Natural Gas Prices Fall Below Zero In Texas
Surging U.S. oil production in the Permian basin has helped crash oil prices. But the Permian is also home to skyrocketing natural gas production, and output is growing so fast that drillers are trying to give it away for free. When they can’t, they just burn it off into the atmosphere. Unlike in the Marcellus shale, where natural gas is the main target, drilling in the Permian is focused entirely on crude oil. Natural gas is a nice bonus that comes along with the oil. But the drilling frenzy in West Texas and New Mexico has resulted in a glut of this associated natural gas. There is a pipeline bottleneck for crude oil, but there is also a shortage of pipeline space for natural gas. The glut has become so bad that next-day prices for gas at the Waha hub in the Permian have plunged to a record low, falling to as low as 25 cents per MMBtu. In some instances, producers have actually sold some gas at negative prices. That means that a company is paying someone else to take the gas off of their hands. On Tuesday, the lowest price recorded was -25 cents/MMBtu (to be clear, that is negative 25 cents), according to Natural Gas Intelligence (NGI). It was the second consecutive day that prices were in negative territory. “That’s right, someone was paid to buy gas in the Permian on Monday,” RBN Energy LLC analyst Jason Ferguson said, referring to NGI’s pricing data. “While we’d like to tell you this was some sort of transient, one-off event that led to a day of dramatically low gas prices, that isn’t likely the truth of the matter. Ferguson went on to add that there is little prospect of a recovery until next year. “The Permian gas market is flooded with associated gas and won’t see significant new takeaway capacity until the start-up of Kinder Morgan’s Gulf Coast Express pipeline in late 2019,” Ferguson said, according to NGI. “The problem is here to stay, at least for a few months. Take a deep breath if you trade the Permian gas markets.” The negative prices are down sharply from the average price this year at $2.16/MMBtu at the Waha hub. The predicament also stands in sharp contrast to natural gas traded elsewhere. Nymex prices for December delivery are trading around $4.40/MMBtu, up sharply over the past month due to low inventories and cold weather. Ironically, the inauguration of new oil pipelines is making the gas glut worse. According to RBN, the startup of the expansion of the Sunrise oil pipeline, owned by Plains All American Pipeline LP, added takeaway capacity for oil. That has allowed for more drilling and completions, which has led to more produced gas. The supply glut has had other effects beyond low prices. Drillers often vent, flare or otherwise leak natural gas during their drilling operations, which has both environmental and fiscal consequences. A report from the Wilderness Society and Taxpayers for Common Sense, finds that between 2009 and 2015 drillers on public lands wasted 462 billion cubic feet (Bcf) of natural gas, or enough gas to meet the needs of 6.2 million households for a year. At an average price of $3.65/MMBtu over that time period, the wasted gas adds up to about $1.7 billion. The federal government under President Obama tried to force drillers to capture this wasted gas. In 2016, the Bureau of Land Management (BLM) finalized regulations on venting, flaring and leaks at oil and gas facilities on public lands. However, BLM under Trump has rolled back these standards, relying instead on a patchwork of uneven regulations at the state level. Some states do better than others on regulation. Colorado, for instance, “set the standard for reducing gas waste when it finalized first-in-the-nation methane capture requirements in 2014. The state has shown that there are easy and cost-effective ways to address methane pollution,” according to the report from the Wilderness Society and Taxpayers for Common Sense. At the other end of the spectrum is New Mexico. New Mexico has wasted more natural gas than any other state, about 570,000 tons annually, according to the report. The state wastes about $182 to $244 million worth of gas each year, or enough gas to satisfy the needs of every resident in New Mexico each year. It is no surprise that New Mexico has some of the weakest standards on methane emissions, a problem now that BLM is removing the federal standards and leaving regulation up to the states. Meanwhile, the problem is only getting worse with soaring production in the Permian. The rate of flaring in New Mexico climbed by 2,244 percent between 2009 and 2013. Negative prices for natural gas offers very little incentive for drillers to capture that methane.
Mumbai: Attractive valuation, gas push draw institutions to Mahanagar Gas
Since August, Mahanagar Gas has seen aggressive buying by all institutions – overseas investors, domestic mutual funds, and insurers – as the company is best placed to harness the growing demand for cleaner fuel such as CNG, PNG. Cost control on the back of falling gas prices and a smart recovery in the value of the rupee would also benefit the company, said analysts. The stock, which declined 26 per cent so far this year, is currently trading at 15 times FY 2019 earnings, compared to 27X for Indraprastha Gas and 17X for Petronet LNG. “MGL boasts of a strong financial profile – debt-free balance sheet, strong free cash flows and robust return ratios” said Jal Irani, analyst, Edelweiss Securities. “We expect EBITDA margins to continue to lead industry, leading to a sustainable 20 per cent RoE. The stock is trading at an attractive valuation of 15.6 times FY 2020 estimated earnings, a 19 per cent discount to IGL.” Foreign institutional investors raised their stake from 12.70 per cent to 19.03 per cent in the September quarter, while mutual funds’ stake increased from 5.34 per cent to 8.75 per cent. Insurance companies too have increased their holding from 1.68 per cent to 4.69 per cent during the September quarter. William Blair, Franklin Resources, Future Generali, Credit Suisse, Franklin Templeton, Shriram AMC, HSBC MF, and Union AMC, among others, have bought more shares of MGL in October. “The government’s priority allocation of domestic gas… has enabled MGL to access cheaper gas for CNG and domestic business segments, constituting 86 per cent of total sales volume,” said Mayur Matani, analyst, ICICI Securities. “MGL’s strong gas pipeline infrastructure and expanding operations in Mumbai, its adjoining areas and Raigad district will enable MGL to capture the benefits of the large and growing market.” Mumbai: Attractive valuation, gas push draw institutions to Mahanagar Gas MGL reported 29.7 per cent growth in revenue to Rs 762.9 crore, above analysts’ estimates, on account of higher volumes in the September quarter. Volumes increased 9.5 per cent YoY to 2.96 mmscmd, while analysts had pencilled in demand of 2.87 mmscmd. The company enjoys higher margins than peers due to efficiency and greater focus on CNG and PNG for households, analysts said. “Currently, CNG prices are at a 35-45 per cent discount to diesel and petrol. This should provide an adequate cushion and pricing power to MGL to maintain its EBITDA margins around Rs 8/scm over FY 2019-21,” said Nilesh Ghuge, analyst, HDFC Bank. “Favourable economics will also accelerate conversion of private vehicles, which will allow MGL to maintain its volume growth of 6 per cent over FY 2019-21”. Price increases during the September quarter countered the expected impact of high LNG prices and rupee depreciation on gross margins. Falling gas prices and the appreciating rupee this quarter will benefit the company, while MGL has taken the required price increases in the last quarter to adjust for the increase in gas costs, said analysts. “We like MGL’s business, given its dominance in the growing markets of Mumbai and its suburbs” said Avishek Datta, analyst, Prabhudas Lilladher.
Gail India proposes swap of Cove Point LNG cargoes in first quarter
Gail India is proposing to swap three liquefied natural gas (LNG) cargoes across the first quarter of next year, trade sources said on Friday. The Indian importer has 20-year deals to buy 5.8 million tonnes a year of U.S. LNG, split between Dominion Energy’s Cove Point plant and Cheniere Energy’s Sabine Pass site. With few LNG tankers available to ferry the fuel to India, Gail has already struck swap deals for a chunk of its Sabine Pass and Cove Point volumes. Under the proposed swap, Gail would sell its share of output from U.S. export plant Cove Point in return for taking delivery of LNG into India. Gail is offering a cargo a month from Cove Point for loading in the first quarter of next year in exchange for corresponding deliveries to India, one of the traders said. Participants must submit offers by December 3, the sources said.
Blockchain platform goes live for North Sea crude oil trading
Oil majors and trading firms can start finalising crude oil deals on a live blockchain-based platform for the first time, in a move that could revolutionise the market. Commodities trading firms have piloted similar schemes in recent years as blockchain technology has the potential to drastically cut costs in an environment of razor-thin profit margins. London-based platform Vakt is the first of these to go live, with shareholder Gunvor Group saying it was rolled out on Wednesday, although no trades took place that day. Blockchain, the platform behind cryptocurrency Bitcoin, is viewed by many as a solution to trade and settlement inefficiencies, as well as a way to improve transparency and reduce the risk of fraud. Vakt was created in 2017 by a consortium that includes oil majors BP and Royal Dutch Shell, Norway’s Equinor, global energy trading firms Mercuria Energy Group and Koch Supply and Trading, as well as Gunvor. These firms will initially be the only users of Vakt but access will be opened up in January next year. Banks ABN Amro, ING and Societe Generale are other shareholders. Vakt digitises and centralises what was previously a mountain of a paperwork shared between all the parties involved in each deal. It will be linked to another platform launched earlier this year, Geneva-based komgo, which will provide financing including digital letters of credit. “Vakt is the logistical arm…Once a deal is executed through our book of records, it gets pushed through Vakt. The next leg is the financing and the link-up with komgo gives access to several banks,” said Eren Zekioglu, Chief Operations and IT Officer at Gunvor Group. komgo, which is due to go live before the year end, is backed by a consortium including 10 global banks and most of the Vakt shareholders. The financing platform will target the full spectrum of commodities trading, from oil to wheat. Use of Vakt will at first be limited to contracts for the five North Sea crude grades that are used to set dated Brent, a benchmark used to price most of the world’s crude oil. In early 2019, the platform plans to include U.S. crude pipelines and barges of refined products like gasoline in northern Europe. “It’s an exciting time,” Andrew Smith, Shell’s head of trading, said. “Collaboration with our peers and some of the industry’s key players is the best way to combine market expertise and achieve the scale necessary to launch a digital transaction platform that could transform the way we all do business.”
BP sees Brazil’s new biofuels policy boosting investment
Brazil’s latest policy to boost biofuels use has improved the outlook for ethanol production and should attract new investment in plants, BP Plc’s chief executive for biofuels, Mario Lindenhayn, said on Wednesday. Brazil is advancing with additional regulation for the policy, called RenovaBio and expected to be enacted in 2020, Lindenhayn said, adding that he does not see signs that the government of President-elect Jair Bolsonaro, which kicks off in January, would put up obstacles. “We are very positive. This is a very important signal the country is giving, creating a stable regulatory environment that will allow companies to invest,” Lindenhayn told Reuters on the sidelines of an energy presentation at the company’s corporate office in Sao Paulo. RenovaBio will mandate fuel distributors to gradually increase the amount of biofuels they sell. The program aims to double the use of ethanol by 2030 from around 26 billion liters currently. The program also targets increases for other renewables such as biodiesel. BP has three ethanol mills in Brazil, crushing 10 million tonnes of sugar cane per year. It formed a venture last year with Brazil’s Copersucar, a leading global ethanol seller, to jointly operate one of the largest fuel terminals in the country located in Paulinia, in Sao Paulo state. Lindenhayn said the program provides an opportunity for mills in Brazil, which have experienced stagnation caused by years of low sugar prices and a long period of subsidized gasoline prices that led to the closure of many firms. “If the program advances as planned, it will be a large opportunity. There are no greenfield projects around, and the country is a net fuel importer,” he said. Asked if BP would be interested in increasing ethanol capacity via acquisitions, since there are several assets being offered in Brazil by companies with financial difficulties, Lindenhayn said: “We will see, we will consider.” On Wednesday, Brazilian oil and fuels regulator ANP published in the official gazette another part of RenovaBio complementary legislation, with rules for biofuel companies to obtain certification. With that, the plants will be able to issue and trade emissions reductions credits, called CBios, that fuel distributors could buy to comply with targets in case they fall short. It would be Brazil’s first emissions reductions market, although limited to the fuels industry.
Three Reasons Why LNG Prices In Asia Are Plunging
Prices for liquefied natural gas (LNG) remain weak going into what forecasters are claiming will be a warmer than usual winter season in the Northern Hemisphere. In fact, last week spot prices for the super-cooled fuel in Asian tumbled some 10 percent, hitting three month lows, an uncharacteristic development for this time of year. Reuters, citing traders, said that LNG spot prices for January delivery in North Asia LNG-AS were estimated at $10 per million British thermal units (MMBtu), 90 cents lower than last week. Factors continuing to put downward pressure on prices include warmer temperatures, LNG storage levels in the world’s top three LNG importers (Japan, China and South Korea) remaining high and plunging Brent oil prices which long term LNG contracts are mostly linked to. Though spot purchases are not usually linked to oil prices, they often follow either oil prices upward or downward trajectory. A Singapore-based trader said that “the big question mark right now is how the weather will pan out as the market will quickly turn once it starts to get cold. But until then, it’s tank-top (inventory levels) right now in many places.” LNG doldrums Japan’s weather bureau earlier this month said the El Niño weather pattern appears to have formed and that there was a 70 percent chance it would continue into the Northern Hemisphere for spring. Meanwhile, a U.S. government forecast predicted a 80 percent chance of El Nino lasting in the Northern Hemisphere unto spring. El Niño is a climate cycle in the Pacific Ocean that occurs every five years or more which has a global impact on weather patterns. The cycle begins when warm water in the western tropical Pacific Ocean shifts eastward along the equator toward the coast of South America. Global oil prices are also putting downward pressure on LNG prices as oil prices have pivoted in just a little more than a month after hitting the mid $80s per barrel price point for global benchmark Brent crude and the mid $70s price point for U.S. benchmark, NYMEX-traded West Texas Intermediate Crude (WTI) crude futures. Prices are now 30 percent off recent highs amid concerns of a growing supply glut widening from record oil output in the U.S., Russia and Saudi Arabia and after Washington issued sanctions waivers to several countries for their Iranian oil imports. This extra supply comes as demand growth is projected to dampen amid economic downturn from the ongoing trade war between Washington and Beijing and continued sluggish economic growth in emerging economies. A robust U.S. dollar is also eating into demand for oil since oil is traded in dollars and a strong greenback adds to the cost of oil imports, hitting particularly hard countries like India, the Philippines, Indonesia and others. However, weaker oil prices over the last month has offered some respite for oil import dependent countries. The third reason that LNG spot prices in Asia are tumbling is that storage levels, as already mentioned, are full – particularly in China as energy planners in Beijing try to avert a repeat of last year’s fiasco when the government sought to replace coal with cleaner burning natural gas during the winter too quickly, resulting in a shortage of natural gas and the diversion of the cleaner burning fuel from industrial end users to residential users. As far back as August, China began filling underground gas storage tanks, including state energy giant PetroChina, operator of the Xiangguosi storage facility, injecting gas from Myanmar to fill the vast chambers 3,000 meters (9,900 ft) under the mountaintop. Reports said at the time that China was aiming to turn hundreds of tapped and some still producing wells into storage facilities after a severe winter supply crunch left it short of the clean-burning fuel.
Iran halts gas exports to Iraq for pipeline repairs: Ministry
Gas exports from Iran to Iraq were halted late on Tuesday for several days, as Iranian authorities work to repair damages caused to the pipeline during a recent earthquake. The cuts deprive Iraq’s power grid of 2,500 megawatts (MW), Iraq’s electricity ministry said in a statement, as Iraq relies heavily on Iranian gas to feed its power stations. Iranian authorities informed the electricity ministry in Baghdad that the flow of gas exports will be resumed “during next few days” after maintenance on the pipeline inside Iranian territory are completed. The pipeline supplies several major power stations, including two in Eastern Baghdad and one in Eastern Diyala province near the Iranian border, the ministry said. The oil ministry will supply the power stations which have been affected by the halt with fuel to keep operations going, the ministry said. However, both provinces can expect power cuts as a result, the ministry said. Iran, which has large gas reserves alongside its oil resources, exports small amounts of gas to Turkey but production has struggled to keep pace with rising domestic consumption. The United States said earlier this month that Iraq can continue to import natural gas and energy supplies from Iran for a period of 45 days, as long as Iraq does not pay Iran in U.S. dollars. Sanctions on Tehran’s oil sector took effect on Nov. 5. Baghdad is seeking to renew and extend the exemption as it needs more time to find an alternative source, Iraqi officials said.
Petrol pumps bonanza: Dealers to move court
Barely 72 hours after the Centre announced a pre-election bonanza of distributing a staggering 55,649 new petrol pumps in the country, the apex body of their dealers plans to challenge the move in court, a top office-bearer said here on Wednesday. The All India Petrol Dealers Association (AIPDA) President Ajay Bansal said that the government’s latest move (of November 25) appeared contrary to its own policy and the dealers would question its legal validity. “On one hand, the Centre has announced the closure of petrol pumps in India replacing them with alternative fuels by 2025. But, now they are publishing advertisements for allotting the second string of new petrol pumps. So what exactly is this policy?” Bansal said. Presently, India has 56,000 retail petrol pumps of the three government oil marketing companies — Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), and Indian Oil Corporation Ltd (IOCL), besides another 6,000 outlets owned by private companies. From these fuel stations, the average monthly sales for the three Oil Marketing Companies (OMCs) are between 120-130 kilolitre with an average increase in demand on petrol-diesel of around four per cent per annum.
EPA will not reallocate waived biofuel volumes to 2019 mandate
The US Environmental Protection Agency (EPA) has rejected requests from the corn lobby to reallocate biofuel volumes waived under its small refinery exemption program into its 2019 mandate, an agency official told Reuters on Tuesday. The official also said the 2019 biofuel mandate figures, due to be released this week, would be largely in line with the agency’s June proposal of 19.88 billion gallons, which includes 15 billion gallons of convention biofuels like ethanol. The powerful corn lobby and top officials in the US Department of Agriculture have complained for months that the Trump administration’s expansion of the EPA refinery waiver program threatens demand for crucial farm products like ethanol. Under the US Renewable Fuel Standard, oil refiners must blend increasing amounts of biofuels into their fuel each year or purchase blending credits from those that do. Small refineries can be exempted from the RFS if they prove that complying would cause them financial strain. “It is an issue of timing,” said the EPA official, who declined to be named due to the sensitivity of the issue. “The primary reason why we’re not reallocating in this rule is because we have no idea what the volume of SREs (Small Refinery Exemptions) will be for calendar 2019 and we won’t know that late 2019, early 2020. All we could do is guess, and we don’t do regulations by guessing here.” The refinery waiver program is among the most controversial issues dividing the US corn lobby and the oil industry. Since President Donald Trump’s election, the EPA has vastly expanded the number of waivers it has handed out to small refineries in a bid to reduce the refining industry’s regulatory compliance costs. The move has infuriated another key Trump constituency, the Farmbelt, which argues the program erodes demand for biofuels. Under pressure, the EPA earlier this year began studying a potential overhaul in which biofuels blending obligations eliminated under the waiver program would be reallocated, possibly in the following year, to other facilities, to ensure there was no net loss in overall blending volumes. “We would like to make everybody happy. It is not often the case we can,” the EPA official said. The EPA is set to formally announce its 2019 biofuels mandate volumes by November 30.
Murphy Oil Corporation in talks to sell Malaysian oil and gas assets
Murphy Oil Corporation is in talks to sell its Malaysian oil and gas assets after an unsolicited bid that could fetch between $2 billion to $3 billion, people familiar with the matter said, in the latest energy M&A deal in the Southeast Asian nation. The independent U.S. oil and gas exploration and production company has tapped banks for the potential sale of its majority interests in eight separate offshore production sharing contracts in Malaysia, said the people, who declined to be identified because the matter is confidential. “Murphy wasn’t considering a sale but was approached by a party that put forward a very compelling bid. They are in negotiations,” said one of the people. Murphy, which has been in Malaysia since 1999, could agree on a deal in a couple of weeks, the person said. Others familiar with the matter suggested Spanish oil major Repsol, whose presence in Malaysia is focused on its upstream business, or other global majors could be potential buyers for Murphy’s assets. The possible transaction comes as M&A activity is heating up in Malaysia’s oil and gas sector, where international companies pursuing expansion plans are spotting opportunities. Repsol and Murphy Oil declined to comment on any potential sale or talks. There was no immediate response to a query sent by Reuters to Malaysian state-owned Petronas, who partners Murphy in Malaysia. In September, Austrian oil and gas company OMV agreed on a joint venture with Sapura Energy Bhd, paying $540 million for a 50 percent stake in the exploration assets of the Malaysian firm. In August, citing sources, Reuters reported that U.S. company Hess Corp’s Southeast Asian offshore natural gas assets had attracted bid interest from the likes of Thailand’s PTTEP PCL and OMV. Hess later said it had no plans to sell its Southeast Asian assets. People familiar with Murphy’s business said the company could use the sale proceeds to fund its global expansion plans. Last month, Brazil’s state-controlled oil company Petrobras and Murphy announced a joint venture to explore oil and gas fields in the Gulf of Mexico. In September 2014, Murphy announced the sale of a 30 percent stake in its Malaysian assets to Indonesian state-oil company Pertamina for $2 billion as it cut its overseas holdings. Murphy produced nearly 46,700 barrels of oil equivalent a day in the quarter ended Sept. 30 in Malaysia, the company said in response to a query from Reuters. “The potential exit seems like a strategic decision based on where Murphy sees greater growth potential. These are high quality assets and of a good size for companies looking for a strong footprint in the region,” said one banker familiar with Murphy’s business. Murphy’s deal with Pertamina was announced when oil prices were hovering around $90 a barrel. On Wednesday, U.S. oil prices were trading near $52 a barrel, having lost almost a third of their value since early October.