Sunday, June 26, 2016

oil crashes on Brexit, Ohio output data, oil imports at a 42 month high, record gasoline output & usage, etal

oil prices crashed along with global financial markets on Friday following the British vote on Thursday to exit the European Union (widely referred to as "Brexit"), which is widely expected to precipitate a period of political instability in Europe...Conservative British Prime Minister David Cameron, who had campaigned for remaining in the EU, submitted his resignation; British Labor Party leader Jeremy Corbyn also faces a no-confidence vote, as both major parties had campaigned to remain in the response to the British vote, populist parties on the left and right across Europe are calling for referendums in their own countries, with speculation that France, the Netherlands, Austria, Finland and Hungary might also vote to leave the EU, effectively rebalkanizing the continent....although markets in the US and Britain recovered to end down less than 4%, European markets were hit the hardest, with German and French indexes down 7% and 8% respectively and markets in the southern tier of European countries down as much as 15%...however, since it isn't our purpose here to discuss European markets or politics, we'll refer you to Brexit: What Happens Now? from the BBC for a discussion of what steps the British might take next, and to Brexit: Pulling the Signal Out of the Noise from Yves Smith at Naked Capitalism, who entertains possibilities outside of the most obvious, and who also includes exit polling results...Yves includes graphics from "Lord Ashcroft Polls How the United Kingdom voted on Thursday... and why" which are better viewed on the original site, where there are also several more graphics detailing the demographics and the politics of the British vote...for our purposes, we'll start with a look at how oil prices reacted to this political upheaval...

June 24 2016 hourly oil prices

the above graph comes from FXCM, a mostly foreign exchange (forex) online trading website, and it shows the prices that US WTI crude exchanged at through their online exchange, every hour, 24 hours a day, over the last 5 days...since they're providing the trading service, the prices shown aren't to the penny the same as those seen at the NYMEX, but they track them pretty closely (otherwise traders would play one exchange against the other), and they also trade oil after the regular exchanges are this candlestick style graph, there's a red or green bar for every hour over this period, and each bar shows the price of oil at the start and end of the hour indicated; when the price of oil went down in the given hour, the bar is red, and when the price closed higher at the end of the hour, the bar is green...note that most of these red and green "candlesticks" also have light grey "wicks" on either end, which represent the range of prices outside of the beginning and ending price that oil traded at over that one hour period...thus we can see that oil prices rose as high as $50.50 a barrel on Wednesday morning, and topped $50 a barrel again late Thursday, before the first results from the British voting came the vote results became clear, oil prices then fell more than 6% over the next 6 hours, trading below $47 a barrel for a short period before buying resumed, which pushed the price back up to $48...oil then traded in a range between $47.30 to $48.40 a barrel the rest of Friday, and ended the period shown here at $47.58 a barrel (this graph is from Friday midnight, thus including after hours online trading; oil officially closed the week at $47.64 a barrel on the NY Mercantile Exchange) 

it's important to recognize that there was no fundamental change in the supply of or the demand for oil and its products that drove that price change, or a similar drop in the price of the international benchmark Brent oil over the same period...those with cars in Great Britain and Europe will be driving them next week as they were the week before this vote, and European industries consuming petrochemicals will continue to may even take a year or two before the political ramifications of Thursday's vote are sorted out, much less begin to affect the economies in those countries...with this crash as a backdrop, however, the coming week will likely be telling a tale about the ultimate trajectory of oil prices for the months to come; if oil prices stay at these levels or even drift lower, it will be a pretty strong indication that the $50 a barrel level will be the limiting price for some time to come; however, if oil prices recover from these losses and push back over $50 a barrel again, then they've beaten the panic that caused this week's price crash, and might well move higher the rest of the summer, even as US drilling activity resumes...

Ohio’s Oil and Natural Gas Production, 1st Quarter 2016

on Friday of last week (June 17th), the ODNR released the 1st quarter oil and gas production report for Ohio's horizontal shale wells; the complete spreadsheet with details on oil, natural gas and brine output for each of the 1,302 Ohio wells that reported production in the quarter is here (Excel file)... checking for producing shale wells in nearby counties, we find there are 4 in Portage country, 4 in Trumbull, and 8 in Mahoning, with none in Ashtabula, Lake, Geauga, Cuyahoga, or Summit...more importantly, at a time when we know that production from other shale formations nationally has been going down, Ohio's production of oil & gas is dramatically higher...oil production in the 1st quarter of 2016 amounted to 5,485,854 barrels, 24% more than the 4,432,188 barrels Ohio produced in the first quarter of 2015...meanwhile, Ohio's output of natural gas totaled 329,537,838 mcf (thousand cubic feet) in the first quarter of this year; that was 80% more than was produced during the first quarter of 2015...those increases have occurred even as drilling operations in the state have been cut by 2/3rds ...Ohio averaged 45 rigs operating in the state in January of 2015; that fell to average 31 rigs by March of that 2016, we started the year with just 14 rigs operating, and that fell to 10 by the end of March...that fits the description of Utica output as described by drillers at the annual Developing Unconventionals conference in downtown Pittsburgh this week, where the drillers were saying that one deep Utica shale well has the potential to produce as much natural gas as three wells drilled into the Marcellus layer above it...

if you recall when we looked at the new maps of the Utica shale from the EIA in early May, they indicated that the largest number of Utica wells in Ohio had been drilled in Columbiana, Carroll, and Harrison counties; or around the point where West Virginia, Pennsylvania and Ohio meet, where the Ohio river becomes the southeast border of the state; that drilling was primarily done by Chesapeake when it was being run by Aubrey McClendon, and Chesapeake still leads Ohio with 614 producing wells in the state…however. this report indicates that 9 out the 1st quarter's top ten gas producing wells were located in Belmont county, just to the south of those three counties...indeed, even as Carroll county with 429 wells still has the most producing wells in any county in Ohio, their gas production was at 56,741,243 mcf in the 1st quarter, 43% less than the 99,235,384 mcf of natural gas produced in Belmont county, which has just 175 wells...that's enabled Gulfport Energy, which has focused on Belmont county, to approach the production levels of Chesapeake....and now Monroe county, with just 136 wells, has moved up to the 2nd most productive county in the state, as they produced 63,316,436 mcf of natural gas during the first quarter...Pennsylvania's Consol Energy, which used to be called Consolidated Coal, has sold off it's remaining coal mines in West Virginia and now intends to focus on drilling for gas on their acreage in Monroe County, all of which tells us that the most productive areas of the Utica are turning out to be to the south of those counties where drilling has been concentrated in recent years..

The Latest Oil Stats from the EIA

this week's oil data from the US Energy Information Administration indicated another drop in our production of crude oil, a spike in our oil imports, an increase in refining to near seasonally normal levels, and record levels of both gasoline production and gasoline consumption... however, the crude oil fudge factor included on the weekly U.S. Petroleum Balance Sheet (line 13) was a minus 253,000 barrels per day, which means that 253,000 barrels of oil per day that we appeared to have produced or imported last week did not show up in the final consumption or inventory figures...that follows an adjustment of +335,000 barrels per day during the prior week, a swing of 588,000 barrels per day, which is certainly enough to call into question most of the weekly changes we'll review today...

in the stat which varies the least, and is hence probably the most accurate estimate, the EIA reported that our field production of crude oil fell by 39,000 barrels per day, from an average of 8,716,000 barrels per day during the week ending June 10th to an average of 8,677,000 barrels per day during the week ending June 17th...that was our lowest oil output since the 1st week of September 2014 and 9.7% lower than the 9,604,000 barrels we produced during the week ending June 19th last year, which week was close to the record 9,610,000 barrel per day oil production that we saw during the week ending June 5th of 2015...our oil production has now been down 19 out of the last 21 weeks and is 542,000 barrels per day lower than we were producing at the beginning of this year...

at the same time, our imports of crude oil jumped by 817,000 barrels per day to average 8,439,000 barrels per day during the week ending June 17th, up from the average of 7,622,000 barrels per day we were importing during the week ending June 10th....that topped this year's previous high of 8,384,000 barrels per day that we imported during the week ending March 18th and was the most oil we've imported in any week since the week ending December 7th of 2012....while this week's imports were 24.7% more than the 6,765,000 barrels of oil per day we imported during the week ending June 19th a year ago, oil imports are typically volatile week to week, so the EIA's weekly Petroleum Status Report (62 pp pdf) reports imports as a 4 week moving average...that metric showed that the 4 week average of our imports has now risen to the 7.9 million barrel per day level, which is 13.6% above the same four-week period last year... .. 

meanwhile, U.S. refineries’ crude oil usage averaged 16,505,000 barrels of per day barrels during the week ending June 17th, which was 188,000 barrels per day more than the 16,317,000 barrels of crude per day they processed during the week ending June 10th, as the US refinery utilization rate rose to 91.3% during the week, from 90.2% of capacity the prior week...this week's crude usage was just a small fraction lower than the 16,532,000 barrels per day US refineries used during the week ending June 19th last year, when US refineries were operating at 94.0% of capacity...

with more oil being refined, our refinery production of gasoline rose by 582,000 barrels per day, as gasoline output averaged 10,289,000 barrels per day during the week ending June 17th, which was up from the average of 9,707,000 barrels per day of gasoline produced during the week ending June 10th and a new all time weekly high for US gasoline production...that was also 3.6% more than the 9,934,000 barrels of gasoline per day we were producing during the same week last year...however, our refinery output of distillate fuels (diesel fuel and heat oil) slipped at the same time, falling by 28,000 barrels per day to 4,956,000 barrels per day during the week ending June 17th...that was also 14,000 barrels per day below our distillates production of 4,970,000 barrels per day during the week ending June 19th of last year, when distillates inventories were quite a bit tighter than today...       

with the record output of gasoline, our gasoline inventories rose by 627,000 barrels to 237,631,000 barrels as of June 17th, the second small increase in the past 3 weeks, at a time of year when our gasoline supplies are usually being used up....that was as the amount of gasoline supplied to US markets rose by 53,000 barrels per day to 9,815,000 barrels per day, 1.7% higher than the 9,655,000 barrel per day consumption during the week ending June 19th last year, and a new record for US gasoline consumption...also adding to gasoline inventories was a 129,000 barrel per day jump in our gasoline imports to 876,000 barrels per day, which were still lower than the 896,000 barrels of gasoline we imported during the same week a year a result, this week's gasoline inventories were 8.8% higher than the 218,494,000 barrels of gasoline that we had stored on June 19th last year, and 10.5% higher than the 214,977,000 barrels of gasoline we had stored on June 20th of 2014... thus our gasoline supplies are still categorized by the EIA as "well above the upper limit of the average range" for this time of year..  

at the same time, our distillate fuel inventories also rose by a nominal 151,000 barrels to end the week at 152,314,000 barrels, as distillates were added to storage on the east and west coasts and withdrawn elsewhere...since our distillate inventories have been well above normal since the El Nino winter reduced US heat oil consumption, our distillate inventories are still 12.5% higher than the 135,428,000 barrels of distillates we had stored at the same weekend last year, and 26.3% higher than our distillates supplies as of June 20th 2014, and thus they're also characterized as "well above the upper limit of the average range" for this time of year...  

finally, even with the disappearance of 253,000 barrels per day in this week's EIA data, that big spike in imports limited our withdrawal of oil from our stocks of crude oil in storage to 917,000 barrels, under a million for the 2nd week in a row, at a time of year when are stored supplies of oil are usually being used up twice as fast....thus our oil inventory level of 531,543,000 barrels on June 17th was 14.6% higher than the 462,993,000 barrels of oil we had stored as of June 19th, 2015, and 36.7% higher than the 388,090,000 barrels of oil we had stored on June 20th of 2014...with our oil inventories continuing that much higher than the seasonal records we set every week in 2015, it goes without saying 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 Count

drilling activity slowed this week for the first time in four weeks as oil drillers pulled back while gas drilling expanded for the 3rd week in a row.....Baker Hughes reported that the total count of active rotary rigs running in the US fell by 3 rigs to 421 rigs as of June 24th, which was also down from the 868 rigs that were working as of the June 26th report last year, and down from the recent high of 1929 rigs that were in use the week before the OPEC meeting on Thanksgiving 2014...the number of rigs drilling for oil fell by 7 rigs to 330, which was also down from the 628 oil directed rigs that were in use a year earlier, and down from the recent high of 1609 oil rigs that were working on October 10, 2014, while the count of drilling rigs targeting natural gas formations rose by 5 rigs to 90, up from the record low of 82 three weeks ago, but down from the 228 natural gas rigs that were in use 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 but down from the 3 miscellaneous rigs that were operating a year ago....

of the net change in drilling, rigs that had been drilling both offshore and on inland waters were shut down this week...a drilling platform that had been deployed in the Gulf of Mexico offshore of Louisiana was taken out of service this week, which cut the Gulf of Mexico active rig count down to 20 rigs, which was down from 28 a year ago...that also reduced the total offshore count down to 21, as there still is an offshore platform working off the Cook Inlet in the same time, there were two rigs removed that had been drilling through inland lakes in southern Louisiana, which cut the inland waters rig count down to 3, which was down from the 7 rigs that were deployed drilling on inland waters at the end of the same week last year... 

the number of working horizontal drilling rigs decreased for the first time in four weeks, as their count fell by 1 to 325 rigs this week, which was also down from the 654 horizontal rigs that were in use on June 26th of last year, and down from the record of 1372 horizontal rigs that were in use on November 21st of the same time, a net of two directional rigs were also pulled down, leaving 43 directional rigs still working, which was down from the 98 directional rigs that were drilling at this time last year....meanwhile, the vertical rig count was unchanged at 53 rigs, which was still down from the 107 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 will 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 US oil and gas both tables, the first column shows the active rig count for each state or basin as of June 24th, the second column shows the change in the number of working rigs from the prior week, the third column shows last weeks rig count, the 4th column shows the change in the number of rigs running from  the same week 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 June 26th of 2015: :

June 24 2016 rig count summary

from this we see that Louisiana, where 5 rigs were shut down, was the big winner this week, as not only did they see the offshore and inland waters drilling rigs shut down, but they also saw 2 land based rigs in the southern part of the state idled...Oklahoma saw 4 rigs shut down, and it's clear from the basin count table that 3 of those had been working in the Cana Woodford and another was in the Ardmore Woodford...on the other hand, Texas had a net of 3 rigs added this week, the 4th week in a row they led those states increasing their activity...over the month of June, the Texas rig count has climbed from 176 to 194, thus accounting for the entirety of the national increase in the rig count from the record low of 404 rigs active that we saw during the weeks ending May 20th and May 27th...


Ohio Sen. President calls for hearings on new PUCO member | -- Ohio President Keith Faber wasted no time Thursday to question the suitability of Gov. Kasich's new appointment to the Public Utilities Commission. Kasich appointed veteran energy lawyer Howard Petricoff, a Democrat and the only Democrat to hold one of the five PUCO seats. Within a few hours of the appointment, Faber, a Republican from Celina, called for "formal hearings" to determine whether Petricoff would have too many "conflicts of interest" or be "neutral" in deciding key cases. "Senators have expressed some concerns about Mr. Petricoff's inability to hear many of the cases pending before the commission due to conflicts of interest involving past legal work," Faber said in a statement. By law, the Senate approves gubernatorial appointments.

Advocates weigh in with federal regulators on FirstEnergy plan - Environmental and consumer advocates joined with energy companies last week in asking federal regulators to reject FirstEnergy’s revised plan to impose a mandatory surcharge on all of its utility distribution customers in Ohio. Opponents of the plan have called it a “bailout” for uncompetitive coal and nuclear plants. As approved by the Public Utilities Commission of Ohio in March, that plan called for FirstEnergy’s Ohio utilities to enter into a power purchase agreement guaranteeing the sale of electricity from certain affiliated plants. All utility customers would pay or get a credit for the difference between the price under the agreement and the prevailing market price when the electricity is produced. Weeks after the PUCO decision, however, the Federal Energy Regulatory Commission ruled that the agreement could not proceed without prior federal review to guard against anti-competitive impacts in the electricity market. FirstEnergy did not appeal that order. Instead, it submitted a revised plan last month that substantially resembles that earlier plan, but without any express provision for a power purchase agreement. “It’s a classic sort of sleight of hand,” said Dick Munson of the Environmental Defense Fund. “My guess is that FERC will see through the sham. It’s just illegal affiliate dealing.”

Committee members say they gathered sufficient signatures to get fracking ban on the ballot for the sixth time - Youngstown Vindicator -- The third time wasn’t the charm. Neither was the fourth or fifth. So members of the Youngstown Community Bill of Rights Committee are pinning their hopes that on the sixth try, residents vote to ban shale-gas development within the city limits. Committee members announced Friday that they have collected the required number of signatures to place the proposed charter amendment on the November ballot.The group plans a news conference at 1:30 p.m. Monday in front of city hall before delivering petitions to the clerk of city council.“Greater numbers of people are becoming more fully informed, aware – and concerned as time goes on,” Susie Beiersdorfer, committee member, said in a news release. “I believe this response is related to the large body of newly released scientific studies that point to documented risks associated with shale-gas development. Increasingly, the citizens of Youngstown want to affirm their right to local self-government and local control over protecting their family’s and their community’s health, safety and well-being.”Voters have rejected the charter amendment five times although the November 2015 failure was by a small percentage. Even if it is approved, though, enforcement is questionable.The Ohio Supreme Court ruled in a February 2015 decision regarding a similar matter in Munroe Falls that the state constitution’s home-rule amendment doesn’t grant local governments the power to regulate oil and gas in their limits. That’s up to the Ohio Department of Natural Resources.

Utica Shale Gas Production Sees Another Impressive First Quarter -  The Ohio Department of Natural Resources (ODNR) recently released the data for natural gas production in the first quarter of 2016. Once again the numbers don’t disappoint: they show an 80 percent increase in the amount of gas produced in 2016 compared with the first quarter of 2015. There were 1,302 wells reporting production this quarter. That’s also a nine percent increase in the amount of gas that was produced in the final quarter of 2015, which also saw an 80 percent increase over the previous year. Looking back on last quarter compared with the latest production results shows that Rice Drilling’s Mohawk Warrior 12H, 8H and 10H in Belmont County continue to hold the top three producing well spots for the state. Here’s a breakdown of the top ten producing wells for this quarter:  As is evident by the top producing wells, Belmont County has continued to be the top producing county in the state, followed by Monroe, which also had one of the top 10 producing wells. Here are the individual county breakdowns:< The data also show the top producing shale gas operators in the state. Interestingly, although Rice Drilling had seven of the top 10 producing wells in the state, Chesapeake Exploration actually had the most production overall. Here’s the breakdown by operator for first quarter 2016:

Utica shale yields higher output with fewer wells for drillers - One deep Utica shale well has the potential to produce as much natural gas as three wells drilled into the Marcellus layer above it.   It's why many producers pinched by sustained low gas prices are spending their precious money on fracking the high-pressure, high-producing Utica in eastern Ohio and Southwestern Pennsylvania.  Getting more gas from fewer, bigger wells was a theme of many comments during Hart Energy's annual Developing Unconventionals conference in Downtown Pittsburgh on Wednesday. Cecil-based Rice Energy, operator of the top three Utica wells in Ohio, is producing more gas from fewer wells than any of its competitors, said President and Chief Operating Officer Toby Rice.  “The Utica will be a significant contributor to growth in this space,” said Tim Dugan, chief operating officer at Cecil-based Consol Energy, which stopped drilling wells last year because of the price collapse but continues to bring online previously drilled Utica wells.   The push into the Utica is not without challenges, though. Over a decade, companies have greatly reduced the time it takes to drill into the Marcellus and the related cost while fine-tuning technology and techniques to get the most out of those wells.  Drillers have less time and money to perfect their approach to the deep Utica — especially in Pennsylvania, Dugan said. The depressed prices have cut deeply into drilling budgets the past two years, and companies face pressure to maintain or even increase production until prices improve in a year or two.  “We'll all be challenged to reach the point of optimization much quicker in the Utica than we did in the Marcellus,” Dugan said. “We can no longer afford to wait for 12 to 24 months of production data to understand if the landing zone is optimal or the completion technique is effective.”

Consol Energy Hopes To Develop Utica Acres in Monroe County - — Since selling five West Virginia coal mines for $3.5 billion in 2013, Consol Energy has also unloaded Virginia’s Buchanan Mine for $460 million — all in an effort to help set new Marcellus and Utica shale natural gas production marks in Monroe County.  During the first quarter of 2016, Consol reached a company record for natural gas production at 97.5 billion cubic feet. This is a 36-percent increase from the 71.6 billion the firm pumped at the same time last year.“We are in position to be a dominant player in the Utica Shale for years to come,” Consol Chief Operating Officer Tim Dugan said. “Our initial area of focus has been Monroe County, Ohio.”  Dugan said Consol used substantial portions of the proceeds from selling the coal mines to become a major player in the oil and natural gas business. Information he provided indicates Consol controls 622,000 acres for Utica development.  “At Consol, we are quite proud of our work in the Utica,” he said.  Consol’s “Switz 6” pad in Monroe County produced 5.69 billion cubic feet of natural gas from January through March from its four Utica wells, with the best-performing well accounting for 1.77 billion cubic feet of the production.  The company also has the “Moundsville 6H” well in Marshall County that yielded 39 million cubic feet of natural gas during its first 24 hours. The well features a horizontal shaft nearly two miles in length underground.Marcellus production volumes in the quarter for Consol were 51.2 billion cubic feet, while the firm pumped 22.9 billion cubic feet from the deeper Utica formation.

New Chemical Plant Promises Jobs, But Could Turn Back The Clock On Air Quality - 90.5 WESA - On a road overlooking the Ohio River, Michael McDonald gazes out over swarms of backhoes, bulldozers and piledrivers. He points to a large patch of bare ground. “That’s where the actual cracker units will be,” he says. This site is the future home of Shell’s new “ethane cracker”—a multi-billion dollar petrochemical complex the company is building near Monaca, Pennsylvania, about 30 miles west of Pittsburgh. The facility will make plastic from the region’s vast natural gas resources. The plant will stand along a stretch of the Ohio River in Beaver County that once housed miles of steel mills. In those days, there were plenty of jobs for people like McDonald, who’s now a business manager with the Beaver County Laborers’ Union Local 833.  So McDonald was breathing a sigh of relief when Shell announced it would be building the new plant. His union will supply many of the workers to build it.  McDonald thinks this single plant could breathe life back into his union—and bring industry back to the river in Beaver County. This is no ordinary plant—it will take upwards of 6,000 people to build. And Shell will receive what could be a $1.7-billion tax break from the state over the next 25 years.  But not everyone here is happy about the cracker. Myron Arnowitt of Clean Water Action says the cracker will be one of the region’s biggest sources of volatile organic compounds (VOCs). These are compounds that can form ozone, or ground-level smog, which can exacerbate breathing problems for people with asthma and other lung problems.

'Virtually unregulated': Radioactive fracking-waste rules in the US slammed in report - RT - States involved in the fracking boom employ a patchwork of laws to deal with radioactive drilling waste, according to a new report. The US government does not fully regulate disposal, and industry is largely left to self-regulate.   Ohio, Pennsylvania, West Virginia, and New York handle many tons of radioactive fracking byproduct in a variety of ways, according to a new report by the Center for Public Integrity (CPI), and there is no federal agency that fully regulates drilling waste. Thus, energy companies and their interests end up taking control in the race to attract more drilling business in the region, experts told CPI.  “Nobody can say how much of any type of waste is being produced, what it is, and where it’s ending up,” said Nadia Steinzor of the group Earthworks, which is involved in a lawsuit that seeks to compel the US Environmental Protection Agency to take a larger role in tracking and regulating hazardous drilling waste. Fracking is billed as a new frontier in the search for cheap energy in North America, but it has also come under heavy scrutiny for potential negative impacts, such as groundwater contamination and upticks in earthquake activity, among other concerns.  What to do with "hot" radioactive fracking waste has been a struggle for Marcellus states, CPI reported, resulting in a permissive culture where state regulators are slow at attempting to understand the risks involved with waste exposure while energy industry players make the important decisions about reporting and policing waste disposal.  “There’s been such a push to expand the industry and to drill as much as possible,” said Steinzor. “No one has had the desire or political will to slow the industry down long enough to figure out what the risks truly are.”

Fracking produces tons of radioactive waste. What should we do with it? - Grist - The Marcellus Shale has transformed the Appalachian Basin into an energy juggernaut. Even amid a recent drilling slowdown, regional daily production averages enough natural gas to power more than 200,000 U.S. homes for a year.  But the rise of hydraulic fracturing over the past decade has created another boom: tons of radioactive materials experts call an “orphan” waste stream. No federal agency fully regulates oil and gas drilling byproducts — which include brine, sludge, rock, and soiled equipment — leaving tracking and handling to states that may be reluctant to alienate energy interests. “Nobody can say how much of any type of waste is being produced, what it is, and where it’s ending up,” said Nadia Steinzor of the environmental group Earthworks, who cowrote a report on shale waste. The group is among several suing the U.S. Environmental Protection Agency to regulate drilling waste under a federal system that tracks hazardous materials from creation to final disposal, or “cradle to grave.” The EPA declined to comment on the lawsuit but is scheduled to file a response in court by early July. An analysis by the Center for Public Integrity shows that states are struggling to keep pace with this waste stream, relying largely on industry to self-report and self-regulate. States have also been slow to assess and curb risks from exposure to the waste, which can remain radioactive for millennia. Excessive radiation exposure can increase cancer risks; radon gas, for example, has been tied to lung cancer.

Pennsylvania Declares Victory on Oil and Gas Regs While Failing to Protect Residents Health -- Thanks to a bill passed this June by the state legislature, Pennsylvania now has the dubious distinction of being the only state in the nation to abandon oil and gas regulations after they’ve been fully developed and publicly reviewed. While other states have modernized oil and gas oversight in the wake of the shale boom, no other state has exempted a major part of the oil and gas industry in the process. But that’s exactly what SB 279 does. Called the Penn Grade Crude Development Advisory Council bill, it wipes out updated environmental protection requirements for conventional oil and gas operations (known as Chapter 78). In effect, 178 state representatives and senators just overturned what it took five years, 12 public hearings, 30,000 public comments and affirmative votes by public regulatory commissions and the legislature to accomplish. Unfortunately, Gov. Wolf just signed SB 279 into law, sounding the death knell for Chapter 78 in the process. Equally unfortunate, official statements from his administration have completely ignored the negative impact SB 279 will have on Pennsylvanians—even as the Governor declares victory for new rules that will go into effect only for unconventional oil and gas operations. Such political spin may be Harrisburg’s status quo, but in this case it’s a dangerous affront to Pennsylvanians whose air, water and health is damaged by oil and gas development..On the same day as the SB 279 vote, the Clean Air Task Force (CATF), Earthworks and the FracTracker Alliance released Using state well location data and U.S. Census Bureau data, it shows that nearly 25 percent of Pennsylvania’s population lives within a half-mile of oil and gas wells and facilities—a distance at which serious health impacts are most clearly linked, according to the majority of peer-reviewed science.

Rural Pennsylvanians Say Fracking 'Just Ruined Everything' -  — Sixty years after his service in the Army, Jesse Eakin still completes his outfits with a pin that bears a lesson from the Korean War: Never Impossible. That maxim has been tested by a low-grade but persistent threat far different than the kind Eakin encountered in Korea: well water that’s too dangerous to drink. It gives off a strange odor and bears a yellow tint. It carries sand that clogs faucets in the home Eakin shares with his wife, Shirley, here in southwestern Pennsylvania.The Eakins told the state environmental agency about their bad water nearly seven years ago and hoped for a quick resolution. Like thousands of others who live in the natural gas-rich Marcellus Shale, however, they learned their hopes were misplaced. Today, the state is still testing their water. The results of those tests will dictate whether a gas exploration and production company is held responsible for providing them with a clean supply. Meanwhile, the Eakins drink donated bottled water and in late 2014 began paying for deliveries of city water to avoid showering in contaminants such as lead and manganese. Since 2007, at least 2,800 water-related complaints have been investigated by the Pennsylvania Department of Environmental Protection’s Oil and Gas Program. Officials found ties to the drilling industry in 279. Another 500 or so cases, including the Eakins’, are open. While regulators try to catch up to natural gas exploration, some residents of the state have gone months, even years, without access to clean water at their homes.  Responding to a public-records request by the Center for Public Integrity, the Department of Environmental Protection, or DEP, provided data on 1,840 complaints lodged since 2010. More than half took longer than the agency’s target of 45 days to resolve. Almost one in 10 took more than a year.

Get Your Pipeline Out of My Yard - For two years the Hollerans tried to get Williams to make alterations to the route, which initially ran through the middle of their house. Williams diverted the pipeline away from the house, but not from the grove of mature maple trees that supply the family’s burgeoning syrup business.  In December 2014, Williams secured federal approval for Constitution, which gave it the right to enforce eminent domain on the Hollerans and seize their property in the name of the public good. Over three days in early March 2016, chain saw crews cleared 3.5 acres of the Hollerans’ land, including hundreds of trees and 90 percent of their maples. State police blocked off nearby roads. U.S. marshals with bulletproof vests and assault rifles stood guard. Then, seven weeks later, on Earth Day, New York state denied Constitution water quality permits, claiming that Williams hadn’t provided adequate details on its plans to bury the pipe beneath some 250 streams. Williams disputes this and is suing the New York State Department of Environmental Conservation. Technically, the pipeline isn’t dead, but it’s effectively on life support. To Megan Holleran, the victory is bittersweet. “Those trees will never grow back in my lifetime,” she says. “We’ll never be able to produce syrup on that land again.” That same week in April, Texas energy giant Kinder Morgan canceled its $3 billion Northeast Energy Direct project, a 420-mile natural gas pipeline planned to run roughly parallel with Constitution. . But unlike Constitution, Kinder’s pipeline wasn’t killed by politics or local opposition or even a denied permit; it was doomed by basic economics. The company couldn’t persuade power plants and factories in the Northeast to sign long-term contracts to buy the gas it would deliver. As the industry presses for even more capacity, it’s time to consider whether there is both a need for more pipelines and enough political and popular will to go on building them.

Commentary: House energy bill would boost job growth: The U.S. economy created a paltry 38,000 jobs in May - a mere quarter the number economists had predicted. Fortunately, the House of Representatives just approved a legislative amendment that could pick up the slack. The provision, attached to a comprehensive energy bill, streamlines the regulatory approval channels for new natural-gas pipelines and export terminals. While America is in the midst of a historic gas production boom, the infrastructure required to transport and sell that energy hasn't kept pace. This lag is costing the economy hundreds of thousands of jobs and billions in economic growth. The House's commonsense provision would help close that gap. Energy producers would finally be free to build necessary gas infrastructure. The economic benefits would be profound. Thanks to the advent of new extraction technologies like hydraulic fracturing, U.S. energy developers have been able to tap into previously unreachable gas reserves in North Dakota, Pennsylvania, and elsewhere. Domestic production has jumped a stunning 50 percent over the last decade and is on pace to grow another 50 percent in the coming decades. This rapid expansion has already worked wonders for an economy largely mired in near-zero growth for eight years. Natural-gas production increases have created high-quality jobs, fueled billions in growth, and provided businesses with a cheap, reliable, clean source of energy.

Energy denial: Clogging pipelines - The U.S. has become the world’s leading producer of oil and natural gas. By 2040, an estimated 80 percent of all U.S. energy consumption will be met by carbon-based energy. And the country could export as much oil as it imports within 15 years. That is, if lawmakers don’t fall under the sway of environmental extremists determined to block new pipeline projects and keep fossil fuels in the ground. Environmentalist Bill McKibben, founder of, recently noted that if fossil-fuel companies “can build those pipelines and mines, then for the next 40 or 50 years they’ll be able to get carbon out cheaply enough to compete (and to wreck the planet).” If they can’t, he adds, “the transition to clean energy [will become] irreversible.” Green radicals and government officials across the nation have been emboldened by McKibben’s message — especially within the Obama administration. All other priorities — job creation, economic growth, energy affordability and updating the nation’s aging energy infrastructure — are taking a back seat. But environmentalists’ complaints about pipeline safety contradict the facts. According to the latest data, 99.999997 percent of natural gas was transported safely over the country’s 300,000 miles of pipe. And, natural gas production is actually helping the environment by replacing coal — which pollutes almost twice as much as natural gas — in power generation. Crude oil pipelines also have a track record of safety. In 2013, 99.999 percent of the oil delivered by pipeline reached its final destination without incident. The oil industry has instituted numerous safety measures to prevent accidents, including new tools for evaluating equipment, stronger infrastructure and more stringent inspections criteria. Yet government officials continually block pipeline projects that would create thousands of jobs, enhance the national grid and reduce energy costs for consumers.

A new barrier in pipelines' path: brutal economics  - Oil posted its biggest loss in more than two months after Britain voted to leave the European Union. Back here in America, politicians are divided on gun control, immigration, other issues. But one thing unites us: the importance of infrastructure for moving around fuel and electrons. Transmission of electricity and pipelines for natural gas are the apple pies of energy issues. Building the Energy Interstate (i.e., lots of big transmission lines) could help bring wind power from the gusty Texas panhandle to Florida or South Bend — leading to an 80% cut in power emissions, according to a recent article in The Atlantic. More pipelines are needed to ferry natural gas out of North Dakota or western Pennsylvania to power plants in California or North Carolina, drillers say. Only with those can states meet their carbon-reduction goals, advocates claim. The Senate energy bill — the one that both parties agree on — includes a series of measures aimed at boosting transmission lines, and one to charge FERC with coordinating approvals for pipelines. “We undoubtedly will need some additional natural gas pipeline capacity,” Sen. Maria Cantwell said at a hearing this month. “Natural gas is a very important ‘bridge fuel.’ ” Since 2009 federal authorities have approved some 5,000 miles of natural gas pipelines. Companies are seeking approval for an additional 3,500 miles, representing an investment of about $35 billion. The economics of pipelines are becoming less favorable. Building a pipeline requires customers to sign long-term contracts that lock them into buying gas sometimes for as long as 20 years. With wind and solar getting cheaper by the day, those commitments no longer make as much sense as they once did. Natural gas pipeline companies, in testimony to federal electricity regulators, have acknowledged as much and that the trend toward renewable energy limits the economic viability of their pipelines, he writes.

In the Birthplace of U.S. Oil, Methane Gas Is Leaking Everywhere - In Pennsylvania, birthplace of the U.S. oil industry, century-old abandoned oil wells have long been part of the landscape. At least 3.5 million wells have been drilled in America since operators plumbed the first hole in the small Pennsylvania town of Titusville back in 1859. Nobody gave much thought to it when many were left unplugged or filled haphazardly with dirt, lumber and cannon balls that slipped or rotted away. But the holes -- hundreds of thousands of them pockmark the state -- are the focus of growing alarm, especially those in close proximity to new wells fracked in the Marcellus shale formation, the nation’s largest natural-gas field. They leak methane, which contaminates water, adds to global warming and occasionally explodes; four people have been killed in the past dozen years. “We had so much methane in our water, the inspector told us not to smoke a cigar or light a candle in the bath,” said Joe Thomas, a machinist who lives with his wife, Cheryl, on a 40-acre farm with at least 60 abandoned wells. Patches of emerald-hued oil leech to the surface, transforming the ground into a soupy mess. Now the state’s attorney general is reviewing rules requiring drillers to document wells within 1,000 feet of a new fracking site. This puts Pennsylvania among states such as California, Texas, Ohio, Wyoming and Colorado confronting the environmentally catastrophic legacy of booms as fracking and home development expand over former drilling sites. As the number of fracked wells increases, so does the chance they might interact with lost wells. Pennsylvania regulators have documented several instances of fracking too close to an abandoned hole, causing methane to leak into homes, the air or water. 

Methane Emissions From Onshore Oil and Gas Equivalent to 14 Coal Plants Powered for One Year -- When we talk about climate change all too often we focus on carbon dioxide, the main greenhouse gas. But there is a much more potent greenhouse gas, methane, which is much more efficient at trapping radiation than CO2. Some estimates put it at 87 percent more potent over a 20 year lifetime than carbon dioxide. And who is the biggest culprit for releasing methane in the U.S.? It is the oil and gas industry, which is the largest industrial source of methane pollution in the country, releasing 33 percent of all methane emissions in 2014.There are a staggering amount of old and new wells with the potential to release methane. At least 3.5 million wells have been drilled in the U.S., with a quarter of those still active. Many old and new ones are leaking the potent greenhouse gas. Adding to the problem, there will be thousands of old wells leaking methane which the authorities do not even know the whereabouts of. First let’s look at existing wells. A new report, published by the Center for American Progress on Monday, reveals that the onshore oil and gas industry’s methane emissions totaled more than 48 million metric tons of carbon dioxide equivalent or CO2e, in 2014.  To put this into perspective, this is the equivalent of 14 coal-fired power plants powered for one year. The worst culprits were ranked in order and came out as: ConocoPhillips, Exxon, Chesapeake Energy, EOG Resources and BP.

You Will Recognize The Names Of The Companies That Emit The Most Methane --Frackers across the country — in places like Texas, Colorado, North Dakota, and Oklahoma — are spewing millions of tons of methane, a potent greenhouse gas, into the atmosphere, nullifying any climate impacts of cleaner-burning natural gas.  The biggest names in natural gas, including ConocoPhillips, BP America, and Exxon, are responsible for more than half the methane released during onshore natural gas production in the United States. Natural gas is 80 percent methane, which traps heat 86 times more effectively than CO2 over a 20-year period. So, when the invisible, odorless gas leaks during drilling, it has an outsized climate effect. A new report from the Center for American Progress found that total natural gas production — drilling, fracturing, pumping, and compressing at well sites — released methane emissions equivalent to running 14 coal-fired power plants for one year. Fracking has already been shown to have a rash of environmentally degrading impacts, from water contamination to habitat destruction. This week, an investigation from the Center for Public Integrity found that the Marcellus Shale region in Pennsylvania is struggling with disposing of the radioactive material brought up during the fracking process.  According to the EPA, the oil and gas industry is responsible for a third of the country's methane emissions (other sources include cows, rice, and melting permafrost). The Obama administration has a goal of reducing methane emissions from oil and gas by 40 to 45 percent from 2012 levels by 2025. In pursuit of that goal, the EPA finalized a new methane rule on new oil and gas infrastructure back in May, which the EPA expects will reduce methane emissions by the equivalent of 11 million metric tons of CO2 annually by 2025. Perhaps it goes without saying, but none of the existing wells covered in the CAP report will be subject to that rule.

Proposed rules to govern fracking in Maryland draw criticism from environmentalists and energy industry - Baltimore Sun - The Hogan administration is proposing rules that would limit the hurdles that energy companies must overcome before they could start the gas-drilling process known as fracking, while also requiring more protections against groundwater contamination. In revising a plan crafted by the administration of then-Gov. Martin O'Malley, state environmental regulators on Wednesday endorsed speeding the review of natural gas wells, allowing them closer to homes and waterways and reducing the amount of environmental testing required before drilling could begin. The state will impose guidelines by Oct. 1, one year before a temporary ban on hydraulic fracturing in Maryland is set to expire. The proposal pleases neither environmental advocates nor the energy industry. Environmentalists say it would weaken safeguards already deemed insufficient; business leaders say Maryland's regulations would still be the toughest in the country on natural gas extraction. State environmental regulators say dissatisfaction on both sides is a sign that the plan is fair. "The market is going to determine whether or not there's interest in drilling and fracking" in Maryland, said Ben Grumbles, Maryland's secretary of the environment. "With the regulations, what we're striving for is a balanced and workable approach that will protect the environment and public health ... and the standards would be achievable."

Oil canals in national preserve in Louisiana to be filled (AP) — In the heyday of oil exploration on Louisiana’s coast after World War II, companies dug about 10,000 miles of canals as straight as Kansas highways through a natural world that’s unraveling today — due, in part, to those canals. Soon, about 16.5 miles of canals are to be filled in the Barataria Preserve — making a small dent in a massive problem.Interior Secretary Sally Jewell on Monday toured canals in the preserve by airboat. She called the work crucial. The National Park Service is using $8.7 million from civil penalties drawn from the catastrophic BP Gulf of Mexico oil spill in 2010 to do the work.   Long ago, oil companies abandoned the canals and spoil banks, which have interfered with hydrology and funneled salt water inland ever since.

Louisiana Supreme Court rejects hearing appeal on local fracking ban - RT The Louisiana Supreme Court has refused to hear a case brought by a locality that opposes the state's approval of drilling operations. The parish government says it could lead to hydraulic fracturing that could possibly imperil its drinking water.  In a 4-3 decision on Friday, the state Supreme Court upheld previous court decisions, saying it would not hear an appeal brought by the group Concerned Citizens of St. Tammany. In March, the 1st Circuit Court of Appeal upheld a district court's ruling that zoning regulations passed by a locality — in this case, the St. Tammany Parish government — do not supersede state government authority.  The St. Tammany Parish government had passed a local ordinance outlawing oil and gas exploration, such as hydraulic fracturing, or fracking. Residents are concerned that fracking — a process that, in order to unleash oil or natural gas, requires blasting large volumes of highly pressurized water, sand, and other chemicals into layers of rock — would cause environmental damage and imperil the parish's drinking-water aquifer, among other complaints.Concerned Citizens of St. Tammany, which joined the lawsuit filed by the parish in 2014 against Louisiana Commissioner of Conservation James Welsh, said it would appeal the decision. However, the Louisiana Supreme Court ruling likely ends the challenge of plans to drill and possibly frack in a wooded, residentially-zoned area around Mandeville, Louisiana. The lawsuit was filed to halt drilling operations by Helis Oil & Gas Co., which proposed the fracking well and received a drilling permit from Commissioner Welsh. Helis is now expected to begin exploratory drilling in St. Tammany Parish on June 29, according to

I Still Haven't Found All the Crude Storage I'm Looking For - An Update -- More new crude oil storage capacity came online in the U.S. in the fourth quarter of 2015 and the first quarter of 2016 than in any half-year period in memory, and still more capacity is being planned. Even with all this new capacity—and the slowdown in crude oil production—the storage utilization rates at Midwest/Mid-continent and Gulf Coast tank farms, underground salt caverns and refineries are at or near record highs too. And tens of millions more barrels of storage capacity are on the drawing boards in anticipation of further incremental needs. But the energy sector is pulling back, right? What gives? Today, we begin an update on crude storage trends and crude storage facilities in Petroleum Administration for Defense Districts (PADDs) 2 and 3, which together account for 82% of U.S. crude storage capacity.  According to a May 31 (2016) report by the U.S. Energy Information Administration (EIA), 34.3 MMbbl of “working storage capacity” for crude oil became operational at refineries, tank farms and underground storage caverns between October 1, 2015 and March 31, 2016, bringing the national total to a whopping 585.5 MMbbl. (Working storage capacity, as defined by EIA, is the difference between the bottom of a tank or cavern and the maximum safe fill line—in other words, a fair representation of what a storage facility could reasonably hold.) Of the 34.3 MMbbl of capacity added in that recent half-year period, 18.7 MMbbl was in PADD 2, a 15-state region (from Ohio south to Oklahoma and west to North Dakota) that includes the Cushing, OK storage and distribution mega-hub and that now has 162.5 MMbbl of crude storage online—50% more than it did five years ago. Most of the rest of the storage capacity added in the fourth quarter of 2015 and first quarter of 2016—12.8 MMbbl—was in the six-state PADD 3 (Texas to Alabama, plus New Mexico and Arkansas), which now has 315.1 MMbbl of capacity in operation (28% more than it had five years ago; see Figure 1).

Oil bust leaves states with massive well cleanup: (AP) — The worst oil bust since the 1980s is putting Texas and other oil producing states on the hook for thousands of newly abandoned drilling sites at a time when they have little money to plug wells and seal off environmental hazards. As U.S. rig counts plunge to historic lows, and with at least 60 oil producers declaring bankruptcy since 2014, energy-producing states are confronting both holes in their budgets and potentially leaking ones in the ground. In Texas alone, the roughly $165 million price tag of plugging nearly 10,000 abandoned wells is double the entire budget of the agency that regulates the industry. The problem is forcing states to get creative: Texas regulators now want taxpayers to cover more of the clean-up, supplementing industry payments. Wyoming and Louisiana are riling drillers with steeper fees. Oklahoma is reshuffling money among agencies in the face of a $1.1 billion state budget shortfall, while regulators also grapple with earthquakes linked to oil and gas activities. "As downturns go, this one happened faster and accelerated. It moved downward faster than the big downturn we had in the '80s," said John Graves, a Houston oil consultant. "For some people in our industry, it's been more intense." Crude prices that peaked above $100 a barrel in 2014 plunged by 60 percent in just six months. But these responses — if they even wind up working — are still years from meeting the growing backlog of untended wells. Texas officials predict the number of orphaned wells could soar to 12,000, which would be nearly 25 percent more than what regulators can't keep up with now. Landowners, meanwhile, are growing restless with abandoned pump jacks and damage while drillers warn that crackdowns would only put them out of business faster at a time when oil has finally crept from below $30 a barrel to about $50.

Permian Basin Break-Even Price Is $61: The Best Of A Bad Lot - Forbes: The break-even price for Permian basin tight oil plays is about $61 per barrel (Table 1). That puts Permian plays among the lowest cost significant supply sources in the world. Although that is good news for U.S. tight oil plays, there is a dark side to the story. Just because tight oil is low-cost compared to other expensive sources of oil doesn’t mean that it is cheap. Nor is it commercial at current oil prices. The disturbing truth is that the real cost of oil production has doubled since the 1990s. That is very bad news for the global economy. Those who believe that technology is always the answer need to think about that. Through that lens, Permian basin tight oil plays are the best of a bad, expensive lot.The tight oil plays in the Permian basin are not shale plays. Spraberry and Bone Spring reservoirs are mostly sandstones and Wolfcamp reservoirs are mostly limestones. Nor are they new plays. All have produced oil and gas for decades from vertically drilled wells. Reservoirs are commonly laterally discontinuous and, therefore, had poor well performance. Horizontal drilling and hydraulic fracturing have largely addressed those issues at drilling and completion costs of $6-7 million per well. The Permian basin is among the most mature producing areas in the world. It has produced more than 31.5 billion barrels of oil and 112 trillion cubic feet of gas since 1921. Current production is approximately 1.9 million barrels of oil (mmbo) and 6.6 billion cubic feet of gas (bcfg) per day.

WTI Midland, WTS Midland crudes assessed at parity - - Permian crudes WTI Midland and WTS Midland were assessed at parity Monday for the first time since early February. WTI Midland rose 17 cents/b to be assessed at WTI cash minus 55 cents/b, as WTS Midland increased by 12 cents/b to finish at the same amount. The last time the two crudes were neck in neck in early February, the matching assessment was in positive territory at WTI cash plus 9 cents/b. Since then, the two crude grades have continued to weaken. WTI Midland, normally assessed at a premium to WTS Midland, fell below its sour counterpart for a brief period in mid-May before recovering its premium. A climbing Permian rig count combined with a falling production estimate have added downward pressure recently to both crude grades, countered by upward support from summer driving season and increased regional crude runs. Crude production in the Permian Basin is expected to fall 7,000 b/d month on month to 2.013 million b/d in July, according to the US Energy Information Administration's monthly drilling productivity report. At the same time, the drilling rig count in the Permian Basin has continued to rise, most recently adding four rigs week on week for a total 146 rigs, according to Baker Hughes' weekly rig count report June 17.

SEC: Texas CEO used funds on strip clubs, private jets — A Texas energy company CEO dubbed the “frack master” is being accused by regulators of defrauding investors of about $80 million, including spending at least $30 million on private jets, gentlemen’s clubs, and personal escorts to “maintain a lifestyle of decadence and debauchery.” In a lawsuit filed Friday in federal court in Dallas, the Securities and Exchange Commission accuses Chris Faulkner, CEO of Breitling Energy Corporation, and others of misleading investors about the costs and potential returns on oil-and-gas investments sold by his companies. The SEC alleges Faulkner, who hasn’t been criminally charged, used one company card predominantly at gentlemen’s clubs, including spending nearly $40,000 at one Dallas club over four days in July 2014 Larry Friedman, Faulkner’s attorney, says the SEC’s allegations “are not true.”

Federal Judge Blocks Major Fracking Rule, Calling It 'Contrary To Law' -- A federal judge in Wyoming has permanently blocked a rule that sought to regulate hydraulic fracturing, commonly known as fracking, on millions of acres of public and tribal lands. A coalition of states and oil and gas producers challenged the U.S. Bureau of Land Management's fracking rule in court, contending it had no basis in existing law. U.S. District Judge Scott Skavdahl on Tuesday agreed, ruling that the federal agency's claim that it had "implicit" congressional authority for the regulations "lacks common sense." "Congress has not delegated to the Department of Interior the authority to regulate hydraulic fracturing," Skavdahl wrote in a 27-page order. "The BLM's effort to do so through the Fracking Rule is in excess of its statutory authority and contrary to law." That language seemed to be a direct rebuke to the Obama administration, which touted the fracking rule last year as "commonsense" while noting that states and localities should fill in the gaps it left open. The government received more than 1 million public comments during the rule-making process. The rule sets standards on well construction and wastewater storage, among other requirements. But Skavdahl said the government's policy intentions were irrelevant to the question of what power it had to promulgate them in the first place. "Congress’ inability or unwillingness to pass a law desired by the executive branch does not default authority to the executive branch to act independently, regardless of whether hydraulic fracturing is good or bad for the environment or the Citizens of the United States," he wrote. The judge had already put the rule on hold twice last year while the litigation proceeded, giving other states, industry and environmental groups a chance to pick sides in the dispute and offer their arguments as the case moved forward. The U.S. Court of Appeals for the 10th Circuit is presently considering an appeal of one of these earlier orders, and a second appeal of Tuesday's ruling is also likely.

Judge Rules Federal Government Can’t Regulate Fracking On Public Land -- A federal judge ruled Tuesday against the Obama administration’s proposed regulations on fracking, on the grounds that the Department of Interior does not have the authority to regulate fracking on federal lands.  The decision comes over a year after President Barack Obama’s administration finalized regulations for fracking on public lands. Judge Scott Skavdahl of the District Court of Wyoming sided with the oil and gas industry and a handful of western states, who argued that the Interior cannot regulate fracking according to a 2005 law. The judge’s decision means the Interior can no longer enforce the rule, but the agency could still appeal the decision. In his opinion, Judge Skavdahl wrote that the “Constitutional role of this Court is to interpret the applicable statutory enactments and determine whether Congress has delegated to the Department of Interior legal authority to regulate [fracking].” Three simple words can sum up his 27-page paper: “It has not.”   The law Skavdahl cites is the 2005 Energy Policy Act. The federal fracking regulations were shot down largely because of an amendment to the Safe Drinking Water Act (SWDA) within the 2005 law. Originally, the EPA had regulatory authority over fracking under the SDWA because of how “underground injection,” which is part of the fracking process, was defined. The amendment redefined the SDWA’s definition of “underground injection” to exclude fracking, which took away regulatory power from the EPA.  “There can be no question that Congress intended to remove hydraulic fracturing operations … from EPA regulation,” Skavdahl wrote.  This removal of regulatory authority from the EPA applies to the Interior too, according to Skavdahl’s ruling. In legal terms, the Wyoming court has decided that the executive branch cannot enforce these regulations without changing the law — which would require Congress’ action.

Obama administration decries judge's fracking ruling - (AP) - The Obama administration on Wednesday decried a ruling by a federal judge that blocks rules for hydraulic fracturing, saying the decision prevents regulators from using "21st-century standards" to ensure that oil and gas operations are conducted safely on public lands. Jessica Kershaw, a spokeswoman for the Interior Department, said "modernized fracking requirements" imposed by Interior Secretary Sally Jewell reflect best industry practices and are aimed at ensuring adequate well control, preventing groundwater contamination and increasing transparency about the materials used in fracking.  Kershaw's comments came after a judge in Wyoming ruled late Tuesday that federal regulators lack authority to set rules for hydraulic fracturing, also known as fracking. The ruling by U.S. District Judge Scott Skavdahl deals another setback to the Obama administration's efforts to tighten how fossil fuels are mined.  Skavdahl said the Bureau of Land Management can't set the rules because Congress has not authorized it to do so. The judge, who was nominated by Obama in 2011, wrote that the court's role is not to decide whether hydraulic fracturing is good or bad for the environment, but to interpret whether Congress has given the Department of Interior legal authority to regulate the practice.  "It has not," wrote Skavdahl, who last year blocked implementation of rules drafted by the agency.

How IOGCC Spawned the Lawsuit That Just Overturned BLM Fracking Regulations on Public Lands - Steve Horn - In a ruling on the Obama Administration's proposed regulations of hydraulic fracturing (“fracking”) on U.S. public lands, U.S. District Court for the District of Wyoming Judge Scott Skavdahl — a President Obama appointee — struck down the rules as an illegal violation of the Energy Policy Act of 2005.  Filed in March 2015 by first the Independent Petroleum Association of America (IPAA) and Western Energy Alliance and then the State of Wyoming (soon joined by North Dakota, Utah and Colorado), the industry and state lawsuits would soon thereafter merge into a single lawsuit. The merger symbolizes the origins of the lawsuit — the 2014 Interstate Oil and Gas Compact Commission (IOGCC) annual meeting in Columbus, Ohio. IOGCC, a collective of state-level oil and gas industry regulators or other official state representatives appointed by governors (sometimes lobbyists or industry executives), merges together industry interests and regulators by bringing them to the table at biannual meetings and providing a network through which to maintain year-round communications and coordination. The majority of IOGCC's at-large members work for the oil and gas industry as lobbyists and executives. And like the American Legislative Exchange Council (ALEC), IOGCC members propose and pass model resolutions.At the 2014 Columbus meeting attended by DeSmog, IOGCC's resolutions committee convened to discuss what to do about the then-proposed U.S. Department of Interior regulation of fracking on public lands. Although a resolution did not pass out of the committee — one was deliberated upon but ultimately tabled until the May 2015 IOGCC business meeting held in Salt Lake City, Utah — an action plan did arise. That plan called for resolutions committee member Lynn Helms, North Dakota's official state representative to IOGCC and the head of its Industrial Commission (and former long-time employee of Hess Corporation), to contact U.S. Sen. John Hoeven's (R-ND) legal counsel and chief-of-staff — Ryan Bernstein — and formulate a plan to stall or block the proposed rules. Emails obtained under North Dakota's Open Records Statute show that indeed, Helms contacted Bernstein to get the ball rolling  to do just that.

White House vows to defend authority on hydraulic fracturing - (UPI) -- White House spokesman Josh Earnest said the federal government would continue pressing its authority over hydraulic fracturing in the courts. From Wyoming, U.S. District Judge Scott Skavdahl found the federal Interior Department's Bureau of Land Management was not granted authority by Congress to regulate hydraulic fracturing on public lands. In his ruling, the judge said the decision was not based on environmental grounds."The constitutional role of this court is to interpret the applicable statutory enactments and determine whether Congress has delegated to the Department of Interior legal authority to regulate hydraulic fracturing," the ruling stated. "It has not." Speaking to reporters after the ruling, Earnest said a case can be made that the government has a duty to ensure hydraulic fracturing, known also as fracking, is done in a way that doesn't harm public interest or health. "When it comes to the legal authority at stake, we'll continue to make our case in the courts," he said. The BLM had required oil and gas companies to disclose the chemical components of fluids used during the fracking process, which involves the injection of small amounts of abrasives and liquids to coax material out of shale basins. Critics have said some of those chemicals are hazardous to public health. Federal regulations extended all the way to the wells themselves. The Ute Indian tribe and four sates -- Colorado, North Dakota, Utah and Wyoming -- have objected to federal regulations. The Independent Petroleum Association of American said it too had argued the government was overstepping its authority.

We must keep local issues under local control - Last year, in at least 29 states, we saw bills introduced to block local control on a variety of issues. Here in New Mexico, it was a bill to stop local communities like Santa Fe from empowering workers with a living wage.One of the biggest proponents of removing the power to self-govern has been the oil and gas industry, which stands to benefit immensely if it can stop individual Americans from deciding for themselves if fracking is appropriate in their neighborhoods. Fracking operators want decisions about their industry made at the state or federal level, but it is local communities that bear the brunt of fracking’s impact.According to The Costs of Fracking by Environment America Research & Policy Center, in one part of Texas, the thousands of trips made by trucks and machinery for fracking operations have required $40 million in road repairs. Fracking has contaminated drinking water in thousands of cases. Residents near fracking operations suffer from a greater risk and huge range of health problems. And another town in Texas saw home values decrease in areas near fracking.And it is becoming more and more common. In 35 states, fracking takes place in residential areas, near homes, schools and playgrounds. The Washington Post reports that more than 15 million Americans now live within a mile of a well that has been drilled since 2000.Many communities take no issue with the practice. But, understandably, many others, weighing such heavy costs against so few benefits, have sought to ban or limit fracking in their neighborhoods. Over 500 cities and counties, from Los Angeles to Washington, D.C., have acted to bar or restrict the risky drilling practice or the disposal of its toxic waste.This did not sit well with the oil and gas industry, whose allies in governments and the courts have fought aggressively to stop local communities from making this choice for themselves.

This 'Pony' Knows More Than One Trick - More Than a Bullet Line from Rockies to Cushing -- Tallgrass Energy Partners’ Pony Express Pipeline provides capacity to move 230 Mb/d of Bakken crude oil received at Guernsey, WY all the way to the mega-hub at Cushing, OK, making it one of the most important pipeline corridors out of the Williston Basin. Possibly because of its moniker ‘Express’, it is often thought of as a bullet line, hauling barrels 760 miles in a straight shot across Wyoming, Colorado, Nebraska, Kansas and into Oklahoma. But there is much more to Pony, including a major outlet for Niobrara crude (the 90 Mb/d Northeast Colorado Lateral) and an expanding capability to deliver oil to refineries and other facilities on the way to Cushing. In Part 2 of our blog series covering pipelines out of the Bakken/Rockies region, we examine what the changes in crude production and flow patterns have meant to Pony Express and how this pipeline can be expected to respond to changes in regional crude oil supply and demand.. As we said in Episode 1, for years prior to the Shale Revolution, long-existing pipeline capacity out of the Bakken could handle the modest volumes of conventional oil being produced there. By 2011 though, Bakken tight-oil production had begun a steep, rapid rise, quickly outstripping available pipeline capacity (much of which had to be shared with crude heading south/southeast from western Canada). As a result, pipeline congestion and significant price discounting festered while Bakken producers and midstream companies scrambled to develop alternative routes to market. The solution was the development of rail loading terminals—they could be built quickly and at relatively modest costs, and they could use existing rail lines. Crude-by-rail (CBR) also allows for destination flexibility; in other words, if a producer could achieve higher netbacks (the crude sale price minus transportation costs from the wellhead) by railing its crude to the East Coast or the West Coast (neither of which is connected to crude producing regions via pipeline) instead of the Midwest or the Gulf Coast then, heck, rail it to the East or West Coast.

Crude rail shipments down but not out -- With lower crude oil prices, North Dakota drillers dramatically cut production over the past winter and spring, but trains continue to roll through Midwestern communities loaded with the volatile cargo. Data released this week by the U.S. Energy Information Administration show that even as overall volumes of crude rail shipments fell last year, the amount of crude on the nation’s rails last year was still higher than in any year prior to 2014. The 325.8 million barrels was more than twice what was shipped in 2012 and 16 times the level in 2010. In the first three months of this year, more than 33.6 million barrels of oil were shipped by rail from Midwestern rigs. That works out to more than five fully-loaded trains each day. At the peak of the Bakken oil boom it was about 12 trains per day.Overall U.S. oil production in the first quarter of 2016 was down only 4 percent from the all-time peak in 2015. For perspective, trains carry less than 5 percent of the nation’s oil supply (the majority flows through pipelines). But most of the crude that is shipped by rail comes from the 13-state Midwest region, and more than 80 percent of that comes from North Dakota, which last year pumped out more than 428 million barrels. That volatile Bakken oil ends up in refineries around the country, but more than half goes to the East Coast, and the most direct rail routes run through Minnesota and Wisconsin. Two of those lines — the BNSF and Canadian Pacific — intersect in La Crosse. Midwestern crude rail shipments were down less than a percent in 2015, according to the EIA, and there was a slight increase in the amount moved from the Midwest to the East Coast.

Bakken Update: Eagle Ford Hedges Could Provide Short-Term Resistance To Oil Prices Around $50/bbl - Summary:

  • Permian operators began hedging oil prices at $40/bbl and continue at $50/bbl with additional hedging from Eagle Ford names.
  • Increased volumes of hedging provide a short term ceiling to oil prices, at least until operators have enough revenues guaranteed to satisfy banks.
  • Given the large number of barrels unhedged through 2016 and into 2017, this could continue for a couple of months, but could take longer if oil prices pullback.

There are significant discrepancies among analyst oil price estimates. There were more bears than bulls through the recent run that saw the price of WTI almost double since its low in February. This has created some fairly impressive gains in the US Oil ETF.  Contango has dampened some of these gains, but it still was a healthy move. We are currently well over the 200-day moving average. If we use this as our guide, it is possible to see a considerable pull back. If the price retraces, we could touch the low $40s. Be prepared, as a pullback could translate to a 20% move to the downside.

32K gallons of saltwater spilled, recovered near Tioga (AP) — North Dakota’s Oil and Gas Division says more than 32,000 gallons of what is known as produced water spilled and was cleaned up at an oil field site in Mountrail County. Produced water is a mixture of saltwater and oil that can contain drilling chemicals. Hess Bakken Investments II LLC reported the spill at a tank battery about 7 miles north of Tioga on Tuesday. The company estimates that 770 barrels spilled, was contained and recovered on site. A barrel contains 42 gallons. The company says an equipment malfunction caused tanks to overflow.

Rail safety provisions included in Senate transportation bill - A $56 billion transportation and housing spending bill that recently cleared the U.S. Senate includes a handful of provisions designed to improve safety along oil train routes. The bill would provide $500,000 to help the Federal Railroad Administration develop a rail bridge inventory and create an online form for railroads to submit data on the age and condition of their bridges. The bill encourages the agency to target inspections in the areas of highest risk. The FRA leaves bridge inspection to the private railroads but does audit their reports. The bill would also expand the use of automated track inspection on crude oil routes, such as the BNSF and Canadian Pacific lines that carry an average of about four fully-loaded oil trains per day across Minnesota and Wisconsin, and fund federal testing of the tank cars used to transport crude. The FRA’s safety and operations budget would increase by nearly 5 percent to $208.5 million under the bill. It also establishes a December 2016 deadline for the Department of Transportation to develop plans for responding to a worst-case oil spill.

Union Pacific to resume oil trains in Columbia River Gorge (AP) — Heavy-duty trains with thousands of gallons of crude oil in tow will begin rolling through the scenic Columbia River Gorge this week for the first time since a fiery derailment in early June. Union Pacific on Wednesday announced plans to resume operations at some point this week. The June 3 derailment of one of its trains caused a 42,000-gallon oil spill and subsequent fire. Nobody was hurt, but it forced evacuations and disruptions to water systems in Mosier, Oregon, a small town about 70 miles east of Portland. The rail company’s announcement comes as local officials plead with the federal government to halt the use of railroads to transport crude oil, a practice they say can never be completely safe for communities in the trains’ path. Union Pacific officials have concluded that faulty “lag bolts” — fasteners used to attach the rail to the rail tie on a curved section of track — caused the problem in Mosier. Federal authorities are also investigating. The company defended its decision to restart operations in a statement, reiterating the federal obligations it’s under and highlighting the tiny fraction of its Oregon shipments — less than 1 percent — that come from oil trains. “Railroads provide the infrastructure, flexible networks and efficiency needed to move crude oil from locations where oil is recovered to customer facilities,” said Wes Lujan, a public affairs vice president for Union Pacific. “The federal common carrier obligation requires railroads to transport crude oil and other hazardous materials. If a customer delivers a crude oil tank car in conformity with U.S. Department of Transportation requirements, we are obligated to transport the rail car to its destination.”

Just Weeks After A Major Derailment, Oregon Oil Train Traffic Is Starting Back Up - Less than three weeks after a fiery oil train derailment in Mosier, Oregon spilled 42,000 gallons of Bakken crude into the Columbia River and forced the evacuation of hundreds of residents and schoolchildren, Union Pacific — the company behind the derailment — announced that it would resume sending oil trains through the Columbia Gorge. In the time since the Mosier disaster, there have been no significant changes to the safety picture.  Union Pacific had temporarily stopped shipping oil by rail over the tracks where the derailment occurred, but had resumed shipping other cargo just days after the incident, even before the derailed train cars had been fully removed from the site of the accident.  Following the June 3rd derailment, Oregon Gov. Kate Brown (D) called for a temporary moratorium on oil train traffic through the Columbia Gorge until rail safety could be ensured; she reiterated those concerns in light of news that oil shipments would restart sometime this week.“As I said last week and again as oil begins to roll through our Gorge, I call on federal authorities to ban the transport of oil by rail until safety can be greatly improved and our first responders have the tools they need,” Brown said in a statement to local news station KATU. Last week, Sens. Ron Wyden (D) and Jeff Merkeley (D) joined Brown’s call for a temporary moratorium, requesting that the United States Federal Railroad Administration (FRA) halt oil train shipments until a full investigation into the Mosier derailment has been conducted.

The Fight Over Oil Trains In The Pacific Northwest Is Heating Up  --Twenty-one activists were arrested on Saturday while protesting the practice of shipping crude oil by rail in Vancouver, Washington. The group was booked and charged with criminal trespass in the second degree by BNSF police, after spending more than three hours blocking rail cars near the BNSF Railway and Amtrak Station. Around 100 other protesters also participated in the event Saturday, but did not block the train tracks and were not arrested. The protest, organized by the Fossil Fuel Resistance Network, comes just weeks after a Union Pacific train carrying Bakken crude oil derailed outside of the small town of Mosier, Oregon, some 70 miles east of Vancouver. In the wake of the spill, local Oregon officials — from the mayor of Portland to the Multnomah County Chair — have called for a permanent moratorium on oil trains throughout the state.  Following the release preliminary findings related to the Mosier derailment, the Oregon Department of Transportation has also asked the federal government to place an indefinite moratorium on oil trains, until rail companies are better able to detect potential failures in the system. Investigators believe that the Mosier derailment — which sparked a fire and sent 42,000 gallons of crude oil spilling into the Columbia River — was caused by a number of broken screws along the tracks, which Union Pacific failed to detect despite performing an inspection just weeks before the incident.

Prosecutor: Pacific Gas ignored regulations to cut costs (AP) — Pacific Gas & Electric Co. ignored pipeline safety regulations to cut costs and tried to cover up its illegal practices by misleading federal officials investigating a deadly explosion of one of its natural gas pipelines in the San Francisco Bay Area, a prosecutor said Friday as a criminal trial against the utility giant got underway. PG&E knew exactly what to do to comply with regulations but didn’t do it, Assistant U.S. Attorney Hallie Hoffman said in her opening statement. “Instead, it chose a cheaper method that did not ensure the safety of pipelines running through high-consequence areas,” Hoffman said. PG&E attorney Steven Bauer said the company’s employees did what they could in the face of ambiguous regulations they struggled to understand.

Even With The Demand, SRE Able To Inject Some Natural Gas Into Storage -- Truly Amazing -- From SeekingAlpha:

  • Sempra Energy's (NYSE:SRE) SoCalGas has passed its first test of the summer since the closure of its Aliso Canyon storage facility following October's massive gas leak, keeping fuel supplies flowing amid blazing temperatures early this week.
  • SoCalGas says it delivered ~3.3B cf of gas and received 3.2B cf from pipelines on Monday, but with cooler weather on Tuesday, deliveries fell to ~2.9B cf while pipeline receipts reached 3.1B cf, allowing some injections back into storage.
  • The utility's three remaining storage facilities have a combined withdrawal capacity of 1.7B cf/day but cannot make up for all of Aliso Canyon's capability to support demand in the Los Angeles area because they are smaller or located too far away.
  • SoCalGas has said it hopes to return Aliso Canyon to partial service by the end of the summer, but cannot inject gas into the field until it inspects all 114 wells.

BREAKING: Thousands Of Gallons Of Crude Oil Have Spilled From A Southern California Pipeline -- According to the Ventura County fire department, up to 700 barrels of crude oil — some 29,000 gallons — have spilled from a pipeline in southern California. The leak was spotted at about 5:30 a.m. PST, and has been seen flowing towards a nearby beach. Initial reports placed the amount of oil spilled from the pipeline at 5,000 barrels, or 210,000 gallons, but those totals were revised as of Thursday morning. Officials are relying on a natural catch basin that exists in the area to capture the oil while crews build larger barriers, according to the Los Angeles Times#VenturacityFD @VCFD responding to crude oil spill #GroveInc #Ventura. Up to 5,000 barrels — HazMat teams on scene. . Officials are reporting that the operating line for the pipeline has been shut down. The oil belongs to Aera Energy, an oil production company jointly owned by Shell and ExxonMobil. It is one of California’s largest oil producers, accounting for nearly 25 percent of the state’s oil production, according to the company’s website. The pipeline belongs to Crimson Pipeline, which operates in California and Louisiana.  A year ago, California suffered the largest coastal oil spill in the state in 25 years just west of Ventura, when an oil pipeline ruptured in Santa Barbara County, with some 143,000 gallons of crude flowing to the coast. Thursday’s spill is also located just 15 miles southeast of the site of the 1969 Santa Barbara oil spill, which sent some 3 million gallons of crude into the Pacific Ocean and is largely credited with launching the modern environmental movement.

Pipeline Ruptures Spilling 29,000 Gallons of Oil, Just Hours After Obama Signs PIPES Act -- On Wednesday, President Obama signed the Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 into law. The bill, known as the PIPES Act, reauthorizes the federal government to move swiftly in the event of a pipeline leak or rupture. Specifically, the Secretary of Transportation is allowed to issue emergency orders if the unthinkable happens.The reauthorization was in response to the natural gas pipeline rupture in California where an estimated 97,000 tons of gas were released from the Aliso Canyon pipeline near Porter Ranch. The bill also includes new mandates on construction to insure the safety of future pipelines and to reduce the chances of another massive leak.  Ironically and very disturbingly, less than 24 hours after the bill was signed into law, an oil pipeline in Ventura County, California ruptured and current estimates put the amount of oil leaked at more than 200,000 gallons, though that number continues to rise. According to the LA Times: The oil was flowing out near the beach at San Jon Road and the 101 Freeway, Lindbery said. But the area has a natural catch basin that crews are relying on to capture the oil while they build larger barriers with bulldozers and hand crews, officials said. The oil belongs to Aera Energy and was flowing through a pipeline owned by Crimson Pipeline, Lindbery said. Crimson Pipeline operates in California and Louisiana. The oil company owns 1,000 miles of pipelines in Ventura, Los Angeles, Orange, Kern and in some Northern California counties, according to its website. When the leak was discovered, the company shut the pipeline down, but the oil remaining in the pipeline continues to flow out.

Pipeline spews crude in California but none reaches beach – An underground pipeline spewed thousands of gallons of crude oil Thursday near the Southern California coast but the foul-smelling goo was contained in a lengthy stretch of ravine and never reached nearby beaches. About 29,000 gallons of oil spilled and flowed at least a quarter-mile in the canyon near Ventura, fire authorities said. Resident Kirk Atwater said he called 911 after smelling and hearing the flowing crude. "We started getting this horrendous smell and I knew right away what it was," he said. Atwater, 56, said he went up the canyon on his motor scooter and found the oil gushing from an above-ground box that he surmised covers equipment. "It was just pouring out like water coming out of a fire hydrant," he said. He said he found a posted phone number and reported the leak to the pipeline company. Fire crews responded and a pump house operating the line was shut down. Firefighters built a dam of dirt to keep the oil from moving farther. The oil left a black stain down the brush- and tree-filled arroyo.

Firm: California spill went undetected due to pipeline work — The operator of a pipeline that spewed tens of thousands of gallons of crude oil into a Southern California ravine said Friday it didn't detect the leak because the line was undergoing maintenance. Crimson Pipeline said the remotely monitored line was emptied on Wednesday to replace valves. Oil was flushed back in, but the pipeline wasn't at full capacity when the spill occurred and there wasn't enough oil in the line to detect a drop in pressure, company spokeswoman Kendall Klingler said. Workers shut down the line after receiving a call from a resident who was in his Ventura backyard when he noticed a noxious odor and rode his motor scooter through the ravine until finding the source of the leak.. At least 25,000 gallons of crude flowed Thursday into a brush- and tree-filled arroyo. Firefighters were able to stop the crude before it could reach the ocean by building a dirt dam. The cause of the spill is under investigation. It occurred near a valve on the underground line that runs from Ventura to Los Angeles. The spill was the 11th for Denver-based Crimson since 2006, according to records filed with the Pipeline and Hazardous Materials Safety Administration. A total of 313,000 gallons of crude were released, causing $5.9 million in property damage.

California crude prices depressed by pipeline woes -  Indigenous crude prices from California's oil fields in Kern County are being weighed down as inventories build on pipeline shut-ins, S&P Global Platts data showed Thursday. Kern River crude was pegged at a $10.00/b discount to US futures benchmark WTI on Thursday, according to Platts assessment data. In May, the discount averaged $6.02/b. The Kern River discount began widening after the late-May shutdown of Shell's San Pablo crude pipeline -- which carries the heavy crude north to San Francisco Bay Area refineries -- pushed more barrels of crude into storage. The discount widened further after Thursday's shutdown of another leaking crude pipeline, the Crimson. The San Pablo line is expected to be back up by mid-July, shippers said. The line's shipping calendar showed July 10 as the restart date, but sources said that the actual start-up date will be July 18, barring any further discoveries of problems. Company spokesman Ray Fisher said in email the line is still being tested and gave no timeline for restart.  The 210,000 b/d San Pablo line usually carries about 140,000 b/d of the heavy crude north to three Bay Area refineries: Shell's 156,400 b/d Martinez refinery; Tesoro's 166,000 b/d Golden Eagle refinery in Martinez; and Valero's 145,000 b/d Benicia refinery. These refineries have ways to get crude from other countries, so the San Pablo outage is not seen impacting output of gasoline and diesel.

The Latest: CEO denies fracking will harm endangered belugas - The chief executive officer of a Texas company that plans to drill below Alaska's Cook Inlet says there's no threat to endangered beluga whales from proposed hydraulic fracturing. Benjamin Johnson of Fort Worth-based BlueCrest Energy says he doesn't even consider the company's plans to be offshore drilling. Johnson says the company will drill about four miles horizontally from a well on shore to reach oil deposits. He says drilling 7,000 feet below the ocean bottom presents no danger to belugas from chemical leaks, noise or earthquakes. Johnson responded to a letter sent Wednesday by the Center for Biological Diversity to the National Marine Fisheries Service. The environmental group wants the agency to block BlueCrest's plans for fracking, the extraction of oil from rock through injection of high-pressure mixtures of water, sand and chemicals. . A national environmental group is asking federal fisheries officials to block a drilling company's plans for offshore hydraulic fracturing in Alaska's Cook Inlet. The Center for Biological Diversity says fracking by BlueCrest Energy will threaten endangered beluga whales. The group says no hydraulic fracturing by the Fort Worth, Texas-based company should be allowed unless there's additional environmental review.

Fight over fracking, threat to beluga whales grows in Alaska  - There is a dispute brewing in Alaska as to whjether belugas whales in Cook Inlet might be threatened by fracking. An eco-group says yes; the Texas-based company behind the project, BlueCrest Energy, says no. Here is the statement from the Center for Biological Diversity that was released this week — The Center for Biological Diversity today urged federal officials to block an oil company’s plans to drill multiple new wells and conduct the first large, multistage offshore fracking ever done in Alaska’s environmentally sensitive Cook Inlet.In a letter to the National Marine Fisheries Service, the Center noted that the unprecedented offshore fracking planned for this summer threatens Cook Inlet beluga whales — among the most endangered whales in the world­.BlueCrest Energy’s plan for what it calls a “huge multistage frack” would be the first project of its kind in the inlet, according to state oil regulators and the company itself.“Fracking in Cook Inlet threatens beluga whales and their prey due to the toxic chemicals used in fracking fluid,” read the Center’s letter. The company needs a permit from the agency to legally conduct oil and gas activities in the Inlet. “Cook Inlet belugas already face a barrage of man-made hazards threatening their survival — the last thing they need is offshore fracking,” said Kristen Monsell, a Center attorney. “If federal officials are truly committed to saving these incredible animals, they need to step in and prohibit oil companies from fracking Cook Inlet.”  Offshore fracking blasts vast volumes of water mixed with toxic chemicals beneath the seafloor at pressures high enough to fracture rocks and release oil and gas. The practice increases environmental damages beyond those of conventional oil drilling by increasing pollution and the risks of oil spills and earthquakes. Cook Inlet belugas are especially vulnerable to these threats through direct exposure and through the killing or harming of their prey.  [...] Of the five genetically unique beluga populations in Alaska, Cook Inlet belugas number the fewest. The species is under great duress from the industrialization of their habitat near Anchorage. In recent years the population has plummeted from approximately 1,300 to just over 300 whales.

One Way to Solve Fracking's Water Problem: Don't Use Water  |  Rigzone - The shale gas revolution brought the U.S. both energy-superpower status and a short list of headaches. There are engineering challenges, many wells have a disappointingly short productive lifetime, and those lifetimes can vary even within the same field. Then there are the much-debated environmental trade-offs. Hydraulic fracturing, or fracking, requires copious water. And while gas-fired power plants produce less CO2 than coal-fired plants, environmentalists are quick to point out that methane itself is a potent greenhouse gas and leaks needlessly from aging infrastructure. An Australian researcher and two scientists from France, which has banned fracking, now suggest there may be a better way. And it's a twofer, at least. Their germ of an idea, published today in the journal Nature Communications, would simultaneously reduce or eliminate drilling's water footprint, make wells more productive, and trap carbon dioxide underground. How? Substitute high-pressure CO2 for water. The scientists go to great lengths in the paper and in conversation to qualify their research as preliminary. It's a theoretical study, run on computer models of molecular behavior, and requires experiments on laboratory scales before anyone ever tries it out on an actual shale deposit. But it's a provocative theory.The three co-authors use sophisticated software that simulates how molecules interact. What they found in their simulation is that while water initially flushes out the gas, eventually it becomes a kind of molecular seal, trapping the gas in the deposit.

A Quick Trip to the Oil Patch Shows Energy-Related Losses Rising - Readers of the latest edition of the Federal Reserve Bank of Dallas's quarterly southwest economy publication might want to keep that quote in mind. News from the oil patch — the 11th Fed district that encompasses the shale heartland — is not encouraging, as it reveals a sharper rise in souring energy-related loans. "The persistence of relatively low oil prices has begun taking a toll on district bank customers," the Dallas Fed said in its report. "Oil-price hedges become less effective the longer prices stay low, and the cushion built by energy firms during the good times gets thinner. Cash flow becomes stretched and collateral loses its value, further pressuring borrowers." That forces them closer to default unless banks are able to keep their lending spigots open. Many of these loans fall under the umbrella of commercial and industrial (C&I) lending — a category which has been surging in conjunction with commercial real estate (CRE) lending in recent years. While regulators have kept a somewhat lazy eye on rising CRE loans since even before the 2008 financial crisis (and certainly after it), the boom in C&I lending has been met with far less scrutiny — resulting in charts which look like this: And this: The ability of C&I lending to grow unconstrained looks set to change, however, as energy-related strains help elevate the amount of loans that are in or close to default. C&I lending in the Dallas Fed district has grown to become the biggest single component of past-due loans at the region's banks — outstripping both noncurrent (also known as non-performing) residential real estate and commerical real estate loans for the first time since 2005. "While noncurrent C&I loans have increased since the beginning of 2014, the pace quickened in the second half of 2015," the Dallas Fed said in its report, noting that the category now accounts for almost a third of district banks' total noncurrent loans — up from just 19 percent as recently as 2014.

With oil price near $50, resilient U.S. shale producers eye new chapter | Reuters: Two years into the worst oil price rout in a generation, large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil nears $50 a barrel, confounding OPEC and Saudi Arabia with their resiliency. That shale giants Hess Corp, Apache and more than 25 other companies have beaten back OPEC's attempt to sideline them would have been unthinkable just months ago, when oil plumbed $26 a barrel and collapses were feared. To regain market share, the Organization of the Petroleum Exporting Countries in late 2014 pumped more oil despite growing global oversupply. It aimed to drive prices lower and force higher-cost producers out of the market, with shale oil seen as especially vulnerable. The pain was acute. Industry revenue fell more than 30 percent in 2015 from the previous year, the U.S. drilling rig count dropped by more than 70 percent from when oil was still above $100 per barrel, stock valuations plunged and scores of small producers filed for bankruptcy. But so far no U.S. producer that pumps more than 100,000 barrels per day (bpd) has gone bankrupt. The survival of these big producers partly explains why overall U.S. production has slipped only about 10 percent since peaking at 9.69 million bpd. Their agility - which required slashing costs in half while doubling down on improved techniques to squeeze more oil from each new well - is now allowing the industry to cautiously focus on growth again. But this time, U.S. producers say they will stay focused on capital returns, having abandoned a culture of maximizing production regardless of costs.

NYMEX July gas settles 12.4 cents higher Monday at $2.747/MMBtu -  The NYMEX July natural gas futures contract climbed 12.4 cents Monday to settle at $2.747/MMBtu, the highest price since it settled at $2.758/MMBtu on September 14, 2015. The July gas futures contract has rallied over the past several weeks, climbing about 36 cents since June 1. "Bullish weather is pushing demand higher and supporting the contract's upward momentum, which is likely to continue on short covering and strong fundamentals," . The US National Weather Service's eight- to 14-day forecast called for a high probability of above-normal temperatures across most of the country. The Southwest and Pacific Northwest are forecast to be very hot, more than 15 degrees Fahrenheit above normal, while the Northeast and Appalachia are expected to be around seasonal norms. The middle portion of the country is also forecast to be hotter than usual. Total demand is expected to increase throughout the week as warmer than normal temperatures blanket most of the country. Demand picked up for Monday's evening cycle estimates to nearly 70 Bcf/d, driven by higher power burn levels, according to S&P Global Platts unit Bentek Energy. Power burn could hit above 35.0 Bcf/d over the next few days if current weather forecasts hold. Southwest power burn could be especially strong and rise close to 5.5 Bcf/d this week, which is 2.2 Bcf/d above the 30-day average for the region, as a strong heat wave settles in.

Natural Gas Is On Fire - Natural Gas Daily -  July contracts are moving higher… again. Current 8-14-day outlook validates the bullish sentiment as cooling demand is expected to spike over the next several weeks. Click to enlargeCurrent weather runs by Bespoke Weather also point to a very hot July. Lingering El Nino was a bit of concern last week for the month of July, but the resumption of the La Nina trend resolved all concerns. If El Nino lasted a bit longer or the trend towards La Nina slowed, July temps could've been adversely affected to the cooler side. We are obviously oversimplifying this, but if you want to learn more, visit Bespoke Weather. RBN Energy has once again lowered its end-of-injection storage estimate. Forecasters are currently predicting that by 7/15, storage surplus should narrow by 154 Bcf relative to last year. All of these bullish revisions resulted in the spike in price today. Despite a rebound in natural gas prices, natural gas supply has been anemic. Supply by several estimates we've seen ranges from 0.15 Bcf/d to 0.25 Bcf/d from last week. The bullish supply figures also contributed to the overall bullish sentiment today. Going forward, we continue to monitor the different changes in weather estimates. The current range of end-of-injection storage figures are still averaging around 4.15 Tcf, so in order for natural gas to go above $3/MMBtu, we would need these forecasts to materially move lower than 4 Tcf. We think the psychological effects attached to 4 Tcf is quite remarkable, and many of the physical gas traders we've spoken to point to the 4 Tcf mark as the point of bullish or bearish sentiment.

The Natural Gas Rally, Coal-Gas Competition and Power Burn --- Over the past 20-some days, U.S. natural gas prices have gone from being the lowest in more than a decade to very close to last year’s levels. The July 2016 CME/NYMEX Henry Hub natural gas futures contract on Thursday (June 23) settled at $2.698/MMBtu, up about 70 cents (36%) from where the June contract expired ($1.963/MMBtu on May 26) and also up nearly 50 cents (23%) from where the July contract started as prompt month on May 27 (at $2.169). Market buying to unwind short positions initially kick-started the rally, but since then hot weather and a boost in power demand has kept the rally going. National average temperatures have averaged nearly 8 degrees (Fahrenheit, or F) higher in June to date versus May, and in the past week they’ve climbed above the peak summer levels normally not seen until mid- to late-July. Gas consumption on a temperature-adjusted basis also soared in the first half of June, led by power burn (gas use for power generation). The combination of hot weather and higher gas usage per degree of demand has been practically made-to-order for the oversupplied gas market, and has led to record power burn in June to date. But higher prices have the potential for bearish consequences—the recent gains have catapulted natural gas prices well above prices for coal on a cost-per-MMBtu basis—making the latter fuel more economically competitive in the power generation sector. That’s welcome news for coal producers, but what will it do to natural gas demand and in turn gas prices? Today, we look at the shift in the coal-gas price relationship and the potential impact to power burn and the gas market.

Weekly Natural Gas Storage Report - 'Down Goes The Surplus' - EIA reported injection figures of +62 Bcf bringing total storage to 3.103 Tcf. This compares to the +77 Bcf build last year and the +88 Bcf for the five-year average.   Market participants were expecting injections of between 55 Bcf - 63 Bcf, so this week's build came in at the high end of the range. Part of the miss comes from the increased Canadian gas imports which we reported. AECO basis differential remains wide despite recent price strengthening. We expect gas imports from Canada to remain above 6 Bcf/d as long as the basis differential remains wide. At 3.103 Tcf, gas storage remains 618 Bcf higher than last year and 678 Bcf higher than the 5-year average. Prior to this release, total injection this year is 561 Bcf versus the 5-year average of 731 Bcf and 936 Bcf from last year. Demand is finally catching up with supply and we expect this to continue. Associated gas production is finally rolling over, and given that it comprises nearly 20+% of US gas production, the decline has been meaningful. We think US gas production is on pace to decline below 70 Bcf/d by mid-July, and we are forecasting a decline to 68 Bcf/d by year-end.

US set to become major global natgas supplier as exports soar: DOE official - Demand for US natural gas for export -- including both pipeline and LNG exports -- is set to skyrocket through the next few decades, a US Department of Energy official said Thursday, adding the country was on a path to become a top supplier to the international market. "We're going to have substantial increase in pipeline exports to Mexico and LNG exports are going to explode," Carmine Difiglio, DOE deputy director for energy security, said at Hart Energy's DUG East Conference in Pittsburgh. US gas production peeked last year at an average of around 80 Bcf/d before beginning to decline somewhat. However, the production drop-off is expected to be short-lived as demand for gas for export increases, Difiglio said. "We expect the growth will resume on a fairly steady basis and reach 83 Bcf/d by the end of 2017," he said. Difiglio noted that the dramatic increase in shale gas production over the last decade and a half is responsible for growing gas supplies beyond what is needed to meet US demand. Shale gas has grown from being less than 5% of total US gas supplies in 2000 to 56% of supplies today, he said."The Marcellus and Utica shale basins continue to be the most productive for natural gas and especially impressive is the increase between last July and now," Difiglio said. "Year-on-year growth from 2015 to 2016 was greatest in Pennsylvania, Ohio, West Virginia, Oklahoma and North Dakota, but production was declining in the rest of the United States." While natural gas prices, which over the past several years have declined substantially in line with oil prices, are starting to come back up, Difiglio said there were signs that the increase would be gradual over the span of several years. "As production has been maintained and prices have been coming down, our storage now is very high and this will be a factor going forward in price recovery," he said.

Natural Gas: Don't Get Too Comfortable - The best laid plans often go awry for natural-gas companies. A testament to that is billions of dollars of infrastructure around the world that is rusting or draining owners’ finances because someone extrapolated the status quo. Why should this time be different? The latest big shift in natural gas has been a swing from a seller’s to a buyer’s market for seaborne liquefied natural gas. The 2011 Fukushima disaster that hobbled Japan’s nuclear industry and breakneck growth in demand from countries such as China and India eager to wean themselves off coal had created a tight market. The average wholesale price for natural gas in Japan, for example, was nearly $16 a million British thermal units in 2014 and spot cargoes went for as much as $20 MMBTU. That made LNG projects very attractive.  Now a slowdown in emerging markets and a boom in supply from new exporters such as Australia has created a glut. The Japan/Korea Marker price for LNG is about $4.80 MMBTU, according to Platts. Facing dismal returns, a large Australian LNG project was canceled in March, but the market faces at least a few years of tough sledding. The International Energy Agency recently cut its global gas demand growth forecast to 1.5% annually through 2021 compared with 2.5% for the preceding six years.That hasn’t done anything to change the conventional wisdom about evolution of the U.S. gas business, but perhaps it should. Years of oversupply have led to predictions the U.S. will become a big export player, and the first LNG export terminal started operating this year.U.S. prices, at about $2.50 MMBTU, are still low compared with Europe and Asia, and companies fret about chronic oversupply. That is a huge contrast to 2005 when U.S. prices briefly topped $15 and companies, including today’s pioneering exporter Cheniere Energy were rushing to build LNG import terminals to cope with an anticipated shortage.But don’t rule out the possibility that huge investments are once again being made based on a glut that may not persist.

A propane-laden VLGC inaugurates the expanded Panama Canal -- After the $5 billion-plus expansion of the Panama Canal is dedicated this Sunday, June 26, the first “New Panamax” vessel scheduled to pass through the canal’s new, longer, wider locks will be the Lycaste Peace, a Very Large Gas Carrier (VLGC) that is transporting propane from Enterprise Products Partners’ Houston Ship Channel export terminal to Tokyo Bay in Japan. What remains to be seen, though, is how many other supersized vessels carrying propane, liquefied natural gas (LNG) or other hydrocarbons will follow, and how soon. Today, we mark the formal opening of the newly enlarged Atlantic-Pacific short-cut with a look both at the game-changing potential of the expanded canal and the realities of today’s energy and shipping markets. The international energy trade has been shifting toward larger and larger sea-going vessels, seeking to maximize economies of scale and minimize shipping costs. That shift has been stymied somewhat, though, by the Panama Canal’s inability—until now—to handle the vast majority of the world’s LNG and liquefied petroleum gas (LPG) carriers. As we said in our recent Run Through the Jungle blog series and Here She Comes, Full Blast blog, until new, larger locks were built and other improvements were made along the canal, the manmade waterway was limited to vessels no larger than 965 feet long and 106 feet wide; and their drafts (or depth below water level) were capped at just under 40 feet. (Ships up to this size and draft are known as “Panamax” vessels.) When the new canal locks open for business this weekend, the “New Panamax” dimensional limits of ships using the canal increases to 1,200 feet in length, 160 feet in width, and 50 feet of draft. That’s a game-changer for both LNG and LPG. Until now, less than 10% of the world’s 400-ship fleet of LNG carriers can use the canal, but starting on Sunday more than 90% will be able to.

Modest changes to crude oil and petroleum product flows expected from expanded Panama Canal - EIA - On June 26, the Panama Canal Authority, the body that operates the Panama Canal, will open a third set of locks that will facilitate transit of larger ships, the first such expansion since the canal was completed in 1914. However, because of the economics of shipping, trade patterns, and the types of ships used to transport crude and petroleum products, this latest expansion is expected to have a limited effect on most petroleum markets. The economics of shipping crude oil and petroleum products improve as the ship size and the distance travelled increase. Crude oil is typically loaded on vessels classified as Very Large Crude Carriers (VLCC) or Ultra-Large Crude Carriers (ULCC), each of which, when fully laden, is too large to transit the new locks of the Panama Canal. Petroleum products are typically loaded on smaller vessels, some of which can transit both the existing and new locks, depending on the ship's hull design and draft (depth in water). This means that most of the petroleum-related traffic through the canal will continue to be petroleum products, rather than crude oil. The latest canal expansion comes at a time when petroleum product (clean) tanker rates are at their lowest levels since 2009, in part because of elevated global product inventories. From January through May of 2016, rates for a shipment of product from the Arabian Gulf to Japan, a general indicator for global tanker rates, have averaged about $21 per metric ton, after averaging more than $30 per metric ton in 2015 (Figure 5). Lower prices for bunker fuel, as a result of lower oil prices, reduce the ship owners' cost for a longer, less direct journey and result in lower freight rates paid by the shipper.

TransCanada Files NAFTA Suit Demanding More Than $15 Billion for Keystone XL Rejection - On June 24, foreign oil company TransCanada filed a lawsuit against the U.S. under NAFTA, the North American Free Trade Agreement, arguing that the U.S. rejection of the Keystone XL pipeline violated NAFTA’s broad rights for foreign investors by thwarting the company’s “expectations.” As compensation, TransCanada is demanding more than $15 billion from U.S. taxpayers. TransCanada’s case will be heard in a private tribunal of three lawyers who are not accountable to any domestic legal system, thanks to NAFTA’s “investor-state” system, which is also included in the proposed Trans-Pacific Partnership (TPP). The controversial TPP would empower thousands of additional corporations, including major polluters, to follow TransCanada’s example and use this private tribunal system to challenge U.S. climate and environmental policies.TransCanada’s Request for Arbitration follows the Notice of Intent to submit a claim to arbitration that it filedon Jan. 6. TransCanada’s attempt to make American taxpayers hand over more than $15 billion because the company’s dirty Keystone XL pipeline was rejected shows exactly why NAFTA was wrong and why the even more dangerous and far-reaching Trans-Pacific Partnership must be stopped in its tracks. The TPP would empower thousands of new firms operating in the U.S, including major polluters, to follow in TransCanada’s footsteps and undermine our critical climate safeguards in private trade tribunals. Today, we have a prime example of how polluter-friendly trade deals threaten our efforts to tackle the climate crisis, spotlighting the need for a new model of trade model that supports rather than undermines climate action. We urge our members of Congress to learn from this historic moment and commit to reject the TPP.

Extreme Oil Prices May Be Costly to the Climate -- When oil and gas prices go to extremes, such as when they crashed two years ago, scientists begin to look for answers about what those prices mean for climate change — especially when cheap oil encourages people to guzzle more gasoline in less fuel-efficient vehicles.  A new study shows that if oil and gas prices remain at either extreme — very high or very low — for long periods of time, they are likely to prevent countries from keeping global warming from exceeding 2°C (3.6°F). That’s especially the case if countries do not have climate policies, such as carbon pricing, that try to aggressively cap carbon emissions.  If oil and gas prices remain low — less than $55 per barrel — for decades, it will be a disincentive to develop renewable energy and decarbonize the global economy, according to the research by the World Bank and the International Institute for Applied Systems Analysis (IIASA). If oil and gas prices stay high for decades — $110 per barrel or more — oil demand still won’t be knocked down sufficiently to drastically reduce carbon emissions. High oil and gas prices encourage some renewables development, but their climate benefits are partially cancelled out by coal production. Coal gets a boost from high oil prices because it’s a cheaper alternative to natural gas, the research shows.

Big Banks Betting Against Climate Change Policies, Spending Billions On Fossil Fuel Projects: Report (interactive graphic) Major U.S. and global banks say they are steadily scaling back support for new coal projects to help confront global warming. But many of the same financial institutions are still investing billions of dollars in fossil fuel supplies that, if burned, would drastically boost global greenhouse gas emissions. A new review of 25 large U.S., Canadian and European banks found the financial institutions invested a combined $784 billion from 2013 to 2015 on “extreme” oil projects — such as Arctic drilling and Canadian oil sands mining — as well as infrastructure to export liquefied natural gas (LNG), coal mines and large coal-fired power plants. The combined projects could undermine the global goal to limit global warming to well below 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels, environmental groups said.“These investments are only going to pay off for the financial industry if these fossil fuels get burned,” said Amanda Starbuck, the San Francisco-based climate and energy program director for Rainforest Action Network, one of authors of Tuesday’s report. “Banks are placing a bet that we are going to fail to address climate change,” she added. Rainforest Action Network had previously tallied only bank investments in coal projects for the group’s first six finance reports. But after nearly 200 nations agreed to join a landmark climate change deal in Paris last December, the organization decided to expand its focus to include unconventional oil production and LNG exports. Scientists estimate that 82 percent of today’s fossil fuel reserves must be left underground in order to stave off catastrophic levels of global warming, according to research published in the journal Nature in January.

Global oil investment gap widens by $1 trillion: Wood Mackenzie -- Falling oil prices have led to a $1 trillion investment gap in oil and gas development worldwide. “The impact of falling oil prices on global upstream development spend has been enormous. Companies have responded to the fall by deferring or cancelling projects and costs have also fallen,” said Malcolm Dickson, Principal Analyst at Wood Mackenzie in a press release. Future upstream development spending from 2015 to 2020 has dropped by 22% since oil prices started to fall in late 2014. (Upstream development refers to investment in the initial steps of extracting oil, including finding, testing and drilling.) Global upstream investment has been cut by US$740 billion and conventional exploration investments fell by US$300 billion. Capital expenditures are also down by US$340 in 2016 and 2017, meaning that the price drop is affecting oil companies’ assets. According to Wood Mackenzie, nearly every oil producing country has seen some form of cuts to capital investment. The largest capex cuts were in the continental United States, where capital spending was halved in 2016 and 2017 as a result of a cut in onshore drill rig count of over 50%.“Although exploration investment has more than halved since 2014…costs have not been cut as much and as quickly as we expected. Some deepwater exploration spend has been protected by long rig contracts, but as these unwind we expect sharper cuts than in non-deepwater," said Andrew Latham, Vice President of exploration research at Wood Mackenzie. These global cuts to capital assets required to extract and refine oil have ultimately affected global production. Wood Mackenzie has projects a production deficit of 7 billion barrels of oil between 2016 and 2020 with onshore U.S. drilling to account for 70% of the fall.

German government agrees to ban controversial fracking practice - The German government has chosen to take aggressive action on fracking. After years or derisive talks, the coalition government has decided to ban fracking for shale gas indefinitely. The ban aims to address concerns regarding the damage that this practice can cause to the environment. While some environmental groups have praised the decision, others believe that the ban does not go far enough. Some of these groups have vowed to fight the ban in order to promote more aggressive measures that target fracking.  The process has generated significant controversy in recent years. In the United States, fracking has been linked to seismic activity in areas where earthquakes had once been very rare. Moreover, critics of fracking have raised concerns that the chemicals used in the process could contaminate the environment, leading to polluted water tables and other issues. While the German government has agreed to ban fracking, the legislation required for this to become a reality must still be approved by the parliament. Similar legislation was introduced a year ago, but failed to gain traction due to political disagreements. If the ban is approved, German states would still have the ability to approve or deny test drilling for shale gas, but the federal government would not support the practice

South Sudan Announces Plans To Restart Oilfields Shut In By Violence In 2013 - South Sudan has announced plans to restart oilfields in the former Unity state that were shut in by violence in December 2013. “We are starting work today [Thursday] and shall complete it in five months,” oil minister Dak Duop Bichiok told journalists after meeting with vice president James Wani Igga in Juba. The shut in of Unity’s oilfields has reduced South Sudan’s crude oil production to 165,000 b/d from 245,000 b/d before the conflict. Prior to the outbreak of violence, Unity state, which has now been split into three administrative units, produced 45,000 b/d of Nile blend crude. The light, sweet and waxy crude blend is popular with Asian traders. In their meeting, Igga and Bichiok discussed preparations for repairs to oil facilities in Unity and plans to resume work on a refinery. Russian company Safinat won a contract to build a $1.8 billion, 50,000 b/d refinery at Akon in a joint venture with state-run Nile Petroleum Corporation, for which the foundation stone was laid in 2010. It was to be geared to produce mostly diesel. Safinat also completed construction of a $100 million refinery in Bentiu in Unity state to produce 3,000 b/d of diesel and gasoline for local consumption, but the 2013-2015 conflict prevented it from starting up. Bichiok said 87 South Sudanese oil technicians had now graduated in Malaysia and would be deployed as soon as possible to the refinery in Bentiu.

Further Cost Reduction Needed on Vaca Muerta Play  - Argentina’s Vaca Muerta unconventional play ranks among the top shale plays in terms of rock quality, but high costs are inhibiting the pace of development. When benchmarked against North American plays, Shell’s Argentina shale wells rank among the top one to two percent, Laurens Gaarenstroom, Royal Dutch Shell’s general manager, emerging basins, Latin America, told reporters during a media event Monday in Houston. But costs to develop Argentina’s Vaca Muerta resource are way too high versus North America. The high costs are due to a lack of native oilfield services industry in Argentina – meaning that most equipment has to be imported – and high labor costs. Shell had to spend a significant amount of money initially on data acquisition to learn about the basin, the company said. But it has managed to reduce its well costs – which were running more than $30 million each – by 50 to 60 percent. Shell is continuing its journey to further reduce costs as it continues to learn about Argentina’s subsurface, Gaarenstroom said. Gaarenstroom said Shell believes the estimated ultimate recovery for its black oil wells is close to one million barrels. Gaarenstroom credits Shell’s results in Argentina with the power of its shale operations and personnel being together in Houston as one unit, and the ability to learn from other operations. In addition to lowering costs, the oil and gas industry will need to work with key stakeholders such as government agencies to try and stimulate more competition. “While we won’t get the capitalism on steroids level that we see in the Permian, more choice for the industry is needed,”

Two Hundred Indigenous U'Wa Occupy Gas Plant in Colombia - Global Justice Ecology Project: Two hundred Indigenous U’wa men, women, and children have occupied Colombian state oil company Ecopetrol’s Gibraltar I gas plant south of the Colombia-Venezuela border in Norte de Santander department, to demand that the government honour a set of agreements from May 2014. After waiting two years for the government to follow through with its demands, which include full recognition of the U’wa’s ancestral territory and the clean-up of reserves affected by oil spills, the U’wa occupied the gas plant on May 31, 2016. The U’wa declared the lands were “invaded by Oxidental Colombia (sic.) and today by ECOPETROL”. Vladimir Moreno, the President of Asou’wa, the U’wa Traditional Authorities and Councils, stated, “We are going to retake the land and arrange it for a productive project.” The U’wa say that gas extraction in the region is altering the local climate and negatively affecting the U’wa’s health. Mariela, an U’wa nurse taking part in the occupation, told IC, “We’re here defending our territory, as always. We’ll continue with the defense of our territory.” “There’s a lot of pollution, lots of diseases.” Mariela continued, “Our children are getting sick with illnesses like diarrhoea and acute respiratory infections.” Apart from this, she added that there is little support for healthcare from the government. “The government basically pays no attention to us, because sometimes there is no medicine.”

Slavery At Sea: The Ugly Underbelly Of Oil Shipping  - The words “slavery” and “oil”, when used together, are usually reserved for use in the context of palm oil, but the offshore oil and gas industry isn’t immune to modern-day slavery—as evidenced by the detention of a BP-charted offshore oil supply vessel in Scotland, which was found to have a group of unpaid workers on its crew. The Malaviya Seven offshore supply vessel (OSV) was detained in Aberdeen, Scotland, earlier this week, with trade union representatives calling it a “blatant example of modern day slavery”. Owned by Mumbai-based GOL Offshore, the vessel was chartered by BP from 1 June to 15 June. Among its crew were 15 Indian workers who had been unpaid for months. According to the General Secretary of the National Union of Rail, Maritime and Transport Workers (RMT) the incident “exposes the shameful practices in the exploitation of our natural resources”. These “ships of shame”, as RMT spokesman Mick Cash dubbed them, “are a blatant abuse of migrant workers […]” adding that such activities also act as “a catalyst for the dumping of UK seafarers, many thousands of whom are now drawing benefits from the state”. The slave ship incident has now prompted another investigation into a second vessel owned by the same company, the Malaviya Twenty, which is at the British port of Great Yarmouth. Meanwhile, the Malaviya Seven will remain locked down at the Albert Quay until its staff are paid. According to the International Labor Organization (ILO), almost 21 million people are victims of forced labor today. Of those, nearly 19 million are exploited by private individuals or enterprises, compared to slightly over 2 million who are exploited by the state or rebel groups. Overall, says the ILO, forced labor in the private economy generates $150 billion in illegal profits every year.

German Government Agrees to Ban Fracking Indefinitely  |  Rigzone (Reuters) - Germany's coalition government agreed to ban fracking for shale gas indefinitely on Tuesday, after years of fractious talks over the issue, but environmental groups said the ban did not go far enough and vowed to fight the deal. Test drilling will be allowed but only with the permission of the respective state government, officials said. German industry is keen to keep the door open to fracking - which involves blasting chemicals and water into rocks to release trapped gas - arguing it could help lower energy costs, but opposition is strong in the country, where a powerful green lobby has warned about possible risks to drinking water. If the law is approved by parliament, Germany will follow France, which has banned fracking, whereas Britain allows it subject to strict environmental and safety guidelines. Germany was on the verge of a parliamentary vote on similar legislation to ban fracking a year ago, but the effort stalled amid disagreements between Chancellor Angela Merkel's conservative Christian Democrats (CDU) and the left Social Democrats (SPD). The two parties agreed on Tuesday to an indefinite ban, but the compromise legislation calls for the German parliament to reassess whether the decision is still valid in 2021, said Thomas Oppermann, who heads the SPD's parliamentary group. CDU officials confirmed that a compromise had been reached. Friends of the Earth Germany (BUND) criticised the proposal and said that by setting a date for a fresh look, the coalition had essentially agreed to allow fracking in five years. "The coalition's agreement on a fracking permission law is hair-raising. The law must be stopped and replaced with a true fracking ban," . Further details of the compromise legislation were not immediately available.

German Government Agrees to Ban Fracking but Keep Door Open -- The German government has agreed to ban fracking for shale gas for an indefinite period, but would allow test drilling to be carried out if state governments permit it, news agencies reported on Tuesday.The two parties in Germany’s ruling coalition—the Christian Democrats (CDU) and the Social Democrats (SPD)—agreed to what is being called an “indefinite” ban, but the agreement calls for a review in five years, leaving the door open for a possible lifting of the ban.Parliament must still approve the ban. Environmental groups are not satisfied with the agreement, and have vowed to step up opposition."The coalition's agreement on a fracking permission law is hair-raising. The law must be stopped and replaced with a true fracking ban," Hubert Weiger, who heads the environmental group, said in a statement carried by Reuters. France has banned fracking, while the United Kingdom has gone back and forth over the issue. In late May, a local English government approved the first fracking permit in Western Europe for natural gas since 2011. The last fracking incident in Britain occurred in 2011, when the U.K.-based oil and gas company Cuadrilla Resources admitted that two minor earthquakes in north-west England had been caused by the company’s use of the controversial drilling practice.

Rosneft's crude oil market share in Europe steady, to grow strongly in Asia: CEO -  Russia's biggest oil producer Rosneft sees its position in the European market stable despite concerns on growing competition from Middle East crude producers for market share, while it pushes more actively for a greater role in new Asian markets where the competition is much higher. The company continues to show solid operational and financial results despite the tough economic situation and is aiming at strengthening its positions on the markets, Rosneft CEO Igor Sechin said in an interview with the state-run Russia 24 TV network broadcast Wednesday. He estimated the crude price was likely to remain volatile in the near future, although growing to around $50-$55/b by the end of this year and possibly to $65/b by end-2017."We are glad that we've managed to maintain our positions on traditional markets, primarily in Europe," Sechin said pointing out to recent agreements with PKN Orlen to increase deliveries to Poland and the Czech Republic. "Despite some concerns, we consider our positions [in Europe] quite stable because we've linked with the consumers by the infrastructure, including southern and northern branches of the Druzhba pipeline, which provide a competitive advantage for us," he added. Some Russian officials raised concerns late last year over maintaining market share as low oil prices and rising production by some key competitors was threatening Russian supplies to Europe. Sechin said then Saudi Arabia was actively dumping to win new markets in Europe. PKN's refineries primarily refine sour Russian Urals crude, which is delivered through the Druzhba pipeline, but the Polish company recently started looking more actively for alternative grades, including from Saudi Arabia and Iraq.

Peak Oil Consumption Dead Ahead (But Price is Anybody's Guess): I have no idea nor will I take any guess as to the price of oil going forward.  There are too many variables to make an educated guess.  If you want a bullish or bearish POV on price...this isn't likely the article for you.  All I do know is the world is likely very near peak oil demand.  Details and evidence follow...  The combined 34 OECD nations (list HERE) plus China, Russia, and Brazil represent 70% of global oil consumption while they represent about 40% of global population (chart below).  In comparison, Africa and India (combined) make up 8% of oil consumption despite being 33% of global population and certainly beyond 2/3rds of all present net population growth (all population data is via OECD.stat HERE...and oil consumption via EIA HERE). The chart below shows the EIA (Energy Information Administration) historic and estimated global oil consumption by OECD vs. China+Russia+Brazil vs. India+Africa vs. RoW. From 2015 to 2040, the EIA anticipates global oil consumption to increase by over 27 million barrels a day. Of that, the OECD to represent 2% of the growth, China+Russia+Brazil 25%, India+Africa 27%, and the RoW 46%. To begin, I'll focus on the present consumers of 70% of the worlds crude, the OECD+China+Russia+Brazil. And if we check the annual change to their combined 0-64yr/old population (blue line in the chart below), 0-64yr/old population growth has decelerated 90% since the '88 peak and cumulatively turns to outright annual declines by 2019. The annual declines accelerate indefinitely from there. I also show total 0-64yr/old annual global growth (black columns) and 0-64 growth among the RoW or Rest of the World (red line).

Kemp: Global Oil Demand Shows No Sign of Peaking  |  Rigzone -- "Peak oil demand" has become a fashionable concept among climate campaigners but the evidence suggests oil consumption is growing at the fastest rate for a decade and shows no sign of letting up. Global oil consumption increased by nearly 1.9 million barrels per day (bpd) in 2015, the largest annual increase since 2004, apart from the post-crisis bounce recorded in 2010. Most forecasters predict consumption will grow by another 1.5 million bpd in 2016 and a similar amount in 2017, which would make it the strongest sustained period of growth since 2004-2006. Oil consumption in the advanced industrial economies that are members of the Organisation for Economic Cooperation and Development (OECD) peaked at 50 million bpd as far back as 2005. Between 2006 and 2014, OECD consumption declined in seven out of nine years. By 2014, OECD oil consumption had fallen by around 5 million bpd, or 10 percent ("BP Statistical Review of World Energy," 2016). In the OECD countries, consumption does indeed seem to have "peaked" thanks to a combination of high and rising oil prices, energy efficiency mandates and prolonged economic weakness.

Inventory Drawdowns Won’t Boost Oil Prices - During the next three months, various analysts expect crude oil inventory drawdowns to increase, providing support to crude oil prices. However, post-September, inventory build-up is likely to accelerate, putting a cap on the oil rally. With expectations of restoration of Canadian supply, supply outages are likely to reduce. Oil production is likely to be supported by high oil prices while demand increase is already priced in. The main variable that will affect prices is the crude oil inventory, something which traders are likely to follow closely.The chart above shows the seasonal crude oil inventory drawdowns from June to September. Even last year, crude oil drawdowns were large, yet the surplus continued to inch higher, which eventually led to a drop in crude prices. The current season starts with crude oil inventories at 531.5 million barrels as of 10 June, according to the EIA. The latest weekly drawdown was only -900,000 barrels against an expectation of -2.26 million barrels. The current inventory levels are 152 million barrels above the 2010-2014 average, according to a Deutsche Bank research report. The bank believes that after slow draws in the next two weeks of June, the drawdowns will increase from July and pick up pace in August. By September, they expect the inventories to reduce to 135 million barrels above the average. The Bank expects a larger crude oil inventory drawdown of -2.88 million barrels every week, compared to the historical average of -1.65 million barrels every week, but it will be insufficient to notably shrink the surplus.In order for the elevated inventory levels to reach historical norms by Labor Day, crude oil stocks will have to decline by 12 million barrels every week, according to S&P Global Platts analysis.

Nigerian government agrees ceasefire with militants in oil-rich Niger Delta: official - The Nigerian government has agreed a ceasefire with militants in the oil-rich Niger Delta, including the Niger Delta Avengers, as renewed militancy has dragged the country's oil output close to 30-year lows, a Nigerian oil ministry official said Tuesday. The official told S&P Global Platts the oil minister had "succeeded in extracting a deal for a cease fire with militants" and these talks have been taking place "over the past two weeks with people close to the Niger Delta Avengers." Reports have said government negotiators, led by the junior oil minister Emmanuel Kachikwu have agreed to a 30-day ceasefire allowing President Muhammadu Buhari's administration more time to come up with a comprehensive plan to tackle militancy in the Niger Delta. Niger Delta Avengers had previously said it would only agree to talks with the government if foreign countries including the US, UK and France were part of the negotiations. The government formed a panel a few weeks ago led by National Security Adviser Babagana Monguno to negotiate with rebels who attacked oil installations in the region. The Nigerian government and the nine states of the Niger Delta region agreed in mid-May to raise a joint security team to curb growing militancy. Nigerian oil output had slumped from 2.2 million b/d to around 1.4 million b/d in early-May, and production was now in a range of 1.5 million-1.6 million b/d as militant attacks have intensified with the emergence of a new organization calling itself the Niger Delta Avengers. Nigeria produced  1.42 million b/d in May this year, the lowest since January 1989, according to Platts OPEC survey data, as exports and production of popular crude exports grades like Qua Iboe, Forcados, Bonny Light, Brass River and Escravos were all affected.

WTI Crude Tumbles To $48 Handle After Nigeria 'Ceasefire' With Militants -- While crude has short-squeezed over 7% higher since the death of UK lawmaker Jo Cox, it is stumbling on fundamentals overnight as Reuters reports Nigeria has agreed a one-month ceasefire with militants including the Niger Delta Avengers in the oil-producing southern region, despite the NDA denying it a week ago. As Reuters reports, Militant groups including the Avengers, who have claimed responsibility for a string of attacks on oil and gas facilities in recent weeks, could not immediately be reached for comment.They say they want a greater share of Nigeria's oil wealth to go to the impoverished Delta region. Crude sales make up about 70 percent of national income and the vast majority of that oil comes from the southern swampland.The latest attacks have pushed production to a 30-year low.Last week the Avengers said they would negotiate with the government if independent foreign mediators were involved."It was very difficult getting the Niger Delta Avengers to the negotiating table but we eventually did through a proxy channel and achieved the truce," said the official, who asked not to be identified. A second government official, who also wished to remain anonymous, said a "a truce was agreed" with militants.  One wonders why suddenly the NDA decided to play ball with the hyperinflating government? Perhaps the same 'people' behind the sudden mysterious rise of the freedom fighters who control global oil prices is now more worried about the state of the global economy being able to handle higher oil prices?

WTI Crude Spikes Above $50 On Massive Inventory Draw -Having v-shape recovery-ed intraday - as Nigeria news came and was denied - WTI Crude (Aug) was hovering around $49.90 before API data hit. Following 4 weeks of crude draws in a row, and with expectations of a 1.7mm draw, API reported another - this time massive - 5.2m barrel draw - the most in 6 months. Across the entire complex, inventories drew down more than expected, sending WTI surging back towards $50.50.API:

  • Crude -5.22m (-1.7m exp.)
  • Cushing -1.311m (-50k exp.)
  • Gasoline -1.47m (-300k exp.)
  • Distillates -1.699m (+300k exp.)

And the reaction in crude is clear as August WTI has surged from $46.50 to $50.50 in 3 days.

Oil ends down, then rises after settlement on big draw | Reuters: Oil prices settled lower on Tuesday on profit taking after a two-day rally, then rose in post-settlement trade after data showing a larger-than-expected draw in U.S. crude stockpiles. Crude inventories fell by 5.2 million barrels for the week ended June 17, the American Petroleum Institute said. The trade group's figures were triple the draw of 1.7 million barrels forecast by analysts in a Reuters poll.   The U.S. government's Energy Information Administration (EIA) will issue official stockpiles data on Wednesday. [EIA/S] Early in the session, oil prices dropped as much as 2 percent as investors took profits on a two-day rally fed by speculation that Britain would not vote to leave the European Union in a referendum this Thursday. But a rebound in gasoline lifted crude off session lows, and oil settled the session only slightly lower.   Gasoline prices rose after Royal Dutch Shell Plc ( shut its gasoline-producing fluidic catalytic cracking unit at the 316,600 barrel per day (bpd) Deer Park, Texas refinery. Oil prices were also supported by worries about the possibility of global crude supplies tightening from the economic crisis in Venezuela. Denial by rebels sabotaging Nigeria's crude exports that they had agreed to a month-long ceasefire was another supportive factor.

Oil Markets Are Balanced But Bracing For Brexit: Oil prices retreated in mid-June as the rising likelihood of a Brexit raised concerns about the economic fallout in Europe. The prospect of a Brexit also strengthened the dollar as major currency traders moved out of the sterling and euro into the safe haven of the U.S. dollar, depressing oil prices. But since the tragic murder of a British MP at the hands of an apparent Brexit fanatic, the markets are betting that the “Remain” camp could prevail. Oil prices and global equity markets jumped at the end of last week, with WTI and Brent up by more than 4 percent on Friday. Iran boosts oil exports, but further gains much more difficult. Iran has shocked analysts’ expectations on its rapid resurgence in oil production and exports this year following the removal of international sanctions. Production has climbed by 25 percent from roughly 2.8 million barrels per day to 3.5 million barrels per day. Iranian officials have targeted 4 million barrels per day of output before the year is out. Antoine Halff, a senior fellow at the Center on Global Energy Policy at Columbia University, told Bloomberg that although Iran has surprised global oil markets up until now, further production increases will be much more difficult to achieve and exceeding “pre-sanctions levels would require investment and technology and that’s a much longer-term proposition.” Iran wants to attract $100 billion in investment from international oil companies but the extent to which it can achieve that goal depends on the stability of its new oil contract model as well as assuring oil companies that they won’t be vulnerable to reprisals from western governments for doing business in Iran. Either way, in the near-term, Iran could have trouble keeping up its impressive streak of production gains.

WTI Slides Below $50 After DOE Data Disappointment Despite Production Drop - Following last night's major inventory draws across the board (via API), which sent WTI surging back above $50, this morning's DOE data was markedly different. Both Gasoline and Distillates saw inventory builds and Crude saw notably smaller inventory draws (DOE -917k vs API -5.22mm). US crude production fell 0.44% (having fallen for 21 of the last 22 weeks) to the lowest since Sept 2014. Notably, Genscape additionally reported EU crude storage saw a notable build to the highest inventory in 3 years (suggesting US shifting stock to Europe). WTI crude has slide back below $50 erasing API's spike. API

  • Crude -5.22m (-1.7m exp.)
  • Cushing -1.311m (-50k exp.)
  • Gasoline -1.47m (-300k exp.)
  • Distillates -1.699m (+300k exp.)


  • Crude -917k (-1.5m exp.)
  • Cushing -1.28m
  • Gasoline +627k
  • Distillates +151k

DOE data notably less exuberant than API...

A Rise in Oil Imports Sunk the EIA Inventory Report (Video) - We would have had a nice large drawdown in Oil stocks if it wasn't for the massive year over year increase in Oil Imports this past week.

US Rig Count Down 3 This Week to 421 - ABC News: The number of rigs exploring for oil and natural gas in the U.S. declined by three this week to 421, snapping three weeks of gains after a slide that lasted months and pushed the count to record-low levels amid depressed energy prices. A year ago, 859 rigs were active. Houston oilfield services company Baker Hughes Inc. said Friday 330 rigs sought oil and 90 explored for natural gas. One was listed as miscellaneous. Among major oil- and gas-producing states, Texas gained three rigs, North Dakota two and Alaska and Colorado one each. Louisiana declined by five, Oklahoma four and West Virginia one. Arkansas, California, Kansas, New Mexico, Ohio, Pennsylvania, Utah and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981. It bottomed out last month at 404.

US oil drillers cut rigs after 3 weeks of additions: Baker Hughes: U.S. oil drillers cut rigs this week for a 20th week this year after three weeks of additions, according to a closely followed report on Friday, as crude prices pull back after a recent rally to an 11-month high over $51 a barrel. Despite a decline in U.S. crude to below $48 a barrel on Friday after Britain voted to leave the European Union, several companies said recently they plan to boost spending on new drilling with futures for the balance of the year and 2017 topping $50 a barrel. Analysts and producers have said U.S. crude prices over $50 was a key level that would trigger a return to the well pad. Drillers removed seven oil rigs in the week to June 24, bringing the total rig count down to 330, compared with 628 a year ago, according to Baker Hughes. Before this week, drillers added oil rigs in only four out of 24 weeks this year, cutting on average eight rigs per week for a total of 199. Last year, they cut 18 rigs per week on average for a total of 963, the biggest decline since at least 1988.  Analysts, however, expect the rig count to climb in most weeks for the rest of this year with prices expected to rise in prices months. Looking forward, futures for the balance of the year were trading below $49 while calendar 2017 was nearly at $51.  To capture those rising prices, several producers in recent weeks said they plan to spend more money on new drilling and the completion of already drilled wells to boost output, including Devon Energy Corp, Pioneer Natural Resources Co and Energen Corp.

'Brexit' vote delivers sharp shock to oil markets - - The UK's vote in favor of leaving the EU sent oil prices plunging on Friday as the result heightened concerns about the global economy. However some commentators played down the long term impact on oil markets, as the UK itself entered what could be a prolonged period of uncertainty.Friday's price rout partly reflected fears that the UK vote would trigger renewed political and economic instability in Europe. Europe's oil demand amounts to about 14% of the global total and was unchanged on the year in 2015. However, the continent is not the focus of demand growth expectations, with the long-term outlook already viewed as subdued in terms of European oil consumption and growth mainly driven by Asian economies such as China and India. "The actual impact following from this decision would be more gradual, and did not have much to do fundamentally with crude oil," Victor Shum, vice president Asia-Pacific at IHS Energy, said. "The global physical crude oil market is still well on its way to rebalance -- what we are seeing at the moment is an immediate knee-jerk reaction, or market psychology unfolding." To leave the EU, the UK must formally notify Brussels of its decision, triggering potentially two years of negotiations and a lengthy process of legal changes. However Friday's result has dealt a blow to UK political stability that makes a timeline for any Brexit process unclear. Among the uncertainties is whether the UK would seek a looser association along the lines of non-EU members Norway and Switzerland, but free movement of labor is a likely sticking point.

OilPrice Intelligence Report: What Are The Long Term Consequences Of The Brexit - British voters shocked the world with yesterday’s vote to leave the European Union, thrusting the global financial markets into turmoil. British Prime Minister David Cameron said that he would step down later this year. The “Leave” decision also presents enormous political, economic, and legal questions in Europe, all bad news for commodity markets.  In the short run, the dollar is appreciating as a safe haven asset and the British pound is suffering a large sell off. The pound was down more than 11 percent after the result of the vote was tallied, trading at its lowest level to the dollar since 1985, although it has clawed back some of the losses. The result will be lower oil prices, at least in the immediate aftermath of the vote. WTI and Brent briefly plunged more than 5 percent in early market trading on Friday, but have regained some lost ground. Major oil companies also saw their share prices dive, both because of the broader financial turmoil and because of the huge drop in oil prices. North Sea oil producers suffered worse than others: In early trading Royal Dutch Shell (NYSE: RDS.A) was down 5.35 percent, Statoil (NYSE: STO) was off 6.15 percent, and BP (NYSE: BP) dropped 4.13 percent. The silver lining for these companies could be cheaper costs in the North Sea from a weaker British pound, but that may not provide much solace to many oil executives today. The fundamentals of supply and demand for crude oil will not appreciably change due to a Brexit. Unless the UK’s decision to leave Europe sparks wider economic malaise or lasting financial turmoil, the effects on oil could be fleeting. On the other hand, it is entirely possible that the UK’s decision to leave Europe leads to more votes in other European countries to follow in Britain’s footsteps, which will spark more economic volatility. “This could be a new Lehman moment,” Saker Nusseibeh, chief executive at Hermès Investment Management, told The Wall Street Journal. “If other European countries start talking about referendums, all bets are off.”

The Oil Glut Is Over, Says World’s Most Powerful Oil Man - Newly appointed Saudi Oil Minister Khalid Al-Falih declared the oil glut over during a visit to Saudi Aramco facilities in Houston, Texas, today. Speaking to the Houston Chronicle about the oil crisis the and the supply glut, Al-Falih said, “We are out of it,” and noted that we would continue to see gradual upward movement in the price of oil. “The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out,” the oil minister was quoted as saying. Others are also expressing bullish sentiments. Raymond James & Associates is forecasting that West Texas Intermediate (WTI) could hit targets between US$70 and US$80 by the end of next year. Their rational is that even though prices are rising and this tempts U.S. producers to start pumping again and revive the supply glut, they will not be able to do this immediately.  The Energy Information Administration (EIA) today reported a 900,000 barrel draw on U.S. crude inventories, but that still leaves a 530.6-million-barrel stockpile that will take some time to chip away at, according to the Saudi oil minister. "The question now is how fast you will work off the global inventory overhang. That will remain to put a cap on the rate at which oil prices recover. We just have to wait for the second half of the year and next year to see how that works out," the Minister told the Houston Chronicle. Al-Falih also noted on the Saudi Aramco website that due to the Saudi kingdom’s “strategic importance” it will “be expected to balance supply and demand once market conditions recover.”

Saudi Arabia Declares Cease-Fire in Oil War -- The new Saudi oil minister, Khalid Al-Falih, says the oil glut is over. That means the kingdom's war against U.S. shale producers is coming to an end, too. Who won it is a  tough question to answer; on balance, it's probably the Saudis, but they have paid a huge price, and the surviving U.S. frackers have also benefited. In September 2014, Saudi Aramco, the kingdom's state oil company, simultaneously increased output and discounts to Asian customers, making it difficult for producers with higher costs to compete. The U.S. shale industry responded with desperate bravado, cutting costs, perfecting technologies and pumping like crazy to avoid defaulting on its debts. Yet, according to Haynes and Boone's Oil PatchBankruptcy Monitor, 81 North American oil and gas companies have filed for bankruptcy since the beginning of 2015. In Texas alone, there have been 41 bankruptcies, representing $24.3 billion in debt.  As a result, U.S. oil production has declined to late 2014 levels, while Saudi Arabia has defended and indeed increased its market share. Last year. it maintained its export volume to the U.S., while sales to China grew by 4.5 percent and to India by 18 percent.  The North American shale industry knows now that it's at the mercy of Saudi Arabia. The kingdom has more than two million barrels a day -- perhaps even three million if necessary -- of spare production capacity that it can use to flood the market again, drive down prices and render any ambitious American plans useless. Al-Falih takes a long-term view and expects the oil market to grow, not decline, in absolute terms in the next two decades, despite adverse changes in the energy mix. "Even if the share of oil goes down from, say, 30 to 25 percent, 25 percent of a much bigger global demand means a much higher absolute number of barrels that will be in demand by 2030 or 2040," he told The Houston Chronicle. So it makes more sense to fight for long-term market share rather than a momentarily high price. In that regard, the Saudis have won the oil war.

Oil Glut Is Fading Where You Would Least Expect: Saudi Arabia - Saudi Arabia, a country nearly synonymous with plentiful crude supplies, is offering one of the strongest signs yet that the glut that has plagued the oil market since 2014 is coming to an end. Despite near record production, the kingdom’s oil inventories have declined for six consecutive months, the longest stretch since the Joint Organisations Data Initiative started tracking Saudi supply levels nearly 15 years ago. “The drop in Saudi crude stocks signals the rebalancing has started,” said Amrita Sen, chief oil analyst at consulting firm Energy Aspects Ltd. in London. “Crude stocks are coming off in places where either the data is opaque or the market isn’t paying as much attention.” With oil traders focusing on supply changes in the U.S. and to a lesser extent in Europe and Japan, the drop in Saudi inventories has gone largely unnoticed. Since October, when Saudi supplies reached a record high, stocks have fallen by 38.6 million barrels as the kingdom provided more crude to the market than it pumped from its oilfields. Over the same period, U.S. crude stocks increased by nearly 61 million barrels. “Saudi Arabia cannot continue to draw down stocks forever," said Olivier Jakob at consulting firm Petromatrix GmbH in Switzerland. With inventories down, Riyadh “will contribute to the rebalancing” of the oil market in the second half of the year and in 2017, he said. Saudi Arabia’s new energy minister has offered his own opinion that the market is emerging from the global glut. “The worst is clearly behind us,” Energy Minister Khalid Al-Falih told Bloomberg television when OPEC met in Vienna on June 2. “We see a balanced market, we see supply and demand converging. We may have started inventory drawdowns that will continue for the foreseeable future.”

Persian Gulf state producers issue debt to keep investments on track -- Arabian Peninsula oil and gas producers are tapping international markets for unprecedented amounts of cash as they strive to broaden their economies and further strengthen their strategic petroleum sectors. While seeking economic diversification, Gulf oil producers also realize that the key to their future prosperity lies not in supplanting their petroleum sectors but in making them more efficient and globally competitive. With an eye to optimizing financial reward as oil prices recover, they are therefore attempting to keep investment levels in their strategic oil and gas sectors high, even as state finances are squeezed. In April, Abu Dhabi, the leading UAE emirate which produces nearly all the OPEC member’s crude, raised $5 billion from the sale of five- and 10-year securities in what was then the region’s biggest international bond sale. A month later, leading international LNG exporter Qatar launched what still stands as the region’s largest bond sale when it sold $9 billion of Eurobonds in three tranches. That pushed total 2016 debt offerings by Middle East and North Africa region states to $29.3 billion. Oman, the largest Arab oil producer outside OPEC, earlier this month raised $2.5 billion from its first international bond sale since 1997, selling $1 billion of five-year notes and $1.5 billion of 10-year bonds. All are likely to be outdone by Saudi Arabia, which local and international media have reported is planning to issue as much as $15 billion in bonds this year on international markets. Sovereign entities are also seeking to tap foreign debt markets, which are currently seeing an influx of capital due to the volatility of global equities and commodities.

US, Russian Warplanes "Clash" Over Syria  - While the focus on the Islamic State has shifted in recent months to the terrorist organization's offshore activities, including ISIS-inspired terrorist activites in both the US and Europe, the war above the Islamic State continues, perhaps nowhere more so than in the skies over the controlled territory in Syria and Iraq, between US and Russian air forces. As the LA Times reported last week, Russian warplanes hit Pentagon-backed Syrian fighters with a barrage of airstrikes earlier this week, allegedly disregarding several warnings from U.S. commanders "in what American military officials called the most provocative act since Moscow’s air campaign in Syria began last year." The strikes hit a base near the Jordanian border, far from areas where the Russians were previously active, and targeted U.S.-backed forces battling the Islamic State militants. These latest strikes occurred on the other side of the country from the usual Russian operations, around Tanf, a town near where the borders of Jordan, Iraq, and Syria meet. The Russian strike hit a small rebel base for staging forces and equipment in a desolate, unpopulated area near the border. About 180 rebels were there as part of the Pentagon's program to train and equip fighters against Islamic State. When the first strikes hit, the rebels called a U.S. command center in Qatar, where the Pentagon orchestrates the daily air war against Islamic State.  As Moon of Alabama adds, the U.S. jets came and the Russian jets went away. The U.S. jets left to refuel, the Russian jets came back and hit again. Allegedly two U.S. proxy fighters were killed and 18 were wounded. However there was appears to be more to this latest brush up between US and Russian warplanes. According to The Daily Beast, U.S. and Russian fighter jets "clashed" bloodlessly in the air over Syria on June 16 as the American pilots tried and failed to stop the Russians from bombing U.S.-backed rebels in southern Syria near the border with Jordan

Israeli Intelligence chief: We do not want ISIS defeat in Syria - Israeli intelligence Chief, Major General Herzi Halevy, said that the last three months have been the most difficult for ISIS since its inception. In a speech delivered at “Herzliya” conference yesterday , Halevy explicitly said “Israel” does not want the situation in Syria to end with the defeat of ISIS “, the Israeli NRG site reported. “Withdrawal of the super powers from the region and letting Israel alone in front of Hezbollah and Iran that possess good abilities Will make “Israel” in a hard position” . Therefore, we’ve to do all we can so as not finding ourselves in such situation”, the Israeli chief intelligence added.

Iran Daily: Regime Plays Up Claims of “US-Supported Terrorists” Continuing a week-long campaign, Iran’s regime proclaimed on Thursday that it is confronting “terrorists” supported by the US and Saudi Arabia.  The commander of Revolutionary Guards ground forces, General Mohammad Pakpour, claimed that two individuals in a “terrorist team” arrested in southeastern Iran last week have confessed to receiving US and Saudi support. He added that Washington and Riyadh are organizing and supporting other “anti-revolutionary” groups inside Iran and on borders with Iraq and Pakistan. Last week, Iranian authorities declared that they had broken up one of the biggest terrorist plots, carried out by “Takfiri-Wahhabi groups”, in the history of the Islamic Republic. They said several suspects had been arrested over “a major plot to carry out a series of bombing raids in several locations across the capital of Iran, specifically during the upcoming events in the holy month of Ramadan”. On Thursday, the head pf judiciary in Khuzestan Province in southwestern Iran announced that “several terrorist teams” have been identified and arrested, with some suspects killed in clashes.  In northwestern Iran, the head of judiciary in East Azerbaijan Province said six “spies” from the Azeri rights group Yeni GAMOH were arrested for sharing classified military and economic documents with “enemies of the regime”. Despite January’s implementation of a July 2015 nuclear deal, tensions between Iran and the US have continued and even escalated. The Supreme Leader has repeatedly denounced a “dishonest” US, claiming it is trying to dominate the Middle East and undermine the Islamic Republic, and ruled out any relationship with Washington beyond the nuclear agreement.

China seeks to renegotiate Venezuela loans -- China is renegotiating billions of dollars of loans to Venezuela and has met with the country’s political opposition, marking a shift in its approach to a nation it once viewed as a US counterweight in the Americas.  Venezuela is facing one of the worst crises of its 200-year history, with a collapsing economy and political deadlock stoked by the oil price slump. China, which is Caracas’s biggest creditor and has loaned the country $65bn since 2005, has already extended the repayment schedules for debts backed by oil sales.Beijing has also sent unofficial envoys to hold talks with Venezuela’s opposition, in the hope that if President Nicolás Maduro falls his successors will honour Chinese debts, sources on both sides of the negotiations told the Financial Times. Its recognition of Mr Maduro’s fragile position and the rising clout of the opposition, led by Henrique Capriles, is another sign that the diplomatic noose is tightening around Caracas’s socialist government. “One fact we shouldn’t overlook is that Venezuela really doesn’t have the money,” . “I think there will be a rational solution for both parties, be it loan repayment extension or a loan restructuring.” Fears that Venezuela might default on its internationally-traded debt continue to rattle markets, where its bonds trade at distressed prices. The benchmark 2022 bond currently yields 33 per cent.Venezuela wants a grace period whereby the country would pay only the interest due on Chinese loans, Reuters reported last week. But China also wants approval from the opposition-held national assembly, thus tying the opposition to any deal.

Analysis: State-owned refiners boost June runs; more oil products exported -  China's state-owned oil refiners boosted their crude runs in June amid positive refining margins and as the maintenance season ended, against an expectation of increased oil product exports due to steadily weak domestic demand. Three major state-owned refiners -- Sinopec, PetroChina and China National Offshore Oil Corporation -- plan to operate their plants at an average run rate of 80% of nameplate capacity in June, up from a 30-month low of 75% in May, an S&P Global Platts monthly survey showed. The month-on-month jump in June is likely a seasonal phenomenon in line with an increase of seven and six percentage points in 2015 and 2014, respectively, Platts data shows.China's state-owned refineries usually schedule maintenance in April and May, when temperature becomes warm enough to conduct turnaround while oil consumption is relative lower than other seasons. According to Platts data, China's apparent oil demand in June has recorded month-on-month growth since 2013, at 5%, 8% and 5% in 2013, 2014 and 2015, respectively. Conversely, run rates at independent refineries in May is barely changed from May. Their run rates averaged 52.75% in the first half of June in Shandong, the home of China's independent refinery, unchanged from May, data from Beijing-based information provider JYD showed. 

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