It’s been a cold Spring. Winter came late this year in Michigan and Spring has been pushed back. The first four months ended April 30, 2016 have been freezing. But, we’ve finally turned the corner and it’s getting warmer. Sun’s out guns out for the next 5 or 6 months straight and a we are all looking forward to the warm weather. Free heat from the sun will reduce natural gas demand from consumers all across Michigan and the Midwest until next winter. Michiganders demand natural gas to stay warm for months on end through the cold season with a just a simple digital click of their thermostats. Nearly 80% of Michiganders heat their homes with natural gas as well as use natural gas to dry their laundry and heat their chicken noodle soup. Natural gas is poised to gain additional market share in 2016 around the world and to displace demand for oil similar to the way it has displaced demand for coal.
The first four months of 2016 rang in the first Liquified Natural Gas (LNG) export shipments from Cheniere’s Sabine Pass terminal in Lousiana with the very first export shipment of US natural gas occurring on February 24, 2016. RMP has been talking about Cheniere since 2011 when they were the first company to be given a license to export from FERC. This post detailing an overview of Cheniere continues to be one of RMP’s top 3 popular posts month in and month out.
The reason Cheniere is a big deal is because of precedent. American natural gas stepping on to the world stage in 2016 will change things everywhere, including Michigan. In just the past three months, Cheniere has made shipments of LNG to Brazil, the Middle East, India, and at the time of this publishing, a ship is in transit to Europe bringing the first US produced natural gas to the European Union.
Cheniere’s initial planned export capacity for Trains 1-4 is 16.0 mtpa. In the next decade Cheniere plans to export up to 6% of all NatGas produced in the USA with 31.5 mtpa of liquefaction capacity under construction now. By 2020, Cheniere hopes to be the largest single buyer of natural gas in America. It will most likely take Cheniere until the end of 2018 to reach the 16.0 mtpa milestone but the march toward that goal began this year. The first shipment made this February was late which is to be expected with regard to an engineering achievement on the scale of the Sabine Pass terminal. Cheniere did, however, pay dearly for the delays in the first shipment as their share price tumbled over the past year; investors don’t hand out tissues when operational milestones are missed. But, the first shipment did in fact finally happen this year and with it a new era has been ushered in that will fundamentally change energy markets going forward. Charif Souki once said about Cheniere’s capacity that it was hardly a drop in the bucket related to global CH4 demand, but his statement was coy. It’s not that hard to imagine global CH4 prices leveling out because of American CH4 finally coming onto the world market. By leveling out, I mean that CH4 prices for American consumers should start to rise this year. Natural gas producers across America should benefit from this while it will feel like a tax increase to American workers and consumers.
Egyptian born Charif Souki was the CEO of Cheniere and was forcefully removed as the CEO of his company by the billionaire business scion Carl Icahn on December 13, 2015. On February 16, 2016, Souki departed Cheniere for good about week before the very first export shipment of US natural gas. Cheniere was Charif’s baby. His life’s work. A marvel of modern engineering. Years of hard work and dedication finally about to bear fruit. And just like that, Cheniere is now controlled by Carl Icahn who has a colorful history of hostile corporate takeovers of some of America’s largest companies. Souki wanted cash inflows to go toward LNG infrastructure and Icahn wanted cash inflows to go to shareholders. Icahn won that battle and Souki got the boot.
RMP is predicting more turmoil in 2016 energy prices because of the economic problems in China. Natural gas prices going forward, however, should be one of the few commodities to appreciate steadily if only slightly in 2016. NatGas price appreciation will be primarily because of Cheniere’s symbolism to the world market. Natural gas prices should begin their climb north of $3/mcf this year even though the economy at large is stuck in recession because of China’s gravitas on the world; the Year of the Monkey.
Cheniere is symbolic of a fundamental change in global energy markets for decades to come and those changes will even reverberate back to Michigan. Natural gas and Synthetic Natural Gas will give stability to the US economy going forward as other countries around the world suffer crushing blows because of the drop in oil prices. This won’t mean peaches & cream for American consumers & tax payers, however, because an increase in NatGas prices will feel like a tax increase for common consumers. Michigan’s natural gas storage capacity will play a role as a world class asset as natural gas rises in demand to help curb greenhouse gas emissions from power generation. Remember, natural gas is not just a fossil fuel, natural gas is… well… natural. CH4 comes from many different natural sources including wetlands. In fact, our beautiful wetlands are responsible for the largest percentage of naturally produced natural gas emitted to atmosphere. The largest percentage of natural gas emitted to atmosphere globally by human related activity comes from agriculture. RMP will be mapping out a ton of cool features of Michigan oil & gas wells and natural gas storage wells will be a hot topic in the coming years as natural gas becomes an energy game changer for America and the world. Managing and understanding natural gas and how natural gas is not necessarily a fossil fuel will be very important for people to understand. If you’ve ever eaten a burrito, you know that natural gas comes from more sources than fossils. Natural gas storage and CO2 sequestration will be the future of the Michigan oil & gas industry. Stay tuned.
Now let’s take closer look at Michigan oil & gas activity that occurred in April of 2016:
A couple signs of new activity in the Michigan oil patch came this month. The brand new Circle D Operating, who’s home office is out of a Traverse City retirement home, was permitted the Malek 1-5 well targeting the Detroit River formation in North Plains township in Ionia. Marathon may have generated some excitement about the Detroit River formation in the autumn of 2015. After Marathon failed to produce a single barrel of oil from their first Detroit River well in Beaver Creek, the wind may have come out of the sail of Circle D’s Malek 1-5; it may never get drilled. The Adler D2-33 waste disposal well was also
permitted this month in Redding Township in Clare county. With two more wells permitted in April, the total count of permitted wells in 2016 increases to 8 year to date.
Two new applications were received in Michigan in April. WB Osborn filed an app to target the Dundee formation in Fork Township in Mecosta county. Century Oil filed an app to target the Niagaran in Mayfield Township in Grand Traverse county. Both wells are reentry wells. Reentry and gas injection continue to be the smartest plays in the Michigan Basin with risk so high right now. With these two applications received, it doubles the total count of applications so far in 2016 to four.
Only one well was plugged this month. DTE received plugging instructions from the MDEQ for several gas storage wells which should increase the plug count in future months. Total wells plugged so far that were reported in 2016 is 61.
The April 2016 Apps to Plugs Ratio KPI:
The apps to plugs ratio is self explanatory. By looking at the number of applications to wells plugged KPI we can see wells coming vs wells going. This KPI along with the previous one supports our original 2014 & 2015 outlook post with more numbers and data.
2016 Apps to Plugs Ratio KPI:
4 Applications : 61 Wells Plugged
The April 2016 Permits to Plugs Ratio KPI:
The permits to plugs ratio is nearly the same as the apps:plugs ratio but with permits instead of applications.
2016 Permits to Plugs Ratio KPI:
8 Permits Issued : 61 Wells Plugged
April 2016 – Petroleum As % Of U.S. Trade Deficit KPI:
New in 2016! RMP will be tracking petroleum as a percentage of the US trade deficit. RMP mentioned in our December 2015 MOGM that President Obama signed a bill that lifted an export ban on crude oil that had been in place since 1970. RMP will be monitoring the effect of that federal legislation by monitoring an important economic statistic published by the United States Census Bureau. The data and graph (shown below) come from this website: https://www.census.gov/foreign-trade/statistics/graphs/PetroleumImports.html
This stacked-area line graph shows how much of the monthly US trade deficit can be attributed to the deficit in petroleum products. The vertical axis shows percent of the U.S. Goods and Services Trade Deficit. The horizontal axis shows a monthly time series from January 2006 to present. The bottom area of the graph shows what percent of the deficit comes from petroleum goods. The top area shows the percent of the deficit coming from non-petroleum goods and services.
RMP began tracking this statistic to earn credit from you the reader for economic predictions made before anyone else! RMP predicted in December that we should see this graph approach zero for the first time since this statistic was first created. Who could have imagined what we are seeing?!? RMP could and did. Now we see this statistic trending exactly as predicted and it gives RMP street credit as a good prognosticator of global energy markets and global economics. This statistic lags 3 months behind the current month, but we can see another drop in February’s number of 2.7% to 7.5%. Two drops of over 2.5% in successive months lends credibility to RMP’s ability to predict global economic changes when bills are signed into law in Washington DC. This trend bodes very well for America’s economy and shows well our march toward energy independence. Getting this graph to zero is step one toward a healthy energy economy for America and improved national security. When this graph completely inverts in a few decades as Fuel Cell Electric Vehicles begin their slow rise toward market dominance, it will spell economic prosperity for America. The faster we migrate away from crude oil as an energy source, the sooner America will see economic prosperity and increased national security.
Final Thoughts on Oil & Gas Activity in Michigan in April of 2016
Michigan has the largest natural gas storage capacity of any state in the USA. If you search Google you can’t really find a map or set of maps that shows Michigan’s natural gas storage fields (NGSF) in an interactive way. You can’t find regular Google Maps that let you zoom in and zoom out fast and have clickable points with extra data so you can get a good geospatial perspective. RMP is working on new Google Maps that are coming soon that will allow you to see all Michigan’s NGSFs from the stratosphere and all the way down to the ground level. RMP will be putting things like Antrim wells on a vacuum on a single map, Top Producers on their own map, CO2 sequestration units on one map, and all Michigan’s NGSFs on one map. These new maps are coming soon and they will showcase Michigan’s energy infrastructure better than any other maps on the web. RMP’s maps are getting better & more feature rich each passing month. The best summary you can currently find on the web showing all of Michigan’s NGSFs and their stats comes from LARA’s webpage here. Soon RMP will take data from LARA’s webpage to the next level and integrate it into symphony of clickable polygons, polylines, and points on a Google Map that represents the information visually.
This month’s cover photo is Merit Energy’s State Union 1-8 well in the Traverse City State Forest area. The photo credit goes [again] to Neo. The State Union 1-8 well has produced 14k barrels of oil and 1.9 bcf of natural gas from the Niagaran formation over the past 30 years.
That’s it for the April edition of the Michigan Oil & Gas Monthly (MOGM). Thank you for reading. Please like us on facebook, share this post on your facebook by clicking the button below, and follow us on Twitter by clicking here. Subscribe to our YouTube channel by clicking here. Thanks!
ICYMI: Check out our full year 2015 Petroleum Production issue published April 19, 2016 by clicking here. RMP’s production reporting is the most popular Michigan oil & gas reporting on this website. RMP goes over Michigan petroleum production statistics you can’t find anywhere else on the Internet for any price – and our publications will always be free. Learn what is going on and where it is going on by following RMP and using our exclusive Google Maps! Thanks.