MAR.

4, 2019 | USD 15

International Petroleum News and Technology | www.ogj.com

CAPITAL SPENDING
UPDATE

US
OLEFINS

UKRAINE OFFERS NEW PSAS

IEA UPDATES EOR PROJECTS, OUTPUT
IMPROVING NAPHTHA CRACKING
MARCELLUS-UTICA OPTIONS

190304OGJc1-c5.indd 1 2/26/19 3:08 PM

 Oilwell Supply
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Machine Tools Supply Bovaird Supply

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190304OGJc1-c5.indd 21
DistNow_OGJ_190304 2/26/19 10:50
2/18/19 3:09 PM
AM
 CONTENTS
Mar. 4, 2019 Volume 117.3

GENERAL INTEREST SPECIAL REPORT

CAPITAL SPENDING UPDATE
IEA: Crude oil quality matters amid
lower supply Growth of US upstream
26 spending to decelerate in 2019
Conglin Xu
Queensland’s CSG-LNG plants unlikely
to reach full capacity 20
Rick Wilkinson
27
Capital investment continues
BP lets rig contract for Ironbark wildcat to increase in Latin America
off Western Australia Siddhartha Sen

24
Rick Wilkinson
28

APLNG to buy Ironbark coal seam gas

prospect from Origin Energy
Rick Wilkinson
28

Aramco forms combine for $10-billion

Chinese refining complex
Robert Brelsford
29

Meridian Energy plots grassroots refinery

for Permian basin
Robert Brelsford
29
REGULAR FEATURES INTRODUCING
NAPE: Croatia opens licensing round in NEWSLETTER 6
Dinarides onshore area LETTERS/CALENDAR 12 OIL & GAS
Paula Dittrick
JOURNALLY SPEAKING 16
30
EDITORIAL 18
COMMUNITY,
MAR. 4, 2019 | USD 15

COVER SERVICES/SUPPLIERS 56 an Oil & Gas Journal online

International Petroleum News and Technology | www.ogj.com

Devon Energy Corp. plans by yearend to sell STATISTICS 58 service enabling you to
CAPITAL SPENDING
UPDATE

US
or spin-off its heavy oil properties in Canada MARKET CONNECTION 61 comment on articles,
OLEFINS
and gas production in the Barnett shale to ADVERTISERS INDEX 63 communicate with OGJ
focus on US oil. The moves will help Devon
EDITOR’S PERSPECTIVE/ editors, and meet
meet a cost-cutting target of at least $780 specialists in your field.
WATCHING GOVERNMENT 64
million/year by 2021. Concentrating on US
oil, Devon expects to achieve production For instructions and to sign
UKRAINE OFFERS NEW PSAS
IEA UPDATES EOR PROJECTS, OUTPUT
IMPROVING NAPHTHA CRACKING
MARCELLUS-UTICA OPTIONS
growth of 13-18% in 2019 with 10% less up, go to
upstream capital than in 2018, self-funded www.ogj.com/
at an oil price of $46/bbl if service and sup- oilandgascommunity.
ply prices don’t increase. Photo from Devon
Energy.

190304OGJ001-005.indd 1 2/28/19 12:22 PM

 MARCH 5–7, 2019 | SAN ANTONIO, TX USA
HENRY B. GONZALEZ CONVENTION CENTER | WWW.SUBSEATIEBACKFORUM.COM

Owned &
Presented by: Supported by: Hosted by:
Produced by:

190304OGJ001-005.indd 12
SSTBDev_Petro_180219 2/28/19
2/19/18 12:22 PM
2:55 PM
 UKRAINE LICENSING ROUNDS FIG. 1

BELARUS
POLAND Dnipro-Donets basin

RUSSIA
Pre-Carpathian basin
US NGPL PRODUCTION
2017
7
Kharkiv History Projections
Lviv
UKRAINE 6Rollava
Ivano-
Frankivsk
5 East
Ca

Million b/d
rp Chernivtsi
at 4
hi
an
M Southwest
ou MOLDOVA 3
nt 2019 PSAs
ain
s 2019 licenses
North Black Sea basin Kherson 2
Valid contracts:*
31 Exploration
49 Other US
Odessa 1
ROMANIA Black Sea Azov Sea E&P

TECHNOLOGY... 0
Production
PSA
2000 2010 2020 2030 2040 20
*Exploration licenses cover 5 years onshore, 10 years offshore, combined E&P licenses cover 20 years onshore, 25 years offshore, productionSource: UScover
licenses Energy
20Information
years. Administration
Source: GoUkraineNow

EXPLORATION & DEVELOPMENT DRILLING & PRODUCTION PROCESSING TRANSPORTATION

Ukraine outlines latest IEA updates EOR project US olefins industry turns US DOE details
concessions, production- data, doubling output to face global market Marcellus-Utica
sharing agreements forecast Dan Lippe ethane, petrochemical
Roman Opimakh 34 36 options
31 49
In-depth phase
characterization improves
naphtha cracker emulsion
breaking
Fabrice Cuoq
Jérôme Vachon
44

44

2:55 PM 190304OGJ001-005.indd 3 2/28/19 12:22 PM

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OGJ ®
Newsletter International News
for oil and gas professionals
GENERAL INTEREST Q U IC K TA K E S
Court nixes challenge to Alberta export bill
The government of British Columbia has received a setback
to its challenge of legislation that would empower the Alberta
energy minister to require licenses for the transport of energy
away from the province (OGJ Online, May 23, 2018).
Because the bill has not become law, BC’s claim is “prema-
ture and inappropriate for consideration by the court,” a Cal-
gary justice ruled.
The Alberta General Assembly passed the legislation last
May in response to BC opposition to the expansion by Kinder
Morgan of the Trans Mountain Pipeline between Edmonton
and Burnaby, BC. Since then, the Canadian government has
acquired the Trans Mountain system and expansion project.
Targa divests Badlands assets for $1.6 billion
Targa Resources Corp., Houston, agreed to sell a 45% inter-
est in Targa Badlands LLC, the entity that holds Targa’s North
Dakota oil and gas assets, to funds managed by GSO Capital
Partners and Blackstone Tactical Opportunities for $1.6 billion
in cash. Targa will continue to operate and hold majority rights.
The Badlands assets and operations, in the Bakken and
Three Forks shale plays of the Williston basin, include some
480 miles of oil gathering pipelines, 125,000 bbl of operational
oil storage, about 260 miles of gas gathering pipelines, and the
Little Missouri gas processing plant with a current gross pro-
cessing capacity of 90 MMcfd. Additionally, Badlands owns a
50% interest in the 200 MMcfd Little Missouri 4 Plant antici-
pated to be completed in this year’s second quarter.
Future growth capital is expected to be funded on a pro rata
basis. Badlands will pay a minimum quarterly distribution to
Blackstone and to Targa based on their initial investments, and
Blackstone’s capital contributions will have a liquidation prefer-
ence upon a sale of Badlands.
RockRose Energy to buy Marathon Oil’s UK business
Marathon Oil Corp. will exit the UK with a sale of its UK busi-
nesses Marathon Oil UK LLC (MOUK) and Marathon Oil West
of Shetland Ltd. (MOWOS) to RockRose Energy PLC to further
concentrate on its high margin, high return US resource plays.
MOUK holds a 37-40% operated interest in fields in the
6 Oil & Gas Journal
190304OGJ006-011.indd 6
Mar. 4, 2019
For up-to-the-minute news,
visit www.ogjonline.com
Greater Brae Area, and MOWOS holds a 28% interest in the
BP PLC-operated Foinaven field unit and 47% in Foinaven
East. The deal includes interests in the SAGE, Brae-Forties, and
WASPS infrastructure. At yearend 2018, Marathon Oil carried
21.4 million boe of proved reserves in the UK. Anticipated pro-
duction is 13,000 boe/d in 2019, taking RockRose’s total net
anticipated production to 24,000 boe/d for the year.
Subject to adjustments, closing consideration payable to Mar-
athon Oil will be $140 million, which reflects the assumption
by RockRose of MOUK and MOWOS working capital and cash
equivalent balances of some $350 million as of Dec. 31, 2018.
The MOUK and MOWOS assets and teams in Aberdeen, Pe-
terhea, and offshore will transfer with MOUK and MOWOS to
RockRose upon the deal’s completion—expected in this year’s
second half with an effective date of Jan. 1.
Devon to shed assets, focus on US oil
Devon Energy Corp. plans by yearend to sell or spin off its
heavy oil properties in Canada and gas production in the Bar-
nett shale to focus on US oil. The company has hired advisors
for each group of assets to be separated. It will open data rooms
by this year’s second quarter.
In Canada, Devon in 2017 produced 131,000 boe/d net to its
interests (98% liquids) via steam-assisted gravity drainage in
the Athabasca region of Alberta and cold flow in Saskatchewan.
Its average 2017 net production from the Barnett shale of
North Texas was 153,000 boe/d, of which 27% was liquids.
The moves will help Devon meet a cost-cutting target of
at least $780 million/year by 2021. Concentrating on US oil,
Devon expects to achieve growth of 13-18% in 2019 with 10%
less upstream capital than in 2018, self-funded at an oil price of
$46/bbl if service and supply prices don’t increase.
The company’s core properties in the Delaware basin and
Eagle Ford play of Texas, STACK play in Oklahoma, and Pow-
der River basin of Wyoming produced an average 296,000
boe/d of oil and gas in the fourth quarter last year.
QEP reviews options after Williston deal falls through
QEP Resources Inc., Denver, has started a comprehensive re-
view of strategic alternatives that could result in a merger or
sale of the company or its assets and intends to engage in dis-
cussions with parties that have expressed interest, including
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 ICE BRENT / NYMEX LIGHT SWEET CRUDE US INDUSTRY SCOREBOARD — 3/4
$/bbl
67.00
65.00
63.00
4 wk. 4 wk. avg. Change, YTD YTD avg. Change,
61.00
Latest week 2/15 average year ago1 % average1 year ago1 %
59.00 Product supplied, 1,000 b/d
57.00
Motor gasoline 9,021 9,054 (0.4) 8,907 8,920 (0.1)
55.00
Distillate 4,195 4,139 1.4 4,225 4,143 2.0
53.00 Jet fuel 1,600 1,636 (2.2) 1,609 1,661 (3.1)
Feb. 20 Feb. 21 Feb. 22 Feb. 25 Feb. 26
Residual 253 309 (18.1) 266 285 (6.7)
Other products 5,553 5,508 0.8 5,725 5,660 1.1
TOTAL PRODUCT SUPPLIED 20,622 20,646 (0.1) 20,732 20,669 0.3
WTI CUSHING / BRENT SPOT Supply, 1,000 b/d
$/bbl Crude production 11,925 10,178 17.2 11,902 10,007 18.9
67.00 NGL production 4,576 4,033 13.5 4,581 4,007 14.3
65.00 Crude imports 6,990 7,808 (10.5) 7,318 7,852 (6.8)
63.00 Product imports 2,066 2,237 (7.6) 2,127 2,113 0.7
Other supply2 2,429 2,374 2.3 2,434 2,273 7.1
61.00
TOTAL SUPPLY 27,986 26,630 5.1 28,362 26,252 8.0
59.00 Net product imports (2,961) (2,508) — (2,825) (2,729) —
57.00
55.00 Refining, 1,000 b/d
53.00
Feb. 20 Feb. 21 Feb. 22 Feb. 25 Feb. 26 Crude runs to stills 16,144 15,673 3.0 16,630 16,282 2.1
Input to crude stills 16,400 16,619 (1.3) 16,909 16,639 1.6
% utilization 88.2 89.5 — 90.9 89.6 —

NYMEX NATURAL GAS / SPOT GAS - HENRY HUB Latest Previous Same week Change,
$/MMbtu
Latest week 2/15 week week1 Change year ago1 Change %
2.980 Stocks, 1,000 bbl
2.930 Crude oil 454,512 450,840 3,672 423,498 31,014 7.3
2.880 Motor gasoline 256,847 258,301 (1,454) 251,817 5,030 2.0
2.830 Distillate 138,683 140,200 (1,517) 137,985 698 0.5
2.780 Jet fuel–kerosine 43,365 42,113 1,252 43,068 297 0.7
2.730 Residual 29,411 30,305 (894) 32,056 (2,645) (8.3)
2.680 Stock cover (days)3 Change, % Change, %
2.630
Feb. 20 Feb. 21 Feb. 22 Feb. 25 Feb. 26
Crude 28.2 27.4 2.9 26.0 8.5
Motor gasoline 28.5 28.6 (0.3) 27.5 3.6
Distillate 33.1 32.5 1.8 33.6 (1.5)
ICE GAS OIL / NYMEX ULSD HEATING OIL2 Propane 31.1 34.7 (10.4) 25.6 21.5
¢/gal Futures prices4 2/22   Change Change Change,%
202.00
200.00
Light sweet crude ($/bbl) 56.81 53.88 2.93 62.48 (5.67) (9.1)
198.00 Natural gas, $/MMbtu 2.68 2.62 0.06 2.63 0.04 1.7
196.00
194.00 1
Based on revised figures. 2Includes other liquids, refinery processing gain, and unaccounted for crude oil. 3Stocks divided by aver-
192.00 age daily product supplied for the prior 4 weeks. 4Weekly average of daily closing futures prices.
190.00 Source: US Energy Information Administration, Wall Street Journal
188.00
Feb. 20 Feb. 21 Feb. 22 Feb. 25 Feb. 26

BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE
2,400
PROPANE - MT. BELVIEU / BUTANE - MT. BELVIEU 2,100
2,260
¢/gal 1,997
85.50 1,800
85.00
1,500
84.50
84.00 1,200
72.00
71.00 300 264
70.00 0
69.00 Jan. 18 Feb. 18 Mar. 18 Apr. 18 May 18 Jun. 18 Jul. 18 Aug. 18 Sept. 18 Oct. 18 Nov. 18 Dec. 18 Jan. 19
Feb. 20 Feb. 21 Feb. 22 Feb. 25 Feb. 26
Note: Monthly average count

BAKER HUGHES RIG COUNT: US / CANADA

NYMEX GASOLINE (RBOB)3/ NY SPOT GASOLINE4 1,100 1,047
¢/gal 978
1,000
166.00 900
164.00 800
162.00 700
160.00 600
158.00 400 306
156.00 300 212
154.00 200
152.00 100
Feb. 20 Feb. 21 Feb. 22 Feb. 25 Feb. 261 0
1Not 12/8/17 12/22/17 1/5/18 1/19/18 2/2/18 2/16/18 12/7/18 12/21/18 1/4/19 1/18/19 2/1/19 2/15/19
available 2Ultra-low sulfer diesel 3Reformulated gasoline blendstock for
12/15/17 12/29/17 1/12/18 1/26/18 2/9/18 2/23/18 12/14/18 12/28/18 1/11/19 1/25/19 2/8/19 2/22/19
oxygen blending 4Nonoxygenated regular unleaded
Note: End of week average count

8 Oil & Gas Journal | Mar. 4, 2019

190304OGJ006-011.indd 8 2/28/19 12:22 PM

 Elliott Management Corp. The hedge fund manager made an
unsolicited cash offer to buy QEP for $8.75/share in January.
Also, given the deterioration in commodity prices, QEP said
that it was unlikely to meet conditions to close the $1.7-bil-
lion deal to sell its Willison basin assets to Vantage Acquisi-
tion Operating Co. LLC and the parties agreed to terminate the
transaction (OGJ Online, Nov. 7, 2018). QEP will continue to
operate and develop the assets consisting of more than 100,000
net acres currently producing 46,000 boe/d (67% oil, 83% liq-
uids), including the company’s South Antelope and Fort Ber-
thold leaseholds.
As the firm has reduced its operational footprint over the
last year, QEP said it intends to reduce its general and adminis-
trative expense by about 45%, when comparing 2018 to 2020.
Netherlands becomes a net gas importer
The Netherlands became a net importer of natural gas last year
for the first time since the commissioning in 1963 of giant
Groningen gas field, production of which is being phased out
by the government. GasTerra, which markets Groningen gas
for NAM, the ExxonMobil-Shell joint venture that operates the
field, reported the shift in Dutch gas trade in a financial report.
GasTerra said NAM produced 20.1 billion cu m of gas from
Groningen in 2018, 1.5 billion cu m below a ceiling set by the
government, which began limiting output several years ago be-
cause of earthquakes (OGJ Online, Feb. 18, 2015). The govern-
ment last year called for the termination of Groningen output.
“Safety perception as well as actual safety can only be guar-
anteed for the near future in Groningen by fully eliminating
the source of the earthquake risk,” it said in a March 2018 an-
nouncement. It set an output cap of 12 billion cu m in 2022, to
be followed by a phaseout of Groningen production.
EXPLORATION & DEVELOPMENT Q U IC K TA K E S
ExxonMobil makes gas discovery offshore Cyprus
ExxonMobil Corp. announced a natural gas discovery offshore
Cyprus in the Eastern Mediterranean on Block 10. The Glau-
cus-1 well cut 436 ft of reservoir rock. Evaluation of the poten-
tial of Block 10 continues. The well was drilled to 13,780 ft in
6,769 ft of water. ExxonMobil said preliminary interpretation
of the well data indicates gas resources of 5-8 tcf although ad-
ditional analysis will determine resource potential.
Glaucus-1 was the second well drilled on Block 10. The first
well, Delphyne-1, did not encounter commercial quantities of hy-
drocarbons. Block 10 covers 635,554 acres. ExxonMobil Explo-
ration & Production Cyprus (Offshore) Ltd. operates the block
with 60% interest. Qatar Petroleum International Upstream
holds the remaining interest.
Official: Thai licensing round due in June
Thailand will open its 21st round of bidding for offshore oil
and gas licenses in June, according to Energy Minister Siri Ji-
rapongphan. The official said terms will be production-sharing
Oil & Gas Journal | Mar. 4, 20199
190304OGJ006-011.indd 9
with 25% ownership reserved for Thai state enterprises, the
Bangkok Post reported.
Jirapongphan spoke at the signing by PTTEP Energy Devel-
opment Co. Ltd. of PSCs covering Erawan and Bongkot natural
gas fields in the Gulf of Thailand.
Those contracts became available as concession expirations
approached for Erawan in 2022 and Bongkot in 2023 (OGJ On-
line, Dec. 14, 2018).
PTTEP is the current Bongkot operator and will be sole
stakeholder. It will replace a Chevron Corp. subsidiary as
Erawan operator with a 60% interest. Mubadala Petroleum
holds the remaining Erawan interest.
The Thai company has committed to holding production at
800 MMcfd at Erawan and 700 MMcfd at Bongkot.
The 21st licensing round had been scheduled in 2014 but
was delayed by an economic lull and political instability.
Thailand closed its 20th licensing round in 2008.
Contracts let for gas fields off Sarawak
Sarawak Shell Bhd. and Sapura Exploration & Production have
let contracts to McDermott for work related to the linked devel-
opment of three natural gas fields offshore Malaysia.
The Shell unit’s contract covers transportation and instal-
lation of jackets, topsides, and pipelines for Gorek field. The
Sapura contract is for the same work for Larak and Bakong
fields. McDermott also will fabricate risers and spools under
both contracts.
The fields are on the 4,400-sq-km SK408 production-shar-
ing contract area in the Central Luconia Gas Province in shal-
low water off Sarawak. The area is 130 km northwest of Miri.
Each field will have a wellhead platform tied back to an ex-
isting processing facility.
Shell, with a 30% interest in the PSC, is development and
production operator for Gorek field. Sapura, with 40%, is devel-
opment and production operator for Larak and Bakong fields.
Petronas Carigali holds the remaining SK408 interest.
Sapura discovered the fields in Late Miocene carbonate
build-ups during a drilling campaign that began in 2014.
DRILLING & PRODUCTION Q U IC K TA K E S
Woodside-led group lets Senegal SNE field contract
The Woodside Energy Ltd.-operated development phase of the
SNE oil field offshore Senegal has let the front-end engineering
and design contract for the floating production, storage, and
offloading facility to MODEC International Inc.
This follows award of the subsea FEED scope to Subsea In-
tegration Alliance last December. Woodside said that following
FEED and subject to necessary government and joint venture
approvals, it anticipated that further contracts will be awarded
to MODEC to supply, charter, and operate the FPSO facility.
CEO Peter Coleman said securing an FPSO facility is a huge
step for the joint venture and will allow the project team to
complete the technical and commercial activities required to
2/28/19 12:22 PM
 support a final investment decision, targeted for midyear.
The development concept is a stand-alone FPSO facility
with 23 subsea wells comprising 11 producers, 10 water injec-
tors, and 2 gas injectors plus supporting subsea infrastructure.
The FPSO is expected to have a capacity of about 100,000
b/d to be brought on stream in 2022.
The FPSO will be designed to allow for the integration of sub-
sequent SNE development phases, including gas export to shore
and future subsea tie-backs from other reservoirs and fields.
Phase 1 of the SNE development is targeting an estimated
230 million bbl of oil reserves.
Equinor lets contract to boost Vigdis field output
Norway’s Equinor has let a $13-million engineering, procure-
ment, construction, and installation contract to Wood for the
boosting station to increase production from Vigdis subsea field
in the Tampen area on Block 34/7 in the Norwegian North Sea.
Under the contract, Wood will provide topside modifica-
tions to enable the tie-in of subsea equipment to the Snorre A
and B offshore platforms, which process oil from Vigdis.
This contract follows Wood’s completion of the front-end en-
gineering design and concept study for the asset. Wood currently
provides maintenance, modification, and operations services on
Snorre A and B under a framework agreement with Equinor.
In late 2018 Equinor and its partners reported plans to in-
vest some 1.4 billion kroner in the boosting station for the field,
which has been producing oil through Snorre field for more
than 20 years (OGJ Online, Dec. 5, 2018). Equinor expects to
bring the station online in first-quarter 2021.
On completion of the project, production from Vigdis field
will be increased by almost 11 million bbl.
Vigdis field came on stream in 1997 and it was estimated
at the time that the field would produce 200 million bbl of oil.
The field has now produced 394 million bbl and recoverable
resources have been increased to 455 million bbl of oil.
Neptune plans Gjoa tie-back developments
Neptune Energy and partners plan to develop in parallel Duva oil
and gas field and an extension designated P1 of Gjoa oil and gas
field in the Norwegian North Sea with subsea completions tied
back to the Gjoa platform on PL153 (OGJ Online, Oct. 2, 2019).
Neptune Energy Norge operates both fields, where water
depth is about 360 m.
It seeks to develop Gjoa P1 under the plan for development
and operation (PDO) covering the Gjoa license, for which it is
operator, as a northern extension. Neptune said in a news release
it plans to install a subsea template but didn’t specify drilling. An
image with the news release indicates two oil and one gas well.
Neptune estimates Gjoa P1 recoverable resources at 32 mil-
lion boe and expects the extension to produce at a maximum
rate of 24,000 boe/d.
Neptune has applied for a PDO for Duva field, formerly
Cara, on PL636, 6 km northeast of Gjoa field and 12 km north-
east of the Gjoa platform.
10 Oil & Gas Journal | Mar. 4, 2019
190304OGJ006-011.indd 10
It plans to install a flour-slot subsea template and drill two
oil production wells, one gas producer, and possibly another
oil producer.
Duva is to produce at a peak rate of 30,000 boe/d from re-
coverable resources of 88 million boe.
Algeria’s Touat gas project on track for exports
Neptune Energy Group, London, and Algeria’s Sonatrach have
started natural gas production as part of the commissioning
of the partnership’s Touat project in the Sbaa basin, 1,500 km
southwest of Algiers, near Adrar.
The development, which will produce about 450 MMcfd of
gas at plateau, remains on track to begin gas export production
by the end of this year’s first half, Neptune Energy said.
Touat comprises eight gas fields and a gas processing plant.
Project development involved drilling 18 development
wells, along with building a road, aircraft runway, living quar-
ters, gathering network, and gas treatment complex, as well as
installation of a connection to the main GR5 pipeline, built by
Sonatrach, to collect the gas from southwest Algeria to bring to
Hassi R’Mel, about 800 km north.
Aramco lets contracts for Marjan oil field work
Saudi Aramco has let two contracts to McDermott International
Inc. for engineering, procurement, construction, and installa-
tion services for Marjan oil field offshore Saudi Arabia. Aramco
is expanding production capacity of Marjan field, now 500,000
b/d, by 300,000 b/d.
One contract—valued at $50-100 million—is for services
for the upgrade of two existing platforms related to the installa-
tion of associated equipment for electrical submersible pumps
and space for a future high integrity pressure protection sys-
tem, subsea composite cable lay, and topside cable tie-ins.
The project is scheduled to be fully executed from McDer-
mott’s Al Khobar office and Dammam fabrication facility.
A second contract—valued at $500-700 million—includes
the design, procurement, fabrication, and installation, testing
and precommissioning of the TP-10 tie-in platform, six gas lift
topside modules, and associated pipeline and subsea cables.
The total weight of the structures will exceed 27,000 tonnes
and pipelines totaling more than 65 km.
PROCESSING Q U IC K TA K E S
IOC inks term contract for US crude supplies
Indian Oil Corp. Ltd. has finalized a term contract to import as
much as 3 million tonnes/year of crude oil from the US as part
of the operator’s strategy to diversify its term crude sources.
IOC finalized the contract—valued at $1.5 billion—on Feb.
15, the company said. This is the first term contract for US crude
grades secured by any Indian state-run refining company.
IOC did not confirm a duration of the contract or the pro-
ducers from which it has secured the term shipments.
With an overall group refining capacity of more than 1.6
2/28/19 12:22 PM
 million b/d, IOC controls 11 of India’s 23 refineries to account
for a 35% share of total national refining capacity.
ADNOC Refining lets contract for Ruwais refinery
Abu Dhabi National Oil Co. (ADNOC) subsidiary ADNOC Re-
fining (formerly Takreer) has let a contract to John Wood Group
PLC to deliver preliminary front-end engineering and design
(pre-FEED) for a refinery to be built in Ruwais, in the western
region of Abu Dhabi (OGJ Online, May 14, 2018).
With a proposed nameplate capacity of 600,000 b/d, the
new refinery will be designed to have full-conversion capability
as well as the ability to be integrated with existing petrochemi-
cal infrastructure in Ruwais, Wood said.
As part of the contract—valued at $8 million—Wood will
also provide services, including licensor selection, site master-
plan development, scope of work for the FEED phase, as well as
a schedule and cost estimate for the engineering, procurement,
and construction phase.
Wood said it expects to complete the pre-FEED phase by
yearend. Once completed, the new refining and petrochemicals
complex will become the world’s largest.
The latest contract follows ADNOC’s May 2018 announce-
ment that it would expand refining capacity at Ruwais, now
a combined 817,000 b/d, with the addition of a 600,000-b/d
refinery and to expand petrochemical capacity at the complex
as part of its broader $45-billion program to become a global
downstream leader under a new combined model of strategic
partnerships and investments (OGJ Online, Jan. 28, 2019).
A cornerstone of the downstream investment plan is expan-
sion of the company’s existing refining capacity by more than
65% to 1.5 million b/d by 2025, ADNOC said.
Aramco, Total form Saudi retail venture
Saudi Aramco and Total SA have signed an agreement to form
a 50-50 joint venture that will invest $1 billion to develop a
network of fuel and retail services in Saudi Arabia.
Total will be the first major international oil company to
invest in the kingdom’s fuel retail network.
The companies also agreed to acquire Tas’helat Marketing
Co. and Sahel Transport Co., owners of 270 service stations and
a fuel tanker fleet.
TRANSPORTATION Q U IC K TA K E S
NEB recommends approval of Trans-Mountain pipeline
Canada’s National Energy Board recommended the approval
of the Trans-Mountain Pipeline expansion project as it de-
livered its reconsideration report with 156 conditions and
16 new recommendations to the federal government on Feb.
22. NEB’s recommended approval came despite the board’s
conclusion that project-related marine shipping would likely
cause adverse environmental effects on the southern resident
killer whale and on indigenous cultural uses associated with
the animal. It also found that greenhouse gas emissions from
Oil & Gas Journal | Mar. 4, 201911
190304OGJ006-011.indd 11
project-related marine vessels would be substantial.
NEB carried out the reconsideration and met a 155-day dead-
line after a federal appeals court cancelled the crude oil and prod-
ucts pipeline project’s 2016 authorization last year (OGJ Online,
Aug. 31, 2018). The proposed $7.4-billion (Can.) crude oil and
products pipeline would be near one that was built in 1953 and
increase capacity to 890,000 b/d from 300,000 b/d.
While a credible worst-case spill from the project or a relat-
ed marine vessel is not likely, environmental effects would be
weighty if one occurred, the report said. “While these effects
weighed heavily in the NEB’s consideration of project-related
marine shipping, the NEB recommends that the government of
Canada find that they can be justified in the circumstances, in
light of the considerable benefits of the project and measures to
minimize the effects,” it said.
These benefits include increased access to diverse markets
for Canadian oil; jobs created across Canada; the development
of capacity of local and indigenous individuals, communities,
and businesses; direct spending on pipeline materials in Cana-
da; and considerable revenues to various levels of government.
ADNOC completes pipeline system investment deal
Abu Dhabi National Oil Co. (ADNOC) entered into a landmark
multibillion-dollar midstream pipeline infrastructure partner-
ship with institutional investors KKR and BlackRock. Newly
formed ADNOC Oil Pipelines will lease ADNOC’s interest in
18 pipelines transporting stabilized crude oil and condensate
across ADNOC’s offshore and onshore upstream concessions
for a 23-year period. The entity will, in turn, receive a tariff
payable by ADNOC, for its share of volume of crude and con-
densate that flows through the pipelines, backed by minimum
volume commitments.
The 18 pipelines leased by ADNOC Oil Pipelines have a to-
tal length of more than 750 km and a total aggregate capacity
of about 13 million b/d. These assets move most of Abu Dhabi’s
crude oil production to sites for either conversion to other prod-
ucts or shipment to global energy markets. The pipelines have
underlying long-term minimum volume commitments and are
supported by stable crude oil production from ADNOC On-
shore and ADNOC Offshore with global international oil com-
panies as joint-venture partners, each with an average remain-
ing concession life greater than 35 years.
ADNOC plans oil storage in Fujairah
Abu Dhabi National Oil Co. plans to build in Fujairah what
it calls “the world’s largest single underground project ever
awarded for oil storage.” It let an engineering, procurement, and
construction contract to SK Engineering & Construction Co.
Ltd., Seoul, for three underground storage caverns with capaci-
ties of 14 million bbl each.
ADNOC said the $1.21-billion contract is “the largest for a
single project award for underground crude oil storage in the
world.”
Completion is due in 2022.
2/28/19 12:22 PM
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conference/19rptc/ Oil & Gas Conference Lagos, web site: https:// apac-congress/ 29.
spe-russian-petroleum- & Exhibition, Bali, web Abu Dhabi International oilandgascouncil.com/ Society of Petroleum
technology-conference- site: https://www.spe. Petroleum Exhibition event-events/nigeria- Oil & Gas Council Asia Engineers (SPE) Latin
moscow.html 22-24. org/events/en/2019/ & Conference (ADI- assembly/ 25. Pacific Energy Assem- American & Caribbean
conference/19apog/ PEC), Abu Dhabi, web bly, Singapore, web site: Petroleum Engineering
International Associa- asia-pacific-oil-and- site: https://www.spe. DECEMBER 2019 https://oilandgascouncil. Conference (LACP),
tion of Drilling Contrac- gas-conference-and- org/events/en/2019/ com/event-events/ Bogota, web site:
tors (IADC) Advanced exhibition 29-31. conference/19adip/ World Energy Capital asia-pacific-energy- https://www.spe.
Rig Technology 2019 abu-dhabi-international- Assembly, London, assembly/ 30-31. org/events/en/2019/
Conference & Exhibi- Offshore Technology petroleum-exhibition- web site: https://oiland- conference/19lacp/
tion, Amsterdam, web Conference Brazil (OTC and-conference-adi- gascouncil.com/event- MARCH 2020 latin-american-and-ca-
site: iadc.org/event/ Brasil 2019), Rio de pec-2019.html 11-14. events/world-energy- ribbean-petroleum-en-
rig-technology-2019 Janeiro, web site: www. capital-assembly/ 2-3. SPE EOR Conference gineering-conference.
22-23. otcnet.org/Brasil 29-31. RefComm Santiago, at OGWA, Muscat, web html 17-19.
Santiago, web site: International Associa- site: www.ogwaexpo.
Asia Petroleum Geosci- NOVEMBER 2019 https://refiningcom- tion of Drilling Contrac- com/index.php 8-11. Offshore Technology
ence Conference & munity.com/refcomm- tors (IADC) Drilling Conference Asia (OTC
Exhibition (APGCE), International Associa- santiago-2019 18-21. Middle East 2019 Society of Petroleum Asia), Kuala Lumpur,
Kuala Lumpur, web tion of Drilling Contrac- Conference & Exhibi- Engineers International web site: 2020.otcasia.
site: events.eage.org/ tors (IADC) Annual Oil & Gas Council North tion, Abu Dhabi, web Conference & Exhibi- org/welcome 24-27.
en/2019/APGCE%20 General Meeting, Austin, America Assembly & site: iadc.org/event/ tion on Health, Safety,
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 JOURNALLY SPEAKING
UKCS volcanoes questioned
Researchers said recent study results suggest the
possibility of oil and natural gas discoveries in a
7,000-sq km area of the UK North Sea because of
“phantom” volcanoes.
Geologists said a large swathe of the UK Con-
tinental Shelf was unexplored for more than 50
years because of beliefs about the existence of
volcanoes based upon what researchers now call
“incorrect geological models.”
Scientists from the University of Aberdeen led
PAULA DITTRICK
a study resulting in an article entitled “Phantom
Upstream Technology volcanoes discovery signals new hope for North
Editor Sea oil and gas exploration” that was published in
November 2018 in the Journal of the Geological
Society.
Previously, scientists believed the Middle Ju-
rassic Rattray volcanic province off northwest
Scotland contained three volcanoes that erupted
165 million years ago. The notion that the area
contained empty magma chambers ruled out pos-
sible oil and gas discoveries.
The volcanoes were believed to have been
formed millions of years ago during seismic ac-
tivity under the North Sea that almost created an
ocean between Britain and Europe—a rifting epi-
sode geologists have described as a failed ‘Jurassic
Brexit’ attempt.
Assumption overturned
Nick Schofield and Ailsa Quirie from the University
of Aberdeen along with colleagues from Heriot-Watt
and the University of Adelaide have questioned this
assumption.
Schofield said reinterpretation using 3D seis-
mic data and well data shows no volcanic centers
are present, and the Rattray volcanics were instead
sourced in fissure eruptions from linear vents.
Norway’s Petroleum Geo-Services provided the
3D seismic.
The fissures run parallel to the Highland
Boundary Fault, which intersects the Rattray vol-
canics at the Buchan-Glenn Fissure System.
16 Oil & Gas Journal | Mar. 4, 2019
190304OGJ016-017.indd 16
“What we found has completely overturned
decades of accepted knowledge,” Scholfield said.
“Our study has shown these volcanoes never ex-
isted at all. Essentially this gives us back a huge
amount of gross rock volume that we never knew
existed.”
Schofield added: “There is a huge area under
there that hasn’t been looked at in detail for a long
time” because of an incorrect geological model.
Meanwhile, discoveries still are being made in the
North Sea, such as the Central Graben and Viking
Graben areas.
UKCS discoveries
Wood Mackenzie Ltd. said the UK Central Graben
basin is in less than 100 m of water. The Mesozoic
high-pressure, high-temperature play remains of
interest following the large Culzean discovery in
2008, which is expected on stream late this year.
In January, CNOOC Petroleum Europe Ltd.
discovered natural gas and condensate pay in the
Glengorm prospect in the Central Graben area.
The CNOOC subsidiary drilled an exploration
well to 5,056 m TD in 86 m of water, encounter-
ing net gas and condensate pay with a total net
thickness of 37 m in a Upper Jurassic reservoir.
Recoverable resources are estimated at about
250 million boe, said partner Total E&P UK North
Sea Ltd.
Further drilling and testing will be carried out
to appraise resources and the productivity of the
reservoir, Total said.
The discovery was in the P2215 license, previ-
ously part of the Maersk Oil portfolio, and close
to existing Total-operated infrastructures offering
tie-back possibilities, such as the Elgin-Franklin
platform and the Culzean project.
CNOOC is operator with 50% working inter-
est. Partners include Total and Euroil, a wholly
owned subsidiary of Edison E&P SPA, each with
25% working interest.
2/28/19 12:22 PM
 DO
NOT
CLOSE
this magazine until
you’ve seen it all!
Published every month in print and online, check out
the OGJ Market Connection for the latest in product
and service offerings!

• EMPLOYMENT OPPORTUNITIES
Want to start a career in the oilfield? Use Market Connection to find
available jobs to get your foot in the door.

• EQUIPMENT
Looking to purchase equipment? This section connects buyers and sellers
with generators, tanks, gauging systems, refining equipment, etc.
You can find just about anything here.

• PRODUCTS
View the latest and greatest new products and services and expand your
knowledge of what’s available in the marketplace!

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Be the frst to fnd out about land leases up for bid and potential partnerships.
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the latest opportunities with Market Connection!

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Turn to the back of this issue to be hired, acquired, buy or sell in the Market Connection.
Also be sure to visit us online for weekly updates www.ogj.com/market-connection

190304OGJ016-017.indd 17
1401OGJmarFP_petroRM_140131_1 1 2/28/19
2/3/14 12:22
11:16 PM
AM
 EDITORIAL
FERC’s breakthrough
Breakthrough came to more than a queue of LNG
export projects when the US Federal Energy Regu-
latory Commission approved Venture Global LNG’s
Calcasieu Pass venture on Feb. 21. Compromise
enabling this welcome move shows hope for prog-
ress away from the all-or-nothing approach that fre-
quently mires regulation addressing climate change.
Approval of a 12 million-tonne/year gas lique-
faction project by a commission split 2-2 over a
crucial topic of regulation is important by itself.
Twelve other LNG export plants await FERC ap-
proval, and five more are in prefiling stages. Not
all those ventures will advance to construction.
But LNG is a rapidly growing export commodity
as gas production increases from unconventional
resources. Liquefaction projects are vital to re-
alization of this economic promise and must be
ready when the market needs them.
A ‘new approach’
Just as important as buildout of export capacity,
though, is the way commissioners eased political
deadlock. FERC “applied a new approach for con-
sideration of direct greenhouse gas [GHG] emis-
sions from LNG facilities,” reported Chairman Neil
Chatterjee in a press statement. “I anticipate we’ll
be able to use the framework developed in this or-
der to evaluate the other LNG certificates that the
commission is considering.”
For Calcasieu Pass, the commission assessed di-
rect emissions of GHGs—3.9 million tpy of carbon
dioxide-equivalent, according to the environmen-
tal impact statement—as a share of total US emis-
sions in 2016—0.07%. Under a 2016 court ruling,
FERC doesn’t review indirect GHG emissions up-
stream and downstream of projects. The Depart-
ment of Energy accounts for indirect emissions in
its public-interest decisions about LNG exports,
which precede FERC review of project facilities.
The new approach cited by Chatterjee didn’t
fully satisfy Commissioner Cheryl A. LaFleur, a
Democrat, but enabled her to join the commission’s
Republicans, Chatterjee and Bernard L. McNamee,
in support of the project. The other Democratic
commissioner, Richard Glick, dissented. FERC has
been politically balanced since the Jan. 3 death of
former Chairman Kevin McIntyre, a Republican.
Glick disagreed with FERC’s finding that Cal-
18 Oil & Gas Journal | Mar. 4, 2019
190304OGJ018-019.indd 18
casieu LNG’s fractional contribution to national
GHG emissions was environmentally insignifi-
cant. “The result is that climate change plays no
meaningful role in the commission’s public-inter-
est determination,” he wrote.
His conclusion suffers from overstatement but
nevertheless identifies a genuine problem. FERC
has no framework within which to distinguish be-
tween environmentally significant and insignifi-
cant levels of GHG emissions from individual proj-
ects. This indicates no procedural lapse. It instead
reflects the core vexation of climate regulation and
the futility of applying it project by project.
Climate change is a global phenomenon. No one
project can affect it much. Activists therefore try to
block as many CO2-emitting activities as they can,
hoping to make a collective difference. Yet, even if
they were to succeed in foreclosing projects that
would have accounted for, say, one third of global
GHG emissions, what would the effect be on glob-
ally averaged temperature? The answer depends
on equilibrium climate sensitivity, the long-term
temperature response to a doubling of CO2 in the
atmosphere. About that, the generally accepted
scientific estimate varies by a factor of three. With
such a wide range of uncertainty, warming—the
core concern of climate change—from incremental
CO2 loading of the atmosphere under reasonable
assumptions might or might not be significant. It
thus might threaten human welfare, or it might not.
Skirting myopia
Glick and LaFleur wish for some way to condense
these perplexities into manageable quanta conve-
nient for regulation. Both extol the social cost of
carbon (SCC), which estimates costs attributable to
CO2 emissions. But the SCC is arbitrary and subject
to political manipulation. Given the complexity of
climate phenomena and uncertainty about the CO2-
temperature relationship, it is, at best, guesswork.
Regulation of GHGs is prudent and necessary.
To be effective, however, it must apply at meaning-
ful scale, avoid unreasonable precision in perfor-
mance metrics, and work within broader environ-
mental programs with clearer benefits in relation
to cost. By skirting project-level climate myopia,
the FERC decision moves constructively in that
direction.
2/28/19 12:22 PM
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190304OGJ018-019.indd
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 GENERAL INTEREST
Growth of US upstream
spending to decelerate in 2019
Conglin Xu
Senior Editor-Economics
Upstream oil and gas capital expenditures in US
this year will increase only 2%, following an 23% SPECIAL
increase last year, as independent producers focus REPORT
on capital discipline and cashflow neutrality.
Total spending for exploration, drilling, and pro-
duction will total almost $152 billion, OGJ forecasts. Firms’
spending plans show a divergence between US independents
and international oil companies (IOC). Combined spending
of the US independent group could drop 6-8% from a year
ago, while IOCs will expand their activities.
In 2018, upstream spending surged 23% compared with
an original guidance of 9% because of increased activity and
higher costs as oil prices held firm for most of the year.
Capital expenditures on the other categories—including
refining, petrochemicals, and pipelines—continue to in-
crease this year.
Meanwhile, E&P capital spending in Canada will decline
this year, partly because of production curtailments an-
nounced by the Albertan government. However, spending
for oil sands development there will climb.
International upstream spending outside North America
is expected to increase. According to the latest Barclays E&P
survey, growth will reach at least 8% from almost every in-
ternational region, with the exception being Russia and the
former Soviet Union. International spending is forecast to
reach $286 billion in 2019.
All dollar amounts reported are in US dollars unless oth-
erwise indicated.
US upstream spending
The growth of US independents takes a back seat. Consis-
tent with the commitment to capital discipline and in re-
sponse to recent volatile commodity price trends, most US
E&P companies have announced reductions in rig and frac
spread counts and intend to reduce 2019 capital spending.
Most companies made their 2019 budgets assuming a
West Texas Intermediate oil price of $50-55/bbl and a Henry
Hub natural gas price of $3/MMbtu.
Combined spending of US independents could decline
6-8% this year, based on estimates from their budget releas-
20
190304OGJ020-030.indd 20
es. Despite the overall capex decline, producers are
forecasting strong production gains, as they will
decrease the inventory of drilled but uncompleted
(DUC) wells.
Meanwhile, IOC activities will expand rapidly
this year. IOCs have been building out supply chain and in-
frastructure to support large, multiwell pad developments in
the Permian basin. IOCs’ spending plans are usually with
lower commodity price sensitivity.
According to preliminary company data and OGJ esti-
mates, Chevron Corp., ExxonMobil Corp., ConocoPhillips,
Royal Dutch Shell PLC, and BP PLC will all increase their US
onshore capital spending. BP just completed its $10.5-billion
purchase of BHP Billiton’s US onshore assets last October.
Bonus payments related to Outer Continental Shelf lease
sales will rise slightly this year. The US Bureau of Ocean En-
ergy Management has scheduled two lease sales, Nos. 252 and
253, to take place during 2019. OGJ forecasts that such pay-
ments will total $310 million, up from $303 million last year.
During 2018, BOEM held two lease sales. The first one,
No. 250, resulted in $124.76 million in bonus payments. The
other, No. 251, produced $178 million in bonus payments.
US firms’ spending plans
ExxonMobil expects 2019 capex of $30 billion, up from
$25.9 billion in 2018 and $23 billion in 2017. ExxonMobil
spent $7.67 billion on US upstream in 2018, up from only
$3.7 billion for such outlays in 2017. Key drivers of upstream
growth in the US this year are in the Permian, where the
company has trebled the size of its resource since 2017.
Chevron has budgeted $20 billion for capital and explor-
atory expenditures for 2019, with $17.3 billion earmarked
for upstream spending. Upstream expenditures were $17.6
billion for 2018 and $16.4 billion for 2017, respectively.
Despite a lower total upstream spending, Chevron’s up-
stream capital outlays on projects in the US will rise to $7.6
billion this year from $7.1 billion last year and $5.1 billion
in 2017. Specifically, upstream spending for the Permian is
budgeted at $3.6 billion. About $1.6 billion is allocated to
other shale and tight investments.
Oil & Gas Journal | Mar. 4, 2019
2/28/19 12:22 PM
 ConocoPhillips anticipates capital WHERE FUNDS WILL GO FOR US PROJECTS Table 1
spending of $6.1 billion in 2019, which 2019 2019-2018 2018 2018-2017 2017
is flat with the expected full-year 2018 million $ change, % million $ change, % million $

capital expenditures excluding acqui- Exploration-production

Drilling-exploration 127,969 2.0 125,460 23.0 102,000
sition costs. The company’s full-year Production 24,314 2.0 23,837 23.0 19,380
OCS lease bonus 310 2.3 303 150.4 121
2019 production guidance is 1.3 mil- –––––––– ––––– –––––––– ––––– ––––––
lion boe/d to 1.35 million boe/d, up Subtotal 152,593 2.0 149,600 23.1 121,501

from $1.26 million boe/d last year. Other

Refining and Marketing 14,820 3.0 14,388 9.0 13,200
This represents the first production Petrochemicals 10,101 7.5 9,396 8.0 8,700
gain since 2015. Crude and products pipelines 26,200 4.8 25,000 4.4 23,941
Natural gas pipelines 24,000 28.0 18,750 144 7,685
About $3.1 billion, or 51%, is allo- Other transportation 5,160 20.0 4,300 19.4 3,600
Miscellaneous 3,938 5.0 3,750 25.0 3,000
cated to the Lower 48, roughly flat to ––––––– ––––– ––––––– ––––– –––––––
Subtotal 84,218 11.4 75,584 25.7 60,126
2018 spending. About $1.2 billion, or –––––––– ––––– –––––––– ––––– –––––––
20%, is allocated to Alaska compared TOTAL 236,811 5.2 225,184 24.0 181,627

with $900 million in 2018. Capital

expenditures in Canada also will in-
crease to $500 million from $300 mil- CANADIAN SPENDING PLANS Table 2
lion last year, reflecting ongoing ac- 2019 2018 2017
tivity in the Montney unconventional million $ 2019-18 million $ 2018-17 million $
(Can.) change, % (Can.) change, % (Can.)
program and Surmont upgrades.
Exploration-production
Antero Resources Corp. is trim- Drilling-exploration 19,630 -1.5 19,929 11.0 17,954
ming its drilling and completion bud- Production 11,763 -1.5 11,942 11.0 10,759
––––––– –––– –––––– –––– ––––––
get to $1.2 billion in 2019 from $1.5 Subtotal 31,393 -1.5 31,871 11.0 28,714
billion last year. The company plans Oil sands* 12,969 8.0 12,009 -13.0 13,803
to operate an average of 5 drilling rigs Other
and 4 completion crews, down 1 to 2 Refining and Marketing 3,270 2.5 3,190 10.0 2,900
Petrochemicals 1,590 60.0 994 1.4 980
crews from 2018. Antero is expecting Pipelines 7,000 48.1 4,725 5.0 4,500
Other transportation 618 6.0 583 6.0 550
to increase production by 18%. Miscellaneous 600 9.1 550 5.8 520
Apache Corp. is slashing spending –––––– ––––– –––––– ––––– ––––––
Subtotal 13,078 30.2 10,042 6.3 9,450
by 22% to $2.4 billion, with 75% al- –––––– ––––– ––––––– ––––– ––––––
TOTAL 57,440 6.5 53,921.8 3.8 51,967
located to its Permian basin assets. It
*In situ, mining, and upgrading.
still expects 6-10% production growth
after adjusting for divestitures.
Anadarko Petroleum Corp. expects
full-year capital investments ranging
$4.3-4.7 billion (excluding WES), which represents a 9% $9.5-billion acquisition of RSP Permian last July.
decrease relative to its 2018 program and still delivers 10% Devon Energy Corp. reported a plan to sell its Barnett
oil growth year over year. Specifically, 70% of investments shale and Canadian oil assets, which represents more than
are directed towards US onshore assets, mainly in the Dela- 40% of its fourth-quarter 2018 production. Devon stated
ware and DJ basins. While spending in the Gulf of Mexico that its upstream capital spending this year will range $1.8-
is lower than in 2018, the number of wells and production 2 billion, with the midpoint about 10% less than in 2018.
will be similar. Devon expects to achieve oil production growth of 13-18%
Continental Resources Inc.’s capital expenditures budget in 2019.
for 2019 is $2.6 billion compared with $2.8 billion spent in Diamondback Energy Inc. plans capital expenditures in
2018, with the majority of 2019 drilling and completion bud- 2019 to reach $2.7-3 billion, including $2.3-2.55 billion for
get focusing on oil-weighted areas in the Bakken and SCOOP. drilling and completion. During 2018, capital expenditures
Under the current commodity price environment, planned for drilling, completing, and equipping wells were $1.4 bil-
capital expenditures for 2019 are expected to be funded en- lion.
tirely from operating cash flows. Gas-weighted EQT Corp., embroiled in a spat with Rice
Chesapeake Energy Corp. plans to reduce its 2019 capital Energy Inc. founders, is slashing outlays from $2.7 billion
expenditures by lowering its rig count by 20%, expecting to last year to $1.9 billion this year to reduce leverage and re-
average 14 rigs vs. a current rig count of 18. turn additional free cashflow to shareholders. About 80% of
Concho Resources Inc. is expecting an increase its capi- its capital spending will be deployed in the Marcellus shale,
tal spending during 2019 to $2.9 billion after closing its with the balance being invested in the Utica shale.

Oil & Gas Journal | Mar. 4, 2019 21

190304OGJ020-030.indd 21 2/28/19 12:22 PM

 GENERAL INTEREST
EOG Resources Inc.’s exploration and development ex-
penditures for 2019 are expected to range $6.1-6.5 billion
compared with $6.2 billion in 2018. EOG expects to increase
US crude oil production by 12-16%, fund capital investment,
and pay the dividend with net cash from operating activities
in 2019 at $50/bbl oil.
EOG expects to complete about 740 net wells in 2019
compared with 763 net wells in 2018. Activity will remain
focused in EOG’s highest rate-of-return oil assets in the Del-
aware basin, Eagle Ford, Rockies, Woodford, and Bakken.
Hess Corp. is expected to spend $2.9 billion,
about 40% more than in 2018, due to higher spend-
ing in the Bakken and Guyana. About $1.4 billion
will be used to fund an increase to 6 rigs from an
average of 4.8 rigs in 2018, and the shift to higher
intensity plug and perforated wells in the Bakken.
The company expects to drill about 170 new
wells and to bring online 160 new wells in 2019.
Marathon Oil Corp.’s 2019 capital budget totals
$2.6 billion, down slightly from 2018. More than
95% of its $2.4-billion development capital budget
will be allocated to the four US resource plays: Eagle Ford
and Bakken (60%) and Oklahoma and the Northern Del-
aware (40%). Marathon Oil expects oil growth of 10% in
2019.
Occidental Petroleum Corp. announced a 2019 capital
program of $4.5 billion compared with 2018 spending of $5
billion. Upstream spending in the Permian will account for
$3.1 billion, down from $3.3 billion spent last year.
US refining, petrochemical outlays
Given their access to low-cost natural gas and price-advan-
taged crudes, US refiners still face a favorable business envi- access to cheaper and more abundant feedstocks and energy.
ronment. Distillate demand growth outpaces gasoline, driv-
en by transportation and industrial sectors and the impact
US FIRMS’ CAPITAL SPENDING, 2017-2019
8,000
7,000
6,000
5,000
$ million
4,000
3,000
2,000
1,000
0 According to OGJ’s most recent
Chevron*
COP
Anadarko
Oxy
Pioneer
*Only US upstream spending
Source: Preliminary company data available, OGJ analysis
22
190304OGJ020-030.indd 22
from the International Maritime Organization’s enforcement
of a 0.5% global sulfur cap on fuel content from Jan. 1, 2020,
lowering it from the current 3.5% limit.
OGJ projects that capital spending at US refining and mar-
keting this year will increase 3% to $15.5 billion from 2018
spending of $15 billion. The growth in investments focuses
on upgrading capabilities, yield flexibility, and conversion ca-
pacity.
PBF Energy will spend $625-675 million in net capital
expenditures during 2019 for facility improvements and
maintenance.
Marathon Petroleum Corp. spent $1 billion and
$832 million on its refining and marketing busi-
ness in 2018 and 2017, respectively. The 2018
spending included part of Andeavor’s results since
October. In 2019, Marathon Petroleum’s key proj-
SPECIAL ects include increasing Garyville coking capacity
REPORT by 50%, Galveston Bay STAR Program, and others.
Phillips 66’s capital budget, excluding Phillips
66 Partners, is $2.3 billion this year. Phillips 66
plans $923 million of capital spending in refin-
ing, with $512 million for reliability, safety, and environ-
mental projects. Refining growth capital of $411 million is
for high-return projects to enhance the yield of higher-value
products, including an upgrade of the fluid catalytic crack-
ing unit at the Sweeny refinery, as well as other low-capital,
quick-payout projects.
Valero Energy Corp. expects to invest about $2.5 bil-
lion of capital in both 2019 and 2020, of which 60% is for
sustaining the business and 40% is for growth projects. In
2018, Valero’s capital investments totaled $2.7 billion.
US petrochemical manufacturers remain advantaged with
Phillips 66’s capital contributions to Chevron Phillips
Chemical Co. will rise to $572 million from $339 million
a year ago.
Since 2010, 333 chemical indus-
try projects cumulatively valued at
more than $200 billion have been an-
nounced, with 53% of the investments
2019
2018 completed or under construction and
2017 41% in the planning phase, according
to The American Chemistry Council.
US pipelines
Many pipeline construction projects
are under way in the US to aid in de-
bottlenecking oil and gas from the
Permian basin and other plays.
Concho
Hess
Diamondback
Continental
Marathon Oil
Noble
Apache
Devon
Antero
EQT
Parsley
Cimarex
Murphy
WPX
SWN
SM
CNX
PDCE
Cabot
QEP
Worldwide Pipeline Construction re-
port, plans call for a total of 2,571
miles of gas pipelines to be constructed
in the US in 2019, mostly larger than
Oil & Gas Journal | Mar. 4, 2019
2/28/19 12:22 PM
 GENERAL INTEREST

32 in. (OGJ, Feb. 4, 2019, p. 48). In addition, plans call for
the construction of 3,763 miles of crude and product pipe-
lines in the US this year. Many of these lines will be 22-30
in.
The US Federal Energy Regulatory Commission’s annual
report of oil pipeline companies showed that investment in
US oil pipelines totaled $23.9 billion in 2017 and $23.1 bil-
lion in 2016.
Given the strong boom in pipeline constructions, OGJ
forecasts that US capital spending on pipelines will increase
5% for crude and product pipelines and 28% for gas pipe-
lines this year from a year ago.
Canadian E&P, oil sands
All Canadian spending figures in this section are expressed
in Canadian dollars.
Capital expenditures for oil and gas exploration, drilling,
and production in Canada will decline 1.5% to $31.4 billion
(Can.) in 2019, following a 11% increase in 2018.
Faced by record discounts for its crude and brimming
inventories, Alberta announced mandated temporary pro-
duction cuts of as much as 325,000 b/d for an initial period
of 3 months of 2019.
The Canadian rig count decreased to 212 in February
from 342 in the same time last year, with oil rigs down 90
units and gas rigs down 40 units, according to Baker Hughes.
According to OGJ forecasts, oil sands capital spending,
which includes funds for in-situ extraction, mining, and up-
graders, will climb 8% from a year ago to about $13 billion.
This follows a decrease of 13% last year.
The Canadian Association of Petroleum Producers re-
ported that oil sands capital expenditures totaled $13.8 bil-
lion in 2017, the latest year for which the association has
reported such data.
Suncor Inc. has set a 2019 capital spending program of
$4.9-5.6 billion, and average upstream production of 780,000-
820,000 boe/d. The midpoints of these ranges represent a flat
capital spend compared with 2018 and a year-over-year pro-
duction increase of 10%, including estimated mandatory pro-
duction curtailments, from 730,000 boe/d in 2018.
Suncor’s upstream oil sands spending this year ranges $3-
3.4 billion. This compares with $3.5 billion and $5 billion
for 2018 and 2017, respectively. Upstream E&P spending
ranges $1-1.2 billion, up from $9.5 million and $8 million
for 2018 and 2017, respectively.
Canadian Natural Resources Ltd.’s 2019 base capital bud-

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 GENERAL INTEREST
get is targeted to be $3.7 billion, about $1 billion less than curtailments in Alberta, and the temporary suspension of
the 2018 forecast due to increased capital flexibility. operations at the SeaRose floating production, storage, and
The company’s 2019 capital budget for total oil sands offloading vessel in the Atlantic region.
mining and upgrading will increase to a base budget of $1.5 Husky’s capital budgets for thermal and oil sands this year
billion, up from $1.3 billion estimated for 2018. Budgets for ranges $730-760 million, down from $915 million last year.
North America E&P will decrease to $1.1 billion
from $1.55 billion a year ago, while its interna-
tional E&P spending will increase to $460 million
from $410 million last year.
Husky Energy Inc.’s capital spending budget
ranges $3.3-3.5 billion, including $1.8 billion in
sustaining and corporate capital. Midrange aver- SPECIAL
age annual 2019 production of 295,000 boe/d in- REPORT
cludes reductions related to government-mandated
Capital investment
continues to increase
in Latin America
Siddhartha Sen
IHS Markit, Houston
IHS Markit expects global gross domestic product to remain
resilient over the next few years, backed by low interest rates
across regions and a relatively low inflation rate. Latin America
upstream spend is still expected to see an increase of 37%, from
$80 billion in 2018 to $110 billion in 2022. However, the main
countries—Argentina, Brazil, and Mexico—are experiencing fis-
cal and external deficits and weak economic recovery.
Activity remains strongest in Brazil, Argentina, and Mexico.
Brazil deployed four floating production, storage, and offload-
ing vessels in 2018: one in Tartaruga Verde field, one in Buzios
field, and two in Atlanta field. Of the seven FPSOs that Brazil’s
state oil firm Petroleo Brasileiro SA (Petrobras) had plans to
award in 2018, four are currently in the bidding process and
are expected to be awarded soon. The total capacity addition
from these seven FPSOs would be 910,000 b/d.
Argentina was planning its first offshore bid round in nearly
2 decades in February. The blocks to be put up in these bid
rounds are the Argentina Norte, Austral, and Malvinas Oeste.
For Mexico, uncertainty exists with the new administration
and three bid rounds had been postponed from late 2018 to
February 2019.
Utilization rates for the global offshore rig markets have
come down from an average of 90% in 2014 to about 60%
currently. Supply has exceeded demand, and while 160 rigs
were retired globally since 2014, only 12 were from Latin
America. The average drilling rig day rate in Latin America is
close to $265,000. Most of the Latin American countries have
24
190304OGJ020-030.indd 24
Spending for conventional heavy oil and Western
Canada resource play drilling ranges $280-300
million, down from $350 million a year ago.
Cenovus Energy Inc. plans to invest $1.2-1.4
billion in 2019, with much of the budget going to
sustain base production at its Foster Creek and
Christina Lake oil sands operations. The company
also plans to complete construction of the Chris-
tina Lake Phase G expansion.
long-term contracts (3-7 years) with extension periods, hence
the day rates of a lot of their current drilling rig fleets are based
on old contracts.
Brazil is one of the most important countries for subsea
activity, followed by Mexico. Latin America will remain the largest
regional deepwater rig market. Demand is expected to continue
to grow as activity picks up in deepwater exploration in Mexico.
Recently operators have pushed towards having shorter-term
contracts to enable them to shift gears and maneuver volatility in
commodity prices.
Crude pipeline infrastructure in Argentina is located around
the main crude-producing basins, thus connecting the produc-
tion to the main refineries in the region. In Brazil, pipeline infra-
structure is limited in its reach and for the population not living
close to a refinery, the common mode to transport is rail, barge,
or truck. Mexico’s pipeline infrastructure is quite extensive and
reforms have opened opportunities for private players to invest in.
A breakeven price for a major field like Cerro Dragon in
Argentina is estimated to be $30/bbl. For projects such as
Lapa, the producing phases have very competitive breakevens
at $25/bbl, while new phases have breakeven close to $46/bbl.
With increased activity in the region, the pressure on contrac-
tor’s market, supply chain, and infrastructure is expected to
rise. Countries like Argentina are expected to manage these
constraints by balancing development activity between onshore
unconventional and offshore conventional activity. Production
for Argentina’s unconventional assets is expected to contribute
33% of total production by 2020, increasing to 64% by 2025.
Most of the upstream activity in Latin American countries is
driven and managed by state oil companies. However, with the
opening of the region, there are opportunities for international
companies to collaborate with state oil companies and develop
the oil and gas resources in the region. A fair exchange of tech-
nological knowhow, along with fair and equitable fiscal regime,
could lead to increased exploration and development activity in
the region. This is expected to bring with it cost pressures and
hence it will be important for international operators to enter
the region while the opportunities exist.
Oil & Gas Journal | Mar. 4, 2019
2/28/19 12:22 PM
 GENERAL INTEREST

The 4% reduction in total planned capital spending com-
pared with Cenovus’s 2018 forecast is largely the result of ef-
ficiency improvements at the company’s oil sands operations
and reduced development plans for the Deep basin.
Imperial Oil Ltd.’s capital expenditures totaled $1,427
million in 2018. In 2019, capital expenditures are expected
to range $2.3-2.4 billion, including about $800 million as-
sociated with the Aspen in-situ project.
Imperial Oil’s $2.6 billion Aspen project in northern Al-
berta is the first new oil sand development to be greenlight-
ed since 2013.
Elsewhere in Canada
Imperial Oil’s capital spending on Canadian refining is ex-
pected to rise from $383 million last year. Cenovus Energy
and Husky Energy may also increase their spending on Ca-
nadian refining this year.
Suncor’s spending on Canadian downstream ranges
$700-770 million this year compared with $856 million for
2018 and $634 million for 2017.
Enbridge Inc., the country’s largest pipeline operator, se-
cured total 2019 and 2020 capital program of $16 billion.
The company’s $5.3 billion Canadian Line 3 replacement
program is expected to enter service in this year’s second
half. The $500-million Spruce Ridge expansion program
and $1-billion T-South expansion program are both in pre-
construction status.
In 2019, TransCanada expects to spend $8 billion in 2019
on growth projects, maintenance capital expenditures, and
contributions to equity investments.
TransCanada’s capital spending on Canadian natural gas
million b/d, the Middle East is expected to lead international
spending, up 8% to about $43 billion. Spending grew only
2% in 2018, according to the report.
Most of the estimated spend will come from Saudi Aram-
co, which awarded several notable oil field services contracts
in 2018 for onshore and offshore rigs and unconventional
gas stimulation services. The amount is more than twice that
of the second-highest spender, Abu Dhabi National Oil Co.
Latin America’s spending is expected to grow 11% to an
estimated $34 billion (see sidebar, p. 24). This is up from a
decline of 6% in 2018. Brazil’s Petroleo Brasileiro SA (Petro-
bras) and Mexico’s Petroleos Mexicanos (Pemex) are the top
Latin American spenders at $13.2 billion (+19%) and $10.5
billion (+15%), respectively. For Petrobras, about 56% of
E&P capital is expected to go toward presalt, while the bal-
ance will go to postsalt.
In Africa, Barclay’s report shows 12% spending growth
for 2019 to about $18 billion compared with 1% spending
growth in 2018. The growth is driven by Algeria’s Sonatrach,
Nigerian National Petroleum Corp., and Angola’s Sonangol
along with Tullow Oil Ltd. and Kosmos Energy Ltd.
Offshore spending is poised to fall another 7% in 2019.
Barclays expects 2019 to mark the fifth consecutive year of
Fluor Builds.
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pipelines totaled $2.18 billion in 2017 and $2.47 billion in

2018. As a comparison, its spending on US natural gas pipe-
lines totaled $3.8 billion in 2017 and $5.7 billion in 2018.
The estimated cost for secured gas pipeline projects in Cana-
da could reach $5 billion in 2019, according to OGJ.
Canada’s petrochemical industry is headed for its biggest
surge of expansion spending in 5 years in 2019, thanks in
large part to incentive programs by federal and provincial
governments.
Several capital-intensive petrochemical projects have
been announced in Canada, including Inter Pipeline’s
$3.5-billon propane dehydrogenation and polypropylene
complex in Strathcona County, Alta., Kuwait Petrochemi-
cal’s $4-billion propylene complex, and NOVA Chemical’s
$1.2-billion polyethylene plant expansion.
Delivering integrated solutions for global
International spending LNG liquefaction and regasification projects
The latest Barclay’s E&P Spending Survey, released on Jan. for more than 50 years.
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international region, with the exception being Russia and
the FSU. International spending is forecast to reach $286
© 2019 Fluor Corporation.
billion in 2019. ADHO178019-B

Despite the Dec. 6 decision to reduce production by 1.2

Oil & Gas Journal | Mar. 4, 2019 25

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 GENERAL INTEREST
offshore spending declines, although early signs point to a
potential 2020 inflection as the floater rig count is expected
to end 2019 at 130 units, up from 116 currently.
Barclays also reported that international upstream spend-
ing by NOCs and European IOCs are both expected to rise
by 8%. Spending growth from the European IOCs come af-
ter international upstream spending fell by 4% in
2018.
BP’s capital expenditures are expected to range
$15-17 billion this year compared with $15 billion
last year and $16.5 billion in 2017.
Equinor and Total SA’s capital budgets are esti-
mated at $11 billion and $16 billion this year com-
SPECIAL
pared with $9.9 billion and $15.5 billion last year.
US-based companies have also released details
REPORT
IEA: Crude oil quality matters amid lower supply
Global supply fell 1.4 million b/d to 99.7 million b/d in Janu-
ary, according to data from the International Energy Agen-
cy’s latest Oil Market Report.
The decline reflected factors including sanctions against
Iran, a supply fall in the Organization of Petroleum Ex-
porting Countries of 930,000 b/d in January, US sanctions
against Venezuela’s state oil company Petroleos de Venezuela
(PDVSA), and Alberta supply cuts.
These production cuts, however, all directly impact the
supply of heavy, sour oil. Therefore, crude oil quality be-
comes another important issue in the wider context of sup-
ply in the early part of 2019, IEA said.
Less exports from PDVSA
In 2018, about 450,000 b/d of Venezuelan crude oil was
shipped to the US. This is only a fraction of the 1.7 million
b/d exported in 1998 when President Hugo Chavez was on
the verge of power. Much of the oil is used in PDVSA’s US
refining system, run by its subsidiary Citgo Petroleum Corp.
IEA said, “The collapse in exports mirrors the collapse
of production over the same period from 3.4 million b/d to
about 1.3 million b/d today. In addition, Venezuela took a
political decision to ship oil to China; initially to diversi-
fy export markets as Canada’s shipments to the US soared,
but more recently as repayment for tens of billions of dol-
lars of loans. Shipments to India too, have grown, reaching
360,000 b/d in 2017, but last year they fell by 11%.”
Meanwhile, PDVSA’s oil is typically of the heaviest quality
and requires the addition of sufficient quantities of imported
diluents or domestic blending. “With the import of diluents
now sanctioned by the US, and problems in producing its
own lighter crudes, PDVSA will have a tough job to make
enough on spec barrels available for export. This is before it
gets to the issue of who will buy them,” IEA said.
26
190304OGJ020-030.indd 26
of their capital budget plans outside North America.
ExxonMobil’s spending for international upstream de-
creased slightly to $12.5 billion in 2018 from $13 billion
in 2017. A key driver of international upstream growth in
2019 is in Guyana, where exploration success has added 3.2
billion boe (gross) of recoverable resource and plans are in
place for development and further exploration.
Chevron’s international upstream spending will
decrease consecutively to $9.7 billion this year,
down from $10.5 billion for 2018 and $11.2 billion
for 2017. In 2019, about $4.3 billion is associated
with the Future Growth Project at the Tengiz field
in Kazakhstan. Global exploration funding is ex-
pected to be about $1.3 billion.
However, with less exports from PDVSA, headline bench-
mark crude oil prices have hardly changed on news of the
sanctions. This is because, in terms of crude oil quantity,
markets may be able to adjust after initial logistical dislo-
cations. Stocks in most markets are currently ample and,
with the implementation of the new Vienna Agreement at
the start of the year, there is more spare production capacity
available, IEA explained.
Crude oil quality spreads
The price of Mars—a medium, sour crude oil produced in
the US Gulf of Mexico—has increased compared with light,
sweet crude oil.
The premium of Light Louisiana Sweet crude over Mars
crude has fallen to below $1/bbl from more than $4/bbl in
November. Since the US sanctions against Venezuela were
announced, the premium of Mars over WTI has soared from
$4.50/bbl to over $7.50/bbl.
Fundamentals
IEA’s global demand estimate for 2018 is unchanged at 1.3
million b/d. Growth in demand in 2019 is expected to be
1.4 million b/d, unchanged from last OMR. The growth is
supported by lower prices and the start-up of petrochemi-
cal projects in China and the US. Slowing economic growth
will, however, limit any upside potential.
Global supply fell 1.4 million b/d to 99.7 million b/d in
January as the Vienna Agreement and Alberta’s cuts took
effect. Non-OPEC growth estimates have increased to 2.7
million b/d in 2018 and to 1.8 million b/d in 2019. This is
mainly due to higher US output.
OPEC crude output was 930,000 b/d lower in January at
30.83 million b/d, a near 4-year low. Compliance with the
Vienna Agreement was 86%, with Saudi Arabia, UAE and
Oil & Gas Journal | Mar. 4, 2019
2/28/19 12:22 PM

Kuwait cutting by more than promised. Compliance by non-
OPEC participants was only 25%.
In December, global refining throughput fell 700,000 b/d
year-over-year instead of an expected increase due to lower
activity in Asia’s four largest refiners: China, India, Japan,
and South Korea. IEA’s 2019 forecast is unchanged, with
runs expected to grow by 1.2 million b/d.
At yearend 2018, OECD oil company stocks were 5.6
million bbl below the November level at 2,858 million bbl,
up 4.6 million bbl compared with yearend 2017. The major
stock build in the second half of 2018 was in non-OECD
countries. Government stocks increased in 2018 by 22.1
million bbl, mainly in the US and Europe.
Brent futures reached a 2-month high of $62.75/bbl in
early February, with WTI prices about $10/bbl below aver-
age. The Brent-Dubai EFS narrowed to an 8-year low as sour
crude markets tightened. Ample supplies of gasoline saw
cracks decline into negative territory.
Queensland’s CSG-LNG plants
unlikely to reach full capacity
Rick Wilkinson
OGJ Correspondent
The three LNG plants on Curtis Island near Gladstone in
Queensland are unlikely to ever fulfill their combined name-
plate capacity of 25.3 million tonnes/year, according to a
new study by Adelaide-based energy analyst EnergyQuest.
The problem is a shortage of coal seam gas (CSG) reserves
on which they rely. The consultancy’s report indicates that
the supply concerns come from an emerging reliance on
• Reduce Time in Recycle • Minimal Deadtime
• Expand Compressor Map • Fast Stroking Speeds
• Increase Throughput • Accurate Modulating Control
Rexa_OGJ_190304 1
Oil & Gas Journal | Mar. 4, 2019 27
190304OGJ020-030.indd 27
GENERAL INTEREST
feedstock based on gas reserve estimates that could fall well
below delivery expectations.
The three plants, each with two LNG trains, are the
world’s first LNG producers to use CSG rather than gas from
conventional sources. The CSG is sourced from the Surat
and Bowen basins in southeast Queensland, however the
wells supplying the gas have been less productive than ex-
pected.
Consequently the three plants have been running below
capacity, operating at an average of 82% during 2018.
Queensland Curtis LNG (QCLNG) operated by Royal
Dutch Shell PLC, averaged 87% capacity last year, while
Gladstone LNG (GLNG) operated by Santos Ltd., only aver-
aged 65% according to EnergyQuest Chief Executive Officer
Graeme Bethune.
“The emerging and critical shortages are resulting from
the fact that the CSG-LNG projects were sanctioned on am-
bitious estimates of 2P reserves, not proven (1P) reserves
that underpin conventional LNG projects,” Bethune said.
“Building six LNG trains in Queensland using CSG was bold
and visionary, but ultimately a bridge too far,” he said.
The consultancy has made a detailed study of government
and company drilling and production data and reserves
booked for CSG prospects and permits. It found that only
56% of booked proved and probable reserves have shown
commercial productivity.
Bethune forecasts that by 2025 at least two trains will
have to be shut down to keep four trains running at full ca-
pacity. This will reduce medium-term exports to about 17
million tpy, down from 21 million tpy in 2018. About 70%
of the LNG exports go to China, 16% to South Korea, and
9% to Japan.
Bethune said the supply problem has been exacerbated by
the pressure on the producers to increase gas sales into the
2/22/19 3:57 PM
2/28/19 12:22 PM
 GENERAL INTEREST
Eastern Australian domestic market to shore up falling supply
from aging conventional gas fields, particularly offshore. Not
helping the shortage is the attitude of some states, notably New
South Wales and Victoria, which restrict onshore exploration
drilling. The three CSG projects in Queensland supplied about
25% of Australia’s eastern demand last calendar year.
BP lets rig contract for
Ironbark wildcat off
Western Australia
Rick Wilkinson
OGJ Correspondent
BP Developments Australia Pty. Ltd., acting operator of a
joint venture in Western Australian offshore exploration
permit WA-359-P, has signed a contract for a rig to drill the
Ironbark-1 wildcat well.
Diamond Offshore Drilling Inc.’s Ocean Apex semisub-
mersible drilling rig will begin the program during next
year’s second half. Ironbark-1 is expected to drill to a depth
of 5,500 m.
After many delays, mostly to do with permit leasehold-
er Cue Energy Ltd. offsetting the forthcoming exploration
program costs through farm-in deals, the rig contract sets a
path to fulfillment of the drilling program. BP has now ini-
tiated environmental planning activities for a site survey of
the well location and the drilling activities.
Ironbark, in the offshore Carnarvon basin, has the po-
APLNG to buy Ironbark coal seam gas prospect from Origin Energy
Rick Wilkinson
OGJ Correspondent
The Australia Pacific LNG (APLNG) combine has agreed to
acquire the Ironbark coal seam gas (CSG) project from Ori-
gin Energy Ltd., Sydney, for $231 million (Aus.). Ironbark—
not to be confused with the BP PLC-led group’s conventional
gas prospect of the same name offshore Western Australia—
lies near Tara in the Surat basin of southeast Queensland.
APLNG uses CSG from southeast Queensland coal seams
to produce LNG at its liquefaction plant on Curtis Island,
near Gladstone.
Ironbark has been a disappointment for Origin, which
halved the project’s production potential last year from 249
petajoules down to 129 petajoules of gas resource.
Origin is a 37.5% interest holder and operator of the
APLNG group, so it will retain responsibility for develop-
28 Oil & Gas Journal | Mar. 4, 2019
190304OGJ020-030.indd 28
tential to hold up to 15 tcf of recoverable gas resource and is
seen as a world-scale prospect in a proved gas-prone basin.
Ironbark is a Mungaroo formation prospect with a
mapped area of up to 400 sq km. It lies less than 50 km from
the North West Shelf joint venture’s North Rankin platform.
It is also close to Chevron Corp.’s Wheatstone infrastructure
and Woodside Petroleum Ltd.’s Pluto infrastructure, thus
providing multiple development options if gas is found.
The permit partners BP PLC, Cue, Beach Energy Ltd., and
New Zealand Oil & Gas Ltd. (NZOG) reported a coordina-
tion agreement in October 2018 that provides for BP to act as
operator on behalf of Cue in planning the Ironbark wildcat
prior to title transfers and creation of a formal joint venture.
As required under this agreement, Cue has contributed
$8.087 million from its existing cash reserves into an es-
crow account to secure the proportion of its costs that are
not carried by other parties. With funding from the other
parties on completion of the agreement, full funding for the
well is agreed.
Execution of the rig contract and Cue’s funding of the es-
crow account satisfy two outstanding conditions of comple-
tion of the coordination agreement, the BP Option agree-
ment and farm-in agreements with Beach and NZOG.
Regulatory approval of an extension to the WA-359-P
permit to allow time to drill is also required and Cue is cur-
rently preparing an extension application for submission to
the Australian National Offshore Petroleum Titles Admin-
istrator.
When all conditions are satisfied, and regulatory approv-
als are received, the coordination agreement provides for BP
to become official operator. The participating interests in
the well will then be BP 42.5%, Cue 21.5%, Beach 21%, and
NZOG 15%.
ment of Ironbark. Company Chief Executive Officer Frank
Calabria explained, however, that the sale represents the
best way for Origin to maximize value from the project.
“APLNG is able to realize additional value from the Iron-
bark asset by utilizing its existing nearby gas and water
processing infrastructure to efficiently bring the gas to
market,” Calabria said. “Origin will derive value from the
development of the prospect through its investment in
APLNG.”
If Origin still owned Ironbark, the company would have
had to enter negotiations with its APLNG partners (Cono-
coPhillips with 37.5% and Chinese state-owned Sinopec
with 25%) to process and transport the gas and this could
have caused concern.
Origin acquired Ironbark for $660 million (Aus.) in 2009
and initially estimated the resource at 840 petajoules. It sub-
mitted proposals in 2015 for the drilling of up to 600 wells
2/28/19 12:22 PM

so that the project could supply about 21 petajoules/year of
CSG over 40 years.
Development plans dwindled at regular intervals as more
exploration and engineering work was carried out. The com-
pany finally began a Stage 1 front-end engineering and design
program in August 2018, but it was obvious by then that per-
meability problems in the coal seams had halved the potential
reserves such that the project would contribute less volumes
of gas over fewer years.
Origin entered the FEED program, but at the same time
began assessing alternative strategic options for development.
The result has been the sale of Ironbark to APLNG, albeit at a
third of the price it paid for the asset 10 years ago.
Aramco forms combine
for $10-billion Chinese
refining complex
Robert Brelsford
Downstream Technology Editor
Saudi Aramco has signed a $10-billion agreement to form
a joint venture with China North Industries Group Corp.
(Norinco) and Panjin Sincen to develop a fully integrated,
grassroots refining and petrochemical complex in Panjin, in
China’s Liaoning province.
Under the agreement—the largest Sino-foreign JV to
date—the partners will create a new company—Huajin
Aramco Petrochemical Co. Ltd.—as part of a project that
will include a 300,000-b/d refinery as well as a 1.5 million-
tonne/year ethylene cracker and 1.3 million-tpy paraxylene
unit, Aramco said.
Alongside supplying up to 70% of required crude feed-
stock for the proposed complex, Aramco will hold 35%
interest in the newly formed company while Norinco and
Panjin will hold the remaining 36% and 29% interest, re-
spectively.
The new complex is scheduled for commercial startup
sometime in 2024.
“Our participation in the integrated refining and petro-
chemical project in Panjin will strengthen our collaborative
efforts to enhance energy security, revitalize key growth
sectors and industries in Liaoning, and also meet rising de-
mand for products and goods in China’s northeast region,”
said Amin Nasser, Aramco’s chief executive officer.
The JV agreement also includes additional plans to es-
tablish a fuels retail business, which will further integrate
into the value chain, Aramco said.
By yearend, Aramco said it expects to form a three-party
marketing JV company with North Huajin Chemical Indus-
Oil & Gas Journal | Mar. 4, 2019 29
190304OGJ020-030.indd 29
GENERAL INTEREST
tries Co. Ltd. and Liaoning Transportation Construction
Investment Group Co. Ltd. to develop a retail fuel stations
network in target markets.
Additional Chinese agreements
Separately, Aramco also signed three memoranda of under-
standing aimed at expanding its downstream presence in
China’s Zhejiang province.
Aramco signed the first MOU with the government of
Zhoushan to acquire its 9% ownership interest in Zhejiang
Petrochemical Co. Ltd.’s (ZPC) grassroots 800,000-b/d re-
fining and chemical integrated complex currently under
construction in Zhoushan, with a second MOU signed with
ZPC’s other shareholders Rongsheng Holding Group Co.
Ltd., Juhua Group Corp., and Tongkun Group Co. Ltd. (OGJ
Online, Feb. 14, 2017).
Aramco inked a third MOU with Zhejiang Energy Group
to invest in construction of a large-scale retail fuel network
to be built during the next 5 years in Zhejiang province that
will be integrated with ZPC’s complex as an outlet for re-
fined products produced at the site.
The new MOUs follow Aramco’s previous agreements
with ZPC under which Aramco agreed to acquire owner-
ship interest in and supply crude on a long-term basis to the
new complex, as well as use ZPC’s crude storage at the site
to serve Aramco customers in the Asia-Pacific region (OGJ
Online, Oct. 26, 2018).
The project will come with a long-term crude supply
agreement and the ability to utilize Zhejiang Petrochemical’s
large crude oil storage facility to serve its customers in the
Asian region.
Previously scheduled for commercial startup by year-
end 2018, Phase 1 of ZPC’s project includes a newly built
400,000-b/d refinery, a 1.4 million-tpy ethylene cracker
unit, and a 5.2 million-tpy aromatics unit.
Phase 2 of the project—which will double processing
and production capabilities at the site, as well as include
deeper chemical integration than Phase 1—most recently
was scheduled for commissioning during first-quarter 2021
(OGJ Online, Jan. 17, 2019).
Meridian Energy plots grassroots
refinery for Permian basin
Robert Brelsford
Downstream Technology Editor
Meridian Energy Group Inc. has let a contract to Winkler Cos.
LLC to provide site control for a full-conversion refinery in
Winkler County, Tex., in the heart of the Permian basin.
The Permian basin refinery, which will process local
crude from the Delaware basin into a full slate of refined
2/28/19 12:22 PM
 GENERAL INTEREST
products for local and regional markets, will have a through-
put capacity of about 60,000 b/d and be modeled after Me-
ridian’s grassroots 49,500-b/sd high-conversion Davis refin-
ery currently under construction in Billings County in the
heart of southwestern North Dakota’s Bakken shale region,
Meridian said.
With site control now established for the new Permian
basin plant, Meridian said it will proceed with design and
permitting of the newly proposed refinery that—like its Da-
vis refinery—the operator intends will be permitted under
classification as a synthetic minor source (SMS) of air con-
taminants (OGJ Online, Dec. 5, 2018; Dec. 6, 2017).
“Meridian’s success on the Davis [r]efinery demonstrates
that the domestic refining industry is ready for fundamen-
tal change, and Meridian believes that the crude supply and
strong demand from the refined products markets indicate
that the Permian [b]asin is the next place for Meridian to
locate a Davis-style crude refinery,” said William Prentice,
Meridian’s chairman and chief executive officer.
Prentice said Meridian’s analysis indicates that there may
even be a need for more than one such plant to fully serve
the needs of the Permian basin.
The proposed refinery comes amid a growing need for
regional refining capacity as well as additional crude storage
and blending in the rapidly expanding Delaware basin, said
Winkler Manager David Lynch.
“With [the International Maritime Organization’s 2020
regulations requiring reduced sulfur levels in marine fuels
in 2020] bearing down on the US refining industry, Merid-
ian could not be better positioned to take advantage of the
building demand for [ultralow-sulfur diesel (ULSD)] that
can be transported from this location by truck, rail, or pipe,”
said Lynch.
Once the refinery is in operation, Indeca Crude Express
LLC—a sister company of Winkler and regional crude haul-
er—will participate in the project by enabling gathering
of trucked crude barrels as well as distribution of finished
product to a ready market, Lynch confirmed.
Meridian has yet to reveal a definitive timeline for the
newly proposed Permian basin refinery.
The North Dakota Department of Health’s division of air
quality previously issued Meridian the final permit-to-con-
struct the Davis project—under the first application in his-
tory for a full-conversion refinery of this size and complexity
to seek and receive permitting to construct under classifica-
tion as SMS of air contaminants—in June 2018 (OGJ Online,
June 13, 2018).
Scheduled for startup sometime in 2020, the Davis re-
finery, once in operation, will produce ULSD and premium
gasoline from prolific crude feedstocks from the Bakken
shale basin using advanced technologies intended to maxi-
mize operational efficiencies while minimizing environmen-
tal impacts (OGJ Online, Dec. 7, 2018).
30 Oil & Gas Journal | Mar. 4, 2019
190304OGJ020-030.indd 30
NAPE: Croatia opens
licensing round in
Dinarides onshore area
Paula Dittrick
Upstream Technology Editor
Croatia has opened a licensing round for oil and gas explora-
tion in its central and southern regions with the bid deadline
being Sept. 10. Licenses are tentatively scheduled to be an-
nounced in December, a spokesman with the Croatia Hy-
drocarbon Agency (CHA) said.
CHA Pres. Marijan Krpan told the North American
Prospect Expo in Houston on Feb. 14 that Croatia recently
enacted a hydrocarbon law to attract investors and ensure
what he calls a smoother transition from exploration into
production.
Since the 1940s, Croatia has produced more than 400
million boe, most of which has been natural gas. Krpan said
Croatia has produced more than 700 million bbl of oil.
Available exploration blocks in Croatia’s Dinarides thrust
belt cover 12,134 sq km. Krpan said some seismic surveys
were shot in this area during the 1950s.
Meanwhile, Croatia has an ongoing bid round for the
Pannonian basin that started in November 2018 with a bid
deadline of June 28. Awards are expected to be awarded in
October.
The second round involves seven exploration blocks in
the Pannonian basis, Krpan said. “Total acreage available is
14,272 sq km. The available blocks range in size from 1,361
to 2,634 sq km.”
He said at least 37 unevaluated wells exist in this area.
The Pannonian basin is characterized by Palaeozoic to Me-
sozoic sedimentary deposits.
Previously, Croatia offered six onshore exploration
blocks in its first onshore bid round, which it launched in
July 2014. That round covered the Pannonian subbasins of
Drava, Sava, and Eastern Slavonia.
Croatia awarded a block to Croatia’s state-owned INA
Group and four blocks to Canada’s Vermilion Energy Inc.
In Croatia, Vermillion holds 100% working interest in acre-
age covering nearly 2.35 million acres.
The American Association of Petroleum Landmen is the
chief sponsor of NAPE, where industry buys and trades
prospects and producing properties.
2/28/19 12:22 PM
 TECHNOLOGY

Ukraine outlines latest concessions,

production-sharing agreements
Roman Opimakh
Association of Gas Producers of Ukraine
Kyiv, Ukraine

Ukraine has outlined a series of licensing rounds The 2019 first round, announced Dec. 6, 2018,
through online auctions and production-sharing EXPLORATION &
offers 10 blocks in six regions, covering more than
agreement (PSA) tenders in ongoing efforts to re- DEVELOPMENT 1,120 sq miles.A second round, announced in Lon-
duce its dependence on natural gas imports. The don Jan. 29, offers another 7 blocks in five regions,
2019 licensing rounds offer 42 onshore blocks cov- covering over 621 sq. miles. Bidders were asked to
ering nearly 12,000 sq miles. submit applications within 90 days with the online auctions
Government officials have improved the fiscal regime, sim- scheduled for Mar. 6 and May 2, respectively.
plified the permitting system, and adjusted the rules for access In addition, the Ukrainian government approved PSA ten-
to gas and oil reserves to increase Ukraine’s upstream attractive- der terms for 12 onshore blocks covering more than 8,200 sq
ness to international oil companies. miles. PSA tenders are expected to be announced in February
The licensing rounds are being offered in stages. The or beginning of March, at which time bidders will have three
State Geological Service of Ukraine released 30 onshore pe- months to submit their applications. The onshore blocks hold
troleum blocks for sale in online auctions on public trading both conventional and unconventional resources.
platform ProZorro.Sale. Royal Dutch Shell and other IOCs showed interest in
Fig. 1 shows the licensing offerings for 2019 plus valid Ukraine during 2010-12, particularly in the possibility of de-
exploration and production licenses. veloping unconventional gas resources (OGJ, June 6, 2013,

UKRAINE LICENSING ROUNDS FIG. 1

BELARUS
POLAND Dnipro-Donets basin

RUSSIA
Pre-Carpathian basin

Kharkiv
Lviv
UKRAINE Rollava
Ivano-
Frankivsk

Ca Chernivtsi
rp
at
hi
an
M MOLDOVA
ou
nt 2019 PSAs
ain
s 2019 licenses
North Black Sea basin Kherson Valid contracts:*
Odessa Exploration
ROMANIA Black Sea Azov Sea E&P
Production
PSA
*Exploration licenses cover 5 years onshore, 10 years offshore, combined E&P licenses cover 20 years onshore, 25 years offshore, production licenses cover 20 years.
Source: GoUkraineNow

Oil & Gas Journal | Mar. 4, 2019 31

190304OGJ031-033.indd 31 2/26/19 3:09 PM

 TECHNOLOGY
p. 54). But changing market conditions
UKRAINE GAS PRODUCTION
caused Shell to pull out of a May 2012
PSA. Shell was the winning bidder for 70
the Yuzivske PSA in the Kharkiv and
60
Donetsk regions of Eastern Ukraine.
Resources were estimated at 4 trillion 50
cu m of gas, trapped primarily in tight
sand formations. Estimated explora- 40
bcm
tion costs were at least $20 million.
30
Shell and state-owned Nadra Yuz-
ivske were each to hold a 50% interest
20
with Shell to be the operator. Howev-
er, Shell withdrew from the project in 10
2015, citing high costs and dropping
0
commodity prices. 1945
The 2019 Ukrainian PSAs are the
first to be offered since then. As of Feb. Source: Ukraine Ministry of Energy
1, EP Holding (EPH) was working to
gain Shell’s stake in the 2012 Yuzivska
PSA. Ukrainian government officials expect to finalize that
as soon as EPH submits a bank guarantee that EPH can in-
vest $200 million.
In a different deal, EPH agreed to drill at least 15 explora-
tion wells within 5 years. Finalization of the pending agree-
ment remains subject to approval by regional councils and
an anti-monopoly committee.
EPH currently holds 90% interest. Its partner is Nad-
ra Yuzivska, which represents Ukraine in this legacy deal.
EPH’s subsidiary, Nafta, will operate the project. The Slovak
Republic owns 25% interest of Nafta. EPH holds 75% inter-
est.
Government officials also see opportunities to redevel-
op legacy fields. Mature fields require technologies and ex-
pertise from international service companies. State-owned
UkrGasVydobuvannya (UGV) has signed multiservice
agreements with Schlumberger Ltd., Halliburton Corp.,
Baker Hughes GE, and Weatherford.
UGV also seeks additional cooperative partnerships un-
der Production Enhancement Contracts (PEC) to develop
depleted fields and unconventional formations. The PEC
tender was launched in October 2018. Results are scheduled
to be announced in May.
Ukraine produced more than 21 billion cu m (bcm) of
gas in 2018, one of Europe’s largest outputs, yet still depends
heavily on imported gas. The Ukrainian government is pri-
oritizing domestic production to reduce imports and en-
hance energy supply security.
Gas supply, demand
Gas accounts for 35% of Ukraine’s energy mix. In 2018,
Ukraine consumed 31.5 bcm, making it the seventh largest
consumer in Europe. Imports accounted for 34% of 2018
domestic consumption.
The Energy Strategy of Ukraine estimates future gas de-
32 Oil & Gas Journal | Mar. 4, 2019
190304OGJ031-033.indd 32
FIG. 2
68.4
20%
5.5% 20.5
bcm
74.5%
UGV Ukrnafta
Private companies
20.5
1955 1965 1975 1985 1995 2005 2015 2017
Western Ukraine Eastern Ukraine Offshore
mand at 30-35 bcm/year until 2035.
Prices for Ukrainian gas are in parity with imported gas
prices, ensuring profits for gas producers. In 2018, the av-
erage wholesale price for Ukrainian gas was $9.20/MMbtu.
Ukraine has 905 bcm of gas reserves across two proved
petroleum basins with another 408 bcm estimated resourc-
es. The reserves-production (R-P) ratio is nearly 45 years
compared with an average European R-P of 12 years.
Fig. 2 shows gas production by region and by company
in Ukraine. Producers operating in Ukraine believe they can
produce most proved, undeveloped reserves through im-
proved recovery methods and by expanding existing fields
with satellite fields.
Ukraine has a well-developed gas pipeline system with
surplus capacity, which is used both for domestic gas distri-
bution and for transporting Russian gas to Europe.
The state-run transmission system operator ensures
third-party access to gas pipelines under equal, non-dis-
criminatory, and transparent terms in line with European
energy laws.
The National Regulatory Commission sets gas transpor-
tation, distribution, and storage tariffs using Regulatory As-
set-Based  (RAB) methodology and based on the European
entry-exit booking capacity approach.
Ukraine has no restrictions or special duties on gas im-
ports or exports, and gas exports to central Europe were
scheduled for January. No trade permits are required.
Rigs are readily available in Ukraine, where 150 onshore
gas wells were spudded in 2018. A qualified local workforce,
wide range of services, and existing supply chain for pipes
and cement also ensure companies can increase gas produc-
tion volumes quickly. Yet, Ukraine needs additional IOC in-
vestment and technology to reach its production potential.
The Ukraine Parliament enacted upstream reforms in 2018
to attract more international investment.
2/26/19 3:09 PM
 TECHNOLOGY

Ukraine revised its taxation system for onshore gas wells
drilled in 2018 and later to help attract investors from outside
Ukraine. Currently, gas produced from such wells is subject to
6% or 12% royalties depending on depth of reserves.
The government guarantees the stability of these rates
through a 5-year stabilization clause. Five percent of the roy-
alty payment is allocated to local communities’ development
to motivate their cooperation with industry.
Ukrainian regulators simplified a prescriptive, outdated
permitting system by signing a deregulation law which cut
government red tape and updated exploration and produc-
tion rules. This streamlining means production could start
18 months after licensing.
Parliament also approved an Extractive Industries Trans-
parency Initiative (EITI) covering international standards of
public reporting. Government officials adjusted reserves-ac-
cess and transparency rules by authorizing online auctions,
improving public access to geological data, and liberalizing
companies’ turnover of geoscience information to the gov-
ernment.
Geology
Ukraine offers three main hydrocarbon basins: Dniepr-Do-
nets basin, Pre-Carpathian basin, and the North Black Sea
basin. Almost all production comes from onshore fields.1
The Dnieper-Donestsk region in eastern Ukraine is devel-
oped with several thousand gas, oil, and condensate wells.
Companies have found gas in depths ranging 5,000-5,800 m
and oil as deep as 4,500 m. The Association of Gas Produc-
ers of Ukraine (AGPU) reports 244 conventional oil and gas
fields producing in this province.
The Pre-Carpathian (Foreland) basin in Western Ukraine
covers 7,500 sq km and reaches the borders of Hungary, Po-
land, Slovakia, and Romania. AGPU reports 116 convention-
al oil and gas fields producing in this area.
The North Black Sea basin is less explored, with 42 oil
and gas fields, including 15 offshore fields, AGPU reports
About 95% of gas production and most onshore oil and
gas reserves are concentrated in eastern Ukraine, primarily
in the Kharkiv and Poltava regions. Of Eastern Ukrainian
reserves, 73% are found at depths of 3,000 m or deeper. In
Western Ukraine, 65% of reserves are found above 3,000 m.
The 17 blocks offered in Round 1 and Round 2 and 12
PSAs blocks are in proved petroleum provinces with well-
developed midstream infrastructure and completed seismic
surveys. License terms for 16 of the concession blocks call
for 20 years of exploration and production, the final block
calling for a 5-year exploration period. All PSAs block have
50-year duration, unless otherwise agreed by the parties.
The web site GoUkraineNOW outlines the geology and
overview for the auction and PSA blocks.2
Ukraine officials offered large parcels in known petro-
leum provinces to give oil and gas companies a better chance
to find discoveries.
The table shows the three biggest PSA blocks in eastern
Ukraine are Varvinska, Sofiyvska, and Ichnyanska. Most gas
in this petroleum basin is trapped in the Carboniferous sec-
tion below a lower Permian salt seal.
References
1. Association of Gas Producers of Ukraine, “Ukraine
National Gas Production, Playbook 2018.”
2. Gas and Oil Ukraine Now, “Ukraine 2019 licensing
rounds: A big attraction for oil and gas investors,” www.
goukrainenow.com
The author
Roman Opimakh is executive director of the As-
sociation of Gas Producers of Ukraine (AGPU).
Opimakh previously advised the Minister of
Energy of Ukraine. During 2011-15, he worked
as a coordinator for oil and gas at the Economic
Reforms Center where he supervised various
energy projects. Opimakh obtained an MS
(2006) from the Institute of International Relations of Taras
Shevchenko National University of Kyiv. He later participated in
a 1-year Hubert H. Humphrey Fellowship Program at Michigan
State University and completed his professional affiliation with
the Center for Energy Studies at Louisiana State University.

UKRAINE’S INITIAL 2019 PSA TENDERS

Block name Region Area, Minimum
sq km investment,
million $

Varvinska Poltava-Chernihiv 3,471 35.7

Rusanivska Sumy-Poltava 766 28.5
Grunivska Sumy-Poltava 1,108 30.3
Ohtirska Sumy-Poltava-Kharkiv 717 21.4
Buzivska Kharkiv-Dnipro 669 21.4
Zinkivsha Sumy-Polava 571 17.8
Ivanivska Kharkiv 841 28.5
Ichnyanska Chernihiv 2,477 35.7
Balaklijska Kharkiv 1,119 28.5
Sofiyivska Chernihiv-Sumy-Poltava 2,716 35.7
Berestyanska Lviv-Kharkiv 286 16.0
Ugnivska Lviv-Ivano-Frankivsk 967 21.4
Source: GoUkraineNow

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 TECHNOLOGY
IEA updates EOR project data,
doubling output forecast
The International Energy Agency (IEA) estimated
about 375 enhanced oil recovery projects world-
wide produced slightly more than 2 million b/d in
2018. They forecast this could grow to 4.5 million
b/d, or around 4% of world production, by 2040.
EOR projects accounted for about 2% of world DRILLING &
oil production since 2014. IEA analysts expect mod- PRODUCTION
est EOR production growth until about 2025, not-
ing industry currently focuses on shale production
growth in US, Brazil, and Canada.
They also suggest carbon dioxide (CO2) EOR could ad-
dress climate change concerns. IEA expects CO2 EOR to play
an increased role in carbon capture, utilization, and storage
(CCUS) projects.
IEA released an updated list of EOR projects1 and evaluated
the outlook for future EOR in different scenarios presented in
its World Energy Outlook.2
Fig. 1 shows IEA’s tally of EOR production to be 700,000
b/d higher than an Oil & Gas Journal EOR survey reported in
2014 (OGJ, May 5, 2014, p. 92). While updating EOR produc-
tion statistics from the OGJ database, IEA added new proj-
ects and reviewed EOR in regions sparsely covered previously,
such as China and the Middle East.
Industry traditionally used EOR primarily for US and Ca-
nadian projects but the technology increasingly is being used
worldwide, both onshore and offshore. IEA reported 15 off-
shore EOR projects worldwide as of 2018.
ExxonMobil Exploration and Production Malaysia Inc.
started EOR production at Tapis field offshore Malaysia dur-
ing 2017.
The Tapis EOR project marked Malaysia’s first large-scale
EOR project and remains one of the largest offshore EOR proj-
ects in Southeast Asia. ExxonMobil’s joint venture partner is
Petronas Carigali Sdn Bhd (PCSB). Each holds 50% interest.
IEA’s EOR update lists projects in the United Arab Emir-
ates, Kuwait, Saudi Arabia, India, Colombia, and Oman.
Oman has increased its oil production since 2007 through
steam injection, polymer injection, miscible gas injection,
and other EOR methods. Oman is evaluating large-scale so-
lar EOR projects to save natural gas. Petroleum Development
Oman (PDO) is working with GlassPoint Solar. After a pilot,
Adapted with permission from International Energy Agency’s
“World Energy Outlook 2018” commentary.
34
190304OGJ034-035.indd 34
PDO and GlassPoint are building Miraah solar plant
(OGJ, Jan. 1, 2018, p. 46). A separate solar EOR tech-
nology center is being developed in Muscat, Oman.
PDO reported 16% of its oil production came from
various types of EOR in 2016 compared with 3% in
2012.
Abu Dhabi National Oil Co. Onshore (ADNOC
Onshore) injects CO2 into Bab-Rumaitha field. AD-
NOC uses low-molecular-weight hydrocarbon-im-
miscible (HC) gas injection to increase production from Abu
Al Bukhoosh (ABK) field offshore Abu Dhabi. UAE’s goal is to
expand EOR production 30% by 2020 from 2014.
Currently, North American EOR accounts for 40% of all
EOR projects compared with 75% of 2013 EOR projects,
which provided 800,000 b/d.
EOR incentives
While EOR projects can be cost competitive with other pro-
duction, they frequently involve high upfront capital re-
quirements and long payback periods. Consequently, EOR
production historically relied on financial incentives such
as tax breaks.
More than 80% of world EOR production benefits from
government incentive programs. National oil companies pri-
oritize EOR in efforts to maximize production and profits.
IEA said US policy demonstrates how government can
promote EOR projects. Faced with declining US oil produc-
tion, the Crude Oil Windfall Profit Tax Act of 1980 promot-
ed EOR by reducing producers’ EOR-related taxes.
Last year, a federal tax credit was amended under sec-
tion 45Q of the US tax code to promote underground carbon
storage. The amendment increased the amount of money
available to companies willing to capture and store carbon
emissions in geologic formations or to use CO2 EOR on ex-
isting wells.
The tax credit was amended to provide a tax reduction
of $35/tonne of CO2 for 12 years for CO2 stored in EOR op-
erations. Previously, the tax credit was $10/tonne but it will
increase to $35/tonne by 2024.
Yet, EOR project growth has been slower than expected.
IEA analysts found no one reason for this, but possible ex-
planations included:
• Resource scarcity concerns. These traditionally drive
EOR projects, but ample world oil supplies have discouraged
Oil & Gas Journal | Mar. 4, 2019
2/26/19 3:09 PM
 new EOR projects since 2014. In the WEO’s New Policies Scenario projections, only a
• Industry desire for fast returns. An EOR project re- fraction of that 300 billion bbl is produced. By 2025, IEA
quires time to plan, test, and implement, meaning that EOR analysts foresee larger production related to EOR projects.
adds incremental production only late in a field’s life. US tight oil will near its production plateau and numerous
• Limited availability of EOR skills, technologies, and regions and countries also will have become mature produc-
expertise. The technology has become a niche business tion provinces by 2025, making them more inclined to pur-
among oil and service companies. sue EOR to maintain production or slow declines.
•  Relative expense. EOR costs have declined since 2014, Numerous measures and initiatives will need to gain mo-
but costs of other projects—including shale plays and offshore mentum before EOR production growth forecasts can mate-
developments—have declined more quickly. EOR technolo- rialize. Examples of such efforts include:
gies struggle to compete with other investment opportunities. • Concerted effort by governments and industry to
screen fields and determine EOR potential in resource-rich
EOR outlook areas.
IEA analysts evaluated EOR prospects in the World Ener- •  Timely EOR pilots in countries where EOR has not yet
gy Outlook. They estimated that systemic application of all been used.
EOR technologies across conventional crude oil resources •  Continued fiscal incentives, including emissions cred-
could, in theory, unlock up to 300 billion bbl of crude oil. its for CO2 EOR.
•  Technological advances such as
decreasing the volume of chemicals in-
EOR PROJECTS OPERATING WORLDWIDE FIG. 1 jected and using digitalization to grasp
a better subsurface understanding.
400
Thermal
In the WEO Sustainable Develop-
CO2-EOR ment Scenario, total EOR production
300 Chemical grows to around 4 million b/d in 2040.
Natural gas injection,
nitrogen injection This is smaller than WEO’s New Poli-
Other technologies cies Scenario because oil demand and
Projects

(microbial EOR,
200 combustion EOR) prices are lower.
However, CCUS advancements
could support much larger CO2-EOR
100
production. In this scenario, climate
imperatives emerge as a key driver be-
0 hind EOR technologies. Given suitable
1971-75

1976-80

1981-85

1986-90

1991-95

1996-2000

2001-05

2006-10

2011-15

2017

geology, companies can use CO2 EOR

to reduce their CO2 emissions inten-
Source: IEA World Energy Outlook
sity. If CO2 is captured and injected in
enough quantities, negative-emissions
carbon credits could be available for oil.
EOR PRODUCTION FIG. 2
Oil produced from a CO2-EOR seques-
tration project can be carbon neutral or
5
Thermal
carbon negative, depending upon the
Chemical EOR source of the CO2 emissions.
CO2-EOR IEA analysts evaluated the possi-
4
Natural gas injection,
nitrogen injection bility of negative-emissions oil in the
World Energy Outlook and expect to
3
publish a future commentary on it.
Thousand b/d

2 References
1. Han, M., McGlade, C., and Son-
dak, G, “Commentary: Whatever hap-
1 pened to enhanced oil recovery,” Nov.
28, 2018, International Energy Agency
0 web site.
2000 2005 2010 2015 2020 2025 2030 2035 2040
2. IEA, “World Energy Outlook
Source: IEA World Energy Outlook
2018.”

Oil & Gas Journal | Mar. 4, 2019 35

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 TECHNOLOGY
US olefins industry turns
to face global market
Dan Lippe
Petral Consulting Co.
Houston
Like the characters of L. Frank Baum’s Oz
series of novels written during the early PROCESSING
1900s, US ethylene producers have had
to find their way to the mythical Emerald
City by surviving a series of disasters.
After the storms of second-half 2017,
US Gulf Coast skies cleared in first-half
2018, with most USGC ethylene produc-
ers finding soft landings in second-half
2018. Ethylene producers took the first
steps on the journey to the Emerald City
in fourth-quarter 2018.
USGC ethylene producers had booked
their tour to Emerald City via the Yellow
Brick Road several years ago. But now, in
2019-20, they will have to focus on surviving the journey.
Trends in polyethylene exports indicate production from
new polyethylene plants began to ramp up to full capacity in
second-half 2018. The transition of focus from North Ameri-
ca to the global market for ethylene, polyethylene, and other
ethylene derivatives is well under way.
New plant startups
In second-half 2018, ExxonMobil Chemical Co., Shintech
Louisiana LLC, and Indorama Ventures Olefins LLC were
scheduled to start up new ethylene plants. ExxonMobil
Chemical was the only producer to meet its target, commis-
sioning its new 1.5-million tonne/year ethane steam cracker
at Baytown, Tex., in late July (OGJ Online, July 26, 2018).
In first-half 2019, Formosa Petrochemical Corp., Indorama,
Sasol Ltd., and LACC LLC—a 50-50 joint venture of Lotte
Chemical Corp. subsidiary Lotte Chemical USA Corp. and
Westlake Chemical Corp.—are scheduled to commission
new plants with combined nameplate capacity of 9.1 billion
lb/year. Petral Consulting Co. also forecasts Shintech’s new
plant will start operations second-half 2019.
While some new plants reach full-capacity in 30-60 days,
others require 3-4 months. Since ethylene supply is already at
modest surplus levels, production from new plants in Louisi-
ana will increase surpluses in USGC markets in first-half 2019.
36
190304OGJ036-043.indd 36
Ethylene production
Petral Consulting tracks US ethylene production via a
monthly survey of operating rates and feed slates. Results
of the monthly survey showed a
strong rebound in ethylene produc-
tion in first-quarter 2018 following
US OLEFINS
the hurricane-depressed produc-
tion rates of late 2017. Production
in first-quarter 2018 increased
14.2 million lb/day (8.4%) from
fourth-quarter 2017 before quarter-
ly growth slowed to 4.3 million lb/
day (2.4%) in second-quarter 2018.
Production during third-quarter
2018 was 179.3 million lb/day, un-
changed from the previous quarter. Production, however, in-
creased to 183 million lb/day in fourth-quarter 2018, up 3.7
million lb/day (2.0%) from the third quarter.
Variations in quarterly growth rates for ethylene produc-
tion paralleled growth in polyethylene exports to destina-
tions other than Canada and Mexico (rest of world, ROW).
Exports to ROW destinations in first-quarter 2018 were 4.6
million lb/day (49.8%) more than in fourth-quarter 2017.
Growth in polyethylene exports slowed to 0.99 million lb/
day (7.2%) in second-quarter 2018 before rebounding to
1.79 million lb/day (12.2%) in the third quarter. The trend
in polyethylene exports to ROW destinations in second-half
Feedstock prices, coproduct values, and ethylene plant yields
determine ethylene production costs. Petral Consulting maintains
direct contact with the olefin industry and tracks historic trends in
spot prices for ethylene and propylene. We use a variety of sources
to track trends in feedstock prices.
Some ethylene plants have the necessary process units to convert
all coproducts to purity streams. Some ethylene plants, however,
cannot upgrade mixed or crude streams of various coproducts and
sell some or all their coproducts at discounted prices. We evaluate
ethylene production costs in this article based on all coproducts
valued at spot prices.
Oil & Gas Journal | Mar. 4, 2019
2/26/19 3:09 PM
 2018 was a positive leading indicator of the trend in USGC upgrade all coproduct streams to meet purity specifications.
ethylene production rates for 2019 and 2020. A few ethylene plants can upgrade all coproducts to pu-
Petral Consulting estimates industry nameplate capacity rity streams and sell all coproducts at market prices. Some
in operation was 189.1 million lb/day in first-quarter 2018. ethylene plants produce purity coproduct propylene but
Production capacity increased to 198 million lb/day in sec- produce all other coproducts as mixtures (mixed butylene-
ond-quarter 2018 and was 206.5 million lb/day in the fourth butadiene and mixed aromatics) and sell mixtures at dis-
quarter. counted prices. Variations in realized revenue for coprod-
On a regional basis, plants in Texas accounted for all pro- ucts result in large differences in coproduct credits from one
duction growth in second-half 2018. Texas plants produced plant to another. Cash production costs are determined by
131.8 million lb/day in the third quarter and 135.8 million simple addition of raw material costs and coproduct credits
lb/day in the fourth quarter. Production from Texas plants in (see accompanying box).
third-quarter 2018 increased 1.4 million lb/day from the sec- Crude oil price trends are always a strong influence on
ond quarter, and fourth-quarter production increased 4 mil- prices for propane, naphtha, gas oil, and most coproducts.
lion lb/day (3.1%) more than in the previous quarter. Plants in Domestic crude oil prices reached their peak in May 2018
Louisiana produced 41.3 million lb/day in third-quarter 2018 and began to decline in June primarily because of con-
and 40.7 million lb/day in the fourth quarter (Table 1). straints in crude pipelines from West Texas to the Texas Gulf
Operating rates dipped to 85.6% in second-quarter 2018 Coast. Prices for international benchmark crudes continued
and were 86-90% in second-half 2018. Texas plants oper- to increase in second-quarter 2018 but settled into a pla-
ated at 86.3% in third-quarter 2018 and 89.0% in the fourth teau during the third quarter. International benchmark pric-
quarter, while plants in Louisiana operated at 87.5% in the es began to decline in second-half October and continued
third quarter and 86.2% during the following quarter. to fall in November and December. Initially, the decline in
Results of the monthly survey showed some USGC eth- second-half October appeared to be a short-lived correction
ylene producers curtailed operating rates in several existing following 15 months of steadily rising prices, but correction
plants during second-half 2018 to limit ethylene oversupply became a collapse in November.
in the Texas Gulf Coast spot market. Petral Consulting esti- The collapse in crude, motor gasoline, and naphtha pric-
mates ethylene production from Texas and Louisiana plants
was reduced by 9-10 million lb/day due to these curtail-
ments, offsetting production from ExxonMobil Chemical’s ETHYLENE PRODUCTION Table 1
Heavy feed Light feed Total
new 3.3-billion lb/year Baytown plant. 2017-18 –––––––––––––––– million lb/day––––––––––––––––
Average operating rates for all ethylene plants mask im- Q3 10.0 141.4 151.4
portant variations. In second-half 2018, 17 units (combined Q4 13.8 146.9 160.7
Q1 13.5 161.4 174.9
nameplate capacity of 34.7 billion lb/year) operated at less Q2 14.0 165.0 179.0
Q3 11.3 168.0 179.3
than 90% of nameplate capacity, while 20 units (combined Q4 11.0 172.0 183.0
nameplate capacity of 40.5 billion lb/year) operated at 90- Source: Petral Consulting monthly survey
100%. Of these 20 units, 6 units (combined nameplate ca-
pacity of 10.1 billion lb/year) operated
at 100% or more of nameplate capacity.
Fig. 1 shows trends in ethylene pro- US ETHYLENE PRODUCTION* FIG. 1
duction. 250
Light feeds Heavy feeds Capacity
Ethylene production costs
Ethylene production costs are deter- 200
mined by raw material costs and co-
Million lb/d

product credits. Based on variations in

yield patterns for the various feeds, co- 150
product volumes vary widely between
the three categories of plants (ethane-
only, LPG-only, and multifeed plants). 100
Raw material costs are determined by
each feedstock’s price and its conver-
sion to ethylene. Similarly, coproduct 50
Q1 Q2 Q3 Q4 Q1 Q2 Q3
credits are determined by spot prices 2017 2018
and production volumes for each co- *Cracker production from fresh feed.
Source: Petral Consulting Co.
product but only for those plants that

Oil & Gas Journal | Mar. 4, 2019 37

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 TECHNOLOGY

es around the world resulted in a sizeable compression in
spot prices for heavy feeds vs. light feeds. The crash in crude
prices also squeezed ethylene production cost differentials
between ethane and all other primary feeds as well as be-
tween propane and heavy feeds.
USGC ethylene producers continued to increase ethane’s
share of fresh feed in third-quarter 2018, but some ethylene
producers responded to the compression in production costs
by reducing ethane consumption in fourth-quarter 2018
while continuing to increase ethylene production.
In third-quarter 2018, ethylene produced from ethane
was 78% of total production, but ethylene production from
ethane fell to 75% in fourth-quarter 2018. At the same time,
ethylene produced from propane averaged 11.3% of total
production in the third quarter but jumped to 15-16% in the
fourth quarter.
Cash production costs in third-quarter 2018 were 18.7¢/
lb for purity ethane, 24.0¢/lb for propane, and 28.6¢/lb for
natural gasoline.
Following a series of short-covering episodes in the eth-
ane spot market in Mont Belvieu, Tex., in the third quarter,
monthly spot prices for purity ethane declined 10¢/gal both
in October and November and by an additional 2.75¢/gal
in December. Prices for propane and natural gasoline also
declined sharply in fourth-quarter 2018, with cash produc-
tion costs at 16.2¢/lb for purity ethane, 19.4¢/lb for propane,
and 22.4¢/lb for natural gasoline. Propane’s cost advantage
to natural gasoline was 3.0¢/lb in the fourth quarter vs. 4.6¢/
lb in the third quarter.
Table 2 shows production costs for major ethylene feedstock.
Ethylene pricing, profit margins
Spot prices for ethylene generally fluctuate within a range
defined by cash costs for the higher-cost feedstock. The low
end of the range is determined by the cash cost for high-cost
feedstock with margins in a range of -5¢/lb to +5¢/lb. The
high end of the range is determined by cash costs plus mar-
gins of 10-15¢lb. Occasionally, a buying void in one or more
USGC trading hubs triggers a collapse in spot prices. Sec-
ond-quarter 2018 was just such a situation, and spot prices
continued to be too weak to support positive margins for
production from high-cost feeds.
Spot ethylene prices fell sharply in second-quarter 2018. Af-
ter spot ethylene prices dipped to a low of 13¢/lb in May, a mod-
est rally began in July and extended through September. Spot
ethylene’s rising cash cost of production from purity ethane was
the key factor that sparked the modest rally. Spot ethylene pric-
es averaged 16.7¢/lb in third-quarter 2018 but varied between
13-20¢/lb, according to PetroChem Wire. Prices were 19.7¢/lb
in September, up from 13-14¢/lb in May and June.
A series of short-covering episodes in the Mont Belvieu
ethane market pushed purity ethane prices to 60-61¢/gal in
mid-September. The bullish impact was enough to support
spot prices for purity ethane above 40¢/gal through early
October before prices fell to 33-36¢/gal in late October and
even weaker in November and December.
Gross margins (spot ethylene prices minus cash produc-
tion costs) in third-quarter 2018 were -2¢/lb for purity eth-
ane, -7.3¢/lb for propane, and -11¢/lb for natural gasoline.
Margins improved in the fourth quarter to 3.5¢/lb for eth-
ane, breakeven for propane, and -2.7¢/lb for natural gaso-
line. As new plants start up, ethylene supply in the spot mar-
ket will remain plentiful. Spot prices and gross margins will
remain weak for another 4-6 quarters.
Consistent with three full quarters of weak spot prices,
PetroChem Wire monthly reports showed the volume of
fixed-price trades in Texas and Louisiana fell sharply in sec-
ond-quarter 2018 and remained weak through yearend. The
combined volumes of all fixed-price trades (current month
only) for all trading locations were 4.4-4.7 million lb/day in
second-half 2018, 35-40% less than the 2015-17 average.
Fixed-price trades at Choctaw Dome, La., accounted for
34% of all fixed-price trades in second-half 2018, according
to PetroChem Wire. Trade volumes at Choctaw Dome his-
torically account for 3-6% of fixed-price trades. Leveraging
their ownership of ethylene pipelines and weak pricing in
the Mont Belvieu spot ethylene market, a few ethylene sellers
in Texas took advantage of premium prices for spot trades at
Choctaw Dome.
The modest rally in spot ethylene prices in second-half
2018 contributed to an increase in net transaction price
(NTP) contract settlements of 7.3¢/lb during third-quarter
2018. NTP settlements averaged 30.1¢/lb in the third quar-
ter, reaching a peak of 33.75¢/lb in September. As purity
ethane prices fell from a third-quarter peak of 53¢/gal in
September to 29-32¢/gal in November-December, NTP con-

ETHYLENE PRODUCTION COSTS Table 2 ETHYLENE FEED SLATE DEMAND Table 3

Ethane Propane n-Butane Pentane + Naphtha,

2017-18 ––––––––––––––––––––– ¢/lb –––––––––––––––––––––– Ethane LPG Natural gasoline gas oil
2017-18 –––––––––––––––––––––1,000 b/d ––––––––––––––––––––
Q3 13.0 23.3 16.2 20.8
Q4 12.3 29.2 18.9 26.3 Q3 1,115.1 379.7 41.3 102.5
Q1 12.4 20.5 7.2 28.5 Q4 1,232.4 303.4 54.7 127.7
Q2 13.3 20.5 8.6 32.0 Q1 1,342.2 367.6 48.7 114.9
Q3 18.7 24.0 13.0 28.6 Q2 1,394.6 343.7 37.7 104.7
Q4 16.2 19.4 10.8 22.4 Q3 1,424.7 345.6 27.1 101.0
Q4 1,454.6 358.1 32.6 99.0
Source: Petral Consulting estimates
Source: Petral Consulting monthly survey

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 TECHNOLOGY

tract settlements fell to 29.25¢/lb for ETHYLENE PRICES FIG. 2

November-December. 40
Cash production costs based on
purity ethane were 15-23¢/lb in sec- 35
ond-half 2018, averaging 18.7¢/lb in 30
the third quarter and 16.2¢/lb in the
25
fourth quarter. Cash production costs

Price, ¢/lb
for propane were 24¢/lb in the third 20
quarter and 19.4¢/lb in the following
15
quarter. Production costs for natural
gasoline were 28.6¢/lb in the third 10
quarter before falling to 22.4¢/lb in the 5 Spot Contract Ethane cash cost
fourth quarter.
Gross margins in third-quarter 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 were 11.4¢/lb for ethane, 6.1¢/ 2017 2018
lb for propane, and 1.5¢/lb for natural
Source: PetroChem Wire, Petral Consulting market research
gasoline. Gross margins in the fourth
quarter were 13.7¢/lb for ethane,
10.5¢/lb for propane, and 7.5¢/lb for natural gasoline. 150,000 b/d, averaging 130,000 b/d in second-half 2018.
Fig. 2 shows historical trends in ethylene spot prices and
NTPs. Monomer exports
Ethylene and propylene are used as raw material feeds for pro-
Olefin-plant feed slate trends duction of derivative products, with polyethylene and poly-
Petral Consulting’s monthly survey of plant operating rates propylene as the most important derivatives. US chemical
and feed slates showed industry demand for NGL feedstocks companies focus primarily on selling surplus supplies of poly-
jumped to 1.73 million b/d in first-quarter 2018 and 1.74 ethylene, ethylene glycol, PVC, polypropylene, and acryloni-
million b/d in the second quarter. Demand for NGL feeds in trile into international markets. With one ethylene export ter-
first-half 2018 was 209,000 b/d (13.7%) more than in sec- minal in operation, however, US suppliers export only small
ond-half 2017. Full recovery from hurricane-related down- volumes of ethylene monomer.
time was the primary factor for the increase in demand in US International Trade Commission (ITC) data showed
first-quarter 2018. In second-quarter 2018, voluntary plant ethylene monomer exports averaged 1 million lb/day in
shutdowns in response to the collapse in spot ethylene pric- third-quarter 2018, down 0.45 million lb/day (30.8%) from
es and production curtailments offset increased production second-quarter exports. During 2015-18, monomer exports
from new capacity (Table 3). on a quarterly average basis were within a range of zero to
Ethane demand was 1.37 million b/d in first-half 2018, 1.6 million lb/day.
up 195,000 b/d from second-half 2017.
Ethane demand increased by 71,000
b/d in second-half 2018 to 1.44 mil- US POLYETHYLENE EXPORTS FIG. 3
lion b/d. Ethane’s share of total fresh 30
feed was 72.9% in first-half 2018 before
increasing to 75% second-half 2018. 25
In Texas, ethane’s share of fresh feed
was 71.6% in first-half 2018 vs. 67.0% 20
in second-half 2017. In Louisiana, eth-
Million lb/d

ane’s share of fresh feed was 70.0% in 15

first-half 2018 vs. 70.5% in second-half
2017. 10
Propane demand was 267,000 b/d in
first-half 2018 and 264,000 b/d in the 5 HDPE LDPE LLDPE
second half. Propane’s share of fresh
feed averaged 14.2% in first-half 2018 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
and 13.7% in the year’s second half. Af- 2015 2016 2017 2018
ter first-quarter 2018, demand for heavy
Source: US ITC
feeds varied within a range of 120,000-

Oil & Gas Journal | Mar. 4, 2019 39

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 TECHNOLOGY

Until a new USGC ethylene export terminal becomes op- COPRODUCT PROPYLENE FROM ETHYLENE PLANTS Table 4
erational, ethylene export volumes will remain just 1-2% of From From
US production and of no practical importance. light feeds heavy feeds Production
2017-18 ––––––––––––––––– Million lb/day –––––––––––––––

Q3 15.2 5.4 20.6

Polyethylene exports Q4 12.8 7.1 19.9
Q1 14.9 6.1 21.0
According to US ITC statistics, US exports of polyethylene— Q2 14.4 5.3 19.7
including high-density polyethylene (HDPE), low-density Q3 14.6 4.8 19.4
Q4 17.0 4.9 21.9
polyethylene (LDPE), and linear low-density polyethylene
Source: Petral Consulting estimates.
(LLDPE)—rebounded in January-May 2018, continuing to in-
crease during June-October 2018. Exports to all destinations
in January-May were 22.9 million lb/day, increasing by 4.9 ily on the use of propane, normal butane, naphtha, and other
million lb/day (21.5%) to 27.8 million lb/day in June-October. heavy feeds. In first-half 2018, the monthly survey showed
Exports to Canada and Mexico in June-October were 10.3 demand for LPG feeds (propane and normal butane) was
million lb/day, up 0.73 million lb/day (7.7%) from January- 356,000 b/d, while demand for heavy feeds was 153,000 b/d.
May. More importantly, however, exports to all other destina- In the third quarter, demand for LPG feeds fell to 346,000
tions (ROW) in June-October were 17.8 million lb/day, or 4.4 b/d, with demand for heavy feeds slipping to 128,000 b/d.
million lb/day (33.1%) more than in January-May (Fig. 3). If Demand for ethane increased in the third quarter but not
polyethylene exports to ROW destinations increase at a sus- enough to offset the drop in heavy feed demand. Demand
tained rate of 20% per quarter, Petral Consulting estimates for LPG and heavy feeds, however, increased in the fourth
they will reach 40-42 million lb/day by first-half 2020. The quarter, with LPG feed demand rising to 460,000 b/d (about
ability of US chemical companies to ramp up polyethylene 105,000 up from the third quarter) and heavy feed demand
exports at 20%/year every quarter for 6 quarters depends on averaging 132,000 b/d. Demand for ethane was down by
how many companies decide to play hardball while taking about 30,000 b/d.
the various turns along the Yellow Brick Road. Increasing ex- Coproduct supply was 19.3 million lb/day in third-quar-
ports at 20%/year for 18 months seems like a big hurdle but ter 2018, down 0.4 million lb/day (2.1%) from second-quar-
the ramp up in US exports is about 5%/year based on global ter 2018 and 1.3 million lb/day (6.1%) from third-quarter
polyethylene demand; also, growth rates in global demand 2017. Coproduct supply jumped to 22.6 million lb/day in
are allegedly 4-5%/year. Prices for polyethylene exports will fourth-quarter 2018, up 16.8% from the previous quarter.
remain under downward pressure for 18-24 months. Coproduct supply from light feeds (ethane, propane, and
According to PetroChem Wire, spot prices for HDPE (free normal butane) was 14.6 million lb/day in third-quarter 2018
on board, FOB Houston) were steady at 55¢/lb in first-half and 17.7 million lb/day in the fourth quarter. Supply from
2018. Prices, however, began to decline in the third quarter, light feeds in the third quarter was 0.6 million lb/day less than
falling to 45¢/lb in fourth-quarter 2018. Pricing differentials third-quarter 2017 but 4.9 million lb/day more than the previ-
between HDPE and spot ethylene were 34.5¢/lb in third- ous year’s fourth quarter. Coproduct supply from heavy feeds
quarter 2018 before dipping to 24.9¢/lb in the fourth quarter. in second-half 2018 was 4.9 million lb/day, down 1.4 million
Differentials between HDPE and NTP
ethylene prices were 21.1¢/lb in the
third quarter before slipping to 14.7¢/lb HDPE SPOT PRICING, GROSS MARGINS FIG. 4
in the fourth quarter. Trends in HDPE-
60 45
polyethylene differentials show prices
for monomer and polymer also were 40
50
weaker in fourth-quarter 2018. 35
The strong increase in exports is a 40 30
Margin, ¢/lb

harbinger of continued and sustained

Price, ¢/lb

25
growth in the polyethylene export mar- 30
ket. The increase in exports to ROW 20
destinations, and the increase in poly- 20 15
ethylene spot prices are indicators that
10
second-half 2018 and 2019 may be “the 10
best of times” after all (Fig. 4). HDPE HDPE vs. spot ethylene HDPE vs. NTP 5
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Propylene supply 2016 2017 2018
Olefin-plant coproduct supply. Coprod-
Source: PetroChem Wire, Petral Consulting market research
uct propylene supply depends primar-

40 Oil & Gas Journal | Mar. 4, 2019

190304OGJ036-043.indd 40 2/26/19 3:09 PM


lb/day (22.1%) from second-half 2017 (Table 4).
PDH plant supply. Based on PetroChem Wire’s daily re-
ports and other industry sources, Petral Consulting esti-
mates propylene production from propane dehydrogenation
(PDH) plants at the USGC. Three plants with a combined
capacity of 13 million lb/day were operational in second-half
2018, with production averaging 11 million lb/day (85% of
nameplate capacity).
As of first-quarter 2019, no additional USGC PDH capac-
ity is slated to come on stream for the next 2-3 years. In
December 2018, Enterprise Products Partners LP (EPP) an-
nounced it has revived plans for a second PDH plant in Mont
Belvieu. LyondellBasell Industries NV is also near a final in-
vestment decision for a PDH-polypropylene complex. Glob-
ally, however, chemical companies continue to expand PDH
capacity. Ineos AG, for example, recently announced plans
for a major olefins complex at Antwerp, Belgium, that will
include a PDH plant (OGJ Online, Jan. 15, 2018).
Refinery supply. Refinery propylene sales into the mer-
chant market are a function of:
• Fluid catalytic cracking unit (FCCU) feed rates (most
important variable).
• FCCU operating severity (important but not directly
measurable).
• Economic incentive to sell propylene rather than use it
as alkylate feed.
Variations in FCCU feed rates generally are the most im-
portant parameter determining refinery-grade propylene
supply. Economic factors that may result in changes in oper-
ating severity are generally of secondary importance.
Statistics from the US Energy Information Administra-
tion (EIA) show US refineries operated FCCUs at 5.1 million
b/d in third-quarter 2018, up 42,000 b/d (0.8%) from the
second quarter. Based on EIA monthly statistics for Octo-
ber 2018 and weekly statistics for November-December, Pe-
tral Consulting estimates FCCU feed rates in fourth-quarter
2018 declined by 61,000 b/d to average 5 million b/d.
Regionally, EIA statistics showed feed rates for FCCUs in
the USGC and Midcontinent were 3.78 million b/d in third-
quarter 2018. Petral Consulting estimates feed rates were
3.74 million b/d in the fourth quarter, with overall second-
half 2018 feed rates 69,000 b/d higher vs. first-half 2018.
Refinery-grade propylene supply from USGC and Mid-
REFINERY PROPYLENE PRODUCTION
Texas South Other
2017-18 Gulf Coast Louisiana areas
––––––––––––––––– Million lb/day –––––––––––––––
Q3 17.5 18.5 13.8
Q4 21.2 18.8 14.8
Q1 21.5 17.5 12.9
Q2 20.4 17.4 13.6
Q3 21.5 17.3 13.8
Q4* 20.0 19.0 15.4
*Petral Consulting estimates.
Source: EIA Petroleum Supply Monthly, Petral Consulting estimates
Oil & Gas Journal | Mar. 4, 2019
190304OGJ036-043.indd 41
TECHNOLOGY
continent refineries was 49.7 mm lb/day in third-quarter
2018 and 49.2 mm lb/day in the fourth quarter. USGC mer-
chant sales—which include all supply from USGC and Mid-
continent refineries—in second-half 2018 was up 1 million
lb/day (2%) from first-half 2018 (Table 5).
US supply. EIA statistics for refinery-grade propylene and
Petral Consulting estimates for coproduct supply and PDH
plant production show total USGC propylene supply was
79 million lb/day in third-quarter 2018 and 84 million lb/
day in the fourth quarter. Supply from all sources in second-
half 2018 was 81 million lb/day, up 4.4 million lb/day (5.7%)
from first-half 2018.
Fig. 5 shows trends in coproduct supply, PDH plant pro-
duction, and refinery merchant sales of propylene.
Propylene economics, pricing
Before any USGC PDH capacity came on stream, Petral Con-
sulting periodically received questions regarding the impact
of propylene supply from PDH plants on propylene prices.
Based on the operational issues that were generally known
in 2010, Petral Consulting’s answer to these questions was
consistent: more supply from PDH plants translates into
greater pricing volatility for polymer-grade propylene. The
same holds true for refinery-grade propylene pricing.
In distinct contrast with persistently weak spot ethylene
prices, spot prices for refinery-grade propylene were stron-
ger for most of second-half 2018 based on premiums to un-
leaded regular gasoline.
At 85% of nameplate capacity, USGC propylene supply
from PDH plants will average 11 million lb/day. In the absence
of any offsetting reduction in refinery-grade propylene supply,
USGC polymer-grade propylene markets should trend toward
chronic surplus. The previously anticipated chronic propyl-
ene surplus did not occur because US suppliers were able to
offset supply growth with increasing monomer exports.
Before 2016, propylene exports were just enough to offset
imports from Canada. Exports averaged 0.85 million lb/day
in 2010 through first-quarter 2015. During the past 13 quar-
ters (second-half 2015 through third-quarter 2018), how-
ever, propylene exports averaged 2.8 million lb/day (about
three times more than in 2010 through first-quarter 2015)
and were never less than 1.9 million lb/day in the last 9
quarters. In the past 6 quarters, propylene exports were 3.5
million lb/day. Exports are now equal to typical propylene
production from one world-scale PDH plant.
Table 5 Discounts for refinery-grade propylene vs. polymer-grade
propylene exceeded 10¢/lb for the first time in second-quar-
Total
ter 2010, but discounts were consistently less than 10¢/lb in
49.8 fourth-quarter 2010 through third-quarter 2011. During the
54.8
51.9 next 4 years (2012-15), discounts varied within a range of
51.4 7-12¢/lb, averaging 10.1¢/lb. Since 2015, discounts for refin-
52.6
54.4 ery-grade propylene were never less than 10¢/lb in any quar-
ter and averaged 15.7¢/lb in first-half 2018. Discounts were
13.4¢/lb in second-half 2018 and varied within a range of
41
2/26/19 3:09 PM
 TECHNOLOGY

11-16¢/lb. Discounts for refinery-grade PROPYLENE PRODUCTION, SALES FIG. 5

propylene are now routinely 10-12¢/lb 100
and are three to four times more than
in 2005-09.
80
While trends in refinery-grade pro-
pylene pricing discounts vs. polymer-
grade propylene support a bearish 60

Million lb/d
view, trends in refinery-grade propyl-
ene prices vs. unleaded regular gaso- 40
line prices are bullish. Price premiums
for refinery-grade propylene vs. USGC
20
unleaded regular gasoline prices were Refinery merchant sales Coproduct supply PDH plants
5.4¢/lb in second-quarter 2018 before
surging to 9-13¢/lb in July-Septem- 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
ber to average 10.9¢/lb during third- 2016 2017 2018
quarter 2018. As the global collapse in
Source: EIA, Petral Consulting estimates
motor gasoline prices extended into
November-December, however, pre-
miums fell to 6.8¢/lb in November and only 1.7¢/lb in De- will continue to influence spot prices for polymer-grade and
cember. refinery-grade propylene.
In the current market, unpredictable variations in sup- Pricing volatility (measured as the standard deviation of
ply-demand balances result in large swings in polymer- day-to-day variation in spot prices for each month) increased
grade propylene pricing and differentials. The unpredictable as propylene supply from PDH plants and the number of
variability in operating rates of the USGC’s three PDH plants PDH plants in operations increased. In 2017, the standard
deviation for day-to-day variation in spot prices averaged
0.62¢/lb and was 1.0¢/lb or more in only 1 month. In first-
half 2018, the standard deviation averaged 1.09¢/lb and was
1.0¢/lb or more in 3 months.
All PDH plants settled into a period of sustained and steady
operations in fourth-quarter 2018. As anticipated, when PDH
plants ran consistently at high operating rates, pricing volatil-
ity declined. In third-quarter 2018, standard deviations for
daily variations in polymer-grade propylene prices were 0.23-
0.73¢/lb, averaging 0.5¢/lb. In the fourth quarter, standard
deviations measured 0.5-1.1¢/lb and averaged 0.71¢/lb.

“I can think of no one better to translate the complexities of Propylene, polypropylene exports
natural gas liquids into a more easily understandable subject.”
For the first 3 quarters in 2018, monomer exports varied
— Frank H. Richardson, President and CEO, Shell Oil Company, Retired within a range of 3.0-5.5 million lb/day. Monomer exports in
Natural Gas Liquids: A Nontechnical Guide second and third-quarters 2018 were 4.23 million lb/day, up
is a comprehensive overview of NGLs from 0.56 mm lb/day (15.1%) from second and third-quarters 2017.
production in the oil patch to consumption in The primary destinations for monomer exports remain
the fuels and petrochemicals industries. Columbia and Mexico. Exports to Mexico were 1.99 mil-
Learn what is behind natural gas liquids: lion lb/day in first-half 2018, up 0.61 million lb/day (43.9%)
• How they are produced from second-half 2017. Exports to Columbia also increased
• How they are transported in first-half 2018 vs. second-half 2017, with first-half 2018
• How they are consumed in the fuels exports averaging 1.44 million lb/day, or 0.26 million lb/day
and petrochemicals industry (22.1%) more than in second-half 2017. Exports to Mexico
• Profles of successful NGL companies slipped to 1.84 million lb/day in July-October 2018. Exports
to Columbia were also weaker in July-October, averaging
1.33 million lb/day.
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OR CALL 800-752-9764 were weak in first-half 2018 relative to 2015 through first-
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42
NGL14v_petro_141010 1 10/10/14 9:32 AM Oil & Gas Journal | Mar. 4, 2019

190304OGJ036-043.indd 42 2/26/19 3:09 PM

 TECHNOLOGY

half 2018 based on July-October statistics. Exports in first-
half 2018 were 5.97 million lb/day before falling below 5
million lb/day in September-October. July-October exports
averaged 5.11 million lb/day, down 0.87 million lb/day
(14.5%) from first-half 2018.
2019 outlook
Domestic chemical companies have taken the first major
steps from a period when all important variables within
North America were known and developments in markets
outside North America were of interest but not generally rea-
son for concern. The future is all about integrating North
America into the global marketplace. In 2019, however, pro-
ducers’ primary focus will be on the new plants in Louisiana
and Texas that will start up in 2019.
Petral Consulting forecasts US ethylene production will
average 190-210 million lb/day in first-half 2019 and 200-
220 million lb/day in second-half 2019. During first-half
2019, production will average 20-25 million lb/day more
than in 2018. Year-over-year growth in second-half 2019
will increase 25-30 million lb/day.
The outlook for first-half 2019 has characteristics similar
to first-half 2018. Three new plants in Louisiana are sched-
uled to come on stream in 2019. Indorama’s restart of the
950-million lb/year plant acquired from LyondellBasell is in
the early phase of commissioning, while Sasol is likely to
begin an extended startup for new ethylene and derivative
units at its Lake Charles, La., complex.
After 2019, ethylene producers will have access to addi-
tional ethylene export capacity. As one or two export termi-
nals dedicated to ethylene service begin operations in 2020
or 2021, ethylene producers will be able to adjust exports
to maintain balanced markets, and a collapse in spot prices
similar to first-half 2018 will become less likely.
The author
Daniel L. Lippe (danlippe@petral.com) is presi-
dent of Petral Consulting Co., which he founded
in 1988. He has expertise in economic analysis of
a broad spectrum of petroleum products includ-
ing crude oil and refined products, natural gas,
natural gas liquids, other ethylene feedstocks,
and primary petrochemicals.
Lippe began his professional career in 1974 with Diamond Sham-
rock Chemical Co., moved into professional consulting in 1979,
and has served petroleum, midstream, and petrochemical indus-
try clients since. He holds a BS (1974) in chemical engineering
from Texas A&M University and an MBA (1981) from Houston
Baptist University. He is an active member of the Gas Processors
Suppliers Association.

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& Gas Journal | Mar. 4,
1 2019 43
10/25/18 2:23 PM

190304OGJ036-043.indd 43 2/26/19 3:09 PM

 TECHNOLOGY

In-depth phase characterization improves

naphtha cracker emulsion breaking
Fabrice Cuoq
Jérôme Vachon
Saudi Arabian Basic Industries Corp.
Geleen, the Netherlands

Research by Saudi Arabian Basic Industries Corp.
PROCESSING
(SABIC) shows that colloid chemistry analytical
tools combined with advanced analytics enable
clearer understanding of the emulsion properties.
Dynamic surface tension as well as zeta and streaming po-
tential titrations yield valuable information on the molecu-
lar size, electrostatic charge, and isoelectric point (IEP) of
the emulsifier. These combined, measured parameters can
be used to determine the emulsion-stabilization mechanism,
which in turn allows a proper and tailored optimization of
plant conditions.
Background
Naphtha-cracking processes often suffer from oil-in-water
(OW) emulsions in quench water towers (QWT). Organics
within the water phase can deposit in the dilution steam gen-
erators (DSG) and cause severe fouling that can lead to critical
energy losses and threaten production. In practice, emulsion-
breaker dosage or pH reduction are commonly used to break
these emulsions. The mechanism of emulsion stabilization via
emulsifiers, however, is often unknown due to the complex
composition of both aqueous and gasoline phases.
An ethylene plant’s cracked gas
needs to be cooled before proceeding
to the cracked-gas compressor section. ETHYLENE PLANT QWT, DILUTION STEAM SYSTEM
This is generally achieved by quench-
ing the cracked gas with a water stream
in a QWT. The QWT is generally fol-
lowed by a quench-water settler tank QWT,
that allows water and pyrolysis gasoline Water 80° C.
(pygas) separation. The pygas usually
contains a mixture of light hydrocar-
bons such as benzene, toluene, styrene, Cracked
gas
ethylbenzene, cyclic hydrocarbons, and
C5-C10 unsaturated components. This
stream is commonly recovered after
the QWT for further treatment, and the
water phase is sent to a process-water
stripper (PWS) column to remove dis-
solved hydrocarbons. Depending on
plant design, condensates from the top
of the PWS can be rerouted to the QWT as quench-
ing water or sent to the water treatment plant. The
bottom of the PWS is finally routed to the DSG,
where process steam is produced for use as diluent
in the furnaces. The system from the QWS to DSG is called
the dilution steam system (DSS) (Fig. 1).
Either OW or water-in-oil (WO) emulsions can form in
the first compartment of the QWT and may lead to carry-
over of process water or pygas to sections not adapted to
treat such effluents, which can lead to severe issues impact-
ing plant economics, including corrosion, formation of poly-
meric deposits, or in extreme cases, an unplanned shutdown
of the petrochemical plant. OW emulsions are generally the
largest cause for concern. Solid fouling deposits—which
result from the high reactivity of pygas—can be formed in
the DSS, which subsequently leads to severe energy capacity
losses in PWS, preheaters, and the DSG.
In practice, emulsion-breaker dosage or pH reduction are
used to break these emulsions. Physical separation methods
such as coalescers can also be applied. If missing, however,
this solution requires a high-cost hardware change to the
cracker.
FIG. 1
Condensation
vessel
Quench water settler Furnace
Process process
water steam
Process
water
Pygas stripper, Dilution steam
Stripping steam 120° C. generator,
180° C., 8 bars
Purge
Preheaters

44 Oil & Gas Journal | Mar. 4, 2019

190304OGJ044-048.indd 44 2/26/19 3:09 PM


Despite the different existing solutions, the mechanism of
emulsion stabilization and the structure of the emulsifier(s)
are often unknown due to the complex composition of both
phases and the high variability of feedstocks cracked in an
ethylene plant. Empirical solutions are often developed for
these systems by using simple shake-bottle tests without in-
vestigating an emulsion’s true nature and properties.
To our knowledge, this is the first time that colloid chem-
istry analytical tools have been applied to resolving OW
emulsion issues in a naphtha cracker. The results presented
in this article have all been obtained using real plant sam-
ples from one of SABIC’s European naphtha crackers.
Materials
Four OW emulsion samples (pH = 8.8, σ = 135 microsie-
mens (μS)/cm) were taken at different times from a QWS at
one of SABIC’s naphtha crackers. The milky-colored water
samples—which indicate dispersed organics in the water—
were obtained from the bottom of the gasoline-water separa-
tor vessel (Fig. 2).
Samples of OW emulsion taken from the naphtha cracker’s QWS
were milky colored, indicating the presence of dispersed organ-
ics in the water (Fig. 2).
Oil & Gas Journal | Mar. 4, 2019 45
190304OGJ044-048.indd 45
TECHNOLOGY
Methods
A SITA science line t-60 maximum bubble-pressure tensiom-
eter measured dynamic surface tension. Streaming potential
titration determined the charge density of the emulsion. Mea-
surements were performed on a Mütek PCD03PH streaming
potential detector. A total of 19.81 g of process water was ti-
trated with a polydiallyldimethylammonium chloride (Poly-
DADMAC) (1 milliequivalent (meq)/l.) organic coagulant.
While 0.282 ml of the PolyDADMAC solution was needed to
neutralize all charges in the process water, the titration of the
cell itself required 0.220 ml of the blank solution.
The pendant-drop method determined interfacial ten-
sions. In this method, the shape of a droplet suspended from
a needle in a nonmiscible bulk-liquid phase is determined.
The interfacial tension can be derived from the drop shape
and the density difference between the two phases. Analysis
was performed with an Attension CAM-200.
Average gasoline-droplet size was measured using a Mal-
vern Mastersizer 2000, with the mean diameter (volume-
weighed mean) of the droplets found to be about 11.08 μm.
Salting out the process water (NaCl 100g/l.) measured the
amount of gasoline dispersed in the water. Once the emul-
sion was broken, the amount of phase-separated gasoline
was measured volumetrically, revealing that the process wa-
ter contained about 0.1% of dispersed gasoline.
Zeta potential values were obtained with a Malvern Zeta-
sizer NanoZS at 70º C., and the emulsion’s pH was lowered
using a 0.1 volume-to-volume (v/v) % HCl solution.
DSM R&D Solutions BV, Geleen, the Netherlands, mea-
sured liquid chromatography-mass spectrometry (LC-MS)
on a Bruker Daltonics maXis Quadrupole Time-of-Flight
(Q-TOF) mass spectrometer with electrospray ionization
(ESI), atmospheric-pressure chemical ionization (APCI), and
sometimes atmospheric-pressure photoionization (APPI) in
the positive and negative-ion mode. The elemental composi-
tions of the visual peaks were manually determined based
on the accurate mass.
Direct insertion probe-mass spectrometry (DIP-MS) was
performed by DSM Resolve on a Waters Autospec sector-
field mass spectrometer.
Discussion
Zeta potentials (ζ) of -80 ± 6 mv (pH = 8.8, σ = 135 μS/cm)
were obtained for the emulsion at both 25º C. and 70º C. (aver-
age values of the four samples), indicating that the electrostatic
component is relatively strong since ζ < -30 mv are generally
representative of stable emulsions. Using titration, the charge
density of the emulsion was found to be about 2.7 μeq/l. at pH
8.8. By considering an 0.1 v/v % OW emulsion (volumetric
value determined by salting out the emulsion) and an average
spherical-droplet size of 11.08 μm, the charge density of the
emulsion was calculated at 0.62 μeq/sq m.
This calculated value seems low compared to the charge
density generally considered for a stable emulsion. While
2/26/19 3:09 PM
 TECHNOLOGY

the low charge density and the highly negative zeta potential
seem contradictory, they can be partially explained by the
low conductivity of the continuous phase (i.e., 135 µS/cm),
which could be indicative of the presence of low amounts
of adsorbed counter ions. It can finally be concluded that
the electrostatic component of the emulsion is not negligi-
ble in the specific conditions of the naphtha cracker’s QWT
studied. Furthermore, zeta potential measurements can be
used to optimize the emulsion-breaker dosing rate in pro-
cess water. For this, dynamic zeta potential measurements
upon emulsion breaker addition can be recorded offline or
monitored online.
•  Determination of IEP and its relation to emulsion destabi-
lization. Recording the titration curve (streaming potential
vs. pH) while titrating the emulsion with HCl (Fig. 3) deter-
mined its IEP.
From the process water’s original pH of 8.88 to pH 3.45,
the streaming potential shows a continuous increase from
about -400 mv to +200 mv. The charge inversion (at stream-
pH STREAMING POTENTIAL FUNCTION*
600
Isoelectric point = 5.45
400
Streaming potential, mv
ing potential = 0 mv) is obtained at pH 5.45, which corre-
sponds to the IEP. At pH values above the IEP, the droplets
are negatively charged, while below the IEP, the droplets are
positively charged. In this case, cationic charges are gener-
ally caused by amines, whereas anionic charges are generally
due to carboxylic acids. Around the IEP, the emulsion is not
charged and becomes very unstable. Determination of the
IEP will therefore indicate the system’s optimum pH.
Fig. 4 shows the process water at different pH values after
24 hours.
At pH < 3.86, the streaming potential decreases again
slightly because of either the compression of the double lay-
er or a systematic decrease in streaming potential, both in-
duced by the high concentration of ions.
Recording dynamic surface tension measurements al-
lowed estimates of the time needed for the emulsifiers to dif-
fuse to a newly created hydrophobic surface (Fig. 5).
Surface tensions of both emulsion bottles (measured in
duplicate) lie well above the ones for pure water, indicating
that no free-surface active species are
present in the process water. Also, the
FIG. 3 stable high surface tension indicates
that the emulsion is not stabilized by
small molecules but rather by amphi-
philic polymers because these do not
have time to migrate from the emul-

200 sion droplet onto the bubble surface

for a bubble life of even 10 sec. The
0 fact that the values are slightly above
the pure-water value is because the
–200 samples were colder (18° C.) than the
water reference (25° C.), giving them a
–400 slightly higher ionic strength. Surface
HCl titration tension generally increases with low-
–600 er temperatures and increased ionic
2 4 6 8 10
pH
strength.
*For OLE4-unit process water.
Fig. 6 shows the evolution of the
zeta potential as a function of time

Process water at higher pH values after 24 hours increased in murkiness (Fig. 4).

46 Oil & Gas Journal | Mar. 4, 2019

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 TECHNOLOGY

DYNAMIC SURFACE TENSION FIG. 5 upon an increase of the conductivity

to 2.3 ms/cm (achieved by NaCl addi-
77
Water blank tion).
Emulsion Bottle 1 Upon addition of a high concentra-
75 Emulsion Bottle 2 tion of NaCl, the zeta potential starts
to slowly increase (become less nega-
Tension, mN/m

73 tive), finally reaching a plateau value

of -20 mv. This observation is unusual
as zeta potential—like other electro-
71
static effects involving small ions—is
generally rapidly affected within sec-
69 onds or minutes once the conductivity
of the continuous phase is changed.
67 Once the salt solution is added to the
0.01 1.00 100.00 system, however, molecular rearrange-
Bubble life, sec ments at the droplet surfaces occur,
causing this slow increase in zeta po-
tential and showing that the thermo-
dynamic equilibrium has not yet been
reached. This last observation sug-
ZETA-POTENTIAL TIME FUNCTION AFTER CONDUCTIVITY INCREASE* FIG. 6 gests that the charged groups are at-
0 tached to polymeric species for which
structural rearrangements take place
at time scales of minutes to hours.
For a polymeric species to be sur-
Zeta potential, mv

–20 face active, it should possess an am-

phiphile character, meaning that part
of its chain must be in the aqueous
phase (hydrophilic side) and part of it
–40 in the oil phase (lipophilic side). The
presence of molecular-chain segments
in the aqueous phase implies that ste-
–60
ric phenomena play a role in stabiliz-
0 50 100 150 200 ing a surface. The combined action of
Time, min electrostatics and sterics is generally
*Increase of conductivity to 2.3 ms/cm achieved with NaCl addition. called electrosteric stabilization. Based
on the presented data and observa-
tions, we can conclude the emulsion is
electrosterically stabilized.
•  Analytical chemistry for emulsifiers identification. Results
of earlier testing showing the emulsifier as charged with a
polymeric nature prompted selection of the freeze-drying
method to isolate and analyze chemical structures of the
emulsifiers. Freeze drying consists of freezing the main wa-
ter phase and sublimating the ice under vacuum. This treat-
ment method evaporates water and light compounds (i.e.,
volatile monomers) from the dispersed gasoline, leaving
only heavier species (i.e., potential emulsifiers).
Fig. 7 shows the residue obtained after freeze drying 1 l.
of process water.
Interfacial tension between water and pygas was deter-
mined with addition of the extract residue (tested concentra-
Freeze drying sampled process water made residue visible (Fig. tion: 1,000 ppm vs 100 ppm in process water) to confirm the
7). surface-active properties of the material. Results indicated

Oil & Gas Journal | Mar. 4, 2019 47

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 TECHNOLOGY

GASOLINE-WATER MIXTURE INTERFACIAL TENSION, pH 4.3* FIG. 8 Path ahead

Based upon findings of our study, zeta
30 and streaming potential allows quanti-
Reference, pH 4.3
fication of the electrostatic component
Extract, pH 4.3
of the OW emulsion stabilization. Op-
25
erators can use these data to help find
Tension, mN/m

the appropriate root cause of emulsion

20
and fine tune a proper treatment plan
for naphtha-cracking operations, such
as decreasing or increasing emulsion-
15 breaker concentration or finding the
optimum pH range.
This type of analysis, we believe,
10 brings a major benefit compared to
0 10 20 30 40 50
the classical conductivity-turbidity-pH
Time, min analyses usually performed by the in-
*With and without extract residue.
dustry on such a system.

The authors
Fabrice Cuoq (fabrice.
GASOLINE-WATER MIXTURE INTERFACIAL TENSION, pH 8.7* FIG. 9 cuoq@sabic.com) has
30 worked at Saudi Arabian
Reference, pH 8.7 Basic Industries Corp.
Extract, pH 8.7 since 2013, currently
25 serving as a senior sci-
entist in the technology
Tension, mN/m

department. During this time, he has

20
15
10
0 20 40
Time, min
*With and without extract residue.
that interfacial tension is lower once the material is added to
the water-gasoline, demonstrating its strong surface-active
properties, most notably at lower pH (Figs. 8-9).
The dual-technique analyses (LC-MS, DIP-MS) of residue
material identified specific compounds that could be respon-
sible for emulsion stabilization: polyethylene glycol (PEG,
with different end groups); fatty acids and sulfonate-type
compounds; and large styrenic-fulvenic types of molecules.
While the origin of such species remains under investiga-
tion, it is possible that the PEG, fatty acids, and sulfonate-
type compounds are a result of recycling-process additives
to the QWT or related to feedstock oxygenates, whereas the
large styrenic-fulvenic compounds could be formed and in-
herent to the cracked-gas stream. Overall, the combination
of these three types of functional groups fit with an elec-
trosteric stabilization mechanism.
provided chemistry support on the pro-
cess and water sides to SABIC’s operat-
ing plants in Europe and Saudi Arabia.
Cuoq holds a MS (2009) in material
sciences from Institut National des Sci-
ences Appliquées de Lyon, France, and
60 80 a PhD (2012) in colloidal chemistry from
the University of Aix-Marseille, France.
Jérôme Vachon (jerome.
vachon@sabic.com) has
worked at Saudi Arabian Basic Industries Corp.
since 2010, currently serving as a lead scientist
in the technology department. After previ-
ously providing chemistry support to SABIC’s
operating plants in Europe, he now focuses on
development of polyolefin material. Vachon holds a MS (2002)
in chemical engineering from CPE Lyon, France, and a PhD
(2006) in organic chemistry from the University of Geneva,
Switzerland.

48 Oil & Gas Journal | Mar. 4, 2019

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US DOE details Marcellus-Utica
ethane, petrochemical options
Expanding the US petrochemical asset base be-
yond the Gulf Coast, where almost all US ethylene
production is sited, would enhance its geographic
diversity and support reliability of the petrochemi-
cal industry. More than 95% of US ethylene pro-
duction capacity is in Texas or Louisiana. Further,
the development of new petrochemical capacity TRANSPORTATION
elsewhere would not necessarily conflict with con-
tinued Gulf Coast expansion. New capacity be-
yond the Gulf Coast could serve regional demand for NGL
derivatives, freeing up Gulf Coast production for other mar-
kets, including exports.
The US Department of Energy (DOE) prepared a report to
Congress in November 2018 titled “Ethane Storage and Dis-
tribution Hub in the United States.” It addressed the feasibil-
ity of a new ethane storage and distribution hub in the US.1
Large hubs for NGL storage, including ethane, are already in
place in the US, but the boom in crude oil and natural gas
production from shale formations may present opportuni-
ties for industry to establish additional hubs.
DOE gathered and analyzed information regarding ethane
supply and related infrastructure. This analysis considered
projected trends in ethane production over the coming de-
cades, where changes in ethane production are projected to
occur, the location and capacity of established ethane storage
hubs in North America, and NGL pipe-
lines, among other things. The analysis
focused on identifying regions in which US NGPL PRODUCTION
significant growth in ethane produc-
tion is projected and established ethane 7
hubs do not exist.
6
In its “Annual Energy Outlook 2018
(AEO 2018),” the US Energy Informa- 5 East
tion Administration (EIA) projected
Million b/d
natural gas plant liquids (NGPL) pro- 4
duction to nearly double between 2017
and 2050 (Fig. 1), supported by an 3
increase in global petrochemical de-
2
1
Adapted from US Department of Energy
Report to Congress, “Ethane Storage and 0
Distribution Hub in the United States,” 2000
Source: US Energy Information Administration
November 2018.
Oil & Gas Journal | Mar. 4, 2019
190304OGJ049-055.indd 49
TECHNOLOGY
mand.2 Most NGPL production growth in the re-
port’s reference case occurs before 2025 when in-
creased demand spurs higher ethane recovery and
producers focus on NGL-rich plays.
The large increase in NGL will come from the
Marcellus and Utica plays in the east and from the
Permian basin in the southwest over the next 10
years. By 2050 the east and southwest regions ac-
count for more than 60% of total US NGL produc-
tion in the AEO 2018 reference case.3
Between early 2011 and mid-2013, industry announced
capacity expansions, feedstock changes, and new plant con-
struction because of the significant increase in availability of
ethane in the US.4 These investments focused near the Mont
Belvieu, Tex., NGL hub on the Gulf Coast and near the hub
in Sarnia, Ont. Construction of three new ethylene crackers
on the Texas Gulf Coast was completed end-2017. Additional
pipeline and export infrastructure was built to export eth-
ane by tanker from terminals at Morgan’s Point, Tex., and
Marcus Hook, Pa.; both sites opened in 2016.5
Lacking storage in the east, several pipelines have been
built to deliver NGL from the east region to Mont Belvieu and
Sarnia; the first pipeline to enter service that moves ethane
out of the Appalachia region to Canada was Sunoco Logis-
tics’ Mariner West pipeline, which was commissioned in De-
FIG. 1
2017
History Projections
Southwest
Other US
2010 2020 2030 2040 2050
49
2/26/19 3:09 PM
 TECHNOLOGY

EAST REGION ETHANE PRODUCTION FIG. 2 (including additional storage capacity)

in Mont Belvieu announced by Oneok
1.0
Inc. is reported to cost $575 million.
Projections
Shell Chemicals’ ethane cracker proj-
0.8 ect under construction in Pennsylva-
nia is reported to cost $6 billion.6
Natural gas produced in the Appa-
Million b/d

0.6
0.4
0.2
0.0
2013 2025
Source: US EIA
cember 2013. Early in 2014, the Appalachia-Texas-Express
(ATEX) pipeline began shipments of ethane from the Appala-
chian region into the Midwest and Gulf Coast.
Projected growth in NGPL production in the east region
presents an opportunity for industry to establish an ethane
storage and distribution hub near Marcellus and Utica shale
production. Ethane production in the region is projected
to continue its rapid growth. Projected 2025 production of
640,000 b/d, is more than 20 times the regional ethane pro-
duction in 2013 (Fig. 2). By 2050, ethane production in the
region is projected to reach 950,000 b/d.
North America has the second largest ethylene produc-
tion capacity in the world behind the Asia-Pacific region.
Production, however, is highly concentrated on the US Gulf
Coast; more than 95% of US ethylene capacity is in either
Texas or Louisiana (Fig. 3).
Significant production capacity
growth is projected across the ethane
value chain, which includes interme- US ETHYLENE PRODUCTION CAPACITY
diate products such as polyethylene, 35
ethylene oxide, ethylene dichloride,
and others. Fig. 4 shows projected 30
capacity growth by region in the US;
between 2018 and 2040, production 25
Million tonnes/year
lachian basin tends to contain higher
amounts of ethane, and regional pro-
cessing plants extract most ethane
separately to manage pipeline natural
gas heat content.7
In support of the dramatic increase
in production between 2010 and 2016,
natural gas processing capacity in the
2037 2045 Marcellus and Utica plays grew nearly
tenfold and fractionation capacity in-
creased twentyfold.8
The establishment of an ethane
storage and distribution hub near production from the Mar-
cellus and Utica plays could provide supply-diversity ben-
efits to the broader petrochemical and plastics industries.
The geographic concentration of petrochemical infrastruc-
ture and supply along the Gulf Coast may pose a strategic
risk, where severe weather events limit the availability of
key feedstocks. Petrochemical expansion beyond the Gulf
Coast would increase geographic diversity. This geographic
diversity could provide manufacturers with flexibility and
redundancy regarding where they purchase their feedstock
and how it is transported to them. Moreover, this flexibility
and redundancy, as well as the overall increase in U.S. feed-
stock production, could mitigate the potential for any price
spikes in petrochemical feedstocks caused by severe weather
or other disruptive events in any one region.
FIG. 3

capacity of ethylene and intermediate

petrochemical products is expected to 20
increase by more than 85%. The un-
15
specified capacity depicted in Fig. 4
represents projected new capacity that 10
has not been attached to a specific lo-
cation to date. 5
The required investments to build
a petrochemical hub are significant. 0
1980 1985 1990 1995 2000 2010 2015
For example, a new 125,000 b/d NGL Rest of US Texas Louisiana Appalachia
Source: US EIA
fractionator and related infrastructure

50 Oil & Gas Journal | Mar. 4, 2019

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 TECHNOLOGY

Natural gas, NGL production US ETHANE VALUE-CHAIN PRODUCTION CAPACITY FIG. 4

AEO 2018 projects natural gas produc- 180
tion from shale resources will more
160
than double by 2050 (Fig. 5). Con-
tinued development of the Marcellus 140
and Utica plays is the main driver of

Million tonnes/year
120
growth in total US natural gas produc-
tion across most cases and the main 100
source of total US dry natural gas pro- 80
duction. EIA forecasts production from
60
the Eagle Ford and Haynesville shales
to be a secondary source of domestic 40
dry natural gas, with production large- 20
ly leveling off after 2028. Associated
natural gas from tight oil production 0
2018 2023 2028 2033 2038
in the Permian grows strongly through Rest of US Texas Louisiana Appalachia Unspecified
Source: US EIA
2050.
The Appalachian basin’s shale re-
sources are such that, were the region an independent coun- portion of ethane. A world-scale ethane cracker typically
try, it would be the world’s third largest producer of natural consumes around 90,000 b/d of ethane for ethylene produc-
gas.9 Appalachian natural gas production is projected to con- tion.
tinue very steady growth in the short and long-term. Natural Beyond moving ethane from the Appalachia basin to estab-
gas output, estimated at 8.19 tcf in 2017, is projected to in- lished North American hubs and export markets, the projected
crease by 65% to 13.55 tcf in 2025. Output in 2050 is pro- growth in NGPL production in the east presents an opportu-
jected at 19.5 tcf. nity for industry to establish an ethane storage and distribu-
AEO 2018’s reference case projects NGPL production to tion hub near the Marcellus and Utica shales. The extent to
nearly double between 2017 and 2050. Most NGPL produc- which Appalachian NGL will be converted and consumed lo-
tion growth occurs before 2025 (Fig. 1), when producers focus cally depends on regional infrastructure additions and, more
on NGL-rich plays and increased demand spurs higher ethane specifically, the interplay between storage and transportation.
recovery. After 2025, production migrates to areas where NGL NGL storage solutions in the Appalachian region are begin-
yields are lower. ning to expand. As storage capacity in the region increases, so
NGPL output in the east region, and by proxy the Appa- too does the potential to use locally produced NGL as petro-
lachian basin, will continue to grow throughout the forecast chemical feedstocks in manufacturing operations expanding
period. As natural gas production gradually migrates away and coming online within Appalachia.
from liquids-rich gas areas, which are expected to slowly de-
plete, to dryer areas, the rate of growth
in NGPL production will slow rela-
tive to the rate of natural gas produc- SHALE GAS PRODUCTION FIG. 5
tion growth. NGPL output from 2017 2017
to 2025 will more than double from 45
History Projections
610,000 b/d in 2017 to 1.35 million 40
b/d in 2025. NGPL output is projected
35
to reach 1.93 million b/d in 2050.
Ethane production in the region 30
will continue its rapid growth. Pro- East
25
jected production in 2025, at 640,000
tcf

b/d, is more than 20 times greater than 20

regional ethane production in 2013. By 15
2050, ethane production in the region
10 Gulf Coast
is projected to reach 950,000 b/d (Fig.
2), on the back of both higher NGL 5
Rest of US
production in general, and higher re- 0
covery of ethane as gas plants improve 2000 2010 2020 2030 2040 2050
Source: US EIA
their capacity to extract a higher pro-

Oil & Gas Journal | Mar. 4, 2019 51

190304OGJ049-055.indd 51 2/26/19 3:09 PM

 TECHNOLOGY
Storage
US underground NGL storage sites extend from Kansas to
southern Texas and New Mexico. Sites in Mont Belvieu,
Conway, Kan., and Sarnia, Ont., all benefit from access to
underground salt formations. Mont Belvieu, the largest NGL
hub in North America, has more than 240 million bbl of
NGL storage capacity. Conway has salt cavern NGL storage
capable of holding 21 million bbl. And Sarnia has more than
20 million bbl NGL storage capacity.
The Appalachian region has generally depended on stor-
age elsewhere to satisfy peak-season NGL demand. There are
only a few significant regional sites, nearly all of which store
propane and are connected to Enterprise Products Partners
(EPP) LP’s Texas Eastern Products Pipeline Co. (TEPPCO)
pipeline.
Crestwood Midstream Partners’ proposed Finger Lakes
NGL storage site at Watkins Glen, NY, was held in regu-
latory stasis for more than 7 years, first filing a request to
convert the depleted salt caverns to hydrocarbon storage in
2009, and satisfying all of the New York State Department of
Environmental Conservation’s (DEC) requirements by mid-
2013.10 The project involved use of two existing caverns on
the shore of Lake Seneca at Watkins Glen, near EPP’s Wat-
kins Glen terminal and with a connection to TEPPCO.
As originally proposed, the site would have been capable
of holding a combined 2.1 million bbl of propane and bu-
tane. Crestwood, seeking support from the adjacent com-
munities, revised the project numerous times, most recently
by reducing its scope to storing just propane, and in only
the larger, 1.5-million bbl cavern.11 It has also shifted from
building the terminal to include rail and truck access, with
pipeline access now the only option. In September 2017, one
of the last challenges to Crestwood’s DEC application was
struck down, allowing the project to possibly proceed.12 But
in December 2018 the company said it was no longer pursu-
ing the project.13
Sunoco’s site at Marcus Hook, Pa., sits 300 ft above five
granite caverns capable of storing a combined 2 million
bbl of NGL and olefins.14 These caverns were mined in the
1950s, 60s, and 70s, and were an integral part of operations
at its shuttered Marcus Hook refinery. The smallest cavern,
at about 200,000 bbl, now belongs to Braskem and is in-
tegrated into its polypropylene operations. The remaining
capacity belongs to Sunoco with the largest cavern capable
of holding roughly 1 million bbl. Some of the capacity is set
aside to serve PBP Energy’s Paulsboro, NJ, refinery across the
Delaware River, while the rest are part of Sunoco’s opera-
tions at the Marcus Hook terminal, including exports.
Sunoco expanded storage at the site as part of developing
its Mariner East pipeline. The initial phase of the expansion
project, which accompanied the Mariner East pipeline rever-
sal and repurposing for NGL service, included a 300,000-
bbl ethane tank and a 500,000-bbl propane tank. Expan-
sion plans include adding a 900,000-bbl propane tank, a
52 Oil & Gas Journal | Mar. 4, 2019
190304OGJ049-055.indd 52
589,000-bbl propane tank, a 575,000-bbl butane tank, and
a 300,000-bbl ethane tank.
Energy Storage Ventures LLC, a joint venture between
Mountaineer NGL Storage and Powhatan Salt Co., is devel-
oping an NGL storage site in Monroe County, Ohio. Phase
I of the subterranean storage will operate multiple caverns
totaling 2-million bbl, solution-mined in the Salina bedded
salt formation roughly 6,500 ft below the Ohio River Valley.
The site will serve as centrally-located storage for NGL in the
Appalachian region with rail and truck loading capacity as
well as two 10-in. OD bi-directional pipelines to Blue Racer
Midstream LLC’s nearby Natrium fractionator. Initial storage
is scheduled to begin in 2019 and ramp up to full operable
capacity by mid-2020. With sufficient interest, the compa-
nies may develop Phase II and expand to the site’s permitted
3.25-million bbl capacity.
Appalachia Development Group LLC (ADG) is devel-
oping the Appalachia Storage and Trading Hub (ASTH), a
proposed underground NGL storage site. The project is in-
tended to be a catalyst for further mid- and downstream de-
velopment associated with the Marcellus, Utica, and Rog-
ersville shales. To determine its basic eligibility for a federal
loan guarantee, ADG submitted a Part I application in Sep-
tember 2017 to the US DOE Loan Program Office (LPO). In
January 2018, the LPO invited ADG to submit a Part II appli-
cation for a loan guarantee under the DOE Title XVII Loan
Program, which entails submitting a comprehensive applica-
tion for the proposed project. ADG is seeking a $1.9-billion
loan guarantee that will first require securing an additional
$1.4-billion in equity. The site of the proposed hub has yet to
be determined. ADG in August 2018 selected Parsons Corp.
as its engineering, procurement, and construction partner
for ASTH.
The accompanying box details further in-region options
for Appalachian NGL storage.
Development
There are three potential paths future infrastructure devel-
opment could follow, influenced by: global capacity expan-
sion, global demand growth, international aggressiveness in
pricing for market share, domestic production trends, capi-
tal market preferences, domestic regional incentives, and
technological change, among other factors. Underlying each
scenario is the general assumption that shale production and
the related supply of natural gas and NGL for petrochemical
feedstock will continue to grow and that the Marcellus and
Utica shales will make major contributions to total domestic
supply. The following three scenarios focus on where pro-
cessing will occur.
In Scenario A, development of a petrochemical cluster in
Appalachia is assumed to increase to the point that much in-
cremental Appalachian supply is processed locally. Scenario
B assume focus on continued development in the existing
Gulf Coast complex. In Scenario C, incremental processing
2/26/19 3:09 PM
 TECHNOLOGY

occurs elsewhere, supplied by US feedstock exports.
•  Processing in Appalachia. This scenario assumes mar-
ket participants individually pursue a partial or complete
build out of a new petrochemical supply chain in the Appa-
lachian region. The supply chain and the overall size would
be smaller and less comprehensive than what is currently in
place on the Gulf Coast. Local and regional capital invest-
ment would be the largest of the three scenarios.
Required investment to build a petrochemical hub in
Appalachia would be significant. Shell Chemicals’ ethane
cracker under construction in Pennsylvania is reported to
cost $6 billion. New infrastructure would include gathering
lines, processing plants, fractionation, NGL storage, ethane
crackers, and some combination of plants for polyethylene,
ethylene dichloride, ethylene oxide, and other infrastruc-
ture. It is likely that without building petrochemical plants
that would serve as demand for all components of the NGL
stream, some would still be transported out of the region.
This would be more likely in the initial years as the petro-
chemical complex first develops.
Growth in the petrochemical industry would also impact
other industries, and additional required supporting infra-
structure would be needed. For instance, increased electric-
ity demand could require additional power plant capacity; in-
creased truck traffic could impact existing road infrastructure.
These impacts could be mitigated to some degree through co-
ordinated planning and infrastructure development.
New and expanded transportation infrastructure would
be especially important to move intermediate or end-use
products from Appalachia to markets in the Midwest, Gulf
Coast, Canada, or Northeast for consumption or export.
These transportation systems would need to be created or
expanded. New suppliers and contracts would have to be
established.
The required large capital investments highlight the need
for coordination across the petrochemical industry since
their products are all highly interdependent on feedstock
provided by others. Major petrochemical facilities take years
to construct, and for the investments to make economic
sense, the necessary market demand needs to exist when
new plants come online.
Under this scenario, the economic benefit from signifi-
cant growth in the petrochemical sector would be concen-
trated in Appalachia through jobs creation and economic
multipliers, and this would benefit neighboring markets
as well. For example, the Midwest could benefit from low-
er prices for delivered plastics. Producing and processing
ethane in Appalachia using new, more efficient plants and
shorter transportation distances to the Midwest than from
the Gulf Coast could lower costs and environmental impact.
A new Appalachian petrochemical supply area would also be
closer to demand in Ontario and Europe.
Adding a new petrochemical supply source would im-
prove the security of supply for markets in the Midwest and
potentially across the US. Adding another petrochemical
cluster would increase the geographic diversity of petro-

Prospective Marcellus-Utica subsurface NGL storage sites

In August 2017, the Appalachian Oil and Natural Gas Consortium (AONGRC) released a geologic study that looked at and mapped potential
underground storage options for NGLs produced in the Marcellus and Utica shale plays.
This study evaluated prospective geologic formations in West Virginia, Ohio, and Pennsylvania that offered subsurface conditions eligible for host-
ing underground NGL storage, prerequisite for an ethane storage and distribution hub and potential growth of the petrochemical industry in the
region. Specifically, the following three subsurface storage prospects were investigated and found suitable for prospective underground storage:
•  The Northern Prospect encompasses the northern panhandle of West Virginia and adjacent portions of eastern Ohio and western Pennsylvania,
presenting storage opportunities in the Clinton-Medina sandstones of Ohio’s Ravenna-Best Consolidated field and two Salina F4 salt cavern op-
portunities straddling the Ohio River. In addition, the Oriskany sandstone occurs throughout this portion of the Appalachian basin, overlying both
intervals, and offers a potential stacked opportunity based on available subsurface data.
•  The Central Prospect includes portions of southeastern Ohio, southwestern Pennsylvania, and north-central West Virginia and contains five
storage opportunities: Greenbrier limestone mined-rock cavern options; depleted gas reservoirs in the Keener-to-Berea interval in and between
the Maple-Wadestown and Condit-Ragtown fields; a depleted gas reservoir in the Upper Devonian Venango group in the Racket-Newberne (Sink-
ing Creek) gas storage field; depleted gas reservoirs in Upper Devonian sandstones in the Weston-Jane Lew field; and a Salina F4 Salt opportunity
near Ben’s Run in West Virginia.
•  The Southern Prospect is situated in the Kanawha River Valley of West Virginia and comprises the most storage opportunities of any prospect
evaluated in the AONGRC study, including mined-rock caverns in the Greenbrier interval; an Oriskany sandstone natural gas storage field; and
various depleted gas fields in the Keener-to-Berea, Oriskany sandstone, and Newburg sandstone intervals. What’s more, many stacked and
adjacent opportunities are available within a relatively small geographic area. The number, variety and stacking of storage opportunities in the
Southern Prospect shows its potential to support a thriving petrochemical industry, according to the study.
AONGRC operates from the West Virginia University (WVU) Energy Institute and is a partnership among two WVU departments and the state
geological surveys of West Virginia, Ohio, Pennsylvania, and Kentucky.

Oil & Gas Journal | Mar. 4, 2019 53

190304OGJ049-055.indd 53 2/26/19 3:09 PM

 TECHNOLOGY
chemical supply, helping other markets in the event of sup-
ply interruptions. Development of an Appalachian cluster is
also not necessarily in conflict with Gulf Coast expansion,
since Appalachian capacity could serve regional demand for
NGL derivatives, freeing up Gulf Coast production for other
markets, including export.
•  Gulf Coast processing. This scenario assumes a focus
on building gathering and gas processing plants to separate
and ship purity NGLs rather than building a local petro-
chemical industry. Increased NGL production would require
new pipelines and possible new marine export terminals to
be built to take NGL to the Gulf Coast and export markets,
and these market opportunities would help expand capacity
to handle greater feedstock volumes. Finished petrochemi-
cal products (e.g., plastic pellets, etc.) would then either be
shipped back to the Appalachian region or exported via the
Gulf of Mexico, increasing reliance on using chemical man-
ufacturing at existing industrial centers in the Gulf Coast
region.
Scenario B would result in considerably less regional in-
vestment in Appalachia. Most initial investment in Appa-
lachia would concentrate on Y-grade (NGL mixed product)
pipelines and storage. The new transportation infrastructure
would connect to existing infrastructure in the Gulf Coast.
Growth of Gulf Coast petrochemical production capacity
would ramp up with the new purity product supply, af-
fecting local markets and the labor pool. Economic growth
would be split between Appalachian NGL production and
processing and Gulf Coast petrochemicals production.
Construction of storage and pipeline infrastructure would
provide increased economic activity initially, followed by the
gains from increased production. In the Gulf Coast region
the increase in NGL supply and associated increase in pet-
rochemical manufacturing capacity would raise economic
output and labor employment.
In this scenario, there would be less US security of supply
for plastics markets since petrochemical production would
remain concentrated on the Gulf Coast. Supply disruptions
caused by hurricanes or other factors could impact petro-
chemical supply chains across the country.
•  International processing. Purity NGL products would
be shipped from Appalachia for processing elsewhere. This
scenario assumes these shipments would be focused inter-
nationally to take advantage of existing, but underutilized,
petrochemical processing capacity idled due to high feed-
stock prices and competition from low-cost Middle Eastern
petrochemical supplies. New pipelines and marine export
terminals would be required to take Appalachian NGL to
foreign processing and consumption centers. Export would
also allow Appalachian producers and shippers to take ad-
vantage of European naphtha crackers now being converted
to use ethane as feedstock.
Initial investments would focus on pipelines to move NGL
to Canada for plastics production and to East Coast ports for
54 Oil & Gas Journal | Mar. 4, 2019
190304OGJ049-055.indd 54
export to Europe. Existing port capacity may be constrained,
requiring expansion, which may not be possible at some lo-
cations. Ports would likely need upgrades to efficiently han-
dle the expanding flow of NGL. Initial availability of suitable
ships meeting port specifications also may be limited.
In this scenario, economic growth would be more distrib-
uted, with investment more widely dispersed and smaller than
with the buildout of new US petrochemical plants. The export
of large volumes of ethane and other NGL would provide eco-
nomic benefits and positively impact the trade balance.
This scenario increases Appalachian producers’ sales op-
tions as it would provide several outlets for their NGL. If one
route was constrained or out of service for some reason, the
other markets could provide alternatives.
Appalachian potential
Other studies have examined the opportunity for increased
petrochemical activity in Appalachia tied to the region’s
abundant ethane supply. In March 2018, IHS Markit re-
leased a study on the shale region of Ohio, Pennsylvania,
and West Virginia.15 The study compared a hypothetical in-
vestment of almost $3 billion in an ethylene-polyethylene
plant in the region versus the US Gulf Coast over a 20-year
timeframe. The study points to the access of low-cost ethane
and proximity to polyethylene consumption as drivers for
financial advantage in the Marcellus-Utica region. Findings
of note included:
•  The region will supply 37% of US natural gas produc-
tion by 2040.
•  Base case, and using a 15% discount rate, the analysis
predicted a net present value (NPV) in 2020 on earnings be-
fore interest, taxes, depreciation, and amortization of $930
million over the life of the project compared to $217 million
for a similar Gulf Coast project.
•  Under a stress test that included higher capital costs
and lower operating rates, a Marcellus-Utica project resulted
in negative NPV returns in only 1% of 10,000 simulations.
•  Expected returns for a project in the region versus the
Gulf Coast are higher under all analyzed scenarios.
The synopsis of the study closes with the statement: “The
comparative financial advantage for a [Marcellus-Utica]
project would be further enhanced if more-than-anticipated
transportation facilities, natural gas and NGL storage, and
pipeline infrastructure occurs in the region.”10
Industry has made significant investments in natural gas
and NGL infrastructure to support the boom in production
in Appalachia over the past decade. Between 2010 and 2016,
natural gas processing capacity increased tenfold, and frac-
tionation capacity in the Appalachian region increased from
41,000 b/d in 2010 to nearly 850,000 b/d in 2016 and may
grow as high as 1.1 million b/d in 2019. Underground stor-
age projects are being considered, and a world-scale ethane
cracker is already under construction in Pennsylvania.
NGL storage is necessary for a future hub since produced
2/26/19 3:09 PM PenCus

volumes typically exceed pipeline takeaway capacity and
processing capacity. Storage helps mitigate production vola-
tility and in turn reduces risk for end users.
Appalachia’s abundant resources coupled with extensive
downstream industrial activity may offer a competitive ad-
vantage that could enable the region to displace marginal
producers and help the US gain global petrochemical market
share. Nearly one-third of US petrochemical activity occurs
within 300 miles of Pittsburgh, with over $300 billion of
net revenue. US petrochemical manufacturing capacity and
growth is poised to continue expanding given the expecta-
tion of shale production growth. Projected, but unspecified
to a particular region, incremental petrochemical capacity
will generate nearly $227 billion in revenue between 2018
and 2040.
References
1. US Congress, House of Representatives, Committee
on Appropriations, “Energy and Water Development Appro-
priations Bill,” 2017, 114th Congress, 2nd Session, H. Rept.
114-532.
2. US Energy Information Administration (EIA), “Annual
Energy Outlook 2018,” 2018.
3. EIA, “Natural Gas Weekly Update,” Mar. 1, 2018.
4. EIA, “Growing US HGL production spurs petrochemical
industry investment,” Jan. 29, 2015.
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TECHNOLOGY
5. EIA, “US ethane consumption, exports to increase as
new petrochemical plants come online,” Feb. 20, 2018.
6. Marcellus Drilling News, “Shell Taps Brit to Run the $6B
Ethane Cracker Project in Monaca,” Nov. 8, 2017.
7. EIA, “Appalachian natural gas processing capacity key
to increasing natural gas, NGPL production,” Aug. 29, 2017.
8. EIA, “Newly released heat content data allow for state-
to-state natural gas comparisons,” Oct. 14, 2014.
9. Deloitte Development LLC, “Sustaining Growth: Appala-
chia’s Natural Gas Opportunity, 2017, p. 4.
10. State of New York, Department of Environmental
Conservation, “Finger Lakes LPG Storage LLC, Underground
Storage Facility,” October 2014.
11. Smalley, M., “Crestwood adjust Finger Lakes storage
facility plans,” LPGas, Aug. 10, 2016.
12. State of New York, DEC, “Ruling of the Chief Adminis-
trative Law Judges on Issues and Party Status in the Matter
of the Application for an Underground Storage of Gas Permit
Pursuant to Environmental Conservation Law Article 23, Title
13 by Finger Lakes LPG Storage LLC,” Sept. 8, 2017.
13. ICIS News, “US Crestwood no longer pursuing under-
ground NGL storage in New York,” Dec. 4, 2018.
14. Montgomery, J., “Sunoco spending $2.5 billion for
Marcus Hook operation,” The New Journal, Nov. 6, 2017.
15. Whitfield, R., “The Shale Crescent USA Region” ex-
ecutive summary, IHS Markit, March 2018.
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 STATISTICS
Additional analysis of market trends is available
IMPORTS OF CRUDE AND PRODUCTS through OGJ Online, Oil & Gas Journal’s electronic
information source, at http://www.ogj.com.
— Districts 1-4 — — District 5 — ———— Total US ————
2-15 2-8 2-15 2-8 2-15 2-8 2-16*
2019 2019 2019 2019 2019 2019 2018
––––––––––––––––––––––––— 1,000 b/d ––––––––––––––––––––––––—
Total motor gasoline.............. 412 420 9 37 421 457 350
  Mo. gas. blending comp..... 316 368 7 35 323 403 293
Distillate................................ 424 431 8 6 432 437 243
Residual...............................
Jet fuel-kerosine...................
49
84
202
62
41
81
64
107
90
165
266
169
262
77
OGJ CRACK SPREAD
2-22-19* 2-23-18* Change Change,
Propane-propylene............... 127 133 58 51 185 184 190 ———–—$/bbl ——–—— %
Other.................................... 585 365 36 85 621 449 794
SPOT PRICES
Total products....................... 1,681 1,613 233 350 1,914 1,962 1,916
  Product value 74.98 76.53 (1.55) (2.0)
Total crude............................ 6,270 5,105 1,251 1,105 7,521 6,210 7,021   Brent crude 66.63 65.66 0.96 1.5
  Crack spread 8.35 10.86 (2.51) (23.1)
Total imports......................... 7,951 6,718 1,484 1,455 9,435 8,173 8,937
FUTURES MARKET PRICES
*Revised. One month
Source: US Energy Information Administration   Product value 74.18 77.30 (3.12) (4.0)
Data available at PennEnergy Research Center.   Light sweet crude 56.88 62.48 (5.60) (9.0)
  Crack spread 17.30 14.83 2.47 16.7
Six month
  Product value 78.53 81.18 (2.65) (3.3)
EXPORTS OF CRUDE AND PRODUCTS   Light sweet crude 59.01 60.58 (1.57) (2.6)
–––––––––––––––– Total US ––––––––––––––––   Crack spread 19.52 20.60 (1.08) (5.2)
2-15-19 2-8-19 *2-16-18
––––––––––––––– 1,000 b/d ––––––––––––––– *Average for week ending.
Finished motor gasoline 812 959 918 Source: Oil & Gas Journal
Jet fuel-kerosine 266 254 77 Data available at PennEnergy Research Center.
Distillate 1,191 1,265 854
Residual 220 213 318
Propane/propylene 687 850 779
Other oils 1,547 1,636 1,762
Total products 4,723 5,177 4,708
Total crude 3,607 2,364 2,044
Total exports 8,330 7,541 6,752
NET IMPORTS
Total 1,106 631 2,185
Products (2,809) (3,215) (2,792)
Crude 3,915 3,846 4,977

*Revised.
Source: Oil & Gas Journal
Data available at PennEnergy Research Center.

CRUDE AND PRODUCT STOCKS

—–– Motor gasoline —––
Blending Jet fuel, ————— Fuel oils ————— Propane-
Crude oil Total comp. kerosine Distillate Residual propylene
District ———————————————————————————— 1,000 bbl —————————————————————————
PADD 1...................................... 13,400 67,588 61,909 9,506 44,429 6,192 4,562
PADD 2...................................... 137,221 59,446 52,567 7,289 33,614 1,309 12,890
PADD 3...................................... 232,642 89,558 79,111 15,750 42,425 16,364 35,445
PADD 4...................................... 20,645 7,457 5,741 808 4,262 230 1
1,702
PADD 5...................................... 50,604 32,797 30,652 10,011 13,953 5,317 —

Feb. 15, 2019........................... 454,512 256,846 229,980 43,364 138,683 29,412 54,599
Feb. 8, 2019............................... 450,841 258,302 231,252 42,113 140,200 30,306 58,168
Feb. 16, 20182........................... 420,478 249,333 223,444 43,028 138,946 31,283 43,093
1
Includes PADD 5. 2Revised.
Source: US Energy Information Administration
Data available at PennEnergy Research Center.

REFINERY REPORT—FEB. 15, 2019

REFINERY –––––––––––––––––––––––––––– REFINERY OUTPUT –––––––––––––––––––––––––––
–––––– OPERATIONS –––––– Total
Gross Crude oil motor Jet fuel, ––––––– Fuel oils –––––––– Propane-
inputs inputs gasoline kerosine Distillate Residual propylene
District ––––––– 1,000 b/d –––––––– –––––––––––––––––––––––––––––––– 1,000 b/d –––––––––––––––––––––––––––––––

PADD 1............................................... 784 779 3,132 81 242 26 156

PADD 2............................................... 3,478 3,475 2,500 252 1,106 38 487
PADD 3............................................... 8,568 8,456 2,556 881 2,634 100 1,198
PADD 4............................................... 597 597 305 29 210 13 1
200
PADD 5............................................... 2,560 2,406 1,520 447 567 102 —
Feb. 15, 2019...................................... 15,987 15,713 10,013 1,690 4,759 279 2,041
Feb. 8, 2019........................................ 15,989 15,769 9,535 1,685 4,764 310 2,134
Feb. 16, 20182..................................... 16,313 15,833 10,015 1,703 4,490 442 1,876

18,604 Operable capacity 85.9% utilization rate

1
Includes PADD 5. Revised. 2

Source: US Energy Information Administration

Data available at PennEnergy Research Center.

58 Oil & Gas Journal | Mar. 4, 2019

190304OGJ058.indd 58 2/28/19 12:23 PM

 STATISTICS
OGJ GASOLINE PRICES BAKER HUGHES RIG COUNT OGJ PRODUCTION REPORT
1
2-22-19 2
2-23-18
Price Pump Pump 2-22-19 2-23-18 –—— 1,000 b/d —–—
ex tax price* price*
2-20-19 2-20-19 2-21-18 (Crude oil and lease condensate)
Alabama............................................ 1 1 Alabama.................................. 16 17
————— ¢/gal ————— Alaska................................................ 13 9 Alaska..................................... 489 513

Arkansas............................................ 0 0 California................................ 478 477
(Approx. prices for self-service unleaded gasoline) California........................................... 12 14 Colorado.................................. 515 428
Atlanta........................... 154.2 207.9 241.7  Land................................................ 12 14 Florida..................................... 5 5
Baltimore....................... 156.1 209.8 246.7  Offshore........................................... 0 0 Illinois..................................... 24 22
Boston............................ 182.5 227.5 242.7 Colorado............................................. 34 33 Kansas.................................... 95 96
Buffalo........................... 157.3 219.8 256.7 Florida................................................ 1 0 Louisiana................................ 1,642 1,494
Miami............................. 162.9 223.3 256.8 Michigan................................. 15 15
Illinois................................................ 0 1 Mississippi.............................. 50 48
Newark........................... 172.7 232.5 250.7 Indiana.............................................. 2 0 Montana.................................. 65 56
New York........................ 183.1 245.6 266.7 Kansas............................................... 0 0 New Mexico.............................. 814 586
Norfolk........................... 171.5 210.6 261.7 Kentucky............................................ 0 2 North Dakota........................... 1,391 1,151
Philadelphia................... 152.3 229.4 258.8 Louisiana........................................... 64 60 Ohio......................................... 80 54
Pittsburgh...................... 153.1 230.2 266.7   N. Land............................................ 41 36 Oklahoma................................ 590 527
Wash., DC....................... 189.7 231.6 279.7   S. Inland waters............................... 2 2 Pennsylvania........................... 17 18
  PAD I avg................... 166.9 224.4 257.2   S. Land............................................ 4 6 Texas....................................... 5,269 4,356
Utah........................................ 111 100
 Offshore........................................... 17 16 West Virginia........................... 39 27
Chicago.......................... 241.6 292.0 331.7 Maryland............................................ 0 0 Wyoming.................................. 256 223
Cleveland....................... 177.5 224.0 229.4 Michigan............................................ 0 0 Other states............................ 39 35
Des Moines..................... 177.5 226.6 235.0 Mississippi......................................... 4 0
Detroit............................ 163.9 220.7 235.2 Montana............................................. 0 1  Total 12,000 10,248
Indianapolis................... 155.7 217.0 252.2 Nebraska............................................ 0 0
1
OGJ estimate. 2Revised. Source: Oil & Gas Journal.
Kansas City.................... 169.6 205.3 235.0 New Mexico........................................ 108 87 Data available at PennEnergy Research Center.
Louisville........................ 182.6 227.0 237.2
Memphis........................ 160.9 205.7 246.2
New York............................................
North Dakota......................................
0
57
0
49 US CRUDE PRICES
Milwaukee...................... 170.4 221.7 245.0 Ohio................................................... 18 22 2-22-19
Minn.-St. Paul................ 175.0 222.0 247.0 Oklahoma........................................... 117 121 $/bbl*
Oklahoma City................ 162.2 200.6 224.0 Pennsylvania...................................... 44 39 Alaska-North Slope 27°.......................................... 50.92
Omaha........................... 163.4 212.3 235.0 South Dakota..................................... 0 0 Light Louisiana Sweet............................................ 52.63
St. Louis......................... 171.2 207.0 247.0 Texas.................................................. 508 482 California-Midway Sunset 13°............................... 60.20
Tulsa.............................. 161.8 200.2 218.2  Offshore........................................... 2 1 California-Buena Vista Hills 26°............................ 68.31
Wichita........................... 163.5 206.0 236.9   Inland waters................................... 0 0 Southwest Wyoming Sweet..................................... 53.51
  PAD II avg.................. 173.1 219.2 243.7   Dist. 1.............................................. 48 34 East Texas Sweet.................................................... 51.00
West Texas Sour 34°............................................... 48.75
  Dist. 2.............................................. 31 30 West Texas Intermediate......................................... 53.75
Albuquerque................... 161.9 199.2 228.7   Dist. 3.............................................. 13 14 Oklahoma Sweet.................................................... 53.75
Birmingham................... 156.7 196.1 232.0   Dist. 4.............................................. 10 15 Texas Upper Gulf Coast.......................................... 47.50
Dallas-Fort Worth........... 159.7 198.1 230.0   Dist. 5.............................................. 3 3 Michigan Sour........................................................ 45.75
Houston.......................... 155.8 194.2 227.0   Dist. 6.............................................. 26 23 Kansas Common.................................................... 52.75
Little Rock...................... 163.0 203.2 233.7   Dist. 7B............................................ 2 1 North Dakota Sweet................................................ 48.50
New Orleans................... 170.7 209.1 229.8   Dist. 7C............................................ 38 32 *Current major refiner’s posted prices except N. Slope lags 2 months.
San Antonio.................... 167.8 206.2 228.7   Dist. 8.............................................. 317 299 40° gravity crude unless differing gravity is shown. Source: Oil & Gas
  PAD III avg................. 162.2 200.9 230.0   Dist. 8A............................................ 11 17 Journal. Data available at PennEnergy Research Center.
  Dist. 9.............................................. 2 2
Cheyenne.......................
Denver............................
171.3
179.3
213.7
219.7
243.4
253.3
  Dist. 10............................................ 5 11 WORLD CRUDE PRICES
Utah................................................... 8 10 $/bbl
Salt Lake City................. 173.8 222.2 248.4 West Virginia...................................... 19 16 OPEC reference basket Wkly. avg. 2-22-19 66.17
  PAD IV avg................. 174.8 218.5 248.4 Wyoming............................................ 37 31 –– Mo. avg., $/bbl ––
Others................................................ 0 0 Dec.-18 Jan.-19
Los Angeles.................... 239.2 311.9 337.8
Phoenix.......................... 223.5 260.9 284.7   Total US......................................... 1,047 978 OPEC reference basket....................... 56.94 58.74
Portland......................... 196.8 251.9 275.7   Total Canada................................. 212 306 Arab light-Saudi Arabia........................ 58.24 59.63
San Diego....................... 246.2 318.9 330.7   Grand total.................................... 1,259 1,284 Basrah light-Iraq.................................. 56.12 58.20
San Francisco................ 258.2 330.9 347.7 US oil rigs.......................................... 853 799 Bonny light 37o-Nigeria......................... 57.82 60.51
Seattle........................... 218.1 285.9 300.7 US gas rigs........................................ 194 179 Es Sider-Libya....................................... 55.66 58.27
  PAD V avg.................. 230.3 293.4 312.9 Total US offshore................................ 19 17 Girassol-Angola.................................... 57.52 59.98
Total US cum. avg. YTD...................... 1,056 953 Iran heavy-Iran..................................... 54.84 56.29
Week’s avg.................... 177.9 228.0 255.1 Kuwait export-Kuwait............................ 57.10 58.65
Jan. avg......................... 172.6 222.5 251.4 Merey - Venezuela................................. 49.89 50.90
Dec. avg........................ 189.6 239.5 246.2 Rotary rigs from spudding in to total depth.
Definitions, see OGJ Sept. 18, 2006, p. 46. Murban - UAE........................................ 59.33 60.81
2019 to date.................. 173.6 223.6 — Oriente - Ecuador.................................. 51.26 55.10
2018 to date.................. 205.6 253.7 — Source: Baker Hughes Inc.
Data available at PennEnergy Research Center. Saharan blend 44 - Algeria................... 56.41 59.27
Zafiro - Equatorial Guinea..................... 57.66 60.09
*
Includes state and federal motor fuel taxes and state Other crudes
sales tax. Local governments may impose additional taxes.
Source: Oil & Gas Journal. Fateh 32o-Dubai.................................... 57.29 59.07
Data available at PennEnergy Research Center. Minas 34o-Indonesia............................. 50.28 51.72
Isthmus 33o-Mexico.............................. 55.58 58.13
Brent 38o-UK......................................... 56.96 59.37
Urals-Russia......................................... 57.18 60.26
Differentials
WTI/Brent.............................................. (7.44) (7.74)
Brent/Dubai.......................................... (0.33) 0.30
REFINED PRODUCT PRICES IHS PETRODATA RIG COUNT Source: OPEC Monthly Oil Market Report.
Data available at PennEnergy Research Center.
2-15-19 2-15-19   FEB. 22, 2019
¢/gal ¢/gal Total Marketed Marketed US NATURAL GAS STORAGE1
supply supply Marketed utilization 2-15-19 2-8-19 2-15-18 Change,
Spot market product prices of rigs of rigs contracted rate (%) –——––—— bcf —––——– %
US Gulf of
Motor gasoline No. 2 Distillate   Mexico. . . . . . 71 41 31 75.6 East.................................... 395 444 407 (2.9)
 (Conventional-regular) Ultra Low sulfur diesel fuel South Midwest.............................. 436 492 434 0.5
  New York Harbor.......... 162.90   New York Harbor.......... 201.90   America . . . . 34 31 25 80.7 Mountain............................. 87 95 113 (23.0)
  Gulf Coast................... 158.90   Gulf Coast................... 195.90 Pacific................................. 138 155 205 (32.7)
Northwest South Central 649 696 619 4.8
  Los Angeles................. 196.90 Europe. . . . . 89 73 64 87.7 Salt................................. 224 248 175 28.0
Motor gasoline West Nonsalt........................... 425 447 445 (4.5)
  (RBOB-regular) Kerosine jet fuel   Africa. . . . . . 61 48 33 68.8
  New York Harbor.......... 190.40   Gulf Coast................... 201.70 Middle Total US.............................. 1,705 1,882 1,778 (4.1)
  East. . . . . . . 173 161 132 82.0 Change,
No. 2 heating oil Propane Southeast Nov.-18 Nov.-17 %
  New York Harbor.......... 198.70   Mont Belvieu............... 66.40   Asia. . . . . . . 78 63 42 66.7
  Worldwide. . . . 758 651 506 77.7 Total US2............................. 3,031 3,709 (18.3)
1
Working gas. 2At end of period.
Source: EIA Weekly Petroleum Status Report. Source: IHS Petrodata Source: Energy Information Administration
Data available at PennEnergy Research Center. Data available in PennEnergy Research Center Data available at PennEnergy Research Center.

Oil & Gas Journal | Mar. 4, 201959

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 STATISTICS
PACE REFINING MARGINS WORLDWIDE NGL PRODUCTION
Nov. Dec. Jan. Jan. 11 month Change vs.
2018 2018 2019 2018 Change Change, average previous
——––—––––— $/bbl –––––––––—— % Nov. Oct. — production — —— year —–
2018 2018 2018 2017 Volume
US Gulf Coast ————–—–––— 1,000 b/d ———––———— %
  Composite US Gulf Refinery.............. 5.95 4.91 4.92 11.55 (6.63) (57.4)
  Mars (Coking)................................... 6.86 5.65 4.61 11.78 (7.16) (60.8) Brazil.................................... 115 115 127 130 (3) (2.3)
  Mars (Cracking)................................ 5.26 4.16 3.27 8.75 (5.49) (62.7) Canada................................. 940 929 906 848 58 6.8
  Bonny Light....................................... 0.45 (1.76) (0.18) 6.47 (6.65) (102.8) Mexico.................................. 213 210 219 252 (32) (12.8)
US PADD II United States ....................... 4,571 4,580 4,336 3,718 618 16.6
  Chicago (WTI)................................... 13.20 6.88 4.65 14.02 (9.37) (66.8) Venezuela............................. 139 144 155 189 (34) (18.0)
US East Coast Other Western
  Brass River....................................... 4.86 3.35 2.95 6.80 (3.86) (56.7)  Hemisphere........................ 206 214 206 213 (7) (3.4)
  East Coast Comp.............................. 6.03 4.82 3.86 8.55 (4.69) (54.8)   Western
US West Coast   Hemisphere................... 6,184 6,192 5,949 5,349 600 11.2
  Los Angeles (ANS)............................. 8.83 10.60 8.38 9.73 (1.35) (13.9)
NW Europe Norway.................................. 340 336 326 341 (15) (4.4)
  Rotterdam (Brent)............................. 2.83 0.59 (0.42) 0.28 (0.70) (252.4) United Kingdom.................... 119 106 89 84 6 6.8
Mediterranean Other Western
  Italy (Urals)....................................... 3.51 1.04 (0.29) 1.54 (1.82) (118.5)  Europe................................ 9 9 9 9 0 0.0
Far East
  Singapore (Dubai)............................. 3.21 (0.29) (0.10) 4.15 (4.25) (102.5)   Western Europe.............. 468 451 425 434 (9) (2.1)

Source: Jacobs Consultancy Inc. Russia.................................. 832 823 792 817 (25) (3.0)
.Data available at PennEnergy Research Center. Other FSU............................. 449 413 434 445 (11) (2.5)
Other Eastern
 Europe................................ 8 8 9 17 (8) (46.5)
  Eastern Europe............... 1,289 1,244 1,235 1,279 (44) (3.4)
US NATURAL GAS BALANCE
DEMAND/SUPPLY SCOREBOARD Algeria..................................
Egypt....................................
482
78
481
78
474
77
494
69
(20)
8
(4.0)
12.0
Libya..................................... 36 36 36 35 1 2.6
Nov. Total YTD Other Africa.......................... 132 150 134 146 (12) (8.1)
Nov. Oct. Nov. 2018–2017 ––– YTD ––– 2018–2017  Africa............................... 728 745 721 744 (23) (3.0)
2018 2018 2018 change 2018 2018 change
——————————— bcf ——————––—————
Saudi Arabia......................... 1,892 1,892 1,890 1,866 24 1.3
DEMAND United Arab Emirates........... 554 554 554 534 20 3.7
 Consumption.................... 2,678 2,278 2,351 327 26,977 24,044 2,933 Qatar.................................... 310 310 310 320 (10) (3.1)
  Addition to storage........... 213 422 199 14 3,487 3,245 242 Other.................................... 360 362 357 389 (33) (8.4)
 Exports ............................ 337 305 288 49 3,244 2,868 376   Middle East...................... 3,116 3,118 3,110 3,109 1 0.0
  Canada ......................... 90 65 74 16 743 836 (93)
  Mexico ........................... 139 150 134 5 1,541 1,407 134 Australia............................... 46 49 45 50 (5) (10.1)
  LNG ............................... 108 90 80 28 960 625 335 China.................................... 5 5 5 5 0 0.0
  Total demand................... 3,228 3,005 2,838 390 33,708 30,157 3,551 India..................................... 139 139 134 124 9 7.5
Other Asia–Pacific................ 122 122 123 128 (6) (4.4)
 Asia–Pacific.................... 312 315 306 308 (1) (0.5)
SUPPLY
  Production (dry gas)......... 2,646 2,703 2,370 276 27,674 24,828 2,846   TOTAL WORLD.................. 12,097 12,065 11,746 11,223 523 4.7
  Supplemental gas............ 6 6 6 0 62 60 2
  Storage withdrawal.......... 418 131 285 133 3,489 2,806 683 Totals may not add due to rounding.
 Imports............................. 213 217 243 (30) 2,656 2,764 (108) Source: Oil & Gas Journal.
  Canada.......................... 210 211 237 (27) 2,591 2,696 (105) Data available at PennEnergy Research Center.
  Mexico............................ 0 0 0 0 3 1 2
  LNG................................ 3 6 6 (3) 62 67 (5)
  Total supply...................... 3,283 3,057 2,904 379 33,881 30,458 3,423 OXYGENATES
N. ATURAL GAS IN UNDERGROUND STORAGE Nov. Oct. YTD YTD
Nov. Oct. Sept. Nov.
2018 2018 2018 2017 Change 2018 2018 Change 2018 2017 Change
—————————— bcf —————————— ———————––—––– 1,000 bbl –––—————————
Base gas 4,356 4,357 4,356 4,353 2,477 Fuel ethanol
Working gas 3,031 3,237 2,951 3,709 (678)  Production................... 31,514 32,380 (866) 350,664 343,810 6,854
  Total gas 7,387 7,594 7,307 8,062 1,799  Stocks.......................... 23,679 23,675 4 23,679 22,863 816
S. ource: DOE Monthly Energy Review.
.Data available at PennEnergy Research Center. MTBE
 Production................... 1,662 1,827 (165) 17,941 15,061 2,880
 Stocks.......................... 920 897 23 920 1,201 (281)
S. ource: DOE Petroleum Supply Monthly.
.Data available at PennEnergy Research Center.

US HEATING DEGREE–DAYS

Nov. Oct. Nov. — Total degree days YTD —
2018 2018 2017 % change 2018 2017 % change
New England................................................................. 803 457 743 8.1 5,287 4,852 9.0
Middle Atlantic.............................................................. 758 351 699 8.4 4,835 4,245 13.9
East North Central........................................................ 905 419 774 16.9 5,418 4,487 20.7
West North Central........................................................ 1,005 495 805 24.8 5,869 4,778 22.8
South Atlantic............................................................... 372 99 322 15.5 2,136 1,696 25.9
East South Central........................................................ 568 139 408 39.2 2,853 2,107 35.4
West South Central........................................................ 385 69 180 113.9 1,790 1,081 65.6
Mountain....................................................................... 675 383 489 38.0 3,899 3,754 3.9
Pacific........................................................................... 338 185 351 (3.7) 2,586 2,679 (3.5)
  US average*............................................................ 588 253 490 20.0 3,540 3,031 16.8

*Excludes Alaska and Hawaii.

Source: DOE Monthly Energy Review.
Data available at PennEnergy Research Center.

60 Oil & Gas Journal | Mar. 4, 2019

190304OGJ060.indd 60 2/28/19 12:24 PM

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62 Oil & Gas Journal | Mar. 4, 2019

190304OGJ061-062.indd 62 2/26/19 3:09 PM

 ADVERTISING SALES ADVERTISERS INDEX
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Italy
Ferruccio and Filippo Silvera, 24 20127 Milano Italy;
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Oil & Gas Journal | Mar. 4, 2019 63

190304OGJ063.indd 63 2/28/19 12:24 PM

 THE EDITOR’S PERSPECTIVE
Study: Bill C-69
no cure for Canadian
investment disease
by Bob Tippee, Editor
With Bill C-69, “Ottawa’s proposed cure looks
likely to worsen Canada’s present disease,” ac-
cording to a new study.
The disease: Investment in Canadian natural
resources is plummeting.
Citing a Natural Resources Canada data
series begun in 2014, the C.D. Howe Institute
study says planned investment for major forest,
energy, and mining projects fell from a peak of
$711.7 billion (Can.) in 2015 to $584.9 billion
in 2018.
For energy projects only, the 2018 total was
$510 billion, down from a peak of $598 billion
in 2016 and about even with the level of 2014.
The declines reflect cancellations and
slumping additions to planned investments.
For energy, investment additions fell to $35
billion last year from $146 billion in 2015.
Of course, oil and gas investments dropped
worldwide in that period. But the Canadian out-
lay fell more, say study authors Grant Bishop
and Grant Sprague, citing data from Statistics
Canada and the International Energy Agency.
As a share of global upstream investment,
the capital outlay in Canadian oil and gas
extraction fell from nearly 9% in 2014 to less
than 6% in 2018.
As discussed here 2 weeks ago, Bill C-69
purports to cure a presumedly ill federal ap-
provals apparatus. Vague and open-ended, it
mainly would give project opponents new ways
to stymie work.
Of major concern to project investors, the
Howe study says, would be expansion of the
range of projects subject to political decision-
making. Current law limits decisions by min-
isters and cabinet officials to projects found,
after independent analysis, likely to produce
“significant adverse environmental effects.”
Bill C-69 would require public-interest de-
terminations by those officials for projects with
any—not just “significant”—adverse effects.
Its loose definitions would broaden “subjective
discretion.” And it would require consideration
of “various new and uncertain factors” in any
impact assessment.
“By increasing the role for political decision-
making and crowding fuzzy policy questions
into project-specific assessments,” the study
says, “…Bill C-69 risks amplifying current
uncertainty and further undermining investor
confidence in Canada.”
(From the subscription area of www.ogj.com,
posted Feb. 22, 2019. To comment, join the Com-
mentary channel at www.ogj.com/oilandgascom-
munity.)
64
190304OGJ064.indd 64
WATCHING GOVERNMENT
Nick Snow
Washington Editor
Governors cool to oil, gas
Maine Gov. Janet T. Mills (D) formally
withdrew the state from the Outer
Continental Shelf Governors Coali-
tion on Feb. 25. The organization’s
work promoting the expansion of US
offshore oil and gas activity is not
compatible with the state’s interests,
she told Alabama Gov. Kay Ivey (R),
who chairs the coalition.
“My concern instead is protecting
coastal Maine from the potentially
devastating effects of this industrial
activity,” Mills said.
Opposition to offshore oil and
gas activity off the Pine Tree State’s
coast is bipartisan and overwhelm-
ing, she said. Its congressional
delegation is unanimously against it,
and the state’s Senate and House of
Representatives unanimously passed
a joint resolution last year declaring
that offshore drilling and exploration
would endanger commercial fishing
jobs and be an economic and eco-
logical disaster, the governor said. “I
couldn’t agree more,” she added.
“My opposition to new or ex-
panded offshore oil and gas drilling
is in alignment with the positions
of the governors of other East and
West Coast states. I intend to work
with those governors to fight any
federal proposal that would open
the waters off the Maine coast to
this activity,” Mills said.
Such opposition among state
governors who are Democrats is
not surprising. But there are sev-
eral across the country who have
proposed ambitious renewable and
alternative energy initiatives instead.
These include chief executives in
producing states, including Jared
Polis in Colorado and Michelle Lujan
Grisham in New Mexico.
Republican governors in produc-
ing states can’t be characterized
as oil and gas cheerleaders either
these days. They simply didn’t
mention the industry much (if at
all) in their 2019 State of the State
addresses and listed other priorities
instead.
“We all know that Texas leads
the nation in areas like oil and gas.
Importantly though, Texas is in the
middle of an innovation renais-
sance that weans our economy off
of energy,” Gov. Greg Abbot said on
Jan. 31.
Neglecting opportunities
“Since Prudhoe Bay came online,
we have become more narrowly
focused on oil and government pro-
grams as the basis for our economy,
while neglecting other opportunities
that could create more jobs and
wealth for our state,” Alaska Gov.
Michael J. Dunleavy said.
The nation’s northernmost state
must attract other industries and
investments to fully realize its po-
tential, including its global location,
vast resources, and “unbridled qual-
ity of life”, Dunleavy said.
Their comfort apparently stems
from ample, low-cost domestic
supplies that allow them to address
other priorities. It’s safe to bet that
they also appreciate the jobs oil and
gas activity provides and the taxes
which are generated. This ultimately
could matter more than the Maine
governor’s opposition to offshore
drilling.
Oil & Gas Journal | Mar. 4, 2019
2/28/19 12:24 PM
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