while we've seen plenty of evidence of cutbacks in the tar sands and by oil drillers in Texas and in the Bakken over the past several weeks, this week brought the first confirmation of cutbacks in the gas areas of the Marcellus and Utica shales, in the face of natural gas prices that have generally stayed below $3 per mmBTU so far this year...Antero Resources of Denver advised investors that it was slashing its budget by 41% to $1.8 billion, and planned to defer completion of 50 wells they've already drilled in the Marcellus until 2016...they also plan to idle another 7 of the 21 drilling rigs that were still operating at year end, leaving 9 operating in the Marcellus in West Virginia and 5 in the Utica in Ohio, while currently planning just 130 Marcellus and Utica wells in 2015, down from 179 they drilled in the area last year...their announcement followed on the heels of an announcement by Stone Energy of La. that they would nearly halve their operating budget in 2015, from $875 million in 2014 to $450 million this year, with 13% of that to be allocated for abandonment expenditures, as they intended to wrap up their Appalachian work in the 1st quarter and concentrate on Gulf Coast assets...earlier, Gastar Exploration said they would slow down their Marcellus operations and concentrate on those areas with access to the Atlantic Coast Pipeline, while ConocoPhillips cut its drilling budget by 20 percent for 2015, intending to defer spending in North American shale plays, and Colorado based PDC Energy said they're eliminating their funding for Ohio drilling altogether this year...
the US rig count fell again this past week, but not by the record numbers we saw last week....Baker Hughes reported that there were 1633 rigs operating on January 23rd, the lowest rig count since August 2010, which was down 43 from the 1,676 rigs that were operating on January 16th...the count of offshore rigs was unchanged at 54, while land based rigs fell by 43 to 1,579...the number of rigs drilling for oil fell by 49 to 1317, while gas drilling rigs were up by 6 to 316...that leaves the US rig count down 144 from last year at 1777, with oil rigs down 99, gas rigs down 40, and miscellaneous rigs down 5...the major idling of rigs this week was again in Texas, where 13 rigs were shut down, leaving 753 still operating there; meanwhile, North Dakota drillers idled 9 units to drop their total to 147, while Oklahoma rigs dropped 8 to 193...closer to home, Ohio drillers shut down 4 rigs, leaving 44 running, while two were added in Pennsylvania, bringing their total to 193...in addition, the Canadian rig count was down 8 rigs from last week to 432, with oil rigs down 11 to 223, and gas rigs up 3 to 209, while they are now running 158 less drilling rigs than a year ago, with oil rigs down 171, and gas rigs up 13...since we have not recently looked at a picture of this decline, we'll include the Baker Hughes graphic for land based rigs below; you'll notice they had to stretch their graph out a bit to the south to accommodate the downturn...the graph below shows the weekly rig count over the past two years, with the red line graph tracking the count over the past year, while the blue bars represent the weekly count for last year...you can see that land rigs, the great majority of which are now drilled horizontally and fracked, are down by nearly 300 since the OPEC production announcement on Thanksgiving, and expectations are that they'll drop by at least another 500 before the dust settles...
US land based rig count 1/23/15:
US crude oil prices were again broadly lower this week, with the near term contract opening at $48.85 on Monday and falling to close at $47.83 a barrel, prices then fell another dollar on Tuesday but moved back up to $47.30 on Wednesday...they then fell again on Thursday and Friday after the Energy Information Administration announced the largest increase in U.S. crude stocks in at least 14 years, and ended the week at $45.59 a barrel...natural gas contract prices at the Louisiana Henry Hub, however, stayed in a narrow range, bouncing between $2.83 per mmBTU and $2.99 per mmBTU to end the week at $2.986..
this week also saw the discovery of two major spills on northern tributaries of the Missouri River, where cleanup efforts are being hampered by near zero weather and mostly frozen streams...the first spill that hit the newswires resulted from a pipeline rupture under the scenic Yellowstone river in Montana, the same river that saw an independence weekend spill in 2011...and just like that spill, this one resulted from movement of an old 12-inch diameter steel pipe that was buried under the river in the 1950s and was still being used to transport oil from Canada to the US...roughly 50,000 gallons of oil leaked below the ice before the flow was cut off...crews had to cut through the ice to begin the cleanup, but even so the oil reached the water intakes of Glendive, Montana, where 6000 residents were told not to drink or cook with their tap water, as a cancer causing component of oil was detected in their water supply...with the oil moving under the ice toward North Dakota, officials from Williston, the first town in that state that it would reach, were planning to shut their water intakes when they learned of a much larger spill of roughly 3 million gallons of fracking wastewater that had leaked over a period of more than 17 days from a 4 inch pipeline 15 miles north of town, contaminating two nearby creeks with a mixture of brine, oil, ammonium and other contaminants...unlike the 60 year old pipeline that had ruptured under the Yellowstone river, the pipeline that failed here was just 6 months old, indicating if anything that at least the older pipelines were built to last...although the spill had been reported on January 6th, this largest spill in state history was largely ignored as normal in a state that has seen over 1000 spills a year since 2011…with the brine said to be 10 times saltier than sea water and containing radioactive elements, damage to plants and wildlife from this spill could not yet be assessed while most of the area is frozen over....by Friday, the brine from the larger of the 2 contaminated creeks reached the Missouri River, where state officials said they did not expect harm to wildlife or drinking water supplies because the poisons were being diluted by larger volumes of water...
on matters of that larger pipeline known as the Keystone XL, which would cross the Yellowstone River approximately 20 miles upstream from this week's spill site, we learned that TransCanada filed court documents on Tuesday in nine Nebraska counties to start eminent domain proceedings with intent to condemn the 90 properties in that state whose owners have not yet signed the easements it still needs there...in response, the Nebraska property owners have filed new lawsuits in an attempt to overturn the state law that allowed a legal route for the pipeline through the state..surprisingly, TransCanada claims it already has all the easements it needs in Montana and South Dakota to build the pipeline through those states, where landowners were told they had no other option...the fact that they are proceeding to get easements even though it's relatively unlikely the pipeline would even be built suggests that they are engaged in a land grab, using the proposed Keystone route and lax US laws to gain property rights across a large swath of the central US...however, even before TransCanada moved on Nebraska, the first Canadian tar sands crude oil was being delivered to Houston area refineries through the Seaway Pipeline system, via the Flanagan South pipeline through Illinois to the oil depot in Cushing OK, and originating from Enbridge's Alberta Clipper to Wisconsin, a route which we have discussed before...although roughly 250,000 barrels per day had been arriving in Freeport up until last Friday, the newly completed twin Seaway loop is expected to deliver 450,000 bpd henceforth, and an additional loop to run parallel to the existing pipeline is expected to more than double the Seaway’s capacity to 850,000 barrels per day.when completed, slightly more than the expected 830,000 bpd capacity of the Keystone XL...
while all that was going on in the central US, the Senate continued debate on their bill mandating approval of the Keystone XL, which wrapped up with a cloture vote in a midnight session on Thursday night...as we've pointed out previously, this bill that already passed the House by a large majority will easily pass the Senate when it's voted on next week, and the only question that remains now is whether there will be enough votes to override the expected Obama veto...of more pressing interest to those of us in Ohio, though, was the bill that passed the House on Wednesday, which would expedite the automatic approval of all natural gas pipelines that FERC had not approved within a year of their proposal.... the bill passed by a 253 to 169 margin, and it seems a similar bill could easily pass the Republican controlled Senate...offhand, there are at least 4 interstate pipelines involving Ohio that might be expedited by such a ruling; the Rover pipeline project, a 42 inch natural gas pipeline that would originate in eastern Ohio & cross through north central Ohio on the way to Michigan; Atlantic Coast Pipeline, another 42 inch project covering 550 miles, crossing the Blue Ridge Mountains to deliver gas to Virginia from Pennsylvania, Ohio and West Virginia, the Mariner West and Allegheny Access project, which is the Pennsylvania to Michigan Sunoco Logistics pipeline through Mahoning, Portage & Summit counties, which this group has discussed, and the Nexus Gas Transmission pipeline, which will gather gas from Pennsylvania & West Virginia and transport it west through Ohio to Michigan, Indiana, and Ontario...(you'll note an article below about the opposition group Coalition to Reroute NEXUS (CORN), whose efforts seem to be directed at having that route shifted to pass instead through their southern neighbor's properties, obviously a bad strategy)...it goes without saying that if all this gas infrastructure is completed quickly, the area will be seeing fracking for a long time to come..
Ohio Oil Production Sputters, Complicating John Kasich’s Agenda: Ohio’s oil production since 2012 has been far short of state officials’ projections. That’s according to a new report from Opportunity Ohio.Low production plus sharply lower prices could complicate Gov. John Kasich’s plans to pay for a statewide income tax cut by hiking energy taxes, said Matt Mayer, president of the free-market think tank Opportunity Ohio.Mayer’s analysis of records filed with the Ohio Department of Natural Resources revealed yearly statewide oil production tens of millions of barrels short of the Republican governor’s projections. (See chart at bottom.) Ohio is one of several states where drilling for oil and natural gas has increased recently thanks to breakthroughs in hydraulic fracturing, or “fracking.” Since 2012, Kasich has been demanding Republicans in the Ohio General Assembly increase the severance taxes energy companies—and often, landowners—must pay when oil and gas are extracted from Ohioans’ property. In the report, Mayer explained that low oil prices and production guarantee a severance tax hike would not be the revenue source Kasich has been counting on. And even without Kasich’s tax hike, low prices and production are already driving energy companies from Ohio.
New pipeline will help transport oil to county - Zanesville Times Recorder – A new pipeline in Guernsey and Noble counties is slated to transport light oil condensate to points in the surrounding area, including Muskingum County, that will serve major customers in Utica Shale production.. The new pipeline project, including the compression and stabilization facilities, is scheduled for completion in Guernsey and Noble counties in the second half of this year. Open season for the pipeline, which is a process that allows pipeline operators to secure volume commitments from producers before a new pipeline goes into service, was just extended until Feb. 27. The new pipeline will carry oil from the Utica Shale production in Noble and Guernsey counties and will connect to the existing Ohio River Valley pipeline that runs through the Black Run Station in Muskingum County, as well as to the Bells Run Station in Washington County, Wright said. No new construction will take place in Muskingum County, nor will any new wells be drilled in the county in connection with the project. Muskingum County has one hydraulic fracturing well producing in Meigs Township and two others permitted in Meigs and Madison townships, according to the Ohio Department of Natural Resources. Guernsey County has 69 fracking wells, 26 of which are producing, and Noble County has 79 wells, 20 of which are producing, the department reported. The pipeline construction will create about 150 to 200 direct jobs in eastern Ohio, Wright said, adding that EnLink is investing more than $250 million in the project. The new pipeline will have an initial capacity of about 50,000 barrels per day and is expandable based on customer interest. Six natural gas compression and condensate stabilization facilities also will be constructed.
NEXUS opponents discuss strategy - The proposed 42-inch NEXUS pipeline would cross 11 counties in Ohio to deliver 1.5 billion cubic feet of natural gas daily from the Utica shale fields in Kensington, Ohio, to the Dawn Energy Hub in Canada. About 30 members of the Coalition to Reroute NEXUS (CORN) from Lorain, Medina, Fulton, Lucas and Summit counties met at First Church in Oberlin for several hours Saturday during a private strategy meeting. The meeting was planned in part by Paul Gierosky, a York Township resident who has been instrumental in organizing landowners in Medina County who have concerns with the proposed route. During a separate meeting with The Chronicle-Telegram following the strategy meeting, CORN members said they will continue raising their voices in an attempt to reroute the pipeline. CORN is opposed to a pipeline route they call secretive and unsafe, which the group says would travel routes near water towers in some areas and within feet of the foundations of homes in others. According to a map provided by CORN, which shows the proposed route in comparison to population densities, a more southern route would travel through less densely populated areas. NEXUS spokesman Devin Hotzel, who replied to questions through email after the meeting, said pipeline routes are based on environmental, engineering and stakeholder concerns, adding that existing corridors and edges of properties will be used where possible. Hotzel said pipeline reroutes require in-depth examination from multiple departments including project design, engineering, construction and environmental. “This is a lengthy process and can take weeks, even months to examine all the impacts a major reroute has on the rest of a project that stretches 250 miles,” he said.
Falling oil and natural gas prices threaten shale rush - Gastar Exploration is among several companies cutting their drilling forecasts for this year, a sign that lower natural gas and oil prices are starting to hit home in the Marcellus and Utica Shale region. The spot price of natural gas is nearing $3 per thousand cubic feet, the lowest it's been since it fell below $3 per Mcf in mid-2012. The reason is simple: there's just too much natural gas. Consider this: in December 2004, the average daily production of dry natural gas in the United States - the product used in home heating sources - stood at about 2.8 billion cubic feet. In December 2014, production had swelled to more than 39 billion cubic feet per day, according to the U.S Energy Information Administration. There's also more oil, which has led the price per barrel to fall to about $47. That is less than half the $100 per barrel price in July - and is down from about $80 just two months ago. Natural gas liquids, such as ethane, propane and butane, are also in abuncance, leading to lower prices. With prices down and supply up, the local region's drilling boom will suffer. "We have a glut of oil, a glut of natural gas liquids, and a glut of natural gas," R. Dennis Xander, past president of the Independent Oil and Gas Association of West Virginia, said. "It's really just supply and demand." PDC Energy is eliminating its funding for Ohio drilling altogether this year. Oil and natural gas giant ConocoPhillips, meanwhile, slashed its drilling budget by 20 percent for 2015, emphasizing that it will defer spending in North American shale plays.
Antero Resources Presents 2015 Capital Budget & Guidance - Antero Midstream Partners has released its capital budget and guidance for 2015. The partnership allocated capital budget of $1.8 billion for 2015, reflecting a 41% reduction from the 2014 capital budget of $3.05 billion. The budget decrease is primarily due to continuing capital efficiency improvements, a reduction in rig count and the deferral of 50 Marcellus well completions, which were previously scheduled for the second and third quarters of 2015, to 2016. Of the total budget, drilling and completion budget is $1.6 billion, a 33% reduction from the 2014 capital budget of $2.4 billion. The 2015 budget includes the addition of 78 miles of pipeline and eight fresh water storage impoundments to Antero's fresh water distribution system. Since Antero has completed the majority of the main water trunklines within its consolidated acreage position, the 2015 water distribution infrastructure budget is focused on the extension to the existing system to accommodate the ongoing development program. Approximately 60% of the drilling and completion budget is allocated to the Marcellus Shale and the remaining 40% is allocated to the Utica Shale. The partnership plans to operate an average of 14 drilling rigs between the Marcellus and Utica Shale plays in 2015, down from 21 at year-end 2014. Of this, nine drilling rigs would be in the Marcellus Shale in West Virginia and five would be in the Utica Shale in Ohio. Antero also plans to complete 130 horizontal Marcellus and Utica wells in 2015, down from 179 in 2014. Of this, approximately 80 horizontal wells would be in the Marcellus Shale and 50 would be in the Utica Shale.
Stone Energy to cut operating budget in half - Stone Energy of Lafayette has announced it will nearly halve its operating budget in 2015, from $875 million in 2014 to $450 million this year. That budget, authorized by Stone's Board of Directors, will allocate some 75 percent to Deep Water/Gulf Coast assets, 8 percent to Appalachia, 4 percent to business development and 13 percent to abandonment expenditures. In a release published on PRNewswire, the company said, "The capital budget and allocation of capital across the various areas is subject to change based on several factors, including commodity pricing, liquidity, permitting times, rig availability, regulatory, non-operator decisions and the sales of working interests in certain targeted assets."The allocations differ markedly from Stone's 2014 efforts, when it drilled more than 30 wells in the Marcellus Shale, which ranges chiefly from West Virginia to eastern Ohio and Pennsylvania, and increased its operating budget from $825 million to $895 million at the end of the third quarter. The company also drilled its first Utica shale well in Appalachia. The Utica shale is mostly in Pennsylvania and New York. The company said it expects to drill in the Marcellus only in the first quarter. The deep water budget will include the following in the Gulf of Mexico, the company said:
West Virginia, Ohio Energy Firms Slashing Budgets - Amid low low oil and natural gas prices, both Antero Resources and Stone Energy are joining Gastar Exploration and PDC Energy in slashing their Marcellus and Utica shale drilling plans for this year. The price of natural gas again dipped below $3 per 1,000 cubic feet Wednesday, down from $4.60 just two months ago, while oil prices remain around $47 per barrel, compared to $100 in July. As a result, Denver-based Antero will trim its capital budget from $3 billion last year down to $1.8 billion in 2015, roughly a 41 percent cut. Meanwhile, Lafayette, La.-based Stone is slicing drilling funds from $895 million in 2014 to $450 million this year, approximately a 50-percent decrease.Antero Chairman and CEO Paul Rady said the company - which has operations throughout eastern Ohio and northern West Virginia - will defer fracking 50 Marcellus wells that previously had been scheduled to start producing oil and gas by 2016 because of "unfavorable pricing markets." Rady then joined Gastar Senior Vice President Mike McCown in blaming a lack of operational pipeline infrastructure in the Marcellus region for the company's challenges in the area. "Consequently, we have adjusted our Marcellus plan so that we can sell the vast majority of our gas into more favorable markets. We will continue to monitor commodity prices throughout the year and may revise the capital budget lower if conditions warrant," Rady said. At least four major pipeline projects to do just that are in the works, but are not yet complete: the Atlantic Coast Pipeline, the Rover Pipeline, the Leach XPress and the Mountain Valley Pipeline. Despite cutting back on drilling and fracking, Antero expects its daily production to reach 1.4 billion cubic feet this year, a 40 percent increase from 2014. The company expects to produce 37,000 barrels per day worth of natural gas liquids - primarily ethane, propane and butane - this year, driven by development in the wet areas of the Marcellus and Utica.
Complicated by drilling boom, a chronic housing shortage in Greene County gets new attention | marcellus.com: It began in 2005 as an ad hoc collection of trailer hookups tucked away in a backyard in Jefferson Township. Now an RV campground, it flourishes by luring prospective campers with all the amenities: shower facilities, coin-operated laundry, a community room and flexible rates for daily, weekly, monthly and long-term stays. But the campground, which has an entry on the state’s official tourism website, doesn’t cater to vacationers but instead serves a transient wave of natural gas drillers, pipeliners and other short-term natural gas workers drawn by the gas boom in the Marcellus Shale. And as the campground has provided a home — for however long — for weary workers, it has filled the coffers of an unlikely owner: In September, the county’s first-ever comprehensive study on housing was handed to the commissioners office: Nearly a third of the county’s housing stock is more than 75 years old, with just 8 percent built since 2000.The numbers are comparable to those across Pennsylvania, which has some of the oldest houses in the country, according to the U.S. Census. But Greene County missed much of the residential and commercial development that breathed economic life into neighboring Washington and Allegheny counties. With a lack of adequate water and sewer infrastructure, developers have been hesitant to invest, particularly in the rural areas that make up 90 percent of the county south of Pittsburgh.
KEF: Fracking poses threat to groundwater - Environmental activist Craig Williams urged the city of Berea to go on record Tuesday in opposition to hydraulic fracturing in the Berea area. The controversial method of extracting oil and gas from deep shale beds could potentially degrade the water, air and soil in all of Madison County, he said. The same request will be presented to the Madison Fiscal Court and the Richmond City Commission, Williams added. “Needless to say, there are countless people who are concerned about having this sort of exploration and drilling occur in this region,” he said, addressing the council on behalf of the Kentucky Environmental Foundation (KEF). Materials KEF presented to the council outline what it claims are environmental risks of fracking, as the method is more commonly known. These include the assertion that fracking poses risks to ground water. According to KEF, as well as media reports, fracking involves pumping water and potentially carcinogenic chemicals into the ground to extract oil or gas. In a draft resolution submitted by Williams, over 600 potentially dangerous chemicals are employed in the process, many of which are identified as hazardous pollutants, according to the draft. If that is true, Williams said the resulting water pollution from fracking could be devastating.
Groups to intervene in Seneca Lake storage project - Citizen, business and municipal groups, some of whose members have engaged in protests that resulted in mass arrests at the proposed site of a Seneca Lake petroleum storage facility, plan to intervene legally in an attempt to halt the project. At a news conference Friday in Rochester, representatives of the groups said they have engaged lawyers to intervene in the permitting process for the Crestwood Midstream project, which would store up to 88 million gallons of liquified petroleum gas in underground salt caverns. Opponents say the project, which was first proposed five years ago, would be a disaster for residents of the Seneca Lake area and the numerous well-regarded wineries and other businesses there. “This is an industry that cannot co-exist with the growing $4.8 billion Finger Lakes wine industry. I’m asking — which is the better investment?” The focus of the protests is a proposed storage facility for liquid propane and butane, two petroleum components that are extracted from wells like natural gas and oil. The wells typically are hydraulically fractured, a factor that fuels the opposition. Crestwood Midstream, a Texas company, would use caverns carved out of underground salt formations in a now-defunct commercial mining operation. New York has three existing underground LPG storage facilities, but Crestwood said more capacity is needed.
200 Arrests in Ongoing Seneca Lake Uprising - Sandra Steingraber (videos) Jim Connor, 83, was not among the 20 protesters arrested on Monday afternoon as part of the latest human blockade at the entrance gates of Crestwood Midstream two miles north of Watkins Glen, New York. Had the sheriff’s deputies arrived an hour earlier, his name would appear in the list of the now 200 arrests that have take place at these gates since October. But Jim—who uses a walker and was blockading while seated in a lawn chair and wrapped in a blanket—needed to go home after 2.5 hours of turning back trucks with his own body. Which is how the two-dozen original blockaders were whittled down to 20 during a non-violent direct action on a January morning atop an icy hill above Seneca Lake where winds drop effective temperatures well below the already-wickedly-low digits on the thermometer and where the advice, “dress in layers,” means that you pull mittens on over your gloves, wear two coats on top of three sweaters and throw some chemical handwarmers into the toes of your snow boots. But perhaps the reluctant attrition of the elderly, the workers and the parents of toddlers only attests to the homespun determination of this ongoing civil disobedience uprising—now in its third month.As does the enduring presence of the 40 other protesters who rallied for hours in support of the blockaders along the shoulder of the highway. One of them was 90-year-old Martha Ferger of Dryden. I was another.
Next battle over Finger Lakes gas storage facility: an issues conference - The next fight in a long battle over storing liquefied petroleum gas along the western shore of Seneca Lake is an issues conference next month. Opponents to the facility are trying to get a seat at the table along with environmental officials and the gas company. Storing the liquefied gas, or LPG in an expansive network of empty salt caverns along the southwestern shore of this finger lake was first proposed five years ago. The company behind the plan, Crestwood, says there’s a need for more natural gas to heat homes in upstate New York . And it says the facility would be safe. But residents and wineries have fought the plan hard, lobbying state environmental officials. They say industrializing the lakefront wouldn’t gel with the Finger Lakes wine country vibe that’s brought so many tourists.
Army Corps seeks more data on pipeline - The U.S. Army Corps of Engineers has told the planners of the Constitution Pipeline project they must furnish “significant information” for the agency to act on its request to discharge fill material in regulated wetlands. In a Jan. 13 letter to the pipeline company, the federal agency outlined a laundry list of items it still needs before it can act on the company’s application. Data being sought by the Army Corps includes updated estimates of impacts to wetlands and a final feasibility analysis of site-specific plans for trenchless crossing operations that could impact wetlands. It also specifically asked for plans that would “avoid and minimize impact” to “unique and difficult to replace wetlands” on a parcel of nearly 1,000 acres in Delaware County. That property is known by its owners — the trustees for the Henry S. Kernan Land Trust — as the Charlotte Forest. “The analysis should include the results of a geotechnical investigation to ascertain the potential for the use of Horizontal Directional Drilling and further analysis of overland alternative routes that avoid or minimize impacts to Waters of the United States,” Amy L. Gitchell, chief of the upstate New York section of the Army Corp’s regulatory branch. The horizontal directional drilling technique suggested by the Army Corps for that specific property was also recommended by an environmental expert retained by the Kernan family last week at a public hearing the state Department of Environmental Conservation (NYSDEC) held in Cobleskill.
Port Ambrose LNG Export Terminal In Trouble !?$&? - Some people – including the Republican Governor of New Jersey and the Republican leader of the New York State Senator are not supporting the Glorious Scheme to Export American’s Natural Gas Reserves Tax Free from Offshore NY/NJWhat’s wrong with you people ? This facility, which will pay not property, sales or income tax – and is owned by a Cayman Islands tax shelter partnership (think Mitt Romney) and that would employ six (6) full time employees to insure that Americans are doing their part to ship our nation’s fracked gas resources tout de suite to the Ukraine, China, or Brazil. Momentum Building Against Port Ambrose! What a terrific demonstration of bottom-up, grassroots organizing in action: Radiating out from Long Beach, Long Island, the chorus of voices against the Port Ambrose LNG project is amping up in a big way: Not only did we knock it out of the park at the January 7th hearings, there are four new fantastic developments this week alone: 1) The appointment of Senator Brad Hoylman as the ranking Democrat on the State Senate Environmental Committee is a very positive development on any level, and especially for those of us interested in stopping Port Ambrose. Hoylman has been a progressive voice since he was part of the West Village community board (where he opposed the Spectra pipeline). Now, together with Assembly Member Linda Rosenthal, Hoylman has drafted a state legislative sign-on letter to Cuomo opposing Port Ambrose. In coming weeks it will be important for us to be calling our reps to make sure they get a high number of signatories.
LNG Port Ambrose Fight Heats Up - The fight against the Liberty LNG Port Ambrose project has started to catch fire. Hundreds of elected officials, community leaders and local residents met at a public hearing at the JFK Airport Hilton on Wednesday, January 7, to express their thoughts on the liquefied natural gas site proposed off the coast of Jones Beach. Port Ambrose, a deep-water port proposed 16.1 nautical miles south of Jones Beach, would receive ships that carry liquefied natural gas, vaporize it, and would deliver it to Long Island through pipelines. The project would bring 400 million cubic feet of natural gas per day – enough to meet the energy needs of 1.5 million homes. Liberty proposed the project in June 2013 and it was open to public comment during the summer. After releasing a Draft Environmental Impact Statement about the project on December 10, 2014, which stated the environmental impacts of the project would be minimal, the Maritime Administration (MARAD) and the U.S. Coast Guard (USCG) have opened up another public comment period. They hosted two public meetings on the project to get some feedback. More than 100 people registered to speak at the New York meeting, with many showing opposition for the project.
Fracktivists Fight Liquefied Natural Gas Terminal Near NYC - “The whole fight [against Port Ambrose] has been energized by the fracking movement in the last few years,” says John Weber, Mid-Atlantic regional manager for the Surfrider Foundation, an advocacy group that focuses on the health of oceans and coastal ecosystems. Liberty denies that it intends to use the terminal for export. Its CEO told the Associated Press, “This will never be an export project. … It’s crazy to try to export gas from that location; it would be the most expensive gas on the planet.” The project as currently proposed would also not have the permits or cooling technology for LNG exportation. But local activists also worry that approval of Port Ambrose would set a precedent that could lead to approval of LNG export terminals in the same area. And fracktivists oppose building any major fossil fuel infrastructure because they are committed to the broader fight against climate change. Why, they wonder, would we invest in exporting or importing natural gas, when we should instead be building clean energy capacity? “One thing that resonates with people is the availability and desirability of alternatives,” says Patrick Robbins, spokesperson for the Sane Energy Project, a New York-based grassroots anti-fossil fuel organization. Robbins notes that the Port Ambrose site is part of an area in which the federal Bureau of Ocean Energy Management is collecting proposals for an offshore wind farm.
Kansas Officials Admit "Strong Correlation" Between Quakes & Fracking - “If the government and the Kansas Corporation Commission care about the people of Kansas and the damages, they will order a moratorium,” exclaims Joe Spease, chairman of the Kansas Sierra Club's fracking committee following a report from Kansas officials, who have been reluctant to link the mysterious earthquakes in south central Kansas to fracking, admitted last week that "we can say there is a strong correlation between the disposal of saltwater and the earthquakes." As LJWorld reports, it's the first time state officials have so clearly stated the likely cause of the earthquakes, which are afflicting a region where fracking is widely used, as Rick Miller, a geophysicist and senior scientist for the Kansas Geological Survey, said he believes the injection of fracking chemicals into the earth has been a catalyst for the quakes. Questions have long been raised about whether fracking activity is causing the earthquakes, and officials in other states have concluded that it has. But Kansas officials consider the waste water disposal a separate process, and so have not considered the fracking itself to be the key factor in the quakes. At issue now is what, if any, action to take.
Political tremors: Kansas officials link earthquakes to fracking-related process - Kansas officials for the first time have said a sharp increase in earthquakes may be tied to a process connected to fracking -- stoking debate in the state over the controversial drilling practice. Reports of earthquakes in Kansas have shot up recently, particularly in the state's south-central region. Now, scientists are connecting them to the disposal of wastewater that is a byproduct of the oil-and-gas extraction process. Rick Miller, geophysicist and senior scientist for the Kansas Geological Survey, told the Lawrence Journal-World, “we can say there is a strong correlation between the disposal of saltwater and the earthquakes.” During hydraulic fracturing, or “fracking,” operators use a mixture of saltwater and chemicals to break underground rock formations in order to release oil and gas. Then, to get rid of the water, operators inject it deep into disposal wells.
Why Is It Legal to Cause Fracking Earthquakes In Colorado? - This falls in the “You Can’t Make This Shit Up” category in Colorado. Yesterday it was reported that a fracking waste company—NGL Water Solutions DJ LLC—that was linked to causing earthquakes is allowed by Gov. John Hickenlooper’s appointed oil and gas commission to increase their fracking waste injection operations, and it was determined that the company did not violate any law or rule when they likely caused the earthquakes. Further, not only are the fracking waste injections increasing, but the earthquakes are continuing, the biggest of which, in May 2014, was a 3.4 on the richter scale that shook homes and rattled nerves across the region. And, the director of the Governor’s oil and gas commission stated, “We have actively managed this particular circumstance in a way that we feel comfortable with.” You can read the latest on this Colorado earthquake morass in the BizWest newspaper. This is consistent with the industry’s business model to frack first, grab all the money, and leave the problems for taxpayers and homeowners to clean up.”
Oil And Gas Production Is Exposing Californians To At Least 15 Different Kinds Of Pollutants - Two communities in California are being exposed to at least 15 different kinds of pollutants from oil and gas development, according to a new report. And experts don’t yet know how the pollution is affecting residents’ health. The report, published Thursday by environmental group Earthworks, used infrared cameras to record pollution coming out of oil and gas facilities in Upper Ojai in Ventura County, CA and and Lost Hills in Kern County, CA. The infrared camera made it possible for researchers to see pollution being emitted from the facilities that is typically invisible. The researchers also collected air samples from each site. Samples from the Upper Ojai site tested positive for multiple pollutants, including methane, dichlorodifluoromethane, trichlorofluoromethane, propane, isobutene, and ethanol. The Lost Hills samples also tested positive for similar pollutants, and also included a compound that researchers couldn’t identify. Some of the compounds detected in the samples, the report notes, “are known to cause a variety of health effects, ranging from headaches and dizziness, to vomiting and throat irritation. Some compounds are known carcinogens, and can affect the nervous and reproductive systems. Some compounds have not been studied at all, meaning that there is no way to know how they will affect public health.” In all, 15 compounds that are known to impact human health were detected, as well as 11 compounds that had no health data.
Al Jazeera Exposes Deadly Working Conditions for Bakken Oil Workers -- (video) The explosion in drilling for oil on the Bakken Shale in North Dakota has been seen by many as a threat to the environment and the safety of oil workers. There have been concerns over radioactive waste contaminating local water, oil spills, crude by rail fiery explosions and even sex trafficking. Now, Al Jazeera America is looking into how North Dakota became the number one state for worker fatalities. Part of Al Jazeera America’s current affairs documentary series, Fault Lines, Death on the Bakken Shale gives viewers a glimpse into the working conditions of oil drilling operations and exposes why North Dakota has the highest worker fatality rate in the U.S., according to a report by the AFL-CIO. Forty-four workers died in North Dakota in 2011, producing a rate of 17.7 deaths per 100,000 workers. That is more than five times the national average of 3.5 deaths per 100,000 workers. Add to that the fact that between 2009 and 2013, there were more than 9,000 claims of injuries filed by oil and gas workers to North Dakota ’s Workforce Safety and Insurance Agency. Death on the Bakken Shale focuses on three oil workers who lost their lives on the job. Many workers are very inexperienced and not properly trained before engaging in high-risk activities. Bill Wuolu, training director for the nonprofit North Dakota Safety Council, says “what we’re getting is workers that are doing jobs that they’re not trained, skilled or maybe even qualified for.”
North Dakota Pipeline Spills Nearly 3 Million Gallons Of Drilling Waste Into Creeks - Almost 3 million gallons of saltwater drilling waste spilled from a North Dakota pipeline earlier this month, a spill that’s now being called the state’s largest since the North Dakota oil boom began. The brine, which leaked from a ruptured pipeline about 15 miles from the city of Williston, has affected two creeks, but it doesn’t currently pose a threat to drinking water or public health. The pipeline’s operator — Summit Midstream Partners — discovered the spill on Jan. 6, but officials didn’t find out about the true size of the spill until this week. The pipeline company has been trying to clean up the spill by vacuuming water from the creek, but in doing so, they’re also capturing a lot of fresh water. “The problem is that … the creekbed is kinda being replenished with water so we extract, it fills; we extract, it fills,” John Morgan, a spokesman for Summit Midstream told the Grand Forks-Herald. North Dakota Department of Health Environmental Health Section Chief Dave Glatt said he hasn’t seen any impacts to wildlife yet, but officials won’t likely know the full impact until all the ice melts. Officials have discovered chloride concentrations in Blacktail Creek as high as 92,000 milligrams per liter — far higher than normal concentrations of about 10 to 20 milligrams per liter. “That has the ability to kill aquatic life and so we’ll want to see if the aquatic life was able to get out of the way, and if they weren’t, how badly they were impacted,”
Nearly 3M gallons of brine spill; ND oil boom's largest leak - Nearly 3 million gallons of saltwater generated by oil drilling have leaked from a North Dakota pipeline, an official said Wednesday, the largest such spill since the state's current oil boom began and nearly three times worse than any previous spill. Two creeks have been affected, but the full environmental effect might not be clear for months. Operator Summit Midstream Partners LLC detected the pipeline spill on Jan. 6, about 15 miles north of Williston and told health officials then. Officials say they weren't given a full account of the size until Tuesday. Cleanup has begun and inspectors have been monitoring the area, but it will be difficult to measure the effects on the environment and wildlife until the ice melts, said Dave Glatt, chief of the North Dakota Department of Health's environmental health section. Some previous saltwater spills have taken years to clean up. "This is not something we want to happen in North Dakota," Glatt said. At the moment, the spill doesn't threaten public drinking water or human health, Glatt said. He said a handful of farmers have been asked to keep their livestock away from the two creeks, the smaller of which will be drained. The saltwater, known as brine, is an unwanted byproduct of oil and natural gas production that is much saltier than sea water and may also contain petroleum and residue from hydraulic fracturing operations.
Three-million-gallon drilling waste spill is North Dakota's worst, but far from the state's only one: Sixteen days ago, Operator Summit Midstream Partners found a toxic leak of salty drilling waste from a pipeline in western North Dakota, the heart of the Bakken oil boom. Although it reported the leak to the state's department of health immediately, it wasn't until Tuesday when officials learned that nearly three million gallons of the stuff had leaked into two creeks. This makes it the largest spill of its type since the North Dakota oil boom began about a decade ago. A clean-up is underway, but the full extent of the environmental damage is not yet known and may not be for a long time. That, in part, is because they don't know what caused the leak nor how long it allowed toxins to spill into the creeks. Effects from such spills can last for decades. Katie Valentine reports: North Dakota Department of Health Environmental Health Section Chief Dave Glatt said he hasn’t seen any impacts to wildlife yet, but officials won’t likely know the full impact until all the ice melts. Officials have discovered chloride concentrations in Blacktail Creek as high as 92,000 milligrams per liter—far higher than normal concentrations of about 10 to 20 milligrams per liter. “That has the ability to kill aquatic life and so we’ll want to see if the aquatic life was able to get out of the way, and if they weren’t, how badly they were impacted,” While this is the largest such spill, it's far from the only one. Two-and-a-half years ago, the investigative website ProPublica reported that oil companies had revealed more than 1,000 reported spills in 2011. Most of these were said to be small, but the investigation found that in several cases they were much larger than first claimed. In addition, there is considerable illicit dumping.
Worst Fracking Wastewater Spill in North Dakota Leaks 3 Million Gallons Into River Three million gallons of brine, a salty, toxic byproduct of oil and natural gas production—also known as fracking wastewater—spilled from a leaking pipe in western North Dakota. State officials say it’s the worst spill of its kind since the fracking boom began in the state. The spill was reported 17 days ago when Operator Summit Midstream Partners found a toxic leak of salty drilling waste from a pipeline in the heart of the Bakken oil boom. Officials say there’s no immediate threat to human health but as Marketplace’s Scott Tong reports yesterday, there could be trouble ahead. He interviews Duke geochemist Avner Vengosh who has sampled frack wastewater and has found that “North Dakota’s is 10 times saltier than the ocean, that endangers aquatic life and trees, and it has ammonium and radioactive elements.” Tong also interviewed Hannah Wiseman, law professor at Florida State, who says the disposal of fracking wastewater is underregulated.“A typical well can spit about 1,000 gallons a day,” says Tong. “Some of the water is recycled back into fracking, stored in pits or used to de-ice roads. It’s also injected deep underground, which has been known to cause earthquakes.” Wiseman shares that fracking wastewater issues also exist in Ohio,Oklahoma and Texas. And, for the latest update on the spill, watch last night’s MSNBC’s The Rachel Maddow Show:
North Dakota pipeline leaks crude oil, 3mn gallons of fracking byproduct — RT USA: Nearly 3 million gallons of saltwater and an as yet unknown amount of crude oil have leaked from a northwest North Dakota pipeline into a creek that feeds into the Missouri River. Officials have called the leak the largest of its kind in state history. The leak in the 4-inch saltwater collection line, owned by Summit Midstream Partners LP and operated by subsidiary Meadowlark Midstream Co., was discovered earlier this month and was reported to the state on January 7, according to Reuters. The pipeline, about 15 miles north of Williston, will be out of commission for an undetermined amount of time, Summit said. Although Williston residents receive drinking water that comes from the Missouri River, the leak does not threaten supplies, according to the North Dakota Department of Health. However, the city has the ability to shut off collection valves to avoid harmful water, Reuters reported. Yet some of the brine made it to the Missouri River, the Williston Herald reported, and the state found "high readings" of contamination at the confluence of the Little Muddy and Missouri Rivers southeast of Williston, according to Karl Rockeman, the director of water quality at the Department of Health. Williston sits in the middle of North Dakota’s oil boom, and the saltwater is said to be a byproduct of hydraulic fracturing, or fracking.
Environment official: Saltwater spill reached Missouri River -- Water testing has shown that saltwater contamination from a massive pipeline spill in northwestern North Dakota reached the Missouri River, the state's environmental chief said Friday, adding that officials don't expect harm to wildlife or drinking water supplies because it was so diluted. Blacktail Creek and the Little Muddy River were contaminated after nearly 3 million gallons of saltwater leaked this month from a pipeline operated by Summit Midstream Partners LLC, the largest spill of its kind in the state since the current energy boom began. Testing showed elevated levels of chloride contamination where the Little Muddy River empties into the Missouri, but the levels diluted to within water quality standards almost immediately, said Dave Glatt, chief of the North Dakota Department of Health's environmental health section. He said the contaminants diluted quickly because of the size of the river and its volume of water. "We're not anticipating any public impacts, we're not anticipating any wildlife impacts," Glatt said. "But we'll continue to monitor."
DOT delays final rule for rail tank cars -- Final regulations for phasing out older freight-rail tank cars carrying crude oil and ethanol will be released May 12 instead of March 31 as originally planned, according to the U.S. Department of Transportation. The delay, which the department announced this week, also will apply to the release of standards for the next generation of replacement tankers. It comes after many railroad industry groups warned in public comments that the proposed phase-out of DOT-111 tankers carrying Class 1 flammable materials by October 2017 and a phase-out of those carrying Class 2 liquids by October 2018 will lead to shortages of tank cars. In a joint filing, the Association of American Railroads (AAR) and the American Petroleum Institute (API) contend the tank car industry doesn’t have the capacity to retrofit the estimated 143,000 tank cars that would need to be modernized to meet the new specifications. Nor can manufacturers build new tank cars fast enough, they say. About 70 percent of crude oil shipped to refineries from the Bakken Shale Formation in North Dakota and Montana -- and 70 percent of ethanol shipped to refineries -- is transported by rail, according to the American Fuel and Petrochemical Manufacturers, a trade group representing 120 U.S. refineries. Most of rail shipments are on unit trains containing at least 100 tank cars filled with crude oil or ethanol. That has raised safety concerns in communities adjacent to the routes.
Federal Court Order: Explosive DOT-111 "Bomb Train" Oil Tank Cars Can Continue to Roll - Steve Horn - A U.S. federal court has ordered a halt in proceedings until May in a case centering around oil-by-rail tankers pitting the Sierra Club and ForestEthics against the U.S. Department of Transportation (DOT). As a result, potentially explosive DOT-111 oil tank cars, dubbed “bomb trains” by activists, can continue to roll through towns and cities across the U.S. indefinitely. “The briefing schedule previously established by the court is vacated,” wrote Chris Goelz, a mediator for the U.S. Court of Appeals for the Ninth Circuit. “This appeal is stayed until May 12, 2015, or pending publication in the Federal Register of the final tank car standards and phase out of DOT-111 tank cars, whichever occurs first.” Filing its initial petition for review on December 2, the Sierra Club/ForestEthics lawsuit had barely gotten off the ground before being delayed. That initial petition called for a judicial review of the DOT's denial of a July 15, 2014 Petition to Issue an Emergency Order Prohibiting the Shipment of Bakken Crude Oil in Unsafe Tank Cars written by EarthJustice on behalf of the two groups. On November 7, DOT denied Earthjustice's petition, leading the groups to file the lawsuit. Initially, DOT told the public it would release its draft updated oil-by-rail regulations by March 31, but now will wait until May 12 to do so. As reported by The Journal News, the delay came in the aftermath of pressure from Big Oil and Big Rail. “In a joint filing, the Association of American Railroads (AAR) and the American Petroleum Institute (API) contend the tank car industry doesn’t have the capacity to retrofit the estimated 143,000 tank cars that would need to be modernized to meet the new specifications,” wrote The Journal News. “Nor can manufacturers build new tank cars fast enough, they say.” The “bomb trains” carrying volatile crude oil obtained via hydraulic fracturing (“fracking”) from the Bakken Shale, then, will continue to roll unimpeded for the foreseeable future. They will do so in the same DOT-111 rail cars that put the fracked oil-by-rail safety issue on the map to begin with — the July 2013 deadly explosion in Lac-Mégantic, Quebec.
BNSF adds oil trains, changes route in Nebraska: BNSF Railway more than tripled the number of trains it moved through Nebraska with a million gallons of oil or more aboard late last year and has changed its route to bypass Lincoln, at least for some trains. Reports filed with the Nebraska Emergency Management Agency show that late last year BNSF expanded the number of oil trains it was required to report from three per week in July to a range of seven to 14 per week. Railroads must report trains that carry at least a million gallons of oil -- about 35 tank cars -- from the Bakken formation in North Dakota and Montana. Last week, since the price of oil has continued to plummet even more, the railroad filed a new report that said it was moving about a dozen trains. BNSF says it must report changes of at least 10 percent of traffic. A map filed with the documents shows changes from the 230-mile route the BNSF filed in July. The original route ran from South Sioux City in northeast Nebraska south through Fremont, Ashland, Waverly, Lincoln and on southeast to Rulo, where it crossed the Missouri River. In addition to the 11 Nebraska counties originally named, a new route filed late last year added Sarpy County.
On to Plan B as Oil Work Stalls in Texas - With oil prices plummeting by more than 50 percent since June, the gleeful mood of recent years has turned glum here in West Texas as the frenzy of shale oil drilling has come to a screeching halt.Every day, oil companies are decommissioning rigs and announcing layoffs. Small companies that lease equipment have fallen behind in their payments.In response, businesses and workers are bracing for the worst. A Mexican restaurant has started a Sunday brunch to expand its revenues beyond dinner. A Mercedes dealer, anticipating reduced demand, is prepared to emphasize repairs and sales of used cars. And some well-off oil company managers are cutting back at home, rethinking their vacation plans and cutting the hours of their housemaids and gardeners.It’s at times like these that Midland residents recall the wild swings of the 1980s, a decade that began with parties where people drank Dom Pérignon out of their cowboy boots. Rolls-Royce opened a dealership, and the local airport had trouble finding space to park all the private jets. By the end of the decade, the Rolls-Royce dealership was shut and replaced by a tortilla factory, and three banks had failed.
How Not to Ban Fracking -- Am not a zoning attorney, nor do I play one on YouTube, but I know a good land use law when I see one, and the frack ban in Mora County struck me when it was passed as a bit loopy. Here’s my take on it at the time – the New Mexico county did not base their ban on a comprehensive land use plan, or on zoning case law, or on anything that resembled land use law. Unfortunately a federal judge agreed with me and tossed it. A federal judge this week struck down a New Mexico county’s fracking ban in one of a growing number of regulatory fights over the controversial method of extracting natural gas and oil from deep rock underground. U.S. District Judge James Browning ruled Mora County’s 2013 ban on oil and gas drilling is unconstitutional, prohibiting corporate activities protected by the First Amendment. Browning’s order also said the ban violates state law and that it could not be enforced on lands owned by the state. Fortunately, there is a right way for a county or town or city to control or ban fracking, but that entails hiring an honest-to-god land use planner and a zoning attorney that can walk and chew gum at the same time. If your town/ county/city does not do that, good fracking luck in court. Mora County’s approach was to challenge a corporation’s right to frack. That is not how land use law works. I will believe that corporations are people when Texas executes one with some leftover poison, but until then, for godsakes, hire a land use attorney to do zoning law. OK ?
Lou Allstadt on Fracking -- Original video source Fracking companies push people out of homes (and then buy their silence) Download video (248.34 MB) America’s young fracking industry has been hailed and embraced by government officials. But energy independence comes at a cost: fracking pollutes rivers, causes earthquakes and spills waste on surrounding land. Is the price worth paying? How dire are the consequences of fracking? And why isn’t the public more alarmed? Today we ask these questions of a former vice-president of Mobil, now an anti-fracking activist. Lou Allstadt is on Sophie&Co today.
Map: The Fracking Boom, State by State -- As debate intensifies over oil and gas drilling, most states with frackable reserves are already fracking—or making moves to do so in the near future. That translates to 22 states, from California to Texas, Michigan to West Virginia, currently employing this high-intensity form of energy extraction, and five others may soon follow. Called high-volume hydraulic fracturing, or fracking, the controversial process became commercially viable in the late 1990s. It generally involves injecting millions of gallons of water, along with sand and chemicals, down a well to extract oil-and-gas reserves that were previously hard to access. InsideClimate News compiled a comprehensive map of the nation's fracking activity. This state-by-state breakdown will be periodically updated. Fracking is used differently in each state, depending on the available fossil fuels. Texas has thousands of wells that tap into deeply buried shale deposits. By contrast, in Indiana, fracking occurs for a small percentage of wells. Tennessee and Kentucky are outliers. While both states allow high-volume fracking (modern fracking), drillers there tend to use other extraction techniques that can involve injecting nitrogen gas underground. Illinois is the most recent state to allow modern fracking. The legislature there passed new rules in late 2014, and regulators are waiting for applications. Both North Carolina, which is finalizing rules, and Maryland, which is launching into the rulemaking effort, aren't far behind. Meanwhile, drillers in Alaska are exploring fracking's potential in the state. But there's been little interest in Florida, which technically allows the practice.
Amid U.S. oil price crash, cost cutting ripples through industry (Reuters) - Any lingering doubt about the depth of the crisis facing the U.S. energy industry is quickly evaporating as even the biggest firms slash spending amid the steepest oil price crash since the recession, sending ripples across the vast sector. In a stark sign of how a sudden, 60 percent drop in oil prices is biting, oil services giant Schlumberger Ltd on Thursday said it will reduce spending this year by 25 percent and fire 9,000 workers worldwide, surprising investors with the size of the cuts. As activity slows and drillers idle rigs at the fastest pace in more than 20 years, the magnitude and speed of the changes are surprising firms that provide some of the raw materials and equipment essential to drilling that even two months ago hoped to dodge the ill effects of the slowdown. "There is total chaos and uncertainty and it is impacting the whole ecosystem," said Aamer Sarfraz, chief executive of United Guar, which provides guar gum used in fracking to major oil service firms. Schlumberger's announcement lays bare the strain that a supply glut and subsequent dive in prices is putting on the engine room of the U.S. fracking boom: the oil service firms like Schlumberger and rivals Baker Hughes Inc and Halliburton Co that provide drilling services for thousands of wells across the country. Service firms, desperate to cut costs, asked Sarfraz to lower the price of his company's guar by 30 percent as soon as possible in meetings held in recent days. Other suppliers are being met with similar demands, he said, and even existing contracts are being withdrawn. "We're definitely in the fall out phase. It's going to get ugly."
BHP cuts shale investment amid drop in oil price - FT.com: BHP Billiton is cutting its shale oil investments and reducing the number of rigs it operates onshore in the US by 40 per cent due to the drop in oil prices. The world’s biggest miner by market capitalisation said on Wednesday that the revised drilling programme would boost efficiency but added that its shale spending programme remained under review. “In petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in the onshore US business by approximately 40 per cent by the end of the financial year,” said BHP. This will reduce the number of rigs it operates to 16, down from 26. BHP’s drilling programme will be focused on its higher quality liquids-rich Black Hawk acreage in southern Texas. Noting that many of BHP’s peers were also cutting rig numbers at their shale oil operations in the US, Glyn Lawcock, UBS analyst, said: “I would expect this to have an impact on production. In the case of BHP we expect impact to financial year 2016 production, but not necessarily financial year 2015 production, given rigs will come offline towards the end of 2015.”
OilPrice Intelligence Report: Oil Majors Taking Ruthless Measures To Survive -- Across the board, many oil majors are taking the butcher’s knife to operations, cutting jobs and capex in unprecedented numbers. Spending on global exploration and production could fall over 30 percent this year, the greatest drop since 1986, should markets remain depressed. Bank of America are predicting Brent futures to fall to $31 by the end of the first quarter this year, over $5 below the lows of the 2008 financial crisis, citing rapidly growing global inventories as the cause of such a substantial drop. News such as this has spurred the latest round of massive cutbacks across most sectors in the oil and gas industry. BP will cut 300 jobs in Scotland with ConocoPhillips cutting 230 in Britain overall, Suncor Energy will reduce staff by 1000, while Schlumberger expects to axe over 9000 jobs in total this year. Continental Resources slashed its spending for 2015 by 41 percent last month, while Range Resources Corp. reduced theirs by 33 percent. Shell has cancelled a $6.5 million project in Qatar and Statoil has shelved exploration plans in Greenland. However, it’s not all bad news, at least for one major oil producer. This week saw a ruling in the case against BP on the final amount spilled into the Gulf of Mexico following the Deepwater Horizon incident. Despite government calculations of 4.2 million barrels, Judge Carl Barbier judged that 3.19 million barrels were spilled into the ocean, thus reducing the maximum potential penalty that could be imposed on the British company. The final amount of fines will be decided at trial next week with the law allowing for a maximum penalty of $4,300 per barrel, or $13.7 billion, down from a potential maximum of $18 billion. So far, BP has paid out over $28 billion in clean up and claims, with $3.5 billion currently set aside to handle the first installment once the trial has been concluded.
U.S. Department of Energy: Our forecasts aren't really forecasts (or are they?) - The U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, does not issue forecasts, at least not long run forecasts. So says Howard Gruenspecht, deputy administrator of the EIA, in a letter to Nature, the respected science journal. Gruenspecht was responding to recent coverage of an alleged EIA forecast which paints a rosy picture of U.S. domestic oil and natural gas production through 2040, a view challenged by the article in question. Here is the bureaucratese from the letter: "Contrary to the presentation in the Nature article, EIA does not characterize any of its long run projection scenarios as a forecast." Long run projection scenarios....huh. What could those actually be if not forecasts? And, why is the deputy administrator making such a big deal of this? To cut to the chase, Nature stands by its story; and, I see no reason why it shouldn't. I have been perusing the EIA's statistics on an almost weekly basis for years, and I have occasionally offered critiques of what I was sure were forecasts--lengthy complicated documents with color graphics and tables and elaborate justifications for energy production numbers far into the future. What's more, everyone else called these documents forecasts, too. How could I have made such a mistake? As it turns out, I didn't. The words "forecast," "forecasts" and "forecasting" appear 49 times by my count in the EIA's most recent nonforecast, its Annual Energy Outlook 2014 with projections to 2040. Those instances include this laudable gem: "By law, EIA’s data, analyses, and forecasts are independent of approval by any other officer or employee of the United States Government." One of the most frequent occurrences is as part of the web address of the report: www.eia.gov/forecasts/aeo. Yes, the "aeo" in the address refers to "Annual Energy Outlook." Click on the link and see the nonforecast forecast for yourself. Now, why am I making such a big deal of this? I'm making a big deal of this because practically the entire world of policymakers, of business and governmental leaders, takes the EIA's nonforecasts very seriously. These leaders make critical policy and business decisions based on the "projections" in the nonforecasts.
Turns Out the US Oil Boom Was Just a Fairy Tale - With one quick drop in the price of oil, the shale oil boom is officially bust. In less than a week, 61 oil rigs across the United States closed up shop, according to the most recent rig count from Baker Hughes. The U.S. has 1,750 oil rigs still hunting for new oil wells, but that number is expected to fall by another 400 rigs by the time spring rolls around. The whole episode is a wake-up call about just how much of a fairy tale North America’s oil boom really was. It was a fairy tale with real drills, sure — and since it was exempt from the Clean Air and Clean Water acts, it will continue to have real consequences for the people living near it. But when it costs Saudi Arabia $10 to get a barrel of oil and it costs shale oil operations around $65 to make that same barrel, it should have been obvious that America was only a titan of oil production because another country was letting us be. “Those who are producing the most expensive oil — the rationale and the rules of the market say that they should be the first to pull or reduce their production,” Suhail Al Mazrouei, oil minister for the United Arab Emirates, told reporters recently, sounding more than a little like an Econ 101 professor. “If the price is right for them to produce, then fine, let them produce.” That price — which was $110 per barrel this summer, and $80 three months ago — is now hovering at $46. Goldman Sachs estimates that it will drop to $40 in a few months, since it will take a while for production to slow down and adjust to the new pricing. the United States has cut 10 percent of its oil exploration, and Canada has cut back 25 percent Since late November, the United States has cut 10 percent of its oil exploration, and Canada has cut back 25 percent. If this continues, expect the oil boom towns of Alberta, Texas, North Dakota, and Colorado to start looking more like ghost towns.
Oil Glut, Collapsed Prices, Layoffs Be Damned: Production Soars -- Layoff announcements have been ricocheting around the oil and gas sector, fleshed out with individual stories that percolate up to me. The entire sector is cutting operating costs and capital expenditures as fast as they can crunch the numbers. Revenues are plunging largely in sync with the collapsing prices of oil and natural gas. Today, French oil giant Total’s CEO Patrick Pouyanne, while hobnobbing at the World Economic Forum in Davos, said that his company would “limit” its investments in US shale fields at least until prices come back up – “my instructions have been pretty clear,” he said. On Tuesday, Oilfield services provider Baker Hughes, which is being acquired by Halliburton for almost $35 billion in a masterful piece of Wall Street engineering, chimed in with its own job cuts; its customers in the oil patch are slashing their capital expenditures and what they will pay Baker Hughes as their revenues are plunging due to the collapsing price of oil. The chain reaction goes on. Baker Hughes is going to axe 7,000 employees, mostly in the first quarter. That’s about 11.5% of its headcount! Acquirer Halliburton, which has already cut 1,000 people outside North America in the fourth quarter, out of the 80,000 it employs worldwide, would do some cutting of its own at home. “Headcount adjustments” was the term COO Jeffrey Miller used during the earnings call, without going into details. Both companies get about half of their revenues from North America, which they expect to get hit harder than the rest of the world. On Monday, oilfield services giant Schlumberger said it would cut 9,000 jobs. BP and ConocoPhillips already announced major budget cuts, as have dozens of smaller companies. Charge-offs are piling up. And it’s just the beginning..
Shale Debt and Its Implications - We have all been held spell bound by the recent precipitous plunge in oil prices. The implications are the stuff of conjecture, conspiracy theories and just plain interesting conversation. Adding to this conversation, it would appear that another troubling trend has possibly emerged. It is well known that the Fed has kept interest rates artificially low for a considerable period of time. There are many good arguments to be made as to why this should be so. Nevertheless, there is also a reasonable argument to be made that low interest rates encourage investors to chase yield. In other words, investors may be more inclined to invest in higher risk businesses than usual because these businesses provide a higher return in an otherwise artificially low return environment. Many argue that this encourages bubbles within the markets. What it certainly causes is the increased use of debt by corporations. Debt overall, in the oil and gas industry, has grown threefold since 2006. The “shale revolution”, according to S&P, was approximately 75% funded by junk debt. Further, it was not funding itself out of cash flow. Not even close. Is this a bad thing? It all depends on your perspective. Examining the debt to equity ratio in some shale companies, it becomes readily apparent that debt was decidedly the preferred choice of funding. This makes sense in that money has been cheap and equity has always been an expensive way to fund. But like all else in life, debt must be managed in moderation. When examining a company, one usually looks for a debt to equity ratio percentage of less than .80. As we can see the only one these companies that is any where near this level is Pioneer and they are still pushing the edge. Looking at Continental in comparison, we see that creditors have twice as much money in the company as equity holders. For Range, we see a similar pattern. Significantly more money from creditors. Another interesting way of looking at this is to divide net income, which is a company’s total earnings or profits, into its long term liabilities and see just how long it would take to pay off that debt. In Range’s case, it will take about 20 years. For Continental, about 11 years. And that is using 100% of their profits year in, year out.
These Shale Companies Will File For Bankruptcy First: Goldman's "Best And Worst" Shale Matrix -- Over a month ago we presented a ranking of "America's most levered energy companies." Since then they have all, without exception gotten clobbered, not only in their publicly traded stock but also their debt. Today, long after the liquidation whirlwind has left junk bond owners dazed and confused, Goldman catches up, and lays out a matrix of shale companies sorted not only by leveraged (they see 2.5x as the cutoff; we used 4.0x) but also by shale asset quality. From there, it also lays out the various opportunities, if any, available to the management teams in the resultant 4 quadrants. Readers will be most interested in the "restructuring/bankruptcy" option, most applicable for Group 4, because these are the names which, all else equal, will file for bankruptcy first.
A Solemn Pause - Kunstler - Events are moving faster than brains now. Isn’t it marvelous that gasoline at the pump is a buck cheaper than it was a year ago? A lot of short-sighted idiots are celebrating, unaware that the low oil price is destroying the capacity to deliver future oil at any price. The shale oil wells in North Dakota and Texas, the Tar Sand operations of Alberta, and the deep-water rigs here and abroad just don’t pencil-out economically at $45-a-barrel. So the shale oil wells that are up-and-running will produce for a year and there will be no new ones drilled when they peter out — which is at least 50 percent the first year and all gone after four years. Anyway, the financial structure of the shale play was suicidal from the get-go. You finance the drilling and fracking with high-yield “junk bonds,” that is, money borrowed from “investors.” You drill like mad and you produce a lot of oil, but even at $105-a-barrel you can’t make profit, meaning you can’t really pay back the investors who loaned you all that money, a lot of it obtained via Too Big To Fail bank carry-trades, levered-up on ”margin,” which allowed said investors to pretend they were risking more money than they had. And then all those levered-up investments — i.e. bets — get hedged in a ghostly underworld of unregulated derivatives contracts that pretend to act as insurance against bad bets with funny money, but in reality can never pay out because the money is not there (and never was.) And then come the margin calls. Uh Oh….In short, enjoy the $2.50-a-gallon fill-ups while you can, grasshoppers, because when the current crop of fast-depleting shale oil wells dries up, that will be all she wrote. When all those bonds held up on their skyhook derivative hedges go south, there will be no more financing available for the entire shale oil project. No more high-yield bonds will be issued because the previous issues defaulted. Very few new wells (if any) will be drilled. American oil production will not return to its secondary highs (after the 1970 all-time high) of 2014-15. The wish of American energy independence will be steaming over the horizon on the garbage barge of broken promises. And all, that, of course, is only one part of the story, because there is the social and political fallout to follow. The table is set for the banquet of consequences. The next chapter in the oil story is more likely to be scarcity rather than just a boomerang back to higher prices. The tipping point for that will come with the inevitable destabilizing of Saudi Arabia, which I believe will happen this year when King Abdullah ibn Abdilaziz, 91, son of Ibn Saud, departs his intensive care throne for the glorious Jannah of virgins and feasts.
UK's shale gas revolution falls flat with just 11 new wells planned for 2015 -- The UK government’s planned shale gas revolution has barely got out of the starting blocks with just 11 new exploratory wells for shale gas and oil due to be drilled this year even before the impact of plunging oil prices has fully begun to impact on the industry. David Cameron has said the government is going “all out for shale” but just a handful of new wells are in line to be created in 2015 and just nine wells – eight new and one existing – have been announced as candidates for fracking. Professor Jim Watson, research director at the UK Energy Research Centre and author of a recent report on the potential for shale gas in the UK, said that statements by politicians on shale gas’s potential had been speculative. “Given the low number of wells that have been drilled in the UK, and the very low level of experience of shale gas production here, it is far too early to say how much shale gas could be produced.... The prime minister’s statement that shale could provide gas for the UK ‘perhaps for as long as 30 years’ is therefore very speculative and optimistic,” said Watson. He added that it was unlikely the UK would have a significant shale industry until the early 2020s and even then the UK would still need to import the majority of its gas.
Oil Industry Withdraws From High Cost Areas -- The oil industry is pulling back from some marginal areas of operation, slashing jobs and spending, and retrenching in the face of the ongoing slump in oil markets. Signs of a shrinking footprint are beginning to pop up across the globe. Norway’s Statoil has let three of its exploration licenses expire in Greenland, an acknowledgement that exploring in frontier lands no longer makes sense with oil at $50 per barrel. Not too long ago, Greenland was hyped as an unexplored and pristine new oil region. The excitement was enough to fuel a bit of an independence movement within Greenland to pull away from Denmark. However, drilling in Greenland would be highly technical, expensive, and would present geological and environmental risk. Statoil has decided to shelve its plans for now. Statoil also put an end to negotiations with Lundin Petroleum over building an oil terminal in Norway’s far north. Building an Arctic terminal would aid the development of several offshore oil and gas fields in the Barents Sea, where the companies each have made several discoveries. Elsewhere, there are signs of a major contraction. Tullow Oil, a British oil company that drills in West Africa, has taken a $2.7 billion write-off. It is dialing back its drilling plans significantly, slashing exploration spending down to $200 million, about one-fifth of what it was just a year ago. For their part, the economies of African oil-producing countries are suffering under low prices. And in the U.K. the oil industry is facing an existential crisis. BP announced on January 15 that it would lay off 300 workers there. That follows last month’s announcement by ConocoPhillips that it planned on laying off 230 of its workers. After BP’s announcement, Energy Secretary Ed Davey flew to Aberdeen and said that the British government was “determined to do everything we can” to stem the job losses. But many of the oil fields in the North Sea are maturing and highly expensive. As long as oil prices remain low, much of the reserves could become stranded assets.
More oil jobs are disappearing: Baker Hughes cuts 7K jobs - Baker Hughes (BHI) became the latest energy company to cut costs, revealing plans on Tuesday to slash 7,000 jobs and cut capital spending by 20%. The company, which provides tools and services to oil companies, blamed declining drilling activity and a slowdown in spending. "Our industry is clearly in the early stages of a down cycle, the same sort of cycle we enter once or twice a decade," Baker Hughes CEO Martin Craighead told analysts during a conference call. The layoffs are the latest reminder that while cheap energy is great for the overall U.S. economy, it's causing economic pain for many Americans. That's especially true in the previously booming state of Texas, where Baker Hughes is based. Related: Cheap oil is killing my job Baker Hughes said most of the job cuts are expected to occur during the first quarter. The company estimates the layoffs will cost as much as $185 million in severance expenses. The cost cutting may not end there either. Baker Hughes, which recently agreed to be acquired by rival Halliburton (HAL), is reviewing its operations for potential facility closures as well. "This industry can't simply hope and wait for oil to climb back over $100 a barrel, instead, we must adapt to a new reality of sustained lower commodity prices," Baker Hughes is hardly alone in cutting jobs. Recently, rival Schlumberger announced plans to lay off 9,000 workers and Civeo, a provider of housing for oil workers, said it would cut 1,000 jobs.
Baker Hughes to axe 7,000 jobs - FT.com: Oil drilling is falling faster in North America than in the rest of the world, according to Baker Hughes, which on Tuesday announced plans to cut 7,000 jobs in the first quarter of this year in response to the plunge in oil prices. The oil services company warned of “challenging” conditions ahead, with the industry in the early stages of a downturn of the type seen once or twice every decade. Martin Craighead, chief executive, told analysts on a call: “This industry can’t simply hope and wait for oil to climb back over $100 a barrel. Instead, we must adapt to a new reality of sustained lower commodity prices.” Halliburton, the rival oil services company that last November agreed a takeover of Baker Hughes now valued at $26.8bn, also on Tuesday highlighted a sharp slowdown in activity. Dave Lesar, Halliburton’s chief executive, said spending by the oil companies that are its customers had on average been cut 25-30 per cent, “as they adjust their spending to operate within their cash flows” in response to falling oil prices. He added that many customers were still revising their budgets down, making it “difficult to size your business in today’s US market in particular because it is such a fast-moving target”. Baker Hughes’ planned job cuts represent about 12 per cent of its global workforce of about 59,000.
Impact of oil price rout starkly evident in North America - FT.com: In the trial of strength in global oil markets, it is the North American producers that are flinching first. The fall in the internationally traded crude price of more than 55 per cent since last June has put oil-producing companies and countries everywhere under pressure. In the past week, though, there has been a clear message in results from Schlumberger, Halliburton and Baker Hughes, the three largest international service companies that support oil and gas producers with activities such as drilling, completing and analysing wells. All three say activity is dropping off much more sharply in North America than in the rest of the world. The oil price has been falling so fast that forecasting is difficult. As Paal Kibsgaard, Schlumberger’s chief executive, put it on the call with analysts to discuss the company’s fourth-quarter results last Friday: “We have a very significant lack of visibility. The way we are going about managing . . . is quarter by quarter now.” The oil majors begin reporting fourth-quarter results next week, starting with Royal Dutch Shell and ConocoPhillips, and are expected to give substantive updates on how they are responding to the fall by cutting capital expenditure. However, initial indications are that spending by Schlumberger’s customers, which include both the majors and smaller companies, is dropping by 25-30 per in North America compared with 10-15 per cent in the rest of the world. The message was similar from Halliburton on Tuesday. Dave Lesar, its chief executive, talked about a 25-30 per cent fall in the US and predicted a period of “volatility and pain for a few quarters”. By contrast, he said, the Middle East and Asia appeared the company’s “most resilient” markets and were expected to be its best performers this year.
Canadian oil sector to cut investment by 33 per cent in 2015: Investment in Canada's oil sector will fall sharply this year because of the collapse in crude prices, but production will continue to rise, the country's industry association has predicted. The Canadian Association of Petroleum Producers forecast on Wednesday that capital spending in western Canada, including the oil sands of Alberta, would drop by 33 per cent this year to C$46bn, from C$69bn last year. Tim McMillan, president of the CAPP, said the industry faced challenging times. "We have suppliers to this industry right across Canada, so the effect will be felt across the country," he added.However, Canada's oil production is still expected to grow, albeit more slowly than the CAPP had previously forecast. It now expects output to rise by about 150,000 barrels per day this year to about 3.6m b/d, and by a further 150,000 b/d next year. The impact of the investment slump on production is likely to be greater in 2017 and beyond, analysts said. Although Alberta's oil sands are among the higher-cost sources of crude in the world, investment there is suffering less than in "conventional" oilfields or in shale. The CAPP expects investment in conventional and shale oil and gas in western Canada to drop by 42 per cent this year to C$21bn, but investment in the oil sands to drop just 24 per cent to C$25bn.
Scientists and Doctors Sound Alarm Over Health Dangers of Oil Spill Dispersants - Last week, the US Environmental Protection Agency (EPA) proposed a series of changes to its standards governing the use of toxic chemical dispersants during oil spills, like the 1.9 million gallons of dispersants used during BP’s Gulf of Mexico disaster. The EPA claims their new rules will incorporate part of what officials learned during BP’s Deepwater Horizon disaster, including toxicity testing requirements, information that manufacturers must provide the EPA and the public, and how toxicity must be monitored while the chemicals are used on future spills. Mathy Stanislaus, who oversees the EPA’s emergency response policies, stated: “Our proposed amendments incorporate scientific advances and lessons learned from the application of spill-mitigating substances in response to oil discharges and will help ensure that the emergency planners and responders are well-equipped to protect human health and the environment.”
Faced With Eminent-Domain Land Seizures by TransCanada, Defiant Nebraskans Vow to Halt Keystone XL - As Canadian energy company TransCanada filed eminent domain claims against Nebraska landowners on Tuesday for the construction of the controversial Keystone XL tar sands pipeline, families whose properties are on the verge of forced seizure say they will do whatever is necessary to shut down the project. Landowners from Nebraska's York and Holt counties last week filed suit against TransCanada to stall or even stop construction of the Keystone XL pipeline through their state. On Tuesday, they continued to call on President Barack Obama to veto the project altogether. "Today, Nebraska families are facing an inconceivable moment when land that has been in their hands for generations is being taken away from them by a foreign oil company," Bold Nebraska director Jane Kleeb stated in a press release. "Landowners will match TransCanada’s lawsuits in local courts and continue to take our fight to the one person who can put an end to all of this: President Obama."Obama has promised to veto legislation that would force the approval of the Keystone XL pipeline; Senate Republicans have vowed to get the pipeline approved as one of their first acts of 2015. TransCanada's use of the "unconstitutional and void" eminent domain law, which gives the government the right to seize private lands for public use without compensation, is "another bullying move by the foreign corporation that swears they are going to be a good neighbor," said Jim Tarnick, one of the landowners who joined in the suit. "From the Kalamazoo to the Yellowstone rivers and all across the United States, tar sands are a horrible danger and threat that the President must reject,"
Nebraskans File New Lawsuits That Could Stop The Keystone XL Pipeline - Nebraska landowners have launched two separate lawsuits that, if successful, could serve to delay or even stop the construction of the controversial Keystone XL tar sands pipeline. Thelawsuits, filed last week, represent Nebraska property owners’ second attempt to challenge the constitutionality of a law that gave the Keystone XL pipeline a legal route through the state and, by extension, their property. The landowners claim that TransCanada — the Canadian company that wants to build Keystone XL — made direct threats to use eminent domain and seize their land if they did not consent to having the pipeline run though it. “We stand with landowners to protect property rights and a constitutional pipeline routing process,” said Jane Kleeb, director of Bold Nebraska, a group that has been at the center of the state’s Keystone XL opposition movement. “While we fight to ensure TransCanada and the state of Nebraska do not run roughshod over farmers and ranchers, we also call upon President Obama to reject Keystone XL now.” The law that is being challenged is called LB1161. The landowners say it is unconstitutional because it allows pipeline companies, like TransCanada, to bypass the state’s Public Service Commission (PSC) when seeking approval of their route through the state and go directly to the Governor. The landowners say that the PSC, which has a stricter permitting process, is the only entity with direct authority to regulate pipelines under Nebraska’s state constitution. More specifically, the landowners say former Gov. Dave Heineman “abus[ed] the powers of his office … by taking away the authority from the PSC … and instead [gave] the authority to himself to approve a pipeline and give a foreign corporation the power of eminent domain before they have all their permits in place.”
TransCanada begins condemnation proceedings -- TransCanada, the company proposing to build the controversial $8 billion Keystone XL pipeline, filed court documents Tuesday in nine Nebraska counties to start eminent domain proceedings and get the 12 percent of easements it still needs here. On the same day, Omaha Sen. Ernie Chambers filed legislation (LB473) that would wrest the power to take land from the Canadian pipeline company. "The pipeline is like King Kong, and the people and farms are like ants and grasshoppers," Chambers said. "If they get in the way, they will be crushed with no redress." TransCanada started the condemnation process two days before a deadline to do so or lose eminent domain powers given to it by former Gov. Dave Heineman when he approved the pipeline route in Nebraska two years ago. The company’s attorneys filed just under 90 actions involving landowners, said Andrew Craig, TransCanada’s Omaha-based land manager for Keystone projects. “Commencing the eminent domain process in Nebraska does not mean the project is done trying to work towards a voluntary agreement with these landowners,” he said. TransCanada still hopes to reach voluntary agreements with more than 90 percent of landowners, Craig said. The percent of easements it has in Nebraska has gone from 84 to 88 since Christmas. But a few Nebraskans continue to stand squarely in the pipeline's path, hoping to stop it from crossing the heartland. They include Stromsburg-area farmer and cattleman Terry Van Housen.
Pipeline to Nowhere - The House recently voted in favor of building the 1,200-mile pipeline for the tenth time. The Senate is poised to approve it too. Although dozens of Democrats are siding with Republicans in favor of this boondoggle, those lawmakers lack the votes, so far, tooverride the veto Obama has threatened. There are many good arguments against the $8-billion pipeline on environmental and labor grounds. People like 350.org founder Bill McKibben and groups like Media Matters need no help explaining them. Here's another reason why the pipeline shouldn't be built: It's a waste of money. First, plunging oil prices matter. A lot. They've sunk below $47 a barrel, losing more than half their value since last June. Saudi Arabian Oil Minister Ali al-Naimi declared a few weeks ago that he doesn't care whether oil goes as low as $20 a barrel, a 16-year low. It just might. By some estimates, a barrel of oil must fetch at least $95 for profits to be extracted from Canada's tar sands. It's impossible to say when prices will rebound to that level or if companies will give up on that oil patch, leaving the Keystone XL without much (if any) heavy crude to move. Ultimately, there could be no oil to haul from Alberta to Louisiana to be refined — or not, if the U.S. scraps its ban on exporting crude — and then shipped to, say, China.
Senate GOP Accused Of ‘Closing Off Debate’ During Keystone XL Pipeline Votes - Democrats in the Senate are accusing Majority Leader Mitch McConnell of breaking his promise of an “open amendment process” for legislation to approve construction of the Keystone XL pipeline, after two Democrat-sponsored amendments were not brought to a vote on their merits on Tuesday. Instead of taking up actual “yes” or “no” votes on the amendments, the Senate voted to table — meaning, effectively kill — those two measures. One, sponsored by Sen. Ed Markey (D-MA), would have required that all the Canadian oil shipped through the Keystone XL pipeline stay in America, and not be shipped overseas. The other, sponsored by Sen. Al Franken (D-MN), would have required that only American-made steel and iron be used to build the pipeline. The vote to table meant that Senators were not voting on whether they agreed with the content of the amendment, but whether to consider the amendment at all. According to Markey, that doesn’t count as an “open” process. “Senate Republicans promised an open amendment process, but they are closing off debate, and not allowing a vote on the very first amendment considered by the Senate,”
Senate Sets Final Vote For Keystone XL After Long, Tense Night Of Amendment Voting -- The Senate was in session until midnight Thursday night, debating and voting on fifteen amendments to a bill that would approve the construction of the controversial Keystone XL tar sands pipeline. At the end of it all, Majority Leader Mitch McConnell filed for cloture, a procedural move that effectively sets up a final vote on Keystone for next week. The move followed a long, somewhat tense night of voting on amendments to the Keystone bill. Those amendments included one that expressed the “sense of the Senate” that President Obama’s agreement with China to tackle climate change is “economically unfair and environmentally irresponsible”; one to increase exports of natural gas; and one that sought to take the lesser prairie chicken off of the endangered species list. Only two of the amendments passed. One, proposed by Sen. John Cornyn (R-TX), seeks to protect property owners from getting their land seized under eminent domain for the purpose of building the pipeline. Theother, put forth by Sen. Lisa Murkowski (R-AK), expressed the “sense of the Senate” that all types of oil companies should be required to pay a per-barrel tax that goes into a government fund for oil spill cleanup. Currently, only some types of oil companies are required to do that — tar sands companies are excluded. All of the amendments put forth by Democrats — 10, in all — were rejected. But they were not all rejected on their merits.
Bill would allow automatic approval of natural gas pipelines - On Wednesday the House approved legislation to expedite the federal review process for new natural gas pipelines, according to a report by The Hill. The bill was passed with 253 votes in favor and 169 against. The bill calls for immediate approval of natural gas pipelines if federal agencies don’t respond within a certain time frame. The measure calls for the Federal Energy Regulatory Commission (FERC) to approve or deny a pipeline application within a year. After FERC issues its final environmental review, agencies responsible for issuing permits and licenses must act within 90 days, though, that limit could be extended by 30 days if an inability to complete the review process is demonstrated. If the agency fails to make a decision by that deadline, a proposed pipeline would be granted automatic approval. Republicans supporting the bill said it would push agencies to reduce the amount of unnecessary delays in the approval process. The Hill reports that the bill’s main sponsor, Rep. Mike Pompeo (R-Kan.) said, “We have an opportunity to get this product from where it’s been found to the consumers and businesses that are demanding it.” However, Democrats are arguing that the bill would make detailed review of proposed pipelines nearly impossible. Member of the House Energy and Commerce Committee Rep. Frank Pallone (D-N.J.) said, “It scares me, in all honesty, to think that we would want to change the process whereby FERC has the opportunity to look at the safety of these pipelines when they’re proposed for permitting and somehow short-circuit that process.”
Totally Tubular - Paul Krugman -- As far as anyone can tell, the dominant Republican economic idea is to license the Keystone pipeline. And that’s ridiculous. The standard estimate — accepted by pipeline advocates — is that building the pipeline would temporarily add 42,000 jobs, the vast bulk of which would go away after two years. That’s in an economy with 140 million workers. So Keystone would temporarily increase US employment by 0.03, that’s right, 0.03 percent. Or to put it another way: given the recent pace of job creation, the number one GOP policy priority, basically the only job measure the party has to offer, would create about as many jobs as the Obama recovery is adding every five days. So there’s a mystery here. Do Republicans not know this? (I’m not a scientist, man — or a mathematician.) Do they know it but count on the innumeracy of voters, having found that pipelines sound good to focus groups?
Seaway Pipeline filling the Keystone void | eaglefordtexas.com: It was a day of celebration on Friday as Canada-based Enbridge and Houston-based Enterprise Products began the delivery of Canadian tar sands crude oil to the Houston area through a new pipeline system. The Seaway Pipeline system twin loop and the new Flanagan South pipeline connect in Cushing, Oklahoma, with the newly constructed Seaway loop delivering up to 450,000 barrels of Canadian crude per day. Currently, about 250,000 barrels per day arrive in Freeport. Enterprise executive vice president and COO Jim Teague called the effort a “heck of a marriage” between Enbridge with its Canadian crude “supply aggregation” and Enterprise with its “distribution system” to every refinery in the Texas City, Houston, Beaumont and Port Arthur regions. The Seaway system includes a 500-mile, 30-inch diameter pipeline. On May 17, 2012 Enterprise and Enbridge completed a project to reverse the flow direction of the pipeline, allowing it to transport crude oil from Cushing, Oklahoma hub to the vast refinery complex along the Gulf Coast near Houston. The “loop” portion of the pipeline was completed in 2014, and was designed to run parallel with the existing Seaway Pipeline from Cushing to the Gulf Coast. The additional loop is expected to more than double the Seaway’s capacity to 850,000 barrels per day. “Make no mistake about it. Canadian crude is in the game now in the Gulf Coast, and we will compete.”
50,000 Gallons Of Crude Oil Spills Into Partially Frozen Yellowstone River -- On Saturday morning, a pipeline in Montana spilled up to 50,000 gallons of crude oil into the Yellowstone River, the pipeline’s operator confirmed Sunday night. Some residents are reportedlysmelling and tasting oil in their drinking water, causing the EPA to test water samples and the city water plant to cease drawing water from the river. The 12-inch diameter steel pipe breached and spilled anywhere from 12,600 to 50,000 barrels of oil nine miles upriver from the town of Glendive, with an unknown amount of it spilling into the partially frozen river, according to a statement from Bridger Pipeline LLC. The company said the spill occurred at 10 a.m. and they “shut in” the flow of oil just before 11 a.m. — meaning that though the pipeline section could still empty itself of its contents, no new addition oil would flow into the spilled area. “Oil has made it into the river,” Bridger spokesperson Bill Salvin confirmed to the AP on Monday. “We do not know how much at this point.” Observers spotted oil, some of which was trapped under the ice, up to 25 miles downstream from Glendive. This photo from the Billings Gazette shows the oil visible through the icy river from the air. Clean-up crews were en route to the site on Sunday afternoon after local, state, and federal levels were notified. The pipeline sits at least eight feet below the river bed. There are concerns that the water supply could be compromised, though the City of Glendive Water Plant said on Sunday that nothing unusual had been detected. “I am not saying the water is unsafe. I am not saying it is safe,” “We are waiting for officials to arrive who can make that decision.”
Traces of Montana Oil Spill Are Found in Drinking Water - — Work crews burrowed through thick ice and set up containment booms Tuesday in a struggle to vacuum up 50,000 gallons of oil that spilled into the Yellowstone River from a ruptured pipeline, contaminating drinking water.The 12-inch steel pipeline, which burst Saturday morning near Glendive, Mont., about 400 miles east of here, sent light crude oil flowing downstream as far as the confluence with the Missouri River, 60 miles away in North Dakota.Health officials warned people not to use tap water in Glendive and surrounding towns after traces of benzene from the leak were found in a water treatment plant. Gov. Steve Bullock visited the area on Monday and declared a state of emergency for Dawson and Richland Counties.The Bridger Pipeline Company, which operates the line, has shut it down, company officials said. The line is part of a system that passes across eastern Montana from the Canadian border. Federal officials have said short-term exposure to the water was not dangerous. But residents near the spill found the water undrinkable.“It smells like diesel and it’s oily,” . “People are panicking right now. I don’t think there was anything on the shelves.”State officials and local grocery stores began trucking in pallets of bottled water Tuesday, and Glendive residents began making plans to shower and do laundry at the homes of friends and relatives who draw their water from wells.The spill has led to renewed concerns among environmentalists about the safety of the proposed Keystone XL pipeline, which would pass about 25 miles north of Glendive.
Officials Tell Montana City Residents Not To Drink Their Water After Yellowstone River Oil Spill - The estimated 50,000 gallons of crude oil that spilled from a pipeline into Montana’s Yellowstone River Saturday has forced truckloads of water to be shipped in to one Montana city, after traces of the oil were found in the city’s water supplies. Residents of Glendive, Montana began reporting an unusual odor coming from their taps Sunday night, even after initial tests of the city’s water supply on Saturday and Sunday didn’t reveal traces of oil. Late Monday night, the Environmental Protection Agency confirmed that the oil had reached the drinking water supply of the town, which is home to about 5,000 people. The spill occurred after a break the Poplar Pipeline, which carries Bakken oil from Canada to Baker, Montana. Officials are advising Glendive residents not to drink or cook with their tap water.“The initial results of samples taken from the City of Glendive’s drinking water system indicate the presence of hydrocarbons at elevated levels, and water intakes in the river have been closed,” the EPA said in a statement. The agency said it is working with Montana agencies and Bridger Pipeline LLC, the company in charge of the pipeline that leaked oil into the river, to “secure alternative drinking water supplies for residents and develop a plan to flush the water distribution system.” The EPA will continue sampling the city’s water over the next few days. Montana Gov. Steve Bullock declared a state of emergency Monday morning in Dawson — where Glendive is located — and Richland counties.
Montana city tries to fix water system tainted by oil spill | bakken.com: — Authorities scrambled to decontaminate a water system serving 6,000 eastern Montana residents after a cancer-causing component of oil was found downstream of a Yellowstone River pipeline spill. Up to 50,000 gallons of crude oil was released Saturday, and elevated levels of benzene were found Monday in samples from the water treatment plant serving the agricultural community of Glendive near the North Dakota border. That’s when residents were warned not to drink or cook with water from their taps. People lined up to receive bottled water at a distribution center Tuesday as officials took initial steps to cleanse the plant by adding more activated carbon — a type of charcoal. If that approach does not work, officials plan to add equipment that would pre-treat water coming into the facility. Officials hoped to flush out any remaining contamination and get the plant operating by Thursday, Montana Department of Environmental Quality Director Tom Livers said. The federal Centers for Disease Control and Prevention said the levels of cancer-causing benzene were above those recommended for long-term consumption, but they did not pose a short-term health hazard.
Oil spill effects on fish, wildlife still uncertain: Guided by lessons learned during the response to the 2011 oil spill in the Yellowstone River, Montana Fish, Wildlife and Parks officials are attempting to gather baseline data on the effects of Saturday’s oil spill into the Yellowstone near Glendive. “We’ve had people out there right on top of this,” Rich said fisheries personnel from FWP’s Miles City office are attempting to collect fish below and above the pipeline rupture to assess contamination levels in fish tissue. FWP has issued a consumption warning for fish caught below the spill and is also asking anglers to contribute fish for tissue samples to check contamination. Wildlife officials are also attempting to assess damage to any waterfowl or other animals that may have come into contact with the oil, as well as surveying fishing access sites and wildlife management areas downstream from the spill. Although possessing a better knowledge of how to deal with the logistics of an oil spill, FWP is contending with an entirely different scenario — even though it’s the same river. The 2011 oil spill into the Yellowstone River near Laurel dumped 63,000 gallons of crude into the water during spring runoff when the water was flowing at about 65,000 cubic feet per second. Such a huge volume of water quickly diluted the oil and spread it rapidly downstream and into flooded bottomlands. In comparison, on Saturday when the pipeline ruptured above Glendive releasing an estimated 40,000 gallons of oil, the river was flowing at about 4,500 cfs and much of the river is covered in ice, inhibiting access to the water to clean up the oil or to find any fish that were killed by the spill. The lower Yellowstone is also home to the endangered pallid sturgeon, where federal agencies have been attempting to revitalize the depressed population by planting hatchery-raised fish from eggs captured from netted adults.
Building Their Own Gallows: The Oil Pipelines - The debate surrounding labor’s support for oil pipelines has largely centered on a false “jobs versus climate” dichotomy. But labor’s position is also alienating them from their potential allies while strengthening the hand of their sworn enemies. There’s a popular saying on the left that organized labor would build their own gallows if they were offered the jobs, and nowhere is this more true than in labor’s support for the environmentally disastrous Keystone XL, Enbridge Sandpiper and Bakken oil pipelines. In reality of course, it is the jobs argument that is overblown, and it is the environmental threat to the survival of every living thing on earth that labor habitually understates or ignores. The bottom line is there won’t be any jobs, or an economy at all, if the planet is no longer hospitable to human life. There’s no such thing as a safe oil pipeline because extracting fossil fuels from the ground and burning them into the atmosphere is what causes catastrophic climate change, not accidental oil spills. But while the “jobs versus climate” debate is likely to continue inside mainstream circles for some time, the left also needs to begin discussing in more detail two other important aspects of the issue: 1) The impact pipeline politics has on labor’s relationship with other social movement actors. 2) How labor’s position could actually strengthen the hand of the same corporate power players that are hell bent on destroying organized labor and relegating effective workers’ organizations to the dustbin of history.
Oil slips $1 on Chinese economy concerns, record Iraq output (Reuters) - Brent crude oil prices fell below $49 a barrel and U.S. crude also fell more than $1 on Monday after the global economic outlook darkened and Iraq announced record oil production. The world's biggest energy consumer, China, faces significant downward pressure on its economy, its premier Li Keqiang was quoted by state radio as saying on Monday. China is expected this week to report growth slowing to 7.2 percent from a year ago, the weakest since the depths of the last global economic crisis. Data from China's National Bureau of Statistics showed on Sunday house prices fell for a fourth straight month. Brent crude traded at $49.15 a barrel by 1646 GMT, down $1.02, having earlier dropped to a session low of $48.88. U.S. crude was down $1.02 at $47.67 a barrel. Oil prices have dropped by more than half since June as output around the world soared while demand growth slowed. Although the International Energy Agency (IEA) said last week a reversal in the trend was possible this year, it added that prices may fall further before rising. "There's still more supply than demand and that's a situation that will not change in just a few weeks,"
Oil resumes losing ways, slides nearly 5% as growth outlook dims - Crude-oil futures settled sharply lower Tuesday as investors weighed a batch of downbeat views on global economic growth, including news that China’s economy expanded at its slowest pace in decades. As well, natural gas prices came under pressure. Crude futures for delivery in fell $2.30, or 4.7%, to end at $46.39 a barrel. Oil resumed its losing ways after finishing Friday with a weekly gain, snapping a seven-week streak of declines. March Brent crude also succumbed to sellers, falling 85 cents, or 1.7%, to settle at $47.99 a barrel. U.S. markets were closed on Monday for the Martin Luther King Jr. holiday, but in electronic trading U.S. crude prices fell 2.4% after Iraq said it’s producing a record amount of crude. Iran’s oil minister, meanwhile, said that his country could withstand $25-a-barrel oil. Also Monday, the IMF cut its global growth forecast for 2015 by 0.3 percentage point to 3.5%. The fund expects the world economy to expand 3.7% in 2016. While lower oil prices will help boost growth, this benefit will be more than offset by negative factors such as weak investment, as economies adjust to lower growth expectations, the International Monetary Fund said in its latest report.
Get Used to Cheap Oil. Why Lower Prices May Stick Around - Oil’s plunge is one of the biggest factors reshaping the global economy. How long can it last? Here are two fundamental reasons oil prices could stay low for a while.
- Excess capacity. Prices are determined by the size of the gap between demand and supply. Both sides of the ledger have been dramatically adjusted in the last several months to widen that gap, leading to the price plunge. Saudi Arabia in particular moved to recapture market share lost to the U.S. by keeping the crude spigots open regardless of price. And as the global economic outlook dimmed, demand has fallen, with sharp revisions in expected growth in crude oil consumption. The International Energy Agency predicts a much tighter balance between supply and demand late in the year as the more expensive production is squeezed out of the market: Producers on the top end of the cost curve are more at risk, with oil sands leading the pack. While firms may shut down production, traders know it could come back online in a relatively short period of time. That’s one reason prices remained low for 15 years after the 1985-1986 oil price collapse, an episode that some economists see as a parallel to today’s price plunge.
- Stalled Demand. Cheap fuel should, theoretically, drive up consumption as consumers spend their windfall and juice economic growth. That’s a major reason the International Monetary Fund revised up its projection for U.S. growth this year. But tumbling oil prices are also signaling global economic weakness, and there’s no certainty demand will rebound anytime in the near future. In fact, the IMF cut prospects for the global economy and said the shot in the arm for tumbling crude costs wouldn’t be enough to pull the world out of a deepening long-term rut. Two of the world’s biggest economies–the eurozone and Japan—are struggling to avoid re-entering recessions and are expected to remain stuck in stagnant growth for years to come. Falling oil prices appear to be feeding lower inflation expectations. Consumers and businesses may cut back on spending if they expect prices to fall further.
BP sees $50 oil for three years: BP's job announcement later today, including a few hundred job losses in Aberdeen, is being made because it does not expect the oil price to bounce any time soon. The oil price has dropped around 60% since June, to $48 a barrel, and I understand that BP expects that it will stay in the range of $50 to $60 for two to three years. Although no oil company has a crystal ball, this matters - especially since it has a big impact on its investment and staffing ambitions. So plans that it had already initiated to reduce costs have taken on a new element, namely postponement of investments in new capacity that have not been started, and shelving of plans to extend the life of older fields where residual oil is more expensive to extract. Aberdeen is an important centre for BP, and it employs around 4000 there. And it is in no sense withdrawing - it is continuing to invest in the Greater Clair and Quad 204 offshore properties. But the reduction of several hundred in the numbers it will henceforth employ in the Aberdeen area is symbolic of a city and industry that faces a severe recession. Hardest hit will be North Sea companies with stakes in older fields, where production costs are on a rising trend - and whose profitable life will be significantly shortened if the oil price does not recover soon. The reason BP expects the oil price to stay in the range of $50 to $60 for some years is for reasons you have read about here - it is persuaded that the Saudis, Emiratis and Kuwaitis are determined to recapture market share from US shale gas. This means keeping the volume of oil production high enough such that the oil price remains low enough to wipe out the so-called froth from the shale industry - to bankrupt those high-cost frackers who have borrowed colossal sums to finance their investment.
Obama Boasts Increase In Domestic Energy Production, But Saudi Arabia Is Keeping Prices Low -- The price of a barrel of crude, which was higher than $90 last January, fell to less than $47 this week, a five-year low that will put almost $750 per household a year back into the pockets of U.S. consumers, President Barack Obama said in his State of the Union address Tuesday night. Obama credited the dip to America's increasing reliance on domestic oil, but the decrease in oil price is due largely to the second-biggest oil producer in the world, Saudi Arabia. “Thanks to lower gas prices and higher fuel standards, the typical family this year should save $750 at the pump,” Obama said. But consumers aren’t saving solely because of the increase of domestic oil and gas production. The big dip in the price of crude oil was the result of Saudi Arabia’s manipulation of the oil market for political gain. For weeks now, Saudi Arabia has blocked the Organization of the Petroleum Exporting Countries from cutting production targets in the face of an oil-supply glut, which has negatively affected Venezuela, Russia and Iran. Oil makes up the largest piece of the total world energy consumption pie at 34 percent, followed by coal and gas. And Saudi Arabia controls the global oil market because it not only pumps a lot of crude every day but also has the financial ability to absorb the shock of lower oil prices -- in stark contrast to its chief regional adversary, Iran. And so Saudi Arabia, the leading oil producer in OPEC, which accounts for about 73 percent of the world’s proven oil reserves, is once again a hugely relevant global player.
Behind Drop in Oil Prices, Washington’s Hand - Did the United States kill OPEC? The plummeting price of oil since Saudi Arabia decided last fall not to cut production to counter rising supply elsewhere has fueled intense speculation about a downfall of the infamous cartel, once feared for its power to bend oil prices to its will. Was OPEC’s biggest oil producer unwilling or just unable to stop an emerging glut? Does this mean oil will never again reach $100 a barrel — where the spendthrift governments of the Organization of the Petroleum Exporting Countries need it to be? What’s missing from the discussion is an understanding of how the oil market got to this juncture and, notably, who brought it here. The answer is surprising. It was the United States, mostly. Last year, the United Statesproduced more oil than it had in 25 years, surpassing Saudi Arabia as the world’s largest producer. Perhaps the most intriguing part of this story is that one of the main participants in this revolution is the American government. Facing fears of a broad energy shortage, in the shadow of an embargo by Arab oil producers, the Nixon administration and Congress laid the foundation of an industrial policy that over the span of four decades developed the technologies needed to unleash American shale oil and natural gas onto world markets. Environmentalists against any government involvement in the fossil fuels business will hate this, of course. But the collaboration between government and business in pursuit of energy independence offers a valuable lesson for policy makers forging a strategy to fit the current energy imperative: reducing carbon emissions to combat climate change.
Oil falls after EIA announces massive build in crude stocks (Reuters) - Crude oil futures tumbled on Thursday after the Energy Information Administration announced the largest build in U.S. crude stocks in at least 14 years. Crude stocks rose by 10.1 million barrels to a total of 397.9 million, the highest level for this time of year in at least 80 years, the EIA said.[EIA/S] The increase was much greater than the 2.6 million barrel build traders predicted in a Reuters poll. true U.S. crude CLc1 fell more than 3 percent after the announcement, tumbling $1.54 to trade at $46.24 by 11:57 a.m. EST (1457 GMT). Global benchmark Brent LCOc1 also fell by 61 cents to trade at $48.42. The market was waiting for a catalyst like the EIA report to break out either positive or negative, said Eli Tesfaye, senior market strategist at RJO Futures. "There's no factor right now stabilizing this market," Tesfaye said. "There's definitely a race to the bottom here." The inventory build included a 2.91 million barrel rise at Cushing, Oklahoma, the delivery point of the U.S. crude contract. [EIA/S] The U.S. supply glut has been a major contributing factor to the 60 percent decline in oil prices over the past several months.
Whiplash! - Over the course of 2014 the prices the world pays for crude oil have tumbled from over $125 per barrel to around $45 per barrel now, and could easily drop further before heading much higher before collapsing again before spiking again. You get the idea. In the end, the wild whipsawing of the oil market, and the even wilder whipsawing of financial markets, currencies and the rolling bankruptcies of energy companies, then the entities that financed them, then national defaults of the countries that backed these entities, will in due course cause industrial economies to collapse. And without a functioning industrial economy crude oil would be reclassified as toxic waste. But that is still two or three decades off in the future. In the meantime, the much lower prices of oil have priced most of the producers of unconventional oil out of the market. Recall that conventional oil (the cheap-to-produce kind that comes gushing out of vertical wells drilled not too deep down into dry ground) peaked in 2005 and has been declining ever since. The production of unconventional oil, including offshore drilling, tar sands, hydrofracturing to produce shale oil and other expensive techniques, was lavishly financed in order to make up for the shortfall. But at the moment most unconventional oil costs more to produce than it can be sold for. This means that entire countries, including Venezuela's heavy oil (which requires upgrading before it will flow), offshore production in the Gulf of Mexico (Mexico and US), Norway and Nigeria, Canadian tar sands and, of course, shale oil in the US. All of these producers are now burning money as well as much of the oil they produce, and if the low oil prices persist, will be forced to shut down. An additional problem is the very high depletion rate of “fracked” shale oil wells in the US. Shale oil wells deplete very fast: flow rates go down by half in just a few months, and are negligible after a couple of years. Production can only be maintained through relentless drilling, and that relentless drilling has now stopped. Thus, we have just a few months of glut left. After that, the whole shale oil revolution, which some bobbleheads thought would refashion the US into a new Saudi Arabia, will be over. The entire economy that popped up in recent years around the shale oil patch in the US, which was responsible for most of the growth in high-paying jobs, will collapse, causing the unemployment rate to spike.
When Will Oil Markets Find A Bottom? - Berman - Which curve on this chart is not like the others? It's the U.S. and Canada's oil production curve over the past several years. That's why oil prices have fallen: too much oil for the demand in the world. The tight oil from North America is the prime suspect in the production surplus that's pushing down oil prices. Now that you know the answer, let's talk about IEA's January report that was released today. Here are my main takes from the report:
- 1. The fourth quarter 2014 supply surplus was 890,000 barrels per day (see the chart below). That is the difference between supply and demand. We can argue about whether it was mainly supply or mainly demand-I've stated my belief that it's mostly supply-but that's the difference between them. That is why oil prices are falling.
- 2. This surplus amount is 170,000 barrels per day greater than in the previous quarter.
- 3. Demand in the first half of 2015 will be 900,000 barrels per day lower than in the fourth quarter (see the second chart below). 1st half demand is usually lower than 2nd half but that means that prices could fall again.
- 4. 3rd quarter 2015 demand will increase by 1,530,000 barrels per day and 4th quarter demand will increase another 420,000 barrels per day. That is a lot and would take demand to record highs. This should go a long way towards moving prices higher.
So, where does that leave us? The problem is mostly about supply but demand has to increase if we're going to fix the surplus problem in 2015 because supply is not expected to fall that much. I think this means that prices will increase in 2015 but not a lot unless something else happens. That something else will probably be an OPEC and Russia production cut in June after the next OPEC meeting.
This Chart Shows Why the Oil Bust Will Last --- Crude oil inventories in the US (excluding the Strategic Petroleum Reserve) rose by 10.1 million barrels to 397.9 million barrels during the week ended January 16, the EIA reported on Thursday. Inventories have now reached 397.9 million barrels, the highest level for this time of year in “at least the last 80 years,” or as far as the EIA’s records go back. This chart by the EIA shows that current inventory levels (blue line) have been on a terrific upward trajectory that defies the 5-year range and seasonal movements. These ballooning crude oil stocks will exert further downward pressure on prices. What I’m scratching my head about is what these speculators are thinking when they’re leasing tankers to fill them up with “cheap” crude, waiting for the price to rise. Leasing a tanker is not free, unlike borrowing money overnight. And there are plenty of other costs and risks involved – including already ballooning inventories. Who the heck is going to buy all this crude out of storage when production is soaring faster than demand? But their thinking has gotten a lot of press recently which makes me think that they’re trying to lure others into that trade for reasons of their own. But there is a bitter irony: The plunge in the price of oil is pushing desperate drillers, buckling under their debt, to maximize production from existing wells while slashing operating costs and capital expenditures. BHP Billiton, perhaps unwittingly, explains this irony: despite the oil glut, collapsed prices, layoffs, and shuttered facilities, US oil production is soaring and will continue to soar, at least for a while.
BHI: US rig count falls for 8th straight week, down 43 units - The US drilling rig count fell 43 units to settle at 1,633 rigs working during the week ended Jan. 23, Baker Hughes Inc. reported. That total is the lowest since Aug. 6, 2010, and 144 units fewer compared with this week a year ago. The count has now fallen in 8 consecutive weeks, losing 287 units during that time (OGJ Online, Dec. 5, 2014). Forty-two of the 43 units that went offline this week were land-based, bringing that total to 1,568. Land rigs have plunged 176 units over the last 3 weeks. The other unit to fall was drilling in inland waters, bringing that total to 11. Offshore rigs were unchanged at 54. Oil rigs plunged 49 units to 1,317. Gas rigs gained 6 units to 316. Horizontal drilling rigs lost 24 units to 1,229. Consultancy group Wood Mackenzie Ltd. recently said that, if oil prices average about $50/bbl in 2015, it anticipates a 40% decline in the horizontal rig count compared with last year. Directional rigs, meanwhile, lost 7 units to 146. Canada’s rig count dropped 8 units to 432, 144 fewer than this week a year ago. Oils rigs dropped 11 units to 223 while gas rigs gained 3 units to 209.
US Rig Count Craters To Lowest Since August 2010 - With oil prices down another 6% this week (despite Saudi leadership uncertainty and ECB QE), widespread layoffs announced in Shale states, and despite Lew's comments that he doesn't see US oil production declining, it is perhaps no surprise that the US rig count cratered further to its lowest level since August 2010. The US rig count is now down over 15% from the highs, with its biggest 10-week drop since May 2009 (and down 8% YoY). The pace of collapse in the rig count has now accelerated for 7 weeks in a row, and judging by lagged oil prices, there is a lot more room to drop yet. The oil rig count standalone is now down 7% YoY - its biggest drop sicne Nov 2009. As T.Boone Pickens so rightly noted, watch the US rig count (and suggested it will need to drop 500 rigs or more before any stability returns).
OPEC Will Blink in Battle With U.S. Shale Drillers, Poll Shows - Bloomberg: U.S. shale drillers won’t scale back output quickly enough for OPEC to avoid production cuts this year, according to a quarterly poll of Bloomberg subscribers. Forty-nine percent of analysts, traders and investors surveyed said the Organization of Petroleum Exporting Countries will have to lower its production target this year, while 34 percent said shale drillers will lower output in time. Seventeen percent weren’t sure. Fifty-eight percent of respondents who said OPEC will cut its production target expect it to happen in the second half of the year, compared to 34 percent who see it happening before the end of June. The poll of 481 investors, analysts and traders who are Bloomberg subscribers was conducted Jan. 14-15 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 4.5 percentage points.
Davos oil barons eye $150 crude as investment slump incubates future crunch - Rampant speculation by hedge funds and a rare confluence of short-term shocks have driven the price of oil far below its natural clearing level, coiling the springs for a fresh spike this year that may catch markets badly off-guard once again. "The price will rebound and we will go back to normal very soon," said Abdullah Al-Badri, Opec's veteran secretary-general. "Yes, there is an over-supply, but fundamentals don't justify this 50pc fall in price." Experts from across the world - from both the West and the petro-powers - said the slump in fresh investment in 2015 is setting the stage for a much tighter balance of supply and demand, and possibly a fresh oil crunch. Mr Al-Badri said he had been through price swings before but recovery may be swifter today than in past cyclical troughs. "This time we have to be very careful to handle this crisis right. We must keep investing, and not lay off experienced people as we did last time," he told the World Economic Forum in Davos. Claudio Descalzi, chief executive of Italy's oil giant ENI, said the last phase of the price crash from $75 a barrel to around $45 was driven by wild moves on the derivatives markets. Traders with "long" positions effectively capitulated once it became clear that Opec was not going to cut output to shore up prices. This led to abrupt switch to massive "short" positions instead. "These contracts are 15 or 20 times the physical market," he said. Mr Descalzi said the roller coaster move in prices is destructive for the oil industry and is leading to investment cuts that may store up serious trouble for the future. "What we need is stability: a central bank for oil. Prices could jump to $150 or even $200 over the next four or five years," he said. Khalid Al Falih, president of Saudi Aramco, the world's biggest oil producer, said the mix of financial leverage and the end of quantitative easing had "accelerated" the collapse in prices but the slide has lost touch with reality.
Crushing The U.S. Energy Export Dream - By Arthur Berman - Exporting crude oil and natural gas from the United States is among the dumbest energy ideas of all time. Exporting gas is dumb. Exporting oil is dumber. The U.S. imports almost half of the crude oil that we use. We import 7.5 million barrels per day. The chart below shows the EIA prediction that production will slowly fall and imports will rise (AEO 2014) after 2016. This means that the U.S. will never be self-sufficient in oil. Not even close. What about the tight oil that is produced from shale? That’s included in the chart and is the whole reason that U.S. production has been growing. But there’s not enough of it to keep production growing for long. Here is a chart showing the proven tight oil reserves just published last month by the EIA. Total tight oil reserves are 10 billion barrels (including condensate). The U.S. consumes about 5.5 billion barrels per year, so that’s less than 2 years of supply. Almost all of it is from two plays–the Bakken and Eagle Ford shales. We hear a lot of hype from companies and analysts about the Permian basin but its reserves are only 7% of the Bakken and 8% of the Eagle Ford. Tight oil comprises about one-third of total U.S. crude oil and condensate reserves. The U.S. is only the 11th largest holder of crude oil reserves (33.4 billion barrels) in the world with only 19% of Canada’s reserves and 12% of Saudi Arabia’s reserves. In other words, the U.S. is a fairly minor player among the family of major oil-producing nations. For all the fanfare about the U.S. surpassing Saudi Arabia in production of crude oil, we are not even players in reserves. Let’s put all of this together.
• The U.S. will never be oil self-sufficient and will never import less than about 6 million barrels of oil per day.
• U.S. total production will peak in a few years and imports will increase.
• The U.S. is a relatively minor reserve holder in the world.
How does this picture fit with calls for the U.S. to become an exporter of oil? Very badly. For tight oil producers to become the swing producers of the world? Give me a break.
Why the Energy Selloff Is So Dangerous to the U.S. Economy -- Oil-related companies in the U.S. now account for between 35 to 40 percent of all capital spending. Announcements of sharp cutbacks in capital spending and job reductions by these companies create big ripples, forcing related companies to trim their own budgets, revenue assumptions, and payrolls accordingly. The announcements coming out of the oil patch are picking up steam and it’s not a pretty picture. Last week Schlumberger said it would eliminate 9,000 jobs, approximately 7 percent of its workforce, and trim capital spending by about $1 billion. Yesterday, Baker Hughes, the oilfield services company, announced 7,000 in job cuts, roughly 11 percent of its workforce, and expects the cuts to all come in the first quarter. Baker Hughes also announced a 20 percent reduction in capital spending. This morning, the BBC is reporting that BHP Billiton will cut 40 percent of its U.S. shale operations, reducing its number of rigs from 26 to 16 by the end of June. When Big Oil cuts capital spending, we’re not talking about millions of dollars or even hundreds of millions of dollars; we’re talking billions. Last month, ConocoPhillips announced it had set its capital budget for 2015 at $13.5 billion, a reduction of 20 percent. Smaller players are also announcing serious cutbacks. Yesterday Bonanza Creek Energy said it would cut its capital spending by 36 to 38 percent. Other big industrial companies in the U.S. are also impacted by the sharp slump in oil, which has shaved almost 60 percent off the price of crude in just six months. As the oil majors scale back, it reduces the need for steel pipes. U.S. Steel has announced that it will lay off approximately 750 workers at two of its pipe plants. On January 15, the Federal Reserve Bank of Kansas City released a dire survey of what’s ahead in its “Fourth Quarter Energy Survey.” The survey found: “The future capital spending index fell sharply, from 40 to -59, as contacts expected oil prices to keep falling. About half of the survey respondents said they were planning to cut spending by more than 20 percent while about one quarter of respondents expect cuts of 10 to 20 percent.
Oil demand weakness persists despite lower prices - FT - It was expected that prices — now down two-thirds from mid-June levels — would lift demand amid a wealth transfer from producer countries to consumer nations and help to alleviate an oversupplied oil market. Oil prices have dropped to less than $50 a barrel as weaker than expected oil demand in Asia has coincided with stagnation elsewhere, failing to absorb sustained output from Opec countries and unrelenting US supply — the main cause of a glut that is expected to get worse in the coming months. Lower prices have provided a shot in the arm to the global economy, but still-tepid growth, subsidy removals and a stronger dollar are among factors keeping demand growth at bay. In its closely watched oil market report, the International Energy Agency said these conditions “continue to act as a depressant on prices, as opposed to low prices stimulating demand”. The wealthy nations’ energy watchdog estimates global oil demand will stand 900,000 barrels a day higher this year than in 2014, at 93.3m b/d. “Sure you might drive a little bit more if gasoline is cheaper, but you are not going to commute to work twice,” says Jamie Webster, oil analyst at consultancy IHS Energy, adding that many people are still feeling financially stretched. “Demand is still very subdued.” His comments echo those by Christine Lagarde, managing director of the International Monetary Fund, who last week said “deep-seated weaknesses” in the global economy still persist. This has resulted in a 0.3 per cent downward revision to the IMF’s 2015 global gross domestic product growth forecast, to 3.5 per cent. “Too many countries are weighed down by . . . legacies of the financial crisis, high debt, high unemployment. Too many companies and households keep cutting back on investment and consumption today because they are concerned about the growth tomorrow,” Ms Lagarde said.
Gail Tverberg: This Is The Beginning Of The End For Oil Production - PODCAST with Chris Martensen -- With the recent collapse in the price of oil, Gail Tverberg, returns to discuss the likely impact on the US shale oil industry, as well as the global market for oil. Gail is a professional actuary who applies classic risk assessment procedures to global resources: studying issues such as oil & natural gas depletion, water shortages, climate change, etc. These days, she writes at her website OurFiniteWorld.com. While as an actuary, Gail is one to avoid hyperbole and the let the numbers speak, her analysis of the outlook for future oil production is nothing short of dire: What we need is cheap energy. We need cheap, liquid oil. When it’s high-priced it really messes up the economy. We need oil to run our cars and to operate our trucks and such things, but it needs to be cheap. And it suddenly is today. But, you have to be able to keep pulling it out at that same price. And the critical thing is, we can’t keep pulling it out at that price. What is going to happen, I’m afraid, is that once production goes down, we won’t be able to get it back up again. There’s several reasons. One of them is that very low interest rates have been helping keep production up. Once you get your interest rates back up because there’s been a lot of failures, particularly in the shale industry, the costs will be higher. So, they can’t pump it out for the same price that they had it before. But, there’s also the issue that these old wells need to be produced continuously and they need continuous investment. If you cut that off, it’s going to be very hard to restart them. So, there will need to be an extra investment just to get it back online. Trying to do that becomes extremely difficult when the price is low. If it’s really an affordability issue, you've got a double hurdle then. Not only do you have to get the price up, but you have to get the price very high so you can get lots of investment dollars so you can kind of make up for lost time, besides everything else. As we know, it takes a long time to get new production online.
A new theory of energy and the economy – Part 1 – Generating economic growth - Gail Tverberg - How does the economy really work? In my view, there are many erroneous theories in published literature. I have been investigating this topic and have come to the conclusion that both energy and debt play an extremely important role in an economic system. Once energy supply and other aspects of the economy start hitting diminishing returns, there is a serious chance that a debt implosion will bring the whole system down. In this post, I will look at the first piece of this story, relating to how the economy is tied to energy, and how the leveraging impact of cheap energy creates economic growth. Trying to tackle this topic is a daunting task. The subject crosses many fields of study, including anthropology, ecology, systems analysis, economics, and physics of a thermodynamically open system. It also involves reaching limits in a finite world. Most researchers have tackled the subject without understanding the many issues involved. I hope my analysis can shed some light on the subject. I plan to add related posts later.
IEA warns of tighter oil market in second half - FT.com: The world’s leading energy forecaster said on Friday that although an oil price recovery “may not be imminent”, the market is likely to see lower production growth from non-Opec countries this year. “How low the market’s floor will be is anybody’s guess,” said the International Energy Agency, in its closely watched monthly oil market report. “But the sell-off is having an impact. A price recovery — barring any major disruption — may not be imminent, but signs are mounting that the tide will turn.” The wealthy nations’ energy watchdog cut expectations for 2015 non-Opec supply growth by 350,000 barrels a day to 950,000 b/d, citing a pullback in spending and drilling by energy companies on the back of the oil price rout. Although the effects of the lower oil price on North American supply are still limited, the IEA said it had reduced its 2015 forecast for US production growth by 75,000 b/d on the back of a slowdown in the number of rigs drilling and drilling permits and that of Canadian supplies by 95,000 b/d. Projections for Colombia have been cut by 175,000 b/d and a further 30,000 b/d for Russia. “A non-Opec production [growth] pullback as early as this year, more towards the second-half, means that the sloppy market conditions seen today will start firming up, or at least will stop getting worse,”
Not your usual oil-price decline effect - Izabella Kaminska - Analysts and economists still can’t decide whether the fall in oil prices is net positive or net negative for the global economy. Unfortunately for the net positive camp, it looks increasingly like global demand and growth figures are beginning to side with the negativity team. Indeed, the longer the oil price stays low, the more it looks like global stimulus hopes were overdone due to poor understanding of financial feedback loops in the commodity space. So what’s behind the anomaly? How did a whole school of economists get this potentially so wrong? Cue once again the potentially under appreciated effects of financial inflows (and commodity financialisation) on the workings of an increasingly complex global economy.The speculation that pumped up commodities (which only trade for dollars) in the run up to 2008 amounted to a global tax on commodity-short growth centres like Asia. This stifled their growth potential, until of course the Fed came in with unconditional cheap global dollar liquidity, allowing those growth centres to keep growing. But take the liquidity tap away, and once again global growth centres are left without the currency they need to acquire the necessary commodities to maintain their growth. Worse than that, since a lot of the intermediary growth was sustained on borrowed dollars, dollar tightness actually introduces a drastic reversal in their development, as companies are forced into bankruptcy and assets have to be sold off or liquidated.
Oil Producers Currency Collapse Continues, Nigeria's Naira Crashes To Record Low Against Dollar -- Having proclaimed it is not Zimbabwe, Nigeria's currency is starting to look a lot like a hyper-inflating mess. After devaluing to a 168 peg in November, the Naira has crashed to 200 / USD today - smashing above the upper peg band of 176 as it appears Nigeria is losing control. The collapse of Oil Producer currencies had abated for a week or two but the last 2 days have seen the Ruble and Naira tumble (even as The USDollar weakens modestly ahead of the ECB QE tomorrow).
Citgo Said to Plan $2.5 Billion Debt for Venezuela Dividend - Citgo Petroleum Corp. is planning to raise $2.5 billion that it will use to shore up the finances of its state-owned parent company, Petroleos de Venezuela SA, according to a person with knowledge of the matter. The U.S. oil refining and marketing unit of PDVSA is seeking to sell $1.5 billion of bonds and obtain a $1 billion loan, according to the person, who asked not to be identified because the information is private. While Citgo’s debt ratings were cut to six levels below investment grade by Moody’s Investors Service last week on concern Venezuela will default, it’s still three steps higher than the government’s rating. Using Citgo to sell debt would mark a new strategy to raise cash for Venezuela after the government said in October that it had scrapped a plan to sell the Houston-based company. Venezuela owes $2.3 billion to Exxon Mobil Corp. and Gold Reserve Inc. after losing arbitration cases tied to expropriations, and those rulings would make it difficult for the government to sell Citgo without having to pay them off, according to Russell Dallen, a managing partner at Caracas Capital Markets in Miami. The only reason Citgo would issue the debt “is if they’re going to default on it,” Dallen said in a telephone interview. “And then the bank or the company they issued it to would be able to foreclose and take the property. It’s a back-door way of Venezuela selling the company.” Officials with Venezuela’s Information Ministry and PDVSA’s press office didn’t immediately respond to e-mails seeking comment. Fernando Garay, Citgo’s public-affairs manager in Houston, declined to comment.
Coming to Terms With the New Oil Reality - WSJ: The sharp drop in oil prices has already roiled markets and pummeled energy companies. But its impact on oil production and climate policies is likely to last years past the moment when prices have recovered. The shale boom in the U.S., where oil production has nearly doubled over the past 10 years, and the refusal of the Organization of the Petroleum Exporting Countries to cut output, have contributed to a glut on global energy markets. At the same time, low growth in Europe and emerging markets is holding down demand, upending long-held assumptions of scarcity and ever-increasing prices. Analysis“The expectations that have governed the world for over a decade have been overturned by a new reality,” says Daniel Yergin, vice chairman of energy research firm IHS and author of several books on the global oil market. Since the beginning of the year, investment banks have sharply lowered their price forecasts, with some seeing oil averaging around $50 a barrel this year, and staying close to $60 in 2016. That is about half of where prices stood last summer, squeezing margins across the oil sector. Energy producers, service providers and suppliers, such as steel companies, have started eliminating jobs and delaying projects. Just last week Royal Dutch Shell PLC scrapped plans for a big petrochemical plant in Qatar, and BP PLC laid off 300 workers at its North Sea hub in Aberdeen, Scotland. Analysts widely expect oil companies’ fourth-quarter earnings to be as much as one-fifth lower from a year earlier.
OPEC, oil companies clash at Davos over price collapse - OPEC defended on Wednesday its decision not to intervene to halt the oil price collapse, shrugging off warnings by top energy firms that the cartel’s policy could lead to a huge supply shortage as investments dry up. The strain the halving of oil prices since June is putting on producers was laid bare when non-member Oman voiced its first direct, public criticism of the Organization of the Petroleum Exporting Countries’ November decision not to cut production but instead to focus on market share. Speaking at the World Economic Forum in Davos, Switzerland, the heads of two of the world’s largest oil firms warned that the decline in investments in future production could lead to a supply shortage and a dramatic price increase. Claudio Descalzi, the head of Italian energy company Eni Spa, said that unless OPEC acts to restore stability in oil prices, these could overshoot to $200 per barrel several years down the line. “What we need is stability… OPEC is like the central bank for oil which must give stability to the oil prices to be able to invest in a regular way,” Descalzi told Reuters Television. He expected prices to stay low for 12-18 months but then start a gradual recovery as U.S. shale oil production began falling. But both OPEC and Saudi Arabia, the group’s largest producer, stuck to their guns. “If we had cut in November we would have to cut again and again as non-OPEC would be increasing production,” OPEC Secretary General Abdullah al-Badri said in Davos.
Oil Dinosaurs Face Extinction: State Oil Companies And The Meteor-Strike Of Low Oil Prices -- State-owned oil companies that don't slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction. Domestic and international energy companies are responding to the 50% decline in the price of oil by doing what's necessary to remain in business: they're slashing payroll, postponing capital investments, delaying new projects and soliciting price cuts from suppliers and subcontractors. This is the discipline of profit-driven capitalism: if expenses exceed revenues, profits vanish, losses pile up, capital contracts and eventually the company runs out of cash (and access to credit) and closes down. Unfortunately for state-owned oil companies, the feedback of expenses, losses and access to credit are superceded by the need to feed hordes of parasites: the state-owned company exists not to generate profits but to fund large payrolls and support state officials and cronies. Stripped of the discipline of markets and profits, state-oil companies exist to serve the interests of the state's Elites and their cronies and favored constituents. As a result, critical infrastructure has fallen into obsolescence, capital investments have been hollowed out and the expertise needed to maintain production has eroded. The state-owned oil companies are like dinosaurs: the extinction meteor of low oil prices has smashed their ecosystem, and all they can do is watch the sky darken as revenues crater and expenses and debt remain at unsustainably high levels.
How we’re preparing for $25 oil: Lukoil CEO: Lukoil, the Russian oil company, has stress tested its business for the oil price falling to $25 a barrel, Vagit Alekperov, the company's chief executive, told CNBC at the World Economic Forum in Davos. Brent crude was changing hands at close to $110 a barrel just a year ago, but has plummeted in recent months as the global economy performed worse than hoped, but supply continued at previous levels. On Friday, news that Saudi King Abdullah bin Abdulaziz Al Saud passed away sent oil prices sharply higher. "We think that the current trends in the oil market and the global economy are only pushing the world oil to its lower levels. We think the crisis is only at its earliest stages and the demand situation in world market is not really conducive to oil prices going up," Alekperov warned. Russian Lukoil, like other Russian businesses, has been affected by sanctions imposed by Western governments since the downing of Malaysia Airlines flight MH17 over eastern Ukraine. A planned joint venture with French oil giant Total was scrapped in September. Lukoil, like other Russian companies, will also find it difficult to raise money internationally, or to repay international loans as the value of the rouble has tumbled. "The sanctions obviously limit our access to locality and financing. And over the past 25 years, we've been heavily integrated into the international community in terms of technology and financing," Alekperov said. "These will have a telling impact on us."
Low Oil Prices Force OPEC Members To Rethink 2015 Budgets - The persistent drop in oil prices is prompting more oil-rich OPEC countries to revise the projected revenues in their coming budgets. Already, Saudi Arabia, the world's largest producer of oil and OPEC's richest member, has acknowledged that the steep fall in oil prices since June will leave the Riyadh government with its first budget deficit since 2011 and the largest in its history. The Saudi budget, announced on Dec. 25, will include spending during fiscal 2015 of $229.3 billion, higher than in 2014, despite revenues estimated at only $190.7 billion, lower than in the current fiscal year. That would leave a deficit of $38.6 billion. In fact, according to an analysis by Bloomberg in December 2014, 10 of OPEC's 12 member states – all but Qatar and Kuwait – can no longer rely on oil exports to balance their budgets. And although Saudi Arabia is losing money, Bloomberg says, its treasury has a financial reserve of nearly three-quarters of a trillion dollars. But even that analysis needs revising. Qatar now is expected to base the budget for its coming fiscal year, beginning April 1, on oil valued at $45 per barrel in 2015, down from its previous estimate of $65, an anonymous source in the Persian Gulf state's energy industry tells Reuters. The source stressed, however, that $45 is a conservative figure chosen to “help keep growth on track.” As is its custom, Qatar's Finance Ministry would not comment on its spending plans until the budget is formally published. Yet Doha is known for being conservative in its revenue estimates to prevent any deficits and, at times, to enjoy unexpected surpluses. Iran, meanwhile, is predicating the budget for its coming fiscal year, which begins March 21, on an even lower price for oil, $40 per barrel. Iran is beset not only by the precipitous drop in oil prices but also by sanctions imposed because of suspicions that its nuclear program is not peaceful but aims to develop weapons.
Saudi Arabia Plunges into an Abyss --Last week, just before the Charlie Hebdo attack, ISIS sent a suicide team across the border into Saudi Arabia. Here's what happened.
- The attack was successful. The team found and killed the Saudi general (Oudah al-Belawi) in charge of the country's nothern border zone at the outpost he was visiting (here's a pic of the state funeral for some of the men killed in the attack).
- The target was significant. General Oudah al-Belawi was in charge of the multi-billion dollar Saudi effort to secure the northern border against ISIS. Not only has Saudi Arabia sent 30,000 additional troops to guard the northern border, it's building a highly automated 600-mi security wall to protect itself (lots of robots and sensors). Here's a great graphic of the monstrosity from the Telegraph. My take: What a waste of time and effort.
- It demoralized the Saudi military. This attack deeply undermines the morale of Saudi troops on the border. If ISIS can kill a top general...
Here why this attack is signficant.
- It tells us that ISIS is starting to focus on Saudi Arabia -- with good reason. The reason is that there's simply no other way to unite the various groups under the ISIS banner. ISIS, like all open source movements, needs to keep moving in order to stay alive (like a shark). Right now, ISIS has stalled. A jihad to retake the holy sites from the corrupt regime in Riyadh can serve as a simple plausible promise that can reignite the open source war ISIS started, on a global scale.
- The Saudis are vulnerable. The attackers knew exactly when the general was going to be at the outpost. This tells us that the Saudi military is rife with ISIS sympathisers and/or active members. If so, the Saudi military may melt away when facing jihadis (or switch sides) in the same way 30,000 Iraqi troops did early last year a couple of hundred miles to the north.
Saudi Arabia's King Abdullah bin Abdulaziz dies: Saudi King Abdullah bin Abdulaziz has died, royal officials have announced, weeks after he was admitted to hospital. Abdullah, who had ruled since 2005 and was said to be aged about 90, had been suffering from a lung infection. His 79-year-old half-brother, Salman, has been confirmed as the new king. Within hours of his accession to the throne of the oil-rich kingdom, King Salman vowed to maintain the same policies as his predecessors. "We will continue adhering to the correct policies which Saudi Arabia has followed since its establishment," he said in a speech broadcast on state television. Abdullah had suffered frequent bouts of ill health in recent years, and King Salman had recently taken on the ailing monarch's responsibilities.
Dead Cat Bounce? Oil Prices After King Abdullah's Death - The newswires were all abuzz this morning about the passing away of King Abdullah, formerly Crown Prince Abdullah before his half-brother King Fahd passed away in 2005. Now that he too has died, his brother Salman has become Saudi king. In terms of the broader energy market, the notable news is that oil prices have bumped up slightly on the news. To be sure, Abdullah's passing was not unexpected since he has not been in the best of health in recent years and succession plans were already well-known: Oil prices jumped on Friday as news of the death of Saudi Arabia's King Abdullah added to uncertainty in energy markets already facing some of the biggest shifts in decades. Abdullah died early on Friday and his brother Salman became king in the world's top oil exporter. Salman named his half-brother Muqrin as heir, moving to forestall any succession crisis at a moment when Saudi Arabia faces unprecedented turmoil on its borders and in oil markets.Brent crude futures rose to a high of $49.80 a barrel shortly after opening before easing back to $49.30 a barrel by 0650 GMT, up 78 cents. U.S. WTI crude futures were at $47, down from a high of $47.76 earlier in the session."This little spike in prices is understandable. But this is a selling opportunity in our view. It should be sold off quickly and it won't last long at all," The new king is expected to continue an OPEC policy of keeping oil output steady to protect the cartel's market share from rival producers. "When King Salman was still crown prince, he very recently spoke on behalf of the king, and we see no change in energy policy whatsoever," Keenan said.
There is a new Saudi Arabian king, but the world already wants to know who will succeed him – Quartz: Succession to the throne was smooth in Saudi Arabia, still the most important oil-producing country on the planet. But beyond that, the ascent of crown prince Salman after the death of king Abdullah does not inspire confidence. One reason is talk that Salman, who is 79 years old, suffers from dementia. Another is that the new crown prince, Muqrin, is rumored to have reached his position more for his pliability than executive competence—he may not be up to the job as king, should he eventually be called upon to take it. In fact, one bit of speculation is that Salman, who can choose his own crown prince, will relatively quickly put his own favorite in line. None of this clears up the Kingdom’s quandary (some will call it a future crisis), which is that the end of the second generation of male offspring of king Abdul Aziz, Saudi Arabia’s founder, is upon us. Neither the deceased king Abdullah nor anyone else has put in place any known plan for what comes next. This is not an academic nor trivial question: despite the rise of shale oil and OPEC’s current capitulation to markets, it would be foolhardy to buy into the intellectual fashion that OPEC’s—and Saudi Arabia’s—influence are dead. OPEC still controls some 40% of the world’s oil supply—the largest single block by far—and Saudi Arabia remains the cartel’s leader.
Saudis face rethink on Iran rivalry: The terrorist strike last week on the Saudi border post facing the Iraqi province of Anbar - known to be the Islamic State's first assault on the kingdom - could be the proverbial straw on the camel's back, forcing Riyadh into a profound rethink of its regional strategies imbued with the rivalries involving Iran. Tehran has effectively countered the Saudi plots in Syria and Iraq and at the moment would seem to have the upper hand. The last-ditch Saudi attempt to hurt the Iranian economy by forcing a steep decline in oil prices is not only not having the desired effect but, as President Hassan Rouhani explicitly warned yesterday, Riyadh may end up shooting at its own feet (as well as the Kuwaiti brother's). However, it is the attack on the Saudi post by the IS (killing two border guards and their commanding officer) that becomes a defining moment. The fact that the IS attackers included three Saudi nationals must be a rude awakening. To be sure, the blowback has begun. The Saudis hope to erect a ‘great wall' and insulate themselves from the IS barbarians next door but that is sheer bravado. More …
Oil drop ‘disastrous’ for anti-Isis fight - FT.com: The collapse in the oil price has had “disastrous” consequences for the fight against Isis, Haider al-Abadi, Iraq’s prime minister, has warned world powers. Western leaders meeting Mr Abadi in London on Thursday have promised to increase shipments of ammunition and to consider allowing the Iraqi government to defer millions of dollars of payments for key supplies, in order to alleviate budgetary pressure and ensure the country’s military can continue fighting. Baghdad’s budgetary crisis, which has been greatly deepened by the falling oil price, dominated discussions on Thursday between representatives of a coalition of world powers that is working to fight the Islamic State of Iraq and the Levant jihadi group, known as Isis. The talks were hosted by Philip Hammond, Britain’s foreign secretary, and led by his US counterpart, John Kerry. “I cannot stress this [problem] any more,” said Mr Abadi, speaking at the UK Foreign Office. “We don't want to see a reverse of our military position because of our budget and fiscal problems.” He continued: “We [are working with] our partners in the coalition and there will be a programme to [deal] with Iraq’s internal crisis. “One choice is that delivery of munitions and armaments can have deferred payments,” he said.
Iraq is now partitioned. Forget it and move on. -- What was once the Sykes-Picot creation called the Kingdom of Iraq is dead. It is finished. That country was established as a European contrivance and convenience in what had always been called the Mesopotamian region centered on the Tigris and Euphrates drainage systems. In what was traditionally called "Iraq," the British, with French political acquiescence, cobbled together a pastiche of very different ethno-religious groups and placed a princeling of the Hashemite family on a newly established throne. Ethnic Arabs, Kurds, Turcomans, and Jews were forced into a "shotgun marriage" that suited none of them. Sunni and Shia Muslims, Yazidi pagans, Jews, and various kinds of Christians were all told that for the first time in history they had become a new kind of human, "Iraqi Man." This collage of the peoples of Mesopotamia and Kurdistan limped along for almost 80 years under a variety of governments. One of the principal functions of these governments was to maintain a coerced "unity" in this artificial state. The endless wars between the Baghdad centered state and Kurdish separetists were emblematic of the festering dissidence that always lay just below the surface of daily life. All this ended when the United States and its coalition of the willing invaded Iraq in 2003 and destroyed the state of Iraq and all the mechanisms of state identity and power. The motivations for this program of destruction of the structure of the state of Iraq, have been and will be endlessly discussed. I am weary of the debate. What matters in January, 2015 is the simple truth that Iraq as it was is no more. IS holds the north and west of the country with the exception of what has become a de facto country in the Kurdish "Autonomous" Region. The Shia Arabs hold the south from their part of Baghdad all the way down to Basra. They are likely to retain control of that territory for the simple reason that the Shia Iranians will not let it be taken from them.
Iran OK With $25 Oil As Iraq Pumps Crude At Record Pace - The precarious "game theory" equilibrium that worked for decades while OPEC was still a functioning cartel is unwinding before everyone's eyes. Just as Saudi Arabia accurately anticipated, the lower the price of crude goes, the more both OPEC members and their non-OPEC peers (especially shale companies funded by hundreds of billion in junk bonds) will have to produce in order to keep their budgeted revenues roughly in line (and keep creditors happy for the time being) in the process setting off an unprecedented wave of bankruptcies and production capacity declines, which take about 6-12 months after the price plunge to materialize. Case in point: the country formerly known as Iraq (and now better known as that region around the Tigris and the Euphrates that does not belong to ISIS) is pumping crude at a record pace and will continue to boost exports this year, its Oil Minister Adel Abdul Mahdi said.
Iran sees no OPEC shift toward a cut, says oil industry could withstand $25 crude (Reuters) - Iran sees no sign of a shift within OPEC toward action to support oil prices, its oil minister said, adding its oil industry could ride out a further price slump to $25 a barrel. The comments are a further sign that despite lobbying by Iran and Venezuela, there is little chance of collective action by the 12-member OPEC to prop up prices - entrenching the reluctance of individual members to curb their own supplies. In remarks posted on the Iranian oil ministry's website SHANA, Oil Minister Bijan Zanganeh called for increased cooperation between members of the Organization of the Petroleum Exporting Countries. true "Iran has no plan (to hold an emergency OPEC meeting) and is currently in consultations with other OPEC member states in a bid to prevent the sharp fall in the oil price, but these consultations have yet to bear fruit," he said. Oil has plunged by more than half since June 2014 to below $50 a barrel on Monday, pressured by a global glut and OPEC's refusal at its last meeting in November to cut its output. OPEC decided against a production cut despite misgivings from non-Gulf members such as Iran and Venezuela, after top producer Saudi Arabia argued the group needed to defend market share against U.S. shale oil and other competing sources.
Elsewhere in central banking news…here are the real stories… Fighters for one of the factions battling for control of Libya seized the Benghazi branch of the country’s central bank on Thursday, threatening to set off an armed scramble for the bank’s vast stores of money and gold, and cripple one of the last functioning institutions in the country. The central bank is the repository for Libya’s oil revenue and holds nearly $100 billion in foreign currency reserves. It is the great prize at the center of the armed struggles that have raged here since the overthrow of Col. Muammar el-Qaddafi in 2011. There is more here. And in collapsing Yemen, the Iran-funded Houthi fighters seem to have the central bank tightly under guard. Mario Draghi does not in fact have the toughest job in the world.
Local gas prices set to soar as exports to Asia get under way: While most of us were on holidays, something happened off the coast of Gladstone in Queensland that will have hip-pocket implications for consumers across the eastern states. In late December, British energy giant BG Group sent the first ever shipment of liquefied natural gas from Australia's east coast, using gas from the state's booming coal seam gas industry. Granted, it sounds far removed from everyday life for most of us. But this cargo load is the start of a trend that will dramatically increase how much households pay for gas used for hot water, cooking, or heating. It is predicted to push up many households' utility bills by a similar amount to the carbon tax, but there are no plans for compensation. And as you'd expect with a jump in the cost of living of this size, this one is producing some seriously flimsy economics. Advertisement First though, back to that shipment. Not only was it the first time that CSG has been converted into LNG, the exportable form of gas. More importantly for consumers, it was the first time gas has been exported from the east coast of Australia at all, and there is much more to come.
China's shipyards brace for leaner times due to crude prices slide -- For China's shipyards, the oil rig market that was supposed to be a blessing is in danger of becoming a curse. As crude prices slide, oil producers are slashing new project spending. With a near 40 percent slice of a global market worth tens of billions of dollars, Chinese rig builders that offered juicy financing terms and discounts to leapfrog Asian rivals in recent years are now the most exposed to a slowdown. Diversifying to pull out of a downturn in traditional shipbuilding, China's state and privately owned yards have lured orders away from regional peers, building scores of rigs for down payments of as little at 1 percent. Many haven't yet been chartered by oil explorers, industry watchers say. Some in the industry fear that rig builders are now heading toward a slowdown, possibly with cancellations and price cuts, that could persist longer than the oil market's slump. Even if oil prices recover enough to stoke exploration, an inventory of ready-made rigs will be on hand, delaying new construction. "Future cancellations will depend on the market going forward and unfortunately we are looking at a real risk for yards in this respect,"