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Egypt - Price of Oil PDF Print E-mail
Written by Miriam Elder, Global Post   
Friday, 18 February 2011 15:20

Egypt: Why the price of oil

is on a rollercoaster ride

Suez Canal remains controlled, but unrest unnerves markets.



(Cargo ships navigate in the Suez Canal between Port Said and Ismailia, northeast of Cairo,

Nov. 24, 2008. (Cris Bouroncle/AFP/Getty Images)

MOSCOW, Russia — Turmoil in the Middle East reliably translates into one thing: turmoil in the global oil price.

As Egypt enters its second week of anti-government protests, the oil price has twice risen above $100, hitting a two-year high.

If the unrest continues, it could soar even higher. If the unrest spreads to other countries, then all bets are off.

Egypt is neither a major oil producer nor one of the world’s top energy consumers. So why the concern?

In addition to worry over spreading unrest, it comes down to the Suez Canal, a 120-mile sliver of waterway that cuts through the country, connecting the Mediterranean to the Red Sea.

Its opening in the mid-19th century revolutionized shipping, cutting transport time and costs and putting Egypt at the center of modern global trade.Any threat to Egyptian stability immediately raises concerns over the fate of the canal.

Past conflicts — with Britain in 1956 and with Israel in the 1960s and 1970s — forced Egypt to shut the key waterway, in one case for eight years, dealing a harsh blow to international trade.Yet the circumstances this time around are entirely different and experts say concern is largely unwarranted: Since the canal is a key source of income for the Egyptian government, any leader hoping to secure the support of the people would have little interest in shutting it down.“No one is going to want to lose that source of money,” said Hani Sabra, a Middle East and Africa analyst at Eurasia Group, a political risk consultancy.

“In the short-term, the risk is actually quite limited — tanker traffic through the Suez Canal hasn’t stopped, this is one thing the military is keen on ensuring is secured.

The military's firm control of the canal is a good sign for its unfettered operation.

As evidenced during the daily protests across Egypt, the military continues to hold the trust of most people, unlike President Hosni Mubarak and his widely hated police.

Although Suez was the site of some of the tensest protests at the start of the movement, there were no reports of ships or trading sites being targeted.

“We believe the Canal does not appear to be under immediate threat from the current political crisis in Egypt,” Barclays wrote in a research note Tuesday. “There are no indications that the protesters in Egypt have yet developed the intent or capabilities to carry out organized attacks on tankers like that seen in the case of the USS Cole,” it said, citing an extreme example when the American ship was attacked by terrorists while anchored in Yemen.

The Suez Canal provides the shortest shipping route from Asia to Europe, allowing ships to forgo the long trip around Africa’s southern tip. In 2009, about 8 percent of the world’s seaborne trade passed through the canal — mostly container traffic but about 15 percent crude oil and oil products. About 2 million barrels of oil traverse the canal each day, roughly 5 percent of the global amount in transit (another 2.3 million bpd go through Egypt's Sumed pipeline, which opened in 1977 in the wake of tensions with Israel).

Analysts were loath to speculate on longer-term implications of the current unrest. Although Mubarak indicated Tuesday night that he would not seek re-election in the country’s September presidential election, there was little sign that the hundreds of thousands of protesters would readily accept his concession. Who could replace Mubarak, and whether the next governing coalition would contain a radical Islamist element, remain even larger questions.

“If we talk about long-term implications, then it’s a much more complicated question,” Sabra said.

“Egypt does have the potential to have a contagion effect on the rest of the region.”“If other Arab regimes that have been considered stable for the past few decades start to fall," he added, "then it becomes a much more open question."

For now, the greatest effect might be reflected in a fluctuating oil price, analysts say. Oil has risen 30 percent since September, thanks largely to increased energy use thanks to the global economic recovery and seasonal factors.

The unrest in Egypt has briefly sent the oil price over the $100 per barrel mark, a psychologically important level.

By Tuesday evening, it had sunk back down to $90.77.

“Unrest in Egypt has contributed to market uncertainty and created greater price pressure,” said a statement released by the International Energy Agency (IEA), which advises 28 industrialized nations, mainly energy consumers.

It urged oil producers to “be sensitive to market signals and exercise flexibility in ensuring ample and affordable supplies,” a thinly veiled nudge to the Organization of the Petroleum Exporting Countries that it should consider increasing production.

IEA member states, which include the United States, together hold emergency oil stocks that could last 145 days, it added.It also threw in its two cents about the Suez Canal: “While disruption to the Suez passage through the canal and pipeline could have an important impact on oil and gas markets, it does not currently appear likely.”

“A closure of the canal or pipeline would add considerably to the time needed to ship oil from the Middle East to markets in Europe and further westward, but would not remove the oil from the market,” it said, meaning unrest in Egypt does not have the same potential to disrupt the flow than unrest would elsewhere in the region. 

Last Updated on Thursday, 11 August 2011 09:32
WV DEP News PDF Print E-mail
Written by Casey Junkins   
Saturday, 12 February 2011 11:42

DEP Chief Wants To Double Oil & Gas Staff

State agency has its own proposal in the Legislature

February 9, 2011 - By CASEY JUNKINS Staff Writer,
The Intelligencer, Wheeling News-Register

WHEELING - Randy Huffman knows West Virginia is not properly equipped to regulate the expanding Marcellus Shale natural gas rush, so he wants to double the size of the state's Office of Oil and Gas.

Acting state Senate President Jeff Kessler, D-Marshall, and Sen. Orphy Klempa, D-Ohio, are among the sponsors of a new piece of legislation crafted by the West Virginia Department of Environmental Protection designed to regulate horizontal natural gas drilling, hydraulic fracturing and other drilling aspects.

The bill differs slightly from the "Hydraulic Fracturing and Horizontal Drilling Gas Act," introduced to both the House and Senate last week. The new legislation is working its way through both chambers as Senate Bill 424 and House Bill 3042.

"We are going to compare the two bills, and draw out the best parts of each," said Kessler, who is also a sponsor of the older bill. "Both are going to be debated and discussed at length. We will look to both bills to make sure we can do what we need to do to protect our air and water."

Huffman, DEP secretary, said he now has 32 oil and gas inspectors and permit handlers. He wants to increase that amount to 66, while raising the number of inspector positions from 17 to 34. With current vacancies, the DEP has 12 oil and gas inspectors in the field to cover 59,000 wells in the state, according Legislature members. Several Northern Panhandle residents have expressed concern the DEP is not equipped to deal with the burgeoning horizontal drilling and fracking businesses.

"There is probably some work that should be getting done now that is not getting done," Huffman said.

Though the regulatory bills are similar, there are some key differences because the bill took input from all interested parties in drafting the legislation, Huffman said.

"We spent nine months drafting our bill," he said, noting he took into account the interests of the drilling industry, property owners and state officials in considering how to craft the bill.

One of the main differences in the bills is the fee for drilling a single horizontal gas well. The original bill would increase the fee from $600 to $15,000, but the DEP bill would limit the increase from $600 to $10,000.

"We are funded through permit fees," Huffman said. "In order to regulate horizontal drilling, we need more funding."

The original legislation would prohibit wells from being drilled within 1,000 feet of any building or water well, without permission from the respective owners.

The DEP bill limits this requirement to 100 feet from a water well, and does not specifically address a limit for drilling wells near buildings. The original legislation requires a detailed erosion and sediment control plan for stabilization and drainage. The DEP bill mandates advance notice to surface owners of any seismic activity on or around their property.

Both bills would require drillers to submit detailed water management plans, including the amount of water to be used and its source, as well as identify the types of chemicals used for fracking. Both bills increase the charge for each civil violation from $2,500 to $10,000.

In a related matter, Klempa and Sen. Jack Yost, D-Brooke, have introduced a separate bill to increase the severance tax on natural gas production from 5 percent to 10 percent for gas that is transported out of the state.

Another key difference in the bills is that the DEP's version contains a provision to allow "forced pooling." This practice, which currently is illegal, would be regulated by the proposed Oil and Gas Conservation Commission. Forced pooling would allow natural gas drillers to use land that they have not leased for drilling purposes. For example, if all the neighbors have signed leases with a particular drilling company but a property owner refuses, that lone property owner may be forced to allow the land to be used by gas drillers for the development of the neighbors' gas.

"Pooling allows for the efficient extraction of resources. It is a good idea, unless you are the one being pooled," said Huffman.

Dave McMahon, co-founder of the West Virginia Surface Owners' Rights Organization, said he supports the general idea of pooling to ensure that anyone seeing their gas taken by a drilling company receives proper compensation. However, he opposes this particular pooling provision. He said it would allow drillers to force "new huge horizontal well sites on surface owners," and do so without guaranteeing the mineral owners full compensation.

Both Kessler and Klempa said forced pooling warrants more study before making a decision on it.

"The industry says they need it, but I am also sensitive to the needs of the landowners," Kessler said.

Last Updated on Saturday, 12 February 2011 11:46
Economic Opportunities in West Virginia PDF Print E-mail
Written by Brett Dunlap, newsandsentinel.com   
Thursday, 10 February 2011 13:14

Marcellus Shale could provide economic opportunities in West Virginia

February 6, 2011 - By BRETT DUNLAP, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

A recently released 56-page report, "The Economic Impact of the Natural Gas Industry and the Marcellus Shale Development in West Virginia in 2009," said 7,600 jobs were created in the state, paying almost $298 million in wages and benefits in 2009 from drilling directly related to the Marcellus Shale formation.

The report was done by West Virginia University's Bureau of Business and Economic Research for the West Virginia Oil and Natural Gas Association.

The Marcellus Shale formation stretches across an area of 95,000 square miles from southern New York across Pennsylvania, into western Maryland, West Virginia, and eastern Ohio. While formed in the Appalachian Basin over 300 million years ago, the Marcellus Shale formation has recently become an economically viable source of natural gas due to technological advances in horizontal drilling and hydraulic fracturing as well as relatively high natural gas prices, the report said.

The report says gas industry employment in West Virginia jumped 34 percent between 2001 and 2009, mainly because of Marcellus drilling, but notes those 7,600 jobs accounted for only 1.5 of the state's total employment.

Denny Harton of Wood County serves on a nine-member task force who is working to help the Department of Environmental Protection determine how to best regulate West Virginia's gas drilling industry. He is the former chief executive officer/president of GasSearch Corp. of Parkersburg and a former president of the state's Independent Oil & Gas Association.

Harton believes Marcellus Shale drilling in the state could bring big financial gains to the state as many major companies are now looking at getting in on it and it has the potential to bring billions of dollars in investment to the state.

Marcellus drilling contributed some $2.3 billion in business volume to the overall economy in 2009, the report said, and some $14.5 million in sales, income and business franchise taxes.

''This does not mention the more that $100 million in severance tax paid by the industry's producers and nearly $90 million paid to the counties in property tax in each of the last few years,'' Harton said. ''Because of the Marcellus, this is expected to grow significantly unless legislative action causes the capital to go to contiguous states because of unreasonable regulation.''

As the prospects grow for development so do a number of legal and environmental concerns.

''This is of great concern to the leaders in the industry and to the capital markets that supply much of the capital necessary to continue to bring the capital dollars necessary to support the continued efficient exploration of this great natural resource,'' Harton said. ''In addition to the (Department of Environmental Protection) attempting to write new legislation to more stringently regulate the industry, there are environmental groups who, through their lobbyists, have acquired the support of certain legislators that are attempting to bring about more radical changes through their own legislation.''

With the publicity surrounding the Marcellus Shale formation, a number of environmental groups are using it as a platform to advance agendas that have not gotten a lot of attention lately, Harton said.

''In an ill fated attempt to sway public opinion, the environmental groups are trying to focus the attention on the use and disposal of water in the state,'' he said. ''This is nothing new and despite several studies over the years by the EPA and others in multiple states, there has never been a single confirmed case of drinking water contamination.

''While the Marcellus does require the use of more water than do the more conventional wells, the amount of water used by the industry in total is but a fraction of the amount of water used by the power plants operation in West Virginia.''

The Marcellus shale natural gas boom has brought damage to West Virginia country roads along with millions of dollars of investments.

A hearing on Marcellus Shale drilling was held Friday in the state House of Delegates. Representatives from the highways department said some rural roads have been crushed in the rush to tap the vast natural gas reserve. Drillers use heavy equipment carried by trucks and the process to frac a well requires loads of sands and water including a chemical micture.

Chesapeake Energy and other exploration companies have taken it on their own to repair and improve roads.

Among the opponents to the drilling of the Marcellus Shale is the Sierra Club. The organization recently named Deborah Nardone as the director of a national initiative to change the natural gas industry.

She comes from State College, Pa., where Penn State University is located. Penn State has pledged to switch from coal to natural gas by 2014.

Many legislators have been fair in determining a good balance between economic development and environmental stewartship, Harton said. A fair and balanced risk and reward system needs to be in place in West Virginia to encourage development, he said..

''If not, that money could go to Ohio, Pennsylvania and New York,'' Harton said. ''The only thing unconventional about the Marcellus is the more efficient means by which the wells are being drilled today.

''These are all positives for the most part and if pressed on the matter, most legitimate environmentalists would agree that horizontal drilling, the only fairly new technique employed in Marcellus development is good for the environment, surface owners and the state.''

The Associated Press contributed to this story.

Marcellus Shale Thickness PDF Print E-mail
Written by / Map provided by: WVGES   
Thursday, 10 February 2011 12:20


Last Updated on Thursday, 10 February 2011 12:35
Possible Hike in WV Permitting Fees........ PDF Print E-mail
Written by The Associated Press   
Thursday, 10 February 2011 10:11

West Virginia officials push for hike in Marcellus shale hydrofracking permit fee

Published: Tuesday, February 08, 2011, 2:30 PM
Updated: Tuesday, February 08, 2011, 2:34 PM

CHARLESTON, W.Va. — West Virginia is at least $1 million short of the funds its regulators need to oversee drilling in the booming Marcellus shale natural gas field, the state’s environmental chief told lawmakers Tuesday.

Environmental Protection Secretary Randy Huffman asked the House Finance Committee to consider the hefty permit fee hikes his department seeks this session. Outlining the budget his office has requested for the upcoming fiscal year, Huffman explained that Marcellus drillers now pay the same $650 as their shallow-well counterparts. But the cost of regulating each type of well differ considerably, Huffman said.

Tapping the vast, mile-deep shale field requires an unconventional horizontal drilling method. To extract gas, operators must fracture the rock with a high-pressure, high-volume mix of water, chemicals and sand. Huffman said DEP’s Oil and Gas office issued permits for 1,500 wells last year. While down from the 3,200 permits granted in 2007 and 2008, the number of horizontal wells increased during that time, he said.

“Our revenues dropped by over $1 million. We’re actually in an underfunded, understaffed situation as it exists today,” he told the committee. “We’re in a predicament, to say the least, in the Office of Oil and Gas.”

DEP has proposed increasing the fee to $10,000, in legislation introduced Monday. Huffman said the resulting revenues would fund the additional inspectors needed, while also covering costs of other regulatory provisions in that bill.

But industry groups have objected to the fee hike, and to other rules sought in the pending bill. Delegate Larry Border, R-Wood, asked why Huffman did not propose the fee increase in a separate bill. “You put all your eggs in one basket by putting it all in one bill,” Border said. “I’m not sure that’s a wise choice.”

“Fair enough,” Huffman replied.

Disputed provisions include one that would allow forced pooling for Marcellus operations. This would require drillers to compensate people for draining gas reserves they own by drilling nearby, but would force those owners to yield their rights in the process.

Huffman said forced pooling would increase development of this gas-rich serve when minority owners try to block a well project. It would also limit the amount of surface area disturbed by drilling. An operator can extend pipes in multiple directions from a single well.

Delegate Ray Canterbury cited neighbors who balk at leasing their gas rights for environmental reasons. “If people choose not to sell their asset because they have those kinds of objections, I would rather that they not be forced to do so,” the Greenbrier County Republican said.

The Marcellus shale stretches deep beneath Ohio, West Virginia, Pennsylvania and New York. The industry estimates it holds trillions of cubic feet of natural gas. As one sign of the potential of West Virginia’s portion, Chesapeake Energy alone has committed $1 billion to in-state operations.

The House Finance and Judiciary committees have been holding public hearings this session to examine various aspects of the Marcellus debate. They’ve scheduled one Wednesday on forced pooling, water use and the concerns of surface owners in the House Chamber.

Story By: The Associated Press, Syracuse.Com

Last Updated on Monday, 28 February 2011 20:07
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