Monthly Archives: January 2016

Possible Alkylate Plant, Electric Plant

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One of the things that made the Marcellus shale so exciting for producers at the beginning of the Marcellus boom was that it was rich in natural gas liquids, including ethane, pentane, propane, and butane.  The latter can be refined into alkylate, an octane booster.  It is “key for cleaner burning gasoline” (.pdf).  More on mixing gasoline here.  So, changing butane to alkylate will help alleviate some of the environmental issues with burning hydrocarbons.  It won’t end it, of course, because hydrocarbons are still being burnt, but it will help.  Just another way that natural gas is helping improve things here in the good old U. S. of A.

All that said, MarkWest and Marathon are thinking about building an alkylation plant somewhere near an existing MarkWest plant in Jewett, Ohio.  Yes!  The more the merrier.  Use that natural gas up close to home.

On a related not, there’s a proposal to build a 550-megawatt gas-fired power plant in Elizabeth Township, PA.  The unusual thing about this plant is that the location is a contaminated industrial landfill.  Putting an energy plant on this site would be an excellent use of a bad resource.  It would kill two birds with one stone, putting to use difficult-to-use property and using abundant and cheap local natural gas to create needed electricity.

We hate to see the natural gas produced here in West Virginia not being put to its highest and best use.  Turning it into a final product close to home is much better than shipping it away as a raw product.  Now if only we could get a few more of these chemical plants, cracker plants, energy plants, and refineries located inside West Virginia.

 

State of the Oil and Gas Industry

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We’re not sure what to think about this Forbes article.  Allen Gilmer makes some very interesting points, including the fact that we have an oversupply of 2% in a world where we have a hard time measuring oil supplies accurately within 5%, and that U.S. drilling equipment won’t ramp up quickly because the equipment maintenance has been deferred in preference to keeping the business going.  He gives all the influence in oil markets to the Saudis, when we think that the U.S. will be able to influence prices pretty quickly once they start to rise.  But who died and made us experts, anyways?  The article is worth the read, even just to make you think a little differently about the state of oil and gas.

Andrew Hecht at Seeking Alpha has to point out the obvious, again, and probably will continue to point it out for the next year or so.  There is way too much gas in reserve and drilled (or fracked) but unproduced to allow gas prices to go up much.  It’s bad news for royalty owners.  It’s also a good argument for West Virginia mineral and royalty owners to make to their legislators when trying to convince them to vote against forced pooling; why force someone into a lease in this climate when waiting a few years should bring a better bonus and royalty?

Gaurav Sharma points out in a Forbes article that Iran might discount it’s oil in order to win back its previous European customers.  Anyone want to guess what that will do to oil prices?  Even though Iran is unlikely to produce more than 500,000 more barrels of oil in the next year, the Saudis will cut prices just to spite Iran.

Casey Junkins at the Wheeling Intelligencer put together a good article showing just how much natural gas we are producing from West Virginia compared to historical numbers.  Spoiler: it’s a lot.

Long and short, we’re going to see low energy prices for at least the rest of 2016, and maybe for all of 2017.  After that, it’s anybody’s guess.  Of course, oil and gas prices can be affected by things like wars and natural disasters,

 

 

 

China Buys Crude Oil from the U.S.

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030629-N-4790M-003 Central Command Area of Responsibility (Jun. 29, 2003) -- Commercial oil tanker AbQaiq readies itself to receive oil at Mina-Al-Bkar Oil terminal (MABOT), an off shore Iraqi oil installation. AbQaiq is the first commercial vessel to receive a post-war shipment of crude oil for export at Mabot. AbQaiq is scheduled to take on an estimated 2 million barrels of crude oil. U.S. Navy and coalition forces are helping to provide security, enforcing an exclusionary perimeter around the terminal. U.S. Navy photo by Photographer's Mate 2nd Class Andrew M. Meyers. (RELEASED)

The Chinese refiner, Sinopec, bought 600,000 barrels of oil from a U.S. firm, and the shipment left a port in the Gulf Coast.  The number isn’t large, but Sinopec’s statement regarding the purchase is.  Sinopec said that it was buying from the U.S. in order to diversify its source of oil.  So in spite of the fact that Saudia Arabia is willing to pump and sell as much oil as anyone wants to buy, Sinopec wants to buy from other sources.  That indicates that there will be an available, if small, market for U.S. oil.  Hopefully that will be enough to keep some U.S. fracking companies above water.  In the meantime, we can only hope that decreased prices for oil will lead to increased utilization and decreased investment in high-cost drilling programs, which will eventually decrease the oversupply and drive prices back up to a slightly more healthy level.

6,300 Megawatts of Natural Gas Fired Electricity Proposed for Ohio

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Dynegy Inc. has proposed to build 6,300 megawatts worth of electricity power generating plants in Ohio.  The plants would be fired by natural gas.  That natural gas would come, naturally, from the Utica and Marcellus shales.

Other details are scant, as the article is more about the competing bids by other power generating companies and the associated drama.

West Virginia could use a few more natural gas powered electric plants.  We have several in progress in the northern panhandle and Harrison County.

Stonewall Gathering Line Increases Royalties

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This article over at Natural Gas Intelligence covers a few topics and is worth the read.  The most interesting point to us was that the Stonewall Gathering Pipeline, which went into service in December 2015, has already impacted revenues for Antero Resources, and has therefore impacted royalty checks.  A few more pipelines would make a big difference to all the royalty and mineral owners in West Virginia.

Pipeline Explosion in Robertson County, TX

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We are big proponents of the pipeline projects here in West Virginia.  We need them in order to utilize the massive volumes of gas that we have.  However, pipelines come with some amount of risk.  Everyone who has a gas pipeline near them needs to know what could happen.

In Robertson County, TX, a pipeline ruptured and then exploded last Saturday.  A man and his son were hunting within 100 yards of the rupture.  They are lucky to be alive.

If you live close to a pipeline, you should have a contingency plan for what to do if it ruptures.

Northeast Natural Energy Drilling in Monongalia County, WV

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Marcellus Drilling News (a great source for information about oil and gas development in  the Marcellus/Utica area) is reporting that Northeast Natural Energy has hired a new rig.  Right now, it seems that NNE is working exclusively in Monongalia County, WV, using leases that it bought from Chesapeake and leases that it is buying up itself.  NNE is going after Marcellus shale production there, which strikes me as odd because Chesapeake pulled up stakes in Monongalia County back in 2009 because it had drilled a few wells and the production was disappointing.  At least, that’s what the scuttlebutt was between the landmen that were working on the project.  With gas prices lower than they were then, it doesn’t make much sense for NNE to be drilling where CHK quit.  There must be some other factors in play that we aren’t aware of.  Nevertheless, best of luck to NNE.  We’re always glad to see that somebody is drilling and taking leases in West Virginia.

West Virginia’s Economy Ranked Lowest in the US

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West Virginia really needs to take better advantage of the energy resources located in the state.  Here’s an article by Business Insider that says we have the worst economy of all the 50 states and the District of Columbia.  We’re Number 51.

Considering the energy resources located here, the low cost of living and the inexpensive employee costs, we should be able to do better.

Oil is a $30 per Barrel Commodity, and That’s Good News for West Virginia

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We don’t often run across a good rule of thumb that we don’t know at this point.  Here’s one that’s new.  Outside of some occasional spikes, oil will always hover around $30 per barrel when adjusted for inflation.

There are a couple of other items of interest in this article by Anya Litvak of the Pittsburgh Post-Gazette.  The big takeaway for everybody, though, is that $30 figure for the inflation-adjusted price of oil.  When oil prices start to rise, we can know they will drop.  How it got to over $100 per barrel for a while there is beyond my ken.  It stayed there for quite a while, too.

Taking a look at the historical values for WTI crude oil prices, you can see some lengthy spikes.  Make sure to remove the options for “Log Scale” and “Show Recessions” just above the graph.  The interesting thing to note is that when prices climb above about $80 they usually stay up for about five years.  The major spikes were in 1980 and in 2008.  The major crashes were in 1985 and in 2009.  The crash just after 9/11 wasn’t as big as we would have expected.  Interestingly, the crash in 2009 was followed by a huge spike which lasted for about five years.

All of the major crashes look to me like they followed a stock market crash.  You’re welcome to correct me if I’m wrong.  The times when oil prices really did well were times when the economy was humming right along in the 1980s and when there was a lot of money being put into the economy by “easing”.  I don’t have the economic background to explain what was going on just before the 2009 crash, but I imagine someone reading this can explain that for us.

Regardless, the price of oil isn’t going to stay below $30 for long if it drops below that, and it’s not going to get back up to $100 any time soon.  I’ll be surprised if it gets above $50 per barrel any time soon, to be honest.  The frackers just have too many wells ready to produce when the price starts to rise.  I think this bodes well for the economy as a whole in the near future.  Cheap and less volatile energy prices are great for the United States economy, and probably for the world economy as well.

They heyday of ridiculously high bonus amounts for signing oil and gas leases is over.  Luckily in West Virginia the bonus amounts never got ridiculously high.  We’re still seeing bonus amounts surprisingly close to what we saw two years ago.  Royalty amounts are holding pretty steady, too.  It’s still a good time to own oil and gas mineral and royalty rights in West Virginia