2011 July 29

The Master Resource Report  2011-07-29

Transportation & natural gas – a guest article.    (page 1 ) 

Interviews with Art Berman.    (page 3 ) 

Is it supply or conspiracy?   (page 4 )

Cellulosic ethanol.   (page 4 )

Are sticks sustainable?   (page 3 )

Oil production up 40%

On Wednesday the EIA included the graph below as part of an assessment of crude oil production in North Dakota. The graph shows that year-over-year production climbed by 40% when comparing February 2011 to the same month in 2010. The production trend is clearly up but how significant is it? What does a 40% increase mean in barrels?

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It is always important to be careful when looking at percentage changes, especially when coming off of low starting points. The graph below also based on EIA data illustrates a little different picture when comparing North Dakota’s oil production to that of Alaska, California and Texas. This graph puts that 40% jump into a more historical and volumetric perspective.

While a 40% jump in production is impressive when compared to the decline in production from the other top three producing states mentioned in the EIA article it begins to look a little less significant. The graph shows the production declines for Alaska, California and Texas since 1981 along with the performance of North Dakota.

Click image to enlarge

The next graph compares the production from the four states beginning in 2000 which matches the time period of the EIA graph at the top. The important line is the red line which is the total production for all four states. Even with the jump in North Dakota production and the recent improvement in Texas the combined production still remains below the levels of 2000. In fact the recent improvement in Texas production since the summer of 2009 (147,000 b/d) was a larger contributor to the red line turning up over the last two years than North Dakota (132,000 b/d). [The U.S. currently uses roughly 19 mb/d.]

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In addition the EIA article mentions a number of infrastructure and logistics issues that impose constraints on the rising North Dakota production. The ability to bring the increasing volumes of crude from the Bakken will be a limiter for a number of years to come. One has to wonder why the rush to produce at a $10 discount to WTI. A little patience could prove to be very profitable for those who can afford to wait.

Gasoline demand and the status of diesel.

In last week’s posting I mentioned that subtle trends were unfolding in U.S. gasoline demand that indicated consumption was softening. This week’s EIA demand data continues to show that same trace of weakening. The average daily demand is lower than this time of summer in all of the last 7 years. Yes, even lower than during the oil price spike and fiasco year of 2008.

The other area of concern is in diesel. Production of 15 ppm and lower sulfur diesel is up year-over-year, price is up year-over-year while demand is softening. This is a warning signal last seen in the period before the 2008-09 recession. It should not be ignored.

The final caution on diesel was covered last week and concerned exports. Rising exports will provide support higher prices and higher production even as domestic demand softens. Very few understand this relationship.