Currently there is a huge BTU/$ spread on gas and oil in the US (gas is trading at the equivalent of $18/bbl today). There is now a secondary issue that is roiling the local markets is the Brent/WTI spread which tracks the price of global oil (Brent) to sweet crude shipped from Cushing refineries in OK (WTI… Western Texas Intermediate). The Brent/WTI is practically an even correlation for decades… until the back half of 2011 where the spread reached nearly $15/barrel (i.e., crude oil was cheaper in the US by an historically unprecedented 15%). And here is the kicker… the arbitrage guys are not filling in the gap because the natural thing to occur is to expect that WTI will catch up with Brent. So what’s going on? In part, oil shale findings in the US are turning over a 40 year trend in reduced oil reserves in the US. In Mid November, Andarko announced 1-2 Billion (yes, with a “B”) barrels of new recoverable oil reserves in Colorado in an area known as the Niobrara ( the same Niobrara PEDOC has development lease rights). New findings in the Bakken (i.e. North Dakota), is expected to produce over one Million barrels a day in a few short years (the entire US produced less than 7MBPD in 2010). Sandridge just spent over $1B buying practically 2M acres in the OK & KS in an oil/shale gas field known as the Mississippian, with expectations of adding 10-20 Billion barrels of new reserves in the US. Enbridge just recently spent over $1B to buy a pipeline designed to bring oil from the gulf coast into US refineries with the explicit intention of REVERSING the flow of oil from the US interior to the Gulf Coast for export. The US, which had a growing percent of oil imported to the tune of a peak of nearly 65% imported, dropped toward 45% two weeks ago (and the oil import slide is expected to continue). Goldman Sachs issued a report earlier this month stating the US will likely be a Net Exporter of oil by 2017. The point is, that oil inventories are backing up in the mid west. There is a lack of pipelining from North Dakota all the way down and thru all these fields to the Gulf Coast (don’t get me started on the Keystone XL pipeline which I believe is an absolute necessary piece of infrastructure for US energy distribution). So in country availability is growing, pricing is dropping (there is a lag to the pump), and the Brent/WTI spread grew. One can only guess what this may all mean for long term pricing and the Alternative Fuel markets.
Shale Recovery in US; Impact on Alternative Fuels?
Advertisement
