The End of the Oil Age?

Petroleum and Crude Oil – the Future of Oil Production

DW (2019) – only online until April 17th

Film Review

This documentary analyzes the long term economic viability of the petroleum industry, in view of climate change, increasing competition from cheap renewable energy and shifting geopolitical allegiances.

It begins with an examination of the 2014 collapse in oil prices – with the cost of a barrel of oil dropping by over 70% between June 2014 and January 2016. Oil bottomed out at $26 a barrel in February 2016.

The filmmakers explore a number of factors keeping the oil price above $100 a barrel prior to 2014. Speculation in oil futures by big banks such as Goldman Sachs and Morgan Stanley seems to be the main one.

These high oil prices made the fracking boom possible. Fracking technology, whereby trapped oil and gas reserves are released by fracturing bedrock, is an extremely expensive technology. According to industry analysts, fracking is only financially viable with oil prices above $70 a barrel.

The fracking industry was a great boon to the US petroleum industry, enabling it to export oil and liquified natural gas (LNG) for the first time in decades.

The filmmakers point to two main reasons for the 2014 collapse in oil prices. The first was reduced oil demand (due to global economic slowdown) popping the speculative bubble created by the big banks. The second was Saudi Arabia’s attempt to destroy the US fracking industry by flooding the global market with oil.

This scheme seems to have backfired. While numerous small fracking operations went bust, the major oil companies had sufficient financial resources to continue fracking at a loss.

The low oil prices probably hurt Saudi Arabia more than the US, as the Saudis are extremely dependent on oil revenues to finance their national budget.

In 2017, Saudi Arabia and other OPEC* countries reached out to Russia to form OPEC Plus. The latter agreed to limit oil production to stabilize prices. The Saudi oil ministry fully expects Kazakhstan and other former Soviet republics will also join OPEC Plus.

Meanwhile oil producing countries (except for the US under Trump) have learned an important lesson from the 2014 price shock. Both Norway (the world’s largest oil/gas producer) and Saudi Arabia are rapidly diversifying their energy industries to protect themselves from future price volatility. Most industry analysts expect other countries to follow suit. At present China, the world’s largest oil importer, is also the largest investor in renewables. This, in turn, signals a significant reduction in their future oil dependency.

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*Organization of Oil Exporting Countries – current members include Algeria, Angola, Austria, Cameroon, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia (the de factor leader), Syria, United Arab Emirates, and Venezuela.

 

Pipelinistan: Is the Novichok Psyops an Effort to Shut Down Nord Stream 2?

Politics, Power and Pipelines – Europe and Natural Gas

DW (2018)

Film Review

This documentary concerns Russia’s controversial Nord Stream 2 pipeline project, due for completion by the end of 2019. The EU, the UK and the US have been working hard to shut down Nord Stream 2, and various commentators believe the current Novichok psyops is an effort to pressure Germany to back out of their agreement with Gazprom.

The Nord Stream 2 project is a partnership between Russian state-owned Gazprom and five private energy companies from Britain, Germany, France and Netherlands. It will transport natural gas directly across the Baltic Sea to Germany. The existing Nord Stream 1  pipeline system transports Russian gas to western Europe mainly via Ukraine.

Since the 2014 US-sponsored coup in Ukraine, there has been considerable conflict between Russia and Ukraine over Nord Stream 1 – involving Ukraine’s non-payment of fuel charges, their failure to maintain the pipeline and illegal diversion of gas supplies. Russia totally shut down gas supplies to Ukraine in 2009 and 2014 for non-payment, resulting in very cold winters for Bulgaria, Romania and Hungary at the other end of the pipeline.*

Two prominent Germans are part of the Nord Stream 2 consortium, former German Chancellor and Social Democratic Party leader Gerhard Schroder and former Stasi member and Putin friend Mattias Warning. The latter serves as the company’s Managing Director.

Despite their determination to become more independent of Russian gas and oil, Poland and other Eastern European states are dismayed that Nord Stream 2 will bypass them. Ukraine is distraught because it stands to lose $2 billion annually in transit fees.

The EU is trying to stop Nord Stream 2 by claiming regulatory authority, **which Russia and German dispute, as both Nord Stream 1 and 2 are external pipelines.

The US also opposes the pipeline, as it prefers both EU countries to buy its more costly fracked LNG (liquified natural gas). They have threatened economic sanctions on countries that sign new energy agreements with Russia.

The US also opposed Nord Stream 1 (completed in 1973), fearing it might lead to a closer relationship between West Germany and Russia. Former German chancellor Willy Brandt strongly championed Nord Stream 1, over US objections. He believed trade and detente*** were a preferable strategy for bringing down the Iron Curtain. It now appears he was right.

The filmmakers raise legitimate concerns about Russia investing so heavily in yet more fossil fuel pipelines (Gazprom is also building a pipeline via Turkey to Italy and Greece) in a period when the planet urgently needs to end fossil fuel use altogether.

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*On March 3, 2018, Russia announced it was ending fossil fuel contracts with Ukraine altogether, raising grave concerns for countries at the other end of the pipeline. See Russia’s Gazprom to Terminate Gas Contracts with Ukraine

**Detente is a cold war term referring to the easing of strained relations.

 

Syria Already Planning Its Economic Future

 

Guest Post by Sophie Mengel Inside Syria Media Center.

Last Monday the EU Council extended sanctions against the Syrian government for another year, until June 1, 2018. The event occurred as recent Syrian Arab Army successes raise hopes for an end to the Syrian conflict. It’s clearly not enough to talk about food relief and delivery of basic necessities. Manufacturing and foreign trade have also taken major hits in Syria.

 

World Bank: Total economic damage by city

Bilateral Ties Between Syria and Iran

Not so long ago, at a Damascus meeting between Syrian Prime Minister Imad Khamis and Iranian Ambassador Javad Torkabadi, Khamis highlighted the full-scale economic war the West and their Middle East allies have unleashed against Syria. Tehran, with its long experiencing countering “sanctions war,” and Damascus have become a model of strategic cooperation, both militarily and economically.  However, strong economic ties between Iran and Syria alone will not solve the problem of Syrian economic degradation.

Courting Qatar

Despite their past support for anti-government terrorists, the current economic boycott of Qatar by its “friendly neighbors” is leading to hope of future Qatari investment in the Syrian economy. For Qatar to invest in Syrian zones of influence or to offer Syria offer a kind of Marshall Plan would go a long way towards repairing Qatar’s international image. It would also allow the country to bypass limitations Saudi Arabia seeks to impose on Qatar’s foreign policy, while making it more independent of the US and the EU.

All this would likely depend on consummating an agreement for Iran to purchase LNG from Qatar for onward transport to external consumers. Iran, which is getting closer to Qatar and has strong positions in Syria, has great potential as an intermediary.

Syria is Already Planning Its Economic Future

Despite the ongoing fighting in Syria, the country is already planning its economic future. Syria is rich in energy resources and minerals, including rare-earth metals. At the same time, the country has an advantageous geographical location for transporting goods to the Mediterranean pass through its territory. All this gives Damascus the potential for rapid economic development.

Stability in the region and restoration of foreign trade would enable the Syrians to have a source of stable foreign direct investment. The country has been in the grip of war for more than six years, but is full of enthusiasm to rebuild the economy. The hope of a new life and recent successes on the battlefield inspire optimism on the part of Syrian citizens, as well as the countries such as Iran, China, India, Russia and Armenia that support them.

Follow the latest developments by reading Inside Syria Media Center.

Those Fracking Lies

Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future 

Richard Heinberg (Post Carbon Institute, 2013)

Book Review

Snake Oil is all about the economics of fracking. Also known as hydraulic fracturing, fracking refers to using pressurized water and chemicals to release oil or natural gas trapped in underground rock formations. Heinberg’s new book describes the behind-the-scenes role of Goldman Sachs and other investment banks in driving the present fracking boom.

Technology to extract oil and gas deposits trapped in rock formations was first developed in 1866. Because the process is extremely capital intensive, fracking for oil only became economically sustainable in when the price of oil tripled a decade ago. In the case of natural gas, it took the elimination of price controls and federal tax credits to make fracking financially feasible.

How Fracking Loses Money

According to Heinberg, fossil fuel companies are losing money on fracking. The recent boom has led to a surplus of natural gas. This, in turn, has driven the price down, forcing the oil/gas industry to sell it for less than they spend to get it out of the ground. Because only a small fraction of shale gas can be extracted cost effectively, production declines by an average of 80-90% over the first 36 months. Industry data indicates it costs between $10-20 million to operate a fracking rig that will produce $6-15 million worth of natural gas in the well’s lifetime.

Obviously you can’t tell investors that fracking for natural gas is a money-losing proposition. Investors only want to hear that fracking is the miracle solution to America’s dependence on dirty coal and foreign oil. Thus oil/gas companies, the banks that finance them, the federal agencies that regulate them and Obama himself all parrot the hype that fracking will supply cheap natural gas to fuel US power plants for the next 100 years. According to Heinberg, this wildly optimistic prediction was calculated by extrapolating the best production rates of the best fracking sites over the 20,000 or so existing rigs. The problem with this methodology is that it fails to allow for rapid depletion rates or the fact that the best wells are already tapped out.

This pressure to meet financial targets forces the companies to sink more and more wells. Thirty-five to fifty percent of existing wells (7,200 wells) must be replaced every year “just to pay off the bankers.”

Fracking Based Derivatives

The only way companies can stay in business is by selling assets and financial products. This includes unused oil and gas leases^* they acquired cheaply in the 1990s, company shares, derivatives and credit default swaps. The investment banks themselves have created their own fracking-based derivative called volumetric production payments (VPPS). The banks bundle them and sell them to gullible pension fund managers, just like they did toxic mortgages before the 2008 crash.

The billions they’re losing explains why the industry is so keen to start exporting fracked gas as Liquified Natural Gas (LNG) to China, Japan and India. These countries are happy to pay $15 per million BTUs, nearly four times the domestic price of $4. A growing export market will quickly drive up US prices.

Environmental Consequences of Fracking

Meanwhile the explosion of fracking rigs across the landscape is causing massive environmental damage and eating up scarce dollars we should be investing in renewable energy. Owing to strong public opposition, fracking is banned or strictly regulated in most of Europe. As a result, Europeans are far more likely to invest energy dollars in renewables. In 2012, Germany obtained 23% of their electricity from renewable sources, Denmark 41% and Portugal 45%

Snake Oil debunks the widely promoted myth is that that burning natural gas to produce electricity creates less greenhouse gasses than burning coal. If you count all the methane (a greenhouse gas 20-100 times more potent than CO₂) released during fracking, using fracked natural gas to fuel power plants produces 20-100% more greenhouse gas emissions than coal.

The massive amount of freshwater consumed by tens of thousands of fracking wells is also a major concern, especially in drought-stricken regions. The water take for a single well pad cluster can exceed 60 million gallons. The Halliburton Loophole, championed by Dick Cheney, amended the Clean Water Act in 2005 to remove the requirement that oil and gas companies disclose the toxic chemicals they use in fracking. This is especially concerning given recent studies documenting serious health problems in people and livestock adjacent to fracking sites.**

In 2011, the EPA made the determination that fracking waste is too radioactive (from exposure to underground cesium and uranium) to be processed in municipal waste facilities. Thus most of it held in large evaporation pools or re-injected into old wells. A recent US Geological Service study has linked deep well re-injection to a rash of earthquakes in regions that rarely experience them. In 2011 central Oklahoma experienced a fracking-related 5.7 earthquake that destroyed 14 homes and a highway and injured two people.

Other Unconventional Production Methods

Snake Oil also debunks the flimsy economic hype used to promote other methods of unconventional oil and gas production (e.g. oil fracking, deep sea oil drilling, tar sands, etc), as well as examining what the inevitable transition to renewable energy will look like. Because renewable energy will never be as cheap as fossil fuels, some modification will be necessary in our current energy intensive lifestyle.

 *An oil or gas lease is a contract by which a landowner authorizes exploration for and production of oil and on his land, usually in return for royalties from the sale of the oil or gas.

**According to Al Jazeera, a jury has just awarded a Texas family $3 million for fracking related health problems.

 

Originally published in Dissident Voice