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North America Logistics Review Report – August 2016 Overview Section

Inventories Rise while Prices and Production Fall

According to the EIA, during August, US crude inventories rose by 3.4 million barrels to 525.9 million barrels. As crude inventories remain high, the EIA expects “global oil inventory builds to average 0.5 million b/d in the second half of 2016, limiting upward price pressures in the coming months.”

In August, the U.S. oil rig count increased by 34 rigs resulting in 497 total oil rigs in service indicating a possible bottoming out and return to interest in exploration and development.  Meanwhile, U.S. crude production fell by 2.2 percent during the month.

Regarding pricing, oil spot prices fluctuated in August, ranging from $39 per barrel to $48 per barrel. This is the first average monthly decrease in price since January 2016. The EIA also published its August Short Term Energy Outlook (STEO) price projections for the next two years.

Year 2016 2017
EIA Short-term Energy Outlook, WTI ($/bbl) $41 $52


July’s STEO showed $44/bbl for 2016 so the August Outlook reflects a $3/bbl downward revision in WTI price for 2016. The 2017 figure remains unchanged from July’s STEO.

While low oil prices have put pressure on oil producers across the globe, national oil companies (NOCs) whose governments depend on oil for a large portion of their revenues have been particularly compromised. This has impacted efforts to maintain production. In Venezuela, production has fallen to 2.3 mbpd, the lowest levels in over 13 years. (Production was at 2.8-2.9 mb/d in 2012-2014 before the crude price drop.) In Nigeria, production has fallen by 2.3 mbpd between May 2015 and May 2016 to 1.4 mbpd as militants continue to cause disruptions. 1.4 mbpd is the lowest level of production in Nigeria in 30 years. The decreased oil production has hurt Nigeria’s economy, which just entered recession for the first time since 2004. Decreased production from Nigeria and Venezuela has contributed to higher prices as compared to those at the beginning of this year and will continue to be a factor globally. US dependency on Nigerian crude imports has dropped dramatically in recent years, from nearly 1 mb/d in 2010 to 50,000-250,000 b/d since 2014 as a consequence of the growth in US tight oil production. Current reductions in the country’s output are therefore likely to have limited impacts on US imports. Venezuelan crude imports have likewise declined from around 1.25 mb/d in 2005 to a plateau of around 750,000 b/d since 2013. It remains to be seen to what extent the latest declines in the country’s production will translate into further reductions in US imports.


Pipeline update

The process of building new pipelines in the United States has become increasingly complex in recent years as large projects have faced strong environmental opposition, causing a slowing in regulatory approval processes and delays to projects. This focus is now extending to US domestic as well cross-border and Canadian export lines. In August, construction temporarily ceased along a certain portion of Energy Transfer Partners’ Dakota Access Pipeline because of an injunction filed by the Standing Rock Sioux Tribe and large stage protests.  A September 8th ruling in U.S. District Court will determine whether the project can move forward as planned. A ruling unfavorable for Energy Transfer Partners would put the project in jeopardy but, meanwhile, construction continues along other portions of the line.

The regulatory approval processes for the development of the Energy East Pipeline and expansion of the Trans Mountain pipeline have been slowed down due to protests. In August, hearings regarding TransCanada’s Energy East pipeline were halted due to protests. An internal National Energy Board review of the relationship between two commissioners and employee of TransCanada needs to be conducted before the hearings may resume. Strong protests against Kinder Morgan’s Trans Mountain expansion has caused Canadian Prime Minister to recently call for additional hearings. These will inevitably slow down the regulatory approval process.

After strategic review, Enbridge has scrapped its plan for the Sandpiper Pipeline. The project was still held up in the regulatory approval process with the Minnesota Public Utilities Commission. Importantly, in early August, it was announced that the investors in the project, Enbridge and Marathon, will buy into the Dakota Access Pipeline for a combined $2 billion. This buy-in effectively acts as a ‘substitute’ for Enbridge/Marathon in terms of acquiring takeaway capacity from the Bakken (assuming Dakota Access will be completed).

Pipeline Open Seasons in August:

  1. Bakken Pipeline, North Dakota-South Dakota-Iowa-Illinois – Energy Transfer Partners (Oil)
  2. Caliber Bear Den Interconnect, North Dakota – Caliber Midstream Partners (Oil)
  3. Michigan/Ohio Pipeline Expansion Project, Michigan-Ohio-Pennsylvania – Buckeye Partners (Oil)

Pipelines that began construction in August:

  1. Maurepas Pipeline, Louisiana – SemGroup (oil)
  2. Sacagawea Pipeline, Washington – Paradigm Energy Partners (oil)


Marine & terminal update

The Pacific Northwest LNG Export Project may be delayed because of both the economics of the project and the length of the Canadian regulatory process. The project is estimated to cost $27.5 billion and meanwhile, Petronas, the developer of the project, is struggling financially.

Golden Pass Project received the FEIS from FERC for its LNG export project. The $10 billion project will be built in Sabine Pass, Texas.


To read the rest of this Monthly Logistics Report or subscribe today, please give us a call (781-274-8454) or email thomas.witmer (at) ensysenergy.com

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