I like Oil

[alaska55]

http://canaryusa.com/crude-oil-refinery-primer/

Please read all 3 pages

Our U.S.produced crude oil varies all over the lot, based on location found. I don't know the API gravity mix and sulfur content by geologic formation produced, but that can be researched. Our refineries handle light crude much easier than "heavy" crude since less refining is needed to obtain the high value products. If the crude is not sweet (high sulfur), a sulfur recovery unit is in the process to remove it and you end up with very large volumes of low value sulfur.

Heavy crude needs more treatment and possibly a "coker unit" to process the heavy ends at the end of the refining processes, ending with petroleum coke. Not all refineries are equipped with cokers and it's a messy, costly process that ends up with large volumes of low margin product. I've seen some U.S. crude oil that is so heavy that steam injection is needed to get it out of the ground and the above ground storage tanks are kept heated with steam coils so it flows at room temperature. But that's a rare case.

The bottom line is light sweet (low sulfur) crude is very desireable for refiners and they typically pay a premium for that stock. Saudi crude is the lighter product.

The larger refineries in the U.S. can handle a wide variety of crude with varying percentages of sulfur and different API gravity. These are owned by the majors and large independents (ExxonMobil, Chevron, Valero, Hess, etc).

I hope this answers your question, but there is not one clear answer as the business is very fragmented.

Sorry as the article state we can't refine all the shale oil we produce. A lot of our refinery's need heavy crude. I just retired from the worlds # 1 producer of control valves, (field tech) and i can verified most refiners had coker units, also refinery that process heavy crude tear their valves up so bad that they don't even repair about 25% of their control valves. They just replace them without looking at them. I worked refinery from the east coast, gulf coast, west coast, Canada ,Alaska and even the Virgin Islands.

 

[ESRwannabe]

Here is a good talk on oil put out by IEA last week. Their projection is for the oil surplus to be almost over in 2017. They predict US production to fall but then start to go up again in 2018-2019, and reach record high in 2020. They see the oil deficit going from 2018 to at least 2020.

I purchased 150 shares of AMLP this morning. I'm now up to 20,030 shares.

 

[NW-Bound]

Interesting reading. As a layman, I did not know that light shale oil now causes a problem.

Some years ago when crude was expensive, I read that many refineries could not process some of the heavy sour crude that was imported. This article explained that much money was invested to fix that problem, and now they could not handle light crude. I naively thought that a refinery that processes heavy crude would also be able to do light sweet crude.

Light on the Top, Heavy on the Bottom: A Crude Oil Refinery Primer - Canary, LLC

Please read all 3 pages

Sorry as the article state we can't refine all the shale oil we produce. A lot of our refinery's need heavy crude. I just retired from the worlds # 1 producer of control valves, (field tech) and i can verified most refiners had coker units, also refinery that process heavy crude tear their valves up so bad that they don't even repair about 25% of their control valves. They just replace them without looking at them. I worked refinery from the east coast, gulf coast, west coast, Canada ,Alaska and even the Virgin Islands.

 

[petershk]

The other things to consider is the whole thing is dynamic.

That is... drillers and refiners also respond to lower prices by increasing technology and lowering costs. Alternative energy also changes in lumpy and unpredictable ways.

To see the extent of this it's fun to go back to, say, the era of whaling. Whale oil used to drive the global economy and companies used to throw out whale bone because it was worthless. Then one year someone figured out you could use the bone in similar ways we use plastic today and suddenly the bone became super valuable... until plastics of course .

With the invention of kerosene... whale oil became far less lucrative very quickly and standard oil was born. The bone was valuable for quite a bit longer so whaling survived longer than people thought.

With the invention of the electric light suddenly the kerosene market was threatened so suddenly the "worthless" gasoline market became the driver of the oil industry due to the growth of the combustion engine. Before that gasoline was this super dangerous explosive byproduct you wanted to avoid.

In hindsight this is all obvious but at the time it looked just as unpredictable and disruptive as what we see today... maybe even more.

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[petershk]

Here is a good talk on oil put out by IEA last week. Their projection is for the oil surplus to be almost over in 2017. They predict US production to fall but then start to go up again in 2018-2019, and reach record high in 2020. They see the oil deficit going from 2018 to at least 2020.

I purchased 150 shares of AMLP this morning. I'm now up to 20,030 shares.

My question whenever I see this is how good were they at predicting the current state of things 3-5 years ago? Maybe it was good... but generally I have found that past predictions on things like energy prices are no better than random guesswork and so I figure their accuracy going forward will be similar

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[ESRwannabe]

AMLP is going up pretty fast this week. My avg cost per share is now $13.80 on 20,030 shares. Hopefully I can bring my avg cost down some more this year before share price gets too high. My guess is that it will be higher than $13.80 sometime in 2017 and I'll have to look elsewhere for investing.

This video from Tortoise Capital has some interesting graphs on MLP data.

The distribution growth graph is pretty awesome.

 

[papadad111]

We are about 18 months into this thread. About a week after the first post was made, the headlines read :

"Crude oil futures plunged to their lowest level in five years Monday, piling pressure on Russia and other producers and raising the risk of deflation in Europe.

Crude oil collapsed below $65 per barrel as new data confirmed a slowdown in manufacturing activity in Europe and China, and as OPEC's decision not to cut output continued to roil markets."

We're a further 50% lower since that first post. And at that time oil was already down 50% from the highs of 120 per barrel. That's a painful 75 percent correction !! So far....

I've made a little money trading the falling knife.

I suspect we've all lost more money though, considering how many oil stocks make up the broader basket of SP500 and broad total market indices.

The lows likely came in around mid February. Since then the oil complex has been up a fair amount. Same with overall commodities. Is the bottom in ? Who knows but my bet is yes...

If one were to bet on a sector, I think it is now the time to begin sifting through the ashes to find a Phoenix or two. I would not go all in though. Nibbling for rallies is probably a better approach.

Global economics say it will still be a very slow climb out of the house of pain for most who bet on oil, especially those who made the bets a bit too early.

 

[haha]

Interesting video. My portfolio has been fairly heavy on pipelines since the 2008 crash. Some US, some Canadian, mostly C-corps and one E&P MLP. I gather that many here own stocks mainly in tax deferred or tax free accounts, so capital gains taxes are not big consideration. In my case, taxes matter and I am very careful about MLPs, because when I buy one it is a marriage, not a fling.

Currently, I own one timber MLP, one mostly liquids pipeline, and one E&P. Right now, the pipeline is carried at marginally below my cost, the E&P is down almost 40%. The timber company is my largest MLP, and is a bit more than double my cost. I have sold all my C-corp pipelines.

Barring unusual events, I am committed to holding these MLPs hasta al morir. They are large positions. Things like electric cars scare me, at least with respect to the 2 oil related firms. So I won't be increasing either oil and gas related entity, no matter what a good price I think is being put on them. Also, I don't much like the MLP funding approach of frequently going back to the well. This exposes the holder to credit scares.

Every time I have dinner with a son who has made many times what I have over the years, he warns me how clever those software guys and engineers are getting with photo-voltaics, etc. I am by nature a plunger, but am controlling that right now.

I will say that the positive carry of many of these better pipeline MLPs is astounding, so even given a considerable drawdown carry profits put all but my MLP E&P solidly in the black, and even that one is very close.

Ha

 

[ESRwannabe]

I think EV cars will happen eventually, but I think by the time it happens I will have made back my money plus a lot of profit on my MLP investments.

Here are a few bullish articles I read today:

The IEA is calling a bottom on oil prices. No, really. - Quartz

https://www.rt.com/business/334417-russia-oil-price-talks/

Iran's Oil Market Return Not Yet Fulfilling Grand Promises - Bloomberg Business

 

[Fermion]

SDLP has been way up recently (from sub $2 to near $3.30 today)

I caught a little bit at the $2.xx level right before the dividend. So I have $0.25 per share and a nice little gain so far in the stock. Hold for a few more dividends?

 

[Lakedog]

I recently placed my energy bets on VDE and KMI and plan to hold both long term. I had a small KMI position prior to the drop and now own a much larger piece. I went with VDE to manage some of the risk with individual energy names - currently up around 15% on average cost. I have owned a bit of BP for sometime so even with the drop I am still sightly positive after factoring in dividends to date. I expect something will displace oil/nat gas at some point but not likely in my lifetime.

 

[ERD50]

...
Every time I have dinner with a son who has made many times what I have over the years, he warns me how clever those software guys and engineers are getting with photo-voltaics, etc. I am by nature a plunger, but am controlling that right now. ...
Ha

I'd be interested in more of what your son has to say about this. While solar PV is a very good thing in many ways, I'm having trouble seeing how it can advance very far very fast (as a % of total power, not compared with itself).

Solar PV currently has ~ 15% efficiency, and the theoretical limit for single-cell PV is ~ 32%. I'm not sure what he practical limit is, but clearly no room for even 2x improvement. Beyond that, you need to stack cells that can absorb different wavelengths, and also pass the remaining light through to the cell beneath it, so that gets complicated and more expensive.

Much has been made about the price of solar PV dropping, but an inexpensive panel is now roughly 1/3rd the total cost of installed solar (wiring, racks, labor, inverters). Those other 2/3rds aren't expected to drop fast, and some will go up. So drops in the remaining 1/3rd won't mean all that much overall.

Since solar PV comes on strong during the daytime peaks, they will offset the natural gas peakers mostly - baseline coal/nukes will be going strong to keep up. But on national average, solar PV is only ~ 0.4% of total electrical consumption, so it will take a while to see that increase by big numbers. But since that is mostly generated in a few hours around noon, it will have a larger impact on those NG peakers in those hours, maybe ~ a 4x factor (roughly most PV generated over 6 hours, so 4x during that time compared to the average 24 hour cycle).

I'm not sure how a drop in demand of NG effects overall oil production/prices though. I was thinking NG is more of a by-product of oil drilling?

-ERD50

 

[haha]

I'd be interested in more of what your son has to say about this. While solar PV is a very good thing in many ways, I'm having trouble seeing how it can advance very far very fast (as a % of total power, not compared with itself).

Solar PV currently has ~ 15% efficiency, and the theoretical limit for single-cell PV is ~ 32%. I'm not sure what he practical limit is, but clearly no room for even 2x improvement. Beyond that, you need to stack cells that can absorb different wavelengths, and also pass the remaining light through to the cell beneath it, so that gets complicated and more expensive.

Much has been made about the price of solar PV dropping, but an inexpensive panel is now roughly 1/3rd the total cost of installed solar (wiring, racks, labor, inverters). Those other 2/3rds aren't expected to drop fast, and some will go up. So drops in the remaining 1/3rd won't mean all that much overall.

Since solar PV comes on strong during the daytime peaks, they will offset the natural gas peakers mostly - baseline coal/nukes will be going strong to keep up. But on national average, solar PV is only ~ 0.4% of total electrical consumption, so it will take a while to see that increase by big numbers. But since that is mostly generated in a few hours around noon, it will have a larger impact on those NG peakers in those hours, maybe ~ a 4x factor (roughly most PV generated over 6 hours, so 4x during that time compared to the average 24 hour cycle).

I'm not sure how a drop in demand of NG effects overall oil production/prices though. I was thinking NG is more of a by-product of oil drilling?

-ERD50

ERD, thanks for this detailed analysis. Re: gas, gas that is produced incidental to oil is called associated gas. Some of our geologists or petroleum engineers can likely tell us what portion if gas is mostly produced this way. However, some areas and zones are 'oily", and some produce oil and a lot of wet gas- ie a long way from pure methane, but also not quite oil which has more carbon atoms in each molecule. Ethane, propane, butane and other gas liquids are often stripped out at gas processing plants very close to the well head. I think these processing decisions are driven by economics, and the relative costs and values of various components.

Some areas are drier or even dry gas- mostly methane. There are gas zones in the San Juan Basin, also areas of the Marcellus and Utica shales are very heavy toward gas.

I believe that using inflation adjusted prices, natural gas in the US and Canada has never been cheaper than it is today. We are looking at all time low prices. I believe no one would intentionally produce this gas other than to hold a lease, or to produce gas that still has valuable hedges in place, or perhaps to avoid violating some lender covenant.

Meanwhile, natural gas has displaced coal as the major fuel in power plants. No one whats to build new nuclear plants, and many coal plants are due to be shut down for sundry reasons. So it seems that absent political directives more and more gas will be used in electrical generation every year.

I am not real clever, but it does seem to me that if any rational political decisions are ever made again, natural gas will find a profitable market. But that may be a big if.

Ha

 

[ERD50]

... gas that is produced incidental to oil is called associated gas. ... and some produce oil and a lot of wet gas- ie a long way from pure methane, ...

I believe that using inflation adjusted prices, natural gas in the US and Canada has never been cheaper than it is today. We are looking at all time low prices. I believe no one would intentionally produce this gas other than to hold a lease, or to produce gas that still has valuable hedges in place, or perhaps to avoid violating some lender covenant. ...Ha

Thanks for that background info. Judging by my NG heating bills, that's seems about right - no big inflation there (at the retail level).

... Meanwhile, natural gas has displaced coal as the major fuel in power plants. No one wants to build new nuclear plants, and many coal plants are due to be shut down for sundry reasons. So it seems that absent political directives more and more gas will be used in electrical generation every year. ...

Yes, coal plants are being shuttered in some cases (too $$$ to meet new pollution rules), replaced by gas mostly (and a smidgin of renewables). Gas is flexible as it can ramp up/down fast, and far cleaner than coal. I think NG is cleaner both at the output, but also production, I think, - drilling a hole seems far less of an issue, even with fracking, than removing a mountain top.

The next gen nukes look promising to me, but that's a long way off as well.

Back to solar PV - I think demand for NG will be driven much more by the coal plant closings you mention, than by solar PV. We would need 10x the solar installed since forever, just to reach ~ 4% of our electricity provided by Solar PV. Even that will take a while, and will probably require the gas peaker installations to cover cloudy days.

-ERD50

 

[NW-Bound]

It will take a couple of decades before renewable energy even amounts to more than 10% of all energy used, judging from Germany's effort.

Oil and gas will be with us for quite a while. Buy, buy, buy...

 

[harley]

Just bought another batch of SDLR. This is in my active trading/play account, so it wouldn't be significant to you bigger traders. But I put in a sell order for it at $3.50 in case of a spike. I'm not much of a trader. A short term hold for me is less than 3 years. But it's so cheap to play in the oil arena these days it's a good place to practice a little buy and sell. Maybe I'll even buy low and sell high. Exciting stuff!

Amazing. SDRL has doubled in less than a week on no news and relatively stable oil prices. It went past my sell price, so I made some money (chickenfeed, but this is my gambling account). I just put another buy order in for about 50% of the current price. It will be interesting to watch. It's a lot more fun doing this in my Roth, where I don't have to worry about short/long term gains or how it will affect my ability to do Roth conversions.

 

[ESRwannabe]

In time I'm going to make a killing on my mlp investments. Oil surplus should be all but gone in 2017.


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[dixonge]

It will take a couple of decades before renewable energy even amounts to more than 10% of all energy used, judging from Germany's effort.

Oil and gas will be with us for quite a while. Buy, buy, buy...

Germany often hits 70% renewable energy days. (Mainly in summer) they have made major gains.

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[NW-Bound]

I remember reading that on the average they generate more than 20% of all electricity used.

But one looks at all energy usage, meaning industrial, transportation, etc..., then the renewable energy percentage is lower.

 

[NW-Bound]

In time I'm going to make a killing on my mlp investments. Oil surplus should be all but gone in 2017.

It may be so, but one may have to endure some pain in the interim. This is where the individual investor can do what MF managers cannot. They have to show good returns quarter after quarter, or investors bail out.

Counter the above is the fact that a beaten-down sector may be a value trap for a while. Having too much in one has an opportunity cost, compared with investing elsewhere. Timing is hard!

That said, I am slowly reloading my energy stocks. Have quite a bit of cash on hand. Heh heh heh...

 

[explanade]

In time I'm going to make a killing on my mlp investments. Oil surplus should be all but gone in 2017.


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If you're getting good dividend payouts, you can just hold it indefinitely right?

As long as they don't drastically cut the dividend?

 

[haha]

Thanks for that background info. Judging by my NG heating bills, that's seems about right - no big inflation there (at the retail level).



Yes, coal plants are being shuttered in some cases (too $$$ to meet new pollution rules), replaced by gas mostly (and a smidgin of renewables). Gas is flexible as it can ramp up/down fast, and far cleaner than coal. I think NG is cleaner both at the output, but also production, I think, - drilling a hole seems far less of an issue, even with fracking, than removing a mountain top.

The next gen nukes look promising to me, but that's a long way off as well.

Back to solar PV - I think demand for NG will be driven much more by the coal plant closings you mention, than by solar PV. We would need 10x the solar installed since forever, just to reach ~ 4% of our electricity provided by Solar PV. Even that will take a while, and will probably require the gas peaker installations to cover cloudy days.

-ERD50

Interesting uber-bearish article on natural gas in today's WSJ. The gist of it is that in the author's opinion it isn't beyond possibility that in some areas like the Marcellus the cash price of natural gas could decline to $0.00 this summer due to having nowhere to put it.

I don't worry about any of this, even though it may come to pass. Prices may be manic-depressive, but so are journalists. I would hate to own any futures contracts coming due. Or E&P companies on margin. But then, I don't.

Ha

 

[ESRwannabe]

I was/am in a situation where I need to be FI asap or give up... 15 years and I can retire off pension at 55. So realistically if I can't fire by 45 I might as well give up saving so much money and work to 55. I've been living off half of income for 15 years.

This oil crash is a gamble. If it works out I fire by 45. If not I give up and retire at 55. I'm 40 right now. The situation I don't want is to get to 55 and have 2 or 3 times as much money as i need and me having lived off half income entire career.


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[ESRwannabe]

Explandae yes I plan to hold mlps entire life. I bought it for income only. Mlps are very reliable div growth and right now yield is super high. It won't last long at this low price. Yield is at historical highs.


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[haha]

For your sake I hope you are correct. But I have from time to time read similar posts here, from former ERs.

Your pension gives you a fail-safe fallback, so no existential risk.

Ha