Monthly Archives: November 2016

Mountain Valley Pipeline: Close to Homes

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pipeline-pic-2The Roanoke Times has published numerous articles regarding the Mountain Valley Pipeline, both for and against.  Their latest article, by Duncan Evans, digs into the issue of the risk of having a pipeline close to a home, a school, or a building of any sort.

The article features a couple whose home is within 65 feet of the center line of the pipeline.  Can you imagine your house being that close to a 42 inch pipeline?  I can.  I have a client whose home is within 125 feet of the center line of the Atlantic Coast Pipeline.  When I walked from the house out to the pipeline location and turned around it was shocking.  It feels invasive.  It feels dangerous.  Regardless of how well engineered and well built the pipeline is, it would never feel completely comfortable.

That doesn’t take into account how disruptive the construction of the pipeline will be to those folks’ lives.

I’m no opponent of either pipeline project.  I see them as beneficial to West Virginia’s economy.  They’ll provide short term construction jobs and long term natural gas development and production jobs.  They’ll provide some nice tax dollars for a while, and some nice financial windfalls to surface owners.  They’ll provide a cleaner-burning fuel for power plants.

I am an opponent of putting pipelines too close to peoples’ houses.

 

Fracking Earthquake Study in Canada

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We’ve written about fracking and earthquakes before.  Now some Canadian scientists have gone and done a study of fracking and earthquakes, and determined that fracking causes earthquakes in certain places in the Great White North.

There are a couple of important points made in the article.

The first is that earthquakes have not been caused by fracking in the United States.  At least, not often.  I suspect that fracking has caused more earthquakes than the industry would like to admit.  However, the studies don’t appear to support a strong relationship between fracking and earthquakes.  Luckily, the earthquakes that do appear to be caused by fracking are small enough that they don’t typically do damage, and the huge majority of them aren’t even felt by anybody.  The recent earthquake in Cushing, Oklahoma was enough to do some damage, however, and may (or may not) have occurred because of fracking.  The trouble is, it’s almost impossible to determine whether fracking caused it.

The other point in the article is that the earthquakes were caused in two ways, “by increases in pressure as the fracking occurred, and, for a time after the process was completed, by pressure changes brought on by the lingering presence of fracking fluid.”

In other words, it was the change in pressure that triggered the earthquakes, not lubrication of a fault.  I had previously understood that lubrication could cause an earthquake, but this study throws serious doubt on that.

The article points out that different areas react differently.  Some places will have no fracking-induced earthquakes, others will, and some areas will have wastewater injection-induced earthquakes.  As usual, there is not one-size-fits-all answer here.  It seems that different geology leads to different results.

If you’d like to do some more reading about fracking-induced and injection-induced earthquakes, the USGS has a couple of  web pages on the subject.

The State of Oil and Gas, November 15, 2016

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Oil prices have been dropping, getting below $44/bbl at one point.  All because nobody believes OPEC will be able to put a production cut deal in place.

Donald Trump has won the Presidency, and nobody’s exactly sure what that’s going to do for oil prices.  This CNBC article throws out a few of the things that are going to factor in, such as a weakening dollar, better relations with Russia encouraging investment in Russian oil infrastructure, and Trump possibly re-instating the sanction on Iran.  Overall, the article thinks the price of oil will go down.

One source thinks that natural gas prices could rise above $25/MCF this winter.  The article doesn’t specify, but I suspect that’s the price to consumers, not the price at a hub.  Still, that’s considerably more than the current price to consumers.

Gas production for the United States as a whole dropped a lot in October.  The disappointing news is that the Marcellus/Utica region decreased production because it didn’t have anywhere to send the gas. This in spite of the Cheniere Energy gas-to-liquids plant in Louisiana ramping up.  Based off this article, we’d say that the southern part of the country is going to see higher natural gas prices, while the northern part of the country is going to see lower natural gas prices.

Deep sea rigs are being taken out of idle in a place called the Cromatry Firth, a natural deep harbor near the North Sea oil fields.  Since oil prices are down off their high of $52/bbl, it’s safe to assume that the oil industry foresees demand for oil increasing in the next year.  You don’t fire up deep sea rigs without a really good reason.

Oil prices have been as low as $42/bbl in the last few days, but are back at $45/bbl today, November 15, 2016.

The big news, of course, is yet to come.  Between now and our next update OPEC will meet and announce that it has not agreed to cut back or freeze production.  Kidding.  They surprised me last time with a framework for a deal.  Since then, of course, key players have walked back from that framework.  But the fact that they were able to get a framework in place makes one think that it’s possible they could get an actual agreement.  We’ll see.  I still think it’s highly unlikely.  Oil futures traders are hopeful, though.  That’s probably why oil prices are up to $45/bbl.

Hope everyone has a great Thanksgiving holiday next week!

What If We Ban OPEC Oil?

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One of Donald Trump’s promises during his campaign was that he would ban oil from all OPEC countries.

This article over at Alberta Oil Magazine discusses some of the implications of doing that.  It points out that we use about 20 million barrels a day, produce about 8.5 million right now, and produced about 9.4 million in 2015 and about 8.7 million in 2014.  We import only 3 million to 3.5 million barrels a day from OPEC countries.

Looking at the EIA reports, we get about four times as much oil from Canada as we do from Saudi Arabia, and almost as much from Mexico as we do from Saudi Arabia.  All told, though, we get about 1/3 of our imports from OPEC countries. We would have to make up that 3-3.5 million barrels a day from somewhere.

If we banned OPEC imports it’s almost certain that OPEC would pick up some customers that non-OPEC countries currently supply, just by cuthing prices.  Those non-OPEC countries would have some additional supply floating around, and would very likely just sell to the US.  Most of the difference we need would be made up from shuffling around suppliers and customers.

Some of the difference would probably be made up by Canadian tar sands, but the tar sand operations would probably take a while to bring production back up.  After the fires in Alberta earlier this year, the oil sands operations took a few weeks to bring back to full operations.  Opening up new areas would likely take a lot more than a few weeks.

Mexico would probably try to take up some of the slack as well, but most oil exploration outside the United States is the old style, requiring months to years to bring significant oil production online.

That’s assuming there will be slack in oil supplies.  Presumably, we would just start buying more oil from countries which already provide us oil.  Of course, there may be treaties and transportation issues that I don’t know about which would limit the amount of oil we could buy from non-OPEC countries.  If something, anything, gets in the way of our acquiring more oil from current non-OPEC sources, then the price of oil will certainly rise and production in the US will increase. Any kind of uncertainty will drive market prices up. 
Any real slack in oil supplies would be taken up by American companies, doing horizontal fracking.  The nice thing about a fracking operation is that it can be up and running in months, sometimes even weeks.  Areas like the Permian and the Bakken which have been heavily explored and leased would be able to bring new production online within months.  That’s not counting DUCs, drilled but uncompleted wells which just need to be fracked or turned in line (open the valves) to start producing.

There is one point about this entire thing that is worrisome for those of us in the Marcellus/Utica area.  Increased oil production brings increased natural gas production.  From the majority of oil wells there is some natural gas produced.  This natural gas isn’t just vented or burned onsite.  It’s sold into the pipeline system, and competes with gas produced elsewhere.  If we do see increased oil production in the US, the associated natural gas production will drive down prices and demand, even if slightly, for Marcellus/Utica gas.

Another Earthquake in Oklahoma

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There was a 5.0 earthquake near Cushing, Oklahoma.  There was some damage to downtown buildings.  No people were hurt, thankfully.

Of course, anyone who is involved in oil and gas or who is an environmentalist knows that the speculation will center around disposal wells being the cause.

Disposal wells are used to get rid of produced water, or the water that comes back out of a well after fracking and other stimulation processes.  Disposal wells have been used for almost as long as oil and gas production has been a thing.  Disposal has become a concern in recent years because horizontal fracking creates a lot more produced water than conventional processes ever did.  The theory is that injecting that much water into underground formations is lubricating fault lines, thus making it easier for earthquakes to occur, and also creating pressure imbalances that need to be released, thus making it more likely that an earthquake will occur.

So far, there is only a possible correlation, not an actual cause/effect relationship, between disposal wells and earthquakes.  The correlation is there, but it could just as easily be a coincidence.  Some things are going to be hard to prove, of course.  How do you prove exactly what’s going on thousands of feet underground?

Here in West Virginia, there’s a big water treatment plant being built.  It will handle a lot of produced water, so the produced water won’t have to be injected into the ground.  If disposal of produced water in injection wells is causing earthquakes, it will be less likely to happen here.

Interesting random fact: Cushing, OK is home to one of the largest oil hubs in the world.

The State of Oil and Gas, November 2, 2016

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Fracking companies have been increasing the length of the horizontal lateral in an attempt to increase efficiency; building one pad and using one hole to access more acres should be economically efficient.  However, a study by Bernstein Research shows that longer laterals are not necessarily more efficient.  The culprit is friction.  More pipe creates more resistance.  The result is a lower average peak rate, or put in other words, the highest amount of production you could expect from a well at it’s best is lower.

On the other hand, adding more sand (“proppant”, because it props the cracks open) to a well increases the production from the well.  That seems to be a pretty logical conclusion, since larger and (presumably) more cracks means more product can move through the formation to the well.  However, adding more proppant is a recent change.

Natural gas developers added 11 new rigs across the U.S. last week, which is a good thing at this point.  Production has been falling for a while, and new sources of production are needed to keep numbers up.  11 new rigs will probably not halt the falling production numbers, but will slow it.

Iraq is now saying it won’t cut production.  Just like that, oil prices fall.  We’re below $50/bbl again.  Now, Iraq could just be positioning for negotiation, or it could be serious.  Their excuse is that they need money to fight terrorists.  $50/bbl oil isn’t too bad for them right now, as they are still working to get production back up to pre-sanction levels.  So it’s hard to say what they will do at the next meeting.  Most experts expect Saudi Arabia to cut production anyways, so maybe Iraq will just continue to produce and take advantage of Saudi Arabia’s unilateral cuts.

Stephen Tindale is a former leader of Greenpeace, and he’s saying that fracking is an important technology, and should be encouraged.

On October 24, 2016, gas prices have dropped well below $3.00/MCF.  Last week saw warm, but not hot, weather.  This week is going to be quite cooler, so we should see a jump in prices before this gets published on November 1.

Costs for drilling gas wells are still dropping.  That means that even in a low price market it makes sense to keep drilling and producing gas.  That’s exactly what Antero is doing.  They have announced that instead of producing 1.75 billion cubic feet of gas per day during 2016, they are actually going to produce 1.8 billion cubic feet of gas per day.

It’s November 2, 2016, and oil prices and natural gas prices have fallen significantly since last month.  Oil prices have dropped for the same reasons they always do (supply/demand), but the details are unusual.  Essentially, there were a few weeks where there were drawdowns on oil storage, then all the oil that everyone expected to be there during those weeks suddenly showed up and we had the largest increase in oil storage in 34 years.  Also, the price of oil jumped when OPEC announced it would cut production, then dropped when Iraq announced it wouldn’t participate in the cut.  Is anybody really surprised by that?  The result of these factors was that prices dropped from over $50/bbl to around $45/bbl.  Regrading natural gas we have hit the “shoulder season”, the time between summer (storage) and winter (high use) where storage numbers always go up.  Temperatures were comfortable, so gas use was low, and traders for some reason decided to sell natural gas futures.  This Seeking Alpha article seems to think that traders overshot the fundamentals of the market, so the price will go back up.  Right now we’re at about $2.75/MCF.  Not horrible for gas production in West Virginia, but also not good.

Deadly Pipeline Explosion in Alabama

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Gas burning from the Colonial Pipeline. Marvin Gentry/Reuters.

Gas burning from the Colonial Pipeline. Marvin Gentry/Reuters.

A gas (as in gasoline) pipeline in Shelby County, Alabama has exploded.  Interestingly, this is the Colonial Pipeline, the very same pipeline that had a major leak a few weeks ago.

One person has been killed in the explosion, six injured, and two are still missing, according to the most recent reports I can find.  There is a surprising lack of information out there right now.  Most of the major news outlets don’t seem to be covering it.  That’s a bit of a surprise considering how much press the Dakota Pipeline protest has received.

From what I can glean, there was repair work being done to the pipeline.  An excavator hit the pipeline, and triggered the explosion.

The explosion has started a brush fire.  Alabama has been very dry lately, so a brush fire is a real danger.  Between 30 and 40 acres have been burned.