Tag: oil

Drill, Baby Drill!

drillbabyAmerica is poised to displace Saudi Arabia as the world’s top oil producer with fracking. With that could come a hobbling of Opec and unforeseen shifts in US foreign policy.

So rapid has been the change in its energy fortunes that even some experts, as well as policy-makers in Washington, are struggling to keep up. Nor are we just talking oil. So much natural gas is being released by the shale also that for now outlandish quantities of it are simply being burned off into the atmosphere.

Even predicting future oil output isn’t the precise science you’d expect. “We keep raising our forecasts, and we keep underestimating production,” Lejla Alic, an analyst with the International Energy Agency noted recently. Last year US production reached 7.4 million barrels a day, an increase over 2012 of 15.3 per cent. A jump that large hasn’t been seen since 1951. This year the US should produce 8.3 million barrels a day.

Take another indicator – the volumes of crude being moved by trains, often a mile long, from the shale fields to refineries and terminals. In all of 2008, train companies moved 9,500 wagons of the black stuff. Last year, 400,000 of them rumbled across America.

How long America’s shale boom will last is hard to forecast also. In Texas, which on its own is set to increase production to 4 million barrels a day this year, the drilling peak still hasn’t been reached, but it’s the politicians around the world who set the price and make the markets. Increasingly, the decisions that matter will rest with the US, as it adjusts to its new status as a glut producer.

“The United States is now poised to become an energy superpower,” write By Robert D. Blackwill and Meghan O’Sullivan, in the current issue of Foreign Affairs magazine.

The consequences are likely to be far-reaching, notably affording Washington a chance it hasn’t had since the energy crisis of the early 1970s to reassess its relationships with those countries, often ruled by unappetising despotic governments – Saudi Arabia included – on which America has had to depend for so long to feed its fossil fuel needs.

“Since 1971, when US oil production peaked, energy has been construed as a strategic liability for the country, with its ever-growing thirst for reasonably priced fossil fuels sometimes necessitating incongruous alliances and complex obligations abroad,” they write. “That logic has been upended, and the newly unlocked energy is set to boost the US economy and grant Washington newfound leverage around the world.”

Among the determinations Washington must make is whether to overturn a federal law, also dating back to the early ‘70s, that forbids US companies from exporting crude in all but a few circumstances. Full energy independence may still be many years away, but proponents of ending the ban argue it would not only further boost the US economy – fracking added 0.3 per cent to GDP growth last year – but also help America mitigate or even end Opec’s market influence and lessen Russia’s leverage also.

The Russia equation has, thanks to the Crimea crisis, raced to the fore, though it is more about gas from fracking than oil. America will see captured output touch 70 billion cubic feet a day in 2014, reaching over 100 billion cubic feet per day by 2040. In the past days, Bills have been tabled in both houses of Congress demanding that the federal government speed up the granting of licences to companies to export natural gas across the Atlantic precisely to reduce the dependency of Western Europe and Ukraine on Russian supplies.

Among those wading in is House Speaker John Boehner. “The US Department of Energy’s excruciatingly slow approval process amounts to a de facto ban on American natural gas exports that Vladimir Putin has happily exploited to finance his geopolitical goals,” he said in a statement last week.

Building the infrastructure to export quantities needed to alter the energy politics of Europe will take several years. Nor will changes in America’s foreign policy stance because of its newfound oil fortunes become obvious overnight.

Indeed, some experts warn against over-stating the likely effects. “The US has a lot of interest in what’s going on around the world, in the Middle East and elsewhere, regardless of whether it is independent or self-sufficient in fuels,” Adam Sieminski, the administrator of the Energy Information Administration in Washington told the Financial Post. “Those political and economic interests will remain whether we become an exporter or not.”

As vivid as the gas flares in the Texas sky at night, however, is America’s new-found love affair with fracking. Environmentalists warn loudly of water contamination disasters and some home owners speak of being rattled by man-made earthquakes, but there is no giving it up now. It’s a whole different world to 2008, when US oil production was at a historical low and Sarah Palin was drawing liberal ire declaring that “Drill, Baby Drill!” was the answer to all of America’s problems. Suddenly she seems to have been right.

Source: The Independent

Arctic oil could wipe out Icelandic debt

barentsoilIceland, long known for its geothermal power, may become the next Nordic oil state, should predictions of an offshore deposit containing 10 billion barrels of oil hold true.

Icelandic authorities told Dagbladet, a Norwegian newspaper, that the deposit, between the country’s north-eastern coast and the Norwegian island of Jan Mayen, could be worth upwards of $1 billion.

According to an agreement with Norway, the deposits would be spilt between the two countries, but the find was large enough that Iceland could repay its foreign debt several times over.

“If we find a deposit with a billion barrels of oil, Iceland would be able to repay everything it owes,” said Heidar Mar Gudjonsson, the chair of Eykon Energy, an Icelandic oil firm.

Norway has built up an $800 billion wealth fund thanks to the profits from its oil resources in the North and Barents seas.

Iceland’s offshore areas closely resemble Norway’s and that has oil firms hoping that means there is just as much oil. One report showed that studies of seabed samples had found residues indicating that Icelandic waters may indeed be covering reserves as large as those that Norway has found in the Barents Sea.

The US Geological Survey estimated in 2008 that the Arctic contained 90 billion barrels of potentially recoverable oil, some 13 percent of the globe’s untapped reserves.

Iceland is pinning its hopes on an area about 200 kilometres north of its coast. The Dreki region is the subject of a 1981 agreement with Norway, giving each country the option to take a 25 percent share of any drilling license its neighbour issues in the region.

Norway has halted its exploration in the region, saying that it was content to rely on its agreement with Iceland.

Source: Arctic Journal

Iraq, Iran to challenge Saudi oil dominance

saudioilIraq is poised to flood the oil market by tripling its capacity to pump crude by 2020 and is collaborating with Iran on strategy in a move that will challenge Saudi Arabia’s grip on the Organisation of Petroleum Exporting Countries.

Iraq’s intention to challenge Saudi Arabia’s status as the “swing producer” in the OPEC cartel could see a dramatic fall in oil prices if Baghdad decides to break the group’s quotas and sell more of its crude on the open market.

“We feel the world needs to be assured of fuel for economic growth,” Hussain al-Shahristani, Deputy Prime Minister for Energy in Iraq told oil industry delegates attending a Chatham House Middle East energy conference.

Al Shahristani said on Tuesday that Iraq plans to boost its capacity to produce oil to 9m barrels a day (bpd) by the end of the decade as Baghdad rushes to bolster its economy, which is still shattered by war and internal conflict. Iraq was producing 3m bpd in December, according to the International Energy Agency.

“It’s very difficult to predict actual world (oil) demand by 2020 because the world economy is unpredictable,” said Mr al-Shahristani.

British oil giants BP and Royal Dutch Shell are also poised to benefit from Iraq’s ambitious production plans.

Both companies are already managing two huge oil fields in southern Iraq which are vital if Baghdad is to achieve its goal.

However, even if Iraq is able to achieve its target of boost production capacity it is unlikely to be able to put in place sufficient pipeline and port infrastructure to export the additional crude.

Iraq’s main export terminal for loading oil tankers at Al Faw near Basra will require billions of pounds worth of improvements in addition to the refurbishment of its pipeline network.

Iraq’s ambitious plan could see it clash increasingly with the regime in Saudi Arabia, which has used its influence in OPEC over the last decade to keep oil prices above $100 a barrel. Saudi itself is now under pressure to boost output to maintain market share. The kingdom pumped 9.8m bpd in December up by about 100,000 barrels from the previous month.

Experts say that attention within OPEC, which pumps 30pc of the world’s crude, could increasingly focus on compliance with more of the group’s members tempted to pump more barrels to protect their share of the market as the cartel grapples with the rise of US shale oil production.

Combined, Iran and Iraq hold greater reserves of oil than Saudi Arabia and the potential with the help of international investment to match its capacity to produce oil, which currently stands at around 12.5m b/d of crude.

Source: The Telegraph

Fracking hot: Tap water set on fire

flamingtapwaterA video made by a man from North Dakota shows him cautiously holding a lighter up against the stream of water coming out of his tap, prompting large flames to rise up into the faucet. North Dakota has been home to a fracking boom over the past few years.

“First time I did it, it was a huge fireball [that] took up the entire sink – so that’s why I’m a little jumpy doing it. I don’t want to blow up the bathroom here,” he laughed during the demonstration. A huge flame shot up as the running water appeared to catch alight.

“Really weird, right?” he questioned as he switched the camera off. The video has had over 400,000 views. It was only uploaded within the last three weeks, garnering attention on a global scale. The video prompted one commenter to note sarcastically that there was “nothing like a refreshing glass of fire.”

His stunt with the tap water seems reminiscent of notorious 2010 documentary film ‘Gasland’ when a Colorado resident conducts a similar feat.

The scene in particular has been thrown into question by investigative journalist, Phelim McAleer, who postulated that residents in the man’s neighborhood had been able to light tap water on fire since around the 1930s because of naturally occurring methane. The filmmaker later said that his findings were irrelevant.
However, Haughney’s video has sparked speculation that the North Dakota fracking boom and nearby oil drilling and hydraulic fracturing is responsible for the apparently flammable tap water.

A Louisiana family noted a similar incident at the beginning of December, and they blamed a gas company for nearby drilling. The fire “blew up and caught the fringe of the curtains,” according to the daughter Sarah Evans, who spoke to local station, KSLA12

The highly controversial process of injecting water, sand and various chemicals into layers of rock in hopes of releasing oil and gas deep underground has drawn harsh criticism from environmentalists.

While supporters say fracking brings jobs and opportunities for energy independence, detractors have pointed to exaggerated employment claims – not to mention the health risks related to chemicals used in the practice.

And experts say the flammable water could be caused by a high concentration of methane in the line, which occasionally occurs naturally.

In October, researchers found high levels of radioactivity, salts, and metals in water and sediment located downstream from a treatment facility which processes fracking wastewater from oil and gas production sites in Pennsylvania’s Marcellus shale formation.

At the end of November, northern Texas towns experienced some 16 earthquakes over a period of three weeks, while in December, opponents of the practice experienced a rare victory when the Pennsylvania Supreme Court that a 2012 law allowing gas companies to drill anywhere in the state unconstitutional.

North Dakota is the second largest oil-producing state in the US, reaping more than 911,000 barrels of shale gas on a daily basis. – RT

China benefits most from Iraq oil

China already buys nearly half the oil that Iraq produces, nearly 1.5 million barrels a day, and is angling for an even bigger share, bidding for a stake now owned by Exxon Mobil in one of Iraq’s largest oil fields.

“The Chinese are the biggest beneficiary of this post-Saddam oil boom in Iraq,” said Denise Natali, a Middle East expert at the National Defense University in Washington. “They need energy, and they want to get into the market.”

Before the invasion, Iraq’s oil industry was sputtering, largely walled off from world markets by international sanctions against the government of Saddam Hussein, so his overthrow always carried the promise of renewed access to the country’s immense reserves. Chinese state-owned companies seized the opportunity, pouring more than $2 billion a year and hundreds of workers into Iraq, and just as important, showing a willingness to play by the new Iraqi government’s rules and to accept lower profits to win contracts.

“We lost out,” said Michael Makovsky, a former Defense Department official in the Bush administration who worked on Iraq oil policy. “The Chinese had nothing to do with the war, but from an economic standpoint they are benefiting from it, and our Fifth Fleet and air forces are helping to assure their supply.”

The depth of China’s commitment here is evident in details large and small.

In the desert near the Iranian border, China recently built its own airport to ferry workers to Iraq’s southern oil fields, and there are plans to begin direct flights from Beijing and Shanghai to Baghdad soon. In fancy hotels in the port city of Basra, Chinese executives impress their hosts not just by speaking Arabic, but Iraqi-accented Arabic.

Notably, what the Chinese are not doing is complaining. Unlike the executives of Western oil giants like Exxon Mobil, the Chinese happily accept the strict terms of Iraq’s oil contracts, which yield only minimal profits. China is more interested in energy to fuel its economy than profits to enrich its oil giants.

Chinese companies do not have to answer to shareholders, pay dividends or even generate profits. They are tools of Beijing’s foreign policy of securing a supply of energy for its increasingly prosperous and energy hungry population. “We don’t have any problems with them,” said Abdul Mahdi al-Meedi, an Iraqi Oil Ministry official who handles contracts with foreign oil companies. “They are very cooperative. There’s a big difference, the Chinese companies are state companies, while Exxon or BP or Shell are different.”

China is now making aggressive moves to expand its role, as Iraq is increasingly at odds with oil companies that have cut separate deals with Iraq’s semiautonomous Kurdish region. The Kurds offer more generous terms than the central government, but Iraq and the United States consider such deals illegal.

Late last year, the China National Petroleum Corporation bid for a 60 percent stake in the lucrative West Qurna I oil field, a stake that Exxon Mobil may be forced to divest because of its oil interests in Iraqi Kurdistan. Exxon Mobil, however, has so far resisted pressure to sell, and in March the Chinese company said it would be interested in forming a partnership with the American company for the oil field.

If the United States invasion and occupation of Iraq ended up benefiting China, American energy experts say the unforeseen turn of events is not necessarily bad for United States interests. The increased Iraqi production, much of it pumped by Chinese workers, has also shielded the world economy from a spike in oil prices resulting from Western sanctions on Iranian oil exports. And with the boom in American domestic oil production in new shale fields surpassing all expectations over the last four years, dependence on Middle Eastern oil has declined, making access to the Iraqi fields less vital for the United States.

At the same time, China’s interest in Iraq could also help stabilize the country as it faces a growing sectarian conflict.- NYT

BP to invest R5 billion in South African operation

A BP refinery

BP will invest nearly R5 billion in South Africa as a sign of its faith in the direction in which the country is heading, the energy company said on Tuesday.

“With the improving investment climate, especially policy stability… being presented in Southern Africa, BP has decided to invest significantly for the benefit of all of our stakeholders,” British Petroleum (BP) refining and marketing chief executive Iain Conn told reporters in Johannesburg.

“It gives me great pleasure to announce that BP will be investing in excess of R5bn in Mozambique and South Africa over the next five years, commencing in 2013, which will be new plant and infrastructure upgrades.”

It would be funded from BP cash reserves. Conn said R800 million would be invested in Mozambique and R4.7bn in South Africa.

“This investment is designed to improve safety, customer experience, operational efficiency, help with government to improve energy security, and enable the transition towards cleaner fuels.”

Conn said R2.5bn would be invested in upgrading refinery infrastructure at the SAPREF refinery, its joint venture with Shell in KwaZulu-Natal.

“Most of these funds in the refinery are to be utilised to promote South Africa’s clean fuels requirement,” he said.

In February, Finance Minister Pravin Gordhan announced a support mechanism for biofuels and an upgrade of refineries to encourage South Africa to produce cleaner fuels.

“We anticipate that the remuneration mechanism will be finalised shortly, as we have already started to invest in the project and our intent is to be ready to produce clean fuels in 2017,” Conn said.

Over R1bn would be invested in terminals in South Africa and Mozambique.

The balance of the investment would be in the “retail network”. Conn said BP had partnered with Pick ‘n Pay and 120 Pick ‘n Pay express stores would be opened in the next five years.

He said the investment was approaching five percent of all the capital which went into the marketing, refining, and chemical business of BP.

“We are in about 70 countries, and South Africa is going to end up with nearly five percent of the money. I think that tells you something.”

BP was encouraged by development in South Africa and Mozambique.

“In South Africa, I am conveying our appreciation to the government for adopting the National Development Plan as the blueprint for tackling the many challenges that continue to face this great nation.”

Conn said BP was committed to transformation and the need to create more jobs and build entrepreneurs in South Africa.

“This is part of our on-going efforts to be a good corporate citizen as we pursue our business objectives in all the markets in which we operate.”

Conn said BP was not considering fracking for shale oil and gas in South Africa.

“We have been fracking since the 1940s. BP is in shale, but not here,” he said.

“We are looking at shale in a number of places in the world, including China. We have not as yet prioritised shale in South Africa.”

He said fracking needed to be done safely and its impact on the environment needed to be considered.

Fracking, or hydraulic fracturing, is the process of extracting natural gas from shale rock layers deep within the earth.

Mineral Resources Minister Susan Shabangu said last year that five companies had applied in 2010 to explore for shale gas in the Karoo.

Energy department director general Nelisiwe Magubane said on Tuesday government “endorsed and welcomed” BP’s investment.

BP’s SAPREF refinery is co-owned with Royal Dutch Shell. South Africa’s oil refineries process 497,000 bpd, with SAPREF contributing 36 per cent of this total, according to the South African Petroleum Association’s website.- Sapa & Praag

Another petrol shock ahead

October will see the highest single increase in the petrol price in SA and there is a possibility that it will go up again next month.

Chief economist at the Efficient Group Dawie Roodt said the increase was a record one, but warned that this was not the end of petrol price inflation.

As from midnight motorists will pay 93c a litre more for their petrol while diesel will increase by 69c/l.

The wholesale price of illuminating paraffin will also go up 73c/l.

Currently costing R11.04/l in Gauteng, petrol will cost R11.97 as from midnight. It will be R11.62/l at the coast.

The new price of diesel is R10.95/l, and of illuminating paraffin is R8.34/l.

Roodt said consumers were likely to see a second petrol price increase of about 20c next month, as we had not yet seen the full effect of a weaker rand on the petrol price.

He said the good news was that the price was likely to fall in November by about 20c, and the month after it could come down further, if other factors such as oil and the rand improved.

Roodt compared a change in petrol prices to throwing a pebble in a pond, which caused ripples through other sectors.

“At the moment food prices are going up because of all sorts of international factors because of the drought in the US,” said Roodt. He said food prices generally reacted sooner to other price changes, meaning they would go up quickly.

“The next couple of months are going to be tough, especially for the poorer consumers because they spend a greater percentage of their income on commodities,” he said.

[ad 1]

Food prices could increase in the next few months too.

The idea that some petrol stations would hold back their stock until the price increased was “ridiculous”, said the chairman of the SA Petroleum Retailers Association, MC Lamprecht.

“The loss of reputation and trust [that the petrol station would suffer] far outweighs any advantage they might gain,” he said.

Petrol stations are set to be inundated with customers today as people flock to fill up, and Lamprecht asked these consumers to be patient.

The increase was due to crude oil prices, international product prices, and the rand-dollar exchange rate, the Energy Department confirmed in a statement.