Tuesday, October 30, 2012

U.S. One of the Top Gas Flaring Countries in the World

Women’s Council on Energy and Environment published my article on flaring of associated gas in the U.S. last week. Gas flaring is becoming a major issue for the U.S. with the rise of North Dakota’s oil production from its Bakken Shale formation, which reached 660 thousand barrels per day (bbl/d) in June 2012. Oil extraction from the Bakken Shale accounts for a substantial amount of associated gas, which is a raw natural gas released as a result of petroleum production. Natural gas is often found in oil wells, where it is either dissolved in crude oil or exists separately in a form of a cap above oil.

With a back-to-back 5 percent rise in oil output every month, North Dakota does not expect the pace of production to slow down. Rapidly growing oil production and infrastructure problems are starting to pose serious environmental challenges. The United States now ranks as one of the world’s top five flaring countries, according to the World Bank’s recent report. That is largely due to the rise in oil drilling in North Dakota. In 2011, the United States represented 5 percent of all gas flaring. Presently, most companies burn off associated gas rather than invest in pipelines and processing plants to capture and sell the gas because of added costs.
With no regulation on gas flaring at the national level, largely due to a limited flaring problem since the 1970's, it is also becoming an issue in the Eagle Ford shale field in Texas, as well as potentially in other states endowed with unconventional oil sources, such as Ohio, Oklahoma and Arkansas. Given the size of the Bakken Shale play and expansion of shale drilling in other states, the era of the U.S. unconventional oil and gas seems to portend not only massive infrastructure changes to streamline transportation of domestic crude oil and gas, but also a more careful regulation of this relatively novel industry to prevent an environmental backlash.


Wednesday, October 24, 2012

Iraq’s Oil Boom: Pie in the Sky or a Cautionary Tale

Iraq can become Saudi Arabia of today in terms of size the economy and wealth in the next couple of decades, if it develops its hydrocarbon potential. Those were the words of Fatih Birol, chief economist with the International Energy Agency (IEA), who presented the agency’s new “Iraq Energy Outlook” report at the Center for Strategic and International Studies on October 22, 2012. Iraq has been steadily increasing its oil production, now ranking as the second-biggest producer after Saudi Arabia. According to an Iraqi oil official, “oil exports were expected to rise above 2.8 million barrels per day (mbpd) this month [October 2012] with shipments on the rise from both the north and south of the country. Exports of 2.6 mbpd in September were already the highest in more than 30 years.” IEA’s central scenario predicts that oil output in Iraq would increase to over 6 mbpd in 2020 and reach 8.3 mbpd by 2035, largely driven by developments of super giant fields in the south.

Although cautiously optimistic about Iraq’s ability to fulfill its oil potential, given its currently dire political, security and economic challenges, Fatih Birol predicts that this Middle Eastern country will account for nearly 45 percent of the growth in global oil production between 2011 and 2035, if it does it right. The rest of the members of the Organization of Petroleum Exporting Countries (OPEC) will provide 42 percent, with non-OPEC nations filling about 12 percent of global oil production. According to Birol, Iraq is set to play a crucial role in global oil markets, even with conservative estimates about its oil production.

Meanwhile, Iraq’s Kurdish autonomous began selling its oil to global markets this month through independent export deals with two of the world’s major trading houses, Trafigura and Vitol. This move presents a further challenge to the central government’s attempt to exert its full authority on trading oil and gas in the country. With little leverage on the trading houses because of its own dependence on them to import refined oil products, Baghdad is basically powerless to rein in on them or on Kurdish trading. Kurdistan’s latest move drives a wedge to the already tense relations with Baghdad, after they recently survived a major dispute over payments for oil exports.

In Fatih Birol’s view, political consensus on oil governance and legal framework, such as the long-awaited hydrocarbon law, speed and coordination of investment along the supply chain, Iraq’s long-term oil and natural gas strategy as well as international market conditions would be determinants of the country’s pace of oil and gas development. It appears that without addressing the Kurdish question in the short to medium term, production of oil and gas in Iraq will be uneven and chaotic. What is worse, Baghdad could find itself in a potential real clash with the north if it keeps ignoring de facto energy deals of the Kurds with foreign companies and does not work out a mutually beneficial deal with the autonomous region.

Thursday, October 11, 2012

Book Review: “America Needs America's Energy: Creating Together the People's Energy Plan”

This summer I attended a discussion of a book by Mark Stansberry entitled America Needs America's Energy: Creating Together the People's Energy Plan at The Fund for American Studies in Washington DC. Given that DC is a regular stomping ground for many events on energy, I was not sure how this one would be different. Having read the book, I think it is quite timely and relevant. What is interesting about Stansberry’s book is that it is not just an overview of energy issues facing the U.S., replete with policy recommendations to high level officials, but he calls for Americans to take individual responsibility for their use of energy, to be better educated about the industry, and to get involved in crafting an energy plan for the country.
In Stansberry’s view, the ability for the U.S. to maintain its economic growth and standard of living (true for just about any other country in the world), it needs security of energy supplies, which cannot be achieved without a strategic energy plan that has been missing for decades. According to Stansberry, a national energy plan is long overdue to meet the demand, to secure supply, to more effectively and efficiently build energy infrastructure, to harness new technologies as well as to bridge the knowledge gap between energy users, policymakers and the industry. He provides a general overview of major energy sources used in the U.S. with their pros and cons and changes in supply and demand over the past few years. For those who work in the energy industry, most of the factual information in the book may not be too in-depth, but valuable nonetheless.
The most interesting part of the book for me was the chapter on “Energy Education,” where Stansberry’s take on the importance of a public-private partnership to educate ordinary people about their energy  use and to change their perception of the industry resonated strongly with what I have been thinking a lot lately. Without advocating the fossil fuel industry, it is worth remembering that it is unarguably an important part of our lives along with, hopefully, the growing share of renewable sources of energy. As Stansberry notes, “nothing moves without energy […] our quality of life is dependent upon the development of all forms of energy, as well as the conservation of our natural resources.” Without knowing, or more importantly appreciating, what aspects of our lives are touched, changed and improved by use of energy, nobody can truly value where and how it is obtained. In my view, Stansberry’s emphasis on starting “Your Personal Energy Journal 2012-2016” is a brilliant way to begin to understand your personal energy consumption and to create your personal energy plan in hopes to ultimately integrating the well-informed citizenry to discussion on creating a comprehensive, regional, state, and national energy plan. I know I will start using the charts on individual energy use provided in Stansberry’s book, and hopefully others will start, too.