while we made a brief mention about falling oil prices in relation to fracking last week, this week those falling prices and falling markets worldwide became the top story not just in regards to fracking, but led most of the overall news coverage worldwide...prices for oil on international markets closed as low as $83.78 a barrel in London midweek before rising back over $86 before the weekend, while US crude fell below $82 a barrel before ending the week at $82.75, which is quite a drop for frackers who borrowed to the hilt to drill based on $107 a barrel oil as recently as June...so many of the ideas we touched on last week - that fracking in the least productive areas would become unprofitable, and that many overextended independent drillers might not be able to roll their loans and could face bankruptcy - received both widespread and in depth coverage in almost every national news outlet of note...so as a result, a large part of this package deals with the economics of oil production, and the reasons for the rapid drop in prices, not the least of which is efforts by the Saudis to drive the price down to squeeze ISIS, Iran, Russia and the high cost US & Canadian producers..
a new study on Ohio fracking related earthquakes also got widespread national coverage this week; scientists at Instrumental Software Technologies recorded roughly 500 earthquakes in the basement rock under three Utica shale wells in Uhrichsville near Canton, most during the roughly one month period that they were being fracked last October; most were small, with just 10 between magnitude 1.7 and 2.2, and at a depth of two miles, hence they were too small and deep to be felt...these fracking quakes revealed a previously unmapped east-west trending fault that lies in the Precambrian crystalline basement bedrock...this may mean that fracking the deeper Utica will produce more earthquakes than in the shallower Marcellus, as the ancient rock below the Utica has been subject to major upheavals in the past and is more likely to already be fractured by hidden faults..
we're going to start this week by calling your attention to the following investigative piece by Steve Horn, wherein he reveals the latest fracking leases being used in Ohio by former Chesapeake CEO Aubrey McClendon, and clauses therein that virtually assure that no royalties will be paid to mortgaged landowners, allows McClendon's company American Energy Partners to use the leased land for injection wells whether the shale is exploited or not, and gives them the right to extend the lease indefinitely whether the property is exploited or not...Steve also discusses the funding of McClendon's company with high interest junk debt (7 notches below what would be considered safe investment grade) and how he's parlaying that into another land grab in California's Monterey Shale, which as we've previously discussed (here, May 25 email) is virtually unexpoitable due to the rippled nature of California's shale topography...we're also including the link to Steve's post as reposted at Naked Capitalism, not so much because Yves starts by pointing out the real value of the post is near the end where Steve discusses the terms of the lease as revealed by attorney, but because if other provisions of these leases are to be revealed, they'll be found among the comments at that site, where many of the regulars are knowledgeable in the ins and outs of real estate laws..
Court Files: Coal CEO Robert Murray Unearths Lease from Aubrey McClendon's New Fracking Company -- Steve Horn - DeSmogBlog has obtained a copy of a sample hydraulic fracturing (“fracking”) lease distributed to Ohio landowners by embattled former CEO and founder of Chesapeake Energy, Aubrey McClendon, now CEO of American Energy Partners. Elisabeth Radow, a New York-based attorney who examined a copy of the lease, told DeSmogBlog she believes the lease “has the effect of granting American Energy Partners the right to use the surface and subsurface to such a great extent that it takes away substantially all of the rights attributable to homeownership.” The American Energy Partners fracking lease was shaken loose as part of the discovery dispute process in an ongoing court case pitting coal industry executive Robert E. Murray — controversial CEO of Murray Energy Corporation and American Energy Corporation — against McClendon in the U.S. District Court for the Southern District of Ohio Eastern Division. Murray brought the suit against McClendon back in August 2013, alleging McClendon committed trademark and copyright infringement by using the “American Energy” moniker. Murray’s attorneys used the lease as an exhibit in a Motion to Compel Discovery, filed on September 8, over a year after Murray brought his initial lawsuit. The case has ground to a slow halt as the two sides duke it out over discovery issues and related protective order issues, making a large swath of the court records available only to both sides’ attorneys and causing many other records to be heavily redacted. Out of that dispute has come the American Energy Partners lease, published here for the first time.
How Oil and Gas Leases for Fracking Rip Off Homeowners - Yves Smith - Yves here. This post by Steve Horn about that shows the typical terms of an oil and gas rights lease for American Energy Partners buries the lead, in that Steve needs to give the context of how the lease came to be public before he turns to explaining how the lease rips off the party who signs it. Among other things, it requires the homeowner to have any mortgage made subordinate to the royalty agreement, something no lender will agree to. If the homeowner can’t get the subordination (a given), no royalties will be paid! As you’ll see, there are other “heads I win, tails you lose” terms in these agreements.
Pugh Clause – Understanding the Horizontal & Vertical Pugh Clause (there's no Pugh clause in McClendon's leases)
Fracking Triggers More Ohio Earthquakes - A new study connects some 400 micro-earthquakes near the town of Canton, in Harrison County, to hydraulic fracturing wells. The three wells operated from September through October 2013 in the Utica Shale. Ten of the quakes registered between magnitude 1.7 and magnitude 2.2, but the tremors were too deep to cause damage or to be easily felt by people, according to the study, published today (Oct. 14) in the journal Seismological Research Letters. The new study is the second report this year of fracking-linked earthquakes from drilling in the Utica Shale. The shale is a rock formation that is deeper and closer than the Marcellus Shale to the crystalline basement rocks where faults are more common. In March, scientists with Ohio's Department of Natural Resources (ODNR) shut down drilling at seven Utica Shale gas wells in Poland Township after fracking triggered two small earthquakes. The ODNR now requires monitoring of seismic activity at fracking sites near known fault lines, and reducing the flow of water if earthquakes begin to occur. The Harrison case is one of the few scientifically documented incidents of hydraulic fracturing causing earthquakes on a fault,
Study links hundreds of Ohio quakes to fracking - A new study suggests fracking triggered hundreds of small, unnoticeable earthquakes in eastern Ohio late last year, months before the state first linked seismic activity to the much-debated oil-and-gas extraction technique. The report, which appears in the November issue of the journal Seismological Research Letters, identified nearly 400 tremors on a previously unmapped fault in Harrison County between Oct. 1 and Dec. 13, 2013. That included 10 quakes of magnitudes of 1.7 to 2.2. That's intense enough to have temporarily halted activity under Ohio's new drilling permit rules had they been in place at the time, but is still considered minor. The quakes fell along a fault lying directly under three hydraulic fracturing operations and tended to coincide with nearby activity, researchers found. About 190 quakes were detected in a single three-day period last October, beginning within hours of the start of fracking. None of the quakes was reported felt by people. Ohio Department of Natural Resources spokeswoman Bethany McCorkle said the state has installed seismic monitoring equipment throughout eastern Ohio over the past year and is keeping close watch for earthquakes strong enough to be felt.
Fracking Triggered Hundreds of Earthquakes in Ohio, Study Shows - Fracking caused hundreds of earthquakes along a previously undiscovered fault line in Ohio. That’s the conclusion of research by scientists at Instrumental Software Technologies, Inc. (ISTI) and the Ohio Department of Natural Resources (ODNR), who published their findings in the most recent issue of the journal Seismological Research Letters (SRL). “There were earthquakes where there had not been any in the past records,” ISTI’s Paul Friberg, a seismologist and paper co-author, told weather.com. “Not just 10 earthquakes, but about 500 much smaller ones that could only be observed using an advanced data processing technique.” Though many of the quakes were positive magnitude — as in a magnitude of 0.1 or greater — they were all more than two miles below the surface, making them too deep to be felt. To get to these results, Friberg and colleagues looked at data from National Science Foundation seismographs located near the hydraulic fracturing sites. (The seismographs were in place for a different experiment.) They then compared that information to a publicly available ODNR map of oil and gas wells. The earthquakes all coincided with fracking operations nearby. “The remarkable similarity of waveforms between all of the earthquakes detected during the hydraulic fracturing operations and afterward indicates a common source,” the researchers wrote in their paper. “Based on all of these corroborating pieces of evidence, it is most probable that hydraulic fracturing on the Ryser wells induced the 2013 Harrison earthquake sequence.” Friberg notes that the coincidence would be a challenge to explain another way. “The earthquakes started shortly after fracking started on the wells and ended about two months after fracking ended,” he said. “There are no seismologists who have reviewed our work who think they were unconnected.”
Fracking Linked to Series of Earthquakes in Ohio: It turns out that hydraulic fracturing, known commonly as fracking, may be triggering earthquakes. Scientists have found that fracking caused a series of small earthquakes in 2013 on a previously unmapped fault in Harrison County, Ohio. Between Oct. 1 and Dec. 13, nearly 400 small earthquakes occurred in Harrison County. These included 10 "positive" magnitude earthquakes though none of these were reportedly felt by the public. The 10 positive magnitude earthquakes, which ranged in magnitude 1.7 to 2.2, coincided with fracking practices at nearby wells. Fracking is a method for extracting oil and gas from shale rock. These cracks then can also result in micro-earthquakes. "Hydraulic fracturing has the potential to trigger earthquakes and in this case, small ones that could not be felt, however the earthquakes were three orders of magnitude larger than normally expected," said Paul Friberg, co-author of the study, in a news release. The earthquakes actually revealed an east-west trending fault that lies in the basement formation at approximately two miles deep and directly below the three horizontal gas wells that were being used. Later analysis actually identified 190 earthquakes during a 39-hour period on Oct. 1 and 2 just hours after fracking began at one of the wells. "As hydraulic fracturing operations explore new regions, more seismic monitoring will be needed since many faults remain unmapped," said Friberg.
Hydraulic fracturing linked to earthquakes in Ohio - Hydraulic fracturing triggered a series of small earthquakes in 2013 on a previously unmapped fault in Harrison County, Ohio, according to a study published in the journal Seismological Research Letters (SRL).Nearly 400 small earthquakes occurred between Oct. 1 and Dec. 13, 2013, including 10 "positive" magnitude earthquake, none of which were reported felt by the public. The 10 positive magnitude earthquakes, which ranged from magnitude 1.7 to 2.2, occurred between Oct. 2 and 19, coinciding with hydraulic fracturing operations at nearby wells. This series of earthquakes is the first known instance of seismicity in the area. The process of hydraulic fracturing involves injecting water, sand and chemicals into the rock under high pressure to create cracks. The process of cracking rocks results in micro-earthquakes. Hydraulic fracturing usually creates only small earthquakes, ones that have magnitude in the range of negative 3 (−3) to negative 1 (-1). "Hydraulic fracturing has the potential to trigger earthquakes, and in this case, small ones that could not be felt, however the earthquakes were three orders of magnitude larger than normally expected," said Paul Friberg, a seismologist with Instrumental Software Technologies, Inc. (ISTI) and a co-author of the study. The earthquakes revealed an east-west trending fault that lies in the basement formation at approximately two miles deep and directly below the three horizontal gas wells. The EarthScope Transportable Array Network Facility identified the first earthquakes on Oct. 2, 2013, locating them south of Clendening Lake near the town of Uhrichsville, Ohio. A subsequent analysis identified 190 earthquakes during a 39-hour period on Oct. 1 and 2, just hours after hydraulic fracturing began on one of the wells.
Youngstown: Geology of fracking remains unclear in the Valley - There’s not enough geological data to definitively say Mahoning and Trumbull counties are susceptible to earthquakes, a seismologist said. There are about 25 shale wells in Mahoning and Trumbull counties along with 19 active injection wells. Earthquakes have been attributed to two injection wells and one fracturing site. “Three cases is not quite enough to tell us about the geology there [in the Mahoning Valley],” said Mike Brudzinski, a professor of seismology at Miami University. “It’s a little too early to say that there’s a trend here.” Brudzinski said while it’s clear that the activity at each site induced earthquakes, it’s unclear whether the faults are exclusive to the area. Operators each may have simply chosen an “unlucky location,” he said. The Ohio Department of Natural Resources along with energy companies and researchers are conducting extensive monitoring and analysis, Brudzinski said. ODNR focuses on selected locations that are prone to seismic occurrences, said Matt Eiselstein, a spokesman for the regulatory agency. The department uses the Ohio Seismic Network that has more than 25 seismometers, which detect earthquakes with a magnitude of 2.0 or higher. ODNR’s division of oil and gas resources management receives real time data from seismic monitors placed at the fracking or injection well sites to detect earthquakes with a magnitude of 1.0 or higher. Energy companies may be required to conduct their own seismic monitoring as well, Eiselstein said. There are 15 seismic monitors in Mahoning and Trumbull counties, he added.
Evidence Connects Quakes to Oil, Natural Gas Boom - In the context of climate change and the environment as a whole, today’s crude oil and natural gas boom is the ultimate mixed bag. A new study from a team of researchers at Stanford and Duke universities, as well as other institutions, weighs the good with the bad of oil and gas development: Natural gas development and consumption, especially for producing electrical power, can boost local economies while reducing air pollution from coal-fired power plants and helping to wean the power grid away from sources of energy that emit huge amounts of climate-changing CO2 when burned. But the list of environmental challenges fossil fuels development poses is a long one: Methane, a potent greenhouse gas, has been found leaking from oil and gas operations all over the country. Trains that carry crude oil from fields in North Dakota are prone to dangerous derailments. Fracking uses a lot of water in arid regions, and water contamination from fracking has long been a concern of people living near energy development. The Stanford study, published in August in the Annual Review of Environment and Resources, also addresses another shaky issue about fossil fuels development that comes amid a flurry of new research connecting the same dots: Oil and gas operations, including fracking, can cause earthquakes. Some of them can destroy homes and injure people. A U.S. Geological Survey study published this month found that underground injection of wastewater from a coalbed methane natural gas production field straddling the New Mexico-Colorado border has been causing earthquakes there since 2001. One of those quakes was a Magnitude 5.3 temblor that rattled southern Colorado in 2011.
Shelby Township drilling operation hits close to home: How oil and gas drilling can impact nearby residents came joltingly into focus last July, when a 109-foot well went in Macomb County's Shelby Township less than 500 feet from homes. "They drilled for three weeks, 24-7," said Gail Hammill, a resident of neighboring Rochester Hills and a member of the grassroots Don't Drill the Hills group, opposing drilling on city property planned in Rochester Hills. "The amount of truck traffic when they were drilling the Shelby well was incredible. They were going down side streets because Tienken Road was closed. They were coming through subdivisions. You've got these double-hauler trucks full of water going through subdivisions all day for three weeks." The controversial oil and gas drilling method known as hydraulic fracturing, or fracking, has revolutionized petroleum extraction and led to huge gains in natural gas production in the U.S. But just how safe the controversial practice is for the environment and public health isn't easy to answer. Industry representatives cite decades of safe fracking. Others, including Jim Nash, Oakland County's Water Resources Commissioner, disagree. Nash regularly speaks before local governments in his county and elsewhere, about the potential harm from fracking and other oil and gas development — particularly in densely populated areas like his county.
Where to Get Rid of a Few Billion Gallons of Carcinogenic Radioactive Frack Slime ? A Marcellus Shale operator approached Leong Ying, business development manager at the radiation measurement division of Thermo Fisher Scientific, with a problem. The driller, whom Mr. Ying declined to name, was trying to dispose of oil and gas waste at area landfills but the trucks kept tripping radiation alarms. Rejected trucks had to be sent back to well pads or taken out of state, both costly options. It was happening enough that it started nudging the company’s bottom line, Mr. Ying said. “Once you hit them in the pocket, then they stand up and take notice,” he said. Mr. Ying’s company is marketing a new radiation detector that can instantly categorize the different types of radioactive materials present in waste and their concentrations. Today, the most likely solution to deal with radioactive oil and gas waste is to dilute it with non-radioactive materials, such as soil, and then send it to local landfills. Mr. Ying said his client has built a multimillion-dollar facility specifically designed to treat such waste using a reverse osmosis process, which separates the water from the solids, where the radioactivity is concentrated. Those solids are then either spread out across truck loads, diluted and disposed of at local landfills, or taken to specialty facilities. In the first half of this year, 421 trucks carrying oil and gas waste tripped radiation alarms at Pennsylvania landfills, according to the state Department of Environmental Protection. All but two of those trucks eventually dumped their waste at those landfills.
Waynesburg officials investigate dumping of fracking wastewater: Waynesburg officials and the state Department of Environmental Protection are investigating the dumping of up to 4,000 gallons of what is believed to be fracking wastewater into the Greene County borough’s sewer system. The fluid dump was discovered on the morning of Sept. 30 by workers at the Waynesburg Sewage Treatment Plant who noticed a spike on sewage flow meters and a gray, milky substance flowing through the plant, according to Bryan Cumberledge, assistant borough manager. The Waynesburg sewage treatment plant, which discharges into Ten Mile Creek, a tributary of the Monongahela River, is not equipped to treat the salty, chemical-laden wastewater produced by the hydraulic fracturing done at Marcellus Shale gas wells. John Poister, a DEP spokesman, said the department learned of the fluid dumping incident late last week and will send inspectors to meet with Waynesburg officials this week to determine how the dumping occurred and who did it. “Waynesburg officials feel they are vulnerable somewhere in their sewer system,” Mr. Poister said. “Someone removed a manhole in a remote location and dumped the fluid.” He said the fluid had a distinctive odor associated with the shale gas drilling and hydraulic fracturing.
Marcellus Shale drillers still tout water impoundments after record fine: When the state Department of Environmental Protection upgraded design standards for Marcellus Shale water impoundments in early 2011, Range Resources had just completed construction of eight centralized frack ponds in the previous two years using now-outdated technology. The ambitious construction timeline by Range in 2009 and 2010 to aid the burgeoning natural gas drilling industry resulted in leaks and other problems at all of the company's centralized water impoundments in Washington County and the largest-ever fine levied by the DEP against a Marcellus Shale driller. Despite the $4.15 million fine against Range on Sept. 18 – and a similar fine now being pursued by DEP against EQT for a leaking impoundment in Tioga County – companies plan to continue to use open-air wastewater pits to hold and eventually recycle the millions of gallons of water needed for hydraulic fracturing. The DEP and drilling companies contend new leak detection technology and better-designed liners will help to prevent the string of problems that the first generation of impoundments experienced at the beginning of the Marcellus Shale boom.
Promoters see energy hub, economic revival in transmission of Marcellus fuel - Philly.com: - Philadelphia's reindustrialization starts 300 miles away at a sprawling processing plant in Southwestern Pennsylvania where liquid fuels extracted from Marcellus Shale gas begin a cross-state journey to the Delaware River. In the last five years, a forest of metal distillation towers has sprung up like a poplar grove from the Washington County countryside, surrounded by rows of cylindrical storage tanks. The complex, owned by MarkWest Energy Partners of Denver, separates high-value liquid fuels such as propane and butane from the "wet" natural gas produced near here, the sweetest spot in the prolific Marcellus Shale formation. Those natural gas liquids will be pumped through a repurposed pipeline to Marcus Hook, where Sunoco Logistics Partners L.L.P. is demolishing the retired Sunoco petroleum refinery and replacing it with new equipment to handle Marcellus liquids. Most of the propane, butane, and ethane will be shipped to European petrochemical plants that are retooling in expectation of decades of plentiful Appalachian supply. Industrial and political leaders in the Philadelphia region hope this initial movement of fuel to Marcus Hook - propane already is being brought in by rail and truck - is only the first trickle in a flood of Marcellus Shale products that will be routed through Southeastern Pennsylvania. Energy-hub promoters envision an industrial revival in a region where manufacturing has been on the ropes for decades. They forecast a proliferation of new businesses built on vacant riverfront brownfields, employing high-paid workers to produce petrochemicals, plastics, fertilizer, methanol, and motor fuels - all from natural gas.
Marcellus Shale production may surpass 16B cubic feet daily in November - The U.S. Energy Information Administration projects that Marcellus Shale gas production will exceed 16 billion cubic per day in November, revising a previous estimate that production might surpass the mark this month. In September, the administration forecasted production would reach 16.06 billion cubic feet per day this month. But in the more recent estimate, issued on Tuesday, it said production might actually be around 15.8 billion cubic feet per day. It projected that production would reach 16.04 billion cubic feet per day next month. The estimates are based on rig counts and production. “The underlying data are often quite volatile, reflecting large variability in the performance of individual wells,” the EIA said. “The final point of actual production data as reported by the states varies, as each state has different reporting requirements and schedules.”
Anti-fracking activist faces fines and jail time in ongoing feud with gas firm -- An oil and gas company is seeking fines and jail time for a peaceful anti-fracking activist in Pennsylvania, according to court documents. In a motion filed this week, lawyers for Cabot Oil and Gas Corporation, one of the biggest operators in Pennsylvania, asked the Susquehanna County court to find longtime activist Vera Scroggins in contempt of an injunction barring her from areas near its well sites. The row between Cabot and Scroggins became notorious in environmental and human rights circles after the company sought last year to ban the activist from an area of about 310 sq miles (803 sq km) – or about half the entire county. The scope of that ban was later reduced. In the latest legal move, lawyers for Cabot argued that Scroggins showed “blatant disregard” for the ban when she escorted a Green Party politician and others on a tour of rural areas subject to heavy drilling. The lawyers noted a contempt finding against Scroggins could trigger fines and jail time. “Ms Scroggins may be subject to the following penalties for violating this court’s order: (i) fines; (ii) assessment of attorney fees; and/or (iii) incarceration”, the lawyers wrote. The lawyers go on to demand Scroggins pay Cabot’s legal costs and attorney fees. Included in the motion are photographs of Scroggins and other activists standing on a roadside which, Cabot alleged, was within 100ft (3om) of an access road leading to one of its wells in Dimock, Pennsylvania. An injunction in force since last March bars Scroggins from approaching within 100ft of access roads – even if she is standing on a public road, or on a homeowners’ private land.
‘Frack-for-the-cure’ breast-cancer awareness campaign offers latest example of corporate ‘pinkwashing’ -- It’s October — Breast Cancer Awareness Month — so we find ourselves once again saturated with “pinkwashing” campaigns, corporate marketing efforts in which companies position themselves as leaders in the fight against breast cancer when they are actually selling products that promote the disease. Dozens and dozens of companies engage in this cynical practice. In past years, for example, we’ve seen alcohol companies sell pink vodka, without mentioning, of course, that alcohol is generally considered a risk factor for breast cancer. And then there are the cosmetic companies that wrap their products in pink ribbons each October without acknowledging that the ingredients in many of those products are suspected of being carcinogenic. Companies and organizations that jump on the pink-ribbon bandwagon during Breast Cancer Awareness Month always emphasize, of course, that they are donating proceeds from the sales of their “pink” merchandise “to support the fight against breast cancer.” But very little of the money spent on those products actually ends up being donated to cancer organizations, and even less goes to cancer research. Only 5 percent of the sales of “pink” products sold by the National Football League (NFL) in 2012 went to the American Cancer Society, for example, and only 70 percent of that money was actually spent by the ACS on research, according to reporters for Business Insider.
Pink Washing Frackers – The Cure To Get Fracked At Steelers Game - At high noon in Pittsburgh on October 26th. Watch Nancy Brinker shill for fracking – which has been proven to cause cancer. The Immaculate Deception? – The Susan G. Komen Foundation has, once more, riled some of its base — breast-cancer activists, survivors and their families — this time by accepting $100,000 from an oil and fracking company that, in turn, produced 1,000 pink drill bits. Martin Craighead, chairman of Houston-based Baker Hughes Inc., will hand that check to Komen founder Nancy Brinker at Pittsburgh’s Heinz field on Oct. 26, before the Steelers play the Indianapolis Colts.
Scientists Say Fracking Will Not Lead to Lower Greenhouse Gas Emissions » The argument that fracking can help to reduce greenhouse gas emissions is misguided, according to an international scientific study, because the amount of extra fossil fuel it will produce will cancel out the benefits of its lower pollution content. The study, published today in the journal Nature, recognizes that technologies such as fracking have triggered a boom in natural gas. But the authors say this will not lead to a reduction of overall greenhouse gas emissions. Although natural gas produces only half the CO2 emissions of coal for each unit of energy, its growing availability will make it cheaper, they say, so it will add to total energy supply and only partly replace coal. Advantage nullified Their study, based on what they say is “an unprecedented international comparison of computer simulations,” shows that this market effect nullifies the advantage offered by the lower pollution content of the gas.
Why Natural Gas Won't Help Save the Planet -- A global surge in natural-gas production thanks to hydraulic fracturing would not slash global greenhouse-gas emissions even though the fuel emits much less carbon dioxide than coal when consumed, according to a new peer-reviewed study in the journal Nature.The findings from researchers in several nations, using separate computer models of the effects of abundant global supplies, questions the conventional wisdom that natural gas is a "bridge fuel" to a low-carbon energy system.Natural gas boosters say expanded deployment of natural gas, which is less carbon-intensive than coal and oil, can check rising emissions while carbon-free sources like solar energy achieve greater scale. But the paper projects that if the North American gas boom spreads globally, "Future CO2 emissions are similar in magnitude with and without abundant gas, as the two emission trajectories continue to rise over time at similar rates."The paper released Wednesday, which projects the evolution of global energy use through 2050, concludes that large global gas supplies would not only crowd out some coal, but zero-emissions nuclear and renewable energy as well."The additional gas supply boosts its deployment, but the substitution of coal is rather limited and it might also substitute low-emission renewables and nuclear, according to our calculations," said Nico Bauer of the Potsdam Institute for Climate Impact Research, a coauthor of the paper.In addition, the paper concludes that lower prices driven by abundant supply expands total energy use. "Lower natural gas prices accelerate economic activity, reduce the incentive to invest in energy-saving technologies, and lead to an aggregate expansion of the total energy system: a scale effect," the paper states. It also notes the leakage of the potent greenhouse gas methane from natural-gas development.
NASA Confirms A 2,500-Square-Mile Cloud Of Methane Floating Over US Southwest --When NASA researchers first saw data indicating a massive cloud of methane floating over the American Southwest, they found it so incredible that they dismissed it as an instrument error.But as they continued analyzing data from the European Space Agency’s Scanning Imaging Absorption Spectrometer for Atmospheric Chartography instrument from 2002 to 2012, the “atmospheric hot spot” kept appearing. The team at NASA was finally able to take a closer look, and have now concluded that there is in fact a 2,500-square-mile cloud of methane—roughly the size of Delaware—floating over the Four Corners region, where the borders of Arizona, Colorado, New Mexico, and Utah all intersect. A report published by the NASA researchers in the journal Geophysical Research Letters concludes that “the source is likely from established gas, coal, and coalbed methane mining and processing.” Indeed, the hot spot happens to be above New Mexico's San Juan Basin, the most productive coalbed methane basin in North America. Methane is 20-times more potent as a greenhouse gas than CO2, and has been the focus of an increasing amount of attention, especially in regards to methane leaks from fracking for oil and natural gas. Pockets of natural gas, which is 95-98% methane, are often found along with oil and simply burned off in a very visible process called “flaring.” But scientists are starting to realize that far more methane is being released by the fracking boom than previously thought.
NASA Identifies Horizontally Fracked Greenhouse Gas Hot Spots And the winner is . . . coal bed methane in the San Juan Basin of Colorado and New Mexico. And how is coal bed methane extracted ? You guessed it. Why the coal bed methane wells in the San Juan ? Because some of those horizontal wells are decades old. And over time, every one of them will leak. The San Juan basin is the oldest horizontally fracked gas field in the country. It predates the Barnett Shale by a decade. And it’s venting greenhouse gas methane 3.5 times previous estimates. Why am I not surprised ? U.S. Methane ‘Hot Spot’ Much Bigger than Expected. One small “hot spot” in the U.S. Southwest is responsible for producing the largest concentration of the greenhouse gas methane seen over the United States – more than triple the standard ground-based estimate — according to a new study of satellite data by scientists at NASA and the University of Michigan. Methane is very efficient at trapping heat in the atmosphere and, like carbon dioxide, it contributes to global warming. The hot spot, near the Four Corners intersection of Arizona, Colorado, New Mexico and Utah, covers only about 2,500 square miles (6,500 square kilometers), or half the size of Connecticut.
Exxon, Chevron meet with White House over fracking regs -- Oil giants ExxonMobil, Chevron and Halliburton met with White House staffers last week to talk about an upcoming federal fracking regulation for operations on public lands. Lobbyists for the companies met with White House officials from the Council on Environmental Quality and the Office of Management and Budget (OMB) on Monday, according to a record of the meeting recently posted on the OMB's website.American Petroleum Institute (API), Occidental Petroleum and Marathon Oil lobbyists also joined in on the meeting with the administration officials. The meeting is one of many the White House has hosted in the last few months on its rule on fracking, a horizontal drilling method for oil and gas that pumps chemicals and water into the ground to break up deposits. Environmentalists and a number of Democrats have pressured the Interior Department, which proposed the rule, and the administration to issue the "strongest possible" standards for fracking on federal lands. The oil and gas industry however, has expressed concern about the route the regulation could take, evident in two handouts presented at the meeting with the White House and Interior Department officials this week. The lobbyists told administration officials during the meeting that the new rule could "discourage" or "delay" new production on federal lands, according to a handout from API. Additionally, API and energy company Hess both took issue with the term "usable water" in the rule, which the lobbyists argue would require water zones that are "unsuitable for human consumption or agricultural" uses among others.
NY court rejects bid to revive fracking ban case - New York's highest court has rejected an attempt by the oil and gas industry to revive its fight against local fracking bans. In a precedent-setting decision last June, the Court of Appeals ruled that communities have the right to use local land-use authority to prohibit oil and gas operations within their borders. On Thursday, the court denied a motion by the trustee for bankrupt Norse Energy to reargue its case against the town of Dryden. Norse Energy had argued that such local laws were pre-empted by a state law that delegates all authority to regulate oil and gas development to the state. New York has had a moratorium on shale gas development since 2008.
State to first responders: Stay back from burning oil trains —The state is urging first responders to stay away from burning oil trains if more than three cars are on fire and no human lives are at risk, according to documents obtained by Capital.The state Office of Fire Prevention and Control recently revised its guidance for firefighters battling oil train fires. New York responders are now being advised by the state to stay back if an oil train derails and explodes, as trains have done in Virginia, North Dakota and Canada, where 47 people died.“If NO life hazard and more than 3 tank cars are involved in fire, OFPC recommends LETTING THE FIRE BURN unless the foam and water supply required to control is available,” the document says. “Withdraw and protect exposures, including cooling exposed tank cars with unmanned monitors if possible.” The U.S. and Canadian governments have determined the most frequently used rail car, the DOT-111, is prone to spills when it derails. Those cars have been involved in all of the most significant oil train accidents in the last year.
Environmental disasters lurk in energy pipelines: Michigan's increasing role in petroleum products transport doesn't just pose potential risk; it's already causing problems. An oil pipeline operated by Canadian oil transport giant Enbridge burst near Marshall in July 2010, resulting in the largest inland oil spill in U.S. history. The spill decimated Talmadge Creek, a tributary to the Kalamazoo River, and about 40 miles of the river. It prompted a more than $1-billion cleanup that, more than four years later, is still not complete. As Enbridge works to comply with U.S. Environmental Protection Agency orders to clean the river, it also is expanding pipelines across North America, including in Michigan, to ship greater quantities of heavy tar sands oil from Canada to new and expanded markets. That includes Detroit's Marathon oil refinery, which in 2012 completed a $2.2-billion renovation allowing the refinery to take more of the oil sands product known as diluted bitumen, or "dilbit." "We are in the midst of a very big, fundamental change in the type of fuel we get in this country," said Josh Mogerman, spokesman for the Natural Resources Defense Council. As Michigan and Midwest investment in energy extraction and transport increases, rising threats to the environment and communities have become painfully apparent and worrisome, including potential oil spills in the Great Lakes, aging natural gas pipeline on lands, and clouds of harmful petroleum dust polluting the air in some residential communities.
Fracking drives growth in sand mining, raises new health-risk questions -- Demand is exploding for the massive amounts of sand used in fracking, creating a windfall for mines from Texas to Wisconsin but leading to worries about the health impacts of breathing silica dust.Drillers are expected to use nearly 95 billion pounds of “frac sand” this year. That’s up 30 percent from last year, according to energy specialists at PacWest Consulting Partners, who expect the market to keep growing as drillers increasingly accept that using more sand increases the oil and gas production from each well.The demand could mean future mines opening from the Carolinas to Maine, according to a new report. In the meantime, the sand mining industry is roaring, with the stock for Emerge Energy Services, based in Southlake, Texas, near Fort Worth, surging some 400 percent since going public a year and a half ago. “The rapidly expanding growth of frac sand mining is a hidden and little understood danger of the fracking boom in the United States ,” Grant Smith, an author of the report, told reporters in a conference call.
Traffic Deaths Climb Amid Fracking Boom - While there’s been anecdotal evidence before, a new in-depth study undertaken jointly by the Houston Chronicle and Houston Public Media News 88.7 draws a strong circumstantial link between the fracking boom in Texasand the greatly increased number of highway deaths in the state. It’s based on an analysis of statistics as well as numerous interviews with people involved with trucking and traffic safety. For decades, traffic deaths in Texas were declining just as they were all across the country, thanks to safety improvements like seat belts, airbags and child seats. Then in 2009—the same time the fracking boom begin—that trend reversed in the Lone Star state, in some areas dramatically. Texas now leads the nation in traffic deaths. And while traffic deaths overall increased 8 percent in the state from 2009-2013, deaths involving commercial vehicles exploded, growing 51 percent in that time. The study says that growth is on track to continue in 2014. The report cautions that there’s no way to link the accidents specifically to the oil and gas industry, but adds “Records show that fatal accidents increased more in the groups of counties that make up the Permian Basin and in those affected by the Barnett and Eagle Ford shale plays, where busy roads regularly fill with tractor-trailers, tanker trucks and commercial vans hauling water, workers and supplies to oil and natural gas well sites, as well in urban counties that serve as burgeoning hubs for the oil field industry.”
Oil Tankers Leaking into Seattle’s Water - A highly flammable byproduct flowed from oil tankers into an area stormwater system for at least a year before state regulators inspected the problem.Seventy miles north of Seattle , the Tesoro Anacortes rail facility—which daily offloads some 50,000 barrels of Bakken crude from tanker cars—was releasing a highly flammable oil byproduct into a stormwater system that lacked “required controls” for at least a year before state regulators were made aware of the potential hazard. A faulty pipe connection was the source of the problem, according to a Northwest Clean Air Agency enforcement report obtained via an open-records request. As a result of the flaw, hydrocarbon vapors were being produced in the rail facility’s stormwater system that could have ignited under the right conditions, experts say. Tesoro officials insist there was no risk of fire. Yet state regulators never inspected the rail facility to assess the fire risk because it appears those charged with ensuring public safety were caught up in a maze of Catch-22 rules that work against timely assessment of potential worker-safety and fire hazards. NWCAA inspectors did not visit the rail facility until five months after Tesoro had disconnected the problematic pipe. Still, the agency’s enforcement report indicates that vapors containing “volatile organic compounds” were still being released from numerous points in the company’s stormwater system, parts of which are located a stone’s throw from the crude-oil railcar staging area.
Massive Dumping of Fracking Wastewater into Aquifers Shows Big Oil’s Power in California: As the oil industry spent record amounts on lobbying in Sacramento and made record profits, documents obtained by the Center for Biological Diversity reveal that almost 3 billion gallons of oil industry wastewater were illegally dumped into Central California aquifers that supply drinking water and irrigation water for farms. The Center said the wastewater entered the aquifers through at least nine injection disposal wells used by the oil industry to dispose of waste contaminated with fracking (hydraulic fracturing) fluids and other pollutants. The documents also reveal that Central Valley Regional Water Quality Board testing found high levels of arsenic, thallium and nitrates, contaminants sometimes found in oil industry wastewater, in water-supply wells near these waste-disposal operations. The illegal dumping took place in a state where Big Oil is the most powerful corporate lobby and the Western States Petroleum Association (WSPA) is the most powerful corporate lobbying organization, alarming facts that the majority of the public and even many environmental activists are not aware of. An analysis of reports filed with the California Secretary of State shows that the oil industry collectively spent over $63 million lobbying California policymakers between January 1, 2009 and June 30, 2014. The Western States Petroleum Association (WSPA), topped the oil industry lobby spending with $26,969,861.
How To Stop Deliberate Fouling of Aquifers by Frackers --- Yup: Industry illegally injected about 3 billion gallons of fracking wastewater into central California drinking-water and farm-irrigation aquifers, the state found after the US Environmental Protection Agency ordered a review of possible contamination.According to documents obtained by the Center for Biological Diversity, the California State Water Resources Board found that at least nine of the 11 hydraulic fracturing, or fracking, wastewater injection sites that wereshut down in July upon suspicion of contamination were in fact riddled with toxic fluids used to unleash energy reserves deep underground. The aquifers, protected by state law and the federal Safe Water Drinking Act, supply quality water in a state currently sufferingunprecedented drought. Now. Will anyone go to jail for this? No. Did they save a lot of money doing this, and therefore make money? Yes. Will they continue doing it? Yes. What will stop this sort of thing from happening? Sending senior executives, CEOs and board members to maximum security prisons, after impounding all their assets under criminal forefeiture laws, thus forcing them to rely on public defenders. Prosecute them under RICO statutes to make sure you sweep the executive suite.)
Money, death, and danger in North Dakota's fracking capital - I went to report on life in the oil fields and ended up working as a cocktail waitress. Here are some of the crazy people I met and the stories they told me. -- At 9 p.m. on that August night, when I arrived for my first shift as a cocktail waitress at Whispers, one of the two strip clubs in downtown Williston, I didn’t expect a 25-year-old man to get beaten to death outside the joint. Then again, I didn’t really expect most of the things I encountered reporting on the oil boom in western North Dakota this past summer. “Can you cover the floor?” the other waitress yelled around 11 p.m. as she and her crop-top sweater sidled behind the bar to take over for the bouncers and bartenders. They had rushed outside to deal with a commotion. I resolved to shuttle Miller Lites and Fireball shots with extra vigor. I didn’t know who was fighting, but assumed it involved my least favorite customers of the night: two young brothers who had been jumping up and down in front of the stage, their hands cupping their crotches the way white boys, whose role models are Eminem, often do when they drink too much. I hadn’t driven nearly 2,000 miles from Brooklyn to work as a cocktail waitress in a strip club. (That only happened after I ran out of money.) I had set off with the intention of reporting on thedomestic oil boom that was reshaping North Dakota’s prairie towns as well as the balance of both global power and the earth’s atmosphere. Now, six years later, the region displays all the classic contemporary markers of hell: toxic flames that burn around the clock; ink-black smoke billowing from 18-wheelers; intermittent explosions caused by lightning striking the super-conductive wastewater tanks that hydraulic fracturing makes a necessity; a massive Walmart; an abundance of meth, crack, and liquor; freezing winters; rents higher than Manhattan; and far, far too many men. To oil companies, however, the field is hallowed ground, one of the few in history to break the million-barrel-a-day benchmark, earning it “a place in the small pantheon of truly elite oil fields,” as one Reuters market analyst wrote.
Germans Line Up Against Fracking, Spurred by Fears of a U.S.-Style Boom -—In Germany debate is raging over whether to allow fracking, and America's example is serving as the cautionary tale for both supporters and critics. Germany's biggest energy companies and some politicians are using the U.S. drilling boom to argue the country would benefit from tapping shale gas buried under two of its 16 states. Supporters say Germany must greenlight fracking—especially as calls intensify to end dependency on Russia, which supplies a third of Germany's oil and gas. Meanwhile, environmentalists and others see the United States as a warning of what may be in store if Germany embraces fracking—but for them the lessons from America involve air, water and climate change pollution. The "negative effects connected" to U.S. fracking are "worth gold" to German activists, said Andy Gheorghiu, a member of the citizens' protest group Fracking Free Hesse. Critics worry mainly that developing natural gas production would undercut the Energiewende, Germany's shift away from fossil fuels and nuclear to renewable energy. Environmentalism is deeply ingrained in German society and public protests helped prompt the law. Today solar panels and windmills form a distinctive part of the country's landscape. But this transformation came at a cost: In 2013, Germany's household electricity prices became the second highest in the European Union due to clean energy subsidies and high taxes. Despite that, the Energiewende remains widely popular.
UK to allow fracking companies to use 'any substance' under homes - The UK government plans to allow fracking companies to put “any substance” under people’s homes and property and leave it there, as part of the Infrastructure Bill which will be debated by the House of Lords on Tuesday. The legal change makes a “mockery” of ministers’ claims that the UK has the best shale gas regulation in the world, according to green campaigners, who said it is so loosely worded it could also enable the burial of nuclear waste. The government said the changes were “vital to kickstarting shale” gas exploration. Changes to trespass law to remove the ability of landowners to block fracking below their property are being pushed through by the government as part of the infrastructure bill. It now includes an amendment by Baroness Kramer, the Liberal Democrat minister guiding the bill through the Lords, that permits the “passing any substance through, or putting any substance into, deep-level land” and gives “the right to leave deep-level land in a different condition from [that before] including by leaving any infrastructure or substance in the land”. The trespass law change has attracted controversy before, when the government decided to push ahead despite the opposition of 99% of the respondents to its consultation. Author and activist Naomi Klein said it flouted basic democratic rights. Ministers were also accused of rushing legal changes through parliament at the start of 2014, which removed the need to notify each home in an areas of fracking plans. The new amendment permitting “any substance” was attacked by Simon Clydesdale, a campaigner at Greenpeace UK: “Ministers are effectively trying to absolve fracking firms from responsibility for whatever mess they’ll end up leaving underground.
As Fracking Enters A Bear Market, A Question Emerges: Is The Shale Boom Built On A Sea Of Lies? -- One of, if not the biggest contributors to the improving US trade deficit and thus GDP (not to mention labor market in select states) over the past several years, has been the shale revolution taking place on US soil, which has led to unthinkable: the US is now the biggest producer of oil in the world, surpassing Saudi Arabia and Russia. Which is great today, but what about tomorrow? It is here that problems emerge according to Bloomberg's snapshot of the shale industry. "We're Sitting on 10 Billion Barrels of Oil! OK, Two", the authors look at the two-tiers of reporting when it comes to deposits that America's fracking corporations allegedly sit on, and find something unpleasant: Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was potentially sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage. That number was 5.5 times higher than the proved reserves Marathon reported to federal regulators. Such discrepancies are rife in the U.S. shale industry. Drillers use bigger forecasts to sell the hydraulic fracturing boom to investors and to persuade lawmakers to lift the 39-year-old ban on crude exports. Sixty-two of 73 U.S. shale drillers reported one estimate in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg. Pioneer Natural Resources (PXD) Co.’s estimate was 13 times higher. Goodrich Petroleum Corp.’s was 19 times. For Rice Energy Inc., it was almost 27-fold.
Oil producers enter supercycle's dark side - Oil producers are getting another brutal reminder that theirs is a business characterised by long, deep price cycles. Benchmark Brent futures have dropped below US$90 a barrel, the lowest level since December 2010, but that actually understates the extent of the damage. The problem with using December 2010 as a baseline is that oil prices at the time were hugely distorted by the cyclical downturn in demand caused by the financial crisis and the ensuing recession. Most analysts would agree these effects were temporary and give little insight into long-term oil-market trends. If the period covered by the recession (late 2008 to early 2011) is excluded to give a more representative picture, the price of Brent has not been this low since February 2008, when price increases were still accelerating towards their eventual peak five months later. And if prices are adjusted for inflation (using average US hourly earnings), Brent prices are at the lowest level in real terms since October 2007, exactly seven years ago (http://link.reuters.com/paj23w). The oil industry has always experienced very long, slow and deep cycles in supply, demand and prices: the current downturn is no exception. Both the surge in oil supplies and slowdown in demand are the lagged response to the increase in prices that s in 2002 and lasted until 2012, albeit with a hiatus during the recession between 2008 and 2011. It was the stimulus of high and rising prices that made the application of hydraulic fracturing and horizontal drilling possible in the North American shale oil plays. And it was the panic brought on by rising fuel bills that prompted households, businesses and governments to conserve fuel by turning to energy efficiency and substitutes such as ethanol and natural gas.
Here's why shale oil stocks are tanking -- Why are shale plays getting hit so hard? The short answer is, because oil is dropping. West Texas Intermediate has gone from $105 to $85 in three months. But a large part of the problem has to do with the way shale drilling is financed. Let's say you own a shale company and you want to finance drilling a well in, say, the Bakken. You need $10 million (I am just using $10 million as an example). You have a demonstrated reserve value from the well of, say, $20 million. Here's how you might finance the $10 million deal. First, get a line of credit from a bank based on the value of the reserves. In turn, the lender becomes a secured creditor. Let's say that based on a value of $20 million, a secured lender is willing to put up $5 million. You can fund another $2 million from your own cash flow. Now you have $7 million. For the remaining $3 million, you go to the high-yield debt market, which of course is an unsecured creditor. Now, let's look at what happens when oil starts to drop fast, which is exactly our scenario. That secured creditor with the line of credit? He's getting nervous, because now instead of reserves worth $20 million for your project, those reserves are now worth only, say, $16 million. That's a problem. The line of credit you will be able to get will drop because as the price of oil drops banks don't want to lend as much So, instead of $5 million, your secured creditor will only lend $4 million, and at a higher rate. Now you need $6 million more. Another problem: because the price of oil is down, you can't contribute as much from your cash flow, so instead of $2 million that you contribute, you can only contribute $1 million. That's $5 million total. You still need another $5 million, and now you have to go to the high-yield market. Except the high-yield market is aware of your problems, and they want a higher interest rate too. Here's another point: the depletion rate is very high in these wells. You are literally squeezing oil from a rock. It can be on the order of 80 to 90 percent depletion over a couple years. So you have to constantly keep drilling new wells to meet the production quota. And there really isn't a lot of options. They have to drill, or they don't have cash flow. And they still have to make the interest payments!
Oil slump yet to hit US shale output | Arab News — The vast majority of shale oil in the United States is produced at costs far below the current price of crude, the head of the west’s energy watchdog said, which means US projects can withstand the market slump squeezing other producers. Brent oil stands at around $88 per barrel, down more than 23 percent from the year’s peak above $115 in June, raising concern that some shale oil projects will become un-economic. However Maria van der Hoeven, executive director of the International Energy Agency said that only a tiny minority of shale oil production would be affected by the slump in prices to near-four-year lows. “Some 98 percent of crude oil and condensates from the United States have a breakeven price of below $80 and 82 percent had a breakeven price of $60 or lower,” she said in an interview on the sidelines of the launch of the Africa Energy Outlook publication. Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the US shale patch. Van der Hoeven said the fall in the oil price would provide a welcome economic boost for economies which are heavily reliant on oil imports.
U.S. Oil Producers Could Drill Their Way Into Oblivion - Remember the fall of 2008? As the world spun out of control and the price of everything crashed, a barrel of oil lost 70 percent of its value over about five months. As the oil market has recovered, there have since been three major corrections, when prices have fallen at least 15 percent over a few months. We’re now in the midst of a fourth, with oil prices down more than 20 percent since peaking in late June at around $115 a barrel. They’re now hovering in the mid-$80 range and could certainly go lower. That’s good news for U.S. consumers, who are finally starting to reap the rewards of the shale boom through low gasoline prices. But it could spell serious trouble for a lot of oil producers, many of whom are laden with debt and exaggerating their oil reserves. In a way, oil companies in the U.S. are perpetuating the crash by continuing to drill and push up U.S. oil production to its fastest pace ever. Rather than pulling back in hopes of slowing the amount of supply on the market to try and boost prices, drillers are instead operating at full tilt and pumping oil as fast as they can. Just look at the number of horizontal rigs in the field: Over the past five years, the amount of horizontal rigs deployed in the U.S. has almost quadrupled, from 379 in early 2009 to more than 1,300 today. This is of course purely a fracking story. Almost all the recent gains in U.S. oil production are the result of horizontal drilling techniques being used across much of the Midwest, from Texas to North Dakota. Unlike conventional vertical wells, where more wells do not always equal more oil, the strategy in a shale field appears to be to drill as many as possible to unlock oil trapped in rock formations. As the number of horizontal drill rigs has exploded, the number of vertical rigs in the U.S. has gone in the opposite direction, falling almost 70 percent over the past seven years.
Oil Prices Hit 3-Year Low - The price of crude oil fell to a new three-year low Monday as a split between the world’s most important producers on how to share the pain of lower prices becomes increasingly apparent. Prices for the U.S. and European benchmark blends fell nearly 2% in early trading Monday, on a Reuters reportsuggesting that Saudi Arabia was willing to accept a price of as low as $80 a barrel for the next year or two, in order to defend its share of the global market. The New York Mercantile Exchange’s crude contract traded at $84.65 by 0700 EDT, down from a peak of over $107 a barrel as recently as June.Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries, the cartel which produces a third of the world’s oil supply and essentially keeps the balance of supply and demand in the market. As Saudi Arabia can undercut almost every other country if it wants to, it has a huge influence on regulating OPEC’s overall supply.The price of the world’s most important commodity is under pressure from both directions: demand is weakening as the European and Chinese economies slow down, while global supply is increasing as Iraqi and Libyan exports rebound from war-related disruptions, and the U.S. pumps ever more oil from shale deposits. )The sharpest decline in recent weeks was due to Saudi Arabia slashing official selling prices for customers in Asia and Europe signalling that it was prepared to remove the floor for prices for the short term. Iran and Iraq have both followed suit in recent days.
Dropping Oil Prices Send Shockwaves Through Energy Sector - A weakening global economy, a surplus in oil supplies and a strengthening U.S. dollar have combined to send oil prices lower in recent weeks.On Oct. 9, the slide continued when Brent crude dropped below $90 per barrel for the first time in more than two years.Poor economic data from Germany raised fears that a renewed European recession could be on the horizon. The S&P 500 lost 2 percent on Oct. 9, and the markets have experienced some of the worst volatility so far this year. The International Monetary Fund (IMF) also revised downwards its projection for global economic growth in 2014 and 2015, warning that “global growth is still mediocre.” China’s oil demand remains weaker than it has been in years. To a certain extent, China’s oil imports have been artificially elevated as it has diverted oil into its strategic stockpile. Oil imports could soften as stockpiles fill up. China even posted a decline in oil imports for the month of July.Elsewhere in Asia, demand is also tepid. Driven by a desire to boost budgets by cutting spending, countries like Indonesia, Vietnam, Thailand, India and Malaysia are all trimming fuel subsidies, according to The Wall Street Journal. That has sent fuel prices up 10 percent in Malaysia and 23 percent in Indonesia, for example. India’s decision to reduce subsidies has pushed demand growth for diesel to near zero for the year, after annual growth rates of 6 to 11 percent in the past. Meanwhile, oil supplies continue to rise. OPEC production for September hit its highest level in almost two years. Libya has lifted its oil production to 900,000 barrels per day, up from just 200,000 barrels per day in June. And Saudi Arabia has yet to significantly cut production.Separately, the U.S. Energy Information Administration (EIA) reported higher than expected crude oil in inventories as refineries cut purchases and close for maintenance. Higher global supplies are pushing down prices.
Lower oil prices -- For the last 3 years, European Brent has mostly traded in a range of $100-$120 with West Texas intermediate selling at a $5 to $20 discount. But in September Brent started moving below $100 and now stands at $90 a barrel, and the spread over U.S. domestic crude has narrowed. Here I take a look at some of the factors behind these developments. Prices of many other industrial commodities have also declined over the last year, silver and iron ore more than oil. One factor has been weakness in Europe and Japan, which means lower demand for commodities as well as a strengthening dollar. The decline over the last year in the price of oil when paid for with Japanese yen is only about half the size of the decline in the dollar price. In terms of factors specific to the oil market, one important development has been the recovery of oil production from Libya. The latest Monthly Oil Market Report from OPEC shows Libyan production up half a million barrels per day since this summer. Libya is hoping to add another 200,000 barrels/day this month and 200,000 more by early next year. This would be a significant addition to the market, though the situation in Libya remains quite unstable. But the biggest story is still the United States. Thanks to horizontal drilling to get oil out of tight underground formations, U.S. field production of crude was 2 million barrels/day higher in 2013 than it had been in 2011. And the EIA’s new Short-Term Energy Outlook released this week expects we’ll add another 2 million b/d over the next two years. That’s unquestionably enough to start moving the world price.As I’ve noted before there’s a basic limit on how much U.S. production is capable of lowering the world price. The methods that are responsible for the U.S. production boom are quite expensive. Just how low the price can go before some of the frackers start to drop out is subject to some debate. A report in the Wall Street Journal last Thursday provided assessments like these: “There could be an immense amount of pain,” said energy economist Phil Verleger. “As prices fall, you will see companies slow down dramatically.”
Shale Worries Rise as Oil Prices Fall - It’s a full-on bear market for oil these days, as slowing economies in Europe and Asia reduce demand and new supplies from North America and Libya work to depress prices. Europe’s Brent crude benchmark has fallen more than 23 percent since a peak in June, hitting a four-year low. America’s West Texas Intermediate (WTI) benchmark price has seen a similar decline, down more than 20 percent from its June peak of $107 per barrel, trading below $84 per barrel today. All this has U.S. shale firms acting skittish, as many producers worry that prices will plunge past break-even points (the prices at which drillers can profitably produce) for American shale production. The FT reports: Wood Mackenzie, the consultancy, estimates the majority of US shale production will break even at $75. The International Energy Agency said on Tuesday steeper drops in the price of oil are needed for US shale and other unconventional energy production to take a meaningful hit. [...] If oil had stayed at $100 per barrel, all of the main shale producers would have been able to cover capital spending from cash flow within two or three years, according to Phani Gadde, analyst at Wood Mackenzie. Below $90, between 30 per cent and 60 per cent of these producers will still be outspending their cash flows. This price decline means that debts will pile up for the shale industry, but we’re not at a breaking point yet. Thanks to variation between plays, there’s no single price at which fracking would cease to be profitable in the United States, and for now, oil is still trading above threatening levels.
If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies - Over the past 5 years, the shale industry, fabricated or real reserves notwithstanding, has been a significant boon to the US economy for four main reasons: it has been the target of billions in fixed investment and CapEx spending, it has resulted in tens of thousands of high-paying jobs, its output has been a major tailwind for the US trade deficit, and has generally been a significant contributor to GDP (not to mention various Buffett-controlled or otherwise railway corporations). And perhaps, most importantly, it has become a huge buffer to the price of global oil, as the cost curve of US shale is horizontal, with a massive 10,000 kbls/day available within pennies of $85/bl. Goldman's explanation: We believe that the vast reserves that have been opened for development through shale oil in the US have flattened the cost curve meaningfully, at around a US$85/bl Brent oil price. We estimate shale reserves from the top three fields in the US onshore (the Permian, Bakken and Eagle Ford) at around 91bn boe, which to put it in context, is equivalent to roughly one third of Saudi Arabia’s current stated reserves (ZH: this number may be vastly overstated). Most of this resource has become available in the past five years, and we expect this pace of growth to continue over the coming three years as capital continues to be drawn in to these developments. The consequence is that costs of production and E&P capex/bl should stabilise as the marginal cost of production remains stable. We believe that shale oil has become effectively the marginal source of supply, providing the bulk of non- OPEC production growth. For once, Goldman is spot on (even if their Brent price target may be a bit off): with shale oil profitable only above its virtually horizontal cost curve, it means that a whopping 11,000 kbls/day are available as long as Brent is above $85, a clear "red line" for all OPEC producers. The red line is conveniently shown on the chart below:
Toxic Mix for Fracking – Oil Price Collapse & Junk Bond Insanity -- Wolf Richter - It’s now called a “collapse”: The US benchmark light sweet crude plunged 4.6% to settle at $81.84 a barrel on Tuesday, the lowest since June 2012. In London, Brent made a similar journey to $85.04, its lowest level since November 2010. Explanations abound why this is suddenly happening, after years of deceptive calm. Is it some harebrained plot to punish Russia by destroying its economy? The government’s budget, heavily dependent on oil revenues, is in trouble. And every unit of foreign currency that isn’t nailed down is fleeing the country. Or is it a plot by Saudi Arabia to squash the US shale oil boom? In November last year, the Saudi Gazette published an editorial on the “successful, wise, and balanced OPEC strategy” that led to “unprecedented” stability of oil prices for the past few years of around $106 a barrel. But couched in words such as “skeptics are demanding,” it uttered the threat to raise OPEC production until the price would drop “below $70 a barrel” to “remove the shale oil from the world oil production map….” Or is it the combination of surging production in the US and sagging demand around the world, particularly in China and Europe? Whatever the reasons for the market chaos, we already know what it has accomplished in the US: Investors who were long when they sleepwalked into this new era that started in late June have had their heads handed to them. WTI gave up 21% in less than four months. Over the same period, the SPDR Oil & Gas Equipment & Services Fund (XES), a basket of the largest oil- and gas-related stocks, plummeted 33%. Shares of smaller oil and gas companies have gotten demolished. Reason for this mayhem: the toxic mix of high debt and plunging oil price.
Brent oil hits new four-year low as IEA cuts forecasts | Arab News — Saudi Arabia - Brent oil prices sank to a new four-year low after the International Energy Agency slashed its forecasts for oil demand growth, blaming the weak economic outlook and abundant supplies. The market had already hit multi-year lows in earlier Asian trade, with analysts citing concerns about a supply glut and the effects of weaker demand from Europe and China. In morning London trade, Brent North Sea crude for delivery in November dived to $87.59 a barrel, touching the lowest level since December 1, 2010. The contract later stood at $87.83 in midday deals, down $1.06 from Monday’s closing level. US benchmark West Texas Intermediate (WTI) for November lost 96 cents to $84.78 per barrel. “Crude oil (is) being sold again following the monthly report from the International Energy Agency in which they saw oil demand growth this year rising at the slowest pace since 2009,” said Saxo Bank analyst Ole Hansen. He added: “At current production levels supply growth will outstrip demand growth and this is adding to the current negative sentiment in the market.” For this year, the IEA expects demand to rise by just 700,000 barrels per day to 92.4 million barrels per day — which is 200,000 bpd less than the previous forecast. This shrinking demand outlook in European and Asian members of the Organization for Economic Cooperation and Development matched average growth of 1.0 mbd in countries outside the OECD areas, according to the IEA. For next year, the agency cut its estimate of global demand to 93.5 mbpd from 93.8 mbpd.
Falling oil prices threaten shale boom - As crude prices continue to fall, talk is turning to the most dreaded word in the oil industry: downturn. From drilling rigs in South Texas to investment offices in Dallas and beyond, the industry is watching with dread as West Texas Intermediate, the U.S. benchmark, has declined more than 20 percent since July. At $82 a barrel, crude is at its lowest level since 2012, bringing the high-cost hydraulic fracturing revolution under increasing scrutiny. Already executives and financial firms are starting to come under pressure to pull back on a drilling boom that has transformed Texas and many other regions of the U.S. “We’re not seeing a real pullback yet. But if it stays this way, you’re going to see companies take their foot off the accelerator,” said Larry Oldham, an oil financier and former oil executive in Midland. “A plane doesn’t go straight up forever.” The dramatic fall in prices follows years of increasing U.S. oil production, at a time Middle East production has held relatively steady. Texas now produces more than 3 million barrels of oil a day, double what it produced three years ago and more than all but seven countries in the world. At what point the cost of drilling outweighs the price of oil is an ever-shifting estimate. The U.S. oil boom is largely from hydraulic fracturing and horizontal drilling techniques, which extract crude once thought undrillable. But they are expensive processes. Earlier this year, Pioneer Natural Resources CEO Scott Sheffield put the break-even point for many shale drillers at $80 a barrel.
Tar Sands Trade: Kuwait Buys Stake in Alberta As It Opens Own Heavy Oil Spigot - Chevron made waves in the business world when it announced its October 6 sale of 30-percent of its holdings in the Alberta-based Duvernay Shale basin to Kuwait Foreign Petroleum Exploration Company (KUFPEC) for $1.5 billion. It marked the first North American purchase for the Kuwaiti state-owned oil company and yields KUFPEC 330,000 acres of Duvernay shale gas. Company CEO and the country's Crown Prince, Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, called it an “anchor project” that could spawn Kuwait's expansion into North America at-large. Kuwait's investment in the Duvernay, at face-value buying into Canada's hydraulic fracturing (“fracking”) revolution, was actually also an all-in bet on Alberta's tar sands. As explained in an October 7 article in Platts, the Duvernay serves as a key feedstock for condensate, a petroleum product made from gas used to dilute tar sands, allowing the product to move through pipelines. And while Kuwait — the small Gulf state sandwiched between Iraq and Saudi Arabia — has made a wager on Alberta's shale and tar sands, Big Oil may also soon make a big bet on Kuwait's homegrown tar sands resources.“Kuwait has invited Britain’s BP, France’s Total, Royal Dutch Shell, ExxonMobil and Chevron, to bid for a so-called enhanced technical service agreement for the northern Ratqa heavy oilfield,” explained an October 2 article in Reuters. “It is the first time KOC will develop such a big heavy oil reservoir and the plan is to produce 60,000 bpd from Ratqa, which lies close to the Iraqi border [in northern Kuwait]…and then ramp it up to 120,000 bpd by 2025.” In the past, Kuwait has said it hopes to learn how to extract tar sands from Alberta's petroleum engineers.
Oil dives US$4 as demand dims, shale booms and OPEC resists cuts: (Reuters) - Oil dived more than US$4 a barrel on Tuesday, its biggest drop in more than two years as mounting evidence of slackening demand and unrelenting U.S. shale output left traders struggling to peg a floor for crude's four-month rout. The abrupt acceleration of an over 26 per cent slide in prices since June was triggered by three news items that epitomized the market's turn: a downgrade in global oil consumption forecasts; projections for another big boost in shale oil; and reluctance by OPEC members to cut output. Brent crude for November fell US$3.85 to settle at US$85.04 a barrel after a late lurch lower knocked prices to below US$85 a barrel for the first time since 2010. It was the biggest one-day drop since 2011. U.S. crude fell US$3.90 a barrel to settle at US$81.84, its biggest percentage fall in about two years.
Oil Prices Tumble, Posting Biggest One-Day Drop in Two Years - WSJ - U.S. oil prices tumbled Tuesday, posting their biggest one-day drop in two years on signs that the Organization of the Petroleum Exporting Countries was unlikely to cut production in response to lower forecast demand. Market participants have closely watched OPEC, which controls about one-third of global oil supplies, in recent weeks as high supplies and weaker demand have pushed prices down more than 20%. OPEC has responded to low prices in the past with production cuts, but recent signals from members have been mixed. Saudi Arabia, the group’s biggest oil producer, has indicated in recent days that it is comfortable with lower prices. But on Tuesday, Saudi Prince al-Waleed bin Talal posted an open letter to the kingdom’s oil minister stating that Saudi Arabia needs prices between $80 and $90 a barrel to balance its 2014 budget. The current lower prices pose “a huge financial loss for the kingdom,” the letter said. The letter could have sparked concern among traders that internal conflicts within OPEC will prevent unified action, In contrast, Iran said Tuesday that an oil price drop won’t hurt its budget and will be short-lived, surprising some market watchers.Light, sweet crude for November delivery fell below $83 a barrel after the letter’s contents were reported, and the price slide accelerated into settlement. November futures ended down $3.90, or 4.5%, at $81.84 a barrel on the New York Mercantile Exchange, the lowest settlement since June 28, 2012. Prices posted the largest one-day percentage drop in nearly two years.Brent, the global benchmark, fell $3.85, or 4.3%, to $85.04 on ICE Futures Europe, the lowest price since Nov. 23, 2010. It was the largest one-day percentage drop since September 2011.
Winners and losers from oil price plunge - FT.com: Crude oil prices have plunged by $25, or more than 20 per cent, since mid-June, raising many questions. How low might prices go? If they rebound, at what level will they stabilise? Will Saudi Arabia and Opec move to cut output when they meet next month? At what price level might US shale oil production be affected and how severely? One thing is certain: even the current lower prices are rapidly creating winners and losers. Losers are producers, countries and governments. If Brent falls to $80, Opec countries would lose some $200bn of their recent $1tn in earnings, affecting not only their ability to earn enough to cover the post-Arab Spring expanded budgets, but also their capacity to service debt without triggering defaults. And for the US, if prices fall much further, capital expenditures to expand production would have to be cut, potentially slowing the US shale revolution. On the other hand, the world economy as a whole would enjoy the equivalent of a huge quantitative easing programme, helping to spur sputtering economic growth. The decline in prices would generate a $1.8bn daily windfall, some $660bn annualised. Tracking this into gasoline prices, in the US, where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household. It would affect all consumers globally save for those in Opec countries, who already pay little for fuel.
Oil Slump Heaps Losses on Energy Debt in $50 Billion Glut - Bloomberg: Gobbling up $50 billion of high-yielding U.S. junk-bond offerings by energy companies this year may have seemed like a good idea when oil was above $100 a barrel and yields were at record lows. With prices falling toward $80, bond buyers have instead been saddled with more than $2 billion of lost market value and growing concern that too much credit has been extended too fast amid America’s shale boom. Prices on $1.6 billion of speculative-grade bonds sold by the upstart exploration firm of former Chesapeake Energy Corp. chief Aubrey McClendon have plunged as much as 19 percent since being issued in July. Another $1.1 billion issued the same month by Paragon Offshore Plc are down as much as 28 percent. Because the borrowing capacity of oil and gas producers is directly tied to the value of their reserves, the falling commodity prices are increasing the risk that companies will face funding constraints should the selloff persist. Junk bonds issued by energy companies, which have made up a record 17 percent of the $294 billion of high-yield debt sold in the U.S. this year, have on average lost more than 4 percent of their market value since issuance, according to data compiled by Bloomberg. “People are getting concerned about the ability to repay,” Ashish Shah, the New York-based global head of credit strategies at AllianceBernstein Holding LP, said in a telephone interview. “Bottom line: the cost of the thing they produce is declining and it’s declined very rapidly.”
U.S. Edges Closer To Energy Independence - The net energy consumption of the US has held fairly steady for nearly 20 years. Over the past decade, however, there's been a large increase in production of energy within the US. As a result, the US government's energy figures for the first half of this year show that the differences between production and consumption have dropped to the lowest level in 29 years. This represents a net drop in energy imports by 17 percent compared to the same period a year earlier. According to the Energy Information Agency, the boost in energy production came from a variety of sources. Natural gas was the largest, accounting for just over half of the annual increase. Coal accounted for another quarter, renewable energy for 12 percent, and petroleum for eight. The EIA also notes that energy use this year was unusually high due to the intense cold that hit most of the nation in the first few months of 2014.The vast majority of the country's imports come in the form of petroleum products and crude oil. These imports have been decreasing as new sources of oil are tapped and automotive efficiency standards are tightening. Refined petroleum products remain the largest US energy export; smaller quantities of coal and natural gas are also shipped overseas.
We Will Never Stop Importing Oil, but We May Start Exporting - I have been covering shale development since 2005, and it looks like we are on track for energy independence by 2020 or so. However, we're never going to stop importing oil because supply diversity is prudent. Depletion rates are significant in every shale play. Some of the depletion rates are quite steep in the early years of a play, but wells tend to produce for 20 years or so at a lower rate, so overall production rates are still growing. The monthly U.S. Energy Information Administration (EIA) reports show that in H1/14, U.S. gas natural production alone increased by more than 4 billion cubic feet a day (4 Bcf/d). The bulk is coming from the Northeast, from the Marcellus and Utica plays in Pennsylvania, Ohio and West Virginia. Also, a lot of new natural gas is coming on, in association with oil production in West Texas, in the Permian Basin, and in south Texas, in the Eagle Ford play. While some gas areas might be declining, we're getting enough new natural gas to offset that decline. In fact, both oil and natural gas production in this country are the highest they've been in about 35 years. Natural gas in storage was down last year, and now we're refilling. Every summer and fall, you refill storage to prepare for winter. It looks like we're going to have a lot of gas in storage. We've had a fairly mild summer and haven't had a huge call for natural gas for air conditioning, compared to what it could have been. Between the production and the weather factors, it looks like we'll have plenty of gas in storage for the fall.
Oilprice Intelligence Report: The Oil Price Panic: American drillers are fretting over an oil boom that is out-pacing demand and pushing prices down, feeding the export ban debate and pushing it critically forward. This week, while Bloomberg reports that domestic fields will add “an unprecedented 1.1 million barrels a day of output,” while consumption is expected to shrink to its lowest level since 2012, the New York Times insists that a crude oil tanker that left Texas in late July, bound for South Korea, is a sign of the changing times. The tanker, Singapore-flagged and leaving quietly from the port in Galveston, Texas, was carrying 400,000 barrels of crude oil and was apparently the first “unrestricted export of American oil to a country outside of North America in nearly four decades.”The two stories are certainly related—even if there is a months-long gap in the timing. West Texas Intermediate crude, the US benchmark, is down 24% since mid-June, and on 2 October, it fell below $90 per barrel for the first time in 17 months.Drillers are panicking over the specter of declining operating capital, and being able to export crude is the only outlet if oil prices continue to fall, while demand weakens. ”If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Bloomberg quoted Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, as saying. “It will be uncharted territory.” Ben van Beurden, CEO of Shell, isn’t buying into the panic, however. He says he is confident that oil will return to “very robust” pricing in the long-term.
Oil sell-off, the Goldman view - Ever the market-moving contrarians, Jeff Currie and team at Goldman came out with a note on Thursday doing for oil markets what Bullard and Haldane have been doing for markets in general. When it comes to the oil price decline it is, they say, too much too soon. And, critically, the issue is on the expectations side NOT on the current market supply side: The recent sell-off in oil has been mostly driven by positioning based upon expected fundamental shifts as opposed to currently observable shifts. While looking into 2015 we have sympathy for these medium- to longer- term bearish views that have driven prices lower, we believe it is too much too early. Prices have also likely overshot to the downside particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being bearish as we look further out. In other words: this is not the oil market price crash you’re looking for. Move along, move along. The curve should not be in backwardation. It should be in lovely yield-generating contango. Why is the market being such a fool? More specifically in the words of Goldman: stop pricing spot markets based on expectations and messing with carry. If prices are to go down, they should at least be encouraging oil to be stored and/or hedged at a reasonable rate:
Saudi Arabia tests US ties with oil price - FT.com: By encouraging oil prices to fall, Saudi Arabia is taking a calculated gamble in its already strained relationship with the US, hoping that the potential damage to America’s shale industry will be offset by the geopolitical and economic prizes on offer to Washington. At a time when the US and Saudi Arabia are fighting a new war together in Iraq and Syria, the Saudis have taken the bold step of asserting their pivotal role in the oil market and subtly squeezing the finances of some of America’s fledgling shale companies. Yet, at the same time, the falling oil price will deliver a de facto tax cut for American consumers and – if sustained – will hit both Russia and Iran at a time when Washington is trying to pressure both countries. Deborah Gordon, director of the energy and climate programme at the Carnegie Endowment, sees the Saudi pressure on oil prices as a carefully calibrated move that will not alienate allies but will cause problems for rivals and foes such as Russia and Iran. “The Saudis seem to have concluded that this could be a game-changer for them,” she says. “They get several benefits without hurting the people they do not want to hurt.” With global demand for oil slowing sharply and US production surging, Saudi Arabia faced a choice. It could have cut production to stabilise the market, shouldering the burden itself. Instead, it appears so far to have decided to let the price fall, indicating that it would be happy with an oil price around $80, rather than the $100 it has previously backed. With new oil production in the US and elsewhere calling into question the future of Opec, the Saudis have reminded the oil market of their central role in determining prices.
Saudi price war should fuel drive for U.S. crude exports (Reuters) - Saudi Arabia's move to keep crude oil production high, fueling a steep global price slump, may have an unexpected consequence: intensifying the campaign by U.S. producers to scrap Washington's decades-old ban on exports of domestic crude. Global oil prices plummeted nearly 5 percent on Tuesday to their lowest since 2010, as OPEC's core members showed no sign of intervening to support the market. Amid talk of a price war, Iran, generally a price hawk, has changed course and said it can live with lower prices. U.S. crudes have been trading at a discount to global prices since the rise of the shale revolution four years ago. That price squeeze has domestic producers eager to end the export ban enacted during the Arab oil embargo of the 1970s. true "Fully lifting the oil export ban would go a long way toward keeping U.S. oil production up even if prices continue to languish,” said Chris Faulkner, Chief Executive of Breitling Energy Inc. "Our country can't afford to see the oil and gas boom start to bust." But many Americans, fearful of high gasoline prices, support the ban, as do their members of Congress. President Barack Obama has some leeway to allow more exports of some types of oil, but political experts have said he is unlikely to do so without evidence that below-market U.S. crude prices are forcing shale drillers to cut back or shut in output.
US Oil Imports: 800,000 Tons of Alaskan Crude Oil Imported to Korea, 1st Time in 14 Years | Business Korea: Korean refineries are moving quickly to import crude oil from the U.S. Recently, U.S. condensate (ultra light crude oil) was imported for the first time in 39 years. Import of Alaskan crude oil also started again, which was suspended after the year 2000. According to the industry, an oil tanker of GS Caltex loaded with 800,000 tons of crude oil produced in the North Slope oilfield located in Northern Alaska, U.S., will arrive at Yeosu port, South Jeolla Province, on Oct. 10. There have been no imports of Alaskan crude oil at all for the past 14 years. GS Caltex imported the U.S. condensate through Yeosu on Sept. 10 as well for the first time in 39 years. The U.S. has been prohibiting the export of crude oil under the Energy Policy and Conservation Act of 1975, after the Middle East oil embargo. However, the Clinton Administration made Alaska an exception in 1996. After 2004, Alaskan crude oil has not been traded in international markets due to conflicts in price. Some say that the import of the Alaskan crude oil this time is largely due to effects of shale gas in the U.S. After the shale evolution, crude oil production in the U.S. surged, and the competitiveness of Alaskan crude oil, which has a relatively low price, was hurt. This is why Alaskan crude oil started to be traded internationally after the price was adjusted. According to the U.S. Energy Information Administration (EIA), daily crude oil production in the U.S. increased from 5.61 million barrels in January 2011 to 8.53 million barrels in July this year. The U.S. is expected to become the largest oil-producing country, beating Saudi Arabia, by 2020. As the oversupply of crude oil is getting serious in the U.S., the export of Alaskan crude oil is likely to increase.
Split between OPEC producers deepens as oil prices fall - A rift between OPEC members deepened over the weekend, as producers in the cartel moved in different directions amid falling oil prices. Venezuela, which has been one of the most outspoken proponents of a production cut by the Organization of the Petroleum Exporting Countries, called over the weekend for an emergency meeting of the group to respond to falling prices. But Kuwait said Sunday that OPEC was unlikely to act to rein in output. Saudi Arabia, meanwhile, appeared to expand on its recent move to defend its market share at the expense of other members by aggressively courting customers in Europe. Traders said Saudi Arabia is now asking for stronger commitments from some of its buyers in Europe, a move that would lock in those customers, including any new ones it would gain with recent price reductions. Also on Sunday, Iraq’s State Oil Marketing Company cut the price of Basrah Light crude in November for Asian and European buyers by 65 cents. That marks a discount of $3.15 a barrel below the Oman/Dubai benchmark for Asian customers and $5.40 below the Brent benchmark for European customers, according to official selling prices published by the company. The moves and countermoves are the latest in a time of particular discord in OPEC. The organization was founded to leverage members’ collective output to help influence global prices. In recent periods of low prices, Saudi Arabia — OPEC’s top producer and de facto leader — has managed to cobble together some level of consensus.
Oil Bear Market Tests OPEC Unity as Venezuela Seeks Meeting - Oil ministers from Kuwait and Algeria dismissed possible production cuts as crude’s slump to a four-year low prompted Venezuela to call for an emergency meeting of the Organization of Petroleum Exporting Countries. Kuwait hasn’t received an invitation for any urgent OPEC meeting to discuss a reduction in output, Oil Minister Ali Al-Omair said in comments reported by the official Kuwait News Agency. His Algerian counterpart Youcef Yousfi said yesterday he knew of no plans for any emergency session and was unconcerned by current price levels. Bear markets for Brent and U.S. crude are putting pressure on OPEC’s consensus on output ahead of the group’s scheduled Nov. 27 meeting in Vienna, OPEC supplies 40 percent of the world’s oil, and its largest Persian Gulf producers, including Saudi Arabia, Iraq and Iran, are offering deeper discounts to buyers in Asia to maintain market share amid a global glut. “If we had a way to preserve the stability of prices or something that would bring it back to previous levels, we would not hesitate in that,” Kuwait’sAl-Omair said in remarks reported by KUNA yesterday. “There is no room for countries to reduce their production,” he said, without giving details. Ample supply, helped by surging U.S. and Russian output, pushed Brent crude into a bear market last week. The European benchmark slumped more than 20 percent from its peak for the year on June 19, meeting a common definition of a bear market. Brent fell on Oct. 10 to its lowest since December 2010. It declined as much as 2.7 percent today and was at $88.41 a barrel at 3:20 p.m. in London.
Venezuela Goes From Bad to Worse as Oil Prices Plummets - Since becoming Venezuela’s president 18 months ago, Nicolas Maduro has contended with chronic shortages of everything from toothpaste to medicine, the world’s fastest inflation and sinking foreign reserves. His predicament is about to get worse. Prices for Venezuela’s oil, which accounts for 95 percent of the nation’s exports, are tumbling to a four-year low and threatening to choke off the export dollars the country needs to pay its debts. “It’s a direct hit on tax revenues,” Lars Christensen, chief emerging-markets economist at Danske Bank A/S, said by telephone from Copenhagen. “There is nothing good to say about the state of Venezuela’s economy, and this isn’t helping.” The slump in oil prices comes as Harvard University economists Carmen Reinhart and Kenneth Rogoff warned this week that Venezuela is almost certain to default on its foreign-currency bonds. Deepening concern the South American country will renege on its debt payments triggered a selloff in its $4 billion benchmark bonds due 2027, causing yields to soar to a five-year high of 17.87 percent this week.
Daily chart: Black gold deficits | The Economist - IN 2008 the oil price hit $140 a barrel. Today it is well below $90. Healthy supplies from America and weak demand (especially from China) have pushed down prices. When the price of black gold falls, businesses and individuals cheer but oil-exporting countries suffer. According to research from Deutsche Bank, seven of the 12 members of OPEC, an oil cartel, fail to balance their budgets when prices are below $100. Last month Venezuela, a particularly inefficient member of the cartel, saw its bonds downgraded. One non-OPEC member in particular is in trouble: Russia. Economic growth is already poor. Further drops in the oil price could be very painful. After all, oil and gas make up 70% of Russia’s exports and half of the federal budget. Will Saudi Arabia come to the rescue? It is the largest oil exporter and if it cut supply, prices could rise again. But this seems unlikely. The Kingdom is in the midst of a big fiscal boom as it tries to diversify its economy and improve living standards. For 2014, the Saudi Arabian government plans to spend $228 billion, up by 4.3% on last year.
Exclusive: Privately, Saudis tell oil market- get used to lower prices (Reuters) - Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch. Some OPEC members including Venezuela are clamoring for production cuts to push oil prices back up above $100 a barrel. But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations. The discussions, some in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto aim of holding prices at around $100 a barrel for Brent crude LCOc1 in favor of retaining market share in years to come. The Saudis appear to be betting lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.
Saudi Arabia's "Oil-Weapon" Hits Europe ---We first exposed the "secret" US-Saudi deal in September which led to the inevitable bombing of Syria. We then progressed to explain the quid pro quo of the deal in lower oil prices (benefiting US consumers into an election and crushing Russian revenues). In today's Wall Street Journal we get the final piece of the puzzle as it is clear that what Saudi Arabia loses in 'price' it will make up in 'volume' as The Kingdon is taking the unusual step of asking buyers to commit to maximum shipments if they want to get its crude. Simply put, "they are threatening [European] buyers" to discontinue sales if they don't agree with the full fixed deliveries. The 'oil weapon' grows stronger...
Saudis Deploy the Oil Price Weapon Against Syria, Iran, Russia, and the US - Yves Smith - Asian stock markets continued to fall today, propelled at least in part by the adverse reaction to the Saudi announcement yesterday that they would let oil prices fall to $80 a barrel. And further reports indicate that the Saudis intend to keep oil prices low enough to force a realignment of prices not just among various grades of crude, but also for intermediate and long-term substitutes. It is critical to remember that the Saudis have no compunction about imposing costs on other nations to maximize the value of their oil resource long term and hence the power they derive from it. The 1970s oil shock produced a nasty recession in the US and most other advanced economies and gave a further impetus to inflation, which was already hard to manage and dampened growth by discouraging investment. The current alignment of factors gives the Saudis the opportunity to make life miserable for a long list of parties they would like to discipline, including the US. The sharp rise in the dollar means that lowering the price of oil in dollar terms is unlikely to leave the desert kingdom worse off in local currency terms. But it undermines US energy development, both fracking and development in the Bakken, as well as more development by the majors, who were regularly criticized by analysts for how much they were spending on exploration when the math didn’t pencil out well at over $100 a barrel. Countries whose oil is output is mainly heavy, sour crude, like Iran and Venezuela, find it hard to sell their oil when prices are below $100 a barrel (or at least when the dollar was weaker, but the $80 price point, even with a strong dollar, may be low enough to cause discomfort). In other words, this is a classic case of predatory pricing: set your price low enough long enough to do real damage to competitors, and reduce their market share, not just immediately, but in the middle to long term.
Saudi Prince Alwaleed says falling oil prices 'catastrophic' - Telegraph: Saudi Arabia's most high-profile billionaire and foreign investor, Prince Alwaleed bin Talal, has launched an extraordinary attack on the country's oil minister for allowing prices to fall. In a letter in Arabic addressed to ministers and posted on his website, Prince Alwaleed described the idea of the kingdom tolerating lower prices below $100 per barrel as potentially "catastrophic" for the economy of the desert kingdom. The letter, first reported online by the FT, is a significant attack on Saudi's highly respected 79-year-old oil minister Ali bin Ibrahim Al-Naimi who has the most powerful voice within the Organisation of Petroleum Exporting Countries (Opec). The publication of the letter comes as Brent oil prices crashed under $87 after the International Energy Agency slashed its forecast for oil demand this year amid signs of weaker global economic growth and a glut of crude. Saudi Arabia is the world's largest exporter and has the capacity to pump 12.5m barrels per day (bpd) if needed, giving it tremendous power both within Opec but also the international market. Reuters had earlier reported that Iran had rowed back on its earlier concerns over falling prices and was more willing to leave production unchanged at the next meeting of Opec in Vienna in November. Prince Alwaleed had taken particular issue with a remark attributed to Saudi Arabia's oil minister, in which he said that falling prices were "no cause for alarm". Prince Alwaleed - who is a member of the ruling house of Saud - is also a major international investor, who holds significant stakes in companies from News Corp through to Citigroup.
Did The Saudis Just Get A Tap On The Shoulder? -- The US-Saudi "secret" plan that was supposed to crush Putin quickly turned sour when as we reported several days ago, one after another America's own shale plays, which recently entered a very sharp bear market, started appearing on various death watches (case in point today's MHR Second Lien refi which repriced from L+500 to L+750 in minutes). As a result, one wonders: did Obama realize that Russian "costs" which as everyone knows by now include a Eurpoean triple-dip recession, could also very soon include an insolvent US shale industry, and thus may be just a little too much, and, one further wonders, if he is the one who just tapped Saudi Arabia on the shoulder?