Executive Summary: Rigs: The total US rig count decreased by 4 for the June 16 week, down to 560 from 564. Infrastructure: On June 24, the US Supreme Court agreed to hear the case of Seven County Coalition vs Eagle County, CO. Storage: East Daley expects an injection of 1.06 MMbbl in commercial and Strategic Petroleum Reserve (SPR) inventories for the week ending June 21.
Rigs:
The total US rig count decreased by 4 for the June 16 week, down to 560 from 564. Liquids-driven basins saw the largest decrease, falling by 4 rigs W-o-W, moving from 459 to 455. The Eagle Ford lost 3 rigs, and the Anadarko and Uinta basins both saw their rig counts fall by 2. The Permian Basin, on the other hand, saw an increase of 2 rigs, and the Powder River gained 1 rig W-o-W.
In the Anadarko Basin, operators Coterra Energy and Ressler Well Service each dropped 1 rig. In the Eagle Ford, Marathon Oil decreased its rig count by 2, and operator Alvarado 2014 LLC removed 1 rig. In the Uinta Basin, operators Wax Operating, LLC and Berry Petroleum each dropped 1 rig.
Infrastructure:
On June 24, the US Supreme Court agreed to hear the case of Seven County Coalition vs Eagle County, CO. The appeal advanced after the US Court of Appeals overturned the US Surface Transportation Board’s (STB) approval of the Uinta Basin Railway Project.
The proposed Uinta Basin Railway is critical infrastructure for Uinta producers to increase volumes. The project includes construction of ~80 miles of rail connecting the Uinta Basin to the Union Pacific (UP) Railroad in Kyune, UT. From there, railcars would travel east through Colorado along the Colorado River, ultimately arriving at a rail hub in Denver. From Denver, the Uinta crude can easily travel north to Wyoming or south to the Texas or Louisiana Gulf Coast.
The Uinta rail project was initially approved by the STB in December 2021, but Eagle County in Colorado and the Center for Biological Diversity both filed petitions in the US Court of Appeals for the District of Columbia Circuit for review. In August 2023, the US Court of Appeals struck down the STB approval, calling it “arbitrary and capricious.” The court vacated parts of the STB’s environmental impact statement for impacts associated with the railway’s construction and operation, stating these did not fulfill requirements laid out in the National Environmental Policy Act (NEPA).
The Seven County Coalition in Utah filed an appeal of the ruling by the appellate court, challenging whether the NEPA process requires an agency to examine environmental impacts beyond “the proximate effects of an action within its regulatory authority”. The Supreme Court agreed to hear this case during its 2024-25 term, which starts in the fall.
The Uinta Basin is known for its ‘waxy’ crude oil with high paraffin content. The crude oil solidifies at room temperature and has a pour point of 105-120 F. Refiners tend to like the unique crude oil due to its low sulfur, low metal, and low nitrogen content. Currently, ~70 Mb/d and up to 110 Mb/d of Uinta Basin waxy crude makes it way to Texas, Louisiana and Mississippi Gulf Coast refiners.
Markets for Uinta crude were previously isolated to refiners in Salt Lake City due to the difficulty in moving the crude. The Uinta Basin is surrounded by mountains to the east and south, making it difficult to reach markets, especially during the winter. Additionally, transporting the waxy crude requires specialized trucks with heater coils. Producers can’t use pipelines; to move the waxy crude via pipe would require a mix of 5-6 barrels of light sweet oil to each Uinta barrel, and there is no source of light crude in the area. Railcars are advantageous due to the existing infrastructure and relative ease to transport the crude as a solid, and use heater coils to return the crude to a liquid state at the final destination.
If the Supreme Court rules in favor of the Seven County Coalition, it will be a game-changer for Uinta producers. They would be able to move an additional 5-8 railcars a day at ~660 bbl per car, or an ~8,000 Mb/d increase in capacity. According to the producers, this is well within their wheel house to fill.
Storage:
East Daley expects an injection of 1.06 MMbbl in commercial and Strategic Petroleum Reserve (SPR) inventories for the week ending June 21. We expect total US stocks, including the SPR, will close at 827 MMbbl.
The US natural gas pipeline sample, a proxy for change in oil production, increased ~0.54% W-o-W across all liquids-focused basins. Samples decreased 0.95% in the Rockies and 4.54% in the Williston Basin. The decreases were offset by a 2.46% increase in the Gulf of Mexico and a 2.71% increase in the Permian. The Williston Basin and Gulf of Mexico have a high correlation between gas volumes and crude oil volumes, whereas the Permian Basin and Eagle Ford basins’ correlation is less than 45%. We expect US crude production to remain flat at 13.2 MMb/d.
According to US bill of lading data, US crude imports increased by 116 Mb/d W-o-W to 7.17 MMb/d. More than 60% of the supply originated from Canadian pipelines into the US, with the remainder largely coming from ships carrying crude from Mexico, Venezuela and Argentina.
As of June 21, there was ~485 Mb/d of refining capacity offline, including downtime for planned and unplanned maintenance. EDA expects gross crude inputs into refineries to increase by ~31 Mb/d W-o-W, coming in at 16.8 MMb/d.
Vessel traffic monitored by EDA along the Gulf Coast increased W-o-W. There were 28 vessels loaded for the week ending June 21 and 23 the prior week. EDA expects US exports to be 4.21 MMb/d.
The SPR awarded contracts for 2.95 MMbbl to be delivered in June 2024. The SPR has 370 MMbbl in storage as of June 21, 2024.
Regulatory and Tariffs:
Presented by ARBO
Tariffs:
Zydeco Pipeline LLC. Volume incentive rates were canceled due to the expiration of contracts effective August 1, 2024. Incentive rates for routes 6 and 7 were also canceled. FERC No 8.16.0 IS24- 611 filed June 17, 2024)
NuStar Logistics, L.P. An initial rate was established for movements from McMullen County, DK Ranch Gathering Connection, TX to NuStar’s Corpus Christi North Beach Terminal, Nueces County, TX along with volume commitment incentive rates. The rates were agreed to by at least one non-affiliated shipper. FERC No 80.21.0 IS24- 622 filed June 17, 2024) Effective July 1, 2024.
The above information is provided by ARBO’s Oil Pipeline Tariff Monitor. For more information on regulatory proceedings or tariff rates, please contact please contact Corey Brill via email at corey@goarbo.com or phone at 202-505-5296. https://www.goarbo.com/
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