Justin Mikulka – Page 3

Most people probably aren’t familiar with the acronym ZIRP. It stands for zero interest rate policy and is the policy that unintentionally created the American fracking bubble — just one of its many consequences.

And while most people may not know much (if anything) about ZIRP or the Federal Reserve (Fed), it is likely that they are aware of the impact this policy has on their own lives.

Do you have money in your checking account? Are you lucky enough to have savings? Have you noticed how you don’t make any interest on that money and haven’t for almost 10 years?

You can thank the Fed and ZIRP for that. One of the results of the Fed’s zero interest rate policy is that the average American saver ends up with close to zero interest on their money in the bank. This is one of the reasons that ZIRP is often described as a wealth transfer from American savers to debtors. Because the shale industry is deeply in debt, these companies directly benefit from this arrangement.

Below is a chart of rates for certificates of deposit (CD) since 1980 — historically a safe investment that gave people a decent return on their savings.

Since 2010, if you put your money in a CD, you would not even be keeping up with inflation due to the low interest rate. That isn’t supposed to be how it works.

And as this next chart shows, historically that hasn’t been how it works. The graph below is the federal funds rate since 1950 (this is the interest rate that banks charge each other to lend excess cash overnight). It’s very clear that starting in 2008, the chart flatlined (due to ZIRP) and stayed that way for years — something that had not happened before.

…click on the above link to read the rest of the article…

GOP Tax Law Bails Out Fracking Companies Buried in Debt

April 27, 2018

GOP Tax Law Bails Out Fracking Companies Buried in Debt

EOG Resources is one of the top companies in the fracking industry, and thanks to the new tax bill passed by Republicans and President Donald Trump at the end of last year, EOG had an exceptionally strong year compared to 2016.

In 2017, the company reported a net income of $2.6 billion. The previous year? A loss of $1.1 billion. That financial turnaround seems very impressive until you realize that $2.2 billion, or about 85 percent, of its 2017 income was the result of the new tax law. Without that gift from the GOP and Trump, EOG would have lost approximately $700 million between those two years. Instead they are $1.5 billion ahead of the game.

With numbers like these, it is easy to see how the Tax Cuts and Jobs Act of 2017 was a much-needed lifeline for the money-losing fracking industry. EOG is routinely touted as one of the best shale oil and gas companies. Yet the company still lost $700 million in the past two years. Or at least it would have if not for the tax bill.

This is the same company that an analyst at the investment advice website Seeking Alpha says is “generally considered one of the best unconventional upstream oil and gas players in the business, and its financials back it up.” If those are the best financials in your industry, your industry has a big problem.

An interesting side note is that EOG stands for Enron Oil and Gas, which was spun off as its own company from Enron — the company notorious for one of the great energy Ponzi schemes of the 20th century. Today, an Enron spinoff company is being held up as the most fiscally sound in the shale oil industry.

…click on the above link to read the rest of the article…

The Secret of the Great American Fracking Bubble

April 18, 2018

The Secret of the Great American Fracking Bubble

Natural gas drilling well pad in Wyoming

What was McClendon’s secret? Instead of running a company that aimed to sell oil and gas, he was essentially flipping real estate: acquiring leases to drill on land and then reselling them for five to 10 times more, something McClendon explained was a lot more profitable than “trying to produce gas.” But his story may serve as a cautionary tale for an industry that keeps making big promises on borrowed dimes — while its investors begin losing patience, a trend DeSmog will be investigating in an in-depth series over the coming weeks.

From 2008 to 2009, Chesapeake Energy’s stock swung from $64 a share under McClendon to around $17. Today, it’s worth just $3 a share — the same price it was in 2000. A visionary when it came to fracking, McClendon perfected the formula of borrowing money to drive the revolution that reshaped American energy markets.

An Industry Built on Debt

Roughly a decade after McClendon’s rise, the Wall Street Journal reported that “energy companies [since 2007] have spent $280 billion more than they generated from operations on shale investments, according to advisory firm Evercore ISI.”

As a whole, the American fracking experiment has been a financial disaster for many of its investors, who have been plagued by the industry’s heavy borrowing, low returns, and bankruptcies, and the path to becoming profitable is lined with significant potential hurdles. Up to this point, the industry has been drilling the “sweet spots” in the country’s major shale formations, reaching the easiest and most valuable oil first.

…click on the above link to read the rest of the article…

Aliso Canyon Disaster Highlights Risks, Inadequate Safety Rules Governing Natural Gas Storage

March 28, 2018

Aliso Canyon Disaster Highlights Risks, Inadequate Safety Rules Governing Natural Gas Storage

Aliso Canyon's leaking natural gas storage well in southern California

“SoCalGas had lenient requirements for infrastructure record keeping, no comprehensive risk management plan, and no testing programs or plans in place to remediate substandard wells,” concluded Najmedin Meshkati, University of Southern California professor of civil and environmental engineering and senior author on the report. The study was published in the Journal of Sustainable Energy Engineering.

In addition to its notable contribution to global warming, the massive methane leak also required the evacuation of two schools and at least 8,000 residents for months while SoCalGas tried to stop the leak.

The California Public Utilities Commission also issued a report evaluating the failed storage well at Aliso Canyon, and noted that “severe external corrosion was observed in the failure areas.” Based on these reports, it appears that SoCalGas had a policy of allowing its gas storage wells to operate until they failed, such as at Aliso Canyon.

DeSmog reached out to SoCalGas for comment on the University of Southern California study but did not hear back.

A History of Industry Self-Regulation

In theory, outside inspectors could have potentially caught some of these safety issues during regular evaluations of the infrastructure. But as the University of Southern California’s report details, that is not how the natural gas storage industry operates in the U.S. Instead, its description of the circumstances leading to the leak reads as much like a recipe for future disaster as an analysis of past failures. Previously, the industry has largely been allowed to self-regulate and the trend continues today.

…click on the above link to read the rest of the article…

Canada’s Pipeline Challenges Will Force More Tar Sands Oil to Move by Rail

March 19, 2018

Canada’s Pipeline Challenges Will Force More Tar Sands Oil to Move by Rail

The Motley Fool has been advising investors on “How to Profit From the Re-Emergence of Canada’s Crude-by-Rail Strategy.” But what makes transporting Canadian crude oil by rail attractive to investors?

According to the Motley Fool, the reason is “… right now, there is so much excess oil being pumped out of Canada’s oil sands that the pipelines simply don’t have the capacity to handle it all.”

The International Energy Agency recently reached the same conclusion in its Oil 2018 market report.

“Crude by rail exports are likely to enjoy a renaissance, growing from their current 150,000 bpd [barrels per day] to an implied 250,000 bpd on average in 2018 and to 390,000 bpd in 2019. At their peak in 2019, rail exports of crude oil could be as high as 590,000 bpd — though this calculation assumes producers do not resort to crude storage in peak months,” the International Energy Agency said, as reported by the Financial Post.

To put that in perspective, however, the industry was moving 1.3 million barrels per day at the peak of the U.S. oil-by-rail boom in 2014.

Graph of American crude-by-rail volumes. Credit: U.S Energy Information Administration

And Canada has plenty of capacity to load oil on more trains, which means if a producer is willing to pay the premium to move oil by rail, it can find a customer to do it. The infrastructure is in place to load approximately 1.2 million barrels per day.

…click on the above link to read the rest of the article…

The Manhattan Institute’s Joke of a Wall Street Journal Op-Ed

March 15, 2018

The Manhattan Institute’s Joke of a Wall Street Journal Op-Ed

Cass Oren's report cover for 'Overheated: How Flawed Analyses Overestimate the Costs of Climate Change'

From his analysis, “Overheated: How Flawed Analyses Overestimate the Costs of Climate Change,” the Wall Street Journal somehow arrived at the following headline for Cass’s recent op-ed: Doomsday Climate Scenarios Are a Joke.

It should be noted that Cass is a Harvard-trained lawyer, with a background in political science, not climate science. And his employer, the Manhattan Institute, for years has promoted climate science contrarianism while pushing fossil fuel development. No surprise that the organization is bankrolled by several conservative foundations, including the billionaire Mercer family, major Trump donors and funders of climate denial.

Cass’s Wall Street Journal op-ed, which begins with “Debates over climate change are filled with dire estimates of its cost,” was quickly trumpeted by the also Mercer-backed right-wing publication Breitbart News.

What Cass is peddling with his “just get air conditioners” argument is known as adaptation. The purveyors of this approach admit the climate is changing but say that it is nothing to worry about because humans will just adapt. This argument is much more popular with the extremely wealthy than with the rest of the world’s population.

Cass proceeds to dismiss several reports from organizations such as the U.S. Environmental Protection Agency and U.S.Government Accountability Office that estimate the impacts of increasing temperatures on the U.S. and global economy by simply saying people will do things like turn on air conditioners. Thus, he concludes, those estimates of the costs which he admits include “deaths from extreme heat, lost hours of work from extreme heat, and deaths from heat-caused air pollution” are “mostly from laughably bad economics.”

…click on the above link to read the rest of the article…

Safety Officials Order Partial Shutdown of Sabine Pass LNG Export Facility After Discovering 10-Year History of Leaks

February 18, 2018

Safety Officials Order Partial Shutdown of Sabine Pass LNG Export Facility After Discovering 10-Year History of Leaks

Sabine Pass, the only liquefied natural gas (LNG) export facility in the country, has reportedly been experiencing safety issues for the past decade, and yet federal safety officials were only informed of this history while investigating the terminal’s latest leak in January. Owned by Cheniere Energy, Sabine Pass is located on the Gulf Coast on the border of Texas and Louisiana.

Regulators became aware of the export facility’s issues after the most recent accident and leak at an LNG storage tank. As NOLA.com reported:

“Supercold liquefied natural gas leaked into a space between inner and outer walls of a major storage tank at the Sabine Pass LNG export facility in Cameron Parish on Jan. 22, and its minus 260-degree temperature created numerous 1-foot to 6-foot cracks in the carbon steel outer tank wall, allowing some of the gas to escape.”

As a result of this recent leak, Alan Mayberry, associate administrator for the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) sent a Corrective Action Order to Cheniere. The contents of this communication were not encouraging:

“To date, Sabine has been unable to correct the long-standing safety concerns described above involving the affected tanks, cannot validate the exact source or amount of the LNG that may have leaked into the annulus of the affected tanks, and cannot identify the circumstances that allowed the LNG to escape containment in the first place.”

According to PHMSA, the operators of the Sabine Pass facility don’t know how much LNG has leaked, don’t know how it happened, and can’t fix the problem, which seems like reasons for concern, especially considering problems with this and another tank began in 2 008:

…click on the above link to read the rest of the article…

Is This New Tar Sands Technology a Game Changer for Exporting Canada’s Bitumen?

February 18, 2018

Is This New Tar Sands Technology a Game Changer for Exporting Canada’s Bitumen?

A new technology has the potential to transform the transportation of tars sands oil. Right now, the already thick and slow-flowing oil, known as bitumen, has to be diluted with a super-light petroleum product, usually natural gas condensate, in order for it to flow through a pipeline or into a rail tank car.

However, scientists at the University of Calgary’s Schulich School of Engineering inadvertently found a way to make tar sands oil even more viscous, turning it into “self-sealing pellets” that could potentially simplify its transport.

“We’ve taken heavy oil, or bitumen, either one, and we’ve discovered a process to convert them rapidly and reproducibly into pellets,” Ian Gates, the professor leading the research, told CBC News in September 2017.

Based on the initial description of this product, it appears that it could alleviate many of the risks involved with moving tar sands oil by rail. The research teams says this product floats in water, does not pose a fire and explosion risk like the diluted bitumen currently moved in rail tank cars, and would eliminate air quality issues related to the volatile components of diluted bitumen.

If true, this technology would appear to reduce potential risks to people and the environment, in comparision with moving diluted bitumen by rail or in pipelines.

Gates also suggests that the solidified bitumen can be moved in the type of open rail cars used for coal. That would be welcome news to railroads, which have been losing business transporting coal as demand has dwindled. Gates did not respond to multiple requests for comment on this article.

Canadian National Working to Commercialize Similar Technology

Meanwhile, similar research and development has been happening not within the Canadian oil industry, but instead, a Canadian railroad, which has patented another method of solidifying tar sands for transport.

…click on the above link to read the rest of the article…

Will Canada’s Latest Boom in Tar Sands Oil Mean Another Boom for Oil-by-Rail?

December 22, 2017

Will Canada’s Latest Boom in Tar Sands Oil Mean Another Boom for Oil-by-Rail?

Oil by rail accident, with tank cars burning, near Gogama, Canada in 2015

Nothing seems able to derail the rise in Canadian tar sands oil production. Low prices, canceled pipelines, climate realities, a major oil company announcing it will no longer develop heavy oils, divestment, and now even refusals to insure tar sands pipelines have all certainly slowed production, but it is still poised for significant growth over the next several years.

In March an analyst for GMP FirstEnergy commented, “It’s hard to imagine a scenario where oilsands production would go down.”

But with pipelines to U.S. refineries and ports running at or near capacity from Canada, it’s hard to imagine all that heavy Canadian oil going anywhere without the help of the rail industry.

“The oilsands are witnessing unprecedented growth that we now peg at roughly 250,000 barrels per day in 2017 and 315,000 bpd in 2018, before downshifting to roughly 180,000 bpd in 2019,” says a new report from analyst Greg Pardy of RBCDominion Securities.

However, much like shale oil in the U.S., increased production doesn’t necessarily mean increased profits. The Wall Street Journal recently reported that since 2007 investors have spent approximately a quarter trillion dollars more on shale production than those investments have generated.

Clearly the oil industry will keep pumping as much oil as they can even while losing large sums of money. And just like in the U.S., Canadian oil producers are facing significant economic challenges, which have caused some companies to get out of the business.

As a result of these challenges, forecasts for future tar sands production have fallen significantly. In 2013 the forecast for 2030 production was 6.7 million barrels per day. That has been revised down to 5.1 million barrels per day. While that is a sizable drop in expected future production, the industry will still be growing in the near future, and most of that oil will be exported to America.

…click on the above link to read the rest of the article…

Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

October 3, 2017

Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

Oil derrick with 'welfare' spelled on Scrabble tiles

In fact, forty percent of the Permian basin in Texas would be economically unviable without subsidies, and for the home of Bakken crude production, Williston Basin, that number jumps to 59 percent, according to the researchers.

In addition, the study highlights what this additional fossil fuel production means for impacts to the climate:

“…continued subsidies for oil investment could produce oil (and associated gas) that, once burned, will yield CO2emissions equivalent to nearly 1 percent of the remaining global carbon budget for all sectors of all economies.”

At current oil prices, perhaps the most effective “keep it in the ground” strategy might be to stop subsidizing oil production.

But what happens with these subsidies when the price of oil is over $100 per barrel, as it was several years ago? The authors of the study report that, under such a scenario, government subsidies are simply “transfer payments” to oil investors. The oil would be profitable without the subsidies, which become, at that point, simply free cash for investors.

While this study provides valuable insight into how subsidies affect oil production and the climate, it notes that its conclusions are not unique. The authors point out: “As others have found regardless of the oil price, the majority of taxpayer resources provided to the industry end up as company profits.”

…click on the above link to read the rest of the article…

What Have We Learned From the Lac-Megantic Oil Train Disaster?

January 11, 2017

What Have We Learned From the Lac-Megantic Oil Train Disaster?

Lac-Megantic's downtown before the oil train disaster.

Brian Stevens first learned about the Lac-Megantic disaster — in which an unattended oil train caught fire and exploded, killing 47 people in the Quebec town — when he saw the news reports on TV.

Stevens is currently National Rail Director for Unifor, Canada’s largest private sector union, but he previously spent 16 years as an air-brake mechanic working on trains. At a recent conference in Ottawa examining lessons from the 2013 Lac-Megantic rail disaster, he recounted his reaction to seeing those initial scenes of destruction.

“That ain’t Canada, that can’t happen in North America because our brake systems won’t allow that,” he said when he eventually learned the images he was seeing were from Canada. “My heart sank … It was crushing.”

Stevens went on to explain his opinion of the root cause of the problem, summing up the challenges in Canada with one simple statement: “The railways write the rules.”

He also placed blame on the deregulation of the Canadian rail industry that began more than three decades ago.

“Lac Megantic started in 1984. It was destined to happen,” said Stevens, referring to the start of that deregulation.

One example of the effects of deregulation can be seen in the cuts to the number of people conducting inspections, from over 7,000 railway and rail car inspectors in 1984, down to “less than 2,000” now, according to Stevens.

He didn’t mince words about what he’s seen change in the three years since Canada’s worst rail accident.

“The railway barons continue to exist and continue to drive the industry and the government,” said Stevens.

Lac-Megantic before and after the oil train explosion. Credit: Claude Grenier, Studio Numéra, Lac-Mégantic.

…click on the above link to read the rest of the article…

Luck Rides The Rails: Another Near Miss with an “Insane” Bakken Oil Bomb Train

June 7, 2016

Luck Rides The Rails: Another Near Miss with an “Insane” Bakken Oil Bomb Train

As Mosier Fire Chief Jim Appleton said, “Mosier really dodged a bullet in the last 24 hours.”

“I hope that this becomes death knell for this mode of shipping this cargo. I think it’s insane,” Appleton said. “I’ve been very hesitant to take a side up to now, but with this incident, and with all due respect to the wonderful people that I’ve met at Union Pacific, shareholder value doesn’t outweigh the lives and happiness of our community.”

It’s a familiar story to those following the Bakken oil “bomb train” saga — luck.

“If I had been there another second, it’d probably have killed me,” Bounds said. “Glass was flying everywhere behind me. The walls were caving in. I hadn’t run like that in years.”

That was Morris Bounds describing to The Spokesman Review how he barely escaped the derailing Bakken oil train that destroyed his home in Mount Carbon, West Virginia in February 2015. He literally saw the train derailing and ran out his front door as the train wiped out his house behind him.

You don’t get much luckier than Morris Bounds. Or his wife, who happened to be in the hospital that day instead of at home.

Later that year when another Bakken oil train derailed in a residential neighborhood in Watertown, Wisconsin but did not ignite, Sarah Feinberg, the head of the Federal Railroad Administration, declared, “We feel we got really lucky.”

…click on the above link to read the rest of the article…

Top Obama Energy Official Says Administration Rejects “Keep It In The Ground” As Climate Strategy

May 29, 2016

Top Obama Energy Official Says Administration Rejects “Keep It In The Ground” As Climate Strategy

“We’re certainly not advocating any strategy for reducing hydrocarbon emissions by keeping oil in the ground…that’s not a position.”

This was the response of Christopher A. Smith when he was asked what he thought of the “growing movement of keeping oil in the ground” at the 2016 Columbia Global Energy Summit in April.

Since Chris Smith worked for more than a decade for Chevron and Texaco, this answer should not surprise anyone.

However, Chris Smith now works for President Obama as assistant secretary of fossil energy, so when he says “we’re certainly not advocating” he is referring to the fact that the Obama Administration’s Department of Energy does not support any strategy to keep oil in the ground.

And if you think Mr. Smith isn’t in a position of authority in the Obama administration when it comes to oil policy, you might want to consider how he was introduced at the event by moderator Antoine Halff:

“[Smith is] Assistant secretary of energy for fossil fuels since 2014 but really at the heart of R&D and policy development issues since the beginning of the first Obama administration. And Chris has had a huge role in the government’s embrace of tight oil and shale, their benefits and the opportunities they represent…after perhaps a somewhat lukewarm start early in the first Obama administration.”

So according to Halff, who came to Columbia’s Center on Global Energy Policy from a position as chief oil analyst at the International Energy Agency, Chris Smith was instrumental in getting the Obama administration to “embrace” fracking for oil. And Smith is now saying that same administration certainly does not advocate keeping any oil in the ground.

…click on the above link to read the rest of the article…

Major Investors Pressure ExxonMobil to Consider Climate Impacts

February 27, 2016

Major Investors Pressure ExxonMobil to Consider Climate Impacts

This is what Shannon Cleveland, head of Ceres’ Carbon Asset Risk Initiative, told DeSmog from Houston where she is attending the premier annual oil industry gathering known as CERAweek.

“That is just a message — that even with things as bad as they were in 2015 — no one was talking about here at CERAweek last year,” Cleveland continued. “I think there is actually an opportunity for this industry to start shifting.”

Ceres is a group that, according to its website, works with investors “to weave sustainable strategies and practices into the fabric and decision-making of companies, investors and other key economic players.”

Another sign of the shift was Al-Naimi saying that, “Solar is definitely going to be the answer to energy’s future.” This hasn’t been the typical messaging at past CERAweek events. However, the question that is critical for addressing climate change is — how far in the future?

Because Al-Naimi also noted that Saudi Arabia is exploring fracking technology to produce oil and gas and promised that, “We will produce it one of these days.” It’s unlikely Al-Naimi will join the “keep it in the ground” movement any time soon.

ExxonMobil Still Fighting Climate Change Action

One of the requests investors are making of oil companies is the testing of portfolios against a scenario where global temperature rise is limited to no more than 2 degrees.

…click on the above link to read the rest of the article…

Nationwide Resistance To Crude Oil ‘Bomb Trains’ Gaining Momentum

February 12, 2016

Nationwide Resistance To Crude Oil ‘Bomb Trains’ Gaining Momentum

In 2014, Terry Wechsler, an environmental attorney in northwest Washington, summed up why there hadn’t been opposition to the initial oil-by-rail terminals on the west coast, telling Reuters, “There was no opposition to the other three proposals only because we weren’t aware they were in formal permitting.”

But now the public knows. And despite public relations efforts by regulators and industry lobbyists, the public also knows that the crude oil “bomb trains” still pose a huge risk to communities along the rail lines.

The National Transportation Safety Board (NTSB) recently released its Top 10 Most Wanted List for 2016, and the list included addressing oil train risks. The Washington Post reported NTSB chairman Christopher Hart’s concerns regarding oil trains.

“We’ve been lucky thus far that derailments involving flammable liquids in America have not yet occurred in a populated area,” Hart said. “But an American version of Lac-Mégantic could happen at any time. Instead of happening out in the middle of a wheat field it could happen in the middle of a big city.”

Nearly three years after Lac-Megantic, the head of the NTSB is saying an accident like that could happen at “any time” in a major American city.

So it is no wonder that efforts to stop new oil-by-rail infrastructure and shut down existing transportation of crude by rail are spreading across the country.

…click on the above link to read the rest of the article…

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