Tuesday, February 26, 2013

Keystone Pipeline: Opposing View-Points

Story first appeared in USA Today -

Build Keystone Pipeline: Our View

More than four years of exhaustive study is enough. Stop the foot-dragging.

Many controversial issues lend themselves to split-the-difference compromises, but the Keystone XL pipeline isn't one of them. That puts President Obama in a tough spot as his administration nears a decision on the proposed $7 billion project, which would carry tar-sand oil from Canada to Gulf Coast refineries.

For the environmentalists who strongly supported Obama's re-election, Keystone has become a crucial test of his promises to take climate change seriously. Thousands demonstrated in Washington on Sunday against the project, asserting that the pipeline would unlock so much dirty oil that it would be "game over" for the globe if the project proceeds.

For Canada, whose government badly wants the pipeline to go forward, the decision is an equally crucial test of the two neighbors' relationship. And for the United States, the project offers a rare opportunity to create jobs and lessen the nation's decades-long dependence on oil from unstable or unfriendly suppliers.

Both sides make strong arguments, but after more than four years of exhaustive study, the right answer on Keystone remains: Build it.

At a time of rising global competition for energy resources, the pipeline would bring reliable new oil supplies to a U.S. that still imports 40% of its crude, 7.6 million barrels a day last year. And 40% of those imports come from OPEC nations such as Venezuela, Iraq and Nigeria. Keystone is expected to supply 830,000 million barrels a day, a key step toward the long-sought goal of North American energy independence, which suddenly seems attainable.

Much of the opposition to Keystone has come from critics who say running a big pipeline through the heart of the USA is too risky. Haven't they noticed that tens of thousands of miles of oil pipelines already crisscross the United States? As long as the nation's quarter-billion vehicles rely almost exclusively on gasoline and diesel, pipelines are the safest and most efficient way to move it.

Obama delayed a final decision on Keystone last year, in part to allow a rerouting around environmentally sensitive areas in Nebraska. That has been accomplished, and Nebraska's governor signed off on the new map last month.

Nor would blocking Keystone keep the tar-sands oil in the ground. In a world starving for oil, it's overwhelmingly likely the oil would find another way to market — through a pipeline to West Coast ports to carry it to China, to East Coast ports to carry it to other nations, or by barge, rail and existing pipelines into the USA.

The goal of locking down tar-sands oil and stopping other forms of fossil fuel production such as fracking — as many protesters demanded in Sunday's demonstration — would be more compelling if the U.S. were ready to shift to renewable fuels such as solar, wind and biomass to power vehicles, heat homes and run factories. Last year, though, renewables supplied just 9.4% of all U.S. energy needs, despite robust tax incentives for wind power and electric cars. Shutting down conventional sources of energy at this point is naive and economically destructive.

Demand might be further reduced by making vehicles and buildings more efficient. A carbon tax or a cap-and-trade system could do the same by making the price of conventional fuels better reflect their cost to the environment.

Until that day, though, the best choice for the economy and the planet is to ensure ample, secure supplies of energy. The Keystone pipeline is an essential part of that strategy.


Pipeline Project Defines Folly: Opposing View

Keystone will prolong our addiction to fossil fuels and damage the climate.

A year ago, President Obama sent the Keystone pipeline project back for more review. In the months since, Mother Nature filed compelling public testimony:

  • The hottest year in American history.
  • An epic drought that drove up the price of food worldwide.
  • Superstorm Sandy, with the lowest barometric pressure ever recorded north of Cape Hatteras.
  • An Arctic melt so intense that NASA scientists said we faced a "planetary emergency."

Those abrupt and extreme changes in the planet's patterns demonstrate the stupidity of prolonging our addiction to fossil fuel, which is exactly what Keystone will do.

By providing a new and easy way to access the "dirtiest oil on earth," the pipeline will drive the expansion of tar-sands production. It is the definition of folly.

Its proponents have always claimed it will create lots of jobs (it will create some, for a couple of years, which is nothing to sneeze at — but the real jobs bonanza comes when we move decisively toward renewable energy) or boost energy independence (which is nonsense — this oil is destined for export). By easing the glut of Canadian oil, even its backers concede, it will raise, not lower, gas prices.

But the biggest argument for Keystone has always been: If we don't take the oil, someone else will. The oil barons boasted a year ago that they would build a pipeline to the Pacific instead — but people across Canada have risen up to block that plan, which is now all but dead.

That same kind of movement has arisen in the United States, where Keystone has become the first environmental issue in a generation to bring Americans into the streets and jails.

Sunday, on the National Mall in Washington, D.C., the largest climate rally in U.S. history took direct aim at the pipeline. As the Rev. Lennox Yearwood said, "This is our lunch-counter moment for the 21st century," when activism can help decide the future.

And should President Obama reject the pipeline, he'd be the first world leader to block a big infrastructure project because of the damage to the climate.

That's a legacy — the only one people will care about in the decades ahead.

BP Talking Settlement for 2010 Oil Spill

Story first appeared on The New York Times -

With a major civil trial scheduled to start Monday in New Orleans against BP over damages related to the explosion of an offshore drilling rig in 2010, federal officials and those from the five affected Gulf Coast states are trying to pull together to strike an 11th-hour settlement in the case.

A lawyer briefed on those talks said that the Justice Department and the five states — Alabama, Florida, Louisiana, Mississippi and Texas — had reportedly prepared an offer to resolve the two biggest issues central to a series of trials against BP, the first of which starts Monday.

One of those issues is the fines that the company would pay for violations of the Clean Water Act related to the four million barrels of oil spilled after the explosion of the Deepwater Horizon rig, which BP had leased from Transocean. The other point of dispute is how much the company will have to pay in penalties under a different environmental statute for damage caused by the oil to the area: beaches, marshes, wildlife and fisheries.

The Wall Street Journal reported late Friday that federal and state officials were preparing a $16 billion settlement offer that would cover both the Clean Water Act fines and environmental penalties related to the spill. “The ball is on BP’s side of the table,” said the lawyer, who spoke on the condition of anonymity because he was not authorized to speak publicly on the matter.

Justice Department officials and state officials could not be reached Saturday to comment on any possible offer. A spokesman for BP, Geoff Morrell, said, “BP doesn’t talk about possible offers or negotiations, but I can tell you we are ready for trial and looking forward to the opportunity to present our case starting Monday.”

The lawyer briefed on the talks said that one problem with the current proposal was that it did not cover economic damages claimed by the states related to the spill. Such claims could still leave BP on the hook for billions more, in addition to the environmental damages.

The late negotiations among federal and state officials to find common ground represents progress, even if limited, in the search for a settlement. The five states have had sharp disagreements over how much BP should pay and how billions of dollars in potential settlement funds should be divided.

For example, only Louisiana and Alabama, are participating in the trial starting on Monday, though Florida, Mississippi and Texas could be part of any settlement. Officials in Louisiana believe their state deserves the bulk of any settlement since its coastal waters, fisheries and businesses suffered the most. Florida and other states that escaped serious coastal damage instead want money for economic losses that they sustained.

“There are a lot of moving parts,” said Luther Strange, the attorney general of Alabama. “Personalities aside, the issues are so complex.” Another lawyer briefed on the talks said he believed any proposal involving Louisiana would be significant because its participation would be critical to any settlement.

Also, billions of dollars could be assessed against BP in several ways, either through fines, or through penalties to redress environmental damage and payments to cover economic losses. And each of those methods represents a different set of stakes and consequences for each of the states and for BP.

For instance, BP would prefer to limit the fines and make more payments through environmental damage penalties, because those penalties can be written off as tax deductions while fines cannot. But the states have more flexibility in spending money derived from fines.

To date, BP has agreed to pay an estimated $30 billion in fines, settlement payments and cleanup costs related to the Deepwater Horizon explosion, which killed 11 workers aboard the rig. And so far, company officials have said they have no intention of acceding to demands from the states for huge economic damages.

Still, the stakes for BP in the trial are high. If the company is found in this first phase of the trial to have acted with gross negligence, it could face up to $17.5 billion in penalties, much of that in fines that would hit the bottom line hardest because they do not qualify as tax deductions.

The lack of a unified strategy to date among the states has also posed another problem for BP; companies are less likely to settle a major lawsuit if they know yet another one is waiting.

“There is no question that a settlement has been made more challenging because the states have competing interests,” said David M. Uhlmann, a law professor at the University of Michigan and former head of the Justice Department’s environmental crimes division.

Efforts to resolve the case through settlement were also inadvertently complicated by Congress when it passed a law in 2011 known as the Restore Act.

Essentially, the law was an effort by Congressional lawmakers from the Gulf Coast states to make sure the bulk of fines and penalties paid by BP for violations of federal pollution laws ended up with the states instead of the federal government.

Senator Mary Landrieu, Democrat of Louisiana, said that she and other lawmakers from the region were involved in intense negotiations giving each state a part of the funds to recover from both environmental or economic damages.

The law “was an attempt to distribute the money fairly,” Ms. Landrieu said in an interview.

But the statute worsened what were already growing tensions among the states over how they could use any funds from BP, between environmental damage and economic losses. “Up until last year, all the states were rowing together,” said one lawyer who also spoke on the condition of anonymity.

The split among the Gulf Coast states surfaced again in November when the Justice Department announced the $4.5 billion settlement of criminal charges against BP. At the time, federal and state officials were also seeking to resolve the civil damage claims.

But those talks failed largely because of disagreements between Louisiana and other states on issues like the size of the settlement that BP was offering, said people briefed on the talks.

Mississippi officials are apparently seeking to bring a separate action against BP in state court, a forum that can be favorable to plaintiffs. Jan Schaefer, a spokeswoman for Attorney General Jim Hood of Mississippi, said he declined to comment.

Mr. Uhlmann of the University of Michigan said the BP case could be resolved, but at this moment it might be more up to the states than the company.

“A settlement is still possible, but not if the states demand more in a settlement than BP is likely to pay even if it loses on every single issue at trial,” he said.

Friday, February 22, 2013

BHP Marrying Oil & Chemistry

Story first appeared on Bloomberg News -

When BHP Billiton Ltd. (BHP)’s new chief executive officer Andrew Mackenzie got his doctorate in chemistry in 1980, the ground-breaking research attracted the attention of oil producers including Chevron Corp. (CVX)

It wasn’t until three years later that Mackenzie, 56, joined BP Plc (BP/) and stayed for 22 years, while the findings of his research are still in routine use by academics and oil explorers. He will take the lead at Melbourne-based BHP, the biggest mining company, on May 10, succeeding Marius Kloppers.

Mackenzie, who had about 12 months enforced gardening leave after Kloppers, 50, poached him from Rio Tinto Group (RIO) in 2007 to head BHP’s copper division, used the time to master Spanish -- his fifth language -- to help him conduct contract talks in South America as soon as he started, a person familiar with his appointment said yesterday. Mackenzie said he’s uniquely placed to wring more efficiencies out of BHP’s mining and oil operations, which include shale assets in the U.S.

Mackenzie “brings a level of knowledge within both management and within industry, which is clearly new if you look at the past people in that job,” said Tim Barker, who helps manage investments, including BHP, at BT Financial Group Pty in Sydney. “The market has still got a bit of a question mark over the acquisition of the shale oil division. It’ll probably be two or three years before we know if it was a good one or not.”

‘Very Aggressive’

BHP is spending $4 billion this fiscal year on shale, and spent $20 billion on acquiring the assets in 2011. Kloppers cleared the decks for his successor by booking a $2.84 billion charge in August on the value of the assets after prices fell to a 10-year low in April. He defended the purchases as a long-term investment in a shale liquids boom that’s now poised to make the U.S. the world’s largest crude producer by 2020.

Mackenzie’s appointment “is very aggressive from a timing point-of-view,” Evan Lucas, market strategist at IG Markets Ltd., said in an e-mail. “We knew it was coming, but this shows BHP is looking to get onto the front foot with a division it has been keen to invest in over the last few years -- petroleum.”

BHP, whose oil and gas operations span more than a dozen countries, fell 3.8 percent to A$37.17 at the close of trading in Sydney. The key S&P/ASX 200 Index declined 2.3 percent. As of yesterday, the company’s London-traded stock gained 23 percent during Kloppers’ tenure from Oct. 1 2007, while Rio gained 3.8 percent, Xstrata Plc (XTA) declined about 38 percent and Anglo American Plc (AAL) fell about 42 percent.

There are some “quite powerful synergies” that you can unlock in mining and petroleum, Mackenzie told reporters yesterday. “We’re one of the few, possibly the only company, that can create value through unlocking those synergies.”

BHP Jewel

The company’s oil projects include Shenzi in the Gulf of Mexico and Pyrenees off the coast of Western Australia. BHP plans to spend about $775 million this financial year on oil and gas exploration, with most of the drilling scheduled for the Gulf of Mexico, BHP said in a Jan. 23 statement.

BHP’s oil and gas business is “one of the jewels,” for the company, Andrew Williams, a Melbourne-based analyst at RBC Capital Markets, said by phone. “U.S. gas prices at some point are going to rally, so they will get a bit more value out of that, particularly if they can leverage that into perhaps some of the liquefied natural gas opportunities.”

Mackenzie got his doctorate from the University of Bristol, and has published more than 50 research papers and pioneered extraction techniques in the North Sea for BP, BHP said yesterday in a statement. He founded the BP Institute at the University of Cambridge as well as institutes at Princeton and Berkeley universities and the California Institute of Technology. He joined Rio in 2004 and as chief executive of industrial minerals he built a $5 billion titanium mine in Madagascar.

Brilliant Scientist

“Andrew was a brilliant academic research scientist who chose to leave the world of academe for the wider world, becoming not only a captain, but dare I say admiral, of industry,” Professor James Maxwell, emeritus professor of chemistry at the University of Bristol, said when Mackenzie was awarded an honorary degree of Doctor of Science in February 2011 at the university.

While both Kloppers and Mackenzie have high IQs, the new CEO has a higher EQ, or emotional quotient, according to the person familiar. Kloppers isn’t a money-focused person and felt the loss of privacy that came with the role, the person said.

Third Strike

Kloppers, who yesterday reported a 58 percent decline in first-half profit, is the third head of a global mining company to step down since October as mining companies struggle with project write-downs, escalating costs and the aftermath of failed deals. He sold $4.3 billion of assets in the half and put about $68 billion of projects on hold last year.

Some mining company executives and shareholders are paying the price for a $1.1 trillion mergers and acquisitions binge over a decade. Failed deals in aluminum and coal caused $14 billion in write-downs at Rio and cost CEO Tom Albanese his job. Cost overruns contributed to Cynthia Carroll’s departure as CEO of Anglo American, which slashed $4 billion off the value of an iron ore project in Brazil. She leaves in April.

“Sometimes it becomes easier culturally to effect a cultural change with a new person,” Paul Phillips, a fund manager in Melbourne with Perennial Growth Management Pty who holds BHP shares, said by phone. “Now it’s about preserving cash. It’s around making sure you do the right projects.”

No Pushing

Under Kloppers, deals totaling about $200 billion were aborted or rejected, including hostile bids for Rio Tinto and Potash Corp. of Saskatchewan Inc. Kloppers could have remained as CEO if he wanted and nothing pushed him out, according to the person familiar.

BHP’s decision to abandon the bid for Rio Tinto during the depths of the global financial crisis laid the foundations for the company’s growth since then, Kloppers told reporters yesterday, adding that BHP’s returns to shareholders had “dwarfed” its peer group of global mining companies.

The company returned $36 billion to shareholders in the past five years - more than any of its peers, Chairman Jac Nasser told the reporters.

“I’d say out of all the large diversified mining companies he’s the one who’s, how do I put it nicely, he destroyed the least amount of value,” said John Goldsmith, deputy head of equities at Montrusco Bolton Investments, who helps manage C$5.2 billion ($5.1 billion).

There will be no major shift in strategy expected, the person familiar said. It was good that Mackenzie can sit down with iron ore, copper or oil and gas people and understand all of them, the person said. BHP, as well as other major mining companies, is going back to basics, with no more large acquisitions, or mega projects, the person added.

“It’s a leadership change that needs to occur,” said Paul Xiradis, chief executive officer at fund manager Ausbil Dexia Ltd., which holds BHP stock. “Their focus now will be just on driving the costs down and improving the operation within the group.”

BP Excluding Billions In Possible Claims, Arguing U.S. Benefited

Story first appeared on Bloomberg News -

Bill Floyd, owner of an upscale seafood restaurant near downtown Houston, is a poster-child for the type of damage claim BP Plc left out of its $8.5 billion settlement for the biggest offshore oil spill in U.S. history. 

When the energy company’s blown-out Macondo well dumped more than 4 million barrels of crude oil into the Gulf of Mexico in 2010, Floyd saw his costs for fresh shrimp, crab and oysters almost double overnight while his sales flat-lined.  A Business Interruption Insurance policy might have benefited this company.

“Ninety percent of our menu comes out of the Gulf,” said Floyd, whose eatery, Reef, was named the best seafood restaurant in the U.S. in 2008 by Bon Appetit magazine. “Our shrimp prices went through the roof while our increase in sales, which had been averaging about 20 percent each year, went almost dead.”

Floyd’s is one of thousands of businesses, banks and municipalities excluded from the settlement last March. Many of those left out stretch tens or hundreds of miles inland from the once-blackened coastlines. Next week, fault for the spill will be determined in a sprawling trial in New Orleans federal court, the first step for claimants like Floyd seeking what may total billions of dollars from the companies behind the accident.

But their path may be difficult, as BP has pledged to “vigorously” fight their claims. Lawyers for claimants said BP didn’t settle with them because it sees a chance of victory.

And in some cases, the U.K.-based company said in court filings, it may even argue U.S. businesses and governments benefited from the spill, claiming spending and taxes paid by cleanup crews exceeded the losses caused by the catastrophe that brought them there in the first place.

Prove Damages

All victims whose claims were excluded from the settlement must prove the spill directly caused their physical or economic injury, as required under the Oil Pollution Act, which governs spill-damage compensation, legal experts said.

“Causation is the main hurdle, because the bulk of claims for economic loss are by people without physical damage,” said David Robertson, a University of Texas law professor who has advised lawyers leading the spill suits. “There’s a whole huge block of the economy that was heavily affected by the spill, and some of these are very large claims.”

U.S. District Judge Carl Barbier will preside over the Feb. 25 trial without a jury, under maritime law, which governs this phase of the litigation.

As the sole finder of fact, he will apportion fault for the explosion and spill among BP and subcontractors Transocean Ltd. (RIG), which owned and operated the Deepwater Horizon rig, and Halliburton Co. (HAL), which was responsible for cementing services. The subcontractors would only be responsible for punitive damages, based on Barbier's ruling that the project contract required BP to indemnify them for compensatory damages.

Fault Findings

The judge’s findings of fault will be applied to subsequent trials where specific dollar-amounts for spill damages will be determined, including those on claims excluded from the initial settlement. Plaintiffs’ lawyers said those damages trials, unlike the phase beginning next week, will be heard by juries.

BP’s settlement addressed damages to waterfront property owners, coastal tourism and seafood-industry interests, as well as some medical injuries suffered by residents who worked in the spill or live within a mile of the beach.

Medical-injury claims from people living further inland, and economic-loss claims from industries such as offshore drillers hurt by a federal moratorium and Houston seafood restaurants like Reef, weren’t addressed by the accord. State and local governmental claims for lost tax revenues were also excluded from the deal.

“Oil and gas industry losses were directly and immediately caused by the spill, and that’s an excluded category,” Robertson said. “Yet BP has also settled with some bait-and- tackle shops that were pretty far inland.”

Loss Claims

BP’s settlement assigned some value to economic-loss claims throughout Louisiana and Mississippi, with claim values decreasing the further away they were from the coast. In Texas and Florida, economic-loss claims were allowed only if they originated within a narrow coastal zone.

Reef is a 45-minute drive from the beach and outside that loss demarcation. So are owners of certain Mississippi coastal wetlands that were covered in oil during the spill, although similarly damaged properties in Louisiana were covered by the settlement, according to court papers.

“It looks like BP tried to resolve as many claims as it could for as little as it could as quickly as it could,” New Orleans lawyer Mike Stag, who represents about 3,000 spill victims, said of how the exclusions were determined.

“BP wants these claims sunk to the bottom of the ocean, like their oil,” Stag said.

Scott Dean, a spokesman for BP, said the company will fight the claims excluded from the earlier settlement, “including those based on the U.S. government’s decision to institute a drilling moratorium in the Gulf.”

Claims Administrator

Patrick Juneau, the court-appointed administrator for BP’s Deepwater Horizon Claims Center, said it paid a total of $1.5 billion in damage claims to 22,178 economic victims as of Feb. 19. The center, which administers the $8.5 billion settlement fund, is awaiting answers on another $500 million in compensation offered to victims, Juneau said. Reviews of all but about 30,000 of the 131,055 claims the center has received have been started, he said. New claims will be accepted until April 2014. Juneau said he can’t attach dollar amounts to the excluded claims because, by court order, he can only process claims that are included in the settlement.

Claims Received

To date, he said, he’s received more than 3,500 claims from victims excluded from the spill settlement, including 103 from the oil and gas industry, 249 from gaming firms, 61 from financial institutions, 43 from insurance companies and 170 from state and local governments.

“One of the biggest categories of excluded claims is losses tied to the deep-water drilling moratorium” imposed by the Obama administration after the spill, Stag said. They were specifically allowed by Barbier, the judge overseeing all BP spill-loss cases.

“Those claims will have substantial value, with all the rigs that were shut down and the onshore support-services demand that fell off as a result,” he said. “We’re talking billions of dollars in lost revenue and lost business.”

One offshore drilling company represented by Houston attorney Richard Mithoff suffered damage of as much as $250 million because of the spill, he said. The company, which he declined to name, lost favorable financing terms for a rig it was building at the time of the disaster, Mithoff said.

“These big offshore rigs can cost more than $1 billion, and my client had to go replace its financing when the credit market shut down” for offshore drilling companies when the spill began, Mithoff said.

‘No Choice’

“My client had no choice but to complete the financing at significantly higher rates,” he said. “We’re talking a difference of $200 million to $250 million.” His client hasn’t yet sued, he said.

Stag, who represents several banks alleging spill-related losses, said financial institutions are another large category of excluded claims. He also declined to name his clients.

“When the offshore business slows down and no lines of credit are being taken out for capital investment for ongoing drilling and everyone scales back, that’s going to have a substantial effect on banks’ revenues,” he said.

Stag said he represents a regional radio-communications company, which he declined to identify, that was selling its business when the deep-water drilling ban went into effect and killed the deal.

$8 Billion-Plus

“That’s a $10 million to $20 million loss right there,” Stag said. “I wouldn’t be surprised if there’s another $4 billion to $8 billion in total spill-related losses out there. If we include all the moratorium-related losses, it might be even more than that.”

Also excluded from BP’s settlement are Gulf Coast residents with certain medical injuries who live more than half a mile off the beach or a mile inland from a wetland.

Michael Robichaux, a Raceland, Louisiana doctor, said he has treated scores of spill patients for “the exact same injuries” he treated in U.S. veterans of the Persian Gulf War. The injuries range from skin and eye irritations to chronic headaches, he said.

All of these patients were exposed to oil or toxic chemical dispersants used to break up the spill, including ones who live outside the settlement boundaries, Robichaux said.

‘Screwed’ Patients

“I’m treating patients with chronic illnesses that will affect them for the rest of their lives, and they’re not even included in what was negotiated with BP,” Robichaux said. “These patients and their injuries are screwed, and that’s the nicest thing I can say about it.”

Stag said he opted-out about 600 medical victims from BP’s settlement because the compensation offered was too low.

“A lot of health effects have yet to be seen,” he said. “The result is some of these people are going to die. It’s just a matter of how many.”

Following next week’s trial, claimants may pursue their claims individually, with the court’s determination of fault in hand. However, they will have to then prove they were injured, and that it was caused by the spill defendants.

Thomas McGarity, another University of Texas law professor, said the more directly a victim can prove his loss was caused by the spill, the better his chances of making BP pay.

“With businesses that can say they lost this particular deal with this direct economic harm, they may have a chance” at a trial, McGarity said.

BP can be expected to dispute claims from the excluded categories, Mithoff said, adding: “They’re putting that fight off for another day.”

Cleanup Helped

The company said in court papers that it may try to prove that tax-revenue losses by some governmental entities and revenue-loss claims by some tourism businesses, such as casinos, were offset by increases in economic activity generated by BP’s cleanup crews.

Thousands of BP workers swarmed the coastline in 2010 and 2011 to clean up the spill, and BP said in court filings that spending by these workers largely replaced lost tourist dollars.

“I don’t think that argument will resonate well with a jury,” Stag said.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

Wednesday, February 20, 2013

China's Shale Gas Revolution: Stalled Before Leaving The Drive

Story first appeared on Bloomberg News -

China, consuming energy at the fastest pace among major economies, has set ambitious targets to exploit its reservoirs of shale gas, the same fuel the U.S. touts as the means to energy independence. It won’t meet them.

China is producing no commercial quantities of shale gas, yet has set a target of 80 billion cubic meters by 2020, or 23 percent of total expected demand. Output in 2020 will likely be 18 billion cubic meters, according to the average estimate of seven analysts surveyed by Bloomberg. That’s more pessimistic than a year ago when the forecast was 23 billion cubic meters.

“China’s production targets are not realistic,” Chris Faulkner, chief executive officer of Dallas-based shale driller Breitling Oil and Gas Corp., which is in talks in China, said in an e-mail. “The only way China is going to be able to meet its output goals is for the government to pour money into exploration and development and ease up on the price controls.”

By dictating fuel prices in a centrally controlled economy, China has discouraged investment in shale because drillers risk losing money. The result: China National Petroleum Corp. and China Petrochemical Corp., the two largest gas producers, didn’t win exploration blocks in the last auction while companies with zero gas-drilling experience did.

Missing targets to develop the world’s biggest reserves of shale means China’s imports from foreign gas markets will be greater than anticipated. Such purchases might benefit suppliers of liquefied natural gas from Exxon Mobil Corp. to Woodside Petroleum Ltd., while bolstering supply from nations like Turkmenistan that pipe gas to China.

China is spending $17 billion a year on natural gas imports, about half in the form of liquefied natural gas. The country will open a record number of LNG receiving terminals this year, proving a boon for more than $100 billion of projects being built by companies such as Exxon Mobil and Chevron Corp. in Australia and Papua New Guinea.

The lack of shale enthusiasm was evident in December at the government’s latest and biggest auction of blocks of land containing natural gas trapped in shale rock strata. Coal miners and provincial government investment firms with no experience of shale drilling were among winning bidders. The bids by the big two gas producers and China National Offshore Oil Corp., the largest offshore oil producer, failed.

Awarding shale gas prospects to inexperienced companies in the second auction and government price controls on natural gas are likely to ensure imports continue to rise.
China imported $8.3 billion worth of liquefied natural gas last year, up 41 percent from 2011. Piped gas comes mainly from Turkmenistan.

“If you want to kick start this industry quickly from zero now, you need to either introduce a massive subsidy or allow free market forces to prevail,” James Hubbard, an analyst at Macquarie Group, said. “You’ve got 20 blocks that have just been awarded to companies no one has ever heard of.”

The government would need to increase the subsidy to 1.5 yuan (24 U.S. cents) a cubic meter from the current 0.4 yuan to effectively spur growth, Hubbard said. The 0.4 yuan subsidy is 17.5 percent of the current 2.28 yuan price that Beijing residents pay for piped gas.

“More incentives need to be introduced,” Wang Guoqiang, chairman of China-based oilfield service provider SPT Energy Group Inc., said in an interview on Jan. 29. Wang is investing more in Central Asia and the Middle East to hedge the prospect that China’s shale industry doesn’t take off.

Natural gas in New York has declined 4.9 percent this year. The fuel fell to a decade low of $1.91 per million British thermal units in April last year from a record of $13.92 per million Btu in Sept. 2005 as the U.S. ramped up commercial production of shale gas. The U.S. ousted Russia as the world’s biggest gas producer in 2009.

Futures rose 1.1 percent to $3.19 per million Btu on the New York Mercantile Exchange as of 11:52 a.m. Singapore time.

Drillers in China have yet to produce shale gas commercially, with Royal Dutch Shell Plc helping CNPC to sink the nation’s first horizontal well in 2011. Total SA, Europe’s third-largest oil company, said last week it was in “advanced talks” with a Chinese partner to explore for shale gas.

Cnooc Ltd. and China Petrochemical, also known as Sinopec Group, have invested more than $5.7 billion in so-called unconventional oil and gas assets overseas, yet they find their technology lacking at home.
“None of these companies have the below-ground experience of oil producers,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein, said in an interview. “They need to partner with other companies to even come close to the targets.”

Two phone calls each to Sinopec and CNPC’s offices today seeking comment were not answered and no voicemail was available to leave messages.

Without unlocking shale gas reserves, China’s only option is to import more LNG.

This year, China may add five LNG terminals with an annual capacity of 15.7 billion cubic meters, the highest in a single year, the Paris-based International Energy Agency said in report last year.

Those terminals, being built by companies including Cnooc and China Petroleum & Chemical Corp., would increase the nation’s LNG import capacity by 54 percent from the current 29 billion cubic meters a year, according to the report. Another 7.5 billion cubic meters a year is under construction and will be completed by 2015. The first plant started in 2006.

Tuesday, February 19, 2013

Wind Power in Germany Gusting Higher

Story first appeared on Bloomberg News -

Germany is getting more power than ever before from sources dependent on wind and sunshine, pushing short-term price swings to the biggest in five years and boosting volume as utilities increase trading.

The gap between the highest and lowest price over two months for electricity deliverable the next day widened to the most since December 2007 through yesterday, according to broker data compiled by Bloomberg. German wind output peaked at a record 23,331 megawatts on Jan. 31, enough to supply 46 million homes. That compares with an average of 5,079 megawatts during 2012, data from European Energy Exchange AG on Bloomberg show.

Chancellor Angela Merkel’s government is trying to push the proportion of German power produced by renewable sources to 35 percent by 2020. Solar and wind generation jumped 80 percent over the past three years, damping prices on sunny, gusty days and boosting them when natural gas or coal plants are required to offset shortfalls. Intraday volume on the EPEX Spot SE exchange in Paris rose more than 11-fold over the past five years as traders focused on near-term contracts for speculative buying and selling.

“Renewable generation has brought some volatility to the market,” Johannes Teyssen, EON SE’s chief executive officer, said on a Jan. 30 conference call. “We have the possibility to earn some extra money.”

Germany’s biggest utility lost 66 million euros ($88 million) from buying and selling energy commodities for its own account in the nine months through September last year, on an earnings before interest, tax, depreciation and amortization basis. The performance cut EON’s total income for the period to 8.82 billion euros, up 35 percent from a year earlier, according to its Nov. 13 earnings statement.

Day-ahead electricity in Germany traded in a 109.50 euro ($146.31) range from Nov. 23 to Feb. 18, the biggest 60-day price swing since the two months ending Dec. 27, 2007, according to broker data compiled by Bloomberg. Baseload electricity, for supplies delivered around the clock, fell as low as minus 48 euros a megawatt-hour on Dec. 25 and was at 44 euros at 2:42 p.m. Berlin time today.

Germany is expanding its output from climate-dependent renewable energy sources to replace nuclear power that will be phased out by 2022. Installed solar and wind capacity was about 64 gigawatts at the end of 2012 compared with 35.6 gigawatts at the end of 2009, according to a Bloomberg Industries analysis of data from the German Environment Ministry and wind lobby Bundesverband WindEnergie e.V. Renewable plants provided enough electricity to meet about 22 percent of total demand last year, according to BDEW, a Berlin-based utility lobby group.

The electricity bill for German households with power consumption of 3,500 kilowatt-hours a year will rise to the highest in at least 15 years to pay for the increased generation from wind and solar, according to BDEW. The average price for a private three-person household will increase to 28.50 euro cents a kilowatt-hour this year from 25.89 cents in 2012 and 13.94 cents in 2000, the lobby group estimates.

Germany guarantees operators of wind and solar plants a fixed income for the electricity they generate and smaller users such as households pay for any discrepancy with market prices through a so-called renewable energy fee. The levy, for consumers of less than 1 gigawatt-hour a year, will rise to 5.277 euro cent a kilowatt-hour this year from 3.592 cents in 2012, according to BDEW.

It’s possible for wholesale electricity prices to fall below zero if supply exceeds demand, prompting utilities to pay consumers to take delivery because power, unlike other commodities, can’t be stored. Day-ahead prices turned negative for the first time in December amid above-average wind output, low demand and mild temperatures for the season.

Warmer-than-usual weather damped average hourly demand to 40.9 gigawatts on Dec. 25, according to data from European power grid operator group Entso-e, compared with a mean of 44.2 gigawatts during the last week of the year. Temperatures in Germany rose to a maximum of 18 degrees Celsius (64 Fahrenheit) in Stuttgart on Jan. 25, according to Deutscher Wetterdienst. That was the highest temperature on Dec. 25 since 1961, when the office started recording the data.

RWE AG, Germany’s second biggest utility, “benefited from a substantial improvement” in the performance of its energy trading activities in the nine months through September, according to its Nov. 14 earnings report. The Essen, Germany- based company didn’t disclose financial details.

Cumulus Energy Fund, a hedge fund with $176 million under management, surged 39 percent in December after predicting the slump in near-term prices that month, it said in an investor letter. The fund boosted its returns when “extremely bearish weather” caused the collapse in German spot prices over the holiday period, London-based Chief Investment Officer Peter Brewer wrote.

Intraday volume on EPEX Spot, the biggest exchange for short-term German power trading, climbed to 15.8 terawatt-hours last year from 1.4 terawatt-hours in 2007, according to a company statement on Jan. 8. Total electricity traded on the bourse, which covers contracts for as long as one day ahead in France, Germany, Austria and Switzerland, increased by 8 percent in 2012 to a record 339 terawatt-hours.

“With more renewable generation increasing volatility we are concentrating more people and more effort into intraday trading,” Stefan Dohler, head of asset optimization and trading at Vattenfall AB, Germany’s third-largest power producer, said in an interview in Essen on Feb. 5.

Vattenfall made a profit from trading and optimizing the use of its power plants last year, Thorsten Ziegler, a Vattenfall spokesman said yesterday by e-mail. He declined to provide financial details.

In addition to the one-day market, utilities, banks and hedge funds trade electricity several years ahead. Germany’s next-year contract is the most liquid in Europe and is used as a benchmark throughout the region. As renewable energy floods the market and increases price swings for next-day and intra-day electricity, it’s having the reverse impact on longer-dated contracts as the boom in green power sources creates a surplus. Germany has a buffer of about 5,000 megawatts, Vattenfall’s Dohler said.

Price swings in the next-year contract, as measured by 30- day historical volatility, slumped to 5.11 percent on Dec. 21 from 17.14 percent on March 19, according to EEX data on Bloomberg. The measure has recovered this year and was at 15.49 percent yesterday. Year-ahead trading fell 36 percent to 384 terawatt-hours on EEX in 2012 compared with a year earlier, the bourse said by e-mail.

Price swings in near-term electricity contracts may become more pronounced as daily fluctuations in the weather keep supplies in flux, Henrich Quick, an analyst at Poyry Oyj in Dusseldorf, said by phone.

“There used to be 50 extreme hours in a year and by 2020 it will be the new normal where you have 200 to 300 freaky hours,” he said.

Monday, February 18, 2013

Protesters rally in D.C. against climate change

Story first appeared on Philly.com -

More than 500 people from the region joined thousands of protesters Sunday in Washington, calling for strong action on climate change and a stop to the Keystone XL pipeline.

The pipeline would transport oil from Canada to the Gulf Coast. Opponents say it would worsen climate change by encouraging further development of the tar-sands oil resource.

They spent several hours in the bitter cold and a strong wind cheering, waving signs, listening to speakers, and marching around the White House, although President Obama was in Florida for a golf game.

Many - from experienced hands who have been at this for years, to middle-school students excited to be at their first big rally - consider climate change the defining issue of their time.

"Twenty-five years from now, nobody is going to look back at our era and say, 'Boy, I wonder how that fiscal cliff thing came out,' " said Bill McKibben, founder of 350.org, an environmental group fighting climate change and one of the sponsors of the rally.

"Everyone is going to look back and say, 'Well, the Arctic melted, and then what did you do?' "

The rally came after a week of climate-change developments.

In his State of the Union address Tuesday, Obama said: "For the sake of our children and our future, we must do more to combat climate change." He added, "If Congress won't act soon to protect future generations, I will."

On Wednesday, as a precursor to Sunday's rally, nearly 50 activists, including Philadelphian Eileen Flanagan, were arrested in an act of civil disobedience outside the White House.

The next day, the Government Accountability Office added the financial liability of climate change to its list of "high-risk" areas for the U.S. government, and two senators introduced climate-change legislation that would impose a fee on carbon emissions.

The Sierra Club, Clean Air Council, Earth Quaker Action Team, Citizens for Pennsylvania's Future, and other groups organized bus transportation from this region.

After adding yet another bus Saturday - Sierra Club organizer William Kramer said he was getting phone calls and e-mails up to the end - 11 buses with more than 500 people on board headed out from King of Prussia, Quakertown, Devon, West Chester, and Philadelphia. Several more left from central New Jersey.

For Jean Mollack, 58, a laid-off worker from Doylestown, it was one more in a series of Washington rallies that began with a Vietnam War protest in 1971. "I think we're ruining the world with our dependence on fossil fuels," she said.

If Mollack was an old hand, Grace DiGiovanni, 12, who goes to Green Street Friends School in Philadelphia, was one of the newbies. She said that attending the rally was all about her future. "This is for my generation of kids."

Groups from schools and houses of worship joined the buses. Organizers estimated the crowd at 35,000.

Joy Bergey, 57, a policy director for the environmental group Citizens United for Pennsylvania's Future, brought eight youths from Chestnut Hill United Church, where she's a longtime member.

They included Sarah Noonan-Ngwane, 16, who said environmental issues "should be at the core of what happens over the next four years."

And Monica Guess, 17, who said that if the Keystone pipeline got built, "it changes our whole future."

For Bergey herself, the rally was the continuation of a battle she began in 1979, when she had her first argument with someone who said climate change wasn't happening.

"I will not stop fighting," she said. "I want there to be a livable planet for all God's creatures."

Nancy Grossman, 53, a pharmacist who lives in Jackson, N.J., was worried about climate change even before she saw the destruction that Hurricane Sandy left along the coast.

"It's one disaster after another," she said. "I don't know what other proof people are looking for."

Albert Accoe, 62, a security consultant from West Philadelphia, said he was attending "for my children and grandchildren."

Liz Robinson, 63, who heads the Energy Coordinating Agency in Philadelphia and attended with her entire family, said, "Everybody should be here. . . . It's very profitable to burn oil. Unless all of us stand against climate change, it'll be too late."

Wednesday, February 13, 2013

Construction Begun on OSU Nuclear Energy Facility

Story first appeared on Fox 12 News -

Oregon State University students will get to study a nuclear energy concept at a new on-campus facility.

Construction began today on the $4.8 million facility meant to test a new nuclear energy technology that could be safer, more efficient and produce less waste than existing approaches.

Researchers say it is a viable and versatile energy concept for the future.

This nuclear reactor the new approach is a "super-hot" type of nuclear reactor cooled by helium gas, not water, and can reach 2000 degrees. That's about three times hotter than existing reactors.

Researchers say it could produce electricity, hydrogen to power automobiles, steam to heat a building complex, or provide a cheaper way to desalinate seawater.

Like any existing nuclear reactor, the high-temperature nuclear reactors could produce electricity about 35-50 percent more efficiently than existing approaches. But they also create about half as much radioactive waste, by the nature of their design cannot melt down, and like all nuclear technologies produce no greenhouse gas emissions.

"If they can make the cars, we could use this technology to make the hydrogen," said Brian Woods, an associate professor of nuclear engineering and director of this project. "One of the biggest attractions of the high-temperature reactors is their versatility. They could be used in so many ways.

"Like any new technology, it will take some time for this to gain acceptance," Woods said. "But by the middle of this century I could easily see high-temperature nuclear reactors becoming a major player in energy production around the world."

The test facility now being built at OSU, like some of its previous counterparts in passive safety and small modular reactors, will be used to test high-temperature reactors for safety and simulate multiple types of accidents. There will be no use of nuclear fuel, with the high temperatures produced by electrical heaters.

"Something that works at a very high temperature might sound more risky, but in fact this type of nuclear reactor technology would be the safest of all," Woods said. "Everything in the system is designed to withstand extremely high temperatures, and in the event of any system failure, it would simply shut off and slowly cool down."

The test facility being constructed in the OSU Radiation Center is about six feet wide and 18 feet tall, and will simulate the reactor vessel. In this technology, helium gas is used as the coolant to transfer heat through a steam generator. The system uses special stainless steel and other alloys to handle the extreme heat, and was built by Harris Thermal, Inc., in Newberg, OR.

Field tests are scheduled to begin in April and continue until summer 2014.

The work is being supported by grants from the U.S. Nuclear Regulatory Commission.

Tuesday, February 12, 2013

Fracking Resolution Opposed

Story first appeared on Medina Gazette -

Business leaders spoke out against a proposed anti-fracking resolution at Monday night’s City Council meeting.

Michael Baach, president and CEO of Philpott Rubber, urged Council to reconsider the resolution, which would put the city on record opposing state laws regulating hydraulic fracturing, better known as “fracking,” throughout Ohio.

The resolution cites concerns over chemicals used in the fracturing process and the infringement of the city’s home rule authority by the state.

Baach said his company is concerned about the resolution because one of Philpott’s subsidiaries is Petco, which creates one of the chemical solutions used in the wells.

Baach said he feared the resolution might deter companies that supply hydraulic fracturing products from moving or keeping their operations in Brunswick.

“We’re here, we’re loyal and we’re a part of the community,” Baach told the Council. “The publicity (passage of the resolution would bring) would put a huge burden on us.”

Baach said Philpott will be celebrating 125 years in business this year. Petco, which was started in 2012, now comprises 25 percent of his total business.

He said the products he manufactures are safe, and he thinks Brunswick’s industrial parks could be a key location for other businesses related to hydraulic fracturing.

Baach said the resolution would send the wrong message.

“Anti-anything can be received as anti-everything if you’re not careful,” he said.

While the geology of rock formations doesn’t favor drilling in Medina County, Baach said Brunswick is an ideal location for suppliers of companies drilling in eastern Ohio, such as Carroll County.

Drilling work in eastern Ohio has driven demand for every service up in areas closest to the wells, he said.

Hotel costs have skyrocketed along with local property values.

But Brunswick is close enough to support drilling work.

“I’d be putting up billboards advertising our location,” Baach said.

Ken Schlick of the Brunswick Chamber of Commerce, joined Baach in opposing the resolution, saying it might damage Brunswick’s image as a friendly place for business.

Mike Chadsey, of Energy In Depth Ohio Campaign, said he represents oil and gas companies throughout Ohio and offered Council members the opportunity to visit well sites and ask questions.

One resident addressed Council in support of the resolution.

Richard Prospal said he had serious concerns about the safety of the water supply and said the industry’s term “brine water” used to describe the solution injected into hydraulic fracturing wells was deceiving and could include other chemicals not disclosed by well operators.

“I think preservation of our water supply is tantamount,” Prospal said. “I support the resolution on the books.”

Council took no action on the resolution, saying more time was needed before making a decision.

The ordinance initially was proposed by Councilwoman Pat Hanek, at large.

She was joined by several other Council members who said they would support the ordinance.

In other action Monday, members approved amending a contract between Zaremba and Associates and the city until May 26 to provide more time to negotiate how to transfer Zaremba’s 67 lots in Brunswick Lakes to Drees homes.

City Law Director Ken Fisher said the timeline for repaying the debt to the city would stay the same.

Zaremba owes $394,090 that was supposed to be repaid to the city when he developed the lots.

Council’s Committee-of-the-Whole also agreed to put a request from Giant Eagle for a 922-square-foot extension of its cafe restaurant on Council’s agenda.

The proposal was given a first reading. A final vote was expected after the extension goes before the city Planning Commission.

Friday, February 8, 2013

The U.S. Shale Gas Revolution

Story first appeared on Fox Business News -

The United States is enjoying an energy bonanza thanks to shale gas, making it a magnet for industry, reducing import dependence and challenging Europe as it battles to dig itself out of recession, energy officials say.

Panelists at a weekend security conference in Munich warned Europe must develop a strategy on how to tap its own resources in order to keep energy costs competitive, or risk seeing power-intensive industries locate elsewhere.

"The shale gas and oil boom is already underway. As Europe continues to debate it, North America is reaping the advantages," said Jorma Ollila, Chairman of Royal Dutch Shell .

Just a week ago Shell signed a $10 billion shale gas deal with Ukraine - the biggest contract yet in Europe - which could help Ukraine ease its reliance on Russian gas imports.

Ukraine is said to have Europe's third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic meters), according to the U.S. Energy Information Administration.

Its reserves are dwarfed by those of France however, estimated to be Europe's largest at 180 trillion cubic feet.

France has banned the procedure, known as fracking which is used to extract shale gas and which involves pumping vast quantities of water and chemicals at high pressure through drill holes to prop open shale rocks.

Environmentalists fear it could increase seismic risks and pollute drinking water. U.S. officials question this and say that thanks to the higher proportion of gas use the United States has had its lowest carbon dioxide emissions in 20 years.

"Observing this from across the Atlantic it is really quite remarkable that there should be a ban or a go-slow on this development in Europe, really without any facts," said Daniel Yergin, Vice-Chairman of IHS Cambridge Energy Research.

Fracking is used to produce a third of U.S. natural gas he said, showing the environmental impact can be managed.


World energy market flows already reflect North America's scramble to exploit shale oil and gas and highlight the potential prize Europe is ignoring.

"The U.S. internal energy revolution and the radical increases in production of oil and gas have boosted gas production by 25 percent and seen oil import dependence drop from 60 percent to 40 percent, and expected to decline further to 30 percent," said Carlos Pascual, the U.S. special envoy for energy affairs.

While Europe retains deep environmental concerns it also acknowledges that with the price of gas in the United States just a third of that in Germany, its industry is already suffering the effects.

German Economy Minister Philipp Roesler said: "Many German firms have opted for (relocation to) the United States, saying energy prices were the decisive factor...We are already seeing that we are suffering with our higher energy prices it affects our own competiveness."

Addressing the panel in Munich European Union Commissioner Guenther Oettinger said Europe should be in a position to produce enough shale gas to replace its depleting conventional gas reserves, so as not to become more dependent on imports.


A greater abundance of gas could threaten the dominance of Russia's gas exports and pressure prices. The United States seized Russia's spot as the world's largest gas producer in 2012, and is due to produce significantly more from 2015.

"I believe that the shale revolution is something positive, a chance for all of us to launch technologies, intensify competitiveness, make our countries more energy secure, and reduce costs," said Russian Energy Minister Alexander Novak.

Russia is focusing on boosting exports to energy-hungry Asia and developing infrastructure to transport gas eastwards.

A recent confidential study by the German intelligence agency (BND) suggested the United States could turn from being the world's greatest energy importer into an oil and gas exporter by 2020, reducing its dependence on the Middle East and thereby giving it much more freedom in policy making.

China by contrast would become much more dependent on Middle East oil to fuel its rapid expansion.

Illustrating just how rapidly the shale revolution has taken hold, shale gas accounted for just 1 percent of gas production in 2005, whereas today it is a third, and by 2040 it will be 50 percent, U.S. special envoy Pascual said.

"Developing a greater capacity to reduce import dependence does not diminish our commitment to stability," he stressed.

"It will not affect our engagement for global security, peace and security in the Middle East."