The world according to Rex Tillerson: What are we to make of the CEO of ExxonMobil, who in a speech lasting just over an hour managed to tarnish journalists covering his industry as "lazy," the public as "illiterate," and critics as "manufacturers of fear"? As for worries about global warming, Exxon's Rex Tillerson suggested they relax about rising seas and disappearing agriculture -- "we will adapt," he said.
Cynics might say, ‘What should one expect from ExxonMobil'? But if so, they would not have been listening to Tillerson since he became CEO six years ago, a period in which he has been much more measured: In flat, evenly delivered and nuanced language, the 60-year-old native Texan has softened Exxon's sharpest and most-criticized edges, most conspicuously repudiating its funding of a clutch of scholars whose tracts -- challenging conventional climate science -- have been seized upon by global warming critics as evidence of a hoax. So was his speech Wednesday before the Council on Foreign Relations in New York simply a bad hair day? Or are we essentially watching a reversion to the days of Exxon's abrasive former CEO, Lee Raymond? Here, watch the video yourself:
The last time we witnessed such a philosophical lurch by Exxon was in January 2009, when Barack Obama was about to take the oath of office, and the sense of Washington politics was the inevitability of a federal cap on carbon emissions. Explaining explicitly that he sensed this political shift, Tillerson appeared at the Wilson Center in Washington, and announced that Exxon now accepted climate science. As an ameliorative, Tillerson proposed that emissions of heat-trapping gases be discouraged through the use of a carbon tax. It was after this speech that Exxon stopped funding hoax die-hards.
Exxon did not respond to two emails seeking to plumb its latest thinking. But with this week's talk, which I describe at EnergyWire, Tillerson seems to comes full circle. Look for the company to pour its lobbying might into campaigns that twin climate adaptation with head-long development of American oil and gas resources.
Go to the Jump for the rest of Rex Tillerson, and more of the Wrap.
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Is Barack Obama sufficiently dirty to win re-election? Not according to presumptive Republican nominee Mitt Romney, who says the president is too spic and span.
Calculating that clean energy is passé among Americans more concerned about jobs and their own pocketbooks, Romney is gambling that he can tip swing voters his way by embracing dirtier air and water if the tradeoff is more employment and economic growth.
Romney's gamble is essentially a bet on the demonstrated disruptive potency of shale gas and shale oil, which over the last year or so have shaken up geopolitics from Russia to the Middle East and China. Now, Romney and the GOP leadership hope they will have the same impact on U.S. domestic politics, and sweep the former Massachusetts governor into the White House with a strong Republican majority in Congress.
A flood of new oil and natural gas production in states such as North Dakota, Ohio, Pennsylvania, and Texas is changing the national and global economies. U.S. oil production is projected to reach 6.3 million barrels a day this year, the highest volume since 1997, the Energy Information Agency reported Tuesday. In a decade or so, U.S. oil supplies could help to shrink OPEC's influence as a global economic force. Meanwhile, a glut of cheap U.S. shale gas has challenged Russia's economic power in Europe and is contributing to a revolution in how the world powers itself.
But Romney and the GOP assert that Obama is slowing the larger potential of the deluge, and is not up to the task of turning it into what they say ought to be a gigantic jobs machine. The president's critics say an unfettered fossil fuels industry could produce 1.4 million new jobs by 2030. They believe that American voters won't be too impressed with Obama's argument that he is leading a balanced energy-and-jobs approach that includes renewable fuels and electric cars.
The GOP's oil-and-jobs campaign -- in April alone, 81 percent of U.S. political ads attacking Obama were on the subject of energy, according to Kantar Media, a firm that tracks political advertising -- is a risk that could backfire. Americans could decide that they prefer clean energy after all. Or, as half a dozen election analysts and political science professors told me, energy -- even if it seems crucial at this moment in time -- may not be a central election issue by November.
Yet if the election is as close as the polls suggest, the energy ads could prove a pivotal factor. "Advertising is generally not decisive. Advertising matters at the margins. ... But ask Al Gore if the margin matters," said Ken Goldstein, president of the Campaign Media Analysis Group at Kantar Media. "This is looking like an election where the margin may matter."
Just months after an enormous discovery of natural gas off the coast of Israel, a local company has reported another potentially big strike -- an estimated 1.4 billion barrels of oil, in addition to more natural gas. The company, Israel Opportunity Energy Resources, says it will start drilling by the end of the year. All of a sudden, Israel has found itself a focus of the world's hydrocarbon interest.
Energy experts are tittering about a prodigious new golden age of oil and gas in the Eastern Mediterranean, where Israel and Cyprus could become substantial oil and natural gas exporters, in addition to some other surprising places including French Guiana, Kenya, North Dakota, and Somalia. All in all, say increasingly mainstream projections, the world is moving into a period of petroleum abundance, and not the scarcity that most industry hands embraced just months ago. Plus, the United States, or at least North America, may be on the cusp of energy independence while OPEC's days of über-influence are numbered.
What these experts have not said, however, is that while this new golden age may indeed shake up the currently rich and powerful and create new regional forces, it could also accelerate the swamping of the planet in melted Arctic ice. So much new oil may flood the market that crude and gasoline prices might moderate and lessen consumer incentives to economize. "In the absence of U.S. leadership, I tend to agree with NASA's James Hansen that it is 'game over for the planet,'" Peter Rutland, a professor at Wesleyan University, told me in an email exchange.
This unspoken flaw in the golden-age scenario suggests it might not unfold so smoothly. The projected turnaround of oil's sagging fortunes may indeed herald economic salvation for the U.S. and global economies. But the environmental consequences could also trip up its full realization.
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When it comes to gasoline, are Americans transforming from the world's chief gluttons to models of moderation? According to Philip Verleger, the energy economist, that is more or less the country's direction, with surprising consequences.
Verleger spells out this scenario in a note to clients, his version of the narrative of coming fossil-fuel abundance that we have heard elsewhere. Verleger's 11-page note is as oil-bullish as his most enthusiastic colleagues, who as a group say the U.S. is on the cusp of near energy independence. The oil-abundance narrative is a global one, and asserts flatly that peak oil theory is wrong.
Where Verleger diverges is in ascribing most of the responsibility for this U.S. oil boom not to more prolific oilfields, but to consumer efficiency. "[Gasoline] use will drop significantly by 2020 thanks to conservation, natural gas substitution and the ethanol mandate," Verleger told me in an email.
By 2022, 36 billion gallons of renewable fuels must be blended into gasoline, in line with a George W. Bush-era law. On top of that, President Obama has raised the bar for vehicular fuel efficiency to 54 miles per gallon, up from the current 30 miles a gallon. Plus long-haul truckers are making a shift to natural gas fuel, Reuters reports.
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Apart from the entertainment value, what is the big deal about the saga of Aubrey McClendon, the CEO of Chesapeake Energy, and his use of the company as a piggy bank? The big deal is that, more than any single individual apart from the innovator George Mitchell, McClendon is responsible for the shale gas boom that is shaking up geopolitics. Of course, McClendon's hijinx do not change the geopolitical shakeup, but they are a window into the type of personalities who make up the wildcat boom (pictured above, McClendon, left, owns the Oklahoma City Thunder professional basketball team along with Clayton Bennett, right). As with most such revelations, the kernels and sometimes the whole kit-and-kaboodle are detailed in the fine print of a company's annual 10-K filing with the Securities and Exchange Commission. The thing is, few people bother to read such material -- apart that is from the folks over at footnoted.org, whose whole business is to do so. The footnoted folks have been talking about McClendon for awhile now (such as here, here and -- from today's Website -- here). I asked footnoted's Theo Francis for some insight into Chesapeake. His reply follows.
O&G: What could and should a Chesapeake investor, given an ordinary read of the company's 10-K annual reports, have known about Aubrey McClendon's compensation package, perks and financial dealings in recent years? As a followup, if that same investor elected to dig deeper and follow the trail of citations, what would he or she have been able to know?
Theo Francis: Piecing it together can take some work and patience, but it's there, mostly in the annual proxy filing, with updates scattered across other filings over the course of a year.
A snapshot of McClendon's compensation in 2011 (primarily from an April 30 amendment to the company's 10-K filing) illustrates what's available: Salary of $975,000; a $1.95 million discretionary bonus -- meaning it isn't based on any kind of performance measures, but just on the board's general sense of how well he's done; $13.6 million in stock awards; and $1.3 million in perks and retirement-plan contributions. Those perks are telling too: $500,000 in free personal trips on company aircraft (on top of another $650,000 in jet rides for which he reimbursed the company), $250,000 in personal accounting services provided by company employees (about which more in a moment), and $121,570 in personal security benefits. Total for 2011: $17.9 million. Over the last three years, McClendon's compensation has added up to more than $57 million. Plus, Chesapeake doesn't even count some perks, because there's ostensibly no incremental cost to the company, including for an unknown number of tickets to sporting events. McClendon has also built up $7.5 million in a deferred-compensation plan, a kind of IOU from the company.
Which brings us to the related-party transactions, the ones that the company did disclose: Buying McClendon's map collection for $12.1 million in 2008 (a transaction that was ultimately unwound after a lawsuit); paying the Oklahoma City Thunder basketball team, in which McClendon personally owns a 19.2% stake; $2.9 million to $4.1 million a year for more than a decade for stadium naming rights, plus another $36 million over 12 years for sponsorship and advertising costs; and $4.6 million on tickets and games in 2011-12. There's also the board's decision in 2009 to ease the stock-ownership requirement and front McClendon $75 million toward his investments in the company's drilling operations, after he had to sell pretty much all his Chesapeake shares in a margin call the year before.
And then, of course, there's the long-standing "Founder Well Participation Program," which allowed McClendon to invest alongside Chesapeake in its drilling operations, and which is what's at the heart of the current series of embarrassments for the company. The disclosure about the program in last year's proxy was 1,500 words, which sounds like a lot, and there is a fair amount of detail: How the program works (very generally), why the board does it (with extra business clichés) and so on, as well as an estimate of the present value of McClendon's interests in the wells ($308 million at the time) and a table showing annual revenues, capital and operating expenditures, along with cash-flow from the program for McClendon. But there was an awful lot that wasn't disclosed. Since the original Reuters report, the news of an informal SEC inquiry, the company's decision to wind down the well participation program, and so on, the company has produced a lot more information about the program, McClendon's borrowing and other details, in a series of filings and statements.
The bottom line, I think, for any reasonable outside observer -- and I'm talking about before the Reuters bombshell -- is that Chesapeake feels like a company run by McClendon, for McClendon and his buddies. As long as the company delivered for shareholders, there was a good chance that things could proceed with only minimal reforms for quite a while. But there's very little sense here that these people ever stopped and thought, ‘You know what, we're playing with other people's money; maybe we should rein it in a little.'
And as we've seen time and again over the years, that certainly sets the stage for a revelation like the one we got from Reuters.
Same framework -- what went undisclosed that we've learned about in recent weeks?
Quite a bit, and that's why you've seen shareholders react so badly.
For me, Chesapeake had the feel of an insouciant bad boy: It seemed like it was being pretty brash and up-front about its extremes, and that shareholders were for the most part shrugging it off. We always worry about what's not disclosed, and on one level, when a company flouts conventions to the degree that Chesapeake has, you have more to worry about (with Enron being perhaps the ultimate modern-day example). But after a while, it's easy to think, ‘OK, look, they almost got away with the map thing, and although they had to unwind the sale, there wasn't too much of a fall-out; if I were they, I'd just lay it all out and shrug when the good-governance types whine.' Maybe that's what they're doing -- you don't want to count on it, but heck, I don't own the stock, so I can let it lie.
Instead, the new revelations suggest there was, and is, a lot more lurking below the surface. There's a single line in last year's proxy that suggests McClendon might be borrowing under the Founder Well Participation Program, saying the program "does not restrict sales, other dispositions or financing transactions" involving his interests in it. What's missing is any indication that he might have more than $1 billion in borrowing backing the program, that his lenders might also do business with Chesapeake (putting him in a potentially awkward situation, to say the least), or that -- as the original Reuters article suggests -- his personal loans might require him to take certain actions that put him in conflict with Chesapeake's shareholders. That's a lot.
Now there's a suggestion, in an article by The Wall Street Journal's excellent Russell Gold, that Chesapeake may not have fully disclosed some $1.4 billion in off-balance-sheet arrangements of its own. That would seriously ratchet up the disclosure failures, in my view.
Go to the Jump for more of Theo Francis and the rest of the Wrap.
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If oil and gas are dirt-cheap, suddenly as abundant as hamburgers, or both, is it time to ring out the Hallelujah Chorus? Even if you are a climate change skeptic, the answer is no, according to two interesting reports this week.
A growing number of analysts and writers are joining a parade celebrating what they believe is an imminent age of U.S. self-sufficiency in the production of oil and gas. This blog has raised questions about the lack of data behind these projections, while analyzing the considerable geopolitical disruption to come should they be correct.
This week's addition to the discussion comes from Michael Levi, who watches energy for the Council on Foreign Relations, and the Energy Security Leadership Council, a group of retired U.S. senior military officers and current and retired corporate executives. Neither challenges the underlying assumption of a new era of fossil fuels, but instead take aim at those shouting kumbaya.
On his blog, Levi asserts that forecasts of a new industrial age, ignited by cheap natural gas, and of the near-elimination of U.S. vulnerability to energy-borne instability are "detached from basic economic and geopolitical reality."
Levi quotes Robin West, the head of PFC Energy, from a Washington Post piece. West said: "This is the energy equivalent of the Berlin Wall coming down. Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now. The geopolitical implications of this change are striking: We will no longer rely on the Middle East, or compete with such nations as China or India for resources."
In 1973, the U.S. relied on imports for 15 percent of its oil and gas, Levi notes. Boom enthusiasts say that U.S. imports will fall from the current 45 percent of consumption, to 22 percent of the total. Which makes him ponder: "If 1973 ushered in a new age of energy insecurity, it is tough to see how a fall in imports to a level still higher than the 1973 one would reverse that."
Update: After the Jump, West responds to Levi.
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Let's say you are hired to watch Aubrey McClendon, the titan of Oklahoma City. George Mitchell technically enabled the shale gas boom with his technological improvements in hydraulic fracturing. But it was uber-gambling, go-for-broke McClendon who, sweeping up millions of acres of land, putting down rigs and drilling before almost anyone else had risen from their chair, parlayed Mitchell's invention into the global, game-changing industry it is today. He single-handedly made his company, Chesapeake Energy, the king of the shale gas patch.
The thing is, McClendon (pictured above, left, with Jack Nicklaus) has a few ... ummmm ... eccentricities. Like the glutton in the sweet shop, the cash-minded McClendon cannot resist a taste of potentially profitable ventures to which he takes a hankering. He wants to run a hedge fun, for instance, not to mention a professional basketball team, a cattle ranch -- and let's have some restaurants! Every now and then, McClendon requires personal cash infusions in the tens of millions of dollars to cover bad investment bets. You are paid to patrol those gorging instincts, as described by the Wall Street Journal's Russell Gold, yet what to do when he simply goes on being ... being, well, Aubrey McClendon? He is your charge. Yet he is so ... entertaining. And successful!
Until he isn't, and don't you look flat-footed, and downright unseemly, when you shout about McClendon's excesses, and threaten his throne?
So we have the current narrative of McClendon. Three weeks ago, McClendon was broad-sided by a Reuters expose regarding his unusual contractual right to invest side by side with Chesapeake in shale gas wells, and borrow money to do so from Chesapeake partners. Today, Chesapeake's main investor, an investment firm called Southeastern Asset Management, is demanding that McClendon curb his speech, and who he meets with -- or else. By else, Southeastern means Chesapeake could be sold to the highest bidder. Already, Southeastern is partly responsible for McClendon losing his title as chairman, leaving him solely CEO. That's not a huge deal, but given the choice, most senior executives would prefer to be both.
But is the board, Southeastern or anyone close to the matter truly surprised by McClendon's behavior?
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On the shale gas patch, the twain decidedly do not meet: Shale gas drillers, on the receiving end of two years of withering attacks by anti-fracking elements, have launched a counter-offensive. A special-purposed group of 11 big industry players including ExxonMobil, Shell, Chevron and Anadarko issued an eight-page code of conduct for hydraulic fracturing in Pennsylvania and New York (pictured above, outside the town of Waynesburg, Pa.). I spoke with Anadarko CEO James Hackett, a leader of the group, before the Obama administration's release today of somewhat stiff rules governing fracking on federal land. As I wrote at EnergyWire, Hackett said the group wished to "set a good example" -- a high bar for all operators on the patch in order to reassure public opinion. But Hackett's vituperative description of critics suggests little room for conciliation between the sides. In a nutshell, Hackett sees himself as a patriot, and his critics as anti-science extremists, and worse.
The industry embarked on the standards as part of studies requested by the Department of Energy and a diverse group called the National Petroleum Council. But it was all against the backdrop of hyper-critical media like "Gasland," Josh Fox's much-watched 2010 documentary on fracking. The companies felt that shale gas "can be developed responsibly, but you had a slew of articles coming out from the New York Times. Whether they were fact-based or not didn't seem to matter," Hackett told me. "The Cornell study, the Duke study, the hysteria that people were trying to create around hydraulic fracturing, which was scientifically misplaced."
So there was industry interest in counter-attacking, Hackett said. But once they were into the process, the CEOs started thinking more broadly that they had something to gain by conceding to regulation. Hackett:
There was a feeling that this could be a useful way for us to proceed long term, because the truth is that the technology does keep changing and the practices keep changing. And we have every bit or more a stake of how the regulatory process evolves and society's acceptances of our industry. We have a bigger stake than I'd say than anyone else but the citizenry that we want to make sure is educated about what the benefits of this are so that they don't just say, ‘You lose your license to operate,' without understanding what it means when they say that.
Read on for more of James Hackett, and the rest of the Wrap.
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By the end of the decade, Israel will probably satisfy all its own natural gas requirements, and become a serious exporter of liquefied natural gas. Argentina might produce the world's third-largest volume of shale oil. Mozambique seems likely to become one of the largest LNG exporters in the world. And the United States may meet most of its own liquid-fuel needs.
Which is to say that the geopolitical fabric with which we have grown up seems to be unraveling in spots, and a new patchwork taking its place in Africa, the Middle East, North and South America, and beyond. Settled power and influence are giving way to a maelstrom of moving parts.
The backdrop is a global revival in the oil and gas business, ignited by energy companies that, after two decades of largely standing still, are finally drilling with purpose. These companies could yet self-destruct if they are not environmentally watchful. Clean-tech could achieve massive advances and economies of scale. But as of now, the colossal hydrocarbons industry -- long the tipping point, and at times the singular force, behind countries becoming rich, or falling behind -- is serving as the weaver of the new geopolitical fabric.
What could geopolitics look like? It is premature to detect concrete shapes, as Citigroup's Ed Morse wrote in a much-read recent note to clients. Yet we can discern outlines of the potential appearance of the new world.
We already know, for example, that the heft of the U.S. shale gas boom has challenged Russia's natural gas grip on Europe. Saudi Arabia also fears shale gas, whose abundance could ultimately contribute to the erosion of U.S. oil demand, as Chris Weafer said last week on this blog (also see remarks below by oil scholar Philip Verleger.).
Saudi has valid reasons to worry, as it seems almost-certain that the fresh big oil finds on other continents will whittle away at the centrality of the mighty nations of OPEC, the bain of Western economies for 35 years. OPEC seems far less likely to call the shots in global oil and, according to Citigroup and other analysts, the per-barrel price its members earn could be much-reduced. The wild card will be demand, meaning China's future oil appetite, and the continued progress of energy efficiency.
Similarly, Russia, the world's other current major oil-exporter, will probably be forced into serious political and economic reforms or face decline. Its government spending is too high, its non-hydrocarbon economy too anemic, and now its oil and gas sectors under challenge.
On the other side of the ledger, numerous heretofore basket-case nations up and down Africa's coasts will have to decide whether to squander their unexpected new petro-fortunes, or build middle classes and stable societies. In addition to Mozambique, that includes Tanzania, Kenya, Cameroon, Cote d'Ivorie, and more. Similar prosperity would be in the line of sight of numerous South American nations.
As for the United States (pictured above, drilling in Pennsylvania), a small but growing number of economists see the potential for a resurgent economy, built on the back of cheap natural gas. Leading the pack is Citigroup's Morse, who in the report cited above says the U.S. may more than halve its budget deficit by 2020, and experience a radical economic "revitalization and reindustrialization."
Likewise, we have a dissection of a coming U.S. boom in the Financial Times from Philip Verleger, who ran the Office of Energy Policy in the Treasury Department during the Carter Administration, and is a fellow at the Peterson Institute for International Economics.
With all of this turbulence, is it an article of faith that China will rule the world in the second half of the century, as many presume? China still looks on track to have the largest economy, but the many moving parts -- including its challenging demography, as the Economist reports -- make its trajectory seem less certain.
I separately emailed Verleger asking his opinion of the bullish forecasts of shale oil that we are seeing from Morse and others -- what is the data backing up these predictions? Verleger had an answer, but was mostly interested in laying out a case for what he calls a "Kodak Moment" of marginalization for the U.S. oil industry. The email is provocative, and I reprint in full after the Jump.
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The million-reason volatility of oil prices: Ever wonder why oil and gasoline prices seem to go inexplicably up, and just as mysteriously down? One reason you are so baffled is that experts themselves provide definitively certain yet quite distinct explanations for these phenomena. Take yesterday at FP for example. On this blog, I suggested that supply, demand and geopolitics are the prime movers. In a piece just a few column inches away, though, three academics -- Bernard Haykel, Giacomo Luciani and Eckart Woertz -- asserted categorically that Saudi Arabia decides prices and, if it wished, could take them lower.
Following these pieces, other experts naturally emailed with their own explanation of what we are seeing (such as high prices in Pakistan, the scene of a protest pictured above). Below I am reprinting a sampling with the authors' permission.
Philip K. Verleger, PKVerleger LLC:
You are looking for the forces moving crude prices in all the wrong places.
The individuals who buy crude know that product prices [such as gasoline and diesel] are set not by crude, but by supply and demand [for products themselves] in the marketplace. Thus, they will look to the value of crude as evidenced by the marketplace [for products] to determine how much they will bid for crude. When product prices rise, they bid up crude prices -- especially the crudes that produce the most desirable products such as diesel. For example, the European Union shift to ultra-low sulfur diesel pushed up diesel prices in 2008. Then Nigerian [oil] production fell. Nigeria produced the crudes that produced the most diesel. Product prices rose, and bidders chased crude higher.
This year it has been gasoline. In case you missed it, gasoline prices are plummeting in the spot market -- and crude is following.
Let me add that these traders do not chase crude up unless they have a buyer. A cargo can cost $100 million to $150 million. At these prices no one -- and I mean no one -- chases crude higher. You need to sit at the desks with physical traders at a trading company for a day.
Now I know my view does not conform. However, I have pushed it since 1981 and have been right most of the time. If you go to www.pkverlegerllc.com, you will see our estimate of the value of light sweet crude. We post it every day. This is the value of Brent crude. This forecast is generated on a daily basis using only changes in product prices. The model has no error correction, and the last information on crude prices I fed to it was for January 1, 1997. Wednesday's forecast was the 3,833rd data point.
Crude tracks products closely except when there is a refinery upset. The model corrects when the upset ends. The only way to send crude higher is to put out a fear of shortages, and panic consumers into buying more gasoline.
Go to the Jump for more on oil prices, and the rest of the Wrap.
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In our now half-decade-old era of regularized black swans, a few energy thinkers are cautioning against a bubble of wishful enthusiasm with regard to U.S. oil -- a widely embraced paradigm shift that, if true, would disrupt geopolitics from here to the Middle East and beyond. A shift is afoot, but not a new world, says Dan Pickering, co-president of Tudor, Pickering, Holt, a Houston-based energy investment firm.
The new abundance model goes like this: Americans currently consume about 18.5 million barrels of oil a day, of which about 8.5 million barrels are imported. But in coming years, the U.S. will have access to another 10 million to 12 million barrels a day of supply collectively from U.S. shale oil, Canadian oil sands, deepwater Gulf of Mexico, and offshore Brazil. Add all that up, and account for dropping U.S. consumption, and not only do you get hemispheric self-sufficiency, but the U.S. overtaking Saudi Arabia and Russia as the biggest oil producer on the planet.
Pickering calls this calculus "a pipedream" founded on the extrapolation of data. Excluding Brazil, whose numbers he finds difficult to nail down, he is forecasting a lift in North American production of around 2.5 million barrels a day -- up to 1.5 million barrels a day from shale oil, and another 1 million barrels a day from Canada. In 2020 and beyond, he says, the U.S. will still be importing some 6 million barrels a day from outside North America.
Technically, that does not make Pickering an outlier: The official U.S. Energy Information Administration also says the U.S. will remain a big importer into the next decade; the EIA import number overshadows Pickering's -- 7.5 million barrels of oil a day in 2020, or 40 percent of U.S. supply (see here, page 11).
Yet in practice Pickering morphs into a contrarian because, according to cacophonous oil CEOs and industry analysts, the trouble with the EIA is that it is sluggish: The EIA shale oil numbers are far too conservative, assert these folks, just as the agency -- like many others -- underestimated the U.S. shale gas boom that has glutted the market and changed part of the global energy calculus.
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To understand why companies wish to drill off the U.S. eastern seaboard, you need only make a beeline 5,000 miles southeast -- straight to Jubilee, an oilfield off the shore of the west African nation of Ghana. Because there are an estimated 1.5 billion barrels of oil in Jubilee, the reckoning goes, there just might be oil off the coast of Virginia. The reason is ancient geology -- Africa and the Americas were once one gigantic continent, and geologists have already found analogues to Jubilee across the Atlantic in French Guinea, as I write on EnergyWire.
These similarities are interesting not just for their curiosity value, but because they are part of a stark transformation in how experts perceive global energy, and trends in geopolitical power: Less than a year ago, the conventional narrative was scarcity -- Big Oil simply could not find any more super-giant oilfields, and were left trifling with comparative puddles. Hence, the world needed to develop alternative energy, and fast. Now, barely a week goes by without a fresh discovery in Africa, and a new expert report on the new U.S. oil bonanza; we are told we have oil and gas as far as the eye can see, limited only by the skilled labor, pricing points and equipment to produce it (pictured above, pipeline awaiting installation in Cushing, Oklahoma.).
In a significant way, that is good news -- to the degree it is accurate, we are not imminently returning to the Stone Age, as a new-age movement known as the Doomers have forecast.
But it is a highly challenging development for those concerned about the Earth's warming trend: They are stripped of one of the primary underpinnings of their argument for rapid development of solar, wind and electric cars -- that oil is running out, and that the West is too reliant on supplies from nefarious nations. As it appears, much of the new oil will be produced by quite normal nations, such as Canada and the United States.
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China is becoming cleaner -- ever so slightly. This is because of fresh signs of a surge of Chinese natural gas demand over the next dozen years, which is likely to tamp down the burning of coal, according to Wood Mackenzie, the energy research and consulting firm.
This does not suggest that China -- the largest source of greenhouse gases on the planet -- is suddenly going pollution-free. But the trend is tidier, WoodMac concludes in a report to be issued shortly. The Edinburgh-based firm released a teaser on the report, and I spoke with two of its three authors today.
Until now, WoodMac estimated that Chinese annual natural gas demand would almost triple -- to about 350 billion cubic meters in 2020 from about 130 billion cubic meters last year. The firm's new estimate is that Chinese annual gas demand will rise to 500 billion cubic meters by 2025, a 42 percent increase from its previous estimate.
Noel Tomnay, who heads WoodMac's global gas team, attributes the shift to a few factors: Greater Chinese intolerance of coal fumes, and increasing personal wealth, which allows Chinese citizens to pay more for cleaner natural gas-fired electricity, particularly in coastal areas; plus a desire by provincial officials for greater energy security when they are less and less sure about the reliability of coal and nuclear power. Tomnay told me:
Our view of China demand is probably higher than anything you'll find from [the International Energy Agency), from BP, from Exxon. We are very bullish on China gas demand. Our view of China gas just keeps getting bigger.
If the largest consumer of oil on the planet abruptly does two things -- doubles its own liquids production and cuts its imports in half -- one might find a big chain-reaction in both macroeconomics and geopolitics. This is precisely what many of the country's top industry analysts suggest is happening in the United States -- that the country will soon account for almost all its own oil requirements, and be in the position of exporting some of it. Count me as a skeptic, but since so many serious analysts are not, it merits looking under the hood.
Yesterday I raised the potential for a U.S. political shakeout if the oil-abundant theorists are correct: If the U.S. truly does become effectively self-sufficient in oil, political support for clean-energy would be seriously undermined.
Today, the Obama Administration imposed super-strict standards on the emissions from coal-fired power plants, incentivizing the development of carbon-capture technology, as well as the use of natural gas. This demonstrates that aggressive public policy can keep the goals of the clean-tech edifice alive; but it cannot be taken as a template, since policy ebbs and flows, and any future Republican administration, for example, is unlikely to embrace the same philosophy.
What about the economic wrinkles of a shift to oil as a trigger of a new U.S. Industrial Revolution, as forecast by Citibank analyst Ed Morse? Low-price energy provides a big advantage to U.S. makers of chemicals and plastics, since the feedstock -- natural gas -- is so cheap. Yet would this edge flow up the line to high-end technologies, the foundation of the overall U.S. economic advantage?
I exchanged emails with Michael Klare, a professor at Hampshire College and the author of The Race for What's Left. Klare thinks that oil abundance could have a fundamental impact on the character of the United States. He said:
I see this as making the United States more like a Third World petro-state -- we will see increased economic benefits in some quarters and among certain specialized labor sectors. But we will become more like a basic commodity producer that must lower its environmental standards in order to boost production, and less like a modern high-tech country like Germany and Japan.
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Nuclear power -- alive and well 1 year later: Technologist Bill Gates well explains why the nuclear power renaissance lives on despite the Fukushima earthquake-tsunami disaster: We simply know of no other mass, non-carbon source of baseload electric power. So it is that, a year after the Japanese nuclear accident (pictured above, precautions in the Fukushima area), there is hardly a blip in the total number of planned new nuclear reactors around the world. Just two of Japan's 54 nuclear plants are up and running, and Germany has closed eight of its 17 plants. Yet the rest of the world is different: China and India appear to have slowed their respective plans for a large-scale buildup of nuclear power in order to accommodate their booming economies, but neither seems likely to actually cancel any of the construction. And, according to the World Nuclear Association, 60 nuclear plants are currently being built (list) around the world, about the same number planned prior to the March 11, 2011, Fukushima accident. Gates argues that, given the unreliable nature of wind and solar power, the sole current substitute for the energy density of fossil fuels is nuclear power. He explains: "Nuclear power provides 1 million times the energy as hydrocarbons." A simple enough calculation.
Finesse and fracking: Hydraulic fracturing has seized the imagination of oilmen and politicians, who believe it will much-reduce the U.S. reliance on outside fossil fuel supplies, and has triggered similar hopes in Europe and China. But this crowd seems to exclude Andrew Gould, chairman of Schlumberger, the world's largest oilfield services company. Gould, who in May becomes chairman of the oil and gas giant BG Group, laments that "fracking," as the drilling practice is usually called, lacks grace, is too dirty and inefficient, and simply doesn't get enough out of the ground. Compared with how the industry typically operates, fracking is mere "brute force," he told a Barclays Capital Commodities conference in New York. It cannot go on long this way.
Go to the Jump for more on fracking, and the rest of the Wrap.
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In 2005, Fu Chengyu, then-CEO of the state-controlled Chinese oil company CNOOC, wrote an op-ed for the Wall Street Journal, titled, Why is America Worried? Fu (pictured above) intended to reassure Americans that he meant no harm with a bid at the time to buy Unocal, the California-based oil company. But it did no good: Americans were in fact worried about allowing what they regarded as a strategic resource to fall into the hands of a rival country. Instead Chevron, with a lower bid, ended up with Unocal.
Today, Fu, now CEO of another Chinese oil giant called Sinopec, is back in the United States. He has been buying up minority stakes in large unconventional oil fields -- shale gas and shale oil -- through deals with companies like Chesapeake Energy and Devon Energy. The Wall Street Journal says the state-by-state total investment since 2010 between Sinopec and CNOOC has been $17 billion.
So should America again be fearful? The answer is no. Specifically, if the U.S. were presented today with a similar situation in which Sinopec, CNOOC or another big Chinese enterprise bid on a U.S. oil company, it ought to eagerly embrace it.
The reason is that, unlike with IT or other high-tech intellectual property, it is in the United States' strategic interest for China to possess its companies' cutting-edge oilfield technology, specifically how to develop shale gas and shale oil. China will keenly seize on that technology and apply it back home, with the result that pressure will be reduced on global oil prices. On shale gas, because a big find of indigenous gas is one of the only ways in which China will switch out of far dirtier coal in the production of electricity, it would be a strategic achievement if China became a first-rate fracker.
I spoke this morning with an oilman having specific interest in the subject -- John Imle, Unocal's former president. Imle said that a Chinese acquisition of a U.S. energy company -- say, Chesapeake, the second-largest gas player in the country -- would be "all upside" for the U.S. He said:
It's part of globalization and not an unhealthy part. It's positive for humanity because it results in energy supplies that are adequate so we don't have energy wars down the road. And it should provide lower-cost energy globally, which is important for the global economy. So I don't see any downside. It's all up. We want the Chinese to have plenty of gas.
Shale gas fever has overtaken America, but we have seen this sort of mania before.
In 2003 and 2004, a "hydrogen economy" was touted as the Next Big Thing. The United States was poised to run its 240 million cars and trucks on it some day, and wean itself off of oil. California would lead the way, putting half a million hydrogen vehicles on the road and building 200 fueling stations by 2010. Today, after the expenditure of around $2 billion of public funds, the U.S. has just two-dozen fueling stations and 500 hydrogen vehicles, plus only modest progress in fuels cells. There is no longer mainstream discussion of a hydrogen economy.
Then Americans became drunk on ethanol. More than $20 billion in subsidies was spent over a three-decade period ending Dec. 31 that ultimately turned nearly 40 percent of the U.S. corn crop into less than 10 percent of the country's fuel needs by volume, and less than 7 percent by energy content. In 2009, the U.S. taxpayer subsidized 75 percent of the price of each gallon of gasoline replaced with ethanol.
Now the U.S. has gone batty for natural gas. President Barack Obama and key members of Congress have cited a humongous estimate for the natural gas supply supposedly possessed by the United States -- nearly 2,200 trillion cubic feet of the fuel, the equivalent of 379 billion barrels of oil, which if accurate would exceed the crude oil reserves of Saudi Arabia, and satisfy U.S. gas demand at current levels for around a century. Only, that widely published figure represents what are called "possible" reserves, not the more certain categories known as "proved" and "probable" -- gas that is more likely to be producible under current technological and market conditions. When discussing proved reserves, the U.S. Energy Information Administration says the U.S. possesses just one-twelfth of that volume, or 273 trillion cubic feet of gas, the equivalent of 47 billion barrels of oil. That is still a lot but, at the country's 2010 rate of consumption of 24 trillion cubic feet a year, it's just an 11-year supply. Even if we assume a very optimistic 50 percent recovery factor for the estimated 550 trillion cubic feet of probable gas, we would still have just a 31-year supply.
A lack of good data, in addition to an apparent bias toward optimistic data, underlies this perception gap. Consider a new, well-by-well analysis by Houston-based petroleum geologist Arthur Berman. Berman, a long-time doubter of mainstream gas estimates, writes that, contrary to popular belief, gas production is not growing under current conditions; instead, 80 percent of the country's shale gas production (pictured above, shale gas operation in Springville, Pa.) has flattened out or declined over the past year. Total U.S. gas production has been on an "undulating plateau" since the beginning of 2009, Berman says, as new shale gas output struggles to compensate for a 32 percent-per-year decline in conventional gas production. This picture is missing from the EIA's data because the U.S. agency bases its reporting on shale gas data only for 2008 and 2009, and does not do well-by-well sampling.
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Russia, Ukraine and Europe's big chill: It is that time of year in Europe, when a serious chill sets in, Russia and Ukraine bicker, and a lot of people freeze to death. No one has attributed any of Europe's fatalities -- 139 reported at the time of this writing -- to the routine winter row between the former Soviet neighbors. But customers such as Italy (pictured above, St. Peter's Basilica at the Vatican), Hungary and Poland say their imports from Russia -- which supplies 100 percent of the gas consumed by some European nations, and a quarter of the continent's demand as a whole -- are down considerably during Europe's worst cold snap in some six years. Russia is blaming Ukraine, reports Reuters. Gazprom deputy CEO Alexander Medvedev says that Russia has actually stepped up gas exports to Europe, but that Ukraine is siphoning off more than its fair share. Ukraine replies that it is meeting its contractual obligations. Thus, neither country answers the question -- are they or are they not supplying the gas that Europe requires to stave off the cold? The backdrop is mostly that Russia simply cannot handle all the demand in such extreme temperatures. But another dimension is the continuing contractual warfare between Russia and Ukraine -- Ukraine wants to reduce the volume of gas it's contractually required to buy from Gazprom, which it says charges too much when compared to the spot market. Other European countries also gripe about Russian gouging, and Gazprom has responded by cutting gas prices for some of them (not Ukraine).
Edward Chow, an analyst at the Center for Strategic and
International Studies, suggests that much of the problem would be resolved
if Ukraine's corruption was reduced, and it pumped more of its own natural gas.
As it is, the bickering is directly responsible for a tense pipeline rivalry
between the West and Russia -- Russia is building new gas export pipelines in
order to bypass Ukraine, Poland and other unfriendly neighbors, and the West is
trying to build and fill up its own new pipeline from the Caspian Sea to serve
Europe. One suspects that Russia will again be the loser in this game of
tit-for-tat. Scenes such as Hungarian
villagers "scavenging for coal with their bare hands," as Reuters' Marton Dunai reports, will make
Russia look heartless.
Go to the jump for more of the Wrap
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When someone invites you to a party but leaves before dessert, it might be time to locate your own coat and hat. Such are the suspicions generated by Chesapeake Energy, which after selling numerous billion-dollar pieces of its vast shale gas holdings to the world's largest energy companies has abruptly announced that it is drawing down.
A Chesapeake-led rage in shale gas has gone on for some four years, ignited by advances in a drilling method called hydraulic fracturing. In the beginning, Oklahoma-based Chesapeake, run by a wildcatter named Aubrey McClendon, was among the most aggressive acquirers of shale gas leases in the United States. A Forbes writer described McClendon as perhaps "reckless," but also "charming" and "erudite," not to mention youthful, ingenious and even heroic. (At O&G, we have found McClendon temperamental and ideologically self-destructive to a degree that risked the entire shale-gas bonanza, but that's just us.)
Altogether, drilling by Chesapeake and other companies has since then transformed the U.S. from a natural gas importer into a country so awash in gas that it may spend decades as an exporter. Russia has been rendered less secure in Europe, and China may shake things up further by opening up an even larger shale-gas frontier.
Along the way, Chesapeake has generously let later-comers into the game. Among McClendon's deals, he got $3.6 billion from BP for a 25 percent stake of Chesapeake's Fayetteville shale in Arkansas, and all of its Woodford Shale of Oklahoma's Arkoma Basin. A year ago, McClendon got $4.75 billion for Chesapeake's Fayetteville Shale holdings from Australian mining giant BHP Billiton. That was just after he did a $1.3 billion deal with China's CNOOC for a piece of his company's Niobrara Shale, straddling Colorado and Wyoming.
Four weeks ago, Chesapeake disclosed another blockbuster deal -- a $2. 3 billion partnership with France's Total for part of the company's Utica Shale holdings in Ohio.
But last week, Chesapeake announced that the risk is too high. The shale-gas rush had resulted in the historical boom-bust bane of the oil patch -- massive over-production, and a price collapse -- and McClendon was moving on; oil, for example, was looking pretty good, the company said. In an amusing piece at the Financial Times, John Dizard, a long-time shale gas skeptic, quotes from Catch-22, and goes on to describe Chesapeake's announcement:
The Wall Street maxim is that they never ring a bell at the top. However, on Jan. 23, Chesapeake Energy did ring a bell at the bottom. The undoubted leader of the shale gas revolution announced that it would reduce drilling expenditures this year by more than 70 per cent, curtail its gas production by 8 per cent, cut land buying by $2 billion, and allow uneconomic gas leases to expire.
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In the last episode, we were awash in gas: President Barack Obama is using the language of a shale gas enthusiast, crowing this week that the United States has sufficient reserves of the fuel to last 100 years. For that reason, the U.S. ought to push ahead with natural gas development, as long as safety concerns are kept in mind, said Obama (above, pictured this week on the campaign trail). Almost simultaneously, though, large volumes of that gas have vanished. First, the administration's own energy think tank -- the Energy Information Administration -- sharply lowered its estimate of U.S. shale gas reserves: rather than the 827 trillion cubic feet in unproved technically recoverable reserves announced last year, the EIA estimates that the country has 482 trillion cubic feet, or 41 percent less. The drop is understandable -- it has to do with the addition of completed wells, which provides more data points for the EIA to insert into its reserves model. But some serious analysts think even the lowered numbers are soft; Chris Nelder, for instance, writes that all that can be surmised credibly is an 11-year supply of gas at current consumption rates.
Then there is actual production. Chesapeake and ConocoPhillips have both announced the withdrawal of a substantial volume of gas from the market because of firesale prices that prevail, currently $2.77 per 1,000 cubic feet, compared with $13 in 2008. Chesapeake -- the second-largest U.S. gas producer -- said it will sell 8 percent less gas this year than last; Conoco says it will lower production by 4 percent. It is not that the companies are going broke -- as discussed previously, much of the gas is in the same geological formations as highly lucrative oil, so drillers themselves say they earn excellent profit regardless. Yet, they would like to earn greater profit still by driving gas prices higher through the law of supply and demand -- currently, there is a super-glut of gas; they would like to reduce that to a mere glut. Of course, the drillers in part have themselves to blame for sagging U.S. gas demand: In 2009, the shale gas industry vigorously opposed Obama's push for cap-and-trade legislation, under which electric utilities would have accelerated their transition from coal- to gas-fired plants. The drillers would be selling much more gas, and prices would thus probably be higher. Alas, those politics were not to be. The Financial Times' Ed Crooks quotes Oppenheimer's Fadel Gheit: "I would expect all large gas producers without exception to scale back production this year."
These developments are important for a single reason: The U.S. is the epicenter of the global shale gas boom. Because of the U.S. bonanza, for example, Russia has been shaken in Europe. China might be next to join the boom. It is importing U.S. technology; if it succeeds in producing substantial shale gas, it could transform its own set of circumstances. But if the numbers are consequentially smaller than supposed, and if the market is slow to absorb the higher volumes, the geopolitical outcomes will be muted.
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In the new issue of Wired, Julie Eilperin writes that clean-technology investment is in the throes of going bust, at least in the United States. That includes solar, wind and biofuels. A U.S. presidential election year and the continuing Solyndra bankruptcy scandal are combining to seriously undercut federal subsidies, she reports. As usual, China is providing stiff competition (the New York Times' Charles Duhigg and Keith Bradsher produce a long, must-read dive into why China and not the U.S. is likely to continue to dominate manufacturing). But the main culprit is cheap natural gas, Eilperin asserts. The shale gas boom, allowing for electricity prices of 10 cents a kilowatt-hour, has eroded the chances of solar and wind to compete.
As discussed over the weekend, Citi Group analyst Edward Morse concludes that shale gas (pictured above, part of a hydraulic fracturing operation in South Montrose, Pa.) could fuel a U.S. industrial renaissance, specifically in energy-intensive products such as chemicals, plastics and housewares. But to the degree that Morse is right, it is coming at a cost, which is a "clean tech meltdown," according to Eilperin:
Because natural gas has gotten so cheap, there is no longer a financial incentive to go with renewables.
Already, shale gas has seriously undermined Russia's petro-fueled influence in Europe. Now Eilperin suggests some of the most highly promoted technology of recent years is under challenge.
The confluence of reports of turbulence in the energy space is striking. Eilperin's account of a bursting clean-tech bubble coincides with a parade of reports of a fresh surge in South and North American oil production, and animated forecasts of regional fossil fuel self-sufficiency in the coming decade or so.
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Texas, the deliriously pro-oil birthplace of modern hydraulic fracturing -- the method used to crack open shale and extract its gas and oil -- is about to force all drillers by law to do what many opposed: mandatorily disclose many of the chemicals that they inject into the Earth. As of Feb. 1, drillers must also reveal how much water they use, writes Kate Galbraith in the Texas Tribune. The question is to what degree Texas' move - six other U.S. states also require disclosure, writes NPR's Scott Detrow -- will defuse critics who portray the fracking industry only a bit less demonically than Salem did its witches.
Of all the ways devised to provide energy to the world, none today seems to excite greater passions than hydraulic fracturing, known for short as fracking. The practice has generated a frenzied gas rush in the United States, reports Bloomberg, creating both great wealth and geopolitical turbulence as an unexpected bonanza has shifted the global energy balance. At once, the U.S. has shifted from a gas deficit to a huge surplus, cutting electricity prices last year in half, according to Bloomberg, and China may go the same way. Russia's powerful gas primacy in Europe has been undermined.
Against this, fracking has sparked a robust protest movement that accuses drillers of poisoning drinking water, triggering earthquakes, and ruining roads and landscapes. Bulgaria last week, for instance, issued a moratorium on fracking (Sofia protest pictured above), joining France and Quebec as places stopping the practice. Such resistance has been egged on by intense industry secrecy, along with the traditional fierce independence of the oil patch.
Dimitar Dilkoff AFP/Getty Images
Role-playing in the Persian Gulf: Iran continues to insist that it is building an innocent nuclear power industry but, as it discovered again this week, a successful serial assassin does not believe it. Mostafa Ahmadi Roshan is the fifth Iranian nuclear scientist to be slain in four years, writes the New York Times' Scott Shane, who reports on a general spate of mayhem rained on Tehran's purported foray into nuclear energy. At New York magazine, Dan Amira regards the predicament of Iranian nuclear scientists as an opportunity for amusement. Certainly there is something darkly satirical about Iran's self-parody. If you really are only developing nuclear power, open the whole thing up like a public swimming pool so any mystery vanishes. If you, conversely, are carrying out as everyone assumes -- that is, developing nuclear arms -- why stir the pot with provocative outbursts all-but certain to lead to attempts to confound your program? Why not wait until your work is complete before throwing sand into others' eyes?
Whatever the case, the U.S., Europe and an important majority of their allies have agreed collectively to stop buying Iran's 2.3 million barrels a day of oil exports. Of Iran's major customers, only China and perhaps Turkey so far refuse to go along. The client for some 540,000 barrels of Iranian crude a day, China will probably continue this trade and store the crude in its strategic petroleum reserve, reports the Financial Times' Javier Blas. As for the rest of Iran's output, those familiar with oil smuggling have assumed that Iran will simply turn to deep discounts in order to unload its crude on the black market, but Blas writes that Tehran may have a difficult time doing so because of a global embrace of the sanctions.
Iran has threatened to block the Strait of Hormuz, but probably won't do so since it would be one of the primary victims of such a blockade, assert Frank Verrastro, David Pumphrey and Guy Caruso at the Center for Strategic and International Studies in Washington. Yet one cannot feel entirely certain about that, they add. "Desperate nations driven to the brink sometimes do desperate and unpredictable things, and even if short lived, disruption to shipping in the Gulf would undoubtedly wreak havoc in oil markets," the trio says.
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Are Chinese, French, Canadian, U.S. and other oil companies truly eager to work in earthquake-prone, middle-class American residential neighborhoods? Probably not. Yet such is the incongruity on the U.S. shale gas patch -- a simultaneous rash of earthquakes near drilling sites, and a rush of multi-billion-dollar investments from around the world. The allure of shale gas and oil -- a bonanza under way in the U.S., with the promise of similar discoveries elsewhere -- is outweighing mortal and public relations risks.
The latest temblor, registering 4.0 on the Richter scale, was Saturday in Youngstown, Ohio. Though no one recalls prior earthquakes in the area, it is the 11th there since last March, and may be the result of the disposal of some 14.8 million gallons of drilling wastewater over the last year, reports Bloomberg's Mark Niquette.
Iraq -- drilling in a (former) war zone: With the U.S. military role in Iraq officially over, so vanishes the main official outside protection afforded Big Oil, which is working there in droves. Iraq is the largest potential new oil bonanza on the planet -- it has the second-largest known reserves next to Saudi Arabia. For oilmen, this is a bracing new day: One can hire an army of former commandoes as security -- which the companies do -- but the presence of a friendly Western security force is a qualitatively different and assuring thing. Bombings are a regular occurrence; as the Wall Street Journal's Hassan Hafidh reports, BP temporarily stopped producing oil in part of southern Iraq's Rumaila field after someone bombed pipelines.
Yet business goes on: Big Oil's stomach for badlands rises in proportion with the potential output, and in the case of Iraq's three big southern fields -- West Qurna and Zubair (pictured above), in addition to Rumaila -- the companies have pledged to produce 6.8 million barrels a day. That is a massive goal, considering that the same companies -- BP, Italy's Eni and ExxonMobil -- plan to produce just one-sixth of that daily volume from fields of similar collective size on the Caspian Sea. The Iraqi government has a stake in ensuring the companies' relative safety as its ambitions are even greater -- it hopes to raise the country's production to 12 million barrels a day by 2017. Virtually everyone outside the country regards the higher aim as fantasy. One reason is that, quite apart from the security situation, Iraqi bureaucrats make it hard for the companies to operate, reports Bloomberg. "The red tape companies encounter in Iraq -- when they apply for employee visas, for example, or try to import equipment or seek payment -- seems to reflect attitudes rooted in the past," the agency writes.
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Vladimir Putin now has something in common with Barack Obama -- approval ratings in the fortieth percentile. So he and his machine are figuring out how to give Russians a better picture of who he is, and what he plans in the next six years. As a first step, he took questions for four-and-a-half hours in a live call-in broadcast today. Russia's government needs "an update," Putin said, seeming to throw fuel on the fire of some who think that one of Putin's main tactics ahead of the March 4 presidential election will be to get President Dmitry Medvedev to quit, and blame Russia's troubles on him.
Yet, according to Russia hands Fiona Hill and Clifford Gaddy, Putin's main obsession at the moment may not necessarily be the election, but shale gas. Hill and Gaddy gathered this idea at the annual Valdai dinner, which Putin has hosted for eight straight years (they have just posted their impressions of the dinner, held last month, at the Brookings Institution web site).
Putin was extraordinarily flat this time, the pair say, becoming suddenly and solely animated on the subject of hydraulic fracturing, or "fracking," the controversial method in which gas is drawn out of hard shale by shooting a water-and-chemical mixture into the rock at tremendous pressures.
Alexey Sazonov AFP/Getty Images
What do you do if you are a carmaker, and your vehicles keep self-combusting? If you are General Motors, you write and call your customers personally, offer all of them free loaners, throw your resources into an intense examination of the problem, and hold a press conference to announce all these steps to the public.
We are discussing GM's response this week to three fires during extreme stress-testing of its plug-in hybrid Volt. The get-out-in-front strategy may yet prove vain: A joint company-federal investigation may turn up evidence requiring major over-hauling of the Volt, and public opinion meanwhile could turn against GM. Already the knives are out in the hyper-politicized sector of the media long eager to vilify this early-experimental car, devised four years ago by GM CEO Bob Lutz as an answer to the Toyota Prius, as a decidedly wrong-headed and socialist creation of President Barack Obama. At Fox Business, columnist Gerry Davis writes that the fires show that the Volt is a "lemon" and an "utter disaster."
Yet, back on planet Earth, the bulk of the early reception is positive. GM said it is willing even to lend Corvettes to its Volt owners (pictured above, comedian Jay Leno with his Volt), writes the car blog Jalopnik, but the Wall Street Journal's Sharon Terlep reports that few appear to have asked for any replacement. One reason for the lack of hysteria: No consumer has had a vehicle burst into flames, reports Ben Wojdyla at Popular Mechanics, who notes that the fires instead occurred under brutal crash conditions set up deliberately by federal vehicle safety examiners. Wojdyla writes:
Back in May, [Federal inspectors] conducted a severe side-impact crash test that smashed a Volt against a pole-shaped barrier. [They] found the Volt to meet [their] five-star crash rating. After the test they stashed the mangled Volt outside, and three weeks later the vehicle's battery pack shorted and caught fire.
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Annals of the court of public opinion:
Shale gas has a bad week ... On the plane to California, I happen to sit next to a shale-gas driller. He waxed enthusiastic about the prospects of the Utica Shale, a relatively fresh discovery underlying eight U.S. states. Until now, the Marcellus has been the most promising shale gas formation in production, but the Utica may rival it in size and volume, the driller said. But what about the PR shellacking that shale gas has been enduring? I asked. That is quieting down, the driller replied, as folks digest the economic value of the shale. Perhaps in the long run he will be right. As for now, not so much. This week may have been the industry's worst since Josh Fox released Gasland.
First came some audiotapes recorded during an industry gathering in Houston by an environmentalist blogger named Sharon Wilson, otherwise known as "Texas Sharon." In the tapes, Wilson runs her recorder as communications executives from two of the world's biggest industry players use the unforgiving language of war to advise other hands how to deflect critics (CNBC's Eamon Javers posts the recordings here.). A Range Resources official speaks of hiring combat veterans for expertise in "psy-ops," and an Anakarko Petroleum executive recommends that fellow industry hands read the U.S. Army/Marine Corps Counterinsurgency Field Manual. "Having that understanding of psy ops in the Army and in the Middle East has applied very helpfully here for us in Pennsylvania," Range's Matt Pitzarella tells his audience. The cracked door into company boardrooms reinforced the impression of an industry that perceives itself to be under siege, not one necessarily focused on simply doing its best.
Go to the jump for more on shale gas and the rest of the Wrap
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One becomes nervous when a consensus begins to form around a Big New Idea -- it starts to sound like group think. So what are we to make of the cottage industry developing around the notion that the U.S. not only isn't facing an impending oil shortage -- it is on the cusp of being nearly energy independent, short of a margin of barrels that will be imported from friendly Canada and Mexico?
As discussed over the weekend, Clifford Krauss of the New York Times and oil consultant Daniel Yergin, writing at the Washington Post, have published long pieces marveling at the emerging picture of a hydrocarbon bonanza in the United States and right on its borders. Today, the Financial Times' Ed Crooks adds a third lengthy analysis to this growing train, suggesting that by 2035, the U.S. and Canada together could be producing a whopping 22 million barrels of oil a day -- more than twice the current volume - and thus requiring almost no other crude from anywhere. Add up oil shale from North Dakota (pictured above, North Dakotan oil camp), Texas and elsewhere; Gulf of Mexico crude; natural gas liquids from shale gas; plus Canadian oil sands, and you get the picture. In combination, the analyses leave one with whiplash.
How surprising is this shift? In his Washington Post piece published Sunday, Yergin describes the emergence of a "new world oil map ... centered not on the Middle East but on the Western Hemisphere." But just six weeks ago, Yergin published The Quest -- his comprehensive, 754-page fresh dive into global energy -- which not only doesn't mention such a shift, but describes a continued Middle East-centered oil universe in which the notion of energy security is a mere "mantra." Yergin already needs to go to an updated second edition.
What could undermine the prognoses is if the result is relatively low oil prices, and a resumption of America's gluttonous gasoline appetite, which would erode millions of barrels of oil a day. Still, Crooks finds solace in the volumes further afield, but still in the Western Hemisphere: "Even if the most optimistic hopes are not fulfilled," he writes, "one can imagine a future in which the U.S. imports oil only from Canada, Mexico and a handful of other friendly countries such as Brazil."
Karen Bleier AFP/Getty Images
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.