we were really hoping to move on from our ongoing coverage of exploding oil bomb trains this week, but we'd be remiss if we didn't tell you that we had yet another oil carrying bomb train derail and explode again this week...on Thursday afternoon, a train hauling 103 carloads of explosive Bakken crude oil derailed and burst into flames alongside the Mississippi River in a relatively unpopulated area of northwestern Illinois; twenty-one cars left the tracks, and two of those exploded into flames immediately, with a later update indicating five were on fire...once again, since the site was inaccessible to firefighting equipment, authorities had to allow the train to burn, and it was still burning as we were writing this Saturday morning, so BNSF (Burlington Northern Santa Fe) had to warn that other shipments along this Mississippi River main line could be delayed up to 48 hours while the two tracks involved were out of service...the site of this derailment, near Galena, Illinois, was about a dozen miles downstream and on the other side of the Mississippi River from the ethanol bomb train that exploded about a month ago near Dubuque Iowa, and like the bomb train that derailed and explodes in West Virginia two weeks ago, the tank cars involved were the new state of the art Model CPC1232 that exceeds Federal safety standards...
as it was the beginning of a new month, Baker Hughes released two reports on rig counts this week; the first was for US and International drilling rigs in operation in February, which surprising showed that in every major oil producing region of the globe other than North America the count of rigs either rose or was stable, as rigs operating in Latin America rose by 4 to 355, with their land based rigs rising by 11 to 283, while their offshore rigs fell by 7 to 72….in addition, rigs operating in Europe rose by 5 to 133, with an increase of 11 offshore, bringing that total to 56, offset by a reduction of land based rigs by 6 to 77, and the count of drilling rigs operating in the Asian Pacific region rose by 8 to 240, with an addition of 2 offshore oil platforms to January's 102, and an increase of 6 land based rigs to a total of 136...meanwhile the rig counts for Africa and the Middle East were unchanged at 88 and 367 respectively, although 5 land based rigs were shut down while 5 offshore rigs were added in the Middle East...
meanwhile, US operations shut down 335 rigs in February, leaving 1348, which should be the sum of the 4 weekly US reports we've covered previously; these were in addition to the 199 rigs stacked in the US in January, when the worldwide count fell by 261...but Canadians only shut down 5 rigs for the month, leaving them with 360 on land and three offshore...a possible reason that the International rig count did not fall in tandem with the US count in February is that the worldwide oil price, as benchmarked by the near term contract price for North Sea Brent, has rebounded by more than US oil prices have, and at $59.73 a barrel at week end is now more than $10 a barrel more than US WTI crude currently priced at $49.61...
Baker Hughes also released the current North American rig count, for the week ending March 6th, which gives the US rig count at 1192, down 75 from the week ending February 27, and inconsistent with the International rig count they released earlier...it appears that the prior count, then, is an average of the February weekly rig counts, rather than a month end count...nonetheless, operating oil rigs fell by 64 over this week, leaving 922, gas rigs fell by 12 to 268, and one miscellaneous rig was added, and there are now two such...all the US rigs shut down this week were land based, leaving our land based count at 1,133, while offshore rigs were unchanged at 51 and 8 rigs remained on inland waters...the Permian Basin saw the greatest reduction of rigs, 22 less than a week ago, followed by the Eagle Ford, where 8 rigs were taken out of service; hence Texas saw the greatest drop in rig count of any state, with their rig count falling by 32 to 538...the count of working horizontal rigs fell by 51 to 895, the count of active vertical rigs fell by 17 to 177, and the count of directional rigs fell by 7 to 120...this left the US rig count 600 rigs lower than the count from last March 7th, when 1792 rigs were in use, with oil rigs down 521, gas rigs down 77, and miscellaneous rigs down 2 from a year ago...
meanwhile, the Canadian rig count fell by 30 rigs in the week just ended, leaving them with 300 rigs running at week end...their active oil rigs fell by 21 to 150, and their gas rig count fell by 9, also to 150...most of the rigs taken out of service their had been operating in Alberta, as the province rig count fell by 28 to 199; in addition, Saskatchewan dropped 2 to 37, while Manitoba dropped 1 to 8 and Newfoundland added 1, and they now have 4...the Canadian rig count is now 287 rigs lower than a year ago, with oil rigs down 239 and gas rigs down 48...
US oil production jumped to another new record high again in the week ending February 27th, as oil output of 9,324,000 barrels a day was 0.4% higher than the 9,285,000 barrel per day output of the prior week, and 15.4% higher than the 8,077,000 barrel per day production the US saw in the last week of February 2014...the weekly Petroleum Status Report (62 pp pdf) also showed that US crude oil inventories rose by 10.3 million barrels to a record high 444.4 million barrels, up 22.2% from the same period a year ago, even as we continued to import 7.4 million barrels a day during the last week of February, 89,000 barrels a day more than we imported the previous week...a picture of how much out of the ordinary all this is from the energy department's "This week in Petroleum" is included below:
February 27 oil inventory:
the shaded area in that graph above is the range of US oil inventories as reported weekly over the prior 5 years for any given time of year from mid 2013 to mid 2015, and then the blue line is the recent track of US oil inventories over the most recent period...you can see that at the current level of over 444 million barrels, oil inventories are much higher than they've ever been in recent years, and in fact much higher than they've been in the 80 years of EIA record keeping....there are now widespread concerns that we're running out of room to store the stuff, with estimates that US oil storage tanks could approach their operational limits by mid-April...
so with all that oil sloshing around the country, you must by now be asking yourself why we'd be importing even more oil this week than last...best as i can figure, it's all tied to a oil trading strategy employed when markets are said to be in contango, wherein contracts for oil delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays to buy oil and pay for its storage in the expectation that it will be able to be sold back at a higher price in the future...while some of this is just being done on paper, it's quite obvious that some traders, and likely many oil companies, are trying to do this with the physical commodity, by buying oil and putting it in storage....as a result, oil storage facilities have become so tight that there's even been a future's market set up for oil storage facilities contracts...but as we should all know, for every contract there has to be a counterparty, and for every buyer there has to be a seller...so for every one who's buying oil contracts like this, betting on higher prices, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, selling that contract and effectively betting on lower prices...and by the looks of things here, when this one hits the fan there will be a lot of gooey black blood on the streets...so pull up a chair and pass the popcorn, as it appears we are now witnessing the oil markets gone mad...we've now passed through the looking glass into an era where oil is no longer being extracted and shipped halfway around the world in order to fuel transportation, heat homes, and run industries, but as tarry black poker chips in the great American commodities casino...
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We are a democracy and we are allowed to reject fracking - Athens NEWS - Yes we are a democracy and we in southeastern Ohio also have the right to reject fracking or injection wells if we so choose. The fact is that Ohio's environmental laws are among the weakest in the country and it is the reason that Ohio has been accepting radioactive waste, garbage from outside the state, and now fracking waste for years. Instead of listening to oil and gas propaganda, take a look at our laws. West Virginia, Pennsylvania, and Michigan send us their waste because their states prohibit it under their laws. Jobs are not much good if we have poisoned our water and land and we are all dying of cancer, or have sentenced our children and grandchildren to death. Around the country there are hundreds of earthquakes where there never were any; towns that now have all their water shipped in; explosions, leaks of oil contaminating land and water, cancer and other strange illnesses and rashes. There has been no attempt to really look at all of this. All we get is denial from the industry that it is happening. Dig a little deeper. Read about what is happening in North Dakota and other places. Slowly but surely the rest of the country is also waking up as it affects them and are protesting underground gas lines built through their communities and thousands of trains carrying oil occasionally derailing and exploding. Again, some democracy when the Ohio Department of Natural Resources, there to protect us, is in bed with the oil and gas industry. Can't even get a hearing. Some future. Some Democracy.
EV Energy Partners to sell interests in Utica Shale processing facilities - Local - Ohio: Texas-based EV Energy Partners intends to sell off its interests in processing facilities in the Utica Shale region of eastern Ohio. It is seeking a buyer for its 21 percent stake in Utica East Ohio, which operates natural gas-processing plants in Columbiana and Carroll counties and a liquids-separating plant in Harrison County. The company said it hopes to close the sale soon. It has invested $294 million in the processing. Last fall, EV Energy Partners sold its 9 percent interest in Ohio’s Cardinal Gas Services to two South Korean companies for $162 million. EV Energy Partners, a publicly traded company that is part of privately held EnerVest Ltd., has said for some time that it intends to sell Utica assets to monetize holdings for its institutional investors. The company has been marketing about 335,000 acres in eastern Ohio for several years. Those sales have been postponed due to low commodity prices.
To tax, or not to tax, shale oil and gas drillers - Ohio lawmakers are getting both sides of the argument on Gov. John Kasich's plan to raise taxes of shale gas and oil drillers. The Northeast Ohio Media Group reports that eastern Ohio officials from both parties told the Ohio House Ways and Means Committee Tuesday that the proposed tax hike is needed to pay for growing infrastructure costs created by drilling activity in their area, such as repaving more heavily traveled roads. But industry representatives said that with oil and gas prices plummeting in recent months, raising taxes now would devastate Ohio's promising but still-developing fracking activity. Kasich wants to use the proceeds of the increased taxes on drilling to pay for income-tax cuts.
Proposed fracking tax hike cheered by local officials, booed by industry advocates - -- State lawmakers on Tuesday heard two very different views from Eastern Ohio officials and energy industry representatives about the wisdom of significantly raising the state's fracking tax. Eastern Ohio officials from both parties told the Ohio House Ways and Means Committee that Gov. John Kasich's proposed tax hike is needed to pay for growing infrastructure costs created by drilling activity in their area, such as expanding sewer services and repaving more heavily traveled roads. In addition, they said, a higher tax would ensure that poverty-stricken areas of Eastern Ohio would be fairly compensated by energy companies that deplete the area's resources, then leave for good. "This industry lives off of our land," said Harrison County Commissioner Don Bethel, a Republican.However, industry representatives said that with oil and gas prices plummeting in recent months, raising taxes now would devastate Ohio's promising but still-developing hydraulic fracturing activity in the Marcellus and Utica shale formations.Last session, the Ohio Oil and Gas Association helped to write unsuccessful legislation to raise state severance taxes, though not by as much as what Kasich is currently seeking. But now, OOGA Executive Vice President Shawn Bennett told committee members that his group is opposed to any severance tax increase. He noted that 22 of Ohio's 59 drilling rigs in the Utica shale formation have shut down in the past two months alone because of low energy prices, and regional prices are even lower than national rates.
Ohio House bill would ease fracking in state parks - Gov. John Kasich has used the back door to keep fracking out of Ohio state parks and forests. Now, the legislature is trying a side door to fast-track fracking on public lands. A measure prioritized by House Republicans, who dominate the chamber, got a third hearing yesterday on its way to a likely committee vote next week. The legislature approved fracking in Ohio’s parks in 2011, and Kasich signed the bill. Top officials in his administration prepared a secret marketing plan in the final months of 2012 to sell fracking as a way to keep Ohioans from paying park entrance fees. Under the 2011 law, potential drillers must get permission from a newly created Oil and Gas Commission, complete an environmental study, determine the potential impact on visitors, seek public input and meet other requirements. But Kasich had a change of heart on allowing drilling on public lands and in effect imposed a unilateral moratorium by not appointing members to the commission — meaning that nobody could get an OK to drill in parks. However, under House Bill 8, GOP legislators would bypass the commission, wiping out the fracking prerequisites in the 4-year-old law — and ending the governor’s unofficial moratorium.
Ohio’s shale activity is taking a hit from low oil prices -- While low oil prices are allowing motorists the chance to indulge in low gasoline prices, some shale plays are beginning to take a hit. According to the Federal Reserve Bank of Cleveland’s latest Beige Book report, oil and gas activity in Ohio, Pennsylvania and West Virginia has declined due to low commodity prices. The bank’s second report shows that prices are starting to affect operations, which those in the industry were warned about six months earlier in a previous Beige Book report. However, economic activity in the Cleveland Fed’s area, including Ohio, certain areas of Kentucky, Pennsylvania and West Virginia, did grow at a moderate pace over the last six months. According to reports from the other 11 Federal Reserve districts, which are located in Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco, economic activity across most regions and sectors grew during the month of January through mid-February. The Cleveland Fed’s district report also pointed out the following: -Manufacturers reports of declining orders were attributed to lower oil prices.
Strengthen Ky.'s limits on fracking - Editorial - Lexington Herald Leader Despite a long history of oil and natural gas production, Kentucky is only now being touched by the newer technologies that have ignited economic booms and bitter controversies in other states.Energy companies have begun acquiring drilling rights in the Rogersville shale, which curves from northeastern Kentucky and West Virginia through Central and Southern Kentucky and is too deep (9,000 feet in places) for traditional extraction methods. Both chambers of the General Assembly last week enacted modest protections for the environment and neighboring landowners. But no one should mistake this industry-backed legislation as the final word on regulating horizontal high-volume fracturing, or fracking, in Kentucky. Operations capable of tapping deep shale are not your father's gas wells. They leave a much larger, more industrial footprint. They pollute the air with methane and carcinogens and are noisier and more intrusive than traditional oil and gas wells.Their impacts extend well beyond the site. A steady stream of heavy-truck traffic delivers the sand, chemicals and, if unavailable on site, water that are mixed and pumped underground at high pressure to crack the rock and free the gas or oil. Truckloads of chemical-laced wastewater must be hauled away for disposal, unless it's injected into deep wells on site, a concern in its own right.
Shedding light on a gas patch blackout - “Another flaw in the human character is that everybody wants to build and nobody wants to do the maintenance.” That about sums up the central conclusion of our report, Blackout in the Gas Patch: How Pennsylvania Residents are Left in the Dark on Health and Enforcement—that as Pennsylvania’s government rushes to expand fracking, it is failing to protect air, water, and health. In other words, the state is more than willing to build the gas and oil industry, but is far less interested in making sure it functions well. Blackout is the first report to analyze oversight of the gas and oil industry on a site-by-site basis and from the starting point of why it matters, every day for real people. The starting point was a question that gas and oil field residents often ask when their health and environment change after drilling begins: What happened to cause my problems, and what’s being done to solve them? We wondered if answers could be found by weaving together two earlier threads of our work: the wide gaps in enforcement of oil and gas regulations and the health impacts reported by many gas patch residents in both Pennsylvania and other states. We decided to look for possible connections between events at certain gas well sites or facilities, how operators and state regulators handled the situation, and any impacts that occurred as a result. In the process, we examined information from the Pennsylvania Department of Environmental Protection (DEP), including files on 135 wells and facilities and documents and data related to air emissions, water quality, permitting, operations, incidents, inspections, and violations. After more than a year of research and analysis, we reached the clear and disturbing conclusion that Pennsylvania is prioritizing development over enforcement; neglects oversight of operators and activities; undermines regulations; and prevents the public from getting information.
Marcellus Shale Players - The often mentioned and long awaited Marcellus Shale Players is Now Available ON-LINE. The Marcellus Shale Players is a 5-year and on-going project by Dory Hippauf. It began with the simple question of “WHO IS….” Too often players are overlooked or simply dismissed as industry shills, yet these players are actively working hand in hand with politicians to write regulations, create laws and exemptions to benefit themselves. They craft and control the message you see often repeated in advertising and echoed through their connections. The Marcellus Shale Players contains nearly 10,000 entries (and growing) of the who’s who in shale and now it’s available to the public through Shale Justice. Ever wonder what a hockey team owner has to do with shale? Look up Terry Pegula on the Marcellus Shale Players to find out. Who is the blonde spokeswoman in the Energy Tomorrow ads? It’s Brooke Alexander. What other connections does Energy Tomorrow have? Who is behind the ads? Who is running their public relations campaign, and what other connections are there? Explore the Marcellus Shale Players, follow the money, connect the dots and create your own diagrams!
Assessing water quality in areas with fracked oil, gas wells --- More data and research are necessary to best understand the potential risks to water quality associated with unconventional oil and gas development in the United States, according to a recent U.S. Geological Survey study. “We mined the national water-quality databases from 1970 - 2010 and were able to assess long-term trends in only 16 percent of the watersheds with unconventional oil and gas resources,” said Zack Bowen, USGS scientist and principal author of the article that appears in American Geophysical Union’s Water Resources Research. “There are not enough data available to be able to assess potential effects of oil and gas development over large geographic areas.” There is not a national water-quality monitoring program in place that focuses on oil and gas development, so existing national water-quality databases and data on hydraulic fracturing were used to assess water-quality trends in oil and gas areas. The study found no widespread and consistent trends in water quality, such as chloride and specific conductance, in areas where unconventional oil and gas wells are prevalent. The amount of water-quality samples, where they are located and the varying constituents that are measured are limiting factors in existing national databases. Hydraulic fracturing is presently the primary stimulation technique for oil and gas production in low-permeability, unconventional resource reservoirs. Comprehensive, published and publicly available information regarding the extent, location and character of hydraulic fracturing and potential effects on regional or national water quality in the United States is scarce. More information can be found on the USGS frequently asked questions on hydraulic fracturing.
USGS: More data needed to assess any fracking-pollution link - (AP) — A new study by the U.S. Geological Survey says more data is needed to be able to say for sure if a link exists between unconventional oil and gas development and degraded water quality. The study published in the American Geophysical Union journal Water Resources Research finds no evidence hydraulic fracturing is polluting nearby surface water. However, the researchers say existing data to investigate long-term water quality trends is adequate in just 16 percent of U.S. watersheds with unconventional oil and gas resources. Some environmentalists blame fracking for causing pollution. Fracking employs pressurized water mixed with sand and chemicals to break open oil and gas deposits underground. The researchers say insufficient water-quality data from the years before fracking became commonplace impede long-term analysis of watersheds with oil and gas development.
Can Fracking Pollute Drinking Water? Don't Ask the EPA -- Can fracking pollute drinking water? The Environmental Protection Agency embarked in 2010 on what was intended to be a definitive study to find out. The answer could prove critical to future U.S. regulation of the multibillion-dollar fossil fuel sector and to ensuring water safety for millions of Americans. But after five years of fighting with the oil and gas industry, the agency may still be unable to provide a clear answer when a draft of the study is published this spring, based on internal EPA documents and interviews with people who have knowledge of the study. "We won’t know anything more in terms of real data than we did five years ago," said Geoffrey Thyne, a geochemist and a member of the EPA's 2011 Science Advisory Board, a group of independent scientists who reviewed the draft plan of the study. "This was supposed to be the gold standard. But they went through a long bureaucratic process of trying to develop a study that is not going to produce a meaningful result." More than a half-dozen former high-ranking EPA, administration and congressional staff members echoed Thyne's opinion, as did scientists and environmentalists. Nearly all the former government employees asked not to be identified because of ongoing dealings with government and industry. Two hundred pages of EPA emails and other documents about the study point to the same conclusions. The documents were acquired by Greenpeace under the Freedom of Information Act and shared with InsideClimate News.
How Much Frack Filth Does One Marcellus Shale Well Generate? - This data is from the MacGeorge Gas Well drilled by WPX Energy , which is now defunct in our county, thankfully, and has left with lawsuits trailing them and they sold their gas leases to the another , gas company, Southwestern Energy. These four wells on this gas site were drilled in 2012…..and of course, have several DEP Violations….it is surrounded by private, water wells..
- MACGEORGE SOUTHEAST 1 2H - Show Wellsite on Map
- Waste Summary: DEP data thre Dec. 31st, 2014
- Total Drill cuttings: 1,848,420 pounds (924 tons)
- Total Drilling fluid waste: 50,736 gallons (1,208 bbls)
- Total Fracing fluid waste: 13,860 gallons (330 bbls)
- Total Produced fluid: 272,050 gallons (6,477 bbls)
(much more)
Frack Brine The Cure, or How To Get Rid of Millions of Gallons of Carcinogenic Frack Filth While Regulators Look the Other Way - Frackers have millions of gallons of toxic radioactive frack slime to get rid of. So they give it away. Once approved for road spreading, there is way to check what’s in those trucks. None. But it damn sure ain’t sea water. To put this travesty in perspective, if some fracker put that stuff on a road in Texas, he’d be pulled over, fined and the truck impounded. Bob Donnan gave a sample of the brine I got from a puddle on Parkview Road behind this tanker truck after I took the photo and gave it to a friend who does water sampling of streams in Greene County. He said when he took the lid off the bottle the fumes about knocked him out. – In parts of Pennsylvania and New York, the answer to ice-slick wintry roads is simple: Put some gas production waste on it. Municipalities in the northern parts of both states use the salty wastewater from oil and gas production to melt ice in winter and suppress road dust in summer. The salty liquid does a great job: The brine can be as much as 10 times saltier than typical road salt. Plus it comes cheap; oil and gas companies, glad not to have to pay for disposal, will sell it to towns for cheap, or give it away free. Both states’ environmental protection departments consider brine spreading to be a “beneficial use” of the industrial waste, meaning, in legal terms, that recycling it in this way “does not harm or threaten public health, safety, welfare or the environment.” But according to new research, the brine is anything but benign. Worse, states barely track it; New York doesn’t know how much of the stuff is being used on its roads, and the Pennsylvania department charged with regulating it appeared to not fully understand its potential effects until Newsweek got in touch.
Road De-Icing Fluids May Contain Unhealthy Chemicals - - During this seemingly endless winter road crews have been in a continual battle to keep streets and highways safe. Their chief weapon: saltwater. It adheres to the pavement better than bouncing rock salt and keeps ice from forming on top of it. But on some roads this salty solution may contain other potentially harmful substances. Most state transportation departments mix this brine themselves, using either simple salt and water or natural brine extracted from underground deposits. But in states with conventional natural gas and oil drilling wells, spreading the well wastewater on roads can be a cost-saving way to de-ice. This fluid is called produced brine. Because it circulates among deep rocks and contacts various forms of petroleum, the brine can contain radium, lead or other substances that can be harmful at certain levels of exposure. State regulations of produced brine for de-icing purposes vary greatly, and some experts are calling for more rigorous testing for long-term environmental and health effects. A 2014 U.S. Geological Survey study analyzed roadside sediment where produced brine from conventional wells had been spread as a de-icer and found elevated levels of radium, strontium, calcium and sodium. Radium is radioactive and can thus be carcinogenic. At high concentrations, sodium can be unhealthy for humans and animals. In plants high sodium levels disrupt nutrient intake, leading to death. The lead author of the study, research hydrologist Katherine Skalak, says the chemical contents of produced brine vary from well to well. When it flows out of the well, these fluids can also contain carcinogens, hydrocarbons and solvents
Microbes could help clean up after fracking - CBS News: As fracking has exploded across the country, so have toxic ponds of salty and contaminated water that litter places like North Dakota and Texas. Now, a team of researchers may have come up with process they believe will treat this wastewater, helping address one of the industry's biggest headaches. Writing in the journal Environmental Science Water Research & Technology, the University of Colorado Boulder scientists described their invention of a way to remove both salts and organic contaminants from fracking wastewater using microbes that gobble up the latter, leading to a chemical reaction that does away with the former. The process takes advantage of the fact that the contaminants found in the wastewater contain energy-rich hydrocarbons, the same compounds that make up oil and natural gas. The scientists introduce microbes into the waste, which eat up the hydrocarbons, producing an electric current that removes the salt. "The beauty of the technology is that it tackles two different problems in one single system," said Zhiyong Jason Ren, a CU-Boulder associate professor of environmental and sustainability engineering and co-author of the paper. "So far, we have been able to clean up the water so that it can used in irrigation, toilet flushing," Ren told CBS News. "It can be used for anything except drinking at this level. If we can use reuse the water, the companies don't need to buy new water and they could even make money from selling it to other users like farmers."
Fracking Air Omissions - Shale Test documents the toxic gas emissions from fracking that the regulators overlook, because the emissions can only be seen with an infrared camera, that the regulators don’t have. You can’t regulate what you can’t see. Just what the frackers paid for. From Bob Donnan: Calvin Tillman pioneered a great deal of the information that initially opened our eyes about compressor stations and he continues his dedicated work leading ShaleTest while working with others like Tim Ruggiero, John Fenton and Earthworks. Calvin’s education (aka School of Hard Knocks) came when the O&G industry stuck a group of compressor stations just outside the city limits of DISH while he was mayor. He has since moved his family out of DISH and ‘off the shale’ since his children were having repeated health symptoms like nose bleeds. Calvin has visited our SW Pennsylvania area multiple times to offer us assistance. Frank Finan, who I volunteered 2 days of chauffeuring to various compressor station sites in our tri-state area last year, spent his personal savings to buy a high-end FLIR camera. New ones retail in the $80,000 to $90,000 range and need to be recalibrated fairly often at considerable expense.
Shale Revolution Did Not Pay Investors Well -- We have all heard of the “shale revolution”. It has been touted as the energy panacea of our time. Given the extreme hype, one would expect that such enthusiasm would translate into above average share performance for shale operators. This has not been the case. Share performance has actually been quite mediocre and in some cases just downright poor.The shale revolution started with shale gas. The Marcellus shale which spans Pennsylvania, parts of NY, West Virginia and Ohio has probably received the greatest amount of attention since the State of New York had a drilling moratorium for years which was recently replaced in favor of an outright ban on the controversial technique used to unlock shale reserves called hydrofracture stimulation or more commonly referred to as “fracking”. Looking at the top producers in the Marcellus, one would expect that these companies would have enjoyed returns on their shares which were commensurate with their expectation of future growth potential for their product. Interestingly, this has not occurred. Five of the top producers in the Marcellus are Exco Resources, Range Resources, Chesapeake Energy, Anadarko and EOG, the former Enron Oil and Gas. Of these five companies, EOG was the only one which had reasonable returns over the past five years. EOG shares rose approximately 85% during that time right in line with the S&P 500 index. So nothing earth shattering here. EOG’s peers, however, had significantly weaker returns for shareholders. The next best performance was from Anadarko with a mere 18% over five years followed by Range with -1%, Chesapeake with -31% and Exco with a dismal -89%. And all during the height of the shale gas revolution. The star for share performance in the Bakken was Continental Resources which did indeed enjoy gains of about 120% over the past five years. Hess Corp. was next with a return of a mere 22%. Whiting Petroleum and StatOil each turned in negative share returns of -12% and -19% respectively. So only one of the top operators even came close to matching returns from the index which is fine if you were lucky enough to cherry pick that company.
How to Get Fracked Gas to China via Upstate New York - Pipe fracked gas to LNG export terminals – and a new Chinese canal through Nicaragua. That’s the plan behind the Constitution Pipeline – the Keystone XL of LNG. “A popular movement is building against the Federal Energy Regulatory Commission (FERC), for its outrageous rubber-stamping of permits for expansion of the gas industry. Kennedy’s powerful indictment of FERC on national television last week was the latest manifestation of this hopeful, much-needed development.Kennedy was speaking about the Constitution pipeline, one of about eight interstate pipelines originating in or going through Pennsylvania (ground zero for fracking in the Northeast) that are currently in some stage of getting approval from FERC, which interstate gas pipelines need to do. And the approval process is essentially pro-forma. In the two and a half or so years that I’ve been actively involved with this movement, I know of none proposed that have been rejected. It’s the same with proposed export terminals. At a federal Court of Appeals hearing last year in Washington, DC it was stated in open court that 95 percent or more of such proposed pipelines are approved, with no disagreement from the FERC lawyers present. Some of the other pipelines which FERC will likely approve—barring the kind of organized people’s uprising we have seen around the Keystone XL pipeline—are: Penn East, Mariner East 2, Atlantic Sunrise, Atlantic Coast, Algonquin Incremental Market and Northeast Energy Direct. Virtually all of these pipelines are being built, in part, to ship fracked gas from Pennsylvania, West Virginia, Ohio and possibly elsewhere in the Marcellus Shale region to gas export terminals that are being built or projects that are proposed, including in Nova Scotia, off the coast of NY/NJ and Cove Point in Maryland on the Chesapeake Bay.
More Penneast Garbageconomics - Last month, right before FERC was to hold its first scoping hearing on the PennEast pipeline, the PennEast Pipeline Corporation released an economic impact report. The media picked up and dutifully transcribed the press release, and headlines touted 12,000 job figure, and gazillion of dollars that would flow into Pennsylvania and New Jersey. PennEast contracted with Drexel University and Econsult to produce the report. The report is being widely criticized for wild claims of job and economic benefits. Of particular interest is the claim of 12,000 jobs. A closer look reveals that the number refers to every job that could be related in any way during the seven-month construction period, making the job total much less once construction ends, environmentalists claim. This would include a food truck worker selling a Taco to an out of state pipeline construction worker as being counted a “job”. “No respectable economic analysis would give a result this large and the best recent work suggests there would be little if any net employment gains beyond the direct hires, most of who would be recruited from outside the area,” Jeffrey R. Shafer, former undersecretary of the U.S. Department of Treasury, stated in the release.
Exxon Mobil Settles With New Jersey Over Environmental Damage: A long-fought legal battle to recover $8.9 billion in damages from Exxon Mobil Corporation for the contamination and loss of use of more than 1,500 acres of wetlands, marshes, meadows and waters in New Jersey has been quietly settled by the state for around $250 million. The lawsuits, filed in 2004, had been litigated by the administrations of four New Jersey governors, finally advancing last year to trial. By then, Exxon's liability was no longer in dispute; the only issue was how much it would pay in damages. The stakes were high, given the enormous cost the state's experts had placed on restoring and replacing the resources damaged by decades of oil refining and other petrochemical operations, as well as of the public's loss of use of the land."The scope of the environmental damage resulting from the discharges is as obvious as it is staggering and unprecedented in New Jersey," the administration of Gov. Chris Christie said in a court brief filed in November. But a month ago, with a State Superior Court judge believed to be close to a decision on damages, the Christie administration twice petitioned the court to hold off on a ruling because settlement talks were underway. Then, last Friday, the state informed the judge that the case had been resolved.
Litchfield County town proposes state's first fracking ban - Connecticut Post: A Litchfield County town could become the first in the state to ban the storage or disposal of fracking waste. Washington residents will vote on the ban at a special town meeting at 7:30 p.m. Thursday in Bryan Memorial Town Hall. Carlos Canal, president of the Washington Environmental Council, circulated a petition requesting the vote and approached the town's Board of Selectmen. "The council was active in securing the passage of Senate Bill SP237 in the General Assembly," Canal said. "The bill started out to ban fracking waste storage in the state and finally passed establishing a three-year moratorium during which the commissioner of the DEEP will come up with guidelines." Chemicals used range from hydrochloric acid, ammonium persulfate, magnesium peroxide, magnesium oxide and sodium chloride. In June 2014, Gov. Dannel P. Malloy signed the law into effect, placing a moratorium on the storage or handling of hydraulic fracturing waste in the state. Pursuant to the law, theDepartment of Energy & Environmental Protection will categorize fracking waste as "hazardous waste" under Connecticut's hazardous waste policy.The DEEP will also review the potential environmental and health impacts and develop protections to ensure fracking waste and its by-products do not pose a risk.
Commissioners say proposed gas drilling regulations too restrictive – Allegany County Commissioners are taking the offensive in the debate over natural gas drilling in Western Maryland. Commissioners believe the regulations being considered by the state are so stringent that they would constitute a virtual ban on the use of hydraulic fracturing to drill for gas in Maryland. They are joined in the concern by Del. Wendell Beitzel, who devoted much of one of his recent newsletters to a discussion of issues related to gas drilling. “In my … opinion the regulations that have been drafted, if promulgated, would effectively stymie any natural gas development in Maryland,” Beitzel wrote. Commissioners arranged for a special presentation at a recent business meeting by county GIS Coordinator Greg Hildreth. Hildreth presented a map that he said showed that if proposed regulations were adopted, they would leave very little land in the county available for natural gas development. The Allegany County map conflicts with a map prepared by the Maryland Department of Natural Resources, which shows about triple the amount of land in the county would be available for drilling if the regulations were adopted. Hildreth said he believed Allegany County’s map accurately reflected what would happen if the regulations were adopted. Beitzel cited a similar map prepared by Garrett County staff. Only about 3,122 acres out of 87,000 in the portion of the county where drilling is feasible could be used for gas development, Hildreth said. After the presentation, two citizens expressed concern over the possibility of gas development in the county. Kenneth Wilmot of Cumberland said he was concerned about possible water pollution, especially of the underground aquifers and springs which provide water sources in the area. William Bartik of McCoole also said he was concerned about possible water pollution. “I was raised downstream from the (paper) mill, and I know what a dead river looks like,” Bartik said.
Studies target health, fracking -- Research: Problems subside when people move away from wells. Dogs serve as living recorders of toxic exposure. Cattle have trouble breeding. People report headaches, dizziness, difficulty breathing and a raft of other ills.Those are a few of the findings in a new suite of academic studies on natural-gas production and health being published today.People’s and animals’ troubles subside, one study found, when they move away from places where companies are producing natural gas with unconventional methods — that is, hydraulic fracturing, or fracking, the process already used on tens of thousands of wells in North Texas. The research, mostly by university scientists, centers mostly on another region where gas production has moved into established communities, the Marcellus Shale field in Pennsylvania. But it explores the same questions that arise in North Texas neighborhoods that now find wells and processing plants as newcomers.Volunteers and activists with Frack Free Denton often cited concerns about the potential health effects as they campaigned to ban fracking in the city limits.One of the group’s officers, Rhonda Love, a retired public health professor, prepared a white paper for city leaders several years ago citing some of the earliest research into health concerns over fracking. Bit by bit, science is plugging the gaps in public understanding left by limits and inadequacies of past research.
Nabors cuts nearly 3,500 jobs, more cuts could be on the way -- On and offshore drilling giant Nabors Industries announced Tuesday the company has cut 12 percent of its workforce as a result of rig losses due to lower oil prices, FuelFix reported. The 12 percent loss in workforce accounts for approximately 3,500 jobs. The company employs about 29,000 people. Of the 12 percent cut, 10 percent include cuts to its sales staff and a 20 percent reduction in its U.S. drilling workforce. Nabors, a Bermuda-based company which has its main offices in Houston, has fallen victim to the drop in oil prices to the tune of a 32 percent rig count reduction from its peak last year. In the fourth quarter alone, it saw an average utilization for its U.S. rigs fall to 78 percent. William Restrepo, Nabors chief financial officer, says he expects the U.S. rig count to decline 50 percent from its peak. In a conference call to investors, Nabors CEO Anthony Petrello touched on how the company is preparing for potential long-term downturn in oil prices. “We are not counting on the V,” Peterello said, referring to a potential V-shaped, or rapid, recovery in oil prices that would alleviate much of the industry’s ongoing pain in lost profits and jobs. Nabors executives added that the company may not be stopping at 12 percent and that they are looking at potentially being forced to cut up to 15 percent of its workforce in 2015. That 15 percent would account for 4,350 jobs.
Lessons for U.S. oil production from the gas industry - The United States produced a record 25.7 trillion cubic feet of natural gas in 2014 according to preliminary estimates published by the Energy Information Administration (EIA) on Feb 27. Gas production has risen 27 percent since 2008 even though the number of rigs employed drilling for gas has declined by more than 80 percent over the same period.Continued growth in output despite a sharp drop in rigs and depressed gas prices is often cited as a warning not to rely on rig counts to forecast future production. The gas industry’s experience is especially relevant now given the plunge in oil prices and new drilling since June 2014. But the real lessons from the gas industry are more complicated and underscore the complicated relationship between prices, drilling and production. The gas industry’s experience holds two lessons for oil production. First, gas production would have fallen since 2008 in response to lower prices and drilling had it not been for the boom in crude production and high prices for natural gas liquids. Second, it is the combined value of all the products from a well (dry gas, natural gas liquids and crude) that determine the profitability of a well.
Despite falling oil prices, Texas oil output surged in December to the highest level since the 1970s - The Energy Information Administration (EIA) released new state crude oil production data last week for the month of December, and one of the highlights of that monthly report is that oil output in America’s No. 1 oil-producing state – Texas – continues its phenomenal, eye-popping rise. Here are some details of oil output in “Saudi Texas” for the month of December and the economic impact that production is having on the state and national economies:
- For the ninth straight month starting in April 2014, oil drillers in Texas pumped out more than 3 million barrels of crude oil every day (bpd) during the month of December. The 3.44 million bpd in December was the highest daily oil output in the Lone Star State in any month since at least January 1981, when the EIA started reporting each state’s monthly oil production (see top chart above). Compared to oil production a year ago, Texas posted a 24.8% increase in December.
- Remarkably, oil production in the Lone Star State has more than doubled in the last three years, from 1.68 million bpd in December 2011 to 3.44 million bpd in December of last year (see chart above), and that production surge has to be one of the most significant increases in oil output ever recorded in the US over such a short period of time.
- The exponential increase in Texas oil output over roughly the last four years has completely reversed the previous, gradual 28-year decline in the state’s conventional oil production that took place from 1981 to 2009 (see arrows in top chart) – thanks almost exclusively to the dramatic increases in the state’s output of newly accessible, unconventional shale oil.
- As recently as mid-2009, Texas was producing less than 20% of America’s domestic crude oil. The recent gusher of unconventional oil being produced in the Eagle Ford Shale and Permian Basin oil fields of Texas, thanks to breakthrough drilling and extraction technologies, has recently pushed the Lone Star State’s share of domestic crude oil production up to more than 37% of America’s crude output for the last five months.
Bill would allow property owners to sue over drilling ordinances -- The latest bill to be filed after Denton banned hydraulic fracturing would make cities that adopt restrictive drilling regulations pay mineral owners for their loss of property. State Sen. Van Taylor, R-Plano, filed legislation last week that he says would set up a mechanism allowing a qualified group of property owners with a state-issued drilling permit to seek payment if they believe that ordinances make it impossible to profit from the oil or gas underneath their land. “Taking someone’s property without paying for it is wrong. You can’t take people’s property without compensation,” Taylor said. A city can implement any ban it wants and set any distance regulations it like, but should just be prepared to compensate for it, Taylor said. Jim Bradbury, a Fort Worth environmental lawyer who helped craft the city’s gas drilling ordinance, said Taylor’s bill will simply put another “arrow in the quiver” of oil and gas operators who oppose any regulation that makes their life more difficult. “My overall impression is that it creates an unnecessary hook that oil and gas drillers, or their mineral owners, could use to sue the city for enacting ordinances,” Bradbury said. Denton voters approved the first municipal fracking ban in Texas in November. A grassroots group pushed the ban after pleading for years with the city and state for help to stop drilling that they said was too close to homes, schools and hospitals.
Oklahoma knew fracking caused earthquakes but stayed quiet to appease energy industry: Oklahoma has suspected for years that fracking caused earthquakes, but they stayed quiet about the connection under pressure from the oil industry. The Oklahoma Geological Survey (OGS) finally admitted a possible link more than a year ago between oil and gas extraction and the recent outbreak of earthquakes in the state – which last year experienced 1.6 quakes per day of magnitude 3 or greater. That’s three times as many as California. The OGS joined a U.S. Geological Survey statement in October 2013 that found human activity, including wastewater disposal, could be a “contributing factor” in the surge in earthquakes. That angered the state seismologist’s boss, University of Oklahoma President David Boren, and oil executives, according to emails obtained by EnergyWire. Seismologist Austin Holland was called into meetings with Boren, state officials, and energy company executives after joining the statement, the emails showed.Holland had been aware of the link since at least 2010, when he told federal officials that quakes near Oklahoma City may have been triggered by gas and oil projects. However, he declined to publicly discuss the link until it could be demonstrated scientifically and suggested that changes in lake levels may be to blame for the quakes.
What is a California beach town willing to pay to avoid oil drilling? -- On Tuesday, the residents of Hermosa Beach are going to vote yet again on an oil and gas drilling initiative — whether to allow a contract with the energy company E&B Natural Resources Management to proceed despite a current drilling ban. The contract, which could mean hundreds of millions of dollars for the local government, received final approval from the City Council in 1992, but it has been in limbo ever since. A vote to block the drilling would come at an unusual cost: $17.5 million in damages to the energy company, the equivalent of about half the annual general fund budget in this city of almost 20,000 people. ... “It’s a little more than we probably should have paid,” Mayor Peter Tucker said, referring to the deal for potential damages. “But if it gets us out of this constant, constant oil issue we’ve had hanging over us for 30 years, I think it’s money well spent.” ... An environmental-impact statement commissioned by Hermosa Beach listed nine potential areas of concern that it said the company would be unable to mitigate, including air quality, aesthetics and noise. ... Supporters of the project say the fears voiced by opponents — declining property values, offensive odors and the potential for a spill that could spray fuel into the water, on the beach or over neighboring houses — are exaggerated. ... The company anticipates that the drilling would produce 35 million barrels over the 34-year life of the project, producing a potential $500 million windfall for Hermosa. (The revenue projection was made when the price of oil was close to $100 a barrel; it is about half that now.) ... The city has a surplus of close to $7 million that it has put aside to help pay the penalty. The rest would be paid in roughly $800,000 annual installments.
Chevron, Linn Told to Halt California Wells on Water Concern-- California regulators ordered oil drillers including Chevron Corp. and Linn Energy LLC to halt operations at 12 injection wells in the state because of concerns they may taint groundwater. The Division of Oil, Gas and Geothermal Resources said 10 of the well operators shut down voluntarily, while two were issued cease-and-desist orders. All the wells are located in Kern County, northeast of Los Angeles, are within a mile of the surface and 500 vertical feet underground of a water supply, the agency said. There is no evidence that drinking water has been contaminated, the agency said. Oil and gas drillers have been using injection wells for more than 50 years to help push hydrocarbons out of the ground. More than 50,000 oil-field injection wells operate in the state, according to the oil and gas division. An extensive shutdown of the wells would threaten the operations of a $34 billion industry that employs more than 25,000 people in the state, based on agency estimates. The wells are being shut “out of an abundance of caution for public health,” State Oil and Gas Supervisor Steven Bohlen said during a conference call with reporters. “This is an initial public health screen.” The agency said the orders were part of a “systematic statewide review” of injection wells. The state acknowledged that some well injections were taking place in zones that hadn’t been approved by the U.S. Environmental Protection Agency, triggering the evaluation of all 50,000 injection wells.
California Orders Oil Companies To Stop Drilling Near Drinking Water Supplies - On Tuesday, California regulators ordered a dozen oil and gas wells to cease production over concerns that the wells may be contaminating groundwater. Oil companies Chevron Corp. and Linn Energy LLC voluntarily stopped production at 10 of the Central Valley wells, while the two other wells were given cease-and-desist orders. While there is no evidence of drinking water contamination yet, the wells are located within a mile of the surface and within 500 feet of a water supply. “As we’ve said before, the protection of California’s groundwater resources — as well as public health — is paramount, particularly in this time of extreme drought,” said Steven Bohlen, head of oil, gas and geothermal resources for the California Department of Conservation. “Halting injection into these wells is a significant step toward that goal.” According to Bohlen, the “produced water” created by the drilling process is different than the water used in fracking operations. “They are two different things,” he said. “To be clear, in standard oil and gas operations, the producers skim off the oil and reinject the water back where it came from.” California is the third-highest oil producing state after Texas and North Dakota, and is home to 50,000 injection wells that have been operating in various capacities for decades. In 2014, California produced 205.3 million barrels of oil. California also produced more than 3.3 billion barrels of water in 2014, which is “usually very brackish and unsuitable for human use,” according to the California Department of Conservation.
Colorado land impact of oil and gas boom: scars spread and stay - Oil and gas companies have yet to fully restore land around half of the 47,505 inactive wells in Colorado, and 72 percent of those un-restored sites have been in the process for more than five years, The Denver Post has found. The state requires oil and gas companies to restore all sites completely — to reduce erosion, loosen compacted soil, prevent dust storms and control invasions of noxious weeds. But Colorado does not set a timetable for getting the job done. Nor do state regulators track how long companies take to complete required work. And unlike other states, Colorado does not require companies to submit reclamation plans before drilling. The result is a worsening problem of damage from the oil and gas boom. On Friday, Colorado Oil and Gas Conservation Commission chairman Thomas Compton said he would like to consider improving state rules.
2014 a record-breaking year for Colorado - Colorado’s oil industry enjoyed record-breaking production in 2014. According to recent Denver Business Journal article, the Colorado Oil and Gas Conservation Commission’s (COGCC) reported that the state pumped more than 82.8 million barrels of crude oil, 85 percent of which came from Weld County. But a nearly 50 percent drop in oil prices concern experts, who are becoming wary of how long Colorado’s boom will last. The 82.8 million-barrel count for 2014 is a 27 percent jump from the 2013 total of 65.3 million barrels produced and twice the 39.4 million-barrel count for 2011. “I did not think we would see a 20 percent increase, year over year, and we are well beyond that,” said Matt Lepore, COGCC director. He added that the number is likely to see even more of a boost as the commission updates the numbers on its website daily. New technology has enabled to access previously untapped reserves via horizontal drilling, fueling the state’s boom. However, low fuel prices have yielded budget cuts and nationwide job losses, which worries economists. Several companies operating in Colorado have announced plans for rig and budget cuts. Colorado’s rig count dropped from 66 operating rigs in January to 44 by the end of February, Baker Hughes reported.
Amid low oil prices, companies wait to frack, complete wells — Oil companies that operate in Wyoming report that they are holding off on hydraulic fracturing and are waiting to complete newly drilled oil wells to save money during low oil prices. Oil prices are down around $50 a barrel, or roughly half the price a year ago. The hydraulic fracturing process of pumping pressurized water, sand and chemicals into wells to crack open deposits can add significantly to the cost of developing a deep oil well. EOG Resources, headquartered in Houston, announced that it plans to delay fracking 285 wells. Chesapeake Energy, based in Oklahoma City, likewise plans to wait until 2016 to complete about 100 wells, while Devon Energy, also based in Oklahoma City, is cutting back on fracking crews in Texas, theCasper Star-Tribune reports.. Oil wells often hit peak production soon after they are drilled. It makes sense for companies to wait to complete wells after oil prices are higher, said analyst James Williams with WRTG Economics in London, Arkansas. In related news, Oil prices affect Wyoming, Colorado college students. “Would you rather complete a 1,000-barrel-a-day well and get $50 a barrel or would you rather wait a couple months and get $70 a barrel?” Williams said. “That’s basically what these guys are doing.”
The Demolition Of Workers' Comp -- Oil and sludge pressurized at more than 700 pounds per square inch tore into Whedbee’s body, ripping his left arm off just below the elbow. Coworkers jerry-rigged a tourniquet from a sweatshirt and a ratchet strap to stanch his bleeding and got his wife on the phone. It was exactly the sort of accident that workers’ compensation was designed for. Until recently, America’s workers could rely on a compact struck at the dawn of the Industrial Age: They would give up their right to sue. In exchange, if they were injured on the job, their employers would pay their medical bills and enough of their wages to help them get by while they recovered. No longer. Over the past decade, state after state has been dismantling America’s workers’ comp system with disastrous consequences for many of the hundreds of thousands of people who suffer serious injuries at work each year, a ProPublica and NPR investigation has found. The cutbacks have been so drastic in some places that they virtually guarantee injured workers will plummet into poverty. Workers often battle insurance companies for years to get the surgeries, prescriptions and basic help their doctors recommend. Two-and-a-half years after he lost his arm, Whedbee is still fighting with North Dakota’s insurance agency for the prosthesis that his doctor says would give him a semblance of his former life.
Crime In North Dakota’s Oil Boom Towns Is So Bad That The FBI Is Stepping In - High levels of crime in North Dakota’s oil fields have prompted the FBI to set up shop in the region. The FBI is opening an office in Williston, North Dakota and plans to have it fully staffed by later this year, The Hill reported Thursday. The FBI office — which will be North Dakota’s fifth — comes in response to North Dakota lawmakers’ and local officials’ calls for the FBI to step up its presence in North Dakota’s oil fields, which have seen a surge in criminal activity since the state’s oil boom began. “The opening of this office is in response to the unprecedented growth in population and economic activity associated with the oil exploration and production in the Bakken region and the corresponding increase in criminal activity,” Richard Thornton, special agent in charge of the Minneapolis FBI division, which will oversee the Williston office, said in a statement. “The FBI will be in a better position to effectively address these issues in this region of North Dakota through this new office.” North Dakota’s oil production began growing in the mid-2000s, when companies figured out how to extract oil from the state’s Bakken region. Around 2010, production in the state skyrocketed, and that boom brought in throngs of workers from around the county — a population increase that, as Thornton said, also brought with it an increase in crime. According to the Washington Post, violent crime in the state’s oil-rich Williston Basin region increased by 121 percent between 2005 and 2011. Drug use and prostitution are also prevalent.
Onshore oil storage approaches holding capacity - Growing inventories of oil and gas on the market are not only exerting pressure on global prices, but it’s also causing storage space facilities to approach capacity, causing some companies to store their product in offshore tankers. Last week, CNBC reported that Head of Commodity Research for Bank of America-Merrill Lynch Francisco Blanch said, “We’re going to see pretty fast inventory builds over the next few weeks.” Currently, global supply is approximately 1.4 million barrels above demand each day. “If you run out of space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that’s what we expect over the next few weeks,” he added. Blanch predicts that both Brent and West Texas Intermediate benchmark prices will sink to $30 per barrel. The American Petroleum Institute recently released information displaying how stockpiles of crude oil in the U.S. increased by an unanticipated 8.9 million barrels during the week ending on February 20. The total being stored currently sits at around 437 million barrels, up to 100 million of which might be held on floating storage vessels by the end of the second quarter. During the financial crisis of 2009, there were an estimated 110 barrels being stored on tanker ships. According to analysts at IHS, as much as 80 percent of available commercial storage in the U.S. is currently being used. As reported by CNBC, commodity strategist for Citigroup Ivan Szapakowki said, “Within around two months, [onshore storage will] be completely exhausted. The only remaining storage globally will then be floating storage, tankers.” Recently, Citigroup forecasted oil prices to drop as low as $20 per barrel before beginning to recover. While there is still onshore storage available, some companies have already begun to store it on tanker ships. Over the past 18 months, prices and lease rates for tanker ships have nearly doubled.
U.S. running out of room to store oil, price collapse next? — The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week. If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude — and probably gasoline, too — plummeting. “The fact of the matter is we are running out of storage capacity in the U.S.,” Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York. Morse has suggested oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline.
“Default Monday”: Oil & Gas Companies Face Their Creditors as the Fracking Bubble Bursts - Debt funded the fracking boom. Now oil and gas prices have collapsed, and so has the ability to service that debt. The oil bust of the 1980s took down 700 banks, including 9 of the 10 largest in Texas. But this time, it’s different. This time, bondholders are on the hook. And these bonds – they’re called “junk bonds” for a reason – are already cracking. Busts start with small companies and proceed to larger ones. “Bankruptcy” and “restructuring” are the terms that wipe out stockholders and leave bondholders and other creditors to tussle over the scraps. Early January, WBH Energy, a fracking outfit in Texas, kicked off the series by filing for bankruptcy protection. It listed assets and liabilities of $10 million to $50 million. Small fry. A week later, GASFRAC filed for bankruptcy in Alberta, where it’s based, and in Texas – under Chapter 15 for cross-border bankruptcies. Not long ago, it was a highly touted IPO, whose “waterless fracking” technology would change a parched world. Instead of water, the system pumps liquid propane gel (similar to Napalm) into the ground; much of it can be recaptured, in theory. Ironically, it went bankrupt for other reasons: operating losses, “reduced industry activity,” the inability to find a buyer that would have paid enough to bail out its creditors, and “limited access to capital markets.” The endless source of money without which fracking doesn’t work had dried up. On February 17, Quicksilver Resources announced that it would not make a $13.6 million interest payment on its senior notes due in 2019. It invoked the possibility of filing for Chapter 11 bankruptcy to “restructure its capital structure.” On February 27, Hercules Offshore had its share-price target slashed to zero, from $4 a share, at Deutsche Bank, which finally downgraded the stock to “sell.” If you wait till Deutsche Bank tells you to sell, you’re ruined!
The Price of Oil Is About to Blow a Hole in Corporate Accounting -- There’s one place in the world where oil is still $95 a barrel. On paper. The U.S. Securities and Exchange Commission requires drillers to calculate the value of their oil reserves every year using average prices from the first trading days in each of the previous 12 months. Because oil didn’t start its freefall to about $45 till after the OPEC meeting in late November, companies in their latest regulatory filings used $95 a barrel to figure out how much oil they could profitably produce and what it’s worth. Of the 12 days that went into the fourth-quarter average, crude was above $90 a barrel on 10 of them. So Continental Resources Inc., led by billionaire Harold Hamm, reported last month that the present value of its oil and gas operations increased 13 percent last year to $22.8 billion. For Devon Energy Corp., a pioneer of hydraulic fracturing, it jumped 31 percent to $27.9 billion. This year tells a different story. The average price on the first trading days of January, February and March was $51.28 a barrel. That means a lot of pain -- and writedowns -- are in store when drillers’ first-quarter numbers are announced in April and May.
E&P Writedowns Loom As Reserves Overvalued By 60%- In principle, investors should be able to look to SEC filings for reliable information on publicly traded companies. As Bloomberg reports however, the commission’s rules on how drillers are required to value their reserves is effectively forcing companies to overstate the value of their O&G businesses by nearly two-thirds. Via Bloomberg: The U.S. Securities and Exchange Commission requires drillers to calculate the value of their oil reserves every year using average prices from the first trading days in each of the previous 12 months. Because oil didn’t start its freefall to about $45 till after the OPEC meeting in late November, companies in their latest regulatory filings used $95 a barrel to figure out how much oil they could profitably produce and what it’s worth. Of the 12 days that went into the fourth-quarter average, crude was above $90 a barrel on 10 of them. Continental Resources (who reminded Bloomberg that it’s “just following the rules like everyone else”), reported the following data on proved reserves early last month: PDP reserves increased 21% from year-end 2013 to 490 MMBoe at December 31, 2014. The Company had 2,994 gross (1,565 net) proved undeveloped (PUD) locations at year-end 2014. The Bakken accounted for 82% of PUD locations at year-end. Continental's year-end 2014 proved reserves had a net present value discounted at 10% (PV-10) of $22.8 billion, a 13% increase over PV-10 of $20.2 billion for year-end 2013 proved reserves.
What could save the boom? Energy leaders call for crude exports -- With prices low and production high, businesses are pushing with new vigor in efforts to lift the ban America has over exporting crude petroleum. Most recently, ConocoPhillips Chairman and CEO Ryan Lance spoke at the U.S. Chamber of Commerce Tuesday on the matter. According to a news release from ConocoPhillips, Lance delivered his speech, “American Energy: Keeping the Momentum Going,” Tuesday with the message that the current ban is outdated and economically constraining the nation. Lance cited the nation’s oil and natural gas industry for supporting 9.8 million domestic jobs and the recent energy renaissance for providing 40 percent of the growth in the nation’s gross domestic product over the past two years. In addition, Lance explained lifting the ban would help the eventual manufacture capacity of U.S. refineries who are already overwhelmed with production. By enabling a surplus of U.S. light crude that exceeds U.S. refiners’ processing capacity to sell on the world market, this would create additional demand for light oil from the nation’s growing shale producing fields. Lance also noted that the whole process would help sustain the energy-driven economic stimulation and job creation that has contributed to the rebounding U.S. economy. According to ConocoPhillips, there are currently seasonal surpluses of light oil, and these are expected to extend year-round by 2017. The resulting price discounts on domestic light oil sold to refiners, combined with weak world oil prices, threatens to force proposed development projects below their break-even points. Lance feels that unless exports are allowed, the pace of drilling would slow, causing domestic job losses and damaging the economy.
TransCanada Is Seizing People’s Land To Build Keystone, But Conservatives Have Been Dead Silent - For Julia Trigg Crawford, watching TransCanada construct the southern leg of the Keystone XL pipeline on a corner of her 600-acre farm was “gut-wrenching.” Crawford, who lives in Direct, Texas, had been trying since 2011 to keep the pipeline company off her property. But she ultimately lost, the portion of her land needed for the pipeline condemned through eminent domain — a process by which government can force citizens to sell their property for “public use,” such as the building of roads, railroads, and power lines. Crawford can’t wrap her head around why TransCanada, a foreign company, was granted the right of eminent domain to build a pipeline that wouldn’t be carrying Texas oil through the state of Texas. That question — how eminent domain can be used in a case like Keystone — has some anti-Keystone groups stumped too. But the groups that usually are vocal proponents of property rights, including the Institute for Justice, have been silent when it comes to the controversial pipeline.“I have not seen a single group that would normally rail against eminent domain speak up on behalf of farmers or ranchers on the Keystone XL route,” said Jane Kleeb, founder of the anti-Keystone group Bold Nebraska. She had thought that at least a few conservative or pro-lands rights groups would have voiced their general support for Keystone XL, but still denounced the use of eminent domain to get it built. That hasn’t happened, Kleeb said — not among property rights groups nor among most pro-Keystone lawmakers.
Get Ready: The Senate Will Start Trying To Override Obama’s Keystone XL Veto Today - The U.S. Senate will begin the process of attempting to override the President’s veto on the Keystone XL pipeline Wednesday, an attempt that’s not predicted to succeed but that likely won’t be the last time Congress tries to force approval of the controversial project. The Senate is expected to issue a cloture vote on the override Wednesday, and then vote on whether to override the president’s veto on Thursday. Senate Democrats had been prepared to filibuster the override vote, a threat that prompted the vote for cloture, which allows the Senate to place a time limit on how long a bill is considered. The Senate isn’t expected to succeed in overriding the president’s veto. As of Friday, the Hill reports, pipeline supporters had 63 out of the 67 votes needed to override the veto. Nine Senate Democrats had voted on the bill approving the pipeline, and Sen. John Hoeven (R-ND) told the Hill that he was working to get more Democrats to override the veto. Still, the prospect of an override doesn’t look likely, and some Senators are already planning ways to get the pipeline approved via future legislation. Sen. Hoeven, for example, told the Hillthat Keystone XL legislation could be tacked on to a long-term transportation funding bill, much to the chagrin of his Democratic colleagues.
Senate fails to pass bill to override Obama's Keystone XL pipeline veto - The Senate has failed to pass a bill that would override Barack Obama’s veto of the Keystone XL pipeline, in a victory for environmentalists who oppose the controversial project. The Republican majority, led by Senator Mitch McConnell, set up a cloture motion attempt to defeat the president after he vetoed a bill approving the pipeline in January. The measure failed by 62 votes in favor and 37 against. Republicans needed two-thirds of the Senate (67 votes) to defeat the president’s veto, but were unable to win over five additional Democrats. In January the Senate passed the bill by a vote of 62-36, garnering eight Democratic votes. The controversial pipeline has been under discussion in Washington since Obama took office six years ago, and the president refused to voice his position on the issue until the matter came to a head with January’s bill. Supporters of the divisive project say that it will create jobs and boost the economy; opponents say its economic benefits are limited and its environmental costs dangerous and massive.
Texas releases details on crude shipments from Bakken region - As many as 10 trains weekly have been coming into Texas carrying a million gallons or more of Northern Plains crude oil that’s been involved in fiery derailments in the U.S. and Canada. Details on the shipments were released Friday by the Texas Attorney General’s Office under a public records request from The Associated Press. They show BNSF Railway hauling up to six trains weekly into the Houston area. The Fort Worth-based railroad reported two to four trains weekly along a second route through Tarrant and McLennan Counties. Kansas City Southern Railway reported hauling up to one train a month into Nederland, Texas. A train carrying crude from the Bakken region of Montana and North Dakota derailed and sparked a spectacular fire last week in West Virginia. Hundreds of families were forced to evacuate.
Oil-train accidents raise concern in Phila.: The Philadelphia region’s petroleum refineries, many of which faced closure four years ago, have experienced an economic revival, thanks to the arrival of a virtual pipeline of domestic crude oil by rail. But the same petroleum from North Dakota’s Bakken oil field has been implicated in a succession of dramatic North American rail accidents in the last two years, most recently Monday in West Virginia. Video images of orange fireballs erupting from crumpled tank cars near the village of Mount Carbon last week reignited concerns that the same thing could happen here. Two major freight carriers, CSX and Norfolk Southern, now move 45 to 80 oil trains through Philadelphia each week, Samantha Phillips, the city’s director of emergency management, said. More than 700,000 people in the region - including 400,000 in Philadelphia - live within a half-mile of the rail lines that carry crude oil, according to an Inquirer analysis. Federal emergency-response guidelines recommend a half-mile evacuation zone if a tank car containing crude oil catches fire. “We could be evacuating a lot of people, I don’t dismiss that,” Phillips said. But she added: “I don’t think the strategy of scaring the crap out of people is a really effective way of promoting city preparedness.”
Report lists Wilkes-Barre neighborhoods at high risk for evacuation in event of oil train derailment -- A report released Monday by the environmental advocacy group PennEnvironment Research and Policy Center listed the Wilkes-Barre area among the locations throughout the state with neighborhoods most at risk of potential evacuation in the event of an oil train accident. “Danger Around the Bend, The Threat of Oil Trains in Pennsylvania,” identified areas by Zip Code and ranked eastern Wilkes-Barre in the 18702 sector third behind locales in West Philadelphia and northern Reading. A total of 29,277 people living locally within the half-mile evacuation zone would be affected by derailments of trains carrying highly volatile crude oil from North Dakota’s Bakken Shale Formation. Scranton trailed in fifth place, with 15,426 people affected in its North and West sides. But it climbed a peg higher when ranking cities statewide with the most people living in a potential evacuation area. Philadelphia topped the list of cities, with an affected population of 709,869. Scranton ranked fourth with a 61,004 people. The Philadelphia Energy Solutions refinery in south Philadelphia is the largest consumer of Bakken crude.
Are you in danger of an oil train derailment or fire? -- If a crude oil train in Pennsylvania were to derail, catch fire or both, about 1.5 million people are potentially in danger, reported a PublicSource analysis. To break it down, this is equal to one in every nine Pennsylvanians, or 11.5 percent of the state’s population. Out of the entire state, 327 K-12 schools, 37 hospitals and 61 nursing homes could be affected by a crude oil train derailment or fire. To some these numbers may seem absurd, but the truth is that they are realistic. According to a report released by the Department of Transportation Pipeline and Hazardous Materials Safety Administration, an estimated 15 crude oil train derailments will take place this year in the U.S. The recent CSX train derailment that was carrying North Dakota’s Bakken crude oil has given many people a reason to not only be worried about their health and safety, but also train safety. The train derailed and burst into flames that burnt for several days, which caused hundreds of people to evacuate their homes. The derailment also caused water contamination, leaving people with their water shut off. The entire incident left people in Pennsylvania questioning when it would happen in their state. Officials across the state of Pennsylvania say they are concerned about the potential for a train derailment. Pottstown Fire Chief Richard Lengel expressed is worry to PublicSource’s partner, the Pottstown Mercury: If something catastrophic happens, there’s no municipality along the railroad that can handle it; the volume is too great … We just have to hope that nothing happens, honestly.
White House mulled, then balked at curbing explosive gas on oil trains -- The Obama administration weighed national standards to control explosive gas in oil trains last year but rejected the move, deciding instead to leave new rules to North Dakota alone. Current and former administration officials told Reuters that they were unsure of federal jurisdiction to force the energy industry to drain volatile gas from crude oil originating in North Dakota’s fields. Instead, they opted to back North Dakota’s effort to remove the cocktail of explosive gas – known in the industry as ‘light ends’ – and rely on the state to contain the risk. North Dakota’s regulations come into force next month. The administration’s internal debate shows that concern about the risks associated with oil trains reached the upper level of the White House. But the administration balked at addressing the problem in new regulations governing crude oil trains that it is preparing to introduce this spring. A growing number of safety advocates say those rules are insufficient to regulate a product that is hauled thousands of miles of track and across many state lines.
York County left to spend $1.27 million on pipes under CSX railroad -- The mile-long train carrying North Dakota crude oil to Yorktown that derailed, burst into flames and shut down two water treatment plants in West Virginia has York County officials trying to prevent a local worst-case scenario – a train derailment due to flooding at two outdated culverts under the CSX railroad track near Route 17. A train derailment near Route 17 and Fort Eustis Boulevard could send crude oil directly into the Poquoson River. The Poquoson River headwaters flow into Newport News’ Hardwood’s Mill Reservoir, which serves residents across the Peninsula. “As the train is approaching Yorktown, it is going very slow,” said Dave Morris, a natural resources manager for regional water provider Newport News Waterworks. “That relieves some of our concern, but any time you are hauling petroleum across our watershed it is something we worry about.” Morris estimated that a train bringing oil into Yorktown would be traveling at 10 to 15 mph. According to media reports, a CSX train that derailed in Lynchburg in April 2014, spilling oil into the James River and bursting into flames, was traveling at about 24 mph. York County sent a letter to CSX recently to repeat its request that CSX remove a dislodged section of pipe that blocks some of the Poquoson River, said Board of Supervisors Chairman Thomas Shepperd. A CSX representative told the county in January that it would be fixed by March 1. “But it still sits there,” Shepperd said.
BNSF oil train derails in rural Illinois; two cars aflame (Reuters) - A BNSF Railway [BNISF.UL] train loaded with crude oil derailed and caught fire on Thursday afternoon in a rural area south of Galena, Illinois, according to local officials and the company. The incident marks the latest in a series of derailments in North America and the third in three weeks involving trains hauling crude oil, which has put a heightened focus on rail safety. Dark smoke was seen for miles around the crash site, and the Illinois Environmental Protection Agency told local WREX.com that two of the cars were potentially on fire. Images posted online by Dubuque Scanner showed flames several hundred feet high, while aerial footage showed the wreck spread across two sets of track. The train with 105 loaded cars - 103 of them carrying crude oil - derailed around 1:20 p.m. CST (1920 GMT), according to a BNSF statement. The incident occurred on what appears to be a major rail line alongside the Mississippi River that handles as many as 50 oil-trains a week, one official said. true "The sky is pretty dark down there, the smoke is pretty black," said Kevin Doyle, whose property borders the tracks. "If you're standing on the tracks you can throw a rock in the water." BNSF said there were no reported injuries and no evacuations. The Berkshire Hathaway Inc unit did not know what had caused the derailment, which occurred about 3 miles outside Galena, a town of just over 3,000 on the border with Wisconsin.
Freight train carrying crude oil derails near Illinois city: (AP) — A freight train loaded with crude oil derailed in northern Illinois on Thursday, bursting into flames and prompting officials to suggest that everyone with 1 mile evacuate, authorities said. The BNSF Railway train derailed around 1:05 p.m. in a rural area where the Galena River meets the Mississippi, according to company spokesman Andy Williams. The train had 103 cars loaded with crude oil, along with two buffer cars loaded with sand. A cause for the derailment hadn't yet been determined. No injuries were reported. Only a family of two agreed to leave their home, Galena City Administrator Mark Moran said at a news conference late Thursday, adding that the suggestion to evacuate was prompted by the presence of a propane tank near the derailment. The derailment occurred 3 miles south of Galena in a wooded and hilly area that is a major tourist attraction and the home of former President Ulysses S. Grant. The Jo Daviess County Sheriff's Department confirmed the train was transporting oil from the Northern Plains' Bakken region. Earlier in the day, Moran said 8 tankers had left the track. But Williams said at the news conference that only six cars derailed, two of which burst into flames and continued to burn into the night. Firefighters could only access the derailment site by a bike path, said Galena Assistant Fire Chief Bob Conley. They attempted to fight a small fire at the scene but were unable to stop the flames.
Another Oil Bomb Train Explodes, Third in Last Three Weeks -- Yet another train carrying volatile crude oil from the Bakken shale formation in North Dakota derailed yesterday, this time in northwestern Illinois near the historic tourist area of Galena overlooking the Mississippi River. It follows recent derailments in West Virginia and Ontario. The area in which it occurred was not as remote as the Ontario derailment. However, it did not require as extensive evacuation as the one in West Virginia in which hundreds were forced from their homes in the bitter cold. According to the Chicago Sun-Times, firefighters were allowing the fireball to burn itself out. The 105-car train included 103 cars loaded with the crude oil, with eight derailing. It’s not known yet if any oil spilled into the Mississippi River. So far this year, these derailments, followed by explosions and fires, have happened only in unpopulated and sparsely populated areas. But their frequency is alarming to more densely populated communities on the rail paths of these trains with many saying it’s only a matter of time until a derailment causes a disaster like the one that killed 47 in Lac-Mégantic, Quebec in July 2013—or worse. While the U.S. Department of Transportation has proposed new rules for trains carrying dangerous cargo, they would allow the easily ruptured DOT-111 tankers to remain in use for another two-and-a-half years and the industry continues to lobby for a longer phase-out period. However, the cars that derailed and burned yesterday were the supposedly safer newer CPC-1232 tankers.
Third Fiery Oil Train Derailment In Three Weeks Hits Rural Town - On Thursday afternoon, six cars from a 103-car train loaded with Bakken oil derailed and two caught fire in northern Illinois, according to the Associated Press. The derailment occurred in a rural area near the town of Galena, Illinois, and prompted authorities to set an evacuation radius of one mile from the crash site. Only one family had obeyed the evacuation notice. As of Friday morning there was not any suggested cause nor reported injuries. Though several miles from Galena, the crash occurred near the home of former President Ulysses S. Grant, which has made the area a tourist attraction. Firefighters could only reach the fire in the heavily wooded area on a bike path, and were allowing it to burn itself out on Thursday evening after an attempt to fight it failed and they had to pull back.The Federal Railroad Administration confirmed that the train was still on fire on Thursday, saying that “once the scene is contained and secured, we will be conducting a thorough investigation to determine the probable cause of the derailment.”Michael Trevino, VP of external communications at BNSF, said that the company was setting up a claims center and taking actions to prevent the spread of oil into waterways including the nearby Mississippi River. A company statement released late Thursday night stated: “We are grateful for the efforts of the first responders at this incident and sincerely regret the inconvenience this event has caused to the community.” Galena City Administrator Mark Moran said “I did confirm that the train crew was safely removed from the scene without injury,” and Fire Captain Brett Temperly said crews had to evacuate the scene less than two hours after the derailment, leaving some $10,000 worth of equipment behind.
More Exploding Shale Oil Bomb Trains! - Just when you thought it might be safe to be within a fracking mile of a railroad track! Kaboom goes another shale oil bomb train! Yet another train carrying volatile crude oil from the Bakken shale formation in North Dakota derailed yesterday, this time in northwestern Illinois near the historic tourist area of Galena overlooking the Mississippi River. It follows recent derailments in West Virginia and Ontario. The area in which it occurred was not as remote as the Ontario derailment. However, it did not require as extensive evacuation as the one in West Virginia in which hundreds were forced from their homes in the bitter cold. According to the Chicago Sun-Times, firefighters were allowing the fireball to burn itself out. Residents of the Galena area might be especially uneasy about trains rolling through their area. A month ago, a train carrying ethanol derailed in Dubuque, Iowa 15 miles away, with a dozen cars going off the tracks and several landing on the frozen Mississippi River. That fire burned for a day before it went out. So far this year, these derailments, followed by explosions and fires, have happened only in unpopulated and sparsely populated areas. But their frequency is alarming to more densely populated communities on the rail paths of these trains with many saying it’s only a matter of time until a derailment causes a disaster like the one that killed 47 in Lac-Mégantic, Quebec in July 2013—or worse.“Rail transport of crude oil has increased 4000% in the past six years,” said Marc Yaggi, executive director at Waterkeeper Alliance. “Many of these trains travel along and over our waterways, putting our communities, first responders and drinking-water sources directly in harm’s way. This latest derailment shows yet again how explosive this practice can be. Urgent action is needed by the federal Department of Transportation to put the brakes on the unsafe transport of crude oil.”
Oil Train That Caught Fire In Illinois Was Using Supposedly Safer Cars - On Thursday afternoon, six cars from a 103-car train loaded with Bakken oil derailed and two caught fire in northern Illinois, according to the Associated Press. The derailment occurred in a rural area near the town of Galena, Illinois, and prompted authorities to set an evacuation radius of one mile from the crash site. Only one family had obeyed the evacuation notice. As of Friday morning there was not any suggested cause nor reported injuries. Firefighters could only reach the fire in the heavily wooded area on a bike path, and were allowing it to burn itself out on Thursday evening after an attempt to fight it failed and they had to pull back. The Federal Railroad Administration confirmed that the train was still on fire on Thursday, saying that “once the scene is contained and secured, we will be conducting a thorough investigation to determine the probable cause of the derailment.” Michael Trevino, VP of external communications at BNSF, said that the company was setting up a claims center and taking actions to prevent the spread of oil into waterways including the nearby Mississippi River. Last month’s fiery Bakken oil train derailment in West Virginia involved the supposedly safer, tougher CPC 1232 new model rail cars. Earlier that month another bad oil train derailment in Canada involving the newer, upgraded rail cars caused a fire that burned for six days. BNSF stated that the cars involved in Thursday’s explosion were also the newer CPC 1232 model cars. Canada’s Transportation Safety Board noted that the derailment in February suggests the new requirements the U.S. and Canada agreed upon last year do not go far enough to ensure the reliable, safe transportation of such a volatile fossil fuel.
Dramatic Explosion Footage: Warren Buffett-Owned Oil Freight Train Derails, Bursts Into Flames -- Back in March 2013 we wrote a post presenting "the new US petroleum pipelines" in which we explained "why crony capitalist #1, the "rustic" Octogenarian of Omaha, and Obama tax advisor #1, Warren Buffett has been aggressively attempting to corner the railroad market, while the administration relentlessly refuses to allow assorted new, and very much competing petroleum pipelines from America's neighbor to the north to cross through the US." The answer was shown on the chart below which showed the exponential increase in petroleum rail car loadings. It also explains why after Buffett's purchase of Burlington Northern Santa Fe (BNSF) in 2009, Obama has been so staunchly against allowing the Keystone XL pipeline: because if there is anything that would allow Buffett to preserve the momentum of his soaring oil transit business, it is maintaining a veto on any competing pipelines. A veto which Obama implemented for the latest time just a few days ago. Of course, it would be uncouth of the US president to say that he is against a pipeline because one of his crony backers, his tax advisor ("push income tax higher all you want, but don't you dare touch that capital gains and dividend tax"), and perhaps the biggest single beneficiary of the government bailout of Wall Street in 2008, tells him to. So instead Obama, to appease his progressive rank and file, decided to crack down on the "danger" of pipelines - after all, the world is riddled with horror stories about the tens of thousands of miles of US commodity pipelines spontaneously combusting, exploding or otherwise blowing up and destroying the pristine nature all around them. Maybe not, but that's where the "unbiased" media comes into play. The same media which we doubt will have much if anything to say about the train derailment, crash and subsequent massive explosion which took place at 1:20 pm in a rural area where the Galena River meets the Mississippi. The train in question? One of Warren Buffett's own: a BNSF Railway freight train loaded with crude oil.
Illinois oil train derailment involved safer tank cars: — The rail cars that split open and burst into flames during a western Illinois oil train derailment this week had been retrofitted with protective shields to meet a higher safety standard than federal law requires, according to railroad officials. The fire continued to burn Friday, a day after the derailment in a rural area south of the city of Galena. No injuries were reported, but the accident was the latest in a series of failures for the safer tank-car model that has led some people calling for even tougher requirements. "It certainly begs that question when ... those standards failed to prevent leakage and explosions that threaten human safety and environmental contamination," said Steve Barg, director of the Jo Daviess Conservation Foundation, which owns a nature preserve several hundred yards from the derailment site. BNSF Railway said the train's tank cars were a newer model known as the 1232. It was designed during safety upgrades voluntarily adopted by the industry four years ago in hopes of keeping cars from rupturing during derailments. But 1232 standard cars have split open in three other accidents in the past year, including one in West Virginia last month. That train was carrying 3 million gallons of North Dakota crude when it derailed, shooting fireballs into the sky, leaking oil into a waterway and burning down a house. The home's owner was treated for smoke inhalation, but no one else was injured. In Thursday's accident in Illinois, 21 of the train's 105 cars derailed in an area where the Galena River meets the Mississippi. BNSF Railway said a resulting fire spread to five rail cars. Firefighters could only access the derailment site by a bike path, said Galena Assistant Fire Chief Bob Conley.
Derailed U.S. oil train still burning; shipment delays expected -- A BNSF Railway train loaded with crude oil that derailed and caught fire Thursday afternoon was still burning Friday, and the company warned that shipments along the line could be delayed up to 48 hours. Local emergency management officials confirmed that five tank cars out of 21 that derailed were on fire, and seven were damaged, including the tank cars that continued to burn.There were no injuries, BNSF said. The incident is the latest in a series of derailments in North America and the third in three weeks involving trains hauling crude oil, which has heightened the focus on rail safety. BNSF said it didn’t know what caused the derailment, but said the tank cars were of a newer model, the CPC 1232, which are supposedly better protected against damage than older ones.The Casualty Prevention Circular (CPC) model 1232 is the newer version of the DOT-111 car manufactured before 2011. The earlier version was criticized by regulators and operators for being prone to puncture. The CPC 1232 has new safety specifications, including a thicker tank, top-fitting protection and a pressure relief system. The train derailed in Galena, Illinois, approximately 164 miles west of Chicago. The line is commonly used to carry crude oil to Chicago before it heads to East Coast refineries. “Customers may experience delays of 24 to 48 hours on shipments moving through this corridor,” the company said in an alert posted on its website.
Going Off the Rails: There's No Safe Way to Haul Oil by the Trainload - When 27 CSX tanker cars loaded with fracked North Dakota crude tumbled onto a West Virginia riverbank on President’s Day, the ensuing fireballs leveled a house and forced hundreds of people to flee amid a heavy snowstorm. Even though 19 of the derailed cars — each carrying 30,000 gallons of oil — erupted into flames, nobody died in this particular disaster. But it may have fired a fatal shot into the argument that trains can “safely” haul crude across North America. After most of these increasingly frequent accidents, critics urge the government to make operators use “safer” tanker cars. Yet the cars that went off the rails, exploded into flames, and then smoldered for days alongside the Kanawha River were the new-and-improved model. Slower speeds are also billed as a way to increase oil train safety. Yet this one was chugging along at just 33 miles per hour in a 50-mph zone when it tumbled off-track between the aptly named towns of Boomer and Mount Carbon. Given its quick growth, many Americans don’t get how big the oil-by-rail industry is or why they should worry about its risks. The number of crude carloads chugging across the nation rocketed from 9,500 in 2008 to 500,000 last year. The advocacy group Oil Change International created an interactive map of oil train routes you can use to see if any run past your house. It looks like a giant spider web stretched from coast to coast. Foes of oil-by-rail oppose the industry’s new reliance on what they call “bomb trains” because of how easily tanker cars can detonate when they go off the rails and how prone they are to doing that.
The Best Way to Prevent Exploding Trains? Higher Oil Prices - Wreckage from the latest oil train explosion hadn't yet been cleared from the crash site in West Virginia last week when President Obama vetoed legislation that would have approved construction of the Keystone XL pipeline. The timing of the two events crystallizes one of the puzzles at the heart of the U.S. oil boom: How do we move all this new crude around the country? As production in the U.S. has soared to more than 9 million barrels a day—up from just 5 million back in 2008—the pipeline industry has scrambled to reorient itself around new oilfields in North Dakota and Texas. But railroads have proven more nimble and in many cases beat pipelines to the punch. The amount of crude being moved by trains jumped by almost 5,000 percent since 2009, even though trains are less efficient and typically more expensive than pipelines. Energy companies can choose whether to send a crude train to a refinery in Philadelphia or to one in Port Arthur Texas, depending on which location offers higher prices. This brings us to one of the more common and unfortunate reactions to the increasing number of oil train explosions: The incorrect argument that these mishaps wouldn't be happening with such frequency if only Obama would simply approve Keystone XL. But Keystone, whatever its merits, is primarily intended to move crude from Canada. Right now, with oil prices down more than 50 percent from highs reached last summer, companies are understandably wary about investing in a big pipeline projects up to the Bakken. In December, for example, Enterprise Products Partners canceled a proposed pipeline to move oil from North Dakota down to Oklahoma. A similar line was canceled back in 2012 by the Tulsa-based energy company Oneok, at a time when oil prices were about $40 per barrel higher than today.
Motor Oil Spill Contaminates Washington River, Coating Birds And Endangering Wildlife - More than 1,000 gallons of used motor oil leaked into a river and irrigation canals in Washington state this weekend, oiling at least 50 birds and contaminating an area that’s rich in wildlife, according to state officials. About 1,500 gallons of used motor oil, which can contain toxins and heavy metals, leaked from an aboveground storage tank into Washington’s Sulphur Creek and Yakima River Sunday. Cleanup crews are trying to recover and contain the spilled oil by laying down booms and using vacuums. An oil sheen has been spotted about 20 miles away from the site of the spill, Joye Redfield-Wilder, a spokesperson for the Department of Ecology, told ThinkProgress. But the Department of Ecology says that most of the oil has remained in a seven-mile section of Sulphur Creek, and that the creek is boomed at the spot where it enters the Yakima River in an attempt to prevent any more oil from entering the river.
Responders address cleanup of North Slope spill - — Responders have recovered nearly 4,000 gallons of crude oil, water and other fluids from a pipeline leak at a Hillcorp Alaska production site on the North Slope. The Alaska Department of Environmental Conservation says responders were able to reach the site at about 6 a.m. Sunday after severe blizzard conditions overnight Saturday halted response efforts. KTUU reports the leak from a 10-inch production line at Milne Point was first spotted shortly before 8 a.m. Saturday. DEC officials say the cause of the rupture remains under investigation. The crude escaped from a hole in the line. Responders say an estimated 38,000-square-foot area around the leak was heavily to lightly misted by fluids. DEC on-scene coordinator Tom DeRuyter says responders do not have a solid estimate for how much liquid spilled.
The Obama Administration, Shell, and the Fate of the Arctic Ocean In the Chukchi Sea and the adjacent Beaufort Sea, off Arctic Alaska, you can commonly spot bowhead, beluga, and grey whales there, while fin whales, minkes, humpbacks, killer whales, and narwhals are all venturing into these seas ever more often as the Arctic and its waters continue to warm rapidly. The problem, however, is that the major oil company Royal Dutch Shell wants to drill in the Chukchi Sea this summer and that could, in the long term, spell doom for one of the last great, relatively untouched oceanic environments on the planet. Let me explain why Shell’s drilling ambitions are so dangerous. Just think of the way the blowout of one drilling platform, BP’s Deepwater Horizon, devastated the Gulf of Mexico. Now, imagine the same thing happening without any clean-up help in sight. You might have heard about “the sixth extinction,” the way at this moment species are blinking off at a historically unprecedented rate. The Arctic seas of Alaska, however, still are sanctuaries not only for tens of thousands of whales, but also hundreds of thousands of walruses and seals, millions of birds, thousands of polar bears, and innumerable fish from more than one hundred species, not to mention all the uncharismatic sub-sea life that eludes our eyes but makes up the food web — phytoplankton, sea urchins, sand dollars, and sea cucumbers, to name only a few. Think of the Arctic Ocean as among the last remaining marine ecological paradises on the planet. Now for that oil. Looking for it in Arctic waters happens to be the most dangerous form of drilling imaginable, because no proven technology exists that could clean up a major oil spill in distant ice-choked seas in the cold and dark, under one of the harshest environments on Earth. Even during the brief “summer” open-water season, ice floes remain a constant threat as Shell found out in 2012 when one of its drill ships encountered a floe the size of Manhattan and was forced to disconnect from its seafloor anchor and temporarily halt its operations. Deep fog severely restricts visibility. Storms are not exceptions but the norm, and are becoming more frequent and violent in a rapidly warming region.
Environmental groups sue Port of Seattle over Shell oil fleet (Reuters) - A coalition of environmental groups sued the Port of Seattle on Monday to stop the lease of a terminal to Royal Dutch Shell Plc's Arctic oil drilling fleet, arguing a proper environmental review was never conducted, court records showed. Earthjustice, along with other groups including the Sierra Club, filed the suit in a Washington state court, alleging the drilling operation was substantially different from the terminal's prior use, meaning an environmental review had to be done under state law. The complaint against the port and Foss Maritime Co, which would work for Shell under the two-year lease, also alleged that officials reached the arrangement without public disclosure and that the fleet could pollute the area's water. true "The Port shut out the public and subverted laws that are designed to foster an informed public assessment of controversial proposals like this one," Earthjustice Managing Attorney Patti Goldman said in a statement. Shell, Europe's largest energy firm, is intent on restarting its Arctic drilling campaign in Alaska's Chukchi Sea this summer. It was suspended in early 2013 following the grounding of a drilling rig.
Big Blow For Shale Energy: Chevron Terminates All Shale Gas Exploration In Europe -- The Shale Energy Industry suffered another big blow as Chevron terminated its last European operations in Romania due to poor exploration results and ongoing anti-fracking protests. Chevron also suspended all operations in Poland last month and cancelled shale gas agreements in Ukraine and Lithuania. This is just another bad sign for the Shale Energy Industry. A few years ago, the hype put out by the Main Stream Media (MSM), was that there was an endless amount of shale oil and gas reserves all over the world. Of course, this was pure nonsense as a few of the more enlightened energy analysts knew better. According to the article, Chevron Ditches Last European Fracking Project In Romania: While the US Energy Information Administration had previously estimated that Romania could potentially recover enough gas to cover domestic demand for more than a century, the exploration failures resulted in the country’s prime minister, Victor Ponta, saying last year that it looks like Romania “does not have shale gas.” Globally, Chevron’s 2014 failure rate stood at 30 percent, as compared to 18 percent in 2013, according to Bloomberg. Sixteen of the 53 wells the company drilled were found to have had no commercially viable quantities of oil or natural gas.
Extent of stealth fracking in Gulf of Mexico revealed - Government lists at least 100 sites offshore where regulators approved the controversial exploration method. While a debate rages over the use of hydraulic fracturing to exploit fossil fuel reserves inland, the practice has quietly taken hold offshore, in the Gulf of Mexico. Documents obtained by “Fault Lines” reveal that the world’s largest oil firms are now fracking in some of the Gulf’s deepest waters — raising questions about how it is being regulated. A list of about 100 well sites offers one of the first snapshots of the practice, which until just a couple years ago was unknown to the public. “There’s been a level of secrecy that’s shielded this activity from view, literally and figuratively,” said Jonathan Henderson, who works for New Orleans ’ Gulf Restoration Network. “This activity is taking place offshore, and the public can’t get out here [to see it].” The list of sites obtained by “Fault Lines” reveals that BP, ConocoPhillips, Shell and nearly two dozen other companies were approved to use offshore fracking in 2013. It also reveals that fracking has occurred in the vicinity of the 2010 BP Deepwater Horizon spill. Chevron, which operates several nearshore rigs visited by a “Fault Lines” team in January, said it also uses offshore fracking “safely and efficiently” at its deepest water sites.
Algeria: Violence Erupts at Protest Over Shale Gas Drilling Project - Protests against hydraulic fracturing, or fracking, for shale gas in southern Algeria turned violent over the weekend when the police clashed with demonstrators outside a base run by the American company Halliburton near the town of Ain Salah. Tensions were still running high on Sunday, but no further violence was reported. Antifracking protests against the government oil and gas company Sonatrach and its international partners have occurred almost daily for two months, but had been peaceful until now. Clashes broke out when protesters approached Halliburton’s walled compound and burned tires in the roads. The police fired tear gas and detained at least a dozen. About 20 protesters were injured, three of them seriously, according to a local hospital. Algeria, which gets much of its revenue from the export of oil and gas, has been conducting a pilot project to test for shale gas near Ain Salah and announced in December that it was ready to start extracting gas by hydraulic fracturing. Groups that oppose the government have joined the local protesters in Ain Salah to demand a moratorium on fracking, citing environmental concerns.
OPEC price points strangled oil sands and offshore, fracturing kept its wits -- OPEC may have dealt some damage to the American shale boom along with other competing countries, but senior expert from the consulting firm McKinney and Company stated that they didn’t rock oil prices nearly enough to turn the lights off on the hydraulic fracturing boom. Forbes Magazine reported that Joe Quoyeser of McKinney and Company told an audience at Northwestern University’s Kellogg Energy Conference in Chicago about the failed attempt to run U.S. drillers out of the market. “If the Saudis think they’re going to put U.S. shale players out of business, they’re probably not, although there will be less drilling,” Quoyeser said. Quoyeser stated that the real victims of $50 barrel prices include the oil sands production of Canada and many deep water operations. Oil sands, for instance, require a heating method to extract petroleum. This process requires natural gas, and according to Quoyser, is unsustainable if the price of oil falls below $75 per barrel. Anyone paying attention to oil and gas production in America over the past few months has seen two trends. On one hand jobs are disappearing at an alarming rate as companies readjust budgets in the midst of low prices. On the other hand, oil production has actually increased as verified by numerous agencies including the Energy Information Agency. “Our view is that OPEC and the Saudis talked this market down. This was a rhetorically driven price adjustment.” Essentially, Saudi Arabia and other OPEC nations saw this as a chance to take a small pain now rather than a larger pain in the future. Although, it’s worth mentioning that this small-time pain is costing Saudi Arabia $500 million per day.
Crude Carnage Continues Amid Saudi Production & Storage Limits -- Crude oil prices are once again following the path of least deja vu resistance this morning. Having spiked into NYMEX close on Friday (exactly as they did following the rig count data the previous week), WTI is back to a $48 handle this morning following news that Saudi Arabia has increased production to its highest level since 2013. Iraq (another OPEC nation) stirred the pot further by forecasting increased supplies in the next month. This comes as US production hits record highs and vital Oklahoma storage tanks will fill up even sooner than expected, driving the "JK" spread above $2.50 (April delivery drastically cheaper than May). As on analysts noted, as "Cushing continues to fill massively, we could see a '3' handle on WTI."
Crude Jumps After API Inventories Build Less Than Expected - The last three times that API inventories reported (each notably greater than expected), crude prices tumbled (only to ramp hilariously the next day following DOE inventory data). Against Bloomberg estimates of a 3.95 million barrel build, API printed only a 2.89 million barrel build; and WTI crude prices surged to the day's highs. Crude jumped to the highs of the day...
Crude Plunges On Biggest Weekly Inventory Build In 14 Years | Zero Hedge: So much for last night's lower than expected API build, DOE data shows a massive build compared to the 3.95 mm barrels expected: *Crude Inventories Rose 10.30 mln Barrels, EIA Says. This is the 8th build in a row and biggest weekly inventory rise in 14 years. This is the fastest inventory build EVER... and WTI has broken back below $50... Unambiguously good still? Charts: Bloomberg
U.S Oil Prices Rise After Supply Data - WSJ: U.S. oil prices rose on Wednesday after weekly data showed that inventories at a key storage hub increased less than expected. Light, sweet oil for April delivery settled up $1.01, or 2%, at $51.53 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, settled lower as concerns ebbed that violence in Libya would immediately halt production. Front-month futures fell 47 cents, or 0.8%, to $60.55 a barrel on ICE Futures Europe.U.S. crude stockpiles rose by 10.3 million barrels to 444.4 million barrels in the week ended Feb. 27, the Energy Information Administration said Wednesday. Analysts surveyed by The Wall Street Journal had predicted a 4.6 million-barrel increase. The gain was the biggest for a single week since March 2001. However, supplies in Cushing, Okla., the delivery point for the Nymex contract, rose by 500,000 barrels, less than many had expected. Cushing inventories are within a few million barrels of their all-time high. As they rose rapidly in recent weeks, traders bet that the price difference between U.S. oil prices and Brent prices, known as the spread, would widen. Now that Cushing supplies appear to be growing more slowly, traders are reversing those bets by buying U.S. oil and selling Brent
US Daily crude oil production highest since Dec 1972: (table) US Crude oil production hit another post-1973 record with 9.32 million barrels per day.
The World Is Running Out of Places to Store All of Its Oil - The world is now pumping so much more oil than it needs that corporations are apparently running out of space to store the stuff. If the globe were a giant gas tank, its meter would be getting close to full. Here's how the Wall Street Journal sums up the situation in numbers today: U.S. crude-oil supplies are at their highest level in more 80 years, according to data from the Energy Information Administration, equal to nearly 70% of the nation’s storage capacity. A key U.S. storage hub in Cushing, Okla., is expected to hit maximum capacity this spring. While estimates are rough, Citigroup Inc. believes European commercial crude storage could be more than 90% full, and inventories in South Korea, South Africa and Japan could be at more than 80% of capacity. The main cause here, again, is that oil production is still outstripping demand. But the problem is being exacerbated because the crude market has entered what's known as contango, which is when buyers are willing to pay more for oil delivered a few months from now (when supplies might finally drop and bring up prices) than they are for oil delivered today. Investors have responded by snapping up cheap crude now, putting it in storage, and locking in futures contracts that amount to guaranteed money. (Good news for them: There's even talk of the market hitting "super contango.") As a result of all this activity, the Journal reports that the cost of storage itself is rising, which is leading to the creation of the brand new trade in oil storage futures. Weird things are happening. As storage space becomes ever more scarce, it could ultimately force prices lower, as drillers find themselves with fewer customers who have the capacity to hold onto the crude. That's one reason Citibank analysts have suggested the cost of a barrel could potentially drop to around $20. That said, if the situation gets bad enough, drillers may finally just choose to leave their oil in the ground. Also, companies are presently building more storage capacity, which could alleviate the problem a bit.
The rush to hoard oil is getting so intense that there’s a market forming for oil storage futures contracts - More and more investors and traders are betting on a rebound in oil prices, and many effectively are hoarding oil. But when you hoard oil, you have to store it somewhere. In fact, spare storage capacity is getting so tight that the cost of storage is surging, sending the oil futures market into super contango, which is where the futures contract price is higher than the expected price. All of this has inspired a lot of creativity from the industry. Storage itself is becoming as big a commodity as the oil. In the case of producers, Bloomberg reports that some are taking advantage of this situation by relying on nature's storage space: the ground. From Bloomberg: Drillers who have spent millions boring holes through petroleum-rich shale rock are just waiting for prices to go up before turning on the spigot. From North Dakota to Texas, there are more than 3,000 wells that have been drilled but not tapped, based on estimates from Wood Mackenzie Ltd. and RBC Capital Markets LLC. Waiting gives producers such as Apache Corp. and EOG Resources Inc. a better chance of receiving a higher price. It could also delay a recovery by attracting more supply every time prices rise. And on the traders' side, there's a new derivative in town: the oil storage futures contract. The CME Group has just announced a new futures contract for Gulf Coast crude-oil storage. Here are the details, from the WSJ: At the beginning of every month, a 30-minute online auction will be held through brokerage NEO Markets Inc. In the auction, LOOP LLC – known to many as the Louisiana Offshore Oil Port – will sell 7,000 contracts. Each contract will give the buyer the right, but not the obligation, to store 1,000 barrels of sour crude oil in LOOP’s Clovelly Hub in Louisiana for a month. Once the contracts are sold through the auction, they can be bought and sold freely. At the end of the month, anyone holding a contract can use the storage space, which will hold the oil in either an above-ground storage tank or an underground cavern.
Congress Facing Huge Pressure To Lift Oil Export Ban -- A lobbying blitz is underway to scrap the decades old ban on crude oil exports from the United States. Originally implemented during price spikes in the 1970’s, oil exports from the U.S. have been legally blocked, save for exemptions given to exports to Canada. That was largely a nonissue for several decades as the U.S. was a massive importer of oil, and there wasn’t much of an opportunity for domestic drillers to export crude. That all changed in the last few years with a flood of new production. Calls for lifting the ban on exports began in earnest in 2014. The Obama administration has not decisively taken a stance on the issue, but has shown some willingness to allow exports to move forward. In June 2014, the Commerce Department granted waivers to a several producers to export ultralight forms of oil known as condensate. Rather than satiate demands for export, the move only sparked more interest. Many more companies applied for their own waivers, and Commerce began approving them. In December 2014 the agency also issued a clarification on what constitutes “condensate,” and while it did not issue a blanket lift on the oil export ban, the move essentially green lighted the export of ultralight forms of oil that had undergone only minimal processing. The Obama administration threw the industry a bone by offering a relief valve for all the oil supplies that have built up within U.S. borders. By allowing some exports, the federal government opens up the market for producers, where they can sell oil at a higher price. After all, WTI is currently selling for just $50 per barrel, while Brent is selling at a $10 premium. But now the oil industry, sensing its advantage, is stepping up the lobbying effort to once and for all scrap the four decade export ban.
Baker Hughes: Monthly U.S. rig count drops 20 percent - UPI.com: (UPI) -- The number of U.S. rigs actively exploring for or producing oil or gas was down 20 percent from January. Oil services company Baker Hughes published its monthly rig count report for February, and the average U.S. rig count for February was 1,348, down 335 from January and down 421 year-on-year. The average Canadian rig count was 363, down 5 from January and down 263 year-on-year. Oil prices are off about half their June value, as U.S. inventories accumulate, which has led to planned spending cuts in exploration and production. The U.S. Energy Information Administration in its petroleum status report for the week ending Feb. 20, the most recent data available, said U.S. crude oil inventories increased by 8.4 million barrels from the previous week to 434.1 million barrels, the highest level for this time of year in at least 80 years. The total international rig count for February was 1,275, up 17 from January and down 66 year-on-year. The international offshore rig count for February was 324, up 10 from January and up 6 year-on-year.
Oil rig count falls by 64: — Producers laid down more rigs this week as the effects of low prices continued to ripple through the industry. The number of rigs searching or drilling for oil fell by 64 to 922, according to oil service company Baker Hughes’ weekly count. The total number of rigs chasing oil and gas fell by 75 to 1,192, down from 1,267 last week. The rig count has fallen precipitously following a collapse in crude oil prices last year. Analysts have closely watched the reports for signs that producers are slowing their rate of production, in hopes that cutbacks might stem the flood of crude that has driven down prices. In total, the combined oil and gas count has fallen by about 38 percent from a recent high of 1,931 in September of last year. Crude rigs peaked at 1,609 in October 2014 and are now about 43 percent lower. Crude oil prices were headed down about midway through trading on Friday. Benchmark crude oil futures for next-month delivery were down 91 cents or 1.8 percent to $49.85 per barrel on the New York Mercantile Exchange.
Baker Hughes: U.S. oil rig count hits lowest since April 2011 - The number of U.S. drilling rigs in use fell sharply in the week to Friday, almost doubling the cuts of the past two weeks and hitting the lowest since April 2011, a survey showed.The number of rigs drilling for oil in the United States fell by 64 to 922, oil services company Baker Hughes Inc said in its weekly report. “The drop in the oil rig count was a little more than expected, as we thought the velocity of declines had slowed,” The reduction this week almost doubled declines of 33 and 37 in the prior two weeks. But those declines were less steep than those of the prior three weeks, which exceeded 80.Rigs fell for the 13th straight week as producers cut activity in the face of slumping oil prices. The number of oil rigs in use has fallen in 18 of the past 21 weeks, according to Baker Hughes.The rig count has fallen at the quickest rate on record over the past four months, dropping more than 40 percent from a record high of 1,609 in October. Texas, the state with the most rigs, again lost the most this week, shedding 32 to 537, the lowest since 2010, Baker Hughes said. The shale play with the biggest losses was Permian in West Texas and New Mexico, the nation’s biggest and fastest growing shale oil play. The Permian lost 24 oil rigs to 328, the least since 2011, according to data going back to 2011. Horizontal rigs, the most efficient type of rig most often used to extract oil or gas from shale, fell by 51 to 895, the lowest since 2010.Less efficient vertical and directional rigs, meanwhile, fell to the lowest since 1991 and 1993, respectively, according to data going back to 1991.
Rig Count Decline Re-Accelerates To 2nd Biggest Drop In 22 Years -- Following last week's slowing in the pace of rig count, crude prices dropped and then spiked, and it makes today's data under more scrutiny. At around $49.50, WTI prices have round-tripped back almost perfectly to the scene of the crime before today's rig count data hit. The total oil rig count dropped almost 6%, down 75 to 1,192 meaning a re-acceleration of the rig count decline and the 2nd biggest drop since 1993. WTI prices popped on the news and are fading back now...
Schlumberger Debt Signals Free Cash as Stimulus Distorts Markets -- Investors are paying to hold Schlumberger Ltd.’s short-term debt as tumbling benchmark rates offer companies the prospect of raising funds for free. The world’s largest oilfield services provider saw its Swiss franc-denominated commercial paper trade with a negative yield, Joao Felix, director of external communications, said by e-mail. Dutch energy company Alliander NV said last month its short-term bond yields traded below zero. The European Central Bank’s plan to pump 1.1 trillion-euro ($1.2 trillion) into the region’s economy through large-scale bond purchases is driving borrowing costs to record lows. Some companies are going a step further and selling the debt with rates below zero directly to investors, according to David Hiscock at industry group the International Capital Market Association. “We are living in unusual times,” Hiscock, senior director for market practice and regulatory policy at Zurich-based ICMA, said by phone. “That looks set to persist with the ECB about to kick off the QE program to try to stimulate activity by driving rates as low as they can be,” he said, referring to the ECB’s quantitative easing program. Investors are willing to accept next to nothing to hold investment-grade corporate bonds because of their relative safety and as they still offer higher rates than benchmark government bonds.
Crude Awakening: Why Next Week Could Be Carnage For Oil ETFs - Don’t look now, but the sharp slide in crude prices may be leading the proverbial sheep to slaughter. Investors have piled into the market’s largest crude ETF over the last several months sending the number of shares outstanding to the highest level since 2009. We suspect many of these “investors” might be unaware that they’re currently staring down the most severe decoupling between second- and first- month contracts in four years. "normal" knife catching BTFD'ers piled into USO for the bounce... The last 2 times such an extreme contango occurred, USO volatility was gappy and extreme. * * * Sell low, buy high anyone?
Could Reduced Drilling Also Reduce GDP Growth? -- Atlanta Fed's macroblog -- Five or six times each month, the Atlanta Fed posts a "nowcast" of real gross domestic product (GDP) growth from the Atlanta Fed's GDPNow model. The most recent model nowcast for first-quarter real GDP growth is provided in table 1 below alongside alternative forecasts from the Philadelphia Fed's quarterly Survey of Professional Forecasters (SPF) and the CNBC/Moody's Analytics Rapid Update survey. The Atlanta Fed's nowcast of 1.2 percent growth is considerably lower than both the SPF forecast (2.7 percent) and the Rapid Update forecast (2.6 percent). Why the discrepancy? The less frequently updated SPF forecast (now nearly a month old) has the advantage of including forecasts of major subcomponents of GDP. Comparing the subcomponent forecasts from the SPF with those from the GDPNow model reveals that no single factor explains the difference between the two GDP forecasts. The GDPNow model forecasts of the real growth rates of consumer spending, residential investment, and government spending are all somewhat weaker than the SPF forecasts. Together these subcomponents account for just under 1.0 percentage point of the 1.5 percentage point difference between the GDP growth forecasts. Most of the remaining difference in the GDP forecasts is the result of the different forecasts for real business fixed investment (BFI) growth. The GDPNow model projects a sharp 13.5 percent falloff in nonresidential structures investment that largely offsets the reasonably strong increases in the other two subcomponents of BFI. Much of this decline is due to petroleum and natural gas well exploration; a component which accounts for almost 30 percent of nonresidential structures investment and looks like it will fall sharply this quarter. The remainder of this blog entry "drills" down into this portion of the nonresidential structures forecast (pun intended). (A related recent analysis using the GDPNow model has been done here).
Exxon CEO: Get used to lower oil prices — ExxonMobil CEO Rex Tillerson expects the price of oil to remain low over the next two years because of ample global supplies and relatively weak economic growth. Speaking at the company’s annual investor meeting in New York, Tillerson cautioned that geopolitical turmoil could unexpectedly send prices higher. But he said that if tensions calm, much more oil is ready to hit the market — a market that is already flush with crude oil. Exxon’s presentation to investors outlining its business plans through 2017 assumes a price of $55 a barrel for global crude. That’s $5 below where Brent crude, the most important global benchmark, traded on Wednesday. It’s about half of what Brent averaged between 2011 and the middle of last year.
ExxonMobil: A continuous series of unfortunate events -- After ExxonMobil distributed more than 5 million gallons of tainted fuel in the Baton Rouge area in March 2014, a lawsuit against the company alleges it has denied more claims than it has paid. The company said it has paid more than $4.6 million to nearly 2,900 motorists impacted by the tainted fuel. Two batches of bad fuel produced at ExxonMobil in mid-March 2014 caused some Baton Rouge area drivers to experience problems with their intake and valve systems. Exxon’s claims handling program and toll-free number received 7,458 calls, which resulted in more than $4.6 million in payments to 2,883 motorists who required automotive service. In January, federal officials issued a $1 million penalty against ExxonMobil for safety violations stemming from a pipeline rupture in 2011 that spilled 63,000 gallons of crude into Montana’s Yellowstone River. The pipeline break during summer flooding left oil along an 85-mile stretch of the river, killing fish and wildlife and prompting months of cleanup. In February, ExxonMobil asked federal regulators to reconsider the penalty imposed against the company. In February, the Illinois Department of Human Rights said there was evidence of discrimination at an ExxonMobil facility in the state following a gay rights group’s hiring complaint. Freedom to Work’s 2013 complaint says the Texas oil giant was sent two similar resumes for a job in Patoka. However, one applicant indicated she was a gay-rights activist and had higher grades. The complaint says ExxonMobil only made efforts to contact the other applicant. A few weeks later, an Exxon refinery facility in Torrance, California exploded causing four injuries. Nearly three weeks after the blast and there’s still no word on what caused the explosion. The explosion has caused gas processing to be shut down and gas prices to rise. The refinery in Torrance produces about 8 percent of California’s gas.
Is ExxonMobil preparing to buy BP? -- Exxon Mobil Corp. is making a splash with its move to sell $8 billion of debt in a bond offering, the most sizable deal in the energy industry since oil prices began their staggering nosedive. Bloomberg reports that ExxonMobil held a seven-part sale of both fixed- and floating-rate notes. “Exxon holds top triple-A credit ratings from Moody’s Investors Service and Standard & Poor’s, making it one of only three U.S. corporations — Johnson & Johnson and Microsoft Corp. are the others — that stand on nearly equal footing with governments in debt markets,” the article notes. Because of this status, ExxonMobil had no lack of buyers. A top corporate name combined with higher yields than bonds from sovereign debt make Exxon’s securities a hot commodity. The sale of securities, the largest portion of which were 10-year, 2.709 percent notes that sold for $1.75 billion, was likely a move to improve Exxon’s financial security. With oil prices still crippled, the move could help the company maintain a war chest for future acquisitions. Rumors have arisen that the Texas-based company is using the bond sale to prepare for the purchase of BP PLC, the London-based oil giant which some have speculated is susceptible to a takeover. According to the Dallas Business Journal, Exxon officials have noted in recent months that they remain alert to the values of acquisition possibilities. Given BP’s weakened status in the aftermath of the Deepwater Horizon disaster in 2010, it could be a viable target for other major oil companies.
Could Oil Prices Plummet A Second Time?- Are oil prices heading for a double dip? The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year. However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time. Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days. Well completions can make up as much as three-quarters of the total project cost. Several prominent shale drillers have confirmed they are undertaking such a wait-and-see strategy. EOG Resources, one of the biggest Texas shale drillers, announced its plans in late February to hold off on completions. Chesapeake Energy and Continental Resources have now followed suit. As the industry clears out that queue of wells awaiting completion, a rush of new supplies could come online, pushing WTI prices down once again. Even with well completions being suspended, supplies continue to build. The latest EIA data shows that oil stocks in the United States climbed to 434 million barrels, the highest levels in storage in over 80 years. Finally, there is some evidence that the ability to move excess oil into storage may run into trouble if production does not decline. Storage tanks are starting to fill, raising the possibility that a glut could worsen. There is a great deal of uncertainty around how quickly this might happen. The EIA sought to clarify, noting that the markets have confused some of its storage figures – some oil supplies in the EIA’s weekly inventory data is actually sitting in pipelines and at well sites, meaning there is more storage capacity available than many news outlets had originally thought. An EIA analyst recently told Bloomberg that overall storage capacity is only at about 60 percent, and “[w]e still have a way to go before we can consider ourselves to be full,”
Global Crude Oil Production Growth Grinding To A Halt -- This is the third in a monthly series of posts chronicling the action in the global oil market in 13 key charts. The February 2015 post is here. EIA oil price and Baker Hughes rig count charts are updated to end February 2015, the remaining oil production charts are updated to January 2015 using the IEA OMR data. The main oil production changes from December to January are:
- World total liquids down 40,000 bpd
- OPEC down 240,000 bpd
- N America down 10,000 bpd
- Russia and FSU down 70,000 bpd
- UK and Norway down 40,000 bpd (compared with January 2014)
- Asia up 60,000 bpd
- 1. Global oil production has now been flat, just over 94 Mbpd since September 2014 (5 months).
- 2. The fall in the oil price reversed in February. The low point for Brent and WTI was reached on 13th January when Brent hit $45.13. The bounce came on news of plunging US drilling rig count but has been much more muted for WTI compared with Brent. The US glut of LTO appears to continue.
- 3. The main dynamic statistic has been the plunge in US oil rig count down 237 rigs for the month of February. Gas rig count is also heading down at the more sedate rate of 39 rigs for the month.
- 4. I anticipate that the price bottom may be in but that price will bounce sideways along bottom for several months until we see significant falls in OECD production. Whilst there are clear signs that production growth has halted there is, as yet, little sign of production falling.
- 5. Iraq and Libya combined were down 370,000 bpd in January. This may account for part of the bounce in price.
The Era of Petro-Exuberance – The Real Reasons Underlying Today’s Crude Oil Prices - - In refusing to cut production, one central bank of oil (Saudi Arabia) followed a script written by Paul Volcker 36 years earlier. Volcker became head of the US central bank in August 1978 when inflation in the US was out of control. Oil today is in straits similar to those of the US economy in the late 1970s. The managers of the "central banks of oil," which include key producing countries and consuming nations that own large strategic stocks (especially the US and Japan), should be concentrating on oil prices and the rate of oil price increases or decreases, just as Descalzi suggests. However, all have ignored this responsibility for the last 10 years. This "dereliction of duty" on the part of oil producers and consuming nations allowed crude prices to rise to excessively high levels. As a result, an irrational exuberance grew in the oil industry, fueling larger and larger capital expenditures on gigantic projects to produce oil and, at the same time, prompting investment in expensive technology developments aimed at eliminating oil use. Investors in both camps received an additional boost from the quantitative easing advanced by central banks after the 2009 crisis. To his credit, Saudi Arabia's Ali Naimi, the obvious head of the Saudi "central bank of oil," spotted the warning signals. At an Opec conference in late December 2014 in Dubai, he noted the increasingly aggressive pressures aimed at curbing oil consumption. In a quote reported by Petroleum Intelligence Weekly, he was plainly thinking of such programs adopted in the US, Europe and now China. "There are many things happening in the energy sphere — technology on the one hand and efficient [sic] on the other, there are politics. All of these are good for humanity, but they will definably be a threat to oil demand in the future. My question to the panel — is there a black swan that we don't know about which will come by 2050 and we will have no demand?" Naimi also made this observation: "I attend all the climate change discussions, and I get the sense that people want to get rid of coal, oil, and gas." He added that a cap on global warming of 1.5°C to 2°C would mean "good-bye oil."
US Will Never Gain Oil Market Crown Says IEA Head - No matter how much oil the United States produces over the next few years, it will never become the next Saudi Arabia in the global oil market, according to Fatih Birol, the new executive director of the International Energy Agency (IEA). What's especially interesting about this forecast is that it directly contradicts what Birol said only three months ago, and he gave no explanation for his change of mind. On Feb. 26, Birol told The Telegraph’s Middle East Congress in London that OPEC, particularly the Persian Gulf members, will prevail over all other producers for the foreseeable future, even though the revolution in extracting shale oil has been “excellent news” for American producers. “The United States will never be a major oil exporter. Their import needs are getting less but the US is not becoming Saudi Arabia,” Birol told the conference. “Their production growth is good to diversify the market but it will not solve the world’s oil problems.”Certainly, Birol acknowledged, 2014 crude production by countries that are not among OPEC’s 12 members was greater than it had been in three decades, helping create an oversupply of oil that caused prices to erode and robbed OPEC producers of some of their market share.But at least for the next 10 years, the cartel’s two top producers, Saudi Arabia and Iraq, will be the countries best equipped to meet the world’s demand for energy, especially if non-OPEC producers such as Brazil, Canada and the United States see production falter, Birol said. Birol’s comments don’t jibe with what he said on Nov. 12, 2014, when he was still the IEA’s chief economist, when introducing the agency’s annual World Energy Outlook. In that report, the IEA said US oil production is likely to exceed Saudi Arabia’s in the next 10 years, making the country nearly self-sufficient in energy and poising it to become a net exporter of oil.
Saudi king keeps close hand on oil in remodeling strategic team – Saudi Arabia’s subtle change of energy policymaker line-up since the accession of new King Salman in late January appears to give the monarch’s inner circle a firmer hand on the kingdom’s oil strategy than previous rulers have enjoyed. The most notable change was the promotion of the king’s son Prince Abdulaziz bin Salman, long a member of the No. 1 crude exporter’s OPEC delegation, to the role of deputy oil minister from assistant oil minister, a post he had held for many years. On the same day, King Salman formed a new body replacing the Supreme Petroleum Council and appointed another son, Prince Mohammed bin Salman, to head the new Supreme Council for Economic Development. There are no indications that those moves will lead to changes in the fundamental way the kingdom makes its oil decisions or diminish the influence of veteran oil minister Ali al-Naimi. However, the king is clearly laying the ground for a generational shift in how Riyadh develops its energy and economic strategies. “This would ensure that, whether it is a domestic policy through Prince Mohammed and the economic council or international oil policy through Prince Abdulaziz, it is still very closely guided by the king himself,”
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