Friday, June 16, 2017

GWPF Newsletter: The World’s New Energy Superpower








The Fourth Industrial Revolution Is Fueled By Oil & Gas

In this newsletter:

1) US Shale Revolution & Free Trade Create The World’s New Energy Superpower
Editorial, The Wall Street Journal, 16 June 2017
 
2) The Fourth Industrial Revolution Is Fueled By Oil & Gas
OilPrice, 14 June 2017 

3) OPEC And U.S. Shale Drillers Are On Collision Course
Reuters, 15 June 2017
 
4) Report: $12.7 Trillion Needed To Meet Paris Climate Accord’s Goal
The Daily Caller, 15 June 2017
 
5) Fracking Could Be Off The Agenda After Surprise Election Result
Newcastle Chronicle, 14 June 2017
 
6) Anthony Hilton: US Shale Revolution Makes Fracking A Must For UK Industry
London Evening Standard, 14 June 2017

Full details:

1) US Shale Revolution & Free Trade Create The World’s New Energy Superpower
Editorial, The Wall Street Journal, 16 June 2017
 
Steve Bannon owes Paul Ryan an apology on the oil-export ban. 


The Asia Vision LNG carrier ship sits docked at the Cheniere Energy Inc. terminal in this aerial photograph taken over Sabine Pass, Texas, on Wednesday, Feb. 24, 2016. PHOTO: LINDSEY JANIES/BLOOMBERG NEWS

Sometimes politics changes so rapidly that few seem to notice. Remember the “energy independence” preoccupation of not so long ago? The U.S. is now emerging as the world’s energy superpower and U.S. oil and gas exports are rebalancing global markets. More remarkable still, this dominance was achieved by private U.S. investment, innovation and trade—not Washington central planning.

Thanks largely to the domestic hydraulic fracturing revolution, the U.S. has been the world’s top natural gas producer since 2009, passing Russia, and the top producer of oil and petroleum hydrocarbons since 2014, passing Saudi Arabia. By now this is well known.

Less appreciated is the role that energy exports are now playing in sustaining U.S. production despite lower prices. Since Congress lifted the 40-year ban on U.S. crude oil exports in 2015, exports are rising in some weeks to more than one million barrels of oil per day. That’s double the pace of 2016 when government permission was required, according to a recent Journal analysis of U.S. Energy Information Administration (EIA) data.

The U.S. still imports about 25% of petroleum consumption on net, mostly from Canada and Mexico, but lifting the ban has resulted in a more efficient global supply chain. Most domestic refineries are configured to process heavy crudes, but fracking tends to produce light sweet crudes. Exporting the light and importing cheaper heavy oil results in lower prices for gasoline and other petro-products, and the larger world market has allowed U.S. drillers to revive production after prices fell from close to $90 a barrel in 2014.

Then there is the surge in liquefied natural gas (LNG) exports. Since the first LNG shipment from the lower 48 left a Louisiana port in 2016, the EIA expects exports will climb by about 200% over the next five years.

What is responsible for this progress? Well, producers are responding to a modest recovery in commodity prices after the price bust amid rising demand, and break-even costs for production continue to fall as technology and cost-management improve. But better policy decisions have also been crucial.

Under federal law, natural gas exports must be certified by the Department of Energy as “consistent with the public interest,” whether the U.S. has a free-trade agreement with the destination country or not. DOE approval is also necessary to build liquefied natural gas export terminals, and the Obama Administration slow-walked these licences until deep into the second term.

Yet starting in April, Energy Secretary Rick Perry approved a burst of LNG projects and promised to speed review of some two dozen other export terminals. In May the rhetorically trade-averse Trump Commerce Department signed a market-access pact that welcomed China to receive U.S. liquefied natural gas shipments and make long-term LNG contracts with U.S. suppliers.

This wave of American LNG is already moving the global market toward a single price, like oil. As long as pipelines were the only transportation option, outfits like Gazprom were able to force their customers to take gas at inflated prices. Increased competition and energy diversification in Europe, where 14 NATO countries now buy 15% or more of their oil and gas from Russia, will also decrease Russia’s leverage as the region’s dominant producer.

As for the oil-export ban, this policy triumph arrived as part of a compromise between Republican leaders in Congress and the Obama White House in the 2015 budget deal. The GOP had to extend green-energy subsidies for several years as the price of Mr. Obama’s signature, but opposition from the left to any exports was certain to grow. GOP leaders recognized that a policy victory established by statute was worth the trade, and they are being vindicated now as exports grow with dividends for U.S. workers and energy production.

Conservative critics at the time didn’t take the long view, to say the least. The Heritage Action pressure group instructed Congress to vote against the compromise, saying it “fails to achieve significant conservative policy victories.”

Steve Bannon and Julia Hahn, now White House aides, wrote a Breitbart.com manifesto “ Paul Ryan Betrays America,” calling the bill “a total and complete sell-out of the American people.” Opposition was concentrated among Republicans: 95 Representatives and 35 GOP Senators voted nay, but Democrats didn’t get the better of the deal.

Full editorial

2) The Fourth Industrial Revolution Is Fueled By Oil & Gas
OilPrice, 14 June 2017 
Irina Slav

Image result for 4th industrial revolution

Artificial intelligence is already here, with algorithms replacing traders on Wall Street and tanker watchers in ports. Robots are here, too, drilling wells and cleaning pipelines, assembling cars, and performing surgery. Make no mistake, the fourth industrial revolution is accelerating and it is running on oil and gas—at least for the time being.

This is a fact that few of those active in the advancement of renewable energy would be willing to acknowledge or even consider, yet a fact it is: the revolution needs energy, and at the moment, renewable sources are simply incapable of supplying energy in amounts sufficient to run all the power plants and smelters that produce the electricity to power servers around the world, and the heat to produce the materials that wind turbines, cars, and solar panels are made of. And that’s without even mentioning batteries.

Let’s take solar power. Silicon is the core element of a solar panel. First, it has to be mined. Then it has to be processed at temperatures between 1,500 and 2,000 degrees Celsius. That’s dandy, but this kind of heat can for now, only be produced from coal, oil, or gas—not from solar thermal installations. The highest temperatures that solar thermal installations can generate, according to the Energy Information Administration, is 1,380 degrees F, or 749 degrees Celsius.

This is not to say that at some point in the future solar—or perhaps wind—installations will not be able to power the furnaces that melt the metals to make more wind turbines or electric trucks to mine the lithium, cobalt, and copper for the energy storage systems that will feed the smelter containing the furnaces. But we’re not there yet, and still must rely on fossil fuels to advance renewable energy.

Then there’s the issue of plastics. There is a vast variety of synthetic oil and gas-derived materials that, for good or bad, is a major part of everyday life. Plastics, while non-degradable, are recyclable, and there doesn’t seem to be equal-property, more eco-friendly alternatives for plastics. Here’s a short list of the most popular plastics and their most common uses. The versatility of plastics has motivated research into greener alternatives to all these polymers, but success won’t come overnight. For now, we are stuck with plastics.

Despite the impossibility of kicking the oil and gas habit, we can make it a less energy-intensive habit thanks to some of the technologies that are spearheading the fourth industrial revolution. Think about 3D printing, for instance, which may in the not-too-distant future render storage facilities and inventories—in some industries at least—obsolete as products would be printed on demand. Or telecommuting, enabled by the internet, which has hopefully made a dent in overall emissions as more people work from home.

The benefits of the latest industrial revolution are numerous already, and they are on the rise, although some can certainly be seen as challenges, too, especially the automation trend that is causing a job scare.

How the energy industry will fare in the new world of clean energy and eco-friendly non-plastic materials is an open question. This new world is far in the future and this becomes crystal clear when we stop thinking of oil and gas as fuel for cars and trucks only. There are just too many things made or powered by fossil fuels, including greener energy.

Full post

3) OPEC And U.S. Shale Drillers Are On Collision Course
Reuters, 15 June 2017
John Kemp

The oil market is on an unsustainable course with output from U.S. shale and other non-OPEC sources increasing rapidly, while OPEC and its allies trim production to reduce inventories and prop up prices.



The International Energy Agency (IEA) projects non-OPEC output will increase by 1.5 million barrels per day (bpd) in 2018 (“Oil Market Report”, IEA, June 2017).

If that proves correct, non-OPEC suppliers will capture all the increase in demand next year, because the IEA predicts consumption will increase by only 1.4 million bpd.

In effect, OPEC will be restricting its own output only to see rival producers step in to meet growing demand from refiners.

OPEC will face the familiar dilemma of whether to defend oil prices by continuing to restrict output or defend market share by growing production again.

OPEC and its non-OPEC allies are unlikely to remain impassive as U.S. shale producers and other non-OPEC countries not bound by the production agreement capture all the growth in market demand in 2018.

If U.S. shale production continues to grow rapidly, OPEC will probably return to defending its market share in 2018, even if it means accepting lower oil prices.

SWITCHING TACK

OPEC’s strategy can best be described as a cycle alternating between prioritizing price protection and defending market share.

Between 2012 and the middle of 2014, the organization’s members complacently enjoyed high prices but ceded market share to the U.S. shale sector and other non-OPEC producers including deepwater projects.

OPEC’s share of the market shrank progressively from 43.5 percent in 2012 to 41.2 percent in 2014, the lowest since 2006, according to BP (“Statistical Review of World Energy”, BP, 2017).

If the shale boom had continued, with U.S. production growing at more than 1 million bpd per year, OPEC’s share would have fallen even further in 2015 and 2016.

So OPEC, under the leadership of Saudi Arabia, refused to cut production and allowed oil prices to fall to curb the shale boom and deepwater projects, which was the only rational strategy under the circumstances.

Between mid-2014 and mid-2016, OPEC’s strategy switched to protecting its market share and allowing oil prices to sink.

OPEC’s market defense strategy appears to have been successful, with its share of output climbing from 41.2 percent in 2014 to 42.7 percent in 2016.

But the cost proved more painful than anticipated, with oil prices slumping from an average of $100 per barrel in 2014 to less than $45 in 2016.

Full story

4) Report: $12.7 Trillion Needed To Meet Paris Climate Accord’s Goal
The Daily Caller, 15 June 2017
Michael Bastasch

A whopping $7.4 trillion will be spent globally on new green energy facilities in the coming decades, but another $5.3 trillion is needed to meet the goals of the Paris climate accord, according to a new report.

Bloomberg New Energy Finance (BNEF) is out with a new long-term energy outlook report, this time projecting a total of $12.7 trillion to keep projected global warming below 2 degrees Celsius by the end of the century — a goal of the Paris accord.

BNEF projects $7.4 trillion will be invested in new green energy capacity by 2040, and that global carbon dioxide emissions will be 4 percent lower in that year than in 2016.

But that’s not enough to keep projected warming below 2 degrees, the report warns.

BNEF says a “further $5.3 trillion investment in 3.9 [terawatts] of zero-carbon capacity would be consistent with keeping the planet on a 2-degrees-C trajectory,” according to an excerpt of the report obtained by Axios.

President Donald Trump announced U.S. withdrawal from the Paris accord in early June, arguing it would hurt American workers by transferring wealth from them to economic competitors, like China and India.

“This agreement is less about the climate and more about other countries gaining a financial advantage over the United States,” Trump.

Full story

5) Fracking Could Be Off The Agenda After Surprise Election Result
Newcastle Chronicle, 14 June 2017
Peter McCusker

Conservative manifesto polity to back fracking could be under threat after party's failure to win a majority

The UK shale gas industry may struggle to get going and investment will be delayed. Peter McCusker reports on the impact of the Election on the energy sector.

The Conservatives are the only main British party to support fracking for shale gas in the UK.

Its manifesto claimed Britain had the potential to ‘replicate the shale boom that has transformed the US energy landscape’.

Planning processes for shale developments would be streamlined and a higher share of tax revenues paid into a national ‘shale wealth fund’, for local communities in a bid to overcome opposition.

However, the election result leaves that pledge, as with all of the party’s Manifesto promises, in the balance.

Whilst it potential alliance partners the Democratic Unionist Party (DUP) are likely to support it, dissent in their own Tory ranks may stymie any bold policy moves with such a slim working majority.

Ken Cronin, chief executive of UKOOG, the representative body for the UK’s onshore oil and gas industry, says the ‘fundamentals of why we need shale gas are as strong today as they were last week.’

He said: “84% of our homes use gas for heating and a significant number of UK industries, such as textiles, chemicals and beverages, relying on gas for feedstocks and energy.”

He went on to say UKOOG is ‘looking forward to working with the new government to help ensure that we realise our ambition to see a mix of energy sources produced here in the UK, which will reduce our dependency on imported energy, improve our balance of payments and create jobs’.

While a domestic shale industry would boost the UK energy security, Prof Jon Gluyas, executive director at the Durham Energy Institute (DEI) at Durham University, says ‘the evidence that the UK could replicate the US experience is close to zero’.

“Our shales are gas rich but that is where the similarity ends. Extraction will be difficult due to unfavourable geological (sic) and geographical (sic) factors and societal opposition. In the last decade only a handful of wells have been drilled compared with the tens of thousands (sic) in the USA. [there are around 2 million shale wells in the US]

“Moreover, not one of the UK wells has led to development of a shale-gas field.”

All of the main parties have signalled their ongoing support for the North Sea oil and gas industry and this is likely to continue as a central plank of energy policy.

One Conservative pledge was to ensure the UK has ‘the cheapest energy prices in Europe’. [...]

Full story

6) Anthony Hilton: US Shale Revolution Makes Fracking A Must For UK Industry
London Evening Standard, 14 June 2017

Until a few years ago Europe and America paid more or less the same amount for their petrochemical feedstock — the US had a slight advantage but not so great after transport and other costs had been factored in. (Middle East plants, sited right by the oilfields, did have such a price advantage but lacked scale.)

This is no longer the case thanks to the fundamental changes across the Atlantic. The Marcellus field, which spreads over several states and is just one of many in the US, produces 15 billion cubic feet of gas a day which is almost twice the UK’s entire consumption. But the result is that US prices have disconnected from the rest of the world and the subsequent feedstock prices have given American chemical plants so vast a price advantage that, on paper at least, there’s no way Europe can compete. It is staring down the barrel of bankruptcy, not now, but in a few short years, unless it can find some way to get its raw-material costs down to American levels.

Thus far, the effect has been muted — and the European industry has had a little time — because the US petrochemical industry was originally not built for indigenous US gas and oil supplies but instead located near ports and configured to process supplies of oil from the Middle East.

But this is changing fast. There has been virtually no big petrochemical investment in Europe in the past decade whereas in the US since 2010 some $85 billion of petrochemicals projects have been completed or are under construction. Spending on chemical capacity to 2022 will exceed $124 billion, according to the American Chemistry Council, creating 485,000 jobs during construction and more than 500,000 permanent jobs, adding between $80 billion and $120 billion in economic output. After years where chemical capacity has run neck and neck with Europe, the American industry is about to dwarf it.

So this is the backdrop to the Ineos investment, and what is special is that this new plant will be supplied by a fleet of purpose-built liquefied natural gas tankers of sufficient number and size to create what Ratcliffe calls a “virtual pipeline” of US gas supply across the Atlantic. Even that, however, is not the key to the economics of the deal — rather it is that Ratcliffe has taken advantage of the fact that the US chemical plants seeking to use gas are still being built, and as a result we have been in a period where prices have been artificially low.

Seizing the moment, he has secured a decades-long supply contract at rock-bottom cost, low enough to cover a major chunk of his transport costs which he hopes will enable him, for a while, to live with US competition.

But the rest of Europe’s industry — here and on the Continent — has, for the most part, not been so fleet of foot. As a result it faces an existential challenge. Unless it can secure similarly low feedstock prices it will be forced to shrink dramatically, raise its efficiency and specialise.

This, in turn, will add further fuel to the debate on fracking in the UK, because it is the declared view of Ineos and presumably other energy-intensive firms, that only UK-produced shale gas can deliver feedstock at the price the industry needs to survive.

Hence Ineos, without courting publicity, has assembled some interesting onshore fracking licences with a particular focus on the East Midlands where test drilling is now taking place.

Perhaps because this is an area which at one time drew its prosperity from the Nottingham coalfield, local opinion has been largely supportive, helped — no doubt — by Ineos’s decision to give local communities a 2% cut of revenues.

But it also serves as a reality check for the country.

A post-Brexit Britain is going to have to exploit every source of wealth to stay afloat. In this, energy costs are key because you can’t make anything without energy. That means fracking whether people like it or not.

The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.thegwpf.com.

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