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Drop in energy prices lowers the boom in Texas oil patch

August 1, 2012
by Zain Shauk

Falling oil prices halted a 30-month growth spurt in Texas’ oil and gas industry boom in June, a new industry report shows.

The Texas Petro Index, which has measured job numbers, rig activity, production totals, wells completed and other related figures across nearly two decades, dropped for the first time since a rush to draw oil from shale caused a surge of drilling in Texas.

The index fell to 270.4 in June from its recent peak in May of 271.5, which was the highest since rapid industry growth pushed it to a record 287.8 in October 2008.

A trend of declining oil prices added to already low natural gas prices to push the Petro Index down, said Karr Ingham, an economist for the Texas Alliance of Energy Producers, which released the study Tuesday.

He said the number of active oil and gas rigs in Texas has fallen further in recent weeks to 900, the lowest level since September 2011, as companies have reassessed expensive operations that are no longer yielding high returns.

Not coincidentally, he said, oil prices have fallen from near $100 in early 2012 to about $79.08 in June. Benchmark crude lost $1.72 Tuesday to end the day at $88.06 per barrel.

Companies may have grown more cautious about aggressive drilling operations, but the leveling off doesn’t necessarily mean a bust is on the horizon, said Michelle Michot Foss, chief energy economist for the University of Texas Center for Energy Economics.

“They’re trying to get a feel for what the price trajectory could be and it’s affecting decisions,” Foss said. But, she added, “I think you would need a much, much more substantial fall in prices to see a really serious drop in activity.”

Contraction ahead?

Texas employment in the fossil-fuel exploration and production industry hit a record of 251,600 in June, Ingham said. But he noted some indicators that point to possible contraction ahead. Texas crude oil production is at its highest level since 1999, but the weakening world economy is pushing demand down, he said.

That has left resource prices languishing.

The recent 30-month rise in the Texas Petro Index was almost exclusively fueled by oil drilling because low prices have curtailed natural gas production relative to its levels in previous expansions.

The monthly average value of Texas oil and gas production exceeded $9 billion in 2008 but has been around $6 billion during the most recent peak in the index, Ingham said.

During the current shale-driven boom, however, employment has soared well above levels in October 2008, he said.

If declining prices bring about a further reduction in drilling activity, Ingham said, “employment will ultimately be affected and there’s of course no way it could not be.”

European crisis

Turmoil in Europe and a weakening domestic economy have also affected the industry by depressing oil prices, Ingham said.

“All of these terrible things happened in the second quarter and sort of threw a little bit of rain into our parade,” he said.

But Texas oil prices and drilling activity may not be as influenced by broad economic trends as they may have been by recent pipeline developments, said Ed Hirs, a professor of energy economics at the University of Houston.

A recent increase of pipeline capacity bringing oil to the U.S. Gulf Coast may also be pushing prices down, he said.

“Right now you’ve got more domestic supply coming online than the country is accustomed to handling,” Hirs said.

The alliance’s index dates to 1995, when the index was set at a base level of 100.

Source

The Obama Oil Embargo

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David Kreutzer, Ph.D.
April 18, 2012 at 6:46 am

From canceling oil leases in his second week in office to denying the XL Pipeline this year President Obama and his administration have offered up a non-stop assault on affordable energy.  Now that high gasoline prices have come home to roost, the president is flailing around for an energy policy.

His recent attempts at energy policy include:

  • Nobody can do anything about high gasoline prices.
  • Maybe I should release crude from the Strategic Petroleum Reserve.
  • There is a lot of drilling that I haven’t been able to stop.  Don’t I get credit for that?

The latest attempt is to blame everything on speculators.  And why not?  Previous polling shows that 80 percent of Americans believe petroleum price spikes are caused by speculation, which means no more than 20 percent believe it is caused by the fundamentals of supply and demand.

There are several flaws in “the speculators did it” theory.  The first is why do they only do it occasionally?  That is, why don’t speculators want to make unconscionable profits all the time?

Second, why do the index funds and all the other bad guys only speculate in oil?  Where are the profiteering speculators in natural gas, whose current price is about half of what it averaged over the last decade?

Third, there are sophisticated traders on both sides of the petroleum markets.  For every speculator who makes money on a trade, somebody else will lose money.  Blaming speculators on continued price increases requires an endless string of chumps to take the other side of the speculators’ deals.  If anybody should be the chumps, it should be the newbies from the insurance industry and hedge funds, but they are at the top of the most-wanted list.

Finally, for speculation to drive up prices, the speculators must either cause oil production to slow down (which they haven’t) or to pull oil off the market.  If the flow of petroleum and its products remains unchanged, the price at the pump will not change.  If petroleum is pulled off the market, which can happen even though there are limits to what can be stored, it will eventually come back on the market.  And the question becomes, “When the oil comes back on the market, is the price higher or lower than when it was pulled off the market?”  The price will only be higher if the amount supplied at that time is lower or the demand is higher.  In either of those cases, speculators have helped moderate price fluctuations and will be rewarded with profits.  If the price is lower, then the speculators did a bad thing and will be punished by losing money.

The real problem is that combating high gasoline prices requires a greater supply, and this administration’s policies have pushed the other way.  It seems the administration does not really want lower gasoline prices.  Steven Chu, Obama’s non-car-owning Secretary of Energy, famously said we need to get our gasoline prices up to the $8-$10/gallon level they are in Europe.

imageUnfortunately for the president, the voters want more gasoline and lower prices.  So, in the time-honored Washington tradition, he creates a boogeyman and blames his energy failures on speculators.

Source

Iranian ships reach Syria, China warns of civil war

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By Khaled Yacoub Oweis and Erika Solomon
AMMAN/BEIRUT | Mon Feb 20, 2012 6:16am EST

(Reuters) – China’s main newspaper accused Western countries of stirring civil war in Syria and two Iranian warships docked at a Syrian naval base, underscoring rising international tensions over the near year-long crisis.

Despite pursuing a sustained military crackdown on the opposition in cities across the country, President Bashar al-Assad forged ahead with plans to hold a referendum at the end of the week.

Activists in the western city of Hama said troops, police and militias had set up dozens of roadblocks, isolating neighborhoods from each other.

“Hama is cut off from the outside world. There is no landlines, no mobile phone network and no internet. House to house arrest take place daily and sometimes repeatedly in the same neighborhoods,” an opposition statement said.

Government troops extended their control on Hama after an offensive last week that concentrated on northern neighborhoods on the edge of farmland that have provided shelter for Free Syrian Army rebels.

The rebel fighters have been attacking militiamen, known as shabbiha, while avoiding open confrontations with armored forces that had amassed around Hama.

Government forces also maintained their siege of pro-opposition neighborhoods of Homs, south of Hama on the Damascus-Aleppo highway. Opposition activists reported sporadic morning shelling of Baba Amro district.

Security forces also mounted a campaign of arrests and raids in two suburbs of Deraa city and loud gunfire was heard, activists said. The reports could not be independently verified.

The Monday actions followed a weekend which saw one of the biggest demonstrations yet in the capital as the pro-democracy uprising against Assad’s 11 year-rule neared its first anniversary.

Security forces have killed at least 5,000 people, according to human rights groups, in a campaign to crush the revolt while the Assad government says it has lost more than 2,000 soldiers and security agents in what it describes as a struggle against foreign-backed terrorists,

The conflict has also pitted Western and Gulf-led Arab powers against Assad allies Russia, China and Iran.

The former have condemned Assad for the bloodshed and called for him to step down. Beijing and Moscow say all sides are to blame for the violence and the crisis should be resolved through talks, not foreign intervention.

China’s Communist Party mouthpiece the People’s Daily, in a front page commentary on Monday, said: “If Western countries continue to fully support Syria’s opposition, then in the end a large-scale civil war will erupt and there will be no way to thus avoid the possibility of foreign armed intervention.”

A Chinese envoy met Assad in Damascus on Saturday and backed his plan to hold a referendum this coming Sunday on a new constitution which would lead to multi-party parliamentary elections within 90 days.

Syria’s official SANA news agency said about 14,600,000 people throughout the country were eligible to take part in the referendum. The West and Syrian opposition figures have dismissed the plan as joke, saying it is impossible to have a valid election amid the continuing repression.

WESTERN FEARS

Assad has ruled Syria for 11 years after succeeding his father Hafez on his death. The Assad family belongs to the Alawite sect, an offshoot of Shi’ite Islam, in a majority Sunni country, and there are fears the uprising could break down into a full sectarian conflict.

Meanwhile two Iranian naval ships docked at the Syrian port of Tartous on Saturday, Iran’s state-run Press TV reported. The ships were said to be providing training for Syrian naval forces under an agreement signed a year ago.

Iranian Defence Minister Ahmad Vahidi, quoted by the semi-official Fars news agency, said: “Our ships passed through the Suez canal and it is Iran’s right to have a presence in international waters.”

With Shi’te-led Iran already at odds with the United States, Europe and Israel over its nuclear program, the deployment was

likely to add to Western concerns that the Syria crisis could boil over into a regional conflict if it not resolved soon.

Foreign ministers at a G20 industrialized and emerging nations meeting in Mexico were increasingly worried about whether a peaceful solution could be found.

“There is grave concern about the fact that existing structures of the United Nations have not delivered an outcome,”

Australia’s foreign minister, Kevin Rudd, told reporters in Los Cabos, Mexico.

The West has ruled out any Libya-style military intervention but the Arab League, led by Saudi Arabia, has indicated some of its member states were prepared to arm the opposition.

In Washington the senior U.S. military officer, General Martin Dempsey, said intervening in Syria would be “very difficult” because it was not like Libya.

Syria’s army is very capable, with a sophisticated, integrated air defense system and chemical and biological weapons, Dempsey said. It was also not clear who or what the fragmented opposition was exactly, he said.

A so-called “Friends of Syria” conference is scheduled to take place in Tunisia this Friday, bringing together Western and Arab powers.

Australia’s Rudd said the group aims “to place maximum pressure on president Assad to go, to end the butchery that we see day by day unfolding in Syria and to make sure we have a durable and peaceful political transition.”

(Additional reporting by Khaled Yacoub Oweis in Amman, Parisa Hafezi in Tehran; Susan Cornwell in Washington; Krista Hughes in Los Cabos, Mexico; Editing by Giles Elgood)

The Big Energy Lie, Revisited

Posted on May 10, 2011
by Steve Maley

Your President has been telling you things that simply aren’t true. Things like “We can’t drill our way out of our energy problems.” Or “Oil and gas are the fuels of the past.” Or “The U.S. consumes 25% of the world’s oil, but controls only 2% of the world’s reserves.”

Well, that last one may be technically true, but it is used to convey a falsehood. In a post called The Big Energy Lie (Dec. ’09), I attempted to explain the deception. In this post, I’ll attempt to show you graphically in terms that the lay person should understand.
KEY CONCEPT #1: “Reserves” are not “Inventory

U.S. Crude Oil Reserves and Production, 1986-2010This graph depicts the history of U.S. oil reserves and production over the last 25 years. In 1986, reserves were estimated to be nearly 27 billion barrels. In 1986, we produced 8.7 million barrels a day, or an annual total of 3.2 million barrels. The ratio of reserves to production is 8.5 years — often incorrectly reported in the press with alarm: “We have only 8.5 years of reserves left! We’re running out of oil!

If this were true, we’d have run slap out of oil in 1995. The dashed line on the graph shows the cumulative amount of oil produced since 1986. Sure enough, by 1995 we had produced over 27 billion barrels, and we still had reserves in the ground of over 22 billion barrels.

Fast forward to 2010: we’re still producing 2 billion barrels a year, and we still have over 20 billion barrels in the ground. In fact, we’ve produced 58 billion barrels since 1986, over twice the 1986 reserve total.

Magic!

Well, not really.

Imagine if you managed a shoe store. On January 1, inventory shows you have 10,000 pairs of shoes on hand, and you sell 500 pairs per day. Would you forecast that you would be completely out of shoes in 20 days?

Only if you can’t replenish supply. (Or if you’re a former community organizer really crappy manager.)

In oil and gas, reserves are replenished by drilling new wells. (Reserves can be added other ways, too, but the ultimate key is drilling.) By drilling, “resources” are upgraded to the much more restrictive and valuable category “reserves”. And the U.S. has plenty of resources to draw from. We should be encouraged by the fact that, even with a period of persistently low product prices and relatively low drilling activity from 1986 to 2004, the reserve base has only declined by a little over 20% in 25 years.

KEY CONCEPT #2: “Reserves” are only estimates.

Oil and gas reserves often cannot be estimated with a great deal of precision. Even if the recoverable quantity were known accurately, by definition reserves must be economic to produce. That means that changing economic conditions (especially changes in oil and gas prices) will effect the estimated reserve quantity. When prices are higher, wells can be produced that would otherwise be plugged.

Bottom line, reserve estimates change all the time.

The dark green bars show the rate of oil production over the 25 years. The gold bars show the year to year change in reserves. Production causes reserves to decrease, but new additions from drilling can offset production. Reserves can also be revised — up or down — due to geologic and engineering studies, or changes in economics as described above.

One more graph — the “Reserve Life Index”, or Reserves to Production Ratio. We saw that it is often misinterpreted to represent how many years of production remain. Our national R/P ratio has grown over the last 25 years, perhaps a reflection of better technology or higher prices.

There you have it. Our relatively low reserve number is not an indication that “we’re running out of oil!”, it’s merely a wake-up call that we need to get busy and shore up our domestic supplies. The only thing we are running low on is the political will to do it.

Original Article

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