Sunday, February 28, 2016

Chesapeake quits Ohio, natural gas reported at a 17 year low, frackers fourth quarter results, et al

some pretty big frackers are finally calling it quits, at least for the time being...for us here in Ohio, the most important is Chesapeake Energy, the 2nd largest US natural gas producer and the operator of more than half of Ohio's wells, and who is no longer drilling here; in fact, it has stopped drilling new wells in both the Marcellus and Utica Shale basins altogether, having released its last two Ohio rigs and its last Pennsylvania rig before the end of 2015...the company is trying to downsize in lieu of bankruptcy, and is planning to sell off its wells and land in a last ditch stand to stay solvent...although it hasn't specified which, if any, of its Ohio assets it will keep, it holds leases on more than a million acres in the Utica shale, probably more than all other Ohio operators combined...

at the same time, the two largest frackers in the Bakken formation of North Dakota, the nation's most productive shale basin outside of Texas, have both announced they're not going to complete any more of the wells that they've already drilled...both Continental Resources and Whiting Petroleum have said they'll continue drilling in the coming year, albeit at a much slower pace than in 2016, but that they wont be fracking any of the wells they drill in the Bakken until prices improve...their announcements, and that of Chesapeake, came as part of a raft of fracking 4th quarter reports to shareholders, which we'll be taking a look at shortly...

oil prices started the week by jumping more than 6% on Monday on a misreading and/or misreporting of an International Energy Agency (IEA) report that said that the oil glut would last well into 2017, longer than expected, but those price gains eroded later in the week after Saudi oil minister Ali Al-Naimi ruled out production cuts in a speech at a gathering of global oil executives in Houston, and hence oil closed the week at $32.87 a barrel, a price that is not comparable to last week's price, because the quoted price for oil rolled from the March contract price last week to the April contract price this week...meanwhile, natural gas prices hit a new 16 year low during the day on Thursday, but like oil, comparing the prices quoted this week to prior weeks is complicated by the month for which delivery is contracted...the contract for April delivery of natural gas at the Henry Hub in Louisiana closed at $1.785 per mmBTU on Thursday, certainly the lowest price for any April gas in 17 years, but it was still 3 cents higher than the closing price for January natural gas that we saw the week before Christmas...so while it was reported that natural gas prices hit a 17 year low, they didn’t close at one, because the December 17th closing price for January gas was actually lower, even more so, since natural gas is usually priced higher in the middle of winter...whatever the case, natural gas has certainly been at its lowest price ever on an inflation adjusted basis this winter, as we can infer from the following 20 year chart of natural gas prices taken from a Thursday article at Zero Hedge, calling out a 16 year low of $1.696 per mmBTU, following the Thursday EIA report of a smaller than expected drawdown of natural gas inventories... 

february 25 2016 natural gas

4th Quarter and Full Year Earnings Reports

you might recall that last week we wrote about a new report from Deloitte auditors that forecast that more than a third of oil producers are probably heading for bankruptcy this year unless oil prices recover sharply, as they're no longer able to raise additional cash to pay their debts...they see that as many as 175 companies in the exploration and exploitation business, which have a combined total of more than $150 billion in debt, are likely to be heading for bankruptcy restructuring before the year is out....at the same time, past few weeks have seen the release of most of the 4th quarter and annual reports to shareholders for the oil majors & the independent drillers, which provide us a window into the financial condition of each of those companies...while we're not corporate analysts capable of determining which of them are in real trouble, we can take a look at some of those financial statements and at least get a sense of which are in the worst trouble by that metric, and whether their losses are becoming severe enough to shut them down or not....we'll start by looking at some of the vertically integrated major oil companies, who also have downstream oil refining and product marketing operations, and are likely to see that profitable side of their business make up for the losses on the exploration and exploitation side...

among the largest major oil companies, Exxon saw its 4th quarter profits fall by 58% from their year ago level, making for their worst quarter since the third quarter of 2002, as they posted earnings of $2.8 billion, down from $6.6 billion a year ago, on revenues of $59.81 billion, 31% lower than their year-ago revenue of $87.28 billion...for the year, their exploration and exploitation business fell from a profit of $6.3 billion to a loss of $1.1 billion, while the profits of their refining operations more than doubled to $6.6 billion, from $3.1 billion in 2014...with their 4th quarter report, they announced plans to reduce their capital and exploration expenditures in 2016 by 25% to $23.2 billion, compared with that of 2015, coming after they had already downsized their operations by 19% last year...reporting the same day, Chevron reported they lost $588 million on revenues of $28 billion, their first quarterly loss since 2002…for the year, Chevron's exploration and exploitation business fell from a profit of $3.33 billion to a loss of $4.06 billion, while their refining earnings were up 75% to $7.6 billion on higher gasoline prices in California.... Chevron had already cut $9 billion from its operating budget and capital spending last year, and planned a similar reduction for 2016...

of the major European based oil giants, BP reported a 91% plunge in their 4th quarter earnings, as their profits fell to $196 million, compared with profits of $2.2 billion in the 4th quarter a year ago; they also reported their largest ever annual loss, as they lost $6.5 billion on revenues of $55.9 billion in 2015, in contrast to profits of $12.1 billion on revenues of of $94.8 billion last year, as they had booked a $6.3 billion loss in the 2nd quarter relating to the Gulf oil spill....with their report, they also announced that they'd be cutting 7,000 jobs over the next two years, with 4,000 production and contractor job cuts initially, and another 3,000 jobs in its downstream units by the end of next year...at the same time, Royal Dutch Shell reported that their fourth-quarter earnings fell 56% to $1.83 billion, from $4.2 billion in the same period a year ago; for all of 2015, Shell's earnings fell 80 percent to $3.84 billion on revenues of $256 billion, compared with a profit of $19 billion in 2014...they also said that the layoffs they began last year will rise to 10,000 in 2016, as they'll be cutting operating costs by another $3 billion, on top of the $4 billion in cuts initiated in 2015...in addition, Norwegian energy giant Statoil posted a net loss of 9.2 billion kroner ($1.08 billion) in the fourth quarter, 3% greater than their 4th loss of a year ago, as their revenue fell to $12.8 billion from $17.3 billion, and the Spanish oil company Repsol reported it posted a net loss of 2.06 billion euros ($2.26 billion) in the fourth quarter, largely due to write-down of oil assets, in contrast to a loss of only 34 million euros in the same period of 2014

in contrast with the oil majors that have a large refining and retail presence, ConocoPhillips, which had refocused its business on exploration, production and distribution of oil, reported a fourth quarter net loss of $3.5 billion on revenue totaling $6.77 billion, compared with a fourth-quarter net loss of $39 million on revenue of $11.85 billion in 2014 (notice that their 2015 losses are more than half again as large as their revenues); they'll be cutting their capital spending to $6.4 billion from previously announced cuts to $7.6 billion, and slashing their quarterly dividend by 66 percent...in addition, Occidental Petroleum, the fourth-largest U.S. oil producer, reported a fourth-quarter loss of $5.14 billion, mostly from writedowns, on reported adjusted revenues of $2.84 billion, compared to an income of $17 million in the 3rd quarter of 2015 and an income of $317 million in the 4th quarter of 2014... 

among the pure frackers, or the oil and gas exploration and exploitation companies without a refining or retail business, Anadarko Petroleum reported a loss of $1.25 billion in the fourth quarter and a loss of $6.69 billion for the year on revenues of just $8.698 billion, meaning they were losing more than 3 cents on top of every 4 cents they took in...Anadarko plans to cut their capital spending in half, to $2.8 billion in 2016...EOG Resources reported a fourth quarter net loss of $284.3 million, compared to a net income of $444.6 million in the fourth quarter of 2014...for the full year, Houston based EOG reported their first annual loss of $4.5 billion, in contrast  to their net income of $2.9 billion for 2014...they'll also be cutting their 2016 capital expenditures by 50% and focusing on premium drilling and completions that can be profitable at prices they contracted for, expecting to complete 270 wells, 150 of which will be in the Eagle Ford, compared to the 470 wells they completed in 2015...

Continental Resources reported a 4th quarter loss of $139.7 million, compared with a year-earlier profit of $114 million, on 4th quarter revenues of $575.5 million....for the entirety of 2015, the company reported a net loss of $353.7 million, on revenues of $2.68 billion...the Oklahoma company, which also has major operations in the Bakken said it would slash planned capital spending this year by 66% and indicated further cuts could follow if needed...it also said it has stopped all fracking operations in the Bakken shale and has no stimulation crews deployed there, and plans to defer most well completions in 2016...meanwhile, Denver-based Whiting Petroleum, the largest operator in North Dakota's Bakken, posted a net loss of $98.7 million on revenues of $423.5 million., compared with a net loss of $353.7 million in the year-ago period, when they wrote down the value of their acreage throughout the US....they've slashed their operating budget by 80% and said they'd suspend all fracking operations until such time as crude prices moved higher; the $500 million they plan to spend in the first half of 2016 will be for expenses they'll incur in mothballing most of their operations; they expect to spend only $160 million thereafter, solely for maintenance...

lastly, Chesapeake Energy reported a net loss of $2.23 billion for the fourth quarter of 2015, on adjusted net revenue of $2.6 billion, compared with a net income of $586 million on revenues of $5.2 billion in the same period of 2014...in contrast to Whiting and Continental, who are deferring completions while they wait for higher prices, Chesapeake, with their back against the wall with bonds coming due and facing $1 billion in collateral calls, is going to focus on more well completion and less drilling; as we noted earlier, they've stopped drilling in Ohio and Pennsylvania completely...they also expect to sell assets worth between $500 million to $1 billion, and cut overall spending by 57%...so they're in the unenviable position of producing the most gas they can with gas prices at 17 year lows, and trying to off their natural gas and oil assets when prices for both commodities are at multi-year lows..

The latest EIA Oil Stats

US crude oil production was modestly lower again this week, but our imports of crude remained elevated and our refining pace slowed, and as a result our stores of crude oil rose to another new record... this week's Energy Information Administration data showed our field production of crude oil fell by 33,000 barrels per day, from 9,135,000 barrels per day during the week ending February 12th to 9,102,000 barrels per day during the week ending February 19th...that was 2.0% below the 9,285,000 barrels per day we were producing in the third week of February last year, and except for three weeks in September and October at 9,096,000 barrels per day, the lowest our oil production has been since November 2014, so it seems low prices are finally taking a toll on what our domestic oil companies are willing to bring up from the ground.....

meanwhile, our crude oil imports, the other major source of our domestic crude supply, slipped to an average of 7,802,000 barrels per day during the week ending February 19th, falling by 117,000 barrels per day from the average of 7,919,000 barrels per day we imported during the week ending February 12th...while this week's imports were 7.2% above the 7,279,000 barrels per day we were importing during the week ending February 20th last year, imports are too volatile on a weekly basis for such a comparison to give us a good sense of the year over year change, so the weekly Petroleum Status Report (62 pp pdf) reports a 4 week moving average of imports, which showed our oil imports have averaged 7.8 million barrels per day over the last 4 weeks, 7.0% above the same four-week period last year... 

however, even with domestic supply thus down a bit from last week, refineries also slowed down during the period, processing 15,685,000 barrels per day during the week ending February 19th, 163,000 barrels per day fewer than the previous week’s average, as the US refinery utilization rate fell to 87.3%, down from the 88.3% refinery utilization rate during the week of the 12th, and down from a refinery utilization rate as high as 94.5% at the end of November..in the same week a year ago, refineries processed 15,243,000 barrels per day, using 87.4% of the country's refining capacity, so such a slowdown is fairly normal for this time of year, as refiners are beginning the process of switching over to their summer blends...

but even with less crude being refined, our refinery production of gasoline rose by 334,000 barrels per day to 10,009,000 barrels per day during week ending February 19th, 3.6% more than the 9,659,000 barrel per day gasoline production of the week ending February 20th last year, and only the 6th time in history our gasoline output topped the 10 million barrels per day threshold....meanwhile, our output of distillate fuels (ie, diesel fuel and heat oil) fell by 225,000 barrels per day to 4,438,000 barrels per day during week ending the 19th, which was also down by 309,000 barrels per day from our distillates production during the same week a year ago...however, even with the increase in gasoline production, there was an even larger increase of 373,000 barrels per day in demand for that product, and as a result we saw the first drop in our supply of gasoline in storage in 15 weeks, as our gasoline stockpiles fell by 2,236,000 barrels from last week's record high to 256,457,000 barrels as of February 19th...that was still 6.9% higher than the 240,014,000 barrels we had stored at the same time last year, and, except for last week, the largest gasoline stores we've ever accumulated in the recent history tracked by the EIA...during the same week, our distillate fuel inventories also fell, decreasing by 1,669,000 barrels to a total of 160,715,000 barrels as of February 19th.....but because of the mild winter, our stocks of distillates remain above the upper limit of the average range for this time of year, measuring 28.9% higher than the 124,698,000 barrels we had stored during the same week last year..

so, while we didn't have new records for stored gasoline or any other refinery products, the ongoing level of excess crude imports combined with less refining did leave a lot of unused oil sloshing around in the Gulf Coast states, and as a result our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose once again to a new record of 507,607,000 barrels as of February 19th, up by another 3.5 million barrels from the record 504,105,000 barrels we had stored at the end of the prior week...as we've pointed out repeatedly, the crude we have stored now is far more than we've ever had stored in the 80 years of EIA record keeping, which first saw the 400 million barrel level breached in the 3rd week of January last year...for a visual of that, we'll include a picture of the most recent 15 years of the interactive graph that is included with the EIA tables on our weekly crude oil supply:

February 27 2016 crude oil inventory

This Week's Rig Count

for the first time in 4 weeks, cutbacks in working drilling rigs were less than 5% of the preceding week's active rig tally ...Baker Hughes reported that the number of active drilling rigs working in the US fell by just 12 to 502 rigs as of February 26th, down from the 1267 rigs that were drilling for oil or gas in the same week a year ago, and down from the recent rig count peak of 1931 rigs that were being worked on September 26th of 2014....13 rigs that had been drilling for oil were shut down this week, leaving 400, down from the 986 oil rigs that were deployed on February 27th last year, and down from the fracking era high of 1609 oil drilling rigs that were working on October 10, 2014...but even with natural gas prices at a 17 year low, someone out there added a rig to drill for it, as gas rigs were up by 1 to 102 for the week, still down from the 280 gas rigs that were working a year ago...

likewise, rigs on 2 additional oil platforms started drilling in the Gulf of Mexico, bringing the active Gulf total back up to 27...that's still down from 49 drillers in the Gulf and a total of 51 rigs working offshore a year ago, but with the long lead time on such drilling, this count has been holding steady in the mid 20s range for several months now...otherwise, both horizontal and directional rig counts decreased, while vertical rigs were up by 8 to 58, which was still down from 194 vertical rigs that were in use on February 27th of 2015...a net of 19 horizontal rigs were stacked this week, leaving 397, down from the 946 horizontal rigs that were working in the US the same week a year ago, and down from the recent high of 1372 horizontal frackers that were drilling on November 21st of 2014...in addition, the week's directional rig count fell by 1 to 47, down from the 127 directional rigs that were in use a year ago....

of the major shale basins,  the Eagle Ford of south Texas saw 7 rigs pulled out this week; leaving the Eagle Ford with 47 rigs, down from 157 a year earlier...in addition, the Arkoma Woodford of Oklahoma, the Granite Wash of the Oklahoma-Texas panhandle region, the Haynesville of Louisiana, the Permian of west Texas and the Utica of Ohio all had one rig pulled out; those reductions left Arkoma Woodford with 4 rigs, down from 5 rigs last week and a year ago, left the Granite Wash with 9 rigs, down from 34 a year ago, left the Haynesville with 14 rigs, down from 40 on the same weekend last year, left the Permian with 164, down from last February 27th's 355 Permian rigs, and left the Utica with 12 rigs, down from 38 rigs in the Utica last year at this time...meanwhile, 3 rigs were added in the Cana Woodford of west central Oklahoma, bringing the total count there up to 36, still down from 39 a year earlier, and a rig was added in the Barnett shale, which underlies the Dallas -Ft Worth area of Texas, where there are now 4 rigs, down from 9 a year ago...

the state count tables show Texas with 5 fewer rigs, down from 236 last week and down from 570 a year ago; New Mexico shed 3 rigs, and now has 18 rigs, down from the 68 that were deployed in the state a year ago...both Alaska and California were down 2 rigs this week; the former is now down to 11 from 12 rigs a year ago, while the latter is now down to 6 rigs from 15 a year earlier....there were also single rig reductions in Ohio, Utah, and Wyoming; Ohio now has 12 rigs, down from 36 a year ago; Wyoming has 9 rigs running, down from 33 a year earlier, whereas Utah is now completely rig free, with all 11 rigs running there a year ago now gone...still, Louisiana saw the addition of the 2 rigs in their Gulf of Mexico waters, bringing the state count up to 47, still down from 102 a year ago, while single rigs were also added in West Virginia and Kentucky...West Virginia now has 13 rigs, down from 16 last year, while Kentucky shows 2 rigs drilling, the same number that were drilling in Kentucky on February 27th of 2015...

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Ceramics challenge sand in fracking Utica shale wells - Gas companies exploring potentially high-producing wells in the deep Utica shale while prices remain at multiyear lows face a $2 million question: sand or ceramic? Hydraulic fracturing requires mixing what engineers call a proppant with the water they pump into the well to prop open the cracks created in the shale and release the natural gas or oil it holds. A mile or so under the surface of Pennsylvania, West Virginia and Ohio in the Marcellus shale, natural sand or grains coated in resin generally will do the trick. But the increased heat and pressure of the Utica — which in some places is twice as deep as the Marcellus but believed by some to hold more gas — are sometimes too much for sand to handle, prompting some companies to use a more expensive proppant made from ceramic. “The deeper you get, the higher stress you get. There's that much more rock on top to crush your sand,” said Kirby Walker, director of regional operations for Cecil-based producer Consol Energy, which is exploring Utica wells as deep as 13,000 feet. Consol was the first to use a new high-tech ceramic proppant from Houston-based Carbo Ceramics Inc. in the GH9 Utica well it recently completed in Greene County. It is testing mixes of other ceramics in Utica wells in Ohio. The ceramic particles are stronger and perfectly round, allowing more gas to move around them than irregularly shaped sand grains, advocates say. “In my opinion ... if you use a ceramic, it's always going to produce more,”

Study: Methane in Ohio county’s water from coal beds, not fracking -  A multi-year study has found that coal beds, not fracking, are most likely to blame for methane found in water wells in an Ohio county. But that doesn’t mean fracked wells won’t cause contamination in the future, said geologist Amy Townsend-Small of the University of Cincinnati. She presented the results from Carroll County in eastern Ohio at a February 4 meeting of Carroll Concerned Citizens. Her work in documenting current conditions meshes with comments and recommendations for baseline well testing noted by a panel at the American Association for the Advancement on Science (AAAS) on February 14. That panel asked the question, “Does hydraulic fracturing allow gas to reach drinking water?” “The answer to the question is usually ‘no,’ but there are exceptions,” said Robert Jackson, an ecologist and chemical engineer at Stanford University. The researchers also noted that data provides a useful baseline for measuring any contamination that might result in the future from improperly drilled wells.

U S Chamber of Commerce : Let's See the University of Cincinnati's Hydraulic Fracturing Research - Recently, I wrote about hydraulic fracturing opponents being put in the uncomfortable position of funding a University of Cincinnati research project that found fracturing didn't contaminate groundwater in Ohio's Utica Shale.  New information has surfaced on how its research was funded. Based on this, the university is obligated to do more to publicize the study's findings.  Unfortunately Townsend-Small said her team's research won't be publicized further because the study's funders stopped supporting them because of they didn't like the findings.  'I'm really sad to say this but some of our funders, the groups that had given us funding in the past, were a little disappointed in our results,' Townsend-Small told the audience. 'They feel that fracking is scary and so they were hoping our data could point to a reason to ban it.'  No press releases, no research papers, and no data released for the public or other researchers to dig deeper.  That's not just disappointing; it looks to be in violation of the grant the University of Cincinnati used to fund its research.  The premise of the research project was to see what effects hydraulic fracturing has on drinking water by testing wells before, during, and after fracturing took place. . As Inside Climate News explained in a 2014 story:  Each sample is tested for methane, the main component of natural gas. Townsend-Small's lab uses isotopic analysis to 'fingerprint' the methane to determine if it's 'biogenic methane' (produced by microbes, and unrelated to natural gas drilling) or 'fossil fuel methane' (methane found in oil, gas and coal deposits).   The University of Cincinnati purchased the mass spectrometer to do the testing in 2012 with a $400,000 grant from the National Science Foundation-i.e. taxpayers' dollars. Townsend-Small's team was one group of UoC researchers using the device.  The NSF grant's mandate states unequivocally that findings gleaned from using the instrument be made publically available:

Chesapeake Energy pulls up stakes in PA and Ohio - Chesapeake Energy, one of the state’s largest gas producers with more than 800 active wells in Bradford and Susquehanna counties, has stopped drilling new wells in both the Marcellus and Utica Shale plays. The Oklahoma based oil and gas producer, which also operates in Texas, Louisiana and Wyoming, announced Wednesday a net loss of $14.8 billion in 2015. It put just three new Marcellus wells on production last year, compared to 25 new wells in 2014. Chesapeake also plans to cut its capital expenditures by more than half in 2016 and sell off between $500 million and $1 billion in assets. The company divested $700 million in assets in 2015. In Pennsylvania Chesapeake has racked up about $1.4 million in fines with 428 violations. It’s also facing allegations of cheating Pennsylvania leaseholders out of royalties. While the company denies this, Attorney General Kathleen Kane is investigating. The company is the subject of several class action lawsuits and was also recently subpoenaed by the U.S. Department of Justice, seeking information about its royalty practices.

Chesapeake halts Marcellus and Utica drilling -- Yesterday Chesapeake Energy stock bounced back after its quarterly report was released. Investor confidence increased as assets were sold off and the company’s liquidity increased. Chesapeake should be able to pay its upcoming debts with the cash from the asset sales. Agreements to sell $700 million in gas fields and other assets were made. The company plans to sell between $500 million and $1 billion in properties as well as release at least half of the drilling rigs from their contracts. The Oklahoma City company will further decrease costs by halting further drilling of new wells in the Marcellus and Utica Shale plays, as reported by StateImpact. Chesapeake put in three new wells in the Marcellus in 2015 compared to 25 wells in 2014. According to TribLIVE the only remaining rig in the Marcellus has been released as well as the two in Eastern Ohio. Chesapeake pumps more oil than every US producer other than Exxon Mobil Corp. but has been restructuring, closing offices, selling parts of their portfolio and shrinking its workforce in order to keep its head above water. CEO Doug Lawler said “We are also renegotiating gathering, transportation and processing contracts to better align with our current development plans and market conditions, aggressively working to minimize the decline of our base production and making shorter-cycle investments with our 2016 capital program.” Cheasapeake will have to continue write downs as some 2016 crude is hedged at $47.79 per barrel although currently WTI crude trades at $32.91.

Coast Guard Drops Controversial Proposal to Ship Toxic Fracking Waste -- In a win for clean water and public health, the U.S. Coast Guard quietly dropped its proposal today to allow barges on the nation’s rivers and inter coastal waterways to transport toxic fracking wastewater.  “Shipping thousands of barrels of toxic wastewater down the rivers we drink from was a recipe for disaster,” said Rachel Richardson, director of Environment America’s stop drilling program. “For the sake of our drinking water and our safety, we’re glad to see this bad idea put to rest.”  Fracking creates vast quantities of toxic wastewater often laced with cancer causing chemicals and even radioactive material. An Environment America Research & Policy Center report found that fracking operations produced 280 billion gallons of such wastewater in a single year—enough to cover DC in a 22-feet deep cesspool. Despite its often dangerous contents, fracking wastewater is not considered hazardous by the federal government, and its transport, treatment and disposal is governed by a patchwork of inadequate federal and state regulations. The October 2013 U.S. Coast Guard proposal came in response to a specific request by a tank barge, and was immediately met with widespread criticism. More than 98 percent of the 70,000 public comments submitted on the plan—including over 29,000 collected from Environment America—were opposed.

Coast Guard forgoes policy on shale gas wastewater shipments - The Coast Guard said it will consider requests to barge wastewater from shale gas drilling along rivers on a case-by-case basis instead of instituting a separate policy for permitting the shipments. The decision announced this week in the Federal Register to withdraw the policy that the Coast Guard proposed in 2013 comes nearly five years after getting an initial request to ship the wastewater on a tank barge. When the agency proposed the policy and started accepting public comments, barge companies working along Western Pennsylvania rivers in the Marcellus and Utica shales said they saw potential business in the shipments. The Coast Guard said that was not the case, despite its own expectations. “We have not received significant interest from industry, however, which is one of the reasons we are withdrawing the proposed policy,” the agency wrote in the Federal Register. Low natural gas prices have prompted a slowdown in drilling and other activity in the Marcellus and Utica, reducing the amount of wastewater generated by the industry. Companies also recycle much of the wastewater that is generated during fracking or produced by an operating well for use during the next job. Barge operators seeking to ship the wastewater must request approval under regulations covering hazardous materials “by providing recent detailed chemical composition, environmental analyses, and other information for each individual tank barge load,” the Coast Guard wrote. It left open the possibility of revisiting a more standardized process and policy for permits if it finds the current rules are inadequate to handle requests or protect the environment.

Coast Guard to review applications to ship fracking waste on Ohio River - The Coast Guard announced this week that it is pulling its proposal to allow companies to ship fracking wastewater by barge on the Ohio River. The plan was particularly contentious in southeastern Ohio and prompted more than 70,000 public comments. But the withdrawal does not mean that waste generated in the process of hydraulic fracturing ofoil and gas wells won't be allowed on the river. Instead, the Coast Guard said it will review each application, and do so without much " if any " public input. The Coast Guard probably will not make completed applications available to the public, nor will it notify the public if it approves applications, said Cynthia Znati, the Coast Guard's lead engineer. As part of those applications, Znati said, companies that want to ship fracking waste by barge would have to detail for the Coast Guard the chemicals that could be in that waste. Well drillers mix chemicals and sand with millions of gallons of water and send that deep underground at high-pressure to fracture rock to release oil and gas. When the wastewater returns to the surface,drillers must dispose of it. Many environmental groups, including Environment America, applauded the Coast Guard's decision.Others, including some in Ohio, said the Coast Guard's decision will allow fracking waste on the river. Teresa Mills, program director for the advocacy group Buckeye Forest Council, said the CoastGuard will make it hard for people who live near the river and those who get their drinking water from it to know whether fracking waste is being transported on it. "When they were working on the policy, there was going to be more transparency," she said. "But now that they've given up the policy, we have nothing. So there's no way for us to know what would happen. And that's very disturbing."

Frontline Groups React to Coast Guard Decision to Deregulate Fracking Waste - On February 22, front line community groups throughout the Ohio River valley received notification that the U.S. Coast Guard has determined that no new rules are needed to barge shipments of toxic, radioactive hydraulic fracturing waste. The Coast Guard instead decided to proceed using 40-year-old regulations that fail to address unconventional oil field waste from hydraulic fracturing.   Fracking wastes contain such toxic chemicals as benzene and are laced with radioactive materials like water soluble radium-226, which is linked to leukemia and bone cancers. The Coast Guard will instead allow shipment of waste fluids from hydraulic fracturing to be determined on a case-by-case basis. The proposal being considered by the Coast Guard would have required new rules and guidelines to transport highly flammable, explosive hazardous waste on the Ohio and Mississippi Rivers to currently undisclosed locations.  Members of frontline organizations living along the Ohio River in Pennsylvania, Ohio, West Virginia, Kentucky, Indiana and Illinois have been voicing opposition concerns for several years about the Coast Guard allowing barges carrying 5 million gallons of liquid fracking wastes each to sail without procedures in place to address the hazards.  “We cannot allow the shipment of toxic, radioactive fracking waste fluid on our nation’s drinking waste sources.  The risk to public health and safety is too high,” said Teresa Mills of the Buckeye Forest Council, based in Athens, Ohio. “It is not safe even on a case-by-case basis as is now being propose by the Coast Guard. This is not the waste stream from your 60 year old mom and pop wells. The industry will not tell us what is in this waste, and that is just plain wrong.”

Nuclear waste dumped illegally in Kentucky - After learning that low-level nuclear waste from drilling operations had been dumped illegally in Kentucky last year, state officials this week are warning all landfills to be on the lookout and to not accept any more. Kentucky Division of Waste Management Director Tony Hatton said officials have confirmed that low-level nuclear waste from drilling operations in Ohio, Tennessee and West Virginia was sent to a landfill in Estill County between July and November. Officials are also investigating possible shipments of similar waste to a landfill in Greenup County. He said the waste comes from rock and brine that's brought to the surface during oil and gas drilling. Naturally occurring radionuclides concentrate during the process. A West Virginia company that recycles the drilling further concentrates the radionuclides - and that's the waste that Hatton said made to the Blue Ridge Landfill last year in the small town of Irvine, Kentucky, in Estill County, he said.  It came in 47 sealed boxes, he said. They believe each box contained 25 cubic yards of materials. State officials do not believe the drilling waste sent to the Green Valley Landfill in Greenup County near West Virginia had gone through that recycling process, so it would present less risk to landfill workers or the public, Hatton said. Neither is allowed to be imported into Kentucky from those states, he said.

Oil spill probed in northern West Virginia creek (AP) — Environmental regulators are looking into an oil spill in a northern West Virginia creek. Department of Environmental Protection spokeswoman Kelly Gillenwater tells media outlets that heat transfer oil spilled from a MarkWest Energy’s Mobley natural gas processing plant in Wetzel County on Saturday morning. The cause of the spill is under investigation. MarkWest Energy said in a statement that an undetermined amount of oil got into the North Fork of Fishing Creek and that a water plant seven miles downstream in Pine Grove closed its intake and switched to an alternative source for water. The company it testing the water to determine when it will be safe to drink again. Gillenwater says the facility holds 10,000 gallons. She says booms were deployed in the creek to contain the spill. She said there’s no evidence of aquatic life being harmed in the stream. In Pine Grove, a community of 550 residents about 110 miles southwest of Pittsburgh, officials are asking residents to use water only to flush toilets. Water bottles filled a parking lot at the Robert C. Byrd Center next to the creek, and Pine Grove Mayor Roy Justice said every home was supplied with at least one case of bottled water by Saturday night.

West Virginia Senate OKs bill to limit nuisance lawsuits (AP) — West Virginia senators have cleared a bill to limit nuisance lawsuits by residents, including cases against oil and natural drillers for increased traffic, kicked-up dust, noise and bright lights. Senators favored the measure in a 20-12 vote Tuesday. It heads to the House. The proposal would require rejecting nuisance lawsuits that don’t allege a violation of a law, regulation, ordinance, permit, license or court decision. Residents would have to give 60 days’ notice before filing suit. Opponents have said the bill unfairly strips protections from citizens living near oil and natural gas drilling operations, since environmental permits don’t address issues like smell, noise and dust. They say the bill could have wider implications, ranging from living by oil and gas sites to strip clubs.

State: Coudersport OK to use wells tainted by driller's soap (AP) — The Pennsylvania Department of Environmental Protection says Coudersport is OK to resume using two drinking water wells tainted with soap by natural gas drillers last fall. The DEP is still investigating the soap that tainted the Coudersport wells and several others after leaking from JKLM Energy’s natural gas drilling pad in Sweden Township in late September. Some 55 gallons of soap was used to free a drill bit stuck nearly 600 feet below ground. But some of the soap migrated into the wells. DEP officials said Monday that tests on the water wells used by Coudersport show all contaminants are well below maximum allowable levels, or were not detected at all. Officials with JKLM Energy planned to release a statement later Monday. The DEP hasn’t determined whether the company will be fined.

Company, state working to bring Marcellus drilling sites into compliance  (AP) — An oil and gas operator says it’s trying to bring dozens of its Pennsylvania drilling sites into compliance with environmental laws. A Range Resources spokesman tells Pennlive.com that the company is working the Department of Environmental Protection. The agency on Friday said dozens of the company’s Marcellus Shale natural gas drilling pads in Washington and Allegheny counties weren’t cleaned within 9 months after drilling. Marcellus Shale is a sedimentary rock that contains natural gas deposits. An agency spokesman said Monday that most violations began in 2014 and 2015. Some dated back to 2012. An investigation came after the company responded to a letter last summer requesting a status update on the wells’ restorations. State officials tell The Observer-Reporter that the violations aren’t expected to lead to fines.

Jury seated in water contamination trial, Two Pennsylvania families claim that fracking fouled water -Jury selection has started on Monday in a federal court case. The two North-eastern Pennsylvanian families accuse that Cabot Oil & Gas Corporation contaminated their well water with methane when it started fracking for natural gas. According to Reuters, The case initially involved 40 people, but then Scott Ely and Monica Marta-Ely and Ray and Victoria Hubert, the two couples, are the only plaintiffs who remained standing for the allegation that Cabot contaminated the well water. The rest of the claimants already settled with Cabot, which is a major producer in Susquehanna County. Marta Ely stated, while gesturing to her 13-year old son, Jared, at a news conference during a break in the jury selection, "We haven't had clean water since he was in kindergarten." It was also claimed that the process of hyrodraulic fracking, which extracts gas from underground shale formations, has brought a widespread opposition in many parts of the U.S. Yahoo! News also reported that hyrodraulic fractioning is to be blamed for the environmental destruction, noise pollution, as well as earthquakes in the country. But the company's supporters opposed the idea as they claim that the process is proven to be safe. The families who are taking the court in trial live close to Dimock, Pennsylvania, which was made well-known by an Oscar-nominated documentary, "Gasland", to raise anti-fracking movement. The 2010 documentary revealed that tap water in the area that could be set on fire since it contained methane gas. The two families admitted that water in their homes was even flammable in the past. Both families are asking for compensatory and punitive damages from Cabot for the alleged fouling of the water supply. Scott Ely, who lived in Dimock since 1800s, stated that he hauls tankers of water for his family. The family even showed off the bottle of water from the well with the color of coffee and cream, as claimed by Townhall.

Fracking Cases in Pennsylvania Expose the Human Cost of Drilling - The environmental costs of fracking, from earthquakes to an alarming rise in methane emissions, has been well reported. The human cost of fracking, however, is not heard often enough. In Pennsylvania, two recent cases in Susquehanna County have put the controversial drilling process at the forefront. As jury selection kicks off in the notorious fracking water contamination case in Dimock against Cabot Oil & Gas Corp, a family of maple syrup farmers in the same northwestern county will potentially lose their trees, and thus their livelihood, to make way for the company’s latest fracking pipeline project, the 124-mile Constitution Pipeline. The federal lawsuit—Scott Ely, et al. v Cabot Oil & Gas Corporation et al.—involves two couples, Scott Ely and Monica Marta-Ely, and Ray and Victoria Hubert, who claim that Cabot Oil & Gas Corp contaminated their water supply during fracking operations near their homes. Residents in the small village reported health problems with their coffee-colored water, such as rashes, nausea, headaches and dizziness. “We haven’t had clean water since he was in kindergarten,” Marta-Ely, pointing to her 13-year-old son Jared at a news conference during a break in jury selection, Reuters reported. The Dimock case dates back to 2009 when 44 plaintiffs brought a lawsuit against the company. In the five years since initiating litigation, the Elys and Huberts are the only plaintiffs remaining on the case as the vast majority have settled with the company.

Proposed Marcellus Gas Pipeline Sparks Protest At Prized Maple Farm - Plans to build a major Marcellus shale gas pipeline were briefly paused this month by a protest launched by a collection of community and environmental activists who gathered on the Holleran-Zeffer property in New Milford, PA. Pipeline company Williams Partners, LLC plans to start clearing trees on the property as early as this week to make way for a proposed 124-mile pipeline stretching across the Pennsylvania-New York border.  Tree felling for Williams' Constitution pipeline project began in Pennsylvania on February 5, before New York state had finished its regulatory approval process. Environmentalists fear that the company hopes to present New York state with a fait accompli on the Pennsylvania side, which would put pressure on New York regulators to approve the expansion on its side of the border. On February 10, tree-cutting crews arrived at mile 5 of the planned route through Pennsylvania, the Holleran's land, which a federal judge ordered condemned by eminent domain last year. “Our position as landowners was explained and it was made clear that the assembled group intended to prevent tree clearing on the property,” Megan Holleran, a field technician for North Harford Maple and part of the family that owns the property, said in a statement.  The Holleran family operates a roughly 250-tree commericial maple sugarbush directly in the path of the proposed pipeline, and Williams plans to cut down 80 percent of those maple trees, along with other hardwood trees on the family's land. The family has harvested maple sap on the land since the 1950's. “They don't have permission to do the whole pipeline yet. It's not even a done deal,” Maryann Zeffer told Time Warner Cable News. “We can't see cutting trees that take 40 years to grow back or longer when it's not a done deal yet.”

Pennsylvania professor ranks oil, gas producers by environmental impact -- Larger oil and gas producers in Pennsylvania tend to have a larger environmental impact than smaller, local companies, according to a recent study conducted by a professor out of Susquehanna University. Rather than simply ranking producers based on the number of violations they’ve received, John Pendley, a professor of accounting, ranked the environmental impact of the top 20 largest oil and natural gas producers in Pennsylvania, based on the number of violations each company has received in comparison to its production levels in the state between 2006 and June 2013, according to data from the Pennsylvania Department of Environmental Protection.“The smaller, independent companies tend to do a better job environmentally than the larger companies,” Pendley said. “That could be because the smaller companies are more specialized in the work they are doing in Pennsylvania and the larger companies direct their environmental efforts to their offshore operations and may find it more expeditious to simply pay a fine when levied than try to avoid it.” Surrounded by industry giants such as ExxonMobil, Royal Dutch Shell and Chevron Corp., Pennsylvania General Energy Co., which had the fourth-lowest environmental performance score, is the only company to rank in the bottom 12 companies that is based in Pennsylvania and isn’t publicly traded. CONSOL Energy and EQT Corp., which both are publicly traded — although CONSOL didn’t launch its IPO until 2015 — but are also based in southwestern Pennsylvania, ranked first and second, respectively.

Natural Gas Prices Are Unsustainably Low -- Arthur Berman -- Every week, the EIA proclaims a new record for natural gas production. But their own forecasts show that the U.S. will be short on supply by October of this year. A price increase is inevitable beginning later in 2016. Popular Myth vs Reality The popular myth is that gas production will continue to increase and that prices will remain low for years. In the myth, price has no effect on production. The reality is that price matters and production is down 1.2 billion cubic feet per day (bcfd) since September 2015 (Figure 1). The production increases reported by EIA are year-over-year comparisons that don’t reflect declines during the last 4 months. Prices have fallen to less than half what they were in early 2014. The average price for the first quarter of 2016 is only $2.25 per MMBTU (Figure 2). Hedges made when prices were in the $5-range carried many companies through falling prices as they continued to produce like there was no tomorrow. Tomorrow has arrived and the hedges are gone. Over-production in the Marcellus Shale means that producers have to compete for limited pipeline capacity by deeply discounting their sales price. The best core area locations are commercial at $4 per mcf but wellhead prices averaged only $1.75 per mcf in 2015. There is no simple solution to falling supply. That’s because almost half of U.S. supply is conventional gas and it is in terminal decline. Now, shale gas is also in decline (Figure 3).

Natural Gas Prices Slip to Two-Month Low - WSJ: —Natural-gas prices fell to a two-month low Wednesday ahead of weekly inventory data, which is expected to show that the surplus of natural gas in the U.S. grew last week. Futures for March delivery settled down 0.4 cent, or 0.2%, to $1.778 a million British thermal units on the New York Mercantile Exchange. That is the lowest level since Dec. 18. Prices are less than 3 cents above the 16-year settlement low hit in December. The natural-gas market is oversupplied due to continued robust production and mediocre consumption, as the El NiƱo weather phenomenon has kept temperatures warmer than normal in the eastern U.S. this winter and suppressed demand for natural gas as an indoor-heating fuel. As of Feb. 12, natural-gas stockpiles stood 26% above the five-year average for this time of year, according to the Energy Information Administration. The EIA is due to release its data for the week ended Feb. 19 on Thursday. Analysts expect the agency to report that stockpiles fell by 138 billion cubic feet last week, less than the five-year average drain of 144 bcf for that week. If the storage estimate is correct, inventories as of Feb. 19 totaled 2.568 trillion cubic feet, 30% above levels from a year ago and 28% above the five-year average for the same week. Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $1.805/MMBTU, compared with Tuesday’s range of $1.80-$1.845. Cash prices at the Transco Z6 hub in New York last traded between $1.77 and $1.84/MMBTU, compared with Tuesday’s range of $1.65-$1.75.

NatGas Tumbles To 16-Year Lows -- More "unequivocally good" news. On the heels of a smaller than expected drawdown in natural gas inventories (-117 vs -135bcf), Nattie futures have tumbled to their lowest intraday level since 1999... And while the oil market is "glutted," some are arguing the NatGas market is even more so... OilPrice.com's Nick Cunningham warns, while the glut in oil is expected to continue for the next year or so before balancing in late 2016, the pain for liquefied natural gas (LNG) could be just beginning... Building LNG export terminals is a long-term proposition. It can take years to develop a greenfield project, bringing a lump of new capacity online long after the project was initially planned, exposing developers to the possibility that market conditions could change in the interim. It is not unlike a conventional oil project, such as an offshore well, which also can take years (as opposed to a much shorter lead time for shale drilling). But there is a major difference between oil and LNG: the market for LNG is much smaller and less liquid (no pun intended). In other words, a handful of new LNG export terminals can significantly alter the supply/demand balance. That is exactly what is currently unfolding. Several years ago, spot prices in Asia for LNG spiked, particularly following Fukushima nuclear meltdown. Japan’s demand for LNG skyrocketed. At the same time, the shale gas revolution was unfolding in the U.S., and rock bottom prices opened up a window of opportunity to ship American gas to Asia. But it wasn’t just the U.S. – LNG export terminals proliferated around the world, particularly in Australia. There were so many projects planned at the same time, and the first batch started to come online this year, with many more nearing completion in 2016 and 2017. The rush of new supply is hitting the market all at the same time.  Economies in East Asia are slowing, leaving a shortfall in demand. Japan, the largest LNG importer, is seeing its economy stagnate. China’s growth has slowed significantly. As a result, JKM spot prices – the LNG marker for East Asia – are trading at $7.28 per million Btu (MMBtu) for December delivery, down nearly two-thirds from early 2014 prices.

Natural gas just crashed to a 17-year low --  Natural gas prices fell to a 17-year low on Thursday. The drop to that level came after the Energy Information Administration's weekly report on inventories, which showed that inventories fell by 117 billion cubic feet (Bcf) last week from the prior period. But compared to this time last year, gas stockpiles are 615 Bcf higher, and 577 Bcf more than the five-year average. So clearly, there's been a swell in inventories, similar to what we've seen with crude oil, that has helped to push prices to this new low. There's also been pressure from higher-than-normal temperatures, which has reduced demand for heating gas. Natural gas futures for April delivery fell 4% to as low as $1.748. Here's the commodity's decline, going back eight years: Investing.com

Environmental group threatens lawsuit over Mackinac pipeline  — An environmental group is threatening to sue the federal government over a Great Lakes oil pipeline. The National Wildlife Federation notified the Pipeline and Hazardous Materials Safety Administration on Monday. The group is targeting Enbridge Energy’s Line 5, which runs from Superior, Wisconsin, to Sarnia, Ontario. A nearly 5-mile-long section reaches beneath the Straits of Mackinac, the link between Lakes Huron and Michigan. Enbridge says the underwater section has never leaked and remains safe. Environmentalists want it removed. The wildlife federation says the federal agency had no authority to approve oil transport through pipelines extending through the straits or other navigable waterways in Michigan. It says the agency failed to assess the potential effects on fish and animals. The agency did not respond immediately to a request for comment.

The EPA is Just Another “Captured” Regulatory Agency -- The U.S. Environmental Protection Agency’s (EPA) independent Scientific Advisory Board Members of the Hydraulic Fracturing Research Advisory Panel released today a second review of the U.S. EPA’s draft assessment saying that that they still have “concerns” regarding the clarity and adequacy of support for several findings presented in the EPA’s draft Assessment Report of the impacts of fracking on drinking water supplies in the U.S.  This second draft report is still very critical of the EPA’s top line claim of no “widespread, systemic impacts” on drinking water from fracking and urges the agency to revise the major statements of findings in the executive summary and elsewhere in the draft Assessment report to be more precise, and to clearly link these statements to evidence. In its own words, the EPA SAB “is concerned that these major findings as presented within the executive summary are ambiguous and appear inconsistent with the observations, data, and levels of uncertainty presented and discussed in the body of the draft Assessment Report.” We are confident that this tension between President Obama’s EPA and the EPA’s own independent advisory board of scientists is a direct consequence of political considerations trumping scientific evidence on fracking, which demonstrates many instances and avenues of water contamination and many areas of problems and harms.

Natural Gas Flowing to Sabine Pass LNG Export Plant.  The first U.S. liquefied natural gas (LNG) export cargo from the Lower 48 is now likely within just a week or two of shipping from the Cheniere Sabine Pass, LA terminal. In the meantime, physical flow data is already giving us a first glance at how the terminal will be supplied from U.S. natural gas production. In today’s blog, we begin a look at flows to the terminal, how the gas is getting there and where it’s coming from.  In recent months, there has been a flurry of completion and commissioning activity around Sabine Pass. Filings with the Federal Energy Regulatory Commission (FERC) indicate the terminal has been furiously readying its first two liquefaction trains over the past few months in preparation for loading its first export cargo. As we detailed previously in our blog series Begin the Sabine, Cheniere Energy’s Sabine Pass LNG (SPL) export terminal in Cameron Parish, LA along the Texas-Louisiana border, is one of four such brownfield projects targeting gas exports from the US, and the first to begin operations.  The terminal will ultimately include six liquefaction “trains,” each with the capacity to supercool up to 650 MMcf/d of natural gas into LNG (at -260 oF) for a total capacity to produce 3.8 Bcf/d for loading and shipment overseas. The facility also has 17 Bcf of LNG storage capacity on site. Construction of the first train was completed and commissioning activity began last fall. And just last Friday (February 19, 2016), SPL filed a request for authorization to introduce fuel gas to train 2 “at the earliest date possible, but no later than March 4, 2016” in order to begin commissioning activities for the second train. Additionally, pipeline flow data from our friends at Genscape indicates that more than 3 Bcf of gas has physically flowed to the terminal in just the past two weeks, suggesting the liquefaction process is underway. Reuters is reporting that two LNG tankers in the Gulf of Mexico are at the ready to take the cargo, one having docked at the terminal just this past Sunday (February 21).

ALEC-Tainted Legislation Designed to Block Local Control Over Fracking Bans in Florida: An industry-friendly bill in the Florida statehouse designed to nullify existing fracking bans and sharply curtail local control over oil and gas drilling activity is facing pushback. Floridians are pressuring their state senators to vote against Senate Bill 318, which takes away a community's right to regulate all well-stimulation techniques, including fracking. The pressure is having an impact, as the bill has been temporarily held back. Public disapproval of the bill intensified after the Florida House of Representatives approved a companion bill, HB 191, on January 27. Both bills seek to preempt local ordinances pertaining to well-stimulation techniques and existing bans on fracking at the local level.  Senator Tom Lee, chair of the Appropriations Committee, ended the fasttrack trajectory of SB 318 by delaying a vote until the Florida Department of Environmental Protection (DEP) provides him with "honest answers" about the bill and fracking.  Florida's Republican Governor Rick Scott, who prohibited state employees from using the term "climate change," is responsible for appointing the head of the DEP. Some environmentalists, including Betty Osceola,, a member of the Miccosukee tribe and Panther clan, expressed grave doubt that the DEP will be forthcoming with the answers Senator Lee is seeking. "The DEP can't be trusted because they answer to Governor Scott," Osceola told DeSmog. "Lobbyists for the oil industry and mineral owners are spreading misinformation faster that we can counter it," Jennifer Hecker, director of natural resource policy for the Conservancy of Southwest Florida, told DeSmog. The Miami Herald reported that in the last six months, special interests spent $28 million on Florida legislative campaigns.

Fracking disaster looms, thanks to Tallahassee lawmakers: The oil fracking bill sailed through the Florida House but is meeting some resistance in the Senate — as well it should. Let's hope senators like Charlie Dean, R-Inverness, Anitere Flores, R-Miami, and appropriations chief Tom Lee will continue to oppose putting Floridians' health and safety at risk. Fracking is the process of drilling and then pumping water and chemicals into wells at great depths and pressures to release oil and gas from rock formations. It is water intensive, with millions of gallons of water needed for a single well. Up to 600 chemicals are used in fracking fluid, including known carcinogens and toxins such as lead, uranium, mercury, methanol, hydrochloric acid and formaldehyde. According to the Florida Senate's analysis, the fracking bill (Senate Bill 318):

  • Grants to the state sole authority to regulate the exploration, development, production, processing, storage and transportation of oil and gas.
  • Requires the Department of Environmental Protection to consider the possibility of groundwater contamination when reviewing permits.
  • Requires companies to disclose to DEP chemicals used in the process for disclosure on the public database FracFocus. Chemicals considered trade secrets would not appear on database unless ordered by a court.
  • Appropriates $1 million for DEP to conduct a comprehensive study on fracking.

Florida Senate committee rejects fracking bill (AP) — A bill that would study and create regulations for fracking is all but dead after a Florida Senate committee rejected it. The Senate Appropriations Committee narrowly voted against the bill. It was then kept alive on a procedural move. Opponents’ concerns about the environment and measures that wouldn’t let local governments ban the method of oil and gas drilling won out over supporters’ warnings that fracking is already legal and voting down the bill would let it happen without protections. The House already passed a similar bill that requires the state Department of Environmental Protection to study the effects of fracking and develop regulations.

Florida: Bill to Regulate Fracking Fails to Advance - A bill to regulate fracking, an oil and gas extraction technique that is relatively new to Florida and vigorously opposed across the state, was voted down on Thursday by a pivotal State Senate committee. The Senate Appropriations Committee rejected the measure in a 10-to-9 bipartisan vote. Florida’s extremely porous geology raised fears among environmentalists and Florida residents that well stimulation could more easily lead to contamination of underground aquifers, the source of drinking water for almost all Floridians. The bill, which had passed the House, proposed regulating only two forms of well stimulation in the state but left out a third method, matrix acidizing, that is conducted with low pressure. It also would not require oil and gas companies to reveal all of the chemicals they would put into the ground because some are protected by federal law. The legislation called for a study on the potential effect of well stimulation, but matrix acidizing would not be part of the study. Local governments objected to the legislation because it would prohibit them from banning well stimulation. Nearly 80 counties and cities have passed resolutions or ordinances that banned or opposed fracking. The bill can be called up again in the Senate committee. Well stimulation is not regulated in Florida and does not require a separate permit.

As U.S. shale sinks, pipeline fight sends woes downstream - Within weeks, two low-profile legal disputes may determine whether an unprecedented wave of bankruptcies expected to hit U.S. oil and gas producers this year will imperil the $500 billion pipeline sector as well. In the two court fights, U.S. energy producers are trying to use Chapter 11 bankruptcy protection to shed long-term contracts with the pipeline operators that gather and process shale gas before it is delivered to consumer markets. The attempts to shed the contracts by Sabine Oil & Gas and Quicksilver Resources are viewed by executives and lawyers as a litmus test for deals worth billions of dollars annually for the so-called midstream sector. Pipeline operators have argued the contracts are secure, but restructuring experts say that if the two producers manage to tear up or renegotiate their deals, others will follow. That could add a new element of risk for already hard-hit investors in midstream companies, which have plowed up to $30 billion a year into infrastructure to serve the U.S. fracking boom. "It's a hellacious problem," said Hugh Ray, a bankruptcy lawyer with McKool Smith in Houston. "It will end with even more bankruptcies." A judge on New York's influential bankruptcy court said on Feb. 2 she was inclined to allow Houston-based Sabine to end its pipeline contract, which guaranteed it would ship a minimum volume of gas through a system built by a Cheniere Energy subsidiary until 2024. Sabine's lawyers argued they could save $35 million by ending the Cheniere contract, and then save millions more by building an entirely new system.

Stanford Scientist Finds People Living Near Shallow Fracking Wells at Risk of Drinking Water Contaminated With Methane  -- A Stanford University scientist has found that people who live near shallowly drilled oil and natural gas wells risk drinking water contaminated with methane. A potent greenhouse gas, methane is highly flammable. “The main risk is from chemical spills and poorly constructed wells that leak,” said Rob Jackson, a professor of Earth System Science at Stanford, who presented his findings at the American Association for the Advancement of Science meeting in Washington, DC, last week. “Our research shows that most problems typically occur within half a mile. “In Parker County, Texas, we found homes with very high levels of methane when their water bubbled due to gas. The biggest risk from methane in water is explosions, which could happen in a basement or sheds where gas builds up. Also, a well that leaks methane could be leaking other things into the groundwater.” Such contamination was typically traced to natural gas wells with insufficient cement barriers to separate them from surrounding rock and water or to improperly installed steel casings that allow the gas to travel upward. Hydraulic fracturing wells that were installed at depths of 3,000 feet or less posed a risk for groundwater contamination. Jackson found there were at least 2,600 such shallow fracking wells in the U.S., many of which were drilled directly into freshwater aquifers. In California, Jackson discovered hundreds of wells drilled into aquifers fewer than 2,000 feet from the surface. Regions of the U.S. with the highest risk for groundwater contamination from fracking include California as well as parts of Pennsylvania and Texas where bedrock is naturally fractured. Millions of abandoned oil and gas wells in California, New York, Pennsylvania, Texas and other gas-producing states also pose a threat.

Massive Methane Leaks From Texas Fracking Sites Even More Significant Than Infamous Porter Ranch Gas Leak - After the mammoth methane gas leak that spewed uncontrollably from a damaged well in California’s Aliso Canyon was finally capped last week, residents of nearby Porter Ranch began trepidatiously returning to their homes. Lingering doubts over whether Southern California Gas Company will continue using the underground storage field have left many wondering if concerns for their safety are being considered at all—particularly considering the company has, so far, only been charged with misdemeanor violations. All told, the Aliso Canyon leak thrust an estimated96,000 metric tons of potent methane—not to mention benzene, nitrogen oxides and other noxious substances—into the atmosphere over a period of months.   California, however, isn’t the only state dealing with mammoth methane leakage.  According to the Texas Observer’s Naveena Sadasivam: “Every hour, natural gas facilities in North Texas’ Barnett Shale region emit thousands of tons of methane—a greenhouse gas at least 20 times more potent than carbon dioxide—and a slate of noxious pollutants such as nitrogen oxides and benzene. “The Aliso Canyon leak was big. The Barnett leaks, combined, are even bigger.” At its peak, the SoCal Gas leak emitted 58,000 kilograms of methane per hour. By comparison, researchers with universities in Colorado and Michigan, partnering with the Environmental Defense Fund, estimate around 60,000 kilograms are spewed every hour by more than 25,000 natural gas wells in operation on the Barnett Shale—with the Dallas/Fort Worth Metroplex at the center. This amounts to around 544,000 tons of methane every year.

The Biggest Oil Leak You’ve Never Heard Of, Still Leaking After 12 Years - Far away from TV cameras and under the radar of the nightly news, oil has been continuously leaking from a damaged production platform located just 12 miles off the coast of Louisiana in the Gulf of Mexico—causing an oily sheens on the surface that stretch for miles and are visible from space.  These underwater oil wells have been leaking since 2004 and as you read this. Unless it is plugged, the government estimates the leak might continue for 100 years until the oil in the underground reservoir is finally depleted. The platform’s owner, Taylor Energy, has no plans to stop the leak and is lobbying behind the scenes for permission to walk away from its mess. In September 2004, Hurricane Ivan slammed into the Gulf and unleashed an underwater mudslide which toppled the Mississippi Canyon 20 (MC20) oil platform. The offshore platform was located in 450 feet of water near the outlet of the Mississippi River. After the mudslide, the platform ended up on the seafloor, 900 feet from its original location and plumes of oil began seeping from the broken well casings of more than 20 wells that had been connected to the platform.  Taylor Energy was more effective at keeping the oil spill under wraps and information about it was not made public until 2010, when BP’s Deepwater Horizon disaster brought added scrutiny to the region. While reviewing satellite imagery of BP’s oil slick, the watchdog group SkyTruth noticed a smaller slick coming from the MC20 location. Measuring the size of the oil slick in satellite images, SkyTruth was able to estimate a leakage rate ranging from 37 to 900 gallons per day. Over the years, that rate adds up to between 300,000 and 1.4 million gallons of oil spilled into the Gulf.

Board member refuses recusal on pipeline over climate change (AP) — A member of the Iowa Utilities Board who has minimized climate change in meetings about the proposed Bakken oil pipeline project has refused to recuse himself from voting on the project. Nick Wagner, a Republican who lost his Iowa House seat to a Democrat in 2012, is one of three board members expected to vote next month on the pipeline. He filed an order Feb. 18 denying the motion to recuse filed by opponents. Wagner has said acknowledging a link between fossil fuels and climate change might hurt his political career. Environmentalists say climate change should be a major consideration and Wagner demonstrated he cannot be impartial and shouldn’t vote. Wagner believes climate change shouldn’t carry great weight and says he’d never put personal interests ahead of public interest.

Environmentalists sue for more rules to protect sage grouse  — Environmental groups sued Thursday to force the Obama administration to impose more restrictions on oil and gas drilling, grazing and other activities blamed for the decline of greater sage grouse across the American West. A sweeping sage grouse conservation effort that the government announced last September is riddled with loopholes and will not be enough to protect the bird from extinction, according to the lawsuit filed in U.S. District Court in Idaho. It follows several legal challenges against the same rules from the opposite end of the political spectrum. Mining companies, ranchers and officials in Utah, Idaho and Nevada argue that the administration’s actions will impede economic development. The ground-dwelling sage grouse, known for their elaborate mating ritual, range across a 257,000-square-mile region spanning 11 states. The new rules and land use policies for federal lands in the region were meant to keep the popular game bird off the endangered species list. They are backed by more than $750 million in commitments from the government and outside groups to conserve land and restore the bird’s range. But the lawsuit from the Western Watersheds Project, Center for Biological Diversity and two other groups said the rules have too many exceptions favorable to industry at the expense of the bird. “Each state had its own specific loophole,” said Erik Molvar with WildEarth Guardians, another plaintiff in the case. “For Wyoming, there are huge loopholes for oil and gas. Nevada has loopholes for geothermal power. In southeastern Oregon, there were loopholes for wind farms. And everywhere there are loopholes for transmission projects.”

Bakken asset sales require background check – regulators -- Last week North Dakota’s top energy regulator admitted he was concerned about investment groups such as hedge funds buying oil assets in the state. According to Reuters media, this concern is prompting Department of Mineral Resources Director Lynn Helms to run background checks on potential buyers. During a monthly conference call Helms said he is worried that some buyers will lack experience managing oil and gas facility operations. “It is a big concern,” he said, due to such facilities’ inherent safety risks. North Dakota law dictates that oil and gas producers must bond their wells, which the state receives as an insurance policy in the event an operator abandons the well and it needs to be plugged. State regulators have control over these bonds, and as a result, Helms or members of the Industrial Commission have the power to block the sale of assets by refusing approval of the bond transfer.

Crude oil train numbers declined last year (AP) — Freight railroads delivered 17 percent fewer carloads of crude oil last year after oil prices collapsed. The Association of American Railroads said Wednesday 410,249 carloads of crude oil were carried across the United States last year, down from 493,126 carloads in 2014. But the number of crude oil carloads remains well above the 9,500 carloads railroads hauled in 2008 before the boom took off in the Bakken region of North Dakota and Montana. Oil prices have been hovering around $30 per barrel instead of the prices above $100 that were common a couple years ago. Tank cars of crude oil have been involved in several fiery derailments in recent years. Rail accidents remain relatively rare compared to the total number of shipments, and the industry is working to reduce them.

Report: Oil train safety violations should be prosecuted (AP) — A government watchdog says federal regulators are failing to refer serious safety violations involving freight rail shipments of crude oil for criminal prosecution. A report by the Department of Transportation’s inspector general also says the Federal Railroad Administration doesn’t have a complete understanding of the risks involving more than 400,000 tank cars of oil shipped across the country annually. The watchdog says the FRA only looks narrowly at operations in specific regions, not the nation as a whole. There has been a series of fiery oil train explosions in the U.S. and Canada in recent years, including one just across the border in Lac-Megantic, Quebec, that killed 47 people. The agency’s complex records system also makes it difficult for inspectors to access safety information on rail operations outside their region.

Continental and Whiting halt new Bakken wells - The two largest oil producers in the Bakken formation of North Dakota, one of the heartlands of the US shale boom, are giving up bringing new wells into production, in a stark illustration of the problems faced by the industry. Continental Resources and Whiting Petroleum are cutting back on well completions as part of steep reductions in capital spending intended to stabilise finances following the fall in crude prices. The moves will lead to significant cuts in their production this year, part of a forecast decline in US oil output that is expected to help curb the oversupply in global crude markets. Continental said it had stopped completing wells in the Bakken in the third quarter of last year and was focused on covering its capital spending from its operating cash flows. Whiting said it planned to stop completing wells in the second quarter of this year in North Dakota and the DJ Basin formation in Colorado. The two companies made their statements as they reported earnings for 2015, showing net losses of $354m for Continental and $2.2bn for Whiting, including a $1.5bn writedown in the value of its oilfields. Leaving drilled but uncompleted wells — sometimes known as DUCs — which need hydraulic fracturing to bring them into production, is a tactic that has been adopted by some companies in the hopes that they can bring production on quickly and relatively cheaply if oil prices recover. Fracturing a well — pumping in water, sand and chemicals to open cracks in the rock, allowing the oil to flow out — can typically account for half to two-thirds of its total cost. Continental said that although it was not completing any wells in the Bakken it planned to have four rigs drilling there all year. It expects its stock of DUCs in the Bakken to rise from 135 at the end of last year to 195 by the end of 2016.

Frack-Stop: CLR And Whiting To Stop Fracking In The Bakken -- From John Kemp, tweeting now: FRACK-STOP: Continental and Whiting to stop fracking and well completions in the Bakken (but drilling goes on). Regular readers of the blog already knew that -- at least with regard to CLR; I haven't seen a CLR completion in months. Whiting has still reported some completed wells recently. Financial Times is reporting: The moves will lead to significant cuts in their production this year, part of a forecast decline in US oil output that is expected to help curb the oversupply in global crude markets.  Continental said it had stopped completing wells in the Bakken in the third quarter of last year and was focused on covering its capital spending from its operating cash flows.  Whiting said it planned to stop completing wells in the second quarter of this year in North Dakota and the DJ Basin formation in Colorado. The two companies made their statements as they reported earnings for 2015, showing net losses of $354m for Continental and $2.2bn for Whiting, including a $1.5bn writedown in the value of its oilfields.    Despite lower crude oil prices, EIA expects Canadian oil production to continue increasing through 2017. Canadian oil sands projects that were already under construction when prices began to fall in 2014 and that are expected to begin production in the next two years are the main driver of production growth…According to EIA's February Short-Term Energy Outlook, production of petroleum and other liquids in Canada, which totaled 4.5 million barrels per day (b/d) in 2015, is expected to average 4.6 million b/d in 2016 and 4.8 million b/d in 2017. This increase is driven by growth in oil sands production of about 300,000 b/d by the end of 2017, which is partially offset by a decline in conventional oil production. -- EIA

The Allure Of Shale Is Wearing Off -  Investment in U.S. shale continues to dwindle, with several large companies raising eyebrows with plans to slow drilling plans much further than expected. Continental Resources, an Oklahoma-based shale company, has announced that it is largely zeroing out all plans to drill in North Dakota’s Bakken this year. Announcing its first annual loss since its inception in 2007, Continental Resources said that it would defer completions on just about all of its wells drilled in the Bakken. Continental will hold onto four rigs in North Dakota, but has no plans to deploy any fracking teams. The company’s production has already started to decline, falling to 224,936 barrels per day in the fourth quarter of 2015, down from 228,278 barrels per day from the third, or about a decline of almost 2 percent. Continental has already said that it could lose about 10 percent of its production this year. But it will still be sitting on more than a hundred drilled but uncompleted wells, which will allow the company to ramp up output when and if oil prices rise. Whiting Petroleum, another shale driller, also announced this week that it was drastically scaling back drilling plans. The Colorado-based announced an 80 percent cut in spending, but more significant was its decision to completely suspend its plans to complete any more wells after the first quarter. That will leave it with 73 drilled but uncompleted wells in the Bakken, plus 95 more in the Niobrara. Just about all of the money that Whiting plans on spending this year will be merely on maintenance to keep existing operations going. On the other end of the spectrum in terms of company size, Royal Dutch Shell revealed its plans to downgrade its emphasis on expensive shale operations, although it was not worded in those terms. The Anglo-Dutch supermajor says that it would fold its “unconventional” unit (i.e. shale) into its broader upstream business. . In 2014, Shell sold off shale acreage in Texas, Colorado, and Kansas, according to Reuters, while also divesting itself of Pennsylvania and Louisiana shale gas assets. Last year, Shell pulled the plug on Arctic drilling after almost a decade of work and billions of dollars wasted. It also scrapped a major oil sands project in Canada in October because of low oil prices. Shell’s oil sands assets will be folded into its downstream refining unit.

Campaign to ban fracking and all new oil drilling in Monterey County takes shape - Hoping to expand on similar bans already in place in Santa Cruz, San Benito and Mendocino counties, environmentalists on Tuesday launched a ballot campaign to prohibit fracking in Monterey County, setting the stage for another expensive battle with the oil industry over the controversial drilling technique. The measure, if approved by voters in November, also would ban all new oil drilling in Monterey County -- California's fourth largest oil-producing county. It would continue to allow the roughly 1,200 existing oil wells there to remain, most of which are located near San Ardo in the Salinas Valley. Supporters said their goal is to reduce the risk of groundwater pollution from oil drilling, including potential future drilling in the Monterey Shale formation, and to push forward a statewide grass-roots movement. "There's a deep concern around the threats from the oil industry, especially to water," said Andy Hsia-Coron, a retired schoolteacher from San Juan Bautista who is one of the measure's organizers. "Polls show Californians are supportive of things to protect their water," he said. "But, unfortunately, the oil industry has had too big a voice in Sacramento and may be too cozy with the governor." Supporters of the new measure have formed a coalition called Protect Monterey County. It includes some of the activists, like Hsia-Coron, who passed a fracking ban in 2014 in neighboring San Benito County, despite being outspent 14-1 by the oil industry. Oil industry officials said Tuesday that they will vigorously fight to defeat the measure.

State natural gas wells exempt from key leak-detection test - He listened for hissing or rumbling nearly 2 miles below the earth, easing his microphone down the natural gas well known as SS 25. Mitch Findlay heard something that caught his attention. Findlay, the owner of a leak-detection company, was testing the well for his client, the Southern California Gas Co. It was November 1991, nearly 25 years before the well above Porter Ranch ruptured and spewed roughly 94,000 metric tons of methane into the atmosphere. It was a “distant noise,” Findlay noted in the typewritten log filed with state regulators.   But annual temperature surveys and the occasional noise test gave an incomplete picture of the well’s integrity, he and other experts say. Another common way to detect leaks, a pressure test, was performed on the well just twice since 1989, according to state records.   California regulators do not require natural gas companies to test the pressure of storage wells, despite the industry’s endorsement and widespread use of the leak-detection method. “These wells should be pressure tested every five years,” Findlay said. Pressurizing the space between interior tube and the surrounding casing of the well, the area called the annulus, “would have found the leak,” he believes. In Texas and Kansas, states with modern underground gas storage regulations, the well indeed would have been required to undergo pressure tests at least every five years. “It’s a common industry practice and the best-regulated states all require it,”

California methane leak was biggest ever in U.S., scientists say | Reuters: The months-long natural gas leak that forced thousands of Los Angeles residents from their homes ranks as the largest known accidental methane release in U.S. history, equal to the annual greenhouse gas emissions of nearly 600,000 cars, scientists reported on Thursday. At its peak, 60 tons per hour of natural gas was spewing from a ruptured underground pipeline at the Aliso Canyon storage field, effectively doubling the methane emissions of the entire Los Angeles metropolitan area, the researchers said. Their study, published in the journal Science, represents the first comprehensive effort to quantify a gas leak that made scores of people ill and prompted the temporary relocation of more than 6,600 households from the northern Los Angeles community of Porter Ranch at the edge of the gas field. The damaged injection well discharged a total of 97,100 tons - or 5 billion cubic feet (142 million cubic meters) - of methane into the environment from the time it was first detected on Oct. 23 until it was plugged earlier this month, the study said. Methane, the chief component of natural gas and a far more potent greenhouse agent than carbon dioxide, persists in the atmosphere for 10 years. The total release from Aliso Canyon is equivalent to the annual energy-sector methane emissions of a medium-sized European Union country, it said.

Damage report reveals LA methane leak is one of the worst disasters in US history - A week after the ruptured natural gas well in Aliso Canyon was finally declared sealed, we have a full account of the environmental damage — and it doesn’t look good. A new paper published in the journal Science declared it to be one of the largest environmental disasters in US history. In total, 97,100 metric tons of methane were released into the atmosphere over the course of 112 days, equal to the greenhouse gas emissions of over half a million cars. The study drew its measurements from a series of research aircraft flights carried out between November 7, 2015, about two weeks after the leak was first reported, and February 13, 2016, two days after the leak was plugged. Scientific aviation specialist Stephen Conley of the University of California, Davis, was asked by the California Energy Commission to conduct the first flyover early on, before anyone realized just how serious the gas leak really was. The levels of airborne methane were so high that the Conley’s team assumed there was something wrong with their instruments — the background concentration of methane in the air is typically about 2 parts per million, but the aircraft registered concentrations as high as 50-60 ppm. It wasn’t until researchers tested levels on the ground using a different instrument that they realized the frightening readings were accurate. Once it became clear just how bad the problem was, Conley began conducting regular flyovers to track the movement of the methane plume as it moved downwind. At its peak in November, about 60 metric tons of methane was gushing from the well every single hour. SoCalGas was able to slow the rate a bit by drawing natural gas from the well to relieve pressure, and delivering it to energy consumers. Though the well has been declared “permanently sealed” by a plug of cement, small amounts of gas are continuing to seep out of the ground. It’s unclear exactly where the methane is coming from — it could be due to gas trapped in the soil, the wellhead, or even potentially an imperfect seal. Conley will have to continue monitoring the site until the flow rate stabilizes.

Gas facility that had blowout will have to play by new rules (AP) — The gas storage facility that spewed methane uncontrollably for almost four months, driving thousands of families from their homes, won’t resume operations until it has undergone tougher tests than ever required before, a process that will take months and perhaps even longer. The massive leak drew attention to the Southern California Gas Co. facility and the larger subject of old energy infrastructure nationwide. It also put heat on the state to speed up tougher new regulations that will outlaw a risky practice that put the well in jeopardy of a blowout. “I wouldn’t say it was a wake-up call. I’d say it was a ‘You need to accelerate that process,'” said Jason Marshall, chief deputy director of the state Department of Conservation. “We’ve moved it to the top of the pile.” In addition to passing emergency regulations, the department’s oil and gas division directed the Aliso Canyon facility to undergo tests expected to last months and operate in a safer manner — changes that could be expanded to statewide regulations, Marshall said. Environmentalists and residents sickened by the foul smell and chemicals have called for the facility to be permanently shut down.

California Is Trying To Get Permission To Dump Wastewater In Protected Aquifers - A California regulator is asking the EPA to officially allow oil drilling and wastewater disposal in a protected aquifer near San Luis Obispo. The request is the first of dozens the state is expected to make, after revelations surfaced that the Division of Oil, Gas, and Geothermal Resources had, for years, improperly issued permits to inject wastewater into underground basins protected by the Clean Water Act.  The California Water Board has signed off on its sister agency’s request, saying that the aquifer is separated from local drinking water sources by an “impermeable barrier.” But residents and environmentalists are skeptical. Californians have good reason to be skeptical that the division, known as DOGGR, is protecting their water. In early 2015, DOGGR was found to have issued improper permits for 2,500 injection wells. Some of those wells were immediately shut down following the findings. Others, such as the operations covered in this permit application, were allowed to keep functioning, pending an expedited review and application for exemption.  During the review, technical staff from DOGGR and the California State Water Board found that the local water wells are “geologically separated from the aquifer exemption area,” and it is unlikely, if not impossible, for the wastewater to contaminate drinking and irrigation water.  Still, some are concerned that separation won’t hold up, allowing chemical-laced wastewater to flow into groundwater supplies. Wastewater from oil and gas drilling can contain heavy metals, radioactive material, and chemicals like arsenic and benzene.

Pacific Northwest could become hub for methanol production (AP) — The Pacific Northwest could become a major hub for methanol production if three proposed refineries are built along the Columbia River and Puget Sound. A China-backed consortium, Northwest Innovation Works, has proposed two plants in Washington state and a third in Oregon to convert natural gas to methanol, which would be shipped to China to make plastics and other consumer goods. But those plans are running into opposition. On Friday, the company temporarily put its project in Tacoma on hold, saying it has been “surprised by the tone and substance of vocal opposition.” Washington state Gov. Jay Inslee has embraced the projects as a boost to the state’s clean energy future. He has said the investments — about $7 billion for the three plants — would be one of the largest foreign investments in the U.S. by a Chinese company. Supporters say the projects would create hundreds of jobs and infuse billions to the region. Opponents are concerned about environmental and health impacts. More than 1,000 people attended a hearing this month on the Tacoma project, which would produce 20,000 metric tons a day and dwarf other methanol plants planned or being built in the U.S. A citizens group is sponsoring an initiative to require voter approval for water permits exceeding one million gallons (3.8 million liters) a day. The city of Federal Way passed a resolution opposing the project. “We’re talking about building enormous petrochemical refineries on the shorelines of our most important water bodies. That’s dangerous,” said Eric de Place, policy director for Sightline Institute, a progressive think tank.

United States On Path to Becoming Major Exporter of Natural Gas Despite Climate Impacts - The Sabine Pass LNG terminal owned by Cheniere Energy in southwest Louisiana offers a glimpse of the challenges facing the growing natural gas industry in the United States.  The first cargo of liquefied natural gas (LNG) was scheduled for export from Cheniere Energy’s new export terminal in Cameron Parish, in January, but the company reportedly delayed its plans by up to two months due to faulty wiring. Following the announcement of the export delay, Cheniere Energy sought $2.6 billion to refinance its adjacent LNG import terminal in Cameron Parish which was impacted by extreme fluctuations in the price of oil and gas. The company built the import facility before the U.S. fracking boom took hold, and was therefore saddled with unnecessary import infrastructure in the new age of abundance of domestic gas availability and the prospect of U.S. exports. Cheniere’s $20 billion, multiphase terminal is one of four LNG terminals in the lower 48 states that got the green light from the Federal Energy Regulatory Commission. And the existing Kenai LNG plant in Alaska, an export terminal operated by ConocoPhillips, was recently permitted to restart operations after closing down in 2013, when operations ceased due to a shortage of gas. “The Chenier Energy project, as well as the over 40 proposed or approved LNG export facilities around the United States, are a serious threat to our climate,” Gulf Restoration Network organizer Johanna deGraffenreid told DeSmog. She criticized the massive export infrastructure investment craze for “promoting the use of fossil fuels on an international scale.”

Petrobras Said to Buy Cheniere's First U.S. Shale Gas Export -- Petroleo Brasileiro SA, Brazil’s state-owned energy company, is scheduled to receive the first cargo of shale gas to be shipped from the U.S., according to a person familiar with the deal. The shipment of liquefied natural gas was agreed to Monday, said the person, who asked not to be identified because the information isn’t public. Cheniere Energy Inc.began loading the first tanker at its Sabine Pass terminal in Louisiana, U.S. Coast Guard spokesman Dustin Williams said in an e-mail Tuesday. “The biggest buyer of LNG outside of the winter is Brazil first and Argentina second in the Atlantic Basin," .“They buy LNG for gas-powered, air-conditioned power." Other gas-export projects are expected to come under pressure to secure financing and long-term contracts amid the global commodity rout and shifts in demand overseas, Daniel Yergin, vice chairman of the energy consulting group IHS Inc., said in an interview Feb. 17. Demand is forecast to be higher in South America during the spring, in part due to a drought that has increased Brazil’s dependence on the power-plant fuel. Brazil has increased LNG imports in the past few years after an agreement to buy gas via a pipeline from Bolivia reached its limits. Petrobras bought about 80 LNG cargoes last year. It’s expected to purchase another 50 in 2016, according to Porto Alegre-based Gas Energy consultancy. Petrobras had no immediate comment on the shipment. Cheniere didn’t respond to an e-mail and voicemail.

Port Rejects Plans to Build Oil Refinery and Propane Export Terminal -- In an unanimous vote on Tuesday, Port of Longview commissioners rejected a proposal by Waterside Energy to build the first oil refinery on the west coast in 25 years. The commissioners also rejected Waterside’s plan for a propane export terminal. Longview, Washington residents are celebrating and thanking their elected port commissioners..  “I’ve taught near oil refineries—the smell was hard to live with, but the rate of childhood cancer was devastating.” Today, the port commission did the right thing for Longview’s children,”  In 2010, as fracking boomed and coal companies looked desperately for overseas buyers, a dozen coal, oil and gas export proposals threatened the Pacific Northwest and, particularly, the Columbia River where I work. But one by one, communities are standing up for clean water and air by rejecting dirty fossil fuels. The State of Oregon rejected the Morrow-Pacific coal export terminal because of the impacts on salmon and fishing. Longview rejected Haven Energy’s propane export terminal, primarily because the proposal would create too few jobs per acre. Portland rejected Pembina’s propane terminal for climate and public health reasons and then, for good measure, banned all new fossil fuel exports. Global Partners’ oil terminal near Clatskanie, Oregon, shut down because of the economics of unpredictable crude oil prices. The pattern is obvious, but I’m fascinated by the reasons for rejecting these projects. Salmon. Jobs. Climate. Health. Economy. These values are prevailing over fossil fuel.

Slow Train Coming –Terminal Projects Still Being Built As Rockies Crude-By-Rail Fades - According to the latest Energy Information Administration (EIA) monthly Drilling Productivity Report, crude production from the Niobrara shale in Colorado and Wyoming peaked at 491 Mb/d in April 2015 and is forecast to decline by ~100 Mb/d to 388 Mb/d through March 2016 – in response to falling crude prices and lower drilling activity. Meantime midstream companies are still building new pipeline capacity out of the region with the Saddlehorn and Grand Mesa projects set to add 350 Mb/d of takeaway capacity this year (2016). The pipeline build out has already caused a shift of crude shipments away from crude-by-rail (CBR) that peaked in December 2014. Yet as we describe today - rail terminals and infrastructure are still under construction in the region.  In Part 1 of this series we noted that CBR volumes are falling across the U.S. and Canada. The decline is mostly in response to narrower spreads between U.S. domestic crude benchmark West Texas Intermediate (WTI) and international equivalent Brent. The lower the spread between these two, the lower the incentive to move crude from inland basins to coastal refineries by rail because the latter is a more expensive transport option compared to pipelines.  . As new pipelines have been built out to provide less expensive options to get stranded crude to market so the WTI discount has narrowed and CBR traffic has declined. After crude oil prices collapsed into the mid-$30s and Congress repealed regulations limiting U.S. crude exports in December 2015, WTI began to trade at a slight premium to Brent that averaged $0.26/Bbl in January 2016. Primarily in response to the narrowing spread - CBR volumes fell during 2015 but not as fast as you might expect – dropping only 20% between January and November 2015 (latest EIA data) even though the economics often made no sense. As we discussed in Part 2 – looking at the epicenter of the CBR boom in North Dakota – the slower than expected decline in rail shipments is mostly because committed shippers and refiners continued to use rail infrastructure that they invested in and because some routes still do not have pipeline access. This time we look at CBR traffic out of the Niobrara shale region in the Rockies.

Oil Rigs Dive To 2009 Levels, But Well Productivity Soars -- Drilling activity has crashed, but efficiencies and American ingenuity have helped make each well far more productive. The number of oil rigs fell by 26 last week to 413, the lowest since December 2009, Baker Hughes (BHI) reported Friday. That’s down 19% over the last four weeks and 59.5% vs. a year earlier.But U.S. oil output, though off peak levels, has held up remarkably well. That’s in large part because Continental Resources (CLR), Concho Resources (CXO) and other shale producers are becoming, well, more productive with every well. They focused on the best wells, kept the best crews, while employing new technical advances and practices. They’ve also been able to squeeze suppliers and services firms such as Baker Hughes, Schlumberger (SLB) and Halliburton (HAL).

  • • Bakken Shale new wells should produce 737 barrels per day in March, up from 558 bpd in March 2015. That’s a 32% increase — 88.5% vs. March 2014.
  • • Eagle Ford new wells are expected to generate 812 barrels per day in March, up from 665 bpd a year earlier. That’s a 22% jump.
  • • Niobrara new wells should produce 741 barrels per day, up 39% from 533 bpd in March 2015.
  • • Permian Basin new wells should produce a 423 barrels per day, a 49% spike from 284 bpd a year earlier.
  • • Utica new wells should generate 309 barrels per day, a whopping 83% increase from 168 bpd in March 2015.

Continental Resources, Concho Resources and other shale firms have been able to concentrate efforts, slashing capital spending and operating costs without a big blow to production. But with oil down to $30 a barrel or lower, these companies are under heavy  strain. Continental and Concho earnings reports are due this week, with the former expected to post a loss and the latter a 96% EPS dive. As for suppliers such as Halliburton, Schlumberger and Baker Hughes, they’ve cut tens of thousands of jobs.  But those oil services giants should emerge stronger after the oil bust, D.A. Davidson said in research reports last week.

Biggest Wave Yet of U.S. Oil Defaults Looms as Bust Intensifies -- In less than a month, the U.S. oil bust could claim two of its biggest victims yet Oil PricesEnergy XXI Ltd. and SandRidge Energy Inc., oil and gas drillers with a combined $7.6 billion of debt, didn’t pay interest on their bonds last week. They have until the middle of next month to either pay the interest, work out a deal with their creditors or face a default that could tip them into bankruptcy. If the two companies fail in March, it would be the biggest cluster of oil and gas defaults in a month since energy prices plunged in early 2015. “We’re just beginning to see how bad 2016 is going to be,” . The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers.   Oil prices have now fallen more than 70 percent from a 2014 peak, and banks and bondholders are fighting for scraps. Bond prices reflect investors’ fears. U.S. high-yield energy debt lost 24 percent last year, the biggest fall since 2008, according to Bank of America Merrill Lynch U.S. High Yield Indexes. Investors are now demanding a yield of 19.6 percent to hold U.S. junk-rated energy bonds, after borrowing costs for these companies exceeded 20 percent for the first time ever this month, according to data compiled by Bank of America Merrill Lynch. Both Energy XXI and SandRidge could still reach an agreement with creditors that will give them time to turn their businesses around. SandRidge said last week that it missed a $21.7 million interest payment. The company owes $4.2 billion, including a fully-drawn $500 million credit line. Energy XXI, which owes $3.4 billion, said in a filing last week that it missed an $8.8 million interest payment.

35% Of Public Oil Companies Could Face Bankruptcy --More than one-third of public oil companies globally face bankruptcy, according to a new Deloitte report that paints a fairly gloomy picture of the U.S. shale patch as it struggles to survive under mountains of debt.  The Deloitte report—the first high-profile report on the current financial situation of global oil and gas companies—surveyed 500 companies and found that 175 are facing “a combination of high leverage and low debt service coverage ratios”.  “[…] nearly 35 percent of pure-play E&P companies listed worldwide, or about 175 companies, are in the high risk quadrant,” Deloitte noted, adding that the situation is “precarious” for 50 of these companies due to negative equity or leverage ratio above 100.  Reports about the growing numbers of bankruptcies among U.S. shale producers aren’t new, but the Deloitte findings reinforce the picture.“More than 80 percent of U.S. E&P companies who filed for bankruptcy since July 2014 are still operating (Chapter 11) under the control of lenders or the supervision of bankruptcy judges,” according to Deloitte.“However, the majority of these Chapter 11 debt restructuring plans were approved by lenders in early 2015, when oil prices were $55-60/bbl. Since then, prices have fallen to $30/bbl, and hedges at favorable prices have largely expired, making it tough for existing Chapter 11 bankruptcy filers to meet lenders’ earlier stipulations and increasing the probability of US E&P company bankruptcies surpassing the Great Recession levels in 2016.” Shale producers amassed huge debts that they are now struggling to service in the oil price downturn. According to AlixPartners, these debts totaled $353 billion for U.S. and Canadian energy companies at end-2015. To compare, Deloitte puts the combined debt of those 175 bankruptcy-threatened companies at more than $150 billion, nearly half of the total for US and Canada.

Continental Resources Swings to a Loss, Will Cut Capital Spending - NASDAQ.com: Continental Resources Inc. swung to a loss in the December quarter hard-hit by the sharp drop in crude oil prices. To counter the price slump, the Oklahoma City company said it would slash planned capital spending this year by 66% and indicated further cuts could follow if needed. Over all, Continental Resources reported a loss of $139.7 million, or 38 cents a share, compared with a year-earlier profit of $114 million, or 31 cents a share. Excluding asset write-downs and other items, the loss was 23 cents a share, compared with a year-earlier profit of $1.14. Operating costs, meanwhile, fell 30% to $718.3 million. Analysts surveyed by Thomson Reuters had projected a loss of 21 cents a share on $569.3 million in oil and gas revenue. Net production rose 16% from the year earlier, above the company's guidance, and average realized crude sales prices, excluding hedging, dropped to $34.23 a barrel from $61.53 a barrel a year earlier. Crude oil comprised 65% of total production. Continental Resources affirmed its projections of average daily production to reach 200,000 barrels a day in 2016, down from 221,700 in 2015.

Chesapeake Energy announces financial results, outlook  — Chesapeake Energy announced Wednesday it saw a net loss of $2.19 billion for the fourth quarter of 2015, citing the oil and gas downturn as the cause. Chesapeake says for 2016, it plans on more rig completion and less drilling, providing better "economics" amid the oil and gas economy. The company says it plans to put another 330 to 370 wells in production, but will reduce overall production by about 31,000 barrels of oil a day. "Our tactical focus areas remain asset divestitures, of which we are pleased to have approximately $500 million in net proceeds closed or under signed sales agreements, liability management and open market purchases of our bonds. We are also renegotiating gathering, transportation and processing contracts to better align with our current development plans and market conditions, aggressively working to minimize the decline of our base production and making shorter-cycle investments with our 2016 capital program. We have set our initial capital program for the year at $1.3 to $1.8 billion, including capitalized interest, and will remain flexible to raise or lower based on commodity prices."

Chesapeake to slash its capital spending - Chesapeake Energy, the second-largest gas producer in the US, on Wednesday announced a cut of up to 69 per cent in its capital spending for this year, as it seeks to conserve cash amid the commodity price crash. The company set out the plans as it reported a $14.9bn net loss for 2015, compared to a profit of $1.3bn in 2014, following writedowns in the value of its gas and oilfields. Chesapeake was one of the stars of the US shale gas boom of the 2000s, growing rapidly under its founder Aubrey McClendon, who left the company in 2013. Under Doug Lawler, Mr McClendon’s successor as chief executive, Chesapeake has been working to reduce its large debt load and to shift to increased production of crude and other liquids. But the company has been hit hard by the collapse in oil and gas prices. The principal factor behind the loss for 2015 was an $18.2bn pre-tax writedown of Chesapeake’s assets, to reflect those lower prices. The company’s operating cash flow dropped 56 per cent to $2.3bn last year. That cash generation fell short of Chesapeake’s capital spending of $3.2bn in 2015, raising concerns about the sustainability of its finances. Chesapeake’s shares have dropped 86 per cent in the past year. But Chesapeake on Wednesday played down suggestions that it was exploring a possible bankruptcy, saying that it was working on debt exchanges and other moves to reduce its borrowings, and had hired specialist lawyers to advise on that.

Chesapeake Energy shares tumble after company's loss widens, unveils drastic capex cuts - Chesapake Energy Corp. shares  tumbled 9% in premarket trade Wednesday, after the company's fourth-quarter loss widened and it unveiled further capex cuts and asset sales. The company said it had a net loss of $2.23 billion, or $3.36 a share, in the quarter, after earnings of $586 million, or 81 cents a share, in the year-earlier period. Its adjusted loss per share came to 16 cents, a penny less than the 17 cents-per-share FactSet consensus. Revenue declined to $2.65 billion from $5.69 billion a year ago, and matched the FactSet consensus. The company said it is planning to slash capex by 57% in 2016 to $1.3 to $1.8 billion. It expects production to be down 0% to 5%, once adjusted for asset sales. The company is targeting further asset sales of $500 million to $1.0 billion in 2016. "In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet," Chief Executive Doug Lawler said in a statement. Shares have fallen a stunning 89% in the last 12 months, while the S&P 500 has fallen 9%.

Chesapeake's AIG Moment: Energy Giant Faces $1 Billion In Collateral Calls --In its 10-K filed yesterday, Chesapeake announced that it has just reached its own "AIG moment." Recall that one of the reasons for AIG's unprecedented, and rapid collapse, was a series of collateral calls resulting from a series of downgrades of the insurer, which forced it to post increasing amounts of collateral to which it had no access, and which in turn activated a liquidity death spiral which ultimately culminated with its bailout by the US Treasury. The same is now taking place at Chesapeake, as the company's 10-K has just confirmed: Since December 2015, Moody’s Investor Services, Inc. has lowered the Company’s senior unsecured credit rating from “Ba3” to “Caa3”, and Standard & Poor’s Rating Services has lowered the Company’s senior unsecured credit rating from “BB-” to “CC”. The downgrades were primarily a result of the effect of low oil and natural gas prices on our ability to generate cash flow from operations. We cannot provide assurance that our credit ratings will not be further reduced if commodity prices continue to remain low. Any further downgrade to our credit ratings could negatively impact our availability and cost of capital. Some of our counterparties have requested or required us to post collateral as financial assurance of our performance under certain contractual arrangements, such as transportation, gathering, processing and hedging agreements. As of February 24, 2016, we have received requests to post approximately $220 million in collateral, of which we have posted approximately $92 million. We have posted the required collateral, primarily in the form of letters of credit and cash, or are otherwise complying with these contractual requests for collateral. We may be requested or required by other counterparties to post additional collateral in an aggregate amount of approximately $698 million (excluding the supersedeas bond with respect to the 2019 Notes litigation discussed in Note 3 of the notes to our consolidated financial statements included in Item 8 of this report), which may be in the form of additional letters of credit, cash or other acceptable collateral. Any posting of collateral consisting of cash or letters of credit, which would reduce availability under our credit facility, will negatively impact our liquidity. With this warning, energy giant Chesapeake has effectively warned that it may be the the energy-collapse's AIG: a company which was teetering on the edge, until the rating agencies came along and with their downgrades, sprung an ever escalating series of collateral calls.

Chesapeake stocks soar after company announces asset sales  — A Chesapeake Energy financial report detailing plans for aggressive asset sales buoyed the company’s stock Wednesday and helped allay bankruptcy fears that have haunted investors for weeks. Chesapeake stock jumped 50 cents, or 23 percent, to $2.69 Wednesday after the company released its quarterly financial report. Chesapeake, hurt by falling oil prices, reported an annual loss of nearly $14.7 billion, but has cut jobs, trimmed spending and sold assets to save money. This year, the company said it expects to slash spending on drilling and other projects by 57 percent from the year before. It also expects to sell assets worth between $500 million to $1 billion. On Wednesday, FourPoint Energy said it agreed to buy some of Chesapeake’s oil and gas assets in Oklahoma and Texas for $385 million. “In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet,” Chesapeake CEO Doug Lawler said in a statement. Chesapeake’s asset sales leave the company better situated to pay its debts, said Mark Hanson, equity analyst for Morningstar, a Chicago-based investment research firm. In a quarterly conference call Wednesday, Chesapeake also informed investors that the company has sufficient assets to maintain its access to lines of credit, Hanson said. “I don’t think the quarter was nearly as dire as maybe some people thought,” Hanson said. “I mean, this is a company that was trading (a few weeks ago) as if it was going into bankruptcy. It’s still something of a high-wire act. There’s only so low prices can go before this company’s in real trouble, but they did get some relief here in terms of the asset sales.”

EOG Resources Reports Fourth Quarter and Full Year 2015 Results and Announces 2016 Capital Program Focused on Premium Drilling Inventory- EOG Resources, Inc. today reported a fourth quarter 2015 net loss of $284.3 million, or $0.52 per share. This compares to fourth quarter 2014 net income of $444.6 million, or $0.81 per share. For the full year 2015, EOG reported a net loss of $4.5 billion, or $8.29 per share, compared to net income of $2.9 billion, or $5.32 per share, for the full year 2014. Adjusted non-GAAP net loss for the fourth quarter 2015 was $149.5 million, or $0.27 per share, compared to adjusted non-GAAP net income of $431.9 million, or $0.79 per share, for the same prior year period. Adjusted non-GAAP net income for the full year 2015 was $33.9 million, or $0.06 per share, compared to non-GAAP net income of $2.7 billion, or $4.95 per share, for the full year 2014. Adjusted non-GAAP net income (loss) is calculated by matching realizations to settlement months and making certain other adjustments in order to exclude one-time items.  For the full year 2015, while exploration and development expenditures (excluding acquisitions) decreased 42 percent, U.S. crude oil and condensate production remained flat, and overall total company production decreased just 4 percent compared to 2014.  Total worldwide liquids production decreased 2 percent, and total worldwide natural gas production decreased 7 percent versus the prior year. 

Whiting Petroleum Q4 Net Loss, Capex - Whiting Petroleum Corp. (NYSE: WLL) reported fourth-quarter and full-year 2015 results after markets closed Wednesday. For the quarter, the oil and gas exploration and production company posted an adjusted diluted net loss per share of $0.43 on revenues of $423.5 million. In the same period a year ago, the company reported earnings per share (EPS) of $0.44 on revenues of $696.1 million. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for a net loss of $0.30 per share. Whiting said it will suspend all hydraulic fracturing (fracking) and slash capital spending by 80% year over year. The capex budget for 2016 is set at $500 million and the company plans to spend about $440 million to shut down its drilling and completion operations beginning in the second quarter. Whiting said it expects to end the year with an inventory of 73 drilled, uncompleted wells in the Bakken and 95 drilled, uncompleted wells in the Niobrara shale play. Full-year production is projected at 128,000 to 138,000 barrels of oil equivalent per day compared with 155,100 per day in 2015 and 131,260 in 2014. For the full year, Whiting posted a net loss of $0.80 per share and revenues of $2.05 billion compared with 2014 EPS of $4.15 and revenues of $3.09 billion. For the quarter, Whiting took an impairment charge of $10.77 million on its oil and gas assets. For the year impairment charges totaled $1.09 billion.

Whiting Petroleum To Stop Fracking As Budget Slashed  - (Reuters) - Whiting Petroleum Corp, North Dakota's largest oil producer, slashed its 2016 budget by 80 percent on Wednesday, saying it will suspend all fracking operations and reduce output to wait for higher crude prices. Shares jumped 7.7 percent to $4 per share in after-hours trading as investors cheered the decision to preserve capital. Whiting's cut marks one of the largest so far this year in an energy industry crippled by oil prices at 10-year lows. Denver-based Whiting said it will stop fracking and completing wells as of April 1. Most of the $500 million budget will be spent to mothball drilling and fracking operations in the first half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance. Rival producers Hess Corp and Continental Resources Inc have also slashed their budgets for the year, though neither has cut as much as Whiting. "We believe this conservative strategy should help us to maintain our liquidity position and leave us well positioned to capitalize on a rebound in oil prices," Whiting Chief Executive Jim Volker said in a statement. Whiting also on Wednesday posted a net loss of $98.7 million, or 48 cents per share, compared with a net loss of $353.7, or $2.68 per share in the year-ago period. Excluding impairment charges, hedging gains and other one-time items, the company posted a loss of 43 cents per share. By that measure, analysts expected a loss of 30 cents per share, according to Thomson Reuters I/B/E/S. The year-ago quarter included impairment charges to write down the value of acreage throughout the United States. Production rose about 18 percent to 155,210 barrels of oil equivalent per day (boe/d), the company said. For the year, Whiting expects to pump 128,000 to 138,000 boe/d. -

US oil companies start curtailing shale fracking fully - ABC.AZ: Strategy of the Ministry of Oil of the Kingdom of Saudi Arabia (KSA) bears real fruits: American companies start declining fully from shale fracking. The foreign media report that yesterday Whiting Petroleum, North Dakota’s largest producer, announced that it would suspend all fracking and that Continental Resources has effectively done the same after reporting that it no longer has any fracking crews working in the Bakken shale. Whiting Petroleum pointed out that it would suspend all fracking and spend 80 percent less this year. It immediately led to Whiting stock jump up to 8%. Investors welcomed the decision to keep the capital, even if it means generation of much less income. “We believe this conservative strategy should help us to maintain our liquidity position and leave us well positioned to capitalize on a rebound in oil prices," Whiting Petroleum’s Chief Executive Officer Jim Volker said. Company’s budget will be cut to $160 million to be directed mainly for service of wells. Competitors from Hess Corp. and Continental Resources Inc also reduced their budgets for the year, although not so radically. Observers agree that the moment oil prices rebound even modestly, and according to many the new breakeven shale prices are as low at $40-$50/barrel, the Whitings and Continentals will immediately resume production, forcing Saudi Arabia to go back to square one, boosting supply even higher, and repeat the entire charade from scratch.

In Biggest Victory For Saudi Arabia, North Dakota's Largest Oil Producer Suspends All Fracking - Yesterday, during his speech at CERAWeek in Houston, Saudi oil minister Ali al-Naimi made it explicitly clear that Saudi Arabia would not cut production, instead saying that it is high-cost producers that would need to either "lower costs, borrow cash or liquidate” adding that there is "no need for cuts as marginal barrel will get out of the market." He was right. Today his wish is slowly coming true after news that North Dakota's largest producer, Whiting Petroleum, would suspend all fracking, and that Continental Resources has effectively done the same after reporting that it no longer has any fracking crews working in the Bakken shale. As Reuters reports, Whiting said it would "suspend all fracking and spend 80 percent less this year, the biggest cutback to date by a major U.S. shale company reacting to the plunge in crude prices." It was also confirmation that the Saudi plan to put high-cost producers on ice is working, if only temporarily. After sliding 5.6% to $3.72, Whiting stock jumped 8% to over $4 per share in after-hours trading as investors cheered the decision to preserve capital, even if it means generating far less revenue. Whiting's cut is one of the largest so far this year in an energy industry crippled by oil prices at 10-year lows. The cuts will have a big impact in North Dakota, where Whiting is the largest producer. The Denver-based company said it would stop fracking and completing wells as of April 1. Most of its $500 million budget will be spent to mothball drilling and fracking operations in the first half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance.

Halliburton to cut 5,000 more jobs -- Oilfield services company Halliburton will eliminate 5,000 more jobs – about 8 percent of its global workforce. Ongoing market conditions led to the decision, according to a company statement. As oil prices hover near $30 per barrel, producers struggle to remain .  “We regret having to make this decision but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment,” Halliburton currently employs about 65,000 workers. At its peak in 2014, Halliburton employed more than 80,000 people. Company shares rose 4 cents Thursday, closing at $32.50. Other major oil and gas companies have struggled to turn profits. Recently, Schlumberger said it will cut 10,000 jobs. Halliburton did not reveal what positions will be affected. Speculation is that U.S. workers will be hit the hardest as demand for hydraulic fracturing wanes. Last week, Baker Hughes reported the number of rigs exploring for oil and gas in the United States dropped to 514. That number could drop below 500 this week. The number of active drilling rigs last fell below 500 in 1999.

Halliburton Cuts 5,000 Jobs, 8% Of Workforce --It turns out oilfield services isn't a good place to be during epic crude downturns. Halliburton - which cut thousands upon thousands of jobs in 2015 - is back it, announcing an additional 5,000 layoffs on Thursdsay. The cuts amount to 8% of the company's remaining workforce. We say "remaining" because as CNN notes, "the latest pink slips bring Halliburton's job cut tally to between 26,000 to 27,000 since employee headcount peaked in 2014." The company will also look to sell assets (because everyone wants the kind of assets Halliburton owns with oil at $30) and is projecting $1.6 billion in capex this year.  "We regret having to make this decision but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment," Emily Mir, a spokeswoman, said Thursday in an e-mailed statement. "We thank all impacted employees for their many contributions to Halliburton." Revenue plunged 42% in Q4 the company said last month hit, of course, by the ongoing oil rout. "Let me sum it up,'' CEO Dave Lesar said on the call, "2016 is shaping up to be one tough slog through the mud." For 5,000 now jobless workers, this year will be a "tough slog through the mud" as well.  On the bright side, the stock is ripping:

Exxon Mobil fails to replace production for first time in 22 years - Exxon Mobil Corp. failed to replace all of the oil and natural gas it pumped last year with new discoveries and acquisitions for the first time in more than two decades. Exxon Mobil’s so-called reserve-replacement ratio fell to 67 percent in 2015, the Irving-based company said in a statement on Friday. Prior to that, the world’s largest oil explorer by market value had achieved ratios of 100 percent or higher for 21 consecutive years. Exxon Mobil held reserves equivalent to 24.8 billion barrels of crude as of Dec. 31, enough to continue current rates of production for 16 years, according to the statement. That is down from 17.4 years or reserves life at the end of 2014, according to data compiled by Bloomberg. The company added reserves last year in Abu Dhabi, Canada, Kazakhstan and Angola. In the U.S., gas reserves declined by the equivalent of 834 million barrels as tumbling prices for the furnace and power-plant fuel made some fields unprofitable to drill. The gas reserves removed from Exxon Mobil’s books probably will be drilled at some point in the future when prices are higher, according to the statement. The reserve-replacement ratio is a key measure for oil producers and the investors and analysts who follow them: it’s one indicator of a company’s long-term ability to maintain or expand crude and gas output. The calculation involves adding together all the new reserves acquired, discovered or achieved through technological innovations and dividing that by the amount of oil and gas pumped that year.

Exxon, Royal Dutch Shell and BP report lower reserves replacement - ExxonMobil announced in a press release Friday, Feb. 19 they added one billion oil-equivalent barrels of proved oil and gas reserves, replacing only 67 percent of production in 2015. This is the first time since 1994 in which Exxon has failed to replace 100 percent of oil reserves. 2015 reserves for Exxon were added in Abu Dhabi, Canada, Kazakhstan and Angola. Natural gas reserves were reduced and liquid reserves increased to 834 million barrels and 1.9 billion barrels respectively. It is expected these reserves will be “proved” in the future. ExxonMobil also made a significant offshore discovery in Guyana and additional discoveries in Iraq, Australia, Romania and Nigeria as well as unconventional resource additions in the Permian Basin, Canada, and Argentina. In the last ten years Exxon has replaced 115 percent of its reserves and has a current reserve life of 16 years at current production rates. The Wall Street Journal reported Royal Dutch Shell and BP also failed to replace 100 percent of their reserves this year. However Chevron and Total SA are reported to have found 107 percent replacement reserves for 2015. Part of the loss of reserves can be accounted for with the oil price crash. As wells no longer become profitable the company must recognize the loss on balance sheets.

EU told ExxonMobil that TTIP would aid global expansion, documents reveal -- The European Union’s trade commissioner told the multinational oil company ExxonMobil that a major free trade deal being negotiated with the US would help remove obstacles to fossil fuel development in Africa and South America, documents obtained by the Guardian reveal. At a meeting in Brussels in October 2013, Karel de Gucht told the firm that the Transatlantic Trade and Investment Partnership (TTIP) could address its concerns about regulations in developing countries that restrict the company’s activities. The news emerged as a Greenpeace barricade delayed the resumption of talks between EU and US delegations on the TTIP deal, which both sides hope can be completed before President Obama leaves office next January. According to minutes of the October meeting, the hour-long conversation focused on shale gas; “geopolitical aspects”; EU plans to label tar sands as high-polluting; and a possible reconversion of ExxonMobil’s liquefied natural gas (LNG) import terminal in the US to export crude to Europe. This would be “costly and may take two-three years,” the minutes said. Heavily redacted records show that two officials from Exxon’s US and EU regions were present in the room with de Gucht, the then-trade commissioner, Claes Bengtsson, his cabinet member, and two other unidentified individuals

Oil patch going through 'pure hell,' but doesn't look to DC for salvation - A battered oil industry is spending its week in Houston commiserating over rockbottom oil prices that have pushed companies over the brink and eliminated tens of thousands of jobs. As Pro's Elana Schor reports from the scene, while the industry struggles to weather the storm, it isn't looking for much from the federal government, a point of pride for some. "Look at the number of layoffs we’ve had in this industry. If that had happened in Detroit, think of the hue and cry in Washington," American Petroleum Institute CEO Jack Gerard told Elana. Besides, Washington already had its shot: All the oil industry wanted for Christmas was a lifting of the crude-oil export ban and it scored. Easing the restriction isn't helping much in the short term because of the global glut in crude, but the industry is confident prices will rise — eventually. ConocoPhillips CEO Ryan Lance said although "today it’s maybe not as big of an issue," but lifting the ban "is going to be important" when prices come back. All that's left for D.C. to do, in the industry's view, is to go easy on new regulation — EPA's proposed methane rule got a lot of attention at the conference — and to lean on OPEC to dial back production. Other than that, the industry just has to ride it out. "At some point we're going to come out of this," Enterprise Products Partners CEO Jim Teague said. "People call it a cycle. I call it pure hell."

Firesale In Energy Assets - Despite the obvious pain in the energy sector for the last 18 months, major asset sales have been few and far between in the sector. The problem has been a classic one in markets – sticky prices leading to a wide gap between supply and demand in assets. Oil companies looking to shed assets either to become more efficient or because of financial distress have been holding out for higher prices under the expectation that oil prices would bounce back soon, creating significant option value in underwater assets. Buyers like private equity firms have been considerably less sanguine though, and have essentially only been willing to pay fire sale prices for most assets. This gap in expectations has hindered asset sales from companies like Chesapeake, Quick Silver Resources, Swift Energy, Magnum Hunter, and others. Even in bankruptcy, many firms have found out that their assets are worth less than the debt on those properties. This has led to banks like JPMorgan and Citi holding the bag on assets that have values far less than what the banks had lent to the bankrupt firm. Related: Venezuela Raises Fuel Prices By More Than 6,000 Percent Those banks are motived sellers and will likely keep the market for energy assets depressed for at least a year. Of course for investors with a long-term time horizon like Blackstone or KKR, this could create a major opportunity. Yet private equity firms are being very disciplined with their capital and are only slowly starting to enter the market for such assets. 2016 could be the year that this reticence on the part of buyers starts to ebb though, as sellers may be forced by bankruptcy conditions to relent and accept whatever price they can achieve. Wood Mackenzie recently put out a report suggesting that M&A activity in the oil patch will ramp significantly this year regardless of what happens to oil prices.

Canada At Risk Of Becoming The Venezuela Of The North -- February 22, 2016 - I always said the western Canadian oil sands would be "the canary in the coal mine." Bloomberg is reporting: The growth engine of Canada’s energy industry is poised to shut off next decade, according to the International Energy Agency.  Production gains from the oil sands in northern Alberta will slow dramatically or come to a halt as crude prices remain low and costs too high for one of the world’s most expensive sources of oil, the agency forecast Monday in a report on the global medium-term crude market. Environmental concerns, a lack of new oil pipelines and uncertainty about policy in Alberta are also causing companies to slow development work.  “We are likely to see continued capacity increases in the near term, with growth slowing considerably, if not coming to a complete stand still, after the projects under construction are completed,” the agency said.  Oil sands producers were pulling out of projects in the face of competition from U.S. shale even before the current global market rout took hold more than 20 months ago. Suncor Energy Inc. and Total SA scrapped the Voyageur upgrader in 2013.  With U.S. crude trading about 70 percent below its mid-2014 high, companies continue to shelve oil-sands work. Royal Dutch Shell Plc made the rare move of canceling a drilling development under construction last October, Carmon Creek. Canada runs the risk of becoming the Venezuela of the north.

Canadian Oil Companies Have Stopped Paying The Rent -- Where possible, we try not to beat dead horses but when it comes to the death of the so called “Alberta dream,” it’s rather difficult to ignore the pace at which conditions continue to deteriorate in Canada’s beleaguered oil patch.   We’ve covered Alberta’s demise extensively over the past twelve months, documenting everything from soaring food bank usage to the alarming spike in property crime in Calgary where vacant office space sits collecting dust and condos go unsold even as housing prices soar in British Columbia and Ontario.  Last year, Alberta logged the most job losses the province has seen in 34 years, as the unemployment rate spiked to 7.1% from just 4.8% at the end of 2014. 2015 turned out to be worse for provincial job losses than 2009. Now, in the latest sign that the seemingly inexorable decline in crude will continue to weigh on Alberta's flagging economy, we learn that O&G companies have simply stopped paying rent for surface access to private property.  "For the past five years, regular as clockwork, an oil and gas company’s cheque for $4,097 has arrived in Allison Shelstad’s mailbox sometime in January, rent paid for surface access to a natural gas well on the farmland southeast of Calgary her family has owned for more than 50 years," The Calgary Herald reports.

That Didn't Work as Planned: Mexico's Oil Monopoly Ends, Then Oil Tanks - The timing couldn’t have been worse. The end of the 76-year Petroleos Mexicanos monopoly was supposed to unleash an investment flood with companies rushing to develop massive oil reserves. It was going to be historic, and then came the rout. “It’s tragic that Mexico waited so long to open the sector and that when an administration finally passed a meaningful energy reform, the bottom just falls out of oil prices,”  “The parade did not last very long.”  Now opponents of President Enrique Pena Nieto, who was accused in some quarters of treason when he denationalized the industry in 2014, are saying they’re being proven right. Some want to bring the monopoly back. “A reform needs to be done to the energy reform,” said Jesus Zambrano, president of the Chamber of Deputies, the lower house of the national legislature, last week. The sweeping energy-sector overhaul was designed to attract major outside investment for the first time since Mexico booted foreign oil and gas companies in 1938. But not as many new players as expected have come in. There’s concern low oil prices may hurt the appetite for deep-water leases to be auctioned later this year.

Russia Losing Dominance In The European Energy Market -- February 26, 2016 - Two interesting data points show up today. The first from the EIA: In Europe, the combination of low winter heating demand, high refinery runs, and increased imports have kept distillate fuel oil inventories in the Amsterdam, Rotterdam, and Antwerp (ARA) area far above normal. Higher inventories have lowered distillate futures prices in the ARA area to a point where inventories are being held in floating storage and imported cargos are being diverted to longer voyages. --- EIAThe second, from The Wall Street Journal, front page, big story: Europe's energy escape valve -- US Gas -- Gulf Coast exports of liquefied natural gas, or LNG, are expected to loosen Russia's dominance in the European energy market.— After a yearslong effort, a tanker chartered by Cheniere Energy, an American company, left a Louisiana port this week with the first major exports of U.S. liquefied natural gas, or LNG. This shipment isn’t going to Europe, but others are expected to arrive by spring. “Like shale gas was a game changer in the U.S., American gas exports could be a game changer for Europe,” said Maros Sefcovic, the European Union’s energy chief.  Many in Europe see U.S. entry into the market as part of a broader effort to challenge Russian domination of energy supplies and prices in this part of the world. Moscow has for years used its giant energy reserves as a strategic tool to influence former satellite countries, including Lithuania, one of the countries on the fringes of Russia that now see a chance to break away.  Some are building the capacity to handle seaborne LNG, including Poland, which opened its first import terminal last year. In Bulgaria, which buys about 90% of its gas from Russia, Prime Minister Boyko Borissov said last month that supplies of U.S. gas could arrive via Greek LNG facilities, “God willing.”

Repsol S.A. sinks deep into the red in Q4 after oil price hit — Spanish energy company Repsol says it posted a net loss of 2.06 billion euros ($2.26 billion) in the fourth quarter of 2015 due primarily to a write-down of assets related to the slump in oil prices. That’s a big change from the same period the year before when Repsol’s loss stood at only 34 million euros. However, Repsol pointed out Thursday that without the cost of the write-down, net income would have been 24 percent higher at 461 million euros. Over the full-year, Repsol said it made a net loss of 1. 23 billion euros after taking 2.96 billion euros in one-off charges. Without those charges, net profit for the year rose 9 percent at 1.86 billion euros. Repsol shares rose 0.8 percent at 8.6 euros in early Madrid trading.

U.K. North Sea Oil Spending to Drop 40% This Year From 2014 -  Oil and natural gas producers in the U.K. North Sea will spend 40 percent less this year than in 2014 as low crude prices force them to tighten budgets, the industry’s lobby group said Tuesday. The drop in spending could threaten future production, potentially halving it by 2025 from current levels if “fresh investment opportunities” fail to materialize. That would put a brake on the recent increase in production from the U.K. North Sea. Liquids and gas output rose 9.7 percent to 1.64 million barrels of oil equivalent a day last year, the first increase from the region since 2000. That was due partly to efficiency gains from existing assets as well as new projects coming on stream, the lobbying group said. Output is set to reach 1.74 million barrels of oil equivalent by 2018, provided investments keep pace. Oil & Gas U.K. forecast a drop in capital expenditure to 9 billion pounds ($12.7 billion) this year from 11.6 billion pounds last year and 14.8 billion pounds in 2014, a decline that would affect the whole supply chain. Operators will approve less than 1 billion pounds of new projects, down from an average of 8 billion pounds a year in the past five years.

UK oil industry sounds alarm on North Sea amid market drop  (AP) — The number of new investment projects in the North Sea has collapsed amid a fall in oil prices, underscoring fears for the future of the basin and the jobs it creates. Oil & Gas UK, an industry association, said in its annual survey Tuesday that some 1 billion pounds ($1.4 billion) was expected for new projects, compared to the typical 8 billion pounds annually. It argued that the long-term future of the industry is at risk and that the government should reduce taxes “to minimize the loss of capacity in the downturn.” “We are truly trying to fight for our survival,” . Once one of the world’s great oil regions, the North Sea’s resources are being depleted. Production has dropped from a peak in 1999 — when the U.K. pumped 4.6 million barrels of oil equivalents a day — to 1.6 million barrels of oil equivalents a day last year. Oil & Gas UK’s chief executive, Deirdre Michie, said the U.K. Continental Shelf is entering a phase of “super maturity.” That decline is being hastened by a collapse in oil prices, which have been falling for over a year. Brent crude, the benchmark for international oil, hit a 12-year low of $27.10 a barrel in January, having been above $100 a barrel in September 2014. It traded at $34.46 on Monday. The number of oil rigs being de-commissioned — that is, taken out of service and dismantled — is accelerating. The group said the number of fields expected to cease production has risen by a fifth to over 100 between 2015 and 2020. The trade body said that if oil remains at around $30 a barrel for the rest of 2016, nearly half of the U.K.’s offshore fields will likely be operating at a loss, “deterring further exploration and capital investment, and making additional cost improvement imperative.”

Farmers lead protests against ‘dirty’ fracking - Lancashire Evening Post: Residents opposed to fracking in Lancashire packed a public inquiry for a second time to urge a planning inspector to throw out plans to search for shale gas. Scores of objectors flocked to Blackpool Football Club for a public inquiry into Cuadrilla’s plans to frack at sites in Roseacre Wood, near Elswick, and Preston New Road, Little Plumpton. It was the second evening public session arranged by the planning inspectorate to accommodate the large number of members of the public wanting to urge planning inspector Wendy McKay to reject Cuadrilla’s plans. Cuadrilla is appealing against Lancashire County Council’s decision to refuse the firm permission to frack at the two Lancashire sites. Cuadrilla and supporters say the shale gas industry will give Lancashire an economic boom, creating jobs and wealth for the county. But Fylde farmers were among those who voiced great concerns about possible pollution caused by fracking Dairy farmer Robert Sanderson, of Kirkham, said farmers were anxious to protect their livelihood, their families and their land. He was concerned about pollution problems which could result in infertility in cattle, land and health effects on humans. He said: “Surely there are enough green energy solutions out there without us having to go down this dirty road?”

Police 'used sexualised violence against fracking protesters'  -  Police at the Barton Moss anti-fracking camp near Manchester used “sexualised violence” to target female protesters, it is alleged. Protesters told academics from York and Liverpool John Moores universities that officers groped and pressed their groins up against women as they cleared demonstrations against test drilling at the site. They are now calling for a public inquiry to investigate the relationship between police and the fracking firm IGas, the proportionality of police tactics and the use of bail to restrict the right to protest. From November 2013 to April 2014, the camp at Barton Moss campaigned to raise awareness of the environmental dangers of fracking in the area. Protests included “slow walking” in front of vehicles accessing the site, non-violent direct action, and rallies, music events and family days. The report quotes one protester as saying: “A lot of the time it is women on the front line, but not only that we’ve noticed officers specifically targeting women for violence, they’ve inappropriately touched them, groped them. I’ve been inappropriately touched.  “Every single woman on the front line has had some kind of inappropriate physical contact with an officer… sometimes their hand will just go up way too high. Somebody had their breast groped.”

Opec has failed to stop US shale revolution admits energy watchdog - The current crash in oil prices is sowing the seeds of a powerful rebound and a potential supply crunch by the end of the decade, but the prize may go to the US shale industry rather Opec, the world's energy watchdog has predicted. America's shale oil producers and Canada's oil sands will come roaring back from late 2017 onwards once the current brutal purge is over, a cycle it described as the "rise, fall and rise again" of the fracking industry. "Anybody who believes the US revolution has stalled should think again. We have been very surprised at how resilient it is," said Neil Atkinson, head of oil markets at the International Energy Agency. The IEA forecasts in its "medium-term" outlook for the next five years that US production will fall by 600,000 barrels per day (b/d) this year and 200,000 next year as the so-called "fracklog" of drilled wells is finally cleared and the global market works off a surplus of 1m b/d. But shale will come back to life within six months - far more quickly than conventional mega-projects and offshore wells - once crude rebounds to $60. Shale output is expected to reach new highs of 5m b/d by 2021. This will boost total US production of oil and liquids by 1.3m b/d to the once unthinkable level 14.4m b/d, widening the US lead over Saudi Arabia and Russia. Fatih Birol, the IEA's executive director, said this alone will not be enough to avert the risk of a strategic oil crisis later in the decade, given the exhaustion of existing wells and the dangerously low levels of spare capacity in the world. "Even if there were zero growth in demand, we would have to produce 3m b/d just to stand still," he said, speaking at the IHS CERAWeek summit of energy leaders in Texas.

Saudi Arabia Tells American Frackers: You Will Be Crushed - Forbes: For almost two years, it was just a rumor. But now that rumor seems to have been confirmed — Saudi Arabia is in an all out price war to put an end to the American Fracking revolution. For a good reason: the fracking revolution has turned America into the world’s largest oil producer, undermining Saudi Arabia controlled OPEC’s power to set oil prices. In fact Ali al-Naimi, Saudi Arabia’s petroleum minister has told American frackers publicly that they will be crushed. By the market that is. Because they don’t have the cost structure to survive the on-going price war, which may end up taking oil close to $20. That’s Saudi Arabia’s cost of producing a barrel of oil. To be fair, Saudi Arabia has no choice but to fight this war to the bitter end, for two reasons. First, for all sorts of political and economic reasons it is nearly impossible to bring major oil producers to the same table and have them agree and enforce any meaningful production cuts. Second, any production cuts that succeed in pushing oil prices aren’t sustainable, as long as American frackers are still around and can make up for such production cuts. Compounding the problem of precipitous decline in oil prices, American frackers have another problem to reckon with: the prospect of rising US interest rates, which is expected to hurt them in three ways.

Oil supply glut to last into 2017, warns IEA - FT.com- The global supply glut that has battered the budgets of big oil-producing nations and forced energy companies to slash billions dollars of investment will continue into 2017 as ballooning stocks prevent a recovery in prices, the world’s leading energy forecaster has warned. Without a larger than expected drop in output from non-Opec producers this year or a jump in demand growth “it is hard to see oil prices recovering significantly in the short term”, the International Energy Agency said in its medium-term outlook released on Monday. “The enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the IEA said. It added the prevailing wisdom of just a few years ago that “peak oil supply” would cause oil prices to rise relentlessly was wrong. “Today we are seeing not just an abundance of resources in the ground but also tremendous technical innovation that enables companies to bring oil to the market,” the report said. The Paris-based agency expects US output to hit a new record 14.2m b/d by 2021 as operational efficiencies and cost cutting allow production to resume its upward trajectory. This would make the US the largest contributor to supply growth over the next five years. “Anybody who believes that we have seen the last of rising LTO [light tight oil] production in the United States should think again,” said the IEA. Overall, the IEA sees global oil production rising by a total of 4.1m barrels a day between 2015 and 2021 — a sharp slowdown on the 11m b/d recorded between 2009 and 2015, as low oil prices curtail exploration and production capital expenditure.

High supplies seen capping oil prices until early 2017— A glut of oil will keep prices from rebounding until next year, much later than previously forecast, experts at the International Energy Agency said Monday. A year ago, the IEA, a Paris-based organization of 29 major oil importing nations, had forecast a “relatively swift” recovery. Instead, oil prices have continued to fall, reaching a level below $30 a barrel last seen in 2003, the IEA says in its latest report Monday. IEA chief Fatih Birol blamed “extraordinary volatility” in oil markets that has made forecasting “more difficult than ever” for its changed outlook. “Our analysis of the oil market fundamentals at the start of 2016 is clear that in the short term there is unlikely to be a significant increase in prices,” Birol said in the report. In its report, the agency says oil supplies have surged due to a three-year rise in stocks, a phenomenon last seen in the mid-1990s. Oil prices have collapsed 70 percent since mid-2014. That’s sent gasoline prices plummeting, with the U.S. Energy Information Agency forcecasting an average price of $1.98 a gallon nationwide this year. The last time oil averaged less than $2 for a full year was 2004. The price plunge has led producers to slash spending on exploration and production. Capital expenditure fell 24 percent last year and is expected to drop another 17 percent this year, the IEA said — the first two-year decline since 1986. On Monday, the price of U.S. oil was up $1.02 at $30.66 a barrel.

The Global Oil Glut Is So Great, Tankers Take The Long Route Around Africa To Find A Buyer -- While we have previously observed the massive glut of oil product in the US, which has led to such arcane developments as a "parking lot" of oil tankers outside of Galveston, TX... ... we can now say that things in Europe are just as bad, if not worse. According to the latest "This week in petroleum" blog post by the EIA, European distillate oversupply has results in floating storage and shipping changes, such as tankers taking the long route around Africa (40 days vs 20 days), because they are unable to find a buyer and hoping that demand will spike while ships are at sea. From the EIA: Europe, like the U.S. East Coast, is experiencing a relatively warm winter. In addition to the resulting weak winter heating demand, high refinery runs in Europe and increased imports have kept distillate inventories in the Amsterdam, Rotterdam, and Antwerp (ARA) area far above normal.  As a result, inventories are being held in floating storage and imported cargos are being diverted to longer voyages. Increased European refinery runs [have] contributing to high distillate inventories in the ARA region. As demand for gasoline in the United States and in West Africa increased last summer and fall, higher gasoline crack spreads led to increased European refinery runs. The increased refinery runs yielded distillate, along with the more profitable gasoline. At the same time, new and traditional sources of distillate have expanded capacity to supply ultra-low sulfur distillate (ULSD) to Europe. In Russia, which is a longtime supplier of distillate to Europe, refineries have been upgraded to produce lower-sulfur distillate fuels that are widely used in Western Europe, and have increased exports to Europe. Elsewhere, several new refineries, including those in Saudi Arabia and India, which are geared toward maximizing ULSD output, have come online in the past few years, further adding to the supply of distillate. These factors — reduced heating demand, increased European refining runs, and increased imports — have pushed independently held distillate inventory levels in the ARA to more than 26 million barrels in recent months, more than 7 million barrels higher than the five-year average (Figure 2).

IEA warns consumers of spike in oil prices - The International Energy Agency (IEA) is warning consumers not to let cheap oil lull them into a false sense of security amid forecasts of a price spike by 2021. In a report, the IEA said it expects prices to start recovering in 2017. But it forecasts that will be followed by a sharp jump in price as supply shrinks following under-investment by struggling producers. Brent crude touched a 13-year low of $28.88 a barrel in January. It has since recovered. On Monday the price was up around 4.9% at $34.62, but still far below a high of $115 in June 2014. Fatih Birol, executive director of the IEA, said: "It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future." The policy advisor expects global oil supply will grow by 4.1 million barrels of oil per day between 2015 and 2021, down from an increase of 11 million barrels of oil per day between 2009 and 2015. It also expects investment in oil exploration and production to fall by 17% in 2016 following a 24% decline last year. The IEA said: "Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks."

Oil rebounds after prediction of declining U.S. shale output --  Oil prices rose 7 percent on Monday after the world's oil consumer body said it expected U.S. shale production to fall this year and next, potentially reducing the glut in supplies that has cut prices by 70 percent in 18 months. A bounce in global stock markets and the after-effect of a fall in the U.S. oil rig count last week also supported prices. International benchmark Brent crude futures were up $1.68, or 5.1 percent, at $34.69 a barrel at 1501 GMT, while U.S. crude futures surged through the $30 a barrel mark, trading up $2.05, or 6.9 percent, at $31.69 a barrel. The International Energy Agency (IEA) said in its medium-term outlook on Monday that U.S. shale oil production was expected to fall by 600,000 barrels per day (bpd) this year and another 200,000 bpd in 2017. This fed into data released late last week that showed U.S. drilling rig numbers had fallen to the lowest level since December 2009.

Why Oil Producers Will Be Over a Barrel for a Long Time Yet -- Oil prices may have rallied on a new International Energy Agency forecast for demand to erode the excess supply next year and hopes exporters will soon agree to tighten the spigots, but producers shouldn’t get too excited. Underlying markets factors are likely to ensure the surge is short-lived, just a blip in an era of weak prices. First, the outlook for the global economy has dimmed since the International Monetary Fund last cut its forecast, keeping a tight lid on demand. And second, while producers might slim output, the capacity to pump oil will fall only gradually. As previous supply gluts have shown, a broad gap between demand and capacity puts a ceiling on a strong rebound in prices, often for a long time. Although the IEA spurred hopes the balance between supply and demand will be better balanced next year, it warned in the same breath it could take years for the current glut to fade even if U.S. shale production slumps and major exporters agree to trim output. Leonardo Maugeri says even if producers reach a deal to cut output, they’ll be hard-pressed to abide by it. As warmer weather fuels a seasonal rise in consumption, prices are likely to tick up. Along with signals of lower production by the U.S. and others, that might persuade some the worst is over. “This sort of complacency may act as a brake for more decision actions by oil producers, who may convince themselves that the market is finally working and there is no need to search for a difficult agreement for cutting production,”

The Demand Side to Oil's Decline - David Beckworth  - Why have oil prices declined so sharply since mid-2014? For many observers the answer is obvious: there has been a surge in global oil production and it has pushed down oil prices. It is hard to argue oil supply has not been important, but the slowdown in emerging economies and in the United States also suggests that global demand is playing an important role too. If so, this understanding raises several questions: First, how much of the decline in oil prices since mid-2014 can be attributed to weakened global demand? Second, why did global demand begin falling in mid-2014?  On the first question, Stephen King of HSBC believes that weakened global demand is a key reason for the recent decline in oil prices. Here is what he said to CNBC: "You have a situation where emerging markets in general are extremely weak, that in turn is causing commodity prices to decline rapidly, including oil prices, so rather than saying lower oil prices are a stimulus for the commodity consuming parts of the world, I think you should see lower oil prices as a symptom of weakness in global demand,"  Jens Pedersen, an economist with Danske Bank, shares this view and provides following figure as evidence: This figure is certainly suggestive of a link between global demand and oil prices, but exactly how much does this link explain?  Ben Bernanke had a recent post that attempted to answer this question. In it, he presented evidence from an estimated model for the demand of oil. The model builds upon the work of James Hamilton who estimated a regression where the demand for oil is determined by changes in copper prices, the 10-year treasury yield, and the dollar. Here is Bernanke's explanation for why this model approximates the demand for oil: The premise is that commodity prices, long-term interest rates, and the dollar are likely to respond to investors’ perceptions of global and US demand, and not so much to changes in oil supply. For example, when a change in the price of oil is accompanied by a similar change in the price of copper, this method concludes that both are responding primarily to a common global demand factor. While this decomposition is not perfect, it seems reasonable to a first approximation.

WTI Surges Above $33 Despite IEA 'Glutter'-For-Longer Warnings -- WTI crude prices are up almost 6% this morning with April (the new front-month) trading above $33.50 - testing post-DOE plunge stops. The irony of the ramp is that it comes amid terrible global PMIs (demand), a report from IEA of oil staying in glut for longer than expected (supply), and warnings from Abu Dhabi's biggest bank that $20 oil is possible. Oh well, we are sure the algos know what they are doing... despite veterans of the 1980s oil glut warning it could take 7 to 10 years to emerge from the current slump. On the supply side, as Bloomberg reports, the global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency. While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021. The Organization of Petroleum Exporting Countries will expand its market share slightly this decade, with Iran, newly released from international sanctions, displacing Iraq as the organization’s biggest contributor to supply growth. “Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the Paris-based adviser to 29 countries said in its medium-term report Monday. “It is hard to see oil prices recovering significantly in the short term from the low levels prevailing.” The IEA’s new outlook is the latest sign that oil forecasters are bracing for a “lower-for-longer” price environment. The agency acknowledged that the industry’s expectations -- and its own predictions -- that oil markets would recover in 2015 proved “very wide of the mark.” The report also signals that while OPEC will succeed in its policy of defending market share, the group will have to endure an extended period of reduced revenues.

IEA: Slashed spending by drillers could lead to price spike - (AP) — Oil prices will more than double by 2020 as current low prices lead drillers to cut investment in new production and gradually reduce the glut of crude, the head of a group of oil-importing countries said Monday. Fatih Birol, executive director of the International Energy Agency, said oil would rise gradually to about $80 a barrel. Oil prices shot to more than $100 a barrel in mid-2014 before a long slide sent them crashing below $30 last month. “There was a rise, there will be a fall, and soon there will be a rise again,” Birol said on the opening day of a huge energy-industry conference that will feature addresses by the oil minister of Saudi Arabia, the secretary-general of OPEC, the president of Mexico, and U.S. Energy Secretary Ernest Moniz. Birol’s group issued a fresh outlook on energy markets. It forecast that 4.1 million barrels a day will be added to the global oil supply between 2015 and 2021, down sharply from growth of 11 million barrels a day between 2009 and 2015. A year ago, the Paris-based IEA, an organization of 29 major oil-importing nations including the United States, had forecast a relatively swift recovery in oil prices, but the decline continued, with the price for a barrel of crude hitting levels last seen in 2003. Experts underestimated the ability of shale-oil producers in the United States to withstand falling prices — for a time — which, combined with OPEC refusing to cut production, led to a glut. The same experts now think that U.S. production, along with new supplies from Iran, which has been freed from international sanctions, will blunt what otherwise might be a sharper run-up in prices.

Rudderless OPEC Doesn’t Know How To Respond To U.S. Shale: Oil executives, energy market analysts, and government officials have descended on Houston this week for the IHS CERAWeek conference, a top industry conference often likened to oil’s version of the Davos World Economic Forum.. At the forum, the International Energy Agency published its closely-watched Medium Term Oil Market Report, which offers an outlook on oil markets through the end of the decade. The IEA sees oil prices remaining low through 2016, with supply and demand only starting to converge in 2017. On the other hand, the agency also said that U.S. shale will finally start posting more substantial declines this year, dropping by 600,000 barrels per day. As a result, the market will slowly adjust, although incredibly high levels of oil placed in storage will slow the balancing. Oil prices rallied more than 6 percent on Monday following the IEA’s comments, with hopes pinned on declines in shale production.. OPEC’s Secretary-General spoke at the conference, where much of the oil world closely listened to his comments regarding OPEC’s recent production freeze deal announced with Russia. Secretary General Abdalla Salem El-Badri said that the freeze was the “first step,” which could be followed by “other steps in the future.” He also said that everyone will wait and see how the results of the freeze over the course of the next few months. OPEC recognizes role of shale. El-Badri largely admitted OPEC’s waning influence due to the rise of U.S. shale. "Shale oil in the United States, I don’t know how we are going to live together," he said in Houston on Feb. 22. “Any increase in price, shale will come immediately and cover any reduction.” The IEA’s report mostly backed up that sentiment. Although the Paris-based energy agency predicted shale would decline substantially in 2016 and 2017, the IEA also said that shale would bring back 1.3 mb/d of liquids production by the end of the decade. But El-Badri also said that the large cuts to upstream investment today will lead to “a very high price” in the future. “The concern is no investment now, no supply in the future. It’s as simple as that,” El-Badri said. “If there’s no supply coming to the market, prices will go up.”

Saudi Arabia's oil minister is going face-to-face with the people he's putting out of business (Reuters) - This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: US shale oil producers struggling to survive the worst price crash in years. While soaring US shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70% price collapse in the past 20 months primarily on Naimi, seen as the oil market's most influential policymaker. During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing US wildcatters and executives who are stuck in a zero-sum game. "OPEC, instead of cutting production, they increased production, and that's the predicament we're in right now," Bill Thomas, chief executive of EOG Resources, one of the largest US shale oil producers, told an industry conference last week, referring to 2015. It will be Naimi's first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries' shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall. Naimi has said this was not an attempt to target any specific countries or companies, merely an effort to protect the kingdom's market share against fast-growing, higher-cost producers. It just so happens that US. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel. "I'd just like to hear it from him," said Alex Mills, president of the Texas Alliance of Energy Producers. "I think it should be something of concern to our leaders in Texas and in Washington," if in fact his aim is to push aside US. shale producers, Mills said. Last week's surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels - near record highs - did not offer much solace and the global benchmark Brent crude ended the week lower at $33 a barrel and US crude futures ended unchanged at just below $30.

Saudi oil minister says market should handle low prices (AP) — Saudi Arabia’s oil minister says production cuts to boost oil prices won’t work, and that instead the market should be allowed to work even if that forces some operators out of business. Ali Al-Naimi said Tuesday that cutting production would mean low-cost producers like Saudi Arabia would be subsidizing higher-cost ones — an apparent reference to U.S. shale oil drillers. Al-Naimi says the global oil glut will end, though he won’t predict when. While rejecting production cuts as unrealistic, Al-Naimi endorses a freeze on production at current levels if major producing countries go along. The freeze idea, floated last week by Saudi Arabia, Russia, Venezuela and Qatar, faces uncertain prospects. Iran, just coming off international sanctions, wants to boost its production. Naimi is speaking at a gathering of energy leaders in Houston.

Oil Erases Yesterday's Gains As Al-Naimi Warns Producers "Cut Costs Or Liquidate" - Live Feed - It appears oil traders are disappointed with Al-Naimi's comments. Suggesting hopefully (for some) that the 'freeze' is the start of a process, al-Naimi then dropped the tape-bomb:

  • *SAUDI ARABIA WON'T CUT OIL PRODUCTION: NAIMI
  • *HIGH-COST PRODUCERS MUST LOWER COSTS OR LIQUIDATE: NAIMI

He then added that "not all the countries will freeze; The ones that count will freeze."WTI Crude (April) front-month futures have erasd yesterday's gains.

Yergin Ahead Of The Conference -- FuelFix is reporting: Prominent energy expert Daniel Yergin believes the energy industry’s day of reckoning is here, amid the sudden and unrelenting rush of crude that has drowned oil markets for a year and a half.  This has happened before. In the 1930s, Texas suddenly overflowed with oil. Twenty years after that, it happened in Russia and the Middle Eastern countries. Then, in the 1980s, a tidal wave of oil from the United Kingdom’s North Sea, Alaska’s North Slope and Mexico presaged a ruinous oil bust. Now, the rapid-drilling shale oil producers in Texas and North Dakota that brought on the bulk of the world’s supply growth in recent years are dealing with the self-inflicted wounds of overproduction and high levels of debt. A new reality which requires a "re-adjustment: Such a cut is still unlikely, Yergin said, because of how shale oil has changed the industry. Unlike virtually every other way to extract crude from the earth, shale drilling doesn’t take longer than a few months. It has an average cycle time of 80 days, according to Goldman Sachs, meaning local oil companies can put oil on the market almost as fast as Saudi Arabian oil can arrive in the United States by ship.  That means if OPEC cut production, it couldn’t support prices for long. Higher-cost shale drillers would have an incentive to restart their rigs in West Texas and soak up any market share left behind. In November 2014, OPEC decided not to curb its production. “OPEC said if there’s going to be some effort to stabilize the market, it’s not just going to be us,” Yergin said. “It was an adjustment to a new reality.” Yergin doesn't have much to add to what has already been written here, there, and everywhere.

Double-Talk In Houston -- February 23, 2016: A Freeze, But No Cut In Production -- Oil & Gas Journal reports on the speech and comments given by Saudi's energy minister. No cut, just a freeze. Maybe: When asked about the recently announced deal reached by Saudi Arabia with three other producing countries to freeze production at January rates, Al-Naimi said it is the beginning of the process to rebalance supply and demand. “Cutting production is not going to happen,” he said. There will be another meeting next month, he said, to get more producing countries to agree to the freeze. On markets: What is different about this most recent and long-running downturn, Al-Naimi said, is that oil prices had reached a high-enough level that “every barrel on earth was being produced regardless of economics.” The solution, he said, is to get back to the marginal cost of development.  No, every barrel on earth was being produced because Saudi let the price of oil spike to $140 making it economically feasible to go after "expensive oil" and in the process learn how to make the process economical even at $30.   And exactly what is the marginal cost of development in Saudi Arabia? About $6.

Saudi oil minister Naimi: Oil production cuts won't happen: Saudi oil minister Ali Ibrahim Naimi said Tuesday producers will hopefully meet in March to negotiate an output freeze, but production cuts will not happen. Last week, Saudi Arabia, Russia, Qatar and Venezuela proposed a freeze that would cap production at January levels. Russian Energy Minister Alexander Novak said Saturday the deal, which is contingent on other producers participating, should be finalized by March 1, Reuters reported. "Freeze is the beginning of a process, and that means if we can get all the major producers to agree not to add additional balance, then this high inventory we have now will probably decline in due time. It's going to take time," Naimi said. "It is not like cutting production. That is not going to happen because not many countries are going to deliver even if they say they will cut production — they will not deliver. So there is no sense in wasting our time seeking production cuts," he added. There is now less trust than normal among the world's oil exporters, he said. Naimi made his comments following a keynote speech at the IHS CERAWeek conference in Houston, his first U.S. appearance since Saudi Arabia led OPEC's current high production policy more than a year ago. Asked by CNBC whether he believed speculation about an output cut would continue to affect the price of oil, he declined to comment.

Oil price plunges after Saudi oil minister Ali Al-Naimi rules out production cuts | Financial Post: Saudi oil minister Ali Al-Naimi issued a stark warning Tuesday to global oil executives gathered in Houston, many of them North American producers: Lower your costs or “get out.”“The producers of those high-cost barrels must find a way to lower their costs, borrow cash or liquidate,” the minister told a business audience in Houston during a speech at the IHS Ceraweek event on Tuesday. “It sounds harsh, and unfortunately it is, but it is the most efficient way to rebalance markets. Cutting low-cost production to subsidize higher cost supplies only delays an inevitable reckoning.” The minister emphasized that OPEC has not “declared war on shale,” nor is it chasing greater market share and is seeking to cooperate with other producers. But OPEC will not yield and implement production cuts as Saudi Arabia does not believe other countries will comply, the minister said. Instead Saudi Arabia, along with Russia, Iraq and Qatar are looking to freeze their production to January levels, provided other countries including Iran agreed.

Saudis Admit That Their Assault Was Aimed Directly At US Shale Industry -- Bloomberg -- I think we learned everything we needed to know about the currently global oil situation the first two days of the Houston conference. I posted the comments of the energy minister from Saudi Arabia at this post. I suggested that his comments were a lot of double-talk. A reader said it much better: the 81-year-old energy minister spoke with a forked tongue. He's been doing this so long, his tongue is shredded. He's being doing this so long, he could be the energy czar for President Obama. I say all that because Bloomberg wrote their story about the same time. Bloomberg agrees: the Saudi Surge was a direct attack on the US shale revolution as suspected all along.  After first ignoring it, later worrying about it and ultimately launching a price war against it, OPEC has now concluded it doesn't know how to coexist with the U.S. shale oil industry.  OPEC launched a price war against U.S. shale and other high-cost producers, including Canadian oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite a global oversupply.  Since then, oil prices have plunged by more than half, hitting a 12-year low of about $26 on February 11, 2016. In a rare admission that the policy hasn't worked out as planned, El-Badri said that OPEC didn't expect oil prices to drop this much when it decided to keep pumping near flat-out.  US shale oil will not disappear: The International Energy Agency earlier on Monday gave OPEC reason to worry about shale oil, saying that total U.S. crude output, most of it from shale basins, will increase by 1.3 million barrels a day from 2015 to 2021 despite low prices.  While U.S. production from shale is projected to retreat by 600,000 barrels a day this year and a further 200,000 in 2017, it will grow again from 2018 onward, the IEA said.

How Saudis can cut oil production-—commentary: Saudi Arabia is coming under increasing pressure to implement oil production cuts. Last week Russia and Saudi Arabia announced a provisional plan to freeze oil production levels if other major producers went along. But by late in the week, with Iran balking as expected, both the Russians and Saudis were walking the deal back, with the Saudis categorically rejecting production cuts and the Russians averring that a 'freeze' actually allowed Russia to increase output.To all appearances, the Saudis had not thought the matter through and were now sawing the branch off behind the Russians, who were in turn fleeing the scene. The freeze proposal had disintegrated into total chaos, with the Saudis clearly having blundered. To repair fences—or at least provide clarification—Saudi Oil Minister Ali al-Naimi is scheduled to address attendees of IHS CERAWeek in Houston on Tuesday. The minister, who is considered the most influential policymaker in the industry, will face U.S. shale industry producers who have been devastated by the oil price plunge. A production cut is considered a difficult, and perhaps insurmountable, challenge. In reality, the math is pretty simple, and Minister al-Naimi has only three questions to answer. We calculate shale industry breakeven around $65 per barrel and do not believe we would see a material re-start to the industry under $50 per barrel on a WTI basis. WTI has recently been trading around $30 per barrel. Thus, OPEC could increase oil prices by $20 per barrel—60 percent—without risking a material revival of U.S. shale production. Further, any OPEC and Russia production cut would automatically qualify as spare capacity to be called whenever prices rise again. Shale producers would have to take into consideration that OPEC and Russia would seek to preempt a rise in oil price above $50 per barrel by increasing their own production first. Thus, production cuts would not only increase prices now, they would also have a deterrent value later.

Oil Drops After Iran Slams OPEC Production 'Freeze' Proposal As "Ridiculous" - Despite OPEC's El-Badri proclaiming that Iran and iraq "didn't refuse to join the production freeze," oil prices are tumbling this morning on comments from Iran's oil minister that OPEC's call for a production freeze is "ridiculous." Proposal by Saudi Arabia, Russia, Venezuela, Qatar for oil producers to freeze output puts “unrealistic demands” on Iran, Oil Minister Bijan Namdar Zanganeh says, according to ministry’s news agency Shana.

Oil Crashes After API Reports Massive Crude Build - After last week's roller-coaster ride (API "draw" vs DOE "build"), tonight's API data (following Al-Naimi's reality check this morning) was much heralded. After DOE reported builds across the entire complex last week, and expectations of a 3mm barrel build, API reported a massive 7.1mm build and a bigger than expected 307k build at Cushing. Gasoline inventories also rose more than expected (for the 15th week in a row).

  • Crude +7.1mm (3mm exp)
  • Cushing +307k (300k exp)
  • Gasoline +569k (-1mm exp)
  • Distillates -267k (-700k exp)

While this may have been catch up from last week's data, this is still a major build from API...WTI plunged at the NYMEX close and was limping lower into the API print and then collapsed at the massive build hit... Which is pressuring the front-month roll... Charts: Bloomberg

Oil Price Rally Comes Undone As U.S. Crude Inventories Build - One hundred and fifty-nine years after the first shipment of perforated postage stamps was received by the U.S. Government, and the crude complex is posting a loss once more. After the distraction in recent days from rhetoric out of Ceraweek in Houston, focus today shifts to weekly inventories, and current oversupply in the U.S. petroleum complex. Last night’s API report presented a strong build to crude stocks, leading to the same expectation from today’s EIA report. This makes logical sense to us from a ClipperData perspective, as the buildup of vessels offshore in the U.S. Gulf Coast recently means we have seen super-sized imports in the last week. Refinery utilization also likely dropped, ushering crude demand lower still. While on the topic of the Gulf of Mexico, we discussed a couple of weeks ago how Mexican oil production is dropping. OPEC in its latest monthly report expects Mexican oil production to drop by 130,000 barrels per day to 2.47 million bpd, hot on the heels of a 200,000 bpd drop in 2015. The chart below from Bloomberg pegs Mexican production at an even lesser rate:  In terms of our ClipperData, crude exports have held relatively steady for the last couple of years around 1.1 million bpd. While volumes have been fairly static, the destination for these flows has changed quite considerably. This has mostly been to the benefit of Asia and Europe, while U.S. loadings have dropped from 73 percent of total exports in 2013 to 61 percent last year.

Oil below $33 on Saudi comments, report of U.S. inventory rise | Reuters: Oil fell below $33 a barrel on Wednesday after Saudi Arabia ruled out production cuts and an industry report said that U.S. crude stockpiles had hit record levels, underlining the supply glut. Saudi Oil Minister Ali al-Naimi said production cuts would not happen, though more countries would join a deal to freeze output. OPEC and non-OPEC producers who support the idea are planning a mid-March meeting, his Venezuelan counterpart said. "Al-Naimi's remarks punctured an oil-price rally that has lacked substance," said David Hufton of broker PVM. "The market correctly interpreted the presentation as bearish." Brent crude was down 75 cents at $32.52 a barrel at 09:38 a.m. EST. U.S. crude fell $1.16 to $30.71. Both dropped more than 5 percent in intra-day trading on Tuesday. Also pressuring prices, the American Petroleum Institute (API), an industry group, said on Tuesday that crude inventories rose by 7.1 million barrels last week, far exceeding expectations of a 3.4 million barrel rise.   Oil has slid from more than $100 a barrel in mid-2014, pressured by excess supply and a decision by the Organization of the Petroleum Exporting Countries to abandon its traditional role of cutting production to boost prices.

Glut Worsens as U.S. Oil Storage Levels Rise Again - Oil prices soured after Tuesday’s comments from Saudi Arabia’s oil minister Ali al-Naimi, who essentially ruled out the possibility of an OPEC production cuts.  The oil markets received another round of bearish news on Wednesday when the EIA released its latest weekly figures from the oil patch. The data showed that refinery runs declined again, down to 15.7 million barrels per day for the week ending on February 19. That is a drop of 163,000 barrels per day compared to the week before. More ominously was the continued rise in crude oil inventories. Oil stocks jumped by another 3.5 million barrels, leaving the U.S. with 507.6 million barrels of oil sitting in storage, yet another record. The key storage hub of Cushing, OK, saw another slight increase in inventory levels, now topping 65 million barrels. The hub is now about 90 percent full. There were small pieces of good news, however. Gasoline inventories did post a decline, dropping by 2.2 million barrels. Storage levels for gasoline are still at abnormally high levels, but the drawdown is a small sign that consumers are responding to cheap gas. U.S. oil production continued to inch downwards. For the week ending on February 19, total oil production fell by another 33,000 barrels per day to 9.1 million barrels per day. Although production figures always fluctuate from week-to-week, production has remained largely flat since September. The U.S. has now posted six consecutive weeks of declines, albeit in very small increments. The figures add further evidence to the notion that the U.S. will see sizable reductions in oil production this year, mostly from U.S. shale. The IEA on Monday said that the U.S. will lose 600,000 barrels per day of production in 2016.

U.S. crude stocks at record high, first gasoline draw since November - EIA | Reuters: U.S. crude oil stocks rose to a second consecutive record high last week as refinery utilization fell, while gasoline inventories fell for the first time since November, data from the Energy Information Administration showed on Wednesday. Crude inventories rose 3.5 million barrels in the week to Feb. 19, slightly more than forecasts for an increase of 3.4 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures rose 333,000 barrels to 65.1 million, the fourth straight week of hitting record highs, the EIA said. On the Gulf Coast, crude stockpiles also rose to the highest on record, up 4.4 million barrels to 255.6 million barrels, following cuts at refineries from Texas to Philadelphia in response to low margins.. Refinery crude runs fell 163,000 barrels per day as utilization rates dropped fell 1 percentage point to 87.3 percent of total capacity, EIA data showed. As a result, gasoline stocks fell after building to record highs for three straight weeks, drawing down 2.2 million barrels, more than double analysts' expectations, to 256.5 million barrels. U.S. East Coast gasoline stocks, however, rose 1.8 million barrels to 72.2 million barrels, their highest levels on record since at least 1990, EIA data showed.

Crude Spikes On Gasoline Draw & Production Cut (Despite Another Cushing Build) -- Following last night's major build (from API), DOE reported a bigger than expected Crude build (3.5mm vs 3.25 exp). Crude prices jerked higher on this news as it was less than the API print of +7.1mm build and Gasoline and Distillates inventories dropped. However, Cushing inventories rose 333k barrels (the 15th build in the last 16 weeks. Perhaps more importantly, The Lower 48 saw a 196k bbl/day YoY drop in production (the 5th weekly drop in a row) and oil prices are surging.API:

  • Crude +7.1mm (3mm exp)
  • Cushing +307k (300k exp)
  • Gasoline +569k (-1mm exp)
  • Distillates -267k (-700k exp)

DOE:

  • *CRUDE OIL INVENTORIES ROSE 3.50 MLN BARRELS, EIA SAYS
  • *CUSHING CRUDE OIL INVENTORIES ROSE 333,000 BBL, EIA SAYS
  • *DISTILLATE INVENTORIES FELL 1.66 MLN BARRELS, EIA SAYS
  • *GASOLINE INVENTORIES FELL 2.24 MLN BARRELS, EIA SAYS

The all important commercial stocks rose by 3.5 million to another record high of 507.6MM, 73.5MM barrels, or 16.9%, higher than a year ago. The full breakdown: first drop in gasoline inventories in 15 weeks  So overall crude inevntory was less than API (but API just caught up t last week's miss) and was more than expected. Cushing saw another build - which is a major problem as we already noted that it is denying storage requests. But the 5th weekly drop in production has encouraged some more buying... with production down 196k bbl/day YoY

Oil Tumbles Amid Storage Concerns As Genscape Reports Cushing Build -- What goes up on nothing but a short-squeeze, must come down on fundamentals. Following yesterday's DOE report of a nother build at Cushing (which followed API's report of another build at Cushing), Genscape has just reported another build at Cushing... the storage wars are back. As we detailed previously, Genscape joins the ever louder chorus that the US is approaching the capacity tipping point: Further, Genscape adds that when looking specifically at Cushing, the storage facility is virtually operationally full (or at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously, storage requests for specific grades being denied however the silver lining is that there is a lot of open pipeline space from Cushing to gulf coast (their full presentation can be watched here). .. For those interested, the Genscape presentation can be watched in its entirety below

Number of US rigs down to 502; Texas down 5 (AP) – Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 12 this week to 502. The Houston company said Friday that 400 rigs sought oil and 102 explored for natural gas amid depressed energy prices. A year ago, 1,267 rigs were active. Among major oil- and gas-producing states, Texas declined by five, New Mexico dropped by three, Alaska and California each declined by two and Ohio, Pennsylvania, Utah and Wyoming each dropped by one. Louisiana gained two rigs and West Virginia gained one. Arkansas, Colorado, Kansas, North Dakota and Oklahoma were all unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

U.S. Oil-Rig Count Continues to Fall - WSJ: The U.S. oil-rig count fell by 13 to 400 in the latest week, according to Baker Hughes Inc., BHI 2.31 % maintaining a recent clip of sharp declines. The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall. But the slide hasn’t been far enough to ease the global glut of crude. There are now about 68% fewer rigs of all kinds from a peak of 1,609 in October 2014. According to Baker Hughes, the number of U.S. gas rigs increased in the latest week by 1 to 102. The U.S. offshore-rig count was 27 in the latest week, up 2 rigs from last week and down 24 rigs from a year ago. In total, the U.S. rig count is down 12 from last week at 502. Oil prices gained Friday on expectations that lower production around the world could shrink the global glut of crude. Recently, U.S. crude oil climbed 1.12% to $33.44 a barrel.

U.S. Oil Rig Count Touches 400, Overall Count at 502 - The oil and gas rig count continued to fall this week, but at a slower pace than was seen throughout the rest of February. The U.S. rig count fell to 502 for the week ended February 26, 2016, according to the latest data from Baker Hughes (BakerHughes.com). The decline represents 12 lost rigs in absolute terms, but a decline of 2% from last week. Every week previous to this one in the month of February saw declines of 5% or more from the previous week’s total. The main source of the falling number of rigs in the U.S. continues to come from the oil patch, with the total number of rigs targeting liquids touching 400 this week, down 13 from a week ago. The main source of the losses came from the Eagle Ford this week, which reported seven fewer rigs. Gas rigs increased by one this week, reaching 102. The Cana Woodford shale reported three additional rigs this week, though that was offset by losses in other plays. The Canadian rig count continued its decline started earlier this month as well. The count for the last Baker Hughes report in February was 175 active rigs in Canada, down 31 from last week’s total.

Watch five years of oil drilling collapse in seconds. The oil crash has taken its toll.: The crash in oil prices has taken its toll. The number of active oil-drilling rigs in the U.S. is plunging toward the lowest level in more than 75 years of records. The animation below shows the deployment of oil and gas rigs over five years, culminating in the collapse of almost 75 percent of the rig count.  These five years represent the fastest expansion of oil production in U.S. history. New technology drove this boom—particularly the deployment of horizontal drilling through shale rock. The three biggest oil-producing shale regions are the Permian basin in West Texas, the Eagle Ford in Southern Texas, and the Bakken in North Dakota. After the plunge in oil prices kicked off in late 2014, producers started shutting down rigs at an unprecedented rate. The number of active rigs is approaching the lowest level since Baker Hughes started tracking rig counts in 1940. Last week the rig count stood at 514, compared with the record-low 488 recorded in April 1999. A corresponding drop in U.S. production hasn’t yet materialized. Today’s rigs are more efficient, and new wells pump oil faster, so raw rig counts are losing some of their predictive power. Despite the declining number of rigs, the U.S. is still pumping oil at a historically high rate. At some point that will have to change change if rig counts continue to tumble.

This Week in Petroleum - EIA - Following the path started in 2015, U.S. commercial crude oil inventories have continued to build in early 2016 and are nearing record highs. Stocks in the Gulf Coast reached 256 million barrels for the week ending February 19, while stocks at Cushing, Oklahoma, reached their highest recorded level of 65 million barrels for the week ending February 19 (Figure 1). U.S. commercial crude oil inventory builds at this time of year are not unusual, as planned maintenance at U.S. refiners typically reduces runs in January and February. However, with inventories already high after generally building over the past 18 months, this turnaround season could push storage capacity use to new highs. The result may be lower crude oil prices and higher price volatility in the near future. According to the  latest survey on working storage capacity, conducted at the end of September 2015, storage capacity in Petroleum Administration for Defense District 3 (PADD 3, or Gulf Coast) and Cushing was 302 million barrels and 73 million barrels, respectively. Using inventory levels from the latest Weekly Petroleum Status Report, utilization in PADD 3 and at Cushing was 84% and 89%, respectively. Since the end of September, however, it is likely that new storage capacity has been built, which would reduce overall utilization. Weekly crude oil inventory numbers also include pipeline fill and lease stocks (oil that has been produced but not yet entered into the supply chain), which are not included in the capacity survey estimates. Current storage conditions, as well as expectations for further builds through 2016, are also affecting U.S. crude oil prices by putting downward price pressure on near-term futures contracts. When inventories are high and building, costs to store crude oil generally increase. In futures markets, where commodities may be purchased for specific delivery times in future months, the the high value of storage often means that long-term deliveries are priced higher than near-term deliveries, a situation known as contango. From February 1 to February 23, the prices for delivery of West Texas Intermediate crude oil (WTI) 13 months into the future exceeded prices for delivery one month into the future by an average of $10.44 per barrel (b). The comparable spread in the Brent futures market, the benchmark for the global waterborne crude oil market, averaged $7.54/b (Figure 2).

"There’s A Feeling Of Bits Of Ice Cracking All At Once" - This Is The 'Big New Threat' To Oil Prices --  One week ago, we reported that even as traders were focusing on the daily headline barrage out of OPEC members discussing whether or not they would cut production (they won't) or merely freeze it (at fresh record levels as Russia reported earlier today) a bigger threat in the near-term will be whether the relentless supply of excess oil will force Cushing, and PADD 2 in general, inventory to reach operational capacity. As Genscape added in a recent presentation, when looking specifically at Cushing, the storage facility is virtually operationally full (at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously,storage requests for specific grades have already been denied. Goldman summarizes the dire near-term options before the industry as follows: The large builds in gasoline and crude stocks have brought PADD 2 storage utilization near record high levels. While the recent decline in Midcontinent refining margins should help avoid breaching storage capacity, by finally bringing gasoline back into deficit, this will likely only exacerbate the build in crude inventories in coming months and should require further weakness in PADD2 crude prices to spread this build to the USGC. Weaker gasoline demand/exports, or higher margins/runs or finally resilient crude imports/production, could create binding storage issues beyond the intermittent Cushing WTI cash price weakness observed so far, which would require another large leg lower in crude prices to shut production in the Midcontinent and Canada. As we have argued, this continued testing of storage constraints should keep price and margin volatility elevated.

The Danger Of Low Oil Prices For The Global Economy  -- Oilprice.com wanted to check in with Dr. John C. Edmunds, a Professor of Finance at Babson College, to get his thoughts on the OPEC deal, oil markets, and some developments in Latin America. He is an expert in international finance, capital markets, foreign exchange risk, and Latin American stock markets. Dr. Edmunds holds a D.B.A. in International Business from Harvard Business School, an M.B.A. in Finance and Quantitative Methods with honors from Boston University, an M.A. in Economics from Northeastern University, and an A.B. in Economics cum laude from Harvard College. He has consulted with the Harvard Institute for International Development, the Rockefeller Foundation, Stanford Research Institute, and numerous private companies. This interview has been edited for brevity and clarity.

What a Saudi Oil-Supply Freeze Would Really Mean for Markets - Saudi Arabia shot down rumors it might cut oil production, but reaffirmed its commitment to an output freeze that could restrict crude flows to market this summer. With the world’s biggest exporter already pumping near-record volumes, that may not matter. Last week’s pledge to cap production at January levels along with Russia, Venezuela and Qatar -- repeated Tuesday in Houston by Saudi Oil Minister Ali al-Naimi -- could mean the Middle Eastern nation refrains from the typical output boost needed to feed the summer increase in domestic demand. Forgoing that surge would, in theory, deprive the market of exports equivalent to about a quarter of the current global crude surplus. “By holding supply at January levels and not increasing when their domestic requirement for power generation is at its peak, there will be about 500,000 barrels a day less Saudi crude making its way to global markets.” Saudi Arabia has on average boosted output by about 360,000 barrels a day from January levels to the seasonal peak in June and July, according to figures going back to 2002. Over the same period, the amount of crude the country burns to generate electricity typically rises by as much as 500,000 barrels a day as citizens turn up their air conditioning, the data show. With Saudi Arabia’s production already at near-record levels, a dip in exports wouldn’t leave the market short. The biggest member of the Organization of Petroleum Exporting Countries ramped output up last year to intensify pressure on U.S. shale producers and mark its territory before Iran’s return to world markets. It was pumping 10.2 million barrels a day in January, according to data compiled by Bloomberg -- a level that already exceeds the summer production peak in all but one of the past 10 years.

About That "Oil Freeze": Russian Crude Production Sets New Post-Soviet Record In February -- As noted earlier, among the catalysts for the overnight leg higher in oil was a statement by Venezuelan Oil Minister Eulogio Del Pino who triggered the headline-scanning algos yesterday when he said, during a television broadcast on TeleSur, that oil producing countries were discussing a March meeting site (which apparently is sufficient to instill confidence in future cuts), and that Venezuela, Russia, Qatar and Saudi Arabia are planning to meet in July. He added that "There’s no capacity to continue putting oil on the market. If this situation continues we’ll have a collapse in oil prices" which is quite clear to everyone and certainly the Saudi oil-minister who a week ago explicitly said that Saudi Arabia would not cut production.  Recall that Ali Al-Naimi threw down the gauntlet at IHS CERAWeek by ruling out production cuts and challenging many of those very same leaders in Houston to "lower costs, borrow money or liquidate." Which brings us to the topic of the production freeze, the catalyst that pushed oil off its 13 year low hit early last week. What is surprising here is that according to calculations by Bloomberg's Julian Lee, released moments ago, Russian crude and condensate production just set new post-Soviet daily record of 10.92m bbl yesterday. He notes that the monthly estimate is based on daily data from Energy Ministry’s CDU-TEK for 1st 25 days, and applies the average rate over last week for final 4 days. And since this compares with a revised 10.91m b/d for January, it means that Russia took the production "freeze" seriously: by freezing at a new record high level of production.

Iraqis Celebrate As Threat Of 3rd Bush Presidency Is Over - Baghdad - Thousands of Iraqis poured out into the streets to celebrate in the early hours of Sunday morning, as the threat of a third Bush Presidency was declared over at last. Iraqis, on edge about the prospect of another Bush in the White House since former Governor Jeb Bush entered the race last year, had been watching returns from the South Carolina primary with a mixture of anxiety and cautious optimism. Moments after the first evidence of Bush’s dismal finish began trickling in, however, Iraqis roared with glee as spontaneous festivities erupted across the country.  Observers were stunned to see Sunnis, Shiites, and Kurds dancing together in the streets, putting aside their enmity to celebrate an outcome that they never dreamed possible. “You must understand, we Iraqis have been living with the fear of a third Bush Presidency for months now,” Sabah al-Alousi, a Baghdad shoemaker, said. “Now we can begin to think about a future, for ourselves and our families.” Asked about the possibility of a Trump Presidency, he waved off the question. “This is the greatest day for my country,” he said. “I will let nothing spoil this day.”

Iraq On The Brink Of Chaos As Oil Revenues Fall -- During a sombre visit to Germany last week, Iraqi Prime Minister Haider al-Abadi urged the international community to help boost his country's crisis economy in the face of plummeting crude oil prices, underscoring a desperate situation in which Iraq has lost 85 percent of its oil revenues.  Iraqi oil revenues have fallen to just 15 percent of what they used to be, the embattled prime minister said, despite a boost in production ordered last year. The surge in production has failed to compensate for the collapse of oil prices, and the situation is dire when oil revenues constitute around 43 percent of Iraq’s gross domestic product (GDP), 99 percent of its exports and 90 percent of all federal revenues.. This has prompted the Al Abadi government to announce strict austerity measures across institutions, including significant salary cuts for middle-class government employees. Protest rallies were held against delayed salaries, which later turned violent in some parts of Iraq, including the Kurdistan region. Under these circumstances, one must question the legitimacy of the deal Baghdad has now offered to the Iraqi Kurds. Earlier this week, Baghdad extended an offer to pay the salaries of the KRG’s public employees in return for a halting of unilateral oil exports by the Kurds. Both sides need this deal. The KRG is struggling to pay salaries, and protests are mounting—threatening the stability of what was not long ago the only peaceful and secure place in all of Iraq. But most significantly, both Baghdad and the KRG need to ensure that the Kurdish Peshmerga fighting forces are being paid, because this is the key bulwark against further Islamic State (ISIS) advancements in the disputed territories of northern Iraq, around Mosul and oil-rich Kirkuk. The Iraqi Kurds have accepted the deal, but they don’t really believe it will happen. Baghdad has consistently failed to make good on deals, and with its oil coffers depleted, it’s unclear how the central Iraqi government can afford this.

ISIS Goes Full-Wall Street, Rigs FX Rates To Generate Extra Profits -- While such things are virtually impossible to verify due to the difficulty of getting “inside the caliphate” so to speak, word on the jihadist circuit is that ISIS is running short on money.  Successive rounds of Russian strikes on crude tankers and on the group’s oil infrastructure have crippled the illicit oil trade and tax revenue has also fallen in the wake of Baghdad’s decision to stop paying the salaries of public sector workers in Islamic State-held Mosul and other militant strongholds.   Additionally, ISIS is now reportedly beginning to release captives for as little as $500 and has moved to accept only US dollars as payment for utility bills,   But perhaps the surest sign yet that the self-styled caliphate is running into financial trouble comes from several on-the-ground sources who told AP last week that ISIS is no longer giving away free Snickers bars and Gatorade to its fighters. Now, we learn that Islamic State has resorted to a tried and true method of generating “a little” extra profits here and there: currency manipulation. “The group earns dollars by selling basic commodities produced in factories under its control to local distributors, but pays monthly salaries in dinars to thousands of fighters and public employees,” currency traders in Mosul told Reuters. “It earns profits of up to 20 percent under preferential currency rates it imposed last month that strengthen the dollar when exchanged for smaller denominations of dinars.” It’s a simple concept. ISIS takes in dollars, pays salaries in dinars, and calls the exchange rate whatever Bakr al-Baghdadi wants it to be.   “At the official rate set by the Iraqi government, $100 is currently valued at around 118,000 dinars,” Reuters goes on to note. “In Mosul, the same amount costs 127,500 dinars when purchased with 25,000-dinar notes, the largest bill in circulation, [and] the rate rise to 155,000 dinars when purchased with 250-dinar notes - the smallest bill available.” Presto: magic profits at the expense of the populace.

Iran seeks $45B in foreign investment  — Iran’s economy minister said his country is seeking $45 billion in foreign investment following the implementation of a landmark nuclear deal with world powers last month. Ali Tayebnia told reporters Saturday that Iran expects $15 billion in direct foreign investment alone in the next Iranian calendar year, which begins March 20. The historic agreement brought about the lifting of international sanctions last month after the U.N. certified that Iran has met all its commitments to curb its nuclear activities under last summer’s accord. Iran expects an economic breakthrough after the lifting of sanctions, which has allowed it to access overseas assets and sell crude oil more freely. Iran already has access to more than $100 billion worth of frozen overseas assets and Iranian banks earlier this month were reconnected to SWIFT, a Belgian-based cooperative that handles wire transfers between financial institutions. Tayebnia said Iran’s strategic location, political stability and population of 80 million has made the energy-rich Persian state into an attractive place for foreign investment. “All these factors have led to a capacity to attract more than $45 billion in foreign financial resources for next year, with about $15 billion in direct foreign investment,”

How the United States benefits if Iran’s economy booms -- Since the United States lifted sanctions on Iran in January, part of its commitment under the historic nuclear agreement concluded last year, there has been great temptation to believe that the donkey has made it to the other side. Some 80 million Iranians have high hopes that economic relief is nigh. In fact, though, the lifting of sanctions only marked the beginning of the crossing.  The central promise of the nuclear agreement—the Joint Comprehensive Plan of Action, or JCPOA—was that in return for scaling back its nuclear program, Iran would receive sorely-needed economic relief from the United States and its five negotiating partners. Like any agreement, long-term effectiveness will hinge on both sides getting what they want. But right now, there is a lot standing between the Iranian people and what they want, including members of both countries’ political establishments. In Iran, some candidates running for seats in the February 26 parliamentary elections are quick to criticize President Hassan Rouhani for making nuclear concessions, while in Washington, politicians threaten to undo the JCPOA or impose new sanctions.  Allowing Iranian hopes to be dashed, though, would not only threaten the success of the nuclear deal, but also the long-term effectiveness of sanctions as a foreign policy tool. Delivering economic relief will be a difficult task, given the myriad challenges outside US control that hamstring Iran’s economy, but Washington has a vital role to play by laying the groundwork for Tehran’s reintegration into the global financial system—through adjusting its attitude from one of obstruction to cooperation.

Iran votes: Here’s the break down  - Iran's elections this week are crucial as they will determine whether the Persian-style controlled opening conducted by President Hassan Rouhani – and his premier Javad Zarif – will ensure continuity, supported by a favorable Majlis (Parliament).  Not only have Iran's elections yielded prime political players, such as “dialogue of civilizations” president [Mohammad] Khatami, and the immensely controversial president [Mahmoud] Ahmadinejad; parliamentary elections for their part pit an array of factions involved in complex alliances virtually opaque to outside observers.  At stake this time around are the business fruits to be collected after the Vienna nuclear deal and the end of the UN and EU sanctions (significant US sanctions remain); the progressive integration of Iran into the China-driven New Silk Roads; Iran’s strategy to recover market share in the global oil trade, coupled with the immense investment necessary to upgrade its energy industry; deals after deals clinched with European – not to mention Asian – partners; the full, and not partial re-entry of Iran into global consumer markets; and last but not least a shot at reelection for Rouhani in the next presidential elections.    So forget about proverbially pathetic Western disinformation, especially the usual US neocon and Zionist demonization of all things Iran. Here’s what you need to watch to keep these elections in perspective. 

America Is Now Fighting A Proxy War With Itself In Syria— American proxies are now at war with each other in Syria. Officials with Syrian rebel battalions that receive covert backing from one arm of the U.S. government told BuzzFeed News that they recently began fighting rival rebels supported by another arm of the U.S. government. The infighting between American proxies is the latest setback for the Obama administration’s Syria policy and lays bare its contradictions as violence in the country gets worse.The confusion is playing out on the battlefield — with the U.S. effectively engaged in a proxy war with itself. “It’s very strange, and I cannot understand it,” said Ahmed Othman, the commander of the U.S.-backed rebel battalion Furqa al-Sultan Murad, who said he had come under attack from U.S.-backed Kurdish militants in Aleppo this week. Furqa al-Sultan Murad receives weapons from the U.S. and its allies as part of a covert program, overseen by the CIA, that aids rebel groups struggling to overthrow the government of Syrian president Bashar al-Assad, according to rebel officials and analysts tracking the conflict.The Kurdish militants, on the other hand, receive weapons and support from the Pentagon as part of U.S. efforts to fight ISIS. Known as the People’s Protection Units, or YPG, they are the centerpiece of the Obama administration’s strategy against the extremists in Syria and coordinate regularly with U.S. airstrikes.  Yet as Assad and his Russian allies have routed rebels around Aleppo in recent weeks — rolling back Islamist factions and moderate U.S. allies alike, as aid groups warn of a humanitarian catastrophe — the YPG has seized the opportunity to take ground from these groups, too.

Mideast On The Brink: Three New John Kemp Tweets -- February 22, 2016  Tweeting now:

  • NORTHERN THUNDER: Saudi Arabia plans military drill involving 150K troops and 300 aircraft with allies starting Friday Russian playbook is to use massive military manouevres to cloak mobilisation of forces for offensive operations Mass military manouevres will certainly ratchet up tension across the Middle East at the end of the week
One may want to take a look at this NewChina (xinhuanet.com) post: Despite Saudi Arabia's official line that an upcoming massive military drill targets no third party or directed at any specific operation, analysts say that the primary aim of the maneuver is to tilt the balance in Syria and Yemen in its favor. The drill, code-named "Ra'ad Al-Shamal" (Northern Thunder), is set to begin on Friday. The three-week event will bring together Gulf Arab countries as well as Jordan, Egypt, Sudan, Tunisia, Morocco, Mauritania, Djibouti, Comoros, Pakistan, Malaysia, Senegal, Chad, the Maldives and Mauritius.  The massive war games will involve some 150,000 troops, 300 aircraft, hundreds of tanks and other advanced weaponry, according to Saudi defense officials. The Saudi state news agency said the drill would send a "a clear message" that the kingdom and its allies "stand united to confront all challenges and maintain peace and stability in the region."

Putin "Prepared to Use Tactical Nuclear Weapons" If Turkey/Saudi Invade Syria - The risk that the multi-sided Syrian war could spark World War III continues as Turkey, Saudi Arabia and U.S. neocons seek an invasion that could kill Russian troops - and possibly escalate the Syrian crisis into a nuclear showdown, amazingly to protect Al Qaeda terrorists. When President Barack Obama took questions from reporters on Tuesday, the one that needed to be asked – but wasn’t – was whether he had forbidden Turkey and Saudi Arabia to invade Syria, because on that question could hinge whether the ugly Syrian civil war could spin off into World War III and possibly a nuclear showdown. If Turkey (with hundreds of thousands of troops massed near the Syrian border) and Saudi Arabia (with its sophisticated air force) follow through on threats and intervene militarily to save their rebel clients, who include Al Qaeda’s Nusra Front, from a powerful Russian-backed Syrian government offensive, then Russia will have to decide what to do to protect its 20,000 or so military personnel inside Syria. A source close to Russian President Vladimir Putin told me that the Russians have warned Turkish President Recep Tayyip Erdogan that Moscow is prepared to use tactical nuclear weapons if necessary to save their troops in the face of a Turkish-Saudi onslaught. Since Turkey is a member of NATO, any such conflict could quickly escalate into a full-scale nuclear confrontation. Given Erdogan’s megalomania or mental instability and the aggressiveness and inexperience of Saudi Prince Mohammad bin Salman (defense minister and son of King Salman), the only person who probably can stop a Turkish-Saudi invasion is President Obama. But I’m told that he has been unwilling to flatly prohibit such an intervention, though he has sought to calm Erdogan down and made clear that the U.S. military would not join the invasion.

Syria: Another Pipeline War - Robert F. Kennedy, Jr. -  As we focus on the rise of ISIS and search for the source of the savagery that took so many innocent lives in Paris and San Bernardino, we might want to look beyond the convenient explanations of religion and ideology and focus on the more complex rationales of history and oil, which mostly point the finger of blame for terrorism back at the champions of militarism, imperialism and petroleum here on our own shores. America’s unsavory record of violent interventions in Syria—obscure to the American people yet well known to Syrians—sowed fertile ground for the violent Islamic Jihadism that now complicates any effective response by our government to address the challenge of ISIS. So long as the American public and policymakers are unaware of this past, further interventions are likely to only compound the crisis. Moreover, our enemies delight in our ignorance. As the New York Times reported in a Dec. 8, 2015 front page story, ISIS political leaders and strategic planners are working to provoke an American military intervention which, they know from experience, will flood their ranks with volunteer fighters, drown the voices of moderation and unify the Islamic world against America. To understand this dynamic, we need to look at history from the Syrians’ perspective and particularly the seeds of the current conflict. Long before our 2003 occupation of Iraq triggered the Sunni uprising that has now morphed into the Islamic State, the CIA had nurtured violent Jihadism as a Cold War weapon and freighted U.S./Syrian relationships with toxic baggage.

Saudi Arabia leads surge in arms imports by Middle East states - The international transfer of weapons to the Middle East has risen dramatically over the past five years, with Saudi Arabia’s imports for 2011-15 increasing by 275% compared with 2006–10, according to an authoritative report. Overall, imports by states in the Middle East increased by 61%; imports by European states decreased by 41% over the same period. Britain sold more weapons to Saudi Arabia than to any other country. Saudi Arabia is also the biggest US arms market and buys more American arms than British, the report shows.  UK companies are estimated to have sold more than £5.6bn of arms to the Saudis since 2010, and more than 100 new export licences have been approved since the bombing of Yemen began a year ago. British Typhoon strike aircraft sold to Saudi Arabia are embroiled in a growing controversy over the bombing of civilian targets in Yemen.The figures are contained in the latest arms sales survey by Sipri, the Stockholm International Peace Research Institute. “A coalition of Arab states is putting mainly US- and European-sourced advanced arms into use in Yemen,” said Pieter Wezeman, senior researcher with Sipri’s arms and military expenditure programme. “Despite low oil prices, large deliveries of arms to the Middle East are scheduled to continue as part of contracts signed in the past five years.”

Arms Sales To Saudi Arabia And Qatar Almost Triple In Four Years - Weapons imports by Saudi Arabia and Qatar have rocketed by over 275 percent over the past four years, a new report found on Monday. Between 2011 and 2015, Gulf states were the most significant market for sales by the United States, the world’s biggest arms exporter, the Stockholm International Peace Research Institute (SIPRI) found. In a new report assessing worldwide trends in arms sales over the last four years, SIPRI found that increased demand from the Middle East had led a 14 per cent global rise in arms transfers. The increase was not marked universally – arms imports to European states fell by 41 per cent between 2011 and 2015. By contrast, arms imports by Middle Eastern states grew by 61 per cent – the largest regional increase – during a period marked by massive internal unrest as well as the rise of Islamic State. At the forefront of this growth were Saudi Arabia – now the world’s largest importer of weapons – and Qatar. Arms purchases by Qatar between 2011 and 2015 jumped by 279 per cent, while Saudi Arabia’s increased by 275 per cent over the same period compared to the previous four years. Despite increased competition from China – whose arms exports increased by 88 per cent – the US has remained the world’s largest arms dealer.

U.S. Unable To Halt ISIS March Towards Libyan Oil - The Islamic State (ISIS) is taking on recruits faster than anyone can keep up with, and it’s heading towards Libya’s oil crescent, eyeing billions of barrels that a country at war with itself cannot protect—even with U.S. air strikes. In mid-December, the United Nations brokered a power-sharing agreement between Libya’s rival factions, but there is no chance of implementing this. That means there is no chance that the Libyan government can fight back the advance of ISIS. Things are about to get messy, and U.S. air strikes will put only a small dent in a big problem. According to U.S. intelligence figures, there are an estimated 6,000 ISIS fighters now in Libya, headquartered in the town of Sirte, as Oilprice.com has reported in the past.. From here, they control hundreds of miles of coastline. There is nothing in Sirte they want; this is simply a strategic base.ISIS fighters have also been tracked down to Benghazi, but here they have not solidified control yet. Still, Benghazi is an important recruitment venue. More specifically, this is where it can combine forces with it radical brethren in the form of Ansar al-Sharia and other radical factions. Benghazi is where ISIS gets bigger. And its pace of recruitment is faster than anything we’ve ever seen before. It absorbs new radical factions wherever it goes. The more successful its attacks and territory grabs, the more successful its recruiting becomes. In Libya, the former prowess of Ansar al-Sharia has quickly waned. ISIS is more brutal, and more decisive. It’s either join or be killed. ISIS’ ability to launch attacks is not limited to Sirte, which is just the staging ground, or even to Benghazi. It can attack pretty much anywhere using hit-and-runs and suicide bombings. So what is it after? There is a multipronged strategy here. The first is to get closer to Europe. The second is to get closer to Africa. The third is to get closer to more oil revenues to fill quickly depleting coffers in Syria and northern Iraq.

The WSJ's Modest Proposal: The Bank Of Japan Should Buy Oil -- We have joked about it in the past: with equities around the globe all correlating tick for tick with the price of oil (supposedly "lower oil is good for the economy", just don't tell that to the stock market), instead of doing piecemeal interventions and monetizing stocks, something which as even Citigroup has noted no longer works, what central banks should do instead is monetize the source of all market problems: oil itself. Key word, however, in all of the above is "joked." Which is why we were almost surprised when none other than the WSJ proposed that, because "central banks have gone down the rabbit hole... starting with record low interest rates, then purchases of government bonds and mortgage bonds, ultra-accommodative policy progressed in Japan to buying real-estate investment trusts and equity funds" and because "in the looking-glass world of modern central banking, almost nothing is taboo, with even the abolition of cash discussed seriously by top monetary wonks" that it is time to make precisely this joke part of actual monetary policy. The WSJ's modest proposal: "the Bank of Japan should print money to buy oil. It sounds beyond nonsense. But with central bankers believing six impossible things before breakfast, it no longer seems inconceivable, which is informative in itself." The WSJ "explains": Consider the BOJ’s problem. The central bank is creating ¥80 trillion ($700 billion) a year to buy mainly government bonds, one of the biggest programs of money printing in history. It already owns almost a third of the bond market, nearly 2% of equities and about half of exchange-traded funds by value. Nonetheless, Japanese inflation remains quiescent. The yen has been strengthening despite the negative rates introduced last month, making it even harder to push prices up toward the BOJ’s 2% target.

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