Off Grid Energy will be distributed more widely over time ...

From the Institute for Energy Economics and Financial Analysis, July 1, 2020

Spending on renewable power is set to overtake oil and gas drilling for the first time next year as clean energy affords a $16 trillion investment opportunity through 2030, according to Goldman Sachs Group Inc.

Renewables including biofuels will account for about a quarter of all energy spending next year, up from about 15% in 2014, Goldman analysts including Michele Della Vigna said in a June 16 note. This is in part driven by diverging costs of capital, as borrowing rates have risen to as high as 20% for hydrocarbon projects compared with as little as 3% for clean energy.

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Clean energy could drive $1-$2 trillion a year in infrastructure investment and create 15-20 million jobs globally. Meanwhile the high cost of capital for fossil fuel developments is leading to underinvestment, which could lead to higher oil and gas prices that in turn spur a faster energy transition.

“Renewable power will become the largest area of spending in the energy industry in 2021, on our estimates, surpassing upstream oil and gas for the first time in history,” Goldman said in the note.

The divergence in borrowing costs for high- and low-carbon developments implies a carbon emissions price of about $40 to $80 a ton, Goldman said. In the real world, however, only about 16% of global emissions are priced, and the average value is about $3 a ton.

That’s creating a bifurcated investment model, with money flowing into mature technologies including wind, solar and biofuels while less-developed efforts such as like carbon capture and clean hydrogen could suffer without higher emissions prices, Goldman said.

Bloomberg says investments in renewables of $2.6 trillion this past decade

Market Headwinds Buffet Appalachia’s Future as a Center for Petrochemicals

From an Article by James Bruggers, Inside Climate News, March 21, 2020

A Wealth of Financial Problems

The headwinds began blowing in Appalachia last year, when the Braskem and Odebrecht companies ended their plans to construct an ethane cracking plant in West Virginia.

Tens of billions of dollars in petrochemical investment from China, announced in 2017, never materialized. (The West Virginia state government seems fixated on “pie in the sky.” DGN)

And a company seeking to secure $1.9 billion in federal loan guarantees to construct massive underground storage for ethane, promoted as essential to support a petrochemical bonanza along the Ohio River, ran into Congressional opposition. The money would come from a fund that has primarily been used to back wind power, solar and other types of clean energy.

Plastics: From the Gas Well to Your Home

The company, Appalachia Development Group, announced more than a year ago that it had been invited by the Trump administration to submit a second phase of an application for the money. Steven Hedrick, the chief executive officer of the Appalachian Development Group, said this week that he’s still working to complete the application.

And while Pennsylvania lawmakers last month passed a bill that could deliver hundreds of millions of dollars of tax breaks to new plastics, petrochemical or fertilizer plants that use Pennsylvania natural gas as a feedstock, Gov. Tom Wolf has said he would veto the bill.

Suddenly, however, local factors such as tax incentives and financing issues have been dwarfed by the coronavirus pandemic, which, along with Saudi Arabia’s oil price war with Russia, have sent the crude market plummeting to levels not seen in nearly two decades.

That makes Appalachia’s ethane, though still cheap, less competitive as a basic building block of plastics, compared to naphtha — a petroleum product found in other regions whose price falls along with oil.

The Economics Have Never Looked Worse

IHS Markit had removed the proposed $5.7 billion ethane plant in Belmont County, Ohio, from its long-range plastics supply forecast even before the coronavirus pandemic seized the global economy. The project is a collaboration between Thailand’s PTT Global Chemical America and South Korea’s Daelim Industrial.

There has been an oversupply of polyethylene, the product the Ohio plant would make. And IHS sees that overage continuing for at least three more years. Plastics demand will continue to rise, but at a slower rate.

Coronovirus will take its own, additional bite out of global plastics demand. The economics that would support approval of a final investment decision of the (Ohio) project are less compelling today than they have been the entire time it has been under consideration.

Twice since June 2018, Moody’s bond credit rating business, which is used by investors to decide where to put their money, raised doubts about the project. Most recently, in mid-February, Moody’s predicted that PTT Global Chemical this year would “not embark on any new capacity expansion plan until margins improve on a sustained basis.”

In Ohio, the state’s private economic development corporation —JobsOhio — remains optimistic. It has invested nearly $70 million in the project, including for site cleanup and preparation, saying thousands of jobs are in the offing. The companies have obtained their environmental permits. A final investment decision is still expected to be announced by summer, Dan Williamson, a project spokesman said, declining further comment.

But market conditions do not bode particularly well for the venture. Plastics prices today are much lower than what they were from 2010 to 2013, when the Ohio project was being planned, said Tom Sanzillo, director of finance for the Institute for Energy Economics and Financial Analysis. He added that future prices are also projected to be weak.

PTT Global Chemical’s profits were down 60 percent last year, and they’ll have a lot of competition in the United States, he said.

The region’s gas exploration and production companies are also teetering on a financial cliff. They were burdened by debt even as they continued to boost production in 2019. “Taken together, there are a lot of red flags,” said Sanzillo.

Financial Uncertainty Hangs Over Shell—and the Region

All the financial and economic factors at play with regard to the proposed Ohio ethane plant also weigh on the region’s one actual facility, a multi-billion plastics manufacturing plant being built by Shell Polymers in Beaver County, Pennsylvania, 25 miles north of Pittsburgh.

Shell this week temporarily halted construction after some workers and public officials raised concerns about unsafe practices related to the coronavirus.

The project’s future may also be uncertain, said Beckman, the University of Pittsburgh chemical engineering professor. If demand for polyethylene stays strong in China, Shell “may come out OK,” he said.

But that may not happen, and to a big oil company like Shell, “five to six billion bucks in not the end of the world if you have to write that off,” Beckman said.

Shale gas exploration and production companies in the Appalachian Basin were teetering on a financial cliff, even before the coronavirus pandemic’s economic fallout.

A Shell spokesman, Ray Fisher, said Shell does not see “the current price environment” affecting plans at its Beaver County plant. “We take a long-term view of the demand for the products that will come from this site,” he said.

Whatever Shell’s future, the region’s shale deposits are not limitless, said Andrew R. Thomas, the executive in residence at Cleveland State University’s Energy Policy Center.

Natural gas production from the Marcellus and Utica shales has a lifespan of 30 years—possibly 50, if gas wells can be fracked a second time, said Thomas, who has worked in the energy industry as a lawyer and geophysicist,

Losing even 10 years could mean “we lose the opportunity to develop our own petrochemical region,” he said, adding that a recession would frustrate “any investment opportunities.”

In Belmont County, Ohio, Larry Merry, an economic development official, agreed that these are “uncertain times,” a considerable understatement, given the coronavirus’s rapid spread across the nation. But he said that petrochemical firms are “thinking long term—not just about the next couple of months, or even just the next couple of years. So I remain very optimistic.”

Three (3) States’ Natural Gas Boom

Even if multiple ethane cracking plants are never constructed, the region will still be grappling with environmental and health concerns from thousands of fracking sites. And the region could continue to produce natural gas and pipe it elsewhere, said Matthew Mehalik, executive director of Pittsburgh’s Breathe Project, a collaboration of some 40 organizations working to improve air quality and fight climate change.

Long before Shell began construction on its ethane plant outside Pittsburgh, nearby residents and doctors had been alarmed by air pollution from fracking and natural gas processing.

They’ve called for answers on why there has been a surge in Ewing sarcoma, a rare childhood cancer, in a four-county area outside Pittsburgh.

“The health risks and environmental costs never made any sense,” said Mehalik. Now, the economics aren’t making any sense, he said.

There is tremendous uncertainty, including how far state or federal governments are willing to go to prop up the shale gas and plastics manufacturing industries, he said.

“The expansion of natural gas 10 to 15 years ago was made with a different mode of thinking and different market conditions,” Mehalik said. “It’s time for a rethinking, and a rethinking on this opens up prospects for a different economic development vision.”

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See also: Health & Economic Impacts of Cracker Plants 3/24/20

Come and learn from Matt Mehalik, PhD, Executive Director of the Pittsburgh-based Breathe Collaborative, as he talks about the health impacts and economics of cracker plants and the oil and gas industry. This is information that has been gathered through researching the impact that the Shell cracker plant (about 20 miles west of Pittsburgh) would have on the community. Matt brings his expertise to the Ohio Valley to educate people on the truth behind what the PTTG cracker could do to our area if it is built. He also looks at what this plant would do to short and long term economics of the region.

We will connect as a community over what CORR is doing in the Valley to protect the public and what others can do as well. We have plenty of volunteer needs in our effort to educate, inform, and empower communities.

Come and fill out our anonymous community health survey. This helps CORR gather important info. on the health and other concerns folks might have about the cracker plant.

DETAILS: Date: March 24th 2020; Time: 6:00 PM – 7:00 PM

Place: 50 East 39th St. Shadyside, Ohio 43947

Organizer: Concerned Ohio River Residents (CORR)

Marcellus fracking in WV within 30 feet of the public road

From an Article by Justin Mikulka, DeSmog Blog, December 18, 2018

Actually, 2018 was the year the oil and gas industry promised that its darling, the shale fracking revolution, would stop focusing on endless production and instead turn a profit for its investors. But as the year winds to a close, it’s clear that hasn’t happened.

Instead, the fracking industry has helped set new records for U.S. oil production while continuing to lose huge amounts of money — and that was before the recent crash in oil prices.

But plenty of people in the industry and media make it sound like a much different, and more profitable, story.

Broken Promises and Record Production

Going into this year, the fracking industry needed to prove it was a good investment (and not just for its CEOs, who are garnering massive paychecks).

In January, The Wall Street Journal touted the prospect of frackers finally making “real money … for the first time” this year. “Shale drillers are heeding growing calls from investors who have chastened the companies for pumping ever more oil and gas even as they incur losses doing so,” oil and energy reporter Bradley Olson wrote.

Olson’s story quoted an energy asset manager making the (always) ill-fated prediction about the oil and gas industry that this time will be different.

“Is this time going to be different? I think yes, a little bit,” said energy asset manager Will Riley. “Companies will look to increase growth a little, but at a more moderate pace.”

Despite this early optimism, Bloomberg noted in February that even the Permian Basin — “America’s hottest oilfield” — faced “hidden pitfalls” that could “hamstring” the industry.

They were right. Those pitfalls turned out to be the ugly reality of the fracking industry’s finances. And this time was not different.

On the edge of the Permian in New Mexico, The Albuquerque Journal reported the industry is “on pace this year to leap past last year’s record oil production,” according to Ryan Flynn, executive director of the New Mexico Oil and Gas Association. And yet that oil has at times been discounted as much as $20 a barrel compared to world oil prices because New Mexico doesn’t have the infrastructure to move all of it.

Who would be foolish enough to produce more oil than the existing infrastructure could handle in a year when the industry promised restraint and a focus on profits? New Mexico, for one. And North Dakota. And Texas.

In North Dakota, record oil production resulted in discounts of $15 per barrel and above due to infrastructure constraints.

Texas is experiencing a similar story. Oilprice.com cites a Goldman Sachs prediction of discounts “around $19-$22 per [barrel]” for the fourth quarter of 2018 and through the first three quarters of next year.

Oil producers in fracking fields across the country seem to have resisted the urge to reign in production and instead produced record volumes of oil in 2018. In the process — much like the tar sands industry in Canada — they have created a situation where the market devalues their oil. Unsurprisingly, this is not a recipe for profits.

Shale Oil Industry ‘More Profitable Than Ever’ — Or Is It?

However, Reuters recently analyzed 32 fracking companies and declared that “U.S. shale firms are more profitable than ever after a strong third quarter.” How is this possible?

Reading a bit further reveals what Reuters considers “profits.” “The group’s cash flow deficit has narrowed to $945 million as U.S. benchmark crude hit $70 a barrel and production soared,” reported Reuters. So, “more profitable than ever” means that those 32 companies are running a deficit of nearly $1 billion. That does not meet the accepted definition of profit.

A separate analysis released earlier this month by the Institute for Energy Economics and Financial Analysis and The Sightline Institute also reviewed 32 companies in the fracking industry and reached the same conclusion: “The 32 mid-size U.S. exploration companies included in this review reported nearly $1 billion in negative cash flows through September.”

NINE-YEAR LOSING STREAK CONTINUES FOR U.S. FRACKING SECTOR

Oil and gas output is rising but cash losses keep flowing.#CSG #Fracking #Shale #Gas #FrackFreeNT #FrackFreeWA #FrackFreeNSW #FederalICAC #Auspolhttps://t.co/F3BvUBqcrw

— Carly Woodstock (@stopthefrack) December 9, 2018

The numbers don’t lie. Despite the highest oil prices in years and record amounts of oil production, the fracking industry continued to spend more than it made in 2018. And somehow, smaller industry losses can still be interpreted as being “more profitable than ever.”

The Fracking Industry’s Fuzzy Math

One practice the fracking industry uses to obfuscate its long money-losing streak is to change the goal posts for what it means to be profitable. The Wall Street Journal recently highlighted this practice, writing: “Claims of low ‘break-even’ prices for shale drilling hardly square with frackers’ bottom lines.”

The industry likes to talk about low “break-even” numbers and how individual wells are profitable — but somehow the companies themselves keep losing money. This can lead to statements like this one from Chris Duncan, an energy analyst at Brandes Investment Partners:

“You always scratch your head as to how they can have these well economics that can have double-digit returns on investment, but it never flows through to the total company return.” Head-scratching, indeed.

The explanation is pretty simple: Shale companies are not counting many of their operating expenses in the “break-even” calculations. Convenient for them, but highly misleading about the economics of fracking because factoring in the costs of running one of these companies often leads those so-called profits from the black and into the red.

The Wall Street Journal explains the flaw in the fracking industry’s questionable break-even claims: “break-evens generally exclude such key costs as land, overhead and even at times transportation.”

Other tricks, The Wall Street Journal notes, include companies only claiming the break-even prices of their most profitable land (known in the industry as “sweet spots”) or using artificially low costs for drilling contractors and oil service companies.

While the mystery of fracking industry finances appears to be solved, the mystery of why oil companies are allowed to make such misleading claims remains.

The US shale / fracking formula… 1.) borrow billions at low interest rates 2.) lose money forcing oil & gas from marginal fields 3.) leave someone else stuck with the financial losses & environmental destruction https://t.co/47irrGJxKw

— Ryan Popple (@rcpopple) October 24, 2018

Wall Street Continues to Fund an Unsustainable Business Model

Why does the fracking industry continue to receive more investments from Wall Street despite breaking its “promises” this year?

Because that is how Wall Street makes money. Whether fracking companies are profitable or not doesn’t really matter to Wall Street executives who are getting rich making the loans that the fracking industry struggles to repay.

An excellent example of this is the risk that rising interest rates pose to the fracking industry. Even shale companies that have made profits occasionally have done so while also amassing large debts. As interest rates rise, those companies will have to borrow at higher rates, which increases operating costs and decreases the likelihood that shale companies losing cash will ever pay back that debt.

Continental Resources, one of the largest fracking companies, is often touted as an excellent investment. Investor’s Business Daily recently noted that “[w]ithin the Oil & Gas-U.S. Exploration & Production industry, Continental is the fourth-ranked stock with a strong 98 out of a highest-possible 99 [Investor's Business Daily] Composite Rating.”

And yet when Simply Wall St. analyzed the company’s ability to pay back its over $6 billion in debt, the stockmarket news site concluded that Continental isn’t well positioned to repay that debt. However, it noted “[t]he sheer size of Continental Resources means it is unlikely to default or announce bankruptcy anytime soon.” For frackers, being at the top of the industry apparently means being too big to fail.

As interest rates rise, common sense might suggest that Wall Street would rein in its lending to shale companies. But when has common sense applied to Wall Street?

Even the Houston Chronicle, a major paper near the center of the fracking boom, recently asked, “How long can the fracking spending spree last?”

For the past decade U.S. fracking firms have been spending more than they’re taking in – by about $80 million per year at the 60 largest companies. With investors cracking down and interest rates rising, some are asking how much longer it can go on. https://t.co/ymmm7h9QZZ

— James Osborne (@osborneja) September 14, 2018

The Chronicle notes the epic money-losing streak for the industry and how fracking bankruptcies have already ended up “stiffing lenders and investors on more than $70 billion in outstanding loans.”

So, is the party over? Not according to Katherine Spector, a research scholar at Columbia University’s Center on Global Energy Policy. She explains how Wall Street will reconcile investing in these fracking firms during a period of higher interest rates: “Banks are going to make more money [through higher interest rates], so they’re going to want to get more money out the door.”

Follow the DeSmog investigative series: Finances of Fracking: Shale Industry Drills More Debt Than Profit

Sharp declines in well production typical in Ohio’s Utica Shale

From an Article by Bob Downing and Doug Livingston, Akron Beacon Journal, January 3, 2015

In the world of shale gas in Ohio, the top-producing wells aren’t king of the hill for long. Take the Tippens 6HS well, for example.

Located in Monroe County in southeastern Ohio, it produced more natural gas in the first quarter of 2014 than any other Utica Shale well in the state — some 1.117 billion cubic feet of the resource in 80 days, according to Ohio Department of Natural Resources records. That’s enough natural gas to fuel 12,000 houses for a year.

But the well that gushed 13,972 thousand cubic feet of natural gas per day in the first three months of 2014 saw daily production drop 41 percent in the second quarter to 8,180 thousand cubic feet per day and another 26 percent in the third quarter to 6,015 thousand cubic feet per day.

By autumn, the Tippens well was producing less than half the natural gas that it had during its peak output and slipped from No. 1 to No. 72. It went from being a stellar Ohio well to a good-producing well.

Similar drops are showing up in nearly all of Ohio’s horizontally drilled natural gas wells. Such numbers are evidence of what drillers call “production decline curves” — drop-offs over time. It’s a common (and expected) occurrence for shale wells, even in wells expected to produce for 30 years or more.

The bottom line: Shale wells produce the most in the first few years or, as evidenced in the sharply declining production rates in Ohio, their first few months. Understanding decline curves in the Utica Shale is an important and useful tool in decision-making for drilling companies. Sharp drops mean less money for drillers and less in royalty payments for landowners as wells age. Simply put, a decline curve is a graph of crude oil or natural gas production over time. As the products are extracted, production volumes trend downward. Hence, the term decline curve.

Analysis of Ohio’s decline curves is more complex. It won’t be possible to gauge fully how the Utica Shale in eastern Ohio compares with other shale formation in the United States until more time has passed and the Ohio Department of Natural Resources collects more data. Only five quarterly reports are now available.

Analysis of output

An analysis of Utica wells tapped in each of the first four quarters — from July 2013 through June 2014 — shows natural gas production had dropped 65 percent, said Dr. Jeffrey C. Dick, a professor and chair of the department of geology and environmental sciences at Youngstown State University and an expert on Utica Shale.

He estimated that Utica Shale production will drop 33 percent in the second year of a well’s life and another 22 percent in the third year. Decline is projected at another 17 percent in the fourth year, followed by 13 percent and 11 percent in the next two years, he said in a review that has circulated widely.

A graph of the annual declines resembles a swimming pool slide — unmistakably steep at first then gradually leveling off. Still, that initial Utica Shale production decline for the first year is “not too bad,” Dick said.

The Utica Shale production curve “is less of a drop than you might expect,” he said. It might “sound terrible, but it’s a pretty good number, actually.” Some production curves are as high as 80 percent in the first year, so what the Utica Shale is showing is “a fairly typical curve,” he said. Production drops of 80 percent have been found in the Haynesville Shale in Arkansas, Louisiana and Texas; parts of the Eagle Ford Shale in Texas; the Bakken Shale in North Dakota; and the Marcellus Shale in Pennsylvania, Dick said.

Determining decline rates is not easy, he said, because drilling companies have different approaches to production. Some want to draw down wells quickly, while others might restrict production to extend the lives of the wells or to wait until low prices rebound. Dick said that often the key for drillers who want to keep production totals high is for them to drill additional wells when production starts to decline significantly.

Important question

Drilling a Utica Shale well can cost from $6 million to $10 million, however, and an important question becomes: Can companies afford to keep drilling such wells?

Wells also can be hydraulically fractured, or fracked, multiple times to boost production. Even with the sharp decline curves, Ohio is not experiencing drops in total oil or natural gas production because additional wells are going online each quarter.

To date, Ohio has approved 1,735 Utica wells, of which 1,277 have been drilled. A total of 707 Utica wells are producing, according to ODNR figures. The most recent report, from third quarter 2014, for 717 wells showed total oil production of 3.013 million barrels and 132 billion cubic feet of natural gas. Both totals were significant jumps from the second quarter, when 504 wells were listed.

See also:  www.FrackCheckWV.net