News from the Oil Patch, May 17
John P. Tretbar
Monday's gasoline prices are the highest in six years at over $3.04 per gallon. The auto club AAA says analysts expected three-dollar gas leading up to the Memorial Day holiday weekend, but the shutdown of the Colonial Pipeline brought a spike weeks ahead of the holiday. The average across Kansas was up seven cents a gallon from a week ago. In Georgia, North Carolina and South Carolina, where supplies were strained due to the pipeline shutdown, prices jumped as much as 21 cents in matter of days. With the pipeline back in operation, Triple-A says prices in these states and the national average have stabilized since the end of last week.
Crude futures were rising on Monday with the international benchmark closing in on its best settlement in two and a half years. In afternoon trading Monday, London Brent was up 84 cents to $69.55 per barrel. Brent crude has only reached $70 a barrel once in the last two and a half years (on March 15, 2021). The Nymex near-month contract for light sweet crude settled Friday at $65.37 and by Monday afternoon was up to $66.33 per barrel.
CORRECTED 1 p.m. Tuesday to clarify that Brent crude reached $70 once in the last two and a half years.
Kansas crude prices are up a quarter per barrel on the week and nearly two dollars higher than at the first of the month. Kansas Common at CHS in McPherson starts the week at $55.50 per barrel.
Drilling activity in Kansas is up slightly. Independent Oil & Gas Service reports the rig count in eastern Kansas was up one at four active drilling rigs. The count west of Wichita was unchanged at 19 rigs. Drilling was underway on leases in Barton and Russell counties, and they're about to spud a new well in Stafford County. Operators reached total depth at three wells in Barton County and one each in Ellis and Stafford counties.
Baker Hughes reported 453 active drilling rigs across the US. Friday, noting an increase of eight oil rigs. According to Enverus Rig Analytics, this week's rig count is up three percent on the month and up 52% year-over-year.
Kansas regulators approved ten new drilling permits last week, 294 so far this year. There are five new permits east of Wichita and five in Western Kansas, with one of those in Ellis County.
Independent Oil & Gas Service reports added 30 new completed wells last week to the annual total of 265. Operators completed 14 wells in eastern Kansas and 16 west of Wichita, including one in Barton County.
The government reported a slight uptick in U.S. crude production last week to just over 10.9 million barrels per day, up 94-thousand barrels per day from the week before. Average domestic crude inventories dropped by nearly half a million barrels last week. The Energy Information Administration reports stockpiles are about two percent below the five-year seasonal average. U.S. imports averaged five and a half million barrels per day, up 37-thousand barrels per day from the week before. The four-week average is up 7.6% over the same four weeks last year.
Oil-by-rail shipments were down for the week but up six percent higher than the same week last year. The Association of American Railroads reports 10,123 tanker cars hauling petroleum for the week ending May 8th, down 848 tankers from the week before.
Lawmakers in Texas are playing hardball with companies that cut ties with the fossil fuel industry. New legislation would require state entities including pension funds and the state's huge school endowment to divest from companies that refuse to invest in or do business with fossil fuel-based energy companies. The bill awaits conference committee approval to send it to the governor.
One of the long-term effects of last year's slowdown in production was a slowdown pipeline speeds because of reduced volumes. Now comes word that nearly half of all oil pipelines out of the biggest oilfield in the country could be empty by the end of the year, and the operators began offering discounts to keep the crude flowing. Reuters reports new pipelines are coming online, driving total pipeline usage in the Permian basin down, despite increased production there. Utilization is expected to drop to 57% in the fourth quarter, much lower than the low point of 70% during the last market bust in 2016. The top three Permian pipeline companies are offering discounts to entice shippers and stem the fall in volumes.
An issue playing out in state after state is heating up in North Dakota, where one landowner group is calling it the single largest issue in energy in the world. Lawmakers in North Dakota have passed another "pore space" law, and are once again bracing for a legal challenge. Such laws essentially regulate huge, empty spaces underground, where energy producers can store natural gas. Industry groups say landowners are blowing the issue out of proportion. They argue the new regulations would actually pay windfalls to the landowners who own property atop those big holes. The laws allow storage projects to proceed if as few as 60% of the affected landowners give their consent. The landowner groups are fighting for the other 40%.
Regulators in North Dakota say the number-two crude-producing state pumped over 1.1 million barrels per day in March, up 25-thousand barrels per day from the month before. The March gas-capture rate of 94% is the best ever reported by the Department of Mineral Resources. That means they flared or vented only about six percent. This marks a dramatic improvement over the last ten years. In September of 2011, operators in the state flared 36% of the natural gas produced at oil wells, the historic high. At the time, flaring activity was visible from space.