the fracking related story that received the most media coverage this week was out of Texas, where their House passed HB 40, the so-called "frack anywhere" bill, by an overwhelming vote of 122-18, which would give the state the exclusive right to promote the oil and gas industry and ban any local ordinances or zoning laws that would encumber it ...the Senate still has to take up the measure before it goes to the governor, who has stayed out of the debate...assuming a veto proof bill emerges, it will leave Texas the second state in the nation, after Ohio, where local laws on fracking are trumped by the state, while New York and Maryland have banned fracking completely...however, note that key Senators and House leaders have agreed this week on fast track legislation for the international trade deals we've often mentioned, which will make all those state and local regulations moot...these deals will change everything we know about all environmental regulations, so you might want to review what i wrote about ‘fracking and the TPP’ three weeks ago...
since we missed covering the rig count last week, we'll catch up with that next, as it provides us the clearest and most timely evidence that the frackers are folding up their steel tents and going home, in the face of low oil prices and the oil glut they've brought on themselves....for the week ending April 17th, Baker Hughes reported that we saw a reduction by 34 of the rigs operating in the US; in the prior week, the rig count fell by 40; that left us with 954 rigs operation in the US and offshore as of this weekend, down from 1831 a year earlier and down from 1931 that were in use during the last week of September...of the rigs shut down this week, 26 had been drilling for oil and 8 had been drilling for gas; the prior week saw 42 oil rigs and one miscellaneous rig shut down and 3 gas rigs restarted; this left 734 oil rigs, 217 gas rigs, and 3 miscellaneous rigs still operating at the end of the week....those totals are down from the recent peak of 1609 oil rigs that were operating during the week ending October 10th, and the recent peak of 356 gas rigs that were being run the week of November 11th....of those operating this past week, 917 were based on land, which was down by 34 this week, and down from 993 in the week ending April 3rd; another 4 were on inland waters, which was unchanged over the past two weeks, and 33 were drilling offshore, unchanged this week but up from 31 two weeks ago...of those still operating, 741 were horizontal rigs, 122 were vertical, and 91 were directional; that's down from 799 horizontal, 136 vertical and 93 directional two weeks ago, with the horizontal rig count down from the record 1372 set during the week of November 21st...
the greatest reduction of rigs over the past two weeks was in the Permian basin of west Texas and New Mexico, where 21 rigs were shut down last week and an additional 6 were stacked this week..that left the area with 258 rigs at week end, down 282 from the 540 rigs running there a year ago...other major reductions by field include the Eagle Ford of southeast Texas, where 12 rigs were shut down in the week of April 10th and another two were idled this past week, leaving them with 123 rigs running, down 94 from the year earlier 217, and the Williston, which includes the Bakken shale, where 5 rigs were stacked last week and another 2 were idled this week, leaving them with 84, 101 less than the 185 rigs running there a year earlier...in addition, the Mississippian lime of west Kansas and Oklahoma saw 9 rigs shut down this week after being unchanged last week, leaving them with 31, 43 less than the 71 running there a year ago...the major natural gas play, the Marcellus, saw its major rig reductions when gas prices crashed in 2012, and has seen additional drilling cuts in the low price environment this year, as they finished the week with 69 rigs running, down 1 from two weeks ago and down from 81 in the same week last year...and below that shale layer, there are still 26 rigs drilling into the Utica shale, 11 less than the year ago 37, where 2 rigs were idled this week after 1 was shut down last week...
of the states, Texas, with most active rigs by far, saw the greatest reduction of rigs over the past two weeks, as drillers in that state shut down 29 rigs last week and 15 this week, leaving Texas with 412 rigs still working, down from 884 a year ago...Oklahoma saw 5 rigs shut down in the week ending April 10th and another 6 this week, leaving them with 118 at week end, down 69 from the 187 being run there a year ago...North Dakota saw a reduction of 2 rigs last week and another 5 this week, leaving them with 83 still operating, down 95 from the 178 that were active a year ago..meanwhile, drillers added 5 rigs in Louisiana last week, bringing their total back up to 72, down just 38 from a year ago...Ohio drillers shut down 1 rig each of the last two weeks, leaving us with 25 still drilling, 11 less than a year ago...other states with drilling activity and their current rig counts include New Mexico, with 49 rigs operating, down 2 over the last two weeks and down 40 from 89 a year ago, Pennsylvania, with 48 rigs, down 2 from April 3rd and down 11 from 59 a year ago, Colorado, with 36 rigs this week, down 1 over the past two weeks and down 26 from 62 a year ago, Wyoming, with 23 rigs, down 5 from the 3rd of April and down 26 from 49 a year ago, West Virginia, with 22, unchanged in recent weeks and down 1 from 23 a year ago, Kansas, with 13 rigs, one less than two weeks ago and down from 27 a year ago, California, with 13 rigs, down from two weeks ago and down from 40 a year ago, Alaska, with 12 rigs, down 1 this week but up from 9 a year ago, Arkansas, with 8 rigs, unchanged over two weeks but down from 12 a year ago, and Utah, with 7 rigs, down 1 this week and down 20 from 27 a year ago...
understand that the year ago count on the basins or for the states don't indicate the peak count for each; for instance, the recent California rig count peaked at 48 during the week of May 30th, 2014, while the Utica shale saw as many as 50 rigs actively drilling into it during the week of December 12th last year...for such complete details, Baker Hughes provides the North America Rotary Rig Count (Jan 2000 - Current), an Excel file which includes rig counts for each basin under tab 2, and weekly rig counts for each state under tab 3...most of the material Baker Hughes provides is fairly dense, which is why the media usually relies on the press releases..
that file also provides the Canadian rig count by province, weekly since March 2003...while we'll spare you the details, suffice it to say that the aggregate Canadian rig count fell by 20 over the last two weeks, and they now have just 80 rigs in operation, 77 of which are in the western provinces and 3 of which are offshore Newfoundland..that's down from the 199 rigs that were operating in Canada in the same week a year ago, with Canadian oil rigs down 65 to 20 and gas rigs down 54 to 60...in the week ending February 21st of last year, Canadian operators were running 632 rigs, and as recently as December 12th they still had 431 running...so the collapse of the Canadian oil & gas industry is the largely untold story of this year, a sequence we could have predicted Thanksgiving week, when we noted that Canadian oil was some of the most expensive on the planet...
in addition to it's regular weekly North American rig count data release, last week Baker Hughes also reported on International rig counts for March, which indicated that the average international rig count for March was at 1,251, down 24 from the 1,275 they counted in February, and down 94 from the 1,345 they counted in March a year ago...including North America, the worldwide active rig count for March averaged 2,557, down 429 from the average of 2,986 counted in February, and down 1,040 from the 3,597 counted in March 2014....for March, they counted 351 active rigs in Latin America, down 4 from February and down 55 from a year ago, with 284 of those land based, an increase of 1 from last month but a reduction of 53 land based rigs from a year ago, while 67 rigs were operating offshore in Central and South America, down from 72 in February but just two fewer than the year ago count of 69...they also show 407 rigs operating in the Middle East, down 8 from February but up 6 from the year ago count of 401; of those, 355 were land based, down from 367 last month, but up from 350 a year ago, and 52 were offshore, up from 48 in February and from 51 a year ago....other areas reported on included the Asia-Pacific region, where the active rig count of 233 was down 7 for the month and down 25 for the year, with 102 of those operating offshore, Europe, where the rig count of 135 was an increase of 2 from February but down from 148 a year ago, and Africa, where the 125 rigs being operated was down 7 from February and also down 7 from the year ago count...
despite the fact that our oil rig count is down nearly 55% over the last 6 months, our production of oil fell during the week ending April 10th for only the 3rd time this year, slipping to 9,384,000 barrels a day from 9,404,000 barrels a day the prior week...while that's down 0.4% from the near term record of 9,422,000 barrels of day output set in the 3rd week in March, it's still 13% higher than the 8,301,000 barrels a day that were being produced in the 2nd week of April a year ago...even with our lower oil production and a ramp up of refinery activity, U.S. commercial crude oil inventories increased during the same week, as they were up by 1.3 million barrels to a new record of 483.7 million barrels...and although our imports of crude oil were down this week by 1.07 million barrels a day to 7.15 million barrels a day, the weekly Petroleum Status Report (62 pp pdf) reports our crude oil imports have still averaged over 7.5 million barrels per day over the last four weeks, 0.2% above the same four-week period last year...
finally, there's one graph we want to include here, which comes from a pdf booklet of graphs published this week by Reuters energy analysis John Kemp...on several occasions, when citing oil prices, we've made an attempt to explain that the oil price we quote, the same oil price that you often see quoted in the news, is for WTI, or "West Texas Intermediate", which is the benchmark for US light sweet oil at or to be delivered to the oil storage depot in Cushing Oklahoma, and that wellhead prices might differ, depending on transportation costs, specific gravity and sulfur content (ie, "sour" crude)…the graph below shows exactly how that has played out over the past 6 months for two important fracking crude oil grades, and for the two benchmark prices that are most often quoted…in the graph below, the quoted WTI price, which is actually a price quote in dollars per barrel for a contract to deliver oil the next month, is shown in brown, and the price for a similar contract to deliver North Sea Brent oil, the global benchmark price, is shown in green...in addition, the same graph has six months of wellhead price quotes for oil produced in the Eagle Ford of southeast Texas shown by the dashed brown line, and wellhead prices for sweet Williston crude, typically from the Bakken shale in North Dakota, shown by a dotted line graph...what we can note here is that while oil from the field has been priced lower than the benchmark, it fairly much moves along the same track, with the difference, or the discount from the benchmark, remaining pretty tight over time, with Eagle Ford crude roughly $4 a barrel less than WTI, and Bakken crude, with its high transportation costs, discounted by around $17...meanwhile, the relationship between US prices (WTI) and the international benchmark Brent is more volatile, with Brent even dropping below the WTI price for a time in January...we should also make note that a benchmark oil price is not always the highest price for oil; for instance, higher quality Nigerian and Algerian crude grades have often sold for a premium over the Brent price...
after we 'went to press', so to speak, with our main link aggregation on Saturday, we learned of two pipeline spills that occurred on Friday that we missed in our last scan of our newsfeeds that day, and hence were not included below...the first was of a rupture of a pipeline belonging to Phillips 66 that allowed roughly 30,000 gallons of diesel fuel to flow into the Mississippi river about 20 miles north of St Louis before the source of the leak was secured...as of this writing, the Mississippi river has been closed from mile marker 160 to 195, with no timeline on when it would be reopened....the second pipeline rupture was more explosive, as a 12 inch gas pipeline transversing a California sheriff’s gun range exploded, sending a fireball over 100 feet into the air, injuring 11 inmates who were doing forced labor nearby, two of them critically...in this case California Highway 99 was closed until the fire was brought under control, while rail traffic had to be re-routed as the heat from the flames warped 400 feet of track...speaking of track, as far as we know, there were no oil bomb train derailments of note this past week, although two trains carrying ammonia, one in Colorado, and one in South Carolina, did jump their tracks and spill their loads, resulting in evacuations of nearby residents...
Athens County group files appeal on new injection well - –– Athens County Fracking Action Network has appealed the recent permitting of another injection well in Torch, Ohio, owned by Jeff Harper of West Virginia. The latest Athens County frack waste injection well, the K&H #3, was permitted last month by Ohio Department of Natural Resources. According to the notice of appeal, “This appeal is brought pursuant to O.R.C. §1509.36 and Ohio Adm. Code §§1509-1-09 and 1509-1-11. The Chief’s issuance of the injection well permit for Well Number 34-009-2-3824-00-00 was unreasonable and unlawful for a number of reasons, including, but not limited to, the following…: 1) The Chief unlawfully and unreasonably approved the permit in light of information known to him from the two other K&H injection disposal wells located on the same tract of land as Well Number 34-009-2-3824-00-00 that the geologic strata where the wastes would be injected for disposal did not adequately confine the wastes, thereby failing to demonstrate that the well would not result in an adverse effect on human health and/or contamination to ground water protected by R.C. Chapter 1509 and the federal Safe Drinking Water Act. 2) The Chief unlawfully and unreasonably approved the permit by requiring that the injection well’s protective casing extend only to an inadequate depth of approximately half of the 4,200 foot deep borehole, thereby insufficiently confining the waste, which fails to demonstrate that the well would not result in an adverse effect on human health and/or contamination to ground water protected by R.C. Chapter 1509 and the federal Safe Drinking Water Act. 3) The Chief unlawfully and unreasonably approved the permit based upon the requirements of guidance documents and ‘standard operating procedures’ which constitute ‘rules’ under ORC Chapter 119 but which are unlawful due to the Chief’s failure to adopt them in compliance with the legally required safeguards for rulemaking under Ohio law. 4) The Chief unlawfully and unreasonably approved the permit in a manner that does not protect underground sources of drinking water in violation of federal and state requirements governing the injection of oil and gas waste liquids.”
Athens County likely to become No. 1 chemical frackwaste acceptor in Ohio - A brine injection well recently permitted to Troy Township will likely make Athens County the biggest acceptor of chemical-laden fracking waste in Ohio. The well, owned by K&H Partners, was permitted by the Ohio Department of Natural Resources on March 18, to accept as many as 12,000 barrels of brine per day from a steady flow of tractor-trailers travelling down Rt. 50. The Athens County Fracking Action Network (ACFAN) took legal action against ODNR Tuesday, citing sizeable human health concerns for air and water quality and demanding a retraction of the permit. “There is something really wrong with a system that forces an economically disadvantaged area for the economic gain of a handful of people while threatening what is a growing local food tourism and renewables industry,” said Crissa Cummings, a local activist who chained herself to the K&H gate last June to protest the safety of the wells. “The fact that our local community has no say in the decision making is a serious problem.” Brine is a byproduct of the fracking process, where two to five million gallons of chemicals and sand are combined with water and shot underground to crack shale layers and access the oil and gas below. Much of that combined fluid rebounds after the oil is extracted and must be disposed, becoming the brine that is injected into underground wells. ODNR is not required by law to monitor the long-term structural safety of these wells or the surrounding air quality. K&H owns two other injection wells in Troy, which accepted about 2.5 of the 2.9 million barrels of brine relocated into Athens County’s seven injection wells last year. The third well would increase that yearly total to 4.4 million barrels.
Drop in oil, gas prices fuels debate over severance taxes: To hear representatives of the oil and gas industry in Ohio tell it, the huge decline in oil and natural gas prices because of oversupply globally makes it absolutely the wrong time to increase the severance tax — as proposed by Gov. John Kasich in his biennium budget sent to the Legislature. But as far as Kasich is concerned, the industry has had a free ride for several years and it’s time for drillers to pay for the right to tap into Ohio’s natural resources. The governor, who won re-election in November by a landslide and talked about the severance tax on the campaign trail, has dismissed the industry’s claim that the current decline in prices justifies a reassessment of the 6.5 percent tax that would generate an estimated $180 million. “It’s never a good time” as far as the industry is concerned, the governor has replied when asked to comment about the statewide campaign launched by the Oil and Gas Association to build political, community and media support for its opposition to the severance-tax proposal. We have long supported such a tax because this region’s Utica Shale play lured major oil and gas producers from around the country in the early days for exploration. The process used to fracture the shale — fracking — to get at the deposits resulted in major environmental problems that had to be addressed urgently. The need arose to legislatively deal with what was taking place because state government was ill prepared to deal with the earthquakes and other challenges associated with fracking.
Oil and gas tax hike in Ohio is dead for now, lawmaker says -- Any tax increase on oil and gas fracking activity in Ohio is dead for now after lawmakers stripped a proposed tax hike from the state's budget bill, a key Ohio House member said Wednesday. On Tuesday,lawmakers removed a budget proposal by Gov. John Kasich to raise the state severance tax on horizontal drilling to pay for income-tax cuts. There are currently no other plans to advance any other bill to change the state's severance tax, said state Rep. Ryan Smith, a Gallia County Republican who chairs the House Finance Committee. "There's a lot of slowdown in that industry right now, and we don't want to pile on," Smith said in an interview, echoing concerns raised by oil and gas officials about plummeting energy prices. The revised budget bill would set up a study committee, composed of House and Senate members, the state tax director and state budget director, to further investigate tax changes. Currently, Ohio charges flat rates of 20 cents per barrel of oil and 3 cents per thousand cubic feet of natural gas.
Utica and Marcellus well activity in Ohio - While activity in the Utica and Marcellus shale formations in Ohio is nearly the same as it was in last week’s well update report, one Ohio company has come to an agreement to end a lawsuit. American Energy-Utica, a subsidiary of American Energy LP, has made a deal with Chesapeake Energy Corp. and the Energy & Minerals Group to pay Chesapeake $25 million and give the company 6,000 acres of its land located in Ohio. The deal was decided by Aubrey McClendon’s major financial backers on Tuesday morning. McClendon, who is currently American Energy LP’s director, was not involved or informed of the deal by the Energy & Mineral Group. The following information is provided by the Ohio Department of Natural Resources and is through the week ending on April 11th. Activity in the Utica Shale formation in Ohio has had a few slight changes when compared to last week’s update. According to this week’s report, 344 wells were drilled (down 5), 253 drilling (up 11), 430 permitted (down 18) and 845 producing (up 6), bringing the total number of wells in the Utica to 1,872. The Marcellus Shale in Ohio has zero change reported when compared to last week’s well report. The area is still sitting at 15 wells permitted, 15 drilled, 13 producing and one well inactive. There are a total of 44 wells in the Ohio Marcellus Shale.
Fracking Waste Puts Public at Risk, Study Says - Weakness in state regulations governing hazardous oil-and-gas waste have allowed the leftovers to be disposed of with little regard to the dangers they pose to human health and the environment, according to a recent study by the environmental organization Earthworks. The report says states disregard the risks because of a decades-old federal regulation that allows oil-and-gas waste to be handled as non-hazardous material. Those rules, established by the U.S. Environmental Protection Agency in 1988, exempted the waste from the stricter disposal requirements required of hazardous substances and allowed the states to establish their own disposal standards. In its report, "Wasting Away: Four states' failure to manage gas and oil field waste from the Marcellus and Utica Shale," Earthworks studied rules governing disposal of the often toxic waste––and the gaps in those regulations in New York, Pennsylvania, West Virginia and Ohio. The organization, which is often criticized by the industry as being consistently biased, concludes the EPA was wrong when it applied the non-hazardous label to oil-and-gas waste. "Drilling waste harms the environment and health, even though states have a mandate to protect both," "Their current 'see no evil' approach is part of the reason communities across the country are banning fracking altogether. States have a clear path forward: if the waste is dangerous and hazardous, stop pretending it isn't and treat it and track it like the problem it is."
New geological maps allow for better understanding of the Marcellus Shale -- Thanks to the U.S. Energy Information Administration (EIA), new updates to maps and geological information for the Marcellus Shale formation has allowed for a better understanding of the shale’s structure, thickness and extent. In order to create these maps, the EIA uses data collected from the wells in the formation. The maps show the formation’s extent and the structure of the areas that are productive and prospectively productive. The structure and thickness maps are extremely important when determining resource estimation and when defining areas where hydrocarbon extraction is practical. The maps that show the top and bottom of the shale formation as a 3-D surfaces are handy when giving approximate guesses of subsurface volumes and “detection of regional structural and tectonic features such as major faults, folds, and thrusts.” For the structure and thickness maps, the EIA uses stratigraphic correlations from state geological survey agencies. The data is based on 2,416 wells in the Marcellus Shale, which is located in Pennsylvania, West Virginia, Ohio, and New York. Due to the recent fracking ban in New York, the data there is from wells developed before 2010. As reported by the EIA, “The Marcellus Middle Devonian-age shale extends from New York in the north to Kentucky and Tennessee in the south and is the most prolific natural gas-producing formation in the Appalachian basin. The formation’s and play’s footprints cover about 95,000 square miles and 72,000 square miles, respectively. The Marcellus formation consists of several sublayers that are grouped in the Lower and Upper Marcellus intervals. The Lower Marcellus has a significantly higher organic matter concentration compared with the Upper Marcellus.” The elevation of the top of the Marcellus ranges from 1,000 feet to 8,000 feet below sea level. This part of the formation mainly produces natural gas and is located in northeastern Pennsylvania. However, in southwestern Pennsylvania, West Virginia, and southeastern Ohio, the formation becomes more “liquid-rich” due to the area being less thermally mature.To read the full report by the EIA, click here.
Test well in Putnam County leads to gas speculation -- As gas companies continue to develop the Marcellus Shale in Northern West Virginia, recent gas exploration in Putnam County and Eastern Kentucky have people speculating about the possibility of a future gas boom in the southwest part of the state. Last year, Cabot Oil and Gas drilled a vertical test well into the Rogersville Shale, a relatively unexplored deep-shale formation that underlies parts of northeast Kentucky and the southwestern counties of West Virginia. The test well, located just northeast of Hometown, is the first permitted well drilled into the Rogersville in West Virginia, but Cabot’s exploration of the geological formation comes on the heels of two exploratory wells being tapped by another company just over the state line, in Lawrence County, Kentucky. While neither of the gas developers has released production data from the three wells, the companies’ continued interest has government and industry officials waiting to see if the Rogersville can become the country’s next profitable shale formation.
Fracking Waste Study Says States Aren't Doing Enough to Protect Public - There’s a new report: (Wasting Away - Four states’ failure to manage oil and gas waste in the Marcellus and Utica Shale) that examines this subject published by Earthworks – a nonprofit concerned with the adverse impacts of mineral and energy development. Lead author Nadia Steinzor explains that the EPA didn’t exempt the industry because the waste wasn’t considered a threat, but because state regulation of this waste was considered adequate. Of course, this was a couple decades before the horizontal gas drilling boom. Steinzor and her colleagues decided to see what they could learn about waste practices in West Virginia, Ohio, Pennsylvania, and New York, where Marcellus and Utica shale gas are being developed. The report indicates that states are well behind the curve in adapting to the natural gas boom: good characterizations of the waste is incomplete according to a 2014 study that’s cited; and not much information is available about where the waste is coming from, going to, or how it gets there. West Virginia Department of Environmental Protection officials say most information that does exist about oil and gas production and waste disposal procedures is available online. What information isn’t public can be accessed with a fee and a Freedom of Information Act request. Steinzor’s report argues that states don’t require enough information and often rely on operators to self-report in good faith. The Earthworks report cites a 2013 study that says nearly half of all liquid oil and gas waste is shipped out of state, the remainder is injected underground. But Amy Mall from NRDC says rules for injection wells everywhere are also in need of attention. “We think the rules for those disposal wells need to be much stronger than they are now because those disposal wells are not designed to handle toxic waste.”
22 Finger Lakes Municipalities Say No to Gas Storage - At the close of Tuesday night’s Board meetings, the Towns of Varick (3-1) and Seneca Falls (unanimous) added their votes against Crestwood’s proposed gas storage and transport facility in Schuyler County. On the heels of last month’s unanimously passed City of Syracuse Resolution, these additions comprise 21 municipalities surrounding Seneca Lake and throughout the Finger Lakes region, representing nearly 760,000 constituents, who are urging Governor Andrew Cuomo to deny permits for gas storage to Texas-based Crestwood Midstream. “The Seneca Falls Canal Harbor is the historic gateway to the Finger Lakes. It’s the birthplace of Women’s Rights, among other social and religious reforms that have been supported by local residents. We are pleased that they are standing up for their right to clean water and air and against the dirty industrialization that Crestwood proposes. This is the most basic of human rights, after all,” says Yvonne Taylor, co-founder of Gas Free Seneca. The map of opposition continues to grow, making it increasingly difficult for Governor Cuomo to ignore the pleas of his voters in the Finger Lakes Region. At their regularly scheduled Town Board Meeting Wednesday the Town of Ovid, in a surprise move, brought to the floor a resolution opposing Crestwood Midstream’s gas storage plans on Seneca Lake. In the discussion preceding the vote, one Board member said that he had been out talking to Town residents about the gas storage in anticipation of the issue coming up. He said that he hadn’t found one Town resident who was in favor of the project.
A Ticking Time Bomb for NYC -- A very large gas pipeline will soon skirt the Indian Point Energy Center (IPEC), an aging nuclear power plant that stands in the town of Cortlandt in Westchester County, New York, 30 miles north of Manhattan. The federal agencies that have permitted the project have bowed to two corporations – the pipeline’s owner, Spectra Energy, and Entergy, which bought the Indian Point complex in 2001 from its former owner. A hazards assessment by a former employee of one of the plant’s prior owners, replete with errors, was the basis for the go-ahead. A dearth of mainstream press coverage leaves ignorant the population that stands to be most impacted by a nuclear catastrophe, which experts say could be triggered by a potential pipeline rupture. I urge Truthout’s audience to read an earlier article by Alison Rose Levy, which includes details I haven’t space to recap here. Since 2011, Spectra Corporation, owner of the 1,129-mile Algonquin Pipeline, which runs from Texas to Beverly, Massachusetts, where it connects with another pipeline running into Canada, has sought to expand the pipeline in order to transport fracked gas north from Pennsylvania. Spectra, one of the largest natural gas infrastructure companies in North America, calls the planned enlargements “The Algonquin Incremental Market Project” (AIM). “I have never seen a situation that essentially puts 20 million residents at risk, plus the entire economics of the US.” AIM includes a two-mile section of 42-inch pipe carrying gas under very high pressures. It is this pipeline segment that will flank IPEC, which stands in a seismic zone. The nuclear complex has a derelict history. In 2001, The New York Times reported that “the plant has encountered a string of accidents and mishaps since it went into operation on June 26, 1973.” The IPEC has also been on the federal list of thenation’s worst nuclear power plants.
Fracking Dean Skelos – Frackers NY Bag Man to be Indicted - -- The frackers thought they could buy their way into New York by simply bribing the right state officials -the way they did in Fracksylvania. No one was more important to that strategy than Dean Skelos, who controlled what got out of committee in the Senate. The fractavists always figured the guy for a crook. Which he is. Dean Skelos Target of Corruption Case State Senate leader Dean Skelos and his son are being probed by the US Attorney’s Office, which has convened a grand jury and presented evidence about possible corruption in the latest claim of financial misconduct to rock Albany, sources said. The Long Island Republican was targeted by US Attorney Preet Bharara over Skelos’ relationship with an Arizona contracting company that hired Skelos’ son, Adam — and that was awarded a lucrative Nassau County contract, according to a report in The New York Times. The company, AbTech Industries, received a storm-water-treatment contract despite not having submitted the lowest bid, the Times said. Law-enforcement sources told The Post that state senators have been subpoenaed in the investigation and evidence in the probe has been presented to a grand jury.
From the East Coast, Bakken Oil's outlook not so bad - Philadelphia Energy Solutions, operator of the East Coast’s biggest refinery at its 357,000-Bbl/d capacity, runs two high-speed rail unloaders every day, moving Bakken crude from two 100-car CSX “unit” trains each, some 70 percent of its refining capacity. And according to materials distributed at Philadelphia Energy’s downtown headquarters, two other rail unloaders are in the works. One is to unload butane, likely from the rich-gas fields of Southwest Pennsylvania and West Virginia and plays as far away as Texas, but the other one is for crude oil. Just down the Delaware River shore at Eddystone, Pennsylvania, another unloader takes crude from two Norfolk Southern unit trains and loads it onto a barge for transport to Delta Airlines’ subsidiary Monroe Energy, to be refined into jet fuel, kerosene and diesel in its 205,000-Bbl/d plant, with any gasoline produced sold off to a retail partner. At Delaware City, south of Wilmington, Delaware, PBF Energy’s 190,000-Bbl/d refinery operates another rail unloader. Its capacity is much less than Philadelphia Energy’s, but company press releases say its uptake is being increased. And what does get unloaded is shared, barged across the Delaware to Paulsboro, to PBF’s 180,000-Bbl/d New Jersey refinery.
More oil moves by rail, and it moves here: About half the crude oil that now moves by rail in America is bound for Mid-Atlantic states, mostly refineries near Philadelphia, data from the U.S. Energy Department show. More than 33.7 million barrels of crude were shipped by rail in January, a fiftyfold increase from 630,000 barrels in January 2010, according to the U.S. Energy Information Administration (EIA). That tremendous growth in crude-by-rail shipments - which already has triggered safety concerns after a series of fiery oil-train derailments - has broader implications for regional transportation systems and foreign trade. Shale oil, whose production has boomed in the upper Midwest, the Rocky Mountains, and Texas, has displaced imported oil mostly delivered by ships. That oil trade has sailed on to other ports. "This whole marketplace is changing," . "Whatever anybody thought about the energy marketplace 10 or 20 years ago, it has changed." Imports of crude oil to the United States fell 21 percent from 2009 to 2014, a decline offset by big increases in rail-borne imports of Canadian heavy crude from oil sands, according to the EIA. On the East Coast, where refiners were formerly tethered to overseas suppliers, oil imports dropped 47 percent from 2009 through 2014. According to the EIA, most of the regional decline has come at the expense of African oil producers - Nigeria, Angola, Gabon, and Equatorial Guinea.
Shale Gas Opponents Shout Down Industry Speaker at Philadelphia LNG Session -- Anti-fracking protestors late Thursday disrupted a public information session on the possibility of building a liquefied natural gas export terminal in Philadelphia, shouting down speakers from the industry and finally being ejected by security officers. About half a dozen protestors repeatedly interrupted an opening presentation at Drexel University by Jason French, Director of Government and Public Affairs for Cheniere Energy which is building two LNG export terminals in Louisiana and Texas at a combined cost of $34 billion. “We are not interested in hearing from this liar,” one protestor shouted at French as he began his presentation. Another accused the industry of wanting to create a “sacrifice zone” in its plans for a complex of refineries, petrochemical plants and oil and gas transportation facilities, known as the energy hub, in Philadelphia. French made several attempts to restart his talk but was repeatedly shouted down by protestors who accused the company of wanting to “poison” air and water; of operating a “ponzi scheme” to profit from the people of Philadelphia, and of ignoring a “list of the harmed” containing names of some 6,000 people who say their health has suffered from unconventional gas development. One protestor demanded that the event provide equal time for opponents of an LNG terminal to speak, and called for the agenda to include a discussion of public health. But City Councilman David Oh, who chaired the discussion, refused to change the agenda, and told the protestors that they were preventing an informative session for most of the approximately 100 people attending the event, titled “LNG Exports – Exploring the Possibilities in Philadelphia.”
North Carolina’s Governor Says Offshore Drilling Should Be Closer To Beaches - A new federal proposal to allow offshore oil drilling from Virginia to Georgia is receiving some pushback from North Carolina Governor Pat McCrory, who on Wednesday said drilling should be allowed even closer to his state’s renowned beaches and fishing grounds than is currently being considered Testifying before a House of Representatives panel on energy and mineral resources, McCrory first hailed the Obama administration’s offshore drilling plan for the Atlantic as an economic boon. But he then decried the proposal’s inclusion of a 50-mile “buffer zone” — an area where drilling is not allowed to occur — designed to reduce conflicts with other coastal industries like tourism and fishing, and mitigate impacts on coastal wildlife. The buffer zone would extend from Georgia’s southern border to Virginia’s northern limit. In his testimony, McCrory criticized the buffer zone as putting too much of the offshore resources “under lock and key.” Similarly, in a recently publicized letter to Secretary of the Interior Sally Jewell, McCrory requested that the protective buffer be shrunk to just 30 miles, to allow drilling to occur 20 miles closer to North Carolina’s beaches than they would be under the Obama administration’s plan. “North Carolina’s coastal and ocean activities would be undisturbed and the viewshed from any of our 320 miles of ocean beaches and shoreline would remain unobstructed with buffer reduction to 30 miles,” he wrote.
1 dead, 1 injured in gas plant explosion — Authorities say one person is dead following an explosion at a Tampa Bay area gas plant. Tarpon Springs police say the accidental explosion occurred Thursday afternoon at MagneGas Corp., an alternative energy company. Officials say one man was found dead, and another was flown to a St. Petersburg hospital with serious injuries. Police weren’t immediately naming the victims. About two dozen other workers were evacuated from the area. Tarpon Springs Fire Rescue reports the scene is secure. The State Fire Marshal’s Office is investigating the cause of the explosion. According to the MagneGas website, the company converts liquid waste into a hydrogen-based fuel, which can be used for metal cutting, cooking, heating and powering natural gas bi-fuel automobiles.
DEATH in the Oil Patch - At least nine oil workers have died since 2010 from inhaling toxic amounts of vapors while measuring crude oil in storage tanks at well sites, according to new findings by federal researchers. The National Institute for Occupational Safety and Health report, posted Friday, documents a poorly understood hazard in the oil field from volatile hydrocarbons, also called volatile organic compounds, or VOCs. Many oil workers and supervisors don’t realize the petrochemicals can kill (EnergyWire, Oct. 27, 2014). “These deaths are tragic — especially since they can happen suddenly and without warning,” said Robert Harrison, an occupational medicine physician at the University of California, San Francisco, who has been researching such deaths. “It is very important that safety programs are in place to prevent workers from breathing toxic chemicals when they gauge or sample tanks.” All crude oil has compounds called volatile hydrocarbons such as benzene, butane and propane. Shale crude sometimes has more of these compounds than conventional oil. It’s related to why shale oil is more prone to explode in rail cars. The chemicals bubble up from the crude oil and collect in storage tanks. “These conditions could occur due to high concentrations of gases and vapors inside the tank which are released in a burst of pressure as the tank hatch is opened by the worker for manual gauging or sampling operations,” NIOSH officials wrote in the Friday posting.
Emergency crews still trying to replug gas well in southwest Arlington City of Arlington crews, gas well operator Vantage Energy and Boots and Coots, a well control company, worked through the night to resolve a gas well mishap in southwest Arlington. Boots & Coots attempted to replug the gas well at 4 a.m., but was unsuccessful, the city of Arlington said on its website. “Boots and Coots will be bringing in additional resources to replace the gas wellhead as quickly and safely as possible,” the city said. “While there has been no gas released to this point, the possibility exist that a release could occur. All citizens are asked to stay away from the area impacted by this gas well incident.” The incident involved “flow back of pressurized fracking water” at the well site along Little Road, according to officials. Crews were to initiate a new well control effort at 8 a.m., according to the city. Current limited evacuation plans for residents on Oak Bourne Drive, Englishtown Drive, Willowdale Drive and Jewell Drive remain in effect. The city said it would provide regular updates on social media. The evacuation was deemed necessary after the well site, run by Vantage Energy, had an issue “that resulted in flow back of pressurized fracking water” at just before 3 p.m. Saturday, officials said. At 8 p.m. Vantage Energy tried to control the well by injecting mud; when that did not work, the well-control company Boots and Coots was called.
Evacuation zone expanded near Arlington gas well - The evacuation area around an uncontrolled natural gas well in southwest Arlington has been widened, officials said Sunday just after noon. A statement from the city says residents within an eighth-of-a-mile of the well on Little Road are being asked to evacuate. The Red Cross has opened an Emergency Evacuation post at Martin High School, 4501 W. Pleasant Road in Arlington. Also, a resident information center is open at the Arlington Fire Training Center, 5501 Ron McAndrew Drive. Residents must go to the fire training center for hotel vouchers, officials said. Vantage Energy is providing the vouchers. So far, 10 people have claimed vouchers today, a fire official said. As of 11:30 a.m., no gas release had taken place. A third effort to plug the well was expected to be underway at noon. As a precaution, the fire department evacuated 13 homes Saturday near the Lake Arlington Baptist Church drill site on Little Road after Vantage Energy called 911 to report that natural gas was pushing pressurized fracking water out of the well. The area around the drill site remains closed. Efforts to plug the well Saturday night and early Sunday morning were unsuccessful. “We did evacuate a neighborhood to the east and a street to the west as a precaution. Now that these well control efforts have not worked, we are in the next-step decision-making process,” Fire Chief Don Crowson said Sunday morning.
Texas Railroad Commission to rename Arlington gas well blowout well - Boots & Coots, a Halliburton well control services company, has been working through the night to get control of an Arlington gas well blowout in a neighborhood. So far, attempts to get control have been unsuccessful. This is the first blowout in a neighborhood since Rep. Drew Darby filed HB 40, a bill to “preempt most regulation of oil and gas operations by cities and all other political subdivision.” Texas Railroad Commission to rename neighborhood blowout wells. The Texas Railroad Commission (RRC) has announced a new naming system for neighborhood oil and gas wells that experience blowouts. Commissioner Craddick issued a prepared statement: The oil and gas industry is king in our great state and will rule in every Texas neighborhood. We expect to see more frequent minor upsets such as the one in the Arlington neighborhood as regulations loosen. In honor of those neighborhoods that survive, the Commission has developed a new system of renaming neighborhood blowout wells. The minor upset at Vantage Energy’s Lake Arlington Baptist Church well where hazmat crews are on the scene, has caused neighborhood evacuations, a no fly zone, and is currently attended by over 40 fire fighters and Boots & Coots. The latest update from the Arlington Fire Depart Facebook page:“City of Arlington crews, Vantage Energy and Boot and Coots, a well control company, worked through the night to resolve a gas well incident located in the LABC gas well in Southwest Arlington. Boots & Coots well control attempted to re-plug the gas well at 4:00 a.m., but was unsuccessful in their attempt. Boots and Coots will be bringing in additional resources to replace the gas wellhead as quickly and safely as possible. While there has been no gas released to this point, the possibility exist that a release could occur. All citizens are asked to stay away from the area impacted by this gas well incident.”
Crews begin oil spill cleanup in West Odessa - Crews with DCP Midstream and the Ector County Environmental Office are assessing an oil spill that took place Tuesday afternoon in West Odessa. Environmental office officials said they were called to Moss Avenue and West Third Street about oil coming from the ground. The low-pressure pipeline, according to Scott McMeans, supervisor at DCP Midstream, was a natural gas line that leaked due to corrosion causing oil to flow out. McMeans said that sometimes when oil producers have an upset at their tank batteries they can carry oil through the natural gas line, which was the case with the line that leaked Tuesday afternoon. “It is unintentional by both parties but it happens from time to time,” McMeans said. McMeans also said that clean up would take about 48 hours and about two barrels of oil were released until the line was shut off.
1,400 Eagle Ford wells drilled, but uncompleted, IHS says - Just because the market is down doesn’t mean companies operating in the Eagle Ford are giving up their leasing agreements or abandoning their assets. According to a new analysis from the IHS, almost 1,400 wells in the South Texas fields have been drilled but not completed (DUC). Oil production businesses are trying their best to deal with a slumping market. Therefore, wells are being drilled but not advancing to the next step of hydraulic fracturing operations. Thanks to the 50 percent drop in the price of oil from 2014 highs, companies are doing what they can to refrain from pushing more petroleum commodities into an unforgiving market. According to a press release from IHS, this tactic could give a select few operators an advantage over competitors. Nearly 40 percent of those 1,400 delayed wells have a break-even costs below $30 per barrel. IHS lists BHP Billiton, Chesapeake, Anadarko Petroleum, EOG Resources, ConocoPhillips and Pioneer Resources as the companies who are benefiting from the drilled-but-not-completed well tactic. Thirty-three other operators account for the remainder. “In this low oil-price environment, operators in the Eagle Ford and other U.S. shale plays are focused on optimizing the value of their assets and managing their costs, and these drilled, but uncompleted wells enable them to do that more effectively for several reasons,”
Texas House Bill 40 Frack Anywhere Limps Sideways - Texas HB 40, Frack Anywhere, limped out of committee as of last night, with some feel good wording that leaves the bill as poorly worded as it began: “The bill prohibits a municipality or other political subdivision from enacting or enforcing an ordinance or other measure, or an amendment or revision of an ordinance or other measure, that bans, limits, or otherwise regulates an oil and gas operation within the boundaries or extraterritorial jurisdiction of the municipality or political subdivision.” The key word above is “limits” – since a land use plan, ie. zoning limits where industrial activities may take place, as written, the bill could be construed to negate zoning, meaning Frack Anywhere, even in a single family residential district. “The bill expressly preempts the authority of a municipality or other political subdivision to regulate an oil and gas operation but authorizes a municipality to enact, amend, or enforce an ordinance or other measure that regulates only aboveground activity related to an oil and gas operation that occurs at or above the surface of the ground, including a regulation governing fire and emergency response, traffic, lights, or noise, or imposing notice or reasonable setback requirements; that is commercially reasonable; that does not effectively prohibit an oil and gas operation conducted by a reasonably prudent operator; and that is not otherwise preempted by state or federal law.” Note that they say that the municipality can regulate “aboveground” activity that occurs “at or above the surface” – which is a bit redundant. then list examples – such as noise ordinances, setbacks, traffic; but do not mention land use ordinances, ie. zoning. By the same token, they do not expressly override zoning ordinances, since land use ordinances the exclusive prerogative of municipalities in Texas under the state constitution and the state has no land use rules and regulations for oil and gas activities.
Texas pushes forward with bill that would ban fracking bans — The Texas state House of Representatives has passed a bill that would block cities in Texas from banning the controversial oil and gas exploration method known as hydraulic fracturing, or fracking. After an overwhelming vote of 122-18, the proposal – House Bill 40 – advanced to the state Senate, where lawmakers have not taken up the bill just yet. The bill featured 70 co-sponsors and had the support of the oil and gas industry. The House vote comes just a few months after voters in a small Texas town called Denton approved a measure that banned fracking in the area. Denton was the first Texas city or county to ban the practice, the oil industry has already filed a lawsuit seeking to reverse the prohibition. On Friday, Rep. Drew Darby (R-San Angelo), who introduced the bill, said the ban on banning fracking was needed to ensure that cities didn’t implement different regulations that harm the state’s economy. “In the absence of this bill, a statewide patchwork of oil and gas regulation is likely,” Darby said to the Houston Chronicle. Notably, similar comments were made by the Texas Oil & Gas Association, which is also suing Denton. “HB 40 is a welcome solution because Texas can't afford a patchwork of regulations for an industry that supports 40 percent of our economy,” the association tweeted after the vote, Reuters reported. However, opponents say the measure would also take aim at measures passed by local communities addressing health, safety and more.
Texas House approves so-called ‘Denton fracking ban’ bill —House lawmakers moved to bar cities from banning fracking and enacting a wide variety of other oil and gas-related ordinances in an action that critics call an affront to local control. Backers rebuffed arguments that the bill would overturn ordinances that have long been in place in some cities. Municipalities would still be able to adopt ordinances that help to mitigate traffic, noise and some setbacks, they said. The bill won approval from the House 122-18. “This strikes a fine balance,” said Rep. Drew Darby, R-San Angelo. “We tried to use a rifle shot to accommodate the needs of this growing state and the needs to develop the oil and gas resources, and yet protect the citizens of this great state.” But some Democrats argued that municipalities need to have the say in order to protect public health and safety. The bill could also lead to more litigation between cities and the oil and gas industry, opponents said. “As it is currently written, it would be a gold mine for lawyers,” said Rep. Sylvester Turner, D-Houston. The “commercially reasonable” standards for oil and gas ordinances would be a “legal haven” for lawyers to challenge, he said.
Texas House approves gutting municipal fracking bans (Reuters) - The Texas House overwhelmingly approved a bill on Friday that would give the state the exclusive right to regulate the oil and gas industry, and gut the power of municipalities to pass anti-fracking rules. In Texas, the top U.S. crude producer and the birthplace of fracking, the bill also needs to be passed by the state's Senate and signed by the governor before it becomes law. State lawmakers have been under pressure to halt an incipient anti-fracking movement since November, when voters in the town of Denton voted to outlaw the oil and gas extraction technique behind the U.S. energy boom. Operators say it is safe, but many environmental groups oppose the practice - calling it wasteful, polluting, dirty and noisy.
Texas House OKs rules to prohibit city fracking bans - Cities and counties in Texas could no longer prohibit hydraulic fracturing under an oil and gas industry-backed measure overwhelmingly approved by the House. The bill passed Friday comes months after the city of Denton banned local fracking over environmental and safety concerns. That ordinance is now being challenged by lawsuits brought by the state and industry groups. Republicans say the new restrictions are needed to prevent a patchwork of drilling laws from spreading across Texas. The bill has been among the most contentious in Republican Gov. Greg Abbott’s first session. Abbott has stayed clear of the heated debate but has criticized local governments for what he calls overregulation. The Senate still needs to take action on the bill before it goes to Abbott’s desk.
Oil, gas spill report for April 14 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. . Noble Energy Inc., reported on March 8 that a production tank developed a hole, outside of LaSalle. It is approximated that less than 100 barrels of oil spilled. The site did not contain a liner or ring. A remediation has been scheduled and all equipment has been shut in. Noble Energy Inc., reported on March 7 that during operations a flowline leak was discovered outside of Keenesburg. It is approximated that less than five barrels of condensate and less than five barrels of produced water spilled. Repairs were made and production equipment was shut in. Bonanza Creek Energy, reported on March 6 that when BCEI contractors were preparing to reinsert a well rod when oil spilled onto the well pad outside of Kersey. It is approximated that less than five barrels of oil spilled. A rod was inserted into the tubing and closed to stop the release. Bayswater Exploration, reported on March 3 that residual contamination from a much older release was discovered outside of Johnstown. . Bayswater is working with Great Western to determine the next step to properly clean the location. Kerr McGee Oil & Gas, reported on March 2 that during abandonment activities hydrocarbon impacts were discovered, outside of Fort Lupton. It is unknown the amount of condensate spill and produced water that spilled, but it is approximated that less than five barrels of fluid spilled. Approximately 40 cubic yards of material was excavated for disposal. Groundwater samples were collected and submitted to a laboratory, results revealed that benzene, toluene and total xylenes concentrations were above COGCC standards. Excavation activities are ongoing.
Cheyenne residents: 150 feet is not enough - Wyoming recently set a new guideline requiring oil and gas producers to operate an additional 150 feet away from homes, but some residents say that’s not enough, according to Sheridan Media. “If the governor think 150 feet is going to make a damn bit of difference with a 10-acre pad, he’s out of his mind,” said Wayne Lax, a homeowner near Cheyenne. The new rules, which were enacted earlier this week, require new projects to develop at least 500 feet away from homes, as opposed to the previous distance of 350 feet. Additionally, operators must notify all residents within 1,000 feet of a well pad and submit a plan to mitigate issues such as noise, light nuisance and traffic. Setback proponents say that the increase is an improvement, but not nearly enough to sufficiently shield residents from noise, dust, traffic and toxic emissions. However, the Wyoming Oil and Gas Conservation commission said that “there is no definitive science or data with regard to the energy development effects on human health which provides any clear guidance in setting setback requirements.”
Judge supports Sandpiper pipeline in northern Minnesota - Enbridge Energy’s plans for a new pipeline to carry North Dakota crude oil across northern Minnesota got a major boost Monday when an administrative judge concluded that the Sandpiper project is needed — and that other proposed routes are not as good. The finding by Administrative Law Judge Eric Lipman is not the final word on the $2.6 billion proposed pipeline. But it was a clear defeat for environmental groups, which questioned the need, pointed to the risk of spills and suggested six alternative routes. “Everyone agrees that an oil spill in Aitkin County or Carlton County would be very bad,” Lipman wrote in a 104-page ruling released late Monday. “Whether it would be better, or less likely, for a pipeline to break in another community, nobody can say for sure.” The route favored by Enbridge takes a Z-shaped path, running east from the North Dakota border into Clearbrook, Minn., where Enbridge owns an oil terminal. Then the line would turn south toward Park Rapids following existing crude oil pipelines and run east to Superior, partly on a transmission line right of way. North Dakota has approved its portion of the 610-mile pipeline from the Bakken oil region. Much of the Minnesota route is unpopulated, yet it runs through a region covered with wetlands and lakes. Lipman concluded that Enbridge’s proposed route “does the best job of minimizing potential impacts to human populations and environmental resources.” Denying the company a certificate of need “would have an adverse effect on the future adequacy, reliability and efficiency of energy supply” in Minnesota and other states, he wrote.
Bakken Shale Oil Well Output Drops To Lowest Since 2009 -- In addition to the EIA's amusing oil price forecast, which as noted previously leaves quite a bit to be desired considering it was a year ago that the EIA completely failed to anticipate the plunge in crude prices, which have collapsed far below its worst case estimate... there is another more substantial problem with the EIA predicting a consistent increase in oil output for the next 25 years. That something is revealed when looking at the most recent Bakken shale production data, which earlier today revealed yet another month of declining total output, which after peaking in December is at 1.2 million barrels per day, as can be seen on the chart below. However, it is not the total output, but the productivity of any given well that is troubling. As can also be seen on the chart below, the output per Bakken well has tumbled to 3,410, down from the 3862 recorded the month before, and the lowest since early 2009.Something is off: either US oil production is set to tumble, leading to another junk bond, and equity, rout among the energy companies (which as noted earlier are now trading at a near record high 32x forward PE), or oil production will continue rising and lead to another steep drop in prices, because without a dramatic pick up in demand, all this extra oil is merely piling up in Cushing and in various other storage hubs around the country, where it is merely awaiting for the tiniest increase in oil prices before hitting the market.
N.D. sees second consecutive monthly drop in oil output - North Dakota’s oil production declined in February for the second consecutive month as drilling new wells slackened amid low oil prices. State regulators said Tuesday that February’s output was just short of 1.18 million barrels per day, down 50,435 daily barrels since December, which was the state’s all-time high. It was the first consecutive two-month drop since January 2011. The number of rigs drilling for North Dakota oil and gas dropped to 91 this month, down from 108 in March and 160 in February, according to data released by the state Department of Mineral Resources. The peak of drillings was 370 rigs in October 2012, the department said in its Director’s Cut report. The average wellhead price for North Dakota crude oil fell to $31.47 per barrel in March, but has recovered to $36.25 per barrel, the report said. The average price is based on light sweet crude prices posted at a Twin Cities refinery, minus delivery costs. The report said the number of uncompleted wells in North Dakota rose to an estimated 900 at the end of February as drillers decided to hold off on the final step — injecting water, sand and chemicals to free gas and oil in the Bakken or Three Forks shale layers.
Man Camps Become Ghost Towns - Drillers spent big to house workers in the new boomtowns. No more. At the peak of the fracking boom a few years ago, Jeff Myers converted his South Texas hunting camp into rental oilfield housing. Little wonder: The industry had an almost insatiable hunger for the grunt laborers—the roughnecks—to work the fields, and employers were happy to spend whatever it took to house and feed them. Today that boomtown demand—and $100-per-barrel prices—is a bittersweet memory, and occupancy at Myers’s once-packed Double C Resort has dropped to 10 percent as job cuts take hold. “There aren’t going to be any winners down here,” he says. “Everybody’s going to have to adjust.” America’s oilfield “man camps”—as the industry calls them—are turning into ghost towns as drillers cut back the free housing, food, and air travel once used to lure shale boom workers. The mini-settlements that sprang up throughout drilling regions in Texas, North Dakota, and Colorado are fading away as energy companies look to slash as much as $114 billion in spending this year, says a Cowen Group survey, and lay off tens of thousands of employees. “The money flies” when the oil field’s booming, says Milton Allen, who’s built and developed facilities for the oil industry for the past 15 years and operates a 12-room man camp in the Eagle Ford Shale in South Texas. “Then when the market starts to trim down, the money stops.”
EOG has lion's share of 900 North Dakota wells awaiting fracking - Oil producer EOG Resources Inc has the lion’s share of an estimated 900 North Dakota wells waiting to be fracked, according to state data, showing that even major oil titans are mothballing operations while they hope for a rebound in oil prices. For months the conventional wisdom in North Dakota’s Bakken shale formation had been that smaller producers with weak cash flow comprised the bulk of that estimate. While the estimate had been published monthly, it was not clear until a Tuesday update from the state’s Department of Mineral Resources (DMR) who was dominating the list. Oilfield service companies have aggressively sought the information, hoping to drum up new business. By late May, the number of wells waiting to be fracked is expected to breach 1,000, DMR officials said, fueled largely by cheap oil and a $5.3 billion industry tax break expected to hit in June. Oil producers have up to a year to frack the wells before they must ask state officials to label them “temporarily abandoned.” The fact that industry stalwarts like EOG are having to hold off on fracking new wells shows how much low prices make the remote Bakken far less economical compared to other U.S. shale plays.
House panel guts funds for North Dakota rail safety program - — North Dakota House budget writers have stripped funding for a state-run rail safety program intended to supplement federal oversight of burgeoning oil train traffic after a string of accidents involving trains carrying crude. The Public Service Commission had requested $972,000 in the next two-year budget cycle to fund the program that included two rail safety inspectors and a rail safety manager to supplement inspections by the Federal Railroad Administration. The program had been a campaign platform for Republican Public Service Commissioner Julie Fedorchak when she ran for the position last year. GOP Gov. Jack Dalrymple also had included the funding for the program in his budget, but the House Appropriations Committee on Tuesday cut the funding in the agency’s budget request. The Senate in February unanimously approved the funding for the PSC, which regulates everything from auctioneers to pipelines. The full House has yet to adopt the budget panel’s recommendation. “I’m disappointed,” Fedorchak said, adding that she was hopeful the funding would be reinserted by the House, or when House and Senate budget writers meet to work out the differences in the bill. Opponents of the funding, including Underwood Republican Rep. Jeff Delzer, who is chairman of the Appropriations Committee, said the additional state inspectors are not needed.
Transportation officials issue oil train safety measures -— An emergency order requiring trains hauling crude oil and other flammable liquids to slow down as they pass through urban areas and a series of other steps to improve the safety were announced Friday by the Department of Transportation. The Obama administration has been under intense pressure from members of Congress as well as state and local officials to ensure the safety of oil trains that traverse the country after leaving the Bakken region of North Dakota. To get to refineries on the East and West coasts and the Gulf of Mexico, oil shipments travel through more than 400 counties, including major metropolitan areas such as Philadelphia, Seattle, Chicago, Newark and dozens of other cities. There have been a series of fiery oil train explosions in the U.S. and Canada in recent years, including one just across the border in Lac-Megantic, Quebec, that killed 47 people. Major freight railroads have already limited oil trains to no more 40 mph in “high threat” urban areas under a voluntary agreement reached last year with Transportation Secretary Anthony Foxx. But Friday’s order makes the speed limitation a requirement and extends it to trains carrying other flammable liquids like ethanol. However, investigators have said the trains in most of the recent accidents were traveling at less than 40 mph but still derailed.
Port of Longview shows interest in siting oil refinery -- Documents obtained by an environmental group show the Port of Longview could become home to an oil refinery receiving 100- to 120-car unit trains loaded with crude from North Dakota’s Bakken shale formation. A slide presentation, an unsigned memo of understanding dated July 2014 and discussion points indicate the port has discussed a refinery project with Riverside Energy, Inc. Under a 50-year lease, Riverside would operate a 30,000-barrel-per day refinery, loading diesel, gasoline and jet fuel onto ships bound for “regional” primary target markets and for California as a “secondary target market,” documents show. Revelations of a proposed oil refinery at the Port of Longview underscore the increasing attention energy producers are putting on the Northwest as a hub for transferring crude and processing it into fuels. In a news release, Columbia Riverkeeper, which obtained the documents under the state’s public records law, said an oil refinery in Longview poses a new threat to public health and the environment. It also represents the first proposal to build a refinery on the West Coast in more than 25 years, the group said. Refineries “are extremely dirty and emit toxic pollution,” Brett VandenHeuvel, executive director for Columbia Riverkeeper, said Wednesday. In Oregon and Washington, 11 refineries and port terminals are being planned or built or already operating oil-by-rail shipments, according to Sightline Institute, a Seattle-based nonprofit that focuses on sustainability issues. In Clark County, Tesoro Corp., a petroleum refiner, and Savage Companies, a transportation company, want to build the nation’s largest rail-to-marine oil transfer terminal at the Port of Vancouver. The facility would receive an average 360,000 barrels of crude per day.
U.S. shale boom nears turning point -- Oil production from major U.S. shale plays will decline by almost 60,000 barrels per day between April and May according to new estimates from the Energy Information Administration. Production is expected to decline in the Bakken, Niobrara and Eagle Ford plays next month. Only the Permian Basin is expected to post a small month-on-month increase in output (“Drilling Productivity Report” Apr 2015). With the number of rigs drilling for oil in the United States down by almost 53 percent in just six months, according to oilfield services company Baker Hughes, the shale boom appears to be approaching a turning point. The crude market remains substantially oversupplied as a result of past production, but the degree of excess supply should narrow in the coming months. The attached chartbook presents a selection of contemporary indicators for supply, demand, stocks and prices, including spreads, in the U.S. oil market. To view the chartbook, click here.
Interior Secretary Defends Government’s New Rules For Fracking On Public Lands -- Department of Interior Secretary Sally Jewell hit back against criticism to her department’s recently announced rules on hydraulic fracturing on public lands Thursday, saying that the rules were a needed update to the former set of regulations. Speaking to press after an event at the Center for American Progress, Jewell said that the rules’ treatment of wastewater disposal and chemical disclosure in fracking projects on public lands are important for public safety. “It’s been four or five years in the making,” she said, adding that the department had made adjustments to the regulations based on the 1.7 million comments they got on the proposed rules. “It’s really important that the public be reassured that groundwater is protected, that frack fluids are disclosed in terms of whats in them, and their disposed of properly.”The Interior Department’s Bureau of Land Management announced its final rules for fracking on public lands in March, regulations that will require oil and gas companies to disclose the chemicals they use when fracking on protected lands and prohibit the companies from storing wastewater in open pits on these lands. Some environmental groups had wanted to rules to go further in protecting public lands from oil and gas development, however — a group of five large groups called the regulations “toothless.”Jewell also said Thursday that though it’s her agency’s job to ensure that the regulations put in place protect the public, the oil and gas industry also has a role to play in educating the public about their practices.
EIA: U.S. to become a net exporter of natural gas by 2017 - The United States will transition from a net importer of natural gas to a net exporter of the fuel by 2017 as the nation’s shale gas production continues to grow, the U.S. Energy Information Administration said on Tuesday in its Annual Energy Outlook. In its 2014 outlook, the EIA forecast the U.S. would become a net exporter of gas before 2020. The EIA said increases in domestic gas production are expected to reduce demand for gas imports from Canada and support growth in exports to Mexico, Asia and Europe. Net gas exports would continue to grow after 2017, with annual net exports reaching 3.0 trillion cubic feet to 13.1 tcf in 2040, the agency said. The United States produced a total of 24.4 tcf of dry gas in 2013 and was expected to produce between 31.9 tcf to 50.6 tcf in 2040, according to the report. There are four LNG export terminals under construction in the United States in Maryland, Louisiana and Texas. The four terminals have contracts to export gas to customers in Asia and Europe and are expected to enter service between 2016 and 2019. In addition, there are more than half a dozen pipeline projects to move gas from the United States to Mexico under construction or in development with some expected to enter service over the next few years.
EDF And The Frackers - Is This Fracking Industry Flak Playing Both Sides? Inside Climate News has revealed that a key leader of oil and gas industry front groups that oppose new fracking regulations may have been playing both sides of the issue. In an investigationinto the funding of the Environmental Defense Fund’s (EDF) work on oil and gas regulation, Inside Climate News discovered that a key EDF funder had hired FTI Consulting’s David Blackmon to promote fracking regulations. Unbeknownst to his employer, Blackmon is a longtime oil industry consultant who is paid to oppose regulation of the fracking industry. The funder in question is the Cynthia and George Mitchell Foundation, established by the late George Mitchell, known as the “father of fracking.” George Mitchell owned and operated Mitchell Energy, the first company to combine horizontal drilling and hydraulic fracturing in the Barnett shale, which sparked the “shale revolution.” Mitchell created the foundation with part of the $3.5 billion sale of Mitchell Energy to Devon Energy. The Mitchell Foundation describes itself as “a grantmaking foundation that seeks innovative, sustainable solutions for human and environmental problems.”While its goals seem noble, the fortunes of the foundation and the people who run it continue to be inexorably linked to the success of the oil and gas industry. The foundation itself has more than $38 million in stock in Devon Energy. Three of George Mitchell’s beneficiaries own over $21 million of Devon Energy apiece. Altogether the Mitchell Foundation and the Mitchell heirs own over one fifth of Devon Energy.
Schlumberger announces further job cuts, cost reductions - The world’s largest oilfield services provider, Schlumberger Ltd., reported its lowest first-quarter profit within four years and subsequent additional job cuts, according to Bloomberg news. The profit decline and job cuts are a result of the company’s customers cutting costs and the drastic reduction in overall spending due to current market prices and drilling slowdown. In a statement made by Schlumberger, net income fell to $975 million this year, the lowest level for the first quarter since 2011. A year prior, the company reported a net income of $1.59 billion. In a statement, Chief Executive Officer Paal Kibsgaard said, “We believe a recovery in U.S. land drilling activity will be pushed out in time, as the inventory of uncompleted wells builds and as the re-fracturing market expands.” The dramatic decline of drilling activity in North America was a major factor in the decision to further cut the company’s workforce. Related: Mass layoffs complicate oil industry’s long-term plans: Kemp In January, the company announced that it would cut 9,000 jobs. The additional 2,000 jobs to be cut will decrease the oil giant’s workforce by 15 percent when compared to the personnel employed in the third quarter of 2014. Kibsgaard stated, “We also anticipate that a recovery in activity will fall well short of reaching previous levels, hence extending the period of pricing weakness.”
Supply or Demand? The IMF Breaks Down the Collapse of Oil Prices - One of the most important questions for economists about the past year’s collapse in oil prices is whether it was driven by supply or demand. If the price drop was caused by increased supply, then it’s good news for the economy as prices fell simply because oil is available in more abundance. If prices fell because demand in the economy was weak, it would be bad news, signaling the economy’s fundamentals were deteriorating. In its latest World Economic Outlook, economists at the International Monetary Fund tackled the question. Their conclusion: It started out as a bad-news demand story, but turned into the good-news supply story. To disentangle which factor was more important, the IMF looked at the change in global stock prices and oil prices every day and made an interesting set of assumptions: If stock prices and oil prices both decline, it suggests something unhealthy in the economy — or weak demand. If oil prices fall, but stock prices rise, it suggests a positive development has occurred — increased oil supply. The IMF’s chart, above, breaks down the cumulative percent change in oil prices (using a logarithmic scale), by whether the decline was driven by supply or demand. From late July to mid-October, the IMF’s approach suggests that most of the drop could be attributed to demand. The price of West Texas Intermediate crude oil declined from about $105 to about $82 in this period. The IMF model says this initial decline was 96% due to weakening global demand. But from mid-October until early January, the story changed. Oil prices dropped from $82 to $50 in this period. In these months, the decline was primarily driven by increased supply. The IMF attributes 58% of the drop at the end of last year to supply and only 42% to demand.
US Shale Oil Production Expected To Fall Next Month - Federal officials estimate monthly production from the nation's top shale oil reserves will decline next month. It's the first time the U.S. Energy Information Administration's Drilling Productivity Report forecasted a decrease since it debuted in October of 2013. Overall, production from the seven U.S. shale deposits tracked by the agency is expected to drop by 57,000 barrels per day between April and May, led by the Eagle Ford formation in Texas and the Bakken formation in North Dakota and Montana. Those areas — the second- and third-most productive shale regions, respectively — should show declines of 33,000 bpd and 23,000 bpd. The much less productive Niobrara formation, primarily in Colorado and Wyoming, should also see a decrease of 14,000 bpd. The Permian formation in Texas and New Mexico, the nation's most productive shale deposit, should see an increase of 11,000 bpd next month. The Utica formation in Ohio should produce about 2,000 additional bpd, while the EIA expects no change in either the southern Haynesville formation or the eastern Marcellus formation.Natural gas wells from those formations, meanwhile, should see a decline of 23,000 cubic feet per day next month..
‘EIA: U.S. shale oil output to fall in May, first drop in 4 years - Oil production from the fastest-growing U.S. shale plays is set to fall some 45,000 barrels per day to 4.98 million bpd in May from April, the first monthly decline in over four years, projections from the U.S. Energy Information Administration showed on Monday. The projected slip from 5.02 million bpd in April underscores how record crude production from the U.S. shale boom may be backtracking after global markets saw prices effectively slashed by 60 percent since June on oversupply and lackluster demand. Oil production from the Permian Basin of West Texas and New Mexico were forecast to rise 11,000 bpd to 1.99 million bpd, the smallest monthly increase since November 2013, according to the EIA’s drilling productivity report. Production from the Bakken formation of North Dakota will fall 23,000 bpd to 1.3 million bpd. Eagle Ford oil production in South Texas will fall 33,000 bpd to 1.69 million bpd, the largest monthly drop since EIA began tracking the data in 2007. Meanwhile, new-well oil production has accelerated as drillers look to squeeze more oil from rigs. In the Eagle Ford, new-well oil production per rig rose by 20 bpd to 700 bpd in May. A month earlier, it rose by 22 bpd to 680 bpd, the fastest increase on record with the EIA. Similarly, Permian new-well oil production per rig rose by 36 bpd to 240 bpd in April and by 25 bpd to 265 bpd in May, the fastest increases on record with the EIA.
Has The U.S. Reached “Peak Oil” At Current Price Levels? -- Last night the EIA once again capitulated on the myth that rig counts don’t matter and the productivity of wells would largely offset, leaving the industry on a continuous path to higher output. The current consensus of 500,000 B/D additional growth in 2015 US production now appears very much at risk. Look how far we have come, folks, from all that media hysteria this past year. Yesterday, Reuters even wrote an article stating that the EIA prediction of a sequential decline in oil production in May vs. April would be the first, if proven, true prediction. Meanwhile, fact checking would indicate that this, in fact, occurred last week as reported here. In any event the EIA now thinks that production will decline 57,000 B/D in May counter to earlier expectations that the Permian would largely offset declines in the Eagle Ford and the Bakken. This is despite higher productivity of existing wells proving that rig count does matter and the market has underestimated the effects of high decline rates. Further, the hysteria about Cushing overflowing with oil also appears unlikely to occur, as a result. Yet another in a string of attempts by the media to misconstrue the facts. Now as a topper, we hear from the North Dakota Resource Management that amazingly February oil output fell 1% sequentially in the month despite producing wells increasing! Thus even the theory that well productivity would increase is dispelled. To reiterate, look for EIA to revise its oil production estimates for 1Q after the crisis wanes later in 2015. The warning in an article heresounded that producers reaching deep into the lower cost, most productive regions (which is clearly occurring in Bakken), would come at a price.
Crude Dips After EIA Forecasts Increased Oil Production For A Decade -- The EIA's annual energy outlook has something for everyone as it attempts to forecast energy markets out to 2040. For the bears, US crude oil production is expected to rise (even more than they had forecast last year - before the price collapse) as it seems, according to EIA the only thing more stimulative for oil production than high prices is low prices. For the bulls, EIA exuberantly forecasts prices soaring to over $240 by 2040 in a high growth environment. Crude prices are dipping modestly from their ramp highs.
EIA Projects "U.S. energy imports and exports come into balance, First time since the 1950s" -- New long term projections from the EIA: Annual Energy Outlook 2015 and press release: EIA's AEO2015 projects that U.S. energy imports and exports come into balance, a first since the 1950s, because of continued oil and natural gas production growth and slow growth in energy demand U.S. net energy imports decline and ultimately end in most AEO2015 cases, driven by growth in U.S. energy production—led by crude oil and natural gas—increased use of renewables, and only modest growth in demand. Net energy imports end before 2030 in the AEO2015 Reference case and before 2020 in the High Oil Price and High Oil and Gas Resource cases (Figure 1). Significant net energy imports persist only in the Low Oil Price and High Economic Growth cases, where U.S. supply is lower and demand is higher. Continued strong growth in domestic production of crude oil from tight formations reduces net imports of petroleum and other liquids. Through 2020, strong growth in domestic crude oil production from tight formations leads to a decline in net petroleum imports and growth in product exports in all AEO2015 cases. The net import share of petroleum and other liquids product supplied falls from 26% in 2014 to 15% in 2025 and then rises slightly to 17% in 2040 in the Reference case. With greater U.S. crude oil production in the High Oil Price and High Oil and Gas Resource cases, the United States becomes a net petroleum exporter after 2020.
EIA: U.S. crude oil output to soar till 2020 despite price rout - The U.S. government on Tuesday forecast domestic crude production will rise even more than expected a year ago, undeterred by the worst price rout since the financial crisis. U.S. crude oil production will peak at 10.6 million barrels per day in 2020, a million barrels more than the high forecast a year earlier, according to the annual energy outlook by the Energy Information Administration, the statistical arm of the U.S. Energy Department. Crude production will then moderate to 9.4 million bpd in 2040, 26 percent more than expected a year ago, the agency said. The reference case in the report forecasts Brent prices of $56 a barrel in 2015, rising to about $91 a barrel in 2025, $10 a barrel less than levels expected a year ago. The report uses the 2013 value of the dollar as its measure. Despite lower prices, higher production will result mainly from increased onshore oil output, predominantly from shale formations, the agency said.
Bullish Signs For Crude But Pain Not Over Yet - The latest data from the U.S. Energy Information Administration predicts that shale output will decline by 57,000 barrels per day in May. It will be led by losses of 23,000 bpd in the Bakken, a decline of 33,000 bpd in the Eagle Ford, and 14,000 in the Niobrara. That will outweigh the small gains expected in the Permian and Utica, increases of 11,000 bpd and 2,000 bpd, respectively. The reduction in output follows last week’s news that rig counts fell by more than expected. Another 40 oil and gas rigs were taken offline for the week ending on April 2, a larger loss than in recent weeks. The total number of active oil and gas rigs fell below 1,000 for the first time in over four years. The ongoing pain in America’s shale fields are a bullish sign for oil prices, which have posted substantial gains recently. Oil traders have been waiting for signs of a genuine decline in production, and we may finally be arriving at that point. There are a few caveats, however. Oil inventories are still climbing, now at their highest levels in over 80 years. Also, drillers have a backlog of wells that still need to be completed, as many operators are waiting for prices to recover before they finish them. That will bring a new rush of production online, which will temper any oil price gains. Still, WTI has moved firmly above $50 per barrel and Brent is close to the $60 mark. Nevertheless, much of the damage to corporate balance sheets from low oil prices has already been done. First quarter earnings reports are set to be released beginning this month, which will show figures from the first full quarter when oil prices were at their lows. The results from the previous quarter covered a period of time in which oil prices were still above $70 per barrel. Despite the planned reduction of $126 billion in industry-wide spending this year, more will be needed to correct balance sheets, according to a report from Wood Mackenzie.
Oil Market Too Murky To Call Says IEA: It was in late June of 2014 that oil prices began their steep decline, but 10 months later there’s still no indication of when and how the supply of oil, and the demand for it, will balance out to arrive at a fair market price, the International Energy Agency (IEA) reports. In fact, it says, “the outlook is only getting murkier.” On the supply side of the equation, there’s evidence that low prices are reducing crude output by producers of shale oil, particularly in the United States, because retrieving that oil often requires hydraulic fracturing, or fracking, which is more expensive than conventional methods. Yet the IEA, the Paris-based organization that advises its 29 member states on energy policy, said April 15 in its monthly Oil Market Report that US output is forecast to grow this year. Meanwhile, there is no evidence that OPEC will lower its own output, which, under Saudi leadership, it decided to keep at a level of 30 million barrels a day in an effort to regain market share. In fact, the report said, the cartel increased production by nearly 900,000 barrels per day in March over February. Saudi Arabia alone increased production last month to even more than its usual 10 million barrels per day, it said. Then there’s Iran, whose production and export of its vast oil holdings has been sharply limited by sanctions imposed by the European Union and the United States over its nuclear program, which Tehran says is for peaceful purposes but others suspect is aimed at producing weapons. Iran has reached a tentative deal to restrict this program in exchange for a gradual lifting of sanctions.
What's Really Behind The U.S Crude Oil Build -- In recent weeks the sell side analysts who cover energy have become so complacent that they merely plug in the current strip prices into their earnings models for E&P companies. Not one, except Mike Rothman at Cornerstone Analytics, is questioning the “why?” or “how?” of what is occurring. The 200 or so players who effectively control the oil futures market have changed behavior and expectations as the oil price curve has collapsed. Prices from late 2016 into 2018 are essentially flat in the low to mid 60s, believe it or not, which would essentially bankrupt most of OPEC, US conventional oil, part of US shale and deep offshore drilling. So ask where is the oil going to come from? Yet the madness continues until investors realize E&P companies need a higher price to justify investments in the space.
An update on oil prices - Demand for gasoline has picked up significantly recently. In January, U.S. vehicle miles driven hit a new all time high. However inventories are still at record levels (see first graph) and there is the possibility of significantly more global supply from Iran (see EIA discussion below). Also note that oil imports have increase recently (the U.S. is a large oil importer).Here is an excerpt from the Weekly Petroleum Status ReportU.S. crude oil refinery inputs averaged over 15.9 million barrels per day during the week ending April 3, 2015, 201,000 barrels per day more than the previous week’s average. Refineries operated at 90.1% of their operable capacity last week. ...U.S. crude oil imports averaged over 8.2 million barrels per day last week, up by 869,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.6 million barrels per day, 4.8% above the same four-week period last year. ...U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 10.9 million barrels from the previous week. At 482.4 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. It is difficult to forecast oil and gasoline prices due to world events - and the response of producers to price changes, but currently the EIA expects gasoline prices to average $2.40/gal in 2015 according to the Short Term Energy Outlook released last week: • On April 2, Iran and the five permanent members of the United Nations Security Council plus Germany (P5+1) reached a framework agreement that could result in the lifting of oil-related sanctions against Iran. Lifting sanctions could substantially change the STEO forecast for oil supply, demand, and prices by allowing a significantly increased volume of Iranian barrels to enter the market. If and when sanctions are lifted, the baseline forecast for world crude oil prices in 2016 could be reduced $5-$15/barrel (bbl) from the level presented in this STEO. ...
Oil ETF investors head for exit, risking new slump - Oil investors who amassed a $6 billion long position in exchange traded funds, occupying as much as a third of the U.S. futures market, are now racing for the exit at a near record pace. Outflows from four of the largest oil-specific exchange traded funds, including the largest U.S. Oil Fund , reached $338 million in two weeks to April 8, according to data from ThomsonReuters Lipper. That is the first two-week outflow since September and the biggest since early 2014, marking a turnaround from heavy inflows in December and January on bets that oil prices would quickly rebound from six-year lows. If the exodus gathers pace it could signal new pressure on crude oil prices that had begun to stabilize at around $50 a barrel this year following their 60 percent plunge, says John Kilduff, a partner at energy fund Again Capital LLC in New York. Retail investors may have been “trying to bottom fish and got washed out with the recent new low,” he said. Global oil ETF holdings were equivalent to 150 to 160 million barrels’ worth of crude oil futures as of last week, according to ETF Securities. That would represent as much as 30 percent of open interest in the most-liquid U.S. oil futures contract, which saw record open interest of 530,000 lots in March, although some of those fund holdings are in other contracts.
The Exodus Begins: Oil ETFs See Biggest Outflows In 15 Months - Just as we warned previously (here, here, and here), the knife-catching, contango-crushed, BTFDers that piled over $6bn into Oil ETFs have severely underperformed this year. The USO ETF has fallen by more than 9% since the start of the year, whereas front-month U.S. oil futures have dipped by less than 3% on account of roll costs, and as of last week, investors have started to exit this massive position en masse. As Reuters reports, outflows from four of the largest oil-specific exchange traded funds reached $338 million in two weeks to April 8 - the first since September and largest since Jan 2014. It seems Goldman was right about "misguided retail investors."
Fossil Fuel Divestment & Investors’ Bottom Line -- Investors who have dumped holdings in fossil fuel companies have outperformed those that remain invested in coal, oil and gas over the past five years according to analysis by the world’s leading stock market index company, MSCI, which runs global indices used by more than 6,000 pension and hedge funds, found that investors who divested from fossil fuel companies would have earned an average return of 13% a year since 2010, compared to the 11.8%-a-year return earned by conventional investors.The figures indicate that if a major charitable institution or foundation with £100m in funds had divested from fossil fuels in November 2010 they would be around £7m better off today than if they had maintained their holdings in coal, oil and gas companies. In total, a portfolio of shares with fossil fuel companies included has grown in value by 62.2% since 2010, but this compares to the 69.9% growth of a fund without fossil fuel investments. The data will challenge the widespread belief among asset managers that divestment hurts the financial performance of investment funds. One reason why funds without fossil fuel companies have outperformed is that the precipitous fall in the oil price that began in June last year has driven down the share price of companies such as BP and Shell. But the MSCI data reveals that its ‘All Companies ex Fossil Fuels Index’ outperformed throughout 2012 and 2013, before the fall in the oil price.
No super-contango this time around -- Izabella Kaminska - Oil prices, both Brent and WTI, remain depressed: But time-spreads — the difference between near-term prices and long-term prices — are narrowing. This means the opportunity to make easy profits from just storing physical oil for long periods of time is diminishing. It also suggests that this time round the oil slump will not lead to the sort of physical market free lunch that we saw during the super contango era of 2008. This despite the fact that, oddly enough,the market seems to be holding more crude than ever before. Indeed, as John Kemp noted on Monday: In the case of crude, however, the contango has narrowed even as U.S. commercial stockpiles have climbed to the highest level in more than 80 years. U.S. commercial crude stocks have risen by almost 97 million barrels, around 25 percent, since the start of 2015, according to the U.S. Energy Information Administration (EIA). Reported crude stocks increased by nearly 11 million barrels last week alone, the largest one-week build for 14 years. It was the tenth-largest build reported since the EIA began publishing weekly information on crude stocks back in 1982. Yet the contango spread has continued to tighten, suggesting physical traders are looking past short-term oversupply to a tighter supply-demand balance in the second six months of the year. Overall, what this signifies is that the futures market is not prepared to subsidise the physical market to the same degree it was prepared to in 2008. For your reference, here are a couple of long-term charts that show the differential between the first month and fourth month futures of both WTI and Brent. You can see the degree to which this year’s contango under performed that seen in 2008.
Crude Pops After Smaller-Than-Expected API Inventory Build, Cushing Capacity Concerns Remain -- After last week's record inventory build, it is perhap sno surpriose that API reports a 2.6mm build (below expectationsfor a mere 3.5mm bbl build). If this is confirmed by DOE data tomorrow, this will be the 14th week in a row - the longest streak on record. More importantly, the Cushing inventory build rose more than last week (+1.3mm vs +1.2mm) - this is the 18th week in a row of inventory builds at Cushing (which is now over 90% full - 70.8mm bbl capacity).
Oil prices rise after signs of U.S. production dip – Oil prices rose in early Asian trading on Wednesday after signs of a dip in U.S. production, but trading was cautious ahead of an anxiously awaited reading on China’s growth pulse. Front-month Brent crude futures were trading up 42 cents a $58.85 a barrel by 0141 GMT, while U.S. crude had risen 38 cents to $53.67. In the United States, North Dakota’s February oil production fell 15,000 barrels per day (bpd) versus January, although the number of producing wells hit a record high. This followed a U.S. Energy Information Administration (EIA) report forecasting U.S. shale production would fall by 45,000 bpd to 4.98 million bpd in May, which would be the first monthly decline in four years. Yet market activity on Wednesday morning in Asia was cautious as traders awaited a wash of Chinese data, including first quarter GDP and industrial output figures, to be published at 0200 GMT. China’s annual economic growth likely slowed to a six-year low of 7 percent in the first quarter as demand at home and abroad faltered, fanning expectations of more policy stimulus to avert a sharper slowdown.
WTI Spikes Above $55 After Crude Inventories Rise At Slowest Pace In 14 Weeks -- For the 14th week in a row, US crude inventories rose; but against expectations of a 3.5mm build (and weak API overnight), DOE printed a mere 1.294mm bbl build - the lowest since the build streak began on the first week of January. Crude prices are spiking on the news (though we note last week saw the biggest build in 30 years with the 2 week average above trend). Total crude inventrory continues to make new record highs (and pressure Cushing capacity).
Brent crude oil hits 2015 high as U.S. output slows -- Oil rose more than 3 percent on Thursday, pushing Brent crude to a 2015 high above $63 per barrel on increasing evidence that U.S. production is peaking, balancing a market that has been in heavy oversupply for more than a year. Oil prices collapsed in the six months to January, pushing Brent down more than 60 percent to almost $45 a barrel. But the market has gradually recovered this year as much lower prices have discouraged oil exploration and production, especially in the United States. “People are realizing that the U.S. production juggernaut is slowing, at least for now,” said Virendra Chauhan, oil analyst at London-based consultancy Energy Aspects. “U.S. production is down for the second time in three weeks and refinery runs are spiking up, driving demand higher.” In related news, U.S. shale boom nears turning point: Kemp. Brent crude futures for June on Thursday hit $63.29 a barrel, the highest since December, after the previous much weaker front-month futures contract, for May, expired on Wednesday. By 1235 GMT, June Brent was at $62.27 a barrel, down $1.05 from the previous close for June, but up sharply from Wednesday’s close for May at $60.32. U.S. crude was at $55.29, down $1.10, after hitting a 2015 high of $56.69 on Wednesday.
US Rig Count Drops For Record 19th Week In A Row -- Rig counts fell for a record 19th week in a row. Total rigs dropped 34 to 954 and oil rigs dropped 26 to 374. This means the total rig count drop is now greater than 50% - the fastest drop since 1986. Crude prices had slid into the rig count announcement and popped afterwards.
Canadian oil and gas firms ‘bleeding money’ amidst darkest outlook in a decade -- Canada’s oil and gas industry is projected to report the biggest drop in profit in at least a decade starting next week as crude’s collapse pummels some of the world’s costliest producers. Earnings per share for Canadian petroleum producers will fall more than half for the 63 members of an energy industry sub-sector of the Standard & Poor’s/TSX Composite Index, according to data compiled by Bloomberg. Almost half of those companies, including Calgary-based Cenovus Energy and Canadian Natural Resources Ltd., are expected to post losses in the quarter that ended March 31. “This will be a brutal quarter for earnings,” said Robert Mark, director of research at MacDougall, MacDougall & MacTier Inc. “They’re bleeding money right now.” Oil prices remain about 50 per cent below June highs after the Organization of Petroleum Exporting Countries resisted calls to cut production amid surging North American output. Benchmark West Texas Intermediate crude oil fell to a six-year low in March of under $45 but has since rebounded 30 per cent, settling Thursday at $56.71 US per barrel, its highest level in four months.
100,000 People Are Without Water After Thieves Puncture Oil Pipeline In Mexico --Thousands of people in southern Mexico have been left without water after a punctured pipeline spilled oil into local waterways. Over the weekend in the Mexican state of Tabasco, thieves bored a hole in an oil pipeline operated by government-owned energy firm Pemex in an attempt to steal some of the oil. That puncture caused oil to spill into rivers, endangering drinking water. Originally, about 500,000 people were left without water after four water treatment facilities were closed so that officials could ensure the oil didn’t make its way into drinking water sources, but that number has dropped to about 100,000 people after two of the plants were re-opened. The other treatment plants likely won’t open until Friday, to give official enough time to clean up oil near the plants. Until then, the state government is urging people to ration their water, and schools in the city of Villahermosa closed Wednesday to avoid endangering students. So far, it’s unclear how much oil spilled into the waterways, which included the Sierra River. “The damage is terrible. Of course we want to avoid the contamination of drinking water processing plants, but the environmental damage is indisputably going to be very big regardless,” Humberto de los Santos, mayor of Centro, told International Business Times. According to IBT, cleanup could take up to 15 days. Thieves targeting pipelines for their oil and gasoline have become a major problem in Mexico. In just eight months in 2014, according to McClatchy, 7.5 million barrels of oil and gas went missing in Mexico. The theft has climbed over the years: in 2000, Mexico had 155 cases of oil and gas theft from pipelines, while in 2013, thieves tapped pipelines 2,614 times. Pemex said in February that in 2014, the number of illegal taps totaled 3,674.
New Sea Drilling Rule Planned, 5 Years After BP Oil Spill - The Obama administration is planning to impose a major new regulation on offshore oil and gas drilling to try to prevent the kind of explosions that caused the catastrophic BP oil spill in the Gulf of Mexico, administration officials said Friday.The announcement of the Interior Department regulation, which could be made as soon as Monday, is timed to coincide with the five-year anniversary of the disaster, which killed 11 men and sent millions of barrels of oil spewing into the gulf. The regulation is being introduced as the Obama administration is taking steps to open up vast new areas of federal waters off the southeast Atlantic Coast to drilling, a decision that has infuriated environmentalists.The rule is expected to tighten safety requirements on blowout preventers, the industry-standard devices that are the last line of protection to stop explosions in undersea oil and gas wells. The explosion of the Deepwater Horizon oil rig on April 20, 2010, was caused in part when the buckling of a section of drill pipe led to the malfunction of a supposedly fail-safe blowout preventer on a BP well called Macondo.It will be the third and biggest new drilling-equipment regulation put forth by the Obama administration in response to the disaster. In 2010, the Interior Department announced new regulations on drilling well casings, and in 2012, it announced new regulations on the cementing of wells.
Secrecy shrouds decade-old oil spill in Gulf of Mexico - — The company responsible for a decade-old oil leak in the Gulf of Mexico has downplayed its size and shrouded its work in secrecy. But an Associated Press investigation has revealed evidence the Taylor Energy spill is far worse than what it — or the federal government — has publicly reported. Presented with AP’s findings, the Coast Guard provided a new leak estimate about 20 times greater than one the company recently touted. Outside experts say the spill could be one of the largest ever in the Gulf. Taylor Energy has spent tens of millions of dollars to contain and stop its leak but says nothing can be done to completely halt the sheens. The company has presented federal regulators with a proposed “final resolution,” but details remain under wraps.
Another frack mess! 200 Evacuated, Nearly 70 homes damaged in Albania when “volcanoes” of gas, mud (chemicals?) and water erupt during drilling. Canadian firm Bankers Petroleum Ltd (has steam injection pilot project there), was at 500 metres depth when “volcanos” of gas, mud (chemicals?) and water erupted. Click to watch: Fontänen aus Gas und Schlamm schießen aus dem Boden. Nearly 70 houses damaged by gas explosions in Albania Nearly 70 houses were damaged by gas explosions occurred in southwestern Albania, the head of Kuman commune, Rajmond Plaka, said on Thursday. Among which 35 of them have grave and serious damages, three are uninhabitable, while the others will be assessed by a commission established by the region, Plaka said.Also criminal proceedings have been launched against Bankers Petroleum which caused gas explosion in Marinza, Fier Police Directorate announced on Thursday. The places where the gas exploded are located nearly 200 meters from the well where the company was drilling. Authorities inspected the houses damaged from the mud and water leaking from the explosions. Also an unpaved road in Marinza village suffered some damage in several parts.Police are still waiting for experts of the Albanian National Agency of Natural Resources (NANR) to determine the causes of the explosions. Meantime, it is very difficult for the residents evacuated from the village to go back to their homes due to the gas, water and mud that have entered in their houses. Hundreds of tons of clay have fallen on their lands, houses, while the walls of some houses have cracked. Big and dangerous holes have appeared in the lands and roads, while the panicked residents seek the assistance of the state authorities, according to Albanian Daily News.
The ExxonMobil Explosion That Nobody Is Talking About — Just before 9 a.m. on February 18, the ExxonMobil refinery in Torrance, California exploded, shaking the surrounding community with the force of a 1.7 magnitude earthquake, and sending a quarter ton of sulfur oxide gas into the atmosphere. My property is about 2 and 1/4 acres in size and 100 percent of it, I mean every square millimeter, was covered in the fallout. Workers inside the refinery likened the incident to a “loud sonic boom,” and soon roughly 50 firefighters were battling a three-alarm fire. First responders initially feared the possibility of radioactive materials at the scene, though that concern was ruled out some three hours after the initial explosion. Regulators fail to give people fair warning about how to protect themselves, or how to prevent the same thing happening again. This is entirely preventable. “At about 11:30 that morning, an officer called and said ‘I talked to them; it’s okay, just wash it away.’ And no tests were done at 11:30 in the morning,” Commiso said. “A shelter in place was still active, but the fire department was telling me I could wash it down the storm drain.” Michelle Kinman’s home sits almost 3 miles southwest of the refinery, and it, too, received a considerable dusting of chemical fallout on the day of the explosion. “I can remember the contrast between the color of the ash and the color of the patio furniture. We didn’t touch it that day, and no one from the city or Exxon reached out to me to tell me how to handle it or clean it up. It rained twice in the weeks after, which is what eventually washed it away.”Local and state agencies have so far concluded that the fallout was non-toxic. But with a federal investigation ongoing and many questions unanswered, residents in Torrance are still upset nearly two months after the accident, with what they see as a series of lapses in governmental response. Many Torrance citizens feel as though they don’t fully comprehend what, exactly, transpired on February 18, nor how it might still be impacting their health.
Dutch court halts gas extraction in earthquake epicentre -- The Council of State on Tuesday halted the extraction of natural gas in a part of Groningen which has been at the centre of a spate of earthquakes.The council, which is the highest administrative court in the Netherlands, said the Loppersum gas works can only be used if extraction at other sites is no longer possible or if supplies are threatened. The ruling is preliminary and the final verdict will be delivered later this year when all complaints have been assessed.There are five extraction points in the Loppersum area, where thousands of homes have been damaged by the quakes caused as the land settles.Ministers agreed earlier this year to cut back the volume of gas extracted from under the province in an effort to reduce the earthquake risk.In total, the government has set a ceiling of almost 40 billion cubic metres this year. Some three billion cubic metres of this should have come from the Loppersum field.Campaigners had asked the court to halt gas extraction altogether. However, this is not an option because a ban would have a severe impact on supplies to the Netherlands and abroad, the court said.
Video: Chevron cover-up of Amazon pollution – Videos reportedly leaked by a whistleblower at the Chevron Corp. purport to show employees and consultants paid by the energy giant finding petroleum contamination at sites in the Ecuadorean Amazon that the company claimed was cleaned up years earlier. According to the environmental advocacy group Amazon Watch, which released the videos, the recordings arrived at the nonprofit’s office in 2011 with no return address and a note that read, “I hope this is useful for you in the trial against Texaco/Chevron. [Signed] A friend from Chevron.” Amazon Watch said the videos show Chevron employees conducting pre-inspections in 2005 and 2006 to find clean soil samples ahead of court-monitored inspections. The videos are the latest twist in a decades-long court battle between the California-based Chevron and plaintiffs from the Lago Agrio area of the Amazon. In one of the videos, which Amazon Watch says was filmed at the Shushufindi 21 site, a Chevron employee identified only as Rene and a consultant from engineering firm URS identified only as Dave can be seen laughing about finding petroleum in a soil sample they have taken:
Is fracking responsible for the flooding of an Upper Egyptian village? | Egypt Independent: The village of Fares, located about 75km north of the city of Aswan near Kom Ombo, is currently being destroyed by severe flooding of contaminated water caused by controversial oil drilling practices performed over the past four years, according to residents. Fares is an agricultural village home to approximately 25,000 residents. While they rely on arable land to survive, the continuous destruction of farms, trees, water supplies and even housing has forced many to try move away from the village into the desert, or onto higher terrain in the mountains. However, government officials have been preventing evacuees from relocating onto what they claim is “private land,” leaving many of Fares’ residents homeless. According to Sheikh Ahmed Abdel Hameed, a resident of Fares and key community activist, the initial floodings started in 2009 when oil drillers from DanaGas started test drilling on residential land in Fares without local consent. “Not long after the drillers left, contaminated water started to pump out of the ground from the holes they had made, destroying everything,” says Abdel Hameed, adding that now over 500 feddans of land and housing has been destroyed by constant flooding. “It’s poisonous water, and even small amounts destroy the plantations and trees, instead of hydrating them ... and sometimes it can get up to five feet high, destroying our houses too.” It is believed that this reaction is caused by a controversial drilling practice known as hydraulic fracturing, or fracking. It entails drilling a vertical tunnel thousands of feet below the surface until it reaches a layer of rock where gas or oil are buried.
Rosneft sets world record for longest well -- Rosneft, an integrated oil company majority owned by the government of Russia, broke another world record Tuesday. Off the coast of Russia’s Sakhalin Island at the Chayvo field, the company reports that it has drilled the longest well in the world. Petro Global News reports that the O-14 production well drilled to a depth of 44,291 feet and reached horizontally to 39,478 feet. Part of the Sakhalin-1 project, the offshore drilling endeavor is tapping into the Arkutun-Dagi, Odoptu and Chayvo deepwater fields. Since the project’s beginnings, Rosneft has broken nine world records. In 2013 alone, the company set two world records for measured drilling depth. Rosneft said in a statement that the great reach of the project was also drilled in record time by utilizing ExxonMobil’s ‘Fast Drill Process.’ Rosneft chairman and President Igor Sechin said in a statement, “This well continues successful implementation of our outstanding project. I would like to express my thanks to our partners – ExxonMobil. Usage of their drilling technologies made this achievement possible.” Rosneft began production in the Chayvo field in 2005. Since then, its Sakhalin-1 project has produced 80 million tons of oil and 16 billion cubic meters of gas, according to Petro Global News. Currently, the amount of recoverable reserves for the project is estimated to contain roughly 487 billion cubic feet meters of gas and 236 million tons of oil.
Oil-Rich Nations Are Selling Off Their Petrodollar Assets at Record Pace - In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club. Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets. If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets. “This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas SA in London. Saudi Arabia, the world’s largest oil producer, is the prime example of the swiftness and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in February, the biggest monthly drop in at least 15 years, according to data from the Saudi Arabian Monetary Agency. That’s almost double the drop after the financial crisis in early 2009, when oil prices plunged and Riyadh consumed $11.6 billion of its reserves in a single month. The International Monetary Fund commodity index, a broad basket of natural resources from iron ore and oil to bananas and copper, fell in January to its lowest since mid-2009. Although the index has recovered a little since then, it still is down more than 40 percent from a record high set in early 2011.
The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace -- Back in November we chronicled the (quiet) death of the Petrodollar, the system that has buttressed USD hegemony for decades by ensuring that oil producers recycled their dollar proceeds into still more USD assets creating a very convenient (if your printing press mints dollars) self-fulfilling prophecy that has effectively underwritten the dollar’s reserve status in the post WWII era. Now, with oil prices still in the doldrums, oil producers are selling off their USD assets in a frenzy threatening the viability of petrocurrency mercantilism and effectively extracting billions in liquidity from the system just as the Fed prepares to hike
OPEC publication urges non-members to help stabilize oil market --OPEC has criticized unidentified non-member countries for their refusal to cooperate with the oil exporter group in propping up prices and repeated its call for them to do so. “There is a stubborn willingness of some non-OPEC producers to adopt a go-it-alone attitude, with scant regard for the consequences,” said the commentary in the latest edition of the monthly OPEC Bulletin. “In the past, OPEC has often shouldered the burden of ensuring oil market stability alone. In the current situation, which should be of great concern to ALL, is it not time for this burden to be shared?” The Organization of the Petroleum Exporting Countries last year refused to cut its oil output after non-member countries including Russia declined to offer output curbs, deepening a slide in oil prices.
Saudi Oil Production Hits All Time High, Surges By 'Half A Bakken' - As hopeful US investors buy everything oil-related on the back of a lower than expected crude build this week (after the biggest build in 30 years the week before), The Kingdom has stepped up overnight and ruined the dream of supply-restrained price recovery as it announced a surge in production output in March to yet another record high. The nation boosted crude output by 658,800 barrels a day in March to an average of 10.294 million a day, which as Bloomberg notes, is about half the daily production from the Bakken formation. WTI Crude prices have slipped by around 2% from yesterday's NYMEX Close ramp highs as it appears Saudi Arabia is not willing to just let this effort to squeeze Shale stall.
Saudi Arabia's Plan to Extend the Age of Oil - Last fall, as oil prices crashed, Ali al-Naimi, Saudi Arabia’s petroleum minister and the world’s de facto energy czar, went mum. He still popped up, as is his habit, at industry conferences on three continents. Yet from mid-September to the middle of November, while benchmark crude prices plunged 21 percent to a four-year low, Naimi didn’t utter a word in public. For 20 years, Bloomberg Markets reports in its May 2015 issue, the world’s $2 trillion oil market has parsed Naimi’s every syllable for signs of where supply and prices are heading. Twice during previous routs—amid the Asian financial crisis in 1998 and again when the global economy melted down 10 years later—Naimi reversed oil’s free fall by orchestrating production cutbacks among members of OPEC. This time, he went to ground.At the cartel’s semiannual meeting on Nov. 27 in Vienna, Naimi shot down proposed output reductions supported by a majority of the 12 members in favor of a more daring strategy: keep pumping and wait for lower prices to force high-cost suppliers out of the market. Oil prices fell a further 10 percent by the end of the next day and kept going. Having averaged $110 a barrel from 2011 through the middle of 2014, Brent crude, the global benchmark, dipped below $50 in January. Naimi, 79, dominated the debate at the November meeting, according to officials briefed on the closed-door proceedings. He told his OPEC counterparts they should maintain output to protect market share from rising supplies of U.S. shale oil, which costs more to get out of the ground and thus becomes less viable as prices fall. In December, he said much the same thing in a press interview, arguing that it was “crooked logic” for low-cost producers such as Saudi Arabia to pump less to balance the market.
Is Saudi Arabia Setting The World Up For Major Oil Price Spike? - In order to maintain a grip on market share by pushing U.S. shale producers out of the market, Saudi Arabia (and OPEC) is willing to use up its spare capacity. That could lead to a price spike. Saudi Arabia produced 10.3 million barrels per day in the month of March, a 658,000 barrel-per-day increase over the previous month. That is the highest level of production in three decades for the leading OPEC member. On top of the Saudi increase, Iraq boosted output by 556,000 barrels per day, and Libya succeeded in bringing 183,000 barrels per day back online. OPEC is now collectively producing nearly 31.5 million barrels per day, well above the cartel’s stated quota of just 30 million barrels per day. More output will prolong the slump in oil prices, which will force even more U.S. shale production out of the market. The signs of success are already showing – the U.S. is set to lose 57,000 barrels per day in production in May, and rig counts are still falling.The increase in Saudi production would also suggest that global markets are well-supplied. But, more Saudi oil comes at the cost of a shrinking global spare capacity. Saudi Arabia is essentially the only oil producer that has significant slack production capabilities, which can be ramped up or down depending on market conditions. That is what has allowed Saudi Arabia to influence prices to its liking for so many years. But when the Kingdom produces near flat out, it starts to run out of ammo. It is kind of like a central bank running interest rates near zero – once you are at that point, you run out of tools in the event that you need to do more.
Iran: The World's Oil Giant - Iran has been in the news on a regular basis over the past few weeks and, as such, I would like to take an updated look at Iran's significance on the world's oil markets, particularly in light of the fact that the end of economic sanctions against Iran could mean that Western oil companies are once again free to operate within its borders. Iran is a founding member of OPEC. According to OPEC's website, Iran has the third largest oil reserves among the 12 nations that comprise the cartel as shown here: OPEC's oil reserves of make up almost 81 percent of the world's total oil reserves. Among OPEC nations, Venezuela has the largest reserves totaling 298.4 billion barrels and Saudi Arabia has the second largest at 265.8 billion barrels. With reserves of 157.8 billion barrels, Iran comes in third place with 13 percent of OPEC's crude oil reserves and 10 percent of the world's total conventional crude reserves. Here is a graph showing how Iran's proven conventional oil reserves have grown over the past 35 years: In 2014, Iran produced an average of 3.121 million BOPD, roughly 10 percent of OPEC's output when production from Iraq is included. One of the big factors that has impacted Iran's oil industry is the imposition of sanctions; this resulted in a dramatic drop in oil production as you can see on this graph: According to the Energy Information Administration, Iran's oil production in 2013 was 3.113 million BOPD, down from 4.054 million BOPD in 2011. As shown on this graph, in 2013, Iran consumed 1.87 million BOPD of its own production: Domestic consumption of Iran's oil is rising as the population grows since most of the domestic consumption is related to the use of both diesel and gasoline. Now, let's combine Iran's oil production and consumption data. Here is a graph showing how net exports of Iranian crude have changed over the past four years: Note the significant impact of sanctions on total oil production (in blue).Just prior to the Iranian Revolution, Iran's oil production was in the 6 million BOPD range. Imposition of international sanctions and a high rate of decline in Iran's oil fields pushed daily oil production down to approximately 1.5 million BOPD by the early 1980s. This had risen to around 4 million BOPD after the turn of the new millennium but, as I noted above, sanctions have had a significant negative impact on the nation's oil output.