Thursday, March 5, 2009

EIA updates - the quiet before the ruckus

There was not a great deal of news in the “This Week in Petroleum” release this week. The cover note described the potential of the Bakken Formation
The Bakken Formation contains a major onshore unconventional oil resource in Montana, North Dakota, and Saskatchewan, Canada. It has three distinct layers, called members. Two of these (the Upper and Lower Members) are shales, while the Middle Member is an interbedded zone of various rocks. The Bakken shales produce a light oil that is generally desirable because it offers a high yield of gasoline and other key petroleum products. Proved oil reserves in Montana and North Dakota grew from 831 million barrels in 2006 to 892 million barrels in 2007. (Proved reserves are the estimated quantities that can be produced with reasonable certainty from known reservoirs under existing economic and operating conditions.) . . . . . USGS estimated that the Bakken Formation may contain from 3.1 to 4.3 billion barrels of technically recoverable crude oil with the most likely average (mean) being 3.65 billion barrels. By comparison, total U.S. crude oil inputs to refineries were 5.5 billion barrels in 2007.
The problem is that the oil is difficult to extract and in today’s news Tristar Oil and Point Energy Trust are buying Talisman Energy’s Bakken land, and will jointly operate the assets which currently produce 8,500 bd of oil, from reserves of around 45 mb. Talisman is focusing on the gas production side of operations, which includes their drilling in the Marcellus Shale.

Returning to the TWIP the curve of interest continues to be the build in gasoline demand:
Gasoline demand from TWIP March 4, 2009

The 9.2 mbd supplied for the fourth week in February 2009 exceeded that for every previous fourth February week on record, and while this may be corrected later it does signify that we are not seeing in these figures the dramatic drop in consumption that would stall the annual increase from now through May. OPEC are said to have cut supplies by 770,000 bd from January to February, and so the difference between available supply and demand is likely to tighten over the short term. In turn I would expect that we are seeing a floor in price becoming established, from which it will begin to rise before too long.

Turning to the Natural Gas Weekly Update the update talks of the impact of the cold spell last week in boosting demand, but stocks remain above normal (13.8% above actually). The spot price of natural gas at the Henry Hub was $4.23 per million Btu (roughly the same as 1 kcf) almost the same as before the increase in demand (up $0.03). Even if you look at the price graph with “optimistic eyes” it remains a little difficult to convince yourself that it is bottoming out.
Source EIA

Further to my note earlier in the week on rig counts and what they portend, the update also notes the fall in the number of rigs drilling for NG. As the plot shows the number is dropping off fast. From the peak they are now off 40%. With just a few more they will match the sort of drop that I used in the calculation, from which one might judge that the country might be 20% shorter in gas supplies by as early as next winter., save only that stored or shut in by companies such as Chesapeake.

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