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More attention paid to all the natural gas we’re wasting

Energy experts are starting to pay more attention to an important byproduct to U.S. oil extraction: the incredible amount of natural gas that gets burned off into the atmosphere, or “flared,” because it’s not profitable enough to capture at the well head.

Forbes contributor Michael Kanellos is the latest to examine the absurd practice, writing:

… the sheer volume of gas that gets flared or emitted into the atmosphere t remains truly astounding. A potential source of profits and jobs is literally transformed in bulk into an environmental hazard and potential liability around the clock.

It’s an environmental hazard because natural gas is made primarily of methane, a greenhouse gas that’s many times worse for the environment than carbon dioxide. Some methane leaks from wells and pipelines, but even when the gas is burned off, it creates some GHG emissions.

Methane has tremendous potential as a commodity, however, because it can be turned into alcohol fuels — ethanol and methanol — to run our cars and trucks. Both fuels burn much cleaner in engines, and can be cheaper for the consumer.

When the price of oil was $115 a barrel, there was little incentives for oil drillers — who put bits in the ground mainly for oil, after all — to capture and store the natural gas, because gas remains stuck in the cellar in terms of pricing. Now that oil has dropped by 60 percent over the past seven months, maybe U.S. drillers will be incentivized to keep more of the gas that comes up in the wells.

(Our blogger William Tucker has written about the flaring issue before. It’s also discussed, along with many oil-related issues, in the documentary PUMP, which is available for download on iTunes now.)

Landfills also emit methane, and much of that is flared as well. If we captured more methane and turned it into fuel, there would be more of a market for it, and the infrastructure for converting it to fuel and distributing it would grow. A whole new generation of jobs could be created in the sector, jobs that by their nature would stay in America.

Kanellos has compiled many fascinating statistics about how much natural gas is wasted by flaring, including these nuggets:

Since the beginning of 2010, more than 31% of the natural gas in the Bakken region has been burned off or flared. It was worth an estimated $1.4 billion.

Over 150 billion cubic meters, or 5.3 trillion cubic feet, get flared annually worldwide, or around $16 billion lost.

Flaring in Texas and North Dakota emit the equivalent amount of greenhouse gases as 500,000 cars.

Fracking boom waste: Flares light prairie with unused natural gas (NBC News)

Natural gas flaring in Eagle Ford Shale already surpasses 2012 levels of waste and pollution (Fox Business)

The Atlantic: Why the U.S. still needs Saudi Arabia

January 26, 2015/in National Security, What's The Buzz staff /by Fuel Freedom Staff

The Atlantic’s Matt Schiavenza has some pointed commentary on the longtime U.S.-Saudi alliance, arguing that the United States needs the Middle East kingdom “more than ever.”

Following the death of King Abdullah last week at age 90, following a lung infection, President Obama cited his “enduring contribution to the search for peace” in the region. Secretary of State John Kerry said he was a “man of wisdom and vision.”

Schiavenza then lists the ways in which Saudi policy undermines the American praise, including the lack of rights of women, and the case of blogger Raif Badawi, who was sentenced to 1,000 lashes and 10 years in prison for defending atheism.

Schiavenza writes:

Contrary to President Obama’s statement, Saudi Arabia’s role in brokering Middle Eastern peace has, at best, been unhelpful. King Abdullah bitterly opposed Washington’s support of pro-democracy protesters in Egypt and urged President Obama to use force to preserve Hosni Mubarak’s dictatorship. Since Abdel Fattah al-Sisi assumed the country’s leadership in 2013, Riyadh has helped finance his brutal suppression of the country’s Muslim Brotherhood. Saudi Arabia has also resisted the rise of Shia movements in the region out of fear that Iran, their main rival, will gain influence. When Shia protesters threatened the Sunni dictatorship in neighboring Bahrain, Saudi Arabia dispatched its military to suppress the uprising. Riyadh’s support of Syrian rebels, too, has backfired: Islamic State fighters have benefited from Saudi money and weapons.

The reason the United States continues to “put up with” Saudi Arabia, the writer contends, is oil. And despite ramped-up production in the U.S. shale-oil fields, the U.S. will continue to need Saudi oil. Currently there’s a glut that might worsen, since Abdullah’s successor, his half-brother Salman bin Abdul Aziz, appears unlikely to reduce oil production to stem the drop in price. Right now the U.S. produces about 9 million barrels of oil a day, comparable with Saudi output.

But the kingdom, which is the leading oil-producer in OPEC (which controls 40 percent of the world’s oil supply), is “well-positioned to survive a sustained drop in the price of oil,” Schiavenza writes, adding:

Riyadh generally needs oil to trade at $80 a barrel in order to balance its budget. But with $750 billion stashed away in reserve, the kingdom faces little pressure to reduce supply and raise the price. In addition, Saudi Arabia and fellow OPEC members Kuwait and the United Arab Emirates have proved reserves of 460 billion barrels. The United States, by contrast, has proved reserves of just 10 billion—and the U.S. Energy Information Agency forecasts that American shale oil production will plateau in 2020.

Fracking offers hope

January 21, 2015/in Economy, Over a Barrel Blog wtucker, newleaf /by Arctic Leaf

I’ve just finished The Frackers, the excellent history of how the United States became the world’s leading developer of fossil fuels, by former Wall Street Journal reporter Gregory Zuckerman.

There are three lessons that can be taken away from this history, all of which relate to the development of alternative sources of energy:

The government had very little to do with the development of fracking. It was all done by wildcatters who operated far outside major institutions.
The founders of these methods didn’t necessarily get permanently rich. All have done well initially but have been undone by their very success, producing a superabundance of gas and oil that has driven down prices to the point where producers are overextended.
The maverick wildcatters who have opened up our gas and oil resources are not necessarily opposed to alternative sources of energy. In fact, they have often become the biggest promoters of wind, solar and alternative fuels for our transport sector.

Let’s examine those myths one by one:

The government should get credit for the breakthroughs. Proponents of big government often try to promote the idea that the fracking revolution never would have occurred without the help of the government. They even argue that government was responsible for the fracking initiative. Three years ago, Ted Norhaus and Michael Shellenberger of the Breakthrough Institute published a piece in The Washington Post in which they practically argued that fracking had been invented in the laboratories of the Department of Energy. George Mitchell, who spent 40 years developing fracking, had simply borrowed a few ideas that the DOE had designed.

Read the opening chapter on Mitchell in The Frackers, and you’ll hardly find one reference to the Department of Energy or government help. At one point the DOE contributed a few million dollars to an experiment that Mitchell had designed, but that was it. The rest of the story tells of Mitchell’s fascination with trying to suck oil out of shale rock, and how he nearly bankrupted his moderately successful oil company in the effort. He had no luck trying to convince the major oil companies that shale could be accessed. At one point, Chevron came very close to fracking the Barnett Shale, where Mitchell had his first breakthrough, but the company gave up on the effort. Harold Hamm experienced the same frustrations in the Bakken, where he alone believed there were vast reserves of oil but couldn’t get anyone to support him, until he finally made a breakthrough. The government had nothing to do with it.

Fracking wildcatters always get rich. The great irony for many of these pioneers is that they are often undone by their own success. Aubrey McClendon built Chesapeake Gas into the nation’s second-largest producer of natural gas but was forced to give up his company because the success of his fracking had driven the price of gas so low that he was overextended. The same thing happened to Tom Ward, an early associate of McClendon’s who had built his own company, SandRidge, based on fracking. Ward was forced out of his ownership by the board of directors. Harold Hamm has been having the same trouble in The Bakken since the superabundance of oil has forced the price down. Developing a new source of energy doesn’t necessarily mean you’re going to be permanently rich.

The developers of new ways to access fossil fuels are opposed to other alternatives. Because they have been so successful in reviving production of oil and gas, the assumption has been that the Frackers are wedded to fossil fuels and are undercutting alternatives. This is not true. The primary motive of all these innovators has been to make America more energy-independent and reduce our reliance on foreign oil. All of them see the development of fossil fuels as only a temporary step, and acknowledge that we must ultimately find some other sources of energy. T. Boone Pickens, the dean of oil magnates, put forth a plan that would try to get the electrical sector to rely on wind so that natural gas could be moved over to the transport sector to replace oil. His Clean Energy Fuels Corporation had some success in building a “natural gas highway” that substitutes compressed natural gas for diesel fuel in long-haul tractor trailers. Both Mitchell and Hamm have been exploring alternative energy, and they’re funding efforts to try to substitute renewables for fossil fuels, both domestic and imported.

As Zuckerman concludes at the end of The Frackers:

The great leap forward should have involved alternative energy, not oil and gas. The U.S. government allocated over $150 billion to green initiatives between 2009 and 2014. … There’s little to show for the investments, however. … Instead a group of frackers, relying on market cues rather than government direction, achieved dramatic advances by focusing on fossil fuels, of all things. It’s a stark reminder that breakthroughs in the business world usually are achieved through incremental advances, often in the face of deep skepticism, rather than government inspired eureka moments.

It’s a lesson worth keeping in mind as we pursue alternative fuels to substitute for foreign oil.

Oil closes down again, lands just above $50 mark

January 9, 2015/in Economy, What's The Buzz staff /by Fuel Freedom Staff

Whatever the floor is for oil, $50 doesn’t seem to be it.

Brent crude closed just a few barrel-drops within that threshold Friday, down 85 cents to $50.11. U.S. crude fell 43 cents to $48.36. The marks are the lowest for crude since April 2009, and represented the seventh straight week of losses.

However, prices recovered from even steeper losses during the day after Baker Hughes, the U.S. oilfield-services company, announced that the number of rigs drilling for oil domestically had fallen by 61 this week, the most during a week since 1991.

Ben Casselman: The conventional wisdom on oil is always wrong

December 19, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

This is something we knew already: Oil prices fluctuate. Like all commodities, prices go up, and then they go down, and few experts know exactly why, or how far, or for how long trends will endure.

But FiveThirtyEight.com’s Ben Casselman, who used to cover the oil patch for The Wall Street Journal, outlines (in typical well-executed FiveThirtyEight style), all the ways that people have gotten oil predictions so horribly wrong this year.

Here’s one of the many instructive passages from his piece:

It isn’t just that experts didn’t see the shale boom coming. It’s that they underestimated its impact at virtually every turn. First, they didn’t think natural gas could be produced from shale (it could). Then they thought production would fall quickly if natural gas prices dropped (they did, and it didn’t). They thought the techniques that worked for gas couldn’t be applied to oil (they could). They thought shale couldn’t reverse the overall decline in U.S. oil production (it did). And they thought rising U.S. oil production wouldn’t be enough to affect global oil prices (it was).

Now, oil prices are cratering, falling below $55 a barrel from more than $100 earlier this year. And so, the usual lineup of experts — the same ones, in many cases, who’ve been wrong so many times in the past — are offering predictions for what plunging prices will mean for the U.S. oil boom. Here’s my prediction: They’ll be wrong this time, too.

Among the many reasons why pundits’ crystal balls are so often murky: various factors go into the makeup of prices; and the economics of oil-field drilling are complicated, which is why even “break-even” declarations about when oil-shale drilling in Texas or North Dakota might become unprofitable can be off base as well.

As to the first point — all the factors that comprise the fluctuating price of oil — Cassleman writes:

In July 2008, my Journal colleague Neil King asked a wide range of energy journalists, economists and other experts to anonymously predict what the price of oil would be at the end of the year. The nearly two dozen responses ranged from $70 a barrel at the low end to $167.50 at the high end. The actual answer: $44.60.

It isn’t surprising that experts aren’t good at predicting prices. Global oil markets are a function of countless variables — geopolitics, economics, technology, geology — each with its own inherent uncertainty. And even if you get those estimates right, you never know when a war in the Middle East or an oil boom in North Dakota will suddenly turn the whole formula on its head.

But none of that stops television pundits from making confident predictions about where oil prices will head in the coming months, and then using those predictions as the basis for production forecasts. Based on their track record, you should ignore them.

The Economist: Benefit of cheap gas depends on ‘sheiks vs. shale’ tussle

December 5, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Cheap gasoline provides an overall economic benefit, The Economist writes in an article titled “Sheikhs vs. shale.”

The price drop of some $40 since June (from above $110 to about $70) has shifted “some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off—equivalent to a 2% pay rise.”

But will oil stay cheap? That’s the big question. How long the economic benefit of depressed prices lasts depends on:

” … a continuing tussle between OPEC and the shale-drillers [in the United States]. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.”

In short, gasoline is cheap now. We need to ensure it stays cheap.

Read more at FuelFreedom.org and PUMPtheMovie.com.

(Photo credit: Dan Weinbaum, posted to Flickr.com)

Low prices keep shale oil in the ground, for now

December 4, 2014/in What's The Buzz /by Fuel Freedom Staff

A Reuters opinion piece by Mike Corones postulates that low oil prices could actually be good for the environment, as U.S. drillers are forced to hold off on new wells until the pricing structure recovers.

That, in turn, means much of the hard-to-reach shale oil that is fueling the worldwide glut of supply will stay in the ground. And that, at least, is good for the environment.

Read the whole piece here.

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

November 25, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

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.

Will U.S. take steps to keep the ‘Shale Revolution’ going?

October 22, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

At least one observer wonders whether it’s time to start protecting up the burgeoning U.S. oil industry. Chip Register, managing director of Sapient Global Markets, writes in Forbes:

“One possibility would be for the government to level the playing field with OPEC and others by introducing tariffs on cheap foreign oil imports, with the goal of driving separation between the North American energy economy and the chaos of the international markets. While this may seem extreme, it may be necessary to protect this young yet highly strategic industry from going extinct.”

The global price of oil is off about 25 percent since June, and it’s already having an impact on U.S. drilling operations. As Real Clear Energy’s Nick Cunningham noted in a post Wednesday, there are now 1,590 active oil rigs in the country, the lowest level in six weeks.

Drilling in shale-oil formations, largely using hydraulic fracturing, helped the U.S. reach 8.95 million barrels of oil per day this month, the highest level in 29 years. But as a story in Bloomberg points out, that growth trajectory is difficult to maintain:

“Oil production from shale drilling, which bores horizontally through hard rock, declines more than 80 percent in four years, more than three times faster than conventional, vertical wells, according to the IEA [International Energy Agency].”

Shale-oil production is relatively expensive compared with imported oil, so it won’t take much of a drop in global prices to make some domestic operations unprofitable. The Bloomberg story quotes Philip Verleger (an economic adviser to President Ford and director of energy policy for President Carter), who says that if oil falls to $70 a barrel, production in the Bakken shale formation could plummet 28 percent to 800,000 barrels a day; in July the production level was 1.1 million barrels a day.

The notion Register raised isn’t new: In early October, Ed Hirs, a lecturer in energy economics at the University of Houston, touted a paper he’d written suggesting that the U.S. government intervene to restrict oil imports and protect U.S. producers.

“We need to act in our own best interest,” Hirs said at an energy symposium, according to Forbes. America’s oil growth is so strong “that we can de-link from the global market.”

Bloomberg has cool graphic showing shale-oil break-even points

October 17, 2014/in What's The Buzz /by Fuel Freedom Staff

With the global plunge in oil prices comes concern that many U.S. companies that drill in tight-oil shale formations might be hurt, since it’s more expensive to extract that oil and their profit margins are smaller.

But Bloomberg has a helpful chart showing that “most regions continue to be profitable below $80, including the Bakken and Eagle Ford formations, two of the most important sources. Much of the Eagle Ford play would still be profitable with $50 oil.”