See Consumer Energy Alliance's Friday Energy News Links, here.

ALERT – ALERT: Anchorage readers should PLEASE attend Bureau of Ocean Energy Management (BOEM) meeting on Monday.  We hope that the Governor's Office and Legislators are represented–since the subject pertains to keeping the Trans Alaska Pipeline System (TAPS) viable AND assuring the sustainability of South Central Alaska gas supplies!   Details here. 

As Russia moves to cut Ukrainian gas supply, we wonder why the U.S. does not come smartly to the rescue with energy and weapons supplies!  -dh

We urge our gentle readers to review Wednesday's posting; we cannot remember — in well over a decade — posting a more useful, relevant and actionable commentary for our Alaskan, Canadian and Lower 48 readers.  -dh

Understanding the Current Oil Price Environment

Part II 

by Mark Edwards, Alaskanomics.  

See Parts I, and III

Posted: 26 Feb 2015 11:40 AM PST

Mark Edwards, Alaskanomics, Northrim Bank, Economist, oil price environment, Photo by Dave HarbourIn Part I, I outlined the background of Alaska's economy in relation to the price of oil and how the current price is affecting the economy. Today, I will show the root causes for the recent decline and will wrap up on Friday with the reasons we should be optimistic for the future.

What are some of the major root causes of the recent price decline?

  • Sustained high prices led to an increase in new exploration investment.  Many previously marginal fields became economically viable at $100, which in turn led to dramatic increases in supply.
  • The U.S. market became a net exporter of energy from a boom in domestic supply coupled with a slight decrease in demand. 
  • More energy intensive manufacturing moved to other parts of the world like China where coal is more prevalent.
  • Technology has reduced the marginal cost of production in some fields and allowed previously uneconomic fields to be produced using new techniques.
  • Saudi Arabia has not supported falling prices like they have in the past by using OPEC to constrain supplies.  They appear to be trying to punish rival Iran, who is more sensitive to prices in their budget, and possibly see a chance to put smaller high-cost producers out of business to recapture market share.
  • The U.S. dollar strengthened against a global basket of currencies last year.  Oil is traded globally in dollars, so a strengthening dollar allows you to buy the same amount of oil for a lower price.
  • Global economic concerns have led to lower world GDP expectations and therefore lower oil demand growth in the future.  The European economy is still fragile, Japan has been stagnant for  two decades and China is seeing slower growth rates.  Weakening US power, turmoil in the Middle East and Russian aggression have added to the instability in global trade (Our emphasis added.  -dh).

    Regional BOEM Public Affairs manager, John Callahan, sends us this notice for a Monday meeting in Anchorage which our readers should attend if possible:

Our agency has a public scoping meeting in Anchorage Monday night. Rather than glaze your eyes with a bunch of jargon I thought I would just try to really clearly lay out what it is about.
 
1. The Bureau of Ocean Energy Management (BOEM) is responsible for managing oil and gas resources on the Outer Continental Shelf.
 
2. As part of that, BOEM is required to develop a five-year schedule of lease sales designed to best meet national energy needs.
 
3. BOEM has started developing this plan for the years 2017-2022. A DRAFT of the plan is available here: http://www.boem.gov/2017-2022-DPP/ 
[PDF]. This draft proposes holding three lease sales off the coast of Alaska — one each in the Beaufort, the Chukchi, and Cook Inlet.
 
4. BOEM now needs to prepare an Environmental Impact Statement (EIS) to analyze the potential environmental impact of the draft plan.
 
5. On Monday, March 2, from 3 p.m. to 7 p.m. at the Anchorage Marriott Downtown Hotel, BOEM will hold a public scoping meeting to get public input as to what the scope of this EIS should be.
 
In other words, agency analysts are looking for input like:
 
* "When you prepare the EIS, be sure to take a close look at the impact on species X"
 
* "In the draft plan, we see that such-and-such an area would be open to leasing. Be aware that part of that area is an important subsistence use area for local residents"
 
* "I believe that areas [A,B and C] should be removed from consideration for exploration, for the following reasons…"
 
Everyone is invited! We hope to get a good mix of input from environmental groups, industry Alaska Native organizations, etc.
 
Much more information about this is available at: http://boemoceaninfo.com/
 
Thanks! And, of course, I am happy to answer any questions about this you may have.
 

John Callahan
BOEM Public Affairs
Alaska OCS Region
 

==============PSA ================
 
The federal government would like your input. Regulators are writing an environmental impact statement to look at the potential impacts of future offshore oil exploration. On Monday, from 3 to 7 pm, they will host a public meeting at the Marriott Hotel in Anchorage. Everyone is invited. More information is available at:  boemoceaninfo.com [B-O-E-M ocean info dot com]           

Today's weekend energy links from Consumer Energy Alliance:

CEA's The Energy Voice: Bill Gates Weighs in on Energy Research
When Bill Gates gets involved, you know it’s serious. That’s why we were glad to see Microsoft founder and billionaire philanthropist pounding the lectern over the need for more funding in energy research.
 
Associated Press: Nebraska Judge Agrees to Halt Condemnations for Keystone XL
A Nebraska judge has issued a temporary order to stop a Canadian company from seizing access to land in one eastern county to build the Keystone XL pipeline.
 
Business Insider: Obama vetoed the Keystone XL pipeline, but here's why approval is still possible
President Obama used his veto power on Tuesday for just the third time in his administration, sending back to Congress legislation approving construction of the Keystone XL pipeline, which would transport 800,000 barrels of oil per day from Alberta, Canada to refineries along the Gulf Coast.
 
Bloomberg: Alberta in Talks on Climate Policy with Eye to Keystone Approval
Alberta is in talks with other Canadian provinces and U.S. states to cooperate on climate and environmental policies as it seeks to improve the reputation of its oil sands and win approval of TransCanada Corp.’s Keystone pipeline.
 
CBS News: Keystone XL Veto Could Make a Case against Fracking
President Barack Obama recently vetoed a bill approved by both Congress and the Senate to build the Keystone XL pipeline, an oil pipeline system commissioned to transport oil from Canada and the North Dakota Bakken Shale region to Midwest and Gulf Coast refineries.
 
Town Hall: Obama's Veto of Keystone Pipeline Is All About Politics
In the days leading up to President Obama's veto of the Keystone XL pipeline, 14 oil tanker railroad cars derailed in West Virginia and exploded in a fiery environmental disaster.
 
Oil Price: Keystone XL Saga May Not Be Over Yet Despite Obama Veto
President Obama’s veto of legislation that would have allowed construction of the Keystone XL pipeline was directed only at the bill itself and doesn’t necessarily mean he wouldn’t eventually authorize construction of the project itself.
 
The Advocate: Our Views: Obama’s Keystone veto unjustified
Ordinarily, we’d be somewhat sympathetic to President Barack Obama’s stated position on the construction of the Keystone XL pipeline, as it is a matter of a president’s prerogative on foreign policy.
 
Harvard Political Review: Does the Keystone Pipeline Veto Matter?
On Tuesday, President Obama vetoed a bill that would have approved the Keystone XL pipeline. The pipeline is known more than anything for the debate it has stirred between Republicans and environmentalists. While Republicans largely support the measure as a job creator, environmentalists condemn it as a threat to our atmosphere and climate because of the potential for larger amounts of greenhouse gas emissions.
 
The Post and Courier: Override Obama on Keystone
President Barack Obama’s veto of the Keystone XL Pipeline bill Tuesday didn’t come as a surprise. But his latest rationalization for continuing to oppose the project was, to put it mildly, perplexing.
 
National Journal: Moderate Senate Democrats Defy Obama on Keystone
At least seven Senate Democrats say they will thumb their nose at the White House and vote to override President Obama's veto of the Keystone XL pipeline bill. Although it will still leave GOP leaders short of the 67 votes they would need to overcome the veto in the Senate, the continued defection of moderate Democrats shows it will be difficult for Obama to keep his party together for energy and climate fights later in the year.
 
Politico:  NAFTA’s specter may haunt Keystone verdict
President Barack Obama may decide to kill Keystone XL for good, but that could be no easy task — thanks in part to the North American Free Trade Agreement.
 
The Bellingham Herald: Senate bill would look to install crude oil pipeline across Washington State
A state senator introduced a bill today that would require Washington to look at building pipeline to move crude oil through the state. “We need to move oil across our state and there is a lot of concern about oil-by-rail,” said Sen. Michael Baumgartner, R-Spokane, in an announcement Wednesday, Feb. 25. “It’s time to look at a trans-Washington oil pipeline.”
 
Reuters: Oil cash crunch to squeeze rigs, operators out of business
Offshore drilling rig operators are facing a cash crunch as oil firms hold back work and the shakeout will put vessels and possibly some operators out of business, Claus Hemmingsen, chief executive of Maersk Drilling, said.
 
E&E Publishing: Western regulators, utilities call for more time to implement EPA's Clean Power Plan
U.S. EPA proposed an unreasonable and costly deadline for states to begin reducing global warming emissions, according to utility officials and regulators in Western states who testified here yesterday before the Federal Energy Regulatory Commission.
 
The Wall Street Journal: Gas’s Drop Drives U.S. into Deflation Territory
The U.S. in January saw its first dip in overall consumer prices in more than five years. But the economy is far from the precipice of debilitating Japanese-style deflation.
 
UPI: U.S. crude oil production holding steady
U.S. crude oil production for the week ending Feb. 20 held steady amid rig count reductions and planned cuts in upstream spending, federal data show.
 
CNBC: Are oil producers running out of closet space?
Oil supply running ahead of demand hasn't just pressured prices, it's also filling up storage space, potentially pushing crude toward another leg down.
 
Fuel Fix: Halliburton exec: “Boom town” costs falling amid oil slump
In places like West Texas and North Dakota, “boom town costs” like company-paid housing and a commuter workforce that’s burning air miles are starting to wind down as drilling rigs retreat from surging shale plays, Halliburton’s president said Tuesday.
 
Bloomberg: U.S. Oil Discount Poised for Record Widening
U.S. crude’s discount to European prices headed for a record widening in dollar terms this month as prices at $50 a barrel failed to slow the nation’s fastest oil output in more than three decades.
 
The Hill: Greens petition California to ban HF
Dozens of environmental groups filed a legal petition Thursday asking California Gov. Jerry Brown (D) to ban hydraulic fracturing for oil and natural gas in the state. The groups said their case is bolstered by recent news that oil and gas drillers were allowed by the state to inject wastewater from 140 wells, some of which were fracked, into protected waters.
 
Associated Press: Group Backs off Plan to Put Shale Ban on Colorado Ballot
An activist group on Thursday backed off its earlier announcement that it would to try to get a statewide ban on hydraulic fracturing on the Colorado ballot and said it would instead try to persuade Gov. John Hickenlooper to halt the practice. Karen Dike of Coloradans Against Fracking said the group has not ruled out a campaign to put a ban on the 2016 ballot if the governor doesn't act.
 
Denver Post: Colorado oil and gas task force ideas worth enacting
The rap on the much-anticipated recommendations from a state oil and gas task force is that they're not substantial and will do little to resolve conflicts between communities and the industry. Frankly, that's a cynical and unfair assessment. It fails to recognize the balance of interests at play and the power of collaboration at the front end of planning for oil and gas operations.
 
The Coloradoan: Don't be deceived; learn facts about oil and gas
The debate over oil and gas development in Windsor has escalated lately as more activity has moved into the area. As former state representative for Windsor, I encourage local residents to learn more about this vital energy industry that is providing jobs for people in Windsor and across Colorado, and that is also finally making our nation energy independent.
 
CBS Denver: Shale Task Force Sets the Starting Bell for Ballot Issues
The much maligned oil and gas task force that Governor Hickenlooper put together last fall to keep fracking ballot issues off the 2014 ballot finally submitted proposals to the legislature this week. The nine proposals range in scope but all attempt to address the chasm between local communities and oil companies.
 
Denver Business Journal: More Colorado companies plan capital spending cuts
More energy companies with Colorado ties have announced budget cuts nationwide and in the state as low crude oil prices continue with no end in sight. Crude oil prices for the U.S. settled Thursday at slightly more than $48 per barrel, the lowest level in a month and a far cry from the $100 per barrel prices seen last summer.
 
Patriot-News: New York town to find a way to frack despite state ban
This town of 5,000 people situated near the Pennsylvania border and directly over one of the richest deposits of the gas-laden Marcellus Shale formation is moving forward with ordinances that would clear the way for fracking. Yes, that is right, Windsor Town officials are planning to approve fracking – "gas and oil development," as they term it – despite New York Gov. Andrew Cuomo's fracking ban, issued late last year.
 
Pittsburgh Post-Gazette: A severance tax would set back Pennsylvania
Pennsylvania is the showcase for economic benefits from the Marcellus Shale boom. Witness the impact of natural gas production on job growth. It has led to the creation of a wide range of jobs — petroleum geologists and engineers, roughnecks, welders, steamfitters, laborers, computer specialists, truck drivers and hotel and restaurant workers.
 
NPR: Pennsylvania’s effective tax rate on drillers is declining
Even though revenue from Pennsylvania’s gas impact fee has generally ticked upward over the years, the annual effective tax rate on Marcellus Shale drillers has steadily gone down– that’s according to a new analysis released by the state’s Independent Fiscal Office. The IFO is modeled on the U.S. Congressional Budget Office and provides nonpartisan analysis for budgetary purposes.
 
Akron Beacon Journal: Oil production jumps 18.1 percent, natural gas 25.6 percent
During the fourth quarter of 2014, Ohio’s horizontal shale wells produced more than 3.5 million barrels of oil and nearly 165 billion cubic feet of natural gas, according to figures the Ohio Department of Natural Resources released Wednesday. Oil production from 779 horizontal Utica wells increased by more than 545,000 barrels, up 18.1 percent, and natural gas jumped by more than 33 billion cubic feet, or 25.6 percent, compared to the third quarter of 2014.
 
Youngstown Vindicator: Columbiana County tops Valley oil and gas production
Columbiana County is the 2014 winner for Mahoning Valley oil and natural gas production. The county produced 21.3 billion cubic feet of natural gas and 172,388 barrels of oil in four quarters last year, according to data released by the Ohio Department of Natural Resources.
 
Wheeling News-Register: Ohio Gov. Kasich’s Proposal to Taxes Criticized
As Ohio's oil and natural gas drillers slam Gov. John Kasich's plan to raise severance taxes on their activities, at least one legislator believes the governor wants to redistribute the wealth generated in the shale fields of Belmont, Jefferson, Harrison and Monroe counties throughout the state.
 
Akron Beacon Journal: Antero to cut back on drilling in Utica region
Colorado-based Antero Resources Corp. told financial analysts and the media Thursdaythat is expects to cut back on its Utica Shale drilling by 36 percent in 2015.The company, a major player in Ohio’s Utica region, intends to spend $1.6 billion for drilling and completions in 2015. A year ago, the firm earmarked $2.5 billion for such drilling.
 
Express-News: The top oil-and-gas producing counties in Texas
Six of the top 10 oil-producing counties in Texas are in the Eagle Ford Shale, according to recent data from the Railroad Commission of Texas. Texas in December produced around 2.3 million barrels of crude oil daily. That’s up from a daily average of 1.8 million barrels in December 2013.
 
Midland Reporter-Telegram: Pain will be a reality in Midland, but not for long
The downturn in the oil industry will cut into Midland’s economic success, but as in the past, the economy and the oil industry will come back, said economist M. Ray Perryman, president and CEO of The Perryman Group. Perryman spoke Wednesday to a packed house at Odessa Country Club, addressing concerns about geopolitics, stability in the oil industry and how the American oil industry has changed the landscape domestically and internationally.
 
Austin Business Journal: Energy, immigration collide at Texas-Mexico conference
The ongoing drumbeat of Texas leaders' demands that the Obama administration pay to secure the Texas-Mexico border came close to derailing the message of a two-day conference in Austin to share best practices in the energy and technology sector. Mexico's new president Pena Nieto is pushing a progressive multi-sector business reform agenda, including passage of legislation that will bring private investment to the country's energy sector for the first time.