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Energy round-up: the next five years
Energy round-up: the next five years
Three things you shouldn’t miss this week
- Article: What will a Conservative majority mean for climate and energy? – Carbon Brief’s essential post-election summary.
- Report: Decarbonizing Development Three Steps to a Zero-Carbon Future – What needs to happen now for the world to have zero emissions by 2100.
- Chart: Low oil prices are making their mark on shale output in the US:
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Energy and climate policy was scarcely mentioned during the UK election campaign. With a new government in place much sooner than expected, what do the next five years hold?
The appointment of Amber Rudd as the new Energy Secretary waswelcomed by environmentalists, with the Renewable Energy Association hailing her as “a champion of renewables and low-carbon economy”. But then, as her predecessor Ed Davey found, policy in this critical area is not exclusively controlled by the Secretary of State.
On low-carbon policy the Conservative manifesto is mixed: it pledges to support value for money renewables while simultaneously promising to abolish financial support for new onshore wind farms – one of the cheapest low carbon energy options. The new government is also a staunch supporter of fracking – but those hoping to replicate US expansion would be wise to notice the tide is turning (see our chart of the week).
Whether the fall in US shale output is temporary or terminal remains to be seen, but at least one prominent financier is scathing about the industry’s prospects. Shares in drilling companies plunged after hedge fund manager David Einhorn, famous for predicting the collapse of Lehman Brothers in 2008, likened the industry’s business model to “using $50 bills to counterfeit $20s”.
…click on the above link to read the rest of the article…
The US-Saudi war with OPEC to prolong oil’s dying empire
The US-Saudi war with OPEC to prolong oil’s dying empire
Whoever controls the price of oil can play god with the global economy – that’s why the US and Saudi Arabia are leading the way to smash OPEC and re-create a new global oil cartel
“No one can set the price of oil,” said Saudi oil minister Ali al-Naimi earlier this week. “It’s up to Allah.”
Which is an interesting comment given Saudi Arabia’s insistence on boosting high levels of production since last year. The strategy has maintained a global supply glut, playing a key role in the dramatic lowering of oil prices.
Although the Saudis have recently increased official selling prices in response to stronger demand, al-Naimi made clear that they have no plans to curb production.
Make no mistake – the global oil glut is not just a result of market-driven supply demand dynamics, but an intended consequence of an evolving US-Saudi strategy to use oil as a weapon.
That is not to suggest that the US and Saudi Arabia are in complete agreement over the strategy, or even that it is being hatched and executed in total coordination. Rather, an uneasy convergence of mutual interests has given rise to a strategic accommodation between the two allies.
The targets of the strategy include their chief geopolitical rivals, climate change activists and renewable energy advocates.
Playing god with oil
The idea of using oil to play god is hardly new, but for the Obama administration it dawned with the US shale gas boom.
In the summer of 2013, Obama’s then national security adviser Tom Donilon, explained in Foreign Affairs, that the surge in US domestic energy production “allows Washington to engage in international affairs from a position of strength”.
– See more at: http://www.middleeasteye.net/columns/us-saudi-war-opec-prolong-oil-s-dying-empire-222413845#sthash.JYZfA68W.dpuf
Global oil glut grows to 2 million barrels a day as OPEC pumps more
International Energy Agency predicts oversupply of refined fuel, but points to rising demand
Fresh data on worldwide crude production shows the global glut of oil is growing with Saudi Arabia’s production near record highs, according to the International Energy Agency.
And there are signs the oversupply is moving into the market for refined products such as gasoline, meaning the recent rally in oil prices could lose steam, the IEA said in a report released today.
OPEC crude supply rose by 160,000 barrels a day to 31.21 million barrels a day in April, the highest since September 2012. Iraq and Iran boosted their output and top exporter Saudi Arabia was increasing its rig count.
There has been a slowdown in U.S. production, but global oil supply is still exceeding demand by two million barrels a day.
Many in the North American oilpatch have accused the Saudis of keeping output high to drive down U.S. production.
On the up side, there has been recovery in demand for crude as the U.S. and European economies gain steam. Demand for crude this year is projected to grow to as high as 1.1 million barrels a day, with the big surge expected later in the year.
U.S. data released today shows commercial crude inventories fell by 2.19 million barrels in the week ended May 8, the second week that inventories have fallen after rising for months.
WTI slips to $60
The new data on the worldwide oil glut hit oil prices in afternoon trading. West Texas Intermediate crude was down 62 cents to $60.13 US a barrel at the close, while Brent oil, the international crude contract, was off 34 cents at $66.52.
Meanwhile, Western Canada Select, the main Canadian contract continued to close the gap with WTI, moving close to its high for the year of $52.50.
Refiners have been buying more crude to take advantage of the low prices and are refining oil for summer driving earlier than usual. The signs of an uptick in oil prices helped accelerate their purchase of crude.
There are plenty of players who predict a fresh downturn in WTI prices as U.S. producers see the higher prices and turn the taps on again.
Saudi Arabia Continues To Turn Screws On U.S. Shale
Saudi Arabia Continues To Turn Screws On U.S. Shale
Saudi Arabia continues to ratchet up production, taking market share away from U.S. shale producers.
According to OPEC’s latest monthly oil report, Saudi Arabia boosted its oil output to 10.31 million barrels per day in April, a slight increase over the previous month’s total of 10.29 million barrels. That was enough for the de facto OPEC leader to claim its highest oil production level in more than three decades.
Saudi Arabia has increased production by 700,000 barrels per day since the fourth quarter of 2014 in an effort maintain market share. The resulting crash in oil prices is forcing some production out of the market, and Saudi Arabia intends for the brunt of that to be borne by others.
Related: California’s Climate Goals: Realistic Or Just Wishful Thinking?
There is a lag between movements in the oil price and corresponding changes in production. OPEC says there was a 23-week time lag between the fall in rig counts and the resulting dip in oil production in the United States. But the effects of the oil price crash are now being felt. New data from the EIA says that U.S. oil production is declining. Having already predicted a 57,000 barrel-per-day decline for May, the agency now says that another 86,000 barrels per day in output will vanish in June.
In other words, as Saudi Arabia ramps up, U.S. shale is being forced to cut back. This story has been told many times over the past few months, but the data is finally confirming the success of Saudi Arabia’s strategy, albeit a minor one thus far.
…click on the above link to read the rest of the article…
“Motherfrackers” and Big Oil Hypesters
“Motherfrackers” and Big Oil Hypesters
Forbe’s contributor Christopher Helman has always been an unapologetic supporter of shales. For instance, only last September he wrote a piece entitled “America’s Energy Outlook is Fracking Great, For Now”. Never mind that oil prices had begun their downward spiral three months prior to this statement. Never mind that every shale gas play in the US with the exception of the Marcellus had already tipped into decline. And never mind that reserve estimates had been repeatedly downgraded culminating with the colossal downgrade of the Monterey shale in California by 96% by EIA. You bet…fracking great!
Christopher Helman, however, is paid to hype Big Oil. And to his credit, he does occasionally mention a few problems as he tries to gloss over their implications. For instance, in this same article dated September 2014 he states:
“At the same time, they have to get their volumes up high enough that they can generate enough free cash flow to pay back their debt. If you can’t drill economically it all unravels.”
Yes, it does.
There’s just one problem. Shale operators have never been able to get their volumes up high enough to generate free cash flow though Mr. Helman leaves one with the impression that they have. But they haven’t…at least not since 2009! That’s right, 2009.
Examining a universe of 21 shale operators including all the usual suspects, free cash flow has been overwhelmingly negative since at least 2009. Only three companies of the 21 have ever had positive free cash flow during that time frame. And even then it was nominal and not consistent.
Mr. Helman, however, glossed over this but went on to state with his usual hyperbole that:
“What is news is that the boom is showing no signs of slowing down.”
Well, not exactly!
…click on the above link to read the rest of the article…
New Oil-By-Rail Regulations Are Big Win for Oil and Rail Industries, Won’t Stop “Bomb Trains”
New Oil-By-Rail Regulations Are Big Win for Oil and Rail Industries, Won’t Stop “Bomb Trains”
The long-awaited oil-by-rail regulations released today are basically a guidebook for the oil and rail industries to continue doing business as usual when it comes to moving explosive Bakken crude oil by rail.
DeSmog recently reported on how the Obama administration has worked behind the scenes to help achieve the oil industry’s top goal when it came to these new regulations — allowing the oil producers to continue to put the highly volatile Bakken crude oil into rail tank cars without removing the natural gas liquids that make it such an explosive mixture.
As we’ve reported, there is a relatively simple fix to end, or significantly reduce, the “bomb train” disasters, via a process known as stabilization.
But the new regulations not only give the industry a pass on doing this, they add to the “we need more research before we do anything” approach that is the preferred tactic the industry and regulators are using to delay addressing the issue.
On page 232 of the new regulations, they state the following:
Any specific regulatory changes related to treatment of crude oil would consider further research and be handled in a separate action.
If you are a Bakken oil producer, that one sentence out of the close to 400 pages of new regulations is all you need to know. Time to start writing thank you notes to your lobbyists.
As Al Jazeera recently reported, quoting a professor of petroleum engineering at the University of Houston who was commenting on the science of Bakken crude:
“The notion that this requires significant research and development is a bunch of BS.”
A similar sentiment was expressed in an editorial published by RailwayAge earlier this week responding to the Department of Energy announcement that it will study the issue of Bakken oil volatility
…click on the above link to read the rest of the article…
How Shale Is Becoming The .COM Bubble Of The 21st Century
How Shale Is Becoming The .COM Bubble Of The 21st Century
As I review the financials of one of the largest shale producers in the United States, Whiting Petroleum (WLL), I can’t help but notice the parallels to the .COM era of 1999 which, to some extent, has already returned to the technology and biotech sectors of today. Back then, the faster you burned cash to capture customers regardless of earnings to drive your topline, the higher your valuation. The theory was that after capturing the customers (in energy today, it is the wells) spending would slow and so would customer additions allowing companies to generate cash. By the way, a classic recent case is none other than Netflix (NFLX) which, in the past was exposed for accounting gimmicks that continue even today. It is still following this path of burning cash for the sake of customer additions, while never generating any cash in its entire existence.
Cash was plentiful in 1999 so it could always be raised as the Federal Reserve began its easy money era creating a series of bubbles for the next 15 years. Does this sound familiar to what is occurring now? It will end the same way and that process has already started as currency wars heat up and our economy grinds to a halt proving QE does not, in fact, create wealth (temporary yes for the 1%, short term, until POP) but instead it destroys it by distorting asset prices, misallocating investments, and ultimately creating an equity crash.
…click on the above link to read the rest of the article…
The U.S. Production Decline Has Begun
The U.S. Production Decline Has Begun
It is not because of decreased rig count. It is because cash flow at current oil prices is too low to complete most wells being drilled.
The implications are profound. Production will decline by several hundred thousand of barrels per day before the effect of reduced rig count is fully seen. Unless oil prices rebound above $75 or $85 per barrel, the rig count won’t matter because there will not be enough money to complete more wells than are being completed today.
Tight oil production in the Eagle Ford, Bakken and Permian basin plays declined approximately 111,000 barrels of oil per day in January. These declines are part of a systematic decrease in the number of new producing wells added since oil prices fell below $90 per barrel in October 2014 (Figure 1).
Figure 1. Eagle Ford, Bakken and Permian basin new producing wells by month and WTI oil price. Source: Drilling Info and Labyrinth Consulting Services, Inc.
(Click image to enlarge)
Deferred completions (drilled uncompleted wells) are not discretionary for most companies. Producers entered into long-term rig contracts assuming at least $90 oil prices. Lower prices result in substantially reduced cash flows. Capital is only available to fulfill contractual drilling commitments, basic costs of doing business, and to complete the best wells that come closest to breaking even at present oil prices.
Much of the new capital from junk bonds and share offerings is being used to pay overhead and interest expense, and to pay down debt to avoid triggering loan covenant thresholds.Hedges help soften the blow of low oil prices for some companies but not enough to carry on business as usual when it comes to well completions.
…click on the above link to read the rest of the article…
No Steep Decline In U.S Oil Production Expected Anytime Soon
No Steep Decline In U.S Oil Production Expected Anytime Soon
Increased oil output in the US has kept World oil output from declining over the past few years and a major question is how long this can continue. Poor estimates by both the US Energy Information Administration (EIA) and the Railroad Commission of Texas (RRC) for Texas state wide crude plus condensate (C+C) output make it difficult to predict when a sustained decline in US output will begin.
About 80 to 85% of Texas (TX) C+C output is from the Permian basin and the Eagle Ford play, so estimating output from these two formations is crucial. I have used data from the production data query (PDQ) at the RRC to find the percentage of TX C+C output from the Permian (about 44% in Feb 2015) and Eagle Ford plays (40% in Feb 2015).
Dean’s estimates of Texas C+C output are excellent in my opinion and are close to EIA estimates through August 2014. I used EIA data for TX C+C output through August 2014 and Dean’s best estimate from Sept 2014 to Feb 2015. By multiplying the % of C+C output from the RRC data with the combined EIA and Dean’s estimate, I was able to estimate Eagle Ford and Permian output. The chart below shows this output in kb/d.
The following chart shows the combined Permian and Eagle Ford output from 2012 to 2015 in kb/d, this chart is not zero scaled.
Below I have created a few scenarios for the Bakken and Eagle Ford. This analysis is based on the pioneering work by Rune Likvern at the Oil Drum (Red Queen series) and his blog at Fractional Flow, any errors in analysis are mine. I doubt that Mr. Likvern would speculate beyond 2 years forward in time (or he has not done so in the past). The data gathered from the North Dakota Industrial Commission (NDIC) by Enno Peters was also instrumental in the Bakken/Three Forks model.
…click on the above link to read the rest of the article…
8 States Dealing With Huge Increases in Fracking Earthquakes
8 States Dealing With Huge Increases in Fracking Earthquakes
A new report, released Thursday from the U.S. Geological Survey (USGS), identified eight states in the eastern and central U.S. where fracking operations have led to dramatic increases in earthquakes, primarily from the injection of the wastewater byproduct of drilling operations into underground wells. This process can activate faults that in some cases were previously unknown.
“Earthquake activity has sharply increased since 2009 in the central and eastern United States. The increase has been linked to industrial operations that dispose of wastewater by injecting it into deep wells,” the report says bluntly, in a rebuke to the earthquake deniers in the oil and gas industry, such as fracking founder Harold Hamm, who pressured Oklahoma officials to stay silent about the connection.
While Oklahoma, Texas and Ohio have gotten much of the attention for increases in seismicity in areas where earthquakes were once rare, they aren’t the only states in danger of more and larger earthquakes. The USGS report also pointed to Alabama, Arkansas, Colorado, Kansas and New Mexico and identified 17 zones within the eight states in particular danger from an increased number of what it calls “induced” quakes.
The report, Incorporating Induced Seismicity in the 2014 United States National Seismic Hazard Model, analyzed these seismic activity increases and developed the models to project how hazardous earthquakes could be in these in these zones, taking into account their rates, locations, maximum magnitude and ground motions.
…click on the above link to read the rest of the article…
The EIA Is Bizarrely Optimistic About Future US Oil Production
The EIA Is Bizarrely Optimistic About Future US Oil Production
The EIA came out with its final update of Annual Energy Outlook 2015. It seems that the EIA is extremely optimistic concerning future US crude oil production.
Here is a comparison with AEO 2014. The EIA still expects US crude production to peak in 2019 but at 10,472,000 bpd or 824,000 barrels per day higher than the expected last year. But the biggest difference is in the EIA’s change in decline expectations. They now expect the US to be producing 9,329,000 bpd in 2040 or 1,812 higher than they had 2040 production last year. This is the EIA’s reference, or most likely case.
Production from tight formations leads the growth in U.S. crude oil production across all AEO2015 cases. The path of projected crude oil production varies significantly across the cases, with total U.S. crude oil production reaching high points of 10.6 million barrels per day (bbl/d) in the Reference case (in 2020), 13.0 million bbl/d in the High Oil Price case (in 2026), 16.6 million bbl/d in the High Oil and Gas Resource case (in 2039), and 10.0 million bbl/d in the Low Oil Price case (in 2020).
Related: Has The Bakken Peaked?
What the EIA is saying in the above paragraph is that price and tight oil production is everything when it comes to US future oil production. On that point I would agree except that even if the price returns to $100 and higher, it will not produce tight oil production to anywhere near the EIA’s high price projections.
…click on the above link to read the rest of the article…
OPEC Says US Oil Boom Will End This Year
OPEC Says US Oil Boom Will End This Year
OPEC says the demand for oil – its oil – will rise during 2015 because the cartel is winning its price war against US shale producers by driving them out of business.
“Higher global refinery runs, driven by increased [summer] seasonal demand, along with the improvement in refinery margins, are likely to increase demand for crude oil over the coming months,” the cartel said in its Monthly Market Report, issued, April 16.
OPEC forecasts demand at an average of 29.27 million barrels per day in the first quarter 2015, a rise of 80,000 bpd from its previous prediction made in its March report. At the same time, it said, the cartel’s own total output will increase by only 680,000 barrels per day, less than the previous expectation of 850,000 barrels per day, due to lower US and other non-OPEC production.
Related: Latest EIA Predictions Should Be Taken With More Than A Pinch Of Salt
The United States appears to have been OPEC’s chief target when, at its November meeting in Vienna, its members, under Saudi leadership, agreed to maintain production at 30 million barrels per day despite falling prices caused by an oversupply of oil.
Average global oil prices began plunging in late June 2014 from more than $110 per barrel to a low of around $50 in January. They’ve now settled to around $60, and Laurence Fink, the CEO of Black Rock, the world’s largest asset manager,said in an interview April 16 on CNBC that the price of a barrel of oil probably would go no lower than $60 this year, but also rise no higher than $80.
…click on the above link to read the rest of the article…
Is Saudi Arabia Setting The World Up For Major Oil Price Spike?
Is Saudi Arabia Setting The World Up For Major Oil Price Spike?
In order to maintain a grip on market share by pushing U.S. shale producers out of the market, Saudi Arabia (and OPEC) is willing to use up its spare capacity. That could lead to a price spike.
Saudi Arabia produced 10.3 million barrels per day in the month of March, a 658,000 barrel-per-day increase over the previous month. That is the highest level of production in three decades for the leading OPEC member. On top of the Saudi increase, Iraq boosted output by 556,000 barrels per day, and Libya succeeded in bringing 183,000 barrels per day back online. OPEC is now collectively producing nearly 31.5 million barrels per day, well above the cartel’s stated quota of just 30 million barrels per day.
Related: Latest EIA Predictions Should Be Taken With More Than A Pinch Of Salt
The enormous increase in production comes into a market that is still dealing with extraordinarily low prices. The move could be interpreted as a stepped up effort on behalf of Saudi Arabia to maintain market share at all costs. More output will prolong the slump in oil prices, which will force even more U.S. shale production out of the market. The signs of success are already showing – the U.S. is set to lose 57,000 barrels per day in production in May, and rig counts are still falling.
…click on the above link to read the rest of the article…
Latest EIA Predictions Should Be Taken With More Than A Pinch Of Salt
Latest EIA Predictions Should Be Taken With More Than A Pinch Of Salt
The U.S. government released its landmark Annual Energy Outlook on April 14, with some rather bold predictions about the future of oil and gas.
The EIA released the 2015 edition of its report at a Washington conferencehosted by the Center for Strategic and International Studies. Here are a few nuggets from the much-anticipated report:
• In its Reference Case, U.S. oil production continues to rise for the rest of the decade, keeping prices from spiking. As a result, the EIA thinks oil prices will stay below $80 per barrel through 2020.
• The U.S. becomes a net exporter of energy in 2019 as higher production combines with lower demand from improved vehicle efficiency
• Shale production peaks and begins to decline after 2020
• OPEC manages to offset falling U.S. production in the next decade with increases in output coming from several Middle Eastern countries
• The EIA is so confident about adequate supplies that it does not foresee oil prices surpassing $100 per barrel again until 2028
• Still, there is a lot of variation among the different scenarios. In its Low Oil Price case, Brent stays at $52 per barrel in 2015, but in its High Oil Price case, it surges to $122 this year
• Electricity from renewable energy increases by 72 percent between 2013 and 2040, with its share of the electricity market rising from 13 to 18 percent
Related: Off-Grid Solar Threatens Utilites In The Next Decade
These projections provide some markers for the road ahead, but the EIA is notoriously off the mark when it comes to accurately forecasting what comes next for energy markets. It routinely extrapolates current trends forwards, assuming very little will change.
…click on the above link to read the rest of the article…
Rig Count Data Shows Gulf States Cranking Up Pressure On The U.S.
Rig Count Data Shows Gulf States Cranking Up Pressure On The U.S.
The global rig count statistics published by Baker Hughes provide a crucial industry activity indicator and some of the most up to date industry statistics available. This is a short report updating international statistics to March 2015 and US statistics to 10 April 2015.
Figure 1 The Middle East OPEC gulf states continue to confound expectations by increasing their rig count and drilling, evidently intent on keeping the oil market over-supplied and the oil price suppressed. Oil rig count for these 4 countries increased 6 to 161 for the month of March. Saudi oil production hit a new record of 10.3 Mbpd in March. Oil Minister Ali Al-Naimi wants price stability and order to return to the market but on OPEC’s terms.
Related: Could We Finally Have A Meaningful Oil Price Rally?
Figure 2 The international oil rig count peaked at 1080 in July 2014 and has since fallen 104 (10%) to 976 units in March 2015. This is as yet a very muted response to what is a full blown industry crisis. It does take longer for offshore drilling to wind down and it is possible that companies with rigs on contract have simply parked them for the time being.
…click on the above link to read the rest of the article…
