Author Archives: Gary L Hunt

About Gary L Hunt

Gary Hunt is President, TCLABZ, a disruptive innovation technology collaboration of software, data and advanced analytics companies serving the energy vertical. For more information on TCLABZ solutions call Nathan Watt in Boston at 617-278-1862. Gary Hunt served as VP-Global Analytics & Data at IHS/CERA; Division President, Ventyx/Global Energy Advisors; as CEO, MMWEC, a New England wholesale power producer; and the most fun anyone should be paid to have managing Austin Energy and Austin Water in Austin, Texas—live music capital of the world! He can be reached at gary@techandcreativelabs.com. The views expressed in this blog are solely those of the authors.

Doha was a Dud!

Posted on by
Reply

The Doha climate change conference concluded this week with what has become a familiar ring.  Nothing much of import happened and increasingly fewer people noticed.  Oh, the issues at the surface are still the same as they have been since they first flamed out in 2009 at Copenhagen.  These events have become a global debate over wealth redistribution with the poorer countries trying to guilt the richer ones into paying them not to pollute their own backyards—-and if that is not silly enough trying to get the first world nations to pay reparations to the third world for their economic success.

This year the crisis was the looming expiration of the Kyoto Protocol at the end of 2012.  That event officially removed the rationale for these annual charades since the obligations the first world made to support the climate issues of the third world officially expire.  Since the expiration of Kyoto would end the necessity of further conferences, of course, the delegates decided to extend the expiration date to 2020.  This is the great achievement of this conference—an agreement to continue to the debate and meet annually in exotic locations spending other people’s money.

Yes, I know, I am making fun of this event.  But you must admit there are some inconvenient truths that are not spoken in polite climate change company such as:

  • The global economic situation is not good and few nations feel rich enough to take on the burden of subsidizing the rest.  The EU has Greece, Spain, Italy, Portugal and Ireland and a few other piglets to worry about.
  • The first world stepped up and pledged support for climate improvements but many of the fastest growing emerging economies refused to participate—so China, India and others were worried about climate change when they thought the first world would pay them to fix their own problems, but not worried enough about it to fix them on their own?  Please!
  • The US is spending money like a drunken sailor on shore leave with debt and deficits beyond imagination.  Our own fiscal cliff approaches and climate change subsidies to third world countries likely will not be our highest priority.

And then there is the matter of results.  Japan faced a terrible earthquake and tsunami that damaged its nuclear fleet so it turned away from nuclear to natural gas in the form of LNG at least as a bridge fuel.  The Germans over-reacted and began shutting down their nukes and decided to build more coal fired power plants.  Does this sound like an unwavering commitment to emissions reduction to you?

In the US, the shale revolution is increasing supply and driving down prices in a market that is rapidly being transformed from an import energy economy to an export economy.  Low energy prices are a cardinal sin in the environmental community because they encourage more use of fossil fuels and undermine the economics of most favored renewable energy which cannot yet stand on its own without subsidies.   So imagine the shock and awe to discover that the part of the world with the fastest decline in greenhouse gas emissions is none other than the United States of America!

EGADS!  Markets actually work! A command and control economy is not necessary to produce emissions reduction!

 

EGADS!!!  How will we enforce our political correctness if markets rationalize capital investment and make changes so fast we cannot build a coalition against them?

 

EGADS!!!  We didn’t need a cap and trade system of carbon taxes to get this result either!

Markets abhor vacuums even while they profit from uncertainty.  Markets seek equilibrium and will not be denied.  The market forces of self-interest and survival are more powerful and more constructive than any on earth and in today’s anxious global economy rational behavior is working to find its way back to equilibrium and then growth.

The dirty little ‘inconvenient truth’ secret from Doha is the global economy is finding its own way back to balance. That market equilibrium will return us to growth and reduce greenhouse gas emissions at one in the same time because the markets have decided to take matters into their own hands and deprive the politicians in every nation of an excuse to spend other people’s money until the entire world goes over a fiscal cliff.

High energy prices may be good for traders and speculators but they are cancer for economic growth.  The markets have decided that the shale revolution is real and it is going to be used to create an era of low energy prices from adequate supply sufficient to get the global economy growing again.

And for Americans in a funk over the fiscal cliff, government spending excess and huge debt and deficits, the government has largely been a bystander as the markets took charge and the shale revolution scaled on private lands, with private investment, and private initiative.  It is so powerful even a president running for re-election who opposed it took credit for the energy production growth.

The low priced shale energy resolution is here and now!  It may not last forever.  It may not be as powerful in other parts of the world where private property rights are weak or geology less favorable.

Who would have thunk it!  Low price energy is leading us to reduced greenhouse gas emissions, a stronger growth-driven economy, and a more secure energy future.  That is an inconvenient truth worth savoring.

Related articles

Common Sense Kiss of Death for Climate Change Lawsuits

Posted on by
Reply

The decision by the United States Court of Appeals for the Ninth Circuit in Native Village of Kivalina v. ExxonMobil Corp., No. 09-17490, 2012 U.S. App. LEXIS 19870 (9th Cir. Sept. 21, 2012) if left standing has the practical effect of ending the way environmental law claims are decided.  In a unanimous decision, the Appeals Court dismissed the case against XOM and other oil, energy and utilities companies alleging that their greenhouse gas emissions threaten the defendants’ property and other rights.  Had the court upheld the lawsuit it would have forced the energy companies to own the burden of proving that their business operations do not cause global warming—an impossible burden that would have subjected them to endless nuisance lawsuits.

The original lawsuit was dismissed by the Federal District court in 2009 as essentially a political lawsuit.  The plaintiffs appealed and the Ninth Circuit took the case. Meanwhile, the U.S. Supreme Court decision in AEP v. Connecticut, 131 S. Ct. 2527, 2535, 180 L. Ed. 2d 435 (2011) , where the legal issue was the same question as in Kivalina of is there a federal common law of public nuisance. Apparently the answer is that there is no federal general common law, but the courts over time have asserted the power to assume there is under a legal principle called “statutory interstices” and have used it to fashion remedies to fit the facts.  The problem with this judicial activism is there is a federal statute that says that the federal common law has been displaced — a concept similar to preemption.

Judge Sidney Thomas, writing for the Ninth Circuit panel in Kivalina, said that the Supreme Court had decided the matter in the AEP case. “We need not engage in complex issue and fact-specific analysis in this case, because we have direct Supreme Court guidance that has already determined that Congress has directly addressed the issue of domestic greenhouse gas emissions from stationary sources and has therefore displaced federal common law.  Further Judge Thomas said that the 1981 decision by the U.S. Supreme Court in Middlesex County Sewerage Authority v. National Sea Clammers Ass’n, 453 U.S. 1, 4 (1981) found  that “under current Supreme Court jurisprudence, if a cause of action is displaced, displacement is extended to all remedies.”  The practical result is that there is no displacement when there is no federal statutory remedy for monetary damages as a result of climate change.

The trial bar is left gasping for air, but the marketplace is spared from endless litigation over climate change. The principal legal theory behind climate change litigation and the endless quest for monetary damages has been debunked by the most arguably liberal Appellate Court in the land and worse, the Kivalina decision appears to further strengthen the preemption defense for defendants in all environmental common law actions, under both federal and state law. This is a victory for common sense worth savoring.

RIP A123

Posted on by
Reply

The battery technology firm A123 burned cash faster than it was coming in the door in a market for PHEV that is not as hot as many would like.  But unlike other green energy companies to flame out the A123 bankruptcy saw one an industry giant, Johnson Controls, ride in to make a bid for its assets.

Not even the $7500 Federal tax credit has been enough to get car buyers to buy a Chevy Volt. Toyota Prius is turning from the name of one car into a franchise of several model types in an effort by its corporate parent to leverage its investment and brand eminence in the category and capture the higher mileage ratings to satisfy its CAFÉ obligations.  Honda, meanwhile, signaled its intent to essentially offer a hybrid option for each of its mainline vehicles.

So is the love affair with the PHEV over before it really began?

Yes and no—and that’s a good thing.

The government’s approach to picking energy technology winners has turned into a colossal loser. Buying a car is still a very personal statement about our self-image, status, and persona.  Some cars make a statement we see as consistent with who we think we are.  And some do not.  Prius has been successful commercially because it oozed ‘tech savvy, environmentally responsible, fun to drive, and just hip enough to be well regarded in any company of friends.’  Chevy Volt screamed ‘the government made me do it.’  It is Yugo-like, bloated, plastic remnant from GM’s past with a big battery with a very limited range so I still have to put gas in it probably sense of uncertainty about it. Prius owners rarely have buyers’ remorse. Chevy Volt owners seem to worry about whether it will keep working until the hugely expensive beast is paid off.’

The commercial success of hybrid technology tells us the market is ready for well designed, reasonably priced, good performing electric vehicles.  But pushed beyond hybrids to PHEV involves more cost and more risk than most car buyers think prudent given the evolving state of battery technology.  The result of the government push for PHEV is to make the perfect the enemy of the good.

Johnson Control is buying the assets of A123 because it wants the patents and other intellectual property for future use.  That is a prudent business decision by a firm with deep enough pockets to keep investing in battery technology advances.  So let’s hope they make the most of it.  We need better battery technology not just for vehicles but for energy storage and time shifting of energy use.  But it is going to take a lot more than a Chevy Volt to change the game in vehicle efficiency or energy transformation.

Getting to Solar Energy Sustainability

Posted on by
2

The search for market equilibrium is an elusive quest in the solar energy industry.  But the addiction to subsidies, carve-outs and other political favors has done little to improve the success potential for solar.  Quite the reverse, by creating the conditions that made possible and induced China to expand its aggressive export strategy of market dominance and deploy its zero sum game of taking market share from regional players the solar industry and its political patrons has effectively slit their own throats.

America's Losing Competitive Cost Advantage is Self-imposedThe question is how do we pull the solar energy future out of the ditch and get it back on the road re-positioned to be competitive on its own merits and strengths while changing the counterproductive business model, tax policies, market conditions, regulatory requirements and political meddling that now stand in its way?

The solar power industry continues to struggle to find market equilibrium amidst the chaos and volatility it finds itself.  The news is regularly full of near death experiences which have unfortunately come true for many solar market participants or fears of loom disaster on the horizon including:

It was not supposed to be this way.  Solar energy offered the most potential to disintermediate the traditional utility business model with distributed energy alternatives from photovoltaic modules on every roof to concentrated solar thermal options of utility scale.  There was enthusiasm for advances in technology that would improve module efficiency, trackers that would follow the sun and soak up its promise, and there were pioneers who stuck their neck out to invent and perfect new solar technologies to improve performance and efficiency. Yet solar energy seems more today than ever like Sisyphus continuing pushing that rock up the hill only to have it roll back down again.

This nearly perfect storm of unintended consequences from subsidies, feed-in-tariff backfires and political correctness run amok has been compounded by a nearly perfect quest for market dominance by China that sought to achieve its goals in a zero sum game by destroying regional competitors with the backing of its state sponsors eager to expand exports and build capacity to serve its own energy future.

The solar energy industry in the US and EU has been reduced to a leasing and installation franchise of China’s export industry.  We are spending subsidy money to install the least efficient, falling-priced commodity solar modules rather than creating market conditions to incent the evolution to newer, better, more efficient solar technologies. This never made sense except for political correctness.  The unintended consequences of this foolishness is a false sense of solar energy progress which does little to improve the competitive long term position of solar in the energy mix.  We compound this error by our equally foolish policies on regulation that drive up the balance of system costs in the US to more than twice what they are in Germany ( see figure above).

Today, as a consequence, China’s strategy of global market dominance is backfiring.  Excess production capacity and export growth has produced global glut, falling prices, and ferocious regulatory, legal, trade and political fallout for China around the world with anti-dumping duties, countervailing tariffs and other trade restrictions looming to punish China for political expediency rather than fix the market dis-equilibrium mess we created.

Achieving market equilibrium requires some tough love for solar energy and its market participants to create the conditions precedent to allow the market to find balance the old fashioned way—by earning it on the competitive business, technology and sales playing field.

Here are a few suggestions:

  1. Empower the market to find equilibrium on its own with Master Limited Partnerships.  The current growth in domestic energy production in oil and gas is being fueled in large part by the genius of the master limited partnership created by the Tax Reform Act of 1986 (TRA) and the Revenue Act of 1987 (IRC) to stimulate oil, gas and natural resource production.  This creative approach has worked spectacularly, minimized government interference, and improved both the allocation of capital where it has the best chances of market success and reducing the gaming of the tax laws by flowing through the income to the parties with skin in the game.  Applying the MLP rules to renewable energy on an equal footing with oil and gas and other natural resource development opportunities levels the playing field and provides a way for the market itself to pull solar, wind and other renewable energy projects out of the ditch on a merits basis not political correctness.
  2. End Federal Subsidies and Declare Victory on State Renewable Portfolio Standards. The most effective barrier to market abuse by China is to end gaming of the subsidies system that has fueled it.  Creating artificial demand by renewable portfolio standards may produce good headlines for politicians but it is manipulating the market just as corrosively as anything China has done in its quest for global market share dominance.  To fix the China market manipulation problem we must fix the US and EU market manipulation inducements so that the market can work to find equilibrium.  It is time for the addicted to confess their addiction is a problem they must face squarely in the search for market equilibrium and long term survival and success.
  3. Focus National Energy Policy on Creating a Thriving Competitive Market for Energy Innovation without picking the technology winners or losers. Our national energy policy has been broken for a long time.  As a body politic we too must face reality.  We can’t continue to spend money we borrow from China and others to permit our politicians to game the market while pandering to their base.  The government’s one true and most beneficial job is to create the competitive level playing field market conditions that allow all market participants to invest and work hard to provide high quality products and services that customers want to buy because they are a good value not because the government mandates it or subsidies it.

I recognize this may seem like fantasy, but if the proponents of solar energy and other clean energy alternatives really want it to succeed they must get off life support, be free from the addiction to unsustainable subsidies, and given a chance to grow and thrive on their own in a healthy, competitive market environment where innovation and hard work create sustainable market equilibrium.

Coal Fights Back, and Wins in Europe

Posted on by
Reply

A funny thing is happening on the way to the clean energy future.  While the US government wages a regulatory war on coal fired generation, in Europe, the land of the oh so politically correct the drive for greenhouse gas emissions reduction is meeting a new competitor—-reality!

The EU emissions trading scheme had fallen on hard times as the number of permits issued was large and demand in a falling economy was weak so prices fell.  Some reforms were made and the freebie credits were reined in but the economy was still weak.  While progress was still made in emissions reduction it was not the transformation some had hoped to achieve.

Then the Japan earthquake and tsunami sends Europe into a frenzy over the safety of nuclear power and Germany announced major closures of its nuclear fleet.  The Greens hoped killing off nuclear would give them a two-fer—less nuke and more renewables.

The German government policy is to encourage construction of 10 gigawatts of coal fired generation to displace aging nuclear plants and provide baseload backup for wind and solar power.  Worldwide coal plant construction grew 5.4% over the past year according to BP and now represents about 30% of installed capacity. The trade-off is to reduce the number of free emissions allowances to drive up the carbon credits markets.  To the Greens this is like paying penance for your sins.

But markets are a fickle mistress.  The lust for profits is a basic human business animal spirit.  So a story recently in Bloomberg BusinessWeek caught my eye. It said that European power producers planned to open six times more coal fired generating plants than gas-fired generators by 2015.  The story said profits at coal plants were expected to double repeating an analysis released September 13 by Goldman Sachs.

In the US the situation is reversed as low natural gas prices are accelerating the coal to gas conversion and forcing the retirement of many coal plants as economics and regulatory uncertainty combine into a double whammy for the coal industry.

The difference of course is the EU fear of the Russian gas price volatility and politics.  High gas prices in Europe are the result of politically expedient deals that peg the price of Russian gas imports to the price of oil.  In US markets the growth of domestic energy production of natural gas from shale sources has decoupled prices and driven natural gas down to near record levels.  The markets are correcting the oversupply and gas prices are expected to climb as supply and demand come back into balance.  Goldman Sachs forecasts gas prices will rise 17% by 2015 assuming normal weather.

So what’s the strange bedfellows story?

It seems that carbon credits markets have the same lust for profits as energy companies so some forecasters expect EU carbon credit prices to bounce back from their own record lows and grow by as much as 73% by the end of 2013 according to this Bloomberg report. Coal companies are glad to pay the carbon credit price to get back into robust operation and turn profits again.  Meanwhile, nuclear plants are forced to shut down and renewable projects facing their old nemesis from the black fuels once again have a new challenger for low cost power production.

Who is cheering?  EU utility ratepayers who have been taxed and gouged by politically correct but still artificially high utility rates to pay for the green aspirations of their politicians.  Call it common sense, call it the revenge of markets, call it economic reality—the Europeans just might be onto something!

The Dirty Little Secret of Economic Impacts of Federal Rules

Posted on by
Reply

“We, the U.S. Fish and Wildlife Service (FWS) and the National Marine Fisheries Service (NMFS) (collectively referred to as the ‘‘Services’’ or ‘‘we’’), propose to revise our regulations pertaining to impact analyses conducted for designations of critical habitat under the Endangered Species Act of 1973, as amended (the Act). These changes are being proposed as directed by the President’s February 28, 2012, memorandum, which directed us to take prompt steps to revise our regulations to provide that the economic analysis be completed and made available for public comment at the time of publication of a proposed rule to designate critical habitat.”  —Preamble to FWS–R9–ES–2011–0073, Proposed Federal Rulemaking published August 24, 2012.

If this is all you read about this proposed rules change, you’d think, “OK, no big deal this makes sense. We want the economic impact analysis of Federal rules to be complete—otherwise why bother.  We also want to see that complete analysis before the public comment period so we can actually comment on the estimated cost and impact of proposed rules.”

But according to a newly released Stoel Rives analysis of the impact and implications of the proposed critical habitat rules change, the dirty little secret is  you would be mistaken.

Critical habitat protection has been one of the most controversial and intrusive provisions of the Endangered Species Act (ESA).  The goal of the provision was to avoid doing more harm to endangered species thus giving them an opportunity to sustain themselves.  The ESA says Federal agencies may not take actions that destroy or adversely affect critical habitat.  There is nothing wrong with this goal, but the way it has been applied has resulted in situations where the designation amounts to a virtual taking of private property for a public purpose.

This critical habitat designation provision also creates opportunity for abuse of discretion if Federal agencies or environmental interveners use it to coerce outcomes that undermine the economics of proposed projects.  We often refer to this as NIMBY or other pejoratives, but they are symptoms of a Federal environmental regulatory process that is out of balance.  The review of the real implications of this proposed rules change is a good case study in the creeping process of environmental GOTCHA played out by rulemaking.

To balance the coercive potential of critical habitat designation, the Stoel Rives analysis reminds us that the ESA requires Federal agencies to “consider potential economic, national security, and other relevant impacts”. This includes economic impacts to private landowners and developers.  And in cases where this balancing of interests finds that there are more economic, national security or other benefits from doing so the Federal Agencies “may exclude an area from critical habitat” if those benefits outweigh the benefits of including it in the designation.

See why this is so contentious?

The case law is littered with conflicting decisions in these matters.  And that too creates opportunities for mischief.  Here we can even sympathize with Federal bureaucrats trying to write rules that will apply to all when a decision in one Federal court may be at odds with a decision interpreting the same provision differently in another.  That is what apparently provoked this proposed rulemaking.

Dueling Appeal Court Rulings

The Ninth Circuit Court of Appeals, the most overturned court in the nation, adopted a “baseline approach” to critical habitat designation which allowed the Federal agencies to consider only ‘incremental impacts’ in their economic impact analysis of critical habitat designation.  The practical effect of the ruling in the Western states where it was applicable was to enable the agencies to calculate the cost of a rule using minor additional administrative costs rather than the total regulatory burden.  The result , of course, was much more critical habitat was found to pass the cost benefit test and many more landowners were suing to stop it in Federal court.

In the Tenth Circuit Court of Appeals the same question was litigated and appealed with the opposite result.  The Tenth circuit said the baseline incremental approach used in the Ninth Circuit was unlawful precisely because it ignored the full cost of regulatory burdens in measuring the overall cost and benefits of the critical habitat designation as required by the ESA.

So what?

So the proposed rulemaking seeks to adopt the Ninth Circuit opinion allowing this incremental baseline approach and reject the Tenth circuit opinion.  If this proposed rule is adopted it surely will be litigated to the DC circuit where Federal rules are appealed and perhaps then onto the US Supreme Court.

You may comment on the proposed rule until October 23, 2012 as follows:

  1. Federal eRulemaking Portal: http://www.regulations.gov/#!home;tab=search . Search for FWS– R9–ES–2011–0073, which is the docket number for this rulemaking.
  2. U.S. mail or hand delivery: Public Comments Processing, Attn: FWS–R9– ES–2011–0073; Division of Policy and Directives Management; U.S. Fish and Wildlife Service; 4401 N. Fairfax Drive, PDM–2042; Arlington, VA 22203. We will post all comments on http://www.regulations.gov.

Will Regulation of ‘All of the Above’ Energy Cost 20X More on Public Lands?

Posted on by
1

Federal Lands

More than 96% of the domestic energy production growth from shales has taken place on private lands safely out of the reach of the Federal government bureaucrats and regulators.  That energy production growth is transforming America’s energy future by increasing supply reliability and driving down the price of natural gas from more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five years.

Meanwhile, on public lands production has actually slowed as the Department of Interior and its Bureau of Land Management (BLM) press on with extensive environment studies and new regulations even as the President professes support for an ‘all of the above’ energy strategy.  The Federal government announced proposed rules on fracking on public lands in May 2012 (43 CFR 3160.0-3) and has received more than 2,000 comments on those rules by the September 10, 2012 deadline. Interior Secretary Ken Salazar said in May he hoped to issue a final rule by the end of 2012 likely after the Presidential election.

According to a study by John Dunham and Associates the total cost of the proposed Federal rules will be about $1.5 billion to $1.62 billion a year or about $235,839 per well to satisfy the requirements on chemicals disclosure and certification that the well  is properly isolated to prevent leaks that might contaminate groundwater.  This figure compares to a BLM estimate of $11,833 per well—a difference of more than 20 times.    All that cost for rules that the oil and gas industry and the states of Colorado and Wyoming claim are unnecessary, unreasonable and required E&P firms to take actions that no state currently regulating fracking for oil and natural gas production has required.

The Dunham Study disputes the BLM claim that the proposed regulations are not major changes from existing rules citing the following examples of how the new rules add substantial and costly new requirements for E&P activities on federal and Indian lands:

  1. Mandates additional information and meet new requirements than currently required for all well stimulation (completion) activity when applying for a permit to drill (APD).
  2. Requires a similar separate application must be filed prior to additional drilling on an existing well.
  3. Requires BLM review and verification the additional drilling requirements at each permit stage slowing down the process and driving up the cost of idle equipment and crews.
  4. Requires additional cement bond logs be submitted to BLM for review and approval prior to completing the well again idling equipment and crews and driving up costs.
  5. Requires reporting specific source of water used in well completion operations.
  6. Requires submittal of a detailed engineering design and other information related to well stimulation operations to the BLM for approval.  These detailed studies end up becoming the basis for environmental litigation designed to challenge the review process and thus slow to stop E&P activities.
  7. Requires detailed information about how all recovered fluids from well drilling will be captured and disposed consistent with the rules.
  8. Requires a successful mechanical integrity test before beginning any well drilling.
  9. Requires receipts be supplied to BLM to validate that recovered fluids are disposed of in a proper manner.

Dunham also says that by adding additional requirements for new drilling activities at existing wells many of the current 90,452 wells on Federal leases will find greatly increased costs over time. Dunham calculated its estimates of the cost of these new fracking rules on public lands by examining data from the thirteen state regulatory authorities in the Western states covered by the study.  Dunham found about 12,300 oil wells, and 14,100 gas wells currently in the process of receiving a permit, or permitted but not yet drilled.

As you can imagine, private energy developers are wondering if the shale drilling opportunities on public lands—substantial as they are on the 38 million acres leased by the U.S. Government for energy development —are worth the aggravation.  Now a private study of the implications and costs of the proposed Federal regulations and environmental requirements to gain access to public lands has added up the costs. It is not a good news story.

 

Between an Argentine Shale Rock and Hard place

Posted on by
Reply

You must admit there is a certain irony in reports out of Argentina by none other than the newly named CEO of YPF, (NYSE: YPF) Miguel Galuccio, that his company has found a significant shale deposit waiting to be developed and if he can do so it will make Argentina s significant exporter of oil and natural gas.

What’s the irony?

YPF is the company that Argentina recently seized from Spain’s Grupo Repsol and nationalized. The action created a huge international dispute and Repsol’s demand for payment of $10.5 billion for confiscating its assets three months ago.

Shale Gas South America

SOURCE: USGS

Argentina shale gas reserves exceed its 13.4 trillion cubic feet (tcf) conventional proven gas reserves. The largest shale play is the Neuquen basin with more than 250 TCF. YPF discovered 4.5 TCF of shale gas in the Loma de la Lata Field of Neuquen in December 2010. Gas transportation and field services infrastructure are already in place making it attractive for further development. There are also additional Argentine shale deposit reserves in Chubut and Santa Cruz provinces near the Golfo San Jorge in the Atlantic southeast part of the country.  The U.S. Energy Information Administration (EIA) says Argentina’s technically recoverable shale gas reserves are the third largest in the world after the United States and China at 774 trillion cubic feet (Tcf) with more than half of that in the Neuquén Basin on the western side of the country.

Mr Galuccio used his press conference to dangle the prospect of opportunities for 50-50 partnerships with YPF for investors in the projects. He said foreign oil companies partnering with YPF could reasonably expect a 15 percent to 20 percent return on their investments.

The YPF CEO said he wanted to invest $37.2 billion through the end of 2017 to begin development of the shale resources and wanted an initial tranche of $4.6 billion of that total amount to come from outside investors. Three fourths of the capital would be used for production and the remaining capital would be used to improving refinery capacity and 4 percent for new exploration.

The numbers reveal the Argentine dilemma—finding shale resources is a long way from developing them and bringing them to market.  And that is the rock and hard place Argentina faces.  To exploit its shale potential Argentina needs the active participation and assistance from large international oil field services companies and deep pocket investors.

After Argentina’s economic crisis it put price controls on energy which scared away investors and developers.  It new plan has begun to turn that around and make it more likely that E&P can be profitable again. But its habit of regulatory overreach and confiscating investors’ property are still significant problems.

Argentina’s shale resource potential is large enough to attract the biggest companies. But in the rapidly changing world of global shale development there are many places where investors can participate in the growth of shales without the risk Argentina presents.  Today, the United States is actually one of the most attractive markets in the world for shale because more than 96% of the development is taking place on private lands beyond the reach of Federal regulators.  Investors have opportunities not only to buy positions in shale E&P developments but also gain access to the technology, skills and expertise needed to develop other shale resources around the world.

China is expected to be one of the largest investors in US shale development eager to scale its capabilities and then use them to develop China’s own enormous shale resource potential.  This should be sobering news to the Argentine Government.

There are plenty of big international oil and gas companies working in Argentina including ExxonMobil, Chevron, Apache Total and Halliburton but the trade press suggests that Argentina will first have to settle its dispute with Grupo Repsol and pays up for its confiscatory ways.

The fierce global competition for energy is attracting capital to the best opportunities.  Argentina will not be able to dictate terms for its shale development in isolation so the right balance of price and terms will be required to make it attractive enough from among the options to warrant the risk. Beyond that the risk premium Argentina can expect to pay to play in the shale game will almost certainly eat into its margins or delay its development.

Lower Costs, Better Performance and More Profitability in Well Field Operations

Posted on by
2

HotLeap TRACKER pays for itself in savings at one well by alerting field crews to match methanol injection to well production rates across the well field.

North America’s energy production growth is the envy of the world. From the Alberta oil sands to shale plays across the US, we are getting down to business fueling our economic growth.

New technology is enabling domestic energy production growth and solving the most vexing field problems.  New regulations impact well operations requiring even more inspections, data gathering, reporting and validation that the rules are being followed. Low natural gas prices are also at work forcing field operations to reduce cost and improve performance to sustain profitability.

  • How do we get field data essential to monitor well operations into the hands of field crews in remote locations to assure production?
  • How do we gather and analyze field inspection and equipment readings to detect anomalies that cause performance problems, equipment shut-offs or safety or environmental problems—before they happen?
  • How do we verify that required inspections and field compliance data are being collected and reported to create an audit trail of our performance?
  • How do we monitor field expenses to assure optimal performance?

HotLeap TRACKERTM 

TCLABZ technology collaboration with Hot Button Solutions and Panopticon has produced HotLeap TRACKERTM  to monitor methanol injection rates improving performance and profitability by alerting crews to match methanol injection rates to well production.

When a well comes on stream methanol is injected so pipelines don’t freeze and is often over-injected initially until the well operates normally. Production rates start out strong and decline over time flattening out within a few months.  But often methanol injection rates are not adjusted to reflect production decline.  It is easy to waste thousands of dollars in methanol over-injection. This drives up operating costs and reduces well profitability.  On older wells production declines at a normal rate of 8 to 10%. Tracker helps monitors injection rates to keep savings flowing to the bottom line by alerting field crews to dial-back methanol to match production and validate the adjustment results with accurate injection rate time series data.

HotLeap TRACKERTM pays for itself in savings at one well.  But the big pay-off comes from quickly and consistently gathering this critical information for all wells across your field operations, aggregate the field data and analyze it to improve performance and reduce field operating costs. Better yet, those savings can be captured right away. Consistently using TRACKER over a large number of wells allows for the savings potential to multiply across the field to give the field superintendent hands-on control over costs and profitability.

Is this the way you still gather critical field data?

This case study focused on identifying fast, easy and cost effective solutions for reducing field operating costs by focusing field data gathering attention on the injection rates for methanol.  A survey of typical well field operations showed that methanol injection rates were often set as the well went into production when output was at its highest.  But limited staff and plenty of work for them to do mean that not as much attention is paid to adjusting those methanol injection rates over time as well production settles down.  This means that methanol is often being over injected in many of the wells surveyed driving up the cost of operations.

Does this sound like your operation?

HotLeap TRACKERTM changes how you manage field risk not only by reducing cost from matching methanol injection rates to match the gas rates, it also provides a verifiable check to make sure that essential pumps are working as required.  A pump out of service and undetected can cause a serious pipeline hydrate. That is a huge safety risk and if not dealt with properly can cause serious equipment damage, loss of production and injury to anyone in the area of the rupture.

HotLeap TRACKERTM predictive technology protects your bottom line. Readings by field crews scribbled in notebooks are entered once on rugged handheld devices reducing field operations at risk.  Worse those scribbled notes prevent the company from “seeing developing problems” in equipment or field operations in time to intervene and prevent an expensive shut down, work over or accident.

SOURCE: Panopticon Visual Data Analysis

Mobile devices used in the HotLeap TRACKERTM solution serve as a knowledge base for field crew access to critical information on well operations.  Once data is synched, visual data analysis software from PanopticonTM looks for patterns and outliers to see the insight in the numbers. Integrated field data from many sites revolutionizes E&P field performance.

HotLeap TRACKER VISUAL DATA ANALYSIS & REMOTE FIELD DATA ENTRY IMPROVES WELL FIELD PERFORMANCE.

Visual data analysis using complex event processing (CEP) technology is rapidly becoming a standard tool in markets to manage the growing volume of data in daily trading of commodities and stocks.  It is also used by energy and utility companies for fast response to field data reported from multiple sources. Keeping remote field operations running smoothly is key to production growth.  A well site out of service is not making any money.

Visual analysis dashboards use these complex processing engines to assess remote field data readings taken on handheld mobile devices allowing single data entry and stored as historical time series data when the devices are docked at the end of each shift to be combined with other real-time streaming sources that might include changing prices or transaction orders to enable users to filter, correlate, aggregate, analyze and visualize data results .The seamless integration of historical data with daily field operating data and real-time events improves operations, speeds business transactions and reduces the time to make required well site maintenance and repairs to keep operations running. In addition, detecting anomalous equipment operations or potentially fraudulent behavior in transactions becomes much easier and faster than before.

PanopticonTM visual data analytics software, treemaps and dashboard are fully integrated into HotLeap TrackerTM combining the rugged field data capture capabilities of HotLeap with the powerful visual data analytics experience of Panopticon’s engines and dashboards used in commodity and financial markets around the world—a perfect fit.

Panopticon Treemap for Visual Data Analysis

Panopticon’s Treemaps are unique in their ability to process and display data from real-time streaming sources and CEP engines. Panopticon enables HotLeap Tracker to use treemaps and heatmaps—powerful data visualization techniques available to assess structured field data. The solution displays tree-structured data in an easy-to-understand, intuitive set of nested rectangles. Treemaps were invented by Professor Ben Shneiderman at the University of Maryland as a way to monitor and analyze disk space usage in his computing lab. Today, these techniques are used in many industries to quickly assess implications and extract insight from large, fast-changing sets of structured data.

Treemaps are not static.  They change dynamically as data is updated when field crews synch their mobile handheld device allowing remote non-automated data to be included in the company’s overall analysis of field performance and combine it with the time series and transactional business data of markets around the world.  Fast, easy, reliable.

Improve well performance and reduce cost. Combining visual data analytics tools with a consistent, paper-less field data capture capability completes the circle. The real value of this unique information visualization is quickly apparent when you can zoom, filter and view details on demand. The size of a field in a treemap reflects its importance. The color conveys urgency; good news is usually shown in shades of blue and bad news is normally shown in shades of red. Most people can learn to understand the information presented in this visualization within a minute – even if that treemap is showing data representing an underlying database containing millions of records.

Stay on top of your mission critical field operations. The challenge for oil and gas producers today is to leverage critical field data available from regular inspection and monitoring to identify, assess and take action on operations problems that can interfere with production. HotLeap TRACKERTM assures that you systematically capture field data and use fast, easy and reliable visual data analysis techniques to keep your operation performing at its best.

For more information about HOTLeapTM TRACKER call us at 617-278-1862 or visit www.hotbuttonsolutions.com.

Let’s Make a Deal on National Energy Policy

Posted on by
1

When you read the Obama Blue Print for a Secure Energy Future and compare it to Romney’s Energy Plan for market-driven competitive energy growth to help advance the cause of energy independence, these two guys actually have opportunities for common ground that could make for a rational national energy strategy consensus as one outcome from this election.

Quit laughing!

I know what you are thinking!  These guys are polar opposites.  What makes you think they can find common ground?   But if we could actually put some of these principles together from both strategies we actually might end up with something that would work.

The President’s 2011 Blue Print said:

“America produced more oil last year [2010] than we had in the last seven years. We’re taking steps to encourage more offshore oil exploration and production – as long as it’s safe and responsible. And, because we know we can’t just drill our way out of our energy challenge, we’re reducing our dependence on oil by increasing our production of natural gas and biofuels, and increasing our fuel efficiency. Last year, we announced ground-breaking fuel efficiency standards for cars and trucks that will save consumers thousands of dollars and conserve 1.8 billion barrels of oil.”

Governor Romney’s Energy Plan says:

“Empower states to control onshore energy development including on Federal lands; Open offshore areas for energy development; Pursue a North American Energy Partnership with Canada and Mexico; Ensure accurate assessment of energy resources; Restore transparency and fairness to permitting and regulation; and Facilitate private-sector-led development of new energy technologies. “

OK, step one what if we give President Obama credit for all the domestic energy production growth over the last four years that has taken place on private lands—96% of all growth.  And we give him credit for holding off the regulatory hounds eager to thrash hydraulic fracturing.  From the Romney plan, the President would compromise by supporting the Keystone XL pipeline and the rationalizing of our energy infrastructure to bring all that shale oil and gas to market.  In addition, the President would agree to streamlining environmental regulation, permitting and development on Federal lands and giving the States a bigger role in the E&P growth potential in each state to achieve a goal of matching domestic oil and gas production growth on Federal lands with that on private lands.

This compromise action alone would fundamentally alter America’s energy future and help achieve the shared policy objective of energy independence.  Achieving this goal this way does not abandon our environmental protection objectives or policies, but it would use Mitt Romney’s business savvy to strip the unnecessary process steps out of the regulatory process and prevent interveners from using the law to frustrate national policy.  Congress can take some credit too by codifying the streamlined procedures into law to prevent back sliding.

See that was not so hard!

Step two, the Obama Administration gets credit for raising federal fuel efficiency standards, known as CAFE, to an average 35.5 mpg by 2016. Recently, they announced they are raising CAFÉ again for model year 2025, the average fuel economy for cars and light-duty trucks will be set at 54.5 mpg. This will mean a nearly doubling of fuel efficiency compared to cars that are on the road today. The US Department of Transportation (DOT) and Environmental Protection Agency (EPA) claim it will cut US oil consumption by 12 billion barrels and save over $1.7 trillion at the pump over the life of the program. So let’s give the President credit for pressing hard to improve fuel efficiency.

“These fuel standards represent the single most important step we’ve ever taken to reduce our dependence on foreign oil,” said President Obama. “This historic agreement builds on the progress we’ve already made to save families money at the pump and cut our oil consumption. By the middle of the next decade our cars will get nearly 55 miles per gallon, almost double what they get today. It’ll strengthen our nation’s energy security, it’s good for middle class families and it will help create an economy built to last.”

The quid pro quo in our hypothetical compromise is that the President will modify his ‘all of the above strategy’ for power generation to accept Mitt Romney’s market-based energy strategy of forcing fuels and technologies to compete for a place in the supply stack.  This means calling off the EPA hounds and their war on coal and let coal and natural gas fight it out for the least cost, best fit place on the podium along with wind and solar and other renewable energy technologies.  NOx and SOx regulations are retained and coal plants that lack scrubbers are required to install them.  But CO2 emissions regulations are held in abeyance in the belief that the market will re-balance the share of coal and natural gas generation to achieve a substantial reduction in CO2 emissions from, burning clear natural gas for as long as natural gas prices stay low.  But given the long lead time for permitting and building a coal power plant, if natural gas prices rise to the point coal is again competitive on the margin there will be plenty of time to reconsider the policy balance.  In exchange, Governor Romney agrees to renew wind and solar production tax credits to 2025 but the President agrees to end loan guarantees, Treasury tax grants and his winners and losers strategy.

There you have it, a compromise that advanced America’s energy and environmental goals, create more policy and regulatory certainty, and facilities job growth and GDP growth in the economy with a low energy price foundation.

Is this a great country of what?!#$!