We complete our first Blowout Year with attention refocused on the harsh realities of the marketplace:
Saudi Arabia’s oil minister, Ali al-Naimi, has said oil producers’ cartel Opec will not cut production even if the price falls to $20 a barrel. His comments reinforce Opec’s recent policy change away from restricting output as prices fall. Speaking to the Middle East Economic Survey, Mr al-Naimi said: “As a policy for Opec – and I convinced Opec of this, even Mr al-Badri [Opec secretary general] is now convinced – it is not in the interest of Opec producers to cut their production, whatever the price is. Whether it goes down to $20, $40, $50, $60, it is irrelevant,” he said. The world might not see the oil price back at $100 a barrel again, he added.
More related stories below the fold, plus the NATO threat to Russia, growth in coal, NIMBY in Germany, the UK capacity auction, increased public support for nuclear, how global warming caused by squirrels may turn Siberia into a time bomb and US indifference to farting cows.
Globe & Mail: Secret Saudi oil game pushing OPEC members toward fiscal cliff
The problem with the Saudis’ low-price strategy is that it hurts OPEC, too. Its 12 member states are not created equal. The ones in the Gulf – Saudi Arabia, Kuwait, Qatar and the United Arab Emirates – probably have the financial muscle to endure low prices for some time, perhaps a few years. Not so the weak OPEC members – Venezuela, Nigeria, Libya and perhaps Iran. The world of $60-a-barrel oil is pushing them toward the fiscal cliff. If OPEC falls apart, it won’t be because it has lost control of a market swimming in American oil; it will be because the low-price policy is sabotaging the economy and finances of a few of its own members. OPEC is becoming a cannibal family, one that eats its own.
Wolf Street: First Oil, now US Natural Gas Plunges off the Chart
Monday morning …. NG futures plunged nearly 10% to $3.12 per million Btu, the lowest since January 10, 2013. But the crazy day had just begun. NG bounced off and jumped nearly 4%, only to give up much of it later. Tuesday morning …. NG continues to decline, now at $3.11/mmBtu. Down 30% from a month ago.
To make the equation work, drillers have shifted from shale formations that produce mostly “dry” natural gas to formations that also produce a lot of liquids, such as oil, natural gasoline, propane, butane, or ethane that were fetching a much higher price. Thus, they’d be immune to the low price of NG. They pitched this strategy to investors to attract ever more money and keep the fracking treadmill going. Much of this new money was in form of junk debt. But there is no respite for the American oil patch. The price of oil has plunged 50% since June, the price of propane is down 50% since its recent high in mid-September, and natural gasoline is down 32% since recent high in mid-November. None of the fancy charts natural gas drillers have shown to investors work at these prices.
Daily Finance: Decline in Oil Could Cost OPEC $257 Billion in 2015
If you’re a country like Saudi Arabia, Kuwait or Iraq, which rely on oil as a major revenue source, the drop in oil prices can impact your country dramatically. The U.S. Energy Information Administration just estimated that next year’s OPEC oil export revenue (excluding Iran) will drop an incredible $257 billion to $446 billion. That’s off its peak of nearly $900 billion in 2012. OPEC is really stuck between a rock and a hard place when it comes to oil prices. If it cuts production, this could raise prices temporarily, but producers in the U.S. and around the world would go back to drilling as they’ve done in the last few years, and long-term, OPEC would lose market share and power. The other option is to stay the course and try to get U.S. shale producers, Russia, and other marginal producers to give up drilling new wells, maintaining OPEC’s market share long-term. This is short-term pain for a long-term gain, but not all OPEC suppliers can withstand low oil prices for long. Venezuela, Iraq, and Ecuador rely on high oil revenues to fund their governments, and low oil prices could increase instability in those regions. All three were running fiscal deficits in 2013, so 2015 will be a terrible year if prices stay low. Fiscal deficits can increase borrowing costs and lead to inflation, among other negative side effects, some of which we’ve already seen in Venezuela.
Oil-rich Gulf states have vowed not to cut crude production, blaming speculators and producers outside the Opec group for tumbling prices. Saudi Arabia’s Oil Minister Ali al-Naimi said “the spread of misleading information and speculation” had contributed to the 40% price fall. Speaking in Abu Dhabi, he also dismissed claims of a Saudi plot to push prices down for political goals. Ministers from Kuwait and the UAE also said there were no plans to cut output. Mr Naimi denied that politics played a role in the kingdom’s oil policy. He said he was not happy about the falling oil price, but added: “Current prices do not encourage investment in any form of energy, but they stimulate global economic growth, leading ultimately to an increase in global demand and a slowdown in the growth of supplies.”
Telegraph: Russia faces oil export catastrophe
Vladimir Putin faces a catastrophic shortfall of at least $80bn (£51bn) in oil export revenue over the next year, after Opec kingpin Saudi Arabia signalled there will be no easing in the price war it has launched to recapture market share. According to US Energy Information Administration figures, oil and gas shipments accounted for 68pc of Russia’s total $527bn of gross exports in 2013, when Brent crude – comparable to Russian Urals – traded at an average of $108 per barrel. Should the current price of Brent, at around $60 per barrel, be sustained over the next 12 months, that would result in Russia’s export income from crude dropping to $95bn, from $174bn in 2013. However, these losses will be amplified by the total loss of revenue accrued from lower prices for refined petroleum products and domestic sales of crude, which totalled $122bn in 2013, according to the EIA.
Xinhua: Russia to slash oil output?
Russia may cut its oil output due to low global oil prices and the lack of investment into the country’s energy industry, Deputy Prime Minister Arkady Dvorkovich said Thursday. Given the pessimistic scenario, Russia’s oil output could shrink by 10 percent in the next two or three years, which will not produce serious effects on global oil markets, Dvorkovich told Russia’s TV channel Rossiya 24. Dvorkovich predicted that oil prices will remain at the current level or keep falling for a few more months, and afterwards will bounce to around 80 U.S. dollars per barrel. “The oil price would finally be restored by fundamental factors and the limitation of speculative instruments,” Interfax news agency quoted Dvorkovich as saying.
Daily Post: Putin names NATO as Russia’s top military threat
President Vladimir Putin has signed a new military doctrine that describes NATO’s military buildup near the Russian borders as the top military threat amid Russia-West tensions over Ukraine.The document released by the Kremlin on Friday maintains the provisions of the previous, 2010 edition of the military doctrine regarding the use of nuclear weapons. It says Russia could use nuclear weapons in retaliation to the use of nuclear or other weapons of mass destruction against it or its allies, and also in case of aggression involving conventional weapons that “threatens the very existence” of the Russian state. For the first time, the new doctrine says that Russia could use precision weapons “as part of strategic deterrent measures.” The document doesn’t spell out conditions for their use.
U.S. crude stocks surged unexpectedly last week to their highest level on record for December, as imports jumped and refineries maintained output, government data showed on Wednesday. Crude inventories rose by 7.3 million barrels in the last week, according to Energy Information Administration data, surprising analysts who had expected a decrease of 2.3 million barrels. U.S. crude imports rose last week by 1.174 million barrels per day. The surprising build added to concerns about a growing global glut of crude, since it came at a time of year when inventories normally decline due to a pick-up in winter fuel demand and efforts to reduce annual tax bills by dumping stocks.
The allure of investing in Mexico’s historic oil sector opening has been dimmed by the plummeting price of crude, putting pressure on the government to offer bigger incentives to private investors in the first major round of contracts up for grabs. “I suspect most of them will buy the bid packages, but when it comes to submitting a bid, those big companies won’t bid anything,” said George Baker, a Houston-based oil analyst and publisher of industry newsletter Mexico Energy Intelligence. “This is a great, unacknowledgeable setback for the government.”
Business Week: Canada’s oil sands are better bets than shale oil
As oil prices have crashed over the past six months, a lot of attention has focused on what this means for frackers in the U.S., as well as the national budgets of a lot of large oil producing countries, such as Russia and Venezuela. In short, it’s not good. But what about Canada? The country is the world’s fifth-largest oil producer, and only Saudi Arabia and Venezuela have more proven reserves of crude. They’re safer than the frackers,” says Carl Evans, an oil analyst at Genscape. “The sentiment up in Calgary has very much been that growth will push through this price dip, while U.S. production will start to come off highs.” Evans says the breakeven costs for bitumen oil sands projects that are already up and running can be as low as $10 to $20 a barrel. Right now, the price of Canadian oil in Alberta is about $40 a barrel.
Bloomberg: Oil Drillers Under Pressure to Scrap Rigs
Offshore oil-drilling contractors, who last year were able to charge record rates for their vessels, are now under pressure to scrap old rigs at an unprecedented pace. The recent five-year low in oil prices is threatening an industry already grappling with a flood of new vessels and weakening demand. More than 200 new rigs are scheduled to be delivered in the next six years. That’s a 25 percent jump from the number currently under contract. To cope, many rig owners will try to keep revenue up by culling older vessels to balance supply and demand.
Texas, the top oil-producing U.S. state, issued roughly half as many drilling permits in November as in October, as oil and gas producers scaled back with the steep decline in crude prices since summer. The Texas Railroad Commission, the state’s industry regulator, said on Tuesday that new permits for oil wells fell 57 percent to 376, while those for new oil and gas wells retreated 46 percent to 977. Overall, the state issued 1,508 original drilling permits for all types of wells in November, compared with 3,046 in October.
A recent report by the Electric Reliability Council of Texas said power companies in Texas are increasingly turning away from the use of coal to generate electricity in favor of more natural gas, solar and wind generators. Warren Lasher, ERCOT’s director of system planning, said coal has always been in demand in Texas for power generation. “Coal currently provides just under 40 percent of our energy usage on an annual basis,” Lasher said. “That is likely to decline. We don’t see any significant interest in new coal units in the interconnection process here at ERCOT.” Lasher said that expected decline is because of federal air pollution regulations that make it more costly.
Seattle Times: China rethinking plans to build coal-to-gas plants
Chinese officials are starting to cast doubts on the long-term future of its once highly-touted effort to build coal-to-gas plants. The country is considering a freeze on building new plants. The plants turn coal into a cleaner-burning gas, which in urban areas can replace dirtier fuels and help combat smog, and more than 45 plants have been proposed for construction. But in Inner Mongolia, one of the first plants to start operations failed to meet expectations, suffering technical problems and financial losses that soured investors. There also has been more debate within China about the environmental trade-offs that would result from a large-scale expansion of the industry. Coal-to-gas plants spew huge amounts of carbon dioxide that would significantly increase China’s greenhouse-gas emissions. They also require big volumes of water in scarce supply in western and northern regions.
The Hill: Coal use soaring – IEA
Last Monday, the day after the climate talks in Peru concluded, the International Energy Agency released its annual report on the coal market. Their findings: global coal prices are falling and coal demand is rising. Since 1973, no other form of energy has grown faster than coal. And the IEA expects that coal demand will continue growing through 2019 by more than 2 percent per year. Perhaps even more astounding is the IEA’s projection that by 2019 or so, on a BTU basis, global coal use will exceed global oil use. The head of the IEA, Maria van der Hoeven, summarized the agency’s new report by saying “Coal is here to stay for decades to come. Some people don’t like this. But it’s the truth.”
Greenpeace’s executive director was met with protests calling for “Justice for Nazca” outside a Peruvian court following a reckless stunt during which activists trampled Peru’s world-renowned Nazca Lines in an attempt to promote renewable energy. This week, prosecutor Patricia Begazo begun a preliminary investigation into Argentine activist Mauro Fernandez, coordinator of the environmental organization’s Andean Climate and Energy Campaign. Authorities have said that they will seek charges of “attacking archaeological monuments.” If convicted, Fernandez may face up to six years in prison.
New York Times: The EPA’s 5.8% nuclear solution
The agency is trying to complete a rule governing carbon emissions from power plants, and among the most complicated and contentious issues is how to treat existing nuclear power plants. Many of them are threatened with shutdowns because cheap natural gas has made their reactors uncompetitive. The agency’s proposal gave an odd mathematical formula for evaluating nuclear plants’ contribution to carbon emissions. It said that 5.8 percent of existing nuclear capacity was at risk of being shut for financial reasons, and thus for states with nuclear reactors, keeping them running would earn a credit of 5.8 percent toward that state’s carbon reduction goal. Under the proposed formula, if a state closed a 1,000-megawatt nuclear plant and replaced 5.8 percent of it, or 58 megawatts, with carbon-free electricity, it would be deemed to be “carbon neutral.” The state would reach the benchmark even if the other 942 megawatts of power generated came from a carbon-emitting source like natural gas combustion. Conversely, a state that kept all its nuclear plants open until 2030 could claim a credit for 5.8 percent toward its carbon reduction goal
Brave New Climate: An Open Letter to Environmentalists on Nuclear Energy
As conservation scientists concerned with global depletion of biodiversity and the degradation of the human life-support system this entails, we, the co-signed, support the broad conclusions drawn in the article Key role for nuclear energy in global biodiversity conservation published in Conservation Biology (Brook & Bradshaw 2014). Brook and Bradshaw argue that the full gamut of electricity-generation sources—including nuclear power—must be deployed to replace the burning of fossil fuels, if we are to have any chance of mitigating severe climate change …. we entreat the conservation and environmental community to weigh up the pros and cons of different energy sources using objective evidence and pragmatic trade-offs, rather than simply relying on idealistic perceptions of what is ‘green’. Although renewable energy sources like wind and solar will likely make increasing contributions to future energy production, these technology options face real-world problems of scalability, cost, material and land use, meaning that it is too risky to rely on them as the only alternatives to fossil fuels.
A new ComRes opinion poll has found that a majority of British adults (58%) now support the use of nuclear power to provide energy in the UK including 21% who strongly support nuclear power in the UK. The opinion poll also found that only 22% were opposed. In a further significant sign of its growing popularity, the polling also showed that nuclear (23%) has overtaken renewable energy sources such as solar (18%) and wind (15%) power as well as fracking (7%) and coal (3%) as the favourite single energy source British adults would like the UK and Europe to invest in. Three years ago similar polling for the British Science Festival showed 19% support for nuclear compared to 25% for solar and 20% for wind. The NNWE research also shows nuclear is seen as a potential solution to climate change issues, with 62% of respondents willing to accept nuclear power if it helps to tackle climate change.
New York Times: Germans Balk at Plan for Wind Power Lines
Germans have welcomed solar panels glinting on their rooftops and windmills looming over their fields, and they have even put up with a doubling of their electric bills. But enthusiasm for all things green appears to have reached a limit with a plan to string high-voltage transmission lines along the outskirts of cities like Fulda in the center of the country. Dozens of protest groups have sprung up over the past year along the 500-mile path of the project, SuedLink, one of four high-voltage direct current lines that are to carry wind-generated power from north to south. The lines are described as essential to the success of the country’s pivot away from nuclear and coal power and toward mostly renewable energy. But nearly a year into the plans, the SuedLink project has set off an outbreak of not-in-my-backyard syndrome that threatens to disrupt a linchpin of Germany’s commitment to a lower-carbon future.
A mantra is inscribed on the walls of the UK Treasury. It reads ‘No subsidy without additionality’. In layperson’s language, this strange phrase means that the only justifiable purpose of handing a business a cheque is to get it to do something it wouldn’t otherwise do. This golden rule was spectacularly flouted in the UK electricity capacity auction that was concluded last week. A billion pounds will be handed to generators in 2018 in return for doing precisely what they would have done anyway. Negligible amounts of new electricity generating capacity was drawn into the market and existing plants will not change their behaviour.
Daily Caller: Squirrels Blamed For Global Warming
Researchers presented findings to the American Geophysical Union at a fall meeting in San Francisco, Calif., that squirrels are causing vast greenhouse gas reserves in permafrost to be released, which is contributing to global warming. “We know wildlife impacts vegetation, and we know vegetation impacts thaw and soil carbon,” said Dr. Sue Natali of Woods Hole Research Center in Massachusetts, according to BBC News. Vast amounts of carbon dioxide accumulates in the Arctic permafrost and remains frozen in the soil year-round. That is, until squirrels dig it up and release more carbon dioxide into the atmosphere, driving temperature rises, according to scientists. Natali and fellow researcher Nigel Golden of the University of Wisconsin found that Arctic squirrels were digging up permafrost to make their homes. But this creates a vicious cycle where greenhouse gases are released from the soil, warm the atmosphere and cause more permafrost to melt which then releases more greenhouse gas.
Scientists say there is growing evidence that rising temperatures were catalyst for massive unexplained holes in ground. Global warming could leave parts of Siberia exposed to a wave of underground explosions like those behind the recent unexplained giant craters phenomenon. They believe warming air is melting the thick permafrost, leading to the accumulation and release of volatile ‘fire ice’ gases which then explodes to create the giant funnels. Any continued increase – as is predicted by meteorologists – could create the ideal conditions for more craters to be formed across the icy region, and other parts of Siberia. There is already speculation that Lake Baikal, the largest and oldest freshwater lake in the world, could also be sitting on a ‘time bomb’ ready to explode. The scenic stretch of water, which snakes for 400 miles through south-east Siberia, has massive reserves of the volatile ‘fire ice’ buried under ground.
Los Angeles Times: $1.1 trillion US spending bill gives free ride to belching bovines
The $1.1-trillion omnibus spending bill signed by President Obama contains many giveaways to Wall Street, casinos and the coal industry. But the ones that might do the most severe damage long-term have to do with, of all things, the digestive systems of cattle. Through their manure and, yes, their flatulence, cattle are major producers of methane, a potent greenhouse gas that the public hears much less about than carbon. Methane breaks down much more quickly than carbon — after about 50 years — but during that time, it is 20 to 30 times more potent at trapping heat and is considered the source of a quarter of all global warming.Yet the spending bill specifically barred the federal government from requiring cattle operations to report greenhouse gas emissions from manure or to obtain permits for methane produced by bovine belching and flatulence.