Monday Madness: May 17 ’21

Join your host Tavis this week as he talks about what is pushing oil prices up, Xcel’s plan for clean energy, and Louisiana’s plan to do better.

Audio Transcript

Alrighty everyone welcome back! This is Tavis Kilian with the RARE PETRO media team bringing you another episode of Monday Madness on May 17th, 2021. It was a halfway sunny halfway rainy weekend of graduation ceremonies, and I even attended my own! Well, I signed up too late, so I watched the postponed class of 2020 graduation from the stands as a few of my fellow classmates walked the stage. I was talking to a friend of the 2021 class, and they mentioned that they were now really worried about the future. Honestly, this is something we are all worried about whether you graduate, lose your job, move cities, or anything really. Big changes are initially challenges, but if we take it day by day, I’m sure we can surmount anything. So I ask this of you, dear listener: Make small progress on a big problem today. You don’t have to resolve the entire issue, just make a little bit of effort towards it. Taxes are due today, and if you were to throw 30 minutes of effort in every few days leading up to it, it would make tonight’s last minute scramble a whole lot less stressful. Progress isn’t immediate, so take a baby step everyday. It’s funny that I say all of this when I haven’t touched my guitar in a month and complain about not learning it fast enough. But you didn’t come here to listen to a hypocrite coach you on life. You came here for the hottest news in oil and gas, along with some incredibly telling statistics, so let’s dive in, shall we?

First, WTI prices. We spent all of last week trading at no lower than $65 until Friday afternoon brought it to $64. Prices climbed from that throughout the weekend, and the price this morning skyrocketed and has passed through $66! As of recording, the price sits at $66.20, and currently shows no signs of slowing, but I would not be surprised if prices again settled in the high $65 range by noon. That market open volatility is hitting just a little bit differently today. I really do feel like we are only a little ways out from $70 oil, so let’s hang tight through the summer. The biggest factors propping up prices right now would have to relate to the colonial pipeline for sure. Although the company restarted operations late last week, the sentiment of gas shortages is sure to push up pricing, which I’m sure you have definitely seen at the pump. Again, not a fundamental reason as there is plenty enough gas to supply, but panic buying is what creates a shortage at the end of the supply chain. What is the lesson then? I suppose it is:
“Always panic buy gas because everyone else is going to do it too.” Nah. That lesson sucks, and I don’t like it at all. Perhaps a better lesson is: “Don’t store gasoline in plastic bags and totes in your car, especially if you are a smoker.” You might think I am joking, but google “Florida man – hummer” and you will find the details of the fella who lit his cigarette after filing the interior of his hummer with gasoline in open containers. Another factor that is producing positive pressure on pricing would relate to the escalating conflicts between Israel and Palestine. Now the details are far too muddled to break down in an episode of Monday Madness, but know that Israel is close to Suadi Arabia, Iraq, and the Mediterrainian Sea. If full scale war emerges between Israel and Palestine, it could very easily threaten local supply networks. This may not affect WTI greatly, but it could send other benchmarks even higher. A factor that is certainly not contributing to positive price pressure is India’s rampant epidemic. If you google “COVID Map” and look at the world map, you will see a bubble centered around India extending all the way to Greece, South Africa, and Australia. It dwarfs any other bubbles on the map as its scale is just massive compared to the rest of the world. Because of this, India is experiencing lockdowns, curfews, and the likes. It is estimated that when their economy returns to normal, another 6 million barrels of oil of daily consumption will be recognized. Many small things are going on, but WTI pricing is looking good.

Next of course is the rig count where we are up a total of 5 rigs on the week! The Permian does what the Permian is best at and adds 2 rigs to its total. The Cana-Woodfard and Williston followed close with an additional rig each, and everyone else saw no change. Well, everyone else except for the Haynesville who lost one, but we will get into contributing factors for Louisiana in just a few minutes. A pretty standard week, but I would like to highlight that we added 8 oil rigs, and lost 3 gas rigs as a nation. As for the types of wells being drilled, we saw 5 directional rigs go up, 2 horizontal rigs, and a decrease of two vertical rigs. A vast majority of the total rig count remains in the horizontal category. Something else I’d like to mention is that despite seeing two rigs in the Permian, Texas lost a rig as a state. That being said, Louisiana gained 3 rigs even though the Haynesville was the only major basin to lose a rig. That is about all I have to say for rig count for this week. Really standard stuff, and the US is now up 114 rigs on the year.

To close out our statistics we will take a quick peek at inventories. Both the API and the EIA predicted draws in the neighborhood of 2 and a quarter to 2 and three quarter million barrels respectively. The API released their report on May 11 and discovered that they were wrong in the best way possible: they underestimated the size of the draw. Rather than 2.25 million they reported a 2.5 million barrel draw. A day after that, the EIA released their report, and were also wrong, but this time they overpredicted. Rather than the 2.8 million barrel draw, we saw just under half a million barrels. Still, a draw is a draw, so this isn’t a bad week. Even if we averaged it out between the two we would still be down almost 1.5 million barrels, so a good week in my book. On the refined side of things, we saw a build in propane which is about right for this time of year. Less is consumed for heating, and only a little more is used for grilling, so it is right where it should be, if not a little lower than the median of the 5 year historic range. Distillates are doing the exact same thing as they track downward, but much closer to the median than propane. But what about gasoline? We had a shortage of gasoline on the east coast, no? Believe it or not we actually saw a teeny tiny build. Nothing super significant, but a movement upwards nonetheless. Like I mentioned earlier: there is no gas shortage. The shortage is fabricated by panic buying that is quickly fueled by the media, because of a distribution disruption. Let’s say hypothetically we stopped producing and importing gasoline today, and only had whatever was stored to work with. At current use rates, that gasoline would last about 27 days. More realistically, I would factor in panic buying and adjust that to no more than a week. Regardless, we somehow still saw a small build, but that is not to say that the numbers are delayed and we see a significant draw in this week’s report. Keep your eyes peeled for that.

But that is the end of our statistics, and it is time to get into those stories I keep hinting at. First things first, Xcel energy is the first of utility companies in the United States to announce a goal of carbon free electricity. The Minnesota based company is kicking off a pilot project in Colorado where it will source its gas from Crestone Peak Resources, a Denver based operator. Crestone Peak itself has a well decorated recent history of being exceptionally ESG conscious. They were the first US onshore oil and gas producer to adopt the use of a biodegradable non-toxic drilling fluid, and they were also the first energy company in Colorado to adopt a continuous real-time air quality monitoring system for a majority of its Colorado based production locations with project Canary. Needless to say, Xcel was excited to partner with them as they know where their gas is coming from, and they have a good idea what it costs to produce environmentally. The resulting energy will hopefully have minimal methane emissions, in order to produce exceptionally clean energy with natural gas.

Next, I mentioned big news from Louisiana, and it will continue on the themes of ESG. When you think of oil states, Texas, California, and Colorado are usually some of the first to come to your mind, not Louisiana despite it being 5th place for carbon production. Democratic Governor John Bel Edwards said that he plans to bring Louisiana into the US Climate Alliance following an executive order from late 2020. In the upcoming years, his climate commission will be exploring the potential for electric cars, mass transit systems, solar power, and offshore wind turbines in the Gulf of Mexico. Monique Harden, policy expert with the Deep South Center for Environmental Justice, says that she is hopeful that this will lead to a growth of clean energy jobs, especially in communities of color and low income communities. Even before the Governor announced his ambitious plans, oil and gas activity has been faltering in the state. Shell Oil closed a refinery on the Mississippi River citing consumer demand for cleaner fuels as the reason for its closure. In the 1980s, about 40% of the state’s GDP was from oil and gas. Today, it is just under 20%. Even now renewable companies are eyeing the state as a location for investments. There are already a few biofuel plants in the works near Baton Rouge. Even so, the state will still have its hurdles attempting to pass new legislation through a majority of Republicans, and it is in its infancy of renewables as only 4% of energy production comes from renewables.

Imagine if Louisiana had the Gulf of Mexico chock full of wind turbines? Just how much copper would you think that requires? Well, think no more, because a report from Energy Monitor is highlighting just what goes into these turbines. Offshore wind turbines require 8 tons of copper for every megawatt of generation capacity. Just how much is a megawatt? A single megawatt can support about 330 homes for an hour, or, a megawatt hour to every 330 homes. An average turbine of 3.6 megawatts capacity will contain somewhere in the neighborhood of 32 tons of copper. That’s 64,000 pounds of processed materials to support 1200 homes. Let’s break it down further and see how much copper is required to replace the full natural gas power generation capacity of Louisiana. The EIA found in January of this year that Louisiana generated just over 5,000,000 MegawattHours of electricity from natural gas fired plants thanks to the state’s highest per capita residential sector electricity consumption. 8 tons of copper to every megawatt hour results in 40 million tons of copper, or 80 billion pounds. Of course, this hypothetical is ridiculous because the entire state of Louisiana will never be fully switched to renewable energy sources (just too many issues with intermittency), but it highlights another environmental cost that can easily be scaled from one state all the way to the globe. Think of the indirect emissions associated with mining that much copper, not to mention the actual monetary cost. Someone is bound to make bank off of this energy transition.
But that is all I’ve got today! I think I ran a little long, but if you want more mind enriching content, go to www.rarepetro.com to find more! If you disagree with anything I’ve said, or even doubt my mathematical ability to calculate tonnage of copper, I’d love to hear from you directly. Please email podcast@rarepetro.com. This has been Tavis Kilian with RARE PETRO, and until I see you next time, take care everybody!

Music: https://www.bensound.com/royalty-free-music

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