Saturday, April 24, 2010

Let's Talk Oil

Let's Talk Oil and Petroleum products (that will have to include ethanol as that is now primarily a gasoline blending component).

Oil is back over $85 per barrel (and now Nat Gas and Coal are firming). Let's take a look at the EIA data (not that this is any longer indicative of any price signal... I am going somewhere else with this). Hit the link, and scroll down to Table 1., and then down to "Products Supplied".

While gasoline BY VOLUME has experienced a slight increase in YOY supply, by BTU's, gasoline YOY supply by BTU has remained flat as ethanol production (and consumption) has increased 8.2% and ethanol contains 65% of the BTU's of gasoline. Diesel & Jet fuel supplies has fallen YOY; this is notable considering how far of a decline 2009 was from 2008 in these fuels. Propane is up a bit, with the biggest gain coming from "Other Oils", that is: Bunker fuel, asphalt, etc.. defined by the EIA as: "Oils with a boiling range equal to or greater than 401ยบ F that are intended for use as a petrochemical feedstock". In other words, the stuff that cannot be used in transportation fuels but can be used in industry.

To sum it up: Imports are down 8.9% YOY, and all products supplied OTHER than industrial/petrochemical feedstocks are down a a rough average 3% YOY. Since this is coming off a crash in the 2008/2009 year over comparisons that 3% is somewhat more dramatic than it might otherwise appear.

After reviewing the dramatic increase in ethanol and domestic production of of Crude & NGL's since 2005 (the more I examine this the more I believe the doomers would have been right had it not been for ethanol and hurricanes Katrina & Rita (which created slack in the production system)), it then follows that the question really is: can the U.S. continue to increase these items to make up for the loss of imports IF those imports continue on their rate of decline(?). Since the U.S. is consuming 42.5% of its corn crop (using last quarter's numbers) to produce ethanol it would appear that the answer is "NO" regarding ethanol. Given that the industry is shuttering refining plants and removing a large portion of refining capacity it would appear that the industry has voted with its $$ a big NO on a significant increase in production capacity. Further, Transocean's experience last week with a blow out in GOM that killed 11 of their workers and sunk a $360 deep water drilling ship would lead me to believe that these very deep water and deeper Terra fields are not going to give up their resources cheaply.

The U.S. has pulled out all of the stops in order to keep the headline unemployment number under 10%, flooding the system with liquidity and cheap credit... with the unintended consequence that Oil is creeping back into the danger zone - this is the "Rock and a Hard Place" we have been speaking about - and any economic recovery or contraction is entirely tied to Oil.


bureaucrat said...

Well thanks at least for clearing that up. :) Next you'll have to comment on why that EIA "oil in storage" graph has a hell of a hard time going UNDER the historical average. We may not have lots of oil in the future, but for right now, the supply seems "full+".

I also think you may be rounding the ethanol numbers a little to suit your argument. Ethanol does indeed have fewer BTUS than gasoline, but 65% may be a bit pessimistic. The Ford Taurus I used to drive got 27 MPG on gasoline and 20 MPG on E85 (the 85/15 blend used by autos and light trucks). Now E85 has 15% gasoline in it, that's true, but I still got about 75% of the BTUs of gasoline. It also has a lot to do with how the vehicle is "optimized" to run on ethanol.

When we tried methanol (M85), that stuff had even fewer BTUs than ethanol.

And also .. that (field) corn being used for making ethanol can AT THE SAME TIME be used to make other products ... animal feed and corn syrup as well, I think.

Greg T. Jeffers said...


Oil is an International commodity market; NG is a local (North America) market... perhaps the American economy is not so hot as the rest of the world.

I don't think I am rounding too far as to have a material impact on the calc....

The point was that ethanol was a "One Off". There is not another bio fuel around to produce 1mm bpd within 5 years.

Stephen B. said...

I cannot see how corn used for brewing alcohol could be then used for corn syrup as it's the sugar and converted starches in the corn that feeds the yeast.

I suspect it's value as an animal feed is less than that of virgin corn and grass as well.

As for the BTU content of various liquid fuels, here's a link to a chart that has more than you ever wanted to know on them:

Ethanol (100%) has 66.75% of the BTUs of pure, "base" gasoline.

E85, according to that chart, has 71.75% of the BTUs of "base" gasoline.

Regarding oil in storage in the US.... so what? We don't make the world market in oil any more. Then too, I think it might be more informative to look at "days of supply in storage, worldwide", though I'd have no idea where to find such figures, if they even exist on anything less than an annual basis.

I suspect that if that latter number existed, it wouldn't be all that high, historically speaking.

The amount of oil in a bunch of oil tanks in Cushman, Oklahoma, along with the rest of US storage is becoming less and less relevant at every iteration of this oil market game.

Greg T. Jeffers said...

Days Of Supply (DOS) is the only number that matters.

Sort of. I guess volume in excess of minimum operating levels is pretty important, too.

Of course, per capita supply and consumption is also pretty important... and with the U.S. population growing at 1.1% to 1.2% per year, and supply going down....

You get the idea.

bureaucrat said...

If I can do it in a timely manner, I'll give you the things that field corn can be made into INCLUDING ethanol at the same time, but the chart is at my office.

Every time Jeffers talks about "using 42.5% of American corn to make ethanol," that is not the whole story, and makes people people think that the making of ethanol is taking cans of Jolly Green Giant (human-edible) corn out of peoples' mouths, which isn't exactly true. I just like to point that out. Field corn (which is 99% of all American corn) is not directly edible by humans and can be made into multiple products, with the same batch of field corn,,sometimes.

Dextred1 said...

I would just like to point out some anecdotal evidence at the moment. I have 1 dump trucks and another pickup I use for work. They have done exactly 3 jobs this Yr so far. I notice when I go out that I almost never see dump trucks except the county and road construction variety. I am a small contractor, but it is not unusual to buy 30 to 40 gallons a day five days a week when I am busy. When Diesel was at 4.00$ I was paying over 150 a day. It almost put me under. I would not even bid a Job more than 15 or 20 miles away. IT WAS BAD THEN, BUT THIS IS THE WORST YR I HAVE EVER HAD. I would say calls are down 75% from last yr. My guys call ever day to find out if we have work. The small contractor and personal pickup crowd are the ones saving the day. Most of my friends in business have all bought small get around vehicles to save driving their trucks. I think this is another “one off” that needs to be addressed.

I would like to point out that the unemployment number for construction is completely bogus. The thing most don’t see is that almost every small construction company 1099’s their employees now. This is advantageous because you do not have to withhold taxes, pay comp on them, put them on vehicle insurance and pay unemployment insurance on them. Everyone gets their employees to buy their own comp and a DBA. On the way up these people did show up in purchasing power, now on the way down they don’t hurt unemployment rate but they definitely hurt the purchasing power. Remember they don’t receive unemployment every week being self employed.

Greg T. Jeffers said...


I don't think my readers think I am speaking of "sweet corn" when I speak of corn... so I don't think its necessary to bore them with the definition.

Further, sweet corn is NOT a staple or a base in the American (and Japanese... Japan was the largest importer of American #2 field corn. I wonder where they will get it now that America will cease to bean exporter for the most part?) diet... field corn is.

bureaucrat said...

The average American does not know there is a "sweet corn" and a "field corn," they do not know that field corn cannot be digested directly by humans (JOlly Green Giant canned corn is sweet corn), they do not know that 99% of corn grown in the U.S. is field corn, they do not know than this field corn is now the #1 feed for the animals we eat (instead of grass/hay), and when they hear of large amounts of "corn" being used for ethanol production, they think we are starving the world of food by producing ethanol.

The truth is more complicated, and any reader to this blog needs to know how this all works together before we can push any policy. :)

westexas said...
This comment has been removed by the author.
westexas said...

FYI--The MSM and the oil industry are doing a great job of ignoring the issue, but the main producing structure in the Thunder Horse complex has shown a huge increase in the water cut. The latest data show total fluid is close to 31% water (versus zero water cut in October, 2008).

westexas said...

There are two fields--Thunder Horse and Thunder Horse, North. An industry source told me about water problems in the main Thunder Horse structure in October, 2009.

Thunder Horse started production in June, 2008, and their last water free month was October, 2008. Their peak production month was January, 2009, at 168,000 bpd of crude oil and 4,400 bpd of water. The latest data, for January, 2010, show 64,000 bpd of crude oil and 29,000 bpd of water. Quite a decline in one year. There is also some associated natural gas production.

Thunder Horse, North, which was put on production later than the main Thunder Horse structure, is reportedly producing about 130,000 bpd of crude oil, but it would seem to be only a matter of time before they start having similar water production problems.

Here is an Oil Drum link to the data (monthly data):