Wednesday, March 18, 2009

TWIP, gasoline and NGL's

For the last few weeks I have been following the amount of gasoline that EIA tabulates in their “This Week in Petroleum” (TWIP) reports. It won’t be until next week, when I anticipate that the January driving results come out, that I can see how the two integrate. What I have been looking at is the seasonal uptick in demand as driving usually picks up from now through the summer. At the end of last month it had appeared that demand was getting ahead of last year’s numbers, and while that continues to be the case, with today’s TWIP, the gap is getting smaller and trying to find the seasonal uptick, which was obvious, in now becoming more of an exercise in optimism.

Source EIA
So the question is, when we get to April, will we be below last year or above it?

Looking at stocks, which had been falling, an increase in both domestic production and imports (presumably anticipating the traditional spring driving surge) with the stabilization of demand has led to a stability in stock volumes at a time when they would usually be declining.

Source EIA

Domestic crude is up around 300 kbd over last year, and imports have dropped a similar amount, so that refinery inputs are holding relatively steady, while this time last year they were dropping. We’ll just have to wait to see next week how this correlates with driving.

The front article in this weeks report deals with Non Gas Liquids (NGLs), and I have to confess that, back when I first read “Twilight in the Desert”, this was one of the questions that made me nervous about making absolute statements relative to when peak production would occur. Back when we started TOD there was considerable optimism about the volumes that would be generated from this source. For those not that familiar, as the EIA explains, as it folds NGL’s in with other non-crude oil liquids:
Non-crude oil liquids are those liquid hydrocarbons that are part of the overall oil supply, but are not crude oil, including such things as condensates, natural gas liquids (NGLs), and biofuels. These other liquids have traditionally been classified as “oil supply” because they are closely linked with the oil sector. Our March STEO re-evaluation of OPEC non-crude liquids production focused on NGLs, which are generally extracted from natural gas at processing plants and constitute the largest portion of OPEC non-crude liquids production. Our re-evaluation specifically focused on the relationship between OPEC NGL and crude oil production. Because much of the natural gas produced in OPEC countries is associated with crude oil, we had already assumed some link between OPEC crude and non-crude production. However, the magnitude of the fall in OPEC crude oil production over the last two quarters, along with the larger relative importance of non-crude liquids in the market today, prompted us to take another look at the nature of this relationship.
There was a time that the gas that came out of an oilwell was separated and flared off as a nuisance. And in some parts of the US that is still the case, where the volume is small. (I remember driving from St. Louis to Vincennes and passing – and smelling – small flaring wells).

Saudi Arabia realized the value of this resource to them back in 1982 they were collecting the equivalent of 750 kbd of oil as natural gas, and starting to use it for domestic consumption. Along the way they took the NGLs that were also produced, and reached an export level, at that time, of 360 kbd. JoulesBurn has written on the difference between oil and gas wells in that country, and where the wells are going. More recently this Master Gas Plan (MGP) has released the equivalent of over 1 mbd from domestic fuel consumption (through NG replacement) to be available for export. With the cut-back in production as world demand has fallen, the exact status of these new sources of production is less clear. Hawiyah was supposed to be producing 310 kbd by 3rd quarter 2008, for example. But given that domestic consumption of natural gas is anticipated to continue growing at 5% a year the associated NGL will no doubt also climb - although not in quite the same ratio. (Which suggests a theme of “wet” gas and how it dries, for a future Tech Talk).

I dwell a little on this more independent side of the non-crude liquid production, since I am not sure that we can tie the volumes to crude production, quite as closely as the EIA project.

However, with that caveat, it is worth noting their comment that OPEC non-crude liquids are going to outperform any gain in oil production from non-OPEC countries. But it should be noted that the vertical scale on the graph they show is not very comforting:

And what is worrisome is the little caveat at the end of the piece.
Within the context of the overall global oil market, these changes would usually be minor. However, when viewed with our expectation of almost zero growth in non-OPEC supply over the next two years, the effect of this change is magnified. Less overall liquids flowing into the market will tighten the overall oil supply. In addition, lower natural gas production in some OPEC countries could lead to substitution of oil for natural gas in the electric power and industrial sectors, increasing domestic oil demand. Until the superstar returns from the disabled list, the overall condition of the oil market will continue to depend upon these marginal contributors.

I think that depends on which of the two superstars they are referring to, and the nature of the injury that they perceive.

P.S. If this is what we can expect with Gobal Warming, we.e.e.ll I’m not sure I’m a fan (h/t to Dan at Bleakonomy).

And the real reason for the snow around the Palace, was the Royal Palace Sprint.

Courtesy of my lunch break

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