By:  Bob van der Valk

Crude oil prices will continue to weaken regardless on whether the US raises the debt ceiling.  The connection between the value of dollar on the world market had become less of a consequence on commodity prices after the US oil production has been increasing at a fast rate.  WCS Canadian sour crude is being discounted between $25 and & $27 a barrel FOB Alberta as of today.

The importance of the EIA data is like the Federal government shutting down the NSA and not have the intelligence data gathering ability to keep us secure.  The same applies in the petroleum industry with the EIA-DOE report serving as our weekly intelligence report on which important oil and finished products trading and production decisions are made.  Without it we are back in the dark ages on gathering this type of information.  The API report has been a guide but not used in the same way at the weekly EIA-DOE report with the API report being mostly ignored by the big traders.

The weekly EIA-DOE inventory report has been very important and proven the API inventory numbers wrong numerous times.   The difference is in the methodology on gathering the data between the two reports.  The API is Garbage In; Garbage Out (GIGO) with the major oil companies “voluntarily” supplying data whereas the EIA-DOE requires and spells out mandatory figures to be submitted making it more accurate.  API also does not distribute the report without a paid subscription whereas EIA-DOE distributes theirs on their: http://www.eia.gov/ web site.

Traders use the EIA-DOE inventory report as the “Tale of the Tape” with any changes being taking into account by commodity traders in making their decisions.  They will now be dealing in the dark in making deals.  Any major refinery or pipeline glitches may result in price spikes with traders playing it safe by holding onto barrels they would otherwise be willing to sell.

Oil companies use the report to keep an eye in each other and the EIA-DOE report reveals important data about their competitors they would otherwise not be able to attain legally.  The EIA-DOE report is therefore the guide presenting facts putting rumors to rest on which some of the trades are made.  “Buy on rumors, sell on facts” is the oldest cliché in the trading circle and is alive and well.

During any extended government shutdown we will have more rumors circling around in the petroleum industry without our usual Wednesday morning verification.  Meanwhile the reporting entities are still required to submit their data and we may have an interim report once the shutdown ends.

Bob van der Valk is the Senior Editor of the Bakken Oil Business Journal and can be contacted at: editor@bakkenoilbiz.com

For Immediate Release
Contact: Jessica Sena, 590-8675

In response to Tom Power’s, “Drill, Baby, Drill”: The Ongoing Economic Fantasy

In light of a recent commentary by Tom Power (former Economics Professor at the University of Montana) it’s apparent that much education is needed on the issue of America’s energy revolution.

Bakken-sky-on-fire-2013Today, Americans are reaping the benefits of readily available, affordable energy. The United States has just been announced the number one energy producer in the world by Wall Street Journal. Last year, families saw energy savings of $1,200 per household thanks to technological advances in unconventional methods of extraction, according to a September IHS report. The Federal Government’s Low Income Energy Assistance Program spent $3.5 billion dollars on 9 million people last year to help pay energy bills, amounting to just under $400 per person. That being said, America’s private energy sector saved families three times more than taxpayer funded government subsidies.

Power points out that oil and gas production have increased three-fold in Montana since 1990. He fails to mention in 1990, production levels were tanking. Tax changes throughout the 90’s, including a production incentive passed by the legislature, stopped the decline & led to an increase in oil and gas production, especially via horizontal wells.

Improved horizontal drilling technology partnered with proven hydraulic fracturing released billions of barrels of oil and gas previously thought to be uneconomic to produce. The production increase led to surpluses of new tax revenues at the state and county levels.

In 1990, state and local tax revenues from oil and gas production totaled just over $30 million dollars for cash starved state and local governments, and schools. Almost twenty years later, in 2008, the total production tax revenue from oil and gas was more than $300 million, with over half that amount returning to the counties for school funding, infrastructure, and public programs. Since 2009, oil and gas production levels have remained relatively constant, providing more than $200 million dollars a year in production taxes alone to the state.

According to Power, Montana’s oil and gas industry “was directly responsible of about one-half of one percent of all jobs in the state” in 2011. As of 2012, Montana’s oil and gas activity actually accounted for roughly 3% of jobs in Montana, or almost 30,000 (direct & indirect jobs) according to economist Patrick Barkey of the Bureau of Business and Economic Research.

Oil producing counties represent the state’s lowest areas of unemployment, according to the Montana Department of Labor & Industry. The report from August of this year lists the following Eastern Montana counties at the top of the list; Fallon County, at 1.5%, Richland County comes in second at 2.2%, Sheridan County at 2.2%, McCone County at 2.3%, Carter County 2.3%, Garfield County 2.7%, Wibaux County 2.8%, and Custer Co. at 3%. Compare those numbers to the hardest hit areas; Sanders County at 10.2%, Lincoln County at 12.1% and Big Horn County with the highest unemployment at 14.3%.

Power criticizes the payroll associated with oil and gas jobs, and claims that, “Oil and gas development is not a likely candidate for substantial job creation.” Really?

On the contrary, the Montana Department of Labor classifies natural resource jobs, along with health care and business services, as one of the fastest growing industries in Montana, with a forecasted growth rate of 2.3% between 2014-2021. In terms of wages, Montana’s oil and gas industry paid an average of $56,581 per worker, 75% above the state average in 2012.

One of the most ludicrous statements in Power’s write up, is the assumption that “few people hold up that phenomenon [Eastern Montana oil boom] as an example of how most Montanans would like to live and raise their kids.”

The Montana Petroleum Association has spent the last year on the road and on the phone speaking with families who express the exact opposite sentiment. Many have claimed that without the oil activity, their families “wouldn’t have made it” through the recession. For some, it’s a family affair, with one or more family members working in the oil field; like Robin Schiele of Helena, and his 22 year old son who lives in Missoula, but works in the Bakken.

Before Robin, the family’s patriarch, was hired for a water trucking company in the Williston Basin, the Schiele family, including Robin’s wife and three children, worked 16 hour days caring for lawns just to pay the bills. The Schiele’s are one of many families who’ve said the Bakken opportunities are what saved their family.

As for those living closer to the bulk of the activity, the sentiment’s the same.

At the Montana Economic Development Association’s fall conference on October 3rd in Sidney, Richland County Commissioner Shane Gorder told attendees, “I want to make one thing very clear. I am excited about our economy. I am glad that our children can return home to work in our area. Growth is positive — bringing jobs and opportunities for our communities.”

Last week, Tracy Kessel, a wife and mother living in the oil patch wrote in to the Sidney Herald, “For those of you who are new to our community…Welcome, you couldn’t have picked a better community to be a part of or raise your children.”

After setting the stage to undermine how prolific the recent expansion in energy production has been, Power defends federal agencies, saying, “Whatever federal energy policy has done, it has not restrained energy production in the United States.” The reality is, though, the federal government and environmental agencies have done nothing to increase energy production either, though they love to take credit for the recent success of the private energy sector.

The federal government leases less than 6 percent of its onshore lands for oil and gas development. Under the Obama Administration, the rate of leasing has slowed by about half. According to the Energy Information Administration, in fiscal year 2011, production on federal lands dropped 13 percent from fiscal year 2010 levels, led by a drop in federal offshore production of 17 percent. The majority of oil production on federal lands (around 80 percent) is located in offshore waters. Furthermore, the rate of permitting has also declined by more than one-third.

These facts show that the trend during the current administration has been toward fewer leases and permits for oil and gas drilling and a longer processing time before approval, in contrast to state programs where permits can be obtained in less than a month.

Additionally, federal agencies like Fish and Wildlife Services, and the Bureau of Land Management, are proposing widespread conservation efforts throughout western states which will have a direct negative impact on current and future development.

In Montana, the BLM has released three resource management plans that call for millions of acres to be restricted from oil and gas leases along the Hi-line and in Eastern Montana. The lack of consideration for the economic impact these management plans would have on Montana’s workforce and budget is egregious. Though new management areas will require funding, BLM Director of Montana/Dakotas, Jamie Connell, says she doesn’t know where new money will come from (Sept. 26th TSRIA meeting, Big Sky).

The record is clear that the current administration under President Obama has been a poor steward of our national energy supplies and our economic security. Take the five year delay on the Keystone XL pipeline approval, for example, which is a project that would provide thousands of U.S. jobs, including ample work for labor unions.

Power’s efforts to downplay the economic contribution of oil and gas to state economies is laughable, but what’s worse, is that he completely misses the point of advocating for multiple use access to federal lands.

Our government is at a standstill because of a massive debt problem and the inability of Congress to agree on how to manage the budget. Last year alone, oil and gas production contributed $283 billion in GDP and $74 billion to state and federal revenues, including more than $200 million to Montana’s general fund (in production taxes alone).

A 5% increase in Montana drilling activity would create 366 more direct jobs, 1,025 indirect jobs, and over $20 million a year in additional state and federal revenue.

As the largest economic driver since the recession, the energy sector is poised to help the federal government alleviate the debt crisis; the opportunity to do so might be a “fantasy”…but the ability…that is a reality.

Screen Shot 2013-10-11 at 1.40.16 PMThe Montana Petroleum Report provides information of interest to Montanans. We encourage you to forward this to your friends. — Dave Galt, Executive Director  www.montanapetroleum.org

US-Oil-Boom-Podcast-Bakken-Oil-Business-Journal

U.S. OIL BOOM podcast Interview of  Bob van der Valk, Senior Editor of the Bakken Oil Business Journal, by Brandon DeShaw, PE, Lab Director, Global Energy Laboratories

I recently chatted with a man that I’ll refer to as the “Yoda” of the U.S. Oil boom.
You remember Yoda from the Star Wars movies, right?
  • Spoke in riddles…
  • Elderly and ancient…
  • Hidden humor…
  • Extremely wise…
  • Um, well my guy didn’t really speak in riddles.
But he was very wise and had some fantastic insight into the current shale oil boom going on here in the U.S.

This guy is also a highly paid consultant and gives guidance on where fuel prices are headed.

He is the editor and chief guru for the Bakken Oil Business Journal.

His name is Bob van der Valk, and you can actually listen to all his guidance and the interview that I did.
Yes, I finally have published my first podcast episode, and I’m giving you backstage access before I post it on my website.

I interviewed Bob on topics like the next big oil play (hint: it’s in California of all places). We also talked about how to work your way into the oil business.

He talked about where fuel prices are headed in late 2013, and many other topics that will be interesting to you.

Here is the link to the interview:
http://clicks.aweber.com/y/ct/?l=G_ZJ.&m=3jNCFuKQwtqoeBp&b=ZFaLTd.kGLEyYooNJp4uvg
If you go there, you can click on the title and the podcast should autoplay. Or you can hit the download link on that page.

Oh yeah, by the way it’s complimentary. I don’t even sell anything (yet) on the podcast.
It should also be listed on iTunes soon, if you want to go there and search for “oil boom” podcast.

Anyway, this interview was a real gem, and I wanted you to get first “dibs” on it.

Later.
Thank you,
Brandon DeShaw, PE
Lab Director
Global Energy Laboratories
200 Technology Way
Butte, MT

The 20 million barrels of drawdown in a sluggish economy
By: Dian Chu – EconMatters

In the last two weeks crude oil inventories fell by a record 20 million barrels, this event has not happened in over 30 years of historical data. So what the heck is going on here? It is not the case this is the best economy in the last 30 years. It sure isn’t the case Americans are using more fuel right now compared with any other time period during the last 30 years.

Peak Demand Era

In fact, the US market is maturing and using less fuel these days for several reasons like available subsidized alternative energy, higher fuel efficiencies, fuel blending requirements, and a struggling economy with the highest rate of population on food stamps.

Supplies at Record Highs

Sure refiners are running at their highest rate of the year in the 92% range, but that is all normal for this time of the year. Yet this two week drawdown has never happened before, and curiously it happened as supplies were at record highs.

Increase in Domestic Production Matches Reduction in Imports

Something is rotten in Denmark and it appears there is some funny business going on once again in the oil market. What makes the drawdown even more suspicious is domestic production was very high the last two weeks at 7.2 and 7.4 million barrels per day, with imports down to 7.4 and 7.5.

The imports are low when compared to last year, which was 8.6 million barrels for the same week a year ago. At first blush this may the reason for the drawdown, just take a million barrels per day times seven days in a week, and it adds up to a 7 million barrels weekly deficit.

But then you compare domestic production to last year and it is up 1 million barrels per day compared to this time last year. So the trend of replacing Saudi oil with domestic oil continues on its natural course given the recent industry trends.

US crude oil imports have reversed itself in from 60-40 in 2000 to 40-60 percent in 2013

Where is Saudi and Nigerian Oil Going?

A couple of points worth noting: What is Saudi Arabia doing with their extra capacity now that they are no longer exporting this oil to the US? It sure isn’t going to China; it is not like their economy is booming right now. It sure isn’t Europe as they are a mature market with automobile sales at 20 year lows and high unemployment!

I know that there is a lot of Nigerian Oil just sitting on tankers waiting for buyers because the United States isn’t importing as much of this oil given the higher quality domestic production, but what about Saudi Arabia? What are they doing with the overproduction of crude oil, which used to be exported to the US?

What Is The Real Reason Tanker Rates are Rising?

Tanker rates have been rising lately. Is the real reason they are rising a vast amount of crude oil is being taken off the market then stored in ports around the world to artificially raise prices? It wouldn’t be the first time this price firming trading gimmick has been utilized by the big players in the industry. It is not because Saudi Arabia has reduced production in a significant manner. To account for where their excess capacity, with most of it destined for delivery to the US, is now being delivered the only explanation a vast amount of crude oil is being stored in Very Large Crude Carriers (VLCC) in ports around the world.

Managing the Market

But the trend is clear; If Saudi Arabia was sending the same amount of crude oil to the US and along with the increase in US domestic production currently, oil prices could be much lower. They are trying to manage crude oil prices and the supply glut by offsetting the increase in US domestic production by exporting less to the US.

For example last June 22, 2012 the US imported 9,118 (million barrels per day) for that week ending period, and the US has imported up to 11,153 (million barrels per day) for a July period as recently as 2010.

The other question is what does Nigeria do with all their extra sweet crude oil right now? This much wanted oil has to hit the market at some point given some degree of reduced market price. Nigeria badly needs the revenues so they cannot just keep this oil in the ground.

Lack of Huge Product Builds

The other interesting oddity about the drawdown is overall finished product supplies didn’t have huge builds the last two weeks. For example last week distillates had a 3 million build, and gasoline had a 2.6 million drawdown. The prior week both products had moderate drawdowns. The conventional wisdom is of refiners ramping up production, therefore drawing down from crude oil inventories and building up finished product inventories.

A 92% refinery utilization rate is normal for this time of year, but it is apparent given the numbers not all of this oil went towards refining products. So where did it go? Ergo the big question!

The Math Just Doesn’t Add Up!

Because if you add up the numbers it doesn’t equate: Take domestic production for two weeks, add the import numbers for two weeks, add the refinery inputs for two weeks, the refinery outputs for two weeks, and the draws in product inventories for two weeks, there is no way to account for this record breaking two week draw in oil supplies.

A lot of this oil isn`t being captured in the refining supply chain statistics, so the oil went out of storage, the official storage numbers went down, but it wasn`t all processed into products, so where is it being stored?

It is obvious that something is amiss in the data as the US didn`t suddenly allow for large exporting of oil, not that there would be a market for it anyway under current global conditions! My best guess is that this oil is being moved from the official storage facilities that have reporting responsibilities to other storage facilities of some kind not captured by the EIA reporting requirements.

Purposeful Manipulation or System Reporting Glitch?

Another possible explanation is whether this is for explicit purposes is the manipulation of the inventory numbers to affect price is another question or a system which has flaws in accounting method used for oil being moved from one storage facility type to a different kind of storage facility.

Oil Market is Being Well Supplied

But the main takeaway is that the recent drawdowns doesn’t reflect any change in supply and demand fundamentals in the market. This is an accounting anomaly whether for purposeful manipulation or system failure of the data.

There Are Two Sides to Every Transaction: Excepting Fake “Accounting Trades”

Some analysts have been talking about another big drawdown for this week because the market is in backwardation. The rationale is that why would you hold onto oil if you are going to get a lower price next month, so sell all you can now!

Well, what about buyers? Every transaction has two sides: Why would a buyer acquire oil this month when it can be acquired next month at a cheaper price, and in two months it is even cheaper? It is not like there is any shortage of oil right now!

System Constraints on Volumes

If we experience another large draw something funny and potentially fraudulent is going on in the oil industry because there is no way this oil is being refined into petroleum products. The system just cannot handle these types of volumes in three weeks without domestic production or oil imports dropping off a cliff, which they haven’t!

History of Oil Market Shenanigans

Oil is either being taken out of storage and stored on tankers to artificially have the appearance of tighter supply markets, and thus influence price, and will be dumped back on the market at a later date; or some other market shenanigans are taking place where this crude oil isn’t making its way into the refining supply chain at all.

It wouldn’t be the first time traders found a way to game the system in the energy markets. There is a long and storied history of just such behavior from Enron to J.P. Morgan. But something’s fishy and just doesn’t add up right now in the oil market!

By:  Bob van der Valk

Traffic on the interstate highways and rails has become part of the way modern way of life.  Rail tanker car traffic hauling crude oil increased in multiples over the last five years and will continue to do so every year until more infrastructure is build to handle all of this new found oil.   Additional crude oil production in the Williston basin, within the Bakken Shale Formation is going at full speed on our way toward make our country energy secure.

The US and Canada rail systems are currently being over utilized with the lack of infrastructure reaching the point of having major accidents.  The one in Lac-Mégantic near Quebec on Saturday, July 6th killed up to 53 people along with destroying most the small village.  Railroad tracks laid over 100 years ago are still being used today but with higher and heavier traffic than for which they were originally designed.

The 70 thousand barrels of Bakken sweet light crude oil was being shipped via rail from Trenton, North Dakota to Saint John, New Brunswick with eventual delivery destination of the Irving Oil refinery.  World Fuel Services had title to the crude oil and 50 thousand barrels were lost in the derailment caused by human error.   The MM&A engineer had stopped the 102 chain of rail cars without setting the brake.  While he walked to town to get some rest the train rolled backwards eventually derailing and exploding into a fireball killing people and destroying most of the town.

You may not like pipelines or fossil fuels but the most efficient and safest way to move the highly volatile sweet Bakken Oil crude oil is by pipeline. Increased hauling of crude oil with our overused and in some cases antiquated rail system may well turn out to be “Hell on Wheels”.

The town of Lac-Mégantic near Quebec Canada was named for the lake near which it is located and was named by the Amerindian Abernaki tribe.  It means “Place Where the Fish Are Held” and Lac is the French word for Lake. The small village is about 20 miles north of the Maine border
As environmental disasters go, the explosion Saturday, July 6, 2013 of a runaway crude oil tanker train is a major catastrophe. One thousand people were forced to evacuate the immediate area. Quebec’s environment minister reported 26,000 gallons of crude oil spilled into the Chaudière River and could possibly reach Quebec and the St. Lawrence River before too long.

The derailed 72-car train belonged to MM &A, which is a subsidiary of Illinois-based multinational Rail World, and was carrying North Dakota shale oil extracted by hydraulic fracturing to the massive Irving Oil refinery in the port city of Saint John in New Brunswick, Canada.   They refine the crude oil into gasoline and diesel.  Irving then uses pipelines to ship their finished products to the Northeast US as well as supply Canadian petroleum distributors.

The Wall Street Journal reported in their March 2013 article,  the US rail system moved 9,500 carloads of crude oil in 2008 and surged to 233,811 carloads in 2012. During the same period, the total number of spills and accident increased exponentially. A derailed train accident spilled 714 barrels of crude oil in western Minnesota in March 2013 on frozen land.  But, this accident resulted in a quick and efficient clean up with the railroad skating by without doing much damage to the environment.

Application for the Keystone XL pipeline permit was first filed with the US State Department in late 2008. Since then, the amount of oil being shipped on rails has risen 24-fold mostly shipped mostly on the Burlington, Northern, and Santa Fe (BNSF) railroad owned by Berkshire Hathaway.  Warren Buffett, the Oracle of Omaha and main stockholder of Berkshire Hathaway, has been am ardent supporter of BOLD Nebraska, which is blocking the Keystone XL from being recommended through Nebraska.  The second application is waiting for recommendation by the US State Department for an eventual final up or down decision from President Obama.

Earlier this year Jane Kleeb, the Director of Bold Nebraska, stated the Keystone XL pipeline would be build over her “dead body”.  The problem there is a possibility resulting in more dead bodies, hopefully not hers, if the Keystone XL pipeline does not receive its approval to build the necessary northern leg from Alberta, Canada to Steele, Nebraska.

 

Baker, Montana will be the location for an on-ramp into the Keystone XL pipeline to be utilized to ship a minimum of 100 thousand barrels per day of Bakken crude oil to the Gulf Coast of the US.  The total capacity of the pipeline is 830 thousand barrels with most of the oil in the pipeline coming from Alberta, Canada in the form of oil sands crude oil also called bitumen.  It is heavier than light sweet crude oil and is the type of heavy sour crude oil used in most US oil refineries to crack into gasoline and diesel fuel as well as other products.

The southern leg has already started construction from Steele, Nebraska to Cushing, Oklahoma with President Obama taking credit for accelerating the approval process for this section.   It was a great photo opportunity for President Obama during the last Presidential election.  Only one problem the southern leg did not need his approval.  Only pipelines between countries have to go through the process of being reviewed and recommended for approval to the President.

The disaster at Lac-Mégantic should be a wake up call for this Administration to do the right thing and approve the permit for construction and operation for the full length of the Keystone XL pipeline to be approved without delay.

Video by Lac-Mégantic resident Adrien Aubert, who filmed the blast on July 6, 2013.

Opinion Article

“Phelim We Hardly Knew Ye”

By: Bob van der Valk
Dateline: Terry, Montana
June 27, 2013

This opinion article deals with FrackNation as a pro-hydraulic fracturing for oil & gas documentary. Comments, other than my own, were made by individual landowners in the Pennsylvania area where the controversy about hydraulic fracturing had its inception.

Bob van der Valk

FrackNation’s Phelim McAleer has been able to hit Josh Fox’s Gasland and Gasland Part II movies with his best shot making his points about hydraulic fracturing not being the cause for underground water contamination.   Neither is the methane produced by the drilling process resulted in any of the health problems purportedly suffered by land owners where the drilling has been done.

For the last two years Phelim McAleer has made it his life’s calling chasing Josh Fox around the country peppering him with embarrassing questions about ridiculous charges being made in the original Gasland movie.  Gasland was nominated for an Oscar as the Best Documentary of 2010.  Most, if not all, of the charges made by emotionally and financially driven opponents to hydraulic fracturing drilling for natural gas have been debunked by Federal and State agencies, which became involved by reacting to the public attention Gasland initially received.

Recently Phelim McAleer has been showing his FrackNation up against Gasland Part II.  This is leading up to the HBO-TV premiere of Gasland Part II on July 9, 2013. FrackNation will be shown again on AXS-TV July 10, 2013 both of them will get high viewer ship for both cable channels.

What has been lost in this conversation about hydraulic fracturing is the US becoming energy secure once again of having to import crude oil from countries with governments hostile to our way of life. Neither Josh Fox nor Phelim McAleer one have oil industry experience and are continuing this unnecessary raucous to promote themselves.

Sherry Hart

After the Binghamton, New York, February 10, 2013 showing of FrackNation a question was asked by Craig Stephens addressing Phelim McAleer, the producer of FrackNation, about the December 15, 2010 “Dimock Consent Order and Settlement Agreement” (COSA): http://files.dep.state.pa.us/OilGas/OilGasLandingPageFiles/FinalCO&A121510.pdf

Similar to what has happened since the beginning of the Dimock saga, the actual contents and findings of the COSA frequently get overlooked while pro-drillers and drilling opponents continue to banter with each other about the water being poisoned, no it wasn’t, etc.   Phelim’s brief answer to Cabot’s move to settle was that it was a case of corporate business as usual and happens all the time.  Partly true, but anyone who has been following the Carter Road allegations and its resulting mounds of paperwork and legal filings for the last couple of years are familiar with a few things above and beyond his answer:

The PA DEP claimed identification of the migrating gas as being from Cabot’s wells primarily using “presumptive guilt”, based only on proximity to the well, and explains their findings in a the original COSA dated November 4,2009 (http://www.marcellus-shale.us/pdf/Cabot_Consent-Order_11-4-09.pdf) which states starting in January 2009 PA DEP collected samples from water wells providing water to 13 homes which showed elevated levels of dissolved methane as well as identified combustible gas in the headspaces of seven of those water wells.

After the COSA was established, Cabot hired an independent consultant to perform a separate investigation.  According to a review of data on the same exact wells determined to be problematic by PA DEP, Robert W. Watson, Ph.D./P.E. and Associate Professor Emeritus of Petroleum and Natural Gas Engineering and Environmental Systems Engineering, etc. concluded that Cabot was using procedures for drilling, casing and cementing wells even at that time which met or exceeded the requirements of the Pennsylvania Oil & Gas Act, were adequate to protect the drinking water, and which did not cause or allow methane migration into the drinking water. (http://www.cabotog.com/pdfs/Dr_Bob_Watson_WhitePaper_101010.pdf – page 2 and again in the Conclusion on page.

Based upon those findings, and mostly those findings alone, because all of the water supplies were within 1,300 or less feet of a Cabot well and because those wells were drilled within the preceding six months, PA regulations deem a determination of guilt can be made.  (page 3-4, articles J-K): The Pennsylvania Oil & Gas Act: A Summary of Statutory Provisions dated March 2009, Section 208: Protection of Water Supplies (58 P.S. § 601.208) (page 4) states, in part, “There is a refutable presumption that a polluted water supply located within 1,000 feet of a well is caused by the well.” http://law.psu.edu/_file/aglaw/SummaryOfPennsylvaniaOilAndGasAct.pdf  This Summary was written prior to pre-drill tests becoming mandatory, which if anything could well be the most important lesson learned in Dimock.

Other information that could be pertinent is in the legal filings of the lawsuit itself:

1) The Dimock litigants fired their original lawyer when another better known litigation firm offered to take them on as clients.  They walked out leaving $650,294.18 in legal fees unpaid. 2) When the revised COSA was finalized, settlement amounts of the plaintiffs totaled $2,234,160. (2011-11-30 2010 COSA Settlement amounts.jpg).  Amounts of the settlement varied depending on individual property appraisals.  These funds were put into an escrow account to be claimed by December of last year.  There were no restrictions put on this money; it was free for them to collect and they could still continue with their lawsuit and water deliveries would continue.  (2011-12-16 DEP and Cabot Rev Consent Order and Settlement Agreement.PDF)
3) Their original lawyer caught wind of this settlement and put a lien on the escrow account for the outstanding fees the litigants had not paid. (2011-01-12 Motion to demand fired attorneys fee.pdf)
4)  All those persons within the determined effected area and not involved in the lawsuit, claimed their money.  None of the litigants did because doing so would mean paying their first lawyer.  This got muddled in their lies of how Cabot was forcing them to sign non-disclosure agreements and quit the lawsuit… all of which is written into the contract that the money is theirs – no restrictions on it.
5) In August, most of the litigants settled, but do have to abide by a gag order regarding the settlement amounts or findings.  Also, the money contained in the escrow account set up per the COSA goes back to Cabot.  Thus Dan Dinges statement, “The aggregate value of the settlements are not a material item with respect to Cabot’s financial statements,” (statement found in the Philly.com article referenced below.)   I believe there is currently only one remaining holdout, Ray Kemble, who spoke to the Philadelphia Inquirer soon after the settlement offers were made and accepted by the majority of the litigants.  He mentions what his settlement offer was and it appears it was pretty close to the same amount originally offered him in the COSA. (Per Philly.com: http://articles.philly.com/2012-08-27/news/33403570_1_susquehanna-county-town-cabot-oil-baby-drill) “Kemble is angry at just about everybody – Cabot, regulators, his own lawyers, and his ex-wife, who accepted the settlement, thereby reducing the amount offered to him. He said he would only see $79,000 from the deal, after legal fees.”  His ex-wife was entitled to half the amount offered, thus twice the amount Kemble states he was offered is $158,000.  Originally the COSA provided for a settlement offer of $185,712.00.
6) Thus, it appears the litigants were offered just slightly less the amount originally offered without having to access the funds that had liens on them, probably due to lawyer’s cuts, etc.  Settlement discussions began soon after the third set of water test results were released showing, once again, the water tested within acceptable drinking water standards.

This is why Phelim’s response fell far short and was merely the tip of the proverbial iceberg.

Robin Fehrenbach Scala 

Are you hearing that Phelim is actually on the other side?  Or is it a setup so both can profit from the argument and their respective films?  Having met and argued with Josh Fox even before his film came out, I know he is a liar and expect no truth to ever come from his mouth.

It was later that I was contacted by Magdalena Segieda, who is the Director and Producer of FrackNation, in an effort to find people in my area who were drilled and would talk on camera for the film. I met her first and we made some initial contacts, then Phelim and the film crew came out and spent a whole day in my house getting possible scenes with me and Sherry Hart talking about our issues and showing us working the boards and contacting landowners and politicians. (Of all those hours we appear for exactly 2 seconds maybe, which we were happy about).

HBO is trying to justify their financial backing of Gasland and Part II (and Fox in general) so it seems like a good time to spread information, which could be used against Phelim or make him seem like he is just as bad as Fox.

 I also provided money to be executive producer and was involved from before the film was a film. There IS one way to prove who is right, and that is to follow the money. If HBO is really paying for ANYTHING they could prove it. But they won’t.  I trust HBO less than a guy sitting on a street corner with a hat waiting for spare change. Ask them to prove it. They can’t.

By the way, HBO DOES NOT put up those posters.  Phelim does and has since the beginning. It started from his first argument with Josh, where he asked if Josh knew about methane being in the water since the dawn of time, and Josh said, “It is not relevant”

Game On!

Now Phelim makes sure that if Gasland Part II is being shown, FrackNation is also being shown in the same town, biting at the bit for the debate with Josh, but there’s no point holding his breath!

At least HBO did not pay for FrackNation or any part of it or any advertising for it. They DID pay for Gasland and Part II and are now sucking eggs over it.

I never read the account about the arrest of the Julia Mineeva, the former Russian TV anchor, at the premiere of Gasland Part II or if her arrest for trespassing was a set up.  I do know that Josh Fox set up his own arrest (complete with his cameras rolling) at a committee hearing in the House of Representatives so he could use it in Gasland Part II.

The only reason I feel I can stand up for Phelim (though I could be wrong…it is always possible to be wrong) is due to his behavior on all other occasions where I have been with him or them, watching how they react.

See, I am the type who would make the movie and then go broke because I did not attempt to make money for travel and distribution. The movie would then be a waste of time and investor money.

I would hope that Phelim is making SOME kind of money so he does not go broke (as I would, which is stupid) trying to get the word out.

If anyone is being a money hog and pretending to actually care, it is Josh Fox, who will admit it to anyone everywhere except when asked during a screening.

Being a landowner in PA and NY, I felt like I hit the lottery when Phelim and company contacted me to help make the movie. I had no way to educate the public on my own and attempts to find a spokesperson died after speaking to an agent for an hour while finding out what it would cost to get the person I wanted.

Bob van der Valk

FrackNation exposed Josh Fox for the publicity seeker he is. The oil industry needs to have a serious discussion about the urban lies being spread by the likes of Josh Fox. Phelim did a good job on FrackNation and accomplished just that. He is a journalist and should have stuck to bringing out the true facts about hydraulic fracturing.  But we need an independent journalist to tell the true story on how to go about making the US energy secure. The next frontier will be in California with the Monterey Shale Formation coming into play. Their potential reserves of oil & gas is 3 times bigger than Marcellus, Eagle Ford & the Bakken combined.

Robin Fehrenbach Scala

You just explained your position so it makes total sense to me. Phelim has become the story.

Thanks for continuing our conversation until I could “get it”.

Bob van der Valk

God bless the USA!

This editorial was written with the assistance and input of:

  • James Asbury – Mansfield, Pennsylvania
  • Robin Fehrenbach Scala – Factoryville, Pennsylvania
  • Sherry Hart – Tunkhannock, Pennsylvania

Disclosure: Bob van der Valk, Robin Fehrenback Scala and Sherry Hart donated funds to the Kickstarter program and are credited as Executive Producers of FrackNation.

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Drilling & Well Services Company of the Year – Marquis Alliance Energy Group

E&P Company of the Year, sponsored by TEEMCO – QEP Resources, Inc.

Engineering Company of the Year, sponsored by Cosential – Spartan Engineering Inc.

Environmental Initiative of the Year, sponsored by Austin Exploration – TEEMCO, LLC

Future Industry Leader – Megan Starr

Health & Safety Initiative of the Year – FTS International

Industry Leader – Mark C. Peterson

Industry Supplier of the Year – Frank Henry Equipment USA, LLC

Insurance Provider of the Year – IMA, Inc.

Law Firm of the Year – Burleson LLP

Manufacturer of the Year – Cobra Manufacturing & Sales LLC

Midstream Company of the Year, sponsored by Spartan Engineering – High Sierra Energy, LP

Recruitment Agency of the Year – Precision Placement Services, Inc.

Terminal of the Year – Savage

Transaction of the Year, sponsored by mergermarket – Encana Oil & Gas (USA) Inc.

Trucking Company of the Year – Brady Trucking, Inc.

Water Management Company of the Year – BeneTerra

Congratulations to all of the 2012 Rocky Mountain Oil & Gas Awards winners. Thanks to all of the sponsors and partners.

For full information on the awards please visit: http://www.oilandgasawards.com/?page_id=12

If you would like to arrange interviews, or review video and photo assets and for anything else please contact: Marc Bridgen on +1 (210) 591 8475 or email marc@oilandgasawards.com.

About the Awards:

The Oil & Gas Awards recognize the outstanding achievements made within the Upstream and Midstream sectors of the North American Oil & Gas Industry. The Awards are a platform for the Industry to demonstrate and celebrate the advances made in the key areas of the environment, efficiency, innovation, corporate social responsibility and health & safety. The Awards show the Industry’s motivation to develop by recognizing and rewarding the efforts of corporations and individuals.

The Oil & Gas Industry is of upmost importance to the U.S. National Economy and instrumental to both National and Energy Security. In its areas of operation the Oil & Gas Industry also plays a key role for local communities and their economies. Through innovation the Industry has driven forward technological developments, which have created a renaissance in the energy sector, enabling the U.S. to tap into one of the worlds largest natural gas reserves. In spite of its significance, the Industry still has its critics and gets more than its fair share of negative press. The Oil & Gas Industry has made great gains in meeting its responsibilities to the environment, to corporate social responsibility and the health & safety of staff and the public alike.

The awards take place in the six main onshore Oil and Gas producing regions of North America, including; Gulf Coast, Mid Continent, Northeast, Rocky Mountain, Southwest and West Coast. The Awards are designed to focus on specific regions of North America to allow geographically relevant organizations the ability to network at the gala dinner, and to ensure successful companies can utilize and benefit from their ‘winners status’ within their business community. In combining the Midstream and Upstream sectors, the awards bring together partners, and enable these co-dependent markets to acknowledge one another’s achievements. A number of the Award categories recognize service providers to the Industry, who play a vital role in its success and contribute to its reputation. The Awards welcome entries from organizations of every size and each entry is judged on its individual merits, and on a level playing field with its competition.

The Awards and the Organizations involved will be publicized in local, national and international trade publications and general press, in the run up to and after each ceremony. The core aim of the Oil & Gas Awards is to advertise and promote the Industry’s drive to improve and develop by rewarding organization’s achievements.

The Oil & Gas Awards mission is to become the most prestigious and sought after Awards in the Industry. The reputation of the Awards is paralleled to those of its judges and the Organizations they represent. To this end, appropriate candidates for the judging panels have been carefully researched and recommendations sought to find Industry thought leaders. Each judging panel consists of a mix of highly respected individuals from market leading E&P and Midstream companies.

For additional information, or to arrange interviews with staff, judges or partners please contact Marc Bridgen, Chief Marketing Officer on +1 210 591 8475 or marc@oilandgasawards.com.

by Ryan Carlyle, BSChE, engineer at an oil company

 My top 5 oil industry facts:

1) Oil is important. Shockingly, sometimes horrifically important.

The world economy has been developing with oil as its lifeblood for over a hundred years. Oil is directly responsible for about 2.5% of world GDP [1], but accounts for 1/3rd of humanity’s primary energy supply (>5 terawatts out of 15 terawatts total) [2]. It’s over half if you include natural gas.

World Energy Consumption by Source, in Terawatts

World energy consumption

Oil/gas powers 100% of all transportation, within a few significant figures of rounding error. Transportation, in turn, directly accounted for 1/6th of world GDP in 1997 [3] and is heavily involved in every other type of economic activity. Except for a minuscule number of electric-powered vehicles, you can’t move anything anywhere faster than about 25 mph without oil. You can’t operate a modern military, and you can’t run a modern economy. There is no doubt in my mind whatsoever that modern civilization would collapse in a matter of months if oil stopped flowing. Oil is about as important to the developed world as agriculture. It’s truly a condition for the continued existence of most of humanity today.

2) It’s big. Capital B-I-G BIG. You have no idea how big oil is.

The world’s oil & gas transport infrastructure is a globe-spanning spiderweb of pipelines and shipping routes. The natural gas distribution pipelines in the US alone could stretch from Earth to the Moon 7-8 times [4]. There are millions upon millions of miles of pipe on the planet to distribute crude oil, refined products, and natural gas. (Mostly gas.) Consider this: if your home has natural gas heat, it is connected via a continuous network of pipes to tens of thousands of wells drilled into subterranean rock strata that were laid down tens of millions of years ago. That’s pretty cool, really. Your house is directly connected to the Pliocene era — by the world’s oil & gas infrastructure.

About 40% of all seaborne cargo is oil [5], and there is literally more seaborne cargo at any given time (by weight) than there are fish in the sea [6]. Oil is in transit for a much shorter amount of time than the lifespan of most fish, so the total amount of oil that moves via water each year is much, much higher than the total amount of fish biomass. Think about what that means for a minute. The ocean isn’t full of fish, it’s full of oil cargoes.

Unfortunately, that scale makes it next-to-impossible to technologically disrupt the oil industry. This is going to make some people mad, but it’s reality. Not only is oil/gas critical now, but there are no viable replacements in our lifetime. People who think renewables can replace oil with a few decades of Manhattan Project style effort are simply ignorant of how big oil really is.

Even if we assume the energy-storage problem is solved soon, there is no reason whatsoever to think any feasible amount of renewables growth can displace fossil fuels in a couple generations. Wind and solar are growing exponentially, yes, but from such a small base that it doesn’t even make a dent — the use of renewables as a percentage of total world energy consumption only increased by 0.07% from 1973 to 2009 [7].

Let me break down some numbers.

  • World oil production was 82 million barrels per day in 2010 [8]. At roughly 6 gigajoules per barrel, that’s about 5.7 terawatts of power production.
  • World wind power production in 2010 was 0.3 petawatt-hours [9]. Averaged over a year, that’s about 34 gigawatts.
  • World solar power production in 2010 was 0.03 petawatt-hours [9]. Averaged over a year, that’s about 3.4 gigawatts.

So world energy production from oil alone is 2 orders of magnitude higher than wind power, and 3 orders of magnitude higher than solar power. Let me pick on solar power a little, because it’s downright embarrassing to compare the two:

  • The difference in power generation between solar power and oil production is more than the difference between a professional bicyclist and a Formula 1 racecar.
  • If solar power generation doubled every decade for 100 years, it would still be pretty far behind oil today.

These numbers get significantly worse if you add in natural gas and coal. And much worse still if you allow for expected demand growth.

Sorry guys, but regular old exponential growth isn’t even enough. Tomatch oil, you’ll need half a century or more of clear energy superiority. That means cleaner and cheaper and more concentrated for storage. Nothing fits the bill yet. To replace oil, you’ll need a century to allow the entire economy to retool and realign around the new technology.

[Update: I am greatly simplifying the solar issue to illustrate the point that oil is big, which lots of people have objected to in the comments. Based on historical energy system uptake rates and continuing price declines, 50-200 years is a realistic time range for solar to hit 5TW generation. I think it’ll take 100 years, and many people think it’ll be a lot faster. That’s fine; this isn’t an answer about solar power, because you can’t use solar power as a transport fuel in any practical way. Mass adoption of electric cars is still pretty far down the road. Pun intended.]

3) Oil is wealth. Not just wealth for producers, but wealth for everyone who uses it.

The historical use of cheaper, more-concentrated, and cleaner energy sources seems to be one of the most direct causes of economic growth. Even more importantly, it causes vast improvement in the human condition. Simply put, better sources of energy increase productivity and produce fewer negative externalities. This effect is huge. Cheap, abundant energy lifts nations out of poverty. China understands this. Failure to secure energy supplies dooms nations to collapse. The Mayans found this out too late.

Energy efficiency is powerful and highly desirable, but it can’t compete with increasing the primary energy supply. Most of the time, increased energy efficiency actually results in increased energy consumption, because of cheaper costs (per unit output) and faster economic growth. This is called Jevon’s Paradox (Jevons paradox). Highly-developed nations can use advanced technology to increase quality of life while using less energy, but less-developed nations cannot. Getting to developed-nation status required a lot of high-quality energy.

And oil is indeed high-quality energy. It’s liquid, which makes it easily moved and stored. It’s stable, and it releases a huge amount of energy. It’s also much, much cleaner than coal. If it weren’t for CO2 emissions, oil & gas would be a nearly-perfect energy source. Look at what their growth has done to the world’s wealth:

World per Capita Real GDP vs World per Capita Energy Consumption by Type

World Energy Consumption Since 1820 in Charts
File:World GDP per capita 20th century.GIF

Those two charts don’t match by accident. Every transition to a cleaner, cheaper, more-concentrated energy source causes dramatic improvements in real global wealth (and quality of life). Electrification caused most of the growth from 1900 to 1950. Oil enabled the post-war boom from 1950 to 1970, and natural gas strongly contributed to the growth from 1970 to 1995. The growth since 2000 has, unfortunately, been largely been due to increased coal consumption in Asia. The digital revolution and Great Recession have played a large part in global wealth trends, but mostly in the parts of the world that were already wealthy by global standards.

Ok, so maybe you don’t care about GDP, and want to know about quality of life. Energy is fundamentally required for a high quality of life, as measured by the UN’s Human Development Index. There is a range of energy consumption that depends on climate and population density, but broadly speaking, high-consumption countries have the highest quality of life.

Energy Consumption in Kilogram-Oil Equivalent per Year vs Quality of Life

HDI, Energy Consumption and CO2 Emissions

Sure, the biggest energy consuming nations could reduce per capita consumption a lot, and still have high quality of life. The US could learn a lot from Denmark. And current trends show that they are steadily moving in that direction — energy consumption per capita and per dollar of GDP is steadily dropping in the developed world. That’s a good thing.

But the energy required to lift 3 billion people out of poverty is far, far more than the potential energy savings from eliminating energy waste in the developed world. I’m not talking about stretch-SUVs and 60″ TVs, I’m talking about refrigeration for vaccines, irrigation for agriculture, and fuel for school buses. The planet cannot support 7 billion people at a low-energy agrarian level of existence — we have long since passed the point where we can revert back to a low-tech, low-energy form of civilization without billions of people dying of starvation.

All those green and red dots in the chart need to move past the blue dotted line — it is truly a moral imperative to allow the world’s poor to enjoy the basic fruits of development. That will require an enormous amount of new energy production capacity. Thankfully, the world mostly needs electricity, which is much easier to expand than oil. But we need a lot of oil too.

Oil is energy, and energy is wealth.

4) The oil industry is a really safe place to work.

Despite the Hollywood stereotypes, oil rigs are actually quite safe. Don’t get me wrong, there are lots of extremely hazardous activities at a drill site, but they’re exceptionally well-managed. Working on an oil rig used to be pretty dangerous — lots of older guys in my office are missing parts of their fingers. But the industry has made huge strides in safety improvements over the past few decades by increasing automation, providing comprehensive safety training, and changing the work culture. It’s a different world now.

Accident rates have been dropped steadily since the 1990s, to the point the oil industry is now safer than many regular occupations. The OSHA statistics prove it. “To really put safety in perspective, the average 2.1 TRIR for rig operations is lower than [OSHA’s] 3.3 TRIR for real estate. You are safer statistically on the rig floor than driving around with a real estate agent.” [10]

Land rigs have about the same injury rate as a regular construction job, and offshore rigs have a lower injury rate than being a teacher. In the chart below, the oil industry is rolled up into “mining”:

http://www.bls.gov/iif/oshwc/osh…

Jobs that are actually dangerous include truck-driving, logging, fishing, and nursing. I’ll happily deal with swinging cranes, high-pressure chemicals, toxic oil fumes, and offshore helicopter flights — but you couldn’t pay me enough to be a nurse. They have it rough.

5) Oil companies don’t really make that much money.

Contrary to popular belief, the Oil “Majors” — ExxonMobil, Chevron, BP, Total, ConocoPhillips, and Shell — don’t actually make all that much money. Yes, it’s a lot in absolute terms because the companies are so large, but the profit margins are pretty sad in agood year. Bad years (like most of the 1990s) cause crippling contractions and mass layoffs.

Recent Profit Margins at Exxon, Apple, Microsoft

WolframAlpha: profit margins of exxonmobil, apple, microsoft

[Update: Lots of people have objected in the comments to using two large, well-established tech companies as comparison points for ExxonMobil. I think they’re very good comparisons. All three are extremely large, world-class engineering organizations, operating in high-risk, high-tech, capital-intense markets with long supply chains. They are all affected by the business cycle more than the norm, and have long development times for new ventures. Their production facilities cost immense sums and steadily become obsolete. They have a lot of competition from overseas companies who copy their ideas, and they have to repeatedly take large financial gambles on new technology and markets to stay in business. Oil is more like the tech sector than it’s like other extractive industries. On the other hand, “national” oil companies (OPEC etc) are a very different story, and I’m not talking about them here.]

Oil Companies Underperformed the S&P500 through the 1990s

Google Finance

Go ahead, accuse me of cherrypicking data. You have a point, but the same can be said about the recent high profits that everyone complains about. Yes, profits have beat the S&P500 lately, because oil prices are very high right now. Guess what? Exploration & development costs are rising faster than the price of oil. Net revenue per barrel at the Majors (not profit, just revenue) is only running about $20/bbl even though oil has gone up from ~$40/bbl to ~$100/bbl. What happens when China’s big recession hits, and oil demand drops significantly? The price will plummet by 2-3x, just like it did at the start of the Great Recession. This is an incredibly capital-intensive industry, in which large projects take longer to execute than the length of the business cycle. That’s fundamentally difficult to manage.

Oil is a widely-traded, high-competitive commodity market. That means basic economics causes profits margins to go as low as they can without companies exiting the industry. In this case, 8-10% profit margin is the minimum risk premium you can offer a company to convince it to continue doing business in:

  • A market where your product is almost completely interchangeable with the next guy’s product
  • A cyclic industry that sees 4-5x swings in the price of finished goods, with steadily-rising input costs
  • A business where each $100 million exploration well has a 50-90% chance of being a failure
  • A business where a bad mistake means $40 billion in fines & damages
  • A market dominated by government-run companies who are held to lower environmental and legal standards
  • Countries with a history of illegally nationalizing oil infrastructure
  • A fairly hostile regulatory environment
  • A fairly hostile PR environment

Frankly, it’s a miracle anyone wants to be in this business at all. I truly think the major oil companies are underpaid. The risk-adjusted returns are crap compared to most sectors. The only way oil companies survive this kind of business environment is by consolidating, so that the risks are spread out over a wider base. That’s why oil companies are some of the largest publicly-traded companies in the world — because they have to be huge to survive.

So where does all the oil money actually go? To national oil companies — mostly OPEC. They have control of all the cheap oil that’s easy to get out of the ground, so they have a combination of high net revenue per barrel and some semblance of cartel pricing power. Don’t make the mistake of thinking the Majors and the Nationals are in the same league — Saudi Aramco is estimated to be worth about four times as much as the top ten publicly-traded corporations put together, which includes ExxonMobil, PetroChina, Shell, and Chevron [11]. Oil is such a behemoth of an industry that the big players dwarf the world’s largest corporations.

There’s lots to know about the oil industry — people spend their entire careers learning small slices of it — but if more people understood the facts above, we would have much more productive public discourse about the world’s energy systems.

[1] A Primer on Energy and the Economy: Energy’s Large Share of the Economy Requires Caution in Determining Policies That Affect It
[2] World energy consumption
[3] http://www.nssga.org/government/…
[4] Natural Gas PipelinesDistance from Earth to Moon
[5] http://www.whoi.edu/science/MPC/…
[6] Ships
[7] The Rising Renewables ” CSBE
[8] World, U.S. Oil Production Rises in 2010
[9] Scientific American, April 2013, “The True Cost of Fossil Fuels”How to Measure the True Cost of Fossil Fuels
[10] SPECIAL REPORT: Oil, gas safety statistics mark progress.
[11] Saudi Aramco,

wikipedia.org

List of corporations by market capitalization


Click here & be heard by US Secretary John Kerry. … do it right now, it only takes 30-seconds.

Please approve the Keystone XL pipeline as quickly as possible. Every day we continue to delay this important piece of U.S. energy infrastructure inhibits our economic growth and weakens American security.

As a military veteran and a well-known supporter of military personnel, veterans and their families, you understand the importance of protecting our national security. Approving the Keystone XL pipeline would directly enhance America’s security, diminishing our dependence on unfriendly foreign oil states and strengthening our relationship with our next-door neighbor and longtime ally, Canada.

The full Keystone XL pipeline would bring in an additional 830,000 barrels of North American oil per day, reducing our need to import oil from places like the Middle East. With Keystone XL, our crude imports from Canada could reach 4 million barrels per day by 2020, twice the amount we now import from the Persian Gulf.

Canada will develop and market their oil reserves regardless of what we do about Keystone XL. It just makes sense to approve this pipeline and bring that fuel to the U.S., to grow our economy, provide jobs for our workers and power our businesses and homes. Americans have waited nearly five years for this pipeline to be approved and for America’s government to increase our energy security. After all the delays, it is time to act.

For almost three decades you exhibited strong leadership in the U.S. Senate. Bring that same leadership to the Department of State and approve the Keystone XL pipeline without delay.

Bob McTeer, Contributor
A former Dallas Fed president, I cover the economy.

The direct way fracking can reduce the budget is by stimulating economic activity and thus tax revenues. This is obvious.

This piece is about another, less obvious, less intuitive, indirect way fracking can reduce the budget deficit. It is based on the fact that the sum of the budget deficit, the capital inflow to finance the trade deficit, and the difference between domestic saving and domestic investment equals zero. If you expand or shrink any of these three imbalances, it puts pressure on the others to expand or shrink to maintain the net zero balance.

As fracking expands domestic oil and gas production, it likely will reduce U.S. demand for energy imports and shrink our trade deficit. This reduces the net capital inflow required to finance the trade deficit. The reduced capital inflow will tend to reduce the gaps between domestic investment and saving and government expenditures and tax revenue—the deficit in question.

Let me back up and elaborate. Income minus consumption gives us saving, by definition. Income minus consumption also gives us investment, since investment represents output not consumed. Therefore, taking consumption out of the equation, total saving must equal total investment.

National saving is composed of personal saving, business saving, and government saving, i.e. an excess of tax revenue over expenditures. Personal saving, as we know, is low but positive these days. Business saving is moderately positive. However, net negative government saving (the budget deficit) overwhelms the others and make total national saving negative. Since we invest more than we save domestically, the saving deficit must be made up by importing foreign saving in the form of the capital inflow that finances the trade deficit. (See the postscript for a further explanation of this.

Therefore, I repeat, these three variables—the investment saving imbalance, the government spending-taxing imbalance and the inverse of the export-import imbalance are linked together (they total zero) and are mutually determined. Other things equal, the reduction in the trade deficit due to fracking will reduce imported capital and put pressure on investment relative to saving and government spending relative to taxing. At least some of the correction is likely to lead to a smaller budget deficit.

Got it?

P.S. In a closed economy with no government, income will adjust to make saving and investment equal in equilibrium. Introducing, government spending and taxing, the two injections into the income stream (other than consumption) will be investment and government spending while the two leakages will be saving and taxing. Therefore, the sum of the injections will equal the sum of the leakages in equilibrium, although there is no requirement for a separate balance of taxing and spending and saving and investment. Introducing foreign trade, exports become a third injection while imports become a third leakage. In equilibrium, investment plus government spending plus exports will equal saving plus taxes plus imports. In our recent past, the excess of government spending over taxes requires a net capital inflow (to finance the excess of imports over exports) to finance the excess of domestic investment over saving. If fracking reduces the excess of imports over exports the other two imbalances must adjust, thus putting downward pressure on the budget deficit.

Retrieved 3-4-2013. Forbes.

URTeC, 12-14 August 2013 at the Colorado Convention Center in Denver