Barclays Capital energy analysts write that the question they are asked most is: why are US gas producers continuing to drill so much? Prices are low (especially against crude oil), storage levels are high, and demand has of course taken a hit from a downturn in industrial activity.
It’s something that the shale gas producers themselves seem a bit unsure of, judging from some past comments.
As BarCap’s James Crandall points out, aggregate decline rates from existing gas wells are about 30 per cent, so a drop in drilling activity could indeed affect supply, and prices, fairly quickly.
So then, why keep at it?
The US oil majors have not just decided that refining is not going to be profitable in the US, it seems, but in other parts of the world as well. ConocoPhillips said on Wednesday it has informed Saudi Aramco it will end participation in the new refinery project being built in Yanbu Industrial City.
From the press statement by Willie Chiang, senior vice president, refining, marketing and transportation:
The quality of Saudi Aramco as a partner and significantly reduced capital costs from the recent re-bidding process made it a very difficult decision for us. We ultimately decided this project was not consistent with our current strategy to reduce our downstream footprint. We value and look forward to continuing our relationship with Saudi Aramco.
ConocoPhillips, along with Chevron and other major integrated oil companies, have decided in recent months to scale down their refining activities. The division has been hit by a drop in demand from the economic downturn, as well as a move to ethanol and other biofuels, and energy efficiency efforts. That carbon legislation is expected to eventually hit the carbon-intensive sector hard is another reason to get out.
The CFTC has seen a big spike of late in public comments on its proposed position limits for energy trading.
Reuters’ John Kemp, never shy of whipping up a spreadsheet, has charted the increase:
The story is that the big spike in submissions comes from form letters sent via the likes of the ‘Stop Oil Speculation (S.O.S.) Now‘ group — as economist Philip Verleger first pointed out to us, and Platts’ The Barrel blog also notes.
FT columnist Gideon Rachman – one of many stranded by the volcanic ash flight disruptions – wrote earlier this week about his feelings of anger, powerlessness and shock:
” Wealth and privilege has made babies of us all. Of course I should be able to get anywhere in the world in 24 hours! There is always a flight out. There is no logistical problem that cannot be solved with a mixture of ingenuity and money.”
Rachman, who has since made it back to London, sums up the collective disorientation felt when a mode of transport has vanished due to environmental factors well beyond the control of humankind. And a number of writers have pointed out that these feelings might be something that becomes less unusual in the next few years and decades.
- Russia ramps up Arctic energy race
- Companies betting for and against climate change
- ‘A watershed month for the truth about peak oil’
- Near-term systemic implications of a peak in oil production
- Critics challenge safety of new nuclear reactor design
- A defence of coal-fired power for emerging nations