Is Exxon’s Obfuscation About Climate Change A Crime?

WASHINGTON – Here is the thing. We know now that ExxonMobil’s internal documents reveal that experts working for the company years ago admitted that burning fossil fuels would cause unwanted higher temperatures, and therefore climate change.

Deceit

Exxon’s top management was well aware of these findings. But quite obviously it chose to ignore them. In fact, it did much worse. The oil and gas conglomerate for years funded research organizations that either minimized the impact of fossil fuel emissions on temperature changes, or denied it altogether.

There is no question in my mind that Exxon knew exactly what it was doing. It was engaged in a big lie in order to protect its enormous economic interests. It fought against those who would want to drastically curb the use of fossil fuels, and therefore harm or kill its business, on the basis that burning fossil fuels increases CO2 levels in the atmosphere. There is no doubt that Exxon’s behavior is unethical and despicable.

Is this a crime? 

But is it also criminal? Well, many U.S. public officials think so. Led by New York State Attorney General Eric Schneiderman, they maintain that Exxon’s actions are in fact fraud. By denying evidence that it knew to be true about the harmful impact of its products, Exxon Mobil willfully cheated its investors.

They were told that the company was engaged in safe activities, while it turns out that they are unsafe, given the global warming impact derived from using the fossil fuels that Exxon produces. According to Schneiderman this behavior is very similar or equal to the pattern of conduct exhibited by the tobacco companies when for years they denied that nicotine was addictive and that smoking cigarettes greatly enhances health risks.

Just like the tobacco companies 

The tobacco companies quite clearly knew the truth about the consequences of smoking. But they engaged in a massive disinformation campaign because they wanted to protect their market. If, by doing this, they allowed millions of Americans to die prematurely because of lung cancer and other cigarettes caused diseases, so be it. They just did not care. In order to keep their immense profits, they kept obfuscating for as long as they could. Later on, this was considered criminal behavior. And so the tobacco companies were forced to pay enormous fines.

Well, Exxon’s critics now say that the oil company did pretty much the same. The company withheld from its investors and from the American public the content of internal studies that acknowledged that global warming is the result of humans using fossil fuels on a massive scale, while publicly claiming that the data and the evidence supporting this thesis is ambiguous and inconclusive. Very simply, they knew the truth; but in public they declared the exact opposite.

It is not fraud 

Anyway, is all this criminal? I do not think so. Most investors knew exactly what they were buying when they purchased ExxonMobil stocks. Even though Exxon was engaged in a robust disinformation campaign, people –including investors– had access to plenty of publicly available studies that clearly stated the opposite.

Which is to say that people who bought Exxon stock knew the facts. More broadly, it is clear that Americans keep using fossil fuels and their byproducts (gasoline) out of their own free will, notwithstanding the efforts of scores of NGOs and the Greens who on a daily basis warn everybody that this behavior will lead to planetary catastrophe.

In fact, even those who believe the green arguments against fossil fuels continue to use them simply because as of today there is no plausible, truly cost-effective alternative. Nobody forces the average American to drive a car powered by an internal combustion engine fueled by gasoline produced by Exxon or by any other energy company. But millions drive these vehicles simply because for most people there is no practical alternative.

Immoral but not criminal

So, here is the thing. Exxon’s behavior is clearly immoral and unethical. It had information that would have harmed its business and it chose not to disclose it, while pretending in its public statements that there was no conclusive evidence that burning oil products harms the environment. This is bad behavior.

But this behavior does not amount to fraud on a massive scale. Indeed, if people wanted “the facts” on the relationship between the use of fossil fuels and global warming, they were out there. There were and there are plenty of widely available sources that state the dangers.

It is completely disingenuous to affirm that the poor, innocent investors were duped into buying stocks of a company that makes harmful products only because ExxonMobil lied to them.

 




Hillary Clinton Will Ban Fracking -Less Energy For America

WASHINGTON – When it comes to America’s energy needs and viable alternatives to fossil fuels, it looks as if Democrats running for the White House live on another planet. Front runner Hillary Clinton recently declared that, as President, she would place so many restrictions on extracting oil and natural gas from shale formations using hydraulic fracturing, or fracking, that this will amount to a complete ban. Her opponent Bernie Sanders declared that he is totally against fracking.

The benefits of fracking 

Indeed. And yet fracking has been one of the few pieces of real economic good news of the last decade. Thanks to fracking America doubled its oil production. This means importing less crude oil, and keeping billions of dollars at home, every day. And fracking used to produce natural gas means abundant supply and lower electricity prices.

But no, this is not good news. The Democrats are telling us that this energy revolution that increased supply and lowered prices is actually bad, because of the environmental impact of fracking. Well, this allegation, even though endlessly repeated by the green movement, is almost entirely baseless.

Fracking is safe 

Of course there have been incidents of pollution deriving from poorly constructed wells and other sub standard practices. But there is no evidence of any systemic risk. If energy companies follow best practices and established industry standards, and most of them do, fracking is safe. And, by the way, this industry is regulated, and heavily monitored.

Environmental protection agencies at the state level keep an eye on it. At the federal level the Environmental Protection Agency, EPA –certainly no friend of oil and gas companies– reviewed the entire US fracking industry and could not come up with anything bad to say about it. Again, while the Obama EPA is certainly not in the pocket of the energy lobby, it could not come up with any justifications to restrict fracking, let alone banning it.

Renewable energy will become more important… 

If we look at the broader world context, it is clear that fossil fuels, (and natural gas in particular), will continue to dominate as essential energy sources. It is true that the most recent energy outlook produced by the energy company BP clearly indicates that the renewable energy sector is rapidly growing. It is gaining a bigger share of total energy consumption. But it starts from a very low base. Therefore, even if it continues its impressive growth, it will take years before it will be able to displace fossil fuels.

…But oil and gas cannot be replaced

In the meantime, oil and gas will continue to dominate. In particular, natural gas share of total energy consumption will grow significantly. And –guess what– most of the new natural gas produced in the USA comes from fracking shale formations.

The very tangible economic benefits coming from new natural gas extracted via fracking are stable or lower electric rates, (natural gas is used mostly for electric power generation), and huge advantages for US petro-chemical industries that use natural gas as feed stock. Cheaper natural gas means lower costs, and therefore more competitive prices for finished products.

Therefore, all sane people know that until we shall have truly cost-effective alternatives to oil and gas the fracking revolution is and will continue to be a major asset for the US economy. It allowed America to become once again a major energy producer, with clear advantages for industry, US global competitiveness, and huge savings for millions of consumers in terms of lower energy bills.

Politics 

So, why do Clinton and Sanders make such outlandish statements about banning or restricting fracking? Very simple. This is just politics. They both want to appeal to the Democratic Party far left where the greens and the pure environmentalists are strongly positioned. In order to get their precious votes, they need to assuage these ideologues with ritualistic anti hydrocarbon policy statements.

This makes no sense 

And yet, if you think of it, all this is absolutely crazy. In the real world, for would be presidents of the USA –one of the largest oil and gas producers on this planet — to state that they will ban a significant component of the production of this vital source of energy should be dismissed as totally preposterous.

But no, nothing happens. Both Clinton and Sanders declared that they will ban fracking. And no one says anything. I wonder how will Democrats in North Dakota, Pennsylvania, Ohio, and Texas –all of them major energy producers– react to this nonsense.




US Economy and Public Finances Deteriorating – Candidates Talk About Something Else

WASHINGTON – While we wait with trepidation for the outcome of the Iowa caucuses that will finally begin to shape the race for the Democratic and Republican nominations, none of the candidates really care to discuss in any detail the actual conditions of America, both its economy and public finances.

On shaky ground 

Let’s make this simple. The US economy is on shaky ground. A lot of the rather modest (2%) economic growth that we had since the end of the 2008 recession is due to free money doled out by the Federal Reserve for an absurdly long time.

Energy bust 

And now, some of that growth is gone, for good. Thanks to Saudi Arabia and its all out oil production policy that depressed prices, the massive energy boom that America enjoyed until 2014 is over, killed by oil at $ 30 a barrel. More than 100,000 high paying jobs have vanished in about a year. More losses to come as more US energy companies go bankrupt, or have to retrench.

Easy credit 

And what about the good news, like higher consumer spending? Well, the stunningly large 2015 car sales were financed almost entirely via easy credit extended to practically anybody walking into any dealership. (Some analysts talk openly about “sub-prime auto loans”). With these kinds of credit tricks it is easy to jack up GDP figures. The problem is that you cannot keep doing this for ever. When consumers who do not earn that much (their incomes have been stagnating for decades) have used up all their credit, then what? Is it just a coincidence that Wal-Mart is planning to close a large number of stores?

True, we have had significant employment growth. But most new jobs are low paying, and many of them are only part-time. Where will the new economic growth come from? From massive new consumption driven by store clerks and janitors who make $ 20,000 a year?

High dollar hurts exports

US exports have been hit and will be hit by a deteriorating global economy (this means less demand) and by a high dollar that makes Made in the USA products more expensive. For the moment, manufacturing output is relatively steady. However, thanks to automation, this sector will not create many new jobs.

Jittery markets 

Are we headed towards a recession? Probably not any time soon. Still, with modest growth and declining corporate earnings, we are barely treading water. It would only take a bit of bad news (look at the Wall Street jitters anytime something strange comes out of China) to wipe out many of the newly created restaurant and hospitality jobs.

Of course, compared to weak Europe or Japan, let alone disaster zones Brazil or Russia, the US is doing much better. But this is not a robust, resilient economy built on the production of valuable goods that give America a strong competitive edge. Sure, we still have many IT giants. But there is only one Silicon Valley in America.

Fiscal picture getting worse 

Sadly, we have to add to this a slowly deteriorating fiscal picture. With due credit to President Obama, it is true that after years of gigantic federal deficits that added massively to the national debt, more recently US public finances have improved –a great deal. the US Federal deficit is now down to less than 3% of GDP for 2015.

However, this will not last. A combination of increased discretionary spending and the higher costs of all key entitlement programs due to an aging population will cause an increase of the Federal budget deficit beginning in 2016. According to the Congressional Budget Office, a non partisan, research and analysis public body, the US Federal deficit will go from $ 439 billion in 2015 (2.5% of GDP) up to $ 544 in 2016, (2.9% of GDP).

The rising cost of entitlements 

And any fair estimate of the increased costs of Social Security, Medicare and Medicaid –the largest Federal entitlement programs — indicates that year after year the deficit outlook will get progressively worse.

Entitlements will soon absorb 15% of GDP (now it is 13.1%). Higher deficits mean higher cost of debt service and the reduction of discretionary spending, including defense.

Obamacare does not pay for itself 

And there is more. The just released numbers on Obamacare enrollment do not look good. The new people who signed up for medical insurance are mostly old and sick. The young and fit did not enroll in sufficient numbers. And this means higher costs for the system. Since most of the new, needy “patients” receive Federal subsidies to pay for their brand new medical insurance, soon enough Obamacare’s extra costs will add to the deficit.

Not a catastrophe

For the time being these numbers, while worrisome, do not look catastrophic. And in fact they are not. But they indicate a bad trend of higher costs and higher deficits, notwithstanding higher tax revenue. And here why this is happening.  As new births keep declining, while more and more Americans get older and live longer, the cost of well-meaning social programs designed in another era, (Social Security was designed in the 1930s), at a time in which retirees were expected to collect benefits only for a few years before they died, will keep growing.

Candidates do not talk about any of this 

Given the above, it is obvious that entitlements reform should be on top of any serious candidate’s list of policy priorities. But it is not. Sure, some of them have presented fiscal reform plans. But they are mostly attention grabbing tax cuts ideas. They fear that any serious talk of real reform amounting to benefits cuts for millions of Americans would amount to political suicide.

So, here is the thing. This elections year should be an opportunity to focus on the real issues affecting America: a fragile economy and deteriorating public finances due to entitlement programs no longer in line with current and future demographic trends.

No serious talk about policy 

But no, the candidates do not talk about any of this. This year we have had a mixture of political theater, lunatic plans to redistribute wealth, populism and empty grandstanding. Between the crazy ideas pushed by socialist Bernie Sanders and Trump’s bravado, mixed with his endless recitations of his good poll numbers, there is no room for seriously talking about anything.

A bizarre President or a weak one 

As I said, Thank God America is not in a serious crisis. But we see a once vigorous society that is slowly deteriorating, while those who want to run the Republic peddle fantasies to people who just want to be duped. My hope is that this unusual political season that started as vaudeville will finally get serious. But I would not count on it.

Sadly, we will end up either with a bizarre president (Trump, Cruz or Sanders), or with a weak one (Clinton) who will do nothing to change course.

 




Keystone Pipeline Is Dead – The Triumph Of Politics

WASHINGTON – Now it is official. President Obama announced that he is against the proposed Keystone pipeline that would have allowed Canada to ship oil directly from the Province of Alberta to the Texas refineries. The project has been officially killed.

A symbol 

It is no secret that this pipeline had become a target for all the US environmentalists who believe that fossil fuels are bad, if not evil. The argument against this particular project is that it would have delivered an even more potent poison. You see, Canadian oil is extracted from oil sands. The process is messy, and dirty. And it generates more emissions.

Therefore, preventing this pipeline from being built became a crusade.

And now Obama has finally taken a position. It is no wonder that in the end he had to agree with the various environmentalist groups. They are mostly Democrats. Hard to think that he would done anything that would alienate them.

Theological argument 

And what about his argument? Well, his argument is based neither on economics nor on any practical energy policy. In fact, it is akin to a theological argument. America is leading the world in the battle against emissions and climate change, Obama said. By approving a project that increases reliance on a particularly dirty form of fossil energy, America would have tarnished its own credentials.

It would have set a bad example, right before the United Nations Conference on Climate Change to be held in Paris on November 30. This will be a major international event in which all countries are supposed to prove how serious they are on combating climate change. Approving a fossil fuels project right before a global forum in which America will encourage others to commit to reducing oil related emissions would have looked bad.

Therefore, this is not about getting more Canadian oil. This is all about politics, ideology and symbolism.

Negligible impact 

Let’s make it clear. Whether you are for or against the pipeline, at the end of the day, when it comes to global warming this is a non issue. The fact is that having or not having this pipeline does not move the needle in any special way.

Enhanced energy security 

However, it would have been better to approve it for different reasons. The pipeline would have contributed to enhanced US energy security. Indeed, the Keystone pipeline should have been allowed because getting more oil from Canada (as opposed to importing it from OPEC countries in the Persian Gulf) would have added to American energy security. Getting about 800,000 barrel a day from Canada would not have been a revolutionary change. But it would have been a positive incremental step.

And here is why. Notwithstanding the huge increase in US domestic production that took place in the last 5 or 6 years, the US still imports almost 50% of all the oil it consumes. That’s about 9 million barrels a day. This being the case, it would be wise to get more of the oil we absolutely need (until something else will replace it) from Canada, a friendly neighbor, as opposed to importing it from the perennially turbulent Middle East. It is as simple as that.

The Middle East is a mess that we cannot control. Something really bad may happen there; and a major crisis may affect oil flows from the region. Therefore, if we had a choice –and now we do–  let’s further reduce our reliance on oil imported from the Gulf region and let’s get more oil from Canada, a friend and an ally.

Is this really so difficult to understand?

No impact on the environment 

As for the alleged negative environmental impact, the Obama State Department, technically in charge of all reviews regarding the proposed pipeline, stated that building Keystone would not alter US total emissions in any appreciable way.

Therefore, all considered Obama should have allowed this project to move forward. He did not do this for political reasons. Nothing to do with the merit of the case.

Does it make economic sense? 

Now, from a different perspective, one could argue about the wisdom of constructing this new Canada to USA pipeline right at a time in which there is a global oil glut, and oil prices are half what they used to be when people started planning for the Keystone pipeline.

May be it no longer makes economic sense to build it. Fair enough. But this is a business decisions to be made by TransCanada and its partners. It is not up to the President of the United States to decide if a project makes economic sense or not. This project would have been built by a private company, and not by the US Government.

Oil transported by rail 

And one more thing. The green movement applauded Obama’s decision as a good way to preserve the environment, while sending a strong message to the fossil fuels lobby: Watch out. We are going to get you”.

But here is the irony. Without the pipeline, substantial amounts of Canadian oil are and will be imported into the United States. This Canadian oil is loaded on trucks or freight trains.

Now, any energy logistics expert would tell you that these modes of transportation are much more dangerous than a modern, state of the art pipeline. As several train wrecks with explosions and fires caused by the oil loaded on rail cars have demonstrated, transporting oil by train can be a real hazard.

The issue was the pipeline 

But I guess that trains loaded with oil, occasionally derailing and exploding here and there, are not an issue for the environmentalists.

The issue was the pipeline. And now it has been killed. Victory.




Lift The US Oil Export Ban

WASHINGTON – At the time of the first OPEC oil embargo (1973-74), in an attempt to protect shrinking domestic oil supplies, the US Government passed a law that forbids exporting American crude oil. 

Plenty of oil

Whatever the merit of that policy, now –40 years later– we are in a totally different environment. While in the 1970s we feared shortages, now the world has plenty of new supply.

And we know that America increased its production, in a major way. Time to do away with the export ban? Not so fast, some argue. Even though we are producing a lot more oil, we are still a major net oil importer. It makes no sense to export oil when we are importing it.

This argument would make perfect sense, but only if any oil, regardless of its origin, were essentially the same. But we know that there are different types of oil.

Lift the export ban

And this is why it would make sense to lift the export ban. Many have spoken on this issue, including MIT Professor John Deutch, a highly respected energy expert with a distinguished public service record. (Amplify the Oil boom by Liberating US Exports, The Wall Street Journal, August 12, 2015).

Here are the facts. America now produces a lot more oil. However, much of the additional supply (coming mostly from shale deposits in North Dakota), is light crude. Nothing wrong with that. Except that most US refineries are designed to process heavy crude. For this reason it is more difficult for US shale producers to sell their product domestically. In many instances they are forced to sell at a discount.

If the same shale oil producers were free to sell internationally, they would get better prices from buyers in other countries whose refineries are designed to process light crude.

Buy heavy crude from Canada 

Well, and what about America? If we sell abroad, then we lose some of this additional supply. This means that we shall have to import more. Yes, this is true.

But there is a solution to this. There are enormous quantities of heavy oil in Western Canada. (in fact Canada has the third largest proven oil reserves in the world, surpassed only by Venezuela and Saudi Arabia). Of course, we already import quite a bit of this Canadian crude.

But we could get more, a lot more.

If we built the proposed Keystone pipeline, it would carry much more Canadian crude all the way down to Texas. The Texas refineries are designed to process heavy crude.

Open energy markets 

This way, by opening up different avenues for different types of crude, each one would get to its optimal destination.

This sounds reasonable. But it is very difficult to do, mostly for political reasons. Lifting the oil export ban may be a bit easier. There seems to be a bipartisan coalition in the making in the US Congress that would have enough votes to pass a new law that would repeal the export ban. This is hardly a done deal, but it looks possible.

Keystone pipeline blocked 

Unfortunately, the Keystone pipeline project is blocked, at least until Barack Obama is US President. Indeed, just like exporting US oil, getting more oil from Canada is not based on market forces, old-fashioned demand and supply. Creating this channel for additional supplies of Canadian oil is entirely contingent on President Obama approving the Keystone pipeline. And he will not do this.

Mind you, this pipeline project has been reviewed, assessed, and vetted a million times by the US State Department, the agency technically in charge because this is a pipeline that will go across the Canada-USA frontier. Armies of experts who worked on this for many years could not find any flaws with this project.

Energy policy dictated by ideological prejudice 

But President Obama will not approve it, simply because powerful US environmental groups are opposed to it, as a matter of principle.

They just do not like any new infrastructure that will lead to any oil consumption increase, foreign or domestic. In other words, it is all about ideological prejudice.

Sadly, this is how we craft the energy policy for the most important economic power in the world.




THE US Shale Industry Survived Oil Prices Collapse

WASHINGTON – When oil prices suddenly collapsed, going from $ 100 per barrel to $ 50 or less, the almost universal prognostication was that the US shale oil industry wad dead. Shale oil is difficult to extract and therefore a lot more expensive than “conventional oil”. Given the very low margins, shale oil can be profitable only if crude prices stay above $ 70 or 80 a barrel.

Kill shale producers

As we know, oil prices collapsed because Saudi Arabia and OPEC decided not to cut production in order to stabilize prices after the world experienced a supply glut thanks to US shale oil coming on line on a massive scale.

Many observers believed at the time that Saudi Arabia allowed the price free fall because it hoped to kill most US high cost shale producers. With oil at $ 60 or lower per barrel a majority of US producers would simply have to shut down. With global crude prices that low, US shale oil producers could no longer generate any profits, because of their high cost and low margin operations.

Well, the predicted US shale oil industry collapse did not happen. And this is mostly because the impossible actually happened. Many US producers learned new ways to cut costs, in a major way –and very fast.

Dramatic cost cutting

This sounds impossible. Oil production is a complicated, cumbersome and expensive process. Shale oil production even more so. You spend a lot of money acquiring drilling rights, spend more money drilling a lot. If you are lucky, you find some oil. After that, you have to set up expensive, capital intensive operations.

All this is based on the expectation that after you start producing you will generate a reasonable profit. But this expectation rests on the assumption that crude prices will stay within a certain range. If prices collapse, you are in a bind. Below a certain point, you cannot recover your initial investment in the drilling operation, and you start losing money. Therefore, you shut down, or you go bankrupt, or both.

Learning curve

But these generally accepted parameters no longer apply. At least not to all shale oil producers. And here is why. Believe it or not, the fact that shale oil wells production cycles are shorter than production cycles from conventional wells has become  an opportunity for many industry practitioners to adopt new cost saving technologies that made the next shale well cheaper and more productive.

It would appear that more drilling resulted in more experimentation and eventually in higher productivity and better margins. At least in some instances, producers indicate that they have higher margins now, with oil at $ 65 than what they had when oil was at $ 95.

Let’s be careful. This does not apply to all. There are thousands of shale oil producers in the US, some of them quite small. Some small companies carry a lot of debt. Their business model is based on high prices. Therefore they will not survive. But many others can and will.

Will shale oil survive?

The issue of shale oil long term staying power is far from settled. How far can producers go in their efforts to cut costs via the adoption of improved drilling technologies? How much more shale oil is out there? In other words, is American shale a real game changer, or is it just an interesting but temporary phenomenon?

We still do not know that. That said, Saudi Arabia’s low prices policy may have unpleasant repercussions for the oil kingdom. There is no question that the Saudis can still make a good profit with oil prices at $ 60 or even less, because their extraction costs are very low.

Will low oil prices hurt Saudi Arabia?

But Saudi Arabia desperately needs a huge oil revenue to keep the country going. Simply stated, beyond oil there is practically nothing else in Saudi Arabia. Oil revenue finances almost everything. A long season of diminished revenue may cause significant cash flow problems. And cash flow problems may turn into political issues in an autocratic country in which loyalty is bought in large measure with subsidies and other forms of public largesse.

In the end, a policy that supports low oil prices forced the US shale oil industry to adjust very rapidly. Can the Saudi state adjust just as rapidly? I wouldn’t bet on it.




Oil Is King, For Now

WASHINGTON – In an interview with FORTUNE magazine, Chevron CEO John Watson argued that, whatever the oil prices wild fluctuations, carbon based fuels are here to stay. Contrary to dire predictions about producers having reached “peak oil” and consequent crude shortages, accompanied by price increases, “those who follow the energy business in think tanks will tell you that right now about 80% of our energy is coming from fossil fuels”, argued Watson. “And if you go out 20 years, about 80% of our energy is going to be coming from fossil fuels”, he concluded.  

The age of oil is far from over

Indeed, there is plenty of oil and gas around the world. Even assuming growing energy demand in emerging markets, it is going to take a long time before we experience significant price increases due to tightening supplies. Translation: the renewable energy golden era may still come, but it is not here yet.

Right now the case for renewable energy is mostly based on the desire to abandon fossil fuels on account of their likely impact on global warming and climate change. Most governments buy the renewable energy argument backed my many scientists. Therefore, they mandate the use of renewable energy, not because it makes any economic sense, but because it is the best way to stop global warming.

However, there is a steep price to be paid for being virtuous. Subsidies for renewable energy have to be budgeted. They cost money. In the meantime, all observers agree that even heroic efforts aimed at adopting renewable energy on  a much larger scale would produce minimal  effects on global world temperatures. Therefore, the case for renewables, (we are talking about currently available technologies), based on their ability to lower world temperatures across the globe, is inherently weak.

The US shale oil boom

In the US we are experiencing an oil renaissance. However, as Watson point out in the above referenced FORTUNE interview, shale oil wells have a relatively short life span. You have to keep drilling in order to maintain the same level of production.

All this is expensive. Therefore some wonder, with cause, how long this US shale oil boom can last. Is there a lot more shale oil out there? Will energy companies come up with improved drilling techniques that will increase well productivity? There are promising signs indicating that all technologies related to “fracking” are getting better, very rapidly.

Still, whatever the long-term prospects of US oil production, (total US oil reserves are estimated to be at 44 billions of barrels, not a very high number), just in the Western Hemisphere there are other oil producers with enormous reserves.

Plenty of oil in the Western Hemisphere

We know that Venezuela is in a sorry state because of its silly populist regime that has mismanaged everything, starting with oil production. But at some point this may change. And Venezuela has the largest proven oil reserves in the world: 298 billions of barrels. This is more than number two Saudi Arabia, (266 billions of barrels). It is not inconceivable that at some future date Venezuela will get better political leaders who will be able to reorganize its energy industry, something that will have to include foreign investors who will bring in new technologies and know how.

And, if we go north, there is Canada, number three in the world, (after Saudi Arabia at number 2), with proven reserves at 174 billions of barrels. Add Mexico (10 billions of barrels), and Brazil (13 billions) to the mix and you have a lot of oil, and this is just in the Western Hemisphere.

Oil price changes

Oil prices are volatile. Right now we are experiencing very low prices because OPEC members, (led by Saudi Arabia), contrary to their established policies, decided not to curb production when faced with lower prices due to added global supply, (much of it coming from US shale oil). This OPEC policy, of course, may change. And so, assuming reduced supply, at some point prices will go up again, although we do not know by how much, and for how long.

However, in order to make a solid economic case for non oil-based energy for transportation, (electric vehicles, fuel cells, and more), oil prices would have to go up, and stay up, for a very long time.

The moment of renewable energy will come

Sure enough, in a few years someone will come up with a new form of clean, zero emission energy that will cost less than gasoline.

As a former Saudi Oil Minister said long ago: “The stone age did not end because we run out of stones”. Yes, stones were abandoned when humans figured out how to make better utensils and weapons using bronze and then iron.

Which is to say that oil is king –for now. That is until something better comes along. Renewable energy had a “politically mandated” false start.

But we can expect that its day will come.

 

 




Russia Is Still Europe’s Main Energy Supplier

WASHINGTON – Despite the economic sanctions caused by its military intervention in Ukraine and the horrible impact of collapsed oil prices on a weak Russian economy, Putin’s Russia is still the largest energy supplier to Europe. This ability to affect the supply of a most basic commodity is Russia’s major political advantage vis-a-vis Europe. Think about it, even the Kiev government, openly at war with Russia-funded rebels in the East, has to negotiate deals about gas supplies from Russia, its enemy.

No alternatives

The problem is that at least in the short or medium term not much can be done to change this situation. And the Europeans are certainly not helping themselves very much.

Theoretically, some alternatives could be explored. There are glimmers of a possibility to create new natural gas supplies in some European countries that have deposits of shale gas. But a combination of bad policy choices and outright Russian meddling are preventing any further exploration of these opportunities.

The French government, in its wisdom, banned fracking, the technology necessary to exploit the shale gas deposits that France seems to have. Bulgaria, apparently because of political pressures from Moscow, also banned fracking. Therefore, no Bulgarian gas that may compete with Russian supplies.

The UK tries fracking

Only the United Kingdom seems to be willing to go ahead and exploit what may be considerable domestic shale gas deposits. But in Great Britain the problem is a vociferous environmental movement strongly opposed to carbon energy in general, and therefore also to shale gas exploration.

Some gas will come through Turkey

Well, there is a bright note in this rather disappointing scenario. As reported last year by the Turkish newspaper Hurriyet Daily News, (Turkey, Azerbaijan break ground for Trans-Anatolian Gas Pipeline), at least Turkey is doing something to create alternative gas supplies to Europe. The Ankara government, working with its counterparts in Azerbaijan and Georgia, launched the South Caucasus pipeline, the first component of a longer pipeline that will carry natural gas from Azerbaijan on the Caspian Sea all the way to the Mediterranean, via Turkey. The Turkish component of this large project is called TANAP, or Trans-Anatolian Gas Pipeline.

Diversified energy supplies

Along with the existing Baku-Tbilisi-Ceyhan (BTC) oil pipeline that carries Caspian oil to the Turkish southern port of Ceyhan via Georgia, this new project now underway will create some energy supplies diversification for Europe. It is something. But unfortunately not enough. Energy poor Europe still has to buy most of its oil and gas from Russia.

US gas to Europe?

In the future, America may be able to export some of its abundant natural gas to Western Europe. But this will take a long time. And it will not be in quantities large enough to replace Russian gas supplies. In any event, at the moment there are not enough Liquefied Natural Gas (LNG) terminals in the US and in Europe that could handle large volumes. Building these terminals is quite expensive and it takes years to complete them.

Russia wins

At the end of the day, as odd as this may seem, this beat up Russia, run by oligarchs and kleptocrats, with the ruble falling, and billions of dollars leaving the country, still wins.

 

 

 

 




Keystone Pipeline Would Improve US Energy Security

WASHINGTON – Is The US State Department (read President Barack Obama) going to finally authorize the Canada to the US Keystone oil pipeline, to be built by TransCanada? The political signs are not at all good. And why would Obama say “no” to a pipeline that will carry additional Canadian oil to the refineries in Texas?

Politics, not energy policy

Sadly, this will have nothing to do with the merits of the issue. This is all about politics and the demonization of carbon based energy. The accepted narrative in the environmentalist camp (these are all Democrats, and they voted for Obama) is that Canada’s heavy oil extracted from oil sands, (the greens prefer the pejorative but technically correct expression “tar sands”), is the worst of the worst when it comes to high polluting crude.

Heavy oil requires a lot of energy to be extracted, and fuels made from it contain more greenhouse gases. Therefore, according to the greens, the US Government should not allow more of this toxic stuff to get to America.

Ideological objections

Of course, it is true that Canada’s heavy oil pollutes more. But not that much more. And, in any event, we already use heavy oil from Venezuela and other countries, including Canada. Besides, if you look at total world consumption, (about 90 million barrels a day), using more of this Canadian oil, (the pipeline will carry less than one million), will not make much of a difference.

 Obama will not go against his constituency

And yet, since this oil has been stigmatized as super bad by the environmentalist, President Obama is in a bind. If he approves the pipeline, as he should, he will face fierce protests from within the Democratic Party. However, if he does not he will pay no special political  price. The Republicans do not get along with this President anyway. By giving them an additional reasons for disliking him, Obama will not change an already poisoned Washington political climate.

This being the political context, would the US be better off having this TransCanada Keystone pipeline, even at a time of oil super abundance and falling prices? Do we really “need” to get more oil from Canada?

The answer is “yes”.

US is still a major oil importer

Notwithstanding the oil glut and falling prices, America is still a major oil importer. This will not change in the near future. America must import almost half the oil Americans consume every day. Therefore, from an energy security stand point, it makes sense to get more crude from Canada, a trusted and geographically close ally, this way reducing our imports from OPEC or other countries.

Of course, the pipeline opponents claim that this decision on Keystone has nothing to do with energy security, because the additional Canadian oil that will be refined in Texas will be turned into gasoline for export markets.

May be so. But getting additional supplies from a friendly neighbor is still an advantage for America. Most certainly, in case of future supply disruptions, gasoline made in Texas using Canadian crude will be sold in America.

Add to supplies from North America

In other words, it is smart for the United States –a net oil importer– to add to the total imports from North America, as opposed to getting oil from the Persian Gulf.

Besides, this new Keystone pipeline will also carry some of the US oil from North Dakota.

And finally, let us keep in mind that a lot of heavy oil from Canada is already coming into the United States, via rail cars. This transportation system (that does not require Government approval) is less efficient, more dangerous, (as a few spectacular accidents have demonstrated), and more expensive.

Additional flexibility

Building the Keystone pipeline will allow more of the same Canadian oil to come to America –but at a lower cost. There will be an additional advantage in creating more energy flexibility for the US, while diminishing reliance on oil from OPEC. This is mostly about increasing supply (from a trusted ally) in a more cost-effective, more efficient way. For all these reasons, this pipeline should have been approved long ago.

Political decision

But this has not happened, and it may not happen, because these days pretty basic energy policy decisions are hostage to ideology. Once you have demonized a piece of energy infrastructure by claiming that the crude it will carry would trigger planetary disasters, it is hard to retreat and say that after all this oil will not cause any real damage.

It is really sad to acknowledge that this is the way we make important energy policy decisions in America. But this is unfortunately the case.




New Technologies Will Make Carbon-Based Energy Obsolete

 

WASHINGTON – The NYT recently had a front page (scary) story on global warming, accompanied by a frightening map that shows a super heated planet. There we have it: 2014 is the hottest year on record. The world map published along with the story, in which blue areas represent cold spots while hot regions appear as bright red, is mostly red or very red. And yes, looking at a graph published below the map, it is obvious that world temperatures have gone up in the last few years. The uptick registered in 2014 is not incredible; but it is noticeable.

Global warming is here

Well, there you have it. We do have global warming. It would be foolish to deny the evidence. The next question is whether this is all about the increased amounts of greenhouse gases released into the atmosphere on account of our vastly increased consumption of carbon based fuels. The environmentalists of course claim that there is no other plausible explanation. Others dispute the cause and effect connection, or at the very least its significance.

It is all true

Let us assume that the environmentalist are right. Let us assume that increased world temperatures, with all the disruptions that they provoke and will provoke, are entirely man-made. Let us stipulate that the cause of this phenomenon is the large-scale consumption of carbon-based energy: coal, natural gas and oil. Yes, it is indeed so.

Then what? Well, then nothing. Yes, of course, UN specialized agencies issue warnings and reports. There are world summits. There are proclamations, broad  commitments to keep emissions within certain limits and to gradually reduce them.

But, guess what, after all that, nothing changes.

China and India are not on board

And why not? It is very simple. The natural disasters that will be caused by a warmer atmosphere are still mostly in the future. But China and India’s political leaders are committed to deliver economic development –today. It is as simple as that.

Call this attitude stupid, myopic, unenlightened, or whatever you want, but no emerging country is going to forego economic development today, (for which they require old-fashioned, dirty coal and oil), for the sake of a cooler planet tomorrow.

And we know very well that without the combined 3.5 billion Indians and Chinese on board (almost 50% of humanity) whatever Europe, North America and Japan will do to reduce their emissions would not make a lot of difference.

Changes in America make no difference

This is the reality. The notion that, upon reading the NYT scary story, we Americans decide to pitch in by commuting to work using bicycles and by installing solar panels on our roofs, so that we will counter this ominous global warming trend, is ridiculous. Sure, we can do all of this. And may be there is some good in doing it. But forget about our fossil fuels consumption reductions having any measurable impact on global temperatures.

As I said, most emerging countries are committed to economic development for which they require conventional energy sources. They consider everything else a distraction.

How do we get out of this? 

Given all this, how do we get out of this worrisome predicament? As I said, the idea of limiting carbon energy consumption may sound nice, but it is unworkable.

Therefore, our best bet is the development of new, cost-effective, scalable non carbon energy. Of course we already have some of this, (wind farms, solar panels, and electric cars). But the problem is that for the moment what we have is not really better and cheaper than the old-fashioned, dirty stuff.

Invest in R&D

Instead of imposing the large-scale adoption of these still imperfect alternatives, governments should lead the way by investing more and more in new research. We should see a proliferation of prizes, challenges and competitions that will stimulate scientists and inventors across the globe to refine existing renewable energy technologies, or to come up with something totally new and different. We really do not know what may be possible.

However, in principle it must be possible to invent something more efficient, cheaper and cleaner than a coal-fired, electric power generation plant. Likewise, It must be possible to come up with something that will effectively replace the internal combustion engine –a really old technology– to power cars and trucks.

There is no better alternative

Quite frankly, I see no better alternatives. The idea that politicians are going to guide future economic development by mandating which and how much energy we shall use is grotesque. This will never work.

China and India, the really big present and future carbon energy users, will never accept mandates. And you can bet that all those who will sign up for any voluntary reductions will figure out creative ways for cheating.

As I noted above, there is a way out of this. Coal, natural gas and oil will become instantly obsolete the minute in which we invent something better. Therefore, as we recognize the urgency, let’s focus on this goal.

Fund smart people

And the best way to advance in our quest for clean, affordable energy is to give large incentives to gifted people and credible research institutions, public and private, so that they will come up with real innovation, sooner rather than later.