boom and bust

By Ben Caldecott, Gerard Dericks, Daniel J. Tulloch, Lucas Kruitwagen, and Irem Kok - Oxford, May 2016

Deploying a ‘bottom up’ asset-level methodology, we analysed the exposure of all of Japan’s current and planned coal-fired power stations to environment-related risk. Planned coal capacity greatly exceeds that required for replacement - by 191%. This may result in overcapacity and combined with competition from other forms of generation capacity with lower marginal costs (e.g. nuclear and renewables), lead to significant asset stranding of coal generation assets. Stranded coal assets in Japan would affect utility returns for investors; impair the ability of utilities to service outstanding debt obligations; and create stranded assets that have to be absorbed by taxpayers and ratepayers.

Read the report (PDF).

By Devashree Saha and Mark Muro - Brookings, April 19, 2016

The recent boom and bust of unconventional oil and gas development, or “fracking,” has reopened serious questions about resource management in many U.S. states. While the oil and gas boom generated revenue, jobs, and economic development, the recent bust has adversely impacted state budgets due to declining industry investments in exploration and production and job cuts.

The boom-bust cycle of unconventional oil and gas development highlights the need for strategic management by state governments of fracking-related revenues, not only to minimize the less desirable aspects of the boom-bust cycle but also to enhance long-term prosperity. States can address these challenges by imposing a reasonable severance (extraction) tax on their oil and gas industry and channeling a portion of the revenue into permanent trust funds. In doing so, states can convert volatile near-term revenues from unconventional oil and gas development into a longer-term and continuous source of investment funds for building sustainable and dynamic economies.

To that end, this report advances five elements of good fund governance and management that states should consider in the design and implementation of permanent trust funds:

• Establish an effective governance framework
• Define the fund’s revenue source, deposit, and withdrawal rules
• Design the investment strategy
• Seize the opportunity to invest fund earnings to economic transformation
• Formulate explicit disclosure and transparency standards

Read the text (Link).

By Maya Rao - Star Tribune, November 9, 2014

Disclaimer: The views expressed here are not the official position of the IWW (or even the IWW’s EUC) and do not necessarily represent the views of anyone but the author’s.

WATFORD CITY, N.D. – The dump truck rumbled over miles of unpaved roads in the hills just east of the Montana border, past the cattle and grain bins and haystacks, before arriving at the dirt pit. Bill Gore slid his truck onto the scale, inched up in line, and made a curving gesture to the man in the front-end loader.

That was the signal to pile the dirt on high, and the loader did: Gore’s five-axle truck pulled out of the pit north of Cartwright last week weighing 19,000 pounds more than its registered limit of 82,000 pounds.

“We try to run it as hard as we can,” said Gore, who’s been driving trucks here for four years.

Heavy trucks are the backbone of the ­Bakken oil fields, transporting the water, pipes, and sand needed to produce more than 1 million barrels of oil a day in western North Dakota. They move oil rigs from site to site, crude to pipelines and rail terminals, and dirt and construction materials to build the new roads, homes and businesses needed to serve the exploding population of new workers.

But the frenzied pace of the oil fields and spotty enforcement by authorities have encouraged the rise of overweight trucks. State authorities estimate that one-quarter of the Bakken’s water trucks alone are overloaded.

Trucks hauling larger loads than what they were designed for pose safety concerns because extra weight lessens their braking power and increases the potential damage they could cause in a collision. On the crowded Bakken roads, truck crashes that led to severe injuries jumped twelvefold during a recent four-year period. And 100,000-pound trucks, which are common in oil field traffic, take 25 percent longer to stop than 80,000 pound trucks, according to the Truck Safety Coalition.

Heavy trucks also degrade bridges more quickly and crumble prairie roads built for light farm traffic, prompting the state to make record investments in rebuilding roads and bridges and constructing new bypasses.

In McKenzie County, the state’s top oil-producer, the tiny Sheriff’s Office has a file cabinet containing enormous violations. A driver from an Alexandria, Minn., company was pulled over this summer while hauling a crane that was 61,300 pounds overweight. A trucker from a Clear Lake, Minn., firm was caught driving 76,100 pounds overweight while carrying an excavator.

Trucker Michael Fisher, who acknowledged driving overweight, said one problem is being able to adequately slow down.

“It’s the stopping power,” he said, adding that he tried to keep more distance from other vehicles. “Your brakes are set up to stop a certain amount of weight, and if you increase that, you have a lot more chance of something going wrong.”

By Tom Sanzillo, Lorne Stockman, Deborah Rogers, Hannah McKinnon, Elizabeth Bast, and Steve Kretzmann - Oil Change International, October 29, 2014

The report, “Material Risks: How Public Accountability Is Slowing Tar Sands Development,” presents market analysis and industry data to support its estimates on lost sales revenue to the tar sands industry as public opposition creates delays and project cancellations. The report also describes other market forces that are putting tar sand developers at a growing disadvantage.

The report puts tar sands development lost revenue at $30.9 billion from 2010 through 2013, in part due to the changing North American oil market but largely because of a fierce grassroots movement against tar sands development. The report attributes 55% of the lost revenue, or $17 billion, to the diverse citizen protests against pipelines and the tar sands.

A significant segment of opposition, the report notes, is from First Nations in Canada who are raising sovereignty claims and other environmental challenges.

Among the report’s findings:

• Market forces and public opposition have played a significant role in the cancellation of three major tar sands projects in 2014 alone: Shell’s Pierre River, Total’s Joslyn North, and Statoil’s Corner Project. Combined, these projects would have produced 4.7 billion barrels of bitumen that would in turn have released 2.8 billion metric tonnes of carbon dioxide (CO₂) into the atmosphere. This is equivalent to the emissions of building 18 new coal plants that would last 40 years each.
• Tar sands producers lost $30.9 billion from 2010 through 2013 due to transportation bottlenecks and the flood of crude coming from shale-oil fields. Of that, $17.1 billion, or 55 percent, can be attributed to the impact of public- accountability campaigns.
• The combination of risks facing the industry has the potential for canceling most or even all of the planned expansion of the industry in Canada.
• Rather than seeing more than a doubling of output from 2 million barrels of oil per day to 4.8 million barrels per days — as the industry predicts — the report projects flat production levels.
• Tar sands producers have lagged, with 9 of 10 leading tar sands producers in Canada underperforming the broader stock market in the last five years.

Analysts have recently downgraded their outlook for tar sands production.

The report also explores how smaller tar sands producers are having trouble accessing capital markets, how the industry is increasing capital spending even as it faces declining cash flows, weak revenue expectations, rising production costs and tight margins.

Read the report (PDF).

By Laura Gottesdiener - Tom Dispatch, October 12, 2014

Disclaimer: The views expressed here are not the official position of the IWW (or even the IWW’s EUC) and do not necessarily represent the views of anyone but the author’s.

At 9 p.m. on that August night, when I arrived for my first shift as a cocktail waitress at Whispers, one of the two strip clubs in downtown Williston, I didn’t expect a 25-year-old man to get beaten to death outside the joint. Then again, I didn’t really expect most of the things I encountered reporting on the oil boom in western North Dakota this past summer.

“Can you cover the floor?” the other waitress yelled around 11 p.m. as she and her crop-top sweater sidled behind the bar to take over for the bouncers and bartenders. They had rushed outside to deal with a commotion. I resolved to shuttle Miller Lites and Fireball shots with extra vigor. I didn’t know who was fighting, but assumed it involved my least favorite customers of the night: two young brothers who had been jumping up and down in front of the stage, their hands cupping their crotches the way white boys, whose role models are Eminem, often do when they drink too much. One sported a buzz cut, the other had hair like soft lamb’s wool.

The rest of the night was a blur of beer bottles and customer commands to smile more. It was only later, after the clientele was herded out to Red Peters’s catchy “The Closing Song” -- “get the fuck out of here, finish up that beer” -- and the dancers had emerged from the dressing room in sweatshirts, that I realized everyone was on edge.

“What’s wrong?” I asked the scraggly bearded bouncer walking me to my dusty sedan, whose backseat would soon double as my motel room.

“The kid’s going to die,” he replied. Turned out one of the brothers had gotten his head bashed in by a man wielding a metal pipe. He’d been airlifted to the nearby city of Minot where he would pass away a few days later.

Catalysts for Instability

I hadn’t driven nearly 2,000 miles from Brooklyn to work as a cocktail waitress in a strip club. (That only happened after I ran out of money.) I had set off with the intention of reporting on the domestic oil boom that was reshaping North Dakota’s prairie towns as well as the balance of both global power and the earth’s atmosphere.

This spring, production in North Dakota surged past one million barrels of oil a day. The source of this liquid gold, as it is locally known, is the Bakken Shale: a layered, energy-rich rock formation that stretches across western North Dakota, the corner of Montana, and into Canada. It had been considered inaccessible until breakthroughs in drilling and hydraulic fracturing made the extraction of oil from it economically feasible. In 2008, the United States Geological Survey (USGS) announced that the Bakken Shale contained 25 times more recoverable oil than previously thought, sparking the biggest oil rush in state history.

Now, six years later, the region displays all the classic contemporary markers of hell: toxic flames that burn around the clock; ink-black smoke billowing from 18-wheelers; intermittent explosions caused by lightning striking the super-conductive wastewater tanks that hydraulic fracturing makes a necessity; a massive Walmart; an abundance of meth, crack, and liquor; freezing winters; rents higher than Manhattan; and far, far too many men.

Read the entire article here:

By J David Hughes - Post Carbon Institute, October 2014

In recent years Americans have been hearing that the United States is poised to regain its role as the world’s premier oil and natural gas producer, thanks to the widespread use of horizontal drilling and hydraulic fracturing (“fracking”). This “shale revolution,” we’re told, will fundamentally change the U.S. energy picture for decades to come—leading to energy independence, a rebirth of U.S. manufacturing, and a surplus supply of both oil and natural gas that can be exported to allies around the world. This promise of oil and natural gas abundance is influencing climate policy, foreign policy, and investments in alternative energy sources.

The primary source for these rosy expectations of future production is the U.S. Department of Energy (DOE). Each year the DOE’s Energy Information Administration (EIA) releases its Annual Energy Outlook (AEO), which provides a range of forecasts for energy production, consumption, and prices.

The 2014 AEO reference case projects U.S. crude oil production to rise to 9.6 million barrels of oil per day (MMbbl/d) in 2019 and slowly decline to 7.5 MMbbl/d by 2040, while natural gas production is projected to grow for at least the next 25 years and hit 37.5 trillion cubic feet per year in 2040. Tight oil (shale oil) and shale gas serve as the foundation for these optimistic forecasts.

This report provides an extensive analysis of actual production data from the top seven tight oil and seven shale gas plays in the U.S. (These plays account for 89% of current tight oil production and 88% of current shale gas production, and serve as the primary sources of future production in the EIA’s forecasts—82% of forecast tight oil and 88% of forecast shale gas production through 2040.) It concludes that the current boom in domestic oil and gas production is unsustainable at the rates projected by the EIA, and that the EIA’s tight oil and shale gas forecasts to 2040 are extremely optimistic. What this means is that the country's current energy policy—which is largely based on the expectation of domestic oil and natural gas abundance far into the future—is badly misguided and is setting the country up for a painful, costly, and unexpected shock when the boom ends.