Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas

As we previewed on Friday, when we reported that “Russia Nears Completion Of Second “Holy Grail” Gas Deal With China“, moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, greenlighting a second “mega” Russian natural gas to China via the so-called “western” or “Altay” route, which as previously reported, would supply 30 billion cubic meters (bcm) of gas a year to China.

Russian President Vladimir Putin and Chinese leader Xi Jinping

Among the documents signed between Russian President Vladimir Putin and Chinese leader Xi Jinping were the memorandum on the delivery of Russian natural gas to China via the western route, the framework agreement on gas supplies between Russia’s Gazprom and China’s CNPC and the memorandum of understanding between the Russian energy giant and the Chinese state-owned oil and gas corporation.

“We have reached an understanding in principle concerning the opening of the western route,” Putin said. “We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements.”

RIA adds, citing Gazprom CEO Alexei Miller, that the documents signed by Russia and China on Sunday define the western route as a priority project for the gas cooperation between the two countries.

“First of all these documents stipulate that the “western route” is becoming a priority project for our gas cooperation,” Miller said, adding that the documents provide for the export of 30 billion cubic meters of Russian gas to China annually for a 30-year period.

Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia’s biggest, and most strategic natural gas client. More:

Miller, who heads Russia’s state-run energy giant, told reporters that “taking into account the increase in deliveries via ‘western route,’ the volume of supplied [natural gas] to China could exceed European exports in the mid-term perspective.”

This came after Russian and Chinese energy executives signed on Sunday a package of 17 documents, including a framework deal between Gazprom and China’s energy giant CNPC to deliver gas to China via the western route pipeline.

Miller said Gazprom and CNPC were in talks on a memorandum of understanding that would see Russia bring gas to China through the western route pipeline, as well as a framework agreement between the two state-owned companies to carry out the deliveries.

The western route will connect fields in western Siberia with northwest China through the Altai Republic. Second and third sections may be added to the pipeline at a later date, bringing its capacity up to 100 billion cubic meters a year.

The facts and figures of the Altay deal are broken down in the following map courtesy of RT

Also of note, among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. More from RIA:

Russia’s President Vladimir Putin and China’s President Xi Jinping have discussed the possibility of using the yuan in mutual transactions in different fields of cooperation, Kremlin spokesman Dmitry Peskov said Sunday.

“Much attention has been paid to the topic of mutual payments in diverse fields … in yuans which will help to strengthen the yuan as the region’s reserve currency,” Peskov said commenting on the meeting held between Putin and Xi on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

On October 13, Russian Economic Development Minister Alexei Ulyukayev announced that Russia was considering Chinese market to partially substitute access to the financial resources of the European Union and the United States.

The European Union and the United States have imposed several rounds of economic sanctions on Russia over its alleged involvement in the Ukrainian crisis, a claim Moscow has repeatedly denied. The restrictions prohibit major Russian companies from seeking financing on western capital markets.

Meanwhile, as China and Russia keep forging ahead in a world in which the two becomes tied ever closer in a symtiotic, dollar-free relationship, this is how the US is faring at the same meeting: “China, U.S. Parry Over Preferred Trade Pacts at APEC: Little Progress Made on Separate Trade Deals at Asia-Pacific Economic Cooperation Forum.”

The U.S. blocked China’s initiatives because it worried that launching FTAAP talks would impede progress on a separate trade deal, the Trans-Pacific Partnership. The ministers’ statement said that any FTAAP deal would build on “ongoing regional undertakings”—a reference to TPP and other regional trade deals.

The Chinese got all they could expect—a reaffirmation that we all share in the vision of having a regional integrated model” for trade, said U.S. Chamber of Commerce Executive Vice President Myron Brilliant.

U.S. Secretary of State John Kerry said Saturday that negotiating the TPP “is a battle that we absolutely must win.” Ministers from the 12 TPP nations met Saturday afternoon to try to narrow differences, including disputes between the U.S. and Japan over agriculture and auto trade. On Monday, the leaders of the TPP nations are again scheduled to discuss the trade deal, although no breakthrough is expected.

The U.S. is trying to tie an ITA deal to progress on other trade deals with China, as a way to increase its leverage with Beijing. “How the ITA negotiations proceed is an important and useful data point” on China’s ability to negotiate an investment treaty with the U.S., Mr. Froman said.

Trade analysts say the U.S. also hopes to use China’s desire to have the Beijing conference produce concrete results as leverage. This is the first major international summit held in China since Xi Jinping took over as Communist Party chief in 2012, and the government wants to use the session to affirm China’s greater role in the world.

Good luck trying to “increase US leverage with Beijing” using a trade conference being held in Beijing as the venue.

In other words instead of actual trade agreements, the US merely jawboned and “shared visions.”

Then again, as noted here since 2010, in a world in which one can merely “print one’s way to prosperity”, what is the need for actual trade? Surely, which China and Russia are expanding their commercial ties at the expense of Europe, the US can continue to pretend it is the world’s only superpower and has no need for either Russia or China. After all, Mr. Chairmanwoman can always go back to work and print some more of that “world reserve currency.” More


 

 

 

World on the brink of oil war as Opec bickers over price

Oil prices ended last week in freefall as the world’s largest group of producers from petro-states in the Middle East dithered over whether to cut output.

A secretive group of the world’s most powerful oil ministers will soon gather in Vienna to take arguably one of the most important decisions that could affect the still fragile world economy: whether to cut production of crude to defend prices at $100 per barrel, or keep open the spigots as winter looms among the biggest energy-consuming nations?

A sudden slump in the price of crude has exposed deep divisions within the Organisation of Petroleum Exporting Countries (Opec) ahead of its final scheduled meeting of the year next month to decide on how much oil to pump.

Some members, led by Iran, have called for immediate action to stem the drop in oil prices, while the Arab sheikhdoms of the Gulf have so far argued that it could be another three months before it becomes clear whether the group should cut production for the first time since December 2008.

Whatever they decide, oil remains the lifeblood of the global economic system due to its direct impact on inflation and input prices. Brent crude – a global benchmark of oil drawn from 15 fields in the North Sea, dipped last week to multi-year lows below $92 per barrel as a perfect storm of a strong US dollar, oversupply in the system and declining demand shattered confidence in the market. Brent has tumbled 20pc in the last three months after touching $115 per barrel in June.

In the US – the world’s biggest consumer – crude for November delivery at one point last week dropped below the psychologically important $90 pricing level, raising fears that a prolonged slump could put many of America’s shale drillers out of business. Shale oil, which can cost up to $80 per barrel to produce, has spurred an energy revolution in the US, which has started to threaten the dominance of producers in the Middle East.

However, at current price levels many of these new so called “tight oil” wells are approaching the point when they will soon become unprofitable.

Like the situation in the US, falling oil prices are also a double-edged sword for Britain’s economy and investors. Although George Osborne, the Chancellor, is less reliant on tax revenues from the North Sea than some of his predecessors, prices are approaching the point when many of the developments planned offshore west of Shetland by international oil companies could be placed on ice.

A sharp drop-off in domestic oil production and associated tax receipts from the North Sea would give Mr Osborne an unwelcome hole to fill in the government’s public finances heading into next year’s general election. However, falling oil prices will help to keep inflation low.

For Britain’s motorists the current declines have been good news that has trickled through to the price of petrol on forecourts. A litre of unleaded petrol in the UK has fallen a few pence over the past month to an average of around 127.21p on average, a figure last seen in 2011, just before Mr Osborne raised the value added tax on fuel to 20pc, from 17.5pc.

All eyes are now firmly focused on the next move by Opec, which controls 60pc of the world’s oil reserves and about a third of daily physical supply. The group has been branded an unaccountable “cartel” by free-market critics in North America who claim its system of limiting production by setting an output ceiling and quotas is tantamount to price rigging.

Although this is an accusation that the group’s secretariat which is based in Vienna strongly denies, its mostly unelected group of policymaking oil ministers undeniably pull the strings of the global energy industry in the same way that central bankers can control currencies.

Opec states have largely managed to maintain cohesion over the last decade as prices over $100 per barrel have enriched their economies and encouraged adherence to quotas. This consensus is now starting to break down, creating more uncertainty in the market and a potentially destabilising situation for the global economy.

Next month’s meeting promises to be the most tense held since the onset of the Arab Spring in 2010, with the Shi’ite Muslim faction of Iran and Iraq already appearing to line up against Saudi Arabia and the United Arab Emirates (UAE).

Iran’s Oil Minister Bijan Zanganeh has placed his cards on the table early by calling for Opec to urgently cut output to stem the sharp recent decline in prices, which threatens the Islamic Republic’s fragile economy after years of restrictive sanctions.

According to research from Deutsche Bank, Iran has the highest fiscal break-even price for its budget at over $130 per barrel of Brent, compared with the UAE at around $70 per barrel and Saudi Arabia at about $90. More

 

 

The Peak Oil Crisis: It‘s All Around Us

Ten years ago peak oil was assumed to be a rather straight forward, transparent process. What was then thought of as “oil” production was going to stop growing around the middle of the last decade.


Shortages were going to occur; prices were going to rise; demand was going to drop; economies would falter; and eventually a major economic depression was going to occur. Fortunately or not, depending on your point of view, the last ten years have turned out to a lot more complicated than expected. Production of what is now known as “conventional” oil did indeed peak back around 2005, and many of the phenomena that were expected to result did occur and continue to this day.

Oil prices have climbed several-fold from where they were in the early years of the last decade – surging upwards from $20 a barrel to circa $100. This rapid jump in energy costs did slow many nations’ economies, cut oil consumption, and with some other factors set off a “great” recession. Real economic hardships have not yet occurred

What is so interesting about all this is that a temporary surge in what was heretofore a little known source of oil in the U.S. is masking the larger story of what is taking place in the global oil situation

Much of this is due to the reaction that set in from high oil prices and increased government intervention into the economy. In the case of the U.S., Washington turned on the modern day equivalent of the printing presses and began handing out money that was used to develop expensive sources of oil and gas. The high selling price per barrel, coupled with cheap money led to a boom in U.S. oil production where fortuitous geological conditions in North Dakota and South Texas allowed the production of shale oil at money-making prices provided oil prices stay high.

U.S. unconventional oil production soared by some 3.3 million barrels a day (b/d) in the last four years, and, if the US Energy Information Administration is correct, is due to climb by another million b/d or so in 2015. While this jump in production was unexpected by most, it was just another phenomenon resulting from unprecedentedly high oil prices, which in turn resulted from the lack of adequate “conventional” oil production. As is well known, economic development can have major reactions and feedbacks

What is so interesting about all this is that a temporary surge in what was heretofore a little known source of oil in the U.S. is masking the larger story of what is taking place in the global oil situation. The simple answer is that except for the U.S. shale oil surge almost no increase in oil production is taking place around the world. No other country as yet has gotten significant amounts of shale oil or gas into production. Russia’s conventional oil production seems to be peaking at present, and its Arctic oil production is still many years, or perhaps even decades, away. Brazilian production is going nowhere at the minute, deepwater production in the Gulf of Mexico is stagnating and the Middle East is busy killing itself. On top of all this, global demand for oil continues to increase by some million b/d each year – most of which is going to Asia.

If we step back and acknowledge that the shale oil phenomenon will be over in a couple of years and that oil production is dropping in the rest of the world, then we have to expect that the remainder of the peak oil story will play out shortly. The impact of shrinking global oil production, which is been on hold for nearly a decade, will appear. Prices will go much higher, this time with lowered expectations that more oil will be produced as prices go higher. The great recession, which has never really gone away for most, will return with renewed vigor and all that it implies.

An additional factor which has grown considerably worse in the last ten years is climate change, largely brought about by the combustion of fossil fuels. We are already seeing global weather anomalies with record high and low temperatures and record floods as well as droughts. This too will take its toll on economic development as mitigating this change will soon become enormously expensive. We are already seeing migrations of restive peoples. Thousands are dying in efforts to get from the Middle East and Africa into the EU. Millions are already homeless across the Middle East and recent developments foretell hundreds of thousands if not millions more being added to ranks of refugees as decades and even centuries-old political arrangements collapse.

All this is telling us that the peak oil crisis we have been watching for the last ten years has not gone away, but is turning out to be a more prolonged event than previous believed. Many do not believe that peak oil is really happening as they read daily of surging oil production and falling oil prices. Rarely do they hear that another shoe has yet to drop and that much worse in terms of oil shortages, higher prices and interrupted economic growth is just ahead.

We are sitting in the eye of the peak oil crisis and few recognize it. Five years from now, it should be apparent to all. More

 

Why Peak Oil Refuses To Die

Perhaps you’ve seen one of the recent barrage of articles claiming that fears of an imminent peak and decline in world oil production have either been dispelled (because we actually have plenty of oil) or are misplaced (because climate change is the only environmental problem we should be concerned with). I’m not buying either argument.

Richard Heinberg

Why? Let’s start with the common assertion that oil supplies are sufficiently abundant so that a peak in production is many years or decades away. Everyone agrees that planet Earth still holds plenty of petroleum or petroleum-like resources: that’s the kernel of truth at the heart of most attempted peak-oil debunkery. However, extracting and delivering those resources at an affordable price is becoming a bigger challenge year by year. For the oil industry, costs of production have rocketed; they’re currently soaring at a rate of about 10 percent annually. Producers need very high oil prices to justify going after the resources that remain—tight oil from source rocks, Arctic oil, ultra-deepwater oil, and bitumen. But oil prices have already risen to the point where many users of petroleum just can’t afford to pay more. The US economyhas a habit of responding to oil price hikes by swooning into recession, and during the shift from $20 per barrel oil to $100 per barrel oil (which occurred between 2002 and 2011), the economies of most industrialized countries began to shudder and stall. What would be their response to a sustained oil price of $150 or $200? We may never know: it remains to be seen whether the world can afford to pay what will be required for oil producers to continue wresting liquid hydrocarbons from the ground at current rates. While industry apologists who choose to focus only on the abundance of remaining petroleum resources claim that peak oil is rubbish, the market is telling Houston we have a problem.

Meanwhile some environmentalists have abandoned the subject of peak oil because they believe it’s just not relevant. For them, climate change is the only thing that matters. Society must deal with its collective carbon habit by going cold turkey on all fossil fuels. We can make the needed energy transition through the strategies of substitution and efficiency. Develop low-carbon energy sources (solar and wind, possibly nuclear), and use energy smarter! Electrify transport with battery-powered cars! Get with the program and stop wasting time on side issues!

Like the abundant-resource argument, this line of thinking proceeds from an unassailable premise. Anthropogenic climate change is indeed the nastiest, gnarliest environmental issue humanity has ever faced. The potential consequences stretch centuries or millennia into the future and imperil not just humanity, but thousands or millions of other species. But peak oil won’t go away just because it’s an inconvenient distraction from addressing that gargantuan issue. In fact, the two problems are closely linked and society will need to address both by way of a realistic, comprehensive strategy. I’ll get back to that point toward the end of this essay.

Is the necessary transition to renewable energy a simple matter of politics and regulation, as many climate campaigners seem to suggest? Hardly. Transitioning the electricity sector is a huge task in itself (the variability of wind and solar power implies soaring costs for energy storage, capacity redundancy, and grid upgrades once these sources start to provide a substantial portion of total electrical energy consumed). But liquid fuels pose an even bigger hurdle. Even the most advanced batteries do a poor job of storing energy when compared to oil; that’s why we’re unlikely ever to see electric airplanes, tractors, ships, 18-wheel trucks, or bulldozers. Some energy pundits tout compressed natural gas as a viable bridge fuel for transport, but that assumes sufficient availability and continued affordability of fracked shale gas—a prospect that seems highly unlikely in view of the results of Post Carbon Institute’s ongoing research into possible shale gas drilling locations and per-well production profiles. Hydrogen could be a niche fuel in some instances, but conversion from other energy sources (electricity or natural gas) to hydrogen implies energy losses, as does hydrogen storage. Further, if we were to make lots of H2 from water, using electricity, in order to fuel much of the transport sector, this would place an enormous extra burden on solar and wind, which already face a daunting job replacing coal and natural gas in the power generation sector.

How about energy efficiency? Good idea! We need to cut energy waste, and the folks at Rocky Mountain Institute have proposed many good ways of doing that. But, at the end of the day, efficiency is subject to the law of diminishing returns; so, while the tie between energy consumption and economic output is somewhat elastic, it cannot be severed. Specifically regarding oil: yes, many nations have reduced petroleum consumption in the last few years as a way of adapting to higher prices. But the fact that their economies have weakened suggests that efficiency gains have tended to lag behind oil price increases. Average vehicle fuel economy has improved, but not fast enough—so our main “efficiency” strategy has in reality simply been to travel less, and then deal with the withdrawal of economic benefits that cheap transport formerly provided.

None of this is trivial: oil is essential to the functioning of the modern industrial world. We use it for just about all transportation, which is key to trade. It’s also the fuel for construction, resource extraction (mining, fishing, forestry), and agriculture. Together, these sectors form the backbone of the real, physical economy of industrialized nations.

Again: the costs of oil production are rising and oil is stubbornly hard to substitute. As I argued in a recent book, this effectively spells the end of the historic period of rapid economic growth that began shortly after World War II. There is no way out; inevitably, society will become less mobile and—this should be cause for much greater concern—it will either produce less food or produce it in more labor-intensive ways.

Of course, peak oil and climate change aren’t the only looming challenges we should be concerned about. Economists rightly worry that the world is mired in far too much debt. Ecologists warn us about biodiversity loss, pervasive chemical pollution, and human overpopulation. Food system analysts try (usually in vain) to direct public attention toward the predicaments of topsoil degradation and depletion of aquifers from over-irrigation. Public health professionals caution us about the specter of pandemics as antibiotics lose effectiveness due to rapid microbial evolution. For city managers, the crumbling of water, sewerage, bridge, gas, and electricity grid infrastructure implies countless disasters just waiting to happen. I could go on. It’s all so overwhelming! Perhaps the only way to avoid crisis fatigue these days is simply to stop paying attention. But amid all these priorities and problems, peak oil refuses to die.

Those of us who insist on paying attention sooner or later get around to doing a form of mental triage. What are the worst crises that humanity faces over the long run? Which are the worst in the short term? What are the deeper issues, of which many problems are mere symptoms? This sorting process has led many systems thinkers to the conclusion that our species, in essence, faces an ecological dilemma of overpopulation, resource depletion, and environmental degradation resulting from a relatively brief period of rapid expansion enabled by a huge but temporary energy subsidy in the form of fossil fuels. We discovered buried treasure and went on a spending binge, adopting a way of life that cannot be supported long-term. Peak oil, climate change, mineral depletion, soil degradation, species loss, and the rest are justwords that blind men use to describe an elephant.

What we must do now is treat symptoms while keeping in mind the root disease, seeing why and how various crises are related. I have a couple of suggestions in this regard. One is that we begin to speak of peak oil and climate change as two sides of the same coin. The coin itself represents our reliance on fossil fuels and their unique energetic benefits. Both side-problems (the declining economic value of fossil fuels as they deplete, on one side, and the increasing environmental cost of burning them, on the other) demand that we reduce our fossil fuel dependency as rapidly as possible, even though that means sacrificing benefits we have come to depend on. If we maintain this holistic view of the situation, we’re more likely to understand that there is no way to keep eating our cake while having it too, either by continuing to burn fossil fuels of declining quality or by relying on new technology to fix what is actually an ecological problem. We can’t frack our way back to economic prosperity; nor can we unplug a coal plant, plug in a solar panel, and go on expanding population and consumption. We will have to adapt to the quantities and qualities of energy that are actually available from renewable sources alone, and that will mean changing the way we do just about everything.

Which brings me to the second, related suggestion. The constellation of challenges before us ensures that economic growth, as we have known it, is over, finished, kaput. That’s a terrible thing, in that the end of growth will almost certainly entail financial and political turbulence with real human casualties. But from the standpoint of diagnosis and treatment, it simplifies everything marvelously. If our impending crises stem from fossil-fueled expansion of population and consumption, their resolution surely starts with a coordinated, planned, and managed program of decarbonization and degrowth. We must reduce population and energy consumption from fossil fuels, while minimizing the human and environmental impacts of both past growth and the process of contraction. Easily said, not so easily done. But if civilization is to maintain itself in any recognizable form, this is what’s necessary. It would really help if those of us working at treating the various symptoms of the global meta-crisistogether acknowledged that growth is a core part of the underlying problem, not a solution, and that it is effectively over in any case.

Ignore peak oil (this could equally be said of climate change), and our view of the global problem-set immediately becomes distorted. We grasp at apparent solutions that turn out to be a useless waste of effort, or worse. Peak oil helps us understand what we’re faced with, and what we must do. It’s a gift wrapped in a curse. And it refuses to go away no matter how often it is pronounced dead.

By. Richard Heinberg

 

2028: The End of the World As We Know It?

“There is nothing radical in what we’re discussing,” journalist and climate change activist Bill McKibben said before a crowd of nearly 1,000 at the University of California Los Angeles last night. “The radicals work for the oil companies.”

Bill McKibben

Taken on its own, a statement like that would likely sound hyperbolic to most Americans—fodder for a sound bite on Fox News. Anyone who saw McKibben’s lecture in full, however, would know he was not exaggerating.

McKibben was in Los Angeles as part of his nationwide “Do the Math” tour. Based on a recent article of his in Rolling Stone, (“The one with Justin Bieber on the cover,” McKibben joked) the event is essentially a lecture circuit based on a single premise: climate change is simple math—and the numbers do not look good. If immediate action isn’t taken by global leaders: “It’s game-over for the planet.”

The math, McKibben explained, works like this. Global leaders recently came to an international agreement based on the scientific understanding that a global temperature raise of 2°C would have “catastrophic” consequences for the future of humanity. In order to raise global temperatures to this catastrophic threshold, the world would have to release 565 gigatons of carbon dioxide into the atmosphere. Here’s the problem: Fossil fuel companies currently have 2,795 gigatons of carbon dioxide in their fuel reserves—and their business model depends on that fuel being sold and burned. At current rates of consumption, the world will have blown through its 565-gigaton threshold in 16 years.

To prevent the end of the world as we know it, it will require no less than the death of the most profitable industry in the history of humankind.

“As of tonight,” McKibben said, “we’re going after the fossil fuel industry.”

Obviously no easy task. The oil industry commands annual profits of $137 billion and the political power to match. As McKibben noted, “Oil companies follow the laws because they get to write them.”

However, there are some numbers on McKibben’s side. Recent polling data shows 74 percent of Americans now believe in climate change, and 68 percent view it as dangerous. The problem environmental activists are facing is in converting those favorable polling numbers into grassroots action.

Enter “Do the Math.”

Using McKibben’s popularity as an author, organizers are turning what would otherwise be a lecture circuit into a political machine. Before rolling into town, Do the Math smartly organizes with local environmental groups. Prior to McKibben’s lecture, these groups are allowed to take the stage and talk about local initiatives that need fighting. Contact information is gathered to keep the audience updated on those efforts. Instead of simply listening to McKibben, as they perhaps intended, the audience has suddenly become part of their local environmental movement.

It’s a smart strategy, and an essential one—because the problem of climate change is almost exclusively a political in nature. Between renewable energy and more efficient engineering, the technology already exists to stave off catastrophic global warming. Though its application is lagging in the United States, it is being employed on a mass scale in other countries. In socially-stratified China, with its billion-plus population and tremendous wealth inequalities, 25 percent of the country still manages to use solar arrays to heat its water. Germany—Europe’s economic powerhouse—in less than a decade, has managed to get upwards of half of its energy from sustainable sources.

The same can happen here in America—provided we have the will to make it happen. McKibben says the key to realizing that goal is to battle the lifeblood of the fossil fuel industry—its bottom line.

To start, he’s calling for an immediate global divestment from fossil fuel companies. “We’re asking that people who believe in the problem of climate change to stop profiting from it. Just like with divestment movement in South Africa over apartheid, we need to eliminate the oil companies veneer of respectability.”

In conjunction with the divestment regimen, continued protests against unsustainable energy projects will also be crucial. McKibben will be in Washington, D.C. on November 18 to lead a mass rally against climate change and the Keystone Pipeline. “We can no longer just assume that President Obama is going to do everything he promised during his campaign. We need to push him.”

“I don’t know if we’re going to win. But I do know we’re going to fight.” More

 

Underestimating Oil and Water Challenges in the Northern Great Plains

The Northern Great Plains has become the epicenter of new oil development in the United States. New production techniques have set off an oil boom there reminiscent of the chaotic conditions over a century ago when the prospect of black gold drew developers to Texas.

Water impacts were not remotely a consideration back then. But now, unprecedented levels of drilling in this huge oil basin require the implementation of careful water management practices to protect regional resources.

Drilling takes place throughout the Great Plains’ Williston oil basin, home to the Bakken, Three Forks, and Tyler formations, reaching into the U.S. states of North Dakota, South Dakota,1 and Montana as well as Canada’s provinces of Saskatchewan and Alberta. With an estimated 7.4 billion barrels of technically recoverable oil in the United States (plus an additional 1.6 billion barrels in Canada), the Williston basin is the largest continuous oil accumulation in the country.

It is also one of the world’s most rapidly and densely developed oil plays with about 8,000 still-active wells drilled between 2006 and 2014. The United States Geological Survey (USGS) estimates that five times that number will be needed to access the total technically recoverable oil. But plans to continue producing at this rate will pose severe oil-water risks in the area.

The region’s geology and history convey unique water challenges, quite different from those in other U.S. shale formations. The sheer number of wells needed to produce the Williston creates a huge demand on freshwater for drilling, hydraulic fracturing, and maintenance. Along with oil, produced water (wastewater produced as a byproduct during oil production) is brought to the surface through these wells. Produced water yields are correlated to oil yields, so as the Williston basin’s oil production increases, produced water quantities and the associated contamination risks and disposal needs will accumulate. Further complicating the freshwater quantity demands and wastewater contamination concerns, a mosaic of state, national, and tribal borders provides potential for irregular data reporting, insufficient regulatory oversight, inconsistent rules, and inadequate contamination cleanup.

If the Williston basin is going to help supply America’s oil needs over the long term, the Northern Great Plains’ oil-water challenges must be adequately controlled and safely managed.

Continuous, Complex Geology

The Williston’s shale is relatively easy to navigate. Overlapping formations allow oil companies to extract the oil with great speed and success.

The Bakken, while it has limited amounts of conventionally pooled oil, is almost completely an unconventional shale oil play. It is comprised of three informal layers: the upper, middle, and lower. Directly beneath the Bakken lies the Three Forks formation.2 Three Forks 1, the shallowest of the formation’s four main layers, has been produced in conjunction with the Bakken for many years. Recently, however, oil companies have begun to explore some of the deeper layers, allowing them to produce at multiple depths from the same plot of land, gaining access to more oil without acquiring more land. The Tyler formation, which is much shallower than the Bakken and Three Forks formations, is located farther south, and its unconventional oil potential is just beginning to be explored.

The Bakken formation was first identified in the early 1950s, though production was initially quite slow. That changed with the advent of hydraulic fracturing—the process of injecting a high-pressure slurry of chemicals, water, and propping agents to break apart shale and allow hydrocarbons to flow out of rock formations. Innovations in this technique transformed North Dakota’s oil operations.

Since 2006, oil production has expanded exponentially into the Bakken, Three Forks, and Tyler formations along with other smaller, lesser-known formations in the area (see map). Recently, drilling horizontally to produce oil in the Tyler formation has begun though it is still uncertain if the Tyler formation will be able to transition from a somewhat successful conventional play (accessed by vertical drilling) into a strong continuous play, produced by replicating new techniques used in the Bakken.

Companies aim to further reduce the space between wells to maximize access to oils at different depths from the same acreage. Leases that had only one well before may now have up to eight. As seen in Kodiak Oil & Gas Corp’s, Continental Resources Inc.’s, and other companies’ plans, there could be 14–34 wells per 1,280 acre lease.5 Wells are drilled and fracked more quickly and more cheaply as technology advances allowing companies to expand and increase their water demands rapidly.

The drilling process demands some water, but the hydraulic fracturing process and the water used to clean the well over its lifetime account for most of the water consumed during oil extraction. A single well fracking in the Williston averages 2 million gallons of water. Refracking wells two to three times, which is now common practice in the Williston, demands proportionately more freshwater than one-time fracking seen in other basins. And while some of the water used to clean wells can be reused as the base fluid for new fracking projects, new freshwater is required for each maintenance flush.

Getting to the Water Sources

With so much freshwater required to boost oil production, the question is: Where will the water come from? A range of resources can be found in the Northern Great Plains’ geology, including bedrock aquifers at many depths, glacial aquifers, the Missouri River winding through Montana and North Dakota, and Lake Sakakawea, a reservoir on the Missouri. These water resources vary markedly, and their characteristics must be used to determine how much water and which water the states can afford to permit oil companies to acquire, directly and indirectly.6

Making the situation more complicated, while the area may have ample water supplies, many rural citizens do not have secure access to them. The region currently struggles with fresh groundwater scarcity, low precipitation, minimal water infrastructure making transporting water extremely difficult, and federal restrictions regarding the use of the Missouri River and Lake Sakakawea as surface water sources.

Overdrawn Aquifers

Confined bedrock aquifers of varying water quality underlie the Williston basin, some of which are artesian aquifers that flow to the surface without the need for electrical pumps, a boon in remote locations that must be protected.

The slightly saline Fox Hills–Hell Creek aquifer (noted with diagonal orange lines on the map) is the only groundwater source capable of consistently producing large amounts of freshwater. As a result, it is overdrawn. Although rarely a drinking water source because of its relatively high concentration of total dissolved solids, (2,500 milligrams per liter), it is a major source for industrial, livestock, and residential use.7

Overuse has caused rapid long-term reduction in aquifer pressure by 1 to 2 feet per year. As a result, some of the artesian wells drawing from the Fox Hills–Hell Creek aquifer have stopped flowing and more will dry up in the future. Using this aquifer solely for domestic and livestock purposes and forcing industry to find other sources of water has been discussed, but stronger action may be needed.

Difficult-to-Manage Aquifers

Glacial aquifers, formed as glaciers melted and receded leaving permeable sediment behind, can be found in drainage system patterns throughout North Dakota and Montana. These aquifers, usually less than a few hundred feet deep, can be much more productive than bedrock aquifers, often with lower total dissolved solids concentrations. Their high flow rates mean water spends shorter times within the aquifer dissolving and accumulating salts and minerals. Thus, these aquifers often tend to be the only source of irrigation-quality groundwater in the area. High flow rates, however, lead to difficulty managing the resource, as discharge can happen quickly while recharge rates are variable and uncertain.

Tapping Lakes and Rivers

The most reliable sources of surface water in the area are the Missouri River and its reservoir, Lake Sakakawea. Much of the water currently used for hydraulic fracturing in North Dakota and Montana comes from the Missouri River.

Without depending on water withdrawal from lakes and rivers, it will be impossible to meet the upward trend of oil production without harming the Northern Great Plains’ aquifers and tributary streams. So, as industry demands rise, oil companies are pushing back on the U.S. Corps of Engineers’ (USCOE) 2010 moratorium that prevents lake-water access permits. North Dakota law makes the state water commission responsible for issuing permits for Lake Sakakawea water use, but the USCOE is the only power that can grant permission to access the lake for water diversion. The moratorium was put in place temporarily while the USCOE determined what price to charge for Missouri River water stored behind its dam. Over time, however, the moratorium has morphed into a 100,000 acre foot per year temporary permitting limit, with no storage fee applicable until the USCOE approves a water price.

The oil industry would benefit from permanent access to Lake Sakakawea at little or no cost, but such an arrangement would not be durable. The millions of gallons each well uses over its lifetime would necessitate many new infrastructure investments to transport Lake Sakakawea’s water throughout the basin. These oil-water commitments would also impact local residents’ future higher-priority needs.

Oil companies in eastern Montana do not currently have access to Lake Sakakawea, instead depending on the Missouri River as a surface water resource, even though many of its tributaries are over-appropriated. The Yellowstone River, which cuts through parts of the Williston basin, is also a potential water source for the oil industry; however, some stretches are closed off to new appropriations, and temporal variation in flow causes the river to be over-appropriated at times. While finding cheap and accessible water may be difficult in Montana, the oil industry’s surface water (and groundwater) needs there pale in comparison to the struggles facing North Dakota, where the majority of drilling occurs.

The Salt Problem

All this is particularly problematic because the Northern Great Plains contains large volumes of highly saline water. This water—up to ten times the salinity of ocean water—is housed in the same rocks that trap oil in the Williston basin. When pumped out with the oil, this produced water must be treated as waste.

Once production begins, a well operator begins pumping out the fluid used to frack the well along with highly saline produced water and oil. This continues through the well’s lifetime—with volumes of these three fluids changing dramatically over the lifetime of the well, the amount of fracking fluid recovered at the surface dropping off dramatically in the days following fracking, and the ratio of produced water to oil increasing as the well ages. Produced water from the Bakken formation also contains toxic metals and radioactive substances and can measure up to 300,000 milligrams per liter of total dissolved solids.

Most of the produced water in the Williston is transported to Class II injection wells (see blue dots on map) for disposal. Injecting this water deep underground can prevent ground and surface water contamination, if done properly. Proper disposal is important because spills and contamination in the Williston basin are far more damaging than mishandlings of less saline produced waters from other U.S. basins.

One possibility for contamination in the Northern Great Plains arises during produced water transport—by truck and underground pipeline—to its injection site. With trucks and pipelines covering long distances between the producing well and the Class II injection well, the potential to spill oil and produced water arises. Truck spills may be obvious, but pipeline spills may go unnoticed as any evidence remains underground for some time.

Contamination of water resources can also be caused by spilling oil or produced water through operator error, illegal dumping, well blowouts, and flooding (sometimes caused by ice jams or heavy rains). Produced water spills are a far greater concern than oil spills because they spread much more rapidly and salts disperse quickly through surface or ground water. Spills’ boundaries are rarely well defined and oil and produced water can saturate any permeable soil near the spill, including by migrating beyond state or reservation borders.

Glacial aquifers in particular, with their fast recharge rates, can be quickly contaminated by surface spills, especially from produced water. Successful management of glacial aquifers is vital to protect one of the Williston’s only sources of high quality groundwater.

The Williston basin region has experienced sizeable spills since the oil industry boomed in the mid-2000s. North Dakota’s largest and most damaging saltwater spill occurred in 2006 when a Zenergy pipeline failed, releasing more than 1 million gallons of saltwater into Charbonneau Creek (a Yellowstone River tributary). The pipeline didn’t have a monitoring system to record the pressure drop or the differential between input and output quantity that would have quickly notified the company of the leak. Eight years later, Zenergy is still remediating, and efforts are expected to continue into the future.8

Problems also stem from practices long past. The Northern Great Plains is just now seeing the effects of contamination from oil production that began over fifty years ago. According to a USGS report, the city of Poplar in the Fort Peck Reservation has never been able to pinpoint the precise source(s) of contamination on its territory (beyond linking it to oil field contamination) that has damaged upwards of 37 billion gallons of water in its shallow aquifers. Three thousand residents depend on these aquifers as their sole sources of water. The EPA reached an agreementwith the three oil companies they deemed responsible, and these companies must now monitor Poplar’s public water supply monthly, provide treatment or an alternate water source for any degraded water quality, and cover the city’s $320,000 cost to identify safer water sources and relocate public water infrastructure. It has taken a half-century since initial contamination for stakeholders to experience its consequences because of the slow speed at which contamination travels in the subsurface. This contamination acts as a warning that the negative effects of oil production may take many years to come to light.

Beyond contamination, the high concentrations of salt in Williston produced water routinely builds up on equipment, damaging it and restricting oil flow. To prevent this salt buildup, oil companies use maintenance water—freshwater treated with biocides—to flush wells. Over a well’s thirty-year lifetime, almost 9 million gallonsof additional water may be used to remove the oil-restricting salt buildup.

Oil-production-related water contamination plagues all oil fields but, because of the Williston basin’s high salt content, water spills in eastern Montana and western North Dakota are especially dangerous to the environment and the people dependent on local water for their drinking, domestic, irrigation, and livestock water needs. Comprehensive regulations could help mitigate the risks, but protecting water resources in this area will be an ongoing challenge in the Williston basin.

Reporting Issues and Regulatory Confusion

Data on oil production in the Williston basin are extensive, but underreporting is a growing concern. Some counties do not report any produced water despite highly productive oil wells, and it remains unclear as to whether the Fort Peck Reservation reports its produced water. There are also loopholes in reporting spills and contamination events. Accuracy varies depending on the regulator and extent of regulatory oversight.9

A new online tool helps navigate oilfield-related spills in North Dakota, of which, until now, the public was rarely informed. But companies can report “no” water spilled when the actual amount discharged is unknown. Wells can be listed as confidentialfor up to six months after drilling begins, reporting no spill information to the public except in rare cases. Montana does not even maintain an electronic database, and the state government records spill information only on paper, making spill and contamination research more difficult. This means that rural residents do not have easy access to the history of contamination and the presence of spills in the area in which they live.

 

How Saudi Arabia Helped Isis Take Over the North of Iraq

How far is Saudi Arabia complicit in the Isis takeover of much of northern Iraq, and is it stoking an escalating Sunni-Shia conflict across the Islamic world?

Some time before 9/11, Prince Bandar bin Sultan, once the powerful Saudi ambassador in Washington and head of Saudi intelligence until a few months ago, had a revealing and ominous conversation with the head of the British Secret Intelligence Service, MI6, Sir Richard Dearlove. Prince Bandar told him: “The time is not far off in the Middle East, Richard, when it will be literally ‘God help the Shia’. More than a billion Sunnis have simply had enough of them.”

The fatal moment predicted by Prince Bandar may now have come for many Shia, with Saudi Arabia playing an important role in bringing it about by supporting the anti-Shia jihad in Iraq and Syria. Since the capture of Mosul by the Islamic State of Iraq and the Levant (Isis) on 10 June, Shia women and children have been killed in villages south of Kirkuk, and Shia air force cadets machine-gunned and buried in mass graves near Tikrit.

In Mosul, Shia shrines and mosques have been blown up, and in the nearby Shia Turkoman city of Tal Afar 4,000 houses have been taken over by Isis fighters as “spoils of war”. Simply to be identified as Shia or a related sect, such as the Alawites, in Sunni rebel-held parts of Iraq and Syria today, has become as dangerous as being a Jew was in Nazi-controlled parts of Europe in 1940.

There is no doubt about the accuracy of the quote by Prince Bandar, secretary-general of the Saudi National Security Council from 2005 and head of General Intelligence between 2012 and 2014, the crucial two years when al-Qa’ida-type jihadis took over the Sunni-armed opposition in Iraq and Syria. Speaking at the Royal United Services Institute last week, Dearlove, who headed MI6 from 1999 to 2004, emphasised the significance of Prince Bandar’s words, saying that they constituted “a chilling comment that I remember very well indeed”.

He does not doubt that substantial and sustained funding from private donors in Saudi Arabia and Qatar, to which the authorities may have turned a blind eye, has played a central role in the Isis surge into Sunni areas of Iraq. He said: “Such things simply do not happen spontaneously.” This sounds realistic since the tribal and communal leadership in Sunni majority provinces is much beholden to Saudi and Gulf paymasters, and would be unlikely to cooperate with Isis without their consent.

Dearlove’s explosive revelation about the prediction of a day of reckoning for the Shia by Prince Bandar, and the former head of MI6′s view that Saudi Arabia is involved in the Isis-led Sunni rebellion, has attracted surprisingly little attention. Coverage of Dearlove’s speech focused instead on his main theme that the threat from Isis to the West is being exaggerated because, unlike Bin Laden’s al-Qa’ida, it is absorbed in a new conflict that “is essentially Muslim on Muslim”. Unfortunately, Christians in areas captured by Isis are finding this is not true, as their churches are desecrated and they are forced to flee. A difference between al-Qa’ida and Isis is that the latter is much better organised; if it does attack Western targets the results are likely to be devastating.

The forecast by Prince Bandar, who was at the heart of Saudi security policy for more than three decades, that the 100 million Shia in the Middle East face disaster at the hands of the Sunni majority, will convince many Shia that they are the victims of a Saudi-led campaign to crush them. “The Shia in general are getting very frightened after what happened in northern Iraq,” said an Iraqi commentator, who did not want his name published. Shia see the threat as not only military but stemming from the expanded influence over mainstream Sunni Islam of Wahhabism, the puritanical and intolerant version of Islam espoused by Saudi Arabia that condemns Shia and other Islamic sects as non-Muslim apostates and polytheists.

Dearlove says that he has no inside knowledge obtained since he retired as head of MI6 10 years ago to become Master of Pembroke College in Cambridge. But, drawing on past experience, he sees Saudi strategic thinking as being shaped by two deep-seated beliefs or attitudes. First, they are convinced that there “can be no legitimate or admissible challenge to the Islamic purity of their Wahhabi credentials as guardians of Islam’s holiest shrines”. But, perhaps more significantly given the deepening Sunni-Shia confrontation, the Saudi belief that they possess a monopoly of Islamic truth leads them to be “deeply attracted towards any militancy which can effectively challenge Shia-dom”.

Western governments traditionally play down the connection between Saudi Arabia and its Wahhabist faith, on the one hand, and jihadism, whether of the variety espoused by Osama bin Laden and al-Qa’ida or by Abu Bakr al-Baghdadi’s Isis. There is nothing conspiratorial or secret about these links: 15 out of 19 of the 9/11 hijackers were Saudis, as was Bin Laden and most of the private donors who funded the operation.

The difference between al-Qa’ida and Isis can be overstated: when Bin Laden was killed by United States forces in 2011, al-Baghdadi released a statement eulogising him, and Isis pledged to launch 100 attacks in revenge for his death.

But there has always been a second theme to Saudi policy towards al-Qa’ida type jihadis, contradicting Prince Bandar’s approach and seeing jihadis as a mortal threat to the Kingdom. Dearlove illustrates this attitude by relating how, soon after 9/11, he visited the Saudi capital Riyadh with Tony Blair.

He remembers the then head of Saudi General Intelligence “literally shouting at me across his office: ’9/11 is a mere pinprick on the West. In the medium term, it is nothing more than a series of personal tragedies. What these terrorists want is to destroy the House of Saud and remake the Middle East.’” In the event, Saudi Arabia adopted both policies, encouraging the jihadis as a useful tool of Saudi anti-Shia influence abroad but suppressing them at home as a threat to the status quo. It is this dual policy that has fallen apart over the last year.

Saudi sympathy for anti-Shia “militancy” is identified in leaked US official documents. The then US Secretary of State Hillary Clinton wrote in December 2009 in a cable released by Wikileaks that “Saudi Arabia remains a critical financial support base for al-Qa’ida, the Taliban, LeT [Lashkar-e-Taiba in Pakistan] and other terrorist groups.” She said that, in so far as Saudi Arabia did act against al-Qa’ida, it was as a domestic threat and not because of its activities abroad. This policy may now be changing with the dismissal of Prince Bandar as head of intelligence this year. But the change is very recent, still ambivalent and may be too late: it was only last week that a Saudi prince said he would no longer fund a satellite television station notorious for its anti-Shia bias based in Egypt.

The problem for the Saudis is that their attempts since Bandar lost his job to create an anti-Maliki and anti-Assad Sunni constituency which is simultaneously against al-Qa’ida and its clones have failed.

By seeking to weaken Maliki and Assad in the interest of a more moderate Sunni faction, Saudi Arabia and its allies are in practice playing into the hands of Isis which is swiftly gaining full control of the Sunni opposition in Syria and Iraq. In Mosul, as happened previously in its Syrian capital Raqqa, potential critics and opponents are disarmed, forced to swear allegiance to the new caliphate and killed if they resist.

The West may have to pay a price for its alliance with Saudi Arabia and the Gulf monarchies, which have always found Sunni jihadism more attractive than democracy. A striking example of double standards by the western powers was the Saudi-backed suppression of peaceful democratic protests by the Shia majority in Bahrain in March 2011. Some 1,500 Saudi troops were sent across the causeway to the island kingdom as the demonstrations were ended with great brutality and Shia mosques and shrines were destroyed.

An alibi used by the US and Britain is that the Sunni al-Khalifa royal family in Bahrain is pursuing dialogue and reform. But this excuse looked thin last week as Bahrain expelled a top US diplomat, the assistant secretary of state for human rights Tom Malinowksi, for meeting leaders of the main Shia opposition party al-Wifaq. Mr Malinowski tweeted that the Bahrain government’s action was “not about me but about undermining dialogue”.

Western powers and their regional allies have largely escaped criticism for their role in reigniting the war in Iraq. Publicly and privately, they have blamed the Iraqi Prime Minister Nouri al-Maliki for persecuting and marginalising the Sunni minority, so provoking them into supporting the Isis-led revolt. There is much truth in this, but it is by no means the whole story. Maliki did enough to enrage the Sunni, partly because he wanted to frighten Shia voters into supporting him in the 30 April election by claiming to be the Shia community’s protector against Sunni counter-revolution.

But for all his gargantuan mistakes, Maliki’s failings are not the reason why the Iraqi state is disintegrating. What destabilised Iraq from 2011 on was the revolt of the Sunni in Syria and the takeover of that revolt by jihadis, who were often sponsored by donors in Saudi Arabia, Qatar, Kuwait and United Arab Emirates. Again and again Iraqi politicians warned that by not seeking to close down the civil war in Syria, Western leaders were making it inevitable that the conflict in Iraq would restart. “I guess they just didn’t believe us and were fixated on getting rid of [President Bashar al-] Assad,” said an Iraqi leader in Baghdad last week.

Of course, US and British politicians and diplomats would argue that they were in no position to bring an end to the Syrian conflict. But this is misleading. By insisting that peace negotiations must be about the departure of Assad from power, something that was never going to happen since Assad held most of the cities in the country and his troops were advancing, the US and Britain made sure the war would continue.

The chief beneficiary is Isis which over the last two weeks has been mopping up the last opposition to its rule in eastern Syria. The Kurds in the north and the official al-Qa’ida representative, Jabhat al-Nusra, are faltering under the impact of Isis forces high in morale and using tanks and artillery captured from the Iraqi army. It is also, without the rest of the world taking notice, taking over many of the Syrian oil wells that it did not already control.

Saudi Arabia has created a Frankenstein’s monster over which it is rapidly losing control. The same is true of its allies such as Turkey which has been a vital back-base for Isis and Jabhat al-Nusra by keeping the 510-mile-long Turkish-Syrian border open. As Kurdish-held border crossings fall to Isis, Turkey will find it has a new neighbour of extraordinary violence, and one deeply ungrateful for past favours from the Turkish intelligence service.

As for Saudi Arabia, it may come to regret its support for the Sunni revolts in Syria and Iraq as jihadi social media begins to speak of the House of Saud as its next target. It is the unnamed head of Saudi General Intelligence quoted by Dearlove after 9/11 who is turning out to have analysed the potential threat to Saudi Arabia correctly and not Prince Bandar, which may explain why the latter was sacked earlier this year.

Nor is this the only point on which Prince Bandar was dangerously mistaken. The rise of Isis is bad news for the Shia of Iraq but it is worse news for the Sunni whose leadership has been ceded to a pathologically bloodthirsty and intolerant movement, a sort of Islamic Khmer Rouge, which has no aim but war without end.

The Sunni caliphate rules a large, impoverished and isolated area from which people are fleeing. Several million Sunni in and around Baghdad are vulnerable to attack and 255 Sunni prisoners have already been massacred. In the long term, Isis cannot win, but its mix of fanaticism and good organisation makes it difficult to dislodge.

“God help the Shia,” said Prince Bandar, but, partly thanks to him, the shattered Sunni communities of Iraq and Syria may need divine help even more than the Shia. More