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Porgy and Bess, Marxian dialectic, oil and alternative fuels

February 19, 2015/in Economy, Featured, Over a Barrel Blog mkaplan, newleaf /by Arctic Leaf

“We got plenty of oil and big oil’s got plenty for me” (sung to the tune of “I Got Plenty of Nutting” from Porgy and Bess). “I got me a car…got cheap(er) gas. I got no misery.”

This is the embedded promise for most Americans in the recent article by David Gross, “Oil is Cratering. American Oil Production Isn’t.” His optimism concerning at least the near future of oil — while a bit stretched at times, and economically and environmentally as well as socially somewhat misplaced — serves at least as a temporary antidote to individuals and firms with strong links to the oil industry and some in the media who have played chicken with oil (or is it oy little?). But in a Marxian sense (bad economist, but useful quotes), Gross does not provide a worthy synthesis of what is now happening in the oil market place. Indeed, his was a thesis in search of an antithesis rather than synthesis. Finding a synthesis now is like Diogenes searching for truth in light of almost daily changes in data, analyses and predictions concerning the decline in oil and gas prices by so-called experts.

Gross’s gist is that “Signs of the oil bust abound….The price of West Texas Intermediate crude has fallen in half in the past six months. The search for oil, which fueled a gold-rush mentality in North Dakota and Texas, is abating.” Rigs have closed down, employment is down and oil drilling areas face economic uncertainty, but, despite signs of malaise, “a funny thing has happened during the bust. Oil production in America has been rising…In November, the U.S. produced 9.02 million barrels of oil per day, up by 14.5 percent from November 2013… Production in January 2015 rose to 9.2 million barrels per day. And even with WTI crude settling at a forecasted price of about $55 per barrel for the year, production for all of 2015 should come in at 9.3 million barrels per day — up 7.8 percent from 8.63 million barrels per day in 2014…The U.S., which accounts for just 10 percent of global production, is expected to supply 670,000 new barrels — 82 percent of the globe’s total growth.”

Somewhat contrary to his facts about rigs closing down, Gross indicates that America’s oil largesse results from “American exceptionalism.” Shout out loud! Amen! American oil companies are able to produce larger amounts, even when oil numbers suggest a market glut, because they play by new rules. They are nimble, they are quick, they jump easily over the oil candlestick. They rely on new technology (e.g., fracking), innovation and experimentation. They don’t have to worry about environmental or social costs. The result? They bring down the cost of production and operations, renegotiate contracts and lay off workers. “The efforts at continuous improvement combined with evasive action mean a lot more profitable activity can take place at these prices than previously thought.” The industry appears like a virtual manufacturing and distribution version of Walmart. It, according to Gross, apparently can turn a positive cash flow even if the price per barrel stays around where it has been….from close to $50 to $70 a barrel. Holy Rockefeller, Palin and Obama! Drill, baby, drill! Just, according to the President, be circumspect about where and how.

Not so fast, according to both Euan Mearns, writing for the Oil Drum, and A. Gary Shilling, writing for Bloomberg Oil, both on the same day as Gross.

Mearns’ and Shilling’s perspectives are darker, indeed, gloomy as to the short term future of the oil market. The titles of their pieces suggest the antithesis to Gross article: Oil Price Crash Update (Mearns) and Get Ready for $10 Oil (Shilling). “The collapse in U.S. shale oil drilling, that looks set to continue, must lead to U.S. oil production decline in the months ahead…It looks as though the U.S. shale oil industry is falling on its face. This will inevitably lead to a fall in U.S. production” Mearns evidently places much less value on the industry’s capacity to literally and strategically turn on the present oil market dime.

Shilling asks us to wait for his next article in Bloomberg for his synthesis of what’s likely to happen- sort of like the trailers in Fifty Shades of Grey, except his data is not enticing. His voice through words is just short of Paul Revere’s: price declines are coming! The economy is at risk! Men and women to the battlefields! “At about $50 a barrel, crude oil prices are down by more than half from their June 2014 peak at $107. They may fall more, perhaps even as low as $10 to $20.” Slow growth in the U.S., China and the euro zone, and negative growth in Japan, combined with conservation and an increase in vehicle gas mileage, places a limit on an increase in global demand. Simultaneously, output is climbing, thanks mostly to U.S. production and the Saudis’ refusal to lower production. Shilling’s scenario factors in the prediction from Daniel Yergin, a premier and expensive oil consultant, that the average cost of 80% of new U.S. shale oil production will be $50 to $69 a barrel. He notes, interestingly, that out of 2,222 oil fields surveyed worldwide, only 1.6% would have a negative cash flow at $40 per barrel. Further, and perhaps more significant, the “marginal cost of efficient U.S. shale oil producers is about $10 to $20 dollars a barrel in the Permian Basin in Texas and about the same for oil produced in the Persian Gulf. Like Gross, Shilling pays heed to American efficiency but suggests its part of a conundrum. “Sure, the drilling rig count is falling, but it’s the inefficient rigs that are being idled, not the [more efficient], horizontal rigs that are the backbone of the fracking industry.” Oil production will continue to go up, but at a slower rate. This fact, juxtaposed with continuing, relatively weak growth of global and U.S. demand, will continue to generate downward pressures on oil prices and gasoline.

Even a Marxist, who is a respected dialectician, would find it tough to make sense out of the current data, analyses and predictions. More important, if you wait just a bit, the numbers and analyses will change. Those whose intellectual courage fails them and who generally put their “expert” analyses out well after facts are created by the behavior of the stock market, oil companies, consumers and investors deserve short shrift. They are more recorders of events than honest analysts of possible futures — even though they get big bucks for often posturing and/or shouting on cable.
So what is the synthesis of the confused, if there is one? Oil could go down but it could also stabilize in price and start going up in fits and starts. Production is likely to continue growing but at a slower rate. Demand sufficient to move oil prices depends upon renewed and more vigorous GDP growth in Asia, the U.S. and Europe. Realize that very few analysts are willing to bet their paychecks on definitive economic predictions.

Saudi reserves will likely provide sufficient budget revenues to support its decision to avoid slowing down production and raising prices at least for a year or so (notice the “or so”). Market share has supplanted revenue as (at least today’s) Saudi and OPEC objectives. But how long Saudi beneficence lasts is anyone’s guess and, indeed, everyone is guessing. Deadbeat nations like Venezuela and Russia are in trouble. Their break-even point on costs of oil is high, given their reliance on oil revenues to balance domestic budgets and their use more often than not of aging technology and drilling equipment.

As the baffled King from “Anna and the King of Siam” said, concerning some very human policy-like issues, “It’s a puzzlement.” There are lots of theses and some antitheses, but no ready consensus synthesis. Many Talmudic what ifs? What is clear is that the dialectic is not really controlled or even very strongly influenced by the consumer. Put another way, the absence of alternative fuels at your friendly “gas” station grants participation in the dialectic primarily to monopolistic acting oil and their oil related industry and government colleagues. Try to get E85 or your battery charged at most gas stations. Answers to most of the “what ifs” around oil pricing and production, particularly for transportation, would be shaped more by you and I — consumers — if we could break the oil monopoly at the pump and select fuels of personal choice including an array of alternates now available. Liberty, equality and fraternity! Oh, those French.

More attention paid to all the natural gas we’re wasting

January 30, 2015/in Economy, What's The Buzz staff /by Fuel Freedom Staff

Energy experts are starting to pay more attention to an important byproduct to U.S. oil extraction: the incredible amount of natural gas that gets burned off into the atmosphere, or “flared,” because it’s not profitable enough to capture at the well head.

Forbes contributor Michael Kanellos is the latest to examine the absurd practice, writing:

… the sheer volume of gas that gets flared or emitted into the atmosphere t remains truly astounding. A potential source of profits and jobs is literally transformed in bulk into an environmental hazard and potential liability around the clock.

It’s an environmental hazard because natural gas is made primarily of methane, a greenhouse gas that’s many times worse for the environment than carbon dioxide. Some methane leaks from wells and pipelines, but even when the gas is burned off, it creates some GHG emissions.

Methane has tremendous potential as a commodity, however, because it can be turned into alcohol fuels — ethanol and methanol — to run our cars and trucks. Both fuels burn much cleaner in engines, and can be cheaper for the consumer.

When the price of oil was $115 a barrel, there was little incentives for oil drillers — who put bits in the ground mainly for oil, after all — to capture and store the natural gas, because gas remains stuck in the cellar in terms of pricing. Now that oil has dropped by 60 percent over the past seven months, maybe U.S. drillers will be incentivized to keep more of the gas that comes up in the wells.

(Our blogger William Tucker has written about the flaring issue before. It’s also discussed, along with many oil-related issues, in the documentary PUMP, which is available for download on iTunes now.)

Landfills also emit methane, and much of that is flared as well. If we captured more methane and turned it into fuel, there would be more of a market for it, and the infrastructure for converting it to fuel and distributing it would grow. A whole new generation of jobs could be created in the sector, jobs that by their nature would stay in America.

Kanellos has compiled many fascinating statistics about how much natural gas is wasted by flaring, including these nuggets:

Since the beginning of 2010, more than 31% of the natural gas in the Bakken region has been burned off or flared. It was worth an estimated $1.4 billion.

Over 150 billion cubic meters, or 5.3 trillion cubic feet, get flared annually worldwide, or around $16 billion lost.

Flaring in Texas and North Dakota emit the equivalent amount of greenhouse gases as 500,000 cars.

Fracking boom waste: Flares light prairie with unused natural gas (NBC News)

Natural gas flaring in Eagle Ford Shale already surpasses 2012 levels of waste and pollution (Fox Business)

Layoffs piling up as American oil drillers pull back

January 29, 2015/in Economy, What's The Buzz staff /by Fuel Freedom Staff

Communities around the country that drove the surge in U.S. oil production are becoming victims of falling global prices. Already this month, oil-and-gas servicing companies Baker Hughes and Schlumberger announced a combined 16,000 layoffs, owing to the steep drop in oil prices.

“They gave me 24 hours to leave my house,” John Roberts, a van driver for Schlumberger who was let go in Williston, N.D., told CNN Money.

In North Dakota, where work on the Bakken shale-oil formation had attracted thousands of workers amid an economic surge, Jim Arthaud, CEO of MBI Energy Services in Belfield, said up to 20,000 jobs could be lost in that area alone, and just among companies that service oil and gas drillers.

Prof. Bill Gilmer of the University of Houston told Forbes that 75,000 jobs could be lost in Houston alone in 2015. The city has added about 100,000 jobs a year since 2011.

The antidote to this boom-and-bust cycle of volatile oil prices is to provide a steady, dependable supply of cheap transportation fuel to American drivers for the long term. Increasing the use of alternative fuels will reduce our dependence on oil and protect the economy from the oil-market rollercoaster.

The United States has helped bring down the global price of oil by producing more oil – a lot more – here at home. But that oil, extracted from shale rock, mostly in North Dakota and Texas, is expensive to get out of the ground. As the global price of oil has plummeted, so too have the oil companies’ profit margins, and they’re starting to lay off workers on a mass scale.

To promote the use of more alternative fuels, as a counterweight to oil-price volatility, the U.S. should build up its infrastructure for producing and distributing fuels like ethanol and methanol. There are thousands of jobs that could potentially be created. In 2013, for instance, the U.S. produced 13.3 billion gallons of ethanol, which is blended into the gasoline we all use. The ethanol industry supported 86,504 direct jobs and 300,277 indirect jobs, according to the Renewable Fuels Association‘s most recent data. Those are domestic jobs that support American families, and which can’t be outsourced.

The sector added $44 billion to the nation’s gross domestic product and paid $8.3 billion in taxes, without government subsidies.

If we made such alternative fuels more widely available, we could not only reduce our dependence on oil, we’d create a whole new generation of U.S. jobs that would keep investment in the country and strengthen the overall economy.

Oil prices have dropped nearly 10 percent in two days

January 6, 2015/in Economy, What's The Buzz staff /by Fuel Freedom Staff

Oil analysts must be asking, Where’s the bottom of the oil-price plunge?

Crude dropped again Tuesday, as Brent was off $2.01, to $51.10 a barrel. In the first two trading sessions of the week, it’s down $5.32, or almost 10 percent.

Cobb: Narrative of American oil self-sufficiency ‘is about to take a big hit’

December 2, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Kurt Cobb, who writes about energy and the environment, has a piece in The Christian Science Monitor about how OPEC is targeting the U.S. shale-oil “revolution.’

Cobb says it was folly for some proponents of U.S. drilling to think that oil would remain above $100 a barrel indefinitely. At $70, U.S. operations aren’t profitable enough to remain at that output level.

Cobb begins:

To paraphrase Mark Twain: Rumors of OPEC’s demise have been greatly exaggerated.

Breathless coverage of the rise in U.S. oil production in the last few years has led some to declare that OPEC’s power in the oil market is now becoming irrelevant as America supposedly moves toward energy independence. This coverage, however, has obscured the fact that almost all of that rise in production has come in the form of high-cost tight oil found in deep shale deposits.

The rather silly assumption was that oil prices would continue to hover above $100 per barrel indefinitely, making the exploitation of that tight oil profitable indefinitely. Anyone who understood the economics of this type of production and the dynamics of the oil market knew better. And now, the overhyped narrative of American oil self-sufficiency is about to take a big hit.

OPEC stands pat … will $70 oil be the new normal?

November 28, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

The big news in the international oil markets last week was that OPEC decided not to cut production, which would have propped up free-falling prices, at least temporarily.

OPEC’s non-action sent oil prices falling further Friday, with the Brent benchmark slipping below $70 for the first time in four years.

NPR reports that some experts say oil in the range of $70 a barrel could last through 2015:

Igor Sechin, the head of Russia’s Rosneft, says he thinks oil prices will average $70-75 per barrel through 2015. That prediction was in line with what Bill Hubard, chief economist at Markets.com, told Reuters: “I think $70 a barrel will be the new norm. We could see oil go considerably lower.”

Some OPEC member nations, including Iran and Venezuela, which need a higher oil price to pay for their generous public services, had been pushing for the cartel to ease back on production to halt the plunge in prices. A moderate pullback would have come amid a global oil glut, thanks in part to reduced demand in Asia and Europe, as well as soaring production in the U.S.

Iran’s oil minister, Bijan Namdar Zanganeh, said OPEC’s decision was no guarantee that the United States would scale back production in North Dakota and Texas, a surge aided by advances in hydraulic fracturing.

“High prices are a disadvantage to OPEC’s market share,” Zanganeh said, according to Bloomberg. “If you want to increase your share, you have to reduce prices, but you can’t do it through ‘shock therapy’ over the course of three months if you want to change everything.”

New York Times launches series looking at N.D. oil industry

November 24, 2014/in Featured, What's The Buzz /by Fuel Freedom Staff

You won’t be fully up to speed on how oil production, and hydraulic fracturing, has transformed the rural communities of North Dakota unless you read Deborah Sontag’s exhaustive piece in The New York Times.

Sunday’s Part I of a series, “The Downside of the Boom,” includes video, satellite maps and other visuals to complement its reporting.

At the heart of Part I is the way land has been “sliced and diced” in North Dakota for years, and rights to the surface don’t necessarily mean the landowner has control over the resources that lie beneath.

Given that mineral rights trump surface rights, this made many residents of western North Dakota feel trampled once the boom began.

In 2006, a land man for Marathon Oil offered to lease the Schwalbe siblings’ 480 acres of minerals for $100 an acre plus royalties on every sixth barrel of oil.

“Within a few years, people were getting 20, 30 times that and every fifth barrel,” Mr. Schwalbe said. But the Schwalbes did not expect “to see any oil come up out of that ground in our lifetime.”

Oil companies were just starting to combine horizontal drilling with hydraulic fracturing to tap into the mother lode of Bakken oil. “We didn’t really know yet about fracking,” he said.

The Schwalbes’ first well was drilled in 2008, their second the next year. Powerless to block the development, Mr. Schwalbe and his wife, nearing retirement, took some comfort in the extra income, the few thousand dollars a month.

Then that was threatened, too.

North Dakota taking steps to use more of its natural gas

October 30, 2014/in What's The Buzz /by Fuel Freedom Staff

North Dakota flares more than 25 percent of the natural gas it extracts from the Bakken oil-shale play. Not only is natural gas cheaper (i.e. not as profitable) than the oil that comes out of the same wells, there’s a lack of pipeline and storage capacity in that region. Texas, by comparison, flares only 1 percent of its natural gas.

But the state is taking steps to build the infrastructure to capture and use more natural gas. As Adam Belz of the Minneapolis Star Tribune notes:

A quiet transformation is underway, however, as the state bids to turn natural gas into a native business and drive down flaring.

A growing network of pipelines and processing plants has made North Dakota a recent target for billions of dollars of investment toward factories that convert natural gas into other products like fertilizer and plastic.

Hannity on PUMP: A story ‘America needs to know’

September 19, 2014/in Over a Barrel Blog, Updates from Fuel Freedom lhall /by Landon Hall

Sean Hannity is a big fan of the message contained within the documentary film PUMP, because it’s one he’s been promoting himself for years.

The conservative radio and Fox News host welcomed Fuel Freedom chairman and co-founder Yossie Hollander and board adviser John Hofmeister on “The Sean Hannity Show” on radio Thursday.

Hannity primed the pump for PUMP’s theatrical release Friday with this introduction:

“How many times have I said on this program that oil, energy, is the answer to all of our problems? I’ve said it so often. Well, now there is an eye-opening documentary that I want you to go see. … I have no [rooting] interest in this movie, except that it tells the story that I have been trying to tell you now for such a long period of time about America and how we can become energy independent, about how there’s a lot going on in the oil industry, where we all pay more. How we are all dependent on oil from countries, many of whom just kind of hate our guts. And it’s been put together in a fabulous documentary that is now gonna be released in movie theaters around the country [Friday].

Jobs in gas, oil: Almost 1 in 7 private-sector N.D. jobs tied to the industry

July 31, 2014

Source: http://www.jamestownsun.com/content/jobs-gas-oil-almost-1-7-private-sector-nd-jobs-tied-industry

/in FFF in the News, News Item tkalansky, newleaf /by Arctic Leaf

North Dakota’s thriving oil and gas industry accounts for nearly one in seven private-sector jobs covered by unemployment insurance, according to data that could have a big impact on how tax revenue flows to oil-impacted cities, counties and school districts.