Sunday, July 17, 2016

gasoline, distillates & other inventories continue to pile up; demand for them may not be as advertised...

both oil and natural gas prices were only modestly changed from last week, although oil did see a 5% spike on Tuesday that was reversed by a 5% drop on Wednesday...after closing Monday at a two month low of $44.74 a barrel, down from last week's closing price of $45.41 on continued concern about the refined products glut, US oil prices rose by more than $2 a barrel to close at $46.80 a barrel on Tuesday, largely due to technical factors, wherein traders who had earlier sold oil they didn't own had to buy oil during a global market rally to cover their contract obligations...however, oil prices fell right back to where they started the week on Wednesday, after EIA data showed a big buildup of gasoline, distillates, and other oil products, as well as an increase in crude oil production...after Wednesday's close at $44.75 a barrel, oil prices rebounded on to close at $45.68 a barrel on Thursday amid a stock market rally and falling dollar, which made globally traded commodities more expensive in dollars....prices then continued to rise early on Friday after bullish economic releases and later on news of a coup attempt in Turkey and a new pipeline attack in Nigeria, and ended the week at $45.95 a barrel, up a bit more than one percent on the week...

in contrast to the daily gyrations in oil that ended the week with just a small change, natural gas prices moved little each day this week after a 10 cent drop from last week to close at $2.702 per million British Thermal Units (mmBTU) on Monday...with no particular news moving prices, natural gas rose to $2.733 per mmBTU on Tuesday and then to $2.737 per mm-BTU on Wednesday, before falling back to $2.727 per mmBTU on Thursday, after the EIA's Weekly Natural Gas Storage Report indicated that natural-gas inventories grew by 64 billion cubic feet last week in contrast to the 56 bcf growth expected by forecasters... that left working gas in underground storage in the US as of July 8th at 3,243 billion cubic feet, 18.5% more than the same week a year ago, and 22.1% more than our 5 year average of natural gas stores at this time of year...gas prices then rose by 2.9 cents to close the week at $2.756 per mmBTU as traders finally paid a bit of attention to the weather, while this week's changes in the price of natural gas aren't exactly newsworthy, what is notable is that despite forecasts for a record setting heatwave over most of the country over the coming two weeks, natural gas prices have been unable to rally out of their trading range...that leads us to believe that natural gas prices have probably seen their high for the year, because if expected air conditioning demand during a record July heatwave can't move prices, it's hard to see that much else can...thus, in the face of the slightest bearish news on natural gas, we can probably expect to see another drop in prices, which should hold new drilling, which has already been at record lows, to a minimum.....

The Latest Oil Stats from the EIA

this week's release of oil data for the week ending July 8th by the US Energy Information Administration indicated a modest increase in our national output of crude oil, a significant drop in our oil imports, and sizable increases in our supplies of refined products, despite an unseasonable cutback in refining....meanwhile, this week's crude oil fudge factor included to make the weekly U.S. Petroleum Balance Sheet (line 13) balance was +452,000 barrels per day, which meant that 452,000 more barrels per day showed up in our final consumption and inventory figures this week than were accounted for by our production or import figures, meaning one or several of this week's metrics were incorrect by that amount, errors which are typically due to miscues in reporting or gathering that data...that makes for the 3rd week in a row when we've seen a large positive adjustment, which have served to bring this year's cumulative daily average of that weekly statistical adjustment factor down 0 barrels per day, which amazingly means that despite these large weekly errors, figures for the year to date have completely balanced out...

as we expected, last week's large drop in our field production of crude oil was partially reversed when oil production from Alaska, which had inexplicably fallen by 156,000 barrels per day last week, rose by 71,000 barrels per day this week, and thus was responsible for a 57,000 barrel per day increase to an average of 8,622,000 barrels per day of crude oil from US wells during the week ending July 8th....that increase - just the 3rd in the last 23 weeks – still left the week's oil production 11.3% lower than the 9,562,000 barrels we produced during the week ending July 10th of 2015, and 11.7% lower than the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th last year...our oil production for the week ending July 8th was thus 734,000 barrels per day lower than we what were producing at the beginning of this year... 

at the same time, the EIA reported that our imports of crude oil fell by 522,000 barrels per day to an average of 7,841,000 barrels per day during the week ending July 8th, which was still 487,000 barrels per day, or 6.6% more than the 7,354,000 barrels of oil per day we were importing during the week ending July 10th a year the same time, the 4 week average of our imports reported by the EIA's weekly Petroleum Status Report (62 pp pdf) actually increased to an 8.1 million barrel per day level, which was 11.2% higher than the same four-week period last year...  

meanwhile, crude oil usage by US refineries fell by 143,000 barrels per day, to average of 16,544,000 barrels of crude per day in this week's report...that was as the US refinery utilization rate fell for the 2nd week in a row to 92.3% for the week ending July 8th, down from 92.5% of capacity the prior week and from 93.0% of capacity 2 weeks ago, and in contrast with the refinery utilization rate of 95.3% during the week ending July 10th last year...this was to be expected, considering the product supply glut development we saw last week, wherein cargoes were left stuck sitting in New York harbor for lack of storage space; refining fell by 88,000 barrels per day on the east coast, and by 90,000 barrels per day in the Midwest, while it rose by a seasonal 60,000 barrels per day in the West, where the supply of products is closer to normal...crude oil refined this week was thus 1.7% lower than the 116,825,000 barrels per day US refineries used during the week ending July 10th last year, and also 1.0% lower than the equivalent week in 2014...

even with the pullback in refining, however, US refineries production of gasoline rose by 210,000 barrels per day to 10,218,000 barrels per day during week ending July 8th...that came even as east coast refineries were cutting back their gasoline production by 230,000 barrels per day, although that comes with the caveat that the regional gasoline production stats shown in this week's Petroleum Status Report are out of balance by 432,000 barrels per day...that increase meant that this week's gasoline production was 5.8% greater than the 9,658,000 barrels per day of gasoline produced during the equivalent week a year ago, despite the refinery slowdown....and also despite the refinery slowdown, their output of distillate fuels (diesel fuel and heat oil) also rose during this week, climbing by 82,000 barrels per day to 5,034,000 barrels per day during the week ending July 8th...however, that was still 1.2% below our distillates production of 5,093,000 barrels per day during the week ending June 10th of last year......         

with the large increase in gasoline production, our end of the week gasoline inventories rose by 1,213,000 barrels to 240,089,000 barrels as of July 8th, just a few thousand barrels from what we had stored on May 20th, before the driving season officially began on Memorial day...contributing to this week's increase in gasoline supplies was a 55,000 barrel per day increase to 820,000 barrels per day in our gasoline imports and a drop of 84,000 barrels per day in the amount of gasoline supplied to US markets, which fell to 9,671,000 barrels per a result of that addition to supplies, this week's gasoline inventories were 10.1% higher than the 218,010,000 barrels of gasoline that we had stored on July 10th last year, and 11.9% higher than the 214,492,000 barrels of gasoline we had stored on July 11th of 2014, meaning our gasoline supplies are still categorized by the EIA as "well above the upper limit of the average range" for this time of year..  

one caveat to that figure for gasoline supplied to US markets, which is widely considered a proxy for gasoline consumption...we quote the weekly figures for that metric, largely because we write weekly, and the weekly figures are what the news media and the markets respond to...but as we've tried to point out, the weekly figures are just ballpark estimates, and as we've seen from the weekly "adjustment" metrics, which we've been calling the EIA's "fudge factor", those weekly estimates seldom come close to balancing between oil input and product output, sometimes by a large amount...however, once the discrepancies in the data are ironed out,the EIA also publishes monthly data, which come out two months or more later than the current week...a little over a week ago, Bloomberg's energy analyst Julian Lee checked the difference between the weekly and the monthly figures, and found that our apparent booming demand for gasoline and oil products, which we reported were at record levels three weeks ago, is largely an illusion; that once the accurate monthly data comes in, this year's demand for gasoline has yet to top last years...the same goes for all the other refined products across the products spectrum, which you can see in this chart below, which comes from the aforementioned Bloomberg article...

July 2 weekly vs monthly oil demand

this graph shows the monthly difference between the oil products demand statistics published weekly, shown in navy blue, and the oil products demand statistics published monthly, shown in teal blue, since the beginning of 2014…this total products graph includes not only gasoline, but also distillates, kerosene type jet fuels, residual oils, propane/propylene and other products, although gasoline does account for roughly half the can see that over the past two years, the weekly estimates of demand for product have generally been excessive, and that since April of 2015, the weekly estimates of 'product supplied' have consistently been higher than what the final monthly readings have shown to be the case...and although the recent weekly data has shown that our consumption of oil products was at record levels in June, it has not yet been confirmed by the more accurate monthly data, which as of April appeared to be heading in the opposite direction, implying a revision of a whopping 800,000 barrels a day...

returning to this week's data, our distillate fuel inventories rose by 4,058,000 barrels to end the week at 152,997,000 barrels, as distillates were added to storage in every region of the country, bumping our distillate inventories up to the highest since the week ending May our distillate inventories had already been so much above normal level after the warm winter reduced US heat oil consumption, our distillate inventories as of July 8th were thus 8.3% higher than the 141,280,000 barrels of distillates we had stored at the same weekend last year, and 23.1% higher than our distillates supplies as of July 11th 2014, and therefore they're also characterized as "well above the upper limit of the average range" for this time of year...   

finally, even with the drop in refining, the larger drop in our imports meant that we needed to withdraw 2,546,000 more barrels of oil from our stocks of crude in storage to meet the week's need, as thus our crude oil inventories fell by that amount to 521,804,000 barrels as of July 8th...but since national oil inventories even fell by more in the equivalent year ago week, this week's stores were still 13.1% higher than the 461,417,000 barrels of oil we had stored as of July 10th, 2015, and 39.1% higher than the 375,040,000 barrels of oil we had stored on July 11th of 2014....with our oil inventories thus continuing to be that much higher than the seasonal records we set most every week in 2015, it's obvious that our crude oil supplies are also "well above the upper limit of the average range" for this time of year..."  

This week's rig counts

even with the nominally lower prices for oil and gas, US drilling activity increased for the 6th week out of the past 7 weeks during the week ending July 15th, as contracting and hiring for this week's new drilling was probably already underway weeks ago, when prices were higher.....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 7 rigs to 447 rigs as of July 15th, which was still down from the 857 rigs that were deployed as of the July 17th report last year, and down from the recent high of 1929 rigs that were in use the week before the OPEC meeting of Thanksgiving 2014...the number of rigs drilling for oil this week rose by 6 rigs to 357, which was still down from the 638 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 oil rigs that were drilling on October 10, 2014, while the count of drilling rigs targeting natural gas formations rose by a single rig to 89 this week, which was down from the 218 natural gas rigs that were drilling a year ago, and down from the recent high of 1,606 rigs that were drilling for natural gas on August 29th, 2008...there was also still one rig running this week that was classified as miscellaneous, unchanged from last week and unchanged from the same week a year ago....  

of the drilling rigs that were added this week, three were offshore on drilling platforms in the Gulf of Mexico, which brought the Gulf of Mexico active rig count back up to 21 rigs, which was still down from 31 Gulf of Mexico rigs a year ago...that also increased the total offshore rig count to 22, as there still is an offshore platform working off the Cook Inlet in the same time, there was a rig removed that had been drilling through an inland lake in southern Louisiana, which cut the inland waters rig count down to 3, which was still up from the 2 rigs that were deployed drilling on inland waters at the end of the same week last year...  

the number of working horizontal drilling rigs also increased for the 6th time in 7 weeks, but only by one this week, as the count of active horizontal rigs increased to 344 rigs, which still was down from the 650 horizontal rigs that were in use on July 17th of last year, and down from the record of 1372 horizontal rigs that were deployed on November 21st of the same time, 7 directional rigs were added, bringing the directional rig count up to 43, which was still down from the 84 directional rigs that were in use at the end of the same week a year earlier...meanwhile, the vertical rig count fell by a single rig to 60 rigs this week, which was also down from the 123 vertical rigs that were drilling in the US during the same week last year...     

for the details on which states and which shale basins saw changes in drilling activity this past week, we'll again include a screenshot of that part of the rig count summary from Baker Hughes, which shows those changes...the first table below shows weekly and annual rig count changes by state, and the second table shows weekly and annual rig count changes for the major geological oil and gas both tables, the first column shows the active rig count as of July 15th, the second column shows the change in the number of working rigs over the last week, the third column shows the July 8th rig count, the 4th column shows the change in the number of rigs running from the equivalent week in July a year ago, and the 5th column shows the number of rigs that were drilling at the end of that week a year ago, which in this case was July 17th of 2015: 

July 15 2016 rig count summary

from these tables we can see that New Mexico and Louisiana by themselves accounted for the entirely of this week's drilling increase, with other states adding or idling one rig a piece as noted...also note that the net of 1 additional horizontal rig this week came by way of shutting down at least 6 such rigs, including 4 that had been drilling into the Barnett shale of the Dallas-Ft Worth area, and adding at least 7 horizontal drillers elsewhere...among states not shown above, Idaho saw the addition of 1 rig this week, their first since December, as a year ago they had no rigs running...Illinois also saw their rig count increase by 1 to 3 rigs; that was up from the 2 rigs they were running in the same week last year, and Mississippi also saw the addition of 1 rig, giving them 2, which was down from the 4 rigs deployed in Mississippi on July 17th of 2015...meanwhile, Nebraska had its only active rig shut down this week, a year ago they were running two in the addition, the rig that started drilling in Hawaii on April 29th wrapped up whatever it was doing there and was pulled out this week; a year ago, there were no rigs in Hawaii...


Ohio's alternative-energy freeze undermines jobs, innovation and investment (Opinion) | -- Ohio has long prided itself as the cradle of American innovation. Unfortunately, the energy policy roller coaster initiated by Senate Bill 310 has effectively frozen the state's market for energy innovation and the local investment that flows from it. In the past two years, Ohio has shut itself off from an advanced-energy industry that generated $200 billion in revenue in the United States last year and employs more than 100,000 Ohioans. In 2015, only $25 million was invested in solar installations in Ohio compared to $100 million in 2013, causing Ohio to fall from its rank as the 16th state for solar installations in 2012 to 29th in 2015, according to GTM Research. Also, no new investments were made or projected for Ohio wind since 2012, according to a 2015 report by The Pew Charitable Trusts.  Stable costs and options for managing them are important when corporations like Facebook and Amazon decide where to locate their facilities. The cost of energy is a major consideration in these decisions. Ohio needs to make sure it is at the forefront of technologies that put customers in control, instead of clinging to old ways of meeting energy needs.  Whether buying or selling, businesses like ours need stable rules to invest with confidence. But Ohio's uncertain energy policy over the last two years has undermined investment in advanced-energy industry companies and products in the state. That's costing us all money.

YSPH Study of Environmental Contaminants Associated with Fracking Underway in Ohio - Yale News - A team of Yale School of Public Health scientists has launched the Ohio Water and Air Quality Study in Belmont County, Ohio. The scientists will collect and analyze water and air samples this summer as well as administer health questionnaires to 100 residents in communities with unconventional natural gas development. The researchers will investigate the potential for exposure to environmental pollutants and whether any health problems have resulted. Unconventional natural gas development (commonly known as hydraulic fracturing or fracking) has expanded dramatically in Eastern Ohio over the past five years. But information on whether the fracking process contaminates water or air in nearby communities remains limited, said Nicole Deziel, assistant professor in the Department of Environmental Health Sciences and the study’s lead researcher. Drinking water can become contaminated from improperly constructed or deteriorating wells near fracking sites or from spills, improper storage, transportation or disposal of the wastewater used in fracking. Air pollution can be generated from well site construction, drilling, increased truck traffic and emissions from waste ponds, compressors, or processing stations. The limited existing health studies suggest an increase in hospitalizations, adverse birth outcomes, such as an increase in congenital heart defects or pre-term births, and respiratory or dermal irritation. Studies measuring concentrations of health-relevant chemicals in drinking water sources are emerging, but data are sparse, particularly in Ohio.

Election board says proposed Athens County charter not valid - In a unanimous vote Friday, the Athens County Board of Elections ruled that a proposed county charter petition is not valid, a decision that will likely result in the issue going to court. The Athens County Bill of Rights Committee filed a petition June 29 with the elections board seeking to have a proposed county charter placed on the November ballot. It was the committee’s second attempt to put a charter before voters. The proposed charter would prohibit the use of water from Athens County for high-volume hydraulic fracturing (fracking) for extraction of oil and gas, and prohibit the disposal of fracking waste in Athens County. A copy of the proposed charter is attached to this article on The elections board had requested a legal opinion from County Prosecutor Keller Blackburn on whether the proposed charter constitutes a valid charter under Ohio law. In response, Blackburn told the board that the charter is not valid — although he also recommended that it be allowed to go before voters. It was Blackburn’s finding that the charter is not valid that the elections board used as the basis of its decision, according to board member Aundrea Carpenter-Colvin. The board sent notification to the county commissioners that the petition contained sufficient valid signatures, but that the petition is not a valid charter. (If the elections board had found the petition valid, the commissioners could have voted to certify it for the ballot.) “Based on what we had to use to decide, that was our decision,” Carpenter-Colvin said after Friday’s meeting. She said the vote was not based on board members’ personal feelings about fracking or whether there should be a charter government. “That had nothing to do with the decision we made,” she said.

Here we go again... Election board rejects BORC's county charter - -- The Athens County Board of Elections voted unanimously for the second time in as many years that a proposed anti-fracking charter for Athens County should not go to county voters because it’s invalid. On June 29, the Athens County Bill of Rights Committee (ACBORC) submitted a proposal to the elections board for the November ballot to turn Athens County into a charter government. The committee’s charter does not propose to alter the structure of Athens County government with regard to officeholders or duties, but does seek to assert local control over regulation of oil and gas hydraulic fracturing and other activities related to oil-and-gas development (including fracking waste-injection wells). The county Board of Elections found that the proposal had enough valid signatures to go on the ballot, with 1,720 valid signatures out of 1,441 needed and 2,392 collected. Nevertheless, after voting 4-0 against putting the charter to voters, the elections board informed the Athens County Commissioners that they had determined that although the petition contained sufficient valid signatures, “the petition is not valid.” “Upon review and in consultation with the Athens County Prosecutor, we find that the petition is not a valid charter,” they wrote to the commissioners, whose role is to certify proposals that are recommended for the county ballot. The ACBORC is now expected to challenge that decision, which will put the matter into the hands of an Athens County Common Pleas Court judge next for consideration. “It does not alter the form of government in Athens County,” the board wrote. “It does not take the powers of the municipalities and townships and vest those powers with the county. It relies on (Ohio) Revised Code to determine qualifications and salaries of elected officials.” Those last three sentences are verbatim from a letter Athens County Prosecutor Keller Blackburn sent to the Board of Elections after being asked to review the charter proposal.

University of Cincinnati Retracts Fracking Study - The University of Cincinnati has retracted a study on pollution caused by hydraulic fracturing or fracking, according to Energy in Depth (EID). The researchers for “Impact of Extraction on PAH Levels in Ambient Air” pulled the study, which showed no contamination from hydraulic fracturing, citing a mistake in their concentration calculations.  Of note, participants in the study were recruited from the group Carroll County Concerned Citizens, an anti-fracking group.  The article in question was published in March of last year and the retraction was issued on June 29th, 2016. EID claims that Dr. Erin Hayes, who was a co-author of the article, has been a participant in anti-fracking events. EID also asserts that the authors of the study admitted that their sample sizes were too small, and that the “chief assumption used for their research model was “totally impractical.” According to EID, among other problems, included the fact that the researchers did not use random testing and did not consider other pollution sources beyond oil and gas. EID states that in cancer hazard assessments, researchers “assumed the worst.” The study looked at levels of Polycyclic Aromatic Hydrocarbon or PAH.

Beshear: No criminal charges for dumping radioactive waste – After his office conducted what he called “an exhaustive four-month investigation,” Kentucky Attorney General Andy Beshear said Friday he had insufficient evidence to seek criminal charges in the disposal of radioactive waste at the Blue Ridge Landfill in Estill County. While Beshear said he could not pursue criminal charges, he believes Advanced TENORM Services and its owners violated civil law. “Because of these flagrant violations and reckless disregard for the safety of the community, my office sought the necessary statutory consent from the Cabinet for Health and Family Services to pursue (civil) damages and penalties to the fullest extent of the law,” Beshear said. “The cabinet declined our request, but has stated it plans to pursue such penalties on its own.” AG investigators reviewed hundreds of documents and held multiple interviews with state officials and with individuals directly involved in the disposal at the landfill of sludge from the oil and gas industry that contained technologically enhanced naturally occurring radioactive materials or TENORM waste. Beshear said his office will provide any support requested by the cabinet from his office’s four-month investigation. “As attorney general, protecting Kentucky families is my top priority,” he said. “I want to therefore reassure our citizens that despite the inability to pursue criminal charges, my office encourages the cabinet to levy the harshest civil penalties available under Kentucky law against those responsible in this troubling case.”

CHFS seeking civil penalties for radioactive waste dumping - (WTVQ) – Kentucky’s Cabinet for Health and Family Services (CHFS,) has announced it is seeking what it calls “significant” civil penalties in connection to the disposal of radioactive waste at landfills in Estill and Greenup counties. “The Cabinet intends to impose the harshest civil penalties available under the law against all those responsible for the illegal dumping of waste in the Commonwealth,” said Secretary Vickie Yates Brown Glisson. “We will not tolerate any actions that threaten the health and well-being of our citizens.” The disposal of the waste was first discovered back in January, when the West Virginia Radiological Health Program notified CHFS about illicit out-of-state dumping by Advanced TENORM Services, LLC. Penalties are also aimed at Fairmont Brine. In addition to imposing penalties, CHFS says they are monitoring and testing exposed areas, performing dose assessments of workers at the landfill, and evaluating the potential for future exposure from the material.Citing insufficient evidence, Attorney General Andy Beshear announced on Friday that, after a four-month investigation, no criminal charges will be filed in the disposal of radioactive waste at the Blue Ridge Landfill in Estill Co. The Attorney General did make the distinction that though criminal charges would not be pursued, he believes civil laws were broken. Beshear said his office will provide any support requested by the cabinet from his office’s investigation.

More On Shell's Plan for a Marcellus/Utica Ethylene Plant - On June 7, 2016, Shell announced that it had made a Final Investment Decision (FID) to move forward with the $6 billion project to build a 1.5 million tonnes per annum (MTPA) ethylene plant and three polyethylene plants that will produce 1.6 MTPA of polyethylene. Polyethylene is used in many products, from food packaging and containers to automotive components.  This FID does not fully “guarantee” that Shell will proceed with the project, but it represents a major commitment, and given the plant’s ready access to locally sourced ethane and Shell’s “first-mover” status (several other crackers have been under consideration in the Marcellus/Utica area), it is reasonable to conclude that the plant is likely to become a reality by 2021 or 2022.  Construction of the cracker could begin as soon as late 2017 or early 2018.  Whether or not Shell Chemicals follows through on its plan to build a $6 billion ethylene plant near Pittsburgh, PA –– and when that steam cracker comes online –– will have a significant impact on the U.S. ethane, ethylene and polyethylene markets. By consuming an estimated 90-100 Mb/d of ethane, the cracker’s operation would reduce the volume of ethane that needs to be moved out of the “wet” Marcellus/Utica production area, trim the amount of ethane available for export from marine terminals, and likely push ethane prices higher than they would otherwise be. Today, we examine what’s driving plans for the Northeast’s first cracker, and what effects the plant will have.

Loneliest Natural Gas Terminal in U.S. Bucks Pipeline Trend - Thanks to the shale revolution, the U.S. has plenty of natural gas of its own. All along the eastern seaboard, a chain of import terminals -- built when the country expected to get its fuel from abroad -- now lie idle. Except one. For reasons that have to do with environmental politics and geology, New England is bucking the trend. Three or four times a month, a police helicopter escorts giant ships through Boston Harbor, as they deliver liquefied natural gas from Trinidad to a terminal on the Mystic River.. Why buy from the Caribbean, when so much cheap gas is pumped out of Pennsylvania and Ohio? One objection is the new pipelines needed to bring it to New England. The Northeast is famously cold in winter, and it sits on beds of granite that make underground fuel storage a problem, so gas and power prices typically spike way above the rest of the country when there’s a freeze. But using shale gas to cut the bills means a longer-term commitment to fossil fuels, and any proposed pipeline route triggers local objections: it will leave a scar along the Catskill Mountains, or pose a safety risk to residential neighborhoods. That’s the dilemma that has given Engie SA’s import facility near Boston, unlike all its peers, a new lease on life. “We’ve been competing with pipelines since we opened,” Once the gas arrives in Boston, some of it goes straight to an adjacent Exelon Corp. power station and the rest is transported via existing pipes or by truck. “It doesn’t make sense to build a pipeline to satisfy demand for 30 to 40 days a year,” Churchill says. That argument has seen off a few potential rivals. Kinder Morgan Inc. scrapped its proposed $3.3 billion Northeast Energy Direct project in April, after failing to sign up enough customers. The Constitution Pipeline, intended to bring Marcellus gas from Pennsylvania, has been held up because New York denied a water permit, amid concern about contamination of the city’s supply.

Power generation projects and natural gas demand in the US southeast - We talk a lot here in the RBN blogosphere about the bearish market effects of the Shale Revolution, and frequently highlight the U.S. Northeast natural gas region — rapidly growing gas production from the Marcellus/Utica; oversupplied, trapped-gas conditions; and resulting regional price discounts. These dynamics are driving massive investments in pipeline reversals, expansions and new capacity to move the gas to market. Northeast producers are counting on that increase in takeaway capacity to relieve price pressure and balance the market.  But all this gas moving out of the region needs a home.  Fortunately, new demand is emerging, from exports (to Mexico and overseas LNG) and into the U.S. power sector.  One of the big growth regions is the U.S. Southeast, where power utilities are investing heavily in building out their fleet of gas-fired generation plants and are banking on this new, unfettered access to cheap Marcellus/Utica gas supply. Today’s blog provides an update on power generation projects coming up in the southern half of the Eastern Seaboard, based on a recent report by our good friends at Natural Gas Intelligence — “Southern Exposure: Gas-Fired Generators Rising in the Southeast; But Will Northeast Gas Show Up?”

Way Down Yonder on the Sabine-ahoochee - A Lot About LNG Exports from Cheniere's Sabine Pass - When we last checked out Sabine Pass in February (2016) in Commencing Countdown, the terminal was in the late stages of commissioning activities for the first train planned for the export terminal. Cheniere’s Sabine Pass LNG (SPL) terminal in Cameron Parish, LA (along the Texas-Louisiana border) is the first of four brownfield projects targeting gas exports from the U.S. The terminal will ultimately include six liquefaction trains, each with the capacity to supercool up to 650 MMcf/d of natural gas into LNG (at -260o F) for a total capacity to liquefy 3.8 Bcf/d for loading and shipment overseas. The facility also has 17 Bcf of LNG storage capacity onsite. After four months of start-up activity beginning in October 2015, including taking delivery of piped natural gas to fuel compressors and to fill its five storage tanks, Train 1 began liquefaction and ultimately loaded and pushed off the terminal’s inaugural commissioning cargo on February 24 — the 3.39-Bcf Asia Vision bound for Brazil’s Petrobras — marking the first LNG export cargo from the Lower 48 since 1959, when the world’s first experimental LNG tanker The Methane Pioneer departed from Lake Charles, LA, with a tiny one-off cargo to the UK. Since the first LNG ship left its dock in February, Cheniere’s Sabine Pass LNG terminal has exported 17 cargoes containing the super-cooled, liquefied equivalent of over 50 Bcf/d of natural gas from the first of six planned liquefaction “trains.” And in a monthly progress report filed with the Federal Energy Regulatory Commission last month, Sabine Pass said it expected to begin loading a commissioning cargo from Train 2 in August, with commercial operation of that facility starting as early as September. In today’s blog we provide an update of Sabine Pass’s export activity, as well as the impact on the U.S. gas flows and demand.

See where fracking is happening off Louisiana's coast | Hundreds of fracking operations approved off the Louisiana coast are threatening key habitat for ocean wildlife and contributing to billions of gallons of wastewater dumped into the Gulf of Mexico each year, according to a new report from the Center for Biological Diversity.  Drilling permits obtained by the Tucson, Ariz.-based group show the federal government approved more than 1,200 fracking operations at some 600 wells in the Gulf of Mexico from 2010 to 2014. The bulk of the permits were for wells off the Louisiana coast. In addition to drilling, the group estimates companies in 2014 were allowed to release more than 76 billion gallons of waste fluid into the ocean based on an analysis of federal wastewater discharge permits. Unlike larger land operations, the public has little-to-no information about where fracking is occurring in the Gulf of Mexico, said Kristen Monsell, a Center for Biological Diversity attorney. There is also little record of the kinds of chemicals in the fluids dumped by companies, she added. Monsell noted hundreds of offshore fracking wells are in sensitive areas, including habitat for the endangered loggerhead sea turtles. But few undergo individual environmental reviews. Offshore fracking operations are moving forward virtually unchecked, she said. "It's far too big of a risk to fragile ocean ecosystems," Monsell said.

As prices rise, shale drillers return to to most profitable sites | Fuel Fix: Shale producers are tapping their crown jewel assets in response to the latest oil price rally, according to Morgan Stanley. The recovery in crude to close to $50 per barrel has encouraged shale producers to double down on their most profitable fields — a process known in oil country as high grading. This new trend threatens to force analysts to revisit calls for declining U.S. production, warned Morgan Stanley Commodity Strategist Adam Longson, and thereby constitutes a downside risk for prompt prices. “The rig count in the highest initial production counties of the Permian Midland continues to march higher and is not far from its 2015 peak,” writes a Morgan Stanley team led by Longson. “Since May 6, the Midland has added 13 horizontal rigs in top tier counties versus only eight for the entire play.” In other words, capital is returning to the oil patch, and it’s being invested in new projects that will allow firms to boost production in an expeditious manner once the taps are turned on. The collapse in headline oil rig count, as such, continues to provide only a partial picture of the outlook for U.S. production. If this trend towards new fertile plays continues, it could alter the downwards trajectory for U.S. production in about four to six months, said Longson.“It’s also important to consider that the rigs are going into the most prolific areas, the decline curve for shale wells is flattening, and completing drilled-but-uncompleted wells could slow declines in as short as one to two months,” he added.

Texas not seeing big jump in abandoned wells: state official - The oil market downturn has not caused a substantial increase in abandoned oil and gas wells in Texas, a top state oil and gas regulator said Tuesday. "We're monitoring that issue closely, but we have not seen a significant increase in that number of high risk wells," said Lori Wrotenbery, director of the Railroad Commission of Texas' oil and gas division, during a panel discussion at the US Energy Information Administration's annual conference. Texas has roughly 435,900 drilled wells, including 323,500 active wells, including about 280,000 wells producing oil or gas and several service, injection and disposal wells, she said Tuesday. There are about 112,400 inactive wells, which Wrotenbery said was in line with the average over the past 15 years of about 110,000 inactive wells.State officials have identified about 9,500 wells which have either been abandoned or are at risk of being abandoned by operators, she said. About one-third of these, however, could be operators who have been delinquent in filings with the commission and could be remedied shortly, she added. Texas produced nearly 2.49 million b/d of crude oil in April, about 520,000 b/d less than what was produced in April 2015, according to Railroad Commission data. Many US producers, including operators in the Permian and Eagle Ford plays, see breakeven prices at just above $30/b, said Mine Yucel, director of research with the Federal Reserve Bank of Dallas, during the EIA panel. But producers likely will not start drilling new wells until WTI prices average above $50/b, Yucel said.

Scientists study link between U.S. oil drilling and rise in earthquakes - Stopping an earthquake before it starts? It sounds like a feat possible only for a superhero. But in Kansas and Oklahoma state policymakers are showing that insofar as humans are causing earthquakes, they can stop them, too. After restricting oil and natural gas operations in certain hotspots, Oklahoma is feeling an average of about two earthquakes a day, down from about six last summer, and Kansas is feeling about a quarter of the tremors it once did. Using a growing body of research, along with trial and error, scientists and state regulators are gradually getting closer to pinpointing the cause of the startling increase in earthquakes in the Central and Eastern U.S., and preventing them.  The general cause, scientists have found, is not drilling, but what happens after, when operators dispose of wastewater that comes up naturally during the oil and gas extraction process. The operators inject the wastewater into disposal wells that go thousands of feet underground, which can increase fluid pressures and sometimes cause faults underneath or nearby to move. Since March 2015, Kansas and Oklahoma have placed new restrictions on how much wastewater each operator in certain areas can dispose of at a given time. To gather more data, Oklahoma, Pennsylvania and Texas are expanding their seismic monitoring systems this year, placing permanent stations across the states and moving temporary stations to new hotspots. And Oklahoma and Texas hired more staff or are contracting with scientists to study the geology of areas where earthquakes are occurring, the details of the quakes that happen, and the oil and gas activity that may be associated with them.

Oklahoma Corporation Commission investigates Blanchard earthquakes | News OK: A spate of earthquakes in the Blanchard area has Oklahoma regulators scratching their heads, since there's not any active, deep disposal wells in the area. The Oklahoma Corporation Commission said Wednesday it is investigating all oil and gas activity in the area after United States Geological Survey data shows nine recent earthquakes near Blanchard. The earthquakes have been about 5 miles southeast of Blanchard in the old North Dibble Oil Field, according to USGS data. Blanchard is about 30 miles south of Oklahoma City. The largest earthquake, a 3.4-magnitude quake, struck Friday afternoon. The commission said the Blanchard area is outside the 15,000-square mile "area of interest" put in place earlier this year where operators were asked to voluntarily curtail disposal well injections into the deep Arbuckle formation. "Because there are no Arbuckle disposal wells within at least a 20-mile area of the earthquakes, all oil and gas operations in the area are being examined," the commission said in a news release. "Relevant data is being given to the Oklahoma Geological Survey for further analysis." The Corporation Commission has evolved its response to earthquakes linked to the volume of wastewater injected into the Arbuckle formation. After focusing on localized areas around earthquake swarms, the commission earlier this year expanded its focus to large swathes of north central and central Oklahoma. The commission wants to reduce the volume of wastewater injected into the Arbuckle by 40 percent from 2014 totals. The Oklahoma Geological Survey recorded more than 900 earthquakes greater than magnitude 3.0 in 2015, up from 579 in that category in 2014. So far this year, more than 415 earthquakes greater than magnitude 3.0 have hit Oklahoma, including 10 greater than magnitude 4.0.

OCC investigating oil and gas activity around Blanchard -- The Blanchard area has seen its share of earthquakes recently. After several recent earth-shaking events, the Oklahoma Corporation Commission's Oil and Gas Division has decided to investigate all oil and gas activity in the area, according to a release from the OCC. While not giving a specific number, Matt Skinner, Public Information Officer of the OCC did say there has been a lot of recent activity not going on in just Blanchard, but in the surrounding area as well. "There are several new operations. The area, in the past year, has seen an upswing in oil and gas development." The United States Geological Survey data shows nine recent events in the area, a number the OCC considers high, Skinner said. According to the OCC's release, the area is outside of the 15,000 square mile Area of Interest put in place this year in which Arbuckle disposal well have had their activities restricted and requirements placed on their operation. Moreover, because there are no Arbuckle wells within 20 miles of the recent earthquakes, all oil and gas operations are being investigated. 

Fracking Eyed as Culprit in Latest Oklahoma Quakes - As regulators in Oklahoma scramble to figure out what caused a swarm of earthquakes outside an "area of interest" targeting wastewater injection wells, one researcher said there is a possibility the temblors were caused by hydraulic fracturing (fracking) operations. According to U.S. Geological Survey (USGS) data, there have been eight earthquakes measuring 2.5 magnitude or higher on the Richter scale within the last week in the Blanchard area. Four earthquakes ranging from 2.7 to 3.0 magnitude struck on July 7 at distances of 4.3-6.2 miles southeast of Blanchard. That was followed by the largest quake, a 3.4-magnitude temblor that struck 5.6 miles south-southeast of Blanchard last Friday. Two earthquakes, measuring 2.5 and 2.8 magnitude and centered about six miles south-southeast of Blanchard, struck on Sunday. A 3.1-magnitude temblor centered five miles southeast of the town struck on Monday night, according to the USGS. Since the beginning of the year, regulators with the Oklahoma Corporation Commission (OCC) have ordered operators of wastewater injection wells targeting the Arbuckle Formation to cease or curtail their operations. But the OCC's area of interest covers wide areas of the north and central parts of the state, and there are no active disposal wells near Blanchard. Oklahoma Geological Survey (OGS) Director Jeremy Boak told NGI's Shale Daily that the only wastewater disposal well in the area of the recent earthquakes is about 20 miles away, and hasn't been operational for at least 10 years. "Injection doesn't look like a good mechanism for this, but you are on the edge of the SCOOP [South Central Oklahoma Oil Province] play, and so we're interacting with operators in the area to see what's going on nearby," Boak said Thursday.

Nebraska Oil and Gas Conservation Commission: No decision made yet on appealing fracking wastewater case - Local News: Talk in the community has left many residents confused on the state of an appeal to the Nebraska District Court’s ruling on a proposed wastewater well in Sioux County.On Wednesday, June 29, Judge Derek Weimer ruled in the District Court of Cheyenne County that the Nebraska Oil and Gas Conservation Commission (NOGCC) exceeded its authority in April 2015 when it approved the request by Terex. The NOGCC and the attorney general’s office have 30 days in which to file an appeal. As of Friday afternoon, no intent to appeal had been filed, according to online court records. The issue of a deep injection fracking well came to light in November 2014 when an application for converting an abandoned oil well in Sioux County into a deep injection well came before the NOGCC. The The wastewater would have been trucked to the site and injected more than a mile into the ground at the site of an existing Wildcat oil well on a ranch 13 miles north of Mitchell, just east of Highway 29. The site expected to process 5,000 barrels of wastewater per day, which would have been brought in by 80 trucks per day. The wastewater would have been primarily from Colorado and Wyoming with provisions for Nebraska as well. On Thursday, June 30, Bill Sydow, director of the commission, said the NOGCC would be evaluating the ruling with the attorney general’s office and would be making a decision sometime in the future. Suzanne Gage, director of communications with the Nebraska Attorney General’s office in Lincoln, responded late Wednesday afternoon, “We are reviewing the decision and will be conferring with the Oil and Gas Commission and its director.”

More Niobrara Pipeline Capacity, But Growth Prospects Are Dicey - Despite slowdowns in drilling, completions and crude oil production in the Niobrara Shale region in northeastern Colorado and eastern Wyoming, new pipeline takeaway capacity out of the tight oil play is being built, apparently due to the expectations of some that the Niobrara will bounce back more quickly than most other basins if and when crude prices rise –– and stay –– above $55-60/bbl. Later this year, the 340 Mb/d Saddlehorn/Grand Mesa Pipeline to the crude storage and distribution hub in Cushing, OK is expected to begin operation, supplementing Pony Express and White Cliffs, which already move crude from the Bakken and the Niobrara’s Denver-Julesburg and Powder River basins, and giving Niobrara producers more than enough takeaway capacity for the foreseeable future. Today, we look at the possibility of an infrastructure over-build in the eastern Rockies.

Energy companies spend big to fight Colorado ballot initiatives | Reuters: Energy companies in Colorado are spending millions of dollars to derail a push by environmentalists to put measures on November's ballot that would stifle oil and gas drilling in the state, according to a Reuters review of campaign finance records. Environmental groups are now gathering signatures for two statewide initiatives that would transfer regulatory control of oil and gas development to local governments and create more stringent setback requirements to keep oil and gas activities away from occupied structures. The state's Supreme Court this year struck down fracking bans approved by voters in the cities of Fort Collins and Longmont. A study by the Colorado Oil and Gas Conservation Commission, a state agency tasked with encouraging energy development, found that 90 percent of the surface acreage in Colorado would be unavailable for oil and gas development under the new setback laws, which would require all new development facilities to be 2,500 feet from occupied structures and areas of interest, such as parks. In the last three months alone, energy companies including Anadarko Petroleum Corp, Noble Energy and Whiting Petroleum, have together donated more than $6.7 million to Protect Colorado, a industry-backed coalition fighting the initiatives, according to a Reuters analysis of campaign finance disclosures. The heavy spending comes despite a severe crash in oil and gas prices that has forced many energy companies to slash jobs, dividends and investments. Opponents of the proposed ballot initiatives say they would have a calamitous impact on Colorado, which is the country's seventh-largest oil and gas producing state, with vast untapped fields. Anadarko Petroleum since early April has donated nearly $3 million to the group, bringing its total aggregate contribution to more than $4 million.

Flammable tapwater often not because of industry gas leaks, CU study finds -- Methane natural gas has dissolved into groundwater at 64 percent of the sites state regulators tested since 1988 in northeastern Colorado, University of Colorado researchers have found. But more than 95 percent of this gas came from naturally occurring microbial processes, often near shallow underground coal seams — not the oil and gas industry. Methane-tainted groundwater can lead to flammable drinking water pouring out of household taps. The CU study, funded by the National Science Foundation and based on an analysis of Colorado Oil and Gas Conservation Commission records, concluded that the industrial process of hydraulic fracturing, or fracking, is not a primary cause of methane contamination of groundwater. Methane leaking from oil and gas well bores contaminates groundwater about two times a year on average. And the CU researchers found that rate has stayed about the same since 2001. From 2001 through 2014, dissolved methane linked directly to geological formations holding oil and gas reached 42 water wells in 32 cases, the researchers found. The findings have been published in the Proceedings of the National Academy of Sciences journal.

Massive Fracking Explosion in New Mexico, 36 Oil Tanks Catch Fire - This week—as thousands of Americans urge awareness to the destruction caused by oil bomb trains—an oil field in San Juan County, New Mexico erupted in flames Monday night, highlighting the continued and increasing dangers of the fossil fuel industry.  The fire broke out around 10:15 p.m. Monday at a fracking site owned and operated by WPX Energy, setting off several explosions and temporarily closing the nearby Highway 550. Fifty-five local residents were forced out of their homes.  The site—located in the Mancos shale deposit area and known as the 550 Corridor and a part of Greater Chaco Canyon—contains six new oil wells and 30 temporary oil storage tanks holding either oil or produced water. All 36 storage tanks caught fire and burned, the Tulsa, Oklahoma-based energy company said.  The site was still smoldering last night and, now, "only 7 of 36 tanks at production site on fire this morning," the company tweeted.  "The fire is being allowed to burn itself out due to the intensity of the heat, the number of oil tanks involved and to contain petroleum fluids on WPX's five-acre site, predominantly in the storage tankage," WPX said.  According to Albuquerque news station KOAT, WPX stopped drilling for natural gas and oil in the area last May. The company had been producing for about a week before the fire broke out.

Fire From New Mexico Fracking Site Explosion Keeps Burning Three Days Later --A massive fire at a fracking site in rural New Mexico that scorched 36 oil storage tanks and prompted the evacuation of 55 residents is dwindling but still burning Thursday, some three days after the first explosion was reported.  The fire that started Monday night is mostly out, WPX Energy, the Oklahoma-based company that owns the site, reported Wednesday. However, “small fires” remained at four of the 36 tanks, the company said. No injuries have been reported and according to the company no drilling was taking place at the site prior to the storage tanks catching fire. On Thursday morning plumes of smoke continued to billow from the five-acre oil production site located near Nageezi, a Navajo Nation town some 135 miles northwest of Albuquerque, the state capital. The fire has been allowed to burn itself out to prevent the spread of petroleum as fire crews stayed overnight to monitor the site. Some homeowners were allowed to temporarily return to their homes Wednesday to take care of basic needs, according to WPX updates. Meanwhile, the company is conducting air quality monitoring and providing lodging to the displaced families.  Officials said the cause of the fire is still unknown but residents told local media that they heard a series of explosions as the fire started Monday. “It was so loud. Loud pops and explosions. It was tanks exploding. You could see light from the flames reflecting off of the smoke in two giant swirling pillars. It was chaotic,”. The company said 50 firefighters and company personnel kept the fire contained.

Obama moves to undercut greens in drilling fight | TheHill: The Obama administration is fighting back against environmental activists and trying to blunt the impact of a massive campaign against federal oil and natural gas lease sales. Greens have tried to disrupt auctions for drilling rights on federal land and in offshore waters. In response, the government is delaying or relocating lease sales and advancing plans to hold them over the internet to skirt the protests. The fight is putting the Interior Department in the difficult position of defending the industry and congressional Republicans who back the lease sales and denouncing demonstrations from groups that have long supported the administration on other issues.  Both the government and drillers say the protests are turning the usually sleepy process of selling drilling rights into chaos. In one high-profile action in March, hundreds of activists protested a pair of offshore auctions in New Orleans organized by Interior’s Bureau of Ocean Energy Management, yelling over the bid information announcements. “Unlike previous sales, these two had a large and disruptive group of protesters in attendance,” “The protesters ignored the posted rules of behavior, climbed onto the stage, damaged property and attempted to stop the lease sale,” he said. “Although no one was injured and the lease sale continued to a successful conclusion, the situation created a potential safety hazard for all present.” The demonstrations are part of a movement dubbed “keep it in the ground,” largely led and organized by climate activist groups like and the Center for Biological Diversity.

In fracking turf war, Utes 'don't pick fights to lose' - Atop a mesa in Utah's high desert, Tony Small looks out on miles and miles of tribal land -- land that is home to his people, the Ute Indian Tribe.Pumpjacks curtsey in the distance, gathering the oil and gas that fuels the Ute economy. As a member of the tribal business committee, Small helps keep the oil wells pumping safely while regulatory and market forces close in.One of the biggest threats to the Utes' oil-driven economy, he said, is the Obama administration's embattled hydraulic fracturing rule. The fracking rule -- which was struck down by a federal court last month but is headed toward appeal -- aims to beef up environmental standards for fracked oil and gas wells.But according to the tribe, the Bureau of Land Management's rule has a fatal flaw: It lumps together tribal land and public land, making no distinction between the vast acreage managed by federal agencies and the American Indian reservations and other land managed jointly by tribes and the federal government."The government needs to understand that tribal lands aren't public lands," Small said, getting to the heart of the argument that has propelled the Utes into a bitter courtroom brawl over the rule. "These are our lands. We should be able to do as we want."

Dakota Access construction reaches Miner County -  Oil is coming to Miner County. The Dakota Access Pipeline Project, funded by Texas-based Energy Transfer Partners, has begun construction in a stretch of Miner County about 12 miles north of Howard. Workers from Michels Corp., a construction contractor in Brownsville, Wis., are on site this week with equipment, clearing the future pipeline’s path of dirt and growth, including crops. Already planted for the season, corn and soybeans had to be removed from the area so digging could take place, according to one landowner, Johnny Hofer, whose property is affected by the pipeline. Hofer said crews began work for the project on his land about a week ago, but he’s not losing any sleep over it. “We’d just as soon not have an oil pipeline going through our land, but it is what it is,” Hofer said. “Life’s too short to worry.” As for the lost crops, Hofer won’t be affected directly; he rents the land to another farmer, who will be reimbursed for the damage. Hofer reached a deal with Dakota Access that provided him with compensation as well, but he declined to give any dollar figures. The plot of land, located at the intersection of Highway 25 and 221st Street, has been in Hofer’s family for 50 years. He hopes the company won’t have to return for more digging in case of an oil leak, but he’s not worried about the possibility. “That doesn’t happen too often, does it?” Hofer said. “They tell me you won’t even notice it’s there once they have it done and going.”

Bakken Update: Economics Improve As Costs Decrease And Enhanced Completions Improve Production - Summary:

  • Operator breakevens continue lower due to improved costs due to decreased drilling and completion times and better oil service contracts.
  • Production improvements due to better well designs have also made core U.S. unconventional plays more competitive.
  • Although estimates vary, plays like the core Midland and Delaware basins are profitable at today's oil price.
  • High-grading and enhanced completions are improving production between 35% and 60%.

Before the price of oil fell, most thought the average shale focused E&P would need $80/bbl WTI to turn a profit. Now that oil is hovering around $50/bbl, and the US Oil ETF is trading below $11/share, those estimates are much lower.  Estimates are deceiving, as analysts were averaging all acreage. Since most operators are focusing on core leasehold, estimates should do the same. Some acreage still needs oil at $80/bbl, but these fringe areas are not economic. Many fringe players have declared bankruptcy, and this trend is likely to continue. Some analysts have changed estimates to $60/bbl, but some operators are adding rigs and increasing production. It is possible some operators are thinking ahead. It can take months before a rig is put to work and an operator sees a location turned to sales.

About 840 gallons of oil, water mix winds up in Sully Creek — The North Dakota Department of Health says about 840 gallons of an oil and water mixture spilled off a well pad in Billings County and into Sully Creek. The spill happened Monday at a site about four miles west of Fryburg. The well is operated by Hess Bakken Investments II. The company estimates that 8,400 gallons of oil and 9,400 gallons of produced water were released onto the well pad containment area. Health Department personnel are monitoring the investigation.

New Oil Train Rules Would Force Railroad Companies To Plan For The Worst - A little over a month after a Union Pacific train carrying Bakken crude oil derailed outside of the tiny Oregon known of Mosier, the Department of Transportation has announced new rules aimed at ensuring that communities near oil train routes have adequate information and help in the event of an oil derailment.  The new rules would, among other things, require railroad companies that ship oil by rail to come up with response plans in case of a worst-case scenario oil spill — something that most railroad companies are not currently required to do.“Incidents involving crude oil can have devastating consequences to local communities and the environment. We’ve taken more than 30 actions in the last two years to continue to address risk, and we continue to push the industry to do more to prevent derailments from happening,” U.S. Transportation Secretary Anthony Foxx said in a statement Wednesday. “This rule goes one step further to hold industry accountable to plan and prepare for the worst case scenario. It would help to ensure that railroads have comprehensive plans to respond to derailments when they occur and better ensure the safety of communities living near railroads.” The shipment of oil by rail has boomed in the last five years, increasing from less than 1 million barrels shipped via rail in 2010 to around 25 million in 2014, thanks, in large part, to the oil boom in North Dakota.

With Industry Help, Oil Train Regulations May Fall Short Of Protecting Public Safety - In early June, a Union Pacific train carrying Bakken crude oil derailed outside the small Oregon town of Mosier. It was a relatively calm day in the otherwise windy Columbia River Gorge, which prevented the accident from forming a fireball that could have decimated the town. Still, at least four cars caught fire and spilled 42,000 gallons of crude into the Columbia River, forcing the evacuation of several homes and a school near the accident. The derailment was far from the first accident involving oil trains — 2015 was the most expensive year on record for oil train explosions, with damage costing the United States $29.7 million. Three major derailments and explosions occurred that year alone, including one in West Virginia that forced the evacuation of 1,000 residents.  In May of 2015, the Department of Transportation enacted new safety rules aimed at preventing oil trains, which had seen a 25-fold increase in the amount of oil shipped by rail between 2010 and 2014, from derailing and endangering communities alongside the tracks.  In Mosier, however, those safety regulations weren’t enough. The initial findings from the investigation into the accident revealed that broken screws along the track most likely caused the derailment. Those same screws, however, had been cleared by Union Pacific’s own safety inspection just weeks before the derailment.

Oil Spills Are Actually Good For Birds, Fish, And The Economy According To The Oil Industry -- For the past few weeks, the Washington State Energy Facility Site Evaluation Council (EFSEC) has been holding hearings on the matter of a proposed oil-by-rail terminal that could be built in Vancouver, Washington. If approved, it would be the largest oil-by-rail facility in the country, handling some 360,000 barrels of crude oil, shipped by train, every single day. It would also greatly increase the number of oil trains that pass through Washington, adding a total of 155 trains, per week, to the state’s railroads. Environmentalists worry that an increase in oil trains could lead to an rise in oil train derailments, like the kind seen in early June when a Union Pacific train carrying Bakken crude derailed outside the Oregon town of Mosier, spilling 42,000 gallons of oil near the Columbia River. But according to witnesses that testified before the EFSEC on behalf of Vancouver Energy — the joint venture between Tesoro Corp. and Savage Cos. and the entity behind the Tesoro-Savage terminal proposal — oil spills might not actually be that bad for the environment. “The Draft Environmental Impact Statement identifies many economic impacts arising from an accident associated with Project operations, but fails to recognize economic activity that would be generated by spill response,” Todd Schatzki, vice president of Analysis Group — a consulting group that released an economic report on the terminal commissioned by Tesoro Savage — wrote in pre-filed testimony. “When a spill occurs, new economic activity occurs to clean-up contaminated areas, remediate affected properties, and supply equipment for cleanup activities. Anecdotal evidence from recent spills suggests that such activity can be potentially large.”Schatzki’s pre-filed testimony also includes references to both the Santa Barbara and BP oil spills’ role as job creating events. He notes that the Santa Barbara oil spill created some 700 temporary jobs to help with cleanup, while the BP spill created short term jobs for 25,000 workers.

Alameda Poised to Become Next California County to Ban Fracking - Alameda may soon become the fifth county in California to ban fracking and other "extreme oil and gas extraction" measures, according to a proposed new ordinance that the board of supervisors is set to vote on at its July 19 meeting. The count would join the likes of conservative Butte County, where 72 percent voted "yes" on last month's ballot measure to also ban fracking. Butte joined San Benito, Santa Cruz, and Mendocino as no-fracking counties. The movement to ban fracking adopted this county-by-county strategy "because we've seen the failure of Gov. [Jerry] Brown's administration to protect Californians from the dangers of fracking," explained Ella Teevan of Food and Water Watch. Activists learned from a similar, successful strategy that was used in New York State, where the governor banned fracking statewide after 200 local bans were passed, activist Mary Hsia-Coron explained. Environmentalists say bans on fracking are one of the policies needed to accelerate a switch from fossil fuels to clean energy sources.

Alaska independent plans deep Cook Inlet oil test - Alaska gas producer Furie Operating plans to test deep oil prospects in Cook Inlet that lie below gas producing reservoirs, a company official said Monday. The company plans to reenter its KLU-4 exploration well, which has discovered gas, and drill deeper to test a potential oil prospect that has been identified, company Vice President Bruce Webb said. The Randall Yost jack-up rig will be used for the drilling, which is now planned for mid-2017. The jack-up rig is now in Cook Inlet drilling gas production wells for Furie. Furie is now producing gas at its KLU-1 well and the new Julius R gas production platform, which is about six miles from the KLU-4 location. This is also near ConocoPhillips' producing North Cook Inlet gas field and its Tyonek production platform. Webb said KLU-4 encountered gas in several intervals at depths between 6,000 feet and 10,000 feet in the Sterling and Beluga formations when it was drilled two years ago. The plan now is to deepen the well to test for oil in a prospect between 16,000 feet and 18,000 feet in the Tyonek and Hemlock formations, which produce oil in other parts of Cook Inlet.

In World Of $50 Oil, Shale Beats Deepwater | U.S. shale is the lowest cost option for new oil production and is likely to be more competitive than conventional offshore drilling, according to a new report from Wood Mackenzie. The U.S. shale industry has weathered the oil price downturn, tweaking drilling practices and cutting costs in order to stay in business. A new report from Wood Mackenzie finds that the industry is proving to be resilient and flexible in the face of the worst oil market crisis in three decades. The report concludes that U.S. shale companies have managed to cut costs by as much as 40 percent since 2014. Much of that comes from lower costs from equipment suppliers and oilfield services firms. But it also comes from improved productivity from the average shale well. Instead of drilling anywhere and everywhere, U.S. shale companies are getting better at finding the “sweet spots.” Intriguingly, the report finds that conventional oil drillers have not had as much success in reducing costs. Non-shale drilling projects only achieved cost reductions on the order of 10 to 12 percent, Wood Mackenzie found. That means that a lot of large oil projects are not economical with oil prices at $60 per barrel. By comparison, the Eagle Ford has an average breakeven price of $48 per barrel for Brent, and the Wolfcamp in the Permian Basin has a breakeven price of just $39 per barrel. In other words, America’s shale industry is now more competitive than places like the North Sea, West Africa or other deepwater drilling areas, places that have seen high levels of interest and investment for a much longer period of time.

The Democratic Party Didn't Pass a Ban on Fracking—But They Came Very Close - Over the weekend, at a hotel in Orlando, Fla., the Democratic Party’s two factions met to debate how progressive they want the party to be. You too can watch all of the DNC’s Platform Committee Meeting here, but one particularly interesting exchange on fracking stands out. Thoughout the day, Bernie Sanders’ revolution-minded progressives clashed with Hillary Clinton’s be-careful-with-the-applecart followers over everything from the Trans-Pacific Partnership, minimum wage, single-payer health care, marijuana decriminalization and the environment.   But before party compromises were agreed upon, there were some tears, boos and walk-outs. When it came to fracking, the exchange was raucous. Like Sanders, who made a ban on hydraulic fracturing a central part of his environmental policy, many of his supporters believe that the recent natural gas boom isn’t worth the flammable drinking water, earthquakes and climate change that come with it. Hillary Clinton, whose postions on fracking are more "nuanced", appears nowhere near as comfortable saying adios to a lucrative swath of the early 21st century energy industry. At the Platform Committee meeting, the task of conveying the high stakes of fracking went to Josh Fox—the Oscar-nominated filmmaker of Gasland and noted fractivist. Fox knew that Democrats wouldn’t adopt his fracking ban amendment, but he gave this speech to the committee anyway:There is a political revolution going on in this country. And fracking has no place in it. In fact, a lot of it is because of fracking. Because Americans have had enough of being abused by the oil and gas industry in our own backyard.I am a member of a frontline community in the Delaware River Basin. We have a moratorium on fracking. I live one mile from New York State. We have a ban on fracking due to public health concerns. They told us we would never have a ban on fracking, but people rose up and people did not quit and for eight years we badgered every politician in the state and we won that battle, and we can win it here.

Fracking Foes Put Fake Feces Under Donkey Art Displays - ABC News: Environmental activists have made an unconventional addition to some of the fiberglass donkeys positioned around Philadelphia ahead of the Democratic National Convention.  Food & Water Watch says activists placed fake piles of feces below the behinds of 19 of the 57 donkeys around the city on Tuesday, symbolizing their stance that the Democratic Party's platform on fracking is "crappy." Organizer Sam Bernhardt says citizens oppose the controversial drilling technique that uses high-pressure water and chemicals to extract oil and gas from deep underground rock. He says the Democratic Party could have called for a ban on the practice but failed.  The group also plans to march on the eve of the convention.

Threatened oil industry rethinks climate stance - Facing the increasing likelihood of a Hillary Clinton presidency, growing attacks from liberals and its own divides over a potential carbon tax, the oil industry is rethinking its political strategy on climate change. The American Petroleum Institute is making quiet efforts to revamp its climate messaging, creating a task force that could revisit the industry’s long-held opposition to taxing greenhouse gas emissions. Many in the politically powerful industry believe that such a levy could be on the table if Clinton wins in November, especially if Democrats retake the Senate. The Democratic party's Sunday endorsement of a carbon price in its platform promises to fuel that speculation further. Story Continued Below The API task force — which POLITICO first reported last month— comes as the industry faces a fierce campaign by climate activist groups who want federal regulators to block additional drilling and keep fossil fuels in the ground. That includes an escalating effort to target ExxonMobil, the nation's biggest oil company, which faces investigations by attorneys general in three states and the U.S. Virgin Islands over its public statements on climate change. Also weighing on Big Oil is a two-year collapse in global prices, the Obama administration’s environmental regulations and the international climate agreement that the U.S. negotiated last year in Paris — further signs of how much political ground has shifted under the industry’s feet since the days of "drill, baby, drill" less than a decade ago.

Fossil Fuel Industry Faces $33 Trillion Climate Risk - The fossil fuel industry risks losing $33 trillion in revenue over the next 25 years as global warming may drive companies to leave oil, natural gas and coal in the ground, according to a Barclays Plc energy analyst. Government regulations and other efforts to cut carbon emissions will inevitably slash demand for fossil fuels, jeopardizing traditional energy producers, Mark Lewis, Barclays’s head of European utilities equity research, said Monday during a panel discussion in New York on financial risks from climate change. His comments are part of a growing chorus calling for more transparency from oil and gas companies about how their balance sheets may be affected by the global shift away from fossil fuels. As governments adopt stricter environmental policies, there’s increasing risk that companies’ untapped deposits of oil, gas and coal may go unused, turning valuable reserves into stranded assets of questionable value. “There will be lower demand for fossil fuels in the future, and by definition that means lower prices” Lewis said. The meeting Monday was organized by the Task Force on Climate Related Disclosures, a group established last year by Bank of England Governor Mark Carney. It seeks to bring transparency and consistency to how companies warn investors about dangers they face from climate change. The group, led by Bloomberg LP founder and majority owner Michael Bloomberg, is drafting voluntary guidelines for companies to disclose risks related to coastal flooding, carbon-dioxide emissions and shifting global energy policies. A “child with an abacus” can calculate that there are tremendous amounts of gas and oil that will need to be left in the ground, said Anne Simpson, investment director of global governance at the California Public Employees’ Retirement System, the largest U.S. public pension fund. “Yet we have boards of directors who will not talk to their shareholders about this issue,”

Canada’s Oil-Sands Industry Girds for Leaner Times - WSJ: As the Canadian oil-sands hub of Fort McMurray, Alberta, battles to rebuild after wildfires that ripped through in May, the industry that made it a boomtown is contemplating the end of an era of rapid growth. The wildfires, which roiled global crude markets by temporarily shutting off production of at least a million barrels of oil a day, added to the mounting woes of Canada’s oil-sands producers. High costs, tighter regulations, and tougher competition from shale oil have turned the industry into one of the biggest casualties of a two-year-old swoon in oil prices. “A lot of plans that were based on triple-digit oil prices in the $100s [per barrel] are having to be adjusted in this environment,” said Murray Edwards, chairman of Canadian Natural Resources Ltd.   “All of us are having to look at our models” to assess what makes sense at $50 a barrel, he said in an interview, adding that only the best projects will get built. In a weak energy market, caution about spending has cast a pall over costly oil and gas projects around the world, such as Arctic drilling and deepwater wells. Canada’s oil sands face even stiffer headwinds because they are one of the world’s toughest to extract and most greenhouse-gas-intensive sources of crude. Shale oil, meanwhile, has become much cheaper to produce and offers a faster payback on investment, thanks to technological advances such as hydraulic fracturing and horizontal well drilling.Canadian Natural is building what might be one of the industry’s last megaprojects: a 22.2 billion Canadian dollar (US$17 billion) strip mine called Horizon, on which it broke ground on more than a decade ago. The final phase will start up next year, boosting output to 250,000 barrels of crude a day. But that is just half the 500,000-barrel-a-day capacity originally envisioned for the mine. Nearly two dozen oil-sands projects have been canceled or suspended. European multinationals have been among the quickest to reassess their exposure, including Royal Dutch Shell, Statoil of Norway and Total of France.

CCC: Fracking would breach UK climate goals without tougher conditions   Onshore oil and gas extraction, including fracking, is not compatible with the UK’s climate targets unless it can meet tough standards on emissions, according to the government’s independent advisors on climate change.An eagerly anticipated and much delayed report from the Committee on Climate Change – dated March 2016, but only published today – weighs up the pros and cons of developing a significant fracking industry in the UK.Shale gas exploration and exploitation is the goal of the government. David Cameron, the UK’s prime minister, has said the UK is going “all out for shale”.  But it has little to show for it so far. The report points out that not a single production well has yet been drilled, and that the potential for exploitation remains highly uncertain.  The government’s cheerleading of the industry takes place alongside its legally binding target to reduce emissions by 80% by 2050. But are these two aims compatible?  It is uncertain whether the UK shale industry will really take off, says the report. Its success depends on the economics of production and the productivity of the UK’s geology, as well as the challenges of public opinion. But if an onshore oil and gas industry is established and grows quickly in the UK, it must meet three tests in order to be compatible with climate targets.  The first test is ensuring that emissions during development, production and decommissioning are “strictly limited”. This means limiting methane emissions, banning production in areas where the land-use change would cause significant emissions, such as areas with deep peat soils, and requiring proper decommissioning of wells at the end of their lives.

No chance of contamination to farmers water supplies Fracking company responds to fears: Fracking company Third Energy has responded to a farmer’s fears of water pollution after North Yorkshire County Council controversially gave the go-ahead for shale gas operations near Kirby Misperton in Ryedale. Sarah Houlston, whose farm is just a mile from the drilling site, says she is worried that fracking could lead to the contamination of underground water supplies that she and her cattle rely on, and she says it is impossible to insure against such pollution. She was one of numerous local people who voiced their objections to Third Energy’s application at a planning committee meeting in Northallerton, where councillors gave the go-ahead for fracking to take place in this country for the first time since 2011. There have been reports from the United States, where shale gas extraction has been used for some years, of water supplies being polluted as a result of fracking. Scientific research studies in America have also linked fracking to a number of serious health conditions, including cancer. However, John Dewar, operation director at Third Energy, says it will be different in this country. He says that water supplies will not be polluted because of the measures the company will take to prevent such occurrences and because of environmental regulations in place in the UK.

In the Wake of the Brexit, Spot Prices Dip after Closing in on $3/MMBtu, Rig Counts still on the Rise, but Oil Prices Slide - Great Britain’s recent exit from the EU sent shockwaves through the global economy, but rig counts are up and the Henry Hub closed in on $3 before dropping off Friday. Oil prices haven’t fared quiet as well since our last report, dipping well below $50/bbl before a slight rebound to close out the week. In Appalachia, the royalty legislation dealing with post-production costs made its way back into the news; the unconventional half of Chapter 78 survived a bill that killed regulations targeting the conventional industry; and courts in West Virginia and Ohio grapple with various lease disputes. Elsewhere, the Obama Administration re-upped PHMSA while courts in other plays around the country have been busy dealing with various issues ranging from tax exemptions on production equipment to disputes over royalties. Here’s a roundup of the past several weeks:

  • The national rig count is up to 431. (Source: BakerHughes).
  • The rig count in the Marcellus is flat at 23. (Source: BakerHughes).
  • The rig count in the Utica is flat at 12. (Source: BakerHughes).
  • Natural gas spot prices at the Henry Hub are down at $2.75/MMBtu as of 7/8/2016. (Source: EIA).
  • In the Marcellus and Utica region, spot prices are down as of 7/8/2016. At Dominion South in northwest Pennsylvania, spot prices are down at $1.55/MMBtu as of 7/8/2016. On Transco’s Leidy Line in northern Pennsylvania, spot prices are down at $1.46/MMBtu as of 7/8/2016. (Source: EIA).
  • Update on Chapter 78: Unconventional Oil & Gas Regs Survive; Conventional Regs are Dead. As noted in our previous report, the legislature passed a resolution disavowing new Chapters 78 and 78a regs targeting both conventional and unconventional oil and gas development in the Commonwealth after regulatory agencies approved both chapters for promulgation.

U.S. gas glut is disappearing: Kemp | Reuters: U.S. natural gas prices have risen by a third since hitting a two-decade low in the first quarter, amid signs supply and demand are rebalancing and excess stocks left over from an unusually warm winter are being worked down. The volume of gas in working storage hit a record 4.01 trillion cubic feet in November 2015 and is still at 3.18 trillion cubic feet, according to the U.S. Energy Information Administration ( Gas stocks are 513 billion cubic feet (19 percent) higher than in the same week in 2015. But the build has shrunk steadily from a record 1.014 trillion cubic feet (69 percent) in March ( In response to the earlier slide in prices, the number of rigs drilling for oil and gas across the United States has fallen to the lowest level since World War Two. By the start of June 2016, there were just 82 rigs drilling for gas, down from over 300 in June 2014, according to services company Baker Hughes. Output from the unusually productive wells drilled into the Marcellus and Utica shale formations underneath Pennsylvania and Ohio has continued to increase. But output from older gas-producing states including Texas, Louisiana and Oklahoma has fallen sharply as drilling activity has dried up. For the United States as a whole, there are no longer enough new oil and gas wells being drilled to replace declining gas output from old wells. Gross withdrawals of gas from wells were down by nearly 2 percent in April 2016 compared with the same month in 2015 ( At the same time, gas consumption is rising, with deliveries to industrial customers and electric power producers sharply up.

Natural Gas Report Analysis 7-14-2016 (Video) -- A Bigger Build in Natural Gas inventories this past week compared to the last couple of weekly reports. We could go down to $2.50 per MMBtu the next couple of weeks if we get milder weather forecasts for the remainder of the summer season.

Power from Natural Gas Expected to Reach a Record High Despite Climate Concerns: Electricity production from natural gas-fired power plants is expected to reach a record high this year, as the fuel source remains cheaper than coal, according to a government report.  In total, natural gas-fired plants will provide 34% of the country’s electricity this year, the Energy Information Administration (EIA) said. Coal-fired plants, nuclear and renewables follow with 30%, 19% and 15%, respectively.The cost of natural gas has dropped dramatically in recent years as a result of new technologies that have opened up vast new areas in the United States to drilling, vastly increasing production. As recently as 2010, 42% of the electricity mix came from coal and 25% from natural gas. Many environmental groups and climate-minded policymakers embraced the transition to natural gas—at least at first. Burning coal produces nearly twice as much of the global warming-causing carbon dioxide, pound per pound, compared with burning natural gas, to the EPA. Many environmentalists have described the natural gas a bridge fuel, not ideal but an improvement over coal. Some recent research has shown that leaks in various spots along natural gas pipelines release enough methane gas—another gas that causes warming—to complicate the equation. The Aliso Canyon gas leak outside of Los Angeles, which released more than 100,000 tons of methane in the four months before it was sealed in February, drew attention to the risk of massive blowouts, but environmental policy experts say the real risk may lie in smaller leaks that can go undetected. When methane gets out it is more than 25 times stronger than carbon dioxide at holding heat in the atmosphere over a 100-year period, according to the EPA.

EIA sees US becoming net natural gas exporter in H2 2017 - With natural gas pipeline exports to Mexico on the rise and the ramp up of US LNG exports from Louisiana, the US Energy Information Administration on Tuesday projected the US will become a net exporter of natural gas in the second half of 2017. EIA's July Short-Term Energy Outlook predicted gross pipeline exports will rise by 0.7 Bcf/d in 2016, then taper off by 0.2 Bcf/d in 2016 to an average of 5.3 Bcf/d. Driving the increase are the growing appetite from Mexico's power sector and flat gas production there. At the same time, following the February kickoff cargo shipments from Cheniere's Sabine Pass LNG liquefaction plant in Louisiana, the agency as well expects a rise in gross LNG exports of 0.5 Bcf/d in 2016, and then 1.3 Bcf/d in 2017 as Sabine Pass ramps up capacity, the EIA outlook said. "For the first time since 1957, the United States is on track to export more natural gas than it imports; this will occur during the second half of next year as more liquefied natural gas export capacity comes online," said EIA Administrator Adam Sieminski. Net imports of natural gas by contrast are expected to decline from 2.6 Bcf/d in 2015 to 0.2 Bcf/d in 2017, EIA said.

Gazprom Neft becomes the first company in Russia to undertake 30-stage multi-stage fracking - Gazpromneft-Khantos, a subsidiary of Gazprom Neft, has completed 30-stage hydraulic fracturing (fracking*) operations at the Yuzhno-Priobskoye field, Khanty-Mansiysk Autonomous Okrug — the first time such an operation has ever been undertaken in the Russian oil and gas industry, completion of which has been made possible thanks to the application of new technologies, which now promise greater effectiveness in the company’s development of its assets. Hitherto, the most extensive such operation undertaken by Gazprom Neft had been an 18-stage fracking operation through a single horizontal well shaft, achieved in March 2016, again at Gazpromneft-Khantos’ Yuzhno-Priobskoye field. The 30-stage fracking operation was undertaken in what is a record horizontal well shaft for the Yuzhno-Priobskoye field, running for 1,500 of the well’s total length of more than 4,600 metres. The oil-bearing strata lies at a depth of more than 2,600 metres. Isolation of those stretches in which fracking has already been completed is achieved through the use of a multi-set packer (a device for ensuring the hermetic sealing of separate well sections), running the full length of the flexible lifting pipe. Managing the 30-stage fracking operation required 1,200 tonnes of proppant**. Another feature of the well involved the cementing of the entire length of the horizontal section, allowing greater efficiency in managing fissures, thanks to the isolation achieved through the cement column. The anticipated operational capacity of the new well is likely to be in excess of 130 tonnes of oil per day, some 20 percent higher than forecast levels following lower-stage fracking operations. The application of non-ball-and-socket technology*** in fracking strata means the company also has the opportunity not just to speed up the launch of the well but also undertake geophysical investigations throughout the entire period of its operation, as well as undertaking investigations in re-fracturing.

Australia's June LNG exports up 18.5% on month at 3.6 mil mt: EnergyQuest - Australia's LNG exports rose to 3.6 million mt in June, up 560,000 mt or 18.5% from May, with many of the country's six projects producing at above nameplate capacity, local consultancy EnergyQuest said Tuesday in a report. Australia's LNG projects shipped 44 cargoes over the course of the month, with half destined for Japan, EnergyQuest said. China took 15 of the cargoes, with two each bound for South Korea, India and Egypt, and one for Taiwan. The Woodside Petroleum-operated North West Shelf project in Western Australia, which has a capacity of 16.3 million mt/year, recorded a full month of production in June, lifting the state's exports to 1.8 million mt in 27 cargoes, according to the consultancy. The North West Shelf's June shipments totaled 1.3748 million mt in 13 cargoes, up from 856,100 mt in May and equating to annualized output of more than 16.5 million mt/year.The eastern state of Queensland, home to three new coalseam gas-to-LNG facilities, exported 1.4 million mt in 22 cargoes in June and ConocoPhillips' Darwin plant in the Northern Territory shipped 300,000 mt in five cargoes. Although Japanese and South Korean LNG imports continue to fall on a year-on-year basis, Chinese imports rose 27% to 1.4 million mt in May, the latest month for which data is available, with Australia its major supplier. Indian imports were up by 450,000 mt in May, up 40% year on year and in line with the strong growth recorded over the first five months of 2016, the consultancy said.

Militants blast pipeline; 1st attack in Nigeria's southwest - (AP) — Police say oil militants have blown up a state-owned gas pipeline in the first such attack reported in Nigeria’s southwest. Oil militants have slashed Nigerian oil production with attacks this year on installations in the south. They seek a greater share of profits for residents who have lost livelihoods to industry pollution that has destroyed agriculture and fishing grounds. Deputy Superintendent Olumuyiwa Adejobi, the police spokesman for Ogun state, told The Associated Press on Thursday that “hoodlums” pretending to carry out repairs planted dynamite that blew up a major gas pipeline of the Nigerian National Petroleum Corp. overnight. Disruptions to gas used to generate power have compounded Nigeria’s chronic electricity shortages. No group immediately claimed the attack. The government is trying to negotiate with the oil militants.

The Bears Are Back – Oil Slides On Negative Sentiment - After oil prices rallied more than 80 percent between February and June, WTI and Brent have fallen back more recently, dropping from above $50 to just $45 per barrel. Oil traders are searching for more clarity on what to expect next, but the cacophony of data pointing in different directions is leading to confusion for analysts and speculators. On the bullish side for oil prices is Citigroup, which published a research note on Monday saying that it is “especially bullish” on commodities in 2017. Citi says that the oil markets continue to balance, and the concerns over global economic growth are not as important as the demand trajectory. Moreover, the crash in oil prices has forced the industry to make cuts that will only sow the seeds of the next boom. That optimistic outlook is countered by an array of voices on the other side worried about a renewed slump for crude oil. Let’s look at just a sampling of a few of the warnings signs. The oil rig count in the U.S. jumped once again on last week, rising by 10 to 351, according to Baker Hughes. Oil rigs are now up by 35 since touching a low at the end of May. The prospect of new drilling is causing some concern in the markets about a return of supply. Also, while the Brexit worries may be overdone, the political uncertainty in Europe is contributing to a rally for the U.S. dollar, which is pushing down oil prices. Meanwhile, Morgan Stanley says that global refiners are overproducing, churning out more refined produce than the world needs. A glut of gasoline or diesel will push down crude prices as refiners will eventually be forced to trim production, which means they will buy less crude. Morgan Stanley is backed up by the stubbornly high levels of gasoline inventories, which have refused to substantially fall in recent months despite widespread expectations of robust demand. This comes on heels of a remarkable downward revision by the EIA of gasoline demand in the United States. The energy agency lowered April demand by 260,000 barrels per day, suggesting American motorists are not consuming gasoline as vigorously as previously thought. Also, storage levels of gasoline, diesel and heating oil in Europe are filling up, causing delays in deliveries. Reuters reported that oil shipments on the Rhine in Germany are having trouble unloading because storage was too full.

Oil jumps 4 percent in technical rebound from 2-month lows - (Reuters) - Oil prices surged 4 percent on Tuesday, buoyed by investors covering short positions and an equities rally that lifted riskier assets globally, helping crude stage a technical rebound from two-month lows hit the previous session. Crude futures also got a lift from expectations that data would show an eighth straight week of declines in U.S. crude stockpiles. "The market's gotten really short over the past two weeks with everyone focused on weaker fundamentals and now you're seeing sudden covering,"  . Brent crude futures were up $2.03, or 4.4 percent, at $48.28 per barrel by 12:22 p.m. EDT (1622 GMT). U.S. crude's West Texas Intermediate futures rose $1.86, or 4.2 percent, to $46.62.Oil prices hit two-month lows on Monday, with Brent sliding under $46 while WTI fell to nearly $44. "This certainly appears to be a technical correction. My call was for WTI to test $44.35 and we had almost gotten there,"  "Also, I think the market is hesitant to move nearer to $40 support so quickly in the middle of summer." The pace of Tuesday's rally stunned some market participants. In early New York trade, Brent and WTI were up only about 2 percent.

Oil settles up 5 percent, trims gains after hours on API report | Reuters: Oil prices surged 5 percent on Tuesday, the biggest daily gain since April, as investors' covering of short positions and a technical rebound helped lift the market from two-month lows. However, crude futures pared gains in post-settlement trade after industry group American Petroleum Institute (API) reported a surprise build of 2.2 million barrels in U.S. crude stockpiles last week. During the regular trading session, a rally in global equity markets to record highs added to the upbeat sentiment in oil. The dollar fell, making greenback-denominated oil more attractive to holders of the euro and other currencies.  API also reported larger-than-expected gains in inventories of gasoline and distillates, which include diesel. A Reuters poll had forecast a crude drawdown of 3 million barrels last week, translating to an eighth straight week of declines. Official inventory data is due from the U.S. Energy Information Administration (EIA) on Wednesday.  "It's another major curveball from the API in terms of expectations," said John Kildulff, partner at New York energy hedge fund Again Capital, referring to huge variances at times between the trade group's numbers and the government's.

OilPrice Intelligence Report: Crude Rebounds Spectacularly On Weaker Dollar -- Oil prices showed weakness on Monday once again after a brutal few days last week. But WTI and Brent moved up in early trading hours on Tuesday. Several news items overnight pushed oil up on Tuesday, including a falling U.S. dollar, a ruling from an international court on the South China Sea (more below), news that an ExxonMobil well was attacked in the Niger Delta (something which Exxon denies), and reports that some oil exports were delayed from Iraq because of a pipeline leak. The markets are awaiting crude inventory estimates from API later today, which could move prices.  Investors with a high tolerance for risk likely profited big time from debt purchased from beaten down E&P companies. Bloomberg reports that “[a]t least a dozen bonds from deeply troubled oil E&P companies more than doubled amid a rebound in crude prices that took hold just after some of them sought court protection from creditors.” Bloomberg Intelligence found that Ultra Petroleum Corp’s 2024 bonds came in first with a 1,400 percent return since February when oil prices bottomed out. Buying up distressed debt is a big gamble, but the payoff is also enormous. “If the worst-case scenario isn’t going to play out, maybe there’s some value in the debt,” Spencer Cutter of Bloomberg Intelligence said. Iranian officials say that they are targeting a doubling of their oil exports from 2 to 4 million barrels per day. Iran is already producing 3.8 million barrels per day, but exports 2 mb/d. In order to ramp up oil production enough to generate 4 mb/d of exports, Iran needs to attract some $100 billion in investment. Many analysts believe that the sharp gains in output Iran has posted this year are likely at their limits until that investment comes pouring in. But a jockeying of power within Iran between hardliners and moderates are creating uncertainty around Iran’s new oil petroleum contract. The power struggle will likely deter investment.

John Kemp's Weekly Energy Tweets -- July 13, 2016; Look At The Surge In US Gasoline Stocks, Especially On The East Coast - Note: on July 6, 2016, I asked, "where is all this gasoline going to go?" See data below. Gasoline stocks continue to grow and set new records.

  • US crude imports slowed to 7.8 million bopd last week from 8.4 million bopd the prior week. This is well below what the US imported in the early 2000's and takes us back to about what we were importing in the mid- to late-1990's.
  • East Coast gasoline imports rose to 722,000 bopd last week compared with 634,000 bopd in same week last year. With stores of gasoline surging on the East Coast, I'm not sure what to make of this.
  • East Coast gasoline stock build still shows little or no sign of clearing.
    East Coast gasoline stocks rose by 200,000 bbls to 72 million bbls and stocks are now 10 million bbls over the 2015 level.
  • US refinery throughput finally dropped below the 10-year high. Throughput was cut 140,000 bopd to 16.5 million bopd and 280,000 bopd below the 215 level.
  • US gasoline stocks are still above the 18 - 22 day range that I like to see. Adjusted for demand, stocks stood at almost 25 days of consumption, up form 23 in 2015 and above the 10-year average of 23.
  • US gasoline consumption averaged a seasonal record 9.7 million bopd over the last four weeks, up 160,000 bopd from 2015.
  • Midwest and Gulf gasoline stocks remain above the 10-year range and show no sign of reducing.
  • US gasoline stocks rose 1.2 million bbls to 240 million bbls last week and are now 22 million bbls over 2015:
  • US commercial crude oil stocks drew more slowly than 2015 and the 10-year average; year-over-year build is up from 58.6 to 60.3 million bbls.

Oil Extends Losses After Biggest Distillates Build In 6 Months, Production Spike --Following last night's surprising inventory builds (from API), DOE once again totally dismissed the headline with a 2.55mm draw. However, the numbers are all over the place with major builds in gasoline (1.2mm) and distillates (+4.058mm - the biggest in six months). Last week's plunge in crude production (Alaska-driven) was followed by a 0.6% surge in production this week - biggest since Oct 2015. Crude prices had extended their post-API losses into the DOE data, kneejerked higher on the hesadline then plunged on production and distillates. API:

  • Crude +2.2mm (-3mm exp)
  • Cushing -166k (-900k exp)
  • Gasoline +1.5mm
  • Distillates +2.6mm


  • Crude -2.55mm (-3mm exp)
  • Cushing -232k (-900k exp)
  • Gasoline +1.21mm
  • Distillates +4.06mm

Biggest Distillates build in 6 months but the 8th week in a row of crude draws...Last week's big plunge in US crude production (driven by a seasonal collapse in Alaska) was followed by a bounce back biggest rise since Oct 2015... (What we lost last week in Alaska productuion made up for partially this week as total domestic supply grew 57,000 boe/d (alaska +71K)).  The reaction was a kneejerk higher oin the headline crude draw but then plunge on products..

IEA: Gasoline Glut Could Cause Oil Price Rout -- Oil prices have been crushed over the past two years because of a glut of production. With supplies falling off, particularly in the U.S. shale patch, prices have begun to firm up. But another glut that has built up and has stubbornly refused to fall threatens another oil price downturn. In its July Oil Market Report, the International Energy Agency warned about shockingly high levels of refined products sitting in storage. Gasoline, diesel and heating oil are built up to such high levels in so many parts of the world, that a sharp rise in crude oil prices is unlikely in the short run. The IEA said that “the fact that crude oil has in the past two months moved within a range in the high $40s/bbl should be a relief for some producers.” But it went on to caution that “the existence of very high oil stocks is a threat to the recent stability of oil prices.”i  The Paris-based energy agency cited one damning statistic: refinery runs in the first quarter of 2016 ran 60 percent higher than refined product demand growth. That has led to a buildup in inventories. The IEA said that “although stocks are close to topping out, they are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices.” Of course, as storage levels reach their limits and refiners begin to cut back on production, the pressure on storage facilities should ease. The flip side of that development is fewer refiners purchasing crude oil, leading to a fall in oil demand.  On cue, the U.S. Energy Information Administration released new weekly figures that backed up the IEA’s conclusions. The EIA found that for the week ending on July 8, gasoline stocks actually rose by 1.2 million barrels, and remain substantially higher than even the upper limit of the long-run average for this time of year. The result? Crude oil prices are down sharply during midday trading today, with WTI down nearly 4 percent and Brent off by more than that amount.

As Chinese Refiners Flood The World, Gasoline Tankers Pile Up In New York City Harbor – Just over a month ago, when we pointed out that that the gasoline curve was about to shift from contango into backwardation, we said that the gasoline tanker armada off the coast of Singapore was about to start offloading as it would soon become uneconomical to hold product in offshore storage. This meant one thing: China was about to unleash a wave of accelerated gasoline exports across the entire world.   We pointed out the unprecedented surge in Chinese gasoline stocks... and added that as China continues to imports tremendous amounts of both crude and product, far greater than actual demand, this would send "China's gasoline stocks to even higher record levels. In other words, the global glut is now not only at the crude and distillate level, but also in global gasoline stocks."  One month later we find out that this was a correct assessment of the situation.  According to the WSJ, while initially China’s demand for oil helped soak up some of the surplus crude sloshing around the world, China is no longer the handy excess supply "buffer" it once was and as a result China's teapot refiners are now flooding markets with products including diesel and gasoline, in the latest example of how surging Chinese exports are shaking the commodities industry. China’s total exports of refined fuels jumped 38% on-year to 4.2 million tons, or roughly 1.02 million barrels a day, in June, according to the latest data released Wednesday by the customs administration. Its refined fuel exports are up 45% overall so far this year. Much of the surge is attributable to a leap in China’s shipments of diesel. In May, China’s exports of the fuel mainly used in heavy industry had quadrupled on-year to 1.5 million tons; detailed data for June is due later this month. The sharp rise is merely a confirmation of what many have said all along: in its relentless bailouts of all enterprises, the Chinese government is unleashing a deflationary wave around the globe, which forces Chine to dump its products to any and every buying around the globe, in the process massively undercutting prices. This mirrors similar increases in China’s exports of processed basic materials like steel in recent months, a trend that has provoked anguished complaints from governments and industry bodies across the world.

Talk Of Oil "Death Spiral" Emerges -- One week ago, we looked at an epic build up of gasoline inventories on the East Coast, also known as PADD1, which had slammed the crack spread to record lows for this time of the year, and asked if "This What Finally Drags Crude Oil Lower." We were referring to the collapsing Crack Spreads, which show that something disturbing is taking place for US refingers who are no longer able to "internalize" the massive crude glut. U.S. gasoline crack spread a proxy for refiner margins, has dropped 34 percent in two weeks. On Wednesday, it hit a five-year low for this time of year below $13 a barrel. That is less than half the crack spread of $28 a barrel at this time last year. As of today, the WTI crack spread was $13.1, largely unchanged from a week ago. We then quoted Andrew Lebow, senior partner at Commodity Research Group in Darien, who summarized it best by saying that “PADD 1 is a holy mess. It is very unusual. If a market becomes extremely oversupplied, like PADD 1, they are going to have to cut runs.” That is another way of saying refiners will have to stay shut, which in turn will force crude to  build up in various on and offshore storage locations. Our summary of the strange events taking place in the US refining industry: with the inventory bottlenecking having reached all the way to the gasoline level, in lieu of refiner buying, crude producers will be forced to start selling oil and dumping prices just to get marginal demand as both onshore and offshore storage is near capacity. Most likely this will happen in the next few weeks, when coupled with the near full Chinese SPR, the slump in Chinese oil demand, the elimination in Nigerian supply overhangs, the resumption of Libyan exports, it will send the price of oil tumbling, and incidentally replaying the summer of 2015 when crude crashed...

North Sea crude Forties spot differential surges to over month high on improved Asia arb  -- Spot differentials for North Sea crude Forties surged to the highest in more than a month Thursday on improved arbitrage prospects to Asia, the weaker contango needed to pay for floating storage costs and renewed local demand, traders said. "It's both [improved arbitrage prospects and improved local demand]," a trader said. The Forties spot differential has rallied 38.5 cents/b since Monday, rising 19.5 cents/b from Wednesday to an almost five week high of Dated Brent minus 28 cents/b. Forties, the largest of the four crude streams that make up the Dated Brent benchmark, has benefitted from improved arbitrage prospects to Asia, which were the best since the end of the June trading cycle, with the narrowest font-month Brent/Dubai Exchange of futures for swaps. Arbitrage of Forties to South Korea was still deemed unworkable against Abu Dhabi grade Murban and Russian export blend ESPO. "Cheap freight [helps the arb]... [but] ESPO is still so cheap," a second trader said. The September Brent/Dubai EFS was trading at $2.81/b in early afternoon trade Friday, having reached highs of around $3.90/b in early June.

OilPrice Intelligence Report: Glut Concerns Return, Upside For Oil Looks Limited- Oil prices bounced around this week, falling back on renewed concerns over a supply glut, but at times regaining ground. The IEA struck a negative tone regarding elevated inventories of both crude oil and refined products, and the high levels of storage will likely prevent a strong price rally in the third quarter. However, at the same time, the IEA said the market is moving closer to balance, and the Paris-based energy agency even issued a seemingly contradicting warning over the sharp cutbacks in upstream investment, which it says will leave the world short on supply in several years’ time. WTI and Brent closed out the week slightly up. But the near-term outlook has turned bearish. The rush of refinery runs around the world has created an “epic overhang” of gasoline stockpiles, as Amirta Sen, the top oil analyst at Energy Aspects, described it. And the return of production from Canada, Nigeria, and potentially from Libya could restore some disrupted supply. There has been a lot of uncertainty surrounding the political situation in Europe following the Brexit, but for oil traders, the focus is shifting back to the crude oil market. “When the macro dust settles, which might take a while, it will become apparent that oil fundamentals are weaker than many realized,” Julius Walker, senior consultant at JBC Energy in Vienna, told Bloomberg. The EIA reported another decent though not enormous decline in oil inventories, but a surprising uptick in gasoline stocks spread pessimism around the market.  China stepped up its refining activity to a record high in June, and since domestic demand continues to come in lower than analysts anticipated for China, some of that product is being dumped onto the international market. Refinery runs hit 11 million barrels per day last month, or 3.2 percent higher from a year earlier. The high levels of processing are pushing down refining margins and leading to a flood of refined products being diverted into storage. That is putting strong downward pressure on crude oil prices.

US rig count up 7 this week to 447 (AP) — The number of rigs exploring for oil and natural gas in the U.S. increased by seven this week to 447. A year ago, 857 rigs were active. Depressed energy prices have sharply curtailed oil and gas exploration. Houston oilfield services company Baker Hughes Inc. said Friday that 357 rigs sought oil and 89 explored for natural gas this week. One was listed as miscellaneous. Among major oil- and gas-producing states, New Mexico gained four rigs and Louisiana three. Colorado, Pennsylvania and Texas were up one each. Alaska, North Dakota, Utah and West Virginia declined by one rig apiece. Arkansas, California, Kansas, Ohio, Oklahoma and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May at 404.

U.S. Oil Rig Count Increases For 6th Time In 7 Weeks - The US oil and gas rig count rose by 7 this week, with Baker Hughes adding 6 more oil rigs to the count and one more gas rig, bringing the total operational rigs in the U.S. to 447. Released at 1:00pm EST Friday, the new Baker Hughes weekly rig count shows 357 oil rigs currently active in the U.S., along with 89 gas rigs active. The biggest gains were made in New Mexico, with 4 new rigs, and Louisiana, with 3 new rigs. Last week, the rig count was up 9 rigs in total, with 10 new oil rigs on the scene, with the biggest gains in Texas’ Permian basin, which saw 4 new active oil rigs last week, following by Williston with two new rigs last week. Rigs engaged in exploration and production in the US rose for the third straight week, data showed on Friday. According to oilfield services company Baker Hughes, the number of oil and gas rigs drilling rose by 7 to 447 in the week ended July 15. In the previous period, the gauge rose by 9 to 440. The current nationwide rig count is less than half the prior-year level of 863. The count had peaked at 4,530 in 1981, while an all-time low was recorded in March. Since then the rig count has recovered marginally.

U.S. Oil-Rig Count Rises by Six in Past Week - WSJ: The number of rigs drilling for oil in the U.S. rose by six in the past week to 357, the third straight week of increases, according to oil-field services company Baker Hughes Inc. BHI -0.56 % The U.S. oil-rig count is typically viewed as a proxy for activity in the sector. After peaking at 1,609 in October 2014, low oil prices put downward pressure on production and the rig count fell sharply. The nation’s gas-rig count rose by one in the past week to 89. The U.S. offshore-rig count rose by three rigs from last week at 22, which is nine fewer than a year ago. Demand for oil has been strong this year even as a persistent oversupply of crude has kept prices subdued. . Oil prices rose Friday on better-than-expected economic data in China, the world’s No. 2 oil consumer, boosted expectations for oil demand there. Oil traders have closely watched China for signs of whether the country’s crude consumption is set to slow amid anxiety over its economic growth. U.S. crude oil was up 0.5% recently to $45.91 a barrel.

OPEC Sees Rising Crude Demand in 2017 as Saudis Pump Near Record - OPEC forecast higher demand for its crude next year as the global surplus fades, while Saudi Arabia pumped near-record levels amid peak summer consumption. The 14 members of the Organization of Petroleum Exporting Countries, including new member Gabon, will need to produce about 33 million barrels a day next year, 142,000 a day more than June output, the group said in its first assessment of 2017. Global demand will increase at the same pace as 2016 while production outside OPEC will fall. “Market conditions will help remove overall excess oil stocks in 2017,” the organization’s Vienna-based research department said in its monthly market report. “The contraction seen this year in non-OPEC supply is expected to continue in 2017, but at a slower pace.” Oil prices have recovered more than 70 percent from the 12-year low reached earlier this year as OPEC’s strategy to pressure rivals with lower prices slowly succeeds in eliminating a surplus. Output in the U.S. has retreated to a two-year low as the boom in shale oil production faltered, while Saudi Arabia told OPEC it raised output last month close to a record.  Saudi production increased by 280,000 barrels a day to 10.55 million, the kingdom told OPEC. That’s close to the record 10.564 million pumped last June. The country’s output typically peaks in the summer as domestic power demand for air conditioning surges. A separate set of numbers included in the report that OPEC compiles from external sources showed a lower level for Saudi Arabia in June, at 10.308 million barrels a day. No explanation was given for the discrepancy.

Saudi Ties to 9/11 Detailed in Documents Suppressed Since 2002 -- After years of political wrangling, the suppressed section of a 2002 congressional report that detailed possible ties between the Saudi government and the 9/11 terrorist attacks was released today. The classified documents have been the source of heated speculation for years, as they highlighted alleged links between high-ranking members of the Saudi royal family and the 9/11 hijackers. Many political figures who had previously seen the report led the charge calling for its release, including former Sen. Bob Graham, who said the 28 pages “point a very strong finger at Saudi Arabia,” and Minnesota Congressman Rick Nolan, who said the pages “confirm that much of the rhetoric preceding the U.S. attack on Iraq was terribly wrong.” The suppressed pages, redacted in parts, detail circumstantial evidence of ties among Saudi government officials, intelligence agents, and several of the hijackers. “While in the United States, some of the September 11th hijackers were in contact with or received assistance from, individuals who may be connected with the Saudi government,” reads the report, which added that FBI sources believed at least two of those individuals were Saudi intelligence agents. The report also mentions that numbers found in the phonebook of Abu Zubaydah, a detainee currently held in Guantánamo, could be traced to a company in Denver, Colorado, connected to former Saudi ambassador to the U.S. Prince Bandar bin Sultan. One of the most notable figures mentioned is Omar al-Bayoumi, alleged by the report to have likely been a Saudi intelligence agent. Al-Bayoumi was in close contact with hijackers Nawaf al-Hazmi and Khalid al-Midhar, providing them financial assistance during their time in the United States and even helping them find an apartment. Bayoumi in turn is believed to have been on the payroll of the Saudi Ministry of Defense and was regularly in receipt of large lump sums of money from the Saudi Ministry of Finance and other undisclosed arms of the government.

UK Parliamentary Report Finds US Allies Are Covertly Funding ISIS -- A British parliamentary report released on Tuesday has concluded there is “historical evidence” the Islamic State (IS) group received funding from within Arab Gulf states. In evidence submitted to the foreign affairs select committee, the Ministry of Defence said:“[There] is historical evidence of financial donations to Daesh [IS] from within Gulf states. Furthermore, it is understood that family donations are being made to Daesh, through the unregulated Alternative Value Transfer Systems (AVTS).” AVTS include ways of globally transferring money that includes little information about the individuals involved in the transaction – examples include the open source online currency Bitcoin. The MoD cited as evidence an incident in September 2014 when an IS official was sanctioned by the US Treasury Department after receiving a $2m donation “emanating from the Gulf”. The MoD also said in its evidence that private donations to IS are “minimal” compared to its other revenue streams, which include oil and taxation. The committee said in an assessment of IS finances that Britain should be able to “ask hard questions of close friends” when discussing how donations have reached the Syria-Iraq based militant group. The report concluded that IS has been put under severe financial pressure after a sustained international campaign that has forced the group to turn to “gangsterism and protection rackets” for money. The report argued that plunging oil prices and air strikes on IS in Syria and Iraq have reduced the group’s ability to operate, however, the most controversial part is undoubtedly the section on donations to IS. The MoD said Turkey, Saudi Arabia, Kuwait and Qatar have played an “important role” in the anti-IS coalition, but officials from the Foreign Office said “some governments in the region may have failed to prevent donations reaching ISIL (IS) from their citizens”.

Obama’s Syria plan teams up American and Russian forces – The Obama administration’s new proposal to Russia on Syria is more extensive than previously known. It would open the way for deep cooperation between U.S. and Russian military and intelligence agencies and coordinated air attacks by American and Russian planes on Syrian rebels deemed to be terrorists, according to the text of the proposal I obtained.  Secretary of State John F. Kerry plans to discuss the plan with top Russian officials in a visit to Moscow on Thursday. As I first reported last month, the administration is proposing joining with Russia in a ramped-up bombing campaign against Jabhat al-Nusra, al-Qaeda’s Syria branch, which is also known as the Nusrah Front. What hasn’t been previously reported is that the United States is suggesting a new military command-and-control headquarters to coordinate the air campaign that would house U.S. and Russian military officers, intelligence officials and subject-matter experts.  Overall, the proposal would dramatically shift the United States’ Syria policy by directing more American military power against Jabhat al-Nusra, which unlike the Islamic State is focused on fighting the regime of Syrian President Bashar al-Assad. While this would expand the U.S. counterterrorism mission in Syria, it would also be a boon for the Assad regime, which could see the forces it is fighting dramatically weakened. The plan also represents a big change in U.S.-Russia policy. It would give Russian President Vladi­mir Putin something he has long wanted: closer military relations with the United States and a thawing of his international isolation. That’s why the Pentagon was initially opposed to the plan.  Yet for all this, it’s not at all clear that the plan will be accepted by Putin — or that Russia will fulfill its terms if he does. Administration officials caution that no final decisions have been made and that no formal agreement has been reached between the two countries. Negotiations over the text are ongoing ahead of Kerry’s arrival in Russia.

Egypt Slams Obama: Don’t Tell Us Not To Kill Our Own People When Your Own Cops Do It -- A nation known for brutality against civilians has just slammed the United States for hypocrisy following two police fatal shootings last week in Minnesota and Louisiana — as Egyptian lawmakers phrased it, the U.S. has “an alleged respect for human rights.” As Margaret Azer, deputy chairman of the country’s parliamentary human rights committee, denounced the killings, saying, according to Foreign Policy, the U.S. “was caught red-handed violating human rights and crushing the peaceful protests of black Americans in the city of Dallas and other U.S. cities.” Azer also stated the deaths of civilians at the hands of police “expose the bloody face of the United States and its politicized use of the issue of human rights to extort other nations.”

New IDF Chief Rabbi Says Soldiers Can Rape Arab Women During Wartime to Boost Morale -- Outgoing chief rabbi, Brig. Gen. Rafi Peretz, of the Israeili Defense Forces, who is stepping down after six years in the position is being replaced. And, his successor, Rabbi Col. Eyal Karim’s appointment is being met with backlash — as he is outspoken for allowing soldiers to rape women during wartime. Karim, who was announced on Monday as the intended new IDF chief rabbi, has provoked controversy with previous misogynistic statements, such as opposing female conscription and implying that rape was permissible in times of war.  According to Ynet News, Karim has been serving as the head of the Rabbinate Department in the Military Rabbinate. He is an alumnus of the Bnei Akiva Nachalim and the Ateret Cohanim yeshivas, and he served previously as a combat paratrooper, eventually commanding their elite reconnaissance unit, before taking a break from the military and eventually returning to its rabbinate. In 2012, Karim’s controversy started when the Hebrew religious website KIPA, asked him, in the light of certain biblical passages, if IDF soldiers were permitted to commit rape during wartime despite the general understanding that such an act is widely considered repugnant.  His answer enraged many Israelis.

Chinese oil demand falls 2.7% in May from a year ago: S&P Global Platts - China’s apparent oil demand fell by 2.7% to average 10.88 million barrels per day in May compared to a year earlier, according to a report from S&P Global Platts released early Tuesday. Oil demand has now fallen for four months in a row, with a slowdown in the Chinese economy contributing to decreases in gasoil and fuel-oil consumption. China’s oil demand is expected to grow by less than 2% this year, as “gross domestic product growth slows on the back of economic rebalancing,” the report said. On the New York Mercantile Exchange, August West Texas Intermediate crude traded at $45.59 per bbl, up 83 cents, or 1.9%.

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