Lifting Oil Export Ban May Be Boon For Dispirited Economy, Cover For Obama

A pumpjack doing its work in South Texas near the Eagle Ford shale play. Photo by Tony Cadwalader.

A pumpjack doing its work in South Texas near the Eagle Ford shale play. Photo by Tony Cadwalader.

Limited modified hangout by U.S. allows opening for oil exports

Perhaps it is a grudging concession by the Obama administration to allow a limited amount of united States oil to be exported, but a concession it is. On Tuesday the U.S. Department of Commerce announced it would allow the exports as a result of a petition filed by two independent Texas oil companies, Pioneer Natural Resources, a Dallas-based oil and gas producer, and Enterprise Products Partners of Houston, one of the country’s biggest pipeline operators.

The ruling would allow the companies to export condensate and not heavy oil, an important distinction in refining terms. But the ability to finally export this lighter crude product should alleviate some of the built up reserves from America’s booming shale market. Condensate is the slightly refined product that has been stripped of gases to make it less volatile, a minimal level of processing known as stabilization. “Under current rules, companies can export refined fuel, such as gasoline and diesel, but not oil itself; the government’s new approach reportedly redefines some ultra-light oil as fuel after it has been minimally processed, making it eligible for sale abroad,” a Seeking Alpha brief on the decision said. The first shipments could be made as soon as August and could mean an outflow of as much as 3 million barrels per day.

The ruling loosens a 1975 ban — the Arab oil embargo — that came about because of the OPEC-influenced U.S. oil crisis from the early 1970s. Politically this is probably as far as Obama is willing to go for fear of angering his leftwing, the grass-root Democrats who do not like the oil and gas industry, and in turn angering big oil and its lobbying arm, which has always had a protectionist streak in it, and does not really appreciate the independent drillers. The one area the bigs have the most control is at the refineries, and that is the one place that would be hit the hardest by fully lifting the export ban.

That’s not to say that the big oil companies are hard core Democrats. None of the states at the center of the oil and gas revolution voted for Obama, save Pennsylvania, according to this analysis from December 2013.

Elections have consequences, and the U.S. oil industry backed the loser in 2012. Not only that but oil and gas producers allowed themselves to be painted as an arm of the Republican Party. By contrast, environmental groups and clean-energy companies were among the president’s most important supporters in terms of fundraising and mobilization on the ground. Environmental campaigners have therefore wielded immense influence over the White House throughout the president’s first and second terms.

They are unlikely to be sympathetic to permitting oil exports if it means more domestic oil production and more fracking. While many environmentalists, and the White House itself, have grudgingly embraced natural gas as a cleaner-burning alternative to coal, that enthusiasm is unlikely to extend to crude oil.

Earlier this year, the International Energy Agency (IEA) argued “either U.S. crude is shipped abroad or it stays in the ground” But that is exactly what many environmental groups want.

That said, in an economy that is one quarter of bad numbers away from falling back into a recession, this stand does little to create new jobs. And the oil and gas boom has been a great provider of that. Indeed, export restrictions harm job growth in the oil industry, but they support thousands of jobs in the refining and petrochemical industries, many of which are unionized, and some of which are based in Democratic districts, the above linked article said. “So while the White House probably has the legal authority to lift the export ban, acting on its own if necessary, it is not a political priority for the president.”

Economically the decision has already shown in the markets where the distance between higher priced Brent Crude, which is linked to the world price of oil and gas, and its export-locked competitor West Texas Intermediate has narrowed. Bloomberg, citing Citigroup, estimates about 300,000 barrels a day of an ultra-light oil known as condensate could be exported by the end of the year. “In total 750,000 barrels a day of condensate is pumped from U.S. shale plays, according to Wood Mackenzie Ltd. Exports would give U.S. producers access to niche markets in Asia and Latin America, while having only a small impact on the price domestic refiners pay for crude.”

The U.S. pumped 8.45 million barrels of oil a day in the week to June 20, according to U.S. Energy Information Administration data. The Eagle Ford shale produced 205,000 barrels a day of condensate in the first quarter, according to data from the Railroad Commission of Texas. Pioneer Natural Resources pumped about 29,000 barrels a day of oil and natural gas liquids from the formation over the same period, according to a presentation on the company’s website.

There is probably no greater student of the oil and gas industries than Daniel Yergin, the author of The Quest, and vice chairman of IHS, an analytics think tank. Coincidentally Yergin spoke on Tuesday of the economic benefits of lifting the export ban. In summary he said:

  • Natural gas production increased 27 percent between 2007 and 2013. Estimates of recoverable natural gas reserves have more than doubled since 2005. U.S. oil production has increased 3.3 million barrels per day since 2008 – a 66 percent increase. This increase alone is larger than the output of 11 of 12 OPEC countries.
  • By 2012, the unconventional natural gas and oil activity was already supporting more than 2.1 million jobs across a vast supply chain. About 60 percent of these jobs – 1.3 million – were from shale gas activity; the rest from tight oil.
  • By 2012, the unconventional natural gas and oil activity was already supporting more than 2.1 million jobs across a vast supply chain. About 60 percent of these jobs – 1.3 million – were from shale gas activity; the rest from tight oil.
  • The total number of jobs supported is expected to rise to 3.3 million by 2020 – with 1.8 of those jobs from shale gas.
  • In 2012, this revolution added $74 billion to federal and state government revenues. IHS projects the number to rise to about $125 billion by 2020. Between 2012 and 2035, unconventional activity is expected to generate nearly $1.6 trillion in cumulative government revenues. 

According to Yergin, the increase “has almost exactly balanced the amount of oil currently missing from the world market owing to disruptions in countries like Libya and Iraq and sanctions on Iran. In other words, the increase in U.S. oil production has compensated for loss of oil elsewhere. Without that increase, we would be looking at much higher oil prices than today.” 

That’s via Zero Hedge where Tyler Durden notes the issue is too politcal to move any further:

“In other words, the enormous growth in U.S. oil production has helped to displace imports, but only at marginally lower prices than imported oil would have commanded. Unlike the shale-gas revolution, the growth in shale-oil extraction hasn’t led to a big price drop.

“Allowing exports on a large scale under these conditions wouldn’t be a good idea. Pioneer, a small producer, and pipeline operator Enterprise Product Partners, which doesn’t have its own extraction operations, aren’t going to make much difference to the U.S. energy balance if they are allowed to sell some lightly processed condensate abroad. What is valuable to President Barack Obama’s administration is the public-relations effect of the rulings: The world will now know that the U.S. is an oil exporter for the first time since the 1970s. Europeans may take U.S. promises to help wean them off Russian hydrocarbons a bit more seriously. The Organization of Petroleum Exporting Countries and Russia will keep in mind the threat of U.S. pressure on global oil prices.”

Friday Energy News Dump, Derby Edition

Photo by, courtesy of WikimediaCommons

Photo by, courtesy of WikimediaCommons

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Unions Embrace Shale Boom Creating Local Jobs and Environmentalist Disdain

A horizontal drilling rig goes up in western Pennsylvania. Photo courtesy of Wikimedia Commons.

A horizontal drilling rig goes up in western Pennsylvania. Photo courtesy of Wikimedia Commons.

On Earth Day 2014, it’s worth noting a fault line is beginning to emerge between long time allies

Foes of the drilling practice known as fracking are frustrated at Labor Union support of drilling in the Marcellus and Utica shale basins, according to the Associated Press. More than 6,000 wells have been drilled in the region that encompasses large parts of Pennsylvania, Ohio, and West Virginia to extract oil and natural gas, and fracking has created many jobs while turning once dirt-poor regions and its inhabitants prosperous. 

Environmentalists and green groups don’t like the perceived ecological damage. Penn Environment has called for much stronger regulations and a ban on drilling in some areas, such as state forests.

But blue-coillar workers particularly Laborers’ International Union, or LIUNA, have shown strong support because of the large influx of local jobs created over the last five years, the AP said. LIUNA represents workers in numerous construction trades. It’s mid-Atlantic regional manager Dennis Martire called the new industry a “lifesaver.”

Martire said that as huge quantities of natural gas were extracted from the vast shale reserves over the last five years, union work on large pipeline jobs in Pennsylvania and West Virginia has increased significantly. In 2008, LIUNA members worked about 400,000 hours on such jobs; by 2012, that had risen to 5.7 million hours.

Nationally, the Bureau of Labor Statistics says total employment in the nation’s oil and gas industry rose from about 120,000 in early 2004 to about 208,000 last month. Less than 10 percent of full-time oil and gas industry workers are represented by unions.

This has crated rift between the two reliably Democrat groups that threatens the coalition of voters the party needs to turn out the vote and win elections. But self interest is strong motivator and the prospect of long-term employment in a diverse and interesting energy sector is making converts of some workers who were once dubious.

And even now some powerful unions are withholding judgment. Anthony Montana, a spokesman for the United Steelworkers, declined to comment on how much drilling is helping that industry.

But others say the trend toward more local jobs is clear.

Mike Engbert of the Ohio Laborers District Council said that while some companies still use a lot of out-of-state labor, “Across the board, job gains have really shot up.”

For some, the drilling-related work is a big improvement over low-wage service jobs.

“I’ve probably worked 15 jobs, and none of them nearly as stable as this one, or nearly as interesting,” said Amy Dague, 38, of Wheeling, W.Va. She’s worked for a pipeline construction and maintenance company for a little more than a year.

“It’s definitely changed the way I see my future. I see this as long-term employment,” Dague said.

It’s hard to see how wind and solar can keep pace, even when heavily subsidized by the government. There’s just too much volume in oil and gas exploration from upstream companies paying for the rigs to midstream haulers and pipeline builders all the way to the downstream beneficiaries in the region like hotel providers, restaurant owners, and shop keepers providing services for field workers.

As Thomas Lifson said in an American Thinker piece, “Fracking is one of the greatest boons to America in my lifetime. In addition to all the domestic benefits, it disempowers the Muslim oil powers responsible for the spread of worldwide jihad, and Russia’s Putin.”

Indeed, but even when you take geopolitical considerations out of the equation, the sheer economic multipliers are strong enough reasons to continue oil and gas exploration in these rust-belt states. Interestingly, the political fault lines formed here because of Labors’ needs and Environmentalists’ disdain may prove more toxic than fracking itself.

Eagle Ford Oil & Gas Corp. closes major acquisition

Current production from three surrounding formations have estimated ultimate recovery between 350,000 and 500,000 barrels per well

In a press release, Eagle Ford Oil & Gas (ECCE) announced it has acquired an 85 percent working interest in 3,684 acres in hydrocarbon rich Frio County, Texas located south of San Antonio, Texas. The purchase price for the acreage in the heart of the Eagle Ford Shale oil and gas play was $6.26 million and is funded by project finance from a private fund, the release said.

“The acreage lies within the historic Pearsall Field where more than 200 million barrels of oil equivalent (boe) have been produced from the prolific Austin Chalk, sourced by the Eagle Ford Shale. Current success of industry activity in the immediate area demonstrates a high degree of prospectivity in the Austin Chalk, Eagle Ford Shale and Buda Lime, all of which are primarily black oil reservoirs Substantial legacy well data within and adjacent to the acreage clearly indicate the presence of effective fracture systems in all three reservoirs. The Company has rights to all formations including the deeper Pearsall Shale, a condensate-rich gas reservoir which the industry has just begun to exploit in the area.”


Can shale gas meet China’s energy needs?

Foreign oil companies are licking their lips at the prospect of a Chinese gas rush

Simon Montlake the Beijing Bureau Chief for Forbes says despite China’s large potential to exploit proven shale gas reserves the country may have a difficult time doing so.

“The question is at what price would gas be sold, and who owns the downstream industry. The ongoing battle to control China Gas Holdings, a Hong Kong-listed gas distributor, is one clue to the high stakes. Any privately invested upstream producer of shale gas will require assurances that they can get a fair price. That isn’t the case with China’s natural gas imports; state-owned importers must bear the loss from subsidies. Two cities have begun experimenting with regulated gas prices pegged to global oil prices, but this would need to be adopted more widely. Investing in unconventional gas fields, with all the technology required to make it feasible, sounds like a loser’s game without market-based pricing. So China’s desire for cleaner energy runs up against its need to tamp down inflation and protect the turf of national oil companies. Don’t expect a wildcat boom in shale gas in China’s western heartland.”

Halliburton warns of lower profit margins

The high cost of guar gum has been felt across the oilfield services sector

The Halliburton Company said Wednesday that its North American profit margins this quarter would drop by twice as much as it had been expecting, knocking its stock price down to an eight-month low, according to a Reuters article in the New York Times.

“The giant oilfields services company attributed the bigger decline in its profit margins to a shortage of guar beans in India. Guar, which is also used to make sauces and ice cream, is a key part of the hydraulic fracturing fluids that have been in high demand because of a boom in American drilling and well development. Halliburton has said the guar system can now account for as much as 30 percent of the overall fracking price.”

We reported last week how the shale gas boom has resulted in a spike in the price of guar beans from India. (Link here.)

“U.S. companies drilling for oil and gas in shale formations have developed a voracious appetite for the powder-like gum made from the seeds of guar, or cluster bean, and the boom in their business has created a bonanza for thousands of small-scale farmers in India who produce 80 percent of the world’s beans. […]

“It has also turned guar into a precious commodity farmers now call “black gold”. In the Rajasthani city of Jodhpur, under the shadow of an ancient fort, traders buy guar seed at 305 rupees ($5.5) a kg, a 10-fold increase from a year ago.”

Opinion: Fracking safety improves dramatically, says independent study

Opinion: Fracking safety improves dramatically, says independent study

In a commentary at Forbes contrarian columnist Jon Entine says recent study shows vast improvement in hydraulic fracturing and oversight. (Here’s a press release from the University of Buffalo touting the study.) 

“The safety profile of hydraulic fracturing has improved dramatically in Pennsylvania since 2008. Environmental violations as a percentage of wells drilled dropped by more than half over the course of the years examined. The study—the first based on comprehensive data rather than on anecdotal claims or selective reports—contradicts claims by anti-fracking groups that shale gas extraction is poorly regulated in Pennsylvania and that the environmental dangers are increasing,” Entine says.

Readers should note that one of the study’s authors Timothy J. Considine, a University of Wyoming economics professor, has come under fire as being in the pocket of the oil industry, according to a blog at the, edited by Business Editor Grove Potter.

Indeed, according to the Washington TImes, opposition groups contend there is a cumulative impact, saying that as more wells are drilled, the number of environmental incidents increases. The study bears this out showing the overall number of incidents tripled from 2008 to 2011, even though the number per well went down.

Still, the story says industry leaders are mounting a pushback against a one-size-fits-all standard from Washington, D.C, arguing that states such as Pennsylvania and New York are better equipped to craft guidelines specific to their geographic and environmental situations.

The Pennsylvania Department of Environmental Protection has stepped up its environmental oversight since the shale boom kicked off in earnest in 2008, by revising permit applications and requirements, increasing air and water quality monitoring and heavily fining companies fouling the environment. It continues developing policy and programs for the regulation of oil and gas development and production pursuant to the Oil and Gas Act, the Coal and Gas Resource Coordination Act, and the Oil and Gas Conservation Law, among other things, according to its website.

Then-Gov. Edward G. Rendell signed Act 15 into law in 2010 to make the activities of drilling companies and their business partners more transparent. Pennsylvania’s DEP has regularly fined companies for their violations, and the state adopted new regulatory guidelines last year after Republican Gov. Tom Corbett took office, according to the Washington Times.

An NPR report in August 2011 by Scott Detrow, as part of its StateImpact series, says [d]ur­ing the early years of the country’s shale drilling boom, there was next to no trans­parency, when it came the details of chem­i­cals used dur­ing the hydraulic frac­tur­ing process. But over the past year, Penn­syl­va­nia and four other states have passed laws or reg­u­la­tions requir­ing much more dis­clo­sure from drilling companies.”

According to the Washington Times story: “The [University of Buffalo study]comes at a time when many industry leaders are growing increasingly concerned that federal rules, such as those proposed by the Environmental Protection Agency and the Interior Department, could hamper the development of domestic natural gas.”


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