Aware that fracking could devastate the Russian economy, the Kremlin has secretly financed environmentalist groups across the globe.
As Mitt Romney understood all too well, Vladimir Putin has long sought to interfere with domestic American politics. Years before Donald Trump came down that escalator and Hillary Clinton’s staff was tricked into giving up its e-mail passwords, Russia was pouring millions of dollars into anti-fracking campaigns across Europe and the U.S.
Fracking, or hydraulic fracturing, is a drilling technique in which high-pressure liquids are blasted into rock, allowing for the extraction of oil and natural gas that was previously impossible to reach. The technology is the main reason that the U.S. has moved toward energy independence in recent years, and it could potentially allow Europe to break its dependence on Russian oil and natural gas. Which, naturally, makes it a threat to the Kremlin’s interests.
In 2012, Bulgaria issued a shale-gas license to Chevron. Immediately, activists pounced, peddling hyperbolic warnings that fracking pollutes drinking water. (In reality, the practice carries a minimal risk of groundwater pollution when done properly.) Protests erupted, and the Bulgarian government caved, banning fracking entirely. Gazprom, Russia’s state-run energy company, proceeded to give the Bulgarian government a 20 percent discount for signing a ten-year contract for the provision of natural gas.
One year later, Romania fell victim to a similar campaign, believed to be spearheaded by Putin. The Pungesti commune, in the northwest, “became a magnet for activists from across the country opposed to hydraulic fracturing,” the New York Times reported. Russia “is playing a dirty game” to “keep this energy dependence,” concluded Iulian Iancu, the chairman of the Romanian Parliament’s industry committee.
And why wouldn’t it? European countries that are dependent on Russian oil and natural gas — especially those in the east — help keep Russia’s economy, and thus Putin’s regime, afloat. Gazprom supplies 30 percent of the European Union’s natural gas, which means that the Kremlin has the power to turn off much of Europe’s energy supply at any time. In fact, it already did so once, during the coldest months of 2009.
In 2014, after multiple European countries banned fracking following protests, NATO secretary general Fogh Anders Rasmussen warned that “Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called non-governmental organizations — environmental organizations working against shale gas — to maintain dependence on imported Russian gas.”
We know that Rasmussen’s warnings were heard across the Atlantic, because even Hillary Clinton echoed them. At a private speaking event in 2016, she recalled that during her time in the State Department:
We were up against phony environmental groups, and I’m a big environmentalist, but these were funded by the Russians to stand up against any effort, “Oh that pipeline, that fracking, that whatever will be a problem for you,” and a lot of that money supporting that effort was coming from Russia.
CORPUS CHRISTI, Tex. — In a twist that would have been unthinkable only two years ago, the oil tanker that arrives in China today may be carrying crude that left the South Texas port of Corpus Christi instead of Saudi Arabia.
Chinese drivers most certainly don’t care where their fuel comes from, but the export of American crude oil to dozens of countries over the last year is the latest chapter in a remarkable turnaround for the American oil and gas industry, about the only good news in three years of plummeting commodity prices, bankruptcies and layoffs.
For 40 years it was virtually impossible to sell American oil to any country except Canada because of an export ban that was a bedrock of United States energy policy. The Obama administration slowly loosened the ban and Congress finally ended it in late 2015 in a compromise that also extended tax credits for renewable energy.
Oil exports grew slowly through most of 2016, but this year there has been a surge reaching 1.3 million barrels a day — roughly 15 percent of domestic production — which even at today’s depressed prices is worth more than $1.5 billion a month.
That may be only the beginning. In a test a few weeks ago, the French-flagged supertanker Anne, empty but capable of holding more than two million barrels of oil, docked safely at Occidental Petroleum’s year-old export terminal here. The docking of the 1,093-foot vessel, larger than any tanker to come into port previously in the Gulf of Mexico, is seen as the herald of an export boom, lifting the spirits of American oil executives despondent over the crumbling price of crude and sending ripples across global energy markets.
“This is our chance, this is our turn to prosper,” said Khalid A. Muslih, executive vice president of Buckeye Partners, a pipeline and terminal operator in the midst of a major export expansion. “We’re working our way toward energy independence. We’re grabbing market share, and we’re doing our part to rectify our imbalance of trade.”
Suddenly buyers from all over the world are purchasing the new American supplies, from South Korea to India — even oil-rich Venezuela, which uses the light sweet crude that comes out of American shale to blend with its gooey heavy crude. The light crude is highly prized even while global oil markets are saturated. Canadian oil sands, which also tend to be heavy, are being increasingly produced and need to be mixed with lighter crudes.
European countries are looking to American exports to reduce their dependence on oil from Russia and African countries that produce light crudes, particularly Libya and Nigeria, which are politically unstable and unreliable suppliers. And China, with slumping oil production and rising demand, wants a more reliable source than the Persian Gulf, which it now depends on.
As the Organization of the Petroleum Exporting Countries cuts production to prop up oil prices, American exports are beginning to elbow out Saudi crude in some markets, a development that would have been inconceivable four decades ago when OPEC oil embargoes threatened to cripple the American economy.
And the world’s energy leaders are noticing.
“U.S. oil exports are a game changer and are going to be a larger and larger changer in the markets,” said René Ortiz, a former Ecuadorean energy minister and former OPEC secretary general.
The United States still imports far more oil than it exports, and probably will continue to do so for many years. But since many American refineries were designed for heavy crudes from Mexico, Venezuela and Canada, the light shale oil from Texas is an awkward mismatch. Meanwhile, that oil is coming out of the fields in a record gush, and despite persistently low oil prices, the Energy Department projects that domestic production next year will top 10 million barrels a day, an all-time high.
That output, an increase of half a million barrels a day from current production levels, will need to find a market somewhere. With domestic demand flattening because of increased fuel efficiency in cars, oil executives say that somewhere is likely to be overseas.
The expansion of energy exports fits neatly with President Trump’s promise last week to usher in an age of “American energy dominance.” But oil executives say the driving force for future production and exports will be the economics of global supply and demand, rather than Washington policy. [more]
High acreage costs beginning to affect economics in the Delaware
The Permian has enjoyed a rush of capital since oil prices began to recover from a low of $26.21 in February of last year.
The play is home to some of the best economics in the country, making it a prime target for E&P companies looking to maximize profit in a lower price environment. But the surge in land costs is leaving little room for new investors to profit.
The Delaware basin, the Permian’s hottest zone, is beginning to become a victim of its own success. EnerCom Analytics’ well economic models indicate that the internal rates of return (IRRs) in the Delaware are now lower than those seen in the Midland due to the high cost of land.
At $45 WTI, EnerCom’s well economics models show IRRs in the Midland of 22.8 percent compared to 21.5 percent in the Delaware when acreage costs are included in the equation. The cost per-acre in the Delaware is 65 percent higher than in the Midland at an average of $33,000 per acre.
Economics in every basin are expected to see pressure as oil prices remain in the low- to mid-$40 range and oilfield service providers, who are in high demand for well completions and drilling, look to increase their prices. Combined with the high premiums in the Permian, this barrage of pressuring factors is making it more difficult for new investors to enter the play, and those with exposure are beginning to pull back.
Service costs are expected to increase between 10 percent and 15 percent, according to EnerCom Analytics, with some E&P companies saying they could increase as much as 20 percent. In EnerCom’s March Energy Industry Data & Trends, the firm found that most basins could absorb even the high-end of those estimates at $50 per barrel WTI, but with prices floating around $45 per barrel, it will be much more difficult for E&Ps to continue generating 20 percent IRRs or better.
BISMARCK, N.D. — A judge’s ruling that might open the door for at least a temporary shutdown of the disputed Dakota Access pipeline surprised the industry that hailed the project as a “game changer” for North Dakota oil.
But shippers said Thursday that they aren’t concerned that there will be any long-term disruption to service on the $3.8 billion pipeline that on June 1 began moving crude from the Bakken oil patch to a distribution point in Illinois, from which it’s shipped to the Gulf Coast and potentially high-paying markets abroad.
“It’s business as usual today,” said Ron Ness, president of the North Dakota Petroleum Council, which represents nearly 500 energy companies including Texas-based Energy Transfer Partners, which built Dakota Access.
U.S. District Judge James Boasberg ruled Wednesday that the Army Corps of Engineers “largely complied” with environmental law when approving the pipeline but didn’t adequately consider some matters important to the Standing Rock Sioux. The tribe draws its water from Lake Oahe and is opposed to the pipeline crossing beneath the Missouri River reservoir in North Dakota.
“Obviously, we don’t know how all that plays out,” Ness said. “But clearly the pipeline is running. It’s a critical element of the nation’s energy infrastructure.”
The pipeline — whose completion was pushed through earlier this year by the Trump administration — has the capacity to move half of North Dakota’s daily oil production. Ness just a few weeks ago called it a “game-changer that opens up everything.” [more.]