Bay Area Air Quality Management District approves plan to cut pollution at oil refineries
By Denis Cuff , 12/18/2014
SAN FRANCISCO — Regional air pollution regulators on Wednesday approved a far-reaching blueprint to cut Bay Area oil refinery emissions by 20 percent.
Under the plan, the Bay Area Air Quality Management District board will consider a package of air pollution rules in 2015 to reduce emissions from five refineries.
More rigorous monitoring of refinery emissions will be required. To assure continued clean air improvements, refiners will be required periodically to assess their pollution and ways to reduce it.
“This strategy will ensure that refineries are taking the strongest steps to cut emissions and minimize their impacts on neighboring residents and the region as a whole,” Jack Broadbent, the air district’s executive officer, said.
The plan was approved unanimously by the air board, which regulates pollution in nine counties.
The five Bay Area refineries are Chevron, Shell, Valero, Phillips 66 and Tesoro.
U.S. shale oil production. Photographer: Andrew Burton/Getty Images
The three-way collar strategy that some drilling companies use to hedge oil and natural gas price risks could aggravate a cash crunch in the face of a steep slump in oil prices, according to this analysis. Although this hedge is cheaper than other strategies, it can expose companies to sharp price declines. “Because we’ve had high energy prices for so long, it could have given them a false sense of confidence. They picked a price they thought it wouldn’t go below. It has turned out to be very expensive,” said Ray Carbone, president of Paramount Options. MORE: Bloomberg (12/19)
Citing Health Risks, Cuomo Bans Fracking in New York State
By Thomas Kaplandec, Dec. 17, 2014
Members of New Yorkers Against Fracking celebrated the governor’s decision outside his Manhattan office on Wednesday. Credit Chang W. Lee/The New York Times
Gov. Andrew M. Cuomo’s administration announced on Wednesday that it would ban hydraulic fracturing in New York State because of concerns over health risks, ending years of debate over a method of extracting natural gas.
Fracking, as it is known, was heavily promoted as a source of economic revival for depressed communities along New York’s border with Pennsylvania, and Mr. Cuomo had once been poised to embrace it.
Instead, the move to ban fracking left him acknowledging that, despite the intense focus he has given to solving deep economic troubles afflicting large areas upstate, the riddle remained largely unsolved. “I’ve never had anyone say to me, ‘I believe fracking is great,’ ” he said. “Not a single person in those communities. What I get is, ‘I have no alternative but fracking.’ ”
In a double blow to areas that had anticipated a resurgence led by fracking, a state panel on Wednesday backed plans for three new Las Vegas-style casinos, but none along the Pennsylvania border in the Southern Tier region. The panel, whose advice Mr. Cuomo said would quite likely be heeded, backed casino proposals in the Catskills, near Albany and between Syracuse and Rochester.
Gov. Andrew M. Cuomo listened to a presentation on fracking at a cabinet meeting in Albany on Wednesday. Credit Mike Groll/Associated Press
For Mr. Cuomo, a Democrat, the decision on fracking — which was immediately hailed by environmental and liberal groups — seemed likely to help repair his ties to his party’s left wing. It came after a surprisingly contentious re-election campaign in which Zephyr Teachout, a primary challenger who opposed fracking, won about a third of the vote.
The question of whether to allow fracking, which involves injecting large amounts of water, sand and chemicals deep underground at high pressures to release oil and natural gas from rock formations, has been one of the most divisive public policy debates in New York in years. Fracking is occurring in many states, and has boomed in places like Pennsylvania and Texas. Environmental advocates, alarmed by the growth of the practice, pointed to New York’s decision as the first ban by a state with significant natural-gas resources.
Mr. Cuomo, who has prided himself on taking swift and decisive action on other contentious issues like gun control, took the opposite approach on fracking. He repeatedly put off making a decision, most recently citing a continuing — and seemingly open-ended — study by state health officials.
On Wednesday, six weeks after Mr. Cuomo won a second term, the long-awaited health study finally materialized, its findings made public during a year-end cabinet meeting convened by the governor in Albany.
In a presentation at the cabinet meeting, the acting state health commissioner, Dr. Howard A. Zucker, said the examination had found “significant public health risks” associated with fracking.
Holding up copies of scientific studies to animate his arguments, Dr. Zucker listed concerns about water contamination and air pollution, and said there was insufficient scientific evidence to affirm the safety of fracking.
Dr. Zucker said his review boiled down to a simple question: Would he want his family to live in a community where fracking was taking place?
CLICK TO OPEN Document Health Department Report on Fracking in New York State The Cuomo administration decided to ban hydraulic fracturing after concluding that the method posed inestimable public-health risks.
His answer was no.
“We cannot afford to make a mistake,” he said. “The potential risks are too great. In fact, they are not even fully known.”
New York has had a de facto ban on fracking for over six years, predating Mr. Cuomo’s election. In 2012, he flirted with approving a limited program in several Southern Tier counties. But that same year, he bowed to entreaties from environmental advocates, stating instead that his administration would begin a new study on health risks.
Mr. Cuomo had focused much of his attention on trying to improve the economic climate upstate, and fracking appeared to offer a solution to struggling areas atop the Marcellus Shale, a gas-rich rock formation that extends across parts of several states, including New York, Ohio, Pennsylvania and West Virginia.
But there was also strong opposition from groups worried about the effects of fracking on the state’s water supply, as well as on tourism and the quality of life in small upstate communities.
As he traveled around the state, Mr. Cuomo was hounded by protesters opposed to fracking, who showed up at his events and pressed him to impose a statewide ban. Opponents were also aided by celebrities who drew attention to their cause.
Complicating matters, dozens of communities across New York have passed moratoriums and bans on fracking, and in June, the state’s highest court, the Court of Appeals, ruled that towns could use zoning ordinances to ban fracking.
The acting state health commissioner, Howard Zucker, speaking at the meeting. Credit Mike Groll/Associated Press
Local bans, on top of restrictions that the state had planned, put 63 percent of the Marcellus Shale off limits to drilling, said Joseph Martens, the state environmental conservation commissioner. “The economic benefits are clearly far lower than originally forecast,” he said.
On Wednesday, Mr. Cuomo seemed determined to portray both of the day’s major announcements — and their consequences for upstate New York — as decisions made by experts objectively weighing the facts, not by him.
At the cabinet meeting, he conspicuously stumbled on the name of the panel that made the casino recommendations, as if to signal his lack of involvement in its work. And he kept some distance from the fracking decision, saying he was deferring to his health and environmental conservation commissioners.
“I am not a scientist,” he said. “I’m not an environmental expert. I’m not a health expert. I’m a lawyer. I’m not a doctor. I’m not an environmentalist. I’m not a scientist. So let’s bring the emotion down, and let’s ask the qualified experts what their opinion is.”
Nevertheless, environmental groups cast the governor as a hero. Michael Brune, the executive director of the Sierra Club, said, “This move puts significant pressure on other governors to take similar measures to protect people who live in their states.”
Fracking supporters accused Mr. Cuomo of giving in to environmentalists’ efforts to stoke public fears.
Karen Moreau, the executive director of the New York State Petroleum Council, attributed the fracking ban to a decision by the governor “that he wants to align himself with the left.”
“Our citizens in the Southern Tier have had to watch their neighbors and friends across the border in Pennsylvania thriving economically,” she said. “It’s like they were a kid in a candy store window, looking through the window, and not able to touch that opportunity.”
Correction: December 17, 2014 Because of an editing error, an earlier version of this article incompletely described hydraulic fracturing. It is a method of extracting natural gas or oil, not just oil, from deep underground. The error was repeated in the summary.
Repost from Bloomberg News [Editor: An excellent analysis – “follow the money.” Significant quote: “The average cost to operate an existing well in most parts of the U.S. “is about $20 a barrel,” Petrie said. “It might be $5 higher or it might be $5 lower, that’s the out-of-pocket costs that we’re talking about. Until you dip into that and start losing money on a cash basis day in, day out, you don’t think about shutting in” wells.” – RS]
Exxon Mobil Shows Why U.S. Oil Output Rises as Prices Plunge
By Joe Carroll – Dec 18, 2014
Crude oil production from U.S. wells is poised to approach a 42-year record next year as drillers ignore the recent decline in price pointing them in the opposite direction.
U.S. energy producers plan to pump more crude in 2015 as declining equipment costs and enhanced drilling techniques more than offset the collapse in oil markets, said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells.
Oil companies, while trimming 2015 budgets to cope with the lowest crude prices in five years, are also shifting their focus to their most-prolific, lowest-cost fields, which means extracting more oil with fewer drilling rigs, said Goldman Sachs Group Inc. Global giant Exxon Mobil Corp. (XOM), the largest U.S. energy company, will increase oil production next year by the biggest margin since 2010. So far, the Organization of Petroleum Exporting Countries’ month-old bet that American drillers would be crushed by cratering prices has been a bust.
Oil Prices
“Companies that are already producing oil will continue to operate those wells because the cost of drilling them is already sunk into the ground,” said Timothy Rudderow, who manages $1.5 billion as chief investment officer at Mount Lucas Management Corp. in Newtown, Pennsylvania. “But I wouldn’t want to have to be making long-term production decisions with this kind of volatility.”
A U.S. crude bonanza that has handed consumers the cheapest gasoline since 2009 has left oil exporters like Russia and Venezuela flirting with economic chaos. The ruble sank as much as 19 percent on Dec. 16 to a record low of 80 per dollar before recovering to close at 68; Russian bond and equity markets also crumbled. In Venezuela, the oil rout is spurring concern the country is running out of dollars needed to pay debt and swaps traders are almost certain default is imminent.
Profitable Wells
U.S. oil production is set to reach 9.42 million barrels a day in May, which would be the highest monthly average since November 1972, according to the Energy Department’s statistical arm.
Output from shale formations, deep-water fields, the Alaskan wilderness and land-based wells in pockets of Oklahoma and Pennsylvania that have been trickling out crude for decades already have pushed demand for imported oil to the lowest since at least 1995, according to data compiled by Bloomberg.
Existing wells remain profitable even as benchmark crude futures hover near the $55-a-barrel mark because operating costs going forward are usually $25 or less, Tom Petrie, chairman of Petrie Partners Inc., said in a Dec. 15 interview on the Bloomberg Surveillance television program.
Shut Ins
That’s why prices that have tumbled 47 percent from this year’s peak on June 20 haven’t prompted any American oil producers to shut down wells, said Petrie, a U.S. Military Academy at West Point graduate who has advised Saudi Arabia, Alaska and the U.S. government on energy issues.
The average cost to operate an existing well in most parts of the U.S. “is about $20 a barrel,” Petrie said. “It might be $5 higher or it might be $5 lower, that’s the out-of-pocket costs that we’re talking about. Until you dip into that and start losing money on a cash basis day in, day out, you don’t think about shutting in” wells.
Benchmark U.S. crude futures rose 0.3 percent to $56.63 a barrel at 9:55 a.m. in New York Mercantile Exchange trading. The futures are still on track for their fourth straight weekly decline.
Once oil companies sink cash into drilling wells, lining them with steel pipes and concrete, blasting the surrounding rocks into rubble with hydraulic fracturing, and linking them to pipeline systems, they have no incentive to scale back production, said Andrew Cosgrove, an analyst at Bloomberg Intelligence in Princeton, New Jersey.
Sunk Costs
Those investments, which represent “sunk costs,” are no longer a drain on cash flow, Cosgrove said. Instead, they generate capital companies use to repay debt, fund additional drilling, pay out dividends and buy back shares, he said.
Exxon, the world’s biggest oil producer by market value, is expected to boost crude and natural gas output by 2.8 percent next year to the equivalent of 4.1 million barrels a day, based on the average of eight analyst estimates compiled by Bloomberg.
That would arrest a two-year production slide for the Irving, Texas-based company, which is spending about $110 million a day this year on everything from rig leases to offshore platforms to refinery repairs. Chairman and CEO Rex Tillerson pledged in March to raise output by an annual average of 2 percent to 3 percent during the 2015-2017 period.
Cheapest Oil
At the same time, Tillerson said capital spending would drop below $37 billion in each of those years, partly because mammoth investments like the Kearl oil-sands development in western Canada and the Gorgon liquefied natural gas project on Australia’s Indian Ocean coast will no longer be absorbing cash.
In the U.S., Exxon spent an average of $12.72 to extract a barrel of oil last year, its cheapest operating region aside from Asia and Europe, company figures showed. Some operators have even lower costs: Continental Resources Inc. (CLR) spends about 99 cents to pump each barrel from its 1.8 billion-barrel discovery known as the South Central Oklahoma Oil Province, or SCOOP. Continental, controlled by Oklahoma billionaire wildcatter Harold Hamm, discovered the SCOOP in 2012.
Laredo Petroleum Inc., an explorer of Texas’s Permian Basin that has more than tripled production since 2010, said this month it will slash capital spending by about 50 percent next year. The company still sees 2015 output expanding by 12 percent. Shares in the Tulsa, Oklahoma-based company jumped as much as 15 percent after the Dec. 16 announcement.
As oil explorers retrench in response to the market’s decline, they will drill more selectively, Eckard said. Seismic surveys will be more closely scrutinized to ensure the best chances of striking crude and only the most-promising opportunities will be greenlighted, he said.
“We’re only going to see the very best wells drilled over the next 12 to 18 months,” Eckard said. “It’s going to be exciting.”
