Drilling

French President Nicolas Sarkozy may appoint renowned geophysicist Dr. Claude Allegre – France’s most outspoken global warming skeptic — as the new super-ministry of industry and innovation.

According to a story filed by Climate Depot, Sarkozy appears ready to appoint the scientist who mocked former US vice president Al Gore’s Nobel Prize as a “political gimmick” to the high ranking scientific post.

The report states that Allegre’s appointment would send “political earthquakes” through Europe and the rest of the world.

The Financial Times reported that the possible appointment has “drawn strong protests” from environmentalists including Nicolas Hulot, France’s best-known environmental activist who said, “Putting him in charge of scientific research would be tantamount to ‘giving the finger to scientists,’” The Financial Times reported.

Allegre has not always been anti-global warming. He was among the first scientists to sound global warming fears 20 years ago. Only in recent years has Allegre reversed his views to become one of the most vocal dissenters of “man-made” global warming. As a member of both the French and US Academies of Science, Allegre has authored more than 100 scientific articles, written 11 books, and received numerous scientific awards including the Goldschmidt Medal from the Geochemical Society of the United States.

Allegre now asserts that the cause of climate change is unknown. He has labeled Gore’s “An Inconvenient Truth” as “nonsense,” saying on Oct. 14, 2007, “The amount of nonsense in Al Gore’s film! It’s all politics; it’s designed to intervene in American politics. It’s scandalous.” Allegre has not taken criticism lying down, accusing his environmental critics of spreading “lies and distortions” about his record and beliefs.
“As a scientist and citizen, I, unlike others, do not want environmentalism to accentuate the crisis or make the least well-off suffer more,” Allegre said in a recent Financial Times article.

Although Allegre was one of 1,500 scientists who signed the 1992 letter titled “World Scientists’ Warning to Humanity” warning that global warming’s “potential risks are very great,” he now believes the global warming hysteria is motivated by money. “The ecology of helpless protesting has become a very lucrative business for some people!” he explained.

In October 2007, US Senator James Inhofe from Oklahoma highlighted Allegre’s recent conversion to a dissenter of global warming. “I find it ironic that a free market conservative capitalist in the US Senate and a French Socialist scientist both apparently agree that sound science is not what is driving this debate, but greed by those who would use this issue to line their own pockets,” Inhofe said.

In 2009, rhetoric has swelled around the topics of environmental stewardship, global warming, and greening the economy. With Allegre’s possible appointment in the wings, the global discourse on climate change may finally see a balance due to rational opposition.

A new descriptive enters the lexicon of words used to describe the energy business. Who cares how we got to the modern age? All we know is that we don’t want to stay.

According to PowerShift ’09, a non-profit youth organization supporting drastic climate legislation, “Students and youth across the country will be following closely as the House Energy and Commerce Committee holds the first hearings on the American Clean Energy and Security (ACES) Act this week.”

The press release quotes Jessy Tolkan, Executive Director of the Energy Action Coalition, as saying, “Young people understand the US response to climate change will determine our future.” If climate were an isolated entity, this would be true.

The fact is no amount of US legislation will affect the overall rate of carbon emissions. Growing economies, like those of China and India, will continue to use what many environmental groups are now referring to as “dirty” energy. While this primarily refers to coal, oil and natural gas (including CBM) are inferred. The juxtaposition of “clean” versus “dirty” is a semantic form of brainwashing. More importantly, do young people really understand what kind of effect an irrational response to climate change will have on our future?

The plethora of activists and environmental groups would have us believe that most oil and gas executives’ cheer every time a baby seal is clubbed or a village is plowed over by bright yellow dozers making way for the next crime scene where Mother Earth is raped against her will. This simply isn’t true, but you know this.

The recent political push to mandate the move away from fossil fuels is the irrational result of mass hysteria. Making believe that life as we know it will completely disappear within one or two decades if we don’t “alter our self-destructive course” is not a viable solution. What it breeds is misinformation and the progressive delusion that the world will be great if “they just do what we say.”

Renewable energy is a viable concept, but it can’t take place overnight. In the US, we have optimized our use of resources within the last 150 to garnish the highest levels of energy from the various elements we extract. Newer economies want a chance to do the same. To legislate limitations on what can be produced is to tether one of last bastions of heavy industry we have. While this appeases our sense of well being in the short-term, it will put us behind the technology leaders of tomorrow.

For a “greener” future to have optimum benefit, it will need to be conducted through a long process of transition. Renewable energy is not juxtaposed from that produced with fossil fuels. The oil companies of today will be the energy companies of tomorrow, adopting those technologies that become more profitable as markets change with time – not with legislation. Besides, doesn’t StatoilHydro own wind farms?

A new study published by the University Of Illinois College Of Law sheds light on the myths and the reality surrounding the recent proposal by many policy makers, activists, and politicians to “green the economy” and provide struggling countries – particularly the US – with “millions of green jobs.”

“Green Jobs Myths” is jointly written by Andrew P. Morriss, University of Illinois; William T. Bogart, York College of Pennsylvania; Andrew Dorchak, Case Western Reserve University; and Roger E. Meiners, University of Texas – Arlington. Its abstract points out that “a rapidly growing literature promises that a massive program of government mandates, subsidies, and forced technological interventions will reward the nation with an economy brimming with ‘green jobs.’ Not only will these jobs improve the environment, but they will be high-paying, interesting, and provide collective rights.”

The authors go on to say that this literature is constructed on mythologies about economics, forecasting, and technology.

The study focuses its analysis on the recent efforts to provide a full description of green jobs by the United Nations Environment Programme (UNEP) report, the U.S. Conference of Mayors (Mayors) report, the American Solar Energy Society (ASES) report and the Center for American Progress (CAP) report. “All these reports attempt comprehensive analyses, providing greater detail than the anecdotal claims elsewhere,” according to the new study.

The authors of Green Jobs Myths determine three key factors from the literature. First, the authors examine the problems with each report’s attempt to define when a job qualifies as “green” and to calculate how many supposed green jobs exist. Second, the study examines how the green jobs literature treats key economic concepts and finds that it makes fundamental economic errors in its analysis. Third, the study examines specific areas of technology where the authors believe the green jobs literature makes errors that typify it as a whole. The authors conclude by suggesting, “Deep skepticism is the most appropriate response to the hyperbolic claims of the green jobs literature.”

According to the authors, the most comprehensive piece of green jobs literature is the UNEP report. In its summary, the study shows the scope of the transformation that would be required of the American economy, the world economy, and society to implement green jobs proposals. The suggestions put forth by the UNEP report are fundamentally geared toward a complete restructuring of modern society and the world economy. Green jobs are described as a means of achieving its programmatic goals. However, unlike most green jobs reports, UNEP states that existing jobs will be destroyed as disfavored methods of production are forced to cease and replaced by new, preferred methods of production.

While many of the domestic reports viewed in this study propose that green jobs programs are a “win-win,” the UNEP report does not pretend that this policy implementation is a simple matter nor does it sugarcoat the massive structural changes that would be needed. In addition, the UNEP report does not pretend to know exactly how many jobs will be created decades from now, or that the costs can be known. The authors point out in their analysis that the UNEP report makes clear the broad scope of the social change it proposes, which is a change to virtually every aspect of daily life: from where people live, where their food comes from, how they commute to work, and even to what they do at work. If implemented, all of these would be dramatically altered from their current existence.

Overall, the authors observe that the green jobs literature focuses on phasing out virtually all of the country’s current energy sources, roughly 93%. Currently, only about 7% of our energy comes from what are called “renewable” sources. Green jobs promoters assert that 93% of our energy should be eliminated – energy used for heating and cooling homes, schools, and offices; powering cars and transport vehicles; and providing power for industry and agriculture, creating every good most people enjoy.

Former Vice President Al Gore has stated that our current sources of electricity (40% of all energy in the US) should be eliminated within a decade. However, the authors point out the 10% of electricity in the US comes from renewable sources. With wind, solar, geothermal, and biomass representing about 3% of the nation’s electricity generation capacity, even with rising capacity these technologies will continue to represent a mere fraction within 10 years.

Some of the myths surrounding green jobs proposals defined by the authors of the new study include the notion that everyone understands what a “green job” is. The reality: no standard definition of “green job” exists. Advocates report that creating green jobs will boost productive employment; however, the reality is that many green job estimates include huge numbers of clerical, bureaucratic, and administrative positions that do not produce goods and services for consumption.

The authors report that many proponents of green jobs feel that current forecasts are reliable. According to this study, much of the green jobs literature has based estimates on poor economic models using dubious assumptions. In addition, it is believed that green jobs promote employment growth. The fact is that by promoting more jobs instead of more productivity, the green jobs described in the literature will be low-paying and in less than desirable working conditions. The United Nations and Congress cannot simply mandate economic growth. The study also says that government interference such as restricting successful technologies in favor of speculative technologies favored by special interests will inevitably generate stagnation.

Perhaps the most astounding myth put forth by the green jobs mentality is that government mandates are a substitute for free markets. The truth is that companies react more swiftly and efficiently to the demands of their customers and markets than to cumbersome government mandates.

The “Green Jobs Myths” paper concludes that literature supporting green jobs claims is rife with internal contradictions, vague terminology, dubious science, and ignorance of basic economic principles. “Indeed, the green jobs literature claims resemble the promises of long-term financial prosperity offered by Ponzi schemes. New taxes, increased public borrowing , and government subsidies will be needed to support green jobs programs. We find no evidence that these ‘investments’ in green jobs can support the promised results,” the authors add.

The real purpose of the green jobs initiative is not to create jobs, but to remake society. This analysis purports that sweeping changes advocated in these reports under the premise of “greening our economy” are intended to shift the American and world economies away from decentralized decision making. The authors state that its real intent is to move in favor of centralized planning. Instead of allowing individuals to voluntarily trade in free markets, green jobs advocates would instead discourage trade and give central planners and politicians the reigns to choose which technologies could move forward as well as determine the choices faced by consumers and workers. Cloaking these policy shifts within the topic of green jobs, advocates of drastic economic policy shifts hope to avoid heated debates over the massive and costly changes they want to impose.

In an interview, Andrew R. Morriss, lead author for “Green Jobs Myths,” stated the dangers of diametrically opposing so-called “green jobs” against what many proponents classify as “less desirable forms of production” – jobs in the oil and gas industry.

Morriss said, “I think it is wrong to position green jobs as opposed to a fossil-fuel based economy. Jobs in refining - making it more efficient - are just as green as jobs in solar power.” Morriss and his coauthors emphasize, “The US economy has been steadily getting greener through market forces for at least 100 years, as cost pressures drive firms to innovate to be more efficient to cut costs.

“The current debate is an obfuscation of the real issues – what most of the people demanding the government spend billions on green jobs are trying to get is a substantial shift in the nature of our economy. If you read the UN Environment Programme report, for example, you can see this pretty clearly – they want less trade, more expensive energy, less fossil fuel use, etc.”

The debate, contrary to what most green jobs proponents currently believe, is far from over. The shining medallion being put forth as the green-engineered future is a pipe dream to say the least. Fossil fuels provide the infrastructure, the income, and ingenuity for most economies to thrive. To supplant this massive, proven network with technologies that are promising – but hardly scalable – is a vision that is not based in reality.

“Green Job Myths” contains 97 pages and is replete with graphs and statistics on the subject of green jobs and energy production. This paper should be required reading for anyone with a stake in the energy industry.  To download a free full version of the above paper visit http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1358423#

A recent report by investment firm Bain & Company Inc. announces a hard look at the year to come. In what it calls “The Davos Energy Brief” it outlines some possibilities for 2009, most importantly average crude price of $40 per barrel.

Industry spending is expected to decline by 20%; activity and employment is predicted to drop by 10%; and overall production will be reduced by 5 MMbbl/d. It’s not news to say that the oil and gas industry is now experiencing a painful contraction. The report adds that 30 key energy companies (10% of the top 300) will be acquired or consolidated during 2009. This could be a good thing or bad depending on the motivations of the move.

How fast things have grounded after July’s record high crude price? The good news is resilient companies will survive and may even improve their standing. Those who have overspent during last year’s boom or failed to secure their investment standings will most likely perish. The key to surviving this downturn will be decisive action coupled with the ability to be patient.

According to Bain & Co., timely action will help companies to set a strategic direction through turbulence, steer major projects forward, manage costs, and sustain dialogue with stakeholders. On the other hand, patience will be necessary to ride out price volatility, survive capital market, and overcome supply uncertainty.

In spite of the economic problems facing the industry today, oil and gas will remain an attractive sector for investors in 2009, the report said.

The major unknowns for 2009 include oil prices, production capacity, and sector consolidation. Bain & Co. asserts that companies have drastically changed their short term strategies as a result of recalibrating their investment plans with $30 to $50 per barrel estimates. For oil producers this means new portfolio priorities. For consumers it presents new supply and storage needs.

The long-term prospects are also challenging, but a dramatic contraction in the oil and gas industry seems inevitable at this point. Reductions in demand and capacity are currently visible. This will continue to have a definite effect on the unconventional resource boom. Planned expansion projects for new infrastructure will be delayed by rebids. Other areas under threat in current economic situation include new exploration, new market and technology developments.

In light of everything that will come to pass in 2009, this downturn is only a test. CEOs, Chairmen, and board members will find ways to win during these turbulent times. As for the rest of us – the consumers – we have to assume that no matter how bad things get they’ll always get better over time. When the oil price has normalized we’ll start complaining about the price of gas again.

According to a recent report written by David Ivanovich for the Houston Chronicle, President-elect Barack Obama has quietly shelved his proposal to institute a new windfall profits tax on oil and gas companies.

An aide for the transition team acknowledged the policy shift Tuesday, Dec. 2, after a small-business group discovered the proposal had been dropped from the incoming administration’s Web site, Ivanovich said.

“President-elect Obama announced the policy during the campaign because oil prices were above $80 per barrel,” the aide said. “They are below that now and expected to stay below that,” Ivanovich reported.

I hate to say “I told you so…,” but it simply didn’t make sense at the time of the election that Obama would seal his fate as the new Commander in Chief by instituting taxes on one of the most active industries in the U.S.

The question now is: what windfall?

Crude has fallen more than $100/bbl in the last five months and, with the current global financial crisis, there doesn’t seem to be any pot of gold at end of the rainbow. From its July high of $145, light sweet crude settled at just above $42 today according to NYMEX. Oil and gas companies are continuing to push forward, but it is uncertain what transformation will take place over the course of 2009.

Part of the fuel for Obama’s fire on the windfall profits tax plan arose from the pressure applied from record high gas prices coinciding with the oil price. In Houston, the Chronicle cited the average price for gasoline is down to $1.66/gal from its July record of $3.96/gal.

Now, we’re paying less for gas, but at what cost? The Washington, D.C.-based American Petroleum Institute (API) argued that a similar tax plan in 1980 cost the industry $38 billion in revenue. The nation also lost 1.3 billion barrels of domestically produced oil. Companies stopped operating in the U.S. and moved overseas to avoid the tax.

Ivanovich quoted Thomas Pyle, president of the Institute for Energy Research, “The president-elect’s decision to reverse course on imposing this Carter-era burden on those who explore for and produce American energy is a heartening development — both for consumers and an economy struggling to claw its way out of a recession.”

So it seems the inherent instability of the upstream oil and gas industry has stabilized current tax regimes. This is a good thing.

With exploration bans now lifted for many offshore areas in the U.S., companies are more likely than ever to drill domestically. Time will tell if Congress is willing to play along. Achieving energy independence is a difficult enough, but an increase in taxes on those companies working domestically combined with limited resource areas to explore would make energy independence unattainable under any circumstance.

The accounting and consulting firm, BDO Seidman, LLP, released its findings from a study in which the organization interviewed 100 chief financial officers (CFO) at U.S. oil and gas E&P companies.

The BDO Seidman Natural Resources 2009 Outlook Survey was conducted in October and November of 2008. Most respondents (63%) expect to maintain their current levels of field personnel with 29% stating they will increase levels and 8% plan to decrease field staff.

Potential growth drivers for 2009 were identified as increases in demand both internationally and domestically. Others cited new production technologies (17%), adoption of alternative energies (12%), and increased oil and gas exploration (10%) as primary modes of industry growth over the next twelve months.

The report also shows only a portion of CFOs view access to capital (19%) and uncertain political climates (16%) as major barriers to international growth. Only 5% cited international tax or environmental regulations as a significant deterrent. Other financial challenges include recruiting or retaining skilled employees of which 12% of CFOs interviewed claimed this to be a problem in the coming year.

However, a majority (57%) of CFOs interviewed said that credit capacity restraints and access to capital would be the greatest financial challenge in 2009. Nearly a quarter (21%) placed lower oil and natural gas prices as the second biggest challenge. Three-quarters of the respondents (72%) expect the economic crisis in the U.S. to impact their ability to borrow money or to extend bank debt in 2009. Of those interviewed, only 26% reported delayed or terminated E&P projects in the last 12 months with 80% of those stating “lack of capital funding” as the cause.

Charles Dewhurst, a partner of the firm stated, “Energy companies have remained relatively unscathed by the downturn this year and continued with record profits. However, a storm front is gathering for 2009.” The survey was conducted as oil prices and demand continued to drop – and this volatility, combined with the state of the economy – has energy companies treading more cautiously, added Dewhurst.

Any thoughts?

Maybe I’m a cynic, but it seems that many people have trouble connecting reality with the ideal. Energy, as an issue, is a top of priority worldwide. However, it’s a small part of a larger cycle.

Industrialized economies rely on a consistent interworking of supply and demand. Successful economies are incrementally matched with rises in demand for goods and services, i.e. energy.

As of July, with record high oil prices, the term “green” became volatile. Green energy and green collar jobs became part of the vernacular, especially among politicos in the United States.

The City of San Jose, Calif., is now calling itself the “capital of America’s clean tech revolution.” Mayor Reed claims to have a “green vision,” and the city is now pursuing the country’s top green companies to locate within San Jose.

Tesla Motors, a manufacturer of high end electric sports cars, recently moved to San Jose bringing with it 1,000 new “green collar jobs.”

What exactly defines a “green collar” job? The most likely answer is any manufacturing position concentrated on so-called sustainable energy systems or components. Solar and wind energy are the big ones. For transportation purposes, biofuels, hydrogen, and electricity are most often proposed as alternatives to fossil fuels.

Wait a second…did someone say electricity? What generates electricity? Would it be coal? Or, even crazier, could it be natural gas? Aaah, so what comes first…the chicken or the egg?

The important point here is that alternative forms of energy are good. At some point in the future, fossil fuels will no longer be profitable to find or to produce. While experts disagree on exactly when this might take place, both sides of the energy industry must stay on course to determine a safe path to the future. The oil industry is the only bridge we have to the ideal world proposed as the “green revolution.”

Our modern scenario is much like the early 19^th century when wood provided most economies with a major source of energy. One would wonder if a “peak wood” theory was devised from this era? However, the introduction of coal supplanted wood as a much better source of energy. Later oil would do the same, and is now the highest net energy resource we know.

Technology and innovation will improve our means of reaping more benefit from all known sources of energy in the future. For now, we must concentrate our efforts on oil and natural gas. The problem with a “green revolution” is that many of its supporters are under a false impression that alternative forms of energy will supplant our current demand for fossil fuels. Many tout this change as if its possible right now. It’s not.

What are the current drivers of improved infrastructure and mass manufacturing in today’s industrial environment? The answer is fossil fuels.

Green energy will have a place in today’s market as long as the oil and gas industry is healthy. At $147/bbl, wind and solar are feasible endeavors, but at $58/bbl investors are wise to proceed with caution. The expectation of a wide availability for investments and job creation within the “clean tech” industry will be short lived if the price of oil remains low.

Could “green tech” be the next big bubble? Hopefully, it won’t suffer the same fate as many of the previous examples like the dot.com or the sub-prime real estate markets. It is possible that an extended slump in the oil and gas market could prevent many “clean tech” start ups from getting off the ground.

To provide sustainable energy sources for the future, industries should understand that it will take collaboration between those who wish to break away from the dependence on fossil fuels and the operators and service companies who currently produce these resources. It is very unlikely that the former will survive without the continued performance of the latter.

As a rule, children are not political animals. When they do have political slants they are typically derived from verbal and nonverbal queues displayed by the adults around them – namely parents.

It was 1980, and I had just started the second grade. We were returning to school the day after Ronald Reagan had secured a landslide defeat of the incumbent Jimmy Carter. As a seven year old boy, I officially didn’t have a dog in that fight although, according to my father’s reaction to the election results the evening before, it was obvious that I shouldn’t be celebrating.

My father is a life long union democrat who espoused on many occasions that anyone claiming to be a “republican” while wearing a hardhat and carrying a lunch pail to work was undoubtedly a moron, point taken. Today, I understand the difference between facts and opinions, but as a young boy I assumed my parents were right about everything.

The next day at school we filed into the classroom just after the first bell. One of my classmates was a bit overzealous at Reagan’s success the night before. He was jumping up and down and attempted to high five me on the way to his seat. I wasn’t sure if my dad could beat up his dad, but I saw first hand that his dad’s president had given a good beating to ours.

I wasn’t much for debating in those days. Besides, how many talking points does a seven year old know? I used the only form of rebuttal I knew (thanks to three older brothers), and I punched him in the eye. He fired back with equal force and it was only minutes before Mrs. Fisher had us both by the ear marching us down the hall to the principal’s office.

If memory serves me correctly, one of us showed up with a shiner the next day. I’d like to say it was “the other guy” but quite honestly there have been too many scuffles in the last thirty years to recount the damage associated with each. Fortunately for me, that was the first and last time I ever came to blows over politics.

The point of this story is not to examine the validity of any specific political party. This week will present us with a new President – Barack Obama or John McCain. Regardless of how you vote, opportunities for change exist in either platform.

I’ll admit that the Reagan years were tough on my family. “Trickle down economics” was more aptly described as “trickle from.” Nevertheless, we survived and things improved over time. The lesson I’ve learned is that the US is best characterized as a diverse and robust endeavor.

Where the oil and gas industry is concerned, 2008 has been a very good year. Although things are now cooling due to a looming financial crisis and warnings of a coming recession, the industry will subside. July brought record high prices for crude. It was a time when every official in Washington could be found – soapbox in hand – proclaiming the need to “do something about these high prices!”

As Mark Twain said, “be careful what you wish for…you just might get it.” Today, the price of oil is less than half of its July peak. Gas prices in Houston are down to $2.20/gallon. Politicians have lost their grip on the debate; finger pointing is no longer a valid response to the nation’s major oil companies. This is a positive development. In spite of public perception, those of us who work in this industry understand the importance of independent oil companies. They are fighting a good fight when compared to the amount of available resource areas. More than three-fourths of the world’s hydrocarbons are controlled by national oil companies.

Offshore drilling is now gaining ground in parts of the US that have been closed off for nearly two decades. As a point of interest for political intervention, it should be noted that the first President Bush instituted the original ban on these areas – a Republican.

While it’s easy to assume that most candidates will toe the party line once in office, where energy is concerned we should keep an open mind. The basis of this industry is cyclical. High prices are good, too high prices become a problem. The object is to find a balance that sustains a profitable margin for operating companies while providing consumers with a market that doesn’t appear to be spiraling out of control.

The numbers show that $4/gallon kills demand for transportation fuel. Some of this demand will be lost forever. Now we have to be concerned about low prices. How will they affect industry projects and related job markets? What will become of the move toward alternative sources of energy? Time will tell.

Our new president could be democrat or republican. There’s no reason to assume that one is right and one is wrong for our industry. Energy is a big issue within our modern political discourse. Provided that a candidate is rational with some degree of common sense, the oil and gas industry will maintain its growth in the years to come. There should be no reason to come to blows over the election’s outcome.