Ukraine and CDR Salamander's Comments

Better that you read this than any of my meanderings Second Russo-Ukraine War D+0 Quicklook

Remember, the Russians hold the Presidency of the UN Security Council. The UN is a joke. OSCE is a joke. The EU is little more than a nest of rent-seeking, clock-watching grift-fest. NATO is, well, dysfunctional but better than nothing. Nations must take ownership of their own security. Yes, Taiwan and Japan I am talking to you. Study history. Be ready.

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Is everyone clear what Russia is now? She has a small GDP and apocalyptic demographics, but she is taking what she has and is invading her neighbors, killing people, and taking land. If your nation, company, or neighbor is buying anything from them – they are paying for this military adventurism. If the press wants to do its job, start pulling that string.

The U.S. needs to restart its energy independence efforts and reverse the course of what the current administration has done so that we can offer Europe energy security and cut the flow of energy dollors and Euros to the thugs in Moscowland.

As Mao said, "Political power grows out of the barrel of a gun." Putin is seeking political power, not only over Ukraine, but over Western Europe. His approach is not subtle diplomacy.

Nuclear Power: Now is the time

Freezing in the dark because wind turbines and solar panels are frozen or not usable? The greenest of all power sources and one that works winter, summer, spring and fall. From the Hoover Institution and retired Admiral James Ellis:

Russia's Contaminated Crude Oil Problem

The latest issue of the Oil & Gas Journal offers up some analysis about the rise in oil prices, courtesy of Rystad Energy OIL PRICE RISKS RISE TO PRECARIOUS LEVELS:

Supply disruptions in the Middle East on top of an already tight crude market could send oil prices violently upward, according to Rystad Energy.

Two Saudi Arabian oil tankers were reportedly attacked off the coast of the United Arab Emirates (UAE) this weekend, sending crude futures sharply up Monday morning.

Commenting on the incident, Bjørnar Tonhaugen, Head of Oil Market Research at Rystad Energy, says:

“In the short term, the perceived risk of supply disruptions from the area will only add to the premium of short-dated oil contracts compared to deferred contracts on the futures curve, which are already trading at a high premium.”

The tightness in prompt supplies is caused by declines in production from Iran and Venezuela, along with ongoing OPEC cuts, outages in Russia owing to the Urals contamination, maintenance in Kazakhstan, plus planned maintenance in the North Sea during the summer months.

“The oil market is reacting today not because the physical market suddenly has lost more oil supplies, but because of risks that the market may lose more oil in the coming weeks and months given the heightened risk of supply disruptions from the critical Persian Gulf region. Raising tensions even higher, news flows suggest the latest incident might be related to the conflict between Iran and the US, which puts the Strait of Hormuz in play,” Tonhaugen said.

Wait, what? That part I highlighted says something about contaminated Russian crude oil? Perhaps you haven't heard that about The Giant Soviet Pipeline System That's Full of Tainted Crude

Europe’s oil refineries stopped accepting piped deliveries of Urals crude from Russia this week after flows were found to be contaminated with abnormally high levels of organic chlorides that, when refined, become hydrochloric acid that can damage the plants.
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Russia’s government has blamed a private storage terminal in the center of the country for the problem. It will now take two weeks to ensure uncontaminated crude is flowing along the entire length of the pipeline.

The millions of barrels tainted crude will need to blended with larger quantities of unblemished oil to get the impurities down to safe levels, a task that might some weeks or months.

Organic chlorides are generally not present in crude oils, but are used to dissolve wax and during cleaning operations at production sites, pipelines or tanks.

Ah, well, Russia's Plan to Cleanse Tainted Oil Pipe Proves Slow-Going:

While there is nearly 1 million tons of contaminated oil in Belarus, the overall amount of substandard Urals crude in pipelines across the country, Russia, Ukraine and Poland may have been as much as 5 million tons as of the end of April.

Most of the tainted crude remains in the pipelines and is “eating away at them,” Belarus President Alexander Lukashenko said on Saturday. The nation and Russia are discussing what to do with the oil with no clear deadline for removing it.

Apparently, part of the Russian plan is to ship contaminated product to "Asia": Contaminated Urals cargoes stranded in Europe head for Asia:

With some contaminated cargoes of crude from the Urals headed to China and the Bahamas, the remaining oil cargoes are stranded in Europe while Asian buyers are sought

Oil traders sell dirty Russian crude to Asian buyers:

Trading companies Vitol and Unipec are sending around 700,000 tonnes (5.1 million barrels) of contaminated Russian oil to Asia in an attempt to place the barrels rejected by buyers in Europe, according to trading sources and ship tracking data.
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Vitol has sold its cargo to Chinese independent refiner Bora Group while Unipec is moving the oil to refineries in China owned by its parent company China Petroleum and Chemical Corp (Sinopec), the sources said.

“We took the oil after evaluating that our refineries are able to process the crude,” one of the sources told Reuters, adding that the price was also attractive given that Middle East crude grades are trading at multi-year highs on tight supply.

A good time is being had by everyone except the Russians and the companies that bought the contaminated product and had it screw up their refineries, Total Declares Force Majeure On German Refinery After Russian Oil Contamination:

On Thursday, Total declared force majeure on shipments of refined oil products from the Leuna refinery after the suspension of the oil flow via the Druzhba pipeline.

Russian pipeline operator Transneft will compensate its customers for the losses they have sustained due to the contaminated crude oil, Russian Deputy Prime Minister Dmitry Kozak said on Thursday, noting that refiners must first prove their damage and loss in order to claim compensation.

And, it's all one more reason while oil prices go up.

National Energy Security: Self Inflicted Energy Wounds That Hurt Taxpayers But Benefit Speculators

Here's a little known tale of how the "environmental" crowd dips into the pocketbook of ordinary Americans while doing little or nothing to improve the environment. You may never have hear of RINS, but here's a lttle background from the EPA to set the table for what follows:

The Renewable Fuel Standard (RFS) program was created under the Energy Policy Act of 2005 (EPAct), which amended the Clean Air Act (CAA). The Energy Independence and Security Act of 2007 (EISA) further amended the CAA by expanding the RFS program. EPA implements the program in consultation with U.S. Department of Agriculture and the Department of Energy.

The RFS program is a national policy that requires a certain volume of renewable fuel to replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel. The four renewable fuel categories under the RFS are:

- Biomass-based diesel
- Cellulosic biofuel
- Advanced biofuel
- Total renewable fuel

The 2007 enactment of EISA significantly increased the size of the program and included key changes, including:

- Boosting the long-term goals to 36 billion gallons of renewable fuel
- Extending yearly volume requirements out to 2022
- Adding explicit definitions for renewable fuels to qualify (e.g., renewable biomass, GHG emissions)
- Creating grandfathering allowances for volumes from certain existing facilities
- Including specific types of waiver authorities

The Clean Air Act provides EPA authority to adjust cellulosic, advanced and total volumes set by Congress as part of the annual rule process.

The statute also contains a general waiver authority that allows the Administrator to waive the RFS volumes, in whole or in part, based on a determination that implementation of the program is causing severe economic or environmental harm, or based on inadequate domestic supply.

Here's a handy chart that shows what Congress thinks is a good idea for the total volume of "renewable fuels" in our future:

The Congressional Budget Office prepared a 2017 report on "Issues for the Renewable Fuel Standard"

Issues for the Renewable Fuel Standard from Congressional Budget Office

What may you take from that report?

1. Transportation fuel costs will increase'
2. Minimal effect on greenhouse gas emissions (GHG) (absent some "technology development")
3. While the goals of the Energy Security and Independence Act is to reduce "dependence on foreign oil and reducing GHG emissions" no part of the Act refers to the impact of technology such as fracking that could allow the U. S. to cease needing "foreign oil"
4. The EPA issues, for qualifying fuels (defined in slide 6), a "renewable identification number (RIN) attached to each gallon. These RINs are required to be submitted by fuel suppliers "on the basis of their use of petroleum-based fuels"
5. "RINs can be traded and banked"
6. The guesstimates made by the planners in putting together this program did not anticipate that technology might make vehicles more fuel efficient thus creating issues. See slides 9 and 11.
7. EPA decision makers can affect the price of food and transportation fuesl. (slide17) Note that on slide 19 that "Ethanol accounts for 40% of the corn produced in the U.S. 
8. Slide 23: "for each 100 gallons of gasoline or diesel they sell, suppliers are required to submit  - 1.6 biomass-based diesel RINs                                                                                                    - - 3.4 additional advanced biofuels RINs                                                                                        - - 8.3 additional renewable fuel RINs (met with corn ethanol) 
9.  CBO's renewable RIN price estimate for 2017  was $1.55 to $2.10                                                                                                                                                                        

Yeah, exciting stuff. But here's what happens in the real world, the trading of RINS is putting American refineries and refinery workers at risk - which has a potentially serious effect on national security - because without refineries and their workers, where will we get fuel for our aircraft, ships and military vehicles? Senator Cruz of Texas (of course) has taken up this issue as reported by the Oil & Gas Journal in
Time has come to overhaul RINs, Cruz tells Philadelphia refinery workers

US Sen. Ted Cruz (R-Tex.) called for a cap on the price of renewable identification numbers (RIN) to halt speculation and preserve jobs at refineries. "We're here because the jobs, and the men and women whose livelihoods and families depend on those jobs, are at risk from a broken government regulation system that isn't working, and that we have to fix," he said a Feb. 21 rally at Philadelphia Energy Solutions (PES).

PES cited dramatically higher prices for the renewable fuel credits the Environmental Protection Agency administers when the refiner declared bankruptcy nearly a month earlier (OGJ Online, Jan. 23, 2018). "In the year 2012, this refinery-the largest refinery on the East Coast-paid about $10 million for RINs. Then the RINs market broke. The price skyrocketed from 1-2¢ each to as high as $1.40 each," Cruz said.

"This means that last year, in 2017, this refinery spent $218 million buying RINs. That is more than double the payroll of the men and women sitting here," Cruz said. "Now, how many think the refinery should be wasting money on government licenses that don't pay a damned thing rather than paying your salaries? It doesn't make any sense. It is nuts."
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"Here's the crazy thing: Of the $218 million [PES] paid for RINs, do you know how much ended up in the pockets of Iowa corn farmers? None. The money doesn't go to the corn farmers, and it doesn't go to the ethanol producers. Instead, billions [of dollars] are being made by Wall Street speculators and giant integrated companies that are earning a windfall on this broken regulatory system," Cruz said.

It's been a problem for a while. Here's a NYTimes report from 2016, High-Price Ethanol Credits Add to Refiners’ Woes:

Stiff competition, heavy regulation and high operating costs make for some of the lowest profit margins in the petroleum industry. And in the last year, profits have been even harder to come by because of the global fuel glut that has translated into bargain-basement prices for the gasoline and diesel that refiners produce.

But lately, the game has been tougher still for people like Jack Lipinski, chief executive of CVR Energy, an independent operator of two refineries in Oklahoma and Kansas. The problem involves a soaring cost that is outside of his control.

This year, on top of everything else, CVR Energy will have to spend as much as $235 million on credits for renewable fuels. That is nearly double what the company spent last year on the credits, and it exceeds the company’s total labor, maintenance and energy costs.

Mr. Lipinski blames the federal program that requires CVR to buy the credits, but he also suspects a role by unknown market speculators who may be driving up the costs of the credits.

Finally, it is worth noting who ultimately pays the price for cost increases to refiners - it's the American public, to whom the costs are passed on with higher gas and diesel prices at the pump.

By the way current retail gas price hikes are related to the refineries performing maintenance and shift over to producing different blends of gas for the warmer season to come.

National Energy Security Issue: Effects of Cheap Oil

Photo Liberated from Patterson UTI Drilling

Once again the oil and gas industry has done too good a job is finding and developing new sources - so much so that its success is eating the drilling industry - the Oil & Gas Journal reports US rig count nearing lowest level in generations:

The US rig count dropped 12 units to 502 during the week ended Feb. 26, according to Baker Hughes Inc. data. While the decline is the smallest thus far this year, it represents the eighth straight weekly double-digit drop to begin 2016.
The total is the lowest since Apr. 30, 1999, a week after the 1998-99 downturn hit its bottom of 488. With additional losses in the coming weeks, the current count could dive to a level not seen in generations.

The NYTimes has reported on the "simple economics" behind the drop in oil prices:

. . . [I]t boils down to the simple economics of supply and demand.

Well, yeah.

The NPR folks have noted that these low prices, coupled with a decline in exploration and drilling, might just have an impact on the overall U.S. economy as businesses associated with that part of the oil and gas industry find less demand in Why Cheap Gas Might Not Be Good For The U.S. Economy:

Arora analyzed government data, and found that what's changed is that the oil and gas industry as a share of GDP has about doubled in the past decade. Now it has grown so large that it's changed the basic equation of whether cheap gas is a good thing overall.

"The benefits to consumers could be around $140 billion from gasoline savings," Arora says. "But the losses on the other side due to lower production, less investment, less build-out of infrastructure could be around that amount. So we're kind of at a wash."

This might help to explain why the economy still isn't exactly charging forward even with the stimulus of cheap energy. But Arora himself notes that the question needs more study.

Meanwhile, analysis by the research firm Moody's Analytics finds that cheap oil and gas are still a net positive. And plenty of experts remain in that camp.

Last year the NYTimes offered up Lower Oil Prices Provide Benefits to U.S. Workers:

Wall Street may be growing anxious about the negative impact of falling oil prices on energy producers, but the steep declines of recent weeks are delivering substantial benefits to American working-class families and retirees who have largely missed out on the fruits of the five-and-a-half-year economic recovery.

Just last week, the federal Energy Information Administration estimated that the typical American household would save $750 because of lower gasoline prices this year, $200 more than government experts predicted a month ago. People who depend on home heating oil and propane to warm their homes, as millions do in the Northeast and Midwest, should enjoy an additional savings of about $750 this winter.

“It may not have a huge effect on the top 10 percent of households, but if you’re earning $30,000 or $40,000 a year and drive to work, this is a big deal,” said Guy Berger, United States economist at RBS. “Conceptually, this is the opposite of the stock market boom, which was concentrated at the top.”

Of course, more dollars in the pockets of the 90% of the households not in the top 10% really ought to mean much more money available in the economy because of the law of big numbers. More from the NYT:

But the latest drop in energy prices — regular gas in New England now averages $2.35 a gallon, compared with $2.94 in early December, and it is even cheaper in the Midwest at $1.95 — is disproportionately helping lower-income groups, since fuel costs eat up a larger share of their more limited earnings.
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“Oil prices, gas prices, food prices — luckily it’s going down, which is great,” Ms. Smith said, explaining that when prices were higher she had to scale back on groceries to save money for heating oil. “I hope it keeps going.”

You might want to, at this point, recall President Obama's plan to increase taxes on oil as discussed in Oil Dumbness from President Obama an increase in taxes is paid for by customers of the oil companies just like Ms. Smith.

This ought to be self-evident, but here's another source talking about the effect of higher gas prices.

It's not just the U.S. that rides this roller coaster of oil prices. Oil exporting states like Saudi Arabia are also taking hits, as discussed in this Forbes article, 4 Reasons Saudi Arabia Can't Control Oil Supply:

In the past, OPEC—led by Saudi Arabia—would reduce production in order to maintain the oil price. Today, however, the process isn’t that easy, and there are four reasons for that…

Reason #1: The US
Oil above $60 or $70 would mean that US production would continue to increase, and the US is already the world’s #1 producer. OPEC would have no choice but to keep cutting further in order to maintain that price.

Reason #2: Cheating among OPEC Members
OPEC members (other than Saudi Arabia) almost always cheat on their production quotas when they can. Considering that other OPEC nations are desperate for income, the incentive to cheat is all powerful.

Reason #3 The US-Iran Nuclear Deal
The deal and subsequent lifting of sanctions means that an additional one million barrels per day will soon hit the market. As international oil companies vie for the privilege of drilling more oil in Iran, it will put further upward pressure on supply.

Reason #4: US Production in the Market
Although drilling rig usage in the US is down by nearly 75%, production has just now begun to fall off. It will take some time before enough US production comes off the market to put upward pressure on prices.

The U.S. Energy Information Adminsitration produces all sorts of reports on oil production like this one:

The "International Energy Agency" (which is actually a creature of its 29 member countries)has issued its 2016 Medium Term Market Report:

Global oil supply growth is plunging as an extended period of low prices takes its toll, the International Energy Agency (IEA) said in its annual Medium-Term Oil Market Report (MTOMR) released today. While U.S. light, tight oil (LTO) output is falling steeply for now, the market will begin rebalancing in 2017 – and by 2021 the United States and Iran are seen leading production gains among non-OPEC and OPEC countries, respectively.

There is this warning:

“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future,” said IEA Executive Director Fatih Birol, launching the report at IHS CERAWeek.(emphasis added)

What "oil-security surprises?"

From the downloadable Overview of the IEA report:

Another downside to low oil prices is the impact on investment. The IEA has regularly warned of the potential consequences of the 24% fall in investment seen in 2015 and the expected 17% fall in 2016. In today’s oil market there is hardly any spare production capacity other than in Saudi Arabia and Iran and significant investment is required just to maintain existing production before we move on to provide the new capacity needed to meet rising oil demand. The risk of a sharp oil price rise towards the later part of our forecast arising from insufficient investment is as potentially de-stabilising as the sharp oil price fall has proved to be.

In addition to the effects of insufficient investment there are the lost "experience" costs that will result from personnel cutbacks in the oil and gas industry as rig counts and exploration budgets drop. Experienced oil field workers will, as they have in the past, move to other jobs (assuming they exist) that might pay less.

Ah, you might say, "So what?"

The "so what" is the lag time it would take to get those workers back into the fields should there be a national need for an increase in U.S. crude oil and natural gas production.

That lag time has national security issues.

Suppose, for example, Russia decides to cut off natural gas supplies to Europe beginning in late 2016 using that gas as an economic weapon to force the nations dependent on Russian gas to accept Russian claims in the Ukraine or the Baltic States. One way for the West to resist this pressure is to have some assurance that the U.S. and its allies will be able to set into motion a stream of LNG ships carrying gas to replace that of the Russians, ameliorating the gas situation for those affected states. In addition to LNG shipping, a force of air and naval escorts protecting that LNG stream at sea might be required to prevent interference with the flow of gas in competition with that of the Russians.

Or, suppose the Chinese interfere with the flow of gas and oil through the South China Sea sea lanes to Taiwan,South Korea and Japan. Can the U.S. and Canada help mitigate the harm while alternative sea lanes that avoid the South China Sea are developed? Who will protect those shipments and how?

Or, what if Iran or someone else takes the big step of managing to destroy the Saudi oil production - say through using nuclear weapons - can the U.S. and non-Middle East producers step up and provide  at least minimal supplies to the world now depending on Middle East oil?

Cheap oil is good, but not all good.

Energy Wars: The "Shale-Oil Insurgency"

Interesting analysis from Nikos Tsafos writing in The National Interest Shale-Oil Surprise: OPEC Faces an Insurgency, Not a Price War

Between June and November 2014, oil prices have fallen by some 40 percent, courtesy of robust growth in output and a bleaker outlook for oil demand. In late November, The Organization of Petroleum Exporting Countries (OPEC) chose to keep its production quotas intact, triggering several obituaries and talks of a price war between OPEC and the United States, where most of the additional supply originates. Yet war is not quite the right term; insurgency is more like it—decentralized, adaptive and, likely, inconclusive.

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Gone are the days where high oil prices triggered a production response with a seven-to-ten-year lag (to allow for acreage acquisition, exploration, appraisal and then development of an oil field). When a system can grow as quickly as the United States’ can, then clearly, the world has a competing source of “spare capacity,” meaning capacity that could come online quickly to meet market needs.

Good read.

And, really, isn't "energy independence" mostly about being able to quickly fill market needs?

"Decentralized" "Adaptive" -- I like that in the energy context.

Long-Endurance Electric Unmanned Aircraft and the Potential for Other Things

USNRL photo

The engineers and scientists at the Navy Research Laboratory have successfully tested a long-endurance unmanned aircraft using a special tank of liquid hydrogen to feed fuel cells. Read more at "NRL Shatters Endurance Record for Small Electric UAV::

Researchers at the U.S. Naval Research Laboratory (NRL) flew their fuel cell powered Ion Tiger UAV for 48 hours and 1 minute on April 16-18 by using liquid hydrogen fuel in a new, NRL-developed, cryogenic fuel storage tank and delivery system.
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Liquid hydrogen is three times denser than 5000-psi compressed hydrogen. The cryogenic liquid is stored in a lightweight tank, allowing more hydrogen to be carried onboard to increase flight endurance. Success in flight requires developing a high quality, lightweight insulated flight dewar for the cryogenic fuel, plus matching the boil off of the cryogenic hydrogen to the vehicle fuel consumption.
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To address the logistics of in-theater supply of liquid or gaseous hydrogen, NRL proposes in-situ manufacture of LH2 for use as fuel. An electrolyzer-based system would require only water for feedstock, and electricity, possibly from solar or wind, to electrolyze, compress, and refrigerate the fuel.

Much quieter and long-endurance, too. I wonder what its thermal signature looks like?

So, fuel from water to a special tank to power fuel cells to drive electric motors.

Potentially a game changer in the world of powering land vehicles, too,  I would think.

Makes me wonder a little about the future of fossil fuels.

Energy Wars: Fusion Power

Aviation Week got an exclusive look at Lockheed's fusion reactor:

Lockheed estimates that less than 25 kg (55 lb.) of fuel would be required to run an entire year of operations. The fuel itself is also plentiful. Deuterium is produced from sea water and is therefore considered unlimited, while tritium is “bred” from lithium. “We already mine enough lithium to supply a worldwide fleet of reactors, so with tritium you never have too much built up, and that’s what keeps it safe. Tritium would be a health risk if there were enough released, but it is safe enough in small quantities. You don’t need very much to run a reactor because it is a million times more powerful than a chemical reaction,” McGuire notes.

Faster. But be safe.

Five or so years to another breakthrough that eases the stress on fossil fuels and the land and maritime routes needed to get them to market?

Cool.

Energy Wars: Fracking Our Way Ahead

America's not so secret new weapon, discussed again at The American Interest "Shale Boom Has America Sitting Pretty"

By lessening our dependence on foreign sources of oil and gas, the shale boom has given us more options abroad, and in some cases . . . has given America more clout in diplomatic standoffs.

Almost all of this "shale boom" has occurred, by the way, by private companies working their "magic" on private property - in many cases with local or regional opposition to this development.

Interesting look at the U.S. development of its resources from Aljazeera "American power and the fracking boom: What impact will America's oil and gas boom from fracking have on US power and global geopolitics?":

Fracking is giving rise to a new energy abundance in the United States that has major implications for American policy in the Middle East and the debate over climate change. Over the past five years, daily oil production in the US increased 3.7 million barrels, while US net imports of oil dropped 44 percent. A revolutionary technique to tap into oil and gas reserves by drilling horizontally into underground shale formations and using liquids pumped at high pressure to open cracks in the rock, fracking is reshaping the contours of American power.
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For the past 35 years, securing access to Persian Gulf oil and protecting the shipping lanes to keep it flowing has been a central tenet of American military policy. It is known as the Carter doctrine because President Jimmy Carter first enunciated the commitment in his 1980 State of the Union address.

Historian and author Andrew Bacevich hopes that the shale oil and gas boom from fracking will cause a strategic rethinking of the Carter Doctrine in the United States. "What the new energy regime could do would be to make it clear that the United States does have choices and one of those choices will be to lower our profile in the Middle East more broadly and in the Persian Gulf specifically," he says.
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According to Jeppe Kofod, a member of the European Parliament and representative from Denmark to the NATO Parliamentary Assembly, about one-third of US military spending, or about $200bn a year, can be linked to efforts to keep oil flowing.
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. . . President Barack Obama and administration officials emphasise that the US commitment to safeguarding access to Middle Eastern oil will remain strong despite America’s shrinking reliance on imports from the region. In a speech at the United Nations last year, Obama said that the US is prepared to use military force, “to ensure the free flow of energy from the region to the world. Although America is steadily reducing our own dependence on imported oil, the world still depends on the region's energy supply."
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Anti-fracking activists are trying to prevent the construction of terminals and pipelines needed to transport and export natural gas and oil. Robbie Cross, a member of a local group trying to stop fracking in Pennsylvania, is clear about the rationale. "After you frack it has got to go somewhere," he says. "If we don’t have ways of moving it, selling it, distributing it, it’s not going to work."
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Richardson and other proponents of shale exports argue that they can be used as effective instruments of American power to counter the Russians in Europe. The Continent relies on Russia for 30 percent of its gas supplies, and half transits via the Ukraine. Some countries like Hungary, Poland and the Czech Republic get 70 to 100 percent of their gas from Russia. Hungary’s ambassador–at-large for energy security, Anita Orbán, argues that American exports of natural gas to Europe can help diversify supplies and undermine Russia’s energy leverage there even if the flow does not begin for a few years. (emphasis added)

The impact of fracking on China is discussed in the country that uses the greatest percentage of coal in the world, China, in this Atlantic article, America's Fracking Boom Comes to China: Deep inside Beijing's campaign to wean the country off coal .

What the EIA says:

Most of China's proven shale gas resources reside in the Sichuan and Tarim basins in the southern and western regions and in the northern and northeastern basins. EIA estimates from its most recent report on shale oil and gas resources that China's technically recoverable shale gas reserves are 1,115 Tcf, the largest shale gas reserves in the world.
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China's NOCs are in discussion with several IOCs for partnering on potential shale gas projects in order to gain necessary technical skills and investment for developing these geologically challenging resources. CNPC and Shell signed the first PSC for the Fushun-Yonghchuan block of shale gas in the Sichuan Basin in March 2012. Shell also has partnered with Sinopec and CNOOC on two other shale gas plays. After investing $950 million between 2011 and 2013 on shale gas exploration in China, Shell plans to spend another $1 billion each year for the next five years to develop these resources. Sinopec is working with Chevron and ConocoPhillips to explore shale gas resources in the Qiannan and Sichuan basins, respectively. On the reverse side, Chinese NOCs have been actively investing in shale oil and gas plays in North America to gain technical expertise in this arena. (NOC=National Oil Company, IOC= International Oil Company)

It's interesting that people who have previously argued that we should not fight "wars for oil" in our own national interest are willing (1) to commit our national forces and dollars to possibly fighting "wars for oil" for the interests of other countries and (2) that people who who are opposed to U.S. fracking on environmental grounds seem to be totally okay with the status quo of pushing environmental damage off to those second and third world countries who are resource rich but not in the protesters back yards - and condemning others in the world to be dependent on the whims of leaders in Russia and other undemocratic countries.

Given the huge amount of pollution created by the use of coal by China (about 50% of the world's use) - see China's coal emissions responsible for 'quarter of a million premature deaths', it is to the benefit of the entire world that China be given all the assistance it needs to wean itself from coal and to develop its access to those much cleaner burning natural gas reservoirs.

It also behooves Europe and Japan that the U.S., Canada and Mexico develop LNG export facilities to allow the export of natural gas to offset the Russian and Iranian power in using the "oil and gas weapon" against Europe.

The U.S. government should be encouraging U.S. companies to help Poland to explore its shale gas reserves as an offset to the Russians. While the estimated levels of Polish shale gas are fluctuating, there is gas there and it is both Polish and European interests to develop it.

It's not just the U.S. that has the potential to be "sitting pretty" as a result of the the shale boom.

Energy Wars: Marcellus "Miracle" Continues

Was it only a few short years ago that there was concern over "peak oil" and worry over the dwindling supply of U.S. natural gas? Why, yes it was.

Then along came shale oil and gas.

A revolution that changed everything, as noted in this Oil and Gas Journal article, "Marcellus continues to defy expectations, driving US gas production ever higher":

Shale has been the primary driver of US gas supply growth since 2007, and the Marcellus shale has been the largest single contributor to rising production.

Marcellus production topped 14.5 bcfd in March and is expected to account for nearly one fourth of all US gas output by 2015, according to a report by Morningstar Inc.

The Marcellus's eminent position stems, in part, from the ability of wells in the formation to come online at high initial production (IP) rates and to sustain those rates for longer than wells in other shale formations.
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The Marcellus stretches across portions of Pennsylvania, Ohio, West Virginia, and New York. Moody's Investor Service figures the formation holds an estimated 141 tcfe of recoverable reserves.

Marcellus output climbed from virtually nothing in 2007 to 9 bcfd in 2013, equivalent to the combined production growth of the Haynesville (4 bcfd), Eagle Ford (3 bcfd), and Barnett (2 bcfd) shales. According to Morningstar, output from the formation helped boost US production 14 bcfd, or 25%, during the 6-year period, more than offsetting declines from conventional reservoirs and the Gulf of Mexico.

If not for the Marcellus, Morningstar found, US gas production would likely have peaked in late 2011 or early 2012 as producers reduced gas-directed drilling in response to weak domestic gas prices.
***
The Marcellus shale has fundamentally altered the outlook for the US natural gas industry. The US is emerging as a low-cost chemicals producer and is poised to become an exporter of natural gas—a feat unthinkable just 5 years ago when it was widely believed that increasing LNG imports would be needed to meet domestic demand.

According to Hanson, "In short, the growth of the Marcellus over the next several years is likely to be nothing short of astounding."

Europe ought to be happy, too, if the U.S. can get its LNG export business in motion. The Russians? - well, not so much.

National Energy Security: Keystone Pipeline vs. "Environmental Security"

There is a debate - of sorts - going on over whether the Keystone XL pipeline is a good or bad thing. For those of you who may not have followed the story, the pipeline is designed to transfer crude oil extracted from Canadian oil sands to refineries in the U.S.

After roughly a gazillion environmental studies on the impact of said pipeline on the Great Plains and its underlying aquifers and the double-crested Nebraska imaginary vampire vole, the pipeline has won approval from nearly everyone, including the Department of State (see here).

Nearly everyone does not include some environmentalists or, apparently, the President and some leading Democrats, who are now arguing over about the "national security" implications of the pipeline - as set out in this piece from the Oil and Gas Journal's Nick Snow, "Witnesses disagree on Keystone XL’s potential US security impacts"

Witnesses at a US Senate Foreign Relations Committee hearing sharply disagreed on whether the proposed Keystone XL crude oil pipeline would help or hinder US security.
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Retired US Marine Corp. Gen. James L. Jones, a former presidential national security advisor who now co-chairs the Bipartisan Policy Center’s Energy Project and Task Force on Defense Budget and Strategy, said in his written statement there is no doubt that the Keystone XL determination will be of strategic importance to the US. America’s Fifth Fleet is based in Bahrain, primarily to secure continued free passage of crude oil through the Persian Gulf and Strait of Hormuz to global markets, he reminded committee members.

“I would like to pose what I regard to be a pretty fundamental question: Why would the United States spend billions of dollars and place our military personnel at risk to ensure the flow of energy half a world away, but neglect an opportunity to enable the flow of energy in our very own backyard—creating jobs, tax revenue, and greater security?” Jones said.

He called the Keystone XL cross-border permit decision “a litmus test of whether America is serious about national, regional, and global energy security, and the world is watching.” Jones said the proposed pipeline is integral to US and North American energy security, which in turn is paramount to the nation’s prosperity and leadership.

“America’s ability to prosper and lead in a dangerous and uncertain world that needs us is quite clearly a preeminent matter of national interest,” he maintained. “I think that is why Congress has voted consistently, and in a bipartisan manner, to move forward with Keystone.”
***
Karen A. Harbert, president of the US Chamber of Commerce’s Institute for 21st Century Energy, said the group looked at how much of the total global oil supply is in the hands of potentially politically unstable countries in its latest indexes of US and International Energy Security Risks. It found that since 1980, crude output from free countries has been stuck in the 17-20 million b/d range while production from partly free and not free countries has grown, she indicated.

“At a time when North Sea oil output is falling, large emerging economies are growing into large oil consumers, putting pressure on spare oil production capacity globally,” Harbert said in her written statement. “Political instability in many producing countries is also on the rise, and greater output from a closer friend and ally like Canada is needed and welcome.”
***
But two other witnesses argued that global climate change poses an even greater threat to US national security. They called for policies which discourage the use of fossil fuels and encourage development and deployment of alternatives.

The recently released Quadrennial Defense Review 2014 warned that climate change impacts could increase the frequency, scale and complexity of future military missions while undermining domestic military installations’ capacity to support training activities, Sierra Club Executive Director Michael Brune testified.

James E. Hansen, who retired in April 2013 after 32 years of the National Aeronautics and Space Administration’s Goddard Institute for Space Studies to devote his time to educating the public about climate change dangers, said that taxing oil, gas, and coal’s carbon emissions and rewarding consumers who move to low-carbon and no-carbon sources would make Keystone XL unnecessary.

“The annual reduction of oil use alone, after 10 years, would be more than three times the amount of oil” it would carry, he said in his written testimony. “By eliminating the need for the pipeline, the danger of oil spillage on American soil is also eliminated.”(emphasis added)

I am having trouble with the "climate change" as a threat to national security issue as presented in the QDR. Here's what the QDR 2014 says about climate change:

Climate change poses another significant challenge for the United States and the world at large. As greenhouse gas emissions increase, sea levels are rising, average global temperatures are increasing, and severe weather patterns are accelerating. These changes, coupled with other global dynamics, including growing, urbanizing, more affluent populations, and substantial economic growth in India, China, Brazil, and other nations, will devastate homes, land, and infrastructure. Climate change may exacerbate water scarcity and lead to sharp increases in food costs. The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world. These effects are threat multipliers that will aggravate stressors abroad such as poverty, environmental degradation, political instability, and social tensions – conditions that can enable terrorist activity and other forms of violence.

Notice anything missing?

If it were me looking down the road, I would have put in some sort of time line concerning the effects of climate change. Are the oceans rising dramatically tomorrow or over the next 200 years? Is the QDR suggesting that "water scarcity" occurs because water is somehow destroyed or that there is a failure to plan for desalination, reservoirs and other means of recycling water? If the former, the science is bad. If the latter, then the failure to plan for projected scarcity seems to be the real issue, not just the use of a pipeline that will transport oil to the U.S. instead of to other countries via "risky oil tankers" on the high seas.

Be that as it may, much of the "debate" remains one of "near term" versus "long term." One pipeline is probably not the place to have that discussion. I think General Jones put it well in his testimony:

What we need more than symbolic, over-politicized debates on particular projects is a more strategic approach to U.S. energy and climate policy — one that promotes energy diversity, sustainability, productivity, and innovation. We can’t do that until we organize ourselves better to make and execute a bona-fide national energy security strategy

If you are interested in a good military/political analysis of the world's energy issues, I highly recommend you read General Jones's testimony:

Jones Testimony3

You can find Dr. Hansen's testimony here. The Sierra Club representative's testimony is here. General Jones testimony. Ms. Harbert's testimony. All are PDFs.

Freezing Yankees in the Dark: "Natural gas bills are going up, and not just because it's cold" .... Well, sorta.

Had to laugh at this report from American Public Radio's Marketplace which I heard on the way home tonight:  Natural gas bills are going up, and not just because it's cold

The reason for that crazy 2,000 percent jump is that even though there is lots of natural gas, there isn't the infrastructure to move it quickly enough when demand spikes.

"Because the pipeline capacity to get it into the Northeast isn't that large," Borenstein says. "Likewise, that can happen in the Midwest."

But even with improved pipeline capacity, natural gas prices are still susceptible to price spikes.

"The reality is natural gas is expensive to store," says Michael Levi, a senior fellow for energy and the environment at the Council on Foreign Relations. And when large quantities of fuel can't be stored, it's difficult to smooth out prices over a long period of time.

You can listen to the report here.

Hidden in that "not just because it's cold" part of the headline is the the reason that there has been a demand spike. Which is: Demand spiked because it's cold. Duh.

And then, when demand spikes, the Northeast lacks pipeline capacity and storage capacity to handle the increased demand. Why? Because while "there is lots of natural gas" - it is not, apparently, in Yankeeland.

It also seems to lack alternatives since the use of coal has had the kibosh put on it. The switch from coal has cause industry to switch to natural gas (or in the case of some industries like gun manufacturers to move south*). That switch also increases local demand for a good that needs to be imported through an limited supply pipe. From place like Texas, Oklahoma, and other fly-over country.

Lacking alternatives . . . well, you can freeze or pay.

It seems to me that logically you could write a similar story about how there is a spike in the price for water in Arizona and it's not just because it's hot there but because there's no infrastructure to move water from the Great Lakes where there is lots of water to the desert. Trust me, if the price gets high enough, there will be pipelines for water built.

On the other hand, I guess up North they don't need to have expensive air conditioning in the spring and summer like we in the South and Southwest do, so they've got that going for them.

Come to think of it, though, I don't remember ever hearing or reading an article about how "air conditioning bills are going up, and not just because it's hot" written about the South. If you find one, let me know . . .

May I suggest to our Northern friends more nuclear power plants for electric heat?

Or perhaps using those expensive LNG terminals? Make it worth LNG shipper's efforts to ship in gas by letting those prices rise.




*And, yes, those moves occur for other reasons, too.

"Better protection of US energy facilities needed" - former CIA head says

Oil and Gas Journal's Nick Snow reports "Ex-CIA chief calls for better protection of US energy facilities":

Valero Refinery

US energy firms and government officials should be more concerned with physically protecting domestic facilities from attacks than lining up supplies, former Central Intelligence Agency Director R. James Woolsey maintained.

Electric power generation and distribution systems look particularly vulnerable, Woolsey said in wide-ranging remarks July 7 at Johns Hopkins University’s School for Advanced International Studies.

But oil and gas facilities also could be targets, with refineries at greater risk than pipelines and production operations, said Woolsey, who was CIA director during the Clinton administration and now is a venture partner with Lux Capital management.

He said federal and local officials became concerned following an incident on Apr. 16—a day after the Boston Marathon bombings—where several individuals in San Jose, Calif., were observed shooting at power pole transformers in the middle of the night.

Authorities there later found that other people had lifted a manhole cover and reached telephone landlines beneath a street at about the same time, Woolsey said. “These apparently weren’t teenagers who had grabbed their fathers’ rifles for some late night fun,” he added. “They had something more serious in mind.”

Read it all.

Of course, the same government that delays a crude oil pipeline in favor of less safe rail tank cars is carefully monitoring this threat . . . .

Refineries are complex plants, however, and are not all that compact, so they are harder targets than you might think.

Mining Methane Hydrate and What It Means

First, the "Methane Hydrate" scary story:

(University of Göttingen, GZG. Abt. Kristallographie).
Source: United States Geological Survey.

As greenhouse gas, methane is more powerful than carbon dioxide, but there is a much more important difference between these two gases. Carbon dioxide emissions are something that we create and that we can control, at least in principle. If we stop burning fossil fuels, then we stop generating CO2. But, with methane, it is another matter. We have no direct control on the huge amounts of methane buried in ice in the permafrost and at the bottom of oceans in the form of "hydrates" or "clathrates."

Methane hydrates are a true climate bomb that could go off by itself as the result of a relatively small trigger in the form of a global warming. Sufficient warming would cause the decomposition of some hydrates to release methane to the atmosphere. This methane would create more warming and that would generate more decomposition of the hydrates. The process would go on by itself at increasing rates until the reservoirs run out of methane. That means pumping in the atmosphere truly a lot of methane. There are different estimates of the amount stored in hydrates, but it is surely large - most likely larger than the total amount of carbon present today in the atmosphere as CO2. The effects of the rapid release of so much methane would be devastating: an abrupt climate change that could bring a true planetary catastrophe. It is a scenario aptly called the "clathrate gun" and the target is us.

Source

Second, a quick look at issues in trying to exploit methane hydrate as a fuel source in The Risky Business of Mining Methane Hydrate:

The potential rewards of releasing methane from gas hydrate fields must be balanced with the risks. **** Let's start first with challenges facing mining companies and their workers. Most methane hydrate deposits are located in seafloor sediments. That means drilling rigs must be able to reach down through more than 1,600 feet (500 meters) of water and then, because hydrates are generally located far underground, another several thousand feet before they can begin extraction. Hydrates also tend to form along the lower margins of continental slopes, where the seabed falls away from the relatively shallow shelf toward the abyss. The roughly sloping seafloor makes it difficult to run pipeline.

Even if you can situate a rig safely, methane hydrate is unstable once it's removed from the high pressures and low temperatures of the deep sea. Methane begins to escape even as it's being transported to the surface. Unless there's a way to prevent this leakage of natural gas, extraction won't be efficient. It will be a bit like hauling up well water using a pail riddled with holes.

Believe it or not, this leakage may be the least of the worries. Many geologists suspect that gas hydrates play an important role in stabilizing the seafloor. Drilling in these oceanic deposits could destabilize the seabed, causing vast swaths of sediment to slide for miles down the continental slope.

On the other hand, developing methane hydrate mining might ease some of those worries of a catastrophic release if done safely and it does offer a fuel source. As set out in Mining "Ice That Burns":

Trapped in molecular cages resembling ice, at the bottom of the ocean and in terrestrial permafrost all over the world, is a supply of natural gas that, by conservative estimates, is equivalent to twice the amount of energy contained in all other fossil fuels remaining in the earth’s crust. The question has been whether or not this enormous reserve of energy, known as methane hydrates, existed in nature in a form that was worth pursuing, and whether or not the technology existed to harvest it.
***
While no one believes that all of the world’s methane hydrates will be recoverable, the scale of global reserves has been described by the U.S. Department of Energy as “staggering.” They occur anywhere that water, methane, low temperatures, and high pressure co-occur–in other words, in the 23 percent of the world’s land area covered by permafrost and at the bottom of the ocean, particularly the continental shelf.
***
The United States is not the only country with plans to attempt long-term production tests of methane hydrates. Japan is spending by far the most money on methane hydrate research; it provided most of the funding for the Mallik tests, which were sponsored by the Japan Oil, Gas and Metals National Corporation and by Natural Resources Canada, with field operations by Aurora College/Aurora Research Institute and support from Inuvialuit Oilfield Services.

According to the Center for Hydrate Research’s Koh, Japan is investing heavily in attempts to harvest deep-sea hydrate reserves discovered off the southern coast of Japan in the Nankai Trough.

“The Japanese are planning commercial production from the Nankai Trough by 2017,” says Koh. If they succeed, Japan will tap the first domestic fossil-fuel reserves the country has ever known.

A Popular Mechanics "demystification" of "Fire Ice" here, which looks at the "scary story" above:

But what if the earth released the gas as a result of heating up? Not only energy companies but also scientists studying climate change have a major interest in methane hydrates. Methane is a greenhouse gas, a far more powerful one than carbon dioxide, and some scientists fear the warming of the earth could destabilize hydrates to the point that they release methane into the atmosphere, further worsening global warming. Ideas such as the clathrate gun hypothesis suggest that methane hydrate dissociation is linked to prehistoric global warming.

However, according to a Nature Education paper published by the USGS, only about 5 percent of the world's methane hydrate deposits would spontaneously release the gas, even if global temperatures continue rising over the next millennium. In addition, bacteria in the nearby soil can consume and oxidize the methane so that only a minute fraction (as low as 10 percent of the dissociated methane) ever reaches the atmosphere.

So, now, you have the background to understand this report, Methane hydrate flow established off Japan:

Japan Oil, Gas and Metals National Corp. (Jogmec), Tokyo, said it has produced methane from methane hydrates during tests of a well drilled in about 1,000 m of water offshore the Atsumi and Shima peninsulas of Japan.

The well, operated by Japan Petroleum Exploration Co., produced methane by depressurization of hydrates in a layer 270-330 m below the seabed.

Jogmec said it was the first offshore test of methane hydrate flow ever conducted.

Jogmec's summary of its activities here.

Baby steps to diminishing the importance of Mid-East energy and easing some issues over sea lanes.

National Energy Security: Coming "Golden Energy Era"

Oil and Gas Journal reports "US on brink of strong oil, gas growth, Senate panel told":

“We believe that by 2020, the United States will become the largest producer of hydrocarbons in the world, surpassing Russia,” said Roger Diwan, partner and head of financial advisory operations at PFC Energy. Now that producers have solved the problem of producing oil and gas from tight shale formations, the nation is on the verge of a golden energy era which is reshaping the industry worldwide, he maintained.
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The scale of the opportunity to increase US oil production is greater than in most other countries over the next decade, noted James Burkhard, managing director of IHS CERA Inc.’s global oil group.
***
Howard K. Gruenspecht, acting administrator at the US Energy Information Administration, said the US Department of Energy’s independent forecasting and analysis agency’s initial 2012 Annual Energy Outlook (AEO) reference case forecasts 20% growth in US crude production over the next decade. Net petroleum imports are expected to drop from 49% of total US consumption in 2010 to 38% in 2020 and 36% in 2035 as a result, he said.

So, less reliance on foreign producers, brought to you by the petroleum industry. You know this is much better for national security and our maritime energy security. And, as a bonus, it buys time for all those expensive bio-fuels projects to be perfected . . .