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New Russia Sanctions Are Hollow As Old Ones

July 22nd, 2014 vaddison Posted in Uncategorized | Comments Off

By Leonid Bershidsky, Bloomberg View

Though they sound more serious, the latest Western sanctions against Russia for failing to stop the war in eastern Ukraine are, again, mostly bark and very little bite. The growing disparity between the sanctions imposed by the U.S. and the European Union also raises the question of whether the two are allies in any real sense of the word.

Russia’s participation in the events in Eastern Ukraine is progressively less deniable. Videos of Grad unguided missiles fired at Ukrainian territory have been traced—as conclusively as possible under the circumstances—to a Russian border town. It is increasingly clear that as Ukraine’s military attempts to crush the rebels, Russian President Vladimir Putin cannot afford let it happen: That would damage his popularity at home.

Putin’s Ukrainian counterpart Petro Poroshenko faces even more powerful pressure to keep hitting the insurgents with all he’s got. The momentum is pro-war, and there are only two ways left in which the West could productively intervene: Provide military assistance to Ukraine or pressure it to make a compromise with Russia, accepting some of its terms. Since both these paths are unpalatable for obvious reasons, and Western politicians must be seen as doing something, there are the sanctions—but God forbid they should cause trouble for U.S. or European companies. That reticence will make the measures ineffective against Russian ones, too.

The U.S. Treasury Department’s new sanctions announcement is a masterpiece of ingenuity. It names large companies such as the state-controlled oil major Rosneft, second-biggest natural gas producer Novatek, third biggest bank, Gazprombank, and government-owned development bank, VEB, which makes for impressive headlines. But the sanctions against them are narrow.

The banks are not banned from dollar clearing, and Gazprombank-issued Mastercard and Visa cards will still work, unlike for a few previously sanctioned small Russian banks.

The energy companies can still trade with U.S. entities. Igor Sechin, Rosneft CEO and Putin’s close friend, says he is confident his company’s several big projects with ExxonMobil are going ahead, and nobody in the U.S. has contradicted him.

The only thing denied to the big Russian companies will be new financing with a maturity of more than 90 days from U.S. entities and individuals. The markets have already taken care of that: In recent months, it has become hard for Russian public and semi-public companies to line up foreign credit. They have been preparing for this moment since March, and Rosneft, for one, accumulated $21 billion in cash and other short-term financial assets at the end of the first quarter as a cushion in case external financing dried up. A back-of the-envelope analysis of Gazprombank’s balance sheet shows that last month, less than 12 percent of its foreign-currency liabilities were owed to foreign entities, including U.S. ones, and that share has been shrinking.

Europe has not even gone that far.

The leaders of the 28 EU nations agreed to stop the European Investment Bank from funding further Russian projects. It has disbursed a total of 1.6 billion euros ($2.17 billion) in Russia, none of it this year and a little over 1 billion last year. The EU also decided to use its influence at the European Bank for Reconstruction and Development to stop further funding in Russia (the influence is decisive, though Russia is a big shareholder in the development bank, too). The EBRD’s total investment in Russia to date stands at 24 billion euros ($32.5 billion), but in recent years its Russian activity has been shrinking (to less than 2 billion euros last year). In any case, 84% of it went to private sector companies, which Putin doesn’t worry about too much.

In addition, EU leaders agreed to “consider the possibility of targeting individuals or entities who actively provide material or financial support to the Russian decision-makers responsible for the annexation of Crimea or the destabilization of eastern Ukraine”—a vague hint that may or may not turn into a list of sanctioned companies by the end of this month. The list, if it does emerge, will probably be less impressive than the U.S. one, given Rosneft’s recent activity in the EU.

The disconnect between U.S. eagerness to punish Putin and EU’s unwillingness to punish itself is growing steadily. The new U.S. sanctions, meanwhile, cannot be effective without symmetrical European ones. Dollar financing is not the only kind available; Europe may even be a better place to seek resources, now that the European Central Bank is dovish on monetary policy and the U.S. Federal Reserve is tightening it. The wariness about lending to Russian public entities is, of course, present in Europe, too, but that’s not the same as actual sanctions.

The Russian stock market tumbled after the sanctions announcement.

It will, however, bounce back, as it has already done this year, as soon as the first speculative rush is over and investors realize the sanctions are, again, more thunder than hail.

The West is still not doing anything that will stop Putin from playing his game of brinkmanship. The conflict in eastern Ukraine will continue and more people will die simply because a true compromise is not acceptable to any of the sides.

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Goldman Sachs Supports Methane Policy, And Why It Matters

July 15th, 2014 vaddison Posted in Uncategorized | Comments Off

By Ben Ratner, Environmental Defense Fund

Good energy policy ideas can come from all corners, and Wall Street is no exception.

Goldman Sachs recently served up a powerful case for action on methane in a stroke of market logic grounded in data. In a recent report, the investment bank argues that environmental regulation is more than a necessary evil when it comes to oil and gas development—it’s a vital enabler for economic growth.

There’s power in diverse groups coming together.

Goldman’s insight for the U.S. oil and gas industry—that the current environmental policy vacuum is a major cause of investor queasiness—suggests that markets can help drive environmental progress.

Business, investors, policymakers can join forces

Among the policy priorities Goldman Sachs identifies in its report is the establishment of strong and stable rules to ensure companies follow safer development practices and reduce emissions of methane. A highly potent greenhouse gas and the primary ingredient in natural gas, methane is leaking from across America’s natural gas supply chain. It’s now responsible for more than one-third of today’s greenhouse gas emissions worldwide.

With “timely cooperation among business leaders, investors and policy makers;” however, Goldman Sachs believes that strong methane policies are feasible in the not-so-distant future.

Investors need market certainty

As public controversy abounds over the environmental impacts of producing new supplies of American oil and gas and policy uncertainty persists, Goldman Sachs believes large would-be investors will keep their mega-checkbooks holstered.

Or, more likely, they will re-direct those checks to foreign competitors in countries where projects can proceed with more market certainty.

That means that although North America could add up to 2 million jobs in traditional manufacturing and other industries over the next decade, it’s far from certain to investors that policy and market dynamics will allow the United States to grab this opportunity.

Removing this uncertainty is where the investment bank sees a clear role for regulation.

Goldman’s report shows that, although investment surged in the North American upstream oil and gas industry, investment lagged foreign nations 15-to-1 in downstream industries such as chemical plants that use products developed in the fields for manufacturing.

This is partly because investors lack confidence that upstream supply will be stable over time given controversy and the lack of strong policy.

Or as Goldman Sachs CEO Lloyd Blankfein recently observed on the Charlie Rose Show, industry operators who get new facilities permitted in the absence of methane rules will achieve “a very hollow victory.”

Methane message resonates with industry

I represented Environmental Defense Fund at the Goldman Sachs North American Energy Summit last month.

My remarks to the summit focused on methane because it’s the linchpin to the climate performance of the oil and gas industry—and a litmus test for its ability to address a broader suite of very real environmental concerns.

If we take a proactive approach and fix the methane problem, we can begin reducing the environmental risks from unconventional oil and gas development and provide more assurance that the public and the markets need to reap economic benefits.

The best way to do this is with a smart, comprehensive, and timely national methane policy, building on President Obama’s methane strategy in the Climate Action Plan, and an ongoing EPA analysis. Such an approach could ensure that we cut emissions as much as possible, as quickly as possible, and through a consistent framework that works for businesses, I told the summit.

It could draw heavily on the experience of leading states like Colorado, which brought together industry and environmentalists to forge sensible standards that are keeping methane in the pipes and out of the atmosphere.

I was encouraged to hear interest in policy collaboration from multiple industry and investor leaders. These forward-thinkers understand that while methane and the other important environmental challenges with oil and natural gas won’t go away on their own, they can be minimized if we roll up our sleeves and establish the kind of policy certainty Goldman identifies as a driver of business value.

This blog post originally appeared on the Environmental Defense Fund’s website.

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Reframe Problems To Help Find Answers

July 8th, 2014 vaddison Posted in Uncategorized | Comments Off

By Patrick Leach, Decision Strategies

A few years back, I designed a simple spreadsheet tool for an oil and gas client to use in specific circumstances. This circumstance arises when the company is drilling a well and gets something stuck way down in the hole (often several kilometers down). At that point, the company usually tries to fish it out using a tool specially designed for the purpose. The problem is 1) such fishing expeditions often fail— i.e., the tool fails to grab a hold of whatever is stuck, and 2) you don’t get to find out that it failed until after you’ve pulled the fishing tool all the way back to the surface. The round-trip time to go in, try to grab and come back out can be a full day or longer, depending on how deep the hole is. And if you’re offshore in deep water, each day of rig time can cost about a million dollars.

If your first attempt fails, you can always try again. And again. And again. But at roughly a million dollars per try, the costs mount fast. If and when you become convinced that further attempts are futile, you fall back on Plan B: you plug the bottom part of the hole with cement (abandoning whatever it is that’s stuck), pull back, and “sidetrack”—i.e., you drill around the plug you just made. This usually involves putting an extra string of steel pipe into the well, and settling for a smaller well diameter from that point forward. It’s generally much more expensive than fishing the tool out, which is why you try fishing first.

Once you get into the cycle of repeatedly attempting Plan A (fishing), it becomes one of those areas where human psychology runs rampant. Everybody on the rig gets up every day thinking, “Today we’re going to fish that thing out of the hole!”regardless of how many times they’ve already tried and failed. Nobody wants to give up. The result is often a huge loss to the company as the crew wastes days or weeks of rig time in repeated attempts at Plan A before finally conceding defeat and proceeding with Plan B.

So the question is: How many times should you try Plan A (fishing) before giving up and implementing Plan B (sidetracking)? The correct answer, of course, is that you should give up on Plan A when the average cost of continuing with Plan A becomes worse than the average cost of implementing Plan B (recognizing that if Plan A repeatedly fails, you have to go with Plan B anyway). But that will be heavily dependent on what the probability of success for Plan A is on any given day. How do you arrive at that?

This was where the “Fish or Cut Bait” tool came in (as we came to call it), and its success comes not from fancy math (there isn’t any), but rather from getting people to reframe their thinking. Instead of asking what the probability of success for Plan A will be on any given day, the tool asks for just two probability inputs:
1. What’s the probability that Plan A will never work, regardless of how many time you try?
2. What’s the probability that Plan A will work on the very first try?

These are numbers which people often have a feel for—much more so than trying to predict success on any given day. Reframing the question in these terms makes it much easier for people to get their heads around the problem.

From that, the tool uses other inputs (the time and cost required for each attempt at Plan A, and the cost of Plan B), as well as one key piece of logic which I got from interviewing drilling engineers: in general, if Plan A fails today, its probability of success tomorrow goes down. Occasionally we might learn something today that causes the probability of success to go up, but that’s the exception, not the rule. This rule, plus a few simplifying assumptions, enable the tool to come back with a definitive number of attempts to make at Plan A before giving up and going with Plan B. This number should be taken with a grain of salt—no tool’s output should be accepted as The Truth—but it’s a good starting point for discussion.

More to the point, even though the tool was designed for the specific case of having a piece of equipment stuck in a well, the concept is generic. We sometimes find ourselves in situations where we can keep trying over and over to fix something at a modest cost—and those attempts may or may not work—or we can give up on trying to fix it and do something else at a higher cost (replace it, go in a different direction entirely, etc.). In these circumstances, the Fish or Cut Bait tool might be useful.

And even if it isn’t, simply reframing the problem in a way that allows us to see things more clearly is often a huge step toward finding a good answer.

P.S. You can download the Fish or Cut Bait tool on the Decision Strategies website at

Patrick Leach is CEO of Decision Strategies. This blog post originally appeared on Decision Strategies’ website.

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US Will Always Be Addicted To Oil Imports

July 1st, 2014 vaddison Posted in Uncategorized | Comments Off

By Leonid Bershidsky, Bloomberg View

The U.S. Commerce Department has found a way to end America’s 40-year-old oil export ban without canceling it. The U.S. government is right to take it slow: It would be irresponsible to believe all the shale-oil hype and officially allow crude exports.

The Commerce Department has issued separate private rulings allowing two companies, Pioneer Natural Resources Co. and Enterprise Products Partners L.P., to export condensate—a light hydrocarbon that remains liquid at normal temperature and pressure—under the condition that the condensate will be stabilized and distilled. These are two early phases of the refining process that don’t turn the light oil—which is what condensate ultimately is—into a finished fuel like gasoline, which U.S. companies are allowed to export.

U.S. oil production has increased by 66%, or 3.3 MMbbl/d, since 2008, Daniel Yergin, author of the influential book about the oil industry, “The Quest,” said in recent congressional testimony. That has been lucky for the U.S. According to Yergin, the increase “has almost exactly balanced the amount of oil currently missing from the world market owing to disruptions in countries like Libya and Iraq and sanctions on Iran. In other words, the increase in U.S. oil production has compensated for loss of oil elsewhere. Without that increase, we would be looking at much higher oil prices than today.”

In other words, the enormous growth in U.S. oil production has helped to displace imports, but only at marginally lower prices than imported oil would have commanded. Unlike the shale-gas revolution, the growth in shale-oil extraction hasn’t led to a big price drop.

Allowing exports on a large scale under these conditions wouldn’t be a good idea. Pioneer, a small producer, and pipeline operator Enterprise Product Partners, which doesn’t have its own extraction operations, aren’t going to make much difference to the U.S. energy balance if they are allowed to sell some lightly processed condensate abroad. What is valuable to President Barack Obama’s administration is the public-relations effect of the rulings: The world will now know that the U.S. is an oil exporter for the first time since the 1970s. Europeans may take U.S. promises to help wean them off Russian hydrocarbons a bit more seriously. The Organization of Petroleum Exporting Countries and Russia will keep in mind the threat of U.S. pressure on global oil prices.

The U.S. government isn’t about to open the floodgates, however. According to the U.S. Energy Information Administration’s reference scenario, domestic oil production is going to peak at 14.6 MMbbl/d in 2019 and then drop to 12.7 MMbbl/d in 2040. Given the 2013 consumption level of 18.9 MMbbl of crude a day, the U.S. will never be a net oil exporter under this scenario, or even under the EIA’s most optimistic one, which puts 2036 output at 13.3 MMbbl/d. Closing that gap would require a drastic reduction in the country’s appetite for hydrocarbons.

The U.S. crude producers need the flexibility of exporting oil or selling it domestically. As for the political dreams of making the U.S. a major oil exporting power, or even of energy independence backed by the shale boom, they are just that—dreams. Although the administration recognizes the importance of the political agenda, it is only going to make tiny steps toward liberalizing exports, akin to verbal interventions on the global oil market.

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Is Russia Paying Greens To Protest Fracking?

June 24th, 2014 vaddison Posted in Uncategorized | Comments Off

By Leonid Bershidsky, Bloomberg View

Greenpeace says NATO chief Anders Fogh Rasmussen was being “silly” when he alleged that Russia funded environmental organizations to block fracking in Europe, thereby maintaining European dependence on imported Russian gas. Yet Rasmussen’s allegation is hardly far-fetched: Both Russian President Vladimir Putin as his various foes increasingly view energy as a weapon.

In a Q&A session after a speech at Chathan House, the London international affairs think tank, Rasmussen said: I have met allies who can report that Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called non-governmental organizations— environmental organizations working against shale gas— to maintain European dependence on imported Russian gas. That is my interpretation.

Noting that the organization’s activists had been locked up in a Russian prison for having scaled a floating oil rig in the Arctic, Greenpeace replied that the idea of an alliance with Putin is “so preposterous that you have to wonder what they’re smoking over at NATO HQ.” Other environmentalists also unleashed scorn on Rasmussen, whose five-year term as NATO secretary general ends this year. “It shows how ludicrously out of touch these people are,” Tony Cottee, of the green group Rising Tide, told the Independent. “He clearly doesn’t know the type of person that has been turning up to demonstrate.”

Greenpeace and U.K. environmentalists—who operate in a country that imports less than 10% of its natural gas from Russia—are not the only fish in the sea, of course. If Russia wanted to support anti-fracking movements, it would do better to concentrate on the one in Germany, which is by far the biggest Russian gas consumer in Europe. Germany has a fracking ban in place but is likely to lift it— possibly as early as next year—under pressure from industrialists seeking relief from high energy costs.

I find it entirely plausible that Russia is secretly funding anti-fracking groups in Germany and elsewhere. If so, the groups may not even know the ultimate source of their funds.

Putin and his entourage live in a world of conspiracy theories. The Russian president’s economic adviser Sergei Glazyev said last week that “Americans have the goal of weakening the European Union” and muscling their way into the continent’s gas market.

Glazyev has clearly been listening to U.S. Senator Mary Landrieu of Louisiana, who has been pushing relentlessly for U.S. liquefied gas exports to Europe and is, incidentally, barred from Russia. Her rhetoric is unabashedly political.

“America can and should be an energy superpower,” Landrieu told a senate hearing in March. “The last thing Putin and his cronies want is competition from the United States of America in the energy race. Tyrants and dictators throughout history have had many reasons to fear revolutions, and this U.S. energy revolution is one they should all keep their eyes on!”

Like Rasmussen, Landrieu seems to think of energy markets as a subset of politics. Yet the “shale revolution” in the U.S. and, potentially, in Europe, is better served by geologists and industry than politicians. Indeed, politicians rarely make good geologists. A recent wipeout of projected tight oil reserves in California suggests what happens when science is shaped by politically motivated optimism.

“It is widely accepted that shale gas in Europe can be too slow and too expensive to produce, and there is too little of it to seriously reduce the really strong dependence on Russian gas,” German energy expert Steffen Bukold wrote on his blog in response to Rasmussen’s comment. “So is the pro-fracking lobby infiltrated by Russia to distract from far more sensible solutions? Is NATO?”

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Grave Reservations: Gas Subsidies Set Up Shortages

June 17th, 2014 vaddison Posted in Uncategorized | Comments Off

By Michael Bradley, Australian Petroleum Production & Exploration Association

The International Energy Agency (IEA) has released a new report confirming that interfering in gas markets deters investment in exploration and production.

“Subsidies exacerbate demand and inevitably lead to shortages a decade later,” it says.

Our next-door neighbor, Indonesia, offers a salutary lesson in this regard.

The country’s mandated low domestic gas prices have been a disincentive to gas explorers and developers, according to the IEA’s Gas Medium-Term Market Report 2014.

Indonesia has about 3.1 Tcm (104.4 Tcf) of proven gas reserves—the world’s 13th largest reserves. This is more than enough to supply both domestic and export markets.

In 2012, Indonesia was the world’s third-largest LNG exporter, but by 2019 it will be a net importer.

Indonesia also reserves gas production from its LNG projects for domestic use at subsidized prices. The gas reservation threshold is 25% for most projects, but can be as high as 40%.

This has provided little incentive for energy efficiency or for exploration and development. Domestic demand for natural gas has doubled since 2005, growing much faster than production. Indeed, in 2013 Indonesia’s gas production fell by 9%.

The unintended, but inevitable, effects of gas subsidies include market distortions that affect the country’s economy.

Production problems and rising consumption have actually caused gas shortages.

In some cases, Indonesia has had to buy spot cargoes of LNG to meet export obligations. It has also imported LNG and resold it at a lower domestic price.

Recognizing this, the government is moving to implement a subsidy reform program and it is committed to phasing out these subsidies by the end of 2014.

Indonesia is now shifting its domestic gas policy from intervention to achieve low prices to intervention designed to secure increased volumes at prices that are viable for producers.

Producers see this as preferable to the previous strategy, but Indonesia still ranks low (132 out of 157 jurisdictions) in terms of its barriers to foreign investment (Fraser Institute Global Petroleum Survey 2013).

As the U.S. Energy Information Agency notes, “Indonesia struggles to attract sufficient investment to meet growing domestic energy consumption because of inadequate infrastructure and a complex regulatory environment.”

The IEA report says gas reservation is largely to blame. “The existing gas law, which includes an obligatory portion for domestic use seems to be aggravating the issue, hindering foreign investment into the country. The regulated price regime, which results in the price of domestic gas being cheaper than the production cost, is discouraging investments.”

Michael Bradley is the director of external affairs for the Australian Petroleum Production & Exploration Association (APPEA). This blog post originally appeared on APPEA’s website.

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Environmental Groups Push For Clean Air Standards For Oil, Gas Industry

June 10th, 2014 vaddison Posted in Uncategorized | Comments Off

By Peter Zalzal and Brian Korpics, Environmental Defense Fund

On May 13, Environmental Defense Fund (EDF)—along with a coalition of 64 local, state and national public interest groups—submitted a petition asking the Environmental Protection Agency (EPA) to address toxic air pollution emitted from oil and natural gas operations in population centers around the country.

Earthjustice crafted the petition which focuses on a provision of the Clean Air Act. It authorizes the EPA to establish standards for toxic pollution from oil and natural gas wells if those wells are in major metropolitan areas (areas with a population greater than 1 million), and if the agency finds the emissions “present more than a negligible risk of adverse effects to public health.”

Impacts to health

Toxic air pollutants—like benzene and toluene—are associated with heightened risks of cancer, respiratory disease and developmental disorders in children. The petition argues that, in light of the Clean Air Act’s precautionary standard, the agency should move forward with standards to address this harmful pollution and that doing so is especially important given evidence that toxic emissions from the oil and gas sector could be more significant than previously thought.

For instance, a recent study found benzene emissions from oil and gas operations in the Denver-Julesberg Basin were seven times greater than reported estimates. These findings were based on aircraft measurements taken in 2012 by the National Oceanic and Atmospheric Administration, work sponsored by EDF.

Impacts to climate

While this petition focuses specifically on toxic air pollution, the oil and gas sector also emits a suite of other damaging air pollutants, including climate-destabilizing methane (the main ingredient in natural gas) and smog-forming volatile organic compounds (VOCs). In his 2012 State of the Union Address, President Barack Obama committed to “take every possible action to safely develop [oil and natural gas] … because America will develop this resource without putting the health and safety of our citizens at risk.”

It is vital to put in place rigorous protections against air toxics for communities located near oil and gas facilities. We also must work to establish comprehensive, national clean air standards that protect all communities from the full range of harmful pollution emitted by oil and gas operations.

Solutions exist

Fortunately, cost-effective solutions are available to address the full spectrum of harmful air pollution from the oil and gas sector: methane, VOCs and air toxics. Earlier this year, a study by ICF International identified several critical clean air measures that will reduce methane.

By 2018, the report concludes that broadly deploying cost-effective emission reduction strategies across the oil and gas sector could reduce approximately 40% of the sector’s methane emissions at a total cost of just one penny per thousand cubic feet of gas produced. The report projects these same strategies will also reduce emissions of hazardous air pollutants (HAPs) and VOCs by 44%—all at no extra cost.

Taking action

States and leading companies have already begun to deploy these cost-effective solutions. In February, Colorado became the first state in the nation to directly regulate methane emissions from the oil and gas production and gathering segments. These rules also control VOC emissions, and, in addition to several other important control strategies, they establish the strongest-in-the-nation leak detection and repair (LDAR) program. Ohio also followed suit last month with a rigorous program to identify and address leaks from hydraulically fractured wells.

Meanwhile, Wyoming has had an effective LDAR program in place for certain new production facilities since September 2013. Each of these clean air standards will have multi-pollutant benefits.

In March of this year, the president issued a Strategy to Reduce Methane Emissions, taking an important first step toward limiting oil and gas sector pollution. As part of the president’s roadmap, EPA issued five technical white papers to examine methane and VOC emissions from the oil and gas sector and to evaluate the control technologies available to reduce these emissions.

As both the Earthjustice petition and ICF report underscore, however, sources in the oil and gas sector also emit harmful toxic air pollution, and it is important to recognize all of the health and environmental benefits associated with enacting comprehensive clean air measures. Further, limiting oil and gas sector emissions can have critical energy security benefits for this country, given that finding and fixing leaks means less product is wasted, and that, in some cases, these measures can even save producers money through the sale of captured methane and other hydrocarbons.

The case for reducing oil and gas sector emissions is strong and multi-faceted, and we urge the Administration to move swiftly with comprehensive, national clean air standards to address this pollution—to protect our nation, our communities and our families. Early action in the states points the way, but we’re a long way from where we need to be on this critical issue.

This blog post originally appeared on the Environmental Defense Fund’s website.

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Companies Must Follow Procedures To Keep Fracking Safe

June 3rd, 2014 vaddison Posted in Uncategorized | Comments Off

By Mark A. Plummer, Chestnut Exploration

By taking a deeper dive into the fracking ban in Denton, Texas, it can help all involved parties better understand what this means for state of energy in Texas.

Recently, Denton County announced a temporary ban on hydraulic fracturing, making it the first governing body in Texas to prohibit this method of extracting natural gas. This ban has caused quite a controversy between Denton residents and the companies banned from fracking.

What is fracking?

Fracking is an environmentally safe, human-conscientious method for the U.S. to produce oil and natural gas.

Fracking is also not a new concept. More than 120 years ago, oil companies would drop dynamite or TNT down into old Pennsylvania and Pennzoil wells at 244 m (800 ft) of depth to explode and stimulate the reservoir. This type of fracking dates back to the earliest days of oil field development.

Political issues

There is a great need for our country to be energy independent, and fracking is one method that has helped make natural gas one of the most abundant energy supplies in the U.S.

However, fracking has become a political issue because while Americans want cheap energy, nobody wants fracking to take place in their backyard. Just as most communities want to dispose of their garbage, they do not want to live near the garbage dump. Most of us prefer to have those kinds of things out of sight and out of mind.

The same concept applies to producing oil, and an easier place to produce and frack a well is in a rural setting as opposed to urban settings. The public’s fear stems from not understanding what is going on deep underground.

In any sense, cities also have the right to govern within their borders. If they do not want fracking within their city limits, they have to sacrifice the jobs, economic boosts in capital, influx in visitors and the tax base associated with that production.

What happened in Denton?

Unfortunately, one bad apple can spoil the whole barrel. In this case, the oil industry shouldn’t be stained by one company that did not follow safety guidelines and whose negligence could have potentially hurt people.

Specifically in Denton, there are some issues and controversy concerning toxic exposure and the handling of chemicals on the surface. However, this controversy has nothing to do with the actual frack operation, but with the handling of the chemicals.

In the oil industry, just like any other industrial setting, individuals must handle chemicals in the same way they would handle chemicals under their kitchen sink—very carefully. Unfortunately, the company operating in Denton may not have properly handled the chemicals it uses in its remediation and cleaning process. The bottom line is, the community’s exposure to chemicals does not come from the frack underground, but from the operations of this particular company above the ground.

Keep fracking safe

It is the producing oil company’s responsibility to abide by the rules set forth to protect the landowners, its employee and the public. In order to protect our communities, oil companies must follow procedures and ensure safety for all parties.

Chestnut complies with all safety regulations with the highest regard to protect our community, the environment and our neighbors. It is Chestnut’s hope that other companies follow our example so fracking will continue to help Texas lead the nation to energy independence.

Mark A. Plummer is the owner and CEO of Chestnut Exploration. This blog post originally appeared on the company’s website.

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Adaptation Is A Must In Oil E&P Sector

May 28th, 2014 vaddison Posted in Uncategorized | Comments Off

By Jonathan Wilkins, European Automation

A colleague recently told me about her family tree. At European Automation we have nearly 40 different nationalities, and a glimpse into the history of one of Romanian team member’s family paints a colourful picture of the history of the oil industry.

One of her great aunts, who lived in turn of the century Romania, was known at the time as an “oil woman.” She didn’t pioneer any oil extraction methods or change the way crude oil was refined—it was just luck that led to her change in fortune.

A major Dutch oil company found that the family land had crude oil buried beneath it.

So the great aunt did what any entrepreneurial lady of the time would have done and leased her lands for oil exploration. For many years to come she would make a decent living from the process, paving the way for other members of her family to work in oil and gas.

Fast forward a few generations of oil extraction engineers, qualified refinery workers, chemists, geologists and quality assurance experts, and it’s clear that those days of “lucky” extraction are well and truly over.

Brutal competition

Today’s oil and gas sector is facing brutal competition for an increasingly limited resource so engineers can no longer rely on experience and gut feeling when drilling. Furthermore, getting things wrong can be very expensive.

It is well known that downtime in oil extraction is amongst the most expensive in any industry, with one hour costing up to $1 million in lost revenue, fines and maintenance activities. What’s more, the associated safety, environmental and reputational concerns also add to that cost.

Furthermore, oil companies come under extreme scrutiny from regulators, their communities and environmental observers. One way to ensure minimal downtime and zero accidents is to analyze big data.

Petroleum and gas exploration are real-time activities and engineers need “as you drill” information to make the right decision. Site operators need to know whether they are going in the right direction, whether to drill horizontally, vertically or stop altogether.

And this is a difficult undertaking. Everything noteworthy happens underground, miles inside the earth’s crust. Or, if you are lucky to be working on a sea rig or platform—braving the fury of the elements—additional environmental factors need to be taken into account.

Gathering data is crucial for scheduling maintenance activities. It allows site managers to anticipate malfunctions and pro-actively search for solutions while the systems are still functioning.

Beginning the process of looking for a solution once the drilling has been brought to a halt, potentially for safety reasons, is already a lost battle. Site operations personnel need to interpret big data and continuously make provisions in case something goes wrong in the future.

Having this pre-emptive big picture view saves money and potentially lives. What’s more, it gives engineers the insight they need to choose the best supply chain solution to suit their needs.

If you are drilling in the North Sea and realize that one of your pumps, motors or inverters is coming to the end of its life, then you must think ahead. Where can you get the part quickly and at a reasonable price? When you finally get it delivered, what guarantees do you have that it will work? When is the best time to schedule the repairs? Will you need additional support during maintenance?

Often you will be in a situation where, for traceability and validation purposes, the new part will have to be identical in every way to the old one. Unfortunately, thanks to the long lifespan of most upstream applications, the old part can often be obsolete, or at the very least extremely rare by the time it needs replacing.

It’s quite possible that you won’t have the time or financial resources to wait for the part to come from old stock elsewhere in your business. Equally, as a site manager you won’t be able to stock all the parts you may or may not need. It can be counterproductive to keep large stocks of rarely purchase items.

Just in time

Just-in-time philosophy teaches us that everything needs to be calculated with extreme precision. You shouldn’t have unnecessary stock taking up space in your warehouse and monopolising the company’s capital—this is the challenge set by lean industry thinkers.

Although the savings are considerable when applying lean techniques, oil firms subject themselves to very high risks. A fragile supply chain, with delicate links can result in millions of pounds spent on replacing broken components when an emergency arises.

So it becomes imperative that, as a site manager, you create provision for a robust logistics chain that will not disappoint. The best way to do that is to create relationships with spare part suppliers that are committed to delivering the products you require as you need them.

Try looking for a supplier that doesn’t rely on their warehouse alone, nor on those of a handful of preferred manufacturers. A good supplier will employ multi-sourcing tactics that ensure there is an entire network of manufacturers and distributors available to supply each type of component. This ensures that when a customer in a mission critical market places an order, the supplier can pick and choose the product with the best price and quickest delivery option.

This can sometimes be true even if you need an exact match for a component. For instance, did you know that many Omron and Yaskawa inverters are identical in every way, except the badge on the front? A good obsolete component supplier would,

Supplier qualification is another essential policy to apply to the logistics chain. At European Automation we don’t just look at the capacity of one manufacturer. We also do a risk assessment on the financial health of the company, its infrastructure, and product quality and last but not least, company culture.

Energy exploitation companies need to look at their supply chain and only place their trust in companies that can really deliver. However, even after satisfactory audits and financial checks you may end up with a less than ideal provider.

One way of sparing yourself the headache is to partner with a one stop shop that guarantees supply, repairs, service and exchange, alongside a sturdy logistics chain that will not break down.

Modern oilmen know that luck and gut feeling are no longer enough when drilling for that next big win. Assessments of all kinds, countless hours in the lab and big data analysis are the tools they need in order to ensure safe operations, free of unplanned downtime.

And I think if my colleague’s great aunt was alive today she would agree that adapting your supply chain requirements to this fast paced environment is what it takes to make money and minimise losses in the oil and gas extraction business.

Jonathan Wilkins is the marketing manager for European Automation.

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China Forgets Its History In Territorial Disputes

May 20th, 2014 vaddison Posted in Uncategorized | Comments Off

By James Gibney, Bloomberg

For all China’s stern injunctions to Japan to remember wartime history, its bumbling aggression in Southeast Asia suggests it also could use a refresher course.

The arrival of a Chinese oil rig in waters claimed by both China and Vietnam is a case in point. Demonstrations in Vietnam over China’s bullying deteriorated into a series of attacks by Vietnamese on foreign businesses, many run by Taiwanese with Chinese workers, that resulted in two dead and scores injured.

China, of all countries, should know better. In the decades before World War II, it suffered territorial incursions and economic depredations at the hands of Japan. These, in turn, sparked widespread popular protests and economic boycotts.

One of the most severe reactions came after Japan’s promulgation of its “21 Demands” in January 1915. Capitalizing on its status as one of the Allied powers in World War I, which enabled its takeover of Germany’s territorial holdings on China’s Shandong peninsula, Japan browbeat China into granting it de facto control over swathes of Chinese territory and valuable railway and mining concessions. Although China’s government went along to avoid war, the Chinese people responded with demonstrations, strikes and boycotts. As the historian Odd Arne Westad writes, “The Twenty-One Demands became a watershed in Sino-Japanese relations. To many Chinese they symbolized an aggressive Japan that had become the main threat to China’s independence.”

Even more galling to many Chinese was the Versailles Treaty’s ratification of Japan’s control of the Shandong Peninsula in 1919. That sparked not only more protests and a major national boycott but the birth of the May Fourth Movement, a larger attempt by students, intellectuals and disaffected Chinese government officials to create a new national consciousness. As one student manifesto of the time put it, “China’s territory may be conquered, but it cannot be given away.” Fear of Japan became one of the strongest animating forces of Chinese nationalism, even as Japan’s trade and investment ties with China, and with other countries in Asia, grew.

There are other historical similarities between Japan’s pre-war behavior and China’s attitude toward its territorial disputes with five of its Southeast Asian neighbors. The maximalism of China’s infamous “cow’s tongue” claim to the entire South China Sea today is reminiscent of Japan’s over-reaching 21 Demands.

China’s insistence on bilateral negotiations over territory, where size gives it maximal advantage, mirrors Japan’s efforts to isolate China diplomatically. Like thinkers in prewar Japan who had their own version of an Asian “Monroe Doctrine,” strategists in 21st century China hope to displace U.S. naval forces from the Pacific. And the belligerence of China’s public commentary on territorial disputes echoes the tone of Imperial Japan’s pronouncements about China’s unwillingness to grant Japan its place in the sun—even if the Chinese have been less grandiloquent about it. Whereas Japan painted itself as a “modern” country especially equipped to play by Western rules to dominate Asia, China’s leaders are more apt to argue, as its foreign minister did to his Southeast Asian peers in 2010, “China is a big country, and other countries are small countries, and that’s just a fact.”

The outcome of such attitudes will likely be the same, too: nationalist outbursts in the countries China seeks to intimidate, which in turn could increase the risks of miscalculation and hostilities.

At a Chinese Foreign Ministry briefing the day after the Vietnamese riots, a spokeswoman chided Vietnam for not doing more to stop the mayhem. Without missing a beat, she then turned to the subject of Japanese Prime Minister Shinzo Abe’s increasingly assertive foreign policy, urging Japan “to earnestly face up to and reflect upon its history, respect the legitimate and reasonable security concerns of regional countries, pursue a peaceful development path and play a constructive role in maintaining regional peace and stability.” Historical wisdom begins at home, Chairman Xi Jinping.

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