it was an interesting week in the fracking patch, at least for us numbers nerds....among other anomalies, we saw the largest increase in oil rigs in 15 months, a 2.5 million barrel build in crude oil inventory, the largest such increase since early April, and the largest one week summertime buildup of crude stores since August 23, 2013, and finally the largest jump in imports in 11 weeks, which pushed the monthly oil imports stats higher than a year ago....so as usual, we'll look at how that all shook out, and take a guess at what might be happening here...
otherwise, it was apparently a quiet week in the fracking patch, which saw only one major explosive oil related accident cross my news-feeds...early Monday morning, a barge carrying roughly a million gallons of petroleum naphtha burst into flames after a collision with another barge near the entrance to the Houston Ship Channel, that actually involved six vessels maneuvering thru the area...two tugboats, one hauling two barges of naphtha and the other hauling two barges of isopropylbenzene, were passing each other moving in opposite directions near the harbor entrance when the tug pushing the isopropylbenzene lost power, sending its barges drifting without power, and as one of it's barges careened into a naphtha barge, the fire broke out...as naphtha is a very flammable gasoline additive, the fire raged for four hours, lighting Galveston Bay, before Houston firefighters and Coast Guard fire crews were able to extinguish it...some of the naphtha and possibly other chemicals leaked into the ship channel, exposing sensitive conservation areas, leaving officials still assessing the environmental impact...by Monday night, the three damaged vessels were moved out of the way, allowing one side of the ship channel to reopen... as a major oil and petrochemical port, the Houston ship channel is a frequent site of spills; in March, we reported that a collision between a tanker and a bulk carrier spilled thousands of barrels of MTBE, a flammable toxic chemical, at almost the same spot as this barge mishap...
while there were major changes in most other oil metrics, US crude oil production was nearly unchanged in this week's report, slipping to 9,558,000 barrels per day in the week ending July 17th, from 9,562,000 barrels per day the prior week...that output rate was up 11.6% from our oil output of 8,565,000 barrels per day in the third week of July last year, and less than a half percent below the modern crude oil production record of 9,610,000 barrels per day in first week of June this year...but even with near record oil production, oil companies and speculators still managed to import 7,941,000 barrels per day during the week, up from 7,354,000 barrels per day last week and the third highest imports in any week over the past year...so this week's imports were up 7.2% from the same week a year ago, and the weekly Petroleum Status Report (62 pp pdf) shows our 4 week average of crude oil imports was over 7.5 million barrels per day, which was 2.5% above the same four-week period last year...
part of the reason for the jump in imports was that our refineries were running just about flat out, with refinery input of 16,870,000 barrels per day in this week's report, up from 16,825,000 barrels per day last week, as refineries were running at a post recession high of 95.5% of operable capacity over the week ending July 17th...still, that 45,000 barrels per day in additional refinery throughput doesn't account for the 587,000 barrels per day in additional imports we were bringing in, so we find that that excess that we've imported this week has been added to our already record high stockpiles of crude oil we have in storage, as U.S. commercial crude inventories rose by nearly 2.5 million barrels, from 461,417,000 barrels last week to 463,885,000 barrels as of July 17th...that works out to more than 25.0% more oil in storage than 371,071,000 barrels we had stored at the end of the third week of July last year, and nearly 20% more than had ever been stored in mid July in the 80 years of EIA record keeping, which had never seen the 400 million barrel level breached before this year...
what appears to be happening here is probably the same thing we saw when oil prices were collapsing in early March, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it theoretically pays for speculators to buy oil and pay for its storage, in the expectation that it will be able to be sold back at a higher price in the future; as we noted then, much of this is done on paper, but some of this so-called contango trade is obviously being done with the physical commodity, and that demand to put oil in storage for speculative reasons at the same time our refineries are running flat out is creating a demand for more imports, even though our field production of crude oil is near a record high...but as i warned in March, for every buyer of a speculative contract, there has to be a seller, so for every one who's buying oil contracts like this, betting on higher prices, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, selling that contract and effectively betting on lower prices...they both can't be winners, someone is going to lose, and possibly do us some economic damage in the process, just as we saw when the market for housing derivatives went belly up during the GFC...
however, there was no obvious reason for the rather large jump in the oil rig count this week...US oil prices fell another 4% this week, after falling 4% the prior week and 12% the week before that, and in closing this week at $48.14 a barrel, they're back to the level where 97% of the shale plays in the US are unprofitable...despite that, Baker Hughes reported that the count of active drilling rigs in the US rose by 19 rigs from last week to 876, with oil rigs up 21 to 659, gas rigs down 2 to 216, and miscellaneous rigs unchanged at 1...that's still 1007 less than the same week a year ago, as 903 oil rigs, 102 gas rigs, and 2 miscellaneous rigs have been shut down over that period...
unlike the past couple months, there was also an increase in unconventional drilling rigs, as horizontal rigs in use rose by 12 to 662, while active vertical rigs rose by 8 to 131 and directional rigs fell by 1 to 83...those numbers are down from 1293 horizontal, 361 vertical, and 229 directional that were in use a year ago....of the 19 rigs added this week, 17 were land based and 2 were added on inland waters, bringing the land rig total to 841 and the lake rig total to 4, while the total offshore rig count remained unchanged at 31 for the 3rd week in a row...a year ago, we had 1805 land based rigs operating, 18 drilling inland waters, and 59 drillships working offshore...
in yet another oddity, there were no net losses of rigs in any major oil basin, nor in any state over the past week...of the major basins, frackers added 3 rigs in the Permian, 3 rigs in the Haynesville, 2 in the Eagle Ford, 2 in the Cana Woodford, and one each in the Williston, the Utica, and the Granite Wash...that leaves 245 rigs active in the Permian, which is down from 555 a year ago, 29 rigs working in the Haynesville, down from 43 last July 18th, 100 in the Eagle Ford, down from 211, 33 in the Cana Woodford, up from 31, 70 in the Williston, down from 184, 23 in the Utica, down from 45, and 16 in the Granite Wash, which is down from 76 a year earlier...in addition, the Marcellus rig count, which was unchanged at 59 rigs this week, is down from 78 a year ago, while the Niobrara chalk of the Rockies front range was unchanged at 31 but down from 60 a year earlier...
within state boundaries, Texas added 8 rigs, bringing the state up to 374 this week , but down from the 886 rigs that were running in Texas last year; Louisiana added 7 rigs by adding 2 in the Haynesville, 2 on inland lakes, 4 in the southern part of the state, while one Louisiana offshore rig was shut down (Texas had added a rig offshore)...Louisiana now has 76 rigs operating, down from 119 a year ago...in other states that added rigs, Oklahoma was up 2 rigs to 107, but down from 204 a year ago, New Mexico was up 1 to 51 but down from 94 a year ago, North Dakota was up 1 to 69 but down from 178 a year ago, Pennsylvania was up 1 to 44 but down from 53 a year ago, and Ohio was up 1 to 20 but down from 43 a year ago...the rig count in all other states was unchanged this week..
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Thanks to anti-fracking group, Athens residents to vote on county's powers - An Athens anti-fracking group won its battle last week to put an issue on the November 2015 ballot that could give the county more legislative power and a community bill of rights restricting certain activities of oil and gas companies within county limits. If residents vote in favor of the measure, Athens County would have a charter form of government, meaning the county would be considered a municipality, as opposed to being governed by the state of Ohio, explained Nancy Pierce of the Bill of Rights Committee, the group heading the issue. She said that structure of government is permitted within Ohio laws and is simply an alternative to statutory government. Pierce said she hopes enacting a charter government will give the county the ability to implement laws such as Title 47, an Athens City law that requires any operator of a drilling or injection waste disposal mechanism within city limits to pay a fee. The fee specifically goes toward tracing and monitoring the drilling or injection sites for contamination.“That mechanism within the state of Ohio, that kind of protection of an area locally, is not preempted by state regulation,” Pierce said. “The state gives permits and they do their thing in terms of regulation.”She does not have the same confidence in the issue’s goal to put a ban on injection wells, though, calling it further reaching in terms of the rights of localities. However, she has a staunch stance on her view against injection wells.“We really want to act to protect our water supply in this county,” Pierce said. “These injection wells are going to migrate and contaminate the water. They’re not given any sort of protection. They drill through the water table; they don’t evaluate the geology around the injection wells.”
Company sues in Ohio courts to finish pipeline surveys (AP) — The company planning to build an industrial-sized natural gas pipeline across northern Ohio has been waging and mostly winning court battles to allow surveyors onto people’s property to determine a preferred route that will be submitted to a federal agency for approval. The $2 billion project is being proposed by NEXUS Gas Transmission, a subsidiary of Houston-based Spectra Energy and Detroit-based DTE Energy. Attorneys for NEXUS have obtained temporary restraining orders in Fulton, Lorain, Sandusky, Lucas and Wood counties that allowed surveyors onto the land of those sued. A case is pending in Erie County and, on Friday, a judge in Medina County denied NEXUS’ request for a restraining order and set a trial date to hear arguments on Sept. 24. Liz Athaide-Victor, one of the leaders of a citizens group opposed to NEXUS’ pipeline plans, likens the company to “schoolyard bullies.” “I think the court battles are just beginning,” Athaide-Victor said. NEXUS has surveyed about two-thirds of the thousands of Ohio properties in the proposed path. It needs to complete the surveys to meet its self-imposed November deadline for submitting an application with the company’s preferred route to the Federal Energy Regulatory Commission for approval.
Local fracking ban struck down - Lexology - We typically focus on state court class actions when they reach the appellate level, but wanted to note an interesting decision at the trial court level. An Ohio court has rejected a proposed class action by a group seeking to ban hydraulic fracturing in their community. See Mothers Against Drilling in Our Neighborhood v. Ohio, No. CV-14-836899 (Ohio Ct. Com. Pl., 7/1/15). Last December, community activists filed the class action against the state, the governor, and some fracking defendants, with the far-reaching argument that the portion of state law (Ohio Rev. Code § 1509) that gives the state Department of Natural Resources exclusive authority to permit, locate, space and regulate oil and gas wells, somehow violates plaintiffs' state constitutional right to local self-governance. Plaintiffs' community had voted in favor of a city ordinance that bans fracking within the boundaries of their city. The court granted defendants' motion for summary judgment, relying in large measure on a recent Ohio Supreme Court ruling in State v. Beck Energy Corp., Ohio, No. 2013-465, 2015 WL 687475 (Ohio, 2/17/15). The ban on fracking was an invalid exercise of the city's home rule authority as it was preempted by Ohio Rev.C. 1509 as a matter of law. In Beck, the state supreme court had noted that Chapter 1509 regulates oil and gas wells and production operations in Ohio. While it preserves certain limited powers for local governments, it gives the state government “sole and exclusive authority” to regulate the permitting, location, and spacing of oil and gas wells and production operations within the state.The supreme court held that the Home Rule Amendment to the Ohio Constitution did not grant to a city the power to enforce its own permitting scheme atop the state system.
Utica and Marcellus activity in Ohio -- Activity in the Utica and Marcellus Shale formations in Ohio have seen some changes compared to the last well activity update, and one energy company is boosting its game when it comes to electric cars. American Electric Power Company Inc. (AEP) is beginning to pay closer attention to the number of customers it serves that have electric cars and the amount of power they will demand. According to the Columbus Business First, just last year over 123,000 plug-in electric cars were sold in the U.S., which is only a small portion of the total 16.5 million new vehicles traveling across the nation’s roads. However, people like Tesla Motor’s CEO Elon Musk are being considered visionaries, and if people like Musk continue to improve electric powered vehicles, more and more will be seen on the road. For AEP, the increase in the number of electric cars means an increase in demand for power. COO Bob Powers explained that the increasing number of people with electric cars will force the company to upgrade its distribution system.. To read the full article regarding AEP, Tesla Motors and power demand, click here. The following information is provided by the Ohio Department of Natural Resources (ODNR) and is through the week of July 18th. The ODNR reported 445 wells were permitted, 419 drilled, 191 drilling, 925 producing, 25 inactive, 24 in final restoration and three abandoned wells in Ohio’s Utica formation. This brings the total number of wells in the Utica to 1,980. The Marcellus Shale in Ohio remains unchanged from last week’s well report. The area is still sitting at 15 wells permitted, 11 drilled, 17 wells producing and one well inactive. There are a total of 44 wells in the Ohio Marcellus Shale.
Conservationists Push for Legislation as Kentucky Explores Deep-Well Fracking -- The amount of water used in hydraulic fracturing is increasing across the nation, with the Marcellus and Utica shale formations in neighboring Ohio and West Virginia among the most active.New findings from the U.S. Geological Survey show the average horizontal gas well consumed more than 5 million gallons of water in 2014, up from around 177,000 gallons in 2000.While the deep well boom hasn't reached Kentucky yet, conservationists are urging the state to continue updating its regulations to address concerns over high-volume hydraulic fracking."Trying to get out in front of this, so that the operator identifies the method that they'll use to protect surface and ground waters from contamination,” says Tom FitzGerald, director of the Kentucky Resources Council. “We need to be prepared."The first step came earlier this year when the Kentucky Legislature added before-and-after water sampling at hydraulic fracking sites to the state's oil and gas regulations.FitzGerald says Kentucky is currently on the low end of the water-use spectrum, because all the fracking so far has been on shallower formations."And because of that, you're dealing with a matter of thousands of gallons rather than hundreds of thousands of gallons,” he explains. “So, the wastewater management issues are much smaller."
Consol warns of losses due to natural gas glut -- The low gas and coal prices that prompted layoffs and other recent cost-cutting moves at Consol Energy Inc. are eating into profits. The Cecil-based company warned early Monday it expects to report an operational loss when it announces financial results from the second quarter next week and will write down the value of some of its shallow oil and natural gas assets. Those assets, which include about 10,000 conventional wells in West Virginia and Pennsylvania, are separate from its Marcellus and Utica shale wells. Consol still expects to increase shale gas production by 30 percent this year, it said in an operational update before the market opened. The company last week said it was cutting 470 workers across its coal, gas and corporate operations because of weak prices for both of the fossil fuels it produces. That follows a reduction in hours at its Pennsylvania coal mines, a cut in its gas drilling budget and a sped-up plan to reduce health-care benefits for retirees.
Research Links Living Near Fracking to Illness - - Researchers at the University of Pennsylvania and Columbia University believe proximity to natural gas fracking operations makes people more likely to require hospitalization for heart conditions and neurological illnesses. And Michael McCawley, interim chair of the Department of Occupational and Environmental Health Sciences at West Virginia University, previously found high levels of benzene in the air near one Wetzel County well site, which he said were so bad that those in the area should wear respiratory protection. However, industry leaders in the Mountain State said if living near the drilling and fracking areas is so dangerous, it must be even more hazardous for the on-site workers. "This is simply Ivy League hogwash with no basis in fact. These institutions are trolling for research dollars," said R. Dennis Xander, past president of the Independent Oil and Gas Association of West Virginia. Researchers at New York City-based Columbia and Philadelphia-based Penn said they evaluated fracking operations in northeastern Pennsylvania, specifically in Bradford and Susquehanna counties. Their findings revealed those who live near natural gas wells are more likely to require hospitalization for heart problems, skin conditions, cancer and urologic issues, as compared to those who live farther from the operations. "This study captured the collective response of residents to hydraulic fracturing in ZIP codes within the counties with higher well densities," said University of Pennsylvania professor of medicine Reynold Panettieri Jr. At this point, we suspect that residents are exposed to many toxicants, noise and social stressors due to hydraulic fracturing near their homes and this may add to the increased number of hospitalizations. This study represents one of the most comprehensive to date to link health effects with hydraulic fracturing."Recently, despite identifying 1,076 chemicals used in fracking - and estimating contractors use an average of 9,100 gallons worth of chemicals per well - Environmental Protection Agency officials said the process does not create "widespread, systemic impacts on drinking water resources."
Study links fracking with serious health issues -- People who live in areas near hydraulic fracturing activities (fracking) are more at risk of suffering severe health issues, experts from the University of Pennsylvania and the University of Columbia report in research published in the journal PLOS One. In their study, the authors explained that unconventional gas and oil drilling (UGOD) such as the process known as “fracking” has increased significantly in the US over the past decade. However the potential health consequences of exposure of fracking-related toxins remained unclear. They analyzed the association between UGOD drilling wells and healthcare use in Pennsylvania between the years 2007 and 2011. According to Pulse Headlines, the researchers analyzed nearly 200,000 hospitalization records in three northern counties and categorizing 25 different medical scenarios, then associating each case with the proximity to a fracking region. They found a “significant” association between increase in cardiology inpatient prevalence rates and the number of UGOD wells per zip code and wells per square kilometer, as well as increased neurology inpatient prevalence rates with well per square kilometer, the researchers said. Overall they found that more hospitalizations took place in areas where fracking occurs.
Hospital stays up in three PA fracking counties, Penn study shows. - Researchers comparing hospital visits in three rural Northeast Pennsylvania counties found a higher rate of hospital visits in counties with a heavy gas industry presence. Residents of heavily drilled Bradford and Susquehanna counties were admitted to hospitals at higher rates than in neighboring Wayne County where drilling is banned, University of Pennsylvania and Columbia University researchers stated in a paper published in the peer-reviewed PLOS One scientific journal last week.The researchers used hospital-reported inpatient data from 2007, when drilling began, to 2011, the latest year available, said Penn Medicine researcher Dr. Reynold Panettieri Jr., one of the study's authors.Relying on 95,000 inpatient records, the researchers called their study "the most comprehensive one to date to address the health impact of unconventional gas and oil drilling." "Bradford and Susquehanna, where there was a substantial increase in hydraulic fracturing and active wells, were associated with more cardiovascular hospitalizations as well as more neurologic," Panettieri said. "The association was in proximity to the wells. The closer to active wells, the more Pennsylvanians are getting hospitalized for cardiovascular disease." Cardiology was the category of inpatient records most strongly associated with well count. Visits listed under dermatology, neonatology, neurology, oncology and urology were also linked to the number of wells.
Mercer County joins the “block PennEast” list - Mercer County is the latest county to join several landowners who have created a list in hopes to block the PennEast Pipeline LLC from surveying property to construction the natural gas pipeline. As reported by State Impact Pennsylvania, “The county, which has opposed the project since last year, told PennEast yesterday that the company would no longer have access to the park in Titusville for the purpose of surveying the property to facilitate the project. The county cited soil borings on Baldpate Mountain, which it has deemed as potentially environmentally harmful.” Earlier this month, the Department of Environmental Protection (DEP) made an announcement to PennEast directing them not to apply for the required project permits because landowners are denying the company access to their properties for surveying. The billion dollar proposed pipeline is mainly located through Pennsylvania, but 32 miles of the 108 miles of it will run through Hunderton County and end in Hopewell located in Mercer County, New Jersey. According to State Impact Pennsylvania, “In New Jersey, much of the proposed route — about 3,000 acres, critics say — would run through preserved open space, farmland, and wetlands, as well as cross numerous waterways.” The only way PennEast will be able to survey land in Mercer County is if the project receives federal approval. As of now, the county will not allow any further soil borings to be conducted on Baldpate Mountain, which is the highest point in in the county.
Update: Drilling in Pennsylvania forests - In 2012, the Department of Conservation and Natural Resources (DCNR) conducted its first assessment on Marcellus Shale development in Pennsylvania’s state forests and found development is “neither benign nor catastrophic.” On Thursday, the DCNR released an updated report of Marcellus Shale development in state forests that covers all the way through 2014. As reported by State Impact Pennsylvania, “The report shows most of the drilling occurring in seven ‘core gas’ forest districts: Sproul, Susquehannock, Elk, Moshannon, Tioga, Loyalsock, and Tiadaghton. Since the onset of shale gas development, DCNR says 1,674 acres have been converted from forest to “non-forest” in those core areas.” The drilling patterns in the forest follow the trends in development of the Marcellus. It consists of a great amount of roads, wellpads and pipeline development during 2008, hitting its highest point in 2010 and 2011 before flattening out and shifting downward. According to State Impact Pennsylvania, “In 2013, just four miles of new road were constructed in the core gas districts, and in 2014 it was less than one mile. Since 2007, 37 miles of new road have been built. And even though 1,020 wells have been approved, so far 608 have been drilled.”
Marcellus permit activity in Pennsylvania -- The Marcellus Shale formation in Pennsylvania saw a little bit of action over the last week, along with one Pittsburgh-based oil and gas development company whose portfolio grew a little more. Trimont Energy Ltd. announced last week that it is the security buyer of Energy XXI’s East Bay Field in the Gulf of Mexico. Trimont spent $21 million on the East Bay Field acquisition, which was made official on July 1st. After selling its field, Energy XXI shared that its stock has dropped by 7 percent. Talk between the two companies began back in March, and according to Welty, a deal of this proportion takes quite a bit of time to agree upon. Welty also mentioned that the East Bay Field has proven to be very stable, with high production numbers and a low purchase price. To read the full story regarding Trimont’s recent acquisition, click here. The following information is provided by the Pennsylvania Department of Environmental Protection and covers July 13th through July 19th. New: 25 Renewed: 3
13 Arrested Blockading Crestwood Gate With Giant Replica of Pope Francis’ Encyclical - Sandra Steingraber - In an act of civil disobedience against gas storage in Seneca Lake salt caverns, 13 Finger Lakes residents, led by local members of the Ithaca Catholic Worker Movement, formed a human blockade shortly after sunrise this morning at the north entrance of Crestwood Midstream on Route 14. Schuyler County deputies arrested the 13 people blockading Crestwood’s gate shortly after 9:30 a.m. today as they sang and read from the Pontifical document. Carrying with them a 7-foot tall replica of Pope Francis’ recent encyclical on climate change, Laudato Si! On Care for Our Common Home, they blocked traffic from entering or leaving the facility. Schuyler County deputies arrested the 13 people shortly after 9:30 a.m. as they sang and read from the Pontifical document. Their recitation continued the read-aloud from the encyclical that began on June 30, as part of earlier blockade that led to the arrests of 19 individuals, which continued on July 7, as part of an all-day blockade of 11 individuals that resulted in no arrests.
I Don't Want Stokes County To Be Like West Virginia - I’ve been following fracking issues for a while and knew there would be a lot of fracking activity in WV, but not to the extent that we saw. I expected to see many pipelines, for instance. But it seemed there was a pipeline right-a-way just about every mile. They were cleared 50 foot-wide right-a-ways forming a spider web across the county. Then there were the fracking well pads, compressor stations, pigging station (access points to clean the pipelines), extraction plants, holding ponds, and holding tanks just to name a few of the things that go along with fracking. And the size of each one of these structures was double or triple the size of what I thought they would be. There was no distance more than a city block that didn’t have something. This area of WV has had conventional oil and gas drilling operations for years. But there is a BIG, and I mean BIG, difference between conventional gas drilling and fracking. Visually, the difference in size of the two operations is immense. Most conventional wells, that we saw, were a few pipes coming out of the ground with a small tank a few feet away. This covered an area no more than 20 by 30 feet. The fracking well pads on the other hand took up multiple acres and had huge access roads leading to them. Of course the difference in damage to the environment and communities are enough to fill a book. Then if the above isn’t bad enough, we had to constantly stop our car to allow trucks to pass. Like Stokes County, their roads were not designed for the volume and size of the truck traffic needed to support fracking (over 1,000 heavy trucks per well per frack). As a result the roads have to be repaired about every month. Accidents were common. As we drove around we would get hit with a wave of obnoxious fumes. I can’t imagine living next to something constantly emitting toxic air. The noise from the well pads, compressor stations and extraction stations was like living next to an airport with jet engines running 24/7. There were many “man-camps” where out-of-area workers lived in campers for temporary housing.
Special Report: Uncovering abandoned oil and natural gas wells - For decades, old abandoned wells have leaked oil, natural gas and brine into soil and drinking water, and posed an explosion risk. Abandoned wells lurk beneath homes and buildings in Ohio; under the busy streets of Los Angeles and the sparse Oklahoma plains; and in parks, backyards, forests, cornfields and cemeteries from Appalachia to the Pacific Ocean. More than a million oil and natural gas wells were drilled in this country before anyone really knew how to plug them. Once the oil or gas was gone, the wells were abandoned with little thought of future consequences. Some have been open holes in the ground since the 1800s. Others are plugged with little more than dirt and logs. For decades, old abandoned wells have leaked oil, natural gas and brine into soil and drinking water, and posed an explosion risk. The danger is often hidden. Hundreds of thousands of abandoned wells were never properly mapped. Many of the companies that drilled them no longer exist. Abandoned wells lurk beneath homes and buildings in Ohio; under the busy streets of Los Angeles and the sparse Oklahoma plains; and in parks, back yards, forests, cornfields and cemeteries from Appalachia to the Pacific Ocean. Abandoned wells are the unwanted legacy of 150 years of drilling booms and busts. Now those old wells pose a new danger as the country rides another petroleum boom driven by hydraulic fracturing techniques that unlock vast new reserves.
Eagle Ford rigs plunge to lowest count in 5 years - Just when developers were taking cautious steps towards revving up oil production in the Eagle Ford, rig counts fell to the lowest amount in five years. Baker Hughes produced its weekly rig count numbers which noted that active drilling rigs in the South Texas fields fell to 98. According to a report from the San Antonio Business Journal, this is the lowest count for the Eagle Ford Shale play since 2010. Much of the latest price deletion in national and international oil prices came at the coat tails of the new nuclear arms deal with Iran. After the deal was agreed, investors worldwide are in fear of Iran (eventually) flooding the world market with a new resource of oil due to lightened sanctions. Conversely, all the news for Texas oil wasn’t horrible. Friday’s figures showed that drilling increased by three rigs in the Permian Basin. Overall, the Lone Star State had a net loss of two rigs while the larger U.S. fell by six active rigs. Currently, Brent crude oil sits at $56 per barrel (bbl). West Texas Intimidate is floating right at $50 bbl. In the past weeks, oil seemed on a path of recovery, reaching prices in the high $60’s prior to falling this week. The largest culprit is by far the impending role of Iran in the oil market. As of now, no one really knows how much oil will flood the market or when Iran will make its move.
Barge Carrying 1 Million Gallons of Naphtha Catches Fire Near Houston, Texas - A barge carrying around 1 million gallons of a petroleum product burst into flames after a collision involving six vessels in a shipping channel near Houston early Monday, the U.S. Coast Guard told NBC News. There were no immediate reports of any spills or injuries following the incident, which happened in the Bolivar Peninsula section of the Intracoastal Waterway, according to Petty Officer Andy Kendrick. The fire was extinguished after more than four hours at around 5:25 a.m. (6:25 a.m. ET), Kendrick said. advertisement The collision happened as two tugboats were each pushing a pair of barges down the waterway, nearly 50 miles from Houston. One tug lost power and caused the vessels to collide, sparking a "rupture" aboard one of the barges and a subsequent fire, Kendrick added. The barge was carrying the petroleum product Naphtha.
Petroleum fire raged from colliding barges -- Fire Fighters near Galveston, Texas have extinguished a fire that broke out when two barges collided around the entrance to the Houston Ship Channel. KHOU 11’s Drew Karedes reported that the fire erupted on a barge carrying about a million gallons of the petroleum product naphtha, a highly flammable liquid used to refine oil into gasoline. The Coast Guard says it first needs to assess damage to the barges and then it can figure out how much cargo was lost. Remaining cargo will then be transferred to other barges before the damaged ones can be towed away. U.S. Coast Guard Petty Officer Andrew Kendrick said two tugboats were pushing a total of four barges early Monday morning near the Bolivar Peninsula when one of the boats lost power. The barge it was pushing then collided with another barge close by. It took crews roughly four hours to put out the blaze early Monday morning. According to testimonies, the burn could be seen for miles. There were no injuries reported but it remains unclear how much of the chemical products leaked into the waterway. An environmental investigation will be soon to follow.
Feds warn railroads to comply with oil train notification requirement - – The U.S. Department of Transportation has warned railroads that they must continue to notify states of large crude oil shipments after several states reported not getting updated information for as long as a year. The department imposed the requirement in May 2014 following a series of fiery oil train derailments. It was designed to help state and local emergency officials assess their risk and training needs. In spite of increased public concern about the derailments, railroads have opposed the public release of the oil train information by numerous states. Two companies sued Maryland in July 2014 to prevent the state from releasing the oil train data to McClatchy. The rail industry fought to have the requirement dropped, and it appeared it got its wish three months ago in the department’s new oil train rule. But facing backlash from lawmakers, firefighters and some states, the department announced it would continue to enforce the notification requirement indefinitely and take new steps make it permanent. There have been six major oil train derailments in North America this year, the most recent last week near Culbertson, Mont. While that derailment only resulted in a spill, others in Ontario, West Virginia, Illinois and North Dakota involved fires, explosions and evacuations. In a letter to the companies Wednesday, Sarah Feinberg, the acting chief of the Federal Railroad Administration, told them that the notifications were “crucial” to first responders and state and local officials in developing emergency plans.
Oil, gas spill reports for July 20 - The following spills were reported to the Colorado Oil and Gas Conservation Commission in the past two weeks. Kerr McGee Oil & Gas Onshore LP reported on Wednesday that on Monday a valve was left open during a fluid transfer. About 10 barrels of oil was released. Excavation activities were initiated to remove impacted soil. DCP Midstream LP reported on Monday that an unmarked DCP Midstream line was struck by a KP-Kuffman excavator while doing work on a tank battery outside of Longmont. It is estimated that between one and five barrels of condensate was spilled. PDC Energy Inc. reported on July 10 that a historic release was discovered outside of a produced water vault outside of Milliken. It is unknown how much produced water was spilled. Foundation Energy Management LLC reported on July 10 that a flowline leak was discovered July 8 outside of New Raymer. It is estimated that about five barrels of oil was spilled and between five and 100 barrels of produced water was spilled. Whiting Oil and Gas Corp. reported on July 9 that an operator discovered a pipeline leak outside of New Raymer. It is estimated that less than 100 barrels of condensate released. The free liquids were contained with soil and the pipeline was closed in. Bill Barrett Corp reported on July 8 that a hole in the bottom of a water tank released roughly 40 barrels of produced water into lined containment outside of Briggsdale. The cause of the leak is still under investigation.
Groups in 4 states lobby against proposed Bakken pipeline -- A group of organizations from Illinois, Iowa, North Dakota and South Dakota are speaking out as a unified coalition against the proposed Bakken Oil Pipeline project. The organizations include environmental groups Food and Water Watch and Shawnee Forest Sentinels and social action groups Dakota Rural Action and Iowa Citizens for Community Improvement. They want each state’s utility regulators to consider testimony and evidence from the other affected states and to look at the financial status of Energy Transfer Partners, the parent company behind the pipeline project. The coalition points out that the company self-insures against accidents and declares in its recent annual report it may not have adequate reserves to cover all future liabilities including known contamination. A spokeswoman for Energy Transfer Partners did not immediately respond to messages.
California withholds findings on oilfield contamination — California oil-and-gas regulators have refused for nearly a year to release findings of what they termed a “highest-priority” investigation of possible oilfield contamination into the water aquifers that serve millions of people in and around Los Angeles. Concerns about the safety of oilfield injection wells in the region are among many dogging state oil and gas regulators. California is under orders from the U.S. Environmental Protection Agency to do more to protect drinking-water aquifers from contamination by the oil and gas industry. California is the country’s No. 3 oil-producing state. Home to more than 18 million people, the Los Angeles basin is also the scene of a more than century-oil oil industry that peaked in the 1930s but continues today. The state’s main oilfield regulating office, the Department of Conservation’s Division of Oil, Gas and Geothermal Resources, notified the U.S. EPA last year that it had reviewed the safety of more than 2,000 injection wells pumping oilfield wastewater and other material into water aquifers in and around the Los Angeles area. Specifically, state oil and gas regulators said they looked at whether regulators currently and in the 1930s and 1940s properly evaluated any risk of contamination from oilfield injection wells. Inspectors examined whether old and recent injection wells could be leaking contaminating fluids into drinking-water reserves, oilfield inspectors wrote. The next month, however, California oilfield regulators refused an Associated Press request for the findings on the safety review of the Los Angeles-area oilfield injection wells.
North Dakota oil well completions slow sharply -- No new well completion reports have been filed in North Dakota since July 10, the longest gap this year, according to daily activity records published by the state’s Department of Mineral Resources (DMR). Completions, rather than wells drilled, provide the best guide to short-term changes in output, since operators can always delay completing a well and putting it into production, either because they are waiting for completion crews to be available or to wait for better prices. Completion is usually defined as a single operation including the stimulation and testing of a well as well as the installation of surface production equipment (“Dictionary of petroleum exploration, drilling and production” 2014). North Dakota’s regulators consider a well completed when the first oil is produced through wellhead equipment into tanks from the ultimate producing interval and after the well has been cased. Well operators must file a completion report with state regulators within 30 days of the completion date, and in some circumstances immediately. “In no case shall oil or gas be transported from the lease prior to the filing of a completion report unless approved by the (DMR) director,” according to state rules. Completions reported to the DMR are published in its daily activity reports. The number of completions reported each day is volatile because operators have some discretion about when to file their forms; there are indications that operators often file a clutch of reports for related wells at the same site at the same time.
EIA to lawmakers: Plan for oil price volatility -- Last week hundreds of lawmakers gathered in North Dakota and listened to the head of the Energy Information Administration speak about how state legislators should plan for a broad range of crude oil prices next year, reports the Forum News Service. Adam Sieminski, EIA administrator, stated that the agency’s forecast for Brent global crude of $70 per barrel for 2016 comes with a “huge level of uncertainty.” He added that prices, based on futures market prices, might dip to as low as $30 per barrel or in excess of $100 per barrel. He said, “It’s an enormous range. [This] makes it difficult for legislators trying to plan state budgets, for example, to try to deal with that. I would say that it would be wise to consider all of these alternatives and look for ways that the state and communities could deal with prices at any of these levels.” As reported by the FNS, Sieminski presented his argument at the 70th annual meeting of the Midwestern Legislative Conference of The Council of State Governments, a nonprofit and nonpartisan organization that provides leadership training, educational programs, research and other services for the 50 states. The MLC consists of 11 member states including North Dakota, Minnesota, South Dakota, as well as four affiliate member Canadian provinces. Despite the price drop and rig count decline, though, Assistant Director of the Oil and Gas Division of the North Dakota Department of Mineral Resources Bruce Hicks said the department expects production to grow. Last December North Dakota’s rig count tallied in at 191. As of Monday, that number was 73. Last year the state’s oil production reached 396 million barrels, but officials anticipate production levels to reach 440 million barrels this year.
The Bakken and the world's largest oil field: What's the difference? --What’s the difference between the Bakken and Saudi Arabia’s largest oil reserve? About 50 billion barrels and 13,000 square miles, reports Bloomberg Business. Saudi Arabia, the world’s largest oil producing country, and its Ghawar oil field is a daunting prospect for many U.S. shale oil drillers. Ghawar is the largest conventional oil reserve in the world, and its narrow, deep oil deposits trapped in porous limestone are a closely guarded Saudi state secret. As reported by Bloomberg, University of Utah geology professor Rasoul Sorkhabi estimates that this field alone contributes approximately 60 percent of overall Saudi oil output. Being such a large reserve, the formation’s production has the power to drive prices up or down depending on current market conditions. According to figures Saudi Arabia submitted to OPEC, the country produced a record breaking 10.6 million barrels per day in June. The conventional Ghawar formation, discovered in 1948, only covers an area of 2,000 square miles, but the remaining reserves are estimated to contain approximately 74 billion barrels. The formation’s average production is reported to be 5 million barrels per day. In comparison, the Bakken formation, discovered in 1951, is sprawled out across 15,000 square miles, and its remaining reserves contain about 25 billion barrels. Currently, average daily production of the formation is 1.3 million barrels. Oil and gas producers in the U.S. don’t have it so easy, however, as the unconventional Bakken region in particular is a different beast altogether.Tapping into the Bakken requires utilizing the costly process of hydraulic fracturing. While oil in the Saudi Ghawar formation is produced from existing wells for $5 per barrel, North Dakota state data reports that new wells in the core of the Bakken break even at $29 per barrel.
Halliburton profit falls 93 percent on lower drilling activity, charges (Reuters) – Oilfield services provider Halliburton Co reported a 93 percent fall in quarterly profit as oil producers pummeled by a steep decline in oil prices cut drilling activity, and the company incurred about $400 million in charges. Net profit fell to $53 million, or 6 cents per share, in the second quarter ended June 30 from $775 million, or 91 cents per share, a year earlier. Revenue fell 26.5 percent to $5.92 billion. Halliburton’s $35-billion takeover of fellow oilfield services company Baker Hughes Inc is now expected to close by Dec. 1, after the two companies agreed with the U.S. Department of Justice on July 10 to extend the date of the review.
Has U.S. oil production started to turn down? -- The plunge in oil prices last year led many to say that a decline in U.S. oil production wouldn't be far behind. This was because almost all the growth in U.S. production in recent years had come from high-cost tight oil deposits which could not be profitable at these new lower oil prices. These wells were also known to have production declines that averaged 40 percent per year. Overall U.S. production, however, confounded the conventional logic and continued to rise--until early June when it stalled and then dropped slightly. Anyone who understood that U.S. drillers in shale plays had large inventories of drilled, but not yet completed wells, knew that production would probably rise for some time into 2015. Shale drillers who are in debt--and most of the independents are heavily in debt--simply must get some revenue out of wells already drilled to maintain interest payments. Only large international oil companies--who don't have huge debt loads related to their tight oil wells--have the luxury of waiting for higher prices before completing those wells. The drop in overall U.S. oil production (defined as crude including lease condensate) is based on estimates made by the U.S. Energy Information Administration (EIA). Still months away are revised numbers based on more complete data. But, the EIA had already said that it expects U.S. production to decline in the second half of this year. It was inevitable that oil service companies would be forced to discount their services to tight oil drillers in the wake of the price and drilling bust or simply go without work. And, it makes sense that the most inefficient uses of drilling rigs would be halted. But the idea that these changes would somehow allow tight oil drillers to continue without missing a beat were always bunkham promoted by an industry sinking into a mire of overindebedness in the face of lower prices. In order to maintain the flow of capital to the industry--which has consistently spent more cash than it generates--the illusion of profitability had desperately to be maintained. A recent renewed slump in the oil price may finally pierce that illusion among investors.
Wall Street Lenders Growing Impatient With U.S. Shale Revolution - Halcon Resources Corp. almost ran into trouble with its banks in June 2013. And again in March 2014. And in February 2015. Each time, the shale driller came close to violating debt limits set by its lenders, endangering a credit line that provided as much as $1.05 billion in much-needed cash. Each time, Halcon’s banks, led by JPMorgan Chase & Co. and Wells Fargo & Co., loosened their restrictions, allowing Halcon to keep borrowing. That kind of patience may be coming to an end. Bank regulators have issued warnings on the risks involved in lending to U.S. drillers, threatening a cash crunch in an industry that’s more dependent than ever on other people’s money. Wall Street has been one of the biggest allies of the shale revolution, bankrolling thousands of wells from Texas to North Dakota. The question is how that will change with oil prices down by half since last year to about $50 a barrel. “Lenders in general are increasing pressure on oil companies either to raise more equity or do some sort of transaction to pay. Banks are already preparing for the next reevaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October. The loans are based on the value of drillers’ producing reserves, which has shrunk as oil prices fell. Many companies are also losing protection as hedges that locked in prices as high as $90 a barrel begin to expire. down their credit lines and free up extra cash,”
U.S. emergency oil reserve tempts Congress at the wrong time - U.S. lawmakers on both sides of the aisle figured this month they had hit on a clever way to fund everything from new drug programs to highway maintenance: sell off part of America’s strategic oil reserves, a supply cushion that no longer needs to be so large. The notion, embedded in a House of Representatives bill that passed earlier in July and in a Senate transportation bill proposed on Tuesday, has met with criticism from energy experts and economists, many calling it the right idea, but the wrong time. A drilling revolution in the United States has left oil supplies robust at the Strategic Petroleum Reserve (SPR), which holds more than 695 million barrels of crude in Texas and Louisiana, just shy of its 714 million-barrel capacity that makes it the world’s largest supply of government-owned emergency crude oil. The boom helped to halve the price for a barrel of domestic crude since last summer to about $50 and cutting the value of the SPR, which holds about $35 billion worth of crude at current prices. Furthermore, a 40-year-old ban on U.S. crude oil exports has already helped lead to a domestic oil glut, pushing down U.S. prices to more than $6 per barrel lower than the global Brent benchmark . “Tapping the SPR and not allowing exports of domestic oil would be a catastrophe,” . “Oil would be trapped here and you’d hurt domestic production.”
The "Energy" Cash Flow Alarm Is Back: Chesapeake Suspends Dividends, Stock Plunges To 12 Year Low --Back in January, the panic surrounding the energy space and specifically the collapse in industry cash flows as a result of the collapse in oil prices, peaked when one after another company announced they would halt dividend payments and all other distributions to shareholders to conserve cash, culminating with the dramatic announcement on January 30 when one of the giants in the space, energy major Chevron, suspended its stock buybacks. Subsequently, oil experienced a brief oily (but dead) cat bounce, with WTI and Brent both making it briefly into the $60 price range and have since resumed their decline with WTI sliding back under $50 yesterday, and as a result all the attention is once again back on energy companies. And as if to confirm just that, earlier today one of Icahn's favorite energy names (you won't find him tweeting about this one much thought) Chesapeake Energy, the second-largest US natural gas producer, announced it too is now scrambling to conserve cash (in this case $240 million per year) by suspending its $0.35/share dividend payment. From the press release: Due to the current commodity price environment for oil, natural gas and natural gas liquids, and the resulting reduction in capital available to invest in its high-quality assets, Chesapeake Energy will eliminate its common dividend effective 2015 third quarter and redirect the cash into its 2016 capital program to maximize the return available to its shareholders.
This Time Is Different: Chesapeake Energy Scraps Dividend Amid Oil And Gas Plunge - Forbes: Shale oil and gas driller Chesapeake Energy Chesapeake Energy is scrapping its common stock dividend in order to maintain capital expenditure amid a sharp slump inenergy prices. The move, which goes in the opposite direction of ConocoPhillips's ConocoPhillips's decision last week to pare back capex and protect its dividend, is being called a “bold decision” by analysts and may minimize risks the asset-rich company falls into a liquidity crunch. Chesapeake’s dividend elimination, the company said, is a direct response to the current commodity price environment. The Oklahoma City-based company will redirect quarterly $0.875 payouts to its 2016 drilling budget, allowing it to continue exploring high-quality shale assets even in a prolonged slump to oil and natural gas prices. For Chesapeake, which maintained a quarterly dividend through the 2008 energy plunge and financial crisis, the move is a watershed moment. “We believe this decision is prudent as we continue to invest and redirect as much capital as possible into our world-class assets,” Chesapeake CEO Doug Lawler said in a statement. The company paid out 35-cents on an annualized basis, or approximately $240 million, funds that now can be plowed into revenue producing oilfields.
Shell Can Now Begin Drilling In The Arctic - Royal Dutch Shell has received final approval to move forward on its controversial plan to explore for oil in the frigid, remote Arctic waters off Alaska’s coast. On Wednesday, the Obama administration’s Bureau of Safety and Environmental Enforcement granted conditional approval to two permits that will allow the company to begin exploratory drilling in the Chukchi Sea, about 140 miles from Alaska’s northwest shoreline. However, the approval came with conditions that will slightly alter Shell’s plans. Certain oil-rich areas will be temporarily off limits to drilling because of issues with Shell’s safety equipment, and Shell will be prevented from drilling two wells at once. The administration had previously told Shell that it could only drill in one area at a time because the proposed sites are too close to each other. Drilling could begin in just a few days, as Shell has said that it will aim to begin some time this month, the Hill reported.The approval represented a significant loss for the environmental community, which has long argued against Arctic drilling in part due to concerns over the sensitive environment, which is home to vulnerable animal species like the polar bear and walrus. Climate change has also been a concern, as scientists have warned oil extraction there will further exacerbate the human-caused phenomenon.“Shell shouldn’t be drilling in the Arctic, and neither should anybody else,” said Franz Matzner, the director of the Natural Resources Defense Council’s Beyond Oil program, in an emailed statement. “President Obama’s misguided decision to let Shell drill has lit the fuse on a disaster for our last pristine ocean and for our climate.”
Nexen’s Brand New, Double-Layered Pipeline Ruptured, Causing One of the Biggest Oil Spills Ever in Alberta -- A pipeline at Nexen Energy’s Long Lake oilsands facility southeast of Fort McMurray, Alberta, spilled about five million liters (32,000 barrels or some 1.32 million gallons) of emulsion, a mixture of bitumen, sand and water, Wednesday afternoon — marking one of the largest spills in Alberta history. According to reports, the spill covered as much as 16,000 square meters (almost 4 acres). The emulsion leaked from a “feeder” pipe that connects a wellhead to a processing plant. At a press conference Thursday, Ron Bailey, Nexen vice president of Canadian operations, said the company “sincerely apologize[d] for the impact this has caused.” He confirmed the double-layered pipeline is a part of Nexen's new system and that the line's emergency detection system failed to alert officials to the breach, which was discovered during a visual inspection. At this time, the company claims to have the leak under control, according to CBC News. The spill comes at a particularly bad time for Canada’s premiers, who are poised to sign an agreement three years in the making to fast-track the approval process for new oil sands pipelines while weakening commitments to fight climate change, according to Mike Hudema, a climate and energy campaigner for Greenpeace. “As provincial premiers talk about ways to streamline the approval process for new tar sands pipelines, we have a stark reminder of how dangerous they can be,” Hudema said in a statement. “This leak is also a good reminder that Alberta has a long way to go to address its pipeline problems and that communities have good reasons to fear having more built.”
Work at site of Nexen spill done on tight schedule -engineering firm – Infrastructure at the site in northern Alberta of one of the biggest oil-related pipeline spills ever on North American soil was installed on a “tight schedule,” according to the firm that developed some of the pipeline’s safety technology. The engineering firm, French-based ITP Interpipe, said in a June 2014 presentation to the Society of Petroleum Engineers in Calgary that field work at the site at Nexen Energy’s Long Lake oil sands facility, where the spill occurred, was completed in less than 12 months. The pipeline’s leak detection systems failed, and it could have been leaking for weeks before the spill was detected on July 15 by a contractor walking along the line. On a media tour of the spill site on Wednesday, executives from Nexen, owned by China’s CNOOC Ltd, said the project was not rushed. Nexen’s senior vice president, Canadian operations, Ron Bailey, said the company’s safety practices had been strengthened since the CNOOC takeover in 2013. “This is not about a rush job,” Bailey said. “This is not about cuts or anything like that. This is an unfortunate accident. We’re going to get to the bottom of that.” Nexen said it would likely take months to find the root cause of the leak, which released more than 31,500 barrels of emulsion, a mixture of bitumen, water and sand.
5 Years Since Massive Tar Sands Oil Spill, Kalamazoo River Still Not Clean -- Five years ago today, in the middle of the night, an oil pipeline operated by Enbridge ruptured outside of Marshall, Michigan. It took more than 17 hours before the Canadian company finally cut off the flow, but by then, more than a million gallons of tar sands crude had oozed into Talmadge Creek. The oil quickly flowed into the Kalamazoo River, forcing dozens of families to evacuate their homes. Oil spills of that magnitude are always disastrous, but the Kalamazoo event was historically damaging. The first challenge was the composition of the oil. Fresh tar sands crude looks more like dirt than conventional crude—it’s far too thick to travel through a pipeline. To get this crumbly mess to flow, producers thin it out with the liquid constituents of natural gas. Diluted bitumen, or dilbit, as it’s called in the tar sands industry, is approximately three parts tar sands crude, one part natural gas liquids. When dilbit gushed into Talmadge Creek in 2010, the mixture broke apart. The volatile natural gas liquids vaporized and wafted into the surrounding neighborhoods. The airborne chemicals were so difficult to find and eliminate that Enbridge decided it would be better to simply buy some of the homes that were evacuated, preventing the residents from ever returning. The tar sands oil, which stayed in the water, presented an even bigger chemistry problem. Most forms of oil, including conventional crude, are less dense than water. Skimmers and vacuums remove it from the surface. Floating booms prevent surface-level oil from moving into environmentally sensitive areas. Tar sands crude behaves differently. “Tar sands bitumen is a low-grade, heavy substance,” “Unlike conventional crude, when bitumen is released into a water body, it sinks.”
Keystone XL Cheerleader Donald Trump Invested At Least $250,000 In TransCanada -- Republican presidential hopeful Donald Trump’s mandatory personal financial disclosure statement was made public on Wednesday, revealing his massive financial holdings. Among his many investments: At least $250,000 worth of stock in TransCanada Pipelines Ltd., the Canadian company hoping to build the controversial Keystone XL tar sands pipeline. Trump has frequently criticized the Obama administration for not yet granting a permit for the project. In 2011, he told a Canadian paper, through a spokesman, that it is “an outrage our president isn’t approving the Keystone pipeline,” and “Canada is lucky to have superior leadership” to America’s. He tweeted: The Keystone pipeline will create 20,000 jobs and lower gas prices. But Obama says No. Dumb.
Oil Rigs Left Idling Turn Caribbean Into Expensive Parking Lot - Imagine parking your $300 million boat for months out in the open sea, with well-paid mechanics hovering around it and the engine running. The Gulf of Mexico and the Caribbean Sea have become a garage for deepwater drillships -- at a cost of about $70,000 a day each. It’s either that or send your precious rig to a scrapyard. The dilemma underscores how an offshore industry that geared up for an oil boom is grappling with a bust. Rig owners are putting equipment aside at unprecedented numbers as customers including ConocoPhillips pull back from higher-cost deepwater exploration. That’s helped make Transocean Ltd. and Ensco Plc two of the three worst performers in the Standard & Poor’s 500 Index over the past year. “Most contractors have never seen an environment like this, where demand is falling as quickly as it is,” A growing glut of newly built exploration vessels looked worrisome enough before the oil rout. Now it’s beginning to look disastrous. Shipyards continue to roll out new units to meet orders made during the boom, but the rig providers may not need them anymore. As contracts expire, many producers may not renew them, and some are being canceled. U.S. benchmark oil ended in a bear market Thursday at $48.45 a barrel on the New York Mercantile Exchange. Front-month prices are down about 21 percent from this year’s highest close on June 10. Transocean is expected to see earnings tumble to a loss for each of the next two years.
AP Exclusive: Share of aging temporarily sealed wells grows -- Five years after the Obama administration promised to move swiftly to permanently plug unused oil and gas wells in the Gulf of Mexico, even more shafts are lingering for longer periods with only temporary sealing, an Associated Press investigation shows. It is not clear how many incompletely sealed wells may have leaked — they generally are not monitored as carefully as active wells — but they contain fewer barriers to pent-up petroleum and rupture more easily. The threat to the environment increases with time. In July 2010, during the BP oil spill, the AP reported that the Gulf was littered with more than 27,000 unused wells, including 14 percent left with just temporary seals. The AP’s new analysis of federal data shows that the neglect of long-idle wells has intensified since 2010, despite the federal push after the BP accident:
- —Twenty-five percent more wells have now stayed temporarily sealed for more than a year, jumping from 2,855 to 3,576.
- —Wells sealed temporarily for more than a year make up 86 percent of all temporarily sealed shafts, up from 78 percent.
- —The number of wells equipped with temporary barriers for more than five years has risen from 1,631 to 1,895 — a 16 percent increase.
A New Oil Spill Disaster Waiting To Happen In The Gulf - The number of oil wells in the Gulf of Mexico that have been temporarily sealed is growing, according to a new investigation from the Associated Press. Oil companies sometimes put temporary caps on oil wells if there is the possibility that they will return to use the well at some point in the future. But wells that have not been permanently sealed can suffer from corrosion, leaks, and potential ruptures, posing a safety and environmental risk. After the Deepwater Horizon catastrophe in 2010, the federal government tried to accelerate the permanent closure of wells that are sitting idle. But the AP finds that such an effort it is falling far short of its objective, with the number of temporary wells ballooning since then. For example, the number of wells that have been placed under temporary seal for more than one year has grown by 25 percent since 2010, jumping from 2,855 to 3,576. In fact, those wells that have been sitting with temporary seals for longer than one year actually make up more than 86 percent of all temporarily sealed wells. Worse yet, there are a handful of wells that have been under temporary seal since the 1950s, and at least 17 since the 1970s. Permanently sealing a well is a much more involved process that can ensure oil does not migrate up the well and pose a danger of leaking. But permanently closing wells also costs more than a temporary approach.
Hedge funds turn unusually bearish on oil -- Hedge funds and other money managers have rarely been so bearish about the outlook for oil prices, according to the latest positioning data from the U.S. Commodity Futures Trading Commission. Hedge funds boosted short positions in futures and options linked to the price of U.S. crude to 138 million barrels by July 14, from 84 million four weeks earlier. Over the same period, they cut long positions from 340 million to 292 million barrels. The hedge fund community has an inherent long-bias, but the ratio of long to short positions, at just over 2:1, down from 4:1 a month ago, is among the lowest in the last six years. The number of hedge funds with reported short positions was equal to the number of longs last week, which is highly unusual. The liquidation of long positions and establishment of fresh shorts help explain the downward pressure on U.S. crude prices over the last month. The market has not been this bearish about the outlook for oil prices since March, when investors were worried about rising inventories and the possibility storage space at oil refineries and tank farms would run out. In March the number of short positions was much higher, at around 200 million barrels, but so was the number of long positions, at around 380 million barrels.
Oil drops on concerns of glut in refined products - – Oil dropped on Monday as signs of a growing glut in refined products outweighed a fall in Saudi crude exports and slower U.S. rig activity. Crude prices have fallen for three weeks in a row on expectations of increased oil sales from Iran following a deal to ease sanctions against the OPEC producer. Brent crude for September was down 35 cents at $56.75 a barrel by 1100 GMT. The benchmark fell nearly 3 percent last week and is down more than 10 percent so far this month. U.S. crude futures for August were down 13 cents at $50.76 a barrel. The August contract expires on Tuesday. The dollar’s strengthening added further pressure as it makes dollar-priced commodities more expensive for investors using other currencies. Saudi Arabia’s crude exports fell in May to their lowest since December, with official data showing daily shipments at 6.935 million barrels per day (bpd) compared with 7.737 million bpd in April, despite record-high output of over 10 million bpd.
Oil Prices Dip Below $50 on Supply Concerns - WSJ: U.S. oil prices dipped below $50 a barrel Monday for the first time since April on continued concerns that global crude-oil supplies are overwhelming demand. Light, sweet crude for August delivery settled down 74 cents, or 1.5%, to $50.15 a barrel on the New York Mercantile Exchange, the lowest settlement since April 2, after slipping as low as $49.85 a barrel earlier in the session. The August contract expires at settlement Tuesday. The more-actively traded September contract closed down 77 cents, or 1.5%, to $50.44 a barrel. After falling to near-six-year lows in March, oil prices rallied through April on expectations that cuts in U.S. oil drilling would lead to lower production. But prices have slid in recent weeks as output from the U.S. and other nations has stayed robust. While oil consumption has risen this year, many analysts say demand is insufficient to eat away at the global glut of crude and that a drop in output is also needed.
Oil steadies as Saudi crude exports fall -– Oil prices steadied on Monday after data showing a sharp drop in Saudi Arabia’s crude oil exports balanced signs of rising refined products stocks. Brent crude for September was 5 cents up at $57.15 a barrel by 0825 GMT. The benchmark fell nearly 3 percent last week and is down more than 10 percent so far this month. U.S. crude futures for August, also known as West Texas Intermediate (WTI), were up 5 cents at $50.94 a barrel. The August contract expires on Tuesday. Oil prices have fallen for three weeks in a row on expectations of increased exports from Iran following a deal to ease sanctions against the OPEC producer. Investors are worried that a big oversupply of crude in many markets, that has been filling inventories towards record levels, will be exacerbated by more oil from Iran. But not all industry data are bearish. Saudi Arabia’s crude oil exports fell in May to their lowest since December, with official data showing daily shipments stood at 6.935 million barrels a day (bpd) compared with 7.737 million bpd in April, despite record high output of over 10 million bpd as the Kingdom. As refineries around the world continue to operate at near maximum levels to benefit from strong profit margins, there are signs a glut in the crude oil market may be shifting to refined products.“We are seeing the crude surplus moving into the oil products with elevated inventories in Europe for gasoline, naphtha and especially gasoil,”
Oil prices fall on unexpected rise in U.S. crude stocks – Oil prices fell on Wednesday after an unexpected rise in U.S. crude stocks, adding to a picture of global oversupply that has dragged down values over the past year. Industry data released on Tuesday by the American Petroleum Institute (API) showed crude inventories at the Cushing, Oklahoma, hub rose 2.3 million barrels last week, compared with analyst expectations for a decrease of the same volume. “The U.S. crude oil stocks build reported by the API last night is weighing on prices,” said Tamas Varga, analyst at London brokerage PVM Oil Associates. U.S. crude held above $50 a barrel, trading down 64 cents at $50.22 at 1140 GMT, 1.2 percent lower than the previous session’s settlement. In related news, EIA to lawmakers: Plan for oil price volatility. The August contract, which expired on Tuesday, settled at $50.36 a barrel on its last day of trade, after slipping as low as $49.77 during the session, its weakest point in more than three months. Brent crude was down 40 cents at $56.64 a barrel.
Crude Oil Price Struggles to Hold Above $50 After Inventory Report - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 2.5 million barrels last week, maintaining a total U.S. commercial crude inventory of 463.9 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years. Tuesday evening the American Petroleum Institute (API) reported that crude inventories rose by 2.3 million barrels in the week ending July 17. For the same period, analysts had estimated a decrease of 1.6 million barrels in crude inventories. Total gasoline inventories decreased by 1.7 million barrels last week, according to the EIA, and remain in the upper half of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged over 9.6 million barrels a day for the past four weeks, up by 6.9% compared with the same period a year ago. Uncertainty in the crude markets about the potential impact of the lifting of sanctions against Iran have been compounded by increased production from OPEC combined with a stronger dollar, A sizable gain in short futures positions held by hedge funds have conspired to keep crude prices down. In short, supply continues to exceed demand, and with the U.S. summer driving season more than halfway over, the outlook for crude producers is not improving.
Oil falls as rising US crude stocks apply pressure: Oil prices fell on Wednesday as U.S. government data showed crude inventories rose last week and as a stronger dollar and weaker global equities applied pressure. U.S. September crude closed down $1.67, at $49.19 a barrel—the lowest since April 2. It fell intraday after the EIA data to $49.67, two cents below the previous contract low from March. U.S. crude's 14-day Relative Strength Index (RSI) is below 30. A reading below 30 is considered an indication of an oversold condition by technical traders. Brent September crude was down 98 cents at $56.06. U.S. crude oil stocks rose 2.5 million barrels, the Energy Information Administration (EIA) said in its weekly report, contrasting with expectations inventories would be down 2.3 million barrels. "The crude oil inventory rise was driven by a strong rebound in crude oil imports, which neared 8 million barrels per day," Crude oil imports from Saudi Arabia rose to 1.44 million barrels per day (bpd), up from 1.32 million the previous week, according to EIA data. Imports from several other OPEC-member countries also rose.
U.S. Oil-Rig Count Increases to 659 in Latest Week - WSJ: The U.S. oil-rig count rose by 21 to 659 in the latest week, reversing last week’s downturn, according to Baker Hughes Inc. BHI -1.01 % The number of U.S. oil-drilling rigs, which is a proxy for activity in the oil industry, had fallen sharply since oil prices headed south last year. They had dropped for 29 straight weeks before rising for two weeks and then falling again last week. This is the largest increase seen yet this year. Previous increases were by 12 rigs and five rigs. Oil prices fell nearly 60% from June 2014 to a six-year low in March, as soaring production from the U.S. and other countries overwhelmed global demand. There are still about 59% fewer rigs working since a peak of 1,609 in October, though the pace of declines has slowed considerably recently. In late May, several U.S. shale-oil companies said they were ready to bring rigs back into service, setting up the first big test of their ability to quickly react to rising crude prices. According to Baker Hughes, gas rigs were down by two to 216 this week.
Crude Slips After Oil Rig Count Surges By Most In 15 Months -- Total US rig count increased a somewhat stunning 19 last week to 876 - the highest since May. This is the biggest rise in rig count since August 2014. The oil rig count surged 21 to 659 - this is the biggest weekly rise since April 2014. The jump in total rig counts was big: The reaction - crude is sliding. Charts: Bloomberg
Weekly US oil rig count up by 21, rises for third straight week: U.S. crude closed lower on Friday after Baker Hughes data showed an increase in U.S. oil rigs. Baker Hughes data showed U.S. oil rigs rose by 21 week-over-week to 659. Nevertheless, the count remains down by 903 rigs year-over-year. The gain this week was also only the third increase over the past 33 weeks, bringing the total rig count up to 659, the highest since late May, Baker Hughes said in its report. West Texas Intermediate oil futures settled down 31 cents, or 0.6 percent, at $48.14 a barrel—the lowest since March 31. It hit a session low of $47.72 a barrel after the release. Brent was down 0.6 percent, at $54.60 a barrel. Brent and U.S. crude have posted double-digit losses in July. With U.S. crude off more than 18 percent, it could challenge the 19.4 percent loss in December. U.S. crude losses follow Thursday's fall into bear market territory, with its $48.45 a barrel settlement off 21 percent from the June 10 close at $61.43. A 20 percent downturn is considered by many traders to constitute a bear market.
OilPrice Intelligence Report: Rout Begins As WTI Can’t Stand The Pressure: WTI fell below $50 per barrel this week, ushering in some of the most pessimistic sentiments in months. After a wave of bearish events – the Greek debt crisis, the Chinese stock market meltdown, and the all-important Iran nuclear deal – oil prices cratered and were looking for some direction. The latest bit of data from the EIA did nothing ease the fears of a bear market. The EIA reported on July 22 that crude oil inventories unexpectedly climbed for the week while analysts had expected a drawdown, jumping 2.5 million barrels. Weekly production figures, as suspect as they are, ticked downwards just slightly. On a more bullish note, refineries are running at record highs, taking advantage of cheap crude, processing 16.8 million barrels per day. OPEC officials continue to assert that low oil prices will only be temporary and that there is no need for the group to make a policy change. Kuwait’s oil minister this week said that stronger global demand will lead to a price rebound. Even if prices decline significantly below $50 per barrel, “[p]rices will not stay down forever,” one OPEC official from an Arabian Gulf country told Reuters. The low prices will likely lead to fresh rounds of layoffs across the oil industry, especially if they do not rebound soon. In a sign that such a development could be in the offing, Weatherford International, an oil field services company, announced that it would be cutting an additional 1,000 jobs, bringing its total job casualty number to 11,000 so far in 2015 and 18,000 over the past year and a half. The latest eliminations will mostly take place in U.S. onshore support staff. In a sign that the appetite for drilling is slowing, orders of rail cars fell by 29 percent in the second quarter from the first. Even more staggering is the fact that the 3,155 rail car orders in the second quarter were down 70 percent from the same period a year earlier. That mirrors the 46 percent decline in energy shipments by rail for Kansas City Southern.
"Far Worse Than 1986": The Oil Downturn Has No Parallel In Recorded History, Morgan Stanley Says - On Tuesday the market got yet another reminder of just how painful the "current commodity price environment" has been for producers when Chesapeake eliminated its common dividend in order to conserve cash. After noting the plunge in Chesapeake’s shares (to a 12-year low) we subsequently outlined why the US shale "revolution" is now running out of lifelines as hedges roll off and as the next round of credit line assessments looms in October. A persistent theme here - as regular readers are no doubt aware - has been the extent to which an ultra-accommodative Fed has contributed to a deflationary supply glut by ensuring that beleaguered producers retain access to capital markets. In short, cash-strapped companies who would have otherwise gone out of business have been able to stay afloat thanks to the fact that Fed policy has herded investors into risk assets. Those who contend that the downturn simply cannot last much longer - that the supply/demand imbalance will soon even out, that the market will clear sooner rather than later, and that even if the weaker hands are shaken out, the pain for the majors will be relatively short-lived - are perhaps ignoring the underlying narrative that helps to explain why the situation looks like it does. At heart, this is a struggle between the Fed’s ZIRP and the Saudis, who appear set to outlast the easy money that’s kept US producers alive. Against that backdrop, and amid Wednesday's crude carnage, we turn to Morgan Stanley for more on why the current downturn will be "worse than 1986." We have been expecting the current downturn to be as severe as the one in 1986 – the worst for at least 45 years – but not worse than that. Still, if oil prices follow the path suggested by the forward curve, our thesis may yet prove too optimistic. Our constructive stance on the majors is based on four factors: 1) supply – we expected production growth to moderate following large capex cuts and the sharp decline in the rig count; 2) demand – we anticipated that the fall in price would boost oil products demand; 3) cost and capex – we foresaw both falling sharply, similar to the industry's response in 1986; and 4) valuation – relative DY and P/BV indicated 35-year lows. So far this year, we can put a tick against three of them [but] our expectation on supply has not materialised: US tight oil production growth has started to roll over, but this has been more than offset by OPEC, which has added ~1.5 mb/d since February.
Dim crude price outlook may force more spending cuts for oil majors - The world’s top oil companies are set to report yet another sharp drop in quarterly profits that could force more spending cuts due to a dim outlook for oil prices. Oil companies rarely scale back capital expenditure (capex) in the middle of the fiscal year. But with oil prices failing to recover and even lurching lower in recent weeks after a nuclear accord between Iran and world powers, boards could take more action beyond cuts already announced, analysts say. “Oil companies are hunkering down for a downturn that will take longer than some initially thought,” Martijn Rats, head of European oil and gas equity research at Morgan Stanley, told Reuters. International oil companies including Exxon Mobil, Chevron, Royal Dutch Shell, BP and Total all reduced 2015 spending by 10 to 15 percent from last year’s levels in response to the low oil prices, cutting operating costs, laying off thousands of workers and scrapping huge and costly projects around the world. “Companies will keep their foot to the peddle with regards to cost savings and capex reductions. They will try to support balance sheets in any way they can, including asset sales,” Rats said. Second-quarter net profits at seven oil majors are expected to decline by at least 40 percent from a year earlier, according to Reuters estimates.
Shell Warns, Oil Price Recovery To Take 5 Years -- Ben van Beurden, the CEO of Royal Dutch Shell, and one of his senior executives envision low oil prices for some time unless energy producers cut production and the demand for fuel doesn’t rebound. In a wide-ranging interview with Oil & Gas Technology published July 14, van Beurden spoke of competing benefits of the low price of oil for fuel demand, and its liabilities for those who produce it. “Low prices have big implications for exporting countries like Iran, Russia and Venezuela,” he said. “But also for shale-producers in the U.S., and even the domestic budgets of producers in the Gulf states. In consuming nations, low oil prices are an economic boon stimulating growth and demand.” For the near term, van Beurden pointed to one key forecast that this year will see more worldwide demand than in 2014. “Compared to last year, the International Monetary Fund expects the global economy to grow [in 2015],” he said. “So global oil demand is expected to grow as well.”But he stressed that many oil producers also are reluctant to explore and drill for oil because of smaller profit margins. Therefore, he said, “Supply … may even decline.” As for Shell itself, though, he said, “We’re determined to avoid a start-stop approach to investment.” As for the global market, Van Beurden said that at best, “a rapid recovery could occur if projects are postponed or even canceled. This would lead to less new supply – not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario.”
Strategic Petroleum Reserve No Longer Key Part Of US National Security - The U.S. Strategic Petroleum Reserve (SPR), once seen as a cornerstone of America’s energy security, is losing its shine in Washington. The SPR was established in the aftermath of the 1973-1974 oil embargo, which led to high gasoline prices, fuel rationing, price controls, and long lines at gas stations. The U.S. government decided to stockpile oil in salt caverns in Texas and Louisiana, fuel that could be used in the event of a supply outage. Today, the SPRholds 695 million barrels of oil. When President Barack Obama announced the sale of 30 million barrels following turmoil in Libya that knocked supplies offline and raised oil prices, Republicans were incensed. However, times have changed, apparently. The U.S. Senate reportedly reached a bipartisan agreement this week on a long-term transportation bill that would fund the nation’s highways and transit systems. The problem with transportation legislation is that much of the funding comes from the federal gasoline tax, which, standing at 18.4 cents per gallon, has gone unchanged in over two decades. A combination of inflation and more fuel efficient cars means that the 18.4 cents per gallon tax does not go as far in funding transportation projects as it once did. But with Congress unwilling to raise the gas tax, they are hunting for other sources of revenue to fund the six-year transportation bill. As a result, they have resorted to raiding the SPR. The bipartisan bill reportedly calls for the sale of 101 million barrels of oil from the SPR between 2018 and 2025. Although it is unclear if the bill will pass, what is interesting about the move is that the Senate has shed any pretense of national security with the move to sell off crude from the SPR. The call for the sale of 101 million barrels is being pursued because it will raise an estimated $9 billion for transportation projects. Rather than do what many economists think need to be done – raise the gasoline tax – the Senate has instead decided to abandon a bulwark of U.S. energy security policy put in place four decades ago.
The Crafty Saudis: How They’re Sustaining Low Oil Prices -- I’m writing again about Saudi Arabia’s long game strategy in maintaining its dominance over the global oil market. Part 1 explored the Kingdom’s overall strategy of creating a new “Global Corporate Oil Board” to replace the antiquated OPEC, and Part 2 gave an update on their progress. This piece focuses on a new tactic in the Saudi strategy: shifting some crude from export to refineries. This especially shrewd development is helping keep the Royal Family out front of market developments and in control of the emerging Global Corporate Oil Board. I wrote Part 1 four months ago when people were surprised that the Saudis were leading the effort to create a global glut of oil despite their reliance on oil revenues to secure their state, fund the country’s “private” economy, and wage proxy wars in Syria and Yemen. Four months later, the market is still oversupplied, Saudi production is at the same levels and crude oil has wavered upwards from about $45 then to only $10 higher today (still well below the country’s fiscal break-even price). Two months ago I wrote Part 2, and while conditions hadn’t changed – there was still a glut, prices remained low, the Saudis continued pumping oil and fighting in Syria and Yemen, and the domestic economy hadn’t liberalized or diversified – the Saudis hadn’t changed a thing on their end. The only thing that changed was the American oil industry’s ability to sustain low prices through greater efficiencies. Today, well, these conditions still persist. As I explained in Part 1, the Saudi strategy was to accept that OPEC would never be able to manage the market like it once had and therefore replace it with a new global corporate board that it could manipulate. This time the board would have to include liberal states whose governments did not control domestic production (namely America, but also Canada) as well as countries with state-run industries that didn’t care about anyone but themselves and so wouldn’t likely volunteer to cut production to sustain a global price target because of how reliant they are on the revenue (namely Russia). In order to be able to steer these countries’ oil production, then, the Saudis would have to beat them into submission the free market way: use the Kingdom’s unique swing production capacity to force changes in private market company decision-making in the United States and pin Putin up against the fiscal margins.
Algeria cuts spending as energy revenue forecast falls 50 percent -- Algeria will trim spending in its 2015 budget by 1.35 percent, expecting a slump in oil prices to reduce its energy earnings by 50 percent, the government said on Thursday. Oil and gas account for 95 percent of Algeria's exports and energy revenues make up 60 percent of the budget. The government expects economic growth outside oil and gas to reach 5.1 percent, unchanged from an initial forecast early this year, the cabinet said in a statement. Inflation is expected to be 4 percent in 2015, up from the 3 percent initially expected, it said. The budget is now based on an oil price of $60 a barrel, much lower than the $90 initially anticipated. Oil and gas earnings are expected to drop to $34 billion from the $68 billion earned in 2014, the statement said. Imports are projected at $57.3 billion for this year, exceeding by far exports for the first time. The supplementary budget law sets spending at 7,692 billion dinars, down from 7,588 billion dinars ($112 billion) approved earlier this year. Aiming to avert social unrest, the government has said the drop in energy revenues would affect social programmes. The country, with a population of 40 million, spends heavily on subsidies, including cereals, milk, medicine, cooking gas, electricity and housing. Algeria posted a trade deficit of $7.78 billion for the first half of 2015, compared with a $3.2 billion surplus a year earlier. It imports most goods it needs, including food, medicine and manufacturing parts. Its foreign exchange reserves, usually used to finance deficits, dropped by $19 billion to $159 billion in the first quarter of the year.
With petrodollars also go global reserves -- Izabella Kaminska - US energy independence alongside labour re-shoring is contracting the global pool of petro and sweatdollars and with it the business that is petro/sweatdollar recycling, especially to the EM world. We’ve speculated before that this could create a financing hole that not only slows EM demand and trade, but weirdly enough also leads to the emergence of the petroeuro as the global funding and reserve currency. It’s really only the ECB that in our opinion has the global presence, reputation and gravitas — not to mention the need — to be able to extend its balance sheet to the emerging markets, whilst maintaining the euroeuro shadow/parallel market in check. Whether we’re right or wrong about the euro, one thing’s for certain, the hypothetical eventuality of no more petrodollars is already having an impact on global reserves. Note the following chart from Citi’s Steven Englander this week (our emphasis): As can be seen, a simply massive shift is under way. And it totally ties in with the decline in the oil price. As Englander comments (our emphasis): In our judgment the blue bars are better estimates of what reserves managers are actually buying and selling than the red bar which is the change in the value of their reserves portfolios. The Q2 drop in reserves also matches the sharp drop in EM investor FX positioning that we highlighted in Figure 4 of USD position shift, so the story looks like EM reserve managers selling reserves to partially offset the private sector outflow from EM.In the last decade, the only other period we see clear reserve depletion is the financial crisis (2008 Q4 to 2009 Q1), where we see capital outflow from the EM countries to safe haven assets. EM countries had few alternatives but to sell their FX reserves and buy back their domestic currencies, in order to slow their domestic currency depreciation. Nevertheless, as the period was characterized by strengthening USD, the actual net selling is more subdued than the nominal change.
Greece looks to offshore oil and gas: Greece is in an economic depression. Whether or not it agrees to the ruinous terms imposed upon it by its creditors in order to obtain a bailout, or if Greece opts for a much more uncertain route out of the Eurozone, Greece has years of hardship ahead of it. The government is turning to offshore oil and gas as a potential source of revenues. Greece has almost no oil and gas production to speak of, and has failed in the past to make any major discoveries. But it still holds out hope of large potential reserves located offshore. Under the previous government, Greece proposed tax cuts for oil and gas exploration in order to attract more investment. It also conducted extensive 2D seismic surveying of offshore tracts in the Ionian and Mediterranean Sea between 2012 and 2014, in an effort to improve data on its reserves. On Tuesday, the Greek government said that it had received three bids for offshore oil drilling, to the west in the Ionian Sea and south of Crete in the Mediterranean. There were over 20 blocks up for bid accounting for over 200,000 square kilometers. The Greek government had invited Russian and Chinese companies to bid, but so far the Energy Ministry has not revealed which companies submitted the three bids. To a large degree, Greece's oil and gas fortunes depend on Energean Oil & Gas, the country's only domestic oil producer. Energean is trying to boost production at Greece's only producing field, the Prinos. It just completed a 3D seismic survey of the field, which will help it learn more about what is located beneath. But the field is mature and only produced 1,300 barrels per day in 2014. The company has a multiyear plan to lift that to 10,000 barrels per day,still a paltry sum by global standards.
Oil and gas crunch pushes Russia closer to fiscal crisis - 'Russia is going to be in a very difficult fiscal situation by 2017. By the end of next year there won’t be any money left in the oil reserve fund,' says Unicredit. Russia has fallen into full-blown depression and faces a mounting fiscal crisis as oil and gas revenues plummet. Output from country’s state-owned gas giant Gazprom has collapsed by 19pc over the past year as demand shrivels in Europe, falling to levels not seen since the creation of the company at the end of the Cold War. A report by Sberbank warned that Gazprom’s revenues are likely to drop by almost a third to $106bn this year from $146bn in 2014, seriously eroding Russia’s economic base. Gazprom alone generates a tenth of Russian GDP and a fifth of all budget revenues. It will be several years at best before the country benefits from a new pipeline deal with China. Russia is already in dire straits. The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia’s tax income comes from oil and gas. Core inflation is running at 16.7pc and real incomes have fallen by 8.4pc over the past year, a far deeper cut to living standards than occurred following the Lehman crisis. This time there is no recovery in sight as Western sanctions remain in place and US shale production limits any rebound in global oil prices. “We’ve seen the full impact of the crisis in the second quarter. It is now hitting light industry and manufacturing,”
Europe backs Iran nuclear deal in signal to U.S. Congress - The European Union approved the Iran nuclear deal with world powers on Monday, a first step towards lifting Europe’s economic sanctions against Tehran that the bloc hopes will send a signal that the U.S. Congress will follow. In a message mainly aimed at skeptical voices in the U.S. Congress and strong resistance from Israel, EU foreign ministers meeting in Brussels stressed that there was no better option available. “It is a balanced deal that means Iran won’t get an atomic bomb,” said French Foreign Minister Laurent Fabius. “It is a major political deal.” Ministers left the details of their endorsement until after a U.N. Security Council vote scheduled for 9 a.m. EDT (1300 GMT), but have formally committed to a gradual lifting of sanctions along with the United States and the United Nations. Following the deal in Vienna, Iran has agreed to long-term curbs on a nuclear program that the West suspected was aimed at creating an atomic bomb, but which Tehran says is peaceful. The European Union will retain its ban on the supply of ballistic missile technology and sanctions related to human rights, EU diplomats said. A senior Western official involved in the accord said a combination of limitations and verification was enough to ensure Iran would not obtain a nuclear bomb.
Iran eyes $185 bln oil and gas projects after sanctions -- Iran on Thursday outlined plans to rebuild its main industries and trade relationships following a nuclear agreement with world powers, saying it was targeting oil and gas projects worth $185 billion by 2020. Iran’s Minister of Industry, Mines and Trade Mohammad Reza Nematzadeh said the Islamic Republic would focus on its oil and gas, metals and car industries with an eye to exporting to Europe after sanctions have been lifted, rather than simply importing Western technology. “We are looking for a two-way trade as well as cooperation in development, design and engineering,” Nematzadeh told a conference in Vienna. “We are no longer interested in a unidirectional importation of goods and machinery from Europe,” he said. The United Nations Security Council on Monday endorsed a deal to end years of economic sanctions on Iran in return for curbs on its nuclear program. Sanctions are unlikely to be removed until next year, as the deal requires approval by the U.S. Congress. Nuclear inspectors must also confirm that Iran is complying with the deal. While the Iranian and U.S. presidents have been promoting the accord, hardliners in Tehran and Washington have spoken out strongly against it.
History Shows Iran Could Surprise the Oil Market - Iran could restore oil production halted by sanctions faster than anyone anticipates if the history of previous shutdowns is any guide. The consensus among analysts and traders is that Tehran needs at least a year after sanctions are lifted to raise output to the level prevailing before restrictions were imposed in 2012. Similar pessimistic assessments for supply disruptions at OPEC members Libya and Venezuela were confounded by quicker-than-expected recoveries, according to data compiled by Bloomberg. Here's Venezuelan oil production before and after a strike at state oil company Petroleos de Venezuela SA that started in late 2002: Case study two is Libya's recovery after the civil war that ousted Muammar Qaddafi in 2011: Libyan Civil War The conflict all but halted production and analysts, traders and the Libyan rebels themselves said it would take 18 months to increase output to about 1 million barrels a day. In reality, production surpassed that level in just six months. Wrong-footing the pessimists and delivering an additional one million barrels a day by the middle of next year, as promised by Oil Minister Bijan Namdar Zanganeh, could add to the oil glut, depressing prices further. “We would advise against underestimating the ability of a country to grow its production when it needs dollars,” said Edward Pybus, oil analyst at Exane BNP Paribas in London. The market consensus is conservative and there is “upside” to forecasts of a gradual increase in Iranian output, he said. Advance preparations to restore output may see Iran reach as much as 3.7 million barrels a day within six months, according to Boston Petroleum Research.
Historic Iran Nuke Deal Resets Eurasia's "Great Game" - This is it. It is indeed historic. And diplomacy eventually wins. In terms of the New Great Game in Eurasia, and the ongoing tectonic shifts reorganizing Eurasia, this is huge: Iran — supported by Russia and China — has finally, successfully, called the long, winding 12-year-long Atlanticist bluff on its “nuclear weapons.” And this only happened because the Obama administration needed 1) a lone foreign policy success, and 2) a go at trying to influence at least laterally the onset of the new Eurasia-centered geopolitical order. So here it is – the 159-page, as detailed as possible, Joint Comprehensive Plan of Action (JCPOA); the actual P5+1/Iran nuclear deal. As Iranian diplomats have stressed, the JCPOA will be presented to the United Nations Security Council (UNSC), which will then adopt a resolution within 7 to 10 days making it an official international document. Looking ahead, Iranian President Hassan Rouhani tweeted now there can be “a focus on shared challenges” – referring to the real fight that NATO, and Iran, should pursue together; against the fake Caliphate of ISIS/ISIL/Daesh, whose ideological matrix is intolerant Wahhabism and whose attacks are directed against both Shi’ites and westerners. Right on cue, Russian President Vladimir Putin stressed the deal will contribute to fighting terrorism in the Middle East, not to mention “assisting in strengthening global and regional security, global nuclear non-proliferation” and — perhaps wishful thinking? — “the creation in the Middle East of a zone free from weapons of mass destruction.”
Iran rejects sanctions extension beyond 10 years | Reuters: Iran will not accept any extension of sanctions beyond 10 years, an official said on Wednesday, in the latest attempt by its pragmatist government to sell a nuclear deal with world powers to skeptical hardliners. Abbas Araqchi, one of several deputy foreign ministers, also told a news conference Iran would do 'anything' to help allies in the Middle East, underlining Tehran's message that despite the deal Iran will not change its anti-Western foreign policy. Ayatollah Ali Khamenei, the highest authority in Iran, told supporters on Saturday that U.S. policies in the region were "180 degrees" opposed to Iran's, in a Tehran speech punctuated by chants of "Death to America" and "Death to Israel". Under the accord, Iran will be subjected to long-term curbs on its nuclear work in return for the lifting of U.S., European Union and U.N. sanctions. The deal was signed by the United States, Britain, China, France, Germany, Russia and the EU. The world powers suspected Iran was trying to create a nuclear bomb; Tehran said its program was peaceful. The accord was a major success for both U.S. President Barack Obama and Iran's pragmatic President Hassan Rouhani. But both leaders have to promote it at home to influential hardliners in countries that have been enemies for decades.
US Government Reinstates Arm Sales To Bahrain Despite Rampant Human Rights Abuses -- One of the many destructive myths Americans like to tell themselves is that the U.S. government is a staunch defender of human rights and democracy around the world. In reality, nothing could be further from the truth. Yes its true, there are plenty of well intentioned individuals and organizations across America that do care very deeply about such things; the U.S. government just isn’t one of them. The facts on the ground clearly prove this to be the case. The only thing those in charge care about is raw imperial power and money. Of course, they know this. They also know that keeping the myth alive is extremely important in order to maintain the moral high ground and some degree of legitimacy in the eyes of the public. The most recent example of what a sham the government’s purported commitment to human rights is, was last week’s revelation that the State Department may be prepared to upgrade Malaysia’s trafficking in persons ranking just to move the TPP forward. Here’s an excerpt from the post, To Pass TPP, U.S. State Dept. Upgrades Malaysia’s Human Trafficking Ranking Despite Discovery of Mass Graves: Today, we learn about how the U.S. government has reinstated arm sales to Bahrain despite horrific human rights abuses.
Oil and Coal Indicate the Global Economy is in a Free Fall -- In the US, Coal has become a political hot button. Consequently it is very easy to forget just how important the commodity is to global energy demand. Coal accounts for 40% of global electrical generation. It might be the single most economically sensitive commodity on the planet. With that in mind, consider that Coal ENDED a multi-decade bull market back in 2012. In fact, not only did the bull market end… but Coal has erased ALL of the bull market’s gains (the green line represents the pre-bull market low). For all intensive purposes, the last 13 years were a wash. Those who believe that the global is in an economic expansion will shrug this off as the result if the US’s shift away from Coal as an energy source. The US accounts for only 15% of global Coal demand. The collapse in Coal prices goes well beyond US changes in energy policy. What’s happening in Coal is nothing short of “price discovery” as the commodity moves to align itself with economic reality. In short, the era of “growth” pronounced by Governments and Central Banks around the world ended. The “growth” or “recovery” that followed was nothing but illusion created by fraudulent economic data points. We get confirmation of this from Oil.
China Furious Over Rig Pictures: "What Japan Did Provokes Confrontation" --On Wednesday, we detailed China’s latest maritime dispute with a US ally. Just as the back-and-forth banter and incessant sabre-rattling over Beijing’s land reclamation activities in the Spratlys had died down, Washington and Manila passed the baton to Tokyo in the race to see who can prod the PLA into a naval confrontation first. To recap, Japan apparently believes that China is strategically positioning rigs as close to a geographical equidistance line as possible in order to siphon undersea gas from Japanese waters. Here’s a map showing the position of the rigs and the line which divides the countries’ economic zones: And here are the rigs themselves: Tokyo’s position is that Beijing’s exploration activities violate a 2008 joint development agreement between the two countries. Beijing, on the other hand, "erroneously" believes it has the right to development gas fields located in its territorial waters.As we noted yesterday, Chief Cabinet Secretary Yoshihide Suga’s assurance that the spat would not endanger the slow thaw of Sino-Japanese relations didn’t sound convincing under the circumstances: Sure enough, China has taken the rhetoric up a notch. Reuters has more:Japan's release of pictures of Chinese construction activity in the East China Sea will only provoke confrontation between the two countries and do nothing for efforts to promote dialogue, China's Foreign Ministry said.In a statement late on Wednesday, China's Foreign Ministry said it had every right to develop oil and gas resources in waters not in dispute that fall under its jurisdiction."What Japan did provokes confrontation between the two countries, and is not constructive at all to the management of the East China Sea situation and the improvement of bilateral relations," it said
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