Commentary by Eric Wilder – Today marks the end of the busiest year ever for storms in the Atlantic Ocean.  Marking this record year is newly-formed Tropical Storm Zeta that ties the record for the latest tropical storm formed in the Atlantic – fully thirty days after the official end of storm season – since record keeping began.

Zeta is a harbinger of what forecasters say is an approaching decade of unusually active storm seasons.  This prediction holds adverse ramifications for energy marketers, consumers and inhabitants of the states abutting the Gulf of Mexico.  http://www.ericwilder.com

 

  Here is a picture of Jeems Bayou taken this past October.  Some of the vegetation had begun to turn even though it was in the 90’s on this particular day.  Jeems (pronounced James) Bayou begins in Cass County, Texas.  This picture was taken very close to the Texas border and not far from Trees City, Louisiana.  Many big oil wells were found near this bayou in the early days of Louisiana oil exploration.

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Commentary by Eric Wilder – Energy markets are generally more volatile during winter months than summer or spring.  This year’s chaotic hurricane season helped rewrite this scenario.  Record high natural gas futures have lost more than $3 per MCF in the last three sessions and there are two reasons for this drop in price: 1) a continuing spate of mild weather and 2) light trading at year end.

Natural gas in storage has declined 364 BCF since the December 1 report.  The EIA will release updated natural gas storage figures tomorrow and we’ll likely see another sizeable decline.  Barring unforeseen longterm cold weather throughout most of the country, we will have plenty of natural gas to get us through the winter.

Marketers are wary, though.  After Katrina, no one was expecting Hurricane Rita.  Still, the witching date is near and January natural gas prices should close on a happy note for consumers.  http://www.ericwilder.com  http://justeastofeden.blogharbor.com

Commentary by Eric Wilder – Russia is the largest non-OPEC crude oil exporter and has had relations in the past with OPEC.  OPEC just announced it would begin meeting with Russia on a yearly basis to coordinate policies.  Russian minister of industry and energy, Viktor Khristenko and Sheik Ahmad Fahad Al Ahmed al-Sabah, outgoing president of OPEC, recently met in Moscow.  The announcement of the agreement between Russia and OPEC was issued after the meeting.

OPEC’s daily production capacity has been perceived lately as unable to keep up with world demand.  This has reduced their former inherent ability to influence crude oil prices by simply announcing a cut or increase in their daily output.  The new agreement is possibly an attempt to bolster its diminished influence on the energy market.  By joining with Russia, OPEC would control a greater percentage of the world’s daily production of crude oil and give them greater control over price fluctuations.  The agreement also has positive ramifications for Russia.

Is Russia joining OPEC?  As a member, no.  As an ongoing partner, absolutely.

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Happy holidays to everyone from Energy Issues and Eric Wilder.

  A crew of Cities Service surface geologists.

In the early days of oil exploration, explorers had many reasons for drilling a well at a certain location.  If someone found oil, the leases around that well would suddenly become more valuable and other operators would try to drill as close as they could to a producing well.  The technique is still practiced and is known in the business as “closeology.”  During the seventies and eighties Texas Oil and Gas Corp. would sidle up as close as legally possible to a producing well.  This practice is called “corner shooting” and TXO earned a reputation as corner-shooting kings.  A reputation that was not always good.  Well, that’s a story for another time.

Before the days of seismology and other geophysical exploration techniques, operators would often drilled near an oil seep, or on the crest of a hill.  Harry Sinclair, the founder of Sinclair oil was very superstitious and liked to drill near cemeteries.  He had a lot of luck finding oil that way.

Cities Service Oil was the first company to hire geologists to try and find oil.  Using surface mapping techniques, this band of geologists found literally millions of barrels of oil.  This includes the El Dorado, the largest oil field in Kansas, and the Oklahoma City Field, the largest oil field in Oklahoma and at one time the world.

When I began working as an exploration geologist for Cities Service in the 70’s the company had many maps of surface features that they had never gotten around to drilling.  They also still had a surface geologist that worked in Tulsa.  Ernie Tisdale was a wonderful man and geologist but a throwback to an earlier period of exploration.  I was working Kansas at the time, along with another geologist named Dave Forth.  While digging through a stack of old maps one day we came across an undrilled surface structure in Elk County, Kansas.  It was decided that Ernie, Dave and I would drive to Kansas and check out the surface structure in person.

Elk is a rural county in far southeastern Kansas.  We spent the night in Elk City in an old wooden, two-story hotel.  While eating at a local cafe, Ernie recounted a story about two Cities Service “lease hounds” that used to work the area.

The geological crews and leasing crews all stayed in the same rustic hotel as the one we were staying in that night.  Yes, the building was very old.  There was no fire escape from the second floor, only a rope outside every window that extended to the ground below.  The two landmen, I’ll call them Ted and Joe because I can’t remember their real names, were partners but different as proverbial night and day.  Ted was quiet, a teetotaler and a minder of his own business.  Joe was anything but.

Joe was also quite the practical joker and Ted the usual butt of his jokes.  He told Ted that the owner had explained how afraid of fire he was and that the old wooden building was in constant danger of burning.  Later, long after Ted had retired for the night, Joe banged on his door yelling, “Get the hell out.  The stairwell’s on fire.  Climb out the window or you’ll be burned alive.”  Much to the glee of his partner Joe. Ted shimmied down the rope with nothing on but his skivvies.  Joe, fairly inebriated by this time, met Ted at the front door, still rolling with laughter.

That night I slept lightly, waiting for someone to bang on my door.  Thankfully, neither Ernie nor Dave was a jokester like Joe had been.

We spent the next day checking out the undrilled surface feature.  The structure was there all right, just as it had been mapped in the 1920’s.  Maybe a million barrels of untapped oil.  We proposed a well and Cities bought leases and agreed to drill the structure.  Alas, the prospect was never drilled and it remains undrilled to this day.  The map is probably locked away somewhere in a warehouse in California.  Still, I’m thankful for experiencing at least some of the excitement early wildcatters must have felt when deciding to drill a well at a particular location.

Wildcatters such as Frank Phillips and Harry Sinclair found large fields, amassed untold fortunes and are now famous.  There were many other explorers such as Ernie, Ted and Joe that aren’t remembered but played as great a role as any in finding the oil that made this nation what it is today.  Such is the legacy of early Oklahoma oil exploration.  http://www.ericwilder.com   http://justeastofeden.blogharbor.com

Commentary by Eric Wilder – Estimates released today by the EIA suggest we are on track to begin 2006 with the lowest volume of natural gas in storage ever.  The problem is three-fold. 1) One third of the nation’s production of natural gas comes from the Gulf of Mexico and much of the infrastructure destroyed by the worst hurricane season on record is still not repaired and back on line.  2) U.S. Production of natural gas is declining.  3) U.S. demand for natural gas is increasing.

On a positive note, the present high price of natural gas is spurring exploration.  Present drilling activity is limited only by lack of equipment and warm bodies.  This will likely change for the good as long as prices remain near record levels.

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Commentary by Eric Wilder – China continued today acquiring oil and natural gas properties around the world.  Joined by India’s Oil and Natural Gas Corp., China National Petroleum Corp. agreed to buy the Syrian assets of Petro-Canada for about $574 million dollars.

China’s CNOOC Ltd. failed to win a bid earlier this year for U.S. owned UNOCAL.   China National Petroleum did, however, acquire PetroKazakhstan Inc. in a multi-billion dollar trade.

World oil marketers have taken notice.  This is a tacit sign that China with the fastest growing economy on the face of the earth believes that crude oil has peaked and the easiest way to secure a supply is to purchase it from existing sources.  This is alarming because state supported oil companies can pay a premium for reserves giving them an advantage over large private oil companies.  Such state supported purchases of existing crude oil reserves can only result in continued crude oil price escalation.

Worried about the weather, marketers must now wonder about the effect on crude prices as China’s thirst for oil remains far from quenched.  http://www.ericwilder.com   http://justeastofeden.blogharbor.com   http://ericwilder.blogspot.com

 

  A wooden oil well, circa 1915, Trees City, Louisiana.  The man on the right is Big Jim O’Rear, Great Uncle of Eric Wilder.  http://www.ericwilder.com   http://energyissues.blogharbor.com

Oklahoma holds the record for the deepest well ever drilled in the United States.  The GHK Co. 1–27 Bertha Rogers located in Washita County, Oklahoma was the former world’s deepest hole.  This well reached a depth of 31,441 feet where it encountered molten sulfur that melted the drill pipe and forced the end of drilling.

It took GHK two years to reach 31,441 feet, a depth of almost six miles.  During drilling, the well encountered enormous pressure – almost 25,000 psi.  No commercial hydrocarbons were found and the well was plugged and abandoned.

The Soviets began drilling a well in Russia in 1970 that is now over 40,000 feet deep.  The well is the deepest hole on earth though the Bertha Rogers remains the second deepest.

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  A wooden oil derrick, circa 1915, Trees City Oil Field, Louisiana.  http://www.ericwilder.com   http://justeastofeden.blogharbor.com

 Eric Wilder’s Grandfather on a wooden drilling rig near Tree’s City, Louisiana.  The picture was taken around 1915.

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Commentary by Eric Wilder – Natural gas reached $15.78 per MCFG on the New York Mercantile Exchange today – an all-time high price.  The reasons are weather related.  As much as one third of this country’s daily production of natural gas remains shut-in in the Gulf of Mexico because of Hurricanes Rita and Katrina.  This weather-related shortage is exascerbated by unusually cold weather the U.S. is experiencing so early in the heating season.

Last week’s reported natural gas in storage would normally be plenty to get the U.S. through the heating season with no shortages.  This year is different.  Hurricanes and unseasonably cold weather could combine to produce shortages and energy outages before the end of the heating season.  Until spring, marketers will remain jittery and natural gas prices are likely continue climbing.  http://www.ericwilder.com   http://justeastofeden.blogharbor.com 

Commentary by Eric Wilder – The Energy Information Administration bureau of the Department of Energy released a sobering projection today concerning the future price of crude oil.  Only one year ago the EIA predicted crude oil would only average $31 per barrel, adjusted to inflation, by the year 2025.  They now predict the price of oil will remain around $50 per barrel, adjusted for inflation, for years to come.

What caused the EIA’s radical increase in the future price of oil?  It is a fact that demand for crude oil is increasing yearly.  Rapidly developing nations led by China, and including Pakistan and India, are demanding a bigger share of the world’s daily production of oil.  Even the EIA projects a demand of 111 million barrels of oil per day by the year 2025.  Some, myself included, think the production of crude oil has peaked and will never reach 111 million barrels per day.

Consider this: crude oil production peaked in Oklahoma in the 1920’s and in the U.S. in the 1970’s.  Since 1974, the U.S. has produced less crude oil every year.  The last giant oil field discovered in the U.S. was Prudhoe Bay, a field now in the latter stages of maturity.  The world’s five largest oil fields were all found prior to the mid 1980’s.  No new super giant oil field has been found in the last decade that will replace the oil we are presently consuming.

One more fact: the giant Oklahoma City Field, once the largest in the world, will ultimately produce less than one billion barrels of oil.  What does that mean?  It means that the former largest oil field in the world would only supply the world’s need for about 1/3 of a year, and that’s at today’s rate of consumption.

Today’s EIA revised upward price projection is a welcome breath of fresh air for an agency and country that has previously acted like the proverbial ostrich.    There’s still a problem.  Faced with the facts of increasing world demand and virtually static supply, blithely proclaiming that the world’s daily production of oil in 2025 will meet the demand of 111 million barrels is flying in the face of reality.

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With the price of gasoline increasing at the pump, the cry for an alternative fuel continues to increase. Is there such a fuel on the horizon and could it possibly be hydrogen? The answers lie in a look at the hydrogen fuel cell.

A fuel cell, like a storage battery, generates a flow of electricity. Unlike a storage battery, the fuel cell continues to generate electricity as long as it has fuel. The concept is simple. An anode, or negative electrode, and a cathode, or positive electrode, fit around an electrolyte. The anode is supplied with hydrogen and the cathode with oxygen. A catalyst separates the hydrogen atoms into protons and electrons. These follow different paths to the cathode, the electrons through an external circuit resulting in a flow of electricity. The protons travel through the electrolyte to the cathode. There, they reunite with oxygen and electrons producing water and heat.

Hydrogen is the most abundant element on earth. Water and heat are the only by-products, so, unlike burning hydrocarbons, the process is clean and forms no greenhouse gases. At first blush, the hydrogen fuel cell sounds like the panacea we seek to combat global warming and rising gasoline prices. Although the concept is simple, there are problems.

1). Hydrogen is abundant, but almost always found in molecules with other elements, and not in its elemental stage. Presently, the cheapest way to produce hydrogen is by burning natural gas and this provides no answer to global warming or the Nation’s energy problem. Other methods for producing hydrogen exist but are far more expensive than simply burning gasoline.

2). Hydrogen is a gas, a highly explosive gas (remember the Hindenburg?). How do we store it safely in a vehicle without producing a freeway filled with potential Molotov cocktails?

3). No container yet developed can fully contain hydrogen, nor totally prevent it from leaking.

4). Fuel tanks would have to be enormous to provide fuel for even short distances.

There are no easy answers to any of the problems facing the development of the hydrogen fuel cell. At the cost of well over a million dollars per copy, hydrogen powered vehicles already exist. Hydrogen, while abundant, would cost more to convert to its elemental form than simply using gasoline. Hydrogen is dangerous and all but impossible to store, safely or otherwise.

We don’t at this time have the technology to produce a hydrogen-powered vehicle that could compete economically with a gasoline-powered vehicle. Some predict this technology is still decades in the future. While promising, the hydrogen fuel cell isn’t the answer to our present energy situation.

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Commentary by Eric Wilder – Natural gas prices on the New York Mercantile Exchange reached a record of $15.10 per MCFG today before settling at $14.994.  Prices should have fallen after the EIA released figures indicating we either consumed less gas or put more into storage this year than we did for the same time period last year.  Savvy traders weren’t buying it.

A major winter storm is threatening the northeast and setting record low temperatures in other parts of the country.  Traders also know that fully one third of the natural gas production in the Gulf of Mexico is still shut-in because of Hurricanes Rita and Katrina.  They also know their have been no new monster domestic gas discoveries reported recently.

Despite optimistic storage figures that seem to belie our own eyes, smart marketers are keeping their own counsel.  As long as they do and the weather stays cold, natural gas prices will continue to soar.

http://www.ericwilder.com   http://justeastofeden.blogharbor.com

Commentary by Eric Wilder – China appeared on the energy radar screen earlier this year when it made a bid to buy the American oil company UNOCAL.  Though unsuccessful, the bid highlighted several facts:  1) China is second only to the U.S. in consumption of fossil fuels, 2) China has the fastest growing major economy in the world and, 3) China is rapidly becoming a major competitor to the U.S. in the exploration for fossil fuels.

CNOOC Ltd. announced Tuesday that its parent company, China National Offshore Oil Corp., has signed a partnership with Canadian company Husky Energy Inc. to drill a deep exploratory well in the South China Sea about 185 miles south of Hong Kong.  If successful, it would become China’s first deep-water offshore oil field.  CNOOC Ltd. also has similar agreements with Oklahoma-based oil companies Kerr-McGee and Devon Energy.

CNOOC’s announcement exemplifies the world’s energy conundrum – there is a finite amount of crude oil available for consumption while the demand for the product is suddenly soaring.  The price of crude oil is up today on the news of continued cold weather in the U.S.  Marketers should take heed that there is yet another factor controlling the upward price of crude – an Asian giant thirsty for oil.

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Commentary by Eric Wilder – The EIA reported today that crude oil inventories recovered somewhat from last week’s 4.2 million barrel drop.  According to the agency, 2.7 million barrels were added to the nation’s inventory last week.

Crude oil prices on the New York Mercantile Exchange dropped briefly on the news but rose again over $60 per barrel by 10 CST.  This is partially because extremely cold weather is encompassing much of the U.S.  Morning temperatures in Oklahoma City fell to 11 degrees and snow is predicted.  There are other factors at work in the market.

Last week the EIA issued an ominous news release stating that domestic production of oil has fallen below 5 million barrels per day and imports below 10 million barrels per day — below the 15 million barrels per day needed by refineries to assure adequate production of gasoline and heating oil.  The agency did not say why imports had fallen but implied something less than 10 million barrels of oil per day was all that is available to purchase.

Last week’s EIA report was unusually pessimistic for an agency that almost always portrays the positive side of the petroleum market.  Like today’s weather, the report was chilling.

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