Did Oil and Gas Pass ‘Unprecedented’ Weather Test?

 Issue 111 – Refineries and oil storage flooded by Harvey August 30, 2017

Introduction…August 27 Hurricane Harvey pummeled Texas described by the National Weather Service as ‘unprecedented.’  This hurricane delivered torrential rainfall that was ‘unknown’ and ‘beyond any experience.’

The severity of the storm damage to the oil and gas industry of Houston and along the coast was unknown.

Valero Energy and Motiva, a Saudi Aramco subsidiary, experienced flood waters around storage tanks looking like serious and lasting damage.

Three weeks later it was apparent that lessons learned from Katrina and Rita in 2005 made operations recovery much quicker.

Harvey’s impact was considerable but short-lived.  At the point of greatest disruptions, August 29, about 3.9 million b/d of refining was offline.  Additionally, 1.5 million b/d experienced reduced capacity.

Just 17 days later, the impact was minimal with only three refineries with combined capacity of 325,000 b/d remained offline.  Another 1.4 million b/d was starting up and only 2.3 million b/d was operating below maximum output.

In conclusion...The industry was able to reassure the world, that it faced the unprecedented challenge of Harvey, and weathered the storm.

Source: Ed Crooks, “How US oil and gas passed the test of ‘unprecedented’ weather,” Financial Times, 16 Sept 2017.

Harvey Recovery Faster Due To Changes After Karina

Issue 110 – First Corpus Christi Refinery Online

Introduction...Many changes have been made since the 2005 Hurricane Katrina tore though east Texas and Louisiana where 25% of the nation’s refinery is located.  This was reported on a September teleconference reported by the American Petroleum Institute.

Harvey’s damage…400,000 barrels per day (bpd) of production was offline to refineries and gas processing.  Ports and terminals are mostly open.  That is more important now than after Katrina because the U.S. is a major exporter of crude and oil products.

Pipelines, which are critical are mostly back to capacity including Colonial and Explorer Pipelines.

There has also been fewer electricity outages than during Katrina, an important element of refining.

Improvements…Government response has improved, noted Robert McNally, a fellow at Columba University.

The federal government understands that oil is the life-blood of a modern society.  Restoration of supplies and transportation came quickly after Harvey, McNally said.

In conclusion…“We definitely were better prepared. We appreciated the need to deal with all of the energy aspects that we identified during Katrina, but also communication between state and federal authorities seems to have gone better this time,” said Guy Caruso who previously lead the US Energy Information Agency.

Source: Nick Snow, “Changes since Katrina made post-Harvey recovery better,” Oil and Gas Journal, 8 September 2017.

Texas Refineries Prepare To Reopen – Gasoline Falls

 Issue 109 – Marathon Petroleum Refinery In Houston

Introduction...Wednesday night the reports came out that Texas would have gasoline shortage.  Thursday the lines started forming at the gas stations.  I needed gas, but decided to wait until Friday when the lines would be gone.  Well, the lines were gone, but so was the gasoline.  I went to a dozen stations before i found a Walmart that had gas.  The station was hidden behind a retaining wall, so the motorists emptied the Racetrac across the street.

By Sunday, I saw several of these gas stations were refueled and selling again.

What happened?  After rising 25% last month, gasoline prices fell for first time in two weeks as impact of Hurricane Harvey impact assessed.  Some Texas Gulf refineries have opened Saturday including Exxon Mobil 560,500 barrel per day (bpd) Baytown facility, the second largest oil refinery.  Several others are preparing to restart its refineries this week include Citgo Petroleum 157,500 bpd refinery in Corpus Christi, Texas.  Phillips 66 is preparing to resume operations at its 247,000 bpd facility in Baytown, Texas.

Another positive change for the oil industry is Occidental Petroleum has re-opened its Ingleside, Texas which is a key export hub for Permian Basin oil producers.

About 4.4 million barrels a day of U.S. refining remains closed.  The Strategic Petroleum Reserve will supply 1 million barrels of crude to the Gulf Coast plant.

Saturday, the volume of offshore U.S. Gulf of Mexico crude production still shut in declined to about 160,000 bpd.

Nearly half of U.S. refining capacity is located in the Gulf Coast region located near crude oil supplies from Texas oil fields.  Most major Texas ports remained closed to large vessels, limiting offloading imported crude.

In summary…While the Hurricane Harvey’s impact on Houston and the Gulf Coast has been horrific, the Texas oil production and crude refining facilities are being restored at a rapid pace.

What Impact Will Hurricane Harvey Have On Gasoline And Crude Pricing?

 Issue 108 – Harvey Rainfall In Texas Beyond Anything Experienced

Introduction…Hopes for an immediate relief from Hurricane Harvey’s wrath in Houston and along Gulf Coast seem unlikely. The National Weather Service calls the flooding “unprecedented” and warns things may become more dire if a record-breaking 50 inches of rain falls on parts of Texas in coming days.  How will Harvey disrupt gasoline and crude supplies and pricing?

Impact on Texas refining capacity…So far 10 refiners close as Harvey brings havoc to the hub of Texas energy.  Here is the short list of the top refineries closed:

By late afternoon Sunday, refineries run by Exxon, Citgo, Petobras, Flint Hills, Magellan, Buckeye, Shell, Phillips 66, and two plants run by Valero Energy were closed according to S&P Global Platts and the companies.  Total refining shut down estimated to be 2.2 million barrels per day or one-third of the nation’s capacity to refine oil into gasoline, diesel and other products.

Also 22% of the oil and 26% of the natural gas produced in the gulf was closed.

Bull and Bear response to Harvey...”It’s a gasoline story more than a crude oil story at the moment,” Ed Morse, Citi’s global head of commodities research, told CNBC’s “Squawk on the Street” on Friday.

Gulf Coast gasoline for spot delivery was at $1.73 per gallon, up 23 cents from Tuesday, according to Oil Price Information Service. Nymex gasoline was up about 5 cents over the same period.

“If we get rapid accumulation in 24 hours the refineries simply can’t pump the water fast enough out of the location,” he told CNBC’s “Squawk Box.” That could lead to damage to electric pumps in refineries, potentially requiring repairs that could take weeks or months, he added.

As the consensus estimate begins forming around a weeks-long outage, the picture for crude demand just becomes worse and worse, said John Kilduff, founding partner at energy hedge fund Again Capital due to deduction in demand by the refineries.

In summary…The full impact of Harvey on gasoline and crude inventories and pricing will be determined in the next three or four days until the storm damage to the refineries is fully determined.

More than 6.5 million people live in the region impacted by Harvey and several deaths have been reported.  The flooding impact is “unprecedented.”  Our thoughts and prayers go out to those suffering.

Time To Cut Ethanol?

 Issue 107 – Ethanol Justification Illusionary?

Introduction…”The closest thing to earthy eternal life is a government program,” President Ronald Reagan.  Maybe ethanol and biofuel mandates are included in his statement.  Those who benefit from a government subsidy, often giving millions to political campaigns, and vocally defend it.  While those who are apposed are usually disorganized and busy with everyday life.

It was a noble cause…The Renewable Fuel Standard (“RFS” created in 2005 and expanded in 2007, by the Energy Independence and Security Act was passed and expanded.  The laws require refiners to blend increasing amounts of ethanol into gasoline and expected the private sector to produce a growing amount of “cellulosic” biofuels and “advanced” biofuels.

The promise then for biofuels were scary exaggertions, which now have become illusions.

The promises unfulfilled…The justification for this government give away, were told is that it would reduce pollution.  However, cars are already 95% cleaner than they were in 1970, so there is no real befit here.

America was deleting its petroleum reserves and the RFS would reduce oil imports from unfriendly nations.  But, horizontal drilling and hydraulic fracturing (“fracking”) has given the U.S. at least a century of new reserves.  Net imports of petroleum averaged 4.9 MMb/d, the equivalent of 25% of total U.S. petroleum consumption in 2016, up slightly from 24% in 2015, which was the lowest level since 1970.

Renewable fuels would prevent dangerous manmade climate change, we wer also told. Contrary to the hysteria, computer models and  Al Gore’s new movie, humanity and the planet are not experiencing unusual or unprecedented climate changes.  Inconvenient to Mr. Gore’s story, not a single category 3-5 hit U.S. mainland since October 2–5.  That’s a record 11 years and 10 months.

To get a far more complete, facutal, and honest climate science, see the Climate Hustle documentary instead.

To produce ethanol, the United States has devoted 40 million acres or 40% of its corn crop.  In addition it uses billions of gallons of water to irate corn fields, plus giant amounts of fertilizer, pesticides, and fossil fuels to its production.

In conclusion… the two big promises of RFS were the reduction of fossil fuel usage and reduction of pollution have not materialized by burning corn in our cars.  Autos that burn 95% cleaner and the increased petroleum production in part due the frackers have solved those problems.  Time to push the lobbyists aside to do what is best for America and repeal the Renewal Fuel Standards.

Sources: “Biofuel justifications are illusionary,” What’s Up With That, 30 July 2017; “Oil: Crude And Petroleum Products Explained.” US Energy Information Administration, 8 May 2017

 

Oil Markets Rebalance On Strong Demand

 Issue 106 – Oil Demand Strong

Introduction…World oil demand will grow more than expected this year, helping to ease a global glut despite rising production from North America and weak OPEC compliance with output cuts, the International Energy Agency said on Friday.

The 2017 demand growth forecast to 1.5 million barrels per day (bpd) from previous month report of 1.4 million bpd.  The report said it expected demand to expand further next year.

OPEC is cutting output by 1.2 million bpd. while Russia and other non-OPEC producers are cutting production by 600,000 bpd until Mach 2018.

Compliance by OPEC cuts in July fell by 75%, the lowest level since cuts began in January according to the IEA.

The net result is the overall oil supply in July rose by 520,000 bpd which is 500,000 bpd abovet last year’s levels.

The strain on oil producers to support oil prices as the non-OPEC output is expected to expand by 0.7 million bpd in 2017 and by 1.4 million bpd in 2018.  There are strong gains in U.S. production as we are not participating in the output caps.

In conclusion…Strong oil demand growth is helping to clear the excess oil inventories in industrialized nations in both June and July.

Source: Dmitry Zhdannikov, “IEA Says strong oil demand growth helping market rebalance,” Reuters, 11 Aug 2017.

What State Is The Top Energy Consumer? California, NY, Texas

Issue 105 – Texas Windfarm

Introduction…Texas has many firsts.  Texas is the first in oil and gas production as well number as wind farm producer in the United States.

According to U.S. Department of Energy…Texas produces a third of the nations oil and gas and more than a fourth of all wind power generated in the U.S.

Texas is also number one leading in curde oil refining.

The Texas first you may not have expected, Texas is the top energy consumer in the U.S.  The state’s demand for energy grows every year as its population grows.

The energy required to develop, produce, refine, and bring petroleum products to market is also a large part of that energy usage.  However, that statistic was not available.

One more first…Thirty states adopted energy efficient policies as reported by the U.S. Energy Information Administration.  Texas became the first state with an energy efficiency resource standard (ESSA) in 1999.

In conclusion…Texas is not only number 1 in oil, gas, wind energy production, It is also number one enegy consumer in the United States.  On the green side, it was also the first state to adopt the ESSA.

U.S. Becoming World’s Largest Natural Gas Exporter

 Issue 104- LNG Ship Loading Sabine Pass

Introduction..The United State is already the world’s largest producer of natural gas.  The International Energy Agency (IEA) expects by 2022 U.S. will be the world’s largest exporter of natural gas.  The U.S.  is expected to produce 890 billion cubic meters (bcm,) more than a fifth of the global gas output.

The demand…Global natural gas demand is expected to grow 1.6% a year for the next five years, with consumption on track to hit almost 4,000 billion cubic meters by 2022.

“Also, the rising number of liquefied natural gas (LNG) consuming countries, from 15 to 30 this year, shows that LNG attracts many new customers especially in the emerging world,” said IEA Executive Director Fatih Birol said in a statement Thursday.

The supply…”The U.S. shale revolution shows no sign of running out of steam and its effects are now amplified by a second revolution of rising LNG supplies,” Birol.  Three major LNG terminals are under construction on Texas coast will double the number of U.S. ports currently in use.

What this means to us…This continued demand for natural gas will keep the drillers active in the Utica/Marcellus shale play where our newest projct is located.  The project cleans drilling mud and produced water benefiting from the increased LNG shipping capacity.  Send me an email at bill@billmoist.net for insider information.

Source: David Reid, “U.S. on course to become world’s largest exporter of natural gas: IEA,” CNBC, 13 Jul 2017

Resistance To And Calls For New Oil & Gas Regulations Abound

 Issue 103- Front Range (CO) Drilling Controversy

Introduction…Two people were killed by a May 2017 home explosion in Firestone, Colorado.  Gas entered the basement through a cut flow line.  Colorado Gov. John Hickenlooper ordered a statewide review of oil and gas operations after the deadly fire.

The one inch flow line had been abandoned according to Anadarko Petroleum Corporation, the current owner.  However, the flow line was not disconnected from the wellhead or capped.

Controversy Ignited…People living near gas wells in Garfield, Colorado claim they have experienced an array of health effects from exposure to high concentration of volatile organic compounds such as bensene and toluene.  And the Firestone explosion and deaths has increased the fear of health effects.

The battle over oil and gas drilling in residential area was brought to the Colorado legislature this spring.  Democrats and environmental groups seeking to impose rules that would push fracking further away from schools and public facilities.  The Firestone exposition was identified as one more reason to pass such legislation.

The legislation did not pass.  However, a cut flow line that was abandoned has nothing to do with fracking.  They are two totally separate issues.

On the opposite side of the controversy... along Boulder, Colorado’s front range, support for oil and gas has grown, though it often goes unnoticed amidst the cries of what some call a vocal minority.  In particular, this desire for less regulation is predominant.

My experience in Boulder…About eight years ago I worked a 560-acre real estate development east of Boulder near Estes Park.  The anti-development fervor was so strong, that Boulder County had a special tax to be used to take large acreage out of private hands, never to be developed.  The only way I could develop this land was to subdivide into 35 acre tracts.  It is fascinating to see that same area supporting oil and gas development.

Conclusion...When tragedy strikes, hysteria is often whipped up.  It seems Gov. Hickenlooper’s ordered statewide review of oil and gas operations is appropriate.  If some health and safety issue is lacking, then it should be addressed.

In general, the leaders in the oil and gas industry do not support President Donald’s Trump’s call to reduce regulation. In annual reports to U.S. Security and Exchange Commission, 13 of the biggest 15 oil and gas producers said that compliance with current regulations is not impacting their financial operations or financial condition.

Sources: Amelia Arvesen, “Firestone explosion started by gas from cut flow line near house,” Time-Call Carbon Valley, 2 May 2017; Ben Adler, “Living next to natural gas wells is not fun,” grist, 18 July 2017; Josh Keefe, “in Colorado Fracking Fight, Emails Show Constituents Begging Lawmakers For Help,” IBT Times, 24 July 2017; Richard Valdmanis, “As Trump targets energy rules, oil companies downplay their impact, Reuters, 23 March 2017

 

Sustainable Energy – Why Oilfield Produced Water Must Be Cleaned

Issue 102 – Cleaning 500,000 gallons of oilfield produced water daily in Midland, TX

What is produced water?  

Produced water is water found in the same formations as oil and gas. When the oil and gas flow to the surface, the produced water is brought to the surface with the hydrocarbons. Produced water contains some of the chemical characteristics of the formation from which it was produced and from the associated hydrocarbons.

Produced water may originate as natural water in the formations holding oil and gas or can be water that was previously injected into those formations through activities designed to increase oil production from the formations such as water flooding or steam flooding operations.  In some situations additional water from other formations adjacent to the hydrocarbon-bearing layers may become part of the produced water that comes to the surface.

Why is produced water a problem for the oilfield industry?

  1. The United States has 1 million producing oil and gas wells and nearly everyone generates water.  The sheer volume of produced water is staggering.  During 2012 (the most recent year data is available) is 21.2 billion barrels or 890 billion gallons was produced; and was disposed of. per year. Niney-seven percent (97%( of the water was produced in 21 states with Texas generating one third of the total produced water . Just pumping that water back down is a waste of a tremendous resource.
  2. Water resources are declining especially in West Texas and Western United States. Cleaning and reusing produced water is a  very sound sustainable energy practice.
  3. Oklahoma Regulators issued new limits to produced water being pumped underground.  A recent study links produced water to the strongest earthquakes ever recorded in Oklahoma.
  4. Cushing, Oklahoma residents seek class-action lawsuit against oil companies over earthquakes.

What are the produced water solutions?  Two processes discussed.

#1. In Midland, Texas Gradient Technology is being used to clean 500,000 gallons of water per day.  The Midland plant is proving more economical than the old strategy of re-injecting produced water back into the wells, while purchasing clean water for the fracking operations.

The project is being joint ventured with Pioneer Natural Resources.  Pioneer claims it is able to re-use nearly 100% of its produced water and recycles 85% of the heat needed to keep the system running.

#2. Our American Mud Works, LLC project in Ohio will be using a ceramic membrane process that has low requirements of preliminary treatment with minimum need for support and maintenance.

Ceramic materials are very stable chemically, thermally, and mechanically.  The benefit to the operator is no additives are needed and the process is not temperature sensitive.  Filtration with ceramic is a mild process with running cost limited by a closed production cycles and continuous process.

American Mud Works expects to clean 82,000 gallons of water per day with this first installation.

in summary.

The oilfield industry is being pushed by regulators and possible lawsuits to adopt sustainable energy practices.  In locations of water shortages, such practice is imperative.  However, at least in the case of Pioneer Natural Resources in Midland, Texas, re-use of produced water is more economical then the old strategy.

Re-using waste water is and can be adapted by other industries such as chemical, metal, textile, food and beverage.  Maybe the oilfield industry will lead the way to sustainable water usage practices.

For more information, contact Bill Moist at bill@billmoist.net

Sources: “About Produced Water,” Produced Water Treatment and Benefical Use Information Center;  “Water Treatment Solutions,” Lenntech, BV; “Solving The Clean Water Crisis With Sustainable Energy,” Science Can Change The World, 29 February 2017