Tuesday, March 21, 2017

GWPF Newsletter: U.S. Shale Is Pushing OPEC To Breaking Point

Shale 2.0 Triggers $160 Billion US Manufacturing Boom

In this newsletter:

1) U.S. Shale Is Pushing OPEC To Breaking Point
The Times, 20 March 2017

2) Shale 2.0 Triggers $160 Billion US Manufacturing Boom 
CNBC, 9 March 2016

3) Shale Shock: Trump May Use America’s Energy Market As A Foreign Policy Tool
The National Interest, 19 March 2017

4) US Shale Blunting OPEC Hegemony On Oil Prices Is Good News For India
Hindustan Times, 19 March 2017

5) The Importance Of U.S. Oil And Natural Gas Exports
Forbes, 19 March 2017

6) John Constable: Does The Government Really Expect 24% Of UK Electricity To Be Imported In 2025?
GWPF Energy, 18 March 2017

Full details:

1) U.S. Shale Is Pushing OPEC To Breaking Point
The Times, 20 March 2017
James Dean

Among many bold promises made on the presidential campaign trail, Donald Trump pledged to unleash an “energy revolution” that would release vast riches from America’s shale oil reserves. It is doubtful that he expected Saudi Arabia to do the job for him.

All over the US, dozens of oil rigs are coming back online every month-- SPENCER PLATT/GETTY IMAGES

Yet, since the Saudi-led Opec cartel agreed to cut oil production in November, the US shale industry has been boosted to levels not seen since 2014.

“The shale boom is back,” Norbert Ruecker, head of commodities research at Julius Baer, said. “Over the coming one and a half to two years, we’re probably going to be back at the previous high levels of production.”

The first US shale boom, which lasted from 2012 to 2014, took advantage of oil prices that hovered around the $100 mark. By the end of 2014, however, oil had plunged below $50, and a year later, was close to $25.

The price collapse was orchestrated by Opec. Its 13 members pumped and pumped to create an oil glut that pushed down prices, knowing this would make it uneconomical to extract oil from shale. However, the price fell too far, and Opec members suffered. In November, they and 11 other nations including Russia agreed to cut production for the first time in eight years. The oil price has since held around $50, despite concerns that Opec members would not adhere to their promises.

The US is thought to hold the world’s largest reserves of shale oil, with about 80 billion recoverable barrels, according to the last count by the US Energy Information Administration. Britain, in stark contrast, holds less than 1 per cent of that amount: about 700 million barrels. Shale oil accounts for about 52 per cent of all oil production in the US.

The EIA last week forecast US shale oil production would climb in April at its highest rate in five months. Production is expected to rise by 109,000 barrels per day to nearly 5 million.

All over the US, dozens of oil rigs are coming back online every month. The count has increased for nine straight weeks, figures published yesterday by Baker Hughes, the oilfield services company, showed. There are now 631 active oil rigs in the US, more than double the number at the end of 2016. The EIA expects that output next year will surpass a record set in 1970.

The Permian basin, America’s largest shale field, is leading the recovery. Only the massive Ghawar field in Saudi Arabia is believed to hold more oil. In November last year, the US Geological Survey estimated that the Wolfcamp deposit in the Permian field could hold 20 billion barrels of oil, making it the largest shale deposit discovered in the country.

US oil majors are planning to spend billions of dollars on the region in the coming years, with Chevron alone targeting an additional 900,000 barrels of shale oil per day. The EIA expects the Permian field to pump a record 2.3 million barrels per day next month, compared with 2 million a year ago.

“The momentum, and how quickly the shale industry has turned around, is probably one of the biggest surprises of the last year,” Mr Ruecker said. “I’ve never seen such a rapid industry cycle. In the first quarter of 2016, the whole industry was in despair. We were wondering which companies would survive. By the fourth quarter, we were talking about which were growing the fastest.”

Full story

2) Shale 2.0 Triggers $160 Billion US Manufacturing Boom 
CNBC, 9 March 2016
Patti Domm

The United States is in the early stages of a manufacturing renaissance, and is expected to grow, thanks to cheap and plentiful natural gas.

The U.S. is expected to see a wave of petrochemical plant openings between now and next year. Those plants represent about $50 billion of $160 billion in manufacturing investment earmarked by the industry since 2012, according to James Fitterling, president and COO of Dow Chemical. Among them are several big ethylene plants, including one expected to be opened by Dow in Freeport, Texas, in the second quarter.

"It's about 1.5 million tons of new capacity for us. It will be up in the second quarter sometime," said Fitterling, speaking in Houston at the CERAWeek conference, sponsored by IHS Markit. He said Dow also opened a billion-dollar propane dehydrogenation plant in Freeport at the end of 2015. "That was the first megaproject we've done on the Gulf Coast for quite some time." [...]

CB&I’s Cameron LNG project in Hackberry, Louisiana
Source: CNBC -- CB&I’s Cameron LNG project in Hackberry, Louisiana

"The U.S. has gone from a shale gas boom to a petrochemical boom," said Scott Sheffield, CEO of Pioneer Natural Resources. While natural gas industry experts discussed the outlook for a long period of low gas prices at the conference, the petrochemical industry described what only can be viewed as a boom in an industry that had been declining in the United States.

Fitterling said there was a wave of plants that started construction back in the 2012 time frame, and between 2017 and 2018, there will be approximately $50 billion of that total $160 billion of capacity up and running. "These are all downstream petrochemical plants, including ethylene facilities, propylene facilities and all the downstream products associated with them. Another wave of plants — some that started and some that were a little bit delayed and slid out to the 2019 time frame — represent another $12 billion," Fitterling said. There are more than 20 big projects and other smaller ones, all which should be completed by 2023. [...]

Natural gas production in the United States is expected to continue to grow, with an expanding LNG export market that should make the United States a net exporter in the next several years, along with pipeline gas sales to Mexico.

The big ethylene plants are energy intensive, and now it's cheaper to operate them in the United States, where plentiful natural gas is less expensive than other locations.
Full story

3) Shale Shock: Trump May Use America’s Energy Market As A Foreign Policy Tool
The National Interest, 19 March 2017
Agnia Grigas

Will the Trump administration be willing to take on a bold new energy diplomacy strategy that could rein in its rivals and foes?

Secretary of State Rex Tillerson at the G-20 Foreign Ministers' Meeting in Bonn, Germany. Flickr/Department of State
The Senate confirmation of former Texas governor Rick Perry as secretary of energy, coupled with the earlier appointment of Exxon Mobil’s former CEO, Rex Tillerson, as secretary of state, comes at a time when the United States has emerged as an energy superpower: a leading global producer of oil and gas. President Donald Trump’s administration now has the ability to harness the country’s energy prowess for domestic economic benefits and achieve meaningful foreign policy gains for the country.

In theory, Tillerson’s experience with the global energy markets should be a considerable asset in effecting exactly these goals. Likewise, Perry’s knowledge of the American energy sector as the former governor of Texas will be a useful asset in helping enact America’s energy policy, even if the Department of Energy is largely tasked with overseeing the nation’s arsenal of nuclear weapons.

However, with “America First” as the guiding foreign-policy principle and the announcement of an “America First” energy plan, will the Trump administration be willing to lead globally and leverage the diplomatic potential of the country’s energy to benefit America and its allies? Will the administration be willing to take on a bold new energy diplomacy strategy that could rein in its rivals and foes?

The global energy markets and America’s domestic energy standing are already radically different from when President Barack Obama took office in 2009. Following a tightly contested competition, which began in the 1980s, the United States managed to surpass Russia as the world’s largest producer of natural gas by 2011. Even more surprising is that the United States became the world’s leading oil producer in 2014.

This dominant position in the global energy industry did not come overnight. The new energy reality reflects broader global changes—changes which are most evident in the transformation of the natural gas markets.

Since the mid-2000s the North American shale revolution unlocked the development of previously untenable unconventional oil and gas resources. It helped boost U.S. domestic natural gas production by more than a third, reaching an estimated 28 trillion cubic feet annually in 2016. Over the last sixteen years, shale gas has grown. It used to account for barely 1 percent of total U.S. natural gas production. Now, it accounts for more than 50 percent.

Furthermore, growing liquefied natural gas (LNG) trade and the buildup of gas transport infrastructure worldwide facilitated the development of an increasingly global gas market. While gas was previously a politicized regional resource dependent on land-based pipelines for transport, it has increasingly become a more liquid commodity that could be shipped across the globe in the form of LNG. As the number of LNG importing and exporting states increased, global LNG trade reached an all-time high of 270 million tons in 2015 and final 2016 volumes are expected to be even greater.

Most significantly, with U.S. gas production booming, American LNG exports extended to the far reaches of the globe in 2016. Those exports were sent to Brazil, India, Kuwait, Spain, China, Mexico and other destinations. This was in stark contrast to the 2000s when U.S. policy experts and energy companies worried about America’s energy security and geared up for gas imports. The country’s shale production and exports performed well, even in the low-energy price environment of the past few years. Looking forward, there are dozens more LNG export projects in the making and awaiting the approval of governmental agencies.

The rapidly changing tides of natural gas markets have been transforming the geopolitics of energy. The balance of power between former monopolist suppliers, such as Russia, and importing countries, such as the European states, is shifting to favor the latter. The United States will accrue many benefits as it will meet its own energy demand and have greater capacity to export its gas to energy vulnerable allies in the European Union, which will help them diversify away from Russian gas. Yet with Trump’s hopes of improving relations with Putin, it is uncertain if undermining Russian gas giant Gazprom or promoting European energy security would be priorities for the new administration. Additionally, competition between American and Russian energy interests could help unravel hopes of a U.S.-Russia rapprochement.

Full post

4) US Shale Blunting OPEC Hegemony On Oil Prices Is Good News For India
Hindustan Times, 19 March 2017

The Indian government can breathe more easily about one of its macro-economic concerns: Rising global oil prices. Despite a successful effort to reduce oil production by the Organization of Petroleum Exporting Countries, oil prices recently fell to below $ 50 a barrel, a three-month low. The primary reason: A countervailing surge in shale oil production by the United States. The US’ ability to quickly ratchet up oil production in response to higher prices has put a ceiling on global crude prices. There is an additional benefit in a parallel compression of natural gas prices. This is excellent news for India, among the world’s largest importers of oil and gas.

The Narendra Modi government has benefited hugely from the slump in oil prices that began in 2014. By some estimates the drop in world oil and gas prices provided a windfall of over $10 billion to New Delhi in the 2015-16 financial year. The benefits were two-fold. The central government has had to pay less in fuel subsidies. It has also, by passing on as little as a fifth of the drop in oil prices to Indian customers, given the Indian exchequer a multi-billion dollar revenue windfall. One of the main reasons the Modi government has largely been able to meet its fiscal deficit targets has been its ability to impose higher taxes on imported oil without affecting prices for Indian users.

When OPEC, led by Saudi Arabia, announced plans to reduce crude production there were fears oil would rise to a new plateau in the $70-80 range. This would have taken a substantial bite out of India’s economy on a number of fronts, though Indian officials said they were comfortable with a price of up to $65. Oil prices did indeed rise, but so did US shale production. Continuously improving production technology and a recent refinancing of the entire shale sector has meant US shale rigs, for both oil and gas, are commercially viable at increasingly lower prices.

That this is all happening even when a number of major oil exporters like Venezuela are producing at below par, spells a rosy market scenario for importers like India. The world may be looking at a new norm of crude prices between $50-60.

Full story

5) The Importance Of U.S. Oil And Natural Gas Exports
Forbes, 19 March 2017
Jude Clemente

According to the International Energy Agency's (IEA) latest World Energy Outlook (released in November), oil and natural gas will still supply over 50% of the world's energy in 2040. But, given the tendency to overestimate the ability of naturally intermittent renewables to displace (not simply supplement) conventional fuel systems, the contribution of oil and gas is likely to be even higher than anticipated.

In short, even with Herculean growth for wind and solar, oil and gas will remain integral to the world's energy economies for "as far as the eye can see." Moreover, you must know that wind and solar only compete in the electricity sector, and electricity accounts for less than 45% of global energy demand. So, an energy system built on wind and solar isn't practical: they don't compete in the majority of the world's energy economy.

To me, our most obvious energy fact is that global oil demand simply cannot peak anytime soon. Oil, after all, is the world's most vital fuel with no significant substitute whatsoever. And because 6 in every 7 humans today live in undeveloped nations, global oil consumption has really just started. The numbers in oil's favor are overwhelming: over 90,000,000 vehicles were sold last year, and about 1% of them run on something other than oil.

Natural gas, meanwhile, is the world's fastest growing major fuel, and the increased use of natural gas is a climate necessity: more gas is the primary reason why the U.S. is set to meet CO2 emission reduction goals set in the Clean Power Plan nearly 15 years early (here).

Given all this, our expanding capacity to export more oil and natural gas is not just great to lower our trade imbalance, but to also improve human development. I've already documented how it's a moral imperative to export modern fuels to a mostly poor world (herehere), and oil and gas exports also lower the widening influence of OPEC and Russia.

The foundation of my work stands on solid moral footing: poor people deserve the same privileged lives that you, me, and Al Gore have, and shouldn't have to only rely on the less reliable, more expensive energy systems that rich people in San Francisco demand that they do.

 US Oil and Gas Export Profile
US Oil and Gas Export Profile

As U.S. crude oil production has rebounded to levels not seen since the early 1970s, our petroleum and oil products exports have surged. We have a saturated market demand wise, so although demand will remain buoyantly very high, our ability to export is increasing as our industry recovers from sunken prices. And our shale oil is a lighter, higher quality oil that isn't a perfect match for our own refinery system built on processing heavier crudes.

Full post

6) Does The Government Really Expect 24% Of UK Electricity To Be Imported In 2025?
GWPF Energy, 18 March 2017
Dr John Constable: GWPF Energy Editor

New UK government projections of capacity and supply suggest that interconnection and electricity imports must grow by over 300% by 2025 if demand is to be met. While imports are not in themselves to be feared, it is worrying that government appears to be using assumptions about interconnection as a free parameter to paper over deficiencies in what is now in effect a centrally planned electricity system.

The GB system currently has about 5.7 GW of interconnectors, and in 2016 net imports of electricity over these lines amounted to about 18 TWh, mostly from France, and the Netherlands, though with traces from Eire and Northern Ireland. This is approximately 6.5% of demand on the GB system.

Data published last week by the Department of Business, Energy, and Industrial Strategy (BEIS) as part of the latest iteration of its Updated Energy Emissions Projections shows that interconnection must rise to 20 GW as soon as 2024, and net imports must rise to 77 TWh in the following year, 24% of requirements, if expected demand for electricity is to be met.

BEIS’s own chart (5.1 in the UEEP itself) is not particularly helpful in appreciating the overall picture, so I here redraw that data in two figures, the first showing electrical energy generation in terawatt hours by fuel type from 2016 to 2035, and the second re-expressing that data in percentage terms.

Figure 1. UK Electricity Generation (TWh) from 2016 to 2035. Source: Department of Business, Energy and Industrial Strategy, Updated Energy and Emissions Projections 2016 (March 2017). See Web Figures.

The salient facts are: 
  1. The quantity of electrical generated from gas-fired generators is expected to fall sharply in 2017, and to decline, though with some short term increases, thereafter. 
  2. Nuclear output is expected to expand significantly after 2025. 
  3. Renewable output roughly doubles over the period. 
  4. Imports grow very sharply in the middle of the next decade, and then decline in volume towards the end of the period. 
The percentages bring this into sharper focus:

Figure 2: UK Electricity Generation (%) from 2016 to 2035. Source: Department of Business, Energy and Industrial Strategy, Updated Energy and Emissions Projections 2016 (March 2017). See Web Figures.

As can be seen in 2025 the UK is nearly 25% reliant on imported electricity in spite of renewables contributing upwards of 35% of demand in that year.
The evolution of generating capacity behind this phenomenon can also be charted from BEIS’ projections:

Figure 3. UK Electricity Capacity 2016 to 2035 (GW). Source: Department of Business, Energy and Industrial Strategy, Updated Energy and Emissions Projections 2016 (March 2017). See Annex L: Total Electricity Generating Capacity.

The salient features of this chart are: 
  1. Total capacity increases by about 40% in the period. 
  2. Natural gas capacity does not grow significantly, indeed it falls from a peak in 2018 of 39 GW to 31 GW in 2035. 
  3. Nuclear capacity declines to a low of 5 GW in 2024 and then climbs to 17 GW in 2035. 
  4. Renewables grow steadily from 37 GW in 2016 to 63 GW in 2035. This is by no means implausible; the government’s own Renewable Energy Planning Database, records 55.2 GW of consented renewable capacity. 
  5. Interconnection rises rapidly from about 6 GW in 2016 to 20 GW in 2024. 
The rapid, major increase in import capacity and in electricity imports is far and away the most important single feature of these charts, and not, it must be emphasised, because imports are to be feared in themselves, but because of what this tells us about the way that BEIS has constructed the estimates. In many circumstances imports are to be welcomed, as economic, but the BEIS projections have little or nothing to do with comparative advantage. They are not grounded in economic analyses suggesting that within a few years it will be the best use of resources for UK consumers to buy over 20% of their electricity from overseas suppliers.

On the contrary, it seems clear that what BEIS has done is use imports simply as a free parameter. Where their models of new generation and output fail to meet projected demand they have assumed that imports will make up the balance. That is why the net imports fade away both in absolute quantity and in proportion after the mid-2020s, when new nuclear generation starts to be built.

In one sense we can take comfort from the fact that these are not realistic scenarios; importing in distressed circumstances is clearly not an attractive prospect, and BEIS itself remarks that “The results do not indicate a preferred alternative and should be treated as illustrative” (UEEP, p. 31).

But illustrative of what? Departmental despair? It is, at the very least, disconcerting to learn that in spite of having assumed all but complete responsibility for the supply of electricity the UK government has in 2017 little or no idea how it is going to meet demand in the early and mid 2020s other than ad hoc assumptions with regard to imports of electricity over interconnectors the vast majority of which are not yet built and from markets that may not be able, let alone willing to supply the UK’s needs.

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

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