Tag: "oil"

The Changing Price of Oil Relative to Gold

It is true that a shift in supply or demand will change prices in any market; however, not all market-price movements are necessarily due to a change in market supply or demand — especially in the case of prices for commodities as highly political as crude oil. Longer term trends in the price of oil also reflect cumulative changes in the purchasing power of the dollar. Looking at oil prices relative to gold prices instead of U.S. dollars takes account of the long-term decline in the value of the dollar and allows us to recognize more clearly the effect of supply, demand and public-policy factors that influence the price of petroleum.

The long historical tendency for the price of crude oil to parallel the price of gold and other precious metals is well known. As a whole, the trend is toward an average annual increase in the oil-gold price ratio through 2014 of 1.1 percent. The long-term increase is attributable to:

  • The slowly increasing scarcity of crude oil.
  • The fact that the cost of exploiting crude oil reserves has risen faster than the cost of exploiting gold reserves.
  • The growth of market forces that also govern the relative flow of capital into the oil and goldmining industries.

If it takes two years to half-close the gap in current oil prices compared to the equilibrium price suggested by the table, it would be reasonable to expect the price of crude to rise at an annual rate of about eight dollars a barrel over the next 12 months.

Source: R. David Ranson, “The Changing Price of Oil Relative to Gold,” National Center for Policy Analysis, July 27, 2015.

Aug 05, 2015 | Leave a Comment | by

A Bland but Workable Energy Plan

House Energy and Commerce Committee Chairman Fred Upton and Senate Energy and Natural Resources Committee Chairwoman Lisa Murkowski have been working jointly on a passable energy bill. The Congressmen have also been coordinating with Energy Secretary Ernest Moniz to ensure the bill will not get vetoed at the President’s desk.

On infrastructure, the Energy Policy Modernization Act (the Senate version) aims to modernize the electricity grid and add cybersecurity safeguards. There are also provisions to streamline the process for natural gas export projects and maintain the Strategic Petroleum Reserve. The bill provides for the “responsible development of American resources”, to include hydropower, geothermal and bioenergy, as well as traditional resources. Surprisingly, the act creates a new National Park Maintenance and Revitalization Fund to fix the maintenance backlog of the nation’s public parks (the park delayed an estimated $11.5 billion worth of maintenance last year alone).

The drafters of the bill chose to avoid big button issues such as the Keystone XL pipeline, allowing the exportation of crude oil and climate change.

The inclusion of maintaining the Strategic Petroleum Reserve is in direct contrast to the transportation bill being presented by the Senate, which offers to sell part of the reserve to fund the Highway Trust Fund.

This week, 11 environmental groups, including the Sierra Club, the League of Conservation Voters and the Natural Resources Defense Council, have come out against the bill stating that several provisions in the bill could cause detrimental effects to public health and the environment. The groups seemed specifically opposed to expediting liquefied natural gas exports and mineral mining permits because they felt “a stronger vision for accelerating the development and deployment of clean energy” was needed. The House bill received less opposition from these groups since it did not include measures on hydropower and liquefied natural gas exportation.

Jul 29, 2015 | Leave a Comment | by

Senate Energy Policy Leaves Out Oil and Highway Funding

The focus of the Energy Policy Modernization Act of 2015 includes energy efficiency and conservation, protecting the electric grid and speeding up the application process for liquid natural gas refineries. The bill includes:

  • The secretary of the Energy Department to issue a final decision on applications to export liquefied natural gas within 45 days after projects have won approval from the Federal Energy Regulatory Commission.
  • The Strategic Petroleum Reserve, a stockpile of nearly 700 million barrels of oil, should be used only in emergencies — while there are legislative efforts to sell off some of that oil to help pay for surface transportation funding.

The most recent senate energy bill failed to address some of the most important energy issues currently facing the nation. The bill avoided such issues as:

  • The ban on exporting crude oil.
  • Keystone XL pipeline.
  • Federal gas tax reform.
  • The failure to fund our highway system.
  • Renewable Fuel Standard reform.

U.S. energy policy that includes natural gas, but leaves out oil, is not real energy policy. Protecting the electric grid and leaving out critical funding for the highway system, addresses half of our most pressing infrastructure needs.

Jul 27, 2015 | Leave a Comment | by

The Arctic — Our Last Energy Frontier

As the Arctic Ocean ice thaws, countries prepare to tap into the vast energy resources currently trapped beneath the Arctic Ocean. The U.S. Geological Survey (USGS) estimates that the Arctic could hold as much as 12 percent of the world’s undiscovered oil and 30 percent of its undiscovered gas, not including unconventional oil and gas deposits. Of that, the portion of the Arctic belonging to the United States could hold 33 percent of total oil and 18 percent of total natural gas in the Arctic.

The United States, though, is limited in its reach into the Arctic since it has not signed onto the United Nations Convention on the Law of the Seas (UNCLOS) treaty. Without that ratification, the United States, unlike the other four Arctic nations of Russia, Canada, Norway and Denmark, is constrained to an Exclusive Economic Zone (EEZ) of 200 nautical miles off their coasts. The other four Arctic nations, however, have asked to secure international legal titles to sites up to 350 miles off their coasts. Russia and Canada have even submitted claims that reach the North Pole.

Drilling in the Arctic could also be further complicated by harsh storms, drifting sea ice, poor infrastructure and a lack of available crisis response centers. On the other hand, Arctic drilling would take place at shallower depths than drilling in the Gulf of Mexico. In a positive push for Arctic drilling, President Obama signed Executive Order 13580 in 2011 to establish a coordinate efforts among federal agencies to develop energy in the Arctic. The order was intended to expedite future permit issuance and improve information sharing.

Shell Gulf of Mexico has made moves to be at the forefront of oil exploration in the U.S. Arctic region, specifically in the Chukchi Sea and the Beaufort Sea. The company also produced an extensive Oil Spill Response Plan to assure the government of their preparedness in case of an oil spill in the region. Fears regarding oil spill response in the Arctic continue as the Coast Guard admits to having no offshore response capability in Northern and Western Alaska. Due to harsh regional realities, Shell has currently only been granted legal permission for drilling between July and October.

While Arctic drilling may still seem like a dangerous opportunity, future technological innovations and improved Arctic preparedness and infrastructure will make such drilling a reality in the near future. The massive quantities of energy stored in the U.S. Arctic will stay there until we decide to take advantage of this opportunity.

Jul 15, 2015 | 3 comments | by

Mexico Opens to Big Energy

For the past 55 years, Mexico has prohibited private companies from owning any of its oil and natural gas production. The national oil and gas company PEMEX, once a major international energy player, has been reduced to an irrelevant player due to the government’s ever increasing and frequent siphoning of funds from PEMEX. The demise of PEMEX and the rise of the reform minded President Enrique Pena Nieto opens the door to changes to the Mexican constitution now allowing big energy companies to purchase oil and natural gas land.

Mexico’s break-even costs are low:

  • Deep water production is $50/bbl or lower.
  • Energy output from Mexico’s deep water could be transported to the U.S. by existing infrastructure.
  • Mexico is far more stable than the Middle East.

Mexico is currently 10th in oil production and opening the country up to big energy will greatly benefit Mexico and the world energy market.

Jul 13, 2015 | Leave a Comment | by

Strictest Frac Regulations Implemented in California

The first restrictions on hydraulic fracturing are about to be implemented in California. This follows the passage of Senate Bill 4, authored by Fran Pavley (D- Agoura Hills). Approved in 2013, the regulations will force oil companies to expand monitoring and reporting of water use and water quality, conduct rigorous analysis of potential seismic impacts of operations and disclose chemicals used in all operations. Abiding by these new laws will discourage future investments by oil and gas companies in the state.

Recently, the Division of Oil, Gas, and Geothermal Resources (DOGGR) ― California’s agency charged with enforcing such laws — has been coming under attack by lawmakers over its inadequate oversight over oil and gas operations. In the past, DOGGR has admitted to falling behind on monitoring oil field wastewater injections into federally protected aquifers, as well as missing deadlines imposed by legislators for providing data. Many doubt the agency’s ability to correctly implement and abide by these new regulations.

More importantly, the California Monterrey Shale formation could potentially hold the largest “tight oil” shale deposits in the United States. While oil and gas activity in the region could have boosted the California economy, new regulations will hurt potential economic growth in the state. Currently, it has been estimated that oil and gas contribute about $21.55 billion to the public coffers every year. Without such revenue, California will have to make some tough financial decisions and fire many state employees.

 

Jul 08, 2015 | Leave a Comment | by

Oklahoma Fracking Companies Could Face Earthquake Lawsuits

Last week, the Oklahoma Supreme Court ruled that earthquake injury lawsuits against oil and gas companies could now be heard in district courts. Previously, the oil industry had been trying to avoid such court cases and asked for them to be heard only through the Oklahoma Corporation Commission.

The State’s highest court rejected the request, stating:

The Commission, although possessing many of the powers of a court of record, is without the authority to entertain a suit for damages.

The court was in no way ruling that earthquakes are caused by companies using hydraulic fracturing technology to extract oil and natural gas.

Instead, the opinion spoke only of which court was best suited to hear such claims in Oklahoma. This opinion upheld the longstanding tradition of allowing district courts exclusive jurisdiction over private tort actions.

A recent flurry of earthquakes in Oklahoma have placed the state at the center of the fracking debate. A recent study by the University of Oklahoma, Columbia University, and the U.S. Geological Survey reported potential links between wastewater injection, a practice often used for the disposal of water waste in fracking, and earthquakes. The study has been heavily disputed and many conclude the earthquakes are simply a manifestation of natural causes.

 

Jul 06, 2015 | 1 comment | by

Private-Public Partnerships Move to Improve Texas Energy and Environment

Apart from obvious biological costs of the Deepwater Horizon oil spill in 2010, there were heavy indirect costs associated with the spill which most economists will likely never be able to calculate accurately. These intangible costs include the heavy blow dealt on the Gulf’s tourism sector that year.

The mere cleanup costs of similar spills have been monumental:

Cleanup of Oil Spills

Note: These figures are projections based on the estimated average cost of cleaning up a single barrel of oil in today’s dollars. They do NOT include the cost to other industries, countries, outstanding damages to private property or the value of lost oil. In the case of Mexico in its 1979 Ixtoc I spill, these three external estimated costs totaled an astonishing $872 million. 

Unsurprisingly, British Petroleum estimates that over 30 percent of medium-term oil production will be offshore oil, hence risk management strategies are not only a foremost ethical parameter but a rational metric for increasing a company’s profitability. Bearing this end in mind, the University of Houston and Texas A&M at Corpus Christi are forming the Subsea Systems Institute and Texas OneGulf, and will enjoy close collaboration with NASA, Rice University, ExxonMobil, Halliburton and Sclumberger among others. The two research organizations — aided by the private sector — will pioneer deep-sea drilling technologies designed to protect the environment and private enterprises through safer and more cost-effective deep-sea drilling practices.

Our vision is to create an institute that is recognized around the world as the undisputed leader in transformative deepwater technology… We will create, test, and provide the technologies that industry will need in the next five to 10 years.

– Ramanan Krishnomoorti, Chief Energy Officer and Interim Vice President for Research and Technology Transfer at the University of Houston

 

Jul 01, 2015 | 5 comments | by

U.S. Now Top Oil Producer

The United States has officially surpassed both Saudi Arabia in terms of crude oil production. In 2014, the U.S. had already exceeded both Russia and Saudi Arabia in hydrocarbon, oil and natural gas, production. The U.S. Energy Information Administration (EIA) recently predicted that such high production is likely to continue into the future, with an expected 9.4 million barrels a day this year and 9.3 million barrels a day for 2016.

Adam Sieminski, U.S. EIA administrator, said:

Despite the large decline in crude oil prices since June 2004, this May’s estimated oil output in the United States is the highest for any month since 1972.

U.S. producers have managed to maintain production levels by becoming more efficient and generating new cost savings. Lower prices have led to many labor cuts, with a loss of nearly 100,000 energy-related jobs. Some companies have cut up to 40 percent of their service and supply crews. By April 2015, only 750 rigs were still in operation compared to 1,596 in October 2014.

Industry insiders were not surprised by the EIA report and had previously expected production to keep steady while the growth rate slowed. With prices hovering around $60 a barrel, shale oil exploration is still profitable and will continue be an important source of production.

The Organization of Petroleum Exporting Countries’ (OPEC) plan to cut prices and hurt high-cost U.S. shale producers, however, remains unchanged. On June 7, OPEC announced it would keep production levels unchanged despite pressure from countries within the organization to lower production and increase price.

Fawad Razaqzada, a technical analyst at the trading website FOREX.com, commented on OPEC’s influence saying:

The cartel is losing some influence to the U.S. shale oil market and to a lesser degree Russia, but it still remains a dominant force ― just not as powerful as before.

 

Jun 15, 2015 | Leave a Comment | by

Oklahoma Follows Texas to Prohibit Hydraulic Fracturing Bans

On Friday, May 30, 2015, Oklahoma became the second state to officially ban local bans on hydraulic fracturing. The bill prohibits bans on hydraulic fracturing, as well as other oil and gas drilling operations. The three-person Oklahoma Corporation Commission will now continue to act as the main regulator of oil and gas operations in the state.

Governor Mary Fallin said:

Corporate Commissioners are elected by the people of Oklahoma to regulate the oil and gas industry. They are best equipped to make decisions about drilling and its effect on seismic activity, the environment and other sensitive issues.

The bill was written in response to proposals to increase oil and gas drilling regulations in major cities and as an increasing number of Oklahomans become disgruntled with the mounting number of earthquakes. Sponsored by leaders in the Oklahoma House and Senate, the bill passed the House by a vote of 64-32 and the Senate by 33-13. Amendments to the original bill will still allow cities and municipalities to place “reasonable” restrictions on oil and gas operations, such as setbacks, noise, traffic and fencing regulations.

The bill comes at a time of great controversy within Oklahoma as the Oklahoma Geological Survey recently said increases in earthquakes were “very unlikely to represent a naturally occurring process.” In February, the U.S. Geological Survey published a paper written by Oklahoma Seismologic Austin Holland stating that the increase in seismic activity in Oklahoma was from human-induced activities.

Kim Hatfield, chairman of the regulatory committee at the Oklahoma Independent Petroleum Association (OIPA) responded:

This is something the Oklahoma Geological Survey, Oklahoma Corporation Commissions and OIPA have been working on for well over a year. We knew this was a possibility.

Oklahoma’s oil and natural gas producers have a proven history of developing the state’s oil and natural gas resources in a safe and effective manner.

 

Jun 08, 2015 | 4 comments | by
« Previous Page — Next Page »