there were three fracking related decisions handed down in Ohio this week, netting two small victories and one big loss; first, the Ohio Oil and Gas Commission upheld the earlier decision by the ODNR to suspend operations at an American Water Management Services’ Weathersfield Township injection well in Trumbull county due to earthquakes of magnitude 1.7 and 2.1 that were induced by that injection in July and September of last year, a decision we had briefly discussed here...the company had argued that the ODNR intervention was “unlawful and/or unreasonable” and since they'd already spent over $5 million to drill and prepare those two wells, they should be allowed to use them...fortunately, the investor state dispute settlement provisions being pushed by the administration are not yet in effect, so the state will not be required to cover American Water Management for their lost potential profits...
the next decision came when Summit County Common Pleas Judge Mary Rowlands denied a temporary restraining order which would have allowed Spectra Energy to survey properties for their NEXUS pipeline without permission from landowners...as we mentioned last week, when discussing the Chesapeake Energy decision to put their Ohio natural gas production on hold until the Ohio Pipeline Energy Network is completed, the developers of the NEXUS pipeline had sued 91 property owners in Summit County who had refused company surveyors access to their property; Judge Rowland's decision to instead hold a trial in October to hear arguments about whether the Houston-based company should be granted access seems to at least put the NEXUS pipeline on hold till then....this NEXUS pipeline isn't your ordinary run of the mill gas transmission line, either...it's designed to deliver 1.5 billion cubic feet of natural gas per day across northern Ohio to Michigan, Chicago and Ontario, pumped along the way by 52,000 horsepower compression stations every 70 miles; that would be the equivalent of 1.7% of the total US natural gas production this year, and probably nearly 2% of the current US transmission trunkline capacity...a ten minute leak from such a pipeline would spew forth 10.4 million cubic feet of natural gas, certainly enough to wipe out any small town nearby...the industry argues that they have fail safe automatic shut offs on their pipelines, but just a month ago we saw a 5 million liter spill in Alberta when one such of those new fail safe pipelines failed to detect any leak...
finally, in a decision that culminates the weeks of news we've carried from Athens County, Ohio Secretary of State Jon Husted ruled that charter government proposals in Athens, Fulton and Medina counties cannot appear on the November ballot...moves by these three counties to transform themselves were initiated after the oil-industry funded Ohio Supreme court had ruled that local governments could not pass laws to regulate fracking because state laws give that authority solely to the ODNR...Athens, and presumably Fulton and Medina counties, had all gathered enough signatures to put the charter government proposals on the ballot, but in each county an oil company stooge filed a protest against the initiative, arguing that the charter amendment was county overreach and included unauthorized zoning regulations...those citizen protests then were forwarded to the Secretary of State, who had previously received $84,750 in oil industry contributions, and who did as expected and ruled those initiatives off the ballot in those counties, citing the Supreme Court decision that only the state has the authority to regulate oil and gas activity...this decision, then, seems to eliminate the possibility of any local legislation in the state in regards to fracking, at least until such time as Ohio laws are changed or oil industry funded public officials are defeated at the ballot box...
since we missed the rig count last week, we'll catch up on that next...over the past two weeks, Baker Hughes reported that a net of 10 additional drilling rigs were put into service in the US, with the entire increase in that count coming in the first week of August...oil rigs increased by 6 in that week and by 2 last week, to bring the current oil rig count up to 672, up from a low of 638 on July 17th, but down from the 1589 oil rigs in use a year ago, and down from the peak of 1609 oil rigs hit on October 10th of last year...gas rigs totaled 214 at the end of the week, after an increase of 4 in the first week of August and a decrease of two last week....despite the pickup in oil rigs over the last 4 weeks, the gas rig count has continued to slide, and is now down from 321 a year ago, and from 356 at the November 11 interim peak...there has also been an unusual fluctuation in the offshore rig count, as 4 were added in the first week of August only to have 3 withdrawn from operations last week....that leaves 35 rigs working offshore as of Friday, down from 62 a year ago, with 34 of those in the Gulf of Mexico and one off the shore of Alaska...
the drillers are again adding more horizontal rigs than other types, as 8 were added in the first week of August while 4 were added this week; that brings the horizontal rig count back up to 676, up from 650 four weeks ago, but down from 1329 a year ago...drillers also activated a net of 3 vertical rigs in the week ending August 7, but shut down 2 last week, leaving the vertical rig count at 129, down from 368 a year ago....meanwhile, the directional rig count was down 1 on August 7th and down another 2 last week, leaving it at 81, down from 216 a year earlier...
of the major horizontally fracked basins, the Permian basin of west Texas and New Mexico remains the most active, with 255 rigs, or nearly 30% of the 844 currently active rigs, working there this week, after 6 were added in the week of the 7th and another was added this week...however, that's still down from the 558 rigs that were drilling into that basin a year ago...activity in the Eagle Ford of southeast Texas has also increased, with 3 added this week after the net was unchanged the prior week...that brought the Eagle Ford count up to 101, which was still down from 199 a year earlier...the Williston basin, North Dakota home of the Bakken shale, ended the week with 70 rigs, down from 194 a year ago, after an addition of 1 rig last week and a removal of 2 rigs this week...meanwhile, 53 rigs remained in the natural gas yielding Marcellus of Pennsylvania and West Virginia, down from 77 a year ago, as 2 more rigs were withdrawn this week after a reduction of 1 last week...the rig count in Oklahoma's Cana Woodford remained unchanged at 37 after 2 weeks, while it's still the only basin to see an increase from the 34 rigs operating there a year ago...the Niobrara Chalk of the Rockies' front range ended the week with 32 rigs, down from 62 a year ago, after one rig was added this week, while the Haynesville shale of Louisiana netted no change from 30 rigs, down from 45 a year ago, after one was added last week and one was withdrawn this week...lastly, Ohio's Utica shale ended the week with 22 rigs, down from 44 a year ago, as one rig was pulled from the area in each of the last two weeks...
on a state basis, then, Texas ended this week with 390 rigs, after adding 8 rigs last week and 6 this week, which was still down from 908 a year ago...Oklahoma ended with 103, down from 209 a year ago, as they saw 4 rigs idled this week...Louisiana also saw 4 rigs pulled this week, but after 4 were added last week, leaving the state with 78 rigs, 33 of which were offshore, and which was down from their total of 116 in the 2nd week of August last year...North Dakota added a rig last week but pulled 2 this week, leaving them with 71, down from 182 a year ago; New Mexico, down 2 this week and unchanged last week, finished with 52, down from 94 a year ago, while Pennsylvania was down 3 last week and 1 this week to end at 38, down from 51 a year ago...Colorado also ended the week with 38 active rigs, down from 75 a year earlier, as 2 there were idled last week, only to see 2 restarted this week...Ohio finished with 19, down from 42 a year ago, as we saw a rig pulled out in each of the last two weeks...other notable changes saw West Virginia up two then down 1 to end at 18, down from 29 a year ago, and saw Kansas add 5 over the last two weeks to bring their total back to 12, still down from 26 a year ago...
Baker Hughes has also updated the international rig count with the averages for July, which showed the global rig count at 2,167, up from 2,136 in June but down from 3608 a year earlier, with most of those year over year reductions in North America...the average rig count in the Middle East fell from 401 in June to 391 in July, which was down from 432 a year earlier...notable changes in the region included Iraq, down 9 rigs to 44, Kuwait, down 6 rigs also to 44, Oman down 4 rigs to 67, and Pakistan, up 6 rigs to 23...the Saudis averaged 123 rigs in July, up from 121 in June and up from 105 in July a year ago....Latin America saw a net decline of 1 rig last month to 313 rigs, down from 407 a year ago, as the area added 7 land based rigs and shut down 8 offshore...within the region, Mexico saw a reduction of 6 rigs to 45 while Venezuela added 4 to reach 70...the Asia / Pacific region saw 212 rigs active in July, 3 fewer than in June and down from 253 last year, as India added 3 to bring their total to 116 and several countries cut one rig each...in Europe, the rig count fell 5 to 108, down from 153 last July, as Turkey and Italy each cut two rigs, while African nations averaged 94 rigs for the month, down 9 from from June and down 43 from a year ago, as Libya, Nigeria and Angola each reduced their active rig count by 2...
however, the Canadians added 54 rigs in July, for an average of 179, which was still down from 350 in July a year ago...also included in the release of the weekly count with US rigs, they added 15 in the week ending July 31st, reduced their count by 7 in the first week of August, and added 3 in the week just ended, to finish with 211 rigs as of August 14th...over the last two weeks, Canadians have shut down 12 oil rigs, leaving 100, while they've added 8 gas directed rigs, to bring the count of gas rigs to 111...the Canadian count is now down 190 rigs from last year's 401, with oil rigs down 124 and gas rigs down 66...
even with the ongoing reduction in rig counts, however, the global oversupply of oil continues to grow, putting further downward pressure on oil prices...this week Bloomberg reported that the output of OPEC reached a 3 year high in July, as they increased output by 105,000 barrels a days to average 31.5 million barrels a day over the month, which is up from their 2014 average of 30.075 million barrels a day...that was despite another 39,200 barrel a day drop in Libyan output, wherein they produced 373,000 barrels per day in July, well down from their 928,000 barrels per day average in 2013, as Iran, Iraq, Angola and Saudi Arabia all saw output increase by more than 30,000 barrels per day for the month, with Iraq increasing production by 46,700 barrels a day to 4.1 million...Russia, the world's largest oil producer outside of OPEC, saw its output slip from from 10.71 million barrels per day in June to 10.65 barrels per day in July, but that had been preceded by a string of monthly post Soviet era records since January...
in the US, our field production of crude oil fell during the most recent reporting week, from 9,465,000 barrels per day in the week ending July 31st to 9,395,000 barrels per day in the week ending August 7th...while that's down a bit more than 2% from the record oil production of the 1st week in June, it's still 11.1% higher than our output during the same week last year...meanwhile, our imports of crude oil jumped again, rising from 7,180,000 barrels per day in the week ending July 31st to 7,573,000 barrels per day in the current report...while that's up 10,000 barrels per day from the first week in August a year ago, we check the weekly Petroleum Status Report (62 pp pdf) to find the four week average of imports, which at 7.6 million barrels per day is 1.1% lower than the same 4 week period a year ago....with refineries still running at 96.1% of capacity, our crude oil inventories in storage fell once again, from 455,275,000 barrels last week to 453,593,000 barrels in the this week's report....that was still 24.1% more oil than the 365,618,000 barrels we had stored in the first week of August last year, and in fact much higher than had ever been stored in mid July in the 80 years of EIA record keeping, which had never seen a 400 million barrel inventory level before this year...
Bill backs control - Star Beacon - State legislators and a growing consortium of county and township officials seek stronger local control over injection wells, and a bill currently being drafted in the state House could be the key. Last year, almost 1.1 million barrels of frackwater were dumped in Ashtabula County injection wells, the majority of which came from outside Ohio. That’s up 42 percent from 2013, and in the top 10 in 2014 for frackwater dumping in the state. “Horizontal drilling — fracking — is coming to Ohio and we need to get out in front of it,” . State Rep. Sean O’Brien, D-Bazetta, ranking member of the state House Energy and Natural Resources Committee, attended a public forum on injection well concerns in July at the county courthouse, along with state Rep. John Patterson, D-Jefferson. Patterson said much of the testimony given then became food for thought for legislators. O’Brien said the input could lead to some “common sense precautions” appearing in the new bill. Local township officials have said community control over injection well activity was “stripped” in 2004, and handed to the state Department of Natural Resources. They said the department — which also manages all state parks and wildlife areas and has banned injection well activity there — has not been acting in state residents’ best interests. “They banned it there ... why is it fine for your residential community?” Dominic Marchese, Johnston Township trustee, said in July.“It’s ludicrous to me that the state and legislators have given ODNR ... the sole regulation of natural gas and extraction waste,” said Jodi Stoyak, Liberty Township trustee, in July. “To me, that’s a conflict of interest.”
State panel upholds suspension of injection well - — A state panel has upheld the Ohio Department of Natural Resources' decision to suspend operations at a Trumbull County injection well following seismic activity near the site last year. The Ohio Oil and Gas Commission decision, released Wednesday afternoon, noted the earlier suspension orders for American Water Management Services' Weathersfield Township facility were not "unlawful and/or unreasonable." "It is clear that the division has regulatory authority over injection operations," commissioners wrote. "It is also clear that the division is taking a proactive approach to developing a meaningful regulatory program relative to injection-induced seismicity." The company has 30 days to appeal the decision, through Franklin County Common Pleas Court. AWMS invested $5 million-plus and spent more than two years seeking the appropriate permits, drilling and preparing two injections wells in Weathersfield Township. Those wells began operating last year, one injecting into a shallower formation, one in a deeper one. A few months later, seismic activity occurred in the vicinity, with a magnitude 1.7 event in late July and 2.1 about 30 days later. In September, the state ordered the company to cease injections at the wells, pending further investigation. According to documents, evidence "did not reveal any citizen complaints or property damage associated with these events. Nonetheless, the division was concerned with the escalating trend relative to these events and believed that continued injections ... could result in additional and more intense seismic events."
Ohio judge denies gas pipeline firm's request to survey land - haynesville.com: — A northeast Ohio judge has denied a company’s request to immediately survey nearly 60 properties where it is proposing to build a high-pressure natural gas pipeline. The judge’s ruling Wednesday says she won’t grant NEXUS Gas Transmission a 14-day window to survey 56 properties in Summit County but will instead hold a trial in October to hear arguments about whether the Houston-based company should be granted access. NEXUS is seeking to build a 250-mile pipeline that it says would carry as much as 1.5 billion cubic feet of natural gas per day across northern Ohio and into Michigan and Ontario, Canada.
Husted rules against fracking ban charter amendments: — Secretary of State Jon Husted ruled today that fracking-ban charter proposals in Athens, Fulton and Medina counties cannot appear on the ballot. As part of his decision, Husted, a Republican, found that the proposed provisions in each of the charters relating to oil and gas exploration represented an attempt to circumvent state law in a manner the courts have already found to be in violation of the Ohio Constitution. Supporters of an proposed fracking ban in Youngstown – already defeated four previous times on the ballot – are gathering signatures to put it on the city’s ballot in the Nov. 3 election. Husted’s decision would impact the local effort.
Ohio counties can’t vote to ban fracking, Husted rules - Columbus Dispatch: Residents of three counties won’t be voting this November on whether to allow fracking, based on a ruling Thursday by Ohio Secretary of State Jon Husted. In a letter to the boards of elections in Athens, Fulton and Medina counties, Husted said that the courts already had decided this issue, and that only the state has the authority to regulate oil and gas activity in Ohio. All three counties had planned to have questions on their ballots this November asking residents whether to amend their county charters to ban fracking inside their borders. The secretary of state’s office received protests against those petitions, Husted said in his letter, which prompted him to rule on whether the measures could be allowed on the ballots. Joanne Prisley, who asked Husted’s office to review whether the Athens County measure was legal, said she did not believe a charter amendment was a good government decision. “We don’t want our water supply to be tainted, but they were trying to put a non-fracking law into charter government. You don’t do it that way,” Prisley said. “It would change the authority of the county commissioners.” Tish O’Dell, a Broadview Heights resident and Ohio organizer with the Community Environmental Legal Defense Fund — the organization behind the 160-some bans that have passed in the United States — said Husted’s decision is disheartening. “If one secretary of state, who is obviously representing the best interests of the oil and gas industry, can keep the people’s attempt to alter and reform their government off the ballot, then exactly how are people ever supposed to alter their government?” O’Dell said.
Secretary of State agrees with charter protest, rejects proposal for November ballot -- After over seven weeks of legal wrangling, a proposal for the November ballot to turn Athens County into a charter government has been rejected by Ohio Secretary of State Jon Husted. In a release sent shortly before 6 p.m. Thursday, Husted's office announced he had rejected charter proposals for the ballot in Athens, Medina, and Fulton counties. As part of his decision, Husted found that the proposed provisions in each of the charters relating to oil and gas exploration represented an attempt to circumvent state law in a manner Ohio courts have already found to be in violation of the state Constitution, the release said. “The issue of whether local communities can get around state laws on fracking has already been litigated,” Husted said in the release. “Allowing these proposals to proceed will only serve a false promise that wastes taxpayer's time and money and will eventually end in sending the charters to certain death in the courts.” Under the Ohio Revised Code, the secretary of state, in his role as the chief elections officer, is required to determine the validity of both the proposal and the petitions submitted and rule on whether or not the petition should qualify for the ballot, the release continued. Husted said in the release that the proposed ballot initiatives fail to properly establish an “alternative form of county government” as prescribed by Section 301 and 302 of the Ohio Revised Code. “Having carefully reviewed the law, court decisions and the materials submitted in connection with the protests, I find that the… petitions violate… provisions of statutory and Ohio constitutional law,” wrote Husted to Athens County's elections board and board of commissioners.
Underneath Ohio - International Business Times -- In the past decade, U.S. oil and gas production has exploded thanks to advances in fracking technologies and the discoveries of large oil and gas deposits in shale formations, including the Utica and the Marcellus, which run underneath Ohio and other Eastern states. Shale gas production alone surged nearly 800 percent from 2007 to 2013, from about 1.3 trillion cubic feet to 11.4 trillion cubic feet, the U.S. Energy Information Administration found in its most recent estimates. Shale production has helped position the U.S. as the world’s largest producer of both crude and natural gas -- even beating out Russia in 2014. This year, a global oversupply of oil caused prices to plunge and has slowed new production, but the fracking wave is expected to roll for decades. In Ohio, the industry is pressing ahead with billions of dollars in investments for pipelines and natural gas compressor stations despite the temporary lapse in new drilling. As shale production spreads into new communities, more citizens and policymakers are forced to choose between two competing narratives: fracking as an economic godsend whose downsides are being hyped by anti-business agitators, and fracking as a threat to health and environment. Many of the Neiders’ neighbors have welcomed the surge of shale drilling in Carroll and surrounding counties. In an area where farms, schools and hospitals supply the bulk of employment, the energy boom delivered an unexpected boost in the midst of the recent economic downturn. Landowners earning generous royalty checks for leasing to fracking operators are renovating their homes, paying off debt and buying new farming equipment. Municipalities are repairing roads and upgrading equipment. Ohio regulators insist their stringent rules and frequent monitoring efforts have limited harmful air emissions and potential groundwater contamination from fracking and related activities, including wastewater disposal wells. Industry groups say producers are safely developing the fossil fuel reserves, and they note that research on fracking’s environmental and public health impact is still early.
Utica: Drillers take hits from stock prices -- Thanks to low commodity prices, drillers and investors in the oil and gas industry have taken several negative hits, and those hits are certainly visible when it comes to drillers in the Utica Shale formation. On Friday during a second-quarter earnings call, Magnum Hunter Resources Corp. CEO Gary Evans explained that there is a dramatic prices difference in oil and gas when compared to last year. At the beginning of November last year, oil as was priced around $80 per barrel, and now it is nearly half that. Natural gas has dropped almost a full dollar, sitting at $3.71 per million BTU’s last November to $2.81 per million BTU’s. Evans stated the following: Those of us in the energy sector are dealing with much lower commodity prices throughout our business that is causing all of us to change our business plans.While it seems risky, some analysts are actually encouraging investors to take calculate gambles and invest in stock while prices are so low. According to the Columbus Business First, many have hope that the price of natural gas will rebound due to overseas export opportunities, along with “more use for electricity generation to make up for lost coal-based production.” The Columbus Business First took a closer look at commodity prices and how stock prices are impacting companies operating Ohio. “The numbers are stark: The top 5 public companies, based on 2014 drilling permits, recorded price highs in August and September 2014, a few months before oil and gas prices fell. Each company’s low has fallen in July and August 2015.” The rankings are as followed:
What is going on in the Marcellus? -- While Pennsylvania Governor Tom Wolf is trying with all hit might to hang on to his proposed budget plan and the state’s economic future in natural gas, it is hard to ignore rumors about natural gas selling for only 60 cents per thousand cubic feet (MCF). According to Penn State Marcellus Center for Outreach and Researcher Director Tom Murphy, there is really no specific price at which operators in the Marcellus Shale formation, or any other shale in the U.S., would stop drilling. Typically, conversations regarding the price of natural gas revolve around it still being viable below $2.00 per MCF. While the sale of natural gas at 60 cents per MCF has never happened, and certainly isn’t a reality in Pennsylvania, natural gas selling at $1.25 per MCF is and has been for several months. Murphy commented on the current status of companies drilling in the Marcellus and the market: Most companies that are drilling in Marcellus right now, if not all companies, would tell you that the price environment that they are experiencing is a very difficult market for them to be operating right now.Like several others, Murphy has watched the number of rigs operating in Pennsylvania decline. He did note that despite the falling rig count, production has still risen year-over-year, which can be credited to new drilling technologies and techniques. Murphy also credited the production growth to better qualified people in the oilfields and the high flow rates of the Utica Shale formation. As reported by 90.5 WESA, “Marcellus Shale wells are expected to produce gas for 25 to 50 years but about half of that gas comes out of the wellhead in the first two to three years, creating a parabolic production curve that slowly tapers to nothing according to Murphy.” As more pipelines are constructed across Pennsylvania, natural gas production will continue to increase. The pipelines will allow “drillers to more easily get their gas to market.”
PennEast pipeline project moving forward with route changes - A new pipeline to bring natural gas from the Marcellus Shale to customers in Pennsylvania and New Jersey is moving forward. On Tuesday, the first-year anniversary of the date PennEast Pipeline Co. officially announced the project, representatives from the company met with The Citizens’ Voice for an editorial board. Since then, the company has been in the pre-filing phase with the Federal Energy Regulatory Commission, which includes doing studies, seeking public input and fine-tuning the pipeline route. The company expects to file a formal application in September with the commission, which approves, regulates and inspects pipelines. The new pipeline would connect with the Auburn natural gas gathering line belonging to UGI Energy Services LLC — which is a partner in PennEast — at the Transco interstate pipeline hub in Dallas Township. The Auburn line brings gas from wells in Susquehanna and Wyoming counties to the Transco pipeline. “When we looked at the project (PennEast), we said this is a natural extension of Auburn,” PennEast project manager Anthony Cox said. Asked how much of the gas would be exported, Cox replied, “None.” Customers for the gas, besides UGI Energy Services LLC, include the independent PPL spinoff Talen Energy Marketing LLC; Consolidated Edison; the New Jersey Natural Gas Co. and South Jersey Gas Co.
Case against PennEast pipeline places anti-fracking sentiment over science ... - NJ.com - Hopewell Township recently voted to bar construction of a natural gas pipeline planned to connect with the network of previously existing pipelines bringing the carbon-friendly, inexpensive fuel from fracked sites in the gas-rich Marcellus shale deposits of Pennsylvania. The "leaders" there adopted the propaganda often associated with the "fractavist" fringe groups whose pressure was intense enough to cause New York Gov. Andrew Cuomo to ban fracking in his state. Anti-fracking sentiment runs high in certain areas in and adjoining the Marcellus shale region. However, no matter what the anti-fracking demonstrations purport, the opposition is based not on science nor health, but ideology. Anything that they perceive to be promoting ongoing fossil fuel use will be condemned as being dangerous, unhealthy or any outrageous assertion that they pull out of their hats. Despite a documented lack of evidence of water contamination, and a recent EPA report confirming that inconvenient fact, the Hopewell Township opponents brought up that myth (along with the nonsensical asthma threat). While the EPA report did try to cover all bases by acknowledging their lack of an ability to see into the future regarding any possible adverse environmental (i.e., water) impact of a pipeline, the empirical evidence of the absence of any such heretofore seems highly probative. Look, a scenario where aliens descend from an unknown planet and damage a natural gas pipeline can also not be predicted. But all those fracked wells in all those states without detectable water contamination should count for something.
Pipelines to lucrative Midwest markets welcomed by shale gas drillers -- Shale gas producers staring down a supply glut that has pushed prices to record lows in Appalachia are getting their first look at relief. Several long-awaited pipeline projects are coming online over the next few months that should start increasing the prices some Marcellus and Utica shale drillers get for their gas as it finds paths to more lucrative markets in the Midwest. “They’ve been held captive to these lower prices in Appalachia with no other place to take their gas,” said Teri Viswanath, a natural gas analyst at BNP Paribas in New York. “The continued cycle of new takeaway projects will accelerate a price increase.” With high supplies and not enough demand to consume it all here, selling gas in Appalachia has meant taking a deep discount. The spot price on the Dominion South trading point in Southwestern Pennsylvania hit 71 cents per million British thermal units on July 2, which Viswanath said was a record low. By last week it rebounded to $1.35, but that was less than half the price garnered at the Chicago Citygate trading point, $2.89. Producers who cannot get their gas on the few lines leading from Pennsylvania to Chicago don’t get that better price.
Midwest now ships more crude than it receives -- The Midwest has become a net shipper of crude oil, reports the Energy Information Administration (EIA). Due to increased rail shipments and pipeline reversals, the Midwest region now ships out more crude oil than it receives. Without these rail movements, according to the EIA, the Midwest would still be a net recipient. Beginning in the first few months of 2013, the Midwest began shipping more oil than it was receiving, which was occurring on an annual basis during 2014. According to the most recent Petroleum Supply Monthly report, which contains data through May 2015, an average of 1.7 million barrels per day shipped out of the Midwest during the first five months of this year. Of this amount, 638,000 barrels per day were hauled by rail. Volumes of crude-by-rail shipments from the Midwest to the East Coast began to increase in 2012 as production in the Bakken ramped up. From 2011 to 2013, the largest volumes were being transported by rail from the Midwest to the Gulf Coast. During the second half of 2013, though, these shipments began to slow as less Bakken crude was shipped south because of pipelines in the Permian Basin of West Texas and New Mexico were built, expanded or reversed to take Permian crude to Gulf Coast refineries. As less Midwest crude was shipped to the Gulf, more was being transported to the East and West Coasts as production steadily increased. Between 2010 and mid-2012, pipeline shipments coming from the Midwest remained flat at about 225,000 barrels per day. It wasn’t until the flow of the Seaway Pipeline was reversed that the volumes of crude shipped via pipeline increased. The Seaway, which transports crude from the Cushing, Oklahoma storage hub to the Gulf Coast, was expanded and TransCanada’s Gulf Coast Pipeline was brought online, increasing pipeline shipments out of the Midwest. By May 2015, pipeline shipments reached 1.3 million barrels per day, the highest level since the EIA began recording pipeline shipment data in 1986.
Mammoth Cave Park sees pipeline threat - Pushing a toxic mixture of natural gas liquids through an aging pipeline near Mammoth Cave National Park threatens the world-famous cave’s unique and fragile ecological systems, the National Park Service is warning. “The National 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, park superintendent Sarah Craighead wrote recently in a letter to federal energy regulators. The pipeline is 70 years old and was designed to carry a different product, natural gas, said Bobby Carson, chief of science and resource management for the park. “It’s been underground for a while” and 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, he said in an interview this week. The proposal by Kinder Morgan to convert part of its subsidiary Tennessee Gas Pipeline Co. operations from carrying natural gas to moving natural gas liquids has stirred controversy all year along a 256-mile path through Kentucky, with citizen groups, environmental organizations and some local officials objecting. Many have asked for a full environmental study rather than the less extensive review now underway. While the proposal has had the backing of the Kentucky Oil and Gas Association, the Federal Energy Regulatory Commission has collected nearly 300 written comments for its environmental review, many of them critical.
Judge bars pipeline surveyors from W.Va. couple's property — A judge has ruled that the developer of a proposed natural gas pipeline can’t survey a West Virginia couple’s property without their permission. Monroe County Circuit Court Judge Robert Irons ruled Wednesday that Mountain Valley Pipeline failed to establish that the project would provide sufficient public use to justify entering private property without an owner’s permission. Irons issued an injunction sought by Bryan and Doris McCurdy of Greenville, multiple media outlets reported. The McCurdys were represented by lawyers from Appalachian Mountain Advocates. Mountain Valley Pipeline spokeswoman Natalie Cox said the company will review the judge’s order. “While we respect the court’s bench ruling today, we will review the written order once it is received and consider our options going forward,” Cox said. Mountain Valley wants to build a 300-mile pipeline that would transport natural gas from Wetzel County to another pipeline in Pittsylvania County, Virginia.
BP's main crude unit at Whiting shut for at least a month - sources - – Heavy damage to the largest crude distillation unit at BP Plc’s 413,500-barrel-per-day (bpd) Whiting, Indiana, refinery will require at least a month to repair, sources familiar with the refinery’s plans said on Tuesday. The sources stressed that the time frame for the CDU’s restart was preliminary and may change. “I would expect longer rather than shorter,” one of the sources said. Piping inside the 240,000 bpd CDU, called Pipestill 12, which processes heavy sour oil crude, was damaged in a malfunction on Saturday. BP spokesman Scott Dean declined to discuss operations at the oil major’s largest refinery in the United States. News on the length of the unit’s outage was fiercely sought after by refined products and crude traders because of the impact the loss of production at the refinery could have on prices. The Whiting crude unit outage was said to contribute to U.S. crude’s fall of $1.88, or more than 4 percent, to $43.08 a barrel, the lowest settlement since March 2009, and about $1 above the 2015 contract low on March 18.
Oil industry, hoping to drill in the Gulf, says it would enrich Florida - Florida would be showered with thousands of jobs and billions of dollars of tax revenue over the next two decades if the federal government would quit standing in the way of energy exploration, the oil industry claims. The lure of jobs and money is part of a pitch to Congress to open much of the eastern Gulf of Mexico to rigs, just five years after the massive Deepwater Horizon oil spill. A former economist for the U.S. Energy Department and even some drilling boosters say the industry’s projections of jobs and revenue are greatly inflated. But the lobbying is making headway. The Senate energy committee on July 30 approved a bill that would shrink the no-drill buffer zone along Florida’s West Coast from 125 miles to 50 miles. The relentless pressure to drill is mounting despite relatively low oil prices and a surge in domestic production. For long term, the industry sees a chance to gain access to deposits known to exist under the Gulf and across the southern peninsula.Florida would gain 183,000 jobs by 2035, and the state economy would get a $440 billion boost from 2016 to 2035 if the federal government adopted “pro-development policies,” according to a report commissioned by the American Petroleum Institute, a powerful lobby in Washington.
Louisiana Town Gets A Win Over Plans To Frack In Wetlands -- A Louisiana district court judge on Monday threw out — at least temporarily — a permit for fracking exploration in wetlands about an hour outside New Orleans. The judge ruled that a division of the Department of Conservation failed to adequately consider the environmental impacts of the permit, including the implications of a nearby fault line. The Department of Natural Resources (DNR) will have to reevaluate the permit application for Helis Oil and Gas. “They didn’t go through the environmental impact analysis that we said they had to do,” said Lisa Jordan, deputy director of the Tulane Environmental Law Clinic and the attorney representing Abita Springs on the case. Jordan told ThinkProgress the environmental review of the permit was “boilerplate” and did not truly evaluate the potential costs of contamination to fresh water in the area. Abita Springs, a place known for its pristine water and that’s home to Abita Brewing Company, is located in St. Tammany Parish. Jordan said the DNR usually rubber-stamps permits like these. Abita Springs, as well as the parish and a community group, have been fighting the plan to frack there for over a year. There are currently other ongoing legal actions. One suit, which claims the permit violates local zoning laws, has resulted in a cease and desist order. The town of Abita Springs has also sued the Army Corps of Engineers for failing to hold adequate public meetings. There will be a hearing on that issue in October. Both the state and the Army Corps must grant approvals for drilling in wetlands to occur.
Texas man left permanently disabled from burns after fracking causes water well to explode: suit -- A Texas family suffered serious burns and injuries after a water well exploded because it was contaminated from a nearby fracking operation, according to a lawsuit filed in Dallas County Court. Cody Murray, the 38-year-old husband of the family of four, sued EOG Resources, Fairway Resources LLC and three Fairway subsidiaries last week, according to Courthouse News Service. The lawsuit states that Murray suffered severe burns on his arms, upper back, neck, forehead and nose along with “significant neurological damage” — leaving him permanently disfigured and disabled. Murray’s father, wife, and 4-year-old daughter were also injured in the explosion. Murray and his father went to the water well on his ranch in Perrin on August 2, 2014, to see why pressurized water was spraying inside it. “At the flip of the switch, Cody heard a ‘whooshing’ sound, which he instantly recognized from his work in the oil and gas industry, and instinctively picked his father up and physically threw him back and away from the entryway to the pump house,” the complaint states.“In that instant, a giant fireball erupted from the pump house, burning Cody and Jim, who were at the entrance to the pump house, as well as [Cody’s wife] Ashley and [daughter] A.M., who were approximately 20 feet away.” The lawsuit alleges that natural gas drilling near Murrays’ property caused his water well to become contaminated with methane, which resulted in the explosion. Two gas wells are about 1,000 feet northeast of the Murrays’ well.
Low Oil Prices Pose Threat to Texas Fracking Bonanza - — No place in Texas produces more oil than Karnes County, but suddenly the roaring economy here is cooling fast, chilled by the plunging price of crude.Workers who migrated from far and wide to find work here, chasing newfound oil riches, are being laid off, deserting their recreational vehicle parks and going home. Hay farmers who became instant millionaires on royalty checks for their land have suddenly fallen behind on payments for new tractors they bought when cash was flowing. Scores of mobile steel tanks and portable toilets used at the ubiquitous wells are stacked, unused, along county roads. “Everybody is waiting for doomsday,” “Everything was good, and everybody was getting these big checks, and everybody waited for their land to be leased, and then it all came to a screeching halt around the beginning of the year.” Record production in the United States, along with a drilling frenzy in Iraq and Saudi Arabia, as well as the prospect that Iranian oil will again flood world markets, have spooked traders into abandoning their positions. What’s more, the very productivity here in the heart of the Eagle Ford shale fields, and the efforts by the oil companies to make them increasingly efficient, are contributing to the glut as well. The plunge has rippled far beyond the markets, sending the economy here and across the entire oil patch into turmoil. Nowhere is the sharp turn in fortunes as evident as in places like Karnes County and other parts of Texas, North Dakota, Louisiana, Colorado, Pennsylvania, Arkansas and Ohio that had little oil or natural gas production until drillers figured out how to tap into hard shale rocks deep underground. “People didn’t have to work anymore,” . “Now they’ll have to work or panhandle if the oil price doesn’t go back up.”
Craddick blasts Obama for energy policy, awaits real debate from candidates -- Texas Railroad Commissioner Christi Craddick is livid with the current administration’s oversight of the energy industry, and wants real, fruitful debate from presidential candidates on the issue. “If pricing pressures from OPEC were not enough, the pain felt in the oil field today is the direct result of political decisions and bureaucratic policies made in places like the Environmental Protection Agency, Bureau of Land Management and Fish and Wildlife Service,” Craddick stated in a recent editorial published by Forbes. “For far too long we have let others determine our energy fate. If our nation is going to make measurable strides toward energy independence, now is the time to act. As presidential candidates kick-off the debate season, voters have a right to ask: What is your plan to responsibly develop America’s energy potential?” The Chairman noted that the oil and gas industry employs roughly 10 million Americans, and in states like Texas, energy is the lifeblood of a healthy economy. Craddick stated that Texas provides a good model for the whole nation to follow. “[The Railroad Commission of Texas] regulates more than 265,000 active oil and gas wells, 270,000 pipeline miles and hydraulic fracturing,” Craddick elaborated. “Through our day-to-day, on-the-ground regulation of the industry, the successful and safe production of oil and gas is achieved, allowing Texas to drive the American energy industry’s leading role in world markets.”
Shell discharged 163 tons worth of toxic gas at Deer Park facility - Last Sunday morning, over 300,000 pounds worth of toxic gas was accidentally released into the air at the Deer Park Shell Oil facility. According to reports from the Texas Commission on Environmental Quality (TCEQ), the emission hazard in Southeastern Texas was occurred at approximately 10:40 am at the Shell Deer Park site. Operating personnel discovered the leak roughly 15 minutes later. The Houston Chronicle reported that 326,166 pounds of butadiene escaped through an open valve on a spherical tank between 10:40 am and 11:35 am. “This release is huge,” stated Sierra Club of Texas chemist Neil Carman to the Chronicle. “Even 10 percent of 326,000 is big for butadiene.” Carman, who was also a former power plant inspector for the TCEQ, said that butadiene is a known human carcinogen. However, he noted that its molecular structure allows it to dissipate quickly in the hot summer air. The chemical is commonly expelled in car exhaust, but Carman said the quantity in the Shell incident was concerning. The U.S. Environmental Protection Agency states that long-term exposure to butadiene is linked to increased risks of cardiovascular disease and leukemia. Shell spokesperson Ray Fisher said the company is investigating the cause of the release. Meanwhile, data from nearby monitors did not exceed TCEQ odor or health-based screening levels during the incident.
Fracking could become 2016 Colorado ballot issue -Environmentalists and the energy industry have fought decisive battles over fracking in New York, Oklahoma and Texas, but the outcome is unclear in Colorado, where the issue could go to a ballot fight in the 2016 election. A task force convened by Colorado Gov. John Hickenlooper tried to find a compromise over who should regulate the industry — the state or local government — and to what extent. Fracking critics were bitterly disappointed when the panel suggested leaving regulatory power in state hands and avoided recommending specific health, environmental and safety rules. “I think the fossil fuels industry won,” said Karen Dike, a member of Coloradans Against Fracking. Dike and others won't say whether they plan to put measures that would restrict fracking on the 2016 ballot. Frank McNulty, a Republican former state lawmaker who sponsored a pro-industry ballot measure in 2014, expects fracking opponents to turn to voters next year. Opponents won a victory in New York, where regulators formalized a statewide fracking ban on June 29. In May, the industry prevailed in Texas and Oklahoma.
Montana panel to consider drilling buffer zones near homes — Montana regulators were expected to decide Wednesday whether they should follow neighboring energy-producing states in creating buffer zones that set a minimum distance between homes and oil and gas drilling sites. The state Board of Oil and Gas Conservation is set to take up the issue of drilling setbacks at its meeting in Billings. If it decides to pursue a statewide rule, requirements such as distance and exceptions would be developed at a later date, administrator Jim Halvorson said. At a hearing in June, farmers and landowners told the board they wanted the setbacks to protect them against possible spills, fires, groundwater contamination, noise and trash from active well sites. Oil and gas companies oppose buffer zones, which exist in states such as Wyoming, North Dakota and Colorado.
Timeline of 180k gallon brine spill questioned -- Last week, large volumes of saltwater were spilled in the northwest corner of North Dakota due to a broken pipeline, reports the North Dakota Department of Health. The spill occurred about seven miles northwest of Crosby in Divide County, releasing over 4,000 barrels, or over roughly 179,000 gallons, of brine water. According to the Williston Herald, Oklahoma-based Samson Resources reported the spill last Wednesday and has since recovered approximately 9,500 gallons since the incident, which had occurred around 3:30 p.m. The timeline of the spill, however, has been brought into question. The Environmental Protection Agency states that this water is usually extremely toxic to the environment and contains radioactive material and heavy metals. The water is many times saltier than sea water and the toxic substances can be extremely damaging to the environment and public health if released onto the surface. As reported by the Herald, Divide County Emergency Services and 911 Coordinator Jody Gunlock disagrees with state official’s estimates of when the spill actually occurred. “It was apparent from the dead vegetation that this spill started earlier than August 5, the reported date of the incident and there was also some oil that leaked,” . In a statement, the company said, “We have notified the appropriate regulatory authorities and landowners and are taking all appropriate action to address this situation.” Field inspectors with the Health Department are no longer on-site but have tested nearby waters for contamination.
Helms: Bakken core still profitable - North Dakota Department of Mineral Resources Director Lynn Helms, the state’s top oil regulator, says drilling is still very profitable in the Bakken’s core of Dunn, McKenzie, Mountrail and Williams counties. As reported by the Williston Herald, Lynn Helms said these core counties were home to more than half of last Thursday’s 73 active drilling rigs. Despite the current average breakeven wellhead price hovering around $31 per barrel of oil, not far below the West Texas Intermediate price of about $45 per barrel, companies are still able to produce at a profit. Helms told the Herald, “We are in the mode where we are just sustaining production,” adding that the current “turnaround cost” is about $65 per barrel. Production is remaining at a steady 1.2 million barrels per day even though rig counts and oil prices have declined sharply since late last year. Helms attributes this to oil producers and service companies figuring out how to maintain production levels by reducing costs and increasing recovery efficiencies. Helms also attested to company’s improved drilling abilities, allowing for about 24 wells to be drilled per year compared to the 10 wells in 2010. Drilling at faster rates and with fewer rigs has prompted state officials to consider the possibility that the currently low rig count will be able to maintain production levels, if not increase them. He said, “With the current drilling rate, the inventory could last two years. The current rig count with the efficiency of the rigs is capable of doing that.”
Bakken crude: Could pipelines replace the need for oil-by-rail? -- The transportation of Bakken crude is beginning to shift away from the railways and into pipelines as production levels off in the wake of last year’s price collapse and more oil and gas pipelines are brought online. Rusty Braziel, analyst with RBN Energy, explained, “Since 2012 a combination of rail and pipeline has given Bakken producers ample crude takeaway capacity, but pipelines alone have not had sufficient capacity on their own.” Though, as production maintains a consistent rate, pipeline capacity is beginning to catch up. Braziel added, “By 2017 there should be enough pipelines to carry all North Dakota’s crude to market.” Last week Continental Resources reported that it now ships over two-thirds of its Bakken crude by pipeline,reports Reuters. In the second quarter 2015, the company, North Dakota’s second-largest producer, pushed approximately 160,000 barrels of crude per day through Kinder Morgan owned pipelines. For comparison, it shipped nearly all of its oil by train in 2014. During a conference call, Continental CFO John Hart said, “Approximately 70 percent of our Bakken production is now delivered to market via pipeline.” Director of RBN Energy Analytics Sandy Fielden said, “As soon as price differentials – especially between domestic benchmark West Texas Intermediate (WTI) and international benchmark Brent – narrowed, then barrels shifted back to pipelines to take advantage of their cheaper tariff rates. Yet significant crude volumes continued to be transported to market from North Dakota by rail because pipeline capacity could not handle the demand.”
Pipelines Are Safer Than Rail in the Transportation of Oil and Gas -- Determining how to best transport oil and gas in the future is of critical importance, especially considering that the consumption of these products will likely continue to rise. The stalling of pipeline projects such as Keystone XL has contributed to a sharp rise in the amount of oil and gas being transported by rail. This has prompted the question, which is safer for transporting oil and gas—pipelines or rail? Our new study examines this question using Canadian data compiled between the years 2003 to 2013. The study found that in this period pipelines experienced 1,226 occurrences and rail experienced 296 occurrences moving similar oil and gas commodities. When taking into consideration the amount of product moved, overall, pipelines experienced 0.049 occurrences per Mboe, while rail experienced 0.227 occurrences per Mboe, making both rail and pipelines are quite safe. However, one is safer and these results suggest that rail is just over 4.5 times more likely to experience an occurrence per Mboe of hydrocarbon transported. Also examined were data on how many accidents actually result in the releases of product, finding that 84 percent of pipeline occurrences and 73 percent of rail occurrences result in product being released. However, these high numbers don’t necessarily tell the whole story. Over 70 percent of all pipeline occurrences result in spills less than 1m3 or approximately 264 gallons. Only roughly 2 percent of spills result in large spills of more than 1000m3. And the study found that less than 1 percent of pipeline occurrences result in environmental damage.
Pipeline affects property values and mortgages - - In 2013, Boulder Weekly reported the impact of oil and gas extraction on real estate values has found homes near activity or as far away as 2.48 miles can lose between 4 percent and 15 percent of their market value. Home values in places with increased environmental awareness could drop by 20 percent or be rendered nearly worthless because no one will buy them due to their proximity to oil/gas activity. Conversations for Responsible Economic Development reports the loss in property value for homeowners impacted by the Pepco Pipeline in Maryland was 11 percent the first year. Homeowners along the BP Inland Corporation Pipeline in Ohio experienced a 25 percent reduction in property value. The loss of property value is greater in areas that have experienced explosions, spills and contamination. The loss of property value due to a natural gas pipeline is found in the 2014 Court of Appeals of the State of California in the case of Gaviota Holdings LLC vs. Chicago Title Insurance Company. The Santa Barbara County property was sold and the title to the property did not disclose an easement for a pipeline to transport gas. The respondent was awarded $1.51 million for the decline in property value. The losses in real estate are also exacerbated by the impact that fracking oil and gas development is having on the primary and secondary mortgage markets.
10 Years Later: Fracking and the Halliburton Loophole -- Ten years ago, President George W. Bush signed the Energy Policy Act of 2005. The giant energy bill included massive giveaways for the fossil fuel, nuclear and ethanol industries and provided only token incentives for renewables and improved energy efficiency. But the most infamous piece of the law was what is now commonly known as the “Halliburton Loophole,” an egregious regulatory exemption that ushered in the disastrous era of widespread oil and gas fracking that currently grips our nation. Fracking has exploded in the last decade. More than 270,000 wells have been fracked in 25 states throughout the nation. More than 10 million Americans live within a mile of a fracking site. This means that 10 million Americans—and truly many more—have been placed directly in harm’s way. Hundreds of peer-reviewed studies have connected fracking to serious human health effects, including cancer, asthma and birth defects.For this we can thank the Energy Policy Act of 2005, the law that holds the Halliburton Loophole. Named after Dick Cheney and the notorious corporation he led before becoming vice president, the law (championed by Cheney and disgraced Enron founder Kenneth Lay, among others) explicitly exempted fracking operations from key provisions of the Safe Drinking Water Act. These exemptions from one of America’s most fundamental environmental protection laws provided the oil and gas industry the immunity it required to develop a highly polluting process on a grand national scale.
Shell seeks modified permit for Arctic offshore drilling — With a key safety vessel repaired and in northern waters, Royal Dutch Shell PLC has applied to amend its federal exploratory drilling permit to allow drilling into oil-bearing rock in the Arctic Ocean off Alaska’s northwest coast. Shell last month received permission to begin some drilling at two sites in the Chukchi Sea but was banned from digging into petroleum zones roughly 8,000 feet below the ocean floor. The federal Bureau of Safety and Environmental Enforcement limited the permit then because equipment was not on hand to handle a possible well blowout. The equipment is on the Fennica, a leased Finnish icebreaker that suffered hull damage July 3 as it left Dutch Harbor, a port in the Aleutians Islands. Arctic offshore drilling is strongly opposed by environmental groups that say industrial activity will harm polar bears, Pacific walrus, ice seals and threatened whales already vulnerable from climate warming and shrinking summer sea ice. They also say that drilling in U.S. Arctic waters, which the government estimates holds 26 billion barrels of recoverable oil, will delay a transition to renewable energy. The Fennica’s main job for Shell is to carry and maneuver a capping stack, a roughly 30-foot device that can be lowered over a wellhead to act like a spigot to stop a blowout. For Shell to drill into oil-bearing rock, the Bureau of Safety and Environmental Enforcement requires that the capping stack be pre-staged and available for use within 24 hours.
Obama unleashes drilling rigs while fighting global warming - Is President Barack Obama trying to have it both ways? Obama is playing the roles of both climate change warrior and driller-in-chief: At the same time he hails the campaign against climate change he announced last week, he’s opening the Arctic and Atlantic oceans to drilling and is on track to lease massive amounts of coal in the West. Renowned climate scientist James Hansen said he’s planning to write an analysis of the president’s global warming policies “probably entitled ‘Delusions at 1600 Pennsylvania Avenue,’ or something like that.” Hansen, who is NASA’s former lead climate scientist and is now at Columbia University, co-authored a controversial study published last month raising the possibility that global warming could result in a 10-foot sea level rise in the next five decades and inundate coastal cities. Former U.S. Secretary of the Interior Bruce Babbitt said in an interview that Obama’s climate record is mixed. “They are in fact subsidizing the production of coal on federal land and oil and gas. And that really is not good,” said Babbitt, who served under President Bill Clinton. He said Obama has “remarkable achievements” _ including the Clean Power Plan announced last week to limit carbon emissions from power plants, vehicle fuel efficiency standards and a climate agreement with China _ that are focused on limiting demand for planet-warming fossil fuels. But Babbitt sees a reluctance to address the supply of fossil fuels.
Capping oil well blowouts within 24 hours too expensive, says Ottawa -- The federal government says it is agreeing to an offshore drilling plan that would allow up to 21 days to bring in capping technology for a subsea well blowout, because requiring a shorter response time would be too expensive for Shell Canada Ltd. Meanwhile, the most recent U.S. ruling in Alaska — where Shell wants to conduct an exploratory drilling project — requires a capping stack to be on hand for a blowout within 24 hours. Nova Scotia environmentalists are questioning why the Canadian Environmental Assessment Agency has signed off on a plan that allows between 12 and 21 days for the multinational company to bring a vessel and a capping system to the Shelburne Basin offshore site, about 250 kilometres off the southwestern coast of Nova Scotia. Approval of Shell's plan for exploratory drilling in the Shelburne Basin is up to the Canada-Nova Scotia Offshore Petroleum Board. The board says it is taking the environmental assessment into account, but won't make a decision on whether to give the company the green light until later this year. However, the board's chief executive, Stuart Pinks, says the type conditions off the coast Alaska that require a capping system close at hand simply don't exist in Nova Scotia. "The drilling season is very short in Alaska, is very short because of ice," Pinks told CBC Radio's Information Morning. "If there was an event to occur in Alaska, there's a very short time period to get a capping stack on location and deployed before the ice moves in."
Oil spill drill set for pipelines in Straits of Mackinac — A massive exercise is in the works that would test a company’s ability to respond to a spill from oil pipelines under the Straits of Mackinac (MAK’-ih-naw). The Grand Rapids Press reports that the drill funded by Canada-based Enbridge Inc. will take place in late September and involve federal, state and local agencies. Hundreds of responders will participate, as will boats, helicopters, drones, underwater vehicles and other equipment. The exercise on the pipelines run by Enbridge has been planned for roughly a year. The pipelines have drawn concerns from environmentalists, but Enbridge says they’re safe. U.S. Coast Guard contingency preparedness specialist Steve Keck says the drill will be “huge,” and will also evaluate Enbridge’s Detroit-based contractor for spill response. The Straits connect Lake Michigan and Lake Huron.
“Gas Taxes and Oil Subsidies: Time for Reform” -- Should we root for prices to go up, down, or stay the same? The economic effects of falling oil prices are negative overall for oil-exporting countries, of course, and positive for oil-importing countries. The US is now surprisingly close to energy self-sufficiency, so that the macroeconomic effects roughly net out to zero. But what about effects that are not directly economic? If we care about environmental and other externalities, should we want oil prices to go up or down? Up, because that will discourage oil consumption? Or down because that will discourage oil production? The answer is that countries should seek to do both: lower the price paid to oil producers and raise the price paid by oil consumers. How? By cutting subsidies to oil and refined products or raising taxes on them. Many emerging market countries have taken advantage of the last year of falling oil prices to implement such reforms. The US should do it too. Congress continues to shamefully evade its responsibility to fund the Federal Highway Trust Fund. On July 30 it punted with a 3-month stop-gap measure, the 35th time since 2009 that it has kicked the gas-can down the road! There is little disagreement that the nation’s roads and bridges are crumbling and that the national transportation infrastructure requires a renewal of spending on investment and maintenance. The reason for the repeated failure to put the highway fund on a sound basis for the longer term is the question of how to pay for it. The obvious answer is, in part, an increase in America’s gasoline taxes, aseconomists have long urged. The federal gas tax has been stuck at 18.4 cents a gallon since 1993, the lowest among advanced countries. Ideally the tax rate would be put on a gradually rising future path.
U.S. shale firms slide deep into the red on low oil prices – North America’s leading independent oil and gas producers reported large losses in the second quarter despite cutting costs and increasing output. Ten of the largest independent oil and gas producers in the United States reported total losses of almost $15 billion between April and June, compared with profits of almost $3.5 billion a year earlier. Three more independents remained profitable, but reported net income of only $66 million, down from more than $1 billion in the second quarter of 2014. Of the 13 companies in the sample, 11 had increased production compared with the prior year, in some cases by 30 percent or more. Most firms reported they had been able to reduce the average cost of drilling and completing each well by about 20 percent compared with the end of 2014. Average output per well has been boosted by pulling rigs back to the most consistently productive areas of the major shale plays. And the time needed to drill each well, stimulate it by pressure pumping and fix the wellhead equipment has been cut sharply by getting crews to focus on drilling the same formations over and over again.
Chevron Takes Harder Punch From Low Oil – WSJ - A year ago, Chevron was booking the most profit per barrel among the world’s biggest oil companies, with its sights set on generating more cash than larger rivals Exxon Mobil Corp. and Royal Dutch Shell. Today Chevron has slipped hard, as the drop in oil prices combined with its own ambitious expansion have weighed heavily on its earnings. The company’s stock price has underperformed Exxon and Shell over the past year—during which oil prices fell sharply—after besting its two bigger competitors during the previous five years. Chevron’s stock price, which rose 2.5% on Monday to $85.89, is down 32% for the past year, compared with a 20% drop at Exxon. Chevron’s $571 million profit in the second quarter was just 10% of its haul a year earlier. Had Chevron not booked a gain for selling a stake in an Australian refiner, the company would have posted a quarterly loss for the first time in almost 20 years. Excluding asset sales and noncash impairments, Chevron earned $1.8 billion, or 97 cents a share. Exxon and other oil powerhouses have struggled to tame costs and deliver complex projects on time in recent years, but none has bet more on massive energy developments than Chevron. And as its cash flow sinks, the company is hitting snags with a suite of new, multibillion-dollar projects, aimed at boosting its oil and gas output by roughly 20% within two years—a much larger increase than its rivals have pursued.
EOG Resources reports small profit, but down 99 percent from last year - EOG Resources posted a $5.3 million net profit for the second quarter that is 99 percent less than the large $706 million gain from the same period last year before oil prices plummeted. The North American shale giant’s small profit is still a step forward from the nearly $160 million reported in the first quarter of the year. EOG’s $2.47 billion in second-quarter revenues dipped sharply from $4.19 billion during the same time last year. EOG said it is maintaining oil production guidance for 2015 and reducing its capital spending guidance by another $200 million because of improved cost efficiencies. The company said it is refraining from growing oil production into an over-supplied market, even though the CEO said it is now set up to profit in a $50 per barrel oil environment. “The company is generating good returns in all our key assets with $50 oil. Our goal is to continue our progress and remain the industry leader in capital returns.” While Thomas said EOG is doing well in Texas’ Eagle Ford Shale, he specifically highlighted the performance in North Dakota’s Bakken Shale. EOG increased its net resource potential in the Bakken and Three Forks plays from 400 million barrels of oil equivalent to 1 billion barrels of oil equivalent and grew its total net wells from 580 to 1,540.
Dune Energy claims Chapter 11: Louisiana oil fields fetch $19 million dollars - With crude oil prices dropping to their lowest since 2009, is it any surprise to see so many oil and gas assets changing hands as companies seek Chapter 11 bankruptcy protection? Dune Energy is one of the many companies striving to survive the current crude oil market lows, filing this past March. Other companies include: Sabine Oil & Gas Corp., American Eagle Energy Corp. Milagro Oil & Gas and BPZ Resources. As reported by the Wall Street Journal, “The Houston-based, energy company filed for Chapter 11 protection in U.S. Bankruptcy Court in Austin, Texas, listing assets of $229.5 million and debts of $144.2 million. Senior lenders are owed $39 million, while second-lien lenders are owed nearly $68 million. As a condition of a $10 million bankruptcy loan, Dune’s senior lenders are requiring that the company put itself up for auction.” Dune sought out potential merger partners without much success. They were only able to locate one interested party: Eos Petro. The deal didn’t sit well with everyone. One of Dune’s investors, Thomas Whatley, filed a lawsuit aimed at killing the deal because the price was too low. The lawsuit ultimately proved unnecessary as Eos was unable to secure the financing. The failed merger left Dune with few attractive options to pay off debts and investors. The next plausible step in their Chapter 11 obligations, was to sell off assets. As reported by OilVoice, White Marlin Oil and Gas paid $19 million dollars for Dune Energy assets after a contentious auction with accusations flung at Chevron and Enervest Energy that their demands scared off potential higher bidders. The accusations remain unfounded.
California Pension Funds Lost More Than $5 Billion From Fossil Fuel Holdings --A new report released yesterday from Trillium Asset Management found that California’s public pension funds, CalPERS and CalSTRS, incurred a massive loss of more than $5 billion in the last year alone from their holdings in the top 200 fossil fuel companies. The funds, combined, incurred a loss of $840 million from stock investments in the world’s largest coal companies. Together, the two influential and enormous pension funds represent a total of nearly 2.6 million members in the state. A new report released yesterday from Trillium Asset Management found that California’s public pension funds, CalPERS and CalSTRS, incurred a massive loss of more than $5 billion in the last year alone from their holdings in the top 200 fossil fuel companies. This report comes as S.B. 185, a bill to divest CalPERS and CalSTRS from coal, awaits a vote in the Assembly. The bill has already jumped major hurdles through the State Senate and an Assembly Policy Committee. If passed through the Assembly, the bill will make its way to the desk of Gov. Jerry Brown, where he will will either affirm California’s position as a climate leader, or fail to take climate action he has acknowledged as necessary. “This is a material loss of money, which directly impacts the strength of the pension fund,” said Matthew Patsky, CEO of Trillium Asset Management. “Fossil fuel stocks are volatile investments. Investors and fiduciaries should take this moment to reassess their financial involvement in carbon pollution, climate disruption and the financial risk fossil fuels plays in their portfolio.” Just last week, Bloomberg News reported that CalPERS lost $40 million in market value from investments in a single oil company.
Cheap Debt Vanishes for U.S. Junk Issuers in Oil's Cruel Summer - The weakest corporate borrowers are finding the days of free-flowing credit quickly evaporating. The $39.6 billion of junk-rated bonds and loans issued since July is the least since the summer of 2008, according to data compiled by Bloomberg. For those that are coming to market, many are paying up or struggling to find buyers at terms they can stomach. Appetite for energy companies, in particular, has vanished just as they need to refinance big credit lines they took out when oil was more than twice its current price. "The weaker guys got spoiled, the market was buying anything and everything and taking the price. But the market has changed, and the turning point was the commodity cycle.” Natural-gas compressor Exterran Holdings Inc. said in July that it was withdrawing a $400 million note sale that would have paid down debt, and WPX Energy Inc. sweetened terms on a $1 billion bond deal that is being used to finance an acquisition. The timing couldn’t be worse for drilling companies that until now have been selling bonds to help forestall a cash crunch. With banks set for semiannual re-evaluations of energy-company credit lines, many of which will come in October, issuers may find access to debt markets throttled. The loans are based on the value of producing reserves.
Oil Majors’ $60 Billion Cuts Don’t Go Far Enough as Crude Slides - The $60 billion of oil-industry spending cuts this year aren't likely to be enough to meet sacrosanct dividend commitments as crude languishes near a six-year low. The world’s biggest producers will need to trim investments by a further $26 billion, according to Jefferies Group LLC. Capital spending will have to fall 10 percent next year, Banco Santander SA says. Oil companies are bracing for “lower for longer” prices as a global supply glut persists, dragging crude to the lowest close since March 2009 in New York on Tuesday. Royal Dutch Shell Plc, which has reduced spending 20 percent this year, has “more levers to pull” should the market weaken further, according to Chief Executive Officer Ben Van Beurden. The tightening means international producers such as Shell and Chevron Corp. can break even at a lower crude price -- about $10 lower than before they started cuts last year, according to Jefferies analyst Jason Gammel. Oil companies are bracing for “lower for longer” prices Still, they’ll need Brent at $82 a barrel next year to balance cash flow from operations with investments, he said. Santander’s Jason Kenney puts the breakeven level at $70, about $20 above current prices. That gap is reflected in energy stocks, which are among the world’s worst performers this year.
Why an Oil Glut May Lead to a New World of Energy -- ExxonMobil and Chevron, the top two U.S. oil producers, announced their worst quarterly returns in many years. Exxon, America’s largest oil company and normally one of its most profitable, reported a 52% drop in earnings for the second quarter of 2015. Chevron suffered an even deeper plunge, with net income falling 90% from the second quarter of 2014. In response, both companies have cut spending on exploration and production (“upstream” operations, in oil industry lingo). Chevron also announced plans to eliminate 1,500 jobs. Painful as the short-term consequences of the current price rout may be, the long-term ones are likely to prove far more significant. To conserve funds and ensure continuing profitability, the major companies are cancelling or postponing investments in new production ventures, especially complex, costly projects like the exploitation of Canadian tar sands and deep-offshore fields that only turn a profit when oil is selling at $80 to $100 or more per barrel. According to Wood Mackenzie, an oil-industry consultancy, the top firms have already shelved $200 billion worth of spending on new projects, including 46 major oil and natural gas ventures containing an estimated 20 billion barrels of oil or its equivalent. Most of these are in Canada’s Athabasca tar sands (also called oil sands) or in deep waters off the west coast of Africa. Royal Dutch Shell has postponed its Bonga South West project, a proposed $12 billion development in the Atlantic Ocean off the coast of Nigeria, while the French company Total has delayed a final investment decision on Zinia 2, a field it had planned to exploit off the coast of Angola. “The upstream industry is winding back its investment in big pre-final investment decision developments as fast as it can,” Wood Mackenziereported in July.
Exclusive: Hillary Clinton State Department Emails, Mexico Energy Reform and the Revolving Door - Steve Horn - Emails released on July 31 by the U.S. State Department reveal more about the origins of energy reform efforts in Mexico. The State Department released them as part of the once-a-month rolling release schedule for emails generated by former U.S. Secretary of State Hillary Clinton, now a Democratic presidential candidate. Originally stored on a private server, with Clinton and her closest advisors using the serverand private accounts, the emails confirm Clinton’s State Department helped to break state-owned company Pemex‘s (Petroleos Mexicanos) oil and gas industry monopoly in Mexico, opening up the country to international oil and gas companies. And two of the Coordinators helping to make it happen, both of whom worked for Clinton, now work in the private sector and stand to gain financially from the energy reforms they helped create. The appearance of the emails also offers a chance to tell the deeper story of the role the Clinton-led State Department and other powerful actors played in opening up Mexico for international business in the oil and gas sphere. That story begins with a trio.
Move to Allow U.S. Oil Exports Accelerates - WSJ: Big voices in the oil industry and Congress now support a move that would have been unthinkable not long ago: opening the U.S. oil industry to exports. The U.S. has long pushed for liberalized trade, with U.S.-produced crude being the biggest exception since the shock of the 1973 Arab oil embargo led Congress to ban oil exports under nearly all circumstances. The only other U.S. products banned under the same regulations are a type of tree found in Western North America called Western red cedar and live horses for slaughter shipped by sea. The House now looks likely to vote as early as September to lift the oil-export ban, with Senate action anticipated early next year, which would mark a milestone few saw coming. “Go back seven years, you would not have imagined that there would be a debate about U.S. exporting oil,” said Daniel Yergin, vice chairman of research firm IHS. But while freely exporting U.S. oil may come as a shock to some Americans, it probably won’t cause much of an economic stir, especially with global oil prices hovering below $50 a barrel. Thanks to the fracking revolution, the U.S. is no longer the energy-dependent nation it was for most of the past 50 years. Oil production since 2007 has shot up more than 80% to 9.5 million barrels a day. The U.S. still imports a lot of oil, but the share of petroleumfrom foreign sources, 27%, is at its lowest level since 1985, according to the U.S. Energy Information Administration. More than a dozen oil companies, including Continental Resources Inc., ConocoPhillips and Marathon Oil, and several top lawmakers, including Sen. Lisa Murkowski (R., Alaska) and House Speaker John Boehner (R., Ohio), contend that allowing unfettered domestic oil exports would eliminate market distortions and streamline U.S. petroleum production. The Obama administration hasn’t taken a public position on the issue.
This Week In Energy: Depressed Oil Market Still Sees Production Gains -- Second quarter earnings have largely reflected the depressed market conditions, with revenues down by significant margins across the board. From the oil majors on down to the small drillers, the second quarter of 2015 was a disappointing one. At the same time, oil drillers are still managing to post production gains, surprising energy analysts that have been predicting declines up until now. Part of the reason is the fact that projects have been in the pipeline for quite a while, coming to fruition only recently. That adds more capacity to company portfolios. Still, oil companies are finding more and more ways to squeeze out efficiencies, such as drilling more wells per rig. Anadarko, Devon Energy and Whiting Petroleum all reported impressive production figures, as drilling efficiencies allowed them to actually boost production, even in a depressed marketplace. Devon Energy reported that it succeeded in increasing production by 30 percent in the second quarter compared to the same quarter in 2014. Even more boldly, Pioneer Natural Resources, on the back of its 10 percent gain in production in the second quarter, said that it is planning on adding two rigs per month between now and the end of 2015. The Permian Basin in West Texas remains one of the few bright spots compared to other shale basins in North America. Drilling there is still profitable, with low costs and existing infrastructure. A series of pipelines have come online in West Texas over the past year, eliminating the discount that Permian oil traded at compared to the WTI benchmark. The Wall Street Journal notes that RSP Permian, a Permian driller, successfully sold new equity, a sign that investors are still keen on drillers in the basin. RSP sought to raise funds to complete acquisitions and the company raised $157.5 million by selling new stock this week. There is a lot of speculation about when and to what extent lenders and equity investors will pull out of the shale sector, but RSP’s successful offering demonstrates that there is still an appetite for shale companies among investors.
EIA lowers 2015, 2016 U.S. crude oil production forecasts – The U.S. government on Tuesday lowered both its 2015 and 2016 U.S. crude oil production forecasts as a 60-percent rout in benchmark prices since last summer weighs on shale output. In its short term energy outlook, the U.S. Energy Information Administration lowered its 2015 U.S. crude oil production growth forecast to 650,000 barrels per day (bpd) from 750,000 bpd, and also expanded the expected production decline for 2016 to 400,000 bpd from 150,000 bpd previously. “While U.S. crude oil production this year is expected to be 100,000 barrels per day less than previously forecast, oil output is still on track to be the highest since 1972,” EIA Administrator Adam Sieminski said in a statement. Meanwhile, it left its 2015 U.S. oil demand growth forecast unchanged at 400,000 bpd from last month, and raised its 2016 demand growth forecast to 190,000 bpd from 130,000 bpd previously. The move comes as benchmark prices have collapsed on the back of a global glut and waning demand. On Tuesday, U.S. crude futures were trading at session lows and near 2015 lows. The production adjustments come after the EIA forecast on Monday that U.S. oil production from the largest shale plays was set to deepen declines for a fifth consecutive month in September..
The Louisiana Offshore Oil Port rising to meet the needs of crude oil storage - Currently, LOOP has 60 million barrels underground capacity, and once construction is finished, their final above ground storage will be 10.1 million barrels. According to Don Briggs, president of the Louisiana Oil & Gas Association,of low oil prices and will benefit the state of Louisiana. As reported by The Associated Press, published on NOLA.com, Briggs said, “What drives a lot of this new storage — not just here, but in other parts of the world — is the fact that oil prices are so low. When you have cheaper oil prices, it’s a good time to be able to buy, but it doesn’t do you any good to buy if you don’t have a place to put it.” The new oil tanks are meant to meet this increasing demand for storage. Not all oil storage centers are created equal, especially when it comes to price. Increased demand has led to increasing monthly prices per barrel. With oil prices already hitting alarming lows, companies are struggling to minimize their costs. Enter LOOP, which is already one of the largest oil trading and distribution facilities in the US. Their affordable prices make them the obvious choice for companies looking to store a surplus of crude oil domestically. As reported by the Advocate, “It’s all part of the bizarre oilscape, where the glut of domestic oil has made storage space a valuable commodity. Here’s why: Futures contracts for oil are selling for about $10 a barrel more than the current price. For example, the contract for oil to be delivered in April 2016 is nearly $58 a barrel. The U.S. benchmark price has been under $50.” What this means is that as long as storage facilities offer cheap rent, it literally makes “cents” to store crude oil for future sale at higher prices.
Have We Reached A Bottom For Oil Prices? - Bouncing off of four-month lows, oil prices rose a bit on August 10, as WTI tried to climb back to $45 per barrel and Brent jumped above $50. The slight uptick was due to data showing that China’s oil imports so far this year are up 10 percent from a year earlier. That supported the notion that demand is rising and could (very slowly) start to soak up extra supply. However, don’t get too excited just yet – analysts say that China’s oil imports are temporarily elevated as the government seeks to capitalize off of low crude prices for its strategic petroleum reserve. Seizing on the opportunity to buy up oil on the cheap, once the stockpile build is achieved, China’s oil demand could level off. Moreover, China announced a surprise devaluation of its currency, the yuan, on August 11. The move could provide fresh worries over its oil demand because a weaker currency would make oil more expensive. The devaluation by the central bank was intended to keep growth humming along, but for oil markets, it is a negative. Meanwhile, OPECannounced that its production levels have hit a three-year high as Iran managed to boost output. The oil cartel produced 31.5 million barrels per day in July, or an increase of 100,700 barrels per day over the previous month’s total. Iran posted a gain of 32,300 barrels per day, reaching 2.86 million barrels per day. That was the highest tally for the Islamic Republic in over three years. Iraq also saw its output jump by 45,700 barrels per day to 4.1 million barrels per day. The production gains throw up new bearish signals for oil, although the increases in output are relatively small. And as oil prices have dropped to fresh lows, they have hit resistance at a very similar threshold for the second time this year (~$44 for WTI and $45-$52 for Brent), and the markets have demonstrated a reluctance to trade oil any lower, perhaps expecting oil prices can’t fall any further than where they are currently at.
Oil Prices Are Near Six-Year Lows Amid Supply Glut - Oil prices are now near a six-year low, moving down earlier today to about $44 a barrel. Friday’s decline came on the back of an upbeat jobs report, which strengthened the dollar, lowering oil prices. The fall has been precipitous: Only a year ago, crude oil was more than $100 a barrel. The slide has prompted fears the market may be oversupplied with oil. In some sense, the story is the same as when oil prices first started falling last summer: one of increased supply, paired with aslow recovery (America) and a slowdown (China) in oil-guzzling economies. But there’s another story: Amid the glut and falling prices, Saudi Arabia, one of the world’s top oil producers, reported in June its highest level of crude oil output on record. OPEC, the cartel of oil-producing countries, made a gamble to keep production steady in a high-stakes game of chicken with the U.S. shale-oil industry—a gamble that’s projected to result in trillions of dollars in revenue losses for the oil industry over the next several years. A report from the Saudi central bank suggests while non-OPEC producers are not losing in the price war, more patience is needed from OPEC producers. But the effort to hurt other producers may be backfiring: Saudi Arabia is facing huge budget deficits this year due to low oil prices—the government has started dipping into its reserves and the deficit for 2015 is expected to be 20 percent of gross domestic product. Analysts say U.S. oil producers need to cut production by 500,000 barrels a day to bring supply levels down to boost prices. If not, some analysts are now predicting that oil could briefly hit $30 a barrel before the price war ends.
U.S. crude ends at 6-yr low on China devaluation, OPEC data (Reuters) - U.S. crude settled at a more than six-year low on Tuesday after China's currency devaluation raised questions about oil demand in the No. 2 consumer and a new OPEC estimate showed non-member producers are likely to keep output high despite low prices. A BP refinery outage in Whiting, Indiana, that could last at least a month, idling some 240,000 barrels per day of crude distillation, also weighed on oil prices, traders said. U.S. crude fell $1.88, or more than 4 percent, to$43.08 a barrel, its lowest settlement since March 2009, and about $1 above the 2015 contract low on March 18. Brent fell $1.23, or 2.4 percent, to $49.18 a barrel, paring more than half of its gains in a rally on Monday. The market continued to weaken in post-settlement trade after the American Petroleum Institute (API), an industry group, reported a smaller-than-expected drawdown in U.S. crude inventories last week. China devalued its yuan currency by nearly 2 percent after a run of poor economic data, guiding the currency to a near three-year low. The Organization of the Petroleum Exporting Countries projected that crude supplies from countries outside the group will rise by 90,000 bpd this year, a sign that crude's price collapse was taking longer than expected to hit U.S. shale drillers and other competing sources.
Posted price of crude oil hits lowest mark since 2009 - — Consumers will be thrilled to see the price of a gallon of regular gasoline drop even more in the next several months, but that’s not good news for the oil industry. Karr Ingham, a petroleum economist in Amarillo, said the posted price of a barrel of Texas Intermediate Crude has dropped about 60 percent since June 2014 when it was right around $104. It’s been a roller coaster ride since then with the price per barrel dropping farther on Tuesday to $39.75, the first time the price has been below $40 since March 2009. The posted price, he explained, is the set price a company is willing to sell its oil or other commodities. Traditionally reported prices by media outlets come from the New York Mercantile Exchange where prices are speculative and typically about $3 more than the posted price. Ingham agreed the oil industry is in a sort of Catch 22 predicament where it is obligated to continue pulling crude out of the ground, but by doing so they flood an already saturated market that already doesn’t have enough demand. Some have “foolishly or naively” suggested the industry come together and reduce the amount of daily production, but that’s not how the market functions in North America. “The market forces moves in one direction or another,” he said of the supply and demand theory. “It’s only in other places like Saudi Arabia and most OPEC countries and most other (oil) producing countries, frankly, that is very centrally managed and government managed. In those places, they can decide to turn the spigot up or down or what have you, and not always with the best outcomes, of course.”
Are The Saudis Winning? US Crude Production Slows To Lowest In 3 Months -- US crude production declined 0.74% last week to its lowest level since May 15th. US crude inventories dropped for the 4th week of the last 5, but considerably less than expected. And inventories dropped again... Charts: Bloomberg
Oil market adjustment is about more than just shale (Reuters) – U.S. shale oil production amounted to just 5 million barrels per day (bpd) at the end of 2014, less than 6 percent of world production and consumption. Despite the shale sector’s small market share, it has disrupted the entire oil industry because it emerged in the middle of the cost curve and has accounted for more than half of the increase in global supplies since 2010. Between 2010 and 2014, shale output rose by 4 million bpd, accounting for more than half of the 7 million bpd increase in global liquids production over the same period, according to the U.S. Energy Information Administration (EIA). Shale is more expensive to produce than oil from the giant conventional fields of the Middle East but cheaper than deepwater megaprojects and competes directly against the North Sea and Canada’s oil sands. Shale’s competitiveness on price and fast growth have scrambled the plans for every other participant in the oil industry. Megaprojects developed by the major international companies must now be benchmarked at prices of just $70 or even $50 a barrel rather than the $80-$100 which underpinned planning assumptions until a year ago. Middle East exporters, accustomed to spending profits of more than $50 per barrel on social programs, must now adjust to far smaller revenues. And high-cost producers in the North Sea, Alberta, Latin America, Africa and frontier exploration areas are struggling just to survive.
Crude Oil Price Slips as Inventory Dips Less than Expected - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories decreased by 1.7 million barrels last week, maintaining a total U.S. commercial crude inventory of 453.6 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years. Tuesday evening, the American Petroleum Institute (API) reported that crude inventories fell by 847,000 barrels in the week ending August 7. For the same period, analysts surveyed by Platts had estimated a decrease of 1.9 million barrels in crude inventories. The API also reported that gasoline inventories increased by 117,000 barrels and that distillate stockpiles rose by 2.2 million barrels. Total gasoline inventories decreased by 1.3 million barrels last week, according to the EIA, and remain in the middle of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged over 9.6 million barrels a day for the past four weeks, up by 6.6% compared with the same period a year ago. Recent oil market status reports from OPEC, the International Energy Agency (IEA), and the EIA’s own update to its Short-Term Energy Outlook indicate that supply continues to exceed demand, but that demand is growing globally and supply is beginning to slow in the United States, particularly. OPEC supply remains high and could rise even more, depending on whether the Iran nuclear agreement is approved and sanctions against Iran are lifted.
Oil Inventory to Stay High in 2016, Even With Greater Demand - Don’t expect oil prices to rise next year. As a matter of fact, they may fall. The International Energy Agency (IEA), in its monthly forecast for August, laid out a case for greater supply, which will face enough demand so that the oil price trend will not be alleviated: From the driller in the Bakken to the motorist at the pump, oil market players are adjusting to a world of lower prices. Our latest forecast shows stronger-than-anticipated demand and non-OPEC supply growth swinging into contraction next year. While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016 – suggesting global inventories will pile up further. OPEC traditionally controls the world’s supply, and to some extent sets prices. Its leverage has dropped, and will continue to do so: But OPEC only accounts for a bit more than half of the annual increase in world oil supply. While non-OPEC output growth has sunk from its heights of 2014, supply in July was still running 1.2 mb/d on a year earlier thanks to hefty investment made previously However, OPEC’s activity cannot be discounted, particularly as nations and large oil companies outside the organization may find oil prices too low to keep up exploration. Part of the trigger is not just oil but refinery activity: Global refinery runs reached a record 80.6 mb/d in July, 3.2 mb/d up on a year earlier, but fissures are showing. High distillate stocks have pushed cracks in Singapore down to their lowest level since 2009 and prompted run cuts in Asia. Elsewhere, especially in the US, still-soaring gasoline cracks supported high margins and throughput.In sum, oil prices are more likely to sit at $50 than race back to $100.
Baker Hughes oil rig count rises again, up 2: U.S. crude oil closed higher on Friday after oilfield services firm Baker Hughes reported its oil rig count rose for a fourth straight week. The number of rigs drilling for oil in the United States rose by 2 from the previous week, bringing the total to 672. Drillers had 1,589 rigs online at this time last year. U.S. crude was closed up 27 cents, or 0.6 percent, at $42.50 a barrel, after hitting an intraday low of $41.35, its lowest since March 4, 2009. The lowest U.S. crude price in the aftermath of the financial crisis occurred on January, 2009, when WTI dipped to $33.20 per barrel, falling 77 percent fall from it peak near $147 in July, 2008. Brent crude traded at $48.90, down 30 cents and some way off its 2015-low of $45.19 reached in January. The front-month September Brent contract expires on Friday. U.S. benchmark crude steadied earlier on Friday after falling to its lowest in almost 6½ years as huge stockpiles and refinery shutdowns heightened concerns about global oversupply. Oil had already tumbled more than 3 percent on Thursday, driven by a report that stocks at Cushing, Oklahoma, the delivery point for U.S. crude futures, rose more than 1.3 million barrels in the week to Aug. 11.
Permian Basin dominates rig counts -- Despite being halved in the past year, the Permian Basin’s rig count heads the upswing with more rigs than any other US region. It’s been a rough year for rig counts in every shale play across the country, and the Permian Basin has been no exception. In the past 12 months, capped August 7 2015, the Basin suffered a loss of rigs, accounting for more than half of its oil and gas rigs. Despite the heavy toll of the global oil slump, Market Realist reports that, of the 670 US rigs in operation, Baker Hughes found that Permian Basin is home to 252—a staggering number compared to the 79 rigs in the Eagle Ford Shale and 72 in the Williston Basin. The Basin’s sharp decline in rig counts, and thus dwindling drilling activity, is likely to weigh down production growth. There is hope, however, that if growth in Permian rig counts continues its pattern, production growth will follow suit.
Why U.S. rig counts are rising even as oil plunges to new lows - Is OPEC winning its price war with U.S. shale-oil producers? U.S. production has started to slow, but the number of rigs drilling for crude oil has ticked up in recent weeks, ending months of steep declines, just as oil futures took another hit. What gives? Data through Aug. 7, 2015 “The recent increase in rig counts is due to prices two months ago. There’s always a lag between price changes and drilling activity,” explained James Williams, economist at WTRG Economics. “With the recent drop in prices, we’ll probably see some pressure on rig counts to slack off again.” On Friday, oil-services firm Baker Hughes said the number of U.S. oil rigs rose for a fourth straight week. There were a total of 672 rigs as of Friday, up two from a week ago. The number of rigs bottomed at 628 in late June, ending months of steep declines. Still, the number of rigs is down 917 from this time last year. Oil began a plunge in mid-2014, driving the price of West Texas Intermediate futures on Nymex to less than $44 a barrel by March of this year from a high in June 2014 of around $107 a barrel.The global supply glut that triggered the selloff last year hasn’t gone away. That glut is in part a product of a massive rise in U.S. shale-oil production over the last half-decade. And while U.S. production has fallen, it hasn’t declined as quickly as many had anticipated. That is partly because technological improvements allow frackers to get more oil out of fewer wells with less expense. “Costs are down, rig efficiency is up, and they’re drilling in places where they get more wells,” So, what does it all mean for Saudi Arabia and its allies in the Organization of the Petroleum Exporting Countries? Despite the recent uptick in rig counts, major shale regions, with the exception of the Permian Basin, are on track to see production fall from last year. “So that’s a validation of the OPEC strategy if you want, but it didn’t validate it as much as they had hoped,”
Why Crude Oil's Carnage Has Only Just Begun - "Summer is when refineries are all running hard, so actual demand for crude is as good as it gets,” notes Citi's Seth Kleinman, London-based head of energy strategy, but U.S. crude futures have lost 30 percent since the start of June, set for the biggest drop since the West Texas Intermediate crude contract started trading in 1983. That beats the summer plunges during the global financial crisis of 2008, the Asian economic slump in 1998 and the global supply glut of 1986. As Bloomberg reports, if crude’s slump back to a six-year low looks bad, it’s even worse when you reflect that summer is supposed to be peak season for oil. OPEC’s biggest members are pumping near record levels to defend their market share and U.S. production is withstanding the collapse in prices and drilling. The oil market is still clearly oversupplied and “it will get more so as refiners go into maintenance,” Kleinman said. * Perhaps last night's flash crash is a sign of things to come...
Oil Futures Signal Weak Prices Could Last Years - WSJ: The oil market is signaling that prices could stay lower for longer, delivering a fresh blow to hard-hit energy exploration-and-production companies. Benchmark U.S. oil futures for September delivery are nearing the six-year low hit in March. But contracts for delivery in later years have taken an even bigger hit, with prices for 2016 and 2017 already trading below their March lows. That indicates that investors, traders and oil companies see the global glut of crude oil persisting beyond this year. Companies making long-term investment decisions rely on the prices of futures contracts one or more years in advance. Producers trade futures and options contracts for coming years to lock in prices for the oil they plan to sell in those years.A number of U.S. shale-oil producers say they can profitably increase production if prices rise above $65 a barrel. On Friday, front-month oil prices fell 79 cents, or 1.8%, to $43.87 a barrel, while futures for delivery in December 2016 settled at $51.88 a barrel. The most expensive benchmark oil-futures contracts, which were dated for delivery in 2022 and 2023, settled at $63.26 a barrel. For many producers, such as Diamondback Energy Inc. and Marathon Oil Corp., later-dated contracts are now too cheap to justify locking in prices. That means producers are likely to enter 2016 with fewer price hedges on the books than usual, if they have any at all.Companies without price protection in 2016 could be forced to cut back further on new drilling if prices remain below their break-even costs. “I think it’s a fair assessment that just about nobody is putting on hedges at this point,”
OPEC says cheap oil taking longer to subdue rival suppliers - – OPEC on Tuesday raised its forecast of oil supplies from non-member countries in 2015, a sign that crude’s price collapse is taking longer than expected to hit U.S. shale drillers and other competing sources. In a monthly report, the Organization of the Petroleum Exporting Countries (OPEC) forecast no extra demand for its crude oil this year despite faster global growth in consumption, because of higher-than-expected production from the United States and other countries outside the group. Oil is trading below $50 a barrel, close to its 2015 low after an 18 percent drop in July. But OPEC has refused to cut output, seeking to recover market share by slowing higher-cost production in the United States and elsewhere that had been encouraged by OPEC’s prior policy of keeping prices near $100. Earlier this year, OPEC slashed its prediction of non-OPEC supply for 2015, expecting lower prices to prompt a slowdown. But on Tuesday, it raised the forecast by about 90,000 barrels per day (bpd), following a 220,000-bpd increase in last month’s report. “U.S. onshore production from unconventional sources is currently expected to decline marginally in the second half of 2015 through year-end, while U.S. offshore production is expected to grow due to project start-ups,” OPEC said. “Recent developments in the upstream as well as renewed oil price volatility have made forecasting non-OPEC supply more challenging.”
OPEC Supply Reaches 3-Year High as Iran Pumps Most Since ’12 - OPEC pumped the most crude last month in more than three years as Iran restored output to the highest level since international sanctions were strengthened in 2012. The Organization of Petroleum Exporting Countries, responsible for 40 percent of world oil supplies, raised output by 100,700 barrels a day to 31.5 million last month, the group said in its monthly market report, citing external sources. This increase came even as Saudi Arabia, which often curbs output toward the end of peak summer demand, told OPEC it cut production by the most in almost a year. Oil prices slumped to a six-month low below $50 a barrel in London last week as rising OPEC supplies, resilient U.S. production and concerns over Chinese demand prolong a global glut. Iran may further expand output after reaching an accord with world powers on July 14 that will ease sanctions on oil exports later this year in return for curbs on its nuclear activity. “Iran has been rising slowly but surely for a while now,” . “It doesn’t need foreign investment to revamp existing infrastructure and prepare fields, resulting in the small increases you can see now. But the bulk of the increase is expected once it becomes clear sanctions will definitely be lifted.”
From Currency Wars To Oil Wars - OPEC Ups Production To 3 Year Highs As Iran Output Surges -- As China takes the currency wars to the next level, so OPEC, not to be outdone, rotates the oil war volume to 11. As Bloomberg reports, OPEC pumped the most crude last month in more than three years as Iran restored output to the highest level since international sanctions were strengthened in 2012. The response - as one would expect - is a plunge in crude prices, erasing all the ridiculous algo-driven gains of yesterday, pushing WTI back on the verge of a $42 handle. As Bloomberg reports, The Organization of Petroleum Exporting Countries, responsible for 40 percent of world oil supplies, raised output by 100,700 barrels a day to 31.5 million last month, the group said in its monthly market report, citing external sources. This increase came even as Saudi Arabia, which often curbs output toward the end of peak summer demand, told OPEC it cut production by the most in almost a year. Iran may further expand output after reaching an accord with world powers on July 14 that will ease sanctions on oil exports later this year in return for curbs on its nuclear activity. “Iran has been rising slowly but surely for a while now,” . “It doesn’t need foreign investment to revamp existing infrastructure and prepare fields, resulting in the small increases you can see now. But the bulk of the increase is expected once it becomes clear sanctions will definitely be lifted.” Iran increased output by 32,300 barrels a day in July to 2.86 million a day, the highest since June 2012, according to data OPEC compiles from “secondary sources” such as media agencies and international institutions. Sanctions to deter the nation’s nuclear research took effect in July that year.
Oil Trades Under $42 To 6 Year Lows, Gundlach Sees "Terrifying Geopolitical Consequences" Looming -- For the first time since March 2009, the front-month WTI crude futures contract has traded with a $41 handle. As it draws ever nearer the 2009 lows, we are reminded of the ominous warnings that DoubleLine's Jeff Gundlach issued in January. - "I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying." As we previously discussed in January, in a recent interview with FuW, DoubleLine's Jeff Gundlach explained his concerns about the oil market not being "unequivocally good" for everyone... Gundlach is right historically... Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the 'difference this time' is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.
Crude Prices Seen Staying Below $70 a Barrel Over The Next Year - WSJ: As U.S. crude prices hit a six-year low Thursday, a survey of 10 investment banks by The Wall Street Journal showed increasing pessimism about the outlook for oil. The average forecast of 10 banks surveyed this month was for oil prices to stay below $70 a barrel until late next year. They expect Brent crude, the international price benchmark, to average $58 a barrel this year, down from the forecast of $62 a barrel in May’s survey. For U.S. oil, the average forecast of the banks was $54.50 a barrel this year and $63.40 in 2016. Both grades of crude were trading at more than $100 a barrel a little over a year ago. “The heart of the matter is simple: There is too much oil,” said Michael Wittner, global head of oil research at Société Générale, one of the banks surveyed. “We are now forecasting significantly more global oversupply than previously, in both 2015 and 2016, which will continue to weigh on prices.” On Thursday, U.S. crude for September delivery fell $1.07 a barrel, or 2.5%, to $42.23 on the New York Mercantile Exchange, slipping below the low for the year set Tuesday and its lowest close since March 3, 2009. Brent crude fell 44 cents a barrel, or 0.9%, to $49.22. Oil’s price plunge since June 2014 has come amid a persistent glut of crude, increased concerns over an economic slowdown in China, and fears that Iran’s recent rapprochement with the West will unlock new barrels of crude onto the oversupplied market. These factors promise more cheap fuel for consumers and businesses around the world, while providing an extra headache for some central bankers worried about lower inflation, and for oil-producing economies from Russia to Canada.
Saudi Oil Strategy: Brilliant Or Suicide? -- IN the last quarter of 2014, in the face of possible oversupply, Saudi Arabia abandoned its traditional role as the global oil market’s swing producer and therefore it role as unofficial guarantor of existing ($100+ per barrel) prices. In October, Saudi sources first prepared the market with statements that the country would be comfortable with oil prices as low as $80 per barrel for “a year or two.” At the November OPEC meeting, the Saudi oil minister, Ali Al-Naimi, publicly announced Saudi Arabia would allow market forces to set prices. Parallel with this shift, Saudi officials expressed confidence in their country’s financial wherewithal to withstand the repercussions of lower oil prices. The Saudis obviously miscalculated the degree to which their shift would negatively impact oil prices. The average price of Brent, the global benchmark, fell below the Saudis’ $80 floor in November, fell to $62.34 in December, then fell below $50 in February. Prices rebounded to $60 for a few months, before falling once again below $50. Plunging oil prices have substantially reduced Saudi revenues. With Brent prices averaging roughly $100 per barrel in 2014, Saudi oil exports of 6.31 million barrels per day would have generated roughly $631 million in revenues daily. In the first quarter, with Brent prices averaging $53.92, the same output would have generated roughly $340 million daily, $291 million less per day than oil at $100 per barrel. The Saudis have attempted to mitigate the revenue shortfall through increased production, ramping up output from 9.6 million barrels per day in the fourth quarter of 2014 to an eye-popping 10.5 million barrels per day in June. The revenue from increased production, however, is overwhelmed by the collapse of prices, which has ripped a substantial hole in the Saudi budget. In December 2014, the Saudi government approved spending $229 billion in 2015, resulting in an estimated deficit of $39 billion, or some 5 percent of GDP. As mid-year 2015 approached, the IMF estimated the budget deficit would equal approximately 20 percent of Saudi GDP. The Financial Times quoted analysts as estimating the Saudi budget deficit in 2015 at $130 billion. Even with massive deficit spending, the IMF estimated GDP growth would slow from 3.6 percent in 2014 to 3.3 percent in 2015, and then just 2.7 percent in 2016.
Global oil supply grows at ‘breakneck speed’, says IEA - FT.com: The global oil glut will persist well into 2016, the world’s leading energy body said on Wednesday, even as the collapse in prices is pushing up demand at the fastest pace in five years. The International Energy Agency, the west’s oil watchdog, said global oil supplies are still growing at “breakneck speed” and outstripped consumption in the second quarter by 3m barrels a day, the most since 1998. “While a rebalancing has clearly begun, the process is likely to be prolonged,” the IEA said in its closely watched monthly oil market report. “Global inventories will pile up further,” it said, adding that demand will not cut into the surplus until late 2016 at the earliest. Oil’s plunge to below $50 a barrel from a high of $115 a barrel in June last year threw the budgets of oil exporting countries into disarray, rocked the financial markets and forced the world’s biggest energy companies to tear up their investment plans. The oil industry is hunkering down for an extended period of depressed prices and has adopted the “lower for longer” mantra, the IEA said. While output growth from countries outside the Opec oil producers’ cartel has shrunk from 2014 highs and contributed to the 600,000 barrels a day fall in global supply to 96.6m b/d in July, non-Opec output growth is still running at about 1.2m b/d above 2014 levels so far this year. The agency said this was due to big investments in US shale and other supplies made previously. Although non-Opec supply growth will weaken by the end of this year it will not contract until 2016 when the IEA expects a 200,000 b/d drop to 57.9m b/d, led by lower supplies from the US.
OPEC and world oil supplies -- There’s been a remarkable surge in world oil production over the last year. And the United States is only part of the story. World oil production basically stagnated over most of the last decade. From January 2005 to April of last year, daily production of crude oil and condensate increased by less than half a million barrels annually. But over the last 12 months, the figure is up 3.1 mb/d. The surge in U.S. shale production, dramatic as it has been, accounts for only a little over a third of that increase. I hope to say more about the prospects for U.S. production in a subsequent post. Canada also made a noticeable contribution to the world total; I discussed reasons why Canadian oil production would increase despite the falling price of West Texas Intermediate last March. But the really astonishing change over the last year has been OPEC production. OPEC production was virtually the same in April of last year as it had been at the beginning of 2005. But it is up 1.3 mb/d over the last 12 months.And the story of increased OPEC production is not, as many people seem to assume, that the Saudis have opened the floodgates in an effort to discipline North American competitors. Saudi production is not up much from where it stood a year ago. A much bigger story is Iraq, where the ambitious new projects that the country has been pursuing for some time are finally showing some impressive results. Iranian production is also up, and significant increases could lie ahead as sanctions are lifted. Libya is still a very unstable place, but slightly less so than in the spring of last year, and that is another reason why OPEC production today is higher than it was a year ago. Here’s a longer-term perspective on what’s been happening in OPEC. The sanctions on Iran and turmoil in places like Libya and Iraq were important factors in the overall stagnation of OPEC production over the last decade. If Iraq, Iran and Libya can return to some kind of normalcy, we could soon see an additional million barrels/day increase from those three countries. And if the precarious status quo in other troubled areas such as Nigeria can be maintained, that would mean that the surge in OPEC production has only begun.
Oil market rebalancing has begun, will take time: IEA - World oil demand is growing at its fastest pace in five years thanks to rebounding economic growth and low prices, but global oversupply is so great that it will last through 2016, the West’s energy watchdog said on Wednesday. The International Energy Agency (IEA) said oil supply was continuing to grow “at a breakneck pace” but U.S. oil producers were beginning to suffer from low oil prices and output was “likely to take a hit soon”. “While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016 – suggesting global inventories will pile up further,” the IEA said in its monthly report. The agency, which advises the world’s biggest economies on energy policy, raised sharply its estimates for world oil demand growth this year and in 2016. Higher demand would push up the need for oil from producers in the Organization of the Petroleum Exporting Countries. The IEA increased its forecast of demand for OPEC crude oil plus stocks in 2016 by 600,000 barrels per day (bpd) to 30.8 million bpd. It also raised its forecast for demand for OPEC crude this year by 200,000 bpd to 29.5 million bpd.
IEA: At Least Another Year Before Oil Markets Rebalance -- World liquids demand will be huge in 2015 because of low oil prices. That’s the good news. The bad news is that the demand surge hasn’t really begun yet and over-supply will dominate the market through 2016. This is what I predicted Monday in my post “When Will Oil Prices Turn Around?” and what I reported yesterday based on the EIA STEO report. In its August Oil Market Report (OMR), the IEA revised 2nd quarter 2015 demand upward 370,000 bpd from its July estimate but also revised supply upward by 140,000 bpd. Total liquids supply is 96.53 million bpd and demand is 93.5 million bpd (Figure 1). The production surplus for the 2nd quarter of 2015 was 3.03 million bpd, 230,000 bpd lower than the agency’s July estimate (Figure 2). IEA stated that demand for the rest of 2015 will be “the biggest growth spurt in five years and a dramatic uptick on a demand increase of just 0.7 mb/d in 2014.” Consumption will likely increase 1.6 million bpd. The agency went on to say that supply continues to grow at 2.7 million bpd. IEA further suggests that the long-anticipated decline in world production will probably be most pronounced in the second half of 2015 and into 2016 “with the US hardest hit. “ The message is clear. The world continues to have an over-supply problem that is slowly improving but it will take another year before the market comes into balance.
Oil Stable Despite IEA Warning That Supply Glut Will Persist Well Into 2016 -Oil prices are oscillating higher and lower this morning (likely helped by the collapsing dollar) despite a report from The IEA that the global oil glut will persist well into 2016. As The FT reports,global oil supplies are still growing at 'breakneck speed' and outstripped consumption in the second quarter by 3m barrels a day, the most since 1998, rather ominously concluding, "while a rebalancing has clearly begun, the process is likely to be prolonged." As The FT reports, The oil industry is hunkering down for an extended period of depressed prices and have adopted the “lower for longer” mantra, the IEA said. “Global inventories will pile up further,” it said, adding that demand will not cut into the surplus until late 2016 at the earliest.“Even with the slowdown in non- Opec production and higher demand growth, a sizeable surplus remains,” the IEA said. The outlook does not include higher Iranian output should sanctions be lifted....“If the oversupply persists it becomes much more important to understand how much storage is available,” said Jamie Webster, analyst at IHS Energy. “There is not an infinite amount. Unfortunately the total volume of tankage available is an opaque topic for some key regions.” The IEA said the hundreds of billions of dollars of investment cuts by energy companies will eventually help rebalance the market. But if demand continues as it has done this year, the situation will become “increasingly sensitive”, the IEA added.
One oil chart that says it all, plus some others - Izabella Kaminska -- From the IEA’s Oil Market Report released on Wednesday: We’re heading towards 2008 levels on Opec production, with Iran crude still to hit properly and non-Opec supplies running strong. Small wonder this is happening to WTI: Yet, in the Game of Oil Charts, it’s the House of Opec which may be getting an edge of the House of Shale. Compare and contrast the top chart with the following: But, as ever, the really interesting thing here isn’t who wins the output wars but on what terms they do so. Whether US shale producers end up bowing to Opec, or not, matters little compared to the importance of the signal being sent to the international community and the world of power politics. America can and will stand alone if it needs to, and is prepared to do so whenever the tribute demanded by oil suppliers gets excessive. At the same time, America (and the West) has no problem maintaining Opec as its primary low-cost producer but only if it’s on terms that are are reasonable and acceptable. Consequently, Opec may win the battle to remain the world’s primary supplier. But it won’t necessarily win the battle to remain a beneficiary of the US’ exorbitant privilege. Turns out there are limits to how far exorbitant privilege can be recycled through the system to US supplier states. Which generally means the message to Opec from the US is: we appreciate your services but don’t push your luck.
Iran oil output could jump sharply post-sanctions - IEA | Reuters: Iran could raise its oil output by as much as 730,000 barrels per day (bpd) from current levels fairly quickly after sanctions are removed, the International Energy Agency said on Wednesday. The West's energy watchdog estimated that Iranian oilfields, which pumped around 2.87 million bpd in July, could increase production to between 3.4 million and 3.6 million bpd within months of sanctions being lifted. "While significantly higher production is unlikely before next year, oil held in floating storage – at the highest level since sanctions were tightened in mid-2012 - could start to reach international markets before then," the IEA said in a monthly report. Iranian Oil Minister Bijan Zanganeh has said Iran expects to raise oil output by 500,000 bpd as soon as sanctions are lifted and by a million bpd within months. Iran’s July production figures were 50,000 bpd higher than in June, the IEA said. The report by the Paris-based IEA suggested any increase in output would probably be more modest than Iranian estimates, and said the Islamic Republic would require massive investment to raise output capacity. Iran has said it hopes to secure nearly $200 billion worth of oil and gas projects with foreign partners by 2020.
Treasury Prepares to Teach Foreign Investors the Rules for Investing in Iran - The U.S. Treasury Department is cautiously preparing for the lifting of economic sanctions on Iran, but is insistent that foreign companies don’t jump the gun. Treasury, under the nuclear agreement signed with Tehran last month, is preparing to roll back layers of U.S., European Union and United Nations sanctions imposed on Iran over the past decade. But U.S. officials are emphatic that foreign governments and firms not start investing in Iran until it follows through on the commitments it made in Vienna to roll back its nuclear program.Iran’s commitments include mothballing thousands of centrifuge machines, reducing its stockpile of nuclear fuel and reconfiguring a heavy-water reactor capable of producing weapons-usable plutonium. “We need to keep everyone onside,” said a senior Treasury official working on Iran. “We want to make sure they’re not tripping over themselves to get in before Iran has actually taken the steps it agreed to under the deal.” U.S. officials estimate that it will take Iran until around mid-2016 to implement the steps it agreed to as part of the nuclear deal. At that stage, the international sanctions on the country will begin to be rolled back. Congress also needs to approve the deal, and is scheduled to vote in mid-September. Treasury officials have said unwinding the sanctions, and explaining the process, will be extremely complicated and require extensive engagement with foreign firms and governments.
Oil price slump pushes Saudi Arabia to fund raise with $US5.3b bonds sale: Saudi Arabia could raise up to 20 billion riyals ($5.33 billion) from bonds on Monday, opening its sale to commercial banks for the first time since it returned to the debt market last month to fill a budget gap caused by falling global oil prices. Debt-averse Saudi Arabia, the world's top oil exporter, sold bonds last month for the first time since 2007 and plans more sales to help fill a budget deficit which the International Monetary Fund estimates at $US150 billion this year. Last month's 15 billion riyals worth of notes were sold only to quasi-government funds, but commercial banks will now be included. The banks were briefed two weeks ago by the central bank, the Saudi Arabian Monetary Agency (SAMA), on its plans. While no firm figure has been disclosed for Monday's sale, several Saudi-based sources at banks or government bodies told Reuters the total value was expected to be between 15 billion and 20 billion riyals, in tranches issued for five, seven and ten years. SAMA could not be reached for comment. The sources spoke on condition of anonymity as the information was not public. The five-year tranche is expected to be priced to yield between 33 and 38 basis points more than the equivalent US Treasuries, while the 10-year tranche would yield between 45 and 50 bps over US Treasuries, two of the sources said. One of the sources, at a government entity, also said the seven-year portion would yield between 38 and 44 bps more than U.S. Treasuries. Further debt issuance is planned by the Saudi government on a monthly basis to the end of the year, although estimates vary as to the total amount of debt the authorities will sell.
Low Oil Prices Destroy Financial Power of Saudi Arabia -- A sharp decline in global oil prices has seriously damaged the financial power of Saudi Arabia. According to different estimates, the deficit of the country’s budget may reach up to 20 percent of GDP. The decrease in oil revenues forced Saudi Arabia to issue government bonds worth 20 billion riyals ($5.3 billion) for the second time over this summer. In June, the country issued bonds worth 15 billion riyals ($4 billion). According to Bloomberg, this year Saud Arabia sold its first bonds since 2007. The kingdom may raise a total of $27 billion by the end of the year, Dmitry Postolenko, a portfolio manager for asset management company Kapital, pointed out. Saudi Arabia is in need of money after oil prices halved, the analyst said. "In 2015 the country needs oil prices of around $105 per barrel to balance its budget. The country relies on oil sales for 90 percent of its budget revenue,"
Trump on ISIS: “I would bomb the hell out of those oil fields.” -- “Nobody would be tougher on ISIS,” Trump stated. “The situation with ISIS has to be dealt with firmly and strongly. When you have people being beheaded, I would love not to be over there. That’s not our fight–that’s other people’s fights. That’s revolutions or whatever you want to call it.” When posed with the question of how specifically Trump would take on the international terrorist organization, the experienced businessman came back with a violent yet economically sensible response. “I would take away their wealth. I would take away the oil,” Trump said. Trump elaborated that he would attack oil sites that ISIS is now operating. ISIS is known to be luring heavy funding from the confiscated oil assets in Iraq. “I would bomb the hell out of those oil fields. I wouldn’t send many troops because you wouldn’t need them by the time I got finished.” Trump added that after destroying millions of dollars’ worth of infrastructure, he’d then “get Exxon [and other] great oil companies to go in. They’d rebuild them so fast your head will spin.”
Russia is facing a fuel shortage - Russia has lots of oil, but in a weird twist of fate, the nation could soon run dangerously low on gasoline. The head of Russia's biggest oil company is warning that the world's second largest oil producing nation could soon face a fuel shortfall. Rosneft's Igor Sechin predicts that Russia's gasoline shortage could reach 5 million tonnes a year by 2017. It produced around 38 million tonnes of gasoline in 2014, according to the energy ministry. The expected shortfall is a result of many factors, including new tax rules, a weakening economy and Western sanctions that are hurting Russia's oil refining businesses. This is pushing fuel prices up, even as oil prices have plunged. Gasoline prices rose 6.3% in the first half of the year, according to official data. In a letter sent to Russian President Vladimir Putin and quoted by local media this week, Sechin urged Putin to address the issue by introducing benefits for oil refineries. He said this would boost investment in the industry and increase efficiency. New Russian tax rules, which were introduced in January, are exacerbating the situation. They were designed to make it cheaper to export crude oil, while raising taxes on refined oil exporters and miners. The move was meant to split the tax burden more evenly across the energy and mining sectors and give a boost to crude exporters. But the change ultimately made crude oil more expensive for domestic refineries, causing their profits to drop.
Saudi Arabia, Russia and Iran: Gulf players willing to abandon old narratives --The Iran nuclear deal is yet to cross the Rubicon of approval by the US Congress and the going got a bit tough last weekend with Senator Chuck Schumer and Representative Eliot Engel, two top congressional Democrats, announcing their objection to the deal. Schumer claimed he made the decision “after deep study, careful thought, and considerable soul-searching,” while Engel is yet to lay bare his soul. But never mind; the debate in the US looks increasingly surreal. The Middle East may have already begun implementing the Iran deal – and what matters would be that Iran lives in its region and not in the Western Hemisphere. The region is turning upside down with such impatience many established narratives, no sooner than word came from Vienna that the historic deal came through that it takes the breath away. The ‘big picture’ is that a full-bodied strategic partnership between Russia and Saudi Arabia is in the making. This is no longer a matter of two estranged countries exchanging glances. This is a communion. The Saudi Foreign Minister Adel al-Jubeir is heading for Moscow on Tuesday, although he had met his Russian counterpart Sergey Lavrov only last week. Obviously, he wants to talk more and cannot wait, since the Saudi-backed Syrian National Coalition opposition group is also due to Moscow next week for the first time.
The Growing Threat From China: Oil prices dropped to new six-year lows this week as WTI dipped below $42 per barrel. The big piece of news this week was the currency depreciation in China. It seems we are talking more and more these days about the warning signs coming from China’s economy and how the trouble there is depressing oil prices. In June and July, it was the stock market crash, and this week it is the currency depreciation. The yuan dropped 3 percent by the end of the week after stabilizing at 6.3975 per dollar. The move to devalue the yuan was aimed at providing a jolt to Chinese exports. But a more pessimistic take on the move is that China’s economy is starting to raise some red flags. The grip that the central government has had on the economy appears to be slipping. The Chinese government has carefully crafted a reputation of control, backed up by two decades of phenomenal growth. Presiding over such a period of unprecedented economic expansion has created an aura of invincibility and inevitability. But the economy is starting to appear fragile, with high levels of provincial debt, an inflated stock market, and growing unease about environmental pollution that could force the government to pullback on growth. To make matters worse, the port city of Tianjin suffered a massive explosion this week that killed dozens of people and spewed toxic chemicals into the air. The incident is emblematic of China’s growth-at-all-costs model, which is starting to run its course as people become fed up.
America and China friending over fracking - Americans and Chinese companies are friending each other over fracking. This might seem odd unless you’ve heard about China’s dependence on coal, and there are large amounts of untapped natural gas reserves within their boundaries. China’s current energy mix is problematic, making natural gas a popular area for development. According to the U.S. Energy information Administration, “China produces and consumes almost as much coal as the rest of the world combined.” Coal makes up 70 percent of China’s energy supply, which leads to visible and alarming air pollution. As reported by The Diplomat, “China’s oil fields are drying up. The International Energy Agency’s (IAE) World Energy Outlook for 2010 predicts China will import 79% of its oil by 2030, a figure that demonstrates the pressing need for China to develop new energy sources. Enter shale gas and the ‘unconventionals.’” Lucky for China, they already own copious amounts of natural gas. They just lack the fracking technology to access it. This is where the great American friending begins. Chinese oil companies are investing in American companies hoping to learn hydraulic fracturing techniques and technologies. As reported by Quartz, Bloomberg said, “Chinese oil giant CNOOC has spent billions investing in shale projects operated by America’s Chesapeake Energy. And more Chinese companies are marshalling cheap loans from Beijing government-backed banks to strike similar partnerships.”