Paradigm for US Natural Gas Producers? Coal supply can’t keep up with demand.

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From the Washington Examiner, Daily on Energy:

ENBRIDGE BETS ON OIL EXPORTS: Canadian pipeline giant Enbridge agreed to acquire Moda Midstream Operating for $3 billion from EnCap Flatrock Midstream to add export capacity on the Gulf Coast, Bloomberg reports.

Enbridge handles about a quarter of all crude produced in North America and is betting on exports of oil pumped from the Permian and Eagle Ford shale basins.


DOE Announces Strategic Petroleum Reserve Exchange
Andreas Exarheas, Rigzone, September 7, 2021

The U.S. Department of Energy (DOE) has announced that it has authorized the Strategic Petroleum Reserve (SPR) to conduct an exchange of 300,000 barrels of crude oil from the Bayou Choctaw storage site to Placid Refining Company LLC’s refinery, which is located near Baton Rouge, Louisiana.

The DOE noted that this exchange is being made to ensure that the areas affected by Hurricane Ida are able to quickly and easily access the fuel they need to support recovery activities.

“The SPR’s ability to conduct exchanges is a critical tool available to refiners during emergencies like Hurricane Ida,” the DOE said in a government statement. “DOE expects refiners to prioritize refined products for the affected region and remains committed to supporting those efforts,” the organization added.

On September 2, the DOE announced that the U.S. Secretary of Energy Jennifer M. Granholm authorized the SPR to conduct an exchange with ExxonMobil Baton Rouge “to alleviate any logistical issues of moving crude oil within areas affected by Hurricane Ida to ensure the region has access to fuel as quickly as possible as they continue their recovery”. The exchange involved a release of 1.5 million barrels of crude oil to ExxonMobil.

In a statement posted on its website last Thursday, DOE said it encourages refiners to prioritize refined products for the affected region and remains committed to supporting those efforts through options such as the SPR.

In a note sent to Rigzone on September 6, Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen said refineries are reportedly managing to restart operations at four of nine sites in Louisiana, “with only one million barrels per day of capacity now still completely shut-in”.

On September 1, IHS Markit highlighted that refineries that process more than 2.7 million barrels per day, or approximately 14 percent of total U.S. refining capacity, had been in the path of Hurricane Ida. The company said most of those refineries, representing two million barrels per day, or more than 11 percent of total U.S. capacity, were expected to be back online within three weeks. 

According to the DOE website, the SPR is the world’s largest supply of emergency crude oil and was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program. The federally owned oil stocks are stored in underground salt caverns at four sites along the coastline of the Gulf of Mexico. The authorized storage capacity of the SPR is 714 million barrels.


With Natural Gas Prices Surging, America’s Frackers No Longer Need To Wish For A Cold Winter
David Blackmon, Forbes, September 7, 2021

“Think we’ll have a cold winter this year?” That’s been a common question heard in the office hallways and field locations of U.S. producers of natural gas since price deregulation occurred in the late 1980s. A colder-than-normal winter has always meant strong demand for the product, which in turn meant stronger prices at the wellhead, which generated more free cash flow and increased capital for drilling budgets for the following year.

All those things meant more job creation and enhanced job security for the men and women asking that question in the hallway or out in the field. The answer was important to everyone, and the question typically began to be asked in earnest in early September, as summer came to an end and the weather began to cool.

This year is different, though. For the first time in a long time – probably since the price for natural gas came crashing down in 2008 as the massive Marcellus Shale and Haynesville resources began to fully come on line, creating what has been a persistent domestic supply glut – U.S. natural gas producers find themselves in a strong price position heading into the fall and not overly concerned about the direction of the weather to come.

The NYMEX Henry Hub index price, which fell below the $2 per Mmbtu level during the depths of the COVID pandemic for several months last year, has more than doubled since, and stood over $4.60 at Tuesday’s open. Even more encouraging for these producers, they have reason to be optimistic that the price could hold at this level or even move higher regardless of whether or not the U.S. experiences a winter that is colder or warmer than normal.

One reason for such optimism lies in the underground storage levels that every gas producer watches closely. This is gas injected into massive underground caverns during low-demand months in the spring and fall and used to fill needs during high demand months in the heat 0f summer and depths of winter. According to the U.S. Energy Information Administration (EIA), current volume in working storage is almost 17% below last year’s level and 7.2% under the 5-year running average. Such a tight storage situation places upward pressure on prices.

Hurricane Ida, which took essentially 100% of oil and natural gas production from the Gulf of Mexico offline as producers were forced to shut-in their platforms and facilities, has also put upwards pressure on the price. According to the EIA, the Gulf generates about 15% of the nation’s oil production and 5% of its dry gas volumes, and as of Monday, virtually all of it remained offline, resulting in an even tighter U.S. supply situation. That production will likely return to normal within weeks, but the temporary loss will limit volumes going into storage in the meantime.

Then there’s the fact that, over the last half-decade, exports of liquefied natural gas (LNG) have transformed the U.S. natural gas market from a domestic market into a global powerhouse. The EIA reports that US LNG exports hit record highs in March of this year and have remained at elevated levels since. The EIA projects those export volumes – as well as exports via pipelines into Mexico and Canada – to continue to grow through 2022 and beyond as demand rises and new export facilities and planned pipelines continue to come online.

All of these factors and more have created a new paradigm for domestic natural gas producers, who have had to work hard over the last dozen years to create new areas of demand for their overwhelming production. With the Biden/Harris administration working hard to place new restrictions on domestic producers, the prevailing narrative around U.S. natural gas has begun to rapidly shift to growing concerns about whether they will be able to meet the country’s future needs.

Thus, while the question about whether or not we will have a cold winter is probably still being asked in hallways and field locations, the underlying concern behind it has now likely shifted. Rather than being worried about future job security, employees are more likely to be concerned about their companies’ ability to meet all the rising demands on their production.

It’s not necessarily a good problem to have, but it is a different one than these companies have experienced in the recent past.


Asia’s coal prices hit new highs as global utilities scramble for fuel
Reuters, September 6, 2021

Thermal coal prices across Asia hit new highs this week as China and India restock critically low inventories to meet robust power consumption, industry sources said.

The most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange jumped more than 4% on Tuesday to a record high of 979 yuan ($151.63) a tonne.Top of Form

Bottom of Form

In India, prices of better burning U.S. thermal coal in North Indian retail markets have risen by a third in the last 15 days and are up by more than 100% from a year ago to 14,600 Indian rupees a tonne.

Coal supply is struggling to catch up with demand in top consumer China as mine safety checks slow output.

In number two consumer India, the monsoon season and covid-19 restrictions have hampered production.

The tight coal market across Asia is accentuating a global bull market in all power generation fuels, including natural gas and high-sulphur fuel oil, buoyed by economic growth and LNG supply issues. “It is the perfect storm, prices are galloping due to China’s heatwave, shortages with Coal India and power plants, high freight rates, increased appetite in the rest of Asia, tightness due to Indonesian rains, Hurricane Ida in the U.S., and in general a supply crunch,” Puneet Gupta, founder of Indian coal marketplace Coalshastra, told Reuters.

Global strength

Coal prices from exporters Australia and Indonesia have also scaled all-time highs recently, with Australia’s Newcastle prices rising roughly 50% and Indonesian export prices up 30% in the last three months.

Chinese futures for coking coal, a raw material mainly used in steelmaking, are also surging, and have gained over 50% in the past three months.

Strict supply controls in China have been a catalyst behind the latest price surge.

Shanxi, China’s top coal mining province, on Friday ordered all its coal mines to carry out a two-month safety inspection and said those which failed to comply would be shut down for rectification.

A state-owned coal mine with an annual output capacity of 6 million tonnes has already been closed for at least a month by the Shanxi government after a fatal accident occurred last week.

The Chinese state planner has also initiated a fresh round of price probes in coal mining regions including Shanxi and Inner Mongolia, aiming to arrest illicit price hikes and to stabilise the market.

“The investigation at this moment is focusing on a few big mines which take responsibility of ensuring supply to coal-fired power plants. It is still uncertain if the probe would expand to a wider range of mines,” said a coal trader in Inner Mongolia.

Inner Mongolia Coal Trading Centre has suspended publication of the daily assessment of spot prices in the region since Aug. 30.

In August, an official at the China Electricity Council confirmed that 11 coal-fired power plants jointly appealed to the Beijing city government through a letter for an increase in electricity prices for bulk trade as power companies struggled with losses amid high coal prices.

“Operations at power plants are extremely difficult and cash flows at some firms have already broken,” said the letter, which was signed by power groups including Datang International Power Generation, China Huaneng Group, China Huadian Corp and CR Power.

Power plants in northeastern China have started to replenish inventories before the winter heating season, while others in the northern parts of the country are expected to follow in the coming weeks.

In India, the government has urged local coal mines to boost output and told utilities to import coal with several power plants on the verge of running out of fuel.

Coal powers nearly three-fourths of India’s electricity demand.


Alaska Gov. Mike Dunleavy replaces state’s transportation commissioner
James Brooks, Anchorage Daily News, September 6, 2021

Alaska transportation commissioner John MacKinnon retired on Friday, and Gov. Mike Dunleavy has named a 20-year transportation department official as his replacement.

In a written statement Friday, the governor’s office said Dunleavy has named Ryan Anderson, the Alaska Department of Transportation and Public Facilities director for the region that covers northern Alaska, as his new transportation commissioner.

“It’s a big honor,” Anderson said Saturday, adding that he was asked if he would be interested in the job and accepted after talking with his family.

Anderson will begin serving as commissioner immediately, said Jeff Turner, a spokesman for the governor.

Anderson said MacKinnon had been planning to retire, and he’s not aware of any bad feelings between the former commissioner and the governor.

Andy Mills, a special assistant at the transportation department, said MacKinnon accelerated his retirement plans for family reasons. MacKinnon’s mother is experiencing health problems, Mills said, and he would like to spend more time with his grandchildren and work on his remote Southeast cabin.

Dunleavy said in his statement that he looks forward to working with Anderson, who “built an admirable record of achievement and public service during his tenure at DOT. He is widely respected across northern Alaska for cultivating positive relationships with all impacted stakeholders while completing vital public transportation projects on time and within budget.”

MacKinnon did not answer a message left on his cellphone Friday.

Anderson said he wants to focus on employee health and public safety as long as the pandemic continues. He’s following debates in Congress about a new infrastructure bill and said that if that passes, the department will be putting effort into the projects that will be funded. An infrastructure bill could be a chance to accelerate projects the state is already planning but may be a year or two out, he said.

In terms of continuing projects, he believes the Cooper Landing bypass on the Kenai Peninsula is the department’s biggest ongoing issue. He also said he plans to learn more about the state ferry system, since he didn’t have much experience in that area as northern region director.

The governor’s selection is subject to confirmation by the Alaska Legislature.

MacKinnon served as DOT’s deputy commissioner between 2003 and 2008, then became head of the Associated General Contractors of Alaska, a leading construction trade group. He was one of the first people selected for Dunleavy’s cabinet after the governor’s 2018 election.

MacKinnon’s spouse, former state Sen. Anna MacKinnon, is head of the Permanent Fund Dividend Division.

Anderson is a 1997 graduate of the University of Alaska Fairbanks and joined DOT as an entry-level engineer in 2000 after three years of work in underground mining, according to his state biography.

He lives with his wife and two children in Fairbanks. He said he intends to remain there as commissioner.


Green groups push for UN climate conference delay
Ben Geman, Axios, September 7, 2021

Green groups say a critical UN climate summit hosted by the U.K. in Scotland this fall should be delayed because COVID restrictions and costs will hinder poor and vulnerable nations’ participation.

Driving the news: The Climate Action Network, an umbrella group of climate NGOs, cited lack of vaccine access, rising travel and hotel costs and other factors.

  • “An in-person [conference of parties] COP in early November would de facto exclude many government delegates, civil society campaigners and journalists, particularly from Global South countries, many of which are on the UK’s COVID-19 ‘red list,'” the group said.

The other side: Alok Sharma, the U.K.’s top summit official, said this morning the event must go ahead because “COP26 has already been postponed by one year, and we are all too aware climate change has not taken time off.”

  • The U.K. government is offering to fund quarantine hotel stays for delegates from nations on the “red list” and will vaccinate delegates who otherwise cannot obtain the jab, he said.