TIME energy

New York Bans Fracking

After years of debate in the state over the controversial drilling technique

The administration of New York Governor Andrew Cuomo announced Wednesday that the controversial drilling technique known as fracking will be banned in the state, citing concerns over risk of contamination to the state’s air and water.

“I cannot support high volume hydraulic fracturing in the great state of New York,” acting Health Commissioner Howard Zucker said. The announcement comes after years of debate over the practice, during which New York has had a defacto fracking ban in place, the New York Times reports.

Fracking employs chemicals and underground explosions to release oil and gas trapped in shale deposits that are inaccessible by conventional drilling techniques. Some environmentalists contend that fracking contaminates groundwater and can contribute to seismic activity, and that increased drilling activity can contribute to air pollution and other environmental problems.

[NYT]

TIME Economy

#TheBrief: Why Gas Prices Are Falling

The reason you're paying less at the pump

You may have noticed a lower number on your gas station receipts. The average price of gas in the U.S. is now $2.55 per gallon, the lowest it’s been since 2009. We’re told to never question a good thing, but why are these prices falling?

Watch The Brief to find out why you’re spending less than usual at the pump.

MONEY energy

3 Ways to Profit from Falling Oil Prices

Fortune Teller's ball with oil sloshing inside
Gregory Reid

Stagnant global demand and increased supply has pushed oil to its lowest price since 2009. Here's how savvy investors can take advantage.

Big jolts to energy prices are often caused by major economic imbalances—like rising tensions in the Middle East setting off supply scares. Or a dropoff in demand from a recession, causing prices to plummet.

This time there is no global crisis behind crude’s slide (from $105 a barrel in the summer to around $60 recently, its lowest level since 2009). Instead to blame: fresh worries about growth in Europe, Japan, and China, set against rising production in Saudi Arabia, Russia, Libya, and the U.S.

Don’t expect producers to turn off the spigot just yet, especially in the U.S., where the burgeoning fracking industry can still profit at lower prices. Analysts at Goldman Sachs predict output and use will both grow in 2015, but supply will outpace demand. That should push oil down further. Here’s how you can protect your portfolio and profit from the oil glut.

Your Action Plan

Ease off emerging markets. Russia and Iran need oil at or above $100 a barrel to avoid major budget deficits, says Matthew Berler, CEO of investment firm Osterweis. The Saudis have been playing hardball by refusing to cut production, and if they continue, “other parts of the emerging markets could get hit,” says Tom Forester, head of Forester Capital Management. Good reason to cut emerging markets to 5% of your portfolio.

Bet on shipping. With gas expected to stay 30¢ a gallon below 2014 highs, “the transportation industry is getting a big windfall,” says economist Edward Yardeni. Railroad stocks have been on a tear for years. So lean toward cheaper truckers and airlines, which benefit from sinking prices and rising spending. Two-thirds of SPDR S&P Transportation ETF is in those industries.

Save on a gas sipper. “When gas prices go down, you see an immediate impact on vehicle choice,” says John Krafcik, president of pricing site TrueCar. Automakers have already begun discounting super-fuel-­efficient cars—the Ford Focus Electric recently fell $6,000—and Krafcik expects to soon see “fantastic deals” on gas-engine midsize and compact sedans, which can get 30-plus mpg. Everyone else may be buying big—the SUV is back!—but a contrarian play may pay off in the long haul.

 

TIME Know Right Now

Know Right Now: Why Gas Prices Are at the Lowest Point in 4 Years

Gas prices have dropped significantly for Americans, and several factors are driving the change in prices

American drivers may have noticed a smaller bill at the pump recently– that’s because the average price of U.S. regular gas has recently reached $2.72 a gallon, the lowest it’s been in four years.

In the last two weeks alone, the average price has dropped 12 cents. But what is the reason for these dropping prices? Watch this video to find out what’s causing the cheaper fuel, and where you can find the most affordable gas in the country.

TIME Innovation

Five Best Ideas of the Day: December 5

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Peak gas: According to some forecasts, the fracking boom could be a bust.

By Mason Inman in Nature

2. To end the conflict with Boko Haram, Nigeria needs to address the alienation of its Muslims.

By John Campbell at the Council on Foreign Relations

3. “Protecting our coal workers is critical to successfully solving the climate problem.”

By Jeremy Richardson in the Union of Concerned Scientists

4. Tanzania can fight child marriage and protect the next generation of women by keeping girls in schools.

By Agnes Odhiambo in Human Rights Watch

5. When the last baby boomers move into retirement around 2030, today’s youth will carry the weight of our economy. They need support now.

By Melody Barnes in the World Economic Forum Blog

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME energy

Follow the Sand to the Real Fracking Boom

Halliburton Co. "sand castles" stand at an Anadarko Petroleum Corp. hydraulic fracturing (fracking) site north of Dacono, Colorado on Aug. 12, 2014.
Halliburton Co. "sand castles" stand at an Anadarko Petroleum Corp. hydraulic fracturing (fracking) site north of Dacono, Colorado on Aug. 12, 2014. Bloomberg—Bloomberg via Getty Images

Frac sand is poised for even more significant gains over the immediate term

This post originally appeared on OilPrice.com.

When it takes up to four million pounds of sand to frack a single well, it’s no wonder that demand is outpacing supply and frack sand producers are becoming the biggest behind-the-scenes beneficiaries of the American oil and gas boom.

Demand is exploding for “frac sand”–a durable, high-purity quartz sand used to help produce petroleum fluids and prop up man-made fractures in shale rock formations through which oil and gas flows—turning this segment into the top driver of value in the shale revolution.

“One of the major players in Eagle Ford is saying they’re short 6 million tons of 100 mesh alone in 2014 and they don’t know where to get it. And that’s just one player,” Rasool Mohammad, President and CEO of Select Sands Corporation told Oilprice.com.

Frack sand exponentially increases the return on investment for a well, and oil and gas companies are expected to use some 95 billion pounds of frack sand this year, up nearly 30% from 2013 and up 50% from forecasts made just last year.

Pushing demand up is the trend for wider, shorter fracs, which require twice as much sand. The practice of downspacing—or decreasing the space between wells—means a dramatic increase in the amount of frac sand used. The industry has gone from drilling four wells per square mile to up to 16 using shorter, wider fracs. In the process, they have found that the more tightly spaced wells do not reduce production from surrounding wells.

This all puts frac sand in the drivers’ seat of the next phase of the American oil boom, and it’s a commodity that has already seen its price increase up to 20% over the past year alone.

Frac sand is poised for even more significant gains over the immediate term, with long-term contracts locking in a lucrative future as exploration and production companies experiment with using even more sand per well.

Pioneer Natural Resources Inc. (NYSE:PXD) says the output of wells is up to 30% higher when they are blasted with more sand.

Citing RBC Capital Markets, The Wall Street Journal noted that approximately one-fifth of onshore wells are now being fracked with extra sand, while the trend could spread to 80% of all shale wells.

Oilfield services giants such as Halliburton Co. (NYSE:HAL) and Baker Hughes Inc. (NYSE:BHI) are stockpiling sand now, hoping to shield themselves from rising costs of the high-demand product, according to a recent Reuters report. They’re also buying more sand under contract—a trend that will lead to more long-term contracts and a longer-term boost for frac sand producers.

In this environment, the new game is about quality and location.

Frac sand extraction could spread to a dozen US states that have largely untapped sand deposits, but the biggest winners will be the biggest deposits that are positioned closest to major shale plays such as Eagle Ford, the Permian Basin, Barnett, Haynesville and the Tuscaloosa marine shale play.

The state of Wisconsin has been a major frac sand venue, with over 100 sand mines, loading and processing facilities permitted as of 2013, compared to only five sand mines and five processing plants in 2010.

chart

But with the surge in demand for this product, companies are looking a bit closer to shale center to cut down on transportation costs and improve the bottom line.

One of the hottest new frac sand venues is in Arkansas’ Ozark Mountains, which is not only closer by half to the major shale plays, saving at least 25% per ton on transportation costs, but also allows for year-round production that will fill the gap in shortages when winter prevents mining in northern states.

Related: 5 Things You Probably Don’t Know About Fracking

“In the southern US, we can operate year round, so there is no fear of a polar vortex like that which we saw last year with some other producers,” says Mohammad of Select Sands.

Chicago-based consulting company Professional Logistics Group Inc. found in 2012 that transportation represented 58% of the cost of frac sand, while Select Sands (TSX.V:SNS), estimates the costs between 66-75% today.

The competition is stiff, but this game is still unfolding, while increased demand is reshaping the playing field.

US Silica Holdings Inc. says demand for its own volumes of sand could double or triple in the next five years, and its three publicly-traded rivals—Emerge Energy Services (NYSE:EMES), Fairmount Santrol (NYSE:FMSA) and Hi-Crush Partners (NYSE:HCLP), have also made strong Wall Street debuts over the past two years.

TIME energy

Why America’s Fracking Revolution Won’t Be Hurt (Much) By Low Oil Prices

Fracking In California Under Spotlight As Some Local Municipalities Issue Bans
Pump jacks and wells are seen in an oil field that uses fracking on the Monterey Shale formation near McKittrick, Ca. on March 23, 2014. David McNew—Getty Images

The conventional wisdom has it that many U.S. oil producers can’t make money with oil prices below $85 a barrel. Here’s why the experts may be wrong

For U.S. consumers, there’s plenty to like about plummeting oil prices. After all, the cost of gasoline and home heating oil is falling dramatically as well. Since June, the price of WTI crude has dropped from about $101 a barrel to a recent price of $65, or roughly a 35% decline. And the average price of a gallon of unleaded gasoline in the U.S. has plunged to $2.76 from $3.27 a year ago, according to AAA.

But don’t falling prices threaten America’s fracking revolution? A lot is at stake. Since 2008, U.S oil production has risen from about 5 million barrels a day to more than 9 million—an 80% increase. As fracking boomed, the U.S. oil industry has helped the country become more energy independent and has created slews of high-paying jobs—President Obama, in fact, once said fracking has the potential to create as many as 600,000 jobs.

Conventional wisdom says the threat to fracking is real. “Tight” oil is the term the industry uses for petroleum produced through fracking because it comes from geological formations of low permeability, such as tight sandstone or shale. Tight oil has produced most of the growth in the global supply in recent years, and helped lead to the current glut. Experts have said that U.S. tight oil needs to sell at $85 or $90 a barrel to be profitable. With oil recently trading at $65, it looks like the industry is in peril.

The experts are right—up to a point. That $90 figure applies only to less than 20% of all “tight” oil fields. Says Jim Burkhard, the head of oil market research at IHS, a highly-respected industry research firm: “There’s a spectrum of break-even costs. Wells can perform differently in the same field.” A new study by IHS concludes that about 80% of the tight oil estimated to be pumped next year will still be profitable at between $50 and $69 a barrel.

Producers, it turns out, have gotten more efficient in designing and operating their fracking wells. Burkhard points to two factors at play. One is an increase in productivity due to a new technology called “super fracking,” where drillers pump a lot more sand into their wells when they fracture the oil shale. Productivity at some super-fracking wells has risen from 400 barrels a day to 600, lowering the break-even cost. The other factor is the oil service industries. Says Burkhard: “They’ve built up capacity over the past years. If there’s a decline in drilling due to low oil prices, we’ll see excess oil-drilling capacity and that puts downward pressure on the cost of producing tight oil.”

Lower oil prices, however, will slow the rate of growth of tight oil as energy companies grapple with market uncertainty and volatility. While today’s $65 a barrel might seem low, remember that in early 1980s, new production from the North Sea, Alaska’s North Slope, and Mexico drove prices down to $10 a barrel. And from the mid-1980s to September 2003, the inflation-adjusted price of a barrel of crude was less than $25.

With oil prices dropping, IHS estimates the growth in U.S. tight oil production will slow next year to 700,000 barrels a day, down from million a day in 2014. (That estimate is based on a $77 a barrel. If oil goes to $60 next year that 700,000 projection will be cut in half to 350,000.) Even so, the U.S. will still be adding a significant amount of new oil to a global market where demand is weakening. That makes any price spike— short of a blow-up in the Middle East or OPEC suddenly getting its act together—unlikely.

The fracking boom is maturing, but it’s not likely to go away any time soon.

This article originally appeared on Fortune.com

TIME Companies

Halliburton, Baker Hughes Merge in $34.6 Billion Deal

Halliburton to Buy Baker Hughes for $34.6 Billion
A flag with the Baker Hughes Inc. logo flies outside one of the company's facilities in Houston, Texas, U.S., on Monday, Nov. 17, 2014. Aaron M—Bloomberg/Getty Images

The merger will save the oil-drilling companies a combined $2 billion in costs

Two U.S. oil-drilling giants became one on Monday, when Houston-based companies Halliburton and Baker Hughes agreed to a $34.6 billion merger.

The deal came soon after talks between the two competitors broke down and Halliburton indicated the possibility of a hostile takeover of Baker Hughes, the New York Times reported.

Halliburton, controversial for its role in the 2010 Deepwater Horizon oil rig explosions, will retain its name in the new combined entity, and its chief executive and chairman David J. Lesar will take the helm.

The combination of the two companies’ resources, including operations and research and development, will save over $2 billion in costs and help them compete with industry leader Schlumberger.

Read more at the Times

TIME Environment

Midterm Elections Pass Four New Anti-Fracking Bans

Denton, Texas, passed high-profile ban on hydraulic fracturing

A record number of proposed bans to the controversial oil and gas drilling technique known as fracking were included on local ballots countrywide Tuesday. Out of eight proposed bans, four passed, in Ohio, Texas and California.

Perhaps the unlikeliest victory for anti-fracking activists was in Denton, Texas, a town north of Dallas situated in what one activist called the “cradle” of the U.S. oil and gas boom. The ban, which forbids the process of setting off large explosions underground in oil and gas drilling operations, passed with nearly 59% of the vote.

Denton is the first municipality in Texas to have passed a fracking ban–even despite heavy spending by the oil and gas industry to defeat the measure that the Denton Record Chronicle called it “the most expensive campaign in Denton’s history” by far.

“People in Denton rallied together and did some amazing organizing to pass a ban,” said Mark Schlosberg.

A legal challenge to the ban is all but assured, reports the Texas Tribune. Three of five similar bans passed in Colorado in recent years were overturned in local district court.

Fracking bans were also passed in Mendocino and San Benito counties in California, and in Athens, Ohio, while voters in Santa Barbara, California, and in the Ohio towns of Kent, Gates Mills and Youngstown rejected proposed fracking bans.

TIME energy

Water Scarcity Hindering China’s Shale Gas Production

China fracking
Major oil and gas companies in China are ready to exploit the country's shale resources Brent Lewin/Bloomberg via Getty Images

Lack of water is holding back a possible fracking revolution in China

Originally appeared in OilPrice.com

China holds the largest reserves of shale gas in the world, but much of it may never get developed because of one major obstacle: water scarcity.

A new report from the World Resources Institute (WRI) says China suffers from high water stress, which may prevent it from ever fully developing its vast shale gas resources. China is sitting on 1,115 trillion cubic feet of technically recoverable shale gas resources, according to the U.S. Energy Information Administration, but much of it is located in arid areas of the country.

This presents an acute problem for a country that may see its natural gas consumption more than triple over the next 25 years.

China has not yet succeeded in producing its shale gas resources on a large scale, but the central government is putting a lot of effort into developing the expertise needed to economically extract natural gas. For several years now it has invested in North American shale gas companies, such as China National Offshore Oil Corporation’s (CNOOC) $2.1 billion investment in Chesapeake Energy back in 2010. A few months later, PetroChina spent $5.4 billion for a stake in Encana, a large shale gas producer in Canada.

Both moves were seen less as a financial investment and more as an effort to learn the secrets of the North American shale gas revolution.

To be sure, exploration in China is already underway. Much of the drilling thus far has taken place in the Sichuan basin in central China, with over 100 wells drilled to date. WRI says that Sichuan basin is in an area experiencing “medium to high” water stress.

Worse, nearly the entire extent of the Tarim basin, another promising shale gas region in the northwestern province of Xinjiang, suffers from “extremely high” water stress. The dusty region has groundwater shortages, and many of its feeble rivers dry up during certain times of the year.

Drilling and developing shale gas requires massive amounts of fresh water. In Pennsylvania, for example, an average shale gas well can use 4.4 million gallons of waterduring the drilling process, or the equivalent to the daily water consumption of 11,000 American families. That is not necessarily a problem in wet areas, but the effect is much worse in drier areas.

In China, over 60 percent of its shale gas reserves are located in areas suffering from “high to extremely high” water stress. That could cause tension with communities or other businesses that are also in need of water. “High levels of competition among agricultural, domestic, and industrial water users could represent higher costs, reputational risks, and increased regulatory uncertainty for operators trying to access water for hydraulic fracturing and drilling operations,” WRI says in its report, as a warning to businesses seeking to operate in China.

And it is not just China grappling with this conundrum – it just happens to have the most shale gas and some of the worst water problems. WRI conducted a worldwide assessment and ranked countries based on their shale reserves and vulnerability to water scarcity. Mexico and South Africa stand out as two other countries that could see water shortages delay or derail the development of their shale resources.

Mexico has 545 trillion cubic feet of shale gas, a little less than the 665 tcf found in the United States. But most of Mexico’s shale gas is located in the deserts in the northern part of the country, just south of the Eagle Ford shale in Texas. For anyone who has visited northern Mexico, they know that water is scarce. Just 4 percent of annual rainfall in Mexico hits the north. The Burgos basin, Mexico’s most promising, is in an “extremely stressed” water area, with much of its aquifer depleted.

South Africa faces similar constraints. It has one large shale play, over 75 percent of which is located in a region suffering from “extreme” water stress. As is true in most places, the vast majority of water is used for agricultural purposes, so the development of shale gas in South Africa would likely mean diverting water from other uses.

Worldwide, around 38 percent of shale gas reserves are located in areas dealing with “high” or “extremely high” water stress. The natural gas reserves may exist, and could be technically recoverable, but if there isn’t enough water available, the gas may stay in the ground.

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