June 2016, Vol. 243, No. 6

In The News

In the News

OTC Attendance Shows Huge Dropoff

Houston’s Offshore Technology Conference drew only 68,000 attendees last month, down 37% from 2014 when the 108,000 attendees set a record. Last year’s event attracted 94,700 attendees.

The exhibition floor was still the third-largest in the event’s 48-year history, at 672,300 square feet, including outdoor exhibits, trailing 2015 and 2014. Over 2,600 companies exhibited including 300 new exhibitors. Exhibitors came from 47 countries, and international companies comprised 51% of exhibitors. Both figures are up from last year.

“The commitment from OTC’s volunteers and staff ensured, regardless of the price of oil per barrel, that OTC upheld its unwavering commitment to delivering attendees unparalleled information on new technologies and global developments,” Joe Fowler, OTC 2016 chairman, said in a statement. “Also, revenue from OTC directly benefits the member programs of its 13 nonprofit sponsoring organizations.”

Possible Flaw in Weld Coating Cited in Pipeline Blast

Investigators have found evidence of corrosion on a natural gas pipeline that exploded in Pennsylvania on April 29, damaging homes and seriously injuring one person, the Pipeline and Hazardous Materials Safety Administration said in a corrective order issued to Spectra Energy Corp. which operates the pipelines.

Though the cause of the blast remains unknown, corrosion indicates a “possible flaw” in the coating material applied to a pair of welded joints, one at the point of failure and another excavated after the explosion, PHMSA stated. Spectra Energy said a 2012 pipeline inspection did not reveal any sections that required repair. The coating material  was applied when the 30-inch pipeline was installed in 1981 “following construction welding procedures in the field at the time,” the agency said.

Decades ago, that coating was an “accepted and preferred method of coating” the pipeline weld joints, Spectra spokesman Creighton Welch said in an email. The company conducts a high-tech pipeline inspection every seven years, as well as routine field surveys of corrosion prevention systems, he added. PHMSA ordered Spectra to inspect the pipeline in the vicinity of the blast for “corrosion, coating condition” and other damage and make repairs as necessary, and to take other measures.

U.S. Seeing Surge in Imports of Foreign Crude

The U.S. is importing more foreign crude than it has in years, becoming one of the last ports of call for many oil-producing nations despite a glut of crude from domestic companies, reports the Wall Street Journal. Oil imports this year have surged 20% to about 8 million bpd since early May 2015, when they approached a 20-year low, according to federal data. Crude from the Republic of Congo, Russia and Brazil is arriving at U.S. ports, while Canada is sending a record amount of oil to the U.S.

A big reason is that the rest of the world is running out of places to store oil. Facilities already are near capacity, but the U.S. still has room, said Brian Busch, director of oil markets for data firm Genscape. The U.S. has filled about two-thirds of its storage capacity and has room for roughly 100 million barrels more, he said. By comparison, major storage hubs in China and South Africa appear full, and Europe’s main storage in Rotterdam appears to be within 10% of its usable capacity.

Traders that can afford to hold oil and lock in higher sales through the futures market are big beneficiaries. Socking away oil in U.S. storage can cost between 30-85 cents a barrel each month. “That’s precisely why some of these traders import it, to put it in storage,” said Amrita Sen, co-founder of Energy Aspects, a London consulting firm. Wait times to deliver crude into the U.S. have are so backlogged that over 28 million barrels of oil are sitting idle on tankers in the Gulf of Mexico.

Crimson Pipeline Expands Operations to Central, Northern California

 Crimson Pipeline expanded transportation services to the Central and Northern California crude oil markets with its subsidiary’s acquisition of KLM Pipeline (and ancillary assets) and Western San Joaquin Laterals (WSJ) from Chevron Pipe Line Company (CPL).

The KLM Pipeline transports crude oil from California’s prolific San Joaquin Valley to San Francisco Bay-area refiners, including Tesoro Golden Eagle Refinery, Valero Benicia Refinery and Shell Martinez Refinery. The KLM Pipeline system includes 295 miles of active pipeline with a transportation capacity of 90,000 bpd.

Crimson’s California pipeline network will traverse 1,000 miles across Northern, Central and Southern California. The acquisition nearly doubles the company’s ability to move crude oil throughout the state, expanding Crimson’s transportation capacity in California from 100,000 bpd to nearly 200,000 bpd.

Husky to Sell Portion of Pipeline, Oil Storage for $1.7 Billion

Husky Energy will sell 65% of its ownership interest in some midstream assets in the Lloydminster region of Alberta and Saskatchewan for $1.7 billion. Husky said after the sale to Cheung Kong Infrastructure Holdings and Power Assets Holdings that it will retain a 35% interest in the assets and remain the operator. The assets include about 1,900 km of pipeline in the Lloydminster region, 4.1 MMbbls of oil storage capacity at Hardisty and Lloydminster, and other ancillary assets.

Schlumberger Cuts 8,000 Jobs in First Quarter

Schlumberger eliminated 8,000 jobs in the first three months of 2016, bringing the workforce of the world’s largest oil field services company down by nearly one-third since cuts began in late 2014. Schlumberger, headquartered in Houston, Paris and The Hague, now has cut 40,000 jobs with more cuts expected during the second quarter, Chairman and CEO Paal Kibsgaard said.

Schlumberger’s worldwide headcount only fell from 95,000 to about 93,000 but the company reclassified 5,500 contractors as permanent employees, so the overall reduction was 8,000 employees, Kibsgaard said.

“The decline in global activity and the rate of activity disruption reached unprecedented levels as the industry displayed clear signs of operating in a full-scale cash crisis,” he said, citing in addition the United States, production cuts in Mexico, Colombia, China and the United Kingdom. However, Kibsgaard is confident the industry will begin to rebound in 2017, if not sooner.

“We expect the current [oil] oversupply to drop to almost zero by the end of the year,” Kibsgaard said, noting that North America is leading the way in production cuts. “We believe the oil market is in the process of balancing.”

All American Pipeline, Cheniere Sign Storage Agreement

Plains All American Pipeline subsidiary Pine Prairie Energy Center has entered into a 10-year firm storage service agreement with Cheniere Energy Partners’ subsidiary, Sabine Pass Liquefaction. Pine Prairie will provide 8 Bcf of firm natural gas storage capacity to Cheniere beginning in 2018 to serve the storage needs of the company’s Sabine Pass Liquefaction facility.

“We expanded our relationship with Pine Prairie because the storage facility is located in a place where we can easily access our existing infrastructure connected to the terminal,” said Corey Grindal, vice president of Supply at Cheniere. “With this new agreement, we will be able to more effectively manage the load swings as we construct and operate our liquefaction facilities,”

LNG Exports Trim 35 Bcf from U.S. Gas Glut

The first exports of U.S. shale gas are already helping to prevent prices for the fuel from revisiting a 17-year low, according to Bloomberg. As of mid-April Cheniere Energy Inc.’s Sabine Pass terminal in Louisiana received almost 35.4 Bcf of natural gas since pipeline deliveries were first reported Oct. 23, with most of that volume arriving in the last six weeks.

Pair of Ethane Cracker Plants Expected in Marcellus/Utica

The head of Consol Energy said he expects two ethane cracker plants will be built in the Marcellus/Utica Shale region. CEO Nick DeIuliis told the University of Pittsburgh’s Energy Law and Policy Institute that ethane from western Pennsylvania, northern West Virginia and eastern Ohio would be converted to ethylene and polyethylene.

Despite hundreds of millions of dollars spent on two potential sites, construction remains uncertain, according to published reports. Royal Dutch Shell chose a site in Beaver County four years ago as a potential location, and has spent two years preparing it for construction but has not made a final decision on the multibillion-dollar investment.

Stonepeak Commits $500 Million for Sage Midstream Ventures

 Stonepeak Infrastructure Partners committed up to $500 million to enable Sage Midstream Ventures of Houston to pursue midstream acquisition and development opportunities in North America. Stonepeak is a New York private equity firm focused on infrastructure investments in energy. Sage said it will pursue opportunities “across the hydrocarbon value chain, including natural gas, natural gas liquids, crude oil, petrochemicals and refined products.”

Canadian Oil, Gas Cuts Capital Spending 62% from 2014

The oil and gas industry is moving toward the biggest two-year capital spending decline in its 70-year history, the Canadian Association of Petroleum Producers reported. Companies are expected to invest $31 billion in 2016, 62% less than the 2014 record of $81 billion.

It’s the biggest drop since CAPP and its predecessor organizations began keeping track in 1947 – the year of Alberta’s first major oil discovery. CAPP estimated 110,000 direct and indirect jobs have been lost in the downturn, which began in late 2014 and continued to deepen through February when crude briefly fell below $30 a barrel.

Compounding the pain is the inability for Canadian oil and gas producers to reach markets outside of the United States. Efforts to build oil export pipelines and LNG export terminals face stiff environmental opposition and regulatory delays. CAPP said building that infrastructure should be a “national priority.”

 Shell Shifting Jobs from New Orleans to Houston

 Shell plans to move some jobs from New Orleans to Houston as part of plans to cut its global workforce. The company said relocations would affect less than 5% of its New Orleans workforce. Shell has about 1,900 workers based in downtown New Orleans. Shell employed about 2,300 staff and contractors in New Orleans last year when it started cutting jobs. Shell plans to eliminate 6,500 jobs worldwide but said it will maintain a presence in New Orleans.

Marathon Petroleum Stays with Utica Shale Despite Downturn

Marathon Petroleum plans to expand its transmission system in eastern Ohio, according to WKSU public radio. Jason Stechshulte, senior engineer with Marathon, said the refinery and pipeline operator is pursuing a long-term strategy to take advantage of massive reserves in its own back yard.

While low energy prices have stifled drilling, work is underway on transmission links between Ohio’s Utica shale wells and processing plants across the Midwest.

“We intend to build some new pipelines, and then utilize some existing pipelines – where we’ll add horsepower so we can move more products through those pipelines and really offer additional opportunities for Utica producers to get to various markets,” he said. When completed in 2017, the new links will bring Utica Shale liquids from Harrison and Columbiana counties to the Marathon refinery in Canton and the rest of the company’s system.

India Considered Fastest-Growing Market for Oil Demand

India is increasingly becoming the center for oil-demand growth as its economy expands by luring the type of manufacturing that China is trying to shun.  Just like China a decade ago, India seeks to hedge future energy needs by investing in production at home and abroad.

While China’s binge came during a commodity super-cycle that saw crude reach a high of $147.27 in 2008, India’s spurt comes during the biggest energy price crash in a generation. While oil has tumbled over 50% from mid-2014, India spent $60 billion less on imports in 2015 than the previous year even while buying 4% more. India consumed 4 MMbpd last year and should surpass Japan as the third-largest oil user this year. It will be the fastest-growing crude consumer in the world through 2040.

NEB gives Conditional Approval to Line 3 Replacement Line

Canada’s National Energy Board recommended approval of Enbridge’s application to replace its Line 3 pipeline between Alberta and Wisconsin, which would allow it to ship 760,000 bpd through the line. The company ships about 390,000 bpd through the existing line.

The project is the largest in Enbridge’s history, with an estimated cost of $7.5 billion. The company expects the new line, built next to the about 50-year-old existing line, to be operational by 2019. This would allow Canadian companies more access to the U.S. market which the industry has sought for years.

SOKY Energy Completes Acquisition of Natural Gas Operations

Southern Kentucky (SOKY) Energy completed the purchase of natural gas gathering and transmission pipelines in South Central Kentucky from Houston-based Atmos Gathering Co. for an undisclosed price. SOKY Energy also acquired over 100 producing gas wells connected to the pipeline network from Pioneer Oil Co. of Vincennes, IN, which will be added to SOKY Energy’s existing operations in Warren and Butler counties, KY.

“This is a very natural fit for our company as we continue to grow and consolidate natural gas operations in the region,” said SOKY Energy’s President Jason Sharp. “We are excited to expand our footprint, and this acquisition will provide value to our customers as we continue to add more natural gas resources in the area.”

SOKY Energy is a privately held energy company that owns and operates pipelines and leases covering multiple counties in Kentucky.