CNBC: US Energy Revolution Gathers Pace

[greengiraffe]

http://www.cnbc.com/id/100748284

Several implications here - global energy prices are likely to remain capped in the years ahead due to the new found cheap energy alternatives. The emergence of a new competitor for Australia. New opportunities for support industry players for flurry of construction activities in US, which will incidentally have a new implication for US domestic economy as well (as cited in the article below). Overall its a positive development as the world reduces its energy independence on oil from the traditional exporters.

US Energy Revolution Gathers Pace
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Published: Saturday, 18 May 2013 | 4:55 AM ET
By: Ed Crooks in New York, Jonathan Soble in Tokyo and Guy Chazan in London
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The growing role of the U.S. in world energy markets was underlined on Friday as the Obama administration approved wider exports of liquefied natural gas and international companies committed billions of dollars for new infrastructure.
The developments were both consequences of the shale revolution in the U.S., in which improvements in the techniques of horizontal drilling and hydraulic fracturing, or "fracking," have unlocked new supplies of oil and gas, and raised the prospect that the US will be an increasingly important supplier of energy to the rest of the world.
The Department of Energy on Friday authorized the Freeport LNG project in Texas to export to countries that do not have a trade agreement with the US, including Japan and the members of the EU. It was the first such approval to be granted for two years and only the second ever.
President Barack Obama had been expected to approve worldwide sales from the Freeport project, as the administration sees rising energy exports as providing economic benefits and strengthening the global influence of the U.S.
However, a vocal lobby of companies in industries such as chemicals and steel has urged restrictions on gas exports to ensure U.S. manufacturers continue to derive a competitive advantage from cheap energy.
Freeport has signed deals to sell its gas to Osaka Gas and Chubu Electric of Japan, andBP of the U.K. The export project is owned by a consortium including Osaka Gas and Michael Smith, Freeport's founder and chief executive.
Separately, Japanese and European companies said they would invest billions of dollars in another proposed gas export project, the $10 billion Cameron LNG plant in Louisiana.
Big Stake
Mitsui, Mitsubishi and Nippon Yusen of Japan, and GDF Suez of France, which had already agreed to buy LNG from Cameron, will provide construction financing in return for equity stakes totaling 49.8 percent.
Mark Snell, president of Sempra Energy, the project developer, said the deal "promotes a favorable balance of trade for the national economy, and supports national and international energy security by assuring reliable long-term gas supplies to U.S. allies and trading partners."
He estimated the contribution of the Japanese and French groups at between $6 billion and $7 billion of the facility's $9 billion-$10 billion construction cost.
Shale gas production has soared in the US in recent years, creating a supply glut that has driven prices down to about $4 per million British thermal units from a peak above $13 in 2008.
Cargoes of LNG, super cooled to minus 160 degrees so it can be transported on tankers, are selling in Asia for the equivalent of about $15 per mBTU, creating an attractive opportunity for exports from the U.S.
Twenty-six proposed US LNG plants have applied to the Department of Energy for export permits, but before Friday, only one – Cheniere Energy's Sabine Pass development in Louisiana – had been granted permission to sell to countries that do not have a trade agreement with the U.S.
The U.S. energy department said it would work through the remaining applications in order. The Cameron project is towards the top of the list and analysts believe it is likely to win approval for global exports this year.
More From the FT
LNG Deal Opens Door for Texas Imports to UK
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Japan Wakes Up to US Shale Revolution
However, the department added that at the end of this year it would "assess the impact of any market developments" on future decisions, a concession to fears that the cumulative impact of allowing a series of LNG export developments might push U.S. gas prices higher.
Japanese utilities have been particularly interested in projects such as Sabine Pass because its gas is priced off Henry Hub, the US benchmark, which is much cheaper than the oil-indexed price in many of the world's long-term LNG supply contracts.
Japan is already the world's largest importer of LNG, and the crippling of its nuclear industry by the 2011 meltdown at Fukushima Daiichi atomic power station has only increased its demand. Tokyo Electric Power, owner of the Fukushima plant, signed a deal to buy Cameron gas in February.
Mitsui and Mitsubishi are the largest of Japan's huge trading and investment houses. Mitsui is to take a 16.6 per cent stake in Cameron, while Mitsubishi and Nippon Yusen, a shipping company, will together take 16.6 per cent through a joint venture. GDF Suez, the French utility, will also take 16.6 per cent.
Jun Nishizawa, vice-president of the global gas business department for Mitsubishi, said: "By participating in this LNG export project, we are proud to be able to contribute not only to the development of stable energy trade between the U.S. and countries around the world, including Japan, but also to the growth of the US economy."
Jean-Marie Dauger, head of GDF Suez's global gas and LNG business, said the project would serve to "expand and diversify the group's LNG portfolio and increase its flexibility for supplying existing or future markets in high-growth areas".
GDF Suez is Europe's largest LNG importer and the world's third-largest seller of LNG with a portfolio of 16 million tonnes a year.

[greengiraffe]

http://www.todayonline.com/business/shal...epage=true

Shale boom confounds forecasts as U.S. set to pass Russia, Saudi Arabia

File photo of rigs contracted by Apache Corp drill for crude oil locked tight in shale in west Texas’ Permian Basin near the town of Mertzon. Photo: Reuters
PUBLISHED: 3:29 PM, JULY 9, 2014UPDATED: 8:15 PM, JULY 9, 2014(PAGE 1 OF 1) - PAGINATE
NEW YORK - Four years into the shale revolution, the U.S. is on track to pass Russia and Saudi Arabia as the world's largest producer of crude oil, most analysts agree. When that happens and by how much, though, has produced disparate estimates that depend on uncertain factors ranging from progress in drilling technology to the availability of financing and the price of oil itself.

Forecasts for U.S. shale oil production vary from an increase of 7.5 million barrels per day by 2020 – almost doubling current domestic output of 8.5 bpd -- to a gain of 1.5 million bpd, or less than half of what Iraq now produces.

The disparities are a function of the novelty of the shale boom, which has consistently confounded forecasts. In 2012, the U.S. Energy Information Administration (EIA) estimated that production from eight selected shale oil fields would range from 700,000 bpd of so-called tight oil to 2.8 million bpd by 2035. A year later, those predictions had been surpassed.

"The key issue is not whether production grows, it's by how much," said Ed Morse, global head of commodities research at Citigroup in New York. "We're only at the beginning of the first inning and this is a nine-inning game."

The stakes couldn't be bigger, ranging from the multibillion-dollar investments needed to explore and drill to oil supply issues that go to the heart of U.S. foreign policy. Relations with countries ranging from Iraq and Iran to Russia, Ukraine, Libya and Venezuela are colored to one degree or another by the question of energy.

The U.S., a nation transformed by the 1973 Arab oil embargo, could become energy independent by 2035, according to bullish forecasts from BP Plc and the International Energy Agency. Coupled with growing output from oil-rich neighbors, the continent has a growing shield from supply shocks.

"Looking at North America, including Canada and Mexico, we're much more politically stable," said Lisa Viscidi, program director of the Inter-American Dialogue in Washington.

Still, many drillers have found that healthy forecasts of oil in the ground don't guarantee it can be economically extracted.

For example, based on the promise of free-flowing oil, Chesapeake Energy's then-top executive Aubrey McClendon bought up land in Ohio's Utica shale oil field and touted it in 2011 as a $500-billion opportunity. State geologists estimated the shale play could hold as much as 5.5 billion barrels of reserves.

But last year, after months of drilling, Chesapeake’s average output per well per day was just 80 barrels. Competitor BP wrote off $521 million and exited the Utica just two years after leasing 85,000 acres.

SIX ESTIMATES

Shale production from the oldest shale patch, the Bakken of Montana and North Dakota, alone may rise to as much as 1.74 million barrels per day in the second half of this decade, according to the highest of six estimates compiled by Reuters. The lowest was 1 million bpd. Even that range belies disagreement over just how fast output will grow -- and when it may peak. (Graphic: http://link.reuters.com/ref32w)

The EIA, the U.S. agency responsible for energy forecasts, predicts that tight oil output will rise 37 percent from about 3.5 million bpd in 2013 to 4.79 million barrels per day by 2020. The forecast includes the Bakken, Three Forks and Sanish, Eagle Ford, Woodford, Austin Chalk, Spraberry, Niobrara, Avalon/Bone Springs and Monterey.

"There are other forecasts that are much more optimistic than this one," said agency administrator Adam Sieminski, speaking at a conference in New York. "We're still a little concerned about what the geology looks like for crude oil production. As technology moves, these numbers could grow."

The agency has already made some big adjustments to previous estimates. It recently slashed its forecast recoverable reserves for California's Monterey shale to just 600 million barrels, 96 percent less than the total amount of oil in place, citing the difficulty in pumping it out economically.

IHS Energy's projections are higher, with an estimated 6 million bpd from the Bakken, Eagle Ford and sections of the Permian and Niobrara by the end of 2020.

At the low end, Energy Aspects Ltd sees production of 3.5 million barrels a day from shale by 2017, a 1.5-million bpd increase from its current output estimate of 2 million bpd.

"In order to keep production going, you have to maintain your drilling and therefore, capex investments need to be in a continuous cycle," said Virendra Chauhan, an oil analyst at Energy Aspects in London.

McKinsey & Co.'s forecasts illustrate the uncertainty. While the consulting firm uses a reference case that puts tight oil production at the equivalent of 7.1 million bpd by 2020, it said the number could range from 5 million to 9 million bpd.

In its annual outlook released last month, BP estimated that U.S. tight oil production will increase to 4.5 million bpd in 2035. Exxon Mobil Corp. says global tight oil production, driven by North America, will rise 11-fold from 2010 to 2040, when it will account for 5 percent of global liquids output. Exxon added that in 2015, North American tight oil supply in 2015 will likely surpass any other OPEC nation's current oil production, with the exception of Saudi Arabia. Iran is the second largest OPEC producer, with about 4.2 million bpd.

TRICKY FORECASTS

Production forecasts are inherently problematic, especially years in the future, as they fail to anticipate major new discoveries or abrupt depletion rates.

Even so, the industry's reliance on multi-year mega-projects such as those off the coast of Angola or in Brazil's sub-salt region -- which progress along generally predictable time frames and produce stable volumes of oil for years afterward -- made it relatively simpler to anticipate new oil coming onto the market.

The shale oil industry is more complicated.

For instance, the rapid development of reserves in places like China and Russia could force prices lower, curtailing U.S. drilling. New technology may render development cheaper and more efficient, speeding it up. A change in current domestic policy, particularly an easing of the ban on crude exports, would also shape the forecasts.

Add to that growth the pipelines connecting Canadian producers to U.S. refiners, including TransCanada Corp's 830,000 bpd Keystone XL pipeline, whose approval has been delayed by the U.S. government for more than five years.

Never mind the vagaries of the credit cycle, which has also become a larger part of the puzzle. Companies face high levels of reinvestment to ensure the same levels of return for drilling oil, meaning companies have to take on additional amounts of debt.

Consultancy Wood Mackenzie estimates that it would require capital spending of $9.58 to $32.97 a barrel to drill in the Eagle Ford basin, depending upon which part of the formation was targeted.

"We're operating at present in a low interest rate environment, but a risk is what happens if the cost of credit rises," Energy Aspects' Chauhan said. REUTERS

[specuvestor]

We have this discussion some time back:
http://www.valuebuddies.com/thread-5042-...l#pid81237
http://www.valuebuddies.com/thread-4439-...l#pid71759

Suffice to say that US no doubt will be largest energy producer in the foreseeable future. But the flip side is that US is also the largest energy consumer, whereas Russia and Saudi are exporters.

For US to be self sufficient they really need to work on their "oil-guzzler" repute. I think they probably have a 10 years window to do that before their energy production peak again.

[greengiraffe]

US shale boom has ‘only just begun’
THE AUSTRALIAN JULY 18, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne

ROYAL Dutch Shell chief Ben van Beurden says the onshore US shale-oil boom that now has the oil-hungry nation rivaling Saudi Arabia’s production has only just begun, and expectations it will taper off may prove wrong.

Speaking to The Australian in Sydney yesterday, the head of the world’s biggest oil company said the US shale boom of the past decade was likely to see production continue to grow, especially if the US government allowed crude ­exports.

“I believe this is the early stages of the revolution and there is quite a lot of change that can happen … I think it is going to be a decade where more and more we will see the US being increasingly self-­sufficient and able to export,” said Mr van Beurden, who became CEO in January.

“The trend that the US is going to be closer to self-sufficiency rather than a big importer is a very strong and more enduring trend than a lot of observers like to ­believe.”

The US shale-oil boom, of which BHP Billiton is a big participant thanks to $US20 billion of 2011 acquisitions, has the potential to cause big shifts to both global economic and geopolitical ­dynamics as the world’s biggest economy puts more oil into the mix and no longer needs to rely on imports.

The boom, driven by horizontal drilling and fracking technology, was originally focused on gas, but after success turned a US gas shortage into a glut and drove down prices at the start of this decade, producers turned their focus to oil.

Despite the rapid oil production increase, there are questions over the longevity of the boom because the hundreds of shale-oil wells being drilled across the US release most of their oil in the first few years of operation, and because of uncertainty over the potential of untested shale ground.

In its latest World Energy Outlook in November, the International Energy Agency forecast that US oil production would plateau at the end of the decade and then start to fall.

Mr van Beurden, who did not directly address the IEA forecast, is more optimistic, both on the ­geology and the potential for technology to extract more oil out of the shale.

“You will probably see it (oil production) go up,” he said.

“There is a lot of resource that is still being understood better: what the sweet spots are and how much it can do.”

At the same time, he said the fracking and horizontal drilling technologies had each been around for decades and had been used together now for more than a decade.

“The amount of innovation the industry has put there is actually quite limited. I think we are still at an early part of the technology curve and therefore there is much more to come in terms of productivity and cost take-out and novel ways of doing it.”

If the US government allowed crude exports, this would probably foster more production, Mr van Beurden said.

There are signs the US is looking to relax a ban on crude oil exports that was put in place during the Arab oil embargo of the 1970s.

Last month, for the first time it quietly allowed two US companies to export an ultra light crude from the Eagle Ford shale site in Texas to foreign customers.

“There are some questions around whether the US government will lift the ban on exporting crude but probably when they do so it will enable even more production to come on,” Mr van Beurden said.

Shell has not been as successful as some in the US and, under Mr van Beurden and his predecessor Peter Voser, has sold ground, cut spending and reduced workforces. But Mr van Beurden said he expected the US shale boom to drive significant LNG exports but not to the extent it will have a big impact on Australian production. “Gas demand, LNG demand will grow very significantly in the next few decades,” he said.

“We are going to need an awful lot of North American gas to supply that demand.”

[greengiraffe]

‘Astonishing’ shale growth bolsters US power
PUBLISHED: 2 HOURS 41 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO

‘Astonishing’ shale growth bolsters US power
Russia faces what President Vladimir Putin calls a possibly "catastrophic" slump in prices for its oil as its economy is battered by US and European sanctions over its role in Ukraine. Photo: AFP
Russia, OPEC may cooperate to bolster price of oil
A new age of abundant and cheap energy supplies is redrawing the world's geopolitical landscape, weakening and potentially threatening the legitimacy of some governments while enhancing the power of others.

Some changes already are evident. Surging US oil production enabled America and its allies to impose tough sanctions on Iran without having to worry much about the loss of imports from the Middle Eastern nation. Russia faces what President Vladimir Putin calls a possibly "catastrophic" slump in prices for its oil as its economy is battered by US and European sanctions over its role in Ukraine.

"A new era of lower prices is being ushered in" by the US shale oil and gas revolution, Ed Morse, global head of commodities research for Citigroup in New York, said in an email. "Undoubtedly some of the geopolitical changes will be momentous."

They certainly were a quarter of a century ago. Plunging oil prices in the latter half of the 1980s helped pave the way for the break-up of the Soviet Union by robbing it of revenue it needed to survive. The depressed market also may have influenced Iraqi leader Saddam Hussein's decision to invade fellow producer Kuwait in 1990, triggering the first Gulf War.

Russia again looks likely to suffer from the fallout in oil markets, along with Iran and Venezuela, while the US and China come out ahead.

Oil is "the most geopolitically important commodity", said Reva Bhalla, vice president of global analysis at Stratfor, an advisory company in Austin, Texas. "It drives economies around the world" and is located in some "usually very volatile places".

Benchmark oil prices in New York have dropped more than 30 per cent during the past five months to about $US75 ($86.84) a barrel as US crude production reached the highest in more than three decades, driven by shale fields in North Dakota and Texas. Output was 9.06 million barrels a day in the first week of this month, the most since at least January 1983, when the weekly data series from the Energy Information Administration began.

Daniel Yergin, vice chairman of Englewood, Colorado-based consultant IHS and author of a Pulitzer Prize-winning history of oil, said: "For 10 years, the defining factor in the oil market was the growth of China and Chinese oil demand. Now the defining factor is the astonishing growth of US oil production."

Saudi Arabia and Kuwait have begun what energy economist Philip Verleger calls a "price war of necessity" in response, aimed at protecting their market share and forcing producers in the US and elsewhere to reduce output.

‘SAUDI ARABIA IS REALLY TAKING A BIG GAMBLE’
So far, US companies are not flinching, believing they have more staying power than many of Saudi Arabia's 11 partners in the Organisation of Petroleum Exporting Countries, or OPEC.

Archie Dunham, chairman of shale producer Chesapeake Energy in Oklahoma City, said: "Saudi Arabia is really taking a big gamble here. If they take the price down to $US60 or $US70 a barrel, you will see a slowdown in the US. But you're not going to see it stop."

Leonardo Maugeri, a former executive at Italian oil company Eni SpA who is now at Harvard University in Cambridge, Massachusetts, said the market had entered a "grey zone". A terrorist attack on oil fields in the volatile Middle East could send prices back up. So too could a cutback by OPEC — which meets on November 27 in Vienna — or a revival of global demand, though Maugeri says neither is likely.

The most probable case was a four- or five-year cycle with prices in a general range of $US65 to $US80 a barrel, he said. That compares with an average of about $US88 from 2008 to last year and a high of more than $US140 at one point during that period.

The big question was whether oil-producing nations would react with accommodation or confrontation, said James Burkhard, vice president and head of oil-market research for IHS.

"That's where the water gets a little muddy," he said. "That story will be unfolding in the months and year ahead. It does add greater uncertainty and volatility that can often lead to negative surprises."

Russia is the biggest loser, according to a Bloomberg Global Poll of international investors last week. Revenue related to the sale of oil and natural gas accounts for about half the country's budget.

The combination of US and European sanctions and declining oil prices meant a period of extended economic stagnation for Putin comparable to the later years of Soviet leader Leonid Brezhnev's 1964-1982 rule, said Neil Shearing, the chief emerging-markets economist at Capital Economics in London.

Russia's economy will contract by 1.7 per cent next year after stalling out this year, IHS forecasts. It projects inflation will rise to 8.4 per cent from 7.6 per cent, boosted by a depreciating currency. The ruble has fallen about 30 per cent against the US dollar this year.

‘THE POPULATION HAS RALLIED BEHIND PUTIN’
The economic woes thus far have not undercut the Russian leader's support at home or his determination to stand up to the US and European criticism over Ukraine.

Alexei Mukhin, head of the Centre for Political Information, an independent consulting company in Moscow, said: "Thanks to sanctions, the population has rallied behind Putin. People are ready to put up with hardship in order to resist the West."

This could change the longer oil prices stay down and the more Russia's economy weakens.

IHS chief economist Nariman Behravesh said "it will erode Putin's support" if it goes on for a further six months to a year.

Iran had seen its revenue from oil exports fall by about 30 per cent, President Hassan Rouhani said in remarks to parliament published on October 29 on Shana, the Oil Ministry's news website. The nation needs to achieve a break-even sales price of $US143 a barrel this year to keep its budget in balance, says data compiled by Bloomberg.

Like Russia, Iran's economy has been weakened by economic sanctions — in its case over its nuclear program. The steps by the US and its allies have almost closed Iran's oil and gas fields to investment in the past decade, limiting the country's access to technology to boost output.

The decline in crude prices and a November 24 deadline for a nuclear accord are raising pressure on Rouhani, elected last year on a platform to end Iran's isolation and revive growth.

If he does strike a deal and sanctions are lifted, it could put further downward pressure on oil prices as the country increases its exports. That's what London hedge-fund manager Pierre Andurand — who predicted the price plunge last month — is betting on. He sees Brent crude declining to $65 to $70 a barrel as Iran boosts output after reaching a nuclear agreement, according to a November 11 letter to his investors.

Brent for January settlement ended on Wednesday at $US78.10 a barrel on the London-based ICE Futures Europe exchange.

Falling prices also are bad news for Venezuela and its increasingly unpopular president, Nicolas Maduro. The country's economy is already in deep trouble, with inflation of 63 per cent in the 12 months through to August.

‘CHINA WILL ALWAYS HAVE AN UPPER HAND’
Venezuela lost 30 per cent of its foreign-exchange revenue in the past month because of a "tremendous" drop in oil prices, Maduro said on November 13 in a televised national address from Caracas. He said he sent the country's foreign minister to five oil producers, including Mexico and Russia, to drum up support before the November 27 OPEC meeting.

Citigroup's Morse said: "Producers in the petro states will have to act to put a bottom on prices if their governments want to survive."

Social turmoil in Venezuela could "paradoxically" help prop up prices "a bit" if output there was disrupted, said Michael Levi, senior fellow for energy and environment at the Council on Foreign Relations in New York.

The US is emerging as a big winner, according to the November 11-12 poll of investors, analysts and traders who are Bloomberg subscribers.

Increasing energy independence meant the US was less vulnerable to supply disruptions overseas, said Robert Hormats, a former undersecretary at the US State Department who is now vice chairman of Kissinger Associates in New York. Independence also provides added leverage in international negotiations, whether with Iran over its nuclear program or with Russia over its intentions in Ukraine.

The boom in US energy output also enhanced US prestige, which had been dented by the global financial crisis that originated in America's housing market, said Bruce Jones, a senior fellow at the Brookings Institution in Washington.

"You talk to business people in China, and they are transfixed by the way the US has generated this technological revolution in energy," Jones said.

China was another big winner, as it imported almost 60 per cent of its crude, said Lin Boqiang, director of the energy economics research centre at Xiamen University and an independent director of PetroChina.

The world's second-biggest economy probably would take advantage of the savings to build up its strategic reserves rather than dedicating the funds to increased spending on defence or the environment, said Lin.

The plunge in oil prices also gives the nation leverage in its dealings with Russia. The two countries signed a $US400 billion, 30-year gas-supply accord in May during a summit in China. They then deepened their energy ties this month by signing a preliminary agreement for a second Russia-China pipeline.

"China will always have an upper hand in dealing with Russia as long as crude prices stay low," Lin said. "Russia needs the energy income dearly."

WP Bloomberg

[opmi]

The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters Hardcover – November 5, 2013

http://www.amazon.com/The-Frackers-Outra...1591846455

Just finished reading the above book.

Shale is the source rock of oil. Oil and gas get 'cooked' in shale then leaked up to the traps which the wells drilled for.

So plenty of oil and gas coming in future.

[specuvestor]

"Plenty" will depends on the timeframe you are talking about

SGX actually had a very interesting oil and gas seminar last month which helped to clarify some technicalities of shale. One of the most interesting takeaway is that shale are the sources of oil and gas reservoirs if there exist a natural trap. In other words shales are actually the streams that feeds into the gushing waterfalls (through centuries). What effectively we are trying to do now is to get the resource from the "streams" rather than from the reservoirs. From a certain perspective, IMHO this might not be the proudest moment of mankind

http://www.valuebuddies.com/thread-5526-...l#pid91168