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28/05/15

Queen’s Speech 2015: UK Energy Bill To Boost Oil And Gas Production

OPEC Concede Defeat In Anti-Shale War



The Queen’s Speech, House of Lords, 27 May 2015

 

The UK aims to maximize domestic oil and gas production and curb the spread of onshore wind farms as the government leans toward maintaining energy security over cutting carbon emissions. The measures form part of an Energy Bill announced by Queen Elizabeth II in a speech to Parliament in London on Wednesday that outlines the first legislative program of Prime Minister David Cameron’s majority Conservative government. --Bloomberg, 27 May 2015
 
 
 
1) Queen’s Speech 2015: UK Energy Bill To Boost Oil And Gas Production As Wind Loses Out - Bloomberg, 27 May 2015
 
2) OPEC Concede Defeat In Anti-Shale War - Reuters, 28 May 2015
 
3) Saudis’ Drive To Kill U.S. Shale Has Backfired - Investor's Business Daily, 26 May 2015
 
4) America Steps Up Exports Of Shale Gas To Europe - The Examiner, 26 May 2015
 
5) And Finally: New Study Predicts Decades Of Cooling Ocean Cycle - University of Southampton, 27 May 2015
 
 
 
The North American oil boom is proving resilient despite low oil prices, producer group OPEC said in its biggest and most detailed report this year, suggesting the global oil glut could persist for another two years. A draft report of OPEC’s long-term strategy, seen by Reuters ahead of the cartel’s policy meeting in Vienna next week, forecast crude supply from rival non-OPEC producers would grow at least until 2017. It also said that since 1990, most of the forecasts concerning future non-OPEC oil supply have been pessimistic and often erroneous. --Reuters, 28 May 2015
 
  
For months Saudi Arabia was cagey about its oil strategy. The kingdom claimed its decision not to cut production and stop the slide in prices was solely about letting the oil market reset itself. That charade is over. The Saudis now openly boast that their strategy to let oil prices collapse was an attempt to kill U.S. shale production. Citing the nearly 60% drop in the U.S. oil rig count since October and the slowing of U.S. oil production, they are claiming a brilliant triumph. But rather than kill the U.S. shale revolution, the Saudis have only made it more resilient, sped up its rate of technological innovation and capped oil prices for at least a half-decade or more. --Mark Perry, Investor's Business Daily, 26 May 2015
  
 
Note to Russian President Vladimir Putin’s country, the United States is poised to begin exporting huge amounts of liquefied natural gas produced from shale fracking. It will obviously pose a significant threat to Russia's dominance in the European gas market. This may be a direct result of the Russian invasion of Crimea and its continued interference in Ukraine. U.S. Energy Secretary Ernest Moniz said four LNG export terminals are under construction and the first exports may be shipped overseas as early as this year. --Dwight L Schwab Jr, The Examiner, 26 May 2015
  
 
A new study, by scientists from the University of Southampton and National Oceanography Centre (NOC), implies that the global climate is on the verge of broad-scale change that could last for a number of decades. Since this new climatic phase could be half a degree cooler, it may well offer a brief reprise from the rise of global temperatures, as well as resulting in fewer hurricanes hitting the United States. --University of Southampton, 27 May 2015
 
 
 
 
 
1) Queen’s Speech 2015: UK Energy Bill To Boost Oil And Gas Production As Wind Loses Out
Bloomberg, 27 May 2015
 
The UK aims to maximize domestic oil and gas production and curb the spread of onshore wind farms as the government leans toward maintaining energy security over cutting carbon emissions.
 
The measures form part of an Energy Bill announced by Queen Elizabeth II in a speech to Parliament in London on Wednesday that outlines the first legislative program of Prime Minister David Cameron’s majority Conservative government.

 
The Queen’s Speech, House of Lords, 27 May 2015
 
UK oil production was enough to meet about 56 percent of domestic demand last year, with a similar proportion for gas, according to the government.
 
Even so, a drop in oil prices of more than 40 percent in the past year rendered as much as a third of UK fields uneconomic, BP Plc Chief Executive Officer Bob Dudley said in February.
 
That’s led to government tax cuts to shore up the industry amid warnings that thousands of jobs may disappear.
 
“Given the right business conditions which promote investment, the U.K.’s oil and gas industry can continue to supply a significant proportion of our needs to 2020 and beyond,” the government said in a written statement.
 
“One of the main benefits of the bill is “maximizing the economic recovery of offshore oil and gas reserves, prolonging the life of the basin and helping to ensure our energy security.”
 
The draft law will outline plans to hand over powers to the Oil and Gas Authority from the government, allowing it to become an independent regulator of the industry.
 
It will also remove the need for the energy secretary to approve onshore wind farms over 50 megawatts, in effect transferring consenting powers to local authorities in England and Wales. The changes won’t affect the planning process in Scotland and Northern Ireland’s devolved administrations.
 
The government in its manifesto pledged to end subsidies to onshore wind farms, the cheapest form of large-scale renewable power. That promise will be delivered through separate changes to be announced soon by the energy department, according to the government statement.
 
Full story
 
 
 
2) OPEC Concede Defeat In Anti-Shale War
Reuters, 28 May 2015
 
The North American oil boom is proving resilient despite low oil prices, producer group OPEC said in its biggest and most detailed report this year, suggesting the global oil glut could persist for another two years.
 
 
 
A draft report of OPEC’s long-term strategy, seen by Reuters ahead of the cartel’s policy meeting in Vienna next week, forecast crude supply from rival non-OPEC producers would grow at least until 2017.
 
Sluggish global demand for oil means the call on OPEC’s crude will fall from 30 million barrels per day (bpd) in 2014 to 28.2 million in 2017, effectively leaving the group with two options – cut output from current levels of 31 million bpd or be prepared to tolerate depressed oil prices for much longer.
 
“Since June 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-OPEC supply is still showing some growth,” the OPEC report said.
 
Brent crude (LCOc1) has collapsed from $115 a barrel in June 2014 due to ample supplies amid a U.S. shale oil boom and a decision by OPEC last November not to cut output.
 
Instead the group chose to increase supply in a bid to win back market share and slow higher-cost competing producers.
 
But shale oil production has proved to be more resilient than many had originally thought.
 
“Generally speaking, for non-OPEC fields already in production, even a severe low price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs,” the OPEC report said.
 
“For future non-OPEC production, only expectations of an oil price environment in the long-term below the marginal cost of production may deter substantial non-OPEC developments. Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations.”
 
It also said that since 1990, most of the forecasts concerning future non-OPEC oil supply have been pessimistic and often erroneous: “For example, non-OPEC production was once projected to peak in the early 1990s and decline thereafter.”
 
OPEC publishes long-term strategy reports every five years. Its 2010 report did not mention shale oil as a serious competitor, highlighting the dramatic change the oil markets have undergone in the past few years.
 
The long-term report is prepared by OPEC’s research team in Vienna and traditionally cautions that it does not articulate the final position of OPEC or any member country on any proposed conclusions it contains.
 
SWING PRODUCER
 
OPEC’s ability to cut and raise production over the past decades to balance demand has earned it a reputation of being a swing producer. But the long-term report suggested it is tight shale oil that is now playing this role.
 
“Recent structural changes in the growth patterns of non-OPEC supply as a result of the substantial contributions from North American shale plays might prove to be a turning point (e.g. short lead times of the projects and higher short-term price elasticity),” the report noted.
 
It said new and cheaper technologies in extraction of tight crude, shale gas, and oil sands would guarantee aggregate growth at 6 percent per year and contribute 45 percent of the growth in energy production to 2035.
 
“Improved technology, successful exploration and enhanced recovery from existing fields have enabled the world to increase its resource base to levels well above the expectations of the past… The world’s liquids resources are sufficient to meet any expected increase in demand over the next few decades,” it said.
 
“With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil than ever before can be found,” the report said.
 
Full story
 
 
 
3) Saudis’ Drive To Kill U.S. Shale Has Backfired
Investor's Business Daily, 26 May 2015
 
Mark Perry
 
Rather than kill the U.S. shale revolution, the Saudis have only made it more resilient.
 

 
For months Saudi Arabia was cagey about its oil strategy. The kingdom claimed its decision not to cut production and stop the slide in prices was solely about letting the oil market reset itself. That charade is over.
 
The Saudis now openly boast that their strategy to let oil prices collapse was an attempt to kill U.S. shale production. Citing the nearly 60% drop in the U.S. oil rig count since October and the slowing of U.S. oil production, they are claiming a brilliant triumph.
 
But rather than kill the U.S. shale revolution, the Saudis have only made it more resilient, sped up its rate of technological innovation and capped oil prices for at least a half-decade or more.
 
U.S. shale producers will survive and grow. American consumers, paying less for gasoline and heating oil, will be the big winners. The Saudis and their friends in OPEC, so dependent on oil-export revenue, will be the clear losers.
 
The U.S. shale industry is by necessity becoming more efficient than ever. Low oil prices have become an opportunity. The Saudis have lit a fire under producers to trim the fat, deploy new productivity-boosting technologies and zero in on the most productive geology.
 
Shale’s Break-Even Price
Just a year ago, popular opinion seemed to be that shale oil production was generally unprofitable if oil prices fell below $80 per barrel. This break-even point was lower in some formations and far higher in others. But with prices well above $100, producers and oil service companies were simply racing to drill as many wells as possible. They were, as shale pioneer Harold Hamm remarked, running wide open.
 
However, weak global demand turned the oil market on its head almost overnight. Suddenly, investors saw a market awash with oil — with little economic growth to sponge it up. Prices fell and the Saudis made their gamble. Instead of cutting their production and forcing their OPEC partners to cut with them to prop up prices, they reasoned that U.S. shale production, and other high-cost output like deep offshore, couldn’t compete if prices were to fall into the $50 range for any extended period.
 
The Saudis assumed the $80 break-even price for U.S. shale was a firm floor. They further assumed that the American innovation and ingenuity that had suddenly turned shale rock — long deemed unproductive — into the source of an energy revolution, was complete. They assumed wrong.
 
Shale Industry Faster, Stronger
For the shale producers, the fall in prices was a shock, but then came the response. Spending on new production was reined in. Contracts were renegotiated with oil service companies, reducing the cost of equipment, and only the best drilling and fracking crews were retained.
 
Statoil, for example, reported that just in a few months it cut its drilling time for new wells in Texas’ Eagle Ford formation from 21 days to 17. That kind of efficiency gain has helped “petropreneurs” reduce the cost of drilling wells from $4.5 million to $3.5 million.
 
Other companies are experimenting with new fracking fluids and different types of sand to create better shale-rock fractures. Some are effectively incorporating Big Data to better understand the sweet spots of geologic formations and optimal well-spacing to increase productivity.
 
The result is a rapid decline in the break-even price across shale plays. Already, analysts believe it is now $60 per barrel and before long will fall to $50.
 
Full post
 
 
4) America Steps Up Exports Of Shale Gas To Europe
The Examiner, 26 May 2015
 
Dwight L Schwab Jr
 
Note to Russian President Vladimir Putin’s country, the United States is poised to begin exporting huge amounts of liquefied natural gas produced from shale fracking. It will obviously pose a significant threat to Russia's dominance in the European gas market. This may be a direct result of the Russian invasion of Crimea and its continued interference in Ukraine.
 
 
 
 
 
As U.S. Energy Secretary Ernest Moniz said, "We anticipate becoming big players, and I think we'll have a big impact. We're going to influence the whole LNG market." Moniz said four LNG export terminals are under construction and the first exports may be shipped overseas as early as this year. But is this the real reason for such a move at this time?
 
It is widely believed by industry insiders that American exports could enable the U.S. to overtake Russia as the world's biggest supplier of natural gas of all kinds, The Telegraph reported. Furthermore, energy exports to Europe enable Russia to exert enormous economic and political influence there, with some countries nearly totally dependent on Russian energy exports.
 
As far as Europe is concerned, Poland gets 88 percent of its total energy imports from Russia; Finland gets 76 percent, Sweden 54 percent, and Germany 46 percent, according to The Wall Street Journal.
 
The Telegraph reports, "Any future American cargoes would further erode Gazprom's pricing power in Europe, and erode the Kremlin's political leverage. Due to improved drilling technology, U.S. drillers can produce a third more natural gas today with 280 rigs than they did in 2009 with 1,200 rigs.”
 
 
 
5) And Finally: New Study Predicts Decades Of Cooling Ocean Cycle
University of Southampton, 27 May 2015
 
A new study, by scientists from the University of Southampton and National Oceanography Centre (NOC), implies that the global climate is on the verge of broad-scale change that could last for a number of decades.  This new climatic phase could be half a degree cooler.
 
The change to the new set of climatic conditions is associated with a cooling of the Atlantic, and is likely to bring drier summers in Britain and Ireland, accelerated sea-level rise along the northeast coast of the United States, and drought in the developing countries of the Sahel region. Since this new climatic phase could be half a degree cooler, it may well offer a brief reprise from the rise of global temperatures, as well as resulting in fewer hurricanes hitting the United States.
 
The study, published in Nature, proves that ocean circulation is the link between weather and decadal scale climatic change. It is based on observational evidence of the link between ocean circulation and the decadal variability of sea surface temperatures in the Atlantic Ocean.
 
Lead author Dr Gerard McCarthy, from the NOC, said: “Sea-surface temperatures in the Atlantic vary between warm and cold over time-scales of many decades.

These variations have been shown to influence temperature, rainfall, drought and even the frequency of hurricanes in many regions of the world. This decadal variability, called the Atlantic Multi-decadal Oscillation (AMO), is a notable feature of the Atlantic Ocean and the climate of the regions it influences.”
 
These climatic phases, referred to as positive or negative AMO’s, are the result of the movement of heat northwards by a system of ocean currents. This movement of heat changes the temperature of the sea surface, which has a profound impact on climate on timescales of 20-30 years. The strength of these currents is determined by the same atmospheric conditions that control the position of the jet stream. Negative AMO’s occur when the currents are weaker and so less heat is carried northwards towards Europe from the tropics.
 
The strength of ocean currents has been measured by a network of sensors, called the RAPID array, which have been collecting data on the flow rate of the Atlantic meridonal overturning circulation (AMOC) for a decade.
 
Dr David Smeed, from the NOC and lead scientist of the RAPID project, adds: “The observations of AMOC from the RAPID array, over the past ten years, show that it is declining. As a result, we expect the AMO is moving to a negative phase, which will result in cooler surface waters. This is consistent with observations of temperature in the North Atlantic.”
 
Full story
 
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