Brazil’s Pre-Salt Extraction Costs Fall To $8 Per Barrel

Not too long ago Brazilian state oil company Petrobras was the most indebted oil & gas company in the world. The long-suffering company has faced dire mismanagement while being weighed down by allegations of involvement in Brazil’s widespread corruption. But that’s all changing.

Despite being a subject of the massive Lava Jato investigation, in which executives are accused of accepting bribes in exchange for contracting construction firms at inflated rates, things are turning around for Petrobras. Now, thanks to new management and their recently-discovered pre-salt wells, Brazil is the comeback story of the year.

Discovered only 10 years ago, Brazil’s pre-salt area has rapidly become the biggest oil-producing area in the country. Just this week Petrobras discovered commercial oil in a whole new pre-salt area known as the Marlim Sul Field in the Campos Basin, located about 71 miles off the shore of Rio de Janeiro.

Because pre-salt layers are so deep underground (they are the geological layers that were laid before a layer of salt was created by the Gondwana breakup about 600 to 530 million years ago) they are quite costly and difficult to drill in, but hold massive potential for production.

Brazil just announced a fantastic first half, with pre-tax profits reaching $4.4 billion in 2017, a staggering increase from $395 million a year ago. This is thanks in huge part to falling production and exploration costs, which dropped by 68 percent.

In June Brazilian oil output rose nearly a full percent from May to a daily average of 2.675 million barrels. Production in the pre-salt areas alone skyrocketed to an average of 1.353 million bpd, a growth of 6.4 percent from May. In July, for the first-time output from the pre-salt wells surpassed the rest of the country’s fields combined.

Now, according to Petroleo Brasileiro SA Chief Executive Officer Pedro Parente, oil is being extracted from the pre-salt offshore wells at the jaw-dropping cost of just $8 per barrel. This is an investment opportunity that has not gone unnoticed, attracting domestic as well as foreign interests to invest heavily in exploration in the previously stagnant market.

The country’s largest pre-salt producing field, known as Lula, is operated entirely by Petrobras, but the Brazilian company only own a 65 percent stake as part of a consortium including U.S.-based Shell (25 percent) and Portugal-based Galp (10 percent). While not a big player at Lula, after Petrobras and Shell, the third biggest oil producer in Brazil is the UK’s Repsol currently producing an average of 81,000 barrels per day.

Despite the strong production rates and accelerated foreign investments in the Brazilian marketplace, there is also concern that depending too much on oil could set Brazil on track to follow in Venezuela’s footsteps. Thanks to political instability, growing polarization, and rapid de-industrialization, Brazil is not yet out of the danger zone.

Despite the incredible good fortune of the pre-salt discovery, Brazil’s economy is still volatile. Rio de Janeiro, home of Petrobras, is on the brink of bankruptcy with a myriad of social problems such as skyrocketing rates of drug use, crime, and HIV – not to mention, the state’s former governor is in prison.

While they’ve just reached the incredible production benchmark of $8 per barrel, parts of the Brazilian oil industry are still languishing. Sete Brasil, a company specifically set up to build floating rigs for Petrobras and others drilling deepwater has gone bankrupt. Petrobras itself is still under investigation for corruption. Luiz Inácio Lula da Silva, who was president when Petrobras struck gold in the pre-salt area off the coast, was recently indicted on criminal charges by a federal court.

Brazil is on the verge of breaking out of third-world labels and into the limelight. They could be well on their way to being an economic superpower – but only if the government can keep a lid on scandal and learn from the mistakes of Venezuela instead of emulating them.

Originally written for Oilprice.com: http://oilprice.com/Energy/Crude-Oil/Brazils-Pre-Salt-Extraction-Costs-Fall-To-8-Per-Barrel.html

How Much Fuel Does It Take To Get To The Moon?

The new age space race is upon us as Elon Musk’s SpaceX gears up to send billionaires to the moon and NASA plans for upcoming missions this month at Kennedy Space Center and Cape Canaveral Air Force Station. So naturally, inquiring minds want to know: just how much fuel does it take to get to the moon?

Next Sunday, August 13 a SpaceX Falcon 9 rocket will blast off from Kennedy Space Center aimed for NASA’s International Space Station. The Dragon spacecraft is an unmanned capsule that will fly with 3 tonnes of supplies, small potatoes next to their ambitious goal of sending two space tourists to the moon in 2018, their first mission with humans on board the spacecraft.

The cost for a single load of fuel for the SpaceX Dragon spacecraft, presumably a more austere model than the one that will be used for space tourism in the near future, is between $200,000 and $300,000. Makes you think twice about complaining about how much is costs to fill your Range Rover!

Now for a bit of history: for the 1967 Apollo mission to the moon, Saturn V rocket’s first stage carried 203,400 gallons of kerosene fuel and 318,000 gallons of liquid oxygen needed for, totaling over 500,000 gallons of fuel for getting out of the atmosphere alone. The second stage carried another 260,000 gallons of liquid hydrogen and 80,000 gallons of liquid oxygen. The third stage carries 66,700 gallons of liquid hydrogen and 19,359 gallons of liquid oxygen. All told, the rocket that achieved one small step for a man and one giant leap for mankind held just under 950,000 gallons of fuel.

Since then, space age technologies have come a long way. By comparison, SpaceX’s Falcon 9uses just a mere fraction of the fuel combusted by Saturn V. To be fair, the Falcon 9 is smaller, simpler, and not designed to re-enter orbit safely (it has no stage three), but even so, you can see that the fuel efficiency of spacecrafts has improved leaps and bounds.

SpaceX fuels their crafts not with liquid hydrogen, but with kerosene, which has a lot more energy per gallon. Thanks to this and other advances, Falcon 9’s first stage uses 39,000 gallons of liquid oxygen and almost 25,000 gallons of kerosene, while the second stage uses 7,300 gallons of liquid oxygen and 4,600 gallons of kerosene. Combined, it makes lean mean 75,900 gallons of fuel.

As we speak, SpaceX is finishing their plans for a heavy-lift launch vehicle known as Falcon Heavy, which is scheduled to fly for the first time this summer. Other big names in the private space industry are working on similar heavy-duty model that will be able to bring unprecedented amounts of supplies into space. The United Launch Alliance’s Vulcan is scheduled to launch in 2019 and Blue Origin is currently working on a model called the New Glenn, which will allegedly be able to deliver 100,000 pounds of cargo (or space tourists) to lower Earth orbit.

NASA is also trying to compete with privatized space exploration companies, developing their own giant rocket known as the Space Launch System, which they claim to be the most powerful rocket ever created. While the look and size are quite similar to the now-antique Saturn V, this rocket will have a capacity of 150,000 and 290,000 pounds.

While this dwarfs the models being created by the private space industry, critics point out that due to its size and weight the Space Launch System is extremely expensive (around $1 billion per mission) and would just be launched once or twice a year, making it unable to compete with the ambitious launch schedules of companies like SpaceX.

Thanks to the introduction of privatized market competition in the space race, we’re now seeing more economic and fuel-efficient rockets than ever, and it seems that the rate of innovation will continue to accelerate at warp speed. Perhaps in another 50 years, moon vacations won’t just be for billionaires.

Originally written for Oilprice.com: http://oilprice.com/Energy/Energy-General/How-Much-Fuel-Does-It-Take-To-Get-To-The-Moon.html

Despite Surpassing 2nd Quarter Expectations, BP Still Wallowing in Debt

It’s been a complicated and contradictory quarter for oil giant British Petroleum. The struggling corporation has failed to reduce debt in the second quarter, with total profits falling by 5 percent compared with last year. Despite these lackluster numbers, BP has actually exceeded analysts projections by a wide margin, recovering more quickly than expected despite a plethora of project failures and major expenditures.

In response to their failure to decrease or even stabilize their ballooning debt, the company has now slashed its market forecasts to $50 a barrel over the next five years. This is a considerable cut from their previous projection, which optimistically saw oil returning to $60 a barrel before the end of 2017. While the global market did peak at over $56 a barrel earlier this year, this number has been stymied by high production of shale gas in the US and a global supply glut, bringing prices back below $50.

Part of BP’s woes is their continued and costly struggle to bounce back from 2010’s devastating Gulf of Mexico oil spill, on which they’re still making hefty payments. Thanks in large part to the accident, the company’s debt has now risen to a reported $39.8bn at the end of June as compared to $30.9bn at that time last year.

In addition to the continued financial hardships relating to the Gulf spill, BP recently took a huge hit when they cancelled a massive project in Angola, causing their profits to plunge by more than 50% since the beginning of the year. Profits on a replacement cost basis dropped from $1.5bn in the first quarter to $684m, but this actually exceeds average analyst expectations, which hovered around $500m thanks to June’s Angola fiasco, when BP gave up its 50% stake in gas exploration of the coast of the African nation after it was decided to be commercially unattractive.

Despite these major setbacks, BP has a lot of new projects underway, and shares this quarter were actually buoyed by a 10 percent increase in oil and gas production. BP is also trying hard to push into new markets, including an effort to move away from its dependence on fossil fuels in the context of an increasingly unpredictable market that shows no sign of stabilizing in the future.

This initiative has included talks with producers of electric vehicles as part of a plan to establish battery re-charging docks at its fuel service stations across the globe. Like many other oil giants, BP is threatened by the looming rise of electric cars and instead of fighting the changing tides, are trying to cash in on the movement. According to industry estimates, demand for some fossil fuels may plateau before 2030.

BP’s case is a prime example of the conflict rocking the entire industry. Across the market, numbers and expectations are low and the future is uncertain. BP isn’t the only oil giant that beat out analyst forecasts this quarter –  Total and Royal Dutch Shell also surpassed expectations by a comfortable margin – showing that the oil industry continues to be marked by uncertainty and volatility that even the experts just can’t get a handle on. In light of this, it’s really no surprise that the oil industry is turning more and more to embrace a future where oil becomes virtually obsolete.

Originally written for Oilprice.com: http://oilprice.com/Energy/Energy-General/BP-Surpasses-Profit-Expectations-Still-Wallowing-In-Debt.html

Is Russia Poised To Own A Stake In U.S. Oil?

As the country’s economy continues to tank, Venezuela’s national oil company PDVSA is approaching the deadline for a $1.1bn note issue due in November, and there’s a pretty good chance they’re not going to be able to make the payment. With a dire need for more cash and credit and soaring inflation rates at an all-time high of 886 percent, Venezuela is in desperate need of allies with deep pockets.

In their search for funding Venezuela has turned to Russian oil giant Rosneft. In 2016 PDVSA signed onto a loan from Rosneft offering 49.9 percent of its shares in Citgo, a U.S.-based, Venezuelan-owned refining company, as collateral. Thanks to this deal, Rosneft has a lien on all of PDVSA’s Citgo refineries in the US, meaning that if and when Venezuela defaults on the bond, Russia will seize their assets and own a number of refineries on U.S. soil. This is considerable news, as Citgo currently owns roughly 4 percent of refining capacity in the U.S.

Major sectors of U.S. downstream capacity are already owned by foreign interests, but the threat of Russian involvement has just recently called media attention to the issue. Britain’s BP, the Netherlands’ Royal Dutch Shell, Israel’s Delek, France’s Total, Mexican Pemex’s JV with Shell, and Canadian Husky Energy, to name just a few, are all major players in US-based refining.

While U.S. authorities have stated that they’ll challenge any attempt by Rosneft to seize Citgo’s assets, in reality Russian-owned refining capacity in the US might not be the major game-changer that it appears to be. While the Kremlin’s dealings on US soil make for some flashy headlines, it would just be another addition to an already ballooning problem of foreign companies growing refining capacity in the US. Currently, without Russian involvement, the US refining capacity is already about 30 percent foreign owned, amounting to about 5 million barrels per day.

Foreign owned refineries in the U.S. have been growing steadily since the 1980s, but until now the countries involved in downstream production on U.S. soil have posed little to no political threat. Russia, however, already controls about 11 percent of global oil production, and their seizure of downstream assets in the U.S. does pose a considerable concern for conflicting economic interests, prompting some experts to worry about vulnerability in U.S. energy and national security.

It’s quite possible – in fact it’s probable – that Rosneft’s potential activity on U.S. soil will have no negative impact on the U.S. economy, as their objective is presumably to keep making money. However, if for some reason they had political reason to withhold supplies of gasoline, diesel, and other refined products, they could do so on a whim, causing oil prices to spike and jeopardizing the U.S.’ economy and energy autonomy.

The already complex entanglement of Venezuela’s PDVSA and Russia’s Rosneft is further complicated by the increasing threat of sanctions by the U.S. against Venezuela. The White House has been discussing placing a halt on any dollar payments for Venezuelan oil, reportedly as part of a political strategy to prevent Maduro’s transition from President to Dictator (a move already well-underway).

In the light of this news, there were talks in Moscow last week between PDVSA and Rosneft (which is already under US sanction) to renegotiate their deal. According to Reuters, the talks floated a possible swap of Rosneft’s stake in Citgo for a number of other Venezuelan oil assets.

If the change-up of Rosneft’s assets comes to pass, it would solve the problem of Russian involvement in US refining, but the reality is that Russia is just one potential part of a much larger foreign “takeover” of US downstream production. The headlines are catchy, but they have mostly served to reveal the extent to which the nation has allowed foreign infiltration of their oil sector, and the potential political dangers the nation is thereby exposing itself to in today’s uncertain political climate.

Originally written for Oilprice.com: http://oilprice.com/Geopolitics/International/Is-Russia-Poised-To-Own-A-Stake-In-US-Oil.html

U.S. Shale Gas Booming Despite Global Glut

The United States has led the pack in the shale revolution, profiting more than any other nation. The U.S. enjoys the benefit of having the majority of its wells located domestically, thanks to vast natural shale formations, allowing the nation to keep all profits for themselves without any negotiations or diplomatic gymnastics. Due to the up rise of fracking and other technological advances, the production of natural gas and shale oil in the U.S. had been increasing steadily for years.

Last year marked a sharp decline as a gas glut led to a dramatic plunge in pricing. But now, just as shale gas prices are finally rebounding from last year’s all-time-lows, the United States’ two biggest shale gas deposits are producing record amounts of fuel, threatening to push gas prices back down. As the Appalachian Marcellus shale basin and the Texas-based Permian basin rush to conquer a market share, the U.S. gas glut shows no signs of stopping.

Though the Marcellus and the Permian are on opposite ends of the nation, there is sure to be a surge in production as producers on both sides rush to conquer the Midwest and other major markets. According to a report released by the U.S. Energy Information Administration, Marcellus gas output will rise 0.5 percent to 19.4 billion cubic feet daily this month as compared to June, while Permian production will climb 1.9 percent to 8.5 billion, a record high for both basins.

In the first half of 2017 in Pennsylvania alone, natural gas producers drilled 397 shale wells, more than double the number the created in the same period in 2016. Additionally, about 20 rigs are currently exploring for new founts of natural gas.

Despite this, producers remain cautious in their optimism for a total rebound after last year’s historic downturn. The pace of production increase, while huge, is still lower than it was during the fracking boom nearly a decade ago, and this year’s gas renaissance hasn’t been nationwide. In the Marcellus, drillers are focused on just the areas with the highest-producing and most dependable shale reserves. More than 60 percent of the well drilled this year have been in Pennsylvania’s Washington, Greene and Susquehanna counties, while other gas towns, once thriving, remain abandoned.

But where business is booming, it’s really booming. In the Marcellus, new constructions of cross-country pipelines into Canada is catalyzing a low-cost shale surge, while in the Permian, a recovery in oil prices has boosted the production of gas that’s extracted alongside crude oil.

Shale oil is also facing a similar set of difficulties. Last week Goldman Sachs downgraded its projections for oil prices over the next quarter the amid a sudden increase in shale drilling, not just in the U.S., but also, unexpectedly, in Libya and Nigeria after they were left out of OPEC’s historic deal in November to curtail a shale glut.

Goldman Sachs had previously forecasted $55.00 a barrel, but has now revised this number to a three-month average of $47.50 per barrel. Analysts have predicted that oil prices will have to fall into the ballpark of $30 a barrel before U.S. shale producers will be pushed into reducing oil production. Some U.S. oil companies, however, are locked in at $50 per barrel oil prices for 2017 crude production, meaning they’ll happily keep pumping crude into the already saturated market.

While oil has a more uncertain future thanks to the failure of OPEC’s attempts to tamper the crude glut, there is hope for gas if the U.S. can break into new markets. Just this week the U.K. is set to receive its very first shipment of liquefied natural gas from the U.S. Hopefully this trend will continue, as European countries look for strategies to reduce their dependence on Russian pipelines. If–and it’s a big if–they decide that U.S. gas is the answer for European energy security, the gas glut may not be the harbinger of market value doom after all.

Originally written for Oilprice.com: http://oilprice.com/Energy/Natural-Gas/US-Shale-Gas-Booming-Despite-Global-Glut.html

Big Oil Needs to Invest in Renewables

France-based Total S.A. is one of the elite seven “supermajor” oil companies in the world. When people talk about “Big Oil” Total is exactly the kind of corporation they’re talking about. They have an aggressive vertical strategy, with businesses in every part of the fossil fuel world, from crude oil and natural gas exploration and production all the way down to the marketing of petroleum products. You would think that the company’s primary goal would be to do everything they can to continue the reign of oil in perpetuity, and yet, on Total’s website, the casual visitor can find this statement:

“For Total, contributing to the development of renewable energies is as much a strategic choice as an industrial responsibility. We are doing our part to diversify the global energy mix by investing in renewables, with a strategic focus on solar energy and bioenergies.”

Total is leading what looks to be a wave of giant oil companies investing in the competition. Last year they spent nearly €1bn on buying a battery manufacturer, a move that Total chairman and chief executive Patrick Pouyanné said would “allow us to complement our portfolio with electricity storage solutions, a key component of the future growth of renewable energy”.

While it’s  not the only oil giant making a move toward alternative energies, some industry experts say Total is the only one taking renewables seriously. Greg Mutitt of Oil Change International said about the company, “It has ambitious plans. For BP and Shell, renewables are nice for PR, but they are not doing anything significant on it.” As it stands, total’s  gas and renewable power division, which includes solar, biofuels and batteries, has 13,000 employees and represented $4.7bn of capital expenditure in 2016.

In the current market, wind and solar are still too small to replace traditional energy at just 4% of the market share of oil and gas, but that won’t be the case for long. “Wind and solar are poised to radically reshape energy markets and the growth opportunity in renewables cannot be ignored” a recent study by Wood Mackenzie’s study states. “The Majors are leading the way in shaping strategies as they look to capture a piece of the action in this fast growing market.”

Despite the forward-thinking investments of Total and similar expenditures by Shell and BP, there are still some major players, including ExxonMobil and Chevron, who have yet to be convinced. A major deterring factor has been the comparatively high cost of renewable production. However, in the past few years, this too has seen some major changes.

Renewable energy production costs have come down markedly and will continue to come down as production technologies steadily  improve. Solar alone is nearly half as expensive as it was just 5 years ago, and the solar market has skyrocketed accordingly. Solar now employs 3.1 million people worldwide, a striking 12 percent increase since 2015. In the U.S. alone, last year’s numbers show that solar employment expanded at 17 times the rate of the nation’s total economy.

In order keep up with the changing tides, big oil will have to follow the footsteps of Total and start to invest heavily and quickly. Wood Mackenzie suggests that if big oil invests $350 billion in solar panels and wind turbines will bring renewable output to just 6.5 percent of their current energy production.

Part of Total’s distinction as the most forward-thinking of its contemporaries is that fact that France is politically a much safer bet for renewables than the U.S., home to a large portion of the oil industry. The Trump administration’s disregard for the Paris climate accords and plans to recall the Obama-era Clean Power Plan threaten to push renewable energy investors away from the U.S.

While there are many valid reasons for investors to hesitate before pouring large sums of money into wind and solar, they’re simply outweighed by the threat of being left behind by a rapidly changing market. The currently glut in oil and gas are not doing the big oil any favors, and as global policies continue to shift away from oil addiction and toward renewable incentives, the demand for fossil fuels is likely to stagnate. Meanwhile, for wind and solar, it seems clear that there are nothing but clear skies ahead, and Total will be ready.

 

Originally written for Oilprice.com: http://oilprice.com/Alternative-Energy/Renewable-Energy/This-Supermajor-Is-Leading-The-Charge-On-Renewables.html

Why is the U.S. Losing the Nuclear Energy Race?

The United States is drastically falling behind in the global nuclear energy race. Just this March, Japanese-owned, Pittsburgh-based nuclear energy giant Westinghouse took a swift turn from rapid growth and expansion to filing for Chapter 11 bankruptcy, a potently somber note in a nation that once was at the forefront of nuclear power technologies.

As global populations continue to boom and greenhouse gases become an ever more pressing problem, nuclear is on the brink of a renaissance. Even more than wind and solar, nuclear promises to be the energy source of the future. An average wind turbine produces about 2 megawatts of electricity when there is enough wind to turn it. Compared to the 1,600 megawatts a modern nuclear plant will produce constantly for its 100-year lifespan, the choice seems obvious.

Due to its singular energy density and incredible efficiency, nuclear holds unmatched potential to tap into the exponential growth of energy demand. For many nations, like India, Russia, and China, it’s the obvious option in today’s rapidly changing energy landscape. In fact, in the rest of the world nuclear is has already been experiencing a boom for years–so why is the United States falling behind?

The collapse of Westinghouse was a bad omen, certainly, but not a death sentence. The factors that lead to parent company Toshiba’s demise (gross over-promising and skyrocketing liabilities totalling $9.8 billion last December) are purely factors of mismanagement, not an issue with the U.S.’s nuclear industry itself.

However, for the U.S. nuclear industry to catch up to Asia and Europe, there is a long way to go. We are currently heavily dependent on other nations’ more-established nuclear industries for imports and for the development of nuclear-capable plants on US soil (as with the case of Japanese-owned Westinghouse). The first, and perhaps the simplest step, toward self-sufficiency is a major investment in infrastructure.

There are a few basic ways that the U.S. needs to ramp up its nuclear-capable infrastructure. Despite having significant sources of uranium domestically, more than 90% of uranium purchased by U.S. commercial nuclear reactors is imported, namely from Russia, Canada, Australia, Kazakhstan, and Namibia. Additionally, the U.S. is home to just one uranium enrichment plant, and it’s Dutch-owned. This lone plant can satisfy just a third of the nation’s demand. The last basic need is heavy water, or deuterium dioxide which has not been produced in the U.S. since 1996. Recently we’ve been importing it from Iran, of all places.

After infrastructure comes politics. In the last few decades, nuclear power in the U.S. has been regulated nearly out of existence. In the wake of 1970’s tragic Three Mile Island meltdown, unit costs for US nuclear power plants tripled. In 2016, the Government Accountability Office released an audit of the NRC that found just obtaining a license to build a fourth generation MSR or HTGR plant would cost $1 billion and take a decade.

Nuclear’s uphill battle to establish itself in the U.S. market is also in part thanks to the country’s continued dependence on oil, a glut of natural gases, and widespread incentives for wind and solar. But while domestic power demand remains static and demand around the world continues to boom, the U.S. is quickly losing its corner of the market.

The energy sector comprises 8% share of global GDP, and that number is only going to grow. As the market grows, energy production’s geopolitical power will grow alongside it. Nuclear is not only one of the most powerful factors in modern war, the harnessing of nuclear energy could prove to be one of the biggest factors in future economics. While the U.S. is frequently involved in headlines concerning the former, they are doing nothing to advance the latter. With almost no innovation, no infrastructure, and no plans to change that, the U.S. may not always have so much bargaining power when it comes to nuclear in a rapidly advancing global nuclear landscape.

 

Originally written for Oilprice.com: http://oilprice.com/Alternative-Energy/Nuclear-Power/Why-The-US-Losing-The-Nuclear-Energy-Race.html