Monday Morning Links

Here are some links to the most interesting energy-related news stories from the past few days.

Here are two pieces that have interesting implications for the future of energy:

Saudi Arabia: an oil importer by 2030?

State of play: New IEA statistics publications highlight latest global and OECD trends across major energy sources.

These two are both short articles following up on the dealings of two of the firms responsible for the disastrous Gulf of Mexico oil spill:

Transocean in $1bn rig sale

PXP to buy U.S. Gulf assets from B.P. for $5.5billion

Here is another one to keep you eyes on:

Shell begins drilling in Alaska’s Chukchi Sea

And finally an editorial from the Washington Post that addresses energy’s non-existent role in the 2012 US presidential election:

 A presidential race low on energy

 

A Brewing Storm

While the Republican National Committee might be breathing a sigh of relief regarding Tropical Storm Isaac’s apparent track well west of Tampa, the rest of us might have a gasoline price spike to worry about.  The soon-to-be hurricane is currently projected to slam into the Gulf Coast in a few days’ time (See the NOAA’s website for the most up-to-date details).  Where exactly the storm hits will tell us how bad the price spike will be.  If the storm takes a more eastern track, then the impact on oil prices will be limited.  It will probably shut down some production on offshore platforms in the Gulf of Mexico, but most likely only for a few days (See: Gulf of Mexico oil, gas operations affected by storm).  If the storm heads on a more western route, it has the potential to disrupt some of the all-important Gulf Coast refineries in Texas and Louisiana.  If this happens, the effect on prices could be more significant and longer-lasting.  While Isaac does not look like it will become anything close to the size and strength of Hurricane Katrina, it could still disrupt refinery operations and thereby the supply chain for several days.  Regardless of what happens, oil traders will probably push up prices in order to prepare for a worst case scenario.  So keep and eye on the storm and fill up today or tomorrow if you can!

Energy and Elections

Mitt Romney made a much-publicized and seemingly audacious pledge during the unveiling of his energy policy today.  According to the strategy, a Romney Administration would unleash domestic production of oil and gas and achieve “energy independence” for North America by 2020 (See: Mitt Romney says plan will achieve North American energy independence by 2020).  On the surface this seems like a bold statement, but if one takes into consideration the current projections for both oil and natural gas production in the United States, Canada and Mexico, our current energy policy will achieve nearly the same result (See: The Energy Information Administration’s Annual Energy Outlook 2012).

Thus, Romney’s plan would really just speed up, ever so slightly, an increase in production that is already under way.  Even more, our current energy policy will come even closer to so-called “energy independence” if fuel efficiency standards for vehicles are raised again, a policy that Romney opposes.

This is not to say that Romney’s plan is a bad one.  In fact, there is much to be said about the benefits of increasing domestic production (many of them are covered in the extended white paper released by the Romney campaign).  But when all is said and done, today’s announcement was really a lot of sound and fury signifying nothing.  This continues the unfortunate trend of the two campaigns resorting to flashy soundbites and repackaged old short-term ideas when it comes to the debate over the United States’ energy future.  With an issue of such pressing importance both economically and environmentally, we should all demand a higher level of debate and more discussion of real, long-term solutions that will put us on a stronger, sustainable energy footing.

A continuing debate

Yesterday I happened to catch a debate put on by Intelligence Squared and broadcast on NPR.  The resolution up for debate was “No Fracking Way: the natural gas boom is doing more harm than good.”  The debate, which explored the economic benefits versus the environmental dangers of hydraulic fracturing raised some important issues but fell prey to the same simplistic arguments that have hindered serious conversation about this issue.  I grant the debaters some slack since it was not exactly a good forum for measured argument backed by citations and statistics but I felt that both sides did not do their arguments service.  Even so, it is worth a listen or a look if you’d like to get the basic arguments for and against fracking.

Back in the Saddle

Thank you all for your patience during Energy Academic’s short hiatus.  I have been traveling these last few weeks giving talks in London and Edinburgh about my dissertation topic and have finally gotten back on my feet here in the States.  Before I totally jump back into full posting I thought I would link this interesting little article that showed up today.  According to the Energy Information Administration natural gas-powered electric generation equaled that which was produced by coal-fueled power stations for the first time ever.  Check out a short article on the subject here: (See: Coal no longer king of the power industry).  This is yet more proof of how natural gas is going to reshape the country’s energy future.

 

All eyes on OPEC

Have you been enjoying the recent weeks of decreased gasoline prices?  The continued uncertainty regarding the world’s economic recovery coupled with increased production has propagated the trend of decreasing crude oil prices, which has translated into many happy (or at least less grumpy) drivers.  How long will this trend last?  Well, that depends on who you ask.  Some analysts believe that the trend for lower prices will continue, at least for a short while, as production will continue to outstrip demand while the world economy sputters along (See: Future Direction of Oil Prices May See Major Shift).

Others, however, point to recent rumblings from members of the Organization of Petroleum Exporting Countries (OPEC) that prices have already dropped too low.  OPEC holds its annual meeting tomorrow.  Rumors abound as to whether the group will expand, cut, or leave production at its current level  (See: Oil hovers above $83 as traders eye OPEC meeting).  What it decides will have much to say about where oil prices go in the near future.  It appears that OPEC will leave production levels where they are – despite complaints from Libya and Iraq that prices have fallen too low, and suggestions from Saudi Arabia that prices need to go even lower to held kick-start the global economy.  This does not necessarily mean that prices will stay consistent, however.  As I mentioned earlier, production levels right now exceed demand and according to Adam Smith, that means prices will continue to descend.

OPEC certainly does not wield the clout that it did in the past few decades but it still has the ability to affect the market substantially.  We should all watch the meeting tomorrow carefully if we want to know what our gas budget will be for the summer driving season.

Can We Survive the New Golden Age of Oil?

Here is a link to a great piece by Steve Levine.  The economic and social threat of climate change should not be disregarded when we talk about the economic benefits of the new oil and gas boom.   But with climate change a long-term problem, and our economic turmoil an immediate one, it is more than likely that our political leaders with rush into the warm embrace of the good economic headlines that the “New Golden Age” will bring

Can We Survive the New Golden Age of Oil?

Making fracking socially acceptable

The production of shale gas through the technique of hydraulic fracturing, or fracking, is revolutionizing the energy industry in the United States.  It is a subject that we have talked about several times but it is one of such profound potential that it could literally change the country’s economic future.  A continued and expanded boom in cheap natural gas could do wonders in restoring America’s competition in terms of manufacturing by lowering energy costs.  Increased use of liquified or compressed natural gas in transport and long-haul freight would decrease the cost of shipping and would make it cleaner.  Excess production could be liquified and exported to both Asia and Europe decreasing the United States’ trade deficit.  Some optimistic prognosticators predict that the shale gas revolution could add anywhere between .5 and 1% to America’s annual GDP (See: Analysis: Shale energy boom dangles prospect of leap in economic growth; and Why American Natural Gas Will Change the World).

The problem, however, is that fracking has gotten a lot of bad press and a significant body of opinion has formed against the practice around the world.  This is due to several major concerns about the technique: groundwater contamination, methane leakage and increased seismic activity.  The companies drilling for gas have argued that many of the spectacular examples of groundwater contamination and methane leakage are the result of shoddy work done on sealing the wells.  This is a result of inexperience on the part of some of the drillers or carelessness that will diminish as the industry matures.  Others, however, fear that the long-term effects of fracking are unknown and that the possible consequences are too great to proceed without more information.

The tide of opinion has already swung against fracking in Europe – a phenomenon discussed last week on this site – and the American public is being fed a steady stream of stories in major newspapers calling the technique into question.  Because of this, the International Energy Agency (IEA) released a comprehensive report this week which it called “Golden Rules for the Golden Age of Gas” (See the report here).  The report states that “The technologies and know-how exist for unconventional gas to be produced in a way that satisfactorily meets these challenges, but a continuous drive from governments and industry to improve performance is required if public confidence is to be maintained or earned.”  The “Golden Rules” proposed by the IEA to earn this public confidence include: “Measure, disclose and engage,” “watch where you drill,” “isolate wells and prevent leaks,” “treat water responsibly,” “eliminate venting, minimize flaring and other emissions,” “be ready to think big,” and “ensure a consistently high level of environmental performance.”

These suggestions each carry with them a host of more specific proposals which the IEA believe would add roughly 7% to the cost of fracking.  But the argument of the IEA economists is that by taking these precautions, the industry will avoid the banning or closing off of areas to fracking, as well as limiting the amount of costly regulation required to keep the process safe.  In fact, the report suggests that if these rules are adhered to, growth in unconventional gas could triple and reach 1.6 trillion cubic meters a year by 2035 and along the way make the United States one of the largest gas producers in the world.  Failure to follow these “Golden Rules” could result in more areas closing themselves off to unconventional approaches meaning significantly less growth.

These “Golden Rules” will not satisfy all of fracking’s critics, and rightfully so.  There is still much about fracking’s long-term impact that is unknown.  But by acting in a more socially and environmentally responsible manner, the gas industry will pay a short-term penalty for a potentially enormous long-term gain.

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