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

Posts tagged ‘SanJUanBasin’

World Oil and Gas expert Dr. Daniel Fine: Oil at halftime, 2016


The full story is here-> http://www.daily-times.com/story/opinion/columnists/2016/05/28/fine-oil-halftime-2016/84610710/

“The question of the oil-price reality pervaded the talks and private conversations at the Four Corners Oil and Gas Conference earlier this month. From the lowest price per barrel in nearly eight years to a recovery halfway to $100 in less than three months!  Is the “bust” in the San Juan Basin dissolving as others before?

Yet, Ken McQueen, retiring vice president of WPX in the San Juan Basin, and the most effective in technical innovation in the basin, said: “price is not everything.”

This is the view of surviving management. It is not shared by financial institutional  players and speculators.

Before Thanksgiving 2014, I presented a forecast for the oil price in a new “crash” range of $23 to $28. This was based on analytical experience and petroleum economic history. The trade associations were then spinning that it was an opportunity and would turn around in weeks.

They had no understanding of Saudi Arabia and OPEC as the price-setter. The price of oil collapsed three months ago to $26.70.

There was an abortive effort by OPEC and Russia at Doha, Qatar, to freeze production at Jan. 1 levels to “re-balance” world demand and supply. It failed because OPEC was no longer outside the Middle East political and religious war — Shia-Iran, with oil export sanctions recently lifted, did not show up.

But a one-day oil field workers stay-at-home in Kuwait took one million barrels of oil off the over-supplied world market within 24 hours and the financial market players covered their short or future sale positions.

The bet was now that every “outage” or supply disruption in the world would “re-balance” demand and supply and move West Texas Intermediate prices higher.

Saudi Arabia alone is replacing all the “outage” oil while the San Juan Basin and Southwest producers have record lay-offs, bankruptcies, community economic dislocations, and cuts in production: a million barrels less per day by Christmas is anticipated.

Without the freeze of OPEC production, $50 a barrel prices are here nevertheless. Does the rig count recover — only 15 working in New Mexico from over 100 just 18 months ago?

Yes and no. Companies should start stimulating (fracking) the heavy inventories of uncompleted wells. A boom again? Hardly. With more drilling of uncompleted wells at $50, American Southwest unconventional production rises. Saudi Arabia and the Gulf nation producers would see once more the threat to market share which started the bust in the first place.

Higher oil prices equate to more production and energy-related banks and funds might find new borrowers. Is this the constraint of lower and longer oil prices? It doesn’t matter what supply forecasts come from traders’ prattle on cable TV. The final half of 2016 will be negative on price and oil demand. The price war with Saudi Arabia/OPEC continues.

There are three counter-strategies to Saudi Arabia and OPEC from American shale oil producers and communities:”

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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.”

Column: Saudi Arabia and New Mexico: oil price threat By Dr. Daniel Fine


For the complete article use this link–> http://www.daily-times.com/farmington-opinion/ci_26938726/column-saudi-arabia-and-new-mexico-oil-price

The shale oil boom which returns 25 percent of the New Mexico State revenue is under “bust” threat from Saudi Arabia.

The current price decline in both midland Texas light sweet crude and brent (world price) will begin to defer future projects if prices fall to $72 a barrel and below. An estimated 80 percent of production and projected production in the next five years requires price stability higher than $ 75 per barrel. Saudi Arabia is combining market share strategy with a world oversupply of crude oil.

Oil producers in New Mexico are partially protected through cash flow hedges, which are crude barrels sold forward with prices established in futures (must be higher than present prices). However, no more than 50 percent of production is estimated to be hedged or protected in 2015. The other half must be sold at whatever the market (West Texas crude) price will be. An oil company can hedge 2016 production at $79.00 per barrel compared to the current hedge protection of $95.

Decline ratios (rate of recovery after initial production) are high. Massive drilling of new wells for replacement is the economic challenge. At least half of the new shale or light sweet crude oil production from the Southwest to North Dakota through the Rocky Mountain energy corridor is at risk.

This effectively limits the 10-year-old shale oil technology play and consequent “energy revolution.”

The shale oil or light sweet unconventional oil boom is the target of Saudi Arabian oil strategy which is market share. This rejects production cuts in response to weak demand and prices. Defense of market share coupled with falling world oil demand accounts for a global price fall of 25 percent since July.

The timing of the Saudi action has hit the Southwest U.S. unconventional oil producers when they are already vulnerable to a massive infrastructure bottleneck. Producers have confronted a discount price of as much as $15 per barrel because there is not sufficient pipeline take-away capacity from the Permian and San Juan basins to refineries on the Gulf of Mexico coast or anywhere. This is the result of unanticipated high oil production without investment in transport to get it to markets or process it here in New Mexico. Stand-by rail transport is costly and trucking is competitive with rail. New pipeline and refinery capacity is required in New Mexico and Texas.

Strategic market share is the Saudi Arabian counter-attack upon the American shale-oil and gas-supply revolution which threatens Saudi exports. Saudi ARAMCO is reacting to the rise of American oil production as a threat because of the demand to lift the 1975 prohibitions against American crude oil exports.

The argument for America to become a world crude oil exporter not only displaces Saudi crude exports to the U.S. market but also promotes geopolitical leverage against OPEC and Russia. With the lowest world cost of producing oil, Saudi Arabia is acting in its national interest against American competition or influence against its national interest.

While the Saudi market share strategy threatens unconventional or shale oil production of the United States, Washington, D.C., has been given, indirectly, another sanction against the Russian oil and gas industry. Lower crude oil prices have cut Russian export revenue by $300 million per day since the onset of the Ukraine hostilities which parallel the

Saudi–led oil price decline.

Saudi Arabia is credited in 1985, in part, for the disintegration of the Soviet Union when it adopted an aggressive market share high-production, low-price strategy, which reduced prices from $28 to $8 per barrel. Soviet Union dependence on oil export revenue was exposed and its credit line collapse contributed to the end of the cold war. The Reagan administration was neither remote nor indifferent toward Saudi oil production oversupply.

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US Gas and oil boom benefits consumers


US Gas and oil boom benefits consumers

After years of steadily rising prices, “low-cost fuel” may seem like an oxymoron.

But thanks to a steady surge in domestic oil and gas production, energy experts say consumers could enjoy inexpensive gasoline and natural gas for years to come.

MAP MASTER“The outlook is for a low-cost energy economy in the U.S.,” said Daniel Fine, associate director of the New Mexico Center for Energy Policy, which is run by the New Mexico Institute of Mining and Technology in Socorro. “This is a long-term trend, not an isolated event, and it’s something almost revolutionary.”

The country’s newfound oil and gas boom, made possible by modern drilling technologies, has helped keep gasoline prices well below the $4-per-gallon peaks that consumers faced just a few years ago. It’s also driven home-heating bills to record lows since 2009.

Now, with production still climbing fast, Fine and others say natural-gas prices will remain moderately low for another five to 10 years at least. And gasoline prices likely will continue to fall into 2014, before stabilizing at somewhere above $2 per gallon for the foreseeable future.

“I believe gasoline will reach $2.35 a gallon or less quite soon, within a year at most,” Fine said.

Gregg Laskoski, a senior policy analyst with the online price-tracking service Gas Buddy, agreed.

“That may seem shocking, but it’s not as outlandish as it sounds,” he said. “The potential is certainly there.” For more of the article use this link—> http://www.abqjournal.com/302397/biz/oil-gas-production-booms.html

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