In The Pipeline 6/28/11

Put this in your pipe and smoke it with natural gas Energy In Depth (6/27/11) reports: The United States produced more natural gas in 2010 than at any point in the previous 37 years, a stunning reversal of fortune given the country’s supply picture earlier this decade, and one that could not have been possible without the massive volumes of American energy that continue to be generated from shale…So what happens from here? By now, you’ve likely heard the stories and seen the estimates: with everyone from IEA to EIA to PGC to MIT projecting a future in which shale’s production trajectory continues along an aggressive upward path, delivering literally quadrillions of cubic feet of clean-burning natural gas to generations of consumers not only in the United States, but around the world. It’s a view that’s supported by the preponderance of science and a majority of scientists, not to mention one that’s continuously reinforced by new data…Over the weekend, The New York Times sought to advance a contrarian view on the subject, and to that view The Times (and reporter Ian Urbina) is more than entitled. What it’s not entitled to, at least in our view, is to represent its piece as an original investigation; not when the story was essentially outsourced to a well-known critic of the industry whose predictions on shale’s imminent collapse grow less defensible (and more difficult to find on his website) by the day. Nor do we believe The Times is entitled to mislead its readers on the expertise of those whose “leaked” emails — many written in 2008 and 2009 – are used to form the basis of the story, especially when real-world production numbers from 2010 and 2011 directly contradict those speculative accounts…Trick #1: Suggest that the Barnett, Haynesville, and Fayetteville shales are “not performing as industry expected” without actually defining what that means – and exclude mention of the extraordinary production growth currently being witnessed across all three plays:…WSJ sets the stage: “As recently as 2000, shale gas was 1% of America’s gas supplies; today it is 25%. Prior to the shale breakthrough, U.S. natural gas reserves were in decline, prices exceeded $15 per million British thermal units, and investors were building ports to import liquid natural gas. Today, proven reserves are the highest since 1971, prices have fallen close to $4 and ports are being retrofitted for LNG exports.” (Wall Street Journal editorial, June 25, 2011)

So what’s it going to be, Congress? We’ve been dancing since 2007 and they are about to turn on the lights Financial Times (6/28/11) reports: The Arctic seas north of Alaska are one of the three great remaining oil and gas prospects in the US, along with the onshore shales and the deep waters of the Gulf of Mexico. They are the least known and hence the most intriguing. They are also the most controversial…The prospect of oil drilling in the as-yet barely touched Arctic, with its unique ecosystem and wildlife, has outraged environmentalists…The fact that exploration has been facilitated by the shrinking Arctic ice, thought to be a consequence of global warming caused by burning fossil fuels, is an irony that has made the protests even fiercer…Royal Dutch Shell, Europe’s largest oil company, which hopes to be a pioneer in developing the US Arctic, has been repeatedly frustrated in its plans, first launched in 2007, to explore the Beaufort and Chukchi seas off Alaska…Yet in spite of opposition and delays, it is likely that sooner or later the resources of the region will be developed…US political opinion, which was encouraged to be suspicious of drilling by BP’s Deepwater Horizon disaster in the Gulf of Mexico in April 2010, has been swinging back in favour, driven by persistently high unemployment and petrol prices that have come close to $4 a gallon…Victories of the generally more pro-oil Republican party in the midterm elections last November have given fresh impetus to the campaign by the oil companies to be allowed to drill in more parts of the US, including the Arctic…The administration of President Barack Obama has been unenthusiastic about Arctic drilling, but the strength of its scepticism has wavered…In March 2010, while proposing to open up other areas of the US coast, it was cautious about allowing more exploration in the Arctic, although companies that bought licences in sales under George W. Bush, the preceding president were still allowed to drill.

You’ve got to be kidding me — ‘small’ wind is complaining about the permit process and zoning laws USA Today (6/28/11) reports: Nearly 10,000 units were sold nationally in 2009, the latest available data, according to the American Wind Energy Association. In 2001, only 2,100 units were sold…Advocates of small wind turbines say they can be an important source of clean energy in windy parts of the country. Key hurdles to widespread use rest with local governments, their zoning ordinances and public acceptance…”Zoning and permitting is a big issue in small wind,” says Larry Flowers, the deputy director for distributed and community wind for the American Wind Energy Association…”There’s progress being made in some places and struggles in others,” he says… In Brandon, S.D., resident Charlie Cross wants to add a small, 200-watt turbine to supplement his solar power system. Before that can happen, Cross needs to convince the city to issue permits for residential turbines…Robert Westall, the owner of Cleaner, Greener Energies in Sioux Falls, S.D., says one of the biggest problems is that communities don’t have zoning rules for small wind turbines.

Why tap the SPR when we could be tapping our natural resources of the coast of Gulf of Mexico, Alaska, California, Virginia, etc. Forbes (6/27/11) reports: Last week, President Barack Obama announced that, in response to the loss of Libyan crude to the global market, he was ordering the largest release of crude oil from the federally owned Strategic Petroleum Reserve (SPR) in U.S. history; 30 million barrels over the course of the next 30 days, to be supplemented by another 30 million barrels from various other reserves controlled by other oil consuming nations. Republican politicians and corporate oil executives cried foul. We certainly oppose the political management of oil inventories, which this is. But unlike Republicans, we oppose the existence of the SPR…Although critics charged that the release was merely a political gesture that would not reduce oil prices given how small it is in relation to the global market (about two-thirds of one day’s worth of global oil consumption), investors thought otherwise. The day the release was announced, the price of West Texas Intermediate crude oil for July delivery dropped $4.39 per barrel and the price of Brent Sea crude for July delivery fell even further on the London exchange. Goldman Sachs ( GS – news – people ) did some quick math and reported that the release could reduce oil prices by $10 to $12 per barrel over the next three months and by $5 to $7 per barrel in 2012… If anything, the market may be underestimating the price drop that is to come. One of the nation’s top oil economists– Timothy Considine from the University of Wyoming–recently constructed a model of the global oil market and simulated the impact of a 30 million barrel release of crude from the SPR. He concluded that oil prices would likely drop about 3.5%, so a 60 million barrel release would suggest a 7% price drop, which in today’s market translates into a $6.68 decrease in crude oil prices (off the pre-release announcement price of $95.41) which, in turn, translates into a 16 cent decline in the price of a gallon of gasoline.