Sunday, January 11, 2015

updates on Keystone, rig counts, oil & gas prices, fracking quakes, et al; 97% of shale plays now unprofitable

it now seems certain that Congress will pass a bill mandating approval of the Keystone XL pipeline, and that Obama will veto it...the house passed just such a bill on Friday by a vote of 266-153, and indications are that at least nine Democrats will join the Senate Republican majority in passing the same bill and sending it to Obama next week...communiqu├ęs from the White House have indicated that a veto will be forthcoming; all that remains to be seen now is if those favoring construction of the pipeline can get enough support to override the veto; one tally counts at least 64 votes in favor of the pipeline in the new Senate...also clearing the way for construction, the Nebraska Supreme Court reversed a lower court’s decision that blocked the pipeline route through the state, once again giving the pipeline a legal go ahead...however, even if Obama's veto is overridden, it's not certain or even likely that the pipeline would be built anymore...as we pointed out in November, the Canadian Energy Research Institute estimated that oil-sands projects need a price of $85 a barrel to be profitable in the current cheapest (in situ) method, and that new mines will require $105 a barrel oil to be profitable; other estimates of costs for tar sand extraction are similar...terminal prices for West Canada Select (heavy) crude oil have been below $35 per barrel all week, and Canadian projects are shutting down even faster than those in the US, and some of that started even before prices fell; Norwegian oil giant Statoil pulled out of their tar sands project in September...in the past year, Shell, the French oil giant Total, and SunCor of Canada all cancelled their tar sands projects...even China's CNPC International pulled out of the oil sands and withdrew its support for Enbridge's Gateway project to deliver tar sands oil to the west coast...and with current tar sands production already flowing into the US through the Alberta Clipper pipeline to Wisconsin and the Flanigan South pipeline through Illinois & points south, there may not be enough additional tar sands output to justify construction of another redundant pipeline...so if approval of the pipeline from the US is forthcoming, and there is no tar sands oil to be shipped, it now seems quite likely that TransCanada would either delay or cancel the Keystone XL project altogether...

after two weeks of holiday delayed reporting, we were finally brought up to date on the current count of operating drilling rigs by the release of the report for the week ending January 2 on Monday and this week's report at it's normal Friday release time...the Monday report found 1811 rigs still running in the US on January 2nd, 29 less than were running Christmas week, as 17 less oil rigs and 12 less gas rigs were in operation than were running on December 26th...for the same week, Canada saw 48 less rigs running, with their oil rigs down 42 to 52, and gas rigs down 6 to 156, for a total of 208, almost half of the 391 rigs that were operating in Canada two weeks earlier...in Friday's data, Baker Hughes reported that the US rig count was down another 61 rigs to 1750, the largest one week drop in rigs since 1991, with 61 less oil rigs operating,1 gas rig restarted, and the lone miscellaneous rig shut down...that leaves us down 4 rigs from last year's 1754, with oil rigs up 28 to 1421, gas rigs down 28, and all 4 miscellaneous rigs shut down...over the past 5 weeks, US operators have idled a total of 170 rigs, or about 9% of those that were operating on December 5th, when it first became clear that the bottom fell out of oil & gas prices...Canada, on the other hand, showed an increase of 158 rigs running for the week ending Friday, bring them back up to 366, with oil rigs running up 129 to 181, and gas rigs up 29 to 185...so it appears that a percentage of Canadian operations were shut down over the holidays and have since restarted...from a year ago, however, the Canadian count is still down 111 rigs from 477, with oil rigs down 119 to 181, and gas rigs up 8 to 185...in addition to the weekly counts, Baker Hughes also released worldwide rig counts and well counts for December and for the 4th quarter... the U.S. onshore well count for the fourth quarter of 2014 averaged 9,544 wells, relatively unchanged compared to the third quarter, with the well count increasing by 22 wells in the Woodford shale, by 12 wells in the Utica, and by 11 wells in the Marcellus, while there were 30 less wells in the OK-TX Granite Wash, 21 less in the Barnett shale, and 12 less in the Haynesville basin....these numbers are consistent with earlier reports that Texas drillers were the first to start consolidating operations in the face of a impending oil bust..

near term contract prices for both gas and oil were broadly lower for the week, with a few larger intraday price moves midweek...oil prices fell all day Monday and Tuesday on news of that oil output from Russia and Iraq was at its highest levels in decades, with prices closing Tuesday at $48.00 a barrel, down from $52.64 last Friday...after falling to 46.82 Wednesday morning, prices then rose to close up for the day, and opened Thursday at $49.19 before falling the rest of that day and again Friday to close the week at $48.36...gas prices rose from the $3 mmBTU at the open on Monday, then fell back to close at $2.88; they rose to $2.93 on Tuesday but fell back to $2.88 on Wednesday, despite the fact that 83.8% of the country was below freezing and 12.9% of the country was below 0 F...they then rose to close at $2.92 mmBTU on Thursday and to finish the week at $2.95 mmBTU...we'll include 3 month price charts for both US oil and US gas here so you can again see how they've fallen from their recent highs...

3 months of oil prices - 1/10/15:

January 10 2015 oil

oil prices were as high as $107 on June 20th of this year; also note that according to Bloomberg New Energy Finance, oil at $50 is below the break-even price for wells in 37 of 38 U.S. shale oilfields...

3 months of natural gas prices - 1/10/15:

January 10 2015 nat gas

again, remember these are contract prices for oil in storage at or delivered to Cushing Oklahoma or for gas at the Henry Hub in Louisiana; prices at the wellhead can be much cheaper, especially in areas far from cheap transportation to where the gas or oil will be used ...last Friday, with $3.00 gas at the Henry Hub, the Leidy Hub in northeast Pennsylvania was selling gas at $0.80 Mcf, while gas in Tennessee Zone Four was selling at $0.53 Mcf....Utica and Marcellus natural gas producers are becoming like gardeners with a mid-summer surplus of zucchini, there's now so much of the stuff around they're having trouble giving it away....

last Sunday saw what was apparently the first bankruptcy coming out of this oil price bust as WBH Energy, a Texas driller, filed for bankruptcy protection, as lenders refused to advance the company any more money...later in the week, Resolute Energy of Denver, seemed to come close, as they barely managed to secure a loan at 25% to roll over a portion of their debt, which seems cheap considering their other debt is priced to yield 27% to 32%...we'll include here a small graphic from the Wall Street Journal that will help illustrate what kind of trouble borrowing at such rates puts these drillers in…

debt to EBITDA via WSJ January 2015:

January 10 2015 EBITDA

on the left of this graphic, the debt to EBITDA ratios are displayed in bar graph form for a handful of oil and gas producers…EBITDA stands for earnings before interest, taxes, depreciation, and amortization and is a fairly common measure of operating profitability, and you can see right away that most companies have more than 3 times the debt of their EBITDA, with many at a much larger ratio (here is a table including roughly 50 such oil company’s EBITDA ratios, some as high as 44, which rendered too poorly to include here)…it’s obvious that if an oil company's debt is 4 times their earnings before interest, and they’re paying 25% interest on that debt, then their entire cash flow is thus devoted just to paying interest…but they can’t stop drilling, because at that moment, they’d have no cash flow from which to pay that interest..…for the aforementioned Resolute Energy of Denver, with a debt to EBITDA ratio of 4.6, that means it takes more than their entire cash flow just to make interest payments, a financial Catch-22 that just can’t be sustained for very long..

the fracking induced earthquakes of this March in Poland Ohio were back in the news this week as new research establishing the linkage between the timing of the fracking of the northeast laterals of the Hilcorp Corp well in the Carbon Limestone Landfill and the earthquake that occurred at the same location was established and published online in the Bulletin of the Seismological Society of America; this study received widespread coverage nationally and a selection of those articles are below...you should recall this event, if only because of my botched attempt to link to both the quake and the fracked well using google earth maps, followed by my errata in which i linked to what i still consider the best diagrammed explanation of exactly what happened at that time, from Dr. Ray Beiersdorfer of Youngstown State, which is here: Ohio’s First Frackquakes...other earthquakes were also in the news, as Irving, Texas was rocked by a series of 26 earthquakes over a 48 hour period midweek, including a 3.6 quake that did some minor damage to buildings in the Dallas area..like Oklahoma, this area has suddenly experienced over 100 quakes since fracking began, compared to just 1 before then, and they're trying to determine if the 2000 injection wells in the Irving area might have something to do with it.....similar questions are being asked in Boise, Idaho, where minor damage resulted from a 4.9 quake which struck the small town of Challis, about two hours from the state capitol...

you'll see there's quite a batch of Ohio related articles this week; of particular interest is one below discussing shale gas production in the Utica, with a focus on a specific top-producing well; the initial production came in at 13,972 thousand cubic feet of natural gas per day in the first three months of 2014, but by the 3rd quarter, July through September, it had dropped to 6,015 thousand cubic feet per day...this suggests that fracked wells in the Utica shale have a much quicker depletion rate than other shale plays, which typically drop by half the first year, and by half again the second...we'll try to chase that data down when this oil price crisis situation settles to see if that's true; it could mean that drilling in the Utica is much less productive than assumed by the high initial output rates of the wells drilled over past few years....we're starting this batch with a link & excerpt to an article on that Monroe County gas well blowout that kept 30 families away from their homes during the weeks before Christmas, because this article below has considerably more detail as to what transpired there that the news stories on it that came out at that time..this week's links have turned out to be a somewhat larger batch than previously, so to avoid testing the upper limit of this mailing platform, i'm leaving out links to a handful of articles discussing the geo-political implications of the oil price drop as it effects other countries, that i may tag back on the end of the batch when i post it online..

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Ohio fracking well drives families out of homes - A natural gas fracking well began leaking on Dec. 13, 2014, driving 30 families from their homes. The leak prompted the evacuation of the well's field staff and residents within a 1.5-mile radius around the well near Sardis, Ohio. Sardis is a small community, located along the Ohio River about 160 miles east of Columbus and 40 miles south of Wheeling, West Virginia. The well is located at the Stalder 3UH location, operated by Triad Hunter, LLC outside of Sardis. Triad Hunter is a wholly-owned subsidiary of Magnum Hunter Resources Corporation. The leak from the well pad shot gas and vapors high into the air, prompting not only the evacuation of nearby residents but causing authorities to impose a 5,000 feet NO FLY ZONE above a three-mile radius around the leaking well. The evacuation and NO FLY restrictions were ordered until the well could be capped and repaired. Eventually, families were permitted limited access to their homes, Dec. 17, during the daytime - between 7:00 a.m. - 6:00 p.m. - with the assistance of the Sardis Volunteer Fire Department. Emergency accommodations had been provided for families and, on Dec. 17, a Family Assistance Center was set up in nearby Lee Township Building to provide a larger and more relaxed place for the evacuated residents. But some residents, according to other reports, have temporarily taken up quarters in hotels/motels as far south as Marietta, Ohio, which is over 40 miles away. Crews from as far away as Texas (such as, Wild Well Control) were brought in to contain and repair the spewing well. Representatives of the involved companies continued to meet daily with community and government agencies to discuss ongoing efforts to secure the well site, maintain safety of responders and residents through continuous air monitoring with with zero gas detection outside the well pad site. On Dec. 23, the residents who were hoping to be back in their homes learned that was not to be. They were told that they would have to wait another day. Rocky Roberts, senior vice president of Operations for Triad Hunter, said, "The well head is still blowing gas ... but it is blowing straight up into the air." Roberts went on to say that, when the well is capped, they will still have to do some air monitoring to make sure it is safe.

Ohio's oil and gas boom saw highs, lows in 2014 - Columbus Dispatch -- The past 12 months have been a roller coaster for the oil and gas industry in Ohio. There were high notes: Drilling and production, including wastewater injection, soared. And in July, state officials announced that the industry had spent or committed to spend more than $6 billion in infrastructure to process and move natural gas and oil from shale deposits deep underground. That means jobs and revenue for the state, proponents say. But there were low notes, too. Earthquakes shook people in their homes. A June fire caused chemical runoff that killed thousands of fish in a 5-mile stretch of stream that leads to the Ohio River. More than 400 families had to leave their homes when methane spewed from a well in Jefferson County in October. In November, an electrician working on a pump at a Noble County well pad was killed in an explosion. Last month, about 30 families in Monroe County were told to stay away from their houses for 10 days because of a blowout. “We’re having a little too many accidents now,” Gov. John Kasich said during a speech before the Ohio Chamber of Commerce last month. Two earthquakes shook parts of Mahoning County in March, and regulators suspended operations while they investigated. In September, the state suspended operations at two injection wells in Trumbull County after a series of small earthquakes occurred there. In October, researchers published findings that fracking caused 400 small earthquakes between Oct. 1 and Dec. 13, 2013, in Harrison County. 

Fracking Led to Ohio Earthquakes - A hydraulic fracturing, or fracking, well in Ohio triggered scores of small earthquakes in March 2014, including one large enough to be felt in nearby towns, a new study confirms. The biggest quake, a magnitude 3, was one of the largest ever caused by fracking. State officials shut down the well two days after the earthquake hit. Fracking involves the high-pressure injection of water, sand and chemicals into rock to break it up and release trapped oil and gas. In Ohio, fracking triggered earthquakes on a hidden fault in ancient crystalline rock beneath a natural gas well in the Utica Shale, according to the study, published today (Jan. 5) in the Bulletin of the Seismological Society of America. No earthquakes were ever recorded in this region of Ohio before fracking started, and the shaking stopped after the well was shut down, said lead study author Robert Skoumal, a graduate student in seismology at Miami University in Ohio. Skoumal and other Miami University researchers identified 77 earthquakes with magnitudes ranging from 1 to 3 that occurred from March 4 to 12.

Fracking caused Ohio earthquake in 2014, say researchers - Fracking was responsible for an earthquake felt by Ohio residents in March 2014, a study has found. Hydaulic fracturing near the Poland Township activated a previously unknown fault in the earth, say scientists, who identified 77 earthquakes with magnitudes ranging from 1.0 to 3.0 between March 4 and 12.The strongest earthquake was unusual because it could be felt by people living in the area, revealed the research, published online in the Bulletin of the Seismological Society of America.“These earthquakes near Poland Township occurred in the Precambrian basement, a very old layer of rock where there are likely to be many pre-existing faults,” said Robert Skoumal, co-author of the study. “This activity did not create a new fault, rather it activated one that we didn’t know about prior to the seismic activity.”  In October 2014 another study in the same journal suggested 400 small earthquakes in Ohio were triggered by fracking in a three month period during 2013.

Fracking caused earthquakes in existing faults in Ohio, study says: A new scientific study has linked 77 minor earthquakes last March around Poland, Ohio, just across the Pennsylvania-Ohio state line, to hydraulic fracturing. The seismic sequence, including a rare “felt” quake of a magnitude 3.0 on the Richter Scale, was linked to active “fracking” by Hilcorp Energy Co. on a well pad about a half mile from the epicenter, according to research published online in the Bulletin of the Seismological Society of America. One of the study’s authors, Robert Skoumal, of Miami University of Ohio, said it is rare for deep fracking operations associated with shale gas extraction to cause earthquakes large enough to be felt by people on the surface. But seismic monitoring advances have found the number of “felt and unfelt” earthquakes associated with fracking have increased over the past 10 years. “These earthquakes near Poland Township occurred in the Precambrian basement, a very old layer of rock where there are likely to be many pre-existing faults,” Mr. Skoumal said in the news release about the findings. “This activity did not create a new fault, rather it activated one that we didn’t know about prior to the seismic activity.” The researchers, Mr. Skoumal, Michael Brudzinski and Brian Currie, used a technique called “template matching” to link fracking activity on certain dates to seismic data recorded by the Earthscope Transportable Array, a network of seismic stations. The study identified 77 deep earthquakes, with magnitudes from 1.0 to 3.0, to the fracking done around Poland, which is 15 miles west of New Castle, in Lawrence County. Only fracking on wells located in the northeast portion of Hilcorp’s shale gas operations were linked to the earthquakes, indicating where faults may be located.

Ohio earthquakes caused by fracking: Hydraulic fracturing triggered seismic activity - A series of earthquakes that hit Ohio last year were caused by fracking, experts have claimed.Published in the Bulletin of the Seismological Society of America, researchers looked at five earthquakes that hit Poland Township, Ohio, in March 2014. They discovered hydraulic fracturing had activated a previously unknown fault that triggered the seismic activity..Previous research has linked earthquakes with fracking. Last October, researchers connected 400 micro-earthquakes to fracking in Harrison County in Ohio between September and October 2013.In July, another study found fracking was responsible for hundreds of earthquakes across Oklahoma. It found the rate of earthquakes increased from about one per year before the 2008 oil and gas boom to about 240 small earthquakes less than five years later.Two earthquakes in the UK in 2011 were also found to have been caused by nearby fracking.Larger tremors caused by fracking remain very rare but advances in seismic monitoring and the growth of the fracking industry has led to an increase in earthquakes over the last 10 years. In the latest study, authors found earthquakes ranged from magnitude 2.1 to three and all occurred within 1km of a group of oil and gas wells run by Hilcorp Energy. The company was conducting fracking operations at the time.

Fracking in Ohio triggered an earthquake so big you could feel it -- Earthquakes never used to happen in Poland Township, Ohio — or, at least, they were never identified. But then the fracking started. In March of 2014, the township saw 77 earthquakes occur, says Robert Skoumal, a seismologist at Miami University. These earthquakes were so small that most went unnoticed by the area's 15,000 inhabitants. But when the hydraulic fracturing operations stopped, so did the earthquakes, Skoumal says — and "no earthquakes in this area have been observed since."  Skoumal is one of the researchers behind a new study that links a rare "felt" earthquake — an earthquake strong enough that humans can feel it — to hydraulic fracturing operations that took place in Poland Township in 2014. Hydraulic fracturing, or fracking, is the process by which sand, water, and various chemicals are injected into the ground to extract natural gas from shale rock deep underground. It very rarely leads to earthquakes, and "only a handful of fracking operations worldwide have induced felt earthquakes," Skoumal says. But in March of 2014, Poland Township experienced a series of earthquakes, including one — a magnitude 3 earthquake — that was "one the largest earthquakes ever induced by hydraulic fracturing in the United States."  In the study, which will be published tomorrow in the Bulletin of the Seismological Society of America, Skoumal and his team of researchers compared the timing of the Poland Township earthquakes to the fracking operations. They also compared the location of the earthquakes in relation to the fracking wells. This analysis helped them determine that a relatively small portion of the fracking operation — the northeast portion — was responsible for the earthquakes in Poland Township.

Yes, Fracking Can Be Directly Linked to Earthquakes - Forbes:  A study released Monday afternoon by the Seismological Society of America confirms — again — that hydraulic fracturing, or fracking, activity associated with natural gas drilling in the Ohio portion of the Marcellus Shale induced a “rare seismic sequence” last March. Put more simply: Fracking caused an earthquake. “It remains rare for hydraulic fracturing to cause larger earthquakes that are felt by humans,” the organization noted in a prepared statement. “However, due to seismic monitoring advances and the increasing popularity of hydraulic fracturing to recover hydrocarbons, the number of earthquakes – felt and unfelt – associated with hydraulic fracturing has increased in the past decade.” It makes some sense. Fracking, as its name implies, involves the explosive fracturing of shale rock formations deep underground, as a way of creating cracks and fissures from which trapped natural gas can escape up the well bore and to the surface. That this might now and then nudge a previously unknown fault to noticeably rumble or shift seems elementary, if uncommon. Low-level seismicity is actually detected during fracking operations all the time, but at magnitudes that are virtually imperceptible to most people.  And as noted by the industry-run site Energy in Depth, the findings published this week — which grew out of work by researchers at Miami University of Ohio — only reinforce what was already suspected by anyone paying attention. Indeed, the Ohio Department of Natural Resources only needed a month after last spring’s quakes, which registered as high as 3.0 in magnitude and in one case was felt throughout Poland Township, to toughen its regulations on drilling near known fault lines and other areas of potential seismic activity.

Fracking Confirmed as Cause of Ohio Earthquake » Ohio is now on a similar trajectory to Oklahoma, which saw a five-fold increase in earthquakes in 2014. A new study published in the Bulletin of the Seismological Society of America has confirmed that a frackingoperation near Poland Township in Ohio activated a previously unknown fault in the Earth, causing 77 earthquakes with magnitudes ranging from 1.0 to 3.0 between March 4 and March 12 in 2014. The drilling company, Hilcorp Energy, was forced to halt operations by the Ohio Department of Natural Resources on March 10 after nearby residents felt the 3.0-magnitude earthquake.  Robert Skoumal, who co-authored the study, compared these earthquakes to well stimulation reports and found the earthquakes “coincided temporally and spatially with hydraulic fracturing at specific stages of the stimulation. The seismic activity outlined a roughly vertical, east-west oriented fault within one kilometer of the well.” Fracking at other nearby wells did not produce seismic activity, which suggests that the fault is limited in its scope. But, if Oklahoma’s major increase in earthquakes tells us anything, it’s that it could get worse for Ohio if fracking increases. From 1975 to 2008, Oklahoma averaged one to three earthquakes of magnitude 3 or greater a year. In 2009, that number jumped to 20. In 2011, the Sooner state experienced its largest recorded quake with a magnitude of 5.7. In 2014, there were 564 quakes with a magnitude of 3 or greater, compared to only 100 in 2013. And 19 of those earthquakes were magnitude 4 or greater, the strength at which experts say significant damage can occur.

Fracking Earthquakes Pile On To Gas Industry Woes - Way back in April we reported that seismologists were hot on the trail of a “smoking gun” that would link fracking to earthquakes on Ohio. At the time the experts were a bit cautious, but earlier this week the Seismological Society of America came out with a definitive statement: yes, fracking earthquakes are a thing. That’s a huge deal because until now, the only confirmed linkage between fracking and earthquakes has been due to the common practice of forcing spent fracking brine (wastewater from the drilling operation) into abandoned wells. We’re already seeing a lot of pushback from local communities against drilling and now that fracking earthquakes are a known known, you’re going to see a lot more of that stuff. Natural gas fracking is already fingered as the cause of depressed property values due to risks for water contamination, air pollution, and other disruptions related to introducing new industrial operations into formerly bucolic settings, and now the Environmental Protection Agency is coming down with new rules to keep closer tabs on fugitive methane emissions from fracking, so the earthquake thing is really piling on an industry that’s already feeling the pinch of downwardly spiraling prices.  Another reason why the new fracking earthquake study is such a big deal is that according to the Seismological Society, the drilling operation activated a previously undocumented fault. In other words, in addition to the known risks posed by documented faults and other geological features, you’re opening up a whole new can of worms for local communities to deal with.

Ohio appeals decision to revoke gas-drilling permit in North Royalton | cleveland.com: -- The Ohio Department of Natural Resources has appealed last month's decision to revoke an oil-and-gas-drilling permit in North Royalton. The notice of appeal was filed Friday in the Franklin County Court of Common Pleas by state Attorney General Michael DeWine. His office is representing the ODNR in this case. The Ohio Oil and Gas Commission in December revoked an ODNR drilling permit for Cutter Oil Co., a West Salem firm. The permit would have allowed Cutter to use parts of two North Royalton streets to drill a new well. The commission, which under state law hears appeals to state gas and oil decisions, said the ODNR failed to take into account the city's safety concerns over drilling when it when granted the permit in December 2013. "In a way, I'm not surprised (by the ODNR appeal), but to me it was pretty clear in the (commission's) ruling that safety should have some bearing in applying for a drilling permit," North Royalton Mayor Robert Stefanik said. Stefanik said the ODNR, by appealing the ruling, is saying that safety should not be considered when deciding whether to grant a drilling permit. "That's pretty bizarre,"

Oil-Price Drop Chills Midwest Factory Towns - WSJ: The collapse of oil prices in the past six months is threatening to end a recent industrial revival in manufacturing centers like this town of 64,000 people on the banks of Lake Erie. The U.S. shale-drilling boom lifted Midwest manufacturing economies, enriched property owners with mineral rights and even brought back the fat blue-collar paychecks that once were harder to find.  But as drilling and exploration for new oil and gas slow with the drop in energy prices, cutbacks at heavy-industry companies are cropping up. The U.S. Steel Corp. plant here, which depends heavily on oil and gas companies to buy its steel pipe and tubes, warned on Monday it might have to idle the plant in March and lay off 614 of the plant’s 700 workers. The company also said it could temporarily end work at a plant in Houston, affecting 142 workers. The Pittsburgh-based steelmaker, the second-biggest employer in Lorain after Mercy Regional Medical Center, had recently invested $95 million in a plant upgrade. When energy prices were high and orders robust, workers received generous overtime, sometimes pushing annual salaries into six figures. “We thought this time the going was going to be good for a while,” said Chase Ritenauer, the town’s 30-year-old mayor. “But now Lorain is going to feel the impact of the global economy.”

Low gas prices may slow fracking growth: The drop in fuel prices could slow fracking growth in Ohio, according to industry experts. Crude oil prices have been on a steady decline since July, dropping more than 50 percent. The decrease is good for consumers and even the economy in the short term because it boosts expendable income. But the hydraulic fracturing services market is bracing for a downturn in 2015, according to PacWest Consulting Partners, a consulting and marketing intelligence firm specializing in the energy, industrial and resources sectors. In December, PacWest revised 2015 expectations from a 6 percent increase in horizontal wells fracked across the nation to a 12 percent decrease. Although there's an anticipated overall decline, young shale formations such as the Utica Shale in Ohio are expected to continue to see growth because they're still ramping up production, just at a much slower rate, PacWest Senior Consultant Caldwell Bailey said. "Over the next couple years, we really anticipated Ohio to ramp up. We were anticipating about a 40 percent or greater jump in the number of horizontal wells fracked in the Utica formation," Bailey said. That projected growth has been adjusted to 5 to 10 percent, which is based off $65 a barrel oil — it's been sitting around $50 a barrel in the past few weeks. There's a wide range of how low the price can go before new drilling becomes uneconomical because every shale formation is different, Bailey said. "There is not one number people can say U.S. shale is going to shut down," he added. "From our research, what we've seen in the Utica, there's a pretty wide band for what price drilling completion is still economic, from $30 to $60 a barrel."

Sharp declines in well production typical in Ohio’s Utica Shale - In the world of shale gas in Ohio, the top-producing wells aren’t king of the hill for long. Take the Tippens 6HS well, for example. Located in Monroe County in southeastern Ohio, it produced more natural gas in the first quarter of 2014 than any other Utica Shale well in the state — some 1.117 billion cubic feet of the resource in 80 days, according to Ohio Department of Natural Resources records. That’s enough natural gas to fuel 12,000 houses for a year. But the well that gushed 13,972 thousand cubic feet of natural gas per day in the first three months of 2014 saw daily production drop 41 percent in the second quarter to 8,180 thousand cubic feet per day and another 26 percent in the third quarter to 6,015 thousand cubic feet per day. By autumn, the Tippens well was producing less than half the natural gas that it had during its peak output and slipped from No. 1 to No. 72. It went from being a stellar Ohio well to a good-producing well. Similar drops are showing up in nearly all of Ohio’s horizontally drilled natural gas wells. Such numbers are evidence of what drillers call “production decline curves” — drop-offs over time. It’s a common (and expected) occurrence for shale wells, even in wells expected to produce for 30 years or more. An analysis of Utica wells tapped in each of the first four quarters — from July 2013 through June 2014 — shows natural gas production had dropped 65 percent.  The bottom line: Shale wells produce the most in the first few years or, as evidenced in the sharply declining production rates in Ohio, their first few months.

West Virginia judge denies chemical company's second challenge to fracking operations: A West Virginia judge has rejected a second legal challenge from a chemical manufacturer saying that hydraulic fracturing operations near its facility in Marshall County would negatively affect its operations. In a Christmas Eve order, Marshall County Circuit Judge David Hummel denied the challenge from Eagle Natrium LLC, a New Martinsville-based subsidiary of Axiall Corp., a manufacturer of chlorovinyl and aromatic chemicals and formerly owned by PPG Industries. The lawsuit was the company’s second attempt — and second denial — to stop the fracking operations of Gastar Exploration, Inc., a Houston-based oil and gas company with operations in the Marcellus and Utica shale plays. Natrium has argued that natural gas and the fluids associated with hydraulic fracturing have the potential to permeate its saltwater wells, which the company uses for its salt mine operations. In a 2013 incident, Natrium’s lawyers blamed the high-pressure fracking fluids being used by another company, Triad Hunter, across the Ohio River for traveling under the river and damaging a brine well. A lawsuit filed in Pennsylvania trying to stop Gastar’s operations was thrown out in October by Allegheny County Common Pleas Court Judge Christine Ward, who ruled that the evidence presented to her indicated “a possibility of damage, but not a high probability, without assuming the presence of geological features that the data hinted at, but did not establish.” The second lawsuit, filed in Marshall County, followed on the heels of that ruling. It claimed additional precautions and monitoring ordered by the West Virginia Department of Environmental Protection were not adequate and that a more detailed evaluation was necessary.

State senator trying again with shale gas health advisory panel -- State Sen. Joe Scarnati is planning to have another go at forming a Marcellus Shale health advisory panel. Based on a co-sponsorship memorandum, the Jefferson County Republican is looking for support for a bill creating a nine-member panel that would consider research and offer advice. “The panel would be tasked with thoroughly investigating and studying advancements in science, technology and public health data in order to provide Pennsylvania elected officials, regulators and the general public with information, analysis and recommendations regarding the safe, efficient and environmentally responsible extraction and use of unconventional natural gas reserves in the Commonwealth,” Scarnati wrote in the memo.

Fracking’s biggest safety threat is on rural roads — One of the first things a firefighter or police officer must know when rushing to a heavy truck crash in the heart of Marcellus Shale country: Don’t believe what it says on side of the truck. “We’ve had accidents where it said ‘fresh water’ on the side of the truck,” said Craig Konkle, energy development emergency services coordinator for Lycoming County . “But when it started leaking black liquid, we knew we weren’t dealing with fresh water.” While environmental concerns dominate much of the debate about the impact of gas drilling in rural Pennsylvania , Konkle said the single greatest threat to public safety is on the roads. The fast expansion of drilling activity has created a surge in traffic. Trucks carry water — often polluted from the drilling process — to and from wells. They also haul sand, as well as solids extracted during drilling and chemicals used to force open gas reservoirs beneath the surface. Often truck cargo isn’t labeled. Much of the byproduct from drillers’ fracking process — including the briny, chemically-laced water — is classified as “residual waste.” Drilling waste has been exempt from federal hazardous waste rules since the 1980s, according to the U.S. Environmental Protection Agency. So there are rarely placards on the trucks.

Former pipeline safety chief: Better rules needed on gas gathering lines - Size matters. At least, it should when it comes to regulating more than 230,000 miles of pipelines that gather natural gas in drilling fields across the country, the former head of the federal Pipeline and Hazardous Materials Safety Administration said. Known as gathering lines, the lines largely transport natural gas to processing facilities. And, as a Tribune-Review investigation in late December revealed, they are almost entirely unregulated by federal or state governments. That wasn't a cause for much concern when the lines gathered natural gas from old, low-pressure wells. But in the era of hydraulic fracturing, when gas is extracted under enormous pressure, these unregulated pipes can be larger and operate at higher pressures than the interstate transmission lines that feed cities. “At some point, all lines become transmission lines,” said Brigham McCown, who was the first head of the federal pipeline agency when it was established in 2004. “I would consider looking at the feasibility of putting a maximum size and pressure on a gathering line,” rather than regulating them based on how many people live near them. Federal regulations for gathering lines don't take effect unless there are at least 10 homes along a mile of pipeline, regardless of the pipeline's size. “The way the rules are written, gathering lines — especially in rural areas — pretty much are not regulated,” McCown said. “They can pack a lot of punch.”

Propaganda by Proxy: The Payoffs - Opposition to fossil fuel drilling/fracking, construction of pipelines, midstream infrastructure and export facilities continue to grow. The industry, predictably, responds with the usual bag of tricks by throwing lots of lobbying and campaign contributions to legislators and candidates. In Pennsylvania along, according to MarcellusMoney.org:

  • Since 2007, the natural gas industry has spent $41 million lobbying Pennsylvania officials.
  • Since 2007, it has also contributed $8 million to Pennsylvania candidates and PACs.
  • Half that $8 million total has been donated by industry employees, while industry PACs contributed the remaining half.
  • Over $6.2 million of the total $8 million has been donated to candidates, while Party PACs received $1.4 million ($1.2 million to Republican Party PACs, $166,850 to Democratic Party PACs).
  • Pennsylvania Governor Tom Corbett is the top recipient of natural gas industry contributions. He has received $2,084,241 from the industry since 2007 – $1.55 million from industry employees and $526,652 from industry PACs. Governor-elect Tom Wolf received $53,500.
  • Top recipients #2-6 together received $1.3 million in contributions from 2007 – present.
  • The top 5 industry donors together gave $2 million since 2007. Drilling CEO Terrence Pegula, who also owns the Buffalo Bills and Sabres, is the top contributor with $667,000.

Enforcing the 'Will of the People,' Dozens of Pipeline Protesters Halt Operations in Pennsylvania -- Dozens of people in Pennsylvania's Lancaster County brought work towards a natural gas pipeline to a halt on Monday, charging that the project threatens a Native American cultural site and their rural way of life. The protesters, who include area residents and a local chapter of the American Indian Movement, gathered along the Conestoga River and encircled a rig which was drilling for core samples at the site of a proposed pipeline, according to a statement from the group. The drilling was for part of the Oklahoma-based Williams Partners' proposed $3 billion Atlantic Sunrise Project, a pipeline network that would pass through ten Pennsylvania counties, bringing gas from the Marcellus Shale to as far south as Georgia. It is slated to be in service in 2017. The project has met strong opposition from area communities, and Lancaster County resident Carlos Whitewolf of the American Indian Movement vowed in November: "We will stand in front of your bulldozers. We will show up in big numbers, and you will have a war on your hands." But the pipeline opponents were dealt a defeat last month, when a Community Bill of Rights Ordinance that would have blocked the pipeline from Conestoga Township failed. Monday's action, the protesters say, marks the first time they're using civil disobedience to disrupt Williams Partners' operations. But it might not be the last.

New York’s Ban on High-Volume Fracking Rocks the Foundations of ‘Shale Revolution’ - Emboldened by mounting scientific evidence and shifting poll data, Gov. Andrew Cuomo veered sharply away from America’s conventional wisdom about the wonders of high-volume hydraulic fracturing of shale formations when he banned the practice in New York State on Dec. 17. While the oil and gas titans hope to contain the uprising to one state, the environmental advocates who masterminded it are quietly optimistic that it represents a tipping point, signaling impending decline for fossil fuels’ decades-long hegemony. Polls already show Cuomo’s decision was a winner with the public. A recent Quinnipiac University poll found that New Yorkers favored the ban by a margin of 55 percent to 25 percent. Even the state’s Republicans, who have historically backed fracking, favored the ban 42-40. And while Americans once overwhelmingly embraced fracking, they seem to have flipped. A Pew Research poll in November found that 47 percent of Americans oppose fracking, while only 41 percent favor it. As recently as March 2013, Pew found Americans favored fracking by a 48-38 margin.  For now, the New York advocates say they’ll redouble their efforts to block pending fracking-related projects in the state while they try to coax the governor to take the logical next step: leading the nation towards renewable energy.

Demonstrators criticize Cuomo at pro-gas rally: "I've been back [from the Navy] 18 years, and all I've gotten is one headache right after another from the government in the state," said Stoddard, a member of Teamsters Local 317. "The taxes keep going up and the jobs keep going out." Stoddard was among more than 200 pro-drilling advocates who gathered Monday at the Holiday Inn Binghamton to protest the state's drilling ban. The rally, organized by the Joint Landowners Coalition of New York, drew speakers from labor unions, landowners and area politicians. They accused Gov. Andrew Cuomo's administration of ignoring the science and economic plight of upstate New York. Stoddard said he worked 14-hour days for three months on a directional drilling operation in Wysox, Pa., two years ago. On that job, he said, he saw businesses stay open 24 hours because of demand, and convenience stores staffed with eight or nine employees, even during off hours. The rally followed a Dec. 17 announcement by Cuomo administration officials that cited concerns over human health and questioned the economic benefits of the drilling technique used to release natural gas from underground shale formations. Rick Williams, of Deposit, said he was disappointed in New York's decision, as drilling would benefit families, like his, whose children have left for better opportunities elsewhere. His son works on pipelines in Pennsylvania, and he had hoped for a chance to work closer to home.

Crestwood: Protests haven't changed our plans - An ongoing civil disobedience campaign hasn’t deterred Crestwood Midstream’s plans to expand its natural gas storage facility on the west side of Seneca Lake - or build an LPG storage facility nearby, a company spokesman said Friday. Over the past month, 55 protesters have been arrested by Schuyler County sheriff’s deputies for blocking the gates of Houston-based Crestwood’s property along State Route 14 just north of Watkins Glen. A handful of the protesters have pleaded guilty, refused to pay their fines and were sent to Schuyler County Jail. Crestwood plans to expand its existing gas storage facility - located in salt caverns deep underground - from 1.5 billion cubic feet to 2 billion cubic feet, which is enough gas to heat an additional 20,000 homes for a winter, the company says. The gas comes in and out via pipelines and is bought by utilities such as NYSEG to supply regional customers. The Federal Energy Regulatory Commission has already approved the project. However, Crestwood hasn’t started construction yet, a Crestwood spokesman said Friday. Crestwood also plans to build a $40 million facility to store LPG - or propane and butane - using other salt caverns beneath the U.S. Salt plant, which the company owns. That project has been under review by the state Department of Environmental Conservation since 2009.

FERC Approves NY Methane Storage Project - Brushing aside warnings of dangerous geological risk, federal regulators say construction can start immediately on a methane gas storage project next to Seneca Lake that has galvanized opposition from wine and tourism businesses across the Finger Lakes in upstate New York. The Sept. 30 decision by the Federal Energy Regulatory Commission represents a major breakthrough for Houston-based Crestwood Midstream. The company has been waging a five-year campaign for permission to convert long-abandoned lakeside salt caverns into a regional storage hub for both methane gas and liquid petroleum gas, or LPG, from fracking operations in Pennsylvania. FERC has jurisdiction over the methane gas storage portion of the project, while the state Department of Environmental Conservation has the final say over the storage of LPG, mostly propane and butane. The company has been trying to persuade both agencies that the old caverns are ideal storage sites for highly-pressurized, volatile hydrocarbons.Scientists who are not paid by the company disagree and have warned of the caverns’ unstable geology. In May, after 14 months of review, FERC granted conditional approval of Crestwood’s request to expand its existing methane storage into a cavern that has a history of instability. Meanwhile, the DEC has been evaluating the LPG portion of the project since 2009. It announced in August plans to hold an “issues conference” to further weigh the evidence before ruling. Typically, methane gas is transported to the caverns by pipeline, while LPG storage would require truck and rail transport. If Crestwood wins DEC approval, it would store LPG in two other caverns less than a quarter mile away from the compressed methane. The company has asserted that the history of the storage caverns, including details of their flaws, is a trade secret. And state and federal regulators have complied with the company’s requests to keep most cavern information out of the public eye. But reports dating back decades by engineers employed by the caverns’ owners — tracked down in Internet searches — candidly spell out their defects.

Living the Lake - Jodi Dean - These days, I look from the blockade line at the gates of Crestwood Midstream on the south of Seneca Lake outside Watkins Glen, New York. Next to me, I see organized activists and committed people from all over the Finger Lakes. They are teaching me a lot about what matters in the current political struggles at the intersection of climate and capitalism and about what doesn't. Since We Are Seneca Lake began blockading the gates of Crestwood in October, there have been nearly 200 arrests.  At least half a dozen people have gone to jail. The arrested range in age from 19 to 90. They include students, retirees, former military, farmers, vintners, health care workers, scientists, musicians, teachers, moms, college professors and others. On the morning of my first arrest, right after we were processed at the local sheriff's office, a former elected county official (in her late seventies), said "okay, now let's get back on the line!" These people are dedicated, steadfast. Each time I hear the organizers describe the blockade in trainings for new recruits I am moved: "and then a large truck tries to pull into the gate and not a muscle twitches, not an eye blinks; nobody moves." The Defenders of Seneca Lake didn't emerge out of nowhere. I don't think any of them got their start in a dinner table conversation about the term "anthropocene" (although the ideas associated with the concept--as well as the debates over it, which morph into the "capitalocene" and the manthropocene--are interesting). Because their concern is focused on political organizing and not deflected into debates over gatekeeper terms like the "anthropocene," when these activists are around the dinner table, they try to figure out how many signatures they need to get in order to pressure their local townships to ban fracking and how long they should take to get them. The Seneca Lake Defenders came out of the convergence of different groups and efforts in the battle against the gas and oil industry. In New York state, this convergence ultimately resulted in a state-wide ban on fracking. The struggle is ongoing, now targetting the infrastructure of storage and pipelines that supports fracking elsewhere (like in Pennsylvania) and thereby enables the oil and gas industry to continue pouring greenhouse gases into the atmosphere.

Learning, liveliness, and expanding the world -  Jodi Dean - The anti-fracking movement in New York is remarkably organized and solitary. I've learned a lot as I've gotten involved in the effort to stop the storage of methane gas and liquid petroleum gas in salt caverns on Seneca Lake. Sometimes I feel like, as a political theorist, I don't have much to contribute. Since humility is not a known occupational hazard affecting political theorists, this doesn't bother me too much (just a little). Instead, it cultivates in me an appreciation for the knowledge, skills, and dedication of those around me. It is teaching me why planning and organization are so crucial in climate struggle (and of course why climate struggle is ultimately anti-capitalist): corporations rely on the fragmented and distributed regulatory environment to do their nefarious deeds. Engaged struggle brings to life the actuality of political multidimensionality as and through the generation of political power.  For example, that railroads and pipelines are private and that regulatory supervision has been dramatically cut over the last decades even as there has been a boom in oil and gas production in the US means that it is difficult to get accurate information about routes, track conditions, leakage, etc. That companies break themselves into different companies with different legal structures and then enter into various kinds of ventures and partnerships makes its hard to establish liability and responsibility.  Here's a list of some of the knowledge and skills important in the battle for Seneca Lake:

Town Court of Reading, NY: Leaving the People Out in the Cold » There's a wind chill advisory in the Finger Lakes today and tomorrow. Tonight the temperature is supposed to drop to four degrees. Arctic winds will make the wind chill around nineteen degrees below zero. 32 civil disobedients from We Are Seneca Lake will be arraigned this evening at the Town Court in Reading, NY. They were arrested for blockading the gates of Texas-based Crestwood-Midstream, a company that wants to store methane, propane, and butane in salt caverns next to the water supply of 100,000 people. These arraignments could take a while. If tonight is anything like December 17, a lot of us are going to be left out in the cold. On December 17, apparently under orders from the Sheriff, supporters and press were barred from the court room for the 5:00 hearing. After well-known activist Sandra Steingraber negotiated with police, the court was opened for the 7:00 hearing. Fire code was strictly enforced, so the total number of people in the court was limited to 49. Those allowed in were not allowed to bring in bags or cell-phones (even turned off). The rest of us were barred from the building, made to stand out in the cold rather than assemble in the large waiting area inside the building yet outside the courtoom.

Can Illinois Learn From New York’s Victory Against Fracking?  Illinois environmentalists are cheering the spectacular success of the movement to ban fracking in New York . The victory is justifiably spurring reflection on how it was done. What happened in New York that Illinois environmentalists can learn from?

  • Environmental and public health groups made an unambiguous, united push for a ban or moratorium, not regulation.
  • They kept constant, aggressive grassroots pressure on Governor Cuomo and other politicians, especially during election season.
  • State government conducted a thorough study on potential public health impacts before fracking began.
  • They took the fight to small towns and potentially impacted rural areas, not just New York City .
  • As Mark Ruffalo wrote, “The fact that we didn’t let the big greens come in and make back room deals was also important to note.”
  • They engaged in acts of nonviolent civil disobedience, including over 90 arrests near Seneca Lake since October.

Essentially, New York fractivists took the opposite approach of most big green groups active in the Illinois statehouse. Illinois greens started with a basic chemical disclosure bill several years ago rather than organizing the passionate grassroots desire for a ban. Although there were efforts to ask legislators to pass a moratorium, statehouse green groups remained focused on various regulatory bills. Some of them eventually won a seat at the negotiating table with industry lobbyists to write a regulatory law by ignoring the loud and frequent objection of environmentalists in impacted areas who said regulation cannot make fracking safe.

New York Frack Babies Want To ClusterFrack Themselves with Napalm  To try to get around the DEC regulations that defines a high volume horizontal frack as more than 300,000 gallons. They tried that before, when the Tioga Landowners made a deal with a company called Gasfrac, that uses gelled propane, ie. napalm, to frack wells. It is known in the trade as a Napalm Clusterfrack.  Other than the fact that such propane fracks are uneconomical and deadly – they have to be done robotically – I don’t think the DEC will buy it. Plus, by flagging this loophole, the disJointed Landowner’s have now given the DEC notice to close it. Thanks for the head’s up Frack Babies. Here’s the new plan from Shale Shyster Scott Krakoski:

5 Great Reasons to Support the Port Ambrose LNG Terminal

  • 1. It will raise the price of natural gas in your area –  The New York/ New Jersey area has some of the lowest gas prices in the country. Port Ambrose will correct that – foreigners will pay plenty to take the gas.  Make a sign for the hearing “Make My Gas Prices Higher Now Damnit” Write the governor: “Our gas prices are too damn low, greenlight Port Ambrose!”  Chant “We want higher gas price Now!”
  • 2. It will help get rid of America’s 20 year reserve of natural gas – Where better to ship our nation’s gas reserves than to Brazil ? What makes better sense than that ? You like their music and their beaches, let’s repay them by shipping them our gas supplies. It’s the American way!
  • Make a sign for the hearing: “Ship Our Supply of Gas Overseas Fast !” And chant “Ship it Baby Ship it”
  • 3. It will replace the new World Trade Center as the World’s Number One Terrorist Target – The movie Syriana explains how that’s done: strap an RPG to the front of a speed boat and aim that at a fully loaded LNG tanker. Kaboom. Paradise here I come ! I want my72 virgins !
  • 4. It will make winters warmer –  No more shoveling snow ! It will be the most potent producer of greenhouse gases on the East Coast. Every aspect of LNG, from the fracked well to the final delivery – vents methane into the atmosphere. And what better way to cook the 3rd rock from the Sun than with odorless natural gas ?  Make a sign and a chant “Heat Baby Heat !” Turn New York into New Venice !
  • 5. It will provide good jobs for gas lobbyists, frackers, offshore billionaires, Wall Street, firemen, burn control centers, crooked politicians, salvage divers, funeral directors, tax haven bankers. Anybody but you.

Kinder Morgan gas pipeline draws fire, despite new Berkshire route - New signs of opposition have begun to pop up — in the Berkshires and beyond — to energy giant Kinder Morgan Energy Partners' revised natural gas pipeline route. A group called the Citizens of Lanesborough has scheduled a community meeting about the project for next week. And opposition is building just across the border in New York, where an activist group has expanded to include Rensselaer County communities along the new route. The Tennessee Gas Pipeline Co. project would transport gas collected through hydrofracturing, or fracking, in Pennsylvania through New York and Massachusetts, ending in Dracut. Kinder Morgan, parent company of Tennessee Gas, announced last month that it has shifted the proposed Northeast Energy Direct project northward to a new route along Western Massachusetts Electric Co.'s existing power line corridor, which enters Berkshire County in Hancock from Stephentown, N.Y. The route continues through portions of Lanesborough, Cheshire, Dalton, Hinsdale, Windsor and Peru, exiting the Berkshires into Plainfield in Hampshire County. Company representatives said the new route affects fewer property owners than the previous plan. It also avoids more wetlands and other environmentally sensitive areas protected by state law.

Proposed Gas Pipelines Would Emit More Greenhouse Gases Than Keystone XL - A large natural gas pipeline can have to equivalent greenhouse gas impact as Keystone XL. A large natural gas pipeline can enable the same GHG emissions (CO2 equivalent) as Keystone XL. Here’s how:  A large gas pipeline can require 300 new fracking wells annually just to fill it. If all 57 proposed Marcellus/Utica region pipelines and expansions are approved by FERC and built, they will:

  • Enable additional emissions equivalent to 15 Keystone pipelines
  • Require an additional 4,420 new fracking wells each year, and
  • Deplete proved Marcellus/Utica natural gas reserves in just 7 years

Details: (math for those conclusions follows)

Frackastrophe: Shale Gas Bust ! -- The Frackers themselves are getting royally fracked. Normally, gas prices spike in the winter. This winter they are getting hammered. I have been in the energy business long enough to remember when oil was less than $50 barrel and routinely dipped to $10 or $20. We would buy rigs when the price plunged and sell them when it peaked. Repeat.  Shale oil and gas is no different. The Bakken Shale Oil boom is already toast, oil futures closed below $50 barrel, which makes even the Eagle Ford wells uneconomic. So all the rig jobs and tax revenues associated with that lasted about how long ? In most places about 8 years. Then busted. Ghost town. This cycle has been repeated in Texas and elsewhere for over a hundred years. This was all predictable – and it was emphatically predicted. Friday in NE PA, the Leidy Hub was selling gas at $0.80 Mcf and Tennessee Zone Four was selling at $0.53 Mcf. None of the NE Marcellus wells are economic at that level, not even in the same county as economic. Not by a Texas mile. Sic Semper Gasholes.

Fracking’s Future in Doubt as Oil Price Plummets » There’s no doubt that U.S.-based fracking—the process through which oil and gas deposits are blasted from shale deposits deep underground—has caused a revolution in worldwide energy supplies. Yet now the alarm bells are ringing about the financial health of the fracking industry, with talk of a mighty monetary bubble bursting—leading to turmoil on the international markets similar to that in 2008. In many ways, it’s a straightforward case of supply and demand. Due to the U.S. fracking boom, world oil supply has increased. But with global economic growth now slowing—the drop in growth in China is particularly significant—there’s a lack of demand and a glut in supplies, leading to a fall in price of nearly 50 percent over the last six months. Fracking has become a victim of its own success. The industry in the U.S. has grown very fast. In 2008, U.S. oil production was running at five million barrels a day. Thanks to fracking, that figure has nearly doubled, with talk of U.S. energy self-sufficiency and the country becoming the world’s biggest oil producer—“the new Saudi Arabia”—in the near future. Fuelled by talk of the financial rewards to be gained from fracking, investors have piled into the business. The U.S. fracking industry now accounts for about 20 percent of the world’s total crude oil investment.

Fracking Revolution All Smoke & Mirrors  - “We have a supply of natural gas that can last America nearly 100 years,” said President Obama in his 2012 State of the Union address [1]. “Experts believe this will support more than 600 000 jobs by the end of the decade.” Obama was talking about shale gas – natural gas trapped in shale formations – obtained by ‘hydraulic fracturing’, or ‘fracking’ [2] (see Box), a process used to produce oil and methane gas from coal beds for decades, but relatively new to the shale gas production that inaugurated the recent ‘fracking boom’. Chief economist of the US Energy Information Administration (IEA) said in his 2013 annual outlook [3]: “By around 2020, the US is projected to become the largest global oil producer. The result is a continued fall in US oil import to the extent that North America becomes a net oil exporter around 2030.” Over the next two decades, hundreds of billions will be invested into new power plants run on natural gas, and billions more on constructing export facilities for shipping US liquefied natural gas to Europe, Asia, and South America [4]. The EIA forecasts are based on coarse-grained studies of major shale formations. When researchers began analyzing those formations in greater detail (at a resolution 20 times finer), they came up with much more conservative forecasts, which led to a news feature in a December 2014 issue of the Journal Nature entitled, “The fracking fallacy” [4]. The reason is that the major shale formations have relatively few ‘sweet spots’ where gas extraction will be profitable. The EIA’s model so far assumes that future wells will be at least as productive as past wells in the same country, thereby leading to forecasts that are far too optimistic.The results are “bad news”, says Tad Patzek, head of University of Texas at Austin’s department of petroleum and geosystems engineering, and a member of the research team conducting the detailed analyses, “we’re setting ourselves up for a major fiasco”.

Lawsuit challenges panel that made NC fracking rules - A lawsuit filed Monday by conservationists asks that rules on fracking in North Carolina be thrown out, arguing the panel that developed them was formed in violation of the state Constitution. Lawyers representing the Haw River Assembly argue the state Legislature violated provisions separating the branches of government when it formed the Mining and Energy Commission in 2012, according to the lawsuit in Wake County Superior Court. The lawsuit says the Legislature usurped the authority of the executive branch by forming the commission as an administrative agency and then appointing eight of its 13 members. The governor appoints the rest. The lawsuit asks the court to declare as unconstitutional the portion of the law forming the Mining and Energy Commission. It also asks the court to nullify the commission's actions, including fracking rules expected to be delivered this month to lawmakers who will have the final say on them. The measures cover issues including permitting, chemical disclosure, well shafts, water testing and buffer zones. The lawsuit contends the Republican-controlled General Assembly pushed the commission members it appointed to promote fracking and "get the rules passed as quickly as possible." It says the rules are inadequate to protect the state.

Nonprofit files suit against fracking rule-making panel -- The Southern Environmental Law Center, a Chapel Hill-based nonprofit, filed a lawsuit this week against the N.C. Mining and Energy Commission claiming that the commission contains many legislative appointees and is therefore unconstitutional. “It violates the separation of powers doctrine in North Carolina that holds that the legislative, executive and judicial branches all have to be separate and equal,” Mary Maclean Asbill, senior attorney for SELC, said of the lawsuit filed Monday. “We’ve seen trends over the past few years of boards and commissions being formed and reconstituted where the legislature gives itself more appointments than the executive branch.” The N.C. General Assembly appoints eight members to the MEC, and Gov. Pat McCrory appoints five. Among the MEC members listed as defendants in the lawsuit are Ray Covington, a partner at Sanford-based N.C. Oil and Gas LLC., Sanford City Councilman Charles Taylor and former Lee County Commissioner Jim Womack, all legislative appointments. “I don’t think it’ll go anywhere,” Womack said of the lawsuit. “We get challenges and lawsuits. That’s to be expected. It’s not unusual. As people are trying to stop oil and gas development in North Carolina, we expect those kind of things to happen.”

DOT: More than 1,600 trucks could be required for one NC fracking site - More than 1,600 trucks could haul sand, water and equipment for a single fracking operation in North Carolina, chewing up country roads and causing millions of dollars in damage to roads and bridges, according to the state Department of Transportation. The department is projecting nearly $11 million in maintenance and repairs in one example cited to the state legislature in an agency study of traffic impacts resulting from shale gas drilling. The DOT study, dated Dec. 31, requests changes in state law to make it easier to require private industry to repair public roads damaged during fracking operations. “The volume of traffic can and does cause significant damage to secondary roads over a relatively short period of time,” the report says. “The majority of this traffic occurs over a period of six weeks.” Fracking remains under moratorium in North Carolina, but the first drilling permits could be issued as early as April. Each drill site will require 1,290 to 1,650 trucks, DOT estimates, based on the experience with fracking in Bradford County, Pa.

New interest in state’s oil and gas -- Hydraulic fracturing, or “fracking” is an oil-drilling technique where sand, water and chemicals are injected deep into the ground under pressure in order to fracture the oil-bearing shale rock, allowing the oil and gas to be extracted. This technique causes earthquakes and is prone to leaking methane gases into the atmosphere. It also leaves toxic chemicals in the earth and in the aquifer. Fracking is normally done in shale rock, but in Florida, most of the oil and gas is found in loosely mineralized soils, requiring the need for “acid fracking,” or “acidizing,” employing the use of acids such as hydrofluoric acid or hydrochloric acids to dissolve limestone, dolomite and calcite cement. A recent study at Duke University found that 92 percent of water and drilling fluids remained deep underground. Are these substances that we want to inject into our groundwater or allow to be anywhere near our aquifer? There is no such thing as safe fracking. Some chemicals used in fracking are nontoxic, but a new study says that out of 81 common compounds, there’s very little known about the potential health risks of about one-third of them. But some indeed, are well known carcinogens: benzene, toluene, xylene, methanol, lead, hydrogen fluoride, naphthalene, sulfuric acid, formaldehyde, crystalline silica. Florida Department of Environmental Protection Chief of Mining Calvin Alvarez says that fracking is not a “factor” in south Florida, and Ed Garrett, DEP section administrator, says that we don’t frack in Florida. And Ed Pollister, owner of Century Oil, says that fracking is inevitable, and that if he doesn’t do it, somebody else will. But fracking has occurred in Florida and it is allowed by the FDEP. And the interest in this is recent: In the past five years there have been 37 drilling applications granted, and of these, 16 have been in the past year. This recent surge of new interest in Florida is due mostly to the new extraction technology which makes it possible and profitable to exploit previously inaccessible pools of oil and gas.

Fracking Ban Bill Introduced in Florida -- There may not be any actual fracking going on in Florida yet. But some legislators there are taking no chances, introducing bills to ban the process in the state, just as New York did in mid-December. Yesterday state representative Evan Jenne introduced HB 169 which “prohibits well stimulation treatments for exploration or production of oil or natural gas.” His bill enumerated the problems caused by fracking: use of carcinogenic chemicals, heavy use of fresh water when many communities are facing water scarcity, threats to protected wildlife species, the potential to damage the surrounding environment and the emission of climate change-driving greenhouse gases.  It follows on the heels of similar legislation, SB 166, filed by state Senators Darren Soto and Dwight Bullard last month. All the bills have been introduced for consideration in the upcoming legislative session.“Florida is home to scenic beaches, wonderful springs and the legendary Everglades,” said Soto. “This natural beauty in turn fosters a strong tourism industry, annually attracting many new residents to our shores. It must be preserved. We Floridians also get the vast majority of our water supply from ground water through the Floridan Aquifer. This critical water source must be protected from pollution to assure ample, clean water for future generations.”

Fracking Industry Still “Failing” on Transparency: — The oil and gas sector made little progress over the past year in publicizing more details about how companies are dealing with environmental, social and market risks in the fast-expanding hydraulic fracturing industry, according to new rankings. While a few companies made major gains, according to 35 disclosure metrics defined by a coalition of investor and environmental groups, the industry as a whole saw little change from the previous year. Of 30 major producers, no company scored more than 18 out of 35, prompting the researchers to again give the industry as a whole a “failing” mark on transparency. Some of the sector’s largest companies did the worst, including Chevron Corp. and Exxon Mobil Corp., according to a report on the findings released in mid-December. “Across the industry, companies are failing to provide investors and other key stakeholders with quantitative, play-by-play disclosure of operational impacts and best management practices,” the report states. “Existing company disclosures remain mostly qualitative and narrative, or focus anecdotally on just one or a few of their multiple [operations], making systematic comparisons across companies difficult.” The “benchmarking” report was jointly produced by two leading sustainable asset-management groups, Green Century Capital Management and Boston Common Asset Management, as well as two public interest groups, As You Sow and the Investor Environmental Health Network. The study is the second of its kind, with the first coming out last year.

Film documents environmental impacts of fracking | CCTV America: A new documentary on hydraulic fracturing examines the impact of the process executed by multi-national gas companies. South Africa has been exploring the option of fracking to meet its growing energy needs, but there been a public outcry over the environmental damage that it inflicts. Sumitra Nydoo reported this story from Johannesburg. Video Player by Kaltura ‘The High Cost of Cheap Gas’ is a documentary that highlights the environmental impact on areas where fracking has been done. While fracking comes with the promise of jobs and economic growth, communities are not always told about the negative effects it will have on the environment. “The dangers of fracking are much more profound than the dangers of creating say a very large coal mine because these projects stretch out over such a huge area and they have impacts on every aspect of the ecosystem,” Jeffery Barbee, producer of ‘The High Cost of Cheap Gas’ said. The movie has documented areas in New Mexico and Colorado where the fracking process has continued for 25 years. The film focuses on the premise that these areas have turned into environmental wastelands with water and air pollution affecting the health of people and animals that inhabit the region.

Oil industry has heavyweight response to local fracking bans - LONGMONT, Colo. — This northern Colorado city vaulted onto the front lines of the battle over oil and gas drilling two years ago, when residents voted to ban hydraulic fracturing from their grassy open spaces and a snow-fed reservoir where anglers catch smallmouth bass. But these days, Longmont has become a cautionary tale of what can happen when cities decide to confront the oil and gas industry. In an aggressive response to a wave of citizen-led drilling bans, state officials, energy companies and industry groups are taking Longmont and other municipalities to court, forcing local governments into what critics say are expensive, long-shot efforts to defend the measures.  While the details vary — some municipalities have voted for outright bans, and others for multiyear suspensions of fracking — energy companies in city after city argue that they have a right to extract underground minerals and that the drilling bans amount to voter-approved theft. They also say state agencies, not individual communities, are the ones with the power to set oil and gas rules. Because the cases are being fought one by one at the state level, they are not expected to set any immediate nationwide standard on whether homeowners and local leaders have the power to keep drilling rigs out of their towns. But they are being watched as legal litmus tests as more governments plunge into the acrimonious debate over fracking, the process of pumping huge amounts of water, sand and chemicals underground to release oil and gas buried in shale rock.

The impossible dream - The United States’ journey to becoming a global giant in the oil industry has not come without controversy, that is certain. Issues have arisen to some of those who have no association with the oil industry, but are bearing the brunt of some of its nasty side effects. On the other side of the coin, small towns—some of which we would have never heard of if it wasn’t for oil—are now the epicenter and the driving force of their respective state’s economy. Williston, North Dakota; Denton, Texas; Aurora, Colorado; St. Tammany Parish, Louisiana, just to name a few. While oil is a commonality between these cities, there is one other piece they have in common as well–fracking. Recently, the New York Times published an article talking about the city of Longmont, Colorado and the city’s struggle to fight off big oil companies. Two years ago, Longmont residents voted to ban fracking, and in July 2014, a Boulder District County Judge struck down the ban. The ban, however, would remain in effect as the city filed an appeal against the ruling. A month later, Colorado Gov. John Hickenlooper called on the Colorado Oil and Gas Conservation Commission to drop the lawsuit against Longmont. The mayor of Longmont, Brian Bagley said the dismissal of the lawsuit would “save us a lot of time, money and headaches,” and also said “that’s a distraction that’s now over and we’re thankful for that.” As a result of Hickenlooper’s decision to pull back the lawsuit, the Governor called for an 18-member task force–to be appointed by him–that would study the state’s current regulations and laws and discuss possible changes in regards to drilling. Also, four ballot initiatives, two considered pro-industry and two being put forth by Coloradans for Safe and Clean Energy, a group receiving financial backing from Polis, would be dropped from the 2014 ballot.Shortly thereafter, the Colorado Oil and Gas Conservation Commission (COGCC) unanimously agreed to drop its lawsuit against the city of Longmont but kept open the possibility that legal action against the city over its oil and gas regulations could be revived.

California Releases Fracking Regulations Six Months Before Studies Are Complete - Governor Jerry Brown continued to live up to his reputation as “Big Oil Brown” with his administration’s release of the finalized text of the state’s regulations for fracking and well stimulation on Tuesday, December 30.  Although Senate Bill 4, passed in September 2013, requires California’s Division of Oil, Gas and Geothermal Resources (DOGGR) to complete an environmental impact report and approve an independent scientific study, “neither one of those documents were ready in time to inform the final rules,” according to a news release from CAFrack Facts.“ California has essentially reversed the regulatory process when it comes to fracking,” said Jackie Pomeroy, spokesperson for CAFrackFacts. “State regulators have finalized California ‘s fracking rules a full six months before any of the mandated scientific studies have been completed. Given the long-term and potentially irreversible impacts of fracking and well stimulation, it is critical that we make policy decisions based on science—unfortunately, the current timeline makes this impossible.”  Pomeroy noted that in contrast to California , New York recently decided to continue its moratorium on fracking after concluding that the practice poses unknown risks to human health and safety.

Environmental groups, oil companies at odds over water safety -- Oil companies across Kern County are being forced to comply with the new restrictions on aquifer exemption request laid out in the SB4 document. "You can bring up 20 gallons of water with that one barrel of oil, so what are you supposed to do with that water? We want to re-inject it,” said Les Clark, from the Independent Oil Producers’ Agency. This is where advocacy groups, such as Clean Water Action, are putting their feet down. Environmental groups say that toxic liquid that comes up during oil production makes its way into the aquifers, because they believe oil companies are improperly disposing of them. "They need to have adequate plans for the disposal of fluids, and they need to be following what the regulation asks them to do,” said Rosanna Esparza, with the Clean Water Action group. Clark said that there is no contamination of these underground wells since there has been no proof. “We have been hydraulic fracturing for 40 to 50 years, and, as of yet, here in this area, no one's seen any evidence that we are contaminating anything,” said Clark. Esparaza said there has been documentation of the illegal dumping that the oil industries are ignoring. “Billions of gallons of oil-industry water have been illegally dumped into Central California aquifers, and it affects the farming and irrigation. It effects the water that people drink. It effects our aquifers, and we do know that nine injection disposal wells used by the oil industry can dispose and contaminate the water fracking fluids are a part of that,”

Idaho's Destructive Earthquake Saturday Has Some Looking at Fracking -- It’s another case of something happening where you would least expect: earthquakes in Idaho. But a major earthquake on Saturday suggests that they are getting worse and, once again, fracking is a prime suspect The latest tremor measured a significant 4.9 on the Richter scale and happened on Saturday around the small town of Challis in the state’s central mountain region. It shook long and hard enough to be felt as far away as the state capital in Boise, about two hours away. The quake caused rock slides, some damage to homes (mostly cracks in the walls), and temporarily knocked out power to the region. There were no reports of injuries. The U.S. Geological Survey says Saturday’s quake was the latest in a string of tremors to hit the state, the previous one right before the new year on December 29 that measured 2.9 on the Richter scale. And it’s not just a handful: Idaho has been hit by hundreds of tremors in just the last ten months.  The tremors have been going on since March of last year, and scientists are trying to figure out if they are caused by a formerly dormant fault or a new fault they didn’t know about. Idaho is right in the middle of a seismic belt of thousands of faults that runs from Montana to southern Nevada. Scientists are also looking at the possibility that fracking may be causing the quakes.

EARTHQUAKES: Shaken more than 560 times, Okla. is top state for quakes in 2014 -- Monday, January 5, 2015 -- www.eenews.net: Oklahoma had a fivefold surge in earthquakes last year, making it by far the most seismically active state in the Lower 48. The Sooner State was shaken by 564 quakes of magnitude 3 and larger, compared with only 100 in 2013, according to an EnergyWire analysis of federal earthquake data. California, which is twice the size of Oklahoma, had fewer than half as many quakes. Researchers and many people in the state believe the quakes are linked to oil and gas activity, namely deep-underground disposal of drilling waste fluid. "Who'd have ever thought we'd start having so many earthquakes out here in the middle of the country?" asked Max Hess, a county commissioner in Grant County, which had 135 quakes last year. He also thinks the quakes are related to oil and gas, which has been an economic boon for the rural county northwest of Oklahoma City. "It's been good," Hess said of the drilling, "but it's got its drawbacks." But many in Oklahoma, where 1 out of every 6 jobs is linked to oil and gas, have been slow to embrace a connection, even as the pace of earthquakes has picked up and complaints have grown louder. "I think a lot of it has to do with the drought," said fellow Grant County Commissioner Cindy Bobbitt,

Texas City Hit With 11 Earthquakes In 24 Hours - In the 24 hours spanning Tuesday to Wednesday morning, the city of Irving, Texas, was hit with eleven earthquakes — and some are trying to figure out if nearby fracking operations are to blame.  The U.S. Geological Survey has confirmed 11 quakes ranging in magnitudes of 1.7 to 3.6, all occurring around the Irving and Dallas area, according to the Dallas Morning News. Many of the earthquakes could be felt by residents nearby, prompting Irving’s 911 operations to receive more than 300 calls inquiring what was happening, Dallas’ CBS affiliate reported.  The series of quakes comes just a few days after scientists from the University of Miami published research suggesting that the controversial process of fracking caused a similar series of 77 earthquakes in the Poland Township of Ohio. That research directly attributed the earthquakes to fracking — a process where companies inject high-pressure water, sand, and chemicals underground to crack shale rock and let gas flow out more easily. But some in Texasbelieve their increasing earthquakes are not caused by fracking itself, but by wastewater injection: a.k.a, taking the leftover water used to frack a well and disposing of it by injecting it back underground.

Series Of North Texas Earthquakes Trigger Speculation Over Role Of Fracking -- While the first earthquake was felt at 7.30 a.m. on Tuesday, the most recent one was felt at around 1 a.m. on Wednesday morning, according to media reports. The earthquakes were clustered around the Dallas suburb of Irving, which has reportedly experienced over 20 minor earthquakes since September last year. Jana Pursley, a geophysicist at the U.S. Geological Service (USGS), said that the latest quakes were “the largest since the earthquakes started happening there in the last year,” according to media reports. According to Reuters, several residents of the region have speculated that the increase in the frequency of earthquakes may be related to hydraulic fracturing, or fracking, activity, which involves exploding shale rocks to create fissures for the extraction of trapped natural gas.Irving is the headquarters of Exxon Mobil, which has helped pioneer hydraulic fracturing in the region. The city also has two gas wells that were fracked in 2010, according to media reports. “There is evidence that some central and eastern North America earthquakes have been triggered or caused by human activities that have altered the stress conditions in earth's crust sufficiently to induce faulting,” USGS said, in a statement. “Activities that have induced felt earthquakes in some geologic environments have included impoundment of water behind dams, injection of fluid into the earth's crust, extraction of fluid or gas, and removal of rock in mining or quarrying operations.”

26 Earthquakes Later, Fracking’s Smoking Gun Is in Texas - After 11 quakes in the last two days – with one registering at a 3.6 – Irving, Texas’ sudden onset tremor problem might be the fracking industry’s nightmare. There’s a monster lurking under Texas, beneath the sand and oil and cowboy bones, and it’s getting a little restless after a 15 million year nap. Shaking things up in the city of Irving, just slightly west of Dallas, where no less than ten earthquakes yesterday and today bring the total tremors to 26 since October in that town alone. Over 100 quakes have been registered in the North Texas region since 2008, a staggering uptick from just a single one prior that year. The Balcones Fault Zone divides the Lone Star State in half, loosely following the route of Interstate 35 and passing under Fort Worth, Waco, Austin, and San Antonio. And it’s not just a huge amount of human populations that sit on top of it. There are also thousands of fracking wells boring down in to the earth’s crust, pumping millions of gallons of water down with the direct intent of breaking apart what lay beneath. Irving itself has more than 2,000 of these sites nearby, and some of the more than 216,000 state wide “injection wells” responsible for disposing of fracking’s wastewater byproduct are in close proximity. Located thousands of feet below the ground, these wells hold millions of gallons of chemically tainted h2o, and science has proven that the pressure and liquid combination can combine to “lubricate” fault lines. And that may well be what is happening in the Barnett Shale region around, yes, Dallas and Irving.

Time-lapse of drilling & fracking a well -- MarathonOilCorp

Energy Crews Using Miles Of Temporary Water Hose For Fracking In Burleson County: Residents in Burleson County recently spotted something strange. Miles of temporary hose have been laid along F-M 1361 near Somerville, and across some private property lines. News 3 looks at how it's part of an oil and gas fracking operation. Miles of hose are being rolled out on F-M 1361 between Snook and Somerville in Burleson County. The reason? Crews with Fluid Delivery Solutions are making preparations for fracking a new oil well miles away. The process to drill for oil and gas uses millions of gallons of water. The water is being purchased from a ranch that has a pond. "Basically what we're doing is we're taking a body of water from one source to another. We send it down hill at a high rate of speed," said Dennis Hargrave with Fluid Delivery Solutions. He is one of about 19 workers laying out the hose which crosses underneath the highway and over more than 50 driveways, some needing temporary road crossings. These hoses go a full five miles that way and can push 110 barrels of water each minute per mile.

Will Oil Continue to Fuel the Jobs Market? - The U.S. energy boom has been an engine of growth through a lackluster economic recovery, creating thousands of jobs that pay above-average wages, spawning demand for a broad array of services and supporting local economic booms from North Dakota to Texas. But with oil prices dipping below $50 a barrel, exploration and production companies are slashing budgets and squeezing suppliers. Among recent examples: Houston-based Civeo Corp., a lodging company for oilfield workers, at the end of December said it reduced U.S. payrolls by 45% from the level at the beginning of 2014 in response to falling demand, prompting its largest stakeholder to bail out. The company had about 4,000 workers worldwide a year ago, with about 10% of its workforce based in the U.S. And Canada’s Ensign Energy Services Inc. notified California that it was laying off 700 people in Bakersfield as of Dec. 15. The company didn’t provide a reason and a person who answered the phone declined to comment. Such losses may sting. Within the narrow set of sectors most closely related to oil and gas extraction–including oil-field services, pipeline construction and equipment manufacturing–employment jumped by almost 50% to more than 779,000 jobs from the end of the recession through October, compared with a 7% gain across all job sectors, according to Labor Department data. Wages in such industries also saw a marked increase, the data showed. Average earnings for workers in oil and gas extraction, for example, climbed nearly 23% to more than $1,700 a week over that period, not adjusting for inflation. That compares with a 13% increase to $848 for all workers.

In Low Gasoline Prices, an Opening Emerges for Higher Taxes - The sharp drop in gasoline prices over the past few months is providing a rare political opening for state and federal officials who want to raise gasoline taxes to repair highways and boost construction jobs. In Iowa, Republican Gov. Terry Branstad is gauging lawmakers’ support for the first state gas-tax increase since 1989, among other options to raise transportation funds. In Michigan, the GOP-controlled legislature approved a plan last month for a ballot initiative to boost the gas tax for road repairs. In Utah, Republican leaders in the state House signaled this week they are moving to raise the gas tax to cover a transportation-funding shortfall. In the nation’s capital, several top Senate Republicans—supported by some Democrats—are signaling an openness to raising the federal levy from the 18.4 cents a gallon it’s been at since 1993. The backers include business groups and corporate leaders who want to see infrastructure improvements and jobs-minded unions.The emerging push is taking lawmakers into two issues that can spark a backlash from voters: gas prices and taxes. A 2013 poll by research firm Gallup—taken while gas costs were high—showed two-thirds of Americans oppose raising state gas taxes by up to 20 cents to fund infrastructure projects. But the sharp drop in gasoline prices—to less than $2 a gallon at more than a third of U.S. stations—is brightening consumers’ moods, potentially taking the edge off raising state taxes that total as much as 50 cents a gallon on top of the federal tax of 18.4 cents. 

Plunging Oil Prices Test Texas’ Economic Boom - WSJ: The Lone Star State’s economy has been a national growth engine since the recession ended, expanding at a rate of 4.4% annually between 2009 and 2013, twice the pace of the U.S. as a whole. The downturn in energy prices now has triggered a debate over whether Texas simply got lucky in recent years, thanks to a hydraulic-fracturing oil-and-gas boom, or whether it hit on an economic playbook that other states, and the country as a whole, could emulate. One in seven jobs created nationally during the 50-month expansion has been created in Texas, where the unemployment rate, at 4.9%, is nearly a percentage point lower than the national average. But a big dose of the state’s good fortune comes from the oil-and-gas sector. Midland, which sits atop the oil-rich Permian Basin, had the fastest weekly wage growth in the country among large counties: 9% in the 12 months ending June 2014. Now that oil prices have plunged nearly 51% from their June peak to $52.69 a barrel, some Texans sobered by memories of past energy busts are bracing for a fall. The argument among economists and business leaders isn’t whether the state will be hurt, but how badly.

When a ‘miracle’ ends: How will Texas handle plunging oil prices? -- The WSJ wrote  today that oil prices have “plunged nearly 51% from their June peak to $52.69 a barrel,” which will pose a significant challenge to Texas. The Lone Star State is, as Jim Pethokoukis puts it, “responsible for 40% of all US oil production — vs. 25% five years ago — and all of the net US job growth since 2007.” So how will it fare? Pethokoukis thinks it might be “a minor key replay” of what occurred in Texas in 1986 when oil prices also collapsed. “The oil patch bust caused Texas unemployment to rise, housing prices to fall, and, eventually, a nasty banking crisis.” There is some positive news, Pethokoukis adds, as “natural gas prices have not fallen along with oil — unlike in 1986 — while the Texas  employment share from oil is less today than back then.” WSJ says some Texans predict “this won’t be a replay of the 1980s oil bust and banking crisis,” citing “a more cautious banking sector, a tax and regulatory environment favorable to business, and a state economy less dependent on energy and other resources.” Less optimistic, Michael Feroli, an economist at J.P. Morgan Chase & Co. quoted by both WSJ and Pethokoukis on this matter, comments: Financially, oil is a fair bit more important than gas for Texas, both now and in 1986, with a dollar value two to three times as large. Moreover, while energy employment may be somewhat smaller now, we are not talking about night and day: the current share is about 3/4ths what it was in 1986. (And given the higher capital intensity there are some reasons to think employment may be greater now in sectors outside the traditional oil and gas sectors, such as pipeline and heavy engineering construction).

Americans Are Buying Less-Efficient Cars as Gasoline Prices Dive -  Americans are continuing to favor bigger cars and trucks as gasoline prices dive, undermining the federal government’s environmental goals. New passenger vehicles sold in the U.S. got an average 25.1 miles a gallon in December, down from 25.3 mpg in November and 25.8 mpg in August. That’s according to industry data compiled by the University of Michigan’s Transportation Research Institute. The decline reflects Americans increasingly buying bigger cars, SUVs and light trucks instead of more fuel-efficient compact cars and hybrids. December’s dip likely understates the shift, since manufacturers have rolled out model-year 2015 vehicles that on average get higher mileage than older models. Economists say gasoline prices are a major culprit. The average price at the pump has fallen nearly $1.50—or 40%—since late June to $2.214 this week, according to the U.S. Energy Information Administration. The consumer shift will make it tougher for auto makers to meet stringent new fuel-economy standards under a 2007 law and solidified by the Obama administration. The rules require the industry to achieve an average 34.1 mpg by model year 2016 and 54.5 mpg by 2025. Auto makers are still making gains in the broader picture as they invest in new technology across the fleet (even today’s SUVs are more fuel efficient than yesterday’s gas guzzlers). For all of 2014, new vehicles sold got an average 25.4 mpg, up from 24.8 in 2013, according to the Transportation Research Institute. Vehicle fuel mileage is up 5 mpg since October 2007.

Waste injection site picking up momentum in the Bakken - October marked the opening of Citadel Energy’s first of nine saltwater disposal facilities planned for North Dakota, and disposal services have been climbing steadily, according to the Forum News Service. Citadel, a freshwater provider and oilfield waste management company operating in the Bakken, has begun handling the disposal of produced and flowback water at its site dubbed the Pembroke SWD No. 1. The location sits on a 10-acre plot off U.S. Highway 85 in McKenzie County and is allowed to inject up to 15,000 barrels of fluid per day. Kathleen J. Bryan for the Forum News Service reports that last month Citadel Energy Managing Partner Stanton Dodson said the facility has “slowly been ramping up” by injecting a few thousand barrels per day. Hydraulic fracturing requires millions of gallons of water mixed with chemicals to be pumped underground at high pressure to create fissures in the shale, releasing the trapped hydrocarbons. After the injected water mixture flows back up to the surface, it needs to be disposed of. Additionally, the fracturing process produces saltwater (or brine) as a byproduct, which must also be disposed of throughout the life of a well. These waste products are most commonly disposed of by injecting them back thousands of feet below the earth’s surface. The Penbroke well was drilled below any water tables at a depth of 6,200 feet, according to the company. The well has been strategically placed near hundreds of oil wells already in production, and Citadel anticipates the well to be fully operational by early 2015.

Enbridge oil facility in North Dakota catches fire, damage unclear – An Enbridge Inc crude oil storage and pipeline facility just south of Williston, N.D., has caught fire, eyewitnesses said. The facility serves as a key gathering and distribution hub for crude oil produced in North Dakota, the second-largest crude oil producer in the United States. It was not immediately clear if the blaze had been contained. It was also not clear if the fire was affecting crude oil storage tanks or other parts of the complex. An Enbridge spokeswoman was not available to comment. A representative from the Williston Fire Department said no information was available to distribute.

North Dakota's Landscape Energized [Photos] - Scientific American: At first this was not a boom – it took more than five years to develop just 10 wells in North Dakota's Bakken shale formation. There were only 1,000 by 2009. But the current boom, thanks to hydraulic fracturing, more than lives up to its name: The Bakken now has more than 6,600 wells, and the state is adding up to 200 each month. The Bakken's development has transformed the domestic energy debate. The field, the largest oil formation in the United States, produced over 908,000 barrels a day in November – more than double the rate just two years ago. Together with natural gas fracking in the East, the United States is closer to energy independence than any time in the past 40 years. Congress is considering lifting a ban on oil exports in place since the OPEC oil embargo of the 1970s. But with the rush came runaway population growth, severe housing and school shortages, crime and other disruptions in what had been mostly empty agricultural country. The social, labor and financial challenges for western North Dakota have been substantial. Also a challenge: Getting the product to refiners. The main route out of the Bakken is via rail tank cars, but concerns about the safety of rail transport abound, ignited by July's fatal tank car disaster in Lac-Megantic, Quebec, that killed 47 and by a December crash in North Dakota that forced almost 2,400 people from their homes. With the Bakken's growth have come increased protests over fossil fuel rail traffic across the West. I traveled through the Bakken in late fall last year with environmental scientist Joan Rothlein, for our ongoing series about energy and climate change in the West. We photographed and documented some of the scenes and issues in this fast changing region.

Oil patch hotels combating prostitution -- In an effort to combat the influx of human trafficking and prostitution in North Dakota’s oil patch, some hotel managers are taking the matter into their own hands by refusing service and making “Do Not Rent” lists. Garnet Finchum and her husband Dwight, managers of the Travel Inn located in Dickinson, say that both prostitutes and solicitors are frequent visitors, according to a report by the Forum News Service (FNS). As a result, Finchum as well as other managers in Western North Dakota are reluctant to rent rooms to a single woman. However, that rule may be ignored if the managers know the woman or her employer, or if the woman doesn’t fit the profile of a prostitute. One of the signs that may indicate a woman might be involved in prostitution is wanting to pay in cash. Other times, a hotel employee might browse sites like Backpage.com to try to match a face to the prospective renter. The Travel Inn currently has list of about 60 people that are banned, a quarter of which have been tied to prostitution activity. On a similar list at The Vegas Motel in Williston, about half of the roughly 400 names are women banned for prostitution activities. As reported by FNS, due to this increased criminal activity, The Vegas Motel now requires every person coming to a room register with the front desk.

Cheap oil is killing my job - Marcus Benson moved 1,500 miles from his home in Philadelphia to North Dakota for the shale boom.  He made the lengthy drive -- with no job and nowhere to live -- in April 2012 after hearing on the news that the state had the lowest unemployment rate in the country. "I felt like it was a good opportunity. I wasn't doing much," Benson, who had been working odd jobs after dropping out of college, told CNNMoney. He immediately landed good-paying work loading rail cars with sand used for fracking. "I went from doing odd jobs for $8 an hour to $25 an hour. I thought that was crazy," Benson said. It wasn't long before he was earning $30 an hour. Of course, back then oil brought in over $100 a barrel. This week oil plummeted below $50, squeezing high-cost oil producers like shale companies. The good times for Benson, 28, ended on New Year's Eve, when he lost his new job at Ames Water Solutions, which serves the fracking industry. "They said the main reason was the price of oil dropping," said Benson, who filed for unemployment this week. Now he's worried he won't find another job before getting kicked out of company-owned housing.

Oil Below $60 Tests Economics of U.S. Shale Boom -Oil’s biggest bust since the global recession was good for a few cases of whiplash.  Just two months ago, Continental Resources Inc. (CLR), the shale driller founded by billionaire Harold Hamm, budgeted for $80-a-barrel oil and planned to spend $4.6 billion in 2015. Six weeks later, with crude down 29 percent in the interim, Continental cut its 2015 budget to $2.7 billion. Halliburton Co. (HAL), the world’s biggest provider of fracking services to oil companies, announced Dec. 11 that it would dismiss 1,000 workers. Two months earlier, Chairman and Chief Executive Officer Dave Lesar said “our sector will be fine” if oil prices range between $80 and $100 a barrel.  The U.S. shale boom that’s brought the country closer to energy self-sufficiency than at any time since the 1980s will be challenged in 2015 as never before.  West Texas Intermediate reached a 2014 peak of $107.73 in June before dropping as low as $49.77 today on the New York Mercantile Exchange. The grade settled at $50.04 a barrel. That’s below the break-even price for 37 of 38 U.S. shale oilfields, according to Bloomberg New Energy Finance.  Some of the largest U.S. shale drillers, such as Irving, Texas-based Pioneer Natural Resources Co. (PXD), Continental and Chesapeake Energy Corp., both based in Oklahoma City, have been spending money faster than they make it, borrowing to pay for their expansion, according financial statements filed with the U.S. Securities and Exchange Commission.  Current oil prices are “not a sustainable long-term trend,” said Warren Henry, a spokesman for Continental. Halliburton is well positioned to handle any market environment, said Emily Mir, a company spokeswoman. Gordon Pennoyer, a spokesman for Chesapeake, declined to comment. Representatives from Pioneer didn’t return e-mails and phone calls seeking comment.

Fracking’s future is in doubt as oil price plummets - Fracking is an expensive business. Depending on site structure, companies need prices of between $60 and $100 per barrel of oil to break even. As prices drop to around $55 per barrel, investments in the sector look ever more vulnerable. Analysts say that while bigger fracking companies might be able to sustain losses in the short term, the outlook appears bleak for the thousands of smaller, less well-financed companies who rushed into the industry, tempted by big returns. The fracking industry’s troubles have been added to by the actions of the Organisation of Petroleum Exporting Countries (OPEC), which, despite the oversupply on the world market, has refused to lower production. The theory is that OPEC, led by powerful oil producers such as Saudi Arabia, is playing the long game – seeking to drive the fracking industry from boom to bust, stabilise prices well above their present level, and regain its place as the world’s pre-eminent source of oil. There are now fears that many fracking operations may default on an estimated $200 billion of borrowings, raised mainly through bonds issued on Wall Street and in the City of London. In turn, this could lead to a collapse in global financial markets similar to the 2008 crash.

Oilfield Writedowns Loom as Plummeting Prices Gut Drilling Values - Tumbling crude prices will trigger a flood of oilfield writedowns starting this month after industry returns slumped to a 16-year low, calling into question half a decade of exploration. With crude prices down more than 50 percent from their 2014 peak, fields as far-flung as Kazakhstan and Australia are no longer worth pumping, said a team of Citigroup Inc. (C) analysts led by Alastair Syme. Companies on the hook for risky, high-cost projects that don’t make sense in a $48-a-barrel market include international titans such as Royal Dutch Shell Plc (RDSA) and small wildcatters like Sanchez Energy Corp. (SN) The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts. All of the 43 U.S. oil and gas companies in the Standard & Poor’s energy index declined today as of 4:37 p.m. in New York, bringing the combined loss for the group to 23 percent since crude began its descent from last year’s intraday high of $107.73 a barrel on June 20. Oil dipped to $47.55 a barrel today in New York, the lowest since April 2009. The decline represents a $4.4 billion drop in daily revenue for oil producers, which equates to $1.6 trillion on an annualized basis, Citigroup researchers led by Edward Morse said in a Jan. 4 note to clients. The oil-market rout is exposing projects dating as far back as 2009 that were either poorly executed or bad ideas to begin with, Syme’s team said in a note to clients. Shell, Europe’s largest energy producer, may have as much as 5 percent of its capital tied up in money-losing projects. For U.K.-based BG Group, the figure could be as high as 8 percent, according to the Citi analysts.

Oil Plunge Leaves $27 Billion of Energy Bonds Junk Priced - The biggest plunge in oil prices since 2008 is prompting bond traders to treat $27 billion of investment-grade energy debt as junk amid concern those companies will have to cut spending to conserve cash. Investors are demanding more yield premium to own the debt of high-grade companies including Transocean Ltd. (RIG), Noble Corp. and Continental Resources Inc. than the average for bonds with the highest junk rating, according to data compiled by Bloomberg. Oil has slumped 8.7 percent this year to $48.65 a barrel through yesterday, adding to the more than 50 percent decline since its June 20 peak. The collapse in the price of petroleum spurred by a global supply glut has seen investors dump energy-company bonds as returns shriveled in 2014. The amount of the sector’s debt outstanding hasn’t migrated much across ratings, reflecting the more static and backward-looking nature of rating-company metrics, according to a Jan. 7 UBS AG report. “The ratings firms try to rate through the cycle and are slower to move than the market,” Spencer Cutter, a Bloomberg Intelligence analyst, said in a telephone interview. “Markets do overreact but unlike the 2008 price drop, which was a result of an economic shock, this is a result of excess supply and that’s not going away.”

Mounting Debt For Oil Drillers -- In recent years oil exploration companies have taken on more debt in order to finance their operations. The level of debt in the upstream sector – excluding integrated oil companies like ExxonMobil – hit $199 billion at the end of 2014, a 55 percent increase since 2010, according to the Wall Street Journal. Loading up on debt made sense when oil prices were high. Fracking new shale wells can be an expensive process, but when oil was averaging over $100 per barrel, the debt load for many firms didn’t seem so burdensome. Now with oil prices falling by more than half in the past six months, the most indebted firms are suddenly in crisis. As Warren Buffet once said, “you only find out who is swimming naked when the tide goes out.” With an ebbing oil tide, the huge financial problems with several oil firms are starting to become clear for all to see. The WSJ report finds that Quicksilver Resources has a net debt to EBITDA ratio of 12.6. This ratio measures debt to cash flows, with a resulting number that reflects the hypothetical number of years needed to pay back debt. Generally, anything above a 4 or 5 starts to raise red flags. In other words, it is looking pretty unlikely that Quicksilver will be able to emerge from its mountain of debt given the value of the oil and gas it is producing. Other notable companies in trouble include Antero Resources, with a debt/EBITDA ratio of 6.2.

Deep Debt Keeps Oil Firms Pumping - WSJ: American oil and gas companies have gone heavily into debt during the energy boom, increasing their borrowings by 55% since 2010, to almost $200 billion. Their need to service that debt helps explain why U.S. producers plan to continue pumping oil even as crude trades for less than $50 a barrel, down 55% since last June. But signs of strain are building in the oil patch, where revenue growth hasn’t kept pace with borrowing. On Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money and citing debt of between $10 million and $50 million. Neither the Austin-based company nor its lawyers responded to requests for comment. Energy analysts warn defaults could be coming. “The group is not positioned for this downturn,” “There are too many ugly balance sheets.” The industry is also expecting a wave of asset sales and consolidations, though it may not gain momentum until the price of oil stabilizes and values become clearer. Bankers say companies are reluctant to get acquired with their stock prices under pressure, as they fear they could be selling low, and buyers don’t want to overpay if prices fall further. And mergers aren’t a panacea.  “To be a consolidator of a company that has a large cash-flow hole, you have to have the ability to fulfill that cash-flow need,” “You can’t expect two companies with big problems with their cash flows to come together and mitigate that problem.”

The First Shale Casualty: WBH Energy Files For Bankruptcy; Many More Coming "There are too many ugly balance sheets," warns one energy industry analyst, adding simply that "the group is not positioned for this downturn." While the mainstream media continues to chant the happy-clappy side of lower oil prices, spewing various 'statistics' about how the down-side of low oil prices is 'contained' and the huge colossal massive tax cut means 'everything is awesome' for America, the data - and now actions - do not bear this out. Macro data has done nothing but disappoint and now, we have the first casualty of the shale oil leverage debacle as WSJ reports, on Sunday, a private company that drills in Texas, WBH Energy LP, and its partners, filed for bankruptcy protection, saying a lender refused to advance more money. There are many more to come... In December we illustrated the problem names (in the publicly traded markets) among the most-levered energy companies in America... (table)

How Bad Is It For Shale Companies: The Cost Of Resolute Energy's New Second-Lien Debt: 25%! - Over the weekend, we saw the first casualty of low oil prices as WBH Energy went into bankruptcy. Today, Bloomberg reports,Resolute Energy Corp. has been forced by low oil prices to borrow at distressed levels. The Denver-based company, which we previously highlighted as having a 4.5x Debt/EBITDA (there are a lot higher), managed to procure a new $150 million 2nd term loan from Highbridge Capital (mostly used to roll old debt). The cost of funding: 11% coupon plus 5% upfront all adding up for a . At that cost of funding, it is no wonder that Resolute's bonds remain, to borrow a Charlie Evans phrase, catastrophically priced. Current 5Y Resolute bond yields are hovering between 32% and 27%...As Bloomberg reports, Highbridge Capital Management funds committed to lend $142 million of the $150 million second-lien term loan.The same individual who signed the credit agreement on behalf of Highbridge also signed for the other two named lenders, indicating that Highbridge-managed funds may have underwritten the entire deal.  Highbridge is an alternative investment management firm owned by JP Morgan Asset Management.  Resolute Energy's $150 million second-lien term loan was priced to pay interest of Libor plus 10 percent, with a 1 percent Libor floor, ensuring that lenders would receive at least an 11 percent coupon in addition to a 5 percent upfront fee.

Energy Crash — 97% of Fracking Now Operating at a Loss at Current Oil Prices -- If the Saudis wanted to crush America's shale oil industry they are certainly doing a good job of it. West Texas Intermediate reached a 2014 peak of $107.73 in June before dropping as low as $49.77 today on the New York Mercantile Exchange. The grade settled at $50.04 a barrel. That’s below the break-even price for 37 of 38 U.S. shale oilfields, according to Bloomberg New Energy Finance.  Shale oil fracking and Canadian tar sand is some of the most expensive (and dirty) oil production on the planet, while conventional Persian Gulf oil is the cheapest to produce.Warren Henry, the spokesman for Continental, one of the frackers who have been spending money faster than they can make it, says that current oil prices are “not a sustainable long-term trend.”  However, Bob Tippee, Editor of Oil & Gas Journal, has a different take. "The Saudis have no incentive to lower supply to defend the price of crude oil, that is kind of a given right now, so the Saudis are not going to rescue the market," said Bob Tippee, Editor of Oil & Gas Journal.  It won't come from other major producers either. Both Russia and Iraq have boosted oil production to their highest levels in decades.   So it seems certain that low oil prices are here to stay. At least for now.  And that's bad for the oil patches of red states like Texas and North Dakota.    Some are projecting 100,000 layoffs in the energy sector. Texas is certain to take some lumps Texas pumps 37 percent of U.S. oil output, EIA data show. The oil and gas industry accounts for 11 percent of the state’s economy, according to Feroli. The effects may extend to housing and other businesses, he wrote. The majority of Texas energy production is still by conventional means. North Dakota, on the other hand, relies heavily on fracking, so they are looking at hard times.  Already oil rigs are being shut down at the fastest pace in six years.

New drilling affected by oil price fall - FT.com: Crude lost another 11 per cent this week amid continuing worries about a supply surplus as demand slows, with the Brent benchmark falling below $50 a barrel. ICE February Brent, the global benchmark, was trading at $50 a barrel at the end of the week while US crude fell 8 per cent to $48.37. Analysts said the fall in oil prices was filtering through to US shale ventures, with new drilling activity affected. Earlier this week, drilling company Helmerich & Payne told investors it would shut down 40 to 50 rigs over the next month amid softening crude prices. This followed the bankruptcy filing of a Texas-based drilling group last week. JBC, oil consultants in Vienna, said: “We would be of the opinion that several other companies will end up suffering the same fate.” The oil industry is now watching the reduction in output triggered by the fall in prices as the operations become unprofitable. Wood Mackenzie, the energy and mining consultancy, said a Brent price of $40 a barrel or below would see producers shutting-in production at a level where there was a significant reduction of global supply. US onshore ultra-low production volume wells, known as “stripper wells” could be first to be cut, said Robert Plummer, corporate research analyst for Wood Mackenzie.

U.S. Oil Producers Cut Rigs as Price Declines - — With oil prices plunging at an ever-quickening rate, producers are beginning to slash the number of drilling rigs around the country.The national rig count had remained surprisingly resilient over recent months even as oil prices dropped by more than 50 percent since June, and it still tops the count of a year ago as domestic production continues to surge.But an announcement on Wednesday by Helmerich & Payne, the giant contract rig company, that it planned to idle up to 50 rigs over the next month sent shudders through the industry. And that came on top of 11 rigs that it has already mothballed, meaning that in just a few weeks, its shale drilling activity will be reduced by about 20 percent.“Low oil prices are increasingly impacting the U.S. land drilling market,” the company said in a presentation to a Goldman Sachs energy conference.The announcement was an early indication that the oil industry, with its history of booms and busts, was in the early stages of its latest downturn. Energy companies drop rigs when drilling costs outpace the price they think they will attract, leading to lower production and higher prices. But until the effects ripple through the market, consumers and the broader economy will most likely enjoy the benefits of low gasoline and heating oil prices for at least the next six months, energy experts say.As for the industry, the signs of retraction are clear. The nation’s rig count, a barometer of oil exploration and production activity, fell by 26 in the week that ended Jan. 2, following a drop of 16 the week before, according to the Baker Hughes service company.The cuts could eventually be felt in areas where the local economy depends on oil. Each rig represents about 100 jobs, from roughneck field hands to maintenance workers, and the current rig count is down 85, or 5 percent, from a recent peak in late 2014.

A history lesson on the perils facing oil and gas investors --The investing public, including portfolio managers who think of themselves as highly sophisticated, are just starting their education in the documentation of oil and gas lending. Actually, they could have learnt about some of the problems that are now emerging if they had paid close attention during recent subprime mortgage securitisation cases. But they did not. So here we are again.   Much of the lending that supported the recent US unconventional resource (aka “shale”) boom long after the operating cash flow became inadequate was done by people who believed they were taking little risk. Institutional investors were not, for the most part, buying unlisted equity from inexperienced operators. Tens or even hundreds of billions of dollars of capital came from non-bank participations in leveraged loans to exploration and production companies.  As they would tell me or you, they knew that the underlying oil and gas assets were being developed by junk credits with negative cash flow from operations. There could be problems with the operator someday, yes. But because they had come in at the “bank” level, where there was a senior claim on the assets, they could get their capital returned even if there was a bankruptcy. And, of course, since these were floating rate loans, they, the investors, were not assuming the same interest rate risk as the buyers of fixed-rate junk bonds.  In addition to the comfort of having a more senior security interest in the underlying asset, the institutional investors believed the federal (and state) regulators of the banking system, and their armies of bank examiners, would be combing through loan books and aggressively using their authority to protect the banking system. Unlike the residential or commercial mortgage markets, there had not been a disaster in bank energy lending for many years.

Trains plus crude oil equals trouble along the tracks: — Every day, strings of black tank cars filled with crude oil roll slowly across a long wooden railroad bridge over the Black Warrior River. The 116-year-old bridge is a landmark in this city of 95,000 people, home to the University of Alabama. Residents have proposed and gotten married next to the bridge. Children play under it.  But with some timber pilings so badly rotted that you can stick your hand through them, and a combination of plywood, concrete and plastic pipe employed to patch up others, the bridge shows the limited ability of government and industry to manage the hidden risks of a sudden shift in energy production. And it shows why communities nationwide are in danger. “It may not happen today or tomorrow, but one day a town or a city is going to get wiped out,” said Larry Mann, who was the principal author of the Federal Railroad Safety Act. Almost overnight in 2010, trains began crisscrossing the country carrying an energy bounty that includes millions of gallons of crude oil and ethanol. Tens of thousands of tank cars and a 140,000-mile network of rail lines emerged as a practically way to move these commodities. But few thought to step back and take a hard look at the industry’s readiness for the job. Government and industry are playing catch-up with long-overdue safety improvements, like redesigning tank cars and rebuilding tracks and bridges.

Transporting tar sands oil is problematic -- A tug recently sank down river of Montreal, releasing almost 7,000 gallons of fuel that is still being cleaned up. Fault hasn’t been assigned, but is blame important when the fuel or the toxic cargo is already in the water and spreading?   There is a huge difference between a tug and a tanker carrying the equivalent of 300 to 600 rail cars or 1,000 to 2,500 trucks of tar sands oil. It is a difference that should concern everyone who shares the use of the St. Lawrence River. A spill of that magnitude of tar sands oil, a cargo the Coast Guard has admitted it is “not prepared to handle,” would quickly dwarf the capabilities of first responders, would devastate the river for almost any conceivable use, would lay waste to the environment of one of North America’s most significant rivers and devastate the economies of communities along its shores in two countries. Maybe lower oil prices will temporarily reduce the intense pressure, and thus the risk to our river, that has been building to get tar sands oil to market by whatever means possible. But maybe they won’t because producers will still seek the cheapest transportation alternative without regard to environmental impacts. The proposals for new pipelines and ship terminals are still around. History shows we frequently construct beyond our ability to mitigate. The river community needs to shape the debate about such shipments and demand that not one drop of heavy oil should be put on a ship or in a rail car on or near the St. Lawrence River until response plans have been developed and tested and the Coast Guard and local first responders have the equipment and training to effectively implement them.

Fracking Industry Shakes Up Northern BC with 231 Tremors -- British Columbia’s shale gas fracking industry triggered more than 231 earthquakes or ”seismic events” in northeastern British Columbia between Aug. 2013 and Oct. 2014. Some of the quakes were severe enough to ”experience a few seconds of shaking” on the ground in seven areas of the province on top of the large Montney shale gas basin. The events, many of which occurred in clusters or swarms, showed that the regulation of the industry still lags behind the pace of drilling activity in the region. ”Induced seismicity related to wastewater disposal and hydraulic fracturing within the Montney (a 29,850 square-kilometre underground siltstone formation) indicates a more uniform application of regulations is appropriate,” concluded a December report by the BC Oil and Gas Commission. The 32-page report states that 38 tremors were caused by the injection of wastewater produced by fracking operations and another 193 events were directly attributed to the hydraulic fracturing of hundreds of horizontal wells in the region. Hydraulic fracturing is a technology that pumps slurries of water, sand and chemicals at high pressure to crack shale rock as deep as 2,500 metres. Industry models can’t always predict how the rock will crack or where the cracks will travel. The Commission says that none of the recorded events resulted in well damage and that ”ground motions recorded to date are below the damage threshold.” Yet many of the tremors shook the ground under well sites near Fort St. John and Dawson Creek. The report appears to contradict its own finding, however, by noting that ”several instances of casing deformation have occurred with the horizontal portion of shale gas wellbores.”

FBI harassing fossil fuel activists in the Pacific northwest - A grassroots movement of eco-activists is achieving unprecedented success in challenging fossil fuel developments in the Cascadia region of the US’s Pacific northwest, writes Alexander Reid Ross. And that has attracted the wrong kind of attention – from local police, FBI and right-wing legislators determined to protect the corporate right to exploit and pollute.  We are organizing a level of civil disobedience not seen in decades to save our neighborhoods, our communities, our salmon, and our climate. And that scares the shit out of the powers that be. In August 2014, two activists with the environmentalist group Rising Tide spent a week riding the backwoods highways of Idaho monitoring a megaload. That’s big rig hauling equipment for processing tar sands oil that’s wide enough to take up two lanes of road, too high to fit under a freeway overpass, can be longer than a football field, and can weigh up to 1,000,000 pounds. They had no idea that they would soon be wrapped up in a Federal Bureau of Investigation probe that encompassed three states and several environmentalist groups.

Canada Heavy Oil Drops Below $35 As Rig Count Hits Record Low For January -- Think Texas and Pennsylvania have a problem with plunging oil prices, don't look North. West Canada Select (Heavy) crude oil prices have collapsed to below $35 per barrel (the lowest since Feb 2009). This is a 60% plunge in the last 6 months and has left the industry stunned. While US rig counts have fallen for the last few weeks as the lagged response to falling prices finally catches up to reality, the Canadian oil rig count has never been lower for the first week of January. Will the Canadian housing bubble be next? Charts: Bloomberg

Senate Republicans to push bill to approve Keystone XL pipeline: - The US Senate will hold a hearing next week on the controversial Keystone XL oil pipeline that has been fiercely opposed by environmentalists and some Democrats. The Senate Energy and Natural Resources Committee said it would hold the hearing on legislation to approve the pipeline project on January 7, after the chamber falls under Republican control. The $5.3 billion project would carry crude oil to Gulf Coast refineries from Canada’s tar sands. Republicans have long backed the plan, arguing it will boost US oil and gas production and create jobs. In November, the Senate — while still under Democratic control — rejected by a single vote a bill that would have approved construction of the 1,179-mile (1,900 kilometer) pipeline. Republicans immediately vowed to approve the bill as soon as they have control of the Senate. Environmentalists oppose the project and President Barack Obama says the pipeline would not necessarily reduce oil prices in the United States. But Republicans hope they will be able to pass a law authorizing the pipeline that bypasses Obama’s office. Alberta’s tar sands are considered to have “dirty” oil. Unlike traditional crude that gushes from a well, tar sand oil must be dug up and essentially melted with steaming hot water before it can be refined. This means more fossil fuels must be burned as part of the extraction process, further fueling climate change.

Democrats to Push Clean Energy, Export Limits in Keystone XL Pipeline Bill - Senate Democrats will introduce a series of amendments countering the GOP push to pass legislation approving the Keystone XL pipeline, Sen. Charles Schumer (D., N.Y.) said Sunday. The amendments are unlikely to change the ultimate outcome of the bill, which is expected to pass and face a potential veto from President Barack Obama. But the Democratic strategy will add more political tension to what’s expected to be a partisan showdown between Mr. Obama and Republicans pushing to approve the pipeline as their first item of business this upcoming Congress. Democrats will introduce at least three amendments that would make the Keystone measure “more of a jobs bill,”  The amendments will require the steel used in the pipeline to be made in the U.S., ban exports of oil shipped through the pipeline and add financial incentives for renewable energy, Mr. Schumer said. With Republicans now controlling 54 seats, these amendments are unlikely to pass. Mr. Schumer said he would still oppose the measure even if those amendments did pass. He also predicted Mr. Obama would veto the bill, a likely outcome given the president’s increasingly negative take on the project, which has been under review with his administration for more than six years. “I think there will be enough Democratic votes to sustain the president’s veto,” Mr. Schumer said. Speaking on Fox News Sunday, Sen. John Thune (R, S.D.), expressed cautious hope that the Senate could get the 67 votes needed to override a presidential veto depending on how much Democratic support there is. “We’re going to find out whether there are moderate Democrats in the Senate,” Mr. Thune said.

White House Says Obama Will Veto Keystone XL Pipeline Bill -- While Congress returned to session this week, Republican leadership made it clear the number one thing on their minds was passing approval of Keystone XL pipeline as quickly as possible. That they will do so with their newly enhanced majority is a slamdunk, meaning that the only thing that stood in the way of greenlighting the pipeline was President Obama’s potential veto. And until today it wasn’t entirely clear what he would do, although multiple statements made it seem like he was leaning toward blocking it. It’s clear now. Today his press secretary Josh Earnest said unequivocally that he will veto the measure. When he was asked about it at today’s press briefing—unsurprisingly given the swirl of comments by both congressional Republicans and Democrats in the last few days—Earnest said, “I can confirm that the president would not sign this bill.” “We indicated that the president would veto similar legislation considered by the previous congress and our position on this hasn’t changed,” said Earnest. “I would not anticipate that the president would sign this piece of legislation.”

Obama Will Veto Keystone XL Legislation - On Tuesday, the White House stated that President Obama would veto legislation approving construction of the Keystone XL pipeline.  “If this bill passes this Congress the president won’t sign it,” White House press secretary Josh Earnest said. Late last year Congress nearly passed a bill approving the Keystone XL pipeline, which would bring oil from the heavily polluting tar sands down to the Gulf Coast. Republicans, now in control of both chambers, have made passing such legislation a priority starting on Tuesday as Congress convened its new session.   On Tuesday the Senate Energy & Natural Resources Committee cancelled Wednesday’s planned hearing on the pipeline project as Democrats objected to procedural moves that had been used to set it up early.  Earnest said there is a “well-established” State Department review underway and that legislation would undermine that process. Earnest cited the ongoing litigation in Nebraska as the primary reason that Obama would not sign Keystone legislation. A decision from the Nebraska Supreme Court, which will determine whether or not Keystone XL’s current route through Nebraska is valid, is expected to come on a Friday in the coming weeks or months.

Obama And Congress Headed For First Confrontation Over Keystone XL Pipeline --As Republicans gear up for the beginning of the first time they’ve controlled both chambers of Congress since 2005, one legislative item at the top of the list will be an effort to push forward a bill to approve the Keystone XL Pipeline. Indeed, a bill to do just that was introduced in the House yesterday as House Resolution 3, and the White House has already made clear that the President will veto the bill if it makes it to his desk:  This isn’t the first legislative push we’ve seen for the Keystone pipeline, of course. Republicans made similar efforts several times after the 2010 elections but, because they only controlled the House up until yesterday, those efforts largely died in the Senate. In November, after it was clear that the Democrats had lost control of the Senate but while her own seat still remained in a precarious balance, former Louisiana Senator Mary Landrieu pushed a bill to authorize the pipeline in what was an obvious effort to save her own seat from near certain defeat in the December runoff. At that point, of course, Democrats still controlled the Senate and the bill was unable to get even the requisite 60 votes to get past a Cloture Motion. Nonetheless, it was noted at the time that the bill received the votes of 14 Democrats, including nine Democrats who returned to office in the 114th Congress. This suggests that there are at least 64 votes in favor of the pipeline in the new Senate. It’s also clear that the bill to authorize the pipeline will easily pass the House on Friday. The question, of course, is whether there would be sufficient support in either chamber to override the President’s veto.

Obama Keystone Veto Threat Spurs Democrat’s Plea for Deal - President Barack Obama would veto a Senate bill introduced today that would approve the Keystone XL oil pipeline, his spokesman said, as a top Democratic supporter urged the administration to seek a compromise. A bill to sidestep a federal agency review was the first legislation Republicans introduced as they took control of both the House and Senate for the first time since 2007. The measure has enough sponsors to pass but not enough to override a veto. “My office has reached out to the White House today,” Senator Joe Manchin, a West Virginia Democrat and a bill co-sponsor, told reporters Tuesday in Washington. “We’re looking at ways that we can work together to find out if there are some areas that they might, on content, object to that we can work with.” Given widespread public and industry support for the Keystone pipeline, Manchin said he was optimistic that Obama, who has expressed doubts about the project’s benefits, can be persuaded not to veto the measure.  “Fringe extremists in the president’s party are the only ones who oppose Keystone, but the president has chosen to side with them instead of the American people and the government’s own scientific evidence that this project is safe for the environment,” House Speaker John Boehner, an Ohio Republican, said in a statement.

Idiot America: The Keystone Pipeline "Controversy" -- As I've said here repeatedly, sometimes you really have to shake your head at the sheer idiotic depths this country has sunk to. Though it really isn't a big surprise, newly (re)installed Senate Majority Leader Mitch McConnell just announced that the new Republican Senate's VERY FIRST PRIORITY will be to pass a bill forcing approval to allow the TransCanada corporation to build the controversial Keystone Pipeline. That's right, with all the many problems facing America these days, many of our current elected "leaders" believe that enacting a law that will enrich a FOREIGN COMPANY is the most important thing that needs to be done. McConnell's announcement is supremely stupid on many levels. Let's start with the fact that the State Department is expected to render a final decision on Keystone later this year after a court case in Nebraska over the pipeline's proposed route is resolved. In other words, there is a chance--probably a very GOOD chance--that the pipeline will be approved in just a few months anyway. THEN there is the little matter of collapsing oil prices, which if they remain at or near their current levels for awhile will likely cause a shutdown of Canadian tar sands production--meaning there could very well be no oil to ship through the pipeline ANYWAY. Oh, and let's not forget that one of the supposed reasons to approve the pipeline--to help the U.S. become less reliant on Middle Eastern oil--totally contradicts all of the crowing in conservative circles about how our own domestic oil shale production is turning us into "Saudi America."  But let's put all of that aside for a moment and consider what it is that is really going on here--namely more sound and fury in the ongoing and sadly successful effort to convince American citizens consumers idiots that there really is a difference between the two parties and that American representative democracy is not in fact dead as a doornail. The biggest reason McConnell and company are making Keystone their top priority is that their troglodyte conservative base DESPISES environmentalists and right now this is the best way to very publicly score political points and stick it to the environmental movement. Forcing Obama to veto the bill (assuming he does) would allow the Republicans to demonstrate how they differ from blue tribe (Obama, of course, would no doubt prefer to sit back and allow the State Department to take the final decision out of his hands).

Experts Say That Battle on Keystone Pipeline Is Over Politics, Not Facts - In 2009, the Obama administration approved a 986-mile pipeline to bring 400,000 barrels of oil sands petroleum a day from western Canada to the United States. Almost no one paid attention. Construction on the pipeline, called the Alberta Clipper, was quietly completed last year. In that same period, the administration considered construction of a similar project, the Keystone XL. So far only in the blueprint stage, this pipeline has become an explosive political issue that Republicans are seizing as their first challenge to President Obama in the new Congress. Most energy and policy experts say the battle over Keystone overshadows the importance of the project as an environmental threat or an engine of the economy. The pipeline will have little effect, they say, on climate change, production of the Canadian oil sands, gasoline prices and the overall job market in the United States . At the same time, Mr. Obama’s promised veto will not necessarily kill the pipeline because the president will retain the authority to make a final decision about its fate. “The political fight about Keystone is vastly greater than the economic, environmental or energy impact of the pipeline itself,” said Robert N. Stavins, director of the environmental economics program at Harvard. “It doesn’t make a big difference in energy prices, employment, or climate change either way.”

BREAKING: Nebraska Supreme Court Ruling Upholds Keystone XL Pipeline Route - The Nebraska Supreme Court reversed a lower court’s decision that nullified the controversial Keystone XL pipeline route through Nebraska Friday, meaning that Keystone XL once again has a legal route through Nebraska.  Four out of the seven judges on the Nebraska Supreme Court agreed with a district court’s February 2014 decision that Nebraska’s LB1161 law was unconstitutional, but according to Nebraska’s constitution, the court needed the agreement of a super majority — five out of the seven judges — to officially label the law as unconstitutional.  Nebraska’s LB1161 made it possible for pipeline companies, like TransCanada, to chose whether to submit their pipeline plans to the state Department of Environmental Quality, which would then bring the plans to Nebraska’s governor for final approval or rejection, or the state’s Public Service Commission, which had a stricter permitting process in place and didn’t depend on the governor for final approval.  In 2012, three Nebraska landowners — Randy Thompson, Susan Luebbe and Susan Dunavan — sued to challenge the law, saying it was went against the state’s constitution. The district court sided with the landowners in February 2014, but the state Supreme Court’s ruling nullifies that decision. “This appeal is not about the wisdom or necessity of constructing an oil pipeline but instead is limited to the issues of great public concern raised here: which entity has constitutional authority to determine a pipeline carrier’s route and whether L.B. 1161 comports with the Nebraska Constitution’s provisions controlling this issue,” the Supreme Court judges write in the ruling. But since just four members of the court, not five, found the law unconstitutional, the Court writes that “the citizens cannot get a binding decision from this court,” and the district court’s decision is vacated.

House Votes To Approve Keystone XL Pipeline — For The 10th Time - The House of Representatives has voted 266-153 to pass legislation approving the Keystone XL tar sands pipeline, marking the 10th time the lower house has OK’d construction of the controversial project. Friday’s vote precedes an upcoming Senate vote which will also likely approve the controversial pipeline, eventually sending the bill to President Obama’s desk. The White House has already stated that Obama would veto the legislation.  The vote also comes just hours after Nebraska’s highest court effectively confirmed that the 1,700-mile pipeline has a legal route through the state — though the court left it open for the route to be challenged in court again. Though the bill to approve Keystone XL passed the House easily and with a large majority, it fell short of achieving enough votes for a possible override of Obama’s veto. To override, the House would have needed a two-thirds, or 66 percent, majority vote. The bill received only 63 percent.  The Republican-led House has long had the votes to pass legislation approving the pipeline, which would carry Canadian tar sands oil from Alberta, Canada to refineries on the Gulf Coast of the United States. But until the 114th Congress was sworn in on Tuesday, it didn’t much matter — the 113th Congress’ Senate was controlled by Democrats, and Senate Majority Leader Harry Reid was not keen to let the bill come to the floor for a vote. At the end of 2014, Reid did allow a vote on Keystone XL in the Senate, and it failed.

Canada: A Microcosm Of The Ultimate Effect Of Low Oil Prices? -- Canada’s economy, lately driven in large part by oil, is a classic example of the old see-saw axiom: Downward pressure in one place creates upward pressure in another.  In this case, the bad news of low oil prices for the provinces of Alberta, Newfoundland and Saskatchewan, which until recently were enjoying an oil boom, becomes good news for Manitoba, Ontario and Quebec.  Alberta is a good model for what’s begun to go wrong in Canada. Already, three huge oil companies have canceled oil sands projects there: Shell of Britain at Pierre River, Statoil of Norway at the Corner oil field and France’s Total at the Joslyn mine. And more cancellations are expected as what feels like a non-stop drop in oil prices drives even more energy companies to postpone or even cancel projects.  The reason is that Alberta, Newfoundland and Saskatchewan have been experiencing a boom not in oil, but in oil sands, sandstone impregnated with crude oil. While shale oil is expensive to extract, oil sands are expensive to clean. And at the current average price of crude, which is now just above $50 per barrel, both forms of oil are becoming less and less profitable. All this means hard times ahead for Alberta, and it’s becoming a recurring nightmare. Oil prices dropped fairly precipitously in the 1980s, but the province’s premier at the time, Don Getty, chose to keep his government’s spending static in hopes that oil would recover. Instead, energy revenues fell by $3 billion, creating a provincial deficit of $3.4 billion.

Majority Of U.S. Coal, Canadian Tar Sands Will Have To Stay In The Ground To Meet Climate Goals --Keeping the increase in global temperatures under 2°C will require vast amounts of fossil fuels to be kept in the ground, including 92 percent of U.S. coal, most of Canada’s tar sands, and all of the Arctic’s oil and gas, according to the first analysis of which of the world’s reserves should remain untapped. The study, published in the journal Nature, is a stark assessment of how resource-rich nations and regions will have to adjust to the reality that the battle against climate change means abandoning huge sources of their wealth. Limiting the increase in worldwide temperatures to 2°C (3.6°F) above pre-industrial levels is generally agreed to be what is necessary to prevent dangerous climate change. “Our results suggest that, globally, a third of oil reserves, half of gas reserves, and over 80 percent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2°C,” write authors Christophe McGlade and Paul Ekins of University College London.

Oil hits five and a half year low under $55 on supply glut (Reuters) - Oil prices slumped to new 5-1/2-year lows on Monday on worries about a surplus of global supplies and lackluster demand. Russia's oil output hit a post-Soviet high last year, averaging 10.58 million barrels per day (bpd), up 0.7 percent thanks to small non-state producers, Energy Ministry data showed. Iraq's oil exports were at their highest since 1980 in December, an oil ministry spokesman said, with record sales from the country's southern terminals. true But oil producer group OPEC has decided not to cut output, opting to let the market find its own level. The two crude oil benchmarks - Brent and U.S. light crude, also known as West Texas Intermediate - have now lost more than half of their value since mid-2014. Brent crude for February dropped as low as $54.02 a barrel, down $2.40 from Friday's close and its weakest since May 2009, before edging back to around $54.50 by 1420 GMT (0920 ET). U.S. crude slid to $50.55 a barrel on Monday, down $2.14 and also its lowest since May 2009. "The easiest path for oil is down," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt. "Almost all market news and the fundamental backdrop are negative and it is difficult to see much upside at the moment."

Oil Falls to 5 1/2-Year Low as Russia, Iraq Boost Output - Oil dropped to the lowest in more than five and a half years amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China. Futures capped a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest levels in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday. Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.

Oil Extends Drop Below $50 as U.S. Stockpiles Seen Rising - Oil extended losses below $50 a barrel amid speculation that U.S. inventories will expand, deepening a global supply glut that’s driven prices to a five-year low. Futures fell as much as 3.1 percent in New York, declining for a fourth day. Stockpiles in the world’s biggest oil consumer probably rose by 750,000 barrels last week, a Bloomberg News survey shows before a government report tomorrow. A gauge of the dollar held near a nine-year high, diminishing the investment appeal of commodities. Oil slumped almost 50 percent in 2014, the most since the 2008 financial crisis, after the Organization of Petroleum Exporting Countries resisted calls to cut output as it competes with U.S. producers. The market faces “more problems” this year, according to Morgan Stanley, with surging output in Russia and Iraq contributing to a surplus that Qatar estimates at 2 million barrels a day.“There is no bullish news. OPEC refuses to cut production and there is no evidence of falling production outside of OPEC.”  West Texas Intermediate for February delivery dropped 91 cents, or 1.8 percent, to $49.13 a barrel at 9:04 a.m. on the New York Mercantile Exchange after touching $48.47, the lowest since April 2009. The volume of all futures traded was about 60 percent above the 100-day average for the time of day.

Is Oil's Sell-Off Getting Overdone? - Over the last few months, oil's sell-off has been the story to talk about on Wall Street.  However, let's put this situation in perspective by looking at the long-term weekly chart:

  • 1.) The sell-off has been extreme.  Prices have moved sharply lower since the beginning of July.  When prices hit the EMAs, they move lower.  There were a few attempts at a rally in September, but since then the direction has been down.  This looks like panic selling, where a majority of asset holders receive news that the asset is fundamentally mis-priced, at which time everybody places sell orders.
  • 2.) Prices have moved convincingly through three long-term support levels -- prices at ~65, ~60 and the mid-50s. 
  • 3.) Prices are now approaching levels last seen in the "Great Recession."  Let's stop right here and ask a question: does that valuation make any sense?  During the GR the entire world was in the throes of the most extreme financial contraction of a generation (in fact, several generations).  Entire industries (banking and autos) were getting bailed out.  Central banks were contemplating QE programs; governments were engaging in fiscal stimulus.

     Are we now in a similar situation?  Not yet.  China is slowing, but is still growing at a 7% rate.  Japan will probably come out of their recession in the next two quarters.  The EU is hovering at 0% growth, but they are not crashing through the floor.  The biggest problem is Russia, as the combination of cheap oil and economic sanctions will lead to a recession next year.  But they're a special situation.   And -- when was the last time oil was the leading indicator?  Never.  In fact, oil price spikes have been a primary cause of most post-WWII recessions as documented by professor James Hamilton, not the other way around.  But although we aren't in the middle of a financial crisis similar in depth and breadth to the previous recession, oil is pricing in such a condition.  I would argue that we should start to consider the possibility that oil's sell-off is getting overdone.

The Delicate Balance of Supply and Demand in the World's Oil Markets -  The most recent plunge in oil prices caught most of the world by surprise, however, given the short-term market supply and demand fundamentals, a price readjustment is really not all that shocking.   Let's look at a chart showing the price history for West Texas Intermediate, the North American benchmark crude:  As we can see, other than the price readjustment during the Great Recession, the dollar-value plunge in prices over the past month are the highest on record.  From what has happened to oil prices over the past month, one would expect that demand for oil is falling off the charts at the same time as supply is rising, also at rates that are off the charts.  That is not quite the case.  Here is a graph from the International Energy Agency (IEA) showing the world demand for oil from 2012 to the present and projected to the beginning of 2016:  Here is a table showing the data (in millions of barrels) and the quarter-over-quarter and year-over-year changes in demand (in percent): When we look at the year-over-year change in demand to remove the impact of seasonal cycles, we see that the increase in demand is anticipated to range between 0.87 and 0.98 million BOPD throughout each quarter of 2015. If these projections prove to be accurate (i.e. if the world economy doesn't falter over the next year), the year-over-year increase in oil demand of 0.87 million BOPD at the end of 2015 will be higher than the year-over-year increase of 0.8 million BOPD and 0.73 million BOPD at the end of both 2013 and 2014 respectively. If we look at the IEA's analysis for released in December 2014, they note that their analysis shows that the global oil demand growth for 2015 has fallen by 230,000 BOPD to 870,000 BOPD not that the demand has fallen by 203,000 BOPD. While this could be termed "weak demand", the fact is that, in general, on a year-over-year basis, oil demand has shown rather steady growth since 2012. On the demand side, it is critical that we look at China. Here is a graph showing China's level of oil products consumption since 2011:

SAR Commentary - The current favorite myth contends that the fall in the price of oil is due to the Saudis trying to punish Russia for supporting Assad and drive the frackers in the US out of business while also punishing the evil Shia controlling oil in Iran and Iraq. Drivel, starting with the simple observation that the Saudis are pumping about the same amount of oil they have for nearly a decade and OPEC as a whole is maybe 500,000 barrels a day over it's long set target. The US, on the other hand, is suddenly pumping out an extra 4 or 5million barrels a day from fracking operations – if there is a country that has upset the apple cart, it is the US. Telling the Saudis they have to stop pumping oil because we want to continue is a reasonable example of how silly most of this discussion is.  Another comment fairytale involves the US, with Saudi help, torpedoing oil prices so as to “punish” Putin for getting in the way of US plans for Ukraine. Yes, the Russians did upset our neat plans for Kiev, and the low prices are hurting Russia, but even if Vladimir was to suddenly withdraw his support for ethnic Russians in Ukraine and give back Crimea, how would that change the global supply and demand problem with oil? Even those dwelling on the supply and demand equation mostly miss what's going on, the circular and long term nature of the situation. And the demand side is generally given the least discussion when it is the most important factor.   What has diminished is not the need, specifically, for diesel or gasoline; what has shrunk and continues to shrink is our ability to pay to transport stuff, because the more money we divert to pay to get the fuel,the less of the stuff we can afford - and thus the diminished need for transport fuel. Viola! Surplus unaffordable oil!   The price of oil tells us that economies around the world are slowing down and nearly at a stall. [Here's where the chorus starts chanting “Be afraid. Be afraid.”]

Shell Energy Scenarios To 2050 (download pdf)

The Real Cause Of Low Oil Prices: Interview With Arthur Berman - Yves here. This is a terrific interview that you need to read pronto if you have any interest in the outlook for oil prices, understanding fracking economics, and the real reason for the push for Keystone XL pipeline. Berman is colorful, direct, and provides lots of granular detail.  With all the conspiracy theories surrounding OPEC’s November decision not cut production, is it really not just a case of simple economics? The U.S. shale boom has seen huge hype but the numbers speak for themselves and such overflowing optimism may have been unwarranted. When discussing harsh truths in energy, no sector is in greater need of a reality check than renewable energy. In a third exclusive interview with James Stafford of Oilprice.com, energy expert Arthur Berman explores:

• How the oil price situation came about and what was really behind OPEC’s decision
• What the future really holds in store for U.S. shale
• Why the U.S. oil exports debate is nonsensical for many reasons
• What lessons can be learnt from the U.S. shale boom
• Why technology doesn’t have as much of an influence on oil prices as you might think
• How the global energy mix is likely to change but not in the way many might have hoped

Energy price declines not limited to oil -  (charts) With all the focus on falling crude oil prices (chart below) as well as sharp reductions in the cost of gasoline (including retail), jet fuel, and heating oil, it's easy to miss the fact that prices of other energy products have been hit quite hard as well. Here are a few examples:

  • 1. US natural gas price declines have been spectacular. March 2015 futures contract (source: barchart) Natural gas valuations are of course responding to the correction in oil. But other factors include strong US gas production and the normalization of gas inventories in storage after the harsh 2013-14 winter (chart below).
  • 2. Coal prices have fallen sharply as well, particularly for Appalachian coal (see chart). Coal traded in Asia (chart below) has also been under pressure. Source: barchart
  • 3. Price declines have not been limited to fossil fuels. Even uranium futures have been selling off in spite of rising Japanese demand as nuclear reactors go back online - see chart.
  • 4. Expectations of weakening profitability for alternative energy sources including wind and solar are showing up in significant underperformance (which started with declines in crude prices) against broader markets.
  • 5. With major sources for power generation becoming cheaper, electricity prices (chart below) have declined as well.
As discussed before (see post), this is quite positive for the US (and global) economy. However a number of industries involved with products discussed above will be severely disrupted in 2015, resulting in defaults, consolidation and some job losses.

LNG Another Casualty Of Low Oil Prices - The oil industry is facing rising debt from collapsing oil prices, but there could be another sector that becomes a casualty of the low oil price environment: liquefied natural gas (LNG). Much of the global LNG trade occurs in Asia, where buying and selling occurs according to long-term fixed contracts that are indexed to the price of oil. As a result, when oil prices were high, so were LNG prices. That is exactly why there has been a rush along the U.S. Gulf Coast to begin exporting cheap American natural gas to take advantage of high prices in Asia. The practice of indexing LNG contracts to the price of oil was something that Japan, the world’s largest consumer of LNG, had hoped to change. High oil prices were inflicting an economic toll on Japan, which had radically increased energy imports after shuttering its nuclear reactors. However, oil-indexed contracts cut both ways. Now with oil prices hovering around $50 per barrel – less than half of what they were last summer – spot cargoes for LNG have seen their prices collapse as well. Japan is in no hurry to see the industry undergo dramatic reforms. Not only are low oil prices pushing down LNG prices, but demand in Asia for LNG is much lower than anticipated. In fact, a new Wood Mackenzie analysis says that weak demand in China, Japan, and Korea helped push LNG prices below $10 per million Btu at the end of 2014, less than half of the $20/MMBtu spot cargoes were selling for earlier in the year. Adding to the sector’s problems is the fact that new supplies are starting to come online. A massive build out of LNG export capacity is still underway, with earlier projects now reaching completion. Just as the shale boom led to oversupply and crashing prices, LNG markets are showing early signs of a similar bust.

US rig count tumbles by 29 to 1,811  (AP) - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. plummeted by 29 last week to 1,811. The Houston firm said Monday in its weekly report that 1,482 rigs were exploring for oil and 328 for gas. One was listed as miscellaneous. A year ago 1,751 rigs were active. Of the major oil- and gas-producing states, none showed any gains. Texas plunged by 12, California dropped by six, Colorado fell by three, Louisiana declined two and Alaska, Arkansas, New Mexico, Ohio, Pennsylvania and Wyoming were down one apiece. Kansas, North Dakota, Oklahoma, Utah and West Virginia were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

US Rig Count Continues To Plunge To 10-Month Lows -- Just as T.Boone Pickens warned, watching the US Rig Count is key to comprehending the looming crisis in oil. The last 4 weeks alone have seen a drop of over 100 rigs - the 2nd fastest slide since 2001 in percentage terms. This is the worst December to January since 2008/9. As Pickens noted, "demand is down" - "lower demand is the main driver" - "rig count is gonna fall - drop 500 rigs in next 6-9 months"Note that prices diverged lower as rig counts kept going before rolling over and then crashing... Charts: Bloomberg

Biggest Oil-Rig Drop Since 2009 Spells Tough Year Ahead - U.S. oil drillers laid down the most rigs in the fourth quarter since 2009. And things are about to get much worse. The rig count fell by 93 in the three months through Dec. 26, and lost another 17 last week, Baker Hughes Inc. (BHI) data show. About 200 more will be idled over the next quarter as U.S. oil explorers make good on their promises to curb spending, according to Moody’s Corp. Drillers are already running the fewest rigs in nine months after a 46 percent drop in U.S. benchmark West Texas Intermediate oil in 2014, the steepest decline in six years and the second-worst since the commodity began trading in 1983. The price slipped below $50 a barrel yesterday as U.S. producers and the Organization of Petroleum Exporting Countries remain in a standoff over market share. Meanwhile, production from Russia and Iraq last month reached the highest level in decades.

Oil Prices Again Buck Economists’ Expectations - Economists ended 2014 with expectations that the rout in the oil markets was pretty much over. When asked by The Wall Street Journal in early December where oil would trade on Dec. 31, 2014, the average forecast was $64.73 a barrel (up from just under $61 on Dec. 10). Instead, petroleum prices ended the year dropping to about $53 a barrel, and have continued to swoon in the very early days of 2015. Light, sweet oil for February delivery traded briefly below $50 a barrel on Monday, the first time that has happened since April 2009. The price erosion is an example of Economics 101: too much supply and not enough demand are moving prices lower and lower.  What’s worsening the situation, however, is that instead of cutting back production when prices decline, energy producers such as Russia and Iraq are pumping the most crude in decades in an effort to bring in needed foreign cash. In December, the panel of economists thought oil prices would move up to $69.32 by June 30, 2015, and end this year at $72.10. Certainly, a supply shock could change oil’s direction very rapidly. But right now it looks as if most economists will have to make serious changes to their forecasts of crude prices in 2015.

Here’s How Much Money Oil Companies Have Lost Due to Falling Prices - It has been a pretty rough six-month stretch for the energy industry. Crude oil prices have fallen about 55% since the middle of last summer, resulting in some of the world’s largest energy companies losing hundreds of billions of dollars in market value.The price of crude oil has been relatively flat over the past two days, but it still sits below $50 per barrel — the lowest point in about 5 and 1/2 years — thanks to a global supply glut exacerbated by the ongoing U.S. shale boom as well as decreased oil consumption in Asia and Europe.As oil prices have steadily declined, so too have the share prices of many large energy companies. Out of 24 oil, gas and coal producers in the Fortune 500, 22 saw their stock price decline between the beginning of July 2014 and Wednesday’s close. In total, the 24 companies lost more than $263 billion in market value combined, according to data from FactSet Research Systems. (A company’s market value is found by multiplying its share price by the number of its shares outstanding.)Exxon Mobil and Chevron, the two largest U.S. energy companies, accounted for more than $95 billion of that figure as the two have seen their respective market values decrease by 11.7% and 17.9% in just over six months.In terms of total lost market value, ConocoPhillips and Occidental Petroleum finished behind Exxon and Chevron, with more than $20 billion shaved off each of their respective market caps during the period — a 26% decline.

Saudi Arabia Raises Price of Main Oil Grade for Asian Buyers - Saudi Arabia raised the cost of its oil sales to Asia in February, prompting speculation the world’s biggest exporter is retreating from using record price discounts to defend market share. Saudi Arabian Oil Co. will sell its Arab Light grade for $1.40 a barrel less than a regional average next month, the company said yesterday in a statement. That’s a narrowing from January, when the discount was $2, the biggest in at least 14 years. It decreased 11 prices globally and increased six.  The state-owned producer, known as Saudi Aramco, raised prices for all its crudes in Asia and cut all of them for Europe and most in the U.S.  Brent oil fell 5.9 percent yesterday. Oil prices collapsed 32 percent since the Organization of Petroleum Exporting Countries decided to maintain its output target on Nov. 27, amid signs Saudi Arabia and other members are determined to let North American shale drillers and other producers share the burden of reducing an oversupply. When Aramco lowered prices for November it prompted speculation the nation was seeking to preserve market share.

The Crunch Continues: WTI Tumbles Under $49, 10Y Dips Below 2% -- Same slide, different day, as the crude crash continues, with both WTI and Brent tumbling to multi-year highs, below $49 and $52 respectively. This happened despite the news overnight that China is accelerating 300 infrastructure projects valued at 7 trillion yuan ($1.1 trillion) this year, suggesting that China will focus more on fiscal policy than monetary easing, which in turn led to much confusion in the SHCOMP, which fluctuated up and down for the day several times before finally closing unchanged. There was no confusion about the stops slamming USDJPY, and its Nikkei225 derivative which tumbled 3%, sending Japanese Treasury yields to fresh record lows. Record low yields were also seen in Germany, Austria, Belgium, Netherlands, Finland, France (and many other places), which in turn forced the US 10 Year to finally dip back under 2.00%. In fact, taken together, the average 10Y bond yield of the U.S., Japan and Germany has dropped below 1% for the first time ever, according to Citi.

Oil price implications - Gail Tverberg offers her view on possible ramifications of the severe drop in prices for oil and  debt financed growth: There are really two different problems that a person can be concerned about:

  1. Peak oil: the possibility that oil prices will rise, and because of this production will fall in a rounded curve. Substitutes that are possible because of high prices will perhaps take over.
  2. Debt related collapse: oil limits will play out in a very different way than most have imagined, through lower oil prices as limits to growth in debt are reached, and thus a collapse in oil “demand” (really affordability). The collapse in production, when it comes, will be sharper and will affect the entire economy, not just oil.

In my view, a rapid drop in oil prices is likely a symptom that we are approaching a debt-related collapse–in other words, the second of these two problems. Underlying this debt-related collapse is the fact that we seem to be reaching the limits of a finite world. There is a growing mismatch between what workers in oil importing countries can afford, and the rising real costs of extraction, including associated governmental costs. This has been covered up to date by rising debt, but at some point, it will not be possible to keep increasing the debt sufficiently. There is of course insurance by the FDIC and the PBGC, but the actual funding for these two insurance programs is tiny in relationship to the kind of risk that would occur if there were widespread debt defaults and derivative defaults affecting many banks and many pension plans at once. While depositors and pension holders might try to collect this insurance, there wouldn’t be enough money to actually cover these demands. This problem would be similar to the issue that arose in Iceland in 2008. Insurance would seem to be available, but in practice, would not pay out much. I learned after writing this post that bail-ins were mandated for US banks by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010. In the language of the summary, bank depositors are “unsecured creditors,” and are thus among those to whom the burden of loss is transferred. The FDIC is not allowed to borrow extra funds, beyond bank funds, to cover this loss.

How $50 Oil Changes Almost Everything - The biggest collapse in energy prices since the 2008 global recession is shifting wealth and power from autocratic petro-states to industrialized consumers, which could make the world safer, according to a Berenberg Bank AG report. Surging U.S. shale supply, weakening Asian and European demand and a stronger dollar are pushing oil past threshold after threshold to a five-and-half-year low, with a dip below $40 a barrel “not out of the question,” said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees about $120 billion. “Oil prices are the big story for 2015,” said Kenneth Rogoff, a Harvard University economics professor. “They are a once-in-a-generation shock and will have huge reverberations.”Brent crude, the international benchmark, fell as low as $49.66 a barrel today, dropping below $50 for first time since 2009. Prices dropped 48 percent in 2014 after three years of the highest average prices in history. West Texas Intermediate, the U.S. benchmark, plunged to as low as $46.83 today, about a 56 percent decline from its June high.  If the price falls past $39 a barrel, we could see it go as low as $30 a barrel, said Walter Zimmerman, chief technical strategist for United-ICAP in Jersey City, New Jersey, who projected the 2014 drop.  The biggest winner would be the Philippines, whose economic growth would accelerate to 7.6 percent on average over the next two years if oil fell to $40, while Russia would contract 2.5 percent over the same period, according to an Oxford Economics Ltd.’s December analysis of 45 national economies.

Despite Current Glut, Oil Producers Continue Game of Chicken -- When the world gives you too much oil, drill for more. That seems to be the motto of some of the most prolific oil producers today. Iraq, Russia, Latin America, West Africa, the United States, Canada – all may increase production this year, and by more than just balancing out the reduced production in war-torn Libya. On top of this, expect even more oil on the market if Iran comes to terms with the West over its nuclear program and is freed of the constraints of sanctions.  That’s the conclusion of Adam Longson, an oil analyst at Morgan Stanley writing in an e-mailed report on Jan. 5.  All this new oil is flooding a market already awash because OPEC has refused to cut its production cap below 30 million barrels a day – and is even exceeding that level – and the United States is pumping oil, mostly from shale, faster than it has in 30 years. This has caused the average price of oil to plunge more than 50 percent, from about $115 in June 2014 to just over $50 today. This is creating an unmitigated bear market for oil, according to Morgan Stanley. “With the global oil market just passing peak runs and Libyan supply already at low levels, it’s hard to see much improvement in oil fundamentals near term,” its report said. “A number of worrying signs have already emerged, lifting the probability of our ‘bear’ case.” One more sign is that Iraq’s production is at its highest level in more than three decades, now that Baghdad has finally reached agreement with Kurdistan to allow it to export oil through Turkey. And just before the New Year there were reports that Russian oil output has hit post-Soviet records without any sign of abating. “We already have an ample supply of oil, and on top of that we see this increase from Iraq and Russia,” Michael Hewson told The Wall Street Journal. “The momentum clearly continues to be bearish for oil.”

This Oil Thing Is The Real Deal - Ilargi - Well! WTI below $50 and Brent below $53 when I start writing this. Who knows where they’ll be by the time I’m finished?! The euro down below $1.20, US stocks flirting with -2%, major European ones off -3%, Italy and Greece over -5%. Welcome to the real world, baby! Didn’t think you’d see it again so soon, did you? Welcome to the world where the Kool-Aid recovery does not reign supreme. Not that you’re not going to hear that anymore, and 24/7 incessantly so, but there’s no recovery with these oil prices, no matter what anybody says. The damage must be gargantuan by now. Everybody’s invested in oil. Sure, lots of shorts and stuff by now, but that’s not going to do much good. Not for pensions funds, or for governments. This thing will not blow up or over softly. There’s not an oil major or minor or a producing country left that makes a profit at these prices, and there’s no sign anywhere to be seen that the drop will stop. If this keeps going, someday soon somebody’s going to go to war. Maybe domestically, maybe across a border, but it’ll happen. There are dozens of regimes out there for whom oil prices have become a huge threat to their powers, their status, their lives, and there are dozens of others waiting in the wings, eager to take over. The move is just too big not to lead to bloodshed.  Oil below $50 and falling is bigger than any other political or economic issue. Remember when they all said low oil prices would boost the economy through higher consumer spending? Heard anything much about that lately?

Oil Prices Slide as U.S. Gasoline Inventories Jump -- Prices at the gas pump are heading even lower. Gasoline futures fell to nearly a six-year low on Wednesday after U.S. government data showed oil and fuel supplies rising to a record high last week, the latest evidence of a petroleum glut that has rattled financial markets and raised questions about the strength of global economic growth. U.S. crude-oil prices rose modestly, but there was little indication that the market, which has plunged by 55% since late June, has hit a bottom. Weekly inventory data released by the federal Energy Information Administration reinforced the belief among many investors and traders that increasing oil output continues to overwhelm the growth in demand, a situation that is likely to further undercut prices across the board. U.S. stockpiles of crude oil, refined fuels and other types of petroleum rose 0.9% to 1.149 billion barrels in the week ended Jan. 2, according to the EIA. That is the highest level ever in weekly data dating back to 1990, and beats the previous high set in June 2013. The total doesn’t count the barrels held in the nation’s strategic petroleum reserve.

US export code adds to bearish oil outlook - FT.com: As excess supply chokes the world oil market, another serving of hydrocarbons is on the way. The US last week published guidelines governing oil exports, a move that will let Texas producers better compete against Middle East rivals by selling more output overseas. More companies will receive explicit authorisation to export condensate, a type of oil at the lightest end of the density spectrum, the Bureau of Industry and Security said. Just how much US petroleum leaves the docks at Houston and Corpus Christi has big implications for the oil market as it plumbs lows near $50 a barrel. The announcement could inject new volumes into a global market already looking at a surplus of more than 1m barrels a day. The US has banned almost all exports of crude oil since the mid-1970s. Last week’s announcement defines how much processing oil must undergo before it is no longer considered crude but a refined product, which is freely exportable. The text broadcasts criteria previously issued to just a handful of companies via private rulings. The statement applied to all types of crude, but in practice only ultralight condensate will be exported under the rules, experts say. US condensate output is nevertheless significant at about 640,000 barrels a day. RBN Energy, a consultancy, expects it will grow to 1.8m b/d by 2020. “Every step towards export liberalisation is another bearish factor in the global oil market,” says Ed Morse, head of commodities research at Citigroup. US refineries have a limited appetite for condensate, blending it with heavier oils to process into fuels. Several companies are also building simple plants called “splitters” that turn pure condensate into products such as naphtha, a petrochemical feedstock.

U.A.E. Energy Minister Says Oil Glut Could Run for Years - Oversupply in crude markets could take months or even years to fix depending on when producers outside OPEC cut their output, Abu Dhabi-based The National reported, citing comments by U.A.E. Energy Minister Suhail Al Mazrouei. “We are experiencing an obvious oversupply in the market that needs time to be absorbed,” the newspaper reported Mazrouei as saying in e-mailed comments. The United Arab Emirates supported the November decision by the Organization of Petroleum Exporting Countries to maintain production, The National reported Mazrouei as saying. Brent crude, a pricing benchmark for more than half of the world’s oil, tumbled 48 percent last year, the most since 2008. OPEC decided Nov. 27 to maintain production instead of cutting output to eliminate a surplus left by increased supplies from the U.S. to Russia. “Depending on the actual production growth from non-OPEC countries, this problem could take months or even years,” the U.A.E.’s Mazrouei was quoted as saying in The National, referring to oversupply. “If they act rationally, we can see positive corrections during 2015.” Saudi Arabia won’t cut its output, though producers outside the group are welcome to do so, Ali Al-Naimi, that country’s oil minister, said at a conference in Abu Dhabi Dec. 21. OPEC would find it “difficult, if not impossible” to give up part of its share in global oil markets by cutting output, he said Dec. 19.

Occam’s Oil -- The ongoing “struggle” to define what is driving crude oil prices lower is perhaps another instance of a past “cycle” being reborn. With oil prices now heading much closer to the $40’s than the $60’s, consistent commentary is increasingly swept aside. The move in crude these past six months is now nothing short of astounding. At about $52 current prices (which will probably move in either direction significantly by the time this is posted) the collapse from the recent peak now equals only past, significant global recessions under the oil regime that began in the mid-1980’s.  This was incorporated even into the International Energy Agency’s (IEA) estimates of oil inventories, as described shortly thereafter by certain incredulous oil observers:  As if that was not enough of a parallel, there was also the “Saudi connection” then as now. Many respected observers put forth the notion, as they have in recent months, that the Saudis were behind the price collapse, or were using it to their advantage, seeking to squeeze out new producers. Back in the mid-1990’s that meant more expensive areas in Africa and new production capacity of the North Sea. The Economist published that idea in a March 1999 article titled, Drowning in Oil:  And so today, the Saudis are supposedly up to the same tricks, now trying to drive US shale production out of business. The fact that all those increased marginal suppliers more than survived the Asia flu tells you everything you need to know about this wild assertion of “intentional” Saudi action. It is a convoluted rumor that survives solely because it is convenient to those economists and commentators that refuse to accept these more basic connections. That leaves us basically once more in the hands of Occam’s Razor, namely that oil prices are falling hard because demand is falling hard. The scale gives us insight into the nature of the slowing of the global economy, to which the US is a full part, meaning that comparisons only with past and serious downslopes is not a welcome development; nor should it be “unexpected.” Mainstream commentary seeks to reject this simple and basic argument because it cannot fathom, predicated on its penchant for nothing but parroting economic “authority”, that the world could fall so deeply into recession once more drowning not just in oil but also “stimulus.” Once you get past the idea that “stimulus” isn’t, logical sense is restored.

Of crude bottoms and Rins -- While WTI crude prices fell through $50 per barrel levels on Monday, and still remain there on Tuesday… (chart via LiveCharts): …Reuters’ John Kemp pointed out that we’re likely reaching the point where upside moves become more probable than downside moves because: Prices are now too low to provide the cash flow to sustain drilling programmes and nowhere near enough to provide the financial incentive to make equity or debt available. This is important because so-called decline curves for oil wells — particularly for shale wells — are very steep, says Kemp. Output falls to a half or even a third of its initial level by the end of the first 12 months. Consequently: Thousands of new wells must therefore be drilled each year simply to sustain output at its current level of more than 9 million barrels per day.  Now, whilst efficiencies can be made, Kemp says it’s hard to imagine the industry cutting costs and raising efficiency enough to offset fully a 40 per cent or more reduction in the number of rigs operating. That means in the not too distant future the supply glut we keep hearing about could very well become a bona fide shortage. And when that happens… well the market will have to correct. One thing not mentioned by Kemp, but also worth bearing in mind, is the likely effect of Renewable Identification Numbers (RINs) at this stage. You might remember RINs from when they blew out two years ago. Back then, the squeeze was caused by a combination of speculation, restrictive thresholds and oversight by industrial and intermediary players. This time round, RINs could provide the correcting force that fuels a wider price reversal.

The return of floating storage – a.k.a the sharks are back -- Good news for those looking out for crude bottoms! JBC Energy reports on Friday that the economics that make storing surplus oil in floating tankers profitable are finally in play. Contango, in other words, has returned sufficiently enough to the market to incentivize those intermediaries who have the physical means to store oil, to purchase it for storage purposes and delayed sales, thus helping to balance the surplus in the market. As the analysts report:  Floating storage appears to have kicked off this week with reports from Reuters and Bloomberg showing that at least five tankers have been booked for 1-year time charter arrangements by major oil traders. As we noted earlier this week, the widening Brent contango is making long-term storage plays viable. Though, offsetting that, the oversupply in the Atlantic Basin persists: Besides market structure, the looming oversupply in the Atlantic Basin can also be seen in the weakness of the West African crude market. The premium over Dated Brent of key grades Qua Iboe and Bonny Light have slipped to 5-year lows (see chart), amid a lack of buying interest with several January cargoes still available. A wider Brent/Dubai cash spread is making it more difficult to arb West African barrels into Asia, while supplies in the Atlantic Basin are high due to an increase in Iraqi crude out of Ceyhan as well as greater availability of BTC Blend with February loadings pencilled in at a multiyear high of 820,000 b/d. The only support on the supply side for the Atlantic Basin is coming from Libya, where crude loadings appear to have come to a halt not least since the bombing of a tanker loading at the port of Derna on the weekend. A return of Libyan exports in the current market environment would tip the scales further, leading to yet more storage plays. This is continuing to have a significant effect on the Dated Brent differential to Nigerian crudes:

US Rig Count Tumbles by 61 to 1,750 - ABC News: Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. plummeted by 61 this week to 1,750. The Houston firm said Friday in its weekly report 1,421 rigs were exploring for oil and 329 for gas. A year ago 1,754 rigs were active. Of the major oil- and gas-producing states, Alaska and Arkansas each gained two rigs and Ohio gained one. Texas plunged by 30, North Dakota dropped by seven, New Mexico fell six, Utah and Wyoming each dropped by five, Kansas and Oklahoma each fell by three, Pennsylvania dropped two and Colorado and Louisiana each fell by one. California and West Virginia were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999

US Rig Count Crashes At Fastest Pace Since 2009 To 14-Month Lows - Just as T.Boone Pickens warned, US Rig Counts are plunging. Down by 61 this week alone - the biggest weekly drop in over 5 years - at 1,750, this is now the lowest since November 2013 (and very close the lowest since 2010). The 10% or so plunge in the last 7 weeks is following the same trajectory as the 2008 collapse - which led to - just as Pickens suggested - a 50% crash in rig counts...

Oil rigs fall by most since 1991 -  Producers idled the most oil rigs in a single week since 1991, as a more than 50 percent fall in crude prices further impacted drilling. The number of rigs searching or drilling for oil fell by 61 to 1,421 while the number of rigs pursuing natural gas rose by one to 329, according to oil service company Baker Hughes’ weekly count. One miscellaneous rig was idled. The United States total rig count fell by 61 rigs to 1,750 from 1,811 in the prior week. The total rig count — a measure of both oil and gas rigs — declined by the largest amount since 2009. The first week of the new year hit Texas drillers the hardest. The state’s rig count fell by 30 rigs to 810, twice as much as the week prior. Texas has seen a 10 percent loss from the high of 905 rigs in late November and now has fewer rigs drilling than the 825 the state had for the same period last year. North Dakota lost seven rigs to a total of 162. Rig counts are widely expected to fall following a more than 50 percent crash in crude prices since this summer. Producers across the industry have pared back 2015 drilling budgets — and the number of rigs they expect to have under contract — in order to shore up finances as revenue from selling crude oil falls. Praveen Narra, an analyst with Raymond James, said that his firm expects as many 850 rigs to come off the market this year.

No chance of OPEC output cut, even after oil dips below $50: Gulf delegates (Reuters) - Saudi Arabia and its Gulf OPEC allies are showing no sign of considering cutting output to boost oil prices, even though they dipped below $50 a barrel this week. OPEC decided against limiting production at its last meeting on Nov 27, despite misgivings from non-Gulf members, after Saudi Oil Minister Ali al-Naimi said the group needed to defend market share against U.S. shale oil and other competing sources. Those misgivings have grown with a slide in oil prices to below half their level in June, hurting the economies of OPEC's smaller producers. Benchmark Brent dipped to $49.66 on Wednesday, its lowest since April 2009, before rising to $51 on Thursday. true OPEC has forecast an increasing surplus in 2015, citing rising supplies outside the group and lackluster growth in global demand. But the Gulf members, who account for more than half of OPEC output, are not wavering, arguing lower prices will slow competing supplies, spur economic growth and revive demand. One delegate from a Gulf OPEC member said there was "no chance" of a rethink while another referred to the view that non-OPEC producers were to blame for the glut. "Naimi made it clear: OPEC will not cut alone," the second delegate said. OPEC ministers and delegates have blamed non-OPEC producers such as Russia, Mexico and Kazakhstan, as well as U.S. shale and tight oil production, for the oversupply in the market.

Why OPEC keeps talking oil down, not up, even after prices halved: If there ever was doubt about the strategy of the Organisation of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest. Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won't curb output to halt the biggest drop in crude since 2008. Qatar's estimate for the global oversupply is among the biggest of any producing country. These countries actually want - and are achieving - further price declines as part of an attempt to hasten cutbacks by US shale drillers, according to analysts at Barclays and Commerzbank. Crude fell 48 per cent last year and has declined 34 per cent since OPEC affirmed its output target on November 27. That decision, while squeezing revenues for OPEC members in 2015, aims at preserving their market share for years to come. "The faster you bring the price down, the quicker you will have a response from US production - that is the expectation and the hope," said Jamie Webster, an analyst at consultants IHS in Washington. I cannot recall a time when several members were actively pushing the price down in both word and deed."

Jeff Gundlach: "If Oil Drops To $40 The Geopolitical Consequences Could Be Terrifying" - In a recent interview with FuW, DoubleLine's Jeff Gundlach explained his concerns about the oil market not being "unequivocally good" for everyone... Question: The crash in the oil market is already causing jitters in the financial markets around the globe. What is your take on that?  Gundlach: Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying. Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the 'difference this time' is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

How the World Bank Sees Cheap Oil Through 2016 Affecting the Global Economy - Oil prices have lost more than half their value in the last year, one of the biggest single factors reshaping the global economy. That’s why the World Bank has  examined the global impact of oil in one of its analytical chapters of its latest Global Economic Prospects report. What’s causing plummeting prices? It’s more supply glut than collapsing demand, according to the development bank. New technology is allowing the U.S. to ramp up its petroleum output, with new U.S. production more than offseting losses in Iran and Syria. Meanwhile, Europe continues to flirt with recession and growth in major oil consumers, notably China, is slowing. Both of those trends have been known for a while. The key change in the last six months is policy stance by the Organization of Petroleum Exporting Countries. Ali al-Naimi, oil minister of OPEC’s biggest exporter, Saudi Arabia, has said his government is trying to preserve market share. “You have a producer that is willing to supply at a lower price, which changed market dynamics quite dramatically,” said Ayhan Kose, a key author of the bank’s report. How long will soft prices last? “In all likelihood these oil prices are going to be here for this year and possibly next year,” Mr. Kose said. There are two trends will keep downward pressure on prices. First, worries about the resilience of the global economy and weak growth aren’t going to dissipate quickly. Growth in Europe is expected to remain weak for years, and the outlook for China is continued moderation in growth rates. Secondly, markets know that even if some supply is shut down, much of it can come back online at any time.

The Fed Is Worried About Plunging Oil Prices Hurting U.S. Trading Partners - Falling oil prices don’t appear to be changing the Federal Reserve’s plans for raising interest rates, according to the minutes released Wednesday. But central bank officials are increasingly concerned that plummeting crude oil prices could hurt some major U.S. trading partners, potentially weighing on U.S. growth ahead. Fed officials said the oil-price decline–more than 50% in the last year–could exacerbate deflationary pressures overseas. “Many participants regarded the international situation as an important source of downside risks to domestic real activity and employment, particularly if declines in oil prices and the persistence of weak economic growth abroad had a substantial negative effect on global financial markets or if foreign policy responses were insufficient,” the Fed minutes said. Europe in particular is at risk from falling prices. Although lower energy costs give consumers more money to spend on restaurants, electronics and other goods, deflation could cause consumers and businesses to postpone spending if they expect prices to fall further. That raises the risk of the region entering a recession for the third time since the 2008 financial crisis. Deflation also makes government’s debt problems worse, a development that would push up the cost of borrowing even while growth prospects dim. European Central Bank officials have pointed to the deflationary effects from oil as one of the factors they’re taking into consideration in whether to juice the currency union with more monetary stimulus. Some Fed officials lowered their expectations for global economic growth, according to the minutes. But several said policy makers overseas were now more likely to expand support for their economies.

Oil Price Drop Starting To Impact Canada -- Several economic statistics released over the last few days have indicated the energy slowdown is negatively impacting Canada.  Let's start with exports, which decreased 3.5%.  However, the real story was the drop in energy related goods:  Exports of energy products fell 7.8% to $9.5 billion in November, the sixth consecutive monthly decrease. Crude oil and crude bitumen was the main contributor to the decline, down 9.9% to $6.9 billion, as prices fell 6.7% and volumes were down 3.4%. Exports of other energy products (-28.4%), mainly coal, also decreased. The accompanying table provides the granular detail: Not only did exports of energy products drop 7.8%, but so did the exports of other raw materials such as metal ores and mineral products. The sum effect is a very large, one-month hit to exports, as shown by the deep blue line in the graph below: And a drop in energy prices -- specifically gasoline (see chart below)-- led to a slower pace of increase in inflation, which increased 2% Y/Y: These two indicators are some of the first to show the impact of lower energy prices on the Canadian economy. Considering the sharp drop in exports and the continued drop in gas prices, this won't be the first time we hear of this effect.

The Two Tales of Falling Oil Prices in Australia —The fall in global oil prices is a double-edged sword for Australia. On the one side, consumers should have more money in their pockets to spend, stimulating demand amid a spell of flagging growth. On the other, a steep fall in oil prices could hit revenues from exports of liquefied natural gas, whose prices are linked to oil. Australia is set to become the world’s largest supplier of LNG by the end of the decade. Some economists are optimistic that a fall in oil prices will rev up spending, likening the sharp fall in gasoline prices to the equivalent of another 50 basis point interest rate cut. As motorists pay less at the pump, they’ll be more inclined to spend on other goods from apparel to home furnishings, some economists say.   Australia’s central bank would be “delighted” to see such knock-on effects after a year of frustratingly soft economic growth, in which record-low interest rates failed to spur activity, says Craig James, chief economist at Commsec.   Shane Oliver, the head of economics at AMP Capital, said gasoline prices are already falling quickly in Australia’s cities, a boost to consumer confidence and disposable incomes. Lower energy costs have also contained price increases, clearing a path for the central bank to lower interest rates further, he added. Australia is a net importer of oil, so there is ample scope for benefit. Rough estimates suggest the fall in the price of oil, if sustained, will boost Australia’s gross domestic product growth by 0.7%. That could be enough to chip away at unemployment, which is near decade highs.

Saudi Arabia and Its Oil Production Capability - An Insider's Viewpoint  --As most of us are aware, Saudi Arabia, the world's largest producer of oil for several decades along with having 16 percent of the worlds crude reserves, has functioned as OPEC's swing producer.  Thus far, the nation has been able to both ramp up and cut production when necessary to ensure that overall OPEC output remains close to its target levels.  This has been used in the past to either prop up prices when they fall or push prices down when they are too high to be sustainable as was the case in 2008.  That said, Saudi Arabia is particularly evasive when it comes to the actual size of its oil reserves and the state of its aging fleet of supergiant oil fields, some of which were discovered in the 1940s and 1950s like Ghawar, the world's largest oil field which accounts for more than half of Saudi Arabia'c cumulative oil production. Here is a map from the EIA showing Saudi Arabia's oil infrastructure:  All oil industry operations in Saudi Arabia are operated by the Saudi Arabian Oil Company better known as Saudi Aramco.  This national oil and natural gas company is based in Dhahran and has two distinctions; it has the world's largest proven oil reserves and the world's largest daily oil production.  Saudi Aramco has proven oil and condensate reserves totalling 260.2 billion barrels and the company's average daily crude production in 2013 was 9.4 million BOPD for a total of 3.4 billion barrels over the year or one in every eight barrels of the world's crude oil production.  Interestingly, according to the company's website, Aramco produced the most oil that it has ever produced in its 80 year history in 2013.  Now, let's get to the "meat" of this posting.  As we are all aware, back in 2011, WikiLeaks released a virtual treasure trove of United States Department of State cables.  Among them, was this cable which outlined a meeting that took place between the Consul General of the Embassy in Riyadh and Dr. Sadad al-Husseini, the former Executive Vice President for Exploration and Production at Saudi Aramco:

Rouhani threatens to hold referendum - FT.com: President Hassan Rouhani has threatened to hold an unprecedented referendum in Iran as he warned hardline opponents of a nuclear deal with the west that the country must end its international isolation. The Iranian leader said he was looking at the possibility of using his constitutional rights to give power to the people in comments that some analysts took as a warning that he may try to put any nuclear agreement to a public vote. “Our political experience shows that the country cannot have sustainable growth when it is isolated,” he told a conference on Iran’s economy in Tehran on Sunday. He added that this did not mean Iran’s negotiations with six world powers — the US, UK, France, China, Russia and Germany — were compromising the Islamic regime’s ideals of the 1979 revolution. Mr Rouhani is under pressure from Iran’s hardliners in the parliament and the elite Revolutionary Guards, who insist that nuclear negotiations, which have been extended until July 1, should only be secured if all sanctions are lifted. Many Iranian analysts say the condition sounds almost impossible to achieve, fuelling concerns in Tehran that a deal is out of reach.

Iran’s Supreme Leader Is Skeptical of Nuclear Talks With U.S. - — Iran’s supreme leader said on Wednesday that his country should find internal solutions for dealing with economic sanctions and that the United States could not be trusted to lift sanctions in the event that a nuclear agreement is reached.The leader, Ayatollah Ali Khamenei, reiterated in a speech published on his personal website that he did not oppose the current negotiations with the United States and other world powers over Iran’s nuclear program, but said that Iranians needed to rely on “bright and realistic glimmers of hope, and not on imaginary ones.”Those talks are scheduled to resume Jan. 18 in Geneva, Iran’s state Islamic Republic News Agency reported on Tuesday.In his first public criticism of the government of President Hassan Rouhani since his election in 2013, Mr. Khamenei said the government should “trust the people and domestic forces.” He also asked officials to refrain from “saying unnecessary words.” He expressed deep skepticism about the nuclear talks, warning the government that “efforts must be made to immunize Iran against the sanctions” so that “the people would not be hurt.” Photo Ayatollah Ali Khamenei, Iran’s supreme leader, speaking at his residence in Tehran on Wednesday. Credit Office of the Iranian Supreme Leader, via Associated Press The reason for his pessimism, he said, was that America could not be trusted.

Oil, Power and Psychopaths - Ilargi - Iran has a – very – long running dispute with the US about its nuclear technology. The US wants Assad (Bashar Al-Assad) out of Syria, while Iran and Russia support Assad (Russia’s sole proper base in the Middle East), who’s an Alawite (a Shi-ite branch), a people historically persecuted by Sunni’s. ISIS (or Daesh in the region) is Sunni. So are the Saudi’s. Iran is Shi’ite. Bahrain is ruled by Sunni but has a majority Shi’ite population. And I could go on for a while. A long while. All this plays into the oil game, the falling oil prices. Blaming OPEC for the recent price fall is seeing the world from a child’s perspective. OPEC and its major voteholder, Saudi Arabia, are no more to blame for the plunge than the US, Russia or other non-OPEC producers. Everybody produces as if there’s no tomorrow, and the Saudi’s have merely concluded that their only choice is to do the same. It’s a race to the bottom. The reason is the fast declining demand for oil; China is nowhere near as mighty as we seem to think, Europe is a basket case, emerging economies are being strangled as we speak by the surging dollar and the Fed taper, and we’re just getting started. It’s cute and all that nobody wonders how much virtual money has vanished into the great beyond as both oil itself and the companies that get it out of the earth have lost half of their ‘values’ in Q4 2014, let alone the countries that depend on oil for their very existence. But cute doesn’t cut it.  America is trying to control the world by throwing it into confusion, emboldened by poorly understood theories about military superiority, and creating conflicts all over the place that look like they will never be solved. Whereas all it would need to do is make sure it secures itself, its own territory, not control the entire planet.

Ilargi: Oil, Power and Psychopaths - Yves here. One minor caveat to a fine overview. Ilargi mentions at the end that Angela Merkel has said that it is prepared to let Greece leave the Eurozone if it bucks austerity. A regular reader of the German press who also read the report in Der Spiegel thinks this is a bluff to influence the Greek election. And there is a bigger question that goes unanswered: why so much US warmongering and destructive, and eventually self-destructive behavior (blowback, anyone?). As Karl Polanyi mentions in passing in his The Great Transformation (see our recent post) because it seems so obvious, a peace consensus had emerged among the Great Powers in the nineteenth century, largely because domestic and international commerce were now a major social organizing principle, and businessmen correctly saw war as bad for business. So why has the peace faction been successfully supplanted by a war faction? Is it that (so far) the US wars are not inflicted on parties we consider to be contemporary Great Powers?

Asia's top 4 oil users record slowest demand growth in 6 years - Combined oil demand by Asia's four biggest consumers -- China, Japan, India and South Korea -- inched up a meager 0.4% in the first 10 months of 2014, on course to register the slowest pace of full-year annual growth since 2008, according to data analyzed by Platts. Platts data shows China, Japan, India and South Korea consumed on average 18.16 million b/d of liquid fuels (excluding LPG) over January-October, a mere 80,000 b/d or 0.4% higher than the approximately 18.08 million b/d used in the corresponding period of 2013. The four countries represent about a fifth of global oil demand, estimated to come in at 92.4 million b/d for 2014 by the International Energy Agency. China and India for the past few years have been among the biggest contributors to incremental global consumption. Barring any surprises in the final two months of the year, the demand growth in these four countries for 2014 would be even worse than the last anemic annual increase of 0.8% seen in 2008 -- a tumultuous year of historic high oil prices followed by the global financial crisis.

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