Archive for Oil and Gas

Caterpillar projections to investors. // Looks gloomy market wise

Caterpillar is reorganizing only four years after making its biggest acquisition ever, spending $7.5 billion on Bucyrus International Inc.

The company faces what it says is the first four-year sales decline in its 90-year history.

In a Bloomberg report: Caterpillar `Bites the Bullet’ as Oil Rout Compounds Mining Pain the metrics are presented.

The last time Caterpillar Inc. cut thousands of jobs, a mining slowdown was to blame. Now the main culprit is oil, as slumping prices batter drillers.

The investigative reporter Sonja Elmquist wrote on Sep 24, 2015 that the world’s most valuable machinery producer by market cap announced a plan to cut as many as 10,000 jobs, or 9 percent of its workforce, through 2018 as the effects of crude’s collapse ripple through the industry.

The measures — including the second reduction in sales guidance in two months — represent the biggest round of cuts since 2013, when the company reduced its headcount by 13,000 as sales to metal producers declined along with prices.

According to Bloomberg Intelligence. “They’ve finally opened up the manila envelope that says ‘doomsday’ on it and they’re executing the plan that they hoped they would never have to execute,” Sameer Rathod, a San Francisco-based analyst at Macquarie, said by telephone.

No one is sure yet as to the shape of the long term market recovery timeline.

The company will cut as many as 5,000 workers this year and another 5,000 by 2018. It reduced a 2015 revenue projection by $1 billion and said sales are expected to drop 5 percent next (2016)…

SHARES WAY DOWN    —

Caterpillar at the time of the announcement fell about 6.3 percent to a five-year low of $65.80.  The stock has lost 28 percent this year, the biggest annual drop since 2008.

As a comparison, the MSCI Emerging Markets Index has fallen 18 percent in 2015 while the Dow is down 9.8 percent.

The company’s consolidation plan may affect more than 20 plants…

To read the entire article, go to http://bloom.bg/1KDMgQr

Maybe as many as 15 Years of Weak Crude and other energy prices

“WHAT IF:

What if the world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase?” 

How does this professional assessment of future markets cause you as a railroad or freight carrier to change from Plan A to maybe Plan B or even Plan D?

 

From Bloomberg, Sep 17, 2015

A glut of crude may keep oil prices low for the next 15 years, according to Goldman Sachs Group Inc. That is a very long period.

This strategic commodities report cites in part Jeffrey Currie in an interview at Lake Louise, Alberta.

Goldman’s long-term forecast for crude is at $50 a barrel, he said. He also observed that “the risks are to the downside given what’s happening in the other commodity markets and the macro markets more broadly.”

Lower iron ore, copper and steel prices as well oil and natural gas –PLUS weaker currencies in commodity-producing countries — have reduced costs for oil companies, according to Currie.

The world is shifting from an “investment phase” of a 30-year commodity cycle to an “exploitation phase,” with shale fields as an important source of output, he said.

To read the entire article, go to http://bloom.bg/1JcGYJu

SOURCE COMPETITION // Example from the North Sea

Falling oil prices could lead to the closure of 140 fields in the North Sea over the next five years.

Falling global prices and geographic and product source competition are the reasons.

Many North Sea operators are accelerate plans for decommissioning the ocean drilling rigs.

Wood MacKenzie, a consultant, says that the decommissioning of the fields could go ahead even if oil prices return to $85 per barrel, from their current price of around $49.

The impact of some European countries from job and related tax revenue losses will be staggering.

The report comes after Oil and Gas UK said that 65,000 jobs had been lost in the North Sea since the slump in oil prices began last November. The trade body has warned that with so few new projects gaining approval, capital investment is expected to drop from £14.8bn last year to between £2bn and £4bn in each of the next three years.

Decommissioning is already underway in more ageing fields in the North Sea. Royal Dutch Shell is planning the decommissioning of the Brent field. Four Brent platforms – Alpha, Bravo, Charlie and Delta – have generated £20bn of tax revenue since they were brought into production in 1976.

For the complete news report in the Telegraph, log onto: http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11853279/Clock-ticking-for-North-Sea-oil-as-low-prices-threaten-closure-of-140-fields.html

Signs of crude oil by rail market US share changes out towards 2017 // Forecast Volatility

This from a selective assessment from a Bismarck Tribune news report. //

As of the end of June 2015, the most recent figures available, shipments of Bakken crude oil from North Dakota via rail and pipeline were essentially equal: 47 percent by rail, 46 percent by pipeline. The rail shipments market share have gone down substantially since the peak in late 2014 says Justin Kringstad, director of the North Dakota Pipeline Authority.

The ability to make an economic forecast of oil by rail volume has demonstrated a MARKET VOLATILITY of about 25% within a half year period in 2015.

Expectations by various experts of future crude oil by rail may have to be tempered.

The data shows that the estimated rail export volumes of crude by rail leaving North Dakota peaked around 850,000 barrels per day at the end of 2014.

By June of 2015, the ND oil origin shipments by rail had dropped nearly 25% to around 640,000 barrels in the past 6-months.

Regardless of current 2015 market trends, the top year for future oil by rail out of North Dakota “might be” the year 2017. Given the global price of energy factors, it is difficult to predict. What do you think?

For more, see: http://bismarcktribune.com/news/state-and-regional/oil-shipments-by-rail-drop-as-pipeline-shipments-increase/article_6a02aa9b-55c0-5a28-8743-f2bc8b670e85.html

Bloomberg Commodities Index hits a year 2002 low

The Bloomberg Commodity Index, a basket of 22 raw materials including crude and gold is trading at a 2002 low.

It has slumped 14 percent this year.

To read the entire article, go to http://bloom.bg/1TRmDVF

Clearly more bad news for global rail to port new projects.

Sent from my iPhone

Governor Wolf of Pennsylvania Releases Oil Train Safety Report // Here is quick summary

Governor Wolf of Pennsylvania has released Oil Train Safety Report August 17, 2015

The report was written by Dr. Allan Zarembski . It focused on the safety of Pennsylvanians and protecting people from the potential of Bakken crude oil train derailments.

“I would also like to thank Dr. Zarembski for his hard work in writing this report and for producing numerous recommendations that will help my administration prepare.” Dr. Zarembski, who was hired by the governor in late-April and started in mid-May, is an internationally recognized expert in the area of railway track and structures, vehicle-track dynamics, failure and risk analysis, safety, railway operations, and maintenance.

Dr. Zarembski presents 27 recommendations.

———————————–

The report acknowledged that while the recent actions taken by the railroad industry and the Department of Transportation have been of great value, there is still concern about the level of risk present on these rail lines.

The Commonwealth of Pennsylvania asked the University of Delaware to look at the current level of risk and advise as to how to reduce the risk of a CBR incident in the Commonwealth.

For those derailment categories that are high risk, i.e. with a significant number of annual occurrences or significant potential for occurrence of major tank car failure, the University of Delaware team identified opportunities for improvement in inspection and/or maintenance practices, based on state of the art industry practice as well as specific practices of railroads operating CBR trains in the State of Pennsylvania.

In the area of Tank Car Breach/Rupture Risk, the assessment examined the proposed improvements to the tank car such as: Improved head shields Increased tank shell thickness/external jacket Valve Protection (top and bottom valves) and possible reduction in train speed.

In the area of Regulatory Oversight, the assessment reviewed the current safety oversight capabilities and resources of the Pennsylvania Public Utilities Commission as well as those of other neighboring states and identified opportunities for improvement of safety and Emergence Response. The report noted that the U.S. Department of Transportation, Federal Railroad Administration (FRA) has primary responsibility for rail safety and inspection under a 1970 federal law which preempted rail safety regulation.

Recommendations

A total of 27 recommendations are presented in this report; divided into primary (18) and secondary (9) categories.

Here are the 18 Primary category recommendations .

Secondary categories include activities which are more difficult to implement or which may require action by a party other than the railroad or Commonwealth of Pennsylvania.

Primary Recommendations

Railroad:

1. It is recommended that the routes over which CBR trains operate in Pennsylvania be tested at a rate such that the service defect rate is maintained at 0.04 to 0.06 service failures/mile/year. In all cases, rail on these routes should be tested no less than three times a year.

2. It is recommended that the routes over which CBR trains operate in Pennsylvania be tested by a railroad owned Track Geometry Car at a minimum of four times a year.

3. It is recommended that the routes over which CBR trains operate in Pennsylvania be tested by a vision based joint bar inspection system at least once per year, this test to be in lieu of one of the required on-foot inspections, as permitted by FRA.

4. It is recommended that NS and CSX adopt the BNSF Railway voluntary speed reduction to 35 mph for crude oil trains through cities with a population greater than 100,000 people

5. It is recommended that the railroad have sufficient Wheel Impact Load Detector (WILD) units in place to monitor all loaded oil train cars along their entire route within Pennsylvania, such that any track location on an oil train route within the state should have a WILD unit no more than 200 miles preceding (in the loaded direction) that location

a. If a WILD measurement exceeds 120 Kips, the train should be safely stopped, the wheel inspected, and then if condition of the wheel allows, the train proceed at a reduced speed of 30 mph until the alerting car can set out at an appropriate location until repairs are made.

b. If the WILD measurement is greater than 90 Kips, the car should be flagged and the identified wheels replaced as soon as possible but no later than 1500 miles of additional travel.

6. It is recommended that the railroads have sufficient Hot Bearing Detector (HBD) units in place as to monitor all loaded oil train cars along their entire route within Pennsylvania, with a maximum spacing of 25 miles between Hot Box detectors.

7. It is recommended that the railroad have at least one Acoustic Bearing Detector unit in place to monitor all loaded oil trains along their entire route within Pennsylvania.

8. It is recommended that those yards and sidings that handle a significant number of CBR cars be inspected by the Railroad inspectors at a level of track tighter than the assigned FRA track class. Thus Yards that are FRA Class 1 should be inspected at a FRA Class 2 level to provide railroads with early warning of potential track conditions that can cause problems.

9. It is recommended that oil trains in Pennsylvania, not equipped with Electronically Controlled Pneumatic (ECP) Brakes, use two way end of train devices (TWEOT) or Distributed Power (DP) to improve braking performance.

10. It is recommended that CSX and NS complete their initial route analysis of High-hazard flammable train (HHFT) routes in Pennsylvania as quickly as possible, taking into account proximity to populated areas and safety considerations as outlined by DOT.

Commonwealth of Pennsylvania:

11. It is recommended that the Commonwealth of Pennsylvania designate appropriate state and local officials to work with CSX and NS to provide all needed information and to assist in the route analysis.

12. It is recommended that Pennsylvania Public Utility Commission (PUC) inspectors, in co-ordination with FRA inspectors, focus on inspection of major CBR routes, to include track, equipment, hazmat, and operating practices. In particular, track inspectors should prioritize main line turnouts and yards and sidings that see a significant number of crude oil cars, to include both major railroads and the refineries themselves.

13. It is recommended that the Pennsylvania PUC and their track inspectors which are part of the PUC’s Transportation Division coordinate with the Federal Railroad Administration and try to schedule the FRA’s T-18 Gage Restraint Measurement System (GRMS) test vehicle to inspect all routes over which CBR trains operate in Pennsylvania at least once a year. This test should include both GRMS and conventional track geometry measurements.

14. It is recommended that Pennsylvania PUC fill their existing track inspector vacancy with a qualified inspector with railroad experience. Given the fact that most major refineries are in the eastern part of the state, where SEPTA and Amtrak are located as well, it may be necessary to add a third inspector to the eastern part of the state, pending filling of the existing eastern vacancy.

15. It is recommended that PEMA continue to actively work with both railroads to roll out information sharing technology tools and make these tools available to all emergency responders on CBR routes (PEMA is actively working in this area). 16. It is recommended that PEMA coordinate full scale emergency response exercise involving emergency responders from communities along the key oil train routes.

17. It is recommended that PEMA work with and insure that all communities along the CBR routes have appropriate emergency response plans.

18. It is recommended that PEMA work with NS and CSX to obtain an inventory of emergency response resources along routes over which Crude Oil Trains operate to include locations for the staging of emergency response equipment (PEMA is actively working in this area). Secondary Recommendations Railroad:

//

For full access to the text of the report and al 27 recommendations, you can download the report at: https://www.governor.pa.gov/governor-wolf-releases-oil-train-safety-report/

 

As a disclosure, I assisted Dr Zarembski in the report research. This is Jim Blaze

Wide Range of Price Outlooks as Oil Experts React to Crude Hitting a 6-Year Low

Interesting Bloomberg report on Aug 13, 2015

Huge variance in expert outlooks on crude oil prices…

Oil and gas restructuring specialist John Castellano at AlixPartners in Chicago describes the prediction process this way: “we view it more as shark teeth” he said

He is describing prices that could bounce between $45 and $65 a barrel over the next few years. “This is more like a new normal in this price range,” he explains.

Most analysts, in the meantime, predict that oil prices will slowly recover, or at least won’t get any worse, by the end of next year. One, Natixis SA is on the low end among those surveyed by Bloomberg at $46 a barrel.

Another Standard Chartered Plc analysts are forecasting prices will rebound to $85 a barrel by the fourth quarter of 2016.

Depending on your measurement point, that is a 45% to 85% range. And both are professional estimates.

On a more modest level, Morgan Stanley researchers saw a “modest recovery and higher prices” over a 9 month period into this year’s end back 4 months ago in an April 12 research report. In the meantime, crude prices have fallen by almost 19 percent.

OOPS!

They have now revised their outlook by telling investors this could be worse than the oil rout of 1986.

Most experts seem befuddled by the market. Who is an expert you can trust.

Meanwhile, one refinery closing for normal plant maintenance near Chicago this week…    … and the local street price per gallon jumps about 22% almost overnight across a 4-state region.

Whose forecast can we trust? Is this downward overall economic cycle worse than that of 2007-09?

Oil price drop will help truckers more than freight railroads.

To read the entire article, go to http://bloom.bg/1JW4jEN

A railway freight traffic rally? // Not with this 13 year record drop in Commodity Prices

Published by Bloomberg, Jul 20, 2015

Oil has been reeling for about a year; now gold is getting slammed—

Commodities are at a 13-year low.

How will this affect your strategic plans?

To read the entire article, go to http://bloom.bg/1MDRHk3

The Bloomberg Commodities Index dropped to a 13-year low Monday…

That is weaker than after the banking meltdown of 2008 and the euro-zone crisis of 2012.

From wheat, to copper, to natural gas, little has escaped the rout.

If your waiting to start your new commodities based railway, it is time to review your strategic assumptions..

US Shale Oil Output Heads for Record Drop

From Bloomberg, Jul 13, 2015

Shale fields that powered the U.S. energy renaissance will suffer the biggest drop in output since the boom began after companies idled more than half their drilling rigs.

How many crude oil train sets may be stored?

To read the entire news report, go to http://bloom.bg/1DcEfyt

Production from the prolific tight-rock formations such as the Eagle Ford in southern Texas will decline 91,000 barrels a day in August  the Energy Information Administration said Monday.

About 645 rigs were drilling for oil last week, down from 1,609 in October, according to oil-field service company Baker Hughes Inc.

Commodity Global Surpluses Persists — means weak demand for rail services

A Bloomberg report on Jul 8, 2015

The analysis of the demand for port and rail freight always begins with an examination of the market supply/demand at the buyers level. China and India are the major demand markets. But the long term surplus of supply means tough times ahead for suppliers in the emerging nations.

According to a Bloomberg report, the world is still mired in a surplus of most commodities, which means tough years ahead for prices and shipments of added materials. The actual source is from analysts at Goldman Sachs Group Inc. led by Jeff Currie.

“Long-term surpluses in most commodity markets require prices to remain lower for longer,” the Currie team wrote. The markets are contending with declining costs, a strengthening dollar and slowing growth in emerging economies like China that use a lot of raw materials, the bank said.

Patrick Pouyanne, the chief executive officer at French oil giant Total SA, told a parliamentary commission in Paris that the oversupply of oil will last into 2016. A sustained long term recovery this year isn’t likely, Societe Generale said in a report today.

Despite the long term slide in prices and the lowered market demand, most emerging nations have still not adjusted their strategic plans for rail,and port growth. Their current tactics seem to be “damn the torpedoes, and full speed ahead”. That kind of thinking over the past decade resulted in Greece’s economic headache.

Who will step up and change investment strategy first? Who is going to be that leader?

To read the entire article, go to http://bloom.bg/1Hbu7HR Sent from my iPad