Sunday, February 7, 2016

new record for oil and gasoline stores, a record drop in the US rig count, global rigs for January, et al

it seems we set a number of records, or encountered some unusual outliers, this week...first, we have new highs in both the amount of crude oil and the amount gasoline in storage, which isn't too surprising considering that both hit record highs last week, and we're at a time of year when inventories of both are normally increasing seasonally...we also saw the largest one week percentage drop in drilling rig activity, at least in the post fracking era, as nearly 8% of the rigs that were running last week have since been pulled out...and we also saw swings in the price of oil the likes of which we have not seen in seven years...oil prices were actually quite volatile all week, with contract prices for US WTI crude falling from $33.62 a barrel on Friday to $29.71 a barrel by the close on Tuesday, making for the largest two day drop in oil prices since January 2009, percentage-wise...but oil prices turned around and jumped 8% on Wednesday, despite the fact that reports of record inventories, that normally drive prices down, were released that same day...it was later revealed that the big price spike at that time was due to the unwinding of a $600 million triple short in the form of an Inverse Crude Oil Exchange Traded Note, which is a financial product designed to produce returns at the inverse of the benchmark oil price, wherein through a combination of short selling, derivatives trading and leveraging, such notes would pay three times the decline in the price of oil for the amount of money bet, but wherein losses are limited to the amount bet on the price change (unlike a straight short sale, where losses are theoretically limitless)...after the oil contract buying needed to unwind that aberrant short selling was done, US oil prices fell more than $1 a barrel to close at $31.72 on Thursday, and continued dropping Friday to close the week at $30.89 a barrel, down almost 9% for the week...

Record Oil Glut

so, we'll start this week with the developments that led to the record inventories, and then go from there...the primary underlying reason for the big increase in oil inventories this week was a big jump in our imports of crude oil, which were higher by 647,000 barrels per day, rising from an average 7,609,000 barrels per day during the week ending January 22nd to an average of 8,256,000 barrels per day during the week ending January 29th...despite higher domestic oil production, those imports were 11.8% above the 7,387,000 barrels per day we were importing during the same week last year...over the first 4 weeks of this year, our oil imports have now averaged 8.0 million barrels per day, 7.8% higher than our imports during the first 4 weeks of 2015...

meanwhile, production of crude oil from US wells was barely changed, falling by just 7,000 barrels per day, from 9,221,000 barrels per day during the week ending January 22nd to an average of 9,214,000 barrels per day during the week ending January 29th...thus, our field production of crude oil in January averaged about 9,227,000 barrels per day over the past 4 weeks, roughly 100,000 barrels per day more than our average production during September and October, and remains above the 9,192,000 barrels per day that was being produced in the same 4 week period a year ago, despite a 70% drop in active oil drilling rigs over the period since then..

at the same time, our refineries were using 24,000 barrels per day less crude than they did last week, as refinery throughput averaged 15,615,000 barrels per day, a half a percent higher than the 15,544,000 barrels per day that was being refined during the week ending January 30th last year...as a result, there were 7,792,000 barrels of surplus oil left unused at the end of the week, and hence our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose by that much to end the week at 502,712,000 barrels, the first time our oil stores have ever topped the 500 million level in 80 years of EIA record keeping...in fact, it was just 53 weeks ago that our oil inventories topped 400 million barrels for the first time...thus, the 502,712,000 barrels we had stored as of January 29th was 21.7% higher than the 413,060,000 barrels we had stored on January 30th last year, which itself was then an all time record for crude oil in storage...

now, you may be asking, if we've had such a glut of oil in storage all year, with typically 25% more oil in storage than the year before, why are we continuing to import so much oil than we were importing previously?   once again, that's not because we need it for fuel or feedstocks, but rather it's the work of oil traders...as we've mentioned several times in the past, oil future's prices remain in contango, meaning that the contract price to deliver oil at dates in the future is higher than the current spot price, and higher than the widely quoted near term contract price for oil...what that means is that an oil trader can buy oil today and can simultaneously contract to deliver that oil at some higher price months hence, and guarantee a decent profit, if he can find a place to store that oil in the interim for a fee less than the difference between the current price and the future price...this might be best explained with a picture of Friday's contract prices for several months in the future, which we're including below...

February 6th 2015 oil quotes

the table above was obtained from a website called quotes.ino,com and it shows the results of Friday's trading in several oil futures contracts at the New York Mercantile Exchange (NYMEX) for the US benchmark oil WTI, which trades under the symbol CL....as you can see by the second column, i've included the months from the current March contract price to the contract to deliver oil in January 2017, although the table i've clipped these quotes from includes prices for these dates through December 2024, and then a bunch of quotes for other oil trades called spreads, which aren't our concern today....each line shows opening high, low, and closing contract prices for oil delivery in some future month; hence, the first line shows the widely quoted price of oil for delivery in March, which as we mentioned closed the week at $30.89 a barrel, and the last line shows the contract price for delivery of that same oil in January of next year, which closed this week at $40.79 a barrel...what that means is that an oil trader can contract to buy a 2 million barrel tanker of oil at $30.89 a barrel for delivery in March, and and the same time contract to sell that oil for almost $10 a barrel more 10 months in the future, which is instantly profitable, if he can find a place to store that oil for less than the difference...as a practical matter, said trader would probably be paying the global Brent price for imported oil, which have been trending about $1 a barrel more than WTI this week, but the principle of the the contango trade is the same: buy oil cheap, store it, and sell it at a profit in the future...theoretically, the other counter-parties to his two trades are equally satisfied with the prices they've voluntarily contracted to either sell oil for today, or to lock in a purchase price and delivery date of oil in the future...

Record Gasoline Stores

as we noted earlier, our refineries were processing 15,615,000 barrels of crude per day during the week ending January 29th, down just 24,000 barrels per day from the prior week, even though the US refinery utilization rate fell to 86.6%, down from 87.4% last week and down from 89.9% a year ago, about normal for this time of year...and with record gasoline inventories already stored, refinery production of gasoline fell further, from 9,377,000 barrels per day during week ending January 22nd to 8,642,000 barrels per day during week ending January 29th, which appears to be our lowest gasoline production since the week ending April 25th of 2014, when 8,625,000 barrels per day were produced...nonetheless, total motor gasoline inventories still increased by 5,938,000 barrels over the week to end at 254,399,000 barrels on January 29th, the first time on record that our gasoline supplies have topped a quarter billion barrels...(strangely enough, our imports of gasoline also rose over the same week, from 576,000 barrels per day during week ending January 22nd to 624,000 barrels per day during week ending January 29th, so we would not be surprised to see contango trading of gasoline as well)....at the same time, refinery production of distillate fuels (diesel fuel and heat oil) decreased slightly, from 4,452,000 barrels per day during the week ending January 22nd, to 4,435,000 barrels per day during the week ending January 29th...but since the weather has remained cold, our distillate fuel inventories fell for the 3rd week in a row, dropping by 777,000 barrels to 159,695,000 barrels, down 3.4% from the 5 year record high 165,554,000 barrels we had stored on January 8th, but still 18.8% higher than the 134,475,000 barrels of distillate fuels we had stored on January 30th last year, and near the upper limit of the average range for this time of year...for a visualization of how these inventory gluts have developed over the past year, we'll include a graphic showing the change each week over the past 52 weeks, taken from the Zero Hedge coverage of this same report:

February 3 2016 oil and products inventories

there are four bar graphs included above and all of them are formatted similarly; on top is a graph of the weekly change in crude oil inventories, next is the change in oil inventories at the central US depot in Cushing Oklahoma, where oil prices are set; the third shows the change in inventories of gasoline, and the graph on the bottom is for inventories of distillates, with each graph starting at the end of last January and up to and including the data from the current EIA reports for January 29th...within each graph, each bar represents a week of the past year, with green bars indicating an addition to that inventory during the reference week, and red representing a withdrawal from that inventory that week, with the size of the bars indicating the volume in barrels of the addition or withdrawal....thus on the top graph we can see record volumes of crude being added to storage in February, March and April of last year, until the driving season, when higher refinery throughput meant oil inventories were being drawn out between May and October…but except for three weeks around the holidays, we've been adding crude every week since, and additions of the last three weeks pushed what crude was in storage to record levels...meanwhile, gasoline inventories, shown in the third chart, stayed fairly well balanced all year until December, when record additions five weeks in a row pushed those stores into record territory...lastly, on the bottom graph, inventories of distillate built up to near record levels from late November through early January as above normal temperatures reduced consumption of heat oil...with the colder weather of the last three weeks of January, those near record supplies are being drawn down but are still near the upper limit of their average range for this time of year...

lastly, so you can see how the last five weeks of increases in gasoline inventories compares to normal, we'll include a graph of that:

image

in the above graph, taken from this week’s weekly Petroleum Status Report (62 pp pdf), the blue line shows the recent track of our gasoline inventories over the period from June 2014 to January 29, 2016, while the grey shaded area represents the range of our gasoline supplies as reported weekly by the EIA over the prior 5 years, essentially showing us the normal range of gasoline inventories as they fluctuate from season to season....here we can see that the blue line first rose above the normal range in December of 2014, and continued to set seasonal records as it rose rapidly through January of last year, not falling back into the normal range until last summer...but again this fall, gasoline inventories were above their normal range, but as of December they were still lower than last year's records...but nearly 33 million barrels of gasoline have been added to storage over the last five weeks, which we see as a blue spike on the graph, which has taken our gasoline inventories to record levels, which as of this week are 5.7% higher than the January record set a a year earlier..

Record Percentage Drop in US Rig Count

it appears that this week saw the greatest percentage of active drilling rigs retired in one week in the 16 years of weekly Baker Hughes records, as 48 rigs were pulled out during the week ending February 5th, leaving 571, down from 619 last week, for a percentage reduction of nearly 7.8% in one week...certainly more rigs were pulled out in some weeks early last year, such as on March 6th, when they shut down 75 of the 1276 that were active back then, or during the week of February 13th, when 98 of the 1456 then active rigs were idled, but there were never any total cuts closer to 7% of those then active than on those dates...even scanning through the records of the 2009-2011 gas rig collapse shows nothing net of that percentage drop in one week, largely because oil drilling rigs were being added at the same time, ameliorating the total rig decline...nonetheless, this week Baker Hughes reported that the count of active oil rigs fell by 31 to 467 while the count of active gas rigs fell by 17 to 104 during the week ending February 5th, which was down from 1140 oil rigs, 312 gas rigs and 2 miscellaneous rigs that were actively drilling on the first weekend of February a year ago, and which was already down significantly from the highs set in the prior October and November...oil rigs had hit their fracking era high at 1609 working rigs on October 10, 2014, while the recent high for gas drilling rigs was the 356 rigs that were deployed on November 11th of that same year...

two drilling rigs were pulled out of the Gulf of Mexico during the week, so the Gulf count is now back down to 25, which is also down from 48 working in the Gulf and a total of 50 drilling offshore as of February 6th a year ago...there was also a rig set up on an inland lake in Texas, so there are now 2 rigs drilling through inland waters, with one also in Louisiana, down from the 9 that were set up on inland waters a year earlier... a net of 29 horizontal rigs were stacked this week, cutting the count of horizontal rigs down to 458, which was also down from the 1088 horizontal rigs that were in use the same week last year...in addition, 14 vertical rigs were also taken out of service, leaving 60, down from 233 last year at this time, and 5 directional rigs were also removed, dropping the directional rig count down to 53, which was down from the 135 directional rigs that were in use on February 6th of last year...

of the major shale basins, only the Barnett shale of the Dallas area saw a single rig added; they now have 4 rigs actively drilling, which is still down from the 19 that were in use there a year ago...elsewhere, the Ardmore Woodford of Oklahoma was down 2 rigs to 5, down from 7 rigs a year ago, and the Cana Woodford, also of Oklahoma, also stacked 2 rigs, leaving 37, down from 43 a year ago...in addition, the Eagle Ford of south Texas was down 4 rigs to 60 this week, which was down from 168 rigs last year at this time, and the Granite Wash of the Oklahoma-Texas panhandle region was down 5 rigs to 8 this week,and down from 39 rigs a year ago....the two major gas basins, the Haynesville of Louisiana and the Marcellus of the northern Appalachians, were both down 3 rigs; that left the Haynesville with 15 rigs, down from 43 a year ago, and the Marcellus with 31 rigs, down from 71 rigs a year earlier...the Mississippian of southwest Kansas and bordering states was down 1 rig to 10 and down from 53 rigs working the area a year ago, and the large Permian basin of west Texas and eastern New Mexico was down 2 rigs to 180, which was down from 417 rigs working last year at this time...the Utica shale, mostly of eastern Ohio, was down 1 rig to 13, which was down from last year's 41, and lastly the Williston of North Dakota was down 2 rigs to 42, which was down from 137 rigs working there a year earlier..

not surprisingly, no states saw drilling rig increases this week...Texas saw the largest decrease, with 19 rigs stacked in the state, leaving 262 rigs active, down from the 654 that were drilling in the state a year ago...Oklahoma was down 8 rigs to 80, which was down from 176 drilling in the state on February 6th of 2015...5 rigs were pulled out of Louisiana, leaving 46, which was down from 107 rigs working the state a year earlier...in addition, Pennsylvania was down 3 rigs to 19, which was down from 54 a year ago, and North Dakota, Mississippi, Utah, and Wyoming were each down 2 rigs...that left North Dakota with 42, down from 132 a year earlier, Mississippi with 3, down from 8 a year earlier, Utah with just 1, down from 12 a year earlier, and Wyoming with 13, down from 42 on the same date a year ago...finally, Alabama, Ohio and Illinois were all down 1 rig, which left Alabama with no rigs, down from 7 a year earlier, Ohio with 13 rigs active, down from 39 a year ago, and Illinois also with none, vs the two that were drilling there the same week a year earlier...

Global Rig Count for January

Friday also saw the monthly release of the global rig count for January, which unlike the weekly count, is an average of the number of rigs running in each country for the month, rather than the total of those drilling at month end...January saw an average of 1,891 rigs drilling for oil and natural gas around the globe, which was down from 1,969 rigs drilling in December and down from the 3,309 rigs that were deployed globally in January of last year...unlike the past three months, when the lions share of the rigs that were pulled during the month came from North America, 50 of the 78 rigs retired this week had been working other continents, as oil prices are apparently now so low as to affect everyone...in North American, the US average rig count was down 60 rigs to 654, and down from 1,683 rig in January of 2015, while the Canadians saw a net addition of 32 rigs from December, as their average rose from 160 rigs to 192, which was still down from the 368 rigs in use in Canada in January of last year...

the Middle East saw rigs pulled out for the first time in 6 months, as the region was down 15 rigs to 407, which was also down from the 415 rigs deployed in the Middle East a year earlier...nonetheless, their offshore rig count was unchanged at 55, and up from 43 offshore platforms working in the region a year ago....the Saudis pulled out 5 rigs to reduce their total active drilling rig count up to 124, which was still up from the 119 rigs that were drilling in the Kingdom last January...Kuwait and Oman both idled three rigs; that left Kuwait with 40, which was down from 48 a year earlier, and Oman with 70, which was still up from the 61 rigs they were using to drill a year earlier...Qatar was the only country in the Middle East to see an increase in January, as they added 2 rigs, bringing their total count back up to 9, same as they had last January...

meanwhile, the Latin American countries saw a reduction 27 rigs, after idling 14 rigs in December, 10 rigs in November and 27 rigs in October, as the region averaged 243 rigs in January, including 51 offshore, down from a total of 351 rigs, which included 79 offshore rigs, in January of 2015....Argentina saw the largest pullback by far, as they were down 19 rigs to 72, which was down from 106 rigs that were in use in Argentina a year ago...Colombia and Brazil both idled 4 rigs; Colombia is now running just 8 rigs, down from a high of 48 in November of last year, while Brazil still has 34 rigs active, down from 47 a year earlier...only Mexico saw an increase, as they added 1 rig and now have 43 working, which is still down from the 69 rigs they had deployed a year ago at this time...

elsewhere, the Asia-Pacific region had 193 drilling rigs working in January, down from 198 in December and down from 232 last January...the largest decrease in the region was in Indonesia, where they reduced their 25 rigs to 20, which was down from the 36 rigs they were running a year ago...India also shut down 3 rigs, but they still have 97, which is down from the 108 the had deployed last January; meanwhile, the Thais added three rigs, bringing their total up to 18, which was an increase from the 15 rigs Thailand was running a year earlier...in addition, the rig count in Europe fell by 6 to 108 in January, which was down from 128 rigs working Europe a year ago, as Poland and Sakhalin Island both idled 2 rigs...the Poles are now running 10 rigs, which is still up from the 7 they were running a year ago, while Sakhalin Island, which is a Russian island in the Pacific but included in European totals, is now running 5 rigs, down from 7 last week and 6 rigs in January of 2015...finally, Africa was the only continent where rigs were added in January, as their count rose by 3 to 94, which was still down from 132 African rigs working a year earlier...Algeria, up 2 rigs to 11, was the only African nation with a rig variance greater than 1, as the Algerians were also up from 47 rigs a year ago...note that Iran, Russia, and China rig counts are not included in Baker Hughes international data, although China's offshore area, with an average of 27 rigs active in January, is included in the Asian totals here...  

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Legal battle in North Royalton over new oil and gas well continues into 2016 - cleveland.com – Almost three years ago, Shirley and Kiril Schewzow signed a contract with Cutter Oil Co., allowing the West Salem firm to use their land for a new oil and natural gas well. Under the deal, the Athena Drive couple and 48 other property owners – including the city of North Royalton – would let Cutter drill on a 24-acre site in the Athena-Saturn Drive neighborhood. In exchange, the landowners would share 12.5 percent of the well's proceeds, and receive a signing bonus or "spud fee." Cutter told property owners they might collect $4,000-$5,000 the first year alone. The Schewzows now wish they had never signed. They later learned that North Royalton residents who had entered into previous drilling contracts, in other parts of town, didn't receive the royalties they were promised. "Then we found out they (Cutter) would be fracking," . "I'm scared because of the chemicals. Who knows? Ten-twenty years down the line, it might affect our health." Also, Cutter would dig a directional well, meaning it would drill about 4,000 feet straight down, then horizontally, possibly under houses and yards. Three of the 49 North Royalton property owners – including the city – have refused to lease their land to Cutter, and the firm needs them all under contract to drill the Athena-Saturn well. In 2013, Cutter applied for a "mandatory-land-pooling" permit, which under state law allows drillers to force property owners to lease land if negotiations with holdouts fail. Later that year, the state granted Cutter both mandatory pooling and drilling permits. But the city appealed that ruling, and since then, an ongoing court battle between Cutter, the ODNR and the city has left the matter unresolved.

Fracking may be coming to Ohio national forest - The U.S. Bureau of Land Management (BLM) is considering opening 31,900 acres under Wayne National Forest for gas and oil drilling, including portions of Athens, Washington and Galia counties.Fracking, or hydraulic fracturing, is a process that involves horizontal drilling to extract shale energy. But some residents and environmental groups in Athens County and southeastern Ohio expressed concern for air and water quality, if fracking is allowed in the Wayne, while offering only limited business opportunities.The leasing of parcels of land by the BLM for sale has been a contentious issue since the idea was proposed in 2011-2012, when an earlier plan we withdrawn, pending further study and analysis of potential environmental impacts. The greatest concern expressed by those opposed to fracking is the potential for gas pollution, and wastewater contaminating local streams.The BLM, which is the primary federal agency handling the process of determining ownership of mineral rights under the Wayne, plans to conduct Environmental Assessments (EAs), before making any decision regarding the possible lease of parcels or whether to pull back. The bureau has stated that it reserves the option to elevate any EA to a full Environmental Impact Statement (EIS).Anthony Scardina, Wayne National Forest Supervisor, acknowledged that “these parcels do have some level of proximity to the Hocking River, and that is a water supply to the city of Athens, and serves a lot of people, so that’s really an issue we’re going to be paying a lot of attention to.” He added, “it’s going to be a parcel by parcel decision, whether we allow leasing in a given area,” and only after a thorough review of environmental concerns.

Study shows natural gas drilling not contaminating water wells in Carroll County - A three-year study by the University of Cincinnati has determined that natural gas drilling has had no effect on the quality of water coming from wells in Carroll County. The study looked at water quality in five counties — Carroll, Columbiana, Stark, Harrison and Belmont — with a focus on Carroll County, which has been the epicenter of the Utica Shale boom in eastern Ohio. Water was sampled three to four times per year from 23 wells from 2012 to February 2015. A total of 191 samples were taken. Researchers were trying to determine whether hydraulic fracturing, or fracking, creates dangerous levels of methane in well water. “The good news is that our study did not document that fracking was directly linked to water contamination,” said Dr. Amy Townsend-Small of the University of Cincinnati, who presented the findings Thursday at a meeting of Carroll Concerned Citizens. “That’s just in the samples that we took in our study period.” she said. “That’s not to say contamination has not happened in this area or that it hasn’t happened in some of our participants’ wells since we stopped our study last year.” Previous studies have measured methane concentrations in well water in Pennsylvania, but those studies were done after drilling had begun.  In some cases there, water coming from kitchen taps has caught fire because of high levels of methane in it.

Obama's EPA to Ohio's Anti-Frackers: You're Wrong - - Heartland Institute (blog) Two recent reports on Ohio’s wastewater injection well program discredit chronic allegations by opponents of hydraulic fracturing. These include claims that the creation of such wells leads directly to earthquakes, and that the Ohio Department of Natural Resources has neglected to establish proper regulations to keep Ohioans safe. The first report, released by the U.S. Environmental Protection Agency, responded to a letter signed by 23 anti-fracking groups in Ohio. They demanded a federal audit of ODNR’s well program and asked the agency to override the department’s regulatory authority. They charged ODNR with violating the Safe Drinking Water Act and providing “inadequate public notice and public participation” in the well permitting process.  Contrary to activists’ claims, the EPA concludes that ODNR runs “a good quality program.” It notes that Ohio has “taken concrete steps to address emerging issues, and in particular has adopted regulations to reduce risk from seismic-related activities.” The second report, issued by StatesFirst, a partnership of the (oil industry's) Ground Water Protection Council and the Interstate Oil and Gas Compact Commission, buttresses the EPA’s findings in Ohio. It praises ODNR’s management and communications operations. The StatesFirst report refutes the claim that fracking often causes earthquakes — one of the knee-jerk, frequently parroted arguments of fracking opponents. It concludes that most injection wells “do not pose a hazard for induced seismicity” and that “only a few dozen … wells are believed to have induced felt earthquakes.

NB, the above conservative blog refused my comment:  ”the "States First Initiative" is a lobby organization formed against federal regulation of the industry...seismic hazard model for 2014, a once every 6 year tome from the USGS published in April, incorporated induced seismicity into the earthquake risks for 17 new areas in the US, including two in the northeast corner of Ohio... http://pubs.usgs.gov/of/2015/1070/

Gulfport Energy reports big jump in proved reserves, mostly in Ohio’s Utica Shale - Gulfport Energy Corp. on Tuesday reported a major boost in year-end 2015 proved reserves, mostly in the Utica Shale in eastern Ohio. The Oklahoma-based company reported that year-end reserves grew from 933.6 billion cubic feet of natural gas equivalents to 1.7 trillion cubic feet of natural gas equivalents. That is an increase of 83 percent from 2014 to 2015, the company said. Net production in 2015 averaged 548.2 billion cubic feet of equivalents per day, exceeding the high end of the company’s 2015 guidance, the company said. The daily production in 2015 averaged 78 percent natural gas; 13 percent natural gas liquids including ethane, butane and propane; and 9 percent oil, said Gulfport, one of the biggest players in the Utica Shale. For 2015, the company got an average of $2.08 per thousand cubic feet of natural gas, $42 per barrel of oil and $13 per barrel on natural gas liquids, the firm said. The company is operating four rigs and had, through September, drilled 153 wells in Ohio where it has leased 247,000 acres. Gulfport also announced completion of joint venture with Rice Midstream Holdings LLC, a subsidiary of Pennsylvania-based Rice Energy LLC. Gulfport will own 25 percent of the joint venture and Rice will act as operator and own the remaining 75 percent. Rice will develop gas-gathering assets in eastern Belmont and Monroe counties to support Gulfport’s dry Utica gas drilling. Construction of those lines is underway. A new lateral connecting two existing gas-gathering systems went into service on Monday for Gulfport’s use. The two companies are also discussing joint water services for hydraulic fracturing or fracking of wells in Belmont and Monroe counties. Gulfport also reported that it has arranged transport of additional natural gas from November 2016 through March 2017 because of delays in the ET Rover Pipeline across northern Ohio.

Natural gas income from Pennsylvania forests takes big fall — A drop in natural gas prices is now also affecting the state of Pennsylvania’s coffers. The state forests department says that lease payments and royalty income from natural gas drilling on state forests dropped by 46 percent. That’s over the first six months of the current fiscal year, compared to the same period a year earlier. The department says royalty and rent income was $68.3 million in the July through December period of 2014. Income dropped to $36.7 million over the same six months in 2015. The money has been used in recent years to both operate and improve the state-owned parks and forests, although its diversion to the Department of Conservation and Natural Resources is the subject of a court challenge.

Hill Heat : Clinton Goes to Pennsylvania to Reap Windfall from Pennsylvania Frackers -Last night, Hillary Clinton attended a gala fundraiser in Philadelphia at the headquarters of Franklin Square Capital Partners, a major investor in the fossil-fuel industry, particularly domestic fracking. The controversial fracking industry is particularly powerful in Pennsylvania, which will host the Democratic National Convention this July.  Clinton has avoided taking any clear stand on fracking. While she has embraced the Clean Power Plan, which assumes a strong increase in natural-gas power plants, she also supports a much deeper investment in solar electricity than the baseline plan. The pro-Clinton Super PAC Correct the Record, run by David Brock, touts Clinton’s aggressive pro-fracking record. Numerous grassroots groups have risen to oppose the toxic fracking of Pennsylvania and its labor abuses, including Marcellus Protest, No Fracking Way, Pennsylvanians Against Fracking, Keep Tap Water Safe, Stop Fracking Now, and Stop the Frack Attack.  As reported by the Intercept’s Lee Fang, “One of Franklin Square Capital’s investment funds, the FS Energy & Power Fund” the Intercept’s Lee Fang reports, “is heavily invested in fossil fuel companies, including offshore oil drilling and fracking.” The company cautions that “changes to laws and increased regulation or restrictions on the use of hydraulic fracturing may adversely impact” the fund’s performance. Through its fund, Franklin Square invests in private fracking and oil drilling companies across the nation, as well as Canada and the Gulf of Mexico. This includes heavy investment in Pennsylvania frackers.

Pennsylvania Fracking Water Contamination Much Higher Than Reported -- The U.S. Environmental Protection Agency (EPA) concluded: fracking has had no widespread impact on drinking water. But if you’ve had your ear to the ground in fracking communities, something didn’t sit right with the EPA’s takeaway. Though the gas industry claims fracking is safe and doesn’t harm drinking water, that story doesn’t match what many landowners report from the fracking fields.  At least in Pennsylvania, the reason for this discrepancy comes down to a singular issue: mismanaged record-keeping and reporting by the Department of the Environment (DEP). Based on 2,309 previously unreported fracking complaints unearthed by the non-profit Public Herald, the public can now peek into 1,275 fracking water complaints from 17 of 40 fracking counties.   Contrary to the EPA fracking study’s conclusion, the prevalence of drinking water contamination appears to be much higher than previously reported. Accurate drinking water complaint data is vital to know as Maryland drafts new fracking regulations to potentially welcome the natural gas industry into Western Maryland in 2017.  Officially, Pennsylvania reports 271 confirmed cases of water degradation due to unconventional natural gas operations (a.k.a. fracking). In Pennsylvania, water degradation falls into two camps—reduced water volume or the presence of “constituents” found in higher levels after drilling than before drilling. Constituents can be naturally-occurring, fracking-related chemicals or methane gas than seeps into aquifers and water wells. Homeowners usually know right away if something’s up with their well water. Their tap water’s clarity or color changes, the water smells gross or the well runs dry. What’s harder for homeowners to self-identify is natural gas (methane) migration because methane gas is odorless. Methane is highly flammable and if present at dissolved levels above 28 mg/L requires immediate remediation or the potential for explosions exists.

Consol Energy misses 4Q profit forecasts, but revenue beats — Consol Energy reported a larger-than expected loss in the fourth quarter, but strong revenue numbers sent shares higher Friday. Like many other energy companies, Consol has had to cut spending on oil production to deal with plummeting oil prices. The coal and natural gas company reported net income of $30.4 million, 13 cents per share, in the fourth quarter, compared with $73.7 million, or 32 cents per share, in the same quarter a year ago. Losses, adjusted for non-recurring gains, came to 11 cents per share. The results did not meet Wall Street expectations. The average estimate of 10 analysts surveyed by Zacks Investment Research was for a loss of 5 cents per share. The Canonsburg, Pennsylvania, company said revenue fell 19 percent to $761.9 million in the period, better than the $717.2 million analysts expected. For the year, the company reported a loss of $374.9 million, or $1.64 per share, swinging to a loss in the period. Revenue was reported as $3.11 billion.

How Marcellus Shale drilling keeps falling in Pa. - As bad as last year was for the Marcellus Shale drilling industry, 2016 is shaping up to be worse. Several major shale-gas operators have announced dramatic cuts in drilling plans for this year. The cuts will inevitably mean less local spending on suppliers, haulers, and construction firms. Seneca Resources Corp., the exploration subsidiary of National Fuel Gas Co., on Friday became the latest operator to tighten its belt. Seneca, which recently operated three drill rigs in northern Pennsylvania, said it planned to cut one of its two remaining drill rigs in March. It also will delay finishing a pipeline from Pennsylvania to western New York to 2017. "For the near term, it's prudent for us to reduce our capital expenditures and maintain the health of our balance sheet," said Ronald J. Tanski, National Fuel's chief executive. Cabot Oil & Gas Corp., whose Marcellus operations are largely in Susquehanna County, also announced plans this week to cut back from two rigs to one. The Houston firm set its 2016 capital budget at $325 million, down 58 percent from last year. EQT Corp., a Pittsburgh producer, said it would cut capital spending to $1 billion from $1.8 billion last year. Southwestern Energy Co. and Consol Energy Corp. earlier announced plans to halt new drilling. Only 19 drill rigs were operating in Pennsylvania on Friday, down 65 percent in the last year, according to the weekly Baker Hughes rig count. Pennsylvania now has fewer drill rigs operating than in 2008, before the shale boom. The culprits are low energy prices, the lack of pipeline infrastructure, and the companies' own zeal for drilling in recent years. Seneca says it has 70 wells drilled but is awaiting hydraulic fracturing before they are done.

Regulators nix Constitution Pipeline's tree-cutting request — Federal regulators have rejected the Constitution Pipeline Company’s request to cut trees in New York along the proposed route of its 124-mile natural gas pipeline before a critical state permit is issued. The Federal Energy Regulatory Commission notified the company Friday that it could begin tree-cutting in Pennsylvania, which has granted all necessary permits. New York regulators haven’t given a timetable for deciding on a water quality permit. The pipeline would carry natural gas from Pennsylvania’s shale fields to upstate New York. The company said tree-cutting must be done before the end of March to avoid harm to birds and bats during breeding season.

Deerfield warning Kinder Morgan about trespassing workers - – The Town of Deerfield has issued a warning to Kinder Morgan pipeline employees that they can be arrested. Citing health and safety violations, the Town issued an order for Kinder Morgan to stop all their natural gas pipeline activities. Kinder Morgan has been surveying land in the town. They have asked the state permission to go on private properties, but the Town is saying no. They issued a warning that Kinder Morgan workers will be arrested for trespassing on private property unless they have permission from the land owner. Leigh Wicks of neighboring Montague said that she supports the action of Deerfield’s government. “It’s the right thing to do. First of all, existing laws should cover that. But if they need a sterner message, then it’s up to those of us who oppose the pipeline to let them know how we feel,” Wicks said. Kinder Morgan released the following statement to 22News: We are respectful of private property and landowners’ rights, and do not conduct surveys or other activities without first obtaining advance permission from landowners or an order from an appropriate authority, including the Massachusetts Department of Public Utilities. In issuing its order, Deerfield has exceeded its authority under the applicable federal and state laws.”

The #1 hit for natural gas markets.  The US natural gas market is in a precarious state. CME/NYMEX futures contract prices have been settling at historic lows for this time of year. Producer returns are dismal in most shale basins.    Yet production volumes remain robust, and the supply/demand balance is way out of whack. The surplus in storage is soaring at more than 500 Bcf above last year and more than 400 Bcf above the 5-year average. It’s clear something has to give. But how will the imbalance get resolved and how will the resolution impact the price of natural gas? To help you navigate market signals and stay ahead of upcoming turning points, today we introduce our new daily NATGAS Billboard: Natural Gas Outlook report featuring storage and price forecasts plus a daily market outlook.  Before we get to our current market outlook, first a bit of background on the new report. We have teamed with our good friends at Criterion Research, including ace gas market forecaster Kyle Cooper to develop NATGAS Billboard – a daily morning update on the U.S. natural gas market. Each morning, we will go through the same exercise that dozens of in-house analysts perform for their trading shops. Taking the latest iterations of the raw fundamental data, (including weather forecasts, pipeline flow data, storage facility postings, weekly electricity demand data, CME/NYMEX price action and the weekly EIA inventory data), we will mesh it all together in our proprietary models and come up with our best interpretation of what it all means for storage and ultimately price. We will then share the answers with you in a clean, concise report. As new data comes in each day, we’ll continue to revise our outlook.

Highlighting The Report Features - CME/NYMEX Henry Hub gas futures prices are currently struggling to stay above $2.00/MMBtu in the face of milder weather and record high production (closing up slightly at $2.038/MMBtu yesterday February 3, 2016). The market is on edge and at the mercy of daily weather forecast revisions that may signal further downside for prices. At the same time gas demand from power generation could increase in response to lower prices. To help navigate these volatile market conditions, we’ve teamed up with Criterion Research to develop the daily NATGAS Billboard: Natural Gas Outlook report. In today’s blog, we highlight specific features of the report and what they tell us about the market.

Green groups, residents sue crude-by-rail operator -  A coalition of residents and environmental groups is suing a crude oil transporter, claiming violations of the federal Clean Air Act. The coalition consisting of Albany County, a tenants association and six environmental groups filed the federal lawsuit Wednesday against Waltham, Massachusetts-based Global Partners. The lawsuit claims Global failed to obtain a required air pollution permit and install necessary pollution controls when it modified its permit at the Port of Albany in 2012. The modified permit allowed Global to greatly increase rail shipments of crude oil from North Dakota to Albany for shipment down the Hudson River to refineries. Edward Faneuil, executive vice president of Global Partners, said the company is in compliance with all regulatory and permitting requirements. The coalition includes Earthjustice, Sierra Club, Riverkeeper, Natural Resources Defense Council and others.

Lawmakers, officials voice opposition to Atlantic drilling — Officials from several New Jersey shore towns joined with some members of the state’s congressional delegation Sunday to oppose federal plans that would allow oil and gas drilling in the Atlantic Ocean. Environmental and tourism groups also took part in the rally on the Asbury Park boardwalk, which drew a crowd of about 200. U.S. Sens. Bob Menendez and Cory Booker and Rep. Frank Pallone, all Democrats, were among those who cited a potential for “catastrophic” oil spills that could cause economic and environmental harm at the Jersey shore and other areas along the East Coast. “The Jersey Shore is one of our most precious natural resources, providing enjoyment for generations of New Jersey families and visitors alike. An oil spill threatens everything we hold dear about the Shore_and we have to do everything in our power to prevent it from becoming a reality,” Menendez said. “Let’s call Atlantic drilling what it is: another handout to the oil industry.” The three federal legislators called on the Obama administration to end its plans to allow oil production off the coast of Virginia, the Carolinas and Georgia. They cited the massive 2010 Deepwater Horizon oil spill in the Gulf of Mexico that caused long-term marine and coastal damage in several Gulf states.

Collier residents: 'No fracking way' to SB 318 -  As a controversial fracking bill moves forward in the state senate, groups of people lined streets in Naples in protest. Cities would not be allowed to ban oil exploration. A large crowd lined the street in front Senator Garret Richter's office, and their message was clear -- stop fracking and stop Senate Bill 318.  I think if we don't stand up and voice our opinions that we won't be heard," said Collier resident Tiffany Hannett. "Florida's aquifer is a precious resource, and it does not seem like a good idea to put pressurized water and chemicals underneath it. I think it's just asking for disaster." And now Southwest Floridians are taking their voice to the streets with their crosshairs set on the controversial drilling process known as fracking. If SB 318 passes, local ordinances and regulations banning fracking would be replaced with a state permitting. That's not good enough for these people. "It does not push the goals of the people. It does not protect us. It does not give us rights to stand up against the companies and tell them we don't want them doing this where we live," said Hannett. The bill is sponsored by State Senator Garret Richter of Naples. Richter told our news gathering partners at Naples Daily News that the bill would create one uniform set of rules for the state instead of hundreds of local ones. And those rules would consider fracking's impact on the environment.

Risks trump rewards of fracking  - In a state where the vast majority of drinking water is drawn from the aquifer; in a state whose fresh water is threatened by saltwater intrusion; in a state where overdeveloped areas have sucked up more ground water than is available; in a state famous for sinkholes because of its porous geology, there’s actually serious debate among lawmakers about opening the door to fracking. That state is Florida. The Florida House of Representatives has backed a bill to conduct a fracking study to look at risks and economic benefits of the practice. So exuberant are supporters about the potential benefits, the bill also — if ultimately passed — would bar local governments from imposing moratoriums. That, alone, is reason to call legislative backers on the carpet. The only legislation the state should have regarding fracking is an all-out ban. Fracking — or, hydraulic fracturing — is a process by which tons of fresh water, sand and good-old toxic chemicals are force-fed through rock to extract gas and oil. “Acidization” is the catchy term used for the process. When lawmakers tout the potential for employment opportunities and greater energy independence, realize that their script is being crafted by lobbyists. The United States, as a whole, has made strides toward energy self-sufficiency. The limited areas of Florida where fracking might be effective would be little more than a blip on the national radar. Add to that, grave concerns about the impact of fracking on the environment in states where it is commonplace — states that have suitable geology. Supporters in the Florida House note that while the Department of Environmental Protection would conduct the $1 million study and develop proposed fracking regulations, the rules would have to be ratified by lawmakers. One wonders how many state lawmakers have advanced degrees in geology, hydrology and environmental chemistry.

Texas Railroad Commission, Mexico Discuss Shale Development  - Mexico energy agencies currently are defining contractual terms for an upcoming auction of contracts related to shale resources to the private sector, the Texas Railroad Commission said in the press statement. The sale is expected to include Mexico’s unconventional assets, just south of the Texas-Mexico border. The portion of the Eagle Ford shale that extends into Mexico is part of the Burgos Basin, where technically recoverable shale gas is projected at 343 trillion cubic feet (Tcf), or two-thirds of Mexico’s technically recoverable shale gas resources. SENER is reviewing key factors that have contributed to the regulatory success of the Texas shale industry. Mexico is estimated to have 545 Tcf of shale natural gas reserves, and unconventional oil reserves of 13 billion barrels. While the initial focus on exploration will likely be on conventional onshore, offshore and deepwater, he three centers of learning conclude that Mexico’s shale resources will play an integral role in the success of Mexico’s energy reform.  However, significant challenges such as oil prices, contract terms offered by Mexico’s government, social license issues and infrastructure must be addressed before shale development can move forward.

Democrats to propose 2 fracking measures — They haven’t come in yet, but lawmakers on both sides of the political aisle are talking about introducing measures related to the to-do over hydraulic fracturing. Democrats in the Colorado House, where that party has a majority, are expected to introduce two measures later this session, one making it easier for surface property owners to collect damages from mineral rights owners if their properties are damaged, and a second measure to give local governments more regulatory authority over drilling within their jurisdictions. House Speaker Dickey Lee Hullinghorst, D-Boulder, said that second idea is something she highly supports. “I think this bill would be a very reasonable approach,” she said. “I have always felt that’s where you have to get at, the conflict in property rights.” Meanwhile, Republicans in the Senate, where they have control, haven’t said what their plans are yet. Sen. Jerry Sonnenberg, R-Sterling, however, said he is still considering reintroducing an idea he’s proposed before, to bar any locality that bans fracking from receiving any severance tax revenues. On that score, Sen. Ray Scott, R-Grand Junction, has introduced a bill, SB97, to protect severance tax revenues from being grabbed by state lawmakers to balance other parts of the budget, and to increase the amount of direct distributions to local governments.

Enbridge challenges regulators review of pipeline project — Enbridge Energy and its supporters have accused Minnesota regulators of imposing unreasonable and unlawful procedures that they say will delay construction of a $2.6 billion pipeline to carry North Dakota crude oil across northern Minnesota. Enbridge in a regulatory filing Monday says the Public Utilities Commission’s requirement that a final environmental study be submitted before the pipeline route is formally reviewed will delay the project another four to six months. That would be nearly four years after Enbridge filed its application. The Star Tribune reports the pipeline company cites 17 other projects in which regulators addressed environmental risks in tandem with the permit review. Environmental groups and Indian tribes are concerned the pipeline could damage pristine northern waterways. The Minnesota Chamber of Commerce and labor groups support Enbridge’s challenge.

North Dakota's Economy Has Been "Completely Devastated" By Oil's Collapse -- Yesterday, on the way to documenting the malaise China’s hard landing has inflicted on Minnesota’s mining country, we discussed the dramatic impact falling crude prices have had on the American and Canadian oil patches.  Take Texas, for instance, where a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market.  As we showed in November, layoffs in Lone Star land far outrun job losses in any other state. In Houston (which was already staring down a worsening pension crisis), vacant office space is “piling up.” As WSJ wrote last week, “the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings.”  North of the border, things are even worse. As regular readers are no doubt aware, Alberta is a veritable nightmare as suicide rates rise, the number of jobless multiplies, food bank usage soars, and property crime in Calgary spikes. “Lower for longer” has been a disaster for many state and local governments in the US, as revenue projections devised before oil’s historic plunge prove increasingly optimistic.  Louisiana for example, where Lt. Gov. Jay Dardenne recently announced that the state is facing a $750 million deficit.  Louisiana officials had assumed oil prices around $62 a barrel when calculating projected tax revenue. Needless to say, their projections were slightly off the mark. Meanwhile, in Alaska, Governor Bill Walker is looking at a $3.5 billion deficit, prompting the state to consider implementing an income tax for the first time in three decades. The new tax would generate about $200 million, based on estimates provided by Walker's office.  And then there’s North Dakota which, as Bloomberg recalls, “has been the economic envy of every state in America for most of the past decade.”. “Now, amid the worst bust in a generation, North Dakota’s economy is shrinking, employment is falling fast, and the state is imposing the deepest spending cuts in its history to help plug a $1 billion budget deficit.” Here’s more:

Idle Chatter On DUCs And Related Data Points -- I'm going to take a break from blogging in a few minutes. This last note for awhile won't go into much explanation. The audience is intended for those with a pretty good feeling for / a pretty good understanding of the Bakken.  With regard to DUCs, there is a lot of discussion about how fast drillers can bring these DUCs on line. The pessimists suggest with 1,000 DUCs now (and likely to be 1,500 before 2016 is over), and a shortage of frack spreads, it's not going to be easy to get those DUCs on line as fast as some might suggest. I disagree. I think folks will be surprised how fast drillers can get these wells fracked  / clear up the backlog if the price support such action. However, I think there is a much, much bigger "thing" going on. There are two types of drillers out there right now: those with deep pockets, and those with pockets whose change has fallen through the holes.  Those with nearly empty pockets are producing at maximum production; those with deeper pockets are producing just enough to keep things going at the rate they select. As usual, I might be making too much out of this, but I don't think so. I did not cherry pick. I was in the process of updating some things that I had listed earlier as "things to follow up on" and these were the first two items I came across. I am sure there are a hundred similar examples. Bottom line: in addition to fracking DUCs, there are a lot of completed/fracked wells that are being "managed." Those wells can see production surge in less than 30 days. And with all the pad drilling, it will become even more common

US agrees to environmental review of offshore oil fracking  (AP) — The federal government has agreed to stop approving oil fracking off the California coast until it studies whether the practice is safe for the environment. The agreements filed Friday in Los Angeles federal court settle lawsuits brought by environmental groups that challenged the approval of the practice off Ventura and Santa Barbara. The deals require the Department of Interior to review whether well stimulation techniques such as fracking threaten water quality and marine life. The Environmental Defense Center says the practices have been conducted for years in federal waters with no environmental review and were revealed through the organization’s public records requests. Federal agencies will have to complete the review by the end of May and determine if a more in-depth analysis is necessary.

In A Victory For Environmentalists, Officials Halt Offshore Fracking Permits In California -- The federal government won’t be issuing any new permits to frack for oil or gas in the waters off California, after a settlement was reached Friday in a case brought by the Center for Biological Diversity. The settlement also directs the U.S. Department of the Interior to analyze the environmental impacts of offshore fracking.   “Every offshore frack puts coastal communities and marine wildlife at risk from dangerous chemicals or another devastating oil spill,” Kristen Monsell, an attorney with the group, said in a statement. “Once federal officials take a hard look at the dangers, they’ll have to conclude that offshore fracking is far too big of a gamble with our oceans’ life-support systems.” In 2013, an investigation by the Associated Press revealed that there were more than 200 instances of fracking operations in state and federal waters off California — which were all unknown to the state agency that oversees offshore oil and gas. The lawsuit alleged the federal regulators were rubber-stamping permit applications.  According to the Center for Biological Diversity, California’s oil industry is allowed to dispose of more than 9 billion gallons of wastewater by dumping it into the ocean off California’s coast every year. The chemicals in fracking can be deadly to marine life, including both fish and California’s beloved, at-risk otter population. “Offshore fracking is a dirty and dangerous practice that has absolutely no place in our ocean,” Monsell said. “The federal government certainly has no right to give the oil industry free rein to frack offshore at will.”

US to stop approving oil fracking off California coast until review is complete - The federal government has agreed to stop approving oil fracking off the California coast until it studies whether the practice is safe for the environment, according to legal settlements filed Friday. Separate deals reached with a pair of environmental organizations require the Department of the Interior to review whether well techniques such as using acid or hydraulic fracturing, also known as fracking, to stimulate offshore well production threatens water quality and marine life. The practices have been conducted for years in federal waters and were revealed when the Environmental Defense Center filed Freedom of Information Act requests, the organizations said. “These practices are currently being conducted under decades-old plans with out-of-date or nonexistent environmental analysis,” said Brian Segee, an attorney for the Environmental Defense Center. The agreements in Los Angeles federal court apply to operations off Ventura and Santa Barbara counties, where companies such as ExxonMobil operate platforms. Federal agencies will have to complete the review by the end of May and determine if a more in-depth analysis is necessary. They will also have to make future permit applications publicly accessible. A Department of Interior spokeswoman said the agency would comply with the agreement and is committed to safe offshore operations.

California Attorney General Files Charges Over L.A.’s Natural Gas Leak -- California Attorney General Kamala Harris announced Tuesday that she has filed a lawsuit against Southern California Gas Company, alleging the company failed to report the massive methane leak near Los Angeles in a timely manner.The natural gas, which has been treated with an odorant called mercaptan, is making local residents sick. Since the leak began in October, some 3,000 families have been evacuated from the Porter Ranch neighborhood, about 25 miles northwest of downtown Los Angeles. “The impact of this unprecedented gas leak is devastating to families in our state, our environment, and our efforts to combat global warming. Southern California Gas Company must be held accountable,” Harris said in a statement. “This gas leak has caused significant damage to the Porter Ranch community as well as our statewide efforts to reduce greenhouse gas emissions and slow the impacts of climate change.” So far, the storage well has released more than 91,000 metric tons of methane into the atmosphere. The California Public Utilities Commission was notified of the leak two days after it was discovered, a representative said recently at a public hearing. The suit, which also alleges that SoCalGas has failed to control the leak in a timely manner, claims the company has violated California’s health and safety laws. Harris is acting independently as Attorney General as well as on behalf of the California Air Resources Board.

Prosecutor smells crime, charges utility for huge gas leak - Top prosecutors in Los Angeles County and the state of California are the latest to make moves against a utility for a massive and still-flowing gas leak, joining a growing group that now includes several levels of government along with parts of the private sector. LA County’s District Attorney Jackie Lacey filed misdemeanor criminal charges Tuesday against Southern California Gas Co. for failing to immediately report the natural gas leak that has been gushing nonstop nearly 15 weeks. Lacey said the charges aren’t a solution to the problem, but the gas company needs to be held responsible for the leak that has uprooted more than 4,400 families. The charges came the same day the state Attorney General Kamala Harris joined a long line of others in suing the gas company for the blowout that has spewed more than 2 million tons of climate-changing methane since October. U.S. senators want the secretary of energy to investigate the leak, and federal regulators are crafting new safety standards for underground natural gas storage facilities. Many nearby residents want the facility — the largest in the West — shut down, and the California Public Utilities Commission is studying what impact that would have on energy supplies. The criminal complaint charges the company with three counts of failing to report the release of a hazardous material and one count of discharge of air contaminants.

Wrongful Death Lawsuit Filed as SoCalGas Faces Criminal Charges Over Porter Ranch Gas Leak --The Southern California Gas Company (SoCalGas) is under increasing legal fire over the catastrophic Porter Ranch gas leak. The embattled company, which is the primary provider of natural gas to Southern California, is facing potential criminal and civil charges, and now, its first wrongful death lawsuit.  It’s estimated that more than 92,000 metric tons of methane, a powerful climate pollutant, have escaped from the Aliso Canyon natural gas storage facility since the noxious leak was first reported on Oct. 23, 2015. On Jan. 6, California Gov. Jerry Brown declared the leak, which has forced the relocation thousands of residents, a state of emergency. Los Angeles County District Attorney Jackie Lacey announced Tuesday that SoCalGas will face four misdemeanor criminal charges in connection with the gas leak: three counts of failing to report the release of hazardous materials from Oct. 23-26, 2015, and one count of discharging air contaminants, beginning on Oct. 23, 2015, to the present.If convicted in the criminal case, SoCal Gas could be fined up to $25,000 a day for each day it failed to notify state authorities about the leak. An arraignment is scheduled for Feb. 17, Lacey’s office said.Hours earlier, California Attorney General Kamala Harris joined a civil lawsuit filed by the county and city of Los Angeles against the utility. Also on Tuesday, a Pasadena, California family filed a wrongful death lawsuit against SoCalGas on behalf of Zelda Rothman, 79, a longtime Porter Ranch resident who lived less than three miles from the leaking well. The complaint alleges that the leaking gas infiltrated Rothman’s home and surroundings, exacerbating her fragile health. Rothman, who had already been suffering from lung cancer, died on Jan. 25.

First research links California quakes to oil operations - (AP) — A 2005 spate of quakes in California's Central Valley almost certainly was triggered by oilfield injection underground, a study published Thursday said in the first such link in California between oil and gas operations and earthquakes. Researchers at the University of California at Santa Cruz, the University of Southern California and two French universities published their findings Thursday in a publication of the American Geophysical Union. The research links a local surge in injection by oil companies of wastewater underground, peaking in 2005, with an unusual jump in seismic activity in and around the Tejon Oilfield in southern Kern County. In Oklahoma and other Midwestern states, the U.S. Geological Survey and others have linked oilfield operations with a dramatic surge in earthquakes. Many of those quakes occur in swarms in places where oil companies pump briny wastewater left over from oil and gas production deep underground. "It's important to emphasize that definitely California is not Oklahoma," lead author Thomas Goebel at the University of California at Santa Cruz said Thursday. "We don't really expect to see such a drastic increase in earthquake occurrences" in California given different oilfield methods and geology in the two areas. In Kern County, the shaking topped out on Sept. 22, 2005, with three quakes, the biggest magnitude 4.6, researchers said. Researchers calculated the odds of that happening naturally, independently of the oilfield operations, at just 3 percent, Goebel said. However, the oilfield operation "may change the pressure on ... faults, and cause some local earthquakes" in California, he said.

Fracking was 'almost certainly' to blame for earthquakes in California in 2005 -

  • Scientists looked at activity near Tejon Oilfield in Kern County
  • Kern County was shaken by three earthquakes in September 2005
  • Increase in oil and gas activity was linked to an unusual jump in tremors 
  • Oil and gas activity also blamed for tremors in areas such as Oklahoma

A spate of quakes in California's Central Valley was 'almost certainly' triggered by oil and gas activity. Scientists made the discovery after studying a local surge in injection of wastewater underground, peaking in 2005,  The practice, which is used in fracking, was linked to an unusual jump in seismic activity in and around the Tejon Oilfield in southern Kern County. Scientists studied a local surge in injection of wastewater underground, peaking in 2005, The practice was linked to an unusual jump in seismic activity in and around the Tejon Oilfield (pictured) in southern Kern CountyIn Oklahoma and other Midwestern states, the US Geological Survey and others have linked operations with a dramatic surge in earthquakes.Many of those quakes occur in swarms in places where oil companies pump briny wastewater left over from oil and gas production deep underground.The oil and gas industry uses injection wells to get rid of wastewater, which has a high salt content, as well as radioactive material. 'It's important to emphasize that definitely California is not Oklahoma,' lead author Thomas Goebel at the University of California at Santa Cruz said.'We don't really expect to see such a drastic increase in earthquake occurrences' in California given different oilfield methods and geology in the two areas.'

Crude By Rail Decline Picks Up Pace -- With crude prices below $30/Bbl and the price spread between U.S. domestic crude benchmark West Texas Intermediate (WTI) and international equivalent Brent trading in a very narrow range – the economics of moving Crude-by-Rail (CBR) rarely make sense any more.  Rail shipments are down across all regions and railroads are reporting sharply lower revenues from CBR shipments.  Today we start a new series revisiting the regions where CBR traffic boomed a couple of years back and contemplating its future value to shippers and refiners.   We’ve been covering the CBR scene ever since RBN started posting blogs back in 2012 – including our seminal series “Crude Loves Rock’n’Rail” that described how producers turned to rail over pipelines – first in North Dakota and later in other shale basins.  Pipelines have been almost always preferred since then because (once built) their freight costs are generally lower than using rail or trucks. More recently however, surging crude production from shale overwhelmed existing pipeline take-away infrastructure leading to significant constraints and price discounting – particularly in the Midwest – while producers waited for the build out of new pipeline capacity that is typically a relatively slow process taking up to 3 years. As a result, at the end of 2010, producers (led by innovators EOG and railroad BNSF) turned to the rails to deliver crude past congested pipelines to coastal markets where netbacks (crude sales price less transport costs from the wellhead) were considerably higher. The resulting surge saw total U.S. CBR shipments (not including Canadian imports) increase from 33 Mb/d in January 2010 to a peak of 928 Mb/d in October 2014 (as measured by the Energy Information Administration – EIA – see A Look At The Crude By Rail Track Record).

How to implode an oil train tanker (VIDEO) - If an oil tanker is on the path to destruction, it usually meets its end after a derailment and the [possible] subsequent explosions. But what it would take to make one implode? In their usual tongue in cheek, “don’t try this at home” fashion, the team on the Discovery Channel’s MythBusters recently took on the challenge of destroying an oil train tanker car from the inside out, or outside in — whichever actually proved successful. According to the urban legend under scrutiny, the interior of a crude-by-rail tank car was being steam cleaned when heavy rains hit. The downpour prompted the workers to seal the tank car, trapping the hot steam in the tanker. As the rain cooled the now hot tank car, the air sealed inside compressed, leading to the eventual implosion when the air pressure difference between the inside and out became too great. To test this myth, hosts Adam Savage and Jamie Hyneman practiced some very basic science, but on a monumental scale. . Air is a mixture of gasses that compress with colder temperatures and expand with higher temperatures. If the air pressure within a sealed container is lower than the air pressure on the outside, the pressure from the outside will cause the container to collapse within itself. But to test this effect on an oil tanker required what was dubbed “the largest prop in MythBusters history.” Not only did they need the tank car, but also the railways to move it and a facility large enough to have a portion of it shut down for safety. They found all of the above at the Port of Morrow in Boardman, Oregon. With proper safety measures in place, Savage and Hyneman set out to crush this 67-foot long, 60,000 pound heap of cold rolled steel with half inch walls.

Oilfield services provider Weatherford to cut 6,000 jobs - (Reuters) - Weatherford International Plc said it would cut about 6,000 jobs in the first half of 2016 as a steep drop in oil prices hurts drilling and exploration activity. The oilfield services provider, which had about 56,000 employees at the end of 2014, cut about 14,000 jobs in 2015. The company also set a capital expenditure target of $300 million for this year, about 56 percent lower than its 2015 spending.

OPEC’s Serious Decline Forecast For U.S. Shale Is Exaggerated -- OPEC is betting that its price war to reclaim market share, mostly from drillers in North America, will force reduced investment in the region this year, “rebalancing” prices that have fallen dramatically over the past 19 months. But the latest news on American output and consumption is sending mixed messages. OPEC’s latest Monthly Oil Market Report, released Jan. 18, forecasts greater demand for its own oil in 2016 as competitors, hamstrung by low prices, continue to cut back severely on capital expenditures for production, reducing the oil glut caused by the group’s competitors. “It will … be the year when the rebalancing process starts,” the report said. “After seven straight years of phenomenal non-OPEC supply growth, often greater than 2 [million barrels per day], 2016 is set to see output decline as the effects of deep capex cuts [by non-OPEC producers] start to feed through.” OPEC’s forecast may even turn out to be correct, but the closing days of 2015 tell a slightly different story, according to data from the U.S. Energy Information Administration (EIA) and Statistics Canada.The EIA reported Friday that overall production in the United States in November declined by 52,000 barrels per day to 9.32 million barrels per day, the lowest since June. The drop is primarily attributable to a decline of 57,000 barrels per day in the Gulf of Mexico, but this was offset somewhat by a rise of about 3,000 barrels per day in Texas and 5,000 barrels per day in North Dakota, both shale oil sources.  Even though these data may be two months old, they give traders clues to how soon the U.S. shale boom may decline or even bust altogether. Yet shale production in November was much greater than the 9.05 million barrels that IEA had forecast in October. This only adds to the current oil glut.

Moody's: US corporate defaults to hit six-year high in 2016 as commodity fallout continues -- The US speculative-grade default rate rose to 3.2% from 2.7% in the fourth quarter of 2015 and will likely climb to a six-year high of 4.4% this year, as the drop in prices continues to pressure cash flows in commodity sectors, says Moody's Investors Service. "On the back of the oil price slump, defaults were the most concentrated in the oil and gas industry in 2015 due to weakening cash flows," said Moody's Senior Vice President John Puchalla. "We expect oil and gas, along with other commodity sectors, to continue to push the default rate higher in 2016." According to the report, "US Corporate Default Monitor -- Fourth Quarter 2015: Default Rate to Reach Six-Year High in 2016," oil and gas companies contributed 25 defaults in 2015, pushing the total US non-financial corporate default count to 56, the highest level since the 2009 recession. In the fourth quarter specifically, nine of the 15 US non-financial corporate defaults were oil and gas companies. Metals and mining had the second highest sector default count at seven in 2015, further demonstrating that falling prices are straining the cash flow and liquidity of commodity-based companies. Defaults in non-commodity sectors were up only slightly to 24 in 2015 from 21 in 2014. Positive economic growth, modest 2016 maturities, and a lack of widespread covenant issues continue to support liquidity and contain the number of defaults. "Liquidity pressures and negative rating trends are modest but edging up outside of commodity sectors, which raises the possibility of a sharper rise in the default rate if economic growth slows or credit losses in energy and tighter monetary policy further increase investor risk aversion and speculative-grade borrowing costs," added Puchalla. "This would hurt corporate cash flow and make it more difficult for low-rated borrowers to resolve liquidity issues."

US junk debt rated triple C yields 20% --  An investor exodus from the lowest-quality US corporate bonds has sent yields to their highest levels since the world’s largest economy emerged from recession in 2009. Yields, which move inversely to prices, on debt issued by US companies that carry a rating of triple C or lower hit 20 per cent for the first time in more than six years this week, a watershed for investors who had piled into the asset class over the past three years in the hunt for yield. The sharp drop in commodity prices and a rising expectation of defaults by highly indebted companies have shaken investors and closed the door on new debt sales. Investors say the dearth of liquidity has made it even more difficult to own paper rated triple C. Late last year several bond funds closed that held high amounts of low-rated and unrated debt. “You are seeing a lack of appetite in the new issue market for these types of issuers,” said Matthew Mish, credit strategist with UBS. “[Funds] have outflows and the Federal Reserve is no longer printing money. “The tide is going out and you would expect the lowest-quality borrowers who benefited the most . . . to suffer first.” Portfolio managers are also experiencing a wave of redemptions from investors. US junk bond mutual and exchange traded funds have counted more than $20bn of withdrawals since mid-November, according to Lipper. Investors have instead turned to US government paper, with funds invested in Treasuries counting more than $9bn of inflows over the past eight weeks. “We expect a shakeout this year in the US oil and gas market, as highly leveraged companies will be forced to declare bankruptcy,”

Banks On The Hook For Bad Energy Loans - Energy sector bankruptcies are mounting as we detox from the high of the shale boom, but while junk-rated energy bonds are experiencing staggering losses, and without any reprieve in site for low oil prices, some banks are still unwilling to throw in the towel—betting on a reversal of fortunes. In 2015 alone, 42 oil companies filed bankruptcy proceedings, according to law firm Haynes and Boone. Total secured and unsecured energy sector debt moved into bankruptcy stood at a whopping $13.1 billion. According to Standard and Poor’s Rating Services, 50 percent of these oil and gas debts are considered distressed. With oil prices expected to remain low, the numbers could get much worse before they get better. But banks aren’t necessarily viewing this in terms of dire straits, and they aren’t necessarily tightening the reigns on lending. In fact, some banks are holding out hope that the current crude oil crisis will force the industry to reduce production costs, allowing debt-laden companies to survive low prices and repay the mounds of debt taken on when times were good.How much debt are we talking about, exactly? According to Barclays, the amount of bond debt owed by junk-rated energy producers expanded eleven fold to $112.5 billion at the height of the shale boom from 2004 through 2014. Perhaps a few will adapt to the changes and endure. Unfortunately, there will be many others who will be unable to compete at today’s prices, creating a problem for banks that continue to lend to companies rated BB and lower.

U.S. regulators expected to classify more energy loans as high risk | Reuters: U.S. regulators are likely to classify more oil and gas loans as high risk when they start a new bank portfolio review in early February due to the fall in crude prices to a 12-year low since the last review, which will cut credit access and escalate defaults for cash-starved energy companies, analysts and investors said. The Shared National Credit (SNC) review of bank loan underwriting standards is stepping up to twice a year in 2016 from the usual annual exam as regulators crack down on lending practices that could pose systemic risk, including loans extended to troubled oil and gas companies. This closer look by the Federal Reserve, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp could force banks to further increase reserves to buffer losses on these loans, while providing less debt to these struggling energy companies, sources said. The new review period began February 1, an OCC spokesman said. “It will likely prompt further risk rating downgrades in their (banks') SNC portfolios, which may lead to further provisioning,”

Energy loans likely to cause further losses for big banks — The nation’s six largest banks have hit an oil slick. They have tens of billions of dollars of exposure to risky energy loans that won’t all be paid back because low oil prices have sapped the profits of oil companies. The value of those loans will have to be written down even further, and bank profits are going to take a hit, the credit agency Moody’s said in a report issued Friday. The loans on the balance sheets of the biggest banks on Wall Street — JPMorgan Chase, Goldman Sachs, Citigroup, Morgan Stanley, Wells Fargo and Bank of America — represent only a small percentage of these firms’ overall loans, but the losses will be noticeable. “While the banks’ exposure are not outsized, these loans have already resulted in banks taking loan-loss provisions and we expect that if oil prices remain low for longer these firms are going to take additional losses,” said David Fanger, senior vice president at Moody’s who wrote the report. Oil prices have fallen by more than 70 percent over the course of the last 19 months, to a recent $31 a barrel. Energy analysts expect that prices will be extremely slow to rise again because there is an enormous global oversupply of crude. The troubled energy loans, while sizable, do not pose nearly the same threat to the banks or the financial system that mortgage loans did when the housing market collapsed leading up to the financial crisis. Wells Fargo is more exposed to these risky energy loans than the other big banks. Moody’s estimates that Wells Fargo’s total energy exposure is heavily weighted toward loans to oil exploration and production companies, as well as oil field services companies, which have been hardest hit by the decline in oil prices. Moody’s estimates that nearly 40 percent of Wells Fargo’s energy loan portfolio are at what Moody’s considers to be a heightened risk of facing delinquent payments.

Harold Hamm Expects $60 Oil, Says America Will Double Output Again - The fracking tycoon has cut capex at Continental Resources, but refuses layoffs. He says he’ll need all his staff for the new boom to come. Any hope of Russia and Saudi Arabia agreeing to an oil production cut is nothing but a daydream. Industry layoffs are continue. The U.S. rig count has reached a new low, down to 591 from 1,285 at the peak. Even Chevron reported a surprise loss for the fourth quarter — when oil prices were at least a little higher than now. More than $60 billion worth of outstanding oil company debt is already in distress or default, with another $50 billion rated B, or well below investment grade. Particularly disturbing for equity investors: according to Bernstein Research the average U.S. exploration and production company are still priced as if oil prices were $58 a barrel. West Texas Intermediate closed last week at $33.62. At times like this it helps to turn to a reliable bull. So last week  paid a visit to Harold Hamm at the Oklahoma City headquarters of his Continental Resources. Hamm (as detailed in this 2014 Forbes cover story, and this follow-up a year ago) has been one of the true pioneers of the Great American Oil Boom. At the peak of his fortunes Hamm’s controlling stake in Continental was worth upwards of $18 billion. It’s since fallen back to $4.5 billion. We sat down for a chat the day after Hamm announced that Continental would slash its 2016 capital spending to $920 million — a 66% cut from last year’s level. His objective is for Continental to live within its cash flow for the first time in years. Assuming an average oil price of $40 a barrel, Continental expects its new plan to generate excess cash flow of $100 million in 2016.

Shale Shock: Big Leg Lower In Oil Coming After Many Producers Found To Have Far Lower Breakevens - One of the great unknowns facing the US shale industry, and threatening the recurring rumors of its imminent demise, is how it is possible that despite the collapsing number of oil wells, and despite the plunge in crude prices which supposedly are well below all-in shale extraction costs, does production not only refuse to decline, but in fact has been largely increasing in thepast 6 months, with just a modest decline in recent weeks. The answer may come as a surprise not only to industry pundits, but certainly to Saudi Arabia, whose entire strategy has been to keep pressure the price of oil low enough for long enough to put as many "marginal producers" in the US shale space out of business as possible. According to a report by the Bloomberg Intelligence analysts  William Foiles and Andrew Cosgrove, Saudi Arabia may have its work cut out for it as it will be far harder to kill many U.S. E&Ps than analysts originally thought. The reason: a break-even model for the Permian Basin and Eagle Ford shows that oil production across five plays in Texas and New Mexico may remain profitable even when WTI prices fall below $30 a barrel, according to a 55-variable Bloomberg Intelligence model for horizontal oil wells.  The Eagle Ford's DeWitt County has the lowest break-even, at $22.52, followed by Reeves County wells targeting the Wolfcamp Formation, at $23.40. The diversity of breakevens highlights the hazard posed by looking for a single number, even within a play. These counties together produced about 551,000 barrels of liquids a day in October. Taking into account drilled but uncompleted wells boosts the number of potential survivors to 19. The wide range of break-evens undermines efforts to come up  with a single threshold for U.S. shale producers. The full list of breakevens by county is shown below:

The US bet big on American oil and now the whole global economy is paying the price - Quartz: Oil has wrong-footed our leading experts—again. At the beginning of 2014, the world was marveling in surprise as the US returned as a petroleum superpower, a role it had relinquished in the early 1970s. It was pumping so much oil and gas that experts foresaw a new American industrial renaissance, with trillions of dollars in investment and millions of new jobs. Two years later, faces are aghast as the same oil has instead unleashed world-class havoc: Just a month into the new year, the Dow Jones Industrial Average is down 5.5%. Japan’s Nikkei has dropped 8%, and the Stoxx Europe 600 is 6.4% lower. The blood on the floor even includes fuel-dependent industries that logic suggests should be prospering, such as airlines. China’s slowing growth is one big reason. Another, according to analysts, is the direct or indirect fault of oil prices, which are still down 5% this year despite a week-long bullish run, and about 70% since their June 2014 peak, with much uncertainty how much they will rise from here in 2016. The misread of the market again illustrates oil’s unfathomability—despite being studied microscopically for 140 years by some of the highest-paid quants and analysts on Earth, oil confounds with maddening regularity. But it also reflects the tendency of analysts to eagerly embrace a new financial trend first, and only later examine what could happen should it proceed to its natural extremes before suffering the seemingly inevitable hit.

Gas Prices Are Plunging. So Why Is Everyone Freaking Out? -- Oil prices have declined nearly 75% from their recent peak in June 2014, roiling markets and sounding new alarm about the possibility of an economic slowdown.  Wait, what? Weren’t lower gasoline prices supposed to help the U.S. economy? Gas is below $2 a gallon in all but 11 states, reaching the lowest level since 2009. Prices have been cut in half over the last 18 months. When oil plunged in the 1980s, it unleashed strong economic growth, even as Texas, Colorado and Oklahoma slid into recession. So why are people acting as if this is a bad thing for the economy? It’s true that falling gas prices should help the U.S. economy because, even despite a recent boom in domestic energy production, America is still a net importer of oil. Here are five reasons why there’s more concern now:

Bernie Sanders Will Ban Fracking. Hillary Clinton 'Sold Fracking to the World' - Nothing illustrates the primary difference between Bernie Sanders and Hillary Clinton better than the following Huffington Post article by Brad Johnson titled On Eve of Caucuses, Clinton Rakes in Fracking Cash: Less than a week before the Iowa caucuses, Hillary Clinton attended a gala fundraiser in Philadelphia at the headquarters of Franklin Square Capital Partners, a major investor in the fossil-fuel industry, particularly domestic fracking. The controversial fracking industry is particularly powerful in Pennsylvania, which will host the Democratic National Convention this July. ... The pro-Clinton Super PAC Correct the Record, run by David Brock, touts Clinton's aggressive pro-fracking record. Clinton's brazen acceptance of funding from interests promoting fracking, and all the hazards that result from fracking, speaks volumes. From an environmentalist's perspective, this is the equivalent of Hillary Clinton's prison lobbyist donors. Bernie Sanders never accepted money from corporations involved in fracking, and certainly never accepted money from prison lobbyists. His challenger, on the other hand, is linked to oil and gas contributions that span across the globe. According to Reuters, "the Wall Street Journal reported that the Bill, Hillary and Chelsea Clinton Foundation and the Clinton Global Initiative have accepted large donations from major energy companies Exxon Mobil and Chevron." Clinton's foundations also accepted money from an office of the Canadian government linked to promoting Keystone XL.  For some reason, many Democrats overlook the fact that Clinton promises to uphold a progressive value system, while simultaneously accepting donations from corporations and governments working to undermine these principles.

Another Nail In The US Empire Coffin: Collapse Of Shale Gas Production Has Begun -- The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun. This is just another nail in a series of nails that have been driven into the U.S. Empire coffin. Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry. Without energy, the U.S. economy would grind to a halt. All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal. Energy drives the economy and finance steers it. As I stated several times before, the financial industry is driving us over the cliff.  Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015. Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015: Top-U.S.-Shale-Gas-Fields-Production As we can see from the chart, the Barnett and Haynesville peaked four years ago at the end of 2011. Here are the production profiles for each shale gas field:  According to the U.S. Energy Information Agency (EIA), the Barnett shale gas production peaked on November 2011 and is down 32% from its high. The Barnett produced a record 5 Bcf/d of shale gas in 2011 and is currently producing only 3.4 Bcf/d. Furthermore, the drilling rig count in the Barnett is down a stunning 84% in over the past year. The Haynesville was the second to peak on Jan 2012 at 7.2 Bcf/d per day and is currently producing 3.6 Bcf/d. This was a huge 50% decline from its peak. Not only is the drilling rig count in the Haynesville down 57% in a year, it fell another five rigs this past week. There are only 18 drilling rigs currently working in the Haynesville. The EIA reports that shale gas production from the Eagle ford peaked in July 2015 at 5 Bcf/d and is now down 6% at 4.7 Bcf/d. As we can see, total drilling rigs at the Eagle Ford declined the most at 117 since last year. The reason the falling drilling rig count is so high is due to the fact that the Eagle Ford is the largest shale oil-producing field in the United States.  Lastly, the Mighty Marcellus also peaked in July 2015 at a staggering 15.5 Bcf/d and is now down 3% producing 15.0 Bcf/d currently. The Marcellus is producing more gas (15 Bcf/d) than the other top three shale gas fields combined (12.1 Bcf/d).

LNG —A Market in Turmoil Moves to Right Itself --Things are not looking so good in the liquefied natural gas sector. LNG prices--both in the spot market and in contracts linked to oil prices—are very low, LNG demand growth is weak or non-existent, and a flood of new liquefaction capacity is coming online. But as we’re starting to see with crude oil, markets thrown out of whack respond; they try to self-heal. Low LNG prices are spurring demand growth in Europe and attracting some new buyers—Egypt, Jordan and Pakistan among them. The pace of liquefaction-capacity expansions is slowing. And Asia may finally get an LNG hub, which would only improve LNG’s long-term prospects there. Today, we continue our look at the fast-changing international market for LNG with an assessment of demand and destinations.  As we said in Episode 1 of our series, the decisions to convert four U.S. LNG import terminals to liquefaction/LNG export terminals (and to build a greenfield liquefaction/export terminal in Corpus Christi, TX) were spurred by the expectations that natural gas from the Marcellus, the Eagle Ford and other prolific shale plays would be so plentiful (and so inexpensive) that the U.S. could garner a significant share of global LNG trade--and that international LNG demand would be soaring (see our A Whole New World blog series and our LNG Is a Battlefield Drill Down report). The biggest leg-up for prospective U.S. LNG exporters appeared to be the yawning gap between the combined cost of securing gas, liquefying it, and shipping the resulting LNG to Japan, South Korea or China and the (mostly crude oil-indexed) prices that those countries were paying Indonesia, Qatar and other major LNG exporters for their product. The series-opening blog also laid out several factors that will help determine how U.S. players—gas producers, midstream companies and LNG exporters—will fare in the very different market (low oil and LNG prices, slowing LNG demand, too much liquefaction capacity) that emerged instead.

Consequences of a lower crude oil to natural gas price ratio - Prices for CME/NYMEX West Texas Intermediate (WTI) have been on a rollercoaster this week – falling under $30/Bbl one minute then jumping back over $32/Bbl the next. Yesterday (February 4, 2016) WTI closed down 56 Cents at $31.72/Bbl. CME Henry Hub natural gas futures fell back under $2/MMBtu to close at $1.972 yesterday. That left the crude-to-gas ratio (WTI divided by Henry Hub) at just over 16 X – a little higher than the 15 X range we’ve been seeing this year. That is nearly half as much again as the 27X average between 2009 and 2014. The futures market implies that low ratios could continue for years – with December 2024 values implying a ratio of 13.3 X. The potential consequences of these low ratios are dramatic for the natural gas liquids (NGL) business as well as the competitiveness of U.S. natural gas in international markets.  Today we describe the implications. [...] Conclusion: A low oil-to-gas ratio squeezes the NGL business and all its downstream dependencies in petrochemicals. It also makes U.S. natural gas less competitive in world markets. Both of these consequences threaten two widely expected benefits from the Shale Revolution – massive domestic investment in petrochemicals and the export of surplus natural gas production. These consequences flow directly from low oil prices and reiterate the challenge facing the U.S. energy industry to prosper in a low price era.

Army of Lobbyists Push LNG Exports, Methane Hydrates in Senate Bill - The U.S. Senate has put a major energy bill on the table, the first of its sort since 2007. The 237-page bill introduced by U.S. Sen. Lisa Murkowski (R-AK) — S. 2012, the Energy Policy Modernization Act of 2015 — includes provisions that would expedite the liquefied natural gas (LNG) export permitting process, heap subsidies on coal technology, and fund research geared toward discovering a way to tap into methane hydrate reserves. As we saw with the lifting of the U.S. crude oil export ban, which was part of a broader congressional budget bill, a DeSmog investigation reveals that these provisions once existed as stand-alone bills pushed for by an army of fossil fuel industry lobbyists. The list of lobbyists for S. 2012 is a who's who of major fossil fuel corporations and their trade associations: BP, ExxonMobil, America's Natural Gas Alliance, American Petroleum Institute, Peabody Energy, Arch Coal, Southern Company, Duke Energy and many other prominent LNG export companies. An examination of particular provisions within the bill, and who lobbied for them, tells us much about how the legislative “sausage” is made inside the Beltway. Found on page 171 of the bill, Section 2201 calls for U.S. government agencies to perform expedited LNG export permitting processes. More precisely, the language reads that “not later than 45 days after the conclusion of the review to site, construct, expand, or operate” an LNG export facility, the U.S. government should make a permitting decision. Upon introduction of the bill, U.S. Sen. Michael Bennet (D-CO) boasted in a press release that the sub-section is actually based on an earlier bill he co-sponsored with U.S. Sen. John Barrasso (R-WY). That is, the LNG Permitting Certainty and Transparency Act (H.R. 351), a bill lobbied for by the likes of ExxonMobil, BP, Chevron, Chesapeake Energy, America's Natural Gas Alliance, American Petroleum Institute, Berkshire Hathaway Energy and others. “Our LNG exports provision will help grow Colorado's natural gas sector,” Bennet said of the bill's introduction. “And expediting the approval process for LNG exports will support Colorado jobs by helping natural gas producers in our state expand to new overseas markets.”

Obama Proposes $10/Barrell Oil Tax To Fund Government Transportation Investments --Moments ago, Politico reported that in his final budget, Obama is set to unveil an ambitious plan for a “21st century clean transportation system.” which will be funded by a $10/barrel tax on oil. From Politico: Obama aides told POLITICO that when he releases his final budget request next week, the president will propose more than $300 billion worth of investments over the next decade in mass transit, high-speed rail, self-driving cars, and other transportation approaches designed to reduce carbon emissions and congestion.To pay for it all, Obama will call for a $10 “fee” on every barrel of oil, a surcharge that would be paid by oil companies but would presumably be passed along to consumers.In other words, while there may be excess supply of about 3 milion barrels daily according to Saudi Arabia, suddenly demand is about to fall off a cliff as the price of oil surges thanks to Obama's latest brilliant intervention in the "free market", one which would result in a roughly 30% tax to E&P companies.The good news: it won't pass...There is no real chance that the Republican-controlled Congress will embrace Obama’s grand vision of climate-friendly mobility in an election year—especially after passing a long-stalled bipartisan highway bill just last year—and his aides acknowledge it’s mostly an effort to jump-start a conversation about the future of transportation. ... at least not in the current congress. But what about next time?

Obama seeks $10-per-barrel oil tax to fund clean transport — President Barack Obama wants oil companies to pay a $10 fee for every barrel of oil to help fund investments in clean transportation that fight climate change. Obama will formalize the proposal Tuesday when he releases his final budget request to Congress. The $10-per-barrel fee is expected to be dead on arrival for the Republicans who control Congress and oppose new taxes and Obama’s energy policies. Still, the White House hopes the proposal will drive a debate about the need to get energy producers to help fund such efforts to promote clean transportation. The White House said the $10 fee would be phased in over five years. The revenue would provide $20 billion per year for traffic reduction, expanding investment in transit systems and new modes of transportation like high-speed rail. It would also revamp how regional transportation systems are funded, providing $10 billion to encourage investment that lead to cleaner transportation options. The White House said the tax would provide for the long-term solvency of the Highway Trust Fund to ensure the nation maintains its infrastructure. The added cost of gasoline would create a clear incentive for the private sector to reduce the nation’s reliance on oil and drive investments in clear energy technology. The American Petroleum Institute projected that the fee would raise the cost of gasoline by 25 cents a gallon. “At a time when oil companies are going through the largest financial crisis in over 25 years, it makes little sense to raise costs on the industry,” added Neal Kirby, a spokesman for the Independent Petroleum Association of America. “This isn’t simply a tax on oil companies, it’s a tax on American consumers who are currently benefiting from low home heating and transportation costs.

Obama Proposes $10 Per Barrel Oil Tax To Fund Clean Transportation — Here’s How Republicans Responded - President Obama’s budget request next week will include plans for a $35-billion-per-year clean transportation plan, funded by a $10 per barrel tax on oil, phased in over five years. In a fact sheet about the president’s “21st Century Clean Transportation System,” the White House detailed how this new fee on the oil industry would boost federal funding for clean transportation by 50 percent, and help create “hundreds of thousands of good-paying, middle-class jobs each year.” The priority would be to reduce greenhouse gas emissions from the transportation sector, which is responsible for nearly a third of U.S. emissions. Last year, congress did pass a transportation bill, though the White House called it “merely a first step towards what our economy needs, with only a modest increase in infrastructure funding.” Theoretically, this is an excellent time to raise fees on oil, with the global glut causing the price of Brent crude to fall below $30 per barrel at the end of last year, and Wall Street not predicting that to change much any time soon.  Sen. John Barrasso (R-WY) said “Congress should and will reject it,” according to Politico transportation reporter Lauren Gardner. Industry figures responded the same way. Oil billionaire T. Boone Pickens said on Twitter that it would purposely bankrupt the oil and gas industry. He also tweeted: Don't know where to start. Dumbest idea ever? #crazytalk RT @politico: Obama to propose $10-a-barrel oil tax https://t.co/NSBRxkMUdD House Majority Whip Steve Scalise (R-LA) called the plan “Dead on Arrival”: Obama’s worst idea yet? Oil tax that could cost $.25/gallon at the pump https://t.co/FhcywQJGnn  House Speaker Paul Ryan (R-WI) said in a statement that the “president should be proposing policies to grow our economy instead of sacrificing it to appease progressive climate activists,”

Take 2 Minutes To Learn Why Obama’s $10 Fee On Oil Is So Important -- A forthcoming White House proposal to put a $10 per barrel fee on oil essentially amounts to a partial tax on carbon.  Over the next decade, that fee, to be paid by oil companies, would fund $300 billion of investments in mass transit, high-speed rail, self-driving vehicles and other forms of transportation that reduce dependence carbon, according to Politico. It's long overdue. Companies currently spew carbon emissions into the atmosphere with impunity. Those emissions, largely in the form of carbon dioxide, serve as greenhouse gases that warm the planet and have begun to drastically alter the climate. Without severe intervention by business leaders and governments, the planet is expected to warm by more than 2 degrees Celsius above pre-industrial temperatures. At that point, human civilization -- particularly that which is situated along coastlines -- will be in jeopardy or, to be frank, underwater. One long-proposed solution has been to put a tax on carbon, thereby financially incentivizing polluters to emit less and ultimately wean off fossil fuels.  According to the World Bank, which made the animation above, there are two main types of carbon taxes:

  • An [Emissions Trading Systems] – sometimes referred to as a cap-and-trade system – caps the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters.
  • A carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels. It is different from an ETS in that the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is.

President Obama's proposal, expected to be made public next week, could provide a third possible option.

Falling oil prices push Chevron to first loss since 2002 — Chevron suffered its first money-losing quarter since 2002 in the final three months of last year, as plunging crude prices chopped more than one-third from its revenue. Oil traded this month at levels not seen since 2003, although it has rebounded slightly in the last few days. Cheaper energy is great for consumers, who save with every fill-up, but oil-producing nations and big exploration companies like Chevron and Exxon are paying the price. Chevron is cutting spending, laying off workers, and looking to sell even more of its assets. The problem with that strategy: It’s a buyer’s market right now for oil facilities, with too many for-sale signs. The company has sold off $11 billion worth of facilities such as pipelines over the past two years and hopes to raise up to $10 billion more with sales through 2017. Company executives say, however, that they won’t unload assets at fire-sale prices just to get rid of them. Oil prices are down because growth in demand has slowed and cannot absorb a glut of oil on the market. On a conference call with analysts, Chevron CEO John Watson said he thinks energy demand will grow but that supply is a wild card. Watson pointed to forecasts that predict increasing cuts in production by non-OPEC nations could restore the market to balance this year. But until that happens, he said, prices will stay low “and the financial damage to the energy sector seen in 2015 will continue.”

Anadarko reports $1.25 billion loss in 4Q -- Anadarko Petroleum posted a loss of $1.25 billion in the fourth quarter. The Texas-based company plans to slash nearly half of its budget next year as it weathers plunging oil prices. For the year, Anadarko posted losses of $6.69 billion, or $13.18 per share. Anadarko CEO Al Walker said the company’s decision not to expand drilling programs in 2015 paid off because oil and gas markets have not yet recovered from a prolonged slump. “We did not expect oil prices to recover in 2015 and believed it could take well into 2016 before markets would stabilize on a sustained basis, costs would become more aligned with the new operating environment and investments in short-cycle assets would be more attractive,” Walker wrote in a statement. “Therefore, value enhancement drove our capital-allocation philosophy.” Anadarko expects to spend $2.8 billion in capital this year, about 50 percent less than last year. In 2015, the company cut its capital budget by 40 percent. Since the start of the year, Anadarko shares have fallen 21 percent. Anadarko shares sat at $38.22 on Monday evening, down 53 percent over the past year.

BP Reports 91% Plunge in 4th Quarter Earnings: — British oil company BP says its fourth-quarter earnings plunged because of a sharp declines in oil prices.The company reported Tuesday that fourth-quarter underlying replacement cost profit fell 91% from the same quarter a year earlier to $196 million. The figures were reported using an oil industry accounting standard that takes into account fluctuations in the price of oil and excludes non-operating items.Oil companies are slashing jobs and delaying investments as crude prices plummet. Brent crude, the benchmark for North Sea oil, fell 34% last year and hit a 12-year low of $27.10 a barrel in January. Brent traded at $34.13 on Monday and traded over $100 a barrel as recently as September 2014.BP says its net loss narrowed to $3.3 billion from $4.4 billion a year earlier.

BP reports biggest ever annual loss - (Reuters) - BP slumped to its biggest annual loss last year and announced thousands more job cuts on Tuesday, showing that even one of the nimblest oil producers is struggling in the worst market downturn in over a decade. The British oil and gas company, which is still grappling with about $55 billion of costs from the oil spill in the Gulf of Mexico in 2010, said it would cut 7,000 jobs by the end of 2017, or nearly 9 percent of its workforce. BP said it lost $6.5 billion in 2015 and its fourth-quarter underlying replacement cost profit, which is the company's definition of net income, came in at $196 million, well below analyst expectations of $730 million. BP shares fell as much as 8.5 percent and were 8.1 percent lower at 1136 GMT, the worst performer on the pan-European FTSEurofirst 300 index and on track for their biggest one-day fall since June 2010. The company's 2015 loss shows that even its "shrink to grow" strategy adopted after the Macondo rig explosion in 2010, hailed as the best preparation for a weak oil market, was unable to buffer the impact of the lowest oil prices since 2003. "Should low oil prices prevail, they're a quarter or two away from having to cut the dividend, or divest some more assets,"

Exxon's 4Q and annual profit plunge with oil prices — The big plunge in oil prices is taking Big Oil’s profits down. Exxon Mobil Corp. said Tuesday that fourth-quarter profit fell 58 percent to $2.78 billion. It was the oil giant’s smallest profit since the third quarter of 2002. Exxon’s core exploration and production business lost money in the U.S. and international earnings plummeted by nearly two-thirds. One of the few bright spots, Exxon’s refining operations, was more profitable than a year ago. That helped Exxon avoid the fate of rival Chevron Corp., which lost money in the fourth quarter. Britain’s BP said Tuesday that its profit tumbled more than 90 percent. Exxon shares fell 2 percent to $74.70 in trading before the opening bell. The amount of oil on the market remains is at extraordinarily high levels and producers, with prices so low, continue to drill just to earn what they can. Exxon’s production rose nearly 5 percent. In 2015, the company pumped oil and natural gas equal to 4.1 million barrels a day. CEO Rex Tillerson called it a “challenging environment,” but said the company is generating enough cash to continue investing in the business. Exxon’s profit fell from $6.57 billion a year earlier, when oil prices were already beginning to tumble. The Irving, Texas, company was still able to put up per-share earnings of 67 cents, which was 3 cents better than beat Wall Street had expected, according to a survey by Zacks Investment Research. Revenue fell to $59.81 billion, beating the $50.85 billion according to a poll by the data firm FactSet. For all of 2015, Exxon earned $16.15 billion, or about half what it earned in 2014.

Shell Reports a 44% Drop in Earnings Amid Oil Price Slump: — Royal Dutch Shell said fourth-quarter earnings tumbled 44% as the collapse in oil prices took its toll on another European oil company.Profit adjusted for changes in the value of inventories and one-time items dropped to $1.83 billion from $3.26 billion in the same period a year earlier, the Anglo-Dutch energy giant said Thursday.The results came days after Shell sealed a 47-billion-pound takeover of BG Group Plc, which will increase the company’s proven reserves of oil and natural gas by 25%. While critics questioned the deal because of the plummeting price of oil, CEO Ben Van Beurden compared it to the bold moves that have defined the industry and promised it would rejuvenate Shell.The BG deal comes as Shell and other oil companies are slashing jobs and postponing investments to adjust the bottom line to the dramatic circumstances.Jobs will also be eliminated in the Shell-BG deal. In a trading statement unveiled just before shareholders voted on the BG merger, Shell said last month that streamlining and integration from the deal would include the loss of 10,000 staff and contractor positions across both companies in 2015-2016.“In 2015, we significantly curtailed spending by reducing the number of new investment decisions and designing lower-cost development solutions,” Van Beurden said. “Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that.”

ConocoPhillips Reports Fourth-Quarter and Full-Year 2015 Results; Lowers Quarterly Dividend and Revises 2016 Operating Plan Guidance - ConocoPhillips reported a fourth-quarter 2015 net loss of $3.5 billion, or ($2.78) per share, compared with a fourth-quarter 2014 net loss of $39 million, or ($0.03) per share. Excluding special items, fourth-quarter 2015 adjusted earnings were a net loss of $1.1 billion, or ($0.90) per share, compared with fourth-quarter 2014 adjusted earnings of $0.7 billion, or $0.60 per share. Special items for the current quarter related primarily to non-cash impairments due to price impacts and changes to future exploration plans, partially offset by net gains on asset sales.  The company announced that its board of directors approved a reduction in the company’s quarterly dividend to 25 cents per share, compared with the previous quarterly dividend of 74 cents per share. The dividend is payable on March 1, 2016 to stockholders of record at the close of business on Feb. 16, 2016. The company also announced revisions to its previously disclosed 2016 operating plan. The company lowered capital expenditures guidance from $7.7 billion to $6.4 billion and operating cost guidance from $7.7 billion to $7.0 billion. Production in 2016 is expected to be approximately flat with 2015 volumes, adjusted for the full-year impact of 2015 asset divestitures. “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time,”

ConocoPhillips posts 4th-quarter loss, slashes dividend  — ConocoPhillips posted a wider-than-expected loss in the fourth quarter and slashed its quarterly dividend by 66 percent as oil prices continue to drop. The energy company’s stock fell 4 percent before the market open on Thursday. ConocoPhillips said it is lowering its dividend to 25 cents per share from 74 cents per share. The dividend is payable on March 1 to shareholders of record on Feb. 16. The company also reduced its 2016 capital expenditures outlook and operating cost guidance. Chairman and CEO Ryan Lance said the company was taking such steps to safeguard against falling oil prices. “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time,” Lance said in a written statement. ConocoPhillips lost $3.45 billion, or $2.78 per share, for the quarter. That compares with a loss of $39 million, or 3 cents per share, a year earlier. Losses, adjusted for one-time gains and costs, came to 90 cents per share.The Houston company’s quarterly revenue totaled $6.77 billion. For the year, ConocoPhillips reported an adjusted loss of $1.40 per share on revenue of$30.94 billion

Statoil reports larger 4th quarter loss after oil price drop  — Norwegian energy group Statoil posted a net loss of 9.2 billion kroner ($1.08 billion) for the fourth quarter amid the drop in oil prices. Norway’s biggest oil company said Thursday the quarterly results “continue to be severely influenced by low prices,” adding the loss was 3 percent larger than a year earlier. Revenue fell to 109.2 billion kroner from 147 billion kroner. CEO Eldar Saetre said the company was stepping up its cost-cutting program and reining in spending. Average daily production of oil and gas decreased 2 percent to 1.309 million barrels per day in the quarter. Statoil ASA said the drop was “mainly due to expected natural decline on mature fields, lower gas sales and redetermination, partially offset by increased production from several fields and ramp-up of new fields.”

S&P Just Downgraded 10 Of The Biggest US Energy Companies -- Just 10 days after "Moody's Put Over Half A Trillion Dollars In Energy Debt On Downgrade Review", moments ago S&P decided it wanted to be first out of the gate with a wholesale downgrade of the US energy companies, and announced that it was taking rating actions on 20 investment-grade companies, including 10 downgrades. The full release is below:Standard & Poor's Ratings Services said today that it has taken rating actions on 20 investment-grade U.S. oil and gas exploration and production (E&P) companies after completing a review. The review followed the recent revision of our hydrocarbon price assumptions (see "S&P Lowers its Hydrocarbon Price Assumptions On Market Oversupply; Recovery Price Deck Assumptions Also Lowered," published Jan. 12, 2016). While oil prices deteriorated over the past 15 months, the U.S.-based investment-grade companies we rate had been largely immune to downgrades. However, given the magnitude of the recent reductions in our price deck, most of the investment-grade companies were affected during this review. We expect that many of these companies will continue to lower capital spending and focus on efficiencies and drilling core properties. However, these actions, for the most part, are insufficient to stem the meaningful deterioration expected in credit measures over the next few years. A list of rating actions on the affected companies follows.

Wood Mac: Producers Continue to Run Loss-making Oilfields - Oil producers around the world are continuing to operate many lossmaking oilfields, according to new research by Wood Mackenzie. Less than 0.1 percent of global production has been halted to date even though 3.5 percent of global supply is currently cash negative, a survey by the research consultancy has found. Wood Mac's survey indicates that 3.4 million barrels per day of oil production is cash negative at a Brent oil price of $35 per barrel, however just 100,000 bpd has been shut-in globally to date. The areas with the largest volumes shut-in so far have been Canada onshore and oil sands, conventional US onshore projects and aging UK North Sea fields. The survey collated oil production data from over 10,000 fields and calculates cash operating costs, identifying the price at which the fields turn cash negative, and the volume of oil production associated with this price level. Wood Mac warns companies holding out in the hope of a price rebound that the number of shut-ins is unlikely to increase at a significant rate. Commenting on the trend, Wood Mac's vice president of investment research, Robert Plummer, said in a company statement: "Being cash negative simply means that production costs are higher than the price that the producer receives and does not necessarily mean that production will be halted altogether. Curtailed budgets have slowed investment which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons. "Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices. In terms of our current oil price forecast, we have recently revised our annual average to $41 per barrel for Brent in 2016. The operator's first response is usually to store production in the hope that the oil can be sold when the price recovers. For others the decision to halt production is more complex and we expect that volumes are more likely to be impacted where mechanical or maintenance issues arise and operators can’t rationalise further investment at current prices."

Proposed federal rule costly for Gulf oil operations - Exploratory drilling in the Gulf of Mexico could decline by 55 percent under a proposed federal rule, according to a new study. The proposed Well Control Rule addresses recommendations made after the Deepwater Horizon oil spill. It tightens standards on blowout preventers and puts more controls on how companies drill and monitor wells on the ocean floor. A study by Wood Mackenzie says the proposed governing rule comes at a high cost for oil and gas operations in the Gulf of Mexico. The rule would significantly reduce domestic energy production while also curtailing economic activity, energy supplies and offshore revenues. Under an $80 oil assumption, the Interior Department’s draft rule would:

  • Decrease exploration drilling by 35-55 percent, or up to 10 wells per annum
  • Reduce Gulf of Mexico production by as much as 35 percent by 2030
  • Put 105,000 – 190,000 jobs at risk, mainly in Louisiana and Texas
  • Reduce the country’s GDP by $260 – 390 billion through 2030
  • Reduce the number of rigs by 25 – 50 percent by 2030

The guidelines may make exploration and development projects too expensive to operate.

This One Policy Could Open Up Millions of Acres to New Offshore Oil Drilling -- Even at a time when oil exploration makes less environmental and economic sense than ever, the U.S. Bureau of Ocean Energy Management (BOEM)—mandated by the Outer Continental Shelf Lands Act (OCSLA) — is preparing the next Outer Continental Shelf Oil and Gas Leasing Program. In plain English, the Obama administration—the same one that has repeatedly positioned itself as a leader on climate change—is laying out plans to lease offshore oil to the usual suspects like Exxon, Shell, Chevron and others in the coming years. The OCSLA established a program in which the waters of the U.S. outer continental shelf are leased in five year windows, known as the five-year plan. The next five-year window is set to begin in 2017. For it to start on time, the plan has to be delivered by BOEM in 2016. The western and central Gulf of Mexico has historically been the major region for federal offshore oil, with most of the rest of the outer continental shelf under congressional moratorium. But in 2008, President Bush removed almost all restrictions in the waning hours of his administration.  President Obama put many of those restrictions back in place, but left open the possibility of Arctic, Atlantic and new Gulf lease sales. The tragic Deepwater Horizon disaster in 2010 compelled President Obama to put a pause on many of these new areas, but now that some time has passed—not that drilling has become any safer—he seems to think it’s ok to re-open the Atlantic to the oil industry.If you think that sounds contradictory to the president’s lofty rhetoric on climate change in recent months—you’re right. And although President Obama has made some promising moves by protecting all of Bristol Bay, Alaska from leasing and canceling lease sales across the U.S. Arctic, he’s falling short of true climate leadership.

Signing Polluter-Friendly TPP Trade Deal Is Gambling Away Our Future - For years, the Sierra Club has reported on and campaigned against the TPP’s threats to our air, water, climate, families and communities. The U.S. Trade Representative is gambling away our jobs, our clean air and water, and our future by pushing the polluter-friendly Trans-Pacific Partnership, so it only makes sense that it was signed in a casino and convention center. Signing the TPP is Russian roulette for our economy and our climate. Today’s trade rules are rigged, like a bad game of blackjack, to favor powerful big polluters and other greedy corporations. Just look at TransCanada. That Big Oil company is suing the American people under NAFTA for $15 billion as ‘compensation’ for the Keystone XL decision that spared us the threat of increased climate disruption and dirty, dangerous oil spills. The TPP sweetens the pot for many more foreign fossil fuel corporations, empowering them to follow TransCanada’s bad example of challenging our climate protections in private trade tribunals. Thankfully, it’s not too late to stop this toxic deal. Congress holds the trump card on the widely unpopular TPP, so now is the time to urge our representatives to reject the toxic trade deal and build a new model of trade that puts the health and safety of people before the profits of big corporations that are already polluting our air and water.

Once Unstoppable, Tar Sands Now Battered from All Sides --  In the summer of 2014, when oil was selling for $114 per barrel, Alberta’s tar sands industry was still confidently standing by earlier predictions that it would nearly triple production by 2035. Companies such as Suncor, Statoil, Syncrude, Royal Dutch Shell, and Imperial Oil Ltd. were investing hundreds of billions of dollars in new projects to mine the thick, highly polluting bitumen. Eyeing this oil boom, Canadian Prime Minister Stephen Harper said he was certain that the Keystone XL pipeline — “a no-brainer” in his words — would be built, with or without President Barack Obama’s approval. Keystone, which would carry tar sands crude from Alberta to refineries along the Gulf of Mexico, was critical if bitumen from new tar sands projects was going to find a way to market. What a difference 18 months makes. The price of oil today has plummeted to around $30 a barrel, well below the break-even point for tar sands producers, and the value of the Canadian dollar has fallen sharply. President Obama killed the Keystone XL project in November, and staunch opposition has so far halted efforts to build pipelines that would carry tar sands crude to Canada’s Pacific and Atlantic coasts. Equally as ominous for the tar sands industry are political developments in Alberta and Canada. In May, Alberta voters ousted the conservative premier and elected a left-of-center government. The new premier, Rachel Notley, is committed to doing something meaningful about climate change and reviewing oil and gas royalty payments to the province, which are among the lowest in the world.In October, Canadian voters tossed out Harper and his Conservative Party government and elected liberal Justin Trudeau as prime minister. Last month, Trudeau vowed not to be a “pipeline cheerleader” and said he would take greenhouse gas emissions into account when evaluating oil pipeline projects

Cheap oil buoys consumers, shakes up global governments  -- U.S. households have saved hundreds of dollars on gasoline and heating oil.  That’s money they can spend in other areas of the economy. Businesses such as airlines that burn large amounts of fuel have reaped savings in the billions. But energy company profits have plunged, as have their stocks. Layoffs and spending cuts by oil drillers have offset some of the boost from steady consumer spending. Meanwhile, states like Alaska and North Dakota need to plug big budget gaps. The Energy Department expects a decline in U.S. oil production, but says oil will only average $38 this year. For new mines in Alberta’s oil sands to cover costs, oil needs to be $85 to $95 a barrel, according to IHS Global Insight. Western Canadian Select oil sands crude recently traded around $15. Canadian oilcompanies have slashed budgets, laid off tens of thousands of workers and cut dividends. A Bank of Canada report says companies see dramatic change for the global industry, with weaker companies restructuring or exiting the oil  business, while healthier companies buy distressed assets. Canada’s dollar is down 20 percent versus its U.S. counterpart. Prices for imported groceries have risen and Canadians are reconsidering a U.S. vacation. Mexico is better insulated nowadays from an oil collapse. Oil accounts for 20 percent on national revenue, compared with 40 percent up until 2012. However, the country has postponed or canceled some oilprojects, and delayed auctions for deep water exploration and production oil contracts, as part of its historic energy reform.

Collapse in crude brings North Sea fields near end of production -- As many as 50 North Sea oil and gasfields could cease production this year after a collapse in crude prices to 12-year lows, industry experts have warned. This would accelerate the North Sea’s decline, potentially bringing forward billions of pounds in spending on decommissioning. Dozens of smaller fields with high production costs that are approaching the end of their lives have been identified by energy consultants Wood Mackenzie as prime candidates to be shut. Halting output is the first step towards abandonment. This, in turn, could speed up decommissioning — when operators abandon fields and dismantle decades-old infrastructure, including platforms and pipelines. Wood Mac said oil companies were likely to halt output at 140 offshore UK fields during the next five years, even if crude rebounded from $35 to $85 a barrel. This compares with just 38 new fields that are expected to be brought on stream during the same period. Industry executives believe the decommissioning industry, still in its infancy, will grow. Royal Dutch Shell is preparing to take apart the first of four platforms in its Brent field, while Riverstone-owned Fairfield is to abandon Dunlin. As the sector declines, service providers anticipate that decommissioning may help them plug the revenue gap left by diminishing exploration.

British opposition to fracking still outstrips support, survey finds - Opposition to fracking continues to outstrip support - particularly among those who know about the controversial process, a survey for the government shows. More than half (53%) of those who said they knew a lot about fracking were against it, compared to a third (33%) who said they were in favour of it, the latest poll tracking attitudes to energy policies has revealed. Among those who thought they knew a little about it, opposition outstripped support by 40% to 26%, the survey for the Department of Energy and Climate Change found. Opposition was also higher than support among all those who were quizzed for the survey, with 29% opposed and 23% backing extraction of shale gas through fracking. Women were more likely to be opposed to it than men, with only 17% backing fracking, compared to 28% of men. The weak support for shale gas is in contrast to the backing the public shows for renewables, which have faced cuts in government support, with 78% in favour of technologies such as wind power, solar and biomass, and only 4% against.  The latest findings of the public attitudes tracker come as the government continues its push to develop a shale industry in the UK, with decisions on schemes being taking out of council hands in the face of strong local opposition.

We’re drowning in cheap oil – yet still taxpayers prop up this toxic industry | George Monbiot - Those of us who predicted, during the first years of this century, an imminent peak in global oil supplies could not have been more wrong. People like the energy consultant Daniel Yergin, with whom I disputed the topic, appear to have been right: growth, he said, would continue for many years, unless governments intervened. Oil appeared to peak in the United States in 1970, after which production fell for 40 years. That, we assumed, was the end of the story. But through fracking and horizontal drilling, production last year returned to the level it reached in 1969. Twelve years ago, the Texas oil tycoon T Boone Pickens announced that “never again will we pump more than 82 million barrels”. By the end of 2015, daily world production reached 97m . Instead of a collapse in the supply of oil, we confront the opposite crisis: we’re drowning in the stuff. The reasons for the price crash – an astonishing slide from $115 a barrel to less than $30 over the past 20 months – are complex: among them are weaker demand in China and a strong dollar. But an analysis by the World Bank finds that changes in supply have been a much greater factor than changes in demand. Oil production has almost doubled in Iraq, as well as in the US. Saudi Arabia has opened its taps, to try to destroy the competition and sustain its market share – a strategy that some peak oil advocates once argued was impossible.

Mainland Europe Shale Gas: What Now? - The shale gas boom has proved to be a game changer for the United States economy, bringing about an era of cheap natural gas that has helped to make the country's industry more competitive. Some other countries around the world would like to follow suit, with perhaps Argentina having the best hope of replicating the success seen in North America thanks to its Vaca Muerta shale gas province. Europe has also been seen as a future shale gas region in recent years, but a Wood Mackenzie survey of global shale gas drilling activity highlights only three European countries – Poland, Ukraine and the UK – as having any shale gas wells scheduled for 2016. The key data points from the survey:

  • the UK will lead the way; the country has "well-documented" support for the development of a shale gas industry and six wells are expected to be drilled in the UK in 2016
  • mainland Europe looks bleak after several setbacks in 2015
  • results in Poland were disappointing, and a widespread anti-fracking movement has also hindered shale gas development; last summer COP "gave up the ghost in Poland; CVX, XOM, Total, and MRO all withdrew during the previous three years
  • in the Ukraine, Eni could drill its first shale well in the Lviv Basin, in the west Ukraine, depending on regulatory and security factors
  • Denmark: disappointing
  • Germany: disappointing; some legislative support but members of the coalition government could not agree on the details

Flood of Oil Asset Writedowns Seen Across Asia on Crude Rout  - Investors in Asian oil and gas companies should prepare for a wave of writedowns after a collapse in crude prices. CNOOC Ltd., Santos Ltd. and Inpex Corp. are among explorers and producers that may report full-year net losses because of writedowns that may be equal to as much as 10 percent of book value, analysts at Sanford C. Bernstein & Co. in Hong Kong wrote in a report Tuesday. “The future value of oil and gas properties has been significantly reduced,” according to the Bernstein analysts, including Neil Beveridge. “The impairment loss will likely be larger than earnings for the year for some companies, pushing several E&P’s in the region into a loss.” Oil prices have tumbled almost 70 percent in the past two years, weighing on earnings and forcing explorers to cut spending. Writedowns at Santos, the Adelaide-based energy company that built the $18.5 billion Gladstone liquefied natural gas project in Australia, may exceed A$3.4 billion ($2.4 billion), according to UBS Group AG. Companies including PTT Exploration & Production Pcl that have been active in mergers and acquisitions over the past five years also are expected to write down the value of assets, the analysts wrote. Writedowns at Chevron Corp. last week pushed the company to its first quarterly loss in 13 years. The market has continued to weaken, with oil sliding 9.2 percent last month amid volatility in global markets, brimming U.S. crude supplies and the outlook for increased exports from Iran after the removal of international sanctions. West Texas Intermediate on Tuesday was down 2.1 percent at $30.97 a barrel at 1:41 p.m. Hong Kong time. Prices lost 30 percent last year.

Petrobras Slashes Oil Reserves to Lowest Level in 14 Years  (Reuters) - Brazil's state-controlled oil producer Petrobras slashed its oil and natural gas reserves 20 percent on Friday, hit by a plunge in energy prices, a heavy debt load, high costs and a corruption scandal. The bigger-than-expected cut, reported in a securities filing on Friday, highlights how the once soaring potential of big oil discoveries off the coast of Brazil have faded for Petroleo Brasileiro, as the company is formally known. The filing showed Petrobras reduced proven reserves to 10.52 billion barrels of oil and natural gas equivalent (boe) as of Dec. 31, their lowest since 2001, according to standards set by the U.S. Securities and Exchange Commission. Petrobras booked 13.13 billion boe a year earlier. The announcement is one of the strongest statements yet of the sharp reversal of fortune at Petrobras. Reserves are a key factor in determining the company's ability to borrow and provide a return on investment. "Oil prices played a big part, but Petrobras has itself to blame too," said Fadel Gheit, an oil and gas analyst with Oppenheimer Inc in New York. "It's a classic case of mismanagement and government interference. Low oil prices pushed them over the cliff, but they got to the precipice themselves." Petrobras has spent about $350 billion on expansion in the last decade, a period when it made some of the world's largest-ever offshore discoveries. The company, though, now has less commercially viable oil and gas than it did 14 years ago, when as a cash-poor oil producer slowly but steadily increased reserves and output to reduce Brazil's crippling dependence on foreign imports. -

Global oil production cash negative at current prices- 3.4 Million barrels per day (b/d) of oil produced globally is produced at cash negative number, according to an analysis by Wood Mackenzie. This has resulted in an unexpectedly low rate of stopped production of less than 100,00 b/d globally. Companies continue to pump oil despite these low rates in hopes oil prices will rebound. Restart costs and covering fixed costs also influence the decision to continue production. Globally, Brent oil sells for about $35 USD. Each company has its own breakeven points, fixed costs and operating costs, which determine whether a project is profitable or not. In many cases certain wells are not profitable, while others in the same patch are marginally profitable. As seen in the figure below about 75 million b/d are produced at less than $35/bb. Additionally, the costs of shutting down operations that are in the red occasionally costs more than producing at a loss, especially in the short run. In some cases, such as in older patches in the North Sea a cease production would be a permanent decision. Wood Mackenzie analysts believe the shut in rate to be about 100,000 b/d – 0.1% of global production. Significant locations include Canada, largely due to transportation costs at about 30,000 b/d (Note no major oil sands have been shut-in), and the US, although they are expected to be short lived due to the value of keeping a well long-term given short-term costs which may be as little as a few hundred dollars per month. Locations currently producing in the red are Canada oil sands and small conventional wells at 2.2 million b/d, Venezuela’s heavy oil fields at 230,000 b/d in negative cash flow, the UK with 220,000 b/d and the US producing the 4th largest amount of negative cash 190,000 b/d. To read Wood Mackenzie’s full report, click here.

Will Non-OPEC Oil Production Collapse In 2016? -- The IEA Oil Market Report, full issue, is now available to the public. Some interesting observations: Non-OPEC oil supplies are sharply lower in December. Overall supplies are estimated to have slipped by more than 0.6 mb/d from the month prior, to 57.4 mb/d. A seasonal decline in biofuel production, largely due to the Brazilian sugar cane harvest, of nearly 0.4 mb/d was the largest contributor to December’s drop. Production in Vietnam, Kazakhstan, Azerbaijan and the U.S. was also seen easing from both November’s level and compared with a year earlier. Persistently low production in Mexico and Yemen were other contributors to the year-on-year decline. As such, total non-OPEC liquids output slipped below the year earlier level for the first time since September 2012. A production surge in December 2014 inflates the annual decline rate, but the drop is nevertheless significant should these estimates be confirmed by firm data. Already in November, growth in non-OPEC supply had slipped to 640 kb/d, from as much as 2.9 mb/d at the end of 2014, and 2.4 mb/d for 2014 as a whole. For 2015, supplies look likely to post an increase of 1.4 mb/d for the year, before contracting by nearly 0.6 mb/d in 2016. A prolonged period of oil at sub-$30/bbl puts additional volumes at risk of shut in as realised prices fall close to operating costs for some producers.The IEA has every month of 2016 Non-OPEC production below the year over year 2015 production. For the past four years, North America has carried the load as far as the increase in Non-OPEC production is concerned. Now the IEA believes North America will suffer the lion’s share of  the decline in 2016. The IEA says U.S. Gulf of Mexico and NGLs will show an increase in 2016 but every other location will show a decline with Texas showing the largest decline. The IEA says Non-OPEC production was up 1.3 million bpd in 2015 but will be down 0.7 million bpd in 2016. Below are their numbers. They do not include biofuels or process gain.

Oil market spiral threatens to prick global debt bubble, warns BIS - The global oil industry is caught in a self-feeding downward spiral as falling prices cause producers to boost output even further in a scramble to service $3 trillion of dollar debt, the world’s top watchdog has warned. The Bank for International Settlements fears that a perverse dynamic is at work where energy companies in Brazil, Russia, China and parts of the US shale belt are increasing production in defiance of normal market logic, leading to a bad “feedback-loop” that is sucking the whole sector into a destructive vortex. “Lower prices have not removed excess capacity from the market, but instead may have exacerbated it. Production has been ramped up, rather than curtailed,” said Jaime Caruana, the general manager of the Swiss-based club for central bankers. The findings raise serious questions about the strategy of Saudi Arabia and the core Opec states as they flood the global crude market to knock out rivals in a cut-throat battle for export share. The process of attrition may take far longer and do more damage than originally supposed. Oil exporters are embracing austerity and slashing government spending, leading to a form of fiscal tightening that is slowing the global economy.Mr Caruana said the sheer scale of leverage in the oil and gas industry is amplifying the downturn since companies are attempting to eke out extra production to stay afloat. The risk spreads on high-yield energy bonds have jumped from 330 basis points to 1,600 over the past 18 months, amplifying the effects of the oil price crash itself. The industry has issued $1.4 trillion of bonds and taken out a further $1.6 trillion in syndicated loans, driving up the combined energy debt threefold to $3 trillion in less than a decade.

Bomb attacks on pipelines cause massive oil spill in Nigeria — Multiple bombings of Agip oil pipelines have caused thousands of barrels of oil to pollute waterways, farms and fishing grounds in Nigeria’s southern Bayelsa state, residents said Monday. Oil flowed unchecked for two days, according to fishermen who complained that a clean-up has not yet started. A spokesman for Italian parent company ENI said 16,000 barrels of oil per day were lost and the company Monday began working to resume production. The official, whose job rules do not allow him to be quoted by name, offered no other details. The spill is “massive — the biggest in years,” community leader Eke-Spiff Erempagamo told The Associated Press. He said it covers Orukari, Golubokiri, Kpongbokiri and other communities in the Brass area. Residents blamed the explosions on Thursday and Friday on militants who want the polluted oil producing states to get a bigger share of revenues. Similar attacks a week earlier on gas and oil installations near southern Escravos terminal are costing Nigeria $2.4 million a day in lost power and gas, the government said before restricted supply forced the closure of two of Nigeria’s five refineries. The attacks came after a court ordered the arrest of a former oil warlord accused of corruption. He has denied his henchmen are responsible for the pipeline attacks.

US-NATO Invade Libya to Fight Terrorists of Own Creation -- Up to 6,000 troops are being sent to invade and occupy Libya, seizing oilfields allegedly threatened by terrorists NATO armed and put into power in 2011. The London Telegraph, almost as a footnote, reports of a sizable Western military force being sent in on the ground to occupy Libya in an operation it claims is aimed at fighting the so-called “Islamic State” (ISIS). In its article, “Islamic State battles to seize control of key Libyan oil depot,” it reports: Under the plan, up to 1,000 British troops would form part of a 6,000-strong joint force with Italy – Libya’s former colonial power – in training and advising Libyan forces. British special forces could also be engaged on the front line.  One would suspect a 6,000-strong foreign military force being sent into Libya would be major headline news, with debates raging before the operation even was approved. However, it appears with no debate, no public approval, and little media coverage, US, British, and European troops, including Libya’s former colonial rulers – the Italians – are pushing forward with direct military intervention in Libya, once again. The Mirror’s “SAS spearhead coalition offensive to halt Islamic State oil snatches in Libya,” claims the West’s 6,000 soldiers face up to 5,000 ISIS terrorists – raising questions about the veracity of both the true intentions of the West’s military intervention and the nature of the enemy they are allegedly intervening to fight. Military doctrine generally prescribes overwhelming numerical superiority for invading forces versus defenders. For example, during the the 2004 battle for the Iraqi city of Fallujah, the US arrayed over 10,000 troops versus 3,000-4,000 defenders. This means large, sweeping operations to directly confront and destroy ISIS in Libya are not intended, and like Western interventions elsewhere, it is being designed to instead perpetuate the threat of ISIS and therefore, perpetuate Western justification for extraterritorial military intervention in Libya and beyond.

Oversold Oil Markets Rally On Rumors Of OPEC Cut - Oil prices surged last week on speculation that Russian and OPEC might work together to stabilize markets through coordinated production cuts. The latest developments are confusing due to conflicting statements from officials from both sides. Russia’s energy minister said that the country would consider a proposal of a 5 percent production cut, but would wait to discuss the option with OPEC in February. At the same time, top OPEC officials dismissed the speculation. Other Russian officials also downplayed the possibility of a production cut. The markets did not care – WTI and Brent surged to $34 per barrel by Friday, up nearly 10 percent for the week. One worrying sign to keep an eye on: the fundamentals. The EIA reported a sharp uptick in crude oil inventories this week, breaking a new all-time high. U.S. oil in storage has now reached 494.9 million barrels, surpassing the previous record set in April 2015. Saudi Arabia’s foreign exchange reserves continue to dwindle from low oil prices. In December alone, Saudi Arabia exhausted $19 billion from its cash reserve war chest, bringing the estimated total down to $608 billion. The oil kingdom lost $115 billion in 2015 alone. The Saudis are still sitting on one of the largest piles of cash in the world, and they could continue to burn through those reserves at the current rate, at least for a while, but persistent low oil prices only increase the pressure to eventually do something. For now, they are content to continue on the current course. The long-term picture for Saudi Arabia is different. Reuters reported that the government is in talks with an army of consultants to figure out ways to diversify the economy beyond oil, looking into things like tourism, shipbuilding, information technology, etc. Of course, Saudi Arabia has long talked about economic diversification, but the massive budget hole is forcing a much harder look at reforms. In the short run, austerity and a dependency on oil is unavoidable. But Reuters reported that there is momentum towards real reform behind the scenes.

Crude Sinks To Day Lows After Goldman Explains Why No Oil Production Cuts Are Coming -- Moments ago, following last week's torrid crude oil price rebound driven entirely by now-denied hopes of some production cut consensus between oil suppliers, namely Russia and Saudi Arabia, oil halted its four-day rally as weak Chinese manufacturing data added to economic demand concern. “The risk seems to be the greatest on the downside again” and speculation of OPEC production cuts has “faded fast,” says Saxo Bank head of commodity strategy Ole Hansen. “China and South Korea are both helping the market return to fundamental focus where it is worried about demand."  But the biggest downward catalyst overnight as noted previously, was not demand concerns but a return of oversupply fears following a note by Goldman's Damien Courvalin who warned quite explicitly that "cuts are unlikely" in what Goldman dubs the New Oil Order, and that in the current rebalancing phase, oil prices will "remain between $40/bbl (financial stress) and $20/bbl (operational stress) until 2H16. This phase will be characterized by a highly volatile and trend-less market with the price lows likely still to be set." But most importantly Goldman writes that "given the likely time necessary to enact such cuts, the continued large builds in US and global inventories and the fast pace at which US Gulf Coast spare storage capacity is filling, it may already be too late for OPEC producers to be able to prevent another large decline in prices." Here's why:The past week featured headlines suggesting that OPEC producers and Russia would meet in February to discuss a potential coordinated cut in production.Despite the sharp bounce in oil prices that these headlines generated, we do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists' forecast. This view is anchored by our belief that such a cut would be self-defeating given the short-cycle of shale production and the only nascent non-OPEC supply response to OPEC's November 2014 decision to maximize long-term revenues. As a result, we reiterate our view that prices need to remain low enough to force fundamentals to create the adjustment back towards a new equilibrium.

Crude Chaotic After API Reports Bigger Than Expected Inventory Build -- Against expectations of a 3.75mm expectation (and following last week's massive build), API reports that crude inventories saw a very slightly bigger than expected 3.8mm build. WTI crude had plunged into the data and went entirely chaotic as it hit (swining in a 50c range) before settling lower. Coming into this week's print, gasoline builds continue to stymie crude (which saw a huge build) but Cushing saw a draw... And then API reported a slightly bigger than expected 4mm build... Oil's reaction was chaotic... And finally, don't forget that U.S. crude inventories are at levels last seen when President Herbert Hoover was battling the Great Depression. Charts: Bloomberg

WTI oil ends under $30; gasoline futures sink to 7-year low - WTI oil prices slid again Tuesday to settle under $30 a barrel, as expectations for cuts in crude output from major producers faded and the market readied for weekly data that are expected to show a hefty increase in U.S. supplies. Gasoline was the biggest loser, plunging close to 8% to settle at its lowest level since late 2008, as the recent blizzard in the East was seen contributing to lower demand and an expected fresh record in U.S. stockpiles of the fuel. March West Texas Intermediate crude fell $1.74, or 5.5%, to settle at $29.88 on the New York Mercantile Exchange. That was the lowest settlement since Jan. 21. The April contract for Brent crude fell $1.52, or 4.4%, to $32.72 a barrel on London’s ICE Futures exchange, for its lowest finish in about a week. “The constructive dialogues between the [Organization of the Petroleum Exporting Countries] and non-OPEC countries has broken once again and we have less hopes that we will [have a] happy ending,” . “The fact is that OPEC can see from their lens that their [market-share] strategy is working and BP, the giant oil producer, has confirmed how bad and ugly” it is.

Oil sinks, pressured by China, OPEC and warmer U.S. weather | Reuters: U.S. crude oil prices slid as much as 7 percent on Monday, pressured by weak economic data from China, a U.S. forecast for mild weather and growing doubts that OPEC and non-OPEC producers would come together to reduce the swelling global supply glut. Chinese manufacturing contracted in January at the fastest pace since 2012, adding to worries about energy demand from the world's largest energy consumer. "China is the last standing consumer of oil outside of the U.S. The problem is that everyone is relying on them," said Carl Larry, director of business development at Frost & Sullivan in Houston. "As long as we keep in this scenario where China is the only real consumer to pick up the pace, we're going to see moves lower every time China has an issue with their economy." A mild U.S. winter has also dented demand for oil. Forecasts for warm temperatures through mid-February sent U.S. New York Harbor heating oil futures down as much as 5 percent. U.S. West Texas Intermediate slid to its biggest daily loss in five months, down 6.9 percent to an intraday low of $31.29 in volatile afternoon trading. That was still 19.5 percent higher than the more than 12-year low of $26.19 hit in mid-January. The contract eventually settled at $31.62, down 5.9 percent or $2. Brent April crude futures settled at $34.24 a barrel, down $1.75, or 4.9 percent.

Global oil demand growth is slowing going into 2016 | Reuters: The United States was one of the biggest sources of oil demand growth in 2015 but the outlook for 2016 is much more muted, according to official forecasters. The U.S. transportation sector continues to send mixed signals about the strength of fuel demand at the end of 2015 and heading into 2016. U.S. consumers are buying a record number of new vehicles, and more of them are choosing fuel-hungry crossover utility vehicles, according to market intelligence supplier Wards Auto. The volume of traffic on U.S. roads has also hit a new record and is growing at the fastest rate for almost two decades, according to the Federal Highway Administration. But the volume of freight transported by road, rail, air, barge and pipeline has been trending flat or lower since the end of 2014, according to the U.S. Bureau of Transportation Statistics. The amount of freight hauled in November 2015 was actually 1.4 percent lower than in the corresponding month in 2014 (tmsnrt.rs/1P66kiH). Rail freight movements were weaker in 2015, with the total number of rail cars and intermodal units moved across the network down 2.5 percent compared with 2014, according to the Association of American Railroads. Road freight was fairly flat last year, ending three years of strong growth, according to the American Trucking Associations.Sales of the heavy-duty Class 7 and Class 8 trucks employed for most freight movements ended last year on a soft note according to Wards, down from the end of 2014. Stocks of unsold heavy duty trucks at manufacturers and dealerships have risen steeply as sales fell toward the end of 2015. At the end of December 2015, there was a 70-day supply of Class 8 trucks, up from 43 days at the end of December 2014, according to Wards.

WTI Plunges Below $30 As Crude, Gasoline Inventories Surge & Demand Crashes - After initial weakness, crude prices have rallied since last night's across the board inventory build reported by API (especially gasoline). Against headline expectations of a 3.8mm build,DOE reported a huge 7.8mm rise with Gasoline also surging 5.9mm barrels. The overnight ramp gains on OPEC rumors have been erased and WTI is back below $30. API reported:

  • Crude inventories: +3.8M barrels
  • Cushing +0.1M barrels
  • Distillate +0.4M barrels
  • Gasoline +6.6M barrels

DOE reported:

  • Crude inventories: +7.79M barrels (whisper 3.8m)
  • Cushing +0.75M barrels
  • Distillate -0.78M barrels (whisper -0.26m)
  • Gasoline +5.9M barrels (whisper 5m)

    John Kemp's Weekly Energy Tweets - Link hereJohn Kemp's weekly energy tweets:
    employment in US oil and gas extraction and support activities industry fell by 87,000 between October, 2014, and November, 2015

  • US oil and gas industry shed 100,000 jobs in slump
  • oil market will remain oversupplied this year, making price recovery unlikely
  • COP cuts dividend; OXY holds firm
  • difference in inventory levels for crude oil 
  • US: 36% higher than 5-year average
  • Cushing: 58% higher
  • total distillate fuel oil: 16% higher
  • total motor gasoline: 8% higher 
  • essential reading: the one thing that Saudi Arabia does well is under threat

    Oil jumps 8% as dollar tumbles after US data: Oil prices jumped 8 percent higher on Wednesday, snapping a two-day rout, after investors took advantage of a weaker U.S. dollar and shrugged off data showing an unexpected large surge in U.S. crude inventories to record highs. Comments by Russia's foreign minister reiterating the major producer's willingness to meet if there was consensus among the OPEC and non-OPEC members, also reignited hopes of a deal to trim output and helped to boost prices. The dollar index tumbled to an over seven-week low, making commodities priced in the greenback cheaper for holders of other currencies, amid growing skepticism that the Federal Reserve would be able to hike U.S. interest rates again this year and after data showed the U.S. services industry grew more slowly than expected last month.U.S. crude futures closed with one its biggest gains in five months, rising $2.40, or 8 percent, to $32.28. It was last up 8.5 percent at $32.42. Brent futures settled up $2.32, or 7.1 percent, at $35.04 a barrel, after rising as high as $35.11. It was last up 7.43 percent at $35.15. U.S. heating oil futures finished 6.7 percent firmer after the U.S. weather model called for seasonal cold over the next two weeks. "We're getting the rally in crude oil from the pounding that the dollar is taking,"

    Oil bears closing of $600 million triple-short fund bet seen adding to tumult | Reuters: This week's roller-coaster ride in the global crude oil market was likely fueled in part by the sudden liquidation of a $600 million leveraged fund bet on falling prices, market sources said on Wednesday. Unknown investors in the VelocityShares 3x Inverse Crude Oil Exchange Traded Note (ETN) - which offers the ability to make a bearish bet on prices magnified threefold, with gut-churning ups and downs - bailed out early this week after jumping into the fund in January, ETN data show. Some 1.8 million shares worth more than $602 million were redeemed on Tuesday, the largest outflow from the ETN in the past year, according to data from FactSet Research. The selloff suggests that at least some big investors are betting that the worst of an 18-month oil market rout is over after U.S. prices fell to $26 a barrel last month for the first time since 2003. Trading activity has also jumped to the highest levels on record. "Speculators are getting out of the down oil market. People start unwinding these positions because they think they have gotten their juice out of it," The net asset value of the fund - one of a handful of exchange funds that allows investors to trade oil without the complexity of a futures exchange - fell from close to $1 billion to $417 million on Tuesday and to $322 million on Wednesday, according VelocityShares' website. As a result, the mass exodus likely forced the ETN's issuer, Credit Suisse, to quickly buy back short positions as investors redeemed shares.

    US rig count drops 48 this week to 571; Texas down 19 (AP) — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. declined by 48 this week to 571. The Houston firm said Friday 467 rigs sought oil and 104 explored for natural gas amid depressed energy prices. A year ago, 1,456 rigs were active. Among major oil- and gas-producing states, Texas declined by 19 rigs, Oklahoma dropped eight, Louisiana dropped five, Pennsylvania lost three, North Dakota, Utah and Wyoming each declined by two and Ohio dropped by one. Alaska, Arkansas, California, Colorado, Kansas, New Mexico and West Virginia 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 Declines by 31 - WSJ: The U.S. oil-rig count fell by 31 to 467 in the latest week, according to Baker Hughes Inc., accelerating a recent streak of 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 it hasn’t fallen enough to relieve the global glut of crude. There are now about 64% fewer rigs from a peak of 1,609 in October 2014.  According to Baker Hughes, the number of U.S. gas rigs declined in the latest week by 17 to 104. The U.S. offshore-rig count was 26 in the latest week, down two from the previous week and down 24 from a year earlier. Oil prices turned negative Friday on a stronger dollar and concerns that the oversupply of oil will persist. Recently, U.S. crude oil fell 0.03% to $31.71 a barrel.

    U.S. Rig Count In Free Fall: Plunges By 48 In One Week | OilPrice.com: The U.S. rig count plunged this week, as the deleterious effects of the deeper fall in oil prices since December start to be felt. According to Baker Hughes, the U.S. rig count declined by a shocking 48 rigs for the week ending on February 5, the largest reduction since March of 2015. The total rig count now stands at 571, made up of 467 oil rigs and 104 natural gas rigs. The Permian Basin still accounts for the bulk of the active drilling rigs, with 180 as of this week. West Texas remains profitable to drill, at least in some of the best areas. Still, the Permian had well over 500 rigs a little over a year ago.  The Williston Basin in North Dakota, home of the Bakken formation, now only has 42 rigs, down from nearly 200 in late 2014. Plummeting rig counts have yet to translate into significant cutbacks in oil production, although the sharp increase in output exhibited between 2011 and 2014 came to a screeching halt last year.

    OilPrice Intelligence Report: In Spite Of Plunging Rig Count, Oil Erases Earlier Gains: Another rocky week for oil prices. WTI and Brent bounced up and down throughout the week along with the rise and fall of expectations for a potential OPEC meeting in February. Also, the top official at the New York Federal Reserve hinted at the fact that the latest turmoil in the global financial markets might alter the calculus for interest rate hikes later this year in the United States. That led to a sharp two-day loss for the U.S. dollar, helping to push up oil prices. There are growing fears that the collapse in oil prices is now bleeding over into the broader global economy. We have covered the ongoing deterioration in commodity-exporting countries pretty closely, from Saudi Arabia to Russia, Venezuela, Iraq, Nigeria, and more. Normally cheap energy should bolster consumption, but the drop in commodity prices has been so sharp that questions continue to arise about the creditworthiness of some oil producers. Venezuela tops the list. With billions of dollars in debt due this year a rapidly shrinking ability to deal with the crisis, a debt default may not be too far off. Citigroup added its voice to those concerned about the health of the global economy, citing four interlinked forces – a strong U.S. dollar, low commodity prices, weak trade, and soft growth in emerging markets – for the sudden fragility and potential for a global recession. "It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks," Citigroup analysts warned. "Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon."

    Four Days After Predicting Oil Will Double, T. Boone Pickens Sells All Oil Holdings -- Just four days ago, on Monday afternoon, "legendary" oilman T Boone Pickens said that crude has hit bottom at $26 per barrel, and predicting that prices should double within 12 months. Pickens then doubled-down on his wrong call from last year, telling CNBC's "Squawk Box" that oil prices will rise to at least $52 per barrel by the end of the year. That said, he was at least honest enough to admit that his virtually identical call from last year, when he thought prices would strongly rebound, was wrong.  Whether it's $50 or $70 by the end of 2016 will largely be determined by the global economy, he added reiterating the same flawed thesis he used to justify his bullishness a year ago: "We're still building inventories, and we will for the next several months. And then we'll start to draw," Pickens said. "Once you start to draw, you're not going to start back building again. The draw will come here in the next few months. It'll become pretty clear." He was wrong then, and he will be wrong this time again for the simple fact that while historically OPEC exercised a rational production strategy, as of the 2014 OPEC Thanksgiving massacre, there is no more OPEC, as can be seen by the relentless attempts by roughly half the members to call an OPEC meeting unsuccessfully, confirming what we said in late 2014 - OPEC no longer exists, which means it is every oil producer for themselves.  Yet while being merely wrong is excusable, being a "legendary" hypocrite is not. Earlier today, literally days after he predicted oil would double from its $26 "bottom", Pickens told Bloomberg that he has cashed out. But, but, what happened to oil prices will double from their bottom? And did he just liquidate all his holdings just $4 above this so-called bottom?  Well... yes.

    Oil Prices Could Jump 50% by the End of 2016 - Oil bulls distressed that last week’s rally fizzled can find some comfort in forecasts for a bigger and longer rebound by the end of the year.  Analysts are projecting prices will climb more than $15 by the end of 2016. New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show. A global surplus that fueled oil’s decline to a 12-year low will shift to deficit as U.S. shale output falls, according to Goldman Sachs Group Inc. U.S. production will drop by 620,000 barrels a day, or about 7 percent, from the first quarter to the fourth, according to the Energy Information Administration. Meanwhile, the International Energy Agency forecasts total non-OPEC supply will fall by 600,000 barrels a day this year. That may pave the way for a rebound as lower prices have stimulated global demand. Oil is the “trade of the year,” according to Citigroup Inc., which is among banks from UBS Group AG to Societe Generale SA that predict a gain in the second half. “U.S. shale should take the hit, that’s where you will see cuts and supply should start to taper off,” Daniel Ang, an investment analyst at Phillip Futures, said by phone from Singapore. “On top of that, there are bullish demand forecasts for the second half.” West Texas Intermediate and Brent both closed at the lowest level since 2003 on Jan. 20. WTI for March delivery ended the session at $29.88 a barrel on Tuesday and would need to gain 54 percent to reach the median estimate of $46 a barrel. The London contract for April delivery settled at $32.72 and needs a 47 percent boost to hit $48. The median price was taken from estimates provided this year by 17 analysts who gave forecasts for both oil grades. WTI was up 7.3 percent to $32.06 at 2:15 p.m. New York time Wednesday.

    Oil-Price Poker: Why Saudi Won't Fold 'Em - The game being played in the global oil market today bears more than a passing resemblance to poker. Nobody wants to quit while they’re losing.  That is important for investors to keep in mind as they ponder what have become almost daily spikes and drops in the price of crude. So, too, is the role of Saudi Arabia in the game.  It remains within Saudi Arabia’s ability to foster at least a partial recovery in crude prices on its own. A sharp rally in prices last Thursday morning was based on comments from Russia’s energy minister that the Saudis might get the ball rolling on 5% output cuts. That was quickly refuted and oil gave up much of the gains. All major producers are suffering financially at today’s low prices—while oil has bounced from its sub-$30 nadir of January, it is still down nearly 7% in 2016 and nearly 70% from its 2014 peak. And Saudi Arabia hasn’t forfeited only a couple of hundred billion dollars and counting in forgone revenue, but also market share.  That has mainly been to a relative newcomer, U.S. shale producers. But going forward it may be to an old adversary: Iran.  The Shiite powerhouse is ramping up production following the lifting of nuclear sanctions. And its export surge is occurring against the backdrop of ongoing proxy wars in Syria and Yemen. Those make it difficult for Sunni champion Saudi Arabia to take the lead with output cuts.Russia, meanwhile, is pumping the most crude ever, hitting a post-Soviet Union peak. But it may have difficulty maintaining today’s pace given a lack of investment in its aging Siberian fields.  And then there is the additional wrinkle that Russia is actively on Iran’s side in Syria. For those reasons, not only have occasional statements from Russia about nonexistent agreements been something of a bluff, so too might be the country’s willingness to voluntarily curb its own output. In other words, Russia is holding weak cards and the Saudis know it.

    Is The Saudis Market Share Strategy Still Feasible? - Much of the rout in oil prices has been predicated upon the staying power of Saudi Arabia and other OPEC producers. As oil prices have continued to fall, virtually all of OPEC has been pumping oil as fast as possible to generate increased revenues at lower prices. That practice has helped to fuel the oil glut and led to a price that would have been unthinkably low just a couple of years ago. Oil markets have been largely assuming that OPEC producers could go on producing at these levels for years, but what if that’s not the case? Take the strongest of the OPEC producers, Saudi Arabia for instance. Saudi Arabia has very low cost per barrel of production – much lower than any shale producer in the U.S. But as a country, Saudi Arabia also has other significant obligations that it has to meet and oil revenues are effectively its only way of meeting these obligations. The same principle holds true for all other OPEC producers, though most are in worse shape than the Saudis. With oil at these prices, all of OPEC is bleeding fast. The oil revenues that the Saudis and others are bringing in are simply not enough to meet their on-going obligations. As a result, Saudi Arabia and others have been forced to turn to their savings – foreign currency reserves. Saudi Arabia started 2015 with roughly $720B in reserves. By August it was down to $650B. As of December, Saudi Arabia has around $620B in reserves. If oil averages $20 a barrel going forward for the next couple of years, Saudi Arabia will be broke by mid-2018 even after accounting for its recent budget cuts that trimmed internal spending. $30 a barrel oil buys the country about 6 months, tiding it over to early 2019. Libya, Iraq, and Nigeria are all in much worse shape, as of course is Venezuela. Even before Saudi Arabia gets to the point of bankruptcy though, panic may begin to set in for OPEC. Saudi Arabia is the most stable member of OPEC, and other than its rival Iran, who is use to budgetary pressure, the rest of OPEC is largely bloated and ill-prepared for a long period of low oil prices.

    Is the Saudi Market Share Strategy Backfiring? -- Yves here. Stocks around the world took a nosedive today, due to WTI sliding to under $30 a barrel, as well as disappointing earnings announcements from Chevron and BP, along with a warning from Standard & Poors. But the bigger cause of the sour mood which apparently swept from oil stocks into the broader market, was that a rumored deal among Russia, Iran, and the Saudis is nowhere near as imminent as the hype of last week would have investors believe. And there’s an obvious reason why. As we indicated last year, when Saudi Arabia embarked on its oil-price-cutting strategy, which is what refusing to reduce production to support prices amounted to, it looked like a masterstroke. It had several sets of opponents in its crosshairs. The firs was US frackers, who posed an intermediate-term threat if the shale boom and resulting government subsidies supported the construction of LNG transport facilities (which on a cold-blooded economic calculation are not justifiable given that under the old normal, shale production would have peaked around 2022 and started declining gradually, then more sharply around 2030, and that assumed no curbs due to earthquakes or water supply impact). Second was clean energy, which becomes much less attractive if conventional energy becomes cheap. Third was Saudi Arabia’s geopolitical opponents, most important Russia and iran. Recall that the Western media went all in on the story of Russian vulnerability. In 2015, Europe tightened sanctions, and the Western leaders were in barely-veiled terms calling for regime change in Russia, on the premise that Putin could not survive the one-two punch of low oil prices and foreign sanction. Here we are, in 2016, with barely an acknowledgment of that period. Not only did the Europeans overestimate Putin’s vulnerability, but the Saudis badly underestimated theirs.

    Oil price crash: Saudis told to embrace austerity as debt defaults loom - Saudi Arabia faces years of tough austerity as the worst oil price crash in the modern history forces the kingdom to make radical cuts to government largesse, the International Monetary Fund has warned. The world's largest producer of crude oil will need to "transform" its economy away from oil revenues, which make up more than 80pc of the government's wealth, according to Masood Ahmed, head of the Middle East department at the IMF. The Saudi monarchy has already been forced to unveil the largest programme of government austerity in decades as oil prices have collapsed by more than 70pc in 18 months. "This will have to be part of a multi-year adjustment process," Mr Ahmed told The Telegraph. He urged the kingdom to reform its generous system of oil subsidies and introduce a host of new taxes, including consumption levies such as VAT.  "There will have to be a major transformation of the Saudi economy. It is necessary and it is going to be difficult, but it is a challenge which I think the authorities have clearly laid out", said Mr Ahmed. The warning comes as the world's weakest oil producing nations could buckle under the pressure of the price rout.

    Russia Ready to Discuss Oil Production - WSJ: —Russian officials on Tuesday said again that they were ready to talk about coordinating efforts to stabilize the oil market with the Organization of the Petroleum Exporting Countries, but stopped short of saying they would cut production. Russian Foreign Minister Sergei Lavrov raised the stakes of such coordination to a diplomatic level, saying at a news conference after a meeting in Abu Dhabi with the emirate’s crown prince that Russia would meet with OPEC. On the same day, Igor Sechin, the chief executive of Russia’s largest oil company, OAO Rosneft, said he discussed coordination to soothe the markets with Venezuelan oil minister Eulogio del Pino. The renewed talk of Russian coordination comes as the world’s oil producers grapple with a 20-month slump in the price of crude, which has fallen more than 70% since June 2014. Mr. del Pino is visiting Russia, Saudi Arabia and other big producers to drum up support for a coordinated production cut to bring supply and demand back into balance and raise prices. On any given day, oil supply outpaces demand by more than 1 million barrels. “If there is interest in holding a meeting that our Venezuelan friends are talking about—to hold a meeting between OPEC members and countries that are not a part of this organization—we will naturally join such a consensus and will work under these parameters,” Mr. Lavrov said, Interfax reported. “We are interested in having a mutual understanding of what is going on on the global energy markets and are interested in exchanging our estimates [of the situation],” he said, according to Prime news agency.

    These 8 charts show how catastrophic the oil price crash has been for Russia -  Russia's economy and the price of oil are inextricably linked. The country relies hugely on the oil and gas industries, with more than 50% of total government revenues coming from the sector. That means that since the price of oil started to crash in mid- 2014, Russia's economy — which is also feeling the squeeze from Western sanctions — has been in the midst of a battle for survival. The price of of oil doesn't look to be going anywhere soon, despite chatter last week that OPEC and Russia may be considering a production cut sending prices soaring briefly. At the time, Russia's biggest oil company Rosneft, described a rally in the oil price as "idiotic".  Continuing low oil prices can only mean one thing for Russia — more pain.In the latest of a series of notes on the oil crash in non-OPEC nations, analysts from Bernstein Research — led by Dr. Oswald Clint — have shed light on just how much trouble the current oil price crash is causing the Russian government, with a heap of great charts to illustrate that point.The note argues that the government's finances are in their worst position in more than a decade, which is quite some feat given that the country underwent one of the most severe recessions in its history, only six years ago. Things look so bad that Bernstein describes the country's finances right now as "going off a cliff" adding (emphasis ours): It is unlikely that this situation will reverse itself unless there is a significant increase in oil prices or a removal of sanctions which lets the country access international debt markets openly again. None of these scenarios look likely anytime soon.  Check out the charts showing Russia's pain below.

    Six OPEC states ready for emergency meeting with non-OPEC members — Venezuela's minister (TASS) - Representatives of 6 member-states of the Organization of the Petroleum Exporting Countries (OPEC) are ready to participate in an emergency meeting on coordinated reduction of oil production with non-OPEC members, Venezuela’s Oil Minister Eulogio del Pino said during his visit to Tehran on Thursday.  According to the minister, such OPEC member-states as Iraq, Algeria, Nigeria, Ecuador, Iran and Venezuela as well as non-OPEC members Oman and Russia have given their consent. "The idea is not only to hold the meeting but to reach particular results," he was cited as saying by Iran's news agency Shana. The official is expected to discuss the prospects of convening an emergency meeting on oil during his visit to the countries of the Persian Gulf - Qatar, Saudi Arabia and Oman.

    Global gas market braced for price war - Could Gazprom be about to start a price war in the global gas market? With the prospect of a wave of US liquefied natural gas (LNG) supplies starting to hit the market later this year, energy investors fear the Russian state gas giant may adopt the same strategy in the gas market that Saudi Arabia has done in oil. It may seem like a gas price war is the last thing that Russia, already reeling from the impact of low oil prices, needs. But analysts say that such a strategy may be economically rational for Gazprom: already-low prices in the European gas market mean it could relatively easily push prices to a level at which it would be unprofitable to ship LNG from the US — and in doing so defend its market share in a region which accounts for the bulk of its profits. Such a move would have significant repercussions for the global energy markets: a fully-fledged price war in the European gas market could have a ripple effect across other regions and commodities — from Australian LNG to Colombian coal — as well as threatening the viability of the nascent US LNG industry.  The argument in favour of a price war is simple. Just as Saudi Arabia is the main swing producer for the global oil market thanks to its ability to ramp up production if needed, Gazprom is the main holder of spare capacity in the global gas market. According to Gazprom executives, the company has about 100bn cubic metres of spare production capacity equivalent to almost a quarter of its production and about 3 per cent of world output. And just as Saudi Arabia has been unnerved by the prospect of US shale oil producers eroding its market share, Gazprom faces a similar prospect in the gas market. The flood of cheap gas unleashed by the US shale boom has prompted a wave of US LNG projects in recent years, and the total export capacity under construction is equivalent to two-thirds of Gazprom’s exports to Europe.

    BofA: The Oil Crash Is Kicking Off One of the Largest Wealth Transfers In Human History - Economists are still hotly debating whether the oil crash has been a net positive for advanced economies. Optimists argue that cheap oil is a good thing for consumers and commodity-sensitive businesses, while pessimists point to the hit to energy-related investment and possible spillover into the financial system. A new note from Francisco Blanch at Bank of America Merrill Lynch, however, puts the oil move into a much bigger perspective, arguing that a sustained price plunge "will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history." Blanch and his team already see evidence that the fall in the price of crude is having a positive impact on demand, and say that it could accelerate even further if prices don't pick up.  Says Blanch: "Alternatively in a lower oil price scenario, e.g. if prices were to average just $40 over the next five years which is close to the current forward curve, demand would grow by 1.5 million barrels per day, which is 0.3 above our base case. Finally, at $20 oil demand would grow by an explosive by 1.7 per year on average, 0.5 above the base case, on our estimates." Meanwhile, in emerging markets, where much of the story of late has been about disappointing economic growth, Blanch still sees huge upside potential in terms of automobile penetration and consumption. Take China for example, where the strategist sees the oil plunge helping to fuel a boom in SUV sales: "Moreover, the low oil price is encouraging Chinese consumers to buy increasingly larger cars. Sales of SUVs, the heaviest passenger vehicles category, are up 60 percent year-on-year in the last three months, while overall passenger vehicle sales are growing robustly at 22 percent." And it's not just emerging markets where the impact of cheaper gasoline is being seen. After years of stagnation, vehicle miles traveled in the U.S. clearly ticked higher in 2015.

    Why Cheap Oil Hurts Its Net Importer, the Philippines  -- There's an interesting story in Bloomberg about how a largely oil-importing nation, the Philippines, can be negatively affected overall by lower oil prices. Sure, the country benefits from lower oil prices to an extent. However, in the larger scheme of things, matters appear less rosy. As a large labor exporter, the Philippines has, since the first oil shock, sent large numbers of migrant workers to the Middle East. With the country dependent on workers' remittances from abroad to improve its external position--the Philippines runs a sizable trade deficit annually but nevertheless manages a current account surplus due to the aforementioned remittances--current trends are worrying: The share of remittances coming from the Middle East could be as high as 40 percent, compared with 23 percent in the official [Philippine] data, according to a Jan. 27 research note by Michael Wan, a Credit Suisse Group AG analyst in Singapore. Remittance growth slowed to 3.6 percent in dollar terms last year through November, from 5.8 percent in 2014, central bank data show. Volumes have held up reasonably well so far, said Wan. That could change as the impact of a 29 percent drop in Brent crude over the past six months forces Saudi Arabia to cut generous subsidies to its citizens, while the United Arab Emirates’ Etihad Rail suspended a major rail project this week after firing almost a third of its workforce. Brent recovered to around $35 on Monday after falling to a 12-year low of $27.10 a barrel on Jan. 20.

    The Big-Oil Bailouts Begin  - Despite a bounce this week, low oil prices continue to sow fear, uncertainty, and mayhem across the emerging market complex. On Wednesday, it was leaked that the IMF and World Bank would dispatch a team to oil and gas-dependent Azerbaijan to negotiate a possible $4 billion emergency loan package in what threatens to become the first of a series of global bailouts stemming from the tumbling oil price. In Latin America’s largest economy, Brazil, the government has refused to rule out bailing out Petrobras, once the jewel of the nation’s crown but now a scandal-mired shadow of its former self, weighed down by $127 billion in debt, most of it denominated in dollars and euros. If it is unable to sell the $15 billion in assets it has targeted by the end of this year – a big IF given how the prices of oil and gas assets have deteriorated – Petrobras might need some serious help from Brazil’s Treasury. According to Citi, that help could reach $21 billion – just enough to plug the company’s cash hole and fix the capital structure on a sustainable basis.  The government of Mexico just announced that it quietly injected 50 billion pesos ($2.7 billion) of public funds into the coffers of state-owned oil company Pemex. The timing of the announcement could not have been more convenient, coming just a day before Pemex was due to launch a $5-billion bond issue, which was predictably gobbled up by investors. In all likelihood, it will be the first installment of what could end up being a very large, very costly bailout of Mexico’s oil sector. Pemex is the world’s second largest non-publicly listed company, with $416 billion in assets. But things are looking decidedly grim.

    Iran: $100B in assets 'fully released' under nuclear deal — Iran said Monday it now has access to more than $100 billion worth of frozen overseas assets following the implementation of a landmark nuclear deal with world powers. Government spokesman Mohammad Bagher Nobakht said much of the money had been piling up in banks in China, India, Japan, South Korea and Turkey since international sanctions were tightened in 2012 over Tehran’s nuclear program. Iran’s semi-official ISNA news agency meanwhile quoted central bank official Nasser Hakimi as saying nine Iranian banks are now reconnected to SWIFT, a Belgian-based cooperative that handles wire transfers between financial institutions. No foreign banks operate in Iran, and ATMs in Iran are not yet linked to the global system. SWIFT had no immediate comment. 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 curbing its nuclear activities under last summer’s accord. “These assets ($100 billion) have fully been released and we can use them,” Nobakht said. He said much of the money belongs to Iran’s central bank and National Development Fund. He said Iran will not bring all the money back because it can be spent on purchasing goods. Iran expects an economic breakthrough after the lifting of sanctions, which will allow it to access overseas assets and sell crude oil more freely.

    Russian-Iranian relations just got $40 billion stronger - Iran and Russia have initialed contracts worth around $40 billion, including for power-engineering and railway projects, Russian news agencies quoted Ali Akbar Velayati, top adviser to Iran's Supreme Leader Ayatollah Ali Khamenei, as saying on Thursday. Velayati, who is wrapping up a visit to Moscow, said he had discussed some of the projects with Russian President Vladimir Putin. He said Tehran was interested in obtaining a loan from Russia for Iran's railways and nuclear power engineering. He said the package of projects had been signed in the past few months. "They have been  initialed and are ready for implementation," Interfax news agency quoted him as saying.

    Iran wants to dump dollar in crude trade – report —Iran wants post-sanctions’ oil contracts denominated in dollars and have buyers pay in euros, Reuters reported. Tehran is also keen to receive money owed to it since the pre-sanctions days in the European currency. The country’s crude deliveries are to be restored soon, with companies such as the French giant Total, Spanish refiner Cepsa and Litasco and the trading arm of Russia's Lukoil already holding contracts. Reuters source at state-owned National Iranian Oil Co (NIOC) told the agency that Tehran wants to receive payment in euros."In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery," the source said. Tehran also wants to receive billions of dollars worth of assets frozen under the sanctions in euros, said another source. Iran has an estimated $100 billion in assets and around half of these would be unfrozen under the upcoming sanctions relief. Iranian disdain for the American currency is nothing new. In 2007, it unsuccessfully campaigned at OPEC to switch from the dollar. The role it plays in the oil trade is one of the key reasons the dollar enjoys the status of the world’s leading reserve currency. Iran is not alone in wanting to distance itself from the dollar. Russia has been working towards the same goal, trying to eliminate the US currency from domestic trade and signing deals with its key foreign economic partners to use national currencies in bilateral trade.

    Saudi Arabia: the Devil’s Playground: Global markets continue on a roller-coaster ride two weeks after this column revealed how Saudi Arabia had been unloading at least $1 trillion in US securities, crashing global markets in parallel to its market share/oil price war. The House of Saud may even hold more than $8 trillion in US Treasury bonds and stocks; that depends on how much of the Aramco profits they monopolized, and how well they invested.  A New York investment banker with solid Saudi connections confirms the Saudis coordinate their major oil moves with Goldman Sachs "and others" (he did not specify), so as not to antagonize Wall Street. This would mean the House of Saud share in the profits with Goldman Sachs through derivatives in their oil trades. And this spells out a multi-trillion US dollar bonanza both to the Saudis and to Wall Street — considering some serious action could flow through partners of Goldman Sachs and others offshore to conceal the massive volumes. The only thing that has filtered so far is that Goldman Sachs is not exactly in the business of antagonizing the House of Saud. According to a House of Saud-related source, the share of the roughly 12,000 royal family members absorbs 40% of Aramco's oil profits. Two years ago, according to the source, this would have represented $146 billion a year in today's dollars. Considering the astronomical increase of oil prices in 1973, 43 years ago, that would have yielded $6.2 trillion just for the House of Saud. Then there are the state reserves — 60% of Aramco's profits; $ 219 billion, which times 43 make $9.4 trillion. The key point is the House of Saud may be swimming in a — secret — sea of money, and not being engulfed by the desert of debt default.   The notion that the population of Saudi Arabia, according to the IMF, may have to face serious government austerity — after the House of Saud-provoked "worst oil price crash in modern history", engineered to punish Russia, Iran and US shale producers — is nothing short of ludicrous. 

    Non-Dollar Trading: Emerging Economies Deal a Heavy Blow to Petrodollar  Experts have given the petrodollar a fatal diagnosis. Falling crude prices have accelerated the petrodollar's demise, dealing a heavy blow to the system that has long facilitated the US dollar's world reserve currency status. Emerging economies are abandoning the US dollar as a means of payment for oil, having shifted to national currencies. "Ditching the dollar, Iran and India have agreed to settle all outstanding crude oil dues in rupees in preparation to future trade in their national currencies. The dollar dues — $6.5 billion equaling 55 per cent of oil payment — would be deposited in National Iranian Oil Co account with Indian banks," The Indian Express reported on January 5, 2016. Half a year earlier, Russia's state-owned oil company Gazprom Neft announced that it had started settling shipments of crude to China in the renminbi (yuan). The strategy proved effective and Russia has become Beijing's top oil exporter, outpacing Saudi Arabia. "Interestingly, part of Russia's success in China has been attributed to its willingness to accept Chinese yuan denominated currency for its oil. (And not, as others have suggested, because of any sort of allegiance to the Sino-Russo friendship.)," Elena Holodny of Business Insider noted in one of her latest articles. Incredible as it may seem, experts recommend Saudi Arabia to follow Russia's example and switch from dollars to yuans:

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