In November 2016, high production and seasonally low internal demand contributed to record crude oil exports from Iraq and near-record exports from Saudi Arabia (according to the Joint Organizations Data Initiative (JODI), with published data dating to January 2002). In that same month price spreads in the market supported high levels of U.S. crude imports from those countries. However, market developments, including the November 2016 agreement among certain members of the Organization of the Petroleum Exporting Countries (OPEC) to reduce production and the recent widening of the spread between Dubai/Oman crude and U.S.-produced Mars crude, suggest U.S. imports from Saudi Arabia and Iraq are now becoming less attractive to U.S. refiners.
According to the latest JODI data, Saudi crude oil exports reached 8.3 million barrels per day (b/d) in November 2016, the highest level since May 2003, before declining to 8.0 million b/d in December. Saudi exports generally increase from August to November as seasonal declines in domestic consumption increase availability of oil for export. In Iraq, exports reached a record high of almost 4.1 million b/d in November and remained at that level in December (Figure 1). According to JODI data, Saudi and Iraqi production levels were relatively high prior to the pledged production cuts beginning January 2017, with December 2016 volumes up 321,000 b/d and 700,000 b/d, respectively, from their year-ago levels, creating an opportunity to increase exports.
Given transit times, cargoes exported from Saudi Arabia and Iraq in November and December 2016 would be expected arrive in the United States between December 2016 and February 2017. Imports from Saudi Arabia into the United States increased for five consecutive weeks, rising from 1.0 million b/d for the week ending January 6 to 1.3 million b/d for the week ending February 10. Similarly, U.S. imports from Iraq grew for five consecutive weeks, increasing from 373,000 b/d for the week ending December 9, 2016 to 723,000 b/d for the week ending January 13, 2017 (Figure 3).
The price difference between Dubai/Oman medium sour grade oil, which serves as a benchmark price for similar grades produced through the Middle East, and Mars, a U.S. medium sour crude oil with similar properties, was at its lowest level for several years in 2016 (Figure 4). Under such pricing conditions, medium and heavy crude oils from Saudi Arabia and Iraq were attractive to U.S. refiners because they produced a profitable slate of finished products when processed in complex refineries.
After OPEC announced crude oil production cuts in late November 2016, the relative price of Dubai/Oman crude oil rose because supply reductions pledged by Middle East producers disproportionately affected medium sour crudes. In January 2017, the premium of Dubai/Oman over Mars reached its highest level in over a year, which is likely to encourage U.S. refiners to process more domestic medium sour barrels while reducing imports of comparable grades from the Middle East.
U.S. average regular gasoline price falls, diesel price rises
The U.S. average regular gasoline retail price fell less than one cent from the previous week to $2.30 per gallon on February 20, up 57 cents from the same time last year. The Midwest price fell two cents to $2.19 per gallon, while the Gulf Coast price fell one cent to $2.07 per gallon. The West Coast and Rocky Mountain prices each increased two cents to $2.75 per gallon and $2.25 per gallon, respectively. The East Coast price increased less than one cent, remaining at $2.29 per gallon.
The U.S. average diesel fuel price increased less than one cent, remaining at $2.57 per gallon on February 20, 59 cents higher than a year ago. The Rocky Mountain price increased three cents to $2.55 per gallon, while the West Coast, Midwest, and Gulf Coast prices each increased one cent to $2.88 per gallon, $2.50 per gallon, and $2.43 per gallon, respectively. The East Coast price rose less than one cent, remaining at $2.63 per gallon.
Propane inventories fall
U.S. propane stocks decreased by 3.3 million barrels last week to 49.8 million barrels as of February 17, 2017, 16.9 million barrels (25.3%) lower than a year ago. Gulf Coast, Midwest, and East Coast inventories decreased by 1.8 million barrels, 1.0 million barrels, and 0.6 million barrels, respectively, while Rocky Mountain/West Coast inventories were unchanged. Propylene non-fuel-use inventories represented 5.8% of total propane inventories.
Residential heating oil price increases, propane price decreases
As of February 20, 2017, residential heating oil prices averaged nearly $2.65 per gallon, less than one cent per gallon more than last week’s price but 55 cents per gallon higher than last year’s price at this time. The average wholesale heating oil price is just under $1.72 per gallon, two cents per gallon less than last week but nearly 62 cents per gallon higher than a year ago. Residential propane prices averaged just below $2.45 per gallon, nearly one cent per gallon less than last week’s price but 42 cents per gallon higher than a year ago. Wholesale propane prices averaged $0.82 per gallon, four cents per gallon lower than last week but nearly 35 cents per gallon higher than last year’s price.
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In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.
Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.
Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.
This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.
But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.
In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.
But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.
Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.
Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.
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