Analysis by the father of American Geopolitics Dr. Daniel Fine, MIT.

Archive for January, 2015

Column: The resource war and San Juan Basin oil by Dr. Daniel Fine


Special to The Daily Times

For the complete article use this link–> http://www.daily-times.com/election2014/ci_27283196/column-resource-war-and-san-juan-basin-oil

“Resource War and San Juan Basin oil Oil and gas companies in the Southwest, the Rocky Mountains and the Dakotas are revising or recalibrating their capital budgets for 2015 as the price per barrel of west Texas intermediate crude trades in the $50 range. Most companies are moving into a cycle downturn phase in defense against a world price decline mostly aimed at unconventional production (shale or light tight oil). The question is how much cost savings coupled with production declines is ahead? And how long will the Saudi Aramco market share impact last?

It is now clear that the San Juan Basin and the Four Corners will be significantly impacted. A loss of two and possible three rigs will contract the general economy. Job growth in oil and gas, which just four years ago seemed limitless, is at an end. The industry is cutting 2015 budgets while avoiding lay-offs or personnel downsizing. This will prove unworkable in the short-term.

San Juan Basin spending for 2015 could be 55 percent lower than this year. For a history of similar cycles in the San Juan Basin, “Gas: The Adventures into the History of one of the World’s Largest Gas Fields — The San Juan Basin of New Mexico” by Tom Dugan and Emery Arnold is recommended.

Oil plays in the basin must find efficiencies in drilling to well completion that were only theoretical before the price collapse in October. Optimism that this is probable as a response to price is misplaced. Cost reductions in oil production — drilling cost per well — were realized as company targets when oil was $100 per barrel. But there must be more efficiency as cost-savings now because the price has been reduced by half.

The duration of this low oil-price environment depends on how much light tight oil production declines. The Saudi Aramco market strategy, now under the leaking umbrella of OPEC, anticipates a cap on rising U.S. production and a contraction of at least 1.5 million barrels per day (estimate) to 7.7 million before a supply/demand balance is restored. This could take more than 18 months since Saudi Arabia has the second largest sovereign wealth fund in the world (Norway is first) in the first quarter of 2016 prices should rise as a demand pull adjusts supply.

Saudi Arabia and other low cost OPEC producers have lost market share in a world market that is oversupplied with crude oil. It is mainly American shale or unconventional oil production that has replaced imported oil which accounts for this and partly a slowdown of Chinese demand for oil and other imported commodities. With American oil production overtaking Saudi Arabian output early next year and with U.S. prohibitions against the export of crude oil established in 1975 under review, Saudi Arabia has acted against a threat to its national interest.”

Party at the pump By Kevin Robinson-Avila / Journal Staff Writer


Great article! Please Share! Party at the pump By  — the full article can be found here–> http://www.abqjournal.com/524705/biz/party-at-the-pump.html 

“Copyright © 2015 Albuquerque Journal

The good times are likely to continue well into 2015 for consumers at the gas pumps, with some experts now forecasting New Mexico’s average price per gallon of unleaded to slide to $1.55 by March, before it starts to rebound in the spring.

Consumers can generally thank Saudi Arabia for the latest predictions, said Daniel Fine, associate director of the New Mexico Institute for Mining and Technology’s Center for Energy Policy. That country has pushed the Organization of Petroleum Exporting Countries into a price war with U.S. producers to undercut U.S. oil production and protect Saudi market share, which has declined sharply as a result of America’s shale-gas boom.

Richard Yanez fills his SUV on Jan. 7.

OPEC refuses to cut back production in its member countries to ease the current glut on the world market, which, in turn, has sent crude prices plummeting since last summer. And, with Saudi Arabia still leading the charge, OPEC is unlikely to back off from its price war any time soon, meaning consumers can expect pump prices to continue their spiral downward, at least until early spring.

“The price at New Mexico’s pumps depends on Saudi Arabia, OPEC and the global market,” said Fine

Fine,Finewho was recently appointed project leader for state energy policy. “I forecast very low prices at the pumps until at least April before OPEC takes another look at its production policies.”

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