this week we got a pretty strong indication that fracking in the US is shutting down in the face of falling prices...according to a report by the oil industry data firm Drilling Info carried on Reuters, just 4,520 new well permits for gas and oil wells were issued in November, down from 7,227 permits in October, a drop of nearly 40%...remember that the collapse in prices to below $70 a barrel did not come until after the OPEC meeting on the 27th of November, and that for most November oil prices were a few bucks on either side of $80...thus, for a 40% pullback in permits over the entire month, much of it had to be precipitated by oil prices near $80 a barrel, the widely quoted figure at which fracking becomes a money loser...since getting the permit to drill usually precedes drilling by at least 2 or 3 months, it's a fair guess that at least some of the new permits taken out in September and October, or even earlier when prices were much higher, which had not yet begun to drill, might now be on hold and will probably be held off from drilling until such time as prices return to a level where they can make a profit...however, many of the marginally capitalized drillers still have interest payments on their debt to make and could default if prices stay too low for them to generate cash flow for any length of time...
frankly, that large of a pullback in drilling plans in one month was somewhat of a surprise to me, as i had expected a long attrition in the oil patch as ongoing low prices finally wore down the participants....with an average 40% annual depletion rate on already fracked wells, production could drop pretty quickly if drilling is cut in half, leading to a tight oil supply that could drive prices right back up again....on the other hand, if prices would stay low long enough, it would undermine the ability of the industry to get financing, causing them much longer term damage...up until a few months ago, lenders were operating under the same delusion as the industry, that oil prices could only go up, so loans to fund operations were not being made on the basis of the creditworthiness of the drillers, but rather on the perceived value of the oil in the ground...similarly, the high yield bonds were being sold on the basis that the value of the oil in the ground would allow them to be repaid with the high interest rates that they were commanding when they were issued...if oil prices stay low long enough, a significant percentage of that $90 billion in junk debt will default, and as a result even the most creditworthy oil companies will be suspect, and hence find it difficult or impossible to finance their operations...in a like manner, an extended period of low oil prices will almost certainly bring tar sands exploitation to a standstill, which would make any further investment in the Keystone XL or any alternative pipeline a losing proposition...
at any rate, it should be clear by now that anything that can been done that will add to the costs of their operations will discourage them from drilling in Ohio; this can be anything from local ordinances which would say require them to post a bond to pay to repair county and township roads after a fracking operation is completed, to governor Kasich's push to increase the severance tax for oil taken out of the state...at these prices, if Ohio could add a tax as high as 5%, it might be enough to discourage any exploitation of marginal areas, which apparently would include our corner of Ohio...
we'll include a few price charts to help you all visualize what has brought this turnabout in the fortunes of the fracking industry, starting with a 6 month picture of domestic oil...US oil prices started the past week by recovering some of the decline that was seen after the OPEC meeting on Thanksgiving, briefly nearing $70 a barrel on Monday before resuming a slow slide...after gyrating between $66 and 68 most of the week, they fell again on Friday to end the week at $65.84 ...and to be clear, these are prices for oil delivered to or sitting at the oil storage depot in Cushing OK; prices at the wellhead are sometimes a lot lower, depending on the type of crude oil and the shipping costs to the nearest refinery that can process that type of crude...the world price, based on a North Sea crude benchmark, ended the week at $69.07, following a similar pattern…note there are also several other prices for different grades of crude oil worldwide, with the light sweet grades (low sulfur) often commanding a higher price…oil price charts for time periods other than 6 months are accessible in the ‘select timeframe’ menu here: http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=6m
gas prices have also be trending downward after their spike last winter, and at $3.80 / mmBTU they’re once again below the widely quoted $4 price where fracking supposedly becomes unprofitable…of course, like oil, each field is different, and even within fields the thickness of the shale is the major determinant of the yield from a fracking operation, so while current prices make fracking in marginal areas of the Marcellus unprofitable, there still may be some areas in eastern PA where the Marcellus is over 200 feet thick that could still be fracked profitably…and unlike oil, which is priced similarly worldwide, gas prices vary widely by geographic region, so low domestic prices doesn't do us a lot of good if the gas is intended for export to countries where the price is considerably higher...to compare those worldwide prices, this pdf map has spot prices of liquefied natural gas as of September: World LNG Estimated September 2014 Landed Prices (pdf)- it shows the most recent port prices for LNG to Asia as reported by FERC were $10.10 per MMBtu for China, $10.50 for Korea, $10.50 for Japan, $9.15 for Spain, $6.60 for the United Kingdom, and $6.78 for Belgium...some analysts put the additional cost of liquefying and transporting gas at to Europe or Asia at $4 / Mcf...and note that gas prices might be quoted in mmBTU (million BTU) or Mcf (thousand cubic feet) and that they're roughly the equivalent amount of gas...like the oil graph, price charts for time periods other than 6 months are accessible here: http://www.nasdaq.com/markets/natural-gas.aspx?timeframe=6m
what's new in Ohio fractivist news is a class action lawsuit filed Thursday against the state, Kasich and two frackers by the Broadview Heights 'Mothers Against Drilling in Our Neighborhood', charging that the Ohio Oil and Gas Act, which turns control of drilling over to state agencies, violates the constitutional right of residents to local self-government....this suit is essentially a countersuit against Bass Energy and Ohio Valley Energy, who filed suit against Broadview Heights in June to overturn the community bill of rights that they had passed by a large margin in 2012, banning oil and gas development within the city limits...the Mothers Against Drilling, who had been instrumental in getting that ban passed, had attempted to intervene in that June lawsuit, to defend their community’s bill of rights, but were denied legal status by the Cuyahoga County Common Pleas Court....so this lawsuit not only intervenes in the lawsuit of the frackers, but also challenges the law giving the state the right to regulate drilling in communities irregardless of local zoning...
so, on to the news, starting as usual with Ohio:
Ohio bill’s fracking provisions could clash with federal law --The Ohio Senate began hearings this week on a bill that could let oil and gas companies skirt current laws dealing with disclosure of chemical hazards to local communities and water withdrawals from the Lake Erie watershed. The Ohio House of Representatives passed House Bill 490 in November, and the Ohio Senate could vote on the bill as early as next week. If passed in its current form, the bill could face challenges under federal law. HB 490 would make the Ohio Department of Natural Resources (ODNR) the main storehouse for oil and gas company filings about the hazards of chemicals used in their operations. Currently, those companies and many other industrial operations are supposed to provide the information to the State Emergency Response Commission (SERC), as well as local emergency planning committees and fire departments. The requirement stems from the federal Emergency Planning and Community Right-to-Know Act (EPCRA). Congress passed that law in 1986 in the aftermath of the Bhopal factory disaster that killed thousands of people in India.Under HB 490, the chief of ODNR would put “appropriate” information into an electronic database. ODNR would make the database available to local planning committees and fire departments in case of an emergency. Critics believe that approach is not enough to protect the public and to comply with federal law. They believe that while a database might help in some cases, companies should still directly provide first responders and communities with the required chemical inventory information.
Lawsuit Challenges Radioactive Fracking Waste Facilities in Ohio - Cheryl Mshar lives less than a mile from a fracking waste processing facility in Youngstown, Ohio. She worries that the air she breathes is polluted with chemicals and even radioactive contaminants. State regulators did not hold a public meeting before allowing the waste facility to begin operating earlier this year, so Mshar and her neighbors never had a say in the deal, until now. Two environmental groups filed a lawsuit on November 19 on behalf of Mshar and other residents challenging the temporary approval of 23 fracking waste facilities in Ohio, where critics say lax regulations have helped the state become a popular destination for the contaminated leftovers of the fracking process. The groups allege that the Ohio Department of Natural Resources (ODNR), which regulates the oil and gas industry, broke the law when it issued temporary orders allowing the waste facilities to begin operating without first taking comments from the public and completing a formal rule-making process to regulate the facilities. Ohio Gov. John Kasich is also named in the lawsuit. "The ODNR has unlawfully moved forward to approve these facilities without the input of the public, which these rules are intended to protect in the first place," said Alison Auciello of Food and Water Watch, one of the groups that filed the lawsuit. "For loosely regulated frack waste processing and dumping to be allowed on such a huge scale spells disaster for Ohio."
Frackers, cities await court ruling: – Gas and oil companies have fought legal skirmishes with some Ohio cities over local zoning regulation and ordinances that attempt to limit drilling — but Mansfield Law Director John Spon said he believes this city may be at low risk of a second lawsuit anytime soon. Mansfield is among five Ohio cities where voters have approved local issues designed to limit or ban deep shale drilling or disposal of fracking waste. Broadview Heights, Yellow Springs, Oberlin and Athens also have attempted to exert local restrictions. The latter city, located in southeastern Ohio, was the latest to approve a ban, in the general election Nov. 4. On the same day, residents of Gates Mills, Kent and Youngstown all turned down measures meant to ban or limit drilling. Court cases seeking to block municipalities' attempts to limit drilling have been filed in at least three cities in recent years: Beck Energy Corp. of Ravenna is asking the Ohio Supreme Court to rule that the state is the sole authority deciding where oil and gas drilling may occur — and that municipalities may not enact ordinances limiting drillers. The Ohio Supreme Court heard oral arguments in February, but has not issued a ruling. That case began after the City of Munroe Falls filed an action in Summit County asking common pleas court to stop the company from drilling. The local judge found in the city's favor in 2011. But the Ninth District Court of Appeals later held that, while Beck Energy must comply with local ordinances governing use of roads, Munroe Falls' zoning ordinance and local drilling provisions conflicted with state law.
Broadview Heights residents file suit to defend fracking ban - - Today, residents of Broadview Heights, Ohio, filed a first-in-the-state class action lawsuit against the State of Ohio, Governor John R. Kasich, and Bass Energy, Inc. and Ohio Valley Energy Systems Corp. The lawsuit was filed to protect the rights of the people of Broadview Heights to self-governance, including their right to ban fracking. In November 2012, residents of Broadview Heights overwhelmingly adopted a Home Rule Charter Amendment – proposed by residents – banning all new commercial extraction of gas and oil within the City limits. The Amendment establishes a Community Bill of Rights – which secures the rights of human and natural communities to water and a healthy environment. The Bill of Rights bans fracking and frack waste disposal as a violation of those rights. In June 2014, Bass Energy and Ohio Valley Energy filed a lawsuit against the City of Broadview Heights to overturn the Community Bill of Rights. The corporations are contending that the community does not have the legal authority to protect itself from fracking, and that corporations have the constitutional “right” to frack. Residents involved in drafting and proposing the Community Bill of Rights attempted to intervene in the lawsuit, to defend the community’s right to self-governance, including the right to say “no” to fracking and other threats. However, in September, the Court of Common Pleas of Cuyahoga County denied the motion to intervene, ruling that the residents did not have a direct “interest” in this case. With the court’s denial of intervention, residents decided to move forward with the class action lawsuit. In filing the lawsuit, Broadview Heights residents argue that the Ohio Oil and Gas Act, known as HB 278, and the industry’s enforcement of the Act, violate the constitutional right of residents to local self-government.
Broadview Heights activists sue Ohio Gov. John Kasich and state over gas, oil wells - A local activist group that opposes oil and gas wells in residential neighborhoods has sued the state of Ohio and Gov. John Kasich in an attempt to stop drilling here. Mothers Against Drilling in Our Neighborhood, based in Broadview Heights, says the city's Community Bill of Rights – which voters approved in 2012 and which bans future wells – supersedes a state law that allows drilling. The lawsuit, filed Thursday in Cuyahoga County Common Pleas Court, says the U.S. and Ohio constitutions guarantee the rights of citizens to govern themselves locally and protect their communities – in this case, from detrimental effects of oil and gas wells. The lawsuit seeks class-action status, which would allow the activists to represent all Broadview Heights residents. It says the group has legal standing to sue because members started the campaign for the Community Bill of Rights and worked hard to pass it on the ballot. See the entire lawsuit at the bottom of this story. The lawsuit comes six months after two drilling companies – Bass Energy Co. Inc. of Fairlawn and Ohio Valley Energy of Austintown – sued Broadview Heights over its prohibition against future wells. That case is still in county court. Tish O'Dell, a Broadview Heights resident who directs the group, said members filed this latest lawsuit because the county court, in September, turned down their request to help defend Broadview Heights in the Bass and Ohio Valley suit, filed in June.
Broadview Heights tries new legal tactic in fight against fracking - A group of residents filed a class-action lawsuit Thursday against the state of Ohio, Gov. John Kasich and two drilling companies. It is believed to be the first suit of its kind in Ohio and seeks to protect the rights of self-governance, including the right to ban fracking. In November 2012, Broadview Heights voters approved a charter amendment for a community bill of rights and banned fracking and the disposal of fracking waste. In June 2014, Bass Energy and Ohio Valley Energy filed suit against the city to overturn the community bill of rights. The companies said that only the Ohio Department of Natural Resources oversees drilling. Efforts by residents to intervene were rejected by a Cuyahoga County Common Pleas judge. In the new suit, the residents contend that the Ohio Oil and Gas Act violates the constitutional right of residents to local self-government. The residents were aided by the Pennsylvania-based Community Environmental Legal Defense Fund. “This class-action lawsuit is merely the first in Ohio, and expected to be one of many filed by people across the United States whose constitutional rights to govern their own communities are routinely violated by state governments working in concert with the corporations that they ostensibly regulate,” said Thomas Linzey, executive director of the defense fund. “The people of Broadview Heights will not stand idly by as their rights are negotiated away by oil and gas corporations, their state government and their own municipal government.”
Residents of Ohio Suburb Sue to Protect Fracking Ban - Residents of a Cleveland suburb have filed a lawsuit against Ohio and two drilling companies arguing that the state's exclusive authority to regulate and permit oil and gas wells is a violation of their constitutional rights to local self-government. The residents, who live in Broadview Heights, about 15 miles south of Cleveland, filed the lawsuit against Bass Energy Inc., Ohio Valley Energy, the state and Gov. John Kasich, to "protect the rights of the people to self-governance, including their right to ban fracking," according to the Community Environmental Legal Defense Fund (CELDF), which is helping those involved in the lawsuit and has lead challenges to the industry across the country. In November 2012, Broadview Heights voters approved a community bill of rights that amended the city's charter and banned the drilling of new oil and gas wells, as well as the transport and injection of industry waste. It was one of the earliest such charter amendments passed in the state in an area removed from the unconventional drilling boom in eastern Ohio. Over the summer, though, Bass Energy and Ohio Valley Energy filed a complaint in Cuyahoga County Common Pleas Court seeking declaratory relief to prevent the city from interfering with a conventional well being drilled on 100 acres owned by a local church (see Shale Daily, July 28). The companies argued that the city does not have regulatory authority under state law, which gives the Ohio Department of Natural Resources (ODNR), the "sole and exclusive authority to regulate the permitting, location and spacing of oil and gas wells and production operations within the state." A group of residents from Broadview Heights that had previously been involved in drafting and proposing the community bill of rights attempted to intervene in the companies’ lawsuit. But in September, a common pleas court judge denied the motion, ruling that the group did not have a direct interest in the case.
DEP gives gas industry group $150,000 grant to study drilling -The state Department of Environmental Protection has awarded a $150,000 non-competitive grant to an industry-backed nonprofit organization. The money was allocated in last year’s state budget specifically for “independent research regarding natural gas drilling.” As StateImpact Pennsylvania previously reported, the grant recipient is a Pittsburgh-based nonprofit called the Shale Alliance for Energy Research (SAFER PA). It formed in 2013 as a partnership between industry and academia. Its board has three representatives from Pennsylvania universities and five members from the oil and gas industry. Other groups were not able to compete for the grant money because the DEP said SAFER PA is “the only known research organization that is comprised of both private and public entities … with a specific focus of conducting scientific research and development of shale related projects.” SAFER PA has never published any research. The DEP has not responded to repeated inquiries about the grant. Barry Kauffman, of the nonpartisan government reform group Common Cause PA, finds the deal concerning. “There are many, many qualified organizations with good research credentials that could produce unbiased research—or certainly more balanced research—than an entity heavily dominated by the industry which it contends to take a look at,” he says.
SUE THY FRACKING NEIGHBOR -- What do you do when your water goes bad, your health deteriorates, and your once peaceful life has been upended by gas drilling operations near your home? The obvious answer is to sue the drillers. This is what the Lauff family in Mt. Pleasant Pennsylvania did. In November 2014, the Lauff family filed a lawsuit naming Range Resources – Appalachia LLC, and their contractors Markwest Liberty Midstream And Resources LLC, Sunoco Logistics Partners L.P., The Gateway Engineers Inc., New Dominion Construction Inc., And Highland Environmental LLC as defendants.So what makes this case so different than others filed against drilling companies? The Lauff family also names the Carter family as defendants. The natural gas operations in question reside on land LEASED by the Carter family to Range Resources. CLICK HERE TO DOWNLOAD THE LAWSUIT.
Frack Waste on Roads: A Great New Way to Kill Maple Trees! --Plus oak trees, hemlock, pine, dandelions, corn, wheat, crocus, day lilies, clover, what have you. GMO, non GMO, you name it. If it grows, it dies. A long long way from the road. Save the RoundUp and the chain saws, just spread thousands of gallons of free frack waste, genuine imported Pennsylvania toxic radioactive goo on your town or county roads as de-icer in the winter and “dust suppressant” on seasonal roads in the summer, year after year after year. And you too will have a maple-free road scape within a generation of two. After the frack waste poisons the plants, it goes to work on your tires, your car’s paint, and all those pesky fish in nearby streams. Oh, and then in you. Almost forgot that part. When does all this free toxic radioactive frack goo arrive in New York state ? How about yesterday. Although the exact composition of the fluids was not disclosed by the companies that manufactured them because they consider that information proprietary, her study noted, the main constituents appeared to be sodium and calcium chlorides because of their high concentrations on the surface soil. Almost immediately after disposal, the researchers said, nearly all ground plants died. After a few days, tree leaves turned brown, wilted and dropped; 56 percent of about 150 trees eventually died.
Cuomo administration releases status report on crude oil transport -- The governor’s office has released a status report that they say outlines significant progress made by the state to protect New Yorkers and the environment from potential risks associated with crude oil transport. State agencies have implemented 66 actions to strengthen standards, regulations and procedures to make crude transport by rail and water safer and to improve spill preparedness and response, according to Gov. Andrew Cuomo’s office. The state also has completed on five of the 12 recommendations made to state and federal governments and the oil industry to improve safety. Among the actions that the Cuomo administration handpicked to highlight:
- Performing Rail Safety Inspections:
- Preparing First Responders:
- Updating and Enhancing Response Plans:
- Pushing for Aggressive Federal Action:
- Urging Oil and Rail Industries to Increase Safety of Shipment:
Cuomo wants boost in oil cleanup fund - Times Union: The administration of Gov. Andrew Cuomo was rebuffed by state Comptroller Tom DiNapoli this month when it sought a half-million dollars from a financially shaky oil spill cleanup fund to support planning, staff and equipment to deal with potential oil spills from surging Bakken crude rail shipments. The Cuomo administration is now exploring ways to beef up the 36-year-old fund, which in past years has run in the red because it has spent millions more on spill cleanups than was collected from polluters, rendering the fund ill-prepared to take on new responsibilities. Five years ago, DiNapoli called to no avail for the Environmental Protection and Spill Compensation Fund to be financially strengthened, after a Times Union investigation revealed its weakness. Most state-ordered cleanups under the fund were supported not by polluters, but by a gasoline tax paid by consumers in the state. Consumers are kicking in about $30 million a year to the fund.
32% of natural gas pipeline capacity into the Northeast could be bidirectional by 2017 -- U.S. Energy Information Administration (EIA): Spurred by growing natural gas production in Pennsylvania, West Virginia, and Ohio, the natural gas pipeline industry is planning to modify its systems to allow bidirectional flow to move up to 8.3 billion cubic feet per day (Bcf/d) out of the Northeast. As of 2013, the industry had the capacity to transport 25 Bcf/d of natural gas from Canada, the Midwest, and the Southeast into the Northeast. In addition to these bidirectional projects in the Northeast, the industry plans to expand existing systems and build new systems to transport natural gas produced in the Northeast to consuming markets outside the region. Flows on ANR Pipeline, Texas Eastern Transmission, Transcontinental Pipeline, Iroquois Gas Pipeline, Rockies Express Pipeline, and Tennessee Gas Pipeline accounted for 60% of flows to the Northeast in 2013. Flows on these pipelines in 2013 were between 21% and 84% below 2008 levels, with the largest percentage decline occurring on the Tennessee Gas Pipeline. In 2014, the Tennessee Gas Pipeline and the Texas Eastern Transmission began flowing gas both ways between states along the Northeast and Southeast region borders. As a result of these pipelines being underutilized, the pipeline companies have announced plans to modify their systems to allow for bidirectional flow, adding the ability to send natural gas out of the Northeast region:
- Columbia Gulf Transmission completed two bidirectional projects in 2013 and 2014 that enable the system to transport natural gas from Pennsylvania to Louisiana.
- ANR Pipeline, Tennessee Gas Pipeline, Texas Eastern Transmission, and Transcontinental Gas Pipeline are planning to send natural gas from the Northeast to the Gulf Coast because of the potential of industrial demand and LNG exports from the Gulf Coast. These projects total 5.5 Bcf/d of flow capacity.
- The Rockies Express Pipeline's partial bidirectional project (2.5 Bcf/d of capacity) is primarily to flow Marcellus natural gas to more attractive markets in Chicago, Detroit, and the Gulf Coast.
- 'The Iroquois Gas Pipeline's bidirectional project (0.3 Bcf/d of capacity) will deliver natural gas from the Marcellus to Canada. Iroquois will receive gas from the Dominion, Constitution (expected in service in 2016), and Algonquin pipelines.
The Fracking Fallacy: More Hot Air Than Gas --Companies are betting big on forecasts of cheap, plentiful natural gas. Over the next 20 years, US industry and electricity producers are expected to invest hundreds of billions of dollars in new plants that rely on natural gas. And billions more dollars are pouring into the construction of export facilities that will enable the United States to ship liquefied natural gas to Europe, Asia and South America.All of those investments are based on the expectation that US gas production will climb for decades, in line with the official forecasts by the US Energy Information Administration (EIA). As agency director Adam Sieminski put it last year: “For natural gas, the EIA has no doubt at all that production can continue to grow all the way out to 2040.” But a careful examination of the assumptions behind such bullish forecasts suggests that they may be overly optimistic, in part because the government’s predictions rely on coarse-grained studies of major shale formations, or plays. Now, researchers are analysing those formations in much greater detail and are issuing more-conservative forecasts. They calculate that such formations have relatively small ‘sweet spots’ where it will be profitable to extract gas. The results are “bad news”, says Tad Patzek, head of the University of Texas at Austin’s department of petroleum and geosystems engineering, and a member of the team that is conducting the in-depth analyses. With companies trying to extract shale gas as fast as possible and export significant quantities, he argues, “we’re setting ourselves up for a major fiasco”.
US natural gas production could peak in 2020 -- The most recent outlook from the US Energy Information Administration saw US production slowing from the exponential trajectory of the 2000s, but still increasing through 2040. A news article appearing in the journal Nature this week highlights a major research project run by a group at the University of Texas at Austin that foresees much lower production. Their analysis forecasts peak shale gas production in 2020, falling to half the EIA’s estimate by 2030. The reason for the difference is mostly a matter of resolution, according to the Nature story. The EIA has relied on county-level production statistics, while the UT-Austin researchers have drilled down to one mile resolution. That makes it easier to account for “sweet spots”—the portions of a shale layer with the physical characteristics most conducive to producing natural gas. The reason for fracturing these rocks to free the gas is that they’re too impermeable for the gas to move through them, so this isn’t a case of the first few wells bleeding the store dry. But to the extent that sweet spots can be identified, they’re typically targeted for drilling first. That means that subsequent wells in the area may be significantly less productive. And that could translate into the end of the shale gas revolution arriving well ahead of schedule.
New Study Says US Fracking Boom Will Fade Quickly After 2020 -- Yves Smith -- A new study by Mason Inman and a team at the University of Texas, published in Nature News, throws cold water on bullish US natural gas production forecasts by the US agency, the Energy Information Administration. Its analysis suggests that the fracking boom will be a relatively short-lived phenomenon, which raises doubts about the attractiveness of investing in shale plays and in liquified natural gas transport facilities, particularly for export. Notice that this big red flag about the size and durability of the natural gas bonanza hasn’t hit the mainstream media yet. For instance, today one of the lead stories in the Financial Times is US oil reserves at highest since 1975: Shale revolution transforms country’s energy supply outlook. Specifically, the study finds that shale gas output will peak ramp up sharply to 2020, consistent with the EIA’s projections. However, the EIA calls for continued solid growth through 2040. By contrast, Inman foresees production dropping sharply starting in 2020. Note that Inman isn’t the only expert to anticipate that the fracking boom tops out in 2019 to 2020. The Paris-based International Energy Agency also projects that US shale gas production will peak then, but it foresees a very gradual decline in output through the 2020s and a steeper fall after that. So why should we take Inman’s forecast more seriously than that of the EIA? First, he’s one of the few analysts to obtain and work with the EIA’s projections. For instance, notice the two bottom bands on the chart. Inman appears to be the first to notice that the EIA appears to have introduced plug figures to achieve overall production totals higher than the sum of the eight majors plays.
Energy Pipeline: Dry fracking could be a water-saving game changer -- Companies in drought areas have begun looking at liquefied petroleum gas gel for hydraulic fracturing as a way to reduce dependence on already-scarce water supplies. Gas gel presents a potentially viable replacement to the millions of gallons of water used in the fracking process at each well site, said John McLennen, an associate professor of chemical engineering at the University of Utah. Also referred to as dry fracking, the process does not involve water. Instead, highly pressurized gas is injected directly into a formation to crack the rock. “Conceptually it’s a great idea. People are definitely looking for water substitutes,” he said. While the gel reduces the use of water dramatically and can benefit both producers and operators, many companies have not incorporated the gel into their operations due to the explosive and flammable nature of propane, McLennen said. Under the Colorado Oil and Gas Association, companies have the autonomy to make individual technology related decisions, spokesperson Dan Haley said. “There are a number of different techniques that Colorado companies use in oil and gas development,” said Doug Flanders, COGA director of policy and external affairs. “The most important factor when deciding which technique works best is the type of formation where you’re trying to extract oil or gas.” McLennen said that the advantages to gel use have yet to be fully researched or substantiated. However, it has the potential to drastically reduce water use in areas were the resource is expensive because of drought or high transportation costs.
NCDOT seeks pact from fracking companies to repair damaged roads -- North Carolina could require energy exploration companies to pay to repair state roads after a fracking operation is completed, state transportation officials told lawmakers Tuesday. Drilling is heavily dependent on dump trucks, tanker trucks and 18-wheel rigs that chew up the kinds of two-lane country roads that criss-cross North Carolina ‘s rural counties where shale gas exploration is expected to get underway. But Republican Sen. E.S. “Buck” Newton of Wilson warned that North Carolina ‘s road maintenance protections must not impede drilling. Newton is a member of the Joint Legislative Commission on Energy Policy. “We want to get this industry up and moving,” Newton told transportation officials. “I don’t want our process to be more onerous. “I want our process to be less onerous but more rigorous.” Fracking could start as early as next spring when the state’s safety rules go into effect for energy exploration. As part of that process, the N.C. Department of Transportation will submit a study Jan. 1 that was requested by the legislature to examine the impact of fracking on local roads, particularly in Lee, Moore and Chatham counties where fracking is most likely to begin.
‘Thick Orange Gooey Stuff’ With Arsenic, Lead Found In River Near Duke Energy Power Plant - Contaminated waste from a retired coal plant in Rowan County, North Carolina, has been found leaking into a tributary of the second largest river in the state, environmental groups charged on Thursday. The groups Waterkeeper Alliance, Southern Environmental Law Center, and the Yadkin Riverkeeper said they discovered extensive leaks of coal ash coming from Duke Energy’s Buck Power Plant flowing into High Rock Lake, a tributary of the Yadkin River. Though the power plant no longer actively burns coal, it is surrounded by ponds filled with more than six million tons of coal ash — a waste byproduct from coal-burning. Pete Harrison, an attorney representing the groups, told ThinkProgress that the seep was initially discovered in mid-November, after reports of a quarter-mile long area of orange-colored streaks along the river bank. The groups took samples of the seep, and found that it contained high levels of pollutants such as arsenic, lead, and selenium, the groups said in a press release. Coal ash usually contains similar chemicals.“The whole bank was just bleeding this thick orange gooey stuff,” he said.
Groups Sue Interior Over Climate Impacts Of Coal Leasing Program - Last week, environmental groups Friends of the Earth and the Western Organization of Resource Councils filed suit in the U.S. District Court for the District of Columbia challenging the Bureau of Land Management’s (BLM) failure to consider the harmful climate effects of the federal coal program. The BLM is managed by the U.S. Department of the Interior and is responsible for coal leasing on approximately 570 million acres. The lawsuit requires the BLM to re-examine its federal coal program in light of developments regarding the ramifications of burning coal and increased greenhouse gas emissions (GHGs). The BLM issued a programmatic environmental impact statement (PEIS) for the federal coal program in 1975, which detailed the environmental consequences of federal coal leasing. This review, however, was never updated to account for almost three decades of new information on climate change and GHG emissions from burning coal that has emerged since the PEIS was initially drafted. Under the National Environmental Policy Act, NEPA, the agency is required to consider changed circumstances and new information that affects its prior environmental analysis. The challenge is an effort by environmental groups to confront the glaring inconsistency between the President’s efforts to combat climate change and BLM’s continued efforts to lease more federal coal.
Utah’s Plan To Seize Public Lands Would Cost More Than A Quarter Of A Billion Dollars Per Year -- A study released Monday by researchers at three Utah universities found that transferring national forests and other public lands to the state of Utah would cost taxpayers at least $280 million per year — a price tag that could only be paid if the state were able to increase drilling and mining, seize energy royalty payments that are owed to U.S. taxpayers, and, if energy prices remain low, raise taxes to pay for the shortfall. The study fulfills a requirement of a 2012 Utah bill mandating the transfer of over 31 million acres of America’s public lands to the state of Utah. The study found that in order to raise the needed funds to manage national forests and other public lands, including taking over responsibility for fighting wildfires, the state would need to pursue “an aggressive approach to managing its mineral lease program,” that would only “be profitable for the state if oil and gas prices remain stable and high.” The nearly 800-page report explored a number of scenarios for the state to assume management of public lands, concluding that the only way that the plan would be “profitable” is if the state collects 100 percent of royalties from oil and gas development in the state, which are currently shared equally by the federal and state government. The study states that without the change in royalty allocation, which would add to the national debt and place a burden on U.S. taxpayers, “oil and gas revenues are not sufficient to cover the state’s total land management costs for at least two years after the transfer.”
Rape of Appalachia Continues as Obama Administration Fails to Stop Mountaintop Removal - The process of mountaintop removal mining has made accessing coal seams easier and less labor intensive. It’s also blighted the Appalachian landscape of West Virginia, Kentucky, Tennessee and Virginia where it’s taking place, destroying 10 percent of the land in central Appalachia, ravaging forests, burying more than 2,000 miles of streams in debris and polluting water supplies with coal ash and chemicals. And it’s helped decimate employment in the coal industry, dealing another blow to one of the country’s poorest regions. It’s great for Big Coal, not so great for ordinary citizens. In 2009, the White House Council on Environmental Quality, with the U.S. Army Corps of Engineers, the Department of the Interior and the Environmental Protection Agency (EPA), produced a Memorandum of Understanding (MOU) with an interagency action plan “designed to significantly reduce the harmful environmental consequences of Appalachian surface coal mining operations, while ensuring that future mining remains consistent with federal law.” Today the Alliance for Appalachia, a coalition of grassroots citizen groups, released a study assessing how well that plan had been implemented and what still needs to be done. While pointing to some successes, the group said much stronger actions are needed to avert future disasters like the chemical dump that fouled the drinking water for hundreds of thousands of West Virginians in January.
Obama’s climate change envoy: fossil fuels will have to stay in the ground --The world’s fossil fuels will “obviously” have to stay in the ground in order to solve global warming, Barack Obama’s climate change envoy said on Monday. In the clearest sign to date the administration sees no long-range future for fossil fuel, the state department climate change envoy, Todd Stern, said the world would have no choice but to forgo developing reserves of oil, coal and gas. The assertion, a week ahead of United Nations climate negotiations in Lima, will be seen as a further indication of Obama’s commitment to climate action, following an historic US-Chinese deal to curb emissions earlier this month. A global deal to fight climate change would necessarily require countries to abandon known reserves of oil, coal and gas, Stern told a forum at the Center for American Progress in Washington. “It is going to have to be a solution that leaves a lot of fossil fuel assets in the ground,” he said. “We are not going to get rid of fossil fuel overnight but we are not going to solve climate change on the basis of all the fossil fuels that are in the ground are going to have to come out. That’s pretty obvious.”
The Real Cost of Fracking: How the US Shale Gas Boom Is Threatening Our Families, Pets and Food -- The first researchers to systematically document ill health in livestock, pets, and people living near fracking drill sites were Michelle Bamberger and Robert Oswald. Bamberger, a veterinarian, and Oswald, a professor of molecular medicine at Cornell University , used a case study approach–looking at individual households–to search for possible effects (Bamberger and Oswald 2012). Many fracking chemicals are known carcinogens, endocrine disruptors or other classes of toxins (Colborn et al. 2011). Bamberger and Oswald’s studies, carried out during the ongoing fracking boom, uncovered serious adverse effects including respiratory, reproductive, and growth-related problems in animals and a spectrum of symptoms in humans that they termed “shale gas syndrome”. Ultimately, their research led them to consider fracking’s broader implications for farming and the food system (Bamberger and Oswald 2012 and 2014). Their new book, The Real Cost of Fracking: How America’s Shale Gas Boom Is Threatening Our Families, Pets, and Food describes the results of this research. However, it is by showing the pervasiveness of fracking’s harmful effects on the lives of the householders that Bamberger and Oswald best convey its true costs.
Studies Raise Red Flags About Hazardous Compounds in Fracking Fluid - Perhaps the most comprehensive look to date at fracking chemicals was presented in August at the National Meeting & Exposition of the American Chemical Society (ACS). William Stringfellow, a professor in environmental engineering at the University of the Pacific, lead author of the report, said he conducted the review of fracking contents to help resolve the public debate over the controversial drilling practice. The team of scientists presenting this work said that out of nearly 200 commonly used compounds, there's very little known about the potential health risks of about one-third. However, they concluded eight of the known compounds are toxic to mammals. Chemicals such as corrosion inhibitors and biocides are being used in "reasonably high concentrations that potentially could have adverse effects," said Stringfellow. "Biocides are inherently toxic by design," he told Truthout. "They need to be evaluated even if used in small amounts because of their toxicity." A second study released in October by the Environmental Integrity Project (EIP) found that despite a federal ban on the use of diesel fuel in hydraulic fracturing without a permit, several oil and gas companies are exploiting a Safe Drinking Water Act loophole pushed through by Halliburton to frack with petroleum-based products containing even more dangerous toxic chemicals than diesel. For example, a drilling company in West Texas injected up to 48,000 gallons of benzene into the ground in September. Fracking with fluids containing benzene (a carcinogen), ethylbenzene (a probable carcinogen) and other highly toxic chemicals is a potential threat to drinking-water supplies and public health, but, it appears to be common practice. "Produced water can have benzene, which can get into groundwater or volatilize into air," Schaeffer told Truthout. "It's not good to either drink or inhale it." "Five gallons of ethylbenzene can pollute a billion gallons of water."
Fracking Benzene ? A Rig Worker’s Way to Cancer -- Benzene Cancers: ‘An American tragedy’ -- Documents lay bare petrochemical industry’s $36 million ‘research strategy’ on carcinogens. Internal memorandums, emails, letters and meeting minutes obtained by the Center for Public Integrity over the past year suggest that America’s oil and chemical titans, coordinated by their trade association, the American Petroleum Institute, spent at least $36 million on research “designed to protect member company interests,” as one 2000 API summary put it. Many of the documents chronicle an unparalleled effort by five major petrochemical companies to finance benzene research in Shanghai, China, where the pollutant persists in workplaces. Internal Documents Reveal Oil and Gas industry ‘Pattern of Behavior’ on Toxic Chemicals. Sixty-six years ago, a professor at the Harvard School of Public Health wrote a report linking leukemia to benzene, a natural component of crude oil and a common solvent and an ingredient in gasoline. “It is generally considered,” he wrote, “that the only absolutely safe concentration for benzene is zero.” The report is remarkable not only because of its age and candor, but also because it was prepared for and published by the oil industry’s main lobby group, the American Petroleum Institute. This document and others like it bedevil oil and chemical industry executives and their lawyers, who to this day maintain that benzene causes only rare types of cancer and only at high doses. Not so.
Pink Fracking The Cure Marketing Scam -- Even Susan G. Komen’s own website shares the chemicals from fracking that are linked to breast cancer, but it didn’t stop them from partnering with oil and gas giant Baker Hughes, which donated $100,000 to Komen in October for the “Doing Our Bit for the Cure” campaign where 1,000 fracking drill bits were painted pink. The viral post on EcoWatch, written by breast cancer survivor and fracking activist Sandra Steingraber, exposed the hypocrisy of this campaign. Now, The Daily Show with Jon Stewart takes this outrageous partnership to new heights. Watch this hilarious segment where The Daily Show‘s Samantha Bee meets Karuna Jaggar, executive director of Breast Cancer Action, to fully uncover the stupidity of pink fracking. http://goo.gl/EA9U2h
A dozen dirty documents - The Center for Public Integrity, along with researchers from Columbia University and the City University of New York, on Thursday posted some 20,000 pages of internal oil and chemical industry documents on the carcinogen benzene. This archive, which will grow substantially in 2015 and beyond, offers users a chance to see what corporate officials were saying behind the scenes about poisons in the workplace and the environment. Here are 12 examples of what the petrochemical industry knew about benzene; the impetus behind industry-sponsored science; and the corporate spin that often occurs when damning evidence against a chemical threatens companies’ bottom lines.
Fracking ban goes into effect in its birthplace — An unprecedented ban on fracking went into effect Tuesday in Denton, Texas, a town of 123,000 located on top of the natural-gas goldmine that is the Barnett shale formation, the birthplace of the much-maligned oil and gas extraction method. Denton voters approved the ban last month, making it the first city or county to do so in the energy-rich, fracking-heavy state of Texas. Shortly after the Nov. 4 vote, the Texas Oil & Gas Association, an energy industry group, and the Texas General Land Office filed a lawsuit seeking to reverse the ban. "Whatever happens next will take place in a courtroom," Ed Ireland, executive director of the Barnett Shale Energy Education Council, an energy industry mouthpiece, told Reuters. The Barnett shale formation, which spans 24 counties in north Texas, is considered the spot where hydraulic fracturing, or fracking, originated thanks to energy behemoth Exxon Mobil. The company’s CEO, an ardent fracking evangelist, was involved in a lawsuit as of earlier this year to rid his own suburban Texas neighborhood of fracking, operations of which were “creating a noise nuisance and traffic hazards,” according to the suit.
Enviro Groups File Motion to Intervene in Defense of Denton Fracking Ban -- Steve Horn -- Just days after attorneys representing Denton, Texas submitted their initial responsesto two legal complaints filed against Denton — the first Texas city ever to ban hydraulic fracturing (“fracking”) — environmental groups have filed an intervention petition. That is, a formal request to enter the two lawsuits filed against the city after its citizens voted to ban fracking on election day.Denton Drilling Awareness Group and Earthworks are leading the intervention charge, represented by attorneys from the Natural Resources Defense Council (NRDC) and Earthjustice. The drilling awareness group runs the Frack Free Dentoncampaign.Those groups have joined up with attorneys representing Denton to fight lawsuits filed against the city by both the Texas Oil and Gas Association and the Texas General Land Commission. Texas Oil and Gas Association is represented by Baker Botts, a firm with close ties to the Bush family. And the Land Commission will soon be headed by George P. Bush, the son of potential 2016 Republican Party presidential candidate Jeb Bush and nephew of George W. Bush. Earthjustice attorney Deborah Goldberg, lawyer forDryden, New York — the first town in that state to ban fracking, which set a precedent allowing municipalities in the state to ban oil and gas development — filed as one of the requested intervenors. “The State of Texas has granted municipalities the right to oversee oil and gas operations. The people of Denton have exercised that right, and we intend to help preserve it,” said Goldberg in a press release. “When state and federal officials won’t stand up for the public, citizens must have the right to use local democracy to protect themselves.” Though Denton has set aside a $4 million fund to slug out the litigation, the outside legal help and financial aid from environmental groups will strengthen the public interest defense against the industry lawsuits.
US Shale Under Pressure From More Than Just Low Prices -- Hydraulic fracturing, or fracking, has come full circle in Denton, Texas after a controversial ban on the practice entered into effect on Tuesday. Denton is one of several cities located on top of the massive Barnett shale formation, regarded as the birthplace of modern fracking. The ban, while incomplete, gives strength to what is a growing anti-fracking movement in the United States. The Barnett shale covers an area of more than 5,000 square miles with depths between 5,000 and 8,000 feet. With more than 40 trillion cubic feet (Tcf) of technically recoverable gas, the Barnett holds approximately 12% of the nation’s proved reserves. Over the past decade, activity on the shale skyrocketed and over 15,000 wells have been drilled to date. For the state, the benefits are clear – in 2011 alone, Barnett production addednearly $13.7 billion to the Texas economy. However, production peaked in 2012 at 2 Tcf and will plummet by more than half toward 2030 – recent ban notwithstanding.
Two Lawmakers Want To Ban Fracking In Florida - Two Florida state senators introduced legislation this week to ban fracking in their state, citing concerns about environmental impact and potential damage to water supplies. State Senators Darren Soto (D) and Dwight Bullard (D) filed a bill on Tuesday that, if adopted, would prohibit hydraulic fracturing in Florida. In a press release announcing the legislation, the senators said that Florida’s natural beauty, major tourism industry, and underground aquifers would be at risk if fracking becomes common in Florida. “The key is this: there shouldn’t be any fracking in Florida,” Soto told Florida’s WGCU. “We are a beautiful state that has so much to lose from fracking and so little to gain from a few small areas that it’s actually just disgraceful that we would allow it here.” Soto is most concerned about fracking’s potential impact on the Floridian Aquifer, which serves as a drinking water source for nearly 10 million people. Fracking’s impact on groundwater has been documented: a 2012 study found that chemicals from fracking in the Marcellus Shale region could find their way into drinking water more quickly than scientists had previously thought. And a September study from this year linked groundwater contamination in Texas and Pennsylvania to faulty casing and cementing in gas wells.
What Really Happens When You Cut Taxes On Oil Companies -- Tax cuts are often spoken of as an unalloyed good in American politics. But the state of Alaska is learning the hard way those cuts — especially when they are for taxes on oil companies — can come back to bite you. Alaska is the only state with neither a state income tax nor a state sales tax. For revenue, it relies entirely on federal funding and various taxes on oil production in the state. Back in 2013, the oil taxes were cut by legislation passed under former Governor Sean Parnell (R). The logic of the cut was that it would spur renewed oil industry activity in the state, but that expected economic ferment has not materialized. And now, as the price of oil drops lower and lower, taking Alaska’s remaining tax revenue down with it, those cuts are leaving Alaska’s state budget deep in the red. “[I]n recent years taxes on oil production have covered more than half the total budget ($13.5 billion including federal funds and capital projects) and 90 percent of the state’s discretionary spending ($6.5 billion to run agencies and schools),” the Washington Post reported on Wednesday. “Now, with prices under $70 a barrel, the budget deficit could balloon to more than $3 billion, about half of the state’s discretionary spending level.”
Earthquakes shouldn’t dislodge the facts about fracking - The American Southwest is undergoing a spike in seismic activity. A new U.S. Geological Survey shows that a small basin on the New Mexico-Colorado border experienced 20 times more serious earthquakes from 2001 to 2011 than it had over the previous 30 years. There have been similar tremor spikes throughout the country. Some media accounts have been quick to blame this on hydraulic fracturing. Also known as “fracking,” this technique involves injecting a high-pressure mixture of water, sand and other fluids to break up underground rock structures and free up embedded oil and gas. One prominent columnist claimed “fracking may be inducing earthquakes.” The online journal Salon simply declared that the “earthquake epidemic is linked to fracking.” And NBC News published a story with the bold title of “Confirmed: Fracking practices to blame for Ohio earthquakes.” This thinking is completely off-base. There’s ample evidence indicating that fracking doesn’t cause earthquakes. And spreading the lie that it does could lead to policies that undermine job creation and economic growth in the energy industry. Some fracking operations do create very small seismic events. But, as Stanford geophysicist and former Obama administration energy advisor Mark Zoback has noted, these events “pose no danger to the public.” In fact, research has shown that these very slight tremors release about the same amount of energy as a gallon of milk falling off a kitchen counter.
At current prices Bakken and Permian Basin are in the red -- At $66 per barrel North American producers have real problems on their hands. While Eagle Ford is still profitable, both Bakken and Permian Basin are in now the red. Scotiabank: - Based upon an analysis of more than 50 oil plays across Canada and the United States, we estimate that ‘mid-cycle breakeven costs’ in the North Dakota Bakken (1.05 mb/d) are roughly US$69 per barrel and in the Permian Basin in Texas (1.63 mb/d) about US$68. While some producers have hedged forward at higher prices, if WTI oil remains around US$70 for more than six months, it appears likely that drilling activity will slow in more marginal areas of these plays as 2015 unfolds. Funding for independent oil producers will also tighten. However, the ‘liquids-rich’ Eagle Ford (1.45 mb/d) will be little impacted, with breakeven costs averaging only US$50. That's why we've had such an extreme sell-off in US oil & gas shares on Friday (see chart) and Canadian shares underperformed (see chart). If prices persist at current levels for months to come, the Saudis will achieve their objective of dealing a blow to North American oil production. The expectations of the US outpacing Saudi Arabia as the number one oil producer (see chart) will be shelved for some time. And the only thing the US government could do at this point to support the domestic oil industry is to begin increasing the Strategic Petroleum Reserve. Of course such a measure would be temporary and if global demand does not improve, prices will begin falling again.
Sub-$50 Oil Surfaces in North Dakota Amid Regional Discounts - Oil market analysts are debating if oil will fall to $50. In North Dakota, prices are already there. Crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28, according to the marketing arm of Plains All American Pipeline LP. That’s down 47 percent from this year’s peak in June, and 29 percent less than the $70.15 paid for Brent, the global benchmark. The cheaper price for North Dakota crude underscores how geographic and logistical hurdles can amplify the stress that plunging futures prices have put on drillers in new shale plays that have helped push U.S. oil production to the highest level in 31 years. Other booming areas such as the Niobrara in Colorado and the Permian in Texas have also seen large discounts to Brent and U.S. benchmark West Texas Intermediate. “You have gathering fees, trucking, terminaling, pipeline and rail fees,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said Dec. 2. “If you’re selling at the wellhead, you’re getting a very low number relative to WTI.” Discounted prices at the wellhead have been exacerbated by a 39 percent drop in Brent futures since June 19 to $69.92 a barrel yesterday. Prices have fallen as global demand growth fails to keep pace with surging oil production from the U.S. and Canada.
Shale Liquidations Begin? Sub-$50 Oil Appears In North Dakota -- When ISIS dared to steal and sell oil at below market rates, they were dire pirates that needed to be destroyed (and anyone who dared to buy it was pariah). So when, as Bloomberg reports, crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28 (according to the marketing arm of Plains All American Pipeline), you know there is an issue in the US Shale industry. As one analyst notes, "to a producer in Wyoming, if Brent’s $70 then I’m at $50, then I have to start asking does it economically make sense to keep drilling, they might start reallocating capital, you might see projects slowed or shut down." So with every expert in financial media clinging to some hope that oil prices can't go down any more surely right? The answer is yes... and have already broken below $50... something that may indicate not just transportation issues, but desperation for crucial liquidity needs
US refineries run flat out to process cheap crude - FT.com: US highways grow visibly emptier as winter weather sets in. Traffic volumes decline, as does petrol consumption. Tell that to oil refiners. The US industry is processing record amounts of crude for this time of year, taking advantage of falling oil prices and a flood of supply from shale drillers. “They’re running refineries as hard as they can,” says John Auers, executive vice-president at Turner Mason, an energy consultancy in Dallas. Refineries’ hearty appetite has kept the price of high-quality “light” US crude closely in line with international prices, defying warnings that a glut would force deep discounts. Light Louisiana Sweet, the US Gulf coast benchmark, this week sold for just a dollar less than the international Brent benchmark, suggesting solid demand for it. Government policy has also helped maintain strong crude runs, emboldening refiners who argue that Washington should keep in place longstanding restrictions on oil exports. Under a four-decade-old law, shippers are free to export refined petroleum products but not crude. The amount of oil purchased by refiners in the US will be an important guide for world oil markets, which have cut prices to $70 a barrel because of surging output in the US and the Opec cartel’s unwillingness to cut production. Refiners are by far the dominant customers for crude, which is largely unusable unless processed. In the week to November 28 gross inputs to US refinery distillation units were 16.554m barrels a day, the highest figure for any November week on record, according to the American Petroleum Institute. Refineries ran at 93 per cent of capacity.
A death in the Bakken: Worker's family rejects drug conclusion --— One thing is clear: Brandon Belk should have been wearing an oxygen mask. After that, there’s a long list of questions. It starts with a big one. Why did he die? There’s the mix of solvents and petroleum gunk he was breathing while cleaning a frack tank two days before his death in July 2013. When federal worker safety inspectors showed up, they found the working conditions dangerous. But there’s also the traces of methadone — a potent and often abused painkiller — found in his bloodstream. To Belk’s family, it’s clear his job at a company here called Badlands Power Fuels is what led to his death. His autopsy says he died from pneumonia — fluid in the lungs — which points to the chemical exposure. “It is neglect on so many people’s part,” said his mother, Vikki Daggett. “As far as I’m concerned, Power Fuels killed my son.” But the autopsy report also indicates he wouldn’t have died without the methadone and citalopram, an antidepressant for which he had a prescription. And his death certificate states he had no “injury at work.” To his former employer, that settles it. So, too, for the Occupational Safety and Health Administration (OSHA) and the North Dakota workers’ compensation system, which has denied death benefits to his 13-year-old daughter. “The North Dakota Forensic Medical Examiner’s Office report concluded the death was an accident unrelated to the workplace,”
Lawsuit Filed Calling for Ban on Fracked Oil Bomb Trains --Earthjustice has filed a lawsuit on behalf of Sierra Club and Forest Ethics, challenging the Department of Transportation’s rejection of their July request for an immediate ban of DOT-111 rail tanker cars carrying volatile crude oil from the Bakken shale formation. The National Transportation Safety Board (NTSB) called in 2012 for an immediate ban for these tankers, which are prone to puncture in the case of accidents, crashes and rollovers, causing explosions and fires. Two-thirds of the rail cars carrying crude oil through the U.S. are DOT-111s. The industry has insisted that discontinuing their use or phasing them out rapidly would be too costly, asking for four years to phase out the older cars and up to six years for the newer ones. This lawsuit challenges the Department of Transportation’s assertion that they have responded sufficiently to the dangers posed by the cars. The court filing said, “Petitioners ask the Court to set aside and remand the Secretary’s denial of the petition to ban shipping Bakken crude oil in unsafe tank cars because the Secretary failed to consider pertinent evidence and several relevant factors, including the Secretary’s past findings that the surge in crude-by-rail shipments of Bakken crude in dangerous tank cars poses imminent hazards and emergency unsafe conditions, the number of rail accidents and oil spills likely to occur during the time it will take to stop shipping Bakken crude in the most hazardous tank cars through rulemaking, Canada’s more expeditious phase out of the most hazardous tank cars and the safety hazards of allowing the industry to more than double the crude oil fleet before removing the most dangerous tank cars from crude-by-rail shipping.”
Jobs: Shale States vs Non-Shale States -- Investments in oil and gas exploration and production generate substantial economic gains, as well as other benefits such as increased energy independence. The Perryman Group estimates that the industry as a whole generates an economic stimulus of almost $1.2 trillion in gross product each year, as well as more than 9.3 million permanent jobs across the nation. Simply put, this means 9.3 million, or 93% of the 10 million jobs created since the recession/depression trough, are energy related.
The Shale Bust Arrives: November Permits For New Shale Wells Tumble 15% - With a third of S&P 500 capital expenditure due from the imploding energy sector (and with over 20% of the high-yield market dominated by these names), paying attention to any inflection point in the US oil-producers is critical as they have been gung-ho "unequivocally good" expanders even as oil prices fell. However, as Reuters reports, new data suggests that the much-anticipated slowdown in shale country may have finally arrived - permits for new wells dropped 15% across 12 major shale formations last month, as one analysts warns, "the first domino is the price, which causes other dominos to fall."
Oil slump may see wave of junk bond defaults - Junk bonds have financed the US shale boom, and now the sharp drop in oil prices could lead to a massive wave of defaults on that high-yield debt. Should oil prices fall below $US65 per barrel and stay there for the next three years, Tarek Hamid, a high-yield energy analyst at JP Morgan Chase, estimates that up to 40 per cent of all energy junk bonds could default over the next several years. Energy companies, the fastest growing segment of the high-yield bond market in recent years, account for nearly 18 per cent of all outstanding high-yield bonds, up from 9 per cent in 2009, according to JP Morgan. Mr Hamid says that the 40 per cent possible default rate is the upper limit over the next few years, and that energy companies will take steps to avoid falling into bankruptcy, including cutting spending and selling assets. Still, even if companies make smart moves to cut costs, with oil at $US65 per barrel or below for the next three years, he estimates that default rates high-yield bonds from the energy sector could still hover around 20 per cent to 25 per cent. "It would become a very dire scenario," Mr Hamid said
Market rout as oil slide rocks energy groups - FT.com: Shares in the world’s biggest energy groups have tumbled in a market rout as plunging oil prices put at risk billions of dollars of investment and jeopardised future supplies of crude. The sharp slide in the price of Brent oil after Opec’s decision not to cut output triggered warnings that oil companies would cut as much as $100bn of capital spending in response, imperilling the US shale bonanza and threatening much Arctic oil exploration. Meanwhile oil’s fall continued to play havoc with the currencies of oil exporting countries, especially Russia. At one point on Friday, the rouble slid to a record low. Leonid Fedun, vice-president of Lukoil, Russia’s second largest crude producer, told the Financial Times that Opec was trying to turn the US shale oil “boom” into a “bust” for smaller producers. He compared the surge in North American shale to the dotcom and subprime mortgage booms, and said Opec’s objective now was “to get small producers with large debts and low efficiency to pack up and leave the market”. Opec said on Thursday that it was leaving its output ceiling of 30m barrels a day unchanged, prompting a swift 8 per cent drop in the oil price, which was already down by nearly 40 per cent since mid-June. Brent fell $2.80 on Friday to $69.78, a four-year low. The move showed that Saudi Arabia, Opec’s largest producer and effective leader, had decided to relinquish its traditional role of balancing the oil market by increasing or reducing output, letting prices do the job instead, analysts said. “We cannot overstate what a dramatic and fundamental change this is for the oil market,” said Mike Wittner, senior oil analyst at Société Générale. Friday’s brutal sell-off in the US and across Europe hit shares in the oil majors, the big oil services companies that supply them, as well as the smaller explorers most exposed to the plunge in crude. ExxonMobil fell 4.3 per cent, Chevron 5.4 per cent and oilfield services group Halliburton 11.1 per cent. They recovered slightly by the close.
Crude Carnage Goes Contagious As Brevan Howard Liquidates Underperforming Commodity Fund -- The entire commodity complex is seeing major contagion-like price declines in early trading. WTI Crude is back below $65 for the first time since May 2010 - now down 16% since the initial leaks of OPEC's decision last Wednesday. Gold and Silver are getting whacked and copper has plunged below 300 - back at its lowest since June 2010. The news over the weekend that Brevan Howard is liquidating its $630 million commodity hedge fund following recent poor performance is also likely not helping as what looked like late-Friday margin call liquidations are extending notably this evening.
Fracking Frenzy Threatens Developing Nations -- Fracking is both a temptation and a curse for developing nations, says a new report released today by Friends of the Earth Europe as governments meet in Lima to make meaningful commitments to speed up the transition away from dirty energy sources. Fracking Frenzy: How is the fracking industry threatening the planet? details the impacts of developing shale reserves in new regions of the world unprotected by political power to ward off bad policies that favor fossil fuel extraction companies over communities. The report looks at a selection of countries identified in the U.S. Energy Information Administration’s 2013 World Shale Gas and Shale Oil Resource Assessment that analyzed potential shale resources in 42 countries and 95 shale basins around the world. It identifies 11 countries it says are prime targets for the fracking industry to focus on in depth: Mexico, Brazil, Argentina, Morocco, Algeria, Tunisia, South Africa, China, India, Indonesia and Russia. It analyzes the potential gas and oil reserves (often over-estimated), available water resources, area’s geology, country’s policies on drilling, local opposition to fracking and environmental, ecological and social impact of fracking in each. “While much has been written about fracking in North America and in the EU, this report provides a global overview of shale gas development in the rest of the world,”
Shale Gas increasing Threat to Climate, Environment, Communities Worldwide -- As world climate talks open in Peru today, new research shows how fracking is likely to further accelerate climate change, destroy water sources and infringe on communities’ rights worldwide unless urgent action is taken to stop the ‘dash-for-gas’. The report, from Friends of the Earth Europe, maps the expansion of the shale gas industry outside Europe and North America with examples of 11 key countries on three continents. It finds that multinational oil and gas companies such as Total, Shell and Chevron are moving into increasingly vulnerable countries in Latin America, Africa and Asia where the ecosystems, communities and authorities are even less unable to cope with the impacts of extraction. Countries such as Mexico, China, Argentina and South Africa, are in earthquake-prone or water-scarce regions and are most exposed to the impacts of climate change. The pursuit of fracking in these countries is likely to exacerbate the climate, environment, social and human rights problems they already face. Friends of the Earth Europe is calling on the EU and other developed country governments meeting in Lima to make meaningful commitments to speed up the transition away from dirty energy sources. The report details how fracking is a global climate threat. Leakage of methane – a greenhouse gas 86 times more powerful than carbon dioxide – into the atmosphere, even at fracking sites that use the “best available technology”, will cause harmful climate emissions and contribute to a 3.5°C global temperature rise if fracking is developed worldwide. Case studies from the US indicate that due to methane leakage, there is a big risk that shale gas is far worse than conventional gas and almost comparable to coal, so it cannot be a “transition fuel”.
New York Times Repeats Russian Frack Hoax - Read that the New York Times is repeating the rumor that the Russians are behind the global backlash against fracking. This hoax first surfaced in Europe, then spread to the US (including Denton, Texas) and before it completely frittered away from disuse, a Times reporter recycled it, from a previous article, one more time: Russian Money Suspected Behind Fracking Protests “Circumstantial evidence, plus large dollops of Cold War-style suspicion, have added to mounting alarm over covert Russian meddling to block threats to its energy stranglehold on Europe.” Catch is that when you read the article, there is no evidence presented, real or “circumstantial” to indicate that the Russians are manipulating what is invariably a grass-roots push back against fracking – at home or abroad. Here’s the best Andrew Higgins could come up with re the “evidence” – there is none: “This belief that Russia is fueling the protests, shared by officials in Lithuania, where Chevron also ran into a wave of unusually fervent protests and then decided to pull out, has not yet been backed up by any clear proof.” Here’s Higgins interview with one of the leaders of the Romanian fractavist groups, supposedly another Kremlin fractavist marionette: “George Epurescu, the president of Romania Without Them, a Romanian organization that has played a major role in mobilizing opposition to Chevron here in Pungesti, said his group, set up in 2011 to protest corruption, shifted its focus to the fight against fracking after it “found out about the shale gas problem” from Bulgarian activists.
North Pole Sues Koch-Owned Oil Company Over Contaminated Water -- The city of North Pole, Alaska, used to have clean groundwater. But now, it’s the polar opposite. According to a lawsuit filed by the city last week, two oil companies are responsible for polluting North Pole’s groundwater and some private drinking water wells with a mysterious chemical. The chemical, called sulfolane, leaked from an oil refinery that the lawsuit alleges was negligently operated — both by current refinery owner Flint Hills Alaska Resources, which is owned by Koch Industries, and former owner Williams Alaska Petroleum. “The presence of sulfolane contamination in the city’s groundwater has rendered that groundwater unfit for human consumption and endangers the public health or welfare,” the lawsuit reads, according to a report in the Fairbanks Daily News-Miner. “Ultimately, these hazardous substances have migrated off the refinery property and have contaminated the groundwater down gradient of the refinery and within the city, including wells owned by the city and supplying drinking water to the city’s inhabitants.”
Oilsands study confirms link between tailings ponds and air pollution -- Environment Canada report agrees with earlier research suggesting amount of toxic compounds emitted by industry has been dramatically underestimated. New federal government research has confirmed that oilsands tailings ponds are releasing toxic and potentially cancer-causing chemicals into the air. And Environment Canada scientist Elisabeth Galarneau said her study — the first using actual, in-the-field measurements — agrees with earlier researchthat suggests the amount of polycyclic aromatic hydrocarbons emitted by the industry has been dramatically underestimated. “We found that there actually does appear to be a net flow of these compounds going from water to air,” she said. “It’s just a bit under five times higher from the ponds than what’s been reported.” Galarneau’s findings echo those from an earlier study this summer. That paper, however, depended on mathematical modelling. The Environment Canada study, recently published in the journal Atmospheric Environment, used actual data collected from air sampling and filtering devices placed in the oilsands region under the joint federal-provincial monitoring program. Using standard and well-established testing methods, Galarneau’s preliminary results suggest 1,069 kilograms a year of PAH compounds are being released from the 176 square kilometres of tailings ponds across the region.
Alberta Pipeline Spills 60,000 Liters of Crude Oil Into Swamp: he Alberta Energy Regulator says close to 60,000 litres of crude oil have spilled into muskeg in the province’s north. An incident report by the regulator states that a mechanical failure was reported Thursday at a Canadian Natural Resources Limited (TSX:CNQ) pipeline approximately 27 kilometres north of Red Earth Creek. The report says there are no reports of impact to wildlife and that a cleanup has begun. Red Earth Creek is over 350 kilometres northwest of Edmonton. Carrie Rosa, a spokeswoman for the regulator, says officials have been delayed reaching the scene due to poor weather in the last few days. “As soon as it’s safe for them to travel to site they will be there and they’ll investigate the incident,” Rosa said Sunday morning. No one from Canadian Natural Resources could be reached on Sunday for comment.
Work Stops On Tar Sands Export Terminal Due To Endangered Beluga Whale Population - TransCanada, the company behind the controversial Keystone XL pipeline, has run into multiple challenges over the past year with another of its proposed tar sands pipelines, Energy East. The project has been met with throngs of protesters, opposition from First Nations groups, and strict conditions imposed by Quebec and Ontario. Now the oil company is facing another snag in its plan to build a pipeline across Canada’s eastern provinces: whales. This week, the Committee on the Status of Endangered Wildlife in Canada (COSEWIC) found that the population of beluga whales in Quebec’s St. Lawrence River should be considered endangered, prompting TransCanada to halt its studies on a key export terminal in Quebec. The Cacouna, Quebec marine terminal was proposed for the eastern shore of the St. Lawrence and would serve as a loading point for oil carriers. But COSEWIC’s endangered species classification for the population, which contains about 900 individual whales and is the southernmost population of belugas in the world, could make building the terminal in Cacouna difficult for TransCanada. “We are standing down on any further work at Cacouna, in order to analyze the recommendation, assess any impacts from Energy East, and review all viable options,” TransCanada spokesman Tim Duboyce told Bloomberg.
Hillary Clinton Wades Into Debate Over Fracking But Avoids Keystone XL -- Speaking to an influential gathering of environmental leaders on Monday, Hillary Clinton expressed concerns relating to the natural gas boom but continued to eschew commenting on the politically explosive Keystone XL pipeline. In a 10-minute speech at a fundraiser for the League of Conservation Voters in midtown Manhattan, Clinton scolded climate deniers, praised green technology, stood behind market-based solutions to limiting greenhouse gas emissions, and said both the science and political challenges associated with climate change are “unforgiving.” “There is no getting around the fact that the kind of ambitious response required to combat climate change is going to be a tough sell at home as well as around the world,” Clinton said. Perpetuating her mum stance on the Keystone XL pipeline, the approval process for which she oversaw during her tenure as Secretary of State, Clinton chose instead to venture ever so slightly into the debate over the pros and cons of the natural gas boom. In addressing the risks of natural gas extraction, she was perhaps trying to draw a distinction between herself and President Obama, who has continually touted natural gas as an important element of an all-of-the-above energy strategy. “I know many of us have serious concerns with the risks associated with the rapidly expanding production of natural gas,” Clinton said. “Methane leaks in the production and transportation of natural gas pose a particularly troubling threat so it is crucial we put in place smart regulations and enforce them, including deciding not to drill when the risks to local communities, landscapes and ecosystems are just too high.”
State Department Keystone XL Contractor ERM Bribed Chinese Agency to Permit Project = Steve Horn - Environmental Resources Management (ERM Group), the consultancy selected by TransCanada to conduct the environmental review for Keystone XL's northern leg on behalf of the U.S. State Department, is no stranger to scandal. Exhibit A: ERM once bribed a Chinese official to ram through major pieces of an industrial development project. ERM was tasked to push through the project in Hangzhou Bay, located near Shanghai. Accepting the bribe landed Yan Shunjun, former deputy head of the Shanghai Municipal Environmental Protection Bureau, an 11-year prison sentence. Yan “allegedly took bribes of 864,000 yuan (126,501 U.S. dollars), 20,000 U.S. dollars and 4,000 euros from seven contractors,” explained Xiuhuanet. “Yan was also accused of illegally setting up a channel to speed up environmental impact assessment processes, which are essential for companies wanting to build factories.” BP, one of the companies standing to gain if Keystone XL North receives a presidential permit from the Obama administration as a major Alberta tar sands producer, was also mired in the Chinese ERM Group scandal. A commenter on People's Daily, the state-owned newspaper in China, wrote that bribery was merely the cost of doing business and an “investment” of sorts. In the U.S. context as it pertains to Keystone XL, ERM's conduct has been far less ham-handed than it was in China. By procedure and by law, the company applying for the permit gets to pick and pay for the contractor conducting the environmental review on behalf of the State Department. In this case, it meant TransCanada selected ERM Group to give it a rubber stamp of approval for KXL. In other words, the State Department has legalized a de facto form of “institutionalized corruption” for handling environmental reviews for cross-border pipelines like Keystone XL's northern leg. Sierra Club attorney Doug Hayes described it as a “built-in conflict of interest” in a 2013 Bloomberg Businessweek article. ERM Group, with a track-record of rubber-stamping ecologically hazardous projects in places ranging from central Asia to Peru to Alaska to Delaware and China, has proven itself once again a key tentacle of the “carbon web” for Keystone XL.
4 Reasons Keystone Really Matters - Naomi Klein - Ever since the debate over the Keystone XL pipeline exploded three and half years ago, that’s been the argument from the project’s liberal supporters. Sure, the oil that Keystone would carry from the Alberta tar sands is three to four times more greenhouse-gas-intensive than conventional crude. But that’s not on Keystone XL, we’re told. Why? Because if TransCanada isn’t able to build Keystone to the south, then another pipeline will be built to the west or east. Or that dirty oil will be transported by rail. But make no mistake, we have long been assured: all that carbon buried beneath Alberta’s boreal forest will be mined no matter what the president decides. Up until quite recently, the tar-sands boom did seem pretty unstoppable. The industry regularly projected that production would soon double, then triple, and foreign investors raced to build massive new mines. But these days, panic is in the air in formerly swaggering Calgary. In less than a year, Shell, Statoil and the French company Total have all shelved major new tar-sands projects. And a rather large question mark is suddenly hanging over one of the world’s largest—and dirtiest—carbon deposits. This radically changes the calculation confronting Barack Obama. His decision is no longer about one pipeline. It’s about whether the US government will throw a lifeline to a climate-destabilizing industrial project that is under a confluence of pressures that add up to a very real crisis. Here are the four main reasons that the tar sands are in deep trouble.
PHOTOS: Israel Hit With Massive 600,000 Gallon Oil Spill -- A nature reserve has been flooded with oil and more than 80 people have been hospitalized from exposure to toxic fumes after approximately 600,000 gallons of crude oil spilled from a pipeline in southern Israel on Wednesday, according to media reports there. The massive spill, which resulted from a breach in the 153-mile Trans-Israel pipeline, has been described as “one of the gravest pollution events in the country’s history.” That’s according to Israel Environmental Protection Ministry official Guy Samet, who also said the spill could take months, maybe years, to fully clean up. “This is one of the State of Israel’s most serious pollution events,” Samut told Israel Radio. “We are still having trouble gauging the full extent of the contamination.” The breach and subsequent spill took place in the desert near Eilat, a southern Israel city with a population of about 50,000 people. Though the city itself is not said to be in immediate danger, the now-4.3 mile river of oil is reportedly making its way toward the Jordanian border, where fumes have already been detected. The Israel Ministry of Environmental Protection is warning people to stay away from the spill, noting that oil “can be a health concern,” contaminating land and releasing hazardous gas. The Ministry noted that a triathlon had been scheduled in Eilat for Thursday, and recommended it be cancelled in light of the fumes. Some Israeli media outlets have already reported adverse effects to human health. According to at least one media report, more than 80 people in the neighboring city of Aqaba, Jordan, had been hospitalized for breathing difficulties due to hydrogen sulfide in the air. Three Israelis were also reportedly hospitalized for inhaling toxic fumes.
Big Oil Going Big In The Gulf Of Mexico - The oil industry is betting big on the Gulf of Mexico with both costs and production rising as a result. The Gulf has seen a bit of a resurgence in production this year, after declining from a peak in 2009. The oil industry extracted 1.7 million barrels per day on average in the summer of 2009, which fell to 1.2 million barrels per day last year (see chart. Data from EIA). But oil output is up around 15% since then, as the industry pours billions of dollars into the Gulf. The Wall Street Journal reported that several new projects from Royal Dutch Shell, Hess Corporation, ExxonMobil and Chevron are expected to come online before the end of 2015 and will have a combined production capacity of 900,000 barrels per day. The production gains come with high price tags. Since 2010, deepwater wells have seen costs balloon by 25%, according to the WSJ. The average deepwater well can cost $300 million. Even worse, costs are rising by 5 to 10 percent each year. Some of that has to do with the fact that drillers have to move further offshore and into deeper waters. But additional safety regulations that came in the wake of the BP Deepwater Horizon disaster have also added to project costs. The WSJ notes that the average deepwater well takes 13% longer to drill compared to pre-Deepwater Horizon projects due to more scrutiny from inspectors.
US oil reserves at highest since 1975 - FT.com: US proven oil reserves last year rose to their highest level since 1975, official figures have shown, in the latest sign of how the shale revolution has transformed the country’s energy supply outlook. Proven reserves — oil that is expected to be recoverable with existing technology at current prices — were in decline in the US up until 2009, when companies began experiments with producing oil from the Bakken shale of North Dakota. Rising reserves are an indication that higher US oil production, which has risen about 80 per cent since 2008, can be maintained in the longer term, although the recent slump in oil prices is expected to lead to cutbacks in activity and a slowdown in output growth over the coming months. Crude has fallen nearly 40 per cent since June, on the back of surging US production combined with slowing global oil demand. Brent, the international benchmark, fell 18 per cent last month alone as Opec, the producers’ cartel, decided not to cut output. Brent was trading just below $70 a barrel on Thursday afternoon. Last year companies in the US produced about 2.7bn barrels from their reserves, but added 5.5bn in new discoveries, according to the government’s Energy Information Administration. As a result, the US ended 2013 with about 36.5bn barrels of proven oil reserves: a rise of 9.3 per cent over the year, and one of the highest levels ever reported in records that go back to the 19th century. The peak came in 1970, when the industry reported proven reserves of 39bn barrels of crude oil. However, the US is today still well behind Russia and Canada in terms of proven reserves, and also behind most Opec members.
A glut of oil? -- The world is awash in oil, I’m hearing. The problem is, it’s fairly expensive oil. Take for example Canada. The country has managed to increase its production of oil by a million barrels a day over the last decade. But almost all of that increase has come from oil sands. If you consider only conventional crude oil, Canadian production today would be a third of a million barrels a day lower than at its peak in 1973. Even without counting environmental costs, that stuff’s not cheap. It was profitable when West Texas Intermediate was over $90. But last week WTI closed at $66. Here are some of the estimates from the Wall Street Journal: The break-even price for new oil-sands surface mines is among the most expensive in the world, at around $85 a barrel, according to Bank of Nova Scotia . Operating costs at existing mines are less than half that amount. But the break-even point for so-called in situ projects, in which bitumen is heated and pumped up to the surface, range between $40 a barrel and $80 a barrel. Such projects represent the majority of future growth. Or consider the United States, where production has grown 2 mb/d since 2004. More than 3 mb/d of that growth has come from fracking of oil trapped in tight geologic formations. Without tight oil, U.S. production would be down more than a million barrels a day over the last ten years and down 5-1/2 mb/d from its peak in 1970. Estimates again vary, but prices this low have to severely inhibit new investment in U.S. tight oil. Without continuing new drilling, U.S, tight oil production would quickly fall. And the economics of deep ocean drilling, which has also been important in supporting production in the U.S. and around the world, have become even more difficult at today’s low prices. Why am I talking about the costs for Canadian and U.S. oil producers? Because if it had not been for the success of Canada and the United States, world production of crude oil would be down overall over the last decade.
OPEC Fires First Shot In Global Oil Price War - OPEC’s decision not to cut production to shore up oil prices drove down the price of oil even further in a strong challenge to American shale oil producers – or, in less delicate language, the start of an all-or-nothing price war. The immediate result of OPEC’s decision was a further drop in the price of the world’s leading benchmark oil, Brent crude, which lost $6.50 per barrel, falling to $71.25 on Nov. 27, its worst performance in a single day since 2011. Brent soon had a weak rally, raising its value to $72.55. The price of oil has now dropped by nearly 40 percent since mid-June. But expect Brent and other crudes to fall again, says Igor Sechin, the CEO of Russia’s government-owned oil company Rosneft. He said the average price of oil could go below $60 per barrel during the first two quarters of 2015. OPEC’s big decision was not to lower its total production cap of 30 million barrels a day, turning aside pleas from less-affluent cartel members, who said the current oil glut has left them unable to afford to sell their oil at such oil prices. They had urged OPEC to reduce production by 1 million barrels per day. Abdullah Bin Hamad al-Attiyah, who served as Qatar’s oil minister for nearly 20 years, countered on Nov. 19 that any decision to reduce production should be shouldered by major producers who aren’t in OPEC. “Russia, Norway and Mexico must all come to the table,” he said. He may just as well have included the United States. All these non-OPEC producers recently have been harvesting oil at record or near-record levels contributing to the global oil glut that couldn’t be remedied by a simple OPEC production cut of 1 million barrels per day.
Turnabout: OPEC shows U.S. oil producers who's boss -- To paraphrase Mark Twain, rumors of OPEC's demise have been greatly exaggerated. Breathless coverage of the rise in U.S. oil production in the last few years has led some to declare that OPEC's power in the oil market is now becoming irrelevant as America supposedly moves toward energy independence. This coverage, however, has obscured the fact that almost all of that rise in production has come in the form of high-cost tight oil found in deep shale deposits. The rather silly assumption was that oil prices would continue to hover above $100 per barrel indefinitely, making the exploitation of that tight oil profitable indefinitely. Anyone who understood the economics of this type of production and the dynamics of the oil market knew better. And now, the overhyped narrative of American oil self-sufficiency is about to take a big hit. After weeks of speculation about the true motives behind OPEC's decision to maintain production in the face of declining world demand--which has led to a major slump in oil prices--the oil cartel explicitly stated at its most recent meeting that it is trying to destroy U.S. tight oil production by making it unprofitable. One of the things a cartel can do--if it controls enough market share--is destroy competition through a price war. Somehow the public and policymakers got fixated on OPEC's ability to restrict production in order to raise prices and forgot about its ability to flood the world market with oil and not just stabilize prices, but cause them to crash. The industry claims that most U.S. tight oil plays are profitable below $80. And, drillers say they are driving production costs down and can weather lower prices. OPEC's move will now test these statements. The current American benchmark futures price of about $65 per barrel suggests that OPEC took into consideration the breakeven points cited in the linked article above.
OilPrice Intelligence Report: How Badly Has OPEC Bungled?: Saudi Arabia did it. After stonewalling for weeks, all attention is on the House of Saud and its refusal to let OPEC cut production, even by a modest 2 million barrels a day. The immediate impact of this decision was felt with WTI falling to $65.99, its lowest point in over four years, while Brent settled at $70.07 after a near $7.67 drop. That Saudi Arabia thought this to be “a great decision” shows the defiance of the former top global oil producer when confronted with a new energy world order. The news also handed out a battering to oil stocks, with Premier Oil falling by 7%, with Statoil, Total and Shell all down around 4%. Despite this immediate impact, Western powers quickly moved to dispel concern about the impact of this decision on their economies. Canadian Finance Minister Joe Oliver stated that Canada had not counted on an OPEC deal, saying that “when we took into account the oil price decline…we made the assumption that the prices would stay at the low level for the entire period.” Tellingly, far more ink has been poured on whether OPEC has made a severe miscalculation and what this could cost them. USA Today quotes experts as saying that “every time OPEC fails to act it becomes even less relevant.” Seeking Alpha goes one step further, examining in detail how this could lead to OPEC’s breakup, especially with many of its poorer members aghast at the decision and Venezuelan Oil Minister Rafael Ramirez storming out of the conference once the verdict was final. The reasons for such a breakup are numerous. Congress is growing closer to lifting a ban, with a hearing set for December 11 in the House. Russia needs high oil prices to stay financially stable, especially with economic troubles and political sanctions costing well over $100 billion a year. The shift in production power to the U.S., allied with the likes of Canada, Mexico and Brazil, has exposed the deep divisions between OPEC members that were once papered over in the name of joint economic prosperity. If the shale boom truly makes the U.S. energy independent and the oil export ban is lifted, certain OPEC members may shift their allegiance.
Saudis risk playing with fire in shale-price showdown as crude crashes - Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals. Caliphate leader Abu Bakr al-Baghdadi has already opened a “second front” in North Africa, targeting Algeria and Libya – two states that live off energy exports – as well as Egypt and the Sahel as far as northern Nigeria. “The resilience of US shale may prove greater than the resilience of Opec,” said Alistair Newton, head of political risk at Nomura. Chris Skrebowski, former editor of Petroleum Review, said the Saudis want to cut the annual growth rate of US shale output from 1m barrels per day (bpd) to 500,000 bpd to bring the market closer to balance. “They want to unnerve the shale oil model and undermine financial confidence, but they won’t stop the growth altogether,” he said. There is no question that the US has entirely changed the global energy landscape and poses an existential threat to Opec. America has cut its net oil imports by 8.7m bpd since 2006, equal to the combined oil exports of Saudi Arabia and Nigeria. The country had a trade deficit of $354bn in oil and gas as recently as 2011. Citigroup said this will return to balance by 2018, one of the most extraordinary turnarounds in modern economic history. “When it comes to crude and other hydrocarbons, the US is bursting at the seams,” said Edward Morse, Citigroup’s commodities chief. “This situation is unlikely to stop, even if prevailing prices for oil fall significantly. The US should become a net exporter of crude oil and petroleum products combined by 2019, if not 2018.”
Saudi Arabia Declares Oil War on US Fracking, hits Railroads, Tank-Car Makers, Canada, Russia; Sinks Venezuela | Wolf Street: When OPEC announced on Thanksgiving Day that it would maintain oil production at 30 million barrels per day, chaos broke out in the oil market, and the price of oil around the globe spiraled into a terrific plunge. The unity of OPEC, if there ever was such a thing, was in tatters with Saudi oil minister smiling victoriously, and with a steaming Venezuelan oil minister thinking of the turmoil his country is facing After a near 10% dive in two days, WTI is now down 37% since June! While the US fracking boom is the official target, Canada’s tar-sands producers are getting hit the hardest. The process is expensive. Their production is largely land-locked and often has to be transported to distant refiners in Canada and the US by costly oil trains. Yet these high-cost producers are getting the least for their oil: The heavy-oil benchmark Western Canada Select (WCS) traded for $48.40 per barrel on Friday, down over 40% from June, the cheapest oil in the world.Their shares got knocked down in sync: For example, Suncor Energy dropped 9% on Friday, down 27% since June; and Canadian Natural Resources dropped nearly 10% for the day, down 28% since June. The US shale oil revolution is bleeding as well. Shares across the board are getting hit, many of them outright eviscerated. If the word “plunge” occurs a lot, it’s because that’s what these stocks did on Friday.
- Goodrich Petroleum plunged 34% on Friday; down 80% from June.
- Sanchez Energy plunged 29.5% on Friday, down 71% from June.
- Clayton Williams Energy plunged 25.6% on Friday, down 61% from May.
- Callon Petroleum plunged 18.6% on Friday, down 60% from June.
- Laredo Petroleum plunged 33.5% on Friday, down 66.5% from June.
- Oasis Petroleum plunged 27.2% on Friday, down 68% from July.
- Stone Energy plunged 24.1% on Friday, down 68% from April.
- Triangle Petroleum plunged 25.6% on Friday, down 62% from June.
- EP Energy plunged 25.3% on Friday, down 54% from June.
The list goes on. Even large oil companies got clobbered:
Leniency expected from oil lenders - Heavily indebted US shale companies are facing financial pressure as a result of the fall in the price of oil but may find their lenders are inclined to “go easy” on them, according to Fitch, the rating agency. The 40 per cent fall in crude prices since June has raised fears that liquidity could dry up for companies with the greatest debt burdens. However, Fitch argues that, as in the previous oil price crash of 2008-09, banks are likely to show forbearance rather than pushing many companies towards restructuring or bankruptcy. “We still think there’s going to be a continued flow of credit,” said Mark Sadeghian of Fitch. “Are the banks going to be the ones that push companies to the wall? We don’t think so.”* The US shale oil boom of the past five years has been led by small and midsized companies, which have generally spent more on drilling wells than they have earned in cash from operations, meaning that they have needed to finance themselves externally, typically with debt. High-yield bond issuance by exploration and production companies increased from $2.5bn in 2003 to $27.7bn so far in 2014, according to Dealogic. The average net debt of the leading US oil and gas exploration and production companies rose from $981m in 2005 to $2.46bn last year, according to Bloomberg data. Bank lending to smaller oil companies is usually linked to a borrowing base representing the value of the company’s oil and gas reserves. When the price of oil drops, the value of those assets also falls, meaning that companies’ borrowing limits will be constrained.
Shale pioneer sees less drilling after losing $12 billion: — Billionaire wildcatter Harold Hamm, a founding father of the U.S. shale boom whose personal fortune has fallen by more than half in the past three months, said U.S. drilling will slow as producers cut back amid falling oil prices. Declining activity from Texas to North Dakota won't be as harmful to the industry as some have feared, the chairman and chief executive officer of Continental Resources Inc. said. OPEC's refusal to curb output last week bodes well for U.S. producers that can outlast countries in the cartel, which depend on higher oil prices. "Will this industry slow down? Certainly," Hamm said Monday in a telephone interview. "Nobody's going to go out there and drill areas, exploration areas and other areas, at a loss. They'll pull back and won't drill it until the price recovers. That's the way it ought to be." Investors have been spooked as oil has declined to a five- year low. The downturn comes after prices above $100 a barrel sparked a boom in output from U.S. shale formations that helped create a glut of supply. Hamm's wealth, which is largely tied to the fate of Oklahoma City-based Continental, has fallen by more than $12 billion in three months, according to the Bloomberg Billionaires Index.
Founding Father of Fracking Boom Is Crying the Blues -- The price of a barrel of oil has been dropping steadily due to decreasing demand and a glut of oil on the market, thanks in large part to the fracking boom in the U.S. Last week, the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, announced it wasn’t going to cut back on production. The announcement sent prices down to less than $70 a barrel, creating financial worries for some banks and a billionaire whose wealth depends upon the success of fracking. Billionaire oilman Harold Hamm, referred to by Bloomberg as “the founding father of the U.S. shale boom” who helped drive the discovery and development of North Dakota’s oil-heavy Bakken shale formation, lost half his fortune in the last three months, the publication reports. “Will this industry slow down? Certainly,” Hamm told Bloomberg. “Nobody’s going to go out there and drill areas, exploration areas and other areas, at a loss. They’ll pull back and won’t drill it until the price recovers. That’s the way it ought to be..” Oil prices of more than $100 a barrel were a large driver of fracking exploration. But as prices drop, fracking for oil in areas such as the Bakken could become unprofitable. But Hamm believes the price will rebound. He claims that his company, Oklahoma-based Continental Resources, can make a profit at $50 a barrel and plans to boost output next year. “Hamm declined to say how those plans may change if prices fall further,” Bloomberg reported, adding “In the most profitable areas of the Bakken, producers can turn a profit on average with oil prices above $65.03 a barrel, according to Bloomberg New Energy Finance.”
The new oil price war - (Blog Review) What’s at stake: Opec’s decision to leave its output ceiling of 30m barrels a day unchanged on Thursday has sent crude prices into a tailspin. Under normal conditions, falling oil prices would be a favorable macroeconomic development, but under current circumstances this is making the job harder for central bankers who struggle to deliver on their inflation targets. Wonkblog writes that there's one short-term reason and three longer-term reasons for this slump. The meeting was the most important in years, because it came amid a pre-existing slump in prices. Everybody wanted to know if OPEC would take any action to halt the decline. It didn't -- presumably because its members decided it was wiser to weather the current storm -- and crude oil prices immediately tanked. Brad Plumer writes that up until very recently that US oil boom — along with increases in Canada and Russia — had a fairly minimal effect on global prices. That's because, at the exact same time, geopolitical conflicts were flaring up in key oil regions. There was a civil war in Libya. Iraq was a mess. The US and Europe slapped oil sanctions on Iran and pinched that country's exports. Those conflicts took more than 3 million barrels per day off the market. James Hamilton writes that the current surplus of oil was brought about primarily by the success of unconventional oil production in North America, most new investments in which are not sustainable at current prices. Without that production, the price of oil could not remain at current levels. It’s just a matter of how long it takes for the high-cost North American producers to cut back in response to current incentives. And when they do, the price has to go back up.
Shale oil: In a bind | The Economist: That energy revolution is the envy of the business world. Abundant oil and gas have been extracted from underground rocks by blasting them with a mixture of water, chemicals and sand—“fracking”, in the jargon. As well as festive spirit, the firms responsible embody an all-American formula of maverick engineers, bold entrepreneurs and risk-hungry capital markets that no country can match. Yet now that oil prices have fallen by almost 40% in six months, these firms’ mettle is being tested. Across America shale-shocked executives will spend Christmas overhauling their strategies to cope with life at $70 per barrel, even as investors dump their firms’ shares and bonds. Executives at Lukoil, a big Russian firm, now sniff that shale is like the dotcom bubble—a mania that is being cruelly exposed. Oil-price slumps usually lead to cuts in energy firms’ investments. Production eventually falls, helping prices to stabilise. In 1999, after the Asian crisis, global investment in oil and gas production dropped by 20%. A decade later, after the financial crisis, investment fell by 10%, then recovered. This time some of the pain will be taken by the big integrated energy firms, such as Exxon Mobil and Shell. After a decade of throwing shareholders’ cash at prospects in the Arctic and deep tropical waters to little effect, they began cutting budgets in 2013. Long-term projects equivalent to about 3% of global output have been deferred or cancelled, says Oswald Clint of Sanford C. Bernstein, a research firm. Most “majors” assume an oil price of $80 when making plans, so deeper cuts are likely. ...other articles in this Economist series:
- In a bind
- Making the best of a low price
- A premium for risk
- Take your pick
- Trading places
- Power cut
- Strange bedfellows
- The power of self-belief
- Last hurrah
- Poor behaviour
U.S. rig count grows despite oil price slump: The boom in U.S. oil production will live to see another week. The nation’s crude explorers, engaged in a pricing war with the world’s largest suppliers, defied predictions of a drilling slowdown and ran the most rigs since mid-November, boosting the U.S. count by three to 1,575, Baker Hughes Inc. said on its website today. Rigs drilling for natural gas were unchanged at 344, the Houston-based field services company’s website showed. The number of U.S. oil rigs has fallen from the 2014 peak of 1,609 amid a global surplus of crude that has dragged prices down by more than $45 a barrel and threatens to slow the nation’s unprecedented shale boom. OPEC decided last week to m aintain production, placing more strain on U.S. oil producers that have some of the world’s highest drilling costs.“There’s just so much momentum built up in the system right now and a lot of projects have already been funded,” Kurt Hallead, co-head of RBC Capital Markets’ global energy research team, said by telephone from Austin, Texas. “There are some projects that will continue on into the next quarter. Right now, you’re seeing the smoke, and you won’t really see the fire until about the second quarter.”
OPEC’s War Won’t Be All Over by Christmas -- Like invasions of Russia and land battles in Asia, a war on U.S. shale promises to be a protracted and unpredictable campaign. Rising U.S. shale oil output is one target of Saudi Arabia’s push to have OPEC members maintain their output and so depress oil prices. Even leaving aside OPEC’s clutch of internal divisions, though, fighting U.S. shale will prove a grind—with substantial attrition on the cartel’s side. Part of OPEC’s problem is that U.S. shale is a many-headed beast, with multiple resource basins and operators. So there isn’t a single price below which production gets shut down. Rather, estimates of break-even prices in U.S. shale span a range: Citigroup , for one, estimates this to be around $70 to $90 a barrel using full-cycle costs. “Full-cycle costs” is the crucial phrase, as it incorporates big up front charges such as acquiring land. In core shale regions where land and infrastructure is already locked up, the cost to keep drilling could be as low as $40, Citi estimates. Benchmark U.S. crude now trades at about $68. Look at oil’s last big collapse, from almost $150 to less than $40 a barrel between the summer of 2008 and early 2009 amid the financial crisis: The number of oil rigs operating in the U.S. dropped by more than half. Yet production, on a trailing 12-months basis, merely dipped from about 5.1 million barrels a day to 5 million—before starting the surge toward the current level of about 8.5 million. Similarly, while the U.S. rig count collapsed by 85% between 1981 and 1986, output didn’t start falling sustainably until February 1986. Oil’s sudden slide will cause growth in U.S. oil output to slow, but stopping it altogether would take a protracted period of low prices, at least through the end of next year. Even then, the techniques and discoveries already made would simply pass to another set of players—most likely oil majors scooping up distressed exploration and production firms.
This is oil's ‘Minsky moment’: Strategist: Marc Chandler says the energy sector has just suffered its own Minsky moment. And while he doesn't expect it to take down the stock market, the slide in oil could have a serious impact on the high-yield bond market. Minsky moment is a term coined by Pimco economist Paul McCulley in 1998, and it refers to a point when a period of rapid growth and risk-taking leads to a sudden turn lower and a crisis. Chandler, global head of markets strategy at Brown Brothers Harriman, says that is precisely what is happening in crude oil. "Many people a couple years ago, a year ago, were saying that oil prices could only go up—'we're in peak oil'—meaning that we're running out of the stuff. So a lot of things were leveraged based on oil prices that can only go up. Sort of like house prices—'they can only go up.' So what happened is, because people held this as a deep conviction, they leveraged up," Chandler said Thursday on CNBC's "Futures Now." In fact, the energy sector has borrowed $90 billion in the high-yield market since 2008, Chandler said, making energy producers "a large component of the high-yield market itself." The problem is that "a lot of the loans, like loans on houses, were made not so much on a person's ability to repay the loan as on the value of the house. Similarly, the banks and investors bought high-yield bonds or leveraged loans on the energy sector not on the basis of their ability to repay it, but on the value of the oil in the ground."
Oil Can Keep Crashing: Just a month or two back, commentators were speculating that Saudi Arabia’s aggressive stance on output and offers of discounts to secure sales were seen as forms of covert economic war against Iran in particular, but against other non-allies such as Russia as well. Saudi Arabia, it was said, is fighting for its market share and, in the process, is quite pleased if it’s causing a little pain in some quarters. However, the failure of OPEC to agree to any cutbacks to shore up falling prices at this week’s meeting in Vienna has been widely reported as an attempt by the cartel to squeeze all low-cost producers out of the market, including and, maybe specifically, US shale or tight oil suppliers. Related: Could Falling Oil Prices Spark A Financial Crisis? If the intention is to put current operators out of business, it’s unlikely to succeed an FT article says. Production costs vary, but Jason Bordoff of Columbia University is quoted as saying many facilities producing oil from Texas’s Eagle Ford and Permian strata would remain viable at $40-$50 per barrel and although production from the Bakken Formation of North Dakota and Montana would be more affected than Texas shale output, the impact was likely to be more on private equity investors’ willingness to get into new projects than existing operations. The refusal of the Keystone XL green light may be seen in years to come as a wise decision. A prolonged period of lower prices and rising carbon taxes could make further development of oil sands doubtful. Likewise, exploration in high-cost regions such as the Arctic and in deepwater such as offshore Brazil will be very challenged to move forward in the second half of this decade if prices don’t recover soon.
Here Is Oil's Next Leg Down -News reports about developments in the oil markets are coming fast and furious, and none of them indicate any stabilization, let alone rise, in oil prices. Quite the contrary. There are very large amounts of extra barrels flowing into the market, which is just, as one analyst puts it “even more oil flooding the market that nobody needs.” Saudi Arabia looks set to battle for sheer market share, even if it sends strangely contradictory messages. While the US shale industry aggressively tries to convey an attitude based on confidence and breakeven prices that suddenly are claimed to be much lower than what seemed common knowledge until recently. Bloomberg says today that most shale is profitable even at $25 a barrel, and we might want some independent confirmation and/or analysis of that. Just hearing the industry claim it seems a bit flimsy; they have plenty reasons to paint the picture as rosy as they can get away with. Last night, the Wall Street Journal reported on a Saudi price cut for the US, and a simultaneous price hike for Asia. Saudi Price Cut Upends Oil Market Oil prices tumbled to their lowest point in more than two years after Saudi Arabia unexpectedly cut prices for crude sold to the U.S., likely paving the way for further declines and adding to pressure on American energy producers. The decision by the world’s largest oil exporter sent the Dow industrials into negative territory for the day amid concerns about the pace of global growth. The move heightened worries over the resilience of the U.S. oil industry, which has expanded rapidly in recent years.
US shale lenders caught in energy sell-off - FT.com: The share prices of US banks based in the shale oil heartlands of America nosedived late last week after Opec’s decision to keep its current production rates sparked another steep fall in the price of crude. BOK Financial, headquartered in Tulsa, Oklahoma, dropped as much as 4.4 per cent on Friday, while Cullen Frost, the biggest Texas-based bank, fell as much as 4.3 per cent. Louisiana-based MidSouth Bancorp declined 5.2 per cent while Dallas, Texas-based ViewPoint Financial fell as much as 7.45 per cent. According to estimates from bank analysts at Raymond James, MidSouth has one of the highest proportions of energy loans among midsized US banks at 20 per cent of its total institutional loan book, followed by BOK with 18.6 per cent and Cullen Frost with 14.9 per cent. The sell-off in bank stocks and the drop in oil prices, which have fallen by more than a third since June, left many analysts mulling the outlook for smaller and midsized lenders in the epicentres of the recent US shale boom. Massive investment by oil drillers and exploration companies in US energy and shale gas projects in recent years has been partly financed through cheap borrowing in the capital markets as well as loans from banks. For smaller banks, which have relied on so-called commercial and industrial lending to boost profit margins in recent years, the concern is that a steep fall in the price of crude could take away one of their strongest revenue generators. At an extreme, trouble in the shale industry could spark a wave of debt restructurings and even losses on banks’ energy-related loan portfolios.
Oil, Gold And Now Stocks? - Is the Plunge Protection Team really buying oil now? That would be so funny. Out of the blue, up almost 5%? Or was it the Chinese doing some heavy lifting stockpiling for their fading industrial base? Let’s get to business. First, in the next episode of Kids Say The Darndest Thing, we have New York Fed head (rhymes with methhead) Bill Dudley. Dudley’s overall message is that the US economy is doing great, but it’s not actually doing great, and therefore a rate hike would be too early. Or something. Bloomberg has the prepared text of a speech he held today, and it’s hilarious. Look: Fed’s Dudley Says Oil Price Decline Will Strengthen US Recovery The sharp drop in oil prices will help boost consumer spending and underpin an economy that still requires patience before interest rates are increased, Federal Reserve Bank of New York President William C. Dudley said. “It is still premature to begin to raise interest rates,” Dudley said in the prepared text of a speech today at Bernard M. Baruch College in New York. “When interest rates are at the zero lower bound, the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late.” Dudley expressed confidence that, although the U.S. economic recovery has shown signs in recent years of accelerating, only to slow again, “the likelihood of another disappointment has lessened.” How is this possible? ‘The sharp drop in oil prices will help boost consumer spending’? I don’t understand that: Dudley is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost? Lower energy costs “will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending,” Dudley said. The drop will especially help lower-income households, who are more likely to spend and not save the extra real income, he said. Extra income? Real extra income, as opposed to unreal? How silly are we planning to make it, sir? Never mind, the fun thing is that Dudley defeats his own point. By saying that lower-income households are more likely to spend and not save the ‘extra real income’, he also says that others won’t spend it, and that of course means that the net effect on consumer spending will be down, not up.
Oil Market Remarks by Spencer as Taken from Comments - Lifted from comments from this post, Angry Bear Spencer England further explains oil and markets: Oil production is an unusual business in that virtually all of the cost of getting crude to the refiner is fixed costs while variable cost or current spending is insignificant. Economic theory shows that as long as a producers are covering their variable cost, even if they are losing money, it pays to continue production. Thus, what you hear from so many economists and analysts that lower prices will lead to lower output and so balance supply and demand is not quite true. Consequently, lower oil prices will only leads to oil firms not undertaking new drilling. So only with a long lag will lower prices lead to lower output. Currently, the marginal supply of oil is oil from fracking. At $70 to $80 dollar oil about half of the current supply of fracked oil is unprofitable to bring to market. But oil from wells already drilled will continue to flow. But next year oil drilling will collapse and with a short lag that will lead to a sharp drop in US oil production. Traditional oil, or non-fracked oil has been falling about 5% annually already. Moreover, fracked oil wells have a relatively short life span — on average maybe about three years. To offset these natural rates of decline in US oil output new fracking has to grow sufficiently to offset these two factors. So in 2015 when new drilling for fracked wells fall sharply most people will be surprised to finally see US oil output drop sharply. Interestingly, the optimal pricing strategy for an oligopolist like Saudi Arabia is to set the price just below the price that will allow major new sources of oil come to market. Over the years Saudi has not done a very good job of following this strategy, but it sure looks like that is what they are trying to do now.
Low Oil Prices Are History’s Greatest Case of Market Failure - Remember "Peak Oil?" The world was running out of oil, we were told: Prices would soon skyrocket, and we had better find other fuels. Well, that argument didn't work out so well for environmentalists, did it? As oil reserves and those of other carbon fuels became scarce and prices rose, the law of supply and demand kicked in. The industry invested the profits from those higher prices in new technologies, and the oil barons found even more destructive ways to extract oil and gas—by exploiting the muck from tar sands, inventing hydro-fracking, and despoiling sources in developing countries. So now, oil is cheaper than it's been in years, about $66 a barrel. Regular unleaded gasoline can be had for well under $3 a gallon. One of the few things sustaining U.S. consumer purchasing power in the face of dismal wages is close to $100 billion saved in energy costs. OPEC's pricing power has been broken, and the United States is about to surpass Saudi Arabia as the world's largest oil producer. Whoopee, energy self-sufficiency! Take that, enviro-pessimists. The fact is that markets price energy wrongly. They price oil and gas based on current demand and supply, and not based on the costs to the planet in pollution, global climate change, sea level rise, and more. This is, as Lord Nicholas Stern famously put it, history's greatest case of market failure.
'We Are Entering A New Oil Normal" -- The precipitous decline in the price of oil is perhaps one of the most bearish macro developments this year. We believe we are entering a “new oil normal,” where oil prices stay lower for longer. While we highlighted the risk of a near-term decline in the oil price in our July newsletter, we failed to adjust our portfolio sufficiently to reflect such a scenario. This month we identify the major implications of our revised energy thesis. The reason oil prices started sliding in June can be explained by record growth in US production, sputtering demand from Europe and China, and an unwind of the Middle East geopolitical risk premium. The world oil market, which consumes 92 million barrels a day, currently has one million barrels more than it needs.... Large energy companies are sitting on a great deal of cash which cushions the blow from a weak pricing environment in the short-term. It is still important to keep in mind, however, that most big oil projects have been planned around the notion that oil would stay above $100, which no longer seems likely.
Junk Bonds Funding Shale Boom Face $8.5 Billion of Losses -- Bond investors who helped finance America’s shale boom are facing potential losses of $11.6 billion as oil prices plummet by the most since the credit crisis.The $90 billion of debt issued by junk-rated energy producers in the past three years has fallen almost 13 percent since crude oil peaked in June. Halcon Resources Corp. (HK), SandRidge Energy Inc. and Goodrich Petroleum Corp. have been among the hardest hit as OPEC’s refusal to ease a supply glut pushed prices to a five-year low of $66.15 a barrel last week.The oil selloff is deepening concern among bond investors that the least-creditworthy oil explorers will struggle to pay their obligations and prompt bankers to rein in credit lines as revenue slumps. Halcon, SandRidge and Goodrich are among about 21 borrowers operating in the costliest U.S. shale-producing regions that will be unprofitable if crude oil falls below $60 a barrel, according to data compiled by Bloomberg. “We are concerned that there will be defaults and that was even before oil fell as much as it has,” Ivan Rudolph-Shabinsky, a New York-based money manager at Alliance Bernstein Holding LP, said in a telephone interview. “There was too much money going into this space that would have resulted in problems long term -- now that timeline has been accelerated.”
Energy Bond Crash Contagion Suggests Oil Will Stay Lower For Longer -- When we first explained to the public here, that the excessive leverage and currently squeezed cashflow of many US oil producers could "trigger a broader high-yield market default cycle," the world's smartest TV-anchors shrugged off lower oil prices as 'unequivocally good' for all. Now, as a 40% collapse in new well permits and liquidations occurring at the well-head, the world outside of credit markets is starting to comprehend the seriousness of the crash of a sector that was responsible for 93% of jobs created in this 'recovery'. The credit risk of HY energy corporates has more than doubled to a record 815bps (over risk-free-rates) crushing any hopes of cheap funding/rolling debt loads. Suddenly expectations of 1/3rd of energy firms restructuring is not so crazy...
Oil falls to 5-year low, hit by dollar, Saudi price cut - Crude-oil prices fell hard again Friday, with the U.S. benchmark settling at its lowest level in more than five years. Oil briefly erased some losses after a stronger-than-expected U.S. jobs report, but then it slumped to trade at its lowest level since mid-2009, weighed down in part by a rallying dollar. A stronger buck often hurts commodities that trade in dollars, since that makes them more expensive for holders of other currencies. “The jobs report was great, but along with that came a further strengthening of the dollar, and the oil market has generally been prioritizing the dollar strength over economic strength,” said Jim Ritterbusch, president of oil-trading advisory firm Ritterbusch & Associates. Crude also was pressured by Saudi Arabia cutting January prices for U.S. and Asian buyers. On the New York Mercantile Exchange, crude futures for delivery in January CLF5, -1.77% dropped by 97 cents, or 1.5%, to settle at $65.84 a barrel, marking the lowest settlement for a front-month contract since July 29, 2009. The U.S. benchmark endured a weekly loss of 0.5% after being up for the week earlier Friday. Meanwhile, January Brent crude on London’s ICE Futures exchange slumped 57 cents, or 0.8%, to $69.07 a barrel. This represented a 1.5% loss for the week and the lowest settlement since Oct. 7, 2009.
Saudi Arabia Sees Oil Prices Stabilizing Around $60 a Barrel - WSJ: OPEC’s biggest oil producer, Saudi Arabia, now believes oil prices could stabilize at around $60 a barrel, a level both it and other Gulf producers believe they could withstand, according to people familiar with the situation. The shift in Saudi thinking suggests the de facto leader of the Organization of the Petroleum Exporting Countries won’t push for supply cuts in the near-term, even if oil prices fall further. Brent crude dropped 62 cents a barrel to $69.92 on Wednesday. The change in Saudi mind-set also suggests OPEC members may have to adapt swiftly to shifts in the oil market caused by a surge in supply from the U.S. shale revolution and slowing global demand growth. As recently as early November, OPEC officials were talking about $70 a barrel as the sustained level at which there would be “panic” within its ranks.
Extreme oil bears bet on $40 crude - FT.com: The oil market rout has made some investors so bearish they are buying contracts that pay out if prices drop below $40 a barrel — a level last traded during the bleakest chapters of the financial crisis. Extreme market scenarios are playing out in put options for crude, which give holders the right to sell oil above a set price by a certain date. The number of options to sell US crude at $40 a barrel by December 2015 was equivalent to 880,000 barrels, after more than quadrupling in the past two weeks, according to CME Group exchange data. Similar options with a $35 a barrel strike price climbed to 669,000 barrels from none. The option buying took place as West Texas Intermediate crude tumbled almost 40 per cent from its June high to hit $66.74 a barrel on Thursday, hastened by Opec’s recent decision to stay the course on supply. “It’s a punt, a shot at the worst-case scenario for the oil price,” said Raymond Carbone, president of broker Paramount Options in New York. “You’re a genius if you’re right. And if you’re wrong, it won’t ruin your lifestyle.” US benchmark WTI futures last settled below $40 a barrel in February 2009.
Oil price increases and decreases seem to have asymmetric effects - From an interesting 2003 review article by Jones, Leiby, and Paik (pdf): The energy economics literature has noted the asymmetric responses of petroleum product prices to price changes for well over a decade, as observed by Balke, Brown, and Yücel (1998) in a review of previous studies. Product prices rise more quickly in response to crude price increases than they decline in response to crude price reductions. Using weekly data on crude prices and a variety of spot and whole gasoline prices, BBY (1998) find considerable support for asymmetry in the time pattern of downstream price changes to changes in upstream prices, although they find that different specifications of asymmetry yield different results. Applied to the crude-product relationship, asymmetry has a different meaning than it does in the oil price-GDP relationship. In the crude-product relationship, the asymmetry is in the speed of the response, while in the oil price-GDP relationship, it is in the magnitude of the response. Competition will ensure that the magnitudes of the response of product prices to crude price changes are eventually equal. Otherwise profits in refining and distribution would grow without bound. Here is a JSTOR link to a somewhat later Balke, Brown, and Yücel paper. Here is their 2008 paper (pdf) on why the oil price/gdp link has weakened in the United States. Here is a related 2010 paper (pdf). Here is a recent James Hamilton blog post on oil gluts. Here is Scott: “Focus on Q, not P.”
Falling oil prices have no implications for global growth. Oil production does -- Rising oil production is likely to lead to faster global growth. Falling oil production is likely to lead to slower global growth. That's because oil is an important input into the production process. However falling oil prices have no implications for global growth---it merely redistributes global wealth. That's why estimates of US RGDP growth next year at $66/barrel are not much different from what people were estimating at $100/barrel. Global oil output hasn't changed very much. Might falling oil prices affect AD? Not with monetary offset--the Fed will simply adjust the date at which they start raising rates.
Oil at $40 Possible as Market Transforms Caracas to Iran - Oil’s decline is proving to be the worst since the collapse of the financial system in 2008 and threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and the end of the Soviet Union. Russia, the world’s largest producer, can no longer rely on the same oil revenues to rescue an economy suffering from European and U.S. sanctions. Iran, also reeling from similar sanctions, will need to reduce subsidies that have partly insulated its growing population. Nigeria, fighting an Islamic insurgency, and Venezuela, crippled by failing political and economic policies, also rank among the biggest losers from the decision by the Organization of Petroleum Exporting Countries last week to let the force of the market determine what some experts say will be the first free-fall in decades. “This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” Daniel Yergin, author of a Pulitzer Prize-winning history of oil, told Bloomberg Radio. “There’s a change in psychology. There’s going to be a higher degree of uncertainty.” A world already unsettled by Russian-inspired insurrection in Ukraine to the onslaught of Islamic State in the Middle East is about be roiled further as crude prices plunge. Global energy markets have been upended by an unprecedented North American oil boom brought on by hydraulic fracturing, the process of blasting shale rocks to release oil and gas. Few expected the extent or speed of the U.S. oil resurgence. As wildcatters unlocked new energy supplies, some oil exporters abroad failed to invest in diversifying their economies. Coddled by years of $100 crude, governments instead spent that windfall subsidizing everything from 5 cents-per-gallon gasoline to cheap housing that kept a growing population of underemployed citizens content. Those handouts are now at risk. “If the governments aren’t able to spend to keep the kids off the streets they will go back to the streets, and we could start to see political disruption and upheaval,”
Collapse Of Oil Prices Leads World Economy Into Trouble --OPEC, the largest crude-oil cartel in the world, wanted others to feel its pain as oil prices collapsed. “OPEC wanted … to cut off production … and they wanted other non-OPEC [countries], especially in the US and Canada, to feel the pinch they are feeling,” says Abhishek Deshpande, lead oil analyst at Natixis. But in its rush to influence others, OPEC ended up hurting everyone in the process – including itself. Low oil prices, pushed down further by OPEC’s meeting last week,have impacted world economies, energy stocks, and several currencies. From the fate of the Russian rouble to Venezuelan deficits to American mutual funds full of Exxon or Chevron stock, OPEC’s decision was the shot heard round the world for troubled commodities. So how low could oil go? Standard Chartered analysts expect “extremely negative for oil prices for 2015”. The bank slashed its 2015 average price forecast for Brent crude oil by $16 a barrel to $85. Other forecasts are lower. Natixis’s Deshpande said their average 2015 Brent forecast is around $74, with WTI around $69. These prices have real-world effects on world economies. Everyone in the sector is smarting. Deshpande said because of how Saudi Arabia uses its oil well to support its entire economy, the country’s budget calls for $90 a barrel to break even, despite that the cost of production is closer to $30. Other OPEC members have even higher budgetary breakevens. Venezuela is a prime example of a country squandering its riches. Citi said for every $10 drop in oil prices Venezuela loses about $7.5bn in revenues.
Global Oil Consumption Report: What Countries Have Increased or Decreased Oil Usage Since 2009? -- Reader David Epperson sent in some interesting charts on global oil usage that he produced from U.S. Energy Information Administration (EIA) data. The data is through the end of 2013. David writes ... I was curious how much oil consumption had declined over the last few years, so I went to the EIA web site, downloaded the consumption data and produced the following charts. The data represents the percentage change in oil consumption from 2009 to 2013, the latest year non-OECD data were available. This is an absolute percentage change, and not an annualized change. For instance, oil consumption in Spain was roughly 20% lower in 2013 than in 2009. This was about the same rate of decline seen in war-wracked Syria. Greece was down even more, close to 30%. In order to make the data labels readable, I’ve had to separate the charts into three. One shows countries in the 1 million to 20 million b/d group. The next shows the 1 million – 4 million club (all large countries excluding the US, China and Japan), and the next shows the 100,000 to 1 million b/d club. I’ve excluded the 141 countries in the EIA database whose consumption was less than 100,000 b/d, since these only account for about 3.5% of total global demand. The sum for the entire world was a 6.5% increase from 2009-13.
Flow of Opec petrodollars set to dry up - FT.com: The flow of Opec petrodollars into global financial markets is set to dry up as the collapse in the oil price delivers a $316bn hit to the cartel’s revenues. Big oil producers have pumped the windfall they enjoyed from soaring oil prices over the last decade into a huge range of global assets, from US Treasuries and high-grade corporate bonds to equities and real estate. Qatar, for example, bought the Harrods department store and Paris Saint-Germain, France’s top football club, while Abu Dhabi’s sovereign wealth fund bought a stake in the glitzy Time Warner building in New York. The flow of petrodollars into the global financial system boosted liquidity, spurred asset prices and helped to keep borrowing costs down. But the 40 per cent fall in Brent crude since mid-June will reverse this trend, as the shrinkage of the oil producers’ cash pile removes a pillar of support for global markets. “This is the first time in 20 years that Opec nations will be sucking liquidity out of the market rather than adding to it through investments,” David Spegel, global head of emerging market sovereign and corporate research at BNP Paribas. BNP estimates that if oil production remains at its current level and oil prices stay at about $70 a barrel for the next year, Opec nations will receive $316bn less in oil export revenues than if oil prices were at their three-year average of $105.