Source: Today in Energy – U.S. Energy Information Administration (EIA)
Opinion – White House urges Greece to reach agreement on bailout terms with the EU | News | DW – John Gelmini
Sadly, it is going to be crunch-time and a “weeping and wailing and gnashing of teeth”.
This time the “Parochial Beadle”, in the form of Angela Merkel plus Christine Lagarde from the IMF are going to have to tell “Oliver Twist”(Greece) no more.
Despite the exhortations of the Americans, the Greeks will be thrown out of the Eurozone and out of the Euro and will have to return to the Drachma.
The rest of us will have to ring-fence ourselves against the resultant financial contagion and turmoil and let this benighted country and its perverse and duplicitous leaders solve their own problems.
Ultimately, it’s up to the Greeks to decide their destiny.
Pioneer will sell $1B in stocks and pipeline to ride out falling oil prices
Can Big Oil Get Away with it Again?
The USA and European allies have recently increased their sanctions against Russia because of the takeover of the Crimean and continuing fighting in the east of Ukraine, which has a Russian-speaking majority.
This time, the sanctions appear more severe and Russia is retaliating by forbidding certain exports and imports from European and other countries.
The main question, however, is to what extent these sanctions would include Big Oil? Namely, companies such as ExxonMobil, who have confirmed their intention to go ahead with offshore drilling in the Russian Arctic, for assistance to Russia in shale gas developments and additional LNG investment in Sakhalin LNG for more exports to Japan. These are weak technological deficiencies of Russian oil and Gas companies.
Will Big Oil once again escape from the fate of ordinary people and companies and be allowed to continue as in Russia? Or, will sanctions at least be postponed until after the summer when the Arctic offshore drilling has already been completed?
Somehow I feel Big Oil will win again….
Read more: Special Responsibilities of Big Oil
Preview: The Special Responsibilities of Big Oil
ExxonMobil
is fighting criminal charges over a waste-water spill in Pennsylvania with an unusual defense contending that Pennsylvania’s attorney general singled the company out to stop hydraulic fracturing. The case regards 57,000 gallons of waste-water that leaked from storage tanks on an XTO (an ExxonMobil subsidiary), seeping into a tributary of the Susquehanna River.
Apparently other companies in Pennsylvania used proper methods and techniques to prevent such spills. According to the principle of “best practices” oil companies are expected to apply the best available technologies both for the discovery of new deposits and their maximum exploitation under existing economic circumstances.
Failure to apply best practices by XTO in Pennsylvania could imply approval of the opposite which could be called “bad practices” and especially big oil companies which are known to have manipulated oil prices throughout the history of oil and the European Union as recently as May 2013 reported that giant energy companies such as BP PLC, Royal Dutch Shell PLC and Statoil ASA manipulated prices in the $2.5 trillion physical oil market by giving false data to an oil index publisher, the Platts unit of McGraw Hill Financial Inc.
World oil consumption has increased and most projections expect higher consumption at least for the next 20 years despite higher prices than costs which have been achieved through manipulation and monopoly organizations such as OPEC with support or lack of real opposition or sanctions by major countries such as the USA.
The increase in shale oil production in the USA could imply support by the oil companies and the USA Government for even higher prices. This would be against the interests of America in general but very supportive of oil company profits. Investors in oil companies should form their own opinions and decide accordingly.
II. Introduction
An article in the Wall Street Journal of July 11, 2014 (pg. B2) on “Exxon Does Battle in Pennsylvania” by Daniel Gilbert caused my writing this paper as will be explained below because it raised issues that are fundamental to the world petroleum industry and include long-term exploration and development contracts between oil companies and host countries, exploration and development practices under such contracts, the use of technologies in all aspects of the petroleum industry, government legislation and perhaps the most important issue of them all, namely oil pricing.
Click here for more: Special Responsibilities of Big Oil
Natural Gas Prices– July 2014
Natural Gas Price in July had a steady decline from a high of $4.430 per 1,000 cubic feet on July 1st to a low of $3.740 on July 31st with an average for the month of $4,010. This was 12.25% lower than 2014 but higher by 10.62% than in July 2013.
Was it all to the weather and less air conditioning or the slowdown in the growth rate of the USA economy?
The Marcellus price was very volatile from a high of $3.170 on July 1st to $2.390 for the month. It seems new petrochemical plants take a long time to be constructed to increase demand.
Click here to view Table: Gas Prices Breakdown– July 2014
Oil Companies Always Find a Way
The shale oil miracle since 2011 has added three million barrels a day in production, which has reached 8.4 million barrels per day in the U.S.A. About 2-3 percent of the contents of these barrels have already caused deadly train accidents because some oil companies have failed to apply the principle of best practices by just investing remarkably small amounts of money to remove the explosive chemicals through already existing technologies. The Federal Government had allowed public comment before they became obligatory.
According the Wall Street Journal of July 31, 2014 Oil Exports Sail through the Roof “A tanker of oil from Texas is preparing to sail for South Korea this week, the first unrestricted sale of unrefined American oil since the 1970s.” In order to avoid cleaning up the shale oil before shipment and perhaps more importantly to avoid surpluses and explosive storage. This shipment, as well as others to follow, is being achieved under a new interpretation of the federal law that bans most sales of American oil overseas.
Last summer Enterprise Products Partners L.P. (NYSE:EPD) noticed a troubling trend: ultralight oil flowing from south Texas was flooding the market and pushing prices down. Energy companies and lobbyist started advocating the end of at least relaxing the ban; ExxonMobil (NYSE: XOM) openly supported lifting export restriction in December.
In lobbying Federal authority, the companies and their lawyers called the companies and their lawyers called the oil condensate and apparently this was enough to obtain export approval. The oil companies always fired a way!
Shale Endowed Mexico Could Learn from U.S. Fracking Technologies
Mexico is endowed with enormous shale resources. But now PEMEX in planning to form a subsidiary to work in the U.S. conventional day offshore and shale oil and gas! Why?
The WSJ in the past month has published several articles on the decision of the new President of Mexico to seek a revision of the Constitution, which forbids the award of concession to foreign oil companies. Foreign oil companies were major oil producers until 1938 when Mexico became the first country to resort to wholesale nationalization. From 1938 to the early 1970s Mexico, through its national oil company PEMEX, managed to produce enough oil for its own growing needs but in the early 1970s Mexico became a major exporter because of huge offshore discoveries. For the past 40 years Mexico has depended to a large extent on foreign exchange earnings from oil but good things always come to an end. As the attached article states, “Mexico’s oil production has fallen from a high of 3.4 million barrels per day to 2.5 million barrels and the trend is downwards.”
New offshore oil discoveries are huge but PEMEX cannot handle the complex technology needed. Hence the decision to revise the Constitution (a historic and difficult task) for help from foreign oil companies. Still Mexico is not prepared to issue regular concessions, which would allow foreign oil companies to own any reserves (and thus enable the foreign oil companies to book higher assets) although financial compensation would be similar to other concessions. In any case, even if the Constitutional reform is approved and foreign oil companies accept the terms, the earliest additional production cannot be expected until 5 years plus.
Mexico is also endowed with enormous shale resources. But now PEMEX in planning to form a subsidiary to work in the USA conventional day offshore and shale oil and gas! Why? To learn from American technologies! There must be ways to learn by inviting USA companies to explore in Mexico, especially independent USA technical companies which provide everything from exploration to drilling and production and train Mexicans.
In any case, oil and gas development in Mexico will continue to hit the headlines. They deserve watching.
U.S. oil exports spike – and most of it comes to Canada
Russia And USA: Cold War Or Energy Confrontation?
” Quite often the statement is made that USA may surpass Russia as the highest oil producer by 2015. So what? The USA will still be a major importer of oil with hundreds of billions of dollars in foreign exchange payments while Russia will continue to collect practically the same amount as shown in Table 2. “
Includes: GAZ, GZPFY, LNG, SIEGY, UNG, USO
After the end of the Second World War in 1945, the establishment of the United Nations as a guarantor of the independence of sovereign states was aimed at permanent world peace. Instead, the world was, in fact, politically divided in the so-called Cold War especially between the USA and their allies in Western Europe and Asian countries where their economies largely revolve on a capitalist system with private properties and free international trade. The Soviet Union and China under communist regime with their economies and trade controlled by the state. The Soviet Union extended its influence and practical control in the East European countries.
The whole period of the Cold War and nuclear threats ended with a transformation of political and economic policies in China in the late 1970s and beginning of 1980s into a mixture of communism and capitalism came together, and the collapse of the Soviet Union in 1991 brought hope to the world for a permanent peace of independent states, members of the United Nations.
Such periods of hope occurred in earlier historical periods but obviously they did not last.
The dissolution of the Soviet Union resulted in the loss of about half of its population to the current 140 million of the Russian Federation, which has since been surrounded mostly by independent Muslim states in the South and independent countries in Eastern Europe, which hastened to join the USA and Western Europe in the North Atlantic Treaty Organization (NATO).
Such members of NATO include Poland, and perhaps more threateningly, Estonia, Latvia and Lithuania, which are small states with sizeable Russian speaking minorities that nevertheless control key transit routes of the Russian Federation in the area of the Baltic Sea. (Population of Estonia is estimated at 1.3 million with 68.7% Estonians and 24.8% Russians; Lithuania’s population is 3.5 million with 84.1% Lithuanian and 5.8% Russian and Latvia’s population is 2.2 million with the 61.1% Latvians and 26.6% Russian).
Ukraine, a country with a population of 44.3 million of whom 17.3% or 7.7 million are Russian speaking, was left on its own, but it became the transit route for half of Russian natural gas exports to the Western European countries. Historically, Crimea was Russian and hosted the most important naval base of Russia since other ports would freeze during the long and severe winters. Perhaps on the belief that the Soviet Union would last forever, Crimea was transferred to Ukraine and subsequent agreements supported continued function of the Russian naval base.
Whether Crimea should belong to Ukraine or Russia is a matter of opinion, but whether this should lead to an energy war between the West (USA and Western Europe) and the Russian Federation, should be based especially on oil and natural gas statistics rather than half thought sentences and assertion instead of facts. The rest of this report attempts to offer such statistics that are widely available, but hardly used in the daily press and other media.
Natural Gas and Oil Comparison Between the US and Russia
A. Natural Gas
US and European daily news and media are full of information of actions by the Russian Federation to re-absorb Crimea from Ukraine with measures and threats for economic sanctions, including the acceleration of investments by US firms in exporting liquefied natural gas ((NYSEMKT:LNG)) and even oil to Europe in order to cause financial distress to Russia and contain similar behavior in neighboring countries with Russian speaking minorities, especially countries that have since become members of NATO.
These threats for an energy cold war between the USA and Russia are based on the shale revolution in the USA that has already produced enormous shale gas reserves at very low prices and sizeable quantities of shale oil that has reduced the amount of oil imported into the USA.
It should be noted, however, that Tables 1 and 2 prove that the Russian oil and gas situation at present is much more advantageous than that of the USA. Even in LNG, the USA has only one plant under construction by Cheniere Energy (LNG), which is expected to start exporting late 2014 or early 2015. Two-dozen other corporations have applied for special LNG export licenses. Even if the approval of these licenses is given soon it would need years (3-4 years for each plant) for construction.
The Wall Street Journal in an editorial entitled “One Down, 24 to Go” urges that Congress should speed along Obama’s slow gas export approvals. The editorial insists that “If The White House and Majority Leader Harry Reid are serious about changing Europe’s energy security calculus, they will not block that vote. And if they try to block it, a bipartisan coalition should roll over them in the national interest.”
Russia has not been waiting for USA LNG exports to take action to defend its strong position in natural gas exports by pipelines to Europe. In 2012 Russian natural gas exports by destination were:
|
Eastern Europe |
24% |
|
Germany |
24% |
|
Turkey |
19% |
|
Italy |
11% |
|
Other Western Europe |
10% |
|
France |
6% |
|
UK |
6% |
In order to bypass Ukraine as the main route for Russian gas exports, Gazprom (OTCQX:GZPFY) the Russian gas monopoly has attracted Western European capital in both production and perhaps more importantly in the construction of the North Stream offshore pipeline in the Baltic Sea which are two parallel lines to Germany with a capacity of 971.2 billion cubic feet each. Owners of the North Stream pipeline are Gazprom 51%, Germany’s BASF/Wintershall AG and E.On Ruhrgas AG 20% each and Netherlands NVGasunie 9%.
In March 2014 Nord Stream AG completed a feasibility study for expanding capacity in the twin North Stream gas trunk lines through the Baltic Sea and the results suggested that one or two more lines would be technically and economically viable. Additionally, the study stressed several possible routes that will serve as the basis for further research.
Table 1 Natural Gas Russia & USA
|
Russia |
USA |
2012 |
|
|
Proved Reserves |
1,162.50 |
300.00 |
Trillion Cubic Feet |
|
Production |
20.91 |
24.05 |
Trillion Cubic Feet |
|
Reserves/Production Ratio |
55.60 |
12.47 |
Years |
|
Consumption |
14.69 |
25.49 |
Trillion Cubic Feet |
|
Exports (Pipeline) |
5.43 |
1.59 |
Trillion Cubic Feet |
|
Imports (Pipeline) |
—– |
2.96 |
Trillion Cubic Feet |
|
Exports, LNG |
0.79 |
0.28 |
Trillion Cubic Feet |
|
Imports, LNG |
—– |
0.17 |
Trillion Cubic Feet |
|
Net Exports |
6.22 |
—– |
Trillion Cubic Feet |
|
Net Imports |
—– |
1.26 |
Trillion Cubic Feet |
|
Estimated Revenue |
62.20 |
—– |
$ Billion |
|
Estimated Payments |
—– |
12.60 |
$ Billion |
Sources*
Table 1 demonstrates Russia’s natural gas Reserve/Production ratio in 2012 was 55.60 years and exports provided about $62.20 billion whereas the USA Reserves/Production ratio was only 12.47 years and was still importing 1.26 Trillion Cubic feet at about $12.60 billion.
The shale gas revolution in the USA has added enormous new reserves, recovery efficiencies, and new discoverable areas that may add considerably to existing reserves. Producing at very low costs that has resulted in gas prices of less than $5 per thousand cubic feet as compared to about $11 in Western Europe and $16 in Japan. Prices are arbitrarily imposed by the gas exporters with prices of oil as the main determinant.
Exports of LNG from the USA to Europe will not only take considerable time (3-5 years) but will involve huge investments that will be constantly threatened by a potential LNG glut since huge gas discoveries have already been made in the Eastern Mediterranean and East Africa (Mozambique and Tanzania) that are already actively seeking markets. In the final analysis what is there to prevent the Russian Federation to cut its export price to such levels as eventually to bankrupt US LNG companies?
B. Russian Oil Exports
The Russian oil situation compared to that of the USA is even more advantageous as shown in Table 2 where Russian net exports of 2.72 billion barrels in 2012 with a potential income of foreign exchange of $300 billion while the USA is a net importer of 2.89 billion barrels with a possible loss in foreign exchanges of $318 billion or about $1000 per year per capita.
Quite often the statement is made that USA may surpass Russia as the highest oil producer by 2015.
So what? The USA will still be a major importer of oil with hundreds of billions of dollars in foreign exchange payments while Russia will continue to collect practically the same amount as shown in Table 2.
Table 2: Oil in Russia & USA
|
Russia |
USA |
2012 |
|
|
Proved Reserves |
87.20 |
35.00 |
Billion Barrels |
|
Production |
3.90 |
3.26 |
Billion Barrels |
|
Reserves/Production Ratio |
22.36 |
10.74 |
Years |
|
Consumption |
1.16 |
6.79 |
Billion Barrels |
|
Net Imports |
—– |
2.89 |
Billion Barrels |
|
Net Exports |
2.72 |
—– |
Billion Barrels |
*Sources BP Statistical Review of World Energy, June 2013 and US Energy Information Administration March 2014.
Conclusion
The crisis in Ukraine and the annexation of Crimea by Russia has led to renewed animosities of the cold war enemies. Progress made since the collapse of the Soviet Union in 1991 is in danger and sanctions by the West are unlikely to be effective in terms of an energy strategy because of the strong position of Russia has in both oil and natural gas.
The West is not even united in their policies with Western European countries. Especially Germany that apparently wishes to regard the annexation of Crimea as a temporary setback, which should not be allowed to result in the deterioration of economic relationships that had added to benefits of both sides.
Perhaps the most revealing aspect of Western European and Russian business is Siemens’ Chief Executive Joe Kaeser statement, “Siemens has been present in Russia since 1853 – a presence that has provided many highs and lows. We want to maintain the conversation even in today’s politically difficult times for us; dialogue is a crucial part of any long-term relationship.”
Siemens is one of Europe’s biggest companies. Its Chief Executive also met with colleagues of Mr. Putin including Alexei Miller, Chief Executive of OAQ Gazprom and pledged to continue cooperation with the Russian energy monopoly. Siemens annual sales in Russia amounted to $2.99 billion through September 2013 that accounted for 2.9% of the company’s total sales.
Germany is among Russia’s top economic partners, with 56.3 billion Euros in total trade between the two countries in 2013, according to the Russian Government. On the German Government side, German Chancellor Angela Merkel stated “business contacts are still taking place and I am not interested in seeing the situation escalate, but rather am working towards deceleration.”
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Shale Intel 