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Why Cheap Oil Isn’t Bad For The Environment

Why Cheap Oil Isn’t Bad For The Environment

It stood to reason that collapsing prices for oil would make clean energy relatively more expensive. That would dampen the public’s craving to install solar panels and build wind turbines.
Well, let’s try to reason again. A lot of opposing forces are shaking the old assumptions. In the jaws of bargain oil, the U.S. Department of Energy expects Americans to increase their use of renewable power this year by almost 10 percent. Why is this time different?

Consider solar power. Over the past 18 months, the price of oil has fallen by 75 percent, yet the installation of solar panels proceeds apace. The advocacy group Solar Foundation reports that jobs in solar energy increased last year by more than 20 percent. Most of them were for installers.

As for wind power, Denmark-based Vestas, one of the big three wind-turbine companies, says that business continues to boom in North America, Asia, Africa and Latin America. Its stock price doubled last year.

What’s going on? For starters, while the price of oil has fallen, so have the costs of green energy technologies. For another, strangling air pollution in China and India has fed a desire for clean energy greater than the urge to find the cheapest source.

And international alarm over carbon’s role in global warming has taken root in concrete ways. It appears that vows to cut fossil-fuel use at the Paris climate-change summit are being taken seriously.

In this country, Congress recently extended tax credits for new wind and solar projects. President Obama’s Clean Power Plan, meanwhile, is requiring states to cut power-plant emissions.
Sharply lower oil and gas prices have translated into enormous savings for consumers. Some developing countries have used their newfound cash to cut subsidies for gasoline. Countries dependent on imported oil are using the savings to invest in wind power, according to Vestas.

Drops in oil prices act like tax cuts, and American consumers may be spending some of their bounty on SUVs and trucks. That’s not great environmental news. On the other hand, SUVs and trucks are now so much more fuel-efficient than in the past.

Within the fossil-fuel world, a sharp drop in oil prices has rearranged the economics with environmental benefits. As The Economist magazine explained, “Cheap oil has a green lining, as it drags down the global prices of natural gas, which crowds out coal, a dirtier fuel.”

Another green lining is that it makes drilling in hard-to-reach places, such as the Arctic, less economically feasible. This offered good timing for Obama’s proposal to extend “wilderness” designation to millions of the acres in the Arctic National Wildlife Refuge. Drilling and mining are off-limits in wilderness-designated areas. ANWR has long been a battleground between environmentalists and oil companies.

Some economists worry that the oil-price “tax cut” isn’t doing much for the American economy because consumers seem to mostly be saving the money instead of spending. Cheer up. Saving should be regarded as deferred spending, and in any case, it’s about time Americans amassed an economic cushion.

Of course, the drop in energy prices has hurt oil-and-gas-producing parts of this country, Alaska in particular. Happily, the economies of oil-producing Texas and North Dakota have become considerably diversified. Energy is not the only game. Certainly, oil and gas are not. Texas has become America’s biggest producer of wind-powered electricity.

Renewable energy is not the environmental plaything mocked years ago by the drilling interests and their politicians. Two months ago, in the midst of an oil-price tumble, Goldman Sachs said it was quadrupling its bet in alternative energy to $150 billion. Hard numbers have clearly taken over the debate, and clean energy is winning.

Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at fharrop@gmail.com.

Photo: A pump jack stands idle in Dewitt County, Texas January 13, 2016. REUTERS/Anna Driver

Shell Receives Final Approval To Drill In Arctic, But With New Conditions

Shell Receives Final Approval To Drill In Arctic, But With New Conditions

By William Yardley, Los Angeles Times (TNS)

SEATTLE — Royal Dutch Shell received final approval from the Obama administration Wednesday to begin exploratory drilling for oil in the Arctic this summer, but with new restrictions that will alter the company’s plans.

Shell, which has faced complications and challenges from environmentalists for years as it has pursued drilling in the Arctic, received initial government approval in May. Since then, it has deployed more than two dozen vessels to the drilling site in the Chukchi Sea, off the northwestern coast of Alaska.

The company could begin preparatory work as early as next week, but the new limitations will delay when it can drill in areas that contain oil. Wednesday’s decision also prevents Shell from its intended plan to drill in two areas at the same time.

The Bureau of Safety and Environmental Enforcement, which is part of the Interior Department, issued the final permits. The bureau said Shell can initially drill only what are known as top holes, staying above oil-bearing areas, because a capping stack, a critical piece of safety equipment that is required to be nearby to help contain a potential spill, is on an icebreaking vessel that was forced to leave the area for repairs this month. The vessel, M/V Fennica, has a fracture in its hull and is to be repaired in Portland, Oregon.

The administration said Shell could submit a new application to drill into oil-bearing areas “if and when the M/V Fennica is capable of being deployed in the Chukchi Sea and Shell is able to satisfy the capping stack requirement.”

A spokeswoman for Shell, Kelly op de Weegh, said Wednesday the company expects to complete the repairs to the Fennica in time for it to return to the Arctic and drill for oil this summer. The company must be out of the area by the second half of September.

The last time Shell began exploratory work, in 2012, it was allowed to drill only top holes. That effort was plagued by problems, including the grounding of a drill rig, the Kulluk.

This year, Shell’s initial plan included drilling simultaneously in two parts of a section of the Chukchi known as the Burger Prospect. But the administration said Wednesday that the company can work in only one area at a time because the sites are within 15 miles of each other. Rigs working that close to one another create potential disruptions to protected walruses that live in the region.

The Chukchi is in the western Arctic Ocean, which is believed to hold more than 25 billion barrels of recoverable oil. Environmental groups have long cited the dangerous conditions of working in the remote Arctic, which is hundreds of miles from major cities and basic support services. They have said drilling for oil in the Arctic conflicts with the administration’s efforts to fight climate change.

Last week, in a letter to Interior Secretary Sally Jewell, several groups said the problems with the Fennica and the 15-mile rule make it impossible for Shell to honor its environmental commitments under its drilling plan. They had called on the administration to deny final approval.

The groups were not pleased with Wednesday’s decision.

“The Department of the Interior has shown a willingness to bend rules and blur lines to accommodate Shell,” said Michael LeVine, a lawyer for Oceana. “We believe the permits approved today are unwise.”

Photo: Protesters at San Francisco’s Shell No rally get ready to take to the waters of the San Francisco Bay as a part of a national day of action to oppose Shell’s plans to drill in the Arctic, July 18, 2015. Shell No via Flickr Credit: Peter W. Jackson

Frac Sand Industry Feels The Effects Of Low Oil Prices, Less Drilling

Frac Sand Industry Feels The Effects Of Low Oil Prices, Less Drilling

By David Shaffer, Star Tribune (Minneapolis) (TNS)

MINNEAPOLIS — Low oil prices and reduced drilling in shale regions like North Dakota are hurting the once fast-growing frac sand industry, slashing demand and forcing price cuts that have led some players to reduce jobs.

U.S. sand mines, including 63 in Wisconsin and six in Minnesota, are projected to ship significantly less sand to oil drillers in 2015, compared with last year, when companies like Fairmount Santrol, U.S. Silica, and Superior Silica Sands set production records, industry officials say.

“This whole ripple effect has taken hold and it is going to continue,” Richard Shearer, CEO of Superior Silica Sands, a Texas-based company that operates sand mines in Wisconsin, said in an interview with the Star Tribune. “There are peak cycles and trough cycles, and we have hit a trough.”

The nation’s $4.2 billion industrial sand industry is increasingly tethered to the oil and gas sector, which now buys about 72 percent of the output. Sand production more than doubled in five years, and Wisconsin is the leading producer. Minnesota is fourth, behind Illinois and Texas, according to the U.S. Geological Survey.

Sand is used in hydraulic fracturing, or fracking, a process that injects sand, water, and chemicals into shale to free oil and gas. As crude oil prices have dropped — by nearly 50 percent since June — drillers have idled rigs, reducing demand for sand and putting pressure on its price, industry officials say.

The number of U.S. rigs drilling for oil and gas fell last week for the 17th straight week to 1,028, which is about half the number operating in November 2011, according to oil field service company Baker Hughes. North Dakota’s rig count slipped to 90 from a high of 203 in June 2012.

To make things worse for the sand industry, many newly drilled wells are not being completed right away. Instead, some drillers have delayed fracking, which can cost more than three million dollars per well, hoping that oil prices recover. North Dakota has 850 uncompleted wells.

Shearer said some experts project that sand shipments could be down 30 percent to 40 percent this year. U.S. Silica Holdings, the nation’s largest frac sand producer whose operations include a mine in Sparta, Wisconsin, recently told Jefferies Equities Research that it expects a 15 percent drop in its sand demand in 2015.

“It is a softer market, and there is pricing pressure,” said Scott Sustacek, CEO of North Mankato-based Jordan Sands, which started operations in December, just as the sand business began to weaken.

Sustacek said the company’s mine, named after the Jordan sandstone formation, is still ramping up production, although prices have dropped “in the 25 percent range” from the peak in 2014.

He said that the company has 25 employees and that it sells much of its sand in Texas, largely because it’s an easier market to reach via Union Pacific, the railroad serving the mine.

Neither the Superior nor the Jordan mines have cut workers, their CEOs said, but others in the industry have reduced payrolls, including 55 layoffs announced last month at a Chippewa Falls, Wisconsin, sand trucking firm.

At Fairmount Santrol, which has sand mines in western Wisconsin and in Shakopee, CEO Jenniffer Deckard told analysts in late March that the company idled its Readfield, Wisconsin, facility and that it cut the company’s 1,229-employee workforce by five percent. That’s about 60 jobs, but the Ohio-based company wouldn’t give more details, and it released a statement that left unclear whether layoffs are over.

“Fairmount Santrol is undertaking organizational restructuring intended to better align its cost structure with weakening market conditions,” said spokeswoman Kristin Lewis in an email.

Most sand is sold under long-term contracts. “Some of the contracts come up for renegotiation in May, and that will tell us what’s happening,” said Dave Armstrong, executive director of Industrial Development Authority in Barron County, Wisconsin, the epicenter of Wisconsin’s frac sand business.

Amid the downturn, two trends in the oil industry may benefit the sand business.

Those 850 uncompleted wells in North Dakota, for example, eventually will be completed, many of them later this year. If the price of crude oil stays at the current low level, North Dakota law will trigger a tax break on wells completed after June first. That would make it attractive to complete wells, boosting demand for frac sand.

Oil companies also are starting to pump significantly more frac sand into each well because production data show that it increases the oil output.

“The more the better — there is no doubt about it,” said Ken DeCubellis, CEO of Minnetonka-based Black Ridge Oil & Gas, which invests in North Dakota oil wells that are drilled by other companies.

DeCubellis said he has seen data from side-by-side wells — one drilled a few years ago using conventional amounts of sand and another more recently using at least twice as much sand. The intensively fracked well produced nearly twice as much oil, he said.

“The problem today, they are just not drilling enough wells,” said DeCubellis, whose own company cut its capital expenditures 40 percent this year, compared with 2014. “Over the short term, there is clearly going to be a reduction in the amount of frac sand used. Once the market rebounds and oil prices start to recover, then you are going to start to see that volume increase again.”

Photo: Jeff Wheeler via Minneapolis Star Tribune/TNS

Arctic-Drilling Protesters Board Shell’s Oil Rig In Pacific

Arctic-Drilling Protesters Board Shell’s Oil Rig In Pacific

By James Paton, Bloomberg News (TNS)

SYDNEY — Arctic-drilling protesters from Greenpeace climbed aboard a Royal Dutch Shell Plc oil rig Monday as it was transported across the Pacific Ocean northwest of Hawaii.

Six Greenpeace members approached the rig, the Polar Pioneer, in inflatable boats and scaled the platform, according to a statement from the group. The Transocean Ltd.-owned rig is traveling on the Blue Marlin vessel to Seattle before heading to the Chukchi Sea in the Alaskan Arctic, according to Greenpeace.

Shell, Europe’s largest oil company, has said it wants to resume drilling off Alaska this year even as a plunge in crude prices has led oil explorers to review their ambitions in Arctic regions, where operations are already challenged by high costs, environmental concerns, and technological obstacles.

Shell, which has spent six billion dollars searching for oil off Alaska in the past eight years, suspended drilling in 2012 after a rig ran aground and it faced legal challenges. The company could now resume operations after the U.S. government last week decided a lease sale in Alaska can go forward.

Shell said the Greenpeace protesters illegally boarded the rig, jeopardizing their safety as well as the crew’s. The company, based in The Hague, said it has met with critics of oil exploration off Alaska.

“We respect their views and value the dialogue,” Shell wrote in an e-mailed statement. “We will not, however, condone the illegal tactics employed by Greenpeace. Nor will we allow these stunts to distract from preparations under way to execute a safe and responsible exploration program.”

Shell faces opposition from environmental groups concerned that harsh conditions off Alaska make drilling unsafe. Greenpeace has in past years boarded rigs used by Statoil ASA in Norway’s Arctic and OAO Gazprom in Russia, arguing that a spill could cause irreparable damage.

Lower oil prices have already led oil companies to review Arctic plans as they tighten spending. Statoil in December relinquished three licenses off Greenland, and last month delayed the Johan Castberg development in Norway for a third time. It also said it won’t drill in the Barents Sea this year.

The Arctic accounts for more than 20 percent of the world’s undiscovered oil and gas resources, including an estimated 134 billion barrels of crude and other liquids and 1,669 trillion cubic feet of natural gas, according to the U.S. Geological Survey.

Photo: Greenpeace USA via Facebook