Production of waxy crude in the Uinta Basin has more than halved since mid-2021, and E&Ps there would like to produce more: The slick, dense hydrocarbon is in high demand, not just from refineries in the nearby Salt Lake City, but also for at least some of their Gulf Coast counterparts. Producers appear to be able to transport increasing volumes of material to market by truck and rail. The problem is that waxy crude emerges from Uinta wells with associated gas that must be piped, pipelines outside the play are approaching capacity, and addressing takeaway limitations is a very complicated matter . In today’s RBN blog, we discuss gas consumption concerns from the Northeast Utah play and the outlook for continued growth in wax crude production.
In Part 1, we said Uinta Basin waxy crude production has been on pace, rising from about 80 Mb/d a year and a half ago to an estimated 130 Mb/d in recent weeks. The waxy crude produced in northeastern Utah has a number of unusual qualities, including medium to light API values (30 to 40 degrees for Uinta’s “black wax” and 38 to 44 for its ” yellow wax”); minimum levels of sulphur, acid, metals and nitrogen; and—most notable of all, perhaps—the consistency of old-school shoe polish, which requires it to be kept warm to remain in a liquid state. The waxy consistency of crude oil complicates its transport and storage. Insulated tankers are used to move up to 80 Mb/d of the basin’s production to the five Greater Salt Lake refineries; the balance (currently about 50 Mb/d) is transported to one of two rail terminals south of the Uinta (Wildcat and Price River) to be loaded into rolled, insulated railcars for shipment to terminals in Louisiana and the southeast Texas for use by refineries there.
The sharp increase in wax crude production from mid-2021 is tied to three key factors: (1) favorable oil prices; (2) large gains in production efficiency and economy (cf Part 1 for details); and (3) the growing interest of Gulf Coast refineries in incorporating zero crude into their crude slates. As we said last time, Uinta E&P wants to produce more, refineries in Louisiana and Texas want to buy more, and the obvious challenges of getting waxy crude to market are being managed and overcome.
Which brings us to a challenge still facing producers in the Uinta Basin, namely the fact that the production of wax crude generates associated gas, the handful of pipelines that exit the basin it is often full or nearly full, and flaring even modest volumes of the trapped gas is not a viable option (due to regional air quality issues). Not that Uinta’s production is particularly gassy: the gas-to-oil ratio (GOR) in the wax wells in Duchesne and Uintah counties (where almost all of the wax production occurs) is generally between 1:1 and 2:1, meaning that only 1 to 2 Mcf of gas for each barrel of waxy crude oil. Instead, the dilemma is that pipeline infrastructure outside the basin is limited and there is no easy solution.
There are two major players in the gas midstream in the Uinta Basin: MountainWest Pipeline, an interstate pipeline system in the Rockies, now owned by Williams Cos.; and Kinder Morgan, which has key gathering, gas processing, pipeline and fracking assets in the basin. As we will discuss, it remains to be determined whether MountainWest and Kinder’s ongoing efforts to maximize their existing pipelines in the Uinta will be sufficient to enable continued growth in wax crude production.
Figure 1. Gas pipelines in the Uinta Basin and beyond Source: RBN
Figure 1 shows the shorter, mostly smaller-diameter pipelines that draw gas from the Uinta Basin (Y-shaped group of pipes inside orange hexagons), as well as the larger-gauge pipelines that move gas throughout the wider Rockies region. The dark blue lines in the “Y” show MountainWest’s proprietary integrated pipeline network that is part of the company’s larger regional network. The MountainWest Basin pipelines, which operate in common or join and feed into each other, transport gas from the Altamont and Bluebell areas of the Uinta to Myton, and from Myton (and Brundage) to the largest, east-west part of the MountainWest network. The short pink line on the left branch of the Y shows a pipeline to Myton (the Farm Line) owned by Kinder Morgan.
We won’t get too deep into the weeds about the dilemma of taking gas to the Uinta Basin (or possible solutions): the situation and possible solutions are surprisingly complex and nuanced, and would take a week of blogs to describe . them in detail. Suffice it to say that system capacity in the MountainWest Basin is exhausted, but operating capacity varies by location (the area south of Myton has greater operating capacity) and by season. During the summer months, the pipes are close to full. During the winter months, a significant amount of gas is used within the basin to heat tanks that store the waxy crude before it is transported to refineries in the Salt Lake area or to the rail terminals at Wildcat and Price River. This use of gas in the basin frees up pipe space.
How Uinta Basin E&P ends up getting more gas carrying capacity is perhaps the most difficult issue to address. We should note at the outset that pipeline owners in the Uinta are doing everything they can to increase the operating space available in their pipelines, and these efforts have helped producers increase their wax crude production (and associated gas) during the last year and a half. But for a number of reasons, a long-term solution that would allow wax crude production to increase to, say, 175 Mb/d, 200 Mb/do more has proven elusive.
It’s not like anyone has tried to add pipeline capacity outside of the Uinta Basin. MountainWest, for example, has issued two open seasons to add capacity, but didn’t get market support at the time. Kinder Morgan has also been pursuing a potential project, but has run into problems. While there’s no obvious solution at this point, we’d bet there is something will provide at least some degree of takeaway gas relief for the next 18 to 24 months.
Figure 2. Uinta Basin crude oil production. Sources: Utah Division of Oil, Gas & Mining, RBN
If that happens, Uinta Basin production has the potential to grow significantly, even from its current high levels. As the dark blue bars in Figure 2 show, wax crude production in Duchesne and Uintah counties, again the heart of the Uinta, grew from 77 Mb/d in 2017 to 85 Mb/d d in 2019, and dropped to 71 Mb/d. d during the Covid-affected 2020, rebounded to 84 Mb/d in 2021, then increased sharply to 109 Mb/d in 2022 (all annual averages). In the RBN forecast (light blue bars), which predicts a partial correction of basin gas intake constraints in 2024 and a larger correction in 2025, we see that Uinta wax crude production it is 140 Mb/d on average this year, 160 Mb/d. in 2024, and 180 Mb/d in 2025-27. This outlook may turn out to be optimistic if a solution to take away gas does not emerge. On the other hand, it could also be too pessimistic: some proponents have suggested that production could rise to 250 Mb/d or even 300 Mb/d in the next two to three years. The rate of growth of the Uinta will ultimately depend in large part on the willingness of producers to collaborate on infrastructure solutions that benefit them all.
“You Sexy Thing (I Believe in Miracles)” was written by Errol Brown and Tony Wilson. It appears as the fifth track on Side 1 of British soul band Hot Chocolate’s second studio album, Hot chocolate. Released as a single in October 1975, the song reached number 3 on the Billboard Hot 100 Singles chart and has been certified Gold by the Recording Industry Association of America. With its unique beat featuring congas and bongos played through a wah-wah pedal and its catchy chorus of “where are you from… sexy thing”, the song was a sure bet to fill the dance floor and become a success. . It has been used in numerous films, television shows and commercials over the years. The personnel for the album were: Errol Brown (lead vocals), Tony Wilson (bass, backing vocals), Harvey Hinsley (guitars, backing vocals), Larry Ferguson (keyboards), Tony Connor (drums, backing vocals, electric piano), Patrick Olive (percussion , backing vocals), and The CCS Horns and Phil Dennys (string arrangements).
the album Hot chocolate was recorded in 1975 by RAK Records Mobile at Chateau du Regard and Coye la Foret in Oise, France, with Mickie Most as producer. Released in November 1975, the LP charted at number 41 on the Billboard 200 Albums chart. Two singles were released from the album.
Hot Chocolate is a British soul band formed in London in 1968 by vocalist Errol Brown and bassist Tony Wilson. The band had at least one hit song in the UK charts every year from 1970 to 1980. The partnership with legendary British record producer Mickie Most proved to be a formula for success for the band. They have released eight studio albums, 14 compilation albums and 50 singles. Original vocalist Errol Brown left the band in 1986 and went on to a successful solo career. In 2003 he received an MBE (Member of the Most Excellent Order of the British Empire) and in 2004 the Ivor Novello Award for his contribution to British music. Brown died in May 2015. Eighteen members have passed through the band since its formation. They continue to tour, with original members Patrick Olive, Harvey Hinsley and Tony Connor still in the group.
