Thursday, February 15, 2018

GWPF Newsletter: OPEC's Shale Nightmare Is Coming True

US On Track To Become World’s Largest Oil Producer

In this newsletter:

1) OPEC's Shale Nightmare Is Coming True
Bloomberg, 11 February 2018 
2) 'Colossal' American Oil Boom Could Spoil OPEC's Plans
CNN Money, 13 February 2018 

3) US On Track To Become World’s Largest Oil Producer
Financial Times, 13 February 2018
4) Matt Ridley: Britain Needs To Embrace The Shale Revolution
The Times, 13 February 2018 
5) Growing Opposition To Green Energy Transition In German Parliament
No Tricks Zone, 13 February 2018 
6) Julian Simon Remembered (Would Have Been 86 Today)
Master Resource, 12 February 2018 

Full details:

1) OPEC's Shale Nightmare Is Coming True
Bloomberg, 11 February 2018 

U.S. shale production is surging on higher crude, now the fear is waning demand growth.

Julian Lee

The latest surge in U.S. oil output will probably hasten the country's rise to the top of the producer pile. More important, it's starting to look as though at least half of OPEC's nightmare scenario for 2018 -- a surge in shale output and slowdown in demand growth -- is coming true.

Last week's avalanche of releases from the U.S. Department of Energy showed daily oil production above 10 million barrels a day for the first time since 1970.

A massive week-on-week jump of 332,000 barrels a day must be treated with caution, though. U.S. drillers didn't have a sudden rush of enthusiasm as WTI prices broke through a psychological $65 ceiling. Rather, the weekly data, which aren't revised retrospectively, are catching up with monthly estimates that give a more accurate picture of output.

For much of last summer, the weekly data were heavily criticized for over-estimating U.S. output growth. Now, the reverse is true.

Assessments of the output in October and November based on the weekly data were about 370,000 barrels a day lower than the monthly figures, which are published with a two-month lag. There was probably a discrepancy too in December and January.

The production surge shown in the monthly data is unprecedented. Output rose by almost 850,000 barrels a day between August and November. It makes the first shale boom of 2014-15 look sluggish.

True, that growth rate probably wasn't kept up through the winter's cold snaps, but January's average production rate will almost certainly turn out closer to the 10.25 million barrels a day in the DoE release than to the 9.86 million calculated from the weekly data.

What does this mean?

First, bragging rights. The U.S. is close to becoming the world's largest producer of crude and condensate -- a form of light oil extracted from gas fields -- even if it's not quite there yet. It's pretty much level with Saudi Arabia's combined output, itself boosted by condensates not included in headline production numbers, and is closing on Russia's 10.95 million daily barrels. That could be passed by the end of the summer, according to Citigroup.

Full story

2) 'Colossal' American Oil Boom Could Spoil OPEC's Plans
CNN Money, 13 February 2018 

The oil cartel and key ally Russia have spent more than a year trying to drain the world of excess supply. But the International Energy Agency warned Tuesday, February 13, 2018, that a "colossal" oil boom in the United States could ruin their efforts.

By Ivana Kottasová

LONDON (CNNMoney) -- This is the kind of stuff that keeps OPEC up at night.

The oil cartel and key ally Russia have spent more than a year trying to drain the world of excess supply. But the International Energy Agency warned Tuesday that a "colossal" oil boom in the United States could ruin their efforts.

The Paris-based agency said that a massive increase in output means the U.S. will soon be producing more oil than Saudi Arabia. It could soon challenge Russia for the global crown.

The manic American pumping, which the IEA estimates will average 10.4 million barrels a day this year, could cause a glut to return to global markets.

"U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth," the IEA said in its latest monthly report. "This is a sobering thought for other producers."

The IEA said the surge, which is powered by shale, is "reminiscent" of 2014, when booming production in the U.S. prompted OPEC to flood the global market with oil in an attempt to protect its market share.

The strategy led to a price collapse that sent crude to a low of $27 per barrel in 2016 from well over $100.
Plunging prices forced some higher-cost U.S. producers to close up shop. But many emerged leaner and stronger than before.

OPEC and other major producers including Russia agreed to slash their output in late 2016 in order to reduce the glut and help boost prices. The agreement has been extended until the end of 2018.

But there are signs that the strategy may be losing its effectiveness.

Full story

3) US On Track To Become World’s Largest Oil Producer
Financial Times, 13 February 2018

IEA describes US growth as ‘extraordinary’

Anjli Raval

The US is poised to become the world’s largest oil producer in 2019, the International Energy Agency said, with stellar output from shale fields offsetting robust demand growth and supply cuts by other producers.

US crude output, which is up 1.3m barrels a day compared to last year, will soon pass Saudi Arabia and could overtake Russia by the end of the year to become “the global leader”, the IEA said on Tuesday.

“All the indicators that suggest continued fast growth in the US are in perfect alignment,” the Paris-based energy body said in its monthly oil market report.

The oil crash forced US producer companies to cut costs dramatically and become more efficient. Now, as oil prices have rebounded, they are drilling more wells and production is swelling again.

“US producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth,” the IEA said.

The IEA raised its forecast for 2018 global oil demand growth to 1.4m b/d, on a stronger global economy, with total consumption expected at 99.2m b/d.

But non-Opec output growth — led by the US — this year will stand at a greater than expected 1.8m b/d, taking total production from outside the cartel to 59.9m b/d.

The energy body said the situation is “reminiscent” of the first wave of the US shale boom that was propelled by higher prices and which spurred global producers from Opec and Russia to pursue a market share war…

The IEA said the US could again put global producers on the back foot despite strong global demand growth and producer cuts leading to an “extraordinarily rapid fall” in global stockpiles. OECD commercial inventories fell by 55.6m barrels in December, the steepest drop since February 2011, to just under 2.9bn barrels.

Full story

4) Matt Ridley: Britain Needs To Embrace The Shale Revolution
The Times, 13 February 2018 

Horizontal drilling and hydraulic fracturing are the biggest energy revolution of the century.

Gas will start flowing from Cuadrilla’s two shale exploration wells in Lancashire this year. Preliminary analysis of the site is “very encouraging”, bearing out the British Geological Survey’s analysis that the Bowland Shale beneath northern England holds one of the richest gas resources known: a huge store of energy at a cost well below that of renewables and nuclear.

A glance across the Atlantic shows what could be in store for Britain, and what we have missed out on so far because of obstacles put in place by mendacious pressure groups and timid bureaucrats. Thanks to shale, America last week surpassed the oil production record it set in 1970, having doubled its output in seven years, while also turning gas import terminals into export terminals.

The effect of the shale revolution has been seismic. Cheap energy has brought industry back to America yet carbon dioxide emissions have been slashed far faster than in Europe as lower-carbon gas displaces high-carbon coal. Environmental problems have, contrary to the propaganda, been minimal.

All thoughts of imminent peak oil and peak gas have vanished. Opec’s cartel has been broken, after it failed to kill the shale industry by driving the oil price lower: American shale producers cut costs faster than anybody thought possible. A limit has been put on the economic and political power of both Russia and Saudi Arabia, no bad thing for the people of both countries and their neighbours. Shale drillers turn gas and oil production on and off in response to price fluctuations more flexibly than old-fashioned wells.

Seven years ago it was possible to argue that shale would prove a flash in the pan. No longer: horizontal drilling and hydraulic fracturing are the biggest energy news of the century. For those who still think the falling price of wind and solar is more dramatic, consider this. Between them, those two energy sources provided just 0.8 per cent of the world’s energy in 2016, even after trillions of dollars in subsidy, and will reach only 3.6 per cent by 2040, according to the International Energy Agency. Gas will then be providing 25 per cent of the world’s energy, up from 22 per cent today.

Gas is one of the cheapest, safest, least polluting, most reliable and flexible of energy sources, and it does not require subsidy or huge areas of land like renewables. Britain once had a great abundance thanks to the North Sea but that is dwindling. Shale resources would almost certainly have come forward to fill that gap, but by letting the renewables lobby and green pressure groups rig the market against gas, the government is letting slip a historic opportunity.

Full post & comments

5) Growing Opposition To Green Energy Transition In German Parliament
No Tricks Zone, 13 February 2018 

P Gosselin

Green energy opposition becoming formidable force in Germany

As Germany’s established CDU and SPD “mainstream” parties find themselves imploding, the smaller parties who oppose Germany’s out-of-control Energiewende (transition to green energies) are rapidly becoming a formidable force and making their presence felt in Germany’s national parliament like never before.

For example Germany’s FDP Free Democrats, who refused to forge a coalition government together with CDU/CSU and Green parties, have become increasingly vocal critics of Germany’s green energy scheme.

Politicians ignoring the concerns of its citizens

Last month in her first speech ever in the German Parliament, FDP parliamentarian Sandra Weeser slammed the struggling Energiewende and the latest signals to promote it even further.

In her speech Weeser points out that despite the rapidly growing green energy capacity being installed, the effort to reduce CO2 has failed, and what’s left is an unpredictable power grid that often produces energy when it is not needed (waste energy) and thus costing Germans hundreds of millions annually.

She also accuses the established politicians of ignoring citizens as they ruin Germany’s landscape with wind parks.

Interestingly it is often Green party voters who we find themselves among wind park protesters. In their daily lives these people are recognizing that what is being sold as green electricity in fact has nothing to do with being green. They are rejecting the industrial turbines in forests.”

Weeser then tells that the expansion of the green energies is totally out of proportion with the existing power infrastructure, and that even the most perfect grid will not be able to handle the volatile wind and solar energies.

Electricity “outrageously expensive”

Weeser also dismisses claims by the Green Party that wind energy is “the most inexpensive” on the market, asking them directly: “If that is really true, then why do they need subsidies? Why are we paying 25 billion euros annually for their feed-in?”

Green engineering debacle

Finally she mentions that an array of expert panels have determined that wind energy is not leading to more climate protection, but rather is only making electricity outrageously expensive. In her final comment, Weeser says:

Policymakers should set up the framework conditions, but please leave the engineering to engineers.”

Anti-wind/solar energy AfD soars to 15% in polls

Also Dr. Rainer Kraft of the Germany’s newly minted rightwing AfD party recently demolished the Energiewende in his first speech before Parliament in Berlin:

According to Kraft, the Parliamentary session on renewable energy requested by the Greens is welcome because it exposes their “incapability to comprehend the factual and physical interrelationships” of the subject.

Policy of a fool…eco-socialist economy

Kraft slams the government’s climate-protection approach of spending “15 euros to avoid 1 euro of damage” as apolicy one would expect from “a fool”. Adding: “there just couldn’t be less scientific understanding than that.”

Echoing Donald Trump’s ideas on international treaties, Kraft also sees them as being ruinous to German industry, and that the ultimate target of climate protection is to establish “an eco-socialist centrally-planned economy” and that climate protection is the “instrument” to bring it about.

He then labeled the Greens’ energy policy as “eco-populist voodoo”.

With so much going wrong with the Energiewende, the FDP and AfD today are having an easy time capitalizing politically on the issue and portraying the government and the Greens as inept.

Full post
6) Julian Simon Remembered (Would Have Been 86 Today)
Master Resource, 12 February 2018 

By Robert Bradley Jr. 

““If environmental alarmists ever wonder why more people haven’t come around to their way of thinking, it isn’t because people like me occasionally voice doubts in newspaper op-eds. It’s because too many past predictions of imminent disaster didn’t come to pass. That isn’t because every alarm is false — many are all too real — but because our Promethean species has shown the will and the wizardry to master the challenge, at least when it’s been given the means to do so.” -– Bret Stephens, “Apocalpyse NotNew York Times, February 8, 2018.

“[Julian] Simon found that humanity progressed not only by solving immediate problems within the existing institutional framework but also by creatively improving the framework over time... In the short run, members of society adopt localized technical and contractual fixes. In the medium range, they may explore government regulatory policies. In the longer term, they expand the scope and scale of the liberal institutions. These institutions of economic freedom—private property, binding contracts, and the rule of law—improve incentive structures that foster both economic well-being and environmental stewardship.” -– Fred Smith, “Introduction,” in Robert Bradley, Julian Simon and the Triumph of Energy  Sustainability (Washington, D.C.: ALEC, 2000), p. 12.

Julian Simon (1932–98) would have been eighty-six years old today. MasterResource is inspired by his contributions to energy (what he labeled “the master resource”), as well as his open-ended view of human ingenuity (what he called “the ultimate resource”).

Who can forget Simon’s statement: “It’s reasonable to expect the supply of energy to continue becoming more available and less scarce, forever. That one got the neo-Malthusians (fixity-depletionists) mad!

Or this: “Discoveries, like resources, may well be infinite: the more we discover, the more we are able to discover.” [2] The cascading effect of human discovery, indeed, the open-endedness of entrepreneurship (and in the mineral world, resourceship), is a very powerful explanatory concept.

And his public policy conclusion: “The world’s problem is not too many people, but a lack of political and economic freedom.” [3] Simon elaborated:

The extent to which the political-social-economic system provides personal freedom from government coercion is a crucial element in the economics of resources and population…. The key elements of such a framework are economic liberty, respect for property, and fair and sensible rules of the market that are enforced equally for all. [4]

The headlines continue to confirm Simon’s worldview about mineral resources. The oil and gas shale boom in the U.S. and around the world have refuted ‘peak oil’ and ‘peak gas’ predictions and worries for the foreseeable future.

In one of his last works, Hoodwinking the Nation, published posthumoulsy, Simon spelled out his worldview:

The message about human betterment and economic progress is more general than any individual statements about raw materials, air, water, life expectancy, education, and the like. There is solid theoretical basis for the idea that that all aspects of human welfare should get better, not just as a matter of coincidence but as part of a broad causal mechanism.

Humanity has necessarily evolved so that we have more of the nature of creators than of destroyers—or else the species would have died out long ago. People seek to improve their conditions, and therefore on balance people build more than they tear down and produce more than they consume. Hence each generation leaves the world a bit better in most respects than it begins with. [5]

May the legacy of Julian Simon continue–and may private-property-based free markets continue to give life to Simon’s optimism.

Full post & references

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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