure most likely to be sustainable,” the analysts wrote in the report. “But having been waiting for this shift since 2016, we are not yet ready to base case it, even though the maturing shale producer landscape should eventually help achieve it.” Goldman also raised its second-quarter forecast for global benchmark Brent crude to $72.50 a barrel from $65, and said a rally that’s taken prices over $70 is reflective of a larger deficit than it predicted. OPEC’s cuts, an acceleration in global economic activity, tighter U.S. oil sanctions on producers such as Iran and an only moderate gain in shale production will continue to squeeze supplies through 2019, according to the bank. Brent futures traded little changed at $71.11 a barrel as of 10:59 a.m. in London. West Texas Intermediate, the U.S. benchmark, was up 0.4 percent at $64.63 a barrel in New York. [MDN: Always good to keep an eye on the price of oil because of its close tie to natural gas. Depending on whether more or less oil is being pumped, more or less gas comes out of the ground along with the oil.]
The ‘marginal’ producer driving the oil price rally
OilPrice.com/Tsvetana Paraskova
It’s not just OPEC production cuts, Venezuelan chaos, and sanctions that are pushing up oil prices this year–U.S. shale production is slowing, too. And the result is a phenomenal 30-percent rally in WTI Crude prices in the first quarter, with the U.S. benchmark jumping from as low as $45 a barrel in early January to as high as $60 at the end of March. These improving supply fundamentals, including waning concerns over global economic and oil demand growth, have led to oil’s best quarterly performance in a decade. But the key driver has been slowing growth in the U.S. shale patch in response to the 40-percent slump in prices in the fourth quarter of 2018, according to a note from John LaForge, Head of Real Asset Strategy at Wells Fargo Investment Institute. While Saudi Arabia is the “swing” producer, managing the market by deliberately withholding or increasing production regardless of price, the U.S. is the world’s marginal oil producer—the country pumping what the industry refers to as the extra barrel of oil—so shale breakeven prices are key to determining global oil prices, LaForge says. But U.S. oil production growth is now slowing, with average daily U.S. crude oil production slipping in January from the previous month for the first time in nearly six months, according to the EIA’s report from end-March. And it’s in the margins that we should be looking. “Commodity prices are often set on the margin, which means that they are set by the country that is producing that extra barrel of oil, ounce of gold, or pound of copper. In the case of oil, the U.S. is producing that extra barrel of oil for the world to consume,” LaForge notes. [MDN: Another article on oil price, this one from one of our favorite bloggers on OilPrice.com. Tsvetana provides an understandable view for why oil prices, especially West Texas Intermediate, are trending up so much right now.]
The indigenous peoples war against pipelines
Forbes/Richard Epstein
The world will continue to to rely on fossil fuels for most of its energy needs. Political, economic, and technological realities make it impossible that advances in solar and wind technologies could work a wholesale shift in energy sources in just a matter of decades. However, environmental activists, convinced that they can alter this reality, often deploy dubious strategies to thwart promising fossil fuel development projects. A recent example of how this process has evolved is the invocation by the Standing Rock Sioux Tribe of two international agreements concerning indigenous people’s rights to halt the Dakota Access Pipeline (DAPL). This paper reviews the flaws underlying the SRST’s legal claims. The two documents are the United Nations Declaration of the Rights of Indigenous Peoples, adopted by the UN General Assembly in 2007, and the so-called Equator Principles, which guidelines financial institutions can adopt voluntarily before making loans for large projects with potential adverse effects on the environment and welfare of indigenous people. The SRST wrongly interprets both documents as licenses to disregard on the bedrock principles of fairness and reciprocity they are supposed to enshrine. The SRST cites two provisions of the UN Rights of Indigenous People to claim effective veto authority over DAPL construction. One is Article 19 which stipulates states must consult and cooperate in good faith with indigenous peoples in order to get their consent on public policies that may affect them. The other is Article 32, which declares that indigenous peoples have the right to determine priorities and strategies for the development or use of their lands or territories. The U.S. is not a signatory to the UN Declaration, and thus not bound. But even if the UN Declaration is taken at face value, its effect is more limited than indigenous groups commonly claim. That document is based on the “parity principle,” which is meant to establish good faith, informed consent, and mutual respect between UN states and their indigenous populations. The SRST’s persistent actions repudiate its core ideal that good faith is always a two-way street. Safeguarding the rights of indigenous peoples does not convey to them veto power on any pipeline or other major capital project, any more than it gives that power to any nation state. There is no balance between contending parties if the claims of indigenous tribes are always postulated to be superior to those of nation states and other interested parties. [MDN: First of all, they’re “Indians,” which comes from the root word meaning indigenous. So often we try to obfuscate with our language. Call things what they are plainly, as people understand it. Second, this is a good article looking at how various tribes of Indians try to block pipeline (or other infrastructure) projects. Our view is that their aim is to shake down the projects for big money, and if project builders pay them, they go away. Kind of like the mob. Their aim is not to worship Mom Earth and protect the planet and all that rot. They’re in it for the money, trading on their heritage. Sorry if the truth hurts.]
INTERNATIONAL
Japan’s JERA secures LNG Canada volumes
LNG World News
Japan’s LNG importing giant JERA signed a heads of agreement with Diamond Gas International, a Mitsubishi Corporation company, for the sale and purchase of the chilled fuel from LNG Canada project. The contract is for the purchase of up to 16 cargoes of LNG a year for approximately 15 years beginning in fiscal 2024. This first procurement of LNG from Canada diversifies JERA’s supply portfolio and can be expected to contribute to stable and economical LNG procurement in the future, JERA said in a statement. The destination clause in this HOA is in line with the Survey on LNG Trades report released by the Japan Fair Trade Commission in June 2017, and JERA believes this will help it respond appropriately to LNG supply and demand uncertainty and expand opportunities for optimizing its LNG portfolio. [MDN: This entry piqued our interest. Japan’s Tokyo Gas is under contract to take half of Cove Point’s LNG output, yet frequently resells the cargoes to others. So why would another big (the biggest, in fact) Japanese company sign a new long-term deal for even more LNG from North America, Canada in this case? Geography. Cove Point is on the East Coast and shipments to Japan have to transit the Panama Canal and travel an extra thousand miles or so on the way to Japan, while the LNG Canada project is on the West Coast–much shorter distance and more direct route to Japan. Cheaper to ship. Good for the Canadians.]
This post appeared first on Marcellus Drilling News.