Tag Archives: Natural gas

Dallas Fed Outlines Somber Oil & Gas Industry, “Flaring” of Natural Gas Comes into Focus by Wolf Richter

There’s more trouble looming for the Permian Basis petroleum industry. From Wolf Richter at wolfstreet.com:

“The capital markets for oil and gas remain extremely difficult.”

The Dallas Fed’s Forth Quarter Energy Survey, released today, portrays an industry that is turning increasingly somber. The data is based on responses of executives (names are not disclosed) of 170 energy companies – 111 exploration and production (E&P) companies; and 59 oil field services companies – located or headquartered in the Dallas Fed’s district, which covers Texas, northern Louisiana, and southern New Mexico and includes the most prolific shale oil-and-gas field in the US, the Permian Basin.

This time, there were additional questions, including on the reasons for “flaring” of natural gas in the Permian Basin. Natural gas is so abundant in the hydrocarbon mix produced at these wells (“associated” natural gas), and natural-gas pipeline takeaway capacity is so insufficient, that the surge in production led to the collapse of the price of natural gas in the area, reportedly dropping below zero on occasion. And it led to a record amount of natural gas getting flared in 2019.

Flaring large amounts of gas is a waste of natural resources, a source of air pollution, and a big financial drag for the already struggling oil-and-gas companies, investors, and banks.

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Fracking Blows Up Investors Again: Phase 2 of the Great American Shale Oil & Gas Bust, by Wolf Richter

Fracking may be the greatest thing to ever happen to US oil and gas production, but it’s having a hard time paying for itself, especially when the cost of copious amounts of debt is thrown into the calculations. From Wolf Richter at wolfstreet.com:

Including billionaires who thought they’d picked the bottom in 2016.

In 2019 through third quarter, 32 oil and gas drillers have filed for bankruptcy, according to Haynes and Boone. Since the end of September, a gaggle of other oil and gas drillers have filed for bankruptcy, including last Monday, natural gas producer Approach Resources. This pushed the total number of bankruptcy filings of oil and gas drillers since the beginning of 2015 to over 200. Other drillers, such as Chesapeake Energy, are jostling for position at the filing counter.

Chesapeake has been burning cash ever since it started fracking. To feed its cash-burn machine, it has borrowed large amounts and has been buckling under its debt for years, selling assets to raise cash and keep drilling for another day. But its debt is still nearly $10 billion. Its shares [CHK] closed on Friday at 59 cents.

On November 5, in an SEC filing, it warned of its own demise unless oil and gas prices surge into the sky asap: “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.”

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There’s No Stopping The World’s Most Politically Charged Pipeline, by Irina Slav

Despite the best efforts of the US government to get Europeans to buy higher priced American liquified natural gas, the Europeans inexplicably want the cheaper gas Russia offers, so the Nord Stream 2 gas pipeline from Russia to Europe will go through. From Irina Slav at oilprice.com:

This week, Denmark granted Gazprom approval for its Nord Stream 2 gas pipeline project, a project that is set to bring 55 billion cubic meters of Russian gas into Europe annually. It is one of the most controversial pipeline projects in the world and is now moving ahead despite strong opposition from multiple EU members and the United States.

The geopolitical tensions surrounding the development of Nord Stream 2 are unprecedented. To begin with, Russia has very poor relations with the Baltic states and Poland, nations who will almost always fight against anything they see as empowering Russia geopolitically. Then there is Ukraine, a nation that is strongly against the pipeline due to its fear of losing the transit fees that it currently charges Russia for exporting gas to Europe. Finally, and perhaps most importantly, the United States sees this pipeline as a direct threat to its soft power in Europe as well as a threat to its growing LNG exports.

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Forget Nordstream 2, Turkstream is the Prize, by Tom Luongo

Turkey moves farther and farther outside the US orbit. From Tom Luongo at tomluongo.me:

While the Trump Administration still thinks it can play enough games to derail the Nordstream 2 pipeline via sanctions and threats, the impotence of its position geopolitically was on display the other day as the final pipe of the first train of the Turkstream pipeline entered the waters of the Black Sea.

The pipe was sanctioned by Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan who shared a public stage and held bilateral talks afterwards.  I think it is important for everyone to watch the response to Putin’s speech in its entirety.  Because it highlights just how far Russian/Turkish relations have come since the November 24th, 2015 incident where Turkey shot down a Russian SU-24 over Syria.

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Germany Admits it Needs More from Russia than Nordstream 2, by Tom Luongo

Germany is going to use the Nordstream 2 pipeline from Russia whether the US and Trump like it or not. From Tom Luongo at tomluongo.me:

During the years the U.S. and its satraps in Poland and the Baltics fought the Nordstream 2 pipeline it was always apparent Germany was in the driver’s seat.  It was also apparent that this would be the wedge issue that would ultimately force Germany to pursue independent policy from the U.S.

Nordstream 2 is and was always a reaction to the U.S.’s meddling in Europe’s energy policy which this cycle of began with the scuttling of the South Stream pipeline in 2013.

From the EU’s perspective changing the rules under which South Stream would operate after the contracts for it were signed was a way of gaining leverage over Russia and Gazprom.  So too was the help protesters in Kiev received to overthrow the Yanukovich government from the U.S. and the EU.

That operation was meant to put the Ukrainian pipelines under EU control where they could dictate terms to Gazprom and choke the profit out of its gas deliveries.  It would also advance NATO and the EU to Russia’s western border and there was to be nothing Putin could do to stop the U.S. from putting nukes targeting Moscow there.

Too bad for them it didn’t work out that way.

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Republican Senators Introduce Bill to Snuff out Europe’s Independence, by Alex Gorka

Europe cannot be allowed to go against the dictates of its US masters, especially if it involves buying natural gas from Russia. So what if Europe will have to pay more for US gas? From Alex Gorka at strategic-culture.org:

In a meeting with Russia’s ambassadors and permanent representatives on July 19, President Vladimir Putin said that “the principles of competition and openness in global trade are increasingly being replaced by protectionism, while economic gain and expediency are being swapped for partisan agendas and political pressure. Economic ties and entrepreneurial freedom are being politicized.” He feels that Russia must counter this trend. There is ample evidence to prove his point.

There is a large group of US lawmakers chomping at the bit to support anything that would bring Europe to heel and hurt Russia. Their target is the Nord Stream 2 gas project that has a pipeline running under the Baltic Sea from Russia to Germany with an annual capacity of 55 billion cubic meters. That joint venture between Russian energy giant Gazprom and the French company Engie, Austria’s OMV AG, the British-Danish Royal Dutch Shell, and Germany’s Uniper and Wintershall is expected to be operational by the end of 2019. The US president has the authority to impose sanctions on the project under the CAATSA sanctions law, but there is a risk that he will not. And so some US lawmakers believe that should be rectified by making those punitive measures mandatory.

On July 18, Senator John Barrasso (R-Wyo.) introduced a bill, co-sponsored by Sens. Cory Gardner (R-Colo.) and Steve Daines (R-Mont.), to allow NATO member states to — in his words — “escape from Russia’s political coercion and manipulation.” That’s too much of a good thing, but then nobody in Europe asked for such “help.”  The senator’s website claims “the Energy Security Cooperation with Allied Partners in Europe Act, or the ‘ESCAPE Act,’ enhances the energy security of NATO members by providing those countries with reliable and dependable American energy. It also mandates sanctions on the Nord Stream II pipeline that would carry natural gas from Russia to Germany, along with other Russian energy export pipelines.”

To continue reading: Republican Senators Introduce Bill to Snuff out Europe’s Independence 

Russia’s Grip on European Natural Gas Markets Tightens, by Nick Cunningham

Europe remains dependent on Russia for much of its natural gas. From Nick Cunningham at oilprice.com via wolfstreet.com:

US LNG has been billed as a game changer, threatening to end Russia’s control of the European market.

Despite years of effort from the EU, Russia’s grip over natural gas supplies in Europe is tightening, not waning.

Gazprom shipped 190 billion cubic meters of natural gas to Europe in 2017—a record high, according to Bloomberg. In 2018, that figure is expected to dip slightly to 180 billion cubic meters, which will still be the second most on record.

The higher reliance on Russian gas may come as a surprise, not least because of the ongoing tension between Russia and some European countries on a variety of issues. Russia’s intervention in Ukraine and its annexation of Crimea in 2014 led to a standoff between Russia and the West—but Europe’s imports of Russian gas are up more than 25 percent since then, despite a lot of rhetoric in Brussels about diversification.

There has been some progress. U.S. LNG has begun arriving on European shores for the first time, promising to compete with Russian gas. Importing LNG has been a lifeline particularly in some areas that are acutely exposed to Russia’s gas grip. Lithuania began importing LNG, offering an alternative to Russian gas and forcing price concessions from Gazprom.

For years, U.S. LNG has been billed as somewhat of a game changer, threatening to end Russia’s control of the European market. There have been some notable concessions from Gazprom—more flexible pricing, for example, and an erosion of oil-indexed pricing—but the Russian gas giant has not lost market share. A lot of U.S. LNG has been shipped to Latin America, not Europe.

Part of the reason is that European natural gas production continues to fall, leaving a void that Russia has been eager to fill. At the same time, Gazprom’s Deputy Chief Executive Officer Alexander Medvedev told Bloomberg that coal prices are expected to rise a bit in 2018, making Russian gas more competitive.

To continue reading: Russia’s Grip on European Natural Gas Markets Tightens

 

This Chart Shows the Collapse of “King Coal” by State, and Why Miners Are Going Bankrupt, by Wolf Richter

A good analysis of the factors behind the demise of the US coal industry. From Wolf Richter at wolfstreet.com:

Technological innovation did it.

For decades, coal was the dominant fuel for power generation in the US. But now coal mining companies are being pushed into bankruptcy. Two weeks ago, it was the world’s largest privately held coal miner, Peabody Energy, that made the trip. They’re hounded by a slew of problems. Two of those problems are based on technological innovation.

Coal’s direct competitor in the power sector, natural gas, suffered a total price collapse starting in 2008, from which it has still not recovered. A surge of production from improved fracking technologies created a natural gas glut that has still not abated. Even today, inventories are at record levels.

It comes on top of a technical innovation in the power generation industry: the Combined-Cycle Gas Turbines (CCGT). The gas turbine operates like a jet engine but drives a generator instead of fan blades. The super-hot exhaust gases are then used to generate high-pressure steam to drive a steam turbine connected to another generator. Efficiencies of these sets reach 62% and beyond.

Coal-fired power plants only use steam turbines with efficiencies that average globally 33%. In other words, 67% of the energy in coal is wasted.

That combination — a highly efficient power generator and a price of natural gas that is so low that it is driving natural gas drillers into bankruptcy — has completely changed the dynamics of the power generation sector.

The decline of coal as a fuel in the power mix started in the early 1990s when the CCGT technology took off and started replacing coal-fired generators – the oldest, least efficient plants first – even when the price of gas was higher than today.

This chart from the EIA shows the collapse of coal use (black line) for electricity generation from about 58% of the mix in the late 1980s to just over 30% of the mix now. Gas fired generation (brown line) has grown from around 10% of the mix in the late 1980s to over 30% now. This year, it’s expected to exceed coal for the first time ever. Note the rise of wind and solar power (green line), benefiting from falling costs, federal tax credits, state-level mandates, and technology improvements:

The absolute quantity of coal used for power generation in the US peaked in 2007 at 1,045 million short tons (MMst), according to the EIA. With electricity production growing very little and even declining in some years since, and with coal losing market share, coal consumption by power generators took a huge hit: by 2015, it had plunged 29% to 739 MMst.

To continue reading: This Chart Shows the Collapse of “King Coal” by State, and Why Miners Are Going Bankrupt

Another Nail In The US Empire Coffin: Collapse Of Shale Gas Production Has Begun, from the SRSrocco Report

From srsroccoreport.com:

The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun. This is just another nail in a series of nails that have been driven into the U.S. Empire coffin.

Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry. Without energy, the U.S. economy would grind to a halt. All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal. Energy drives the economy and finance steers it. As I stated several times before, the financial industry is driving us over the cliff.

The Great U.S. Shale Gas Boom Is Likely Over For Good

Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015. Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015:

To continue reading: Another Nail In The US Empire Coffin: Collapse Of Shale Gas Production Has Begun

Lower Oil Prices Are Shaking the World, by Larry Kummer

By Larry Kummer, editor of the Fabius Mexiumus website, at wol street.com:

The long-term effects will echo for a decade or more.

Oil prices fell by over half from June 2014 to January 2015 (Brent: $110 to $50), then another one-third since (to $35). Natural gas and coal prices have also plunged, partially due to the same forces but also from substitution.

These are the results from a modest slowing of demand growth and — more importantly — the decision of the Saudi Princes to wage the first financial war against next-gen oil producers, those that tap oil sands, shale fields, and deep ocean deposits.

This is how Bloomberg put it:

Saudi Arabia won’t be satisfied with another temporary rebound in oil prices, such as the one that occurred last spring: Their U.S. competitors would just increase output again. They must inflict permanent damage by demonstrating to investors that with shale, they can’t bet on any kind of predictable return.

This will not end quickly; the list of casualties will be long. Goldman found $1 trillion in “stranded” or “zombie” investments in oil fields — a year ago at $70 oil. At $35 oil the total would be much larger.

The end will come with the bankruptcy or restructuring of many next-gen oil corporations, followed by a newly empowered (and perhaps expanded) OPEC cutting production to bring spare capacity back to average (3 or 4 million b/day) — providing a valuable production cushion for the world economy’s supply of this vital input. The long-term effects will echo for a decade or more: a higher cost of capital for and depressed risk-taking in the petroleum and coal industries.

The bond market has already begun to price in the coming bankruptcies of oil and natural gas Exploration and Production companies. But the geopolitical implications remain largely unexplored.

To continue reading: Lower Oil Prices Are Shaking the World