Energy & Power Generation

When Texas DUCs Go Quack, Quack, Frack

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The “DUC” in this case being _D_rilled but _U_n_C_ompleted shale oil & gas wells

I ran into this article by Seeking Alpha energy analyst Gary Bourgeault over on Real Clear Energy which gave a figure for how many drilled but ‘unfracked’ wells are available for the new extended oil flow fracking technique I mentioned in May 15th 2016 post Texas Fracking and the Death of Big Oil.

The key passage from “U.S. Shale Oil Boom Over Says CSMonitor – Hahahahaha” below —

DUC wells waiting in the wings
 
Another major reason the shale boom isn’t over is the large number of drilled but uncompleted wells waiting to be brought into production. There is an estimated 5,000 in the U.S. which can be quickly brought to market when the price of oil is high enough to reward it. Some companies have been completing them for some time, and more are being completed in 2016.

There are a lot of implications in that number. Starting with the fact that new oil & gas rig counts are going to be minimal for some time. And the hard economic fact that major politically event driven oil price spikes are going to be extremely short and will drop below 50 dollars a barrel within weeks to three months, given how fast these North American “DUC” wells can be fracked to bring product to market.

This new age of “banked” cheap oil plays, and the resultant oil price stability, will see off both the “Big Oil” economic model and the political/corporate elites that live by it.

Update May 27 2016:

It looks like Zerohedge has come to the same set of conclusions about the “Big Oil” economic model with his post “Peak Petro-State – The Oil World In Chaos”

Texas Fracking and the Death of Big Oil

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It isn’t often you see the death of a major worldwide industry. Last week I saw the death of the “Big Oil” economic model. It just died at the hands of Texas oil frackers who have developed a new “disruptive technology” that has made obsolete all the pillars of technology underpinning large, vertically integrated oil companies. More importantly, the same is true of all the petro-states that nationalized Big Oil’s assets in the 1960s to make all the state oil companies around the world today.

I found this out doing my day job last week as a Defense Department quality auditor visiting a mid-sized oil service company diversifying into federal contracts. The meeting was about issues with the contract they won and touched on others they have bid on. As a side bar at lunch the following points about their main business came up:

1. Oil field spending has died. Rig count in the USA is the lowest it has been since 1940.
 
2. One oil rig controller company these folks worked with saw a year over year drop of 72% in its business.
 
3. Another company they supplied had their “Cap-X” budget drop from ~$400 million for 2015-2016 to little over $30 million for 2016-2017.
 
4. One drilling company they supplied went from 120(+) new wells last year to _12_ this year.
 
5. This supplier sold a lot of copper tubing for “frack-log” drilling. That is the drilling of holes in good oil-bearing rock without fracking rock for oil immediately — and here is the new part — to take advantage of a new long-flow fracking technique.

While most of the points above are due to the Saudis’ oil price war on Texas frackers. An ex-Big Oil geologist I know put it this way —

The entire reason for the price drop was because the Saudis wanted to destroy fracking in the United States in order to keep us dependent upon them in order to keep them getting a free defense. The Saudis will have to diversify and start spending money on defense before the price goes back up, or they will be in serious trouble.

The technique in Point #5 above marks another “fracking revolution” that is of growing importance to the USA. This new fracking energy revolution will upend the world order as we know it. Political winds willing, America may well be a net hydrocarbon exporter in five to eight years.

Explaining why that is requires some background in Texas oil fracking.

Read more

New Developments between Israel and the Saudis.

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Saudi Egypt

Obama has pretty much abandoned the Sunni Arabs in the Middle East in favor of Iran. This has been noticed, of course, and some new alliances may be forming.

Egypt’s April 9 announcement of the transfer of two islands, Tiran and Sanafir, to Saudi Arabian sovereignty came as a complete surprise to many in the Middle East. The only country that was not surprised was Israel. A top-level official in Jerusalem told Al-Monitor on April 12 that Israel had been privy to the secret negotiations.

The islands have a history that is interesting.

These islands originally belonged to Saudi Arabia, which transferred them to Egypt in 1950 as part of the effort to strangle Israel from the south, and prevent the Israel Defense Forces (IDF) from taking control of them. Israel embarked on two wars (the Sinai War in 1956 and the Six Day War in 1967) for navigation rights in the Red Sea. It took over these islands twice, but then returned them to Egypt both times. Now events have come full circle, and the Egyptians are returning the islands to their original owner, Saudi Arabia.

And Israel is privy to the negotiations and approves.

In the past, several proposals were raised regarding regional land swaps, with the goal of resolving the Israeli-Palestinian conflict. The framework is, in principle, simple: Egypt would enlarge Gaza southward and allow the Gaza Strip’s Palestinians more open space and breathing room. In exchange for this territory, Egypt would receive from Israel a narrow strip the length of the borderline between the two countries, the Israeli Negev desert region from Egyptian Sinai. The Palestinians, in contrast, would transfer the West Bank settlement blocs to Israel. Jordan could also join such an initiative; it could contribute territories of its own and receive others in exchange. To date, this approach was categorically disqualified by the Egyptians in the Hosni Mubarak era. Now that it seems that territorial transfer has become a viable possibility under the new conditions of the Middle East, the idea of Israeli-Egyptian territorial swaps are also reopened; in the past, these land swap possibilities fired the imaginations of many in the region. In his day, former head of Israel’s National Security Council Maj. Gen. Giora Eiland led a regional initiative on the subject. But he was stymied by Egypt.

Moving Gaza away from Israel would solve the rocket problem and the terrorist problem.

In light of America distancing itself from the region and the cold shoulder that Egypt has received from Washington in recent years, Saudi assistance and Israeli support to Egypt are viewed as critical to Sisi’s continued grip on the regime. And to complicate the situation even more, we can add the reconciliation attempts between Israel and Turkey; these have continued for many long months in marathon negotiations between the sides.

A highly placed Israeli official told Al-Monitor on condition of anonymity that the Egyptians don’t want to see the Turks in the Gaza Strip, and are strongly opposed to a rapprochement between Jerusalem and Ankara.

The Turks may have enough trouble with Syria and the Kurds to keep them busy. Meanwhile, a new alliance may be appearing as Obama arms Iran.

Another factor may be the new Israeli natural gas supplies.

There are even more interesting possibilities.

On this background, a revolutionary concept has been floated recently regarding the establishment of artificial islands opposite Israel’s coast; these would host the state’s main infrastructure facilities. The idea was proposed by two close Netanyahu associates. One is Shaul Chorev, who until recently headed Israel’s Atomic Energy Committee and was a former brigadier general in the navy, and the other is Zvi Marom, founder and chief executive of the Israeli technology firm BATM Advanced Communications. Netanyahu worked under Marom after Netanyahu lost the 1999 elections; since then, the two are considered to be close associates.

The artificial-island proposal contains an additional, even touchier idea: the option for civil nuclear energy in Israel.

Interesting times in the Middle East now that Obama has abandoned the Sunnis and Israel.

Some Hopeful News

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Conservatism Is Winning In The States

What Alexis de Tocqueville observed over 150 years ago remains true today—states are laboratories of ideas. It’s here on the state level where ideas are created, fought over, tested, implemented, and either succeed or fail. When it comes to conservative ideas in the states, we are winning.
While presidential candidates were insulting each other’s appendages, West Virginia became the 26th Right to Work state. While the FBI was investigating candidates, North Carolina  passed major tax cuts. While pundits cried that both major parties had lost their way, Missouri passed paycheck protection. Conservatism is winning in the states. Don’t let it go unnoticed.
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There is no state that highlights conservative victories better than Wisconsin. Just five years ago Wisconsin turned a billion-dollar deficit into a multi million-dollar surplus. Act 10 may have grabbed headlines across the country as protestors occupied the capitol for months, but the story did not end there.
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Over the past year conservatives have passed reforms less controversial than Act 10 but just as important to taxpayers across the state. Last year they passed Right to Work to guarantee workers the freedom to join a union or not. Wisconsin reformed the prevailing wage law, which will save our local communities millions of dollars on the cost of building new schools and roads. Wisconsin reformed the marriage penalty to reduce taxes on working families, froze tuition at the UW for the forth straight year, and passed occupational licensure reform that gives a hand up to some of the hardest working Wisconsinites.

A newly-released Gallup survey indicates that a solid majority of students at America’s colleges and universities supports free speech on campus. However, a strong contingent of students wants to limit “hate speech” and speech that intentionally offend people based on some aspect of their identities.

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A full and extensive report about the poll, which Gallup conducted for the John S. and James L. Knight Foundation, shows that 78 percent of U.S. college students believe their campuses should be serious, grownup places where students experience all manner of speech and myriad different viewpoints.

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Other findings within the study showed that students with Republican and independent political leanings were far more tolerates than their Democratic counterparts. It also found that a majority of students (54 percent) believed their professors and administrators were also stifling free speech on campus.

Those are hopeful signs. The most important changes begin at the grassroots level. To my mind, the single most tasks facing the American people are reigning in the vast behemoth that is the federal government and reforming public education. That the majority of college students are not yet ready to toss out the Bill of Rights is a positive indicator. But schools are increasingly petri dishes for incubating leftist and far leftist ideologues, and the indoctrination seems to become more radical as time goes by. That needs to stop. Yesterday.

Meanwhile, in nuclear power development, a long discussed idea of deploying factory built and tested small reactors seems to be capturing imaginations around the world again. The Chinese had plans several years ago to build SMRs from Westinghouse, but I have no idea how that is progressing, if at all. The UK now seems interested as well. I’m interested in seeing how well this technology works out but it seems completely straightforward and doable to me. The US Navy has been using small nuclear reactors safely and effectively for more that 50 years now. And as reactors become less custom one-off designs and more of a standard product, safety and reliability should increase and cost should come down. For reactors to ever be fully accepted by the public, however, the designs must fail-safe. Which is to say that the nature of the process is one where if there is a facility failure, the physics of the reaction process simply stop.

There will be a competition to identify the best value design of mini reactors – called small modular reactors (SMRs) – and paving the way “towards building one of the world’s first SMRs in the UK in the 2020s”. There is no shortage of contenders, with companies from the US to China and Poland all wooing the UK with their proposals.

With a crucial UN climate change summit in Paris imminent, the question of how to keep the lights on affordably, while cutting emissions, is pressing.

SMRs aim to capture the advantages of nuclear power always-on, low-carbon energy while avoiding the problems, principally the vast cost and time taken to build huge plants. Current plants, such as the planned French-Chinese Hinkley Point project in Somerset, have to be built on-site, a task likened to “building a cathedral within a cathedral”.

Electricity and Ethics and Europe

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When I was a young auditor I was on an airplane heading out to a utility client in Iowa. I sat next to a woman and her grade school aged child. I was making small talk with them and the kid asked me what I did. I said I worked with the electric utility. And he said

Are you the guy who comes over and turns off the power?

The child’s mom was embarrassed and the conversation was muted after that but I never forgot that exchange – the reality that, for the poor, electricity was a bill that had to be paid, and frequently it came ahead of other key necessities which then was brutally enforced by pulling the plug. Electricity is a big bill for the poor.

This discussion is completely relevant to what is occurring in Europe today, as these countries move to wind and solar renewable energy instead of economically efficient coal, natural gas and nuclear power. This great article from Forbes summarizes the current debacle:

To illustrate, Denmark and Germany are the proud wind capitals of Europe, but they also have the highest home electricity prices on Earth, 42 and 40 cents per kWh, respectively, against just 12.5 cents in the U.S…. Undeniably non-sensically, Germany has been paying over $26 billion per year for electricity that has a wholesale market value of just $5 billion

This sort of mass economic distortion (possibly suicide) has a real, human toll:

higher cost electricity (and energy) is horrible for our health. That’s because, since electricity is so indispensable, meaning that it “cannot not be used,” higher cost power drastically erodes our disposable income, which is the very basis of our health – while also disproportionately hurting the poor most. As a percentage of income, poor families pay 5-9 times more for electricity than rich families do. Predictably silently, higher cost electricity in Europe is killing tens of thousands of people a year, ”Excess Winter Deaths,” where older residents on fixed budgets in particular are forced to turn their heat down to avoid overly expensive utility bills. For example, there were 44,000 Excess Winter Deaths in England and Wales in 2014-2015

It is amazing that while Europe is able to penalize the poor and elderly on fixed income in the name of clean energy, their same economic champions, the car companies, ran elaborate schemes to defeat emissions limits on diesel cars in a massive scandal that we’ve all heard about. The cost of remediation and penalties will be in the billions.

Finally, in perhaps the bitterest pill, moving to expensive and unreliable energy sources means that the reliable blood-money energy available from Putin and Russia becomes even more important to maintaining their grid. While Western Europe has been making a (relatively feeble) effort to punish Putin for his atrocities in the skies and in Ukraine, they ignore the obvious morality issues linked to filling his coffers so that he can buy weapons and pay his soldiers that are used for repression and dictatorship in the east. It is amazing that there will be sit-ins for climate change and animal rights but the rights of Ukrainians and fellow European citizens apparently count for nothing if it enables their energy fantasies to be supported.

The Europeans are breathtaking in their ability to unilaterally punish the poor and the elderly and increase their payments to Putin while cheating on emissions testing and pursuing their odd goals of “clean” power. These issues apparently do not keep them up at night despite their real-world effects.

Cross posted at LITGM