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

Loren Steffy, formerly with the Houston Chronicle, is now writing for Forbes.  He’s just published an article laying out the case for building the Keystone pipeline, with which I agree.  The key points are:

  • Oil from the pipeline will not be exported, which is actually illegal under federal law.
  • Refined products, like gasoline, are being exported, but for economic reasons, due to sagging demand in the US.  It’s either export, or lay off workers.  I’ll take export, which has the side benefit of reducing our trade deficit.
  • The pipeline is essentially insurance against OPEC.  I would rather have the US control more supply, not less.

Great article by Loren.

I was on Viewpoint tonight with John Fugelsang and environmentalist Bill McKibben, talking about the Arkansas oil spill.  Have a look:

In my early career in the oilfield, when I was working on cement and frac crews, I breathed plenty of dust from cement, frac sand, and powdered guar used to make frac gel.  Throw in a little xylene and hydrochloric acid, and I think my lungs have experienced plenty of challenges.  Read the rest of this entry

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