1) Although Nigeria reached a tentative peace agreement with the militants in the Niger delta region in October, the fledgling peace was threatened by attacks of a Chevron Nigeria pipeline last week. The Movement for the Emancipation of the Niger Delta (MEND), according to the Associated Press, claims they sanctioned the attack but did not carry it out. MEND also was involved in a pipeline attack in December — one can only assume all this is to keep continuing pressure on the government while President Umaru Yar’Adua is ill and the massive Petroleum Industry Bill (PIB) — which seeks a more efficient and transparent national petroleum industry — is inching its way though the legislative process.

2) Royal Dutch Shell is considering selling off its onshore oil assets, worth (the Wall Street Journal says) between $4-5 billion. Maybe it figures, on top of all the headaches, the new Bill will make it unprofitable. The company is apparently not planning on divesting its gas holdings.

The militant attacks, fueled by years of poverty and government corruption, have caused manifold operational headaches for Shell because the company often gets blamed by locals for the oil spills and environmental damage resulting from attacks on its pipelines and facilities. Security risks mean Shell usually has to wait days, if not weeks, before going into remote swamp areas to repair damaged facilities.
‘I think one can say that Shell is looking to throw in the towel for its onshore Nigeria operations to focus on the offshore, where it doesn’t have the problems it has onshore,’ one of the people familiar with the matter said.” WSJ 12-21-09

Unsurprisingly, one of the most promising potential buyers is China.

3) The Financial Times reported a few weeks ago that at least some of Nigeria’s politicians are pressing for direct cash payments to the local population, emulating (distantly) Alaska’s tax rebate and trying to “manufacture a constitutency” by handing 10% stakes from the petroleum joint ventures. If they succeed, it will be incorporated into PIB, which has created almost as much political wrangling as the US health care bill.

It’s considered a way to make stakeholders shareholders of sorts. Financial remuneration is an idea whose wisdom has finally been acknowledged, but will it work in a place as thoroughly corrupted as Nigeria? The cash amount comes to $20 a year for each person in the Delta, scarcely enough for anything, even there.  Will it become an entitlement or an economic engine? Will it aggravate the already tense situation between any number of ethnic groups? How can this pittance make a difference?

The Bill also includes the requirement that corporations submit a detailed sustainable development plan for local communities — which is weird. (Shouldn’t this be in the hands of the local people and communities, or at the very least be based on services the national government is supposed to provide?)

Just under the wire, the EPA has given its official “comments” in response to New York State’s draft plan for drilling for shale gas in the upstate Marcellus field. The EPA found the mammoth 800+ page draft does not adequately address issues of wastewater, air quality, land impact and several other problems. It urges the state to deal with them more fully before setting out the formal regulations for drilling, suggesting they learn from other states’ (Pennsylvania, West Virginia’s) greater experience in drilling.

As I have written before, it is of paramount importance to get this right, since New York City’s drinking water is at stake. The city’s water from several sources upstate comes to the city mostly untreated — a rarity in US cities — and a big mistake in drilling means billions of dollars in treatment plants and more. At least as important: if New York State can figure out a way to satisfy environmental concerns to protect local environment and New York City’s concerns and still get the gas out, it will be a major step forward to protecting the environment and populations in drilling which can be applied in the rest of the US and globally.

In almost painfully technical language, the EPA’s comments urge the smallest environmental footprint possible, the establishment of a regulatory program to deal with naturally occurring radioactive water and brine that comes up from the drilling, avoidance of wetlands and sensitive habitats, air quality oversight, limiting gas flaring (burn-off of the escaping gas), and vastly improved waste water and cuttings treatment, and addressing other water issues.

Not all these problems have been addressed adequately elsewhere. For example, The Dallas Morning News reported in early December that in Texas’s Barnett shale area,

Critics feared everything from polluted groundwater in the Barnett Shale to high-pressure gas lines beneath their front yards. Now the biggest concern – at least the one that governments are watching closely – is in the air. Tests at one natural gas site found benzene at 1,100 parts per billion… people can start experiencing dizziness and nausea at 180 parts per billion with short-term exposure… The OSHA limits for short-term exposure to benzene among workers is 500 parts per billion.

But the major problem is water. A shale gas well especially uses an the enormous amount of water (a million gallons or more) to drill such a deep well to keep the drill bit cool, to bring up the cuttings taken from the rock being drilled, and then to frack it. In some places in Pennsylvania, drilling companies are recycling the water or using air drilling, which has its own dangers (heat = explosion) but minimizes the water used.

There is the use of hydraulic fracturing chemicals that are injected into the well and subjected to explosive pressure to shatter the shale and release the gas embedded in it. The fracking fluid probably contains dangerous additives (and some safe ones), but the very lack of industry transparency and the fact it was developed (decades ago) by Halliburton, and inordinately protected in the 2005 Energy Bill by Dick Cheney,  sends up red flags.

And the EPA’s comments focus on a more important question that has not yet been settled to anyone’s satisfaction — what to do with the huge volume of waste water that comes from drilling of the well,  and the contaminating waters  subsequently pulled out mixedin with the gas. Re-injection into the ground has not been popular. (“Not in my backyard”, cost, and risk.) And what happens to flowback fluids? Open pits? Closed tanks?

New York City (understandably), the New York Times and several environmental groups are totally against the drilling, but I think drilling will happen. (There are already more than 6000 wells in the state.) The economic and energy security opportunity is too great, the land in too many hands, the technology for successful extraction available. Better to set aside and protect the really vulnerable places and set up strict regulations and oversight for the rest. (After all, the watershed isn’t only the streams and rivers that supply the water, but covers the entire drainage area for scores of miles in all directions.)

The beauty of the EPA getting involved and this long and convoluted process is that it is forcing a state to hash out the minutia of the environmental threats raised by drilling. The process is a bellwether. Okay, maybe I’m a geek, but I find it thrilling. In the end, we will all be much safer for the effort, even those who don’t think we need it.

Everyone seems shocked and discouraged by the outcome in Copenhagen. They shouldn’t be. We must control emissions. So why wasn’t there a deal that made everyone happy? Because that’s the nature of multilateral negotiations, with scores of parties with scores of interests. They are always, always like this, as anyone who has studied them knows: no one gets what they want, unless they can hold the final decision hostage. For an example of that strategy, look at the health care bill in Congress, tied up by the cynical calculations of Senators Ben Nelson and Joe Lieberman. Look back at the Kyoto Protocol.

Governor Arnold Schwarzenegger had it right when he told ABC News that the negotiations were a lot of “kabuki”. (Do you really think President Obama’s sudden appearance at a meeting the Chinese did not expect him at wasn’t theater, too? So was China’s Wen Jiabao’s decision to send lower-level officials to meet with President Obama.)

The negotiating process follows a very specific arc. The more parties, the more complex, fraught and risky it becomes. So with almost 200 countries present, the odds of a clean, pure agreement on a sweeping, binding law were always practically nil, even in the fairly weak field of international law.

Negotiations, like all games, are the process of the passage of time and its contained events. Early in any negotiation, most of the time is spent posturing, jockeying for position, and deciding angle. Testing the waters, testing the other side, making friends and allies, setting up competing early drafts of an agreement — particularly ones that suits your interests best, while giving the other side just enough to stay interested. These preemies never work — if they did, the other side would know for sure they are not getting all they could. But they do begin to give people a vague sense of what matters for a framework.

Most Americans find such behavior exasperating, infuriating. We think: just agree! Or come up with something better that we like too — right now! Then again, most Americans hate to haggle: it’s bad form. The rest of the world works differently.

Last minute negotiations — and they always come down to the last minute— are fuelled by some desperation to save face by getting something done, a sense that the other side is now (on some level) a partner in all this, and a certain amount of the game of chicken. Sometimes exhaustion allows for compromises that would never otherwise be considered.

Copenhagen achieved some things: focus on the problems of poor countries and climate change; money to prevent de-forestation. True, emissions were not cut; there is no enforcement. As with the mice trying to decide who bells the cat, no one was willing to risk their interests for a common good. So there is a lot of disgruntlement. Failure is like that.

But there is the future (by that I mean next year). Perhaps now that everyone has had their say in pure democratic form and seen what a mess that can make, coalitions will come together and each send a representative team to cut down on the number of parties at the bargaining table. Such a step would increase the odds of success next time. Apparently, Copenhagen itself was only a step towards dealing with climate change, as was Kyoto before it.  A big problem will get a mammoth negotiation. It will take years, but humanity will survive – it has through all the catastrophes of time. (The world has been about to end so often and for so many reasons, it can be hard to keep track.)

Compromise has its costs and is slow; that’s the downside to democracy. But would anyone like to change systems?

Last year, Tim DeChristopher, a student in Utah, bid $1.8 million he did not have in a federal oil lease auction. He won the leases. He stated he did it to protect the environment and to prevent further global warming, arguing that the danger from this drilling was too great and immediate to try to stop it any other way. This week the judge in the case, Dee Benson, disagreed, citing the lack of imminent danger. DeChristopher is now facing felony charges of making false statements and interfering with a (government) auction.

Coincidentally, several days earlier in New York City, the State of New York Department of Environmental Conservation held a public hearing on new regulations allowing natural gas drilling in the Marcellus shale deposit in upstate New York.

The Marcellus, which supposedly holds enough gas to power the entire country for 20 years, also crosses the Catskill/Delaware River watershed, a major source of water for the City.

Stuyvesant Auditorium was packed, with the audience, many with placards, overwhelmingly against the drilling. Public input started with local politicians fulminating (this is what talented politicians do well). Their anger was directed at the hydraulic fracturing process used to release the gas during drilling; their fear is that there will be an accident and some of this probably poisonous fracking glop will end up in the New York City water supply, which is comes from the Catskills almost totally untreated. They can yell, but their anger was misdirected and so, ineffective.

There are any number of perfectly good reasons to be concerned over the leasing of land for oil or gas drilling, but to voice a complaint effectively, there are some common sense considerations:

1) Do your homework so you know what you are talking about. The problem with the city’s analysis is that it is infinitely more likely that gallons of the fracking fluid will mess up some rural site, ruining that land and maybe the water for local farmers (who don’t seem worried enough about this and should know better — it has happened before). Even in a worst case scenario, only the most miniscule amount of the fluids will make it into the watershed, and then be diluted by trillions of gallons of water before getting to the City. Ironically, the environmental groups that got up afterwards to give public comments made more sense. Their objections very sensibly focused on the horrendous mess of a plan the state government has offered in its haste to cash in on the Marcellus craze. Some of its allowances include drilling and using explosive technology within 1000 feet of  century-old water tunnels. Anyone with a brain has to ask: Really? Is this for real? The plan is badly thought-out and needs to be re-done with more sensible regulations, protections, oversight and back-up plans. New Yorkers might be comforted by the knowledge that because of competent regulation and oversight, the City of Fort Worth has allowed shale oil drilling and hydrofracking in hundreds of wells within city limits for years without contamination of the city’s water — although there have been problems in the less regulated rural areas. In Mr. DeChristopher’s case, he should have understood the whole situation even a little, before reacting on emotional impulse. Any drilling takes years to bring to fruition and there are many other means, especially legal, to protest or halt the sale of the leases.

2) Focus on the real problem. The marginal information used by all the New York politicians must have come from some external press release because it was so universally parroted and so completely unrelated to the very real dangers that can occur from poor drilling regulation, oversight and drilling. These include the disposal of the “salty” waste water that comes with drilling and the subsequent extraction (much worse and in much greater volume that hydro-fracturing fluids), the preventable careless overuse of local water supplies to drill and frack (a million gallons per well – which can be recycled if the companies are pushed), and the lack of adequate oversight or emergency and clean-up plans. Surely Mr. DeChristopher is not (and was not) the only one extremely concerned about the wholesale land sale by the Bush administration, its lamentable environmental record, and excessively cozy arrangements with energy companies. Mr. DeChristopher might have worked to rally people of the West, who have vastly inadequate legal, regulatory, and environmental protections and sought legal challenges. Plenty of people in Western states are working on the same issue: he ahd a ready-made constituency.

3) Understand the entire picture. No matter how New Yorkers City demands a moratorium on leasing upstate, it will not protect the water supply in total, because Pennsylvania also shares the watershed and is unaffected by any New York regulations.

4) Be honest about why you’re doing it. Is it concern about the environment or a distrust and dislike of oil or gas companies? Is it water protection or is it you don’t want your bucolic country retreat less bucolic? In short, are you representing your own interest or a genuine public one? Nothing wrong with self interest — but any argument is strengthened if you are coming from a legitimate place, and self interest is quite often as legitimate as anything else. And honesty usually makes for a better solution.

4) The solution is public and legal, hire a specialist, and expect the fight will cost money and take time. Both Mr. DeChristopher and the City protesters are right to be concerned — the problem is that each acted in a way that would have been better for the other scenario — Mr. DeChristopher in a public fight using a legal or state challenge, the city people in offering to buy the most risky sites. Fortunately for the people in Western states, Secretary of the Interior Ken Salazar has begun to smell a rat in how oil and gas leases were distributed under the last administration. At the end of last month, he resumed shale oil leasing in the West with dramatic curtailments of the previous leases.

Not all gas leasing can or should be stopped. Energy is essential for the country too and the overwhelming majority of gas wells have not been damaging to people or the environment in any meaningful way. (Leaving global warming out of the immediate equation.) But oversight is critical.

The best ways to challenge leasing for oil and gas is to get all the information, figure out the realistic costs and benefits and dangers, and weigh the best legal and economic options. Certainly the man who spoke up for the local people of upstate New York’s Sullivan County made sense. He had requested a state list of the previous accidents and problems from drilling, demanded that protections and environmental considerations be put in place first, and that New York State regulations be re-thought and re-written. He had a worthwhile point.

There is a potentially dramatic change in the location and availability of natural gas globally. If all comes to pass as predicted, it would alter the geopolitical power of some countries like Russia, while lessening American, and possibly Chinese, Indian, and European, dependence on foreign oil and gas. Unlike normal natural gas, which is often found with oil fields (as well as alone), this “unconventional” gas is embedded in shale, a sedimentary rock located thousands of feet below the surface.

 

There was no easy way to get such gas out since it was trapped in dense clay rock until a few years ago. Halliburton devised a way to not only fracture the rock to release the gas, but to drill horizontally so each well could access much more gas. This made it economically feasible to go after the gas.Most of the shale gas that is being developed is in the US.

 

No one doubts that, environmentally speaking, natural gas is the least unfriendly of the fossil fuels or that it leaves the lightest footprint where it is extracted.  

 

Two major concerns have arisen: one involves the use of certain toxic chemicals like benzene to fracture apart the clay of the shale (called “fracking”). The fear is that a spill or mistake could contaminate the land or, more likely the water table through which the gas well passes on its way to the shale.

 

The second is the unusually large quantity of water that is required to drill and frack a well that can be up to 15,000- 16,000 feet long. It can take a million gallons of water or more. Even if some of the water can be recycled, you’re still talking about a major withdrawal from the aquifer.

 

A million gallons of water is not a HUGE amount (geologists I have talked to relate it to swimming pool volume) if you live in the verdant Eastern seaboard or much of Europe. But it adds up especially when it comes to healthy flow and wildlife. It is a critical amount if you live in the American West or North Africa or much of Asia.

 

 One of the most desirable shale deposits in the US is the Marcellus play which stretches diagonally from upstate New York through Pennsylvania into West Virginia. Sober environmentalists, hysterical summer residents, hyperventilating politicians, and people who just plain old don’t trust any energy company have all been campaigning against drilling but they are fighting a losing battle.

 

 Millions of acres of the New York City watershed have already been safeguarded, but most land remains in private hands and the money is proving irresistible in this economically depressed region. According the New York Times, “There are already about 13,000 active oil and gas wells in New York, about half of them already using hydraulic fracturing.” There are also a huge number of wells over in Pennsylvania, which is much more pro-drilling than New York State, and whose streams and tributaries also feed into the water supply of New York, New Jersey and Philadelphia.

 

In a major decision, in late September, the New York State environmental regulator issued what they saw as acceptable guidelines for drilling wells to extract the natural gas of the Marcellus. The environmentalists do have one greatly important point — current federal standards and previous practices should concern anyone who cares about water safety.

“We need to have a zero-risk policy here, and it is not appropriate to allow drilling in such a unique and extraordinarily valuable resource,” said Kate Sinding, a senior attorney at the Natural Resources Defense Council. “The record in other states is so abysmal, and it doesn’t take much to do better than other states.”  (NYT)

 

 

Although drilling won’t be stopped, it would serve everyone much better if the state required area environmental impacts, extremely high drilling standards, emergency plans, fail-safes, and clean-up procedures to be in place before the rush starts in earnest. Energy companies can call their toxic mix a corporate secret, but they would be better served with greater transparency.

 It is also true that the volume of water requested by gas companies has been, to be kind, extravagant. A request for a million gallons a day for drilling purposes by energy giant Chesapeake was shot down by the interstate Delaware River Basin Commission a couple weeks ago. Chesapeake withdrew the request.

The role of water is rarely discussed in energy development. But huge amounts of water are also needed for cleaner coal plants (emissions control comes at the expense of water), biofuel, and solar. Water needs to be part of the equation from the beginning of any energy development.

 Thankfully, there are groups working feverishly in New York and Pennsylvania to iron out procedures to protect water, limit water use (much more can be recycled that often happens), and to figure out what to do with the contaminated water that cannot be recycled.

 Their work can help protect and set standards for those around the world who follow.

One of the greatest bones of contention about extracting fossil fuels — in the industrialized world anyway — is the damage it can or will do to the environment. The industries resist the idea.

Do the costs of environmental protections cripple the production of newer, more unconventional fields, as the industry has long proclaimed?

Apparently not.  For example: the Associated Press reported this week that Chevron, a partner in the joint venture, had agreed to meet the 28 environmental conditions Australia set for the development of the offshore Gorgon gas field, worth $41 billion in gas exports to China. One of the condition is a safeguard for a rare turtle.

Similarly, in northern Pennsylvania, Hess has just signed a deal with a large group of farmers, in the Marcellus shale play. Their environmental demands included much stronger safeguards for their farmland and water supplies than required by state or federal law, and stringent demands on waste disposal. Responding to public pressure, the regional water authorities there have also set much tougher regulations to limit water use.

In the contracts offered by extraction companies, environmental protections are played down, although according to energy lawyers I have talked to, these contracts are still infinitely better than those signed years ago. These lawyers also say that the worst offenders aren’t the energy super-giants, but the smaller scrappier companies who have leaner margins and are willing to take greater risks in developing small or questionable fields.

Unsurprisingly, all these contracts serve the financial interests of the company. Meaningful environmental considerations, especially site specific ones, are conveniently limited. A number of developing countries seem to just accept this — perhaps they lack capacity or perhaps they are ill-informed or, for some of the worst dictatorships, they just don’t care. But they don’t have to accept these terms and shouldn’t.

Similarly, the landmen who travel through the US seeking unsuspecting homeowners in resources-rich areas willing to sign over their mineral rights for a pittance also offer environmentally inadequate terms.

Most companies will start with the gambit that strong environmental protections make any given project economically unfeasible. Occasionally, this is true. However, increasingly, though, this argument seems like a negotiating tactic — untrue and dishonest. The rationale that it’s just business to glean every penny even at the cost of environmental damage is even worse than ripping people off financially. It ruins their homes, their lives.

Fortunately, more and more, it seems that if a country or group of contiguous landowners sitting on a sizeable deposit worth extracting comes up with its own thought-out and locally appropriate environmental demands and sticks to them, sooner or later an energy company will come along willing to meet the terms.

Oil and gas companies have historically managed to develop truly astonishing technology to get oil under the conditions that they face. Some of these will be the environment and they can and do rise meet these challenges — but only if they must. It is up to the governments that set the environmental laws to make them.

A Gallup poll done two weeks ago reveals that of all industries, Americans rated the oil and gas worst, even worse than banking, GM and lawyers.

There have been some annoyed, defensive responses from workers in the oil and gas field — understandable since most people in the industry are hard-working, honest and understandably offended at being categorized as disreputable.

These complaints are undercut by recent oil company actions, like this month’s artificially staged “grassroots” events in Texas against stronger emissions controls. The New York Times reported:

“The event on Tuesday was organized by a group called Energy Citizens, which is backed by the American Petroleum Institute, the oil industry’s main trade group. Many of the people attending the demonstration were employees of oil companies who work in Houston and were bused from their workplaces…
For its part, the oil industry plans to raise the pressure in coming weeks through its public rallies so that it can negotiate more favorable terms in the Senate than it got in the House. The strategy was outlined by the American Petroleum Institute in a memorandum sent to its members, which include Exxon Mobil, Chevron and ConocoPhillips. The memorandum, not meant for the public, was obtained by the environmental group Greenpeace last week.”

In a related story, PR firms for the coal industry were found to have sent more than five dozen fake letters ( supposedly from groups like senior centers and the NAACP) opposing new climate change laws to members of Congress. The PR company, Bonner and Associates, blamed it on a rogue temp. The coal industry has apologized. But it’s understandable that public suspicion continues.

Green tech leaders meeting this week in Las Vegas at the National Clean Energy Summit conference sponsored by Democratic Majority Leader Senator Harry Reid used the opportunity to complain about the lack of government support. Despite recent announcements from the Obama Administration that some initiatives are moving, the money is not going out the door as fast as they would like.

But its not just funding that is delaying alternative energy development. There are more structural issues such as permitting that all levels of government need to address to foster green projects. For example, fears over the fate of the sage grouse are stymieing plans for a large-scale alternative wind energy project in Wyoming developed by Texas-based Horizon Wind Energy. As such projects increase in scale to create efficiencies, they are becoming ensnared in permitting issues as they may create other environmental problems.

The government will seek to reduce the environmental impact of any large project, but at some point the government must make a fundamental decision. Either sacrifice large renewable projects, which means relying on older more polluting fuels that affect many species, or build a project could affect just one.

As the governments in the US debate permitting issue, other countries, such as China are making decisions and companies, such as Evolution Solar Company are jumping ship and finding more profitable opportunities there. Stimulus funding will no doubt give green tech companies some support, but without a more flexible regulatory environment, the US will still be behind the green curve.

In a lightly publicized event over the weekend, a trader in London at PVM Oil Futures, the largest oil trading firm, made “unauthorized” purchases of oil contracts at 2 am. The trades pushed the price of Brent crude up to $73.50/bbl on Tuesday, the highest price this year, before dropping to $66 by the end of the week. The episode highlights the role that traders may play in affecting prices.

The incident comes at a time where many analysts, such as Deutsche Bank and well, me, believe that oil prices are divorced from basic supply and demand factors. If oil remains near $65 a barrel in a weak economic environment, and analysts have trouble ascertaining why, such stories and follow-up investigations into the role that energy traders play will likely become bigger press events.

The oil market is very complex (read: opaque). Its dominated by traders and very large companies, often state-owned. Other commodity markets, such as wheat and rice, also share some similar characteristics. When prices remain unexplainably high, conspiracies – some of them true – take hold and consumers will push for government action.

Today, the Commodity Futures Trading Commission (CFTC), the regulator of commodity markets in the US, is set to propose regulations aimed at curbing speculation by requiring firms to report their holdings and limiting the amount firms may invest in certain markets. Their goal is to reduce volatility and the influence of individual firms in controlling commodity prices. Although CFTC’s actions may curb the action of some US firms, it is just the start of the debate.

Vice President Joe Biden is on a victory tour, swinging through the country exulting the $787 billion stimulus package as a green job creator. In Denver, he boasted about the $11 billion for improving the electricity grid as well as the estimated 450,000 new jobs the bill will create. Despite the difficulty in defining a green jobs and counting the number the bill will create, spending such sums will no doubt lead to some employment.

Many businesses and potential entrepreneurs are scurrying around the stimulus package and the pending climate change regulation to find opportunities. The activity in Washington will no doubt create openings for traders, biofuel plants, and wind and solar power companies (as well as opportunities for the IT and health care sector ).

However, there is also a downside of the stimulus bill and the pending climate and energy regulation. …..click here to read more