Despite Opposition, Scotland Announces Fracking Ban - Calls For US To Do The Same

Authored by Julia Conley via TheAntiMedia.org,

“We have so much wind and wave power that it is retrograde in the extreme to lend any support to the fracking industry.”

Environmental groups from around the world applauded Scotland on Tuesday for its decision to ban fracking, following an overwhelming public outcry against the practice - and called for the United States and the rest of the United Kingdom to follow suit.

The Scottish government held a public comment period in recent months on fracking, attracting about 65,000 responses - the majority of which came from people in communities where the natural gas extraction would take place. An overwhelming 99 percent of Scots who participated were opposed to the practice.

"Fracking will lead to an increase in pollution and the decimation of parts of the Scottish landscape and environment,” wrote one respondent.

“People will feel even more devalued as a result of having been ignored, communities wll be damaged by fracking wells and health will suffer as a result of noise, ground water contamination and probably indirect air pollution. Scotland can’t afford to damage the health of its residents any more.”

In addition to environmental concerns, many Scots said they weren’t convinced of the potential economic benefits of fracking; the auditing firm KPMG found that it was likely to only increase the GDP by 0.1 percent. Others said relying on the risky method of energy production would signify a lack of innovation in the country.

“We should be moving to renewables. This is a backwards step,” said a commenter.

In a four-month public comment period, 99 percent of the 65,000 Scots who responded expressed opposition to fracking. (Photo: Friends of the Earth Scotland/Flickr/cc)

Another added that the practice was “likely to be entirely detrimental as Scotland’s international reputation as an innovator in design and engineering projects is undermined by our agreement to proceed with fracking…We have so much wind and wave power that it is retrograde in the extreme to lend any support to the fracking industry.”

Food and Water Watch gave credit to the Scottish people for standing up to corporate entities that supported fracking. “Giant energy company Ineos, which invested heavily in its Scottish facility at Grangemouth, fought hard against this ban, even threatening to explore legal action against the government if it passed,” said executive director Wenonah Hauter in a statement. “But people power prevailed, and it will continue to prevail. We can’t let companies like ExxonMobil and Ineos stop the inevitable march towards clean energy. Bold and swift policy change is our only hope for addressing our climate goals. We applaud the Scottish government for doing what’s right for people and the planet.”

Scotland’s decision leaves its neighbors, England and Wales, alone in their embrace of fracking.

“With all our nearest neighbours having banned or halted fracking, our government is increasingly out on a limb in pursuing it in England,” said Rose Dickinson of Friends of the Earth.

Hauter also called on the U.K. as well as the U.S. to follow in Scotland’s footsteps.

“Banning fracking is a necessary step towards beating the worst effects of climate chaos, and the U.K. and the U.S. should follow Scotland’s example,” she said.

“In the U.S., we already have the means to start moving off of fracking swiftly - the Off Fossil Fuels For a Better Future Act, which would mandate a just transition to 100 percent clean renewable energy by 2035, starting with 80 percent within the next 10 years.”

As in Scotland, public opinion in the UK and the US is not in fracking’s favor, despite officials’ insistence that the practice creates jobs and revenue. A poll by England’s Business and Energy Department this summer found that only 16 percent of citizens support fracking, down from 21 percent last year.

In the U.S., opinions are more evenly split, but a 2016 Gallup poll found that 51 percent of Americans oppose fracking, while 36 percent support it.

Fracking Giant Sues Citizen for Speaking out Against Fracking

Fracking giant Cabot Oil & Gas Corp. is suing Dimock, Pennsylvania resident Ray Kemble and his attorneys for $5 million after Kemble accused the gas driller of polluting residential wells in Pennsylvania. Cabot alleges that Kemble and his lawyers extorted the company through a “frivolous” lawsuit. [1]

In 2013, an EPA official wrote in an internal report that fracking conducted by Cabot Oil & Gas Corp. caused methane to leak into domestic water wells in Dimock, completely contradicting Cabot’s assessment, which said the methane gas was naturally occurring. [2]

State regulators initially got involved in 2010 and said Cabot’s drilling contaminated local wells, though a subsequent EPA investigation in 2012 found the water posed no health risks to Dimock residents.

Though the 2013 report didn’t exactly contract the EPA’s finding that the water was safe to use, it did show that at least one official determined that Cabot’s work damaged water wells.

Read: Study: People Living Near Fracking Sites Suffer Severe Health Problems

Now, Cabot is suing Kemble, claiming that his efforts to garner media attention to his polluted well “harmed” the company. The energy company alleges in the suit that Kemble’s actions breached a 2012 settlement that was part of an ongoing federal class action lawsuit over Dimock’s water quality.

Kemble says that even now his water “burns the back of your throat, makes you gag, makes you want to puke.” According to the outspoken Pennsylvanian, who, along with other community members, was featured in the 2010 documentary “Gasland,” said that things only got worse after Cabot fracked 3 wells near his house. [3]

In August 2017, scientists from the Agency for Toxic Substances and Disease Registry (ATSDR), a public health agency, again tested the water at Kemble’s home and about 2 dozen other houses.

A report released by the ATSDR in 2016 found contamination in some of Dimock’s well-water, but the tests did not look at what was casing the contamination. [4]

Read: Fracking Contaminates Groundwater, Study Proves

George Stark, Cabot’s director of external affairs, said of the lawsuit:

“Cabot will protect its rights and pursue justice against those who irresponsibly and maliciously abuse the legal system.” [1]

Source: Sierra Club BC

In April 2017, Kemble and his lawyers filed a federal lawsuit accusing Cabot of continuing to pollute Kemble’s water supply. However, the suit was withdrawn 2 months later. [3]

According to Cabot, the claims Kemble made in the lawsuit were the subject of a 2012 settlement between the driller and dozens of Dimock residents – including Kemble – and were barred by the statute of limitations. Cabot claims in the lawsuit that Kemble had breached the 2012 settlement by publicly discussing the company and the alleged damage it did to his water supply.

In 2016, some of Kemble’s neighbors, who had refused to sign a settlement agreement with Cabot, were awarded $4.2 million by a jury. However, in March 2017, that ruling was overturned. [4]

The judge overseeing the case ordered a new trial.

Two weeks later, Kemble filed his lawsuit against Cabot.

Sources:

[1] MintPress News

[2] The Washington Post

[3] Press Connects

[4] Hot Air

Sierra Club BC

---

---

About Julie Fidler:
	Julie Fidler is a freelance writer, legal blogger, and the author of Adventures in Holy Matrimony: For Better or the Absolute Worst. She lives in Pennsylvania with her husband and two ridiculously spoiled cats. She occasionally pontificates on her blog.

"I Have Taken A Closer Look At The Data From EIA...": Why Horseman Global Is Aggressively Shorting Shale

Having staged a dramatic reversal at the end of 2016, when the world"s formerly most bearish hedge fund - it was net short over 100% in late 2016, which in turn led to a -24% return last year...

... rerisked, turning flat in just a few months, Horseman Global - now short developed markets and long emerging markets, and having lost 8.31% through the end of June - is once again dipping its toes in shorting stocks in general, and shale producers in particular. And, in Russell Clark"s latest letter, the Horseman CIO explains why.

From Horseman Capital Management"s July Monthly Newsleter

Your fund made 85bps net last month. Gains came from FX book and long book.

The big returns in fund management for me always come from finding some perceived wisdom, in which the market so completely believes that its fundamentals are never questioned. Theoretically this should not happen that often, but in my experience, it’s a constant feature of the market. Once you have built a business around an economic proposition you have no financial incentive to question it.

The Japan bubble was built on the view that Japanese corporate culture was inherently superior. The Asian financial crisis had its genesis in the view that Asian corporates borrowing in US dollars was risk free. The dot com bubble in the view that all tech stocks would prosper. The financial crisis was built on the view that US house prices could never see a nationwide fall. The European crisis was built on the assumption that all European government bonds were of equal value. And the recent commodity crash was built on the assumption that Chinese consumption and low interest rates made commodities safe.

Having grown up, and spent my entire investing career in periods of bubble inflation and deflation, I am constantly minded to look for where the market is deceiving itself, and then positioning the fund to benefit from the process of realisation. Many years ago, I could see that the commodity bubble was ending, and Chinese growth was peaking. This meant that commodities would be weaker and inflation lower, making a short commodities, long bond position very effective. It was a great strategy, but its effectiveness ended early last year.

The good news is that new market delusion is now apparent to me. When I moved long emerging markets, and short developed markets, the one commodity I could not give detailed bullish reasons for was oil. Unlike most other commodities, the oil industry, in the form of US shale drillers has continued to receive investment flows throughout the entire downturn.

I had shorted shale producers and the related MLP stocks before, and I knew there was something wrong with the industry, but I failed to find the trigger for the US shale industry to fail. And like most other investors I was continually swayed by the statements from the US shale drillers that they have managed to cut breakeven prices even further. However, I have taken a closer look at the data from EIA and from the company presentations. The rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money. If US rates continue to stay low, then it is possible that the high yield markets may continue to supply these drillers with capital, but I think that this is unlikely. More likely is that at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the 

next month (Source: EIA).

What I also find extraordinary, is that it seems to me shale drilling is a very unprofitable industry, and becoming more so. And yet, many businesses in the US have expended large amounts of capital on the basis that US oil will always be cheap and plentiful. I am thinking of pipelines, refineries, LNG exporters, chemical plants to name the most obvious. Even more amazing is that other oil sources have become more cost competitive but have been starved of resources. If US oil production declines, the rest of the world will struggle to increase output. An oil squeeze looks more likely to me. A broader commodity squeeze also looks likely to me.

In the latest letter"s sector allocation, Clark also added the following section providing a more detailed explanation why he has boosted his shale short to 15.5%:

We are negative on the US shale sector, during the month we increased the short exposure to oil exploration and MLPs to about 15.5%. Conventional oil wells typically produce in 3 stages: the start-up rising production stage lasts 2 to 3 years, it is followed by a plateau stage which lasts another 2-3 years and a long declining stage, during which production declines at rates of 1% to 10% per year. These wells generally produce over 15 to 30 years (Source: Planete energies).

In contrast, production from unconventional / shale wells peaks within a few months after it starts and decreases by about 75% after one year and by about 85% after two years (Source Permian basin, Goldman Sachs). This means that, in order to keep producing, shale producers need to constantly drill new wells.

Shale drilling is characterised by drilling horizontally into the layers of rock where hydrocarbons lie. Then hydraulic fracturing which consists of pumping a mixture of water, proppant (sand) and chemicals into the rock at high pressure, allows hydrocarbons to be extracted out to the head of the well.

Since 2016, as oil prices rallied, the number of rigs in the Permian basin, which is currently the most sought after drilling area in the US, rose from about 150 to almost 400. Furthermore, operations have moved into a high intensity phase as wells are drilled closer together, average lateral lengths increased over 80% from 2,687 ft in early 2012 to 4,875 ft in 2016 and the average volume of proppant per lateral foot more has than doubled (Source: Stratas Advisors).

Intensive drilling is causing a problem called ‘frac-hits’, which are cross-well interferences. These happen when fracking pressure is accidently transferred to adjacent wells that have less pressure integrity. As a result a failure of pressure control occurs, which reduces production flow. In the worst cases, pressure losses can result in a total loss of production that never returns. According to a senior reservoir engineer at CNOOC Nexen, frac-hits have now become a top concern, they can affect several wells on a pad along with those on nearby pads (Sources: Journal of Petroleum Technology).

A former engineer for Southwestern Energy said that frac-hits are very difficult to predict, the best way to respond is with trial and error and experimenting with well spacing and frac sizes to find the optimal combination.

In May Range Resources reported that it was forced to shut wells in order to minimise the impact of frac-hits. This month Abbraxas Petroleum said it will be shutting in several high-volume wells for about a month (Source: Upstream).

In the Permian basin new well production per rig continued to decline in June, from 617 barrels per day down to 602. In the meantime, legacy oil production, which is a function of the number of wells, depletion rates and production outages such as frac hits, is continuing to rise. (Source: EIA)

In light of the above growing short bet on shale, this is how Clark is positioned:

The analysis leads me to be potentially bearish on bonds, bearish on US shale drillers, but bullish on commodities. Over the month, we have added to US shale shorts, while also selling our US housebuilder longs. We continue to build our US consumer shorts, where the combination of higher oil prices and higher interest rates should devastate an industry already dealing with oversupply and the entry of Amazon into ever more areas. The combination of long mining and short shale drillers has the nice effect of reducing volatility, but ultimately offering high returns. The combination of portfolio changes has taken us back to a net short of over 40%. I find market action is supporting my thesis, and the research and analysis is compelling. Your fund remains short developed markets, long emerging markets.

While we will have more to say on this, Clark may be on to something: as the following chart from Goldman shows, the number of horizontal rigs funded by public junk bond issuance has not changed in the past 3 months. Is the funding market about to cool dramatically on US shale, and if so, just how high will oil surge?

Shale Efficiency Has Peaked For Now As Rig Count Surges For 22nd Straight Week

For the 22nd week in a row, the number of US oil rigs rose (up 6 to 747) to the highest since April 2015.

Given the historical relationship between lagged prices and rig counts, we suspect the resurgence in rigs may begin to stall...

Oil is headed for the longest run of weekly losses since August 2015 as OPEC member Libya restored production and the surplus in the U.S. shows little sign of abating.

"Inventory levels remain stubbornly high," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis.

"The reality is, the things that have caused this trading range remain in place. Nothing’s changed."

US Crude Production from the Lower 48 rebounded this week (after a modest fall the week before) to new cycle highs...

The growth in rigs has been almost entirely in The Permian...

But, as Reuters reports, while cash, people and equipment are pouring into the prolific Permian shale basin in Texas as business booms in the largest U.S. oilfield, one group of investors is heading the other way - concerned that shale may become a victim of its own success.

Eight prominent hedge funds have reduced the size of their positions in ten of the top shale firms by over $400 million, concerned producers are pumping oil so fast they will undo the nascent recovery in the industry after OPEC and some non-OPEC producers agreed to cut supply in November.

The funds, with assets of $286 billion and substantial energy holdings, cut exposure to firms that are either pure-play Permian companies or that derive significant revenues from the region, according to an analysis of their investments based on Reuters data.

"Margins will continue to be squeezed by a 15 to 20 percent increase in service costs in the Permian basin," said Michael Roomberg, portfolio manager of the Miller/Howard Drill Bit to Burner Tip Fund.

Which, despite the forecasts for increasing production, fits with OilPrice.com"s Peter Tertzakian warning that shale efficiency has peaked... for now.

Learning takes time and effort. But a good education pays off.

North America’s oil industry has been in school for the past three years, studying how to become more productive in a fragile $50-a-barrel world. Many companies in the class of 2017 have graduated and are now competing hard for a greater share of global barrels.

Having said that, North America’s education on how to make oilfields more productive appears to be stalling. After a breathtaking uphill sprint, productivity data from the U.S. Energy Information Agency (EIA) shows that the last few thousand oil wells in top-class American plays may have hit a limit—at least for now.

Our Figure this week shows a classic S-curve learning pattern in the mother lode of all oil plays: the Permian Basin. Slow improvements to rig productivity (2012 to 2015) were followed by a steep period of rapid learning (2015 to 2017). Eventually limitations set in and advancement quickly stalled upon mastering new processes (2017 to the present).

(Click to enlarge)

As with many things in life it’s repetition that leads to mastery. Getting to know the rocks better and using progressively better techniques to extract the hydrocarbons facilitate learning in the oil and gas business. Each subsequent well that’s drilled yields a better understanding on how to drill and extract the oil buried several kilometers beneath a prospector’s feet. Trial, error and breakthroughs through repetitive drilling have been a longstanding hallmark of this 150-year-old business.

The “light tight oil” (LTO) revolution began in North America circa 2010. It took about 30,000 wells and three years before the learning in the Permian Basin kicked in. The next 20,000 wells yielded an impressive doubling of productivity. But it was innovation from the following 10,000 wells when mastery set in; by the time the 60 thousandth well was drilled the amount of new oil produced by a single drilling rig (averaged over a month) more than tripled to 700 B/d.

Aside from learning more about the rocks, the following six factors have contributed to the tight oil learning curve:

1. Walking rigs – Assembling and dismantling rigs for each new well used to be an unproductive, time consuming process. Wrenches and bolts are passé; new rigs “walk” on large well pads needling holes in the ground like a sewing machine on a patch.

2. Bigger, better gear – From drill bits to motors, pump and electronic sensors, all the gear on a rig is now more powerful and more precise.

3. Longer lateral wells – A horizontal well is like a trough that gathers oil in the rock formation. Why stop at one kilometer when you can drill out two or three with the better gear?

4. Fracturing with greater intensity – Hydraulic fracturing used to be a one-off, complicated process. Today, liberating tight oil is like unzipping a zipper down the length of a lateral well section.

5. Smarter, better logistics – Idle time on well sites can cost tens of thousands of dollars an hour. Modern supply chain management and logistics are helping operators use every hour of the clock more cost effectively.

6. ‘High grading’ of prospects – Low oil prices culled the industry’s spreadsheets of uneconomic play areas. Activity migrated to high quality ‘sweet spots’, which are turning out to be more plentiful than originally thought.

How much better can it all get? 

The data in our chart, and from other plays, suggests that the collective learning from these factors may have peaked; ergo a high school conclusion might lead us to believe that the golden geese—tight oil wells drilled into prolific plays like the US Permian and Eagle Ford—may have finally finished laying bigger and bigger eggs.

But it’s not wise to be fooled into that sort of undergraduate thinking. Productivity may have stalled for now, but the learning is paying off. The rate of output growth in the new genre of light tight oil plays isn’t about to lose momentum around the $50/B mark.

Learning is infectious. And what good student starts from the proverbial “square one?” Only fools reinvent the wheel. Knowledge gained from American “tight oil” plays is spreading to other plays and has already spread north into Canada where conditions favour copycat learning. Plays like the Montney and Duvernay are already climbing up their learning curves.

All this learning sounds like bad news for oversupplied oil markets. Yet there is a flip side: The good news for North America is that not everyone is going to the same school. Those on the other side of the world aren’t drilling thousands of wells from which they can learn. They’re relying on OPEC valve closures to save their competitiveness in the old-school way of doing things.

The irony is that OPEC’s artificially supported oil price is tuition for North America’s industry. On their tab we’re learning how to produce more oil at lower prices.

Maryland House Overwhelmingly Votes to Ban Fracking

On March 10, Maryland’s House of Delegates passed legislation to ban hydraulic fracturing, or fracking, 97 to 40. The bill’s next hurdle is the Senate, where a key lawmaker has resisted efforts to permanently prohibit the practice. [1]

Senator Joan Carter Conway, a Democrat from Baltimore, chairs the Senate committee tasked with reviewing the proposal. She has said she sees no point in trying to get the legislation to Governor Larry Hogan’s desk until both legislative chambers can approve it with enough majorities to avoid a veto. She said that without enough votes to override a veto, it would make more sense to simply extend a moratorium on fracking. [1], [2]

Hogan supports fracking as long as Maryland implements strong safety measures for the gas-extraction method. [1]

The 141-member House needs 85 votes to override a veto from the governor, and the 47-member Senate requires 29 notes to do so. Anti-fracking advocates say they’re a few votes short of that number in Senate.

Mike Tidwell, director of the Chesapeake Climate Action Network, said:

“If Joan Carter Conway declared today that she too supports a ban, then it’s going to go to Hogan’s desk, because not only will we have her vote, but several people have said they’ll support it if she does.” [1]

There is no hydraulic fracturing currently occurring in the state; but without a ban, fracking would be permitted in Maryland after October 2017, which would mark the end of a two-year moratorium on the practice. Conway has proposed a bill that would extend the moratorium another two years and require counties to hold referendums in 2018 on whether to allow the drilling method. [1], [3]

Garrett and Allegany counties are considered the parts of the state that are most likely to have gas deposits that could be reached by fracking. [2]

The majority voted to ban the technology after being shown scientific proof that fracking increases the risk of earthquakes, water contamination, and health problems in areas where the practice is permitted. [2]

Fracking’s Bad Record

Hydraulic fracturing is the practice of injecting water, sand, and chemicals deep within shale rock to release oil and natural gas. The technology has the potential to cause groundwater contamination, methane pollution, air pollution, exposure to toxic chemicals, and explosions. Moreover, each fracking operation requires millions of gallons of water. [4]

In 2013, several people were injured by an explosion at a natural gas well site in West Virginia. The explosion reportedly occurred when

“a spark triggered a flash explosion and a fire after a problem during the ‘flow back’ process when drilling fluids are pumped into storage tanks.”

In March of 2016, a federal jury ordered Cabot Oil & Gas to pay $4.24 million to two Dimock, Pennsylvania, families for Cabot’s pollution of their well water since 2008.

Source: U.S. News & World Report

And in 2014, 585 fracking-related earthquakes measuring 3.0 or larger on the Richter scale rocked the state of Oklahoma – three times the number that struck California. Experts fear the state could be rocked by a massive man-made earthquake at any time.

Sources:

[1] The Washington Post

[2] The Baltimore Sun

[3] Chesapeake Physicians for Social Responsibility

[4] Carleton University

U.S. News & World Report

---

---

About Julie Fidler:
	Julie Fidler is a freelance writer, legal blogger, and the author of Adventures in Holy Matrimony: For Better or the Absolute Worst. She lives in Pennsylvania with her husband and two ridiculously spoiled cats. She occasionally pontificates on her blog.