Articles tagged with "twip"
News of the future was, in my youth, something that one found by crossing the palm of a lady in a dark tent with a piece or two of silver (or the modern equivalent) at one of the fairs that came to town. Such opportunities still exist, with all the caveats that existed back then likely still being in force. However, projecting the future, whether of the weather, the likely corn crop this year in the United States, or the production of crude oil by the nations of the world has become a much bigger business with copious tables, graphs and theories replacing the rather worn pack of cards or crystal ball of my youthful experience.
Our part of the world underwent a drought last year severe enough to kill several trees in our yard, for example, as well as hurting the corn crop. This year, corn plantings have been severely impacted by the heavy rains and cold weather, so that decisions on crop plantings have become more complicated and delayed, with follow-on impacts on the ultimate yield in a number of Midwestern states. Corn yield apparently falls at an average rate of 2.3 bushels per acre per day of delay in northern Wisconsin. These changing conditions make it difficult to assess how much ethanol, for example, will be available to meet demand, although the latest EIA TWIP holds out some optimism for this year.
The impact of the drought on corn prices, and the consequent fall in ethanol production, as production costs rose, are directly visible from their plot of the two over the last year.
However, with the weather impacts still being assessed, it is already being concluded that the US corn crop is unlikely to reach the record level of close to 14.6 billion bushels that were earlier projected. It still, however, has the potential to reach around 12.3 billion bushels, which would satisfy the just under 5 billion bushel need for ethanol, as well as other demands of the market. By May 12 only 28% of this year's expected crop had been planted, in contrast with a normal year where 65% would be in the ground. Thus, even the relatively short-term projections of the EIA could yet be in trouble for this year.
It is the beginning of a New Year, and belatedly, I hope that all readers find this new period to be one of prosperity, health and happiness. It would be encouraging if the portents for our energy future would point in that direction, but unfortunately I can’t see nearly as much optimism in that regard as do others who are similarly reviewing where the global energy supply numbers are going. This week the EIA's ”The Week in Petroleum” is illustrative of the optimistic vision.
This plot is from the new Short-Term Energy Outlook from the EIA, which projects the numbers through to 2014, at which time: the Agency anticipates that US domestic production will rise to 7.9 mbd, the highest since 1988. Growth is expected to extend beyond just the Bakken:
In particular, drilling in tight oil plays in the Williston (which includes the Bakken formation), Western Gulf (which includes the Eagle Ford formation), and Permian basins are expected to account for the bulk of growth through 2014. Williston Basin production is expected to rise from an estimated December 2012 level of 0.8 million bbl/d to 1.2 million bbl/d in December 2014. Western Gulf Basin production rises from an estimated December 2012 level of 1.1 million bbl/d to 1.8 million bbl/d in December 2014. Within the Western Gulf Basin, roughly 0.4 million bbl/d of the oil production is outside of the Eagle Ford formation. The Western Gulf Basin accounts for more than half of the onshore domestic liquids production growth due to a comparatively large amount of liquids coming from both oil and gas wells compared with the other key production basins. The Permian Basin in West Texas, which includes plays such as Spraberry, Bonespring, and Wolfcamp, is a third key growth area. EIA estimates that crude oil production from the Permian Basin reached 1.2 million bbl/d in December 2012. Permian Basin production is projected to increase to 1.4 million bbl/d in December 2014.
The overall global concerns for production include a relatively small potential for production growth from the larger oil producers in the world (with the possible exception of Iraq), while there remains an increasing turmoil that began with the “Arab Spring” and continues to spread with ongoing and growing impacts that are likely on Middle Eastern oil production. But it is the story of American production that continues to gnaw at my worry bead string.
With the possibility that demand for Iranian oil may fall below 1 million barrels a day (mbd) as sanctions continue to bite, Iran has announced that it wants OPEC to cut back production to the agreed quotas, rather than the overall additional 1 mbd that is actually being produced and sold. Such a move would, of course, make it more difficult for those customers who have found a way to replace Iranian oil, and perhaps incline them more toward disregarding the embargo.
OPEC has just released their December Monthly Oil Market Report (MOMR) in which they anticipate that earlier projections for 2013 oil demand growth will still be valid at 0.8 mbd. (Though they note that December 2012 growth y-o-y was at 1.0 mbd as the US economy continued to improve). They expect that all of this increase will be met by non-OPEC increases in supply, and that demand for OPEC oil may even drop 0.4 mbd. Part of that projection continues to rely on increased US crude production, and the EIA TWIP of December 5th had the latest chart showing that projected growth, based on the newly released Annual Energy Outlook 2013.
Figure 1. Projections of future growth in US crude oil production. (EIA TWIP) from Annual Energy Outlook 2013)
As a footnote to that graph, the Alyeska pipeline pumped an average of 582,755 bd in November, which brings the annual average up to 544, 625 bd. It is clear from looking at that plot that the gains in production are assumed to come from increased production of the "tight" oil deposits that have produced the overall gains achieved to date. The optimism of this projection goes a little beyond the levels that I anticipate will be achieved.
The development of oil in Texas produced, in its time, the four richest men in the world (H.L. Hunt, Sid Richardson, Roy Cullen and Clint Murchison) and the single richest acre of oil production at Kilgore but is not where the greatest number of productive fields of oil per acre, or perhaps the most expensive acre in the country lies. (And the current richest American oilman, Harold Hamm, incidentally is now from Oklahoma - oh, tempora). That expensive acreage is found in and around Los Angeles in California, and so it is California that I will write about today.
One of the metrics of the economy that serves as a marker to me on how we are doing relates to the use of vehicles, and as a consequence the amount of gas that is being used. Prices of gas haven’t changed much over the past months, nor has the price of crude. Thus without price fluctuations confounding the causes of change, it is possible to get some measure of how we’re doing from how much gas is being used. Recognizing that the summer driving season is now over, but that information is now available on how the patterns of driving went.
This Week in Petroleum, where I get the data on this, has, this week, focused on the impact that Canada is having on imports, given that it is the largest supplier to the USA at the moment. Part of the story they told this week was that the impact of pipeline problems between the two countries had not ultimately had much impact, and service is now resumed.
As the advertisements on television and the newspapers will tell you, summer is coming to an end, and school sessions are about to restart. Which means that we are coming to the end of the summer driving period and, as a result, demand will, likely in a couple of weeks, start to decline. As the latest TWIP (This Week in Petroleum) notes, we aren’t quite there yet, and demand is running some 250,000 bd above last year for gasoline, but we are close to the turnover.
Before the Deepwater Horizon incident I would follow the EIA weekly announcements known as This Week in Petroleum and occasionally comment on what I thought to be important. At the same time, trying to discern how the economy was improving, if at all, I would look at the data from the FHWA on the vehicle miles travelled, and include that each month. For a variety of reasons it looks as though I haven’t done that since February at which point the US demand for gasoline was falling below that of a year ago, inputs to refineries were below that for 2009, and the VMT (which appears three months later) were showing that November numbers were somewhat more positive.
So with this 6-month hiatus, and being now towards the end of the summer driving season, how have things progressed?
Energy and the Media
This was the panel I had been asked to participate in. My fellow panelists were Steven Mufson (one of my favorite mainstream energy reporters), from the Washington Post; Eric Pooley from Harvard, (the former managing editor of Fortune); and Barbara Hagenbaugh from USA Today. The panel was moderated by John Anderson of Resources for the Future.
I can only imagine that a number of people looked at the lineup, looked at my inclusion, and thought "What's that guy doing up there?" So here's the background on that. When I was working at the ConocoPhillips Refinery in Billings, Montana, we followed the weekly release of the EIA's Weekly Petroleum Status Report very closely. We included this information in a weekly supply/demand report, and it helped us to make decisions on how to run the refinery for the upcoming week.
At this year's ASPO conference, I was twice asked about the gasoline supply situation - once at a panel session and once by a reporter. At the time, there were gas shortages throughout the Southeast, and some of the speakers gave the impression that this was the beginning of the end: Gas shortages are here to stay, and we are on the verge of the entire country running out of gasoline. There were a number of predictions along the lines of "It's going to get a lot worse before it gets better."
While first discussing the source of the gas shortages - low inventories followed by a hurricane that sidelined a significant source of refining capacity - I answered the question as follows: "This is a temporary event. We will see imports start to pick up and fill the shortfall. We will see refining capacity start to come back online, and I predict that a month from now gasoline inventories will be higher than they are today."