Tag: "oil"

Hundreds of Frac Restrictions Quietly Sweep Across America

Hydraulic fracturing or “fracking” is a well completion technique that is the key to America’s shale boom. Because of hydraulic fracturing, the U.S. has become the world’s top natural gas producer and has gained the capability to become the world’s top oil producer. The shale boom has generated a great majority of jobs created since the recession, and created great wealth for the states where shale deposits are found.

Despite the benefits of energy production, hydraulic fracturing bans and draconian regulations have become more and more common at both the state and local level. To date, greater than 400 municipalities around the country have passed frac restrictions according to Food and Water Watch, an environmental group that tracks anti-fracturing activism. The trend appears to be increasing nationally.

The significance of local bans is little discussed in the energy sector, and underreported, at least from a macro perspective. While the press widely reported that the state of New York passed a statewide moratorium on hydraulic fracturing, few noted that the State was already home to greater than 200 municipal bans on fracking before the state imposed a statewide restriction. Restated, greater than 200 New York communities debated the question of whether to permit hydraulic fracturing and concluded that restricting production and wealth generation was the best policy.

Some industry observer dismiss frac bans as inconsequential because they often pass in areas that have little or no frac activity anyway, such as in the case of the statewide ban in Vermont. “The market will adjust,” is the common mantra among producers. One should note, however, that frac restrictions are concentrated on the West and East coasts, where many of the nation’s rich shale deposits lie, such as the Marcellus (NY) and Monterey (CA). Likewise, the public opinion that is formed in the cities and towns will likely factor into future action at the state level, as we have seen in New York and as we are likely to see in California and Colorado.

Can energy producers rely on the states to override local bans to protect their activity? In Texas, probably yes. In California and Colorado, it is much less certain. If public opinion can be our guide, the outlook is not so good. Countrywide, in November of 2014, only 41% of Americans polled favored the increased use of fracking while 47% were opposed. By contrast less, just one year before, there was more support (48%) than opposition (38%) to the drilling technique. Some surmise that the unpopularity of fracking is limited to the coasts, but the Pew poll of 2014 shows that the most dramatic shift in opinion is seen in the Midwest where support for hydraulic fracturing dropped a breathtaking 16 points from 55% to 39% from 2013 to 2014.

San Benito County, California — one of over twenty localities which have banned fracking activity in the state — is currently locked in a legal battle with Citadel Exploration, an energy company which claims that only the state of California itself (as opposed to municipalities) has the ability to ban fracking. Even if Citadel Exploration prevails, should proponents of fracking feel that California production investments are safe? Barely a year ago, the Californian state Senate nearly enacted a moratorium to ban fracking temporarily. With a final count of 18-16 against the ban, the state only lacked two votes for a majority pass. The same trend has been seen in other states, like New York and New Jersey where the temporary period of inactivity in the gas sector is followed by more outcries from environmentalist groups, and the subsequent drafting of more final, permanent restrictions on hydraulic fracturing.

The cost of these bans is high, especially given the sheer quantity of untapped or undiscovered natural resources. California, Pennsylvania and Colorado are three possible battlegrounds to watch in the future, all of which contain high concentrations of gas resources and formidable past opposition either in their local communities or their state legislatures. The cost of completely eliminating the production of these resources is outlined by the sheer quantity they withdraw for sale on a monthly basis. Based on the graph below, at an average cost of $2.69 per million cubic feet (mcf), the states of CA, PA, and CO would lose almost $1,611,300 in monthly production revenue for natural gas alone, without even considering oil.

The list of counties which have banned fracking is growing on a monthly basis. In addition to state regulations, local government hydraulic fracturing restrictions now number in the hundreds, and are concentrated in CA and along the Eastern Seaboard. Policymakers must adopt an emphasis on balancing socially responsible results with protecting the rights and revenue generating capacities of the industry to insure continued job creation and economic growth.

Mar 18, 2015 | 2 comments | by Santiago Bello

The Case for Lifting the Crude Oil Export Ban

The United States is running out of room in its crude oil storage facilities and the question is ― where does the crude go now? As domestic crude oil production continues to rise, it has no place to go due to an obsolete ban on the exportation of crude oil in the U.S.

The International Energy Agency said in its monthly oil market report that U.S. supply shows no signs of slowing down, an assessment that pushed the price of crude below $57 a barrel and lowered gas prices at the pump. Low gas prices led to record amounts of driving in 2014, culminating in a record-breaking December, new federal data shows.

With the U.S. now producing more oil and natural gas than Russian and Saudi Arabia, over 11 million barrels a day (55 percent increase from five years ago), lifting the U.S. oil export ban would:

Add over $1 trillion in government revenues by 2030.
Create 300,000 more jobs a year.
Increase current U.S. production from 8.2 million B/D currently to 11.2 million B/D.
Cut the U.S. oil import bill by an average of $67 billion per year.
Lower gasoline prices by an annual average of 8 cents per gallon.
Save U.S. motorists $265 billion for during the 2016-2030 period.

Despite the fact that oil imports are at the lowest level since 1985, the U.S. still imports 33 percent of its oil from foreign sources. A broad view by the public is that U.S. oil should stay at home will test export proponents. A majority of voters, 53 percent, opposed exporting oil. At present, the current policy is discouraging additional crude oil supplies from being brought to market, which actually makes gasoline prices higher than they otherwise would be. The increased economic activity resulting from the rise in crude production would support an average of 394,000 additional U.S. jobs over the 2016-2030 period, with a peak of 964,000 jobs in 2018.

Doing away with exports restrictions would also generate added benefits to U.S. household income, gross domestic product (GDP) and government revenues. The average disposable income per household would increase by an additional $391 in 2018 as benefits from increased investment.

The current hydraulic fracturing and American energy boom is reducing oil imports by 22 percent next year. Lifting the crude oil export ban would increase the energy boom. This boom could also reduce the oil imports of European countries. The United States could replace Russia title as “Europe’s gas station” and provide all of Europe’s energy needs.

Mar 18, 2015 | 3 comments | by Lloyd Bentsen

Federal Land Regulation Continues to Strangle Energy Production…

Federal land ownership in the United States continues to grow despite the federal government already owning more than half of most of the western states. While some have been advocating for the return of this land to the states or protect it from being closed off from oil and gas operations, the Obama Administration has worked just as hard to increase the federal government’s land grab. Contrast: As President Bush’s second term as president was coming to an end, 4 million acres of land in Alaska was released by the Bureau of Land Management (BLM) for drilling and exploration. Seven years later, President Obama has proposed to set aside 12 million acres in Alaska, designating it as “wilderness” and off-limits to up to 42 billion barrels of oil.

Most recently, the Obama administration has proposed the largest critical habitat designation ever, setting aside 226 million acres of ocean off Alaska’s coastline (an area twice the size of California) to protect the Arctic ringed seals who were listed as “threatened” under the Endangered Species Act in 2012 after environmental activists petitioned the Obama administration.

Even though NOAA says that oil and gas activities have occurred in areas with protected species in the past, designating these Alaskan waters as a critical habitat would mean that all oil and gas activity would have to be evaluated based on how much it would impact ringed seals. Alaska’s outer continental shelf is considered to be one of the world’s largest untapped oil and gas reserves boasting as much as 27 billion barrels of oil and 132 trillion cubic feet of natural gas.

Other federal lands expansion that slipped into the National Defense Authorization Act (NDAA) would add 250,000 acres of new wilderness in western states and put thousands more acres off limits to drilling and mining in states.

In 2011, the U.S. Forest Service originally tried to ban fracking in the 1 million acre George Washington National Forest, but failed. It would have been the first outright ban on the practice in a national forest.

Much of the land targeted for government takeover holds great oil and natural gas resources which could provide jobs in the energy industry and a flow of resources from our own American supply. Once those lands become “monuments,” access to those natural resources is limited and in the hands of the federal government. The government currently owns 650 million acres, or 29 percent of the nation’s total land.

The Omnibus Public Land Management Act of 2009 and the Northern Rockies Ecosystem Protection Act (NREPA). The Omnibus bill was passed with over 100 land grab measures. The NREPA included federal takeover of nearly 24 million acres of land in the American west and northwest; however, NREPA never made it out of the House subcommittee.

The ability of the White House to simply snatch land from under the feet of the American people comes from the Antiquities Act of 1906. The Act was initially intended to set aside small portions of land for monuments and national parks, but has since been abused by lawmakers to control large quantities of property. Federal government land control and land acquisition takes away opportunities for development, particularly when it comes to much needed energy resources. The land designated as “monument” space could have created jobs, boosted the economy and enhanced our energy security.

Mar 16, 2015 | 2 comments | by Lloyd Bentsen

Sand Dune Lizard and Lesser Prairie Chicken Could Halt Industry

The plight of two species is putting thousands of acres and the future of the oil and gas industries at risk. If put on the endangered species list, the sand dune lizard and the lesser prairie chicken could block off land from oil and gas companies across multiple states.

The lesser prairie chicken was added to the threatened species list after a court ruling in March 2014. The chicken has known habitats in Colorado, Kansas, Oklahoma, Texas and New Mexico, and land management decisions could impact over 100 million acres across the five states.

The sand dune lizard is posing particular problems for the oil industry in West Texas. The lizard’s 800,000 acre habitat spans Southeastern New Mexico and West Texas and just happens to sit right in the middle of Texas oil country.

Given the Obama administration’s recent demonstrations of its willingness to put potentially beneficial land under federal protection, many in the oil and gas industries are concerned that even the potential presence of these species could shut down oil and gas rich areas from exploration or further development.

Shutting down oil-rich areas to protect these species isn’t just bad for the oil and gas industry ― it’s bad for its employees as well. Texas state officials and energy executives have warned that classifying the sand dune lizard as an endangered species could cost thousands of Texans their jobs.

Mar 11, 2015 | 2 comments | by Megan Simons

Oil and Gas v. Green Jobs

On February 24th, President Obama vetoed the Keystone Pipeline, citing that such a project is “not in the national interest” ― and instead the President has been a vocal proponent of creating green jobs in alternative energies. However, it is vital to analyze the quality and effect of these jobs. When comparing the jobs created by the oil and gas industry to the emerging green energy industry, what considerations should be made?

The first and most simple is salaries:

It doesn’t take a scientist to see that typically, members of the oil and gas industry are paid much more than their counterparts in green-collar jobs. It’s extremely important to note that above “Oil & Gas Financial Analyst,” jobs are no longer directly comparable, because they’re more specialized blue-collar jobs.

Ironically, apart from being paid less than other jobs in oil and gas, every single blue-collar job in the green energy sector required an undergraduate degree (except for “Wind Turbine Service Technician,” which only required work experience or specialized certifications). From a purely financial point of view, it’s a significant investment with a lower return. Oil and gas lend greater support to unskilled, blue-collar workers. What is this higher pay in oil and gas attributed to? Is the oil and gas industry simply more lucrative? Conventional wisdom may lend itself to this idea, but there is also another component in the equation.

Industry reports from the Bureau of Labor Statistics (BLS) seem to point to a high risk premium that is implicitly included in the pay for oil and gas workers. The Survey of Occupational Injuries and Illnesses by BLS shows that workers in the oil, gas and mining industry have a probability of nonfatal injuries that can be as high as 36 percent, particularly in smaller companies. This statistic, translates into a higher than average probability of injury, disability, chronic illness and death for workers within the sector. Employees in the oil and gas industry also report lower levels of job satisfaction. From a quantitative perspective, the decision to be for or against nonrenewable energy is clear. From a qualitative perspective, we should at least give this question pause.

Mar 09, 2015 | 3 comments | by Santiago Bello

Alaskan Oil Put on Ice With New Proposal

Last week, the Interior Department’s Bureau of Ocean Energy Management issued a five-year strategy that would open offshore drilling from Virginia to Georgia, but put previously deferred areas off the Alaskan coast off-limits, reports Politico.

While possibly good news for the Atlantic coast ― as well as the oil and gas industry ― the Alaskan delegation is far from pleased. Just last week, the Obama administration announced its intention to close of 12.28 million acres of Alaskan land from oil and gas exploration in the name of wildlife preservation.

“This administration is determined to shut down oil and gas production in Alaska’s federal areas ― and this offshore plan is yet another example of their short-sighted thinking,” said Senator Lisa Murkowski, the chairman of the Senate Energy and Natural Resources Committee in a statement. “The president’s indefinite withdrawal of broad areas of the Beaufort and Chukchi seas is the same unilateral approach this administration is taking in placing restrictions on the vast energy resources in ANWR and the NPR-A.”

While the Interior’s proposed plan does included three proposed lease sales in Alaska’s federal waters, Murkowski says it’s not enough. “The proposed lease sales we’re talking about right now aren’t scheduled until after President Obama is out of office,” Murkowski said. “Forgive me for remaining skeptical about this administration’s commitment to our energy security.”

Obama’s recent give-and-take oil and gas policy is particularly confusing in the wake of his State of the Union address, where he lauded the U.S.’s growth in production and drop in oil prices over the past year.

Feb 04, 2015 | Leave a Comment | by Megan Simons

Toxic Assets, Financial Sector Projections and… Bubbles?

As many economically-informed Americans know, the Great Recession of 2007 was instigated largely by belligerent lending by some of the largest banks in the United States — specifically a crisis started by aspiring homeowners and banks, who both overestimated the future value of the home, and investors who largely misunderstood the financial instruments called derivatives, whose market value originated from those same home loans.

Today, we see a similar ― albeit more contained ― trend of toxic assets permeating the banking sector… instead however, this trend is originating from the energy market:

From a simple aesthetic perspective, it appears that the financial sector is closely following the gains and losses in growth held by the energy sector ― however this is an observation that can also be statistically and scientifically reaffirmed.

The regression below simply shows a close-knit positive correlation between standardized changes in the two indices. The two sectors expand and contract in close unison, surprisingly with very few instances of outliers.

This financially symbiotic relationship is indicative of a heavy amount of investment by the banking and financial services industry, in the energy industry. Indeed, Seeking Alpha, an online finance and investment research platform proclaims that the Fed’s “relentless interest rate repression,” is credited as the main reason investors turned their back to safer investments in lieu of junk bonds within the energy industry. These specific bonds have been previously been regarded as a source of more stable and higher yielding returns, especially in in the post-recession years. Now however, Main Street investors are playing hot-potato with them, in a manner is oddly similar to the treatment of Mortgage-Backed Securities in 2007-08. Investors are preferring instead to sell them to the smaller influx of Wall Street players such as Goldman Sachs, who tout the precipitously falling value of these bonds as all the more reason to expect higher future returns. But will there be a resurgence in the value of these bonds? At least to their normal level of profitability? Perhaps, but as the Fed begins to hike interest rates, and OPEC continues suppressing prices, it is unlikely that they will ever be viewed to be as attractive as they once were.

Lastly, it is important to highlight a recent departure from the norm in the financial sector that has been in development since the 3rd quarter of 2014:

Though the two industries still mirror changes within each other, the financial Sector has become increasingly better-off relative to the energy sector. Why? Reasons could include finally hedging investments against volatility in the oil sector, and the renewables sector which has only become less competitive since OPEC’s November announcements… Many of these financial intermediaries however, have not abstained from investments in energy firms and already have outstanding loans that their debtors in the oil business are becoming more and more prone to defaulting on. It is likely that we are simply seeing a lag in the financial sector.

In the same manner that the accumulation of ripples from defaulting on mortgages began the economic tsunami of 2007, the oil industry has the potential to seriously hurt investors abroad and the American financial sector. Sustained or dropping oil prices will only magnify the rate at which public and private assets become the seeds of contagion.

Jan 28, 2015 | Leave a Comment | by Santiago Bello

Obama Starts Tug-Of-War over 12 Million Acres

The Obama administration’s proposal to expand federally protected lands in Alaska has sparked huge controversy with the state’s entire government.

Alaska’s Arctic National Wildlife Refuge (ANWR) currently protects about seven million acres from oil and gas exploration. Obama’s new proposal would close off another 12.28 million acres. Closing off this land “is a stunning attack on our sovereignty and our ability to develop a strong economy,” said Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski, a Republican from Alaska:

It’s clear this administration does not care about us, and sees us as nothing but a territory. The promises made to us at statehood, and since then, mean absolutely nothing to them. I cannot understand why this administration is willing to negotiate with Iran, but not Alaska. But we will not be run over like this. We will fight back with every resource at our disposal.

Alaska’s Governor Bill Walker also expressed displeasure with the proposal, and is considering increasing oil development on state-owned lands in response to the proposal:

Having just given to Alaskans the State of the State and State of the Budget addresses, it’s clear that our fiscal challenges in both the short and long term would benefit significantly from increased oil production. This action by the federal government is a major setback toward reaching that goal. Therefore, I will consider accelerating the options available to us to increase oil exploration and production on state-owned lands.

The Obama administration says that Murkowski’s reaction to the announcement was “unwarranted.” However, this is not the first time Alaska and the Obama administration have butted heads. In 2013, Secretary of the Interior Sally Jewell rejected the construction of a gravel emergency road across Izembek National Wildlife Refuge, to the ire of Alaska lawmakers.

While the proposal requires congressional approval, the Interior can still create extra protections on the region. This proposal is already being heralded as one more example of the Obama administration’s federal overreach, and could continue to incite major discontent from Alaskan legislators.

Jan 28, 2015 | Leave a Comment | by Megan Simons

Volatility Myth of Energy

Brookings Institution’s article claiming that falling oil prices will not hurt renewable “clean” energy wrongfully tries to make a comparison. Oil prices do fluctuate a good amount, and are part of a really good openly traded market. Renewable energy sources such as solar and wind, are not openly traded in a market and are heavily subsidized. This makes these two renewable energy sources over-priced and not yet ready for consumers. All energy sources are benefiting from improved technologies and domestic reserves and production forecasting are both increasing each year, doubling by 2021.

Increased oil production domestically and around the globe means lower oil prices and are good for the American consumer. It is still too early for renewable “clean” energy to be a viable option for Americans. Once energy sources like solar and wind are no longer supported by government and openly traded, then we will be able to compare them to other energy sources.

Jan 26, 2015 | 1 comment | by Lloyd Bentsen

SOTU NCPA: The Invisible Hand and Unabated Oil Production

In OPEC’s 2014 World Oil Outlook (WOO), the energy giant projects sustained oil prices of over $100 per barrel for 2015 with slight drops in future oil prices as low as $95 per barrel…

Recent events have proven their short-run projections to be dead wrong.

In his State of The Union (SOTU) Address, President Obama came well-stocked (though certainly not well-received in the new Republican House and Senate) with good economic news which he readily used as ammunition to suppress critics. However, some of these developments, such as descending oil prices, are difficult to assign responsibility to.

What can easily be correlated is oil prices and popularity.

Throughout the night, the President acted triumphant and suave — touting what CNN claims to be above a 50% approval rating — it was as if President Obama came into Congress surfing on America’s wave of cheap oil. However, a sobering realization is that this same wave is what crashed down on President Jimmy Carter’s political career in 1979, as oil prices rose by approximately $60 a barrel, Carter’s approval rating subsequently sank to new depths below 30%.

Though the President is a fundamental player with substantial power in the private arena as well as the public, history has made it clear that the global forces determining supply and demand still reign supreme.

With respect to the agents of supply and demand: Citi’s New York-based investment bank is sounding the alarm that these oil prices may be here to stay, and in an increasing scramble to create economies of scale, there are increasing murmurs of mergers in the American oil and gas industry. Citi’s claims champion innovations such as hydraulic fracturing and horizontal drilling as being the reasons we can expect full oil and gas independence by 2020, if not sooner.

However, these claims are not without skepticism, after the beginning of the U.S. oil and fracking boom, the U.S. Energy Information Administration (EIA) published a more conservative timeline of U.S. oil import balances. Without omission of data and with proper considerations below, the NCPA has juxtaposed the two forecasts for your own judgment:

Important Disclaimers:

Citigroup’s oil balances study “Energy 2020: Out of America,” was conducted more recently than the EIA’s study, “AEO2014 Early Release Overview.” It is possible that newly available data on the oil and fracking boom made their study more accurate
Citigroup undoubtedly holds financial claims with its affiliates in the crude oil and natural gas sectors, affiliates who may be looking to repeal the 1975 Energy Policy and Conservation Act, an antiquated government policy barring the export of oil from the U.S. If so, Citigroup has both political and financial motives to overstate growth in domestic oil and gas production
Likewise, the U.S. Energy Information Administration (EIA) may have strong political pressures to underestimate future domestic production

What is certain however, is that the collateral effects of a sustained increase in American supply would redefine the global environment for businesses and governments:

Business Insider notes, these low prices make way for the perfect time in which price-distorting subsidies worth billions of dollars could be erased without a major blow to the U.S. economy
Goldman Sachs and Slate.com assert that a decrease in overall drilling activity, while an increase in its efficiency has already amounted to a $75 billion tax-cut for Americans, a growing figure which they believe will become more valuable in the hands of middle-class Americans rather than in oil companies where much of the revenue may be redirected into the pockets of foreign investors. Similarly, during the SOTU Address, President Obama stated “the typical family this year should save $750 at the pump,” which amounts to a little over $80 billion in savings
Reuters proclaimed that new permits issued for oil drilling fell by 40% in 2014, a reflection of oil prices… this is a statistic that also represents the trend of unprofitable prospects in exploration, one which may slow the discovery of large oil reserves and distort “peak oil” claims
During the SOTU Address, President Obama touched upon perhaps the most important point, “we are as free from the grip of foreign oil as we’ve been in almost 30 years.” Indeed, and if Ted Cruz successfully repeals the Energy Policy and Conservation Act, the geopolitical leverage of groups such as OPEC and countries such as Russia would begin to erode in a way we have yet to see, and perhaps permanently

Jan 21, 2015 | 2 comments | by Santiago Bello

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