Those in the oil and gas industry know the producing regions well; we know right off of the top of our heads exactly where the Bakken, Niobrara, Permian, Marcellus, Utica and the Eagle Ford are when someone says those names. Visions of maps dance in our heads.

That is why when someone mentioned the Anadarko region the other day, different things popped into my head and I got a little nervous…

These were my thoughts: It this that old producing region – it can’t be that, can it? No one usually talks about that. Are we talking about the checkerboard ownership that was once UP land out west? I am losing it? Wait…did he say Oklahoma? It is that old play!

Bottom line: Sometimes when we don’t talk about something very frequently, we tend to forget it.

So let’s briefly break down the Anadarko region in a quick refresher: 

The Anadarko region is not a “new” play per se, it is an old producing region or what they call a “legacy” producer that is seeing new life and experiencing a so-called “uptick in activity.”

It turns out you can teach an old dog new tricks…

Conveniently, the U.S. Energy Information Administration (“EIA”) just released its August 2017 Drilling Productivity Report for Key Tight Oil and Shale Gas Regions and added the Anadarko region to their report! The full report can be found here. Sometimes these things are just serendipitous – turns out the EIA and I are on the same page.

Geographically, the Anadarko region is basically a tidbit of northwest Texas and the western half, give or take, of OOOOOOk-lahoma, where the wind comes sweepin’ down the plain! I couldn’t help myself…

Specifically, according to the EIA report, the Anadarko region includes “24 Oklahoma and 5 Texas counties” and it “has become the target of many producers using improved drilling and completion technology to this already well-established oil and gas producing region.”

In addition, the EIA report credits the Anadarko region with a monster number of operating rigs: 129 operating rigs to be exact – “second only to the Permian region with 373 operating rigs.”

Obviously the big dogs when it comes to barrels of oil produced per day are still the Niobrara, Eagle Ford and Bakken according to the EIA report, but the Anadarko region is not too far behind.

According to comments on the EIA report in an article entitled, “Anadarko Shale Basin Lands Oklahoma on EIA Map”:

  • “The Anadarko region accounts for approximately 450,000 barrels per day of oil production, 5.7 billion cubic feet per day of natural gas production, 13 percent of new wells drilled, and 13 percent of drilled but uncompleted wells as of July 2017”
  • “Oklahoma is home to about 4 percent of the total petroleum reserves in the country and accounts for as much as 5 percent of the total crude oil production in the United States.”

There you have it! A quick refresher on the Anadarko region…

Natural Gas Exports To Mexico will loom large in NAFTA negotiations

The North American Free Trade Agreement (“NAFTA”) entered into force some 23 years ago and in simple terms, the Treaty created a free trade zone between Canada, the United States and Mexico. At the time, NAFTA was viewed as a pathway to integrate Mexico into the highly developed economies of the U.S. and Canada. By doing so, however, it guaranteed there would be winners and losers as Mexico’s less-developed economy would attract U.S. industries to set-up shop there in order to take advantage of much lower labor costs. Indeed, small farmers and auto workers in the U.S. were two groups most impacted by labor cost disparity from south of the border.

Rendering of North America from SpacePresident Trump’s mantra of “America First” does not bode well for NAFTA as he has called it “the worst trade deal ever.” Upon taking office, President Trump vowed to withdraw from NAFTA. However, due to intense lobbying from the business sector, the President reversed his plan to withdraw from NAFTA and on July 17th, the Trump administration gave Congress official notice that it planned instead to renegotiate NAFTA with the U.S. Trade Representative Office’s publication of a Summary of Objectives for the NAFTA Renegotiation. The tri-nation negotiations are slated to begin shortly with the U.S. negotiations being led by Robert Lighthizer, the U.S. Trade Representative. Lighthizer is a former senior trade official in the Reagan Administration who advocates greater trade protectionism. He is joined in this view by other senior Trump officials such as Secretary of Commerce Wilbur Ross and White House Chief Strategist Steve Bannon. Ross has spoken out publicly against the hollowing out of the U.S. manufacturing sector from NAFTA and Bannon would like to see NAFTA supply chains repatriated to the U.S.

The president’s decision, however, to renegotiate NAFTA instead of its withdrawal sends a strong signal that NAFTA will survive in good measure. The tri-nation supply chains which have been developed over some two decades simply prove too costly and disruptive to overturn. Natural gas exports to Mexico are a prime example.

Mexico imports nearly all of its natural gas from the U.S. and exports to Mexico are expected to double by 2019, with Texas fields being the primary source. At least 17 pipelines currently carry four billion cubic feet of natural gas a day from Texas to Mexico, with four additional cross-border pipelines in the works. Mexico’s demand for U.S.-sourced natural gas has been a boon to domestic producers as it has greatly offset the oversupply of natural gas production. Without this outlet to Mexico, natural gas producers in the U.S. will face a severe downturn with wells shut, job losses and investment curtailed.

The U.S.-Mexico natural gas symbiotic relationship is just one example of the tri-nation supply chain intricacies and complexities forged under NAFTA. There are countless others, such as deep supply chains in agriculture, construction materials and autos to name a few.

The extent to which NAFTA will be modified remains to be seen. However, from a legal standpoint, there are two sections of NAFTA which will certainly be squarely in the crosshairs of the U.S. Trade Representative. These provisions relate to the remedies available should a NAFTA nation’s exports injure the domestic market of another NAFTA member.

Specifically, under Section 302 of the NAFTA Implementation Act, the U.S. International Trade Commission determines whether increased imports from Canada or Mexico are a substantial cause of serious injury or threat of serious injury to a U.S. industry. If the ITC makes an affirmative determination, it makes a remedy recommendation to the President, who makes the final remedy decision. Section 302 investigations are similar procedurally to investigations under Section 201 of the Trade Act of 1974.

This is referred to under NAFTA as the “Safeguard Section” as it provides the U.S. the ability to seek redress via the ITC for damaging levels of NAFTA imports. The Trump administration however views the ITC as an impediment to taking action against NAFTA import abuses since the ITC has a high threshold of proving “actual injury.” Hence, the U.S. proposes to terminate the ITC’s jurisdiction in these cases, and instead transfer them to the Commerce Department which is a lot more biased toward U.S. interests.

Similarly, the US Trade Office will seek to eliminate NAFTA’s Chapter 19 dispute settlement mechanism. This Section establishes a mechanism to provide an alternative to judicial review by domestic courts of final determination in antidumping and countervailing duty cases, with review by independent bi-national panels of trade experts. A Panel is established when a Request for Panel Review is filed with the NAFTA Secretariat by an industry asking for a review of a domestic investigating authority’s decision involving imports from a NAFTA country.

These two changes will allow the Trump administration to unilaterally take direct action against NAFTA imports where it finds them to be injurious to U.S. commerce. This is completely in line with the protectionist leanings of the Trump administration.

Canada and Mexico will no doubt object to any proposal to eliminate these Sections as they prefer the non-interference protections afforded and want to have a buffer against U.S. unilateral decision-making. The stage is set therefore for some very intense and difficult negotiations. At the end of the day, however, natural gas will continue to flow from Texas to Mexico and if necessary, it will be made an exclusion from any final decision upon NAFTA’s fate. These exports are too vital for both countries as U.S. producers need the Mexican market and Mexico needs the gas.

Opportunities Abound in Downstream Infrastructure Logistics

The Marcellus and Utica Shale Plays are abundantly rich in “wet gas”; some 30-40% of natural gas produced in these fields is estimated to be recoverable into natural gas liquids with ethane being the most prevalent.

Chemical formula and molecular model of Ethane (C2H6)Ethane is a natural feedstock for ethylene, the primary petrochemical building block from which we derive products such as polyethylene. The latter is produced and eventually converted into a myriad of everyday consumer products from plastics to vinyl to rubber.

But it all starts of course with ethane. Transporting ethane out of the Marcellus and Utica gas fields; however, will follow different routes:

  • Exported via pipelines either east to Marcus Hook Terminal on the Delaware River for ocean transport to the UK and Norway for chemical feedstock; south to Gulf Coast refineries; or north to Sarnia, Canada;
  • Stored in underground caverns or large ethane storage tanks in Terminals and Tank Farms; or
  • Consumed by refineries located in the tristate (PA/OH/WV) region, most notably the Shell Cracker.

All of these transport modes abound in logistical infrastructure investment and commercial opportunities. With respect to exports out of the region, we are presently witnessing billions of capital investment in pipeline infrastructure build-out. Excess ethane not transported via pipelines is currently an impediment however as the region lacks proper storage capacity. Plans are underway to address this imbalance with its first ethane storage facility based in Ohio in the works.

With respect to ethane being consumed within the region, different downstream logistics will be in demand all emanating, of course, from Shell’s ethane steam-fed refinery. Shell is currently working on its Falcon Ethane Pipeline; a 94-mile pipeline with two “legs” which will feed Shell’s ethane cracker plant in Beaver County. Once online, this ethane cracker will produce as a final end-product polyethylene (PE) resins which are pelletized. The Shell Cracker will produce some 1.5 metric tons of this stuff, which Shell will ship to wholesalers and distributors as well as downstream manufacturers who convert these pellets into everyday consumer products. It is estimated that over two-thirds of US and Canadian demand for PE is located within 700 miles of Southwestern Pennsylvania.

Therein lies the foundation for all sorts of logistical infrastructure coming online in our region. Storage facilities, tank farms, shipping terminals, freight forwarding, warehousing, trucking, rail and barge transport will all see significant investment in meeting this demand, not to mention the data processing and IT and web based applications associated with these modalities. Should additional ethane crackers come online in the tristate region as projected, logistical infrastructure investment and commercial opportunities will only exponentially multiply.

We are in the heart of an early peach season in Colorado. In fact, according to the Denver Post article entitled, “Palisade Peaches Ripen Early Because of Colorado’s Heat Wave,” peach season began a little early this year. Peaches are everywhere right now and my kitchen is stocked up!

You see, many things in life come down to one simple concept: supply. When life gives you peaches, make peach pie.

Several folks have asked me why I haven’t been adding to the “Recipe Box” portion of the blog recently – the truth is, I have not been baking much. My heart has just not been in it lately, which is unusual for me.

That all changed when Palisade Peaches flooded our farmers markets and grocery stores early. I was like a kid in a candy store when I saw the beautiful fruit filling the stands; needless to say, I am up to my ears in peaches in my kitchen. I may even start canning some peach jelly!

Colorado Public Radio refers to Palisade Peaches as “the Western Slope’s premiere fruit crop,” and I must say that I agree. According to Colorado Public Radio, “[w]hile most of Colorado is too hostile for fruit production, Palisade’s microclimate and natural air drainage allows peaches and other stone fruits to flourish.”

Sometimes things come together perfectly and you get wonderfully juicy and sweet peaches. Sometimes things come together and the energy industry starts adapting to the price environment and creates technological efficiencies that help them operate profitably during rough times, despite high OPEC crude oil supplies.

According to Bloomberg’s article today entitled, Oil Creeps Toward $50 as Investors Focus on U.S. Supply Data, “[d]ata from the Energy Information Administration showing a decline in U.S. inventories and a rise in fuel demand helped prop up prices for a second day. Nationwide crude inventories slid by 1.53 million barrels last week, while gasoline supplies fell for a seventh week, the data showed.”

That’s right – domestic crude inventories are decreasing slightly.  They are not decreasing as much as folks thought they would, but supply is declining.

According to an article in Oil and Gas Investor entitled, EIA: US Crude, Gasoline, Diesel Stockpiles Fall, “[c]rude inventories fell by 1.5 million barrels (bbl) in the week to July 28, compared with analysts’ expectations for a decrease of 3 million bbl.” It also reported “U.S. crude imports rose last week by 537,000 bbl/d.”

Even the New York Times weighed in on oil supply today in its article entitled, Oil Rises as Tighter U.S. Market Outweighs OPEC Supply, which stated, “[t]here are signs that the oil industry has adapted to an era of low prices and can produce and operate at levels that would previously have been uneconomic” and that many analysts are saying that “[a]mple supply is likely to keep a lid on prices.”

The takeaway: in peach pies and the oil markets, supply is a determining factor.

Today, the Bureau of Land Management (“BLM”) announced its recommendation that the hydraulic fracturing rule from 2015 entitled, “Oil and Gas; Hydraulic Fracturing on Federal and Indian Lands,” be rescinded – the Federal Register Notice issued by Katharine S. MacGregor, Acting Assistant Secretary of Land and Minerals Management, can be found here.

By way of a little background and reminder, the BLM had issued regulations that attempted to regulate oil and gas development on federal and tribal lands by focusing on three main things: wellbore construction, chemical disclosures and water management. However, the final rule never actually went into effect – litigation commenced which ultimately resulted in U.S. District Court Judge Skavdahl determining that the BLM does not have the authority to enforce the 2015 hydraulic fracturing rule (you remember the New York Times article entitled, “Obama Fracking Rule is Struck Down by Court”).

See my prior blog posts for a more complete discussion of the background:

In sum, the recommendation to rescind the regulations is based upon their duplicative and redundant nature – state level efforts at regulating oil and gas operations really occupy the field here already. Specifically, according to the Federal Register Notice, the basis for the recommendation followed the BLM’s findings after its review of the 2015 final rule: “[t]he BLM is now proposing to rescind the 2015 final rule because we believe it is unnecessarily duplicative of state and some tribal regulations and imposes burdensome reporting requirements and other unjustified costs on the oil and gas industry.”

The next step: The BLM takes public comments on this proposal to rescind the rule. Stay tuned!

What does the Industrial Internet of Things (IIOT) have to do with the Shell Cracker?

A lot…

We have heard a great deal about the $6 billion construction of the Shell ethane cracker underway in Beaver County. The construction phase of course brings to mind the erection of a huge physical plant complex:

Shell Ethane Steam-Fed Cracker Facility (Beaver County, PA)
Source: Shell Oil

Some 6,000 workers from a myriad of construction trades will bring the cracker to life. Once online, this highly complex facility will first “crack,” or break apart, ethane’s large molecules and re-arrange the carbon and hydrogen atoms to create ethylene. The facility will further process the ethylene to create different types of polyethylene for a variety of manufactured plastic products.

However, perhaps the most critical part of the cracker’s build-out will emanate from the IIOT. It is estimated that a significant percentage of the plant’s total capital expenditures will evolve around IT services, software, data analytics and physical equipment and systems, all connected digitally to a secure and failsafe industrial process control network and plant business systems and entirely integrated into the global Shell Chemical enterprise.

The entire design, engineering, construction, start-up and finally operations and maintenance of the cracker entails the convergence of cutting-edge information technology, engineering technology and operations technology whereby robust process control systems monitor 24/7 smart connected instruments, process equipment and subsystems all under the umbrella of  secure web based software platforms and tools.  This convergence results in the digitization of the entire process manufacturing complex via the IIOT.

Once built, anyone can marvel at the impressive physical plant but it is this digital transformation within its infrastructure that provides the data and analytics ensuring the plant’s safe and secure daily operations.

The Indian IT global outsourcing firm Infosys (NYSE: INFY), recently announced that it plans to hire 10,000 American workers over the next two years.

Industrial techniician using tablet
Copyright: theerapong28 / 123RF Stock Photo

Infosys and other India-based information technology consulting companies have come under fire lately for their use of the H-1B visa program. These foreign consulting firms have been the leading sponsors of H-1B visa holders for some years now and have been criticized for allegedly displacing American IT workers.

To counter this backlash, Infosys will open four new Technology and Innovation Hubs across the country focusing on cutting-edge technology areas, including artificial intelligence, machine learning, user experience, emerging digital technologies, the cloud, and big data. These four hubs will not only have technology and innovation focus areas, but will closely serve clients in key industries such as financial services, manufacturing, healthcare, retail, energy and more.

The first hub, which will open in Indiana in August 2017, is expected to create 2,000 jobs by 2021 for American workers and will help boost Indiana’s economy. North Carolina will host the second hub and Infosys announced it will work with the North Carolina Community College system to create a customized tech program.

Why Not Beaver County?

What about Beaver County as the next Infosys hub? Think about it…

Beaver County is the site of the largest capital investment project in the State of Pennsylvania since WWII – the $6 billion Shell Cracker. Some 6,000 workers from a myriad of construction and industrial trades will bring the plant to life. However, a critical part of this build will emanate from the Industrial Internet of Things. Hundreds of millions of dollars of this build will evolve around software, data analytics and physical equipment connected digitally to a secure and failsafe industrial process control network..

The Shell Cracker will usher into Southwestern Pennsylvania a new era in advanced manufacturing, requiring new skills tied to the digital world. An Infosys Hub in partnership with the local community college in Beaver County and tailored to a customized advanced manufacturing technology training programs would greatly benefit the county’s residents as well as the entire workforce of our region.

 

This morning, I read a Bloomberg article entitled, These Numbers Show the Huge Challenges Now Facing OPEC Members, that stated, “[t]he price of a barrel of Brent crude has more than halved over the past five years, triggering an existential crisis for the world’s biggest oil producers.”

I sipped my coffee and thought, Très mal way to start the morning. Well truth be told, I sipped my coffee and looked up the definition of existential crisis, then I thought to myself, Très mal.

Just when I thought things were stabilizing and on the cusp of looking up in the energy sector, the folks in the know are saying the biggest producers in the world are, according to the Psychology Dictionary definition of existential crisis, at “a stage or turning point where the person is faced with finding the meaning and purposes in life” and questioning the foundations upon which they are built.

This is V heavy news. It makes me wish I was still sitting in the woods of Wyoming at my favorite waterfall…

So what is going on?

According to the Bloomberg article, a higher “break-even” price has been exposed – meaning the price per barrel needed for U.S. producers to make a profit is higher than was previously estimated. Bloomberg reports that, “[d]espite enormous strides in technology and cost-cutting, U.S. shale by contrast still requires about $50 to $55 per barrel to make the bulk of its projects profitable, according to Goldman’s estimates.”

In addition, the Bloomberg article discusses the “fiscal break-even price” – “or the magic figure at which producers can balance their budgets,” and estimates that to be $70 per barrel this year.

The Bloomberg article also reports more heavy news: “While the research shows some forced adjustments to the era of lower oil prices, it also hints at more pain to come by pouring cold water over the optimism surrounding oil producers’ attempts to diversify their economies.”

As I write this, the price of oil is rising a little, but is still on the low end. According to Bloomberg Energy, WTI Crude Oil is at $45.70 per barrel and Brent Crude is at $47.97.

After reading this, you may be asking when the next long weekend is – Labor Day is Monday, September 4, 2017.

 

127 years ago today, on July 10, 1890, Wyoming was entered into the Union as the 44th state. As we celebrate the date of Statehood, here is an update from the Cowboy State:

According to the Casper Star Tribune’s Energy Journal of today’s date, which can be found here, activity in the energy sector is picking up in Wyoming.

The rig count in Wyoming as of July 7, 2017, according to Baker Hughes, is sitting at 25 rigs – this is up 17 rigs from one year ago, when the tally was 8 rigs.

Recent headlines in Wyoming have included the following:

The talk around the Cowboy State has shifted from its normal energy-related focus to the upcoming solar eclipse, The Great American Eclipse – on August 21. The eclipse’s path is expected to make its way through the entire central region of my home state and reportedly spans more than 365 miles of Wyoming. The center of the eclipse path will reportedly pass slightly south of Dubois, Wyoming.

Happy birthday to the Cowboy State!

Engineer at refinery
Copyright: 36clicks / 123RF Stock Photo

Abundance of Natural Gas From Marcellus Leads to Government Pipeline Investment Program to Connect the “Last Mile”…

Pennsylvania has embarked upon a economic grant program to make low-cost natural gas energy available to its residents, manufacturers and other organizations residing in the State. Realizing the economic competitive advantage which natural gas affords its residents in terms of energy consumption, the State is providing grants aimed at connecting the last few miles of natural gas distribution lines to businesses parks, existing manufacturers and industrial enterprises.

Enacted into legislation in late 2016, the Pipeline Investment Program is up and running under the auspices of the Commonwealth Financing Authority. The CFA has already made three grants this year totaling $2,442,274. Under the Program, eligible applicants are defined as:

  • Economic Development Organizations;
  • Businesses;
  • Municipalities;
  • Hospitals; and
  • School Districts.

Each grant may be as large as One Million Dollars and funds may be used for defined costs associated with extending natural gas pipelines to serve eligible applicants. All eligible applicants shall provide matching funds of not less than 50% of the total project cost.

This Pipeline Investment Program is a direct offshoot of the tremendous supply of natural gas now flowing out of the Marcellus Shale and the State views this Program as a means to promote its economic competitive advantage in attracting and retaining businesses through access to low-cost natural gas.