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peakoilbarrel.com
Dean , 12/31/2015 at 1:13 pmPetroleum Supply Monthly is out:
- US #crudeoil production down to 9.347mbpd in Oct15 from an upward revised 9.460 in Sep15
- Texas #crude production down to 3391000 b/day in Oct15 from a revised down 3417000 b/day in Sep15
TechGuy , 12/31/2015 at 2:20 pm
http://trib.com/business/energy/top-wyoming-oil-companies-write-off-billion-in-assets/article_d380f763-962e-587d-9d9a-2af39b1e166d.html
Top Wyoming oil companies write off $41 billion in assets" The write-offs, known officially as impairments, represent a recognition that many wells will have shorter productive lives than initially anticipated, analysts said. It also reflects an acknowledgement that companies may have to pay for the cost of plugging and abandoning wells sooner than they expected, they noted. "
" Chesapeake Energy, Wyoming's fourth-largest oil producer, reported impairments of $15.4 billion through the first three quarters of 2015. The Oklahoma City-based producer's woes are primarily tied to natural gas. "
" Oil patch bankruptcies have accelerated in the fourth quarter of 2015 as a supply glut keeps prices stuck below $40 a barrel. Ten firms, with more than $2 billion in debt, have closed their doors since October, according to the Federal Reserve Bank of Dallas.
Capital spending has fallen 51 percent since the third quarter, the bank said . And the global supply glut may linger into 2017, it noted, pointing to estimates that production will outpace demand by 600,000 barrels per day through 2016."
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Sep 21, 2015 | OilPrice.com
The Russian government is moving to plug a whole in its budget by raising more revenue from its oil and gas industry.According to Reuters , the Russian finance ministry will tweak the Mineral Extraction Tax on oil companies, slapping on a "rouble deduction," which could raise 1.6 trillion roubles ($24.1 billion) through 2018. In effect, oil companies pay a tax that is largely calculated based on the strength of the country's currency, leading to a decline in revenues as the rouble has lost a significant amount of its value over the past year.
Instead of using a previous formula that used an exchange rate based on when the tax was paid, the government will instead use a rate close to what the rouble traded for in late 2014. That means, instead of a projected 63.5 roubles per dollar that the government expects for 2016, the tax will instead by based on 43.8 roubles per dollar.
The effect will be much more tax paid by oil companies, since the rouble was dramatically stronger in 2014 compared to where the rouble has gone since then.
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www.michelsanti.fr
The debacle of oil prices has greatly exceeded that of the global financial crisis of 2008 and the Asian crisis of 1998. And it is much more severe. At the end of this summer of 2015, OPEC is just a shadow of its former self: simply put, it has been de facto dissolved and this cartel would be better off closing its offices in Vienna in order to save some cash… Similarly, it is easy to see that the Saudi tactic of flooding the market with petrol has backfired. Already in decline and very fragile due to the fact that the only income from exportation comes from the sale of just one product (oil), Saudi Arabia's war using ancient weapons is dwindling.
The oil markets have indeed fundamentally changed since the time when investments became lucrative only after ten years. The Saudis were of course the undisputed masters when vast sums of money had to be handed over to make extractions from oil wells that would only come good many years later. This is why they got up to their dirty tricks in November 2014 when they decided to lower prices in order to stifle American oil shale producers, whom they had been banking on wiping off the map. As for the lost revenue due to the fall in oil prices, they would inevitably gain it back after the renewed rise in prices thanks to the disappearance of US producers. However, this venture, which consisted of making prices drop in order to harm competitors before putting them back up again in order to monopolise and maximise profits, is now an invalid practice. Also, this insane gamble taken by Saudi Arabia last winter to increase its own production to 10.6 million barrels per day at the climax of the fall in prices was already lost because it reveals a deep misconception of fracking, which is by no means a classical resource extraction method, and one which doesn't require substantial investment nor elevated oil prices in order to be viable.
Far from being a traditional production model, fracking allows the operation of wells with as little as $1 million while ensuring immediate gains. What's more is that extraction techniques are improving basically every day and allow the use of up to ten sites per day, while sophisticated computer programs detect cracks over a large area. To sum it up, the explosion in the development of fracking techniques – which will lead to the reduction of costs associated with extraction by nearly 45% in 2015 alone – is revolutionising the oil industry, previously the exclusive domain and prerogative of certain States, and which once demanded massive prior investment. Extremely responsive and flexible, the operators of shale oil would remain the beneficiaries even in the case of a rise in prices: this would in turn allow for the opening of many more extraction sites…acting on their part to squeeze prices due to increased supply.
Saudi Arabia is therefore no longer the go-to producer, since it is no longer capable of influencing oil prices. Having opened the floodgates in order to massacre the fracking industry, it is realizing that its extraction rates are ridiculous and any attempt on its part to manipulate prices in order to let prices rise again will be seized upon by the frackers who will immediately open even more sites to profit from this goldmine. Basically, Saudi Arabia is going to have great trouble in about two years and will be confronted by an existential crisis in around five! The collapse of oil prices by nearly 55% in one year is effectively melting away this country's cash reserves, a country which is suffering the torment and humiliation of budgetary deficits, and which has been reduced to issuing a public loan (of more than $5 million) in order to subsidise its needs.
For how much longer will Saudi Arabia be in a position to defend its Riyal as pegged to the Dollar at 3.75? Urgently needing oil to be at $106 per barrel in order to balance its budget, it is nowhere near seeing such prices again in the presence of a fracking industry as dynamic as it is innovative and which has managed to slightly alleviate its predatory behaviour. This is a warning of a wholesale sandstorm to come for the Wahhabi kingdom.
Michel Santi is a French-Swiss economist, financier, writer, advisor to central banks and sovereign funds. For several years, he was a Professor of Finance in Geneva, Switzerland, a member of the World Economic Forum, the IFRI and a qualified member of the NGO "Finance Watch".
Born in Beirut, Lebanon, he is the son of a French diplomat. He lived in Saudi Arabia, Bahrain, Lebanon, Egypt and Turkey.
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Sep 02, 2015 | OilPrice.com
As time passes, more and more hedges are expiring, leaving oil companies fully exposed to the painfully low oil price environment. "A lot of these smaller guys who had bad balance sheets have pretty good hedge books through full-year 2015," Andrew Byrne, an analyst with IHS, told the Houston Chronicle. "You can't say that about 2016."
In fact, about one-fifth of North American production is hedged at a median price of $87.51 per barrel. Smaller companies rely much more heavily upon hedging as they are more vulnerable to price swings and are not diversified with downstream assets. Across the industry, IHS estimates that smaller companies had about half of their production hedged at a median oil price of $89.86 per barrel in 2015.
... ... ...
More worrying for the oil and gas companies that are struggling to keep their lights on is the forthcoming credit redeterminations, which typically take place in April and September. Banks recalculate credit lines for drillers, using oil prices as a key determinant of an individual company's viability. With oil prices bouncing around near six-year lows, more companies will find themselves on the wrong side of that equation.
Banks were more lenient in April when oil prices were a bit higher and many analysts expected prices to rise. This time around the pain is mounting and there will be a lot less leeway. Somewhere around 10 to 15 percent credit offered to drillers could be cut back on average, a move that could slash $15 billion in credit capacity, according to CreditSights Inc.
... ... ...
According to the FT, banking regulators are pushing banks to take a more conservative approach to their energy loans.
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Dec 19, 2014 | larouchepub.com
Dec. 10-What began as a British-Saudi financial warfare weapon against Russia and Iran-the so-called "oil sanction"-is turning into an unpredictably bouncing hand grenade which may blow out a large debt bubble over the bankrupt U.S. economy.
Warnings are now starting to proliferate, as the price of West Texas Intermediate crude oil has fallen to the low $60s/barrel, that a wave of defaults of "high-yield," or junk, energy debt, could trigger a broader mass default in the high-yield debt markets as a whole, which represent a couple of trillion dollars in very leveraged debt. High-yield energy debt is variously reported to constitute 20-30% of that bubble.
One of Two Results Possible
During the last decade's "shale oil boom" which has propelled the United States toward the world lead in oil production, oil companies here and in Europe have taken on record levels of debt. This is true both of the independent shale oil producers and of the long-established oil majors, although for different purposes. The repayment of that debt requires prices for a barrel of (Brent crude) oil which range from $80-85 to $120.
Therefore, the Saudi-triggered plunge in oil prices from $110-115/barrel this past Summer, to $60-65 now, will have one of two results: Either the price will shoot abruptly back up in 2015, or the collapse of energy debt can trigger a financial crash in the U.S., as it already has in Norway.
This point was made by economics columnist Liam Halligan in the Telegraph Dec. 1. His colleague Ambrose Evans-Pritchard had written several data-loaded columns since July, comparing the petrochemical sector currently to the mortgage sector in 2006-07 and the role of "subprime" debt in the 2007-08 crash. The petroleum sector is overloaded with debt whose basis is an appreciating oil price. This, despite persistently depressed demand since the 2008 financial collapse.
The International Energy Agency (IEA), in a report of July 29, 2014, made clear that since 2008, the oil industry has been borrowing about 20% of the cash it needs, or about $100 billion a year, net new debt. Its total debt has rocketed to about $1.6 trillion, with revenues of under $600 billion a year at $110/barrel average. If the oil price remains in the $60-70 range, that would become $1.6 trillion in debt based on less than $400 billion in revenues-a ratio perilously close to the definition of "unsecured leveraged lending" in banking terms.
And Evans-Pritchard wrote in September, when the oil price was in the $90s, that
"The world's leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry.... Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39 billion on repurchases since 2011."
Financial columnist Andrew Critchlow found, in the Telegraph on Nov. 14, that oil shale drillers had come to be nearly one-third of all "high-yield, sub-investment grade" (sub-prime) borrowers in the United States. And that if the oil price stayed in the $60s, 30% of high-yield B- and CCC-grade [energy] borrowers would default:
"A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle."
'Mini'-Financial Crash?
Debt defaults have already begun to hit in the North American shale oil/gas industry, due to the collapsed oil price and the relatively great inefficiency of the hydraulic fracking technology. More significantly, credit has quickly frozen up in this sector in the past two months, and the effects are spreading to the "high-yield" bond and loan markets as a whole.
The Dec. 5 Dallas Morning News carried one such warning on its front page: "As Prices Fall, Fears Rise About Massive Debts Taken On in Boom." "Already trouble is emerging in the usually steady bond markets," the paper reported.
"Among the nation's largest energy companies, the ratio of debt to earnings, a key measure in determining a company's leverage, has almost doubled since 2011. And now that forecasts of even lower oil prices are emerging, the value of high-yield bonds in the energy sector has plummeted."
For reasons presented in the article following, namely the great economic inefficiency of the "shale oil and gas revolution" since 2009, it has consumed a great deal of capital investment to keep new holes constantly drilling while prior holes gave out-an estimated 35% of all U.S. capital investment since 2009. It has accounted for one-third of all net employment creation in the U.S. economy since the the end of 2007: roughly 400,000 jobs. That investment has been heavily leveraged with debt of the "high-yield" variety, which can be analogized to "subprime" debt in the mortgage bubble.
What is the relation of this high-yield energy debt to the entire high-yield debt market (leveraged debt and junk bonds)?
Former Reagan budget chief David Stockman, on his "ContraCorner" website Dec. 9, estimated that the now-shaking high-yield debt bubble in energy is $500 billion-$300 billion in leveraged loans and $200 billion in junk bonds. EIR had also estimated, Dec. 7, that high-yield energy debt is close to one-quarter of the more-than-$2 trillion high-yield market.
In that junk energy debt market, interest rates have suddenly leaped, in the past 45 days, from about 4% higher than "investment grade" bonds, to 10% higher; i.e., credit in that sector has effectively disappeared, triggering a sudden 40% drop in oil drilling permits, and the start of defaults of the highly leveraged shale companies and their big-oil sponsors.
Bloomberg News reported Dec. 8 that Southern Pacific has hired Royal Bank of Canada to advise on quarterly interest payments it can't make on C$432 million of bonds. Conacher, with C$977 million in debt, hired Bank of Montreal to advise on a similar default.
In the larger, $2 trillion high-yield debt market as a whole, interest rates have also risen sharply, so far by 2-2.5%: i.e., contagion.
Whether this bubble, which is only about one-fifth the size of the mortgage debt which melted down in 2007, could detonate a broader "reverse leverage" blowout, is now the subject of analyses that claim it is "contained." The term is familiar. Business Insider, for example, published a chart estimating the big U.S. banks' exposure to oil/gas debt at 2.5% of their total assets, with Citibank an outlier at 7% (about $65 billion).
But according to a Brown Brothers Harriman analysis published Dec. 6, the energy sector has just suffered its own "Minsky moment." That term refers to the point in time when a commodity which must, to sustain the debt leveraging it, go up indefinitely-takes a sudden turn lower and starts a debt crisis. "A lot of things were leveraged based on oil prices that can only go up," states the analysis.
Whether the debt collapse will be mini or maxi, may be determined in the markets for $20 trillion in commodity derivatives exposure. About $4 trillion of that exposure is energy commodity derivatives exposure of the half-dozen largest U.S.-based banks. And because the shale energy producers have bought derivatives contracts from these banks to protect themselves against a plunge in oil prices, there is good reason to believe that the big banks' $4 trillion energy derivatives exposure consists largely of bets in the wrong direction now.
Is it a coincidence that Republican leaders in Congress are in a strong push, with Wall Street, to pass legislation to allow commodity derivatives, among other types of these financial weapons of mass destruction, to be put under FDIC insurance?
This, on the path to another financial blowout
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Aug 22, 2015 | The Washington Post
Nick Butler, former head of strategy for BP, told me, "We are in for a longer and more sustained period of low oil prices than in the late 1980s." Why? He points to a perfect storm. Supply is up substantially because a decade of high oil prices encouraged producers throughout the world to invest vast amounts of money in finding new sources. Those investments are made and will keep supply flowing for years. Leonardo Maugeri, former head of strategy for the Italian energy giant Eni, says, "There is no way to stop this phenomenon." He predicts that prices could actually drop to $35 per barrel next year, down from more than $105 last summer.
A primary reason for the accelerated price decline is that Saudi Arabia, the world's "swing supplier" - the one that can most easily increase or decrease production - has decided to keep pumping. The Saudis "know it hurts them but they hope it will hurt everyone else more," says Maugeri, now at Harvard. One of Saudi Arabia's main aims is to put U.S. producers of shale and tight oil out of business. So far, it has not worked. Though battered by plunging prices, U.S. firms have used technology and smart business practices to stay afloat. The imminent return of Iran's oil - which markets are assuming will happen, but slowly - is another factor driving down prices. So is the increasing energy efficiency of cars and trucks.
Major oil-producing countries everywhere are facing a fiscal reckoning like nothing they have seen in decades, perhaps ever . Let's take a brief tour of the new world.
... ... ...
Many American experts and commentators have hoped for low oil prices as a way to deprive unsavory regimes around the globe of easy money. Now it's happening, but at a speed that might produce enormous turmoil and uncertainty in an already anxious world.
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OilPrice.com
In fact, some market analysts and traders are even predicting oil prices will fall to $30 per barrel.
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In contrast, the drilling volumes at Rosneft have increased by 27 percent during the first seven months of 2015 where more than 800 new wells were drilled. At a time when oil companies are shying away from newer acquisitions, Rosneft is all set to buy Trican Well Service Limited's Russian Hydraulic Fracturing business. So how does Rosneft manage to increase spending on its operations and acquisitions when other major oil companies are struggling?
....the ruble has weakened substantially against the U.S. dollar and is now trading at almost half of the value it was a year ago. The devaluation in the ruble has reduced the operational costs as oil companies would earn in dollar and pay their expenses in rubles.
Moreover, Russian tax laws have resulted in domestic oil companies bearing just one fifth of the burden related to the total drop in the crude oil prices. "As we expected, changes to Russia's taxation mechanism on the oil sector at the start of 2015 are cushioning domestic companies within the sector from the effects of lower oil prices," said Julia Pribytkova of Moody's. With a production of more than 10 million barrels per day in month of July, Russia's oil output has reached its post-Soviet era production levels.
... ... ...
According to a study by Citigroup, Russia's exports are still as profitable as they were during the $100 per barrel oil price levels, because of the currency devaluation. It is therefore quite obvious that Russia is set to increase its exports (and add to the supply glut) as the country has no other choice but to produce more oil in order to maintain its market share. This is highlighted by Rosneft's first quarter profits, which fell by more than 35%, yet it still decided to increase its production levels
... ... ...
Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai
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Aug 10, 2015 | oilprice.com
"...world demand reached a new high of 93.86 million bpd, an increase of 1.3 million bpd over May. "
"...For the first half of 2015, the tight oil-weighted E&P companies that I follow spent about $2.20 in capital expenditures for every dollar they earned from operations (Figure 5)... These companies are outspending what they earn by a dollar more today than they were a year ago during the first half of 2014. Anyone who believes that decreased service costs and drilling efficiency will allow tight oil companies to make a profit at $50-60 oil prices needs to think again."
"...The significance of these production forecasts and the second quarter earnings reports is that U.S. tight oil production will decline. The fact that production has remained strong despite a 60% decrease in the tight oil rig count has incorrectly lead some analysts to conclude that production will not fall because of the ingenuity and efficiency of U.S. producers.
It takes time for production to decline because there are months of lag between the beginning of drilling and first production, and more months of lag before production data is released. Also, many of the rigs that were released were drilling marginal locations that didn't contribute much to overall production–the 80-20 rule. And, there is the inventory of uncompleted wells that are unaffected by rig count.
Will a decline of 400,000 to 800,000 bopd in U.S. tight oil production make a difference in the global market balance? Obviously, it depends on what other producers do but it is certainly important to OPEC's strategy of gaining market share from unconventional producers.
OPEC is producing more than half of the world production surplus and has the capacity to cut production by the entire amount of the surplus. This will not happen until its goals are achieved but Saudi Foreign Minister al-Jubeir will meet with Russian Foreign Minister Sergei Lavrov August 11 in Moscow to discuss global energy markets and other topics. EIA will release its STEO on the same day and IEA will release its OMR the next day.
I am hopeful that something positive will emerge that will at least help to stop the decline in oil prices."
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Aug 05, 2015 | energytrendsinsider.com
Last December the Energy Information Administration (EIA) released its latest estimate of U.S. Crude Oil and Natural Gas Proved Reserves. Although natural gas reserves rose, the real story was crude oil reserves. The EIA reported that U.S. proved reserves of crude oil and lease condensate had increased for the fifth year in a row, and had exceeded 36 billion barrels for the first time since 1975:
There are two reasons for this increase in proved reserves. The first is that despite >150 years of oil production in the U.S., new fields are still being discovered. In March 2015 the EIA released its update to the Top 100 U.S. Oil and Gas Fields as a supplement to the December report. This was the EIA's first update on the Top 100 fields since 2009. The most significant addition to the list was the Eagleville field (in the Eagle Ford Shale), which was only discovered in 2009 but is now the top producing oil field in the U.S. In addition to the Eagleville, there were 4 other fields in the Top 100 that were only discovered in 2009. Several others in the Top 100 were discovered in 2007 and 2008.
But the largest additions to reserves weren't via new discoveries at all. The largest reserves additions have been a result of rising oil prices, and this is a source of frequent misunderstanding on the topic on reserves.
An oil resource describes the total amount of oil in place, most of which typically can't be technically or economically recovered. For example, it is estimated that the Bakken Shale centered under North Dakota may contain several hundred billion barrels of oil (the resource). However, what is technically and economically recoverable in the Bakken may be less than 10 billion barrels. The portion that is technically AND economically recoverable is the proved reserve. Because of the requirement that the oil be economically recoverable, proved reserves are a function of oil prices and available technology.
Thus, as oil prices rise, oil resources that may have been discovered decades ago can be shifted into the category of proved reserves. Venezuela provides a perfect case study of this phenomenon. Venezuela has an enormous heavy oil resource in the Orinoco region of the country. But this oil is very expensive to extract. In 2003, Venezuela's proved oil reserves were only 77 billion barrels. At that time Saudi Arabia's reserves were tops in the world at 263 billion barrels.
After the past decade saw oil prices rise to above $100/barrel, more of Venezuela's heavy oil resource became economic to produce. Thus, by 2013 Venezuela's proved reserves were estimated to be tops in the world - 289 billion barrels. Saudi Arabia has now slipped to second with 266 billion barrels.
But that economic argument cuts both ways. Oil and gas resources that became proved reserves as prices rose will be declassified as proved reserves should lower prices render them uneconomical to produce. This is often the reason that companies have to write down proved reserves. It's not that a company believed there was oil or gas and found out later that there wasn't (although that of course also happens), it's generally because a period of depressed prices has rendered those proved reserves to be no longer economical. See the dip in gas reserves in 2012? That was caused by lower prices in 2012, which rebounded somewhat in 2013.
... ... ...
Because of the crash in oil prices, it is likely that many companies will have to write down their proved reserves - especially those in the PUD category. Thus, for the first time in several years, many companies - and indeed countries, including the U.S. - are likely to see a big drop in their proved reserves at year-end when they file their annual reports. I will discuss this in more detail in an upcoming article.
Note: This is a slightly edited version of an article that originally appeared in the Oil and Gas Monitor called Proved Oil Reserves the Real Story.
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www.theguardian.com
...energy giants ExxonMobil and Petro China, Gazprom's financial contemporaries back in mid-2008, have remained top performers . Norway boosted its market share and overtook Russia as western Europe's top gas supplier over the 2014-2015 winter.
... ... ...
Russia is looking to channel gas through Turkey and adding two new lines to the Baltic Nord Stream network, transporting gas over the top of Europe.
The total costs of the projects, without taking into account overruns, will reach about $25.4bn.
Beyond the construction expenses, transit costs for North Stream appear to be significantly more expensive than through Ukraine. Experts estimate that in 2014 it cost Gazprom $43 to transport1,000 cubic metres via Nord Stream compared to $33 via Ukrainian . Factored over the tens of billions of cubic metres that Gazprom wants to send through the Baltic pipes, that's a mighty extra cost just to avoid Ukraine.
Willinilli 8 Aug 2015 02:36Lazy, lazy, lazy journalism.. Even for a business /economics journalist .. Saudi Aramco has a much larger potential market cap..
Though to be fair, it was the original FT study that was lazy.. This is just uninformed churnalism..
annamarinja airman23 8 Aug 2015 09:09
annamarinja -> psygone 8 Aug 2015 09:03Poor airman23. Have you ever heard about Dick Cheney? Have you ever looked at the Wolfowitz Doctrine? If not, then you are very much behind the nowadays understanding of fascism and fascists. On the other hand, you are such a concrete success of Mrs. Nuland-Kagan' (and likes) travails.
Fracking? Are you serious to monger this this barbaric technique that has spurred a mass movement in the US and Canada against the ecological dangers generated by fracking? Each and every of your posts is in line with MSM "reports." It seems that you value FauxNews above else.
yemrajesh -> psygone 8 Aug 2015 07:36
Difficult to say. If the costs are true'ly low it would have reflected at the Pump. But it hasn't. Another flaw is how can oil pumped from deeper well ( Fracked Oil) is cheaper than conventional oil. It looks more like US flexing its muscles to subdue Russia. Besides its not Just Gazprom , shell, BP, Exxon , Gulf, Mobil etc also many of US vassal states are affected. It would be interesting to see how long this artificial price drop continue with zero benefit to the customers.
Kaiama 8 Aug 2015 06:07Since the Russians haven't rolled over the first time, the US is trying again. These days, the price of oil is determined by activity in the futures market impacting the spot price. Likewise, I expect for shares and wouldn't be surprised if someone is shorting the stock. Any oil and gas not pumped today is available to be pumped tomorrow - possibly at higher prices. Gazprom isn't going bankrupt. Neither are any of the other major oil companies.
AlbertEU -> alpamysh 7 Aug 2015 17:09
The crisis of one industry necessarily will hurt other sectors. Hard-hit banking sector, which is credited US shale industry. The effect can be like an avalanche. Especially if it is strengthened by additional steps. I think for anybody is not a secret the existence of a huge number of empty weight of the dollar, which is produced by running the printing press. Oil trade is in the dollar, which in turn keeps the volume of the empty weight of the dollar. Now imagine a situation where part of the oil market has not traded more in dollars. It is equally affected, the USA and Russia.
But there is one important detail. Russia has never in its history, was a rich country (if you count all the inhabitants of Russia, not individuals). In the country there is no cult of consumption. The traditional religions of Russia, that is, those that have always existed in Russia (Orthodox Christianity, Islam and Buddhism) did not contribute to the emergence of such a cult.
Orthodoxy says plainly that material wealth is not important for a man. Wealth is only supplied in addition to achieve the main goal in the life of an Orthodox Christian. Therefore, to be poor in Russia is not a problem. This is a normal way of life. Hence the stoic resistance to any hardship, challenges, wars and so on. Expectations of great social upheaval in Russia, caused by the lowering of the standard of living is a little naive. Russia used to run in the marathon. Who would have more strength, intelligence and endurance is a big question. Geopolitics is a very strange science...
airman23 7 Aug 2015 16:31
Ooops, It's just been announced that the U.S. is adding the Yuzhno-Kirinskoye oil and gas field that belongs to Gazprom to it's sanctions list. It looks like Gazprom is gonna loose even more money. This is certainly not what the Fuehrer had in mind when he started his imperialist war of conquest in Ukraine and illegally annexed Crimea. Unintended consequences to be sure but what comes around, goes around.
John Smith -> William_Diaz 7 Aug 2015 16:05
From Iranian president from October last year:
Therefore, he said, "today there are no conditions under which all thought that if tomorrow Russia will cease to supply gas, this same gas would be supplied by Iran." "Our production is still far from this stage", - said the president.
He also said that Iran is ready to cooperate with Russia in the gas sector. "For several years we have been making efforts that countries that export gas would be able to cooperate" - he recalled. - "Competition should not be problematic, it should be healthy competition, should not do so to the profit only for the buyer, and the exporters suffering damage ".
John Smith -> William_Diaz 7 Aug 2015 15:56
Your ignorance only, with whom do you think Iran will coordinate their actions?
Who brokered them a deal? Do you think Russians are stupid?
Turkey will be not just a transit country but a hub. The EU got to built they own pipeline if they want Russian gas in 2019. Turkey will set prices.William_Diaz -> John Smith 7 Aug 2015 15:13
Your ignorance is astounding, lol. Iran doesn't need anyone else to 'jump in', among the other things that the recent Security Council vote ending the Iran sanctions also enabled was the release of ~$150 billion that was held in foreign accounts.
There is more than enough money available for domestic investment, including a natural gas pipeline to Europe.
Have a great day!
oleteo -> JanZamoyski 7 Aug 2015 14:23
oleteo 7 Aug 2015 14:12When Russia responded at the sanctions by its sanctions in the agriculture I heard here the malevolent sneers there'd be a famine in Russia. Now the collapse of Gasprom, the failure of the deal with China. What a shame for The Guardian to become an yellow shit
AlbertEU 7 Aug 2015 12:59Seems the author is a warrior in the camp of the unnamed competitor which would like to supply its liquid costly gas.I know one direction where his bid will be welcomed at any price but for free- Ukraine
Yankee_Liberal 7 Aug 2015 11:37To kill a competitor, had to endure their own pain. Are you sure that these actions will kill the Russian oil production instead of US shale oil? In this case, Saudi Arabia has nothing to lose by increasing oil production, the same does and lowering the price of Russian oil. Recently, the Crown Prince of Saudi Arabia visited Russia.
They have a lot of something talked with Putin. Russia, the USA, Iran, Saudi Arabia are competitors.
Over the past year the United States increased the number of purchased crude oil from Russia. Saudi Arabia's oil squeezed out of the US market by their own shale oil. If Saudi Arabia could bankrupt the US oil shale industry, it (Saudi Arabia) will regain US market.
What is happening in the oil market is a very complicated process. Do not simplify the process of digestion by eating only the headlines. The headlines are not very high-calorie product, if you certainly do not pursue the goal to lose weight. Including lose money.
andydav 7 Aug 2015 11:18Putin has tried to shrug off the economic sanctions as no big deal, but the secret agreement between the West and Saudi Arabia to keep oil supplies high and gas prices low is really hurting Russia. Eventually the Russian people will realize that a lot of economic pain will go away when Putin goes and they start respecting their neighbors boundaries.
The Guardian has no idea what it is printing. Fact's are not a requirement in there story's any more EG:: Like many oil-producing countries, Saudi had got used to an era of high oil prices.
Kuwait and Abu Dhabi can live with crude at its current level: Saudi Arabia cannot. It requires an oil price of $106 a barrel to balance the books... Not $20
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yahoo.com
(Reuters) - The United States has added a Russian oil and gas field, the Yuzhno-Kirinskoye Field, to its list of energy sector sanctions prompted by Moscow's actions in Ukraine, drawing a prompt rebuke from the Kremlin on Friday.
The federal government said on Thursday the field, located in the Sea of Okhotsk of the Siberian coast and owned by Russia's leading gas producer Gazprom, contains substantial reserves of oil in addition to reserves of gas.
"The Yuzhno-Kirinskoye Field is being added to the Entity List because it is reported to contain substantial reserves of oil," according to a rule notice in the Federal Register.
A Kremlin spokesman criticized the move.
"Unfortunately, (this decision) further damages our bilateral relations," spokesman Dmitry Peskov told reporters.
Gazprom declined to comment.
Adding the field to the list means a license will be required for exports, re-exports or transfers of oil from that location, it said. The gas and condensate field was discovered in 2010, according to Gazprom.
Douglas Jacobson, an international trade lawyer in Washington, said the addition "represents a new arrow in the quiver of U.S. sanctions on Russia."
He said the addition means that no U.S. origin items or non-U.S. origin items containing more than 25 percent U.S. content can be exported or re-exported to the field without a Commerce Department license, which he said was not likely to be issued.
"This goes beyond the current Russia sanctions, which prohibit certain items to be exported to Russia when they are used directly or indirectly in the exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet)," Jacobsen said in an email.
The action builds on those taken since last year by the United States and the European Union after Russia's annexation of Crimea and its use of force in Ukraine.
Last week, the United States imposed additional Russia and Ukraine-related sanctions, adding associates of a billionaire Russian gas trader, Crimean port operators and former Ukrainian officials to its list of those it is penalizing in response to Russia's actions in Ukraine.
(Additional reporting by Yeganeh Torbati in Washington and Ekaterina Golubkova and Maria Tsvetkova in Moscow; Editing by Andrew Hay)
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June 2, 2014 | David Stockman's Contra Corner
What is (was?) Quantitative Easing intended to accomplish? Here's what Ben Bernanke said at Jackson Hole when he first proposed the program:
The channels through which the Fed's purchases affect longer-term interest rates and financial conditions more generally have been subject to debate. I see the evidence as most favorable to the view that such purchases work primarily through the so-called portfolio balance channel, which holds that once short- term interest rates have reached zero, the Federal Reserve's purchases of longer-term securities affect financial conditions by changing the quantity and mix of financial assets held by the public.
Specifically, the Fed's strategy relies on the presumption that different financial as-sets are not perfect substitutes in investors' portfolios, so that changes in the net supply of an asset available to investors affect its yield and those of broadly similar assets. Thus, our purchases of Treasury, agency debt, and agency MBS likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. For example, some investors who sold MBS to the Fed may have replaced them in their portfolios with longer-term, high-quality corporate bonds, depressing the yields on those assets as well.
Maybe the most important phrase in those two paragraphs is "I see the evidence as most favorable to the view". What that means in layman's terms is that Bernanke – and no one else for that matter – didn't then – and sure doesn't now – know how or even whether QE actually works to raise economic growth. The evidence since the first incarnation of QE is mixed. It is a bit curious that Bernanke continued to believe that QE lowered bond yields even after each implementation of the program produced the opposite. One might, as Bernanke obviously did, assume that rates would have been even higher absent QE, but that is dubious at best (although impossible to prove either way). I say that because each iteration of QE produced a rise in inflation expectations that was reversed once the program was wound down. The one effect of QE that we can confirm and quantify is that it raises inflation expectations. I'm not sure what bond market Bernanke is familiar with but the one I know does not look favorably on higher inflation.
Of course, another theory of QE is that this rise in inflation expectations is actually a positive and is the real way QE affects growth. Rising inflation expectations, in theory, should spur spending today in advance of price hikes tomorrow. There is little in the way of actual data to back that up but it does make a good and logical story for the masses. It could be that expectations of rising prices produces the opposite effect by inducing consumers to save more today to pay for the future price hikes. One would be hard pressed to find that in the savings rate data though so maybe the inflation expectations theory of creating growth actually works as the theory suggests. At best though, it is a temporary, palliative effect. Assuming the inflation expectations are correct and prices do rise, the purchasing of goods today just reduces the purchases of goods tomorrow. Even if QE didn't actually raise prices, it would still only "work" by pulling forward purchases from the future to the present. TANSTAAFL.
But let's return to the Bernanke theory for a minute and consider what QE hath wrought. Bernanke's idea was that if he just removed enough safe assets from the available mix, investors would shift their capital to riskier assets. This shift to riskier assets is a nod to Keynes belief in animal spirits as essential to getting an economy out of a slump. This part of Bernanke's theory has been borne out. One need look no further than the bond market to find evidence that investors did respond as Bernanke predicted. Corporate bond issuance is on a tear to meet the seemingly insatiable demand for yield product. 2013 was a record year for bond issuance totaling over $1.3 trillion and this year has seen no let up. One can't help but assume that stock prices have benefitted as well with IPOs of ever more dubious companies a highlight of the calendar.
So, clearly, Bernanke was right that QE would incite the old animal spirits, but was he correct that this would lead to better economic growth? One would be hard pressed to find any evidence in the latest GDP report. For those of you who had better things to do than wait for the government to tell you what you already knew, GDP fell by 1% in the 1st quarter. GDP contraction in any quarter is pretty rare outside of recession (as Jeffrey points out here) but hope springs eternal so the consensus is that the 1st quarter was an aberration and will soon be reversed. Of more concern to investors should be the drop in corporate profits buried in the GDP report. There were some mitigating circumstances due to tax changes but the fact is that corporate profits fell in the first three months of the year despite the small rise in EPS reported by the companies of the S&P 500.
That's where Bernanke's portfolio balance channel theory rubber meets the road actually. It seems pretty obvious that the reported rise in S&P earnings per share was a function of the boom in corporate bonds. A large portion – over a third – of the corporate bond issuance has been for the purpose of buying back stock and paying dividends. It hasn't been used to make productive investments – yet – and therefore hasn't had the intended effect on economic growth. Another use of corporate cash has been in the very active M&A market which globally amounted to over $500 billion in the first quarter alone. With sales growth stagnant, companies are trying to buy growth, something that has a dubious track record to say the least.
In Bernanke's explanation, investors swap high quality MBS or Treasuries for high quality corporate bonds but reality has seen something a bit different. From 1996 to 2006, a bit over $1 trillion in junk bonds were issued. It took only 3 years to match that total in the QE era. What is more disturbing is that a large portion of that junk debt (and a lot more that isn't reported via the bank lending channel) is being issued to fund oil and gas exploration companies for the fracking of oil and natural gas. Shale debt has at least doubled over the last four years. Why is that disturbing? Isn't shale supposed to lead us to the nirvana of energy independence? Well, maybe not. I've been a critic of the industry since the boom first started and not because I'm concerned about the environmental impact (although that probably deserves more of my attention). My criticism has focused on the economics of shale.
There are two pieces of the economic puzzle when it comes to shale. First is that most shale oil deposits are not profitable to extract except at current high prices. This drilling/extraction method is not cheap. Breakeven prices vary by region but it is safe to say that no shale oil deposits are profitable below $50/barrel and most areas require much higher prices. An average might be in the range of $65 and there are plenty of areas where the price needs to be above $80 before anyone makes a nickel. I would just note that oil traded, albeit briefly, at $34 in the last recession. Second is the production profile of shale wells; production drops off rather precipitously after the first year (in contrast with traditional wells which deplete over much longer time frames). Combine high extraction costs with rapid depletion and the economics of shale become not only dubious but frankly insane.
We've already seen a number of large oil and gas companies take writedowns on their shale investments but the BPs of the world can afford to write these off and move on. Smaller companies find themselves in a more precarious position. As production from their existing wells falls rapidly, they have to drill more wells just to maintain production at current levels. And they are funding that drilling with debt to the point where a number of companies are now dedicating double digit percentages of their revenue to interest costs. In some extreme cases, interest expense has exceeded revenue.
This shale oil and gas ponzi scheme can only go on for so long. For many of these companies it will only take a few dry holes to end their borrowing spree and send them to bankruptcy court. High yield and bank loan investors should take note. Oil and gas is the second largest position in HYG. It was a long time ago, but it probably would be instructive to remember too that Continental Illinois, the original TBTF bank, failed in the mid 80s because it lent too much to the oil and gas industry right before a bust. Any Texans old enough to remember might take the time to remind younger investors about the last oil bust and its effects on the Texas banking industry.
And that brings us right back to Bernanke's theory of how QE works and whether it in fact raises economic growth. Bernanke was right that QE does indeed change the allocation of capital; more risk has been taken. Whether it is a better allocation seems doubtful. If the first quarter is an aberration and the economy accelerates it might take more time to find out for sure but misallocation of capital due to Fed distortions does have consequences (see Bust, Housing). But if it is a harbinger of things to come, the end of the shale boom is nigh and with it the capital that has been wasted in its pursuit. Bernanke's theory of QE may amount to nothing more than an off key version of We Shale Overcome.
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Dec 19, 2014 | larouchepub.com
Dec. 10-What began as a British-Saudi financial warfare weapon against Russia and Iran-the so-called "oil sanction"-is turning into an unpredictably bouncing hand grenade which may blow out a large debt bubble over the bankrupt U.S. economy.
Warnings are now starting to proliferate, as the price of West Texas Intermediate crude oil has fallen to the low $60s/barrel, that a wave of defaults of "high-yield," or junk, energy debt, could trigger a broader mass default in the high-yield debt markets as a whole, which represent a couple of trillion dollars in very leveraged debt. High-yield energy debt is variously reported to constitute 20-30% of that bubble.
One of Two Results Possible
During the last decade's "shale oil boom" which has propelled the United States toward the world lead in oil production, oil companies here and in Europe have taken on record levels of debt. This is true both of the independent shale oil producers and of the long-established oil majors, although for different purposes. The repayment of that debt requires prices for a barrel of (Brent crude) oil which range from $80-85 to $120.
Therefore, the Saudi-triggered plunge in oil prices from $110-115/barrel this past Summer, to $60-65 now, will have one of two results: Either the price will shoot abruptly back up in 2015, or the collapse of energy debt can trigger a financial crash in the U.S., as it already has in Norway.
This point was made by economics columnist Liam Halligan in the Telegraph Dec. 1. His colleague Ambrose Evans-Pritchard had written several data-loaded columns since July, comparing the petrochemical sector currently to the mortgage sector in 2006-07 and the role of "subprime" debt in the 2007-08 crash. The petroleum sector is overloaded with debt whose basis is an appreciating oil price. This, despite persistently depressed demand since the 2008 financial collapse.
The International Energy Agency (IEA), in a report of July 29, 2014, made clear that since 2008, the oil industry has been borrowing about 20% of the cash it needs, or about $100 billion a year, net new debt. Its total debt has rocketed to about $1.6 trillion, with revenues of under $600 billion a year at $110/barrel average. If the oil price remains in the $60-70 range, that would become $1.6 trillion in debt based on less than $400 billion in revenues-a ratio perilously close to the definition of "unsecured leveraged lending" in banking terms.
And Evans-Pritchard wrote in September, when the oil price was in the $90s, that
"The world's leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry.... Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39 billion on repurchases since 2011."
Financial columnist Andrew Critchlow found, in the Telegraph on Nov. 14, that oil shale drillers had come to be nearly one-third of all "high-yield, sub-investment grade" (sub-prime) borrowers in the United States. And that if the oil price stayed in the $60s, 30% of high-yield B- and CCC-grade [energy] borrowers would default:
"A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle."
'Mini'-Financial Crash?
Debt defaults have already begun to hit in the North American shale oil/gas industry, due to the collapsed oil price and the relatively great inefficiency of the hydraulic fracking technology. More significantly, credit has quickly frozen up in this sector in the past two months, and the effects are spreading to the "high-yield" bond and loan markets as a whole.
The Dec. 5 Dallas Morning News carried one such warning on its front page: "As Prices Fall, Fears Rise About Massive Debts Taken On in Boom." "Already trouble is emerging in the usually steady bond markets," the paper reported.
"Among the nation's largest energy companies, the ratio of debt to earnings, a key measure in determining a company's leverage, has almost doubled since 2011. And now that forecasts of even lower oil prices are emerging, the value of high-yield bonds in the energy sector has plummeted."
For reasons presented in the article following, namely the great economic inefficiency of the "shale oil and gas revolution" since 2009, it has consumed a great deal of capital investment to keep new holes constantly drilling while prior holes gave out-an estimated 35% of all U.S. capital investment since 2009. It has accounted for one-third of all net employment creation in the U.S. economy since the the end of 2007: roughly 400,000 jobs. That investment has been heavily leveraged with debt of the "high-yield" variety, which can be analogized to "subprime" debt in the mortgage bubble.
What is the relation of this high-yield energy debt to the entire high-yield debt market (leveraged debt and junk bonds)?
Former Reagan budget chief David Stockman, on his "ContraCorner" website Dec. 9, estimated that the now-shaking high-yield debt bubble in energy is $500 billion-$300 billion in leveraged loans and $200 billion in junk bonds. EIR had also estimated, Dec. 7, that high-yield energy debt is close to one-quarter of the more-than-$2 trillion high-yield market.
In that junk energy debt market, interest rates have suddenly leaped, in the past 45 days, from about 4% higher than "investment grade" bonds, to 10% higher; i.e., credit in that sector has effectively disappeared, triggering a sudden 40% drop in oil drilling permits, and the start of defaults of the highly leveraged shale companies and their big-oil sponsors.
Bloomberg News reported Dec. 8 that Southern Pacific has hired Royal Bank of Canada to advise on quarterly interest payments it can't make on C$432 million of bonds. Conacher, with C$977 million in debt, hired Bank of Montreal to advise on a similar default.
In the larger, $2 trillion high-yield debt market as a whole, interest rates have also risen sharply, so far by 2-2.5%: i.e., contagion.
Whether this bubble, which is only about one-fifth the size of the mortgage debt which melted down in 2007, could detonate a broader "reverse leverage" blowout, is now the subject of analyses that claim it is "contained." The term is familiar. Business Insider, for example, published a chart estimating the big U.S. banks' exposure to oil/gas debt at 2.5% of their total assets, with Citibank an outlier at 7% (about $65 billion).
But according to a Brown Brothers Harriman analysis published Dec. 6, the energy sector has just suffered its own "Minsky moment." That term refers to the point in time when a commodity which must, to sustain the debt leveraging it, go up indefinitely-takes a sudden turn lower and starts a debt crisis. "A lot of things were leveraged based on oil prices that can only go up," states the analysis.
Whether the debt collapse will be mini or maxi, may be determined in the markets for $20 trillion in commodity derivatives exposure. About $4 trillion of that exposure is energy commodity derivatives exposure of the half-dozen largest U.S.-based banks. And because the shale energy producers have bought derivatives contracts from these banks to protect themselves against a plunge in oil prices, there is good reason to believe that the big banks' $4 trillion energy derivatives exposure consists largely of bets in the wrong direction now.
Is it a coincidence that Republican leaders in Congress are in a strong push, with Wall Street, to pass legislation to allow commodity derivatives, among other types of these financial weapons of mass destruction, to be put under FDIC insurance?
This, on the path to another financial blowout
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Jun 22, 2015 | naked capitalism
Gaylord June 20, 2015 at 3:47 amDoes anybody know what Russia's plans are to try to prevent runaway climate change? Or is Russia's government oblivious to the catastrophic effects of continued greenhouse gas emissions? Their aggressive plans for oil drilling in the Arctic indicate the latter.
Barry Fay June 20, 2015 at 6:33 am
"Or is Russia's government oblivious to the catastrophic effects of continued greenhouse gas emissions?" Sounds like a typical cheap shot against Russia to me. The country most oblivious to the catastrophic effects, and one of the two the biggest contributors (with China), is the good ole USA. Russian is at 6%, USA at 20%! Your propaganda driven prejudice is showing!
Macon Richardsonn June 20, 2015 at 7:35 am
Thank you Barry Fay! Well said.
With Russia's utter dependence upon oil and gas, plus lack of FDI, they have no alternative but to drill baby drill. Eventual regime change may increase their long term prospects.
Gio Bruno June 20, 2015 at 12:48 pm
Careful now. This could encourage blow-back from Barry Fay.
Let me just say that Russia is not a static society (education is prized). They can, and likely will, create a more diversified/un-stratified economy going forward. As for regime change, that's an habitual fantasy of folks who read only MSM propaganda. Putin, despite the grandstanding of American representatives (98% return rate) has the support of 80% of the Russian population. Russians are not stupid (See USA for comparison.)
Steve H. June 20, 2015 at 9:21 am
Externality June 20, 2015 at 12:28 pm
1. Russian- – unlike some Western nations – has submitted a detailed carbon-reduction plan to the upcoming climate conference. http://newsroom.unfccc.int/unfccc-newsroom/russia-submits-its-climate-action-plan-ahead-of-2015-paris-agreement/
2. At a time when China and parts of Eastern Europe remain dependent on highly polluting coal-fired power plants, Germany is returning to coal following its phase-out of nuclear power, cash-strapped EU countries are phasing out renewable energy subsidies, and many Eastern European nuclear plants are overdue for retirement, natural gas remains a necessary – and environmentally friendly – energy alternative. The only question then is where the gas to come from. The UK's oil and gas industry is in terminal decline, large-scale imports from North America and the Middle East are a decade or more away, and efforts to promote fracking-related gas production in Europe has failed for a variety of reasons. To borrow a favorite line of the neo-liberals, "there is no alternative" (TINA) to Russian gas.
3. Since the end of the Cold War, the West has aggressively used the WTO, investor-state dispute tribunals, sanctions, propaganda campaigns, and "regime change" to punish resource-exporting nations who limit, or attempt to limit, exports for environmental reasons. To the WTO, for example, environmental laws in countries outside of Western Europe, the US, and Canada are illegal "non-tariff trade barriers." Russian attempts to protect its old growth forests against timber exporters and Chinese attempts to limit the environmentally disastrous (and often illegal) mining of rare earth ores were both struck down by the WTO at the request of the West. If Russia were to limit oil and gas exports for environmental reasons, the resulting legal, political, and military confrontation with the West would dwarf the Cuban missile crisis.
Burning any hydrocarbon produces carbon dioxide, so natural gas is not "environmentally friendly." There is clear evidence, too, that natural gas exploration and production release huge quantities of methane into the atmosphere. EPA has proposed rules on that for producers (late and weak, of course). Methane in atmosphere is over 20X as damaging as CO.
Russian scientists contribute much to Climate Mayhem knowledge, especially in the rapidly changing arctic and on the threat of methane release.
Russian Academy of Sciences, Far Eastern Branch, Pacific Oceanological Institute, 43 Baltiiskaya Street, Vladivostok 690041, Russia
Natalia Shakhova, Igor Semiletov, Anatoly Salyuk, Denis Kosmach & Denis ChernykhRussian Academy of Sciences, Far Eastern Branch, Institute of Chemistry, 159, 100-Let Vladivostok Prospect, Vladivostok 690022, Russia
Valentin SergienkoTo name a few.
One wonders if Russian climate scientists are censored and hounded as much as are U.S. and U.K. researchers, especially in the US government (USGS, NOAA, NASA, etc.). Persecution and censorship of US scientists is above McCarthey-esque proportions today.
What about thorium reactors. I am aware that at least China is investing in the technology.
Just like the War on Drugs is most successful when it focuses on reducing demand (drug users) rather than fighting/bombing the suppliers (Mexico, Colombia, etc), the War on greenhouse gases is best fought by reducing demand. If the Europeans find a way to no longer need so much natgas, then Russia wouldn't be selling it to them. Otherwise, someone else will sell it to them regardless.
That doesn't completely exonerate Russia, of course, and given their history with the Aral Sea, I'm not sure that they would put environmental concerns very high on their list of priorities (certainly not higher than their economic security). But right now, the problem with greenhouse gases is on the other end of all these pipelines.
Otter June 20, 2015 at 8:15 am
The abandonment of South Stream was not much of a surprise to anybody with even a passing interest in the energy politics.
Brussels and Washington were both adamant that it would never pass through Bulgaria.
I suppose some people were surprised at how quickly negotiations progressed with Turkey. Possibly there is some quid pro quo regarding Iranian and Kurdish hydrocarbons.Serbia and Hungary are anxious for access. The Austrians are even talking money. Greece of course needs gas and transit fees. Italia, Slovakia, Czech would welcome shares. The only problem is some people have suddenly taken an interest in organizing a colour revolution in Makedonia.
Jackrabbit June 20, 2015 at 1:03 pm
I questioned the author's perspective as soon as I saw this (in the second sentence) :
Six months ago Russian President Vladimir Putin surprised the energy world by dismissing the long-prepared South Stream project in favour of Turkish Stream.
Russia re-routed South Stream to Turkey (now called "TurkStream") because Bulgaria rejected South Stream under pressure from US/EU. OIFVet, a frequent commentator at NC, has written loads of good and inciteful comments with respect to this farce (he is Bulgarian).
The author refers to a "Russian Waltz" which casts aspersions on Russian intentions. Their intentions are clear. To by-pass a Ukraine that is hostile to Russia. Period. Their efforts to do so are being blocked (first by pressuring Bulgaria, now with a color revolution in Macedonia). Russia's 'waltz' partner is the EU which created the rule that pipeline ownership must be independent of supplier. This rule has dubious value when applied to large suppliers like Russia/Gazprom.
The author artfully guides us to three possibilities but ignores the most logical and intuitive one. Russia is likely to be taking this move now to hedge against the developing brinkmanship whereby Russia is blamed for causing European suffering by refusing to transit gas through Ukraine – despite the US/EU's irresponsible blocking of South Stream / Turk Stream as a delivery platform.
=
I believe that one must be very careful about sources when dealing with issues that are sensitive to the US/EU establishment.
Brugel is nominally an independent think tank but it is governed by, led by, and staffed with establishment figures and technocrats. From their annual report:
The idea to set up an independent European think tank devoted to international economics stemmed from discussions involving economists, policymakers and private practitioners from many European countries. The initiative subsequently found support from 12 EU governments and 17 leading European corporations, who committed to the project's initial funding base and participated in the election of its first Board in December 2004. Operations started in 2005 and today Bruegel counts 18 EU governments, 33 corporations and 10 institutions
among its members.It is difficult to trust "experts" that have a vested interest in culling favor with the establishment. This article proves that such skepticism is very much warranted.
David in NYC June 20, 2015 at 1:13 pm
Putin's plan, to maintain a chokehold of the distribution of gas, mimics John Rockefeller's strategy for Standard Oil to control the distribution of oil in the late 19th century.
susan the other June 20, 2015 at 1:14 pm
Syria has really taken a hit for Russia. Until the conflict there is resolved the the Saudis/Arab natgas cannot build their pipeline. And by the time it is resolved Russia will have already established its network. It looks like this leaves the Saudis and other MidEast natural gas suppliers at the mercy of China and India. The BRICS.
You already know this, but Israel wants to send the gas production from the Levantine Basin to the Europe market and Assad stands in the way for the time being. Once Assad is toppled and a new puppet regime is put in place, I think we'll see the construction of the pipeline through Syria. Qatar & Saudi Arabia will connect through the same artery to reach the Europe market…and then Russia finds itself with competition. This is the key for the West to gain greater control of the Russian economy, and eventually profit from Russia's resources. So, in the short term (~10 yrs), Russia may have its infrastructure in place (whether via Nord, Turkish or South stream), but in the long term (~20+ yrs), we'll see Israel, Saudi Arabia and Qatar enter the Europe market and Russia will no longer be the only game in town. We think we're seeing the squeeze put on Russia now, but it will only get worse with time. The West looks at Russia's resources and sees dollar signs.
Gerard Pierce June 20, 2015 at 5:29 pm
In the current political situation, there should be a natural alliance between Russia and Greece, but it can't be a declared alliance – that leads to retaliation that neither one wants to deal with right now.
A covert alliance with Russia could put Greece in a position to obtain finance through China. Without any overt declarations, the European countries might figure out "on their own" that continued sanctions against Russia are counter-productive.
Even in default, if Greece can maintain any kind of economy, the wily Varoufakis gets to sit back and smile while the EU ministers try to explain to southern Europe why their policies are necessary and correct.
The US gets to continue with its unprofitable wars in the mid-East while trying to avoid major embarrassment from the fascists in DonBass. The major problem for the Russians is watching as Russians in Ukraine are ethnically cleansed.
If the Russians can avoid a military response all that is needed is someone to maintain the body count. The overall death count would probably be a lot less than a military response.
Susan Pizzo June 20, 2015 at 8:49 pm
An MOU with Greece has been signed, providing significant investment funds, a route around Ukraine, and a potential clinker in the Russian sanction vote on Monday. Further complications for debt negotiations? Greece is also reportedly "drawing up a default plan, which would see the country institute capital controls and nationalize its banking industry" (ibtimes). It ain't over till it's over…
http://money.cnn.com/2015/06/19/news/greece-russia-gas-deal/index.html
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Mar 18, 2015 | Zero Hedge
Just two weeks ago, we noted that chasing after high yield debt from beleaguered junior oil producers was likely not the best idea given the fact that geopolitical logrolling, surging supply, and shrinking storage capacity all point to further declines for crude. More specifically, we said the following in an update to a post in which we outlined what a tiny Colorado shale play has in common with a long-gone movie rental chain:Update: And just to prove that people are indeed, idiots, moments ago this hits:
ENERGY XXI GULF COAST, INC. PRICES UPSIZED PRIVATE OFFERING OF $1.45 BILLION OF 11.000% SENIOR SECURED SECOND LIEN NOTES DUE 2020
As it turns out, we were right to be skeptical because, as Bloomberg reports, these very same notes have cost investors $7 billion in just 10 days:
Investors lured back into junk-rated energy bonds by their juicy yields are getting burned.
Oil prices have fallen more than 15 percent since March 4 to a six-year low of $43.5, wiping out $7 billion of market value of high-yield debt issued by energy companies. Prices on $1.45 billion of notes sold less than two weeks ago by Energy XXI Ltd., an oil producer that was being squeezed by its lenders, have fallen by as much as 10 percent…
Oil producer Energy XXI's second-lien bonds, issued on March 5 to repay borrowings under its line of credit, slid below 90 cents on the dollar on Tuesday after trading as high as 99.9 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The Houston-based company attracted investors by selling the 11 percent notes at a discount to yield as much as 12 percent. That's almost double the average yield on all U.S. junk bonds, according to a Bank of America Merrill Lynch index.
The losses come at the expense of investors trying to call a bottom in crude prices and much as everyone who piled into oil ETFs while being simultaneously oblivious to the fact that the market was in the widest contango in four years subsequently suffered for their ignorance, so too will the yield-starved buyers of oil junk bonds take a beating for thinking that "buy the dip" is a viable investment strategy:
Junk-rated energy borrowers have sold about $9.4 billion in bonds this year, doubling the amount issued during the last three months of 2014, according to data compiled by Bloomberg. The companies raised more than $17 billion during the third quarter of last year.
Oil prices are plunging as U.S. output climbs to the highest in three decades even as explorers idle drilling rigs. The drop to less than $44 a barrel follows a month of relative stability, when prices hovered around $50 after sliding from as high as $107 in June.
The slump has eaten into February's 2.3 percent gain in junk bonds, which was the biggest advance in 16 months, Bank of America Merrill Lynch index data show. The average speculative-grade rated note has tumbled 1.1 percent in March.
"Oil prices are having an impact again in the high-yield market," Jim Kochan, chief fixed-income strategist at Wells Fargo Funds Management, said in an interview. "There were a lot of experts who thought that oil prices had fallen too far and that they would correct. Instead, now we're seeing a downdraft."
Meanwhile, the same companies that are offering investors double-digit yields may ironically be shooting themselves in the foot (and, as we suggested last month, contributing to disinflation) because as the Bank For International Settlements notes, keeping current on debt payments often means maintaining elevated production...
A new element that can help shed light on this question is the high level of debt of the oil sector. The debt borne by the oil and gas sector has increased two and a half times over, from roughly $1 trillion in 2006 to around $2.5 trillion in 2014. As the price of oil is a proxy for the value of the underlying assets that underpin that debt, its recent decline may have caused significant financial strains and induced retrenchment by the sector as a whole. If the adjustment takes the form of increased current or future sales of oil, it may amplify the fall in the oil price. Similarly, if the need to service debt delays a pullback in production, a lower price may act more slowly to balance supply and demand.
...because keeping a leverage-driven bubble inflated means doubling and tripling down...
As regards financial constraints, the price decline occurred against the backdrop of much higher debt levels of oil producers. By analogy with the housing market, when the underlying assets of a leveraged sector fall in value, the strain imposed by the price decline induces retrenchment - for instance, by trying to sell more of the asset backing the debt.
… and this is exacerbated by investors' willingness to take on risk if it means squeezing out a few basis points of yield versus "safer" debt which, depending on where you look, may actually produce loses thanks to NIRP…
The greater willingness of investors to lend against oil reserves and revenue has enabled oil firms to borrow large amounts in a period when debt levels have increased more broadly due to easy monetary policy. Since 2008, companies in the oil sector have borrowed both from banks and in bond markets. Issuance of debt securities by oil and other energy companies has far outpaced the substantial overall issuance by other sectors. Oil and gas companies' bonds outstanding increased from $455 billion in 2006 to $1.4 trillion in 2014, a growth rate of 15% per annum. Energy companies have also borrowed heavily from banks. Syndicated loans to the oil and gas sector in 2014 amounted to an estimated $1.6 trillion, an annual increase of 13% from $600 billion in 2006.
In the end, we get a high yield market awash in paper floated by US-listed juniors...
Overall, the stock of debt of energy firms has risen even faster than that of other sectors. Debt issued by oil and other energy firms accounts for about 15% of both investment grade and high-yield major US debt indices, up from less than 10% just five years earlier...
US oil companies have… borrowed heavily. They account for around 40% of both syndicated loans and debt securities outstanding. Much of this debt has been issued by smaller companies, in particular those engaged in shale oil exploration and production. Indeed, while the ratio of total debt to assets has been broadly unchanged for large US oil firms, it has on average almost doubled for other US producers - including smaller shale oil companies.
...which, as we noted six months ago, absolutely will not end well…
The combination of falling oil prices and higher leverage can lead to financial strains for oil-related firms. First, the price of oil underpins the value of assets that back these firms' debts. Lower prices will tend to reduce profitability, increase the risk of default and lead to higher financing costs. Indeed, spreads on energy high-yield bonds widened from a low of 330 basis points in June 2014 to over 800 basis points in February 2015, much more than the increase for total high-yield debt (Graph 3). Second, a lower price of oil reduces the cash flows associated with current production and increases the risk of liquidity shortfalls in which firms are unable to meet interest payments.
* * *
We would also note that all of the above serves to validate what we said in January, which is that as long as easy money policies are effectively subsidizing otherwise bankrupt shale companies, don't expect prices to rise anytime soon:
OPEC will not cut alone, or in other words, as long as shale companies are out there pumping, kept alive thanks to the Fed's ZIRP policy forcing investors to keep them well capitalized even though bankruptcy may be breathing down everyone's neck in short order, expect the Saudis to keep pumping at the same feverish pace…
Ironically, it may well end up as a showdown between the Fed and Saudi Arabia, the former doing everything in its power to keep otherwise insolvent companies well-capitalized, and on the other Saudi Arabia doing everything in its power to keep the cash flow drain as high as possible for High Yield debt-funded shale companies, and daring either the Fed, or rather junk bond investors who are scrambling for any source of yield, to back out.
junction
Oil bondholders are fracked. They are stuck between shale rock and a hard place. Before the oil price downturn runs its course, thousands of investors will be hammered hard.
Looking back, in 1923, Shelby, Montana was an oil boomtown when it decided to promote a heavyweight prize fight between Jack Dempsey and Tommy Gibbons. The event turned into a financial bloodbath for Shelby, only 7,000 paying customers showed up. Four of the town's banks closed, they were backers of the fight. The people at Shelby did not know what they were getting into, dealing with sharpies. These Bakken Shale oil investors will also end up getting fleeced.
http://www.examiner.com/article/shelby-s-folly-recalls-dempsey-gibbons-f...
KnuckleDragger-X
ZIRP and oceans of cash equal bad investments in iffy paper and the ocean of cash just HAD to go somewhere.....
Bill of Rights
Quicksilver Resources Files Bankruptcy as Gas Price Drops
http://www.bloomberg.com/news/articles/2015-03-17/quicksilver-resources-...
The Chapter 11 petition filed Tuesday listed $1.21 billion in assets and $2.35 billion in debts. It follows a February warning that the Fort Worth, Texas-based company wouldn't pay interest on $298 million of bonds maturing in 2019.
At the time, the company said it might not be able to restructure its debt or sell off assets.
venturen
In other news "Feds to buy 5 million barrels of oil for emergency stockpile"
what were you saying?
Dr. Engali
Mandates and laws are for little people. I no more believe that Republicans or Democrats run this country than I believe that somebody making $200,000 a year runs the fed.
doggis
i think that some oil based dervatives have BLOWN up in the shadows - which is manifesting itself in part to the parabolic rise in the USD$.
the derivative chain be blowing up in the background........oil IS our black swan......
northern vigor
Eventually the wells drilled in the last two years will decline...shortly. Without drilling going on right now, how long before the oil surplus becomes an oil scarcity?
One year? Two years??
Mewa
Gotta love US financial engineering....snake is now eating its own tail...derivatives in the oil sector now compell the markets to produce or have loan convenants pulled and the company dies....
banks are moving in on the storage issue to drive spot into the gutter so that they can create a deep contango and create yield returns by rolling over contracts while sitting on million of barrels floating on the oceans used for storage after land based storage is filled....
Spot price will be artificially surpressed the same as nat gas was 2-3 years ago for about a year or two....then for what is left will see gains...even if fracking can get new financing then because it wont be risk free at that point and the cost of financing will be much higher....
Sorry Obbi better come up with a better energy security policy.....
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Zero Hedge
Submitted by EconMatters on 03/13/2015
Watch the Michael Lewis video where he discusses Rigged Markets here.
Brent Spoofing & HFT
As the European Market closes today and oil has some bearish sentiment to the trading day, one of the common techniques is to bang the European close in the Brent contract which being a much less liquid contract than WTI can be quite profitable. Usually this takes place around 10:00 to 10:30 am CST but with the time changes this week everything is pushed back an hour here in the US with the European close now being 11:00 to 11:30 am CST.
Read More >> Cushing and Gulf Coast Storage Filling Up Fast
Specific Example of Spoofing
Well as this bang the close strategy is happening in Brent pushing the futures contract down $56.50 to $55.50 in 10 minutes a nice illustration of HFT Algo strategy plays out, in other words blatant market manipulation also called spoofing was conducted by some large firm.
Here is the case and this isn`t specific to Brent, Oil, or an unusual event this happens in all markets throughout the trading day. So as Brent is going lower some firm wants it to go lower some more so around the $55.75-80 area they park a large order around 900 futures contracts. Now this isn`t a real order, the seller isn`t really going to sit there and take in 900 buyers, it is meant to manipulate the other trading algos and buyers in general from stepping in and buying oil with the idea of pushing the contract lower. In essence "Scare" the market lower! This usually works and today it worked pushing the Brent contract down to $55.51, and needlessly to say this firm benefited from this technique and covered before eventually pulling the entire order once a couple of contracts hit on the price that the seller parked this large fake sell order.
Read More >> Six Days Until Bond Market Crash Begins
Easy to Regulate Spoofing Activity
Now this kind of activity would be pretty easily to reign in, easily trackable, and easy to identify which firm utilized this spoofing manipulative strategy. Just pull up the Brent trading records on the ICE exchange for 3/13/2015, and see which firm entered an order previously to sell the Brent contract, then wanted to juice their returns or move the market in the direction of their scalp by placing an additional large order all at once as price is going down during the European Close around 11:25 am CST (900) contracts give or take, and then cancels this same large order once it is hit with a couple of offers to buy at that price. Needless to say Brent traded much higher than this original sell order once it was pulled from the market as the objective of pushing the price lower to fill their existing order was already achieved! This is spoofing, a common technique used in markets, often revolving around HFT strategies, is highly manipulative with both intent and market effect, and happens right out in the open for all to observe.
This example of HFT manipulation is far more straight forward than some of Michael Lewis`s HFT claims that are much harder to prove beyond a 'reasonable' doubt.
Read More >> The Bond Market Has Reached Tulip Bubble Proportions
Spoofing just one HFT Market Manipulation Strategy
This kind of spoofing strategy usually takes place with 100 order lots in the oil markets, and the 900 contract effort was just hilarious, taking overkill to an entirely new level. I have even seen several firms lined up with 100 contract fake sell or buy orders on consecutive price levels. For example, 100 at $48.51, 120 at $48.52, 150 at $48.53, 105 at $48.54 etc. all with the same intent to move prices in the opposite direction of these orders. They don`t really want to get filled, in fact they will never get filled, as soon as a couple contracts hit one of these orders they are pulled from the market.
Now big orders get filled all the time but somebody with a big order doesn`t just advertise to the entire world in most cases, and if legit doesn`t cancel the order when it gets hit. Usually large orders are disguised in the market via various methods to maintain a lower or better cost basis on the overall position. This Spoofing Strategy works, and is highly profitable because its frequency has increased over the last three years with more and more firms adopting this HFT trading strategy. There have been a couple of small fines for this behavior, but the blatant occurrence of this strategy and the increasingly brazenness of the manipulative trading technique shows there is no regulatory force enforcing this trading impropriety by participants.
Markets are Rigged at both the Macro & Micro Level from the Fed to HFT Firms
Now this is just the tip of the iceberg when it comes to market manipulation, I thought I would just provide a concrete example of the kind of funny business that goes on every day in financial markets. The financial markets are manipulated from the macro perspective by the Federal Reserve with their outright asset purchases and various other market interferences all the way to the micro level of HFT scalping algos.
There is nothing wrong with scalping per se, but utilizing manipulative techniques like fake orders to ensure the scalp works and to increase the tick size profit of the scalp is illegal, and occurs every day at the micro level of market manipulation, and is one HFT strategy that is easy to prove which firms are conducting this illegal market manipulation activity.
Accordingly, Michael Lewis is right markets are rigged, but he really is underestimating the extent of market manipulation, financial markets really are the wild west, investors should always be wary of how they are being taken advantage of in financial markets. The phrase Caveat Emptor 'Let the buyer beware' applies here.
DrExcitementMeremortalLook, everyone needs to stop whining about "spoofing" this has been going on forever. As a former upstairs OTC market maker with a very large firm that no longer exists, I can tell you, professional traders have been doing this for years.
For example, I have an institutional order to buy say oh, 500K Genetech when it was OTC, my analyst was the axe in the stock, we get 1st crack at the order, so I sell say Cal Teachers 50K to work the balance and control the order. Say I have a 1 pt discretion on the 450K left. My desk wants the sales credits, the coverage broker wants his, the analyst wants the volume and the client wants a good fill and lastly I have my and the firms P and L to worry about. What is the first thing I do, see who's on the offer and if I feel they are real, i.e. are they a size B/D in the name.
If so, I join them on the offer to hold the price down or to get lifted and see what's out there. My next call is to the largest player on the offer in the name to see what he's got going on, if anything and ask him to stay on the offer for me. If I have a good relationship.
And it's a professional courtesy amongst big market makers in the name. Is that spoofing? Except we didn't call it that back in the day, we called it "trading". Most of trading is a mind game, and everyone needs to put their big boy pants on and stop crying. I'm sorry the easy days of BTFD are over and now some are beginning to understand that this profession isn't a walk in the park. I was told when I first entered this business, any idiot can make money in up markets, it the real good one's that make money in any market.
I've worked in equities, options, otc, listed and fixed income, this practice is done across the board and both upstairs and downstairs. So stop friggin' whining about it. Out think them. Like baseball, there's no crying in trading.
And oh, yeah, I was Cal Teacher's first show on the 500K to buy.... believe that I got a bridge for ya.... Dig into the deeper darker issues, which are the friggin' news algo's.
One would have to be an idiot not to understand what is going on there. Anyone remember the news leaks from all the journalists back in the the 80's and 90's ? And those were the ones who got caught, many more didn't trust me. Tommorows news today isn't just a saying. Well with the news organizations so integrated into the financial execution app's now, and reporters with inside knowledge of even say 1 minute before a story hits, one would have to be a blooming retard to think that they aren't selling this information to the HFT'S etc who have money to lay fiber optic cable from Chi-town to NJ for a millisecond of speed.
Chase the real thiefs, the real corruption, not something that is part and parcel to the profession. Stop whining about nothing and understand the business you're in and how you're getting screwed. Just spreading some light.
Dr. E.
This is one of my favorite things about ZeroHedge. Everyone agrees the market is rigged, yet the Tylers constantly post charts of the rigged market and everyone will discuss their meaning in great detail, like witch doctors hovering over chicken bones.
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Jan 23, 2015 | Vox
Analysts often focus on a metric called the "breakeven price" for oil-drilling projects - the price of oil necessary for a project to produce reasonable returns. ScotiaBank has estimated breakeven prices for various shale and oil sands projects across North America:
(ScotiaBank)
US shale projects are especially vulnerable when oil dips below $60 per barrel. Fracking wells tend to deplete quickly - with output falling about 65 percent after the first year - so new wells have to be drilled constantly. So, when the price falls, many companies can respond quickly by scaling back on new drilling. Already, firms are pulling out of places like Texas' Permian Basin, and the number of US rigs has fallen 15 percent from December to January.
But not everyone is leaving all at once: Some companies have sunk costs and need to keep drilling. Others may try to cut their costs and grit it out. It really varies from company to company. What's more, the situation is different up in Canada: oil sands projects have huge upfront costs, but once those are paid off, they can keep producing oil cheaply for many decades.
That all makes it hard to predict how this all shakes out - or where global oil prices will bottom out. The US Energy Information Administration still expects that overall US oil production will grow another 700,000 barrels per day in 2015 - though that's slightly lower than the prediction when prices were high. We're about to see if that's right.
... ... ...
Saudi Arabia: There's no question that Saudi Arabia, the world's second-largest crude producer (after Russia), will suffer financially from cheap oil. If oil stays at around $60 per barrel next year, the government will run a deficit equal to 14 percent of GDP.
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Peak Oil Barrel
The USA and Canada are responsible for about 120% of the increase in world oil production since 2005, even though they did not begin their grand ascent until 2009. Canada's over 400,000 bpd increase in September is responsible for that last spike upward. But can this continue?In a word… no. The gain has been almost all LTO and oil sands. And low prices are killing both. If prices stay low both Canada and the USA will begin to decline by the second half of this year. But even if prices return to the $70 ti $80 range, (it is not likely they are going higher than that), their production will still not increase fast enough to offset the decline in the rest of the world.
But what about those massive reserves still in the ground? Many say we have not yet produced half the URR, the Ultimate Recoverable reserves, and until we are at least that half way point, we cannot be at peak oil. Well, there are a few really serious problems with that logic. First, what is meant by the word "recoverable"? And at what price? Let's look at really important chart.
The 2014 data point on the chart below is the average January through November .
Here is a chart of Historical Crude Oil Prices . The average price, the blue line, is the average price of oil for that year. The orange line is the average price from 1946 to any point on that line. For instance the average price of oil for the 34 years from 1946 through 1973 was $23.68. And that in today's dollars. From 1946 through 1973 oil companies were getting an average of $23.68 a barrel for their oil, and they were making a pile of money at that price. Today, the price is more than twice that amount, and many of them are losing a pile of money.
So let's get back to reserves. The reserves produced in 1973 and prior years was very profitable at less than $24 a barrel. Then all hell broke loose in the Middle East and prices skyrocketed. Then for the next dozen years oil companies made windfall profits. But in 1986 oil prices came down to normal. Between 1986 and 2002 oil prices averaged $30.42 a barrel. (Not shown on the chart.) Even at that price oil companies still made huge profits. But today they are losing money at $50 a barrel.
The problem is with those "reserves". Today's reserves are just not the same as those earlier reserves. All the good cheap stuff has already been sucked up. We are now left with dredges at the bottom of the barrel. All today's new oil is harder to find, depletes a whole lot faster, and cost many times as much to produce. None of the cheap stuff is left except in a few old super giant fields that are undergoing infill drilling like there is no tomorrow.
Once again, we are at peak oil right now. The peak will straddle the 2014 and 2015 time line. 2016 will be the first full post peak calendar year. It really doesn't matter how many barrels of oil is left in the ground. The point is we will never again pull it out of the ground at the same rate we are pulling it out right now.
Fernando Leanme , 02/01/2015 at 11:15 am
I wouldn't bet so hard on a peak just yet. Assuming oil (C&C) production will start declining by mid to late 2015 is reasonable. But this decline will trigger renewed activity. The low interest loans to usa independents will bear a higher interest, the drlling and completion costs will be slightly lower. The sum of these effects should be a much lower decline, or even an increase in production.SW , 02/01/2015 at 11:28 amSo the key is price expectations, and the response time. And this is really hard to model. As you know, I already bet that oil prices will rebound. This implies tight supply, which leads to more investment. I'm not sure we can be sure such investment won't allow production to increase slightly.
Stepping out of the real crude oil realm, If prices rise beyond $100 per barrel, I also expect the biofuels industry to go bananas increasing production. And refineries will shift to making more light products, swelling the "refinery gain" (this is the reason why I had asked how you planned to handle refinery gain, I think there's a slight potential to increase yields by adding hydrogen).
I think the problem with that analysis is that North American production has to increase more than slightly to off-set declines elsewhere. It is pretty tough to see enough increases in North America, if they happen to offset production declines in the rest of the world anymore.Fernando Leanme , 02/01/2015 at 2:04 amYou are assuming the sum total of all nations other than Canada and the USA can't hold production flat. That's the big unknown, I suppose. Recall that I also mentioned refinery gains and biofuels? If these take up the slack then we have reached peak crude and condensate for sure. I guess the big question is whether oil companies anticipate what Ron predicts. If they do we should see a fairly steady deep water drilling pace.ChiefEngineer , 02/02/2015 at 1:24 amOne other comment: the typical reaction by companies in dire straits (such as Petrobras) is to give up shares in their projects. Sometimes they also give up operatorship. I wouldn't expect the Brazilians to sit still and wait for lawsuits to unfold. They will react. And I expect this will lead to really large companies with quality technical capability, cash flow, and credit to step in. I wouldn't be surprised to see something big happen in Brazil.
Well the internets have been around long enough now that we all remember the posts at TOD about how we are now at peak oil. No one was talking than about a few states and a shale play that would produce 4 million additional barrels a day.The Universe , 02/04/2015 at 12:49 am"The problem is with those "reserves". Today's reserves are just not the same as those earlier reserves. All the good cheap stuff has already been sucked up. We are now left with dredges at the bottom of the barrel."
Ron, you sound like Gail Tvarberg on a bad day. Very short sighted and the prospective of time of a teen age boy finding is manhood his first time.
I'm with Fernando and think your premature gett'en your peak on .
I recall several predictions from TOD that claimed oil production would go up so long as price could go up. It seems that is exactly how it played out. So if we're not at peak now then oil prices must be headed north here pretty quickly. How do you suppose that will happen, and when?The Universe , 02/04/2015 at 12:51 am"You are assuming the sum total of all nations other than Canada and the USA can't hold production flat. That's the big unknown, I suppose." That is a known. If the rest of the world could keep production flat we would have seen it happen while oil prices were sitting comfortably at $100 per barrel. If high prices didn't get the oil out of the rest of the world then how do you expect low prices to do it?Ron Patterson , 02/04/2015 at 1:08 amYou are assuming the sum total of all nations other than Canada and the USA can't hold production flat. That's the big unknown, I suppose.The Universe , 02/04/2015 at 3:29 amUniverse, you are correct. The sum to total of all other nations other than Canada and the USA have not held production flat. It is no great assumption to assume that this trend will continue.
Thanks!Fernando Leanme , 02/04/2015 at 4:45 amI greatly appreciate your work on this issue. Resource depletion is even more misunderstood than climate science and your work does a good job of trying to correct that.
Timing. Projects take time to engineer and execute. The high price environment kicked in around 2007, there was a hiccup in 2008, then it regained ground. Oil companies don't usually change their internal price forecasts to a high side unless they are really convinced it's going to last.Ovi , 02/01/2015 at 11:38 amI have seen this lag really mess with projects. But let's face it, I don't get an insight on how many projects were launched in 2009 through 2014 and are just now getting ready to start production.
The question always comes down to expectations. Keep an eye on large solid companies to see how many people they layoff. That should be an indicator.
I would hope that the U.S. drillers have learned their lesson and suck on the straw a little slower and enjoy the associated higher prices longer.Ovi , 02/01/2015 at 11:48 amI recall a phrase in "Blade Runner" along the lines of "The brighter it burns, the shorter it lives".
Actual quoteRon Patterson , 02/01/2015 at 11:53 amTyrell: The light that burns twice as bright burns half as long – and you have burned so very, very brightly, Roy.
I wouldn't bet so hard on a peak just yet.Nick Hail , 02/01/2015 at 12:01 amYeah, but this is not your bet, it's mine.
The biggest threat to your whole theory is a black swan event. The most probable cause of this is technology. I know of 2 techs being tested that have the ability to render the whole production curve as we know it wrong.Just like a prediction of peak oil was valid right up until horizontal drilling took off.
Jeffrey J. Brown , 02/01/2015 at 12:04 am
So, you are arguing that the finite sum of the output from high decline rate tight/shale oil wells will show a perpetual rate of increase in production?Ron Patterson , 02/01/2015 at 12:18 amHorizontal drilling just didn't take off, it has been around for decades. Saudi Arabia started horizontal drilling as infill drilling projects well over a decade ago.Huckleberry Finn , 02/01/2015 at 12:27 amWhat took off was the fracking of source rock. That is source rock that was so tight that the oil could not escape. Fracking source rock is very expensive and the production from tight source rock declines extremely fast. In other words, it is scraping the bottom of the barrel.
Oh, and fracking was not a black swan event, it was a price event. The price of oil rose high enough to make tight oil fracking economical.
Ron,AlexS , 02/01/2015 at 4:41 am
Black Swan Events are likely to help than hurt your cause. I see the likelihood of countries like Venezuela and Russia declining by 4-8% plus as very high considering that they have NO money to drill.I am not sure about Venezuela, but as regards Russia, it seems that you are only reading Western mainstream media, and do not know anything about the Russian oil industry.AlexS , 02/01/2015 at 8:41 amEach year since mid-2000s I've seen forecasts that Russian oil production is about to decline. I'm not saying that it will continue to increase at the current oil price levels, but a decline of 4-8% p.a. is absolutely out of reality. Read, for example, this article to understand why:Goldman Sachs Busts Myth Of Impending Russian Oil Collapse
By ZeroHedge
Posted on Tue, 27 January 2015
http://oilprice.com/Energy/Crude-Oil/Goldman-Sachs-Busts-Myth-Of-Impending-Russian-Oil-Collapse.htmlRon Patterson , 02/01/2015 at 9:06 amTwo Russian, state sponsored, think tanks predicts Russia oil peak by 2016.GLOBAL AND RUSSIAN ENERGY OUTLOOK TO 2040
Or read My Blog on the subject.
Sorry, posted the wrong link. This one is to my Russian blog.Like BP, OPEC, the EIA and the IEA Russia also publishes an annual energy outlook. It is called the Global and Russian Energy Outlook to 2040. It is published by The Energy Research Institute of The Russian Academy of Sciences and The Analytical Center for The Government of The Russian Federation. I have no idea who these guys are but their titles sound impressive and they seem to be Russian think tanks funded by the Russian Government. But that is just an assumption of mine.
It is a very large 175 page PDF file that appears to be very scholarly and well researched. However they appear to be very optimistic in their prediction of the future oil supply out to 2040. In one scenario they are not optimistic at all for coal production however.
Huckleberry Finn , 02/01/2015 at 10:35 amGreat article Alex. Thanks for sharing.I think one point here that Goldmann Missed is that Inflation is over 30% in Russia. They are delusional if they think finding costs in Roubles will remain static.
AlexS , 02/02/2015 at 6:34 amHuckleberry Finn,CPI (consumer price) inflation in Russia has risen above 11% in Dec14 and Jan 2015, but is likely to moderate by the end of the year.
PPI (producer price) inflation if much lower (5.9% as of Dec 2014).
(Official data from Goskomstat).
Oil services costs may have risen slightly in ruble terms, but they are certainly sharply down in dollar terms due to the ruble devaluation. Meanwhile, the large part of the revenue base is dollar-denominated. Coupled with the Russian oil tax system this supports company margins and cashflows.The article below is not about Russian oil companies. But it mentions two of them as having the best Free-cash-flow yield among global oil producers:
"Free-cash-flow yield, a measure of how much cash from operations a business generates relative to its share price, is another way to compare producers, Hubbard said. By that measure, Woodside and ONGC rank behind only OAO Rosneft, Valero Energy Corp. and OAO Tatneft."
Nick Hail , 02/02/2015 at 12:45 amI never said fracking was the black swan event. You implied that all by yourself.Opritov Alexander , 02/02/2015 at 5:38 amTechGuy , 02/03/2015 at 12:03 amOil taxes Russia:
Fernando Leanme , 02/03/2015 at 4:35 am"Oh, and fracking was not a black swan event, it was a price event. The price of oil rose high enough to make tight oil fracking economical."
And cheap and easy credit to finance it. If interest rates were normal (ie 5%) it would not have been as easy for frack drillers to obtain the capital they needed. The costs to drill would have been higher if the borrowing costs were higher. Most of the frack drillers are deep in debt, and borrowed almost every penny needed to fund drilling operations.
Even if oil prices move back up, frack drillers will also need low borrowing costs to continue to drill.
You know, lending at 5 % may be justifiable if the entity receiving the loan is locked to say 50 % equity (the hurdle discount rate for this type of investment could be as low as 10 %). You guys seem to know quite a bit about finances. I wonder what such a deal would look like to a lender who also asks for 70 % of the first year's oil production to be covered in the futures market?
I haven't run the numbers, but it seems to me such lending could make sense. What do you guys think?
Duanex , 02/03/2015 at 4:45 amJust look at the way the Linn deal was structured with DrillCo. They're getting a far cry more than one year's coverage in the futures market.
Ryan C , 02/03/2015 at 4:28 amThe points you folks make regarding LTO extraction, profitability or lack thereof, capital structure, recoverable reserves etc. are fundamentally distorted by the generality of your assumptions regarding the business model. Unconventional reservoirs have no more heterogeneity than the operators who currently control them. In other words, not all companies are created equal. It's true in all other sectors of the economy, certainly no different here.
To say the shale "revolution" is only made possible by cheap credit is just stupid. Oil and gas business is the most capital intensive business outside of space exploration -- so, of course, access to capital is critical for innovations in production to occur. Incentives for investment in energy have always existed in one form or another. Commodity prices, in this case, were the catalyst for the initial development of shale fields and infrastructure.
High prices will not be as necessary going forward. The operators who secured the commercial acreage are not relying as heavily on high-yield financing as are the small fries who came to the party late. Economies of scale make LTO work and unfortunately the access to cheap credit and high commodity prices let a bunch of diluted, second rate operators in the marginal areas of the plays. These guys will be wiped out by the credit crunch and lack of overall commerciality of there positions. Who gives a shit. This is the nature of the beast. If anything, it did the EOG's of the world a favor by delineating the economic windows of the play. Most of this was done during times of unusually high prices so the in-ground assets of the failed operators are probably close to neutral in terms of NPV (if you factor in some salvage value).
The chain of M&A's will be kicking off soon and the rest of the commercial acreage will be absorbed by those with the lowest cost structure and ability to continue without being levered up out the eyeballs. Public companies will use a mix of equity, debt, and free cash flow to develop their leasehold at a reasonable pace and will earn an adequate (not huge) return. In the interim, service companies will capitulate and overall prices will moderate. The real unknown lies in the performance of in-fill wells and the ability to successfully down-space. IMO, no conclusive data is being presented in the major plays to make the case one way or the other. The long-term profit driver for these companies is the ability to manufacture repeatability at minimum spacing after the infrastructure build out and common lease facilities have been largely paid off. In the grand scheme, US shale reserves are small potatoes.
The chicken littles screaming the I told you so's about the shale biz aren't saying much. It is what it is. It will work as a moderately profitable model for a decent period of time for SOME and others it won't. It will not make the US energy independent and it won't change the world. It's not a black swan or a revolution or anything that dramatic really. It's a nice tale of dedication, perseverance and American ingenuity but its net neutral at best in terms of economic plus or minus.
Ron Patterson , 02/03/2015 at 6:10 amRyan, please learn how to use paragraph brakes. Your post is very hard to read without them. And indicate who you are replying to?
To say the shale "revolution" is only made possible by cheap credit is just stupid.
Who wrote that? I did not. However I would not argue with that logic. A lot of small drillers would not be in business without the money from low yield junk bonds. Now junk bonds are yielding a lot more, it will be a lot harder for them to borrow money.
US shale reserves are small potatoes.
I don't know about reserves but US shale production is definitely not small potatoes, it is the one thing that has kept the world from hitting peak oil way back in 2005 or 2006.
Ryan C , 02/04/2015 at 4:57 amRon,
Apologies. And thanks for the advice on forum etiquette. Paragraph breaks dually noted!My response was supposed to be directed at this post by Northwest resident which was a carry-over argument from a post SRSrocco made. I am new to this forum and am having trouble following the spider web of comments which seems to pile up at a precipitous rate.
"We couldn't afford it. It was a "boom" charged to credit with no way to repay. It was like somebody who knows he's going to file for bankruptcy anyway, so why not go out and max the credit cards before filing. If you ask me, the whole shale revolution was an engineered event to buy a little more time, to throw one last really wild party before the lights go out. Now here we are, no more credit, buried in debt, and no more time. Lights out!"
Anyway, my point is that most successful LTO producers are major, public companies who do not rely solely on bonds to finance their drilling efforts. I can't cite credit ratings for individual entities but I doubt most of them are junk status. The high yield financing is more symptom than cause. Like any market segment, you have winners and losers. Most drillers who relied on high yield debt to finance operations were late establishing positions in commercial areas of the plays which has been and will continue to be the only way to earn a decent ROI and ROE in the unconventional realm. The others simply did it because it could be done and people would lend them the money to do it. Because shale is somehow viewed as a revolution or phenomena, we tend to extrapolate the notion that it is either a success or an abject failure. The correct conceptualization is more akin to conventional production in that capital investment may work for one company and not for another depending on the result of operations.
The only difference is conventional development is mainly subject to geological risk and unconventional subject to economic risk. In this sense, there is very little significance to North American LTO production outside of the confluence of factors that allowed for many incapable and unsustainable entrants to the plays which , in turn, caused a significant production spike from the US. On a go forward basis, high commodity prices ($85-$100+) are not necessary for good operators to succeed.
"I don't know about reserves but US shale production is definitely not small potatoes"
The "sweet spots" in the two major plays (Bakken & EF) are limited in scope. The Permian still has questions surrounding economic recovery rates and thus proven reserves. Given decline rates and the correlation between commodity prices and CAPEX, US proven reserves are very small in comparison to SA, Venezuela and other low cost, high reserve countries.
Correct me if wrong, but I believe EIA estimates US proven reserves around 40 billion. IEA estimates put SA and Vend at nearly 200 billion MORE THAN US! When you put it in perspective, there is nothing all that significant about US unconventional production aside from how quickly it ramped up. We should stop viewing it in the light that its some exceptional, world-altering discovery.
It's more comparable to tech companies in the late 90's. A bunch sprung up. A bunch failed. The good ones consolidated and are still around today. The major difference being that eventually commercial shale fields will deplete and the companies still standing will have to look elsewhere.
Fernando Leanme , 02/04/2015 at 5:09 amMost of Venezuela's oil resource is in the Orinoco oil belt. That oil is similar to Alberta's "bitumen", but it has a lower viscosity. Under current circumstances a lot of those booked reserves can't be produced. And even if one tries to move ahead it would take years to turn things around.
The way I see it they got the Brazilian fields, ITT in Ecuador, Vaca Muerta in Argentina. I can think of a few other places, but the other reserves they have will require lots, lots of wells. It's going to get busy in a couple of years.
Boomer II , 02/01/2015 at 12:49 amUnless the technology they have created can produce oil over an extended period of time at an affordable price, then it probably isn't going to change anything.
Name , 02/06/2015 at 7:38 amFernando Leanme , 02/01/2015 at 5:14 amNick Hail > The biggest threat to your whole theory is a black swan event. The most probable cause of this is technology. I know of 2 techs being tested that have the ability to render the whole production curve as we know it wrong.
"Sustainable Energy – without the hot air"
http://www.withouthotair.com/Videos.htmlI linked this post at Judy Curry's "week in review". I think you'll have some new visitors.Allan H , 02/01/2015 at 10:26 amTechGuy , 02/01/2015 at 12:55 amRon, excellent presentation. I believe you are correct in calling peak oil in the near future. The fact that the Saudis are investing billions for fracking their shale oil deposits is an indicator that even they see the end of their enhanced oil recovery in historical fields.
But just to play devil's advocate, I do not see a huge plunge in oil production worldwide. As it starts to fall, the Russians, Chinese and Saudis will push shale oil production. This will slow the fall in production and might even cause a second hump or plateau. Further development of North American shale and tar sands as well as some EOR will ease the drop on this side of the world.
As price rises, exploration will increase and some new finds will come on line.
All in all though, this does look like the top. One does have to be wary of new "accounting" methods for oil that might make things look better than they are.
We can always hope the new method for low temperature conversion of CO2 to methanol comes out of hiding again. That and some other methods will ease the change. It will be quite interesting to see the response when oil descent becomes obvious.
Storage solutions:
http://www.vtnews.vt.edu/articles/2013/04/040413-cals-hydrogen.html
http://www.technologyreview.com/view/512996/a-cheaper-way-to-make-hydrogen-from-water/
http://cleantechnica.com/2015/01/31/citigroup-predicts-battery-storage-will-hasten-demise-fossil-fuels/Fern Wrote:Boomer II , 02/01/2015 at 1:11 am
"This implies tight supply, which leads to more investment…Stepping out of the real crude oil realm, If prices rise beyond $100 per barrel, I also expect the biofuels industry to go bananas increasing production. "Its very likely that this dip in price, even if short lived will have a more lasting effect on CapEx spending. Investors and Oil majors will be reluctant to jump back in with both feet, fearing another price collapse. It very unlikely the global economy can sustain $100 oil. As prices creep up, consumers will cut consumption causing demand destruction. This cycle will repeat until the economy finally collapses or World War 3 breaks out. The primary reason why oil prices have fall is because demand has fallen. It appears to me that the massive amount of Central banking has been able to prop up the global economy. The first round of QE implemented ZIRP (Zero Interest Rate Policy) has come to its conclusion. To keep the economy afloat, Central banks will need to implement NIRP (Negative Interest Rate Policy). However I don't expect NIRP to last as long as ZIRP, and there once NIRP is done, there is not else left to prop up the global economy. ZIRP and NIRP are the equivent of eat ones seed corn. Once all of the capital savings are gone the economy will die. ZIRP was an attempt to get savings spent to keep the economy running. NIRP is designed to force the reaming capital to be spend (either spend it or lose it).
Biofuels are not an energy source, and need other energy resources for the conversion. Plants require petrochemicals for productive yields. It takes energy to harvest and process the crop and even more energy to convert it into a usable fuel. The cost of biofuels is considerably more expensive than fossil fuels.
The beauty of fossil fuels is that they all originate under-ground and allowing the surface of the planet to be utilized for other uses. For instance. land can be used to raise crops for human and animal consumption, and grow trees for lumber. With the exception of fracking, Water is not required to extract and process fossil fuels. If the economy was to switch to biofuels. Land, water and other resources must be diverted from other productivity (ie growing food) to fuel production. Large scale biofuel production to preserve BAU is walking dead man. Biofuels are also a disaster for the environment as it cases massive deforestation and farmers cut down forests to make room for biofuel crops. The World needs more trees since the are a natural carbon sink and also absorb air and water pollution. Trees are nature's all purpose cleaning system.
In conclusion. Not only have we reached Peak Oil, Peak Energy Extraction, we also reached Peak CapEx for Energy resources.
Fernando Leanme , 02/02/2015 at 5:31 amOnce all of the capital savings are gone the economy will die. ZIRP was an attempt to get savings spent to keep the economy running. NIRP is designed to force the reaming capital to be spend (either spend it or lose it).
I think another issue we have to deal with is that even if oil were cheap and plentiful, these financial tricks haven't encouraged the rich to invest that money in activities that benefit the middle and lower classes.
So even if we had cheap plentiful oil, if most of the world's population has little money to spend on it, then demand goes down.
There's enough income inequality that I don't think cheap oil alone can drive economic growth these days. If you want to pay the poor to buy the cheap oil, then you can keep things running. But if they have no money to buy, then it doesn't matter how cheap it gets.
Or you could pay the oil producers to generate cheap oil and then they can give it away. However, in order to pay those producers, the governments either have charge the rich more taxes, or the governments have to create more debt.
So we have a combination of economic and resource problems.
Stu, I guess the idea is fairly simple: fossil fuels do run out, as they do we must have replacements, if replacements don't compete on price with fossil fuels the cost of energy increases, this leads to either population reductions and/or a less energy intensive lifestyle.
My concern arises because I read unrealistic assessments about renewables, way too optimistic and utopian.
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Jan 15, 2015 | Zero Hedge
The Fed flooded the global economy with credit borrowed in U.S. dollars during its quantitative easing programs. Need to borrow billions of dollars to finance new oil production? No problem when the Fed was emitting trillions of dollars into the global financial system.Now that the Fed has ended its QE money-printing program, the dollars have dried up. The other source of dollars--U.S. trade deficit--has also contracted as the trade deficit has declined.
This decline in the availability of U.S. dollars has placed global borrowers with dollar-denominated debt in a vice as the scarcity of dollars meets the pressing need to refinance debt that's coming due and needs to be rolled over.
Strong demand and reduced supply lead to much higher prices for dollars--which is exactly what the world is seeing.
Domestic oil producers have a source for financing: the Fed. As I have speculated before, the Fed may not be a passive observer of the domestic oil patch's financial travails. Given the potential for financial losses triggered by oil's price collapse to cascade into the financial sector at large, the Fed may well be forced to intervene either indirectly through proxies or directly.
As I explained in Will the Fed Intervene in the Oil Market? (December 23, 2014), the Fed has a variety of intervention options, from buying oil futures contracts to buying at-risk oil-based bonds to enabling proxies to roll over oil-based debt.
Compare the staggering cost to oil exporters in lost income to the modest cost of the Fed financing domestic oil-based debt. If the domestic oil industry needs $100 billion in debt to be buried in a balance sheet somewhere or rolled over, the Fed can arrange this size of financing without raising an eyebrow. Compared to a balance sheet of $4+ trillion and the Fed's essentially unlimited credit spigot, what's $100 billion more in aid to the domestic oil/gas industry?
The oil exporters who are losing tens of billions of dollars in cumulative revenue do not have any equivalent Sugar Daddy. Their declines in income will have to be matched by declines in spending, declines that will cascade through the oil exporters' economies with devastating impact.
If you want to deploy the oil weapon, make sure you have a central bank that can intervene at will, in whatever size is necessary, to reduce the impact on your own economy, while maximizing the financial pain inflicted on the targets of the oil weapon.
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At the moment, demand is continuing to rise, but supply also keeps on pumping. Just a third of the U.S.'s total storage capacity of 439 million barrels was being used in October, according to a Reuters analysis of U.S. data. This means there is space for U.S.-produced shale gas to be stored, rather than sold at a loss, as many feared.
The U.S., mainly Texas and North Dakota, will account for 75 percent of the increase in global oil production this year, according to Deutsche Bank (Grey Market: DBCQF) estimates.
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Sep 24, 2015 | www.resilience.org
In Drilling Deeper , PCI Fellow David Hughes took a hard look at the EIA's AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism.Recently, the EIA released its Annual Energy Outlook 2015 and so we asked David Hughes to see how the EIA's projections and assumptions have changed over the last year, and to assess the AEO2015 against both Drilling Deeper and up-to-date production data from key shale gas and tight oil plays.
Key Conclusions
After closely reviewing the Annual Energy Outlook 2015, David Hughes raises some important, substantive questions:
- The EIA's 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total tight oil production through 2040 has increased by 6.5 billion barrels, or 15%, compared to AEO2014.
- The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel until 2031.
- At the same time, the EIA assumes that overall U.S. oil production will experience a very gradual decline following a peak in 2020.
- These assumptions-low prices, continued growth through this decade, and a gradual decline in production thereafter - are belied by the geological and economic realities of shale plays. The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices.
- Perhaps the most striking change from AEO2014 to AEO2015 is the EIA's optimism about the Bakken, the projected recovery of which was raised by a whopping 85% .
- As it has acknowledged, the EIA's track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below ground fundamentals- the geology of these plays and how well they are understood-don't change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them. As Figure 13 shows, with the exception of the Eagle Ford, the EIA's projections for the major tight oil plays have shifted up or down significantly.
- Why is there so much difference at the play level between AEO2014 and AEO2015?
- Why does Bakken production rise 40% from current levels, recover more than twice as much oil by 2040 as the latest USGS mean estimate of technically recoverable resources, and exit 2040 at production levels considerably above current levels?
- How can the Niobrara recover twice as much oil in AEO2015 as was assumed just a year ago in AEO 2014?
- What was the thinking behind the wildly optimistic forecast for the Austin Chalk in AEO2014 that required a 78% reduction in estimated cumulative recovery in AEO2015?
- How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period?
America's energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy can't be overstated. It's for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIA's rosy projections at face value but rather to drill deeper.
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