tag:theconversation.com,2011:/ca/topics/us-shale-oil-11113/articlesUS shale oil – The Conversation2020-07-29T12:18:47Ztag:theconversation.com,2011:article/1399562020-07-29T12:18:47Z2020-07-29T12:18:47ZRoutine gas flaring is wasteful, polluting and undermeasured<figure><img src="https://images.theconversation.com/files/346237/original/file-20200708-3983-1gpw9fy.jpg?ixlib=rb-1.1.0&rect=0%2C4%2C3000%2C1989&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Flaring gas at an oil production site outside Williston, North Dakota.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/gas-flare-is-seen-at-an-oil-well-site-on-july-26-2013-news-photo/174480635?adppopup=true">Andrew Burton/Getty Images</a></span></figcaption></figure><p>If you’ve driven through an area where companies extract oil and gas from shale formations, you’ve probably seen flames dancing at the tops of vertical pipes. That’s flaring – the mostly uncontrolled practice of burning off a byproduct of oil and gas production. Over the past 10 years, the U.S. shale oil and gas boom has made this country one of the <a href="http://pubdocs.worldbank.org/en/645771560185594790/pdf/New-ranking-Top-30-flaring-countries-2014-2018.pdf">world’s top five flaring nations</a>, just behind <a href="https://asiatimes.com/2019/12/russias-gas-flare-up-but-less-than-before/">Russia</a>, Iran and <a href="https://www.nytimes.com/2020/07/16/world/middleeast/iraq-gas-flaring-cancer-environment.html">Iraq</a>. </p>
<p>It’s a dubious distinction. Routine flaring gives the industry a <a href="https://www.bloomberg.com/news/articles/2019-04-10/permian-basin-is-flaring-more-gas-than-texas-residents-use-daily">black eye</a>. </p>
<p>I am an <a href="https://scholar.google.com/citations?user=qL3H2OwAAAAJ&hl=en">atmospheric scientist</a> studying <a href="http://www.enviropedia.org.uk/Atmosphere/Trace_Gases.php">trace gases</a> – chemicals that make up a small fraction of Earth’s atmosphere, but can have significant effects on the environment and human health. In several recent studies with graduate and undergraduate students, I have shown how routine flaring is inaccurately assessed and creates a sizable source of air pollution. </p>
<p>Due to a rapid <a href="https://www.eia.gov/outlooks/steo/report/prices.php">oil price drop</a> in the spring of 2020, new oil exploration has plummeted and production is running at reduced levels. But the industry can <a href="https://uk.reuters.com/article/us-global-oil-usa-production-graphics/u-s-shale-companies-to-boost-oil-output-by-500000-bpd-by-month-end-idUKKBN23O2OQ">rapidly resume activities</a> as demand and prices recover. And so will flaring. </p>
<p><a href="https://www.rrc.state.tx.us/about-us/commissioners/christian/news/061620a-christian-flaring-report/">Regulatory agencies</a>, under pressure from environmental groups and parts of the industry, are finally considering rules to curb flaring. But can this wasteful and polluting practice be stopped?</p>
<h2>Economic expediency</h2>
<p>Each operating shale oil well produces variable amounts of “<a href="https://www.eia.gov/dnav/ng/TblDefs/ng_prod_off_tbldef2.asp">associated” or “casinghead” gas</a>, a raw gas mixture of highly volatile hydrocarbons, mostly methane. Producers often don’t want this gas unless it can be collected through an existing network of pipelines. </p>
<p>Even when that’s possible, they may decide to dispose of the gas anyway because the cost of collecting and moving it can initially be higher than the value of the gas. This is where flaring comes in.</p>
<p>Routine flaring is common in the Bakken shale formation in North Dakota, the Eagle Ford shale in south-central Texas and the Permian Basin in northwest Texas and New Mexico. Texas has flared <a href="http://blogs.edf.org/energyexchange/files/2018/06/Permian-Flaring-Report-2017-3.pdf">about as much gas annually</a> as <a href="https://www.eia.gov/dnav/ng/ng_cons_sum_dcu_STX_a.htm">all of its residential users consume</a>. In the Permian Basin alone, <a href="https://www.houstonchronicle.com/business/energy/article/Report-Flaring-wasted-750-million-of-natural-15335793.php">about US$750 million worth of gas</a> was wasted in 2018, without any public benefit. </p>
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<figcaption><span class="caption">In the Permian Basin region of west Texas, residents say gas flaring is polluting the air and making them sick.</span></figcaption>
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<p>At the same time, gas flaring <a href="http://folk.uio.no/roberan/img/GCB2019/PNG/s21_2019_CO2growthbars_category.png">contributes approximately 1% of man-made atmospheric carbon dioxide emissions globally</a>. That is when flares combust hydrocarbons efficiently, converting them to carbon dioxide. In contrast, when flares burn poorly or go out, they pollute the air with more harmful gases. </p>
<p>Our studies in <a href="http://doi.org/10.1525/elementa.289">two</a> <a href="http://doi.org/10.1525/elementa.414">regions</a> of the Eagle Ford shale in Texas showed that flares may be the dominant source of <a href="https://www.atsdr.cdc.gov/toxfaqs/tf.asp?id=396&tid=69">nitrogen oxides, or NOx</a> in these rural areas. NOx emissions contribute to acid rain, ozone and smog formation, and can irritate the eyes, nose, throat and lungs. </p>
<p>We found that at the sites we studied, industrial combustion sources such as flares produced about 10 times more NOx than cars in the area. Although a single flare may be a relatively small source, the large number of flares and <a href="http://doi.org/10.1525/elementa.414">high variability of NOx production per flare</a> can cause large-scale atmospheric impacts <a href="https://advances.sciencemag.org/content/6/17/eaaz5120/F3.large.jpg">visible from space</a>.</p>
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<a href="https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=359&fit=crop&dpr=1 600w, https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=359&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=359&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=451&fit=crop&dpr=1 754w, https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=451&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/348185/original/file-20200717-35-1sw2huk.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=451&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The nonprofit Skytruth posts time series views of gas flares seen from space, from 2012 to the present. Above, how flares looked in mid-July 2020.</span>
<span class="attribution"><a class="source" href="https://viirs.skytruth.org/apps/heatmap/flaringmap.html#lat=38.95911&lon=-93.20723&zoom=4&offset=15">Skytruth.org</a></span>
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<h2>Unauthorized venting may explain high flaring volumes</h2>
<p>Almost all flares are open combustion sources. They can be detected from space as bright, fixed-location heat radiation sources. Scientists have developed algorithms to <a href="https://eogdata.mines.edu/download_viirs_fire.html">catalog this radiant heat</a> and relate it to the <a href="https://eogdata.mines.edu/images/Cedigaz_calibration_2012-14_20160120.png">reported volume of gas flared globally</a>.</p>
<p>With the help of undergraduate students, sociologist <a href="http://www.katewillyard.com/">Kate Willyard</a> and I evaluated data from the satellite-based Visible Infrared Imaging Radiometer, or <a href="https://ncc.nesdis.noaa.gov/VIIRS/aboutVIIRS.php">VIIRS</a>. We calculated flaring volumes in the two Texas shale oil production regions, both on a per-wellpad and per-county basis. We then compared it to a database from the <a href="https://www.rrc.state.tx.us/oil-gas/">Texas Railroad Commission</a>, which regulates oil and gas production, for the years 2012-2015, and found large discrepancies between the two datasets. </p>
<p>In total, the volumes reported in the state database were <a href="https://doi.org/10.1016/j.scitotenv.2019.06.465">only around half of what the satellite observed</a>. Another, less detailed <a href="https://www.spglobal.com/en/research-insights/articles/are-some-shale-producers-under-reporting-gas-flaring-to-keep-oil-flowing">bulk analysis</a> by the research firm S&P Global found similar discrepancies for shale regions in New Mexico and North Dakota. </p>
<p>These large differences may be explained by reporting errors and by several flare operations that are simply exempted from volume reporting. But we suspect that there is an even more systemic, mundane explanation: venting – the direct release of raw gas to the atmosphere. </p>
<p>Venting gas is allowed only for a small set of operations in the industry if it can be done safely. It is usually prohibited because it emits hydrocarbons, including air toxics such as benzene that can cause <a href="https://www.lung.org/clean-air/outdoors/what-makes-air-unhealthy/toxic-air-pollutants">cancer, birth defects or other serious health problems</a>.</p>
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<a href="https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/346452/original/file-20200708-3974-1t74vtd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A natural gas flare burns at dusk in the Permian Basin in Texas.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/gas-flaring-in-the-permian-basin-royalty-free-image/1178074562?adppopup=true">Bronte Wittpenn/Bloomberg via Getty Images</a></span>
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<p>But venting mainly emits <a href="https://www.epa.gov/ghgemissions/overview-greenhouse-gases#methane">methane</a>, which contributes to global warming and <a href="https://phys.org/news/2018-10-methane-emissions-key-role-ozone.html">atmospheric ozone formation</a>. Venting from flare stacks is illegal, since the flare is considered a waste treatment facility, but the practice apparently <a href="https://www.permianmap.org/flaring-emissions">has increased over time</a>. </p>
<p>Recent, higher-resolution satellite measurements of atmospheric methane over the Permian basin reveal that its emissions must be <a href="https://phys.org/news/2020-04-satellite-highest-emissions-oil-gas.html">significantly higher than what is routinely reported to the Environmental Protection Agency</a>, exceeding 3% of production instead of the more typically assumed 1-2%. Extra methane illegally vented through flare stacks would end up in the Texas Railroad Commission’s database, but satellites looking for heat radiation from combustion would not detect it. </p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>That heat radiation is converted into flaring volumes, using total reported volumes to agencies nationwide. But if a much smaller volume is actually flared, with some of the gas not combusted but vented, the satellite data would overestimate flaring. This is a problem because scientists and the <a href="https://www.worldbank.org/en/programs/zero-routine-flaring-by-2030">World Bank’s zero flaring initiative</a> employ these satellite-based flaring estimates.</p>
<h2>Investors say flaring can be avoided</h2>
<p>For a decade conservation groups such as the <a href="https://www.edf.org/climate/methane-research-series-16-studies">Environmental Defense Fund</a> have called on regulators to address the shale industry’s methane emissions and the rapid increase in flaring. The Obama administration <a href="https://www.doi.gov/sites/doi.gov/files/uploads/methane_waste_prevention_rule_factsheet_final.pdf">adopted a new rule in 2016</a> to curb methane leaks and reduce flaring on public and Indian lands. Now the Trump administration is <a href="https://www.blm.gov/programs/energy-and-minerals/oil-and-gas/operations-and-production/methane-and-waste-prevention-rule">trying to undo</a> this action, albeit with <a href="https://www.reuters.com/article/us-usa-methane-judge/federal-judge-blocks-trump-administrations-easing-of-rule-on-methane-emissions-idUSKCN24H1YG">limited success</a>. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1286719825616740354"}"></div></p>
<p>Meanwhile, a <a href="https://business.edf.org/insights/tackling-flaring-learnings-from-leading-permian-operators/">new study</a> commissioned by the Environmental Defense Fund and involving investors concludes that there are feasible and cost-effective ways for oil and gas companies to minimize flaring even without much regulation. Nevertheless, given that much of the industry has already spent a decade without widely employing such best-practice measures, I expect that oil and gas companies are likely to keep wasting and polluting for the foreseeable future unless government agencies impose tighter regulations.</p><img src="https://counter.theconversation.com/content/139956/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gunnar W. Schade received funding from a crowd-funding activity to evaluate Permian basin air quality, and private funding from a rancher to measure air quality in southwest Texas. </span></em></p>Flaring, or burning, waste gas from energy production has sharply increased over the past decade. It wastes usable fuel, pollutes the air, and helps drive climate change.Gunnar W. Schade, Associate Professor of Atmospheric Sciences, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1266392019-11-12T15:20:36Z2019-11-12T15:20:36ZFracking in the UK was doomed a decade ago – Tories have wasted precious time on a fossil fuel fantasy<p>It’s a truth universally acknowledged that a single man in the possession of a good fortune may well have worked in the US shale gas industry. In 2018 alone, about 21 trillion cubic feet of natural gas was produced, with commercial buyers paying around US$8 per thousand cubic feet.</p>
<p>Given how profitable the US industry has been, it’s no surprise that <a href="https://www.theguardian.com/sustainable-business/2016/sep/29/fracking-shale-gas-europe-opposition-ban">governments and businesses in Europe were interested</a>. In Poland, shale was seen as an opportunity to reduce or even eliminate dependence on Russian gas and to export gas to the rest of Europe. For the UK, it was hoped that shale could offset declining production from the North Sea and the growth of expensive gas imports.</p>
<p>Natural gas and oil can be found in underground reservoirs between the rock grains. These conventional sources can be reached by drilling into such reservoirs, but unconventional natural gas is trickier to get to as it’s trapped between much finer-grained shale rock formations. To release gas or oil trapped in shale rocks, a reservoir needs to be <a href="https://doi.org/10.1016/j.erss.2017.05.028">artificially created</a> by fracturing the rock and pumping fluid down the well bore until the structure breaks. The gas or petroleum can then flow out. In other words, a shale gas reservoir isn’t discovered, but created by horizontal drilling and hydraulic fracturing – or “fracking”.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/301276/original/file-20191112-178502-7iqlm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/301276/original/file-20191112-178502-7iqlm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=594&fit=crop&dpr=1 600w, https://images.theconversation.com/files/301276/original/file-20191112-178502-7iqlm1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=594&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/301276/original/file-20191112-178502-7iqlm1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=594&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/301276/original/file-20191112-178502-7iqlm1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=747&fit=crop&dpr=1 754w, https://images.theconversation.com/files/301276/original/file-20191112-178502-7iqlm1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=747&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/301276/original/file-20191112-178502-7iqlm1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=747&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Fracking uses a lot of energy and fresh water to break rock layers below ground and release natural gas.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/hydraulic-fracturing-flat-schematic-vector-illustration-1071089057?src=80750bde-1fd8-47d1-bf8d-bd428019db1e-1-0">VectorMine/Shutterstock</a></span>
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<p>A report by the Polish Geological Survey announced Poland’s technically recoverable resources could be 346 to <a href="https://www.pgi.gov.pl/en/dokumenty-pig-pib-all/aktualnosci-2012/zasoby-gazu/769-raport-en/file.html">768 billion</a> cubic meters of natural gas in 2012, while the British Geological Survey estimated in 2013 that the Bowland Shale in the north of England alone could yield <a href="https://www.parliament.uk/documents/post/ShaleGas_POSTbox.pdf">1,800 to 13,000 billion</a> cubic meters. Other countries in Europe were less sanguine. <a href="https://www.downtoearth.org.in/news/energy/ireland-becomes-the-fourth-eu-country-to-ban-fracking-61091">France</a> (2011), Bulgaria (2012), <a href="https://www.theguardian.com/uk-news/2019/oct/03/scottish-government-extends-ban-on-fracking">Scotland</a> (2015), <a href="https://www.theguardian.com/environment/2016/jun/24/germany-bans-fracking-after-years-of-dispute">Germany</a> and Ireland (2016) all banned fracking for shale gas, citing environmental concerns.</p>
<p>The fortunes of the would-be shale gas industry in Europe have tumbled ever since those heady days in the early 2010s. Drilling results in Poland turned out to be poor – of the <a href="https://infolupki.pgi.gov.pl/sites/default/files/czytelnia_pliki/shale-gas-in-poland-prospecting-and-exploration-2007-2016.pdf">72 exploration wells drilled there</a> between 2007 and 2016, 25 were hydraulically fracked. But most of them were declared dry and failed to draw gas to the surface. The major petroleum companies involved pulled out. The UK plodded on alone until November 2019, when the Conservative minority government announced it was <a href="https://www.bbc.co.uk/news/business-50267454">withdrawing support</a> for fracking. Many of the UK’s opposition parties had already taken an anti-fracking stance on environmental grounds long before.</p>
<h2>A wasted decade</h2>
<p>There have been a handful of shale gas tests in the UK, with most in Lancashire and a few elsewhere in England. While there is a lot of gas trapped within shale rock in the north and south of England, Midland Valley of Scotland and parts of Wales, it’s likely that little of it can be extracted by fracking.</p>
<p>Research from the independent <a href="http://www.refine.org.uk/">ReFINE</a> partnership jointly led by Durham and Newcastle Universities has shown that the estimated volume of technically recoverable shale gas in the UK was based upon a miscalculation. The total volume of shale was reasonably clear, though the quantity of gas within it wasn’t, as few samples of the rock were available for lab testing. Recent work on UK shale samples by <a href="https://www.nature.com/articles/s41467-019-11653-4">Colin Snape</a> at Nottingham University has demonstrated <a href="https://theconversation.com/how-we-discovered-uk-shale-gas-reserves-are-at-least-80-smaller-than-thought-122076">very poor gas yields</a>. The gas may be there but it won’t come out. The situation in Poland is much the same.</p>
<p>UK geology is complex and areas that could be explored are much smaller than the uniform and simple geology of the US Midwest. You just can’t drill the numbers of wells required by a shale gas industry and this is exacerbated by the fact that the UK is a crowded island. The <a href="https://www.sciencedirect.com/science/article/pii/S0048969717304096?via%253Dihub">accessible area</a> is only about one-quarter of the total shale-bearing area in the country.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/301287/original/file-20191112-178498-r0zlkf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/301287/original/file-20191112-178498-r0zlkf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/301287/original/file-20191112-178498-r0zlkf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/301287/original/file-20191112-178498-r0zlkf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/301287/original/file-20191112-178498-r0zlkf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/301287/original/file-20191112-178498-r0zlkf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/301287/original/file-20191112-178498-r0zlkf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The then UK prime minister David Cameron visiting a fracking site in Gainsborough, January 13 2014.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/number10gov/11929558763/in/photolist-jbbZZs-jbc1e5-jb9FT2-jbb5nB-jbb7cD-jbc1ks-jbc1X9-jbe4Ly-jbe5fu-TzBguM-TvYG63-To9Uar-TzBgLP-To9Uq6-TvYHzA-Si4z65-TkNSn1/">Number 10/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The legal limit for induced seismicity in the UK is also so low that it effectively excludes any <a href="https://theconversation.com/fracking-causes-earthquakes-by-design-can-regulation-keep-up-106183">fracking which is designed to break</a> the rock and hence cause Earth tremors. As an inherently chaotic process, forecasting the maximum magnitude earthquake that might result isn’t possible.</p>
<p>The UK government announced <a href="https://www.nytimes.com/2019/11/02/world/europe/uk-fracking.html">a pause in shale gas fracking</a> for <a href="https://theconversation.com/uk-governments-fracking-ban-has-a-convenient-loophole-126475">some areas of the UK</a> on the eve of a general election. It justified the decision on the basis that it’s impossible to accurately forecast the magnitude of induced earthquakes. This is certainly true today but it was also true ten years ago.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/uk-governments-fracking-ban-has-a-convenient-loophole-126475">UK government's fracking 'ban' has a convenient loophole</a>
</strong>
</em>
</p>
<hr>
<p>It’s easier to stop doing something on environmental grounds when it will save face than admit that the UK’s shale gas illusion was just that – an illusion. This decision may be welcomed by many, but the country has wasted a decade or more chasing a fossil fuel fantasy.</p>
<p>Distracted by shale, UK governments have let the potential of carbon capture and storage slip, while shying away from the steep emission reductions from heating and transport that are required to meet net-zero carbon targets. The UK’s shale gas unicorn may not yet be dead, as the government has <a href="https://theconversation.com/uk-governments-fracking-ban-has-a-convenient-loophole-126475">left open a pathway back for the industry</a>. Stopping fracking altogether would remove a major distraction to developing energy policy that reflects the urgency of the climate emergency.</p>
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<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=140&fit=crop&dpr=1 600w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=140&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=140&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=176&fit=crop&dpr=1 754w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=176&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=176&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><a href="https://theconversation.com/uk/newsletters/the-daily-newsletter-2?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKGE2019&utm_content=GEBannerC">Click here to subscribe to our newsletter if you believe this election should be all about the facts.</a></em></p><img src="https://counter.theconversation.com/content/126639/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jon Gluyas is named as a member of the ReFINE research consortium on fracking supported by UK research councils and at arms length by the petroleum industry. He has not received any direct or indirect funding from these sources.</span></em></p><p class="fine-print"><em><span>Magdalena Kuchler receives funding from the Swedish Research Council Formas (project no. 2015-00455). </span></em></p>A permanent fracking ban is needed to end the farce and shift resources into carbon capture and storage.Jon Gluyas, Professor of Geoenergy, Carbon Capture and Storage, Durham UniversityMagdalena Kuchler, Associate Senior Lecturer in Natural Resources and Sustainable Development, Uppsala UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/697272016-12-05T23:05:36Z2016-12-05T23:05:36ZWhy OPEC’s squeeze on oil prices is getting weaker all the time<p>OPEC’s recent decision to <a href="https://www.bloomberg.com/news/articles/2016-11-30/opec-decision-day-as-ministers-meet-to-salvage-deal-on-oil-cuts">cut oil production for the first time in eight years</a> marked the return of the oil cartel’s favourite tactic: squeeze supply in a bid to jack up the price.</p>
<p>Of course, this is nothing new. In 1851, during the Pennsylvania oil rush, the Oil Creek Association helped to push the price of oil up from 10 US cents a barrel to US$4. </p>
<p>OPEC can only dream of having the power to move prices by 4,000%. The reality is that its power to move prices at all is waning rapidly, as factors move beyond the bloc’s control.</p>
<p>It’s worth noting what happened to the oil drillers of Pennsylvania after they installed a floor under their high oil prices. Investors shifted their focus elsewhere, looking to Russia, Texas and eventually the Middle East. Precisely the same thing is happening to OPEC, particularly through the advent of the US shale oil industry. And this time it’s happening not in the golden age of oil but in an era when market conditions for polluting fuels are much tougher. </p>
<p>In 2008, when oil prices were high, Goldman Sachs predicted that oil would hit US$200 a barrel. But they are financial wizards, not historians. It has been 75% less for most of the period since. </p>
<p>Over the decades we have also grown used to hearing predictions that there are “only 30 years of oil left at current production rates”. (The horizon never seems to move any closer or further away.) </p>
<p>But bear in mind that oil reserves are a function of technology and price. When prices rise and technologies improve, more oil becomes economically viable to extract, effectively increasing the world’s oil reserves. As prices fall, these reserves effectively cease to exist until prices rebound or technology gets cheaper. </p>
<p>So, in one sense, the oil game hasn’t changed. OPEC needs high prices to justify extracting the oil. But bigger factors are now at play, which makes it harder for OPEC to squeeze supply as effectively as it once did. </p>
<h2>What has changed?</h2>
<p>OPEC was at its most powerful when the United States, the world’s largest oil consumer, relied on OPEC member states to meet its oil needs. Since the US shale boom increased US energy independence, OPEC can no longer threaten supply as it did during the 1970s. Now it simply risks squeezing itself out of the market.</p>
<p>It’s not just the US domestic market that has grown. If OPEC restricts supply, Canada can increase oil production from tar sands, and Brazil can bring on more deep-water oil production.</p>
<p>All of this challenges the perception that there is a shortage of oil, although more sophisticated peak-oil followers have shown that cheap oil from conventional sources did indeed peak in 2007, prompting the <a href="https://www.greentechmedia.com/articles/read/what-happened-to-peak-oil">most recent big surge in oil prices</a>. </p>
<p>In a bid to maintain its influence on supply and therefore prices, OPEC has turned to Russia, the world’s largest state-controlled oil producer, which has <a href="https://www.bloomberg.com/news/articles/2016-11-30/opec-decision-day-as-ministers-meet-to-salvage-deal-on-oil-cuts">agreed to cut production in tandem with OPEC nations</a>.</p>
<p>But even this will not be enough to keep pace with the changes wrought by new markets, new technologies and energy efficiency. Two years ago we wrote that <a href="https://theconversation.com/opec-v-oil-prices-how-the-worlds-biggest-oil-cartel-lost-its-power-34923">OPEC had lost its power</a> and, despite the latest move, we don’t see much to indicate that it has returned.</p>
<h2>The knock-on effects</h2>
<p>The fundamentals of the oil industry haven’t changed with this latest deal. In Australia the effect will be a roughly 5% increase in the oil price, and a larger increase in the price of petrol (perhaps up to 10%), as distributors and retailers take advantage.</p>
<p>Aside from the small effect on Australian consumers, this announcement will probably be helpful to Australian oil companies, giving them some good news to tell shareholders and employees.</p>
<p>But before boardrooms get too excited, it is worth noting that oil is also suffering a demand problem. All developed nations have now <a href="https://theconversation.com/no-politician-can-singlehandedly-bring-back-coal-not-even-donald-trump-69424">begun to decouple economic growth from fossil fuels</a>. For oil, the chief threat is one of being replaced by electric public transport and electric or hybrid cars.</p>
<h2>Oil’s murky future</h2>
<p>Oil’s future suffers from another problem: it’s not good for your health. An announcement that will have a more powerful effect on the oil price, but which received much less media attention, came in 2012 when the International Agency for Research on Cancer (IARC) <a href="https://www.iarc.fr/en/media-centre/pr/2012/pdfs/pr213_E.pdf">updated its classification</a> of diesel engine exhaust from “probably carcinogenic to humans” (Group 2A) to “carcinogenic to humans” (Group 1). Petrol exhaust is listed as probably carcinogenic. </p>
<p><a href="http://www.sciencedirect.com/science/article/pii/S097308261300032X?via%3Dihub">Health impacts</a> are a large driver for moving away from fossil fuels – even for those who don’t accept the predicted climate impacts. With the fundamental shift towards fuel efficiency and electric vehicles, the <a href="http://www.bbc.com/news/business-34324772">Volkswagen emissions scandal</a> and the awareness that petrol and diesel cause cancer, respiratory disease and lower <a href="http://www.sciencedirect.com/science/article/pii/S097308261300032X?">birth weights in babies with mothers living near major roads</a>, the trend for oil consumption is downward. </p>
<p>So the drivers for change are as they have always been – demand and technology are behind the wheel, not OPEC making “important” announcements. Look for a small, short-lived increase in your local fuel price, but remember that if your tank of fuel goes up by 10c a litre, most of that isn’t down to OPEC. It’s mainly retailers looking for a bigger Christmas bonus.</p><img src="https://counter.theconversation.com/content/69727/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>OPEC’s recent decision to cut supply is a classic move from the oil cartel playbook. But in today’s era, there are many more players and game-changing technologies on the field.Mark Andrich, Director, Sustainability and Finance Specialist, The University of Western AustraliaJemma Green, Research Fellow, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/569182016-03-30T04:37:41Z2016-03-30T04:37:41ZPrice shock: how the gas industry is weathering the oil crash<p>Falling oil prices are causing a shake-up in the gas industry. The latest sign of this is Australian energy company <a href="https://theconversation.com/woodsides-browse-project-setback-shows-the-gas-industry-needs-to-get-its-act-together-56748">Woodside’s indefinite deferral</a> of its huge gas project off northwest Western Australia. </p>
<p>The A$40 billion project was to convert natural gas extracted from deepwater areas to liquid (LNG) on a floating barge-like structure for export – a world first on a commercial scale. Major oil companies Shell and BP are partners in the joint venture. Some have suggested the solution is for <a href="https://theconversation.com/woodsides-browse-project-setback-shows-the-gas-industry-needs-to-get-its-act-together-56748">companies to work together to bring down costs</a>. </p>
<p>The project is just the latest victim as companies adapt to lower oil prices. So how else is the sector dealing with the low prices?</p>
<h2>Why have prices fallen?</h2>
<p>Gas prices are linked to oil prices in their export contracts. <a href="http://www.macrotrends.net/1369/crude-oil-price-history-chart">Oil prices started their freefall</a> from around US$110 a barrel in July 2014 to the current US$38 a barrel. </p>
<p>Shell has claimed that the project is <a href="http://www.smh.com.au/business/woodside-petroleum-drops-40-billion-browse-floating-lng-project-20160323-gnp14k.html?skin=text-only">not economic at an oil price of less than US$50 a barrel</a>. </p>
<p>Essentially, the global oil and gas industry is facing an oil price shock, which is affecting local projects. </p>
<p>The price of oil has fallen as non-Western oil-producing countries (<a href="http://www.opec.org/opec_web/en/about_us/25.htm">OPEC</a>) seek to re-establish dominance over the United States. The recent US <a href="https://theconversation.com/shale-oil-the-boom-heard-around-the-world-19202">shale oil revolution </a> uses new extraction techniques, so despite its higher costs requiring higher prices, shale oil was looking like it might make the United States <a href="https://www.onepetro.org/journal-paper/SPE-0215-0049-JPT">self-sufficient in oil for the first time</a>. But the OPEC competitors have flooded the market with oil (thus lowering the price) in a bid to drive US shale oil companies out of business. </p>
<p>Other oil states such as Nigeria, Iraq and Venezuela have compounded this oversupply by ramping up production for much-needed cash to shore up their weakening economies.</p>
<p>The ramifications of “low oil price shock” are being discussed in <a href="http://www.spe.org/jpt/article/9690-guest-editorial-americas-unconventional-energy-opportunity/">oil and gas professional journals</a>, but academic journals haven’t yet caught up. </p>
<p>To find out how companies are dealing with the price shock, I and other researchers have been <a href="http://www.austaxpolicy.com/global-low-in-oil-prices-implications-for-australia-and-malaysia/">interviewing senior executives from the oil and gas industry</a> in Australia and Malaysia. We’re starting to see some definite trends. </p>
<h2>Cuts to exploration and new spending</h2>
<p>After decades of exploration in Australia for oil and gas, industry is cutting its spending on exploration.</p>
<p>Several executives mentioned that spending on new projects has been curtailed in the design and development phase. One commented, “We’ve already had several rounds of capital budget cuts.” The overall impression from the interviews is of a significant drop in the number of projects globally that are progressing to the development phase, which normally requires significant spending. </p>
<p>One oil executive called for Petronas (Malaysia’s national oil company) to pull back on capital spending on overseas ventures, such as those in Australia, and spend on projects in Malaysia. </p>
<h2>Retrenchments and asset sell-offs</h2>
<p>In terms of the low oil price impact on employees, one comment was: “There is a blood bath going on.” </p>
<p>An executive stated: “It is my view that non-critical and expatriate staff will not see their employment extended.” </p>
<p>Another explained: “…in the short term, we have had a lot of job cuts and a lot of salary reductions.” Thousands of jobs are being axed and the industry’s professional journals are <a href="http://www.spe.org/jpt/article/10769-guest-editorial-19/">counselling those affected</a>.</p>
<p>Roger Jenkins, chief executive of US Murphy Oil Corporation, recently reflected on his company’s 2015 operations in Sarawak, Malaysia. He cited <a href="https://cc.talkpoint.com/cred001/022216a_ae/?entity=24_QNMTNVY">lower operating costs</a>, such as savings on labour, and the “timely 30% selldown” of onshore plant assets in Malaysia. At the moment cash is sorely needed.</p>
<h2>Maintain cash flow and preference onshore projects</h2>
<p>Jenkins observed that Murphy Oil’s capital expenditure will be cut to less than US$2 billion in 2016 and the company will reduce risk by getting out of deepwater operations, such as floating LNG facilities. </p>
<p>The plan is to survive the downturn in oil prices by maintaining current production projects (for cash flow) and keeping operations close to shore. <a href="http://www.spe.org/jpt/article/9184-guest-editorial-improving-operator-returns/">Anything non-productive is being sold</a>.</p>
<p>Another oil executive said cost savings have mainly been found through onshore technology, while deepwater offshore projects remain costly. His view was that as companies dispose of non-productive assets, there are going be “buying opportunities this year”. He also predicted that this quarter in the US over 100 small oil and gas companies are going to file for bankruptcy.</p>
<p>The deferral of Woodside’s major floating LNG project in the Browse Basin is part of the fallout from the low oil price shock. The next step is to figure out what this will cost the Australian economy.</p><img src="https://counter.theconversation.com/content/56918/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Diane Kraal does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Woodside’s deferral of its floating gas project in Western Australia is just the latest blow low oil prices have dealt the industry.Diane Kraal, Senior Lecturer, Business Law and Taxation Dept, Monash Business School, Monash University, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/528792016-02-02T14:38:03Z2016-02-02T14:38:03ZHow Saudi Arabia’s grip on oil prices could bring Russia to its knees<p>When Saudi Arabia led an OPEC decision to end <a href="http://uk.reuters.com/article/us-opec-meeting-idUSKCN0JA0O320141128">a restraint put on oil production in November 2014</a>, it marked the beginning of a new era in oil economics. It has given us a tumbling oil price, prompted huge <a href="http://www.theguardian.com/business/2016/feb/02/bp-annual-loss-biggest-for-20-years-axes-thousands-of-jobs-deepwater">losses and job cuts at oil firms like BP</a> and might yet give us economic and political drama in the heart of Moscow. To understand why, it’s worth drilling down to the start of the whole process, and the costs of getting oil out of the ground in the first place. </p>
<p>Historically, the <a href="http://www.opec.org/opec_web/en/">OPEC cartel of oil-producing nations</a> has been able to manage oil prices because of the lack of flexibility in global supply. The whole business of setting up wells, operating pipelines and building rigs entails large and long-term investments which makes producers slow to respond to price movements. And a small cut in OPEC supply can have a significant impact on the global oil price. </p>
<p>The advent of the <a href="https://theconversation.com/shale-oil-the-boom-heard-around-the-world-19202">US shale oil boom</a> changed this dynamic. The industry has lower fixed costs but higher variable costs and is more like an industrial process than a major one-off investment. That makes it more responsive to price movements and more flexible in adjusting short-term output. </p>
<p>Overall though, shale is a relatively high cost source of oil, especially compared to Middle East production. As a result, when US shale threatened OPEC’s market share, the cartel allowed a position of global oversupply to develop. It was a simple trick: make oil prices fall to make shale unprofitable. </p>
<p>The chart below is a useful guide to how production costs stack up as production heads towards 100m barrels a day (which is <a href="https://www.iea.org/aboutus/faqs/oil/">pretty much where we are now</a>). Focus on the blue square in the bottom left, which shows onshore Middle East production costs at as little as US$10 a barrel, while US shale (the purple block) can come in at more than US$70. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=473&fit=crop&dpr=1 600w, https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=473&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=473&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=594&fit=crop&dpr=1 754w, https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=594&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/109969/original/image-20160202-32240-ais77i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=594&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://www.businessinsider.sg/crude-oil-cost-of-production-2014-5/#.VrCFw_mLTIU">Rystad Energy/Morgan Stanley/Business Insider</a></span>
</figcaption>
</figure>
<h2>Rigged game</h2>
<p>The plan to cripple shale oil production has certainly had a significant effect. The price of <a href="https://www.energyandcapital.com/resources/brent-vs-wti/17">benchmark Brent oil</a> has fallen from a high of US$115 a barrel in mid-2014 to a <a href="http://www.bbc.co.uk/news/business-35245133">low of US$27 in January 2016</a>. </p>
<p>However, the reaction of producers to this collapse, in particular in the shale fields of the US, hasn’t been as dramatic as you might think; business has carried on. What is evident is that supply continues to outstrip demand and, <a href="http://www.iea.org/newsroomandevents/news/2016/january/iea-releases-oil-market-report-for-january.html">according to the International Energy Agency</a>, will carry on doing so throughout 2016, putting even more pressure on the oil price. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=444&fit=crop&dpr=1 600w, https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=444&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=444&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=558&fit=crop&dpr=1 754w, https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=558&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/109796/original/image-20160201-32227-18y4tt5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=558&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Oil supply and demand projections for 2016 in millions of barrels a day.</span>
<span class="attribution"><a class="source" href="http://www.iea.org/newsroomandevents/news/2016/january/iea-releases-oil-market-report-for-january.html">IEA Oil Market Report January 2016</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>So, why haven’t US producers been laid low given that the oil price has already fallen below the cost of shale oil production? There are a number of answers. The first is that many companies managed to hedge their production when prices were higher, selling future supplies of oil at a high enough price keep profits coming in. A second is that many got bank loans to pay for investment. Loans need to be repaid, and so lower oil prices led to a need for higher output at almost any price. </p>
<p>A third, and important reason, is that the cost of US shale production has decreased thanks to efficiency gains, a focus on the most productive regions and a drive to sharply reduce costs. In some regions the cost of production has hit <a href="http://www.cnbc.com/2015/08/20/us-crude-oils-break-even-cost-how-low-can-it-go.html">as low as US$30</a> a barrel. </p>
<h2>Russia pressure</h2>
<p>Low-cost producers have troubles of their own. Oil revenues are a major plank of many countries’ budgets. Oil exports account for over 60% of export revenues, on average, for OPEC countries and account for as much as 90% of Saudi budget revenues. In Russia they account for around half of total federal budget revenues and a similar amount of total exports. Any fall in prices can lead to both fiscal and budget deficits. </p>
<p>Time for another chart then, which shows the “fiscal breakeven” oil price per barrel for a variety of producers. The key observation is that all are above US$60 per barrel, with Saudi Arabia and Russia at around US$100.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=467&fit=crop&dpr=1 754w, https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=467&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/109973/original/image-20160202-32244-12v5snb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=467&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fiscal breakeven oil prices per barrel.</span>
<span class="attribution"><span class="source">IMF, Deutsche Bank</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Despite this apparent pressure, the gap between breakeven and actual price can be sustained – at least for a while. Both Saudi Arabia and Russia have built up significant currency reserves during the period of high prices which are <a href="http://www.bloomberg.com/news/articles/2015-10-04/saudi-foreign-reserves-drop-to-the-lowest-level-in-32-months">now being used to finance a budget deficit</a> and sustain spending.</p>
<p>Russia though is reaching the limits of its reserves (at the current rate of spending the funds allocated to deal with a low oil price will be exhausted by early 2017). Currency devaluation <a href="http://www.reuters.com/article/saudi-riyal-oil-record-idUSL8N14R2L820160107">is a blunt tool for Russia and others to consider</a>, but it too <a href="http://www.telegraph.co.uk/finance/currency/11820755/Russian-rouble-hits-new-low-as-oil-prices-plunge-further.html">can help</a> by reducing costs in dollar terms.</p>
<p>That said, a tipping point may now have been reached. The <a href="http://www.cnbc.com/2016/01/11/half-of-us-shale-drillers-may-go-bankrupt-oppenheimers-gheit.html">bankruptcy of US oil producers</a> has begun as banks begin to call in loans, new financing gets harder to find and hedging programmes expire, leaving producers fully exposed to a lower oil price. Many OPEC countries have begun to despair that no end of the current oil price slump is in sight. And perhaps most interesting of all, it appears that Russia is becoming increasingly desperate to coordinate a production cut with OPEC, in stark contrast to its previous <a href="http://www.ft.com/cms/s/0/a8030faa-c6b0-11e5-b3b1-7b2481276e45.html">reluctance to engage with the cartel</a>. </p>
<p>It may just be, then, that a US$30 oil price has brought many producers to their knees, with the resulting possibility that the majority of OPEC countries, plus Russia and the US, may all be set to reduce output in 2016 and bring the oil market back into some form of balance. Only Saudi Arabia, with the largest financial reserves (<a href="https://www.imf.org/external/np/sta/ir/IRProcessWeb/data/sau/eng/cursau.htm">about US$600 billion at the last count</a>) and an avowed strategy to maintain market share, appears firm in its resolve to maintain production and brutally test the economic robustness of its major competitors.</p><img src="https://counter.theconversation.com/content/52879/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Henderson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When you pick apart the strange economics of global energy markets, it becomes clear how the incredible power of Riyadh can take other countries to the brink.James Henderson, Senior Research Fellow, Oxford Institute for Energy Studies, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/405312015-05-08T09:52:41Z2015-05-08T09:52:41ZIs US oil boom already turning to bust? OPEC can only dream<p>A boom, like beauty, is in the eye of the beholder. A boom occurs when people rush to claim something that seems to have out-sized value. The value can arise from scarcity in the face of demand or from abundance made possible by recovering something in demand with greater ease. </p>
<p>For natural resources, like 19th-century gold in California, a boom is often triggered by the latter. Not all the participants find the easy gold. Often, the first to arrive see rewards, while later arrivals go home hungry. </p>
<p>Organic-rich black shale in Pennsylvania and North Dakota is the source of the most recent natural resources boom. Today’s “gold diggers” are finding huge quantities of natural gas in Pennsylvania’s Marcellus Formation and oil in North Dakota’s Bakken. These two formations contain the largest US reservoirs of recoverable gas and oil, though other black shale sources across the country offer significant resource potential. </p>
<p>The ability to economically extract gas and more recently oil from shale is one of the greatest paradigm shifts in the global energy system. I played a role in that shift when my nearly 40 years of research on gas shale in Pennsylvania contributed over the past decade to a better understanding of unconventional gas fields. </p>
<p>Since then, production of gas and oil has surged, making the US the world’s top <a href="http://instituteforenergyresearch.org/analysis/u-s-overtakes-saudi-arabia-russia-worlds-biggest-oil-producer/">producer</a> of oil and gas. But already, just a few years after my reserve <a href="http://www3.geosc.psu.edu/%7Ejte2/references/link156.pdf">calculations</a> in 2008 identified the Appalachian Basin as the world’s largest unconventional gas field, the Organization of the Petroleum Exporting Countries – a cartel of 12 oil-exporting countries led by Saudi Arabia – is <a href="http://www.wsj.com/articles/opec-sees-booming-growth-in-u-s-oil-supplies-to-end-_in-2015-1429180187">arguing</a> the boom is about to go bust. </p>
<p>A <a href="http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_April_2015.pdf">report</a> released by OPEC in April asserted that US oil supplies would grow to 13.65 million barrels a day in the second quarter and then level off before beginning a steady decline by the end of the year. While there has been an inevitable decline in production as a result of the sharp drop in oil prices last year, is OPEC correct to predict US suppliers will never recover their peak levels of production?</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/80733/original/image-20150506-10950-106eueh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This graph charts the variation in the price of oil and gas over the past 12 years.</span>
<span class="attribution"><span class="source">EIA</span></span>
</figcaption>
</figure>
<h2>The boom’s first ‘bust’</h2>
<p>It may be argued that the boom in both Pennsylvania and North Dakota was triggered by a combination of higher prices and easier access. During the 2000s, the <a href="http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm">prices</a> of oil and gas were coupled in an upward drift culminating in the 2007-2008 price spike that ended with the collapse of the economy in 2008, when both plunged. </p>
<p>Drill rigs are the modern gold miners in places like Pennsylvania and North Dakota, where the rig count is as sure a measure of a boom as any. This spike and collapse of prices was <a href="http://www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf">mirrored</a> by the rig count in both places, which lags price declines by several months because rigs can’t be demobilized instantaneously. But the boom was far from over despite the collapse in prices – as improvements in technology ensured that access kept getting easier and plenty of oil and gas remained under the Earth, ready to be tapped.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=416&fit=crop&dpr=1 600w, https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=416&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=416&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=523&fit=crop&dpr=1 754w, https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=523&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/80732/original/image-20150506-10947-1r7y1aq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=523&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This graph charts how the number of rigs in the Bakken and Marcellus have surged and declined over the past 12 years.</span>
<span class="attribution"><span class="source">Baker-Hughes</span></span>
</figcaption>
</figure>
<p>By 2009 a huge amount of money had been spent on oil and gas leases, especially in Pennsylvania. To protect this billion-dollar investment, the shale gas boom continued independently of falling prices. The effect was that gas prices decoupled from oil in January 2009 and <a href="http://www.eia.gov/dnav/ng/hist/n9190us3m.htm">stabilized</a> at about $3.5 per thousand cubic feet – compared with a peak of just under $13 – whereas oil started to recover and returned to the $80 a barrel range in 2010, within 12 months of its crisis low of under $40. </p>
<p>By then, the oil and gas rush was back on. The Marcellus surpassed its pre-collapse peak rig count by April 2009, while the Bakken surged beyond its previous peak a year later. Both plays arrived at their maximum rig counts, the peak of the boom, about a year apart in 2011 and 2012, respectively. </p>
<p>At that point, however, the market realities finally caught up with energy producers. For the Marcellus gas boom, the rig count slipped downward by about 50% by the end of 2012 because of lower prices. The same downward adjustment of rigs in the Bakken is presently taking place, driven by last year’s sharp drop in oil prices. As measured by rig counts, both booms ended without any help from OPEC.</p>
<h2>Wishful thinking?</h2>
<p>A boom, like beauty, is only skin deep. OPEC hopes that the recent downturn in rigs reflects the amount of oil in the ground. If the Bakken goes dry, the argument goes, the US will again compete with the international community to buy OPEC oil at, say, $90 to $100 a barrel. This is wishful thinking. </p>
<p>There are American analysts who also see a return to the pre-shale, business-with-OPEC days largely <a href="http://oilprice.com/Energy/Crude-Oil/U.S.-Shale-Boom-May-Come-To-Abrupt-End.html">based</a> on steep production decline rates and poorer average well performances. Industry players and investors have already planned drilling and production programs that account for the former. It is the latter that would inevitably lead the charge back to OPEC.</p>
<p>Any substantial increase in oil prices will bring rigs, and hence production back. Rigs are becoming more efficient so that the break-even price for rigs is getting lower and lower, which will stabilize production and slow the decline even with low prices.</p>
<p>In this regard, Pennsylvania gas serves as a model for North Dakota oil production. Despite the cutback in rigs starting back in January 2012, gas production in Pennsylvania continued to increase for 12 straight quarters to reach total annual <a href="http://marcellusdrilling.com/2015/02/pa-production-in-2h14-soars-to-new-record-4-tcf-in-2014/">production</a> of more than 4 trillion cubic feet by the end of 2014.</p>
<h2>Pennsylvania’s boom ends but payments continue</h2>
<p>The boom in Pennsylvania, as measured by the number of roustabouts (the people who run the drill rigs) or the length of drill rod or any other measure, came to an end three years ago. Because of the stable price of gas since the summer of 2009, however, royalty payments, to take one example, have continued to have an impact on the economy of Pennsylvania. </p>
<p>Royalty payments are based on production that has continued to increase even after the boom ended. It’s very clear that fewer rigs can sustain production, at least until the sweet spots are drilled up. In Pennsylvania, that is sometime in the future. </p>
<p>Although somewhat less elastic, oil production can be held within the limits of profitability as well even when the rig count drops. During the first two months of 2015, the Bakken rig count dropped 31%, while production only dipped 4%. </p>
<p>In 2014, the Bakken rig count was steady at about 170, while production increased 34%. For a while in these shale plays, adding production from new wells more than compensates for decline in production from older wells. Of course, this is not sustainable forever, but OPEC is jumping the gun with its predictions of a dramatic decline anytime soon.</p>
<p>A production-sustaining rig count might be on the order of 140 for the Bakken. There is little doubt that the Bakken rig count will respond to current low prices by adjusting downward. If OPEC can <a href="http://www.nasdaq.com/article/low-oil-prices-force-opec-members-to-rethink-2015-budgets-cm434213">live</a> on a stable price of $50 per barrel – at which many members of the organization can no longer balance their budgets but sizable cash reserves can keep them going – then US oil production might sag. </p>
<p>But this does not mean that US oil production cannot return to its December 2014 peak – and then some – once prices rise once again. A price of $100 a barrel, for example, a desirable OPEC outcome, would do wonders for production from the Bakken, even if the price climb doesn’t happen for a while.</p>
<h2>Not going away</h2>
<p>Despite a production slowdown in early 2015, oil in the Bakken is not going away. To date, the Bakken has yielded 1.2 billion barrels, and the US Geological Survey <a href="http://www.usgs.gov/blogs/features/usgs_top_story/usgs-releases-new-oil-and-gas-assessment-for-bakken-and-three-forks-formations/">estimates</a> there is another 7.4 billion barrels of recoverable oil. </p>
<p>To keep US oil in the ground and out of markets, OPEC has to produce and sell its commodity at bargain basement prices. One wonders if this is the wisest long-term policy for OPEC. </p>
<p>The boom as measured by rig count may be over for both US gas and oil but the resource is still there. The abundance of US gas and oil will continue to be a threat to OPEC at all but rock bottom prices and OPEC, countries with an economy based on one commodity, would suffer as much or more from lower prices than the US industry.</p><img src="https://counter.theconversation.com/content/40531/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Terry Engelder teaches oil and gas geology to petroleum engineers at Penn State and is the principal owner of Appalachian Fracture Systems, an S-corp that gives field trips, workshops, and short courses for the fossil fuel industry. Engelder presently receives research funding through Penn State from the US Department of Energy and an industrial affiliates group known as the Appalachian Basin Black Shale Group (ABBSG). This academic research includes the study of hydraulic fracturing, earth stress, fluid-rock interaction, and the geological development of unconventional reservoirs. He is affiliated with the Geological Society of America, the American Geophysical Union, and the American Association of Petroleum Geologists.</span></em></p>OPEC is already suggesting the US oil boom will end this year. Wishful thinking.Terry Engelder, Professor of Geosciences, Penn StateLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/356552014-12-22T10:50:00Z2014-12-22T10:50:00ZFracking resolution in New York - escalation of fracking politics across the nation<p>Drilling in the Marcellus Shale, and in other unconventional oil and gas formations across the US, has led to a boom in domestic natural gas and oil production -– largely due to advances in high volume hydraulic fracturing or fracking. </p>
<p>The environmental and public health risks associated with hydraulic fracturing - a process of pumping a mixture of water, sand, and chemical additives, under high pressure, deep underground to release oil and natural gas from shale formations - have fueled political debates over how best to regulate oil and gas development. </p>
<p>These debates have been particularly polarized in New York. First, in 2008, the state imposed a temporary moratorium in order to carry out an environmental impact assessment, review existing regulations, and conduct a health review. Now, six years later, the Cuomo administration has concluded that the risks are too high and that New York will ban hydraulic fracturing. </p>
<p>The <a href="http://www.nytimes.com/2014/12/18/nyregion/cuomo-to-ban-fracking-in-new-york-state-citing-health-risks.html?_r=0">December 17 decision</a> ends an era of political uncertainty in New York. During the past six years, many <a href="http://www.fractracker.org/map/us/new-york/moratoria/">local governments</a> in the state decided to move forward with their own local bans on hydraulic fracturing. While a number of local governments across other US states have imposed bans or moratoria on hydraulic fracturing, New York has become the second state in the US after Vermont, and the first to overlie a major shale formation, to ban hydraulic fracturing altogether. </p>
<p>This raises two important questions. What made New York’s ban politically feasible? And will other states follow suit and ban fracking? </p>
<h2>What makes New York special?</h2>
<p>The decision in New York may well have been informed partly by the science in the state health study but science is generally not the key factor in political decisions. </p>
<p>Political decisions are made at the intersection of values, interests, and identities. Making successful ones requires good timing and building support and minimizing opposition. For Governor Andrew Cuomo, the stakes were high. He was up for reelection in 2014, so a decision one way or the other might have affected the election results. He had to be careful not to anger any major voting base and yet, at the same time, show leadership. </p>
<p>As our research has shown, the opposition to hydraulic fracturing has been particularly strong in New York relative to other states. A <a href="http://www.ucdenver.edu/academics/colleges/SPA/natgasdev/Documents/Summary%20Report%20of%20the%20Politics%20of%20NY%20Hydraulic%20Fracturing_April%202014.pdf">survey</a> we administered in the fall of 2013 to politically engaged people in New York (including those with government, nongovernment and industry affiliations) shows little middle ground. This is not the case in Colorado and Texas, for example, where similar studies we conducted show a larger proportion of moderate positions. </p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=776&fit=crop&dpr=1 600w, https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=776&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=776&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=976&fit=crop&dpr=1 754w, https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=976&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/67864/original/image-20141219-31545-jngmu1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=976&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">No middle ground in the debate.</span>
<span class="attribution"><span class="source">Courtesy Tanya Heikkila and Chris Weible</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Given that Democrat Andrew Cuomo does not have a lot of support in the middle, he would inevitably be caught in the crossfire in making a decision. He had to align with one side or the other. </p>
<p>Those in favor of fracking in New York include some local governments, mineral rights owners, and the oil and gas industry. In opposition are many local citizen-based groups and environmental and conservation groups. Our research also shows, however, that although the oil and gas industry may have financial resources, those opposed are better mobilized, better networked, and orchestrate more political activities that can attract sympathetic observers and gain political allies. </p>
<h2>A critical court case</h2>
<p>Gaining political leverage involves more than public performances. It requires the capacity to influence government. While opponents to hydraulic fracturing have proven successful at influencing local governments across the state, the durability and legitimacy of that influence remained uncertain until a recent state court decision upheld the <a href="http://www.nytimes.com/2014/07/01/nyregion/towns-may-ban-fracking-new-york-state-high-court-rules.html">constitutionality of local bans</a>. This court decision also provided an opportunity for the Governor to align with a powerful coalition - namely that against fracking. Indeed, without the state ban, it’s likely local governments would have had to go ahead without the Governor’s support. </p>
<p>While the opponents of hydraulic fracturing were gaining momentum in New York, the supporters had fewer political opportunities to gain a foothold on the debate. In part, this is a result of declining prices for natural gas prices, New York’s more limited shale resources compared to neighboring states and the fact that the oil and gas industry historically has not been a major economic base in New York. All these factors arguably inhibit New York’s potential for expansive economic development from shale gas, at least in the near term. </p>
<h2>The rest of the country…</h2>
<p>New York is obviously a special case. Whether other states now follow suit with state-level bans against hydraulic fracturing is an open question. </p>
<p>In states where shale development is active and the economic opportunities are still strong, such as <a href="http://www.ucdenver.edu/academics/colleges/SPA/natgasdev/Documents/Summary%20Report%20of%20the%20Politics%20of%20Colorado%20Hydraulic%20Fracturing%2010%2023%2013.pdf">Colorado</a> and <a href="http://www.ucdenver.edu/academics/colleges/SPA/natgasdev/Documents/Summary%20Report%20of%20the%20Politics%20of%20Texas%20Unconvetional%20Shale%20Development%207_19_2014.pdf">Texas</a>, we would not expect to see the same opportunity structures in place to follow a similar path. But the nation is watching and learning from the ban in New York, especially as <a href="http://www.utexas.edu/know/2013/04/09/ut-energy-poll-shows-divide-on-fracking/">public opinion</a> remains fairly divided on the issue. </p>
<p>For those supporting hydraulic fracturing, the New York ban is a threat that will likely lead to entrenchment and intensification of political resolve. For those against hydraulic fracturing, the New York ban is a possible path for victory by showing how to mobilize supporters and pressure government. </p>
<p>While the political uncertainty associated with the moratorium may have been resolved in New York, the debate is now likely to escalate across the nation.</p><img src="https://counter.theconversation.com/content/35655/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher M. Weible receives funding from The Alfred P. Sloan Foundation.</span></em></p><p class="fine-print"><em><span>Tanya Heikkila receives funding from The Alfred P. Sloan Foundation.</span></em></p>Drilling in the Marcellus Shale, and in other unconventional oil and gas formations across the US, has led to a boom in domestic natural gas and oil production -– largely due to advances in high volume…Christopher M. Weible, Associate Professor, University of Colorado DenverTanya Heikkila, Associate Professor, University of Colorado DenverLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/351252014-12-06T09:20:15Z2014-12-06T09:20:15ZShale gas projections are in decline – and we shouldn’t be surprised<figure><img src="https://images.theconversation.com/files/66429/original/image-20141205-8667-1h9p50w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Downgrades to shale gas estimates are hardly surprising</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&search_tracking_id=UdZtKJqfHjBI3NGJ6lKfqw&searchterm=fracking&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=223414372">Calin Tatu</a></span></figcaption></figure><p>The recent confidence in shale gas was likely premature, according to <a href="http://www.nature.com/news/natural-gas-the-fracking-fallacy-1.16430">several new reports</a> published in the US. In particular a study from the University of Texas claims the US boom will tail off by 2020 and not keep going to 2040 as previous less thorough analyses <a href="http://www.nature.com/news/natural-gas-the-fracking-fallacy-1.16430#/battle">have predicted</a>. To anyone who has been closely following the industry in recent years, <a href="http://mondediplo.com/2013/03/09gaz">this</a> difference in predictions will <a href="http://www.nytimes.com/2011/06/26/us/26gas.html?pagewanted=all&_r=0&_r=1&">not</a> be <a href="http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCEQFjAA&url=http%3A%2F%2Fwww.researchgate.net%2Fpublication%2F222525893_The_status_of_conventional_world_oil_reservesHype_or_cause_for_concern%2Flinks%2F00b495239523b9e361000000&ei=-sSBVIHyDouuUYengegP&usg=AFQjCNFJJ9Ed_GaAT-i3Wm506zueSyAVSA&sig2=h-EpLa-pEf7KaIID-zCPZw&bvm=bv.80642063,d.d24">surprising</a>, of course. </p>
<p>In 2013 the US Energy Information Administration (EIA) <a href="http://www.eia.gov/analysis/studies/worldshalegas/">already noted</a> that Norway’s assessment of its shale gas potential went from 83 trillion cubic feet (tcf) (2011) to zero (2013) due to results obtained from test wells in the alum shale, and how Poland’s estimates went from 44tcf to 9tcf due to stricter application of requirements for successful shale formations. But at that time the EIA did not comment as strongly or publicly on <a href="http://www.nytimes.com/interactive/us/natural-gas-drilling-down-documents-5.html#document/p9/a21602">similar concerns</a> about the accuracy of the US shale data. </p>
<h2>The UK picture</h2>
<p>Likewise concern about overestimates of shale potential is becoming louder in Britain, which is at a much earlier stage in terms of shale gas exploration but has a <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/10189932/George-Osborne-pledges-most-generous-tax-regime-for-shale-gas.html">similarly enthusiastic</a> government. Last month scientists from the UK Energy Research Council <a href="http://www.bbc.co.uk/news/uk-politics-30013668">suggested that</a> promises by ministers about greater energy security and lower energy prices through shale gas were <a href="http://www.telegraph.co.uk/news/earth/energy/fracking/11224097/Fracking-wont-cut-bills-and-ministers-oversold-shale-gas-benefits-experts-say.html">premature</a> and unlikely to be deliverable. Additionally there are concerns over whether investment in shale gas <a href="http://mondediplo.com/2013/03/09gaz">is still profitable</a>, while numerous potentially costly <a href="http://www.bgs.ac.uk/research/energy/shaleGas/environmentalImpacts.html">environmental concerns</a> have not yet been dispelled either. </p>
<p>What then are the reasons for these unreliable calculations? And why do governments promote shale gas with such conviction when it is surrounded by such uncertainty? One possible factor behind inaccurate judgement of shale gas potential is that both official organisations like the EIA and industry specialists rarely release the data behind their forecasts. </p>
<p>The terminology is also surely to blame: <a href="https://www.gov.uk/government/publications/bowland-shale-gas-study">there are resources, and then there are reserves</a>. While this is clear to experts, the distinction is not made consistently in the media. This prompted a <a href="http://webcache.googleusercontent.com/search?q=cache:LG4Ejg6o8SgJ:www.parliament.uk/documents/post/ShaleGas_POSTbox.pdf+&cd=1&hl=en&ct=clnk&gl=uk">recent note</a> by the UK Parliamentary Office for Science and Technology urging the government to address the variance. </p>
<p>Experts distinguish between total resources, potentially/technically recoverable resources, and reserves. The reserves is the amount that is economically recoverable, and is normally a fraction of the total resources. Even then, the North American experience demonstrates that well productivity <a href="http://pubs.usgs.gov/of/2013/1001/">is highly variable</a>. </p>
<p>When UK prime minister David Cameron <a href="http://www.theguardian.com/environment/2014/jan/13/shale-gas-fracking-cameron-all-out">announced that</a> Britain was to go “all out for shale,” there was no more detailed information available for the UK than the size of the total resource. Reserves could still be anywhere between substantial and zero. </p>
<p>One cannot help but be reminded of the nuclear energy discussion from the 1980s. Less than a month before the Chernobyl accident, The Economist described the technology as being “as safe as a chocolate factory” – and <a href="http://www.economist.com/node/21549936">has since</a> castigated itself for its remark. Today, shale gas is lauded to be both an economical solution and environmentally amenable –- before there is ample evidence for either claim. </p>
<h2>Politics at play</h2>
<p>Given election cycles, politics is naturally drawn to short-term solutions. The fact that shale has brought US gas prices to <a href="http://www.infomine.com/investment/metal-prices/natural-gas/all/">lower levels</a> than were probably imaginable a decade ago makes it attractive to this mindset. Lobbying interests will be part of the picture too – it does not surprise that countries with major petroleum companies <a href="http://www.theguardian.com/environment/2011/apr/20/fossil-fuel-lobbying-shale-gas">would push</a> the <a href="http://www.pacteurope.eu/pact/wp-content/uploads/2012/06/Lobbying-shale-gas-in-Europe.pdf">shale gas/oil</a> agenda. </p>
<p>The idea of tapping into a new petroleum resource also sits well with the underlying and largely uncontested objective of faster and continued economic growth. Equally, the idea of technological innovation fixing future problems and therefore allowing the status quo to continue is too good to pass up. </p>
<p>There are many things about alternatives such as renewables or conserving energy that are less comfortable or popular. When you read <a href="https://www.gov.uk/government/publications/meeting-the-energy-challenge-a-white-paper-on-energy">recent</a> UK <a href="https://www.gov.uk/government/publications/the-uk-low-carbon-transition-plan-national-strategy-for-climate-and-energy">energy strategy</a> White Papers, despite much talk of climate change prevention and a need for renewable energy, growth and revenue are more linked to fossil fuels and the traditional energy industry. Shale gas fits the bill. </p>
<p>I don’t categorically deny the possibility of continued revenue and profitability in the shale gas business. My point is that it should be treated as just that: a possibility, not a promise. In an era where the need for more transparency is a statement that appears in nearly all policy proposals, energy politics should be no different. What is needed is clear and factual communication between experts, policymakers and the public about the opportunities and drawbacks. Environmental costs should also be part of those considerations. As these latest US reports remind us, this has to include an accurate account of what is known about it and what uncertainties remain.</p><img src="https://counter.theconversation.com/content/35125/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hanna Peterson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The recent confidence in shale gas was likely premature, according to several new reports published in the US. In particular a study from the University of Texas claims the US boom will tail off by 2020…Hanna Peterson, Visiting Fellow, Harvard UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/349232014-12-03T04:55:25Z2014-12-03T04:55:25ZOPEC v oil prices: how the world’s biggest oil cartel lost its power<figure><img src="https://images.theconversation.com/files/66159/original/image-20141203-15629-nzwl04.jpg?ixlib=rb-1.1.0&rect=5%2C105%2C1752%2C1271&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In the 1970s, refineries in the Middle East controlled the world's flow of oil. Not any more.</span> <span class="attribution"><span class="source">National Iranian Oil Company/Wikimedia Commons</span></span></figcaption></figure><p>With oil prices on the slide, members of the once-dominant Organization of the Petroleum Exporting Countries (<a href="http://www.opec.org/opec_web/en/">OPEC</a>) decided last week <a href="http://www.abc.net.au/news/2014-11-28/oil-price-collapses-opec-nations-against-cutting-production/5925698">not to attempt to rally them by cutting production</a>, leaving the Brent Crude price hovering at about US$70 (A$83) per barrel.</p>
<p>A curious decision, perhaps, by a 12-nation bloc that has previously kept an iron grip on the world’s oil trade. But not so curious when you consider that OPEC is no longer an all-powerful cartel – now it has plenty of competition.</p>
<p>For the first time since its formation in 1960, two of the top three oil-producing countries (the United States and Russia) are outside OPEC. While OPEC controls low-cost oil, it has lost supply control at higher prices and cannot push prices up like it could in the 1970s – or at least, not without stimulating a lot more supply from elsewhere.</p>
<p><a href="http://www.eia.gov/countries/index.cfm?view=production">According to the US Energy Information Agency</a>, the United States now produces 11.1 million barrels of oil per day – about the same as Saudi Arabia (11.7 million barrels) and Russia (10.4 million barrels). </p>
<p>This new situation is a free-for-all between the three major players: OPEC (led by Saudi Arabia), US-based private oil companies, and Russian state-controlled oil firms. All three groups have the same reason for wanting to produce more – they need or want more money in the short-medium term to satisfy their current spending, shareholder and salary expectations. Amid this competition, cutting production on purpose isn’t such an attractive move.</p>
<h2>Price plunge</h2>
<p>The drop in oil prices over the past year is the result of years of over-investment in oil production. Companies and governments, expecting sustained high prices, have made investment decisions at break-even prices of US$60-80 a barrel and above. With oil prices over the past decade averaging more than US$100 a barrel, even a US$80 break-even sounds conservative, especially for projects with a quick return. </p>
<p>But the sustained high prices had another effect: they encouraged the development of new technologies such as deep and ultra-deep water oil drilling, and the recovery of shale oil through improved horizontal drilling and fracking. These technologies have been advanced due to high prices, but ironically, once deployed they drive the price down again as more supply comes online.</p>
<p>A good example is the <a href="http://bakkenshale.com">Bakken Formation</a> in the US state of North Dakota. Discovered in the 1950s and estimated to hold more than 200 billion barrels of shale oil, it became a very attractive prospect at US$100 a barrel. With US$20 trillion in untapped oil, there was a strong incentive to develop the technology to extract it, which is happening now.</p>
<p>Over the past decade, oil companies have invested trillions of dollars in new projects based on high oil price assumptions, in ever more remote locations and with consequently higher production costs. There are now deep-water oil projects in the Black Sea off Romania, and off Brazil’s coast, and oil sands projects in Canada. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=332&fit=crop&dpr=1 600w, https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=332&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=332&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=418&fit=crop&dpr=1 754w, https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=418&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/66157/original/image-20141203-15605-xu0v0q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=418&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Shell’s planned spending on oil projects, divided up by break-even price per barrel of oil (boe).</span>
<span class="attribution"><span class="source">Carbon Tracker</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Oil firm McMoRan spent US$1.2 billion to drill six wells in ultra-deep waters in the Gulf of Mexico – US$200m per well. At US$70 a barrel, it would take more than 17 million barrels (nearly an entire day of US demand) to recover the cost of drilling these wells. Once oil is found and under production, the tap is not going to be turned off until the cost of marginal production is greater than the oil price.</p>
<p>Multiply this by oil basins all around the world (see below), and all of this sunk capital needs to generate a return on investment, even if less profitable. Given that the extra cost of producing oil from these unconventional assets is US$10-20 barrel, oil companies are putting these assets to work as hard and as fast as the reservoir allows. This improves their cashflows in the short term, but reduces their return on investment and profitability. These financial issues will reveal themselves more over time.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=302&fit=crop&dpr=1 754w, https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=302&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/66155/original/image-20141203-15608-i2dk8w.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=302&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Cost curve for new oil projects.</span>
<span class="attribution"><span class="source">Carbon Tracker/JPM/Goldman Sachs</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>You would think that global population growth would drive prices higher, but high energy costs and concern for the environment has also driven improvements in energy efficiency, especially for planes and cars. Even with the rise of the middle class in China, global oil consumption has actually gone down relative to population growth over the past decade (global population has <a href="http://data.worldbank.org/indicator/SP.POP.TOTL">grown by 11.3%</a> while oil demand has <a href="http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=5&pid=5&aid=2">increased by 9.3%</a>). </p>
<p>Car use has also peaked in most countries around the world as commuter speeds have hit the wall due to higher populations and workers gravitate back to <a href="https://theconversation.com/the-east-west-link-is-dead-a-victory-for-21st-century-thinking-34914">dense urban centres</a>. This is causing a massive amount of passenger rail to be installed around the world. China has installed 8,500 km of intercity fast rail and 86 metro systems in cities in the past decade. These are all powered by electricity rather than oil.</p>
<h2>Electric performance</h2>
<p>High-cost assets may continue to produce at current oil prices, but there will come a point if they decline further where they become unviable to continue producing. Oil-based transport assets are at a greater risk of becoming stranded.</p>
<p>Given that <a href="http://www.eia.gov">97% of oil production is used for transport</a>, and the majority of this is for passenger and commercial vehicles, oil demand could fall significantly as people choose to drive <a href="http://www.sciencedirect.com/science/article/pii/S097308261300032X">lower-emission vehicles</a>.</p>
<p>Of the 18 million barrels per day used in the United States, 9.7 million barrels is for vehicle transport. Extrapolating that globally means that for every 10% of petrol cars that are replaced with electric ones, global oil demand would drop by more than 5%.</p>
<p>Improvements to car efficiency would have a similar effect, with a 10% improvement in overall average vehicle efficiency causing a 5% drop in oil demand. </p>
<p>At US$70 a barrel, this 5% reduction in annual oil demand would wipe US$116 billion off annual global oil sales.</p>
<p>By 2020, hybrid and electric vehicles are expected to account for <a href="http://www.navigantresearch.com/wp-assets/uploads/2013/06/EVMF-13-Executive-Summary.pdf">more than 5% of the global new car market</a>. The United States has more than 240,000 electric vehicles (a small but fast-growing fraction of the 250 million US cars in total), and in Norway, the world leader in electric vehicles per capita, 12.9% of new cars sold in the first half of 2014 were electric. </p>
<h2>Where does this leave OPEC?</h2>
<p>OPEC members know that cutting their own production would no longer have a big effect on the global supply of oil. Even if they could drive up the oil price, this would only invite more competition that would hurt their revenue, by making expensive projects <a href="http://www.carbontracker.org/in-the-media/nine-out-of-ten-barrels-in-undeveloped-oil-sands-projects-at-risk-from-eroding-oil-price">such as Canadian oil sands</a> more viable. </p>
<p>OPEC also knows that private oil firms won’t be scaling back production either. After more than a decade of high-cost investments, it’s in the private players’ interests to keep working existing assets to claw back capital. Cash flow at a lower oil price is better than no cash flow at all.</p>
<p>Given these assets have a typical life span of at least 10 years, this situation is likely to endure for some time. We have probably seen a step change in oil prices, which are likely to stay low.</p>
<p>This is why it’s off the mark to suggest that OPEC has deliberately chosen to keep the price low to compete with renewable energy. The far less sinister reality is that OPEC no longer has much choice at all.</p>
<p><em>This article was amended on December 4, 2014, to correct an error in the amount of oil production required to recover the cost of McMoRan’s oil drilling in the Gulf of Mexico. Thanks to Terry Reynolds in the comments for spotting it.</em></p><img src="https://counter.theconversation.com/content/34923/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jemma Green is on the board of directors of Future Super and on the advisory board for Carbon Tracker.</span></em></p><p class="fine-print"><em><span>Mark Andrich consults to Government departments as a finance and sustainability specialist. Mark is an Honorary Research Fellow at the University of Western Australia.</span></em></p><p class="fine-print"><em><span>Peter Newman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With oil prices on the slide, members of the once-dominant Organization of the Petroleum Exporting Countries (OPEC) decided last week not to attempt to rally them by cutting production, leaving the Brent…Jemma Green, Research Fellow, Curtin UniversityMark Andrich, Honorary Research Fellow, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/292892014-08-06T05:06:29Z2014-08-06T05:06:29ZUS fracking boom puts West African oil economies at risk<figure><img src="https://images.theconversation.com/files/55795/original/bt6ktj3b-1407237978.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Is the sun setting on West African oil? A platform in Limbe, Cameroon</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/46084822@N02/4414354664/in/photolist-9LPBnH-9NAqQe-9NEwpU-9NJAiA-9NGYu8-aFz31k-9NDUEY-9NAw5D-86os6y-btvgrw-btvgp5-bBANmb-jAWpgQ-btvgr3-btvgoj-bGq6yX-btvgsj-bGq6Cn-bGvs5K-btACJ7-bGvrXZ-btACFw-btACKs-btACLQ-bGvs4F-btACHd-9NyTno-86os5L-6pmuke-9NvgtE-86os59-86os4y-9NsCbe-9NH11D-9NDgMs-hW4vet-b7Mhna-9Nv8dj-bEjcvB-ovWM5n-8f3qwx-ero6Ej-oeZPN6-89Gus2-8f3qhP-8f3qp4-8f3qre-d1aSPs-7J5HRb-72oxZw">VirginieVV</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>After the terrorist attacks of 9/11, the US made a point of diversifying its sources of oil to reduce dependence on the Middle East. It was a strategic move which promised a huge boost to West African oil exporters around the Gulf of Guinea, but those same countries now face the comedown as the rise and rise of US domestic fracking whisks the opportunity away so quickly after it arrived.</p>
<p>It had all the trappings of a gold rush. Nigeria, Angola, Gabon and Equatorial Guinea in particular were identified as attractive sources of oil and therefore destined to become increasingly important to the post-9/11 US energy strategy. West African crude is of high quality, the region was perceived as less hostile to US interests than the Middle East, and the Atlantic Ocean waterways are a more secure shipping corridor compared to those in the Persian Gulf. </p>
<p>A 2001 <a href="http://www.wtrg.com/EnergyReport/National-Energy-Policy.pdf">National Energy Policy Report</a>, often referred to as the “Cheney Report” as it was chaired by the then US vice president, identified energy security as a top US trade and foreign policy priority. A wide range of industry experts and commentators predicted that 25% of all US oil imports would come from West Africa, thus expanding the US’ presence in the region. The <a href="http://www.africom.mil/">establishment of the United States Africa Command</a> (AFRICOM) in 2007 was considered a manifestation of the “securitisation” of Africa, relating not only to the US-led war on terror but also to the need for the US to secure energy supplies. And US oil imports from its six key suppliers in sub-Saharan Africa (Angola, Cameroon, Chad, Gabon, Nigeria and the Democratic Republic of the Congo) increased by 40% from 2001 to 2010, whereas total US oil imports increased by only 16%.</p>
<p>In the past few years, however, we have seen a rapid increase in US shale gas and oil production, <a href="https://theconversation.com/topics/fracking">a revolution in energy production</a> with major implications for the global energy trade. This has fundamentally upended widely held assumptions about both the future of US energy imports and the role of West African petro-states in supplying them. The question now is not whether the US will depend on West Africa for a quarter of its (diminishing) oil imports, but whether it will be importing West African oil at all. </p>
<p>By 2012, US oil imports from sub-Saharan Africa had declined by 59% from peaks only a few years earlier, compared to a less drastic 23% decline in overall US oil imports. Nowhere is this rapid shift felt more acutely than in Nigeria. In three years alone US crude oil imports from Nigeria have decreased by 75%, from nearly 359m barrels in 2010 to 87m in 2013. Based on the US <a href="http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbbl_a.htm">Energy Information Agency’s figures</a> for the first quarter of 2014, US imports will drop by another 75% this year alone to about 22m barrels. Edward Morse, head of commodities research at Citigroup Global Markets, predicts that the US and Canada will completely cease importing crude oil from West Africa some time this year.</p>
<p>Nigeria is an instructive case study for thinking about how the shale revolution will impact developing states dependent on energy export revenues, in West Africa and elsewhere. There is great concern in Nigeria about the rapidly dwindling US export market, which has been by far the most important destination for Nigerian oil. Nigeria’s oil minister, Diezani Alison-Madueke, identifies US shale oil as “<a href="http://online.wsj.com/news/articles/SB10001424127887323855804578508871186460986">one of the most serious threats</a>” to Africa’s oil exporters as Nigerian oil is now being displaced by abundant and cheap US shale oil and increasing US imports from Canada. The loss of Nigeria’s most important export market is compounded by the ongoing troubles surrounding the country’s domestic production.</p>
<h2>Exploration for customers</h2>
<p>Oil theft, sabotage of infrastructure and the general corruption and social conflict that have arisen in the wake of Nigeria’s oil boom are now resulting in international oil companies pulling back from the country. <a href="http://online.wsj.com/news/articles/SB10001424052702304200804579165040226032758">Royal Dutch Shell</a>, Chevron and ConocoPhillips have begun to divest themselves from higher risk onshore and shallow water oil fields, with Nigerian and emerging market (in particular Chinese) national oil companies stepping in to fill the gaps. Nigeria and other producers in the region will reorient exports to the EU and Asia. However, these markets, too, will eventually be affected by US production. And the EU is hardly a long-term prospect for West African oil given its move towards cleaner fuels such as renewables and also lower overall energy consumption.</p>
<p>With the potential of fracking for shale gas and oil to significantly increase production in other parts of the world, such as China, Argentina, South Africa and the UK, there will likely be increasing insecurity and volatility ahead for producers of conventional oil. </p>
<p>In particular the petro-states of West Africa who are highly dependent on oil export revenues and are perhaps least equipped to deal with unpredictable revenue flows and the costs of reorienting their export markets. Oil and gas will remain crucial resources for financing development in an increasing number of African states, <a href="http://www.cfr.org/africa-sub-saharan/beating-resource-curse-africa-global-effort/p28780">but as the “oil curse” has proven</a>, high risk remains ever present.</p><img src="https://counter.theconversation.com/content/29289/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stefan Andreasson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After the terrorist attacks of 9/11, the US made a point of diversifying its sources of oil to reduce dependence on the Middle East. It was a strategic move which promised a huge boost to West African…Stefan Andreasson, Senior Lecturer in Comparative Politics, Queen's University BelfastLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/282152014-07-07T05:03:31Z2014-07-07T05:03:31ZIraq crisis threatens global oil supplies and a stable Middle East<p>The mid-June penetration of <a href="http://www.bbc.com/news/world-middle-east-27990478">northwestern Iraq</a> by <a href="http://www.economist.com/news/middle-east-and-africa/21604230-extreme-islamist-group-seeks-create-caliphate-and-spread-jihad-across">the extreme Islamist movement ISIS</a> has prompted major concerns about the world’s oil supply and energy security. </p>
<p>The group’s incursion threatens Iraq’s <a href="https://theconversation.com/iraqs-impact-on-oil-prices-depends-on-how-quickly-we-respond-28298">sovereignty</a> and <a href="http://www.theguardian.com/commentisfree/2014/jun/15/once-unity-crucial-iraq-now-cracks-visible-isis">unity</a>. Identified root causes have typically included the sectarianism of the pro-Shia majority government of <a href="http://en.wikipedia.org/wiki/Nouri_al-Maliki">Nouri al-Maliki</a>, Prime Minister since May 2006. </p>
<p>Illustrating oil-related impacts, ISIS fighters are <a href="http://www.aljazeera.com/news/middleeast/2014/07/islamic-state-seizes-syria-key-oil-field-20147314108662628.html">reported by Al Jazeera</a> in the past week as having “seized control of Syria’s largest oil field on the Iraqi border, forcing the withdrawal of rival fighters”. A few days earlier, ISIS claimed control of Iraq’s largest oil refinery in Baiji though this claim was <a href="http://edition.cnn.com/2014/06/24/world/meast/iraq-crisis/">in dispute</a>.</p>
<p>Reflecting this crisis, <a href="http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/12/chaos-in-iraq-is-already-sending-oil-prices-higher/">oil prices</a> (Brent index) have reached their highest levels since September 2013 at US$116 a barrel, but have <a href="http://www.forbes.com/sites/billgreiner/2014/06/30/iraq-instability-and-oil-prices/">not increased further</a> in recent weeks. Much more substantial increases might follow future incursions, albeit unlikely, into Shia and Kurdish regions. There are also implications for <a href="http://www.csmonitor.com/Environment/Energy-Voices/2014/0611/Iraq-crisis-What-the-Mosul-siege-means-for-OPEC">OPEC</a>.</p>
<h2>Who controls oil reserves and production?</h2>
<p>According to <a href="http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy.html">BP statistics</a>, Iraq holds as much as 9% of the world’s conventional oil, having proven reserves of 150 billion barrels. Of <a href="http://gallery.mailchimp.com/20fec43d5e4f6bc717201530a/files/7a68c869-d523-42cd-a1da-8613105eda99.pdf">this</a>:</p>
<ul>
<li>75% is in the largely Shia south (including Basra);</li>
<li>17% is in the largely Kurdish North (including Kirkuk); and</li>
<li>8% in the central region with a substantial Sunni element.</li>
</ul>
<p>Large reserves of oil and gas may also lie in the western desert region. Similarly, most production of crude oil in Iraq is from these Shia- and Kurdish-held regions. Thus, oil is one source of contention between the Shia-dominated regime as opposed to the Sunni and Kurdish minorities.</p>
<p>The Shia-held oil production facilities are not immediately threatened by the ISIS incursion. For its part, the Kurdish minority has taken the opportunity to consolidate its hold over <a href="http://www.turkishweekly.net/news/168779/kirkuk-a-city-in-dispute.html">oil facilities</a> in its own region.</p>
<p>Iraq’s production rate so far this year has been 3.5 million barrels a day — a return to the record levels seen in 1979. Iraq now ranks as the second-highest producer in OPEC, after Saudi Arabia. There are plans to expand production to 5 million barrels a day by 2020, and perhaps eventually to <a href="http://bakerinstitute.org/center-for-energy-studies/research-future-iraq-implications-world-oil-markets/">12 million barrels a day</a>.</p>
<h2>On the trail of Middle Eastern oil money</h2>
<p>More broadly, the Middle East holds 48% of the world’s proven reserves of conventional crude oil, and in 2013 produced 33% of annual global production. At the high prices of the past decade, this translates into immensely large net revenues. </p>
<p>For example, in Iraq the estimated extraction cost of oil is only about <a href="http://gallery.mailchimp.com/20fec43d5e4f6bc717201530a/files/7a68c869-d523-42cd-a1da-8613105eda99.pdf">US$2 per barrel</a>, while current and projected oil prices are upwards of US$100 per barrel.</p>
<p>One key connection between regional security and this oil wealth lies in the <a href="http://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Energy,%20Environment%20and%20Development/1012pp_opec.pdf">uses</a> to which these vast resource rents can be put. This is well illustrated by Saudi Arabia.</p>
<p>First, a sufficient world oil price, and hence large revenues, are required for the Saudi autocratic state to maintain <a href="http://blogs.ft.com/nick-butler/2013/04/06/oil-prices-have-the-saudis-lost-control/?infernofullcomment=1&SID=google">domestic stability</a>. A second call on Saudi oil revenues stems from its fears about the Sunni Islamist Muslim Brotherhood ─ supported and funded in large part by <a href="http://www.csmonitor.com/World/Middle-East/2014/0418/Behind-Qatar-s-bet-on-the-Muslim-Brotherhood">Qatar</a>, the largest gas exporter in the Middle East.</p>
<p>This Saudi fear is currently leading the country to transfer as much as <a href="http://www.abc.net.au/radionational/programs/breakfast/judgement-day-for-peter-greste/5542518">US$20 billion annually</a> to the Egyptian military regime. </p>
<p>Third, and despite its fear of the Brotherhood, Saudi Arabia has also channelled oil revenues to other Sunni Islamist forces fighting in Syria, <a href="http://www.thedailybeast.com/articles/2014/06/14/america-s-allies-are-funding-isis.html">including groups akin to ISIS</a>. Fourth is the long-standing high level of Saudi <a href="http://books.sipri.org/files/FS/SIPRIFS1403.pdf">arms spending</a>. </p>
<h2>Alternative paths for the US and faint signs of hope</h2>
<p>The United States faces two broad options in Iraq and elsewhere. The entrenched one is based on its self-designated role as the <a href="http://www-personal.umd.umich.edu/%7Eatthrall/whyiraq.pdf">dominant world power</a>. </p>
<p>US influence in Iraq dates back to <a href="http://www.commondreams.org/headlines03/0420-05.htm">CIA-sponsored coups in 1963 and 1968</a> during the Cold War period, which favoured the Sunni Ba'athist party of Saddam Hussein. Under President George W. Bush, the <a href="http://www.metu.edu.tr/%7Eutuba/Layne.pdf">strategy</a> of global dominance and imposed <a href="http://www.huffingtonpost.com/michael-schwartz/its-the-oil-stupid_b_5525312.html?utm_hp_ref=politics">neo-liberal economic agenda</a> underpinned the <a href="http://strategicstudiesinstitute.army.mil/pubs/parameters/articles/03spring/record.pdf">2003 US invasion of Iraq</a>.</p>
<p>Iraq’s planned transformation to a client state of the US was viewed as a stepping stone to “<a href="http://ire.sagepub.com/content/19/1/5.abstract">transforming</a>” the oil-rich Middle East along similar lines. In the event, Iraq has tenaciously held on to control of its <a href="http://www.tomdispatch.com/post/175586/tomgram%3A_greg_muttitt,_whatever_happened_to_iraqi_oil">national oil companies</a> while auctioning exploration and extraction rights to a wide range of international companies.</p>
<p>The perceived failure of its 2003 invasion-occupation, including its role in <a href="http://edition.cnn.com/2014/06/13/opinion/bergen-iraq-isis-bush/">exacerbating</a> Islamist terrorism, has lent credibility to an <a href="http://www.mtholyoke.edu/acad/intrel/bush/walt.htm">alternative US policy</a> that acknowledges limits in a world of increasingly <a href="http://www.theatlantic.com/international/archive/2012/03/the-decline-of-the-west-why-america-must-prepare-for-the-end-of-dominance/254779/">distributed power</a>. Such an alternative proposes more considered links with other states in stabilising regions such as the oil-rich Middle East. Such cooperation is evident among the <a href="http://en.wikipedia.org/wiki/P5%2B1">P5+1 coalition</a> (US, Russia, France, Germany, China and the UK) in ongoing negotiations with Iran pressing its nuclear disarmament.</p>
<p>It is a <a href="http://www.washingtonpost.com/blogs/worldviews/wp/2014/06/13/people-have-talked-about-iraq-breaking-up-for-years-now-it-may-actually-happen/">questionable assumption</a> that stabilising a unified Iraq is a clear-cut US objective. Similarly unclear is whether, in confronting the current crisis in Iraq, <a href="http://www.washingtonpost.com/world/middle_east/kerry-says-us-will-act-soon-on-iraq-but-at-request-of-baghdad-government/2014/06/13/53ddc5f0-f2f9-11e3-9ebc-2ee6f81ed217_story.html">US President Barack Obama</a> is gravitating to the second, more cooperative approach involving key regional states. </p>
<p>In the case of the ISIS incursion these “concerned” regional states include <a href="http://www.businessinsider.com/isis-resurgence-poses-huge-problems-for-turkey-2014-6?IR=T">Turkey</a>, Saudi Arabia and <a href="http://www.theguardian.com/world/2014/jun/16/us-iran-talks-iraq-john-kerry">Iran</a>. They have <a href="http://www.amazon.com/Reset-Middle-East-Friends-Alliances/dp/1848857659">interests</a>, shared with the US or not, in a <a href="http://www.huffingtonpost.com/graham-e-fuller/america-iraq-resolve-crisis_b_5500900.html">stable Iraq</a>, if not a unified one. This also holds true for a range of states like <a href="http://www.scmp.com/news/china/article/1434025/china-pledges-pump-more-funds-iraqs-oil-sector-infrastructure">China</a>, which have energy-security and investment interests in Iraqi oil. </p>
<p>It is clear that the US must recognise that any cooperation with regional states will be constrained by their own perceived vital security objectives.</p>
<h2>The false promise of US non-conventional petroleum</h2>
<p>Some in the US <a href="http://www.foreignpolicy.com/articles/2013/10/16/the_end_of_opec_america_energy_oil">dream</a> that <a href="http://theconversation.com/now-largest-oil-and-gas-producer-will-the-us-get-extra-clout-18906">recently expanded US resources</a> of “non-conventional petroleum” (notably <a href="https://theconversation.com/topics/shale-gas">shale gas</a> and <a href="https://theconversation.com/shale-oil-the-boom-heard-around-the-world-19202">‘tight oil’</a>) will end the power of OPEC and offer a return to the era of the US as sole global superpower that is “<a href="http://www.cfr.org/world/remarks-us-military-academy/p5664">beyond challenge</a>”.</p>
<p>But given the vast oil-based resource rents provided by low extraction costs in the Middle East, any such return through this mechanism seems unlikely. The potential rents per barrel from high cost US “tight oil” are much lower, and depend critically on continued high oil prices.</p>
<p>Fed by oil revenues and by continued political conflict, it is unlikely that the oil-rich Middle East will recede in its significance for global security and economic prosperity.</p><img src="https://counter.theconversation.com/content/28215/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Barry Naughten does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The mid-June penetration of northwestern Iraq by the extreme Islamist movement ISIS has prompted major concerns about the world’s oil supply and energy security. The group’s incursion threatens Iraq’s…Barry Naughten, Energy political economist and international relations specialist, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/282982014-06-23T05:06:37Z2014-06-23T05:06:37ZWhat ISIS insurgency in Iraq could mean for global oil supplies and energy options<p>Recent tensions progressing to conflict in Iraq have raised concerns that world prices for oil will rise after a period of relative price stability that’s masked significant changes in supplies.</p>
<p>Conflict between Iraqi government forces and Sunni militia group <a href="http://rt.com/news/166836-isis-isil-al-qaeda-iraq/">ISIS</a> to the north of Baghdad has prompted <a href="http://www.theguardian.com/world/2014/jun/18/dwindling-iraq-oil-reserves-cause-price-spike">some headlines</a> to talk of “soaring prices”. <a href="http://www.ft.com/cms/s/0/12efadec-f7d6-11e3-90fa-00144feabdc0.html#axzz3567lYxyi">Friday’s Financial Times</a> was more measured, reporting that Brent Crude, “has seen only modest gains, rising just over US$5 a barrel to a nine-month high of $115 since the onslaught by Sunni militia began two weeks ago”.</p>
<p>Iraq has always played a very significant role in world oil markets. <a href="http://www.indexmundi.com/energy.aspx?country=iq&product=oil&graph=production">The steady rise in production</a> from the conflict of 2003 to recent levels of 3.3 million barrels a day meant Iraq provided 3.7% of world oil in 2013. The short-term view is that Iraq’s production lies south of the current conflict with Baghdad in between. The time to worry about a significant spike in oil prices of potentially $40-50 per barrel is if the current conflict spreads into the south, or if power in Baghdad changes so that who owns the oil and gets paid for it breaks down.</p>
<h2>The rise in shale oil</h2>
<p>So what about the broader context? Last week also saw the <a href="http://www.bp.com/en/global/corporate/about-bp/energy-economics/statistical-review-of-world-energy.html">release of</a> BP’s annual “Statistical Review of World Energy”. The company’s chief economist, Christoph Rühl, pointed out that world oil prices have been relatively stable at around the $110 per barrel level for the past three years. </p>
<p>But this apparent calm is on the surface only – underneath there have been two competing forces working in opposite directions. There have been significant supply disruptions in the Middle East & Africa, the worst of which have been the military upheaval in Libya and sanctions on Iran. But this has been offset by a steady increase in US oil production as part of what’s often called the “shale revolution”. The scale of decline on one side and the rise on the other have been remarkably similar, which explains the stability of world prices. </p>
<h2>Arab Spring pressure</h2>
<p>There’s another factor at play following the Arab Spring political events in 2011. The social unrest across North Africa and the Middle East forced leadership changes in Tunisia, Egypt, Libya and Yemen. For governments across the region with oil and gas revenues to afford it, one result was a significant increase in domestic spending to address popular concerns about living standards and opportunities. </p>
<p>The result is the price that many oil-producing countries now need to balance their national accounts <a href="http://www.imf.org/external/Pubs/ft/weo/2014/01/pdf/text.pdf">has risen significantly</a> for countries in the region. The average break-even price for OPEC members is <a href="http://www.worldenergyoutlook.org/publications/weo-2013/">reported as</a> $105 per barrel. While it varies significantly between countries, many have seen this price <a href="https://www.imf.org/external/pubs/ft/weo/2013/01/c2/fig2_12.pdf">rise $30-$50 per barrel</a> over the last five years due to raised spending following the Arab Spring. </p>
<p>So oil prices at $110 per barrel have served the economic needs of producers in recent years. On the other hand, there is only so high the price can go before oil consumers turn to alternatives in the long run. </p>
<p>More than half of the world’s oil is used in transport, and more fuel-efficient vehicles vie with alternatives such as bio-fuels and electric vehicles. The answer may vary by country; Brazil uses 18% of bio-fuels in its <a href="http://www.worldenergyoutlook.org/publications/weo-2013/">transport system</a>; Germany may direct its growing solar capacity to be stored in electric vehicles; and gas may be used in certain other transport markets. But the key point is that high oil prices will ultimately encourage substitutes. </p>
<p>While the trade-off between US shale oil and disrupted production in countries such as Libya and Iran has led to price stability over the last few years, the longer-term view is a steady rise. Global population growth and rising economic standards will require us to use steadily more expensive sources of energy so that the International Energy Agency <a href="http://www.businessinsider.com/iea-2035-outlook-2014-6">predicted last year</a> a price of $128 per barrel in 2035. </p>
<p>But that assumes a progressive climb of the sort that we can adjust to. Last year the <a href="http://www.iea.org/publications/worldenergyoutlook/pressmedia/quotes/34/">IEA forecast</a> a 2020 price of $113, which we’ve already exceeded, illustrating the conflict between long-term trends and market sensitivity to short-term changes. There will be disruptions along the way and it’s unlikely they will cancel each other out as they have over recent years. It was as recent as the summer of 2008 when a lack of confidence in managing short-term challenges led to the sudden climb to $147 per barrel. </p>
<h2>Iraq implications</h2>
<p>Losing Iraq’s production would nearly double the level of disrupted supply that has grown in recent years. It would match or exceed the spare capacity that OPEC members are believed to hold. While US oil production is expected to rise, it’s unlikely to happen as quickly as conflict could shut down Iraqi production. And spikes in oil prices have typically <a href="http://www.ief.org/_resources/files/events/4th-asian-energy-ministerial-roundtable/asia-global-energy-demand.pdf">preceded recessions</a> as long-term economic balances fall victim to the pressures of the day.</p><img src="https://counter.theconversation.com/content/28298/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Elmes owns shares in oil and gas companies he has worked for in the past</span></em></p>Recent tensions progressing to conflict in Iraq have raised concerns that world prices for oil will rise after a period of relative price stability that’s masked significant changes in supplies. Conflict…David Elmes, Head, Warwick Business School Global Energy Research Network, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.