Politics

Sheila McNulty

The issue of hydraulic fracturing, or fracking, has taken on a life of its own. But with so much misinformation, it is hard for the general public to know whether it is a good thing or a bad thing. The truth is – as with any polarising issue – somewhere in the middle. New York appears to have accepted that and decided to move forward to permit fracking in all but the most sensitive areas of the state.

But even as New York is poised to lift its moratorium on fracking, New Jersey’s legislature has moved to impose one. What this illustrates is just how divisive this issue has become.

Let us look at some of the pros: Hydraulic fracturing in a series of stages, combined with horizontal drilling, has given the US oil and gas industry a new lease of life. After years of declining production, the technology has enabled the country to grow not only natural gas but oil production. And with a country that consumes so much energy and has yet to make any serious attempt to scale back its usage, this can only be a good thing. It means more domestic supply to meet demand, which translates into less money leaving the country for imports and heightened energy security. And more drilling, of course, means more jobs and more economic activity.

Now here are the cons: if drillers are irresponsible about how they use the technology – and with far more than 1,000 operators drilling and producing across the country there will always be some who are – it hurts everyone. The damage to the environment and people could be very real. One only needs to think of Macondo, BP’s well at the centre of last year’s accident in the Gulf of Mexico.

As the EPA investigates the environmental risks associated with fracking, the industry must ensure it has no Macondos. By proving the industry can safely and responsibly develop the US’ domestic resources, companies eventually win over the public, and politicians, who are so afraid of the technology they are banning it outright.

But the industry cannot do this if it is not permitted to frack at all. Take New Jersey, which has just  passed a ban on fracking this week. While New Jersey is not a major gas producer – and does not seem to have the geology ever to be – this is, nonetheless, a symbolic gesture that might well ensure that what it does have is never developed.  That leaves the burden to other states, such as Texas, to continue producing the gas used by those in New Jersey.

While this is not fair, the industry will say it would rather deal with states individually than have a restrictive federal law passed down that might, in the end, restrict the use of fracking in industry-friendly places such as Texas.

Certainly there are risks of that happening, but it seems to make the most sense for the US to approach this issue on the federal level. If a fair, science-based investigation can be conducted, and the industry be given an opportunity to defend itself against the charges of environmentalists, perhaps a workable solution can be found - one that permits fracking to continue across the country with the necessary safeguards to prevent a disastrous onshore event, such as Macondo was to the offshore industry.

That way states like New York – which was among the first of a string of places to put a temporary ban on fracking - and New Jersey will not scare off the public and politicians in other states from permitting something that might well be done safely  – and limit imports and grow energy security as much as possible. For a country that consumes so much energy and cannot seem to get its arms around a comprehensive plan to reduce carbon emissions with a real committment to renewables and energy efficiency, this seems the best course to take.

David Blair

Over the next decade, Britain is expected to spend some £200bn on overhauling its entire energy infrastructure. Chris Huhne, the energy secretary, tries to justify this colossal price tag by pointing to the future opportunities presented by “green growth”. He reckons the UK can reap a huge dividend by becoming a leader in renewable energy technologies, allowing us to penetrate new export markets in emerging economies. 

But an energy conference organised by the Financial Times in London threw several buckets of cold water over Huhne’s optimistic theory.

Sheila McNulty

The technological advances in the oil and gas patch just keep coming. While everyone has been scrambling to catch up with the shale gas revolution, the industry has been working on another potentially significant breakthrough in gas. This one is in producing gas that has long been stranded offshore in areas too far or too small to warrant a pipeline to shore.

Royal Dutch Shell recently announced it would be the first producer to invest in a multibillion dollar project to capture this gas. The project will be a floating liquified natural gas terminal – known as a FLNG terminal in the industry – that makes it economic to get at such gas fields. No pipelines need to be built. Shell just produces the gas until it runs out and then moves along to the next field.

Audio ENRC, Cairn Energy, UK prices
In this week’s podcast: ENRC, the FTSE100 miner implodes; Greenpeace continues its campaign to kick oil companies out of the Arctic; and, energy prices in the UK.

Presented by Sylvia Pfeifer with William MacNamara, Chris Thompson in Greenland and Adam Scorer from Consumer Focus

Produced by LJ Filotrani

Sylvia Pfeifer

It’s been a fortnight of corporate comebacks for former BP executives. First out of the blocks was Tony Hayward, the former chief executive of the UK oil group, with the launch last week of his energy fund, Vallares. And this week, Andy Inglis, his former colleague who used to run BP’s exploration and production arm, made his first public appearance in front of City investors in his new job at Petrofac, the oil and gas service provider. Both men left BP last year in the wake of the Gulf of Mexico spill.

As head of BP’s upstream business based in Houston, Texas, Mr Inglis was in charge of its exploration activities at the time of the gulf accident. He resigned from the board of BP after Bob Dudley, who took over as chief executive officer from Tony Hayward after the accident, initiated a wholesale restructuring of the upstream division.

Mr Inglis heads Petrofac’s new Integrated Energy Services division which brings together the company’s solutions, energy developments and training services businesses. The division is focused on so-called ‘resource holders’ or national oil companies that own small and medium-sized undeveloped fields. Unlike other service companies, IES will not only provide straight-forward services such as engineering and construction but, where appropriate, it will also provide capital.

David Blair

It was not a bluff. When Centrica warned a month ago that it might choose to leave one of Britain’s biggest gas fields off-line because of the higher taxes levied on UK energy companies, some thought this was an empty threat.

However, South Morecambe gas field has become available after a period of routine maintenance – and Centrica chose to leave it dormant on Wednesday morning.

In the corridors of Brussels’ elegant Stanhope Hotel on Wednesday afternoon, the well-turned-out movers-and-shakers of the European energy world were marvelling at the sizeable budget and high-profile guest list for the event they were attending.

Soon to share a dais were Günther Oettinger, the European energy commissioner; his Russian counterpart, Sergey Shmatko; Alexei Miller, the chairman of Russia’s Gazprom; and Paolo Scaroni, the chief executive of Italy’s Eni. The ballroom was appointed with flat-screen video monitors and rows of chairs with corporate gift boxes.

The event was a sort of a Brussels coming-out party (and charm offensive) for South Stream, a Gazprom-backed pipeline project that aims to carry Russian and Caspian gas under the Black Sea to Bulgaria, where it would then fork off to Italy and Austria. South Stream’s backers, which include Eni, and now BASF, are due to decide next year whether or not to push ahead with the €15.5bn investment necessary to complete the sprawling project.

Hugo Chávez must be distraught. There’s nothing he loves more than to launch into spirited tirades against the “empire” (a.k.a. the USA), and now he has the perfect excuse: it slapped sanctions on Venezuela’s state oil company PDVSA for selling fuel to Iran.

But with the firebrand currently convalescing from problems with his knee, more than a day has gone by and he has still held his tongue (barring a few comments on Twitter), leaving that pleasure to his flunkies. And indeed, they haven’t held back, using the kind of nationalist rhetoric others would reserve for a full-blown land invasion.

The fact is, the impact of the sanctions will be minimal. They won’t affect Citgo, PDVSA’s US subsidiary, nor will they stop Venezuelan oil exports to the US – as if either party wanted that to happen anyway. All they will do is prevent PDVSA from doing things it has little to no interest in doing anyway: competing for US government contracts, obtaining export licenses or receiving financing from the Export-Import Bank.

Sheila McNulty

A shale gas wellAs questions about hydraulic fracturing – fracking as it is known in the industry – continue to build, the oil and gas industry is finding investors asking for more transparency as to how companies are going to face the growing risks to production.

France has banned fracking, and US federal regulators are investigating the safety of the process.

But the real risk to the industry at this point is how some US states and cities have taken the issue into their own hands: Pittsburgh has banned such drilling, and the New York State Assembly approved a temporary moratorium. There are other efforts under way in pockets across the US to further control or bar the process.

Mol Duna refineryHungary is taking no chances with control of Mol (MOL:BUD), the national oil company. After announcing a €2.88bn deal to buy back a controversial 21.2 per cent stake from Surgutneftgaz, the secretive Russian energy group, Budapest is proposing to up its stake further, to up to 24 per cent.

The fact that the cash-strapped government, which emerged from an IMF rescue only last year, is spending big money on increasing national control over Mol highlights how sensitive Hungary is over Russian influence in the energy sector. Most other central European states are no different. Oil sector investors in the region ignore politics at their peril.

The additional shares are coming from the semi- private pension funds that the government is nationalising, taking control of their €10bn portfolios, including a 2-2.4 per cent stake in Mol. Peter Szijjarto, the government spokesman, said on television late on Tuesday that the state would also retain these shares taking its stake to up to 24 per cent.

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