DOMESTIC ENERGY PRODUCERS ALLIANCE October 2020 DEPA REPORT ON INDUSTRY, LEADERSHIP, LEGISLATION AND ENERGY REGULATION New AGS Price Marker Reflects A Maturing Coastal WTI Market Written by Jeff Kralowetz, Argus Media he US Gulf Coast is the world’s most active and that both pipeline trades at coastal hubs and Aframax transparent physical market for crude oil. Producers waterborne trades go into setting the index. In this way, bringing crude there can sell to the 8mn b/d Gulf coast the AGS reflects the optionality that producers have to refinery network, or they can put their barrels on the sell on a pipeline basis to coastal refiners or on a water- water, where more than 1mn b/d of borne basis to the export market. US crude heads to Europe and about Pooling the pipeline and wa- 1.5mn b/d goes to Asia. terborne trades gives AGS multi- Early this year, industry leaders ple times more trades and trans- started a process to ensure that this parency than Dated Brent. In- world-class crude market has a sin- creased agreement on the quality gle published daily crude price – of WTI going into AGS makes based at the Gulf coast -- that rivals pooling possible. Midstream op- Brent as a global price marker. Ar- erators Enterprise and Magellan gus was one of the price reporting now report monthly on the aver- agencies that introduced a new age quality of WTI going through American GulfCoast Select their Houston facilities. In the (AGS) coastal crude price, repre- past six months, the quality at the senting the price for unblended two locations has been within 0.5 Midland-quality WTI sold at sev- Argus AGS is degrees API and within .05 per- eral locations at the Gulf coast. cent sulphur of each other. seeing growing Now, three months from the Argus normalizes its AGS to June 26th launch, the Argus AGS trade activity, convergence of Enterprise’s ECHO terminal at is seeing growing trade activity, Houston. So trades done at other convergence of prices at trade lo- prices at trade locations, and locations – anywhere from Cor- cations, and rising industry calls rising industry calls for a pus Christi and Ingleside to Ne- for a financial contract that will derland and Beaumont – have make AGS hedge-able by every- financial contract that will their values adjusted to reflect the one from Sugar Land to Shan- make AGS hedge-able by location spread seen in the last dong. three months of trade between ECHO and their location. Hou- Argus chose to design its AGS everyone from Sugar ston area docks have tended to as a composite index, meaning Land to Shandong. trade at a 25-cent premium to ECHO, so when Afram- cal Dated Brent grades, means there is a high degree of ax trades there are reported, the price is reduced by 25 confidence that Argus AGS price reflects broad market cents/bl before being added into the AGS volume- reality. weighted average for the day. Corpus Christi trades In spite of COVID-related market disruptions, the have a 20 cent/bl correction, and trades at MEH are US Gulf coast crude markets have continued to mature, adjusted by 7 cents/bl before being entered into AGS. making it possible for AGS to emerge. It is a robust These location spreads have been narrowing in just pricing mechanism for a US Gulf market that now in- the three months since AGS was introduced. Part of the fluences crude prices around the world. reason for the narrowing is that the new Wink to Web- Companies that would like to report their trades for inclu- ster line is able to deliver to both Magellan and Enter- sion in the Argus AGS may contact the Americas Crude Edi- prise systems, thereby helping bring them closer to par- tor, [email protected]. ity. But the Corpus Christi and Beaumont-area spreads Argus AGS and AGS Marker are published every business have also narrowed, demonstrating how the build out of day in the Argus Crude and Argus Americas Crude reports. infrastructure is making AGS one homogenous grade PA (data) codes for Argus AGS, Argus AGS Marker and for across the Gulf coast. the location price spreads are listed in the table below: Traders in Europe and Asia have noted that having one coastal price for Midland-quality WTI will simpli- Argus AGS Marker PA0030327 fy their contracting. And there is growing enthusiasm Argus AGS PA0030324 for AGS financial contracts to allow for trading spreads Location- October 2020 Location Differential PA Code between Brent futures or Dubai swaps to allow interna- ECHO 0 - tional buyers more precise hedging and decision mak- MEH + 7 cents/bl PA0030304 ing. Domestic US traders like having a price set at the Genoa Junction + 10 cents/bl PA0030305 coast, and reflective of the whole region rather than a Speed Junction + 20 cents/bl PA0030306 single location that could experience logistical bottle- FOB EHT + 25 cents/bl PA0030307 necks and erratic prices. FOB Texas City + 25 cents/bl PA0030308 Finally, the fact that Argus AGS has an average of FOB Seabrook + 25 cents/bl PA0030309 more than 30 market participants each month as com- Corpus Christi + 20 cents/bl PA0030677 pared to an average of 10 market participants in physi- Beaumont/Nederland + 20 cents/bl PA0030678 DEPA believes in seeking common ground, through common sense solutions, to the challenges facing our industry. Our bipartisan Executive Board of Directors DEPA Staff approach provides a Harold Hamm Dan Boren Peter Regan uniquely powerful voice Chairman Stephanie Canales Congressional and Alliance Liaison for our members at the Jerry Simmons Diana Chance Ed Cross David Crane state and national level. President/CEO Lobbyist Ron Ness Cynthia Simonds Don Montgomery John Schmitz Vice President Marketing and Ben Shepperd Communications Dir. Our work is critical. Berry Mullennix Brook Simmons Sarah Reece Secretary/Treasurer Administrative Services Your support is vital. Bill Stevens Manager Rock Zierman PO Box 33190 Tulsa, OK 74153 405-669-6646 [email protected] DEPA Energy Leadership in 2021 DEPA was born out of the shale revolution and recogni- tion of the increasingly diverging priorities of the US domes- tic energy industry and the large international/integrated oil • American GulfCoast companies. Nowhere has this divide been more evident than within the energy lobbying establishment in Washington - Select (AGS) which is dominated by multinational, integrated companies. In the absence of an alternative voice dedicated to Ameri- • can energy priorities, the US energy renaissance would be at Stimulus Funding the mercy of radical environmentalists, large multinational companies, OPEC, even Russia. • The Preservation of In the next few issues of the DRILLER, we will have arti- cles on the DEPA Energy Leadership issues that go in-depth American Energy with what you need to know and what we are doing. • The Dangers of The DEPA strategy for success is simple. 1. Defend US production from radical environmentalists, The Green New Deal OPEC, Russia, and other threats • 2. Rewrite laws and regulations developed in an era of Refinery Capacity energy scarcity and dependence to reflect and strengthen the new reality of energy abundance and independence. • Environmental, Social 3. Open and expand competitive markets for US energy around the world and governance (ESG) Do you get our press releases and notifications? Visit www.depausa.org/contact Let us know in the comment box you would like to receive our emails. DEPA Report on Industry, Leadership, Legislation, and Energy Regulation October 2020 3 2020-2021 Board of Directors Harold Hamm Chairman, Continental Resources Inc. Jerry Simmons President, DEPA Don Montgomergy VP, Montgomery Exploration Berry Mullenix Secretary/Treasurer, Panther Energy, LLC Executive Dan Boren Director, First United Bank Committee Stephanie Canales Director, Cougar Drilling Solutions Diana Chance Director, Donner Properties Ed Cross Director, KIOGA Ron Ness Director, North Dakota Petroleum Council John Schmitz Director, B29 Investments Ben Shepperd Director, Permian Basin Petroleum Association Brook Simmons Director, The Petroleum Alliance of Oklahoma Bill Stevens Director, WindRiver Associates, LLC Rock Zierman Director, CIPA Mark Metzler, Felderhoff Exploration Bobby Baggett, Valeo Capital Advisors, LLC Jason Modglin, Texas Alliance of Energy Producers Dale Calhoun, Florida Propane Gas Association & Florida Natural Gas Association Patrick Montalban, Northern Montana Oil & Gas Assoc. Jason Geer, Michigan Oil & Gas Association Brian Moore, Superior Energy Directors Thomas Herbert, Florida Indep. Petroleum Producers Assoc. Rick Muncrief, WPX Energy Bryan T. Hood, Illinois Oil & Gas Association Greg Schnacke, Denbury Resources, Inc. Blu Hulsey, Continental Resources, Inc. Avery Smith, JP Consultants, LLC Kenny Jordan, Assoc. of Energy Service Companies Judy Stark, Panhandle Producers & Royalty Owners Assoc. Roger Kelley, Continental Resources, Inc. Jennifer Sutton, Council for a Secure America David Le Norman, Reign Capital Holdings Jim Teague, Enterprise Partners, LLC Toby Mack, Energy Equipment & Infrastructure Alliance Fred Toney, Calfrac Well Services Ltd. Mike McDonald, Triad Energy, Inc Darlene Wallace, Columbus Oil Jeff McDougall, JMA Energy Company, LLC Bob Warren, International Assoc. of Drilling Contractors Nelson Wood, Wood Energy, Inc. 4 Domestic Energy Producers Alliance THERE ARE A LOT OF PLANS FOR NOVEMBER 3RD, BUT WHAT IS THE PLAN BEGINNING NOVEMBER 4TH? FIND OUT! November Member Webinar ELECTION RECAPS FROM THE ENERGY PERSPECTIVE AND WHAT 2021 MIGHT HOLD FOR OUR INDUSTRY TUESDAY, NOVEMBER 10TH 11:00 AM CST FEATURED