Fuel Freedom Staff

Cobb: Narrative of American oil self-sufficiency ‘is about to take a big hit’

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Kurt Cobb, who writes about energy and the environment, has a piece in The Christian Science Monitor about how OPEC is targeting the U.S. shale-oil “revolution.’

Cobb says it was folly for some proponents of U.S. drilling to think that oil would remain above $100 a barrel indefinitely. At $70, U.S. operations aren’t profitable enough to remain at that output level.

Cobb begins:

To paraphrase Mark Twain: Rumors of OPEC’s demise have been greatly exaggerated.

Breathless coverage of the rise in U.S. oil production in the last few years has led some to declare that OPEC’s power in the oil market is now becoming irrelevant as America supposedly moves toward energy independence. This coverage, however, has obscured the fact that almost all of that rise in production has come in the form of high-cost tight oil found in deep shale deposits.

The rather silly assumption was that oil prices would continue to hover above $100 per barrel indefinitely, making the exploitation of that tight oil profitable indefinitely. Anyone who understood the economics of this type of production and the dynamics of the oil market knew better. And now, the overhyped narrative of American oil self-sufficiency is about to take a big hit.

Fuel Freedom Staff

Economist predicts ‘barbarity’ and ‘looting’ in Venezuela

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The oil price slide has hit some countries much harder than others, and cracks already are beginning to appear in Venezuela’s socioeconomic system.

As NBC News reports, shortages of basic products, like toilet paper, toothpaste and medical supplies, have worsened as the price of oil has plummeted. The South American country, which is an OPEC member nation, pleaded with the cartel to reduce output to stabilize prices, but OPEC last week announced it would maintain production levels.

Venezuela, the world’s 12th-largest oil producer, needs oil to be about $200 a barrel to balance its budget, one analyst says. There have been sporadic protests over the shortages, and experts say that if the economy continues to falter and President Nicolas Maduro’s government has to raise taxes or eliminate gas subsidies for citizens, there could be unrest similar to the “Caracas disaster” of 1989, when falling prices brought on riots in which hundreds of people were killed.

The NBC story goes on:

Experts predict the situation in Venezuela will worsen as early as the first half of 2015.

“It will be a year of extreme scarcity,” Venezuelan economist Angel Garcia Banchs said. “What’s coming to Venezuela is chaos that will probably lead to barbarity and people looting. “

Fuel Freedom Staff

Oil makes biggest one-day price jump in 2 years

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Have we seen the bottom of the great oil-price plunge of 2014?

Experts say not yet. But oil prices rose sharply Monday, making their biggest jump in two years: Nymex crude-oil futures rose 4.78 percent, to $69.31 a barrel. And Brent crude, the international benchmark, rose 3 percent, to $72.54. It had been down as low as $67.53 earlier in the day, the lowest it’s been since July 2009.

Oil is down about one-third since June, and late last week the commodity plunged even more precipitously after OPEC announced it would not stem the price drop by ramping up production among its 12 member nations. But some analysts saw Monday’s jump as merely profit-taking after last week’s sell-off.

From The Wall Street Journal:

… many market watchers were skeptical that Monday’s gains signaled that oil prices had reached their bottom, pointing to global supplies that continue to overwhelm demand.

Many investors and analysts believe with OPEC on the sidelines it will take cutbacks by companies in the U.S. and Canada to bring supply and demand in line and pull the market out of its swoon. That day may not come until deep into 2015 or beyond, some analysts say.

From Reuters:

“The market clearly got a little overdone to the downside and now it’s coming back up, proof that there will be a response from the shale patch to these low prices,” said John Kilduff, partner at energy hedge fund Again Capital in New York. “Several shale companies are already reporting capital expenditure reductions next year as their profit margins get thinned out.”

On Wall Street, shares of shale energy companies such as Denbury Resources (DNR.N) and Newfield Exploration (NFX.N) took a beating for a second straight session, down about 5 percent each in late afternoon trade.

Data reviewed by Reuters on Monday showed the new low-price environment for oil might have started affecting U.S. shale production, with a 15 percent drop in permits issued for new shale wells in October.

Fuel Freedom Staff

OPEC stands pat … will $70 oil be the new normal?

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The big news in the international oil markets last week was that OPEC decided not to cut production, which would have propped up free-falling prices, at least temporarily.

OPEC’s non-action sent oil prices falling further Friday, with the Brent benchmark slipping below $70 for the first time in four years.

NPR reports that some experts say oil in the range of $70 a barrel could last through 2015:

Igor Sechin, the head of Russia’s Rosneft, says he thinks oil prices will average $70-75 per barrel through 2015. That prediction was in line with what Bill Hubard, chief economist at Markets.com, told Reuters: “I think $70 a barrel will be the new norm. We could see oil go considerably lower.”

Some OPEC member nations, including Iran and Venezuela, which need a higher oil price to pay for their generous public services, had been pushing for the cartel to ease back on production to halt the plunge in prices. A moderate pullback would have come amid a global oil glut, thanks in part to reduced demand in Asia and Europe, as well as soaring production in the U.S.

Iran’s oil minister, Bijan Namdar Zanganeh, said OPEC’s decision was no guarantee that the United States would scale back production in North Dakota and Texas, a surge aided by advances in hydraulic fracturing.

“High prices are a disadvantage to OPEC’s market share,” Zanganeh said, according to Bloomberg. “If you want to increase your share, you have to reduce prices, but you can’t do it through ‘shock therapy’ over the course of three months if you want to change everything.”

Fuel Freedom Staff

EPA touts health, economic benefits of reducing smog

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The battle lines already are drawn over the Environmental Protection Agency’s announcement Wednesday that it’s seeking to reduce the nation’s levels of ground-level ozone, the main component of smog.

Under the Clean Air Act, the EPA is required to review air-quality standards every five years. Under President George W. Bush, the agency set the ozone threshold at 75 parts per billion in 2008.

The EPA now wants to lower the bar to between 65 ppb and 70 ppb, the level that the agency’s advisory board of independent scientists and physicians has recommended. However, EPA will review comments on a lower benchmark of 60 ppb during its commentary period.

Ozone is created when sunlight hits emissions coming from vehicles, electricity-generating plants and factories. The EPA said ozone at the current accepted levels “can pose serious threats to public health, harm the respiratory system, cause or aggravate asthma and other lung diseases, and is linked to premature death from respiratory and cardiovascular causes.”

The NRDC said medical evidence shows that the revised limit, even at the lower end of 65 ppb, is harmful to health. ”So we urge EPA to set the standard at 60 ppb.”

AQI (Click on the image at right to check the national Air Quality Index.)

That stance will put the EPA on a collision course with the manufacturing sector and Republican elected officials, who will control both the Senate and House in January. Sen. James Inhofe, the Oklahoma Republican who will take over as chairman of the Senate Environment and Public Works Committee, said in a statement that the lower threshold “will lower our nation’s economic competitiveness and stifle job creation for decades.”

National Association of Manufacturers president and CEO Jay Timmons said the new ozone regulation “threatens to be the most expensive ever imposed on industry in America and could jeopardize recent progress in manufacturing by placing massive new costs on manufacturers and closing off counties and states to new business …”

The Associated Press notes that the EPA initially proposed a range of 60 to 70 ppb in January 2010. Had that gone into effect, it would have come with an estimated price tag of between $19 billion and $90 billion and would have doubled the number of U.S. counties in violation.

In 2011, President Obama, in advance of his 2012 re-election campaign, “reneged on a plan by then-Environmental Protection Agency administrator Lisa Jackson to lower the permissible level to be more protective of public health,” The AP wrote.

“Seldom do presidents get an opportunity to right a wrong,” Bill Becker of the National Association of Clean Air Agencies told AP. “Obama has walked the walk on air.”

Current EPA administrator Gina McCarthy, in a post on CNNMoney.com, put the health argument front and center. But she also said cutting emissions would help the economy, not hinder it:

“Missing work, feeling ill, or caring for a sick child costs us time, money, and personal hardship. When family health issues hurt us financially, that drags down the whole economy. … Special-interest critics will try to convince you that pollution standards chase away local jobs and businesses, but, in fact, healthy communities attract new businesses, new investment, and new jobs.”

 

Fuel Freedom Staff

Naomi Klein: 4 reasons Keystone matters

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Environmental writer and activist Naomi Klein writes in The Nation that the conventional wisdom, at least among supporters of the proposed Keystone XL pipeline, is that the project didn’t really matter. Even if it were scuttled, TransCanada, the company hoping to build the pipeline extension from tar-sands oil in western Canada to Nebraska, would find another way to get the oil to market, either by way of another pipeline across Canada or by rail.

But opposition to the project has put pressure squarely on President Obama, Klein writes.

His decision is no longer about one pipeline. It’s about whether the US government will throw a lifeline to a climate-destabilizing industrial project that is under a confluence of pressures that add up to a very real crisis.

Klein, author of the new book This Changes Everything: Capitalism vs. the Climate, then outlines four ways in which the Keystone XL debate does, indeed matter.

Read it and tell us what you think.

Fuel Freedom Staff

BusinessWeek: Ethanol just avoided a death blow

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BusinessWeek’s Matthew Phillips reflects on the EPA’s decision to delay proposed changes to the renewable fuel standard, a revision that was expected to reduce the amount of corn-based ethanol to be blended into the nation’s gasoline supply.

Now that the new RFS standards have been put off until sometime in 2015, ethanol producers have the chance to regroup and fight another day, Phillips writes.

The ethanol industry just avoided a death blow. Rather than deciding to permanently lower the amount of renewable fuels that have to be blended into the U.S. gasoline supply, as it first proposed a year ago, the Environmental Protection Agency last week opted to wait until next year to decide. The delay (official notice here) means this year’s ethanol quotas won’t be set until 2015 and ensures they will be lower than the original mandate envisioned. That’s not great news for ethanol producers, but it gives them more time to fight and avoids an outcome that could have been far worse.

…

Ethanol industry leaders pretended to be angry at the EPA’s decision to delay on Friday: “Deciding not to decide is not a decision,” Bob Dinneen, chief executive of the Renewable Fuels Association, said in a written statement. But the reality is that they’re relieved the White House didn’t choose a more aggressive plan pushed by refining and oil companies.

Fuel Freedom Staff

Whatever OPEC does, U.S. oil companies will keep drilling

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Bloomberg has a story about what U.S. drillers will do in response to whatever OPEC does this week at its regular meeting.

OPEC, led by its top producer, Saudi Arabia, will do one of two things: Nothing, which means the cartel’s output will remain unchanged, and crude prices will say flat (or keep sliding). Or it could cut production, which “would lift prices and profits across the board and help finance further U.S. energy innovation,” the Bloomberg story says.

Either way, U.S. producers will have the same response: Drill on.

“The industry is very resilient, as strong as ever in recent history,” Tony Sanchez III, chief executive of Texas producer Sanchez Energy Corp. (SN), said in an interview. “The technological advances we’ve made underpin virtually everything right now.”

A continued price plunge would put more pressure on U.S. companies, but they’re increasingly insulated by OPEC’s actions, the story says.

The swagger of U.S. producers in the face of plunging oil prices shows the confidence they’ve gained from upending OPEC’s six decades of market dominance with technology that wrings oil from dense rock for prices as low as $40 a barrel. The shale boom has placed the U.S. oil industry in its strongest position since OPEC began flexing its pricing power in the early 1970s.

Fuel Freedom Staff

New York Times launches series looking at N.D. oil industry

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You won’t be fully up to speed on how oil production, and hydraulic fracturing, has transformed the rural communities of North Dakota unless you read Deborah Sontag’s exhaustive piece in The New York Times.

Sunday’s Part I of a series, “The Downside of the Boom,” includes video, satellite maps and other visuals to complement its reporting.

At the heart of Part I is the way land has been “sliced and diced” in North Dakota for years, and rights to the surface don’t necessarily mean the landowner has control over the resources that lie beneath.

Given that mineral rights trump surface rights, this made many residents of western North Dakota feel trampled once the boom began.

In 2006, a land man for Marathon Oil offered to lease the Schwalbe siblings’ 480 acres of minerals for $100 an acre plus royalties on every sixth barrel of oil.

“Within a few years, people were getting 20, 30 times that and every fifth barrel,” Mr. Schwalbe said. But the Schwalbes did not expect “to see any oil come up out of that ground in our lifetime.”

Oil companies were just starting to combine horizontal drilling with hydraulic fracturing to tap into the mother lode of Bakken oil. “We didn’t really know yet about fracking,” he said.

The Schwalbes’ first well was drilled in 2008, their second the next year. Powerless to block the development, Mr. Schwalbe and his wife, nearing retirement, took some comfort in the extra income, the few thousand dollars a month.

Then that was threatened, too.

Fuel Freedom Staff

EPA delays decision on whether to reduce ethanol in gas

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The federal government’s new threshold for the amount of ethanol blended into America’s gasoline supply was already 10 months overdue. So officials have gone ahead and delayed the decision further, into 2015.

The Environmental Protection Agency announced Friday that it would defer an announcement on the renewable fuel standard (RFS), which stipulates that ethanol should make up 10 percent of gasoline.

(The Des Moines Register has some of the day’s best reporting on this issue. Agriculture.com also has a good explanation of the granular details.)

The standard, first established under a 2005 law, calls for the amount of renewable fuels in gasoline to progressively increase each year. But the law was written at a time when demand for gasoline was expected to keep going up. Slackened demand around the world, combined with stepped-up U.S. production, has dropped domestic prices below $3 a gallon.

Based on that reality, the EPA recommended, in November 2013, that the amount of corn ethanol in the should be reduced, from 14.4 billion gallons a year to 13.01 billion gallons.

This upset the corn growers and ethanol producers, most of them clustered in the Midwest and Great Plains. They said the delays deterred investment in biofuels, and even the oil companies complained that the regulatory vacuum created too much uncertainty in the fuels market.

The EPA’s recommendations had not been finalized. They had been sent to the White House Office of Budget and Management for review, but that office “ran out the 90-day clock to review the agency’s proposed standards, which for the first time signaled a retreat by the EPA on the percentage of biofuels that must be blended,” The Hill reported.

Since the EPA was already so late in setting the 2014 guidelines, the agency “intends to get back on track next year, though details on how it would do that weren’t available Friday,” The Wall Street Journal wrote. The EPA statement said: “Looking forward, one of EPA’s objectives is to get back on the annual statutory timeline by addressing 2014, 2015, and 2016 standards in the next calendar year.”

The reaction among the affected parties was mixed Friday. The WSJ tries to untangle the various interests:

The debate over the biofuels mandate triggers strange bedfellows, with trade groups representing the oil and refining companies, car manufacturers, livestock and even some environmental interests all opposed to the policy for different reasons. Proponents of the standard include the corn industry, which is the most common way ethanol is produced, and producers of ethanol.

The EPA’s announcement gave cautious hope to ethanol-industry leaders that the agency will fundamentally rethink how it proposes the annual biofuels levels. The draft 2014 biofuels levels, which the agency proposed almost a year ago, were much lower than the ethanol industry lobbied for.

“I am truly pleased that they’re pulling away from a rule that was so bad,” said Bob Dinneen, president and CEO of the Renewable Fuels Association, a trade group representing biofuels companies. “But I recognize as well we have to work with the agency to try to figure out a path forward that everybody can live with.”

Executives in the oil-refining industry criticized the delay, and said it was evidence the renewable-fuel standard was itself inherently flawed and should be repealed.

“Each year is dependent upon the previous year, and to some extent dependent upon the following year,” said Charlie Drevna, president of the American Fuel & Petrochemical Manufacturers, a trade association representing the nation’s refining industry. “The problem is, every year EPA is late in getting this out, it exacerbates it. They’re never going to be able to catch up.”