Tenth Triple-Digit Injection Reported in 2019, Cove Point Resumes Exports

Tenth Triple-Digit Injection Reported in 2019, Cove Point Resumes Exports

Natural gas storage inventories increased 104 Bcf for the week ending October 11, according to the EIA’s weekly report. This is slightly lower than the market expectation, which was an injection of 108 Bcf. The injection this week ties 2019 with 2014 for the most 100+ Bcf injections, at ten.

Working gas storage inventories now sit at 3.519 Tcf, which is 494 Bcf above inventories from the same time last year and 14 Bcf above the five-year average.

Prior to the storage report release, the November 2019 contract was trading at $2.346/MMBtu, roughly $0.043 higher than yesterday’s close. Those gains held post-report, and at the time of writing, the November 2019 contract was trading at $2.346/MMBtu.

Market Commentary

The Cove Point LNG terminal restarted exports earlier this week after a roughly three-week maintenance period. Before the maintenance period, Cove Point was taking north of 0.7 Bcf/d into the facility. However, during the maintenance, flows to the terminal fell to zero and forced gas elsewhere into the market. This caused excess supply in the Northeast during an already low-demand period, which caused regional prices to decrease. With maintenance ending on Monday, flows to Cove Point have returned to normal. This has brought relief to regional prices, as Dominion South has seen basis increase ~$0.59/MMBtu from Sunday to Wednesday this week.

See the chart below for projections of the end-of-season storage inventories as of November 1, the end of the injection season.

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and DI analysis for the week ending October 17, 2019.

Supply:

  • Dry production increased 0.41 Bcf/d on the week. Most of the increase came from the East (+0.25 Bcf/d), with small gains in all other regions.
  • Canadian imports remained relatively flat week-over-week, gaining 0.02 Bcf/d.

Demand:

  • Domestic natural gas demand increased 2.18 Bcf/d week over week. Res/Com demand accounted for most of the increase, rising 4.03 Bcf/d. Industrial demand also increased 0.46 Bcf/d, while Power demand decreased 2.31 Bcf/d.
  • LNG exports increased 0.35 Bcf/d, while Mexican exports decreased 0.09 Bcf/d.

Total supply increased 0.43 Bcf/d, while total demand increased 2.53 Bcf/d week over week. With the demand increase outpacing the supply increase, expect the EIA to report a weaker injection next week. The ICE Financial Weekly Index report is currently expecting an injection of 91 Bcf. Last year, the same week saw an injection of 58 Bcf; the five-year average is an injection of 71 Bcf.

Large Crude Oil Build Pressure Prices

Large Crude Oil Build Pressure Prices

US crude oil stocks increased by 9.3 MMBbl. Gasoline and distillate inventories decreased 2.6 MMBbl and 3.8 MMBbl, respectively. Yesterday afternoon, API reported a crude oil build of 10.5 MMBbl alongside a gasoline draw of 0.93 MMBbl and a distillate draw of 2.9 MMBbl. Analysts were expecting a crude oil build of 4.0 MMBbl. Total petroleum inventories posted a decrease of 1.6 MMBbl.

US crude oil production remained unchanged last week, per the EIA’s estimates. Crude oil imports were up 70 MBbl/d last week, to an average of 6.3 MMBbl/d. Refinery inputs averaged 15.4 MMBbl/d (0.22 MMBbl/d less than last week’s average), leading to a utilization rate of 83.1%. Prices are pressured by large crude oil build and stocks in Cushing posting a 28.6 MMBbl increase. Prompt-month WTI was trading down $0.38/Bbl, at $52.98/Bbl, at the time of writing.

West Texas Intermediate for November delivery settled higher on Wednesday at $53.36/Bbl, up $0.55 from the prior day. Regardless, the US benchmark remains down $1.54/Bbl from Monday’s open. Markets have taken a step back from the enthusiasm of last week as traders look for details on the “Phase 1” trade agreement with China touted by the White House. With the agreement so far appearing to be more sizzle than steak, WTI has drifted lower on the back of weak global economic growth prospects put forward by the IMF on Tuesday and the EIA’s Drilling Productivity Report showing stronger US tight oil production in November. Growing US crude inventories due to planned refinery maintenance and difficult export arbs caused by steep freight rates continue to weigh on nearby contracts, with the front spread settling $0.10 in contango yesterday. The contango in the Nov-Jan spread also continued to widen, settling at $0.11. Furthermore, challenging export economics have led Midland Sweet to drop close to parity with WTI Cushing after trading at premiums as high as $1.10/Bbl last week.

Petroleum Stocks Chart

A PJM Load Forecast Error Exposed Utilities to Potential Losses of Millions of Dollars

A PJM Load Forecast Error Exposed Utilities to Potential Losses of Millions of Dollars

In a recent post, we examined how energy investors and traders can use Enverus Trading & Risk’s PRT, the market’s most accurate forecast tool, to identify future money-making opportunities with pinpoint accuracy. In the wake of a PJM load error this month that caused a huge real-time price spike, let’s look at how PRT helps you avoid losing money.

On Oct. 1, real-time prices rose above $600 after the ISO Day-Ahead forecast missed the load forecast by more than 10,000 MW. High temperatures throughout the PJM region were 10-15 degrees above average, including:

  • Chicago: 86 degrees—18 degrees above average
  • Philadelphia: 84 degrees—12 degrees above average
  • Washington D.C.: 87 degrees—13 degrees above average

As a result, peak load soared 141% above average. The hour-by-hour breakdown below shows a couple of time blocks in particular when these errors caused the real-time market prices to hit nearly $400:

  • Hour 16:00: the average ISO error was -10,106 MW
  • Hours 14:00-19:00: the average ISO error was -8,200 MW

PJM utilities that were exposed to the load error, and had to buy power to make up for this error, would have been exposed to losses of nearly $20 million!

However, a utility that had the Enverus Trading & Risk PRT forecast would have saved $14 million.

The largest PRT error was -4,600 MW at hour 15:00. The average PRT error for hours 14:00-19:00 was only -1,360 MW.

Warren Buffett has famously said there are two simple rules of investing: “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” The Enverus Trading & Risk PRT solution can play an invaluable role in both identifying bullish opportunities for you to capitalize on, and just as importantly, provide you with the real-time data you need to avoid losing money.

Follow this link to learn more about how our PRT suite provides you with the industry’s most accurate and current online forecasting services for electric load and price, gas demand, and solar and wind power.

Already Sluggish OFS M&A Activity Slows to a Crawl in Q3

Already Sluggish OFS M&A Activity Slows to a Crawl in Q3

The M&A market in oilfield services ground to a virtual halt in Q3, its slowest in deal value in at least five years, according to the Enverus Drillinginfo M&A Database. Combined, the entire sector produced only $2.53 billion in combined deal value in Q3—less than Transocean’s acquisition of OceanRig UDW in September 2018. All of 2019 has produced only $10.35 billion in announced deals compared with $13.24 billion in 4Q18.

Crude’s rally in early 2018 followed by the 4Q18 price collapse could share some of the blame for the transaction stagnation. The sharp decline prompted E&P firms to cut back their production or do more for less capex. This trickled down into OFS, which has felt investor pressure.

From North American frackers to offshore drillers, many oilfield services segments complain of oversupply. While consolidation would be one way to reduce pricing pressure, investors could be reluctant to endorse larger companies.

In fact, the two largest M&A transactions in the past 10 years are in the process of being undone. General Electric started eyeing the exit almost as soon as the $33.9 billion merger of GE Oil & Gas and Baker Hughes closed in July 2017. GE finally reduced its stake in Baker Hughes to a minority one in September.

Technip and FMC Technologies also closed their merger in July 2017, but TechnipFMC announced in August that it would start to undo some of the $6.76 billion merger. The company intends to spin off its Onshore/Offshore segment into a new company to be headquartered in Paris, with its Subsea and Surface Technologies segments remaining in a company based in Houston.

The largest deal of Q3 was also announced July 1, the first day of the quarter. Dubai-based marine terminal operator DP World expanded into marine logistics services, buying Topaz Energy and Marine Ltd. from Oman-headquartered support vessel operator Renaissance Services and Standard Chartered Private Equity/Affirma Capital. The $1.079 billion transaction is the second-largest A&D deal in OFS this year and accounted for 43% of Q3’s total.

Topaz operates a fleet of 117 vessels, predominantly in the Caspian Sea, Middle East, North Africa, and West Africa. The company offers towing, anchor handling and mooring, subsea services, and transportation of large modules, cargoes, crew, and supplies among other services. It employs more than 2,500 people and reported 2018 revenue of $349 million.

The largest deal in North America came at the end of the quarter. NGL Energy Partners announced Sept. 26 that it agreed to acquire Hillstone Environmental Partners, which provides water disposal and logistics in the Permian and Williston basins and the Marcellus/Utica play, from Golden Gate Capital for $600 million.

The Week Ahead For Crude Oil, Gas and NGLs Markets – October 14, 2019

The Week Ahead For Crude Oil, Gas and NGLs Markets – October 14, 2019

CRUDE OIL

  • US crude oil inventories posted an increase of 2.9 MMBbl last week, according to the weekly EIA report. Gasoline and distillate inventories decreased 1.2 MMBbl and 3.9 MMBbl, respectively. Total petroleum inventories decreased 8.3 MMBbl. US crude oil production increased 200 MBbl/d, per EIA, while crude oil imports were down 0.67 MMBbl/d, to an average of 6.2 MMBbl/d.
  • Crude spent the beginning of the week drifting lower, but closing the first three days of the week was flat. Concerns over the health of the global economy continued to drag on sentiment. On Tuesday, the new head of the IMF, Kristalina Georgieva, announced plans to reduce the 2020 global GDP growth outlook by 0.8 percentage points. This would take 2020 growth down to just 2.7%, the slowest pace of economic expansion since the 2008 financial crisis. On Friday, the International Energy Agency cut its demand growth forecasts to 1 MMBbl/d in 2019 and 1.2 MMBbl/d in 2020. The release also raised the forecasts for supply growth in 2020 from non-OPEC sources by 0.4 MMBbl/d.
  • Amid the weak macro sentiment early in the week, futures markets largely ignored the upswell of political unrest in Ecuador, which has affected oil production and transport. After halting operations on the Trans-Ecuadorian Pipeline System on Wednesday, Petroecuador declared force majeure on some crude and product deliveries. The market also shrugged off reports that an Iranian tanker came under fire in an apparent missile attack in the Red Sea.
  • Prompt futures found support later in the week as US and Chinese negotiators met in Washington to discuss a possible end to the ongoing trade war. Although details remain lacking, Friday’s announcement of a tentative agreement sent November WTI to close at $54.70/bbl (up from the prior day’s close of $53.55/bbl). Nevertheless, contango has crept into the first three months of the WTI term structure, and there has been further flattening of the Brent structure as well.
  • The CFTC report released Friday (showing positions from October 8) showed a continuing shift in the expectations. The Managed Money long positions dropped 7,301 contracts, while the Managed Money short positions increased by 36,859 contracts. The Managed Money short position has now doubled in the last two weeks, confirming the concerns around global demand.
  • Market internals last week maintained a slightly neutral to negative bias, with prices closing above the previous week on higher volume and very slight gains in open interest. The volume was fairly consistent throughout the week. With markets cautiously optimistic about some type of trade deal emerging between the US and China, a floor is likely to remain around $50.00. Upside could emerge on the back of short covering if a breakthrough is met or another geopolitical event occurs. However, any rally would likely be met with selling between $57.50 and $59.00.

NATURAL GAS

  • Natural gas dry production decreased 0.31 Bcf/d last week, while Canadian imports decreased 0.44 Bcf/d.
  • Res/Com demand showed an increase of 1.66 Bcf/d, while power demand decreased 5.15 Bcf/d. Industrial demand gained by 0.15 Bcf/d. Secondary components showed LNG exports gaining 0.15 Bcf/d, while Mexican exports increased by 0.22 Bcf/d.
  • These events left the totals for the week showing the market dropping 0.76 Bcf/d in total supply, while total demand fell by 3.08 Bcf/d.
  • The storage report last week showed the injections for the previous week at 98 Bcf. Total inventories are now 472 Bcf higher than last year and 9 Bcf below the five-year average. The current weather forecasts from the NOAA, in the near term (coming week), show above-average temperatures east of the Mississippi, while the 8- to 14-day forecast has above-average temperatures from Ohio to the east. The eastern region of the US showing above-average temperatures creates a more bearish outlook for prices due to limited power demand and very small heating demand.
  • The CFTC report released last week (dated October 8) showed the Managed Money long position selling 6,716 contracts, while the Managed Money short position added 42,458 contracts. The chart below shows the Managed Money shorts chasing the highs established in early August prior to the short covering rally in late August and early September, which took prices up to $2.70.

  • Prices broke below the lows of early October with a decline to $2.187 before ending the week at lows not seen since mid-August. The market internals now show a neutral to bearish bias as the market declined on gaining volume and gains in open interest (according to preliminary data from the CME).
  • As discussed last week, prices drifted lower all week and broke below the previous month’s low, only to find buyers at $2.20. Due to the amount of short interest in the market, rallies may find short covering support. Should the declines continue, additional support will be found from $2.18 down to $2.12. Should the market find support, it may create the need for the shorts to cover a rally and could take prices to $2.36, up to $2.40.

NATURAL GAS LIQUIDS

  • Enterprise has announced that they will proceed with the expansion of their Appalachia-to-Texas (ATEX) ethane pipeline. The expansion would increase capacity on the pipeline by 45 MBbl/d and is currently expected to be in service in 2022.
  • Prices were up across the board last week. Ethane was up $0.004 to $0.195, propane was up $0.038 to $0.476, normal butane was up $0.058 to $0.615, isobutane was up $0.010 to $0.811, and natural gasoline was up $0.038 to $1.101.
  • US propane stocks gained ~132 MBbl for the week ending October 4. Stocks now sit at 100.77 MMBbl, roughly 20.51 MMBbl and 21.85 MMBbl higher than the same week in 2018 and 2017, respectively.

SHIPPING

  • US waterborne imports of crude oil fell for the week ending October 11, 2019, according to Enverus’s analysis of manifests from US Customs & Border Patrol. As of October 14, aggregated data from customs manifests suggested that overall waterborne imports decreased by 161 MBbls/d from the previous week. The drop was driven by declining imports in PADD 1 and PADD 3. PADD 1 waterborne crude imports fell by 193 MBbls/d, while for PADD 3 the drop was more than 160 MBbls/d. PADD 5 imports increased, up by 140 MBbls/d.

  • US imports of Brazilian crude have been strong so far this month, with 293 MBbls/d imported so far in October. That is the highest level since May, when the US imported more than 300 MBbls/d. Chevron has imported nearly 77 MBbls/d to their El Segundo refinery near LA, while Marathon has brought in nearly 75 MBbls/d to their Carson refinery, which is also in the LA area. On the Gulf Coast, Valero has increased their imports of Brazilian crude at their Texas City refinery, importing cargoes of Frade in both September and October. The chart below shows a breakdown of Brazilian imports by grade so far in 2019.