-

By CHIP CUMMINS And EDWARD WELSCH

EDMONTON, Alberta—In a 21st-century oil boom, this sparsely populated Canadian province has become one of the world’s newest petroleum powerhouses. Foreign investors are piling in, and Alberta plans to double production over the next decade.

The problem is that the U.S.—the biggest consumer of Alberta petroleum—may not want the additional oil.

Most of Alberta’s 1.5 million barrels of daily exports are extracted from oil sands, or bitumen. Turning this tar-like substance into oil is an energy-intensive process that generates lots of carbon dioxide, a gas suspected to contribute to global warming. Almost all the oil produced ends up in the U.S., where environmentalists and some powerful Democrats have lined up against importing any more of the stuff.

Washington remains ambivalent about a proposed expansion of a pipeline that could nearly double exports from Alberta to the U.S. Another line—proposed to pipe Alberta oil to the Pacific, where it could be shipped to Asian markets—is opposed by native Canadian groups.

“Alberta will be in a very difficult position” if either one of the two pipelines don’t go forward, Alberta’s Energy Minister Ron Liepert said. “By 2020, we’ll be landlocked in bitumen. We have to get it to market, and right now we don’t have the infrastructure in place.”

Canada’s constitution cedes ownership of its energy reserves to its provinces. That essentially makes Alberta its own petrostate. And Edmonton is mounting a public-relations war to find new markets for its oil.

The province’s equivalent to a U.S. governor, Premier Ed Stelmach, shuttles regularly to Washington. Alberta has flown up both Democratic and Republican U.S. lawmakers, along with Hollywood director James Cameron, an oil-sands critic, to show what officials say is the industry’s improving environmental record.

The oil-sands debate comes at time when gasoline prices have soared in the U.S., and there is a growing focus on energy security. A recent study of global oil balances by London-based think tank Chatham House estimates that North America’s dependence on foreign-energy sources should fall over the next 20 years, despite growing consumption. But that assumes oil-sands output continues to feed U.S. markets.

Indeed, U.S. energy security will hinge increasingly on “unconventional” sources of petroleum. Oil sands is one. Shale-gas production, which has been skyrocketing because of new extraction technology, is another. But these unconventional sources pose new environmental concerns, and growing opposition could stifle their growth.

The global oil industry is watching Alberta closely. Some of the world’s biggest petroleum players, including Exxon Mobil Corp., Royal Dutch Shell Group and Norway’s Statoil have invested in their own oil-sands projects and are expanding production. Foreign companies have made roughly $40 billion in oil-sands deals since 2005, according to data provided by Calgary investment bank Peters & Co.

Peter Pond, a short-tempered, Connecticut-born explorer and trapper, was the first non-native to stumble upon Alberta’s oil sands. In 1778, he wrote of “springs of bitumen which flow along the ground” near the present-day town of Fort McMurray, in the northeast of the province. Native communities used the substance to caulk their canoes.

The oil sands are essentially a mix of bitumen—a black, pungent form of crude that is thick like tar at room temperature—and quartz sands, lying just beneath Alberta’s boreal forest.

The first commercial oil-sands mining project, using giant scoopers to harvest the bitumen, started in the 1960s. Operations stayed small-scale, mostly because of their high costs. It wasn’t until 2002 that Alberta officials put together the first, definitive report on the size of the reserves.

“It was like finding a Picasso in the attic,” says Murray Smith, at the time Alberta’s energy minister. A year later, he convinced a string of oil-industry authorities—including the U.S. Department of Energy’s Energy Information Administration—to count Alberta’s oil sands among the world’s oil reserves. The province’s estimated 170 billion barrels of proven oil reserves now ranks it third in the world behind Saudi Arabia and Venezuela.

“I knew when we got that done, we’d have an avalanche of investment,” he said. Oil prices were hurdling higher, amid the U.S. invasion of Iraq and soaring demand from emerging economies like China. But the reserves classification also drew attention from environmental organizations, which had long criticized the oil-sands industry but largely ignored it.

“Once the oil sands were recognized as official reserves, you had a real shift in perspective,” said Keith Stewart, a Greenpeace campaigner in Toronto. Environmental groups ramped up attacks against the industry on several fronts.

Oil-sands surface-mining has eaten up a vast expanse of shallow reserves buried just below Alberta’s boreal forest around Fort McMurray. The operation results in toxic tailings, which companies collect in large ponds.

Alberta officials and oil-industry executives say technology has led to big environmental improvements. Companies are reclaiming mined areas and tailing ponds. And they have switched their focus to deeper deposits of bitumen, accessible by drilling wells that aren’t as disruptive to the surface.

Alberta and oil-sands operators say their emissions compare favorably to oil from other parts of the world. They dismiss claims that bitumen is more prone to oil spills, citing years of heavy-oil pipeline operations in Canada and California.

As oil prices climbed toward $100 a barrel late last decade, California Democratic Rep. Henry Waxman became an outspoken critic of oil-sands production. In 2007, he authored legislation that made it into President George W. Bush’s Energy Independence and Security Act. The section can be interpreted as barring U.S. agencies from buying fuels made from oil sands. The legislation, still on the books, hasn’t impacted sales because no one so far is using a severe interpretation of it. But Alberta officials were taken off guard.

That “motivated” Alberta to step up its game, said Gary Mar, who took over as Alberta’s diplomatic representative in Washington in 2007. He lobbied in Washington, but he also traveled from state house to state house, fighting local legislation—including low-carbon fuel initiatives in California, New England and elsewhere—that threatened oil-sands sales. He left his job earlier this year to campaign to replace Mr. Stelmach, who is stepping down as premier.

Last year, TransCanada Corp. started up its Keystone pipeline, running from Alberta to the oil-storage hub of Cushing, Okla. It has applied to boost capacity from some 591,000 barrels a day to 1.1 million, and extend the line to reach Gulf Coast refineries. The State Department needed to sign off since the line crosses the U.S. border, and a decision looked likely by the middle of last year.

Both sides mobilized. In March, senior Alberta and federal Canadian officials met with the Canadian petroleum producers group to discuss “upping its game” on oil-sands outreach and communications, according to a redacted summary of the meeting, obtained by the environmental group Climate Action Network.

The producers group acknowledges the meeting. A representative of Canada’s federal Natural Resources ministry said it regularly meets with “a wide range of stakeholder” on various issues and the ministry’s former deputy minister participated in this meeting at the invitation of the producers group.

In July of last year, Mr. Stelmach bought an ad in The Washington Post: “A good neighbour lends you a cup of sugar,” it read. “A great neighbour provides you with 1.4 million barrels of oil a day.”

Rep. Waxman, at the time the chairman of the House energy committee, urged Secretary of State Hillary Clinton to reject the expansion of the pipeline. Fifty other Democratic lawmakers also wrote to her, urging more environmental studies.

Later that month, the Environmental Protection Agency urged a more thorough environmental-impact study, prompting the State Department to delay its decision until this year.

Then, in April, President Barack Obama weighed in for the first time, telling attendees at a town-hall meeting in Pennsylvania he wanted to investigate “how destructive” oil-sands operations may be to the environment before approving the line.

Last month, the EPA said the State Department’s environmental assessment still wasn’t thorough enough, threatening more delays and further exasperating Alberta officials and oil executives. “There’s growing frustration, but there’s also acknowledgment that a process has been laid out,” said Mr. Liepert, the Alberta energy minister. He says the province will live with the end-of-year timeline, but wants “no more delay.”

Industry executives and lobbyists are sending a message: If the U.S. doesn’t want Alberta’s oil, Asia—in particular, China—will buy it. Enbridge Inc., the company proposing to build the line to the Pacific, has used Washington’s delays as ammunition in its own public-relations battle. It’s trying to win support for its project from federal, British Columbia and native officials.

“Right now, all our eggs are in one basket: the U.S. market,” Stephen Wuori, president of Enbridge’s liquids pipelines division, told a group of executives at an industry lunch in Calgary in May. “That basket is not getting any bigger, and some of the folks holding the basket are starting to complain about the chickens.”

Original Article

-

By Andres Cala

Posted on Jul. 07, 2011

A brand new, top of the line, Italian owned and Chinese-made semisubmersible rig is on its way to Cuba to start drilling several exploratory wells this year once hurricane season is over. Its target are deep waters in the Gulf of Mexico just a few dozen miles from Florida that could hold proven oil reserves believed to be at least as big as Oman’s and perhaps comparable to those of Brazil. The latter are massive.

Cuban drilling should be a US bipartisan no-brainer. Democrats want the embargo softened and Republicans want to give oil companies more access to offshore oil. And all will agree a lot of new production bordering the US would be welcome news, especially if American oil companies are eventually allowed to take a stake and if environmental safeguards against spills are improved in the process.

Yet there is a great deal of noise coming from Congress compounded by some White House acquiescence that threatens safe oil exploration in Cuban waters. The argument is the Castro regime will be propped up if oil is found and the US should impede anything that might make it more powerful.

Seriously? Will Cuban-American hawks with disproportional political clout impose their outdated Cold War mentality that has harmed US interests at least as much as the Castro regime? The vast majority of Americans, including Republicans, frankly stopped caring about Cuba decades ago and even a majority of the mostly Floridian Cuban community now favors more rapprochement to influence an unstoppable democratic transition in Cuba.

The US should be cheering, not just because any significant oil find will contribute directly and immediately to American energy security. Assuming lifting the embargo is still too politically risky (and it shouldn’t be), Congress should seize the imminent arrival of the rig, the Norwegian designed Scarabeo 9, to relax the embargo on the communist island to allow US energy companies to partake in Cuban exploration and production.

Forget the fact that being communist or anti-democratic is no deterrent to American energy industry elsewhere. The US already imports almost 10 percent of its oil from Cuba’s closest ally Venezuela. Should the US now also penalize all companies investing there, including American ones?

It makes no sense to thwart Cuban efforts to increase oil output perhaps in as little as three years, especially considering oil prices that will remain stubbornly high because demand growth is rising faster than supply growth.

Washington should prioritize the broader interest of Floridians and Americans over local political mavericks and sign all the necessary protocols to allow US companies and organizations to help out in case of any spill. It’s in America’s interest that Cuba get access to the best spill containment technology and knowhow, which is American, not surprisingly.

Besides, Cuba will proceed with exploration regardless of what the US does. Bills in Congress that will likely fail are calling for companies involved to be punished with the loss of US oil leased acreage if they go ahead with exploration. They might, best case scenario, delay production for some time, without scratching the Castro regime. It would simply serve no purpose.

The only company that would be affected would be Spanish Repsol, also an important player in deep offshore drilling and production in the Gulf of Mexico and Brazil. It will be the first to drill. No law is being broken as the rig was tailored made to make sure that less than 10 percent of the parts were American. And Repsol has offered to let US officials inspect it and has given assurances that its operations will follow American safety guidelines.

Repsol “has volunteered to comply with all United States regulations while drilling in the Gulf of Mexico,” said US Interior Secretary Ken Salazar in June in Madrid after meeting company executives. Salazar’s visit followed letters from Congress to Secretary of State Hillary Clinton demanding pressure on Spain to delay the drilling.

That in itself is unwelcome geopolitical meddling at any level and harms American efforts to get access to oil elsewhere. It also gives legitimacy to unfounded concerns over Cuba drilling. Even the Cuban government is cooperating with American officials. The International Association of Drilling Contractors met in Havana with Cuban energy officials drafting offshore regulation, which reportedly is based on US safety standards after the BP spill.

“They know what they’re doing, and they’re very credible about what they’re putting in place,” Lee Hunt, president of the IADC was quoted as saying. “They conducted in-depth research on both offshore drilling regulations and safety practices, and have gone largely to Northwest Europe, specifically Norway and the United Kingdom, as well as to IADC for the structure of their regulations.”

The Scarabeo 9 is designed to operate at more than twice the depth that Repsol and other oil companies waiting for their turn at the rig will drill. Other players include Norway’s StatoilHydro, India’s ONGC, Russia’s Gazprom, Malaysia’s Petronas, Venezuela’s PdVSA, Angola’s Sonagol, and apparently China’s CNPC.

The deepest planned exploratory well will be drilled below 5000 feet of water, at the same depth as the Macondo Deepwater Horizon accident. Companies are all well reputed companies that will not risk relations with the US over safety concerns. Repsol has been involved in off shore drilling in the Gulf of Mexico a lot deeper than the ones it’s planning.

Reason enough, one might believe, for the Obama administration to heed advice from the co-chairman of the panel that made a series of recommendation on offshore drilling after Macondo. Instead, his advice is being hushed.

“I have been causing grief to the State Department,” William Reilly, the former EPA chief under President George H.W. Bush. Cuba’s drilling is “something that’s very important to us, I think, given that they’re drilling 50 miles off Key West, so I’ve asked to be invited to Cuba to talk about the report and have had my wrist slapped by the administration for raising the sensitive Cuban issue. I had to say, ‘I don’t work for you.’

Also, any unilateral US punitive measures against investment in Cuba’s oil sector could risk reciprocal policies that undermine US companies’ interests in other countries. Worse yet, it would heighten risks of environmental damage off the Florida coasts and all but kill any hope of US companies getting a piece of what could be an oil bonanza.

There are anywhere between 5 and 20 billion barrels of recoverable oil in Cuba’s seabed, this according to both US and Cuban estimates. It will take years to develop this and Americans are on paper the best placed to profit from this oil bonanza, as producers and consumers.

I’m no fan of the Castro regime. But the embargo continues to be a useless firewall. And as exploratory drilling starts near Key West, Washington should be strategizing how to use this to America’s advantage.

This is probably the best chance the US has had since Fidel Castro took over in 1959 to influence Cuban policy and its democratic future.

And it’s also the best argument to finally overcome Florida’s banana republic politics to the benefit of American companies. Ending the embargo, at least gradually, would have bipartisan support, seconded by both environmental groups and oil companies.

Or would the Obama administration and Congress prefer waiting until international competitors have divvied up Cuban oil production and supplies?

Original Article

-

Posted July 7, 2011 by Nathanael Baker

Many view natural gas as the key feature of the United States’ new energy economy.  Whether this is true or not is still to be determined.  What is evident, though, is that natural gas is a growing energy resource for America.  According to the latest data from the U.S. Energy Information Administration (EIA), electricity produced from natural gas has increased 44% over the past ten years.

The EIA says the increased production was driven by several factors.  First, infrastructure and capacity has increased:  more natural gas capacity, 237 gigawatts, was brought on-line between 2000 and 2010 than any other energy resource.  Over that time period, natural gas accounted for 81% of total electricity capacity additions.

Currently, natural gas-fired generators constitute 39% of America’s total electric generation capacity — providing 1,042 gigawatts of energy annually.  Much like renewable energy sources such as wind and solar, natural gas is a relatively new player to the nation’s electric grid — 65% of America’s natural gas-fired capacity has been added since 1980.

The second factor leading to the rise of natural gas consumption in the electric power sector is that natural gas power plants have increasingly been used to provide baseload power.  This means that natural gas powered facilities are relied on to provide energy during more hours of the day.  For example, between 2005 and 2010, the average output for natural gas plants during peak hours (6:00 am to 10:00 pm) rose 10%.

The final driver, as identified by the EIA, for the rise in natural gas consumption is a drop in price of the resource.  The drop is due to increased ability of the industry to economically extract America’s copious amounts of shale gas.  Energy independence has long been an unsolvable riddle for the United States — no country consumes more imported oil than the U.S.

Politicians and industry experts alike point to natural gas as the quickest, most reliable pathway toward energy independence.  The U.S. sits on the largest known reserve of shale gas in the world. Some have estimated there is enough to meet the country’s energy needs for more than a century.  Known as the “clean burning” fossil fuel, natural gas is hailed as a more environmentally sustainable resource resource than coal and oil — perfect for a country and world trying to curb carbon emissions and their mitigate the effects of climate change.

Nevertheless, other energy analysts and politicians see natural gas in the same light as oil and coal — an energy source that offers more harm than help to the American public.  A recent study conducted by Cornell University shows that natural gas extracted through hydraulic fracturing could produce between 20% to 200% more greenhouse gas emissions than coal.

With the crude oil-to-natural gas price ratio sitting above 30, the safety of nuclear energy being re-evaluated, and renewable resources still requiring more grid infrastructure upgrades and political support to spur large-scale growth, the United States’ natural gas consumption could continue to rise in the years to come.

Original Article

-

By Lisa Margonelli

For 30 years, the Strategic Petroleum Reserve has been more lethargic than strategic. Its roughly 700 million barrels of oil have sat in their salt caverns on the Gulf Coast, not doing anything more ambitious than providing a feeling of security. That may have changed last month, when the Obama administration arranged for a release of 30 million barrels from the SPR, and an equivalent amount from IEA worldwide reserves.  This move, rife with what we’ll call “strategic ambiguity” may be one of those smallish moves that turns out to be decisive in the long run of history. Will the US now take a more Strategic (with a capital S) approach to world oil markets? Will we come to guard moderated world oil prices as we now use our navy to guard the world’s oil choke points? Is this even a worthy goal?

The SPR was initially designed to be our answer to the 1973 Arab Oil Embargo’s “oil weapon.” Yet by the time it was built in the early ’80s, the evolution of the world oil market had made embargoes obsolete. So, until recently, there had been just two “emergency” releases: once after the beginning of the first Gulf War, and again after Katrina. The SPR was probably more notable for what it didn’t do: The Bush Administration didn’t release oil from the reserve at the start of the Second Gulf War. Instead they asked Saudi Arabia to increase its production, which was exactly the sort of political sausage making the SPR was created to avoid. And in the aftermath of Katrina, the SPR release did not relieve US prices, because the SPR, the pipelines, and the refineries were all in the path of the hurricane. Instead it was tankers of refined gasoline from Europe that sailed to our rescue.

The “emergency” that triggered the oil release this time was the disruption in Libya’s sweet crude production — many months after the fact. Libya provided a cover story for the release, says John Shages, a DC-based consultant who worked on SPR issues at the Department of Energy for many years. “This (release) is being used strategically, but the administration has a lawyer’s mentality and they need an emergency event.” The strategy, as he sees it, is to bring down oil prices enough so that the US and world economies can continue to recover, essentially because the administration has run out of political options for stimulus at home. “Regardless of whether you think the government should intervene in oil prices,” he said, the rise in oil prices was threatening a repeat of 2008, and more ominously, a return to the middle years of the Great Depression. Allowing that to re-occur would be, according to Shages, “poor public policy,” not just for the US, but for the world.

So how does this SPR strategy work?  One would expect that the administration would use the SPR both to add more oil to markets, and more importantly, to generate “policy uncertainty,” so that traders aren’t tempted to bid up oil prices.  Energy Secretary Steve Chu signaled this when he announced the sale, adding: “As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary.”  Shages believes, and others agree, that the administration will have to make good on that threat of releasing more oil to make this first release worthwhile.

But why did the administration release the oil now, and not several months ago when the troubles in Libya started?  One theory has it that they were either backing or undercutting the Saudis, who failed to get OPEC to put more oil on the market in early June.  Another, more alarming, possibility was raised by a provocative piece in the Wall Street Journal The article quoted Prince Turki, a member of the Saudi royal family and former government player, saying that Saudi hoped to “squeeze” Iran by putting enough oil on the market to lower prices and “cripple” the government.  A deliberate US role in this scheme strikes me as unlikely, but Flynt Leverett and Hillary Mann Leverett have a glum read on the regional “strategery” of the US move, whatever its intention.

Intervening — whether on behalf of the world economy or to influence Middle East politics — brings up a huge question. Should the US be extending its expensive “self-sacrificing hegemon” role beyond providing military cover for all of the world’s oil shipping lanes, and into providing price cover for the world economy? Even if it sounds a little attractive right now, it would quickly become a burden. Taxpayers currently support the idea of policing shipping lanes — maybe because they want cheap gas at all costs, and they have a dim sense of what this policing entails. But SPR releases will be publicized, judged harshly against oil market prices, and will come to seem burdensome over time. It’ll be even worse if the IEA backs off its promises to release strategic stocks, as it did this time, and leaves the US to shoulder most of the task alone.

SPR aside,  there is a strong case to be made for the US taking a more strategic approach to oil prices. Many, including oil super-pundit Daniel Yergin, believe that the market has become prone to bubbles. These analysts claim that oil has not only become commodity exchange, but also an enormous financial play. If that’s so, then the SPR release should be a beginning, not an end of a thoughtful engagement with the oil market. We might start by requiring refiners to keep larger stocks of oil on hand, as Europe does, to buffer price swings. We should also reconsider the primacy of West Texas Intermediate as the index oil. In his thoughtful analysis of the workings of the world oil market, Oxford’s Bassam Fattouh calls WTI, the crude oil traded at the NYMEX, a “broken benchmark.”  Reading his report may make you wish the government would attend to the obvious fundamental issues in the market, rather than trying to monkey with outcomes like price. And in fact, the deeper one looks into the problems in today’s oil markets, the more the SPR seems like a convenient approach rather than an appropriate one.

Ironically, as the US is releasing strategic stocks to stimulate the economy, American merchants are giving away free gasoline to try to lure cash-strapped consumers to their stores. Can “free gas” ever be the answer to the problem of expensive oil? Releasing SPR oil can’t be the answer to real long term issues in worldwide supply and demand, as well as the functioning of the markets themselves.

We can and should take a more direct path to reducing the harm of high oil prices — helping US consumers reduce oil demand. The Obama Administration’s firm stand on increasing CAFE standards to 56.2 mpg by 2025 will get there in the long term. We go much further with incentives and gas taxes. An immediate approach would be to follow the recommendations of the IEA report Saving Oil In a Hurry (pdf), released in 2005, which outlines a slate of cost-effective ways to reduce oil consumption quickly and dramatically. Such measures include reducing the speed limit, increasing telecommuting and carpooling, and an eco-driving campaign.  If the US adopted these five measures, the report projects (page 116), we could cut consumption by 2.3 million barrels a day — more than double what we’re trying to do with the SPR — and it would save American consumers about $2.4 billion per week at current gas prices.

Original Article

-

By Rep. Steve Pearce (R-N.M.)

In February, I wrote a column encouraging President Obama to end his moratorium on gulf drilling and restore the thousands of jobs that have been lost as a result. In May, I wrote another column pointing out that the president talks about a strong domestic energy policy, while his actions send the opposite message. The president has advocated energy policies that stifle our oil and gas production and that kill American jobs. Since he took office, gas prices have doubled. And, he hired an energy secretary who admits to wanting to “boost the price of gasoline to the levels in Europe.”

Now, we see his energy policies take a turn for the worse. I was shocked to read that the president ordered the release of crude oil from the Strategic Petroleum Reserve (SPR). The amount he called for was the largest in history: 30 million barrels in 30 days. The Reserve is intended to be used for a supply emergency. The White House is claiming that the disruption of Libya’s supply constitutes an emergency.

Unfortunately, the source of our high gas prices is much closer to home. After two years of careless energy policy, we’re seeing the consequences. It is unacceptable that we do not capitalize on the thousands of potential jobs and millions of barrels of oil in our own backyard — in North Dakota’s Bakken formation, in the Beaufort Sea and the Chukchi Sea off the coast of Alaska, in the Gulf of Mexico—but but these remain off-limits.

In short, the president would rather pawn our emergency oil supply than put Americans back to work. We’re spending our “savings account” of oil while cutting off production of new supply—this simply does not make sense. The opportunities for domestic energy production are countless. The economy in the gulf would see growth tomorrow if the moratorium were lifted. In New Mexico, leasing requests have already been turned down, and uncertainty looms, because Administration officials “don’t have to consider the jobs” when they decide whether to implement massive regulations to protect a lizard.  Across the country, the story is the same: the Administration is waging a war on the very jobs that could lower our gas prices and restore our economy.

The thinking behind this policy is the same that compelled the White House to ask Congress for a debt limit increase without any proposal for how to fix the debt. Americans are desperate for real cures, while the White House tries to distract us by addressing only the symptoms. Rather than actually facing our massive debt problem, the White House wants to just hand it off to our children and grandchildren. Rather than developing a real energy policy for America that will create jobs and spur growth, the president would prefer an artificial and very temporary approach with real and very long-term consequences.

The release of oil from the strategic reserve does not help the joblessness caused by reckless energy policies. It does not reduce our dependence on foreign oil. And the effects at the pump will be measured in pennies, and will be short-lived. The Washington Post recently wrote that the only emergency here is a political one: the president knows that his reelection will be threatened if prices stay high, so he’s desperate to lower them any way he can. Any way, that is, except putting Americans back to work.

What happens next? When we’ve used up all of our reserves and are still relying on other countries for our oil, where will we turn? When we’ve killed businesses—and jobs with them—that can’t afford Mr. Chu’s European-level gas prices, where will we find work? When we face the real emergency for which the Reserve was created, what will we do?

We need jobs, Mr. President. As Libya has shown us, we need to stop relying on volatile countries for our oil supply. We need lower gas prices—not just for a few weeks, but for the long term. And most of all, we need security for our children: the kind that comes from protecting our economy in the long-run, maintaining our emergency reserves, and allowing Americans the freedom to work and feed their families.

Original Article

-

Submitted by Ken Boehm on Thu, 07/07/2011 – 22:30

New York Times photoNLPC today asked the New York Times ombudsman to review the newspaper’s front-page series on natural gas published last week. The articles by Ian Urbina alleged that there is a speculative bubble in natural gas drilling. We have identified a number of apparent ethical problems with Urbina’s methods and sources.

Here is the complete text of my letter to The New York Times ombudsman Arthur Brisbane, whose actual title is Public Editor:

I write to request a formal inquiry by the Public Editor into a series of articles published last week in The New York Times about the natural gas industry and the investment banking world.  In the “Drilling Down” series, Ian Urbina alleges that there is a speculative bubble in the shale gas industry, “in much the same way that insiders have raised doubts about previous financial bubbles.”  But at least two of the sources for his articles are not industry insiders at all.  Rather they appear to be two individuals whose agenda is to publicly disparage the shale gas industry’s image and outlook.

I have no complaint with a vigorous journalistic examination of the shale gas controversy, which is just the sort of public service we rely on great newspapers to provide.  But it should go without saying that transparency is a paramount element of the exercise, and the motives and potential conflicts of interest for all sources should be thoroughly vetted and aired.

I am concerned that the Times, in a serious breach of long-established journalist   standards, ignored, concealed, or was misled regarding the conflicts of some of its key sources.  Whether this resulted from oversight, haste, or a naïve reporter being manipulated by his sources, the Times needs to examine whether it based a major front page series with dramatic economic and policy ramifications on biased sources with undisclosed interests.  As such, I respectfully request that your office make an inquiry into these concerns and, if appropriate, make the necessary clarifications or corrections.

The most glaring issue is that the author, Ian Urbina, relies heavily upon “industry emails” for his series alleging a shale gas bubble, giving the impression that this position is supported by a broad cross-section of industry insiders who are having second thoughts about their work.  In fact, however, the likely source of some of these emails is Arthur Berman of Labyrinth Consulting Services in Sugar Land, Texas, who does not work for the shale gas drilling industry.  As Mr. Urbina acknowledges at one point in the June 25 story, Arthur Berman is actually “one of the most vocal skeptics of shale gas economics.”  Yet the Urbina stories do not disclose that Mr. Berman is much more than that.  He is the creator and leading popularizer of the shale gas “bubble” critique embraced by Mr. Urbina, and seems to have been his main source.  Perhaps most egregiously, the Urbana stories also neglect to mention that Arthur Berman makes his living providing investment advice based upon his own position as a shale gas critic.[1]

I am troubled that The New York Times would obscure the fact that Mr. Berman is apparently the author or recipient of many of the emails cited as the basis for Mr. Urbina’s story. As I understand the proper practice of journalism, withholding information from readers about sources is only appropriate on rare occasions when someone could be in danger or face serious retaliation. But Arthur Berman is already out in the open as a shale gas critic.

Moreover, since Mr. Berman is named in the Urbina articles and even quoted, he cannot be considered to be a confidential source. Obscuring his name on the emails seems like it was simply a way to mislead  readers about the degree to which people believe there is “a shale gas bubble.” How can Mr. Urbina justify masking Mr. Berman’s identity as the author or recipient of the emails that form the basis for much of the story? The truth is that Mr. Berman is a very lonely proponent of this view. As much as he has tried for over three years, he has garnered virtually no scientific support.

Based on content and chronology, it appears almost certain that many of the emails cited by the Times are correspondence from or to Mr. Berman.   In these emails, Mr. Berman appears to be corresponding with, among others, investors who missed out on the boom in shale gas and stand to gain, financially, from a devaluation of the natural gas industry.  A number of things lead to the conclusion that these emails are from Mr. Berman:

* A cluster of emails posted by the Times are dated in the weeks following Mr. Berman’s April 14, 2009, article “Haynesville Sizzle Might Fizzle,” which is on Mr. Berman’s blog.[2] In one email from a company called Adams Resources addressed to “Dear Mr. _____ (redacted),” dated April 15, 2009, Adams Resources referenced an article on the Haynesville shale published in the Oil & Gas Journal which chronicled the controversy over “Haynesville Sizzle.” In that article, Mr. Berman used a set of data called the “decline rates from the Barnett Shale” to make estimates for the Haynesville shale. The sender noted that he agreed with the message recipient’s use of “the production decline rates from the Barnet (sic) shale to make reserve estimates for the Haynesville wells.” The context and timing indicate that the email may have been addressed to the author of the Haynesville shale critique. It is important to note that during this period, Mr. Berman’s “Haynesville Sizzle” article was essentially the only public critique of the Haynesville shale formation.

* In another message from April 30, 2009, from the Houston firm Cotham, Harwell & Evans, the writer discusses Petrohawk’s use of hedging in the Haynesville field and appears to be referencing a recent article by the unidentified recipient. Again, the timing and context indicate the email may very well have been sent to Mr. Berman: His March 2009 World Oil column, which was reproduced on Mr. Berman’s blog weeks later on April 14, 2009, criticized at length Petrohawk’s operations in Haynesville. In response to Cotham Harwell, the unidentified “analyst” responded in an email April 30 attaching a presentation made by the CEO of Range Resources at the IPAA conference in April 2009 and noted that the “average marginal cost for most shale gas players to produce gas is about $7.50/McF.” Again, context and timing indicate this very well may have been Mr. Berman: He penned a blog post by just nine days earlier on April 21st, 2009, quoting the same data from the same Range Resources presentation.[3] This message is part of a screen capture or printout of a Gmail “conversation” by the “analyst,” which indicates that the messages were printed or captured by the “analyst” and supplied by the analyst to The New York Times.

* Many of the remaining emails cited are essentially fan mail addressed to an analyst who is a prominent critic of the economics of shale gas. Contrary to what the article states, many if not most of these emails are not from natural gas industry insiders but from small “conventional” drillers like Suemaur Exploration & Production (a tiny outfit in Corpus Christi) and Findmor Natural Gas Inc. of Katy, Texas. “Since I am a conventional explorationist I hope you are right,” writes the gentleman from Findmor, who by definition is a shale gas industry outsider, to our unnamed analyst. If this unnamed analyst is in fact Mr. Berman, then the Times’ survey of opinions is largely dependent upon a single, deeply biased source.

* A number of emails include salutations where a short redaction covers up a name approximately three letters in length. These can be found on pages 20, 21, 22, 38, and 41. Other messages begin with a short salutation and are addressed to “___(redacted),” where the redacted portion is appears to be a short three-letter name. (see pages 3, 4, 5, 33, 36, 38, 39, 49, 53). While it is possible the emails are all to analysts named Bob, Bill, or Sam, the best known analyst/critic of shale gas is commonly known as “Art” Berman. Furthermore, a great many of the emails posted by the Times seem to be from or to a person whose address is ——–@gmail.com, and the missing part seems to be about 8 letters long. Art Berman’s email address is aeberman@gmail.com according to his blog, Petroleum Truth Report.

The Times’ heavy reliance on Mr. Berman is deeply problematic given his reputation as a shale gas critic.  Mr. Berman offers his views regularly to media outlets which service the investment community, consistently espousing views supportive of short sellers.[4]

Whether Mr. Berman’s clients took short open positions based on his public statements is not public information, but what is certain is that related natural gas stocks took a hit on the Times page 1 report, before bouncing back, indicating that traders likely took advantage of a very quick reputation hit, nothing more.

In addition to Mr. Berman, the Times misrepresents a second source, Deborah Rodgers, who the author describes on June 25  as belonging to a group of “insiders” sounding alarms about shale gas drilling. She is further identified as “a member of the advisory committee of the Federal Reserve Bank of Dallas,” and as “a former stockbroker with Merrill Lynch.”  This identifier represents a serious cherry-picking of Rogers’ credentials.

Ms. Rodgers is in reality a full-time goat-farmer and owner of Deborah’s Fort Worth Farmstead Goat Cheese.[5] A Federal Reserve Bank of Dallas press release notes her position there entailed no policy-making responsibility and ended in 2010.[6] Thus, her opposition to shale gas is neither as an industry expert nor as a member of the Dallas Fed.  Instead, her opposition may stem from a personal grievance she has with natural gas producers,[7] as referenced by a visiting scholar at the American Enterprise Institute, Jon Entine.

To fail to adequately identify someone such as Ms. Rogers as someone with clear personal economic stake in the outcome in this controversy is an obvious violation of the journalistic standards, and in particular the sterling standards readers expect from The New York Times.

Ultimately, while people who trade in the natural gas industry might doubt the flimsy claims made in this week’s articles, policymakers rely on the New York Times for factual, impartial information.  Already, this article was cited as the reason for New York’s Department of Environmental Conservation delay on issuing a document to guide the permitting process for shale gas drilling [8] as well as Rep. Hinchey’s call for an SEC investigation.    It is thus incumbent upon your office to ensure that the standard of journalistic integrity was upheld in “Drilling Down,” and to make the necessary corrections and retractions.

Original Article

-

By Jeff Fox

Tapping the Strategic Petroleum Reserve was supposed to lower oil prices but instead has only raised questions about market manipulation.

The price of US crude actually is higher now than when the Department of Energy and International Energy Agency made the controversial move on June 23 to hit up the SPR in an effort to ease the gasoline burden on consumers and goose the economy.

At the time, critics blasted the move because oil prices already had fallen considerably – more than 16 percent in just two weeks’ time, in fact.

In retrospect, the price move is starting to look fishy to some traders.

Dennis Gartman, a hedge fund manager and author of the widely followed “Gartman Letter,” constructs a timeline of how the oil release came to be and the trading action surrounding it.

He notes the most recent peak of oil on May 2, discussions with Gulf oil ministers on May 5 as the price started to decline, and the ultimate announcement seven weeks later, when oil was around its near-term bottom.

The price drop leading into the SPR release indicates that the market may have been anticipating the move and selling oil accordingly.

“When presented this information in this simple but elegant format, how can we not believe that someone in a position of some authority did indeed know what was in the works regarding the SPR?” Gartman wrote.

“May 2nd was an outside reversal to the downside, marking the very top…the very absolute top in the crude oil market,” he said, referring to the trading pattern in which a high and low price on a particular day exceed those of the previous session. “It was followed by a massive, violent $9/barrel collapse on the very day that the Saudis were apparently being told of the decision to sell crude from the SPR!

“We are not conspiratorialists here at TGL, but certainly this is worthy of investigation.”

For the record, officials at the Commodity Futures Trading Commission, Securities and Exchange Commission and the Financial Industry Regulatory Authority would neither confirm nor deny any such probes.

But Gartman apparently is not alone in his suspicions.

He cites Ross Clark, an advisor at CIBC Wood Gundy in Vancouver, who also questions the oil trading.

“Call me a cynic,” Clark writes, “but there appears to have definitely been money made on inside information. As a rule of thumb, some of the best opportunities occur by trading opposite the headline news once prices stabilize.”

Oil has traded in a fairly tight range over the past three weeks but is clear of the $94.40 opening level the day of the SPR announcement. Gasoline, meanwhile, has fallen about 20 cents a gallon over the past month about are down about 35 cents a gallon from the early-May oil price peak.

Original Article

-

By JAMES HERRON

LONDON—Goldman Sachs warned Thursday that oil supplies will become “critically tight” in 2012, largely because production kingpin Saudi Arabia won’t be able to pump as much extra oil as many people believe.

The report amplified previous warnings of a supply-constrained oil market by the U.S. investment bank, which in recent months has repeatedly questioned the ability of Saudi “spare capacity” to meet growing demand. If the market becomes convinced of the Goldman view, prices could rise sharply.

However, Goldman’s conclusion about Saudi capacity is at odds not only with statements from officials at the Organization of Petroleum Exporting Countries, but some influential market analysts, who say the exporters’ group still has enough headroom in its oil production to restrain prices. The burgeoning debate between these two camps could be an additional source of volatility in the oil markets in the coming period.

The Goldman report helped send oil prices up Thursday. By afternoon in Europe, August Brent crude was up $2.68 at $116.30 a barrel, buoyed also by positive economic data.

Recent history shows a close correlation between spare production capacity and oil prices. When spare capacity is low, the risk of a supply disruption grows and prices rise. Two of the strongest periods of oil-price inflation—2003 to 2005 and 2007 to 2008—coincided with OPEC spare capacity falling to historic lows.

The International Energy Agency, which represents major energy-consuming countries, estimates that Saudi Arabia, which holds most of OPEC’s spare capacity, is capable of producing up to 12 million barrels of oil a day, compared with actual production in May of nine million barrels a day. IEA officials have largely dismissed the skepticism about Saudi output capacity.

The IEA estimate is a little below the official Saudi figure of 12.5 million barrels a day because it has stricter criteria for spare capacity, only counting fields that could be started up within 30 days and sustained for at least 90 days, said David Fyfe, head of the agency’s Oil Industry and Markets Division.

Even so, this estimate leaves the Saudis with plenty of headroom, even if they follow through on plans to raise output to 10 million barrels a day.

Rather than working from official Saudi figures, Goldman extrapolates from the previous peak in Saudi oil production of 9.5 million barrels a day back in 2008. It is reasonable to assume this was the maximum possible, because “the oil price went above $100 a barrel and provided the incentive to produce as much as possible,” Goldman said.

Adjusting this for new projects and the natural decline of mature fields, Goldman arrived at its current estimate for Saudi spare capacity of between 10.5 million and 11 million barrels a day.

In May, Goldman raised its Brent crude forecast for the end of 2012 to $140 a barrel from $120 a barrel and its 2011 year-end forecast to $120 a barrel from $105 a barrel.

Others say that years of heavy Saudi investment has substantially increased capacity since 2008. “The kingdom spent money, built facilities, developed fields and drilled wells to deliver 12.5 million barrels when needed,” said Sadad al-Husseini, who was a head of exploration at Saudi Arabia’s national oil company, Saudi Aramco, until 2004.

Aramco has doubled the number of rigs exploring for oil and maintained mature fields at high yields using the latest technology, said Bernstein Research analyst Oswald Clint.

OPEC insists it has ample spare capacity to meet future demand. “Any customer who goes to any member country [and] asks for more oil, they will get it,” said OPEC Secretary General Abdalla Salem El-Badri. “We won’t see a repetition of 2008,” when prices spiked to almost $150 a barrel, because the group’s spare capacity has doubled since then, he said.

—Angus McDowall in Dubai, Summer Said in Riyadh and Benoit Faucon in London contributed to this article.

Original Article