Released March 04, 2024 | SUGAR LAND
en
Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--Through its Beyond6 subsidiary, Chevron Corporation (NYSE:CVX) (San Ramon, California) is selling compressed natural gas (CNG) to Detmar Logistics on Highway 80 in Midland, Texas, and in about 60 total locations nationwide. Permian-based Diamondback Energy (NASDAQ:FANG), through its subsidiary and a partnership with Verde, is looking to turn natural gas into gasoline because it may be more profitable than selling the gas at Waha. Supplying gas to bitcoin miners also has been an alternative.
Permian Pipeline Backlog Spurs Creative Thinking
Permian Basin producers make most of their profits from oil and natural gas liquids (NGLs), so natural gas is often more of a problem than a profit center, especially as pipelines back up. Prices at the West Texas Waha Hub have lagged behind those at Louisiana's Henry Hub due to those backlogs. The U.S. Energy Information Administration (EIA) reports in their Feb 28 Natural Gas Weekly that the Waha price, at $0.43 per million British thermal units (MMBtu), was $1.20 lower than the also very low Henry Hub price of $1.63 per MMbtu. And both these are much lower than the NYSE price on February 29, at $1.885 per MMbtu.
Even at these low prices, Permian producers consider it to be more cost-effective to continue to produce oil and to simply flare the gas if there's nowhere for it to go. As recently as May of 2023, gas prices at Waha were negative ($-0.35 per MMbtu), less than a year after the previous time that happened, in October of 2022. The famous negative oil price in April of 2020, as the pandemic started, has nothing on the natural gas price history at Waha.
So, it is no wonder that producers like Chevron, Diamondback and others are looking for other options.
Chevron Natural Gas at Retail
Chevron has been vertical for decades, throughout most of its evolution since the breakup of Standard Oil. So its January 2023 deal to buy Beyond6 to add value to its natural gas food chain is incremental. Chevron spokesperson Ross Allen says gas prices are one part of a larger plan for the energy giant.
"The price of pipeline natural gas reflects the bounty that this country has," he said. But the cornucopia view provides less euphoria on the monetization side. He observed that natural gas margins are much less than those of crude for producers. So, "It's just a better business to add value to that rather than just sell it" for pocket change.
For Chevron, CNG is a natural for local-range fleet delivery because it's cleaner than diesel, simpler and less costly to provide than liquefied natural gas (LNG), and it reloads faster than electric vehicles (EVs). CNG also checks some environmental, social and governance (ESG) boxes for the end user. "If you look at it that way, it's huge," Allen said.
All Bets Are On
Investing in any single transitional energy is a gamble today, because some are likely to fall by the wayside in a few years as the industry consolidates. Chevron is investing in CNG along with several others because, Allen noted, "We don't actually know what the winner, the best technology, will be in 2045. So you want to have a chip on black and red."
Diamondback, Verde to Produce Gasoline, Reduce Flaring
In neighboring Martin County, Diamondback's Cottonmouth Ventures subsidiary is teaming with green fuel provider Verde Clean Fuels to turn natural gas into gasoline. On February 13 the two parties announced the execution of a Joint Development Agreement (JDA) to develop, construct and operate a facility "to produce commodity-grade gasoline utilizing associated natural gas feedstock from Diamondback's operations in the Permian Basin."
When completed, the developers expect the facility to produce approximately 3,000 barrels per day of fully-refined gasoline. Operations will be based on Verde's patented STG+ process, which Verde mostly uses to create renewable natural gas (RNG) from waste stream methane. The facility would have the capability to reduce natural gas flaring by up to 34 million cubic feet per day, "while also producing a high-value, salable product," said the press release.
Low Gas Prices Benefit Bitcoiners
On the other hand, bitcoin mining based on grabbing natural gas otherwise destined for flares has greatly benefitted from the price drop, according to Coindesk.com. A 2023 report states that the bitcoin industry suffered some bankruptcies in 2022 when the Ukraine-invasion-based natural gas price spike combined with a drop in bitcoin prices. The year 2023 saw a reversal of both trends, incentivizing oil companies to accept bids from bitcoin miners as being to flaring or shutting in production in a glutted gas market.
As Permian wells continue to get gassier and new wells continue to come online, the region's exploration and production (E&P) companies may be forced to become ever more creative in finding ways to use excess natural gas.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
Permian Pipeline Backlog Spurs Creative Thinking
Permian Basin producers make most of their profits from oil and natural gas liquids (NGLs), so natural gas is often more of a problem than a profit center, especially as pipelines back up. Prices at the West Texas Waha Hub have lagged behind those at Louisiana's Henry Hub due to those backlogs. The U.S. Energy Information Administration (EIA) reports in their Feb 28 Natural Gas Weekly that the Waha price, at $0.43 per million British thermal units (MMBtu), was $1.20 lower than the also very low Henry Hub price of $1.63 per MMbtu. And both these are much lower than the NYSE price on February 29, at $1.885 per MMbtu.
Even at these low prices, Permian producers consider it to be more cost-effective to continue to produce oil and to simply flare the gas if there's nowhere for it to go. As recently as May of 2023, gas prices at Waha were negative ($-0.35 per MMbtu), less than a year after the previous time that happened, in October of 2022. The famous negative oil price in April of 2020, as the pandemic started, has nothing on the natural gas price history at Waha.
So, it is no wonder that producers like Chevron, Diamondback and others are looking for other options.
Chevron Natural Gas at Retail
Chevron has been vertical for decades, throughout most of its evolution since the breakup of Standard Oil. So its January 2023 deal to buy Beyond6 to add value to its natural gas food chain is incremental. Chevron spokesperson Ross Allen says gas prices are one part of a larger plan for the energy giant.
"The price of pipeline natural gas reflects the bounty that this country has," he said. But the cornucopia view provides less euphoria on the monetization side. He observed that natural gas margins are much less than those of crude for producers. So, "It's just a better business to add value to that rather than just sell it" for pocket change.
For Chevron, CNG is a natural for local-range fleet delivery because it's cleaner than diesel, simpler and less costly to provide than liquefied natural gas (LNG), and it reloads faster than electric vehicles (EVs). CNG also checks some environmental, social and governance (ESG) boxes for the end user. "If you look at it that way, it's huge," Allen said.
All Bets Are On
Investing in any single transitional energy is a gamble today, because some are likely to fall by the wayside in a few years as the industry consolidates. Chevron is investing in CNG along with several others because, Allen noted, "We don't actually know what the winner, the best technology, will be in 2045. So you want to have a chip on black and red."
Diamondback, Verde to Produce Gasoline, Reduce Flaring
In neighboring Martin County, Diamondback's Cottonmouth Ventures subsidiary is teaming with green fuel provider Verde Clean Fuels to turn natural gas into gasoline. On February 13 the two parties announced the execution of a Joint Development Agreement (JDA) to develop, construct and operate a facility "to produce commodity-grade gasoline utilizing associated natural gas feedstock from Diamondback's operations in the Permian Basin."
When completed, the developers expect the facility to produce approximately 3,000 barrels per day of fully-refined gasoline. Operations will be based on Verde's patented STG+ process, which Verde mostly uses to create renewable natural gas (RNG) from waste stream methane. The facility would have the capability to reduce natural gas flaring by up to 34 million cubic feet per day, "while also producing a high-value, salable product," said the press release.
Low Gas Prices Benefit Bitcoiners
On the other hand, bitcoin mining based on grabbing natural gas otherwise destined for flares has greatly benefitted from the price drop, according to Coindesk.com. A 2023 report states that the bitcoin industry suffered some bankruptcies in 2022 when the Ukraine-invasion-based natural gas price spike combined with a drop in bitcoin prices. The year 2023 saw a reversal of both trends, incentivizing oil companies to accept bids from bitcoin miners as being to flaring or shutting in production in a glutted gas market.
As Permian wells continue to get gassier and new wells continue to come online, the region's exploration and production (E&P) companies may be forced to become ever more creative in finding ways to use excess natural gas.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).
