Oil price: Britain’s North Sea Oil Industry ‘Close To Collapse’

We were perhaps mistaken in calling this page ‘Currency wars’ and focusing initially on American attempts to undermine Russia’s economy which is overly dependent on oil and gas. That of course is just a skirmish in a much wider economic war that is now hurting those nations that complied with Obama’s diktat and imposed economic sanctions on Russia in retaliation for Moscow’s refusal to surrender its strategically vital satellite state, Ukraine, to NATO and the EU.

Britain, because of our north sea oil interests is one of the hardest hit.

The price of crude oil began to collapse when The United states Of America, the swaggering bully of the world community decided to use its new status as a net exporter of oil, due to the shale boom, to flood world markets, finding because their oil is the most expensive to extract, that their wells were not economically viable, and damage Russia’s oil dependent economy. Naturally prices in world markets dropped due to the law of supply and demand. With typical stupid arrogance the Americans demanded that the Arabs and other traditional oil producers cut production to hold up prices.

The Arabs and other oil producing nations, sensing Amerca’s push to become gobal hegemon had run off track and what they were threatened with was the empty bluster of a bully whose cowardice and weakness has been exposed in effect said, “Fuck the fucking fuck off,” by pumping more oil and sending prices crashing even further. Result? Approximately $1trillion worth of new shale fracking projects planned in the USA have been cancelled. If it ended there the world would only have the minor problem of a US / Russia currency war.

Unfortunately the plunging oil price has brought about a “huge crisis” in energy markets, one of the worst hit is the UK’s North Sea oil industry, expert have warned. With North Sea oil now selling at below $60 a barrel, it is “almost impossible to make money”, Robin Allan, chairman of independent explorers’ association Brindex, told the BBC.

“It’s a huge crisis. This has happened before, and the industry adapts, but the adaptation is one of slashing people, slashing projects and reducing costs,” he said.

After several days of volatile trading in oil markets, Brent crude, the global benchmark, ended the day down 1 per cent at about $60 per barrel after having risen 3 per cent in early trading. In recent weeks, oil prices have crashed to their lowest levels in five-and-a-half years following falls demand due to weakening in major economies and concerns of a global oil glut.

Up to £55bn worth of North Sea oil projects scheduled for 2015 could be cancelled due to the falling prices, the Daily Telegraph reports.

Concerns over the financial state of the oil industry have increased since Opec voted not to cut production in an attempt to arrest sliding prices when they met in Vienna last month. Iran’s oil minister has publically criticised Opec’s inaction. Bijan Zanganeh told the country’s state petroleum news agency: “The prolongation of the downward trend of the oil price in world markets is a political conspiracy going to extremes.”

The US-based oil company ConocoPhillips has already moved to cut 230 out of 1,650 jobs in the UK and some analysts predict that other large firms will make similar cost-cutting announcements in the coming months.

However, the Department of Energy and Climate Change said yesterday that even though reductions in oil prices have proven “very challenging” for companies active in the North Sea, “we have seen very little evidence of new projects being cancelled or deferred in reaction to lower oil prices”.

[more]

Christmas Message: Economic Recovery, Bah, Humbug

Contributed by Phil. T. Looker

Albert Finney as Ebeneezer Scrooge
Albert Finney as Ebeneezer Scrooge (source)

These words or something near them were seen in almost every financial newspaper and website today:

“Oil prices have dropped $50 a barrel. That may not sound like much. But when you take $107 and you take $57, that’s almost a 47 percent decline…!”

To certain people not unconnected from this blog who have an easy come, easy go attitude to money this may not sound like a big deal. When the accountants and maths geeks get busy with their scientific calculators, the decline starts to look catastrophic.

The Financial Pundits seem to think so anyway. And even Ian has to agree for one the meths geeks are right. So what’s going on?

Many people who have spent the last couple of years hailing the shale revolution and crowing about the economic boom it would usher in (never mind the serious environmental concerns about fracking). Being traders rather than accountants they failed to understand the downside side of shale’s effect on business. The significance of little things like the fact that much of the day-to-day shale operation was being run on junk bond financing. Thus they had no problem in convincing themselves that in the future every day would be Christmas. Sorry but I have to be Scrooge and tell you the bubble just burst.

The bubble floated well in the zero gravity environment of zero interest rate policy (ZIRP) where investors desperate for “yield” — i.e. a better return than sweet FA on their money — ended up in the bond market’s junkyard. These investors, it turned out, were the big institutional concerns, pension funds, insurance companies, mixed bond investment trust funds. ZIRP was killing them.

In the good old days of the late 20th century boom-and-bust they would see an annual interest rate of between 5 and 10 percent which enabled them to fund their obligations, i.e. pay pensions, settle insurance claims, cover company salaries and have a bit left over for a Christmas jolly.

ZIRP ended all that. In fact zero interest destroyed the most important index in the financial world: the true cost of borrowing money. It also destroyed the entire relationship between borrowed money and the cost-structure of the endeavors it was borrowed for. Shale oil is the prime (or sub prime) example.

The fundamental constraint for investing in shale oil was that the wells were only good for about two years after which they were pretty much fracked,(hence that was the contstraint nobody in the entire fracking world talked about).

So, if you were in that business, and held a bunch of leases, you had to constantly drill baby drill and drill and drill again just to maintain production. Drilling costs between $6 and $12-million per well.
Over the past seven years is that the drillers and their investment bankers, aided and abetted by the kind of scientists who deal in mathematical models, theory, speculation and guesswork hyped the holy shite out of the shale fracking business (the scientists had no qualms about building mathematical models that exaggerated the oil and gas yield from wells by 96% with makes even the climate science fraud look reasonable).

It was not a shale revolution but another Ponzi scheme, it was Enronomics all over again; as long as the money kept rolling in they could pay out the early investors and boost confidence in their scam. In the few short years they drilled the results looked so impressive that to quote the song Evita sings “The money kept rolling in”. It was going to save the American economy, it was going to chain the Russian bear, it was going to put the arabs in their place and restore the status quo.

Sadly the shale oil and gas economic “miracle” was a rerun of the dotcom bubble, the housing bubble, the South Sea bubble, the Tulip bubble (which we generally accept was the first investment bubble). It was deja vu all over again. The frackers sucked so much oil out of the ground in a short period of time that they killed the goose that laid the black, slimy egg; in response to American over production the Arabs cut their prices, demand for oil at a price that made it worth drilling for just dropped away.

The current stage (stage 4?) will see much of the junk financing default, bankers will steer clear of junk financing just as they steer clear of sub prime mortgages now, and a lot of planned wells will be abandoned, meaning that the current crop of wells will crap out within two years, and production will not be replaced by new wells because there is no money in it (it may come as a surprise to lefties but the objective of business is to make a profit. Still, on the bright side, all those wannabe protestors can go home and spend Christmas with their dear old Mum, no point protesting against something that ain’t gonna happen.

Duh! The Scientists Got It wrong Again – by 96% this time

When you can’t tell the difference between reality and mathematical models of reality, there’s not much chance of predicting outcomes correctly. This applies equally to economics, climate change and apparently to gas and oil extraction using fracking techniques to release hydrocarbons from bedrock.

Yes, fracking, the technology that was going to make America No 1 economic power again, kick Putin’s arse and save the Obama Presidency.

So on a day that already saw us report the government are about to court even greater unpopularity by granting exploration mandates to a bunch of corporate frackers who want to extract an estimated billion barrels of oil and gas from under the green and pleasant land of Surrey, Sussex Hampshire and Kent, we came across some news the might make the politcians wish they waited until the pointy heads had had another look at ‘the science’.

from Truth Out

Energy Information Administration officials told reporters on Wednesday that they are cutting their estimate of how much oil can be drawn out of California’s massive Monterey Shale formation by a whopping 96 percent

The news deals a serious blow to the fracking industry and has environmentalists cheering as momentum builds behind a legislative effort to put a moratorium on fracking in California. The estimate will be released publically next month, according to reports.

In 2012, the federal officials estimated that 13.7 billion barrels of oil could be recovered from the Monterey Shale. The EIA now says that only 600 million barrels of oil can be recovered using existing technologies such as acid treatment and fracking, the controversial oil and gas technique that involves forcing millions of gallons of water laced with silica and chemicals deep underground to break up rock formations.

Continue reading

Bet they wish now they had taken the trouble to collect some real world evidence rather than relying on computers and mathematics. Ninety six per-fucking-cent, WOW. That is a considerable achievement even by the standards of science tits.

Still, it does not quite surpass the dickheads who claimed a 97% consensus of climate scientists agreed the science is settled and global warming was caused entirely by CO2 from human activity. Turns out it was actually half a percent who completely agreed.

RELATED POSTS:
Shale Does Not Offer Salvation

Transhumanism: The Elite Total Control Agenda
Mind Control: How It Works and how The Elite Use It

No gas found in the Weald basin: Does this spell the end of the Government’s dream of a fracking revolution?
from The Independent

The Government’s dream of kickstarting a fracking revolution has suffered a major setback after a survey of one of the UK’s great shale gas hopes found no evidence of gas in the area.

And while the same survey – of the Weald basin, stretching from Wiltshire to Kent – did find an estimated 4.4 billion barrels of oil, the scientist who oversaw the project admitted it would be so difficult to extract that the basin would be unlikely to yield even 0.5 per cent of the oil so far extracted from the North Sea.

Robert Gatliff, director of energy and marine geoscience at the British Geological Survey, which produced the report, said: “It’s not a huge bonanza. But we have to see what happens.” He added: “It is going to be a challenge for the industry to get it out.”’

Continue reading

RELATED POSTS:
Britain’s maths policy simply doesn’t add up – but neither does overestimating the importance of maths.

E Bomb? Putin Has Obama Over A Fracking Barrel Again

putin responds to obama
Putin Responds To Obama’s Latest Ultiumatum. Source

In the wake of Barack Obama’s latest complete humiliation at the hands of Vladimir Putin as the Ukraine crisis drags on, mainstream media in the west has continues to provide The Rent Boy President with the journalistic equivalent og Immaculate Body Service (look it up if you must, but not on a full stomach 😀 )

Take this article by Fraser Nelson in The Daily Telegraph for example:

For decades it has seemed as if God has played a great joke on mankind, granting the best fuel reserves to the worst places. Iran, Russia, Saudi Arabia, Turkmenistan [ … ]– As Vladimir Putin has found, if you own the gas which the rich world needs, then you can get away with murder.

Europe is a recession-struck continent dependent on a Kremlin-controlled energy price. Putin cleverly cut Gazprom tariffs to the region last year, ramping up its dependence on Russian gas to record levels. And in so doing, he effectively bought EU foreign policy.

He’d find it harder to buy America’s nowadays. As Barack Obama considers his options, he has a substantial new weapon that he is not sure how to deploy. In the last few years, the shale revolution has utterly transformed America’s energy fortunes. (Read all)

Poor little Fraser, even if his belief in shale were justified, he assumes Obama would have the nous or the balls to use America’s mythical abundance of gas to outmanoeuvre Putin.

Meanwhile, in a rare attack of journalistic integrity, Huffington Post reported this:

Deepening Doubts About Fracked Shale Gas Wells’ Long Term Prospects”

“The oil and gas industry has propagated a vision that fracking unleashes vast amounts of gas which then flows relatively steadily for decades. But a growing mountain of evidence suggests that nothing could be further from the truth. Shale gas wells dry up, sometimes long before they have produced enough gas to cover the costs of drilling and fracking them.”

In the oldest shale formation, Texas’s Barnett shale, many aging wells have had to be re-fracked multiple times to keep them from runningdry. Re-fracking costs millions of dollars and requires millions of gallons of water.

A review last year by the New York Times found that less than ten percent of 9,000 Texas shale wells had recouped their estimated production costs within their first seven years.

Continue reading at Huffington Post

Added to that, there is a huge body of opposition to fracking building up in the USA, with many far fetched horror stories about blazing rap water and awakening demons being given credibility.

The economic letown will be the deal breaker of course, when shale gas turns out to be no more viable a solution for our energy needs than windmills, a lot of people are going to lose a lot of money.

RELATED POSTS:
shale oil and gas will not deliver salvation
Iceberg alley blues
Fracking Shale