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

Posts tagged ‘Energy’

Fine: No such thing as ‘free trade’ with OPEC as a cartel


 

The article by Dr. Daniel Fine can be found here @ FARMINGTON DAILY TIMES/USA TODAY->  https://www.daily-times.com/story/money/industries/oil-gas/2018/05/27/if-free-traders-saddle-up-higher-oil-prices-and-opec-run-cover/615999002/

Among some speakers at the 2018 Four Corners Oil and Gas Conference last month in Farmington there were evasive positions on the future of OPEC. Also, previous online or media positions of “free trade” were muted to be popular with the oil, gas and equipment operators who made up those in attendance.

There is no “free trade” with OPEC as a cartel, either with assigned member production quotas or with the current maximization of revenue strategy led by Saudi Arabia. If you hear free traders saddling up with current higher prices and OPEC, run for cover.

On Thanksgiving 2014, OPEC and Saudi Arabia refused to reduce oil production volume and entered a market share offensive against non-OPEC high cost oil producers in shale and tight sands.

This was a glut, or oversupply, of world oil but it was a chance to put San Juan oil just then — with rising production in the Gallup Sand — out of business. This was only reversed through the Algiers Meeting and agreement among OPEC members by cartel anti-free trade supply and demand manipulation.

President Trump captured this with his position that something was “artificial” about the price and supply of OPEC oil. Internal changes in the ruling House of Saudi Arabia, coupled with its power over OPEC, raised the price of world oil at least temporarily within the historic cycle of the industry.

Some Republicans oppose Trump and published or spoke against his opposition to OPEC. which is also connected to higher oil prices for consumers who might be voters. OPEC members had no problem with a hypocritical response to let the market work. Not only is there no free market making oil prices, but oil and gas operators do not make markets any longer. Commodity traders have replaced them since the 1980s.

Only three years ago, when OPEC/Saudi Arabia had deviated from its role of supporting the world price of oil through supply volume strategy, Harold Hamm of Continental Resources called for smashing OPEC to protect independent and non-super major producers in New Mexico, Oklahoma, Texas and North Dakota.

At the Expo, this writer traced current OPEC oil price support to the fall of Venezuela as a producer.

Less Venezuela barrels in OPEC production protects other members, and now, Russia, from real cutbacks. Among American conservatives who believe there are free markets for oil, very little understanding of world petroleum economics and history exists.

What happens to OPEC supply and demand management when Saudi Aramco floats its shares on stock markets and reached its target of an intake of 100 billion dollars? Are New Mexico and Southwest producers preparing planning price scenarios similar to world producers for oil prices next year or in 2020? What would Washington do in a second downturn with the oil prices “awry” again?

In a free trade world, nothing.

On natural gas prices that afternoon, there was a sense of how low the San Juan discount to Cushing could go and adaptation in taking some producing gas wells out of production.

Late that afternoon, after New Mexico Secretary of Energy Ken McQueen spoke of his work on the Governor’s Initiative of cost-cutting via state regulatory access and permitting on Federal land, I concluded that the San Juan Basin still has too much natural gas too fail.

And what happened to the big banks 10 years ago?

And General Motors?

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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Fine: NAFTA, natural gas and the San Juan Basin


As seen here in the Farmington Daily Times-> http://www.daily-times.com/story/money/business/2018/01/28/fine-nafta-natural-gas-and-san-juan-basin/1032781001/

The North American Free Trade Agreement is now in a final stage with the U.S. team looking over the “energy chapter,” which has been approved by Canada and Mexico. The Administration’s position, with a revisionist-protectionist core, offers President Trump a withdrawal-from-NAFTA option, at least a tactical move to shake up Canada and Mexico in the interest of American merchandise and agricultural exports.
However, not much is known from the inside on plans for natural gas exports to Mexico.  In 1992, the beginning of NAFTA, Mexico’s oil and gas industry was government owned and operated so it fell outside a free trade agreement.
Today, Mexico permits private capital to build, own and operate oil and gas exploration, production and transportation (pipelines) under its Energy Reform Law.
This admits natural gas into the NAFTA framework. Nearly $6 billion of Southwest natural gas was sold (exported) to Mexico last year.

Mexico imports 53 percent of its natural gas from the United States – with 60 percent on track. Needless to say, Mexico is dependent on American natural gas for its power generation.Texas natural gas pipeline entry points dominate the trade, while the Delaware and the San Juan basins are next as business and strategic sources.
The Mancos Shale natural gas below the Four Corners must access the expanding Mexican market in any revision of NAFTA terms. The Trump Administration’s understanding of American natural gas trade with Mexico should include regional economic integration. Energy is required for Mexican industrial growth, and Mexico has constructed the pipelines on its side border to receive and transport natural gas from the Permian and the San Juan Basin.

NAFTA revised should make natural gas exports from the U.S. Southwest a natural resource exemption from narrow foreign trade objectives. Natural gas reserves in the Southwest can be accessible to Mexican importers if pipelines to cross-border points attract American investment long-term. NAFTA changes
would create risk disincentives.

U.S. NAFTA negotiations can be aligned with the Trump-Zinke energy policy of world domination if the export “New Mexican natural gas” is designated a “win – win.”
If the Mexican market for American natural gas is lost, New Mexican natural gas would be mostly “stranded” without offset storage; and, it would push back on the Permian with an oil-only reality as the output of gas from Pennsylvania and Ohio output expands.

Unless Texas and New York media understand the history behind the oil price collapse history of 2014-2016 the industry and public will be compelled to repeat that history soon.

Oil prices are coupled into a “bubble”; or worse – speculation in a “coin” which exists as a product of computer software. Is Bitcoin speculation infecting the value of oil in commodity trading at least momentarily?
Will hedging create a trade?

With New Mexico oil production over 500,000 barrels per day (323,000 four years ago), the coming 30 days in Santa Fe (Legislative Session) should see a Democratic Party state budget expansion or plain spending offensive which would mirror 2018 primaries and general election conflict between progressives and centrists.
There is no threat from off-shore (Atlantic and Pacific Ocean) to New Mexican oil and gas development. President Trump is right to remove off-shore prohibitions, but now the market takes over. The cost of San Juan Basin natural gas is 80 percent less than exploration and production 50 miles out in North Carolina’s Atlantic Ocean.
Three or four dimensional seismic investments—yes; production—no; not as long as there is economic shale natural gas on-shore in New Mexico and the Southwest.

Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy. 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.

Watch Energy Expert Dr. Daniel Fine As He Discusses President Trump’s New Policy Of “Energy Dominance”


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Dr. Daniel Fine: OPEC oil and ours, who wins? Daily Times 10/29/16


The full article is here->  http://www.daily-times.com/story/opinion/columnists/2016/10/29/fine-opec-oil-and-ours-who-wins/92440428/

This is an excerpt of the article ”

Has the oil price and market share war ended with a Saudi Arabian win?  Or, as some fund managers and speculators argue, has Midland won? We are now in a trading range high of $50 per barrel for West Texas Intermediate.

Looking back two years, Wall Street, the oil and gas industry and its trade associations got it all wrong. I was a minority of one in New Mexico with my OPEC analysis of a low of $23 to $28 per barrel which was realized earlier this year.  Once again there is triumphalism and  hubris about winning the war against OPEC.

What is it all about?  If OPEC agrees to freeze production at August output that would put OPEC between 32.5 and 33 million barrels per day. In 2013,  OPEC was below 30 million.   If they “freeze” it will be at 2.5 million more than early 2014 while our production had dropped almost 1.5 million.

In other words,  OPEC oil expanded its market share and more significantly has displaced our oil here at home in the American market by nearly one million barrels per barrel.  This is a double win for OPEC and Saudi Arabia:  more of their oil imported into our market and fewer barrels of our oil produced, which is the loss of rigs and jobs and a painful downturn.

The Permian Basin and its Delaware Basin extension into New Mexico has become the new North Slope  Alaska of the 1970s.  It is there that drilling rigs and well completions will be re-activated next year.  The “breakeven” price is lower because of  geology and cost-cutting service contracts.   The downturn contracts, however, will expire and non-Haliburton contractors will ask for more.   Margins will tighten as costs increase.   But North Dakota has leveled off and Eagle Ford is not the Permian.”

Oil producers want U.S. to restrict imports


By Kevin Robinson-Avila / ABQ Journal Staff Writer

The full story is here-> http://www.abqjournal.com/803674/oil-producers-want-u-s-to-restrict-imports.html

“ALBUQUERQUE, N.M. — New Mexico and West Texas oil producers are gearing up for a national effort to draw all major U.S. oil basins into a grassroots movement to restrict crude imports from overseas.

Leaders of the Panhandle Import Reduction Initiative, which launched in April in the Permian Basin, are seeking public meetings and rallies in other oil-producing zones to convert what’s now a regional initiative into a national movement, said Daniel Fine, associate director of the New Mexico Center for Energy Policy, who is working with local producers.

Those efforts will kick off in September with a presentation at the fourth Southeastern New Mexico Energy Summit in Carlsbad. After that, initiative leaders expect to hold public meetings in other shale oil basins, including the Bakken in Montana and the Dakotas and the Eagle Ford in South Texas.

“We’ll take it to Carlsbad first, and then it goes national,” Fine said. “We want to organize public rallies with producers and field workers whose jobs are at stake. This is a grassroots effort in the basins where the oil bust has taken place.”

The initiative is a reaction to the Organization of Petroleum Exporting Countries’ aggressive oil-pumping policies since mid-2014, which have helped drive global oil prices to ten-year lows and thrust domestic U.S. production into crisis. Initiative leaders say those policies were a deliberate effort by the mid-Eastern members of OPEC, particularly Saudi Arabia, to drive U.S. producers out of business.

Banning crude imports from overseas would undercut OPEC’s ability to manipulate prices, they say, and allow U.S. producers to ramp up domestic production to supply the U.S. market.”

Energy group hopes to reduce foreign oil imports


by James Fenton

The full article is at–> http://www.daily-times.com/story/money/industries/oil-gas/2016/06/14/energy-group-hopes-reduce-foreign-oil-imports/85855044/

“FARMINGTON – A group of oil and gas executives and energy policy experts from the Texas Panhandle and New Mexico’s piece of the Permian Basin are pushing a plan to restrict seafaring imports of foreign oil from coming into the U.S. in order to stabilize the oil and gas industry and bring back lost oilfield jobs.

The group’s plan, which would exempt crude oil imported from Mexico and Canada, is an effort to push back against the price wars the group said are being waged by OPEC, or the Organization of the Petroleum Exporting Countries, led by Saudi Arabia.

Members met at the School of Energy at San Juan College Tuesday to promote  the “Panhandle Import Reduction Initiative,” which they say could be implemented in multiple phases within 90 days of the next administration, with the ultimate goal of reducing heavy crude oil imports to about 10 percent of demand.

Launched in November, the initiative aims to cut foreign oil imports enough to activate more domestic drilling rigs and boost domestic production to meet current demand levels within four years.

Former state legislator and Four Corners Economic Development Chief Operating Officer Tom Taylor said the drop in natural gas prices eight years ago and the fall of crude oil in 2014, has delivered prolonged pain to the regional economy.

“We find ourselves … in a situation now where we’re down about 6,000 jobs, most of those in the oil and gas industry,” Taylor said of the San Juan Basin. “We have about 11,000 people who have left (San Juan County) … So while we’re down 6,000 jobs and down 11,000 people, we’ve built seven fast-food restaurants, three more under construction, and two big box stores. It’s a different world out there.

“But the fact of the matter is that the economic base of the community is in trouble. And not only is the community in trouble, but the state of New Mexico is in trouble, and not only is New Mexico in trouble but our nation and its security. It’s all tied together. It’s a very difficult situation we find ourselves in when we have one country that can control oil prices. It goes beyond free trade. It’s a problem we need a solution to. We are at the dependence of foreign oil.”

Taylor said about a third of New Mexico’s general fund comes from the oil and gas industry in the form of taxes and fees.”

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