Shell Shuts Down Shale Oil Project After 30 Years

29 09 2013
by Kurt Cobb, originally published by Resource Insights  | TODAY
The belief that technology can always overcome natural limits just took a big hit this week when Royal Dutch Shell PLC decided to shut down its pilot oil shale project in western Colorado after 31 years of experimentation. The ostensible reason is that the company has opportunities elsewhere. Shell says it wants to shift resources away from the intransigent rock and move it to profitable opportunities.

That sounds logical. But, it might have sounded logical in any of the last 10 years as oil prices rose to historic heights while oil shale projects languished. Even today the average daily price of crude oil hovers near its historic highs set in 2011 and again in 2012.

The prize for anyone who profitably unlocks these deposits is huge, an estimated 800 billion barrels of recoverable resources. So why isn’t oil shale yielding to the mighty combination of deep pockets, sophisticated technology and high prices?

A clue comes from one sentence in coverage in The Denver Post: “Full-scale production would probably have required building a dedicated power plant.” In simple terms, it takes energy to get energy. Shell’s process requires copious amounts of electricity to heat the rock in place through boreholes in order to release the waxy hydrocarbons embedded in it. In this pilot project, the subterranean rock was heated for three years before liquids were captured and brought to the surface for further processing.

(Oil shale is a promotional term. Oil shale is neither shale, nor does it contain oil. It is better characterized as organic marlstone. It contains kerogen, a waxy, long-chain hydrocarbon that must be extensively processed to make it into a synthetic form of crude oil. Oil shale is often confused with oil taken from deep shale formations such as the Bakken in North Dakota, oil properly called “tight oil.”)

The ratio of energy outputs to inputs for oil shale is estimated to be about 2 to 1, according to a study by Cleveland Cutler who has long examined energy return on energy invested. Shell claimed a ratio of around 3 to 1 (though that claim no longer appears on the project site). That seems good until you realize that we are currently running the world on crude which has a ratio around 20 to 1.

Furthermore, the need for water to cool power plants associated with oil shale extraction and for processing the extracted liquids is considerable. And, water is increasingly difficult to secure in an area that has seen growing demand combined with more than a decade of drought.

Proponents of oil shale claimed in 1981 that it would be economical to process if oil were to reach $38 per barrel and stay there. The threshold price kept escalating along with the price of oil all the way up to $80 in a 2008 study by the U.S. Bureau of Land Management.

And, yet here we are. Brent Crude, the de facto world benchmark, hovers around $108 dollars. The average daily price for the past three years has remained above $100. In the face of these consistent record high prices, Shell is abandoning oil shale development. And, Shell isn’t the only one. Another international major, Chevron Corp., pulled out of its project last year.

There are others who soldier on in the oil shale deposits, and they may eventually find ways to produce a synthetic crude from this rock at a profit. But 30 years of failure suggests that such a development remains far off. And, in a world that is trying to wean itself from fossil fuels because of climate change and the risks of depletion, time may run out.

The path of oil shale is reminiscent of atomic fusion research. Twenty-five years ago, fusion was supposed to be just 25 years in the future. Earlier in the same decade, oil shale was touted as the future of oil. Today, fusion remains the energy source of the future (just as oil shale does), and researchers at the world’s main fusion research facility, the International Thermonuclear Experimental Reactor (ITER), say that fusion will perhaps be ready for commercial use by mid-century.

To be fair, the challenges for fusion researchers are daunting. For example, they must build and run a device that operates at interior temperatures of 150 million degrees centigrade–which is 10 times hotter than the core of the sun. And, they must do it safely and in a way that produces more energy than the device consumes.

But, because the challenges are so daunting, it may turn out that fusion will always remain the energy of the future. We already know how to fuse two atoms. And, we know how to process oil shale to produce synthetic oil.

But, we don’t know how to do either of these things at an energy or financial profit sufficient enough to make them practical for widespread deployment. There is a strong possibility that we may not learn how to succeed with either in a time frame that matters to anyone living today.

That means we must get on with other technologies, energy projects and energy policies that have a more realistic possibility of addressing our energy needs and the climate change caused by our current energy regime.


Ohio Students Mic Check Against Fracking Industry

28 09 2013

Impose Moratorium on Shale Gas

17 09 2013

Letter to the Editor:

This letter is prompted by your front page story "Proponents of fracking call for dialogue on shale gas development.” No one is against”shale gas.” Shale gas, according to the paid proponents oft featured in your newspaper, offers us the possibility of permanent prosperity, employment for our youth, and I assume the chance to pay down our provincial debt and top up pension plans.

I don’t believe this scenario has any roots in reality; still, no rational person would seek to thwart such an outcome.

What the rationally aware are most emphatically against is the practice of fracking, whereby huge amounts of fracking fluids are pumped int the earth under high pressure to fracture the rock and release the gas, yet also often causing extreme and permanent environmental damage and great impairment on the lives of ordinary people.

Are our leaders really leaders persons with moral courage and the best interests of their citizens at heart – are are they hicks captured by dreams of wealth, ready to sell their (and yours, and my) heritage for the proverbial mess of pottage?

I am not optimistic. The carnival is in town, and the air is thick with sweet talk and promises.

There is a hysteria associated with this whole debate.

There can be no rational discussions in this environment.

Why not call a moratorium and see what happens in the laces that have been fracked already? If the gas is down there, it has been down there for millions of years.

It can wait a little longer.



Shale Gas: From Boom to Overkill

29 08 2013
The Lifecycle of Domestic Natural Gas

August 19, 2013
Natural gas was first a boon for domestic energy producers and then an albatross. Hydraulic fracturing, or ‘fracking’, a process that cracks rock deep underground to release oil and natural gas, made production possible in many previously untapped shale fields, sparking a land grab that began a decade ago.

During President Barack Obama’s tenure in the White House, soaring production of natural gas from horizontal drilling and  fracking has pushed supplies to record highs for many years. The boom in domestic production of both oil and natural gas even provided the United States with 84 percent of its energy requirements last year, the highest annual level since 1991.

The shale gas revolution swiftly changed the economics of natural gas. It prompted the industry to launch more than 100 new projects in the past several years — specifically aimed at taking advantage of low prices — with investments totalling billions of dollars and 50,000 new jobs created.

Not long ago, the domestic supply of natural gas was so limited that facilities were constructed in U.S. ports to import natural gas. However, fracking changed the supply situation. Now, the United States produces more natural gas than it can use. As a result, priceshave plummeted to approximately $4 per thousand cubic feet.

In 2012, during the worst of the glut, the Henry Hub price dropped below $2 per thousand cubic feet. The spot price for gas is set in the New York futures market, based on trades at a Louisiana collection center known as the Henry Hub. Comparatively, the industry is generally profitable when gas is sold between $4 and $6.

Low prices — meaning cheap power — have also helped American manufactures; at $5 per thousand cubic feet, gas is equivalent to $25 to $30 per barrel of crude oil. But for natural gas producers, the glut of natural gas has posed difficulties. The fuel cannot be easily stored, unlike oil, and as a result, drilling is costing companies more than they can make selling the product.

Plunging prices, along with disappointing wells, have also spawned a series of write-downs of oil and gas shale assets, and oil companies are now exercising much more caution when purchasing land, which until recently was gobbled up. In particular, BHP Billiton(NYSE:BHP) and Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB) are slowing spending significantly. They are also redirecting their spending. Unable to justify the acquisition of more land because fields bought during the 2009 through 2012 boom remain below purchase price, they are developing current projects, analysts told Bloomberg. As a result, acquisitions of North American energy assets dropped to the lowest level since 2004 during the first half of 2013.

Even more revealing of current conditions is the fact that in the years between 2005 and 2012, oil and gas transactions ranked among the top two in deal values every year except 2008, when they were fourth. So far this year, oil and gas have not broken into the top five.

This slump many last for years, according to analysts, and it threatens to slow oil and gas production growth. Now, companies that built up debt when rushing to get their hands on shale acreage cannot depend on asset sales to fund drilling programs. “Their appetite has slowed,” Stephen Trauber, Citigroup’s vice chairman and global head of energy investment banking, told Bloomberg. “It hasn’t stopped, but it has slowed.”

When gas prices plunged to their 10-year low in 2012, many companies were forced to write-down the value of some of their assets. The discovery that fields thought to be rich in oil were actually less bountiful than expected also hurt. Shell, which has spent $6.7 billion acquiring North American energy assets since 2009, wrote down the value of its North American holdings by more than $2 billion last quarter. BHP said it would cut the value of its Arkansas shale assets by $2.8 billion during a May 14 conference presentation, adding that capital and exploration spending will “decline significantly” in the next few years.

Not only have producers decided to limit drilling in some fields, they have begun to sell disappointing properties, at lower prices than acquired, and pushed more investment dollars into storage terminals and gas processing plants. For example, in February, Chesapeake(NYSE:CHK) sold half of its oilfield in the Mississippi Lime formation to China Petrochemical for $1.02 billion. That deal was just one of three oil and gas transactions valued at more than $1 billion this year, according to Bloomberg.

When supply eclipses demand, the only way to increase prices is to reduce the supply or increase demand. Reducing the supply is not an easy proposition for natural gas producers — their contracts on wells often require them to keep drilling in order to maintain the less. That is why natural gas producers, like Exxon Mobil (NYSE:XOM) have pushed the Department of Energy to speed up its approval of applications to export natural gas. Last month, the department gave permission to export to a facility owned partly by ConocoPhillips(NYSE:COP), a move that came two years after the first export license was granted to Cheniere Energy. Now, more than 20 applications are pending.

Approvals were delayed by two years because the Energy Department was waiting for studies on how gas exports would impact the economy to be finished. While oil and gas companies have argued in favor of exportation, as it would raise prices between 3 percent to 9 percent, American manufacturers expressed concern that prices would increase their costs. Some economists even worried that the increase in costs would cause manufacturers to leave the U.S., taking jobs out of the economy. But, in general, all reports have indicated that gas exports would benefit the economy, according to CNN.

“Our view is that the [Energy Secretary Ernest] Moniz review is most likely to be short and lead to the same conclusion as many reviewers of the issue — that LNG (liquefied natural gas) exports will provide a net benefit to the U.S,” Whitney Stanco, an energy analyst at Guggenheim Securities’ Washington Research Group, wrote last week in a research note seen by the publication.

Sky Truth Satellite Detects Gas Emissions from Bakken Shale

29 08 2013

For the past year, our satellite monitoring of infrared data from around the world has detected immense amounts of light and heat coming from natural gas flares in North Dakota’s Bakken Shale. A recent study concluded that 30 percent of the natural gas produced in North Dakota is being wasted by a process called flaring, and the carbon dioxide emissions alone are equivalent to the annual emissions of 1 million automobiles.

This does not even touch the unknown air quality impacts from burning fracked gas in large, open flames at ground-level. To study this issue further, we are teaming up with a non-profit called Space For All to send cameras and instruments on a weather-balloon to the edge of space—well, the upper tropopause—to examine air quality and infrared emissions from oil shale fracking and flaring.

But what is flaring and why is it an issue? Flaring is the practice of burning off natural gas to dispose of it, primarily this happens right after a well is put into production or when other methods of using the gas are more expensive to implement than its market value. Operators do not want methane (the primary hydrocarbon in natural gas) accumulating on their wellpads where it can explode, and burning it off is slightly less harmful to the climate than venting it directly to the atmosphere.

But there is so much flaring going on that the fields around Williston, ND, positively glow, and there is limited information on other air quality impacts from flaring all of this gas produced as a by-product from fracking for oil. Help us Skytruth the Bakken to find out what is really going on …

With your help, we are planning to go to North Dakota to groundtruth satellite detections of flaring, and launch cameras and air quality instruments to the edge of space, tethered to a high-altitude balloon rig. We will combine our ground observations with detections from the balloon rig, and compare that to satellite data to measure the amount of natural gas flaring there. This will help us test the accuracy of our satellite-based flaring detections so we can do a better job of monitoring environmentally damaging (and unnecessarily wasteful) flaring that happens in the Bakken and around the world. The more good data we can collect, the more we can help groups that are working to reduce and eliminate it.

Former Mobil VP Warns of Fracking and Climate Change

4 08 2013

Friday, 19 July 2013 00:00By Ellen CantarowTruthout | Interview

The Race for What’s Left and It’s Affects on Climate Change

Fracking.A farmer walks through a field near oil rigs in Shafter, California, May 21, 2013. (Photo: Emily Berl / The New York Times)

Few people can explain gas and oil drilling with as much authority as Louis W. Allstadt. As an executive vice president of Mobil oil, he ran the company’s exploration and production operations in the western hemisphere before he retired in 2000. In 31 years with the company he also was in charge of its marketing and refining in Japan, and managed its worldwide supply, trading and transportation operations. Just before retiring, he oversaw Mobil’s side of its merger with Exxon, creating the world’s largest corporation.

The first in a modest Long Island German-American family to graduate from college (the US Merchant Marine Academy), Allstadt got a master’s degree in business administration from Columbia University then was hired by Mobil. Before his retirement he wasn’t aware of a new, sophisticated form of rock fracture, high-volume hydraulic fracturing, developed only in the late 1990s. “It just wasn’t on our radar at that time,” he said. “We were heavily focused on developing conventional oil and gas offshore in deep water.”

Quaint, arty Cooperstown, home of the Baseball Hall of Fame, is perched on the shores of Lake Otsego, which supplies drinking water to the village and glimmering, placid expanses for kayakers and boaters. Allstadt launched his leisure years in this idyllic spot, intending to leave the industry behind. He founded an art gallery with his wife, Melinda Hardin, made pottery, kayaked, taught other people to kayak, and played tennis. But then friends started asking him questions about fracking – it had been proposed near the lake. What he saw as he began investigating the technology and regulations proposed by New York’s state Department of Environmental Conservation (1,500 pages titled “Supplemental Generic Environmental Impact Statement, a.k.a. ‘the SGEIS ‘ “) alarmed him. In these pages last year he called high-volume fracking “conventional drilling on steroids.” “Just horrible,” is how he described the 2011 SGEIS in our conversation in June 2013.

Allstadt has become an indispensable guide for one of the country’s most powerful environmental movements, New York’s grass-roots anti-fracking resistance. Recently he was elected a Cooperstown Trustee. He is modest and low-key, his authority hallmarked by personal understatement. He said this interview was a first for him: earlier talks and interviews have focused on what he calls “tweaking the technology and [promoting] tighter regulations.” Never before has he focused squarely on the industry’s impact on the planet’s atmosphere.

A note about interview chronology: Allstadt’s observations about the Obama climate-change address were added in phone conversations in July 2013. The rest of the interview took place in person in mid-June 2013. A brilliant June sun illuminated the greenery of gardens below the back porch of the Cooperstown house where we spoke. In the driveway, a kayak rested atop a car.

We began by discussing fracking as part of what oil-scholar Michael Klare calls “the race for what’s left. “

Louis Allstadt: The fracking that’s going on right now is the real wake-up call on just what extreme lengths are required to pull oil or gas out of the ground now that most of the conventional reservoirs have been exploited – at least those that are easy to access.

Ellen Cantarow: So could you describe the dangers of this industry?

LA: First of all you have to look at what is conventional oil and gas. That was pretty much anything that was produced until around 2000. It’s basically a process of drilling down through a cap rock, an impervious rock that has trapped oil and gas beneath it – sometimes only gas. If it’s oil, there’s always gas with it. And once you’re into that reservoir – which is really not a void, it’s porous rock – the natural pressure of the gas will push up the gas and oil. Typically you’ll have a well that will keep going 20, 30 years before you have to do something to boost the production through a secondary recovery mechanism. That conventional process is basically what was used from the earliest wells in Pennsylvania through most of the offshore production that exists now, that started in the shallow water in the Gulf of Mexico and gradually moved down into deeper and deeper water.

Now what’s happened is that the prospect of finding more of those conventional reservoirs, particularly on land and in the places that have been heavily explored like the US and Europe and the Middle East just is very, very small. And the companies have pretty much acknowledged that. All of them talk about the need to go to either non-conventional shale or tight sand drilling or to go into deeper and deeper waters or to go into really hostile Arctic regions and possibly Antarctic regions.

Methane release: fracking the planet’s future

So when you talked about “the race for what’s left,” that’s what’s going on. Both the horizontal drilling and fracturing have been around for a long time. The industry will tell you this over and over again – they’ve been around for 60 years, things like that. That is correct. What’s different is the volume of fracking fluids and the volume of flow-back that occurs in these wells. It is 50 to 100 times more than what was used in the conventional wells.

The other [difference] is that the rock above the target zone is not necessarily impervious the way it was in the conventional wells. And to me that last point is at least as big as the volume. The industry will tell you that the mile or two between the zone that’s being fracked is not going to let anything come up.

But there are already cases where the methane gas has made it up into the aquifers and atmosphere. Sometimes through old well bores, sometimes through natural fissures in the rock. What we don’t know is just how much gas is going to come up over time. It’s a point most people haven’t gotten. It’s not just what’s happening today. We’re opening up channels for the gas to creep up to the surface and into the atmosphere. And methane is a much more potent greenhouse gas in the short term – less than 100 years – than carbon dioxide.

Methane-migration evidence and the DEC

EC: Was there any major turning point that started you thinking about methane migration?

LA: There were many. An example is that one of the appendices of the draft SGEIS [New York Department of Environmental Conservation guidelines for the gas industry] that was issued in July 2011, had a section describing an EPA study of the only cases where similar fractures had been unearthed. These were in a coal-mining area. The EPA investigation indicated that the fractures had progressed in unexpected patterns and at greater lengths than expected. In September, when the draft SGEIS was eventually put out for comment, that section had been expunged.

EC: That’s shocking! I know a lot has been discovered about thecollusion  between New York’s DEC and the industry. Is this one big example?

LA: Yes, it is. To ignore the only direct evidence of fractures, or to remove it from public information, indicates that the industry was trying to hide something. The other point is that in terms of a turning point (in my thinking), here is evidence that the fractures go further and in patterns that were not expected. It showed that fractures could allow methane to reach drinking water aquifers or the atmosphere.

In Charge at Mobil

EC: Let’s back up for a moment to your career at Mobil. Were you thinking about climate change then?

LA: Just starting to in the 1990s. When I first heard about it I thought climate change was overblown. I don’t think anybody in the industry was focused on it at that point

EC: And did you have any idea you would be talking to a reporter about it?

LA: No, not at all.

EC: Maybe you could talk a little about what you did at Mobil. You were in charge …

LA: I was in charge of the US and Latin America.

EC: In charge of exploration?

LA: Mostly production. There wasn’t a whole lot of exploration going on in this area.

EC: What does being in charge of production mean?

LA: Production is everything other than finding something in the first place. There was some exploration going on, more in the Eastern hemisphere than the West at that particular point in time. But if you have already discovered a field, production means drilling more wells to further delineate it and to get more production out of it or going back in and doing secondary recovery operations or buying fields from somebody else and combining them with yours, things like that.

EC: How long did you do that?

LA: I got into this toward the end of my career. I started in logistics and then moved into marketing and refining. I was in Japan and Singapore for a total of 12 years, ended up running Mobil’s operations in Japan, which was their biggest [marketing and refining] operation outside the US. And then I came back to headquarters in the US to head up the logistics area – all of the shipping, about 40 tankers moving oil around the world, buying types of crude oil that we needed, selling types that we didn’t need, making sure that all of our refineries around the world got the right supplies at the right time and then also trading oil with other companies. And after that, Mobil did a major reorganization and put me over in an exploration-producing job. When the merger with Exxon came along, I was in charge of implementing the merger from the Mobil side. I had worked in three major areas of the company and I was going to retire after the merger. I had a counterpart on the Exxon side who had also done the same thing.

A quiet retirement gets fracked

I retired with no intention of doing anything in the oil or gas industries. [But] about the time we bought this house and started restoration, people that knew I had been in the oil business started saying, what do you think about fracking? I had not been following it at all, and said, ‘What do you mean?’ ” They said, ‘They’re talking about maybe drilling gas wells 100 or 150 feet from the lake.” I said, “That’s crazy. It doesn’t make any sense, I’ll see what I can find out.”

That’s where it started. I started looking into it, realized what the new process was, and looked at the New York State regulations, and at that point they were just starting to draft the first version of the SGEIS, and they were just horrible. They didn’t make sense even for conventional drilling, most of them, they were so weak.

Initially I put together a little presentation. People started asking me if I would talk about it. It just happens that there are a few people within a couple miles of here that know something about it. We had different approaches, different styles, but we would share information. The focus at that time was the SGEIS, which was supposed to guide the establishment of high-volume hydrofracking. I ended up giving presentations to many towns around upstate New York. Sometimes this was on my own or in a small group. Sometimes it was as part of panel discussions with people from both sides of the fracking debate.

Standing Room Only

A Canadian drilling company started drilling nearby, and that got people’s attention. … And then they started doing some seismic testing in the town of Middlefield. When the seismic took place, [it] spurred a grass-roots anti-fracking group to form  almost overnight. It was mostly women. They started going to the town board. I own property in the town, so I went over, talked some. Another nearby town, Otsego, asked me to be on their gas advisory committee. So I did that. Once a month we’d get together. There were some pro-drillers on it, some anti. When it came to the town meetings the town halls hardly ever had anybody come unless they needed a stop sign or some issue like that. And all of a sudden there was standing room only. And it just kind of kept building.

Those two Town Boards pretty quickly realized that they had to do something and started thinking about how they could zone it out [using zoning regulations to ban the industry from town limits, a strategy  that has since been remarkably successful.] That was in the early days of talking about the possibility that you could indeed zone against drilling.

In the early days I was not sure that a ban was the right thing to do. I was thinking that there probably could be a technical solution, and if you had regulations [written] properly, you might be able to do it. The industry had solved some huge technical problems over the years. Like, how do you drill 250 miles offshore in iceberg alley off Newfoundland?

More Fracking Consequences

The industry actually has a lot of very smart people working for it. As long as the box that they’re working in is manageable, they can do a very good job. I think that what you’ve got in fracking is ‘How do we work in a box this big,’ narrowly defining the problem, [he holds his hands a foot apart in front of him] when you’re really working in a huge box [he stretches his arms out wide] The real box is as big as the globe and the atmosphere. And they’re not seeing the consequences of moving outside the small box that they’re working in.

EC: So to go back to your earlier comments, what are the future consequences?

LA: 20, 30, 100 years down the road we don’t know how much methane is going to be making its way up. And if you do hundreds of thousands of wells, there’s a good chance you’re going to have a lot of methane coming up, exacerbating global warming. … That is what Tony Ingraffea is talking about as part of the problem. [Anthony Ingraffea, Dwight C. Baum professor of engineering at Cornell University, in 2011 co-authored a landmark study on the greenhouse-gas footprint of high-volume fracking.]

What you [also] don’t know [is that] when you plug that well, how much is going to find its way to the surface without going up the well bore. And there are lots of good indications that plugging the well doesn’t really work long-term. There’s still some pressure down there even though it’s not enough pressure to be commercially produced. And sooner or later the steel casing there is going to rust out, and the cement sooner or later is going to crumble. We may have better cements now, we may have slightly better techniques of packing the cement and mud into the well bore to close it up, but even if nothing comes up through the fissures in the rock layers above, where it was fracked, those well bores will deteriorate over time. And there is at least one study showing that 100 percent of plugs installed in abandoned wells fail within 100 years and many of them much sooner.

The way forward

EC: So what’s the solution?

LA: I think we have wasted a lot of time that should have gone into seriously looking into and developing alternative energies. And we need to stop wasting that time and get going on it. But the difficult part is that the industry talks about, well, this is a bridge fuel [that] will carry us until alternatives [are developed] but nobody is building them. It’s not a bridge unless you build the foundations for a bridge on the other side, and nobody’s building it.

EC: Have corporations like Mobil considered developing alternative energies?

LA: Yes. Back after the first [1973] and second [1980] oil crises, when we had the spikes in prices and the lines and rationing, there was a lot of talk and substantial investments in alternative energies. Mobil invested in solar, and so did Exxon, and kept it going for quite a number of years. They abandoned it as just not coming up to the technical promises [because] solar cells weren’t converting enough sun to electricity to be economically viable. There was also at that time a fair amount of work done on shale oil in the Western states, and that was not fracking for shale. It was mining the shale and trying to extract oil from it. It just never came through. More recently there’ve been attempts at biofuels and some attempts to use algae.

Obama and the future

EC: What are your thoughts about President Obama’s national address on climate change?

LA: Well, when he talked about the XL pipeline he said he wanted to be sure it didn’t increase carbon emissions. When he talks about natural gas, he kind of broad-brushes it and implies it’s better than coal.

The whole speech is feeding into [Exxon-Mobil CEO] Rex Tillerson’s comments  at a recent Exxon-Mobil shareholders’ meeting where he said there’s nothing we can do to switch to alternative fuels [and still] allow economies to continue the way they are. Society has to solve the problems by dealing with global warming – building levees around the cities, things like that. Obama is feeding into that, saying we have to strengthen the infrastructure. Basically what the industry is doing is unloading all the costs of what it’s been doing onto the public. Just go out and build miles and miles of levees around New York City and build drainage systems and things like that. Obama is saying the same thing. We’ll go on producing natural gas and keep the cost low by having the taxpayers pick up the cost of dealing with the consequences of global warming. Obama proposed some very positive steps toward developing alternative energies but he is not addressing the impact that methane has on global warming.

Fractivists and the future

EC: You’ve been on both sides now – promoting fossil fuel development for your whole life until your retirement and now trying to fight fracking. Do you think the anti-fracking movement and other environmental movements are the main hope now?

LA: I think the main question is how fast can these movements educate enough people about the dangers of fracking and its impact on global warming. It will take masses of people demanding action from politicians to offset the huge amount of money that the industry is using to influence lawmakers, a world-scale version of those standing-room-only town meetings. Something has to wake up the general public. It will either be education from the environmental movements or some kind of climate disaster that no one can ignore.

Oil Boom is Profit, Production Bust

2 08 2013

New troves of oil have been found all over the globe, and oil companies are taking in around $100 for every barrel they produce. But these seemingly prosperous conditions aren’t doing much for Big Oil: Profit and production at the world’s largest oil companies are slumping badly.

Exxon Mobil, Shell and BP all posted disappointing earnings this week. Chevron is expected to post a profit decline Friday. All of them face the same problem: The cost to get newfound oil from remote locations and tightly packed rock is high and rising. And it takes years and billions of dollars to get big new production projects up and running.

The higher extraction costs could translate to higher oil and gasoline prices for consumers.

Production flat

Strong production growth at an oil company can offset higher operating costs, “but when production is flat or declining it’s a big hit,” says Brian Youngberg, an analyst at Edward Jones. “Even though oil prices are $100 or higher, the returns on investment aren’t what they used to be.”

The new oil being found and produced is in ultra-deep ocean waters, in sands that must be heated to release the hydrocarbons or trapped in shale or other tight rock that requires constant drilling to keep production steady.

That makes this new oil far more expensive to get out of the ground than what’s known as conventional oil — large pools of oil and gas in relatively easy-to-drill locations. Those reserves have always been hard to find, but now they are all but gone outside of the Middle East.

David Vaucher, who tracks oil production operating costs at IHS CERA, says oilfield operation costs are now at a record high. “The fields are more remote and the resource conditions are more extreme,” he says.

New oil projects in the U.S. and Canada, where production is growing faster than anywhere in the world, require high oil prices to be profitable, Vaucher says.

Increasing costs

In order to make an industry average return, a new production project in the Canadian oil sands requires a price of $81 per barrel. For an onshore U.S. field, it’s $70 per barrel, but it ranges from $45 to $95 per barrel, depending on the rate of oil flow. In the Gulf of Mexico, it’s $63. In the Middle East, just $23 per barrel.

Many oil analysts predict that relatively weak growth in world oil demand coupled with rising production from newfound fields will make for flat or lower oil prices in the years to come. But if big oil companies can’t earn strong profits at today’s oil prices, it may mean prices will have to rise higher to convince them it’s worth the risk to continue to aggressively explore new fields. If they worry they can’t make enough money, they’ll cut back.

Oswald Clint, an analyst at Bernstein Research, said in a recent report that oil prices can hold steady and even rise into 2015. Among his reasons: The growth of U.S. oil production is slowing because the best new American fields have been tapped, and the number of rigs probing new fields has flattened out.

One of the more difficult places for Big Oil lately has been onshore in the U.S., which is in the midst of a historic oil boom being driven by the new discoveries. American production is now rising faster than any time since the 1950s, putting the nation on track to become the world’s biggest oil producer.

But major oil companies such as Exxon Mobil, Chevron, Royal Dutch Shell and BP were late to get into the U.S. shale oil game, and therefore had to pay high prices to acquire promising land. And the drilling is hugely expensive, too. Because the oil is thinly dispersed and hard to squeeze out, dozens of wells must be systematically drilled over an area to get to the oil.

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