The oil wars are coming down to the wire:
(Image credit: Economist)
The Organisation of the Petroleum Exporting Countries (Opec) has given the clearest signal yet that it believes it is winning its oil price war with the US shale industry. The group of 12 mainly Middle Eastern producers has said that output from outside the cartel in 2016 will be over 100,000 barrels per day (bpd) lower than it had previously predicted, as lower prices shut down more production. In its closely-watched monthly market report, Opec said: “There are signs that US production has started to respond to reduced investment and activity. Indeed, all eyes are on how quickly US production falls.” The report said that the number of oil drilling rigs in the US declined in the week ending September 4, down by 13 units to 662 rigs. The overall rig count in the US – which is seen as a key barometer for the industry – is now down 864 units year-on-year. A 50pc slump in the price of oil to levels well below $50 per barrel is putting pressure on higher cost producers outside Opec – which pumps about a third of the world’s crude – in spiralling a price war. Opec has continued to pump over its target ceiling of 30 million bpd in a bid to seize back market share from the threat in sees from the rapid growth in US oil output.
More on the travails of US shale oil below the fold, plus a looming shortage of US natural gas, the forthcoming uranium boom, China burning more coal than thought, nuclear plant decommissioning problems in Germany, more threats to the UK grid, Scotland’s SMAUG anti-fracking group, Australia’s greens unhappy with Turnbull, Ireland missing its renewables target, the Paris climate talks, climate scientists demand that skeptics be prosecuted, killer viruses from melting Arctic Ice and mutant fish from Fukushima.
Financial Times: US oil and gas battles bank lenders
Energy companies in the US are struggling through the collapse in oil and gas prices, cutting costs and clinging on despite the odds. Now life is set to get a lot tougher as banks re-evaluate their lending agreements with small and midsized oil and gas producers. Negotiations over “bank borrowing bases” will be key to whether or not oil companies file for bankruptcy protection, or restructure their debts with bankers in the next three to six months. The price of oil has nosedived over the past 12 months. Traders had a brief moment of optimism halfway through this year, but now most people are expecting oil and gas prices to stay lower for longer. During the last round of determinations in March, there was still some hope that oil prices might rebound quickly, therefore supporting reserve valuations. This time around there is far less optimism, so borrowing bases are expected to be cut more heavily. The oil and gas market is unique in that the sector is in constant need of capital. Companies can cut capital expenditure to save cash. But cutting capex hurts their production and hence their cash flow, meaning they could end up in a worse position. And without capex they can’t develop new reserves that will add to their borrowing bases. As the Lex column put it recently, it’s a Catch 22.
Bloomberg: U.S. Shale Drillers Are Drowning in Debt
As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies like Samson Resources Co. run out of money and are forced to slow drilling. Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value. It’s a sign of distress that shows equity values falling in the face of oil’s crash, said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $15.6 billion. The companies facing high debt loads, which include Encana Corp. and Chesapeake Energy Corp., produced 1.1 million barrels of oil a day in the second quarter of this year, according to data compiled by Bloomberg. If more companies file for bankruptcy as Samson did Wednesday, or embrace the kinds of draconian cuts needed to survive, output could fall by 200,000 to 400,000 barrels, Thummel said.A loss of that much crude would be the steepest U.S. decline since 1989, about the amount of oil from Oklahoma, the sixth-largest producing state, which pumped 356,000 barrels a day in June, government data show.“We are going to see a major response because these financially challenged companies won’t be able to produce as much as they did in the past,” he said.
The retrenchment in drilling for U.S. oil is threatening to leave a different market short: natural gas. “The impacts of oil rig counts extend beyond oil: the outlook for U.S. natural gas is critically dependent on the outcome of this balancing act in U.S. oil rigs,” Anthony Yuen, a strategist at Citigroup Inc. in New York, said in a report to clients Wednesday. “If the oil market remains oversupplied and oil-rig counts fall, the decline in associated gas production would leave the market short of gas.” Associated gas is the gas that comes out of oil wells along with the crude. Supplies of this byproduct from fields including the Bakken formation in North Dakota and the Eagle Ford in Texas may fall by about 1 billion cubic feet a day next year as drillers idle rigs in response to the collapse in oil prices, Yuen said. That’s about 7 percent of U.S. residential gas demand. The U.S. Energy Information Administration has already forecast that shale gas production will drop in October for the fourth straight month, a record streak of declines. U.S. oil has lost half its value in the past year amid a worldwide glut of crude. Drillers have responded by sidelining almost 60 percent of the country’s oil rigs since Oct. 10. Crude producers in the lower 48 states may have to keep the number of working rigs low for a while longer to balance the global market, Yuen said. A recovery in the rig count may “exacerbate the current oversupplied environment” and weaken prices, he said.
A bill to repeal the 40-year-old ban on U.S. oil exports easily passed the energy panel in the House of Representatives on Thursday, but the measure faces an uphill battle in the Senate. The legislation, which passed 31 to 19, is expected to be passed by the full House in coming weeks. But the bill is not backed by President Barack Obama. The White House said on Wednesday that oil export decisions are made by the Commerce Department. And a similar bill in the Senate faces an uncertain future because backers need the support of several Democrats to ensure its passage. Congress passed the ban after the 1973 Arab oil embargo led to fears of petroleum shortages. But thanks to fracking, horizontal drilling and other advanced techniques, the United States now vies with Russia and Saudi Arabia for the spot of the world’s top oil producer. Democrats who voted against the bill said they were concerned about the environmental consequences of increased domestic oil drilling and the possible loss of jobs at refineries and in shipbuilding.
China may launch a global crude oil futures contract as early as October to compete with the existing London Brent and the U.S. WTI benchmarks, three sources said, as it pushes ahead with reforms to open up its oil markets. The long-awaited crude contract would better reflect China’s growing importance in setting crude prices, as well as boost the use of the yuan in which it will be traded, although volatile global trading conditions and China’s recent interference in stock markets have raised some concerns. The Shanghai International Energy Exchange, also known as INE, circulated a draft of the futures con-tract to market participants last month, saying the launch could happen as early as October, the sources who saw the draft, told Reuters. The launch of Shanghai crude futures won state approval last year and would be the first Chinese contract that allows direct participation by international investors.
MarketWatch: Why uranium prices are poised to rebound
The outlook for the uranium market might have brightened in August after Japan restarted the nuclear reactor at the Sendai power plant. Demand for uranium fell in the aftermath of the 2011 disaster at Japan’s Fukushima Daiichi reactor. Uranium investments, including shares of producers and exchange-traded funds, have been slow to recover. Now, analysts say, the first restart of a Japanese reactor since Sept. 2013 presages a revival for prices of the commodity and related investments. How much, and how quickly, those investments rebound is a matter of debate. But many now believe a corner has been turned. “The story for uranium can be summed up as inevitable, if not imminent,” said Brien Lundin, publisher of the metals and natural-resource subscription publication Gold Newsletter, who called the long-term supply and demand outlook “exceptionally bullish.”
After 13 years of rapid growth, China today burns more coal than the rest of the world combined. Over this period the country was responsible for more than 80% of global growth in coal usage since the start of the century. Now a new study shows growth in coal consumption and production in China have been even more spectacular than previously thought. According to newly released international data from the US Energy Information Administration (EIA) data from the China Statistical Abstract 2015 show an upward revision to China’s historical coal consumption and production. According to the EIA energy-content-based coal consumption from 2000 to 2013 is up to 14% higher than previously reported, while coal production is up to 7% higher. These revisions also affect China’s total primary energy consumption and production, which are also higher than previously reported—up to 11% and 7% in some years, respectively, mainly because of revisions to coal. In 2014, energy-content-based coal consumption was essentially flat, and production declined by 2.6%.
When the International Energy Agency reported in March that global carbon emissions had stayed flat in 2014, even as the world economy grew, the news was hailed as a turning point in the struggle to curb climate change. But more recent data about Chinese coal consumption, seen by Reuters, raise doubts about whether that historic decoupling of economic growth and carbon emissions from energy use actually occurred. One of the keys to keeping carbon emissions flat in 2014 was significantly lower coal consumption in China, the world’s top greenhouse gas emitter: a 2.9 per cent drop, reported in preliminary Chinese data in February. It was the first fall in coal use by China this century. But in May, China’s National Bureau of Statistics (NBS) released a China Statistical Abstract, not available online but only on paper, showing that coal consumption edged up by 0.06 percent from 2013. Just that difference between two sets of NBS data would in turn lift global emissions growth in 2014 from a flat line to about 0.5 per cent, in line with an estimate by oil company BP in a report in June. That global growth rate is still low, but would undermine the arguments of many, from environmental groups to governments, who have cited the IEA data to support the idea that cuts in carbon use need not necessarily hamper economic growth.
Guardian: Will the UK phase out coal in a decade?
The government is wrong to assume its existing policies will be enough to phase out coal power in the UK, analysts have told the Guardian. Minister for energy and climate change Andrea Leadsom said this week that her department expected unabated (meaning without carbon capture) coal would make up just 1% of the country’s electricity generation by 2025.Referring to a Department of Energy and Climate Change (Decc) report from September last year, Leadsom said the decline would occur “as a result of deployment of low carbon alternatives, the cost of generation and the investment needed to meet new pollution abatement standards”. But this prediction is not reinforced by a mandatory end date for electricity generation from coal. Despite rhetoric from the prime minister and his ministers that coal needs to go, the government has been reluctant to set a timeline for the phase-out of the most carbon intensive fossil fuel.Robert Gross, director of Imperial College’s Centre for Energy Policy and Technology, said relying on existing policies and the market for cleaner technologies left the door open for coal generation to continue beyond 2030. “There’s a considerable range of uncertainty about how much coal will be retained on the system. And if it’s at the upper end of the range of possibilities then its going to absolutely blow the carbon budget,” he said.
Germany’s largest utilities are facing their biggest challenge yet: Provisioning enough cash to dismantle the nation’s nuclear reactors and make safe equipment and fuel that may be radioactive for 100,000 years. Costs may exceed 38 billion euros ($43 billion), which the utilities estimated at the end of last year. That burden has made EON SE and RWE AG, Germany’s largest power generators, the worst performers on Germany’s benchmark DAX Index in 2015. The latest shot across the bow came from a report Monday in Der Spiegel that said utilities may be as much as 30 billion euros short of the funds needed. The report spurred the biggest intraday plunge in EON and RWE for as much as 16 years, while the government rejected the claims. The shares continued to tumble on Wednesday, with EON sliding as much as 6.4 percent and RWE dropping as much as 7.5 percent. “Politics has to organize the disposal of nuclear waste, the utilities have to pay for it,” Guido Hoymann, an analyst at B. Metzler Seel Sohn & Co. KGaA, said Wednesday by phone from Frankfurt.
Financial Times: Fast pace of power plant closures threatens UK electricity grid
A wave of power plant closures threatens to push Britain’s creaking electricity system close to breaking point within months, energy experts have warned, with new gas-fired stations not being built quickly enough to plug supply gaps. The latest moves to shut old coal-fired plants deemed uneconomic — the most recent, Eggborough, announced just two weeks ago — could trigger electricity price spikes and put UK businesses with interruptible contracts at greater risk of supply curbs. The rapid pace at which plants are being closed, ahead of a deadline for compliance with new EU rules on air quality, is such that the National Grid has had to buy in emergency back-up this year for the second winter in a row. Worse, just over a year from now, should temperatures plunge on a mid-December evening, it could even find itself without adequate power generation. Jefferies, the investment bank, calculates that for 2016-17 just 53 gigawatts of capacity will be available to meet forecast peak demand of 56 gigawatts.“This would be the first time in living memory that the UK could not cover peak demand with dispatchable generation,” says Peter Atherton, the bank’s utilities analyst.
Business Reporter: Businesses and unions warn against major cuts to solar power subsidies
Businesses, energy sector bodies and unions have joined calls for the Government not to implement major cuts to solar power subsidies. They warn moves to dramatically cut “feed in tariff” payments for generating electricity from small scale arrays of solar panels on roofs could cost more than 20,000 jobs and stall the “solar revolution” the Government claims to want. Ministers have said the cuts, which are predicted to lead to nearly a million fewer renewables installations over the next five years, are necessary to prevent rising green energy payments hitting consumer bills. But companies including Ikea and Panasonic have joined investors, industry bodies Energy UK and RenewableUK, the National Farmers’ Union, the TUC, and a raft of green and community groups to call on the Government to rethink its plans. Businesses and organisations signing up to the call to rethink the plans say they accept that subsidies for technologies “cannot go on indefinitely”. But they say Government changes should be done in consultation with interested parties to retain investor confidence and allow a smooth transition to solar being the same cost as energy from the grid.
Utility Dive: California solar energy storage valued at 25 cents/kWh
Using the Public Tool provided to help stakeholders in the state’s grid modernization docket establish a new rate and remuneration mechanism for solar, the California Energy Storage Alliance (CESA) “generated a sizable benefit stack of $0.25 per kWh in levelized value when PV solar is combined with three hours of energy storage,” it reports in its filing with the California Public Utilities Commission (CPUC). That calculation likely underestimates the actual value of solar and storage systems, CESA explained in the filing, because the tool “undervalues energy storage in a variety of ways.” The significance in such a storage valuation scheme is that it helps utilities and regulators determine how much owners of such facilities should be paid for energy and services they offer the grid. “The calculation of $0.25 as the value of solar-plus-storage means something like that could be justified as the amount customers who install solar-plus-storage should be reimbursed at,” explained Strategen Consulting Manager Edward Burgess.
Fracking for shale gas in the UK should be pursued as an alternative to the use of coal, a task force on the controversial technology has concluded, in order to provide a bridge to a low-carbon future. But shale gas should not receive public subsidy or tax breaks, and the tax revenues arising from its exploitation should be redeployed to develop renewable energy and other low-carbon innovations, according to the chairman of the task force, former Labour cabinet minister Lord Smith. The Task Force on Shale Gas, which is funded by the UK’s shale gas industry but operates independently, found that climate change targets could still be met even with an increase in the use of gas, which is less carbon-intensive than coal. When technologies known as “green completion” are used, which means stopping the leaks of methane from shale wells, the fuel is no more carbon-intensive than conventional gas, and less so than imports of liquefied natural gas from countries such as Qatar, according to the report. But the report also found that if gas is to be used for another four decades, as envisaged by the group, then much more effort must be put into carbon capture and storage technologies. These have been problematic, as repeated attempts to set up UK pilot projects over the past decade have yet to produce a result. “The government must get a move on,” said Lord Smith. “I don’t think the reason for the slowness lies in problems with the technology. It is a lack of political will.”
Guardian: UK loses top ten renewables ranking
The UK has dropped out of the top ten of a respected international league table on renewable energy for the first time since it began 12 years ago. In its quarterly report published on Wednesday, EY said the new Conservative government had sentenced the renewable energy industry to “death by a thousand cuts” and investor confidence in the sector had collapsed because of policy changes over the summer. An EY energy analyst said that “investors are scratching their heads” to understand the government’s policy changes in recent months, putting at risk the UK’s reputation as a “safe harbour” for investment. When the last rankings were published in June, the UK was sat in 8th place, but it has now dropped to 11th. Some environmentalists have described the period since the election of the Conservative government in May as the worst for environmental policy in decades.
Environmentalists have criticised a decision to appoint a former consultant to major oil and gas companies as David Cameron’s key adviser on energy and environment policy. Stephen Heidari-Robinson, a little-known consultant from oilfield services company Schlumberger, arrives in Downing Street just months before the prime minister is expected to attend the UN’s global climate change summit which begins in Paris in December. A Number 10 spokesman confirmed the appointment of Heidari-Robinson, who started in the job this week. It is understood he will serve as a lead energy and environment adviser to the prime minister, liaising with senior ministers and officials across Whitehall. He joins Cameron’s top team from Schlumberger’s London-based consulting division where he advised companies including BP, Shell and Chevron and co-authored a paper critical of the tax regime on North Sea oil and gas production.
Scotsman: SNP’s SMAUG anti-fracking group
SNP members have formed a lobby group to encourage the Scottish Government to extend its temporary moratorium on fracking – and named it after a dwarf-slaying literary dragon. Smaug (SNP Members Against Unconventional Gas) is “awakening to save us from the confused priorities that lead us to damage the very resources that we need to live … and protect the wee inhabitants of Middle Earth from the long blight of falling house prices”, according to its founders. Currently, a moratorium exists in Scotland temporarily halting fracking – fracturing onshore shale sediments to release gas – and also the extraction of coal-bed methane. A vote will be held at next month’s SNP conference calling for it to be extended to include underground coal gasification. Smaug’s founders said its name was consciously inspired by JRR Tolkein’s The Hobbit, in which a dragon is found “living in the depths of the earth and is disturbed by the predatory dwarves going digging for the treasures of its domain”. “The SNP government are focused on delivering a fairer, more prosperous and equal Scotland,” the founders said.
Scotland’s energy minister Fergus Ewing has dismissed a call on the Scottish government to continue the Renewables Obligation (RO) subsidy scheme for onshore wind, saying there is no money for that, HeraldScotland.com reported on Thursday. The Scottish government does not have the budget to fund reserved matters that the UK government is responsible for, the minister has said during a Scottish parliament debate on renewable energy. Ewing again criticised the UK government’s move to close the RO to onshore wind a year earlier than planned, calling it an assault on renewables. Labour MSPs urged the Scottish government to take over the scheme. The energy minister was asked by Ken Macintosh whether the government has considered using its power to issue its own Renewables Obligation Certificates (ROCs), paid for in Scotland rather than by the UK consumer, over the transition period, until the scheme is closed. Scotland is particularly affected by the subsidy cut as it is home to about 70% of onshore wind projects in the UK planning system.
Ireland is committed to supplying 40% of its energy for electricity from renewable sources by 2020, but NOW Ireland says that under current government policy, that will not be met. The government has identified Ireland’s substantial offshore wind resources as a major asset for export. However, NOW Ireland says that failure to achieve the 2020 targets for renewable energy generation would lead to a bar on Irish renewable energy generators exporting power under existing European Union rules. This, it says, would cost the state many hundreds of millions of euro in revenue. “Successive Governments have placed all their eggs in the basket of onshore wind. Other technologies, such as offshore wind, have been pushed towards the export route to market,” Brian Britton, NOW Ireland Secretary General said. “If the government’s narrow focus fails to deliver, Ireland will face significant fines and the offshore wind industry, which could deliver the entire renewable energy shortfall for Ireland, will be locked out of the export market as well as the home market.”
All those Australians who thought that Mr Turnbull’s return to the leadership of the Liberal party would actually mean something — that it would actually hold out the hope of a strong and sensible policy on climate change for Australia — have had their hearts broken, because this prime minister has swallowed Tony Abbott’s Direct Action policy, hook, line and sinker. Those Australians were entitled to hold out those hopes. They were entirely entitled to think that a change of leadership would mean something and would lead to some change in the Liberal party’s attitude to climate change. The old Malcolm had been so crystal clear about his belief that the Direct Action policy, in his words, was “an environmental fig leaf to cover a determination to do nothing”. The old Malcolm Turnbull was clear in his advocacy of an emissions trading scheme as the cheapest and most effective means of reducing carbon pollution. We have heard him say, so many times, particularly in that critical period of debate in 2009 and 2010, that a policy like Tony Abbott’s emissions reduction fund would be “a recipe for fiscal recklessness on a grand scale”. Well, apparently it’s all different now. Tony Abbott’s Direct Action policy is apparently now a “very, very good piece of work”.
EU ministers on Friday (18 September) agreed upon the bloc’s negotiating mandate for the upcoming COP21 talks, including a 40% cut in greenhouse gas emissions by 2030 over 1990 levels, overcoming resistance from eastern member states. EurActiv exclusively revealed on Wednesday (16 September) that the environment ministers would reach a deal, despite the objections of countries such as Poland, Hungary, and the Czech Republic. Poland’s elections next month complicated the debate, as the right-wing Law and Justice party has been campaigning on a promise to resist EU environment law and protect the coal industry. But Friday’s talks were quicker than expected, as EU officials said Poland realised it was isolated and agreed to word changes that made no substantial difference. The haggling to accommodate Poland also switched the word decarbonisation with “climate neutrality”. Polish officials said that allowed for technological solutions, such as carbon capture and storage, to do some of the work, reducing the need to change the fuel mix. “We stand ready to conclude an ambitious, vast and binding global climate deal, and we will settle for nothing less,” EU Climate Commissioner Miguel Arias Cañete told a press conference in Brussels.
With only a few months to go before France hosts the COP21 conference on climate change, the presidential palace offered a sneak preview of events from November 30th to December 11th. The Élysée’s lavish reception rooms were filled with high-ranking officials, scientists, business executives, artists, representatives of NGOs and media. The half-day session was intended “to demonstrate the mobilisation and the unity of France’s team in the last stretch”, the president’s office said. The French prime minister, Manuel Valls, opened the meeting with the usual warning that “the survival of our planet is at stake”, that the first seven months of this year were the hottest ever recorded, and that “if we continue this tendency, temperatures will increase four or five degrees by the end of the century, which would be an ecological, economic, humanitarian and security cataclysm”. In a week dominated by the migrant crisis, the statement by France’s environment minister, Ségolène Royal, that half the world’s migrants were fleeing encroaching deserts and evaporating water supplies struck a chord. “If no substantial measures are taken, we won’t be dealing with hundreds of thousands of refugees but millions over the next 20 or 30 years,” president François Hollande said.
The UN’s climate chief, Christiana Figueres, said that so far 62 countries had submitted promises of emissions cuts ahead of the Paris meeting, covering about 70% of global emissions. UK government sources told the Guardian that pledges, called Intended Nationally Determined Contributions (INDCs), were expected from India, Brazil, Indonesia and other nations before Paris. In total, all these pledges would cover 85% of global emissions, according to the source, but the cuts would fall short of those needed to restrict warming to 2C. Figueres said pledged cuts would only limit warming to 3C, while the UK source said about 2.5C, but stressed that these numbers are hard to predict precisely. “What the INDCs will do is mark a very substantial departure from business as usual,” Figueres said. But she added: “Is 3C acceptable? No.”
The science on global warming is settled, so settled that 20 climate scientists are asking President Barack Obama to prosecute people who disagree with them on the science behind man-made global warming. Scientists from several universities and research centers even asked Obama to use the Racketeer Influenced and Corrupt Organizations Act (RICO) to prosecute groups that “have knowingly deceived the American people about the risks of climate change, as a means to forestall America’s response to climate change.” RICO was a law designed to take down organized crime syndicates, but scientists now want it to be used against scientists, activists and organizations that voice their disagreement with the so-called “consensus” on global warming. The scientists repeated claims made by environmentalists that groups, especially those with ties to fossil fuels, have engaged in a misinformation campaign to confuse the public on global warming. “The actions of these organizations have been extensively documented in peer-reviewed academic research and in recent books,” the scientists wrote.
The Star: Killer viruses from melting Arctic ice
Let’s get one thing out of the way really quickly: the ancient, giant virus recently discovered in melting Arctic ice is not going to kill you. But here’s the bad news: It’s not the first ancient virus that scientists have found frozen — it’s the fourth found since 2003. And you can be sure it won’t be the last. And with climate change causing massive melts, it’s not totally alarmist to suggest that something deadly might one day emerge from a long, icy sleep. As if climate change didn’t already suck enough, right?
The enormous wolf-fish was caught off the island of Hokkaido, near eastern Russia, by fisherman and adventurer Hiroshi Hirasaka, who is renowned in Japan for catching and eating strange things. The sea beast was caught over a week ago, and has prompted questions about the impact that the 2011 Fukushima nuclear power plant disaster had on surrounding marine life. Giant catfish were discovered near the site of a nuclear disaster at Chernobyl in Russia last year. Wolf-fish typically only grow up to 112cm and weigh 15kg but the one caught by Mr Hirasaka was over two metres long. The terrifying creature has been identified as one of the largest wolf-fish ever recorded.