Financial Times

May 12, 2013

Oil tanker trade is growing at its fastest rate in a decade as the boom in US production forces exporters that in the past supplied the American market to seek new customers further afield.

The number of oil tonne-miles – a proxy for the global oil trade that captures both the volume traded and the distance travelled – surged last year by almost 10 percent to a record 7.8tn tonne miles, according to Icap Shipping, a brokerage. The data covers the major oil importers, who account for 80 per cent of seaborne trade.

The sharp rise comes even as the volume of oil traded has flatlined, and reflects crude being shipped much longer distances as oil tankers sailing from West Africa and Latin America travel to India and China instead of the US.

The increase in seaborne oil trade will generate welcome additional revenue for major tanker companies such as Bermuda-based Frontline and US-based OSG. Tanker rates have fallen to a fraction of their 2008 peaks, as the market has had to absorb a wave of new vessels ordered before the financial crisis.

The changing pattern of the oil trade is putting pressure on key transit points to Asia such as the Strait of Malacca, a narrow maritime route into China, in a stark illustration of how the US shale revolution is creating new security dilemmas.

“The increase in US production is changing trade flows and causing increased pressure on some of the world’s major choke points,” said David Goldwyn, a consultant who was previously the US state department’s top diplomat for oil affairs. “For global energy security, that means increased vulnerability to piracy.”

The boom in US production is in particular forcing Venezuela, Nigeria and Angola, all members of the Opec oil cartel, to find new customers for their output.

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Wall Street Journal

May 14, 2013

LONDON—North American oil production will dominate world-wide supply growth over the next five years, the International Energy Agency predicted Tuesday, the result of growing production from "fracking" and other technologies that access once-inaccessible reserves.

It is a shift that few predicted five years ago, and will come at the expense of producers like members of the Organization of the Petroleum Exporting Countries that have for years dominated the industry.

In its most recent analysis, which takes a five-year view of the oil market, the IEA said U.S. production is rising much faster than previously forecast as a result of sustained high prices and more-efficient operations.

The latest forecast marks a shift in the IEA's previous thinking, which saw supply growth split between OPEC and non-OPEC countries in the medium term. The fast U.S. supply growth has diminished U.S. demand for oil from OPEC members like Nigeria, and in the long term, growing U.S. exports of oil and natural gas could further weaken OPEC, says Amy Myers Jaffe, who studies energy and the oil industry at the University of California at Davis but didn't know the contents of the IEA report.

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Bloomberg Government

May 13, 2013

Federal officials are set to release proposed standards for hydraulic fracturing on government land as soon as this week, with both industry and environmentalists saying the rules are likely to be less onerous for drillers.

The proposal from the Bureau of Land Management would establish the first-ever national regulations on federal lands for fracking, in which water, chemicals and sand are shot underground to free oil or gas from rock. A draft rule last year was so heavily criticized by companies and Republicans in Congress that the agency, part of the Interior Department, went back to the drawing board.

While the exact details of the regulations won't be clear until they're released, both proponents and critics agree on the general trend.

"We are certainly going to be dealing with a situation where industry has been very effective in limiting the impact and scope," said Fran Hunt, senior Washington representative for the Sierra Club. "We are going to see a rule that misses the mark."

The Bureau of Land Management looks poised to meet drillers' demands and not require disclosure of chemicals used to frack before a well is drilled, use the industry-established FracFocus website for chemical disclosures and limit well-integrity tests to only a sample of drill holes, she said.

Those decisions would indicate a weakening of the initial proposal. In announcing in January that it would rethink the rule, Interior officials said that they would retain three main elements: requiring operators to disclose the chemicals they use; verifying that fluids used in fracking aren't leaking; and confirming that oil and gas operators have a water-management plan for liquid that flows back as a result of the drilling process.

The rule is being watched closely by the drilling industry because the standards will have a direct impact on production from federal lands and serve as a marker for states about how to regulate the process locally.

The Bureau of Land Management, the largest landowner in the US, oversees approximately 700 million subsurface acres of mineral rights, and 56 million acres of Indian estates. Farmers or ranchers own the surface rights on large tracts of federal land.

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Financial Times

April 29, 2013

US crude oil exports are flowing at the fastest rate in more than a decade in the latest sign of how the shale revolution is redrawing the world energy map.

Foreign-bound shipments of US crude totalled 124,000 barrels per day in February, matching levels last reached in 2000, the US Department of Energy revealed in monthly data. All the exports went to Canada, the only destination where approval for exports is almost automatic under US law.

The rapid rise will intensify debates over whether the US should loosen export restrictions. Growth in US crude exports could also strengthen environmental opposition to the Keystone XL pipeline, the project that would bring crude from the Canada’s tar sands to the central US.

The shale drilling boom in states such as North Dakota and Texas has yielded a bounty of high-quality, low-sulphur crude that is ill-suited for many US refineries designed to process “sour” oils. Crude imports from Canada, a key supplier of “sour” barrels, hit an all-time high of 2.8m b/d in February, even as US imports overall dropped to a 17-year-low of 7.3m b/d.

Canadian refiners such as Irving Oil have quickly added US shale oil to their menu of crude supplies. Irving has been buying crude delivered by rail from North Dakota to New York state, then sailing it to its refinery in Saint John, New Brunswick.

Royal Dutch Shell is moving 50,000 b/d of Louisiana light crude to a refinery in Newfoundland province, according to Clipper Data. Valero, the biggest independent US refiner, has an export licence to bring Texas crude to its refinery in Quebec.

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The Hill

April 30, 2013

A federal reassessment of oil-and-gas resources in North Dakota found the state holds twice as much shale oil — and three times as much gas — than was previously estimated.

Technological advancements have made the unconventional fossil fuels in North Dakota’s Three Forks formation “technically recoverable,” the Interior Department's United States Geological Survey (USGS) announced Tuesday.

And by rolling Three Forks into the Bakken shale formation, the region that spans North Dakota, South Dakota and Montana could now produce 7.4 billion barrels of oil, 6.7 trillion cubic feet of natural gas and 0.53 billion barrels of natural gas liquids. 

Compared to 2008 estimates, that's triple the amount of shale gas and double the amount of shale oil that the region could yield. 

“These world-class formations contain even more energy resource potential than previously understood, which is important information as we continue to reduce our nation’s dependence on foreign sources of oil,” Interior Secretary Sally Jewell said in a statement.

Jewell stressed in a Tuesday media call that some of the reserves “may not be economically recoverable,” but that new technologies made it possible to tap the hydrocarbons.

Hydraulic fracturing, or fracking, is largely responsible for the U.S. domestic energy boom. The drilling method accesses “unconventional” fossil fuel deposits by injecting a high-pressure mixture of water, sand and chemicals into tight shale formations.

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Financial Times

May 5, 2013

The Hill

May 3, 2013

The House will consider — and likely pass — a bill this month to expedite construction of the Keystone XL oil sands pipeline, Majority Leader Eric Cantor (R-VA) said in a Friday memo.

“In line with our underlying principles for legislation and our goal of helping make life work for American families and businesses, I expect the House to have a full legislative agenda in May. We will push the administration to finally approve the Keystone pipeline delivering much needed jobs and lower energy prices for families,” the memo said.

The legislation would circumvent President Obama’s authority to issue a cross-border permit needed to complete Keystone’s northern leg.

It's expected to pass with full Republican support and the backing of some centrist Democrats who say Keystone will create jobs and bring oil from an ally.

Known as the Northern Route Approval Act (H.R. 3), it passed the House Energy and Commerce Committee by a 24-17 vote last month.

Republicans have accused Obama of delaying a decision on the Canada-to-Texas pipeline, which is currently under federal review.

“The Obama administration is preventing the construction of the Keystone XL pipeline,” Cantor said, explaining the Northern Route Approval Act would “ensure that the Keystone XL pipeline is built without any further delay.”

The president is in a prickly position — some unions in his base want to greenlight the project, while environmentalists oppose it. Meanwhile, a majority in both the House and the Senate endorse Keystone.

Most Democrats will resist the measure. They want to block Keystone because they fear it would accelerate production of oil sands — a carbon-intensive fossil fuel — and raise greenhouse gas emissions.

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The New York Times

April 27, 2013

Just as the world was writing off America as a declining power, the country now finds itself on the cusp of realizing one of its longstanding goals: energy independence.

A wave of new technologies has made it possible to extract oil and gas from shale rock formations, and the results have been astonishing. By some estimates, the United States is on track to overtake Saudi Arabia as the world’s largest oil producer as early as 2017, start exporting more oil and gas than it imports by 2025, and achieve full energy self-sufficiency by 2030.

American politicians in both parties have long dreamed of energy independence — not only for its potential economic benefits, but also because it could free the United States from the vicissitudes of the outside world.

Last March, President Obama said that new energy sources and technologies would make America “less dependent on what’s going on in the Middle East.” The Romney campaign, meanwhile, argued that energy independence would mean that “the nation’s security is no longer beholden to unstable but oil-rich regions halfway around the world.”

But that is a fantasy. While the latest energy revolution will be a boon to America’s economy, it will in no way allow the United States to turn its back on the rest of the world.

That’s because America’s oil and gas bonanza will drive down global energy prices, undercutting the foundations of petrostates everywhere. According to Francisco Blanch, the head of commodities research at Bank of America Merrill Lynch, oil could fall to just $50 a barrel within the next two years, which could unleash unrest in regions crucial to American interests. Far from releasing the United States from the burden of global leadership, this process would force Washington to assume an even greater international role than it currently plays.

If there’s one part of the world that America would like to be less encumbered by, it’s the volatile and oil-rich Middle East. But energy independence will not spell the end of American engagement in that region. On the contrary, lower energy prices will undermine the stability of the Persian Gulf monarchies, whose hefty oil revenues have allowed them to win their populations’ loyalties through patronage and a lack of taxation. These countries do not always share American values or help advance American interests, but anything that destabilizes them would create problems that Washington could not afford to ignore.

Consider Bahrain, which earns 70 percent of its revenues through petroleum production and refining. The small island monarchy has undergone deeply destabilizing protests since the start of the Arab Spring. A drop in global energy prices would hurt the already weak government, breathing new life into opposition forces. A populist revolution in Bahrain could empower the country’s long-repressed Shiite majority, who already resent Washington’s support for the ruling Sunni al-Khalifa family. A new regime in Bahrain might even seek to expel the Navy’s Fifth Fleet, complicating America’s efforts to protect international shipping lanes, fight piracy and check Iran’s regional ambitions.

Even more alarming is the prospect of instability in Saudi Arabia. In 2011, the Saudi royal family was able to head off an Arab Spring-style revolution because of its enormous oil revenues, doling out $130 billion in benefits to pacify the country’s younger and poorer inhabitants. Should lower oil prices make such patronage impossible in the future, the kingdom could face domestic unrest — making the country a far less reliable partner for America in fighting terrorism and countering Iran. Moreover, if Saudi Arabia has less of its own money to spend on regional security, Washington will have to make up for the shortfall.

Outside the Middle East, declining global energy prices could have equally destabilizing effects. Russia rode its way out of the post-Soviet doldrums on a wave of rising revenues from oil and natural gas sales. Today, roughly half the country’s 83 regions could not stay afloat without federal aid, which President Vladimir V. Putin has been able to supply generously thanks to huge oil profits.

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The Washington Post

April 27, 2013

With another fight over the national debt brewing this summer, congressional Republicans are de-emphasizing their demand for politically painful cuts to retirement programs and focusing on a more popular prize: a thorough rewrite of the U.S. tax code.

Reining in spending on Social Security and Medicare remains an important policy goal for the GOP. But House leaders launched a series of meetings last week aimed at convincing rank-and-file lawmakers that tax reform is both wise policy and good politics and should be their top priority heading into talks with Democrats over the need to raise the federal debt limit.

The move comes weeks after President Obama responded to Republican demands to cut expensive federal retirement benefits by offering to shrink Social Security cost-of-living adjustments and raise Medicare premiums. The proposals, included in the president’s budget request, outraged seniors, and some Republicans fear that embracing them would be political suicide.

There is no such ambivalence, however, about simplifying the tax code and lowering the top rate, which jumped from 35 percent to 39.6 percent as part of a year-end budget deal that still rankles Republicans.

“The conference will unite around tax reform,” said House Majority Whip Kevin McCarthy (R-Calif.), who hosted the first “listening session” on the issue Thursday in his first-floor Capitol office. “The window is now.”

House Ways and Means Committee Chairman Dave Camp (R-Mich.) led the session, offering polling and focus-group data showing that voters are hungry for simpler, fairer tax laws. Camp has started drafting legislation that would wipe out the current welter of exemptions and deductions and replace them with sharply lower rates, an approach championed by Erskine Bowles and Alan Simpson, co-chairmen of Obama’s fiscal commission.

“We’re not going to take the current code and see what comes out. We’re going to take a blank piece of paper and see what goes back in,” said Camp, who advocates a streamlined code with just two brackets and a top rate of 25 percent.

The House strategy also holds some appeal in the Senate, where key Republicans say it may offer a more palatable alternative to negotiating a budget deal directly with Obama. After two dinners with the president and a meeting Thursday with senior administration officials, Senate Republicans are under pressure from the White House to produce their own debt-reduction plan to counter Obama’s proposal to reduce borrowing by $1.8 trillion over the next decade through higher taxes as well as cuts to retirement programs.

Senate Minority Leader Mitch McConnell (R-Ky.) is staying out of the talks, and it’s not clear who would make such an offer on the GOP’s behalf. Republicans involved in the process say they are reluctant to form another ad hoc “gang” and hope to channel negotiations through the Senate Finance Committee, which has broad jurisdiction over taxes, Social Security and Medicare. Plus, retiring Finance Committee Chairman Max Baucus (D-Mont.) has a track record of working with Republicans and is eager to strike a deal.

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Bloomberg News

April 24, 2013

Max Baucus, declaring himself “unconstrained” by electoral politics for the first time since coming to Congress in 1975, placed a 20-month clock on his efforts to push a tax-code rewrite through the U.S. Senate.