2014 April 17

The Master Resource Report 2014-04-18

Two big consumers buy their own power generation

Two consumers of electricity cover their concerns over the cost of power generation and potential risk associated with carbon emissions. Both Ikea and Cemex have announced the purchase of wind projects.

Ikea has stepped up to a 98 megawatt wind project in Illinoi. According to Bloomberg the “… wind farm will produce enough electricity for about 34,000 U.S. homes, or about 165 percent of the company’s U.S. electricity consumption from 38 stores, five distribution centers, two service centers and a factory.”

Cemex, which is the world’s largest producer of cement, completed financing of two wind projects in Mexico. The financing of the 126 megawatt projects was valued at $650 million. Cement manufacturing is one of the largest emitters of carbon dioxide in the world.

Natural gas storage update

In its Weekly Natural Gas Storage Update the EIA reported an increase of 24 Bcf for the week ending April 11th . This put the storage volume of working gas in storage at 850 Bcf. The injection volume of 24 Bcf was just slightly below the average for this week over the last 8 years.

Working gas volumes in storage now stand 50% below year ago levels and 54% below the trailing five year average. The two graphs below illustrate the current situation compared to the past.

Working gas in storage (prior wk) 2014-04-04

Click graph for larger view.

Working gas in storage (5 yr avg) 2014-04-04

Click graph for larger view.




2014 April 11

The Master Resource Report 2014-04-11

The US top oil producing counties

Drillinginfo posted a very interesting map and supporting data that highlights just how small the area producing half of US oil production really is.

One highlight is that Kern County California is number three and it has been producing now for over 100 years. A second illustrates just how important the very rapid growth in North Dakota production has been. If the two deep water Gulf of Mexico blocks are excluded McKenzie County in North Dakota moves up to the number three spot behind Beechey Point, Alaska and Kern County in California. Given the realities of tight oil production it will be interesting to see where McKenzie County is 100 years from now.

Top 20 counties produce half the oil - DrillingInfo

Click map for link to Drillinginfo post.

US gasoline demand

The EIA reported gasoline for the week ending April 4th reached 8.996 million barrels per day up over 500,000 barrels per day over year ago levels for the same week. The four week average which takes some of the weekly volatility out was up 370,000 barrels per day.

As pointed out last week if US gasoline demand begins to move above the 9 million barrel per day level before the peak driving season even starts it will be a sign the assumptions about where US gasoline demand is headed need to be reevaluated.


2014 April 4

The Master Resource Report 2014-04-04

Natural gas prices: Do they reflect reality?

Based on reports in the Wall Street Journal there is nothing to worry about since surging supply from shale gas will ride to the rescue before next winter.

WSJ: With forecasts now indicating the bulk of the extraordinary cold U.S. winter is over, analysts are expecting the heating-related phase of withdrawals from stored inventories to end soon. They see one or perhaps two more supply declines in weekly data released by the U.S. Energy Information Administration–and the potential for huge supply increases during the summer months thanks to robust U.S. shale production.

Next week’s report will look into this further and try to develop some scenarios based on the data and not the short-term views of futures traders. For now let us just say that we have our concerns.

US gasoline demand

After being depressed by the extreme winter weather experienced across much of the US this winter it appears gasoline demand is rebounding. The trailing four week average reported by the EIA this week has demand up 326,000 barrels per day over last year at 8.79 million barrels per day.

It will be important to see if demand continues to rebound and climb back towards the 9 million barrel per day level. If along with an improving economy US gasoline consumption begins to climb ending the 2008-09 recession induced decline it could upend projections of continued consumption declines in the US.

At the all-time peak in US demand during the 2006 and 2007 US gasoline consumption averaged 9.3 million barrels per day. Current US gasoline consumption is running about 460,000 barrels per day behind those peak years. The average since 2004 is 9.0 million barrels per day so today’s demand remains only 240,000 barrels per day below that slightly longer-term average. To move back to that average since 2004 would only require a 2.7% move up in consumption. Reaching the 2006-07 peak would require a much more robust 5.2% growth in demand.

When thinking about the peak demand volumes seen in 2006 and 2007 remember that the US economy was running on financial steroids that ultimately led to the financial crisis. Using that two year period as the benchmark to measure shifts in US demand for liquids fuels will tend to overstate the decline in fundamental consumption.



2014 March 28

The Master Resource Report 2014-03-28

Natural gas storage breaks thru 900 Bcf

Yesterday the EIA reported that natural gas storage declined to 896 Bcf for the week ending March 21st. This is over 50% below both year ago levels and the trailing 5-year average. This is the lowest level for this time of year since March of 2003.

Then there is oil storage at Cushing, Oklahoma which is down 32% year-over-year.

Here is what the EIA had to say this week on what is unfolding at this important storage facility in the middle of the US.

Crude oil inventories at Cushing, Oklahoma, the primary crude oil storage location in the United States, decreased 13 million barrels (32%) over the past two months. On March 21, Cushing inventories were less than 29 million barrels, more than 20 million barrels lower than a year ago and the lowest level since early 2012. Cushing is the delivery location for the New York Mercantile Exchange (Nymex) West Texas Intermediate (WTI) crude oil futures contract.

The recent drawdown of stocks at Cushing resulted from three factors:

The startup of TransCanada’s Cushing Marketlink pipeline, which is now moving crude oil from Cushing to the U.S. Gulf Coast

Sustained high crude oil runs at refineries in Petroleum Administration for Defense Districts (PADD) 2 (Midwest) and 3 (Gulf Coast), which are partially supplied from Cushing

Expanded pipeline infrastructure and railroad shipments that have made it possible for crude oil to bypass Cushing storage and move directly to refining centers in PADDs 1 (East Coast), 3 (Gulf Coast), and 5 (West Coast)

The result of this has been a continued narrowing of the price difference between WTI ($101/b), Brent ($106/b) and LLS ($104/b). It is important to note that the global benchmark Brent has come down from around $110/b while the US domestic benchmarks of WTI and LLS have climbed up from sub $100/b levels at the end of last year. So as the logistic of moving US crude oil production improve the price of that domestic production has moved back into closer sync with the global market. This will be good news for US domestic producers and probably won’t change the situation for US consumers as much since they were already competing on the global market for refined products like diesel as this report has pointed out many times.

Crude oil inventories at Cushing 2014-3


2014 March 21

The Master Resource Report 2014-03-21

Natural gas storage continues its decline

These two graphs by now are familiar to readers of The Master Resource Report. They clearly show just how different the situation is concerning natural gas in storage this year than during the previous years when shale gas was coming into prominence.

Storage levels are now 48% below the trailing 5 year average and 49% below year ago levels. When compared to the spring of 2012 when natural gas prices dipped below $2 million Btu the amounts are even more striking. At this point in March of 2012 storage stood 2,400 Bcf. Today it is at 953 Bcf down 1,447 Bcf. At this point the natural gas markets clearly are expressing confidence that the storage will be refilled by next winter. It will be very interesting to see how this plays out thru the rest of the year.

Natural gas storage 2014-03-21