OPEC production cuts: help or harm

OPEC continues to make headlines with their production cut plans possibly being extended past the original March 2018 deadline. However, the topic of whether these cuts will benefit or harm the long-standing oil capital of the world is absent from discussion. Back in January, the initial decision to cut supply was the driving force behind a rise in crude oil prices per barrel to near $60. But since then, this and other oil and gas commodity prices have been steadily falling.

Exceptions to this trend were seen multiple times this year. Natural disaster cut production from the Gulf of Mexico thrice over the course of hurricane season, causing short price spikes. OPEC’s recommitment to their production cut strategy back in May also bucked the falling price trend for a time. However, overall commodity prices have not rebounded from the serious decline they saw in years prior. Meaning that further production cuts may again affect the market in the short-term, but the long-term pricing changes that OPEC desires from their production cut strategy are likely never to happen.

In other words, without increasing prices to a point that will makeup for over a year of cutting production now, OPEC is losing out on large amounts of oil revenue and, what’s worse, market share. Competitors in the market including partner country Russia and our own United States are occupying the gaps in market share left by OPEC’s continued cuts, ostensibly reducing OPEC’s own market share when they return in full force from the production cut strategy.

Whether OPEC decides to extend production cuts through their current March 2018 deadline is still up in the air. But history from the past year of cuts is pointing towards the extension hurting themselves the most. Their fast-approaching decision will soon tell if the international oil conglomerate agrees with this assessment, which is becoming a growing consensus among market analysts.

Written by: Chris Stomberg

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Methane regulation hotly contested

Last year Obama finalized new regulations on methane capture that would require oil and gas producers to better manage the expulsion of environmentally harmful methane gases from their extraction processes. However, before the rule could come into effect the Interior Department’s Bureau of Land Management (BLM) postponed it’s implementation until 2019, giving the BLM more time to review the benefits and deficits of the regulation. This decision resulted in push back and outrage from environmentally concerned groups who believe the policy rollback is not only senseless, but a clear indication of the government prioritizing the country’s financial well-being over citizen health.

In reality, the Trump led government has yet to be convinced that environmental issues like methane regulation are as threatening as many make them out to be. As a result, they see informing policy with environmental concerns as a “significant regulatory burden that encumbers American energy production, economic growth and job creation,” according to the Interior. While many thought the BLM’s decision to postpone regulation was the end of the matter, it turns out that it was only the beginning.

In response to postponing regulation, California U.S. Magistrate Judge Elizabeth Laporte ruled the Interior had failed to provide a “reasoned explanation” for the delay and ordered the entirety of the rule reinstated effective immediately. However, provided with further analysis on why the Obama era regulation is faulty, the delay could still be enacted.

Oil and gas officials and producers seem divided on whether the regulation is necessary. Some industry leaders, like ExxonMobil, have decided to regulate their methane emissions regardless of government’s final decision. The court’s rebuttal of regulation delay means the original compliance date for methane regulation of January 2018 is back into effect. But knowing that Trump era government are in favor of delaying the initiative, whatever happens next concerning the issue is anyone’s guess.

Written by: Chris Stomberg

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World politics and the energy industry

Politics across the globe affect businesses and industries of all shapes and sizes, but the energy industry in particular is closely tied to issues happening around the world. Policy changes and lawmakers are capable of drastically changing the landscape of the energy industry in one fell swoop. Furthermore, nations including Russia and China have used the power they hold over energy, a necessary commodity in the modern world, to threaten the livelihood of consumers in need of their energy resources. Here are a couple of examples of how world politics have greatly influenced energy business in only the past couple of months.

France’s announcement to ban all licensing for oil and gas exploration within their territories earlier this year makes valuable oil and gas assets located there null and void. The country’s drive towards renewable energy, bookmarked by the world renowned Paris Climate Agreement, will result in more of these resources being cut off from exploration and production efforts in the near future worldwide. France has also detailed their plans to end the sale of all petrol and diesel fuel based vehicles within the country by 2040, limiting consumption of carbon based energy as well.

Disputes between the many countries surrounding the South China Sea, which include Taiwan, Brunei, Malaysia, Vietnam, and of course China, have prevented oil and gas exploration in the resource rich area for a long time now. The area is so hotly contested as a result of over $5 trillion worth of ship-borne trade traveling through the sea annually. Whoever can claim control over the region stands to gain one of the most profitable trading routes in the world. The Philippines released information today about their plans to pursue an oil and gas exploration and production asset in the region along with Canadian and Chinese partnered companies. They hope to find a solution that benefits all countries operating in the area by opening it up to the energy industry.

The desire for regional independence from Iraqi Kurds has made waves in the energy industry, displaying that the energy industry is susceptible to primarily citizen driven political movements as well. Turkey’s response to Iraqi Kurds 9 to 1 vote for secession was to immediately threaten crippling restrictions on oil trading for the area, a move that could produce repercussions in the energy industry globally.

These are just a few instances of how world politics and the energy industry are tied so closely together. While news of the Paris Climate accord has wavered over the past few months, the effects of this agreement will continue to be felt throughout the energy sector for decades to come. Along with, unfortunately, whatever other political issues happen to develop.

Written by: Chris Stomberg

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Scottish oil and gas a shining industry example

The oil and gas industry has faced many challenges this year as a result of oil prices fluctuating from $30 to $50 a barrel, half that of prices per barrel in 2014. But the challenge of making the industry profitable in this new age of pricing has largely revolutionized the sector for the better. Production costs are down considerably, exploration for new oil sources is higher than ever, and the industry’s interactions with technology used in other business practices is providing results previously thought impossible. Among those results is growth in Scottish North Sea oil and gas production by nearly 3% from 2016-2017.

The 75 millions tons of oil produced by the Scottish efforts represent 82% of total UK production. This figure is also at the highest it has been since the 2011-2012 season, providing proof that long term $50 per barrel oil prices are incapable of inhibiting the industry’s growth. Statisticians tracking the source of this humongous success point to increased levels of production in tandem with oil prices finally stabilizing from lows of $30 a barrel at the end of 2016. However, as mentioned above, operating costs reduced by the industry’s involvement with the internet of things and the benefits it has to offer are also playing a part. Despite an increase in production for the North Sea assets, operating expenditure remained at the same price this year without including decommissioning costs. Notably, smarter and more cost effective decommissioning operations are another target on the list of things to do as technological improvements strike the sector.

The growth caused Scottish energy minister Paul Wheelhouse to comment publicly on the industry’s success. He said “Scotland’s oil and gas industry has a bright future, and it is encouraging to see this continued increase in production which has risen by a total of 25% over the last two years. These figures show that confidence is continuing to return to the sector after a number of challenging years.” But confident words are not the only bolster the minister had to provide to the industry. The Oil and Gas Industry Leadership Group, co-chaired by Wheelhouse, was also created to ensure that companies receive proper assistance in the wake of the industry’s change.

While the oil and gas industry has faced new challenges many times over the past couple years, Scottish North Sea operations are just one example of how the sector has gone above and beyond stepping up to the plate.

Written by: Chris Stomberg

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Refinery shutdown causes gas prices to rocket

Gas around the country has experienced a shortage due to Hurricane Harvey shutting down many refineries in the Gulf coast area. The storm has caused approximately a third of the nation’s overall refinery capacity to go offline as floodwaters continue to prevent operators from getting back to work. Over the weekend pumps were offline at many local gas stations as the nation pivots to provide gasoline for citizens without the use of these refineries. The shortage has caused gasoline prices to rise a total of ten cents nationwide – putting prices at the highest they have been all year.

In response to the shortages the Department of Energy began releasing oil from the Strategic Petroleum Reserves on Thursday. First only a million barrels were to be pulled out, then 5 million on Friday, and over the weekend the amount has increased to many times that. States across the country worry that without a third of our normal refining capacity gas shortages are just over the horizon for them as well. Oil from the reserves is planned to be distributed across 25 different states that have been identified as vulnerable to these gas shortages.

Consequences of the storm may soon even spread worldwide as Houston’s port has been closed to large vessels for nearly a week now, causing a large group of ships to anchor near the coast of the Gulf while waiting for port repairs. The former president of Shell oil company offered his own advice on the situation, saying “Best case: the refinery should be up and operating again for the most part by the middle of September. Worst case: some of those refineries — if they’re really seriously damaged — they could be down through Thanksgiving or longer,”. Hopefully refineries will be operational sooner rather than later, as citizens all over the nation are feeling the pinch of higher gas prices once again.

Written by: Chris Stomberg

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Harvey’s impact on energy

Hurricane Harvey blew through the Corpus Christi and Houston areas over last weekend, causing widespread flooding and a much needed moment to bring the nation together for a good cause. If you haven’t seen pictures of the extensive damage and flooding across Texas’ largest city, Houston, please take a look. It’s eye opening to see how catastrophic Harvey was for the cities infrastructure, especially many civilian’s homes. Thankfully, many American notables have already decided to stand up in the face of the crisis. Rockstar comedian Kevin Hart donated $25,000 to Red Cross relief efforts and challenged other celebrity friends across the internet on Sunday to do the same.

While hurricane relief efforts are the center of media attention right now, as they ought to be, Harvey brought devastation to more than just our beloved friends and family down South. Unfortunately for the energy sector, especially oil and gas, the hurricane landed smack dab in the middle of the United State’s energy capital: Houston. While the storm made landfall in Corpus Christi, which houses many oil and gas refining centers, operators from the area should be relieved they were only forced to stop production for the next week.

The real problem is that Houston-area refineries will be shutdown for the currently foreseeable future due to large-scale damage caused by flooding throughout the city. Waist high level water in some areas will prevent transportation for some time, while maintenance issues from the storm will be delayed even further due to the travel dilemma. To paint the picture of Harvey’s coming impact on the energy sector whole, we need only to look back to past hurricane pressure. Hurricanes Ike and Katrina caused refinery utilization to drop by large margins before and during the storms. But these drops were without substantial flooding in one of the nation’s largest refinery areas.

Before all is said and done, Harvey may be remembered as not just a tragedy, but one of the largest influences on the american energy sector in decades.

Written by: Chris Stomberg

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Renewable Reliability

It may be hard to believe, but solar and wind became cheaper than natural gas in many places at the end of last year according to the World Economic Forum. The LCOE, or levelized cost of electricity, for coal and natural gas runs at around $100 per megawatt hour. Ten years ago, solars levelized cost was at $600 for the same hour. However, further investment into innovative technology as well as growth in the renewable sector has created a levelized cost of $100 and less today for the renewable. Meanwhile, wind power has a levelized cost half that of traditional energy providers, sitting at 50$ per megawatt hour. The exponential rate at which these renewable sources have become cheaper from just a few years ago suggests even more room for growth into cheaper price ranges. The report also mentioned that government subsidies are not hedging an advantage for these alternative energies, finding from the International Energy Agency that in actuality fossil fuels received four times the amount of government funding in comparison to renewables.

More than 30 countries worldwide have already achieved grid parity, the point where alternative energy costs meet traditional energy costs, and without government subsidies as well.

Now that renewables have become a cheaper source of energy on the grid than natural gas and coal, many claim that a full switch to these alternative sources could threaten the reliability of electrical service in the United States. While there may be some truth to this argument, the evidence has been hard to find. The true problem with renewable currently isn’t one of reliability, but rather capacity. The U.S. energy grid was not originally built for storing energy from renewable sources, and as a result there is currently an oversupply of renewable energy from large producers like California and Texas. California has actually been forced to pay nearby states to take their oversupply of renewable energy in recent months due to an inability to store the surplus. They have paid nearby states to take a valuable commodity off of their hands simply because they have so much of it. That sounds like nothing other than a great opportunity. But despite this abundance of sometimes even negatively priced clean energy flooding the market, further renewable usage in the U.S. is being held back by worries of reliability.

In truth, the nation has not even given renewables an attempt to run much of the energy grid, making it impossible to know whether a threat to reliability is present. Maybe reliability could become an issue if we allow too much renewable energy generation on the grid, but we should wait for evidence of as much to surface. Claiming that reliability is a problem without proper data to support the claim only makes traditional energy suppliers look like they are trying to save their own skin.

Whether you’re an energy industry official or you could care less about the issue, renewable sources may provide cheaper alternatives to powering all our lives, as businesses and consumers. Renewables are no longer a matter of curbing global warming, they’re just a good investment. When the option to make life cheaper across the board exists, we might as well give it a fair shot.

Written by: Chris Stomberg

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Texas offers more than oil

No farther south than you can possibly go in the continental United States lies the great country, sorry, I mean state of Texas, widely known among our peers as a safe place for cowboys, conservatives, and the booming oil and gas industry. Believe it or not, many misconceptions about TX and Texans are held by the residents of our fellow states. Once while outside TX, I had the question seriously posed to me of whether I ride a horse to school. In actuality, we all know you need a car to get anywhere in this immense state, and even then you’re probably sitting in traffic. In hindsight, entertaining the idea of riding horses to school would have been a much better conversation than explaining the reality: hours of traffic to move across town.

TX is a big state full of just as large surprises, some of which it’s own residents may not be aware. One of these surprises I just discovered today was that the lone star state contributed the most total wind and solar electricity generation in 2016 according to the EIA (U.S. Energy Information Administration). Already recognized colloquially and abroad as “the capital of the sunbelt”, due to the large amount of employment opportunities in the petroleum industry, with this new development the state may even be able to call itself, one day very soon, the energy capital of the U.S.

Written by: Chris Stomberg

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The rise and rise of Tesla

Just a couple of months ago, Tesla surpassed General Motor’s market value of fifty billion, cementing itself as the most valuable American car maker. Despite this reality, I still presently do not know anyone who drives a Tesla: but these numbers prove they are out there in force. I remember just five years ago when Tesla first started gaining notoriety. Lots of people were excited to hear of an electric car brand, no matter the exorbitant price line, due to growing concerns of global warming coupled with the appeal of an option never offered before. However, I remember just as well as many pessimists claiming that an energy fueled car company is something that could never work in the oil capital that is America.

Today, one can find as reputable a name as Morgan Stanley predicting that electric car sales could make up as much as forty, fifty, or even sixty percent of global light vehicle purchases by 2040. Of course, long term predictions are nearly impossible to make, just think no one even knew of Tesla a decade ago, and this reality is made apparent when comparing Morgan Stanley’s prediction with Exxon’s that energy vehicles will only make up ten percent of new car sales by 2040. Regardless of what the future holds, one thing that’s certain is energy vehicles are here to stay. And in no small part thanks to Tesla.

All this considered, Elon Musk’s, founder and owner of Tesla, decision to abandon two of Trump’s business advisory councils in lieu of Trump’s secession from the Paris climate agreement is an interesting development. Cooperation between oil and gas as well as electric energy interests I believe will yield the most productive outcome for everyone, but after Musk’s immediate departure from Trump’s councils I fear cooperation may be the last things these specific parties have in mind. But what do you think? Is Tesla facing a bright new future or more troubling roads ahead? Maybe cooperation between these interests is not necessary at all to provide the best outcome. Let your opinion be heard in the comments below.

Written by: Chris Stomberg

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Trump makes good on promise

In a show of integrity, last month Trump made good on his campaign promise to withdraw from the Paris climate agreement, much to the dismay of many renowned figures and countries across the world. Notably Trump mentioned he would like to enter into a deal with Paris that is more “fair” for the United States, however, the governments of Germany, Italy, and France immediately rebuked his proposal, suggesting the Paris climate agreement is non-negotiable.

As to date just about every single country on the face of the planet is a signatory to the deal, Trump’s proclamation does seem a bit ambitious. Furthermore, Trump’s hands are technically tied on pulling out of the agreement until 2019, on top of the fact a year’s notice in advance of one’s withdrawal is mandatory.

All things considered, if there is one man crazy enough to somehow make this withdrawal happen it is none other than Donald Trump. It’s important to take into account, regardless of whether you support or oppose Trump’s decision, that among those advocating for the Paris climate agreement are oil giants ExxonMobil and Chevron, as well as their european counterparts Royal Dutch Shell and BP. They claim that the climate agreement provides the U.S an excellent opportunity to take a leading role in positioning the global response to climate change. CEOs of tech companies Microsoft and Apple also believe Trump should stay true to the original agreement.

But enough of what everyone else thinks, how about you? Do you believe Trump can successfully pull out of the Paris climate agreement? Do you think the U.S. should? Why or why not? Let us know in the comments below. Have a good one!

Written by: Chris Stomberg

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