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OPEC, The Fed, Frac!, Debt, and Depression

by coldwarrior ( 146 Comments › )
Filed under Economy, Energy, Open thread at December 11th, 2014 - 6:00 am

Yes it is a pretty thick article and will require some effort to get through. But is is worth the read.

 

Here is more from AEP on cheap oil and islam.  There is a very good video on how oil is priced at the link below.

Bank of America sees $50 oil as Opec dies

“Our biggest worry is the end of the liquidity cycle. The Fed is done. The reach for yield that we have seen since 2009 is going into reverse”, said Bank of America.

 The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over the coming months as market forces shake out the weakest producers, Bank of America has warned.

Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source of gas for Europe.

Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.

The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.

The bank said in its year-end report that at least 15pc of US shale producers are losing money at current prices, and more than half will be under water if US crude falls below $55. The high-cost producers in the Permian basin will be the first to “feel the pain” and may soon have to cut back on production.

The claims pit Bank of America against its arch-rival Citigroup, which insists that the US shale industry is far more resilent than widely supposed, with marginal costs for existing rigs nearer $40, and much of its output hedged on the futures markets.

Bank of America said the current slump will choke off shale projects in Argentina and Mexico, and will force retrenchment in Canadian oil sands and some of Russia’s remote fields. The major oil companies will have to cut back on projects with a break-even cost below $80 for Brent crude.

It will take six months or so to whittle away the 1m barrels a day of excess oil on the market – with US crude falling to $50 – given that supply and demand are both “inelastic” in the short-run. That will create the beginnings of the next shortage. “We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year,” said Sabine Schels, the bank’s energy expert.

Mrs Schels said the global market for (LNG) will “change drastically” in 2015, going into a “bear market” lasting years as a surge of supply from Australia compounds the global effects of the US gas saga.

If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. The EU already has enough LNG terminals to cover most of its gas needs. It has not been able to use this asset as a geostrategic bargaining chip with the Kremlin because LGN itself has been in scarce supply, mostly diverted to Japan and Korea. Much of Europe may not need Russian gas at all within a couple of years.

Bank of America said the oil price crash is worth $1 trillion of stimulus for the global economy, equal to a $730bn “tax cut” in 2015. Yet the effects are complex, with winners and losers. The benefits diminish the further it falls. Academic studies suggest that oil crashes can ultimately turn negative if they trigger systemic financial crises in commodity states.

Barnaby Martin, the bank’s European credit chief, said world asset markets may face a stress test as the US Federal Reserve starts to tighten afters year of largesse. “Our biggest worry is the end of the liquidity cycle. The Fed is done and it is preparing to raise rates. The reach for yield that we have seen since 2009 is going into reverse”, he said.

Mr Martin flagged warnings by William Dudley, the head of the New York Fed, that the US authorities had tightened too gently in 2004 and might do better to adopt the strategy of 1994 when they raised rates fast and hard, sending tremors through global bond markets.

Bank of America said quantitative easing in Europe and Japan will cover just 35pc of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot expect to be rescued every time there is a squall. “The threshold for the Fed to return to QE will be high. This is why we believe we are entering a phase in which bad news will be bad news and volatility will likely rise,” it said.

What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.

These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries to break out of the stimulus trap, including Fed officials themselves.

I do have to disagree with AEP on the future ‘wild price swings’ I am sure that American energy corporations can do a rather good job judging demand and adjust as needed.

 

We will see if this is a slow down on demand of oil globally, an overproduction globally, or a mix of the two. I’m going to bet its a bit of both and the world won’t collapse in a gloom and doom scenario as the free market is allowed to work again without the interference of the oil tick cartel. The only change I might make is to randomly make 10-20% of oil speculators actually take delivery of the amount of oil that they are betting on.  :lol:

 

More from Bloomberg. PLEASE read the article here and watch the video.

Petro-War!

by coldwarrior ( 90 Comments › )
Filed under Economy, Energy, Islam, Open thread at December 2nd, 2014 - 6:00 am

Cheap oil can be both a blessing and a curse as AEP explains in this analysis:

Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals.

Caliphate leader Abu Bakr al-Baghdadi has already opened a “second front” in North Africa, targeting Algeria and Libya – two states that live off energy exports – as well as Egypt and the Sahel as far as northern Nigeria. “The resilience of US shale may prove greater than the resilience of Opec,” said Alistair Newton, head of political risk at Nomura.

Chris Skrebowski, former editor of Petroleum Review, said the Saudis want to cut the annual growth rate of US shale output from 1m barrels per day (bpd) to 500,000 bpd to bring the market closer to balance. “They want to unnerve the shale oil model and undermine financial confidence, but they won’t stop the growth altogether,” he said.

There is no question that the US has entirely changed the global energy landscape and poses an existential threat to Opec. America has cut its net oil imports by 8.7m bpd since 2006, equal to the combined oil exports of Saudi Arabia and Nigeria.

The country had a trade deficit of $354bn in oil and gas as recently as 2011. Citigroup said this will return to balance by 2018, one of the most extraordinary turnarounds in modern economic history.

“When it comes to crude and other hydrocarbons, the US is bursting at the seams,” said Edward Morse, Citigroup’s commodities chief. “This situation is unlikely to stop, even if prevailing prices for oil fall significantly. The US should become a net exporter of crude oil and petroleum products combined by 2019, if not 2018.”

Opec has misjudged the threat. As late as last year, it was dismissing US shale as a flash in the pan. Abdalla El-Badri, the group’s secretary-general, still insists that half of all US shale output is vulnerable below $85.

This is bravado. US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.

Pioneer Natural Resources said it has options through 2016 covering two- thirds of its likely production. “We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.”

Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup.

Mr Morse says the “full cycle” cost for shale production is $70 to $80, but this includes the original land grab and infrastructure. “The remaining capex required to bring on an additional well is far lower, and could be as low as the high-$30s range,” he said.

Critics of US shale may have misunderstood its economics. There is a fast decline in output from new wells but this is offset by a “long-tail phase” for a growing number of legacy wells. The Bakken field has already reached 1.1m bpd, and this is expected to double again over the next five years.

Other oil projects around the world may be more vulnerable to a price squeeze, including the North Sea, the ultra-deepwater ventures in the Atlantic off Brazil and Angola, Canadian oil sands, or Russia’s contentious plans for the Arctic in the “High North”. But the damage will be gradual.

In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup.

Opec may not be worried about countries such as Nigeria, but even there a full-blown economic and political crisis could turn the north into a Jihadi stronghold under Boko Haram.

The growing Jihadi movements in the Maghreb – combining with events in Syria and Iraq – clearly pose a first-order security threat to the Saudi regime itself.

The Libyan city of Derna is already in the hands of the Salafist group Ansar al-Shariah and has pledged allegiance to Islamic State. Terrorist movements in the Egyptian Sinai have also rallied to the black and white flag of IS, prompting Egypt’s leader Abdel al-Sisi to call last week for a “general mobilisation” of all leading Arab and Western powers to defeat the spreading movement.

The new worry is Algeria as the Bouteflika regime goes into its final agonies. “They have an entrenched terrorist problem as we saw in the seizure of the Amenas gas refinery last year. These people are aligning themselves with Islamic State as part of the franchise,” said Mr Newton.

Algeria exports 1.5m bpd of petroleum products. Its gas exports matter more but the price of liquefied natural gas shipped to Europe is indirectly linked to oil over time.

It is an open question what will happen to Algeria, Iraq, and Libya if oil prices hover at half the budget break-even costs for a year or two, given the extreme fragility of the region and political risk of cutting subsidies.

The Sunni Salafist tornado sweeping across the Middle East – so strangely like the lightning expansion of Islam in the mid-7th century – is moving to its own inner rhythms. It is not a simple function of economic welfare, let alone oil prices.

Yet Saudi Arabia’s ruling dynasty tests fate if it is betting that the Middle East’s fraying political order can withstand a regional economic shock for another two years.

Much more analysis here

Marcellus Shale – SW liquids rich $24.23
Marcellus Shale – Super Rich $25.63
Utica – Wet gas $32.39
Mississippian Horizontal – East $42.15
Utica – Liquids Rich $44.04
Eagle Ford – Liquids Rich $46.05
Niobrara – Wattenberg $46.10
Wolfcamp – N. Midland (Horizontal) $53.92
Eagle Ford – Oil Window $55.29
Wolfcamp – S. Midland (Horizontal) $61.57
Mississippian Horizontal – West $64.05
Wolfberry $64.63
Bakken Shale $64.74
Wolfcamp – N. Delaware (Horizontal) $68.54
Uinta – Green River $68.77
Uinta – Wasatch (H) $72.15
Granite Wash – Liquids Rich $73.10
Horizontal
Uinta – Wasatch (V) $74.95
Barnett Shale – Southern Liquids $84.45

Do the Republicans Now Own the Coal Vote?

by Iron Fist ( 83 Comments › )
Filed under Economy, Energy at November 9th, 2014 - 7:02 am

Politico seems to think so:

The Republicans’ romp this week may have permanently turned coal country from blue to red.

Coal-heavy districts in West Virginia, Kentucky and Illinois that had been steadily moving away from Democrats in recent elections appear to have completed that shift Tuesday, when they overwhelmingly backed Republicans who vowed to oppose what they call President Barack Obama’s “war on coal.”

“This has been a growing trend in coal politics and will outlast President Obama’s tenure,” Wheeler said.

Gee, you tell people that you intend to put them out of business (and, thus, out of a job), and they’ll vote against you for it? Who could have seen that coming? In reality, it doesn’t make much sense for anyone in the entire energy sector, with the exception of “green” energy that relies on government subsidies to stay afloat, to vote for the Democrats. It isn’t just coal. The Democrats hate fracing. They hate offshore drilling, too. And they really hate nuclear and hydroelectric energy. Basically, if you are in the energy sector, the Democrats want you out of business.

Think about that for a minute. Damned near everything that we think of as “Modern Civilization” requires energy to function. It always kills me to see the hippies protesting power plants while yakking on their cell phones and surfing the web on their iPads. The anti-energy people are some of the lest self-conscious people out there. You can think of them as a human sponge (the sea creature). They sit there and take all the energy in that anyone else does, but they do it simply by virtue of being. They don’t have any real awareness of where it comes from or what is necessary to produce it (you get the same kind of thing with people that think meat comes from a grocery store).

All of this is good news for the GOP, not just for this election, but for the coming elections:

In West Virginia, once a long-time Democratic stronghold, Republicans will take control of both houses of the state legislature for the first time since 1931. Republicans picked up seven seats in the state Senate to bring the balance to 17-17, and then Democrat Daniel Hall switched parties Wednesday to give the majority to the GOP.

Voters there also elected Rep. Shelley Moore Capito as their first GOP senator in 56 years, and Republicans won three congressional contests, even kicking out 38-year incumbent Rep. Nick Rahall.

[snip]

The “policies and priorities espoused by the national Democratic Party, as reflected in their platform, don’t resonate with the priorities, beliefs and feelings of the people” of West Virginia, said Evan Jenkins, the Republican who will take Rahall’s place in Congress.

“Southern West Virginia in particular has been devastated economically over this last six years in the war on coal,” he said. “It’s very difficult for West Virginia Democrats to explain to the voters why their party maintains such an anti-coal agenda.”

Now, keep in mind that this is just West Virginia. This won’t have the same impact that, say, California waking up from her slumber and recognizing what the Democrats hath wrought would have. But it is a start, and it may be the leading edge of a permanent shift (as much as anything in politics can be termed “permanent”).

While West Virginia has been trending toward the Republican Party for years, in Kentucky, where Sen. Mitch McConnell beat Grimes by 15 percentage points, Obama’s policies on coal appeared to have helped the GOP, he said.

McConnell won by the largest margins in the state’s coal-producing counties, often topping the 70 percent mark. “I’m not sure some of those counties he’s won ever,” said Bissett. The senator won 47 counties where more than 60 percent of voters are registered Democrats.

As the next Senate majority leader, McConnell says Republicans “will use the power of the purse to try to push back against this overactive bureaucracy,” pointing to the “war on coal” as a prime example.

While the new GOP majority in Congress means fossil fuels will see more support in Washington, the loss of so many Democrats from coal-heavy House districts may make it harder for Republicans to reach across the aisle on measures to benefit the industry.

With the defeats Rahall, Bill Enyart (D-Ill.) and John Barrow (D-Ga.), “it is going to be much harder crafting bipartisan legislation on energy and environmental issues in the House,” Wheeler said.

Enyart, a co-chairman of the congressional coal caucus, represented a southern Illinois district heavily reliant on coal, and Barrow and Rahall held the center on the House Energy and Commerce Committee as “go-to Democrats for sponsorship of Republican-led and industry-favored legislation and letters,” Wheeler said. “Their defeat means it will be harder to attract Democrats to such efforts.”

This is why I say it may be the leading indicator of a permanent shift. The opposition to energy badly hurt the Democrats this time around, but rather than learning from that experience and shifting their policies accordingly, it looks like instead they are going to double-down on it. If you look at a map of the United States showing the counties that voted Republican versus Democrat, you see a set of large urban areas that are extremely heavily Democrat surrounded by a sea of, well, the rest of the country, that is Republican. These large urban areas are tremendous consumers of energy, but the popular will there is decidedly against the energy sector, with the exception of “green” power. These people have no idea what it takes to keep a power grid running. Electricity is magic pixie dust that comes out of a socket on the wall. That is why you see the perennial push for “electric” cars as “green” alternatives. They never consider that you have to burn coal (or natural gas, nuclear fuel, or whatever) to produce the electricity to charge the car.

The Energy Sector is a huge sector of the economy, and it is not at all a stretch to say that it is the sector that makes most (if not all) of the other sectors of the economy possible. If you work in that sector directly, it really is foolish to vote for the Democrats. They ultimately want to put you out of a job, unless you are a windmill operator or the like. But for the rest of us, energy is a vital commodity as well. When the Democrats try to put coal out of business, they are making almost everything else more expensive. The power that you use to power the computer that you are using may very well have been produced by coal, but even if it wasn’t, the loss of the supply of coal energy will cause the price of all other supplies of energy to rise, as the Law of Supply and Demand dictates. The Democrats feel that they are above even natural laws, but when they step off the side of a building, they are going to fall just like the rest of us. With their war on energy, the Left may be taking that first fatal step right now.

FRAC Goes the Oil Market

by coldwarrior ( 80 Comments › )
Filed under Economy, Energy, Open thread at October 15th, 2014 - 8:00 am

I started my day like every day…Kettlebell and Nordictrack and CNBC at 0530. The heads are finally getting at what the Frac boom mans to the oil market. Combine the frac with very low economic growth expectations and you get several things:

A Nervous Saudi (PLEASE read the entire article at this link):

A Saudi billionaire investor has sounded the alarm over the potential impact of falling oil prices on the Gulf kingdom’s economy.

In an open letter to Saudi ministers posted via Twitter, Prince Alwaleed bin Talal al-Saud expressed his “astonishment” at comments made by Ali al-Naimi, the oil minister, who reportedly played down the impact of oil prices falling below $100 a barrel. Prices have since fallen below $88 a barrel, or a quarter since June.

Prince Alwaleed, noting the kingdom’s 2014 budget was 90 per cent dependent on oil revenues, said belittling the impact of lower prices was a “catastrophe that cannot go unmentioned”…

The prince expressed similar concerns last year over the rise of shale oil, which, with weakening Asian demand, has contributed to the rapid slide in oil prices – despite geopolitical uncertainties in Iraq, a major producer.

His public broadside against the veteran oil minister came as analysts said the Gulf members of Opec, the oil producers’ cartel, led by Saudi Arabia, seem prepared to drive down oil prices to retain market share and fend off the threat of rising US production, despite the risks to their hydrocarbon-dependent economies…

Gulf oil producers, most of which have large cash reserves, seem to be betting that the short-term pain of declining oil revenues from lower prices will close off competing supplies and revive the lowest global oil demand since 2009.

Oil prices are reaching levels that, if sustained, threaten the ability of some Gulf states to meet domestic spending commitments, forcing a drawdown on reserves or debt issuance.

Saudi Arabia needed an oil price of $89 a barrel in 2013 to balance the budget, up from a “fiscal break-even” of $78 a barrel in 2012, according to the International Monetary Fund.

Chart

But Riyadh’s regional political rivals, such as Iran and Iraq, as well as other Opec members such as Venezuela, have much higher fiscal break-evens.

That bolded paragraph is the new reality, the ME is being driven from relevance.

 

And you get market fallout:

Crude oil futures settled down 4.6 percent at $81.84 a barrel, the biggest percentage drop since November 2012 and the lowest settlement since June 28, 2012.

Brent crude for November slid earlier and lurched lower toward the end of the day, dropping by more than $4 a barrel to dip below $85 a barrel for the first time since 2010. It was the biggest one-day drop in prices since 2011. The benchmark settled at $85.04, $3.85 lower on the day.

Oil dived more than $4 a barrel on Tuesday, its biggest drop in more than two years as mounting evidence of slackening demand and unrelenting U.S. shale output left traders struggling to peg a floor for crude’s four-month rout.

The abrupt acceleration of an over 26 percent slide in prices since June was triggered by three news items that epitomized the market’s turn: a downgrade in global oil consumption forecasts; projections for another big boost in shale oil; and reluctance by OPEC members to cut output.

Read MoreCheap oil is here to stay, at least for a few months

Oil is struggling to find a floor after Saudi Arabia made clear that it was focused on maintaining market share, not supporting prices with unilateral production cuts.

Other members appear to be taking a similar tack. A source familiar with oil policy in Iran, normally one of the first in OPEC to call for production cuts, followed Kuwait in saying there was no need to rein in supplies.

Read MoreOil slide wipes out stock market gains

“I think it’s just continued the rationalization that all signs continue to suggest that OPEC is not going to do much,” said Dominick Chirichella, senior partner at the Energy Management Institute, New York.

Getty Images

The slide began early in the day after the International Energy Agency, the West’s energy watchdog, cut its estimates for global oil demand growth by 250,000 barrels per day for this year and by 90,000 bpd for 2015. It said demand for OPEC oil would be 200,000 bpd lower for both years.

Read MoreOil demand to ‘rise tentatively’ in 2015: IEA

The diminishing outlook for consumption is colliding with an unrelenting rise in U.S. shale oil, leading to a glut of crude that has knocked Brent lower since June.

Losses deepened in mid-afternoon after the U.S. Energy Information Administration projected that fast growing shale basins would increase output by some 106,000 bpd in November from a month earlier.

 

The down side? This can be deflationary and the Fed does not have much room to move on interest rates. This could cause QE again here as Europe heads for another recession. Low $ oil shuts off the Shale wells in America at,I think $80 a barrel. Weak expected demand and the march toward American Energy independence is going to be an interesting ride.

Supply, Demand, Dollar Values and FRAC!

by coldwarrior ( 72 Comments › )
Filed under Economy, Energy, Open thread at October 9th, 2014 - 8:00 am

An interesting article:

 

HERE

The Shale Revolution Is Changing How We Think About Oil And The Dollar

 

goldman sachs commodoties and dollarGoldman Sachs

Historically, there’s been a pretty consistent correlation between oil prices and the US dollar.

When the dollar strengthened, oil prices would fall — and vice versa.

For the longest time, this relationship has been explained by the huge flow of US oil imports.

However, a new report by Goldman Sachs’s Jeffrey Currie says that rationale has broken down in the wake of the American shale revolution.

“In 2008 … the US was importing on a net basis nearly 12 million [barrels per day] of oil and products,” Currie writes. “Owing to shale technology, today that number is now less than 5 million b/d. And subtracting out Canada and Mexico, the number drops to 2.4 million b/d. In other words, net imports are over 60% lower than in 2008.”

This has “significantly reduced the correlation between commodities and the US dollar,” he writes.

Back in the day…

In the past, Currie writes, investors believed that the “primary mechanism for the correlation” between oil prices and the dollar was the large US petroleum current account deficit.

“From the early 2000′s to the global financial crisis, increasing oil imports saw a widening US current account deficit, which put depreciation pressure on the dollar (appreciation pressure on oil producers currencies), which in turn put further widening pressure on the current account deficit (for any given volume of imports), causing additional dollar weakness,” Currie writes.

By 2008, oil reached $147 per barrel and the US dollar was at its weakest point versus the Euro at 1.6. At the time, the US was importing on a net basis approximately 12 million barrels per day of oil and products.

And then there was the shale revolution…

santorum north dakota shaleREUTERS/Harrison McClaryA piece of North Dakota shale.

Today, the number of imports has dropped to around 5 million. If you take out Canada and Mexico, that number falls further to 2.4 million — a stark difference from 2008′s 12 million.

Overall, oil imports are down more than 60% since 2008.

Imports have dropped because the US is now using hydraulic fracturing to extract oil from its massive shale basins, creating more supply.

And it’s during this same 2008 – 2014 time period that there’s been a huge reduction in correlation between oil prices and the US dollar, according to Currie.

“Along with the post-crisis financial market normalization, [the drop in oil imports] has dramatically reduced the correlation between oil and the USD, to around 0% (i.e. uncorrelated) today from historical highs near 60% in 2008/2009,” Currie writes.

Thus, according to this analysis, although oil prices have recently dropped as the dollar has surged, one trend doesn’t explain the other.

 

Dhimmi Carter Birthday Wishes

by Macker ( 139 Comments › )
Filed under Anti-semitism, Democratic Party, Energy, Hamas, History, Inflation, Iran, Koran, Misery Index at October 2nd, 2014 - 6:00 pm

Happy Belated 90th Birthday to the WORST US President…of the 20th Century! Yes, James Earl Carter, Jr. is still kickin’…and it’s time for those of us on the Right Side to leave any type of Birthday Greeting to a forerunner of who we have now.
Think of all the things he’s responsible for: The Misery Index, stagflation, high unemployment, military emasculation, the Iranian Hostage Crisis…and that’s just for starters.
Have at it!

Follow The Money

by coldwarrior ( 53 Comments › )
Filed under Economy, Energy, Marxism, Open thread, Progressives, Technology at September 23rd, 2014 - 8:00 am

Follow the money…always a good place to start:

 

What really drives anti-fracking zealots?

Author

By Paul DriessenSeptember 22, 2014 | Comments| Print friendly |

Recent news stories underscore the tremendous benefits brought by America’s fracking revolution.

  • The shale oil production boom could boost US crude production to 9.5 million barrels of oil per day (bopd) next year, reducing America’s crude oil imports to 21% of domestic demand, the lowest level since 1968. Output from fracked wells represents 43% of all US oil production and 67% of natural gas production; “frack oil” could hit 10 million bopd by 2016, the Energy Information Administration says.
  • The global economy saves $4.9 billion per day in oil spending because of the shale oil boom. Without it there would be a 3 million barrel per day shortfall and prices would likely be 55% higher: $150/barrel.
  • Constantly improving hydraulic fracturing technologies continue to increase production. For example, Cabot Oil & Gas refracked a 2013 Pennsylvania well, increasing its output to 30.3 million cubic feet of gas per day; that’s four times the output from the best well drilled in 2003. Fracking is even being used in decades-old onshore and offshore wells, to keep them producing for many more years.
  • Rust Belt cities and industries—from manufacturing, real estate and law to hotels, restaurants and many others—are rebounding because of drilling,fracking and production in nearby shale areas. In Ohio unemployment fell to 5.7% in July from 10.6% four years ago; oil output increased 26% just from the previous quarter, while gas production rose 31%—generating billions in state and local revenues.
  • The US oil and natural gas boom means jobs and business for almost 30,000 companies within the industry’s vast and complex supply chain. Indeed, the petroleum industry accounts for nearly 10 million jobs and almost 8% of all domestic economic activity, including states far from actual drilling activities.
  • The American Fuel & Petrochemical Manufacturers launched a new website to help veterans and other men and women find high-paying jobs in the booming oilfield, fuel and petrochemical industries.

Anti-fracking zealots: Follow the money—and the ideology

There are numerous other benefits, while the alleged risks are exaggerated or even fabricated. So what drives anti-fracking zealots who seem to materializeen masse whenever a new project is announced?

Follow the money—and the ideology. Big Green is big business. The US environmental activist industry alone is a $13.4-billion-a-year operation. It pours that money into determined campaigns to eliminate fossil fuels, gain ever greater control over our lives, reduce our living standards, and end free-enterprise capitalism. It drives its agenda with clever but phony crises: catastrophic climate change, unsustainable development, imminent resource depletion, poisonous frack chemicals and dozens of others.

Fracking obliterates its claim that we are about to run out of oil and gas—and so must slash our living standards, spend billions on crony-corporatist “renewable energy” schemes, and put radical green bureaucrats and activists in charge of our lives, livelihoods, living standards and remaining liberties. They are incensed that fracking guarantees a hydrocarbon renaissance and predominance for decades to come. They won’t even acknowledge that “frackgas” helps reduce (plant-fertilizing) carbon dioxide emissions.

Even √ºber wealthy celebrities get involved. Exaggerations and fabrications, confrontations and often callous disregard of other people’s needs are their stock in trade. In torrents of angry outrage and demands for totally one-sided precaution, they denounce any suggestion that fracking is safe or beneficial.

Whatever alternative technologies they support comply with their “precautionary principle.” Whatever they oppose violates it. They trumpet alleged risks of using fracking and hydrocarbon technologies, but ignore even the most obvious benefits of using them… and most obvious risks of not using them.

Anti-fracking zealots tend to be well-off, and largely clueless about the true sources of modern living standards. They assume electricity comes from wall sockets, food from grocery stores, iPhones from Apple Stores. You can count on one hand the farm, utility or factory workers they know personally.

They are dismissive about people who are jobless because of their war on affordable energy—and about poor rural New York families that are barely hanging onto their farms, unable to tap the Marcellus Shale riches beneath their land, because of an Albany and Manhattan-instigated moratorium.

They are equally uncaring about the world’s impoverished billions, whose hope for better lives depends on the reliable, affordable electricity that drilling and fracking can help bring. Worldwide, 1.4 billion people still do not have access to electricity including 300 million in India and 550 million in Africa. Millions die from lung and intestinal diseases that would largely disappear if they had electricity.

What the frack is wrong with this picture? This is not the same environmental movement that Ron Arnold, Patrick Moore and I belonged to decades ago. Big Green has become too rich, too powerful, too driven by perverse, inhumane notions of ethics, social responsibility and compassion. Their claims aboutethanol and wind power being environment-friendly are just as out of touch with reality.

Incessant claims that fracking contaminates groundwater and drinking water?

But what about their incessant claims that fracking contaminates groundwater and drinking water? Even EPA has not been able to cite a single “proven case where the fracking process itself has affected water.” A September 2013 report in the Proceedings of the National Academy of Sciences further confirms this. After carefully examining water wells in heavily fracked areas of Pennsylvania and Texas, researchers concluded that rare cases of methane (natural gas) contamination were not due to fracking.

Instead they resulted from improper cement and pipe installation near the surface, thousands of feet above the frack zone. The problem is covered by existing regulations and is preventable and relatively easy to correct. Petroleum industry and state officials are already collaborating to further strengthen the regulations where necessary, enforce them more vigorously, and improve well completion practices.

Moreover, some of the contamination resulted from water wells being drilled through rock formations that hold naturally occurring methane. Indeed, there have been very few cases of any contamination, out of more than one million wells hydraulically fractured since the first “frack job” was done in 1947, and out of 20,000 wells fracked in Pennsylvania since the Keystone State’s boom began in 2008.

Of course, none of this is likely to assuage anti-fracking factions or end their fictions. They are driven by motives that have nothing to do with protecting people’s health or environmental quality. In fact, what they advocate would further impair human health and environmental quality.

The great Irish statesman Edmund Burke could have been talking about these “fracktivists” when he said: “Because half a dozen grasshoppers make the field ring with their importunate chink, whilst thousands of great cattle… chew the cud and are silent, pray do not imagine that they are the only inhabitants of the field… or that they are other than little, shriveled, meager, though loud and troublesome, insects of the hour.”

Unfortunately, these definitely loud and troublesome insects have also grown powerful, meddlesome and effective. So fracking supporters must continue to battle the anti-energy ideologues—by becoming better community organizers and persuaders themselves, to counter the anti-fossil fuel lies and insanity, and the destructive policies, rules and moratoria imposed by ill-advised or ideological politicians and regulators.

We fracking supporters are clearly on the side of humanity, morality, true sustainability and real environmental progress. We also know that—no matter how hard eco-activists despise it and rail against it—they cannot put the fracking genie back in the bottle.

America and the world have awakened to its potential—and to the critical need for this technology. Let us applaud this incredible progress, and champion it throughout Europe, Asia, Africa and worldwide.

From this morning’s drudge:

GARBAGE MARCH FOR CLIMATE…

VIDEO: Dicaprio loses his hearing when asked about his yachts…

GOOGLE severs ties with conservative group over ‘climate change’ stance…

VIDEO: RFK Jr. refuses to give up cellphone, automobile to save planet…

Skeptics ‘should be in Hague’…

BASTARDI: ‘Nature, not man, rules climate system’…

Saturday Lecture Series: Ponzi Oil?

by coldwarrior ( 39 Comments › )
Filed under Academia, Energy, Environmentalism, Open thread, saturday lecture series, Science at September 20th, 2014 - 8:00 am

Good morning all! Today we are at the Blogmocracy Petroleum Institute and lumber yard. The lecture today is about Ponzi Scemes/Peak Oil/Gas and Fracking.

In a rapid change of tack, the left, the Luddites, are now screaming that the natural gas and fracking method of extracting is  a Ponzi Scheme. Interesting that they can’t see Social Security as such. This week we found out that any contamination of well water  is the result of cracked well pipe and not form fracking. Oh, and Fracking does not cause earthquakes either.

 

 The integrity of oil and gas wells

Public concerns about oil and natural gas extraction these days inevitably turn to hydraulic fracturing, where millions of gallons of water, sand, and chemicals are pumped underground at high pressures to crack open rocks. Hydraulic fracturing often occurs a mile or more down, far from the water we drink or the air we breathe. The focus for safety and environmental stewardship should often be somewhere else—nearer the surface—emphasizing risks from spills, wastewater disposal, and the integrity of oil and natural gas wells passing through drinking-water aquifers (1⇓⇓–4). In PNAS, Ingraffea et al. (5) examine one of these factors, well integrity, across the Marcellus region of Pennsylvania, using inspection records from the state Department of Environmental Protection (DEP).

In a technical sense, “well integrity” refers to the zonal isolation of liquids and gases from the target formation or from intermediate layers through which the well passes. In a practical sense, it means that a well doesn’t leak. Drilling companies emphasize well integrity because a faulty well is expensive to repair and, in the rarest of cases, costs lives, as in the Deepwater Horizon disaster in the Gulf of Mexico. Drillers use steel casing (pipes), cement between nested casings and between the outside casing and rock wall, and mechanical devices to keep fluids inside the well.

Faulty casing and cementing cause most well integrity problems. Steel casing can leak at the connections or corrode from acids. Cement can deteriorate with time too, but leaks also happen when cement shrinks, develops cracks or channels, or is lost into the surrounding rock when applied. If integrity fails, gases and liquids can leak out of the casing or, just as importantly, move into, up, and out of the well through faulty cement between the casing and the rock wall.

 

So how can the Luddites continue…easy, call it a Ponzi Scheme! Who are the science deniers now?

 

Is the Shale Revolution a ‘Ponzi Scheme’ or the End of Peak Oil?

“Ponzi scheme” or the end of Peak Oil?

 

Shale boomGWPFA lot of folks are fervently forecasting that shale gas and oil production is a bubble about to pop, possibly producing an economic collapse similar to the one in 2008. Earlier this week, the left-leaning Center for Research on Globalization in Montreal dismissed the shale revolution as a “Ponzi scheme” and “this decade’s version of the Dotcom bubble.” In a column last year for The Guardian, Nafeez Ahmed of the Institute for Policy Research and Development cited studies predicting that U.S. shale gas production will likely peak in 2015 and oil production in 2017. In a July 2013 report for the Club of Rome—the same folks who brought us 1972′s doom-mongering classic, The Limits to Growth—the University of Florence chemist Ugo Bardi declared that the “idea that a ‘gas revolution’ that will bring for us an age of abundance is rapidly fading” because “the data show that the gas bubble may be already bursting.” A month later, Richard Heinberg of the Post Carbon Institute said, “It turns out there are only a few ‘plays’ or geological formations in the US from which shale gas is being produced; in virtually all of them, except the Marcellus (in Pennsylvania and West Virginia), production rates are already either in plateau or decline.”

So was President Barack Obama wrong in 2012, when he claimed, “We have a supply of natural gas that can last America nearly 100 years”? Perhaps not.

The renaissance of oil and gas production in the United States has largely been the result of applying the technique of hydraulic fracturing (fracking), which releases vast quantities of hydrocarbons trapped in tight shale formations. The bubble theorists make much of the fact that production tends to drop more rapidly in fracked wells than in conventional ones, forcing the frackers to drill more holes just to keep up. They overlook the fact that drillers are working ever faster and cheaper and that newer wells tend to be more productive than earlier wells. How do we know this? Because the number of drill rigs has not increased in most shale fields, yet production continues to go up.

So what about Heinberg’s claim that “production rates are already either in plateau or decline”? He’s just wrong. The September drilling productivity report from the federal Energy Information Administration (EIA) notes that since 2013, that gas production is up in every one of the “plays” cited by Heinberg. Production in the Bakken region of North Dakota grew 8 percent; the Eagle Ford, Permian, and Haynesville regions in Texas increased 15, 7, and 97 percent, respectively; the Niobrara region in Wyoming and Colorado rose by 29 percent; and the Utica and Marcellus regions in Ohio, Pennsylvania, and West Virginia surged 142 and 47 percent. “We’ve been tracking this for 10 years, and recovery rates have gone up dramatically,” says EIA forecaster Philip Budzik.

Meanwhile, the EIA’s Annual Energy Outlook 2014 shows the potential U.S. oil and gas resource bases are increasing, not decreasing. Bubble forecasters insist those estimates are way off-base. They point to the EIA’s recent big flub when it came to estimating how much petroleum might be pumped from the Monterey shale formations in California. The agency initially prognosticated that as much as 13.7 billion barrels of oil might be produced, but it cut its estimate by 96 percent, to 600 million barrels, once it recognized the extraction challenges posed by the complicated geology of southern California. Whoops!

That’s bad, but in the scope of estimates it’s a blip, not a fatal error.

Back in 2000, the EIA Outlook report estimated that the U.S.’s technically recoverable petroleum resources were 124 billion barrels; it put natural gas resources at 1,111 trillion cubic feet (tcf). (“Technically recoverable” basically means that the resource can be extracted using current technology if the price is right.) Proved oil and natural gas reserves amounted to 22 billion barrels and 176 tcf, respectively. (“Proved” generally means the amount of resources that can be recovered from the deposit with a reasonable level of certainty.) When it came to shale and other tight rock formations, the 2000 report estimated that only 2 billion barrels of oil and 50 tcf of natural gas were technically recoverable. “Basically, in 2000 no one was even thinking that you could produce this stuff,” says Budzik.

How time and technological progress make fools of all prognosticators! The 2014 EIA Outlook estimates that the U.S.’s technically recoverable oil resources are 238 billion barrels and natural gas resources are 2,266 tcf. Proved U.S. petroleum reserves have increased from their 2009 nadir of 19 billion barrels to over 30 billion barrels, and proved natural gas reserves are at 334 tcf now. In other words, estimates of technically recoverable U.S. resources of both oil and gas have nearly doubled in the past 15 years. Proved oil reserves have increased 50 percent, while proved gas reserves have also nearly doubled. Technically recoverable resources from shale and other tight rocks is now estimated to be 59 billion barrels of crude and 903 tcf of gas—a 30-fold and 18-fold increase, respectively, over the 2000 assessments.

Take the figure of 2,266 tcf of natural gas. Last year, Americans burned through 26 tcf of natural gas. At that rate, the estimated resource would last 87 years. Not the 100 years claimed by the president, but close enough for government work.

While EIA reserve and resource estimates have been trending steeply upward over the past decade and half, the agency tries to take into account uncertainties by sketching out scenarios to 2040 in which domestic oil and gas supplies are either 50 percent higher or lower than its reference case. Production of shale gas and oil is the key difference in the scenarios. In the high supply case, technically recoverable crude and gas plus proved reserves amount to 431 billion barrels and 3,683 tcf. Consequently, domestic oil production rises to 13 million barrels per day before 2035 and imports decline to near zero. Tight oil production peaks at 8.5 million barrels per day in 2035 compared to the reference case peak of 4.8 million barrels in 2021. Cumulative tight oil production reaches 75 billion barrels, up from 44 billion in the reference case.

In the low supply scenario, crude oil totals 210 barrels and gas totals 1,814 tcf; oil production reaches 9.1 million barrels per day in 2017 and then slowly falls to 6.6 million barrels per day in 2040. Tight oil production peaks in 2016 at 4.3 million barrels per day with a cumulative production of 34 billion barrels. Interestingly, the difference in price in the high and low supply scenarios is only $20 per barrel—$125 versus $145 (using 2012 dollars) in 2040.

The shale bubble proponents essentially are betting on the EIA low production scenario. They will be proven right if shale oil production does peak in the next year or two. We shall soon see. “The history of the industry is that we are always running out,” says Budzik. “So long as we have a well functioning economic system that allows the price mechanism to adjust and encourages innovation we will see the resource base grow rather than diminish.” Rising prices at the beginning of the 21st century did, in fact, promote more exploration and faster technological progress, resulting in the shale revolution the U.S. is currently enjoying. If this dynamic is not unduly hampered, it’s a good bet that the prophets of bubble-bursting doom are wrong yet again.

Food in Your Gas Tank…Let’s Burn Our Food!

by coldwarrior ( 150 Comments › )
Filed under Economy, Energy, Open thread at May 7th, 2014 - 1:00 pm

Heads Up! Global Warming is now called ‘Climate Disruption’, got it? OK, let’s proceed.

 

Here is a link-filled article for reference about the absurd idea of Ethanol subsidies.

The Ethanol Disaster

America’s renewables policy is bad for consumers, the environment, and the global poor.

Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)Last November, when the Environment Protection Agency (EPA) proposed moderating years of escalating mandates by reducing the amount of ethanol that must be mixed into gasoline, a top ethanol lobbyist seemed perplexed. “We’re all just sort of scratching our heads here today and wondering why this administration is telling us to burn less of a clean-burning American fuel,” Bob Dineen, head of the Renewable Fuels Association, told The New York Times.

Here are a few possible reasons why: America’s ethanol requirement destroys the environment, damages car engines, increases gas prices, and contributes to the starvation of the global poor. It’s an unmitigated disaster on nearly every level.

Start with the environment. After all, when the renewable fuel standard (RFS), which since 2005 has set forth a minimum annual volume of renewable fuels nationwide, was first set, one of the primary arguments for mandating ethanol use was that it was a greener, more environmentally friendly source of fuel that released fewer greenhouse gasses into the atmosphere.

This turns out to be complete hogwash. Researchers have known for years that, when the entire production process is taken into account, most supposedly green biofuels actually emit more greenhouse gasses than traditional fuels.

Some proponents of the ethanol mandate have argued that the requirement was nonetheless necessary in order to spur demand for and development of more advanced, environmentally friendly biofuel like cellulosic ethanol, which is converted into fuel from corn-farm leftovers. But there are two serious problems with cellosic ethanol. The first is that cellulosic ethanol turns out to be rather difficult to produce; despite EPA projections that the market would produce at least 5 million gallons in 2010 and 6.6 million in 2011, the United States produced exactly zero gallons both years—and just 20,069 gallons in 2012.

The second is that cellulosic ethanol is also bad for the environment. At least in the short-term, the corn-residue biofuels release about 7 percent more greenhouse gases than traditional fuels, according to a federally funded, peer-reviewed study that appeared in the journal Nature Climate Change last month.

The environmental evidence against ethanol seems to mount almost daily: Another study published last week in Nature Geoscience found that in São Paulo, Brazil, the more ethanol that drivers used, the more local ozone levels increased. The study is particularly important because it relies on real-world measurements rather than on models, many of which predicted that increased ethanol use would cause ozone levels to decline.

To make things worse, ethanol requirements are bad for cars and drivers. Automakers say that gasoline blended with ethanol can damage vehicles by corroding fuel lines and injectors. An ethanol glut caused by a misalignment of regulatory quotas and demand has helped drive up prices at the pump. And the product is actually worse: ethanol blends are less energy dense than regular gasoline, which means that cars relying on it significantly worse mileage per gallon.

American drivers have it bad, but the global poor have it far worse. Ethanol requirements at home have helped drive up the price of food worldwide by diverting corn production to energy, which dramatically reducing the available calorie supply. A 25-gallon tank full of pure ethanol requires about 450 pounds of corn—roughly the amount of calories required to feed someone for a year. Some 40 percent of U.S. corn crops go to ethanol production, which in effect means we’re burning food for automobile fuel rather than eating it. Studies by economists at the World Bank have found that a one percent increase in world food prices correlates with a half-percent decrease in calorie consumption amongst the world’s poor. When world food prices spiked between 2007 and 2008, between 20 and 40 percent of the effect was attributable to increased global reliance on biofuels. The effect on world hunger is simply devastating.

Ethanol lobbyists are still pretending the renewable fuels mandate is a success, and Senators from corn-friendly states in the Midwest are still urging the agency not to proceed with the proposed reduction to the mandate. But at this point, ethanol requirements have few serious defenders except the people who profit from its production and the politicians who rely on those people for votes and campaign contributions.

Judging by the cut it proposed last November, even the EPA seems to be wavering. A final regulation has yet to be submitted, but the proposal would reduce the amount of renewable fuels the agency requires this year from 18.15 billion gallons to 15.2 billion gallons. That’s if the EPA sticks to its original plan. The agency is under heavy pressure to moderate its proposed cuts, or avoid them entirely.

Those cuts, if approved, would represent a productive step forward. But they wouldn’t be enough. Congress should vote to repeal the renewable fuel standard entirely. The federal government shouldn’t be telling people to burn less ethanol; it shouldn’t be telling anyone to burn any of it at all.

Russian Gas and American Production

by coldwarrior ( 156 Comments › )
Filed under America, Chechnya, Economy, Energy, Open thread, Politics, Russia at April 8th, 2014 - 9:00 am

This is an interesting take on the possibility of American Gas exports ‘hurting Russia’.

 

Why Russia Isn’t Afraid of U.S. Gas Exports

Wikicommons

During his recent speech in Brussels, U.S. President Barack Obama said the U.S. could soon become a major supplier of gas to Europe and allow countries that are currently “hostage” to gas imports from Russia to have an alternative supply source at a cheaper price. We heard the same sentiment from the chairman of the U.S. House Foreign Affairs Committee, Ed Royce, during his March 26 address at a committee hearing on ”The Geopolitical Potential of the U.S. Energy Boom.” While Obama placed his comments in the context of energy supply security, Royce was much more explicit about the real objective of an energy dump into Europe. “America’s newly developing energy supplies could make a difference,” he said. “They could sap Putin’s strength, while bolstering Ukraine’s and that of other European countries.”

We have heard similar comments from many politicians in Europe as well as the U.S., and from executives in companies operating in the shale gas industry. We also heard similar comments from many others promoting the idea that the U.S. Energy Department might release oil from the Strategic Oil Reserve to increase global supply and depress the world price of crude. The basic line has been to send cheap U.S. gas or oil to Europe to kill off demand for Russian exports and to debilitate the Russian economy. Some have also emphasized the benefits, as they see it, to the European economy from cheaper energy and to the U.S. economy because of higher export volumes. But the key objective, the argument goes, is causing collateral damage to the Russian economy.

You can see where they are coming from. The widely held perception among those who only superficially look at the structure of Russia’s budget and economy is that it is a hydrocarbon-­dependent country and even a slight twitch in the price of export oil or gas would destabilize the country. That certainly was the case in the late 1980s, in the late 1990s and again in late 2008. But much has changed even since 2008. and the continuing legacy of various wars across North Africa and in the Middle East means there is little threat to the price of crude oil. Brent crude has been more or less stable just under $110 per barrel for more than three years, and looming problems in Venezuela and reports of increasing violence in Nigeria offer little medium-term comfort for oil bears.

But it is Russia’s gas position that has attracted most attention since the Crimea referendum. And it is against the backdrop of political emotionalism that basic fact-checking has been ignored. Here are some important facts. Gas production has certainly grown very rapidly in the U.S. since the middle of the last decade. According to BP’s most recent Statistical Review of World Energy, the U.S. has increased annual gas production from 550 billion cubic meters in 2007 to more than 750 bcm last year, overtaking Russian production of about 600 bcm. But according to the BP report, the U.S. currently consumes almost all of the gas it produces. It exports almost no gas.

To be sure, if the U.S. can sustain the rapid pace of production growth seen since 2007, it will eventually become a large exporter of gas via LNG tankers. But this will be possible only if it adds a significant amount of export infrastructure, namely LNG loading terminals. The first of these, at Sabine Pass in Louisiana, is not due online until late next year or early 2016, while some others are bogged down in environmental disputes and are not expected until 2019 or 2020. But even then, U.S. gas producers, which have been booking export contracts far in advance, are all planning to send their LNG volumes to Asia. The price of gas is much higher in Asia than Gazprom charges its European customers. It is difficult to see why a U.S. LNG tanker would sail to Europe just to make a political point rather than to the far more profitable markets in Asia.

In addition, the price of gas sold domestically in the U.S. is extremely inexpensive compared to world prices. This is regularly cited by economists — and lauded by politicians — as an important factor behind the revival in the U.S. economy. It is no surprise that U.S. gas executives are pushing for approvals for more export facilities. The Russia angle is purely convenient for a profit-orientated industry keen to sell to the highest bidder and to break free from the depressed local market. One wonders what the attitude of lawmakers will be when the price of domestic gas eventually starts to rise because of competition from the export market.

That is not to say that Russia can be in any way complacent about economic vulnerability to energy exports. By the time LNG volumes are sailing in large volumes into European ports, overall demand will be much higher, and Russia will be a major player in the global LNG business. Novatek’s Yamal-based LNG terminal is expected online by 2017, and more than 70 percent of the planned production is already sold to Asian customers. The plant will double in capacity between 2015 and 2020. By 2018, the LNG plant currently under construction in Sakhalin, which is jointly owned by ExxonMobil, Rosneft, ONGC of India and Japanese investors, will also be online. Russia’s first LNG plant came online in March 2009 as part of the Gazprom-Shell Sakhalin-2 project, and another bigger Gazprom foray into LNG production cannot be far off. By the start of the next decade, Russia is likely to be a much larger exporter of LNG than the U.S. Exports from both countries will sail to Asia rather than to Europe

What about Europe’s ability to produce more of its own gas? Europe is much more sensitive to environment risk than is the U.S. Germany has decided to cut nuclear power, and most countries are dragging their feet when it comes to alternative energy projects, such as wind farms, because of the aesthetic and other environment damage. It is therefore naive to assume that Europe will embrace the shale gas revolution in the same way as the U.S. has. The first television images of homeowners in Britain, France or Germany setting light to gas coming out of their water faucets, a very familiar sight in many parts of the U.S., will send the environmentalists to court for injunctions faster than politicians will deny they ever supported the project.

Russia’s current share of the European gas market share is about 30 percent. For Gazprom to maintain that market share as overall gas demand rises on the continent, it must complete the South Stream pipeline across the Black Sea despite objections from Brussels. Customer countries, such as Bulgaria, are in favor of South Stream because it bypasses the troublesome transit route through Ukraine. For the same reason, Germany wanted the twin-pipe Nord Steam connection which delivers 55 bcm of Russian gas directly into its industrial heartland.

U.S. and European Union officials are, of course, quite correct to emphasize long-term energy security. The long-term alternatives — that is, from Iran, Central Asia or Africa — hardly offer more assurance. And we already know that price differential between Europe and Asia means that U.S. LNG tankers will not be in any hurry to supply the market when they eventually do set sail.

Chris Weafer is senior partner with Macro Advisory, a consultancy advising macro hedge funds and foreign companies looking at investment opportunities in Russia.