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

Archive for April, 2015

Column: Mexico and Shale Oil — North America Strategy By Dr. Daniel Fine (Daily Times)

Editor’s note: This is an abridged version of Daniel Fine’s column. Read the full version in The Daily Times’ Energy magazine, which will be available in the April 27 edition of our newspaper and online.

For the complete abridged article use this link–>

Since the Organization of Petroleum Exporting Countries has imposed a price war upon Southwest shale oil producers, there have been efforts to come up with a counter-strategy. Since San Juan Basin oil is light and tight, is there a market in North America for it?

Projects are underway for the export of natural gas to Mexico for Liquid Natural Gas conversion for overseas markets primarily in Asia, but, until now, no parallel strategy surfaced concerning oil. Mexico is prepared to take the ultra-light crude oil for blending purposes into its Mayan heavy and sour.

So far, the discussion is over Mexican ocean-based refineries taking 100,000 barrels of our light oil in a swap for 100,000 barrels of their heavy for U.S. East Coast refineries.

The swap can be a physical exchange with tankers delivering to Mexico and picking up cargoes of Mexican heavy.

Any heavy Mexican oil purchased by U.S. refiners displaces foreign overseas imports from Saudi Arabia and Venezuela. This emerges as a North American counter to the OPEC oil price war. Now Mexico and the United States have a common market interest in a swap of oil between them. There are historic and strategic origins that surround the swap transactions. First, the change in Mexico towards oil and gas ownership and investment is itself a significant, if not radical, shift from exclusive, anti-foreign government control towards an opening to private foreign exploration and production companies. American companies are prominent among applicants to the first auction. PEMEX, Mexico’s state monopoly company is prepared to take partners who deliver capital and technology to increase production.

Here And There PBS RADIO Santa Fe with Dave Marash – Energy expert Dr. Daniel Fine on New Mexico, the OPEC Price war, future American foreign policy

Today on HERE AND THERE: It’s clear now, it’s not just an oil price drop, but an oil price war, being waged by Saudi Arabia.  Among the targets: the new generation of NM shale oil drillers that have made the United States at least temporarily energy-sufficient.  Economist and energy expert Daniel Fine of the New Mexico Center for Energy Policy has a petroleum battlefield report. —>

Direct download: HereAndThere_04202015_Daniel_Fine.mp3

Column: Marginal wells could remain active with royalty reductions by Dr. Daniel Fine

For the complete article use this link–>

The oil price collapse has put at risk marginal or stripper well production in New Mexico and the United States.
There are 15,000 such producing wells in the state yielding an average of less than three barrels per day. Over 400,000 are working in the country. Combined, some 15 percent of total oil production is from stripper wells. Stripper wells include natural gas wells with marginal production.
Since the shale oil extraction breakthrough beginning in 2009, service costs have increased. Most stripper owners require a $70 price per barrel of oil (West Texas Intermediate) to avoid shut-in. The decision to shut-in is not taken lightly. In New Mexico if there is no production reported for 60 days, the lease is lost. Once shut-in or abandoned, stripper wells’ oil production and reserves are lost to the state and the country.
It is uneconomic to drill a well from shut-in or abandoned status for three barrels per day.
Stripper production is a strategic privately held oil reserve and has provided, since 1973, an offset against supply disruption. It is recognized by the Organization of Petroleum Exporting Countries, which is in a price war against American shale producers and stripper well production, that both operators are high-cost producers. The organization’s objective is more OPEC oil and less American — Southwest and North Dakota — in the market.
The stripper producer must decide whether to lose money and hold his lease or shut-in as abandonment which surrenders the lease. It was this circumstance that New Mexico considered in 1994 when the state Legislature passed a bill into law that provided royalty rate reduction. Lowering the royalty rates paid by stripper well owners to state and the federal governments provides an economic incentive to avoid shut-in.
Over a million barrels a day production could be lost without royalty rate reduction.
This program has not been promoted and today is not widely known by the stripper owners as it languished in the New Mexico State Land Office while the price of oil remained high. Fewer than 400 wells are registered for program incentives out of nearly 5,000 operating wells. A recent effort to reactivate and upgrade the program through an amendment that would raise the qualification from three to six barrels per day — 10 barrels at 20,000 feet in well depth — failed.

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