Right Wing Granny

News behind the news. This picture is me (white spot) standing on the bridge connecting European and North American tectonic plates. It is located in the Reykjanes area of Iceland. By-the-way, this is a color picture.

Right Wing Granny

Tag Archives: OPEC

Another Scientific Report To Evaluate

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The New York Post posted a story today about a federal report stating that fracking does not harm drinking water. I suspect this is going to be a problem for many environmentalists. It will be interesting to see how they react to the study.

The article reports:

In their report, federal researchers studied the entire fracking process, from the acquisition of water to the disposal of wastewater.

Prompted by Congress, researchers reviewed thousands of pages of studies and conducted their own investigations of fracking, which collects natural gas and petroleum deep below the surface.

“Stated simply, this study follows the water,” Burke said. “We looked at each stage of the hydraulic water fracturing cycle to determine the potential impact on potential drinking-water resources.”

Before releasing the report, the feds sought comment from the public, industry officials, states, Indian tribes and nongovernmental organizations.

The report identified factors to consider: whether an area has enough water for people’s needs as well as fracking; spills; accidental injection into drinking-water sites; well failure; subsurface migration of gases and liquids; and inadequate or poorly treated wastewater.

The American Petroleum Institute, an industry trade group, said the study was a validation of the safety of fracking.

When attempting to evaluate this report, consider the fact that a lot of the anti-fracking movement is funded by OPEC (Organization of the Petroleum Exporting Countries). Obviously they have a vested interest in preventing America from developing her oil resources.

The Impact Of American Oil On The World Market

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Breitbart.com reported yesterday that according to a draft of its long-term strategy report, The Organization of the Petroleum Exporting Countries (OPEC) has admitted that their war on shale oil production in America has failed.

The article reports:

The current international price standard, called “Brent crude” has dropped from about $115 a barrel in June 2014 to $62 today. That is a direct result of the American shale-fracking boom adding 4.5 million barrels of oil per day to the U.S. market in the last 6 years. The U.S. standard, called “West Texas Intermediate” (WTI), sells at $57 a barrel, almost a 10 percent discount.

With revenues plummeting, most OPEC members are in a financial crisis and are forced to increase production from last year and flood the world market to financially survive.

There are a few interesting things in this article. First of all, developing America’s oil resources and decreasing America’s dependence on foreign oil will have a serious impact on American foreign policy. It should eventually allow America to support freedom and human rights in places where these are not currently practiced.

Second of all, there is an economic benefit to developing oil resources in America–not only does it bring down the cost of gasoline internationally, if the exporting of these products is allowed, it will strengthen the American economy.

Thirdly, it is interesting that OPEC did everything it could to discourage American oil production. The admission of that fact should give pause to those people who blindly signed on to the anti-fracking movement without checking their facts.

America is capable of leading the world economically. We are a country rich in resources and rich in talent. What we have lost in recent years is our morality and our work ethic. We need to regain both of those in order to achieve economic success.

This Is A Very Interesting Statement

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Fox Business posted a story today by Maria Bartiromo. The story included an amazing statement by Saudi billionaire businessman Prince Alwaleed bin Talal. The Prince stated that we will never see $100 a barrel oil again.

The article includes the following quote:

Saudi Arabia and all of the countries were caught off guard. No one anticipated it was going to happen. Anyone who says they anticipated this 50% drop (in price) is not saying the truth.

Because the minister of oil in Saudi Arabia just in July publicly said $100 is a good price for consumers and producers. And less than six months later, the price of oil collapses 50%.

Having said that, the decision to not reduce production was prudent, smart and shrewd. Because had Saudi Arabia cut its production by 1 or 2 million barrels, that 1 or 2 million would have been produced by others. Which means Saudi Arabia would have had two negatives, less oil produced, and lower prices. So, at least you got slammed and slapped on the face from one angle, which is the reduction of the price of oil, but not the reduction of production.

This is an interesting situation–the Saudis kept the production up so the price would go down. This seriously impacted the economies of Iran, Russia and Venezuela, and indirectly Cuba. It also made oil production in America less attractive–smaller profits. If the Saudis cut production to raise the price, American production comes back up and reduces the price. If the Saudis keep the price low, American production will be less, but will still exist.

I love the idea that we will never again see $100 a barrel oil. I am tired of being blackmailed by the Middle East oil producers. Maybe now we can stop funding terrorism.

Behind The Drop In Oil Prices

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Steven Hayward posted an article at Power Line today about the recent drop in oil prices. As of 4 pm today, oil was listed at about $58 a barrel. So what does this mean?

The article reports:

I decided to reach out to the CEO of a very successful private oil exploration company for his inside opinion, and this is what he tells Power Line:

Our Rate of Return (ROR) drops to 10% on our wells at $55 oil.  However, this assumption assumes no drop in costs to drill wells and no contraction in the large differential ($10 to $12 per barrel) between Bakken and WTI oil.  In reality our ROR would actually be above 10% at $55 WTI oil price as our costs to drill would also come down.  There are plenty of drilling locations that would have above 10% ROR at $40 oil.  Even more drilling locations would require $70, $80, or $90 oil prices for that ROR.  Of course, drilling will slow down long before you get down to a 10% ROR.  Most will want at least a 20% ROR.  Of course the quality of the operator matters in addition to the drilling location. . .

Bottom line is that the Saudis want to chill investment in new oil supply to help protect OPEC’s future.  In round numbers we have had about 5 MBOPD increase in world oil demand over the last 5 or 6 years.  Over the same time period US oil production has grown from nearly 4 MBOPD (from 5 to 9 MBOPD) — 80% of the increase in WORLD demand!  This is NOT good for OPEC.  I suspect that we will have ugly oil prices ($60 – $75) for around a year as that is long enough to stop many current oil supply investments and, more importantly, serve to chill the appetite for future large investments in oil supply growth (deep water, arctic, marginal shale, marginal tar sands, etc) which is the Saudi goal in my opinion.  I do not believe that the current price ($65) is a sustainable price going forward.  It would not encourage enough new supply to balance world demand which itself would be goosed upwards with the lower prices.  I suspect that after this ugly price period ends, we likely see oil bouncing around the $75 to $95 range or something like that.

Of course all of this depends on the state of world economy which has many significant challenges such as at the required unwind, or more likely significant revamping, of the unsustainable entitlement states over the next two decades.  I personally believe that the Euro currency was a very idea from the start and is damaging for Europe and unsustainable as an institution.  The unwind of the Euro within the next 5 or 10 years could also cause significant economic headwinds for the world economy.

 This game has been played before–when America is reaching energy independence, lower the price to avoid further exploration. We are fools if we fall for this. As soon as OPEC thinks America is not interested in developing its own resources, the price will go back up to where it has been in recent years. Regardless of the price, energy independence is always a good idea for security reasons. Energy independence also frees America up to support democracies in the Middle East rather than dictatorships.

The Unintended Consequences Of American Oil Production

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The Wall Street Journal today included an article by Daniel Yergin about the falling oil prices. The Organization of the Petroleum Exporting Countries (OPEC) met Thursday and decided not to cut oil production. That is a major policy change and will have worldwide impact. The demand for oil is no longer the basis for OPEC’s decisions–now the deciding factors are the surge in U.S. oil production and the new oil supply from Canada.

The article reports:

Since 2008—when fear of “peak oil,” after which global output would supposedly decline, was the dominant motif—U.S. oil production has risen 80%, to nine million barrels daily. The U.S. increase alone is greater than the output of every OPEC country except Saudi Arabia.

The world has experienced sudden supply gushers before. In the early 1930s, a flood of oil from East Texas drove prices down to 10 cents a barrel—and desperate gas station owners offered chickens as premiums to bring in customers. In the late 1950s, the rapidly swelling flow of Mideast oil led to price cuts that triggered the formation of OPEC.

Oil is currently selling at about $69 per barrel after hovering around $100 per barrel for the past three years. The shale oil being drilled in America is still economical to produce with prices between $50 and $69 per barrel, so the lower prices will not drive America from the world market.

So what are the international implications of cheap oil? The Russian budget is funded over 40% by oil, but Putin has built up a reserve of a few hundred billion dollars that will help Russia cope with the falling oil prices. Venezuela and Iran are also negatively impacted by falling oil prices. Just for the record, the building of the Keystone XL Pipeline would have a severe negative impact on the Venezuelan economy–the Gulf Coast refineries would replace the heavy oil from Venezuela with the Canadian oil.

There is, of course, the possibility that OPEC could change its mind in the Spring and cut output, but even if they were to do that, they would only be hurting themselves, as Canada and the United States would simply increase their production to make up the difference.

Are You Enjoying The Current Price Of Gasoline?

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On Sunday, Stephen Moore posted an article at The Daily Signal about the recent decline in gasoline prices. The article reminds us that in June, oil reached a peak price of $103 a barrel. Since then, the price has dropped 25 percent. American motorists are seeing the results of that drop in gasoline prices at the pump that have dropped below $3.00 per gallon. At their present levels, gasoline prices are saving American consumers and businesses $200 billion a year.

The article reports:

Oil prices are falling because of changes in world supply and world demand. Demand has slowed because Europe is an economic wreck. But since 2008 the U.S. has increased our domestic supply by a gigantic 50 percent. This is a result of the astounding shale oil and gas revolution made possible by made-in-America technologies like hydraulic fracturing and horizontal drilling.  Already thanks to these inventions, the U.S. has become the number one producer of natural gas. But oil production in states like Oklahoma, Texas and North Dakota has doubled in just six years.

Without this energy blitz, the U.S. economy would barely have recovered from the recession of 2008-09. From the beginning of 2008 through the end of 2013 the oil and gas extraction industry created more than 100,000 jobs while the overall job market shrank by 970,000.

President Obama, you didn’t build this recovery (such as it is)–it happened in spite of you! The energy blitz in America is breaking the back of OPEC. They can no longer blackmail western countries with threats of cutting off their oil supply.

The article further reports:

Yet the political class still doesn’t get it. As recently as 2012 President Obama declared that “the problem is we use more than 20 percent of the world’s oil and we only have 2 percent of the world’s proven oil reserves.”  Then he continued with his Malthusian nonsense,  “Even if we drilled every square inch of this country right now, we’d still have to rely disproportionately on other countries for their oil.” Apparently, neither he nor his fact checkers have ever been to Texas or North Dakota.  And we don’t have 2 percent of the world’s oil. Including estimates of onshore and offshore resources not yet officially “discovered”, we have ten times more than the stat quoted by the president–resources sufficient to supply hundreds of years of oil and gas.

If the President and his Democrat allies would get out of the way, the American economy would recover. Please remember that when you vote next week.

 

Trouble In Paradise

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The Middle East oil countries have done very well during the past thirty or so years. The have combined to form the Organization of the Petroleum Exporting Countries (OPEC) and have raised the price of oil from somewhere near $5 a barrel to over $100 a barrel (although the cost of oil is currently dropping).

The Wall Street Journal reported today that as the Western countries begin to develop their oil resources, OPEC members are fighting over production quotas and prices.

The article reports:

But even modest cooperation between many members has broken down, and Saudi Arabia, in particular, has moved to act on its own. While it cut output earlier this summer, other members didn’t go along. Since then, it has dropped its prices.

Each member has a different tolerance for lower prices. Kuwait, the United Arab Emirates and Saudi Arabia generally don’t need prices quite as high as Iran and Venezuela to keep their budgets in the black.

Late Friday, Venezuelan Foreign Minister Rafael Ramirez, who represents Caracas in the group, called for an urgent meeting to tackle falling prices. The group’s next regular meeting is set for late next month.

But on Sunday, Ali al-Omair, Kuwait’s oil minister, said there had been no invitation for such a meeting, suggesting the group would need to stomach lower prices. He said there was a natural floor to how low prices could fall—at about $76 to $77 per barrel—near what he said was the average production costs per barrel in Russia and the U.S.

The history of oil prices has often been that when the Middle East begins to drop their prices, Americans stop looking for cheaper oil in their own country. Considering the current instability in the Middle East in the OPEC nations, that would be a big mistake.

America needs to be energy independent for both economic and security reasons. It is time to develop our own resources.

Stating The Obvious

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Yesterday’s Wall Street Journal posted an article stating that Saudi billionaire Prince Alwaleed bin Talal is warning his country that America‘s development of shale oil will be a threat to the Saudi economy. The letter, written to Saudi Oil Minister Ali al-Naimi and several other ministers warned that the U.S. shale oil boom will decrease the amount of oil purchased from the Organization of the Petroleum Exporting Countries (OPEC). The Prince also asked the government to accelerate its plans to diversify the Saudi economy.

The article reports:

In contrast to Prince Alwaleed, Mr. Naimi, the Saudi oil minister, has so far played down the significance of rising shale-oil production, despite the fact that some OPEC members, such as Nigeria and Algeria, have seen a sharp drop in their exports to the U.S. At an OPEC meeting in late May, he said it wasn’t the first time OPEC has had to compete with a surge in output from countries outside the group.

“We disagree with your Excellency on what you said, and we see that rising North American shale gas production is an inevitable threat,” Prince Alwaleed’s letter said, in comments directed at Mr. Naimi.

Neither Mr. Naimi nor a spokesman for the ministry could be reached to comment.

The chart below shows American imports of Saudi oil in the past thirteen years:

image

Notice that the biggest drop in American oil imports was during the height of the recent recession.

You’ll excuse me if I don’t have a lot of sympathy for Saudi Arabia and OPEC. Both OPEC and Saudi Arabia have used their monopoly on oil to support tyrannical rulers and international terrorism. Because of that monopoly, America and Western countries have been reluctant to deal with the death and carnage the Saudis and OPEC nations have been responsible for. It would be very nice to see a Saudi economy so diversified that a middle class could form.

In January of this year, The Guardian reported on poverty in Saudi Arabia:

The article reported:

Under King Abdullah, the Saudi government has spent billions to help the growing numbers of poor, estimated to be as much as a quarter of the native Saudi population. But critics complain that those programmes are inadequate, and that some royals seem more concerned with the country’s image than with helping the needy. In 2011, for example, three Saudi video bloggers were jailed for two weeks after they made an online film about poverty in Saudi Arabia.

“The state hides the poor very well,” said Rosie Bsheer, a Saudi scholar who has written extensively on development and poverty. “The elite don’t see the suffering of the poor. People are hungry.”

The Saudi government discloses little official data about its poorest citizens. But press reports and private estimates suggest that between 2 million and 4 million of the country’s native Saudis live on less than about $530 a month – about $17 a day – considered the poverty line in Saudi Arabia.

The money we are sending to Saudi Arabia for oil could be better spent building energy independence for America. We need shale oil, we need the Keystone Pipeline and we need new refineries. Development in those areas would greatly improve the American economy as well as improve our national security by making us more energy independent.

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The Saudis Bring Reason To OPEC

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The Organization of Petroleum Exporting Countries (OPEC) is meeting this week. The Financial Times reminds us that oil prices have dropped from $128 a barrel in March to a current price of about $100. The drop is partially due to the financial difficulties in the European Union and the general slowdown in the world’s economy. Normally when the price of oil drops, OPEC calls for a decrease in production so that the price will rise again (supply and demand works!).

Recently OPEC has been producing more oil than its quota in an effort to lessen the impact of the oil sanctions that Europe and America have placed on Iran in an attempt to end Iran’s nuclear program. Saudi Arabia seems to be responsible for the increase–Ali Naimi, Saudi Arabia’s oil minister, told the Financial Times in March that he would like to see lower oil prices  “that will not hurt the global economic recovery”.

The Saudis have called for higher oil output levels despite the lower prices. I would love to be a fly on the wall (one who understood whatever language is spoken) at the coming OPEC meeting!

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American Industry Triumphs–Even When It Is Not Allowed To !

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Escopeta Oil and Gas Spartan 151 jackup oil ri...

Escopeta Oil and Gas Spartan 151 jackup oil rig being towed, Kachemak Bay, Alaska (Photo credit: Wikipedia)

There is something very ironic about this story. One of the reasons that the American economy is recovering so slowly is the high price of gasoline. That price is pretty much set by OPEC (made up of countries that generally do not like us) and the falling value of the American dollar.  One of the solutions to that particular problem would be for America to develop its own oil resources and become energy independent. The Obama Administration has done a fairly good job of blocking any attempt to make that happen (offshore drilling, drilling in ANWR, Keystone pipeline, etc.). American oil companies have been limited in where they can explore for oil and where they can drill. Because American oil companies are in business to make a profit, they are going elsewhere!

Breitbart.com reported yesterday that Exxon Mobil has been hired by Russia to drill for oil in the Arctic Ocean–you know–up where the Obama Administration prevented Americans from drilling.

The article reports:

Think about how backward things are under Obama—the largest oil company in America is going to be drilling in waters around the Arctic where they expect to find 85 billion barrels in recoverable oil. And instead of sending it to Texas refineries, and thereafter to gas stations across America, the oil will be sent to Russia and refined for their use.

By the way, if extracted at the rate of 1 million barrels a day, 85 billion barrels of oil would last for 85,000 days.  85,000 days equals well over 200 years.  Yet here we are, listening to Obama telling us the future is one of wind farms, electric cars, and a companies like Solyndra.

Perhaps we’ll get lucky and Russia will sell us some of their oil. If Obama keeps us in this energy stranglehold we’re going to need it.

It seems that one of the casualties of the Obama Administration’s energy policy is common sense.

 

 

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Iran Is Ramping It Up–Is Anyone Listening ?

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My Way posted a story today about Iran’s warning to the other oil-producing countries in the Gulf not to boost their oil production if Iran’s oil production is reduced because of western sanctions. Iran’s OPEC governor made the threats just as Saudi Arabia announced that it would increase its oil production if Iran’s oil production decreased.

The article states:

Saudi Arabia, the Arab world’s largest economy, is widely seen as the main counterweight to Iran in the region. Any attempt by Iran to close the Strait of Hormuz, through which a sixth of the world’s oil flows, would also affect the export abilities of the major Gulf producers, including Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Qatar.

While momentum appears to be building for the sanctions by the West, China, another major buyer of Iranian oil, has come out against the measures.

Chinese Premier Wen Jiabao was in Saudi Arabia on Saturday for meeting with officials in which the two countries “pledged to work together to further expand all-around exchanges and cooperation,” according to China’s Xinhua news agency

Wen said the two sides “should expand trade of crude oil and natural gas and energy-related cooperation as to deepen their energy partnership,” Xinhua reported.

There are a couple of things going on here. First of all, America is vulnerable to this sort of garbage from Iran because we have not developed our own energy resources. Second of all, young Iranians (who make up more than half of the country) do not support the current government of Iran. A war against the Americans would allow the rulers to unite the country against a common enemy (us) in order to stay in power and continue their nuclear program. Third, Russia and China will support any action by any country that creates a problem for America. The weaker we become, the stronger they have a chance to become. Fourth, can you imagine the bully Iran will become when it completes its nuclear program?

Part of the problem here is America’s failure to become energy independent and part of the problem here is that the Iranians see President Obama as a weak President that they can push around. Neither one of these things is good for the future of America. If the voters are smart, we will have a new President in 2013.

 

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Why I Will Be Voting For Anyone But Obama In 2012

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Saturday’s Wall Street Journal posted an article about Harold Hamm, the Oklahoma-based founder and CEO of Continental Resources, the 14th-largest oil company in America. He was the original discoverer of the gigantic and prolific Bakken oil fields of Montana and North Dakota that have already helped move the U.S. into third place among world oil producers.

Mr. Hamm was in Washington recently for a ‘giving summit’ with wealthy Americans who have pledged to give at least half their wealth to charity. He reports on his brief conversation with President Obama:

When it was Mr. Hamm’s turn to talk briefly with President Obama, “I told him of the revolution in the oil and gas industry and how we have the capacity to produce enough oil to enable America to replace OPEC. I wanted to make sure he knew about this.”

The president’s reaction? “He turned to me and said, ‘Oil and gas will be important for the next few years. But we need to go on to green and alternative energy. [Energy] Secretary [Steven] Chu has assured me that within five years, we can have a battery developed that will make a car with the equivalent of 130 miles per gallon.'” Mr. Hamm holds his head in his hands and says, “Even if you believed that, why would you want to stop oil and gas development? It was pretty disappointing.” 

Evidently President Obama is blinded by the fact that many of his friends and major financial supporters have substantial investments in green energy. There is nothing wrong with green energy, but right now we have a need for oil and gas. It is a shame that our President is so blinded by self-interest that he is unwilling to address that need.

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