In this episode we talk about rigs at a plateau, IEA predictions, and Cruz’s solution to LNG export.
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Audio Transcript
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on February 20, 2023 which just so happens to be President’s Day. It’s still early in the day, yet there is a ton of drama. It seems like most of it stems around the fact that President Biden has chosen to make a surprise trip to Ukraine to offer more financial support to President Zelensky despite the fact that Ohio has not qualified for much emergency aid despite being ground zero of what could be quite possibly be in the top 3 largest environmental disasters in our young country’s history. As much as I would love to delve into this topic and all things surrounding it, this is in fact the RARE PETRO podcast, so instead we will look towards energy statistics and news that more closely surrounds energy. Still, that doesn’t mean we are incapable of scratching that itch! You will just have to wait for another episode of the Wacky World of Energy to come out which I hear is right around the corner.
First things first we take a peek at commodity prices. WTI spent the start of last week hovering around the $79 mark before quickly falling to $76 on Friday. Since opening this morning it hasn’t made a ton of progress and now resides around 77 bucks. If the end of week fall sounds dramatic to you, there is no need to worry because Brent did the exact same thing whilst remaining at a solid $7 premium. Natural gas continues to be the limbo champion as it drops lower and lower than everyone expected. Natural gas spent last week at 2 and a half but has since fallen to 2 and a quarter. Things are not looking especially hot in that arena, and new scandalous factors are coming into play that may lead to the rest of the world becoming more reluctant to consume the US’s natural gas. Surprising considering just how much cheaper it is than gas in markets all over the rest of the world. Not a ton of great news in this arena, but with tensions rising with Russia I imagine we can expect volatility to remain on the menu for quite some time.
Next up is the rig count. 2 weeks ago we saw a double digit decline. 1 week ago we saw a meager increase. This week we see another decline, but only by 1 rig. This leaves us at 760 total rigs which is still 115 more than we had this time last year. The only major basin to see change was the Cana Woodford with 2 new rigs. From a state perspective this leaves Oklahoma and Wyoming up one, Colorado and New Mexico down one, and Louisiana down 2. We also saw the Gulf of Mexico lose a rig. Of these changes there was a slight shift away from oil to gas wells but really not much can be said otherwise. This is about as close as you can get to no change without actually seeing a goose egg. I went ahead and graphed it to see the general shape since 2019, and the valley of 2020 has been conquered, though we have leveled out not where we would be if that massive dip never happened. From January of 2019 to just pre covid we saw a decrease from almost 1100 rigs to 800 rigs which is right about where we are today. This would suggest that not much has changed in the world energy environment from pre to post covid, though I really don’t buy that. Another year of rig data could be wildly illuminating for domestic producers in the US.
Lastly we take a look at the weekly Thirsty Thursday report put together by Nick Fernhout. Another great week of excellent figures and well written analysis that I suggest everyone take a peek at. You can find it at www.rarepetro.com within the “Thirsty Thursday” newspulse subpage. If you didn’t get a chance to read it, I’ll do my best to convey that valuable information through audio alone. The EIA reported 16.283 million barrel increase this week. That would have been quite shocking a month or two ago. Nowadays? Just another Thursday build. Well, the API didn’t seem to be sleeping this week while putting in their data. Last week’s reported draw was likely a mistake, but this week’s 10.5 million barrel build sure isn’t. They were two orders of magnitude off with their forecast this week but hey, at least it is in the right direction this time.
Eight builds in eight weeks and we’ve just had the second-largest one during that span. Why though? Why have we had so many builds lately? One reason for this week’s build is that Russian oil is back on the international market, and is in direct competition with American oil. Cheap Russian oil is being bought up before sanctions possibly return to the conversation. Another week with no oil released from the SPR, though the recent announcement from the White House revealed another 26 million barrels would be sold. Along with increasing crude oil stockpiles across the country, gasoline stock too continues to rise and rise and rise. Perhaps due to such large gasoline stockpiles, gasoline prices this week dropped a tad. A tad = one cent. Just one single cent was how much cheaper regular gasoline got this week. At $3.422 gasoline is no bargain, but it also isn’t as bad as it was several months ago, and with stockpiles this large it sure doesn’t feel like we are in for rising gas prices. The largest piece of the gas price puzzle continues to be refinery capacity and outages. Diesel dropped by six cents this week which we can all be happy about, but zooming out the timeline on diesel prices provides a dimmer view. A year ago diesel was a whole 60 cents cheaper. All fuel stock seems to be on the rise lately, diesel not excluded. Propane/propylene has been the only exception for several months now. Here’s to hoping rising diesel stock can tame diesel prices.
Thanks again to Nick Fernhout for crafting another excellent report. Next we turn to our news stories where we have some new predictions from the IEA. While the IEA has predicted some silly things in the past, I do believe there is truth to the most recent claim. Head of the agency, Fatih Birol, claims tight production capacity for LNG is likely to contribute to shortages next winter. The biggest factor in the mix? Chinese demand. The agency has predicted about 800 billion cubic feet of natural gas supply should be added this year, but even moderate predictions of economic recovery in China anticipate they could easily swallow up 80% of that new capacity. As Mr. Birol says, “For this winter it is right to say that we are off the hook. If there are no last minute surprises, we should get through…maybe with some bruises here and there, but the question is…what happens next winter?” I would have to agree with Mr. Birol here. It seems like most everyone is ready to put COVID in the rearview, and the new thing to focus on is huge economic growth with a possible war looming in the future. Last year Europe had the option of buying gas from Russia, but even if the pipeline is back to functioning by next winter, that option is likely to not be available. I feel like last winter Europe secured natural gas thinking it would just need to make it through the winter. Unfortunately, the conflict between Russia and Ukraine has not resolved itself in the way that Western media has predicted. Hell, if I had only read US headlines I would have believed the same thing. Now it seems more and more likely that Russia will be in Ukraine a lot longer than just a year. Securing enough natural gas resources may be one of the largest energy problems of the decade, but where there exists a problem, there exists a solution.
Senator Ted Cruz of Texas believes he has a valid solution to such a problem. He has proposed a new bill that would expedite the federal approval process for projects surrounding LNG export. Besides creating and supporting thousands of domestic jobs, the legislation aims to help to fortify U.S. energy security, reduce emissions at home and abroad, and strengthen America’s strategic and economic relationship with allies. The beautiful thing about all of those goals is that they target a vast array of political issues that anyone could get behind. In 2021 exports of LNG generated $8.3 billion. In 2022 that number more than quadrupled to $35 billion as the US worked to service natural gas shortages abroad. Part of the reason the US was able to push the pace was because Senator Cruz (amongst other legislators) worked hard to expedite permitting that builds off of previously constructed LNG bills. Good on Senator Cruz for identifying solutions that can play to Texas’ strengths because, as I’m sure we all know, that whole state is swimming in natural gas. Why shouldn’t they construct the necessary infrastructure to service shortages across the rest of the world? I personally am excited to see how the Gulf could possibly transform into once of the most productive natural gas export hubs in the coming years.
But ladies and gents, we have to bring this episode to a close. Legacy media sources will lead you to believe that all is well and normal in the energy world. While we are relatively better off than a lot of places, there is still much work to be done to maintain property supply and independence. If you aren’t sure what I’m referring to, please frac that follow button on whatever platform you are listening through. We put out great independent content all the time spanning periodicals, podcasts, and videos. We do all the research to bring objective and unbiased information to yourself because we believe seeking knowledge and thinking for yourself is paramount for positive growth. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!