Sunday, January 3, 2016

this week’s gas and oil exports, the Saudi's new budget, the US rig count falls to 16 year low, et al

well, here we go again…two weeks ago Congress opened the floodgates for exports of our crude oil, and this week our domestic natural gas began to be processed for shipment overseas...the first batch of US fracked gas is now being chilled to a liquid and prepared for shipment to Europe on a LNG tanker that is under contract to BG Group (British Gas), which has recently been bought out by Royal Dutch Shell...Cheniere Energy, a developer of new LNG export terminals, is now receiving about 50 million cubic feet of natural gas a day at its Sabine Pass terminal near the Louisiana-Texas border where the gas is being liquefied at -260°F, reducing its volume by 600 to 1, and being stored in dockside tanks, from which it will be loaded onto ocean going tankers as soon as next week...unlike oil, where there is parity between US and global prices, the economics strongly favor increasing gas exports, as we repeated warned during the TPP negotiations, when natural gas prices in Asia were more that 5 times those of the US....both US and global gas prices have since collapsed, but recently Japanese LNG import prices have still been as high as $9.00 per mmBTU as European Union natural gas import prices have fallen to $6.24 per  mmBTU from their high of $12.88...contracts for delivery of US gas, meanwhile, have fallen even more, with US natural gas prices hitting an all time low of $1.75 per mmBTU just two weeks ago...with the influx of cold weather in the east and the news of exports, they have since rapidly risen to $2.337 per mmBTU, but with European prices still more than twice that and Asian prices nearly 4 times that, there's still plenty of profit to be made after paying for the processing and shipping...a Bloomberg New Energy Finance analysis expects that we'll be exporting 7.76 billion cubic feet of gas a day by 2019, by which time we can expect the frackers will have become profitable and be drilling everywhere imaginable, while US consumers will be paying at least as much as Europeans to heat their homes...

meanwhile, while gas was being prepared for shipment at Sabine Pass, the first outbound tanker full of US crude since the export ban ended left Corpus Christie on Thursday heading for Europe, after being filled with light South Texas Sweet that had been extracted by fracking the Eagle Ford shale....this initial oil export shipment, loaded on the Bahamian tanker “Theo T”, is being bought from ConocoPhillips and NuStar Energy by the Vitol group, a Dutch oil trading company, and is destined for a refinery in Switzerland...NuStar Energy has reversed two pipelines that once carried imported crude inland and is expanding it's Corpus Christi facility to have a capacity to load up to 90,000 barrels of Texas crude per hour for export...for this first export shipment, we even have instructions for those who want to track this tanker as it makes its way across the Atlantic to a port in Italy, where it will be offloaded for shipment to Switzerland...despite the fact that a similar high quality light sweet grade of oil is available right across the Mediterranean Sea in Libya, these Europeans are still electing to buy more of this oil from the US -- the tanker we mentioned last week; a 600,000 barrel shipment that is being loaded in Houston, was also sold to Vitol, and will likely depart for Europe next week...


A Bit on Saudi Finances...

the key series of news stories from the past week that will have the greatest long term impact on the global oil markets came out of Saudi Arabia, and none of those stories were even about their oil production...first we learned that the Saudis had posted an $98 billion budget deficit in fiscal 2015, obviously due to this year's drop in oil prices....that deficit amounted to about 15 percent of their gross domestic product for the year, less than the 20% deficit that was widely expected...for a perspective on the relative size of that, our largest budget deficit, in fiscal 2009 (starting October 2008), was about 10% of our GDP...although the Saudis drew down on some of the reserves that they'd accumulated over the years to cover the shortfall, much of their deficit this year was financed the same way the US finances its own deficit every year; the Saudis issued sharia-compliant bonds on at least three occasions this year, denominated in riyals and carrying low interest rates, most of which they sold locally to cash rich Saudi banks...the point is that this was all done without any major economic dislocation; showing the Saudis are handling the oil price crash better than was expected, and that life in Saudi Arabia went on much as it did before, just like life in our oil dependent states of North Dakota and Alaska has gone on, despite lower oil prices...

more importantly, however, the Saudis coupled their budget announcement with one of a forthcoming radical fiscal austerity program, including an increase in gasoline prices, an increase in electricity charges for the wealthiest consumers, a modest increase in water costs for everyone, and increases in energy prices for industrial users, such as refineries and petrochemical operations; they also plan to begin dismantling their welfare state, cutting out some of the freebies and perks they initiated after the Arab spring, and plan to gradually privatize some state-owned entities, introduce a value added tax, and levy a tax on tobacco...although some of these changes will be phased in over a period of 5 years, the immediate impact will be to cut their fiscal 2016 spending by 14%, to 840 billion riyals ($224 billion), from 975 billion riyals last year...

to put these budget cuts in further perspective, included below is a graphic from Haver Analytics and BofA Merrill Lynch, sourced from an article at Zero Hedge which shows how long it would take the Saudis to burn through their foreign exchange (FX) reserves under various oil price and budget scenarios, which was compiled before these budget cuts were announced...the graphic is divided into three basic sections, the first for oil prices at $30 a barrel, the second for oil prices at $40, and the last for oil prices at $50 a barrel...within each of those oil price scenarios, they show as a dark blue bar the number of years that the accumulated Saudi deposits to their sovereign wealth fund (SAMA, or the Saudi Arabian Monetary Agency) will last with a variety of budget and fiscal funding walk through what's on that graph, "flat" in each case would represent how long Saudi reserves would last with no change in the Saudi budget, "without one-offs" would represent a budget scenario where they return to their pre-Arab spring spending, before they started passing out freebies to their citizens, which would amount to a 4% budget cut, and the next two bars in each group represent how long they could continue living off their accumulated reserves under 10% and 25% budget cuts...furthermore, within each of those 4 scenarios for each of the 3 varied oil price situations, the graphic is further divided into how long their reserves would last if their reserves is all they use for funding, and how long their reserves would last if they financed 50% of their operations by issuing debt instruments...for an example, the 6th bar from the left shows that the FX reserves in the Saudi's sovereign wealth fund would last 4 years with oil at $30 a barrel and just a 10% budget cut, if they funded 50% of their ongoing operations by issuing bonds... extrapolating from the figures shown in that graphic, we could thus estimate that the Saudis could live on $40 a barrel oil with this newly announced budget for nearly 6 years before they deplete their sovereign wealth fund, if they fund half of their government spending with bond issuance...

Saudi years of FX reserves under various scenarios

now, all this is important because American frackers, and probably many of the banks that finance them, have been operating under the impression that the Saudis are up against the wall financially and ready to collapse...over the past year, some version of "the Saudis need $100 oil to break even" has been regularly reported in the mainstream and financial press, which has encouraged the frackers, and the banks that lend to them, to try to hold out just a bit longer, after which time they believe the Saudis and OPEC would relent and push oil prices higher, saving their skins...over this period, we've seen that most frackers lost money when oil was a $60 in the second quarter, and some even lost more than their revenues with with oil at $50 in the 3rd quarter, meaning they'd need to more than double revenues just to break even....that the Saudis are engaging in deep budget cuts that will impact every person and business in the country now shows that they are planning for oil prices to be priced low for quite a long time...some may think these cuts will bring about some kind of Arab spring type revolution in this Middle East kingdom, but we feel that's unlikely; oil prices have only been over $40 a barrel for the last dozen years, so except for the very young, most of the Saudi citizens have spent most of their lives living within the means that $40 oil provides the country...most of the frackers, on the other hand, have never seen real hardship; and very few have experienced a true oil bust, like we saw in 1986, when oil fell to $7 a barrel in a similar Saudi imposed global oil glut...if American oilmen were a bit more visionary and had a longer term outlook, they would have seen what is going on and would have pulled back long before now...


This Week's Oil Stats from the EIA

this week's reports from the US Energy Information Administration showed a large jump in our imports of crude and a small increase in our field production of it, so while our refineries stepped up the pace from last week, we still had plenty unused oil left over, leading to another increase in the surplus oil that we've got stored....for the week ending December 11th, our imports of crude oil rose by 291,000 barrels per day to a 7,892,000 barrels per day pace, which was 11.8% higher than the 7,061,000 barrels per day we imported in the same week of December last year...since the number of oil tankers offloaded in any given week makes imports fairly volatile week to week, the EIA's weekly Petroleum Status Report (62 pp pdf) reports a four-week moving average of oil imports, which have averaged about 7.9 million barrels per day in this week's report, 4.7% above the same four-week period last we've pointed out previously, much of our increase in oil imports over the last year is not because we need the oil, but to exploit a contango trading strategy, wherein an oil trader will buy a cargo of oil and pay to have it stored while simultaneously entering into a contract to sell that oil at a higher price at some future date...

in addition to the increase in our oil imports, our field production of crude oil rose by 23,000 barrels per day, from 9,179,000 barrels per day in the week ending December 18th to 9,202,000 barrels per day in the week ending December 25th...although that was down 4.2% from our modern record oil production of 9,610,000 barrels per day that was set in the first week of June, it was still higher than the 9,121,000 barrel per day production we saw in the week ending December 26th last year, at time when almost three times as many oil wells we being drilled as we've noted over the past few weeks, our oil production seems to be rising despite the cutback in drilling and the large number of wells that aren't being completed or fracked...this week, we'll include a few graphs of that, so you can see what it looks like..

December 25 2015 oil production

the first graph above, copied from the EIA weekly US field production of crude oil webpage, shows the track of our oil production weekly over the last 21 years in thousands of barrels per day, with the spikes down likely representing periods when Gulf of Mexico production was shut in due to hurricanes, or other related disruptions...we can see that our output of oil was steadily falling through the previous decade, barely staying over 5 million barrels per day through the years between 2006 and 2009...then with the advent of fracking, brought on by cheap credit and extraordinarily high oil prices, our oil production has nearly doubled in the years since...however, on such a long term chart, it's difficult to see the changes in our output that have occurred over recent weeks...

so below we are including a graph of our weekly production from just the past year, which was sourced from Bloomberg by Zero Hedge...weekly crude oil production figures are tracked on the top part of the graph in blue, while the red bars on the bottom show the change in any given week as a increase when above the line and as a decrease when below, we can clearly see when our crude oil production was at a record pace in June, and how it dropped off through late July and August to what some thought would be a long term decline...but even though our production averaged just over 9.1 million barrels per day through September and October, the output of US wells now seems to be rising, and has just topped 9.2 million barrels per day, even as oil drilling has almost ground to a halt, and as many of the wells that have been drilled are not being completed and are hence not yet producing...initially, we thought this was an aberration, and it may yet be, but now it has continued for 8 weeks...the real test will come over the next few weeks, when we get the returns on oil production from the snowbound oil fields of west Texas and New Mexico...

December 25 2015 one year oil production copy

in the face of rising oil production and the large increase in imports, US oil refineries stepped up the pace after 3 weeks of lower throughput...the amount of that crude used by our refineries rose by 214,000 barrels per day to an average of 16,682,000 barrels per day during the week ending December 25th, up from 16,468,000 barrels per day during the week ending December 18th...that was 1.9% more than the 16,377,000 barrels per day refineries were processing in the same week last year and the most US refineries have ever processed during a week in December in the EIA record....much of this week's refining increase went into gasoline production, which was up by 575,000 barrels per day, or 6.2%, to 9,921,000 barrels per day, while output of distillate fuels (diesel fuel, heat oil) slipped by 11,000 barrels per day to 4,927,000 barrels per day...much of that additional production of gasoline seems to have disappeared going into year end inventory taxing time, however, as our week ending gasoline inventories only rose by 925,000 barrels to 221,240,000 barrels as of December 25th...that was about 3.3% less than the 229,048,000 barrels of gasoline we had stored as of December 26th last year, but still in the middle of the average range for end of year gasoline inventories...however, with record heat in the eastern US during that week, heat oil consumption was down, so even with the lower production of distillates, our distillate fuel inventories increased by another 1,795,000 barrels, as they rose from 151,315,000 barrels as of December 18th to 153,110,000 barrels on December 25th…that was 21.8% higher than last year's 125,721,000 barrels, leaving distillate fuel supplies well into the upper half of their normal range for this time of year...

even with this week's record level of refining for this time of year, however, we were overwhelmed by the incoming oil imports, which left us even more oil to put into storage than we had leftover last week...our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, thus rose by 2,629,000 barrels to 487,409,000 barrels on  December 25th, the 12th increase in the last 14 weeks...that's up by 33,440,000 barrels since September 18th, and leaves us with 102 million more barrels, or 26.5% more oil in storage, than the 385,455,000 barrels we had stored at the end of the last week in December a year ago, and obviously the most we had stored at the end of December in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year...

The Latest US Rig Counts

with the new year holiday, the weekly US and Canadian rig counts from Baker Hughes were released on Thursday, instead of the usual Friday afternoon release, and since this release follows the early release last week on Wednesday December 23rd due to Christmas, it therefore covers the change in drilling activity over the ensuring 8 days.....over that period, from December 23rd to December 31st, the total count of rigs drilling for gas and oil in the US was down by 2 rigs to 698, with active oil rigs down 2 to 536, and working gas rigs unchanged at 162....those numbers were down from a total of 1,811 drilling rigs that were deployed on December 31st last year, when there were 1482 rigs drilling for oil, 328 rigs drilling for gas, and one drilling rig that was classified as miscellaneous, and represented the lowest rig count since 1999...oil rigs had hit their fracking era high at 1609 on October 10, 2014, while the recent high for gas drilling rigs was 356, and occurred on November 11th last year... 

one drilling rig was added in the Gulf of Mexico during the past week, so the Gulf count is back up to 25; however, that's still down from 54 working in the Gulf and a total of 55 drilling offshore as of December 31st a year ago...that, plus a net of 2 additional conventional land based vertical rigs were added this week, bringing the vertical rig count up to 89, which was still way down from the 300 vertical rigs that were in use as of the end of December last year...meanwhile, a net of 5 horizontal rigs were stacked this week, cutting the count of those frackers down to 549, which was also down from the 1336 horizontal rigs that were in use the same week last addition, the directional rig count was unchanged from last week's 60, down from the 175 directional rigs that were in use as of the 4th weekend of December last year...

rig count variances among the major shale basins again showed the Permian of west Texas with the largest change, as they added 5 oil rigs to bring their total rig count to 217, which was still down nearly 60% from last year's 530...the Haynesville, a natural gas field of northern Louisiana, also saw a rig added, bringing the count in that basin back up to 25, which was still down from the 40 rigs that were drilling in that region last December 31st...meanwhile, the Williston basin, centered in North Dakota, saw 2 oil rigs pulled out, leaving 53, which was down from 179 a year ago, and the Barnett shale of the Dallas area, the Eagle Ford of south Texas, the Cana Woodford of Oklahoma, and the Utica shale of Ohio all saw their rig count cut by 1...that left 7 rigs active in the Barnett, down from 24 a year earlier, 76 rigs working the Eagle Ford, down from the year earlier 200, the Cana Woodford with 38 rigs, down from 45 a year earlier, and the Utica with 15 rigs still working, down from 49 rigs that were drilling to it last year at this time...outside of the major basins, Baker Hughes reports an increase of 2 working gas rigs and a decrease of 4 active oil rigs, ending the year with 116 oil rigs and 49 gas rigs working outside of the major basins...that's down from a total of 466 rigs - 351 oil and 95 gas - working 'other' basins at the end of the same week last year..

the Baker Hughes state count tables show that both California and North Dakota saw 2 of their working rigs taken out of service this week, leaving California with 7 active rigs, down from 22 a year ago, while North Dakota now has 53 working rigs remaining, down from 169 a year ago...Ohio, Oklahoma, and West Virginia each saw one rig pulled out, leaving Ohio with 14 rigs, down from 46 a year ago, Oklahoma with 87 rigs, down from 209 a year ago, and West Virginia with 15 rigs still drilling, down from 28 a year ago....on the other hand,  both Texas and Louisiana saw their net rig count increase by 2, bring Texas up to 321 rigs this week, down from 840 a year ago, and Louisiana up to 58 rigs, which was still down from their year ago count of addition, one rigs was added to those working in Pennsylvania, which now has 27, down from the 53 rigs that were deployed in Pennsylvania during the last week of 2014...

since we now have a 16 year low in the number of active rigs working in the US, we'll include below a long term chart of the total rig count so we can envision what that looks like...the graph below comes from WTRG Economics and shows the weekly rig count in red and the price of oil in light grey going back to 1973, with the rig count demarcated on the left margin and the price of oil demarcated on the right, although with so much data crammed on to a small chart the more nuanced changes are impossible to see...we can see, however, that the current active rig count of 698 has broken below the 2002 low and is now below 700 for the first time since 1999, when the rig count bottomed at 488...also fairly obvious on that chart is the domestic drilling frenzy that we were hit with in the 70s; that started with the OPEC oil embargo of 1973 and was accelerated by the oil crisis of 1979, when lines stretching blocks formed around open gas stations, and which finally peaked at 4,530 working rigs in 1981...back then, it almost seemed like everyone and his brother was trying to drill in their backyard, whether there were prospects for finding economic quantities of oil or gas or not...

January 2 2015 rig count


Governor, legislature facing hot button issues in new year - Columbus -- There are plenty of issues that could put Gov. John Kasich and Republican legislative leaders at odds in the new year.The administration and the legislature continue to have different positions on an increase in taxes on oil and gas produced via horizontal hydraulic fracturing.The governor doesn't appear to be on board with legislative proposals to place a billion-dollar bond proposal before voters to pay for water quality improvement initiatives. And Kasich and legislators still have to reach an agreement on renewable energy mandates, which were placed on hold last year pending further review. The governor offered comments on those and other areas during a year-end speech before a small chamber of commerce audience in his suburban Columbus hometown.

Appeal notice filed in Columbus court over injection well plan - A local anti-fracking group has filed a notice of appeal with Franklin County Common Pleas Court over the decision last spring by the Ohio Oil & Gas Commission to allow a third K&H Partners injection well to be drilled in eastern Athens County. An appeal from the same group over the second K&H injection well at the same location is pending in Franklin County Common Pleas Court. The Ohio Division of Oil & Gas Resources Management issued a permit March 18 allowing K&H to proceed with its third injection well on the site near Torch, and the Athens County Fracking Action Network appealed that permit to the Oil & Gas Commission. After the commission dismissed that appeal earlier in November, ACFAN filed its notice of appeal with the Franklin County Common Pleas Court. The state of Ohio and K&H have argued that the permit issued by the ODNR was not appealable because the permit was for the drilling of the well only, and separate permission was needed for K&H to begin injection. That permission has since been granted. ACFAN’s notice of appeal filing seeks the court to overturn the commission’s decision and order a hearing on the permit appeal. This process has played out once before, when the second injection well at the K&H was going through this process, and the commission rejected ACFAN’s appeal in 2014. ACFAN took that case to Franklin County Common Pleas Court as well, where it is still pending.

Latta asks regulators for pipeline details concerning safety -- U.S. Rep. Bob Latta (R., Bowling Green) has asked federal regulators to help address concerns about a natural gas pipeline proposed for northwest Ohio. In the past Mr. Latta has spoken in favor of plans for the NEXUS Gas Transmission line, but in a recent letter to the Federal Energy Regulatory Commission he asked the agency to help “address concerns that I have received from my constituents directly related to the location of compressor stations.” Mr. Latta’s Dec. 17 letter seeks information about safety guidelines, vibrations, contingency plans, and testing. It came as more communities, park districts, school officials, and health boards raised concerns with the commission about plans NEXUS Gas Transmission has made for a major compressor station near the western Lucas County village of Whitehouse.  The pipeline is to carry newly fracked natural gas that would be moved across northwest Ohio along a 255-mile route, much of it through the countryside. Just before Christmas, more parties filed motions to intervene in federal proceedings, including Waterville and Woodville townships, the city of Waterville, and Anthony Wayne Schools. Related: Ontario Energy Board approves two contracts to ship Ohio natural gas to Canada via Nexus Pipeline. Anthony Wayne is concerned about having five of the district’s six school buildings within three miles of the compressor site.

Energy glut, low commodity prices hitting Ohio's Utica Shale; cutbacks are growing in eastern Ohio -  Drilling is slowing down in Ohio’s Utica Shale because of low commodity prices and growing energy supplies. Continued low prices tied to the Organization of Petroleum Exporting Countries’ efforts to derail shale drilling in the United States have put a major crimp into drilling for natural gas and liquids in Ohio and other shale-drilling states. OPEC has continued production, despite an oil glut that has reduced prices to $36 a barrel, in order to maintain its market share. That natural gas-oil glut and low prices are good news for consumers who have cheap natural gas for heating their houses and petroleum for fueling their vehicles, but it has created serious problems for struggling energy companies. And those impacts are also being felt across much of eastern Ohio in hotels, restaurants, gas stations and industries that supply drillers. Warm winter temperatures are also hurting energy producers because there is less demand for Utica natural gas. Some drillers have canceled, scaled back or postponed drilling. Some have voluntarily cut back on production. Less money is earmarked in 2016 on well drilling. Some drillers have moved out of Ohio. Others are trying to sell off non-core assets. Some are seeking financial partners to share the costs. Many have incurred heavy debt. About 20 firms across the country have filed for bankruptcy protection. That includes Magnum Hunter Resources Corp., an active Utica driller.

Natural Gas Drillers Expect Gas Decline To Continue in 2016 - - As 2014 closed, Ohio and West Virginia featured 77 active rigs drilling into the Marcellus and Utica shales. One year later, there are only 30 working rigs between the two states, while natural gas prices are about $1 less per 1,000 cubic feet than last December. And industry leaders believe drillers will continue struggling amid low prices in 2016. They said that even though the New York Mercantile Exchange price for natural gas is now about $2 per 1,000 cubic feet, those working in Ohio and West Virginia are only getting about 75 cents. "The story of 2015 is the crash in oil and natural gas prices. We do not have the pipeline infrastructure to get this gas to markets like New York and Chicago. That puts us at a disadvantage, price-wise," said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association. "The prices are down across the U.S., but are even lower here because of our glut of gas." "If you look at the NYMEX, the price has steadily declined throughout the year. We just can't put any more gas into the market because there is nowhere to put it," DeMarco said. "We have to focus on the infrastructure. We have to get this gas out of here." Bennett said even now, Ohio is producing about 3 billion cubic feet of gas per day. According to Cabot Oil & Gas, that is enough natural gas to run 72,945 homes for an entire year."It is going to be a slow 2016 because of the prices. They are down across the U.S., but even more in Marcellus and Utica Shale because of that glut of gas," Bennett said. "At 75 cents per Mcf, you just can't make it work."

Officials in Pa., W.Va., Ohio hope cracker plants get commitment, go into production -- With companies spending hundreds of millions in 2015 on planning for two potential petrochemical plants along the Ohio River, officials in three states hope 2016 is the year that billions of dollars are committed to their construction. The recent crash in natural gas and related products’ prices cast some doubts on whether decisions on building the so-called ethane crackers will come soon. Proponents of Royal Dutch Shell’s proposed complex in Beaver County and PTT Global Chemical’s possible cracker in Belmont County, Ohio, can point to plenty of recent positive developments. Shell this year closed on the property in Potter, landed key environmental permits, began an $80 million remediation of the former Horsehead Corp. zinc smelter site and started building an access bridge over Route 18. PTT commissioned $100 million in studies to examine the feasibility of building at a shuttered power plant across the river from Moundsville, W.Va. Whether either company makes a final decision on building in 2016, though, will require getting a handle on global commodity markets that became more volatile this year. “These companies are trying to make decisions on what market conditions will be … three to five years from now,” said David Mustine, senior managing director for shale energy and petrochemicals at JobsOhio, a workforce and economic development group in Columbus.

Officials propose injection-well ban - The Monroe County Board of Commissioners is drafting an ordinance that would ban any injection wells in Monroe County near karst geology or Lake Erie. Trendwell Energy Corp., with corporate offices in Rockford, Mich., has proposed a plan to drill a 765-foot-deep well near Ida Center Road and Alcott Road in Summerfield Township to inject saltwater. Philip Goldsmith, legal adviser for the board, is working on a law that would comply with existing federal and state legislation. “We don’t want anything injected back into the ground,” commissioner David Hoffman said. “They keep saying brine water, brine water, brine water. But it takes a lot of chemicals also. We have deep wells for agriculture. The main source of income is for produce, and if we get contamination in the produce, it would be devastating.” An injection well places fluid deep underground into porous rock formations, such as limestone in Monroe County. The fluid may be water, brine water (also known as salt water), waste water, or water mixed with chemicals. “Our biggest challenge in Monroe County is protecting our groundwater in a particularly vulnerable geology,” board chairman J. Henry Lievens said. “Monroe County is not only situated next to Lake Erie, but with our unique sinkholes and karst geology, it presents a challenge coupled with extensive agriculture.” Tests have been conducted at several sinkholes. Test strips and dyes were used and within a matter of hours, marks appeared in people’s tap water. Monroe County does not have an alternative source of drinking water.

Coal losing foothold over Pittsburgh region's river traffic - Pittsburgh’s rivers help tell the story of coal’s waning fortunes. Ten years ago, about 28 million tons of the fossil fuel moved on the region’s three rivers, fueling power plants as well as coke plants where the natural resource was converted into fuel for steel industry blast furnaces. Coal from Pennsylvania and Ohio mines was headed to power plants in the mid-Atlantic, southeast and midwest. Coal from West Virginia and Kentucky mines fed U.S. Steel’s Clairton coke plant. A decade later, just under 22 million tons of coal moved on the rivers in 2014, making floating barges loaded with the black mineral a less common sight in the region, according to preliminary figures from the Port of Pittsburgh Commission. Despite the 22 percent drop, coal remains the major commodity shipped on barges that ply the Monongahela, Allegheny and Ohio. It accounted for 70 percent of the 31.5 million tons of commodities shipped on the rivers in 2014, according to the port commission, which has not yet completed a final tally of 2014 river traffic. Overall river tonnage fell 21 percent between 2003 and 2013, according to the commission. The decline illustrates the ebb and flow of the regional and national economies; the pressure that coal is under from cheap, abundant natural gas, as well as environmental regulations; and the impact of the Great Recession in 2008-09. Coal tonnage averaged 30 million tons in the five years before the economy bottomed in 2009, when only 25.1 million tons of the commodity were shipped on the region’s rivers. Coal traffic slowly trended higher from there, reaching 25.5 million tons in 2012. The next year, when FirstEnergy closed two coal-fired generating plants — Hatfield’s Ferry in Greene County and Mitchell in Washington County — coal traffic fell to 23.7 million tons.

Furious Coal Baron Lashes Out: "Obama Is The Greatest Enemy I've Ever Had. It's Beyond Personal" --  Robert Murray is no fan of Barack Obama.  Murray, you’re reminded, is the CEO of Murray Energy. Earlier this year, the company laid off 21% of its employees, with the majority of the cuts coming in West Virginia, which was staring down a $195 million budget gap thanks to the slide in coal prices.  Around two months after the job cuts, Murray spoke to Republicans at the Lincoln Day Dinner and let it all out. The 75-year old told lawmakers he was “righteously mad” at the President, who he says is on a "bizarre personal and political" quest to destroy not only the coal industry, but the entire country. “Radical environmentalists, liberal elitists, [and] Hollywood characters" aren’t helping, he added, for good measure.  Well, lest anyone should think that Murray has deviated from his position in the five months since those comments were made, Bloomberg is out with a new piece which highlights just how steadfast the coal baron truly is:  At a time when the U.S. coal industry is beset on all sides -- by environmentalists, by regulators, by the economics of shale gas -- Murray has positioned himself as King Coal’s warrior-in-chief. And his main antagonist is the country’s commander-in-chief.He calls Barack Obama “the greatest enemy I’ve ever had in my life.” His fight with the president, he says, has gotten “beyond personal.”Since Inauguration Day in 2009, Murray Energy Corp. has filed no fewer than a dozen separate lawsuits against the federal government, more than any other U.S. coal company. Murray, the man, is trying to beat back Obama administration regulations, which he says are strangling his industry. Someone, he says, has to try. Today he’s responsible for a company with 7,500 employees digging coal out of 13 mines in five states. Not surprisingly, he’s no big fan of the recent Paris climate agreement, dismissing it as “a meaningless fraud that will have no effect on carbon dioxide emissions.”

Environmentalists Call for New Study of Fracking Radiation -- Environmentalists say a state study of radiation in waste from gas drilling is inaccurate and incomplete. The Department of Environmental Protection study found little cause for concern about radioactive materials in waste from drilling operations. But Tracy Carluccio, deputy director of the Delaware Riverkeeper Network, says scientists have known for years, compared with other shale formations, Marcellus shale has high levels of radiation. "The various scientific reports point out that when the Marcellus shale is fracked, that radioactivity, which is naturally occurring in those deep formations, comes back up to the surface," says Carluccio. The Network has published its own report, criticizing the DEP study for inaccurate or incomplete sampling of rock cuttings and waste water, and failing to take action when radiation was detected. A lobbying organization for the gas drilling industry has dismissed the criticisms as "baseless." But according to Carluccio, the samples tested by the company hired to do the DEP study may not reflect the true amounts of radiation present in the waste materials. "For instance, where you have drill cuttings buried at well sites they basically took samples from the surface they did not do push probes," says Carluccio. Push probes, she says, would better sample radiation in the drill cuttings themselves and in the surrounding soil."If radium 226 is ending up in the leachate at these landfills, then it's ending up in our environment and it could even enter our drinking-water sources," she says.

Fracker Protects Rex Energy Site From Gramps in Santa Suit and Videographer of Color (video) This young fracker attempts to give an eloquent and poignant argument in favor fracking and against peaceable protest. And against retired men in Santa suits. And videographers. And people of color. And longish hair. Ad hominem attacks. Racial epithets. Race baiting. He could be a Repuglican candidate for President. The front runner even. Will let you decide whether his logic and rhetoric sway you, but suffice to say that this is what passes for the friendly face of fracking in the Northeast. No wonder New York banned it.  Have no clue who this fellow is, but I am pretty sure he is not a Texan. Or for that matter, an Okie or Cajun or New Mexican. Texas may have been settled by thugs on the run from Oglethorpe’s penal colony, (Georgia), but you’d have to really troll the back woods to find one as lost as this hapless dope. Aside from his accent, he did not say ‘sir’ to an older man, nor ‘mam’ to woman, nor does he refer to a black man in public as a ‘black man,’ or simply a man. Strike 3 as they say in Cooperstown. Clearly, he is no Texan. Texans have standards of civility, low as they may be, but alas, this fellow does not measure up.

Rex Energy : Racist slurs lead to firing after video posted online --The Monday before Christmas, a half dozen people peacefully protesting shale gas drilling near the Mars Area School District campus in Butler County sat in rocking chairs lined up across the well-pad access road off Route 228. Then John Pisone showed up to point out the error of their ways. Mr. Pisone, who worked for a Richland landscaping and property management firm with no connection to Rex Energy's well-drilling operation, angrily denounced the "Rock to Block" protesters as "lazy hippies." He then turned his attention to Tom Jefferson, an African-American freelance photojournalist who was videotaping the confrontation, calling him a "chimp" and using a racial slur before leaving. Mr. Jefferson, a 61-year-old former Navy photographer, posted a 3-minute, 17-second video of the confrontation on YouTube. On Tuesday, a week after the video went viral, Mr. Pisone's employer, MMC Land Management, fired him, saying in an Internet posting that it was "disgusted" by his use of "racial slurs" and "racially charged comments." "We are sorry that this incident occurred," the posting said. "Whether at work or not, we do not condone hate speech -- EVER." The company's statement continued, "Inclusion and diversity are among MMC's core values. We believe in equality for everyone, regardless of race, age, gender identity, ethnicity, religion or sexual orientation."

Marcellus and Utica remain on top at the bottom of 2015 --  Together, the the Marcellus and Utica shales account for 85 percent of U.S. natural gas production growth since 2012 according to the Drilling Productivity Report (DPR) the Energy Information Administration (EIA) released Tuesday. The Marcellus shale, engulfing most of Pennsylvania and West Virginia, soared from producing 6.3 billion cubic feet of natural gas per day in January 2012 to producing 16.5 bcf/d in July 2015. Oil companies like Chesapeake Energy, Southwestern Energy and Cabot Oil and Gas operating in Pennsylvania counties led production in the U.S. for the first 10 months of 2015. According to professional energy analyst Platts Bentek, the Marcellus has the potential to ring in the New Year with more production. “By our estimates, there is up to almost 1.5 billion cubic feet of choked production in the Northeast alone.” However, due to the warm winter, the need for natural gas declined and oil companies are waiting to make their move. “A lot of producers are saying, we’re going to wait until the first quarter of 2016 to come back into the game. They are just waiting for better demand, better prices to bump it out again,” If the demand shoots back up, Marcellus will remain the bright light as more of the unfinished pipelines conclude construction. “Most of the growth is expected to come from the Marcellus Shale, as the backlog of uncompleted wells is reduced and as new pipelines come online to deliver Marcellus natural gas to markets in the Northeast,” the EIA said. The DPR revealed the Utica, nestled below eastern Ohio, increased production 18-fold from January 2013 (0.15 bcf/d) to July 2015 (2.6 bcf/d). Currently, the EIA hypothesizes the shale to grow from 3.1 bcf/d in December to 3.2 bcf/d in January.

Gas companies await rebound as low prices, warm weather trouble producers - Shale gas executives writing budget plans might wish they could just skip 2016. Few analysts predict any rebound before 2017 in the low prices that dogged producers this year and prompted a 40 percent cut in Marcellus drilling in Pennsylvania. Then a warmer-than-normal start to winter sent prices to low points not seen in 15 years, dipping below 75 cents per thousand cubic feet in Appalachia. With storage at historic highs and little boost to demand expected for six to 12 months, companies that relied on 30 percent and 40 percent annual production increases in the past few years will face market pressure to dial that back yet maintain cash flow. “We have an alarming accumulation of spare production capacity. To ensure that product does not come to market … we have to make it painful,” Teri Viswanath, a natural gas analyst at BNP Paribas in New York, said about the low prices she expects will endure until supply finds a balance with demand. That means further cuts to spending plans at shale gas producers that must look for ways to keep the money and gas flowing until new pipelines and increased exports boost demand. “We’re expecting no less than a 20 percent reduction from 2015, which was already 40 percent down from the year before,” said Mark Marmo, president of Zelienople-based Deep Well Services, discussing the contracting work his company does to complete wells for producers. “It’s going to be a battle.”

Natural gas prices snap back on cold weather outlook: Natural gas futures bounced back sharply Monday as forecasts showed colder weather on the horizon that could drive up demand for heating fuels. The latest six-to-10-day National Oceanic and Atmospheric Administration forecast shows more normal temperatures for the East Coast and parts of the Midwest, and cooler weather in the South and Southeast, as well as parts of the West and Midwest. The NOAA forecast map also shows warmer-than-normal temperatures for Alaska, and in a separate band across New York state and into the northern Midwest. Natural gas futures for February soared more than 8 percent to $2.24 per million BTUs Monday. Natural gas futures were at 1999 levels Dec. 17 as the weather outlook promised a balmy December. The front month January contract expires on Wednesday, and it rose 9.8 percent to settle Monday at $2.228/mmBTU. "When you're talking normal temperatures this time of year, you're talking heating demand. Basically, we're going to have to turn the thermostat back up and put a coat on," said Gene McGillian, energy analyst with Tradition Energy. "Whenever you see any kind of cold showing up in a forecast where you haven't seen it, there is a snap back … considering how much gas we have in the ground, the 50 cents rebound shouldn't last too long."  McGillian said short-covering added to the price spike. "We have a pretty sizable speculative short position in the market that would be vulnerable to year-end covering," he said.

Why Natural Gas Prices Have Rallied ahead of Expiration - January natural gas futures contracts rose by 9.8% and closed at $2.23 per MMBtu (British thermal units in millions) yesterday. The cold weather forecast boosted natural gas prices in yesterday’s trade. Natural gas–tracking ETFs like the United States Natural Gas Fund (UNG) moved in the direction of natural gas prices. This ETF rose by 9.5% and settled at $8.42 in yesterday’s trade.  The latest weather forecasts from Weather BELL Analytics show that cold winter weather could hit the United States from Arizona to the Northeast for the next two weeks. In contrast, the weather is expected to be warmer in parts of the East Coast during the same period. Approximately, 50% of US households use natural gas for heating purposes. The cold weather would drive demand for natural gas and benefit natural gas prices. Meanwhile, the EIA (U.S. Energy Information Administration) reported that the natural gas inventory fell by 32 Bcf (billion cubic feet) for the week ending December 18, 2015. The consensus of falling natural gas inventory would continue to benefit natural gas prices. January natural gas futures contracts will expire today. Natural gas prices were boosted by short covering from bearish traders, and natural gas was the top performer across commodities in yesterday’s trade. US natural has risen more than 25% in the last six sessions due to cold winter weather, falling inventory, and improving demand.

This Is The "Big Weather Pattern Change" That Is Sparking NatGas' Massive Rally --  Having collapsed to record lows last week, NatGas futures have soared almost 40% as record warm temperatures in the Northeast (and a record glut) have given way to forecasts of a "big weather pattern change" in January. As The European Centre for Medium-Range Weather Forecasts notes, January will see a huge flip in temperatures compared to December... From 'Hot' to 'Not' And it appears February Nattie is pricing that demand in... In fact, as WLKY reports, in past El Ninos that peaked early like this year and had the core the warm water in the Pacific out in the central part of the ocean... like this year... the last half of winter was much colder than the first half of winter 90% of the time. Bye Bye Q1 GDP!!

Natural gas and energy prices expected to stay low - It is likely that prices of natural gas — now at their lowest in two decades — will be even lower during the home heating season next winter, Purdue University energy economist Wally Tyner says.In another good sign for low energy costs for consumers, Tyner also expects gasoline prices to stay in the range of $2 to $2.50 a gallon for much of 2016. Consumers already are seeing lower heating bills this winter even before the recent price drop. Tyner said that while the price of natural gas in December is the lowest it has been since 1994, consumers won’t see the full benefit of that in their gas bills this winter. That is because most of the natural gas that will be delivered this winter has already been contracted.“However, it likely means that home heating costs will fall more next winter,” he said. Tyner lists several “supply-and-demand drivers” that are keeping the price of natural gas so low:

  • • Natural gas is produced from both conventional and shale oil and gas formations, so the “fracking” boom has led to large supply increases of natural gas.
  • • The large supply increase has been faster than the rate of demand increase, so price has come down. Also, there is little international trade in natural gas, so the export market is quite limited.
  • • While the low price has discouraged additional drilling for natural gas, oil and gas drilling efficiency has increased tremendously the past 2 to 3 years.
  • • Normally, natural gas is put in storage in summer months, and the stored gas is used over the winter months. This year, however, so far the winter has been abnormally warm. Natural gas storage facilities are approaching full capacity, and limited additional storage is putting tremendous downward pressure on prices.

Pipeline planning fuels deals, disputes - Planning for a new pipeline across Pennsylvania has evolved into a statewide string of deals and disputes that runs right past the treehouse in Ron Rock’s Cumru Township front yard and the dog parks in Brecknock Township that help generate a living for Pat Emmett. Rock has made a deal. Emmett has been taken to court. In both cases, the other party is Sunoco Pipeline L.P., which hopes to build one or perhaps two new underground pipelines across much of the state, largely following the same path as other pipelines installed decades ago. As the company tries to get access to more land from property owners, there have been court clashes all the way from Washington County on the Ohio border to the Philadelphia region. Sunoco Pipeline has filed eminent domain proceedings in Berks County Court against Emmett and the owners of 14 other properties. The company is owned by Sunoco Logistics Partners L.P., which is traded on the New York Stock Exchange and logged more than $5.7 billion in revenue in the first six months of the year. In a Washington County case, a judge on Dec. 17 issued a ruling that found Sunoco was a public utility with the power of eminent domain. Emmett said his own attorney, Michael Faherty, still believes Sunoco does not have the legal right to take property.

Towns, residents push back on pipeline -- To energy company Kinder Morgan, it’s called the Northeast Energy Direct Project. Some local residents refer to it differently. The energy company is looking to bring natural gas into the region on a new pipeline mostly occupying current utility rights-of-way. However, several issues are keeping its construction from being a slam dunk. A series of public meetings hosted by the company during the last 12 months brought large numbers of residents out to hear from the company and ask questions about the plan and process. Kinder Morgan is hoping it will be able to stretch a gas pipeline from the Marcellus Shale fields in New York and Pennsylvania through southern New Hampshire and connect to existing lines along I-93. Tennessee Gas Pipeline Company LLC, which is a subsidiary of Kinder Morgan, says it will bring gas to the region as demand increases, and bring jobs along with it. The NED pipeline website says the project “could save New England electricity customers over $3 billion annually,” create “1,000 jobs” and bring millions in tax revenue to the state. It’s not a done deal, as there is vocal local opposition. Information sessions held by the company in several area towns have brought people out to hear from Kinder Morgan, and they in turn have heard from local residents in several affected towns.

Mass. Nurses: No fracking - The Kinder Morgan pipeline project once proposed to run through North Central Massachusetts brought out anti-fracking activists in droves. Now, nurses are joining the fight against fracking elsewhere in Massachusetts. The Massachusetts Nurses Association Board of Directors voted unanimously on Dec. 17 to oppose the construction of a natural gas pipeline and compressor station in and around Weymouth, saying the proposal by Houston, Texas-based Spectra Energy will pollute air and water, and will cause loud noises and smells. The nurses oppose the use of fracked gas, which would be transported through an additional pipeline in Weymouth and Braintree. The Weymouth compressor station would be adjacent to neighborhoods in Quincy and Braintree as well. MNA spokesman David Schildmeier said the union group opposed a project in West Roxbury as well as in Weymouth, because members living in both communities brought the projects up as points of concern. The proposed Kinder Morgan project, which will no longer touch North Central Massachusetts, didn't face formal opposition from the nurses, but Schildmeier said the organization opposes fracking "on a global level." "We have to change our reliance on fossil fuels and from a nursing healthcare prospective, it's a public health issue," Schildmeier said this week.

Big Cypress oil drilling: a few spills, a lot of tanks and pumps -- Deep in a pine forest of Big Cypress National Preserve, past a locked gate and up a rugged 11-mile road, stand a series of cleared fields full of pumps, storage tanks, generators and other equipment. The Raccoon Point oil field, one of two operated at Big Cypress by BreitBurn Energy Partners of Los Angeles, offers a glimpse of what could be in store for more of the Everglades, under two pending oil exploration applications. The Kanter family of Miami has applied for a permit to drill in the Everglades about six miles west of Miramar. At Big Cypress, Burnett Oil Co., of Fort Worth, Texas, has submitted an application to engage in seismic operations, using specially equipped trucks to generate vibrations in the earth, to look for oil across 110 square miles. At Raccoon Point, BreitBurn runs an industrial operation involving dangerous fluids, heavy equipment and rumbling generators among forests and wetlands inhabited by deer, panthers, bears, turkeys and other creatures. Workers, who occupy three trailers at the main pad, put in seven straight 12-hour days and then take seven days off, a schedule designed to accommodate the time involved in reaching the remote area. The wells yield what’s called production fluid, a combination of oil and salt water. The fluid goes through pipes along the ground to a row of tanks as high as upended school buses. These tanks separate the oil and water. The oil flows through a pipeline under western Broward County to the Devil’s Garden Truck Loading Facility on Snake Road, where it’s pumped onto trucks, driven to Port Everglades and taken by ship to refineries on the Gulf of Mexico.

Snow slows truck traffic in Permian, some crude output hit | Reuters: A snowstorm dumped around two feet (60 cm) of snow in parts of the Permian Basin in West Texas and New Mexico over the weekend, crimping some crude output and leaving roads dangerous for trucks heading to and from oil wells, forecasters and companies said on Monday. Snow had stopped accumulating by Monday afternoon but "travel continues to be impacted as most roads are slick and snow-covered," and some roads across southeastern New Mexico were still closed, according to a notice from the National Weather Service's Midland, Texas, office. Exploration and production companies Pioneer Natural Resources Co and Apache Corp, which operate in the top U.S. oil-producing basin, said they were still assessing the storm's effect on operations, which may take several days. "Early signs indicate the downtime is manageable and within our expectations for typical winter-weather-related downtime," an Apache representative wrote in an email. Devon Energy Corp said it was "experiencing some weather-related impact to its production" in Texas, New Mexico and Oklahoma, but the company could not yet provide a detailed assessment, according to a spokesman. Temperatures warmed on Monday, but overnight temperatures were expected to again dip below freezing, causing melting snow and ice on roads to re-freeze. This is expected to make road conditions more hazardous, according to the National Weather Service.

Fracking foes unveil 11 proposed Colorado ballot initiatives, including a ban -  Denver Post: A Boulder County-based citizens group opposed to fracking filed a package of ballot initiatives Tuesday that would circumvent a compromise sought by Gov. John Hickenlooper and U.S. Rep. Jared Polis of Boulder. Coloradans Resisting Extreme Energy Development submitted paperwork for 11 potential ballot questions to provide mandatory setbacks for wells from homes and schools, more local control on drilling decisions or an outright ban on the process of hydraulic fracturing. Eight of the 11 are variations of proposals for mandatory setbacks. Each of the constitutional amendments would need signatures from 98,492 registered Colorado voters to get on November's ballot. A review-and-comment hearing on the language of the ballot questions is set for at 1:30 p.m. Jan. 5 in Room 109 at the Capitol. "If the state will not adequately protect Coloradans and communities, then we, the people of Colorado, must do it, and that requires a change to Colorado law," Tricia Olson, CREED's executive director, said in a statement. "Our beautiful state should not be overwhelmed by wells, pads and other industrial oil and gas operations plunked down next to neighborhoods and schools."

Group seeks fracking ban via ballot box - A coalition group that opposes the use of hydraulic fracturing in oil and natural gas development filed about a dozen proposed ballot measures earlier this week to limit or outright ban the practice. A majority of the measures are aimed at creating a wider setback rule than the 500 feet that’s already in regulation. The group, Coloradans Resisting Extreme Energy Development, said it decided to go ahead with proposing ballot measures because it doesn’t believe that Gov. John Hickenlooper nor the Colorado Legislature have any intention of addressing the issue to their satisfaction. “The oil and gas industry and the state would like us to maintain business as usual,” said Sharon Carlisle, president of one of the coalition groups, Protect Our Loveland. “However, Colorado, as elsewhere, is being destroyed by outsiders under the guise that it is good for us. The research is in. It is not good for us.” Opponents of such ballot measures immediately denounced the group’s proposals, saying they’ve made Santa Claus’ naughty list. “While Santa’s sleigh may be powered by flying reindeer, our cars and home heating rely on American-made energy,” said Peter Moore, chairman of one of the opposition groups, Vital for Colorado. “All of these extreme proposals fall into the naughty category, which will prevent access to our own energy that will cripple family budgets and jeopardize our economy.”

Colorado oil and gas drilling initiatives take a radical turn - Denver Post Editorial -- Every one of 11 ballot initiatives filed last week with the state by foes of hydraulic fracturing has the potential to cripple oil and gas drilling in Colorado, and most almost certainly would do so. Several initiatives mandate setbacks of 4,000 feet between any well and an occupied structure or "area of special concern," defined as everything from a sports field to public open space. If you drew a radius of 4,000 feet around every occupied structure or area of special concern in, say, Weld County, where much of this decade's drilling boom has occurred, you'd eliminate the bulk of potential drilling sites. A setback of that magnitude comes suspiciously close to a ban. And this from alleged advocates of local control. Even a setback of 2,500 feet, which four of the initiatives favor, would amount to a huge rollback of potential sites. That distance also happens to be 500 feet more than even the setback proposed in a controversial ballot measure in 2014 that eventually was withdrawn in order to allow the various sides to sit down and work toward a compromise. That process is now in its final stages before the Colorado Oil and Gas Conservation Commission. Only one of the initiatives appears to be a straightforward grant of total power to local governments over oil and gas development, including the ability to ban it. Were voters to approve such a measure, some local governments would jump at the chance to ban drilling while others would probably accommodate it. The net result is hard to predict. But can state voters authorize the confiscation of mineral rights on such a potentially wide scale without the courts demanding redress?

Top Wyoming oil companies write off $41 billion in assets - The value of oil wells is plunging along with the price of crude. The top five publicly traded oil companies working in Wyoming have written off a combined $41 billion across their operations through the first nine months of 2015, financial filings show. The write-offs, known officially as impairments, represent a recognition that many wells will have shorter productive lives than initially anticipated, analysts said. It also reflects an acknowledgement that companies may have to pay for the cost of plugging and abandoning wells sooner than they expected, they noted. "For some of these companies it may be crippling because instead of spending money to drill new wells, they will have to spend money to plug and abandon wells that have hit the end of their productive life,"  All impairments are not created equal, however. EOG Resources and Devon Energy, Wyoming's first- and second-largest crude producers by volume, recorded impairments of $6.4 billion and $15.5 billion, respectively, through the first nine months of 2015, according to financial filings.  Analysts generally reckon both firms are financially healthy and well-positioned to ride out the downturn. For them, the industry's woes represent an opportunity. Few eyebrows will be raised if they write off already-declining assets at a time when Wall Street is expecting a wave of impairments. But in other instances the losses could signal growing financial stress.  Chesapeake Energy, Wyoming's fourth-largest oil producer, reported impairments of $15.4 billion through the first three quarters of 2015. The Oklahoma City-based producer's woes are primarily tied to natural gas. Chesapeake is the country's top natural gas producer and concerns over its debt have grown at a time when natural gas prices are mired at their lowest levels in more than a decade. 

New year brings changes in North Dakota oilfield waste rules — The new year comes with a new rule in North Dakota that allows elevated levels of oilfield radioactive waste to be disposed of at some landfills, a move regulators and industry officials believe will help curb illegal dumping. Environmental groups aren’t convinced and have threatened lawsuits over the new rule that takes effect Friday, saying the public was not given enough input in its crafting. “We don’t think the state is up to the task of doing this job,” said Don Morrison, executive director of the Dakota Resource Council. “They haven’t had the capability of doing this yet.” The rule raises the allowable concentrations of technologically enhanced radioactive material — or TENORM — to be disposed of at approved landfills from 5 picocuries per gram to 50 picocuries per gram. Picocuries are a measure of radioactivity. North Dakota generates up to 75 tons of radioactive waste daily, largely from oil filter socks, tubular nets that strain liquids during the oil production process. The filter socks can become contaminated with naturally occurring radiation and have been banned for disposal if they surpass the 5 picocurie threshold.

New refinery proposed in Stark County -  Stark County may soon see another diesel fuel refinery rise. California-based Meridian Energy Group Inc. is looking to build a refinery on 620 acres of land west of Belfield. It would refine crude oil produced in the Bakken. The Davis Refinery, if built, would be the nation’s second greenfield refinery constructed in the county — and the United States — since 1976 following the opening of the Dakota Prairie Refinery outside of Dickinson, which began operating in April after a March 2013 groundbreaking. According to an article released Wednesday by the Oil & Gas Journal, the Davis Refinery would begin with a 20,000 barrel a day processing plant and eventually convert around 55,000 barrels per stream day into refined products. By comparison, Dakota Prairie Refining refines an estimated 20,000 barrels a day into diesel fuel, naphtha and other products.

BP buys Devon Energy's Blanco unit — BP has added more San Juan Basin assets to its natural gas portfolio for the first time in seven years. On Dec. 18, BP’s Lower 48 Onshore oil and gas business announced the acquisition of Devon Energy Corp.’s North East Blanco Unit, a collection of 480 natural gas wells across 33,000 gross acres in San Juan and Rio Arriba counties, according to Lisa Houghton, BP spokeswoman. Houghton said the Houston-based company would not disclose the purchase price for those majority ownership rights in the unit. In a statement, BP Lower 48 Onshore CEO David Lawler reiterated the company’s commitment to investment in the San Juan Basin. “This acquisition clearly demonstrates the importance of New Mexico and the San Juan Basin to our future,” Lawler said. “It’s also consistent with our strategy of selectively expanding in BP’s existing onshore basins, where we can link our innovative well design capability with our extensive subsurface expertise to generate industry leading capital efficiency.” One of Lawler’s first moves after taking BP’s U.S. Lower 48 Onshore chief executive post in 2014 was to reverse a decision to sell the gas company’s assets in the San Juan Basin. Those assets included the 2,200 operated and an additional 4,400 non-operated natural gas wells on nearly 2,500 square miles across the southern San Juan Basin. They also included BP’s interest in the ConocoPhillips’ San Juan gas plant in Bloomfield.

Oil-Producing States Battered as Tax-Gushing Wells Are Shut Down -  In Kern County, California, one of the nation’s biggest oil producers, tumbling energy prices have wiped more than $8 billion from its property-tax base, forcing officials to tap into reserves and cut every department’s budget. It’s only getting worse.  Oil Prices The county of 875,000 in the arid Central Valley north of Los Angeles may face another blow in January, when it reassess the oil-rich fields that line the landscape. Last year’s tax bills were based on crude selling for $54 a barrel. It finished Monday at less than $37.  “If it keeps going down and stays down we may have to look at more cuts in the next budget.” As the price of crude falls for a second year, marking the steepest decline since the recession, the impact is cascading through the finances of states, cities and counties, in ways big and small.  Alaska, Louisiana and Oklahoma have seen tax collections diminished by the rout, which has put pressure on credit ratings and led investors to demand higher yields on some securities. In Texas, the largest producer, the state’s sales-tax revenue dropped 3 percent in November from a year earlier as the energy industry exerted a drag on the economy. Further west, Colorado’s legislative forecasters on Dec. 21 estimated that the state’s current year budget will have a shortfall of $208 million, in part because of the impact of lower commodity prices. In North Dakota, tax collections have trailed forecasts by 9 percent so far for the 2015-2017 budget.

'Unprecedented' gas leak in California is the climate disaster version of BP's oil spill A massive natural gas leak in Aliso Canyon, California, about 25 miles north of Los Angeles, has been spewing about 62 million standard cubic feet of methane per day into the air since a well casing mysteriously suffered damage on Oct. 23 of this year.   The leak is unlikely to be squelched for another three to four months, according to SoCalGas, as crews have to drill about 8,500 underground to intersect with the base of the leaking pipe. Already, more than 1,000 people in Porter Ranch and Northridge, California have temporarily relocated due to health complaints related to the fumes from the leak. In addition, the Los Angeles Unified School District's Board of Education decided on Dec. 17 to temporarily relocate two schools for the rest of the 2015-16 school year. The Aliso Canyon leak demonstrates a potential blind spot in the nascent regulatory system for overseeing the country's growing natural gas infrastructure. Companies are being pushed to contain leaks in their natural gas pipelines and at facilities that burn natural gas, but underground storage areas, of which there are more than 300 nationwide, aren't subjected to specific standards that might have prevented this leak.California has been monitoring the air quality in the Porter Ranch community, which is closest to the leak and where many people have complained about health issues. They have found that, so far, the level of pollutants in the air, including benzene, which can be extremely hazardous when present in particularly high levels, has remained below the threshold where they would be considered dangerous.However, natural gas odorants can cause adverse physical symptoms, including nausea and headaches, despite the lack of long-term health risk. A spokesman for SoCalGas told Mashable that the company "recognizes the impact this incident is having on the environment," but said it's unsure exactly how much gas has escaped so far.

Aerial footage shows California methane leak (VIDEO) - Methane gas continues to leak from a California storage facility at a rate of 110,000 pounds per hour. Aerial footage using a specialized infrared camera shows the extent of the leak. The video was taken Dec. 17 and released by the Environmental Defense Fund. The leak emits methane at a rate of about 50,000 kilograms per hour, about one-quarter of all methane emissions in California.  Southern California Gas Co. first discovered the leak at its Aliso Canyon storage facility Oct. 23. Since then, nearby Porter Ranch residents have complained about headaches, nausea, nosebleeds and other symptoms. The gas company is offering free, temporary relocation for nearby residents. So far, hundreds have been moved to escape the fumes.Workers continue to drill a relief well that connects to the leaking well 8,000 feet below ground. Once the relief well is finished, mud and other fluids will be pumped into the well to stop the flow of gas. Cement will then be pumped into the well to permanently plug it. Operations run around the clock. By Saturday, the relief well had reached a depth of 3,800 feet. In case the relief well fails, a backup relief well will be drilled in January.

Why Engineers Can’t Stop Los Angeles’ Enormous Methane Leak -- One of the biggest environmental disasters in US history is happening right now, and you’ve probably never heard of it. An enormous amount of harmful methane gas is currently erupting from an energy facility in Aliso Canyon, California, at a startling rate of 110,000 pounds per hour. The gas, which carries with it the stench of rotting eggs due to the addition of a chemical called mercaptan, has led to the evacuation 1,700 homes so far. . The Environmental Defense Fund (EDF) released the footage ofa geyser of methane gas spewing from the Earth last week, calling it “one of the biggest leaks we’ve ever seen reported” and “absolutely uncontained”: In early December, the Southern California Gas Company said that plugging the leak, which sprang in mid-October, would take at least three more months. “The relief well process is on schedule to be completed by late February or late March.”   Part of the problem in stopping the leak lies in the base of the well, which sits 8,000 feet underground. Pumping fluids down into the well, usually the normal recourse, just isn’t working, said Silva. Workers have been ”unable to establish a stable enough column of fluid to keep the force of gas coming up from the reservoir.” The company is now constructing a relief well that will connect to the leaking well, and hopefully provide a way to reduce pressure so the leak can be plugged.  So far, over 150 million pounds of methane have been released by the leak, which connects to an enormous underground containment system. Silva says that the cause of the leak is still unknown, but research by EDF has also revealed that more than 38 percent of the pipes in Southern California Gas Company’s territory are more than 50 years old, and 16 percent are made from corrosion- and leak-prone materials. Right now, relief efforts have drilled only 3,800 feet down—less than half of the way to the base of the well. At that rate, the torrent of methane pouring into California won’t be stopped any time soon.

Arctic drilling rig expected to leave Port Angeles harbor — An Arctic drilling rig that has made its home in the Port Angeles harbor is expected to depart for Europe. The Peninsula Daily News reports the giant oil drilling platform, the Polar Pioneer, has been welded to a ship owned by a company from the Netherlands. A representative of the U.S. division of that company, Dockwise Shipping, says it is ready to depart on Wednesday. Robb Erickson says the 902-foot semi-submersible heavy-lift ship will take the Polar Pioneer to Norway by following the coast to the Strait of Magellan at the tip of South America. From there it will cross the Atlantic. The Dockwise Vanguard is the largest ship of its type in the world and can lift more than 120,000 tons of cargo.

North Slope companies to keep up spending -- The overwhelming unknown is the price of crude oil, and whether it will continue to go down, stabilize or creep upward as has been predicted. What is causing the slump is well known. There’s too much oil supply on the market and on the demand side, the economic slowdown in China has taken the wind out the world commodities boom, affecting not just oil but also metal prices. Saudi Arabia continues to produce to keep its market share, ditto for Russia and other producing countries. In the U.S., shale oil drillers have upset expectations that they will cut back by finding cheaper ways to produce. Alaska’s good fortune is that the large companies that produce most of the North Slope’s oil have seen slumps like this before and are capable of riding this one out. How many Alaskans remember $8 per barrel oil prices in 1998? Surprisingly, the large companies’ capital investment estimates for Alaska, for 2016 and 2017, have not yet taken a beating. Forecasts given the state Department of Revenue by the industry, a requirement of the state’s production tax law, estimate that $3.32 billion in capital spending will occur in fiscal year 2017, the state budget year beginning next July 1, and $3.24 billion in 2018. That’s down from $3.61 billion estimated for the current budget year, but considering that crude oil prices are nearly a third of what they were not too long ago, the numbers are a signal of confidence.

Oilsands cleanup may not be adequately funded: Alberta AG | CTV News: -- Alberta's auditor general says the province may not be requiring oilsands companies to save enough money to ensure their gigantic mines are cleaned up at the end of their life. "If there isn't an adequate program in place to ensure that financial security is provided by mine operators ... mine sites may either not be reclaimed as intended or Albertans could be forced to pay the reclamation costs," says a report released Monday by Merwan Saher. Saher says current rules could allow companies to overestimate the value of their resources. That allows them to delay increases to the amount of money they sock away to fund cleanup.  Saher says the government hasn't met its own targets when it comes to ensuring each operator is assessed a large enough amount to pay for reclamation. Only about one-quarter of the audits promised in 2011 have been completed. "The level of verification activity has been insufficient," says the report. Alberta Environment Minister Shannon Phillips said the government agreed with Saher's concerns and accepts his recommendations. The Mine Financial Security Program was instituted in 2011 and currently holds security deposits from eight oilsands mines and 19 coal mines. The fund holds $1.6 billion to cover about $21 billion in eventual liabilities.

North Sea Evacuations Due To Barge That Broke Anchor Following Storm; COP Oil Field At Risk  -- From Seeking Alpha:

  • the large unmanned barge that broke anchor last night in the North Sea is drifting further north, threatening an oil field of ConocoPhillips
  • production from the Eldfish and Embla oil fields have now been shut down and 145 people have been evacuated, the company said in a statement
  • BP evacuated Valhall field in North Sea earlier
  • Evacuate! BP has ordered the departure of staff from a North Sea Valhall oilfield as a large unmanned barge broke anchor and drifted towards drilling platforms following a storm
  • "The barge has changed direction and BP has decided to shut production...there are 71 people left on the platform and they are being evacuated as we speak," a BP spokesman told Reuters.

Outrageous behaviour over fracking - In the past week we have seen the Government has successfully sneaked through changes to allow fracking below National Parks, Areas of Outstanding Natural Beauty and World Heritage Sites. Under Labour pressure, they had previously conceded there should be tougher safeguards in place to protect drinking water sources and sensitive parts of our countryside. Now they have gone back on their word and without holding a debate.The Government’s behaviour is outrageous, fracking should not go ahead until we can be sure it is safe and won’t pose a damaging risk to our environment. Neither MPs nor the public have received these assurances, yet Ministers are ignoring people’s legitimate concerns. I’m pleased to say the Labour Party is calling for a moratorium of fracking. In 2016 it’s clear local councils are going to be under a lot of pressure financially. George Osborne’s decision to axe the central government grant to councils over the next four years amounts to a £6.1bn cut by 2019/20. This will surely hit the poorest parts of the country hardest where there are fewer businesses and tax payers to make up for lost Whitehall grants.

Fracking Fluid & Chemicals Market by Chemical Function, by Fluid Type, & by Well Type -  -- The market for fracking fluids and chemicals is projected to witness a tremendous growth during the forecast period which will be driven by exploration and development of reserves for oil and gas extraction across the globe. The demand for fuel is increasing multifold due to high consumption from domestic as well as industrial front. The global market of hydraulic chemicals is projected to register a CAGR of 9.5% between 2015 and 2020. Gelling agent is estimated to account for the largest market size among all the chemical function types and is estimated to account for a market share of 37% in 2020. The oil and gas wells are mainly of two types, horizontal and vertical. High growth is expected in the horizontal wells drilled per year due to E&P activities for unconventional oil & gas, as these reserves are recovered more economically by horizontal drilling. Horizontal well fracturing gives access to the points where the vertical well drilling cannot be reached. With an increase in the demand for the unconventional oil & gas, horizontal fracking is invaluable in securing and bringing these unconventional gases on the surface. Upcoming opportunities such as development of underground shale reserves are projected to increase the fracking activities across the globe. This report also includes market dynamics, such as drivers, restraints, opportunities, burning issues, and winning imperatives. Major companies such as, the players involved in this market are specialty chemical companies, drilling and extraction service providers, namely, Halliburton (U.S.), Schlumberger (U.S.), Baker Hughes (U.S.), DuPont (U.S.), AkzoNobel (The Netherlands), BASF (Germany), Ashland (U.S.) and others have been comprehensively profiled in this report.

Shale's Running Out of Survival Tricks as OPEC Ramps Up Pressure -- In 2015, the fracking outfits that dot America’s oil-rich plains threw everything they had at $50-a-barrel crude. To cope with the 50 percent price plunge, they laid off thousands of roughnecks, focused their rigs on the biggest gushers only and used cutting-edge technology to squeeze all the oil they could out of every well. QUICKTAKE Fracking in EuropeThose efforts, to the surprise of many observers, largely succeeded. As of this month, U.S. oil output remained within 4 percent of a 43-year high. The problem? Oil’s no longer at $50. It now trades near $35. For an industry that already was pushing its cost-cutting efforts to the limits, the new declines are a devastating blow. These drillers are “not set up to survive oil in the $30s,” said R.T. Dukes, a senior upstream analyst for Wood Mackenzie Ltd. in Houston. The Energy Information Administration now predicts that companies operating in U.S. shale formations will cut production by a record 570,000 barrels a day in 2016. That’s precisely the kind of capitulation that OPEC is seeking as it floods the world with oil, depressing prices and pressuring the world’s high-cost producers. It’s a high-risk strategy, one whose success will ultimately hinge on whether shale drillers drop out before the financial pain within OPEC nations themselves becomes too great. Drillers including Samson Resources Corp. and Magnum Hunter Resources Corp. have already filed for bankruptcy. About $99 billion in face value of high-yield energy bonds are trading at distressed prices, according to Bloomberg Intelligence analyst Spencer Cutter.  “You are going to see a pickup in bankruptcy filings, a pickup in distressed asset sales and a pickup in distressed debt exchanges,”

The New Cartel Running The Oil Sector -- As oil prices wallow near multi-year lows, it’s becoming increasingly clear that the new cartel controlling oil prices is not OPEC but world credit markets. From Saudi Arabia’s record $100 billion deficit to shale oil’s continuing reliance on cheap credit funding, it’s clear that no major oil producer or company in the world right now is economically self-sufficient based on oil revenues alone. This situation has left the flow of oil and the decision on when to stop pumping the increasingly tarnished black gold in the hands of banks rather than oil men. The idea that bank loans to oil companies may be in trouble is not new but there are increasing signs of late that these distress energy loans could end up defaulting and leaving banks with a mess to deal with. At the national level, countries like Saudi Arabia won’t forfeit their assets to creditors of course, but their ability to keep running deficit funding is going to increasingly depend on bond market appetite for energy related debt. That could be problematic in 2016. With the Federal Reserve starting to raise interest rates, bond investors may find that they don’t need to invest in energy debt to garner yield as they have in 2015, and this in turn could start to crimp oil production. Economists often like to cite cartels as having the power to control production, but at this point it looks like the only group with any ability to actually curtail (or expand) production are the major banks that direct capital market flows. Of course that production power is indirect, but it is real nonetheless.For some banks that are large enough, it is even possible that a broad pull back in lending could lead to markedly lower production levels across many U.S. firms in particular which in turn might help boost marginally prices. To the extent that banks act in concert to do this, the effects on prices might be more than marginal.

As Canada wavers on pipelines, U.S. gives go ahead for oil exports: As Canadians waver over new oil pipelines and increased exports, the United States — a long-time customer for Canada’s oil, suddenly turned competitor — has seemingly fewer qualms about putting economic interests ahead of environmental concerns and approving exports of crude oil into the global market for the first time in decades. Congress passed an omnibus US$1.1-trillion spending bill Friday that included the lifting of a 40-year-old ban on crude oil exports that goes back to the initial OPEC crisis in the 1970s and is a testament to the remarkable reversal of fortune in recent years for North America’s once-moribund oil industry. The decision to permit exports of unrefined crude is “particularly important at a time when our industry is experiencing a period of extreme volatility and uncertainty,” ConocoPhillips CEO Ryan Lance said in a statement. Concern over security of supply has become a thing of the past in this period of abundant oil after the advances in oilsands technology and, especially, hydraulic fracturing that led to development of previously untapped oil reservoirs. Record volumes of oil production in Canada and resurgent U.S. supply is looking for new markets worldwide even as prices plummet.

"Miracle of American Oil": Continental Resources Courted Corporate Media to Sell Oil Exports -  A document published by the Public Relations Society of America, discovered by DeSmog, reveals that from the onset of its public relations campaign, the oil industry courted mainstream media reporters to help it sell the idea of lifting the ban on crude oil exports to the American public and policymakers.  Calling its campaign the "Miracle of American Oil," the successful PR effort to push for Congress and the White House to lift the oil exports ban was spearheaded by Continental Resources, a company known as the "King of the Bakken" shale oil basin and founded by Harold Hamm. Hamm served as energy advisor to 2012 Republican Party presidential candidate Mitt Romney. The campaign launched on December 16, 2013, the 40th anniversary of the Organization of the Petroleum Exporting Countries (OPEC) oil embargo, and won the prestigious PRSA Silver Anvil Award. According to the document, submitted to PRSA to detail the logistics and reach of the PR effort, it was "designed to influence public policy and/or affect legislation, regulations, political activities or candidacies -- at the local, state or federal government levels."  And it all began with a kick-off dinner in Washington, D.C., hosted by Continental Resources and attended by some of the most influential mainstream media energy reporters in the United States. Regular readers of the Washington oil and gas industry beat will find the names of the dinner attendees, disclosed in the document, familiar. "The campaign not only served as a catalyst to correct public misconceptions, but it also propelled crude oil exports to the top of the U.S. Senate's agenda," Continental boasted on the PRSA document. 

9 Gifts President Obama Gave Big Oil in 2015 -- Big Oil has already received plenty of gifts this holiday season. Despite another year of record-breaking temperatures, the last 12 months have seen a wave of policy wins that could secure an oil drenched status quo for decades to come.  The Obama administration is already touting its second-term climate accomplishments, but from free trade and oil exports to pipelines and Arctic drilling, here are nine Christmas presents President Obama gave Big Oil in 2015:
1. Crude oil export ban - Big Oil won its biggest policy victory in years when President Obama accepted a deal to lift the 40-year crude oil export ban. Over the next 10 years this long-sought goodie could translate into $171 billion in new revenue for the oil industry and as much as 3.3 million barrels of new production per day by 2035.
2. New refining subsidy -- Since lifting the crude oil export ban means that domestic crude can sell for a higher price on the global market, some U.S. refiners may find their margins squeezed as the price of crude itself rises. The Congressional solution? Compliment the lifting of the export ban with a new $1.8 billion tax break for refiners over the next six years.
3. Alberta Clipper - Sure, TransCanada was denied a permit to build the Keystone XL, but a State Department decision could bring almost as much tar sands across the Canadian border. Enbridge, the company responsible for the worst onshore oil spill in U.S. history, was allowed to skirt the normal review process for a cross-border pipeline expansion. The result could double current capacity, sending a total 880,000 barrels per day of Canadian tar sands to refineries in the Gulf Coast.

Big Oil Argued for U.S. Crude Exports to Fend Off Iran, But First Exporter Vitol Group Also Exported Iran's Oil -  The American Petroleum Institute (API) successfully lobbied for an end to the 40-year ban on exporting U.S.-produced crude oil in part by making a geopolitical argument: Iran and Russia have the ability to export their oil, so why not unleash America? What API never mentioned — nor the politicians parroting its talking points — is that many of its member companiesmaintain ongoing business ties with both Russia and Iran. And The Vitol Group, the first company set to export U.S. crude after the lifting of the ban (in a tanker destined for Switzerland), has or had its own ties to both U.S. geopolitical rivals. Who is The Vitol Group? In short, The Vitol Group is the most powerful oil and gas company you've likely never heard of, and one the Telegraph (UK) said “pulls the levers of the global economy.” Vitol makes an appearance in CNBC reporter Kate Kelly's book, “The Secret Club that Runs the World: Inside the Fraternity of Commodity Traders.” As The Telegraph described, Vitol's reach goes far beyond just oil and gas.  “Crude oil, diesel, aviation fuel, benzene, alumina, bitumen, ethanol, methanol, coal, iron ore, liquid natural gas, sugar, maize, wheat, rice, soybeans and rapeseed,” they wrote. “Vitol continually ships thousands of tonnes of nearly every major commodity and raw material around the planet…Simply put, Vitol is one of the biggest trading companies on the planet.” Vitol is the ninth biggest company in the world by revenue, sitting only behind the likes of BP, ExxonMobil, Walmart, Saudi Aramco, Shell and Sinopec.  And it's willing to do business with just about anyone, including but not limited to Russia and Iran.

The Crude Oil Export Ban - "What, Me Worry About Peak Oil?" -- Congress ended the U.S. crude oil export ban last week. There is apparently no longer a strategic reason to conserve oil because shale production has made American great again. At least, that’s narrative that reality-averse politicians and their bases prefer. The 1975 Energy Policy and Conservation Act (EPCA) that banned crude oil export was the closest thing to an energy policy that the United States has ever had. The law was passed after the price of oil increased in one month (January 1974) from $21 to $51 per barrel (2015 dollars) because of the Arab Oil Embargo. The EPCA not only banned the export of crude oil but also established the Strategic Petroleum Reserve.  Above all, the export ban acknowledged that declining domestic supply and increased imports had made the country vulnerable to economic disruption. Its repeal last week suggests that there is no longer any risk associated with dependence on foreign oil. What, Me Worry?  The tight oil revolution has returned U.S. crude oil production almost to its 1970 peak of 10 million barrels per day (mmbpd) and imports have been falling for the last decade (Figure 1). But today, the U.S. imports twice as much oil (97%) as in 1974! In 2015, the U.S. imported 6.8 mmbpd of crude oil (net) compared to only 3.5 mmbpd at the time of the Arab Oil Embargo (Table 1). Production of crude oil is higher today by 7% but consumption has grown to more than 16 mmbpd, an increase of 32%. At the time of the Arab Oil Embaro, consumption was only 12 mmbpd. So, consumption has increased by one-third and imports have doubled but we no longer need to think strategically about oil supply because production is a little higher? We are far more economically vulnerable and dependent on foreign oil today than we were when crude oil export was banned 40 years ago. What, me worry?

First Tanker of U.S. Crude Oil for Export Sails From Texas - The first oil tanker of freely traded U.S. crude launched Thursday afternoon from the Port of Corpus Christi, about 160 miles north of the Texas border with Mexico.  ConocoPhillips and NuStar Energy loaded the tanker with oil pumped from the Eagle Ford Shale of South Texas. The companies have skipped ahead of Enterprise Products Partners EPD 2.73 % LP, which said last week that it expected to load the first oil export cargo in Houston during the first week of January. President Barack Obama signed legislation lifting the long-standing ban on exporting U.S. oil less than two weeks ago. It was put into place during the mid-1970s in the wake of the Arab Oil Embargo, which caused fuel rationing and price spikes for American drivers.  Vitol Group, a Dutch oil-trading powerhouse, is buying the oil cargo, according to NuStar. Vitol also is buying the U.S. crude-oil cargo that will ship out of Houston during the first week of 2016. The company has a subsidiary that owns a refinery in Switzerland.

Corpus’s Future as a Major Hub for Crude Oil and Condensate -- Although the current narrow price differentials between U.S. domestic crude (including Eagle Ford condensate) and international market prices suggest no flood of exports is likely in the short term, the considerable existing marine dock capacity at Corpus is already capable of shipping out over 750 Mb/d of crude and condensate and is still expanding. That could make Corpus a major center of crude exports going forward. Today we conclude our series with a look at infrastructure in the Ingleside area of Corpus Christi and preview our final Drill Down report for 2015 that provides deeper analysis and commentary on Corpus Christi infrastructure.    With crude production soaring over the past few years in regions like the Bakken, Permian and Eagle Ford, the nation’s pipeline networks needed a major re-do. A good deal of that re-plumbing involved developing transportation to deliver booming inland crude production to coastal refineries. In the South Texas Eagle Ford the result was repurposing of existing pipelines and build out of new additions that led to over 1.5 MMb/d of capacity to deliver crude and condensate to Corpus coming online in the space of 3 short years. But the relatively limited capacity to refine that crude at local refineries led to as much as 750 Mb/d of surplus supplies hitting the water at Corpus. Some of that Armada of crude was exported to Canada (where there were no restriction on exports) but the bulk was shipped short distances to Gulf Coast refineries in Texas and Louisiana.  Meantime refineries sought to expand their ability to process light Eagle Ford crude and midstream companies planned condensate splitters to produce refined products that had no export restrictions. Then in 2014 a new interpretation of export regulations to permit the export of condensate processed through stabilization towers led some of the same companies to abandon splitter plans and look at building stabilization capacity at or near Corpus instead. Now the December 2015 lifting of export restrictions could switch the focus again - to understanding where Eagle Ford and increasingly Permian crude can be marketed overseas, if and when the economics allow.

In World With Too Much Crude Oil, 1,100-Foot Steel Monsters Rule - The most destructive oil crash in a generation is giving ship owners a billion-dollar windfall. With the Organization of Petroleum Exporting Countries abandoning output limits in a drive for market share, ships that carry as much as 2 million barrels a trip are in demand to haul crude from the Middle East to Asia and North America. While oil prices fell about 35 percent in 2015, average earnings for these carriers jumped to $67,366 a day, the most since at least 2009, according to Clarkson Plc, the world’s largest shipbroker.  Tanker analysts are predicting the rate boom will persist for many of the same reasons oil forecasters are bearish. OPEC shows no sign of reversing its market strategy, and Iran has outlined plans to ramp up its exports once economic sanctions against the country are lifted. At the same time, the U.S. just repealed a four-decades old limit on its exports. With on-land inventories already at record levels, this could mean more barrels will eventually be stored on ships, further increasing profit, said Tsakos.  While rates are forecast to slip in 2016, the ships will still earn $46,400 a day, the second best year since 2009, according to the median of six analysts surveyed by Bloomberg and historical data from Clarkson. “A scenario in which crude oil prices are suppressed across 2016 could lead to a boom in tanker earnings of comparable magnitude to 2007-08,” At the same time, low oil prices have served to stimulate world oil consumption, which rose by by 1.8 million barrels a day in 2015, the highest in five years, according to the International Energy Agency. With about 40 percent of the world’s crude shipped by sea, that will result in 1.4 million barrels a day more cargoes this year, according to Clarkson data.

Cheniere starts producing at shale gas export terminal, ING says - Cheniere Energy Inc began production at what will become the first terminal to export natural gas from America’s shale formations, according to ING Capital LLC, which helped finance the project. The company is receiving about 50 million cubic feet of the fuel a day, chilling it into liquefied natural gas at the Sabine Pass terminal in Louisiana, and storing it in tanks before the first export, Richard Ennis, head of natural resources at ING, said by email on Wednesday. Ennis said he receives regular updates from the company and that he hadn’t been informed of a delay in the start-up. Cheniere spokeswoman Faith Parker didn’t immediately respond to telephone and emailed requests for comment on Wednesday. Cheniere has previously said the inaugural cargo will leave the complex in January by tanker and that UK-based BG Group Plc is contracted to take the first shipment. Sabine Pass is “on schedule,” Ennis said. “You can’t dock a ship to offtake the LNG, until you have a full ship load of LNG in the tanks, which is planned to happen in January.” The start at Sabine Pass paves the way for other planned liquefied natural gas terminals that are projected to turn the US into one of the world’s largest suppliers. The country may be capable of exporting 7.76 billion cubic feet of gas a day by 2019, a Bloomberg New Energy Finance analysis shows. While the US has been sending gas abroad from Alaska for years, Cheniere’s cargo would mark the first to leave from the lower-48 states, a testament to surging shale supplies that have sent domestic stockpiles to record levels.Cheniere’s export terminal underscores how dramatically the shale boom has reshaped the natural gas market. Before drillers started pulling the fuel out of tight-rock formations using hydraulic fracturing and horizontal drilling, Cheniere was building import terminals in anticipation of a domestic shortage.

End of easy money for mini-refiners splitting U.S. shale? -  Energy companies and oil trading firms that teamed up to build several mini-refineries that convert a swelling surplus of ultra-light U.S. crude into fuels for export seemed like a pretty safe investment bet for a while. The bet was built on several converging dynamics: an ever-rising supply of condensate; a U.S. refining system built to run heavier crudes; and a longstanding ban on crude exports that appeared unlikely to unwind amid partisan paralysis in Washington, D.C. Now, as U.S. oil output reverses its five-year rise and after lawmakers ended the 40-year-old export ban this month, oil executives and analysts question the wisdom of nearly $1 billion worth of so-called condensate splitters built over the past year, and the future of another $1.2 billion planned. Traders are wondering what will happen with existing splitters run by companies such as Kinder Morgan Inc. They also question how the new landscape will affect traders such as BP Plc and Trafigura, which signed long-term contracts to buy all the output from those facilities. Other pending projects without guaranteed buyers could be abandoned, experts say. The once-restricted domestic crude not only faces increased competition. It also is hurt by the inversion of the global oil market, where once-abundant U.S. production is declining while global supplies are rising. This has eliminated the price discount that underpinned their model.

Oklahoma oilman says US market quality reflected in price --  A prominent Oklahoma oilman says the high quality of U.S.-produced oil is reflected in its rising price on international markets. U.S. oil is trading higher than the international standard for the first time since 2010 after President Barack Obama signed a measure last week lifting the nation’s four-decade ban on oil exports, the Oklahoman reported Friday. Domestic oil gained 60 cents to $38.10 a barrel on Thursday while oil produced elsewhere added 53 cents to close at $37.89. Harold Hamm, CEO of Continental Resources, says it’s a sign that the world sees domestic light, low-sulfur oil as superior to international oil, much of which is denser and higher in sulfur. “Now the premium quality of U.S. light sweet crude is being recognized globally and rewarded by the market,” said Hamm, chairman of the Domestic Energy Producers Alliance. Most refineries in Europe and Asia are designed to handle primarily light sweet crude like that produced in the United States. Light sweet historically has traded at a premium to heavy sour blends. But a rapid increase in domestic production over the past decade helped flip the prices, setting domestic prices below the international rate.

WTI Plunges Back Under $37 (Below Brent); Drags Stocks Into Red For 2015 --While everything was awesome last week (apart from the last 10 minutes), it appears lower oil prices this week (WTI just crossed back below Brent's price and under $37 once again) is not "unequivocally good" for US equity markets. Following the bloodbath in China's "B" Shares overnight, traders are hoping this pain will stop once the machines "get back to work" at 930ET...If this holds, S&P 500 will open back in the red for 2015.As Bloomberg reports,Oil in New York falls from 3-wk high as Iran repeats goal of boosting supplies after lifting of sanctions. Iran’s priority is to boost oil shipments to pre-sanction levels once restrictions are lifted, IRNA reports, citing Oil Minister Bijan Namdar ZanganehCountry plans to add 500k b/d of exports 1 wk after sanctions lifted, says Rokneddin Javadi, deputy oil minister and head of NIOC, accord. to Shana news agency“If Iran is able to immediately add 500k b/d of exports, then that will become a huge factor which will push down oil prices in the first half of next year,” says Hong Sung Ki, senior commodities analyst at Samsung Futures.“That decision together with lower demand for heating oil and steady U.S. supplies are poised to be bearish factors for the mkt” Which has knock-on effects on commodity currencies with the Ruble near record lows against the USD and NOK/SEK at 23-year lows.

Oil down 3 percent; Brent near 11-year low as oversupply worries return | Reuters: Oil fell more than 3 percent on Monday, with global benchmark Brent back near 11-year lows as last week's short-covering dried up and players worried that crude prices had more room to swoon in the new year. U.S. gasoline futures slid more than 2 percent as the selloff extended to refined oil products. Heating oil fell 1 percent as expectations of cold weather limited its downside amid a 10 percent rally in natural gas, another heating fuel. Crude futures slumped in Asian trading as Japanese data showed a 46-year low in oil sales in the world's fourth largest crude buyer. They slid more in the New York session, as some traders reckoned the two-day pre-Christmas rebound, where crude rose about $2 a barrel, had been overdone. "Volume isn't great, which is typical for this time of year, and most guys are either flat on their books and positioning themselves for a weaker first quarter in 2016,"  Brent settled down $1.27 at $36.62 a barrel, after falling to a session low of $36.52. It hit $35.98 on Tuesday, its lowest since 2004. Brent also settled below U.S. crude's West Texas Intermediate (WTI) futures for a fourth straight day, showing its waning influence over WTI after this month's decision by the United States to lift a 40-year ban on U.S. crude exports.

Oil prices keep falling — this is the reason why -- There is no reprieve, of late, for the oil market. And U.S. consumers have been reaping the benefits.  The AAA estimated that consumers have saved more than $115 billion on gasoline so far this year. The steady decline of oil prices, which topped a sky-high $100 a barrel last year, had seemed to pause in May and June at above $60 a barrel. That hiatus is over now — prices for both Brent and West Texas Intermediate crude, a U.S. benchmark, are now in the mid $30s. In one sense, this is the same old story: OPEC, Saudi Arabia in particular, declined to cut oil production back in late 2014 in order to maintain market share, and has not changed its tune. Ever since then, oil markets have had to deal with an excess of supply, driving down prices. When OPEC members met earlier this month, on Dec. 4, they merely announced that members of the group “should continue to closely monitor developments in the coming months.” “Every signal the market is getting suggests we’re going to have weak demand,”  In addition, he said, “We have an enormous amount of supply out there.” However, there are some new features now that are driving prices still lower. The U.S. budget compromise that led to lifting a ban on oil exports adds to potential U.S. oil supply on the market, Bordoff said, as does “more certainty that the Iranian oil exports are coming back into the market” with the nuclear agreement in place. What’s more, Bordoff said, El Nino has kept it warm, reducing the need for heating oil. The U.S. shale oil sector, the great OPEC rival of recent years, continues to produce more than expected with prices low.  Other factors that are keeping prices low, according to a Monday analysis by Raymond James, are a “substantial and inexplicable surge” in Iraqi oil and ongoing concerns that China’s economic hiccups will drive down demand. “Oil market sentiment is currently as ugly as it’s been since January,” the analysts wrote, lowering their 2016 price forecast for West Texas Intermediate crude by $10 to $55.

Enjoy the gas ride, then get off - We’ve been hearing that our oil giant “friend,” Saudi Arabia, has declared war on American oil producers who have, through the oil fracking bonanza, freed us from OPEC dependency.They’re turning the screws on American oil producers by pumping enough extra oil to drive prices through the floor and drive American drillers into bankruptcy.These are those same “friends” who brought us the oil embargo in the ‘70s, who brought us 15 radicals to blow up the Twin Towers, who stand for nearly everything we oppose, and who now have openly stated their determination to crush America’s newly found energy independence so they can once again raise prices at will against the American consumer.With friends like these ... you know the rest.  So far, with oil prices well under $40 a barrel and holding, their plot is working as oil operations throughout America are slowing and shuttering down.  Tens of thousands have already lost their jobs and tens of thousands more will follow. This is what’s happening in the background as you and I bathe in the temporary joy of sub-three-bucks-a-gallon courtesy of the Saudi assault.  The Saudis have seen the future, and they don’t like a world with an abundant oil supply. Far better to kill the competition and raise prices for as long as oil holds out as a preferred energy source.

Oil prices edge down as slowing demand adds to high output - Crude oil futures came under renewed pressure early on Tuesday as fears of slowing demand added to near-record global production levels, which have already slashed prices by two-thirds since the middle of last year. Front-month U.S. West Texas Intermediate (WTI) futures CLc1 were trading at $36.75 per barrel at 0105 GMT, down 6 cents from Monday’s close. The international benchmark Brent LCOc1 was at $36.59 per barrel, down 3 cents from their last close and less than a dollar away from 11-year lows reached earlier in December. Both contracts are down by two-thirds since prices started tumbling in June 2014. While output from exporters like Russia, the Organization of the Petroleum Exporting Countries (OPEC) and U.S. shale drillers has been at or near record highs, demand has so far held up strong, preventing oil prices from falling even lower. That may be about to change. Oil analysts JBC Energy said that refined oil “product demand growth in Europe turned negative in October (-170,000 barrels per day year-on-year)” for the first time in 10 months and that diesel and gasoline demand growth in China, one of the strongest price supporters of the past year, was also slowing.

WTI Slides After API Reports Surprisingly Large Inventory Build -- Following last week's huge 5.9mm draw (as entirely expected this time of year given window-dressing) expectations were for a 2.5mm barrel draw this week from DOE. However, API reported a major surprise 2.9mm barrel build, bring December's total to just 1.7mm drawdown (against a 5.5mm average draw in December). This is massively worse than expected given the seasonals (along with a 923k build at Cushing) and while WTI has oscillated up and down around $38 since the API/DOE build 2 weeks ago, it is fading on this data. Sending WTI prices lower off $38 resistance... Do not forget - December ALWAYS see notably drawdowns as firms lighten up inventories on their balance sheet ahead of year-end to reduce tax burdens... And judging from history, as Bloomberg notes, it should resume as soon as the festive season is over: Stocks have built by 3.2 million barrels on average in January since 1921. Charts: Bloomberg

Oil ends up 3 percent on cold weather but glut worry persists - Reuters -  Oil prices jumped 3 percent on Tuesday, recouping the previous day's loss as colder weather encouraged buyers, but traders said prices remained under pressure due to slowing global demand and abundant supplies from OPEC members. After settlement, industry group the American Petroleum Institute (API) reported a weekly rise of almost 3 million barrels in U.S. crude inventories, not the draw expected by many analysts and traders. [API/S] Global oil benchmark Brent and U.S. crude's West Texas Intermediate (WTI) futures settled up more than $1 a barrel, after weather forecasts showed the United States may get some cold winter temperatures following an unusually balmy autumn. Oil prices gave much of the day's gains after the API report. Brent finished up $1.17, or 3.2 percent, at $37.79 a barrel. About 40 minutes after the API numbers, Brent was up only 76 cents at $37.38 WTI closed up $1.06, or 2.9 percent, at $37.87. After the API numbers, WTI was up only 52 cents, at $37.33.

Oil down more than 3 percent on U.S. crude build; Brent near 2004 low - Crude prices fell more than 3 percent on Wednesday, with Brent sliding toward 11-year lows, after an unusual build in U.S. stockpiles and signs Saudi Arabia will keep adding to the global oil glut. Crude inventories in the United States, the world's largest petroleum producer, rose 2.6 million barrels last week, the U.S. Energy Information Administration said. Analysts polled by Reuters had expected a draw of 2.5 million barrels. Stockpiles hit record highs at the Cushing, Oklahoma delivery hub for U.S. crude's West Texas Intermediate (WTI) futures. Gasoline and heating oil also posted larger-than-expected stock builds. "In all the years I have been doing this, I have never seen builds in the last week of December," said Tariq Zahir, crude futures trader at Tyche Capital Advisors in Long Island, New York. "At least for tax consequence reasons, refiners always ramp up runs at the year-end, and there's a draw. This is a first for me.". "This week's EIA data is just another bearish data point in a series of many that have dominated 2015 and will likely continue to do so heading into 2016."

WTI Crude Extends Losses As Production Rises & Inventories Unexpectedly Build - Last night's surprisingly large inventory build reported by API (+2.9mm vs expectations of -2.5mm) sent hopeful crude prices reeling (not helped by comments from Iran and Saudi this morning). Following last week's huge 5.9mm draw, DOE reports a 2.63mm build (confirming API's data). Cushing (which API reported as a 923k build) also saw DOE report a 0.9mm barrel build (pushing closer to its limits). As we have detailed previously, December typically sees major drawdowns in inventory as energy firms attempt to minimize tax burdens into year-end. December 2015 has seen a notably lower-than-expected drawdown. *CRUDE OIL INVENTORIES ROSE 2.63 MLN BARRELS, EIA SAYS”  Total crude inventory rose notably in the last week - very much against the seasonals. This is the month when drawdowns are supposed to be the largest. Cushing inventory rose once again: “CUSHING CRUDE INVENTORIES RISE TO RECORD 63M BBL, EIA SAYS”  As Global oil inventories near storage limits... Crude production has been "steadily rising" for the last few weeks...not what they need at all! WTI Crude prices rallied up to $38 - the scene of the crime before a huge build 2 weeks ago sent prices falling - then tumbled overnight after API. The DOE data has comfirmed that build and losses are extending... * * * Finally, do not forget - December ALWAYS see notably drawdowns as firms lighten up inventories on their balance sheet ahead of year-end to reduce tax burdens... WTI Crude prices rallied up to $38 - the scene of the crime before a huge build 2 weeks ago sent prices falling - then tumbled overnight after API. The DOE data has comfirmed that build and losses are extending...*  *  * Finally, do not forget - December ALWAYS see notably drawdowns as firms lighten up inventories on their balance sheet ahead of year-end to reduce tax burdens...

Total U.S. rig count dips below 700 for first time since 1999 - Fuel Fix: The total number of rigs drilling for oil and natural gas in the U.S. dipped again this week to close the year below 700 rigs for the first time since 1999. The year fittingly ended with the oil rig count declining by two rigs for a 2015 defined by energy austerity as the price of oil plummeted beginning in the latter half of 2014, according to weekly data released by oil field services firm Baker Hughes. After the shale boom years of $100 a barrel oil as recently as the summer of 2014, the benchmark for U.S. oil is now hovering above $37 a barrel. There oil rig count stands at 536 rigs, while there are only a paltry 162 rigs drilling for natural gas, based on the Baker Hughes data. The gas rig count was unchanged from last week. Oil field operators have pulled back 67 percent of the rigs that were operating at the peak of the U.S. oil boom in October 2014, when oil rigs totaled 1,609. Texas and Louisiana gained two rigs each this week, but North Dakota, California, Oklahoma and others counted losses. Texas’ Permian Basin actually saw a jump of five new rigs, but the Eagle Ford and Barnett shale plays each lost one rig.

Oil ends 2015 down 35 percent; long, painful hangover seen - Oil prices rose on Thursday but fell as much as 35 percent for the year after a race to pump by Middle East crude producers and U.S. shale oil drillers created an unprecedented global glut that may take through 2016 to clear. Global oil benchmark Brent and U.S. crude's West Texas Intermediate (WTI) futures rose between 1 and 2 percent on the day on short-covering and buying support in a thinly traded market ahead of the New Year holiday. But for 2015, both benchmarks fell double-digits for a second straight year as Saudi Arabia and other members of the once-powerful Organization of the Petroleum Exporting Countries (OPEC) again failed to boost oil prices. The U.S. shale industry, meanwhile, surprised the world again with its ability to survive rock-bottom crude prices, churning out more supply than expected, even as the sell-off in oil slashed by two-thirds the number of drilling rigs in the country from a year ago. The United States also took a historic move in repealing a 40-year ban on U.S. crude exports to countries outside Canada, acknowledging the industry's growth. "You do have to tip your hat to the U.S. shale industry and their ongoing ability to drive down costs and hang in there, albeit by their fingernails,"

Crude Oil Prices Suffer Biggest 2-Year Bloodbath On Record -- With yet another false-dawn of crude prices blowing in the wind of cash-flow generation desperation, we thought it an appropriate time for a bigger picture glance at the state of the carnage in crude... An ugly 2014 (down 46%)... Brought an avalanche of knife-catching "once in a lifetime" opportunists into ETFs to buy the dip in as levered way as they could... Only to see crude prices collapse another 31% in 2015 for the worst 2 year crash in the history of crude oil trading... And despite this bloodbath, production is rising, demand flailing, and global storage is at its limit... So what happens next?

Why Energy Investors Are Hoping Saudi Arabia And Iran's Oil Price Forecasts Are Dead Wrong -- Yesterday, when Saudi Arabia revealed its "draconian" 2016 budget, boosting gasoline prices by 40%, while trimming welfare programs after forecasting a collapse in oil revenue (even while allocating the biggest part of government spending in next year’s budget to defense and security) Bloomberg reported that "the kingdom’s 2016 budget is probably based on crude prices of about $29 a barrel, according Riyadh-based Jadwa Investment Co." Shortly thereafter Iran's Petroleum Minister Bijan Zangeneh said that the Iran 2016-2017 budget assumes an average oil price of $40 dollars per barrel. "There have been efforts to suggest in the budget the closest and most possible price for oil, though the market is usually in fluctuations," Zangeneh was quoted as saying by the local IRNA news agency. The reality is that nobody knows where oil prices will be in the coming year, especially if the supply glut persists, something which prompted BMO to warn that unless there are dramatic changes in the supply picture, oil prices could collapse as low as $20 in the short-term. "Fundamentally there is simply too much oil" the Canadian bank summarized simply. But now that price expectations have been significantly reset lower to account for an OPEC which will likely continue to exceed its 30 million barrel per day target, one group's implied oil price estimate stands out: that of energy investors.Here is what BMO says is the oil price discount into current equity valuation. At current prices we estimate that valuations for the oil and gas group reflect an implied Brent crude oil price in the range of $65-70/bbl while natural gas leveraged companies reflect a Henry Hub natural gas price in the range of $3.00/Mcf.

Bank of Montreal Asks If "Oil Prices Could Collapse To $20"; Answers: "Yes" --When looking at the price of oil in 2015, Canada's Bank of Montreal admits it was wrong. Very, very wrong. In our "2015 Year Ahead" report we laid out three plausible scenarios: (1) our base case, which forecast Brent crude oil prices of $50-60/bbl over the first half of 2015 and $60-80/bbl over the second half of the year; (2) a bull case, which forecast a Brent trading range of $85-95; and a bear case, which suggested a Brent trading range of $50-60/bbl. The actual trading range in 2015 proved to be even more ‘bearish’ than our bear case, with Brent generally trading between $36 and $60/bbl. So what did we get wrong? The answer: pretty much everything but mostly the fact that in the race to the production bottom ("we'll make up for plunging prices with soaring volumes") only dramatic outcomes, which shock the status quo, have any impact, to wit: "we assumed that Iraq production would average 2.9 million bpd; actual production was roughly 1 million bpd higher. We also assumed that Saudi Arabia would be content to hold production at 9.2 million bpd whereas actual production was roughly 800,000 bpd higher. In our view, this incremental 1.8 million bpd of production was the principal reason that global oil inventories swelled by more than 340 million barrels to a record high of approximately 3.1 billion barrels and why crude oil prices have collapsed."Could oil prices collapse to $20?  The short answer is ‘yes.’ We believe that crude oil prices could fall further unless global oil production is reduced. As shown in Table 2, we estimate that the global oil market could be oversupplied by roughly 920,000 bpd in 2016. The key assumptions are year-over-year growth in global demand of 1.2 million bpd, Saudi Arabia, Iraq and Libya hold production at current levels, Iran ramps up production at moderate pace over the course of the year and the U.S. rig count remains at current levels.

Brent, U.S. crude oil prices battle for premium in weakening market conditions -- International Brent and U.S. crude oil futures battled for a premium on Monday but both benchmarks fell in a market in which there is no end in sight for oversupply that has brought down prices by two-thirds since the downturn began in mid-2014. The international crude oil futures benchmark Brent was trading at $37.58 a barrel at 0739 GMT, down 31 cents from its last settlement. U.S. West Texas Intermediate (WTI) futures were down 47 cents at $37.63 per barrel. The two benchmarks switched between premium and discount to each other several times in post-Christmas trading, yet traders said not to interpret too much into these movements as low liquidity meant that prices could move abruptly without changes in price fundamentals. Trading volumes were down for both contracts in the post-holiday period, with only around 5,500 front-month Brent contracts changing hands by 0735 GMT on Monday versus over 272,000 contracts traded on Dec. 7, the first Monday of the month. There were over 10,000 WTI contracts traded by that time compared with more than 635,000 dealt on Dec. 7.

The Future of the Brent/WTI Spread -- Having seen the big picture lets look more closely at the past year (2015). The chart in Figure #2 shows the same Brent premium to WTI (blue line) between January 1 and December 24, 2015. The spread this year has been characterized by continued falling crude prices that squeezed the Brent premium close to zero in January (purple dashed circle) then saw WTI under greater pressure than Brent between January and March 2015 as U.S. crude inventory built up to record levels in response to the contango incentive (when future prices are higher than today – see Skipping The Crude Contango) pushing the Brent premium back up over $11/Bbl in March. [...] Then in the final month of 2015 a rising expectation and final confirmation that crude export restrictions would be lifted led to WTI crude prices jumping higher as the downtrodden market celebrated this victory over the regulators. As you can see in the green dashed circle – WTI strength closed the Brent premium to less than $1/Bbl and then in the week before Christmas WTI pushed past Brent to trade at a premium that reached 21cents/Bbl on Christmas Eve. The most immediate question at this point is whether the Brent premium over WTI that has existed pretty much uninterrupted since August 2010 has come to an end now that crude can be traded freely between the U.S. and the rest of the world? In theory – with shale production still abundant – U.S. refiners should not need to import light sweet crude. At the same time – in a world awash with surplus crude – there is no obvious market for U.S. shale crude overseas. This suggests a stalemate for Brent/WTI prices with both trading close together. But as we discuss in our next episode there are a number of reasons why this stalemate is not set in stone for the foreseeable future.

OPEC Likely To Keep Pumping Despite Budget Woes Of Some Membersfrom the Dallas Fed - The Organization of the Petroleum Exporting Countries (OPEC) abandoned its traditional role of cutting production to keep the world oil market in balance in November 2014. Faced with declining oil prices and falling market share, the cartel decided to keep on pumping rather than cut supply. The cartel's declared goal was to squeeze competitors that had higher production costs, such as those in U.S. shale plays. Prices have fallen since then, hurting producers in Texas and the U.S. that have trimmed rig counts and reduced employment. OPEC's strategy has also come at a cost to its members. Most are highly dependent on oil and gas sector revenues to finance their government budgets, and low oil prices have led to substantial deficits. OPEC countries' average fiscal balance - the difference between revenues and expenditures, expressed as a share of gross domestic product (GDP) - reversed from a surplus of more than 5 percent of GDP in 2012 to a deficit exceeding 10 percent of GDP in 2015 (Chart 1). The shortfall raises the question of how long OPEC countries can sustain deficits if oil prices stay low. Could this deterioration in fiscal balance prompt the cartel to reverse course?

12,000 Oil Tanker Trucks Parked At Iraq-Turkey Border Aren't Carrying ISIS Crude, Kurds Swear -- In our classic piece “ISIS Oil Trade Full Frontal: "Raqqa's Rockefellers", Bilal Erdogan, KRG Crude, And The Israel Connection,” we discussed how Masoud Barzani and the Iraqi Kurds transport some 600,000 b/d of crude to the Turkish port of Ceyhan in defiance of SOMO amid an ongoing budget dispute between Baghdad and Erbil. Turkey facilitates this trade and we suggested that ISIS (which Turkey is suspected of supporting in order that the group might continue to destabilize Assad) may be using the same networks to get its illicit oil to market.  There’s some evidence that links ISIS to Ceyhan. As documented, tanker rates at Ceyhan seem to spike around significant oil-related events involving Islamic State. Here's the chart: Additionally, an ISIS fighter captured by the YPG in Syria claims to have lived with an Islamic State commander in Adana, home to Ceyhan.  We also highlighted a piece by Al-Araby al-Jadeed that outlines what the site says is a trafficking route that runs through Zakho. Here are some key passages: The information was verified by Kurdish security officials, employees at the Ibrahim Khalil border crossing between Turkey and Iraqi Kurdistan, and an official at one of three oil companies that deal in IS-smuggled oil.The Iraqi colonel, who along with US investigators is working on a way to stop terrorist finance streams, told al-Araby about the stages that the smuggled oil goes through from the points of extraction in Iraqi oil fields to its destination - notably including the port of Ashdod, Israel."After the oil is extracted and loaded, the oil tankers leave Nineveh province and head north to the city of Zakho, 88km north of Mosul," the colonel said. Zakho is a Kurdish city in Iraqi Kurdistan, right on the border with Turkey."After IS oil lorries arrive in Zakho - normally 70 to 100 of them at a time - they are met by oil smuggling mafias, a mix of Syrian and Iraqi Kurds, in addition to some Turks and Iranians," the colonel continued.

Saudi posts record USD 98 billion deficit in 2015: ministry --- Saudi Arabia posted a record USD 98 billion budget deficit in 2015 due to the sharp fall in oil prices, the finance ministry said today. Revenues were estimated at 608 billion riyals (USD 162 billion), well below projections and 2014 income, while spending came in at 975 billion riyals (USD 260 billion), ministry officials announced at a press conference in Riyadh.

Saudi riyal in danger as oil war escalates - Ambrose Evan-Pricthard -- Saudi Arabia is burning through foreign reserves at an unsustainable rate and may be forced to give up its prized dollar exchange peg as the oil slump drags on, the country’s former reserve chief has warned.  “If anything happens to the riyal exchange peg, the consequences will be dramatic. There will be a serious loss of confidence,” said Khalid Alsweilem, the former head of asset management at the Saudi central bank (SAMA).  “But if the reserves keep going down as they are now, they will not be able to keep the peg,” he told The Telegraph.  His warning came as the Saudi finance ministry revealed that the country’s deficit leapt to 367bn riyals (£66bn) this year, up from 54bn riyals the previous year. The International Monetary Fund has suggested Saudia Arabia could be running a deficit of around $140bn (£94bn).  Remittances by foreign workers in Saudi Arabia are draining a further $36bn a year, and capital outflows were picking up even before the oil price crash. Bank of America estimates that the deficit could rise to nearer $180bn if oil prices settle near $30 a barrel, testing the riyal peg to breaking point.

More Bad News For Oil: Saudis Are Handling Oil Price Crash Better Than Expected -- We’ve spent quite a bit of time this year documenting Saudi Arabia’s fiscal bloodbath. In the wake of the kingdom’s move to deliberately suppress crude prices in an effort to preserve market share by bankrupting the US shale complex, Riyadh found itself in a tough spot. Thanks to ZIRP and the wide open capital markets it fosters, US producers were able to stay afloat for longer than the Saudis likely expected. Although the cracks are beginning to show (the US has seen the most oil and gas bankruptcies since the crisis this quarter), the damage was done. Thanks to the fact that the monarchy needs to maintain the everyday Saudi’s standard of living (not to mention continue to feed the American MIC by spending billions on weapons) implementing budget cuts is a tall order, so when oil revenue collapses, the red ink piles up quickly. By the summer, it was readily apparent that the Saudis were set to run a budget deficit on the order of 20% of GDP. Here's a look at deficit forecasts from Deutsche Bank... ...and here's a bit of color on the relationship between reserves and crude prices from BofAML... Maintenance of the riyal peg - which the market pretty clearly thinks may fall - only adds to the pressure. On Monday, we got the official numbers along with projections for 2016. For this year, the deficit will come in at around $98 billion, or, somewhere in the neighborhood of 15-16% of GDP. For 2016, the Saudis say spending could hit $224 billion while revenue should be roughly $137 billion, for a deficit of $87 billion or, about 12.8% of GDP. As you can see from Deutsche Bank's projections shown above, that's markedly better than expectations for this year and basically in line for next. According to Fahad al-Turki, chief economist at Riyadh-based Jadwa Investment, who spoke to Bloomberg by phone, the budget is "probably based on $50 bbl crude," which may well be the best indicator of all when it comes to predicting where prices go from here.

Saudis unveil radical austerity programme - Saudi Arabia on Monday unveiled spending cuts in its 2016 budget, subsidy reforms and a call for privatisations to rein in a yawning deficit caused by the prolonged period of low oil prices. The Gulf kingdom has kept oil production at high levels in an attempt to force out higher-cost producers, such as shale, and retain its market share. But this year’s deficit ballooned to 367bn Saudi riyals ($97.9bn,) or 15 per cent of gross domestic product, as oil revenues fell 23 per cent to Sr444.5bn. Seeking to ward off future fiscal crises, the ministry of finance confirmed wide-ranging economic reforms, including plans to “privatise a range of sectors and economic activities”. Riyadh would revise energy, water and electricity prices “gradually over the next five years” to optimise efficiency while minimising “negative effects on low and mid-income citizens and the competitiveness of the business sector,” it added. The first reforms will be effective from Tuesday, including an increase in gasoline prices, a rise in electricity tariffs for the wealthiest consumers, a modest increase in water costs for all, and changes to all energy prices for industrial users. The government will also seek to implement a plan for the introduction of a sales tax across the six Arab Gulf states. The success or failure of the reforms will help define the legacy of King Salman bin Abdulaziz al-Saud and his influential son, Deputy Crown Prince Mohammed bin Salman, who is overseeing the programme.

Saudis Dismantle Welfare State, Boost Gas Prices by 40% To Wage War With U.S. Shale --Earlier today, we parsed Saudi Arabia’s budget report in order to determine if the kingdom’s fiscal nightmare was better or worse than market expectations.  As it turns out, it was better. This year’s deficit is expected to come in at around 15-16% of GDP, considerably below the 20% some analysts feared. For 2016, it looks as though the number should be somewhere in the neighborhood of 13%, broadly in line with expectations.  Be that as it may, the Saudis are boxed in as long as they insist on, i) keeping oil prices depressed, ii) maintaining the riyal peg, and iii) holding subsidies steady. If something doesn’t give with at least one of those imperatives, then the kingdom will continue to burn through its SAMA reserves which fell by $12.55 billion in November from October. The problem is that deviating from any of the points outlined above has consequences. Allowing oil prices to rise risks putting uneconomic US production back online, dropping the riyal peg would be a significant black swan event for markets and would represent a landmark break with three decades of precedent, and easing up on the subsidies risks creating the type of social unrest that occurred elsewhere in the region during the Arab Spring.  Well it looks like when it came time to choose, the Saudis decided that the people will have to suffer because today, Saudi Arabia raised the price of domestic fuel by up to 40%. And that’s not all.  Prices for gas, diesel, kerosene, water and electricity were also raised.

Saudis Plan Unprecedented Subsidy Cuts to Counter Oil Plunge  - Rigzone - Confronting a drop in oil prices and mounting regional turmoil, Saudi Arabia reduced energy subsidies and allocated the biggest part of government spending in next year’s budget to defense and security. Authorities announced increases to the prices of fuel, electricity and water as part of a plan to restructure subsidies within five years. The government intends to cut spending next year and gradually privatize some state-owned entities and introduce value-added-taxation as well as a levy on tobacco. The biggest shake-up of Saudi economic policy in recent history coincides with growing regional unrest, including a war in Yemen, where a Saudi-led coalition is battling pro-Iranian Shiite rebels. In attempting to reduce its reliance on oil, the kingdom is seeking to put an end to the population’s dependence on government handouts, a move that political analysts had considered risky after the 2011 revolts that swept parts of the Middle East. “This is the beginning of the end of the era of free money,” “Saudi society will have to get used to a new way of working with the government. This is a wake-up call for both Saudi society and the government that things are changing.

Saudi economic shake-up shows it is planning for cheap oil – Saudi Arabia’s planned cuts in spending and energy subsidies signal that the world’s largest crude exporter is bracing for a prolonged period of low oil prices. The OPEC heavyweight shows no signs of wavering in the long-term oil strategy it has orchestrated since last year. Instead, it appears willing to continue tolerating cheap crude to defend market share and wait for the market to balance without cutting supplies, oil sources and analysts say. In one of the strongest signals that the kingdom will stay the course despite the impact on its finances, Saudi Aramco’s chairman Khalid al-Falih said it could outlast others. “We see the market balancing sometime in 2016, we see demand ultimately exceeding supply and soaking up a lot of the excess inventory and prices in due course will respond regardless of when and by how much,” Falih told a news conference late on Monday detailing next year’s budget. “Saudi Arabia more than anyone else has the capacity to wait out the market until this balancing takes place,” he said. Analysts said the plans announced on Monday to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatization showed Riyadh was expecting lower revenues.

A Breakdown of the 2016 Saudi Budget and Its Implications - Saudi Arabia released a more tightfisted budget for 2016, reflecting scaled-back revenue expectations and lower spending on subsidies because of sinking oil prices and its involvement in the war in neighboring Yemen. Here are some key points in the first spending plan under King Salman, released on Monday by the Ministry of Finance: The government forecasts the deficit will narrow to 326.2 billion riyals ($87 billion) in 2016, from 367 billion riyals this year. The 2015 deficit is about 16 percent of gross domestic product, according to Alp Eke, senior economist at National Bank of Abu Dhabi. The median estimate of 10 economists forecast a shortfall of 20 percent of GDP this year, according to data compiled by Bloomberg. Seventy-three percent of this year’s 608 billion riyals in revenue came from oil, down 23 percent from 2014 and below the 715 billion riyal target. The government says it may resort to local and foreign borrowing to bridge the budget deficit. For 2016, the government estimates revenue of 513.8 billion riyals. It allocated 183 billion riyals in provisions for low oil prices in 2016. The government plans to spend 840 billion riyals in 2016 compared with 975 billion riyals this year. The biggest ticket in the budget was 213 billion riyals allocated for military and security services. Economy Minister Adel Fakeih said Monday that 20 billion riyals of this year’s spending overshoot was due to increased military and security spending related to the military operation against Shiite Houthi rebels in Yemen. The Ministry of Finance said its 2016 budget is based on “extremely low oil prices” that prompted Gulf states to cut spending.

Saudi Arabia's budget blowout sends petrol prices rocketing: Humbled by the slumping oil price, Saudi Arabia, long the world's major oil producer, has been forced to take an axe to government spending by slashing a host of subsidies - including the price of oil. As a result, Saudis will be faced with steep rises in the price of petrol and a host of other charges as a range of government subsidies are reduced. The reality check has seen the domestic oil price rise from 0.60 riyal to 0.98 riyal a litre (36¢), which is still around a quarter the price paid at the bowser by most Australian motorists.Price hikes have been outlined for utilities such as electricity and water, as the country battles slumping revenues thank to the fall in the price of oil, which has collapsed to around $US36 a barrel in recent trading from more than $US100 a barrel as recently as 18 months ago - declining 50 per cent in the past six months alone. Advertisement Saudi, and other members of the Organisation of Petroleum Exporting Countries, better known as OPEC, have failed to curtail output at a time when production from non-OPEC member countries such as Russia and more recently the US, is also rising. And the removal of bans on Iranian oil exports may see the global glut rise further over the next 18 months or so. The shale oil revolution has resulted in the US emerging as the world's largest oil producer, and bans on US oil exports have been removed recently. The UK, long the preferred home of Saudi royal property investment, has seen a spate of sales over the past few years as the falling price oil has brought the days of the high-spending Middle Eastern spending to an end.

Saudi Stocks Drop as World's Biggest Oil Exporter Cuts Subsidies - Saudi Arabian stocks declined after the kingdom announced one of its biggest shakeups in economic policy. The Tadawul All Share Index sank 0.9 percent at the close as the gauge of petrochemical companies slid to the lowest level since July 2009. The kingdom reduced energy subsidies and intends to cut spending in 2016 to 840 billion riyals ($224 billion) from 975 billion riyals this year. Petrochemical companies are among the first to feel the pressure because a "cut in fuel subsidies will drive up the costs,".  Oil prices hovering near their lowest levels since 2004 and a decision to plunge into a war in neighboring Yemen are straining the kingdom’s finances. That’s forced Saudi Arabia to tap its foreign reserves, which dropped for a 10th straight month in November to about $630 billion, a three-year low, and to sell bonds for the first time since 2007 to help plug a budget gap. Saudi forward contracts, which are used to bet whether Saudi Arabia will allow its dollar-pegged currency to weaken in the next 12 months, rose as much as 280 points to 755 points, the highest level since March 1999. They pared the increase to 145 points as of 4:01 p.m. in Riyadh. The government recorded a budget deficit of 367 billion riyals in 2015. That’s about 16 percent of gross domestic product, according to the National Bank of Abu Dhabi, but below the 20 percent forecast by the International Monetary Fund. For 2016, the government expects the deficit to narrow to 326 billion riyals. Revenue is forecast to decline to 514 billion riyals from 608 billion riyals. “Government expenditure is a key driver of growth in Saudi Arabia, so a cut in spending will certainly feed through to domestic output and earnings,”

Something Just Snapped In Saudi Arabia -Following yesterday's budget (deficit) and the 'sacrifice-the-people's-comfort-for-the-death-of-US-Shale' plan that we detailed here, it appears market concerns about Saudi Arabia's forward-looking health are rising. As Bloomberg reports, USDSAR 12-month forwards jumped 250pts (the most since December 2007) to 725bps (the highest level since March 1999) implying expectations of a looming de-pegged, devaluation. Perhaps just as worrying is this is the same pattern that played out in August as Yuan weakness sparked HIBOR stress, leading to SAR forward weakness and then US equity market collapse. Earlier today, we parsed Saudi Arabia’s budget report in order to determine if the kingdom’s fiscal nightmare was better or worse than market expectations.  As it turns out, it was better. This year’s deficit is expected to come in at around 15-16% of GDP, considerably below the 20% some analysts feared. For 2016, it looks as though the number should be somewhere in the neighborhood of 13%, broadly in line with expectations.  Be that as it may, the Saudis are boxed in as long as they insist on, i) keeping oil prices depressed, ii) maintaining the riyal peg, and iii) holding subsidies steady. If something doesn’t give with at least one of those imperatives, then the kingdom will continue to burn through its SAMA reserves which fell by $12.55 billion in November from October. The problem is that deviating from any of the points outlined above has consequences. Allowing oil prices to rise risks putting uneconomic US production back online, dropping the riyal peg would be a significant black swan event for markets and would represent a landmark break with three decades of precedent, and easing up on the subsidies risks creating the type of social unrest that occurred elsewhere in the region during the Arab Spring.  Well it looks like when it came time to choose, the Saudis decided that the people will have to suffer because today, Saudi Arabia raised the price of domestic fuel by up to 40%. And that’s not all.  Prices for gas, diesel, kerosene, water and electricity were also raised.

Saudi Arabia Won’t Change Oil Production Policy - WSJ: —Saudi Arabia won’t change its current oil-production policy, the country’s energy minister said Wednesday, sticking with a strategy of unrestrained output that has helped send oil prices to multiyear lows. “It is a reliable policy and we won’t change it,” Saudi oil minister Ali al-Naimi told reporters on the sidelines of an event in Riyadh. “We will satisfy the demand of our customers. We no longer limit production. If there is demand, we will respond. We have the capacity to respond to demand,” he said. Saudi Arabia, a member of the Organization of the Petroleum Exporting Countries, led the 12-nation group last year on a new course of pumping more oil in the face of crashing prices. That was a historic departure for a cartel that produces a third of the world’s oil and had historically used its muscle to keep supply scarce enough to support desirable prices. With American production flooding the market, the Saudis no longer believed a production cut would be effective. Oil prices have fallen by more than half ever since that November 2014 decision, with Brent crude, the international benchmark, trading at about $37 a barrel on Wednesday in London, its lowest level since the 2008-09 financial crisis. After Mr. Naimi’s comments were reported by The Wall Street Journal, Brent fell to $36.84, before recovering slightly.

Saudi Arabia and Yemen - Slipping Under the World's Radar -- While the world focuses on the ongoing civil war in Syria, another war continues unabated.  This war, between Saudi Arabia and Yemen has more-or-less slipped beneath the radar of the West's mainstream media, however, a recent report by Amnesty International shows that the ongoing violence by one of America's key Middle East allies has led to the killing of hundreds of civilians, many of them school children.    Amnesty International received permission from Huthi authorities to visit five schools that had been targeted by Saudi-led coalition air strikes even though there was no evidence that the schools had been used for military purposes and validated their findings using local witnesses.  In some cases, schools had been targeted more than once even though they were located at a significant distance from possible military objectives.  As background information, Bahrain, Egypt, Jordan, Kuwait, Morocco, Qatar, Sudan and the United Arab Emirates are participating in the Saudi-led coalition with the United States and the United Kingdom providing both logistical support and intelligence to the coalition. Let's open with this map of Yemen showing the nation's governates:

Not Even OPEC Can Fix Oil Glut - WSJ: Surprisingly strong crude output in the U.S. and Mideast over the past year pushed oil prices to their lowest levels in more than a decade. But for investors trying to determine whether the oil market is close to a bottom, the pace of production elsewhere in the world is a key source of uncertainty. Producers in Russia, Brazil and Norway pumped more oil in 2015 than the closely watched forecasters International Energy Agency and Energy Information Administration had projected. Meanwhile, oil-field investments made years ago when prices were higher are set to begin producing, even as exploration-and-drilling projects scheduled to bear fruit in the coming decades are being delayed or canceled outright. Investors’ increased focus on supplies from outside the U.S. and the Organization of the Petroleum Exporting Countries underlines uncertainty about the magnitude of a global oil glut that has erased more than 60% off the value of a barrel of oil in the past 18 months. Given the strength of production around the world in 2015, many investors say it is far from clear when the glut will start to recede, given that OPEC hasn’t stepped in as it has in past downturns to stabilize the market by cutting output and U.S. production remains resilient.“We’re in untested waters,” said Judith Dwarkin, chief economist at RS Energy Group. “This is an oil market that…since commercial trading began, has either been under the sway of monopolies, oligopolies or a cartel.” Without coordinated supply cuts, economists say, it is in each producer’s best interest to pump as much as possible during a price downturn to maximize revenues. “It is not the role of Saudi Arabia, or certain other OPEC nations, to subsidize higher cost producers by ceding market share,” said Saudi Arabia’s oil minister, Ali al-Naimi, in a speech in March.

$10 Trillion Investment Needed To Avoid Massive Oil Price Spike Says OPEC --OPEC says that $10 trillion worth of investment will need to flow into oil and gas through 2040 in order to meet the world’s energy needs.  The OPEC published its World Oil Outlook 2015 (WOO) in late December, which struck a much more pessimistic note on the state of oil markets than in the past. On the one hand, OPEC does not see oil prices returning to triple-digit territory within the next 25 years, a strikingly bearish conclusion. The group expects oil prices to rise by an average of about $5 per year over the course of this decade, only reaching $80 per barrel in 2020. From there, it sees oil prices rising slowly, hitting $95 per barrel in 2040. Long-term projections are notoriously inaccurate, and oil prices are impossible to predict only a few years out, let alone a few decades from now. Priced modeling involves an array of variables, and slight alterations in certain assumptions – such as global GDP or the pace of population growth – can lead to dramatically different conclusions. So the estimates should be taken only as a reference case rather than a serious attempt at predicting crude prices in 25 years. Nevertheless, the conclusion suggests that OPEC believes there will be adequate supply for quite a long time, enough to prevent a return the price spikes seen in recent years. Part of that has to do with what OPEC sees as a gradual shift towards efficiency and alternatives to oil. The report issued estimates for demand growth five years at a time, with demand decelerating gradually.  The reasons for this are multiple: slowing economic growth, declining population rates, and crucially, efficiency and climate change efforts to slow consumption. In fact, since last year’s 2014 WOO, OPEC lowered its 2040 oil demand projection by 1.3 mb/d because it sees much more serious climate mitigation policies coming down the pike than it did last year.

Aramco to build world's largest gas complex — Saudi Aramco intends to build the largest industrial complex for gas in the world a cost of $2.1 billion in Jazan. The new project will supply 20,000 metric tons of oxygen and 55,000 metric tons of nitrogen to its Jazan refinery for 20 years. The production capacity of the new Aramco oil refinery, to open in 2017, would be 400,000 barrels a day, with the production capacity of the gas-to-liquids integrated plant at 3,700 megawatts. The project indicates the strength of the Saudi economy, and public-private partnerships, said Mohamed Abunayan, chairman of the Arabian Company for Water and Power Development (ACWA). He said the financing of the project is Shariah-compliant, and would be developed with the Air Products and Chemicals company, a New York stock exchange-listed firm, in a build, own and operate agreement. Ten international and national banks participated in financing the project with $1.8 billion.

Leviathan partners and BG close to $30b Egypt gas deal - The Leviathan partners and British Gas (BG) are negotiating the final details of a contract for exporting Israeli natural gas to Egypt, and will sign it in the coming weeks, senior sources in the gas companies said today. According to the sources, the plan is to sign the contract before Shell Oil completes its acquisition of BG next month. Representatives of the companies in Israel have been holding marathon meetings with BG representatives in London in recent weeks. The parties signed a letter of intent in June 2014, under which the Leviathan gas reservoir would supply 105 BCM of gas to BG’s gas liquefaction facility in Idku, Egypt over 15 years. The value of the huge deal, involving the export of one sixth of the Leviathan gas reserves, was estimated at $30 billion, and was designed to make it possible to finance Leviathan’s development. The parties have not yet signed a final agreement, due to regulatory problems, mainly in Israel. The entry into the picture of Shell Oil, which intends to acquire BG for $70 billion, raised the question of whether such a deal could take place in the future. Shell Oil does not mention Israel, Egypt, or the Middle East in general in its list of countries on which it plans to focus. The company announced that it planned to sell $30 billion of BG’s assets in order to focus on two main sectors: deep water natural gas reservoirs and liquid natural gas (LNG) (Shell already controls 7.2% of the world’s LNG reserves). The companies, however, assert that the contract will be signed soon. A senior source in one of the gas companies confirmed that the negotiations were in the final stage, and asserted that the final contract would be signed in the first quarter of 2016. A senior source in another gas company asserted that the parties intended to sign the deal before Shell Oil’s acquisition of BG is completed.

Oil Slumps As Saudis "Won't Change" Policy, Russia Rethinks 2016 Price Forecast - On Tuesday, we took a close look at the forecast for the Russian economy given various assumptions about the price of oil in 2016.  While Russia has thus far managed to weather the crude storm relatively well (indeed, Moscow is now pumping more crude than ever before and expects oil exports to rise for the first time in six years in 2015), the numbers do not lie. The ruble is plunging in the face of the oil price slump and if prices hit $30/bbl, the country’s budget deficit is expected to balloon from 3% of GDP to some 4.4% - that would be the second largest deficit in two decades. Indeed, the Russian central bank itself says that in an adverse scenario wherein oil trades at $35/bbl in 2016, GDP will contract by 5% and inflation will run at 7-9%. Say what you will about the country’s penchant for resilience, but that isn’t a pretty picture. The rumored return of former FinMin Alexei Kudrin to the government is evidence of Moscow’s attempts to find a solution sooner rather than later.The interesting thing about Russia’s budget for 2016 is that it’s based on oil prices of $50/bbl. It’s not entirely clear how realistic that is.  For instance, the Saudis are likely basing their 2016 budget on considerably lower prices. As we outlined in great detail earlier this week, Riyadh is expected to run a 13% deficit in 2016. That's actually in line with expectations and comes on the heels of a better than expected 2015 when the red ink somewhat inexplicably came in at between 15% and 16% of GDP as opposed to the 20% the market was expecting. That’s bad news for prices as it means the Saudis are holding up better than most observers anticipated. Riyadh can thus continue its war of attrition with the US shale complex for longer. Also, remember that Saudi Arabia came into 2015 with virtually no debt, which means they can borrow to offset the SAMA burn. At $30/bbl, Saudi Arabia could hold out for nearly two years with no subsidy cuts and more than 3 years as long as they finance 50% of spending in the debt market. Now that the subsidy cuts are a reality, those figures rise materially:Meanwhile, we learn on Wednesday that Kuwait is expecting crude revenue of 7.16b dinars in 2016/2017 budget which translates to around $30/bbl, according to Alrai newspaper.

Russia mulls new tax regime to support Siberian oil production - (UPI) -- A new tax regime in Russia could pave the way to an increase in oil production from fields in Western Siberia, the Russian energy minister said. Russian Energy Minister Alexander Novak said oil production in Western Siberia, once a major contributor to overall output, was declining at an average rate of around 1 percent per year. Changes in a tax system, where so-called excess profits will be taxed at 70 percent, will make Western Siberia commercially viable. Under the current tax regime, Novak said about 73 billion barrels of oil are not economic. "Changes in the tax system are to create conditions to make production of this oil commercially viable," he said in an interview with state-owned television station Rossiya-24.. Last year, a subsidiary of Russian oil company Gazprom Neft said it was assessing the shale oil potential in Western Siberia. The company employed hydraulic fracturing, known also as fracking, at the site in order to improve oil extraction. Fracking is in part used to pull oil from inland shale basins in the United States, where the increase in production has helped push crude oil markets heavily toward the supply side. When coupled with weak global demand, the increase in oil production has pushed crude oil prices to near 11-year lows.

Russia surpasses Saudi Arabia for third time in China crude supply  – Russia overtook Saudi Arabia for the third time this year in November as China’s largest crude oil supplier, customs data showed on Monday, as Russia captures fresh demand from China’s new crude buyers. China brought in about 949,925 barrels per day (bpd) of Russian crude oil in November, compared with 886,950 bpd from Saudi Arabia, data from the General Customs Administration showed. For the first 11 months, Saudi remained the No.1 seller with total supplies at 46.08 million tonnes, or around 1.01 million bpd, up 2.1 percent over the year-ago period. Russia, which ramped up exports by 28 percent over the same period, supplied 37.62 million tonnes, or about 822,200 bpd. China has since July allowed more than a dozen mostly independent companies to import crude oil for the first time, pushing its crude oil purchases to new highs while Beijing has also stepped up its strategic stockpiling. With a rigid allocation system and destination restrictions on contracts, Saudi crude is less appealing to China’s new crude importers when compared to Russian grades, traders have said. Cheaper freight costs for Russian crude versus suppliers from outside the Asia-Pacific region were also helping Russia boost its exports to China, traders said.

Recession, retrenchment, revolution? Impact of low crude prices on oil powers - A glut of oil, the demise of Opec and weakening global demand combined to make 2015 the year of crashing oil prices. The cost of crude fell to levels not seen for 11 years – and the decline may have further to go. There have been four sharp increases in the price of oil in the past four decades – in 1973, 1979, 1990 and 2008 – and each has led to a global recession. By that measure, a lower oil price should be positive for the world economy, with lower fuel costs for consumers and businesses in those countries that import crude outweighing the losses to producing nations. But the evidence since oil prices started falling from their peak of $115 a barrel in August 2014 has not supported that thesis – or not yet. Oil producers have certainly felt the impact of the lower prices on their growth rates, their trade figures and their public finances butthere has been no surge in consumer spending or business investment elsewhere. Economist still reckon there will be a boost from a lower oil price particularly if it looks as if the lower cost of crude will be sustained. “A commodity bubble has deflated three times in the past 100 years: the first was after world war one; the second was after the 1980s oil shock; the third is happening right now.”  For the big producer countries, this is a major headache, the ramifications of which are only starting to be felt. Oil powers base their spending plans on an assumed crude price. The graphic below shows just how far below water their budgets are.

NEPCO to float tenders next year to buy more LNG  — The state-owned National Electric Power Company (NEPCO) is scheduled to float several tenders in 2016 to buy liquefied natural gas (LNG) shipments, Abdel Fattah Daradkeh, the company’s director general, said Monday. Shell provides Jordan with about 80 per cent of its energy needs at present and the company will float a tender to buy the remaining 20 per cent of its LNG needs from international markets, Daradkeh said in a phone interview. According to the official, Jordan generates about 80 per cent of its energy needs via LNG after the opening of an LNG terminal in Aqaba in mid this year, which has enabled the Kingdom to start importing LNG for power generation and gradually reduce dependence on heavy fuel and diesel. NEPCO suffered heavy losses over the past five years due to disruption in natural gas supplies from Egypt and relying on expensive heavy fuel for power generation. The return to relying on LNG for electricity production in mid 2015 is a step that the government considers vital to reduce the national power bill and promises a brighter energy future for the country.

LNG shortage elicits emergency response in China — Authorities in North China have implemented an emergency plan due to a temporary shortage of natural gas supplies in recent days caused by transportation and weather problems. The plan includes limiting indoor temperatures at public buildings and suspending supplies to manufacturers. China National Petroleum Corporation (CNPC), the country’s largest oil and gas supplier and producer, ran into difficulties when unloading imported liquefied natural gas (LNG) at ports. This caused a temporary shortage of natural gas supplies in northern areas, the Beijing Commission of City Administration and Environment said. PetroChina, CNPC’s listed arm, said on Monday that a vessel carrying 260,000 cubic meters of liquefied natural gas was unable to discharge its cargo as scheduled at the port of Tangshan in Hebei province because of heavy winds and smog. Lin Boqiang, director of the Energy Research Center at Xiamen University, said there is an oversupply of natural gas in the country, so the shortage in northern areas will be temporary. The LNG supply is sufficient, and domestic LNG plants are operating at about 50 percent this year due to oversupply. “The shortfall will be filled very soon by other means, and the problem is likely to be solved in one or two days,” Lin added. China imports LNG mostly from Turkmenistan, Qatar, Australia, Indonesia and Malaysia.

Modi Seeks to Curb Gas Subsidies to Contain India Budget Gap -  India will offer cooking gas subsidies only to citizens with taxable incomes of less than 1 million rupees ($15,000) a year, part of Prime Minister Narendra Modi’s plan to sustainably curb Asia’s widest budget deficit. The more than 163 million consumers can voluntarily declare their eligibility starting Jan. 1, the Oil Ministry said in a statement on Monday. It didn’t announce steps to enforce the decision. "It definitely is not a well thought out decision," "It is difficult to quantify savings as disclosure is voluntary and not many people would want to reveal their income." Modi’s administration has pledged to narrow the shortfall to an eight-year low without cutting expenditure on roads, ports and railways. The gap reached 74 percent of the full-year target in the first seven months, and the government on Dec. 18 warned it may have to reassess its projection for next year if growth slows. About 6 million people voluntarily gave up their cooking gas subsidies under a campaign started by the government in 2015, and this money is being used to offer supplies to poor households, according to the statement. The administration is also opening bank accounts for the poor to plug leakages and transfer subsidies straight to the beneficiary. For the year through March 2016, India budgeted 300 billion rupees for petroleum subsidies -- including diesel, cooking gas and kerosene -- down 50 percent from the previous 12 months as global oil prices slumped. Of this, cooking gas accounted for 220 billion rupees.

China continues suspension of retail fuel price adjustment - (Xinhua) -- China's top economic planner said Tuesday that it will continue suspending price adjustment of domestic refined oil products before a new pricing mechanism is introduced. A special meeting was hosted by the National Development and Reform Commission (NDRD) the same day to invite opinions of relevant departments and work units on a new pricing mechanism. The NDRC also plans a series of symposiums to solicit opinions from experts, industrial associations, petroleum enterprises and drivers. On Dec. 15, the NDRC announced that improvement would be made on the pricing mechanism of refined oil products and it would suspend adjusting prices of gasoline and diesel. Under a mechanism that became effective in March 2013, prices of refined oil products are adjusted when international crude prices translate into a change of more than 50 yuan per tonne for gasoline and diesel prices for a period of 10 working days. The NDRC said on Dec. 15 that it would not adjust fuel prices, though a price cut was expected as international prices fell.

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