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Diesel price crisis brewing for 2024?

Leave a Comment / Oil, Uncategorized / By
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Introduction

The global diesel market is bracing for a tumultuous period in 2024. Several factors, from geopolitical tensions to regulatory changes, are converging to create a perfect storm. This article will delve into these factors and their potential impacts on the diesel market, including oil refining and production, diesel consumption, and the broader economic implications.

The Global Oil Market’s Tightening Grip

The world’s oil market is becoming increasingly tight. According to the International Energy Agency, global oil demand is projected to rise by 2.2 million barrels per day in 2023, reaching 101.8 million barrels per day. This surge in demand is expected to be led by a resurgence in Chinese consumption, jet fuel, and petrochemical feedstocks[^1^].

At the same time, supply is being curtailed. In October 2022, OPEC+ agreed to cut production by 2 million barrels per day, marking the largest cut since the COVID-19 lockdowns started in early 2020^2^. Saudi Arabia and Russia have also confirmed they will continue their combined 1.3 million barrel per day cuts until the end of 2023[^3^].  (shameless plug:  Rogue Edge Members see updated supply numbers from Saudi Arabia, Russia, and all major supply sources of crude oil and refined products.)

[^1^]:International Energy Agency[^3^]:Russia, Saudi Arabia Oil Production Cut

The Declining U.S. Strategic Petroleum Reserve

The U.S. Strategic Petroleum Reserve (SPR), a key buffer against oil market disruptions, is at its lowest level in four decades. Currently holding just over 348 million barrels of oil, the SPR could only satisfy America’s consumption for 46 days if it had to rely solely on the reserve[^4^].

The depletion of the SPR is a result of various factors. Ahead of the November 2022 U.S. midterm elections, the reserve was heavily drawn to keep fuel prices down[^5^]. Moreover, the influence of the U.S. over OPEC kingpin Saudi Arabia seems to be dwindling, further exacerbating the supply situation[^6^].

[^4^]:U.S. Strategic Petroleum Reserve[^5^]:U.S. Midterm Elections[^6^]:Saudi Arabia’s role in OPEC

Diesel Refining Capacity Challenges

To meet the growing demand for diesel, oil refining capacity needs to keep up. However, several issues are posing challenges to this.

In Russia, diesel exports have been restricted to Belarus, Kazakhstan, Armenia, and Kyrgyzstan[^7^]. The country’s oil refining industry, which produces 6.8 million barrels of refined oil per day, mostly diesel and jet fuel, is thus largely off-limits to the rest of the world[^8^].

In the U.S. and the U.K., refining capacity has also been reduced significantly. In the U.K., the capacity has halved over the past two decades[^9^]. In the U.S., dozens of refineries were shuttered during the COVID-19 pandemic, and the country’s refining capacity is now around one million barrels below the 2019 level[^10^].  (shameless plug:  Rogue Edge Members learn from our tracking of supply and stocks of oil and refined products – including gasoline, distillates, jet, and so much more)

[^7^]:Russian Diesel Export Restriction[^8^]:Russian Oil Refining Industry[^9^]:U.K. Refining Capacity[^10^]:U.S. Refining Capacity

The Role of Regulatory Changes

Regulatory changes, particularly those aimed at reducing carbon emissions, are also affecting the diesel market.

In Germany, the government has agreed to a higher national CO2 price for transport and heating fuels for 2024^11^. The fixed carbon price for fossil fuels such as diesel, petrol, and heating oil is set to rise from the current 30 euros per tonne to 45 euros from 1 January 2024^12^.

This increase in the CO2 price will make diesel more expensive, affecting both consumers and businesses. It underscores the global trend of using carbon pricing as a tool to reduce greenhouse gas emissions and mitigate climate change[^13^].

[^13^]:Carbon Pricing

The Potential Impacts of Diesel Shortages

The convergence of these factors could lead to a global diesel shortage, with far-reaching implications.

First, the high cost of diesel would impact almost every aspect of the economy. From transportation to manufacturing, industries would face increased operational costs, which could be passed on to consumers in the form of higher prices for goods and services[^14^].

Second, a diesel shortage could disrupt critical services. For instance, a potential railway strike in the U.S. could disrupt coal-by-rail deliveries, affecting power generation and leading to higher natural gas prices[^15^].

Finally, on a macroeconomic level, higher diesel prices could fuel inflation, leading to higher interest rates and potentially triggering a global economic crisis[^16^].  (shameless plug:  Rogue Edge Members gain insight to the every changing supply and demand balance each and every week)

[^14^]:Impact of High Diesel Prices[^15^]:Impact of Railway Strike[^16^]:Inflation and Economic Crisis

Conclusion

The diesel crisis forecasted for 2024 is a complex issue, with multiple factors at play. The tightening global oil market, declining refining capacity, and regulatory changes aimed at reducing carbon emissions are all contributing to the potential shortage.

The potential impacts of such a crisis are far-reaching, affecting everything from the cost of goods and services to critical infrastructure and the broader economy. It emphasizes the importance of understanding and addressing the challenges facing the diesel market today to ensure a stable and sustainable energy future.

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How the Suez Canal Impacts Oil and Natural Gas Markets

Leave a Comment / Natural Gas, Oil, Uncategorized / By

Suez Canal Image

Introduction

The Suez Canal, a vital waterway connecting the Red Sea with the Mediterranean Sea, serves as a critical artery for global trade. It plays a significant role in the transportation of various goods, including crude oil and natural gas. In this article, we will explore the importance of the Suez Canal to the oil and natural gas markets and analyze its impact on global supply chains. We will delve into the history, significance, and current challenges faced by the Suez Canal, shedding light on its role in shaping the energy landscape.

The Significance of the Suez Canal

The Suez Canal holds immense importance due to its strategic location, serving as the quickest sea route between Asia and Europe. It provides a direct connection between the Arabian Sea, the Indian Ocean, and the countries of the Asia-Pacific with the waters of Europe. Without the Suez Canal, shipments between these regions would have to circumnavigate the entire continent of Africa, resulting in significant costs and longer journey times.

The time saved by utilizing the Suez Canal is invaluable. For instance, a ship traveling from a port in Italy to India would cover approximately 4,400 nautical miles if it passed through the Suez Canal. This journey, at a speed of 20 knots, would take around nine days. In contrast, the alternative route via the Cape of Good Hope and around Africa would extend the journey to three weeks, covering a distance of 10,500 nautical miles.

In addition to its time-saving benefits, the Suez Canal is also the only route that directly connects Europe with the Asia-Pacific region. Land masses are not narrow enough to support an artificial waterway like the Suez Canal. As a result, the canal hosts nearly 19,000 vessels each year, making it one of the busiest trade arteries in the world.

Historical Significance and Construction of the Suez Canal

The idea of connecting the Mediterranean and Red Seas dates back centuries, with numerous attempts made to realize this vision. However, it was not until the mid-19th century that the construction of the Suez Canal became a reality. Initiated by French interests and exploration, the canal was built over a period of ten years, utilizing a combination of forced labor from local peasants and the contribution of European workers. The construction of the canal was made possible by the discovery that the Mediterranean and Red Seas were roughly at the same altitude.

Financial difficulties eventually led to the sale of a controlling stake in the Suez Canal to Britain in 1875. Thirteen years later, a multinational summit resulted in an agreement that the canal would be free for all countries to use, both in times of peace and war. The strategic importance of the Suez Canal became apparent in the 20th century, as it was a flashpoint in both World War I and World War II. Turkish forces attempted to attack the canal from the east during World War I, while the Nazis’ Afrika Korps aimed to do the same from the west during World War II.

The Role of the Suez Canal in Oil and LNG Trade

Suez Canal Oil Trade

The Suez Canal plays a crucial role in the transportation of crude oil and petroleum products. Approximately 9% of total seaborne traded petroleum passes through the canal. In 2018, more than half of the petroleum transiting the Suez Canal was sent northbound to destinations in Europe and North America. Persian Gulf countries, including Saudi Arabia, Iraq, and Iran, accounted for 85% of the northbound traffic.

However, there have been notable shifts in recent years. Northbound crude oil flows have decreased due to various factors. The rise of U.S. crude oil exports has displaced Persian Gulf crude oil that historically went to Europe. Key Middle East producers, such as Saudi Arabia and Iraq, have redirected their crude oil exports to growing Asian markets using alternate routes instead of the Suez Canal. Additionally, renewed U.S. oil sanctions on Iran have contributed to a decrease in Iran’s crude oil exports to Europe.

Conversely, southbound crude oil shipments have witnessed a significant increase, particularly to Asian markets such as Singapore, China, and India. Russia is a major contributor to southbound petroleum traffic, accounting for the largest share. The past two years have seen increased production and exports of U.S. crude oil and petroleum products, further driving southbound traffic through the canal.

The Suez Canal, a pivotal artery in global LNG transportation, facilitated the transit of 686 LNG carriers in 2020, of which 388 were laden, contributing to 7% of worldwide LNG shipments. Approximately 276 laden carriers traversed from east to west, predominantly delivering LNG from Qatar to Europe, while 112 navigated from west to east, mainly channeling Russian and US LNG to the Asia Pacific region. Notably, laden LNG carriers conveyed over 32 million tonnes per annum (mtpa) through the canal, constituting 3% of the overall tonnage transiting the canal, while the shipment of crude and oil products comprised 23%.

The Impact of the Suez Canal Blockade in 2021

In March 2021, the Suez Canal faced a major disruption when the MV Ever Given, a massive container ship, ran aground and blocked the waterway. This incident highlighted the vulnerability of global supply chains and the criticality of the Suez Canal for global trade. The blockage caused a backlog of vessels and significant delays in shipments, impacting various industries, including the oil and natural gas markets.

The Suez Canal blockage had immediate consequences for oil and gas markets. The disruption resulted in increased shipping costs, as vessels faced costly and lengthy deviations if the canal remained closed. Diverting ships around the southern tip of Africa added approximately two weeks to their journey times. Furthermore, the blockage exacerbated the shortage of shipping containers, which was already caused by COVID-19-related supply chain issues.

The Suez Canal blockage also had implications for crude oil prices. The uncertainty surrounding the duration of the blockade and the potential impact on global supply chains led to a temporary increase in oil prices. However, the long-term impact on prices will depend on the duration of the disruption and how quickly normal operations can resume.

The Role of the SUMED Pipeline

Sumed Pipeline

In addition to the Suez Canal, the SUMED Pipeline serves as a crucial route for Persian Gulf crude oil shipments. The pipeline, spanning 200 miles, transports crude oil northbound through Egypt from the Red Sea to the Mediterranean Sea. It consists of two parallel pipelines with a combined maximum flow capacity of 2.8 million barrels per day.

The SUMED Pipeline serves as an alternative route when ships cannot navigate through the Suez Canal. If the canal is blocked or unavailable, crude oil can still be transported from the Red Sea to the Mediterranean Sea using the pipeline. The pipeline has played a vital role in ensuring the continuous flow of oil even during times of disruptions or conflicts in the Suez Canal.

Current Challenges and Future Outlook

The recent blockage of the Suez Canal has highlighted the vulnerabilities and challenges faced by this critical waterway. The incident underscores the need for continuous monitoring and improvement of infrastructure to prevent disruptions in global supply chains. Efforts to enhance the capacity and efficiency of the Suez Canal, such as the ongoing canal-widening project, are crucial for accommodating the growing demand for trade and ensuring the smooth flow of goods, including oil and natural gas.

Furthermore, geopolitical tensions, conflicts, and changing trade patterns can significantly impact the role of the Suez Canal in the oil and natural gas markets. Shifts in production, exports, and consumption patterns among major oil-producing countries and regions can influence the flow of petroleum through the canal. The rise of alternative routes and transportation methods, such as pipelines and LNG terminals, also present potential challenges and opportunities for the Suez Canal.

In conclusion, the Suez Canal plays a pivotal role in the global oil and natural gas markets, serving as a critical trade route for the transportation of energy commodities. Its strategic location and time-saving benefits have made it a key artery for the movement of crude oil and petroleum products between Asia, Europe, and other regions. However, the recent blockage of the canal highlights the need for continuous investment in infrastructure and risk management to ensure the uninterrupted flow of energy resources and the stability of global supply chains.

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Sources:

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LNG Prices – where are they now and what will they be tomorrow?

Leave a Comment / Natural Gas, Uncategorized / By

The global market for liquefied natural gas (LNG) has experienced significant volatility in recent years, with extreme price fluctuations and demand shifts. As we look to the future, it is crucial to understand the current state of LNG prices and anticipate their trajectory. In this comprehensive analysis, we will delve into the key factors influencing LNG prices, explore market trends, and provide insights into the future of this vital energy resource.

Current State of LNG Prices

The year 2020 was marked by unprecedented challenges for the gas and LNG markets. While gas demand declined by 3%, LNG demand remained relatively resilient, growing by 1%. However, market volatility was a defining characteristic, with extreme oversupply and tightness occurring throughout the year. (shameless plug:  Rogue Edge Members have access to LNG pricing:)

Factors Driving LNG Demand

Despite the challenges faced in 2020, the long-term outlook for LNG demand remains optimistic. Asia, particularly China and India, continues to be a significant driver of LNG demand growth. In the short term, demand is expected to grow by 3.4% per annum until 2035. To meet this increasing demand, additional liquefaction capacity of approximately 100 million metric tons (MT) will be required by 2035, and over 200 million MT by 2050. (shameless plug:  Rogue Edge Members have access to European Weather Discussion and LNG ship Traffic discussion)

The Role of Gas in the Energy Transition

While gas demand is expected to decline gradually after peaking in 2037, it remains the strongest-growing fossil fuel. Gas will continue to play a crucial role in the chemical and industrial sectors, limiting the impact of declining gas use for power generation. Additionally, gas demand in the transport sector is projected to grow, driven by a shift towards cleaner fuels.

Addressing Emission Intensity

The emission intensity of LNG is a critical consideration in the industry. As global emission regulations become more stringent, LNG suppliers must adapt to meet these requirements. Major LNG markets, such as China, the European Union, Japan, and South Korea, have introduced carbon-neutrality aspirations, emphasizing the need for reduced emission intensity. Survey data suggests that emission-intensity clauses in contracts are expected to become more common, shaping the industry’s future and potentially impacting supply opportunities for higher-emission projects.

LNG Price Volatility and Market Balance

LNG prices have exhibited significant volatility in recent years, with unpredictable events causing fluctuations between tight supply and excess supply. The balance between supply and demand will play a crucial role in determining future price trends. As the market moves towards 2025, prices are likely to remain volatile due to the delicate balance between supply and demand. (shameless plug:  Rogue Edge Members track this every single week with updated viewpoints on US, Europe, and Asia)

Regional Shifts in LNG Demand

The drivers of LNG demand growth are expected to shift regionally over time. While Asia, led by China, has been a primary driver of LNG demand, other regions, such as South and Southeast Asia, will become increasingly important. China’s demand for LNG is projected to peak around 2040, while South and Southeast Asia will emerge as key demand drivers.

Future LNG Projects and Capacity

To meet the growing demand for LNG, significant investment in new liquefaction capacity will be required. The United States is poised to play a vital role in meeting this demand, with several LNG projects under construction. The expansion of existing projects and the development of new ones will be necessary to bridge the supply gap and ensure a stable market.  (shameless plug:  Rogue Edge Members track LNG Export Expansions)

The Impact of the Energy Transition

As the energy transition gains momentum, the use of gas is expected to evolve in different sectors. While gas demand for power generation is projected to decline in Europe, Japan, and North America, the transport sector is poised for significant growth. Gas will continue to be essential in the industrial and chemical sectors, supporting these industries’ growth even as overall gas demand declines.

Conclusion

The future of LNG prices is shaped by a complex interplay of factors, including market volatility, regional demand shifts, emission intensity considerations, and the evolving energy transition. While challenges persist, the long-term outlook for LNG remains positive, with strong demand growth anticipated. As the industry navigates these dynamics, stakeholders must adapt to changing market conditions and embrace the opportunities presented by the evolving energy landscape. By staying informed and proactive, participants in the LNG market can position themselves for success in the years to come.  (shameless plug:  Rogue Edge Members are engaged in the conversation to learn how this Natural Gas GLOBAL SHIFT is going to fundamentally change Nat Gas for years to come)

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For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Note: The analysis provided is based on comprehensive research and industry insights. However, it is essential to consult with market experts and conduct further research before making any investment or business decisions.

Crude Oil Benchmarks- what does it all mean? WTI, WCS, Brent, Dubai, Bonny Light…

Leave a Comment / Oil, Uncategorized / By
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Crude oil is a vital commodity in the global energy market, serving as the primary source of fuel for transportation, power generation, and various industrial processes. As a result, the pricing and trading of crude oil play a crucial role in the functioning of the energy industry. To facilitate this process, several benchmark crude oil streams have emerged, each with its unique characteristics and market significance.

Understanding Crude Oil Benchmarks

Crude oil benchmarks serve as reference points for pricing and trading crude oil in the global market. They represent specific types or blends of crude oil that are widely recognized and traded by market participants. These benchmarks help establish a common language for buyers and sellers and provide a basis for determining the value of different types of crude oil.

The pricing of crude oil benchmarks is influenced by various factors, including supply and demand dynamics, geopolitical events, global economic conditions, and market sentiment. Changes in benchmark prices often have a significant impact on energy markets, influencing fuel prices, investment decisions, and industry profitability. (shameless plug:  Rogue Edge Members have access to crude benchmarks – Clearbrook, LLS, Midland, Houston)

West Texas Intermediate (WTI) as a Benchmark

One of the most well-known crude oil benchmarks is West Texas Intermediate (WTI). WTI is a type of light, sweet crude oil that is produced primarily in the United States, specifically in Texas, Louisiana, and North Dakota. It is highly regarded for its quality and convenient refining properties, making it a preferred benchmark for oil pricing in the United States.

WTI crude oil is traded on the New York Mercantile Exchange (NYMEX) and serves as the U.S. benchmark for oil pricing. The price of WTI is measured in barrels, with trades typically sold in 1,000 barrel increments. Market participants, including oil producers, refineries, and traders, use WTI as a reference point for pricing and hedging their crude oil transactions.

The pricing of WTI is influenced by various factors, such as U.S. oil production levels, inventories, refinery demand, and global market conditions. Fluctuations in WTI prices often reflect changes in supply and demand dynamics, geopolitical tensions, and macroeconomic factors affecting the energy industry.  (shameless plug:  Rogue Edge Members receive daily insight into the forward market of WTI)

Western Canadian Select (WCS) as a Benchmark

Another significant crude oil benchmark is Western Canadian Select (WCS). WCS is a heavy crude oil stream produced exclusively in Western Canada, primarily from the oil sands. It is a blend of various conventional and unconventional oils, including bitumen, synthetic crude oil, and conventional heavy oil.

WCS is known for its density and high sulfur content, which make it a heavy sour crude oil. It is priced at a discount to other lighter and sweeter crude oil benchmarks, reflecting its lower quality and refining challenges. WCS is primarily used by refineries in North America, particularly those on the U.S. Gulf Coast, that have the capability to process heavy sour crude oil.

The pricing of WCS is influenced by factors such as Canadian oil production levels, transportation constraints, refinery demand, and global market conditions. Fluctuations in WCS prices often reflect changes in regional supply and demand dynamics, pipeline capacity constraints, and the price differentials between heavy and light crude oil grades.

Other Crude Oil Benchmarks

In addition to WTI and WCS, there are several other significant crude oil benchmarks in the global energy market. These include Brent Crude, Dubai Crude, Oman Crude, Bonny Light, and many others. Each benchmark represents a specific type or blend of crude oil from different regions of the world, with its unique characteristics and market dynamics.

Brent Crude, for example, is a light sweet crude oil benchmark that is primarily produced in the North Sea. It serves as the global benchmark for oil pricing and is widely used in the trading of crude oil futures contracts. Brent Crude is known for its high quality and is often used as a reference point for pricing other crude oil grades.

Dubai Crude and Oman Crude are benchmarks for Middle Eastern crude oil, primarily sourced from the Arabian Peninsula. These benchmarks represent the pricing and trading of crude oil in the Asia-Pacific region and serve as references for pricing oil in the Middle East and Asia.

Each crude oil benchmark has its own unique characteristics, pricing mechanisms, and market dynamics. Market participants, including producers, refiners, and traders, closely monitor these benchmarks to assess market trends, make informed trading decisions, and manage their crude oil portfolios.

Conclusion

Crude oil benchmarks play a crucial role in the global energy market, providing a reference point for pricing and trading crude oil. Benchmarks like WTI and WCS represent specific types or blends of crude oil and help establish a common language for market participants. Understanding these benchmarks and their significance enables industry stakeholders to navigate the complexities of the energy market and make informed decisions based on market trends and pricing dynamics.

Curious about Rogue Edge?

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For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading commodities, including oil, involves risk, and past performance does not guarantee future results. It is essential to conduct thorough research and consult with a qualified financial advisor before making any investment or trading decisions.

Energy Commodity Trading – hedging, fundamentals, technicals

Leave a Comment / Uncategorized, Oil / By
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Oil Trading

Oil trading is a complex and volatile market that requires expert knowledge and strategic decision-making. As the world’s most widely traded commodity, oil plays a crucial role in global economic stability. Understanding the intricacies of oil trading and implementing effective hedging strategies is essential for businesses and investors looking to navigate this dynamic market.

In this comprehensive guide, we will explore the future of oil trading, including key trends, market dynamics, and innovative hedging strategies. From the fundamentals of oil trading to advanced risk management techniques, this article will equip you with the knowledge and tools to optimize your oil trading activities and capitalize on market opportunities. (shameless plug:  Rogue Edge Members receive a free session designed for your trading/hedging plan.)

I. The Current State of the Oil Trading Industry

1.1. Overview of the Oil Trading Industry

The oil trading industry has experienced significant growth and volatility in recent years. As the global demand for energy continues to rise, so does the importance of oil as a key commodity. The industry has witnessed substantial value pools, with EBIT for oil trading estimated to have increased by over 90 percent from 2018 to 2021, reaching $18 billion.

1.2. Energy Transition and its Impact on Oil Trading

The ongoing energy transition has introduced structural volatility and market disruptions in the oil trading landscape. Decarbonization efforts, geopolitical turbulence, and supply chain bottlenecks have created challenges and opportunities for market participants. The transition to renewable energy sources and the integration of new technologies have redefined the concept of oil as a commodity. (shameless plug:  Rogue Edge Members have access to over 150 charts on supply, demand, imports, exports to help decipher the future market prices.)

1.3. Trade Flow Disruptions and Regionalization

The flow of global commodities, including oil, is susceptible to disruptions caused by various factors such as geopolitical events, natural disasters, and pandemics. Recent events, including the COVID-19 pandemic and geopolitical tensions, have reshaped global trade flows. Market participants need to navigate these disruptions and adapt to changing dynamics to optimize their trading activities.

1.4. Financing Challenges in Oil Trading

Volatility in oil prices has led to increased collateral requirements and tighter credit conditions in the industry. Market participants, especially small and medium-sized traders, face challenges in accessing trade financing and maintaining working capital. However, larger traders can leverage their balance sheets to take advantage of credit restrictions and enhance their margins.

1.5. Increase in Liquidity and Financially Tradable Products

The oil trading industry has witnessed a surge in liquidity and the availability of financially tradable products. Producers and customers have increasingly turned to trading platforms to capture additional value and optimize their supply chains. This has led to greater price transparency, contract standardization, and the emergence of new exchanges and platforms.

II. Hedging Strategies in Oil Trading

2.1. Understanding Futures Contracts

Futures contracts are a popular hedging instrument in the oil trading market. These contracts give market participants the right and obligation to buy or sell the underlying commodity at a predetermined price at a future date. While physical delivery is possible, most futures contracts are utilized for hedging purposes and are closed out before expiration.  (shameless plug:  Rogue Edge Members can learn how to optimize their hedging portfolio with Rogue Edge.)

2.2. Hedging with Oil Futures Contracts

Companies can hedge their exposure to oil price fluctuations by buying or selling oil futures contracts. For example, a corporate fleet that consumes a significant amount of diesel fuel can hedge their future fuel costs by purchasing oil futures contracts. By fixing or locking in the price, they can mitigate the risk of price volatility and ensure cost stability.

2.3. Hedging Strategies with Options Contracts

Options contracts offer additional flexibility for hedging oil price risk. These contracts provide the right, but not the obligation, to buy or sell the underlying asset at a predetermined price within a specified timeframe. Options can be used to protect against price fluctuations while allowing for potential upside gains.

2.4. Spread Trading and Calendar Spreads

Spread trading involves taking simultaneous long and short positions in related oil futures contracts. This strategy aims to capitalize on price differentials between different delivery months or related commodities. Calendar spreads, in particular, involve taking opposite positions in futures contracts with different expiration dates.  (shameless plug:  Rogue Edge Members share trading ideas on the private discord community.)

2.5. Basis Swaps and Physical Market Hedging

Basis swaps allow market participants to hedge the difference between the price of a physical commodity and the price of a related futures contract. This strategy is commonly used to hedge locational price differentials or to manage exposure to specific delivery points. Physical market hedging involves directly purchasing or selling physical oil to lock in prices and mitigate price risk.  (shameless plug:  Rogue Edge Members have access to basis changes for Crude Oil, Natural Gas, and Refined Products)

III. Technical Analysis in Oil Trading

3.1. Introduction to Technical Analysis

Technical analysis is a popular approach to analyzing market trends and making trading decisions. It involves studying historical price and volume data to identify patterns and predict future price movements. Technical indicators, such as moving averages, trend lines, and oscillators, are used to generate buy or sell signals.

3.2. Key Technical Indicators in Oil Trading

Several technical indicators are commonly used in oil trading to identify price trends and potential reversals. Moving averages, such as the 50-day and 200-day moving averages, can help identify long-term trends. Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are oscillators that indicate overbought or oversold conditions.  (shameless plug:  Rogue Edge Members view updated technical indicators every morning)

3.3. Chart Patterns and Candlestick Analysis

Chart patterns and candlestick analysis provide valuable insights into market sentiment and potential price reversals. Common chart patterns, such as head and shoulders, double tops, and triangles, can indicate trend reversals or continuation. Candlestick patterns, such as doji, engulfing, and hammer, provide signals of potential market reversals.

3.4. Using Technical Analysis in Oil Trading

Technical analysis can be combined with fundamental analysis to enhance trading decisions in the oil market. By analyzing both historical price patterns and fundamental factors, such as supply and demand dynamics, traders can gain a comprehensive understanding of the market and make informed trading decisions.

IV. Fundamental Analysis in Oil Trading

4.1. Understanding Fundamental Analysis

Fundamental analysis involves evaluating the underlying factors that influence the supply and demand dynamics of the oil market. This analysis considers factors such as geopolitical events, production levels, inventories, and economic indicators to assess the fair value of oil and make trading decisions based on long-term trends.  (shameless plug:  Rogue Edge Members see the latest supply, demand, imports, exports, stocks, and storage for crude oil, refined products, and natural gas)

4.2. Key Fundamental Indicators in Oil Trading

Several key indicators are used in fundamental analysis to assess the health of the oil market. These include oil production levels, global inventories, geopolitical events, OPEC decisions, and economic indicators such as GDP growth and inflation rates. Monitoring these indicators can provide valuable insights into future price movements.

4.3. Supply and Demand Dynamics in the Oil Market

Supply and demand dynamics play a crucial role in determining oil prices. Changes in production levels, geopolitical tensions, and economic growth can significantly impact supply and demand imbalances. Understanding these dynamics and their potential impact on prices is essential for successful oil trading.

4.4. Impact of Macroeconomic Factors on Oil Prices

Macroeconomic factors, such as global economic growth, interest rates, and currency fluctuations, can have a significant impact on oil prices. Strong economic growth often leads to increased oil demand, while interest rate changes and currency movements can influence the cost of oil production and transportation.

V. Conclusion

In conclusion, oil trading is a complex and dynamic market that requires a deep understanding of market fundamentals, technical analysis, and effective hedging strategies. By staying informed about market trends, implementing robust risk management techniques, and utilizing advanced trading tools, market participants can navigate the challenges and capitalize on the opportunities presented by the future of oil trading. Whether you are a corporate fleet manager, an investor, or a trader, adopting a comprehensive approach to oil trading will empower you to make informed decisions and achieve success in this ever-evolving industry.  (shameless plug:  Rogue Edge Members see the value of the latest fundamental, technical, and sentiment in the market – find out more below…)

Curious about Rogue Edge?

Discover Rogue Edge, our powerful market research tool designed for energy professionals like you. For only $89/month, gain access to 150 interactive and downloadable charts, AI forecasting, and expert insights on oil, natural gas, natural gas liquids, and refined products. Stay ahead with our daily market email, weekly video recap, and PDF reports. Expand your knowledge and stay updated with our educational resources and industry trend updates. Our experienced team is here to provide personalized guidance, tools and support, ensuring your success in the energy sector.

Join us today and unlock the power of informed decision-making in the ever-evolving energy markets.

Click Here To Register Now

Curious but want to learn more… Simply book a meeting with Bill & Brian and we’ll decide together if Rogue Edge is right for you:

Click Here To Book a Meeting

For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading commodities, including oil, involves risk, and past performance does not guarantee future results. It is essential to conduct thorough research and consult with a qualified financial advisor before making any investment or trading decisions.

Sources:

  1. McKinsey & Company. “The Future of Commodity Trading.” January 29, 2023.Link
  2. Mercatus Energy. “Energy Hedging 101 – Futures.”Link
  3. Commodity.com. “Everything you wanted to know about commodity trading.”Link

Oil & Gas Drilling

Leave a Comment / Oil, Natural Gas, Uncategorized / By
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The Ultimate Resource for Understanding Oil and Gas Drilling

Introduction

The oil and gas industry is a dynamic and complex sector that plays a crucial role in the global economy. From exploration and production to drilling and completions, every step in the process is driven by economic factors. Understanding the economics of oil and gas drilling is essential for companies, investors, and stakeholders to make informed decisions and maximize profits.

In this comprehensive guide, we will delve into the intricacies of oil and gas drilling economics. We will explore the exploration process, the cost of geology and geophysics, the significance of seismic data, the expenses associated with drilling, and the total cost of exploration. We will also examine the development phase, the cost of production drilling, and the various factors that influence development costs. Additionally, we will discuss production techniques, recovery rates, and the impact of technological innovations on drilling economics.

The Exploration Phase

1. Geology: Unveiling the Secrets of the Subsurface

Geology is the foundation of the exploration phase. Geologists study large areas to identify potential hydrocarbon accumulations. They analyze source rocks, reservoir rocks, and impermeable overburden rocks to determine the presence of hydrocarbons. Geographical surface studies and subsurface maps help geologists deduce the characteristics of the subsoil. Geophysics, the measurement and interpretation of physical quantities of the subsoil, complements geology in the exploration process. (shameless plug:  Rogue Edge Members have access to oil production, gas production, and rigs for every Oil & Gas Play in the US)

2. Geophysics: Unveiling the Secrets of the Subsurface

Geophysics plays a crucial role in understanding the subsurface and identifying potential drilling locations. Seismic reflection, the main approach in geophysics, involves sending elastic waves into the subsoil and recording the reflected waves to gain insights into the underground structural formation. Seismic campaigns involve data acquisition, processing, and interpretation, contributing to the total cost of exploration.

3. Seismic Cost: Evaluating the Financial Investment

Seismic campaigns are a significant component of exploration costs. The cost of a seismic campaign includes field data acquisition, data processing, and interpretation. The total cost of a seismic campaign depends on factors such as the difficulty of access, desired coverage, and the area covered. The competitiveness of local markets also influences seismic survey costs. Despite the expenses, seismic data is essential for assessing the prospect’s interest and making informed decisions about drilling.

4. Drilling: Unlocking the Subsurface Potential

Drilling is the ultimate step in exploration, providing direct access to the subsoil. Drilling wells involves reaching the target depths and perforating geological layers. Different drilling techniques are used, such as attacking the rock with a rotating drill bit. Onshore and offshore drilling differ in terms of rig support, with offshore drilling requiring platforms or floating structures. Drilling costs vary depending on factors like depth, rig type, and geographical location. (shameless plug:  Rogue Edge Members have access to weekly rigs by basin with special focus on Oklahoma permits and completions)

5. Cost of Drilling: Factors Influencing the Economic Investment

Drilling costs include the rental of drilling rigs, supervision expenses, consumables, and other equipment required for drilling operations. The duration of drilling varies based on depth and hardness of the layers traversed. Exploration wells have a lower success rate, meaning that costs must be considered even if a well does not lead to a discovery. The cost of drilling represents a significant proportion of the total cost of an exploration program.

The Development Phase

6. Delineation and Reservoir Appraisal: Confirming the Discovery

Once a discovery is made, the focus shifts to delineation and reservoir appraisal. These processes involve gathering additional information about the reservoir boundaries, rock characteristics, and production conditions. Economic studies complement technical assessments to determine the commercial viability of the field and its alignment with the company’s strategy and financial resources.

7. Production Drilling: Exploiting the Reservoir

Production drilling differs from exploration drilling in terms of operation duration and control. Production wells are drilled faster, and completion times for connecting the producing area to the wellbore are considered. Well completion ensures the security of the wellbore walls. Techniques such as horizontal drilling and multi-drain drilling are employed to maximize production efficiency.  (shameless plug:  Rogue Edge Members know every week if rigs have increased or decreased by shale basin and play within the basins.)

8. Production Drilling Cost: Balancing Efficiency and Investment

The cost of production drilling is influenced by factors such as well completion requirements, drilling techniques, and environmental regulations. Horizontal wells have higher costs but increased productivity. Environmental considerations, such as waste treatment, can affect well costs. Offshore drilling requires the use of floating supports, which adds to the overall development costs.

9. Floating Supports: Enabling Offshore Production

Offshore drilling necessitates the use of floating supports. Shallow water depths can utilize fixed structures like jackets, while deeper waters require semi-submersible platforms, SPAR structures, or Floating Production Storage and Offloading (FPSO) vessels. The choice of floating support depends on water depth, field characteristics, and the need for autonomous production and storage capabilities.

10. Total Development Costs: Evaluating the Investment

Development investments encompass development drilling, production facilities, storage tanks, pumping units, and discharge systems. The duration of the development phase varies but typically ranges from 1 to 4 years. Development costs depend on factors like field location, depth, and oceanographic conditions. Identifying key parameters and conducting thorough evaluations are crucial for defining and optimizing the project’s profitability.

Conclusion

The economics of oil and gas drilling are multifaceted, influenced by factors spanning from exploration to production. Geology and geophysics provide insights into potential hydrocarbon accumulations, while seismic data helps assess the prospect’s interest. Drilling involves significant costs, with a success rate that must be considered. Development drilling and production techniques further contribute to the overall investment. Understanding these economic aspects is essential for stakeholders in the oil and gas industry to make informed decisions and navigate the complexities of drilling economics.

Curious about Rogue Edge?

Discover Rogue Edge, our powerful market research tool designed for energy professionals like you. For only $89/month, gain access to 150 interactive and downloadable charts, AI forecasting, and expert insights on oil, natural gas, natural gas liquids, and refined products. Stay ahead with our daily market email, weekly video recap, and PDF reports. Expand your knowledge and stay updated with our educational resources and industry trend updates. Our experienced team is here to provide personalized guidance, tools and support, ensuring your success in the energy sector.

Join us today and unlock the power of informed decision-making in the ever-evolving energy markets.

Click Here To Register Now

Curious but want to learn more… Simply book a meeting with Bill & Brian and we’ll decide together if Rogue Edge is right for you:

Click Here To Book a Meeting

For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. Trading and investing in the energy market involves risks, and individuals should conduct thorough research and seek professional guidance before making any trading decisions.

Difference between Natural Gas Processing and Fractionation for NGLs (Natural Gas Liquids)

Leave a Comment / NGLs, Uncategorized / By
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Natural gas is a valuable energy resource that is used for various purposes, from heating and cooking to electricity generation. However, the natural gas that is extracted from underground is not pure enough for direct use. It needs to undergo a series of processes to remove impurities and separate valuable components. One crucial step in this process is the extraction and fractionation of Natural Gas Liquids (NGLs). In this article, we will delve deeper into the world of NGLs, their components, extraction methods, and the importance of fractionation in the midstream sector.

What are Natural Gas Liquids (NGLs)?

Natural Gas Liquids (NGLs) are hydrocarbons that are found in natural gas streams along with methane, the primary component of natural gas. NGLs are composed of various components, including ethane (C2), propane (C3), iso-butane (iC4), normal butane (nC4), natural gasoline (C5-C6), and pentanes (C5) and heavier molecules (C6-C9). These components have different boiling points and properties, making them valuable for different applications.

NGLs are usually extracted from natural gas because they have significant commercial value and can be used for various purposes. Ethane is a crucial feedstock for petrochemical industries, propane is widely used for heating and cooking, butanes are used as blendstocks in gasoline production, and natural gasoline is used in gasoline blending, specialty solvent production, and as a diluent for syncrude production. The extraction of NGLs not only provides valuable products but also improves the quality of the remaining natural gas, making it suitable for further processing or direct use.

NGL Extraction Methods

There are two primary methods for extracting NGLs from natural gas: the absorption method and the cryogenic expander process. These methods are used depending on the specific composition and requirements of the natural gas stream.  (shameless plug:  Rogue Edge Members have access to our natural gas processing calculator – providing REAL TIME insight into recoveries and the true economic value for the full Natural Gas Stream)

Absorption Method

The absorption method for NGL extraction is similar to the absorption process used for dehydration. However, instead of using glycol, an absorbing oil is used to separate NGLs from the natural gas stream. The absorbing oil has an affinity for NGLs, similar to how glycol has an affinity for water. When the natural gas is passed through an absorption tower, it comes into contact with the absorbing oil. The absorbing oil absorbs a high volume of NGLs from the gas stream, becoming “rich” in NGLs. The rich oil is then sent to a lean oil still, where the mixture of absorption oil and NGLs is heated to a temperature higher than the boiling point of the NGLs but below that of the oil. This process allows for the recovery of approximately 75% of butanes and 85-90% of natural gasoline from the natural gas feedstock. Refrigeration can be used to target specific NGLs, such as propane, and improve the extraction efficiency.

Cryogenic Expansion Process

The cryogenic expansion process is employed when it is necessary to extract lighter hydrocarbons, such as ethane, from the natural gas stream. Cryogenic processes involve lowering the temperature of the gas stream to extremely low levels, around -120 degrees Fahrenheit. The most effective technique for achieving this is the turbo expander process. The natural gas stream is cooled using external refrigerants, and then an expansion turbine rapidly expands the chilled gases. This rapid expansion causes the temperature of the natural gas to drop significantly, condensing ethane and other hydrocarbons while methane remains in its gaseous form. The recovery of ethane in the cryogenic expansion process can reach approximately 90-95%. Moreover, the energy released during the expansion of the natural gas stream can be utilized to recompress the gaseous methane effluent, resulting in energy cost savings associated with ethane extraction.  (shameless plug:  Rogue Edge Members have access our outlook for Ethane elections – allowing midstream providers and producers to see if they should Recover Ethane or Reject Ethane)

The extraction of NGLs from the natural gas stream not only produces cleaner and purer natural gas but also provides valuable hydrocarbons that can be used in various industries. The extracted gas can serve as a feedstock for Liquid Natural Gas (LNG) production, which has its own set of applications and benefits.

NGL Fractionation: Separating Valuable Components

Once NGLs have been extracted from the natural gas stream, they need to be separated into their individual components to be used effectively. This separation process is known as fractionation and is essential for maximizing the value of the NGLs.

Fractionation is based on the different boiling points of the various hydrocarbons in the NGL stream. The process involves a series of steps, starting with the removal of the lighter NGLs and progressing to the separation of heavier components. There are specific fractionators dedicated to each hydrocarbon. Here are the key steps involved in NGL fractionation:

Deethanizer – Ethane Removal

The deethanizer is the first fractionator in the process. Its primary function is to separate ethane from the NGL stream. Ethane has a lower boiling point compared to other NGL components, allowing it to be easily separated. The deethanizer operates by heating the NGL stream and condensing the ethane, which can then be collected separately.

Depropanizer – Propane Removal

The depropanizer is responsible for removing propane from the NGL stream. Propane has a slightly higher boiling point than ethane, making it the next component to be separated. The depropanizer works in a similar way to the deethanizer, with the propane condensing at the appropriate temperature and being collected as a separate product.

Debutanizer – Butanes Removal

The debutanizer is used to separate butanes (both iso-butane and normal butane) from the remaining NGL stream. Butanes have higher boiling points compared to ethane and propane. The debutanizer operates at a higher temperature to condense and collect the butanes, leaving the pentanes and heavier hydrocarbons in the NGL stream.

Butane Splitter or Deisobutanizer – Separating Iso and Normal Butanes

In some cases, it is necessary to separate iso-butane and normal butane from each other. This is achieved through a process called butane splitting or deisobutanizer. The butane splitter operates at specific temperatures and pressures to selectively condense and separate the iso-butane and normal butane components.

Natural Gasoline

The remaining NGL stream after the butanes have been separated is known as natural gasoline. Natural gasoline is a mixture of pentanes (C5) and heavier molecules (C6-C9). It serves various purposes, including gasoline blending, specialty solvent production, feedstock for ethanol production, and as a diluent for syncrude production.

Fractionation is a critical process in the midstream sector of the natural gas industry. It enables the separation of different NGL components, each with its unique value and application. The separated NGLs can be sold individually, providing raw materials for petrochemical plants, enhancing oil recovery in oil wells, and serving as sources of energy. The fractionated NGLs play a vital role in various industries, from plastics manufacturing to gasoline production.

The Importance of Natural Gas Processing

Natural gas processing is a crucial step in the midstream sector of the natural gas industry. It involves the extraction of NGLs and the fractionation of these valuable components. Natural gas processing plants are typically located in natural gas producing regions, where the extracted gas is transported through a network of gathering pipelines.  (shameless plug:  Rogue Edge Members have access to fundamental supply/demand for Natural Gas, Ethane, Propane, Iso Butane, Normal Butane, and Natural Gasoline – along with forward pricing for each commodity in the energy space.)

Gathering and Transporting Natural Gas

Before natural gas can be processed, it needs to be gathered and transported from the wellhead to the processing plant. Gathering pipelines, which are small-diameter and low-pressure pipes, are used to transport the extracted natural gas to the processing plants. A complex gathering system can consist of thousands of miles of pipelines, connecting the processing plant to numerous wells in the area. The gathering pipelines ensure the efficient and safe transportation of the natural gas to the processing facilities.

Processing Natural Gas

Once the natural gas reaches the processing plant, it undergoes a series of processes to remove impurities and separate the valuable components. The primary goal of natural gas processing is to produce “pipeline quality” dry natural gas, which meets the specifications imposed by major transportation pipelines. These specifications ensure the safe and efficient transport of the natural gas to end users. (shameless plug:  Did we mention that Rogue Edge Members have access to processing economics???)

The processing of natural gas involves several steps, including the removal of impurities like water vapor, hydrogen sulfide (H2S), carbon dioxide, helium, nitrogen, and other compounds. The purification process varies depending on the specific impurities present in the natural gas stream. For example, water vapor can be removed through dehydration using absorption or adsorption methods.

Oil and Condensate Removal

In some cases, natural gas is produced along with crude oil or condensate. To process and transport the associated dissolved natural gas, it needs to be separated from the oil. This separation process can be achieved through various techniques, such as conventional separators or low-temperature separators (LTX). The separation of oil and natural gas is typically done at or near the wellhead, ensuring the efficient extraction of both resources.

Water Removal

Water vapor is another impurity that needs to be removed from the natural gas stream during processing. The presence of water vapor can lead to the formation of natural gas hydrates, which can obstruct the passage of natural gas through pipelines and valves. To prevent hydrate formation, natural gas is dehydrated using either absorption or adsorption processes. Glycol dehydration and solid-desiccant dehydration are two commonly used methods for removing water vapor from the natural gas stream.

Separation of NGLs

During natural gas processing, NGLs are separated from the gas stream to maximize their value and ensure the production of pipeline-quality dry natural gas. The extraction of NGLs involves methods like absorption and cryogenic expansion. These methods target specific NGLs, such as ethane, propane, and butanes, and separate them from the natural gas stream. The recovered NGLs can then be further processed or sold separately, depending on their specific applications.

Natural gas processing plays a crucial role in the midstream sector, ensuring the production of clean and valuable natural gas. It involves the extraction and fractionation of NGLs, which have numerous commercial applications and provide raw materials for various industries. The processing of natural gas also improves the quality of the remaining gas, making it suitable for further processing or direct use.

Conclusion

Natural gas processing and the fractionation of NGLs are vital steps in the midstream sector of the natural gas industry. These processes involve the extraction, separation, and purification of valuable components from the natural gas stream. NGLs, including ethane, propane, iso-butane, normal butane, natural gasoline, and pentanes, are extracted through methods like absorption and cryogenic expansion. Fractionation further separates these components, maximizing their value and enabling their use in various industries.  (shameless plug:  Rogue Edge Members can learn about Natural Gas Processing through our state of the art and AFFORDABLE platform with energy financials and fundamentals.)

Natural gas processing ensures the production of clean and pure natural gas, suitable for further processing or direct use. It involves the removal of impurities like water vapor, oil, and condensate, as well as the separation of NGLs. The processed natural gas can then be transported through pipelines to end users, providing a reliable and efficient source of energy.

Understanding the importance of natural gas processing and fractionation is crucial for the midstream sector and the overall natural gas industry. These processes not only enhance the value of natural gas but also contribute to the production of essential products and the growth of various industries.

Curious about Rogue Edge?

Discover Rogue Edge, our powerful market research tool designed for energy professionals like you. For only $89/month, gain access to 150 interactive and downloadable charts, AI forecasting, and expert insights on oil, natural gas, natural gas liquids, and refined products. Stay ahead with our daily market email, weekly video recap, and PDF reports. Expand your knowledge and stay updated with our educational resources and industry trend updates. Our experienced team is here to provide personalized guidance, tools and support, ensuring your success in the energy sector.

Join us today and unlock the power of informed decision-making in the ever-evolving energy markets.

Click Here To Register Now

Curious but want to learn more… Simply book a meeting with Bill & Brian and we’ll decide together if Rogue Edge is right for you:

Click Here To Book a Meeting

For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. Trading and investing in the energy market involves risks, and individuals should conduct thorough research and seek professional guidance before making any trading decisions.

Natural Gas and Crude Commitment of Traders – Unraveling the Market Trends

Leave a Comment / Natural Gas, NGLs, Oil, Uncategorized / By
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Introduction

The energy market is a complex and ever-evolving landscape, where traders and investors strive to navigate the volatility and capitalize on opportunities. One tool that provides valuable insights into the market dynamics is the Commitment of Traders (COT) report. In this comprehensive guide, we will delve into the world of Natural Gas and Crude Commitment of Traders, uncovering the significance of this report, understanding its structure, and exploring how it can be utilized to gain a competitive edge in the energy market.

Understanding the Commitment of Traders Report

The Commitment of Traders (COT) report, published by regulatory bodies like the Commodity Futures Trading Commission (CFTC), offers a weekly snapshot of the aggregate holdings and positions of different participants in the futures market. Released every Friday, the report provides a breakdown of the commitment of classified trading groups based on their positions as of the preceding Tuesday. It aims to enhance market transparency and serves as a valuable tool for futures traders in making informed trading decisions.  (shameless plug:  Rogue Edge Members receive the updated COT every Friday.)

Key Takeaways

  • The COT report showcases the aggregate holdings of participants in the U.S. futures market.
  • It offers insights into the positions of different trading groups, such as commercial and non-commercial traders.
  • The report is released every Friday and represents the market conditions as of the preceding Tuesday.

Evolution of the COT Report

The history of the COT report dates back to the early 20th century when the U.S. Department of Agriculture’s Grain Futures Administration first introduced an annual report to outline hedging and speculation activities in the futures market. Over the years, the report’s frequency and coverage expanded to encompass various commodities and financial assets.

Initially published annually, the report transitioned to monthly publication in 1962, and subsequently, to a weekly format in 2000. This shift in frequency allowed for more timely and relevant insights into market positions. As the futures market expanded beyond agricultural products to include crude oil, refined products, natural gas, metals, currencies, and other financial instruments, the COT report adapted to include a broader range of commodities.

Classifications in the COT Report

To provide clarity and categorize traders effectively, the COT report classifies participants into different segments based on their primary business activities. The classifications have evolved over time to reflect the changing landscape of the energy market and address concerns about market impact. Let’s explore the key classifications used in the report:

1. Physical Commodities (Nat Gas, Crude, Heating Oil, and other commodities)

For the official Definition – navigate HERE to the CFTC official definitions – below is our simplistic definition.

The physical commodities segment encompasses traders engaged in the production, processing, and usage of commodities. It includes the following categories:

  • Commercials:  Producer/Merchant/Processor/Users: This category comprises firms that utilize futures and options to hedge price risks associated with their commercial operations. They are primarily involved in the physical production, processing, or consumption of the respective commodities.
  • Swap Dealers: Swap dealers are banks and other firms that engage in over-the-counter trading with hedge funds, pension funds, and commercial users. They use on-exchange futures and options to offset price risks arising from these trades.  Often this is the “other side” of the transaction when Commercials Hedge.
  • Managed Money:  noncommercial participant that is generally speaking the “hedge fund” business.
  • Others:  not classified or reported as a classified definition per the CFTC.

(shameless plug:  Rogue Edge Members have access to interactive charts for COT as well as technical technical indicators updated daily. )

2. Financial Products

The financial products segment focuses on traders involved in financial instruments related to commodities. It includes the following categories:

  • Dealer: Dealers are market participants who facilitate the trading of commodities and financial products. They play a vital role in providing liquidity and market-making services.
  • Asset Manager: Asset managers are organizations responsible for managing or conducting futures trading on behalf of clients. They include hedge funds, pension funds, and commodity trading advisers.

Additional Classifications

In addition to the primary classifications mentioned above, the COT report also includes a category called “Others” or “Other Reportable.” This category consists of traders who have positions above the reporting threshold but do not fit into the previously mentioned segments. The CFTC does not disclose specific information about how individual traders are classified within the report.

Analyzing the COT Report: Benefits and Limitations

The COT report offers valuable insights into market sentiment, positioning, and potential trends. Traders and investors can leverage this information to make informed decisions and identify potential trading opportunities. Here are some key benefits of analyzing the COT report:

  1. Market Sentiment: The report provides a glimpse into the sentiment of different trader groups, including commercial hedgers and speculators. By analyzing their positions, traders can gauge the overall market sentiment and potentially identify market reversals or trend continuations.
  2. Position Changes: Monitoring changes in positions over time can help traders understand evolving market dynamics. Significant shifts in positions can indicate changing expectations and potential price movements.
  3. Contrarian Indicators: The COT report can serve as a contrarian indicator, highlighting situations where traders’ positions are heavily skewed in one direction. Such extreme positioning may signal an upcoming reversal in market trends.

While the COT report provides valuable insights, it is essential to recognize its limitations. Due to the broad classifications used, the report does not provide granular information on individual traders’ positions. Additionally, the report’s publication lag may impact its relevance in rapidly changing market conditions.  (shameless plug:  Rogue Edge Members have access to our weekly PDF report along with a video recap of the week on COT, Technicals, and all the nitty gritty fundamentals – supply, demand, exports, storage)

Harnessing the Power of COT Reports: Tools and Resources

To effectively utilize the COT report and harness its potential, traders can leverage a range of tools and resources. Energy Rogue, a leading provider of market insights, offers Rogue Edge, a powerful platform that provides interactive and downloadable COT charts. With Rogue Edge, traders can access the latest COT reports for Natural Gas, Crude Oil, Natural Gas Liquids (NGLs), and Refined Products. The platform allows users to identify trends, analyze historical data, and gain foresight into the energy market.

Conclusion

The Commitment of Traders (COT) report serves as a valuable tool for traders and investors seeking to navigate the energy market. By providing insights into the positions of different trading groups, the report offers a glimpse into market sentiment and potential trends. While the report has its limitations, traders can leverage it in conjunction with other market analysis tools to make informed trading decisions. With platforms like Rogue Edge from Energy Rogue, traders can stay ahead of the curve and gain a competitive edge in the dynamic energy market.

Curious about Rogue Edge?

Discover Rogue Edge, our powerful market research tool designed for energy professionals like you. For only $89/month, gain access to 150 interactive and downloadable charts, AI forecasting, and expert insights on oil, natural gas, natural gas liquids, and refined products. Stay ahead with our daily market email, weekly video recap, and PDF reports. Expand your knowledge and stay updated with our educational resources and industry trend updates. Our experienced team is here to provide personalized guidance, tools and support, ensuring your success in the energy sector.

Join us today and unlock the power of informed decision-making in the ever-evolving energy markets.

Click Here To Register Now

Curious but want to learn more… Simply book a meeting with Bill & Brian and we’ll decide together if Rogue Edge is right for you:

Click Here To Book a Meeting

For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. Trading and investing in the energy market involves risks, and individuals should conduct thorough research and seek professional guidance before making any trading decisions.

Natural Gas Storage – do we have enough?

Leave a Comment / Natural Gas, Uncategorized / By

Introduction

Natural gas is a versatile and vital energy source, used for various applications including cooking, heating, electricity generation, and as a raw material for products like fertilizer and plastics. With its increasing importance in the energy landscape, the need for efficient natural gas storage has become paramount. Not only does storage enable supply to match demand during seasonal variations, but it also plays a crucial role in meeting hourly variability in demand. This article explores the different aspects of natural gas storage, including its benefits, types, valuation, and market conditions.

The Benefits of Natural Gas Storage

Ensuring Reliable and Responsive Delivery

One of the key advantages of natural gas storage is its ability to ensure reliable and responsive delivery. Natural gas consumption experiences significant seasonal variations, with higher demand during the winter and lower demand in mild-weather months. Storage facilities allow for excess natural gas production during low-demand periods to be stored and withdrawn during high-demand periods, effectively balancing supply and demand. This flexibility and resilience provided by storage is crucial in maintaining a reliable and responsive natural gas delivery system.

Environmental Benefits

In addition to its role in meeting energy demand, natural gas storage also brings environmental benefits. The increased use of natural gas in power generation has led to significant reductions in air emissions, including sulfur dioxide (SO2), nitrogen oxides (NOX), and carbon dioxide (CO2). Researchers have found that the increased use of natural gas in power generation has resulted in a 40% reduction in NOX emissions and a 44% reduction in SO2 emissions since 1997. Furthermore, greater use of natural gas has helped reduce U.S. electricity-related CO2 emissions by 9% in 2014 compared to 2005 levels.

How Does Natural Gas Storage Work?

Natural gas storage operates on the principle of injecting gas into storage during periods of low demand and withdrawing gas from storage during periods of high demand. There are three principal types of underground storage sites used in the United States: depleted natural gas or oil fields, aquifers, and salt formations. (shameless plug:  Rogue Edge Members have access to an interactive map with details on size and location of storage fields within the US)

Depleted Fields

Depleted fields, which account for approximately 80% of underground storage facilities, are former natural gas or oil fields that have already produced most of their economically recoverable reserves. These fields offer the advantage of utilizing existing wells, gathering systems, and pipeline connections, reducing start-up costs. However, they require a certain level of natural gas to be kept as cushion gas to maintain adequate pressure and deliverability rates throughout the withdrawal season.

Salt Formations

Salt formations make up about 10% of underground storage facilities. These formations provide high injection and withdrawal rates, allowing for quick and efficient storage operations. Salt cavern storage facilities can be filled up and emptied over a period of days, enabling multiple cycles of gas injection and withdrawal within a single season.

Depleted Aquifers

Depleted aquifers, accounting for approximately 10% of storage facilities, are underground water-bearing rock formations overlaid with an impermeable cap rock. These formations require more cushion gas compared to depleted fields but offer the advantage of longer storage duration, making them suitable for meeting extended periods of high demand.

Valuing Natural Gas Storage

Valuing natural gas storage involves considering various factors, including intrinsic value, extrinsic value, market conditions, storage service level, and market access. (shameless plug:  our team builds storage models, processing models, and pricing models to help provide a foundation into optimizing values.)

Intrinsic Value

The intrinsic value of storage is calculated by determining the price differential between the cost of gas injection and withdrawal, taking into account any carrying cost of capital. The seasonal discount between the lower-priced injection season and the higher-priced withdrawal season contributes to the intrinsic storage value. For example, assuming a consistent fill during the summer and withdrawal during the winter, a summer/winter spread of $0.31/MMBtu can be used as a starting point for intrinsic storage value. (shameless plug:  Rogue Edge Members get a daily email with the 3-5 year price curve showing the potential opportunities)

Extrinsic Value

Extrinsic value takes into account factors beyond the intrinsic value, such as the type of storage facility, market conditions, and the capability of storage to reach specific markets. Extrinsic value can be extreme hyper volatility of Power or Natural Gas Prices – understanding why and when is important to storage injection/withdrawal decisions. Different types of storage, such as salt cavern storage and depleted well storage, offer unique advantages and limitations. For instance, salt cavern storage allows for high-volume injection and quick withdrawal, enabling storage owners to take advantage of short-term pricing opportunities. On the other hand, depleted well storage provides access to storage over a longer stretch of cold weather.

Market Conditions

Market conditions, particularly related to regional demand and supply dynamics, significantly impact the valuation of storage. The market’s perception of sufficient inventory in storage to meet winter demand and the ability to fill storage each summer prior to winter play a crucial role in determining storage value. Additionally, abnormal weather patterns and the introduction of new pipeline infrastructure can also affect storage value. (shameless plug:  Rogue Edge Members receive weekly insight into energy fundamentals from our team of experts weighing in on potential pricing events)

Storage Service Level

The service level of storage, whether it is firm or interruptible, also affects its value. Firm storage, which guarantees availability during peak demand periods, generally commands higher costs compared to interruptible storage, which is only available during periods of less demand. (shameless plug:  Rogue Edge Members have access to interactive charts for storage levels for the US, East, South, Midwest, Mountain, and Pacific – detailing injection for the week, 5 year range, and an interactive chart with years and years of history for each week )

    

   

Market Access

The ability to deliver stored gas into highly priced and volatile markets during peak demand periods adds extrinsic value to storage. The location of storage facilities and their proximity to regions with historical price volatility influence their market access and value.

Storage Space vs. Injection/Withdrawal Rights

The availability of physical storage space and the daily injection/withdrawal limits also contribute to the economics and value of storage. The combination of space and injection/withdrawal rights determines the flexibility and usability of storage, depending on an entity’s specific needs and risk aversion.

Conclusion

Natural gas storage plays a critical role in the energy landscape, ensuring reliable and responsive delivery while offering environmental benefits. Valuing storage involves considering intrinsic and extrinsic factors, market conditions, storage service level, market access, and space and injection/withdrawal rights. As the demand for natural gas continues to grow, the need for efficient and strategic storage facilities becomes increasingly important in meeting both seasonal and hourly variability in demand. By understanding the value and benefits of natural gas storage, energy stakeholders can make informed decisions to optimize their energy supply and mitigate risk in a dynamic market environment.

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Additional Information: Natural gas storage is not only needed for seasonal variability in demand but also for meeting the growing need to provide hourly variability in demand, ensuring a reliable and flexible energy supply.

Natural gas processing separating methane from natural gas liquids

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Natural gas has become a vital source of energy in recent years, serving as a bridge between highly polluting fuels and renewable energy. It is an efficient and relatively clean-burning fuel that has gained popularity due to its lower greenhouse gas emissions compared to other non-renewable fuels. However, natural gas as it is extracted from the ground is not immediately usable in its raw form. It undergoes a crucial process called natural gas processing, which separates impurities and extracts valuable components such as natural gas liquids (NGLs). This article will explore the significance of natural gas processing, the various steps involved, and the technologies used.

Understanding Natural Gas Processing

Natural gas is primarily composed of methane, but it also contains other hydrocarbons, nitrogen, carbon dioxide, water vapor, and trace amounts of other compounds. The composition of natural gas can vary depending on the source. It is extracted from underground reservoirs through oil wells, gas wells, or condensate wells. The natural gas obtained directly from these wells is known as raw natural gas and requires processing before it can be used effectively.

The processing of natural gas is essential to produce what is known as “pipeline quality” dry natural gas. This involves separating impurities and other hydrocarbons from the raw natural gas to meet the specifications required for transportation through major pipelines. The impurities that need to be removed include water vapor, sulfur compounds (such as hydrogen sulfide), carbon dioxide, and other contaminants. Additionally, the processing aims to extract valuable natural gas liquids (NGLs), which have various industrial applications. (shameless plug:  Rogue Edge tracks NGL processing economics PLUS you will have access to a unique processing calculator giving YOU Netbacks for future months)

The Natural Gas Processing Journey

The journey of natural gas processing begins at the wellhead, where the raw natural gas is extracted. From there, it is transported through a network of gathering pipelines to a processing plant. The processing plant is usually located in a natural gas-producing region and is responsible for the complete processing of the natural gas.

The processing plant consists of various units and equipment that perform specific functions in the natural gas processing journey. These units include dehydrators, cryogenic plants, gas processing units (GPUs), and gas sweetening plants. Each unit plays a crucial role in removing specific impurities and separating valuable components from the raw natural gas.

Dehydrators: Removing Water and Water Vapor

One of the primary steps in natural gas processing is the removal of water and water vapor from the raw natural gas. Dehydrators are used for this purpose. The most common type of dehydrator is the glycol dehydrator, which uses a chemical called glycol to absorb water from the gas stream. The glycol absorbs the water, separating it from the gas. However, glycol dehydrators release methane, volatile organic compounds, and hazardous air pollutants, which can have adverse effects on the climate and public health. To mitigate these impacts, alternative methods such as solid-desiccant dehydration using silica gel are recommended by the Environmental Protection Agency (EPA).

Cryogenic Plants: Separating Natural Gas Liquids

Cryogenic plants play a vital role in natural gas processing by separating natural gas liquids (NGLs) from the raw natural gas. NGLs include ethane, butane, propane, and pentane, which have significant commercial value. Cryogenic plants utilize refrigerants and a system of tanks and pipes to cool the gas to very low temperatures. This process causes the heavier NGLs to condense and separate from the gas. The separated NGLs can then be further processed and used as feedstock in industries such as petrochemicals and plastics. (shameless plug:  Rogue Edge not only provides processing economic returns but also economics for Ethane Rejection for future months which gives an Edge for economic returns with Producers and Processors.  Book a meeting if you’d like to learn more)

Gas Processing Units (GPUs): Removing Condensate

Gas Processing Units (GPUs) are responsible for removing condensate from the raw natural gas. Condensate, also known as “drip gas” or “natural gasoline,” is a valuable hydrocarbon that can be used as a light crude oil or as a diluent for heavier crude oils. GPUs use a heating and absorption process to separate the condensate from the gas. It is important to note that condensate is considered a hazardous substance and highly volatile, posing risks during transportation. As condensate production has increased in recent years, proper handling and safety measures are crucial.

Gas Sweetening Plants: Removing Hydrogen Sulfide

Gas sweetening plants are designed to remove hydrogen sulfide (H2S) from sour gas streams. H2S is a highly toxic and corrosive gas that needs to be removed for safety and environmental reasons. Gas sweetening plants use ammonia-based products (amines) and a system of tanks and cooling units to absorb and remove H2S from the gas. The removed H2S can be further processed to produce sulfuric acid, which has various industrial applications.

Tanks: Storage and Handling

Tanks play a crucial role in the natural gas processing journey by providing storage for water, condensate, and NGLs after separation. These tanks ensure that the processed natural gas and its by-products are stored safely before further transportation or distribution. However, it is important to prevent leaks from tanks, as they can release methane, volatile organic compounds (VOCs), and other pollutants, contributing to environmental and climate concerns. (shameless plug:  Rogue Edge gives insight to weekly inventory levels for propane and multiple refined products)

Conclusion: The Value of Natural Gas Processing

Natural gas processing is a vital step in making natural gas suitable for transportation and utilization. It involves the removal of impurities and the separation of valuable components, such as natural gas liquids (NGLs). Through the use of various technologies and equipment, raw natural gas is transformed into pipeline quality dry natural gas that meets the required specifications. The processed natural gas can then be safely transported through pipelines to end-users, while the extracted NGLs find applications in industries such as petrochemicals and plastics.  (shameless plug:  if you want to learn more about Natural Gas Processing – email us or book a meeting – links at the end of the article)

As the demand for natural gas continues to grow, efficient and environmentally responsible processing methods are of utmost importance. By adhering to best practices and utilizing advanced technologies, the natural gas industry can ensure the production and delivery of clean and valuable energy resources to meet the world’s energy needs.

Additional Information: The natural gas industry is constantly evolving, and advancements in processing technologies are being made to improve efficiency and reduce environmental impacts. It is essential for industry players to stay informed about the latest developments and regulations in natural gas processing to ensure compliance and sustainable operations.

Curious about Rogue Edge?

Discover Rogue Edge, our powerful market research tool designed for energy professionals like you. For only $89/month, gain access to 150 interactive and downloadable charts, AI forecasting, and expert insights on oil, natural gas, natural gas liquids, and refined products. Stay ahead with our daily market email, weekly video recap, and PDF reports. Expand your knowledge and stay updated with our educational resources and industry trend updates. Our experienced team is here to provide personalized guidance, tools and support, ensuring your success in the energy sector.

Join us today and unlock the power of informed decision-making in the ever-evolving energy markets.

Register Now

Curious but want to learn more… Simply book a meeting with Bill & Brian and we’ll decide together if Rogue Edge is right for you:

Book a Meeting

For more information on natural gas processing and its impact on market dynamics, contact our team of experts at rogue@energyrogue.com.

Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial or investment advice.

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