Today in Energy – U.S. Energy Information Administration (EIA)

Source: Today in Energy – U.S. Energy Information Administration (EIA)

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.

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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.

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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A Decline in Big Oil? The results of 2013 for three big oil companies especially Royal Dutch Shell (NYSE:RDS.A)indicate such a trend

Recently, Exxon Mobil, Royal Dutch Shell, and Chevron reported disappointing results for the fourth quarter and year of 2013. The main reason for all of their declines was lower production since oil prices remained high. More disappointing than none of these huge corporations could forecast growth in production despite vast investments especially in the North American and Russian Arctic’s, the Gulf of Mexico, and several other areas.

Shell’s performance was particularly disappointing and in the author’s opinion it reflects a mixture of management decisions which are in conflict as if the engineers and technical specialists of the company do not seem to agree with their own economists and/or accountants, which leads to huge losses in particular projects, huge underestimates of investment requirements and frequent announcement of changes in decisions for particularly import projects.

The most disappointing change to the author is the new decision of Shell not to go ahead with plans to build a major facility in Louisiana that would turn natural gas into synthetic diesel as reported in my study “Expressway to US Energy- Independence GTL Diesel” of June 2012, consumption of the middle distillates in the USA is about 4 million barrels per day (b/d) out of a consumption of oil and liquids of 19 million b/d. The use of the abandon of low cost shale gas in the USA for GTL diesel would not only be profitable but it would cut US oil imports by about 50% and save about $146 billion in foreign exchange for the USA per year.

Shell has built a GTL plant in Qatar called PEARL for about $19 billion and capacity of 140,000 barrels of products per day including: Diesel based oil to lubricate vehicle engines, gear boxes, and transmissions; GTL base oil for lubricating vehicle engines; blending with conventional diesel for cleaner burning and lower emission; GTL Kerosene for cooking, lighting, and dry-cleaning and potentially as jet fuel; GTL normal paraffin and GTL naphtha for plastics and several other products.

Shell’s Pearl GTL began operations in mid 2011 and was expected to reach full production by mid 2012. Without attributing any cost for the gas in input, a high official of Shell claimed that the Pearl GTL plant would be profitable as long as oil prices remain above $40/b. Another high official later claimed the same as long as

oil prices remained above $70/b. Who can now claim such low oil-prices? Similarly expected it’s Qatar GTL to generate $4.5 billion of annual cash flow when fully up and running at $70/ b/d oil price assumptions.

In its 2013 report Shell reported that “Pearl GTL in Qatar, contributed some 170 thousand BOE/D to production in 2013” (2). In other words, the plant has already exceeded its proclaimed capacity by 21.4% with consequent lower capital costs. At an oil price of $70/b diesel would sell between $1.67-$2.00 a gallon. In fact, now the price of diesel in USA is almost $4.00 per gallon or a difference of at least 100%. Therefore, the annual cash flow of the Pearl GTL plant should be double the 4.5 billion dollars mentioned before as estimated by Shell, $9/$10B per year. A very profitable investment indeed! The author estimates total cost of $50 per barrel of diesel even if Shell pays $5 per 1,0000 cubic feet of gas. Therefore, profit of the plant is at least one-third of the cash flow or $3 billion per year. Therefore, Shell’s decision to cancel construction of a similar plant in the USA remains a mystery and in the author’s opinion, shareholders and the public deserve an explanation for such a consequential decision for the American economy.

Shell is certainly innovative and daring. The above example of the Pearl plant shows its ability for innovation. It’s daring is perhaps best illustrated by spending as much as $5 billion in Alaska’s Beaufort and Chujhic Seas off the state’s North Slope before abandoning such a gigantic effort because of extremely frozen weather and no drilling at all.

The latest upset in Shell’s decision making is the announcement that it had renewed an option to buy site of a proposed $2 billion ethylene in western Pennsylvania. The proposed plant would turn ethane liquid produced along natural gas and oil into ethylene, used to make plastics (3).

In this connection note that the price of Marcellus shale gas is often quoted at about half the price of Henry Hub except for the recent weeks when extraordinary and record-breaking cold weather briefly gave an uplift to the shale gas price of Pennsylvania.

Despite all the above, Shell remains one of the biggest and most important oil and gas companies in the world with assets of $360.3 billion at end of 2012 and earnings of $16.7 billion in 2013 as compared to $27.2 billion in 2012, a drop of 38.6%. The drop in earnings in the fourth Quarter of 2013 was $5.2 billion from $7.4 billion in the same Quarter in 2012, an amazing drop of 297.3%! Thus the rate-of-return dropped from 13.6% in 2012 to only 7.9% in 2013.

(1) Charles Cosntantinou “Expressway to Energy Independence” June 2012

(2) Yahoo Finance “Royal Dutch Shell PLC. 4th Quarter and Full Year 2013 Unaudited Results” January 30th, 2013 page 5 Wall Street Journal “Shell Puts off

(3) Drilling in Alaska’s Arctic” by Tom Fowler and Ben Lefebure” February 28th 2013 page B7. (3) Wall Street Journal “Shell is Ruining Option for Factor Site” By James R. Hagerty, December 27th, 2013, page B5.

Authored by Charles Constantinou
http://www.shaleintelligence.com
Twitter: @shaleintel

Whiting to buy Kodiak for $3.8 billion, create No. 1 Bakken producer | Reuters

Whiting to buy Kodiak for $3.8 billion, create No. 1 Bakken producer | Reuters.

USA Energy Independence: Sense or Nonsense?

The USA became a net importer of oil after World War II due to the accelerated rate of economic growth based on low-cost energy, especially oil. Nevertheless, the USA kept some of its oil-producing capacity in reserve for emergencies through the regulation of production. This reserve was used repeatedly by the USA to supply oil to oil-importing countries in Western Europe and Japan and stabilize prices during the closure of the Suez Canal because of wars in the Middle East.

Henry Kissinger wrote, “…Until 1972 the United States had been in a position to control the world price of oil because it was producing well below full capacity. ”

Thus America was, in effect, able to set the price by increasing or withholding production. As late as 1950 the country supplied almost all of its energy needs from its own production; in 1960 we were importing 16 percent of our own requirements while still having significant unused capacity; by 1970 we were approaching full production and importing 35 percent of what we consumed.

In early 1972 the Texas Railroad Commission, the organization that established ceilings on American production, felt compelled to make a fateful decision, although it went essentially unnoticed. With demand having risen to a point where it threatened an explosion of prices, the commission authorized full production. And that seemingly technical decision signaled the end of America’s ability to the world oil price.”

Oil consumption in the USA climbed. Crude oil (including natural gas liquids), however, could not meet the increase in demand and, therefore, imports escalated. Of course, the oil situation has resulted in enormous foreign exchange costs that have climbed from $95.5 billion in 2000 to approximately $356 billion in 2011, which was equal to about 4.0% of gross domestic product or $1,145 per capita.

Hence the importance of USA energy independence which has been loudly proclaimed by every president since Mr. Nixon. However, energy independence should be defined properly to mean oil independence since the USA has always enjoyed coal independence and the recent shale gas revolution brought about by the application of the new technologies of hydraulic fracturing and horizontal drilling practically guarantees natural gas independence for many, many years to come. It has given hope through the rapid and very significant increase in shale oil production for the achievement of oil independence as well.

The US Energy Information Administration has estimated shale gas recoverable resources at 482 Trillion Cubic Feet and shale oil resources at 33.2 billion barrels in 2010. Already various projects have been announced for the export of natural gas especially to Asia and Europe through the construction of liquefied natural gas (LNG) facilities. Will the same happen with regard to oil? It all depends. According to the USEIA the USA will remain dependent on imports for about 43 percent of its oil consumption even through 2035. Other analysts, however, are much more optimistic. They base their optimism on the incredible rate of shale oil production increase in North Dakota where shale oil has jumped from 308,304 barrels per day in 2010 to 701,134 barrels per day in August 2012. Their optimism is also based on other shale oil formations in Ohio, Oklahoma, Texas and other states with resources in North Dakota alone estimated at 200-400 billion barrels and recovery factor of 25 percent and not the traditional 10 percent.

Conclusion: In view of the above estimates, USA oil independence appears to be based on a lot of sense and, of course, hope. But discussion should refer only to the USA and not talk nonsense of North America as repeatedly mentioned by one of the candidates for the US presidency for the next four years. North America, of course, includes Canada and Mexico, which are already exporters of oil. Such talk shows little respect for the intelligence of ordinary Americans and, of course, the specialists who know better than that.

http://www.ShaleIntelligence.com

New Global Safety and Regulations in Global Energy

Introduction: Safety and Regulations in Global Energy

Economic development has always depended on the application of new technologies in the production of new products and improved productivity. This has been particularly so since the beginning of the industrial revolution without much attention given to safety particularly when deleterious side effects could not be detected easily and left future generations to deal with it. The democratization of societies, higher education for what might be called the ordinary citizen, environmentalism and huge danger of some new technologies such as nuclear have in recent years resulted in critical eyes focusing on safety more intensely and demanding appropriate regulations in order to avoid catastrophes even at the expense of higher economic development. This has increasingly been evident in the field of energy. In the USA energy safety issues have become especially important because of the so-called Shale Revolution which has turned the country into an exporter of Liquefied Natural Gas (LNG) because of vast new reserves of shale-gas with prices at about 1/3 of gas in Europe and rapid production increases in shale oil which is rapidly replacing conventional oil imports. The Shale Revolution has raised safety and environmental concerns as described below. The paper describes environmental and safety problems in other energy sources as well as background for the debate, which is already in progress.

The Shale Revolution

As recently as 2007 many U.S. companies were preparing for a steady increase of imports of natural gas since they could see a decrease in domestic production and an increase in demand especially in electricity generation where both capital and operating costs were lower than coal electricity plants. Billions of dollars were invested in the South by the Gulf of Mexico, in the east as far as Boston and in the west, especially in California. New technologies, however, were introduced, which resulted in the rapid increase in shale gas production, which made it obvious that the USA could become a major LNG exporter rather than an importer. Companies reversed course and at least one company Cheniere Energy (LNG), started construction in 2012 and expects to start exporting LNG at the end of 2014 or beginning of 2015. The same company has announced the construction of a second plant and about two-dozen other companies have applied for licenses to export LNG. In the meantime, an oversupply of natural gas caused the collapse of prices and companies switched to the production of shale oil, which has proved to be much more profitable. Already in North Dakota alone, more than one million barrels of shale oil is produced every day and production is expected to increase considerably both in North Dakota and elsewhere. Demand for shale oil, however, was far away at the refineries of the Gulf of Mexico, California, and the East and companies could not wait for pipelines to be built since this would take at least five years. Instead, they resorted to rail transportation, which has caused some serious accidents including the worst one in Canada in 2013, which killed 47 people. A serious train derailment on April 30, 2014 contaminated the James River in Lynchburg, Virginia which led the Department of Transportation to issue an emergency order requiring that railroad companies inform state emergency management officials about the movement of large shipments of shale oil through their states and advised shippers not to use older model railroad tank cars that could easily rupture in accidents even at slow speeds. As reported by the Wall Street Journal “Bakken Crude Is Highly Volatile, Oil Study Shows” (Lynn Gok, May 15, 2014 pg A4), oil refiners confirmed that crude from the Bakken Shale in North Dakota is very unstable and contains high levels of combustible gases. A measure of volatility called Reid Vapor Pressure, which in traditional oil measured 3.3 pounds per square inch, in Bakken shale oil averaged about 8 pounds per square inch in warmer weather and 12.5 in colder weather. Many samples were at the high end of the range, with the highest at 15.54. Although the above will be disputed and discussed by various organizations and groups with conflicting interests the importance of railroad shale oil transport is obvious. Every two hours, yet another train leaves North Dakota with about 71,000 barrels of oil for the refineries of the West and East. Out of a total annual production of about 365 million barrels about 80% are shipped by railroad for a revenue of $29.2 billion per year at the current price of about $100 per barrel. Each train carries about seven million dollars worth of oil. The shale revolution has not added safety problems to shale oil transportation by rail. The Street Journal in its’ article “As Fracking keeps Pumping, A Qatar grows on the Bayou” by Dennis K. Berman (May 28, 2014 pgs. B1 and B6) notes that SASOL will build a giant plant by Lake Charles in Louisiana at a cost of $21 billion for the production of ethylene for plastics, paints, and food packaging as well as high-quality diesel and other fuels using shale gas with its own problems of disposing massive water supplies needed for fracking and the environmental effects will include the emission of 85 times Louisiana’s threshold rate of benzene each year as well as produce massive streams of carbon dioxide and treated water. Such problems are bound to increase with the expected expansion of industrialization in the USA because of the low cost shale gas. The US Transportation Secretary has announced that new safety regulations may be published by the end of 2014. The debate had started.

Nuclear Power Safety

After the destruction of the Japanese cities of Hiroshima and Nagasaki by the first atomic bombs in 1945 with hundreds of thousands of casualties, attention focused on the use of nuclear power for electricity generation, which, according to Louis L. Strauss, the federal official promoting nuclear energy would be “too cheap to meter” (The New York Times, August 22, 2006, pgs C1 and C4). Nuclear power plants were built in the USA and several other countries but costs proved to be much higher than expected. More relevant for this article was the complete failure of the nuclear promoters to provide for the proper disposal of radioactive waste produced by nuclear reactors, which they knew could retain its destructive potential for thousands of years. For the United States efforts were made and billions of dollars spent to establish a national waste repository on the Yucca Mountain, Nevada at a potential cost of $60 billion, but the state did not agree and the hundred or so nuclear power plants now operating keep their waste on site. What appeared for a while to be a deathblow to nuclear electricity were the partial meltdown of a nuclear reactor in the Three Mile Island, Pennsylvania in 1979 and the destruction of a plant at Chernobyl, Ukraine (former Soviet Union) on April 26, 1986. According to a UN study the Chernobyl disaster would ultimately cause 4,000 deaths from diseases caused by direct exposure to radiation. Other estimates claimed up to 90,000 potential deaths. (The New York Times, April 26, 2006, pg. A8). Since then some countries, such as France, have concentrated on nuclear electricity for national demand and nuclear plants have been built in both the USA and several other countries. Other countries have closed their existing nuclear plants and prohibited the building of new ones. Perhaps two memories of the author from his experience with the energy secretariat of the United Nations in New York would illustrate the above points. The first memory is a month long attendance as an observer of a nuclear conference organized in Geneva after the Three Mile Island accident in the USA. The American representative in addressing the conference emphasized the safety of nuclear power. The following day newspaper headlines informed the world on inspectors visiting the computer control center of a nuclear power plant near Philadelphia and found all the working staff fast asleep! The second memory is of visiting Japan in the mid-1980’s as a guest of the Government for a week and instead of the expected behavior of a tourist I took it upon myself to visit with the Director of Planning of Tokyo Electric because I was concerned of their plans to build about 30 nuclear power plants despite the earthquake prone areas in most of the country. My concern was raised by a colleague of mine who was a seismologist who had visited the Philippines and found out that General Electric was planning to build a nuclear power plant at an earthquake prone area of that country. Both the government and the company dismissed his remarks. Unfortunately, I had the same experience in Japan. By 1990 nuclear power supplied 27.3% of Japan’s electricity, which increased to 34.3% in 2000 and was forecasted to reach 42% by 2010 (The Wall Street Journal, February 19, 2003 PG A12- “Will Tokyo’s Lights Go Out? Dispute Over Safety of Nuclear Plants Prompts Critical Closures.” By Todd Zaun). In 2012 it was claimed that Tokyo Electric Power Co. had falsified records on safety checks and the company had to shut down 13 of its 17 reactors for thorough inspections. Tokyo Electric denied such accusations, but could not convince inhabitants and politicians in affected areas. Japan went on to build 54 nuclear reactors by March 1, 2011, more than any other country except the USA and France. On that day an 8.9 earthquake triggered a seven meter tsunami, which knocked out the power and back-up generators of the 40-year old Fukushima nuclear plant, which caused the worst nuclear accident since Chernobyl in 1986. The most powerful earthquake caused 15,000-20,000 deaths and damages were estimated at $300 billion. Public authorities in Japan obliged the Government to close all nuclear power plants and the Japanese people still appear to be divided between supporters and opponents of going back to nuclear power dependence. Supporters claim that Japan needs to power its industries putting economic demands against safety concerns in the worlds most earthquake prone country. Yet many other countries have given up on nuclear power and prefer to depend on imported fossil fuels at great foreign exchange expense although they are not as rich as Japan. In affect they accept a lower standard of living but a safer life.

Fossil Fuels

            As shown in Tables 1 and 2-world consumption of primary energy continues to increase by about 3.0% per year and is dominated by the fossil fuels of oil, natural gas and coal. Despite substantial subsidies by governments especially in Europe, Japan, and the USA the contribution of renewables has reached only about 2% of world energy consumption and fossil fuels supply about 90%. Each of the fossil fuels has its own history of tragedies and substantial loss of lives at their various stages of exploration, mining, production, refining and transformation as well or in distribution and use. Coal mining in particular has had a disproportionate share because of the difficulty of underground mining and the explosive gases involved. Even the application of more safety procedures has not halted coal mine accidents in the USA and they are of course much more common in coal rich countries such as China and India. Oil has not been immune as demonstrated tragically by the destruction of a deep offshore well in the Gulf of Mexico drilling for BP in 2010, which caused 11 deaths and tens of billions of dollars in damages paid by the company. This so-called Deepwater Horizon explosion is regarded as the worst in USA oil history, but other accidents preceded in several places to the point that some have prohibited exploration and developments (eg. Florida) especially offshore because of fear of damages and effects on such other important income generating businesses as tourism.

Table 1: World Consumption of Primary Energy in Billion Barrels of Oil Equivalent

Year		% Change
2002	70.35
2003	72.81	3.50
2004	76.30	4.79
2005	78.49	5.73
2006	80.67	2.78
2007	82.74	2.57
2008	83.85	3.94
2009	82.90	-1.13
2010	87.55	5.61
2011	89.61	2.35
2012	91.45	2.05
2002-‘12	896.72	29.99

Source: Calculated from BP Statistical Review of World Energy, June 2013 pg. 40.

Table 2: World Energy Consumption By Fuel

Billion Barrels of Oil Equivalent

	2012	Percentage of Total
OIL	30.28	33.11
NATURAL GAS	21.90	23.95
COAL	27.34	29.90
NUCLEAR ENERGY	4.11	4.49
HYDRO-ELECTRICITY	6.09	6.66
RENEWABLES	1.74	1.90
TOTAL	91.45	100.00

Source: Calculated from BP Statistical Review of World Energy, June 2013 pg 41 The tendency to use low cost techniques in energy is very well illustrated in an excellent article (Cassandra Sweet, Gas Blasts Hook, Inevitable as Pipes Decay, Wall Street Journal, May 21, 2014 pg B9), which describes the construction of gas pipelines in the USA with cast-iron and wrought iron as early as the 1830’s. In 2011 the U.S Transportation Department issued a “Call for Action” urging companies to replace thousands of miles of discrepant iron pipes with steel or plastic because iron lines are four times as dangerous and criss-cross cities and towns, especially in Boston, Chicago, Louisville, and New York. However, it costs $1.4 million per mile to replace iron pipes. It would take roughly 60 years and $5.6 billion to carry such a job just in New Jersey where the Public Service and Electric Gas Co. owns 4,000 miles of iron pipe. It could be done faster if consumers could and would pay at higher rates.

Conclusions

All energy sources have safety and environmental problems, but economic development requires increases in energy consumption even though technological advances may lead to considerable improvements in efficiencies and less energy inputs per unit of economic output. The structure of any capitalist system calls for speedy action in the production of goods and services in order to survive and prosper in a competitive environment. Adverse environmental and safety issues are likely to be ignored or even suppressed unless appropriate authorities, either voluntary organizations or governments at the local, state and federal levels get involved. The process is tedious, controversial and often lengthy but absolutely necessary especially in the main sources of energy.

Authored by Charles Constantinou​

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