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

Posts tagged ‘DonaldTrump’

Reactions to Delaware Basin news shows misunderstanding of petroleum economics by Dr. Daniel Fine


The article is here-> https://www.daily-times.com/story/money/industries/oil-gas/2018/12/18/delaware-basin-news-reveals-public-misunderstanding-oil-industry-economics/2282224002/

News of the size of oil reserves in the Delaware Basin (New Mexico’s share of the Permian) while OPEC was deciding how many barrels it will cut from the world market to lift prices caused epic confusion – and revelations of how little “authorities” and the media understand petroleum economics.

The New Mexico media, which relies mainly on interviews with petroleum industry spokespersons, got it wrong.

Government numbers came out as 46 billion barrels (Permian total) with 26 in New Mexico. This means nothing but oil in good rock along with technical recovery as an estimate. Some excited “authorities,” who should know better, exclaimed that there was more.

However, the estimate is based on the application of technical means to recover the oil. The reserves of real oil depend on ultimate economic recovery. This means technical based on geology, plus economics. A high price will recover the billions of barrels while a low price will not.

In short, the numbers reflect the rocks without economics.

The Delaware reserves plus the Texas Permian are now there to expand supply over 12 million b/d in the United States.

This writer has warned that world oil demand is sluggish and imprecise with only references to legacy guesswork that the developing world plus China demand will support prices long term or forever. Yet, world oil consumption has increased only 5 percent in the last 10 years.

OPEC, with Saudi Arabia as its leader, has expired as the world administrator of the price of crude oil. At its December meeting in Austria, Qatar quit after nearly 70 years and announced concentration in LNG production and world export as the existing market leader.

OPEC emerged with a serious factional split between OPEC original and OPEC with Russia. There would have been no agreement without Russia and its old Russian Federation members as producers. Moscow is the new world oil price-setter indirectly while OPEC Original becomes a collaborator in cartel for now. Simply put, Saudi Arabia no longer is the “residual supplier” alone.

The production roll-back of 1.2 barrels per day by both “OPEC” is not enough for “balance” supply and demand for world crude oil.  It is being tested daily by commodity traders. In a briefing to New Mexico independent and small producers before the meeting in Austria, this writer warned that 1.7 million b/d was needed for balancing stabilization. Without that size of a production and export reduction, the average price of WTI oil in 2019 will average $50 per barrel.

Nearing 12 million b/d and over the Permian producers voluntarily will be required by this price to revise capital spending and place production into DUC (non-completions) and storage. There is doubt that the export of tight or shale oil would continue if the Brent price falls lower and loses its premium over WTI. A net cutback of Permian between 500,000 to 750,00 b/d should be a non-OPEC response to an oil glut even more serious than 2014.

Saudi Arabia is untouched as an American strategic ally in confronting Iran in the Middle East as a hegemonic threat.

Despite some Republicans and the Democratic Party in Congress, violation of human rights over the death of a Saudi journalist and critic of the Crown Prince will not override U.S. national interests in the Middle East.

President Trump has not deviated from post—World War Two foreign and defense policy.

Trump wants low oil prices for American consumers and forced OPEC this summer to pump more to offset export sanctions on Iran.

Still, with OPEC under a deep division which no President could achieve since 1973, Trump as a geopolitical manager of world oil has removed about 500,000 b/d between January and December of 2018. America, via Trump and without a formal cartel alignment, determines much of the price of world oil.

The United States and its Southwest tight and shale oil has changed from dependence on world oil to domination. Never again can OPEC engage the U.S. in a price and market share war as it did in 2014-2016 through supply acceleration in an oversupplied world market.

WTI emerges as the new world price. It is American barrels that set the price and OPEC is a price-taker. Since there are nearly 50 billion barrels in reserve in New Mexico, how will the Permian producers set a return on investment in a free market for petroleum?

Dr. Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy and the State of New Mexico Natural Gas Export Coordinator. The opinions expressed are his own.

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Dr. Daniel Fine: Oil – before and after the November election (USA TODAY Farmington Daily Times)


The article can be found here-> https://www.daily-times.com/story/opinion/columnists/2018/06/24/fine-oil-before-and-after-november-election/699460002/  The Trump Administration is moving towards less royalty rates on Federal land leases, less Bureau of Land Management discretion on Environmental Protection Act obstruction on the Application for Petroleum Drilling process, less coal and nuclear power generation decline, and less oil supply confidence in OPEC-Russia world price management.

This is the thrust of the signature world energy domination policy of Secretary Ryan Zinke for the last 16 months. It accounts for the action of OPEC-Russia 10 days ago. Saudi Arabia led OPEC to increase oil production to respond to President Donald Trump, but averted a price shock with gradualism. More output from OPEC offers increased revenue in the very short term.

It now faces an election to decide majority party control of Congress. Should the Democratic Party win at least in the House of Representatives, President Donald Trump will be set back on energy policy and its action realization. He will be forced to use executive power narrowly.

The Democratic Party will prepare for 2020 and the foreclosure of Trump-Zinke on world energy domination through an American petroleum system and public land dispensation.

What will the Democratic Party control of energy in Washington and Santa Fe look like?
Imported oil is consistent with a resumption of climate change energy policy which is less carbon in the economy and more renewables as the alternative.

World investment flows are putting solar and wind ahead of oil and gas for the first time. Electric cars are now one to every six in sales in California and soon in Europe, displacing diesel engines.

The Democratic Party in Washington in 2020 will no doubt align with the European Union in Climate Change with a roll-back of the Trump Administration regulatory reform.

Methane, public land access, a return of BLM dominance, along with tax and infrastructure incentives can be expected. Battery charging technology and its placement capacity expansion on the Interstates will promote the market for electric vehicles. New issues restricting unitization, spacing and density of oil and gas wells should appear on state and Federal land.

In Santa Fe, the current Martinez energy policy and plan (2015) would be rejected in favor of a new Democratic Governor’s choice to start over in 2019.  It should be like Colorado’s energy policy but with strong regulatory hydraulic fracturing intervention and fresh water use conservation emphasis.

The oil and gas industry concentration on the Delaware, Permian, Williston (along with the Bakken Formation), Eagle Ford basins along with the Marcellus in natural gas will double up at heavier entry cost and consolidation.

This process, however, promises San Juan Basin natural gas higher prices. New exploration and production on public land would be minimal and legally challenged.

New off-shore U.S oil would be closed with “national monument” type public law.
The Democratic Party has no conservative business Democratic faction to offset the impact on American oil and gas as an industry.

In New Mexico, county leaders from San Juan, Eddy and Lea will continue to argue on the basis of statewide revenue. The Democratic Party in Santa Fe must demonstrate economic development through diversity while oil and gas is politically isolated.

With Canadian imports and even Russian gas in Boston harbor in very cold and snow-storm winters, the East Coast can return to the way it was before Trump on foreign oil imports – America no longer “First.”

The West Coast without refineries and wired power from natural gas is already there in Democratic Party dominance and declining combustion engines.

Dr. Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy and the State of New Mexico Natural Gas Export Coordinator. The opinions expressed are his own.

Oil and the Saudi Arabia threat by Dr. Daniel Fine


Dr. Daniel Fine, New Mexico Center for Energy Policy

The article by Dr. Daniel Fine is here-> http://www.daily-times.com/story/money/industries/oil-gas/2017/07/30/oil-and-saudi-arabia-threat/499741001/

There is instability in the leading oil producer within OPEC and the lowest cost producer in the World. Nothing like this has happened in Saudi Arabia since the middle of the last century.

It is only a matter of the short term before the price of world oil is affected. And its Implications will reach the Four Corners and New Mexico no matter what Congress or The White House does.

First, the instability begins from a dynastic change with an ailing and aging King and a young crown prince ousting his cousin as the successor to the throne as King of Saudi Arabia.  This divides the rulers into two factions:   the traditionalists or old guard (Ali Al-Naimi) against the modernists and a take-over generation.  Second, the oil ministry and Saudi Aramco (the Government-owned and monopoly oil company) is now controlled by the take- over generation.

No doubt President Trump was influential in the recent diplomatic visit to the Kingdom. He gave support to the take-over faction with closer ties to the take-overs through Mohammed bin Salman, now the heir to the throne. Billions in American service company projects with Saudi Arabian petroleum expansion were announced. President Trump concluded with a strategy and tactic of eliminating radical  Islam in Saudi Arabia and the Middle East.  He said it must be attacked at the roots of the social and political order.

Qatar was next.  It has been isolated and diminished by the take-over generation adding more resentment among the traditionalists in Saudi Arabia.  While it is the largest producer and exporter of liquid natural gas in the world, it also produces as much as 80 percent of the oil output of the Permian Basin. The big picture is struggle between Iran and Saudi Arabia to dominate the region or Islamic Middle East.

It was the take-over generation that switched Saudi Arabia oil strategy from an anti-American shale and sand price and market share war against West Texas Intermediate oil to a reduction of output in OPEC. This was the decision of Algiers to raise prices in anticipation of a Saudi Aramco initial public offering of shares next year.

Share prices would be sold at higher prices with this cutback of OPEC production.

The Crown Prince moved to restore subsidies and salaries, based on oil revenue, which were reduced or eliminated as the oil price fell because of market share strategy to lower oil prices to shut down or slow American shale competition from 2014 to late last year. Prices moved upward as OPEC withheld some 1.8 barrels from the World Market.  But the commodity market has displayed skepticism after an initial rally that not enough supply has been pushed back to “balance supply and demand” this year.

Oil and the emergence of Saudi Arabian instability should converge in a struggle between the traditionalists or old guard over the control of the Ministry of Oil and indirectly Saudi Aramco as a pre-public company. The new crown prince now in control of the country must not fail as head of the take-over generation. The price of oil must increase another 50 percent to $65 per barrel before the  Saudi Aramco sale of its stock worldwide – minimum 5 percent and maximum 10 percent.

If this fails or the sale does not meet expectations, the traditionalist  or Old Guard will combine an attack on modernism with a return of Saudi Arabia as the residual or swing world supplier of oil with price setting supply actions of higher output for lower prices or lower output for higher prices.

The outcome will impact the future of American exporters of oil. The  take-over modernist will accommodate a “balance” which includes a market for Permian exports.  The Old Guard will not.  A Second Downturn in 2019, forecast in this column seven months ago, will take place with either outcome, but with mitigation from the take-over generation. President Trump will have lost the Crown Prince and the modernists in the coalition to root out radical Islam as he readies for 2020.

Shale oil producers in the Southwest and North Dakota would be losers, if the Trump strategy is stalled or fails because a traditionalist recovery of civil and oil power in Saudi Arabia. This would occur as Saudi Arabia and OPEC could resort to the market share flood of the world market as in 2014.

As never before, President Trump’s 2020 campaign would then strike a new campaign strategy toward a North American oil and gas market with prices determined as continentalist and world oceans imports of oil limited.

The San Juan Basin natural gas future increasingly depends on new markets in Mexico and short-term advantages if Qatar’s half of world’s supply of LNG is isolated or neutered.

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