shale – praag.org

Brimming with oil

Across much of the U.S. Facilities in the Midwest are about 70 percent full, while the East Coast is at about 85 percent capacity. This has some analysts beginning to wonder if the U.S. has enough room to store all its oil. Ed Morse, the global head of commodities research at Citigroup, raised that concern on Feb. 23 at an oil symposium hosted by the Council on Foreign Relations in New York. “The fact of the matter is, we’re running out of storage capacity in the U.S.,” he said.

If oil supplies do overwhelm the ability to store them, the U.S. will likely cut back on imports and finally slow down the pace of its own production, since there won’t be anywhere to put excess supply. Prices could also fall, perhaps by a lot. Morse and his team of analysts at Citigroup have predicted that sometime this spring, as tanks reach their limits, oil prices will again nosedive, potentially all the way to $20 a barrel. With no place to store crude, producers and trading companies would likely have to sell their oil to refineries at discounted prices, which could finally persuade producers to stop pumping.

Oil investors appear to be coming around to the notion that a lack of storage capacity could lead to another price crash. In the futures market, hedge funds have spent the past few weeks cutting their bets that oil prices will rise. Instead, they’ve built up a record short position, increasing their wagers that prices will fall. During a March 11 interview on CNBC, Goldman Sachs President Gary Cohn said he’s concerned the U.S. is running out of storage, particularly as refineries enter their seasonal maintenance period, to prepare for the summer driving season. Around this time they usually cut the amount of crude they buy. Cohn said prices could go as low as $30 a barrel.

The math on this can be a bit tricky. The U.S. Department of Energy measures oil storage capacity twice a year, once in the spring and again in the fall. As of September 2014, the U.S. had 521 million barrels of working capacity, up from 500 million in 2013. That includes the space inside tank farms and on-site at refineries. It doesn’t, however, include the amount of oil that can be stored in pipelines or storage tanks near oil wells; nor does it include the amount of capacity in tankers off the coast, in transit from Alaska, or on trains. Of the 449 million barrels of total crude stocks, about 327 million are stored in tank farms or on-site at refineries.

According to data from the Energy Information Administration, the U.S. is using about 63 percent of its storage capacity, up from 48 percent a year ago. “We have more space than some people tend to believe,” says Andy Lipow, an energy consultant in Houston. The most recent estimate of storage capacity also doesn’t include tanks built since September in North Dakota, Colorado, Wyoming, and Texas, he says.

Running out of room inside the nation’s storage tanks might be the only way to keep companies from pumping more oil. “These producers have kept chugging away when they should have been shutting down,” says Dominick Chirichella, co-president of the Energy Management Institute, a New York-based advisory group. “At some point, the fact that supply is outstripping demand has to have its moment of truth.”

Source: Bloomberg

Washington takes on ISIS, Iran, Russia

It was heinous. It was underhanded. It was beyond the bounds of international morality. It was an attack on the American way of life. It was what you might expect from unscrupulous Arabs. It was “the oil weapon” — and back in 1973, it was directed at the United States. Skip ahead four decades and it’s smart, it’s effective, and it’s the American way. The Obama administration has appropriated it as a major tool of foreign policy, a new way to go to war with nations it considers hostile without relying on planes, missiles, and troops. It is, of course, that very same oil weapon.

Until recently, the use of the term “the oil weapon” has largely been identified with the efforts of Arab producers to dissuade the United States from supporting Israel by cutting off the flow of petroleum. The most memorable example of its use was the embargo imposed by Arab members of the Organization of the Petroleum Exporting Countries (OPEC) on oil exports to the United States during the Arab-Israeli war of 1973, causing scarcity in the U.S., long lines at American filling stations, and a global economic recession.

After suffering enormously from that embargo, Washington took a number of steps to disarm the oil weapon and prevent its reuse. These included an increased emphasis on domestic oil production and the establishment of a mutual aid arrangement overseen by the International Energy Agency (IEA) that obliged participating nations to share their oil with any member state subjected to an embargo.

So consider it a surprising reversal that, having tested out the oil weapon against Saddam Hussein’s Iraq with devastating effect back in the 1990s, Washington is now the key country brandishing that same weapon, using trade sanctions and other means to curb the exports of energy-producing states it categorizes as hostile. The Obama administration has taken this aggressive path even at the risk of curtailing global energy supplies.

When first employed, the oil weapon was intended to exploit the industrial world’s heavy dependence on petroleum imports from the Middle East. Over time, however, those producing countries became ever more dependent on oil revenues to finance their governments and enrich their citizens. Washington now seeks to exploit this by selectively denying access to world oil markets, whether through sanctions or the use of force, and so depriving hostile producing powers of operating revenues.

The most dramatic instance of this came on September 23rd, when American aircraft bombed refineries and other oil installations in areas of Syria controlled by the Islamic State of Iraq and Syria (ISIS, also known as ISIL or IS). An extremist insurgent movement that has declared a new “caliphate,” ISIS is not, of course, a major oil producer, but it has taken control of oil fields and refineries that once were operated by the regime of Bashar al-Assad in eastern Syria. The revenue generated by these fields, reportedly $1 to $2 million daily, is being used by ISIS to generate a significant share of its operating expenses. This has given that movement the wherewithal to finance the further recruitment and support of thousands of foreign fighters, even as it sustains a high tempo of combat operations.

Black-market dealers in Iran, Iraq, Syria, and Turkey have evidently been assisting ISIS in this effort, purchasing the crude at a discount and selling at global market rates, now hovering at about $90 per barrel. Ironically, this clandestine export network was initially established in the 1990s by Saddam Hussein’s regime to evade U.S. sanctions on Iraq.

The Islamic State has proven adept indeed at exploiting the fields under its control, even selling the oil to agents of opposing forces, including the Assad regime. To stop this flow, Washington launched what is planned to be a long-term air campaign against those fields and their associated infrastructure. By bombing them, President Obama evidently hopes to curtail the movement’s export earnings and thereby diminish its combat capabilities. These strikes, he declared in announcing the bombing campaign, are intended to “take out terrorist targets” and “cut off ISIL’s financing.”

It is too early to assess the impact of the air strikes on ISIS’s capacity to pump and sell oil. However, since the movement has been producing only about 80,000 barrels per day (roughly 1/1,000th of worldwide oil consumption), the attacks, if successful, are not expected to have any significant impact on a global market already increasingly glutted, in part because of an explosion of drilling in that “new Saudi Arabia,” the United States.

As it happens, though, the Obama administration is also wielding the oil weapon against two of the world’s leading producers, Iran and Russia. These efforts, which include embargoes and trade sanctions, are likely to have a far greater impact on world output, reflecting White House confidence that, in the pursuit of U.S. strategic interests, anything goes.

Fighting the Iranians

In the case of Iran, Washington has moved aggressively to curtail Tehran’s ability to finance its extensive nuclear program both by blocking its access to Western oil-drilling technology and by curbing its export sales. Under the Iran Sanctions Act, foreign firms that invest in the Iranian oil industry are barred from access to U.S. financial markets and subject to other penalties. In addition, the Obama administration has put immense pressure on major oil-importing countries, including China, India, South Korea, and the European powers, to reduce or eliminate their purchases from Iran.

These measures, which involve tough restrictions on financial transactions related to Iranian oil exports, have had a significant impact on that country’s oil output. By some estimates, those exports have fallen by one million barrels per day, which also represents a significant contraction in global supplies. As a result, Iran’s income from oil exports is estimated to have fallen from $118 billion in 2011-2012 to $56 billion in 2013-2014, while pinching ordinary Iranians in a multitude of ways.

In earlier times, when global oil supplies were tight, a daily loss of one million barrels would have meant widespread scarcity and a possible global recession. The Obama administration, however, assumes that only Iran is likely to suffer in the present situation. Credit this mainly to the recent upsurge in North American energy production (largely achieved through the use of hydro-fracking to extract oil and natural gas from buried shale deposits) and the increased availability of crude from other non-OPEC sources. According to the most recent data from the Department of Energy (DoE), U.S. crude output rose from 5.7 million barrels per day in 2011 to 8.4 million barrels in the second quarter of 2014, a remarkable 47% gain. And this is to be no flash in the pan. The DoE predicts that domestic output will rise to some 9.6 million barrels per day in 2020, putting the U.S. back in the top league of global producers.

For the Obama administration, the results of this are clear. Not only will American reliance on imported oil be significantly reduced, but with the U.S. absorbing ever less of the non-domestic supply, import-dependent countries like India, Japan, China, and South Korea should be able to satisfy their needs even if Iranian energy production keeps falling. As a result, Washington has been able to secure greater cooperation from such countries in observing the Iranian sanctions — something they would no doubt have been reluctant to do if global supplies were less abundant.

There is another factor, no less crucial, in the aggressive use of the oil weapon as an essential element of foreign policy. The increase in domestic crude output has imbued American leaders with a new sense of energy omnipotence, allowing them to contemplate the decline in Iranian exports without trepidation. In an April 2013 speech at Columbia University, Tom Donilon, then Obama’s national security adviser, publicly expressed this outlook with particular force. “America’s new energy posture allows us to engage from a position of greater strength,” he avowed. “Increasing U.S. energy supplies acts as a cushion that helps reduce our vulnerability to global supply disruptions and price shocks. It also affords us a stronger hand in pursuing and implementing our international security goals.”

This “stronger hand,” he made clear, was reflected in U.S. dealings with Iran. To put pressure on Tehran, he noted, “The United States engaged in tireless diplomacy to persuade consuming nations to end or significantly reduce their consumption of Iranian oil.” At the same time, “the substantial increase in oil production in the United States and elsewhere meant that international sanctions and U.S. and allied efforts could remove over 1 million barrels per day of Iranian oil while minimizing the burdens on the rest of the world.” It was this happy circumstance, he suggested, that had forced Iran to the negotiating table.

Fighting Vladimir Putin

The same outlook apparently governs U.S. policy toward Russia.

Prior to Russia’s seizure of Crimea and its covert intervention in eastern Ukraine, major Western oil companies, including BP, Chevron, ExxonMobil, and Total of France, were pursuing elaborate plans to begin production in Russian-controlled sectors of the Black Sea and the Arctic Ocean, mainly in collaboration with state-owned or state-controlled firms like Gazprom and Rosneft. There were, for instance, a number of expansive joint ventures between Exxon and Rosneft to drill in those energy-rich waters.

“These agreements,” Rex Tillerson, the CEO of Exxon, said proudly in 2012 on inking the deal, “are important milestones in this strategic relationship… Our focus now will move to technical planning and execution of safe and environmentally responsible exploration activities with the goal of developing significant new energy supplies to meet growing global demand.” Seen as a boon for American energy corporations and the oil-dependent global economy, these and similar endeavors were largely welcomed by U.S. officials.

Such collaborations between U.S. companies and Russian state enterprises were then viewed as conferring significant benefits on both sides. Exxon and other Western companies were being given access to vast new reserves — a powerful lure at a time when many of their existing fields in other parts of the world were in decline. For the Russians, who were also facing significant declines in their existing fields, access to advanced Western drilling technology offered the promise of exploiting otherwise difficult-to-reach areas in the Arctic and “tough” drilling environments elsewhere.

Not surprisingly, key figures on both sides have sought to insulate these arrangements from the new sanctions being imposed on Russia in response to its incursions in Ukraine. Tillerson, in particular, has sought to persuade U.S. leaders to exempt its deals with Rosneft from any such measures. “Our views are being heard at the highest levels,” he indicated in June.

As a result of such pressures, Russian energy companies were not covered in the first round of U.S. sanctions imposed on various firms and individuals. After conflict arose in eastern Ukraine, however, the White House moved on to tougher sanctions, including measures aimed at the energy sector. On September 12th, the Treasury Department announced that it was imposing strict constraints on the transfer of U.S. technology to Rosneft, Gazprom, and other Russian firms for the purpose of drilling in the Arctic. These measures, the department noted, “will impede Russia’s ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on U.S. and western technology.”

The impact of these new measures cannot yet be assessed. Russian officials scoffed at them, insisting that their companies will proceed in the Arctic anyway. Nevertheless, Obama’s decision to target their drilling efforts represents a dramatic turn in U.S. policy, risking a future contraction in global oil supplies if Russian companies prove unable to offset declines at their existing fields.

The New Weapon of Choice

As these recent developments indicate, the Obama administration has come to view the oil weapon as a valuable tool of power and influence. It appears, in fact, that Washington may be in the process of replacing the threat of invasion or, as with the Soviet Union in the Cold War era, nuclear attack, as its favored response to what it views as overseas provocation. (Not surprisingly, the Russians look on the Ukrainian crisis, which is taking place on their border, in quite a different light.) Whereas full-scale U.S. military action — that is, anything beyond air strikes, drone attacks, and the sending in of special ops forces — seems unlikely in the current political environment, top officials in the Obama administration clearly believe that oil combat is an effective and acceptable means of coercion — so long, of course, as it remains in American hands.

That Washington is prepared to move in this direction reflects not only the recent surge in U.S. crude oil output, but also a sense that energy, in this time of globalization, constitutes a strategic asset of unparalleled importance. To control oil flows across the planet and deny market access to recalcitrant producers is increasingly a major objective of American foreign policy.

Yet, given Washington’s lack of success when using direct military force in these last years, it remains an open question whether the oil weapon will, in the end, prove any more satisfactory in offering strategic advantage to the United States. The Iranians, for instance, have indeed come to the negotiating table, but a favorable outcome on the nuclear talks there appears increasingly remote; with or without oil, ISIS continues to score battlefield victories; and Moscow displays no inclination to bend on Ukraine. Nonetheless, in the absence of other credible options, President Obama and his key officials seem determined to wield the oil weapon.

As with any application of force, however, use of the oil weapon entails substantial risk. For one thing, despite the rise in domestic crude production, the U.S. will remain dependent on oil imports for the foreseeable future and so could still suffer if other countries were to deny it exports. More significant is the possibility that this new version of the oil wars Washington has been fighting since the 1990s could someday result in a genuine contraction in global supplies, driving prices skyward and so threatening the health of the U.S. economy. And who’s to say that, seeing Washington’s growing reliance on aggressive oil tactics to impose its sway, other countries won’t find their own innovative ways to wield the oil weapon to their advantage and to Washington’s ultimate detriment?

As with the introduction of drones, the United States now enjoys a temporary advantage in energy warfare. By unleashing such weapons on the world, however, it only ensures that others will seek to match our advantage and turn it against us.

Source: Oilprice.com

Whatever happened to shale gas?

In certain circumstances, no news is good news. Sometimes, though, it tells its own story, especially when it we are experiencing something akin to a news blackout on an issue which should be constantly in the public eye.

That issue is shale gas, the great white hope of the energy market which, supposedly, was going to rescue our economy with the promise of massive volumes of cheap energy. By now, we should be getting some idea of the scale of the bonanza in the UK, but there have been no public reports following early test drilling.

The most recent media report, however, might give some clue as to why we are hearing so little. This is from the South China Morning Post which tells of China’s shale gas ambition facing a “reality check”. Commercialisation of the mainland’s rich shale gas resources, the paper says, is proving difficult. Challenging geology, shortage of water near the drilling sites and high population densities are all conspiring to make drilling more expensive and less certain than predicted.

Last April, the BBC had already pre-empted the language of the South China Morning Post, proclaiming that the “shale industry faces global reality check”.

It told us that Poland was seen as the poster boy for European shale gas but, according to Stuart Elliott, managing editor at the industry information provider Platts, “the Polish experiment has been a failure to date”. Enticed by seemingly abundant reserves and a government keen to kick-start production, US energy majors moved in, hoping to replicate their domestic success on foreign shores.

Thirty to 40 wells were planned for 2013. To date, there is just one well producing enough gas to be economically viable. Earlier, we had news of companies deserting Poland. Exxon Mobil, Talisman and Marathon have all pulled out, while Chevron, Conoco Phillips and San Leon are persevering.

In the UK, alarm bells have been sounding for some time, and for some of the same reasons. Chatham House in December 2013 was telling us that knowledge of the geology of shale plays in the United Kingdom was in its infancy.

Not only are shale plays notoriously different, so too are wells on the same play, it said. Costs also change as the shale gas operations move along the learning curve. This uncertainty is compounded by the uncertainty over the externalities of environmental damage that may be associated with shale gas operations.

In March of this year, the Financial Times was also sounding less than enthusiastic, starting off by setting up John McGoldrick, chief executive of unconventional gas company Dart Energy, to say: “The shale gas potential is enormous here, even if we just get one percent of the in-place estimates”.

But just because gas is recoverable, it doesn’t mean it makes economic sense to do so, the paper said. Explorers must drill wells to discover natural gas flow rates. Cuadrilla was the only company to have fracked in the UK and no wells had been fracked since an 18-month moratorium had been lifted more than a year preciously.

Exploration is expensive and it is easy to spend more on drilling a well than the value of gas that comes out of the ground. Drilling costs are significantly higher in the UK than the US. The nascent supply chain and long licensing process were largely to blame.

“At the minute, the economic equation is negative”, said Alex Grant at investment bank Jefferies. “It’s costing [UK explorers] well over $10m to drill a well – compared to say $4m in the US – and the gas they can get out is worth a lot less than that. If this is the best they can do then the equation doesn’t work on a per well basis and it doesn’t matter that they have huge amounts of gas”, he said.

And seriously expensive it was turning out to be, with a report in April telling is that the investment needed to bring 4,000 wells into action would cost £33 billion. By then, though, Bill Powers in Forbes was “popping the shale gas bubble”. America’s shale gas resources and reserves have been grossly exaggerated and today’s level of shale gas production is unsustainable, he was saying.

In fact, he said, due the distortions of zero interest rates and other factors, an enormous shale gas bubble has developed. Like all bubbles, this one will pop sooner than expected and when it does, the aftermath will be very unpleasant.

From a standing start a dozen years ago, shale gas production had grown to account for nearly 50 percent of America’s gas production. However, the shale gas boom was rapidly maturing and it was quickly approaching a point where shale gas production was heading into decline. In fact, the majority of shale gas basins in America were already exhibiting declining production.

This had long been picked up by industry sources, and even Bloomberg had been warning of it earlier in the year. Freshly fracked wells had sent US oil production soaring 39 percent since 2011, it said. That had been the steepest climb in history, and if production had continued apace, the US had been set to become the world’s biggest source of oil by 2015. The problem, though, was that the production was declining faster than expected.

The average flow from a shale well drops by about 50 percent to 75 percent in the first year, and up to 78 percent for oil, we were told by Pete Stark, senior research director at IHS Inc. “The decline rate is a potential show stopper after a while,” said Stark. “You just can’t keep up with it”.

The industry has so far been able to live with the decline curve problem because operators have been able to scratch out better initial production in wells, Stark said. “If you don’t have that improvement, then you get stuck after a while and have to drill more and more wells just to stay even”, Stark said. As depletion rates increased, an FT correspondent described the problems as “crippling”.

Exactly the same problems are being found with gas production and the New York Times has been on the case for years – with caveats.

By May this year, though, the House of Lords select committee on economic affairs was saying that exploration and appraisal was urgently needed to establish the economic potential of the UK’s shale gas and oil resource. And there lies as neutral an assessment as you can get. There are currently no official reserve estimates. The UK reserves could be anywhere from zero to substantial. And without those estimates, the commercial scale of shale gas extraction cannot be forecast.

Still the questions on the US scenario abound. “The staying power of the American shale boom is limited by natural, macroeconomic, and microeconomic factors, none of which will disappear on the strength of unconstrained enthusiasm”, said Dajahi Wiley of Oilprice in June. And in September, the situation was once again being called this decade’s version of the dotcom bubble.

Already in July, the Telegraph had been warning that the British shale industry had a very long way to go, making any investment extremely high-risk. It may be impossible to get the shale gas out of the ground economically and there had been no well tests that had proven the resources was commercially viable, this paper said. Yet, in Poland, it is estimated that about 150-300 drills will be needed to produce enough data to estimate the size of shale gas deposits.

However, even if UK shale gas reserves are zero, or the industry fails to be economically viable, it may not matter. Another potential source is coming up fast – methane hydrate, which potentially exists in such quantities that it can keep the world supplied for 1,500 years.

For sure, it would be preferable to have indigenous supplies of gas, but the prospect of the world running out of gas any time soon is looking increasingly remote. What we cannot do, though – at this stage, at least – is rely on UK-produced shale gas as a policy option. The UK shale revolution may happen, but it may not.

Source: http://eureferendum.com/

Nuclear trumps shale and gas

The signing in Vienna – at the margins of the 58th session of the International Atomic Energy Agency General Conference – of a strategic nuclear partnership between Russia and South Africa, has met with criticism from the mining sector.

The agreement lays the foundation for a large-scale nuclear power plant procurement and development programme of South Africa based on the construction of new nuclear power plants with Russian VVER reactors with a total installed capacity of up to 9,6 GW or 8 units.

These will be the first based on the Russian technology to be built on the African continent.

The signed agreement provides for comprehensive collaboration in other areas of nuclear power, including the construction of a Russian-technology based multipurpose research reactor, assistance in the development of South African nuclear infrastructure, and education of South African nuclear specialists.

The creation of new highly-skilled workplaces will also allow South African companies to further participate in Rosatom’s projects in third countries.

South Africa’s industry will become dependent on sources other than shale and coal, critics say. While industry and certain role players obsess about shale and gas, Mozambique’s gas resources will also need expensive infrastructure.

The questionable benefits that shale gas might offer, will be short-lived, unlike nuclear.

This agreement would naturally limit South Africa’s importation of energy from Namibia or Mozambique.

Also, this will probably mean an end to preferential electricity contracts that offer power at a rate far below the level other industrial users pay, to companies like BHP Billiton.

The R9,5bn lost in embedded derivatives, as reported by Eskom, is the cost of the remaining time on these preferential electricity contracts, some of which still have years to run.

Other energy sources will be hydroelectric power from the future Inga III dam in the Democratic Republic of Congo.

South Africa’s nuclear power ambitions had attracted several proposals.

French group Areva, which built South Africa’s only nuclear plant at Koeberg, had proposed to provide the country with its new generation of EPR reactors.

Government had also solicited an offer from the US-Japanese group Westinghouse.

Blame the environmentalists

Here’s The Script, in four despicable acts:

Act 1. Fracking boom goes bust as production from shale gas and tight oil wells stalls out and lurches into decline.
Act 2. Oil and gas industry loudly blames anti-fracking environmentalists and restrictive regulations.
Act 3. Congress rolls back environmental laws.
Act 4. Loosened regulations do little to boost actual oil and gas production, which continues to tank, but the industry wins the right to exploit marginal resources a little more cheaply than would otherwise have been the case.

You can bet The Script is being written in operational detail right now at corporate headquarters in Oklahoma City and Houston, and in the offices of PR firms in New York and Boston. Each of its elements has the inevitability of events in a Shakespearean tragedy.

It’s fairly clear that the fracking bubble will burst soon—almost certainly within the decade. Our ongoing analysis at Post Carbon Institute documents the high per-well decline rates (a typical well’s production drops 70% during the first year), the high variability of production potential within geological formations being tapped, and the dwindling number of remaining drilling sites in the few “sweet spots” that offer vaguely profitable drilling potential. Meanwhile, as the Energy Information Administration (EIA) has recently documented, the balance sheets of fracking companies are loaded with debt while surprisingly short on profits from sales of product—with real profits coming mostly from sales of assets (drilling leases).

The industry continues to claim that tight oil and shale gas are “game changers” and that these resources will last many decades if not centuries. Though the CEOs of companies engaged in shale gas and tight oil drilling are undoubtedly aware of what’s going on in their own balance sheets, hype is an essential part of their business model—which can be summarized as follows:

Step 1. Borrow money and use it to lease thousands of acres for drilling.
Step 2. Borrow more money and drill as many wells as you can, as quickly as you can.
Step 3. Tell everyone within shouting distance that this is just the beginning of a production boom that will continue for the remainder of our lives and the lives of our children, and that everyone who invests will get rich.
Step 4. Sell drilling leases to other (gullible) companies at a profit, raise funds through Initial Public Offerings or bond sales, and use the proceeds to hide financial losses from your drilling and production operations.

In the financial industry this would be recognized as a variation on the old “pump and dump” scam, yet the US government’s own EIA has just quietly confirmed that this is standard practice in the companies responsible for the “miraculous” US oil and gas renaissance that other departments of government are relying on for job creation projections, future tax revenues, and (reputed) energy export clout in the new cold war against Russia.

The bursting of the fracking bubble will have almost nothing to do with environmentalists, but they have deliberately and courageously put themselves in harm’s way. Fracking has terrible impacts on water, air, soil, human health, the welfare of livestock and wildlife, and the climate.

Hundreds of local anti-fracking groups have sprung up across the country in recent years, often started by ordinary citizens who suddenly found their wells fouled, their livestock sickened, or their children suffering from headaches and nosebleeds as a result of nearby fracking operations. Yet it has often been difficult for environmental scientists to document such impacts, due to deliberate efforts on the part of industry to impede studies and publications (for example, requiring non-disclosure agreements where complaints are met with cash settlements); indeed, industry spokespeople continue to deny that fracking is responsible for any environmental or human health problems. The industry despises environmentalists. But the real motivation for The Script is not petulance or revenge.

No, this is all business. Environmentalists will merely be handy scapegoats. Blaming environmentalists for the bursting of the fracking bubble will divert public attention from the industry’s own bad business practices. But even more usefully, telling receptive members of Congress that falling oil and gas production rates are due to anti-fracking, fear-mongering, business-hating enviros will set the stage for new and powerful calls to roll back local, state, and national regulations. Congress’s likely response: “Poor you! What can we do to help? How about some further exemptions to the Clean Air and Clean Water acts? Maybe a preemption of local fracking ordinances with a new industry-friendly national rule? Would you care for some drilling leases on millions of acres of federal land as an appetizer, while you’re waiting? They’re on the house.”

The industry has a lot to gain by portraying itself as the victim of powerful environmental interests. But will this gambit actually initiate a new round of oil and gas production growth? That’s remotely possible, since there are still billions of tons of low-grade hydrocarbon resources trapped beneath American soil. But don’t count on it. It takes money to drill, even if it’s other people’s money. As the quality of available resources declines, the amount of money needed to yield each new increment of energy from those resources grows. The industry will have to find and persuade a new flock of investors, which is likely to be difficult once shale gas and tight oil production is clearly headed south with an accelerating trend. Carrying loads of debt has been relatively easy due to ultra-low interest rates; if the Federal Reserve decides to let rates drift back upward, this alone could be a stake through the industry’s heart.

One way or another, the current fracking bubble is likely to constitute the last gasp of production growth for US oil and gas. The Script can’t solve all the industry’s problems. But it might yield a few consolation prizes.

What could keep The Script from succeeding? The industry’s PR offensive will be much less effective if mainstream media prominently and repeatedly publish good analyses of what’s going on in the geology of the fracking fields and the balance sheets of the drilling companies; and if public officials understand and talk about the real reasons for the coming stall and drop in US oil and gas production.

Source: postcarbon.org

SA expanding nuclear

The department of energy will be devoting almost R1-billion to cementing South Africa’s nuclear energy expansion ambitions.

In her budget vote speech on Monday, Energy Minister Tina Joemat-Pettersson said that R850-million had been allocated to the department and its relevant agencies to undertake further research and development into nuclear energy, especially in regard to nuclear safety matters.

“Regulations for the handling of hazardous materials, in terms of international obligations, and the development of nuclear policies and legislation to ensure the peaceful use of nuclear energy will also be pursued,” she said.

How South Africa will finance the expansion of nuclear energy, beyond its single atomic power station Koeberg remains key. The procurement of 9 600MW of nuclear power is expected to cost between R400-billion and R1-trillion.

The state in the meantime has worries of its own, including a large budget deficit and rising government debt levels.

The minister did not reveal the final details of the new Cabinet subcommittee on energy security, which will be integral to plotting the course of nuclear in the country’s energy mix. It will replace the erstwhile Cabinet body responsible for nuclear procurement – the national nuclear energy executive coordinating committee. But she said the “process is being refined and Cabinet will pronounce on this matter shortly”.

Alongside nuclear plans, the department will be turning a renewed eye on the opportunities for gas, including shale gas, in the country’s energy mix.

The lack of infrastructure, including pipelines and storage facilitates had made it difficult for gas to feature as a major energy carrier in South Africa, said Joemat-Pettersson. This was despite the discoveries of extensive reserves in the region, including in neighbouring Mozambique, and off South Africa’s west coast.

The much-anticipated gas utilisation master plan would outline the infrastructure necessary “to open up the gas market for the residential, commercial and industrial sectors”. A draft of the plan was being finalised and would be taken through the Cabinet before being opened for stakeholder consultation, Joemat-Pettersson said.

The plan’s scope includes “investigating the development of a gas- receiving and storage terminal for liquefied natural gas, and to meet the gas to liquids requirements at the Mossel Bay refinery, as well as investigating the conversion of Eskom’s diesel plants,” she said.

This year, the department would also continue to refine the Independent Systems and Market Operators Bill. The Bill, which foundered in the legislature last year, is key to overhauling the electricity sector and improving the access of independent power producers.

Source: M&G

Shale: Wall Street easy money evaporating

No one expects the President of the US to have the time or the scientific background to delve into the geophysical complexities of shale energy. He naturally relies on competent advisers. What if the advisers, instead of being competent, like in so many US government agencies today, are in the sway (and sometimes perhaps pay) of the shale energy companies and their Wall Street investment bankers who have hundreds of billions of dollars riding on promoting the shale hype?

The current US Shale boom is being sustained on steroids, otherwise known as the Fed’s never-ending Quantitative Easing zero-interest-rate policy, a stance that shows no sign of reverting to normal interest rate levels as the economy continues to be depressed since the collapse of the 2007 real estate mortgage securitization bubble. In effect, shale drillers are able to keep in business only because Wall Street and other investors continue to throw money at them like it was falling from trees. Tim Gramatovich, chief investment manager for Peritus Asset Management LLC, an $800 million fund, notes, “There’s a lot of Kool-Aid that’s being drunk now by investors. People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”

Given the endless zero interest rate regime of the Fed, investment funds are desperate to find investments that yield higher interest. They are so desperate they are pouring money into shale gas and shale or tight oil companies like never before. The companies are operating at losses, loaded with debt and the credit rating agencies rate their debt as “junk”, i.e. in a market downturn, likely to default. One such company, Rice Energy, sold its bonds in April with a rating of CCC+ by Standard & Poor’s, seven steps below investment grade. That is below the minimum risk/quality level that major investors, such as pension funds and insurance companies, are allowed to buy. S&P says debt rated in the CCC range is “currently vulnerable to nonpayment.” Despite that, Rice Energy was able to borrow at an astonishingly low 6.25 percent.

“This is a melting ice cube business,” said Mike Kelly, at Global Hunter Securities in Houston. “If you’re not growing production, you’re dying.” Of the 97 energy exploration and production companies rated by S&P, 75 are “junk” or below investment grade. The shale “revolution” is but a Ponzi Scheme disguised as an energy revolution.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics , exclusively for the online magazine “New Eastern Outlook”

Fracking could cause cancer

Shale gas exploration, currently planned in the Karoo, won’t only negatively affect the environment and water resources in that region, but could pose significant health risks to surrounding communities, a Cape Town academic has warned.

These include cancer and the risk of tuberculosis.

Professor Bob Mash, head of family medicine at Stellenbosch University, said while fracking might reduce carbon emissions associated with the use of coal and had substantial economic benefits for the country, the drilling and fracking processes – which released hundreds of harmful chemicals, including silica – not only posed health risks to workers, but to other people as far as 200km away.

South Africa is about to embark on exploratory high-volume hydraulic fracturing to extract huge reserves of natural gas contained in the shale rock.

The government is expected to publish final regulations for hydraulic fracturing, otherwise known as fracking, this month, but President Jacob Zuma has already labelled the development of shale as a “game-changer” for South Africa’s economy.

Writing in the SA Medical Journal, Mash said exposure of workers to silica over long periods not only resulted in lung diseases such as silicosis and TB, but use of potential carcinogens during fracking, such as benzene, cadmium, ethylbenzene, formaldehyde, nickel sulphate and boric acid, could result in the development of various cancers.

Cadmium was linked to lung cancer as well as kidney, breast and prostate cancer while ethylbenzene was a possible carcinogen with links to kidney damage. Formaldehyde was linked to leukaemia and brain tumours.

Mash said no comprehensive health assessments had been done as part of the decision-making up to now, prompting him to call for a precautionary approach to fracking in South Africa.

Exploratory fracking was expected to cover an area of about 200 000km2, including the Karoo, parts of the Free State, Northern Cape, Eastern Cape and portions of KwaZulu-Natal.

“The voice of the health profession should be part of the debate, and a full health assessment is required before companies are given the go-ahead to drill,” Mash said.

Source: IOL

Drill, Baby Drill!

America 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

Coming ‘oil glut’ may push global economy into deflation

One piece of the jigsaw puzzle is missing to complete the deflation landscape across the West: a slide in oil prices. This is becoming more likely each month.

Turmoil across the Middle East and parts of Africa has choked supply over the past two years, keeping Brent crude near $110 a barrel despite a broader commodity slump. Cotton and corn prices have halved, as has the UBS index of industrial metals. Such anomalies rarely last.

“We estimate that crude oil is now the mostly richly priced commodity in the world,” says Deutsche Bank in a fresh report.

Michael Lewis, the bank’s commodity strategist, said markets face an “new oil supply glut” as three forces combine. US shale will add 1m barrels a day (b/d) to global supply for the third year running; Libya will crank up shipments after a near collapse in 2013; and Iran will come out of hibernation. “This will push OPEC spare capacity to levels last seen in the depths of the financial crisis in 2009,” he said.

Source: The Telegraph

Bright future for SA with shale and solar: Mothlanthe

South Africa can become one of the fastest-growing economic hubs in the world if it exploits its natural resources, Deputy President Kgalema Motlanthe said on Monday.

“Fortunately for South Africa, we have among the best solar energy resources in the world, in addition to coal, which makes it logical for us to pursue the exploitation of photovoltaic technologies,” he said.

“In addition, we have abundant shale gas resources, the commercial exploitation of which we have to investigate and pursue.”

Speaking at the Green Economy National Youth Summit in Cape Town, Motlanthe said the country’s uranium deposits were too sizeable to ignore from a beneficiation perspective.

“If this is coupled with the potential for regional interconnection within the Southern African Development Community sub-region, we have the potential to be one of the fastest-growing economic hubs in the world.”

He said the focus would be on environmentally balanced and sustainable energy resources.

Motlanthe listed some of the options available to ensure the country’s energy security while adding economic benefits.

One of these was solar power, which held “enormous potential” for regional development in the Northern Cape.

There was also potential for “positive economic spin-offs” from the accelerated exploration of shale gas in the Karoo, as well as from diplomatic efforts to harness the natural gas discoveries in Mozambique and Tanzania.

Another option was the pursuit of a knowledge economy through the beneficiation of uranium, and a nuclear programme.

He said heavy reliance in the past on coal as an energy source had resulted in limited rural development.

“[It has resulted in] skewed economic development, with the urban areas and the coalfield areas enjoying better infrastructure, while other rural areas have yet to attain access to modern energy carriers,” he said.

The country had since adjusted its energy objectives to ensure diversified sources, security, cost minimisation, increased access, reduced emissions, water conservation and localisation of energy value chains.

“Accordingly, our energy planning framework seeks to maximise the economic benefits of our electricity, gas and liquid fuels infrastructure development programmes, [while] at the same time… meeting the other set objectives.” – SAPA

Fear of fracking

$fracking$ Fuel is usually found in unattractive places. Geologists discovered the biggest oil and natural gas reserves in the deserts of the Middle East and beneath the permafrost of Siberia. Countries in temperate Central Europe, on the other hand, have only modest reserves. One of them lies some 5,000 meters (16,000 feet) beneath the surface in Rotenburg/Wümme, an administrative district in the northwestern German state of Lower Saxony.

Using a method known as “fracking,” Germany could exploit domestic sources to meet its natural gas needs for 20 years. But safety worries have prompted government authorities to refrain from granting the permits that companies need to use the controversial technique.

ExxonMobil, which operates a well called “Bötersen Z11” uses “induced hydraulic fracturing,” or “fracking” for short.

ExxonMobil plans to inject about 350,000 liters (92,500 gallons) of water, mixed with a cocktail of chemicals, into the well under high pressure. The liquid is supposed to penetrate into the rock at the bottom of the pipe and trigger a long-term loosening effect. Hair-line fractures will create a network of tiny channels from which natural gas can escape for at least 15 years, according to ExxonMobil estimates.

But what ExxonMobil still lacks is official permission to do this. The state mining agency has been sitting on the company’s application for the last year, hesitant to move forward with its approval.

“Unfortunately, fracking has become a scary word,” says Dieter Sieber, a mining engineer and fracking expert at ExxonMobil. A cart decorated with pamphlets from a local citizens’ initiative is parked at the entrance to the drilling site. The group aims to “protect God’s creation,” and one of its signs proclaims: “Stop Fracking!”

The public reservations and protests are coming at a surprisingly late point. As a method to increase the yields of hydrocarbon deposits, fracking has been in use for almost 50 years. In Germany, it has been instrumental in preventing domestic natural gas production from drying up altogether. Very few Germans are aware that, until the 1980s, almost a quarter of the natural gas being burned in Germany came from domestic sources. Although it’s still about 12 percent today, that number is declining by about 1 percent a year.

The deposits that have already been discovered are almost exhausted. About 300 wells have been fracked in Germany since the 1960s. Without imports, more than three-quarters of which come from Russia, Norway and the Netherlands, Germany would soon find itself without natural gas — if there weren’t another alternative, that is.

In May, Germany’s Federal Institute for Geosciences and Natural Resources (BGR) published a study concluding that there are up to 2.3 trillion cubic meters (81 trillion cubic feet) of technically recoverable natural gas under German soil, primarily in the northern state of Lower Saxony and the western state of North Rhine-Westphalia. This would amount to more than 20 times Germany’s annual consumption of natural gas.

The reserves are in deposits that are described as “unconventional,” consisting of shale and coal formations, which are the primary “source rocks” of hydrocarbons. They were long considered unexploitable because they are substantially denser than “conventional” deposits found in more porous sandstone. The coveted fuel simply doesn’t flow out of shale formations — which is where fracking comes in.

Fracking is now proving to be a key technology for extracting oil and gas from shale formations. In Germany, the natural gas reserves that could be exploited in this manner would have “the potential to make up for declines in production in recent years,” explains geophysicist Dieter Franke, a geophysicist who heads the BGR’s oil and gas geology department. In light of the sheer magnitude of proven reserves, this could be seen as a conservative estimate.

Since the mid-1990s, Americans have been far more aggressive and active when it comes to fracking. Geologists estimate that — after China and, presumably, Russia — the United States has the third-largest shale natural gas reserves on Earth, or about 20 times as much as Germany. The United States is exploiting these reserves on a large scale and even hopes to use fracking to end its dependence on gas imports.

Now the United States is also taking a similar approach with shale oil. Thanks to fracking, the Midwestern state of North Dakota already produces more than half a million barrels of oil from the Bakken shale formation. As a result, this year, the state surpassed Alaska in oil production for the first time. According to a forecast by the Organization of Petroleum Exporting Countries (OPEC), oil-tanker traffic to North America could very well be eliminated by 2035.

In contrast to the United States, which once met its own oil requirements and is now enthusiastic about returning to this status, government agencies in Europe are tentative. France, which is assumed to have the largest unconventional gas reserves in Western Europe, has yet to issue a single fracking permit. German authorities have only permitted isolated test fracking. The last fracking operation in German bedrock was conducted in late July 2011 — also by ExxonMobil — at the “Buchhorst T12” site, a conventional gas deposit in Bundsandstein, a type of colored sandstone that lies below large parts of Western and Central Europe.

Horror stories from the United States, an El Dorado for companies engaged in fracking, have discredited the technology. A documentary film about the practice showed a fireball emerging from a faucet, a result of the presence of methane in drinking water. People are starting to realize that pumping 13 million liters of chemical-laced water into a hole can have unpleasant consequences.