Sunday, December 21, 2014

on the New York fracking ban and other oil & gas news

it should go without saying that the major story in the fracking patch this week was the ban on fracking instituted by the State of New York...for New Yorkers, the new ban does not change the status quo; the state has had a moratorium on fracking since 2008, so no fracking had yet taken place in the state, although many New York landowners had already signed leases with gas companies...all this does for New York is make the moratorium somewhat permanent, and give the reasons why - that fracking operations have an unhealthy and deleterious effect on neighboring soil, water and air - all of which is backed up by a 184-page report from the New York State Department of Health....

much like the eastern third of Ohio sits atop the Utica and Marcellus shales, the southern tier of western New York state sits on the same formations, which in many cases are much shallower and more accessible than in Ohio (both the Utica and Marcellus shales are named for NY towns where those formations show outcroppings at the surface) fracking in New York could have been at least as economically viable as it has been in Ohio...and while the ban is unequivocally good news, especially for those who've fought fracking for so long in New York, it's hard for me to adequately emphasize how big this decision was in the fight against fracking nationally....watching the news feeds this week, variations on the headline that fracking was banned in New York was carried by thousands of small town newspaper sites, even in states where there are no shale deposits, so people who'd never read anything about fracking saw the headline in their local news that this new means of drilling for oil & gas is dangerous to our health and has been banned....up until now, most of the fracking bans have been passed in left leaning college towns, easy for the industry to dismiss as fringe communities that are out of touch...this ban, by a major state government, is backed up by dozens of epidemiological health studies, which we can now all cite as a undeniably reputable source when debating these issues ...

oil prices started the week down a bit from last weekend but stayed in a narrow range around $56 or $57 a barrel in the early part of the week before falling close to $54 / brl on Thursday, and then jumping to above $58 late Friday afternoon...however, that late Friday price was impacted by wall street's "triple witching" hour, the once in a quarter event that occurs when the contracts for all current index futures, index future options and stock options expire simultaneously, which means the volatile price changes at that time were likely driven by speculators closing out their long held of this writing late Saturday, the new contracts for January oil are at $57.13 a barrel, down from $57.81 last week....natural gas prices, on the other hand, closed last Friday at $3.91 mmBTU, then started this week at $3.72, and continued to trend down to finally fall 20c more on Friday to close the week at $3.46...thus they were below the average Pennsylvania break even price of $3.73 mmBTU all week…we’ll include a graph for natural gas prices over the last month below, so you can see how they have also crashed this month, from above $4.60 mmBTU on November 20th, to their weekend pricing at $3.46 mmBTU...if prices such as these hold, it should make all but the most sweet spots in Marcellus unprofitable... 

natural gas 12-20-2014 (note: the green and red bars indicate trading volume on up and down days respectively)

the weekly count of active drilling rigs from Baker Hughes indicated another drop of 18 rigs to 1875, after falling by 29 rigs last week...analysts are expecting that as many as 550 more drilling rigs will be taken out of service in the US over the next few months if oil prices hold in the present range...overseas, there are similar cutbacks in in the wings: Petrobras, Brazil's national oil company and the biggest oil driller in ultra-deep waters, plans to freeze investments in refining and exploration and to sell assets to protect its cash position, while according to analysts of British resources, at least 85 percent of the North Sea oil and gas projects now in the planning stages are at risk of being dropped at current prices...

in other news, the largest oil-export pipeline to the United States, the 796,000 barrel-a-day Enbridge Line 4, that feeds tar sands oil into the US through the cobbled together pipeline routes often referred to as the "Keystone XL clone", sprung a leak in a Regina, Saskatchewan pumping station valve and leaked 75,000 gallons of crude, supposedly contained on Enbridge property, and thereby necessitated a shutoff of oil exports to the US....Enbridge did not say if the pipeline in question was carrying dilbit from the tar sands at the time or not, but the spill highlights the vulnerability of using old defective pipelines designed for other products for shipping tar sands oil to the US...closer to home, 25 families were forced to flee their homes when a out of control gas leak developed at a Monroe County fracked well that crews could not stop due to excessive pressure...after three days, those families were allowed to return to their homes in daylight hours to fetch belongings, but as of the most recent reports, there's no sign that the leak has been capped...also in Ohio, HB 490. the attempt by the lame duck session of the legislature to roll back the environmental protections in Ohio law, decriminalize polluters, and make it more difficult to get information about the chemicals used by Ohio frackers, died in committee, so that's one small victory in Ohio for those who fought it...

there's a lot in this week's package, loosely organized to start with Ohio's and other states fracking related news, which is then followed by articles and analysis of the impacts of what's happening in the oil markets

Oil industry spokesman gets it wrong about local fracking ban -  The comments by Shawn Bennett in a recent interview published in The Athens NEWS on Dec. 8 seriously misrepresent the problems and dangers that the fracking industry presents to the residents of Athens and neighboring counties. According to Mr. Bennett, Issue 7, which recently passed in the city of Athens by a 78 percent to 22 percent margin, represented an attempt by an out-of-state organization to interfere with local economic development. Nothing could be further from the truth. In fact, Issue 7 was an attempt by local residents to prevent out-of-state industries from polluting our local environment.  By Mr. Bennett's own admission, there are no current plans for deep-shale fracking development in Athens County, because oil and gas extraction is not sufficiently profitable here. What the oil and gas industry is planning to do, however, is to turn Athens and neighboring counties into dumping grounds for fracking waste generated in other states. There are no economic benefits resulting from environmental contamination. The reason that our communities are being targeted for disposal of out-of-state waste is that our state laws allow the oil and gas industry to avoid federal EPA oversight and ignore regulations that they must comply with to dispose of fracking waste in other states. Thus, neighboring states where EPA regulations still apply find it cheaper and easier to send their fracking waste here. Oil and gas companies are protected by current state law from having to reveal the contents of fracking waste, but there is clear evidence that these fluids are highly toxic, containing known carcinogens and contaminated by radioactivity. For example, wastewater from Pennsylvania shale has been found to be "3,609 times more radioactive than a federal safety limit for drinking water.

Environmentalists find serious flaws in Ohio's oversight of fracking waste -- An environmental advocacy group conducted a pretty thorough audit of Ohio’s Class II injection wells — the places where fracking wastewater usually ends up here — and found a bunch of problems, according to the audit, which was released today. Ohio Citizen Action and Ohio Citizen Action Education Fund say that the two governmental agencies that oversee the wells share blame for inadequate oversight, inconsistent inspections, non-enforcement and “even disdain and disrespect of citizens attempting to get answers about oil and gas injection wells in their communities.” A PDF of the audit is here: .  The U.S. Environmental Protection Agency usually has oversight over Class II injection wells, but in Ohio, the state Department of Natural Resources does. The wells are a critical part of the fracking boom here. To frack wells, companies pump thousands of gallons of water mixed with sand and chemicals underground to fracture shale, where oil and gas is hiding. A lot of that water mixture comes back up to the surface, and it can’t go back into the rivers and streams where it came from because it’s been laced with chemicals. In some cases, depending on the shale, the water can also carry some radioactive rocks. That’s where Class II injection wells come in. Drilling companies hire haulers to collect that wastewater and cart it off to the wells, where it’s pumped underground. And while we usually think about fracking being something that happens in the eastern part of the state, Class II injection well are all around us. There’s injection wells in Knox and Licking counties, not too far from Columbus. Problems with these wells, and with the oversight of them, are well documented. The U.S. Government Accountability Office conducted its own review earlier this year and found that federal and state governments don’t do enough to keep drinking water safe near these wells. 

Ohio activist groups pleased by committee death of H.B. 490 - Drilling - Ohio: A coalition of environmental organizations, community organizing groups and concerned citizens including health professionals and first responders mobilized to help defeat HB 490, killing it in the Ohio Senate Agriculture Committee before it could move to the floor for a vote. Mobilized within just three weeks, hundreds of Ohioans expressed their displeasure with the bill, which would have taken chemical information for oil and gas operations out of the hands of local first responders – and placed it in the hands of the Ohio Department of Natural Resources. The coalition opposing the measure included the Buckeye Forest Council, the Center for Health and Environmental Justice, Ohio Citizen Action, Ohio Environmental Council, and Ohio Organizing Collaborative/Communities United for Responsible Energy. Several community members, health professionals and first responders submitted written or oral testimony to the Ohio Senate Agriculture Committee.  HB 490 would have rolled back some important reforms around chemical disclosure. In 2013, after a citizen petition, the United States EPA reaffirmed that, just like every other industry, Ohio oil and gas drillers must report hazardous chemicals used or stored at fracking wells to the State Emergency Response Commission to meet the requirements of the federal Emergency Planning Community Right to Know Act. This ruling reinstated reporting that had stopped 12 years earlier, when oil and gas friendly interests carved out a special exemption for the industry as one of many provisions buried in the 2001 budget bill.

Families flee out-of-control natural-gas leak at eastern Ohio fracking well - Columbus Dispatch: About 25 families in eastern Ohio have been unable to live in their houses for the past three days because of a natural-gas leak at a fracking well that crews cannot stop. Bethany McCorkle, a spokeswoman for the Ohio Department of Natural Resources, the state agency that regulates oil and gas, said crews lost control of the Monroe County well on Saturday. Families were evacuated from about 25 houses within a 1.5-mile radius of the well, located near the Ohio River about 160 miles east of Columbus. The well is not on fire, but the gas could be explosive. “There’s still a steady stream of natural gas coming from the wellhead,” McCorkle said yesterday. The well is operated by Triad Hunter, a Texas company that also has offices in Marietta in southeastern Ohio. The company did not return a call yesterday but said in a statement that the well had been temporarily plugged about a year ago while the company drilled and fracked three more wells on that site. “Despite numerous precautionary measures taken in connection with the temporary plugging and abandonment operation, the well began to flow uncontrollably while recommencing production operations,” the company said. Triad Hunter workers tried to bolt the cap back into place but couldn’t, the statement said.   McCorkle said ODNR is investigating.

25 Families Forced To Flee Their Homes Due To Uncontrolled Gas Leak At Fracking Well - Twenty-five families in eastern Ohio have been unable to return to their homes for the last three days due to a natural gas leak at a nearby fracking well. Households within a 1.5-mile radius of the well were evacuated this week after the well started leaking Saturday. Oil and gas workers weren’t able to control the leak, which is continuing to emit gas into the atmosphere. The well, which is owned by Texas-based company Triad Hunter, had been plugged about a year ago, but started leaking when workers restarted operations on it. “Despite numerous precautionary measures taken in connection with the temporary plugging and abandonment operation, the well began to flow uncontrollably while recommencing production operations,” the company said in a statement. Families have been allowed back into their homes during the day, but haven’t had access to them at night. Bethany McCorkle, spokeswoman for the Ohio Department of Natural Resources, , told the Columbus Dispatch that leaks like this aren’t common.  “This whole situation is uncommon in general,” she said. “A full investigation will give us more information as to what happened, what led up to the incident and why there was so much pressure.”  Right now, the well isn’t on fire, but the gas leak does pose an explosion risk. Earlier this year, a leaking natural gas well owned by Chevron caught fire in Pennsylvania, killing one contract worker. And last year, a gas well off the coast of Louisiana caught fire.  This also isn’t the first time that Ohio residents have been forced to evacuate as a result of a natural gas leak. In October, about 400 households were evacuated after a fracking operation in eastern Ohio began leaking gas. That evacuation didn’t last long, however — the leak began at about 6 p.m. and residents were allowed back into their homes around midnight. Some residents in Morgan County, Ohio were also forced to evacuate in May due to a natural gas and oil leak.

25 homes evacuate an unstoppable gas leak in another Ohio fracking 'incident' - Another day, another toxic spill thanks to fracking: About 25 families in eastern Ohio have been unable to live in their houses for the past three days because of a natural-gas leak at a fracking well that crews cannot stop. Bethany McCorkle, a spokeswoman for the Ohio Department of Natural Resources, the state agency that regulates oil and gas, said crews lost control of the Monroe County well on Saturday. […]   Ohio has had its share of fracking accidents this year. In May, a blowout resulted in an oil spill into an Ohio river tributary. And then this happened the following month: On the morning of June 28, a fire broke out at a Halliburton fracking site in Monroe County, Ohio. As flames engulfed the area, trucks began exploding and thousands of gallons of toxic chemicals spilled into a tributary of the Ohio River, which supplies drinking water for millions of residents. More than 70,000 fish died. In October, a well ruptured in eastern Ohio, spreading natural gas and methane, and resulted in the evacuation of over 400 families. [This] incident was the third in three days tied to fracking operations in eastern Ohio. On Sunday, a worker at a fracking site in Guernsey County was burned in a fire. On Monday, a pipeline carrying natural-gas condensate ruptured in Monroe County, igniting several acres of woods. Explosions resulting in frequent evacuations, leaks into drinking-water supplies, earthquakes—but don’t worry, folks. Fracking is perfectly safe.

Cartwright widens inquiry into fracking waste in Northeast, Midwest - A congressional investigation into the way states regulate the disposal of the often toxic waste generated during the fracking of oil and gas has expanded. Rep. Matthew Cartwright, D-Pa., launched the investigation in October by singling out his home state for the inquiry. Now Cartwright, a member of the House Subcommittee on Economic Growth, Job Creation and Regulatory Affairs, has broadened the probe to include Ohio and West Virginia. Those states generate waste from hydraulic fracturing as well as accepting waste from other states, including Pennsylvania. Cartwright's growing inquiry mirrors the increasing national concern about the disposal of oil and gas waste left over from hydraulic fracturing, or fracking. In letters to the heads of the environmental protection agencies for Ohio and West Virginia, Cartwright said fracking waste can "cause harm to human health and the environment" if not properly handled. Consequently, Cartwright wants the two states to explain how their inspection procedures of oil and gas waste disposal facilities protect human health and the environment.  The representative also is seeking answers to more than a dozen other questions, including the number of inspections or investigations of disposal facilities receiving fracking waste. He also wants to know how the states' regulators monitor the accuracy of reporting and compliance requirements for handling and disposing of fracking waste.

Gas field drillers, activists seek statewide rules for wells -- There are more regulations for cutting hair than for drilling water wells in Pennsylvania. To cut hair, you must hold a cosmetologist degree, pass an exam and get a license that outlines how you can practice. To drill a well and install a water pump, you need only register drilling equipment with the state. The absence of statewide rules governing how water wells are built and who can drill them have united some unlikely allies — environmental activists and gas drilling companies, who say rules are needed to reduce the risk of groundwater contamination in the middle of the gas drilling boom. More than 3 million rural and suburban residents in Pennsylvania rely on a private well for drinking water, and about 20,000 wells are drilled each year in the state, according to the U.S. Geological Survey. Gas companies, required by the state to test water wells in a 2,500-foot radius of a well pad and present reports to well owners, want rules to further minimize risk of contamination and fix improperly constructed wells, according to the Marcellus Shale Coalition. State and federal studies echo each other on well water contamination in Pennsylvania, consistently pointing to improperly constructed wells as a culprit. “We, in our water testing, continue to see relatively high levels of bacteria in water wells.” Swistock's own well was contaminated by mice who were living in it, he learned. The mice had an easy way in since the well was missing a sanitary cap, a lid required by most states. Last year, the USGS reported that 8 percent of more than 5,000 wells tested from 1969 to 2007 statewide contained levels of arsenic at or above federal standards set for public drinking water and an additional 12 percent — though not exceeding standards — showed elevated levels.

As pipelines proliferate, Pennsylvania sees next phase of gas boom - The surge in drilling has meant trillions of cubic feet of natural gas are being pumped out of Pennsylvania every year. And now billions of dollars are flooding into the state for new pipeline projects to move that gas to market.It’s the next phase of the fracking boom: energy companies are building their own sort of interstate highway system—a network of pipelines. Matt Henderson, of Penn State’s Marcellus Center for Outreach and Research, says more than $10 billion in pipeline projects have already been announced for Pennsylvania.“Production has outpaced anybody’s wildest expectations,” he says. “The operators were found in a position where, ‘We need to get this out.’ So there’s a sense of urgency.” Industry representatives say undoubtedly not all of the proposed pipelines will get built. But there’s still a race to get gas to customers. Houston-based Cabot Oil & Gas has been able to ship its gas out of northeastern Pennsylvania on three existing interstate pipelines. Company spokesman Bill DeRosiers says Cabot is partnering with other companies on new projects to ease bottlenecks in the system, like the $700 million Constitution pipeline. It was recently approved by federal regulators to carry Marcellus gas to New York and New England. And there’s an even bigger one on the horizon. “The Atlantic Sunrise is another pipeline project that will actually head south,” says DeRosiers. The $3 billion line would cut through 10 central Pennsylvania counties. If it’s approved by regulators, it could be operational in two years. It would start near Cabot’s operations in Susquehanna County and go as far south as Alabama.“It will actually bring gas along the eastern seaboard markets as far south for Cabot’s interests to Cove Point which is an exportation terminal, where Cabot’s looking forward to exporting to Japan,”

Fracking Mirage -- New York farmers think that fracking is going to make unprofitable farms profitable. Actually no. That’s not how it works. If a farm is unprofitable, fracking won’t make it profitable. They also think that they have something worth fracking. Probably not. The leasing companies may have left because of the moratorium, but that does not mean that they will come back if the moratorium is lifted. What’s changed during the intervening years is that we know a lot more about where the shale is productive and where it is not. This is no secret, except, apparently, to the landowner coalitions hoping to sell out to the frackers.The farmers that wanted to lease never cared about the proposed regulations. They didn’t even bother to comment on the drafts. They just wanted to sell out. Most of them won’t get the chance. Not because of moratoriums or bans, but because there’s not much there worth fracking. Struggling Farmers Say Fracking Will Save Their Farms Since the moratorium is not codified into law, it does not have an expiration date and thus Gov. Andrew Cuomo has yet to decide what to do—much to the chagrin of many struggling farmers in upstate New York who stand to benefit from fracking on their land into a toxic mess. Some say the ban was instituted in response to the growing protests from environmentalists and New York City residents who were concerned that an aquifer in upstate New York that provides water to the city would be contaminated and sicken millions.While environmentalists followed Cuomo around during midterm election campaigning, pressuring him to take a stance and ban fracking once and for all, some farmers and large landowners in upstate New York have been saying “frack us!

Doctors, scientists, engineers calling for fracking moratorium: Health professionals and scientists are raising awareness about the possible negative effects of allowing hydraulic fracturing in New York, and are calling on the governor to extend the moratorium an additional three-to-five years. The call follows the release of a new study in an environmental health journal, which looked at evidence showing the negative effects of fracking operations on reproductive and developmental health. In a press conference held in the Legislative Office Building last Thursday, Dec. 11, scientists and health professionals said the science is clearly indicating there are potential negative effects of the controversial natural gas drilling process on the public living near drilling sites. The fate of the debate on whether to allow drilling within the state hangs on to a health and environmental impact study being conducted by the state Health Department and Department of Environmental Conservation.

Not One Fracking Well. One way or another . . . -- Not One Well is putting on the push to get Governor Cuomo to go against type and prohibit hydrofracking of shale in New York. If he did that, he’d be a shoe-in for the Goldman Environmental Prize, the Nobel Prize and a big hug from the Pope.  But assuming that the Good Governor does approve fracking – in some limited way – the dynamics of actually drilling any shale wells are constrained by several unviable factors; to wit:

  • 1. Geology –  At best New York is very marginal for dry shale gas in the Marcellus. Although less well understood (no pun), it’s certainly marginal for dry gas in the Utica as well. So you are talking about many a dozen townships along the borderline in Broome County, maybe Delaware, and maybe Tioga. The only permit applications that are left in the queue that a financially viable (if not geologically viable) are Exxon’s. That is not likely to change.
  • 2. State Fracking Regulations – There aren’t any.The proposed fracking regulations missed their expiration date, and will have to be revisited – in public. After they are adopted, the NGOs will sue to block them, pretty much guaranteed.
  • 3. Local Regulations – Where the shale gas is located, there aren’t any fracking bans. But since shale gas industrialization is a hazardous heavy industrial process, the townships or the landowners that lease would be challenged either by local residents or by environmental NGOs – for the failure of the town to protect the health, safety and welfare of its citizens.
  • 4. Lawsuits – The state’s fracking regulations will be challenged in court, as will the permits, as will the towns that allow fracking, as will the landowners that lease as will the frackers. And we’ll all find out that New York has more lawyers than shale gas.

Governor Cuomo: Fracking Decision ‘By the End of the Year’ - It looks like New York state could have a decision on whether its fracking moratorium will be lifted or remain in place sooner than previously thought. The review by the state Department of Health on the health impacts of fracking is due to be completed and delivered Dec. 31. Governor Andrew Cuomo had said he would base his decision on that report, and it was widely believed that he would make his announcement early next year. Anti-fracking activists were preparing to rally at his Jan. 7 State of the State address in Albany. But yesterday in an interview on local radio show The Capitol Pressroom, Cuomo said that his decision will come by the end of the year.  “By the end of the year we should have positions on both [the other issue is casino licenses] that are clear and we’ll start the new year with some major decisions under our belt, so to speak,” he said.

The Science of Fracking Equates to Not One Fracking Well - While filming a new movie in London, I learned that the sole shale gas well in the nation — just a few hours north of me — has triggered two earthquakes, suffered a “structural integrity failure,” and risked poisoning water supplies.That’s right: the only fracking well in the United Kingdom failed and caused two earthquakes!This news is a stark reminder of what’s at stake in my home state of New York, where newly re-elected Governor Andrew Cuomo has said that he will soon make an announcement about fracking. In his first four year term to date, despite much sound and fury from the gas industry, Governor Cuomo maintained a de facto moratorium on the practice. The emerging science shows the wisdom of that decision — as scientists themselves are quick to point out. Just last week, Concerned Health Professionals of New York presented the Governor with an updated, hundred-page Compendium on the risks and harms of fracking to health, water, air, wildlife, and economic vitality. On the same day, the Physicians Scientists & Engineers for Healthy Energy released its own analysis of the 400 peer-reviewed studies on fracking — nearly all of them indicating dangers and nearly all of them published since the Governor took office in 2011. Among the key findings:

· 96 percent of all papers on health found signs or risks of sickness;
· 95 percent of studies on air found evidence for air pollution;
· 72 percent of studies on water found signs or risks of water contamination;

BREAKING: New York Will Ban Fracking -- The state of New York is officially moving toward a fracking ban. After presenting the findings of an exhaustive five-year study on the potential environmental, economic, and public health effects of fracking, state Department of Environmental Conservation commissioner Joseph Marten said he would issue a “legally binding findings statement” seeking prohibition of the controversial process.  The study presented Wednesday had few good things to say. It noted that peer-reviewed studies on how fracking affects public health were few and far between; that the process had the potential to pollute New York’s many reservoirs and aquifers; and that the economic benefit to the state would be “clearly lower than intially forecast.” “Would I live in a community with [fracking] based on the information we have now? … After looking at the plethora of reports, my answer is no,” acting state health commissioner Howard Zucker said. “I cannot support high volume hydraulic fracturing in the great State of New York.” A moratorium on the process has been in effect since 2008, and New York Gov. Andrew Cuomo had historically said he wouldn’t consider lifting the ban until the review of possible environmental and health impacts was completed. His position on the issue was that he was “not a scientist” — a refrain he repeated on Wednesday — and that he would leave it up to the experts to decide whether fracking would be safe for the state. “Let’s bring the emotion down and let’s ask the qualified experts what their opinion is,” Cuomo said on Wednesday before the results of the report were announced. “I will be bound by what the experts say because I am not in a position to second-guess them with my expertise.”

Cuomo to Ban Fracking in New York State, Citing Health Risks -  Gov. Andrew M. Cuomo’s administration announced on Wednesday that it would ban hydraulic fracturing in New York State because of concerns over health risks, ending years of uncertainty over the disputed method of natural gas extraction.State officials concluded that fracking, as the method is known, could contaminate the air and water and pose inestimable dangers to public health.That conclusion was delivered during a year-end cabinet meeting Mr. Cuomo convened in Albany. It came amid increased calls by environmentalists to ban fracking, which uses water and chemicals to release oil and natural gas trapped in deeply buried shale deposits.The question of whether to allow fracking has been one of the most divisive public policy debates in New York in years, pitting environmentalists against others who saw it as a critical way to bring jobs to economically stagnant portions of upstate. Mr. Cuomo, a Democrat who has prided himself on taking swift and decisive action on other contentious issues like gun control, took the opposite approach on fracking. He repeatedly put off making a decision on how to proceed, most recently citing a continuing — and seemingly never-ending — study by state health officials. On Wednesday, six weeks after Mr. Cuomo won re-election to a second term, the long-awaited health study finally materialized. In a presentation at the cabinet meeting, the acting state health commissioner, Dr. Howard A. Zucker, said the examination had found “significant public health risks” associated with fracking. Holding up scientific studies to animate his arguments, Dr. Zucker listed concerns about water contamination and air pollution, and said there was insufficient scientific evidence to affirm the long-term safety of fracking. Dr. Zucker said his review boiled down to a simple question: Would he want to live in a community that allowed fracking? He said the answer was no.

New York bans fracking after health report (Reuters) - New York state will ban hydraulic fracturing after a long-awaited report concluded that the oil and gas extraction method poses health risks, Governor Andrew Cuomo's administration said on Wednesday. New York Environmental Commissioner Joseph Martens said at a cabinet meeting he will issue an order early next year banning fracking, which has been under a moratorium since 2008. Once that happens, New York will join Vermont as the only states to completely prohibit fracking. The decision ends what has been a fierce debate in New York over the benefits and pitfalls of fracking, a process that involves pumping water, sand and chemicals into a well to extract oil or gas. Many in the state saw gas drilling as a key economic resource while others argued it was too dangerous. The state's health commissioner, Howard Zucker, said there is not enough scientific information to conclude that fracking is safe. "The potential risks are too great, in fact not even fully known, and relying on the limited data presently available would be negligent on my part," Zucker said. New York sits atop a portion of the Marcellus shale, one of the largest natural gas deposits in the United States. The ruling is a blow for energy companies that had been waiting for years to tap the thousands of acres of land they have leased there. The oil and gas industry immediately slammed Cuomo for the decision. Karen Moreau, the executive director of the New York State Petroleum Council, called it a reckless move that would deprive the state of thousands of jobs and hundreds of millions of dollars in revenue.

Document: Read the state Health Department's report on hydrofracking --  Below is the 184-page report by the New York State Department of Health regarding hydrofracking. The report was released by state health Commissioner Howard Zucker, who concluded that he would not allow his family to drink tap water in an area where fracking occurred. "I cannot support (fracking) in the great state of New York," Zucker said. New York state's environmental Commissioner Joseph Martens said today he will ban fracking in New York. NYS DOH Fracking Health Report (embedded scribd)

The Alarming Research Behind New York's Fracking Ban  - The battle over untapped natural gas in New York State appears to have reached its end. Following an extensive public health review of hydraulic fracturing, Governor Andrew Cuomo announced a complete banon the oil and natural gas harvesting practice in the state on Wednesday. The 184-page report, conducted by the New York State Department of Health, cites potential environmental impacts and health hazards as reasons for the ban. The research incorporates findings from multiple studies conducted across the country and highlights the following seven concerns:

  • Respiratory health: The report cites the dangers of methane emissions from natural gas drilling in Texas and Pennsylvania, which have been linked to asthma and other breathing issues.
  • Drinking water: Shallow methane-migration underground could seep into drinking water, one study found, contaminating wells. Another found brine from deep shale formations in groundwater aquifers. The report also refers to a study of fracking communities in the Appalachian Plateau where they found methane in 82 percent of drinking water samples, and that concentrations of the chemical were six times higher in homes close to natural gas wells. Ethane was 23 times higher in homes close to fracking sites as well.
  • Seismic activity: The report cites studies from Ohio and Oklahoma that explain how fracking can trigger earthquakes. Another found that fracking near Preese Hall in the United Kingdom resulted in a 2.3 magnitude earthquake as well as 1.5 magnitude earthquake.
  • Climate change: Excess methane can be released into the atmosphere, which contributes to global warming.
  • Soil contamination: One analysis of a natural gas site found elevated levels of radioactive waste in the soil, potentially the result of surface spills.
  • The community: The report refers to problems such as noise and odor pollution, citing a case in Pennsylvania where gas harvesting was linked to huge increases in automobile accidents and heavy truck crashes.
  • Health complaints: Residents near active fracking sites reported having symptoms such as nausea, abdominal pain, nosebleeds, and headaches according to studies. A study in rural Colorado which examined 124,842 births between 1996 and 2009 found that those who lived closest to natural gas development sites had a 30 percent increase in congenital heart conditions. The group of births closest to development sites also had a 100-percent increased chance of developing neural tube defects.

Governor Cuomo Saves New York From Getting Fracked ! --Governor Cuomo has done the environmentally, economically and politically practical thing and has banned fracking in New York. Because it simply is not worth the risk. Bravo. The Cuomo Administration just passed The Fracking IQ Test. DOH Commissioner Dr. Zucker stated the obvious – the science isn’t there to turn frackers loose in New York: “I cannot support high volume hydraulic fracturing in the great state of New York,” said Howard Zucker, the acting commissioner of health. The DOH report on fracking is here. That did it. Then DEC Commissioner Joe Martens said the DEC would not permit fracking and issued a press release to that effect. Both of them cited the greatly reduced area where fracking would actually take place in New York – since most Upstate towns ban it. And the only towns that might allow it are in an small area by the Pennsylvania border that is not currently economic. So, frankly, simply not worth fracking fooling with.Which makes perfect sense from all standpoints: environmentally, economically and politically.Watch Dr. Zucker’s and DEC Marten’s speech here.    Take a look at a Real Fracking Hero. The guy that had the juevos to tell the frackers to “Come back when you can play clean.” If ever.  Thanks Governor Cuomo ! I take back all those things I said about you. Well almost everything.

With Unresolved Health Risks and Few Signs of an Economic Boon, Cuomo to Ban Gas Fracking - After years of gauging the environmental, medical, economic and political risks of hydraulic fracturing, Gov. Andrew M. Cuomo is moving to ban this method of extracting natural gas from shale deposits in New York State. It had been clear for years, as I wrote in 2012, that there was little political or economic impetus to act quickly, even though I felt (and still am convinced) that gas extraction from shale can be done safely and cleanly if properly regulated. I would have preferred an approach allowing some carefully supervised drilling where communities were supportive — which Cuomo had pondered several years ago. See my conversation with Josh Fox, the director of “Gasland,” for more on my view, which holds now. But for a governor, data on drilling risks are just one of a host of considerations. The issue is similar to President Obama’s quandary on the Keystone oil pipeline.  Cuomo faced sustained, forceful and creative opposition from his left (the image below is one example of the creativity) and, as the upstate journalist Tom Wilber made clear in his blog and book, “Under the Surface,” there were few signs that New York would be able to provide sufficient oversight to justify drilling. (Read here for more on that question.) On top of this, courts were increasingly upholding community efforts to enact local bans.

BBC News - New York bans fracking over "significant health risks": Hydraulic fracturing, or fracking, will be banned in New York state, governor Andrew Cuomo's administration announced. A report has concluded that the method of extracting oil and gas potentially poses health risks. "Relying on the limited data presently available would be negligent on my part," said state Health Commissioner Howard Zucker. Vermont is the only other US state to ban fracking. New York has had a moratorium on hydraulic fracturing since 2008 when it initiated an environmental review of the process. The potential for fracking in the state is considerable as the large Marcellus shale deposit is partly located under it.  Commissioner Zucker said he had identified ``significant public health risks'' that prevented him approving the technique. Environmental groups welcomed the decision. But representatives of the oil and gas industry criticised the move, suggesting the state would miss out on the creation of thousands of jobs and hundreds of millions of dollars of revenue. New York Governor Andrew Cuomo said it was the most emotionally charged issue he had dealt with, even compared to gay marriage or the death penalty.

New York moves to make fracking ban permanent, says risks to health, air, water all need more study - State health officials announced Wednesday that a years-long study of the health and environmental impacts of hydraulic fracking in New York have convinced them that New York should ban the practice “until the science provides sufficient information to determine the level of risk to public health.”  After the announcement, and the release of the lengthy report, the chairman of the state’s environmental quality commission said his agency will draft permanent rules putting the ban into place early next year. New York Gov. Andrew Cuomo told reporters he’ll defer to the two experts and won’t interfere with the decision to make what had been a temporary moratorium on fracking permanent. The acting health commissioner, Dr. Howard Zucker, said the research isn’t clear yet whether fracking is safe. But he said enough warning signs have been reported across a range of scientific studies that fracking should be banned until it’s clear that it is safe. “As with most complex human activities in modern societies, absolute scientific certainty regarding the relative contributions of positive and negative impacts of HVHF on public health is unlikely to ever be attained. In this instance, however, the overall weight of the evidence from the cumulative body of information contained in this Public Health Review demonstrates that there are significant uncertainties about the kinds of adverse health outcomes that may be associated with HVHF, the likelihood of the occurrence of adverse health outcomes, and the effectiveness of some of the mitigation measures in reducing or preventing environmental impacts which could adversely affect public health. Until the science provides sufficient information to determine the level of risk to public health from HVHF to all New Yorkers and whether the risks can be adequately managed, DOH recommends that HVHF should not proceed in NYS.”

Is New York governor's ban on fracking grounded in science? -- To frack, or not to frack? That was the question facing New York, and Gov. Andrew Cuomo (D) decided not to. Governor Cuomo announced Wednesday that New York would prohibit fracking over health and environmental concerns. The ban ends years of uncertainty in the state over hydraulic fracturing – or “fracking” – the controversial practice that injects a mixture of water, sand, and chemicals underground to unlock stores of natural gas and oil trapped inside shale rock. Few environmental issues have inspired as much animosity and disagreement as fracking. Environmentalists say fracking can contaminate drinking water, cause earth tremors, and encourage reliance on emissions-heavy fossil fuels. Those concerns led New York to put a moratorium on fracking in 2008. But the scientific work assessing the risks of fracking is far from consistent. In fact, many states have determined the practice is safe. From North Dakota to Texas to Pennsylvania, fracking has kicked off a shale boom that’s created jobs, boosted oil and natural gas production, and helped US power plants move away from dirtier-burning coal.

New York Says No To Fracking Jobs And Any Fracking Money - Politics and Energy are hardly strange or unusual bedfellows. We know they’ve been under the covers with each other for a very long time, which is why when politicians act as though they didn’t know it really is irritating. While President Obama was announcing his decision to open talks with Cuba, New York State declared itself to be “Frack Free Zone”. It is a decision and a move that I disagree with and I thought I’d put that right on the table at the start of this piece. I don’t live in New York and the state can do whatever New York wants to do but Governor, Come On Man!. Governor Cuomo says he backs the decision but it wasn’t his decision to ban fracking. uhh?? No, the credit and the blame goes to New York’s Environmental Commissioner Joseph Martens according to the Governor himself. What a nifty move. Cuomo gets to be hailed by environmentalists for being a leader and for making New York only the second state to ban fracking behind Vermont. But, how can Cuomo be a leader when he’s hiding behind the shadow of his Environmental Commissioner? He can’t be. It seems that the Governor wants the credit and he wants to escape the blame should he decide to do what political pundits have been speculating for awhile now, make a run for the Democratic Presidential nomination. It is a very risky gamble. Taking the credit for turning down potentially hundreds of jobs, hundreds of millions in state tax revenue and a little private sector stimulus of the state economy probably won’t play too well nationally. (and yes, I am being purposely very conservative on those estimates. I’ll have more on that in a moment) The leader is New York’s Environmental Commissioner Joseph Martens. He’s the guy who made the call saying “health concerns” are the reason for the ban. The problem here is that there isn’t the data to justify Martens’ claim. New York’s own Health Commissioner, Howard Zucker, has conceded there is not enough data to justify health concerns and Zucker does not stand alone.

New York Governor Cuomo Does Saudi Bidding, Bans Fracking In NY State -- Having missed the entire shale boom, and with heavily-indebted shale companies now scrambling to boost liquidity or else face bankruptcy if crude prices remain at current levels, moments ago - in the latest example of blatant populist pandering -  New York Governor Andrew Cuomo said Wednesday his administration would prohibit hydraulic fracturing statewide, citing health concerns and calling the economic benefits to drilling there limited.  “I cannot support high-volume hydraulic fracturing in the great state of New York,” acting health commissioner Howard Zucker said, adding that he wouldn’t allow his own children to live near a fracking site. He said the “cumulative concerns” about fracking “give me reason to pause.”

Turn off Cuomo’s gas for fracking ban: Hofmeister: New York Gov. Andrew Cuomo has drawn either high praise or fierce criticism for banning fracking in the state. John Hofmeister, founder of Citizens for Affordable Energy and former Shell Oil president, clearly falls into that second camp. "The people in New York state will be suffering as a consequence because this is a sound business. It is a needed business," he told CNBC on Friday, two days after Cuomo announced plans to ban hydraulic fracturing in the state. The decision—which the Democratic governor said was up to state's environmental commissioner—came after the release of a long-awaited report that said the oil and gas production process could pose health risks. Read MoreGreentech: Oil price slump's latest victim "I don't know where the governor gets the heat for his mansion, but it probably comes from fossil fuel," Hofmeister said. "If he doesn't want to drill it in New York state, maybe we should just turn off the gas."

With fracking banned in New York, what happens to landowners, leases? - -- New York's decision to ban fracking because of health concerns has raised a number of questions about what happens next. Here are some of the questions and the best answers we could put forth today. What happens to landowners who have leases with gas companies? Nothing right now. The leases, which generally have time limits, will continue to stay in effect or end on their scheduled expiration dates. "It will not have a direct impact," said Joe Heath, a Syracuse lawyer who has worked with landowners who wanted to end their leases. One wrinkle is a case now pending before the state Court of Appeals over whether drilling companies can extend leases beyond their expiration date because New York had stalled in making a fracking decision. Landowners who sued to break those leases won in federal court, but the case has been moved to New York's highest court. Heath said he hopes the state's decision will prompt drilling companies to stop fighting to keep alive leases that landowners want to end. Will this decision be challenged in court? Gov. Andrew Cuomo said it's likely there will be lawsuits. The challenge could come from landowners who want to tap into the gas below their property, or from the oil companies that have paid for leases on that land. "I certainly think someone will file a lawsuit challenging this," said Brian Sampson, president of the Empire Chapter of Associated Builders & Contractors. "I certainly think if you're a landowner in the Southern Tier, the state has just made a decision that will prevent you from benefiting from the riches that are below your feet.

NY unlikely to face lawsuits over fracking ban, experts say (Reuters) - When Governor Andrew Cuomo announced a ban on fracking in New York on Wednesday, he predicted "a ton of lawsuits" against the state. But that is unlikely as the end of a drilling boom has left the industry in no mood for a fight, industry experts and lawyers said. "I think most of the companies in the industry are disinterested in fighting," said Brad Gill, the executive director of the Independent Oil and Gas Association of New York, a trade group. Six years ago, before the start of a lengthy New York moratorium on hydraulic fracturing of natural gas, the governor might have been right. But since then, the fracking phenomenon has turned from mania to mundane. Chesapeake Energy, once one of the biggest leaseholders in New York, last year gave up a legal battle to retain thousands of acres in the state. Norse Energy went bankrupt in 2012 after more than 100,000 acres in the state it leased were deemed off-limits to drilling. The industry's less confrontational stance reflects the dramatic shift in the U.S. natural gas industry over the years since the state's de facto ban came into force in 2008. That year, natural gas prices spiked to a near record around $14 per million British thermal units (mmBtu), and drilling were racing around the country snapping up land rights to exploit new techniques that would unlock decades worth of reserves.

NYS Ban on Fracking: Ripple Effect Expected Says NYIT Expert - New York Governor Andrew Cuomo’s decision to ban fracking in the state provides powerful ammunition for others around the country who are opposed to the issue, says NYIT Environmental Technology Associate Professor Sarah Meyland of NYIT’s Center for Water Resource Management. “It was a really good thing for him to do, but I was surprised at the announcement,” Meyland said. “It is important that he made the decision on the basis of health and environmental issues. It strengthens the whole argument around the country that fracking is a health problem as well as an environmental concern.” Meyland is available for interviews about hydraulic fracturing and the state’s ban. Many state residents wanted a ban but “they weren’t able to mount a strong case” against fracking, but Meyland says those who oppose fracking because of its effects on climate issues now have the NY decision to help bolster their own opposition. “Fracking will prolong our dependence on fossil fuel,” says Meyland. “I don’t think the world can afford that.” Meyland’s opposition also stems from environmental effects of fracking. “There’s no solution for the safe disposal of fracking waste,” she says.

Producers shrugging off New York fracking ban  - Even if the Cuomo administration had allowed fracking in New York State, it’s uncertain that oil and gas companies would have blitzed the borders, according to the Pittsburgh Business Times. Sam Kusic reports that Jim Tramuto, vice president of governmental and regulatory strategies for Southwestern Energy Co., said operators prefer to be in states that are welcoming and where the companies can have working relationships with regulators. He said, “New York just does not provide that environment.” On Wednesday, the Gov. Andrew Cuomo announced the official ban of hydraulic fracturing. The decision was made after it was decided that the process posed too many health and environmental risks. New York State officials have been studying the impacts of drilling since 2008, and a moratorium was placed on the process by former Gov. David Paterson in 2010. Tramuto continued to say how many other locations are available to producers, adding, “You’ve got a lot of really good shale plays out there.” New York sits atop the Marcellus Shale formation, but occupies less than 10 percent of its total acreage, according to Penn State geosciences professor Terry Engelder. He said, “In the big picture, the New York state ban is largely symbolic except for those people along the Southern Tier that may have benefitted.”

Why Cuomo’s Fracking Ban Won’t Matter Much - It’s hardly surprising that a liberal Democratic governor in one of America’s most liberal states chose to ban fracturing. Indeed, in most liberal/left groups, hatred of the oil-and-gas sector isn’t just popular, it’s a membership requirement. On Thursday morning, Dan Henninger of the Wall Street Journal put it exactly right when he told Charles Payne on Fox Business that “the Democrats have been captured by the Greens.” New York has had a moratorium on hydraulic fracturing for years. To change that policy now, after all the campaigning that has been done in the state by environmental groups, would have been a truly surprising move. That Cuomo formalized that moratorium and made it official is not surprising in any way. But in the big picture, the ban on fracturing in New York won’t matter much for domestic energy production. To understand why that’s true, we need only compare the attractiveness of New York as a place to get into the oil-and-gas sector with that of other states. Given the political risks of operating in New York, drillers have simply opted to take their rigs, workers, and capital and put them to work elsewhere. Sure, New York has lots of oil and gas in the Marcellus shale that could be extracted. But there are plenty of hydrocarbons in the Marcellus shale in Pennsylvania, too. Ohio has the Utica shale, North Dakota has the Bakken, Texas has the Eagle Ford, Louisiana has the Haynesville. Why would a driller consider locating in New York, given the political uncertainty? The answer is obvious: They haven’t, and now, thanks to Cuomo, they won’t.

Seven years of fracking debate in NY: In certain places in New York, Wednesday's news of the state's ban on fracking inspired public celebration. When a manager at GreenStar Natural Foods Market in Ithaca announced the news over a loud speaker, people in the store began applauding, cheering, shouting and hugging. "People had worked for this for so long," said Dawn Lodor, an assistant manager at the store, which helped organize opposition to shale gas development. In pro-fracking camps, the news was met with bitterness and disbelief. Dan Fitzsimmons, head of the Joint Landowners Coalition of New York group, listened to the decision from Cuomo's cabinet meeting in Albany streamed online to his farmhouse in Conklin. His reaction? "It was like a kick on the gut." His phone started ringing after that with angry members of the coalition who, in Fitzsimmons words, "feel like they've been robbed." It was no surprise that the news was emotionally charged. But, for people on both sides of the issue, it was an abrupt endpoint of an epic policy fight that began nearly seven years ago. New York's shale gas story will be cast in history as one of false starts, near misses, and empty promises. From the beginning, some harbored great expectations for a shale gas boom in the Southern Tier. In the end it was a bust that never got off the ground. I began learning the full implications of the shale gas story one day in early May, 2008, when several visitors came to the Press & Sun-Bulletin newsroom.  At the time, few people knew what fracking was, and most associated "Marcellus" with a small town outside Syracuse.

Here’s the grassroots political story behind the New York fracking ban - The Washington Post: Long before Wednesday's ban on fracking by the administration of Gov. Andrew Cuomo, small towns in New York state were fighting for their rights to ban fracking no matter what the state wanted. Last summer, the towns — located in counties with the best shale gas prospects — won an important victory in the state's highest court. On Wednesday, the New York health commissioner said the health risks of drilling outweighed the benefits of tapping the rich shale reserves. As we originally explored this year in early July, here's the story of the small towns that helped lay the political groundwork for that conclusion.

Environmentalists Are Gearing Up for the Next Phase of New York's Fracking Wars -- At times it appeared as if Cuomo was leaning toward allowing fracking to proceed in New York. In 2012, he considered a plan that would have allowedfor fracking in New York's Southern Tier, as a way to boost the upstate region's struggling economy. But opponents of fracking accused the governor of trying to create "sacrifice zones," in which the state's poorest residents would bear the brunt of drilling's environmental costs. Even on Wednesday, Cuomo seemed to distance himself from the decision, telling reporters that he was deferring to his health and environmental advisors on the decision.  Never the less, environmental activists gathered outside the governor's office in midtown Manhattan yesterday for a victory rally after the announcement. But while they celebrated the ban, many also warned that a battle lays ahead over natural gas developments— gas pipelines, compressor stations, storage facilities—that have begun cropping up as gas from neighboring states passes through New York and into energy markets along the Eastern Seaboard. The new projects, they argued, could come with their own set of negative environmental impacts, even if drilling itself is banned.  "This is the next big battle," said Fox, citing the Constitution Pipeline, a 125-mile natural gas transmission vein that was approved by the Federal Energy Regulatory Commission (FERC) earlier this month, as a future target of protest.  A slew of FERC-approved natural compressor stations have also cropped up in New York, including one in Minisink, a township about sixty miles for New York City where residents have told me they are afraid to go outside for fear of the headaches, nosebleeds, and dizzy spells that they have started to experience since the station went online in June 2013. The FERC, together with the New York DEC, also gave their blessing this year to a plan that will allow Texas-based energy firm Crestwood Midstream to store natural gas in abandoned underground salt mines near Seneca Lake in upstate New York.

Editorial: Cuomo’s junk science - NY Daily News: Politics, not science, drove Gov. Cuomo to ban natural-gas fracking from New York, killing upstate’s most promising hope for economic development. The governor cast acting Health Commissioner Dr. Howard Zucker as the voice of expert wisdom — whose research moved him to declare that he would not want his child to live in a community where fracking was taking place. Really? Zucker’s office admitted when pressed by the Daily News that the good doctor is both single and childless, making his avoid-at-all-costs proclamation as fact-free as the research he cited to help Cuomo reach the desired outcome. His department’s study of the threats posed by extracting gas from shale using a high-pressure water-based solution proved to be little more than a compendium of alarmist speculation. Far from identifying any concrete harm that properly regulated drilling would cause to health or the environment, the report mostly catalogued hypothetical perils that have yet to be credibly documented by research. No matter, Zucker spun the conflicting and incomplete results as grounds for rejecting a drilling method that is successfully practiced in dozens of states, generating huge economic benefits.

Reaction to NY decision on hydro-fracturing ban  --"Today's decision will shake the foundations of our nation's flawed energy policy, and we can only expect that it will give strength to activists nationwide who are fighting fracking in dozens of states and hundreds of cities and counties," said Sierra Club Executive Director Michael Brune. --- "The decision implies that at least 30 other states, Sen. Schumer and the Obama Administration's Environmental Protection Agency are wrong about the health impacts and do not care about the well-being of millions of American citizens, and discounts the successes that are occurring in Pennsylvania and elsewhere," said Republican state Senate Co-Leader Dean Skelos. --- "Woo! New York State just passed a moratorium on hydrofracking. Thank you, Gov. Cuomo, Joe Martens and Commissioner Zucker and thanks to all the beautiful, dedicated people in the anti-fracking movement who used science, their guts, their brains, and their hearts to make this day a reality. Love you," actor-activist Mark Ruffalo said on Instagram. --- "While other states across the nation continue to realize the numerous economic benefits from responsible natural gas development, New York State has yielded to a well-funded, fear-based propaganda campaign," said Greg Biryla of Unshackle Upstate, a business coalition. --- "This is a disappointing day for the people of the Southern Tier, and for the people of New York. The impact of this missed opportunity will be long-lasting," said Heather Briccetti, president of the Business Council of New York State.--- "Today is a major victory in the movement for safer energy," said Ansje Miller of the Center for Environmental Health, a national nonprofit group. "Other states should follow New York's example and join the movement for a clean energy future."

Landowners React to Fracking Ban: Wednesday’s decision by the Cuomo administration to ban fracking in New York has struck a nerve among upstate landowners, particularly those in the southern tier. Dan Fitzsimmons, president of the Joint Landowners Coalition of New York, a coalition of 77,000 landowners representing over 1 million acres of land, and the owner of 185 acres of land in Broome County, Binghamton, N.Y., says the governor has turned his back on the hardworking men and women of the southern tier. “Governor Cuomo rejected lower taxes, lower utility bills, job creation, business growth, clean affordable energy, and domestic power generation,” he said in a statement. Farmers and other large landowners have been long awaiting for the temporary ban to be lifted, in hopes of making sweet land deals with eager energy companies. Former New York state Gov. David Paterson issued an executive order in 2010, placing a six-month moratorium on fracking across the state. Chesapeake Energy Corp. was offering as high as $2,500 per acre before the moratorium was put in place.Some farmers complain they have been struggling since the economic downturn of 2008 with mounting debt and bankruptcy pending. “Many of our farmers in the southern tier are extremely disappointed with the decision and question what economic opportunities could have come their way through the reinvestment in their family farms,” said Dean Norton, New York Farm Bureau president, in a statement.

Fracking In New York: It Ain't Over Till It's Over -- And It Ain't Over -- Was that the same Governor Andrew Cuomo of New York from whom we’ve come to expect such decisiveness and combativeness over the years? “I don’t think I even have a role here,” he said at a news conference on Wednesday, turning to the state’s expert officials for answers regarding his administration’s decision to ban hydraulic fracturing in the state. Actually, the announcement underscored just how indecisive his administration has been on this particular issue. The ban came after a six-year review by the state’s Department of Environmental Conservation that included a study from the New York State Department of Health. The ongoing procrastination angered everyone: environmentalists, energy companies, and the property owners who stand to benefit from fracking – and Cuomo paid a political price in November when he only carried eight of the upstate counties that had previously voted for him. While the ban may be a major setback, it is not a final defeat. The lure of jobs and growth that fracking represents for the upstate New York communities won’t go away. Legal actions and political challenges to the ban are likely inevitable, and the energy industry is no doubt sitting down right now strategizing a comprehensive initiative. Further studies can be commissioned. A constant chorus of support for rethinking and possibly overturning the ban can resound throughout the digital airwaves. The fact that the ban coincided with a historic drop in oil prices (ironically caused, in part, by the natural gas boom) was lost on no one. That marketplace reality will be the energy industry’s greatest hurdle to reversing the ban, especially as analysts do not foresee supply/demand stabilization for some time to come.

Ohio and Maryland Should Take a Hint from New York's Fracking Ban - Governor Cuomo’s decision was backed by the science described at length in the Health Department’s extensive study of the risks fracking poses to public health. New York Health Commissioner Howard Zucker summed up the study simply: he wouldn’t want his child to play outside in a community that allows fracking. Oil and gas companies claim that accidents are few and far between, but leaks, spills, and explosions are not uncommon. And when they do happen, they are often severe. Ohio, a small shale gas producer compared to states like Texas and Pennsylvania, has seen a distressing number of serious accidents related to fracked wells. Last month, a worker was killed in an explosion and fire at a fracking site. Two weeks before that, Ohio saw three fracking-related accidents in three days, during which a worker was burned, a pipeline fire torched acres of forest, and a well blowout forced 400 families to evacuate. In June, a massive spill and fire forced 25 families to evacuate and killed over 70,000 fish along a 5-mile stretch of a tributary of the Ohio River. The fire took a week to extinguish, with at least 30 explosions occurring over that week, driving dangerous shrapnel though the air. The state lets companies drill up to 100 feet from homes, but explosions at drilling operations are capable of blowing pieces of metal much farther than that. The month before that fire, drillers were unable to prevent the excessive buildup of pressure in a well, which led to a leak of around 1,600 gallons of oil-based drilling fluids into a tributary of the Ohio River. These accidents are unacceptable, yet they are only the most visible instances of pollution. We can’t see the long-term impacts of widespread drilling and fracking—damage to groundwater, the atmosphere, and the public health effects of long-term exposure to chemicals—but they stand to be a much more significant threat.

Will N.Y. move on fracking affect Pa.?: As it considered whether to allow high-volume hydraulic fracturing in New York, the administration of Gov. Andrew Cuomo sought guidance from health officials on possible impacts to air and water quality. Pennsylvania officials also have studied possible health impacts of the technique known as fracking, but did so after the practice was well underway here. Was New York exercising more caution with the health of its citizens? Perhaps, but when Cuomo's administration announced Wednesday that it would ban the technique for extracting natural gas from shale deposits, analysts said the decision was as much about politics and economics as it was about health. Still unclear is what New York's move means for Pennsylvania, where high-volume fracking - the use of pressurized fluids to crack open gas deposits in shale - yields trillions of feet of natural gas a year. Gov.-elect Tom Wolf said last week that he disagreed with New York's ban, vowing instead to ensure that the practice is performed safely. He also has proposed a 5 percent tax on gas extraction. Yet a spokesman said Wolf continues to oppose drilling in the Delaware River Basin. That region is overseen by a commission with members from Pennsylvania, New Jersey, New York, and Delaware, along with a representative from the federal government. Drilling in the basin has been on hold amid disagreement among the participating states. Delaware and New York are expected to vote no on any proposal to allow drilling, whereas Pennsylvania under Gov. Corbett has been squarely in favor. Representatives from New Jersey and the U.S. are said to be reluctant to cast a deciding vote.

No Fracking In New York? That's OK With Pennsylvania -- Pennsylvania's fracking boom has led to record-breaking natural gas production, but its neighbor, New York, announced Wednesday it was banning the practice. Industry and environmental groups say New York's decision could be good for Pennsylvania.New York's ban comes six years after the state placed a temporary moratorium on fracking to study the gas drilling technique. Now, officials question fracking's economic benefits and cite environmental risks."There are many red flags because scientific issues have not yet been comprehensively studied through rigorous scientific research at this time," says Howard Zucker, New York's acting health commissioner.George Stark, a spokesman for Houston-based Cabot Oil and Gas, says New Yorkers who fear the process just don't understand it. The company operates many of the most productive wells in Pennsylvania."Our industry — this entire episode — is saving many farms. So the farmers that I've been in contact with endorse and embrace hydraulic fracturing," Stark says.Pennsylvania is now dotted with more than 7,000 active wells.

Faulty policies, falling prices spell bad news for fracking -- Two recent events have cast some doubt about the seemingly bright future of fracking in northeastern Pennsylvania and in other parts of the country. The first has to do with a few voter-driven efforts to eliminate fracking. The second is related to the recent plunge in energy prices.While voters and many municipal governments have decided to restrict fracking, few have banned it all together. That is why shock waves ruminated through those involved in the fracking process when 59 percent of voters in Denton, Texas — a state that owes much of its economic success to petroleum — voted to ban hydraulic fracturing all together. During the campaign to ban fracking in Denton, claims about and the potential for groundwater contamination were taken more seriously because, unlike northeastern Pennsylvania, there are many gas wells right within Denton’s relatively small city limit — in fact there are 270 of them. Some wells were drilled within a football toss of North Texas’ football field. Property owners in Denton, those with even relatively small plots of land on top of the rich Barnett Shale, are hardly taking the ban lightly. For many, it was a major, if not sole, source of income. These property owners are not the only ones undone by the ban. Texas Railroad Commission Chairwoman Christi Craddick told the Dallas Morning News that she would continue to issue permits in Denton. The commission, which regulates drilling in Texas, is also seeking an injunction against the ban.

The Texas Energy Revolt - Today, state lawmakers, the oil and gas industry and national environmental groups have become acutely aware of Denton, home to two universities, 277 gas wells and now, thanks to a rag-tag group of local activists, Texas’ first ban on fracking.  Thrust into the saga is George P. Bush, who in January will take the helm of the Texas General Land Office, an otherwise obscure office that manages mineral rights on millions of acres of state-owned property. In his first political office, Jeb’s eldest son, George W.’s nephew and one of George H.W.’s “little brown ones,” will inherit one of two major lawsuits filed against Denton, home to a sliver of that mineral portfolio.  “We don’t need a patchwork approach to drilling regulations across the state,” Bush, a former energy investment consultant, told the Texas Tribune in July as the anti-fracking campaign gained steam. It appears to be his only public statement on the issue.  Bush’s role in the dispute—however peripheral—only brightens the spotlight on Denton, and it forces him and others to choose between two interests Texans hold dear: petroleum and local control.  McMullen’s group—Frack Free Denton—convinced nearly 59 percent of Denton voters to approve a fracking ban on November 4, after knocking on doors, staging puppet shows and performing song-and-dance numbers. The movement had help from Earthworks, a national environmental group, but its opponents—backed by the oil and gas lobby— raised more than $700,000 to spend on mailers and television ads and a high-profile public relations and polling firm. That was more than 10-times what Frack Free Denton collected.

Meeting explores drilling changes | Denton Record Chronicle - Questions from the audience Monday night focused primarily on two new programs the city has proposed in amending its gas well ordinance, beefed-up inspections and “co-locations” for pad sites. The city unveiled details in a formal presentation for the crowd, including its plan to have energy companies select a single location for the gas wells they want to operate. The “co-location” program allows the city to review an energy company’s application to drill by pulling together all contiguous leases, selecting a single location for multiple, horizontal wells, and releasing the rest of the land for other development. It was the first substantive public discussion of the amendments since the Denton City Council adopted a moratorium on new drilling permits in May to work on them. The city is also planning amendments to increase insurance coverage requirements of operators, improve disclosure of existing gas well locations to people buying homes and property in Denton, and hire an independent firm to conduct additional equipment inspections.

Bush School report says fracking could lead to Texas water shortage  - Freshwater in the Eagle Ford Shale — a geological formation that encompasses 30 Texas counties, including Brazos — is being drawn from the aquifers 2.5 times faster than the replenish rate, according to key findings from a Texas A&M Bush School of Government and Public Service study. As a result, and as hydraulic fracturing, or “fracking,” activity continues to grow within the massive shale, researchers who conducted the study estimated Texas could face a 2.7-trillion-gallon water shortfall by 2060. Highlights from the report, “Water Use in the Eagle Ford Shale: An Economic and Policy Analysis of Water Supply and Demand,” were recently included in the latest edition of “The Takeaway,” a publication of the Mosbacher Institute for Trade, Economics and Public Policy at the Bush School. Led by Bush School professor James Griffin, researchers analyzed four years of groundwater consumption data from within Eagle Ford, which spans southwest from Brazos County into Webb County . Researchers concluded each well used for fracking requires about five million gallons of water. Since 2010, more than 200 operators have drilled into shale reserves that had been inaccessible until hydraulic fracturing technology became available.

Anti-fracking fringe | TheHill: Most of the wells in Denton are in the southwestern portion of the city. Looking at the precinct results for the election, that part of the city actually rejected the ban by nearly a 2-to-1 margin. While the actual homeowners living closest to the wells were voting in favor of responsible drilling, the ban enjoyed its strongest support from the precincts that include Denton’s two college campuses. Notably, there are few if any wells in those precincts. Additionally, the precincts with the widest margin of support for the ban also heavily supported Democrat Wendy Davis over Republican Greg Abbott in the state’s gubernatorial race. Anti-fracking groups have focused on college towns and, in many cases, areas with no existing development to try to enact symbolic bans, using the measures as "evidence" that opposition to hydraulic fracturing is growing. They have succeeded in spinning press coverage out of these bans, and even convinced the media to suggest that support for oil and gas development is eroding in communities all across the country. For example, they have touted fracking bans in Mendocino County, Calif.; Mora County, N.M.; the state of Vermont; and Athens, Ohio. What ties all of these together? They all generated headlines about fracking being banned, even though there is no significant oil and gas development occurring in any of those areas. In only rare occasions do the stories about these bans include that crucial fact.

Fracking bans in cities hurt everyone -  On Nov. 4, the voters of Denton made history. They approved a fracking ban within the city limits, the first ban of its kind in the energy-giant state of Texas. It was, however, the kind of history that other leading energy regions, such as the Bryan-College Station metropolitan area, should strive to avoid. The ban effectively ends natural gas production in the city -- and the thousands of jobs and millions in tax receipts that it generates annually. Natural gas production in the gas-rich Barnett Shale accounts for nearly 40 percent of economic growth in the region. It also produces about $30 million in taxes to Denton. The Perryman Group estimated in a report earlier this year that the ban, if approved, could cost Denton $251.4 million in economic activity and 2,000 jobs over the next 10 years. The legislation also would slash tax income by $5.1 million and cut $4.6 million in revenue to the Denton school district. Expect consumers and residents to make up the difference, especially if a long, expensive legal battle ensures. Hydraulic fracturing and horizontal drilling are nothing new, especially in Texas. What is new are the recent calls for drilling restrictions by activists who also are trying to kill the Keystone Pipeline, offshore energy development, transmission lines for wind and solar electricity and almost every other energy development plan in America.

The Shocking Data Proving Shale Oil Is Massively Over-hyped -  Hooray, oil is suddenly much cheaper than it used to be. That's great news, right? Not so fast. For certain it's not good news for those counting on a continued rise in US oil production from the "shale miracle". Many drillers were challenged to operate profitably when oil was above $70 per barrel. Very few will remain solvent with oil in the $50s (as it is as of this writing). So, expect US oil production to suffer from these lower prices if they persist. But even if oil prices rise and rise soon, there's new data that indicates the total amount of extractable oil from America's shale plays is less -- much less -- than what we're being told (or better put, "sold"). On today's podcast, Chris talks with oil analyst David Hughes, who has complied several recent studies based on a massive database of production results on a play-by-play basis of America's shale basins. The data show that declines tend to be hyperbolic in all shale fields. The average first-year decline is 70%; down to 85% by year three. And we're drilling the best plays first: meaning future ones will yield less even under the best results. We're pinning our hopes of "oil independence" on faulty data. Worse, we're using it to dismiss the Peak Oil theme at exactly the time we should be using this extra oil to construct the infrastructure for our next energy age (whatever that may look like), while we still have the net energy available to us:

Oil Storm Has Texas Wildcat Veterans Warning Bakken Rookies to Take Cover - Autry Stephens knows the look and feel of an oil boom going bust, and he’s starting to get ready. The West Texas wildcatter, 76, has weathered four such cycles in his 52 years draining crude from the Permian basin, still the most prolific U.S. oilfield. Though the collapse in prices since June doesn’t yet have him in a panic, Stephens recognizes the signs of another downturn on the horizon. And like many bust-hardened veterans in this region -- which has made and broken the fortunes of thousands -- he’s talking about it like a gathering storm. The ups and downs of oil are a way of life in Midland and Odessa, Texas, dating all the way back to the Great Depression. It’s as much a part of the culture as Gulf Coast hurricanes, and residents often prepare accordingly.   “We’re going to hunker down and go into survival mode,” Stephens, founder of Endeavor Energy Resources LP, said. “Stay alive is our mantra, until the price recovers.” Go about 1,300 miles (2,100 kilometers) due north and you get a very different take from the rookie oil barons in North Dakota, where crude output from the Bakken formation went from 200,000 barrels a day in 2008 to about 1.2 million today. They’re not seeing any need to take shelter, and it shows in their swagger.Of all the booming U.S. oil regions set soaring by a drilling renaissance in shale rock, the Permian and Bakken basins are among the most vulnerable to oil prices that fell to $56.74 a barrel at 11:19 a.m. in New York. With enough crude to exceed the reserves of Saudi Arabia, according to some producers, they’re also the most critical to the future of the U.S. shale boom.

Texas Could Be Headed for an Oil-Fueled Recession, J.P. Morgan Economist Says - The global plunge in oil prices could lead to a painful economic downturn in Texas, J.P. Morgan Chase’s chief U.S. economist said Thursday. “As we weigh the evidence, we think Texas will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession,” Michael Feroli said in a note to clients. Texas has seen strong growth in recent years, outpacing the U.S. recovery in part thanks to a boom in domestic oil production. The state’s unemployment rate in October was 5.1%, below the national rate of 5.8%, according to the Labor Department. Gross domestic product in Texas expanded 6.9% in 2012 and 3.7% in 2013, beating national GDP growth of 2.5% and 1.8% respectively, according to the Commerce Department. But Texas could be in danger from the global swoon in oil prices since the summer. The per-barrel price of West Texas Intermediate, a benchmark U.S. crude oil, has fallen nearly by half since its June peak.  That’sgood news for most U.S. consumers and businesses, who are enjoying lower energy costs including cheaper gasoline. “It’s something that is certainly good for families, for households,” . “It’s putting more money in their pockets, having to spend less on gas and energy, and so in that sense it’s like a tax cut that boosts their spending power.”

Not Just Public Lands: Defense Bill Also Incentivizes Fracked Gas Vehicles -- Steve Horn - DeSmogBlog recently revealed how Big Oil's lobbyists snuck expedited permitting for hydraulic fracturing (“fracking”) on public lands into the National Defense Authorization Act (NDAA) of 2015, which passed in the U.S. House and Senate and now awaits President Barack Obama's signature. A follow-up probe reveals that the public lands giveaway was not the only sweetheart deal the industry got out of the pork barrel bill. The NDAA also included a provision that opened the floodgates for natural gas vehicles (NGVs) in the U.S.—cars that would largely be fueled by gas obtained via fracking. The section of the bill titled, “Alternative Fuel Automobiles” (on page 104) lays it out: The “fuel described in subparagraph (E)” refers to natural gas, found within Title 49 of the United States Code's section 32901. It means, as with electric vehicles, natural gas automobile manufacturers will now also receive financial credits under the new Corporate Average Fuel Economy standards introduced by President Obama in May 2009. The provision was initially introduced in February by U.S. Sen. James Inhofe (R-OK), a climate science denier, as the Alternative Fuel Vehicle Development Act. Inhofe called it a “bill that would incentivize the production and purchase of…natural gas vehicles (NGVs)” in a press release announcing its introduction.

Surreal Aerial Photos Show Impact From Fracking » Sometimes it takes a bird’s eye view to get a sense of the full scope of what’s being done to our land in pursuit of profit. A few weeks ago we ran some photos by artist Mishka Henner who creates projects that make people think about how we interact with our environment. Those photos showed industrial-scale feed lots, factory farms where thousands of animals are raised, taken from the air. He discovered them while flying over the country working on another project: aerial photos of oil drilling sites. Those photos are just as compelling, combining a virtually abstract beauty with a sense of the devastation being done to the environment in the lust to extract oil. Each print is assembled from hundreds of high-resolution satellite images of each location. They include photos taken in Texas, Utah and California‘s Kern County, its most fracked county. Long home to conventional oil drilling and undergoing an explosion of fracking operations in the last decade, it has been called “the Texas of California.” You can learn more about Henner and see more of the photos here.

Big Trouble for the Bakken Oil Field: Has the Bust Begun? -- The Great Bakken Oil Field suffered a setback in October as production declined 1,598 barrels per day compared to the previous month.  The industry blames the decline on drillers scaling back on production due to the new flaring mandate that requires companies to capture natural gas as well as the rapid fall in oil prices. While these factors will impact future production, there are additional red flags warning that the Bakken may be already heading for BIG TROUBLE.  And nothing spells trouble more than the huge loss of Bakken oil production due to its high decline rate. Each month the EIA – U.S. Energy Information Agency puts out a Productivity Report on the different shale oil and gas fields.  The EIA’s first Productivity Report was published in October 2013.  If we compare the rate of change in the Bakken from the first issued report to the most recently published data, the decline in monthly production continues to increase: According to the October 2013 Report (Top), the Bakken added 86,000 barrels of day (bd) of production from new wells, while suffering a loss of 60,000 bd, netting a gain of 24,000 bd for November.  When the EIA publishes these reports, they are estimating the production and decline rate for the following month. On the bottom of the chart, the EIA forecasts the Bakken will produce 104,000 bd of new production in January with a loss of 77,000 bd, netting an increase of 27,000 bd for the month.  As we can see, the Bakken monthly decline rate has increased from 60,000 bd in November 2013, to an estimated 77, 000 bd in January 2014. Basically, the Bakken now has to produce at least 77,000 barrels a day of new production each month just to stay flat.  This is up 17,000 bd or 28% in just a little more than a year.  So, the EIA believes the Bakken will continue to grow its oil supply in January by adding a net 27,000 bd of production.  However, there is good evidence that production at the Bakken may actually decline rather than increase.

Guest Post: Calculating The Breakeven Price For The Median Bakken Shale Well -- A lot of data has been thrown around recently concerning the Bakken shale wells of North Dakota in an attempt to figure out the necessary oil price required to break even on the investment.  In order to get a clearer picture of the financial situation in Bakken, it is necessary to develop a financial model of the median Bakken well (attached).    With a discount rate of 15%, the median well has a profitability index of 1.02 (after federal income tax) if $66 per barrel is used.   (A profitability index of 1.0 indicates a break even situation at the discount rate that was used in the model).  This means that at $66 per barrel, half the wells are uneconomic.  If oil prices settle out at this price it can be expected that the number of wells drilled should be reduced by about half. If the current oil price of $55 per barrel is used, the initial production rate has to be increased to 800 BPD in order to break even.  According to the J.D. Hughes data, 25% of the wells have an initial production rate of 1000 BPD or more.  Accordingly, if oil prices settle out at the current price, the number of wells drilled will be about a quarter of the present number. Some people have stated that this shale industry exists only due to abnormally low interest rates.  If we use $100 per barrel and increase the discount rate to 20%, the median well has a profitability index of 1.6, which is profitable.  The well is still making over 200 BPD after payout.  My conclusion is that the shale development would still be profitable in a normal interest rate environment. The production data used in this model are from only 4 counties, Dunn, McKenzie, Mountrail, and Williams.  Very few wells have been economic outside of these 4 counties.  Therefore, when these 4 counties become saturated with wells, the Bakken play is over. 

Crash-O-Matic Finance -- Kunstler - “Oil prices have dropped $50 a barrel. That may not sound like much. But when you take $107 and you take $57, that’s almost a 47 percent decline…!”  May not sound like much? I guess when you hunker down in the lab with the old slide rule and do the math, wow! Those numbers really pop! This, of course, is the representative thinking out there. But then, these are the very same people who have carried pompoms and megaphones for “the shale revolution” the past couple of years. Being finance professionals they apparently failed to notice the financial side of the business, for instance the fact that so much of the day-to-day shale operation was being run on junk bond financing.  It all seemed to work so well in the eerie matrix of zero interest rate policy (ZIRP) where investors desperate for “yield” — i.e. some return more-than-zilch on their money — ended up in the bond market’s junkyard. These investors, by the way, were the big institutional ones, the pension funds, the insurance companies, the mixed bond smorgasbord funds. They were getting killed on ZIRP. In the good old days of the late 20th century, before Federal Reserve omnipotence, they could depend on a regular annual interest rate churn of between 5 and 10 percent and do what they had do — write pension checks, pay insurance claims, and pay clients, with a little left over for company salaries. ZIRP ruined all that. In fact, ZIRP destroyed the most fundamental index in the financial universe: the true cost of borrowing money. In doing so, it twerked and torqued the concept of “risk” so badly that risk no longer had any meaning. In “risk-on” financial weather, there was no longer any risk. Imagine that? It also destroyed the entire relationship between borrowed money and the cost-structure of the endeavors it was borrowed for. Take shale oil, for instance.The fundamental limiting factor for shale oil was that the wells were only good for about two years, and then they were pretty much shot. So, if you were in that business, and held a bunch of leases, you had to constantly drill and re-drill and then drill some more just to keep production up. The drilling cost between $6 and $12-million per well. What happened the past seven years is that the drillers and their playmates on Wall Street hyped the hoo-hah out of the business — it was a shale revolution! In a few short years they drilled to beat the band and the results seemed so impressive that investment money poured into the sector like honey, so they drilled some more. It was going to save the American way of life. We were going to be “energy independent,” the “new Saudi America.” We would be able to drive to Wal-Mart forever!

US shale industry faces endurance test after Opec rejects cuts - When Saudi Arabia and other Gulf countries last month rejected calls for a production cut by Opec, the oil cartel, they put the responsibility for stabilising plummeting crude prices on to the US shale industry. Suhail al-Mazroui, energy minister for the United Arab Emirates, said US shale companies and other producers who had created an oil glut should “respect the needs of the market”. Two weeks on from that Opec decision — and against a backdrop of a 40 per cent fall in the oil price since June — evidence of its negative impact on US producers is starting to emerge. Rather than a war, the US shale industry is braced for a test of endurance. As the pressure on oil producers mounts, weak companies face the threat of dwindling investment, faltering production, forced asset sales and possible bankruptcy. The successful companies will be the ones that both entered the downturn in the strongest position and are most effective at improving their efficiency. They can hope to make it through to better days when the oil price recovers and are also likely to be able to pick up some undervalued assets. On Monday ConocoPhillips, the US’s largest exploration and production company, unveiled plans to cut its capital spending by about 20 per cent next year to $13.5bn — a steeper reduction than analysts had expected — and said it would defer drilling programmes in several North American shale areas. Last Friday Baker Hughes, the energy services group due to be bought by rival Halliburton, published data which showed the number of rigs drilling for oil in the Eagle Ford shale of south Texas had fallen by 16 since October to 190. The number of rigs in the Bakken shale and related North Dakota formations had meanwhile dropped by 10 to 188. Also last week Drillinginfo, a consultancy, published figures showing that the number of new permits to drill wells had fallen by about 30 per cent in both the Bakken and the Eagle Ford areas last month compared with October. That may overstate the likely drop in activity, because companies will have a backlog of permits they can use, but it is clear the industry is responding to a steep drop in the oil price.

Some companies won't survive the oil meltdown -- America's shale oil boom has been the darling of investment circles in recent years. People were throwing cash at these companies, hoping to get a piece of the rapid growth.Not anymore. The dramatic plunge in oil prices has made some shale projects unprofitable. Investors are waking up to the realization that not all shale oil is created equally. Drilling for oil is extremely capital intensive. Companies often borrow money to fund the exploration and drilling. Now that oil is sitting at just $55, it's likely to get much more difficult for shale players to get the financing they need after years of low interest and bond rates. Investors are betting that at least some of these more speculative shale companies won't survive if oil prices stay low for a prolonged period. Just look at the junk bond market, which has been rattled by the energy turmoil. High-yield energy bonds have tumbled almost 10% this month alone, according to S&P Dow Jones Indices. "It becomes a vicious spiral. If bonds stay where they are, it's going to be very difficult for these companies to raise new capital to continue to live," Huge energy companies like ExxonMobil and Chevron have plenty of financial flexibility to weather low oil prices, but that's not the case for many smaller, highly-leveraged players. Some of them are cash flow negative, meaning they aren't generating enough revenue to offset the heavy investments they are making. Up until now, they've plugged those holes by selling stock or raising equity. But $55 oil has changed that equation. Few investors are willing to provide affordable financing.

Why The US Is About To Be Flooded With Record Oil Production Due To Plunging Oil Prices -- One would think that plunging oil prices and the resulting mothballing (or bankruptcy) of the highest-cost domestic producers would lead to a collapse in US oil production. And sure enough, if looking simply at headline data like the Baker Hughes count of active rigs in the US, then US oil production grinding to a halt would be all but assured. However, what will actually happen, even as the highest-cost producers and those with the weakest balance sheets are taken to their local bankruptcy court, is that as Bloomberg reports, the US is - paradoxically - set to pump a 42-year high amount of oil in 2015 "as drillers ignore the recent decline in price, pointing them in the opposite direction."

U.S. Talking Oil Exports Just When World Needs It Least -  The U.S. Congress is talking about allowing unfettered oil exports for the first time in almost four decades. Its timing couldn’t be worse. There’s space in the global market for 1 million to 1.5 million barrels a day of U.S. crude if the ban vanishes, Energy Information Administration chief Adam Sieminski told a congressional subcommittee at a Dec. 11 hearing. That would be less than 2 percent of worldwide demand. With prices sliding amid a glut, the figure is bound to be even smaller, according to consultants including Wood Mackenzie Ltd. As members of Congress promise more hearings on repealing the restrictions on oil exports, the world is awash in the stuff. Global prices have fallen by almost half since June to the lowest in five years amid slower demand growth and rising supply. What’s more, the kind of crude flowing in record volumes from U.S. shale plays is already abundant in the market.“If they dropped the export ban today, how much crude would get exported?” Harold York, vice president of integrated energy research at WoodMac in Houston, said by telephone. “Today? I say none. At these prices, why would a barrel leave?” Global crude prices have fallen 45 percent this year to below $60 this week for the first time since 2009. Producers say the U.S. shale boom may falter if they can’t reach overseas markets, while refiners fight to keep the limits, which have reduced domestic costs and allowed them to export record amounts of gasoline and diesel.

US rig count down 18 to 1,875 — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. fell by 18 this week to 1,875. The Houston firm said Friday in its weekly report that 1,536 rigs were exploring for oil and 338 for gas. One was listed as miscellaneous. A year ago 1,768 rigs were active. Of the major oil- and gas-producing states, Arkansas gained three rigs, Kansas and New Mexico each rose by two and Alaska and Pennsylvania were up one apiece. North Dakota declined by seven, Oklahoma by six, Texas down four, Louisiana off three, and Ohio and West Virginia each decreased two. California, Colorado, Utah and Wyoming were unchanged.

US Oil Rig Count Tumbles Most In Over 5 Years,"Demand From Oilfield Customers Dropping Rapidly" -- "Unequivocally" not good. Following last week's surge in initial jobless claims for 'Shale' states, Baker Hughes confirms rig counts continue to tumble.  The last two weeks have seen the total US rig count fall the most since 2009 (and Canada down 9.3% this week alone). Seemingly confirming this weakness, The Kansas City Fed notes respondents see non-durable (petroleum) demand "sluggish", and rather awkwardly against the "everything's great meme," one respondent exclaims, "demand from oilfield customers is dropping rapidly." The current US rig count is now the lowest in 5 months...US Rig Counts are sliding fast... But just as in 2008, there is a lag... this has only just begun... And Canada is getting crushed...(graphs)

More than 500 rigs may shut down as oil slides, analysts say: As many as 550 drilling rigs may have to sit on the sidelines of U.S. shale oil patches over the next few months, analysts say, as oil prices have folded nearly in half since this summer. The projections come a few days after Texas drilling rigs led the nation in a 1.4 percent weekly decline in the U.S. active rig count, according to oil field services firm Baker Hughes. Oil companies cut 20 rigs in the Permian Basin, a sharp turnaround from the flurry of rigs and hydraulic fracturing equipment that had rushed to West Texas earlier this year. “We think there’s a significant amount of pain coming” to the oil industry and its service companies next year, said Praveen Narra, an analyst with Raymond James. Any recovery in U.S. drilling activity will likely take longer than usual in oil-price downturns because the decline was set off by a glut in crude supplies, rather than less demand, he said. “The problem isn’t as quick of a fix as it would be if demand rebounded,” Narra said, adding that service costs for rigs and other oil tools will likely come down. Rigs could begin to see less work starting early next year, following a 40 percent drop in the number of new U.S. drilling permits issued from October to November, Jason Wangler, an analyst with Wunderlich Securities, wrote in a note to clients on Tuesday. So far, the most active U.S. oil basins have seen the sharpest fall in permits, as new issues in the Permian Basin in West Texas dropped 38 percent last month, the Williston Basin in North Dakota fell off 29 percent and the Eagle Ford Shale in South Texas declined 28 percent, according to Wunderlich.

Fracking could carry unforeseen risks as thalidomide and asbestos did, says report produced by Walport -- Fracking could carry unforeseen risks in the way that thalidomide, tobacco and asbestos did, warns a report produced by the government’s chief scientific adviser. A chapter in the flagship annual report produced by the UK’s chief scientist, Mark Walport, argues that history holds many examples of innovations that were adopted hastily and later had serious negative environmental and health impacts.  The controversial technique, which involves pumping chemicals, sand and water at high pressure underground to fracture shale rock and release the gas within, has been strongly backed by the government with David Cameron saying the UK is “going all out for shale”. But environmentalists fear that fracking could contaminate water supplies, bring heavy lorry traffic to rural areas, displace investment in renewable energy and accelerate global warming. The chapter in the report produced by the chief scientific adviser appears to echo those fears. “History presents plenty of examples of innovation trajectories that later proved to be problematic — for instance involving asbestos, benzene, thalidomide, dioxins, lead in petrol, tobacco, many pesticides, mercury, chlorine and endocrine-disrupting compounds...” it says.

Police asked university for list of attendees at fracking debate --- Police asked a university to hand over a list of members of the public who were due to attend a public debate on its campus. Canterbury Christ Church University, which had invited experts to debate the merits of fracking in an open forum, refused to hand over the list, and the police request has drawn sharp criticism, with one of the panelists branding it deplorable. More than 200 people went to the debate to listen to and question a panel that included a retired geologist, engineers, a local councillor, an analyst from a thinktank and a campaigner. Kent police said they needed to assess “the threat and risk for significant public events in the county to allow it to maintain public safety”. The fracking debate on 19 November was organised by sociology academics, and members of the public who wanted to attend were required to book a place through the university. The university confirmed that it had been “contacted for a list of attendees at the Engaging Sociology event, Fracking in the UK, and did not disclose the requested information.” It added, without further explanation, that “the university did not feel it was appropriate to provide the information”.

CMU, Fractraker teaming up to monitor crude oil trains through region: Trains carrying millions of gallons of crude oil from Midwestern shale oil fields pass through the region daily and at speeds approaching the limit established to reduce derailment risks, according to a pilot study by Fractracker Alliance and Carnegie Mellon University’s CREATE Lab. The study counted 360 tanker cars bearing the Department of Transportation “1075” and “1267” flammable oil and gas placards on 10 trains passing through the city during 11 daylight hours on Oct. 21. Six of those 10 trains were traveling east with a total of 176 full tanker cars The other four were traveling west with 84 empty tanker cars. The train spotting and rail car counting was done on Norfolk Southern’s Fort Wayne line, which runs along the Ohio River through Sewickley, Glenfield, Ben Avon, Avalon and the North Side. The study, conducted on just one of seven rail freight lines used by oil trains in Allegheny County, is the first to count the number of oil trains passing through, and there are plans to do several more. The Fractracker news release about the study states that by tracking and monitoring the transport of oil and gas, “we can begin to understand the risks that these trains pose should an incident occur.” “We want to study the oil trains issue in several ways across Pennsylvania and beyond, examining the communities and populations affected and evaluating the scale and dynamics of the train traffic, including speeds and volumes of cargo,”

U.S. taxpayers help fund oil-train boom amid safety concerns -- For the past 18 months, Americans from Albany to Oregon have voiced growing alarm over the rising number of oil-laden freight trains coursing through their cities, a trend they fear is endangering public safety. In at least a handful of places, the public is also helping fund it. States and the federal government have handed out tens of millions in public dollars to rail companies and government agencies to expand crude oil rail transportation across the country, a Reuters analysis has found. The public assistance in states like New York , Pennsylvania , Ohio , Oklahoma and Oregon comes as railroads are posting record profits, and as state and federal authorities press for safety overhauls that the oil and rail industries have opposed, following several explosive derailments. The Reuters analysis identified 10 federal and state grants either approved or pending approval, totaling $84.2 million, that helped boost the number of rail cars carrying crude oil across the nation. The funds are a fraction of total public funding for railroads each year, and look small compared to the $24 billion railroads themselves are spending annually on infrastructure. But with oil-train safety under heavy scrutiny, the public grants could be controversial and add to growing strains between the industry and some local communities who say they are ill-prepared to deal with oil spills or derailments.

Another industry scam, this time Alberta tar sands investors left high and dry! -- As the Saudi’s continue to flood the market with cheap oil in an attempt to break the economic back of Russia, investors in the Canadian tar sands (Hello Koch Brothers?) are in a bit of a first world pinch. This excellent expose published in The Ecologist shows how fossil fuel companies ware misleading investors and potential investors by greatly understating the risks of lower oil prices, higher costs for environmental damages, and new green house gas regulations. Something has to give, right?  Tar sands industry faces ‘existential’ $246 billion loss The exploitation of Canada’s tar sands is more than just an environmental catastrophe, writes Gregory McGann. It’s also an turning into an economic disaster, with massive investments at risk as falling oil prices leave the tar sands stranded.  92% of future oil sands production will only viable if oil prices are $95 per barrel. However, prices stand at only $85, so producers are losing money for every barrel of oil they sell. One of the most destructive forms of oil production is financially nonsensical and faces total collapse, according to a new report by the Carbon Tracker Initiative (CTI), Oil Sands: Fact sheets. The report suggests that that investors are being misled about the economic viability of oil sands production, which is doing irreparable damage to the pristine boreal forests of northwestern Canada.

57,000-Gallon Oil Spill In Canada Forces Closure Of Pipeline To U.S.  - Canadian energy delivery company Enbridge Inc. has temporarily shut down and isolated one of its crude oil pipelines that connects to the United States after a 1,350-barrel, or 56,700-gallon oil spill, the company reported Wednesday evening. While the company said it’s not sure how long the cleanup will take or when the pipeline will be re-opened, it insisted that no oil was spilled out of the area within the Regina Terminal in Saskatchewan, where the incident occurred. It’s not yet clear what kind of oil was released — the 796,000 barrel-a-day Line 4 pipeline, which connects to a terminal in Wisconsin, carries heavy, medium, and light sour crude. “There are no impacts to the public, wildlife or waterways,” Enbridge said in astatement. “Nearby residents and businesses may detect a faint odour.” A spokesman for Enbridge told Reuters that the spill happened because of a problem with a valve within the terminal, and not because of a problem with the actual pipeline. He called it a “relatively easy fix,” but did not give a timeline for when the system would be back in action. Bloomberg News reported Thursday that Canada’s National Energy Board would meet with Enbridge officials on Friday to discuss when the line could return to service.

Closed for Risky Business: Stop Supporting Toxic Tarsands | Toronto Media Co-op: This morning more than a dozen affiliates of Enbridge and the Tar Sands have been locked out of their workplaces throughout Ontario. Individuals in 9 cities have participated. Doors to banks, political offices, and other institutions associated with Enbridge have been locked or otherwise disabled, with “Closed for Risky Business” notices posted. These notes all convey the same message: “Good people cannot simply watch as the government and big business dismantle protections and poison our communities for profit, so today we call attention to companies that enable Enbridge to continue destroying for profit - their financiers and contractors; their facilitators and publicists. Those who manage their security and their planning, approve their permits and projects – and any other players who passively take part in eco-destruction while operating business as usual.” The National Energy Board has already had to crack down on Enbridge's Line 9 project this year for negligence and safety concerning watercourses line 9 crosses however, anti-Line 9 activists are adamant that the public cannot rely on the NEB to be an effective watchdog since environmental protection is not in their mandate.

Keystone pipeline to top Senate agenda next year: Senate Republican Leader Mitch McConnell says approving the Keystone XL pipeline will top the Senate agenda in January. The issue could set up an early 2015 veto confrontation with President Barack Obama. Congressional Republicans have been pushing for approval of the pipeline for years. Obama has resisted because of environmental concerns. The pipeline would carry tar sands oil from Canada into the United States and eventually to the Texas Gulf Coast. The Republican-led House has repeatedly passed legislation approving the pipeline. But the bills have died in the Democratic-controlled Senate. Republicans will take control of the Senate in January, and McConnell said approving the pipeline will be the first issue on the agenda. McConnell said the pipeline would create jobs. But as crude oil prices drop around the globe, some have questioned whether the pipeline still makes economic sense. Global crude prices hovered below $60 Tuesday, their lowest price in five years.

Keystone XL pipeline may no longer make economic sense, experts say --Amid the shouting on Capitol Hill, the wads of campaign cash and the activist careers shaped around the Keystone XL pipeline, the project at the flashpoint of America's energy debate now confronts a problem bigger than politics. It may no longer pencil out. As Congress' six-year obsession with Keystone nears a climax, plunging oil prices have industry analysts questioning whether the plan to link Canadian tar sands with Gulf Coast refineries still makes economic sense. It is now possible that pipeline backers could win their hard-fought battle for political approval yet never build the project. With the GOP about to take control of both houses of Congress, backers of the pipeline say they are close to having a veto-proof majority for a bill that would order the Obama administration to give the project the federal permit required for pipelines that cross a U.S. border. But "the political debate is not paralleled by the realities" in the market, said Sandy Fielden, director of energy analytics at Texas-based RBN Energy. "The economics of this project are becoming increasingly borderline." The problem is that extracting oil from tar sands is difficult and costly. Prices need to be relatively high to make the extra effort profitable. For pipeline boosters, market conditions have turned gloomy as world oil prices have dropped to the lowest point in five years.  By some estimates, the price of oil already has dropped below what investors in Keystone would need to break even, and some analysts believe further drops are in store.

How cheaper oil changes the calculus for Keystone XL - With oil hovering around $57/barrel (for WTI) as of late Monday afternoon, now might be a good time for a quick look at the state of Canada’s enormous and expensive tar sands projects, and at the Keystone XL pipeline intended to help move what they produce. First have a look at this chart of production costs — for tar sands oil, at the far right, they are some of the highest in the world: The average cost per barrel this year for existing Canadian oil sands projects is close to $80, roughly $30 above the rest of the world. (Production costs for existing tar sands projects are significantly lower than those for new fields, however, and some might be profitable at current prices.) But even more interesting is the effect of lower prices on the political and economic dynamics of the Keystone XL pipeline. As background, approval for the pipeline from the US government faced political trouble even before the fall in oil, and most recently was rejected by the US Senate in November. Oil produced from tar sands developments is dirtier and more carbon-intensive than crude produced from other places. It’s quite possible, and increasingly likely, that the Senate will approve the pipeline when the less environmentally friendly Republicans assume control of the Senate in January. President Obama, however, can veto it, and he seemed surprisingly open to the possibility last week.  The political delays — the pipeline was first proposed in 2008 — together with court challenges mean that producers have also made contingency plans. After six years of waiting, one oil magnate even recently dismissed the entire project as “irrelevant“.

Cuba's Oil Potential - Is It a Motivating Factor For Ending the Embargo? -  The thawing of relations between the United States and Cuba after fifty years of pointless embargo is interesting, particularly given that American business investments that were nationalized in 1959, may at some point be reopened to U.S.-based companies.  As a petroleum geoscientist and a world class cynic, my mind naturally turns to oil, the hydrocarbon that lubricates the world's economy.  As you will see in this posting, Cuba appears to have potential for significant hydrocarbon reserves.  Under the current embargo, Cuba cannot access U.S. oilfield equipment for both drilling and environmental protection.  The embargo prohibits the exporting and re-exporting of items that contain more than 10 percent American components under the De Minimus Rule under Sections 734.4 and 736.2 (b)(2) of the Export Administration Regulations (EAR).  What is particularly interesting about the embargo is the fact that Washington refued to allow an exemption for U.S. oil spill prevention and response companies even though the Obama Administration was very concerned about potential oil spills from drilling operations located relatively close to the U.S. - Cuba maritime boundary in 2012.     Let's look at Cuba's hydrocarbon potential.  According to the Energy Information Administration, Cuba produced 51,000 barrels of oil per day (BOPD) in 2012 and consumed 151,000 BOPD; the shortfall is made up of imported crude from Venezuela.  Here is a graph showing Cuba's total daily oil production from 1980 to 2013:

Obama Has Taken Alaska’s Bristol Bay Off the Market for Drilling - President Barack Obama on Tuesday listed Alaska’s Bristol Bay as a no-go zone for oil and gas drilling, promising to protect the coastal area’s booming fisheries, as well as preserve a linchpin of Native American heritage.The bay, home to a $2 billion annual fishing industry, supplies some 40 percent of America’s wild-caught seafood and supports local indigenous communities, the White House said in a press statement. Obama’s order indefinitely extends short-term protection for the area that was granted in 2010 and due to expire in 2017.The Alaskan region is home to the biggest wild sockeye salmon run in the world, as well as numerous threatened species, including the endangered North Pacific Right Whale.

Petrobras Said to Cut Exploration Spending in Cash Crunch - Petroleo Brasileiro, the biggest oil producer in ultra-deep waters, is curbing refining and exploration spending in response to the collapse in prices and difficulties tapping debt markets during a corruption probe, said two people with direct knowledge of the matter. The state-run oil company known as Petrobras plans to freeze investments in the Premium I and Premium II refineries in northeastern Brazil and sell assets to protect its cash position, said one of the people. The exploration cuts will focus on projects that are behind schedule, they said. Both asked not to be named because the information isn’t public. The stock erased a 6.8 percent drop to surge as much as 8.1 percent in Sao Paulo. It was up 5 percent to 9.64 reais at 2:42 p.m. Petrobras didn’t respond to e-mails seeking comment. “This is totally beneficial for the company, as they can build cash,”  Petrobras, the most indebted publicly-traded oil company, is trading at the lowest since 2004 amid an expanding investigation into contractors who allegedly bribed company officials. The oil producer has delayed reporting its financial results while independent investigators conclude their reports in what has become Brazil’s largest-ever money-laundering and corruption scandal. Shares tumbled 9.2 percent yesterday.

A few reasons to worry about falling oil prices — and a few reasons to celebrate -- Is the big drop in oil prices too much of a good thing? We may find out since there might be more room for them to fall. the UAE’s  energy minister tells Blooomberg that  middle eastern oil producers think “the market will stabilize itself. … We are not going to change our minds because the prices went to $60 or to $40.” The bear scenario on cheaper energy is outlined in a Capital Economics morning note: The fallout might be economic (as oil producers cut spending and investment, or highly-indebted countries with already low inflation rates get caught in deflationary spirals), financial (as some countries are forced to default or sell assets), or even geopolitical (as regimes dependent on high oil prices look for distractions from social unrest at home). These risks are likely to build if oil prices fall further. But the usually upbeat Ed Yardeni reminds us of the upside of cheaper energy for consumers:

  • 1) Buoyant confidence. The Bloomberg Consumer Comfort Index rose during the first week of December to the best readings since December 2007.
  • (2) Petroleum windfall. Personal consumption data show that consumers spent $381 billion on gasoline and $26 billion on heating oil at a seasonally adjusted annual rate during June. The price drops since then suggest that consumers could save as much as $200 billion, at an annual rate, on these petroleum products.
  • (3) Elevating earned income. Excluding gasoline station sales, retail sales rose 0.9% last month. Adjusted for inflation, we estimate that retail sales excluding building materials (which are included in GDP’s residential component) jumped 1.2% during November
  • (4) Widespread spending. Almost every major retail category was up solidly in nominal terms to either a new cyclical high or a new record high during November:

Some Interesting Facts Regarding US Oil Supplies - The futures contract for January 2015 has gone from $102 a barrel in July to $57 a barrel today, a $45 dollar a barrel discounting of price in less than six months. Much of this move is based upon bearish sentiment and future expectations for oil supplies along with bearish headlines coming out of OPEC Members and the exiting of the long side of the market (Players stepping away) and a huge short trade pushing prices lower. But the question is has too much bearish sentiment been priced in too fast? Well let`s look at some EIA Inventory Data for trying to put some actual data footholds if you will on the subject. US Oil Inventories The US has 380 Million Barrels of Oil in storage right now, and this time last year the US had 375 Million Barrels in storage, yet the futures price was $97.65 a barrel last year at this time versus $57 and change as of Friday. That is roughly a $40 re-pricing of the commodity on a little US Inventory difference on the WTI contract. In fact just a couple of weeks ago we actually had less US oil Inventories in storage, as from week to week the year over year comparisons (noise) can move the needle in either direction (last week`s EIA Report showed a surge in Imports) this can be reversed the following week. Let us dig a little deeper as this is the slow period for the oil market, after the summer driving season and before the heavy cold weather hits increasing demand for heating oil and other energy products in the heart of winter. On July 4th the US had 382 Million Barrels of Oil in storage, so actually more oil in storage at the heat of the summer driving season than we do today at the weak part of the oil market in terms of demand, but yet price has gone down $40 a barrel on essentially the same level of oil supplies here in the US.

"This $550 Billion Mania Ends Badly," Energy Companies Are "Shut Out Of The Credit Market" -- "Anything that becomes a mania -- it ends badly," warns one bond manager, reflecting on the $550 billion of new bonds and loans issued by energy producers since 2010, "and this is a mania." As Bloomberg quite eloquently notes, the danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt - as HY energy spreads near 1000bps - all thanks to the mal-investment boom sparked by artificially low rates manufactured by The Fed. "It's been super cheap," notes one credit analyst. That is over!! As oil & gas companies are “virtually shut out of the market" and will have to "rely on a combination of asset sales" and their credit lines. Welcome to the boom-induced bust...

Junk-bond worries spread beyond oil - The oil bust is exposing cracks in the $1.3 trillion junk-bond market, putting pressure on a key source of corporate financing and potentially crimping economic growth. U.S. junk-bond prices have fallen 8% since late June, according to data from Barclays PLC. One-third of that drop has come this month alone, putting the market on track for its worst annual performance since the financial crisis. While much of the stress has been in the energy sector on the heels of the sharp decline in oil prices, lately the woe is spreading across the junk market. Each of the 21 high-yield sectors in a U.S. junk-bond index tracked by J.P. Morgan Chase & Co. registered losses in the five days ended Dec. 9. “Oil prices have crushed the energy sector, and it’s leaking elsewhere,” said Andrew Herenstein, co-founder of Monarch Alternative Capital LP, which manages $5 billion and is among the largest investors in distressed debt. Debt is generally deemed to be distressed when investors view it as at high risk of missing bond payments or of a restructuring, at least at some point. A pullback from junk bonds is often a harbinger of a broader reassessment of risk across financial markets, raising the possibility that investors could turn more wary of stocks and other assets.

Falling oil price poses new threat to banks - --The world’s big banks would like to draw a line under their recent troubles. The losses from the financial crisis, the costs of regulatory change and the fines from mis-selling and market manipulation scandals appear largely in the past. For once, another sector is suffering a series of blows. Within a matter of months, the falling oil price has wiped as much as 25 per cent off the market values of the oil majors. But might the bankers be smiling too soon? Could the oil market turmoil become the banks’ next nightmare? Last month, there was a hint of what might be around the corner, when it emerged that Wells Fargo and Barclays had exposure to big potential losses on an oil loan — specifically, $850m of funding granted earlier in the year to back the merger of US oil groups Sabine and Forest. Attempts to syndicate the loan had failed amid a falling oil price. The banks, which led the fundraising, were left holding mark-to-market losses estimated at as much as 40 per cent. Since then, the oil price collapse has only worsened. Last week, Brent crude hit a new five-year low of barely $60. That is nearly 50 per cent down on its summertime peak.  That Sabine-Forest financing was just one of many. Oil and gas financing has spiralled over the past couple of years, dominating the riskier end of the bond market. According to data compiled by Barclays, energy bonds now make up nearly 16 per cent of the $1.3tn junk bond market — more than three times their proportion 10 years ago. Nearly 45 per cent of this year’s non-investment grade syndicated loans have been in oil and gas. 

A real danger to global financial system from oil price collapse - There is a very important transmission mechanism that could ensure that problems in the energy sector reverberate across the global financial system. Credit derivatives. The exposure of US insured banks to derivatives stood at $236.8tn at the end of June 2014. More specifically, US banks had an exposure of $10.4tn to credit default swaps with around $2.6tn subinvestment grade. About 16 per cent of the US high yield market relates to energy companies. With oil prices below $60 per barrel, 30 per cent of US subinvestment grade energy companies could end up in restructuring or default. This means that banks could have to pay out on more than $135bn of credit default swaps.  However, that is a conservative estimate. If defaults from the energy sector spread out more widely across the high yield bond markets, payouts on credit default swaps could be much higher. There are also other derivative products such as structured notes that have been sold by banks to investors that are related to the oil price and could cause large losses for investors. Increased volatility in commodity derivatives usually spreads across related asset classes and causes losses in interest rate derivatives (where US banks have $192tn of exposure) and foreign exchange ($31tn of exposure). Losses in one segment of the market can become contagious because of the interrelationships between the different asset classes and also the counterparties that trade them. We do not know how these counterparties manage their exposure, hedging and risks, so as a result losses often appear in unexpected ways and places. We saw this in the last financial crisis when it was discovered that AIG was highly exposed to the US housing market (a surprise to many people) as a result of selling credit default swaps based on subprime mortgages. There is unlikely to be a happy ending to falling oil prices for highly leveraged US energy companies, and it is wrong to assume that there is no interconnectedness between the companies, banks, hedge funds and other organisations that trade derivatives based on the oil price. 

Jobless Claims Decline Across The US, But Jump In Two Shale States -- We are sure this data is entirely dependable but when continuing jobless claims spike over 6% last week and collapse almost 6% this week - and the labor department says there is nothing unusual - we hold our hands up and laugh. Continuing claims printed 2.37mm (beating expectations) and initial claims dropped 6k to 289k (beating expectations). But the most critical aspect of today's report is the one-week-delayed details on which states saw a rise in initial claims - Pennsylvania: 12,302 and Texas 9,107 - both major Shale states. Has the job-culling, cost-cutting started?

Oil, Employment, and Growth - Mauldin - Oil & gas jobs are widely geographically dispersed and have already had a significant impact in more than a dozen states: 16 states have more than 150,000 jobs directly in the oil & gas sector and hundreds of thousands more jobs due to growth in that sector. Author Mark Mills highlighted the importance of oil in employment growth: The important takeaway is that, without new energy production, post-recession US growth would have looked more like Europe’s – tepid, to say the least. Job growth would have barely budged over the last five years. Further, it is not just a Texas and North Dakota play. The benefits have been widespread throughout the country. “For every person working directly in the oil and gas ecosystem, three are employed in related businesses,” says the report. (I should note that the Manhattan Institute is a conservative think tank, so the report is pro-energy-production; but for our purposes, the important thing is the impact of energy production on recent US economic growth.) The next chart Harvey directed me to was one that’s on the Dallas Federal Reserve website, and it’s fascinating. It shows total payroll employment in each of the 12 Federal Reserve districts. No surprise, Texas (the Dallas Fed district) shows the largest growth (there are around 1.8 million oil-related jobs in Texas, according to the Manhattan Institute). Next largest is the Minneapolis Fed district, which includes North Dakota and the Bakken oil play. Note in the chart below that four districts have not gotten back to where they were in 2007, and another four have seen very little growth even after eight years. “It is no wonder,” said Harvey, “that so many people feel like we’re still in a recession; for where they live, it still is.” 

Oil’s Plunge Is Pushing Mortgage Rates Down - Low oil prices may offer a hidden gift to consumers beyond the gas pump: They could also indirectly support lower mortgage rates. Already, the average 30-year fixed-rate mortgage fell to 4.06% last week, the lowest level in 18 months, according to the Mortgage Bankers Association. The plunge in oil prices has been spurred in part by concerns over a slowdown in global economic growth. Those fears have also boosted demand for government bonds, pushing down yields on longer-term Treasurys. Mortgage rates tend to closely track the 10-year Treasury. “The oil collapse of 2014 appears to have been a key driver” of lower interest rates this year, wrote Chris Flanagan, a mortgage-rate strategist at Bank of America Merrill Lynch, in a report last week. “Further oil price declines could lead the way to sub-3.5% mortgage rates.” Mortgage rates fell below 3.5% in 2012 and early 2013 amid the Federal Reserve’s latest round of bond purchases designed to stimulate economic growth. Rates spiked in June 2013 to around 4.5% amid concerns over how and when the Fed would exit from that program.

DOT: Vehicle Miles Driven increased 2.6% year-over-year in October - With lower gasoline prices, vehicle miles driven might reach a new peak in 2015. The Department of Transportation (DOT) reported:Travel on all roads and streets changed by 2.6% (6.6 billion vehicle miles) for October 2014 as compared with October 2013. Travel for the month is estimated to be 264.2 billion vehicle miles.  Cumulative Travel for 2014 changed by 0.9% (23.2 billion vehicle miles). The following graph shows the rolling 12 month total vehicle miles driven.  The rolling 12 month total is slowly moving up, after moving sideways for a few years.

Air Travelers Aren’t Getting a Break From Lower Oil Prices - Are you hoping falling oil prices will make it cheaper to fly? Well, keep hoping. International oil prices have fallen more than 40% since mid-June as global supplies have piled up amid a production boom and weakening demand overseas. Yet U.S. airfares rose at a healthy 5% clip between July and September after a 7.6% rise in the prior three-month period, according to the Commerce Department’s quarterly report on travel and tourism spending released Thursday. In comparison, prices for “transportation-related commodities,” which include gasoline and automotive rentals, fell by 4.7% over the summer months. “Filling up the gas tank in your car became quite a bit cheaper,” said Paul Kern of the Commerce Department’s Bureau of Economic Analysis. Fuel is the airline industry’s biggest expense, yet companies have been slow to pass their savings through to customers. One reason is that airlines lock in purchase prices far in advance through hedging arrangements designed to protect them from large fluctuations. Delta Air Lines Inc. told investors last week that it expects pretax income to jump 11% next year but that the gain could have been much larger without the hedges.

How Oil’s Plunge Could Become a Financial Stability Worry for Fed - Federal Reserve officials revising their economic forecasts this week are likely to see the recent plunge in oil prices as a net benefit to the U.S. outlook, as lower energy costs bolster Americans’ ability to spend. But the sheer speed and magnitude of the retreat in crude oil prices, which have fallen over 40% since June to under $60 a barrel, is likely to raise eyebrows for those concerned about the central bank’s unofficial but increasingly important mandate: financial stability.The contagion has been rather rapid. Not only have stock markets retreated across the world, led by energy related shares, but the $1.3 trillion U.S. junk bond market has also taken blows, and is now on track for its worst annual performance since the financial crisis.  Emerging market currencies are also taking deep hits, particularly oil exporters, with the Russian ruble setting daily record lows and the Indonesian rupiah sinking to a 16-year low. But even crude importers such as Turkey and India are seeing their currencies tumble. The financial crisis and deep recession of 2007-2009 challenged traditional orthodoxy at the Fed that argued asset bubbles were too hard to spot and that interest rates were too blunt a tool to deal with them. Given the large economic costs of the popping of the bubble in financial assets linked to the U.S. housing boom, policy makers have become more open to the notion of acting preemptively, perhaps using regulatory or so-called macroprudential tools. Yet given the fledgling nature of that toolkit, the best Fed officials may be able to do for now is attempt to talk down frothier corners of the market.

Oil Investors Keep Betting Wrong on When Market Will Bottom - Investors betting on a rebound in oil prices are nothing if not tenacious. They have poured the most money in more than four years into exchange-traded products that track oil as prices fell 18 percent this month. It’s the third consecutive month that the four biggest U.S. funds have received money, during which time futures have plunged 41 percent. “It’s a testament that after such a wild selloff people are more and more eager to step in and wait for this eventual rebound,” said Stoyan Bojinov, a Chicago-based analyst at ETF Database. “Oil looked cheap a month ago and it’s even cheaper today, that’s why we continue to see these inflows.” Oil prices have tumbled by half since June amid surging production and slower than expected demand growth. Output in the U.S. is the highest in three decades, and OPEC, responsible for about 40 percent of global supply, maintained its output target at a Nov. 27 meeting. The U.S. Energy Information Administration said last week that consumption around the world next year will be 390,000 barrels a day less in 2015 than it forecast in October.

The dark side of the oil shock -- The financial markets saw only bad news in the oil shock last week. Despite extremely strong US consumer data, there is a reluctance to recognise the shock for what it is – a long-lasting structural change, with mostly beneficial consequences for aggregate demand in the developed economies. As John Authers explains, weak Chinese data are causing concern, but there is little evidence that China has been the main cause of falling oil prices. Global oil demand has been fairly stable as supply has surged, and it is surely revealing that the latest oil price drop followed the Saudi decision to maintain oil output after the November OPEC meeting.  Like investors, economists have been thrown into confusion. Almost no-one in the profession (including myself) predicted the oil price collapse in advance. After the shock, it took months for oil price forecasts to be brought into line with the new reality. Futures prices in the oil market have performed no better: predicting oil prices can be a mug’s game. More surprisingly, there has also been a disinclination to accept the potential benefits in the oil shock. Some economists have said it largely reflects an adverse demand shock in the global economy, so it is axiomatically bad news. Others have said that, even if it is a supply shock in the oil market, which would normally be beneficial, this time will be different, because it will be deflationary, and will therefore raise real interest rates. There are some honourable exceptions, like Martin Wolf and David Wessel who have viewed it mainly as a supply shock with net beneficial consequences. But the pessimists have thrown up a lot of noise... If the pessimists have a case, it is in oil producers in the emerging world, especially Russia. But, among oil importers in the developed world, it is hard to see too much of a dark side..

Petrothoughts - Paul Krugman - Just leaving a conference in Dubai, and thinking about oil prices. So, some not especially organized notes.  One involves the failure of OPEC to restrict production to support prices. I guess I wonder why anyone thought that was likely. My understanding has always been that when people say OPEC, the subtitle reads “Saudi Arabia”, which is the only player that has ever done much to restrict output to sustain prices. And Saudi Arabia only accounts for about 13 percent of world production, which gives it limited power even given inelastic demand (especially because unconventional oil supply is probably quite price-elastic, further reducing Saudi market power.)   Also, consider the precedents: the last time there was anything like the recent oil glut, namely back in the 1980s, even drastic cuts in Saudi production, shown in the accompanying figure, weren’t enough; eventually the Saudis gave up, and prices crashed, so why should they go through that again?  My other thought is that Venezuela-with-nukes (Russia) keeps looking more vulnerable to crisis. Long-term interest rates at almost 13 percent, a plunging currency, and a lot of private-sector institutions with large foreign-currency debts. You might imagine that large foreign exchange reserves would allow the government to bail out those in trouble, but the markets evidently don’t think so. This is starting to look very serious.

The oddly subdued optimism about falling oil prices  - Our pal Josh Brown has a hilarious post highlighting the pessimism bias in how the fall of oil prices has been discussed in the US:This past June, crude oil prices were hitting highs above $110 a barrel and the narrative was that this was why stocks were selling off. The S&P 500 had a weekly correlation of .55 with oil, meanwhile, and had actually spent most of the year rising with it. So not only was the “story” of why stocks were dropping false, the data was as well.Some headlines from June:

The reasons given then to describe the relationship between oil prices rising and stock markets selling off were adorable. Today, the S&P 500 has a weekly correlation with oil of negative .55, literally an about-face from this time six months ago. A correlation of negative .55 means that the two are almost diametrically opposed. And yet – and yet – the drop in oil is being blamed for the selloff in stocks today. The Dow dropped 312 points, after having risen for five straight weeks, and the business media is blaming oil. Here are today’s headlines, in order, from the same publications as the headlines above (in one case, from the same writer):

Cardiff here. “Oil continues falling and that’s awesome” isn’t the kind of headline or story that journalists and pundits get paid to write — good thing that we are a mere blogger — and that’s fine. Journalists should be vigilant. But the dominant theme to emerge from the decline in crude should nonetheless be vigorously positive. And given the widespread efforts to spot the negative, such a message is worth emphasising at least once.

Goldman Pours More Crude On The Fire: "Oil Prices Can Go Lower For Longer" -- Slowing the rebalancing and creating further downside risk is a very strong consensus view that this pull back is temporary and that oil prices will quickly rebound as they did in 2009. According to a recent Bloomberg survey, the median WTI forecast for 2016 is $86/bbl (even we forecast it going back to $80/bbl). All of these forecasts are based upon now outdated cost data that is shifting as fast as the price. It is precisely this strong view for a rebound in prices and the behavior it creates, that not only suggests that oil prices can go lower for longer, but also that the new normal is far lower than we thought just one month ago. Instead of optimizing against a lower price environment, many oil producers are trying to position themselves for the rebound in prices

Oil Prices Fall to Fresh Lows - Oil prices tumbled for a fourth straight session, extending this year’s steep losses fueled by a persistent surplus of crude supplies. The spate of declines has sent the benchmark price for U.S. oil 48% lower in the past six months, underscoring how investors and traders see few signs of pullback in production big enough to stabilize the market. “The sellers are still in charge, and it seems like the market really hasn’t bottomed,” Oil for January delivery fell $1.90, or 3.3%, to close at $55.91 a barrel, the lowest level since May 2009 on the New York Mercantile Exchange. Brent crude, the global benchmark, slid 1.3% to $61.06 a barrel, the lowest level since July 2009, on ICE Futures Europe. Prices had risen earlier in Monday’s session after armed clashes in Libya over the weekend disrupted oil exports. A quadrupling of Libya’s oil output in a matter of months earlier this year is a major factor behind the global supply glut that has weighed on prices. But some previous disruptions to Libyan shipments were quickly resolved. Any interruption would have to be sustained to set even a temporary floor under prices, analysts said.

"Oil May Drop To $25 On Chinese Demand Plunge, Supply Glut, Ageing Boomers" - Most commentators remain in a state of denial about the enormity of the price fall underway. Some, failing to understand the powerful forces now unleashed, even believe prices may quickly recover. Our view is that oil prices are likely to continue falling to $50/bbl and probably lower in H1 2015, in the absence of OPEC cutbacks or other supply disruption. Critically, China’s slowdown under President Xi’s New Normal economic policy means its demand growth will be a fraction of that seen in the past. This will create a demand shock equivalent to the supply shock seen in 1973 during the Arab oil boycott. Today's ageing Boomers mean that demand is weakening at a time when the world faces an energy supply glut. This will effectively reverse the 1973 position and lead to the arrival of a deflationary mindset.... Prices have so far fallen $40/bbl from $105/bbl since we first argued in mid-August that a Great Unwinding was now underway. And there have been no production cutbacks around the world in response, or sudden jumps in demand. So prices may well need to fall the same amount again.

IEA cuts 2015 oil demand growth forecast, predicts lower Russia supply-12/12/2014- The International Energy Agency (IEA) has cut its forecasts for global oil demand growth in 2015 by 230,000 bbl/day to 900,000 bbl/day on expectations of lower supply from Russia on the back of falling oil prices and economic sanctions, the France-headquartered body said on Friday. Lower expectations for demand growth from Russia and other former-Soviet states for next year is balanced to an extent by predicted increased demand from the US, the agency added. Oil futures benchmark prices have slumped by $15/bbl since the publication of the IEA’s previous market report in November, following cartel OPEC’s decision to leave production targets unchanged at a recent meeting, as Middle Eastern oil majors opt for lower pricing over reduced market share. Oil-exporting economies are likely to suffer a stronger impact from the price falls than oil-importing countries will benefit, the agency added. “The adverse impact of the oil price rout on oil-exporting economies looks likely to offset, if not exceed, the stimulus it could provide for oil importing countries against a backdrop of weak economic growth and low inflation,” the IEA said.

Sinking Oil Price Is Hard on North Sea Producers -  — Back in September, when oil was still selling for close to $100 a barrel, North Sea energy reserves were the big prize at stake in Scotland’s referendum on whether to secede from Britain.The Scots voted to keep the kingdom united. But three months later, with oil trading in the $60 range, it is now North Sea oil whose future hangs in the balance.With a 40 percent fall in prices since June, oil producers around the globe are having to recalibrate. Rosneft is gauging the effects of the price on the Russian economy. OPEC nations are wondering how long they can let market prices threaten their cartel. And Texas shale-oil producers are contemplating whether to start another fracking project.Perhaps nowhere else in the global oil industry has the question of moving forward been as clouded by doubt as in the North Sea. If Brent crude, the North Sea benchmark, remains around $60 to $70, at least 85 percent of new British offshore oil and gas resources now in the planning stages are at risk of being dropped, according to the industry consultants Wood Mackenzie.

"It's A Huge Crisis" - The UK Oil Industry Is "Close To Collapse" - With great delight we present the latest blowback from Obama's "brilliant" strategy to cripple Putin: in addition to the default wave about to crush America's own shale industry, America's biggest foreign ally and military partner when it comes to "ideologically pure missions of liberation" - the UK, and specifically its North Sea oil industry which according to the BBC is in a "crisis" and according to Robin Allan, chairman of the independent explorers' association Brindex, the industry was "close to collapse".  "It's almost impossible to make money at these oil prices", said a director of Premier Oil. "It's a huge crisis. It's close to collapse. In terms of new investments - there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone."

Oil Slump Blindsides Bulls That Wagered on Rout Ending: Energy -  Speculators added to wagers that the slump in oil futures, the worst since the global recession, is ending. Prices kept falling anyway. Money managers raised their net-long position in U.S. crude to the highest in two months in the week ended Dec. 9, U.S. government data show. Most of the change came from short holdings contracting to the lowest level since August. Oil fell to a five-year low last week after OPEC producers including Kuwait and Iraq reduced prices and the International Energy Agency cut its estimate for global demand for the fourth time in five months. Saudi Oil Minister Ali Al-Naimi indicated he won’t trim supply, reiterating OPEC’s decision last month to leave the group’s production target unchanged even as the U.S. pumps the most oil in more than three decades.

When Shale Hedges Fail: The Downside Of Three-Ways - "[Shale Oil]Producers are inherently bullish," warns one energy-hedging firm, and that truth belies the weakness in the apparent hedging programs many over-optimistic energy firms are facing now. We hear day after day that, in the short-term, low prices can be handled "because they're hedged," but producers were so exuberant about the direction of oil prices they didn't do simple linear hedges (swaps or futures) to manage price movements, but instead, as Bloomberg reports,used the so-called "three-way collar." Simply put instead of a floor and a ceiling for prices, there is a 3rd (bullish) leg of low-strike sold puts that subsidized the cost of the hedge... unless the price of oil goes below that strike, in which case the hedge fails and, as a lot of producers are finding, they are now losing money.

The Fracturing Energy Bubble Is the New Housing Crash - David Stockman - Let’s see. Between July 2007 and January 2009, the median US residential housing price plunged from $230k to $165k or by 30%. That must have been some kind of super “tax cut”. In fact, that brutal housing price plunge amounted to a $400 billion per year “savings” at the $1.5 trillion per year run-rate of residential housing turnover. So with all that extra money in their pockets consumers were positioned to spend-up a storm on shoes, shirts and dinners at the Red Lobster. Except they didn’t. And, no, it wasn’t because housing is a purported “capital good” or that transactions are largely “financed” at upwards of 85% leverage ratios. None of those truisms changed consumer incomes or spending power per se. Instead, what happened was the mortgage credit boom came to a thundering halt as the subprime default rates became visible. This abrupt halt to mortgage credit expansion, in turn, caused the whole chain of artificial economic activity that it had funded to rapidly evaporate.  Substitute the term “E&P expense” in the shale patch for “housing” investment and employment in the sand states, and you have tomorrow’s graphs—–that is, the plunging chart points which are latent even now in the crude oil price bust.  But the full story of the housing bust also reminds that the long caravans of pick-up trucks which will soon be streaming out of the Bakken in North Dakota will represent only the first round impact.

The squeeze on oil sector’s ‘supertankers’ - The international oil majors are like supertankers, hard to turn round in a hurry. But they have been forced to plot a new course, as the slump in oil prices transforms the energy industry. Low oil prices, which have plunged more than 45 per cent since mid-June, are squeezing their cash flow, forcing them to slash costs and curtail spending. Most are expected to announce big cuts to capital expenditure with their full-year results in 2015. Even for a big beast like ExxonMobil, the outlook is bleak. Fadel Gheit of Oppenheimer estimates that at oil prices of about $65 a barrel Exxon would be heading for a cash shortfall of about $15bn per year. “If these prices last for a couple of years, that puts it $30bn in the hole. That will make a dent, even for Exxon.” Yet in many ways, the majors are much better placed than their smaller rivals to withstand the turbulence ahead. Their earnings are a lot less volatile, partly because they have many more sources of income, including refineries that profit from lower crude prices. They are financially stronger, with lower borrowings and better credit ratings. They can take advantage of lower prices to pick up businesses and assets at bargain prices from smaller companies that are forced to sell. The majors are also generally better able than others to absorb short-term price volatility because of the immensely long time horizons they operate on. Oilfields in Alaska and the North Sea discovered in the late 1960s and early 1970s are still valuable assets. Even so, the effect of the current price drop will be significant. In some cases, reduced cash flow will be insufficient to cover capital spending. And there is unlikely to be much let-up in the future, if longer-term price expectations are anything to go by. Internationally-traded Brent crude for delivery in five years’ time has dropped from about $94 per barrel in June to about $76 this week.

Oil prices as an indicator of global economic conditions -- West Texas Intermediate sold for $105 a barrel at the start of July, but ended last week at $58. The most important factor has been surging U.S. production. But another reason oil prices have slid so much is weakness in demand for the product, which may be related to a slowdown of overall world economic growth. Here I comment on the importance of that second factor. For example, the price of copper fell from $3.27/pound to $2.93, a 10% drop over those same six months. This of course has nothing to do with the success of people in getting more oil out of rocks in Texas. Softness in demand for commodities like copper and oil may be one indicator of new weakness in the world economy. The yield on 10-year U.S. Treasury bonds is also down almost 50 basis points over the period, for which I believe the most plausible interpretation is again weakness in the world economy. And the dollar is up 11%, which I attribute to the same cause. To get an impression of the quantitative importance of these developments, I regressed the weekly change in the natural logarithm of the crude oil price (here’s why I use logarithms for this) on the change in the 10-year yield and the change in the logs of the copper price and the value of the dollar using data from April 2007 to June 2014. Here are the results of that regression, with t-statistics in parentheses as calculated using a Newey-West adjustment with 5 lags:

Oil-Led Slump Spurs Fastest Investor Exit Since ’08: Commodities -- Open interest in raw-material futures and options is down 6.5 percent since June, heading for the biggest second-half slump since 2008, exchange data show. U.S. exchange-traded products tracking metals, energy and agriculture saw net withdrawals of $169.4 million in 2014, marking the first two- year slump since the funds were created a decade ago. Commodities are under pressure from many sides. Collapsing oil prices are driving bearish sentiment because energy is used to produce or deliver almost everything, according to Societe Generale SA. Low inflation and higher interest rates create an “ugly scenario” for gold, says Bank of America Corp. And weaker currencies in countries that produce everything from soybeans to iron ore mean supplies will continue to climb, Goldman Sachs Group Inc. predicts. “Now is not a time to be overweighting commodities,” Sameer Samana, a senior international strategist at Wells Fargo Advisors LLC in St. Louis, which oversees $1.4 trillion, said in a Dec. 17 telephone interview. “For now, the outlook is still negative. It wouldn’t surprise us to see prices go down even further. We wouldn’t be taking any tactical positions.” Energy Leads The Bloomberg Commodity Index of 22 products slumped 14 percent this year, heading for a fourth straight annual drop that will be the longest since the gauge’s inception in 1991. Brent crude tumbled 46 percent, the biggest loss among the raw materials, after trading below $60 a barrel this week for the first time in five years.

Déjà Vu All Over Again - John Michael Greer -- Over the last few weeks, a number of regular readers of The Archdruid Report have asked me what I think about the recent plunge in the price of oil and the apparent end of the fracking bubble. That interest seems to be fairly widespread, and has attracted many of the usual narratives; the blogosphere is full of claims that the Saudis crashed the price of oil to break the US fracking industry, or that Obama got the Saudis to crash the price of oil to punish the Russians, or what have you.  I suspect, for my part, that what’s going on is considerably more important. To start with, oil isn’t the only thing that’s in steep decline. Many other major commodities—coal, iron ore, and copper among them—have registered comparable declines over the course of the last few months. I have no doubt that the Saudi government has its own reasons for keeping their own oil production at full tilt even though the price is crashing, but they don’t control the price of those other commodities, or the pace of commercial shipping—another thing that has dropped steeply in recent months.  What’s going on, rather, is something that a number of us in the peak oil scene have been warning about for a while now. Since most of the world’s economies run on petroleum products, the steep oil prices of the last few years have taken a hefty bite out of all economic activities. The consequences of that were papered over for a while by frantic central bank activities, but they’ve finally begun to come home to roost in what’s politely called “demand destruction”—in less opaque terms, the process by which those who can no longer afford goods or services stop buying them.

The high cost of low-priced oil -- As a consumer of oil, you may regard recent sharp declines in the world oil price as a blessing. But... If you work in the oil industry, you will not. If you work in the renewable energy industry, you will not. If you work in the energy efficiency business, you will not. If you work to address climate change, you will not. If you have investments in the oil industry (and nearly everyone does through pensions or 401k plans), you will not. If you live in a country that exports a lot of oil (not just Saudi Arabia, but Mexico,Canada and Norway, too), you will not. The declining price of oil is supposed to have a balanced ledger of winners and losers. But we may be on our way to finding out that in the long run we will have a much larger list of losers than winners. And, the list will lengthen if the price continues to fall, and especially if it stays down for a long time. (Low prices are not necessarily an indication of future abundance. Remember that oil reached $35 a barrel at the end of 2008 before returning to record average daily prices in 2011, 2012 and 2013.) Now here is something to contemplate. Is the price of oil falling because we can no longer afford it? This is not an idle question. Record high average daily prices for oil in the last three years have been an unrecognized cause of sluggish overall worldwide economic growth. That subpar growth appears to be exhausting itself now, particularly in Asia and Europe. In dampening growth, high oil prices sewed the seeds of their own demise by ultimately dampening demand. But, low oil prices will make it even harder to secure future oil supplies. The oil industry was already cutting back its exploration budgets before the price plunge. The industry said that there were not enough profitable prospects available even at $100 per barrel. What happens to industry exploration and development budgets with oil prices now around $60? Without exploration there can be no new production; and without new production, oil supply falls automatically.

Oil spill: As the oil price plunges, gloom and ill-will, oddly, abound -- Economist -- BE CAREFUL what you wish for. After years of grumbles about a historically high oil price, the cost of crude has tumbled. But cries of woe are outnumbering the shouts of joy. Exporters, oil-company shareholders and industry suppliers are all contemplating a future of oil at $60 a barrel—or below. So too are all the people who lent money to them. Markets are pricing in the pain and pessimism immediately, while seeming to discount the future gains to energy users. Russia’s currency is at a record low, falling below 60 roubles to the dollar on December 15th. Indonesia’s rupiah is at its weakest for six years. The FTSE 100, a London-based stock market index dominated by extractive-industry shares, had its worst week since August 2011, with a 6.3% fall. European equities across the continent suffered their biggest weekly loss in more than three years. Emerging market stocks are also down to a nine-month low. Over the weekend Abdallah Salem el-Badri, secretary general of the Organisation of Oil Exporting Countries, (OPEC), a cartel which produces 40% of the world’s oil, said he saw no grounds for production cuts.  That will be little comfort to those squeezed by the 50% fall in the price of oil from its peak three years ago. Mr el-Badri says he believes that the drop is excessive. "The fundamentals should not lead to this dramatic reduction [in price]," he said. OPEC was "assessing the situation" to determine the real reasons behind the decrease.

Oil price fall threatens $1tn of projects - Almost $1tn of spending on future oil projects is at risk after a brutal plunge in crude prices to nearly $60 a barrel, Goldman Sachs has warned. Any cancellation of these developments would deprive the world of 7.5m barrels a day of new output over the coming decade — or 8 per cent of current global oil demand. The findings suggest the supply glut that has sent prices tumbling could soon vanish as the oil majors delay big-ticket production projects — the lifeblood of future petrol supplies, heating fuels and chemicals. Brent, the international benchmark, has fallen more than 45 per cent since mid-June amid surging US shale production, strong supply from the Opec cartel and weak oil demand in Europe and Asia. The price plunge has shaken the energy industry, throwing some of the majors’ most ambitious plans into doubt and pummelling oil company shares. Projects in challenging frontier regions like the deep waters of the Gulf of Mexico are predicated on high oil prices and may not be economic with oil at $60 a barrel — the level Brent was trading at on Monday afternoon. Goldman has examined 400 oil and gasfields around the world, many of which are still awaiting a final investment decision. Its analysis, based on a $70 oil price, shows that fields representing 2.3m b/d of output by 2020 and awaiting a green light have now become uneconomic. That figure rises to 7.5m b/d of production by 2025. The analysis excludes US shale. The bank shows that companies will need to cut costs by up to 30 per cent — for example by forcing suppliers to take steep price cuts — to make these projects profitable at $70 a barrel.

Crashing crude may blow a $1.6 trillion hole in the global oil sector, annually -—Talk about an oil spill. The spectacular unhinging of crude oil prices over the past six months is weighing mightily on the U.S. stock market. And while it may be too early to abandon all hope that the market will stage a year-end Santa rally, it appears that if Father Christmas comes, there’s a good chance his sleigh will be driven by polar bears, instead of gift-laden reindeer. Wall Street’s gift: a major stock correction. Indeed, the Dow Jones Industrial Average, already endured a bludgeoning, registered its worst percentage decline since Nov. 25, 2011, down 677.96 points, or 3,78%. It was also the worst week for the S&P 500 on a percentage basis since May 18, 2012. The S&P 500 was down 73. 04 points and 3.52% on the week. But all that carnage is nothing compared to what may be in store for the oil sector as crude oil tumbles to new gut-wrenching lows on an almost daily basis. On the New York Mercantile exchange light, sweet crude oil for January delivery settled at $57.81 on Friday, its lowest settlement since May 15, 2009. Moreover, the largest energy exchange traded fund, the energy SPDR XLE, -0.89% is off by 14% over the past month and has lost a quarter of its value since mid-June. The real damage, however, is yet to come. By some estimates the wreckage, particularly for the oil-services companies, may add up to a stunning $1.6 trillion annual loss, at oil’s current $57 low, predicts Eric Lascelles, RBC Global Asset Management chief economist.

Saudi Arabia is playing chicken with its oil: Saudi Arabia is once again using its “oil weapon,” but instead of driving up prices and cutting supply, it’s doing the reverse. In the face of a global slide in oil prices since June, the kingdom has refused to cut its production, which would help to drive prices back up. Instead, the Saudis led the charge to prevent OPEC from cutting production at the cartel’s last meeting on Nov 27. The consequences of Saudi policy are impossible to ignore. After two years of stable prices at around $105 to $110 a barrel, Brent blend, the international benchmark, fell from $112 a barrel in June to around $65 on Friday. “What is the reason for the United States and some U.S. allies wanting to drive down the price of oil?” Venezuelan President Nicolas Maduro asked rhetorically in October. His answer? “To harm Russia.” That is partially true, but Saudi Arabia’s gambit is more complex. The kingdom has two targets in its latest oil war: it is trying to squeeze U.S. shale oil—which requires higher prices to remain competitive with conventional production—out of the market. More broadly, the Saudis are also punishing two rivals, Russia and Iran, for their support of Bashar al-Assad’s regime in the Syrian civil war. Since the Syrian uprising began in 2011, regional and world powers have played out a series of proxy battles there. While Saudi Arabia and Qatar have been arming many of the Syrian rebels, the Iranian regime—and to a lesser extent, Russia—have provided the weapons and funding to keep Assad in power. The conflict is now a full-blown proxy war between Iran and Saudi Arabia, which is playing  out across the region. Both sides increasingly see their rivalry as a winner-take-all conflict: if the Shi’ite Hezbollah gains an upper hand in Lebanon, then the Sunnis of Lebanon—and by extension, their Saudi patrons—lose a round to Iran. If a Shi’ite-led government solidifies its control of Iraq, then Iran will have won another round.

Why Big Oil Needs a Bailout in New OPEC Price War --Let's just admit it: We don't have a true free-market economy. If we did, we wouldn't have bailed Wall Street out of the mess it created during the housing bubble with nary a slap on the wrist — with some estimates putting the price tag at nearly $8 trillion — as their CEOs spent millions on bonuses and office redecorations in the midst of the downturn.  I'm not here to pass judgment on whether this has been a success, just to acknowledge that if we're honest, and want to spread the largesse evenly in the interests of the bigger picture, then the oil and gas folks could use a helping hand. Last week, crude oil plunged below $58 a barrel for the first time since May 2009. Wholesale gasoline futures have dropped by nearly one-half from their summertime highs. And further declines look likely. All of this is threatening what has been the lone bright spot of the economic recovery to date: The growth of the U.S. energy industry thanks to the rise of fracking technology and the opening of production in shale plays. A major portion of job gains since late 2007 have been concentrated in shale-oriented states such as North Dakota and Texas. The increase in domestic oil and natural gas production has helped narrow the U.S. trade deficit by about a third since 2006. . And, as I discussed in a recent column, the collapse of energy prices has been the primary cause of the recent turbulence in financial markets.  .  How bad could it get? Morgan Stanley warned its clients that Brent crude, which is now joust above $61 a barrel, could fall as low as $43 in the first quarter of 2015. On Sunday, United Arab Emirate Energy Minister Suhail Al-Mazrouei said OPEC would stick to its guns "even if oil prices fall as low as $40 a barrel" and would wait at least three months before considering an emergency meeting.

Emerging Market Oil Importers Are Suddenly Under a Cloud - It’s starting to get messy in emerging markets. The bonds and currencies of oil-exporting countries such as Russia, Nigeria and Venezuela are still getting hammered. But what’s really worrying investors is how jitters are spreading to supposedly healthy countries, such as Turkey and India, which import oil and should therefore benefit from lower prices – all at a time of the year when trading volumes are notoriously thin, magnifying the moves. “Emerging market sentiment has really soured in this last month along with commodity prices. This is now combining with seasonal illiquidity to make markets go down in big steps. I don’t think anybody is willing to step in front of that in the last two weeks of the year,” said James Barrineau, co-head of emerging market debt at Schroders. Credit default swap protection to insure against a default of $10 million of Russian five-year bonds now costs $536,000 a year, according to Markit, up from $487,000 Friday. Venezuela’s bonds are now trading on average at around 40% of their face value. Oil importers are also getting that sinking feeling: Yields on 10-year Indian government bonds climbed 0.04 percentage points to 7.84% Monday. Yields rise as prices fall. The Indian rupee is down 1.55% Monday at 63.17 against the dollar — its lowest level since January. The cost of five-year CDS protection on $10 million of Turkish debt rose by $11,000 to $210,000 Monday, while the Turkish Lira slumped to a record low against the dollar. Turkey is a big oil importer, too, and just last week analysts were trumpeting the fall in oil prices as a potential fillip to the country’s soaring current account deficit.

Blowback from Oil Price War: Sovereign Wealth Funds Selling Investments - While there has been ample discussion the impact of falling oil prices on the national budgets of major oil producing nations, there's been less media focus on how some of the countries that face budget squeezes are likely to react. Consider what a difference nine days makes. Moody's gave six Middle Eastern countries a thumbs up on December 8, based on the assumption that oil prices will average $80 to $85 a barrel in 2015. With WTI now at $55.33, it appears reasonable to assume a price of $60 or below for the first half of 2015. The consensus is that production cuts will lead to much firmer prices in the final two quarters,* but $70 a barrel would now seem a more reasonable forecast for the year. Here is the money part of the Moody's assessment (emphasis ours): 

No comments:

Post a Comment