[PPT] - Dynamics Trisha Curtis, Director of Research Upstream and Midstream PowerPoint Presentation

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Crude Oil Movements and Market Dynamics

Trisha Curtis, Director of Research Upstream and Midstream Energy Policy Research Foundation, Inc. (EPRINC) Williston Basin Petroleum Conference May 20th, 2014

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About EPRINC

www.eprinc.org
Infrastructure Paper

http://eprinc.org/wp- content/uploads/2013/10/EPRINC- PIPELINES-TRAINS-TRUCKS-OCT31.pdf

Oil and Gas Journal
Embassy Series
Presentations at Imperial College

London, Colombia University, Wyoming Pipeline Authority

Department of Energy – Quadrennial

Energy Review

Department of Defense
Rin App http://eprinc.org/2014/02/rins-

around-rosy-app-available-ios/

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The entire strip…

Source: HPDI May 2014

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2000 4000 6000 8000 10000 12000 Thousand Barrels Per Day Canadian Crude Oil Production U.S. Field Production of Crude Oil Mbbl/d

North American Oil Production

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Source: EIA, Canadian CAPP forecast, EPRINC U.S. forecast, EPRINC Mexico , and EPRINC estimates

U.S. 8 mbd Canada 3.7 mbd

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1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Periphery Permian Eagle Ford Bakken EPRINC's May 2013 Forecast

Jan 2014 EPRINC’s Forecast for Major U.S. Shale Plays

Source: HPDI data with EPRINC forecast estimates

EPRINC forecasts

ver 2 mbd by 2020

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2020 U.S. 10 mbd Canada 5.1 mbd

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2000 4000 6000 8000 10000 12000 Thousand Barrels per Day U.S. Imports from Canada of Crude Oil Mbbl/d U.S. Imports of Crude Oil Mbbl/d U.S. Field Production of Crude Oil Mbbl/d

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Total Imports, Production, Canadian Imports

Source: EIA

Canadian Imports 2.8 mbd

r 36%

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Drilling Activity and Production

SLIDE 8

Source: HPDI May 2014, Past 90 Days

Willis illiston

n

Bas asin in Powder der Riv iver er Bas asin in Uint Uinta a Bas asin in DJ J Bas asin in (Niobr

iobrar ara a Res eser ervoir

ir)

Anad nadar arko

Bas

asin in

(Mis Missis sissippian sippian, , Gran anit ite e Wash, ash, Mis Missis sissippi sippi Lim Lime e and and ot

ther

her s stac acked ed play plays)

Per ermian mian Bas asin in Eagle gle For

rd

d Res eser ervoir

ir

Ut Utica ica

Permit Activity

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U.S. Rig Count

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Source: Baker Hughes

500 1000 1500 2000 2500 # of Rigs Oil Gas Total

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State Rig Count

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Source: HPDI March 2014, Baker Hughes

ND: 184

200 400 600 800 1000 1200 1/7/2000 1/7/2001 1/7/2002 1/7/2003 1/7/2004 1/7/2005 1/7/2006 1/7/2007 1/7/2008 1/7/2009 1/7/2010 1/7/2011 1/7/2012 1/7/2013 1/7/2014 # of Rigs Texas North Dakota Colorado Wyoming

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200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Barrels Per Day Eagle Ford North Dakota Permian Basin Wyoming Colorado

Permian 1.5

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In Context - Shale Oil Play Production

Source: HPDI May 2013, EIA, NDPA

Eagle Ford 1.2 mbd North Dakota 977,000 b/d Colorado 184,000 b/d Wyoming 181,000 b/d

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Importance of Technology and Where it Will Go

Source: Cosima Theloy and Steve Sonnenberg, SPE Paper 168870, presented Denver Aug 2013, “Integrating Geology and Engineering: Implications for Production in the Bakken Play, Williston Basin” Source: Continental Resources March Investor Presentation, Permission granted Source: Vern Whitten photography From NDIC Lynn Helms presentations Source: Triangle Petroleum Corporation, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012

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Will it change production EURs, decline rates, plateaus…?

Source: NDPA 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Barrels Per Day 50 100 150 200 250 300 350 400 450 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 Barrels Per Day

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Infrastructure and Pricing

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March 2014 Williston Basin Crude Transportation

Source: NDPA, EPRINC Estimates

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Tesoro Refinery: 68,000 b/d Truck to Canadian Pipeline: 7,000 b/d Rail: 715,000,000 b/d (66%) Pipeline: 293,776 b/d

Williston Basin Production: 1,054,776 b/d North Dakota: 977,051 b/d South Dakota: 4,712 b/d Eastern Montana: 73,013 b/d

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Pipeline Capacity Ample, But

Source: EPRINC’s article in Oil and Gas Journal March 2014

Plenty of pipeline capacity now, but if more crude should

move back to pipe (rail concerns) could see prices further decline in Clearbrook

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50 100 150 200 250 300 Jan-93 Sep-93 May-94 Jan-95 Sep-95 May-96 Jan-97 Sep-97 May-98 Jan-99 Sep-99 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 THOUSAND BARRELS PER DAY 17

U.S. Crude Oil Exports

Source: EIA

Canada imported a total of 331,000 b/d (oil

and refined products) from the U.S. in Jan 2013

110,000 b/d from ND alone
Quebec: 71,000 b/d
Valero’s Jean Gaulin 265,000 b/d
Saskatchewan: 7,000 b/d
Manitoba: 4,000 b/d
New Brunswick: 27,000 b/d
Irving Oil’s St John refinery 300,000 b/d

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Pipeline Choke Points

Source: EPRINC Choke Point Map using Hart ArcGIS Mapping software

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All Canadian Pipeline Export Options are Full

Source: Canadian Energy Pipeline Association

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Kinder Morgan’s Transmountain line
ff BC coast - currently 300,000 b/d

capacity- planned expansion up to 800,000 b/d (early 2017)

(Now Spectra) Platte line to Wood

River 280,000 b/d-full

Enbridge mainline system currently

transporting over 1.5 mbd with potential capacity around 2.5 mbd— Northern Gateway off BC coast planned 525,000 b/d, several other planned expansions, light oil access +400,000 b/d to eastern U.S. and Canada

TransCanada’s Keystone 581,000

b/d-full—XL would add 700,000 b/d, Energy East Pipeline Project 500 to 800k

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Regional Pricing Disparities

Source: Map from AFPM, Flint Hills, EIA, CME Group, and estimates

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Price Comparison

Source: Bloomberg Data

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$- $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 5/1/2013 6/1/2013 7/1/2013 8/1/2013 9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 WTI Cushing WTI Midland Bakken Clearbrook WCS LLS Brent

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Daily Crude by Rail Shipment in U.S. and Canada

Source: AAR; Crude and petroleum product includes liquefied gases, asphalt, fuel oil, lubricating oil, jet fuel, etc. U.S. operations exclude U.S. operations of CN and CP. Canadian operations include CN and CP and their U.S. operations. One carload holds 30,000 gallons (or 714.3 barrels).

200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Barrels Per Day U.S. Average Barrels Per Day

f Petroleum and Petroleum

Product Canadian Average Barrels Per Day of Petroleum and Petroleum Product EPRINC's U.S. Daily Crude by Rail Estimate - 825,000 b/d EPRINC's Canada Daily Crude by Rail Estimate - 160,000 b/d

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Pipeline vs. Rail Costs

Source: CAPP

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New fees for older

tank cars

Narrow spreads
From Bakken to

Coasts between $10 - $15

Slight increases

due to fees by railroads for older tank cars and testing fees

From Alberta to

Gulf $20

Source: EPRINC Maps using Hart Energy data and ArcGIS Mapping software

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Refineries

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Canadian Still Isn’t Getting to PADD III

Source: EIA Data 200 400 600 800 1000 1200 1400 1600 2008 2009 2010 2011 2012 2013 Jan-Feb 2014 Thousand Barrels per Day

PADD I

East Coast (PADD 1) Total Foreign Imports East Coast (PADD 1) Imports from Canada 1000 2000 3000 4000 5000 6000 2008 2009 2010 2011 2012 2013 Jan-Feb 2014

PADD III

Gulf Coast (PADD 3) Total Foreign Imports Gulf Coast (PADD 3) Imports from Canada 200 400 600 800 1000 1200 1400 Thousand Barrels per Day

PADD V

West Coast (PADD 5) Total Foreign Imports West Coast (PADD 5) Imports from Canada 500 1000 1500 2000 2500 2008 2009 2010 2011 2012 2013 Jan-Feb 2014

PADD II

Midwest (PADD 2) Total Foreign Imports Midwest (PADD 2) Imports from Canada 50 100 150 200 250 300 Thousand Barrels per Day

PADD IV

Rocky Mountain (PADD 4) Total Foreign Imports Rocky Mountain (PADD 4) Imports from Canada

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Good Crude BUT Too Many Light Ends

Source: Continental Resources March Investor Presentation, Permission granted

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Refinery Expansions and Adjustments

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Not really about the Bakken
To accommodate rising volumes of light sweet crude and condensate

from the Eagle Ford and the Utica:

Flint Hills and Valero in the Gulf making expansions this year and the

next; Marathon near Utica (around 200,000 b/d plus)

Phillips 66 has plans but not explicit
Some more opportunity driven expansions in North Dakota, Montana,

and Texas in 2015 (around 60,000 b/d), topping plants etc.

Only one condensate splitter active to date in Gulf – BASF/Total
Kinder Morgan and Trafigura under construction in Gulf –

2014/2015

Several proposed projects in the Gulf
Narrow margins, uncertainty around exports

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“‘The nature of the oil we're producing may not be well-matched to our current refinery capacity,’ Mr. Moniz said Tuesday after an energy conference in Seoul. The administration is studying the issue, though government officials declined to comment on its scope or timing. The statements, paired with similar comments by senior Obama counselor John Podesta last week, mark a notable policy shift inside the administration over the past six months.”

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Crude Exports

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Timeline of Discussion

Talk during past few years in analyst and think tank community
Adam Seminski publically talks about crude oil exports in 2012
During the course of 2013 several new pipelines came online to alter the flow of crude from

the Permian to the Gulf Coast (historically Permian to Cushing) in addition to new pipeline capacity from the Cushing to the Gulf, Eagle Ford production passes 1 mbd, and refinery maintenance coupled with rising production pressures LLS prices in Nov 2013

April 2014 Senators Murkowski (R-Alaska) and Landrieu (D-Louisiana) request EIA to look into

crude oil exports

May 2014 - White House officials and Energy Secretary Moniz comment on crude oil exports,

EIA says they will be working on more detailed production data with API gravities What’s Happening

Large volumes of light sweet crude and condensate of varying grades (in addition to NGLs)

came on the market with limited infrastructure options

Refineries in the Gulf are beginning to see the pressure of too many light ends and their

capability to handle increasing volumes of condensate and light sweet crude

Gasoline demand is relatively flat in the U.S. so there is only so much need for gasoline

blending components and condensate

Natural gasoline from NGLs is in more demand from Canada as a diluent

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Geology of the Eagle Ford = Varying Liquid Grades

Source: Momentum Oil and Gas LLC, DUG Eagle Ford Conference Presentation Oct 2011; EOG Investor Presentation Feb 2014;

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Those differences are impacting prices

May 16, 2014 WTI $102 Brent $110

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But we are already exporting…refined product

Source: EIA 500 1000 1500 2000 2500 3000 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jan-Feb 2014 Thousand Barrels per Day

U.S. Petroleum Products Exports

U.S. Exports of Finished Petroleum Products Mbbl/d U.S. Exports of Distillate Fuel Oil Mbbl/d U.S. Exports of Finished Motor Gasoline Mbbl/d U.S. Exports of Petroleum Coke Mbbl/d U.S. Exports of Residual Fuel Oil Mbbl/d U.S. Exports of Kerosene-Type Jet Fuel Mbbl/d

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This matters because…

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Source: ITG Investment Presentation Nov 2012

Regional Discounts Matter with High Cost Production

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Source: WSJ, April 20, 2014, Russel Gold Theo Francis “The New Winners and Losers America’s Shale Boom”

Cash Flow of the Shalers

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Source: Ivan Sandrea/Bloomberg. Company data, Energy Aspects (In focus – the other tale of shale, Oct 2013) From Earnst and Young Presentation,

Debt Concerns

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0.0 1.0 2.0 3.0 20 40 60 07 08 09 10 11 12 13 Debt Total Debt, $bn (LHS) Production, mb/d (RHS)

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Regulatory Uncertainty

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SLIDE 39

Rail Safety
Pipeline and Rail Spills
Flaring
Water: Spilling, disposing, fracking usage
Oil prices/costs/discounts
Infrastructure delays
Regulatory uncertainty: midstream companies trying to

forecast crude exports etc.

Waste disposal
Environmental Concerns

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Issues and Regulatory Concerns

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May 2014 Emergency Orders and Recommendations

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April 30, 2014, oil tank cars on CSX derailed and

caught fire in Lynchburg, VA (3 of 15 cars that derailed caught fire). Nobody was injured but 300 people were evacuated temporarily

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Many Entities Involved

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Issues

labeling
volatility
rail safety
tank car strength

Groups Involved

producers
truckers
shippers
marketers
refineries
railroads
tank car manufacturers

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Not on the same page

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Instead, attention should shift to the rail industry's safety record, said Charles Drevna, president of the oil-refiner trade group, some of whose members have made big investments in crude-by-rail infrastructure such as tank cars. "The debate should now focus on the remaining issues—track integrity and maintenance and training for rail operators and responders," Mr. Drevna said.” Rail executives, including Mr. Harrison, have criticized the moves, warning that such regulation could prove costly and

nerous. "Those bureaucrats have no transportation

experience," he said, adding that reducing speed further for all cargo, including crude and other hazardous materials, as has been proposed, would be a "nightmare" for the railroad.

WSJ, “CP’s Boss: A Too-Tough Love?,” David George-Cosh, May 13, 2014

“Kari Cutting, vice president of the North Dakota Petroleum Council, said she didn't know what had changed since her group met with PHMSA last week…’Our Bakken characterization study is not indicating that Bakken crude oil is more hazardous than other crude oil, and we're thinking that Bakken crude oil is being singled out for political reasons,’ Cutting said in an interview yesterday.

EEnews, “DOT crude by rail orders close in on Bakken oil,” May 8 2014

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New York Moratorium

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Source: New York Times, Jad Mouawad, “Bakken Crude, Rolling Through Albany,” Feb 27, 2014

NY’s Albany County placed

a moratorium on crude oil processing expansions in the Port of Albany until health investigations and environmental impacts could be assessed

Global Partners and

Buckeye in Albany hub

Global had received

permits to double facility in 2012

In January Gov Cuomo

signed order for top bottom safety review of crude by rail and water and writes letter to Obama

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Water Issues

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“The analysis suggests that a likely contributing factor to the increase in earthquakes is triggering by wastewater injected into deep geologic

formations. This phenomenon is

known as injection-induced seismicity, which has been documented for nearly half a century, with new cases identified recently in Arkansas, Ohio, Texas and Colorado.”

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Colorado Fracking Ban

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Source: Images directly from “In Colorado Local Fracking Debate Holds National Implications, theenergycollective.com, Kate Rosow Chrisman, May 12 2014

Initiative to change constitution in November statewide ballot
Give communities to choose what type of activity would take place despite state laws