Author Topic: Energy Politics & Science  (Read 530551 times)

DougMacG

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Bloomberg: Sometimes Greener grid means 40,000% spike in energy prices
« Reply #700 on: September 04, 2019, 07:56:57 AM »
https://www.bloomberg.com/news/articles/2019-08-26/sometimes-a-greener-grid-means-a-40-000-spike-in-power-prices

The road to a world powered by renewable energy is littered with unintended consequences. Like a 40,000% surge in electricity prices.

Texas power prices jumped from less than $15 to as much as $9,000 a megawatt-hour this month as coal plant retirements and weak winds left the region on the brink of blackouts during a heat wave. It’s a phenomenon playing out worldwide. Germany averted three blackouts of its own in June and has seen prices both spike and plunge below zero within days as it swaps out coal and nuclear energy for wind and solar. In the U.K., more than a million homes lost power on Aug. 9, in part because a wind farm tripped offline.

The recent stumbles serve as a warning shot to the rest of the world as governments work to displace aging nuclear reactors and coal-fired power plants with cheaper and cleaner renewable energy. Grid operators, policy makers and power providers are learning the hard way that losing massive, around-the-clock generators can be a challenge, if not carefully planned.

“We have to have systems in place to make sure we still have enough generation on the grid -- or else, in the best case, we have a blackout, and in the worst case, we have some kind of grid collapse,” said Severin Borenstein, an energy economist at the University of California at Berkeley, where state officials have a goal of getting all power from clean energy resources by 2045.
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Okay followers of Elizabeth Warren et al, you have been warned.

ccp

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The Father of fracking
« Reply #701 on: September 04, 2019, 08:30:27 AM »
from Economist 2013:

https://www.economist.com/business/2013/08/03/the-father-of-fracking

of course the LEFT would place him along (and above) Hitler, Stalin, Mao, Tamerlane, Khan and the rest as the worst mass murderer in human history.


ccp

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DougMacG

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Why are oil and gas companies investing in solar and wind?
« Reply #703 on: September 17, 2019, 07:26:41 AM »
For large parts of the year in most locations, solar and wind only generate electricity 10-30% of the time.  The gaps in these ups and downs of solar and wind must be made up with fossil fuels, coal now being replaced with cleaner natural gas.  Natural gas electrical production can ramp up and down as easily as turning up or down the burner on your gas stove.  For every watt that the electrical utility company relies on solar and wind combined at its peak, they must have at least that capacity in fossil fuel generation - and use it (fossil fuels) most of the day, most of the year.  The more we rely on solar and wind, the more fossil fuel use we will require. 

What is wrong with this picture?

Nuclear does not ramp or scale up and down suddenly and is not an usable complement to the ups and downs of solar and wind.  Nuclear generates a steady flow of electricity on a massive scale over a long period of time.  The more we rely on nuclear power, the less we need solar and wind, and the less we need fossil fuels to generate electricity.  If we power the entire grid with nuclear power, fossil fuels will have near-zero use in the electricity generation sector.  Carbon free electricity,  if you like that kind of thing.

Solar and wind are not just a good investment for an oil and gas company or just good PR, they are ESSENTIAL existential investments.  Solar wind guarantee them major market share in grid power generation.  Lack of solar and wind investments replaced by nuclear would take that market share to nil.

And you have seen this trade-off fully explained in the lamestream media, when, where?
---------------------------------------------

https://www.forbes.com/sites/judeclemente/2017/12/31/natural-gas-is-the-flexibility-needed-for-more-wind-and-solar/#1b6147195777

The "sunshine state" is now surging toward having gas generating 75-80% of its electricity by 2022. ... the U.S. needs to add 25,000 megawatts of gas peaking capacity to our grid over the next decade to support the wind and solar build-outs. ... gas is the glue of the new U.S. electric power system, not just adding critical flexibility but also reliability.  "New York's grid operator yesterday said the state's grid can sustain the loss of a major nuclear station near New York City if some combination of three new natural gas projects replaces it,"

Renewables and natural gas are not mutually exclusive. The reality is that they complement each other, but unfortunately neither the gas nor the renewable industry promote this collaboration enough.

[Doug:  This is better than carbon-free?]
« Last Edit: September 17, 2019, 07:47:42 AM by DougMacG »

DougMacG

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To get wind, you need oil, IEEE Spectrum
« Reply #704 on: September 17, 2019, 07:53:02 AM »
https://spectrum.ieee.org/energy/renewables/to-get-wind-power-you-need-oil

[this is separate from the phenomenon that if you rely on wind you need gas.]

...  the aggregate installed wind power of about 2.5 terawatts would require roughly 450 million metric tons of steel. And that’s without counting the metal for towers, wires, and transformers for the new high-voltage transmission links that would be needed to connect it all to the grid.

A lot of energy goes into making steel. Sintered or pelletized iron ore is smelted in blast furnaces, charged with coke made from coal, and receives infusions of powdered coal and natural gas. Pig iron is decarbonized in basic oxygen furnaces. Then steel goes through continuous casting processes (which turn molten steel directly into the rough shape of the final product). Steel used in turbine construction embodies typically about 35 gigajoules per metric ton.

To make the steel required for wind turbines that might operate by 2030, you’d need fossil fuels equivalent to more than 600 million metric tons of coal.

A 5-MW turbine has three roughly 60-meter-long airfoils, each weighing about 15 metric tons. They have light balsa or foam cores and outer laminations made mostly from glass-fiber-reinforced epoxy or polyester resins. The glass is made by melting silicon dioxide and other mineral oxides in furnaces fired by natural gas. The resins begin with ethylene derived from light hydrocarbons, most commonly the products of naphtha cracking, liquefied petroleum gas, or the ethane in natural gas.

The final fiber-reinforced composite embodies on the order of 170 GJ/t. Therefore, to get 2.5 TW of installed wind power by 2030, we would need an aggregate rotor mass of about 23 million metric tons, incorporating the equivalent of about 90 million metric tons of crude oil. And when all is in place, the entire structure must be waterproofed with resins whose synthesis starts with ethylene. Another required oil product is lubricant, for the turbine gearboxes, which has to be changed periodically during the machine’s two-decade lifetime.

Undoubtedly, a well-sited and well-built wind turbine would generate as much energy as it embodies in less than a year. However, all of it will be in the form of intermittent electricity—while its production, installation, and maintenance remain critically dependent on specific fossil energies. Moreover, for most of these energies—coke for iron-ore smelting, coal and petroleum coke to fuel cement kilns, naphtha and natural gas as feedstock and fuel for the synthesis of plastics and the making of fiberglass, diesel fuel for ships, trucks, and construction machinery, lubricants for gearboxes—we have no nonfossil substitutes that would be readily available on the requisite large commercial scales.

For a long time to come—until all energies used to produce wind turbines and photovoltaic cells come from renewable energy sources—modern civilization will remain fundamentally dependent on fossil fuels.

DougMacG

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Re: Energy Politics, Wind, coal and gas
« Reply #705 on: October 01, 2019, 08:43:48 AM »
For every watt produced through wind, nearly two must be produced by fossil fuels instead of carbon free nuclear.

https://www.michigancapitolconfidential.com/tripling-states-1100-wind-turbines-wont-replace-this-one-coalgas-plant

"The problem is that those [wind] turbines only spin about one-third of the time..." [in Michigan].
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Did you want electricity available 24/7/365, or do you want to become a third world country? 

The sun doesn't shine and the wind doesn't blow during peak demand hours, and nuclear doesn't scale up and down to make up the difference:

https://alcse.org/the-duck-curve-what-is-it-and-what-does-it-mean/

Crafty_Dog

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GPF: The Future of Shale
« Reply #706 on: October 14, 2019, 08:51:48 PM »


Is the Shale Revolution Here to Stay?

Critics of the U.S. shale industry question its staying power.
By
Xander Snyder -
May 15, 2019   
Open as PDF

Summary

U.S. shale oil is a booming business. As it drives up global oil supply and puts downward pressure on oil prices, U.S. production of shale oil poses a geopolitical threat to other oil-producing states. But critics say that the boom won’t last. If true, that changes the geopolitical calculus.

How much longer will shale oil be a booming business? The answer to that question, while fuzzy, has long-term geopolitical implications. U.S. shale oil production has grown steadily, putting downward pressure on the global price of oil. We’ve written before about the power of shale oil and the impact it has on other geopolitically important oil producers like Russia and Saudi Arabia, which rely heavily on oil revenue to either fund their government spending or support their economies. Our forecasts for these countries are built in part on the assumption that, as the global supply of oil increases, its price will hit a ceiling that could strain these countries’ public finances, which in turn would have political ramifications. But shale skeptics maintain that the industry is not sustainable. If they’re right, and if the shale industry were to die out in the next couple of years, tanking oil supply and spiking oil prices, the geopolitical calculus for Russia and Saudi Arabia would change substantially.

The critics’ argument is threefold. First, they claim that the shale boom depended on huge amounts of debt that was doled out without serious consideration for whether shale producers would be able to pay it back. Second, critics are worried that there’s less shale oil available than originally believed, reflected in shale wells’ depletion rates. Third, they see limited room for growth in the profitability of shale production as shale’s break-even price has stagnated. Combine these factors, the critics say, and you get an industry that will not endure. This Deep Dive will take a closer look at these criticisms and explore whether, in fact, U.S. shale really is an economically sustainable industry.

Shale: A Primer

To understand the criticisms of the industry, it’s important to understand what shale is and how oil is extracted from it – a technically complex and expensive process. Shale rock, embedded thousands of feet under the Earth’s surface, is less permeable than other types of rock. And yet it’s here that shale oil, or “tight oil,” is found. The extraction process for this oil is known as hydraulic fracturing – or “fracking” – and it requires drilling down to the shale deposits, and then drilling horizontally through the rock. The drillers then inject a water-based solution at high velocity to break apart the rock, creating fissures through which oil can flow. (This process can also be used to extract natural gas from shale deposits.)

(click to enlarge)

The U.S. shale industry really took off in 2009. Thanks to the United States’ extensive shale formations, it has benefited hugely from the shale revolution. The combined technologies of hydraulic fracturing and horizontal drilling vastly increased the productivity of shale wells, and overall U.S. oil production has increased apace. In 2018, the U.S. produced an average of nearly 11 million barrels per day of crude oil, almost 60 percent of which came from shale. It’s helped the U.S. surpass Russia and Saudi Arabia in the production of hydrocarbons and is pushing the U.S. toward becoming a net energy exporter, a benchmark it’s expected to reach next year.

Financing: The Catalyst

Financing was, in many ways, the engine that drove the rise of shale oil, but the industry’s reliance on debt has also threatened to bring it down. In the wake of the 2008 financial crisis, interest rates fell, making debt cheaper and borrowing easier. In the low-interest rate environment, investors were looking everywhere for yield. Shale looked particularly appealing for debt investors since reserves could be used as collateral – if companies failed to pay their debts, the banks could simply take control of the reserves. This created the appearance of added security.

The availability of cheap, accessible debt coincided with two other important moments that created a turning point: skyrocketing oil prices and technological developments that had made the economics of shale drilling viable (though still expensive). Shale production took off, reversing a decadeslong decline in U.S. oil production that had begun in the 1970s.

Debt, however, is a double-edged sword. In exchange for immediate access to capital, firms assume higher operating costs down the road. This can lead to firms becoming over-leveraged as they assume so much debt that they cannot afford to both pay off the debt and pay regular operating expenses. So when oil prices tanked in 2015-16, many over-leveraged companies went out of business, causing U.S. oil production to drop from about 9.4 million bpd in 2015 to 8.8 million bpd in 2016. Notably, this was not an accident. Global oil supply had been climbing thanks to shale production. When supply is too high, OPEC typically cuts production to drive prices back up. But in 2015-16, OPEC chose not to cut supply, hoping that low prices would drive shale producers out of business and thus allow OPEC countries to reclaim market share they had lost to shale.

This downturn threatened to prove right concerns that, without high oil prices and access to cheap, plentiful debt, shale is not an economically viable industry. Companies had taken on unsustainable amounts of debt to fuel growth. When interest rates began to climb, the need to service that debt was a further incentive for shale companies to continue production – even if operations were barely or not at all profitable. These firms’ lending used to set up new wells created debt service expenses, which led to total operating expenses exceeding cash coming in from operations for too long; if interest rates had continued to rise, the entire industry would be, if not sunk, at least forced to slow production. This was not lost on debt investors, who of course feared that bankruptcies would wipe out most of their investment. As oil prices fell, access to debt capital decreased, forcing cash-strapped shale companies to turn instead to equity financing (that is, to issue more stock).

(click to enlarge)

Bankruptcies did, in fact, increase substantially when oil prices plummeted in 2015-16. Banks, as they are wont to do, had offered loans based on current or recent conditions, without consideration for what would happen when oil prices dropped – an inevitability in a cyclical industry like oil. Meanwhile, larger companies bought up the assets of the smaller, less efficient ones, leading to industry consolidation.

But the cycle continued, despite OPEC’s best efforts to keep prices down long enough to destroy the shale industry, and conditions improved. As a number of companies went bankrupt, oil supplies decreased, and prices rose once again. The companies that survived were forced to cut their capital expenditures, which actually led to an improvement in cash flow. Since 2016, bankruptcies have declined significantly.

(click to enlarge)

Still, some industry observers continued to insist that the economics of the industry itself – not just of individual companies – were fundamentally unsustainable because they relied too heavily on debt. They claimed that debt was not just one factor in shale’s growth but in fact the decisive factor. Without it, they said, the industry couldn’t survive, because total expenses, including debt services fees, would continue to exceed revenue. Since 2016, however, shale drillers have moved toward positive, or at least neutral, cash flow. As of early 2018, a greater share of shale companies was beginning to cover the cost of new wells with operating cash flow, rather than debt. Rystad Energy, an oil and gas market research firm, anticipates that in 2019 shale drillers will generate enough cash to cover capital expenses and pay dividends, though just barely.

(click to enlarge)

If shale companies have enough cash remaining to pay dividends – even just a little bit – it’s a sign that they have enough cash on hand to better pay their debts. As of the fourth quarter of 2018, about 40 percent of companies in a 33-company sample of shale producers were cash-flow positive. To be economically viable, more companies will need to at least break even – in the case of shale, that means they need to generate enough cash from operations to cover their operating expenses without external capital.

 (click to enlarge)

So, while a good number of shale companies do seem to be in precarious financial situations, many are trending toward positive cash flow. And just because some companies are at risk of going out of business doesn’t mean that shale oil production will cease. Truly cash-strapped companies can sell their assets to major international oil companies that have diversified revenue streams and can keep shale machinery offline until oil prices rise. In other words, as time goes on, the shale industry will mature and, like any industry, experience both bankruptcies and consolidation as some companies prove to be more efficient operators than others.

Oil Reserves: Estimating What’s Out There

But it’s not just financing that shale skeptics criticize. They’re concerned, too, that shale companies substantially overestimated their reserves. They’re not wrong; many oil companies have had to revise their total reserve estimates downward, and it seems their initial overestimations were directly related to the question of financing. If companies had higher reserves – a form of collateral – they could take on more of the debt they needed to get underway. Similarly, when debt financing dried up in 2015-16 and companies started to issue stock, they overestimated their reserves so that it would be easier to raise money from investors.

How were oil companies able to convince banks and investors that their oil reserves were larger than they actually were? Oil-producing companies in the U.S. are required to file with the Securities and Exchange Commission estimates of their “total proven oil reserves” – the reserves for which there is a 90 percent chance that the oil will be recovered. But as the fledgling shale industry was starting to raise money, companies began to use a metric called “estimated ultimate recovery” instead. EUR simply refers to existing reserves, without indicating the likelihood of recovery. The metric is also based on the assumption that, as time goes on, companies would be able to replicate their early success – that additional wells would produce as much as already tapped wells. In retrospect, this was flawed logic; the initial wells are almost always the most productive ones. Shale drillers also assumed they could pack shale wells close together. But packed too tightly, the wells would pull from shared reserves, decreasing the amount that each could draw. Both assumptions contributed to overly optimistic EUR numbers.

In response, investors are now scrutinizing shale producers’ claims. They began by questioning shale companies’ estimates of their reserves – and therefore whether they were worth investing in – and have started pushing for greater accountability in firms’ capital expenditures and demanding higher returns. As a result, shale companies are now exercising more oversight of capital expenditures, cutting spending, moving toward positive cash flow, and using that cash flow to return dividends to investors or to buy back shares. All of this is bolstering the economic sustainability of the industry.

Shale producers’ estimates affect more than just financing. Market research firms and the U.S. Energy Information Administration (which is responsible for collecting and reporting economic data on the energy industry that is used in policymaking and economic forecasting) take into consideration the reserve estimates that companies put out. Historically, forecasts of U.S. shale oil production have been outstripped by actual production, and current forecasts are almost uniformly positive – the EIA and industry consulting firms Rystad Energy and Wood Mackenzie all anticipate substantial increases in oil production over the next 10 years, even with lower oil prices. That’s good news for the shale industry – even with more conservative estimates of their reserves, shale oil isn’t going anywhere.

 (click to enlarge)

The industry also stands to benefit from pipelines scheduled to come online in late 2019 and early 2020. Production has been constrained by a lack of transportation infrastructure in the U.S., and these pipelines will facilitate transport of resources from the Permian Basin, the source of nearly one-third of U.S. oil output, to refineries and export centers in places like the Gulf Coast. It seems shale oil production will continue growing, though at a somewhat slower pace than the industry initially anticipated.

(click to enlarge)

Supply and Profitability: The Geopolitical Question

Ultimately, what affects geopolitics is not the durability of one shale company or another – it is the price of oil and whether the supply of oil continues to increase. And even if the growth in U.S. shale oil production slows, the industry will likely persist for at least the next decade. Skeptics have questioned the shale industry’s ability to sustain high levels of production since it took off over a decade ago. But U.S. production has often outperformed forecasts, and we have to keep this in mind when examining claims that the shale industry is not financially viable.

One of the primary concerns here is the industry’s profitability. As the industry has grown and matured, the break-even price per well has come down. But some doubters claim that there are fewer gains to be made through technological advances. If true, this would mean that the break-even point will not come down much further, leaving little room for growth in the profitability of shale. This may be a valid criticism. But that still puts the profitable oil price for a lot of shale companies well below Saudi Arabia’s fiscal break-even point (the point at which the government can balance its budget), which the International Monetary Fund says is currently about $80-$85 per barrel.

(click to enlarge)

Another, more convincing critique examines the relationship between long-term supply and profitability. It’s based on comparing production rates in the Bakken Formation and the Eagle Ford Group, some of the earliest shale basins to be tapped, with the Permian Basin, whose development only took off in 2013. The U.S. has seen net oil production gains since 2016, and much of those gains were from new wells, especially in the Permian Basin. Meanwhile, however, production in Bakken and Eagle Ford has declined following the 2015-16 downturn. (Eagle Ford has stagnated, while Bakken has only recently inched above its pre-2015 production levels.)

(click to enlarge)

Since Eagle Ford and Bakken are older discoveries than the Permian, critics suggest that the former are more representative of what shale basins will be capable of producing after several years of drilling, and that those production levels will be much lower than following the initial discovery, when only the choicest wells were being drilled. The Permian’s production has an outsize effect on total U.S. production. If it follows the trend of its predecessors, that effect would be problematic.

(click to enlarge)

New wells usually produce more oil at the outset, and the rate at which oil flows thereafter is called the decline rate. The Permian’s decline rates are rising faster than expected. Take, for example, Wolfcamp – one of the drilling areas within the Permian Basin. When drilling in the Permian got underway in 2013, observers expected decline rates of 5-10 percent; but Wolfcamp’s rate is now closer to 15 percent annually. Shale companies will need to drill more wells just to keep producing the same volume of oil. If Eagle Ford, Bakken and Permian production all stagnate or decline, that could constrain the amount of oil the U.S. is able to produce in the long run.

That’s assuming no new reserves are discovered. But, in fact, new reserves are discovered often – even in the Permian itself. In December, the U.S. Department of the Interior reported that the Permian’s Wolfcamp and Bone Spring Formations contain the most oil and gas resources of any location ever assessed. Still, that was not an assessment of proven reserves – those that can be recovered using existing technology – but rather of undiscovered reserves – defined by the department as “resources postulated, on the basis of geologic knowledge and theory, to exist outside of known fields of accumulations” – and technically recoverable reserves – defined as “resources producible using currently available technology and industry practices.” For now, companies are poised to continue producing enough to fuel growth in U.S. oil production. But if Permian production stagnates, they may well have to keep finding more reserves – and ways to extract them – to make it last.

What’s Ahead for Shale

The cycle of the oil industry goes on. Demand for oil may decline as countries shift toward fuel-efficient and electric vehicles. But demand for petrochemicals (chemical products for which oil is an input) will continue to grow as more people in the world’s most populous countries – namely, India and China – move into the middle class. The growing demand for oil will drive prices up, enabling shale drillers to increase production and, therefore, producers to rely less on debt – and even to start paying dividends.

It’s no surprise, then, that countries that rely heavily on the oil industry are having to rethink the underpinnings of their economies. (Saudi Arabia, for example, is working to reconfigure its economy to depend less on oil.) The U.S. could also become energy independent, which could have significant geopolitical implications.

The combination of hydraulic fracturing and horizontal drilling, which paved the way for the shale revolution in the U.S., is out of the box and can’t be put back in. The technology will continue to allow the U.S. to produce large quantities of oil for the foreseeable future. Shale isn’t going anywhere – and it will have a major influence over the global economics of oil for at least the next decade.

DougMacG

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Energy Secretary Rick Perry, Nuclear is the real Green New Deal
« Reply #707 on: October 29, 2019, 06:49:45 AM »


DougMacG

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Energy.gov: Nuclear is the most reliable energy source
« Reply #709 on: November 15, 2019, 07:12:24 AM »
Nuclear Power is the Most Reliable Energy Source and It's Not Even Close
FEBRUARY 27, 2018
... nuclear power plants are producing maximum power more than 92% of the time during the year.

That’s about 1.5 to 2 times more as natural gas and coal units, and 2.5 to 3.5 times more reliable than wind and solar plants.

https://www.energy.gov/ne/articles/nuclear-power-most-reliable-energy-source-and-its-not-even-close
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Who cares about reliability of electrical power?  Mostly people in first, second and third world countries who want to plug in and want to know it will work.  Not just toasters and hair dryers but manufacturing plants and hospitals with heart lung machines as well.

Not to mention that nuclear is carbon free with less toxic waste than solar.

DougMacG

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Energy safety? Wind and solar require bigger, more powerful batteries
« Reply #710 on: November 27, 2019, 08:57:34 AM »
[The cleanest, safest energy is nuclear.  Ships run well with fossil fuels.]

Another Lithium-Ion explosion, this time Norway:

Fire and Gas Explosion in Battery Room of Norwegian Ferry Prompts Lithium-Ion Power Warning

https://gcaptain.com/fire-and-gas-explosion-in-battery-room-of-norwegian-ferry-prompts-lithium-ion-power-warning/

Norwegian broadcasting company NRK reported that twelve firefighters were taken to the hospital for exposure to hazardous gases associated with the batteries.

“The Norwegian Maritime Authority recommends that all shipowners with vessels that have battery installations, carry out a new risk assessment of the dangers connected to possible accumulations of explosive gases during unwanted incidents in the battery systems,” the Norwegian Maritime Authority said in statement. 

Alternatively, British Columbia-based, Corvus Energy, which supplied the ferry’s battery system, has issued recommendations to operators not to sail without communication between the shipboard energy management system and the battery packs, as well as what to do in case of a gas release or “thermal runaway situation.

Thermal runaway occurs when lithium-ion cell temperatures exceed the thermal runaway threshold, resulting in the sudden release of flammable, toxic gases and excessive heat that could result in an explosion.

DougMacG

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Hinderaker, the environmental disaster of wind and solar
« Reply #711 on: November 27, 2019, 09:16:39 AM »
Who knew?

https://www.americanexperiment.org/2019/08/environmental-disaster-solar-energy/

Toxic minerals and compounds like Cadmium in rainwater washout and in landfills tells only part of the story.  If solar (in the midwest) only works 18% of the time, fossil fuels, gas and coal, make up the difference, unlike nuclear energy that really is carbon free.

DougMacG

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WSJ: Overreaction to Fukushima is killing the Carbon fight
« Reply #712 on: December 04, 2019, 07:53:40 AM »
"meaningful cuts won’t happen without nuclear"

https://www.wsj.com/articles/requiem-for-a-climate-dream-11575417278

If the world isn’t slashing CO2, blame overreaction to the Fukushima disaster.
...
Nuclearphobes should remind themselves that more people die each year from coal-mining accidents than have been killed in all the nuclear accidents in history. Never mind the tens of thousands who are statistically estimated to die annually from inhaling particulates. No technology is perfect, but NASA’s James Hansen, Microsoft founder Bill Gates, Gaia theorist James Lovelock, and the late Harvard economist Martin Weitzman are among the diverse and serious students of climate change who have said that meaningful cuts won’t happen without nuclear.
------------------------
To the green new deal crowd, cooking over a wood fire is far worse than natural gas.  Electricity is better only if nuclear-based.  Solar and wind subsidies lock in fossil fuel use, notice the oil companies' interest in that.

When will they ever learn?


DougMacG

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Democrats want your electric bill to be over $1000 /mo., wind, solar
« Reply #713 on: December 13, 2019, 04:24:19 AM »
https://www.americanexperiment.org/2019/12/100-percent-windsolarbatteries-4296-50-monthly-electric-bill-according-to-an-xcel-energy-slide-show/

100 Percent Wind+Solar+Batteries= $1,036.80 Monthly Electric Bill, According to An Xcel Energy Slide Show and EIA Da
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Not hypothetical or overstated.  They already doubled electric prices here while accomplishing nothing.

If you're serious about carbon free, give us nuclear power, safe, reliable and competitively priced.

Crafty_Dog

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WSJ: Fracking Forecasts Flop
« Reply #714 on: December 23, 2019, 05:03:25 AM »
Banks Get Tough on Shale Loans as Fracking Forecasts Flop
Oil and gas companies face tightened credit after wells produce less than projected

Chevron has said it plans to take a charge of $10 billion to $11 billion, roughly half of it tied to shale gas assets. PHOTO: DANIEL ACKER/BLOOMBERG NEWS
By Christopher M. Matthews, Bradley Olson and Allison Prang
Updated Dec. 22, 2019 7:00 pm ET
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Some of the banks that helped fuel the fracking boom are beginning to question the industry’s fundamentals, as many shale wells produce less than companies forecast.

Banks have begun to tighten requirements on revolving lines of credit, an essential lifeline for smaller companies, as these institutions revise estimates on the value of some shale reserves held as collateral for loans to producers, according to people familiar with the matter.

Some large financial institutions, including Capital One Financial Corp. and JPMorgan Chase JPM -0.08% & Co., are likely to decrease the size of current and future loans to shale companies linked to reserves as a result of their semiannual reviews of the loans, the people say. The banks are concerned that if some companies go bankrupt, their assets won’t cover the loans, the people say.

JPMorgan Chase declined to comment. Capital One COF -0.01% didn’t respond to requests for comment.

The tightening financial pressure on shale producers is one of the reasons many are facing a reckoning going into next year. Chevron Corp. said Dec. 10 that it plans to take a charge of $10 billion to $11 billion, roughly half of it tied to shale gas assets, which it said won’t be profitable soon. Royal Dutch Shell PLC said Friday it will take a roughly $2 billion impairment, and other companies are expected to follow suit in writing down assets, according to analysts and industry executives.

The heat is greatest for small and midsize shale producers, including many whose wells aren’t producing as much oil and gas as they had projected to lenders and investors. Some of those companies may be forced out of business, said Clark Sackschewsky, the managing principal of accounting firm BDO’s Houston tax practice. Large companies are likely to weather the blow because of their size and global asset diversity, but for some smaller shale operators, tightening access to bank loans could prove disastrous.

“We’ve got another year under our belts with the onshore fracking assets, which includes less than optimistic reserves results, less production than anticipated, a reduction in capital investment into the market,” Mr. Sackschewsky said.

Oil and gas producers expect banks to cut their revolving lines of credit by 10% as a result of the reviews, according to a survey of companies by the law firm Haynes & Boone LLP. The cuts may be more severe, say some people familiar with the reviews.

Banks have extended billions of dollars of reserve-backed loans, though the exact size of the market isn’t known. JPMorgan said in a regulatory filing in September that it has exposure to $44 billion in oil and gas loans, and Capital One COF -0.01% said in October it has extended more than $3 billion in oil and gas loans. It wasn’t clear for either bank what proportion of those are backed by reserves.

Banks have typically applied a 10% discount to the value of reserves, meaning a shale company could borrow against 90% of its reserves as collateral. Banks have typically lent as much as 60% of that value. But some are now discounting the value by as much as 20%, the people say.

Meanwhile, some regional banks have begun writing off bad energy loans. Net charge-offs shot up at Huntington Bancshares in the last quarter. The Ohio-based lender attributed the move primarily to two energy loans where the borrowers’ production had not met expectations, Huntington Chief Executive Officer Stephen Steinour said in an interview.

“Geology and the assumptions were just flawed,” Mr. Steinour said.

Many investors have lost faith in the viability of shale drillers, as natural-gas prices stayed low and many companies broke promises on how much their wells would produce and when they would begin to turn a profit.

As investors have retreated, cracks have begun to show. Energy companies accounted for more than 90% of defaults on corporate debt in the third quarter, according to Moody’s Investors Service. There were more than 30 oil-company bankruptcies in 2019, exceeding the number in 2018 and 2017. Exploration and production companies are now carrying more than $100 billion in debt, according to Haynes & Boone.

Skepticism among banks has grown in part because lenders have more closely scrutinized public well data on production and seen that it is falling short of forecasts, as a Wall Street Journal analysis showed earlier this year.

Specifically, banks have begun questioning shale producers’ predictions about their wells’ initial rate of decline, which are proving overly optimistic, according to engineers. If shale wells, which produce rapidly early and then taper off, are declining faster than predicted, questions arise regarding how much they will ultimately produce.

SHARE YOUR THOUGHTS
What do you think tightened credit requirements mean for the shale industry as a whole? Join the conversation below.

Some lenders have flagged publicly that they will be less generous with loans in the future. “With respect to any new energy loans, we are highly cautious; it’s a very high bar we must clear,” said Paul B. Murphy, CEO of Cadence Bank, in an October call with analysts. The firm operates in Texas and the southeastern U.S.

Bank lending has slowed across the board in the country’s hottest drilling region, the Permian basin in West Texas and New Mexico. After leading Texas last year, loan growth in the region shrunk to 4.8,% below the state’s 7.5% average in the last quarter, the Federal Reserve Bank of Dallas said Thursday.

More than a decade into the shale boom, investors are trying to wrap their arms around the true value of producers’ assets, said Michelle Foss, an energy fellow at Rice University’s Baker Institute for Public Policy.

“There is a struggle now for investors to determine what things are actually worth,” Ms. Foss said.

Dwindling access to bank loans will put more pressure on an industry that has already lost access to other sources of money. Without new cash infusions, many companies may be unable to drill their undeveloped reserves, which could further diminish the value of their assets.

Some shale companies have been lobbying the Securities and Exchange Commission to change its rules governing reserves reporting, allowing them to count undeveloped assets as reserves for a longer period. The SEC currently allows oil and gas producers to report reserves as “proved” if the companies plan to develop them within five years.

In an August letter to the SEC, Continental Resources Inc., one of the largest shale companies, pushed for the regulator to extend that period to 10 years. The company, founded by the billionaire prospector Harold Hamm, said its proved reserves would be around 16% higher with such a rule change.

A Continental spokeswoman declined to comment. An SEC spokesman didn’t respond to a request for comment.

Write to Christopher M. Matthews at

DougMacG

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New IBM Battery Technology coming
« Reply #715 on: December 23, 2019, 04:37:08 PM »
https://spectrum.ieee.org/energywise/energy/environment/ibm-new-seawater-battery-technology

This could change everything from power tools to electric vehicles.

DougMacG

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Energy: Is nuclear power worth the risk? (yes)
« Reply #716 on: December 24, 2019, 05:09:25 AM »
https://www.newyorker.com/news/dispatch/is-nuclear-power-worth-the-risk?source=EDT_NYR_EDIT_NEWSLETTER_0_imagenewsletter_Daily_ZZ&utm_campaign=aud-dev&utm_source=nl&utm_brand=tny&utm_mailing=TNY_Daily_122319&utm_medium=email&bxid=5be9d3fa3f92a40469e2d85c&cndid=50142053&esrc=&mbid=&utm_term=TNY_Daily

Painful to read liberals writing about science.  She gets a few very important points right.
 - a magnitude-nine earthquake, one of the most powerful in recorded history, triggered a twelve-story tsunami
 - Doctors reported no cases of thyroid cancer that was rampant in Chernobyl.
 - The most exposure she faced writing the whole story was on the flight to Japan [that all travelers experience.]
 - That no serious approach to CO2 reduction today works without nuclear.
 - More damage was done by the fear spread through words and policies than by radiation.
 - The nuclear accident lengthened the life of the cows that were not evacuated (or slaughtered).
 - Japan added 50 coal burning plants as a result of this.
 - Finland has dealt effectively with the nuclear waste issue.
 - Her conclusion is that there IS a role for nuclear energy - if you care about pollution and climate.

What is omitted or misrepresented is painful too.  Start at the beginning.  9.0 earthquake is more than 100 times the intensity of the 6.9 1989 San Francisco disaster.  A  twelve story wall of water is something I think none of us have seen or heard of or can imagine. 

 - The tsunami killed more than more than 20,000 people. 

 - The Fukushima disaster killed one worker because of the diesel generator failure. 

 - It was the diesel generators that failed.  Without that failure, no radiation whatsoever would have been released. 

 - How does a 12 story tsunami relate to the shutdown of nuclear power in Germany?

 - Chernobyl is a story about Soviet failure, nothing to do with modern nuclear facilities.

 - Hiroshima and Nagasaki were results of Japanese military aggression, nothing to do with nuclear power or nuclear accident.

 - Switching to 100% renewable energy would mean the equivalent of $1000 per month electric bills for every household, would kill manufacturing jobs etc.

 - Solar has 500 times more toxic waste than nuclear.

 - Solar has ten times the death rate of nuclear power.
https://www.nextbigfuture.com/2008/03/deaths-per-twh-for-all-energy-sources.html

 - Solar replacement of Fukushima, if it were possible, would take up 250,000 acres of land use, more than the whole town.

 - The percentage of power Japan gets from renewable sources, primarily hydro, has greatly decreased since 1970.
https://www.eurotechnology.com/store/j_renewable/

 - Intermittant power sources like solar and wind do not match 80% of the electrical demand.
https://www.instituteforenergyresearch.org/renewable/solar/solar-energy/

 - Nuclear power is by far the safest and cleanest known energy source.

 - All nuclear plants built after Fukushima would incorporate what was learned and would survive a 9.0 earthquake and 12 story tsunami.

 - New nuclear technologies have zero waste and emissions.

 - Long lead time to build is not a reason not to build.
« Last Edit: December 24, 2019, 05:45:39 AM by DougMacG »

Crafty_Dog

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Re: Energy Politics & Science
« Reply #717 on: December 24, 2019, 09:06:47 AM »
Outstanding post Doug!

DougMacG

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Re: Energy Politics & Science
« Reply #718 on: December 24, 2019, 10:57:05 AM »
Thanks Marc.

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ccp

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another little leftist scowler who ignores
« Reply #720 on: December 25, 2019, 08:40:29 AM »
everything in Doug's post

https://www.yahoo.com/author/david-knowles


https://news.yahoo.com/trump-huffs-and-puffs-about-windmills-but-wind-power-keeps-growing-203256114.html

 - complete with photo of Trump with the orange hair blowing in wind just to mock him more.


DougMacG

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Re: another little leftist scowler who ignores
« Reply #721 on: December 27, 2019, 06:33:41 AM »
everything in Doug's post

https://www.yahoo.com/author/david-knowles


https://news.yahoo.com/trump-huffs-and-puffs-about-windmills-but-wind-power-keeps-growing-203256114.html

 - complete with photo of Trump with the orange hair blowing in wind just to mock him more.

"roughly on a par with nuclear plants, although in terms of actual power generated (as distinguished from theoretical capacity), wind is still a fraction of nuclear and fossil fuels."

   - it admittedly operates at a fraction of its potential. That about says it all.

Amazing how much they can build with free, printed money.  Every mW of wind locks in about 3-4  times that much  (1/ that fraction) of long term fossil fuel use since clean nuclear power cannot scale up and down with the wind. Every time you see a new wind turbine, remember to buy an oil company stock.   Each new wind turbine sets the carbon-free energy movement back twenty years.
« Last Edit: December 27, 2019, 06:37:22 AM by DougMacG »

DougMacG

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Re: Energy Politics & Science
« Reply #722 on: January 08, 2020, 09:50:40 PM »
Finding people who put my thoughts to words better than I do:

"I mean, if you say you care about the environment but you oppose nuclear power or fracking, then you’re an idiot or a liar."
   - Glenn Reynolds, PJ Media Instapundit
https://pjmedia.com/instapundit/353989/#respond

DougMacG

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Energy Politics & Science, Asia Times, Der Spiegel Nuclear Power
« Reply #723 on: January 27, 2020, 06:42:04 AM »
American technology, coverage on it in Europe and Asia, concern everywhere, action nowhere.

https://www.asiatimes.com/2020/01/article/carbon-dioxides-scourge-advanced-nuclear-power/
From the article:
"Would it not be more rational, if we believe that human emissions of CO2 are destroying the planet, to expand nuclear energy as quickly as possible, rather than shut it down?"
----------------------------------------------

Does anyone have a different answer, a better answer?  Hydro power is perhaps best but there isn't enough of it.  Solar and wind commitments lock in fossil fuel use and CO2 emissions forever.  Nuclear has massive potential, the waste issue is solved, it's by far the safest, and it's carbon free.  Who knew?  When do we want to get started?  Where's Greta?
---------------------------------------------
Google translate:  Spiegel Germany, December 2019
https://www.spiegel.de/wissenschaft/rettet-uns-die-atomkraft-vor-dem-klimakollaps-a-00000000-0002-0001-0000-000167507158
New reactor
concepts: Does nuclear power save us from climate collapse?
Top researchers from the USA are developing the nuclear reactors of the future. Allegedly safe nuclear power plants are supposed to stop global warming.
By Philip Bethge
13.12.2019, 6 p.m.

The reactor core is almost completely filled with nuclear waste, which is practical, so that it comes away immediately. The machine should run for 60 years without refueling. The spent fuel rods from US nuclear power plants alone would be enough to cover the world's electricity needs for centuries.

Is this the solution to all energy problems? Lindsey Boles believes in it. The engineer from Terrapower is standing next to a blue steel frame, which is supposed to hold nuclear fuel rods, in a white lab coat with protective glasses made of plastic on her nose in a workshop in the US state of Washington. Color markings on the floor show the planned location of heat exchangers and pumps - it is the model of a reactor.

"Where we are now would be liquid sodium, heated to more than 500 degrees Celsius," explains Boles. "We believe that this type of system can generate climate-neutral electricity more reliably and safely than with any other power plant in the world."

Terrapower is one of a growing number of start-ups that are giving new hope to the power of the atom. The company's headquarters are in Bellevue, a suburb of Seattle. The US West Coast hubris pairs with technology optimism and fairytale financial strength.
(registration needed to read further)

https://terrapower.com/

« Last Edit: January 27, 2020, 07:37:41 AM by DougMacG »

Crafty_Dog

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Germany scrapped nuclear power and emissions spiked
« Reply #725 on: January 29, 2020, 07:11:02 AM »
https://www.wired.com/story/germany-rejected-nuclear-powerand-deadly-emissions-spiked/

The math of this is kind of obvious, end carbon free energy production and bad things happen.
« Last Edit: January 29, 2020, 07:34:42 PM by DougMacG »

Crafty_Dog

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Re: Energy Politics & Science
« Reply #726 on: January 29, 2020, 07:48:24 AM »
Nice find.  Please post in the Nuclear thread as well.

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Bloomberg: Wind Turbine Blades Can’t Be Recycled, Piling Up in Landfills
« Reply #727 on: February 13, 2020, 10:00:02 AM »
https://www.bloomberg.com/news/features/2020-02-05/wind-turbine-blades-can-t-be-recycled-so-they-re-piling-up-in-landfills

I wonder if Bloomberg reads Bloomberg...

FYI,  Cutting fiberglass with a diamond blade causes dust inhale risk.

https://journal.chestnet.org/article/S0012-3692(16)56140-6/fulltext
--------------------------------
Companies are searching for ways to deal with the tens of thousands of blades that have reached the end of their lives.
February 5, 2020, 4:00 AM CST Updated on February 7, 2020, 10:54 AM CST

A wind turbine’s blades can be longer than a Boeing 747 wing, so at the end of their lifespan they can’t just be hauled away. First, you need to saw through the lissome fiberglass using a diamond-encrusted industrial saw to create three pieces small enough to be strapped to a tractor-trailer.

The municipal landfill in Casper, Wyoming, is the final resting place of 870 blades whose days making renewable energy have come to end. The severed fragments look like bleached whale bones nestled against one another.

“That’s the end of it for this winter,” said waste technician Michael Bratvold, watching a bulldozer bury them forever in sand. “We’ll get the rest when the weather breaks this spring.”

Tens of thousands of aging blades are coming down from steel towers around the world and most have nowhere to go but landfills. In the U.S. alone, about 8,000 will be removed in each of the next four years. Europe, which has been dealing with the problem longer, has about 3,800 coming down annually through at least 2022, according to BloombergNEF. It’s going to get worse: Most were built more than a decade ago, when installations were less than a fifth of what they are now.

Built to withstand hurricane-force winds, the blades can’t easily be crushed, recycled or repurposed. That’s created an urgent search for alternatives in places that lack wide-open prairies. In the U.S., they go to the handful of landfills that accept them, in Lake Mills, Iowa; Sioux Falls, South Dakota; and Casper, where they will be interred in stacks that reach 30 feet under.

“The wind turbine blade will be there, ultimately, forever,” said Bob Cappadona, chief operating officer for the North American unit of Paris-based Veolia Environnement SA, which is searching for better ways to deal with the massive waste. “Most landfills are considered a dry tomb.”

DougMacG

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Pa. House Speaker: Banning fracking would destroy Pennsylvania’s economy
« Reply #728 on: March 02, 2020, 07:15:20 AM »
Pa. House Speaker: Banning fracking would destroy Pennsylvania’s economy
https://www.inquirer.com/opinion/commentary/fracking-ban-2020-democrats-pennsylvania-shell-plant-20200225.html

One 2017 study ... found that a whopping 322,600 jobs were supported by oil and natural gas statewide in 2015, providing nearly $23 billion in wages, and that the industry contributes more than $44 billion in economic activity.

Residential natural gas customer costs have fallen significantly over the past 10 years, for an estimated $1,200 annual savings per household, representing a total savings of about $3 billion per year for the more than 2.5 million Pennsylvania households that use natural gas for heating, largely thanks to increased natural gas production. Billions of dollars have been paid in royalties to landowners in our state.

   - Who knew?

The proposed ban might destroy the Democrats future too.  But that's how it goes when you are trying to save the planet.

Ironically, fracking is responsible for roughly 100% of the recent DECREASE in US CO2 emissions.
« Last Edit: March 02, 2020, 07:19:06 AM by DougMacG »

Crafty_Dog

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Oil Prices Plunge
« Reply #729 on: March 09, 2020, 10:53:53 AM »
   
Daily Memo: Oil Prices Plunge
By: GPF Staff

Oil prices plummet. By now you’ve likely heard about the plunge in oil prices by more than 20 percent over the weekend – the largest drop in nearly three decades – with Brent crude bottoming out at $31.39 per barrel and, as of this writing, hovering around $35-$36. The drop was triggered after Russia and Saudi Arabia failed to come to an agreement on production cuts to combat declining demand. Shortly after the drop, the International Energy Agency revised its projection for oil demand this year; it now foresees a 90,000 barrel per day decline versus an 825,000 bpd increase previously. Monday is a holiday in Russia, so markets are closed and the government has time to plan its response. The Finance Ministry said, however, that Russia’s reserve fund could sustain oil prices at $25-$30 per barrel for six to 10 years, suggesting that Russia may be preparing to obstruct production cuts for some time to come. Still, the Russian ruble fell on Monday to 75 rubles on the dollar, the lowest level in four years, prompting the central bank to suspend the purchase of foreign currency domestically for 30 days, as required when prices dip below $42.40 a barrel. Other countries are also preparing their responses. Kazakhstan is developing an anti-crisis action plan and will make adjustments to the national budget for 2020-22. And Belarus said the decline was an opportunity to come to some sort of agreement on oil prices with Moscow.

Countries in the Middle East are also dealing with the fallout of the plunge. It’s no secret that Saudi Arabia’s economy relies heavily on oil, as does the government’s budget. As a result, Saudi Arabia will experience at least some financial strain and social tension resulting from declining prices. The Saudi government has adopted several measures in recent days to consolidate power, including a Cabinet reshuffle and detention of at least 20 princes. The drop in oil prices will magnify these political pressures. Elsewhere in the Middle East, Iraq’s parliamentary Economic Committee said the projected budget deficit for 2020 increased to approximately $42.8 billion because of the oil price decline. (Nearly 90 percent of Iraq’s budget is derived from oil revenue.) Kuwait also said it expected its budget deficit for 2020-21 to increase.

Crafty_Dog

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WSJ: Now comes the oil shock
« Reply #730 on: March 10, 2020, 07:53:55 AM »
Now Comes the Oil Shock
Putin shows again he’s not Trump’s friend. What about MBS?
By The Editorial Board
March 9, 2020 7:18 pm ET


President Trump has defended Saudi leader Mohammed bin Salman despite his displays of bad judgment or worse. If the crown prince wants to return the favor, now would be the time amid the panic in oil markets after a price war broke out between former cartel partners Russia and Saudi Arabia. How about putting in a call, Mr. President?

The immediate cause for this chaos is a game of chicken between Riyadh and Moscow. The Saudis were keen to orchestrate production cuts among fellow OPEC members and other major producers to sustain prices as oil demand falls due to Covid-19. Vladimir Putin refused, and in retaliation the Saudis slashed prices on Sunday and promised more production to steal market share from Russia.

Oil prices fell through the floor Monday with Brent crude closing at $34.36 a barrel, down 24% from Friday and 50% from its recent peak on Jan. 6. The shock triggered a fall in equities around the world, as investors fled to gold and bonds, with the Dow falling 7.8% Monday. A morning plunge of more than 7% triggered the New York Stock Exchange “circuit breaker” to pause trading for the first time since 1997.

This response is partly panic but it’s also rooted in rational fear, despite the benefit for consumers from lower oil prices. The market worry is that the oil-price plunge will hurt the U.S. economy—the main support for global growth these days—by damaging U.S. shale oil production.

Not long ago the U.S. imported most of its oil and natural gas. But the rise of fracking and horizontal drilling have made the U.S. an energy powerhouse. U.S. crude oil exports have soared from around an average of 490,000 barrels per day in January 2016 to 3.7 million barrels per day in December 2019. (See the nearby chart.) A sharp decline in global oil demand now hurts U.S. producers. The damage to producers and workers from a price collapse could exceed the benefit to consumers who pay less for gasoline.

Some shale producers are especially vulnerable because they’ve relied on easy credit fueled by low Federal Reserve interest rates. Analysts peg energy companies’ bond issuance at anywhere between 10% and 16% of the U.S. high-yield debt market. Widespread defaults on that debt could have systemic financial consequences for banks and other lenders.

The break-even oil price for these producers varies by company and the shale oil well, with some in Texas’s Permian Basin now claiming to be able to make money at $30 a barrel. Exxon and Chevron also own much shale production and have the balance sheets to ride out a downturn.

But a Dallas Fed survey in December found that, even before the price decline since January, two-thirds of oil and gas firms in its region expected to hold steady or reduce capital investment during 2020. And 59% of those firms said they’d need the price for West Texas Intermediate Crude to be above $50 a barrel to fund their capital investment.

Mr. Putin is willing to endure lower prices because he wants to break the U.S. shale industry. U.S. exports to Europe threaten Russia’s energy hold on Western Europe. He’s also sore at U.S. opposition to his Nord Stream 2 gas pipeline linking Siberia to Germany. This oil action is another example, among dozens already, that Mr. Putin isn’t Mr. Trump’s friend.

***
The Saudi strategy is harder to understand. Riyadh is cutting prices at the expense of its own national oil company, which recently floated shares in the public market. With the price cut, Aramco’s shares have fallen well below their December offering price. The Saudis last tried a stunt like this in 2014-15. Their target then was U.S. shale and they nearly tipped America into a recession as lower global prices pushed numerous U.S. oil-and-gas companies into bankruptcy.

The longer this oil-price war continues, the greater the danger that a crisis in the oil patch combined with the coronavirus will do broader damage. Even the resilient U.S. economy, which had been gaining steam as trade tensions eased, may be hard-pressed to power through the dual shocks of a pandemic and suddenly collapsing oil prices.

Crown Prince bin Salman, widely known as MBS, is famous for actions that seem rash and ill-considered. In this case he’s hurting Saudi interests by hurting his main geopolitical benefactor, the United States. President Trump may need to use the phone to remind the crown prince which country has stuck by him during his war with Yemen, his standoff with Qatar, and missile attacks from Iran.

Crafty_Dog

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Re: Energy Politics & Science
« Reply #731 on: March 10, 2020, 08:08:54 AM »
Why Saudi Arabia's Oil Price War May Backfire
6 MINS READ
Mar 10, 2020 | 13:49 GMT
The Big Picture
Saudi Arabia is offering aggressive discounting on its oil exports and planning to sharply increase volumes in April in the wake of its failure to agree with Russia on a path forward for OPEC+ production restraint. This move will damage the finances of oil exporters lacking diversified economies, but it is not likely that either the Saudis or the Russians will capitulate in the next few months. The result will be rapidly rising oil inventories and weak prices.

The Saudi Survival Strategy

After Russia refused last week to accept OPEC's proposal to cut oil production by 1.5 million barrels per day to prop up oil prices, Saudi Aramco announced on March 7 that it would lower its April pricing differentials by $4-$6 to Asia and $7 to the United States. The move took Asian differentials from premiums to steep discounts and Saudi Arabia strongly hinted at a substantial production increase, which Saudi Aramco sources confirmed to media outlets on March 8 without attaching specific numbers. The development, in turn, produced a shock to financial markets, with Brent crude oil down to $35 per barrel in late trading on March 9.

Why It Matters

The Saudi move is a declaration of a full-blown price war, which most observers did not foresee on March 6 when talks between OPEC and its nonmember partners fell apart, given that it would blow up the Saudi budget deficit, as well as the fact that Russia, even unconstrained by OPEC+ commitments, has limited potential to raise production quickly in 2020. It takes a situation in which the world oil market had been hit by a demand shock (shutdowns and other disruptions caused by the COVID-19 outbreak has sharply reduced the demand for oil) amid a modest slowdown in economic growth and added a supply shock of an unknown but potentially massive quantity. As a result, inventories will be building much more rapidly, though price drops are somewhat mitigated in the short-term by the availability of storage. But an extended COVID-19 crisis could easily force prices down to levels below where they were in 2015-2016. An extended price collapse into the $20s-$30s range, which is now likely for at least the next several months and perhaps much longer, will have broad knock-on effects on other markets. Other than energy equities, the worst impacts will be on sovereign finances of oil exporters with less-diversified economies and low sovereign reserves. In particular, Iran and Venezuela will suffer the most, as both have already been forced to sharply discount their sales to find buyers amid U.S. sanctions.

Saudi Arabia's decision to increase output likely reflects Crown Prince Mohammed bin Salman's hope that if he puts acute pressure on Russia, it will cave and agree to a significant production cut. But this all-out price war is counterproductive; as state oil company Rosneft outlined in a detailed statement on March 8, Russia was unwilling to cut production because in its view production restraint had simply led to growth in competing supply. This competition includes not just U.S. shale oil but also a lot of deep-water offshore investment in places like Guyana and Norway, stimulated by the period of higher prices in 2017-2019. That longer-cycle supply facilitated by OPEC+ restraint is just starting to come online, and the economics of those projects are such that they are not subject to delay for price-related reasons once they are started. Tensions were building between Russia and the Saudis even without the demand shock from COVID-19 because of Russia's unwillingness to equitably share the burden of restraint, which brought things to a head last week.

The Saudi move is also counterproductive in that U.S. shale production would have felt a major impact before the end of 2020 just from the lack of further production restraint, but would have bottomed out at a higher price, perhaps $40 per barrel. The difference between $30 and $45 as an average crude oil price is huge in terms of fiscal impact on producers but is not nearly as significant in terms of the volume loss that will be seen later this year from U.S. producers.

Russia's economy is going to take a major hit from the price collapse, but Moscow is in a much stronger position than Riyadh.

Russia's economy is going to take a major hit from the price collapse, but Moscow is in a much stronger position than Riyadh. Moscow has been accumulating reserves in its National Wealth Fund since 2017 at any price above $40 per barrel (with 2 percent annual inflation adjustment) and the most recent public data had the fund at $150 billion and cash reserves at $570 billion. Its budget balances with Brent in the mid-$40s, but drawing from the National Wealth Fund will help to cushion the blow if prices fall below that range. Russian President Vladimir Putin taken some criticism for implementing austerity measures and putting money away while oil prices were comfortable, but this now looks prudent. It reflects the fact that Putin accepts that the "lower for longer" price outlook is real and wanted to be prepared for precisely this type of shock.

The Saudis, on the other hand, are looking at a scenario in which the dividend payout they receive from Saudi Aramco will leave them obligated to finance roughly half of government spending from reserves and borrowing during the balance of 2020, with reserves of $502 billion. Their low debt-to-GDP ratio of 26 percent means that they can borrow, but that borrowing could become more expensive with renewed doubts about both future oil prices and the rationality and impulsiveness of Saudi policymaking. This, along with losses in the value of foreign investments held by the Public Investment Fund, will make it more difficult to maintain spending on Crown Prince Mohammed's Vision 2030 economic diversification program, which thus far has failed to make much progress generating increased private-sector employment for young adults despite ambitious stated goals. As with Putin, it would be politically difficult to admit having made a mistake and back down, since the only option on offer at present would probably be a continuation of current quotas, not any concessions from Russia.

All of this leaves the world facing an extreme level of uncertainty about where the oil market is headed, but it does not seem likely that we will see a sharp recovery in prices in the next few months.

Crafty_Dog

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George Friedman
« Reply #732 on: March 10, 2020, 09:02:37 AM »
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March 10, 2020   View On Website
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    Oil Prices
By: George Friedman

Since before World War I and throughout the 1970s, the people who controlled oil had a lever for controlling others. Since the 1980s, the equation has shifted; oil producers have become dependent on oil consumers. Demand was always there, and then it started to vary and the political stability of oil producers also varied.

Geopolitical Futures’ forecast for 2020 was that there would be a global economic slowdown, whose effects would be intensified by dynamics kicked off by the 2008 crisis. We saw the 2008 crisis as being an exporters’ crisis, in which countries dependent on exports, particularly China, had been badly hit by the decline of global demand for manufactured goods, and exporters of raw materials, particularly Russia and Saudi Arabia, were hurt by the decline of demand in manufacturing countries like China. Our view of 2020 was that a routine business cycle would resurrect those pressures.

We did not anticipate the coronavirus, nor the global panic, particularly the disruption of the Chinese economy. We predicted that the Chinese economy would be disrupted as a result of a decline in global demand, and this would be followed by a decline in oil prices. The result would be increased global political stress, particularly on oil producers. Energy accounts for 30 percent of Russia’s gross domestic product and 60 percent of Russia’s exports. It accounts for 50 percent of Saudi Arabia’s GDP and 70 percent of its exports.

The political consequences of the global slowdown, according to our forecast, would be most intensely felt by countries most dependent on energy production. The second tier of countries that would be most affected were those most dependent on exports, led by China and Germany, which relies on exports for nearly 50 percent of its GDP. These countries would face internal political turbulence as the decline affected internal economic systems, and social systems as a whole.

European countries have seen contractions in their economies, or declines in growth. China was under heavy economic pressure before the U.S. imposition of tariffs, and was facing instability in Hong Kong and Xinjiang. Russian President Vladimir Putin had imposed a radical new model for Russian governance and was obviously sensitive to weakness in oil prices, which could not return to the high prices that had previously fueled the Russian economy. The United States is the strongest economy in the world, partly because among the major economies it is least dependent on exports, which account for about 13 percent of GDP, with nearly half going to Canada and Mexico. What is happening is in outline what we expected: China is staggering, triggering a decline in oil prices, and the U.S. is slowing but not going into crisis.

The question now is what the effects of the decline of oil prices will be on Saudi Arabia and, most important, Russia. The economic consequence has to be substantial. Russia has reserves, and it has claimed that the Russian system would continue to function well with oil as low as $40 per barrel. At the time of writing, the price is below that level, and reports of serious economic stringency, especially outside of Moscow and St. Petersburg, were rampant even before this crisis. More important, when the Russians speak of reserves, they are speaking of their national budget. That budget is a vital part of their economy but far from all of it. The budget may have some buffering, but the rest of the economy is highly vulnerable to the impact of low oil prices.

Russia is a major power, and as with the Soviet Union, which was difficult to read until it collapsed, economic instability in Russia is significant globally. Many have argued that the Soviet Union collapsed because of low oil prices and high defense spending. I think these were contributing factors but not decisive. We are seeing those forces at work now as well. This also explains why the Russians were not prepared to cut oil production when the Saudis demanded it. The Russians simply could not absorb the cost of stabilizing the price of oil. It is not clear that the Saudis can either, but their global significance, once massive, has declined greatly since the 1970s, and even Saudi Arabia’s regional power is limited. Whether the Saudis miscalculated, acted out of domestic pressures, or now expect the Russians to limit the damage on them by aligning with the Saudis is unknown, but the damage to the global economy is intense and has been inevitable for some time. It is the speed that is unique and damaging.

There have been analyses arguing that the Russians engineered the decline in prices to hurt U.S. shale producers. Given that it was not Russia but Saudi Arabia that engineered the decline (Russia was resisting the Saudi price cut), this would be Russia cutting off an American finger while cutting its own throat. The Russians are enormously more dependent on higher oil prices than the Americans are. Texas oil will be hurt, but that is a fairly small part of the American economy, and nowhere near the 30 percent of Russia’s economy.

The economic and political question surrounding the coronavirus is how long it will take to normalize its presence. The virus is new and frightening. It is likely not going to disappear. If it does not, it will be integrated into expectations around the world. As with other diseases, some people will get it and some will die. Shutting down the movement of people and goods and slashing economic output will likely produce net negative results greater than the coronavirus. Unless it appears that it has the characteristics of the Black Death, it will become part of the panoply of diseases like tuberculosis, Lyme disease or malaria that the world lives with. The arrival of treatments and vaccines will of course speed this up.

The question then is what the economic damage will be, and therefore what the political damage will be. China is the fulcrum of the issue, and its problems go beyond the coronavirus. It is also the largest importer of oil in the world. As its economy weakens, oil prices will decline. And with the decline of oil prices, oil exporters will face serious economic problems, and political tension as their economies weaken. The coronavirus did not cause this. It did, however, intensify the time frame dramatically.   




DougMacG

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Re: George Friedman
« Reply #733 on: March 10, 2020, 10:57:13 AM »
Classic trade war behavior.  You shot a hole through your own boat and are taking on water.  I retaliate by shooting two holes in my boat.  Friedmavn:  "this would be Russia cutting off an American finger while cutting its own throat."

Putin is constrained only by his own assets and resources, but I highly doubt the Saudi Princedom will sacrifice its relationship with the US over this.  I can't find a link but understand that Trump and MBS are in communication.

Also hurt is Iran?  Too bad.

The US oil business is not going out of business forever because of this feud.  These two major players cannot force the rest of the world out of the market.

Don't high energy prices cause a slowdown?   What happened to the theory that a low oil price is an economic stimulus - for the world? 


Crafty_Dog

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Russia ready?
« Reply #735 on: March 12, 2020, 09:24:13 AM »
March 12, 2020   View On Website
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    The Implications of an Oil Price Crash for Russia
By: Ekaterina Zolotova

It’s turning out to be a tough week for the world’s major oil producers, especially Russia. After Moscow refused to agree with OPEC members on production cuts to try to stem declining oil prices, the price of Russian Urals crude, which is sold on average for $1.5-$2 less than Brent crude, plummeted this week, reaching $31.4 per barrel on Tuesday, its lowest level since January 2016 when it was at $30 per barrel. The Russian ruble, in turn, fell to 72.5 rubles to the dollar and 82.7 rubles to the euro. When the Moscow Exchange opened on Tuesday, the value of Russian oil companies had fallen by 1.6 trillion rubles. Lukoil estimated that Russia would lose $100 million to $150 million daily as a result of failing to reach an agreement with OPEC. The Russian economy will clearly feel the effects, but there will likely be consequences for Russian society and foreign policy as well. This raises a critical question: How prepared is Moscow, really, for an oil price crash?
 
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Despite the Russian government’s desire to reduce the country’s dependence on oil, Russia’s economy remains highly reliant on revenue from the energy sector. In fact, a recent analysis by Russia’s statistics agency, Rosstat, found that the Russian economy's dependency on raw materials industries actually increased from 2010 to 2018. In January, oil and natural gas accounted for nearly 40 percent of the federal government’s revenue. The plunge in the price of Urals crude, therefore, is bound to have an impact on the Russian economy.
 
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But even before the failure to reach an agreement with OPEC, there was plenty of uncertainty around oil prices in Russia for several reasons. Prior to this week, oil prices had fallen 17 percent since the coronavirus outbreak began due to low demand from China and increased supply. In addition, Russia’s ongoing dispute over oil prices and supplies with Belarus, a country to which Russia delivers roughly 1.5 million tons of oil per month and had planned to increase deliveries to 2 million tons per month, led to oversupply in Baltic ports and Russian refineries. Furthermore, Moscow is anticipating a potential drop in demand for Russian energy in Europe, the largest buyer of Russian oil, because of ongoing repairs to European refineries, tougher environmental standards for marine fuels and increased competition in European markets from other oil suppliers hurt by declining Chinese demand.

Due to this combination of factors, Urals crude is now priced below the value projected in the 2020 budget, $42.40 per barrel. The government can survive with oil at this price, but its ability to replenish its reserves will be severely restricted. Russia introduced in 2018 a mechanism designed to reduce the economy’s dependence on energy and create a reliable source of cash during times of shortfall. According to this mechanism, all revenues from oil and gas sales when prices are above the base value are directed to the National Wealth Fund. So long as prices remain below $42.40, therefore, that fund will not receive any new infusions.

Beyond the price used to regulate contributions to the NWF, Russia has also outlined additional tiers for oil pricing that it uses for economic planning purposes. One key tier is called the “risk scenario” tier. For 2020-22, Russia’s central bank set this category at $20-$25. Under this scenario, it was anticipated that the Russian economy would face recession, gross domestic product would fall by 1.5-2 percent and, for 2020, annual inflation would grow to 6.5-8 percent (in 2019, it was 3.2-3.7 percent). The Ministry of Finance also said this week that if oil prices drop to $25-$30 prices for a year, oil and gas revenue for the budget will decline by 1.6-2.4 percent. The decline would be 5-7.6 percent if that price were sustained for three years.

The risk scenario also anticipates a fall in the value of the Russian currency to 80-90 rubles to the dollar. As a result, the total amount of rubles accumulated in the budget from oil and gas sales would actually increase, which would lead to increased spending that could be financed by funds from the NWF. The risk scenario also anticipates a decrease in Russia’s international reserves due to the sale of foreign currency that may result from oil prices dipping below the base value. According to the central bank’s projections, however, the economic slowdown would be short-lived; even under these circumstances, the economy can be expected to move toward recovery and grow by 1-2 percent in 2021, and by 3.5-4.5 percent in 2022.
Generally speaking, the current situation will not cause a complete collapse of the Russian economy. Clearly, Russia has considered the possibility of a steep fall in oil prices and planned for such a scenario. And on Monday, the Russian Ministry of Finance announced that it would sell foreign currency to try to boost the ruble after its value plunged following the oil price crash.

The government has also made clear that Russia has sufficient reserves to avoid a federal budget deficit. On Feb. 20, the NWF had reached 7.84 trillion rubles (equal to 6.9 percent of GDP), and according to Ministry of Finance estimates, it will reach 10 trillion rubles in March. The government is allowed to spend funds from the NWF in two cases: if oil prices drop below the baseline value, and if the fund reaches 7 percent of GDP. If reserves increase above 7 percent of GDP, the government can use the funds to invest in things like infrastructure. In addition, Russia’s accumulated foreign reserves currently stand at $570 billion, which is enough to cover costs for at least three years during an oil price slump. The Ministry of Finance said on Monday that Russia has sufficient reserves to sustain the country’s finances for six to 10 years if oil prices fall to $25-$30 per barrel.
 
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Furthermore, maintaining the level of production for Russia is no less important than oil prices. Today, taxes on mineral extraction make up a growing share of the federal budget. In January 2020, revenues from oil production accounted for 25 percent of total revenues, while export duties from oil exports formed only 5 percent. And since the tax rate is constant – it is set in rubles per 1 ton and later multiplied by a coefficient reflecting world oil prices – the important thing for Russia’s budget is that production volumes increase. Because of the collapse of the OPEC+ agreement, all restrictions on production will be lifted beginning in April, meaning Russia can increase production. For Russia, this means developing oil fields where commercial production has not even begun: for Lukoil, in the Filanovsky and Grayfer fields in the Caspian; for Gazprom Neft, in East Messoyakhskoe on Yamal and Kuyumbinskoye in northern Krasnoyarsk region; and for Rosneft, in West Erginskoye in Ugra and Suzunskoye in Eastern Siberia. In fact, Rosneft contends that the OPEC+ deal was “meaningless” for Russia, forcing the company not to develop its own projects and clearing space for American shale oil, because all the volumes of oil that were not produced because of the agreement were quickly and completely replaced on the world market with American production.

Moreover, a weaker ruble as a result of the drop in oil prices may work to Moscow’s benefit. According to the Ministry of Finance’s calculations, each deviation by one ruble from the forecast of 65.7 rubles per dollar equates to a change in oil and gas budget revenues in 2020 of 70 billion rubles. In other words, the federal budget might expect some additional income from a weakening ruble.

Low prices may be an opportunity for Russia to put energy disputes such as that with Belarus behind it. Minsk is already considering the fall in world oil prices as an opportunity to conclude an agreement with Moscow on the supply of oil to the republic. This is quite timely, because if Russia and Belarus do not agree within a month, the situation with Urals prices will get worse: April and May is generally the time of year when Russian refineries focus on repairs, which means that it will be much more difficult at that time for oil companies to process additional volumes of oil. Simply put, the price of Urals production will be more unstable and could fall even lower than in the dire scenario prepared by the central bank.

However, in any scenario where oil prices are lower than $42.40 per barrel, the NWF will most likely be spent to cover the emerging budget deficit – and fewer funds will be directed to finance the social initiatives that President Vladimir Putin outlined in his message to the Federal Assembly in January.

These federal initiatives are considered key elements of developing the Russian economy and improving living standards, but more than half the projects are less than 20 percent complete, and doubts have been raised about the effectiveness of implementation. Since the Russian government needs large-scale social projects that require large investments in order to stimulate economic growth, it is in the government’s interest to have a constant budget surplus.

But in recent years, the improvement in living standards has stalled, particularly because of falling oil prices. Rising inflation will also put pressure on Russian citizens. The government’s plan to reduce poverty to 10.8 percent will be impossible to fulfill with falling oil prices, and in fact the situation of almost half of Russians may worsen. About 14 million Russians live below the poverty line, about 20 million have incomes below the subsistence level, and small business does not develop effectively due to the lack of domestic demand. Further impoverishment of the population may also reduce the birth rate, which the government is so desperately trying to raise. If oil is already below the budgeted price, the Putin government simply will not be able to fulfill its political promises, and the real incomes of people will continue to fade.

The Russian government has prepared for the most severe scenario. Russia will be able to cope with oil below $30 per barrel, but only by sacrificing its budget surplus, its rainy day funds and its political promises to raise living standards. This sacrifice will mean the government cannot solve long-standing social problems and will lose the trust of the people. There is only one price that the Kremlin considers acceptable, and that is above $42.40 per barrel.   




DougMacG

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Mark Mills on the Russian-Saudi price war
« Reply #736 on: March 13, 2020, 11:32:10 AM »
« Last Edit: March 13, 2020, 04:06:11 PM by Crafty_Dog »

Crafty_Dog

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Russia vs. Saudi price war
« Reply #737 on: March 19, 2020, 08:53:46 AM »
As Oil Prices Plummet, Russia and Saudi Arabia Dig in for a Long Fight
Greg Priddy
Greg Priddy
Director, Global Energy and Middle East, Stratfor
10 MINS READ
Mar 18, 2020 | 10:00 GMT
A photo of a pump jack extracting crude oil from a snow-covered well located near Surgut, Russia.
A pump jack extracts crude oil from a well near Surgut, Russia.

(Alexei Andronov\TASS via Getty Images)
HIGHLIGHTS
Crude oil prices are likely to dip further in the second quarter of 2020 and stay at depressed levels due to the ongoing price war between Saudi Arabia and Russia.
Saudi Arabia will continue to ramp up its oil output and keep prices low in an effort to coerce Russia into scaling back its own production amid coronavirus-related drops in global demand.
This strategy, however, is unlikely to be successful, as Russia's unwillingness to cut production reflects its longstanding concerns about loss of market share, as well as its much more pessimistic view of the market compared with Saudi Arabia.
As global prices plummet, Saudi Arabia's financial reserves will burn at a much more rapid pace than Russia's due to the disparity between the two countries' fiscal breakeven points on crude prices.
Despite mounting fears of coronavirus-related drops in global oil demand, Saudi Arabia recently signaled its intent to flood the market with even more discounted exports following Russia's rejection of proposed OPEC+ production cuts. In doing so, Riyadh is hoping to force Moscow back to the negotiating table, though such a gamble is almost sure to backfire — and badly.

For one, Russia has long been wary of shrinking its oil output for fear of also shrinking its market share, and is thus unlikely to quickly cave to Saudi Arabia's demands. And compared with Riyadh, Moscow also has more cash reserves to ride out a period of low prices. Saudi Arabia's oil-dependent economy, on the other hand, will be among those hardest hit from the very price cuts to it's now willingly helping to exacerbate.

The Big Picture
The increasing number of quarantine procedures and travel restrictions due to the coronavirus pandemic could deplete global oil demand in the near-term. But following the dramatic collapse of cooperation between OPEC and non-OPEC allies (known as OPEC+), global production is still expected to rise sharply by April, leaving the oil market to reckon with simultaneous supply and demand shocks.

See Energy
Russia's Rationale
Following Russia's recent falling out with Saudi Arabia on production cuts, the meeting of the OPEC+ Joint Technical Committee scheduled for March 18 — which Russian officials had previously said they would attend — was canceled. Russian Energy Minister Alexander Novak then put the nail in the coffin on March 13, telling Russian state media that Moscow sees no basis for returning to negotiations with its former OPEC+ partners. Russia’s decision to pull out was precipitated by the Saudi-driven ultimatum to back a 1.5 million barrels per day (bpd) of production cut through the end of 2020. But in many ways, Moscow's response was a long time coming, and reflects its focus on market share and long-term revenue maximization.

Russian commitments to production cuts under the OPEC+ framework has never exceeded 300,000 bpd. Saudi Arabia, by contrast, has consistently overperformed on its obligations since the initial December 2016 agreement on production restraint. Compared with Saudi Arabia, Russia has also often taken longer to implement cuts. As a result, Russia has largely maintained its volume in recent years, and even benefited from the 2017-2019 price surge, while failing to bear anywhere near a proportional share of the burden — a trend that has increasingly frustrated Saudi Arabia. In fact, Russian production of hydrocarbon liquids was actually higher in the first quarter of 2020 than it had been in December 2016.


Deputy Prime Minister Igor Sechin — who's also the CEO of Russia's state-owned oil giant, Rosneft — has vocally opposed participating in OPEC+ from the beginning, but was overruled by President Vladamir Putin. However, the Russian oil industry’s argument against ceding more of its market share has been strengthened since the prices for Brent crude oil futures surged past $70 in 2018. This resulted in U.S. production growth of more than 2 million bpd in 2019, offsetting demand for Russian crude (as well as the entirety of global demand growth). But U.S. shale isn't the only price-sensitive supply. Roughly half of the supply growth is now coming from outside the United States as well, mostly from deepwater projects in Norway, Brazil, and Guyana.

In mid-2019, Putin publicly opposed Saudi Arabia's push for higher prices, saying he viewed the $60-$65 range as "comfortable." Then in March, concerns about both slowing economic growth and the early development of the coronavirus pandemic dragged Brent prices down further to the $50 range in early March, which Russian officials including Putin repeated that they still remained comfortable with. It should thus perhaps come as no surprise that Moscow turned down the Saudi-led production cut proposal in the March 5-6 meeting between OPEC+ ministers.

Moscow's View of the Market
All of this suggests that the Russian leadership has accepted a pessimistic view of the current market and believes that prices need to spend some time below their equilibrium to temper higher-cost supply for both short-cycle shale and longer-cycle offshore products. The Russian government's position was recently made very clear by Deputy Energy Minister Pavel Sorokin. In an interview with Reuters, Sorokin said Russia intended to let market forces deal with the surplus, expecting initial signs of weakness in competing supply in four-to-six months. He also alluded to longer cycle offshore supply, saying that if Russia had agreed to the Saudi demand for a large OPEC+ cut, it would have led to investment decisions facilitating competing supply growth three-to-four years out. Surprisingly, he put forward the view that Russia's equilibrium is the $45-$55 per barrel range, which he said should be comfortable for producers and allow demand to recover.

In going this route, Russia is accepting a period of significant fiscal pain to maximize revenue gains in the long-term. Alexei Kurdin, the head of the Accounts Chamber of the Russian Federation, said that current oil prices would reduce government revenue by $42 billion, and that the price collapse and weakening of the ruble would force Russians into increasing poverty. As the parliamentary body that oversees financial control, the Chamber's forecasts tend to be more pessimistic than the Russian government's outlook, but are often more accurate.

The Russian Central Bank said it was better prepared and had higher reserves to deal with a price collapse now than it was during the 2014-16 collapse. With Russia’s main export oil blends, Urals, likely to remain below $41.62 per barrel for the remainder of the year, its foreign exchange reserves will take a hit. Social spending will suffer as a result, and Russia’s regional governments will deplete their reserves and be forced to borrow. But Russia's overall fiscal breakeven for Urals is in the mid-$40s. And this, combined with the fact that hydrocarbon exports make up less than 35 percent of overall government revenue, puts Russia in a stronger position than Saudi Arabia to take the pain of falling crude prices. But despite these Risks, Moscow has calculated that long-term revenues would suffer with the loss of market share due to production cuts. And that in the absence of an OPEC+ agreement, competitors will begin to change their investment decisions soon regardless, though most of the volume loss would likely be in 2021 after prices bottom out and begin to recover.

Saudi Arabia's Risky Gamble
Saudi Arabia also has a financial cushion to maintain its current standoff, with roughly $502 billion of reserves. But with Riyadh's fiscal breakeven at over $80 per barrel, lower oil prices will begin to drain those reserves much more quickly than Russia's reserves. The kingdom's 2020 budget was based on a 6.4% deficit with Brent crude oil prices at $65 per barrel. This has fueled Saudi Crown Prince Mohammed bin Salman's recent push for higher prices, as well as his willingness to take a losing gamble that Russia would cave to an ultimatum for a large cut once they were confronted with the prospect of a price collapse. But his decision to retaliate against Russia by slashing its oil prices and ramping up output risks backfiring, and badly.


The kingdom's state-backed oil giant Saudi Aramco announced it was cutting prices on March 7, and then pledged to supply the market with 12.3 million bpd of crude oil and petroleum products just two days later. That is more than the kingdom can actually produce each day based on Saudi Aramco's current infrastructure, despite claiming to have a capacity of 12.5 million bpd. But the move alone was enough to send prices tumbling. In response to OPEC+'s failure to reach a production cut agreement on March 6, Brent crude prices had closed at $46. But when after-hours trading resumed the night after Saudi Arabia announced its decision to increase production on March 7, it had dropped an additional $13 to $33.

This illustrates a part of the dilemma for Riyadh. Compared with Russia, Saudi Arabia finds the prospect of Brent prices recovering only to the $45-$55 range by late 2021 much less comforting. Of course, such a range is not ideal for Moscow either, but it is much more tolerable as Moscow is draining reserves at a slower pace and can hope to recover to their budget-balancing point in 2021. But as Saudi Arabia pounds prices into the ground, Brent futures could soon fall in the $20-$30 range.

If prices stay in the $30s or below for most of this year, Saudi Arabia will be forced to curtail social spending, as well as further delay the expensive projects under its already troubled Vision 2030 economic diversification program. For smaller producers elsewhere, this will drop prices below not just profitability but current operating costs, and forcing some competing supply offline. As oil demand falls, supply will eventually and dramatically contract elsewhere heading into 2021. But the inventory overhang will still prevent prices rising back to $60 while there is an inventory overhang, while Russian reserves would stabilize at $45-$50.

Possible Outcomes
This leaves a situation in which there are several plausible outcomes, with the most likely being that OPEC+ never reaches a deal to cut production and the physical market eventually corrects itself (as Russia anticipates). Within that scenario, Saudi Arabia's behavior becomes all the more crucial. Even without a formal deal with Russia, Riyadh could push OPEC or a smaller break-off group with other Gulf Arab nations to undertake a production cut, which would mean less financial pain for everyone, but particularly the Saudis, and a faster return to equilibrium. Such a cut could be done informally to avoid the appearance of capitulation, and could also still allow Riyadh the option of gradually taking more market share later on (though that would require keeping prices below $60 to prevent another resurgence of U.S. shale and other higher-cost production).

Saudi Arabia has underestimated just how long Moscow can endure low oil prices, which could come to its own detriment and that of other oil producers.

The alternate scenario is that the financial pain of dropping oil prices eventually brings both Saudi Arabia and Russia back to the table. A Russian capitulation and acceptance of the original Saudi-led OPEC proposal is unlikely, given that Russia clearly wants to avoid a feedback loop where production cuts yield a premature price recovery that ends up cutting into its market share. But that doesn't mean a smaller deal where the Russians commit to a modest cut and the Saudis again bear more of the burden isn't a possibility, or even a Russian capitulation and acceptance of the original Saudi-led OPEC proposal. Given the relative financial strength of both Moscow and Riyadh, this is perhaps the most probable outcome should Saudi Arabia and Russia reopen negotiations. Such a deal could try to jumpstart the market back to the $45-$55 range that Sorokin outlined, which would be a climbdown for the Saudis and a loss of face for Crown Prince Bin Salman, but it would lessen the burn rate on Riyadh's reserves.

DougMacG

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Re: Russia vs. Saudi price war
« Reply #738 on: March 19, 2020, 09:01:05 AM »
At some point you can't produce more oil once all the tanks, tankers and pipelines are full.  Until then, have at it.  Russia without money is a safer world for the rest of us.

G M

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Re: Russia vs. Saudi price war
« Reply #739 on: March 19, 2020, 10:46:33 PM »
At some point you can't produce more oil once all the tanks, tankers and pipelines are full.  Until then, have at it.  Russia without money is a safer world for the rest of us.

Maybe. Is Iran? Desperate people do desperate things.

DougMacG

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Re: Russia vs. Saudi price war
« Reply #740 on: March 20, 2020, 06:41:47 AM »
At some point you can't produce more oil once all the tanks, tankers and pipelines are full.  Until then, have at it.  Russia without money is a safer world for the rest of us.

Maybe. Is Iran [safer going broke]? Desperate people do desperate things.

Really good point.  I guess I meant more harmless long term without resources, not for the next military or terror move of a desperate dictator.  It costs money for Iran to be the world leading state supporter of terror, to spread their evil across the Middle East and across the Atlantic.  It amazes me to see the presence of Iran-backed Hezbullah in Brazil, Argentina for examples.  It cost Russia money to prop up Castro and Chavez to oppose us all those years.  The fall of the Soviet Union came out of not being able to compete with us economically.  Now, coming out of this crisis, is the time to fly past all these rogue states including the Xi Jinping dynasty.  But not if we go from number one oil producer in the world to having our businesses produce and our homes heated only when solar panels light up or wind turbines spin.
« Last Edit: March 20, 2020, 09:17:33 AM by DougMacG »

Crafty_Dog

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Why Saudi Arabia's oil price war won't work
« Reply #741 on: March 27, 2020, 07:52:10 AM »
March 27, 2020   View On Website
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    Why Saudi Arabia’s Oil Price War Won’t Work
By: Caroline D. Rose

For nearly three years, since the 2016 oil market crash and the U.S. shale boom, Russia and Saudi Arabia worked together to stabilize global oil prices as part of the OPEC+ alliance. But it seems this partnership is now on the brink of collapse. As the coronavirus pandemic threatens to shutter businesses, ground airlines and put a massive dent in consumer spending, demand for fuel has sharply declined – especially with the world’s top oil importer, China, being among the countries most affected by the outbreak early on. With a vaccine for COVID-19 at least a year away, there are few signs that demand will recover any time soon. Earlier this month, OPEC members urged producers to curb output, but one country refused to toe the line. Russia resisted OPEC’s call to cut production by 1 million barrels per day, hoping instead to take advantage of other producers’ willingness to do so. In response, Saudi Arabia has deployed a strategy of brinkmanship, announcing that it would increase output by 2.5 million bpd in April to drive prices down and force Russia into compliance.

The Saudi strategy is twofold. It’s attempting to lower prices to attract customers who are willing to stockpile supplies. At the same time, it’s hoping low prices will squeeze Russian finances and force Moscow to surrender to OPEC demands. But this strategy will come at a high cost to the Saudis. It is forcing Riyadh to draw more from its sovereign wealth fund than it had previously intended, drying up funds that it hoped to use to support its engagements abroad and to diversify its economy. The coronavirus crisis has highlighted countries’ prioritization of national interests over the collective, and the oil price war is no different. Russia and Saudi Arabia have raised the stakes to generate revenue, increase market shares and compete for dominance in the global oil market.

Can Saudi Arabia Keep Up?

The Saudi government has indicated that it is in a race to increase pressure on the Kremlin, cranking up production to nearly five times that of Russian crude output. But can it play the long game, balancing its budget at a lower price than Russia can? From its perspective, getting Russia to capitulate is a long-term objective, and one worth incurring revenue losses in the short term, because it will demonstrate that the Saudis really call the shots for OPEC+ members. Saudi Arabia believes its ability to produce oil cheaper than Russia ($8.98 per barrel compared to $19.21 for Russia) and larger global market share give it an advantage.

In reality, however, Riyadh may be forced to yield before Moscow. Saudi Arabia needs oil prices at $91 per barrel – more than three times the current price – to balance its 2020 budget. In contrast, Russia’s 2020 budget is based on oil priced at $42.40 per barrel, meaning that it can actually tolerate low prices for longer than the Saudis.
 
(click to enlarge)

Currently, Brent crude is at $28.70 per barrel, while Saudi Light is priced at $26.54. Some experts have predicted that prices could plummet even further to just $10 per barrel, as businesses big and small feel the fallout of the coronavirus crisis. Some observers believe the low prices could lead to a 2-4 percent decline in Saudi Arabia’s gross domestic product. Even with the country’s reserves – some of the largest in the world, with assets worth $320 billion – current prices are unsustainable, particularly given that the crisis could last eight months to a year. True, this isn’t Riyadh’s first time facing a crash in oil prices; it has managed to manipulate the market to its advantage during other times of crisis. During the oil surplus in the 1980s, it reduced its own production to try to keep prices high. It also manipulated the market in 2014 to counteract the U.S. shale boom. But in the current environment, increasing demand will be far more difficult, especially as the pandemic and an oncoming recession paralyze importers and sectors dependent on fuel. Even stimulus packages worth billions of dollars may not be enough to produce a surge in energy demand. They may help keep some companies and industries afloat, but they likely won’t produce an immediate and prolonged spike in oil sales.

In addition, Russia’s energy sector is showing no sign of slowing down. In fact, the country has increased its output by 500,000 bpd – half of Saudi Arabia’s own increased output – proving it can weather the storm. Furthermore, the Kremlin said it had enough cash to get through six to 10 years of oil prices between $25 to $30 per barrel. Russia will take a hit, of course, but in the long term its outlook is more optimistic than Saudi Arabia’s.

Domestic Considerations

Even before OPEC+ negotiations collapsed, Riyadh anticipated declining demand. The Saudi Finance Ministry asked government agencies to cut spending by 20-30 percent at the beginning of March in anticipation of a crash in prices. Now, with the coronavirus pandemic and the ongoing price war, Saudi Arabia has pumped the brakes even harder on spending. Last week, the government announced it would slash its 2020 budget by 5 percent, or 50 billion riyals ($13.2 billion). The government said the cuts would have no socio-economic impact, but the reality is that most of the cut funds were intended for projects in its non-oil sector.

As oil demand wanes further and prices fall, Riyadh will have to draw more money from its Sovereign Wealth Fund than it originally intended – funds that were meant to support long-term objectives, like its involvement in Yemen’s civil war, countering Iran’s expansion in the Middle East and diversifying its economy. Despite reduced spending, Saudi Arabia is still looking at a $61 billion deficit for this year, according to some experts, as revenue falls short of the government’s 2020 projection ($210 billion) and spending hovers around $270 billion. And the country is simultaneously facing another challenge: domestic control.
 
(click to enlarge)

Over the past few weeks, members of the royal family and activists alike have criticized Riyadh’s management of the coronavirus crisis, despite the fact that Saudi Arabia has not been hit as hard by the outbreak as many other countries, registering about 1,000 confirmed cases so far. The government’s decision to suspend prayer at mosques in Mecca and Medina, Islam’s two holiest cities, has undermined its credibility as the guardian of the Islamic faith and sparked concerns in the Islamic community that the coronavirus threat will continue well into the summer and force the government to shut down the hajj pilgrimage, which is set to take place in July and August. This, too, carries serious economic consequences; the hajj brings 2.5 million visitors to Saudi Arabia every year and just over $12 billion in revenue, accounting for about 20 percent of the country’s non-oil economy.

Though the royal family still has a strong grip on power, public frustration with low oil prices could test the Saudi leadership. Approximately 20 percent of the country’s population holds shares in Saudi Aramco, so low oil prices resulting in part from Riyadh’s efforts to force Russia to capitulate could lead to widespread anger – even dissent. This could intensify if a recession emerges in Saudi Arabia, where unemployment has been high since 2015, reaching roughly 12 percent at the end of 2019.
Most important, the price war will put at risk Saudi Arabia’s most vital domestic objective of the first quarter of the century: reducing its dependence on oil through the Vision 2030 campaign. In 2016, the country promised it would be able to “live without oil” by 2020. But 2020 has arrived and Saudi Arabia remains reliant on energy – even more so now that the price war is chipping away at funds intended for investment in non-oil industries. Crown Prince Mohammed bin Salman has touted Vision 2030 as a strategy to diversify the economy, bolster the private sector, increase social spending and reduce unemployment to 7 percent. But Vision 2030 has been hampered by declining oil prices and has struggled to attract foreign investment. The current price war will only exacerbate these problems.

Both Russia and Saudi Arabia acknowledge that this game cannot last; one or the other will succumb to the fiscal pressure and slow down production. Neither country wants to be the first to do so, however. For MBS, the pressure to mitigate the ripple effects of low prices while also keeping the heat on Russia is mounting. Winning the price war is critical to Saudi Arabia’s credibility, both at home and abroad.

Geopolitical Outcomes

As the gap between Moscow and Riyadh widens, there have been broader effects on the oil market and other producers. One of the unintended victims of the price war has been the U.S. shale industry. Producers have already begun to slash spending, prevent share buybacks, furlough employees and announce service discounts to stay afloat. By the beginning of this week, WTI shed 60 percent of the value it had accumulated since the start of this year. There is now talk of a wave of bankruptcies as debt accumulates and write-downs skyrocket. Regulators in Texas are beginning to consider curbing production – for the first time in 50 years.

But new opportunities have also opened up. The U.S. has tried to convince Saudi Arabia to ease up and even publicly acknowledged the possibility of a U.S.-Saudi oil alliance. That acknowledgment came after reports that some U.S. energy officials were interested in establishing an agreement with the Saudis to stabilize prices. Such an alliance would inevitably act as a counterbalance to Russia’s oil industry.

Washington already appears to be making attempts to align closer with the Saudis. On Monday, the U.S. fast-tracked the appointment of Victoria Coates as a special energy representative to Saudi Arabia. The U.S. also announced plans to dispatch Coates to Riyadh for the next few months for negotiations with Riyadh. There has also been talk of the U.S. potentially arranging a meeting with Saudi leaders to convince Riyadh to match cuts made by the United States.

As it stands, the road to recovery is long. Saudi Arabia, unable to set prices or increase demand, is running out of options and adopting a series of risky moves, hoping that it can either force Russia to capitulate or find new partners with which to navigate the oil market. OPEC+ as a price control regime is fragmenting, and Saudi Arabia is increasingly unable to sustain its pressure campaign on the Russian energy industry. And as the coronavirus crisis intensifies and a global recession looms, it will become even more difficult for the Saudis to coerce the Russians into compliance.   




DougMacG

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« Last Edit: March 29, 2020, 10:59:00 AM by DougMacG »

Crafty_Dog

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Re: Energy Politics & Science
« Reply #743 on: March 29, 2020, 12:06:31 PM »
To be fair, there are concerns about contamination of the water table.



DougMacG

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https://www.powerlineblog.com/archives/2020/04/civil-war-on-the-left-michael-moore-against-the-greens.php

Shockingly, some amazingly important points are made here and it is all done without any of the familiar voices of the right.

If you care about the earth, if you care about carbon dioxide, this isn't the way to do it.  Is anyone listening?
--------------------------------

https://www.nature.com/articles/nclimate1451
Richard York, University of Oregon
"each unit of electricity generated by non-fossil-fuel sources displaced less than one-tenth of a unit of fossil-fuel-generated electricity"

   - Who knew?



DougMacG

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Hydroelectric is clean? Blocking migratory pathways?
« Reply #747 on: July 28, 2020, 06:46:11 AM »
"Populations of migratory river fish around the world have plunged by a “catastrophic” 76% since 1970, an analysis has found. The fall was even greater in Europe at 93%, and for some groups of fish, with sturgeon and eel populations both down by more than 90%. Species such as salmon, trout and giant catfish are vital not just to the rivers and lakes in which they breed or feed but to entire ecosystems. By swimming upstream, they transport nutrients from the oceans and provide food for many land animals, including bears, wolves and birds of prey. The migratory fish are also critical for the food security and livelihoods of millions of people around the world, while recreational fishing is worth billions of dollars a year. The causes of the decline are the hundreds of thousands of dams around the world, overfishing, the climate crisis and water pollution."
(via The Guardian today)

Of course the obligatory climate change, liberal source, but dams were listed first, hundreds of thousands of dams.   Water pollution has not been getting worse for 50 years.  We are back to dams and over-fishing. 

Not mentioned, some of the 'migratory' fish we want stopped, jumping Asian carp for example.