Arctic Exploration: Could a Really Cold War Begin Here, or Will the U.S. Shy Away

Arctic oil and natural gas resources, courtesy of the U.S. Energy Information Agency

Arctic oil and natural gas resources, courtesy of the U.S. Energy Information Agency

News that Russia has increased its interests and pursuits of an arctic foothold have been percolating for awhile but now comes an effort to gain a stronger purchase to begin hydrocarbon exploration

If there is place and way to start a new Really Cold War — by accident or by design — it would be a competition for energy resources in the Arctic.

Today comes a story from the English-language version of RT, a Russian viewpoint news channel and website, which said Russia is preparing to bring in the biggest bid to the UN to explore for hydrocarbons, while extending the country’s reach beyond its boundaries.

Ahead of Moscow preparing to file a 1.2 million square kilometer Arctic waters bid to the UN later this year, President Vladimir Putin commissioned Russian ministries to get ready to take the new territories in the Sea of Okhotsk under full control and protection.

The Russian president ordered maintenance of border patrols of the extended sea shelf be in place by July 1, 2014. 
Russia’s Defense Ministry has been instructed to ensure maritime authorities extend the Russian shelf in the Sea of Okhotsk beyond the generally recognized 200 nautical miles zone by December 1, 2015.

The Foreign Ministry is obliged to bring all the necessary documents, including new maps of the Sea of Okhotsk and scientific data serving as proof of Russia’s bid, to the UN by March 1, 2015. [...] Last year, Russian energy giants, Gazprom and Rosneft, were granted rights to develop large hydrocarbon deposits recently discovered in the Pechora and Kara seas. The find could be a pot of gold for Russia’s gas industry.

Russia’s move into the Arctic can be seen as multi-pronged. It moves Russia closer to Asia, helps establish its own hegemony, and gives the U.S. another geopolitical shove. Still, there are motives for all sides to work together to accomplish energy exploration in a dangerous climate. All the countries bordering the Arctic are members of the Arctic Council and are working under agreements signed in 1991 outlining environmental and emergency guidelines.

So far, Russian and U.S. authorities have been saying the right things, as Putin has said Russia is ready to work with the Arctic Council, and President Obama has said, “The Arctic region is peaceful, stable, and free of conflict,” according to Secretary of Defense Chuck Hagel. But underneath there seems to be a tension building and actions that could heighten them.

In May 2013, Obama unveiled a 13-page U.S. strategy for the Arctic, according to the Associated Press, and other news outlets. The strategy asserted that nations must protect the region’s fragile environment and keep it free from conflict. “At the same time, however, the U.S. wants to make sure it is not left behind as countries like Russia, China, Canada and Norway map out plans ranging from gas and oil exploration to research and military exercises,” the AP said.

Russia’s military resumed a “permanent Arctic presence” in Sept. 2013, RT said in a separate story, marked by the arrival of a task group of 10 warships and support vessels to the western coast of Kotelny Island in the Novosibirsk (New Siberian Islands) Archipelago. “The task group is headed by Russia’s most powerful battleship and the flagship of the Northern Fleet, cruiser Peter the Great (Pyotr Veliky). The group is accompanied by four nuclear icebreakers facilitating the passage through areas with particularly thick ice.”

The Obama Administration in November said energy exploration in the largely untapped Arctic region could heighten international tensions, but that countries must work together to avoid conflict, the AP reported Hagel saying with regard to the increased interest in the Arctic’s lucrative oil and gas deposits. Hagel’s comments came as the military finalized plans to expand operations in the vast waters of the Arctic

It’s unclear because of Obama’s cutbacks in defense budgeting (see here also) whether the U.S. has the willpower to fill the wide gaps in satellite and communications coverage, add deep-water ports and buy more ships that can withstand the frigid waters or break through the ice.

An EY study says, the region above the Arctic Circle accounts for only about 6 percent of the Earth’s surface area, but it could account for as much as 20 percent of the world’s undiscovered but recoverable oil and natural gas resources.

The existence of hydrocarbon resources in the Arctic has been known for decades, but only in recent years has the opening to full-scale resource development and navigation — such as the fabled Northwest Passage that would connect the Atlantic and Pacific Oceans, or the Northern Sea Route that will connect Europe and western Russia with eastern Russia and Asian markets — become technically and economically feasible. [...] In 2008, the United States Geological Survey (USGS) released the first-ever wide-ranging assessment of Arctic oil and gas resources, estimating the region’s undiscovered and technically recoverable conventional oil and natural gas resources. Of the 33 Arctic sedimentary “provinces” that the USGS evaluated, 25 were found to have a greater than 10% probability of having oil or gas deposits larger than 50 million barrels of oil equivalent. The USGS assessment concluded that approximately 90 billion barrels of oil, 1,669 trillion cubic feet of gas, and 44 billion barrels of natural gas liquids (NGLs) may remain to be found in the Arctic. Of the total 412 billion barrels of oil equivalent (boe), approximately 84% is expected to be found offshore, and about two-thirds (67%) of the total was natural gas.

The Arctic region contains portions of eight countries — Canada, Denmark/Greenland, Finland, Iceland, Norway, Russia, Sweden and the United States. Finland and Sweden do not border on the Arctic Ocean and are the only Arctic countries without jurisdictional claims in the Arctic Ocean and adjacent seas, according to EY, which is member firm of Ernst & Young Global Limited, an assurance, tax, transaction and advisory services provider. And most of the hydrocarbons are believed to be in relatively shallow water, about 500 meters or about 1,500 feet.

While the Obama Administration claims to be pivot toward Asia about as often as it pivots toward the U.S. economy, between its muddled Middle East policy and regulatory rules-making at home, it really hasn’t done much geopolitically in Asia, though in energy it has continued its tariff war on solar panels with China.

Russia, on the other hand, is reaching out to China and Japan in its Arcitc policy as well. A Feb. 1, article in The Diplomat notes that:

The Arctic region has moved to the center of world politics in 2014, siting high on the energy security agenda of most East Asian countries, including China and Japan. The latter has recently been stepping up its efforts to build a stronger foothold in the area. Those efforts have been given a boost recently by Tokyo’s discovery of a new friend with a prominent role on the Arctic chessboard: Russia. A successful Japan-Russia rapprochement has the potential to serve as a game changer for both countries.

An April 11 Reuters story said Russia’s pivot toward Asia and the East made strategic sense.

In Yamal – which in the local Nenets language means “the end of the earth” – a $27 billion liquefied natural gas (LNG) scheme is assuming major political as well as economic significance.

The project fits well with a more aggressive eastward push by Moscow since the United States and European Union imposed sanctions over its annexation of Crimea from Ukraine last month.

Instead of sending gas by pipeline to long-standing EU customers, Russia aims to ship LNG from the remote Yamal peninsula by sea largely to Asian buyers such as China, which has avoided confronting Moscow since Russian troops took control of Crimea. [...] With the EU and Ukraine discussing ways to cut their reliance on Russian gas, Moscow has courted its Asian partners more aggressively, hoping to capitalize on record prices for LNG in Japan, China and South Korea. [...] A deal between Gazprom and China has been in the works for at least 10 years. If one is finally struck, Putin could hold this up as proof that Western attempts to isolate Russia are destined to fail.

 

Offshore-Mag.com, an oil and gas publication sees reason for cooperation in the Arctic because of the inherent risks in drilling in such a harsh environment. It notes the petroleum industry has explored and produced oil and gas in Arctic areas for more than 50 years, onshore and offshore. Factors such as melting sea ice, high energy prices, unrest in the Middle East, demand growth in Asia and the Russia/Norway delimitation agreement have led to significant increases in industry interest across the Arctic region.

Despite the frozen and inaccessible nature of the bulk of Arctic land and sea, the Arctic is not an unchartered and unregulated region as implied in some requests for a new binding Arctic Ocean Treaty.

On the contrary, the binding rules of the Law of the Sea and an extensive set of governance institutions weave their Arctic web year by year – and the bulk of Arctic resources are clearly and unambiguously under national jurisdictions of the Arctic five: Russia, Norway, USA, Canada, and Denmark/Greenland.

The Cold War heritage of military saber-rattling, the presence of virgin strategic resources, and a number of unsettled territorial boundaries have fueled the notion of a potentially destabilizing race to the Arctic. However, the dominant interest of all major Arctic players is peace, stability, and the rule of law based on modern Law of the Sea principles.

Powers such as China, Japan, and Korea have legitimate interests in access to shipping and high-seas water-column resources, and have been accommodated as observers in the Arctic Council and position themselves on commercial terms in shipping, energy extraction, fisheries, research, and tourism. The main threat of military escalation lies in potential conflict overflow from other regions. This is not considered a realistic scenario at present.

The RT article at the top seems to think that the ultimate goal for the U.S. is to establish international order under U.S. leadership. But it’s hard to square that with the actions of the administration, particularly in foreign policy. The more likely reading from here is that the U.S. abdicates its military efforts there unless it needs to defend Alaska and allows Russia all the room it needs. This would mean U.S. companies would need to work with the remaining countries with interests in Arctic energy exploration. And it also probably means U.S. power will be diminished more.

 

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Friday Energy News Dump: Japan Hemorrhaging as Iran Grimly Reaps Profits, and Other Life-and-Death Headline Metaphors

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Trying to Stop a Death Spiral: Japan Approves Energy Plan Reinstating Nuclear Power

Reaping a Windfall: Iran’s Gas Exports Rise by 258 Percent

Vulnerable to a Fare-thee-well: Steps Underway to Protect Grid, Says Energy Regulator

I’m Not Dead Yet: Why The Utility ‘Death Spiral’ Is Dead Wrong

The Irony is Killing Me: The Energy ‘Trilemma’: How Did We Get Here? Energy Used to be One of the UK’s Success Stories

The Government’s Deadening Hand: Energy Firms to Fed: Hands Off Banks’ Commodity Trading

Oil & Gas, Showing a Lot of Life: Energy Exploration ETFs: A Bright Spot in The Choppy Market

Ohio’s Killer Policy: Energy Efficiency Timeout Debated

A Poplar New Life: Wisconsin Researchers Discover Poplars May Be Key to New Biofuel Technologies

Solar and Green’s Morbid Numbers: Yingli’s Warning Casts First-Quarter Shadow for Solar As Green Market Swoons

Picture courtesy of WikimediaCommons


Risks Abound: What Energy Means to Scottish Independence and Its Future

The Magnus Platform is in the northern UK sector of the North Sea, about 100 miles north-east of the Shetland Islands. At the time of it's construction at Nigg, Scotland, the jacket was the largest (by weight) steel jacket ever built at 40,000 tons. For many years it was BP's single biggest asset worldwide.

The Magnus Platform is in the northern UK sector of the North Sea, about 100 miles north-east of the Shetland Islands. At the time of it’s construction at Nigg, Scotland, the jacket was the largest (by weight) steel jacket ever built at 40,000 tons. For many years it was BP’s single biggest asset worldwide.

While London Threatens That Scotland’s Energy Prices Could Rise, Questions Over Value and Extent of North Sea Oil and Gas  Grease up Political  discourse

Scotland is on the verge of voting to become independent from the United Kingdom. Scottish leader Alex Salmond has set Sept. 18, 2014, as the date for an independence referendum, and if the Scots vote for independence it will set off a cascade of events that will reshape the country.

Questions about what how to decouple its currency from the English pound, how a new representative government will be set up, amongst other weighty issues, loom. As CNN reports, “It’s a vote that could end Scotland’s 300-year union with England and Wales as Great Britain — and see it launch into the world as an independent nation of some 5.3 million people.”

One question being hashed out now is how will Scotland’s energy sector fare in the event of independence. Reuters runs a story today reporting Britain’s secretary of energy and climate change Ed Davey cautioning that independence could see a large increase in energy costs, noting that  costs of producing energy to power Scotland’s 3 million homes is subsidised by the total 33 million households across Britain, according to reporter Susanna Twidale.

Davey’s words of caution, of course, may be politically expedient, as England is opposed to Scottish independence. Still, he’s words are worth considering. Twidale’s report said “the issue of soaring energy costs has risen up the national political agenda after above-inflation price rises by Britain’s dominant energy suppliers drew public anger last year.”

Currently Scotland provides one third of the United Kingdom’s total renewable generation and receives a quarter of Britain’s renewable subsidies.

“If Scotland were to choose to go it alone, maintaining this level of support would take up a greater proportion of national finances. Meaning either higher taxes, higher energy bills or cuts in other areas,” Davey said.

The government estimates that around 40 billion pounds will be spent on building new renewable energy projects in Britain by 2020 to double its current installed green energy capacity of 20 gigawatts.

Davey also said Scotland was in line to receive more than 6 billion pounds over the next seven years to help pay for infrastructure upgrades to improve electricity supplies to remote parts of the country. He said an independent Scotland would need to find cash for the upgrades from its own coffers.

The Reuter’s story also notes that the Scottish National Party has previously said independence would not undermine the country’s renewable investment.

Perhaps that is the case with renewables, but what of Scotland’s vast North Sea oil operations?

In short, it’s complicated.

Oil & Gas IQ estimates there 6.9 billion barrels of oil and a maximum of 2,661 billion m³ of natural gas, which according to a March 10, Reuters story is a hydrocarbon load worth some $2.3 trillion. The Scottish Nationalist Party’s thrust for independence rests in large part on dissatisfaction with England over North Sea oil and gas. The entire argument for independence is laid out here in a PDF titled “Scotland’s Future, Your Guide to an Independent Scotland.” (The official website is scotreferendum.com.) According to the white-paper:

The oil and gas sector has been a major part of the economy of Scotland since the 1970s. Oil and gas production is estimated to have contributed around £22 billion to Scottish GDP in 2012[333]. Through the success of the last five decades, Aberdeen has become an international oil and gas centre of excellence, home to an industry that is leading the world in many areas, supported by strong academic research in Scotland’s universities. In 2013, oil and gas was the largest single sector in the FTSE 100 Index of leading companies[334], and a sector in which Scottish firms are leading global players.

Scotland now has a second opportunity to steward our oil and gas assets for the benefit of the nation, as well as supporting the growth of an industry that in many areas is the best in the world.

But whether Scotland would be able to finance its independence and further control its own destiny is open to question, as the Reuter report notes North Seas production is in decline.

and an independent Scotland would face tens of billions of dollars in reduced revenues because of the tax relief companies need to decommission 6,200 miles (10,000 kilometres) of pipeline, 5,000 wells and 475 rigs and platforms in future decades.

“I think it could be a problem,” said Gavin McCrone, a former British civil servant who has written a book about the consequences of independence.

McCrone, who warned in a confidential brief for British ministers in 1974 that North Sea oil would strengthen the nationalist economic case for breaking the union, argues that while an independent Scotland could be viable economically, it could be in for a bumpy ride for a number of years, depending on its currency, fiscal position and how North Sea revenue is handled.

The British government has told Scots they will not be able to keep the pound if they break away and that the size of the United Kingdom – whose economy is 10 times the size of Scotland’s – puts it in a better position to support increasingly expensive North Sea production.

Prime Minister David Cameron, while visiting a BP platform last month in the ETAP fields 150 miles east of the Scottish oil city of Aberdeen, made the case for togetherness.

Brent, the name worldwide markets associate with European crude oil, was the name given to the oil field when Shell opened its first rig there in 1975, and has produced 4 billion barrels of oil equivalent, according to Reuters, while becoming the world’s dominant benchmark along with West Texas Intermediate (WTI). However, production in Britain’s North Sea peaked in 1999, and the Brent Delta platform stopped production in 2011. Decommissioning Brent facilities alone will cost several billion pounds, according to Shell.

Indeed, Scottish independence raises many complicated issues, but there may be few as slippery as its energy questions. It bares watching.

Photo Courtesy of Oil Rig Photos


Skipping the water in fracking; solar back in Ohio’s crosshairs; wind reaches new peaks

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The push to extend fracking to arid regions is drawing attention to water-free techniques

One of the contentious issues with hydraulic fracturing, and perhaps its most salient is the high use of water. The development of the technology that has transformed the oil and gas industry and been an economic boon to the states that approve of fracking has mostly only been possible where there has been ample water supplies.

Indeed, the high volumes of water being used and its potential impact on the environment has necessitated innovation in how to recycle used fracking water as in Pennsylvania and Ohio, the frontline of the Marcellus Shale gas play.

But what about areas where there is no water such as deserts? Kevin Bullis of MIT’s Technology Review writes that engineers are developing an app for that as well by using carbon dioxide. His salve to environmentalists, whom we imagine would think this is the worst of all choices, is a price on carbon emissions would be need to make it happen on a large scale.

It’s possible to fracture gas-rich rock formations without using any water at all. Indeed, gas and oil companies have been using carbon dioxide this way for decades, albeit on a limited basis. But if this approach is going to be used on a large scale, it will require a major investment in infrastructure for getting carbon dioxide to fracking sites. And in some cases a price on carbon emissions may be the only way to make the economics work. [...]

Fracking with carbon dioxide has a number of potential advantages. Not only would it eliminate the need for millions of gallons of water per well, it would also eliminate the large amounts of wastewater produced in the process (see “Studies Link Earthquakes to Wastewater from Fracking”).

Water-free fracking could also solve other problems. In conventional fracking, half the water pumped into a well flows back to the surface, but the other half stays in the rock formation. The water that’s left behind can block the path of the natural gas, slowing down production and possibly decreasing the total amount a well can produce over its lifetime, [Robert Dilmore, a research engineer at the U.S. National Energy Technology Laboratory] says.

When carbon dioxide is used instead of water, most of it comes back out of the well (where it can be captured and used again). This in turn allows natural gas to flow out more freely. Some recent research suggests that using carbon dioxide can also result in a better network of fractures, making it easier to extract the fuel.

Using carbon dioxide as a fracking agent is not new. Wyoming has been using it, according to Bullis. Gasfrac Energy Serivces Inc. of Calgary is using propane as a fracking agent, and Kittanning-Pa.-based MDS Energy Ltd. moved to nitrogen fracking, according to Timoty Puko of the Pittsburgh Post Tribune, whose article goes into greater detail on the role being played by non-water substances.

And, Bullis said in his to-be-sure paragraph that there are still many challenges to carbon dioxide fracking than infrastructure, such as carbon dioxide needing more pressure to condense because it’s a gas, unlike water, and thus fracture the rock. However, this will be an interesting development to watch as the shale gas revolution continues forward.

Via Instapundit

Ohio lawmakers take up wind, solar energy rule 

According to the Associated Press, Ohio lawmakers are considering whether to scrap its renewable energy standard. That standard requires power companies to generate a portion of their electricity from renewable sources such as solar and wind.

In hearings last week, Ohio Senate Public Utilities Chairman Bill Seitz, a Cincinnati Republican, reopened discussions on the 2008 state law, which said utilities must produce 12.5 percent of their electricity from renewables by 2025. The law also set energy efficiency targets to be met by the companies.

A surge in shale gas drilling that’s promising new domestic supplies of a traditional energy source has added a new twist to the debate.

Opponents of the mandates say they fatten electric bills in a state whose rates are already higher than some neighbors. Some also question global warming and those who use it to push for reduced use of coal-fired power plants.

There are similar thresholds in 29 other states and the District of Columbia, the article said. It is not clear whether the standards actually help or not.

Bosch to abandon solar business

There are more signs the solar industry is coming to heel because of market pressures. On Friday the AP reported that German engineering company Bosch is abandoning its solar energy business, because there is no way to make it economically viable amid overcapacity and huge price pressure in the industry. Solar

The solar power industry has been hit by falling subsidies, weaker sales and increasingly stiff price competition, especially by Chinese manufacturers. [...] The solar energy division, which employs about 3,000 people, lost around 1 billion euros ($1.3 billion) last year. The company said that, despite efforts to reduce manufacturing costs, it was unable to offset a drop in prices of as much as 40 percent.

Robert Bosch GmbH’s move came after German industrial conglomerate Siemens announced last October that it would give up its loss-making solar business, the article said.

Wind power peaks in the UK, Denmark and U.S.

James Montgomery of Renewable Energy World reports a different sort of peak on Monday, noting that wind energy generated more than 5 gigawatt-hours (GWh) of electricity consistently over a 48-hour period last week. What is notable is that is enough to power more than 10 percent of the country’s overall electricity needs, and the equivalent of nearly four out of every 10 homes, according to Montgomery.

More notably, The United Kingdom and Denmark are leading your Europe in the wind revolution.

The UK is far and away Europe’s leader in offshore wind, accounting for nearly 60 percent of the region’s total 5 GW offshore capacity in 2012 (Denmark is net with 18 percent). The UK now has 870 turbines running in 20 offshore wind farms (twice as much as Denmark), including 243 of Europe’s total 293 new offshore wind turbines that were grid-connected in 2012. Earlier this month (March 7) the London Array had 141 of its 175 wind turbines online (3.6 MW each), able to generate 507 MW of energy. The final turbine was installed in December and the project should be fully operational later this spring.

Speaking of Denmark, earlier this month Danish wind turbines sent nearly 4 GW into the electricity grid, only about 800 MW shy of meeting the nation’s entire energy needs. (Though in reality the energy is sold to other European countries.) The Danish government has targeted wind to produce half its electricity by 2020, double its current rate.

Go to the link. There’s also info on Xcel Energy’s Upper Midwest region, Puget Sound Energy, and Electric Reliability Council of Texas and its wind refining improvements. 580px-Windmill

Renewed tax credits buoy wind industry

Yet it seems despite the advances the wind industry still cannot stand on its own feet yet. The New York Times Diane Cardwell reports an uptick in wind-related projects following a deep slump last year. The projects, however, are not new, but are merely picking up form whence they were abandoned, she said.

The rush to development is in large part because of Congress. Lawmakers had allowed a popular incentive, known as the production tax credit, to lapse at the end of last year, but then renewed it in January. They also changed the requirement so that projects only have to be under construction by the end of the year to qualify, rather than fully operational, as had traditionally been the case.

“We are now back on the treadmill trying to get as much of our portfolio qualified for the P.T.C. by the end of this year,” said Paul J. Gaynor, First Wind’s chief executive, referring to the credit. Without the renewal, he said, “I think we would have had zero megawatts to develop.”

Projects take such a long time to finish, industry executives and analysts say, that development and manufacturing will continue to pick up through this year and next, potentially spilling over into 2015.

Indeed, the flurry of activity may represent more of a shuffle than an expansion. Developers are mainly dusting off projects they already had in the works, rather than seeking out new business, while others are trying to sell off unfinished projects, experts and executives said.

Cardwell reports there may be other problems in bringing more wind projects on line, as “demand for new power plants is relatively low because of a sluggish economy; natural gas is cheaper and, especially in the West, many utilities are choosing to meet state renewable energy mandates with solar.”

Images from Wikimedia Commons


Around the world, oil and gas are changing everything, and politics are its midwives

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Rapidly advancing technologies are opening up astonishing sources of oil and gas all over the world. We are entering a new era of fossil fuels that is reshaping global economics and politics—and the planet.

That’s the subhed for an article by Vince Beiser at Pacific Standard. For more than 100 years humans have been pulling oil from the ground, and it’s probably been just as long that humans having been predicting the end of oil as a resource, nowadays known by the phrase “peak oil.” Writes Beiser:

The story of Kern River reflects our entire history with oil: every time we think we’re starting to run out of it, new technologies arise that find us more. The widely circulated fears of a few years ago that we were approaching ‘peak oil’ have turned out to be completely wrong. From the Arctic to Africa, nanoengineered materials, underwater robots, side-scanning 3-D sonar, specially engineered lubricants, and myriad other advances are opening up titanic new supplies of fossil fuels, many of them in unexpected places—Brazil, Australia, and, perhaps most significantly, North America. ‘Contrary to what most people believe,’ declares a recent study from the Harvard Kennedy School, ‘oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption.’

Yet, much to the consternation of many, it never really does go away. New technologies continue to open the way for more and deeper drilling. Daniel Yergin comes back to this time and again in his great read “The Prize, The Epic Quest for Oil, Money & Power,” which has the review from Publisher’s Weekly said, “limns oil’s central role in most of the wars and many international crises of the 20th century.”

It also points to how, as another reviewer at the above-linked site puts it, “how oil went from freewheeling business of refiners and speculators to an instrument of great geopolitical importance.”

As Beiser writes, “[f]or centuries, the ever-shifting map of where energy comes from has defined much of the character of our world.” That’s as true now as ever as the following stories help convey.

Gas resumes from flowing from Eni’s Libya plant

The New York Times’ Stanley Reed reports “Italian energy giant Eni began Monday to restart operations of the trans-Mediterranean natural gas pipeline it closed Saturday after fighting between two Libyan militias threatened its gas complex west of Tripoli.”

Since the fall of Col. Muammar el-Qaddafi in 2011, Libya has been in a state of chaos as rival militias vie for turf and treasure. But until now the armed groups have left Libya’s oil and gas fields alone — or in Eni’s case, have even carefully protected the operations, which keep the country’s lights on and the money flowing in.

‘The energy installations have been left out of the instability because there is wide recognition about as to how important they are to the economy,’ said Richard Cochrane, a security analyst at IHS.

Why the militias crossed a line this past weekend is not entirely clear. One theory, not denied by Eni, is that the two militias were fighting for the privilege of guarding Libya’s most important oil and gas installation, as well as the economic and political benefits that accrue to whoever has that status.

The pipeline is the single transmission conduit for Libyan natural gas to Italy and, from there, elsewhere in Europe, Reed said.

The great Burma (black) gold rush

Walter Russell Mead highlights how Burma’s new democracy is opening the hydrocarbon door for its energy industry, amongst other industries, and giving it the potential for great wealth.

Because exploration (especially offshore) has been limited, numerous foreign energy companies are on the move. ‘There has never been a better time for you to come to Myanmar and search for opportunities in the oil and gas sectors,’ Burma’s Energy Minister Than Htay told Big Oil bigwigs at a conference in March last year. Another conference attended by international oil companies took place in Yangon today; the Burmese government pledged to put up‘over 20′ offshore blocks for auction by April. This is in addition to 18 onshore blocks opened for bids in January. ‘In our language,’ a Burmese oil tycoon told Agence France-Presse, ‘we call [oil and gas fields] ‘treasure troves’ as we can expect that they can bring us a large amount of treasure.’

“Burma also sits astride one of the most important sea trade routes in the world, and its territory abuts China—for now the most populated and resource-hungry market in the world. These are big opportunities for an infant democracy,” Mead said.

In a related story, via Mead, YahooNews reports that Myanmar plans to put over 20 offshoreoil and gas exploration blocks up for auction by April.

China is poised to become a major importer as well. Htin Aung said China’s 495 mile gas pipeline, which connects the Bay of Bengal with Yunnan province in southwest China, will start operations in June, while a parallel 481 mile oil pipeline will begin pumping in September.

The pipelines are strategically important to China, which now routes most energy imports through the narrow Strait of Malacca and wants to develop an alternate supply route. The pipelines pass through an area of northeastern Myanmar where violence recently broke out between the government and ethnic Kachin fighters who want greater self-rule. China has been concerned about the skirmishes and brokered peace talks between the two sides in February.

Oil and gas are often blamed for many misfortunes. But it seems politics is its midwife.

Indeed, even when governments — or governments of free countries, at least — don’t want to improve their country’s oil supplies it is hard to stop, as this Congressional Research Service report said. From the summary:

Congress is faced with proposals designed to increase domestic energy supply, enhance security, and/or amend the requirements of environmental statutes. A key question in this discussion is how much oil and gas is produced each year and how much of that comes from federal and non-federal areas. On non-federal lands, there were modest fluctuations in oil production from fiscal years (FY) 2008-2010, then a significant increase from FY2010 to FY2012 increasing total U.S. oil production by about 1.1 million barrels per day over FY2007 production levels. All of the increase from FY2007 to FY2012 took place on non-federal lands, and the federal share of total U.S. crude oil production fell by about seven percentage points.

Natural gas prices, on the other hand, have remained low for the past several years, allowing gas to become much more competitive with coal for power generation. The shale gas boom has resulted in rising supplies of natural gas. Overall, U.S. natural gas production rose by four trillion cubic feet (tcf) or 20% since 2007, while production on federal lands (onshore and offshore) fell by about 33% and production on non-federal lands grew by 40%. The big shale gas plays are primarily on non-federal lands and are attracting a significant portion of investment for natural gas development.

The summary continues by noting that “the number of producing acres may or may not be a function of how many acres are leased, and the amount of acres leased may or may not correlate to the amount of production[.]“

In conclusion the report said there are substantial, and already accessible, oil and natural gas reserves and resource potential in federal areas. And, that in the end it is red tape that holds back drilling on Federal lands compared to that done on non-fedral lands. But that is a far cry from no drilling at all on federal land, as even the opening up the Arctic National Wildlife Refuge show.

Beiser’s article is a full read and illuminating, covering how the world continues to change because of advances in oil and gas extraction technology, and, of course, politics.

All of this amounts to an economic bonanza, generating hundreds of thousands of jobs nationwide (though the areas where the drilling is actually taking place don’t always get the benefits they expect, as Lisa Margonelli explains in “The Energy Debate We Aren’t Having”). Moreover, it might bring the U.S. closer to the long-held dream of energy independence. The federal Energy Information Administration predicts imports of oil and other energy supplies will drop to 13 percent of total U.S. energy use by 2035, down from 29 percent in 2007.

And the fracking boom is only just beginning. There are believed to be oceans of yet-untapped shale gas and oil in Argentina, China, and several countries in Europe.

“Maybe we’ll figure out a means to innovate our way out of climate change, or at least slow its progress enough that we can adapt to its impacts. If there’s one thing our history with fossil fuels shows, it’s that we are unbelievably good at adapting, at finding new ways to overcome problems once thought impossible to solve,” he said, at the end.

Update: Made a slight grammatical edit in first paragraph.


Judge accepts Transocean guilty plea in Gulf oil spill, and other Friday energy news stories

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Clifford Krauss of the New York Times reported yesterday that “a federal judge in New Orleans approved on ThursdayTransocean’s agreement with prosecutors to plead guilty to a misdemeanor charge and pay $400 million in criminal penalties for its role in the 2010 Gulf of Mexico oil well blowout that left 11 workers dead and resulted in a yearlong moratorium on deepwater drilling.”

Transocean’s criminal fine is the second highest assessed for an environmental disaster, but it pales in comparison with the $1.26 billion in criminal fines that BP was assessed for the same accident, which spewed millions of barrels of crude oil into the gulf, fouling hundreds of miles of beaches in Louisiana, Mississippi and Alabama. [...]

The company has also agreed to pay $1 billion in civil penalties, and will be on probation for five years. Much of the money Transocean has agreed to pay will go toward research for oil spill prevention and response and to restore coastal natural habitat, including barrier islands off the coast of Louisiana.

Now the long legal process surrounding the 2010 accident will focus again on BP.

He said the Switzerland-based owner and operator of the Deepwater Horizon oil rig was charged with negligently discharging oil into the gulf. By midday Friday, shares of Transocean Ltd. RIG -5.33% were off 4.6%, according to MarketWatch.

Obama caught between friends in fight over Keystone XL pipeline
Byron York at the Washington Examiner said President Obama is in a can’t-win situation in the fight over Keystone XL.
Obama’s friends in the environmental movement and Hollywood on one side. Obama’s friends in Big Labor allied with his enemies in Big Oil on the other. What’s a Democratic president to do? [...]
[Obama's 'friends'] know that last year the president put off deciding on the pipeline until after the election Now it appears he would rather do anything than make a choice that is going to make some of his most influential supporters very unhappy.
York point out that one of the reasons for Obama’s bind his usual habit of trying to have things both ways (link to MarketWatch column noting this propensity of the president’s), and thereby making a muddle of things. But politicians base many of their decisions on polls, and if Obama is nothing else he is political, as witnessed by his never-ending campaign. However, at times, he does see fit to govern. And he will have to make a decision on this issue at some point, one would think, and the polls point to which way he is likely to go, according to York’s story.
The other problem for the protesters is public opinion. Polls have consistently shown that most Americans support building the pipeline. In a Rasmussen poll released in January, 59 percent of those surveyed were in favor. On Wednesday, the petroleum institute released its own poll putting the number at 69 percent. [...]
Given that pressure, and especially given the new fact of a safer route for the pipeline, it’s hard to see Obama saying no. But so far, the president just can’t face his environmental and Hollywood allies with the bad news. Even when they come to the White House to see him.
Darrell Delamaide, in the above linked MarketWatch column, said Obama’s State of the Union address on Monday was more evidence that the President’s support for fracking and pipeline work negates his stance on warming.
“But his mixed messages on energy suggest his commitment to reducing greenhouse gas emissions is something less than what’s needed and that his bold declarations on climate change will be followed by the vacillation and temporizing that have characterized much of his presidency in other key areas, such as financial regulation, job creation and housing relief.”
Via Instapundit
Solazyme taps Asian market in algae oil deal with Japanese conglomerate 
At Forbes.com Todd Woody reports that algae-based biofuels, producers like Solazyme are finding success selling its low-carbon oil for use in cosmetics, lubricants and food.

Witness the $20 million deal Solazyme announced last week with Japanese conglomerate Mitsui & Co. to develop new algae oils for the oleochemical industry. Oleochemicals are natural oils derived from palm, cocoanut and other plants and are used to make everything from detergent to plastics.

A $20 million deal is pocket change in the global oleochemical business but the collaboration with Mitsui gives Solazyme entrée into an Asia-based industry looking to diversify. As demand skyrockets with the burgeoning middle classes in countries like China and India, palm oil producers and buyers have come under fire from environmentalists for widespread deforestation in countries like Indonesia that contribute to climate change and extirpation of endangered wildlife.

Solazyme is building two production facilities in the United States and one in Brazil that will have a capacity to produce 450,000 metric tons of algal oil, Woody said.

South Dakota senate panel endorses incentives for wind power

A South Dakota Senate committee endorsed a measure Thursday that would provide financial incentives to encourage the stalled construction of wind power projects in the state, according to Chet Brokaw of the Associated Press. The 6-1 vote came after “lawmakers and industry representatives said construction of wind farms has drawn to a standstill in South Dakota because the state imposes much higher taxes during construction than neighboring states do.”

Foreign investors set to sue Spain over energy reform

Reporting from Madrid, Reuters reporters Tracy Rucinski and Jose Elías Rodríguez said  Foreign investors in renewable energy projects in Spain have hired lawyers to prepare potential international legal action against the Spanish government over new rules they say break their contracts.

According to the article, international funds have invested more than 13 billion euros ($17 billion) of renewable energy assets in Spain. They say that the government has reneged on the terms of their investment after Spanish Parliament approved a law on Thursday that cuts subsidies for alternative energy technologies.

That measure, along with other recent laws including a tax on power generation that hit green energyinvestments especially hard, will virtually wipe out profits for photovoltaic, solar thermal and wind plants, sector lobbyists say. [...]

Spain’s Industry Minister Jose Manuel Soria defended the law in Parliament on Thursday, saying that the measures were necessary to eliminate the accumulated 28 billion euro ($37.4 billion) tariff deficit in the electricity system. [...]

That deficit, built up through years of the government holding down electricity prices at a level that would not cover regulated costs including renewables premiums, is at the heart of Spain’s energy sector woes.

According to the article, the problem is that the cost of the subsidies were not passed on fully to consumers because that would have pushed prices to unprecedented highs.

Energy stocks fall, Apache misses mark, leads decliners

Shares of Apache APA -3.30%  declined 2.1%, with energy stocks the sole sector in the S&P 500 SPX -0.07%  to post losses, , according to MarketWatch reporter Claudia Assis. Apache late Thursday disclosed lower-than-expected production growth goals, disappointing analysts, Assis reported. It announced a flat $10.5 billion capital expenditure budget that allocates about a fifth of its resources to projects that will contribute to production in 2014.

The company also said it would sell $2 billion in assets, without disclosing the properties, and will focus on repaying debt and focusing on long-term value for shareholders.

Apache went through a $16 billion buying spree in recent years, snapping up assets in the U.S., U.K., Australia and other locales.

To make matters a bit worse, the company was involved in a well incident late Thursday, U.S. regulators said.

It prevented a blowout in one of its wells in the Gulf of Mexico and reported an underground flow of natural gas at the well, the Bureau of Safety and Environmental Enforcement said.

Other decliners incude coal miner Peabody Energy Corp.BTU -2.32% , with shares down 1.4%, and Range Resources Corp. RRC -1.90% , down 1.5%, according to Assis. Oil-field-services firm Halliburton Co. HAL -1.45% lost 0.2%. Nabors Industries Ltd. NBR -1.76%  declined 0.1%. Exxon Mobil Corp. XOM -0.31%  shares were off 0.2%, and ConocoPhillips COP -1.33%  shares retreated 0.3%. Chevron Corp. CVX -0.75%  shares declined 0.5%, she said.


France’s GDF Suez to build wind park in Morocco, and other Friday news

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Reuters is reporting that French utility GDF Suez plans to build and operate Africa’s largest wind farm in the desert in southern Morocco. The goal is to expand its presence in emerging markets with fast-growing power needs, according to the article.

The company will invest around 90 million euros in the project, which is due to enter service at the end of next year, Chief Executive Gerard Mestrallet told a conference call on Thursday.

The Tarfaya wind park will have an output of 300 megawatts, representing around two-fifths of the country’s total wind energy capacity.

Exxon Mobil production warning

The Associated Press reports from Lagos, Nigeria that ExxonMobil PLC has warned that it won’t be able to meet its production forecast for Qua Iboe crude oil pumped from Nigeria due to pipeline repair work, declaring “a ‘force majeure’ warning for shipments of its Qua Iboe crude oil — meaning the company cannot cover the promised supply from the field.”

Nigeria, which produces more than 2 million of barrels of oil a day, is a top crude oil supplier to the U.S., according to the AP.

Biomass helping coal plants

At Forbes, Ken Silverstein shows how biomass use may help coal plants. By co-firing biomass, or wood chips, pollution cold be reduced. But there is a question of whether the cost is too high, and environmentalists, have their own worries.

Fossil-fired generation is now under intense scrutiny. But some utilities are reinventing their existing coal facilities so that they can simultaneously burn biomass. State regulators are generally giving their approval, although environmentalists are warning that cutting down trees to make it work is a no-no and that using wood waste or scraps is a more plausible option. [...]

Like any budding fuel source, biomass is not without its critics. Building such a power plant from scratch is a hugely expensive undertaking. FirstEnergy Corp., for example, shuttered its plans to convert an existing coal facility to a 312-megawatt biomass unit, concluding it was financially infeasible.

Estimates are that it cost double that of a coal unit, which produce twice the oomph, or BTUs, as do wood chips. That means that power plants have to burn two-times the wood as they do with coal.

That has led the Manomet Center for Conservation Sciences to say that the net effect on greenhouse gas emissions is higher. Generally, if more trees are cut down then there would be fewer of them to absorb the carbon emissions. [...]

At least 20 utilities in North America are now using wood chips to replace 5-25 percent of the needed coal or natural gas.

Blizzard boosts heating oil demand

Bloomberg’s Christine Harvey reports that the cost of heating oil rose to the highest level in nearly four months on speculation that a snow storm in the U.S. Northeast will boost demand for distillates and drain stockpiles on the East Coast. East Coast supplies slipped almost 3 percent in the week ended Feb. 4, the Energy Information Administration said.

Heating oil for March delivery advanced 4.4 cents, or 1.4 percent, to $3.2433 a gallon on the New York Mercantile Exchange at 9:13 a.m., the highest level since Oct. 11. Volume was 11 percent below the 100-day average at 9:14 a.m. New York time.

The premium of March futures over April increased 0.34 cent to 2.70 cents a gallon.

Stockpiles of distillates including heating oil and diesel fuel fell 1.22 million barrels to 40.1 million last week, a fourth consecutive weekly decline, EIA data show. That’s also the lowest seasonal level in at least 10 years, according to data compiled by Bloomberg.

Mexico wind energy ruffles feathers

A National Geographic story says the start of a new cleaner energy drive for an oil-reliant Mexican nation has upended lives in the region’s native farming and fishing villages.

Outsiders increasingly covet the power of those air currents as energy that can be captured by modern turbines and transported to nearby factories and distant cities. Largely thanks to Oaxaca’s unique geography, Mexico’s wind power capacity expanded to 1,350 megawatts in 2012, according to reports from a national wind industry conference in Mexico City last month, marking nearly a 140 percent expansion in capacity in a single year. Stands of the turbines now fill Oaxacan horizons, with more planned as developers pour millions of dollars into wind farms. While bringing development to the isolated area, the turbines have disrupted pastoral lifestyles and divided villages over leasing fees and other benefits promised to local communities.

According to David LaGesse, the story’s author, local groups opposing the developments say the companies have turned communities against each other as they negotiated land leases, while others complain the developers cheated villages by not paying fair prices and abandoning promised development projects.

Indonesia speeds up geothermal development

The Shanghai Daily reports the Indonesian government seeks to speed up development of geothermal energy to replace fossil fuel energy whose consumption continues to rise amid accelerating economic growth and dwindling oil production. (H/T EnergyDigger.com)

Director General of New Renewable Energy and Conservation, Ministry of Energy and Human Resources, Rida Mulyana said that Indonesia will further intensify synergy and boost coordination between relevant agencies.

‘In the years ahead, geothermal energy will be more optimized so that it can reduce fuel consumption,’ she said, quoted by the Antara news wire.

The director also said that the government will complete the development of 28 points of geothermal locations in partnership with the Ministry of Forestry.

Indonesia’s oil production has decreased in recent years, making it a net oil importer country and exit from the Organization of the Petroleum Exporting Countries in 2008.

The largest economy in Southeast Asia has expanded by more than 6 percent since 2010 and is expected to grow by 6.8 percent this year and 7 percent in 2014.

The rising gross domestic product has pushed higher demand for energy consumption.

Indonesia is an archipelago country and home to 129 active volcanoes, according to the Shanghai Daily. Last year we posted that Germany had teamed up with Indonesia to explore its geothermal options.

Volcanic areas, like Indonesia, are a rich source of geothermal energy. The island nation is situated on the so-called ‘Ring of Fire’ volcanic belt, which encircles the Pacific Ocean, accounting for 40 percent of the world’s geothermal reserves – more than any other country.

The government has pinpointed 250 locations where geothermal energy can be produced, including Seulawah on Sumatra, Ijen on Java and Tomohon on Sulawesi. Today, just 15 geothermal plants are in operation, with the last one going live in 1997.

Not all geothermal fields, however, are suited for commercial energy use because they don’t have the right temperature, pressure or permeability.

Most of the geothermal power plants in operation in Indonesia today are run by the state-owned natural gas and oil company PT Pertamina, according to the above linked story in our Daily Energy Dump archive.


Aubrey McClendon out at Chesapeake — Is a takeover next?

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Chesapeake has proven reserves of 3.1 billion barrels of oil (or the natural gas equivalent), with a big debt load of more than $13 billion.

Forbes staff writer Christopher Helman looks at the implications of Chesapeake Energy founder Aubrey K. McClendon is resigning April 1.

“The news has caused shares of Chesapeake, the nation’s no. 2 producer of natural gas, to jump 11% in after-hours trading. With McClendon out, a significant obstacle to the takeover of Chesapeake will have been removed.”

Aubrey McClendon, chairman and chief executive officer of ChMcClendon, whom Helman calls “the greatest wildcatter of his generation,” has been under scrutiny from within the company, most notably for his involvement in a sweetheart deal — the Well Participation Program — that allows McClendon to personally invest alongside the company on every well it drills. Helman reports the Chesapeake board’s review has not found any wrong-doing on McClendon’s part.

Chairman Archie Dunham, in a staff email, also said “the company is not for sale” and that Chesapeake would carry out its planned $6 billion in drilling this year, according to Helman. However, McClendon’s departure will open the way for a hostile takeover.

Helman:

Chesapeake has the deepest collection of shale gas acreage in the country, and although many of those fields are not currently economic to drill at current gas prices, Chesapeake’s reserves wouldrepresent decades of development opportunities for a deep-pocketed energy company.

According to Ernst & Young the fourth quarter of 2012 saw the most oil and gas M&A transactions of any quarter in the past decade. That’s likely to continue into 2013. According to Bernstein Research, Chesapeake would make an excellent acquisition target, especially for Asian state-controlled oil companies. According to Bernstein analyst Neil Beveridge: “It is inevitable that there will continue to be consolidation of small cap E&Ps which have shale acreage or deepwater oil and gas discoveries but insufficient capital to develop these assets. Low risk (discovered buy undeveloped) are exactly the assets Asian NOCs want given their access to low cost financing.”

Chesapeake’s enterprise value (equity plus debt) is on the order of $35 billion. After a takeover premium, the acquisition price of the company would be north of $40 billion. The company has proven reserves of 3.1 billion boe (barrels of oil or the natural gas equivalent). Chesapeake carries a big debt load of more than $13 billion, and hasn’t generated free cash flow from operations for a decade. At its current rate of drilling it has enough acreage to keep its rigs busy for more than 20 years.

Billionaire investor and takeover expert Carl Icahn is a key figure to watch in a potential hostile takeover. In May of last year Icahn bought a 7.56 percent stake in the company and immediately began to put the pressure on, questioning its directors’ close ties to McClendon, insider deals and off-the-books loans.

Last year we had a number of stories on controversy surrounding Chesapeake.

An August shareholders revolt sent the message that the company needed to set a sound business course. This came after McClendon became embroiled in a questionable land deals in Michigan, it was reported that he plotted with Encana, a top competitor, to suppress land prices for a potentially  lucrative gas play.

He was also a the center of controversy over reports that he arranged for more than $1 billion in personal loans using his stake in thousands of company wells as collateral. Additionally, the Oklahoma-City based energy explorer, faced a $22 billion cash-flow shortfall after natural-gas prices touched a decade low. That brought on discussions to sell its entire stake in Chesapeake Midstream Partners LP (CHKM) and other pipeline assets.

Chesapeake Midstream, operates pipeline networks in TexasLouisianaPennsylvania and other gas-producing states, and had 3,953 miles (6,360 kilometers) of pipe as of March 31, according to a Bloomberg report. The partnership gets about 75 percent of its revenue from Chesapeake Energy, with the remainder from energy producers such as France’s Total SA (FP) and Norwegian oil company Statoil ASA. (STL) Chesapeake Energy also owned 1,950 miles of pipelines separate from the Midstream partnership as of Dec. 31, 2011.

Chesapeake Energy named Archie Dunham chairman in June, 2012, and McClendon stepped down.


Technology opens possibly vast California oil reserves; environmental battles loom

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Wells are tapping crude directly from California’s central coastal area, putting the future of California’s oil industry on a crash course with the state’s powerful environmental interests.

It wil be interesting to see what happens in California, as the massive Green lobby lubricates its gears for a confrontation with the oil and gas industry. At issue in this story from the New York TImes, is the discovery of a massive shale gas formation in the central part of the state. Called the Monterey Shale, it has the potential to dwarf the Baaken and Eagleford fields, according to the TImes Norimitsu Onishi, reporting from Fellows Calif.

Comprising two-thirds of the United States’s total estimated shale oil reserves and covering 1,750 square miles from Southern to Central California, the Monterey Shale could turn California into the nation’s top oil-producing state and yield the kind of riches that far smaller shale oil deposits have showered on North Dakota and Texas.

For decades, oilmen have been unable to extricate the Monterey Shale’s crude because of its complex geological formation, which makes extraction quite expensive. But as the oil industry’s technological advances succeed in unlocking oil from increasingly difficult locations, there is heady talk that California could be in store for a new oil boom.

Established companies are expanding into the Monterey Shale, while newcomers are opening offices in Bakersfield, the capital of California’s oil industry, about 40 miles east of here. With oil prices remaining high, landmen are buying up leases on federal land, sometimes bidding more than a thousand dollars an acre in auctions that used to fetch the minimum of $2.

This is where the environmental groups come in. According to the Times, these “powerful groups” are pressing the state to strictly regulate hydraulic fracturing, or fracking. Additionally, despite the long history of drilling in the state, and the boom in drilling in Pennsylvania, Ohio, North Dakota, and Texas, because of technological advances like fracking and horizontal drilling, California has relatively loose regulations on these newer methods, according to Onishi’s story.

The Monterey Shale’s geological formation will require companies to engage in more intensive fracking and deeper, horizontal drilling, a dangerous prospect in a seismically active region like California, environmental groups say.

Environmental groups, including the Sierra Club and the Center for Biological Diversity, are suing the Bureau of Land Management and the Department of Conservation to prevent the opening up of further land to oil exploration and to enforce stricter environmental practices.

‘If and when the oil companies figure out how to exploit that shale oil, California could be transformed almost overnight,’ said Kassie Siegel, a lawyer at the Center for Biological Diversity. ‘Fracking poisons the air we breathe and the water we drink. It is one of the most, if not the most, important environmental issue in California.’

Tupper Hull, a spokesman for the Western States Petroleum Association, an industry lobbying group, said oil companies had safely used fracking for decades in California, mostly combined with traditional vertical drilling.

Interestingly, California was once a major player in the oil and gas industry, (see herehere, and here, for some background). And, as Onishi notes in his lede: “Secure in this state’s history and mythology, the venerable Midway-Sunset oil field near here keeps producing crude more than a century after Southern California’s oil boom. Many of its bobbing pump jacks are relatively short, a telltale sign of the shallowness of the wells and the ease of extracting their prize.”

This should be an all-out political and idealogical war and while addressing the larger issues of whether it’s good for Californians, their economy, and the state’s environment, will be most likely campaigned on fear and recrimination, by both sides. California has had economic difficulties (see multiple places like here, and here). But there are signs of it improving (here), though the scenarios are based on projections. Either way there will be an important fight that will likely set the course of its prosperity, whether you count prosperity in environmental terms, or in jobs and economic terms.

Via Walter Russell Mead at his American Interest blog ViaMedia, who sums it up by saying: “The intrigues in this drama are many. Does California’s Democratic Party come down on the side of low income Californians, who desperately need the jobs and state services new oil extraction will fund? Or does it come down on the side of a green lobby that is heavily backed by some of the wealthiest people in the state? To what extent does the wealthy coastal elite control the future of the inland poor in California? Can the GOP use the issue as a wedge to rebuild its credibility in a state it once dominated? Will black gold bail out big blue California?”


Could cheap gas save the economy?

Eighty percent of future electricity generating capacity is expected to be from natural gas

While the American economy continues to flounder, the oil and gas boom is proving to be no fluke and indeed may represent “one of the most important developments for the economy in the last 60 years,” as Martin Neil Baily and Philip K. Verleger Jr. say in a column at CNN Money. “It’s pushing down energy prices and creating many new opportunities for jobs, investments and manufacturing.”

The two economists rightly note that small business helped push along the technology that has made the oil & gas boom possible.

“How did the situation change? Was it because of the tax advantagesgiven to the large oil companies? In fact, no. Big oil largely gave up on drilling onshore in the U.S. to concentrate on finding big fields in other countries or offshore.

“But small, innovative companies continued to drill for gas and oil here at home and figured out how to drill sideways and use computer technology to find deposits and extract them. Financial markets helped make this happen because small drillers could sell oil and gas using futures contracts and protect themselves against wild price swings,” the column says.

According to their bios, Baily is a senior fellow in Economic Studies at the Brookings Institution and was the Chairman of the Council of Economic Advisers under President Clinton, while Verleger is an economist who has studied energy for 40 years, president of PKVerleger LLC, and a visiting fellow at the Peterson Institute for International Economics. They continue by exploring the hot-button issue of fracking and its environmental concerns — they say the oil and gas companies need to be more transparent and environmentalists more realistic — but at hear they look at the economics and find the U.S. to make great gains and stabilize and improving the economy.

“Cheap gas may not be enough to offset the drag of a slowing global economy this year, but it will boost long-term investment, help the beleaguered manufacturing sector and increase exports,” they write.

“Building petrochemical plants could suddenly become attractive in the United States. Manufacturers will ‘reshore‘ production to take advantage of low natural gas and electricity prices. Energy costs will be lower for a long time, giving a competitive advantage to companies that invest in America, and also helping American consumers who get hit hard when energy prices spike.

“Other countries like China will attempt to replicate America’s good luck, but will fail because they lack the unique legal, political and market institutions which have led to our success.

“After years of bad economic news, the natural gas windfall is very good news. Let’s make the most of it.”

Via Carpe Diem


Energy revolution 3: The new American century

The energy revolution is likely to have profound implications for American policy

Walter Russell Mead at his blog Via Media at the American Interest has his next installment on the change America’s oil and gas boom are having on the country and the larger geopolitical picture. It’s well worth the read, as usual, but his bottom line: “From all these points of view, the new energy picture is almost completely positive. Oil makes everything better. But the environmental question remains.”

Here are some excerpts:

“Get ready for an American century: that appears to be the main consequence of the energy revolution that is now causing economic and political experts to tear up their old forecasts all over the world. The new American century won’t be a repeat of the last one, but in some very important ways the world now looks more likely to continue in the direction of global liberal capitalism that the US—like Britain before us—has seen as its geopolitical goal for many years.

“Energy was critical to the geopolitics of the 20th century; energy shortages shaped some of the strategic decisions that led both Germany and Japan to defeat in World War II, and the struggle over the energy-rich Middle East played an important role in the Cold War. The assumption that the world was at or near “peak oil” has been a driving force behind predictions that the 21st century would be an era of U.S.-China competition as China’s desperate quest for more energy resources led it to push an aggressive global energy policy that would conflict with vital U.S. interests. The assumption that there were few major discoveries left to be made also led many to forecast that the Middle East and especially the Gulf region would continue to be a major fulcrum in global affairs; indeed, countries like Saudi Arabia, with the ability to increase production to meet the thirst of an oil-starved world, would become more important than ever as the geopolitics of oil scarcity took hold.

“But as I’ve been writing recently, none of that looks true anymore. Advances in extraction technology have changed our understanding of the world’s energy future. As I wrote in my last post, the U.S. and Canada each may have more energy potential than the entire Middle East. China also has significant resources. So do Israel and Brazil.

“It is too soon to tell just how much of this potential can be unlocked, but for several years now it has begun to look as if much more of these unconventional resources will be available much sooner than thought, and serious people now argue that the US could pass Saudi Arabia to become the world’s leading oil producer by 2020. [...]

“The effects won’t be trivial. Changes this profound in the energy outlook imply major changes in world politics and given the unique global role of the United States and the global scale of its interests, those changes matter hugely for American foreign policy. Much of the punditry of the last ten years is looking suddenly obsolete; a number of writers are going to hope that some of the books and articles they’ve recently published will be quickly forgotten. They shouldn’t worry; the public is quick to forget, and most prophets of decline and Malthusian struggle will have little trouble in reinventing themselves as analysts of abundance. [...]

“But on the bigger stage of world politics, it’s the United States that benefits most from the energy revolution. To begin with, the core objective of the United States—a reasonably stable, orderly and liberal global system—is a lot easier to achieve in an era of energy abundance than in one of tough resource competition. Oil is a lubricant, and the more the world has, the more smoothly things are likely to run. A world in which jealous, competing states are trying to elbow each other aside to access the last few remaining pools of oil is a much nastier place than one in which the whole oil question is a lot more laid back.”


New natural gas wealth means historic change for Israel

Israel has been working to increase use of natural gas and reduce its dependence on coal, which now provides about 70% of the nation’s power

 

Last week we reported that Canada and Israel signed a new energy cooperation agreement following a report from the World Energy Council saying the recent oil and gas deposits found in Israel’s coastal plains is one of the largest in the world. If estimates of the basin containing up to 250 billion barrels of shale oil prove accurate, Israel will become one of the world’s top-three countries in shale oil resources, behind just the United States and China, the report said.

Sharon Udasin from National Geographic’s news division picks up on the potential for Israel to become a major player in Middle East energy production after vast quantities of natural gas were discovered. 

“Israel’s northern port city of Haifa has been a crucial energy center for decades; refineries dating back to the British Mandate in this land have long processed the oil sent by pipeline or shipped here from abroad. Today, rigs are working off Haifa’s coast to tap the first major fossil-fuel reserve ever found in Israel’s territory, a store on which it hopes to build a far more independent energy future.

“The Tamar natural gas field was discovered in 2009 some 50 miles (80 kilometers) off Haifa’s coast in the Mediterranean Sea. There are perhaps scores of known gas fields bigger than Tamar, with its estimated 250 billion cubic meters (9 trillion cubic feet) in reserves; Alaska’s North Slope, for instance, is believed to hold four times as much fuel. But Tamar is large enough to meet all of Israel’s natural gas requirements for 20 to 30 years, the experts say.

This unprecedented offshore bonanza expanded dramatically the following year when another field, Leviathan, almost double the size of Tamar, was discovered another 30 miles (48 kilometers) to the west. (A smaller field, Tanin, with an estimated 33.9 billion cubic meters (1.2 trillion cubic feet) in natural gas, was discovered nearby earlier this year.)With natural gas scheduled to begin flowing from Tamar next year, and from Leviathan about four years later, Israel is on the brink of a historic shift. Instead of being an energy-scarce nation amid Middle East oil giants, many of them hostile, Israel now faces a future as a fuel producer in its own right—likely as an exporter and supplier to some of its neighbors, a development that could dramatically alter the region’s geopolitics.

Israel’s foreign and domestic policy no longer will be intertwined with the question of securing adequate fuel supply. Now it will face a quite different challenge—managing the nation’s newfound energy abundance.

“‘This is going to change the overall way of the economy of Israel,’ says Shaul Zemach, director general of Israel’s Ministry of Energy and Water Resources. “It’s like a domino—it’s going to have a domino effect on all of the markets.’ Quite simply, he said, it’s a ‘game changer.’” [...]

“Israel, with its developed and diverse economy, need only look to its oil-state neighbors to see the downside of energy export-economies that have become overly dependent on one commodity.

“And energy wealth will complicate already tense Middle East relations. Lebanon, which has no agreed-upon maritime (or land) border between Israel, has asked the United Nations to intervene to prevent Israel’s energy drive from encroaching on its undefined territorial waters as it prepares to launch its own offshore energy exploration. Meanwhile, the island Republic of Cyprus, 300 miles (480 kilometers) from Israel’s coastline in the Mediterranean, has its own large natural gas discovery. With Noble Energy, an oil company based in Houston, Texas, a major stakeholder in both the Israel and Cyprus finds, the two nations are in talks on how to coordinate development and potential export. But Turkey, which has de facto control of the northern part of Cyprus and doesn’t recognize the Cypriot government, has begun energy exploration too.”


Chevron Corp. says production declined in 2nd qt.

Revenue per barrel likely dropped at its Gulf Coast refineries

According to the Associated Press, Chevron Corp. said production from company wells likely declined in the second quarter and it sold crude and other liquid hydrocarbons for lower prices. Natural gas prices also fell in the U.S.

“Chevron, America’s second-largest petroleum company next to Exxon Mobil Corp., included the operating results as part of a preliminary report that’s based on the first two of the three-month quarter. Chevron will release its full report for the April-June quarter on July 27.

“Chevron didn’t say how its financial results would compare with the same period last year. Analysts are expecting lower net income and higher revenue.

“Analysts surveyed by FactSet expect Chevron to earn $3.18 per share in the second quarter, down from $3.85 per share in the same part of 2011. Revenue is expected to be higher at $72.2 billion, compared with $68.2 billion in the year-ago period.

“Chevron said total production in April and May dropped 4.2 percent in the U.S. to 665,000 barrels per day, when compared with last year’s second quarter. Production also fell 2.5 percent to 1.95 million barrels per day at its international wells.”


Israel, Canada ink energy research deal

The emerging new energy picture in Israel has the potential to be one of the biggest news developments of the next 10 years

In case you missed it, earlier this week Canada and Israel signed a new energy cooperation agreement, according to YnetNews. The deal was inked during Canadian Natural Resources Minister Joe Oliver’s visit to Israel last week, the site reported.

“The World Energy Council believes that the recent oil and gas deposits found in Israel’s coastal plains is one of the largest in the world. If estimates of the basin containing up to 250 billion barrels of shale oil prove accurate, Israel will become one of the world’s top-three countries in shale oil resources, behind just the United States and China, the report said.”

Russia has taken a keen interest in Israel lately, and with these discoveries it is likely Russia would offer its help. This woul d have larger geopolitical ramifications in the region as Turkey’s efforts to block gas productin in the region could be rebuffed by Russia, a long time strategic partner.

Walter Russel Meade speculates at his American Interest blog Via Media that if the exploration is successful Israel could become a global power, and of course, make itself more of a pariah to anti-Isralis.

“Gazprom and other Russian companies are also likely to do well in any gas exploration deals developed with the strongly pro-Moscow (and very cash hungry) Greek Cypriot government.

“The stakes are not small: the offshore Levantine Basin (which Syria, Lebanon, Turkey, Greece, Cyprus, Israel and even Gaza will all have some claim to) is believed to have 120 trillion cubic feet of natural gas and ‘considerable’ oil.  Drillers working in Israeli waters have already identified what look to be 5 billion barrels of recoverable oil in addition to over a trillion cubic feet of gas. (US firms were involved in these finds.) Israel’s undersea gas reserves are currently estimated at about 16 trillion cubic feet and new fields continue to be rapidly found.

“The new Israeli-Russian agreement is part of a conscious strategy by the Israeli government to use its nascent energy wealth to improve its embattled political position. With Italy reeling under the impact of big wrong-way bets on Iran, Rome may also begin to appreciate the value of good ties with a closer and more dependable neighbor. Another sensible target for Israeli energy diplomacy would be India: the two countries are already close in a number of ways, including trade and military technology, and India is eager to diversify its energy sources.

“Gas is one thing, but potential for huge shale oil reserves under Israel itself, however, is a new twist. According to the World Energy Council, a leading global energy forum with organizations and affiliates in some 93 countries, Israel may have the third largest shale oil reserves in the world: something like 250 billion barrels. (The US and China are both believed to have larger shale oil reserves, with the US believed to have the equivalent of well over 1 trillion barrels of potentially recoverable shale and China having perhaps one third of that amount. Canada’s Athabaskan oil sands reserves may contain the equivalent of 2 trillion of barrels conventional oil, or more than all the conventional oil known to exist in Saudi Arabia, Iraq and Iran combined.) If the estimates of Israeli shale oil are correct, Israel’s gas and shale reserves put its total energy reserves in the Saudi class, though Israel’s energy costs more to extract.”


Exxon considers oil & gas exploration in Afghanistan

Last year the country signed a deal with China National Petroleum Corp to develop oil blocks in the Amu Darya basin

Anna Driver of Reuters reports, Exxon Mobil Corp is contemplating participation in an oil and gas tender of six blocks in northern Afghanistan, a company spokesman said on Monday.

“Access to the world’s oil reserves for companies like Exxon has gotten tougher in recent years as governments assert tighter control of their resources. Opportunity exists, however, in countries likeAfghanistan or Iraq where foreign oil companies’ budgets and expertise are needed.

“‘Esso Exploration International Ltd’s expression of interest in the Afghan-Tajik Basin tender is part of our ongoing evaluation of oil and gas resources around the world,’ Alan Jeffers, a spokesman for Exxon, said.”

“Afghanistan is seeking bidders for the exploration, development and production of oil and gas in six blocks in the western portion of the Afghan-Tajik Basin of northern Afghanistan, according to its Web site. Bids are due in late October and winning bidders will be announced in late 2012, the government said.”


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