you'll likely recall that last week we reported that Ohio Secretary of State Jon Husted had ruled that charter government proposals in Athens, Fulton and Medina counties could not appear on the November ballot because he felt they were designed to circumvent state law...apparently, his decision isn't the end of the story, because this week a handful of citizens from those 3 counties, backed by the Community Environmental Legal Defense Fund, sued Husted in his official capacity as secretary of state, charging that he can't invalidate petitions residents had signed “because of his particular quibbles over their content and legality”...so the question of these charter government ballot initiatives now goes to the Ohio Supreme court to be decided, where it would seem the odds are still stacked against them; as you'll recall, in the Monroe Falls case brought by Beck Energy, this same Supreme court ruled that local ordinances related to oil and gas drilling in the city were preempted by the 2004 state law that turned the power to regulate gas and oil drilling in the state over to the ODNR, a 4-3 decision which dissenting Justice William M. O’Neill said "was bought and paid for in campaign contributions they received" from the drilling industry...so we shouldn't be surprised to see the court to again rule in favor of the industry that has funded them...
one point of clarification on those initiatives: in talking about these three county charter government proposals, i had assumed they were all brought about for the same reason that Athens county initiated theirs; ie, in order to be able to zone against fracking and the out of state waste water injection wells that Athens county has been inundated with....however, the issue being addressed by Fulton and Medina county is different, in that they want local zoning control over the proposed Nexus pipeline, which we've also written about before...an article this week in the Toledo Blade clarifies that for the Fulton county issue, clearly making it a fight against gas pipelines....Medina county citizens, meanwhile, are engaged in an ill-advised campaign to have the Nexus route moved on to their neighbors to the south...that pipeline should be opposed unconditionally, and politically on the grounds that it is not needed to supply gas to anyone in Ohio, and is only being built to enrich the profits of the Houston company, who would be using it to export Ohio and Pennsylvania natural gas to Canada...
the total count of rigs drilling for gas and oil was little changed once again this past week, as Baker Hughes reported that a net of one rig was added in the week ending August 21st, as rigs drilling for oil increased by 2 to 674, working gas rigs were unchanged at 211, the last miscellaneous rig was shut down...but there was once again a major change in offshore rigs, as 3 were pulled from the Gulf of Mexico this week after 4 were added in the first week of August and 3 were pulled last week...that brings the offshore rig count down to 32, half of the 64 that were drilling offshore during the 3rd week of August a year ago...vertical rigs increased by 3 at the expense of 3 directional rigs, while one horizontal driller was added...that leaves the vertical rig count at 130, down from 366 a year ago, the horizontal rig count at 677, down from last year's 1321, and the directional count at 78, down from the 209 directional rigs that were in use last August 21st...
while the two largest Texas shale basins, the Permian and the Eagle Ford, both saw rig increases over recent weeks, 2 rigs were pulled from both of those basins this week, leaving 253 in the Permian, down from 555 a year ago, and 99 in the Eagle Ford, down from 200 last year...the Barnett shale of north central Texas saw a reduction of 3 rigs, leaving 7, down from 26 that were drilling in that basin a year ago...that left Texas with 383 rigs, down a net 6 for the week, and down 505 from the 888 rigs that were working Texas a year ago...elsewhere, 2 rigs were pulled from the Utica shale, leaving 20, down from 44 last year, and one each were pulled from the Marcellus and the Niobrara chalk, leaving those basins with 52 and 31 rigs respectively, down from 76 and 62 a year ago...meanwhile, 3 rigs were added in the Williston basin, bringing that count up to 73, down from 192 last year, and two rigs were added in the Cana Woodford, the only basin to see a year over year increase, now at 39, up from 33 a year earlier...other than Texas, states with reduced rig counts included Pennsylvania, down 2 to 36, Colorado, down 1 to 37, Louisiana down 1 to 77, and West Virginia, down 1 to 17...meanwhile North Dakota and Oklahoma each added 3 rigs. bringing those totals to 72 and 106 respectively, while Wyoming added 1 to total 25 and Alaska, California, and Kansas each added a single rig, bringing all three states up to 13 active rigs each...
US crude oil output fell this week, but our oil imports were the highest since early April, and with a major refinery idled, that unexpectedly led to the largest increase in our inventories of oil in storage in 4 months, precipitating yet a further crash in the price of oil...US field production of crude oil fell for the third week in a row in the week ending August 14th, from 9,395,000 barrels per day last week to 9,348,000 barrels per day in this week's report...while that was down 2.7% from the modern record of 9,610,000 barrels per day set in the week ending June 5th, it was still 9.6% higher than our output of 8,556,000 barrels per day in the same week last year...our imports of crude oil, meanwhile, rose for the 3rd week in a row, jumping from 7,573,000 barrels per day in the week ending August 7th to 8,038,000 barrels per day in the current report...while that's 2.4% more than the same week last year, our 7.6 million barrels per day average crude imports of the last 4 weeks is still 0.9% lower than the same 4 week period of last year...
however, even with the increased oil supply brought about by that large increase in imports, that oil was not being put to use to the same degree as last week...due in large part to the unexpected August 8 outage at the BP refinery in Whiting, Indiana, the largest BP refinery and the largest in the US Midwest, U.S. crude oil refinery inputs dropped to 16,775,000 barrels per day, from the 17,029,000 barrel per day level of the week ending August 7th...so with greater supply and less refinery throughput, our crude oil inventories in storage rose by 2,620,000 barrels to 456,213,000 barrels in week ended August 14th, 24.3% more oil than the 367,019 ,000 barrels we had stored at the end of the 2nd week of August last year...that was, of course, more than was ever stored anytime in August in the 80 years that the EIA has records for, which had never seen the 400 million barrel inventory level breached before this year...that news of even higher inventories during the summer driving season when inventories usually fall sent oil prices down by 4.8% to a six and a half year low at $40.57 a barrel on Wednesday, and although the expiring September contract price inched up on Thursday on news of the first hurricane of the Atlantic season, oil prices for October delivery crashed again on Friday in the midst of a global market panic, briefly slipping below $40 a barrel, before closing the week at $40.45, capping the longest weekly losing streak for oil prices in 29 years...
so, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil? one reason is the contango trade that we've talked about in the past, 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 pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future...at one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit...but as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December...so for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader...they both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts...
another reason for continued high imports of oil is that we're exporting more refined products than ever before...in the 2nd week of August, our total exports of refined petroleum products averaged 3,884,000 barrels per day, up 10.6% from the 3,512,000 barrels per day we were exporting in the same week last year...but that's also more than double the 1,851,000 barrels per day of refined products we were exporting in August 2009, and more than quadruple the 964,000 barrels per day of refined products we were exporting in August of 2004...we're also exporting more crude oil too, mostly mostly to Canada, where the lighter grades of distillates are blended with tar from the oil sands to produce diluted bitumen, or dilbit, which can then be delivered by pipeline...on a monthly basis, our total exports of crude and petroleum products hit a record 4,943,000 barrels per day in April, more than double the 2,432,000 total exports of April five years earlier...
but the week just ended was somewhat an anomaly, in that with the aforementioned refinery constraints, our total exports did not rise, and our total imports of refined products rose to 2,614,000 barrels per day, up from 1,927,000 barrels per day of refined product we imported just two weeks ago ...that was only the 2nd time in the past two years wherein our refined product imports topped 2.6 million barrels per day, and as a result our total imports of crude oil and petroleum products rose to 10,652,000 barrels per day, for our highest weekly total imports this year...subtracting the 4,460,000 barrels per day of crude and products that we exported this week means our net petroleum and product deficit was at 6,192,000 barrels per day for the week, which was also the greatest excess of crude and products imports over exports that we've seen this year...
but even with all the oil and products that we're importing, there's been an ongoing push by the frackers and their supporters to end the federal ban on crude oil exports, which was instituted in 1975, at a time when our production started to slip and domestic shortages developed...the reason the oil industry wants to export crude, even though we're importing so much, is simple; international oil prices have been running between $5 and $10 a barrel more than US oil prices...so if they're able to sell their crude overseas (Canada and Mexico are exempt from the ban), US prices for oil will quickly jump to the international price, and we'll be paying 10% to 20% more for our oil products than we otherwise would if our market remained protected...a bill to lift the ban has passed the U.S. House, and a similar bill cleared the U.S. Senate Energy Committee in July, and it will probably be taken up when the Congress returns from recess after Labor Day...a new report, published Friday by the Center for American Progress, predicted that US oil production will increase if the export ban ends, and that an average of 26,385 new oil wells would be drilled in the U.S. each year between 2016 and 2030 if the ban is lifted, 7,600 more wells per year than would be otherwise...as a result, an additional 137 square miles of land would be developed for oil each year...over 15 years, that would be 2055 more square miles of oil drilling sites than we'd otherwise see, or a total drilled out and fracked area more than 60% larger than the area of the state of Rhode Island...so if we want to save ourselves from that dystopian future, we'd better start pushing back against the frackers on that export issue now..
PUCO: Not ready for FirstEnergy’s electrical security plan hearing -- Next week, the hearings regarding FirstEnergy Corp.’s security plans begin, and sadly, the Public Utilities Commission of Ohio (PUCO) is not prepared for it. Hearings for the company’s electric security plan case will start at the end of the month to help decide the rates the company can charge customers who rely on a standard power offer. As reported by the Columbus Business First, “Akron-based FirstEnergy’s plan is also notable because it includes the company’s power purchase agreement proposal. Like a similar proposal from American Electric Power Company, it outlines a plan to buy power from its own plants in a long-term arrangement that will ultimately keep the otherwise uncompetitive plants open. The power companies say the proposals, or PPAs, will benefit customers in the long-term.” The way the electric security plan will work is FirstEnergy will cover the expenses “to produce the power at the power plants,” and then pass it along to its customers. However, opponents of FirstEnergy’s PPA claim the utility’s cost projections are incorrect and in the end, its customers will have to pay more for the standard power offer than they would if they purchased their power from an open market. This is the dilemma the PUCO needs to make a decision on.
Lawsuit seeks charter initiative votes in three Ohio counties --Tish O’Dell -- Yesterday, the people of Ohio filed a lawsuit against Ohio Secretary of State Jon Husted, turning to the Ohio Supreme Court for remedy from Mr. Husted’s ruling against the right of citizens to vote on their county charter initiatives. Last week, Mr. Husted nullified that right in a decision supported by the American Petroleum Institute, the Ohio Oil and Gas Association and the Ohio Chamber of Commerce. In his decision, he stated he was "unmoved" by the arguments of Fulton, Medina, and Athens County residents seeking to place their county charter initiatives on the ballot for a democratic vote – despite their meeting administrative requirements. County residents are being inundated by fracking infrastructure projects such as wastewater injection wells and pipelines, and are turning to county charters to protect their own health, safety, and welfare. The Community Environmental Legal Defense Fund (CELDF) assisted residents to draft the county charters, and is representing residents in filing an appeal to the state Supreme Court. James Kinsman, attorney representing the plaintiffs, stated, “The peoples’ right to initiative is being trounced upon by our own elected Secretary of State, who was clearly ‘moved’ by the arguments of the oil and gas industry (perhaps their funding as well), yet not by the very people who elected him. It is the peoples’ constitutional right to vote on our own initiatives. Mr. Husted – elected to serve the people of Ohio – is instead serving the oil and gas industry.” "Secretary Husted has set himself up as Ohio's censorship goalie," said Terry Lodge, co-counsel with Kinsman. "If the 'wrong' idea comes up for a vote, he, alone, can veto to cancel the election. If the Ohio Supreme Court okays this arrangement, look for every future referendum that involves people vs. corporations to disappear through the Husted Loophole in Ohio, the 'bah-no-no' republic."
Charter committees ask state Supreme Court to allow anti-fracking proposals on the November ballot - Charter committees ask state Supreme Court to allow anti-fracking proposals o: Representatives of committees in Athens County and two other Ohio counties seeking passage of anti-fracking county charters are asking the Ohio Supreme Court to order Secretary of State Jon Husted to dismiss protests against the measures and allow them to make the Nov. 3 general election ballots in the three counties. The 10 plaintiffs in the complaint for a writ of mandamus (court order) filed it as an expedited election case, meaning a relatively accelerated schedule for briefs and evidence goes into effect. In a decision Aug. 13, Secretary of State Husted rejected petitions for charter/bill of rights proposals in Athens, Medina and Fulton counties, finding that the provisions in each of the charters relating to oil and gas development represented an attempt to circumvent state law in a manner Ohio courts already have found to violate the state constitution. Husted also ruled that submitted petitions for charter proposals aren’t valid because they “fail to provide an alternate form of government consistent with clear statutory and constitutional requirements…” The Secretary of State was considering the matter as a result of protests against the charter petitions in each of the three counties. In the Aug. 19 complaint for a court order overturning Husted’s decision, the 10 complainants, with representatives of Athens, Fulton and Medina counties, argue that Husted overstepped his authority in upholding the protests against the county charter petitions. They say the Secretary of State is forbidden constitutionally to exercise the power to nullify the charter petitions based on “his particular quibbles over their content and legality.” “Respondent’s (Husted’s) ‘invalidation’ of the three petitions is unconstitutional, arbitrary, illegal and an abuse of his legal authority,” the complaint alleges.
Fracking foes sue Ohio elections chief over ballot ruling - (AP) - Residents of Fulton, Medina (meh-DY'-nuh) and Athens counties have sued Ohio Secretary of State Jon Husted (HYOO'-sted) after he invalidated ballot proposals related to the oil-and-gas drilling technique of hydraulic fracturing, or fracking. The Community Environmental Legal Defense Fund helped the residents file suit Wednesday in the Ohio Supreme Court. They're challenging Husted's decision to remove from Nov. 3 ballots a series of "community rights county charters" that contain bans on fracking-related infrastructure projects. Those include injection wells for disposing of wastewater created in the fracking process. Responding to protests lodged against the measures, Husted said each proposal tried to circumvent state law in a way that courts have ruled violates the Ohio Constitution. The suit alleges he violated residents' guaranteed right to initiative. Husted's office had no immediate comment.
Landowners continue fight against gas pipeline - Toledo Blade — Ohio Secretary of State Jon Husted’s decision to invalidate a Nov. 3 ballot initiative undertaken by residents of Fulton, Medina, and Athens counties has been appealed to the Ohio Supreme Court. Online records show the filing was made Wednesday with the state’s highest court by attorneys James Kinsman of Cincinnati and Terry Lodge of Toledo, who are jointly representing 10 landowners named in the complaint. Three — Renee Walker, John P. Ragan, and Elizabeth Athaide-Victor — are from the Swanton area. In their complaint, the attorneys for the landowners said Mr. Husted “is being sued in his official capacity” as secretary of state and that he is forbidden to invalidate petitions residents had signed “because of his particular quibbles over their content and legality,” adding that his action was “unconstitutional, arbitrary, illegal, and an abuse of his legal authority.” “Since the three petitions [one each for Fulton, Medina, and Athens counties] conform to the structural requirements of statute and have been proffered for their respective county ballots by more than the minimal requisite numbers of eligible electors, they must be subjected to a formal vote on November 3, 2015,” the complaint states. The ballot initiatives were inspired by Ohio’s fracking boom and general opposition to major natural gas pipelines, including a 250-mile line that NEXUS Gas Transmission plans to install across much of Ohio and into southeast Michigan.Landowners gathered signatures to force ballot questions on a “community bill of rights” that would give them more local control over how land is used in their counties.
Ohio SOS in hot water over dismissing unconventional oil and gas ballot proposals - Ohio Secretary of State Jon Husted has been sued by 10 residents of Fulton, Medina and Athens counties after he invalidated hydraulic fracturing ballot proposals. The group is challenging Husted's decision to remove a series of ballot questions that contain bans on fracking-related oil and gas drilling projects, such as wastewaterinjection wells used during the fracturing process. The plaintiffs, represented by attorney Terry J. Lodge and assisted by The Community Environmental Legal Defense Fund, filed the suit with the Ohio Supreme Court on Wednesday. The suit alleges he violated residents' guaranteed right to initiative. On August 3, ballot protests were filed with the Secretary of State’s office from Medina, Fulton and Athens electors. On August 13, the Secretary issued a seven-page decision of all ballot protests. The seven-page decision from the Secretary states: “The petitions must be invalidated on the basis that the petitions fail to provide for an alternate form of government consistent with clear statutory and constitutional requirements, and that state law preempts any authority to regulate ‘fracking’ by political subdivisions of the state, including charter counties.”
Fracking Fight Heats Up in Ohio -- With the oil and gas industry already reveling in a recent Ohio Supreme Court decision stripping local control on fracking and other extraction activities away from communities, the Secretary of State has now handed the industry another victory, opening the door for fracking infrastructure projects to spread even faster across Ohio. In a decision issued August 13, Ohio Secretary of State Jon Husted blocked citizens from voting on Home Rule Charter initiatives which include provisions on fracking infrastructure development. In response to Husted’s decision, this week the Community Environmental Legal Defense Fund (CELDF) filed a lawsuit against the Ohio Secretary of State on behalf of community members in Athens, Medina and Fulton Counties seeking to restore the initiatives to the November ballot. The complaint cites Article X, Section 3, of the Ohio Constitution which codifies the right of the people to vote on local Charter initiatives. Ohio communities are being inundated by fracking infrastructure projects – such as frack wastewater injection wells and pipelines. Injection wells have been tied to earthquakes in Ohio, with fracking activities having major impacts on water quality and global warming. Despite these impacts, Ohio communities have found their state government, rather than helping protect communities from frack injection wells and other infrastructure projects, is instead authorizing corporations to site those projects.
The Utica is getting a billion dollar pipeline system -- When it comes to infrastructure and acquisitions, the Utica and Marcellus Shale formations in the northeast seem to take the cake, and now two huge operators in the Utica are adding to the region’s long list of pipeline systems. MarkWest Energy Partners LP and Marathon Petroleum Corp., which recently shared they will be merging, are building a gathering system together that will transport natural gas from northern Belmont and Jefferson Counties in Ohio. As reported by the Columbus Business First, “The system is pinned on a large commitment from Ascent Resources – Utica LLC, an Appalachian drilling subsidiary of American Energy Partners LP that recently changed its name from American Energy – Utica LLC. Utica shale pioneer Aubrey McClendon founded American Energy Partners in 2013. He’s now involved in legal battles over Ohio land and data disputes.” Currently, Ascent owns an estimated 280,000 acres in the Utica and Marcellus Shale formations. The company has dedicated 100,000 of its acreage to the new pipeline system MarkWest and Marathon will be constructing in Ohio. According to MarkWest, the system, which will consist of over 250 miles of pipeline, has the potential to send nearly 2 billion cubic feet of dry gas per day. The company is hoping to have the gathering system up and transporting by the end of the year.
Expert assesses risk of oil train accident in Pennsylvania -- With as many as 70 oil trains rumbling across Pennsylvania each week, the administration of Gov. Tom Wolf on Monday released a series of recommendations meant to reduce the risk of a catastrophic derailment, including reduced speeds through cities, beefed-up track inspections and a call for trackside communities to plan for an emergency. Wolf has expressed “grave concern” about the trains’ safety in the wake of several fiery crashes. CSX and Norfolk Southern carry huge volumes of crude through Pennsylvania to refineries in Philadelphia and elsewhere. The crude, from the Bakken Shale region of North Dakota, is unusually volatile. A train carrying Bakken crude derailed in Quebec two years ago, causing a fire and explosion that killed 47 people and leveled the downtown. Wolf hired Allan Zarembski, a University of Delaware professor and a specialist in railroad engineering and safety, to identify areas of high risk and to issue safety recommendations. Zarembski’s report, released Monday, contains 27 recommendations, primarily focused on inspection and maintenance of tracks and equipment, routing, speed and emergency planning.
Idea for slowing trains with oil resisted in Pa. - Gov. Tom Wolf wants trains carrying crude oil through Pittsburgh and other high-population areas in the state to stay 5 mph below the federal speed limit of 40 mph, but his office says the two major railroad companies are not looking to slow down. Concerned about the safety of up to 70 trains moving volatile crude through the state daily, Wolf’s office Monday released a report it commissioned from Allan Zarembski, director of the Railroad Engineering and Safety Program at the University of Delaware. Its 27 recommendations include dropping the speed limit, a request made to the companies. The response from Norfolk Southern and CSX has been disappointing, said John Hanger, Wolf’s policy secretary. “In other words, they haven’t agreed to adopt that,” Hanger said during a conference call on the report. Asked about the requests, CSX spokesman Rob Doolittle said the company follows federal regulations. “CSX believes that our current approaches to safely moving crude oil and all freight strikes the right balance among the many factors that contribute to safety for the specific characteristics of our network. Those factors include speed, frequency of inspections, deployment of trackside safety technology, investment in our infrastructure and routing,” he said. Norfolk Southern did not respond to questions about the speed limit.
Susquehanna River Basin Commission's study finds no impacts on streams from Marcellus Shale drilling - The Susquehanna River Basic Commission says it has not found any impacts from Marcellus Shale gas drilling on the quality of water in streams that it has been monitoring, including several in Bradford County. Last month, the commission released a report on the data it collected at water quality monitoring stations over a three-year period in streams in some of the watersheds of the Marcellus Shale region of the Susquehanna River Basin. In 2010, the Susquehanna River Basin Commission (SRBC) began installing the monitoring stations in small, headwater streams in the Susquehanna River Basin to measure impacts on the streams from gas drilling in the Marcellus Shale, according to the report. Fifty-eight stations were installed over a two-year period, each in a different watershed, the report said. Every five minutes, equipment in the stations measured pH, temperature, dissolved oxygen, and other measurements of water quality, and the data was transmitted every two to four hours to the SRBC’s headquarters in Harrisburg. A measurement of radioactivity was taken at the stations four times a year. The stations were intended to look for impacts on the streams from a wide range of gas drilling activities, including hydraulic fracturing and spills, according to the SRBC. After three years of continuous monitoring, the data collected “did not indicate any changes in water quality” from gas drilling activity, according to a press release issued by the SRBC, which accompanied the release of the report.
Illegal Dumping of Fracking Wastewater May Be Linked to Radioactivity in PA Creek, Experts Say -- Recently released testing results in western Pennsylvania, upstream from Pittsburgh, reveal evidence of radioactive contamination in water flowing from an abandoned mine. Experts say that the radioactive materials may have come from illegal dumping of shale fracking wastewater. Regulators had previously foundradioactivity levels that exceeded the U.S. Environmental Protection Agency’s (EPA) drinking water standards more than 60-fold in waters in the same area, which is roughly three miles upstream from a drinking water intake, but those test results were only made public after a local environmental group obtained them through open records requests. At the end of July, the West Virginia Water Research Institute releasedthe results from its tests of water flowing from an abandoned coal mine. “The radiation, together with higher bromide levels than you would expect to see coming out of a deep mine, point to drilling wastewater.” In April 2014, under pressure from local environmental groups, the state Department of Environmental Protection (DEP) had taken samples from the same mine, the Clyde Mine in Washington County, Pennsylvania, as it discharged into 10 Mile Creek, a popular destination for boaters and fishermen. Those tests showed one sample with radioactive materials (specifically radium 226 and radium 228) totaling 327 pci/l at and a second totaling 301 pci/l—in other words, up to 65 times the radium levels that the EPA considers safe in drinking water.
Park says pipeline proposal poses threat to cave's resources - — National Park Service officials are concerned that a company's plan to send natural gas liquids through an aging natural gas pipeline near Mammoth Cave National Park may pose a threat to the cave's ecological systems. The proposal by Kinder Morgan to convert part of its Tennessee Gas Pipeline Co. operations has stirred controversy all year along a 256-mile path through Kentucky, The Courier-Journal reported (http://cjky.it/1JTLB0y). Bobby Carson, chief of science and resource management for the park, said the 70-year-old pipeline may not be safe for carrying the liquids, which if spilled could damage the park's rare natural resources, including a variety of endangered species. In a recent letter to federal energy regulators, park superintendent Sarah Craighead wrote that the Park Service "is concerned about the potential for a catastrophic failure of the ... pipeline" within areas designed to protect endangered cave shrimp and other rare park resources. Kinder Morgan spokesman Richard Wheatley said the company is "committed to public safety, protection of the environment and operation of our facilities in compliance with all applicable rules and regulations."
Oil and Gas Leases Killed Amid Fracking Fears - - The Second Circuit declined Wednesday to resurrect oil and gas leases that expired during New York's years-long moratorium on fracking. Relying on aninterpretation of state law from New York's high court, the appeals court affirmed the 2012 decision of a federal judge in Binghamton that the moratorium did not constitute an event that triggered a clause extending the leases.
"Because we perceive no factual disputes material to the legal question presented, we conclude that the district court correctly granted summary judgment in favor of the landowners," the unsigned opinion from the three-judge panel states. In the early 2000s, energy companies became interested in exploring areas of New York for natural gas trapped deep in the Marcellus Shale, a geologic formation stretching east from Ohio. In Tioga County, located between Elmira and Binghamton close to the Pennsylvania border, energy companies signed leases in 2001 with nearly three dozen landowners to extract gas from their property via fracking. The leases with Inflection Energy, Victory Energy and Megaenergy contained identical habendum clauses - typical in standard oil and gas leases that outline a primary lease term of five years and a secondary term lasting as long as product is taken from the ground. But when the state halted new fracking permits in 2010 until a comprehensive environmental assessment of the technique could be completed, Inflection informed the landowners that the leases' force majeure clause had been invoked - an unexpected event or government action - which extended the primary term of the habendum clause. The landowners disagreed and sued in Federal Court, contending the leases had expired on their own. The energy companies counterclaimed that the state's moratorium was a force majeure event.
Energy Facilities Siting Board takes comments on blueprints for pipeline - Residents and elected officials took the opportunity to voice their displeasure with the proposed Northeast Energy Direct Project, an initiative of Tennessee Gas Pipeline Co., at the Energy Facilities Siting Board public comment hearing Thursday night. The hearing, at Lunenburg High School, gave the Siting Board, a Massachusetts administrative agency, the chance to collect comments and concerns about the project, which is in its pre-filing phase. The proposed natural gas pipeline would cross through the region. Tennessee Gas Pipeline Co. is a subsidiary of energy giant Kinder Morgan. Attorney Robert Shea, a member of the Siting Board, noted that the agency does not have the authority to approve of deny the project, as it falls under the Federal Energy Regulatory Commission's, or FERC, purview. Speakers addressed such topics as global warming, protecting the environment, and the importance of clean energy. Many of them also said the FERC scoping hearings to collect comments -- similar to the one held by the Siting Board -- should be delayed. FERC will hold one such scoping hearing at Lunenburg High School on Wednesday at 7 p.m. Lunenburg Board of Selectmen Chairman Jamie Toale said the Siting Board should intervene on the town's behalf. He noted "this proposal goes against current Massachusetts commitments to renewable energy.
Gov. Hassan urges feds to seek alternative route for gas pipeline - Gov. Maggie Hassan on Friday urged the Federal Energy Regulatory Commission to fully investigate alternative routes for the Kinder Morgan natural gas pipeline, and require developers to “comprehensively address” the questions and concerns of New Hampshire residents. Kinder Morgan is hoping for FERC approval to build a new natural gas transmission line through Southern New Hampshire. The company recently announced another series of open house meetings for New Hampshire residents for the project, which would also have to be approved by the New Hampshire Site Evaluation Committee. In a letter to FERC Chairman Norman C. Bay, the governor requests that FERC require the gas pipeline company to respond to a series of questions related to water and air quality, noise, safety issues and how the company will work with rural communities to enhance emergency response capabilities. Hassan also raised concerns that the project is not needed in New Hampshire, and that any regional benefits will not outweigh the impact on the 17 communities along the proposed route, “The siting of energy transmission projects must strike a balance between potential benefits in reduced energy costs and potential negative impacts. We must work to ensure that the potential negative impacts of the proposed project do not disproportionately outweigh the benefits, particularly for the residents and communities that would bear the burden of hosting the project.” Opponents of the pipeline have been pressuring elected officials to take a tougher stand against the project, after opposition from Massachusetts politicians forced the company to reroute its proposal through Southern New Hampshire last year.
Md. geologists to boost seismic monitoring ahead of 'fracking' - The Maryland Geological Survey, anticipating the possibility that hydraulic fracturing, or "fracking," for natural gas in the Marcellus shale deposits could increase seismic activity, plans to install a seismometer in Western Maryland. Geologists want to gather more data on natural seismic activity before a state moratorium on hydraulic fracturing ends in 2017 and what are known as "induced" earthquakes might begin. Fracking itself has not been linked to the swarms of earthquakes that have erupted in states such as Oklahoma. Geologists blame a process that disposes of briny water and other oil and gas extraction byproducts in deep wells. Maryland's geology is not considered suitable for those wells, though there are many of them in West Virginia and Pennsylvania. But the risk and uncertainty here are great enough that scientists want to know more. Geologists know relatively little about faults beneath the region, which have produced recent earthquakes such as one thatrattled Anne Arundel County this month and another that damaged historic buildings across the Mid-Atlantic in 2011. Another sensor should help reveal more about formations hundreds of millions of years old beneath the eastern United States. The wells have been linked to a rise in earthquakes in Oklahoma, from 109 of at least magnitude 3 in 2013 to 585 last year. In Ohio, scientists linked a spate of 77 earthquakes in March 2014 to two oil and gas operations, prompting the state to halt activity at those sites.
'Hands Across Our Land' action aimed at WV and VA pipelines - (AP) - Opponents of pipelines delivering fracked natural gas are joining together in Virginia, West Virginia and elsewhere in a show of solidarity. The collective action will occur Tuesday during what is called "Hands Across Our Land." In a number of locations, activists opposed to natural gas pipelines will join hands in a show of unity against hundreds of miles of proposed pipelines. Two proposed pipelines would stretch from West Virginia, through Virginia and into North Carolina. They would be delivering natural gas from Marcellus shale fields in West Virginia, Ohio and Pennsylvania. In Virginia, Hands Across Our Land events are planned in Augusta, Floyd, Franklin and Nelson counties, among others, plus Richmond and Roanoke. In West Virginia, activists will join hands in Greenbrier and Monroe counties, among other locations.
Family attacks EOG after water well explosion leaves permanent scars -- EOG Resources and several other companies are facing a lawsuit from a family that suffered damages when their water well ignited into an immense explosion due to methane from nearby fracked wells. Desmog reports that the family of four, including a four-year-old child, her parents and her grandfather, were the victims of an explosion that occurred due to their water supply being tainted with highly flammable gas from nearby oil and gas operations. “Rigorous scientific testing, including isotope testing, has conclusively demonstrated that the high-level methane contamination of the Murrays’ water well resulted from natural gas drilling and extraction activities,” the complaint, filed in Dallas County, Texas, earlier this month, states. Cody Murray, a 38-year old who previously worked in the oil and gas industry, suffered burns to his face, arms, neck and back that were so severe that he was left permanently disabled, according to the report. He is no longer able to drive because nerve damage has left him unable to grip objects properly. Cody’s young daughter, who was over 20 feet away from the pump house when it ignited, suffered first and second degree burns, as did Jim Murray, Cody’s father. The complaint suspects two gas wells drilled by EOG Resources, roughly 1,000 feet away from the Murrays’ water well, as the source of methane. The Texas Railroad Commission has cited EOG for “discrepancies” in legally-required records for the wells’ cement casings. The RRC is currently probing the explosion. The Murray’s lawsuit, which seeks over $1 million dollars to compensate the family for their medical expenses, Cody’s disability and resulting lost job, and the loss of their farm’s water supply, is one of a growing number of legal cases surrounding fracking.
Oil lease sale Wednesday for tracts off of Texas - The federal government on Wednesday will offer 21.9 million acres off the Texas coast to oil and gas developers, though low oil prices are likely to limit interest. The last two comparable lease sales in the western Gulf of Mexico brought $109.1 million last year and $100.1 million in 2012. A March 18 sale in the far more popular central Gulf of Mexico brought the lowest number of bids since 1986. Officials said low oil prices were the reason. Since then, the price of U.S. crude has dropped $1.44 a barrel. The National Ocean Industries Association, an offshore trade group, said in a news release Tuesday that members looked forward to the lease sale “but do not anticipate jaw-dropping results under current conditions.” The group cited low prices, uncertainty over new regulations — including stronger rules proposed for equipment designed to prevent oil well blowouts — and an upward trend in lawsuits over permits and leases.
What’s Behind The Spike In Earthquake Activity Oklahoma Has Seen This Year? -- A little over eight months into the year, Oklahoma has broken a new yearly record for earthquakes. The state recorded its587th earthquake of 3.0 magnitude or higher early this week, breaking the previous record of 585. That record was set for all of 2014, meaning that Oklahoma has now had more 3.0 magnitude or higher earthquakes so far in 2015 than it did in all of 2014. So far this year, E&E News reports, Oklahoma’s averaged 2.5 quakes each day, a rate that, if it continues, means the state could see more than 912 earthquakes by the end of this year. Oklahoma has also experienced 21 4.0 magnitude or greater earthquakes so far this year — an increase over last year, which saw 14. Last year, Oklahoma was the most seismically active state in the lower 48 U.S. states. Its 585 quakes were a major spike from the year before, which saw around 100 earthquakes. In 2014, the state had already surpassed its 2013 record by April. Oil and gas activity is seen as a suspect for this surge in earthquake activity, both in Oklahoma and in other oil- and gas-heavy states that have experienced swarms of earthquakes. From 1991 to 2008, Oklahoma experienced no more than three 3.0 or higher earthquakes a year. Then, in 2009, earthquake activity started to increase in the state — and judging by the records broken in 2014 and 2015, it hasn’t stopped. That increase in earthquakes since 2009 has been tied to hydraulic fracturing operations in the state — specifically, the injection of fracking wastewater into deep, underground wells. If those wells are close enough to fault lines, the activity can trigger the line to slip, which can cause an earthquake.
EPA to Propose Rules Cutting Methane Emissions From Oil and Gas Drilling - WSJ: The U.S. Environmental Protection Agency on Tuesday will propose the first-ever federal regulations to cut methane emissions from the nation’s oil and natural-gas industry, according to people familiar with the move, which is part of President Barack Obama’s climate agenda. The EPA is expected to propose regulations aimed at cutting methane emissions from the oil and gas sector by 40% to 45% over the next decade from 2012 levels, said a person familiar with the plan. That was the goal the agency said earlier this year it would pursue when it first unveiled its plans. The move is part of a broader regulatory agenda Mr. Obama is pursuing as he seeks to make addressing climate change a legacy of his time in the White House. Earlier this month, the EPA issued final rules cutting carbon emissions from power plants 32% by 2030 based on emissions levels from 2005. Tuesday’s announcement reflects the Obama administration’s middle-ground approach toward the oil and gas industry. The Interior Department said Monday it has issued a permit to Royal Dutch Shell PLC to drill for oil and natural gas in the Arctic Ocean, providing the company a long-sought victory and angering environmentalists who say the move runs counter to Mr. Obama’s efforts to address climate change. Meanwhile, with the onset of the fracking boom, concerns over methane, a potent greenhouse gas, have grown within the administration. Methane has a warming effect on the planet more than 20 times greater than carbon dioxide, according to the EPA.
EPA will demand oil and gas to slash methane emissions nearly in half -- On Tuesday, the U.S. Environmental Protection Agency is expected to announce an unprecedented attack on methane emissions from the country’s oil and natural gas industry, according to sources familiar with the regulations. As a part of President Barack Obama’s climate policy, the EPA will propose cutting methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels over the next decade. Neither The Wall Street Journal nor The Huffington Post name the person familiar with the plan. However, the EPA did make announcements in January that aimed at setting up the nation’s first ever methane emission regulations. The new potential policy comes only a few weeks after the president unveiled the Clean Power Plan which set strict limits on emissions from coal-fired power plants. Under this plan, carbon emissions from this sector must meet a 32 percent reduction from 2005 levels by 2030.Energy leaders are sure to push back against the regulations. With the inevitable new expenses needed to capture the escaping emissions, companies will have to work with already restricted budgets due to slumping oil prices. In addition, methane emissions happen at numerous stages in oil and gas production. No one sector, up or down stream, would be solely responsible. Yet, according to EPA studies from late last year, only a small number of natural gas wells are responsible for the majority of the methane gas being released into the atmosphere during production. The reduction of methane, in such a case, would be less of a spread out burden for the industry. Researchers from the University of Texas at Austin found in one test that methane releases into the atmosphere were the lowest in the Rocky Mountain region and the highest along the Gulf Coast.
EPA's proposed new methane rules could have big impact in New Mexico - Northwestern New Mexico’s San Juan Basin, a major natural gas and coal production area, could be a chief target of a proposed federal regulation aimed at dramatically cutting methane gas emissions. The draft regulation rolled out Tuesday by the Environmental Protection Agency seeks to reduce methane emissions related to oil and gas production by 40 percent to 45 percent below 2012 levels within the next decade. The proposal, designed to cut methane emissions from new and modified natural gas wells, pipelines and other processing equipment, is part of the Obama administration’s Climate Action Plan to reduce greenhouse gases that contribute to global warming and climate change. A team of scientists recently found a methane hot spot half the size of Connecticut in the Four Corners area of the San Juan Basin. The hot spot contained some of the highest concentrations of methane in the United States, according to the scientists, who included some from Los Alamos National Laboratory. The hot spot “accounted for 10 percent of all oil- and gas-related methane emissions from the U.S.,” said Manvendra Dubey, one of the Los Alamos climate scientists involved in the study.
Colorado already has methane limits tougher than US proposal - — Strict limits on methane emissions passed a year ago in Colorado mean the state’s energy producers will not be affected by the federal government’s new plan to crack down on the powerful greenhouse gas. The Obama administration announced Tuesday that it would follow through with plans to curb methane emissions from new oil and gas wells. But Colorado’s efforts go even further, applying methane controls to both new and existing wells. Last year, it became the first state to pass limits on the gas from wells. “Our rules put people in position to meet any federal requirements,” said Will Allison, head of the state’s Air Pollution Control Division, which is part of the Health Department. The federal methane announcement was not unexpected. But the administration’s target to cut methane from oil and gas drilling by 40 to 45 percent by 2025, compared with 2012 levels, made national headlines. Colorado officials say federal authorities modeled the methane proposal on the state’s first-of-its-kind rules. Colorado’s regulations trim more than a third of air pollution from volatile organic compounds, which contribute to ozone and include methane. That’s about 92,000 tons a year. Methane, the key component of natural gas, tends to leak during oil and gas production. Although it makes up just a sliver of greenhouse gas emissions in the United States, it is far more powerful than the more prevalent gas carbon dioxide at trapping heat in the atmosphere. Some industry groups say Colorado’s methane rules have been costly and unfair to producers.
Heitkamp: EPA methane rules harmful to Bakken, industry -- Earlier this week the Environmental Protection Agency proposed new standards that would cut methane emissions from the oil and gas industry by 40 to 45 percent by 2025.U.S. Sen. Heidi Heitkamp (D-ND) said, “Energy production and clean air through reduced greenhouse gas emissions are not competing ideals, and efforts to reduce emissions don’t have to hurt our energy industry,” reports the Bakken Magazine. EPA Administrator Gina McCarthy said the standards are meant to bolster responsible energy development, transparency and accountability. As reported by the Bakken Magazine, McCarthy said, “Cleaner-burning energy sources like natural gas are key compliance options for our Clean Power Plan and we are committed to ensuring safe and responsible production that supports a robust, clean energy economy.” In response to the proposed standards, Heitkamp said she will pressure the Obama administration to support bipartisan and “commonsense solutions” which would offer greater reductions of methane emissions. She said, “We can work to reduce methane emissions – and we can do it better by working together toward an all-of-the-above energy strategy that supports our mutual goals of energy independence and reduced greenhouse gas emissions.” Heitkamp supports methods that would hasten the permit approval process for gas-gathering and pipeline projects as a means to reduce flaring.
Uncertain outlook as North Dakota tops 10,000 shale oil wells - North Dakota surpassed a milestone in June — its 10,000th shale oil well — amid a still-gloomy outlook for its petroleum industry. The industry, facing continued low crude oil prices, is finishing off previously drilled wells to get oil and some revenue flowing and to meet regulated completion timetables, state officials said Friday. But the number of rigs drilling new wells declined again. Oil producers using hydraulic fracturing completed 149 oil wells in the Bakken or Three Forks plays in June, bringing the total to 10,113. The state also has more than 2,700 legacy wells from before the shale boom. The new wells increased June’s crude oil output to 1.21 million barrels per day, up 0.7 percent over May, a pace that North Dakota officials hope can be sustained to keep oil tax revenue flowing over the next two years. But Lynn Helms, director of the state’s Division of Mineral Resources, said things could get worse. “Either we are going to have to see some better prices or we are going to see further contraction in the oil and gas industry,” he said on a conference call with reporters for the monthly release of production data.
Feds set timeline to decide on drilling lease near Glacier - U.S. government officials plan to decide this fall whether to take steps to lift the suspension of an oil and gas lease on land sacred to Native Americans or to begin the four-month process of canceling it, according to court documents filed Monday. The timeline for resolving the decades-old suspension of the lease in the Badger-Two Medicine area near Glacier National Park was created after a federal judge ordered the U.S. Department of Justice, Bureau of Land Management and Forest Service to come up with a timeline to complete their review. Baton Rouge, Louisiana-based Solenex LLC sued to lift the suspension and begin drilling this summer on the 6,200-acre oil and gas lease it acquired in 1982. The suspension has been in place since 1993 while federal officials consider the environmental and cultural impacts. U.S. District Judge Richard Leon previously denied Solenex’s request to immediately lift the suspension, but he ordered the government to come up with a timeline to end the delay.
Flying Robots Replace Oil Roughnecks -- Oil rig inspection is a dangerous business. Traditionally roughnecks dangled from a wire, in gale-force winds if needed, to manually log wear and tear on the girders. Assessments include giant chimneys — called flare stacks — that belch fire during million-dollar-a-day shutdowns. Increasingly the industry has found that swapping abseiling humans for small drones equipped with high-definition and thermal cameras can save time, cut costs and improve safety. "These are large metal structures in a big pond of seawater. They will rust a lot, particularly in the North Sea where rigs designed to last 20 years are lasting more than 40. They are continually getting cracks and physical damage from the waves and need to be refurbished and fixed," says Chris Blackford, Sky Futures' chief operations officer. Sky Futures — headquartered in London — is a drone inspection company specializing in the oil and gas industry and counts BP, Shell, Apache, BG Group and Statoil among its clients. It's one of a handful of companies finding commercial applications for drones.
Funds For Fracking Finally Dry Up: One Last Hail Mary Pass Remains -- Is Saudi Arabia on the verge of winning the war on US Shale firms? It appears the spigot of malinvestment-subsidizing liquidity that kept numerous zombie energy firms alive has been shut off almost entirely. As oil prices return to cycle lows, so credit risk has spiked to record highs and issuance of life-giving bonds has collapsed. As Reuters reports, this has opened up opportunities for deep-pocketed private equity firms to push for restructuring or buy assets as many oil companies need cash to replenish banks' slimmed-down lending facilities, service their bonds and finance drilling of new wells to keep pumping oil and sustain cash flow. Credit risk has soared back to record levels... As public market demand for this sector has collapsed... And as Reuters reports, this has pushed Shale firms into the willing-to-deal-at-much-lower-prices private equity business... Throughout much of the crude market rout that started in mid-2014 oil firms could rely on generous capital markets investors betting on a quick recovery in prices, which made any asset sales look unattractive. But since crude prices began tanking again in early July after a partial three-month recovery, oil firms have finally started to feel the squeeze. A torrent of $44 billion in high-yield debt and share sales in the first half of this year has slowed to a trickle with oil now at just above $42 a barrel, 30 percent below its June levels and 60 percent down from June 2014, CLc1 and a more pessimistic view taking hold that global oversupply could keep oil cheap for years.The number of high-yield bond and share issues has tumbled more than two-thirds from levels seen in May, Thomson Reuters data show.
Oil Goes Down, Bankruptcies Go Up – The 5 Frackers Next To Fall (Forbes) With West Texas Intermediate crude now below $42 a barrel, the edifice of America’s oil and gas boom is finally crumbling. The number of companies in bankruptcy or restructuring has increased, and the clouds will only grow darker in the months ahead. Declining revenues, evaporating earnings and shrinking values of oil and gas reserves will put the crunch on oil companies’ ability to refinance loans, let alone borrow new cash or sell shares. Last week two companies showed that having a heroic name is no defense. Hercules Offshore, a Gulf of Mexico drilling contractor, announced it had reached a prepackaged bankruptcy with creditors to convert $1.2 billion in debt into equity and raise $450 million in new capital. While Samson Resources on Friday said it is negotiating a restructuring that will see second lien holders inject another $450 million into the company in return for all the equity in the reorganized company. Samson is the biggest bankruptcy of the oil bust so far, and a huge black eye to private equity giant KKR, which in 2011 led a $7.2 billion leveraged buyout of the company. The deal was a classic LBO: about $3 billion in equity backed by more than $4 billion in debt. It seemed like a good idea at the time. So who will be next next to fall? The list of troubled companies slumping toward Chapter 11 is growing. SandRidge Energy, Goodrich Goodrich Petroleum, Swift Energy, Energy XXI, and Halcon Resources have all lost more than 90% of their market value since 2014, are larded up with too much debt, and would be lucky to survive the bust.
Unplanned refinery outage leads to higher Midwest gasoline prices - Today in Energy (EIA) - On August 8, the BP refinery in Whiting, Indiana, the largest petroleum refinery in the Midwest, experienced an unplanned outage and was forced to reduce production. The BP Whiting refinery has a crude oil distillation unit (CDU) capacity of 413,500 barrels per calendar day (b/d), and it is an important source of gasoline and distillate fuel oil supply to the region. Press reports indicate that the largest of three crude oil distillation units at the refinery was shut down because of leaking pipes, cutting the refinery's total operable CDU capacity by roughly 50%. EIA estimates the loss of gasoline production from that unit to be between 120,000 b/d and 140,000 b/d, based on May 2015 refinery yield data for the region and press reports of the refinery running at 40% capacity. Initial estimates are that it may take BP a month to fix the problem. On news of the outage, the wholesale spot price for gasoline in Chicago, Illinois increased 60¢ per gallon (gal) to $2.47/gal on August 11. Regional spot gasoline prices can be compared to the front month futures contract of reformulated blendstock for oxygenate blending (RBOB, the petroleum component of gasoline) from the New York Mercantile Exchange (Nymex). Spot prices in Chicago went from a 3¢/gal discount to the New York RBOB on August 7 to a 78¢/gal premium on August 11.
Business, oil groups call for end of oil-export ban - Facing low prices and a supply glut, oil industry executives called for an end to a 40-year-old federal ban on crude oil exports during a Billings forum Thursday. Lifting the ban would open new markets for producers and boost the economy in Eastern Montana, panel members told a luncheon group of about 40 at the Crowne Plaza hotel. “The bottom line is that we have a glut of crude in this country, and we need to export. We have too much,” said James McCord of Bay Limited, which manufactures oil field equipment in Billings. The oil-export ban dates back to 1975, when the United States was far behind Middle Eastern nations in oil production and facing domestic shortages. Industry advocates argue that the boom over the last seven years in hydraulic fracturing, or fracking, has increased supply and made the ban obsolete. A bill to lift the ban has passed the U.S. House, and a similar bill cleared the U.S. Senate Energy Committee in July. Last week, the Obama administration gave approval for limited exports of U.S. oil to Mexico, permitted on a case-by-case basis under existing law, according to the Houston Chronicle.
Exporting Oil Overseas Would Come At A Huge Environmental Cost, Report Finds -- Oil exports have been a major topic of discussion in recent months, as the United States has relaxed and considered lifting its long-standing ban on exporting oil to other nations. But a new report outlines exactly how exporting oil overseas would impact the country’s environment, not just in terms of increased carbon emissions but also in terms of the risks posed by transportation and changing land use. The report, published Friday by the Center for American Progress (CAP), lays out the environmental reasons why Congress, which is expected to vote on a bill to lift the oil export ban once it returns to session next month, should seriously examine the environmental downfalls of oil exports. “A hasty decision to outsource U.S. refinery capacity might boost oil company profits, but it would also carry a high environmental price tag and create uncertainty for consumers,” Matt Lee-Ashley, director of the Public Lands Project at CAP and co-author of the report said in a statement. “Congress should carefully weigh the full costs and risks of outsourcing American oil.” The studies CAP analyzed predicted that oil production will increase if the crude oil export ban was lifted. These studies and data showed that an average of 26,385 new oil wells would be drilled in the U.S. each year between 2016 and 2030 if the ban is lifted — 7,600 more wells than would be drilled each year if the ban wasn’t lifted. According to the CAP report, this development means that about 137 square miles of land would be turned over to oil development each year — an area that’s larger than Utah’s Arches National Park.
Brace For More Dividend Cuts As Canada’s Oil Patch Runs Out Of Cash (Bloomberg) Dividend cuts among Canadian energy producers are poised to accelerate as cost reductions fail to boost shrinking cash flow. Companies from Canadian Oil Sands to Baytex Energy are in line for deeper payout decreases, according to analysts, after Crescent Point Energy Corp. slashed its dividend for the first time last week as crude sank to a six-year low. Just 38% of the 63 energy companies in Canada’s Standard & Poor’s/TSX Energy index had positive free cash flow, defined as operating cash flow minus capital expenditures, as of Aug. 17. That’s down from 43% in 2013, data compiled by Bloomberg show. The dwindling cash flow comes even after Canadian companies joined some US$180 billion in global cutbacks this year, the most since the oil crash of 1986, according to Rystad Energy. “. “You can get increased cash flow by cutting costs but that’s not a sustainable model. The idea dividends are a sacred cow, that’s being put on the backburner.” Companies most likely to cut their dividends include Canadian Oil Sands, Baytex and Pengrowth Energy, said Sam La Bell at Veritas Investment. All three have already cut their dividends, though Baytex and Pengrowth will become more vulnerable if oil prices remain low as their hedges begin to roll off as soon as the second half of this year, La Bell said. Canadian Oil Sands, which chopped its payout by 86% in January, may be better off canceling the dividend altogether as it struggles to generate cash, he said. “We know the dividend is important to our investors, but even more so is protecting the long-term value of their investment,” said Siren Fisekci, a spokeswoman at Canadian Oil Sands, in an e-mailed response. “We will continue to consider dividends in the context of crude oil prices and Syncrude operating performance.”
As Canada’s Oil Debt Soars to Record, an Industry Shakeout Looms - Canadian energy companies’ debt loads are the heaviest in at least a decade, boosting concern that some won’t survive the collapse in crude prices. Trican Well Service Ltd., Canada’s largest fracking service provider, said last week it may be unable to continue because it’s in danger of breaching the terms of its debt. It’s the latest firm to see crude’s descent to a six-year low sap the cash flow needed to meet financial obligations. Oil’s plunge has pushed a measure of the average debt burden among Canadian energy firms to the highest since at least 2002, and another measure of their ability to make interest payments to the third-lowest level in a decade, according to data compiled by Bloomberg. Facing some of the highest production costs in the world and carrying more debt than U.S. peers, the Canadian industry has become ripe for acquisitions. Energy companies in the Standard & Poor’s/TSX Composite Index had an average of 3.1 times more debt than earnings as of their latest quarterly report, the highest ratio in Bloomberg data going back to the middle of 2002. That measure, a gauge of a firm’s ability to repay its obligations where a higher number indicates greater difficulty, has surged this year amid the global oil glut that’s depressed prices and earnings. Another ratio, measuring how much greater earnings are than interest expenses, plummeted to the third least in a decade at the end of last year, suggesting there’s less money to service the borrowings. The heavy crude that many Canadian firms pump sells at almost the widest discount in a year relative to the U.S. benchmark. At $24.22 per barrel on Wednesday, the price is below the cost of production for many companies.
Climate Change Is Hurting Oil And Gas Businesses, Too -- Dozens of tar sands developers in Alberta’s tar sands have been suspended from taking water — needed for their operations — out of local rivers, after a low flow advisory was issued. The Alberta Energy Regulator (AER) suspended 73 licenses to temporarily divert water (TDLs) from the Athabasca, Peace, and Wabasca rivers on July 24, after unusually dry weather caused water to fall to at or below healthy maintenance levels. Now, scientists are saying this could become a regular issue for Alberta’s tar sands industry. Tar sands mining is a type of surface mining in which the top layer of organic matter — trees and plants — is scrapped off, and heavy crude oil is filtered from the sand and clay below. Three barrels of water are needed for every barrel of oil extracted from the tar sands, according to Friends of the Earth. “More than 90 percent of this water, 400 million gallons per day, ends up as toxic waste dumped in massive pools that contain carcinogenic substances like cyanide,” the group says. Processing the oil from tar sands is incredibly carbon-intensive, and because of tar sands, the energy sector has become Canada’s biggest source of greenhouse gases. As global warming worsens, some regions, including Alberta, can expect more and more dry summers, scientists say. “This is absolutely a preview of the future,” Simon Dowell, a climate scientist at the University of British Columbia, told ThinkProgress.
Enbridge mid-month apportionment adds to Canada crude woes - Canadian pipeline operator Enbridge Inc is rationing space for mid-month on its line 4/67 ex Kerrobert for August, according to a notice to shippers on Monday that was seen by Reuters. Line 4/67, which is a part of its mainline system, would be apportioned by an additional 5 percent for August, the notice said. The company said on July that line 4/67 nominations were at 29 percent apportionment for August. The mid-month apportionment piles fresh misery on Canadian crude producers, who are already struggling with outright heavy crude prices at their lowest level in at least a decade. Extra rationing of pipeline space means producers cannot ship all their nominated volumes and will likely lead to a buildup of crude in Alberta, putting further pressure on Canadian differentials. “This additional apportionment is a result of numerous unplanned outages, power curtailments, and lower-than-expected rates on the western heavy system in late July and early August,” the company said. Enbridge restarted two key Canadian crude lines last week after they were shut following a crude oil release in Missouri on Aug 11. The discount on Western Canada Select (WCS) heavy blend crude for September delivery last week hit its widest level this year following the pipeline disruptions last week and an ongoing disruption at BP Plc’s Whiting, Indiana, refinery, which is one of the biggest consumers of Canadian crude. September WCS was last trading at $19.35 per barrel below the West Texas Intermediate benchmark, putting the outright price of heavy Canadian crude at $22.52 a barrel.
Judges Nixing Keystone XL South Cases Had Tar Sands-Related Oil Investments - On August 4, the U.S. Appeals Court for the 10th Circuit shot down the Sierra Club’s petition for rehearing motion for the southern leg of TransCanada’s Keystone XL tar sands export pipeline. The decision effectively writes the final chapter of a years-long legal battle in federal courts. But one of the three judges who made the ruling, Bobby Ray Baldock — a Ronald Reagan nominee — has tens of thousands of dollars invested in royalties for oil companies with a major stake in tar sands production in Alberta. And his fellow Reagan nominee in the Western District of Oklahoma predecessor case, David Russell, also has skin in the oil investments game. The disclosures raise questions concerning legal objectivity, or potential lack thereof, for the Judges. They also raise questions about whether these Judges — privy to sensitive and often confidential legal details about oil companies involved in lawsuits in a Court located in the heart and soul of oil country — overstepped ethical bounds. These findings from a DeSmog investigation precede President Barack Obama’s expected imminent decision on the northern, border-crossing leg of Keystone XL. Among the companies listed on Judge Baldock’s financial disclosure located on Judicial Watch’s website for the 2012 reporting year — the year Sierra Club filed its lawsuit — are some with a financial stake in tar sands production. They include ExxonMobil subsidiary XTO Energy, BP, ConocoPhillips, Sunoco and Kinder Morgan subsidiary El Paso Production.The “j” on the forms means a value of $15,000 or less, while “k” means $15,000-$50,000. Russell’s investment portfolio for the 2011 reporting year also included tar sands-related investments in companies ranging from Continental Resources, Plains All American and ONEOK Partners.
Obama administration gives OK to Shell to drill deeper in Arctic - — The Obama administration is giving Shell permission to fully drill an exploratory oil well in the Arctic Ocean and burrow into potential oil-bearing reservoirs thousands of feet below the seafloor that previously had been off limits. The newly modified drilling permit, issued Monday by the Interior Department’s Bureau of Safety and Environmental Enforcement, gives Shell a chance to complete its Burger J well before a Sept. 28 deadline to finish the work. Shell has already been drilling the well for more than two weeks. But BSEE had ordered the company to halt after completing the top 3,000 feet, because critical emergency equipment — and the icebreaker used to deploy it — were not nearby to safeguard the work. That icebreaker, the MSV Fennica,was damaged in Dutch Harbor, Alaska, and sent to a Portland , and sent to a Portland shipyard for repairs. It arrived near Shell’s ongoing drilling in the Chukchi Sea on Aug. 11. “Now that the required well control system is in place and can be deployed, Shell will be allowed to explore into oil-bearing zones for Burger J,” said BSEE director Brian Salerno, in a statement.
President Obama Gives Shell Final Approval to Drill in the Arctic - Yesterday, President Obama said climate change puts Alaska at the “front lines of one of the greatest challenges we face this century,” and yet today he approved Shell’s plans to drill for oil in the Alaskan Arctic. The President cannot have it both ways. Announcing a tour of Alaska to highlight climate change the day before giving Shell the final approval to drill in the Arctic ocean is deeply hypocritical. This approval means the Obama administration is leaving the fate of the Arctic up to Shell this summer. But that doesn’t mean the future of the Arctic has to be in Shell’s hands. While President Obama has made some progress during his term on reducing emissions through measures like the recent Clean Power Plan, his environmental legacy will be determined by the steps that he takes to keep fossil fuels in the ground. The Obama administration should know better than to bend over backwards to approve such a reckless plan. The President has seen how big the movement to save the Arctic and to keep fossil fuels in the ground has become, and it’s only going to get bigger if he doesn’t put a stop to this catastrophic plan.
U.S. approves landmark crude oil export swaps with Mexico - – The Obama administration will allow limited sales of U.S. crude to Mexico for the first time, a senior administration official told Reuters, marking another milestone in loosening a contentious ban on exporting domestic oil. The Commerce Department is “acting favorably on a number of applications” to export U.S. crude in exchange for imported Mexican oil, the official said. Such oil swaps are one of several possible exemptions allowed in the four-decade-old law that otherwise bans most overseas shipments. The approvals come eight months after Mexico formally sought permission for a swap, a historic step for a nation where oil self-sufficiency has long been a source of pride. The shipments, likely to be lighter, high-quality shale oil, will help Mexico’s aging refineries produce more premium fuels. U.S. refiners will continue to get Mexican heavy oil, a better match for them than the deluge of light oil coming from Texas and North Dakota. The licenses, good for one year, will be formally issued by the end of August, the official said. He declined to offer further details on volumes, saying only that the number of approvals was “a handful.” Mexico’s state oil company Pemex said in January it was seeking an exchange of about 100,000 barrels per day, equivalent to only about 1 percent of current U.S. output.
The Latest: Officials: Still interest in Gulf of Mexico oil - Federal and trade group officials say there’s still interest in Gulf of Mexico oil and gas, despite low figures from Wednesday’s lease sale for tracts off the Texas coast. Bureau of Ocean Energy Management official Mike Celata (sel-AH’-tuh) says the bureau is not considering a cut in oil company royalty payments to encourage more bidding. And he notes that the oil business tends to run in cycles. Celata says the 26 bids submitted by BHP Billiton Petroleum (Deepwater) Inc. indicate long-term potential for business in the Gulf. The big bidder in Wednesday’s oil lease sale for tracts off the Texas coast says it’s very pleased with the outcome. BHP Billiton Petroleum bid nearly $16.3 million for 26 of the 33 tracts auctioned Wednesday. Exploration president David Rainey says in an email from London, “In BHP Billiton, we believe that the Gulf of Mexico has significant remaining resource to be found.” He says that the company will invest where it sees potential profit even during hard times for the industry.
New Records Show More US Involvement in Mexico Oil, Gas Privatization Efforts as Mexican Government Says “100%” Its Idea Steve Horn - New records obtained by DeSmog shed further light on the role the U.S.government has played to help implement the privatization of Mexico's oil and gas industry, opening it up to international firms beyond state-owned company PEMEX (Petroleos Mexicanos). Obtained from both the City of San Antonio, Texas and University of Texas-San Antonio (UTSA), the records center around the U.S.–Mexico Oil and Gas Business Export Conference, held in May in San Antonio and hosted by both the U.S. Department of Trade and Department of Commerce, as well as UTSA. They reveal the U.S. government acting as a mediator between Mexico's government and U.S. oil and gas companies seeking to cash in on a policy made possible by the behind-the-scenes efforts of then-Secretary of State Hillary Clinton's U.S. State Department. State Department involvement was first revealed here on DeSmog, pointing to emails obtained via Freedom of Information Act and cables made available via Wikileaks. The records also call into question the claim made by Mexico's Energy Secretary, Pedro Joaquín Coldwell, that the privatization policy was “100 percent made in Mexico.” Coldwell said this in reaction to DeSmog's investigation showing heavy State Department involvement in ushering in the policy. “It is absolutely false that Hillary Clinton or any other United States government entity had anything to do with the Mexican energy reform,” Coldwell stated. If the U.S. government had nothing to with creating the policy architecture to begin with, and its own records tell the opposite story, then it sure is shocking how involved it is now in the attempt to help U.S. companies build their profits from the new policy regime.
Don’t Consider The Environmental Impacts Of Fracking, British Government Tells Locals - The British government has made no secret of its support for fracking. Last year, it opened up bidding for fracking licenses on nearly half the country’s total land area. Now, as those licenses are starting to be issued, the government has warned local councils that applications must be considered in “swift process.” But anti-fracking activism in Britain has only grown. One county already rejected a permit application this month, setting up a battle royale between national government interests and local self-determination. Lancashire County is in northern England, just north of Manchester. In June, the council rejected a permit application from Cuadrilla, a company that intends to explore for oil and gas resources in the area. More than 90,000 people petitioned the council to reject the application, Johnson said. Frack Free Lancashire, Greenpeace, and Friends of the Earth all campaigned heavily against the permit. But Cuadrilla has alreadyannounced that it will appeal the permit, likely on the grounds that the council did not properly consider the issues it is allowed to look at. “The council is only allowed to look at specific aspects with regard to planning: the use of the land, light pollution, air pollution, land use, ecology to a certain extent — whether it is near a site with special scientific interest or natural beauty,” Johnson said. “Waste produced by the site could not be taken into account.” In other words, the decision cannot be a referendum on whether fracking is safe or necessary. Water contamination — which has been a problem in the United States, Johnson noted — is not an acceptable consideration.
Hedge funds aggressively bearish towards U.S. crude – A relatively small group of hedge fund managers has placed a record bet on U.S. oil prices declining further in the months ahead. Hedge funds and other money managers had accumulated gross short futures and options positions totalling 163 million barrels in the main NYMEX light sweet crude contract by Aug. 11, according to data released by the Commodity Futures Trading Commission. The number of gross short positions was up from 59 million barrels on June 2 and closing in fast on the record 179 million barrels set back in March. The number of traders identified by the CFTC as having shorts above the reporting threshold has actually fallen slightly over the same period, from 60 to 57. The number of hedge funds with reported short positions is not especially high and well below the record 84 identified in March. But the average short position has almost tripled since June, from under 1 million barrels to almost 3 million, a record and nearly twice the 1.6 million barrels reported in March.The CFTC data is anonymised to prevent identification of individual traders so it is not possible to know whether the 57 traders with large short positions last week were the same ones as at the beginning of June or a different group. However, it seems safe to assume a relatively small group of hedge funds have made large mark-to-market profits on short positions established more than two months ago which they have yet to close out. The existence of large mark-to-market gains provides a cushion enabling hedge funds to ride out a small and short-term rise in oil prices, if they choose to do so. The shorts are betting continued oversupply, the resilience of U.S. shale production, the end of the summer driving season and autumn refinery maintenance will depress WTI prices further.
Top U.S. hedge funds stayed bullish in second quarter on energy as slump began | Reuters: Top U.S. hedge funds made bullish bets on the energy sector in the second quarter even as companies' shares began a slide toward multi-year lows on concerns about oversupply, regulatory filings showed on Friday. Hedge funds such as Baupost Group, Magnetar Capital and Jana Partners increased or took new stakes in energy shares over the second quarter, a period when the S&P 500 energy index lost 2.6 percent. That decline has since accelerated, with the S&P energy index now down about 13.7 percent for the year, largely reflecting renewed fears of crude oversupply and weak global demand. Two favorites among hedge funds were Cheniere Energy and Pioneer Natural Resources. However, both companies struggled in the second quarter, with Cheniere falling 10.5 percent and Pioneer dropping more than 15 percent. Hedge fund managers had already been overweight the energy sector in the first quarter, expecting oil and gas shares to rebound as the year wore on, but the opposite has happened, even as some of these funds have added to their bets. Seth Klarman's Baupost, which managed about $32 billion at the end of last year, increased its stake in Cheniere by 1.5 million shares, leaving it with a stake of 15.4 million shares that was worth about $1.1 billion at the end of the quarter. The fund also raised its bet on Pioneer by about 900,000 shares to 4.1 million shares, bringing the stake's value to about $564 million at the end of the quarter. The moves were revealed in quarterly disclosures of manager stock holdings, known as 13F filings, with the U.S. Securities and Exchange Commission.
Riskiest End of the Junk Bond Market Just Blew Up - You wouldn’t know by looking at the US Treasury market, which remained relatively sanguine this week, with only a little panic buying on Tuesday. So 10-year Treasuries ended the week near where they’d started it. But at the other end of the spectrum, the riskiest portion of the junk bond market just blew up spectacularly. It didn’t help that the Fed’s cacophony has been pointing at a September rate hike. It would be the first ever in the careers of millennials working on Wall Street. It would bring to an end the 30-year bull market in bonds. Even most middle-aged money managers have not yet experienced the alternative, other than a few short-lived dips and panics. On a visceral level, they simply can’t believe rates can ever rise over the long term. To them, rates can only go down. And oil prices plunged to six-and-a-half year lows, taking out the low set earlier this year, instead of bouncing off it. West Texas Intermediate ended the week at $42.18 a barrel. But in Canada, the benchmark blend Western Canada Select hit a catastrophic C$29.79 a barrel.In Delaware alone, there were 20 Chapter 11 filings this week, including the prepacked bankruptcy of Hercules Offshore and a gaggle of related companies. Risk, which the Fed had so ingeniously removed from the equation, is suddenly rearing its ugly head again. How suddenly? This chart of yields at the riskiest end of the junk bond market – bonds rated CCC and below – shows what happened. These bonds have been selling off over the past 12 months, with exception of the sucker rally earlier this year, and their yields more than doubled from less than 7.9% in June a year ago to 16.2% by Thursday evening. And Thursday was a massacre:
Slip-sliding: Oil could drop to $30 a barrel by end of year - Oil is slippery for a reason. It jumps and plummets. It just doesn’t stay still for long. Once in awhile, the price of oil seems to go up and down almost simultaneously, as it did in 2008. That’s when the price of crude oil hit its all-time high of $147 per barrel in the summer, only to plunge to $32 by the end of the year. Suddenly, it seems like 2008 again. Experts are predicting that oil could fall to $30 a barrel, as the European and Chinese economy tank, along with consumer demand, and the U.S. dollar strengthens. Combined with a glut in supplies, the price of crude oil is tumbling. Last week, it fell it a six-year low, at around $43 a barrel. What that means for motorists, in some parts of the U.S., is gasoline prices below $2 a gallon. The trend is there already, with fuel selling as low as $2.21 a gallon in Mount Pleasant Thursday morning. The lowest prices in the Waterloo-Cedar Falls metro area were ranging from $2.49 to $2.59, compared to a statewide average of $2.63. The trend is for prices to fall as the weather cools down and stations switch to cheaper, winter blends, beginning Sept. 15. In the fall, gasoline production typically slows in the U.S., as oil refineries undergo maintenance. Shorter supplies generally create price increases, but demand also goes down as the traditional summer driving peak season ends. This year, falling demand is predicted to outweigh declining supplies, adding more downward pressure on prices, experts say.
No Let Up In Pressure On Oil Prices: Oil prices once again dipped to new six-year lows on August 17, with WTI falling below $42 per barrel and Brent trading below $49. Low oil prices continue to inflict damage on oil producers around the world. Canada’s stock market is continuing its downward trajectory. The ruble, is nearing a six-year low and Russia’s GDP is expected to contract by 3.6 percent this year. Saudi Arabia isn’t doing quite as bad, but its economy is expected to grow at an annual rate of 2.8 percent this year, down from the 3.5 percent pace exhibited in 2014. Riyadh has also had to step up spending and borrowing to compensate for lower oil revenues. The markets started the week with a few more bearish pieces of news. North Dakota reported a slight uptick in oil production for the month of June, undermining hopes that a deeper pullback in production would slow the slide in oil prices. Also, Japan reported that its economy actually contracted in the second quarter As one of the world’s largest crude oil consumers and importers, Japan’s figures induced a slight sell off for oil. Finally, the U.S. dollar has appreciated a bit in recent days, making commodities more expensive for other currency holders. For oil prices, there is little relief in sight for the near term.
What is the price of oil telling us? -- Market fundamentalists tell us that prices convey information. Yet, commodities such as oil--which reached a six-year low last week--stand mute. To fill that silence, many people are only too eager to speak for oil. And, they have been speaking volumes. So much information in that one price! First, as prices fell last year when OPEC refused to cut its oil production in the face of slowing world demand, the industry kept saying that it could continue to produce from American tight oil fields at around $80 a barrel and be profitable. Then, as prices fell further, the industry and its consultants assured everyone that while growth in tight oil production would slow, it would still be profitable for the vast majority of wells planned. Petroleum geologist and consultant Art Berman is probably the best representative from the skeptical camp. For many years Berman has been pointing to the high cost of getting fracked oil out of the ground. And, those costs led to negative free cash flow for most tight oil operators for several years in a row--that is, they spent considerably more cash than they took in, making up the balance with debt and stock issuance. Not surprisingly, the operators took that money and kept drilling as fast as they could. It was a recipe for oversupply and a crash, one that is now threatening the solvency of many fracking-dependent U.S. oil companies. Not to worry. Two major international oil companies, Chevron and Exxon, declared back in December that $40-a-barrel oil won't be a problem for them. One of the sources cited was Exxon CEO Rex Tillerson whose company has had trouble replacing its oil reserves for more than a decade at much higher average prices. In fact, oil majors have been cutting exploration budgets since early 2014 when oil prices were still hovering above $100.
What's happening in the oil market right now is 'unprecedented' -- The price of oil has collapsed again. And now the oil market is looking at a future that is "unprecedented." In a note to clients this week, analysts at Goldman Sachs took a look at the market and the supply glut that has been blamed for the collapse in oil prices over the last year. And as Goldman sees it, quite simply, the rules of the market have changed. "The market structure of the New Oil Order is unprecedented," the firm writes, adding that the balance of power between the market's largest and smallest companies has changed. In the past, large integrated oil companies — like BP and Exxon Mobil — and state-owned oil companies have owned the more efficient, low-cost production while smaller oil companies faced higher barriers to entry. In the past, drilling oil necessarily required huge investments in platforms and equipment; massive balance sheets or state backing were virtually required to get into the market. But with lower-cost fracking technology, this has changed. And as a result, oil supply continues to run into the market as fracking companies are able to produce oil cheaply and shut down wells quickly when they become unusable or unprofitable. And oil majors have noticed. In a note to clients this week, analysts at Credit Suisse noted that ConocoPhillips and Total have both said the cost of production for US shale will fall 30%, and that 80% of shale oil produced will make financial sense to produce with prices below $60 a barrel at the end of this year. The oil-futures market projects oil prices will bounce back to near $70 a barrel. Credit Suisse also notes that, despite the massive drop in the US oil rig count, production has remained steady. Meanwhile, large oil companies or countries that depend on oil revenue to meet spending commitments have continued pumping oil because they still need to bring in that revenue, almost regardless of price. This is part of why we've seen OPEC, the 12-member oil cartel led by Saudi Arabia, maintain its daily production target twice during the sharp downturn.
The Peak Oil Crisis: A $4 Trillion Hole -- Last week reporters at the Wall Street Journal sat down and did some arithmetic. They looked at how much oil was selling for in the spring of 2014 (over $100 a barrel); looked at what it is selling for today (under $50); and concluded that if prices stay low for the next three years, the global oil industry and the countries it finances will be out $4.4 trillion in revenues. As these oil companies, nationalized and publically traded, will be producing roughly the same amount of oil in the next few years, the $4 trillion will have to come mostly out of profits or capital expenditures. This is where the problem for the future of the world’s oil supply comes in. The big oil companies, especially those that export much of their production, have been doing quite well in recent years. National oil companies have earned vast profits for their political masters. Publically traded ones have developed a tradition of paying out good dividends which they are loathe to cut. This leaves mostly capital expenditures on exploring for and producing more oil in coming years to take a dive as part of the $4 trillion revenue hit. Even if oil prices of $50 a barrel or less do not continue for the next three years, this still works out to a revenue drop of $1.5 trillion a year or about three times the planned capital expenditures of some 500 oil companies recently surveyed. The International Energy Agency just came out with a new forecast saying that while current oil prices have the demand for oil products increasing rapidly, there is still so much over-production that the oil glut is expected to last for another year or more before supply/demand comes back into balance. The return of Iran to unfettered production would not help matters.
What might prompt a short-covering rally in U.S. oil price? --Hedge funds remained unusually bearish on U.S. oil prices last week even as the cost of WTI tumbled towards the lowest level since 2009. Hedge funds and other money managers held short positions in WTI-linked futures and options equivalent to more than 193 million barrels of oil, according to the U.S. Commodity Futures Trading Commission. Money managers had never held a short position that large before, except for a brief period in March, when U.S. crude stockpiles were rising fast and there were fears storage space would run out. More hedge funds expect prices to rise than the number predicting a fall, and the oil bulls have a larger position overall, amounting to nearly 310 million barrels. But the ratio of hedge fund long to short positions in WTI is just 1.6:1, down from 4.6:1 in the middle of May, and the lowest in almost five years. The ratio is very bearish, given the long bias of commodity-focused money managers (most investors want to participate in a specialist commodity fund because they think prices will rise, otherwise they will invest elsewhere). In May and June 2014, prior to the beginning of the price crash, the hedge fund long-short ratio peaked at over 14:1.
API crude oil inventories: -2.3mln barrels: American Petroleum Institute (API) crude oil inventories for the week to August 14 An inventory drawdown according to API
- Weekly crude stocks down 2.3 million barrels
- Weekly crude stocks at Cushing up 389K barrels
That draw is much higher than expectations. Oil popped a few cents on the 4.30pm release but is more or less unchanged a few minutes later. If it can't go higher on a big drawdown like this its likely a bearish sign. - Note - This data is out earlier to API subscribers (at 4.30pm ET) and released publicly at 4.35pm ET. The API data is closely watched as a guide to the U.S. Energy Information Administration (EIA) data due tomorrow morning (US time). The consensus estimate for tomorrow's EIA report is currently for a drawdown of 354K barrels.
U.S. crude stocks rise, gasoline draws down as refining slows (Reuters) – U.S. crude oil inventories rose and gasoline stocks fell last week as crude imports surged while refinery problems cut runs during the summer driving demand season, data from the Energy Information Administration (EIA) showed on Wednesday. Crude inventories rose 2.6 million barrels to 456.21 million in week to Aug. 14, compared with analysts’ expectations for a decrease of 777,000 barrels. U.S. crude imports rose last week by 465,000 barrels per day (bpd) to 7.46 million bpd. “The report is bearish, with the focus squarely on crude oil and the large increase in overall inventories, due mostly to a surge in imports,” U.S. oil prices extended losses to a fresh 6-1/2-year low after the report. U.S. September crude was down $1.85 at $40.77 a barrel at 11:41 a.m. EDT (1541 GMT), having fallen to $40.60, the lowest front-month price since March 2009. The September contract expires on Thursday. Brent October crude was down $1.81 at $47.00 a barrel. “This week’s EIA data reaffirms the bearish fundamentals that continue to mount,” “Couple that with the stronger dollar and weakness out of China, and it’s a recipe for lower prices ahead for crude,”
Crude tumbles to six-year low after US supply gain - Oil plunged Wednesday to the lowest level in more than six years in New York after a government report showed that U.S. crude stockpiles increased unexpectedly. West Texas Intermediate slipped as much as 5.1 percent after the U.S. Energy Information Administration said crude supplies rose 2.62 million barrels last week. An 820,000-barrel decline in the stockpile had been projected by analysts surveyed by Bloomberg. Crude imports surged to the highest level since April as refineries reduced operating rates. Oil has tumbled more than 30 percent since this year’s peak close in June amid signs that producers are maintaining output even after a surplus pushed prices into a bear market. WTI could drop to $32 on the persisting global surplus, Citigroup Inc. said in a report Wednesday. “Today’s inventory build was another catalyst to move lower,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “The build was completely unexpected and the surge in imports was impressive.” WTI for September delivery, which expires Thursday, dropped $2.05, or 4.8 percent, to $40.57 a barrel at 1:37 p.m. on the New York Mercantile Exchange. Prices touched $40.46, the lowest since March 2009. The more-active October contract slipped $2.10 to $41.02.
Weekly Crude Inventory Increases More Than Expected: U.S. crude oil refinery inputs averaged about 16.8 million barrels per day during the week ending August 14, 2015, 254,000 barrels per day less than the previous week’s average. Refineries operated at 95.1% of their operable capacity last week. Gasoline production increased slightly last week, averaging over 10.2 million barrels per day. Distillate fuel production decreased last week, averaging about 5.1 million barrels per day. U.S. crude oil imports averaged over 8.0 million barrels per day last week, up by 465,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.6 million barrels per day, 0.9% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 869,000 barrels per day. Distillate fuel imports averaged 201,000 barrels per day last week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.6 million barrels from the previous week. At 456.2 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 2.7 million barrels last week, and are in the middle of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 0.6 million barrels last week but are in the middle of the average range for this time of year. Propane/propylene inventories rose 1.1 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 0.8 million barrels last week.
Crude Tumbles After Biggest Inventory Build In 4 Months Despite Largest 4-Week Production Drop In 2 Years -- Following last night's API inventory 'draw', DOE reported a much larger than expected build of 2.62 million barrels in crude inventory - the biggest weekly build since April. WTI Crude prices are tumbing on the news. However, it is worth noting that US crude production fell for the 3rd wek in the last 4 to its lowest in over 3 months. This is the biggest 4-week production decline since Oct 2013. Despite the 3rd week in the last 4 of production declines... This is the biggest 4-week decline since Oct 2013. Crude prices are not helped by the fact that (as Bloomberg reports) Angola will export the most crude in almost four years in October as the OPEC member satisfies Asian demand and offsets diminished revenue from lower oil prices. Africa’s second-largest producer plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg. This compares with 1.77 million barrels a day in September.
US oil imports rise as contango encourages storage – U.S. crude imports topped 8 million barrels per day (bpd) last week for only the second time this year, spurring an unexpected rise in stockpiles and sending U.S. oil prices down to a fresh post-crisis low. The United States imported 56.3 million barrels of crude in the week ending Aug. 14, up from 53.0 million barrels the week before, according to the U.S. Energy Information Administration. The difference is equivalent to the arrival of between one and two very large crude carriers (VLCCs), tankers that can carry up to 2 million barrels each. Higher imports largely accounted for the reported 2.6 million barrel increase in commercial crude stocks, though refinery processing also slipped as a result of problems at BP’s Whiting refinery in Indiana. Increased imports are not particularly surprising since refiners and traders currently have a strong incentive to maximize the amount of crude in storage. The contango in futures prices implies the market will pay around 75 cents per barrel per month to store oil in the United States between September and December. At one point last week, the fourth-quarter contango was running at almost $1 per month, far above the cost of leasing tank space and financing the inventory. Refining margins for turning crude into gasoline have softened in recent days but remain at some of the highest levels in the last decade. Refiners can earn around $17 per barrel for converting every barrel of imported oil into gasoline, up from about $11 this time last year, before operating costs, depreciation and taxes. There is an enormous incentive for refiners to stock up on relatively cheap crude, maximize sales of expensive gasoline, and hedge to lock in the generous refining margin.
Oil sinks to $40, logs longest weekly losing streak in 29 years - – U.S. oil prices dived again on Friday, threatening to dip below $40 a barrel for the first time since the financial crisis and notching their longest weekly losing streak since 1986, as a drop in Chinese manufacturing rattled global markets. World stock and currency markets joined an extended rout across raw materials this week, a slump accelerated on Friday by data showing activity in China’s factory sector shrank at its fastest pace in almost 6-1/2 years in August. With deepening gloom over demand growth from the world’s second-biggest oil user, and expectations for a significant build-up in surplus oil stocks this autumn, dealers said most oil traders were unwilling to fight the tide. “The market is stuck in a relentless downtrend,” said Robin Bieber, a director at London brokerage PVM Oil Associates. “The trend is down – stick with it.” U.S. October crude fell $1.02, or 2.5 percent, to $40.29 a barrel by 11:22 a.m. EDT (1522 GMT), having touched a new 6-1/2-year low of $40.11 a barrel earlier. Front-month U.S. crude has fallen 33 percent over eight consecutive weeks of losses, the longest such losing streak since 1986.
Weekly US Oil and Natural Gas Rig Count Up by 1 to 885 - — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. this week increased by one to 885.Houston-based Baker Hughes said Friday 674 rigs were seeking oil and 211 explored for natural gas. A year ago, 1,896 rigs were active.Among major oil- and gas-producing states, North Dakota and Oklahoma each gained three rigs and Alaska, California, Kansas and Wyoming each gained one.Texas lost six rigs, Pennsylvania declined by two and Colorado, Louisiana and West Virginia each lost one.Arkansas, New Mexico, Ohio and Utah were unchanged.The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.
Oil rig count climbs for 5th straight week -- The oil rig count climbed again this week, according to driller Baker Hughes. Producers brought 2 oil rigs online, taking the total count to 674. The gas rig count was unchanged at 211. Last week, oil rigs climbed for a fourth straight week, also by 2. Shortly after the release, West Texas Intermediate crude fell below $40 per barrel for the first time since 2009. With oil under $40 per barrel, markets remain sensitive to any signals that the supply glut is worsening. Here's the latest chart showing the rig count:
WTI Crude Breaks Below Historic $40 Level, Energy Credit Spikes To Record Highs After Rig Count Rise -- Well, we have a winner - Oil broke to a 3 handle before 10Y rates hit a 1 handle (just - 10Y at 2.04%) following the 5th weekly rise in rig count (+2 to 674). Energy credit risk is soaring to record highs as investors realize 'there will be blood' in all those highly-levered loans. This is the first time the front-month crude contract traded below $40 since March 3rd 2009... just before QE was unleashed in all its asset-inflating, malinvestment-driving, zombifying glory. This didn't help: *Saudis Likely to Keep Output Near 10M B/D Through 2016: BARCLAYS. And then the rig count data hit..
U.S. Oil Prices Hit Fresh Six-Year Low, Dipping Below $40 a Barrel - WSJ: The price of oil in the U.S. slipped below $40 a barrel Friday for the first time since 2009 amid a growing consensus that cheap crude is here to stay. Oil investors and forecasters, who predicted early in the year that prices would recover in the second half of 2015, now say a rebound is unlikely before the second half of next year or 2017. U.S. government forecasters last week cut their oil-price estimates and see oil holding below $60 a barrel, on average, through 2016. The shift in sentiment is partly due to the resilience of U.S. oil producers, who are continuing to pump crude at near-record levels despite months of spending cuts, thanks to new efficiencies in drilling technology. An unexpected price rally in the second quarter allowed some companies to lock in profitable prices for next year and add new drilling rigs. In intraday trading, the benchmark U.S. oil price tumbled as low as $39.86 a barrel on the New York Mercantile Exchange. The futures price later pared losses to finish at $40.45 a barrel, down 2.1%, or 87 cents, on the day. Brent crude, the global benchmark, fell $1.16, or 2.5%, to $45.46 a barrel on ICE Futures Europe. The trades below $40 occurred after oil-field-services company Baker Hughes reported that the number of rigs drilling for oil in the U.S. rose for the fifth straight week.
No End in Sight for Oil Glut - WSJ: When oil prices started to edge down a year ago, most energy mavens thought the drop would be small and short-lived. Instead, the price of crude has plunged by about 60% from its 2014 peak—and suddenly looks likely to stay low for months and maybe years to come. The reason: In the global battle for market share, nobody has backed down. Nobody has even blinked. Not Saudi Arabia, not the U.S., and not even troubled producers from Russia to Iraq. Everyone who can seems locked into pumping as much oil as possible. Far from going out of business, American oil companies have stunned their global rivals by maintaining or even adding production as U.S. prices nose-dived from $100 a barrel to $70 late last year to, as of Friday, just above $40. Even more surprisingly, the Saudis have actually increased their production in the face of falling prices, in what analysts say is a pre-emptive effort to keep competitors like Iraq from stealing customers in Asia. The result is the energy-industry version of trench warfare, with producers all trying to gain an inch of market share no matter the cost. And it is producing winners and losers around the world, luring American drivers into gas-guzzling pickup trucks while sending the Venezuelan economy into chaos. While it might make sense for producing countries or companies to cut back and erase the glut, there is no political will or business rationale to do so, analysts say, as all participants need to keep cash coming in.
Is The Oil Crash A Result Of Excess Supply Or Plunging Demand: The Unpleasant Answer In One Chart - One of the most vocal discussions in the past year has been whether the collapse, subsequent rebound, and recent relapse in the price of oil is due to surging supply as Saudi Arabia pumps out month after month of record production to bankrupt as many shale companies before its reserves are depleted, or tumbling demand as a result of a global economic slowdown. Naturally, the bulls have been pounding the table on the former, because if it is the later it suggests the global economy is in far worse shape than anyone but those long the 10 Year have imagined. Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.
Default Wave Looms As Energy Sector Credit Risk Surges To Record High -- With oil prices pushing cycle lows and Shale firms as loaded with debt as they have ever been, the spike in energy sector credit risk should come as no surprise as the hopes of the last few months are destroyed. At 1076bps, credit risk for the energy sector has never been higher. As UBS recently warned, more defaults are looming and, as we discussed this week, private equity is waiting to pick up the heavily discounted pieces. As we noted previously, as for the defaults well, they’re on their way UBS thinks, as evidenced by recent events such as American Eagle Energy’s “Movie Gallery” moment: Where are the defaults? They're coming: we've seen Quicksilver Resources and Dune Energy, are likely to see American Eagle Energy, RAAM Global Energy, Venoco and thereafter perhaps Connacher Oil & Gas, Samson and Sabine Oil & Gas. Most E&P firms had hedges in place for 2015; defaults typically lag by about 12 months and the clock started ticking late last year. Recapping, periods of QE in the US saw US HY supply surge 50% above normal levels as issuers sought to take advantage of lower borrowing costs and investors clamored for the relatively higher yields they could get by taking on more credit risk. More recently, struggling oil producers have tapped the market in an effort to stave off insolvency as crude prices plummet, leading directly to a situation where outstanding HY energy bonds account for a disproportionate share of all outstanding debt in the space. With rates set to rise later this year, with crude prices likely to stay depressed for the foreseeable future, and with suppressed liquidity in the secondary market for corporate credit poised to bring heightened volatility, the stage may be set for a high yield meltdown.
Angola to Ship Most Crude in Four Years to Meet Asian Demand - Angola will export the most crude in almost four years in October as the OPEC member satisfies Asian demand and offsets diminished revenue from lower oil prices. Africa’s second-largest producer plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg. This compares with 1.77 million barrels a day in September. Angola slashed its budget by a quarter in response to the slump in crude prices, which have lost more than 50 percent in the past year. The African nation’s bid to recapture revenues is supported by demand in China, the world’s second-biggest oil-consumer, which imported near-record levels of crude in July. “Angola continues to profit mainly from Chinese demand, in addition to some demand from India and Indonesia,” Angolan shipments will appear especially attractive to buyers in India and China because of the current price relationship between West African supplies and Asia’s regional crude benchmark, Dubai-Oman.
Study: Brazil Offshore Subsalt Holds 176 Billion Barrels Of Oil, Gas (Reuters) - Brazil's Subsalt Polygon, an offshore area that has already yielded some of the world's largest recent oil finds, may hold enough undiscovered petroleum and gas to supply the world's current oil needs for more than five years, researchers said. The Polygon, which covers most of Brazil's Santos and Campos offshore sedimentary basins, contains at least 176 billion barrels of undiscovered, recoverable resources of oil and natural gas (barrels of oil equivalent), according to study released last week by Cleveland Jones and Hernane Chaves of the National Institute of Oil and Gas (INOG) at Rio de Janeiro-State University. That is more than four times the 30 billion to 40 billion boe already discovered in the area. "This is a conservative estimate with a high probability of coming true, 90 percent in fact," Jones said. "In theory, total undiscovered, recoverable resources in the Subsalt Polygon could be as high as 273 billion barrels, but the higher number only has a statistical certainty level of 10 percent." Recoverable resources are exploitable using current technology, but may not be viable depending on the price of oil, the cost of equipment and the financial health of the companies that own the rights to produce them. Resources can only become reserves if they economically exploitable.
Foreign firms scramble to fix Iran's refineries once sanctions end – International oil services companies are scrambling to win contracts worth tens of billions to repair and modernize Iran’s oil refineries once sanctions are removed, with officials even laying on bus tours for visiting foreign executives. Officials from Iran’s oil refining company NIORDC, its National Petrochemical Company and the privately owned Persian Oil and Gas are holding talks with services firms to clinch projects to repair Iran’s derelict refining and petrochemical sector. Iran badly needs to complete modernisation plans that ground to a halt after sanctions hit the country five years ago over its nuclear program. The projects are worth at least $100 billion, according to sources close to firms that have held talks in Iran. The talks accelerated after a nuclear agreement between Tehran and world powers in July paved the way to lifting sanctions. Sources close to the talks said Iran is moving forward with its pre-sanctions goal to refine more of its own oil and upgrade its petrochemical plants, with a view to boosting earnings. Iranian officials have already held meetings with a string of international companies to outline their plans, and even organized group bus tours for service companies to visit refineries, according to industry sources.
No, AP, Iran doesn’t get to Inspect its own Nuclear Facilities under Deal --Eminent Iran and security expert Gary Sick pointed out in an email late Wednesday that the Associated Press just ran a shamefully inaccurate story alleging that under the UN Security Council deal with Iran, Iran would carry out some of the inspections of their own “sensitive sites.” The accord actually provides for the inspectors of the International Atomic Energy Agency always to be present at such inspections. The reason for the presence of Iranian experts is that there is a long history of outside nuclear teams being sent in by the Great Powers for espionage. I.e., the Iranian inspectors are there to keep an eye on the UN inspectors, not to cover up Iranian activities (to which the IAEA will have full access). The 1990s UN inspections of Iraq were infiltrated, for instance, by US intelligence.
Low Oil Prices Could Break The “Fragile Five” Producing Nations -- Persistently low oil prices have already inflicted economic pain on oil-producing countries. But with crude sticking near six-year lows, the risk of political turmoil is starting to rise. There are several countries in which the risks are the greatest – Algeria, Iraq, Libya, Nigeria, and Venezuela – and RBC Capital Markets has labeled them the “Fragile Five.” Iraq, facing instability from the ongoing fight with ISIS, has seen its problems compounded by the fall in oil prices, causing its budget to shrink significantly. The government is moving to tap the bond markets for the first time in years, looking to issue $6 billion in new debt.Revenues have been bolstered somewhat by continued gains in production. Iraq’s oil output hit a record high in July at 4.18 million barrels per day, up sharply from an average of 3.42 million barrels per day in the first quarter of this year. But with Brent crude now dropping well below $50 per barrel, Iraq’s finances are worsening. According to Fitch Ratings, Iraq may post a fiscal deficit in excess of 10 percent this year, and all the savings accrued during the years of high oil prices have been depleted. Low oil prices could also push Venezuela into a deeper crisis. The cost of insuring Venezuelan government bonds has hit its highest level in 12 years, indicating the growing probability of default. For Libya, already torn apart by civil war and the growing presence of ISIS militants, low oil prices are the last thing the country needs. ISIS violently crushed a civilian rebellion last week in the coastal city of Sirte, according to Al-Jazeera. Libya’s internationally-recognized government has called upon Arab states for help in fighting ISIS, something that the Arab League has endorsed. Meanwhile, the country’s oil sector – the backbone of the economy – is producing less than 400,000 barrels per day, well below the 1.6 million barrels per day Libya produced during the Gaddafi era. In other words, Libya is selling far less oil than it used to, and at prices far below what they were as recently as last year.
The Wrong Iraq Question -- As is in vogue these days in GOP circles, John Hinderaker asks Who Lost Iraq? And, of course, he answers: the Obama administration. Hinderaker’s evidence is an excerpt from Lindsey Graham talking to Hugh Hewitt and I shall leave that alone and allow the reader to assess as they see fit. What strikes me, however, about the question, i.e., “who lost Iraq?” is that it assumes facts not in evidence i.e., that we “had Iraq” in the first place. I would assume this means that at some point Iraq had a stable, sustainable government and was a firm long-term ally of the US. None of this was ever the case, so any narrative that assumes this is to be true is based on a fallacious premise. Certainly any notion that the emergence of ISIL could have been forestalled by some act of will by the Obama administration is absurd.
Saudis Could Face An Open Revolt At Next OPEC Meeting - OPEC next gathers December 4 in Vienna, just over a year since Saudi Oil Minister Ali Al-Naimi announced at the previous OPEC winter meeting the Saudi decision to let the oil market determine oil prices rather than to continue Saudi Arabia’s role of guarantor of $100+/bbl oil. Despite the intense financial and economic pain this decision has inflicted on Saudi Arabia, its fellow OPEC members, and other oil producers, the Saudis have given no indication they plan to alter course. In fact, Saudis have downplayed the impact of lower prices on their country, asserting that the kingdom has the financial wherewithal to withstand lower oil prices. Presumably swayed by Saudi equanimity, financial markets do not see the Saudis abandoning their current policy before, during, or after the upcoming OPEC meeting. A CNBC poll of oil traders, analysts, and major fund investors, aired on CNBC August 17, showed 95 percent believing the Saudis will not alter course. Are the futures market, CNBC’s oil traders, analysts, and major fund investors, and others, being lulled into an unjustified consensus? The damage the Saudi decision has inflicted on Saudi Arabia itself provides reasons for the Saudis to change course. As the first anniversary of the Saudi decision approaches, it would be reasonable for OPEC outsiders–OPEC members, other than the Saudis and their Gulf Arab allies, Kuwait, UAE, and Qatar—to interpret Saudi policy shift as designed to serve Saudi interests and those of its Gulf Arab allies rather than their interests and those of OPEC in general.
Officials Admit ISIS, Like Al-Qaeda, Was A Creation Of US Foreign Policy -- Dr. Ahmed has been leading the way in documenting how declassified documents from the Pentagon prove that U.S. intelligence officials warned the White House that supporting al-Qaeda just to depose of Syria’s Bashir al-Assad would have serious blowback and end up funding and empowering radical Islamic extremists. The White House ignored this advice. Two years later ISIS exploded onto the scene, and the American public was once again relentlessly fear-mongered into turning its sole, determined focus toward fighting this barbaric external enemy birthed by U.S. government policy. Civil liberties and treasure must once again be bequeathed to the military-intelligence-industrial complex to combat an enemy it funded and armed in the first place. The cruel joke; however, is that just like al-Qaeda before it, ISIS was a direct creation of intentional U.S. foreign policy. The US anti-Assad strategy in Syria, in other words, bolstered the very al-Qaeda factions the US had fought in Iraq, by using the Gulf states and Turkey to finance the same groups in Syria. As a direct consequence, the secular and moderate elements of the Free Syrian Army were increasingly supplanted by virulent Islamist extremists backed by US allies. It should be noted that precisely at this time, the West, the Gulf states and Turkey, according to the DIA’s internal intelligence reports, were supporting AQI and other Islamist factions in Syria to “isolate” the Assad regime. By Flynn’s account, despite his warnings to the White House that an ISIS attack on Iraq was imminent, and could lead to the destabilization of the region, senior Obama officials deliberately continued the covert support to these factions. “It was well known at the time that ISIS were beginning serious plans to attack Iraq. Saudi Arabia, Qatar and Turkey played a key role in supporting ISIS at this time, but the UAE played a bigger role in financial support than the others, which is not widely recognized.”