Blog Archive

Sunday, October 4, 2015

From rjs for the week of October 4, 2015: The ‘States First’ earthquake primer, even lower natural gas prices, US oil & gas glut still growing, et al.

The ‘States First’ earthquake primer, even lower natural gas prices, US oil & gas glut still growing, et al.

from rjs's own blog:

There was quite a bit of news coverage this week on the release of a 150 page "earthquake primer" by Ohio and 12 other fracking states which was supposedly issued to offer guidance to regulators on how to handle earthquakes caused by fracking or wastewater injection wells...the report was the final output of a working group on induced seismicity that was formed by said states in late March of 2014, just about the same time the Ohio Department of Natural Resources discovered that earthquakes that struck Poland Township were caused by a fracking operation with 7 laterals at the same depth at the same time and location as the earthquake, and this working group was in fact co-chaired by ODNR Oil & Gas Chief Rick Simmers, who was responsible for shutting down that Hillcorp Poland operation, and who issued new Ohio seismic drilling guidelines at that time...

No doubt there's a lot of useful information in the report (148 pp pdf), since it includes contributions from experts from universities, industry, federal agencies, and NGOs, but we want to caution against seeing this as being the beginning of any positive action against such fracking induced quakes, which is what many of the news headlines on the report start with, the participants in the group include the same oil & gas regulators from Texas, Oklahoma, and other states who have long & deep ties to the energy industry and who've been on the forefront of the attempts to sweep the fracking / earthquake relationship under the rug...furthermore, the report was released by "States First Initiative," a lobby organization formed against federal regulation of the industry...indeed, in their fact sheet they make it clear that their Seismicity Primer is an informational document, and its not intended to offer or recommended rules or it seems like this is just an effort by industry friendly regulators to get out in front of the fracking earthquake issue and head off any regulations by appearing that they have the situation under control...

The Week in Oil and Gas:  Storage Glut Growing

The near term contract price for natural gas fell by nearly 10% this week, apparently due to a change in the near term weather forecast....the contract for natural gas for November exchange at the Henry Hub in Louisiana had closed up at $2.672 per mmBTU on Monday on a weekend forecast that temperatures in the Midwest and Northeast would be normal or below normal, but they fell midweek as forecasts were revised to show above-normal temperatures for large parts of the country over the first two weeks of October...the weekly natural gas in storage report on Thursday showed inventories in underground storage rose by 98 billion cubic feet as of September 25th to 3,538 billion cubic feet, putting stockpiles 4.5% higher than the 5 year average for the 4th week of September, and although that was what traders had been expecting, prices continued to fall anyway, to close Thursday at $2.433 per mmBTU, before finally steadying on Friday to close the week at $2.451 per mmBTU...meanwhile, oil prices stayed in a narrow range near $45 a barrel, close to where they've been since you can get a visual perspective of the gas price change, we'll include below a one year chart of the near term contract price for natural gas, which is probably a better indicator of the likelihood of drilling in our region than is the price of oil...

October 3 2015 natural gas contract price

The graph above shows the benchmark contract price for natural gas based on the price per mmBTU at Henry Hub, Louisiana, daily over the past year....(note gas is also sometimes quoted in mcf = thousand cubic feet = 1.028 x mmBTU = million BTU)...even though natural gas prices were not affected by the OPEC driven global glut like oil prices, they've been down similarly, largely due to North American overproduction...two years ago, it was widely believed that the breakeven price for shale gas in Pennsylvania was over $4 mmBTU, and that those that continued to produce below that price were surviving by selling liquid's obvious from that graph that gas producers have continued to produce a surplus even as gas prices fluctuated between $2.80 and $3.20 mmBTU most of this year, although as we pointed out, most of them lost money doing so in the 2nd quarter...

this is not the first time natural gas prices have crashed to this 2005, before fracking became widespread, US spot prices for gas fluctuated in the $10 to $15 mmBTU range, but after more than 1000 gas rigs began to produce a glut of gas they fell below $5 mmBTU in 2009 and ultimately crashed below $2 mmBTU after the mild winter of 2012, at which time fracking has its first major shakeout and the number of working natural gas rigs was cut in half...we'd suggest there are signs a similar shakeout may be underway now, and that at these prices, some operators don't even want  to produce from some already producing wells...recall that in August, Chesapeake Energy, the operator of more than half of Ohio's wells, announced announced that they were putting their Ohio natural gas production on hold until such time as the Ohio Pipeline Energy Network is completed, when they'd be able to ship it to the Gulf coast for exports....a week ago, Stone Energy, a Marcellus producer, shut in their West Virginia natural gas it's clear that natural gas prices have reached a level where the producers of it don't even want to sell what they can easily produce, and a lot are holding what they have off the it's unlikely that any new exploration not already contracted for will go forward if prices remain near these levels...

while natural gas will soon be seeing the time of year when it's being withdrawn from storage for use in heating, the opposite is true of oil, as refineries are slowing down at the end of the driving season, while crude output remains largely unchanged....but while an increase in oil inventories was to be expect, the near 4.0 million barrel increase from last week in this week's report was more than anyone expected...US stocks of crude oil in storage, not counting the government's Strategic Petroleum Reserve, rose to 457,924,000 barrels as of September 25th, from 453,969,000 barrels as of September 18th...that was the largest one week jump in oil inventories since the week ending April 17th, and left us with 28.4% more oil in storage than we had in the 4th week of September a year ago...that was also the most oil we ever had stored in late September in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year...moreover, our end of week supply of gasoline in storage rose almost as much, from 218,756,000 barrel last week to 222,010,000 this week, and those supplies are now very near the upper limit of the average addition, the weekly Petroleum Status Report (62 pp pdf) indicates that propane/propylene inventories rose 1.7 million barrels last week and are also well above the upper limit of their average range, while distillate fuel inventories decreased by 0.3 million barrels last week, but are still in the middle of the average range for this time of year...thus we have not only a glut of crude oil, but are developing a glut of refined products as well...

the bulk of the increase in crude inventories came not from new production but from additional imports of crude oil, which were up by 378,000 barrels per day to 7,554,000 barrels per day in the week ending September 25th...that was 3.7% higher than the same week last year, but our 4 week average of imports was still at 7.3 million barrels per day, 1.7% below the same four-week period last year...our field production of crude was down a bit, from 9,136,000 barrels per day for the week ending September 18th to 9,096,000 barrels per day during the week ending September 25th, after it was up slightly last week...that's now about 5.3% below the modern weekly record production of 9,610,000 barrels per day that was set in the first week of June this year, and only 2.9% above our production rate of 8,837,000 barrels per day in the 4th week of September a year ago...we should point out though, that as we cover the weekly stats provided by the EIA, the EIA also releases monthly oil production data that is considered revised and hence more accurate, which showed oil output for July at 9,358,000 barrels per day in the latest report, up 1% from 9,264,000 barrels per day in June, and 7% ahead of a year earlier...

while our supply of oil was thus up due to the increase in imports, the demand for it fell, as refinery inputs of crude oil fell below 16 million per day for the first time since April, as refineries used just 15,962,000 barrels per day during the week ending September 25th, down from 16,203,000 barrels per day in last week's report...refinery utilization was even weaker, as the refinery utilization rate fell to 89.8%, down from 93.1% of capacity just two weeks ago, and the first time that refinery capacity utilization had dropped below 90% since March...even so, gasoline production still increased over last week, averaging about 9.7 million barrels per day, as output of distillates and other products were down slightly...

Latest Rig Counts

meanwhile, according to Baker Hughes, this week saw the largest reduction of drilling rigs since April 17th, and the largest drop in oil rigs since the week before that...there were 29 fewer rigs operating in the 50 states in the week ending October 2nd than the week before, with total oil rigs down by 26 to 614, net gas rigs down by 2 to 195, while the single miscellaneous rig started last week also shut down...3 rigs that had been working in offshore waters were among those shut down this week; two from the Gulf of Mexico and a widely opposed Shell oil rig in Alaska...that left 30 rigs still in operation offshore; 29 in the Gulf and one off the shore of California, down from a total of 61 a year earlier...two rigs that had been operating on inland lakes were also idled, leaving just 3 on inland waters, down from 11 a year earlier...

horizontal drillers again saw the largest reduction, as the net count for that type of rig was down 20 to 609, and down from the 1341 horizontal rigs that were operating in the same week last vertical rigs were also reduced, from 123 to 117, now well down from the 372 vertical rigs that were drilling a year ago...and directional rigs fell also, down by 3 to 86, also down from the 211 directional rigs that were deployed last year at this time...

the most active shale basin, the Permian basin of west Texas, saw the largest reduction of rigs, as the count there was down by 5 to 245, which was also down from 556 rigs a year earlier...three more basins saw reductions of 3 rigs each; the Eagle Ford of southeast Texas was down to 82, and down from 210 in the same week last year; the Niobrara Chalk of northeast Colorado and southeast Wyoming was down to 26, and down from 64 rigs a year ago, and Oklahoma's Cana Woodford, which was down to 37 and down from 42 a year earlier, thus marking the first time rigs in that basin fell below their year ago level...also in Oklahoma, the Ardmore Woodford saw 2 rigs idled, leaving 2, down from 4 last week and 4 a year ago...2 rigs were also stacked in the Marcellus, which now has 47, down from 82 in the first week of October last year...1 rig was also pulled from the Williston, leaving 66, down from 198 last year, while 1 rig was added in the Fayetteville of Arkansas, which now has 4, still down from 9 last year, and 1 rig was added in Ohio's Utica, which is back up to 21, but still down from the year ago 43...

the state totals appear to have followed the basin totals fairly closely this week...Oklahoma, down 8 rigs to 97 and down from 212 a year ago, saw the largest drop; they were followed by Texas, down 6 to 357, which was down from last year's 895...both Louisiana and New Mexico had 4 fewer rigs to deal with, with Louisiana down to 66 from last year's 113, and New Mexico down to 46 from last year's 99...3 rigs were idled in both Colorado and Pennsylvania, with the former down to 30 from 76 a year ago, and the latter down to 30 from 57 a year ago..although Alaska saw a reduction of two rigs, they still had 11 remaining, which was up from 9 last year, leaving them with the dubious distinction of being the only state to see a year over year rig count increase..two states saw reductions of 1 rig each: California, which at 13 was down from 46 a year earlier, and North Dakota, whose 65 rigs was down from last October 2nd's 189 rigs...rigs seeing an increase of 1 rig included Arkansas, up to 4 this week but down from 12 a year ago, Kansas, which was up to 10 but down from last year's 24, West Virginia, which was up to 18 this week but down from 30 a year ago, and last but not least Ohio, which was up to 20 rigs this week but down from 20 in the first week of October a year ago...rig counts in all other states remained unchanged from last week...


Ohio Lawmakers Want To Indefinitely Freeze The State’s Renewable Portfolio Standard -- When Ohio Gov. John Kasich (R) signed a bill freezing his state’s renewable portfolio standard, it was widely accepted that he was offering the legislature — dominated by his own party — an opportunity to rethink destroying the policy.  Now, a year later, the committee tasked with considering the RPS, which requires that a certain amount of Ohio’s energy come from renewable sources such as wind and solar, has come back: They still want a freeze.  This puts Kasich, who is running for his party’s presidential nomination, in an awkward position. The freeze hurt Ohio’s nascent wind industry and turned off attractive investors, supporters say. Moreover, most Republicans actually support policies that encourage clean energy, and the governor might not be able to afford positioning himself in opposition to those voters.  In fact, he responded quickly Wednesday to the committee’s proposal.  “A continued freeze of Ohio’s energy standards is unacceptable,” Joe Andrews, a spokesman for the governor, told ThinkProgress in an email.  The Energy Mandates Study Committee recommended freezing the renewable energy and energy efficiency standards — under which utilities were required to reduce consumption by 22 percent and get 12.5 percent of electricity from renewable sources — “indefinitely,” according to a draft of the report provided to ThinkProgress on Wednesday.

No action in Ohio fracking tax standoff as deadline arrives - WOWK  (AP) - Compromise is still eluding members of the Ohio Legislature on Republican Gov. John Kasich's (KAY'-siks) proposed tax hike on oil-and-gas drillers.  The extra time granted by legislative leaders to strike a deal with the powerful energy lobby is set to expire Thursday.  In pulling the tax issue from the state budget in June, Senate President Keith Faber (FAY'-bur) and House Speaker Cliff Rosenberger said Oct. 1 was a "hard deadline" for resolution, not a stall tactic. Faber more recently cited market factors in complicating extended talks.  The tax increase has been a priority for Kasich for years. The 2016 presidential contender says Ohio's severance tax on oil, natural gas and natural gas liquids is too low and proceeds of a tax increase could help reduce income taxes.

Ohio Senate president expects paper from panel studying Ohio fracking tax: (AP) — A tax policy commission studying Ohio’s oil-and-gas severance tax is likely to have a report with various recommendations in time to meet its deadline — even though at least some members were only just formally appointed, Senate President Keith Faber said Wednesday. Faber told reporters a “concept document” from the 2020 Tax Policy Study Commission could come on the deadline Thursday or on Friday. “They are going to produce what we asked them to do,” he said. Faber’s comments came the same day he first formally appointed Senate members to the commission, which was created in the state operating budget passed this summer. He said the group had been meeting informally since July, however. Advertisement Faber declined to say whether the document would call for increasing Ohio’s drilling tax, as Gov. John Kasich has advocated, or to hint at any other potential recommendations. He said the report would contain a review of the market environment for oil and gas, which is not the same as it was six months ago. The tax increase has been a policy priority of Kasich’s for years now. The Republican governor and 2016 presidential hopeful says Ohio’s severance tax on oil, natural gas and natural gas liquids is too low. He proposes raising it and using proceeds to reduce Ohio’s income-tax rate. The hike’s omission from the two-year, $71 billion state operating budget came as the latest political blow to Kasich on the issue. The increase he initially proposed early in his first term, which began in 2011, would have come amid a boom made possible by then-new hydraulic fracturing, or fracking, technology. Drilling in eastern Ohio’s mostly Utica Shale deposits is less rigorous now.

Ohio report on fracking tax misses deadline, work continues - A group studying Ohio’s oil-and-gas severance tax will miss a state budget-imposed deadline for releasing its report even after the state Senate president initially called it a “hard deadline” and told reporters it was likely coming this week.  Ohio Senate spokesman John Fortney said Thursday that work continues on the report and the group is making progress. He didn’t know when a report would come, but cited a desire to “get this right.” The tax increase has been a priority of Gov. John Kasich for years. Kasich says Ohio’s tax on oil, natural gas and natural gas liquids is too low, and proceeds of an increase could help cut income taxes.  In June, Senate President Keith Faber described Oct. 1 as a “hard deadline” for striking “meaningful compromise.”

Akron's drinking water supply surrounded by oil wells, a cash cow for the city - -- Akron earns hundreds of thousands of dollars each year from oil royalties thanks to over 216 oil and gas wells drilled on city-owned land, including the watershed that provides Akronites with drinking water.  No fewer than nine oil wells ring the city's municipal water supply at Lake Rockwell, where the city leases to Texas-based drilling and oil production company GonzOil.   The wells have been a cash cow for the city, depositing an average of nearly $375,000 per year in city coffers since 1997, but have offended environmentalists opposed to drilling and concerned citizens worried about what effect an accident at a well may have on surrounding areas.  Since the Ohio Legislature revoked local authority over oil and gas drilling in 2004, Akron has signed at least 36 new oil and gas leases.  As the city signed new leases under former mayor Don Plusquellic, new oil and gas money started flowing into the city after falling nearly $250,000 between 1997 and 2001.  Besides the lake property, other leases signed in that period include a 4,100-foot-deep well drilled on about four acres at Firestone High School and a 3,000-foot-deep well on two acres at Stan Hywet Hall and Gardens. (Scroll down to see a full list)

Industry's investment in oil, gas could be better spent - Columbus Dispatch - The Sunday letter “ Oil, gas industry boosts local economy” from Rhonda Reda showed she represents her organization, the Ohio Oil and Gas Energy Education Program, well. However, it ignored the fact that clean air, clean water, and safe soil are our mutual, inherited, priceless resource, and that to risk them or pollute them for short-term private gain is immoral and shortsighted. If the same amount of money were invested in building community solar arrays, wind farms, homes upgraded for more energy efficiency and training local workers to do this work, we would be building a better long-term future for ourselves, our communities and our air, water and soil. Instead, fracking leads to financial gains for some, while disrupting communities and taking precious drinkable water permanently out of the watershed. Fracking is a boom-and-bust business, in which not everyone even benefits from the boom. For instance, when there is a boom in an area, lots of outside workers come in. Some landlords profit handsomely from higher rents, thereby causing hardship for local working people whose wages have not increased to cover higher rents. A study of drilling in Pennsylvania, West Virginia and Ohio, comparing counties with low, moderate and high levels of drilling, found higher rents, more traffic accidents, more sexually transmitted diseases and more crime in counties with high levels of drilling: This is not surprising, as many workers from outside, away from their families, come to an area where they are doing dangerous work, are being exploited for rent, and are not connected to the community.

Ohio, 12 other states working to mitigate quake risks - Drilling - Ohio -  – Thirteen states partnered through a multi-state initiative called StatesFirst this past year to share and summarize current knowledge related to earthquakes potentially caused by human activity, otherwise referred to as induced seismicity. Today, the work group comprised of members of state oil and natural gas and geological agencies and other advisory experts from academia, industry, non-profit organizations and federal agencies released a Primer to provide a guide for regulatory agencies to evaluate and develop strategies to mitigate and manage risks of injection induced seismicity. The Primer also outlines how states can best provide information to the public in a transparent and effective manner. “Induced seismicity is a complex issue where the base of knowledge is changing rapidly,” according to Rex Buchanan, work group co-chair and interim director of the Kansas Geological Survey. “State regulatory agencies that deal with potential injection induced seismicity should be prepared to use tools, knowledge, and expertise, many of which are offered in this Primer, to prepare for and respond to potential occurrences of induced seismicity.” The primer primarily focuses on potential induced seismicity associated with Class II disposal wells. Injection wells are currently regulated under the Safe Drinking Water Act through the Underground Injection Control Program (UIC). The UIC program through primacy delegation by the U.S. EPA, is administered by certain states due to their in-depth knowledge of local industry operations and geology. In its assessment, the work group observed that the majority of disposal wells in the United States do not pose a hazard for induced seismicity; however most cases of felt injection-induced earthquake activity has generally been associated with direct injection into basement rocks or injection into overlying formations with permeable avenues of communication with the basement rocks, and in proximity to faults of concern.

WKSU News: A more definitive word on earthquakes: They are linked to disposal wells: Disposal wells can cause earthquakes. That’s the word from this week’s gathering of state regulators and scientists in Oklahoma.  The “StatesFirst Initiatve” -- a pooling of efforts by regulatory agencies of Ohio and the other big energy producing states — met in Oklahoma City and issued a primer on “human-induced seismicity.”  It follows a more than year-long study and provides scientific data and best-practice suggestions for dealing with what amounts to man-made quakes. And, after the release, Oklahoma’s Secretary of Energy and Environment Michael Teague made the most definitive statement yet about controversial disposal wells. "We’ve had a huge increase here in the number of earthquakes above 3.0.  And, we do think that they are tied to disposal wells. That may not be the case in all states, but certainly in Oklahoma, it is the cause.” The primer stresses that the facts and practical actions it lists must be applied case-by-case because geology differs greatly around the country.  Ohio, with nearly 200 injection wells, organized the cooperative study idea and got kudos’s from Michael Teague, whose state has 4,200 such wells.“It’s really the result of a year and a half worth of work, and great leadership by Rick Simmers of Ohio, pulling this thing together.  It was ...I think started with six states; and ended up with 13 states, and universities from across the country, and industry folks from across the country." Richard Simmers heads the Oil & Gas Division of the Ohio Department of Natural Resources. 

US Drilling States Guided on Handling Quakes - A working group of U.S. drilling states, seismologists, academics and industry experts has issued guidance to state regulators for handling human-induced earthquakes caused by hydraulic fracturing or the disposal of fracking wastewater. The StatesFirst initiative's 150-page report was released Monday. It represents perhaps the most candid discussion on the topic since tremors across the mid-continent were first linked to fracking-related activity around 2009. But it stops short of suggesting model regulations.  Ohio Oil & Gas Chief Rick Simmers, who co-chaired the effort, tells The Associated Press that's because each state's regulatory framework, laws and geography are unique. He described the report as a primer, providing states with up-to-date scientific and technical data, case studies and several suggested approaches for detecting and managing quakes potentially tied to human activity.

U.S. Drilling States Issue Report On Handling Human-Induced Earthquakes  — A group of U.S. drilling states, seismologists, academics and industry experts issued guidance Monday in a frank new report onhandling human-induced earthquakes caused by hydraulic fracturing or the disposal of fracking wastewater.  The 150-page report, produced by the StatesFirst initiative, represents perhaps the most candid discussion on the topic since tremors across the mid-continent — including in Texas, Oklahoma, Colorado and Ohio — began being linked to fracking and deep-injection wastewater disposal around 2009. It includes descriptions of how states handled various seismic incidents around the country, including their public relations strategies, and matter-of-factly references links between fracking or deep-injection wastewater disposal and earthquakes. Previously, public admissions had been fuzzy in some cases.  The group stopped short of suggesting model regulations, however. That’s because each state’s laws and geography are unique, Ohio Oil & Gas Chief Rick Simmers, who co-chaired the effort, told The Associated Press. The report says “a one-size-fits-all approach would not be an effective tool for state regulators.” Simmers said the report is in the form of a primer, providing states with up-to-date scientific and technical data, case studies and several suggested approaches for detecting and managing the quakes. In Texas, a state inquiry found that an oil and gas company’s disposal well operations likely did not cause a series of North Texas earthquakes. The findings directly contradict a study published by Southern Methodist University geologists, pinning the earthquakes to the XTO well and a well operated by Houston-based Enervest.

How to limit man-made quakes: Drilling experts offer best practices - A new report from a coalition of industry experts and academics conclusively links hydraulic fracturing and fracking wastewater disposal to local seismic activity, but stops short of prescribing model regulations. The 150-page report from the StatesFirst initiative – a group of seismologists, academics, and industry experts in American drilling states – matter-of-factly links both hydraulic fracturing and wastewater disposal to earthquakes near drilling areas.Previous research into tremors in mid-continent drilling states like Texas, Oklahoma, Colorado, and Ohio had only tentatively identified fracking as a cause. The paper released today represents an unusually candid discussion of the topic, acknowledging both that the issue exists and that it will be difficult to solve.   Ohio Oil & Gas Chief Rick Simmers, who co-chaired the group that issued the report, says that state-specific differences in drilling laws and geology meant uniform national regulations would be ineffective. Mr. Simmers says the report serves mostly as a primer for states, providing up-to-date scientific and technical data, along with suggested approaches for detecting and managing earthquakes.   The US Geological Survey reports that within the central and eastern United States the number of earthquakes has “increased dramatically” along with an increase in wastewater injection activity.  The USGS also reported some larger events, including an M5.6 in Oklahoma and M5.3 in Colorado. Simmers said that both fracking and deep-injection wastewater disposal do create some seismicity, but added that relative to the amount of drilling activity tremors are “very rare.”  “State regulatory agencies that deal with potential injection-induced seismicity should prepare to use tools, knowledge, and expertise – many of which are offered in this primer – to prepare for and respond to [any] occurrences,” he added.

Pennsylvania will monitor for earthquake activity linked to fracking - Pennsylvania plans to increase monitoring of seismic activity as tremors linked to hydraulic fracking in other drilling states spur calls for stepped up strategies to deal with human-induced earthquakes.  The state Department of Conservation and Natural Resources and the Department of Environmental Protection said Tuesday they will spend $531,000 on a network of seismic activity monitors at 30 stations across the state for three years. Many of the stations will be on park lands and the equipment will include five mobile units for quick deployment to areas of concern.   Despite a boom in drilling that has made Pennsylvania the No. 2 natural gas producer in the country, the state has not had earthquakes connected to fracking or the deep wastewater injection wells blamed for tremors in states such as Ohio. “This seismic monitoring network will give the state a better baseline understanding of the state's geology — for all DEP decisions, not just oil and gas,” The monitors will help the Bureau of Topographic and Geologic Survey map underground activity, including unnatural events such as tremors caused by quarry blasting or activities connected to the oil and gas industry, resources agency Secretary Cindy Adams Dunn said in a statement.  Seismologists, academics and state regulators in recent years have drawn connections between increased earthquakes in some states and drilling activities such as storing wastewater in deep underground wells.  StatesFirst Initiative, a multi-state group, issued a 150-page report this week that discussed how regulators have handled human-induced earthquakes in 13 drilling states. Pennsylvania was not part of the report. Gas production from shale wells in Pennsylvania increased to 4.1 trillion cubic feet in 2014, up from 1.1 trillion cubic feet in 2011. But it has few wastewater injection wells.

Fracking Earthquakes "Appear" To Be A Thing - The internet has been buzzing with news that several oil and gas producing US states are finally responding to the issue of fracking earthquakes — but don’t hold your breath for any significant regulatory shift. These particular states are organized under the banner of the appropriately named States First Initiative, which launched in 2013 to lobby against tighter federal regulation of oil and gas operations.  Before we take a closer look at the news from States First, let’s clarify that when we say “fracking earthquakes” we’re doing shorthand for earthquakes caused by the disposal of fracking wastewater underground. Earthquakes that have been directly linked to the fracking operation itself are a rarity.  The States First “response” consists of a newly released manual for regulators titled “Potential Injection-Induced Seismicity Associated with Oil & Gas Development: A Primer on Technical and Regulatory Considerations Informing Risk Management and Mitigation.” Basically that’s fancyspeak for what we just said — the immediate concern is oil and gas wastewater injected into disposal wells.  To be clear, States First does not offer any specific guidance aimed at improved regulation. In its Fact Sheet for the Induced Seismicity Primer, States First offers this description:  “The Induced Seismicity Primer will be an informational document, and is not intended to offer recommended rules or regulations.” Okay, so that’s pretty clear. The fact sheet also makes it clear that States First is not entirely convinced by the definitive findings by seismologists (these guys, too) that the practice of injecting fluid underground has caused earthquakes. The impetus for creating the Primer is described with a large “appear” hedge in the middle:  “Recently, the frequency of seismic events that appear linked to underground injection of fluids has increased.” It’s not just us. Our friends over at Reuters also picked up on the hedge. The news agency reported on the release of the Primer earlier this week with the headline, “More research needed on U.S. earthquakes possibly tied to oil and gas work: report.”

PennEast assures economic boost from proposed pipeline -- Nearly 60 people have filed for interventions against PennEast Pipeline Co. LLC since last Thursday, when company announced its application to start construction on a 118-mile natural gas pipeline that would run from Wilkes-Barre, Pennsylvania to Mercer County, New Jersey. Despite opposition, PennEast emphasized the cost-cutting benefits nearby families and businesses could gain from the billion-dollar project “The PennEast Pipeline Project is set to deliver reduced energy costs to residents and businesses, thousands of good jobs, and a cleaner environment by cultivating clean-burning American energy,” PennEast Pipeline Board of Managers Chairman Peter Terranova said in a statement. “This safe, state of the art infrastructure project will not only help meet the region’s energy demands, it can power New Jersey and Pennsylvania’s economies for years to come.”   An analysis from financial advisory firm Concentric Energy Advisers suggests the pipeline could have saved energy consumers in New Jersey and Pennsylvania a grand total of $890 million during periods of record-breaking natural gas prices in the winter of 2013/2014. “The New Jersey State Chamber of Commerce supports the proposed PennEast Pipeline,” shared Tom Bracken, president and chief executive officer of the New Jersey State Chamber of Commerce. “This Project will provide a regional benefit to businesses and citizens, assist in boosting New Jersey’s economy, improve the overall critical energy infrastructure and make our state more competitive, which will lead to job creation.”

Methane leak data in Pa. paints an uncertain picture -- Shale gas companies in Pennsylvania reported leaking 9,681 tons of methane in 2013, a 41 percent increase over the prior year. But the real amount of methane that went into the air may have little to do with that estimate. Leaks, or fugitive emissions, aren’t measured at oil and gas facilities. Those emissions are estimated based on a 20-year-old formula that plugs in the number of components on a well site and the volume of gas flowing through. The increase from 2012 to 2013 reflects only that more wells were producing gas, not necessarily that those were leaking more gas. More than a dozen studies measuring emissions from shale gas sites, in the Marcellus region that underlies much of Appalachia and elsewhere in the country, have come up with varying conclusions about leak rates. But the equalizer has been the finding that a small number of very leaky wells skew the curve. “The type of phenomenon you have is the majority of wells do pretty well and don’t leak much,” said Rob Altenburg, director of PennFuture’s Energy Center in Harrisburg. “But those that do leak, potentially leak a lot.”

Two court cases could upend centuries-old real estate laws -Two oil and gas leasing cases that will be argued in front of the Pennsylvania Supreme Court next week have the potential to either modernize or seriously disrupt centuries-old state real estate laws that have roots in the days when tax collectors still rode horses and much of Penn’s Woods was wilderness. Both of the cases feature old and complicated deeds, confusion about who owned oil and gas rights that had been severed from the surface property, and laws that aimed to sort out such disorder. The first case, Shedden v. Anadarko, challenges a century-old legal principle in the state known as estoppel by deed, which gives a lessee — in this case, an oil and gas company — the benefit of the original agreement if a property owner signs a contract to lease what he owns, finds out he doesn’t own all of it and later acquires it. The Superior Court cited the “well-settled” estoppel by deed doctrine when it sided with Anadarko E&P Co. in its decision last year. But the three-judge panel noted the doctrine had never been applied in Pennsylvania appeals court decisions involving oil and gas leases, although other states’ courts have used it in oil and gas disputes.  In the second case, Herder Spring Hunting Club v. Keller, the court will look at a long-retired practice called title washing. In that practice, undeveloped surface property is reunited with its severed mineral rights during a tax sale if the mineral rights had not been registered with county officials and separately assessed for taxes.

EPA hears comments on proposed methane rule for oil and gas -  Supporters and opponents of the EPA’s proposed methane rules gathered in Pittsburgh Tuesday for a hearing on federal efforts to cut methane emissions from oil and gas production. Methane is up to 84 times more effective at trapping heat in the atmosphere than carbon dioxide over a 20-year period. The oil and gas industry is the country’s largest single source of methane emissions. In September, the EPA proposed the first federal rules to keep methane from oil and gas out of the atmosphere. The proposed rules are part of a plan that would reduce the industry’s pollution by up to 45 percent. The rule would require increased leak detection and repair of new well pads, pipelines, and gas processing stations, said David Cozzie, group leader of the EPA’s Fuels and Incineration Group, which helped craft the regulations. The rules would also require operators of compressor stations to use ‘low-bleed’ control systems that release fewer emissions, and require plant operators to replace equipment more often, in order to prevent methane from escaping through leaky seals. The EPA focused on well pads and compressor stations, Cozzie said, because they are constructed with equipment that allows methane to escape into the atmosphere. Studies have found that “super-emitters”–a relatively small number of leak sources–may produce the majority of methane pollution from the oil and gas industry.“There’s been lots of literature out there about these super-emitters, which are sites that have large emissions and they tend to be associated with well sites and compressor stations,” Cozzie said. The proposed rules would reduce methane pollution by 400,000 tons per year by 2025, the EPA said — the equivalent of removing 1.8 million cars from the road.

Stone Energy Shuts in Most of their WV NatGas Production - There is a direct connection between lack of pipeline takeaway capacity and drillers’ willingness to either drill more–or even continue  producing–gas in the Marcellus/Utica. Although we’re pretty sure this has happened with other drillers, this is the first overt announcement we’ve seen (and hope it’s not a trend) that a sizable driller in the northeast is simply shutting in (stopping) production for a major portion of their operations. Stone Energy, an independent oil and natural gas exploration and production company headquartered in Lafayette, Louisiana and with a large regional office in Morgantown, WV, has just announced they are shutting in production for their Mary Field in West Virginia. Stone drills in two geographies: the Marcellus/Utica, and the Gulf of Mexico. The GOM appears to be their primary focus at the moment. Stone’s announcement, which to us is a pretty big deal, means they will simply stop producing 100-110 million cubic feet equivalent per day (MMcfe/d) of natural gas in the western Wetzel County, WV area… Stone’s stated reasons for stopping production in that area are low prices received for their gas (because they can’t get it to markets outside the region), and high fees for transportation, processing and gathering. It means the profit margins are sliced so thin it’s just not worth keeping the spigot open right now. Stone says they will continue to produce around 25 MMcfe per day from their Heather and Buddy fields in WV (see the map below). There are a number of implications from this momentous action. Below we have Stone’s announcement, followed by several slides from a recent investor presentation along with our comments and observations.

New pipeline route raises questions — Energy giant Kinder Morgan updated the route of a natural gas pipeline proposed to run through New Hampshire, with the new Merrimack route passing through Fidelity Investments and near the Merrimack Premium Outlets. The latest change addressed some environmental and safety concerns in the area, but not all. “I don’t think it’s any better, it’s just different,” Merrimack Town Council Chairman Nancy Harrington said Monday. Harrington said while the new proposed route is farther away from Thorntons Ferry Elementary School, it still passes through an aquifer by Pennichuck Water Works. “It really doesn’t solve the problem,” she said. “The only improvement is the school.” Town and school officials wanted the route 1,000 feet from the school building, which it is at 1,100 feet; but the route is still less than 1,000 feet from the playground.  Final approval for the pipeline rests with the Federal Energy Regulatory Commission. New Hampshire residents have been following the process since 2014, notifying FERC and state officials of local environmental and safety worries. Called the Northeast Energy Direct Project, the pipeline would transport gas from the Marcellus Shale formation in Pennsylvania to Dracut, Mass., through New York, Massachusetts and New Hampshire.

Feds want tougher rules for oil pipelines  (AP) — U.S. officials said Thursday they want tighter safety rules for pipelines carrying crude oil, gasoline and other hazardous liquids after a series of ruptures that included the costliest onshore oil spill in the nation’s history in Michigan. The U.S. Department of Transportation proposed expanding pipeline inspection requirements to include rural areas that are currently exempt and for companies to more closely analyze the results of their inspections. The agency also would make companies re-check lines following floods and hurricanes, and submit information on thousands of miles of smaller lines that fall outside of existing regulations. The Associated Press obtained details of the proposal in advance of Thursday’s formal announcement. It covers more than 200,000 miles of hazardous liquids pipelines that crisscross the nation — a network that expanded rapidly over the past decade as domestic oil production increased. Other pipeline ruptures in recent years have fouled waterways in Montana, California, Virginia and elsewhere with crude oil and other petroleum products. “This is a big step forward in terms of strengthening our regulations,” said Marie Therese Dominguez, chief of the Transportation Department’s Pipeline and Hazardous Materials Safety Administration. “It’s timely, and it’s raising the bar on safety.” The new rules have been in the works since 2010, when 840,000 gallons of crude oil spilled into the Kalamazoo River in Michigan and other waterways from a ruptured line operated by Enbridge Inc. of Calgary, Canada.

Feds: Proposed pipeline rules could have prevented accidents (AP) — New federal rules proposed for pipelines that carry oil and other hazardous liquids could have prevented more than 200 accidents since 2010, including a Michigan rupture that ranks as the costliest onshore spill in U.S. history, federal officials said. The U.S. Transportation Department proposal announced Thursday covers more than 200,000 miles of hazardous liquids pipelines that crisscross the nation — a network that expanded rapidly over the past decade as domestic oil production increased. Included in the proposal are new inspection requirements for pipelines in rural areas; increased use of leak detection systems; and a requirement for companies to more closely analyze inspection results. Left out were requirements for the industry to install more automatic or remote-controlled valves that can quickly shut down a line when spills occur. Officials plan to address the valve issue separately, said Marie Therese Dominguez, chief of the Transportation Department’s Pipeline and Hazardous Materials Safety Administration. The delay was criticized by Rep. Lois Capps, D-Calif., whose district includes the Santa Barbara County coastline where a May rupture of a corroded pipe spilled 101,000 gallons of crude oil, some of which flowed into the ocean, formed a large slick and stained beaches. “Federally regulated oil and gas pipelines currently are not required to use the best automatic shut-off technologies available and that needs to change,” Capps said in a statement.

Propane Frack Hoax Slouches On -- Horizontal wells are permitted in New York state.  Fracks under 300K gallons are permitted / not prohibited. So, if the horizontal well involved less than 300K gallons of fluid, it could be permitted under the drilling regulations of the state. So a straw-man operator has filed two LPG frack permits in Tioga County, one for a vertical test well, the other for a horizontal completion.  Note that GasFrac is on the application, since GasFrac no longer exists, and “Tioga Energy Partners” is not an operating company, but an Albany attorney, this begs some questions:
  • 1. Who is going to frack it ?  Which frack contractor ?  If not GasFrac, who ?  The short answer is : anyone with a tank truck of propane brave enough to try. The DEC routinely permits gaseous fracks – nitrogen is used on test fracks. Since there is no licensing in NYS for frack contractors, no certification, no licensing, no OSHA oversight, etc. anybody could show up with enough propane to frack the well !
  • 2. Is the proposed lateral long enough to be commercial ?  Depending on the formation/ depth, etc. the lateral would have to be approximately as long as comparable producing wells in that formation/ depth etc. Which would be hundreds if not thousands of feet.
  • 3. If 2 is “maybe” or “yes” then who is going to pay for it ?  The listed operator is a straw man. To complete and produce a commercial horizontal LPG well, some bone finde operator is going to show up with several million dollars.
  • 4. Before 1,2,3 happen, the vertical well test has to show significant potential.  That seems very unlikely in the Marcellus at current gas prices, and fairly iffy in the Utica. From what we know, the Utica produces dry gas in a pocket of productivity on the Pa. side of the border. So this would be a wildcat for the Utica, and a low probability well for the Marcellus.
Fracking moratorium passes on 4-0 vote - Tears, smiles and high-fives filled the Stokes County courtroom Monday night as fracking opponents celebrated a victory in their multi-year battle to keep the practice out of Stokes County. The Stokes County Board of Commissioners unanimously agreed to pass a three-year moratorium on fracking in the county, effective immediately. Commissioner James Booth was not present at the meeting but had earlier expressed his support for the move. The decision came after months of public comment during which opponents demanded, and begged, the board pass a moratorium and begin work on ordinances that would limit the impact of fracking in the county. Fracking, a colloquialism for hydraulic fracking, is a method of obtaining natural gas by fracturing the bedrock though the forced injection of water, sand, and a variety of chemicals. While opponents of the practice have long been vocal in Stokes County, public outcry increased dramatically this summer after a core sample drilled in Walnut Cove showed that shale layers in the county showed potential for natural gas production. The Walnut Cove core sample also showed that the shale formation is located at depths between 98 feet and 423.7 feet, well with in the area that many water wells are drilled in the county. Under the moratorium passed Monday, it would be unlawful for anyone to engage in hydraulic fracturing or oil and gas development for a three year time period with violators of the ordinance facing a $500 per day fine.

Indiana studying whether hydraulic fracking can cause quakes -- The man who oversees Indiana’s oil and gas industries says the state is studying whether hydraulic fracturing used by many operators can cause earthquakes in the state. Indiana Department of Natural Resources Oil and Gas Division Director Herschel McDivitt is a member of a group of U.S. drilling state officials, seismologists, academics and others who released a report Monday examining how states handled various seismic incidents linked to fracking. McDivitt says the DNR began a study about a year ago in collaboration with the Indiana Geological Survey to assess whether fracking can induce earthquakes in Indiana. He says about a quarter of Indiana’s oil and gas wells have been fracked in an effort to produce more oil and gas.

How oil production creates earthquakes - Denial is a funny thing. It’s particularly funny watching as the story moves from “Oil production and fracking can’t possibly be creating earthquakes in Oklahoma” to “Okay, there’s evidence but it’s not proven” to “Okay, it’s proven but we’re still not going to do anything about it.”In the case of the Oklahoma earthquakes, we’ve reached the final stage. Over at the New YorkerRivka Galchen has a beautifully-written piece describing what happened.[Once], earthquakes were a relatively rare event for Oklahomans. Now they’re reported on daily, like the weather, and generally by the weatherman. Driving outside Oklahoma City one evening last November, I ended up stopped in traffic next to an electronic billboard that displayed, in rotation, an advertisement for one per cent cash back at the Thunderbird Casino, a three-day weather forecast, and an announcement of a 3.0 earthquake, in Noble County. Driving by the next evening, I saw that the display was the same, except that the earthquake was a 3.4, near Pawnee. Until 2008, Oklahoma experienced an average of one to two earthquakes of 3.0 magnitude or greater each year. In 2009, there were twenty. The next year, there were forty-two. In 2014, there were 585, nearly triple the rate of California. Including smaller earthquakes in the count, there were more than 5,000. This year, there has been an average of two earthquakes a day of magnitude 3.0 or greater. And we pretty much know what’s causing them – fossil fuel production. William Ellsworth, a research geologist at the United States Geological Survey, told me, “We can say with virtual certainty that the increased seismicity in Oklahoma has to do with recent changes in the way that oil and gas are being produced.” Many of the larger earthquakes are caused by disposal wells, where the billions of barrels of brackish water brought up by drilling for oil and gas are pumped back into the ground.

Who's at fault? — In northwest Oklahoma, some scientists are digging for seismic answers as fervently as wildcatters have drilled for black gold during boom times.  Published literature left in dust-covered library bins for decades now is considered in­­valuable to scientists studying Oklahoma’s earthquakes. Mean­while, oil companies now are providing proprietary data on faults gathered through exploration, according to U.S. Geological Survey geophysicist George Choy.  In turn, the data is being used by Oklahoma Corporation Commission to regulate the oil and gas industry after wastewater injection was pinpointed as a cause for the increased seismicity. Scientists now know there is a link between injection wells and faults but have yet to get to the bottom of why some injection wells are linked to earthquakes and others are not. “We’ve put ourselves on record saying that there was relationship to the injection of wastewater in deep wells and into the basement, and that’s about as far as we can go right now, because we haven’t been able to really localize that and say, ‘It’s these faults, it’s these faults,’” Oklahoma Geological Survey Director Jeremy Boak said. “We know it’s certain faults in certain orientations that are properly aligned with the stress field occurring in Oklahoma, and they’re the ones that move. Most of those are small faults.”  One certainty is the increase in earthquakes in the state.  Between 1978 and 1998, Oklahoma averaged fewer than two earthquakes a year, according to U.S. Geological Survey records.  Since 2009, numbers have elevated, with the state surpassing a 2014 record of earthquakes larger than 3.0 magnitude in August this year, OGS records indicate.

Report: Spills from oil, gas production up in New Mexico - An oil pipeline rupture and the illegal spraying of dirt roads with wastewater from a natural gas operation were among more than 1,800 spills related to oil and gas production in New Mexico in fiscal year 2015, a sharp increase from the number of spills reported the previous year. Growth in the volume of the spills from FY 2014 far outpaced growth in the volume of resources pumped out of the ground, says a recent Legislative Council Service report. The volume of spilled oil, wastewater and other fluids related to oil production alone increased 61 percent, the report said. Oil production for the same period was up by 23 percent. Incidents covered in the report ranged from small oil spills to the discharge of thousands of barrels of wastewater, said Beth Wojahn, a spokeswoman for the New Mexico Energy, Minerals and Natural Resources Department. “The overwhelming majority of these releases only require a soil cleanup,” Wojahn said. The department told the Legislative Finance Committee in its annual “report card” that failing pipelines and aging storage tanks, combined with new drilling and production technology, “might be responsible” for an increased number of spills. The department also told the committee that inspections had increased by 22 percent over the prior year, and that could account for the higher number of reported spills.

Activists Call Attention To Oil Train Routes Near Water -- Wisconsin environmental groups want to know more about the rail industry’s clean-up plans, in case of an oil train accident near water. A coalition of groups held a protest Sunday near a rail bridge that passes over the confluence of Milwaukee and Menominee rivers.  Cheryl Nenn of Milwaukee RIverkeeper said that in the river basin alone, there are 36 locations where Canadian Pacific trains pass over water, plus many miles of track along the rivers. Nenn said in many oil train explosions, petroleum gets into water: “Whether it’s, you know, very close to it or maybe a little bit further away, a lot of the drainage all ends up somewhere in a waterway.” Nenn and other protest participants called on Canadian Pacific to share its spill response plans for waterways. The company said it has plans for every facility it operates in the state, plus a robust network of emergency response contractors and a close working relationship with the Department of Natural Resources and Coast Guard.

Asked for info on bridge conditions, railroad carrying Bakken crude tells cities no -- Despite urging from a federal agency that railroads hand over more information on safety conditions of bridges, a carrier moving Bakken crude oil through Milwaukee says it doesn't plan to provide such details.  Sen. Tammy Baldwin (D-Wis.) distributed a letter from Sarah Feinberg, acting administrator of the Federal Railroad Administration, in which the regulator urged railroad carriers to provide more information to municipalities on the safety status of bridges. Milwaukee officials have complained about the lack of information on the structural integrity of railroad bridges used by Canadian Pacific in the city. "When a local leader or elected official asks a railroad about the safety status of a railroad bridge, they deserve a timely and transparent response," Feinberg wrote.  "I urge you to engage more directly with local leaders and provide more timely information to assure the community that the bridges in their communities are safe and structurally sound.""CP's position has not changed," said Andy Cummings, a manager of media relations for the company.  "It is our policy to work directly with the Federal Railroad Administration, which is our regulator, on any concerns they have with our infrastructure. "The exchange comes in the wake of growing concerns from communities along rail corridors used by railroads shipping a growing tide of oil from the Bakken region of North Dakota.  Those worries have been exacerbated by tanker accidents. The most notable is the July 2013 derailment of tankers that killed 47 people in Lac-Megantic, Quebec. The tankers had been routed through Milwaukee before the accident.

Wyoming Court Issues Injunction Against Fracking Rules For Public Lands  (Reuters) - A Wyoming judge on Wednesday granted a preliminary injunction against the federal government's regulations for hydraulic fracturing on public lands, handing a victory to oil and gas producers who had vehemently opposed the rules. U.S. District Judge Scott Skavdahl had put the regulations on hold in June as he weighed a request from energy industry groups and four states to stop the rules from being implemented until their lawsuit against the new standards was resolved. The rules issued by the Interior Department would require companies to provide data on chemicals used in hydraulic fracturing, or fracking, and to take steps to prevent leakage from oil and gas wells on federally owned land. The Independent Petroleum Association of America and the Western Energy Alliance were joined by Colorado, Wyoming, North Dakota and Utah in seeking to stop the new rules from taking effect. In his order granting the injunction, Judge Skavdahl ruled that federal agencies' only have authority to regulate hydraulic fracturing, or fracking, when the use of diesel fuel is involved. Skavdahl also questioned whether there was any justification for the fracking regulations.

Firm behind $4 billion petrochemical plant enters deal with Continental Resources - A Denver-based company that unveiled plans last fall for a $4 billion petrochemical plant in North Dakota said Friday it has entered into a long-term ethane supply agreement with one of the biggest players in the state’s Oil Patch.Badlands NGL’s said it has entered a “precedent agreement” with Continental Resources Inc. to supply the plant with ethane gas, a byproduct of natural gas processing that will be converted into polyethylene for use in a wide variety of plastic products. “It’s a great vote of confidence for our project that a highly respected company like CLR will be a supplier,” Badlands CEO William Gilliam said in a news release. The length of the agreement with Continental Resources, one of the largest producers and leaseholders in the Williston Basin, wasn’t disclosed Friday. Gilliam told Forum News Service in June that the company was close to reaching a 10-year ethane supply agreement with one of North Dakota’s top three producers.

New Report Exposes Hidden Fracking Subsidy on Public and Tribal Lands -- A new, peer-reviewed report from Friends of the Earth brings to light one of Big Oil’s most overlooked subsidies: royalty-free flaring on public and tribal lands.  As the fracking boom spreads across the country, companies eager to tap profitable shale oil are burning away—or flaring—natural gas in record amounts. This practice increases air pollution and sends climate-busting carbon dioxide directly into the atmosphere. Last updated 35 years ago, existing federal guidelines allow widespread flaring on public and tribal lands that is almost always exempt from royalties. “Royalty-free flaring is both a dangerous addition to climate disruption and a de facto subsidy for the oil industry,” said Lukas Ross, climate and energy campaigner at Friends of the Earth. “For over a century Big Oil has been subsidized to the hilt with everything from tax breaks to royalty free-leasing. To that list we can now add natural gas flaring—and it has to stop.”  Between January 2007 and April 2013, the BLM permitted the royalty-free flaring of 107,573,228 mcfs of natural gas on North Dakota public and tribal lands, producing carbon dioxide equivalent to the annual emissions of more than 1.3 million cars and wasting an estimated $524 million worth of resources.

The Real Estate Crisis in North Dakota's Man Camps - Chain saws and staple guns echo across a $40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers. After struggling to house thousands of migrant roughnecks during the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn’t lasted long enough to support the oil-fueled building explosion.Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them. “We are overbuilt,” “I am concerned about having hundreds of $200-a-month apartments in the future.” The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically feasible. Predictions were that fracking would sustain production and a robust tax base for decades. Laborers descended on the state, many landing in temporary settlements of recreational vehicles, shacks and even chicken coops. Energy companies put up some workers in so-called man camps. In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county building official. The camps were supposed to be an interim solution until subdivision and apartment complexes could be built. Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding. Construction companies and investors went along for the ride.

Oil bust saps U.S. students' enthusiasm for petroleum degrees (Reuters) – Enrollment in U.S. petroleum engineering degree programs fell for the first time in 13 years this fall, as an oil industry slump makes college students wary of entering the boom and bust world of oil and gas. The drop, revealed this week in annual data provided by the country’s 21 petroleum engineering departments and made available to Reuters, is modest – the number of enrollments dipped just 1 percent from a record high of 11,332 hit last year when oil was around $100 a barrel. With oil now at around $45, the 21 departments estimated that enrollments would fall by a further 7 percent next year. Coming after years of steep gains that could mark the start of a long slide similar to one that followed a price slump in the 1980s and continues to leave a hole in the industry’s workforce, some department heads and industry experts said. “The students who haven’t made a long term commitment yet are making a change based on what they are seeing,” said Lloyd Heinze, professor of petroleum engineering at Texas Tech University, who compiled the data. Penn State University will graduate its largest petroleum engineering class ever next year, according to Turgay Ertekin, the head of the university’s department of energy and mineral engineering. But enrollment this year dropped to 782 from 860, and the university estimates it will drop further to 565 in 2016. “Petroleum engineering degrees will lose attractiveness in the years to come,” Ertekin said. “Last time it lasted for 20 years,” he said.

Frackers face mass extinction - Fortune -- Doomsday may finally be coming to the fracking industry.Despite the big drop in oil prices in the past year, there have been relatively few bankruptcies in the energy industry. That may be about to change. James West, an energy industry analyst at ISI Evercore, says months of low activity have left many of the companies in the hydraulic-fracturing business either insolvent or close to it. He says as many as a third of the fracking companies could go bust by the end of next year.“This holiday will not be a time of cheer in the oil patch,” says West.So far oil and gas exploration companies, while cutting back somewhat, have continued to spend based on budgets set a year ago when oil prices were much higher. But now West says the price of oil is catching up to them, and they may soon have to drastically cut back their spending on services. The catalyst is the banks.Banks lend to oil exploration companies based on the value of their reserves. But they only audit the value of those reserves every October. Given how much oil prices have tumbled in the past year, many analysts expect banks to greatly reduce in the next month how much they are willing to lend to oil and gas companies. Regulators, worried banks may face losses, have recently been pressuring banks to cut back their lending to oil and gas companies. On Friday, credit ratings firm Standard & Poors reported that its distressed ratio, which measures the percentage of corporate borrowers that investors appear nervous may not be able to pay back their debt, had reached the highest level since 2011. The oil and gas sector accounted for the largest number of the distressed borrowers, 95 out of 270.

Push to lift ban on crude oil exports gains steam - The U.S. House of Representatives may be close to a vote on a bill that would eliminate a ban on exporting crude oil that has been in place for 40 years now. Those export restrictions were a reaction to the 1973 oil embargo by OPEC – the Organization of Petroleum Exporting Countries. But the U.S. oil market looks very different now, thanks to a dramatic increase in domestic oil production in recent years. The U.S. imported just 27 percent of the petroleum consumed last year – the lowest level since 1985. Even now, there are exceptions to the ban, such as exporting to Canada or “trades” with Mexico, where American light sweet crude is exchanged for Mexican heavy sour crude. Such swaps were approved by the Commerce Department last month and are supposed to help both refineries in both countries run better. But the push to lift the ban entirely has recently gained momentum. “It’s going to create more jobs here at home,” said Louis Finkel, with the American Petroleum Institute, as he summed up the pitch for lifting the ban. “It’s going to have a positive impact on our trade deficit and, most importantly, it’s going to have a positive impact on consumers.” He believes repealing the ban on crude exports will “create downward pressure on gasoline prices and benefit all American consumers.” However, those who want to maintain the export restrictions worry it'll have the opposite effect. "We are concerned that repealing the 40-year-old statutory prohibition on exporting U.S. crude oil could harm consumers, businesses and our national security," wrote Sen. Ed Markey in a June letter to President Obama, signed by 12 other Democrats.

Allowing US oil exports could push crude prices higher -CBO (Reuters) - Lifting the ban on U.S. crude exports could push the price of domestic oil up roughly $2.50 a barrel in the coming decade, a report from the Congressional Budget Office said on Wednesday. "CBO estimates that authorizing exports of domestically produced crude oil without restrictions would increase wellhead prices of light oil by an average of roughly $2.50 per barrel over the 2016-2025 period, on an expected value basis," the report said.  The study, which weighs how crude exports could impact the federal budget, expects dropping the ban would stoke production and boost federal fuel royalties by about $1.4 billion in the next decade.  For a link to the report, click here:

CBO: Lifting export ban increases U.S. crude oil prices - (UPI) -- Lifting the ban on exporting U.S. crude oil prices could lead to an increase of $2.50 per barrel for domestic producers, a federal report finds. Members of the House of Representatives are debating legislation that would end the ban on exports of domestically-produced crude oil. The ban was enacted in the 1970s to counter a decision by Arab members of the Organization of Petroleum Exporting countries to halt oil exports to the United States because of Washington's alliance with Israel. A report from the Congressional Budget Office finds authorizing U.S. crude oil exports under a bill sponsored by U.S. Rep. Joe Barton, R-Texas, would increase the price of U.S. crude oil by around $2.50 per barrel during a period ending in 2025. "CBO also expects that, if export restrictions are removed, higher wellhead prices would provide an incentive for firms in most parts of the country to produce more oil," the report said. "In particular, we expect that firms would increase oil production in three states -- North Dakota, Texas, and Oklahoma -- that contain the most light oil and accounted for about 90 percent of the increase in total U.S. oil production over the 2009-2014 period." An increase in crude oil production in the United States and OPEC decisions to keep output static has pushed crude oil prices to historic lows because global demand is low in major economies struggling to recover from the last recession. The low price of crude oil, meanwhile, means companies are working below their break-even prices, cutting staff and trimming spending on production.

Refiners Take On Big Oil In Fight Over Crude Oil Export Ban - The price of a barrel of U.S. crude oil has plummeted by more than 50% since June 2014. U.S. producers claim that they're at a competitive disadvantage because they're restricted to selling their oil domestically at a time when they desperately need new markets to sell their expanding inventories. Congress is now debating whether or not to lift the 1970's era ban on crude oil exports that was established in the name of protecting national energy security. Legislation to lift the ban has passed in the U.S. House Committee on Energy and Commerce. Now the Senate Banking Committee is attempting to craft its version.  The debate is hardly black and white: Some of the major players in the American energy sector oppose the idea.The debate has implications for both employment in the energy industry and for national security. To set the stage, imagine that you refine crude oil in this country. You buy the oil at a price known as WTI, West Texas Intermediate. That’s the benchmark price for U.S. crude. WTI is less, sometimes a lot less than Brent crude, the world’s benchmark price.So you buy the discounted U.S. oil, refine it and sell the finished product to the highest bidder. “Right now because we don’t export crude oil, there is what some view as a disproportionate amount of profits going to refiners," said economist Carey King at the University of Texas at Austin’s Energy Institute."Because they can take in cheaper crude oil in the U.S. and export refined products at a global price for gasoline and diesel," he said.Refiners have a decidedly different take. They’ve spent billions of dollars over the last two decades to be better refiners of heavy, sulphur-laden oil known as sour crude because that’s what traditional drilling pulled up.  But fracking, which has triggered a shale revolution in this country, is pulling up a higher quality grade of oil with much less sulphur called light, sweet crude. U.S. refiners are adapting to process an abundance of light, sweet crude oil, but not nearly fast enough to accommodate many U.S. producers.

America's Oil Output Refuses to Collapse. Here's One Reason Why.  - More and more sand is getting stuffed down wells to try to better pry open the rock and bolster output. Some of this is just a cost phenomenon. In the wake of crude’s selloff, the sand market collapsed too, driving down the price 30 percent and making it cheaper to shovel more grit in. The initiative, though, began years earlier, the result of engineers tinkering with inputs and discovering one of the many little technological breakthroughs that have helped the shale industry weather the downturn better than their legions of skeptics predicted. For proof of greater productivity, look no further than total U.S. output: It remains within 3 percent of a 40-year high even though drillers have idled more than half of their rigs. The increase in sand usage has been steady. Back in 2012, the average well in the Eagle Ford received less than 1,000 pounds for every foot that the opening snaked down into the ground, according to energy consulting firm Wood Mackenzie Ltd. By 2013, that number was about 1,200 pounds. And last year it climbed to over 1,500 pounds. A study of more than 1,000 wells in the Eagle Ford -- a region that accounts for 15 percent of all U.S. oil output -- revealed that the injection of additional sand can triple output in some cases, according to Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove.Sand, of course, has been used in the oil industry for decades. But the traditional vertical wells that dominated the landscape for much of that time needed little more than a sprinkling. The rock in those wells tends to be porous and permeable, allowing natural underground pressure to squeeze the oil up to the surface. Shale rock is different. It’s more like concrete. Hydraulic fracking relies on large quantities of both sand and water to tease the oil out. The water is blasted into the well at high pressure to create tens of thousands of tiny cracks in the rock. The sand keeps the cracks open, elongates them and makes them more jagged. Increase the amount of sand and you increase the amount of fractures that stay open.

So far, less pain than feared as U.S. shale firms renew loans (Reuters) – A number of U.S. shale oil and gas companies are securing unchanged or even increased credit allotments during their semi-annual loan reviews, defying expectations that banks would slash small firms’ credit lines in response to low crude prices. According to a Reuters review of disclosures made by 19 independent U.S. shale oil and gas companies since Aug. 1, at least 11 have said their borrowing bases have been or will be maintained or increased. In contrast, just five talked about cuts. It is too early to tell if the whole sector will emerge equally largely unscathed from the reviews. Many more companies from a batch of about 60 U.S. independents typically tracked by investment banks will probably make disclosures after the usual loan reset deadline of Oct. 1. But outcomes so far suggest an expected pullback by banks may be far less severe than many in the industry have feared. “I’ve seen some companies maintaining borrowing bases and some companies even increasing borrowing bases, though other companies are cutting,” “It really is on a case-by-case basis.” The Office of the Comptroller of the Currency has voiced concern about banks’ exposure to oil’s nearly 60 percent slide given crude prices serve to determine the value of borrowers’ assets. A survey of a broad range of 182 energy industry professionals this month by the law firm Haynes & Boone showed they expected borrowing bases linked to valuations of oil and gas reserves to fall on average by 39 percent. However, a quarterly survey of 40 energy lenders by the advisory firm Macquarie Tristone showed the average oil price they use to size their loans has edged down only about 5 percent in the last six months, suggesting just a modest pullback in lending.

Natural Gas Prices Retreat on Mild Weather - WSJ: Natural gas prices dropped to a five-month low on Wednesday, as forecasts for a mild start of autumn softened expectations for demand and pushed gas to its worst quarter of the year. Prices for the front-month November contract fell 6.2 cents, or 2.4%, to $2.524 a million British thermal units on the New York Mercantile Exchange. It was the lowest settlement since April 28. That was also its largest one-day loss in two weeks. Natural gas has now fallen in four of the past five quarters, losing 30.8 cents per mmBtu, or 11%, since June 30. Production has only decreased incrementally from its record pace, and that oversupply is suffocating prices as autumn arrives, said Frank Clements, co-owner of Meridian Energy Brokers Inc. A Wall Street Journal survey shows analysts and traders expect federal data coming Thursday will show the largest weekly surplus of natural gas since early June, putting stockpiles 4.6% above their five-year average level for this week of the year. “There’s nothing to keep this market from going lower,” Mr. Clements said. Weather forecasts suggest above-normal temperatures for large parts of the country in the first two weeks of October. It is a reversal from earlier this week when they showed much larger patches of below-normal temperatures settling in.

Natural Gas Price Hits New Low Before Storage Report - The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks increased by 98 billion cubic feet for the week ending September 25. Analysts were expecting a storage injection (increase) of around 100 billion cubic feet. The five-year average for the week is an increase of around 94 billion cubic feet, and last year’s addition for the week totaled 112 billion cubic feet. Natural gas futures for November delivery traded down about 1.6% in advance of the EIA’s report, at around $2.50 per million BTUs, and remained unchanged after the data release. Natural gas posted a new 52-week low earlier in the morning at $2.47. Last Thursday, natural gas closed at $2.67 per million BTUs, and over the past five trading days natural gas futures peaked last Monday at around $2.67. The 52-week high for natural gas futures is $4.03. One year ago the price for a million BTUs was around $3.99. Moderate fall temperatures across most of the United States will lower demand for natural gas both for heating in some areas and for cooling in others. The eastern United States and the Midwest continue to see milder temperatures, although nighttime temperatures may have some Americans turning on their furnaces, and even the Southeast, which is the warmest region of the country this week, is experiencing lower high temperatures. Natural gas supplies continue to be plentiful and demand is slowing down, at least for now.

Oil up, then pares gains after U.S. inventory build data (Reuters) - Oil prices rose almost 2 percent on Tuesday, but then pared gains in post-settlement trade after an industry group reported a surprisingly large weekly build in U.S. crude inventories. The American Petroleum Institute (API) said U.S. crude stockpiles rose 4.6 million barrels in the week to Sept. 25 to reach 457.8 million barrels. Analysts polled by Reuters had expected an increase of only 102,000 barrels. "It's certainly a pretty big build for U.S. oil stocks," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland. But some investors were encouraged that the API inventory figures also showed a drawdown of nearly 1.2 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures. Cushing storage levels are key for the market's psyche and can temper headline numbers for oil inventories. Market intelligence firm Genscape estimated on Monday that Cushing stockpiles fell by around 1 million barrels last week, after back-to-back drawdowns of about 2 million barrels in two previous weeks.
  • California gasoline emergency is over as West Coast stockpiles return to normal levels.
    West Coast refineries start to turn down now that gasoline stocks have returned to normal levels.
    Propane stocks hit fresh record, residual fuel oil stocks continue to flat line. Comment: the propane charts will all re-set after this year -- it's quite incredible, the US energy revolution.
    US distillate stocks flat at 151.6 million bbl but +26 million bbl above 2014 level and +19 million above 10-yr avg.
Oil inventories rise as refineries slow down - U.S. refineries slowed down last week, contributing to a buildup in oil inventories, the government reported Wednesday. Refineries have been paring back operations for scheduled fall maintenance, which typically occurs through much of October. The oil they’re not processing is heading into storage tanks, pushing inventories up by 4 million barrels week over week and raising producers’ fears that stranded oil could keep crude prices low. In afternoon trading Wednesday, U.S. benchmark crude was down 46 cents to $44.77 a barrel on the New York Mercantile Exchange. U.S. refineries ran at 89.8 percent of capacity last week, processing 16 million barrels of oil per day. Near the end of August, refineries were running at 94.5 percent capacity and handling 16.7 million barrels per day. Some analysts worry that the pullback in refinery operations, combined with a global oversupply of oil, could leave tanks near their limits. U.S. tanks now hold about 457.9 million barrels of oil, the highest level for this time of year in at least the last 80 years, according to the U.S. Energy Information Administration. Various estimates put the U.S. total storage capacity at around 520 million barrels, though it’s likely oil prices would fall significantly before levels rose that high.

Oil Prices Flip-Flop, End Lower on Mixed Inventory Data - WSJ: Oil prices inched down on Wednesday, fluctuating around unchanged levels several times after data showed an unexpectedly large addition to U.S. stockpiles but also some local stockpile withdrawals. Light, sweet crude for November delivery settled down 14 cents, or 0.3%, at $45.09 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, settled up 14 cents, or 0.3%, at $48.37 a barrel on ICE Futures Europe. Both benchmarks ended their worst quarters of the year and losses in four of their last five quarters. U.S. oil lost $14.38 a barrel, or 24%, and Brent lost $15.22 a barrel, or 24%. The U.S. Energy Information Administration showed crude stocks grew 4 million barrels last week, compared with analysts’ expectations for just a 300,000-barrel draw. However, The American Petroleum Institute reported late Tuesday that inventories grew by 4.6 million barrels, so many traders had prepared for an even larger addition. The data also showed a decline in stocks at Cushing, Okla., the delivery point for the benchmark Nymex contract. That helped balance out the large gains in total stockpiles and prices spiked back up as traders dove deeper into the report and absorbed those numbers, brokers said. U.S. production also continued its gradual decline, though the change was small, down 0.4% from last week at 9.1 million barrels a day.

Oil mixed on U.S. crude build, Syria; down 24 percent on quarter | Reuters: Oil prices ended mixed in volatile trade on Wednesday, with global benchmark Brent up on worries about Russian airstrikes in Syria and U.S. crude down after data showing a surge in domestic inventories. For the quarter, both Brent and U.S. crude were down 24 percent for their sharpest decline since the end of 2014. Oil prices were broadly boosted in early trade by concern about a hurricane threatening energy infrastructure on the U.S. East Coast. Book balancing by traders at the end of the month and the third quarter also made for choppy trade. "It's the typical month-end, quarter-end 'window dressing' phenomenon," said Tariq Zahir, fund manager and crude oil spreads trader at Tyche Capital Advisors in Laurel Hollow, New York. Warplanes from Russia carried out air strikes against Islamic State targets in Syria, feeding worries about growing war in the Middle East.

OilPrice Intelligence Report: Don’t Be Fooled By Latest U.S. Production Data: Despite the volatility, which has become the norm, oil prices close out the week not much changed from Monday. After growing evidence that U.S. supply was contracting, the EIA reported that U.S. oil production rose in July (the latest month for which data is available) by 94,000 barrels per day, compared to June. The monthly figures are much more reliable than the weekly estimates, so the increase can be considered more of a solid barometer of where the U.S. supply picture has been heading, although only in retrospect. However, the uptick needs some context. The increases came exclusively from the Gulf of Mexico where output jumped by 147,000 barrels per day. The Gulf of Mexico has entirely different time horizons for projects than U.S. shale. Projects take years to develop, so increases are coming from projects planned before the crash in oil prices. The production gains blur what is actually going on in the U.S., which is ongoing decline in output. Without the Gulf of Mexico, U.S. output would have dropped by another 53,000 barrels per day in July from a month earlier. And in the key shale states, which are garnering much of the attention in terms of trying to figure out how quickly U.S. output will adjust to lower prices, the drop offs continue. Texas lost 12,000 barrels per day; North Dakota lost 3,000 barrels per day, and Oklahoma lost 17,000 barrels per day. Only Colorado saw a decent increase in production. Still, even when leaving out the gains in the Gulf of Mexico, a decline of 53,000 barrels per day is a slower decline than the 115,000 barrels per day lost between May and June. That, coupled with the news that the U.S. saw another uptick in the level of crude oil in storage, was bearish for oil this week.

U.S. Oil-Rig Count Falls to 614 - WSJ: The U.S. oil-rig count dropped by 26 to 614 in the latest reporting week, extending a recent streak of declines, according to Baker Hughes Inc. BHI 4.24 % The number of U.S. oil-drilling rigs, which is viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices started falling last year. After a six-week streak of modest growth, the rig count has now declined for five consecutive weeks. Crude oil prices recently were up 0.4% to $45.13. There are now about 62% fewer rigs working since a peak of 1,609 last October. According to Baker Hughes, the number of gas rigs fell by two to 195. The U.S. offshore rig count was 30 in the latest week, down three from last week and down 31 from a year ago. For all rigs, including natural gas, the week’s total declined by 29 to 809.

U.S. oil drillers cut rigs for 5th week -Baker Hughes (Reuters) – U.S. energy firms cut 26 oil rigs in the latest week, the biggest reduction since April and the fifth straight weekly decline, data showed on Friday, a sign low prices were pushing drillers away from the well pad. The cutback for the week ended Oct. 2 brought the total rig count down to 614, the least since August, 2010. In the previous four weeks, drillers cut a total of 35 rigs, oil services company Baker Hughes Inc said in its closely followed report. U.S. crude prices rose 1.5 percent in the minutes after the report. The latest rig count is less than half the 1,591 oil rigs in the same week a year ago and also far below the all-time high of 1,609 in October 2014. They have erased the 47 oil rigs energy firms added in July and August. The summertime additions came when U.S. crude was priced around $60 a barrel. This week, U.S. oil averaged $45 a barrel, the same as during the month of September, on continued worries about lackluster global demand and oversupply.  U.S. crude futures jumped after Baker Hughes released the report on expectations of reduced crude production in the months ahead. Crude prices had been flat just before the report. Baker Hughes also reported a reduction in natural gas rigs, bringing total U.S. rigs were to a 13-year low. Natural gas rigs were down two this week to 195, the lowest level in at least 28 years, according to the Baker Hughes data going back to 1987.

Oil rebounds on largest rig count drop since April - Fuel Fix: — U.S. drillers idled another 26 oil rigs this week, sending the price of oil higher and bringing the number of rigs chasing crude to a five-year low. This was the largest week-over-week decrease since April and brings the number of active oil rigs to 614. That’s below the previous low for 2015 set in May, according to the count by oil service firm Baker Hughes. The number of gas rigs fell by two to 195 and miscellaneous rigs fell by one. Combined, the rig count fell by 29 to 809. U.S. crude oil swung to a gain shortly after the report was released. Traders bid the price up by 59 cents or 1.3 percent to $45.33 per barrel. Before the report, oil had edged lower on a weaker-than-expected jobs report. Between May and August, drillers added rigs and resumed drilling as the price of oil rebounded to near $60 per barrel in a short-lived rally. But the count began falling once more in September as the price of oil resumed its slide.  The Baker Hughes rig count serves as a proxy for oil industry activity. Less drilling will ultimately mean fewer barrels of oil pulled from the ground. Recently, though, the relationship between U.S. production and the number of active rigs has grown more complex, as drillers have managed to keep production high despite a massive falloff in the rig count.  Last month, the U.S. Energy Information Administration said that shale production has fallen by a relatively small 350,000 barrels a day since the shale boom reached its peak in April.

In A Win For Anti-Pipeline Activists, TransCanada Backs Out Of Keystone XL Lawsuit -- TransCanada, the Calgary-based company behind the controversial Keystone XL pipeline, has backed out of a lawsuit filed by more than 100 Nebraska landowners, the company announced Tuesday. The energy company had been trying to gain access to private land along the proposed path of the tar sands pipeline, but had been held up legally by landowners who were opposed to letting the pipeline through their land. Now, instead of trying to gain access to that land through legal means, TransCanada will apply for a permit for Keystone XL with Nebraska’s Public Service Commission.   TransCanada says the decision will bring more certainty to Keystone XL’s route through Nebraska. But it also could cause further delays for the project, as a PSC approval can take a year or longer.  Previously, TransCanada sought to avoid the PSC approval process, choosing instead to give the state’s governor final approval over the project’s application in Nebraska. The law that gave the company the ability to choose was heavily challenged in court, but ultimately upheld.  Anti-pipeline activists in Nebraska applauded the news of TransCanada’s retreat from the lawsuit. “This is a major victory for Nebraska landowners who refused to back down in the face of bullying by a foreign oil company,”  “It has long been clear that TransCanada has no legal route through the state of Nebraska and no legal right to use eminent domain against landowners. Now they’ve recognized that they’ve lost in Nebraska and are desperately trying another tactic to see their risky pipeline built through our state.”

Shell says it will cease Alaska offshore Arctic drilling: Royal Dutch Shell will end exploration in off shore Alaska "for the forseeable future,'' after an exploratory well in the Chukchi Sea failed to yield the oil and gas that was hoped for. Shell had drilled the Burger J well down 6,800 feet, and thought the exploration would pay off because of its location in a basin that it believed had the qualities that signal a significant reservoir of petroleum. But while it "found indications of oil and gas,'' it wasn't enough to justify continued exploration and so the company says it will seal the well and move on. “Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.,” Marvin Odum, president of Shell USA, said in a statement. “However, this is a clearly disappointing exploration outcome for this part of the basin.” The company also said it was ending its efforts in the basin because of the expense, and the contentious regulatory climate in the area. The announcement was a major setback for Shell, which hoped that drilling off the Alaska coast would boost the company's revenue. Environmentalists, who had been against the exploration, were pleased with Shell's decision.

Shell abandons Alaska Arctic drilling -- Shell has abandoned its controversial drilling operations in the Alaskan Arctic in the face of mounting opposition. Its decision, which has been welcomed by environmental campaigners, follows disappointing results from an exploratory well drilled 80 miles off Alaska’s north-west coast. Shell said it had found oil and gas but not in sufficient quantities.  The move is a major climbdown for the Anglo-Dutch group which had talked up the prospects of oil and gas in the region. Shell has spent about $7bn (£4.6bn) on Arctic offshore development in the hope there would be deposits worth pursuing, but now says operations are being ended for the “foreseeable future.”  Shell is expected to take a hit of around $4.1bn as a result of the decision. The company has come under increasing pressure from shareholders worried about the plunging share price and the costs of what has so far been a futile search in the Chukchi Sea.   Shell has also privately made clear it is taken aback by the public protests against the drilling which are threatening to seriously damage its reputation. Ben van Beurden, the chief executive, is also said to be worried that the Arctic is undermining his attempts to influence the debate around climate change.  His attempts to argue that a Shell strategy of building up gas as a “transitional” fuel to pave the way to a lower carbon future has met with skepticism, partly because of the Arctic operations. A variety of consultants have also argued that Arctic oil is too expensive to find and develop in either a low oil price environment or in a future world with a higher price on carbon emissions.

Shell Abandons Arctic Drilling After Poor Test Results -- Royal Dutch Shell Plc is to stop drilling for oil off the Alaskan coast “for the foreseeable future” and take a financial hit, after initial exploration results failed to live up to expectations. The news will dismay shareholders, who have seen the company plow $7 billion into a high-risk, high-return bet that has failed to pay off. It illustrates the souring climate for high-cost oil production against a backdrop of low prices around the world. Over $200 billion of exploration and production projects has been scrapped since Saudi Arabia decided it would no longer restrain output to keep prices high, according to some estimates.  At the same time, it will delight environmentalists who have been campaigning to stop the project. A spokesman for the environmentalist NGO Greenpeace, which has waged a high-profile campaign against drilling in the Arctic, said there were “hugs and high fives in the office” at what could prove to be a watershed moment for the future of the offshore industry in Alaska. Shell said in a statement it had found indications of oil and gas in the Burger J well, some 150 miles from Barrow, Alaska, but said it wasn’t enough to justify further exploration. The company valued its Alaskan operations at $3 billion but now said it “expects to take financial charges as a result of this announcement.” It’s also locked into another $1.1 billion of contractual commitments. However, it didn’t say how much it expected to have to write off against the project. Shell had paid $2.1 billion for drilling rights in a block of the Chukchi Sea–an area half the size of the Gulf of Mexico–in 2008, when global oil prices were close to their all-time highs.

Shell Abandons Arctic Drilling Following ‘Disappointing’ Results -- After finding little oil and natural gas, Royal Dutch Shell announced today it would end its controversial Arctic drilling operations in the Chukchi Sea off Alaska’s coast “for the foreseeable future.” Shell said the amount of oil and gas found in the Burger J well is “not sufficient to warrant further exploration.” The well will be sealed and abandoned in accordance with U.S. regulations, the company said. The oil giant is also making efforts to safely demobilize people and equipment from the Chukchi Sea. “Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.,” said Marvin Odum, the director of Shell Upstream Americas. “However, this is a clearly disappointing exploration outcome for this part of the basin.” Shell said its decision to cease drilling was also based on the “high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.” According to the Associated Press, Shell spent more than $7 billion on Arctic offshore exploration. The company said it expects to lose approximately $4.1 billion as a result of ceasing operations.

Shell Exits Arctic as Oil Slump Forces Industry to Retrench - Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic on Monday in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.The decision came after one well drilled by Shell this summer came up mostly dry, and environmental groups declared a major victory. But at a time when global markets are glutted with oil, it also confirmed major oil companies’ increasing willingness to turn their backs on the most expensive new drilling prospects in the Gulf of Mexico and suspended plans for new projects in Canada’s oil sands. Shell spent more than $7 billion on its Alaska venture.  The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force. At the same time, companies have retreated from less profitable fields in places like the North Sea, West Africa, and some shale prospects in Louisiana and North Dakota. United States oil companies have decommissioned more than half of their drilling rigs over the last year, and production is beginning to drop in the United States. Even exports from Saudi Arabia are beginning to ebb because of a glut in its Asian markets. “The decision by Shell to abandon its Arctic drilling program for now primarily reflects the realities of lower global oil prices,” . “When prices go down the oil industry shortens their list of projects in development by removing the most expensive ones.”

Why Shell Quit Drilling in the Arctic - Royal Dutch Shell's abrupt announcement today that it would cease all offshore drilling in the Arctic is surprising for several reasons. One is the unusual degree of confidence the company expressed as recently as mid-August that it had identified 15 billion barrels of oil beneath the well known as Burger J it's now abandoning. What on earth happened?  After spending $7 billion over several years to explore a single well this summer, Shell said in a statement that it "found indications of oil and gas … but these are not sufficient to warrant further exploration." This contrasts sharply with Shell officials' statements as recently as July and August that based on 3D and 4D seismic analysis of core samples, its petroleum geologists were "very confident" drillers would find plentiful oil. The geologists' expectations were the main reason Shell spent all that money on a project that entailed much-higher-than-average operational risks and international environmental condemnation. Giving up has got to hurt at a company that prides itself on scientific and technical prowess. Shell said it would take an unspecified financial charge related to the folding of its Arctic operation, which carries a value of $3 billion on the company's balance sheet. In late July, when Ann Pickard, Shell's top executive for the Arctic, explained the economics of drilling in the Chukchi Sea, she readily acknowledged that if oil prices remained below $50 a barrel, the off-shore adventure would be for naught. At $70, Chukchi oil would be "competitive," she told Bloomberg Businessweek, and at $110—a reasonable projection, according to the company's economists—it would be a huge winner. She was talking about prospective prices 15 years from now.

With Shell’s Failure, U.S. Arctic Drilling Is Dead - After more than eight years of planning and drilling, costing more than $7 billion, Royal Dutch Shell announced that it is shutting down its plans to drill for oil in the Arctic. The bombshell announcement dooms any chance of offshore oil development in the U.S. Arctic for years. Shell said that it had completed its exploration well that it was drilling this summer, a well drilled at 6,800 feet of depth called the Burger J. Shell was focusing on the Burger prospect, located off the northwest coast of Alaska in the Chukchi Sea, which it thought could hold a massive volume of oil. On September 28, the company announced that it had “found indications of oil and gas in the Burger J well, but these are not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with U.S. regulations.” After the disappointing results, Shell will not try again. FT reports that Shell executives privately admit that the environmental protests damaged the company’s reputation and had a larger impact than they had anticipated.  However, low oil prices were the nail in the coffin for the ill-fated Arctic drilling program. Oil from the Chukchi Sea is far from profitable when oil prices are at $50 per barrel. The costs to drill are exceptional, with unique challenges that aren’t found elsewhere. Drillers have to avoid sea ice. Offshore Alaska occasionally experiences hurricane-force winds (Shell had to briefly pause this summer’s drilling because of bad weather). The drilling season is short, with federal guidelines only allowing drilling for a few months out of the year. Even worse, there is inadequate infrastructure – the closes deep-water port is 1,000 miles away. All of this made it absolutely crucial that the company found vast volumes of recoverable oil. Even a sizable find wouldn’t be enough; Shell needed billions of barrels of oil. Justifying his decision to move forward to skeptical investors, Shell’s CEO Ben van Beurden said in July that its target in the Arctic could have been 10 times what Shell has cumulatively produced in the North Sea to date.

Alaska Fears Fallout of Shell's Arctic Drilling Decision: — Royal Dutch Shell’s dry hole in the Chukchi Sea may be disappointing to shareholders, but it’s potentially devastating to Alaska.The company’s decision to end oil exploration in offshore Alaska for the foreseeable future means the state must find another source to fill the 800-mile trans-Alaska pipeline and solve its economic woes, Gov. Bill Walker said.“We need to get some oil in the pipeline, and we need to do it as quickly as possible and in the safest method possible,” Walker said. He is suggesting the federal government open the Arctic National Wildlife Refuge to natural gas drilling. The petroleum industry funds upward of 90 percent of state government. Declining oil production and low prices have left Alaska with a billion-dollar budget gap, and state leaders saw rays of hope in Shell’s offshore prospects. A transition to production — though a decade or more off — would have meant jobs, potential revenue and a source to replenish the trans-Alaska pipeline, now running less than one-quarter full. Kara Moriarty, president and CEO of the pro-industry Alaska Oil and Gas Association, noted other companies holding leases in the Arctic were waiting to see what happened with Shell and will follow its lead. “I haven’t talked to anyone, but I have very low expectation that we’re going to see any type of exploration or development in the Arctic anytime in the near future,” she said. She cited a loss of jobs as one of the biggest immediate effects in the state. “At any given day during the project this summer, they’d have 600 to 800 workers and another 600 to 800 workers waiting to shift in and out, on a two-to three week rotation,” Moriarty said. “So, I think in the short-term, it’s loss of jobs, it’s loss of investment.”

Royal Dutch Shell's dry hole in the Chukchi Sea may be disappointing to shareholders, but it's potentially devastating to Alaska.  The company's decision to end oil exploration in offshore Alaska for the foreseeable future means the state must find another source to fill the 800-mile trans-Alaska pipeline and solve its economic woes, Gov. Bill Walker said. "We need to get some oil in the pipeline, and we need to do it as quickly as possible and in the safest method possible," Walker said. He is suggesting the federal government open the Arctic National Wildlife Refuge to natural gas drilling. The petroleum industry funds upward of 90 percent of state government. Declining oil production and low prices have left Alaska with a billion-dollar budget gap, and state leaders saw rays of hope in Shell's offshore prospects.  Confirmation of the estimated 15 billion barrels in the Chukchi lease area could have led to additional exploration by other leaseholders. And a transition to production — though a decade or more off — would have meant jobs, potential revenue and a source to replenish the trans-Alaska pipeline, now running less than one-quarter full.

Will declines in U.S. and Canadian oil production lead to a global decline?  --At the beginning of this year I noted that all of the growth in world oil production* since 2005 has come from two countries: the United States and Canada. And, I suggested that since the growth in production in those two countries came from high-cost deposits--tight oil in the United States and tar sands in Canada--that the precipitous drop in oil prices would lead to declines in production in both countries. I concluded that unless another area of the world suddenly started growing its oil production significantly that those declines would probably result in a worldwide decline in oil production.Well, declines in the both the United States and Canada have arrived. It will be several months before we can know with any certainty whether those declines will translate into a persistent global decline. But this much we do know:  The International Energy Agency, a consortium of 29 countries tasked with tracking worldwide energy trends, said in its latest report that global oil production fell 600,000 barrels per day in July--and here's the important part--"mainly on lower non-OPEC output." That's a reference to falling U.S. and Canadian production. One month does not make a trend. But the report notes that non-OPEC supply is expected to contract in 2016.  The report said that further declines in U.S. production are expected. Weekly estimates from the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, bear this out. The EIA put U.S. production at 9.1 million barrels per day (mbpd) for the week ending September 18; that's down from 9.6 mbpd in early June.  Canadian production has fallen since the beginning of the year from 4 mbpd to an estimated 3.6 mbpd in June when the numbers were last updated according to the country's National Energy Board.

The Oil-Sands Glut Is About to Get a Lot Bigger - The last place oil producers want to be when prices plummet to profit-demolishing lows is midstream on a billion-dollar project in one of the costliest parts of the planet to extract crude. Yet that’s exactly where half a dozen oil sands operators from Suncor Energy Inc. to Brion Energy Corp. find themselves with prices for Canadian oil now hovering around $30 a barrel. While all around them projects have been postponed or canceled, their investments were judged too far along when the oil game suddenly moved from offense to defense. These projects will add at least another 500,000 barrels a day -- roughly a 25 percent increase from Alberta -- to an oversupplied North American market by 2017. For companies stuck spending billions in a downturn, the time required to earn back their investments will lengthen considerably, said Rafi Tahmazian, senior portfolio manager at Canoe Financial LP. “But the implications of slowing down a project are worse,” said Tahmazian, who helps oversee about C$1 billion ($758 million) in energy funds at the Calgary investment firm. A general rule of thumb says new plants require a West Texas Intermediate price of $80 a barrel to break even. Western Canada Select, a blend of heavy Alberta crude, is currently selling at a discount of about $14 a barrel to the WTI benchmark, which fell 1.5 percent Friday to settle at $46.05 on the New York Mercantile Exchange.

Canada’s native chiefs reviewing treaty to block oil industry expansion (Reuters) – Native chiefs in the Western Canadian province of British Columbia voted on Wednesday to join some of their eastern counterparts opposed to a major pipeline project, in a move some leaders described as a step toward a national alliance aimed at blocking expansion of Alberta’s oil sands industry. The chiefs from British Columbia agreed to join opposition to the Energy East project – proposed by TransCanada Corp at the meeting, also attended by chiefs from the Canadian provinces of Ontario, Manitoba and Quebec. If approved, the Energy East pipeline would carry up to 1.1 million barrels of crude oil per day from Alberta’s oil sands to the Atlantic coast, along a 4,200 km (2,850-mile) route. Canada’s oil sands in northern Alberta are home to the world’s third-largest crude reserves but they also represent the country’s fastest growing source of greenhouse gas emissions due to their energy intensive production methods. While the industry has said it needs to expand pipelines to give it access to new markets and promote responsible expansion, environmental and aboriginal groups and some municipalities across the country have opposed new projects, due to the risk of spills and the climate change impacts. The native leaders also released a draft national treaty at the meeting, to be circulated among First Nations across the country, that would call for them to prohibit, challenge and resist use -whether by pipeline, rail or tankers – of their territories for expansion of oil sands production.

Trouble Ahead For The World’s Next Shale Boom? --Argentina has often been held up as the next most likely location for a shale revolution, with some of the largest shale oil and gas reserves in the world. Argentina could hold more than 800 trillion cubic feet of shale gas, more than the U.S., and second only to China, according to the EIA. Its shale oil resources, at 27 billion barrels, are also significant. If Argentina is to succeed in developing its shale resources, the Vaca Muerta is where it will happen. The shale basin in central Argentina has been one of the most watched shale basins outside of North America, with significant interest and investment from major international oil companies including ExxonMobil, Royal Dutch Shell, Chevron, Wintershall, Total, and Russia’s Gazprom. Chevron’s $1.2 billion deal with Argentina’s YPF in 2013 raised expectations that the boom was not far behind.  Despite the presence of international companies and the few hundred wells drilled to date, it is still early days. Production has ticked up, but the shale region has barely been picked over. Chevron and YPF are producing around 43,000 barrels per day of oil equivalent from the Vaca Muerta. Low oil prices, however, are dampening activity in the country. YPF’s Miguel Galuccio said in April that, with oil prices so low, some wells are not profitable. “It is not profitable with an $11 million well and prices at $50 per barrel. We drilled our vertical wells with the expectation that they would be profitable at $84 per barrel and with wells that cost between $6.5 or $7 million,” he said. YPF has succeeded in bringing down the cost of drilling, but it is still shy of its target of $4 to $5 million per well, which would be much closer to the drilling costs in North America. Producing oil in Argentina does have one unique benefit, however. The Argentine government regulates prices, allowing producers to sell oil at a set price of $77 per barrel, rather than the much lower international price.   Argentina does have much higher drilling costs and less infrastructure in and around the Vaca Muerta, but the regulated oil price offers one advantage for oil companies in Argentina when market prices collapse.

Russian Oil Producers Head for Tax Showdown Amid Output Warnings - Russia’s oil industry begins a critical battle over taxes this week. Losing may result in the first decline in crude production at the world’s largest energy exporter since 2008. Oil producers are due to meet with Russian Prime Minister Dmitry Medvedev Monday to present their joint view on Finance Ministry proposals to increase crude oil extraction taxes, said two company representatives who asked not be be identified because the meeting isn’t public. The ministry wants to boost revenue by about 600 billion rubles ($9.1 billion) in 2016 alone to mitigate the biggest budget deficit in years. The price of crude plunged by about 50 percent over the past year because of a global oversupply. While Russia’s government finances have deteriorated, its oil companies have proved more resilient to the slump as some tax rates automatically adjusted lower and a weaker ruble reduced their costs. The nation’s oil production rose to a post-Soviet record of 10.72 million barrels a day in June. “If the Fin Min proposal is approved in the current form, we expect the total production decline to reach 1.5 percent to 2 percent in 2016,” Karen Kostanian, oil and gas analyst at Bank of America Corp., said by phone. Output will fall because of cuts to capital expenditure estimated at $2 billion to $3 billion, he said.

Survey: OPEC Oil Output Rises In September, Led By Iraq  (Reuters) - OPEC oil output has risen in September from the month before, a Reuters survey found on Wednesday, as Iraq's northern exports recovered from disruption that had halted supply growth from the group's second-largest producer. Saudi Arabia and other Gulf members of the Organization of the Petroleum Exporting Countries have kept output mostly steady, a further sign they are sticking to their focus on defending market share instead of prices. OPEC supply has increased in September to 31.68 million barrels per day (bpd) from a revised 31.57 million in August, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. With the increase in supply this month, OPEC has boosted production by almost 1.5 million bpd since it switched in November 2014 to defending market share from its previous policy of cutting output to prop up prices. Oil prices have almost halved in the past year to $48 a barrel because of excess supply, although analysts see signs that OPEC's strategy to curb growth in higher-cost production by letting prices fall is starting to deliver.  The OPEC supply boost in September has come from Iraq and a few smaller producers. Shipments from Iraq's north via Ceyhan in Turkey by Iraq's State Oil Marketing Organisation and the Kurdistan Regional Government have increased from August, when halts in the flow along the pipeline from Iraq slowed exports. Smaller increases have come from OPEC's two west African producers, Nigeria and Angola, both of which have slightly boosted exports, according to loading schedules. Nigerian exports are set for further growth in October.

No need for OPEC, non-OPEC producers summit: Kuwait – A summit of OPEC and non-OPEC, as suggested by Venezuela, would be pointless as independent producers are not committed to cutting output, Kuwait’s oil minister said on Monday. “The problem is that there is no commitment from the countries outside OPEC on what they would offer for the stability of prices,” Ali al-Omair said. “Their request from the OPEC members is to… reduce production while others continue pumping, and then we lose our market share.” Cash-strapped OPEC-member Venezuela has for months been pushing for an emergency OPEC meeting with Russia to stem the tumble in prices. The Organization of the Petroleum Exporting Countries is due to meet next in December Saudi Arabia too sees no need to hold a heads of state summit nor interfere in the oil market. One OPEC source said that should such a meeting produce no concrete outcome, it would have a negative impact on prices.  Earlier this month, Venezuelan President Nicolas Maduro reiterated calls for action within OPEC and beyond OPEC, mentioning controls on output and price bands, adding he would travel shortly to lobby for a meeting.

Saudi Arabia Withdraws Billions Of Dollars From Asset Managers To Cut Deficit From Falling Oil Prices -  Saudi Arabia has withdrawn tens of billions of dollars from global asset managers in recent months in an effort to cut its massive deficit caused by falling oil prices over the past year, Financial Times reported Sunday. The country's banks are borrowing in the bonds and loans market because of the cash squeeze. The price of crude oil has halved in the past year and now stands at about $50 a barrel. The slump in oil prices forced governments to fund spending through bond sales and to use cash accumulated during the boom.  Fund managers estimate the Saudi Arabia Monetary Agency has pulled out between $50 billion and $70 billion over the past six months. Last week, a large amount of assets were withdrawn, and fund managers told FT it was "our Black Monday."  Several global asset managers told FT they were hit by a wave of redemptions, which came on top of an initial round of withdrawals this year. Deposits into Saudi Arabian banks fell by about $4.53 billion from June to July, Bloomberg reported, and the country's three-month interbank lending rate climbed 12 basis points Tuesday from this year’s low in March.

As oil wealth dwindles, Saudi Arabia faces change  — At a gas station in Saudi Arabia’s second largest city of Jiddah, drivers are fueling up their cars at just 45 cents a gallon — four times less than the price of water. To make that possible, the kingdom spends up to $10.7 billion per year on gasoline subsidies. It also offers a range of perks and welfare support to its citizens such as free healthcare and education, including thousands of scholarships to expensive Western universities. Such largesse, however, is likely to be rolled back as the world’s largest oil exporter looks to curb spending for the first time in years due to a plunge in the price of crude, which accounts for 90 percent of government revenue. While the country’s $656 billion in currency reserves will help it avoid a brutal shift in lifestyles and policies, the kingdom is starting to be more careful with its finances. That will likely mean less investment in new infrastructure projects but also possibly, down the line, less welfare spending, smaller wage increases, and less construction of much-needed housing and roads. “It’s not an absolute crisis, but it is a question of planning for the future,”   Saudi Arabia starts losing money when the price of oil drops below $70 a barrel, experts say. If the price hovers around the current level of about $50 a barrel, the country can continue spending at its current pace until 2020. “That’s when things get bad,” said Young. Alternatively, it can start cutting spending on infrastructure now to free up money for social welfare for another 30 years or so.

How Well Is Saudi Arabia's Oil Strategy Working? -- How's that strategy to flood the market with oil working out for Saudi Arabia? Financial Times is reporting: Saudi Arabia has withdrawn tens of billions of dollars from global asset managers as the oil-rich kingdom seeks to cut its widening deficit and reduce exposure to volatile equities markets amid the sustained slump in oil prices.  The Saudi Arabian Monetary Agency’s foreign reserves have slumped by nearly $73bn since oil prices started to decline last year as the kingdom keeps spending to sustain the economy and fund its military campaign in Yemen. The central bank is also turning to domestic banks to finance a bond programme to offset the rapid decline in reserves. Of course, under Sharia borrowing / lending money is not allowed. Whatever. I assume if one buys a Saudi bond one will not be paid interest; rather one will get a pre-arranged "installment payment" at regular intervals. Reminder:
  • Saudi is losing about 10% of their cash reserves annually by giving away oil for $50/bbl (but the article above suggests it could be significantly more)
  • Saudi apparently had an unsuccessful 5-year, $35 billion program to significantly hike crude oil production
  • Saudi recently completed two new refineries
  • Saudi has huge desalinization electricity demands -- and growing annually; oil used to produce electricity
  • Saudi recently canceled huge solar energy projects
  • Saudi put on hold all new capital-intensive projects in addition to aforementioned solar energy projects
Dying Petrodollar Ripples Through Markets As Asset Managers Bemoan Loss Of Saudi Bid - One of the key things to understand about China’s liquidation of hundreds of billions in US paper is that far from being a country-specific phenomenon, it actually marks the continuation of something that’s been taking place in other emerging markets for some time.  As we outlined in “Why It Really All Comes Down To The Death Of The Petrodollar,” the forced sale of Beijing’s UST reserves is simply the most dramatic example of what Deutsche Bank has called “quantitative tightening.” For years, reserve managers in the world’s emerging economies worked to accumulate war chests of USD-denominated paper in an effort to ensure that in a crisis, they would have sufficient firepower to guard against speculative attacks on their currencies and/or accelerating capital outflows. Slumping commodity prices and the threat of a supposedly imminent Fed hike have conspired to put pressure on these reserves and outside of China, nowhere is this dynamic more apparent than in Saudi Arabia. Indeed it was the Saudis who dealt the deathblow to the great EM reserve accumulation. By intentionally killing the petrodollar, Riyadh effectively ensured that the pressure on commodity currencies would continue unabated, but as we’ve documented exhaustively, that was and still is considered an acceptable outcome if it means bankrupting the US shale complex and securing market share. But for Saudi Arabia, this is all complicated by three things: 1) the necessity of preserving the lifestyle of everyday citizens, 2) spending associated with the proxy war in Yemen, and 3) defense of the riyal’s dollar peg. All of those factors have served to weigh heavily on the county’s already depleted petrodollar reserves, and if the “lower for longer” crude thesis plays out, Riyadh may see further pressure on its current and fiscal accounts which are now both squarely in the red.  Of course all of the above is a drag on global liquidity and as we warned nearly a year ago, the death of the petrodollar means oil exporters are set to become net sellers of assets for the first time in decades.

On those diminishing petrodollar flows, Saudi edition --  Izabella Kaminska --  We thought we’d reiterate the really important bit of this Saudi Arabia funding story from the FT’s Simeon Kerr in Dubai about the rate at which the Kingdom is pulling funds from global asset managers:  Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery, said fund managers estimate that Sama has pulled out $50bn-$70bn over the past six months.  The big question is when will they come back, because managers have been really quite reliant on Sama for business in recent years,” he said. Since the third quarter of 2014, Sama’s reserves held in foreign securities have declined by $71bn, accounting for almost all of the $72.8bn reduction in overall overseas assets. And also this:  While some of this cash has been used to fund the deficit, these executives say the central bank is also seeking to reinvest into less risky, more liquid products. “They are not comfortable with their exposure to global equities,” said another manager. Fund managers with strong ties to Gulf sovereign wealth funds, such as BlackRock, Franklin Templeton and Legal & General, have received redemption notices, according to people aware of the matter. For “global” we think it’s fair to read EM.  What the story doesn’t emphasise is how this links into the wider eurodollar recycling thesis, a.k.a the direct consequence of the hypothetical eventuality of no more petrodollars. We’ve previously explained how the causation works here. In reality, the money tends to be invested in “global asset management” funds (offshore) which often offer access to structured products specifically designed to send capital market funding to investments further afield. Via this yield grabbing process, petrodollars flow into much riskier equities (often with an EM flavour) or — in some cases — into even less liquid but supposedly safe yield-enhancing arbitrage plays often associated with commodities.

The evil empire of Saudi Arabia is the West’s real enemy -  Saudis are active at every level of the terror chain: planners to financiers, cadres to foot soldiers, ideologists to cheerleaders.  Iran is seriously mistrusted by Israel and America. North Korea protects its nuclear secrets and is ruled by an erratic, vicious man. Vladimir Putin’s territorial ambitions alarm democratic nations. The newest peril, Isis, the wild child of Islamists, has shocked the whole world. But top of this list should be Saudi Arabia – degenerate, malignant, pitiless, powerful and as dangerous as any of those listed above.  The state systematically transmits its sick form of Islam across the globe, instigates and funds hatreds, while crushing human freedoms and aspiration. But the West genuflects to its rulers. Last week Saudi Arabia was appointed chair of the UN Human Rights Council, a choice welcomed by Washington. The jaw simply drops. Saudi Arabia executes one person every two daysAli Mohammed al-Nimr is soon to be beheaded then crucified for taking part in pro-democracy protests during the Arab Spring. He was a teenager then. Raif Badawi, a blogger who dared to call for democracy, was sentenced to 10 years and 1,000 lashes. Last week, 769 faithful Muslim believers were killed in Mecca where they had gone on the Hajj. Initially, the rulers said it was “God’s will” and then they blamed the dead. Mecca was once a place of simplicity and spirituality. Today the avaricious Saudis have bulldozed historical sites and turned it into the Las Vegas of Islam – with hotels, skyscrapers and malls to spend, spend, spend. The poor can no longer afford to go there. Numbers should be controlled to ensure safety – but that would be ruinous for profits.

China, Iran to put brakes on oil price recovery: poll  (Reuters) – Global oversupply and more Iranian production are likely to keep a lid on oil prices next year, offsetting any slowdown in U.S. shale output, a Reuters poll showed on Wednesday. Benchmark North Sea Brent crude is expected to average $58.60 a barrel in 2016, slightly above the $56.63 seen so far this year, but well below the forecast of $62.30 in last month’s poll, the Reuters survey of 31 analysts showed. Fifteen of the 28 analysts polled in both the August and September surveys cut their 2016 forecasts, while 10 kept them unchanged. The poll forecast Brent would average $55.30 in 2015. U.S. crude is projected to average $54.10 a barrel next year, down from a forecast of $57 in the August poll. Oil prices have collapsed over the last year, falling from a high above $115 a barrel in June 2014 to a low of almost $42 in August this year. Underlying the drop in prices is a huge oversupply as Middle East oil exporters have fought for market share with U.S. shale producers, increasing stockpiles worldwide. Most analysts expect oil prices to stay low for some time to come until the market rebalances and stocks begin to fall.

China Is Betting Its Energy Future On This Tiny, Foreign City - No, it's not New York, or London; Moscow, Geneva, Vancouver or even D.C. According to Clarmond House, the most important foreign city - the one which China is making the center of its largest offshore infrastructure project - is the tiny port of Gwadar (population 85,000) which Pakistan purchased from Oman in 1958 for $1 million, and which has become the critical hub of China's future energy policy.  China, the world’s largest oil importer, gets the majority of this oil from the Persian Gulf. Just look the world map and consider the journey of an oil tanker to reach Shanghai, only for the oil to then arrive in western China! The journey by sea is 16,000 miles, takes 2-3 months and passes through the Straits of Malacca, which is an area rife with piracy and which could also be shut down by anti-Chinese interests. Now reconsider Gwadar. It sits just outside the Straits of Hormuz directly in the line of all shipping routes out of the Gulf and, in geographic terms, there is only Pakistan to cross before you reach western China. So China is making Gwadar the centre of one of its largest infrastructure projects in the world. Over the next 5 years China will invest approximately $46 billion not only in Gwadar port but also in building the China-Pakistan corridor. This latter development is a massive project that will link Gwadar to Kashgar in western China, a distance of over 2,400 kilometres, all of it through Pakistan. The build will include new rail, road, and pipeline infrastructure. It will not only facilitate imports into China but also their exports into the gulf region; it binds Pakistan to its northern neighbour. [Also, it is a strategic base that could control any traffic in the region - duh!]

No comments: