Sunday, February 15, 2015

rig count still falling, oil production and oil glut still rising...

US oil and gas drilling operations continued to shut down at an unprecedented rate last week, as Baker Hughes reported the rig count on February 13th was at 1358, down by a record 98 rigs from February 6th, with oil rigs down 84 to 1056, gas rigs down 14 to 300, and rigs classified as miscellaneous unchanged at 2...this follows last week's report when total US drilling rigs in use fell by 87, and the prior week when the count fell by what was then a one week record of 90 rigs...the count of land-based rigs fell by 99 to 1298, and one of the nine rigs operating on inland waters was taken out of service, while an additional two drilling platforms were added in US waters offshore, raising the offshore rig count to 52...the count of horizontal well drilling rigs was down by 63 to 1025, the number of directional well rigs fell by 12 to 123, and the count of vertical well rigs fell by 23 to 210...this report left the US rig count 406 rigs lower than the count from the report of last February 13th, with oil rigs down 367, gas rigs down 37, and miscellaneous rigs down 2 from a year ago...

most of the rigs that were shut down this week came from central US shale plays, with the 49 rigs that were pulled from operations in the Permian Basin accounting for half of the total rigs idled... thus Texas, also losing multiple rigs in the Eagle Ford and the Barnett Shale, accounted for more than half the shut downs, as 56 rigs were taken out of service in that state, leaving 598 rigs still operating in Texas on Friday...another 12 of those Permian shale shutdowns were on the New Mexico side of the Texas border, where that decrease of 12 rigs left 66 operating in that state...in addition, 9 rigs were taken out of service in North Dakota, leaving 132, 6 were shut down in Colorado, leaving 49, and Oklahoma's rig count fell by 5 to 171...rounding out the rest, Wyoming's count fell 3 to 39, Ohio's count fell by 2 to 37, West Virginia's count fell by 2 to 17, and Arkansas dropped one rig leaving 11...meanwhile, Louisiana drillers added a rig, bringing their total to 108, and rig counts in Alaska at 10, California at 16, Kansas at 18, Pennsylvania at 54 and Utah at 12 were unchanged....

despite the ongoing drop in rig counts, US oil production continued to rise, reaching a record 9,226,000 barrels per day in the week ending February 6th...there are a few obvious reasons for this; first, many of the rigs that were initially taken out of service were working in marginal areas where significant oil output was chancy anyhow, and hence their loss did not materially impact overall production...secondly, this past spring and summer saw a large expansion of US drilling as oil prices floated above $100 a barrel; and many of those wells that were drilled then were just completed in the fall, and hence their new output is adding incrementally more oil production to the output of the previously producing wells, which are only slowly depleting...the effect of this can be seen in the chart below, where the recent historical oil rig count in red shown on the far right scale is superimposed on a graph of oil production in thousands of barrels of oil output per day, shown in blue by the inner right scale...we can see that our oil production has pretty much continued to rise uninterrupted (except for a few Gulf hurricanes), nearly irrespective of the count of oil drilling rigs operating at any point in time over the past 3 years...

February 13 2015 production vs rig count

of course, all this increased production just contributes to the ongoing glut of oil which has been holding oil prices down...as of the latest weekly report, U.S. crude oil inventories increased by 4.9 million barrels from the previous week to 417.9 million barrels, the highest level for early February in the 80 years that oil inventory records have been kept....and we have a picture of what that looks like compared to recent history too, taken from page 10 of the Weekly Petroleum Status Report (pdf) published for February 6th by the Energy Information Administration of the Department of Energy...what the following graph shows in the dark shaded area is the range of US oil inventories as reported weekly over the prior 5 years for any given calendar date since mid 2013, and then in a light blue line we see graphed the recent track of US oil inventories over that same period...it's quite clear from that graph that at the current level of nearly 418 million barrels, US oil inventories are as high as they've ever been in recent years, so much so that whether we'd have enough tanks to store it all in has now become a concern…:

February 11 2015 crude oil stocks

worldwide, the situation is similar...the International Energy Agency warned this week that global inventories will continue to rise and that OECD country's stockpiles would approach a record 2.83 billion barrels by mid-2015 before investment cuts begin to put a dent in oil production...a few weeks ago, oil traders, attempting to take advantage of low prices, booked more than 20 oil tankers to store an estimated 40 million barrels of crude oil at sea, and they're still sitting out there waiting for higher oil prices to bring them ashore...and this week, Iran launched a 2.2-million-barrel floating oil storage unit in the Persian Gulf to store their surplus for eventual export....

so it looks from here like further cuts in the expensive US fracking and Canadian tar sands operations will continue to be necessary for quite some time before the glut is relieved...in keeping with that, and following last weeks announcements of cuts by several oil companies, a handful more companies laid out plans for their cutbacks this week...on Tuesday, Halliburton said they would cut up to 6,400 workers from their global operations, citing a "challenging market environment"; that total includes the previously-announced cuts of 1,000 jobs in their Asian operations we mentioned last week...then Swiss based Weatherford International, another large international oil service firm, announced job cuts of 5,000 from their global workforce of 56,000, with 4,250 of those job cuts to be workers in the US and Western Europe...on Wednesday, Houston-based oil equipment maker FMC Technologies announced Wednesday that it will be cutting about 2,000 jobs, about 10% of their workforce....then on Thursday, Apache Corporation, one of the top U.S. shale oil producers, reported a quarterly loss of $12.78 per share, against its year-ago profit of 44 cents per share, and said they'd spin off or sell their international operations in order to focus on and consolidate their shale operations, where they'll be cutting their rigs by another third, leaving them 27 rigs at the end of this month, down from their average of 91 rigs last summer...also on Thursday, Pioneer Natural Resources said they'd cut their exploitation budget by 45% in 2015, with more than half of what they will spend intended for the Permian Basin, as they'll be shutting down their vertical drilling operations...and on the same day, Denver based WPX Energy Inc. announced their 2015 budget at $725 million, less than half of their $1.5 billion capital spending for 2014...

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Gov. Kasich’s fracking-tax hike proposed at ‘worst time,’ industry says -- Gov. John Kasich is back for a third go-around in his quest to dramatically increase the taxes paid on the oil and natural gas that drillers extract from Ohio’s Utica shale fields. And the governor wants more money than ever, prompting the industry to counter that Kasich is renewing the fight at the “absolute worst time.” With a plunge in oil and natural-gas prices of more than 60 percent in the past year, Ohio’s fracking boom is turning bust, said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association. Fewer horizontal wells are being drilled and jobs are being lost as lower prices and a supply glut combine to make it difficult to turn a profit, Bennett said. A $180 million-plus annual tax increase, as sought by Kasich, would further discourage drilling investment and job creation, Bennett said. But Kasich says Ohio drillers have long benefited from one of the nation’s lowest tax rates and that it is past time for producers to pay their fair share — about midpack among the states — for the right to deplete natural resources. The governor hasn’t pulled punches, calling Ohio’s current tax rates, which generated $4 million last year, “a total and complete rip-off to the people of this state. It’s outrageous.”

John Kasich's proposed tax increase on the oil, gas industry likely to be crippling --   When OPEC refused to cut production last November, it was widely considered a move to cripple U.S. shale energy production. When Gov. John Kasich proposed a huge tax increase on the oil and gas industry last week, he should have understood that the effect on Ohio -- intentions aside -- is likely to be the same.Tax increases are rarely a good idea, but this is an especially wrong move at the worst possible time. OPEC's strategy is already taking a toll, as oil and gas companies are announcing spending reductions and layoffs, and reassessing their near- and long-term planning. Ohio has not escaped the collateral damage:

  • • Vallourec Star announced that it was shutting down its $1 billion steel mill in Youngstown for three weeks in mid-February, citing "the declining oil and gas market."
  • • GoFrac, which provides a range of products and services to support hydraulic fracturing, shuttered its office in Cambridge, idling about 100 employees.
  • • Blue Racer Midstream has put its plans to build a $70 million wet gas processing plant on hold in Mahoning County.
  • • U.S. Steel announced the temporary closing of its Lorain facility, which provides pipes and tubes for oil drilling and fracturing, laying off 614 employees.

So what is Gov. Kasich's response to the loss of jobs and investment? He pushes for a huge tax on the companies that create jobs and invest in the state: 6.5 percent for crude oil and natural gas sold at the wellhead and 4.5 percent on natural gas and natural gas liquids that go through processing.  It makes no sense.

Safest mode of transport for oil and gas debated - Columbus Dispatch - The more oil and gas that is pulled from the ground by drilling and fracking, the more that will need to be moved from wellheads in North Dakota, Pennsylvania and Ohio to refineries and ports throughout the country.  But the best, safest way to transport oil and gas, which can be toxic and explosive, is still being debated.  Tanker trucks, trains and pipelines carry the commodities across Ohio, where debates have focused on transparency, oversight, safety and cost. Like many other debates, this one is complicated.   But a growing number of leaks, derailments, fires and explosions has pitted the oil and gas industry against environmental groups and others.“When we look at the modes of transportation, our industry — the oil and gas industry — we take an ‘all of the above’ approach,” said Robin Rorick, who oversees transportation of oil and gas from well to market for the American Petroleum Institute. “They all have inherent risks, but we view them all as being extremely safe.” The risk of spills and other problems, given the amount of oil and gas being transported across the United States every day, is relatively small. Railroads consistently spill less crude oil per ton-mile than pipelines or trucks, the two other main modes of land transportation, according to a Congressional Research Service report that was published in December. But when the trains derail, the results can be disastrous. For example, a train carrying 72 rail cars of crude oil from the Bakken shale formation in North Dakota derailed in Quebec in 2013 and exploded, killing 47 people. After refusing for months to release information about the rail transportation of Bakken crude in Ohio, the state shared reports last month that showed that millions of gallons are traveling each week through Ohio cities, including Columbus. Pipelines raise the same concerns. A leak last month sent thousands of gallons of crude oil into the Yellowstone River, prompting the governor of Montana to declare a state of emergency in two counties. About a week later, a pipeline across the Ohio River in Brooke County, W.Va., exploded, damaging a number of houses. Last year, the state of California fined Pacific Gas and Electric $1.4 billion for a pipeline explosion that killed eight people in 2010.

Green mayor wants Stark to join fight to re-route NEXUS pipeline - Green’s mayor visited Stark County commissioners Wednesday, asking them to join the effort to shift the proposed NEXUS Pipeline to the south. NEXUS Gas Transmission wants to build a pipeline, up to 42 inches in diameter, to carry as much as 2 billion cubic feet of natural gas a day from Kensington to users in Ohio, Michigan, Illinois and Canada. The proposed route crosses Washington, Nimishillen, Lake and Marlboro townships in Stark County. Mayor Dick Norton, whose Summit County city is on the route, said he’s not against the pipeline, but building it through populated areas poses an “unnecessary danger” to residents and businesses. Norton and Green’s council have asked NEXUS to re-route the pipeline, as have Lake Township trustees. Summit County and New Franklin have passed resolutions opposing construction of the pipeline. Local governments can’t prohibit NEXUS from building the pipeline. But the comments of all stakeholders matter at this early stage in the federal permit process, said David Mucklow, an attorney from Green and a member of a landowner group called Coalition to Re-route NEXUS. In light of public comments, NEXUS has told federal regulators it will evaluate an alternate southern route, but the review won’t be completed until summer. The coalition wants to present federal regulators with an alternate path of its own design. Commissioners scheduled a work session for Feb. 24 so the coalition and Green officials can present more detailed information.

Texas company says good-bye to the Utica -- GoFrac LLC, a Texas-based fracking business operating in the Utica shale play, is shutting down operations and closing its doors. GoFrac arrived in Ohio a few years ago when it purchased 90 acres in Guernsey County and started an operation in Cambridge. The company had serious investments in rail spurs and silos, explained Executive Director Norm Blanchard to the Columbus Business First. He also mentioned that the operation could hire up to 250 people. However, the Utica shale, like the rest of the energy industry, is struggling due to low oil prices. According to Blanchard, because of the downturn, GoFrac told the local Ohio Means Job office that it will be shutting down this week. Blanchard expressed how leaving the Utica is upsetting. The company saw itself as a solid company, and wouldn’t lose its operations due to all of the investments the company had made. GoFrac’s corporate office was unavailable for questioning. It is unsure how many employees will be affected by the closing, but government officials have plans to offer help to those in need.

Murky responses cloud plan to ship frack waste on Ohio River -- A Texas company's announcement that it plans to ship fracking wastewater on the Ohio River has touched off a controversy, with environmentalists worrying that the company got around federal permitting requirements and federal agencies hedging on just how much permission they've given the company. GreenHunter Resources Inc., based in Grapevine, Texas, announced last week that it had secured permission from the Coast Guard to ship thousands of barrels of wastewater from the Marcellus and Utica shale fields to its disposal wells in Ohio. The Army Corps of Engineers gave it permission to build a barge facility on the Ohio side of the river, the company said, The Coast Guard said Wednesday that it's still writing the regulations for shipping what it calls shale gas extraction wastewater and that it hasn't given GreenHunter permission to start transporting waste on the river. GreenHunter, however, said yesterday that it received a letter from a regional Coast Guard commander allowing it to ship "oilfield waste" -- and the company contends that's all it wants to do. "We don't even know what the hell shale gas extraction waste is," Kirk Trosclair, the company's chief operating officer, said in an interview yesterday. "What we're trying to transport is oil field waste and residual waste, which is basically brine, saltwater." The distinction is critical. There are already regulations in place that allow shipping oil field waste, but the Coast Guard has spent the last two years writing regulations for shale gas wastewater. It's currently responding to thousands of comments on its proposed rules and hasn't given a date for when the process may be finished.

River Fracking Debated -- Although a potential $40 million windfall awaits West Virginia's coffers if Gastar Exploration drills and fracks for natural gas under the Ohio River, at least one legislator does not believe the money outweighs the potential environmental risk such a plan could bring to the region's drinking water supply. More than 100 concerned students, residents, community leaders and elected officials turned out Saturday for a public discussion at Wheeling Jesuit University regarding Gastar's plans to draw natural gas from beneath the river in Marshall County. While river drilling was the main topic, discussion also touched on GreenHunter Resources' plans to barge frack wastewater on the Ohio River and on above-ground storage tanks located near rivers. Gastar is one of several companies bidding with the West Virginia Department of Commerce to extract oil and natural gas from state-owned land lying thousands of feet below the riverbed. Noble Energy recently bid to drill on 1,400 acres beneath the river, while Statoil also is making its own plans. Combining per acre lease payments with a 20 percent production royalty each company will pay once gas starts flowing, the state stands to have a steady stream of new revenue. McCown said Gastar projects paying the state $749,000 in up-front lease money for about 214 acres, but said the production royalties would be the real source of revenue, as he estimated this amount could reach as high as $40 million over several years.

First Nationwide Oil Worker Strike In 35 Years Spreads To Ohio, Indiana -- On Sunday, workers at two BP oil refineries in Ohio and Indiana walked out as part of a nationwide oil worker strike being led by the United Steelworkers Union (USW). Citing unfair labor practices and dangerous conditions, including leaks and explosions, the approximately 1,440 workers will join nearly 4,000 that began striking a week ago on February 1.   The first nationwide strike by oil refinery workers since 1980, the addition of BP’s Whiting, Indiana, refinery and the company’s joint-venture refinery with Husky Energy in Toledo, Ohio, brings the total number of plants with strikers to 11, including refineries accounting for about 13 percent of total U.S. oil refining capacity. The original strike included workers in California, Kentucky, Texas and Washington.  The USW called for the strike after talks broke down with Shell Oil, which is leading the industry-wide bargaining effort. It comes at an already tumultuous time as plummeting oil prices have given rise to a heated debate over the future of an industry that relies on extracting cheap and plentiful resources from the ground. This precipitous drop in crude oil prices by over 60 percent since June has caused companies to lay off workers and delay plans for expansion; what they see as the most painless means of avoiding profit cuts. The strike is not expected to impact gas prices. In a statement, USW International President Leo W. Gerard said the oil industry is long overdue in addressing many of the issues that directly impact workers’ health and safety.

Steelworkers Union Expands Walkouts to Two BP Refineries - WSJ: The striking United Steelworkers expanded walkouts to two more refineries over the weekend as talks between the union and energy companies continued into a second week. The strike now encompasses more than 5,000 workers at 11 U.S. fuel-making plants. The action is the largest strike by refinery workers since 1980. The plants on strike account for about 13% of U.S. fuel-making capacity. The latest two refineries hit by strikes are BP PLC’s massive Whiting, Ind., refinery and a plant outside Toledo, Ohio, that BP jointly owns with Husky Energy Inc. of Canada. They are joining plants in Texas, Kentucky, California and Washington owned by Royal Dutch Shell PLC, LyondellBasell Industries , Marathon Petroleum Corp. , and Tesoro Corp. BP and the union confirmed over the weekend that refinery workers in the Midwest would strike. BP spokesman Scott Dean said the company is committed to negotiations with the union. Meanwhile, the company will continue to operate its plants, relying on current and former employees who have been trained on the equipment. In statements and interviews USW representatives have said little progress has been made toward resolving the concerns most central to union members. The union went into the talks asking for an annual wage increase that’s double what the contract now allows. But union officials have called the strike an “unfair-labor-practice work stoppage” and said that talks stalled over other issues, including the maximum amount that workers must pay out of pocket for health-care costs. The union also wants stronger policies in place that would prevent shift schedules that it says are contributing to worker fatigue, which can lead to accidents. The USW has also asked that energy companies keep staff levels up and rely less on nonunion contractors for regular maintenance work.

Steelworkers rally at two local refineries to support strikers in other states: Hundreds of union steelworkers rallied at two local refineries Saturday in support of 5,200 steelworkers on strike, or about to strike, at 11 refineries and chemical plants in California, Kentucky, Texas, Washington, Indiana, and Ohio. On Saturday morning, about 150 members of the United Steelworkers union, led by Local 10-234, met at the union hall in Trainer and marched to the Monroe Energy refinery for a rally, said the local's president, Denis J. Stephano. In the afternoon, approximately 100 workers, led by Local 10-1, rallied at the Passyunk Avenue entrance to the Philadelphia Energy Solutions refinery in South Philadelphia. Workers are not on strike at either area plant. Steelworkers are negotiating a national model contract with one company. That contract will form the basis for the rest of the contracts along with local issues bargained at each plant. Local issue negotiations began last week at the Trainer plant, Stephano said, describing the talks as cordial. The Trainer contract expires March 1. Philadelphia Energy Solution's contract expires in September. "We're just out showing our support," said Jim Savage, president of Local 10-1 and a member of the national bargaining committee. Management and labor relations at both local plants have generally been good, both union leaders said

Indiana BP refinery workers join nationwide strike | Midwest Energy News: The towering machinery and fiery flares of the BP oil refinery in Whiting, Indiana were largely obscured by a cold fog Sunday morning, as refinery workers clustered around barrels of burning wood and held picket signs at 10 different spots around the sprawling perimeter. About 1,100 members of the United Steelworkers (USW) Local 7-1 – more than half the refinery employees – went on strike at 12:01 am Sunday, joining a nationwide strike of USW refinery workersnegotiating a national contract with the industry. USW Local 7-1 president Dave Danko told reporters that contract negotiations broke off Friday, though they still hope to return to the bargaining table next week. He said that wages are not a contested issue, but rather the union is concerned about “understaffing,” excessive amounts of overtime work, and reliance on outside contractors who he said are not as familiar as they should be with the plant. “Instead of providing jobs in the community they’d rather run short-staffed and have people work onerous amounts of overtime,” said Danko. “For people to work sustained amounts of overtime leads to worker fatigue.” The USW’s nationwide strike against the oil industry began February 1 and now includes about 5,000 workers at 11 refineries in Indiana, Ohio, Kentucky, California, Texas and Washington. The strike is over unfair labor practices charges regarding safety and staffing as well as cuts to healthcare benefits. Shell is the lead industry player in the negotiations, which are currently stalled over a union request for information.

At my oil refinery, my life is worth the price of a pie - Butch Cleve - In an oil refinery, like the one where I work, stuff leaks all the time. Sometimes dripped oil just makes a black spot on the ground. Sometimes 500-degree gas flows out, ignites and explodes. These powerful blasts can maim and kill. I’ve seen it. The first time was in 1998, four years after I started work at a refinery in Anacortes, which was first owned by Shell but later became Tesoro. It happened at the adjacent refinery, owned at that time by Equilon. An explosion killed six workers. For a lot of us, that was our first experience with a refinery catastrophe with multiple fatalities. It shocked you to the core. Then, five years ago, at my refinery, a massive explosion killed seven of my friends.The United Steelworkers, which represents 30,000 refinery workers in collective bargaining, tracks workplace deaths. It reports that 27 workers died at refineries in the past five years – more than five a year. That’s intolerable. And it’s a big part of the reason that 5,000 USW oil and chemical workers, including me, are on unfair labor practice strikes nationwide. We believe not enough is being done to prevent our co-workers from leaving refineries and chemical plants in body bags. None of us wants to be the next to lose his or her life for no good reason. After both of the Anacortes disasters, as well as a blast at BP in Texas City in 2005 that killed 15 and injured 180, regulators cited lax safety standards at the refineries as a problem. It’s frustrating. We know the refineries aren’t doing enough. At Tesoro, the explosion in 2010 didn’t come as a real surprise. The equipment that failed had a history of leaks and fires. We had all seen close calls, including me. I once helped disperse a volatile cloud of propane that jetted out of a broken pipe. That was about 18 years ago, a few years after I began work at the refinery. We shut the valves, diffused the propane and escaped with our lives because it never ignited. We were lucky and we knew it.

Special Investigation: Trains transporting hazardous chemicals across region -- Action News is investigating the transportation of a highly flammable and hazardous chemical that is being shipped right through the center of Philadelphia . It’s called Bakken oil. It’s a form of crude oil.  Early Saturday, 11 tank cars of a CSX train carrying crude oil derailed in South Philadelphia .  Last January, a 111-car CSX train partially derailed over the Schuylkill , six cars carrying crude. Two freight cars dangled dangerously over the river.  Action News is uncovering into the routes it’s traveling right through your neighborhoods and whether enough is being done to keep you safe.  This is a topic few emergency responders want to talk about. More than a handful of local departments, including the City of Philadelphia and several municipalities in New Jersey , declined our requests for an interview.  But our cameras caught this potentially dangerous material being transported right along the Schuylkill though densely populated neighborhoods and into New Jersey . They’ve been called “bomb trains.”More than 100-car freight trains carrying crude oil traveling across the Bakken oil fields in North Dakota, shipped to gas refineries right here in Philadelphia, Camden, and across the United States.  "The biggest problem with Bakken crude is of course its flammability," Matt Fitzgerald, emergency response specialist with the New Jersey State Police, said.

Ohio’s latest pipeline is open for business -- Marathon Pipe Line LLC has opened the gates to its new $140 million Utica shale pipeline for companies to lockdown rights to use it and other related Ohio transport developments. The Cornerstone Pipeline stretches 50 miles long and will transport natural gas, butane and condensate, along with an ultra-light crude oil from processing facilities in Harrison County to Marathon’s refinery located in Canton. The pipeline will also have the ability to move the fossil fuels to other operations located in the Midwest. Gary Heminger, Marathon CEO, spoke with analysts last week expressing that he isn’t concerned about the industry’s current slowdown or the effects on exploration and production it could have on eastern Ohio. Heminger stated the following: The Utica’s rig counts are fairly unchanged at this point in time … And being one of the larger purchasers of the output of Utica, we continue to see growth in that volume.Marathon plans to finish the pipeline late next year. In total, the Marathon Pipe Line LLC will be 6,000 miles long and stretch across 14 different states. Marathon also said the pipeline will be able to connect to other condensate and fractionation facilities that are located on the pipelines route.

Mariner East 2 pipeline gets two public forums - Sunoco Logistics announced this week it will be hosting  two open houses in central Pennsylvania regarding its proposed Mariner East 2 pipeline project.. The Mariner East 2 would stretch 350 miles and run parallel to its sister pipeline, the Mariner East 1. The $2.5 billion pipeline would transport natural gas liquids across southern Pennsylvania to the Marcus Hook Industrial complex. It would quadruple the amount of natural gas liquids traveling into the Philadelphia industrial complex, going from 70,000 to 250,000 barrels per day. Most of the ethane gathered would be shipped overseas and some of the propane will go towards the markets on the East Coast. Awaiting state and federal approvals, the Mariner East 2 would be up and running during 2016. Sunoco Logistics will hold the open houses on Wednesday and Thursday. Wednesday’s meeting will be held in Middletown and Thursday’s in Lebanon. The following information is gathered from Sunoco’s press release:

PennEast line estimated to have $1.6 billion economic impact - Construction of the proposed PennEast Pipeline connecting Marcellus Shale to southeastern Pennsylvania and New Jersey will have an economic impact of about $1.6 billion, according to an economic study released as pipeline developers make an economic case for the project before be-ginning the regulatory review. Econsult Solutions and the Drexel University School of Economics prepared the study, which relied heavily on IMPLAN, a widely used economic impact software program to determine that the construction would support 12,160 jobs. The study’s author and representatives from PennEast Pipeline LLC discussed the project on a conference call Monday. Bringing large amounts of less expensive natural gas to market will decrease the cost not only of natural gas, but also electricity as natural gas is increasingly used as a fuel for baseload generation, replacing coal. The 114-mile-long, 36-inch diameter gas line is being spearheaded by a coalition of marketing and transmission divisions of utility companies, such as UGI Energy Services and PSEG Power, in addition to others. The line will stretch from a interconnection in Luzerne County and cut through Carbon, Northampton and Buck County and jump the border into to Hunterdon and Mercer Counties in New Jersey. A good chunk of the immediate economic impact is the design and construction price tag of $1.2 billion, a direct economic impact. The project would employ about 12,000 and pay $740 million in wages as an indirect impact. When workers spend that money, it becomes an induced impact. After it is built, the pipeline will employ about 100 people and will have an operating budget of $13.2 million.

Penneast Garbagenomics   - Of the items mentioned to be considered in the Pre-Filing Environmental Review Process is the socio-economic impact. I would like to comment on the Economical Development Analysis released by PennEast this past Monday, on Feb. 9, 2015.   The PennEast Economical Development Analysis was produced by EConsult Solutions and Drexel University and it eerily mirrors a similar report produced by EConsult Solutions on Feb. 5, 2015 for Sunoco Logistics’ Mariner East project[i].PennEast Economic Development Analysis February 9, 2015[ii]  The original Pre-File documents submitted by PennEast, during the Open Houses, and in numerous statements made by PennEast representatives to media outlets, stated the PennEast project would create 2,000 jobs.The recently released Economic Development Analysis claims 12,160 jobs.   This is a difference of 10,160 jobs and should raise red flags as to the reliability and accuracy of both PennEast’s original figures and that of the Economic Development Analysis. Anyone working with databases or modeling software would be familiar with the acronym GIGO. GIGO stands for Garbage In-Garbage Out. Briefly it means if the input data is garbage, the output data will also be garbage.

Wolf being pressured to restrict gas drilling -- Environmental advocates are applying pressure on the Wolf administration to broaden restrictions on natural gas drilling on Pennsylvania state lands. Gov. Wolf’s Jan. 29 moratorium on new gas leasing, signed on his 10th day in office and hailed by environmentalists, had symbolic importance, but it went only so far. The ban undid a limited Corbett administration policy that allowed new leasing of lands where no surface disturbance was involved. Corbett’s executive order, which was never carried out, affected a relatively small universe of public lands that could be accessed from neighboring tracts where drilling is already permitted. Much of Pennsylvania’s finest recreational areas in the Marcellus Shale region remain available to natural gas development. About 1.5 million of the state’s 2.2 million acres of state forests lie over the gas-rich shale. The mineral rights underlying nearly 700,000 acres are controlled by gas interests and are unaffected by the governor’s leasing ban, which was erroneously reported in some media as a drilling ban. State Rep. Greg Vitali of Delaware County, the ranking Democrat on the House Environmental Resources and Energy Committee, said he was exploring ways to restrict drilling on state lands already under lease.

Town Sues Over Pipeline ROW Condemnation -  Using the same legal theory applied in Nebraska and Texas regarding the Keystone pipeline ROW, a Massachusetts town is suing to block a gas pipeline condemnation under the theory that the pipeline – which will be used to export fracked gas – has no public purpose in Massachusetts  – since shipping fracked gas to China is not a public purpose.  The Keystone pipeline serves even less of a public purpose, since it takes Canadian tar sludge, pumps it to a refinery in Texas for export. Which neither takes nor supplies any products in the US. In order to have the power of eminent domain, a pipeline must serve a public purpose where it is built. Not just be used to ship privately owned fracked oil or gas overseas, which serves no public purpose.  The town of Deerfield plans to file a negligence claim against the United States government today in its fight against the planned natural gas pipeline through Franklin County.  Filed under the Federal Tort Claims Act, which gives private parties the right to sue the federal government for damages if they are injured due to the negligence of one of its employees, the claim takes aim at Tennessee Gas Co.’s proposed 36-inch diameter natural gas pipeline and is the latest salvo in the town’s battle to keep the pipeline from passing through its limits.  The tort action claims that a 2005 change in the federal Natural Gas Act that gave the Federal Energy Regulatory Commission authority to regulate the transportation and sale of natural gas destined for sale overseas is unconstitutional.

Vermont Gas not to pursue 2nd phase of pipeline - (AP) -- Vermont Gas Systems says it is not going through with the second phase of a natural gas pipeline that would have extended underneath Lake Champlain to International Paper in Ticonderoga, New York. The company said Tuesday that it had recently reviewed the costs and says the second phase is no longer viable for International Paper. The cost estimate for phase two has grown to $105 million, up from an earlier estimate of $74 million. Gov. Peter Shumlin says he supports the decision. Last year, Vermont Gas announced two cost increases, prompting the Vermont Public Service Board to investigate further. The board recently asked for an updated cost estimate for phase two. The first phase of the pipeline is designed to reach Vergennes, Middlebury and other communities.

Tree Clearing for “Constitution Pipeline” start date: Feb 16th  Tree clearing is considered to be “pre-construction” by FERC. http://www.law360.com/articles/309079/ferc-greenlights-work-on-257m-pa-pipeline (behind a paywall, but relevant excerpt is below) A federal agency on Monday authorized pre-construction tree clearing* in Pennsylvania for a $257 million gas pipeline project by Central New York Oil and Gas Co. LLC and denied a stay requested by environmental groups opposed to the project.  Also note that “tree clearing” (stump removal with machines)  is not the same as “tree cutting”. Please be on watch. Remember this is a war being waged against us. There are very smart Generals on their side who have designed this arena to disempower us. I believe there are cunning* language experts at work here who have carefully designed the language used in order confuse us about the status, and to catch us off guard.I agree with what others from STP have said– there seem to be many signals coming now which seem to be saying: “CP cannot legally proceed.” Like this: http://elibrary.ferc.gov/idmws/search/intermediate.asp?link_file=yes&doclist=14296679 CP is asking for a 60 day delay to file their implementation plan. AFTER the tree clearing window is closed. 

Oil train foes rally - Opponents of continued rail shipments of crude oil into the Port of Albany rallied Monday in a snowstorm outside the downtown Albany headquarters of the state Department of Environmental Conservation, renewing calls that the state take a closer look at potential environmental and safety risks. "We are asking for full transparency and scrutiny by DEC for the health and safety of all Capital District residents," said Albany County Legislator Doug Bullock, a resident of Albany who represents the 7th Legislative District. Last week, Bullock delivered to DEC a resolution signed by 22 county lawmakers that urged DEC to rescind a ruling last year that a proposed crude oil heating plant at the port by Global Partners would have no significant environmental impact. Opponents fear the facility would be used to heat Canadian tar sands oil, which in cold temperatures can become too thick to pump for transport. DEC is still reviewing the proposal. In June, the environmental group EarthJustice sued DEC seeking to get that ruling, called a negative declaration, overturned. The case remains pending in state Supreme Court in Albany County, said EarthJustice staff attorney Chris Amato on Monday.

Six Finger Lakes Residents Arrested This Morning – In an act of civil disobedience, seven people from five counties throughout the Finger Lakes region created a human blockade this morning at both of the gated entrances of Crestwood Midstream. Protesters prevented all traffic from entering for four hours. Six were arrested at 1:50 p.m. by Schuyler County sheriff’s deputies. (One of the blockaders, Janet McCue, 64, of Hector in Schuyler County left before law enforcement arrived.) Two dozen other Finger Lakes residents rallied along Route 14, holding signs and banners that declaimed the beauty of the region and declared themselves united against gas storage.Their actions were part of a four-month-old campaign called We Are Seneca Lake, which seeks an end to gas storage in lakeside salt caverns. Crestwood’s methane gas storage expansion project is advancing in the face of broad public opposition and unresolved questions about geological instabilities, fault lines, and possible salinization of the Seneca Lake, which serves as a source of drinking water for 100,000 people. Arrested protesters were transported to the Schuyler County sheriff’s department, charged with trespassing and released. The total number of arrests in the ongoing campaign stands at 216.

Dispatches from the Seneca Lake Uprising »  Sandra Steingraber - I told the guy at the wilderness outfitter store that I needed footwear appropriate for standing motionless in frigid temperatures with occasional bouts of below-zero wind chill. For possibly long periods of time. He asked if I was going ice fishing. There are no guidebooks for how to carry out a sustained civil disobedience campaign during winter—let alone one that involves human blockades that intercept trucks attempting to enter a compressor station site on a steeply sloping lakeshore with 18 inches of snowpack.  Ice fishing with a chance of handcuffs. It’s as good a metaphor as any. With that in mind, I bought a pair of waterproof boots that looked like something that you might bench-press at a gym and were guaranteed to 40 below. After two hours of standing on ice at 10 above, my feet were—surprise!—distressingly cold. I would have returned the boots except that a sustained civil disobedience campaign, with all participants vetted and trained, is also like planning and executing a wedding every week. No time for more shopping. The boots would have to do. At its core, the ongoing We Are Seneca Lake protest, now in its fourth month, is unsurprising.

Lake lessons - Jodi Dean - Since the end of October (and my first arrest on November 3), I've been involved in civil disobedience actions at the gates of Texas-based oil and gas company Crestwood-Midstream to stop the company from storing methane gas in the fragile salt caverns of Seneca Lake. The facility is at the south end of the lake; I live at the north end. The lake supplies the drinking water for about a hundred thousand people. Seneca Lake is fragile, higher in salinity than the other Finger Lakes, likely because of LPG storage in the sixties through the eighties. I've been on the line six times, arrested four of those times, and in a support role three additional times.  The issue is complicated and layered, not one I would have chosen. It chose me.  I wonder if politics works this way a lot of the time. I wonder if there is or will be something about climate politics that makes the way it will choose us to engage different from other political matters. What makes this seem likely is the largeness and seeming intractability of the problem: it is already happening. Binding global agreements seem unlikely and already like too little too late. We get trapped into the worst sorts of individualizing approaches that reduce action to one's consumer choices or ethical stance, feeling responsible.  The expanded storage facility would be part of the fracking infrastructure. Allowing it to be built undermines efforts to ban fracking (or maintain the ban in NY), adding to the ability of the industry to say things like "well, X is already in place." Methane in particular has an even greater warming effect than carbon. So this isn't a NIMBY issue. The point is no fracking here, no fracking anywhere. One divides into two -- in this case, the struggle over protecting one lake divides into that plus another struggle against fracking. The struggle against fracking divides into itself plus the struggle to mitigate rather than compound climate change. And this struggle, to be the struggle it is, is a struggle against capitalism. If there is to be any mitigation of global climate change, a massive sector of the capitalist economy -- the oil and gas industry, which includes, then, petro-chemicals, shipping and transport, the financial markets associated with speculating on oil and gas as commodities as well as other stocks and investments, automobiles, roads, the component industries of all of these -- has to be shut down. This means lots of job loss: in a sense the dismantling of the carbon-combustion complex is akin to the de-industrialization of the seventies and eighties. Instead of jobs and processes being moved elsewhere, though, they would be eliminated. Yes, renewables, thought broadly in ways that connect with renewing the capacities and resources of workers who have had to make their livings in the industry threatening us all.

Frackademia in Depth | Public Accountability Initiative -- In a trend that became known as “frackademia,” several universities issued industry-friendly fracking studies that the institutions later retracted and walked back due to erroneous central findings, false claims of peer review, and undisclosed industry ties. The studies bore the hallmarks of an industry effort to manipulate and corrupt the scientific debate around fracking, much like the tobacco industry manipulated the scientific debate around the dangers associated with smoking.  This report suggests that those studies, rather than being isolated cases, were consistent with a larger pattern – pro-fracking scholarship is often industry-tied and lacking in scientific rigor. An in-depth look at frackademia reveals that many of these kinds of studies have been produced by industry and its allies in academia, in government, and in the consulting world. The report approaches this topic by analyzing a broad set of fracking studies that the industry has put forward to help it make its case. Specifically, the report considers an extensive list of over 130 studies compiled by an oil and gas industry group, Energy in Depth. The list was specifically used to convince the government of Allegheny County, Pennsylvania, home of the city of Pittsburgh, to lease mineral rights under its Deer Lakes Park to Range Resources for gas drilling. Though that decision was a relatively minor one in the context of the nationwide fracking debate, the list provides a telling window onto the fracking research that the industry believes is fit for public consumption, and which it uses to make the case that the science around the issue is settled.

Study Confirms: Frackers Use Fracademics to Promote Fracking -– The oil and gas industry is using flawed research to give the impression of a scientific consensus that fracking is safe and beneficial, according to a new report released today by the Public Accountability Initiative (PAI) and available at: http://public-accountability.org/2015/02/frackademia-in-depth. The report, titled “Frackademia in Depth,” assesses over 130 studies that the industry has put forward to help make the scientific case for fracking, analyzing them for the strength of their industry ties and their relative academic quality (whether they were peer-reviewed). PAI found that only 14% of the studies had been subject to peer review, while nearly 76% had some degree of connection to the oil and gas industry through funders, authors, and issuers. PAI also found that the list included reports that had been discredited and retracted by the institutions that published them, including a 2012 report from the University of Texas that an independent panel convened by the school decried as “falling short of contemporary standards of scientific work” after PAI revealed undisclosed conflicts of interest and shoddy scholarship. The extensive list of studies analyzed in the report was originally compiled by Energy in Depth, a nationwide industry outreach effort, and used to convince legislators in Allegheny County, Pennsylvania to lease mineral rights under a county park for fracking. The list opens a telling window onto the body of fracking research that the oil and gas industry deems fit for public consumption.

Methane emissions from natural gas industry higher than previously thought -- World leaders are working to reduce greenhouse gas emissions, but it's unclear just how much we're emitting. In the U.S., the Environmental Protection Agency (EPA) has a new program to track these emissions, but scientists are reporting that it vastly underestimates methane emissions from the growing natural gas industry. Their findings, published in two papers in the ACS journal Environmental Science & Technology, could help the industry clamp down on "superemitter" leaks.  Allen L. Robinson and colleagues note that the primary component of natural gas is methane, a greenhouse gas more potent than carbon dioxide. The EPA estimates that nearly one-quarter of methane emissions related to human activities comes from producing natural gas, processing it and getting it into the homes of millions across the country. But the agency based its estimate on data from 20 years ago. Robinson's team wanted to see if more recent changes in the industry and technology could further refine the numbers. The researchers discovered that a small fraction of facilities that collect, process and compress natural gas are responsible for a disproportionately high percentage of methane emissions. They also found that the EPA's new reporting program doesn't account for superemitters—sites that leak or vent large amounts of methane—or some equipment and operating modes that are major sources of the gas. They conclude that the program could be missing almost two thirds of the methane emissions from the natural gas system.

Study: Minority of facilities produce most natural gas methane emissions  Leaky equipment at a small number of natural gas compressors, processors and pipeline facilities account for a big chunk of the methane escaping into the air, according to the latest reports from a national collaboration between energy companies and the Environmental Defense Fund. Two peer-reviewed studies published Tuesday in Environmental Science & Technology involved researchers from Carnegie Mellon and Colorado State universities taking field measurements at a combined 176 facilities in 13 states. They come as regulators look to crack down on emissions of the greenhouse gas and as companies tout an industry-wide reduction over the past three years. The study of gathering and processing facilities found 30 percent of them contributed to 80 percent of emissions, mostly caused by engine combustion or venting from liquid storage tanks. Of 45 compressor stations studied, two were identified as “super-emitters.” The studies did not identify individual sites. “At many, it was clear there was a broken valve or something malfunctioning,” said Allen Robinson, an author of both studies and head of the mechanical engineering department at Carnegie Mellon. “Under normal operation, they would probably not be super-emitters.” In some cases, employees of the facilities fixed those issues on the spot when researchers found them, one study stated. Methane is non-toxic and in no cases did the researchers find explosive levels of leaks, Robinson said.

Fracking the Cure with Benzene: Frack Waste Carcinogen is 700 Times Limit -- A year’s worth of data from tests on flowback water coming out of hundreds of fracked wells found high concentrations of benzene, a human carcinogen.  Levels of benzene up to 700 times the federal standard have been found in waste water from fracking, data show. Hoping to better understand the health effects of oil fracking, the state in 2013 ordered oil companies to test the chemical-laden waste water extracted from wells.  Data culled from the first year of those tests found significant concentrations of the human carcinogen benzene in this so-called “flowback fluid.” In some cases, the fracking waste liquid, which is frequently reinjected into groundwater, contained benzene levels thousands of times greater than state and federal agencies consider safe. The presence of benzene in fracking waste water is raising alarm over potential public health dangers amid admissions by state oil and gas regulators that California for years inadvertently allowed companies to inject fracking flowback water into protected aquifers containing drinking water. The federal Environmental Protection Agency called the state’s errors “shocking.” The agency’s regional director said that California’s oil field waste water injection program has been mismanaged and does not comply with the federal Safe Drinking Water Act. The discovery adds urgency to a mounting list of problems at the state Division of Oil, Gas and Geothermal Resources, which regulates the oil and gas industry. State officials attribute the agency’s errors to chaotic record-keeping and antiquated data collection. And they emphasize that preliminary tests on nine drinking water wells have found no benzene or other contaminants.“The problem is foundational and it’s serious,”

As more fracking looms, Kentucky lawmakers consider bill reworking regulations on drilling -  With the potential looming for a jump in high-volume hydraulic fracturing, or fracking, to drill for oil and gas in Kentucky, state lawmakers will consider a bill that includes stronger reclamation standards and more protection for water sources near wells.House Bill 386, introduced this week, would upgrade rules to cover a type of drilling in which operators can inject millions of gallons of chemical-laced water under high pressure into deep, horizontal bore holes to break up rocks, unlocking oil and gas.That type of energy exploration has become common in recent years in Pennsylvania, Ohio, North Dakota and elsewhere, resulting in a boom in production, but it hasn't yet taken off in Kentucky.However, research showing there could be a lot of oil and gas in a shale layer deep under parts of Kentucky has sparked interest among oil companies, which signed hundreds of new leases with mineral owners the last two years.That interest has focused on Lawrence, Johnson and Magoffin counties, where there appears to be the greatest potential to tap the Rogersville shale layer, but leasing agents reportedly also have approached residents in Madison, Rockcastle and other counties.Fracking has caused concerns about air and water pollution from emissions of methane or spills and leaks of oil or drilling chemicals, though the industry says the technology is safe.

Natural gas futures drop 2% with weather, supplies in focus -  US natural gas prices declined for the fifth time in six sessions on Wednesday, as investors monitored near-term weather forecasts to gauge the strength of demand for the heating fuel. On the New York Mercantile Exchange, natural gas for delivery in March fell by as much as 6.5 cents, or 2.36%, to hit a session low of $2.689 per million British thermal units, before trading at $2.694 during U.S. morning hours, down 6.0 cents, or 2.2%. Futures were likely to find support at $2.608 per million British thermal units, the low from February 2, and resistance at $2.924, the high from January 29.

U.S. burns record natgas to generate power in January - U.S. electric companies in the lower 48 states gobbled up record amounts of natural gas to generate power in January 2015 as low prices made it more economic to burn gas instead of coal. Power generators used an average 23.1 billion cubic feet per day of gas in January 2015, up 13 percent from the 20.5 bcfd average in January 2014, according to Thomson Reuters Analytics. That was the most gas consumed by the power sector during the month of January on record, according to federal data going back to 1973. “Low prices, particularly in the U.S. Northeast, have provided gas-fired plants with a significant advantage over coal despite warmer temperatures and lower demand for heating this winter,” said Kyle Cooper at IAF Advisors, a consultancy in Houston. Gas prices at the Henry Hub benchmark in Louisiana and New York City averaged $2.97 and $8.35 per million British thermal units in January 2015, respectively, well below averages of $4.59 at the Henry Hub and $30.51 in New York in January 2014. Power firms shut about 4,300 megawatts (MW) of coal-fired generation in 2014 as record production of gas from shale plays cut power prices, making it uneconomic for generators to upgrade older coal plants to meet increasingly strict federal environmental regulations. “We expect coal-to-gas switching to drive an increase in utility gas burn in 2015 of about 1.8 bcfd,” said Hugh Wynne, managing director at Bernstein, a research and brokerage firm, in New York.

There is a little flame at the end of the tunnel for natural gas - With colder weather swooping into the U.S., natural gas futures are looking a bit brighter. Early on Monday, natural gas saw a small rally during early trading, about 3 cents or 1.12 percent. The minor increase comes after prices for the benchmark futures contract dropped close to two-year lows during the first week of February. Last Friday, the contract ended at $2.58 per million British thermal unit on the New York Mercantile Exchange. Yesterday, weather forecasts were on the colder side. The National Oceanic and Atmospheric Administration announced that cooler temperatures would be making their way into the southeastern part of the U.S. and that the northeast could see freezing rain and snow. These colder conditions will help support natural gas prices, considering it is typically used as a heating fuel. So far this winter, prices have been scattered due to increased production keeping prices low, and cold weather fronts causing sporadic price increases. According to Fuel Fix, “Last week, stores of natural gas fell by 115 billion cubic feet to a total of 2.4 trillion cubic feet. Natural gas storage is built up in the summer and traditionally drawn down in the winter.” This winter, the amount of natural gas available was less than what is typically expected. However, the gap was swiftly eliminated due to the high rate of natural gas production and the moderate withdrawals being taken from storage. According to a report by the U.S. Energy Information Administration, natural gas stores are now sitting just below the five-year average levels.

Fears for US economy as shale industry goes into hibernation -- America’s fracking revolution is becoming a victim of its own success. The controversial boom in shale gas and oil has driven the US economic recovery and helped lower world crude prices. But a price plunge from $115 (£75) a barrel last June to just above $50 last week means many shale operations no longer pay. Rigs across the US are being deactivated at a rate of nearly 100 a week. In the final week of January, 94 were pulled offline – the most since 1987, according to oil services company Baker Hughes. The number of active rigs fell by from 1,609 in October to 1,223 in January and some experts predict fewer than 1,000 will remain by the end of the year. “The low oil price is bringing to a halt the world’s great engine of supply growth over the last five years,” said James Burkhard, head of global oil market research for IHS Energy. “The US upstream is very responsive to changes in price and drilling is likely to slow down further until prices recover. “The great revival of US production has been from intensive onshore drilling. These aren’t massive $7bn projects that can’t be stopped: these are mostly onshore fracking that be started and stopped much more easily.” Burkhard said the US fracking boom accounted for more than half of global oil supply growth over the last five years, and it is the easiest tap to turn off while the world waits for the oil price to recover. The US has built up its largest stockpile of crude in 84 years.

Fewer trade secrets for Wyoming fracking fluid — In 2010 Wyoming became the first state to require oil and gas companies to disclose chemicals used in fracking operations. Home to the petroleum-rich Powder River Basin, proponents saw the rule as a model for other drilling-dependent states to follow. The message they hoped the regulation would convey: We can be energy-friendly and environmentally friendly too. But the rule contained a trade secrets caveat, which allowed companies to skirt the disclosure requirement if they said the chemicals were confidential business information. That exemption created a massive loophole. Now, thanks to a settlement approved Jan. 23, companies will have to do more to justify keeping fracking chemicals secret.  The settlement comes from a 2012 lawsuit that environmental nonprofit Earthjustice filed on behalf of public interest groups against the Wyoming Oil & Gas Conservation Commission. The suit challenged state regulators’ decisions to withhold the names of 128 fracking chemicals. It was the first time a Wyoming courtinterpreted trade secrets under the state’s Public Records Act, which puts the public’s right to know before a company’s protection.Though some research has shown fracking—the drilling method that injects a mixture of water, sand and chemicals deep into the ground to release oil and gas—can harm nearby water supplies, more conclusive evidence is still needed to determine how dangerous the practice is. Chemicals range from the same benign ingredients found in everyday products like toothpaste and detergent, to cancer-causing substances like Benzene. Since frack wells often pass through aquifers, there’s a risk those chemicals could contaminate drinking water, and because of drilling-related emissions, many fracking-intensive areas suffer levels of air pollution that exceed federal standards.

Hey, California: Oklahoma had 3 times as many earthquakes in 2014 - Oklahoma recorded more than three times as many earthquakes as California in 2014 and remains well ahead in 2015. Data from the U.S. Geological Survey shows that Oklahoma had 562 earthquakes of magnitude 3.0 or greater in 2014; California had 180. As of Jan. 31, Oklahoma recorded 76 earthquakes of that magnitude, compared with California’s 10. According to the Advanced National Seismic System global catalog, in 2014, Oklahoma even beat Alaska, the nation’s perennial leader in total earthquakes, though many small events in remote areas go unrecorded there. In California, earthquakes always have been relatively common, but in Oklahoma, they were much more rare – at least until 2009. Scientists have long assumed that the rate of earthquakes in a given location was constant, but the rapid increase in seismic activity in places like Oklahoma is fundamentally altering how experts plan for seismic risk. The U.S. Geological Survey’s current models of seismic hazards intentionally ignore quakes attributed to “induced seismicity.” And though Oklahoma has had the most dramatic increase in earthquakes, other states such as Kansas, Texas, Ohio and Colorado also are seeing more “induced seismicity” – earthquakes likely triggered by human activity. “A fundamental assumption of the old maps was that everything stays the same. Now we’re challenged with the earthquakes rates varying with time,” said William Ellsworth, a seismologist for the U.S. Geological Survey who is part of a group studying new ways to understand the hazards of induced earthquakes. “Everybody realized that this was an appropriate thing to do because they didn’t know what to do.”  Numerous studies agree that wastewater disposal from hydraulic fracturing, or fracking, is a major factor in increasing seismic activity.

Quake Debate: Science questioned while state's earthquake studies go unfinished - Inside a cluttered metal shed behind his rural Noble County home, Mark Crismon stares at a glowing laptop screen. The spiked heartbeat crawling across the screen tells him what he already knows: The earth is shaking. Again. “What you’re looking at here is a 3.6 earthquake,” Crismon says, pointing to the bright blue, green and red lines. This quake happened 30 minutes ago near Oklahoma’s northern border with Kansas, he explains, taking a drag from his cigarette. Crismon won't need to wait long before feeling the ground rumble under his own home, four miles from an injection well used to collect oil-field wastewater.  “Basically what they’ve done is they’ve pulled the cork out of the bottle, and the genie is gone and you can’t put it back. And nobody wants to do anything about it,” says Crismon, 75. The brick facade on his home is cracked.  Crismon says his house is "shredded" from the shaking. Since September, he has monitored a seismic station on his property as part of a research project conducted by Oklahoma State University geology students. Crismon’s home northeast of Stillwater lies in a broad swath of central Oklahoma that is being rattled by earthquakes that are increasing both in number and intensity. Last year, the state experienced 585 earthquakes of 3.0 magnitude or higher, more than in the past 35 years combined. That figure earned Oklahoma the title of the most seismically active among the contiguous 48 states. The state has about 3,200 active disposal wells, where water produced during oil and gas drilling is injected deep underground. The United States Geological Survey and several scientific studies have attributed Oklahoma's spike in earthquakes to these wastewater disposal wells, but key state officials say they need more evidence.

Are earthquakes triggered by oil and gas production becoming deadlier? - Science AAAS —Over the past several years, a torrent of small earthquakes has accompanied the glut of oil and gas produced by industrial operations across the central United States. In 2014, Oklahoma saw three times as many earthquakes magnitude 3.0 or greater than California. Hydraulic fracturing, or fracking, is not the main culprit. Rather, most of the small earthquakes have been linked to injection wells, which dispose of huge quantities of water used to flush out oil and gas in extraction operations. Here today at the annual meeting of AAAS (which publishes Science), Science had a chance to catch up with three experts working at the forefront of this field of induced seismicity: William Ellsworth, a geophysicist at the U.S. Geological Survey (USGS) in Menlo Park, California; Mark Zoback, a geophysicist at Stanford University in Palo Alto, California; and John Parrish, the California state geologist in Sacramento.

Are Earthquakes in Texas Caused by Fracking? - Seismologists from Southern Methodist University in Dallas and the U.S. Geological Survey released a “preliminary” report last Friday that a series of minor earthquakes could be explained away as simply anomalies relating to a geological formation they just discovered. This report, however, gave renewed hope to anti-frackers that the earthquakes were caused by fracking activities in the Barnett Shale formation underneath Dallas and the suburb of Irving. Brian Stump, one of the SMU seismologists, made it clear that any connection to fracking was premature: "This is a first step … in investigating the cause of the earthquakes. Now that we know the fault’s location and depth, we can begin studying how this fault moves." The report did acknowledge that the fault lies underneath natural gas fracking wells, but that they have been inactive for three years. Because the seismologists are just beginning their study of the fault, no connection to fracking, past or present, can be made. The report stated, "SMU scientists continue to explore all possible natural and anthropogenic [human] causes … and do not have a conclusion at this time." Anti-frackers have been trying to drum up concern about alleged fracking-caused earthquakes for years, but have been hard-pressed to do much more than speculate in the face of a lack of hard evidence of any connection.

Remap of Dallas-area quakes shows fault closer to fracking wells than thought -- Scientists finally have a rough picture of the ancient fault that’s been rattling the Dallas area, and the fissure isn’t where the public thought it was. Armed with more equipment and better data, SMU scientists have relocated dozens of quakes on the federal government’s imprecise maps. The team released a new map on Friday that shifts the epicenters of nearly all of last month’s temblors, arranging them in a neat line that shadows a fissure miles beneath the earth. And while the team has just begun to study that fault, they already have some early hints about its nature. It’s not beneath the old Texas Stadium site, as federal maps suggested. It’s small (for a fault) and appears to be quieting down after tossing off about four dozen quakes in a year. But it could still produce a tremor much more powerful than any Dallas has yet seen. And while scientists are skeptical that gas drilling woke it up, they now know the fault runs much closer than previously thought to the only two fracking wells in the area.

Houston oil tech company to cut 10 percent of workforce - Houston-based oil equipment maker FMC Technologies announced Wednesday that it will be cutting about 2,000 jobs, according to FuelFix. FMC CEO John Gremp told investors Wednesday that the job cuts come as they company aims to trim costs due to the collapsing oil prices. Gremp added that most of the company’s 10 percent job cut will come from its operations in North America.  FMC CEO John Gremp commented on the job cuts: “We’re responding quickly and significantly to the slowdown in our North American business by reducing discretionary and capital spending. We’re now taking action to address the reduce volumes we’ll experience in 2015 and we’re confident these steps will allow us to effectively manage through the downturn.” Gremp added FMC’s subsea orders in 2015 are expected to decline from last year’s $5.8 billion, but he expects the company to build on reductions of its cost structure that began last year to make manufacturing subsea equipment more efficient. FMC Technologies is the global market leader in subsea systems and a leading provider of technologies and services to the oil and gas industry. The company has more than 20,000 employees and operates 28 production facilities in 17 countries.

Houston, You Have A Huge Problem: One-Sixth Of US Office Space Under Construction Is In This Texas City - Nearly two months ago, in "Houston, You Have A Problem" - Texas Is Headed For A Recession Due To Oil Crash" we warned that, just as the title explained, the city that has been the biggest beneficiary of the US shale boom will, logically, be the biggest victim now that the shale boom turns to bust. The post had many numbers and charts, as well as lots of words, so it is understandable if if went right over the heads of many. Then, one month ago, we followed up with "The Next Victim Of Crashing Oil Prices: Housing", which also had a bunch of charts, numbers and words but had the following observation: .. we look at the impact of plunging crude on non-residential construction and specifically physical structures, which is where roughly 90% of energy capex is. Spending there tracked an annualized rate of $140bn in the first three quarters of 2014, a sum that accounts for a whopping 30% of total non-residential private fixed investment in structures, or about a 1% of GDP. The point was simple: while everyone has been focusing - and if they haven't, they should be, right BLS? - on the adverse impact to oil-service (only) jobs from the shale bust, it was only a matter of time before the fallout spread to that all important for the US "recovery" segment of the economy: housing. However, now that the WSJ has joined the fray, the time has come for US data reporting to finally catch up to reality. This is what  the WSJ had to say about the imminent collapse in not only the Texas housing industry, but soon - everywhere else. The jagged skyline of this oil-rich city is poised to be the latest victim of falling crude prices. As the energy sector boomed in recent years, developers flocked to Houston, so much so that one-sixth of all the office space under construction in the entire U.S. is in the metropolitan area of the Texas city.

As Oil Price Drops, Texas Lenders Watch for Fallout - WSJ: Oil prices have dropped by roughly half since last summer, pressured by a glut that is outstripping demand. That has caused an unfamiliar anxiety for many bankers with loans tied to the energy boom, even if indirectly. The drilling boom that lasted most of the past decade was financed largely by private-equity firms and bond deals—not the local and regional banks that typically provided money to independent exploration firms in generations past. Yet analysts say a sustained price drop creates vulnerability for small and midsize lenders whose customers provide a range of ancillary services, from the carwashes that scrub the trucks to the hotels that house the workers. The impact of the energy swoon on those businesses is in many ways more difficult to predict. So far, many energy bankers say, the mood is cautiously optimistic that a catastrophe isn’t looming.Bankers already have started warning customers that credit lines may be reduced in coming months, especially if prices slide further. And they are lowering their own internal projections for oil prices to see how their portfolios will perform in a worst-case scenario. At Cadence Bank in Houston, clients that bankers used to call twice a year are hearing from the bank every six weeks. “Clients know that credit lines are coming down, but they want to know by how much,” said Paul Murphy, chairman of the regional bank, which has more than more than $7 billion in assets.

Oilfield crime still booming in West Texas --  A bust is of no help to the Permian Basin Oilfield Theft Task Force because workers’ job losses may tempt them to return after dark and steal the tools, copper wire, meters and valves they’ve seen lying around. And with scotching the purloining of oil, a Midland-based Federal Bureau of Investigation agent and sheriff’s deputies in Midland, Andrews and Ector counties have worked full-time since 2008 to stem the millions of dollars in losses that companies may sustain. FBI Supervisory Senior Resident Agent Troy Murdock said Wednesday that the task force arrested nine men on federal oilfield-related charges last year and is currently investigating more cases. “We don’t see our workload decreasing any with the slowdown due to oil prices,” Murdock said. “Folks are still out there figuring out how to steal and make money.” Asked if there is a difference between oilfield investigations and other types, he said it still requires “putting the pieces of the puzzle together,” but oil is generally harder to recover than most other property.

Contamination levels dropping from ND saltwater spill --  State and company officials say contamination levels have dropped along waterways affected by a massive saltwater spill in western North Dakota’s oil patch. A pipeline leak detected last month spilled nearly 3 million gallons of saltwater brine near Williston. The wastewater is a byproduct of intensive oil drilling taking place in the Bakken region of North Dakota and Montana. North Dakota Department of Health official Dave Glatt said Tuesday that elevated chloride levels initially detected along the Missouri River and the Big Muddy River are returning to normal levels. Pipeline owner Summit Midstream Partners LLC said Tuesday that it was making “significant progress” in the cleanup. But the Texas-based company offered no timeline for when the work may be done. Some previous saltwater spills have taken years to clean up.

Senate bill introduced to expedite pipeline permitting -- On Monday U.S. Senator Heidi Heitkamp introduced bipartisan legislation to reduce flaring and improve the capture process for natural gas across North Dakota and other states by reducing federal pipeline permitting delays.. Heitkamp introduced the bill with Republican Senator John Barrasso of Wyoming. The proposed bill would require the U.S. Secretary of the Interior to respond in a timely manner to permit requests to gather unprocessed natural gas on federal and Indian lands. Currently, the agency has an extended process for issuing decisions on applications which has in turn delayed efforts to reduce flaring. The delays are preventing states such as North Dakota from fully harnessing all of the natural gas being extracted. In a press release, Heitkamp said, “Part of committing to an all-of-the-above energy strategy means staying mindful of commonsense solutions. We can do that by preventing our energy resources from getting unnecessarily bogged down by government red-tape.” Heitkamp has routinely emphasized the importance of removing barriers hindering North Dakota’s energy development. “In North Dakota, we can do more to reduce flaring and fugitive methane emissions, and harness more of our natural gas. But too many permit requests to gather unprocessed natural gas have been met with federal delays – and that’s exactly what our bill works to change.” Heitkamp further reinforced the need to reduce flaring as a means for North Dakota to avoid wasting the energy resource. She said, “The federal government must stop dragging its feet on an all-of-the-above energy strategy, as we need an energy strategy that allows for continued, responsible energy production by reducing harmful environmental impacts, wasting fewer resources, and respecting our tribal governments – and I’ll continue to push for such an approach.”

14 leaking oil cars removed from BNSF train -- A train hauling crude oil across Idaho and Washington last month had to have 14 leaking tank cars removed at three different stops before it reached its destination at an Anacortes refinery.  The first leak was discovered about 20 miles east of Spokane at the refueling depot in Hauser. On Jan. 12, train crews spotted oil on the side of a single tank car, which was removed from the 100-car train, said Courtney Wallace, a BNSF spokeswoman. After traveling through Eastern Washington along the Columbia River, the train reached Vancouver, where seven more cars were determined to be leaking. BNSF employees and federal rail inspectors examined the train again in Auburn, south of Seattle. Another six cars were found to be leaking and taken out of service. The tank cars had slow oil leaks from the top values, Wallace said. Some of the leaks couldn’t be seen from the ground and weren’t detected until railroad employees climbed up onto the cars. No oil was spotted along the railroad tracks or right-of-way, she said.  BNSF Railway officials said that less than 25 gallons of oil was spilled from the cars over the three-day period, but the incident remains under investigation by Washington state regulators.

ND daily oil production sets record, but rig count dropping — The number of barrels of oil produced per day in North Dakota set a record in December, but the tally of rigs in the oil patch has dropped precipitously since then, state regulators said Friday. The state’s Mineral Resources Department estimated December production at slightly more than 38 million barrels, or about 1.23 million barrels per day. That broke the November record of 1.19 million barrels per day. However, the drilling rig count dropped from 188 in November to 181 in December and continued to fall, to 137 on Friday — a 37 percent drop from the record high of 218 rigs on May 29, 2012, and the lowest number since July 2010. “Oil price is by far the biggest driver behind the slowdown,” Mineral Resources Director Lynn Helms said. The price of oil has plummeted since last summer due to rising production in the U.S. and elsewhere. Wasteful burning off of natural gas — a byproduct of oil production — declined 1 percent from November to December in North Dakota, to 24 percent of production. The percentage of flared natural gas had been about one-third of production over the past several years but dropped after regulators endorsed a policy last summer that sets goals to reduce flaring in incremental steps through 2020. The new rules allow regulators to set production limits on oil companies if the targets are not met.

Drillers Take Second Crack at Fracking Old Wells to Cut Cost - - Beset by falling prices, the oil industry is looking at about 50,000 existing wells in the U.S. that may be candidates for a second wave of fracking, using techniques that didn’t exist when they were first drilled. New wells can cost as much as $8 million, while re-fracking costs about $2 million, significant savings when the price of crude is hovering close to $50 a barrel, according to Halliburton Co., the world’s biggest provider of hydraulic fracturing services. While re-fracking offered mixed results in the past, earning it the nickname “pump and pray,” the oil crash is forcing companies to pursue new technologies to produce oil more cheaply. Analyzing reams of data from older wells has become a key piece of the puzzle, identifying the best candidates for re-fracking instead of picking them simply at random, said Hans-Christian Freitag, vice president of integrated technology at Baker Hughes Inc. “You want to talk about the next step to increasing production without increasing costs?” said Carl Larry, Houston-based director of oil and natural gas at Frost & Sullivan, a consulting firm. “Re-fracking looks great.” Fracking involves blasting water, sand and chemicals down wells to crack rock, letting oil and gas flow to the surface. This second wave of fracking is disappointing environmentalists who expected a slowdown in new drilling tied to the price slump. Critics say fracking leads to contamination, uses too much water and creates air pollution from the sand mining. While fewer new wells would seem to mean less total fracking, the re-fracking phenomenon means there won’t be as big a reduction as some had expected.

Plummeting oil price creates problems for severance-tax states - Lower gasoline prices are a great relief for motorists across the country. But for Alaska and a half-dozen other mineral-rich states, the falling price of oil is creating huge budget problems. Alaska, Louisiana, Montana, New Mexico, North Dakota, Texas, West Virginia and Wyoming top the list of states dependent on severance taxes levied on oil and gas producers. The sharp reduction in oil prices– they fell from $96 a barrel in July to about $50 a barrel this month–has forced those states to consider raiding their rainy day funds, cutting spending or raising taxes to offset shortfalls. Most of the states are eyeing all three. “All of the severance states are watching this very closely,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers. “It’s a question of how severe the impact is. States like Alaska, Texas and North Dakota all have built up sizable reserves–rainy day funds. The question is whether they want to turn to those or not.” While Texas produces more oil than any other state (more than 104 million barrels a month), only 9 percent of its revenues comes from severance taxes. Alaska, by contrast, produces 16 million barrels a month but gets 78 percent of its revenue from severance taxes,  according to the Rockefeller Institute of Government. That is the highest percentage, by far, of any state.

Tax Receipts In Energy-Producing States Plummet: "Largest Decline Since 2006" -- When it comes to the state of the US economy, it is all about surveys. On Friday we got the BLS' establishment and household surveys, both massively revised and seasonally-adjusted, meant to estimate the state of the US job market. Supposedly they were "unambiguously good." Here, on the other hand, is Evercore ISI with its Company and State Tax Receipt surveys. The verdict, looking at what is happening at both the corporate and state level, and especially the energy-producing tax receipt level which just fell off a cliff, is that "the US Economy is not taking off."

Halliburton to cut thousands of jobs as oil slumps | bakken.com: U.S. oil services company Halliburton said on Tuesday it expects to cut potentially more than 6,000 jobs across the globe because of a “challenging market environment” resulting from low oil prices. Halliburton, the latest in a growing list of major oil industry companies laying off workers because of a worldwide glut of crude, said it expects to let go 6.5 percent to 8 percent of its 80,000-strong workforce, amounting to between 5,200 and 6,400 jobs. The number includes the 1,000 jobs that had been cut in the eastern hemisphere in the fourth quarter of 2014, a company spokeswoman said. Halliburton said the impact of the layoffs would be across all company operations, but it did not offer specifics.. Oil prices have dropped about half to $50 a barrel since June because of the global glut of oil, forcing many companies to reduce spending. The number of rigs drilling for oil in the United States has plummeted in recent weeks as drillers halt projects to save cash. Record high stocks of oil in the United States have continued to pressure prices. Layoffs by companies struggling with the slowdown have reached into the tens of thousands. Baker Hughes, a U.S. oil services provider that is being acquired by Halliburton in a deal worth nearly $35 billion, said in January that it would lay off 7,000 employees. Schlumberger, the world’s largest oilfield services company, said last month that it would cut 9,000 jobs, or about 7 percent of its workforce.

Halliburton to cut 5,000 to 6,500 jobs: – Oil field services company Halliburton Co. said Tuesday it’s planning to ax 5,000 to 6,500 jobs to cope with the crude-price collapse, the latest in a string of oil-field layoff announcements. The cuts amount to 6.5 percent to 8 percent of its global workforce of 80,000 employees. Halliburton’s move brings the number of layoffs announced by the world’s four biggest oil field services in recent weeks to more than 30,000 workers around the world. That’s about 9.4 percent of their combined workforce. “We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through the challenging market environment,” Halliburton spokeswoman Emily Mir said in an emailed statement. The reductions will affect “all areas of Halliburton’s operations,” she said. Houston-based Halliburton is the biggest hydraulic fracturing company in the United States, and the second-biggest oil-tool provider in the world after Schlumberger. Mir said none of the layoffs stem from the firm’s $34.6 billion proposed acquisition of smaller rival Baker Hughes, although the companies have said they expect “synergies” in the merger that most analysts believe will include job cuts. Baker Hughes has said it will cut 7,000 jobs worldwide because of fallen prices. Halliburton’s layoffs include the 1,000 jobs it said in December that it would cut across multiple regions in the eastern hemisphere.

Halliburton to cut up to 6,400 jobs as oil price falls: US oilfield services firm Halliburton has said it will cut up to 8% of its global workforce of 80,000, citing a "challenging market environment" as the oil price continues to tumble. Halliburton says the cuts will be across all operations of the company. Shares in Halliburton - the world's second-largest oilfield services company - fell nearly 3%. The oil price has nearly halved since June as a global supply glut and weak demand push prices down. "We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment," said Halliburton in a statement to the BBC. Halliburton had previously announced that it was planning job cuts in a conference call to discuss earnings on 20 January. The company reported fourth quarter profits of $901m (£591m), a 14% increase from the same period a year earlier. Dave Lesar, chairman and chief executive officer, warned in a statement accompanying earnings that it was "clear that 2015 will be a challenging year for the industry". Halliburton said the job cuts total includes previously-announced plans to trim 1,000 jobs outside the US.

Another 5,000 Victims Of The Plunge In Oil Prices - Yet another energy company is struggling to save money in the face of unexpectedly low oil prices. Weatherford International, one of the world’s largest oilfield services company, will cut 9 percent of its global workforce in the next two months to save more than $350 million a year.  The vast majority of the layoffs – 85 percent, or 4,250 workers – will be felt in the United States and Western Europe. The company, which has operations in more than 100 countries, now has about 56,000 employees. Weatherford also will offer voluntary buyouts to certain eligible employees to reduce its workforce further. “We will focus the entire organization on ensuring we are cash-flow positive in 2015,” the Swiss-based company’s CEO Bernard J. Duroc-Danner said in a statement late Wednesday. “This means that for every dollar of revenue we lose due to reduced activity and pricing, we will make up for it in cost, capital expenditure and working capital reductions.” Because of the drop in oil prices, oil companies and ancillary services like Weatherford are losing business. Nevertheless, Duroc-Danner said Weatherford will keep its eye on ensuring a positive cash flow throughout 2015. Last year it began selling off subsidiaries and cutting costs in other ways, raising about $1.8 billion in cash, most of it to pay down debt. “Customers aren’t placing new orders,” he told Bloomberg. “Where they can they’re trying to get out of existing contracts, and their credit quality is increasingly under question.”

Apache posts quarterly loss, plans to slash rig count - – Apache Corp on Thursday reported a quarterly loss as it wrote down the value of oil and gas assets and said it is reducing its rig count by more than a third in response to the collapse in crude oil prices. Crude oil prices have fallen by about half since June as global supplies grow in a time of waning demand. “While we are fortunate to have a substantial inventory of projects that can make economics at these oil prices, we believe it more prudent to curtail our activity until costs are lower and prices recover,” Apache Chief Executive John Christmann said in a statement. The Houston company reported a fourth-quarter loss of $4.8 billion, or $12.78 per share, compared with a year-ago profit of $174 million, or 44 cents per share.  Excluding $5.2 billion in charges mostly related to writing down the value of assets, Apache had a profit of $1.07 per share. Analysts on average had expected a profit of 76 cents per share, according to Thomson Reuters I/B/E/S. Apache, which plans to spin off or sell its international operations to focus growing output from onshore shale wells, said its North American liquids production rose 5 percent. Apache said its rig count will be reduced to 27 rigs at the end of this month from an average of 91 rigs in the third quarter of 2014.

Apache slashing 2015 rig count, capex due to low oil prices (Reuters) - Apache Corp, one of the top U.S. shale oil producers, said on Thursday it would slash capital expenditures and its rig count in 2015 as the collapse of crude oil prices prompts it to slow drilling, keeping output growth mostly flat. The company, which reported a multibillion-dollar net loss but adjusted earnings that beat Wall Street's estimates, also said it would not divest its overseas businesses, with one possible exception. Crude oil prices, down about 50 percent since June, prompted Apache to cut its 2015 capital expenditures by 60 percent and slash its fleet of drilling rigs by 70 percent. On a conference call with investors, Chief Executive Officer John Christmann also said the company is setting aide plans to sell or spin off its Egyptian and North Sea businesses, as they generate much-needed cash. "Clearly in this price environment it would not make sense to monetize them and they complement things very nicely so at this point, there are no plans to sell or spin them," said Christmann. However, Apache is exploring a possible sale of its offshore oil assets in Australia, he said. The Houston-based company reported a fourth-quarter loss of $4.8 billion, or $12.78 per share, compared with a year-ago profit of $174 million, or 44 cents per share.

Pioneer to cut budget 45 percent --  Pioneer Natural Resources will cut its budget by about45 percent in 2015, according to a late Tuesday announcement from the company that marked the latest Permian Basin producer to dramatically scale back in the face of low oil prices. As planned, the reduction leaves the company with a budget of about $1.85 billion for the year, with more than $1 billion intended for the Permian Basin. The release mentioned several steps the company is taking to scale back, including slowing down construction of a planned Permian Basin water system. The company reported plans to shed 16 rigs operating in the Permian Basin and Eagle Ford by the end of February, representing a 50 percent drop from the end of last year. Ten of those rigs are being released from the Permian Basin, where the company was shutting down its vertical drilling program. Pioneer pumped more than 182,000 barrels of oil equivalent per day last year and company executives still expect to grow production by as much as 10 percent in 2015, according to the Tuesday statement. Pioneer joins other Permian Basin oil companies in scaling back previous capital expenditure plans, such as Apache, Diamondback Energy and Concho Resources.

WPX cuts budget by half - Slumps in the energy industry have caught up with one of Colorado’s biggest natural gas producers. According to the Denver Business Journal, WPX Energy Inc. announced Thursday that its 2015 budget allows for $725 million — about half of its $1.5 billion 2014 budget. Earlier this year, the Tulsa-based company confirmed its plans to halt the completion of about 20 new wells in the state’s Piceance Basin. However, the area was among WPX’s three operating sites that will receive investments this year, along with the Williston Basin in North Dakota and the San Juan Basin in New Mexico. “Head winds bring challenges and opportunities,” said Rick Muncrief, WPX president and CEO. “We’re ready for both. It’s why we have a long-term plan to reshape WPX and grow our margins and cash flow. Margin expansion comes from diversifying our production and right-sizing our cost structure.” Despite the projected cuts, WPX still expects its operations to grow this year. While 2014 saw a 56 percent growth in oil and gas production, estimates for growth in 2015 sit at 15 to 20 percent. The company also said it maintains about 75 percent of its production at $4.10 per thousand cubic feet.

Mass layoffs complicate oil industry's long-term plans -- “This is the really crappy part of the job, and this is what I hate about this industry frankly,” the chief executive of oilfield services company Baker Hughes complained as he announced it would lay off 7,000 employees. Baker Hughes is cutting jobs in response to slumping prices and a downturn in drilling activity. But the company’s obviously frustrated chief acknowledged that “this is the industry, and it’s throwing us another one of these downturns, and we’re going to be good stewards of our business and do the right thing.” So the company will cuts costs, he told investors in a conference call on January 20 to discuss the firm’s fourth-quarter earnings and outlook for 2015. More than 100,000 layoffs have been announced across the industry worldwide since prices began to slide last summer, according to a tally kept by Bloomberg. In recent weeks other major service companies have announced job reductions. Halliburton announced it will cut 6,400 jobs (8 percent of its global workforce) while Schlumberger will eliminate 9,000 positions (around 7 percent of its workforce). Precision Drilling, one of the largest rig contractors in North America, has idled more than 50 of the 250 rigs it had working this time last year, leaving more than 1,000 skilled operators out of work, the company said on Thursday. “Industry downturns are difficult for all, but they affect our rig crews more than anybody else,” the company’s chief executive said in a statement. “Precision recruited, trained and developed many excellent crews to support the demands of our customers over the past several years, and unfortunately we now don’t have work for many of these dedicated workers.”

Inefficiencies Abound In U.S. Shale - Recent well performance in the Eagle Ford Shale play has declined among key operators. This is due in part to especially poor well performance by a few operators. Excluding those operators, well performance for 2013 and 2014 was still poorer than in 2012 but improved in 2014 compared with 2013.  When I wrote that Eagle Ford well performance was declining in a recent post, some readers were indignant as if a shale play somehow deserves a pass on the laws of physics and eternally gets better instead of eventually declining as all plays do.  “Never confuse production with reserves” is one of Halloran’s Immutable Principles of Energy. Wells may produce at relatively high rates but never reach commercial reserve levels because of cost or declining well performance over time despite high initial rates. Published analysis of shale plays too often stresses success based on production volumes but not reserves, production rates but not the cost, the benefits of technology but not its price, and claims of profit that exclude important expenses. Below is an example of well interference and rate acceleration in the Eagle Ford Shale play where an operator has over-drilled an area with bottom-hole locations approximately 300 feet apart. EUR values are shown for each well. None will be commercial because the wells are cannibalizing production from each other. Approximately $150 million in capital cost was spent on the non-commercial wells shown on this map.

Shale sub-prime and the Ides of March  -- In 2010 the US Government and media thus embarked in a promotional campaign for source rock drilling, erroneously calling “shales” to these resources to ease the marketing. Vast amounts of money started flowing to the sector, the industry quivered with activity, plenty of new jobs were created and the country soon emerged from economic recession. The end result: in three years petroleum extraction in the US grew by 50%, returning to levels not seen since the 1980s.But there was a problem: extracting petroleum from source rocks requires a relentless effort, without parallel among the resources explored by the industry. While a well drilled into a traditional reservoir can extract petroleum for decades, a well drilled into source rocks looses half of the initial flow rate in just 12 months, having a mean lifetime of just three years. In consequence, a company operating on these resources must be permanently drilling new wells just to keep the volume of petroleum extracted constant. This kind of activity requires unusually high amounts of capital investment.The American petroleum industry was able to source astronomical sums of money to keep the gargantuan “shale” machine running recurring to the debt bond market. With great help of the media, a swollen image of the real dimension of these resources was conveyed by the industry, in some cases announcing to investors reserves ten times larger than those reported to fiscal authorities. This practice yearned various suggestive names: “shale hype”, or my preferred, “snake oil”. More recently the Nature magazine published a series of articles not only questioning these reporting practices, but also pointing out the complicity of the Energy Information Agency (EIA – a branch of the US government’s Department of Energy). The EIA would eventually excuse itself, literally saying that its forecasts are not to be taken seriously. However, this admission come much to late for most investors.

Breaking: House Passes Keystone XL, Bill Heads to Obama’s Desk  -- This afternoon, after some debate that broke no new ground, the House of Representatives passed the Senate’s version of the Keystone XL pipeline bill by a vote of 270-152, the Senate passed the bill on Jan. 29 by a vote of 62-36. The House had quickly approved it—for the tenth time— just days after the current session of Congress convened in early January, sending the bill to the Senate. There it passed for the first time, thanks to Republicans taking control of the Senate following last November’s mid-term elections.  Today’s vote was necessary to reconcile the two versions of the bill, the final step before sending it to President Obama’s desk. President Obama has consistently indicated that he will veto the bill. To override his veto it would have required 67 votes in the Senate, which they did not achieve. “The only thing Congressional Republicans accomplished with this vote is a show of unflinching loyalty to their Big Oil campaign donors who put this tar sands pipeline at the top of their wish list,” said Michael Brune, executive director of the Sierra Club.

House Votes To Force Approval Of The Keystone XL Pipeline -The House voted 270-152 Wednesday to pass legislation approving the Keystone XL pipeline, the 1,179-mile cross-country project that would ship tar sands crude oil from Alberta, Canada down to the Gulf Coast of the U.S.   The bill will now be sent to President Obama, who is expected to veto it. White House press secretary Josh Earnest said at the beginning of January that the president “wouldn’t sign” any Congressional legislation on Keystone XL that makes it to his desk. “The president has been pretty clear that he does not think circumventing a well-established process for evaluating these projects is the right thing for Congress,” Earnest said. If the president does veto the bill, it will be the third time in his career that he’s used his veto authority.   Right now, it doesn’t look like the House or Senate would get the two-thirds majority that it would take to override the veto. Congressional Republicans vowed last year to make Keystone XL their first priority in 2015.

Keystone XL Pipeline Project Vote: Oil And Gas Industry Gave $250K To Senators Who Voted ‘Yes’ -- The oil and gas industry gave nearly $250,000 to each of the 62 senators who voted in favor of the controversial Keystone XL pipeline project late last month, according to MapLight, a nonpartisan research organization that tracks the influence of money in politics. The revelations come as the House of Representatives is set to vote on and expected to pass the Senate legislation Wednesday that would approve the pipeline and start transferring oil in western Canada to refineries on the Gulf Coast. President Barack Obama has threatened to veto the project on a number of grounds, including environmental concerns. The oil and gas industry, which stands to benefit from the Keystone XL pipeline, gave$236,544 on average to the senators who voted yes on Keystone, or about 10 times more than the senators who voted no. The 36 senators against the pipeline received about $22,882 apiece in campaign contributions from the oil and gas industry. There was no data on contributions to House members. Sen. John Hoeven, R-N.D., the sponsor of the Keystone Senate bill, received about $275,000 from the industry, according to MapLight, but he wasn’t the biggest beneficiary of oil and gas industry money in the Senate. That distinction goes to Sen. John Cornyn, R-Texas, who has received more than $1 million from the industry, which is important to Texas. The Democratic co-sponsor of the Keystone bill, Sen. Joe Manchin of West Virginia, received about $200,000 from the industry -- the biggest beneficiary of oil and gas money among Democrats. But there were 24 Republicans who got larger contributions from the industry than him. The petroleum refining and marketing industry, which is among the biggest backers of the Keystone pipeline, also gave about 10 times more money to senators who voted yes on Keystone than those who voted against it, according to MapLight. Those in the yes camp received about $47,325 on average from the industry while those who voted no received about $3,600.

The FBI Is Making House Calls to Keystone XL Opponents -- Tar sands activists in several states have been getting visits from the FBI, and no one knows yet exactly why.  Federal agents have been contacting activists who have participated in anti-Keystone XL and anti-tar sands protests, according to the Canadian Press. The visits have been happening to activists in Oregon, Washington state, and Idaho, and a lawyer working with the activists told the Canadian Press that he has advised them not to talk to the agents.  “It’s always the same line: ‘We’re not doing criminal investigations, you’re not accused of any crime. But we’re trying to learn more about the movement,'” he said.   The agents have reportedly been targeting activists who have protested “megaloads,” a truckload of tar sands extraction equipment that can be longer than a football field and can take up two lanes of a highway. These protests have blocked highways and delayed the equipment’s shipment.   One woman who was contacted by the FBI, Helen Yost, is the co-founder of Wild Idaho Rising Tide and has been arrested twice while protesting tar sands. Yost told the AP in January that she refused to talk to the agent.“We don’t see ourselves as posing any threat,” she said. “We see the FBI contact as being unwarranted.” The FBI told the Canadian Press that it doesn’t investigate political movements — instead, it focuses on crimes.  “The FBI has the authority to conduct an investigation when it has reasonable grounds to believe that an individual has engaged in criminal activity or is planning to do so,” FBI spokeswoman Ayn Dietrich said.

Breaking: Nebraska Judge Rules “No eminent domain for Keystone”  - Following other court opinions, a privately owned Canadian tar balls going to at Texas refinery for export overseas does not serve a public purpose in Nebraska – therefore it is not a utility, therefore it does not have eminent domain and cannot condemn private property.A Nebraska district court judge has temporarily halted the ability of a Canadian company to acquire right-of-way for the Keystone XL pipeline.  Holt County District Judge Mark Kozisek granted a temporary injunction Thursday to landowners who challenged the ability of TransCanada to use eminent domain to acquire land for the controversial pipeline. n The judge made the ruling after landowners filed new lawsuits challenging the state’s pipeline routing law, which was narrowly upheld by the Nebraska Supreme Court in a decision last month.  A spokesman for TransCanada said Thursday the company agreed to the injunction in exchange for an accelerated trial schedule. Although the judge’s order affects just the landowners along the northern part of the pipeline route, the company will offer to stall land condemnation for the roughly 90 property owners along the route who have refused to sign easement contracts.

Why Are Canadians Hell Bent on Shipping Tar Balls to a Refinery on the Gulf of Mexico ? -- Short answer: Because that’s the easiest way to export the finished product – oil – to China.   Why not just ship it to British Columbia ? In a word, gravity. The Alberta tar sands are about 1,000 feet above sea level – which means that going to the Texas coast is all down hill. That’s easy for a pipeline.  There are no mountain ranges in the way. Just farm land, rivers, and forests. Going to British Columbia means crossing the Canadian Rockies, which is a vertical rise of over 10,000 feet in places. That’s tough. But why Texas ? Because once the tar is refined in Texas, it will go onto supertankers and be shipped to China via the new sea level canal that the Chinese are building across Nicaragua.  In a private deal negotiated by Daniel Ortega of the Sandinistas. Remember him ? Now you know. All that right of way through all those farms and ranches and rivers and wetlands is being expropriated so that a foreign company – from Canada – can ship oil to China. Across all of those farms and ranches and forests and wetlands.  Tens of thousands of Nicaraguans may be displaced by the canal’s construction, including some indigenous communities. Moreover, the project poses serious threats to the country’s wetlands and forests. It may involve the dredging of Lake Nicaragua, which is too shallow at present to accommodate the supertankers that the canal’s backers want to see steaming through Nicaragua. That would generate a great deal of sediment and potentially damage water quality and harm the surrounding ecosystem.

U.S. oil output "party" to last to 2020 - IEA -– The United States will remain the world’s top source of oil supply growth up to 2020, even after the recent collapse in prices, the International Energy Agency said, defying expectations of a more dramatic slowdown in shale growth. The agency also said in its Medium Term Oil Market report that oil prices, which slid from $115 a barrel in June to a near six-year low close to $45 in January, would likely stabilize at levels substantially below the highs of the last three years. Oil prices deepened their decline after the Organization of the Petroleum Exporting Countries in November shifted strategy and declined to cut its own output, choosing to retain market share that has been eroded by rival supply sources such as U.S. shale oil. But IEA Executive Director Maria van der Hoeven, launching the report in London, said while OPEC may win back some customers while prices are low, it would not regain the market share it held before the 2008 financial crisis. “This unusual response to lower prices is just one more example of how shale oil has changed the market,” she said in a statement. “OPEC’s move to let the market rebalance itself is a reflection of that fact.” The report said supply growth of U.S. light, tight oil (LTO) will initially slow to a trickle but regain momentum later, bringing its production to 5.2 million barrels per day (bpd) by 2020. Total U.S. supply increases by 2.2 million bpd to 14 million bpd in 2020, with most of the expansion due to LTO.

Arthur Berman: Why Today's Shale Era Is The Retirement Party For Oil Production - As we've written about often here at PeakProsperity.com, much of what's been 'sold' to us about the US shale oil revolution is massively over-hyped. The amount of commercially-recoverable shale oil is much less than touted, returns much less net energy than the petroleum our economy was built around, and is extremely unprofitable to extract for most drillers at today's lower oil price. To separate the hype from reality, our podcast guest is Arthur Berman, a geological consultant with 34 years of experience in petroleum exploration and production.  Berman sees the recent US oil production boost from shale drilling as short-lived and somewhat desperate; a kind of last hurrah before the lights get turned out: The EIA looks at the US tight oil plays and they see maybe five years before things start to fall off. I think it is less, but I am not going to split hairs. The point is that what we found is expensive and we have got a few years -- not decades -- of it. So when we start hearing people pounding the table about how the United States should lift the ban on crude oil exports, well that is another topic if we are just talking about free trade and regulation, but what in the world is a country like ours doing still importing 5+ million barrels of crude oil a day and we have got maybe 2 years of supply from tight oil? What are we thinking about when we claim we're going to export oil? That is just a dumb idea. It is like borrowing money from a bankrupt person. I like to talk about these shale plays as not a revolution, but a retirement party. I mean, you know, this is the kind of bittersweet celebration you have when you are almost out the door and are going to sit around the house and watch Duck Dynasty whatever for your remaining days. It's not really cause for a celebration. It is cause for some sobering concerns and taking stock about what does the future have in store for us as a country, as a world?

Oil Companies May Keep Up Output to Repay Debt, BIS Says - -- Energy companies may be slow to cut oil production after a 50 percent price drop because they need to service debt that has risen fourfold since 2003, according to the Bank for International Settlements. “Debt-service requirements may induce continued physical production of oil to maintain cash flows, delaying the reduction in supply in the market,” the Basel, Switzerland-based institution said in a report Saturday. Energy companies’ outstanding debt rose to more than $800 billion this year from less than $200 billion in 2003, said BIS, which is owned by central banks. Sinking oil prices weakened the value of assets used as collateral by producers and compelled them to sell more of their output on futures markets, it said. Oil’s role as a financial asset may have contributed to the price drop and the most volatile swings in prices in more than six years. Brent crude oil, a global benchmark, has tumbled as members of the Organization of Petroleum Exporting Countries refused to cut oil production in response to the highest U.S. output in three decades. Lower prices increases the risk of companies failing to meet interest payments, the BIS said. Borrowing Costs Tumbling oil prices have increased borrowing costs among energy companies, with spreads on high-yield bonds issued by energy firms soaring to 800 basis points, or 8 percentage points, as of January, from 330 points in June, according to the BIS. The spread measures the additional interest costs paid by a borrower compared above a benchmark rate.

BIS says financial flows partly to blame for oil collapse - FT.com: The near 50 per cent fall in oil prices since mid-June cannot be solely explained by changes in consumption and production, according to the Bank for International Settlements, which says heavy trading on commodity futures markets has also played a part. In a preliminary analysis of the oil market rout, BIS, known as the central bankers’ bank, says financial flows have contributed to the rout along with changes in supply and demand balances.  The comments will add to the debate about the “financialisation” of commodity markets and the extent to which investors, big banks and hedge funds are driving prices of raw materials. BIS says the last two comparable oil price declines in 1996 and 2008 were associated with a large drop in consumption, and in 1996, a surge in production. But this time changes in supply and demand — which BIS says have not differed markedly from expectations — fall short of providing a satisfactory explanation for the abrupt collapse in prices. “Rather, the steepness of the price decline and the very large day-to-day price swings are reminiscent of a financial asset,” BIS said in its analysis. “As with other financial assets, movements in the price of oil are driven by changes in expectations about future market conditions.” Oil prices have gyrated wildly over the past week, rising and falling by as much 9 per cent a day in response to news flow that has ranged from data on US oil rigs to storage levels. Trading in Brent and West Texas Intermediate futures contracts dwarfs physical volumes and many traders say it is the supply and demand for futures which determines the price of oil. According to PVM, a brokerage, daily futures volume in oil has risen from 3.4 times global demand in 2005, when the International Petroleum Exchange went electronic, to 17 times at the end of 2014 and has ratcheted up even further to over 20 times since the beginning of the year.

The BIS has a very different take on oil financialisation effects -- So, this weekend, the Bank for International Settlements released a preview of an upcoming report in which they make a connection between financialisation and the oil market.  Tracy’s written it up here. But, before you get too excited, two things must be pointed out. The first, of course, is that a BIS admission about financialisation effects on the oil market is pretty unexpected. You see, as far as we’ve tracked or heard from BIS economists on this matter, they’ve resisted arguments and models pointing to financialisation effects, embracing instead explanations that link price effects to fundamentals. Which brings us to the second thing. Yes, the BIS is shifting its view on the financialisation argument, but the paper also shows it doing so in a really convoluted and unconvincing way. Definitely the opposite of Occam’s Razor. It seems that, in search of a fundamental excuse, the BIS has zoomed in on the following relationship between swap dealer positions and price volatility:  But this is weird, because — as Craig Pirrong has already pointed out – the above chart is totally unconvincing when it comes to cause and effect. It is entirely normal for swap-dealers to reduce positions as the oil price comes down.The decline in swap dealer short futures positions more likely reflects a reduced hedging demand by producers. For instance, at present we are seeing a sharp drop in drilling activity in the US, which means that there is less future production to hedge and hence less hedging activity. The fact that the decline in swap dealer short futures is much more pronounced now than in 2008-2009 is consistent with that, as is the big rise in these positions during the shale boom starting in 2009. This is exactly what you’d expect if hedging demand is driven primarily by E&P companies in the US. And the funny thing is, even those academics whose work has shown a link between financialisation and oil prices, don’t like the BIS analysis.

Citi: Oil Could Plunge to $20, and This Might Be 'the End of OPEC' - The recent surge in oil prices is just a "head-fake," and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude. Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup's global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.A pullback in production isn't likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range "for a while," according to the report. The U.S. shale-oil revolution has broken OPEC's ability to manipulate prices and maximize profits for oil-producing countries. "It looks exceedingly unlikely for OPEC to return to its old way of doing business," Morse wrote. "While many analysts have seen in past market crises 'the end of OPEC,' this time around might well be different," Morse said. Citi reduced its annual forecast for Brent crude for the second time in 2015. Prices in the $45-$55 range are unsustainable and will trigger "disinvestment from oil" and a fourth-quarter rebound to $75 a barrel, according to the report. Prices this year will likely average $54 a barrel.

Why Citi Thinks Oil Is Going To $20 -- The recent rally in crude prices looks more like a head-fake than a sustainable turning point, suggests Citi's Ed Morse, noting that short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond. While the shape of the oil price recovery is unlikely to be 'L'-shaped in their view (more likely 'U', 'V', or 'W'-shaped recovery), Citi warns the oil market should bottom sometime between the end of Q1 and beginning of Q2 at a significantly lower price level in the $40 range (perhaps as low as the $20 range for a while) - after which markets should start to balance, first with an end to inventory builds and later on with a period of sustained inventory draws. Via Citi, The recent rally in crude prices looks more like a head-fake than a sustainable turning point — The drop in US rig count, continuing cuts in upstream capex, the reading of technical charts, and investor short position-covering sustained the end-January 8.1% jump in Brent and 5.8% jump in WTI into the first week of February. Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond — Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops. As on-land storage fills and covers the carry of the monthly spreads at ~$0.75/bbl, the forward curve has to steepen to accommodate a monthly carry closer to $1.20, putting downward pressure on prompt prices. As floating storage reaches its limits, there should be downward price pressure to shut in production.

Oil Glut: Is North America the New Swing Producer? -- Citigroup read a lot of people’s minds yesterday who have been quietly wondering what happens to the price of oil when the glut becomes so extreme that the world runs out of storage containers to hold the oversupply or the cost of storage becomes uneconomic as the price of oil languishes. Citigroup’s head of commodity research, Edward Morse, wrote in a report yesterday that “Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops.” Morse said the oversupply could push U.S. domestic crude, West Texas Intermediate or WTI, below $40 and possibly into the “$20 range for a while.” WTI is trading currently at $52.29 in early morning trade. On the basis of the Citigroup report, CNN ran the headline: “End of OPEC Is Closer to Reality.” Adding to the end of OPEC thesis, the International Energy Agency (IEA), an autonomous group representing 29 member countries, released its Medium Term Oil Market Report yesterday. The report concluded that North America would remain a top source of oil supply growth for the remainder of the decade. IEA Executive Director, Maria van der Hoeven, said shale oil (or Light Tight Oil, LTO) produced in the U.S. and Canada has changed the market and “may have effectively turned LTO into the new swing producer.” Heretofore, Saudi Arabia, a member of OPEC, was seen as the key swing producer, cutting output to stem price declines in times of slack demand or overproduction. The report’s Executive Summary correctly identifies slacking global growth as a wild card in the prospect for a recovery in the price of oil, noting: “Unlike earlier price drops, this one is both supply and demand driven, with record non-OPEC supply growth in 2014 providing only one of the factors behind it, unexpectedly weak demand growth another.  The latest price drop is also occurring at a time when the dynamics of global demand and the place of oil in the fuel mix are undergoing dramatic change. Emerging economies – China chief among them – which 10 years ago seemed an unstoppable engine of near-vertical demand growth, have entered a new, less oil-intensive stage of development. The global economy, reshaped by the information technology revolution, has generally become less fuel intensive.  And the globalisation of the natural gas market, coupled with steep reductions in the cost and availability of renewable energy, are causing oil to face a level of inter-fuel competition that would have seemed unfathomable a few years ago.”

Oil-Price Rebound Predicted - WSJ -- In the latest sign that the seven-month selloff in crude-oil prices may be nearing a bottom, an energy watchdog said that a recovery seems “inevitable” and the glut that has driven down prices by more than 50% since June could start to ease as soon as the second half.  A wave of spending cuts by oil producers and a sharp decline in the number of rigs drilling for crude in the U.S. likely will slow the nation’s oil-output growth, spurring a rebound in prices, the International Energy Agency said in a report released Tuesday U.K. time. The benchmark U.S. oil price rose 2.3% to $52.86 a barrel on Monday and is up 19% from a nearly six-year low hit last month.  The IEA, which coordinates energy policy among industrialized countries, is adding its voice to the chorus of experts who say that the global glut is abating.  The IEA said its report, which presents a view of the oil markets five years out, aims to shed light on how a recovery will proceed, adding that a “price rebound…seems inevitable.” Stabilization in oil prices would spell relief across financial markets, which have been rocked by concerns that oil’s plunge signaled softness in global growth. The plunge has pummeled share prices of oil producers and currencies of oil-dependent economies.

Oil prices drop as IEA predicts weak rebound - - Oil prices fell Tuesday after the International Energy Agency predicted that global oil prices will recover only partially over the next five years.  US benchmark West Texas Intermediate (WTI) for March delivery slipped 70 cents to $52.16 a barrel compared with Monday's close. Brent North Sea crude for March slid 35 cents to stand at $57.99 a barrel in London afternoon trade. Citing a major shakeup in the oil markets, the IEA watchdog said in its five-year forecast that prices will recover from current levels of around $50-55 per barrel but remain considerably below the more than $100 per barrel reached before prices began to fall in June. "The global oil market looks set to begin a new chapter of its history, with markedly changing demand dynamics, sweeping shifts in crude trade and product supply, and dramatically different roles for OPEC and non-OPEC producers in regulating upstream supply," the IEA said. It added that it sees market rebalancing occurring "relatively swiftly", with increases in inventories halting mid-year and the market tightening.

Oil Searching For A Bottom As Union Threatens More Walkouts - The strike at US refineries got a bit bigger over the weekend – all amid the most volatile, and now downward, price swings seen in the last six years. Investors have yet to lose hope in a sustainable rebound, but another prolonged fall may be looming ahead. The United Steelworkers union (USW) and Royal Dutch Shell – big oil’s lead representative in the matter – failed to reach an agreement on wages, safety measures, and benefits last week. As a result, 1,400 workers at two BP-owned refineries joined the work stoppage on February 8. Since the beginning of the month, USW members have walked out of 11 refineries, leaving approximately 1.82 million barrels per day of refining capacity in the hands of retirees and last-minute, non-union replacement workers. Still in its early stages, the strike has room to grow. The USW national contract – which expired February 1 – covers nearly 30,000 workers, 65 facilities, and around two-thirds of the nation’s refining capacity. The nature of the negotiations remains unclear, but the sides appear to be far apart. The union has already rejected five offers from Shell and threatened further walkouts if progress is not made. To date, contingency plans and local bargaining have limited any drop in output – positive pressure on both crude and gasoline prices has been virtually non-existent. Instead, downward pressure caused by the work stoppage has only increased the recent volatility, muddying any understanding of the true bottom. The last strike, in 1980, lasted three months. Refinery stoppages, or even threats, tend to reduce purchases of crude – an untimely effect as US crude oil inventories are at their highest level in more than 80 years. The Energy Information Administration reports that inventories are up 6.3 million barrels since the week ending January 23, and up 55 million barrels since this time last year. West Texas Intermediate (WTI) fell more than five percent on the news.

U.S. rig count dives by 98, Baker Hughes says: – The number of active U.S. land rigs plunged by 98 this week in one of the biggest declines in the past three decades as fallen oil prices continued to pummel the industry’s drilling ambitions. Eighty-four U.S. oil rigs were idled this week and 14 gas rigs stopped running, according to oil field services firm Baker Hughes. Two U.S. offshore rigs became active this week. Baker Hughes’ 71-year-old U.S. rig count, one of the industry’s go-to indicators of future oil production and demand for rigs, was down by 406 drilling units compared to Feb. 13, 2014. The last time the rig count fell by 98 was in January, 2009 – the two declines are tied for the biggest drops since 1987. The 84-unit decline in active U.S. oil-hunting rigs was the second-biggest drop in nearly three decades, just behind the 94-oil rig decline last month. Last week, 83 oil rigs were taken out of the game.

US rig count plunges 98 to 1,358 - Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. plunged by 98 this week to 1,358 amid depressed oil prices. The Houston firm said Friday in its weekly report that 1,056 rigs were exploring for oil and 300 for gas. Two were listed as miscellaneous. A year ago 1,764 rigs were active. Of the major oil- and gas-producing states, Texas' count plummeted by 56, New Mexico fell 12, North Dakota fell nine, Colorado lost six, Oklahoma lost five, Wyoming fell three, Ohio and West Virginia each lost two and Arkansas fell one. Louisiana gained one. Alaska, California, Kansas, Pennsylvania and Utah were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

U.S. Rigs Are Being Idled, but the Oil Boom Is Not Ending - -- The U.S. drilling frenzy is over. What’s not is the boom in oil production. While companies have idled 151 rigs in five shale formations since reaching a peak of 1,157 in October, they’ll need to park another 200 for growth to stall, according to data from the U.S. Energy Information Administration. Output there will reach a record 5.47 million barrels a day in March even though the number of rigs exploring for oil is the lowest since 2013. The spending cuts led to speculation that U.S. gains would slow, eroding a global supply glut that sent prices tumbling last year. Oil has jumped 18 percent since closing at a six-year low of $44.45 a barrel on Jan. 28. Improving technology and a focus on the most promising acreage has made the rig count, a closely watched barometer of drilling activity, a less reliable indicator of future output. “The trend in U.S. oil production is the key variable in the oil market this year, so any sign that the great growth engine is slowing is eagerly anticipated,” “There may be some false starts and we may have just seen one.”The industry has become better at blasting crude out of deep underground layers of rock, according to productivity data tracked by the EIA in the major shale prospects including the Bakken, Eagle Ford, Niobrara, Permian and Utica. More from Bloomberg.com: S&P 500 Climbs to Record as Oil Rally Offsets Confidence Report Red Queen The improvements have helped overcome the natural depletion of existing wells. Shale wells decline sharply at first and then trail off at a slower rate until they run dry. It’s a phenomenon known as The Red Queen, after the character in Lewis Carroll’s “Through the Looking-Glass,” who tells Alice, “It takes all the running you can do, to keep in the same place.” As drillers cut costs, the less efficient equipment is idled first while the best machinery is dispatched to the most promising acreage, which boosts the amount of crude produced for every rig in the field. At the same time, the existing pool of wells grows older, meaning the decline rate -- the Red Queen -- slows down.

Stacked rigs and their impact on oil prices - Although the dramatic drop in U.S. rig count alleviated the oil price decline, global investment firm Goldman Sachs said it probably won’t lead to a slowdown in production or help with oversupply. According to a report by CNBC, earlier this week the firm stated in a note that “the decline in the U.S. rig count likely remains well short of the level required to slow U.S. shale oil production to levels consistent with a balanced global market. Lower oil prices will be required over the coming quarters to see the U.S. production growth slowdown materialize.” The firm estimates that the current rig count will sustain production growth in the major shale plays – the Bakken, Permian, and Eagle Ford formations – to 615,000 barrels a day in the last quarter of this year. Continued productivity growth may push that figure to as much as 690,000 barrels per day. According to data from the International Energy Agency, these figures are related to which rigs are being cut. CNBC reports that the note continued on to say, “While this focus on cost reduction initially leads to a sharp drop in the rig count, it provides little information on the future path of the rig count and companies’ aim at high-grading.” Though, the stacked rigs could quickly come back on-line when ready. “The impact of productivity gains is likely to be most visible over a longer period of time as it compounds on itself,” the note said. These gains will most likely be seen in 2016 rather than this year, though. Last month, Goldman slashed its oil price forecasts substantially. Currently, Goldman predicts that West Texas Intermediate prices will be $41 per barrel in three months, $39 in six months, and $65 within a year. Following the same time frame, Brent crude prices are projected to be $42, $43, $70 a barrel respectively. As of Wednesday, WTI scheduled for March delivery was being traded at $50.33 per barrel and Brent crude was being traded at about $56.30 per barrel, up from the lows seen last month.

US Rig Count Plunges By Most Since 1993, Production Hits Record Highs --Despite the dramatic plunge in rig counts, this week saw yet another surge in production to record highs and with storage levels getting close to full, it would seem  - despite the bounce/squeeze in prices to $53 as the data hit - that supply remains well ahead of any demand. Total rig count dropped 98 to 1,358 - for the largest weekly drop of the 10 week run as cutting is accelerating rapidly - now down 30%.  This is the biggest weekly rig count drop since 1993. West Virginia remains the relative hardest hit with rig count depletions but Permian Basin collapse 49 rigs to 369 this week.

The rig count misnomer? --  Numerous stories have been dished out covering the continuous rig count depletion happening across the nation. But while reducing oil rigs may have helped boost oil prices over the past month or so, it will do little to nothing in slowing production or alleviating the oil glut on the market, according to analysis from Goldman Sachs. “Our bottom-up analysis suggests that the decline in the US rig count likely remains well short of the level required to slow US shale oil production to levels consistent with a balanced global market, especially if productivity gains and high-grading materialize as expected,” Goldman Sachs stated in a press release Tuesday. “Nonetheless, we also find that the rebalancing of the US oil market is closer than would be implied by the US shale gas template of 2012-13.” Additionally, the analysis suggests that the issue really isn’t how many rigs are being cut, but which ones are leaving the production scene. A recent CNBC report stated that “high-grading,” with producers eliminating the least efficient rigs first, will keep production consistent. It is estimated that the Big-three plays (Eagle Ford, Permian and the Bakken) would need to cut their horizontal rig count by another 30 percent to 407 by the fourth quarter of 2015 to bring production growth to 400,000 barrels a day by then. Presently, it is expected that the current rig count will bring production growth from the Big-three shale basins to 615,000 barrels a day in the fourth quarter of this year, while continued productivity growth may push that as high as 690,000 barrels a day.

As U.S. oil tanks swell at record rate, traders ask: for how long? --  Oil is flooding into U.S. storage tanks at an unprecedented rate, leading traders to wonder how long the hub in Cushing, Oklahoma, can keep absorbing its share of the global supply glut. About half the surplus crude accumulating in tanks across the United States is flowing into Cushing. If the build-up continues at the same rate, some industry officials and sources said, the tanks could reach maximum capacity by early April. Others suggest the flow might continue until July before it tests the limits of the dozens of steel-hulled storage tanks clustered in mid-Oklahoma. Traders have been scrambling to secure space at Cushing so they can store oil purchased at current low prices and sell it in a year at a profit exceeding $11 a barrel because the oil market has been in a structure known as contango. In January, crude oil arriving by pipeline and rail into Cushing, the delivery point of the U.S. crude futures contract, jumped nearly 11 million barrels to nearly 42.6 million barrels, the largest monthly build since the U.S. Energy Information Administration began tracking the data a decade ago. On Thursday, data from energy information provider Genscape showed Cushing stocks rose a further 3.2 million barrels in the four days to Feb. 10, the biggest such increase ever. Over the past 10 weeks, some 550,000 barrels per day (bpd) of crude have flowed into oil tanks across the United States, according to the EIA. That’s approximately one-quarter of the current global surplus estimated by OPEC.

US shale oil boom masks declining global supply - FT.com: The surge in US shale oil production over the past five years has been truly phenomenal, but the notion that it was ushering in a new age of global oil abundance was always overdone and is looking more exaggerated by the day. One need only look at the trend in the number of rigs drilling for oil in the US — as published weekly in the benchmark Baker Hughes survey — to see that the shale oil industry is now in severe crisis.  The US rig count has been on a downward trend since peaking in early October at 1,609, but the past two weeks have seen a spectacular acceleration of this trend. Following the record drop of 94 units for the week ending January 30, the latest data released on February 6 showed a further decline of 83 units. The rig count is now down by 469 units (29 per cent) since October, and at its lowest level since December 2011. Moreover, of the 469 rigs dropped, more than half (265) are horizontal drilling rigs, the most productive kind. The scale of the drop since early January in particular is spectacular, with 342 of the 469 rigs dropped since October 10 coming off in the past five weeks alone. In all of the historical Baker Hughes data stretching back to July 1987 there is no precedent for a drop of this severity. The reason this matters is that US shale oil has been the main driver of global supply growth in the past few years. It has increased by 4.1m barrels per day in the past six years to reach 4.7m b/d in 2014 from only 0.6m b/d in 2008. Indeed, without US shale oil, global crude oil output would have been lower in 2014 than it was in 2005.  Based on the preliminary 2014 supply data provided by the US Energy Information Administration in its most recent Short Term Energy Outlook, the total world crude oil supply increased by 3.5m b/d over 2005-14, rising to 77.3m b/d from 73.8m b/d. However, if we strip out the impact of rising production from US shale oil, the global crude oil supply actually declined by around 1m b/d over this period, to 72.6m b/d from 73.5m b/d.  In turn, this means the outlook for continuing growth in global crude oil output in the next few years depends crucially on the outlook for continuing growth in US shale oil production. And that is a problem as the decline rates of shale oil wells are much higher than for conventional oil wells, which means a large number of new wells must be drilled every year simply to offset natural decline. This drilling treadmill gives rise to a capex treadmill, whereby constant infusions of new capital are required to enable the drilling to continue.

Goldman: The Plunge in Rig Count Still Isn't Enough to Stop Oil From Tumbling (Bloomberg) -- The slump in oil prices may not be over, according to Goldman Sachs Group Inc. The decline in the number of U.S. drilling rigs that’s helped crude futures in New York rebound 14 percent from this year’s low isn’t enough to reduce an oversupply, the U.S. bank said in a note dated Feb. 10. Lower prices are needed for American output to slow sufficiently to rebalance global markets, it said.  Goldman joins Citigroup Inc. and Vitol Group, the world’s biggest independent oil trader, in signaling prices may resume a decline amid unrelenting production growth. West Texas Intermediate crude is still down by half from last year’s peak as the U.S. pumps the most in three decades. While companies have idled rigs and cut spending, it will be some time before production is affected, according to the International Energy Agency.  “The decline in the U.S. rig count likely remains well short of the level required to slow U.S. shale oil production to levels consistent with a balanced global market,” analysts including Damien Courvalin wrote in the report. “Lower oil prices will be required over the coming quarters to see the required U.S. production growth slowdown materialize.”

Goldman Warns "Don't Count On Rig Declines To Balance The Oil Market Just Yet" With WTI back under $50 once again (the mainstream media's new Maginot Line for oil complex stability - just like $80, $70, and $60 was), it appears more investors are waking up to the reality of an over-supplied, under-demanded global energy market. The 'squeeze bounce manipulation' that we saw over the last week - very reminiscent of the bounce seen mid-collapse in 2008/9, was predicated on falling rig counts (and capex). However, Goldman pours freezing cold fracking water all over that thesis as they explain that the decline in the US rig count remains well short of the level required to achieve a sufficient slowdown in US oil production growth to balance the global market. Simply put, they conclude, lower oil prices will be required over the coming quarters to see the US production growth slowdown materialize with risk to their already low price forecast to the downside.

Fed’s Fisher Tells Fox Business Network Low Oil Prices Will Stay for Now - Federal Reserve Bank of Dallas President Richard Fisher said in a television interview Wednesday low oil prices will likely stick around for a while. In an interview with Fox Business Network, Mr. Fisher said Saudi Arabia is “testing, testing, testing” as part of a process of “price discovery” in a world where the U.S. has returned as a top-tier oil producer. The central banker low said low oil prices will likely persist “for a year or two” as a result. Mr. Fisher, who retires from the Dallas Fed next month, said he isn’t worried about the shale-oil revolution in the U.S. He said that firms that fail because of low prices will likely be bought by bigger players, which will in turn preserve the industry for the future.

Nymex oil scores third week of gains in a row -  —U.S. crude-oil futures on Friday scored a third straight weekly gain, with prices for the Brent contract marking their highest settlement of the year on the back of spending cuts by oil companies and further declines in the number of active U.S. oil rigs. On the New York Mercantile Exchange, crude for delivery in March rose $1.57, or 3.1%, to settle at $52.78 a barrel—up about 2.1% for the week. Prices briefly traded as high as $53.10 immediately after weekly data from Baker Hughes showed that the U.S. number of rigs actively drilling for oil and natural gas fell 98 to 1,358 as of Feb. 13. That’s down 406 from the same time last year and they were already at about a 5-year low as of the week ended Feb. 6. Brent crude for April delivery rose $2.24, or 3.8%, to settle at $61.52 a barrel on London’s ICE Futures exchange. Based on the most-active contracts, Brent prices haven’t settled above $60 since Dec. 24 and they’re up more than 6% for the week. “The recent bounce back in the price of Brent appears to have been driven by the sharp drop in the number of rigs drilling for oil and the slew of announcements from major oil companies that they are cutting back on investment,”

Wolf Richter: Wall Street Has a Dream About the Price of Oil -- Yves here. I e-mailed Wolf today after seeing a new Wall Street Journal story on bullish IEA oil price forecasts for the second half of the year. From his reply: The fundamentals are clearly against any kind of quick rise in the price of oil. That said, with enough speculative money piling in, prices could rise (they already did by 20%). But that would just support more production and higher storage levels, which would then be the next shoe to drop. In my experience in the oil patch in the mid 1980s and on, this will take a while to work out. But as we say, nothing goes to heck in a straight line. As you mentioned, the rig count drop is irrelevant near term. But even long term, the rig count drop is misleading. Drillers cut out the oldest most inefficient rigs, and they stopped drilling in the most inefficient and expensive plays (wells that produce a lot of water, for example). They’re cutting the least productive wells and the worst equipment, but they are maximizing their most productive wells and the best equipment. I don’t know what the net difference might be, but it’s not equal to the total number of rigs that they idled…Wall Street is already pumping up prices for next year. In 2016, a lot of junk-rated drillers are going to run out of liquidity. At the current oil prices or below, they’re unlikely to obtain more funding at reasonable terms. Vultures will be moving in with senior secured debt at extortionary rates and tight terms to where they get most of the company when it defaults and restructures. This will hurt banks, investment banks, PE firms, etc. So they WANT oil prices to go up, after a big tradable crash to end no later than in Q3.

Wall Street Has a Dream About the Price of Oil -- The price of oil has bounced 20% since January 29 when the benchmark West Texas Intermediate had dipped below $44 a barrel, but according to Edward Morse, Citigroup’s global head of commodity research, that dizzying bounce is a “head-fake.” Because the fundamentals are still terrible. Oil production in the US is still rising, despite drillers shutting down drilling activities at a record pace. Drilling fewer new wells is hurting oil field services companies, and the pain is fanning out across the oil patch and beyond. It hit private equity firms, it sank energy junk bonds, it triggered layoffs, but it isn’t curtailing oil production. Not yet.So the US remains by far the largest contributor to “global oil supply growth,” the US Energy Information Administration just pointed out, with production in 2014 jumping by 1.59 million barrels a day. By comparison: in Iraq, the second largest contributor to global oil supply growth, production edged up by 0.33 million barrels a day. And… “Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia,” explained the Citi report, cited by Bloomberg. “The market is oversupplied, and storage tanks are topping out.”Production will continue to rise, despite plunging drilling activity, and won’t slow down until the third quarter this year. As the oil glut is growing, it wreaks havoc on the price of oil, potentially pushing it, according to the report, into the neighborhood of $20 a barrel – “for a while.”  And the US shale oil revolution has defanged OPEC. It can no longer control oil prices at will to maximize profits for oil-producing countries, including the US. A sort of an unpleasant free market has suddenly re-broken out. “It looks exceedingly unlikely for OPEC to return to its old way of doing business,” Citi’s report said. “While many analysts have seen in past market crises ‘the end of OPEC,’ this time around might well be different.” But Citi is an integral part of Wall Street, and Wall Street dreams of a V-shaped recovery of everything because that’s where the quick and big bucks are to be made. Prices even in the current range are unsustainable for the industry, the report pointed out, and will entail a wave of “disinvestment from oil,” of the type we’re already seeing. But then, after oil plunges into the $20-range, presumably by no later than the third quarter, mirabile dictu, the price will soar, according to the report, and I mean SOAR, with Brent hitting $75 a barrel by the end of this year – more than tripling in a little over a quarter.

Lower oil price to hit U.S. oil and gas lending: Kemp - “Excessive oil and gas loan concentrations have been a key factor in the failure of some banks during periods of steep price declines,” the Office of the Comptroller of the Currency (OCC) notes with bureaucratic understatement in its handbook for U.S. bank examiners. Falling oil and gas prices can have a negative impact on firms beyond producers themselves, rippling out to hurt oilfield service companies, drilling contractors, water haulers, construction companies, local hotels, housing projects, restaurants and even convenience stores. “Banks with regional concentrations in areas that are heavily dependent on the oil and gas economy can be severely affected beyond the direct lending for oil and gas production,” the handbook warns, instructing examiners to watch out for unintended concentrations of credit risk. The examination manual for “Oil and Gas Production Lending,” which was updated in April 2014, is a timely reminder of the tight links between the exploration and production sector on the one hand and the banking system on the other. While the equity and debt finance, including securitized lending, have come to play an increasingly important role in paying for drilling, as well as purchasing rigs and pressure pumping equipment, bank credit still has an important role in the industry.

The Problem Of Debt As We Reach Oil Limits - (This is Part 3 of my series – A New Theory of Energy and the Economy. These are links to Part 1 and Part 2.)  Many readers have asked me to explain debt. They also wonder,Why can’t we just cancel debt and start over?” if we are reaching oil limits, and these limits threaten to destabilize the system. . To do so would probably mean canceling all bank accounts as well. Most of our current jobs would probably disappear. We would probably be without grid electricity and without oil for cars. It would be very difficult to start over from such a situation. We would truly have to start over from scratch. Those holding paper wealth can’t count on getting very much.  Each debt, and in fact each promise of any sort, involves two parties. From the point of view of one party, the commitment is to pay a certain amount (or certain amount plus interest). From the point of view of the other party, it is a future benefit–an amount available in a bank account, or a paycheck, or a commitment from a government to pay unemployment benefits. The two parties are in a sense bound together by these commitments, in a way similar to the way atoms are bound together into molecules. We can’t get rid of debt without getting rid of the benefits that debt provides–something that is a huge problem.  Now, the world economy is much more networked, so a collapse in one area affects other areas as well. There is much more danger of a widespread collapse.Our economy is built on economic growth. If the amount of goods and services produced each year starts falling, then we have a huge problem. Repaying loans becomes much more difficult.

EIA: Record Oil Inventories, Gasoline Prices expected to average $2.33/gal in 2015  -- Oil prices are down today, with Brent at $55.05 per barrel, and WTI at $49.47. Note: There is less investment now, but current wells are still pumping.  Here is an excerpt from theWeekly Petroleum Status Report U.S. crude oil refinery inputs averaged about 15.6 million barrels per day during the week ending February 6, 2015, 20,000 barrels per day more than the previous week’s average. Refineries operated at 90.0% of their operable capacity last week. ... U.S. crude oil imports averaged 7.3 million barrels per day last week, down by 101,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.3 million barrels per day, 3.6% below the same four-week period last year. ...U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.9 million barrels from the previous week. At 417.9 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.  It is difficult to forecast oil and gasoline prices due to world events - and the response of producers to price changes, but currently the EIA expects gasoline prices to average $2.94/gal in 2015 according to the Short Term Energy Outlookreleased yesterday:

• EIA forecasts that Brent crude oil prices will average $58/bbl in 2015 and $75/bbl in 2016, with 2015 and 2016 annual average West Texas Intermediate (WTI) prices expected to be $3/bbl and $4/bbl, respectively, below Brent. This price outlook is unchanged from last month's forecast. ...
• Driven largely by falling crude oil prices, U.S. weekly regular gasoline retail prices averaged $2.04/gallon (gal) on January 26, the lowest since April 6, 2009, before increasing to $2.19/gal on February 9. EIA expects U.S. regular gasoline retail prices, which averaged $3.36/gal in 2014, to average $2.33/gal in 2015. The average household is now expected to spend about $750 less for gasoline in 2015 compared with last year because of lower prices. The projected regular gasoline retail price increases to an average of $2.73/gal in 2016.

WTI Nears $47 Handle After Inventory Build Doubles Expectations & Production Hits Record High - With inventories expected to rise 2.33 million barrels, crude oil inventories surged by 4.87 million barrels for the 5th week in a row (despite some talking heads looking for a draw). There were significant builds across the board in all products. As far as rig counts dropping means production cuts - forget it - crude production rose 0.534% to a new record high and total inventories rose to a new record high. Furthermore, as the following chart shows, the total crude inventory is still massively excessive relative to historical norms for this (or any other) time of year.

Markets chart of the day, February 11 - US crude supply is still soaring. A report from the Energy Information Administration on Wednesday said that US Crude inventories rose by 4.9 million barrels last week. This was more than the 3.6 million barrel increase that was expected. "At 417.9 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years,"  the EIA wrote in its release.  Following the data, West Texas Intermediate crude headed further below $50 a barrel, falling as much as 3.5% to as low as $48.24 a barrel. Brent crude was also down 3.5% to $55.43. This chart, via Deutsche Bank's Torsten Sl√łk, illustrates just how oversupplied oil markets are compared to historical levels.

U.S. Oil Production Reaches All-Time High Amid Low Crude Prices -- Domestic oil production has reached a new high of 9.2 million barrels daily, according to a new government report.The total is the most since 1983, according to the Energy Information Administration, based on weekly data. It also matches the agency’s daily record set in Oct. 1973 that was calculated using monthly production levels.The increased production follows a huge years-long drilling and fracking boom. Oil producers dramatically ramped up their operations to cash in on soaring energy prices.But since the summer, the global crude market has collapsed because of a glut in production and lower-than-expected consumption in Europe and China. Since then, prices have fallen more than half, and ended the day Wednesday at below $50 per barrel.In response to the glut, U.S. producers and oil services companies have slashed jobs and investment. Still, it has yet to fully impact production. .But the cuts have yet to completely curtail new production. In the latest week, daily U.S. production rose an average of 49,000 barrels to reach record levels.At the same time, U.S. crude stockpiles also grew by nearly five million barrels to 417.9 million barrels for the week of Feb. 6, according to the government. That is well above analyst expectations.

The Death Of The Petrodollar Was Finally Noticed -- Three months ago, wrote "How The Petrodollar Quietly Died, And Nobody Noticed", in which we explained in painful detail why far from the simple macroeconomic dogma which immediately prompted the macro tourists to scream that "oil prices dropping are good for US consumers", the collapse in the price of crude is not only a disaster for oil exporting nations - one which will lead to a series of violent "Arab Springs" across the oil-producing developed world - but far more importantly, have a massive impact on capital markets as a result of the plunge in the most financialized commodity in history. On the death of the Petrodollar we commented that unlike previously, when petrodollar recycling funneled the proceeds from oil-exports into financial markets, helping to boost asset prices and keep the cost of borrowing down, henceforth "oil producers will effectively import capital amounting to $7.6 billion." We added that "oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer." The conclusion was simple: "net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save. The implications for financial markets liquidity - not to mention related downward pressure on US Treasury yields – is negative."

After Saudi Arabia Crushes The US Shale Industry, This Is Who It Will Go After Next -- Whether it is to cripple the will of Putin and end his support of the Syria regime (thus handing the much desired gas-pipeline traversing territory over to Qatari and/or Saudi interests), a hypothesis first presented here in September and subsequently validated by the NYT, or much more simply, just to destroy any and all marginal producers so that Saudi Arabia is once again the world's most important and price-setting producer and exporter of oil, one thing is clear: the Saudis will not relent from pumping more oil into the market than there is (declining) demand for, until its biggest threat and competitor - the US shale patch - which recently had become the marginal oil producer, as well as its investors - mostly junk bond holders gambling with other people's money - are crushed, driven before the Saudi royal family, and the lamentation of their women is heard across the globe.  But what neither the Saudis, nor the US shale companies, and certainly not their investors who lately seem to get their investment advice from the no longer Nielsen-rated Financial Comedy Channel, know is even if every last US shale company is Friendo'ed, there is an even more insidious group of drillers and oil extractors behind them, backed by an even greater monetary bubble and an even more clueless group of sources of cash, just waiting to step in and become the next marginal oil producer.  China. According to Global Times, the slump in oil prices "has triggered a flurry of Chinese investment in oil wells, in a bid to get a high return from the black gold."

Russia’s Complicated Relationship With OPEC - Russia, Saudi Arabia, and the United States are the world’s most important oil producers. While there has been a lot of discussion about Saudi Arabia’s move to crush U.S. shale by flooding international markets with oil, the relationship between Saudi Arabia and Russia is much less understood.  Saudi Arabia and Russia have a lot in common. Both depend on oil exports for an overwhelming portion of their budget revenues. Both put energy issues at the heart of their foreign policy and use oil (and in Russia’s case, natural gas) as tools to achieve political objectives.   But Russia is not a member of OPEC, and has suffered enormously as a result of Saudi Arabia’s decision to seek contractions in oil production from abroad. The head of Rosneft, Russia’s state-owned oil company, harangued OPEC (and by implication, the Saudi kingdom) at a London Conference on February 10. Rosneft’s Igor Sechin, who has been personally targeted by western sanctions, said that OPEC “has lost its teeth” as a result of its decision to keep oil production at elevated levels, a move that has led to market “destabilization.”  The verbal barrage suggests that Russia, more so than OPEC (or at least Saudi Arabia), is the one that is suffering under Saudi Arabia’s decision.   OPEC has sought Russian cooperation on oil output levels in the past, offers that Russia has thus far declined. Most recently, Saudi Arabia has dangled the prospect of real oil production cutbacks in front of Russia in exchange for Russia dropping its support for Syrian President Bashar al-Assad. “If oil can serve to bring peace in Syria, I don’t see how Saudi Arabia would back away from trying to reach a deal,” a Saudi diplomat told The New York Times.

Deep in the Amazon, a Tiny Tribe Is Beating Big Oil -- Ecuador’s government ignored the community’s refusal to sell oil-drilling rights and signed a contract in 1996 with the Argentinian oil company C.G.C. to explore for oil in Sarayaku. In 2003, C.G.C. petroleros—oil workers and private security guards—and Ecuadorian soldiers came by helicopter to lay explosives and dig test wells.  Sarayaku mobilized. “We stopped the schools and our own work and dedicated ourselves to the struggle for six months,” says Santi. As the oil workers cleared a large area of forest—which was community farmland—the citizens of Sarayaku retreated deep into the jungle, where they established emergency camps and plotted their resistance.  “In the six months of struggle, there was torture, rape, and strong suffering of our people, especially our mothers and children,” Santi recounts. “We returned with psychological illness. All the military who came …” He pauses to compose himself. “This was a very, very bad time.” In their jungle camps, the Sarayaku leaders hatched a plan. The women of the community prepared a strong batch of chicha, the traditional Ecuadorian homebrew made from fermented cassava. One night, a group of them traveled stealthily through the jungle, shadowed by men of the village. The women emerged at the main encampment of the petroleros. They offered their chicha and watched as the oil workers happily partied. As their drinking binge ended, the petroleros fell asleep. When they awoke, what they saw sobered them: They were staring into the muzzles of their own automatic weapons. Wielding the guns were the women and men of Sarayaku.

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