Gas Price Predictions Haven’t Panned Out – Yet

A CNN Money article published yesterday included a prediction about gas prices made by John Hofmeister, former president of Shell Oil.  He said that Americans could be paying $5 per gallon of gasoline by 2012.  In response, this designer of “Will Work for Fuel” merchandise says, “Tell me something new.”

Since President Barack Obama took office in January 2009, I’ve published several posts proffering predictions related to the prices of products provided by the petroleum sector (pardon the alliteration.)  Among them were the following 2009 posts:

  • On June 23, I posted a warning that Waxman-Markey Climate Change legislation would cause gas prices to reach $4 per gallon and “create huge disincentives for the production of America’s abundant natural gas resources, and force jobs and productive capacity overseas.”

The most-troublesome prediction, however, is one I shared March 3, 2010, in the post, Sobering Reality: $7 Per Gallon Gas.  It linked to The New York Times Dot Earth blog story about a prediction by Harvard researchers.  They said Americans may have to experience paying $7 per gallon for gasoline in order to meet the Obama Administration’s targets for cutting greenhouse gas emissions.  Ouch!

As one of the biggest advocates of a Drill, Baby, Drill policy, I’m pleased that such predictions have been made and thankful that they haven’t come true.  At the same time, I’m cautious, because the national average retail price of gasoline recently broken the $3 mark for the first time in a long time, according to (see chart above).  In other words, we’re not out of the woods yet.

EDITOR’S NOTE: If you enjoy this blog and want to help keep stories like the one above coming, show your support by using the “Support Bob” tool at right. Thanks in advance for your support! Have a wonderful 2011!

Trade Group Cites Increase in Demand for Petroleum Products as Sign of Stronger Economy

The Obama Administration has been anything but friendly to the oil and natural gas industry during the past two years; still, if a news release (below) received from the American Petroleum Institute this morning is any indication, people in the “oil patch” see an ever-so-slim sign of optimism in rising demand for their products:

WASHINGTON – Total U.S. petroleum deliveries (a measure of demand) increased 6.5 percent in November compared with November 2009, evidence the nation’s consumer and industrial sectors are recovering, according to API’s Monthly Statistical Report.  The step-up in fuel demand represented the largest year-to-year increase for any month in 2010.

Gasoline deliveries rose 3.2 percent this November from a year ago while distillate fuel deliveries jumped 13.5 percent.  Ultra-low sulfur distillate deliveries – the diesel used in trucks – were up 13.2 percent.  Jet fuel deliveries experienced a robust 16.7 percent increase.

“Fuel demand continues to strengthen, a positive sign for our economy.  Gasoline deliveries are up three months in a row and distillate deliveries are up 10 months in a row over the same months in 2009,” said API chief economist John Felmy.  “Stronger fuel demand tells us a recovery is underway.”

Domestic crude oil production stood at 5.44 million barrels per day in November up slightly from last year, down 1.3 percent from October, but the highest total for any November since 2003.  Rig counts rose to their higher level for the year at 1,683, according to Baker Hughes, Inc.

November’s 10.9 million barrels a day of crude oil and product imports were lower than November a year ago by 1.1 percent, driven by double-digit declines in product imports.  Crude oil imports were five percent higher than a year ago, averaging 9.1 million barrels a day.

While the highest total for any November since 1987, domestic crude oil inventories were lower than last month.  November gasoline stocks were down three percent and distillate stocks were 3.8 percent lower compared with October.

Refinery utilization reached 83.2 percent of capacity in November, higher than this past October and November 2009.  The rate was 15 percentage points above the average utilization for all U.S. manufacturing (in October 2010), according to Federal Reserve Board data.

API represents more than 450 oil and natural gas companies, leaders of a technology-driven industry that supplies most of America’s energy, supports more than 9.2 million U.S. jobs and 7.5 percent of the U.S. economy, and, since 2000, has invested nearly $2 trillion in U.S. capital projects to advance all forms of energy, including alternatives.

To read other BMW posts about the oil and natural gas industry, click here.

Pace of U.S. Petroleum Demand Decline Slows

The pace of U.S. petroleum delivery declines continued to slow last month, according to the American Petroleum Institute’s Monthly Statistical Report, which noted the 2.1 percent year-to-year slip in overall petroleum deliveries (a measure of demand) was the smallest in a year and a half.

Williams PB Gas Processing PlantWhile distillate fuel oil (diesel and heating oil), along with jet fuel, continued to show year-to-year delivery declines, of 3.3 percent and 11.1 percent, respectively, August gasoline deliveries rose, marking the third consecutive monthly increase. Prior to the past three months, gasoline delivery declines had persisted for more than a year and a half. Still, gasoline deliveries for the traditional June-through-August peak driving season, while up one percent from a year ago, were measurably below the peak reached in 2007, and with the exception of 2008, were the lowest since 2002.

“While lessening economic gloom is likely one factor behind the slight rebound in petroleum demand, lower retail prices may have also played a role, particularly for gasoline,” noted API Statistics Manager Ron Planting. “We saw retail gasoline prices some 35 percent lower than a year ago during the peak driving season when there is more discretionary driving.”

U.S. crude oil production jumped 6.2 percent in August, compared with a year ago. While some of the increase reflected the continued benefits of investment in new technologies in recent years, a lack this year of Gulf of Mexico tropical storm activity and less downtime in Alaska production operations also played a role. In August 2008, safety precautions ahead of Gulf of Mexico hurricanes, as well as downtime for Alaska operations, temporarily lowered production.

Crude oil imports, which totaled 9.5 million barrels per day in August, rose from July levels, but remained 8.2 percent lower than a year ago. Combined with the 15 percent drop in production imports compared with last year, the overall decline in total U.S. petroleum imports averaged nearly 1.3 million barrels per day in August, or almost 10 percent compared with the corresponding month a year ago.

If Passed, Cap-and-Trade Bill Will Cost You Dearly Cap-and-Trade Costs

Click to enlarge.

The Waxman-Markey cap-and-trade bill will hit consumers of petroleum fuels especially hard by dramatically increasing the costs of goods and services as noted in the graphic at right, according to two groups closely following the legislation.

In a three-page document (pdf) forwarded to me early this afternoon, American Petroleum Institute officials warn that people who use automobiles, trucks, planes, trains, heating oil and other non-transportation petroleum products will shoulder the lion’s share of the burden.  In addition, the inequitable nature of the legislation could worsen the pain for everyone.

If, rather than read the API document above, you’d prefer seeing a “Top 10″ list of problems associated with Waxman-Markey, take a look at the Top 10 List of Problems associated with cap-and-trade legislation below, courtesy of the the Heritage Foundation:

1. Cap-and-trade is a massive energy tax;

2. It will not make a substantive impact on the environment;

3. It will kill jobs;

4. It will cause electricity bills and gas prices to sharply increase;

5. It will outsource manufacturing jobs and hurt free trade;

6. It will make you choose between energy, groceries, clothing and haircuts;

7. It will be highly susceptible to fraud and corruption;

8. It will hurt senior citizens, the poor, and the unemployed the worst;

9. It will cost American families over $3,000 a year; and

10. President Obama admitted “Electricity Rates Would Necessarily Skyrocket” under a cap-and-trade program (January 2008).  [Note:  See my post for more details.]

I urge you to read, understand and take action upon this information — and DO IT NOW!

In addition to sharing this information with everyone you know, I urge you to CONTACT YOUR ELECTED OFFICIALS in Washington, D.C., and demand they oppose this dangerous and costly legislation.

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See also: Cap-and-Trade Proposal Carries Adverse Impact

API: Economy Continues to Depress Deliveries

Total U.S. petroleum deliveries (a measure of demand) fell 3.6 percent in April from a year ago, reflecting continuing weakness in the economy, according to the American Petroleum Institute’s Monthly Statistical Report released today.  While gasoline deliveries increased slightly in April against a year ago, all other product deliveries fell, led by a sharp drop in distillate deliveries.  Total product deliveries for the period January-April were the lowest since 1998.

API Monthly Stats April 2009

“Gasoline deliveries were up, if only because year-ago levels were the lowest for any April since 2003,” said Ron Planting, API statistics manager.  “Distillate deliveries were a full 13 percent down from a year ago, as demand for diesel for freight transportation fell.”

At 12.25 million barrels per day, crude oil and product imports were lower than in any April since 2002.  Crude oil imports for April slipped to 9.51 million barrels per day, down 4 percent from a year ago.  Product imports, which had risen year to year in the first quarter, sharply reversed in April, declining nearly 18 percent from a year ago.

Domestic inventories of crude oil rose 11 million barrels in April, continuing an uninterrupted rise since last July that, through April, totaled nearly 80 million barrels.  “The increase in inventories is the largest for a similar period in more than 80 years,” said Planting.

Williams Piceance Basin Rig #278Among products, inventories of distillate fuel oil rose the most, ending the month at 145 million barrels, a level 39 million barrels or more than 37 percent above April a year ago, the largest such build since 1980.  This was the first heating season since 1970 that distillate inventories ended April higher than they ended September.

Refinery utilization dipped from March to 81.7 percent – yet still about 16 percentage points higher in April than the utilization rate for all U.S. manufacturing.

April’s U.S. crude oil production at 5.29 million barrels per day again exceeded year-ago levels, as monthly production has every month so far this year.

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NOTE: I will participate in an API-hosted bloggers conference call Friday morning with Robert N. “Bobby” Ryan, the man responsible for Chevron’s worldwide exploration portfolio as vice president of global exploration for Chevron Global Upstream & Gas.  If you have a question you would like me consider asking him, leave it in the comments section below.

Oil and Natural Gas Companies’ Earnings Plummet

A glance at the chart below, released today by the American Petroleum Institute, proves the nation’s oil and natural gas companies are not immune to the global recession and have, in fact, experienced a sharp decline in first-quarter net profits versus the same period last year.

Oil and Natural Gas Industry Earnings Plummet

Instead of asking for bailouts, however, leaders of the nation’s petroleum industry seek only to be able to drill on land and offshore.  If allowed to drill, the industry can help the United States can reduce its dependence upon foreign sources of energy.

Tour Offers Writers Education in Natural Gas (Updated)

During a two-day fact-finding trip this week, I learned a lot about Williams’ cutting-edge natural gas exploration and production efforts taking place in Western Colorado’s Piceance (pronounced “pee-ahnce”) Basin.  In this post, I’ll try to shed some light on those efforts and help you understand why they’re vitally important to our nation’s energy future in the midst of much uncertainty.

If you’re like many Americans, you don’t even know what natural gas really is or where it comes from.  In fact, you might not care about natural gas as long as your hot water heater sends hot water to your shower and your stove produces heat under your frying pan.

Based on the fact that you’ve read this far, I assume you’re still interested; therefore, I’ll start out by telling you what natural gas is.

The experts at Williams describe natural gas as being made up of hydrocarbon gases, primarily methane. It is usually found deep below the earth’s surface, often with deposits of oil, and is removed by wells that are drilled to access the petroleum deposits.

If you’re inclined to compare drilling for natural gas to using a straw to sip soda pop from a can, you’re sorely misguided.  In reality, extracting natural gas from Piceance Basin wells is more comparable to standing inside a freezer and trying to get frozen soda pop from a can that has no pop-top opening.  In both cases, you have to find a way to extract contents from an environment inside which it’s trapped — and do it without leaving a mess.

Note: There’s a lot more to drilling than meets the eye.  I won’t go into all of the technical details here, I’ll refer you to a web site where you will find an explanation of the nine steps involved in creating a drilling site like the one shown above for Williams’ Piceance Basin Rig #278.  After you check it out, come back here and resume reading.

Now that you’ve studied the basics, I’ll point out some of the operational factors that help to make Tulsa, Okla.-based Williams a leader in the field when it comes to both efficiency and environmental stewardship.

As you learned when you visited the link above, the process of drilling a well begins with establishing a drilling site or “pad” upon which the drilling rig and related equipment are positioned.  It takes Williams employees about two days to assemble a high-efficiency rig on site due to the fact that the rigs are modular in design.

After assembly is complete, it takes 14 to 15 days of round-the-clock effort to drill the average 7,000-feet-deep well in the Piceance Basin.

Staffing levels involved in the operation can range from 6 to 7 people all the way up to 40 people when simultaneous operations are taking place.

Incredibly, the application of techniques refined offshore — including the use of skids to move a drilling rig — enables Williams employees to drill as many as 22 wells from a single pad.  Moreover, they’re able to drill directionally through more than 2,500 feet of rock and hit a target 50 feet in diameter.  In my mind, that’s gotta be comparable to throwing a dart at a board 2 feet in diameter from 100 feet away while blindfolded and drunk [FYI: The Williams people were neither blindfolded nor drunk while drilling.].

Once the drill reaches the deepest level (a.k.a., “the floor”) of the natural gas deposit, the completion stage begins.  Click here to view an animation of the process.

As part of the completion stage, Williams tackles the process known as frac’ing (pronounced “frack-ing”) a bit differently than other companies.

Rather than set up frac’ing trucks at each drilling site, Williams uses centralized frac’ing facilities that employ a process the company developed by working closely with Halliburton’s oil field services unit during the past three years.  Today, as many as 170 wells can be serviced from one frac’ing location where upwards of 12,000 horsepower of pumping capacity mounted on six trucks.

The job of frac’ing includes pumping “mud” — a mixture of sand, water, friction reducer and water conditioner — through pipes to wells as far as 3 miles away.  At each well site, the mud is injected into the fractures deep within the hole to force natural gas up and out of the hole.

Two primary improvements related to this “dirty work” have earned Williams accolades for its environmental stewardship:

(1) The fact that truck traffic to and from the wells has been reduced substantially and the environmental impact of drilling operations has been slashed as a result of having to construct one centralized frac’ing location instead of dozens of stand-alone locations; and

(2) The fact that Williams pipes in and recycles most of the water is uses at both the drilling pads and the centralized frac’ing facilities.

After frac’ing, the gas is separated from the mixture before being dispatched via pipeline to Williams’ Cottonwood Creek Gas Processing Plant in Parachute for distribution to a nation full of people, the majority of whom have little or no idea how much hard work it took for them to receive it.

Full disclosure:  My trip to Colorado was sponsored and paid for by the American Petroleum Institute and hosted by Williams.
NOTE:  This is the second in a series of posts I’m writing about my April 14-15 trip to the Piceance Basin.  To ensure you receive all of the posts about my trip, click here to subscribe to this blog via RSS.

See also: Natural Gas Industry Deserves Second Look

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UPDATE 4/24/09: The folks at the API just posted a summary of the Piceance Basin media tour at their Energy Tomorrow blog.  It includes a lot of great photos as well as a list of media folks who attended the event.  Check it out here.