January 23, 2019

Oil and Gas Infrastructure News & Views Weekly, Jan. 21, 2019

Exxon's Baytown Refinery Shuts Large CDU for Planned Overhaul: Media outlets are reporting that ExxonMobil has shut down its 280 Mbbl/d “Pipestill 8” crude distillation unit for a planned overhaul at its 560 Mbbl/d Baytown refinery in Texas.

Our Take: We believe that the shutdown at Exxon Beaumont was one of the reasons PADD 3 refinery runs dropped last week (9,421 Mbbl/d for the week ending 1/4/19 and 8,988 Mbbl/d for week ending 1/11/19). According to Bloomberg’s refinery outage report, an estimated 758 Mbbl/d of refining capacity will be offline before the end of the month and will be out until early February. We believe that a large outage like this could, in addition to noticeably reducing refinery runs in PADD 3, will likely drive a buildup in regional crude stocks especially if crude production growth continues as we saw in EIA data this week.


Kansas City Southern Railway Lands Permit to Build New Marine Terminal in Port Arthur: The media is reporting that Kansas City Southern has been awarded a permit that allows the company to construct a rail and marine terminal in Port Arthur. The facility is expected to include eight storage tanks for heavy crude oil, light sweet crude, gasoline, ethanol and diesel as well as related infrastructure for loading rail cars and seafaring tankers with those products.


Our Take: KCS is likely to install equipment to allow blending, transloading and bi-directional imports or exports of crude oil from the terminal. Railing crude to the terminal will likely be utilized only when differentials are high enough to sustain the costs of moving crude by rail. We therefore see that it makes sense for KCS to communicate its plans to have storage for multiple kinds of products in addition to crude oil. 


EIA’s January STEO Shows Higher 2019 US Crude Production and an Unchanged 2019 WTI Price: EIA’s January Short Term Energy Outlook shows 2019 US crude oil production averaging 12.07 MMbbl/d, 0.01 MMbbl/d higher than the forecast released in December. The EIA also expects production to increase to 12.86 MMbbl/d by 2020. The EIA's 2019 WTI outlook price stays at $54.29/bbl while the 2019 Brent price is revised from $61/bbl to $60.52/bbl.


Our Take: Compared to the EIA’s STEO production, our upstream production seems to be more conservative. Not only does Stratas Advisors show a lower 2018 production forecast (10.42 MMbbl/d compared to EIA’s 10.93 MMbbl/d), our conservative 2019 forecasts repeat the same trend albeit with less divergence. For this year, we show an estimated 12 MMbbl/d production forecast compared to EIA’s 12.07 MMbbl/d. Our conservative production forecasts also roll into our higher crude price forecasts in comparison to EIA. We see WTI and Brent average 2019 pricing at $63.51/bbl and $71.96/bbl respectively, lifted mainly by cut compliance by OPEC and non-OPEC producers and a positive outcome on US-China trade talks.


Joint Venture Announces Open Season for Crude Oil Pipeline in Louisiana: This week saw the announcement of a new crude pipeline project by a new JV.  Phillips 66 Partners (NYSE: PSXP), Harvest Midstream Co. and PBF Logistics LP (NYSE: PBFX) have entered into an agreement to develop the ACE Pipeline System. The ACE Pipeline System, with an initial capacity of 400 Mbbl/d, will provide crude oil transportation service from the market hub in St. James, La., to downstream Louisiana refining destinations in Belle Chasse, Meraux and Chalmette. The target in service date is 2H20.


Our Take: Increased inland crude volumes and types (West Canadian Select, Permian Midcon, Bakken-Rockies, etc.) should be heading to the St. James hub upon the completion of the final leg of the Bayou Bridge pipeline and once the reversal of the Capline Pipeline goes into service to bring in Cushing crude through the Diamond pipeline.


Mountaineer Xpress Pipeline Gets FERC Approval: TransCanada obtained FERC approval to begin operations on the 119-mile Mountaineer Xpress pipeline project in West Virginia. The total capacity of the pipeline is 2.7 Bcf/d.


Our Take: The total length of the Mountaineer Xpress project is 165 miles. FERC has provided the go-ahead to start service on 119 miles. The MXP will create new points of receipt and improve transportation capacity throughout the Columbia Transmission’s system. The Columbia Transmission system also includes the 1.3 Bcf/d WB XPress project that was completed recently in 4Q18. These newly approved pipelines improve the natural gas deliverability in Virginia and West Virginia.

Lackawanna Natural Gas Power Plant Begins Operations: Lackawanna Energy Center, a 1,485 MW natural gas electric generation facility located just outside Pennsylvania, has started operations. Invenergy and Kiewit Power Construction have developed the facility.


Our Take: Lackawanna Energy Center uses air-cooled natural gas combined cycle turbines for generating electricity. A 1,485 MW generation facility would consume 266 MMcf/d (at 85% utilization) of natural gas, which will be supplied by Cabot Oil & Gas Corporate. The addition of natural gas fired power generation units is a step in the right direction toward cleaner power. Globally, countries are moving away from coal to natural gas for both economic and environmental reasons.

Ethane Export Facility to Start Up in Beaumont: A multi-billion dollar ethane export facility will be constructed in Beaumont by a joint venture by Martin Midstream and American Ethane. American Ethane aims to supply the ethane for exports. The main recipient of the exports would be China. On their website, American Ethane said that the export plant would supply 7.2 million tons per year to three cracker plants in China, although the specific capacity of this terminal is not provided.


Our Take: Current US ethane production is about 36 million tons per year. The ethane for the exports would mainly come from the nearby Permian and Eagle Ford. Domestic ethane demand has risen considerably as new crackers have come online, such as the one by ExxonMobil in Baytown. We expect that the US ethane production would increase domestic cracker demand and exports.


New Feed Gas Pipeline to Shell Cracker in Pennsylvania: Shell announced that a 97-mile pipeline for feeding natural gas to the Shell Cracker at Potter Township in Pennsylvania will be built. The pipeline will bring natural gas from processing plants in Washington County and Ohio to the plant site.


Our Take: The Potter Township has proximity to four modes of transportation (water, highways, rail and air) that will facilitate distribution of cracker production to domestic and overseas markets. Ethane, the feed gas for the cracker plant, is available in abundance from the processing of NGLs in Appalachia. We expect this region to see more than one cracker being built. Pennsylvania is offering tax incentives. The forecasts for industrial, residential and utility gas consumption from our North American Natural Gas Service shows that additional US cracker and petrochemical industry expansions like that at Shell in Pennsylvania will increase average annual domestic industrial natural gas demand by 3.5 Bcf/d by 2026.


LNG News: In its 4Q18 earnings call, Kinder Morgan announced that Elba Island LNG is nearing completion. The first of 10 units will come online at the end of 1Q19, and the remaining units will come online throughout 2019. Venture Global LNG is awaiting US FERC regulators to provide environmental permits for its 1.3 Bcf/d Calcasieu Pass LNG facility so that construction can commence. Tellurian announced today that FERC has issued the final environmental impact statement for the 2.6 Bcf/d Driftwood LNG project. Afterward, the company is expected to make a positive final investment decision. 


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