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The EPA Triples Down On ‘None of the Above’ Energy Policy

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James Taylor, Contributor

Anti-energy crusaders are in a celebratory mood this week as the EPA effectively banned the construction of coal-fired power plants, and thus completed the federal government’s trifecta beat-down on affordable energy.

First, new obstacles to energy production resulted in oil production on federal lands dropping 11% in Fiscal Year 2011 vs. 2010. Second, President Obama announced earlier this year that his administration was blocking construction of the Keystone XL pipeline that would deliver large quantities of valuable oil from neighboring Canada. Third, the EPA announced this week its severe global warming restrictions on power plants.

For all the talk of an “all of the above” federal energy policy, this administration is imposing “none of the above,” unless we choose to celebrate our imminent burning of dung for fuel, like they do in the utopian economic powerhouse of Bangladesh.

Coal is our nation’s leading source of electricity for a reason; it is less expensive than all other sources except large-scale hydropower, which environmental activists had already taken off the table. By definition you cannot ban the least expensive power sources without creating a jump in electricity prices. If you have been a fan of our rapidly rising gasoline prices, you are going to love what is about to happen to our electricity prices, too.

There is at least one theoretical scenario whereby banning the construction of coal-fired power plants will only cause a modest rise in electricity prices. That scenario would occur if natural gas filled most of the void for future power plant construction and government refrained from punishing natural gas production. However, the same environmental extremists who successfully pushed for the end of new coal-fired power plants are just as adamant about shutting down natural gas production.

The EPA is already targeting natural gas production from lucrative shale formations, and is likely to soon impose unprecedented restrictions that will raise costs and throttle natural gas production. Tripling down on “none of the above” appears poised to become quadrupling down on “none of the above.”

Oh, and I forgot to mention this administration’s pulling the plug on the Yucca Mountain repository for spent nuclear fuel. Make that quintupling down on “none of the above.”

Those who claim humans are causing a global warming crisis argue that expensive energy is necessary to stop the growth in our global warming emissions. The facts, however, tell a different story.

U.S. carbon dioxide emissions have fallen since the beginning of the century, and the U.S. Energy Information Administration does not anticipate any appreciable rise in emissions for at least the next several decades. True, global emissions have risen by approximately one-third this century, but the United States has had no part in that global increase.

The reason why global carbon dioxide emissions continue to rise is nations such as China and India continue to ramp up their industrialization. China, for example, emits more carbon dioxide than the entire Western Hemisphere and is increasing its carbon dioxide emissions by an average of 10 percent per year. Even if the United States theoretically eliminated all of its emissions today, such action would be rendered moot in less than a decade merely by the corresponding increase from China.

What we are left with, even if we assume for the sake of argument that humans are causing a global warming crisis, is tremendous self-induced economic pain for absolutely no real-world environmental impact.

All of the Above is now None of the Above. Welcome to the return of “That 70s Energy Policy.”

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Exxon Shale Failure in Poland May Lengthen Gazprom’s Shadow

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By Joe Carroll

Exxon Mobil Corp. (XOM)’s failed shale-gas wells in Poland may hobble the nation’s effort to become one of the world’s major energy sources and dismantle Russian dominance of Eastern European natural-gas markets.

Exxon, the world’s largest energy company by market value, said two exploratory wells drilled in a Polish shale formation last year weren’t commercially viable. The gas discovered in the wells, Exxon’s first in Poland, failed to flow in sufficient quantities to justify bringing them into production, David Rosenthal, vice president for investor relations, said during a conference call yesterday.

International energy prospectors, including Marathon Oil Corp. (MRO), Chevron Corp. (CVX) and Talisman Energy Inc. (TLM), are probing Poland’s shale deposits to see if drilling techniques that revolutionized U.S. gas production can unleash reserves big enough to supply Polish demand for more than three centuries. Exxon’s setbacks suggest Poland’s shale poses unique challenges that may increase costs and delay output, said Gianna Bern, founder of Brookshire Advisory & Research in Chicago.

“Shale exploration is a very high-cost and high-risk business and the Polish shale market is still in its infancy,” Bern, who advises major oil companies on risk management and strategy, said in a telephone interview yesterday. “It’s early in the game for Poland, and they have significant potential reserves over there.”

Reduce Imports

Poland’s shale formations hold 187 trillion cubic feet of recoverable gas, according to an April 2011 assessment by the U.S. Energy Department. Those resources are 32 times larger than the country’s conventional gas reserves and enough to supply domestic consumption for 322 years.

For Poland, successfully unlocking gas from shale would be a boon to domestic manufacturers and power producers by diminishing the need for Russian imports that now supply two- thirds of demand, said Benjamin Schlesinger, president of Benjamin Schlesinger and Associates Inc., a Bethesda, Maryland- based adviser to gas producers, utilities, regulators and financial-services firms.

Poland’s dominant gas company, Polskie Gornictwo Naftowe i Gazownictwo, pays Russia’s state gas company Gazprom OAO (GAZP) $500 for 1,000 cubic meters ($14.16 per million British thermal units) of gas. That’s six times the benchmark U.S. price for the fuel.

Poor Wells

“Poland’s shale resources are enormous,” said Schlesinger, a Stanford University-trained engineer who helped the New York Mercantile Exchange design its gas futures contract. “Poland should be able to capture a good deal of those resources and reduce reliance on the Russian Federation.”

Gazprom’s depositary receipts rose 2.5 percent to $12.40, the highest closing price since Oct. 28. The London-listed receipts each are worth two ordinary shares in the Moscow-based company.

Exxon’s failures followed disappointing results at Polish wells drilled last year by 3Legs Resources Plc and BNK Petroleum Inc. (BKX) London-based 3Legs’s Lebien well and BNK’s Lebork well flowed at lower rates than similar prospects in the Barnett and Fayetteville shale regions in the U.S., Sanford C. Bernstein & Co. said in a Nov. 10 note to clients.

“Poland is cited among Europe’s best shale prospects, but Exxon’s result supports our caution on achieving material near- term volumes,” Oswald Clint, a London-based analyst at Bernstein, said in a note today.

Even so, it may be too early to draw any firm conclusions from Exxon’s drilling failure, said Pawel Poprawa, who specializes in shale at the Polish Geological Institute in Warsaw.

‘Technological Problem’

“If we look at the experience from the U.S. or Canada, no single well can provide the answer if the basin has potential or not,” he said. “Low flows seem to be a technological problem.”

Marathon Oil said today that it’s evaluating data after finishing its first well in a Polish shale formation. The Houston-based company said in a statement that it intends to drill three more wells during the next few months and withdraw rock samples for testing. Marathon plans a total of six to seven Polish shale wells this year, according to the release.

The Polish shale results come after Exxon encountered a dry hole in Hungary in late 2009 drilled in a tight-sand deposit similar to shale. Exxon walked away from the $75 million project after striking more water than gas.

Exxon and other major North American energy producers have been lured to explore shale prospects from Germany to Argentina after largely missing out on the boom in shale extraction in the U.S. that began in the middle of the last decade.

Smaller Explorers

Smaller explorers such as EOG Resources Inc. (EOG), Chesapeake Energy Corp. (CHK) and Range Resources Corp. (RRC) came to dominate the U.S. shale industry by default as the biggest international companies focused on locating billion-barrel offshore crude fields in places like the Gulf of Mexico and West Africa.

Shale formations were ignored by much of the energy industry for most of the past century because the rocks were considered too hard to crack using traditional drilling techniques. That began to change in the late 1990s with the development of new horizontal drilling practices and more- intensive hydraulic fracturing that succeeded in unlocking gas and crude from shale and similarly dense geologic deposits.

‘Attractive Fiscal Terms’

Exxon sought to jump-start its shale program in June 2010 with the $34.9 billion acquisition of XTO Energy, a Fort Worth, Texas-based pioneer of shale development. In addition to shale wells and undrilled prospects that stretch from the Mexican border to Canada, Exxon wanted to transfer XTO’s in-house expertise to foreign shale fields.

Exxon hasn’t disclosed its plans for further drilling in Poland. The shares rose 0.3 percent to $83.97 at the close in New York.

Poland has led European shale exploration by virtue of its tempting geology and by offering “attractive fiscal terms” to prospectors, the Energy Department in Washington said in a September report.

Still, a “likely aggressive tax burden” to be imposed on shale-gas producers may damp investor enthusiasm, analysts at Bank Zachodni WBK SA, based in Wroclaw, Poland, said yesterday in a note to clients.

Polish drilling also has been hindered by a scarcity of rigs, water and specialized equipment needed for shale wells, Bern said.

“Getting the things you need to drill these wells is much more difficult in Poland than in the United States, where the shale industry is very well-developed,” Bern said.

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