tag:theconversation.com,2011:/uk/topics/shale-oil-14388/articlesshale oil – The Conversation2021-03-19T14:01:30Ztag:theconversation.com,2011:article/1571992021-03-19T14:01:30Z2021-03-19T14:01:30ZOil: why higher prices will complicate the energy transition<figure><img src="https://images.theconversation.com/files/390615/original/file-20210319-21-1r1cyyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Oil and trouble. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/crude-oil-hand-due-leak-low-457630708">Pix One</a></span></figcaption></figure><p>The oil price is on a rollercoaster. Having crashed into <a href="https://theconversation.com/oil-crash-explained-how-are-negative-oil-prices-even-possible-136829">negative territory</a> just last April, the price of Brent crude climbed all the way to US$70 (£50) earlier in March. It has <a href="https://www.reuters.com/article/global-markets/global-markets-u-s-yields-hit-new-heights-oil-skids-amid-covid-19-fears-in-europe-idUSL1N2LG318">since slid</a> below US$64. So where is it heading and what are the implications?</p>
<p>There are several reasons why oil prices <a href="https://oilprice.com/Energy/Crude-Oil/70-Oil-May-Cause-Slowdown-In-Demand-Recovery.html">surged from</a> their 2020 lows. One is a common belief in an imminent “<a href="https://oilprice.com/Energy/Oil-Prices/100-Oil-Big-Banks-Believe-A-New-Oil-Supercycle-Is-Beginning.html">commodity supercycle</a>”, in which an explosion in economic activity after the pandemic creates <a href="https://www.ft.com/content/66fe5644-00dd-41db-8802-ea3278f29007">soaring oil demand</a>.</p>
<p>Supply has been limited since Saudi Arabia and Russia cut production in spring 2020. The suspicion then and consensus now is that this sought to force down prices to drive less efficient <a href="https://theconversation.com/will-american-shale-oil-go-bust-136988">US shale oil</a> producers out of the market. It has <a href="https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/121420-total-us-shale-production-projected-to-fall-in-january-as-ducs-decline-eia">substantially had</a> that effect, with less shale entering the market as a result. </p>
<p><strong>The price of oil (Brent crude, US$)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Price graph for Brent crude, 2015-2021" src="https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=445&fit=crop&dpr=1 754w, https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=445&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/390612/original/file-20210319-15-vioxgb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=445&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://uk.tradingview.com/chart/UajHAaVc/">TradingView</a></span>
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</figure>
<p><a href="https://www.reuters.com/article/global-markets/global-markets-u-s-yields-hit-new-heights-oil-skids-amid-covid-19-fears-in-europe-idUSL1N2LG318">Prices have eased</a> in the past couple of days amid fears that <a href="https://www.bbc.co.uk/news/explainers-52380823">Europe’s vaccine difficulties</a> will slow global recovery, and thanks to a stronger dollar after the US Federal Reserve declined to curb rising Treasury bond yields at its most recent policy meeting on March 17. </p>
<p>Nonetheless, the direction of oil prices looks like it will be broadly upwards: most <a href="https://www.suredividend.com/big-oil-supermajors/">oil majors</a> are <a href="https://www.telegraph.co.uk/business/2021/02/17/peak-oil-demand-coming-first-brace-almighty-supply-crunch/?WT.mc_id=e_DM1338611&WT.tsrc=email&etype=Edi_Edi_New_Reg&utmsource=email&utm_medium=Edi_Edi_New_Reg20210218&utm_campaign=DM1338611">signalling reductions</a> in capital <a href="https://www.ft.com/content/3f73a55b-ac59-4737-b7c8-2f575d32920b?emailId=6040ae4091e2810004114f3e&segmentId=7e94968a-a618-c46d-4d8b-6e2655e68320">expenditure</a>. Meanwhile, Opec, the 13-country cartel of oil nations, has a vested interest in continuing to restrain production to keep prices higher, while the whole framework of the <a href="https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement">Paris climate agreement</a> aims to make oil production more expensive. This will be passed on to consumers in the form of higher prices. </p>
<p>As for oil demand, it is still expected to climb for many years, despite the rise of renewables. A <a href="https://energyindustryreview.com/oil-gas/world-remaining-reliant-on-gas-and-petroleum-products-by-2050/">recent study</a> by BloombergNEF forecasts that the green agenda will only push oil into structural decline from 2035. </p>
<p>Admittedly, <a href="https://www.ft.com/content/d6621c1d-6662-401e-b51c-a7db742aac78">carbon taxes</a> may soften demand by increasingly penalising companies for using fossil fuels – whether through the EU <a href="https://ec.europa.eu/clima/policies/ets_en">Emissions Trading Scheme</a>, the new <a href="https://www.spglobal.com/platts/en/market-insights/latest-news/coal/010621-china-to-launch-national-carbon-emissions-trading-scheme-on-feb-1">China scheme</a>, or the proposed <a href="https://www.iif.com/tsvcm">London Voluntary Scheme</a> or <a href="https://www.argusmedia.com/en/news/2173283-viewpoint-us-carbon-markets-to-expand-next-year">US scheme</a>. But it will depend on how the rules develop. The EU scheme is the most advanced but includes lots of exceptions that currently minimise the requirements on numerous sectors.</p>
<h2>Oil and the wider economy</h2>
<p>The oil price and its relationship with the economic recovery, bond prices and inflation is <a href="https://www.ft.com/content/f3b2b394-4818-4678-9088-6cf53a0fefbc">going to be vital</a> to the post-COVID world order. Oil prices are closely linked to inflation. This is because oil has a multiplier effect as it circulates through markets: for example, it is an unavoidable cost for companies that run vehicles, who then pass it on to consumers by increasing the price of their goods and services. </p>
<p>In the US, there are already <a href="https://www.bostonglobe.com/2021/03/13/nation/with-covid-relief-bill-get-ready-return-inflation-thats-not-necessarily-bad-thing/">substantial concerns</a> about the inflationary impact of the US$1.9 trillion stimulus package, particularly when the Federal Reserve has <a href="https://www.cityam.com/us-federal-reserve-changes-approach-to-inflation-in-bid-to-boost-economy/">signalled that</a> it will tolerate more inflation than previously. Rising oil prices feed into these concerns. </p>
<p>Long-term interest rates rise with inflation worries, and have duly <a href="https://theconversation.com/dysfunctional-financial-markets-are-making-inequality-worse-all-the-time-heres-what-to-do-about-it-156348">been climbing</a> sharply <a href="https://uk.tradingview.com/symbols/TVC-US10Y/">recently</a>. If this continues, it could limit what the US government <a href="https://www.wsj.com/articles/federal-reserve-interest-rates-bond-purchases-march-2021-11615917632">can borrow</a> to spend on infrastructure. At the same time, inflation is liable to make the infrastructure more expensive.</p>
<p>The Fed therefore has an incentive to keep interest rates as low as possible, and there has been much speculation about whether it will do this by buying more long-term Treasury bonds. But that could further stoke inflation, which could end up pushing oil prices up further, so it’s a question of striking the right balance between over-stimulating and under-stimulating the economy. If inflation is held at bay, lower or at least stable oil prices may result, just like <a href="https://www.emerald.com/insight/content/doi/10.1108/MF-11-2019-0554/full/html">after the</a> global financial crisis of 2007-09. </p>
<p>In the UK, the situation is a bit different. Inflation <a href="https://www.ft.com/content/271a78c7-895a-45b6-92c3-e41cb3ed540f">has remained low</a> as oil prices have dropped. COVID-19 <a href="https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandtheimpactonoutputintheukeconomy/december2020">reduced demand</a> for UK oil drastically and drilling activity has been negatively affected. Higher prices should help reverse this, depending on the oil demand from abroad – including from Europe.</p>
<p>In developing countries that depend on exporting oil and other natural resources, higher prices are definitely welcome. Many low to middle-income countries, including <a href="https://www.statista.com/statistics/1122723/impact-of-coronavirus-on-oil-price-in-nigeria/">Nigeria</a> and <a href="https://www.thejakartapost.com/news/2020/04/30/explainer-what-does-the-oil-price-crash-mean-for-indonesia.html">Indonesia</a>, have <a href="https://www.imf.org/en/Publications/SPROLLs/covid19-special-notes">seen government budgets</a> taking a hit from the fall-off in demand during the pandemic. </p>
<p>In Nigeria, the government has been forced to <a href="https://www.bloomberg.com/news/articles/2021-02-27/nigerian-central-bank-governor-suggests-naira-has-been-devalued">devalue the naira</a> to stimulate the economy. In such circumstances, rising oil prices <a href="https://www.imf.org/en/Publications/WEO">can be a relief</a> – <a href="https://www.oecd.org/coronavirus/policy-responses/the-impact-of-coronavirus-covid-19-and-the-global-oil-price-shock-on-the-fiscal-position-of-oil-exporting-developing-countries-8bafbd95/">including for</a> exporters of other commodities such as industrial metals, whose prices are linked to oil. </p>
<p>Meanwhile, <a href="https://www.worldbank.org/en/news/press-release/2015/01/07/most-developing-countries-benefit-oil-price-slump-world-bank-group">other developing countries</a> lose out as <a href="https://www.indexmundi.com/g/r.aspx?v=93">oil prices rise</a> – especially oil importers such as Thailand and Turkey. The Turkish central bank <a href="https://www.businesslive.co.za/bd/world/europe/2021-03-18-turkey-raises-interest-rates-more-than-expected-and-lira-soars/">has just raised</a> interest rates by two percentage points, partly to curb inflation. </p>
<h2>The net zero threat</h2>
<p>The oil price has implications for the ability of nations to meet the <a href="https://eciu.net/analysis/briefings/net-zero/net-zero-why">net zero emissions targets</a> required under the <a href="https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement">Paris Agreement</a>. </p>
<p>More expensive oil should hasten the tipping point where renewables become the cheapest way of generating electricity and powering transport. The <a href="https://www.irena.org/newsroom/pressreleases/2020/Jun/Renewables-Increasingly-Beat-Even-Cheapest-Coal-Competitors-on-Cost#:%7E:text=Abu%20Dhabi%2C%20United%20Arab%20Emirates,(IRENA)%20published%20today%20finds.&text=%E2%80%9CWe%20have%20reached%20an%20important%20turning%20point%20in%20the%20energy%20transition.">lower cost</a> of renewables compared to fossil fuels has already been helping to make them more attractive. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="EV charging space" src="https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/390617/original/file-20210319-13-1fa7hdg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Renewable infrastructure does not grow on trees.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/electric-car-charging-station-indoor-parking-1465347134">Dana Kenedy</a></span>
</figcaption>
</figure>
<p>Yet paradoxically, higher oil prices also provide incentives to oil companies to spend more on exploration and production – a potential step in the wrong direction for achieving net zero emissions. And in developing countries that depend heavily on oil exports, higher prices mean more money for spending on society, which boosts government popularity. So they too may prioritise greater oil exploration and production, potentially at the expense of developing renewables and meeting nationally defined carbon targets. </p>
<p>This is not to say that higher oil prices will negatively affect the scope or pace of renewables spending overall. But they have to be further developed and built, so higher oil prices certainly risk progress in developing countries. This means that being able to keep oil prices from getting too high will play a key role in the pace and scope of the energy transition.</p><img src="https://counter.theconversation.com/content/157199/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jorge Guira 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>Crude is key to inflation. Here’s why has it been going up so much.Jorge Guira, Associate Professor of Law and Finance, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1369882020-04-23T10:30:55Z2020-04-23T10:30:55ZWill American shale oil go bust?<figure><img src="https://images.theconversation.com/files/329799/original/file-20200422-47826-9rv4c9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What goes up... </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/us-oil-industry-price-crash-due-1709506078">Aku Alip</a></span></figcaption></figure><p>US oil is suffering unprecedented distress, as demonstrated by the benchmark West Texas Intermediate (WTI) crude price crashing into negative territory. <a href="https://www.cnbc.com/2020/04/21/the-oil-industry-shakeout-is-just-beginning-with-more-production-cuts-and-bankruptcies-ahead.html">This is</a> a “triple <a href="https://www.investopedia.com/terms/b/blackswan.asp">black swan</a>” of an oversupply of oil driven by <a href="https://www.cfr.org/blog/opec-plus-zero-sum-oil-game">Opec and Russia</a>, COVID-19 demand destruction, and having nowhere to store it. </p>
<p>Oil traders reacted on April 20, the day that May forward contracts for WTI crude were due to settle. Many <a href="https://theconversation.com/oil-crash-explained-how-are-negative-oil-prices-even-possible-136829">offloaded</a> their contracts at any price to avoid taking delivery of oil they couldn’t store, and the May WTI price <a href="http://www.worldoil.com/news/2020/4/20/wti-crude-price-goes-negative-for-the-first-time-in-history">plunged to</a> US$-37.53 (£-30.36). Now attention has turned to the June price, which is <a href="https://www.barchart.com/futures/quotes/CLM20">just under US$15</a>, still the lowest <a href="https://www.macrotrends.net/1369/crude-oil-price-history-chart">in decades</a>. </p>
<p>Though prices will rebound, the bigger question concerns long-term viability. US oil companies have feasted on a decade-long diet of rampant liquidity thanks to very low short-term interest rates and quantitative easing. With many able to finance and refinance drilling with a breakeven price <a href="https://www.dallasfed.org/-/media/Documents/research/energy/energycharts.pdf?la=en">of US$40</a> and above per barrel?, this brought into play lots of shale oil, whose fracking requirements are far costlier than basic onshore oil. </p>
<p>This tripled US oil production in the past decade to become world number one, overtaking Russia and Saudi Arabia. Around two-thirds <a href="https://www.eia.gov/tools/faqs/faq.php?id=847&t=6">is shale</a>, which is now in big trouble. Of the 16% of US companies that are “zombies”, meaning cash flow doesn’t cover their debts, a good proportion will be in oil. Oil companies’ loans will be based on assumptions about prices that definitely won’t include the current levels. Companies also finance themselves by issuing corporate bonds at the lowest investment grade. These are vulnerable to being downgraded to junk, causing borrowing costs to rise sharply. </p>
<p><strong>US crude oil production in barrels per day</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=370&fit=crop&dpr=1 600w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=370&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=370&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=465&fit=crop&dpr=1 754w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=465&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/329730/original/file-20200422-47794-1v5glmm.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=465&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
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<span class="attribution"><a class="source" href="https://hbr.org/2020/04/10-questions-to-guide-boards-through-the-pandemic">Macrotrends</a></span>
</figcaption>
</figure>
<p>Even “normal” onshore drilling looks challenging today, with over two-thirds of Texas wells <a href="https://www.bloomberg.com/opinion/articles/2020-04-20/texas-like-opec-can-t-turn-back-time-to-protect-oil-producers">uneconomic</a> at prices below US$25 by some estimates. Rigs <a href="https://www.bloomberg.com/news/articles/2020-04-21/world-s-biggest-oil-storage-firm-says-almost-all-space-is-sold">are shut down</a> as <a href="https://oilprice-com.cdn.ampproject.org/c/s/oilprice.com/Energy/Energy-General/A-Massive-Wave-Of-Shut-Ins-Fails-To-Halt-Oil-Price-Crash.amp.html">there is</a> nowhere for oil to go, globally. </p>
<p>The value of US energy companies in the S&P 500 <a href="https://us.spindices.com/indices/equity/sp-500-energy-sector">has halved</a> in 2020 to US$633 billion, less than half that of Microsoft. Research firm Rystad Energy <a href="https://oilprice.com/Energy/Energy-General/Oil-Market-Crash-Could-Lead-To-Mass-Bankruptcies.html">predicts</a> up to 533 bankruptcies by the end of 2021 if WTI prices average US$20, a massive increase from 2019. So where do things go from here?</p>
<h2>The road to Black April</h2>
<p><a href="https://www.opec.org/opec_web/en/">Opec</a>, led by the Saudis, controls substantial portions of global oil. It tries to set oil prices by raising or cutting production. For the past three years, Opec has been making these decisions in a <a href="https://www.nytimes.com/2016/12/10/business/russia-opec-saudi-arabia-cut-oil-output.html">formal alliance</a> with Russia and other nations that is known as Opec Plus. </p>
<p>Two events caused the current crisis. Saudi Arabia flooded the market with oil in March after Russia refused to sanction any further Opec action to raise the price. This caused a price war just when COVID-19 was crushing world oil demand. Prices fell hard. </p>
<p><strong>West Texas Intermediate crude price in US$</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/330023/original/file-20200423-47784-o23vjf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://www.bbc.co.uk/news/topics/cmjpj223708t/oil">BBC</a></span>
</figcaption>
</figure>
<p>To some, the Russians and Saudis were playing a “good cop, bad cop” routine to drive US shale out of business, <a href="https://www.aljazeera.com/programmes/countingthecost/2020/03/saudi-arabia-oil-price-war-russia-200315114308947.html">with the</a> Saudis playing protector of global prices and the Russians, wounded by US economic sanctions, refusing to play ball. Either way, both <a href="https://www.oxfordenergy.org/publications/the-new-deal-for-oil-markets-implications-for-russias-short-term-tactics-and-long-term-strategy/?v=79cba1185463">have much to gain</a> by knocking out pricier US shale. Meanwhile, China has been buying up Saudi and Russian oil on the uber cheap, while <a href="https://www-rigzone-com.cdn.ampproject.org/c/s/www.rigzone.com/news/wire/trump_urged_to_pressure_china_on_us_oil_promise-21-apr-2020-161836-article/?amp">delaying on promises</a> to buy US oil. </p>
<p>Some say the Saudi-Russia price warriors miscalculated America’s response. President Trump <a href="https://www.forbes.com/sites/daneberhart/2020/04/15/an-oil-cut-deal-if-you-can-keep-it/#207794d44f66">used threats</a> like <a href="https://www.insider.com/trump-threatens-saudi-arabia-russia-oil-tariffs-2020-4">hefty oil tariffs</a> to secure a <a href="https://www.cfr.org/blog/opec-plus-zero-sum-oil-game">new Opec Plus deal</a> to cut production by 10% on April 12. This was <a href="https://www.ft.com/content/150df67b-839f-455a-9546-6edf72a08df0">bolstered by</a> production cuts from other G20 countries. Yet prices <a href="https://www.bbc.co.uk/news/topics/cmjpj223708t/oil">kept falling</a>: arguably the deal was more about allowing Americans to save face rather than seriously committing to production cuts, and therefore higher prices and stability. </p>
<p>With a sniper’s precision, some believe, Saudi oil tankers <a href="https://www.wsj.com/articles/saudi-oil-stranded-in-supertankers-as-backlog-piles-up-11587478831">are timed</a> to reach New Orleans in May to unload a 50 million barrel “<a href="https://oilprice-com.cdn.ampproject.org/c/s/oilprice.com/Energy/Oil-Prices/Incoming-50-Million-Barrel-Saudi-Oil-Bomb-Could-Send-Prices-Even-Lower.amp.html">oil bomb</a>” into Saudi-owned US refineries. There is precious little space for existing American crude, much less Saudi imports, hence the April 20 historic price drop. </p>
<h2>Uncle Sam to the rescue?</h2>
<p>Trump has said the US <a href="https://www.theguardian.com/business/2020/apr/21/oil-prices-fall-below-zero-coronavirus-barrels-crude">is devising</a> a rescue plan to save its oil industry. <a href="https://www.morganlewis.com/pubs/cares-act-key-takeaways-for-energy-companies">As part of</a> its US$2 trillion <a href="https://www.visualcapitalist.com/the-anatomy-of-the-2-trillion-covid-19-stimulus-bill/">stimulus package</a>, rescue moves <a href="https://www.wsj.com/articles/texas-regulators-decline-to-force-oil-cuts-but-companies-are-cutting-anyway-11587486457">could even include</a> buying stakes in firms, though negotiating with congressional Democrats looks difficult. </p>
<p>An alternative is to “virtually” buy more US oil and await better days, paying production companies to keep it in the ground – possibly by <a href="https://www.bloomberg.com/opinion/articles/2020-04-16/trump-spr-plan-would-pay-frackers-for-virtual-oil">designating this</a> part of the US strategic petroleum reserve. This would help contain <a href="https://www.forbes.com/sites/chuckjones/2020/04/18/one-chart-shows-coronavirus-stunning-job-losses/#50c8341a7fb0">jobs devastation</a> and help Trump in <a href="https://www.politico.com/news/2020/04/13/economic-meltdown-democrats-hope-texas-184613">vote-rich Texas</a> and other key areas, while pleasing contributors to his campaign war chest. <a href="https://www.bloomberg.com/news/articles/2020-04-20/trump-eyes-saudi-oil-import-ban-spr-fill-as-prices-go-negative">Another option</a> is retaliatory tariffs on Saudi oil refined in America, or even a full ban. </p>
<p>Oil companies are restructuring hastily – assessing the value of reserves, and asking creditors for debt waivers. The US government has helped <a href="https://home.kpmg/content/dam/kpmg/us/pdf/2020/03/tnf-cares-act-signed-mar30-2020.pdf">by extending</a> companies’ ability to offset losses against future tax liabilities, which can make them more attractive to buyers. </p>
<p>Nonetheless, some companies sitting on the priciest oil will get liquidated. In other cases, big creditor banks could take over businesses, or demand mergers and acquisitions, including consolidations. </p>
<p>The biggest uncertainty is how long until the oil price rebounds? With <a href="https://www.healthline.com/health-news/what-happens-if-country-reopens-on-may-1#1">the economy</a> only likely to reopen gradually, demand will stay low for some time while supply remains too high. <a href="https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html">The futures markets</a> expect WTI to bounce back to the high US$20s by the end of the year, but don’t foresee a return to even US$40 oil until December 2024. </p>
<p>How much US shale oil is worth saving in these straitened circumstances is key. <a href="https://www.worldoil.com/news/2020/3/27/experts-see-a-future-for-shale-rocks-don-t-go-bankrupt">Some estimate</a> as many as 70% of firms will go out of business overall, with some never coming back until oil stabilises above US$50. Others may be taken over by companies prepared to wait for higher prices. As oil historian <a href="https://www.worldoil.com/news/2020/3/27/experts-see-a-future-for-shale-rocks-don-t-go-bankrupt">Daniel Yergin says</a>, “Rocks don’t go bankrupt”. US shale is in a sort of death pageant, and will probably remain that way for the foreseeable future.</p><img src="https://counter.theconversation.com/content/136988/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jorge Guira 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>Oil prices are going through what some have termed Black April, but the bigger question is what happens longer term to US oil.Jorge Guira, Associate Professor of Law and Finance, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1025442018-09-26T10:20:59Z2018-09-26T10:20:59ZDon’t frack so close to me: Colorado voters will weigh in on drilling distances from homes and schools<figure><img src="https://images.theconversation.com/files/236699/original/file-20180917-158246-17jau3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In Colorado, fracking often occurs right next to where people live.</span> <span class="attribution"><span class="source">Tara O'Conner Shelley</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>Coloradans will vote on a <a href="https://www.sos.state.co.us/pubs/elections/Initiatives/titleBoard/results/2017-2018/97Results.html">ballot initiative</a> in November that requires new oil and gas projects to be set back at least 2,500 feet from occupied buildings. If approved, the measure – known as both Initiative 97 and Proposition 112 – would mark a major change from their state’s current limits: 500 feet from homes and 1,000 feet from schools. </p>
<p><a href="https://scholar.google.com/citations?user=9cA_KYAAAAAJ&hl=en&oi=ao">As sociologists</a> who <a href="https://scholar.google.com/citations?user=yTQGU9UAAAAJ&hl=en">have researched</a> oil and gas drilling in the communities that host it for the past seven years, we think this measure would provide local governments and Coloradans more say over where drilling occurs and enhance the rights of those who live near these sites.</p>
<h2>Fracking boom</h2>
<p>Domestic <a href="https://theconversation.com/how-has-the-us-fracking-boom-affected-air-pollution-in-shale-areas-66190">oil and gas production has soared</a> over the past decade, leading the U.S. to become the <a href="https://www.eia.gov/todayinenergy/detail.php?id=36292">top global producer</a> of those fossil fuels.</p>
<p>Technological innovations, especially the <a href="https://www.epa.gov/uog/process-unconventional-natural-gas-production">hydraulic fracturing and horizontal drilling</a>, commonly called fracking, have fueled this growth. So has <a href="https://www.bakerinstitute.org/research/us-energy-dominance-markets-trump-policy-2017/">federal deregulation</a>.</p>
<p>Partly because fracking and related industrial processes often occurs close to homes, schools and other occupied buildings, the <a href="https://coloradopolitics.com/oil-gas-ballot-measure/">debate over Proposition 112</a> is contentious.</p>
<p>Opponents, especially <a href="https://www.protectcolorado.com">those funded by industry groups</a>, argue that stricter rules will mean less state tax revenue, job losses and <a href="https://www.oilandgasinvestor.com/colorado-initiative-ban-drilling-costing-producers-billions-1715751">weakened private property rights</a>. Proponents express concerns about <a href="https://source.colostate.edu/garfield-county-air-quality-study-results-presented-to-public/">air pollution</a>, <a href="https://www.theguardian.com/environment/2016/jan/10/fracking-earthquakes-oklahoma-colorado-gas-companies">earthquakes</a>, <a href="https://stateimpact.npr.org/pennsylvania/2016/12/13/epa-fracking-can-impact-drinking-water/">water well contamination</a> and <a href="http://www.cpr.org/news/story/a-year-after-the-deadly-firestone-home-explosion-emotions-are-mixed">explosions</a> to explain why they want the public to have more sway.</p>
<p>But many state governments have tried to stymie the attempts of communities to gain this power. For example, Colorado’s <a href="http://www.cpr.org/news/story/colorado-supreme-court-rules-against-cities-fracking-limits">Supreme Court ruled in 2016</a> that local communities have no right to regulate where drilling occurs. </p>
<p>And industry-funded groups and the <a href="https://durangoherald.com/articles/241355">Colorado Farm Bureau</a>, which represents farmers, ranchers and other agricultural interests, are countering this electoral effort to restrict drilling with their own measure. Known as <a href="https://www.cpr.org/news/story/oil-and-gas-funded-just-compensation-amendment-makes-2018-ballot">Amendment 74</a>, it would force any city or county government that limits drilling to compensate property owners if new setback rules were to lower property values or reduce revenue from fracking leases. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/236702/original/file-20180917-158231-10022d6.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>
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<span class="caption">An oil storage tank alongside a housing development near Firestone, Colo.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Fracking-Colorado/f7b1fb77e7e04cd7993beaa6f374467e/3/0">AP Photo/David Zalubowski</a></span>
</figcaption>
</figure>
<h2>Regulations and leasing</h2>
<p>Members of the public and local governments have <a href="https://stateimpact.npr.org/pennsylvania/2016/09/28/pa-supreme-court-rules-with-environmentalists-over-remaining-issues-in-act-13/">successfully challenged</a> limits on local control over fracking in court before. For example, Pennsylvania’s Supreme Court affirmed the power of communities to regulate the oil and gas industry locally when it ruled in 2016 that parts of a law known as <a href="https://stateimpact.npr.org/pennsylvania/tag/act-13/">Act 13 were unconstitutional</a>.</p>
<p>In that instance, the court ruled against a provision that barred doctors from sharing information about possible toxic exposure if they were given access to industry information about the chemicals used in fracking. It also blocked the enforcement of a measure that allowed the use of eminent domain to site natural gas storage facilities.</p>
<p>But as far as we can tell, Colorado’s ballot initiative marks the first time voters can potentially control the set-back distances of oil and gas facilities from rivers, homes, schools and other buildings in their communities.</p>
<h2>Negotiating terms</h2>
<p>Regulating oil and gas leases on private land is hard partly because they are privately negotiated contracts between companies and landowners. To learn more about what happens during these negotiations, we interviewed more than 100 Coloradans and Pennsylvanians about their experiences negotiating these drilling leases.</p>
<p>In our <a href="https://doi.org/10.1093/sf/soy094">recently published study</a>, we found that these people feel inconvenienced at best. Most told us they felt exploited and mistreated due to the leasing experience despite having made money off of leasing their land or <a href="https://geology.com/articles/mineral-rights.shtml">mineral rights</a>.</p>
<p>Some <a href="https://www.tandfonline.com/doi/abs/10.1080/08941920.2014.945056?journalCode=usnr20">scholars who look at how drilling affects local communities</a> argue that this process empowers private property owners because they play a direct role in deciding the terms of these negotiations. And some of these folks can even <a href="https://www.youtube.com/watch?reload=9&v=7wXZE1uuJ8o">get rich</a> from fracking lease earnings.</p>
<p>Certainly, landowners – including some of the people we interviewed – have <a href="https://www.npr.org/2018/03/15/592890524/millions-own-gas-and-oil-under-their-land-heres-why-only-some-strike-it-rich">earned income</a> from these contracts, though the amounts can vary from a few dollars to thousands of dollars per acre. But the overwhelming majority of the Pennsylvanians and Coloradans who met with us in their kitchen tables, backyards and farms described feeling disempowered when they signed fracking leases.</p>
<p>“I knew zip about gas production,” explained a man who operates a small-scale dairy farm in northeastern Pennsylvania and we are calling “Anderson” to honor our promise of confidentiality. “We had no time, we either made a decision to do it or not do it.” </p>
<p>During private negotiations, landmen – the company representatives who try to convince people to sell or lease their land and mineral rights – discouraged neighbors from teaming up to get a better deal or even talking with one another about the terms they’re considering, interviewees told us.</p>
<p>In some situations, when residents negotiated for better-than-average lease terms, landmen made them sign nondisclosure agreements that legally forbade sharing information.</p>
<h2>Same land, different owners</h2>
<p>Occasionally in Pennsylvania and almost always in Colorado, these fracked <a href="https://www.blm.gov/programs/energy-and-minerals/mining-and-minerals/split-estate">properties belong</a> to two or more parties. One owns the surface and someone else possesses the rights to whatever minerals lie beneath it.</p>
<p>And, in Colorado, surface landowners are legally required to provide mineral owners <a href="https://www.denverpost.com/2016/03/05/mineral-owners-assert-property-rights-in-colorados-oil-and-gas-fight/">access to their resources</a>.</p>
<p>Many people we interviewed owned land but not the rights to the minerals below it. With <a href="https://cogcc.state.co.us/documents/about/Help/Surface%20Owners%20Brochure.pdf">limited power</a> to stave off drilling in their backyards or on their farms, the surface rights owners we interviewed said they felt like “sitting ducks” and “unprotected.” They told us that they saw attempting to keep an oil and gas company off their land as “futile.”</p>
<p>“John,” a farmer who lives south of Denver, tried to fight the placement of a pipeline that split his farm into two less usable pieces. When he tried to fight the pipeline placement, he told us, he overheard industry representatives speculating that they simply needed to outspend his opposition.</p>
<h2>Mineral rights</h2>
<p>When the people we interviewed owned the mineral rights tied to their property but did not want to lease them, an energy company could pursue them through a state statute allowing a practice known as “<a href="https://www.propublica.org/article/forced-pooling-when-landowners-cant-say-no-to-drilling">forced pooling</a>” in both Pennsylvania and Colorado.</p>
<p>It makes leasing mineral rights mandatory, leaving landowners with no way to say no when a company wants to frack their property.</p>
<p>We also heard about the personal costs participants experienced after they signed leases. Ranchers explained they lost productive pastureland. Other residents believed they became ill because of air pollution. And many farmers described lasting damage to idyllic homesteads.</p>
<p>Even when these factors violated their leases or laws governing oil and gas practices, nearly all lease signers we interviewed told us they had a hard time getting oil and gas operators with whom they’d signed leases to <a href="https://www.academia.edu/15605003/Energy_Crime_Harm_and_Problematic_State_Response_in_Colorado_A_Case_of_the_Fox_Guarding_the_Hen_House">address any violations</a> of those contracts.</p>
<p>To “Connor,” a homesteader in southern Colorado, the negotiation process felt “like having a second job.” At times,“ he told us, "it was absolutely overwhelming. I think we did absolutely everything we could as private citizens to try and mitigate the impacts and in the end, it was futile.”</p><img src="https://counter.theconversation.com/content/102544/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephanie Malin has received funding from the National Institute of Environmental Health Sciences, the Rural Sociological Society, and the CSU Water Center.</span></em></p><p class="fine-print"><em><span>Tara Opsal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Landowners told researchers that they lacked the knowledge, time and money to advocate for themselves, their financial interests and their property in negotiations over drilling leases.Tara Opsal, Associate Professor of Sociology, Colorado State UniversityStephanie Malin, Assistant Professor of Sociology, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/871612018-05-14T10:39:23Z2018-05-14T10:39:23ZHow weakened US fossil fuel regulations threaten environmental justice in Colorado<figure><img src="https://images.theconversation.com/files/197627/original/file-20171204-22982-1klb4ur.jpg?ixlib=rb-1.1.0&rect=0%2C2945%2C1434%2C475&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A drilling site next to farms and homes in Weld County, Colo. </span> <span class="attribution"><span class="source">Stephanie Malin/Flight provided by LightHawk</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>From the start, President Donald Trump’s administration has made <a href="https://www.theguardian.com/environment/2017/jul/04/trump-emvironmental-rollback-epa-scrap-regulations">dismantling regulations</a>, especially for the <a href="https://www.eenews.net/eenewspm/stories/1060079189/search?keyword=%22deregulation%22">oil, gas and coal industries</a>, a top priority.</p>
<p>And though his <a href="https://theconversation.com/trumps-deregulatory-record-doesnt-include-much-actual-deregulation-96161">claims of rolling back</a> <a href="https://www.scientificamerican.com/article/has-trump-killed-more-regulations-than-any-other-president/">more regulations than any other administration are exaggerated</a>, Trump’s team has <a href="https://www.eenews.net/stories/1060077573">tried hard to erase</a> many <a href="https://www.eenews.net/eenewspm/stories/1060069079/">environmental and energy-related rules</a>.</p>
<p>Environmental Protection Agency Administrator <a href="https://www.vox.com/energy-and-environment/2018/1/29/16684952/epa-scott-pruitt-director-regulations">Scott Pruitt</a>, Interior Secretary <a href="https://www.wnycstudios.org/story/ryan-zinkes-deregulation-quest/">Ryan Zinke</a> and Trump have teamed up with the Republican-led Congress to <a href="https://www.eenews.net/eenewspm/stories/1060069079/">get federal agencies</a> on the case, by <a href="https://www.eenews.net/greenwire/stories/1060078515/">streamlining environmental permitting</a> and <a href="https://www.hcn.org/articles/us-environmental-protection-agency-scott-pruitts-ethics-violations-havent-stopped-his-rollbacks?utm_source=wcn1&utm_medium=email">attempting other sweeping changes</a>.</p>
<p>As an <a href="https://scholar.google.com/citations?user=9cA_KYAAAAAJ&hl=en&oi=ao">environmental sociologist</a> who has spent hundreds of hours researching communities directly affected by oil and gas production, I find that many people living in these places feel that fossil fuel industries already had the upper hand before Trump took office. </p>
<p>Even among people who support drilling, many believe these industries need to be more regulated. The residents I have interviewed <a href="http://www.cfoy.org.uk/wp-content/uploads/2016/10/PENNSYLVANIA-FARMERS1-s2-0-S0743016715300668-main.pdf">report feeling uncertain and vulnerable</a>. They tell researchers like me they consider themselves powerless to control their surroundings or to protect the environment, their health or their property. Reducing regulations even more will only intensify these problems.</p>
<h2>The fracking boom</h2>
<p>Thanks to an <a href="https://oilprice.com/Energy/Energy-General/US-Oil-To-Break-Production-Record-In-2018.html">oil</a> and <a href="https://www.eia.gov/todayinenergy/detail.php?id=27512">natural gas boom</a> that began a decade ago, U.S. <a href="https://www.reuters.com/article/us-crude-goldman/new-projects-shale-boom-could-trigger-oil-oversupply-by-2018-19-goldman-idUSKBN16S26L">production of those fuels has hit new records</a>. The nation now ranks as the world’s <a href="https://www.eia.gov/todayinenergy/detail.php?id=31532">top natural gas producer</a>. American <a href="https://www.cnbc.com/2018/01/09/us-oil-drillers-could-beat-saudi-arabia-and-rival-russia-by-2019.html">oil output is beginning to rival Saudi Arabia and Russia</a>. </p>
<p><a href="https://www.cfr.org/report/shale-gas-and-tight-oil-boom">Hydraulic fracturing and the directional drilling of shale rock formations</a>, commonly called “fracking,” powered this surge. So did deregulation. Companies using these methods enjoyed <a href="https://gelr.org/2016/12/27/hydraulic-fracturing-regulation-by-state-vs-federal-government/#_ftn11">significant exemptions</a> from federal environmental regulations that date back to George W. Bush’s presidency and remained on the books <a href="http://thehill.com/policy/energy-environment/289475-clinton-wants-to-end-halliburton-loophole-on-fracking-adviser-says">throughout the Obama administration</a>. </p>
<p>After the enactment of the <a href="http://vjel.vermontlaw.edu/files/2015/05/Kron.pdf">2005 Energy Policy Act</a>, the law that codified many of these exemptions, states became responsible for creating their own policies, procedures, budgets and enforcement plans – most of which weren’t in place before the boom got underway. The government exempted fracking from federal environmental regulations like the Safe Drinking Water Act and the Clean Water Act.</p>
<p>States could decide rules like setbacks from homes, zoning, water acquisition and disposal, and most other aspects of drilling. This made it easier and quicker to permit hydraulic fracturing, but the states had to scramble to determine how to regulate it.</p>
<p>As fracking spread into more densely populated areas, wells ended up within a few hundred feet of <a href="http://www.denverpost.com/2017/03/26/oil-rigs-northern-denver-suburbs/">homes, schools, hospitals and other buildings</a> in states like Colorado, Texas, Pennsylvania and North Dakota. That made a big impact on people’s quality of life. </p>
<p>But in places like <a href="http://www.bbc.com/news/world-us-canada-33140732">Denton, Texas</a>, and <a href="http://www.cpr.org/news/story/colorado-supreme-court-rules-against-cities-fracking-limits">Colorado’s Front Range</a> – a booming region that stretches along the Rocky Mountains and includes cities like Fort Collins and Pueblo – the people who live in places most affected by these types of changes have no seat at the table. They live alongside oilfields and gas patches but have little power to affect what happens around them.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/218418/original/file-20180510-34027-nf3zms.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/218418/original/file-20180510-34027-nf3zms.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=237&fit=crop&dpr=1 600w, https://images.theconversation.com/files/218418/original/file-20180510-34027-nf3zms.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=237&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/218418/original/file-20180510-34027-nf3zms.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=237&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/218418/original/file-20180510-34027-nf3zms.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=297&fit=crop&dpr=1 754w, https://images.theconversation.com/files/218418/original/file-20180510-34027-nf3zms.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=297&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/218418/original/file-20180510-34027-nf3zms.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=297&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Oil and gas infrastructure like this can end up in the middle of Colorado communities.</span>
<span class="attribution"><span class="source">Stephanie Malin</span></span>
</figcaption>
</figure>
<h2>Health hazards and other problems</h2>
<p>As a result, there’s a mounting debate regarding state and local control over oil and gas development. Having spoken to people affected by fracking’s spread, I believe it’s clear why people are demanding a bigger say. </p>
<p>A growing pool of scientific evidence indicates that living near oil and gas production can endanger <a href="http://pubs.acs.org/doi/abs/10.1021/es404621d">public health</a>. <a href="http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0131093">Rates of hospitalization</a>, <a href="https://ehp.niehs.nih.gov/ehp281/">fatigue</a>, certain <a href="http://www.denverpost.com/2017/02/15/cu-study-oil-gas-drilling-childhood-cancer/">childhood cancers</a> and <a href="https://ehp.niehs.nih.gov/wp-content/uploads/122/4/ehp.122-A109.pdf">birth defects</a> are higher, for one thing.</p>
<p>There’s also more <a href="http://www.denverpost.com/2017/10/30/vehicles-oil-gas-top-sources-front-range-ozone-ncar-study-shows/">air pollution</a>, including methane emissions and smog, which have been linked to <a href="http://www.denverpost.com/2016/08/31/ozone-smog-from-oil-and-gas-industry-children-asthma-study/">asthma in children</a>. And communities near fracking operations are <a href="https://theconversation.com/fracking-and-health-what-we-know-from-pennsylvanias-natural-gas-boom-63911">contending with</a> loud noises, bright lights, vibrations and <a href="https://doi.org/10.1016/j.envint.2016.02.002">truck traffic</a>, as well as <a href="https://www.wyofile.com/study-water-near-fracked-wyo-gas-field-disrupts-hormones/">contaminated water</a> and <a href="https://cen.acs.org/articles/94/web/2016/05/Toxic-chemicals-fracking-wastewater-spills.html">soil</a>.</p>
<h2>Drilling and daily life</h2>
<p>Colorado’s experience shows how oil and gas production can disrupt people’s daily lives, especially when the public is excluded from decisions about it. The state’s <a href="http://www.cpr.org/news/story/drilling-oil-and-gas-drives-colo-trucking-boom">more than 50,000 permitted wells</a> make Colorado <a href="https://www.fractracker.org/2015/08/1-7-million-wells/">a top producer of what the industry calls “unconventional” oil and gas</a>. Its oil extraction has more than tripled since 2010, when the fracking boom began, and its <a href="https://www.eia.gov/state/analysis.php?sid=CO">natural gas production has more than doubled</a> since 2001.</p>
<p>Like other states where oil and gas production has soared, Colorado <a href="http://www.denverpost.com/2017/08/06/oil-gas-drilling-permits-development-construction-northeast-colorado/">struggles to balance</a> the desires of drillers with local needs. In many communities, people living fracking sites say they are at risk. But Colorado’s state <a href="http://www.cpr.org/news/story/colorado-supreme-court-rules-against-cities-fracking-limits">Supreme Court</a> has ruled that only the state government can control where and when fracking may occur. </p>
<p><a href="https://www.eia.gov/state/analysis.php?sid=CO">Weld County</a>, which has small towns, subdivisions and rural areas where farmers raise cattle and plant grains and sugar beets, alone has at least 21,000 wells. It ranks 11th in oil production in the U.S. – and is <a href="http://upstatecolorado.org/site-selection/key-industry-sectors/">the nation’s top agricultural producer outside California</a>. </p>
<p>I belong to a team that unites social scientists, epidemiologists and statisticians. Together, we are completing a detailed study that measures how <a href="https://publicrelations.colostate.edu/2015/02/11/study-to-examine-communitys-experience-related-to-oil-and-gas-production/">oil and gas drilling affects the quality of life in several Colorado communities</a>. We have conducted surveys, in-depth interviews, ethnography and even taken blood and hair samples to examine how drilling may affect people’s stress levels and health, their daily lives and physical symptoms of stress, like elevated cortisol levels.</p>
<p>While doing this research, I have personally witnessed the toll that underregulation is taking. To collect our data, I’ve sat around kitchen tables and listened as people described their concerns about <a href="https://www.americanscientist.org/article/hydraulic-fracturing-and-water-quality">water quality</a>, <a href="https://www.pbs.org/newshour/science/earthquakes-triggered-by-fracking">earthquakes</a> and <a href="https://theconversation.com/how-has-the-us-fracking-boom-affected-air-pollution-in-shale-areas-66190">air pollution</a>.</p>
<p>They are uncertain about how it affects the health of their children, grandchildren and elderly parents. I’ve visited once-idyllic homes, now set in the shadows of <a href="http://www.coloradoindependent.com/162050/fractured-triple-creek-extraction-oil-and-gas">sound barrier walls</a> standing 30 feet tall and stretching for hundreds of feet. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/218419/original/file-20180510-185500-t8vim2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/218419/original/file-20180510-185500-t8vim2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=274&fit=crop&dpr=1 600w, https://images.theconversation.com/files/218419/original/file-20180510-185500-t8vim2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=274&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/218419/original/file-20180510-185500-t8vim2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=274&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/218419/original/file-20180510-185500-t8vim2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=345&fit=crop&dpr=1 754w, https://images.theconversation.com/files/218419/original/file-20180510-185500-t8vim2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=345&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/218419/original/file-20180510-185500-t8vim2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=345&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Sound walls from multiple drilling sites tower over a Weld County farmhouse.</span>
<span class="attribution"><span class="source">Stephanie A. Malin</span></span>
</figcaption>
</figure>
<h2>No way out</h2>
<p>Coloradans who want to stop fracking and drilling near their homes now have two options. They can draft agreements about protocols with a willing operator – a process that often requires expensive legal advice and lots of time. Or, residents can locate an acceptable alternative site that is equally suitable for production – which of course only <a href="http://www.coloradoan.com/story/money/2015/10/07/great-western-windsor/73548214/">pushes risks into someone else’s backyard</a>. </p>
<p>But some people have little recourse. Consider the situation facing <a href="https://www.fractracker.org/2016/06/bella-romero-children-risk-greeley-co/">Bella Romero Academy</a>, a Weld County middle school. Its students are primarily Latino and belong to low-income households. Many have undocumented relatives.</p>
<p>Despite efforts by activists to block drilling, a company called Extraction Oil and Gas aims to place <a href="https://www.greeleytribune.com/news/local/extraction-announces-plan-for-east-greeley-operations-will-drill-mostly-outside-school-hours/">24 well pads and other infrastructure</a> within about 1,300 feet of the school and even closer to its athletic fields.</p>
<p>When activists protested as the site was prepared for drilling, one was arrested. <a href="https://www.greeleytribune.com/news/crime/oil-and-gas-company-files-lawsuit-against-protester-who-chained-himself-to-equipment-at-site-near-bella-romero-academy/">Extraction is now suing several of these activists</a>, along with unnamed “John and Jane Does.” </p>
<h2>Environmental injustice</h2>
<p>The Colorado context illustrates the lived reality of what researchers like me call “<a href="https://www.energy.gov/lm/services/environmental-justice/what-environmental-justice">environmental injustice</a>” amid the oil and gas development also afflicting <a href="https://www.fractracker.org/map/">other states</a>. </p>
<p>People who live near drilling may be exposed to a wide array of environmental and health risks. In this way, they experience “<a href="https://doi.org/10.1080/0964401042000229025">distributive injustice</a>,” due to their exposure to more than their fair share of pollutants and hazards. <a href="http://www.annualreviews.org/doi/abs/10.1146/annurev-environ-082508-094348">Hundreds of studies</a> have shown that people of color, low-income communities and otherwise marginalized groups in the U.S. are more likely to be exposed to disproportionate environmental risks and hazards from polluting facilities and industrial activities.</p>
<p>The public has little power to zone or regulate oil and gas production near their homes, especially in states like Colorado. This is a form of “<a href="https://doi.org/10.1089/env.2010.0007">procedural inequality</a>.”</p>
<p>When local governments try to restrict oil and gas production, they can <a href="http://www.denverpost.com/2017/10/11/oil-gas-industry-groups-sue-thornton-over-strict-drilling-regulations-rules-conflict-colorado-law/">face steep penalties</a> meant to discourage local control. </p>
<p>The Trump administration’s efforts to further reduce federal regulations will surely escalate these sorts of injustices. Instead of serving the interests of communities where oil, gas and coal production takes place, I believe that its actions will disempower and divide the public.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/218515/original/file-20180510-34038-1otehvq.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/218515/original/file-20180510-34038-1otehvq.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/218515/original/file-20180510-34038-1otehvq.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/218515/original/file-20180510-34038-1otehvq.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/218515/original/file-20180510-34038-1otehvq.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/218515/original/file-20180510-34038-1otehvq.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/218515/original/file-20180510-34038-1otehvq.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">Photo taken from the roof of a study participant in Weld County, near 22 well pads that were relocated from a wealthier neighborhood.</span>
<span class="attribution"><span class="source">Dawn Stein</span></span>
</figcaption>
</figure><img src="https://counter.theconversation.com/content/87161/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephanie Malin's research regarding the impact of oil and gas drilling on communities in Colorado has received funding from the National Institute of Environmental Health Sciences. She has also received funding from Colorado State University's Water Center. </span></em></p>Many Coloradans feel powerless to protect themselves from pollution and other fallout caused by the state’s fracking boom.Stephanie Malin, Assistant Professor of Sociology, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/698322016-12-12T03:40:27Z2016-12-12T03:40:27ZWhy OPEC’s gambit to raise oil prices might not work<p>After months of speculation by oil market watchers, the Organization of the Petroleum Exporting Countries (OPEC) <a href="http://www.opec.org/opec_web/static_files_project/media/downloads/press_room/OPEC%20agreement.pdf">recently announced a six-month production cut</a> of 1.2 million barrels per day (b/d) with the aim of driving up the price. It’s set to take effect on Jan. 1. </p>
<p>Saudi Arabia will be responsible for a little less than half of the total, or just under 500,000 b/d, followed by 210,000 for Iraq and about 135,000 for Kuwait and the United Arab Emirates each. A nonmember, Russia, pledged to cut about 300,000 b/d as part of the deal. </p>
<p>The move, which could be extended for another six months, was in response to the expected continuation of weak oil market conditions: too much supply and too little demand. The result was that for the first time since 1998, OPEC reported a <a href="http://www.opec.org/opec_web/static_files_project/media/downloads/publications/ASB2016.pdf">collective current account deficit of almost US$100 billion in 2015</a>, compared with a surplus of $238 billion in 2014.</p>
<p>The crude oil price reacted as intended by <a href="http://www.reuters.com/article/us-global-oil-idUSKBN13R02L">climbing 15 percent</a> almost immediately, <a href="http://www.macrotrends.net/1369/crude-oil-price-history-chart">settling at about $51</a>. That’s up from a low of less than $30 earlier this year.</p>
<p>The planned cuts and market reaction raise a lot of questions, however, such as why the oil price increased even though the reductions have yet to take effect and whether it will continue to rise. As an energy economist, I believe the best way to answer these and other important questions is by exploring a fundamental concept of my field: supply and demand. </p>
<h2>Economics 101</h2>
<p>Oil markets are notoriously difficult to predict because <a href="http://www.beg.utexas.edu/energyecon/thinkcorner/Think%20Corner%20factors%20impacting%20oil%20price.pdf">there are so many factors</a> that affect the price.</p>
<p>Supply-side factors include crude quality, cost of resource development and production, access to resources, availability of infrastructure, environmental and economic regulations, and the behavior of suppliers such as OPEC. </p>
<p>Probably more complex are demand-side factors: demand growth in various markets for various petroleum products, the state of the refining industry, pricing policies (taxes and subsidies) for different products in different countries, environmental regulations for end use, and energy policies regarding efficiency and alternatives.</p>
<p>While financial trading is the most important factor influencing the oil price in the short-term, whether the price continues to rise or not in the coming weeks and months will depend on fundamental supply/demand dynamics. </p>
<h2>Will members comply?</h2>
<p>First, OPEC members have a mixed record complying with previous agreements to cut production levels. </p>
<p>When OPEC first started the quota system in the early 1980s, Saudi Arabia had to reduce production by up to 6 million b/d to maintain the organization’s quota as other members flouted their commitments. From 2009 to 2013, OPEC production has been typically <a href="https://assets.bwbx.io/images/users/iqjWHBFdfxIU/ip0Au96J5o_8/v4/-1x-1.png">1 million to 2 million b/d above the quota</a>. </p>
<p>Thus verification of compliance with the cuts will be important if markets will have any faith that they’ll actually materialize. </p>
<p>Also, oil data, especially short-term production and storage data by state-owned entities, tend to be opaque. The “reference” production levels for some countries (e.g., Iran, Iraq, Venezuela) might be higher than how much they can sustainably produce. The reference level is the base amount from which cuts will be made. </p>
<p>Although Iran’s October production was reported at about 3.7 million b/d, for example, the reference level was accepted as 3.975 million b/d, the <a href="http://www.arabtimesonline.com/news/opec-deal-expected-tighten-oil-market-2017-production-cut-750000-1-million-bpd-seen/">amount it produced at its peak in 2005</a>. </p>
<p>Russian production – which won’t be subject to monitoring – may be down during the winter months due to scheduled maintenance or by focusing on drilling.</p>
<p>In other words, cuts may appear to be compliant with the agreement, but the actual supply to global markets may not be much different than what it would be without it.</p>
<h2>Will the US get back in the game?</h2>
<p>Second, whether U.S. producers of unconventional oil fields like shale in North Dakota are capable and willing to respond to higher prices by drilling more wells and increasing production is crucial. </p>
<p>Coincidentally, U.S. production fell a little over 1 million b/d after the price of oil plunged early last year. So if they do boost production to take advantage of higher prices, the increase could make the cuts a wash. The question then becomes, would a higher price tempt them to begin drilling again? </p>
<p>Since the price collapse, drilling in the U.S. has focused on the Permian Basin in west Texas and New Mexico. The number of rigs operating in the Permian has increased by about 100 since April to reach 235, or <a href="http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother">a little under half of the 477 rigs actively drilling for oil across the U.S.</a> Another 119 rigs are drilling for gas. At the peak in October 2014, <a href="http://fuelfix.com/blog/2016/08/12/permian-basin-leads-big-jump-in-rig-count/">1,609 rigs were operating in oil basins</a> in the U.S.</p>
<p>Sustained prices above $50 should encourage more drilling.</p>
<p>However, “upstream” operators (explorers and producers), oilfield services companies and “midstream” transportation and storage businesses have been going through a period of adjustment, having idled hundreds of rigs and laid off <a href="http://www.houstonchronicle.com/business/energy/article/Fed-U-S-oil-job-cuts-reach-about-118-000-7237605.php">tens of thousands of employees</a>. It will not be easy to mobilize these resources quickly. Nor is it clear that it makes financial sense to do so. </p>
<p>The availability of cheap loans during the post-financial crisis era of ultra-low interest rates was instrumental in encouraging too many companies to drill too many wells too quickly, which led to the collapse of <a href="http://www.eia.gov/dnav/ng/ng_pri_fut_s1_d.htm">natural gas prices in the U.S. in the early 2010s</a> and that of <a href="http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm">oil prices in late 2014</a>. Many companies are still burdened by those debts. </p>
<p>If prices fall after billions of dollars of new investment, the financial recovery of many companies will be stunted. Combined with the uncertainty associated with the expected rise in interest rates and the high costs of remobilization rigs and crews, it is difficult to imagine U.S. oil companies overreacting to the OPEC cuts.</p>
<h2>Libya and Nigeria</h2>
<p>Third, Libya and Nigeria, though members of OPEC, are not part of the announced agreement. </p>
<p>Libyan production has been recovering from 250,000 b/d in August and reached almost 600,000 b/d in late November. Libya’s <a href="https://www.eia.gov/beta/international/analysis_includes/countries_long/Libya/images/crude_oil_production.png">long-term goal</a> is to pump 1.6 million b/d, the level before the ousting of Muammar Gaddafi, and the country might be able to pass the halfway mark next year.</p>
<p>Nigeria should be capable of producing close to 2 million b/d, but pipeline disruptions caused by conflict in the Niger Delta have reduced that to 1.5 million. The resolution of the conflict, albeit not an easy task given the longevity of it, could bring more supplies to the market and thus undercut prices.</p>
<h2>Macroeconomic malaise</h2>
<p>Finally, the world economy has been anemic in recent years despite low oil prices, which have historically been a driver of economic growth. Oil demand growth has been muted.</p>
<p>One potential reason is the reduction in fuel subsidies in recent years in some key countries <a href="https://www.chinadialogue.net/article/show/single/en/8709-Prices-at-China-s-petrol-pumps-stoke-debate-on-fossil-fuel-subsidy-reform-">such as China</a>. So consumers in many countries may be paying the same price for petroleum products now as they did in 2014 when the oil was $90 a barrel and will continue to do so unless governments reinstitute some subsidies. This might be difficult because macroeconomic policies in many countries seem to be failing to stimulate their economies. </p>
<p>Also, years of supporting energy efficiency and alternative fuels or technologies along with regulating emissions might be dampening oil demand growth in some countries. One can only speculate that a sustained and significant increase in the price of oil would encourage these policies. </p>
<p>Overall, OPEC’s production cuts are not building on strong demand growth. To the extent it succeeds in raising the price, it can end up undermining demand. </p>
<h2>Back to the fundamentals</h2>
<p>It is difficult to do justice to the complexity of oil market dynamics in such a short article. </p>
<p>In short, though, the planned OPEC cuts have already provided some respite for oil producers, in terms of higher prices, thanks to the eagerness of financial traders. But once the excitement of the news passes, these and other demand-supply fundamentals will once again govern the oil price.</p>
<p>Although these higher prices will enhance producer revenues and slow the buildup of oil inventories, they can also dampen demand growth and encourage too much production too soon.</p><img src="https://counter.theconversation.com/content/69832/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gürcan Gülen works for a university research unit that receives funding from various organizations. For details see <a href="http://www.beg.utexas.edu/energyecon/">http://www.beg.utexas.edu/energyecon/</a>.</span></em></p>To see why, one must only consider the core economic principle of supply and demand.Gürcan Gülen, Research Scientist, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/437462015-06-23T20:31:49Z2015-06-23T20:31:49ZTories are backing the wrong horses when it comes to energy<p>What will become of UK energy policy now that the Conservative Party holds all the levers? The government has already <a href="http://www.bbc.co.uk/news/uk-politics-33227489">given clear indications</a> of its plans to pare back onshore wind in recent days. June 24 is the turn of offshore wind, when energy secretary Amber Rudd gives one of her first keynote speeches at the <a href="http://www.renewableuk.com/en/events/conferences-and-exhibitions/global-offshore-wind-2015/">Global Offshore Wind Conference</a>. </p>
<p>Rudd <a href="http://www.theguardian.com/environment/damian-carrington-blog/2015/may/11/amber-rudds-appointment-as-climate-secretary">has been</a> described as “really green” in the past, but that is unlikely to reassure the offshore wind industry. With the government apparently committed to nuclear and shale gas and oil, renewables companies are wondering if they still have a place at the table. Here’s how the policy landscape looks to us. </p>
<h2>Damage onshore</h2>
<p>The government’s first big energy decision was confirmed with <a href="http://www.bbc.co.uk/news/uk-politics-33227489">the announcement</a> that the renewables-obligation subsidy scheme would be closing next April 1, a year earlier than planned. Confidence in the renewables industry has been wrecked as a result, though it goes further than that: the companies supporting renewables are the big power companies. The move is arguably as much a move against them as anyone. </p>
<p>Relations with the Scottish government have been damaged, with Nicola Sturgeon and others <a href="http://www.thenational.scot/news/perverse-tory-plans-to-cut-windfarm-subsidies-put-scottish-power-at-risk.4271">describing the decision</a> as “wrong-headed”, “perverse” and “downright outrageous”. Scotland has backed onshore wind for more than a decade as a cheap and proven source of low-carbon electricity. <a href="http://www.scottishrenewables.com/news/early-end-onshore-wind-support-could-cost-3bn-inve/">According to</a> industry body Scottish Renewables, the decision will cost Scotland alone up to £3bn in investment and put at risk many thousands of highly paid jobs. </p>
<p>The move will also hit consumer utility bills. Keith Anderson, chief operating officer of Scottish Power, <a href="http://www.snp.org/media-centre/news/2015/jun/cameron-must-look-again-onshore-wind-proposals">has estimated</a> it will cost consumers between £2bn-3bn in more expensive electricity generation. This will increase the risk of <a href="http://www.nea.org.uk/policy-and-research/publications/2014/monitor-2014">fuel poverty across the UK</a> (which is much higher in Scotland than England).</p>
<h2>Anxiety offshore</h2>
<p>Even before the election, offshore wind was not a good place to be. The sector has seen many projects mothballed and a number of key players drop out altogether in the face of a subsidy regime that is insufficient. Offshore is <a href="https://theconversation.com/scottish-wind-could-fix-uk-energy-woes-dont-let-westminster-blow-it-31532">already now much smaller</a> than originally envisaged. It remains an expensive option in the UK even compared to new nuclear, and although <a href="http://cleantechnica.com/2015/02/28/offshore-wind-costs-continue-fall-study/">costs are falling</a>, it is not being deployed on the scale necessary to reduce costs to the point that it is commercially viable. If the subsidies are now cut, it will become a dead duck. </p>
<p>Compare Denmark, where the industry is <a href="http://www.energypost.eu/danish-offshore-wind-getting-better-time/?utm_campaign=shareaholic&utm_medium=linkedin&utm_source=socialnetwork">now seeing</a> costs fall dramatically through learning by doing. While the industry has benefited from highly competitive support mechanisms, deployment has been greatly facilitated by having 20% local ownership of projects. Shallower waters have helped too, but the UK could still learn from the Danish approach. Danish offshore wind costs are significantly less than the projected new nuclear build costs at <a href="http://www.telegraph.co.uk/news/earth/energy/nuclearpower/11404344/Hinkley-Point-new-nuclear-power-plant-the-story-so-far.html">Hinkley Point C</a> in Somerset in the UK, the country’s first new nuclear plant since the 1990s. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86162/original/image-20150623-19386-qjf65x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sheringham Shoal wind farm off East Anglia.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/statkraft/14719851109/in/photolist-oqK5Un-oqK5Ag-oqKcYG-oqK5wi-pMJFrR-8TVwdi-qqYv2C-qjArKQ-nB4S62-gfnBKs-deS1aJ-kYzgxV-qjtdZ6-qgXLYe-bPtiy-kU4mZR-kYzh7F-9GEtLm-c93qvh-cqbvvb-deRZeN-c2jS53-qNZuBD-qt2xJ4-q8T7wm-pTHdPu-qP9tV4-rG5TCb-qKpe41-6YiWvR-q87qwz-3Krm3b-oActKT-kYzgTz-mfuXT8-diuucV-diutb7-rwtydP-8qzTQ1-qEhFE6-kYAKpJ-9L88X7-ptrCnN-ccJdMs-qjGP5a-pNGvPx-diuuBZ-kU51wn-pS9Fdo-oAaua1">Statkraft</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Bright nuclear future?</h2>
<p>The Tories have long backed new nuclear power as the panacea to combat the looming electricity crunch that is <a href="https://theconversation.com/the-coalitions-attitude-to-renewables-and-scotland-is-a-risk-to-national-security-27666">often talked about</a> in energy circles. Yet new nuclear is proving so challenging <a href="http://www.telegraph.co.uk/news/worldnews/europe/france/11546271/New-UK-nuclear-plants-under-threat-as-serious-anomaly-with-model-found-in-France.html">across the world</a> that delivering even one new station will be no easy task. </p>
<p>As Hinkley Point C has <a href="https://theconversation.com/george-osbornes-latest-nuclear-deal-is-another-step-in-the-wrong-direction-35054">already illustrated</a>, the financial costs of new nuclear are enormous, and construction overruns look inevitable. The government also faces an impending legal challenge by the <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/11119631/Austria-to-launch-legal-challenge-if-EU-approves-British-nuclear-plan.html">Austrian government</a> over the up to £25bn of state aid required to bring the project to fruition. This could <a href="http://www.theguardian.com/environment/2015/jan/22/uk-nuclear-ambitions-dealt-fatal-blow-by-austrian-legal-challenge-say-greens">delay completion</a> by up to four years. Meanwhile Greenpeace <a href="http://www.theecologist.org/News/news_round_up/2780807/greenpeace_energy_to_launch_legal_challenge_to_uk_nuclear_subsidies.html">is suing</a> the European Commission for <a href="http://www.telegraph.co.uk/finance/newsbysector/energy/11148193/Hinkley-Point-nuclear-plant-to-cost-34bn-EU-says.html">allowing the state aid</a> to go ahead. </p>
<p>In sum, it might well be 2030 before we see the plant generating any new electricity for UK consumers – about seven years later than intended. This is a big problem for Rudd. Hinkley Point was promising to generate up to 7% of the UK’s electricity demand by 2023, at a time when big coal-fired stations <a href="http://www.bbc.co.uk/news/uk-scotland-scotland-business-32016538">in Scotland</a> and <a href="http://www.bbc.co.uk/news/business-32806766">England</a> are closing. New and significant investment in energy infrastructure is needed before 2020 but it is currently unclear where this new generating capacity is going to come from. </p>
<h2>Fast-track fracking</h2>
<p>David Cameron has also <a href="http://www.theguardian.com/environment/2015/jan/26/david-cameron-rejects-fracking-ban-shale-gas">made clear</a> the government’s commitment to shale gas and its desire to repeat the US revolution here. It promises new tax revenues, jobs and a more secure gas supply. Yet these benefits must be balanced against the need to protect land and water supplies and manage <a href="http://www.theguardian.com/environment/2014/sep/26/fracking-trespass-law-changes-move-forward-despite-huge-public-opposition">hostile public opinion</a>. </p>
<p>One widely overlooked issue is the infrastructure, which will take time and money to build. Fracking in the US requires an oil price to be at least $60 per barrel to be economical, and in some areas up to $100. With <a href="http://www.bbc.co.uk/news/business/market_data/commodities/default.stm">Brent Crude</a> in the new era of mid $60 per barrel, is fracking economically feasible? <a href="http://www.bbc.co.uk/news/uk-scotland-scotland-business-30869873">Evidence</a> from the US suggests not.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86282/original/image-20150624-31476-ge97cu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Fracks very much.</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&autocomplete_id=143515695290612220000&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=208265362">larryrains</a></span>
</figcaption>
</figure>
<p>Earlier this year the Commons environmental audit committee <a href="http://www.carbonbrief.org/blog/2015/01/mps-brand-fracking-incompatible-with-uk-climate-targets/">questioned</a> whether fracking was compatible with UK climate-change targets. With the <a href="http://www.theccc.org.uk/tackling-climate-change/reducing-carbon-emissions/carbon-budgets-and-targets/">fifth carbon budget</a> due soon to set targets beyond 2027, this presents Rudd with another conundrum. The <a href="http://www.cop21.gouv.fr/en">UN climate change conference</a> in Paris later this year may well prove a very challenging conversation for the government. It is hard to escape the conclusion that this central strand of the government’s new energy agenda has some serious credibility issues. </p>
<h2>The big picture</h2>
<p>Put this all together and the government’s emerging approach to wind looks very unwise. New nuclear looks a very costly and unreliable drain on the government’s budget, while fracking looks expensive, incompatible with emissions targets and probably uneconomic at current oil prices. It remains to be seen if these technologies will yield any long-term and positive outcomes for the country. If the government gets it wrong, the consumer could be saddled with soaring electricity and gas bills for years to come. If ever we needed some sign of reprieve for UK renewables, it is now.</p><img src="https://counter.theconversation.com/content/43746/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>With wind braced for more cutbacks, government backing of nuclear and fracking will end in tears.Peter Strachan, Strategy and Policy Group Lead and Professor of Energy Policy, Department of Management, Robert Gordon UniversityAlex Russell, Head of Department of Management and Professor of Petroleum Accounting at Aberdeen Business School, Robert Gordon UniversityLicensed 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/385502015-03-11T06:23:56Z2015-03-11T06:23:56ZWhatever happened to the great European fracking boom?<figure><img src="https://images.theconversation.com/files/74178/original/image-20150309-13576-1uh44fm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mission accomplished? Protesters outside the European parliament in Brussels</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/greensefa/8002426030/in/photolist-asG8xe-dbUyaf-dc9wsA-dbUxj4-dbUz7S-ddAaG6-ddAaN4-ddAaz6-ddAcdA-8Qt9W3-fwMPmx-fx31H7-fx3gzC-fx32ns-q1dVeT-qUHrvu-qEscns-qUHrWQ-qWVYUS-qX1ypn-aEksK6-aEksyZ-ddAcqA-ddAcw5-ddAauD-ddAcom-ddAaQB-ddAaxa-qH6Eyz-aEpiwh-93wzZx-nW28xS-mkyuML-nW2abm-mkyv6w-mkwxrP-mkxeKT-mkxffk-mkytxS-mkyqGS-mkyqPW-mkxeBX-mkxa9i-mkwxeK-mkwwYK-mkwsyT-mkxae8-mkx9kV-mkxefV-mkwtjk">Greensefa</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The European shale gas boom has not materialised in the way that some were predicting. We are a far cry from the situation a few years ago, where interest in <a href="https://www.dur.ac.uk/resources/refine/FrackingSummaryRBEnglish.pdf">fracking</a> in Europe was <a href="http://www.ft.com/cms/s/0/d8c79266-6764-11df-a932-00144feab49a.html#axzz3TyaO1r4a">gathering pace</a> on the back of the successes in North America. </p>
<p>The UK <a href="http://www.greenpeace.org.uk/newsdesk/energy/data/fracking-38-south-eastern-constituencies">appeared to be</a> leading the way, with drilling activities in north-west and south-east England. Companies started snapping up exploration licences right across the continent, and prospects from Scandinavia to the Urals found themselves being eagerly appraised.</p>
<p>So what’s happened, and what do the prospects for Europe look like now?</p>
<h2>Western Europe</h2>
<p>Of the countries in mainland western Europe, France has the most potential for unconventional hydrocarbons. The shales of the Paris Basin are thought to have major shale gas and minor shale oil potential, while the Jurassic shales in the south-east of the country may also have some shale gas potential. But a fracking moratorium <a href="http://www.bbc.co.uk/news/business-24489986">has been in place</a> since 2011, and was upheld in 2013. For the present, therefore, France ne frac pas.</p>
<p>Germany, like France, has not permitted fracking since 2011. But unlike France, it does not have huge quantities of prospective shale. Most of the potential interest in fracking is for gas from low permeability sandstones and coal beds, and there <a href="http://www.theguardian.com/environment/2015/feb/14/germany-legalise-fracking-shale-gas-hydraulic-fracturing">have been</a> moves recently to permit fracking at depths of more than 3,000 metres.</p>
<p>The only other mainland western European country with significant shale gas potential is the Netherlands. There is <a href="http://uk.reuters.com/article/2015/03/02/netherlands-gas-groningen-idUKL5N0W40U720150302">considerable public opposition</a>, however, particularly with conventional gas extraction having been linked to subsidence and induced seismicity in the Groningen area. No fracking for shale gas has been permitted so far.</p>
<p><strong>Shale gas in Europe by country</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=279&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=279&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=279&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=350&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=350&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74299/original/image-20150310-13573-1fj1na9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=350&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Technically recoverable resources.</span>
<span class="attribution"><a class="source" href="http://www.eia.gov/analysis/studies/worldshalegas/pdf/table4.pdf">EIA 2013</a></span>
</figcaption>
</figure>
<h2>Eastern Europe</h2>
<p>With large areas of apparently prospective shale and a government supportive of fracking, Poland looked to be the frontrunner of the European shale gas boom. The reality has been rather more sobering, however. </p>
<p>Many boreholes have been drilled, few have produced the results that were hoped for, and most of the major companies <a href="http://www.reuters.com/article/2015/01/31/chevron-poland-shale-idUSL6N0VA08020150131">have now withdrawn</a> from the country. Polish shale gas may still prove to be viable in the long-term, but abundant shales and an enthusiastic political leadership do not guarantee fracking success.</p>
<p>Ukraine was also seen as a major exploration target, with prospects for shale gas in both the west and east of the country. Exploration began in both areas, but subsequent political upheavals and the violent conflict in the Donetsk region have ensured that fracking has not taken off and has little likelihood of doing so in the near future.</p>
<p>The prospective shales of western Ukraine continue into Romania and Bulgaria. Romania saw some exploration for shale gas by Chevron, but poor results and environmental protests saw the company <a href="http://www.wsj.com/articles/chevron-to-give-up-romanian-shale-gas-interests-1424482388">pull out</a> of the country in early 2015. Bulgaria, meanwhile, <a href="http://www.theguardian.com/world/2012/feb/14/bulgaria-bans-shale-gas-exploration">placed a moratorium</a> on fracking in 2012. Hungary and the Lithuania-Kaliningrad region of the Baltic are also thought to have unconventional hydrocarbon potential, but little exploration activity has taken place.</p>
<p><strong>Shale oil in Europe by country</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=279&fit=crop&dpr=1 600w, https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=279&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=279&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=350&fit=crop&dpr=1 754w, https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=350&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/74300/original/image-20150310-13550-189r4b0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=350&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Technically recoverable resources.</span>
<span class="attribution"><a class="source" href="http://www.eia.gov/analysis/studies/worldshalegas/pdf/table4.pdf">EIA 2013</a></span>
</figcaption>
</figure>
<h2>Scandinavia</h2>
<p>The only Scandinavian country where shales have proven of interest is Denmark, where the <a href="http://www.usgs.gov/newsroom/article.asp?ID=3741">US Geological Survey suggested</a> that there were 2.5tn cubic feet (tcf) of onshore gas resources in the Alum Shale. </p>
<p>The government issued a moratorium on fracking in 2012, but Total was allowed to continue with exploration in Jutland and Zealand, with plans to carry out test drilling this spring. There <a href="http://www.rtcc.org/2015/02/05/denmark-to-reconsider-fracking-ban-after-total-shale-tests/">have been reports</a> that the government may consider lifting the moratorium if Total decides to go ahead with fracking on the back of good results. </p>
<h2>Southern Europe</h2>
<p>The geology in southern Europe is tectonically complex. There are few shale basins, so the region has seen very limited interest in fracking. The Jurassic shales of the Basque-Cantabrian basin of northwest Spain are considered to have some potential for shale gas, and some exploration <a href="http://www.theguardian.com/world/2014/mar/26/spain-oil-deposit-fracking-sites-energy-offshore-gas">has begun there</a>.</p>
<h2>What happens next?</h2>
<p>It is clear there are very few European countries in which fracking is likely to happen any time soon, if at all. Many apparently prospective European shales have turned out to be more geologically complicated than expected. </p>
<p>This is related to the fact that although shale is a very common rock, it has not been a common subject of research – at least until recently. Much remains to be understood about how shales form, how they vary, and how they behave when fracked. </p>
<p>Environmental and political concerns have also come to the fore more than might have been anticipated, while the oil-price slump has made all efforts look much more expensive than they did a year ago. </p>
<p>For the companies concerned, this has changed the economics – particularly where the geology has proven complex. Europe’s shales were always going to be different to those of North America. To major companies, they now look a great deal less enticing. </p>
<p>Nonetheless, it is crucial that fracking research continues. A good understanding of shale geology is still in its infancy. If fracking is to take place anywhere in Europe, baseline environmental information from potential fracking sites needs to be collected, analysed, and made publicly available, along with long-term monitoring data. </p>
<p>Shale scientists must also develop meaningful dialogues with the public, explaining what we know and don’t know about the possible risks. The <a href="http://www.refine.org.uk">Research Fracking in Europe (ReFINE) project</a> is involved in this work, looking at things like <a href="https://www.dur.ac.uk/resources/refine/HydraulicFracturesRBfinal2.pdf">how far hydraulic fractures go</a>, how large an earthquake <a href="https://www.dur.ac.uk/resources/refine/InducedSeismicityResearchBrieffinal2.pdf">fracking can cause</a>, and the <a href="https://www.dur.ac.uk/resources/refine/WellintegrityRBenglish.pdf">likelihood of leaks</a> from shale-gas wells. </p>
<p>Meanwhile the EU announced several weeks ago that it was <a href="http://www.sciencebusiness.net/news/76921/EU-announces-around-%E2%82%AC12-million-in-funding-for-fracking-research">awarding €12m (£8.6m)</a> to researchers looking at the environmental impact of fracking, and the risks of chemicals and gases being dispersed below the ground. Europe might never lead the world in fracking, but it can lead the world in fracking research.</p><img src="https://counter.theconversation.com/content/38550/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liam works on the ReFINE (Researching Fracking In Europe) project, which receives funding from the Natural Environment Research Council, Shell, and Chevron; and on the JARR (Jurassic Analogues: Resources to Reserves) project, which receives funding from the Natural Environment Research Council.</span></em></p>Europe was supposed to be big business for fracking companies, but so far not so good. So what’s going wrong?Liam Herringshaw, Postdoctoral Research Associate, Durham UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/360882015-01-16T06:17:41Z2015-01-16T06:17:41ZOil crash: is this the end of a long period of inflated prices?<figure><img src="https://images.theconversation.com/files/68886/original/image-20150113-28449-1k1cyjc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Did the Saudis and the Americans do a deal over oil in 2008-09?</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=J4DrYZE_QdwUUoY-t_jrEQ&searchterm=saudi%20arabia%20and%20obama&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=163371062">solkanar</a></span></figcaption></figure><p>What on earth is going on in the oil market? Does the <a href="http://www.bloomberg.com/news/2015-01-13/oil-drops-from-5-1-2-year-low-as-u-s-supply-seen-adding-to-glut.html">recent 60% collapse</a> in oil prices in six months really reflect shifts in underlying supply and demand for crude oil? I’m afraid not, as <a href="http://www.theoildrum.com/node/8834">I have been predicting</a> for more than three years. Here’s what has really been happening. </p>
<p>When an oil market is over-supplied, it causes something called a “contango”. This is where the spot price of oil (the price for immediate delivery) is less than the forward price – a reverse of the normal situation. </p>
<p><a href="http://www.bloomberg.com/news/2015-01-07/u-a-e-energy-minister-says-oil-glut-could-run-for-years.html">The oil market is currently significantly over-supplied,</a> partly from a period of strong demand from emerging economies and partly because the high price made more expensive forms of petroleum production viable, such as US shale, Canadian tar sands and deep-water plays. There is also a very <a href="http://www.bloomberg.com/news/2015-01-05/oil-glut-seen-setting-sail-as-contango-widens-chart-of-the-day.html">significant contango</a> of more than $6 per barrel for a six-month period. </p>
<p>There was another <a href="http://www.marketwatch.com/story/crude-super-contango-puts-more-oil-in-storage-signals-price-rise">massive contango</a> in 2009. This was the middle of a period where <a href="http://www.macrotrends.net/1369/crude-oil-price-history-chart">the oil price</a> spiked from $80 to $147/barrel in July 2008, collapsed to $35 within six months and then regained $80, all within two years. </p>
<p>You might have expected the contango during a time of falling prices, signalling that the market was over-supplied, but it remained once prices started rising again. This surge in prices suggested that physical demand was exceeding supply, which indicated market under-supply. So which was it? </p>
<p>This remains an unexplained paradox. Despite the economic crisis, global production and consumption of physical crude oil <a href="http://www.indexmundi.com/energy.aspx?product=oil&graph=production">varied by</a> no more than 3% during that period. To understand what has happened this time around, we need to explain this first. </p>
<h2>The market reality</h2>
<p>Until about 20 years ago, oil-futures trading existed purely to help oil producers and refiners cope with the ups and downs of the market by hedging against big shifts in the price. In the 1990s, investment funds entered the scene, which made more funds available for hedging. But there were drawbacks: everyone involved in the trade took a cut, and there always came a date when the oil had to be delivered. </p>
<p>Although futures trading is still big business, the costs and drawbacks of exchange trading make off-market trading attractive. A prepay agreement is such an off-exchange agreement directly between producers and consumers. Though a form of prepay <a href="http://www.sec.gov/litigation/litreleases/lr18252.htm">was involved in</a> the Enron collapse of 2001, it appears to have reached the oil market three years later. It is my understanding from a very highly placed market source that between 2004 and mid-2008, a major oil company routinely entered into prepay crude-oil transactions with a big investment bank (albeit there is no suggestion of wrongdoing, unlike in the Enron case). </p>
<p>It worked like this: the bank loaned money interest-free to the oil company in exchange for a loan of oil. A different part of the bank then entered into matching transactions with investment funds, where they invested in this loaned oil. This was not speculative investment but putting money into oil as a hard asset that would protect against inflation. </p>
<p>This arrangement appears to have been one of the forces which drove up oil prices towards their 2008 peak. Speculation would also have been instrumental in the short term, but it couldn’t have sustained high oil prices over a period of years. </p>
<h2>Enter the Saudis</h2>
<p>When the price of oil plummeted late in 2008 as the credit to pay for oil dried up, it would have been deeply uncomfortable for big oil producers such as the Saudis. Saudi Arabia <a href="http://theconversation.com/oil-prices-eventually-the-gulf-states-will-run-out-of-power-35867">depends on a high oil price</a> to fund its hefty public spending commitments. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=385&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=385&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=385&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=484&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=484&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68887/original/image-20150113-28425-1qydhxv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=484&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Only the Saudis could have done a deal with the Americans.</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=J4DrYZE_QdwUUoY-t_jrEQ&searchterm=saudi%20oil&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=2415443">Douglas Knight</a></span>
</figcaption>
</figure>
<p>The <a href="http://www.al-monitor.com/pulse/politics/2013/03/obama-us-saudi-ties.html#">oil-based relationship</a> between the US and Saudi Arabia goes back a very long way. My theory is that a bargain was struck at some point during the oil price crash of 2008-09. </p>
<p>The Americans would have guaranteed a high oil price ($80/barrel, perhaps, below which the price never fell between autumn 2009 and autumn 2014). In exchange, the Saudis might have ensured that the price of US gasoline did not exceed a level (say $3.50/gallon) at which President Obama’s chances of re-election in 2012 might be compromised. As the only player big enough to move the market, the Saudis would have been the only country capable of this.</p>
<p><a href="http://www.theguardian.com/business/2001/jan/14/globalrecession.oilandpetrol">According to</a> the former Saudi oil minister Sheikh Zaki Yamani, such interventions are nothing new. He claimed that the 400% oil price increases which took place in 1973, and which were blamed on OPEC, were actually secretly engineered by the US and UK to finance more expensive production in places like the North Sea and Alaska. You could say the same about the need in 2009 to dramatically increase US shale oil production. </p>
<p>The US decision to begin quantitative easing (QE) certainly put the Americans in a good position to help. Not only did it create a huge wall of new dollars looking to invest in assets, it created big inflation fears. This would have made an asset like oil especially attractive – all the more so if it was done through off-market prepay (at the same time, if anyone had tried to do it on-market, the market would have speculated against them and driven the price down). No one would have thought the QE money would have lasted forever, but it would have been reasonable to assume that it could have helped prop up the price until demand from the likes of China could fill it. </p>
<p>This would both explain the 2009 reflation of the oil price and the big contango – to the market it appeared that there was a big over-supply of oil, but that could be explained by strong prepay demand off-market. This would also explain why the financial crude oil market became almost completely detached from the relationship to physical supply and demand, as well as explaining other anomalies <a href="http://www.forbes.com/sites/energysource/2012/01/10/oil-and-natural-gas-prices-get-divorced/">such as the</a> break in the longstanding relationship between oil and natural gas. </p>
<h2>The outcome</h2>
<p>The high-price years have led both to systemic over-supply from new high-cost US shale oil and demand destruction. This over-supply made the market fragile, but the end of US QE precipitated the collapse. The chart below demonstrates better than a thousand words what happened. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=559&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=559&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=559&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=703&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=703&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68851/original/image-20150113-28431-nndmln.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=703&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>
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</figure>
<p>When <a href="http://ftalphaville.ft.com/2014/12/22/2077621/not-everyone-deserves-oil-market-share-according-to-naimi/">Saudi oil minister Ali Al-Naimi </a>was recently asked about the prospect of a major deficit in his country’s public finances, his answer was illuminating. Pressed on how Saudi Arabia would cope with this deficit, he said: “We have no debt. We can go to the banks. They are full. We can go and borrow money, and keep our reserves. Or we can use some of our reserves.”</p>
<p>I believe Al-Naimi’s confidence is based firmly upon the fact that Saudi oil reserves have – invisibly to the market – been monetised through the use of prepay credit for the last five years. </p>
<p>This will give the Saudis a softer landing from lower oil prices than might otherwise have been the case. But this still represents the definitive end of an oil-market paradigm of domination by market middlemen which began to develop in the early 1970s after OPEC first began to exercise market muscles which have now almost entirely wasted away.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=480&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=480&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=480&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68889/original/image-20150113-28452-1drd84y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&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 looks like the end of an era.</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=SeUzth9XC-jG4WeuYPBudg&searchterm=oil%20market&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=199562630">Nerthuz</a></span>
</figcaption>
</figure>
<p><a href="http://www.usatoday.com/story/money/columnist/bartiromo/2015/01/11/bartiromo-saudi-prince-alwaleed-oil-100-barrel/21484911/">Recent comments</a> from dissident Saudi prince Alwaleed bin Talal that we will never see $100 oil again are undoubtedly correct. There will be a huge amount of unconventional oil that would become viable at that price, so that if the oil price returned to that level, there would rapidly be a big glut on the market that would suppress it again. </p>
<p>In recent months we have truly seen the end of an era. If my theory is right, there has been a massive market manipulation behind the scenes. If it is wrong, the world’s leading oil producers, traders and financiers have yet to come up with an explanation that remotely fits the facts.</p><img src="https://counter.theconversation.com/content/36088/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Cook 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>What on earth is going on in the oil market? Does the recent 60% collapse in oil prices in six months really reflect shifts in underlying supply and demand for crude oil? I’m afraid not, as I have been…Chris Cook, Senior Research Fellow, UCLLicensed as Creative Commons – attribution, no derivatives.