End of the Shale Boom? Or Pause?

I’m sitting here watching Bloomberg report WTI at a hair over $46 a barrel, and reading Goldman’s gloomy prognostication that the six month price will be $39, rather than the previous $75, and the twelve month number will be $65 vs $80.  OPEC is continuing to hold the line on their production putting gigantic pressure on US shale production which has a break-even, depending on region, of around $50 to $75 per barrel.  Last week, Fortune’s Shawn Tully declared the US shale boom in serious jeopardy, correctly asserting that the high decline curve on unconventional resources demands ever increasing capital investment to grow production.

With US oil stocks remaining at 5 year highs, and reduced near-term domestic and international demand, I’ve become increasingly bearish on crude pricing for the short to medium term.  The Saudis seem to have a tight grip on the OPEC members, and they are holding the line to keep prices just low enough to stifle new shale production.

The industry is responsive to big shifts in economics, this time, though, it appears that the large conventional producers who have lower marginal costs, like Saudi Arabia, are in the drivers seat.  And that would be happy to drive the car over the cliff if it puts them back in charge of global prices.

More ugliness to come.

 

Federal Court Won’t Rehear BP Appeal

Friday, the 5th Circuit voted 7 to 6 to not rehear an appeal by BP that they should not be liable under Clean Water Act fines, because oil didn’t actually leak from the Macondo well, but from the severely damaged riser connected to the sunken rig.  The assertion was laughable, but still pushed by BP.  The only remarkable thing about this decision was that 6 federal judges actually agreed with BP.

On October 30, TransCanada filed a plan to build a new pipeline from the oil sands projects in Alberta east to St. John, New Brunswick.  Even though the company says otherwise, Transcanada’s Energy East’s pipeline, with a capacity of 1.1 million barrels of oil per day, provides a direct substitute for the XL extension to the Keystone pipeline which has be in political limbo for 3 years.

Energy-East-Pipeline

The $12 billion pipeline construction project will involve the conversation of an existing natural gas pipeline as well as construction of approximately 900 miles of new pipeline.  Along with the pipeline, a new deepwater terminal for export will be constructed at St. John.

Most important for Transcanada, since the project is wholly contained within the borders of Canada, the project cannot be delayed or used as a political football by US politicians.  So, what’s happened is exactly what markets and economics cause to happen; the XL project has been delayed by US politicians for the benefit of themselves so long that Transcanada has developed a more expensive, but likely more certain alternative that provides a market for crude produced from the oil sands in Alberta.

The lesson here, at least for us?  It is long past time for us to adopt a comprehensive energy policy around weaning ourselves from heavy hydrocarbons and developing more sustainable cleaner fuels to power our future.  The XL pipeline debacle should be another one of those moments in time with which we are occasionally presented that should be used to change our national direction.  Perhaps, one day, we’ll actually take advantage of those opportunities to improve the future for our kids, grandkids, and their kids.

If only that was at the front of our collective consciousness.

 

 

The Keystone XL pipeline extension, proposed by TransCanada Pipeline to increase capacity of oil from Canada to refining centers on the Gulf Coast, has become a political football over the last several years, a victim of hyperbole and demagoguing, is coming up for a vote on Capitol Hill maybe as early as today.  The reason? A runoff election for the US Senate between Democrat Mary Landrieu and Republican challenger US Representative Bill Cassidy, who is so far leading in the polls.  Landrieu, an oil industry friendly Democrat, has been fighting for her political life during this midterm election season where Republicans have recently swept both the House and Senate, as well as many state houses and governor’s mansions.   Read the rest of this entry

I was sitting in Miss Chambliss’ 5 grade classroom at Oakhurst Elementary School in Fort Worth.  It was a beautiful, crisp late autumn day, one of those days we cherish, living in the oven that is often Texas.  We had just come in from lunchtime recess and were getting back to studying when one of my close childhood friends, Steve Ellis, burst into our classroom yelling, “The President has been shot in the face! The President has been shot in the face!” In an instant, my own life, and those of millions of Americans, changed forever. Read the rest of this entry

A new report from the Intergovernmental Panel on Climate Change, a group of scientists sponsored by the UN, concludes that the rate of climate change is certainly caused by human activity.  Talking about their findings, chairman of the panel, Thomas F. Stocker said,

Climate change is the greatest challenge of our time. In short, it threatens our planet, our only home.

Read the rest of this entry

Defending Healthcare Reform

This week, President Obama sat down with President Clinton to talk about healthcare reform.  The setting was the annual meeting of the Clinton Global Initiative, which was founded by Clinton in 2005 to provide a forum for global leaders to tackle the challenges of today.  The annual meeting is held each year in New York concurrent with the opening of the UN, which brings together heads of state from all over the world.  The forum provides an opportunity to address issues that are too complex to be handled in the politicized environment of the UN.

After his address to the General Assembly on Tuesday, the President spent about an hour in a one-on-one discussion about the healthcare law.  When asked why he went through the grief of getting healthcare reform passed when there were some many concerns about the economy, he presented a several-minute answer that included the following:

The fact is that we have been, up until recently, the only advanced industrialized nation on Earth that permits large numbers of its people to languish without health insurance.  Not only is there the cruelty of people who are unable to get health insurance having to use the emergency room as their doctor or their health service, but — we’re also more efficient than anybody else and so when we talk about, for example, our deficit — you know this better than anybody — the reason that we have not only current deficits but also projected long-term deficits — the structural deficit that we have is primarily based on the fact that we have a hugely inefficient, wildly expensive health care system that does not produce better outcomes.

And if we spent the same amount of money on health care that Canada or France or Great Britain did, or Japan, or any other industrialized country, with the same outcomes or better outcomes, that essentially would remove our structural deficit, which would then free up dollars for us to invest in early-childhood education and infrastructure and medical research and all the other things that can make sure that we’re competitive and growing rapidly over the long term.

So my view when I came into office was we’ve got an immediate crisis — we’ve got to get the economy growing.  But what we also have to do is to start tackling some of these structural problems that had been building up for years.  And one of the biggest structural problems was health care.  It’s what accounts for our deficit.  It’s what accounts for our debt.  It causes pain and misery to millions of people all across the country.  It is a huge burden on our businesses.

 

and

So this has everything to do with the economy, in addition to what I consider to be the moral imperative that a mom should not have to go bankrupt if her son or daughter gets sick; that a family who’s dealing with a layoff and is already struggling to pay the bills shouldn’t also be wondering whether they’re one illness away from losing their home.  And I think most Americans agree with that.

Social justice and improving the economy.  The President laid out the case for healthcare reform.  It’s a good read and better if you listen to the discussion which can be found here.

 

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