This year's fall in energy prices is hastening the decline of big oil, as the seven Western majors sell-off assets, cut investment, return money to shareholders and shrink in size, leaving ever more output to small producers and state firms.
Companies that were already deep in the red when the price of Brent was at $109 a barrel last year are having to redraw business plans for prices as low as $90. With promised shareholder dividends probably untouchable for now, they will have to divest, cut costs and borrow more against a smaller business just to make ends meet.
And unlike in previous downturns, they are no longer big enough to ensure that their own cutbacks will drive prices and profits back up. According to Morgan Stanley analysts, the seven majors - Royal Dutch Shell, BP, Exxon Mobil, Chevron, Total and Statoil - ran a collective deficit of $55 billion last year. They generated $207 billion of operating cash flow but invested $209 billion in capital expenditure and returned $53 billion to shareholders in dividends.Later in the article:
In 2003, Exxon, Shell, BP, Total, Chevron and Eni produced 11.5 million barrels of oil liquids per day, or 14.5 percent of global output of 79.6 million bpd. Fast forward 10 years and their smaller output of 9.5 million bpd is equivalent to only 10.4 percent of larger global production of 91.6 million bpd.
"Oil majors have very little leverage over actual oil prices today," said Jason Gammel, analyst at Jefferies.
Meanwhile the engine of today's growth in oil output - the U.S. shale oil boom - is driven mainly by mid-sized and small producers such as Anadarko, Apache, Occidental and Devon, rather than the majors.
And technology improves so fast on U.S. fields that what looked uneconomical two years ago looks economical today, even with lower prices. According to an analysis from Barclays, 90 percent of production from the U.S. Bakken province will still be profitable even if oil prices fall to $60 per barrel.
A Note to the Granddaughters
[Update, 1:31 p.m. CDT: Can you believe this -- what incredibly coincidental timing:
Satellite sees hot spot of methane in US Southwest. Just hours after posting the note below, the linked story is posted Who wudda thought?]
It's hard to believe I actually mentioned Judith Nies' Unreal City: Las Vegas, Black Mesa, and the Fate of the West, c. 2014, on three separate occasions.
For my conservative friends and readers, be forewarned: Judith Nies writes for The New York Times, The Boston Globe, and Harvard Review. She has an agenda.
I wrote the following in an e-mail to a reader who wrote to tell me he appreciated the recommendation (I hope he was not being sarcastic). He was much more cognizant of the author's agenda, something I initially missed and did not notice until the second or third chapter.
I was suckered a bit into reading it -- from the title. I did not know the author's background, and I did not pay attention to Bill McKibben's endorsement of the book until I had read it. His endorsement led the list of endorsements on the jacket back.
However, on balance, it was one of the better books I have read in a long time -- the blog has helped me a lot. I saw her slant immediately (okay, the second or third chapter) but was able to calmly ignore it. Compared to the vitriol in blogs on the net (including my frequent rants), the book seemed fairly tame.
I ignored her "green" comments. [For example, somewhere in the book she mentions that some folks have not transitioned from "global warming" to"climate change" or were late in doing so. Fortunately for her she has not transitioned to "extreme weather" because we're not seeing that either.]
I did not grow up in the Far West but left Williston at age 22 to go to graduate school in Los Angeles. I have spent a fair amount of time in Las Vegas (Air Force connection). I am fascinated by Los Angeles and Las Vegas; there is certainly a huge connection between the two.
[I am also fascinated with Boston / NYC and in my personal life there are parallels between West Coast and East Coast, but those stories will have to wait until my memoir / "tell-all" book comes out. LOL But I digress.]
I enjoyed Unreal City because I never knew the history of the Far West, specifically Las Vegas and Los Angeles. Her book was incredibly superficial and incredibly meandering (like my blog). By the time I finished reading it, it seemed to be more a travelogue (her visit to the Far West) rather than a well-thought out, deeply researched book. At only 243 pages (before one gets to extensive notes and index) it is a very short book. It was also a homage to her Navajo guide, a very elderly woman who might be the Saint Theresa of the Black Mesa.
The book is very superficial, but it provides someone with absolutely no knowledge of the subject a starting point.
As noted earlier, the author meanders, and she often repeats herself, but I found these subjects very,very interestng:
- how the Mormons settled the West. I will watch for a book on the history of Mormons in the Far West
- the politics: Harry Reid, Barry Goldwater, Mo Udall
- how Las Vegas got its start
- Peabody Coal
The biggest takeaway for me was the issue of water. There is no question in my mind that water (and electricity) for Los Angeles and Las Vegas are much, much bigger stories than folks realize. It's possible the cities will muddle through their challenges for the next 20 years and I will not live long enough to see how this movie ends. But one certainly gets the feeling that Las Vegas is living on borrowed time -- if they can't solve the water problem. Congress will have to pick winners and losers among three cities: Phoenix, Los Angeles, and Las Vegas. Mexico, of course, has to be quite concerned. Congress will also have to pick winner and losers among growers in California and gamblers in Las Vegas.
Solar and wind energy will barely put a dent in all the energy that is required, but one can see why folks in the Far West have put so much faith in "all of the above." They are going to need "all of the above" if they expect to have the energy they need. Shutting down nuclear plants in San Onofre is going to be hard to replace.
It was a superficial book, it meandered, but it introduced me to histories of the cities, the region, the politicians, the Hopi-Navajo fight, the Mormons, Bechtel, Peabody. Now when I drive by the Navajo Generating Station I will have a feeling for the history.
The good news: I don't think the author left me with a "bad" feeling about the Mormons, the politicians, the corporations. It is simply "what it is." It's a "dog eat dog" world out there, a fight to survive, and I simply find it fascinating. I'm glad I'm just a spectator. There are some serious issues that are not going to be easily solved.
Like all good authors, Nies sprinkled her book with a number of factoids and/or trivia that put things in perspective. She mentioned golf courses/water on three different occasions (per the index) to include this bit of trivia:
The water [from the Central Arizona Project] goes to irrigation for agricultrue, to municipal water for the city of Phoenix, and to provide one (1) million gallons of water a day for each of Phoenix's 247 golf courses.If that's not a typo, she says one million gallons of water for each golf course, every day.
Miscellaneous data points from Unreal City: Las Vegas, Black Mesa, and The Fate of the West
Many people mistakenly think coal use has faded away or died out since the Industrial Revolution. In The Quest, copyright 2012, Daniel Yergin's exhaustive and influential book on energy sources, he points out that this is fault thinking: "Since 2000, thought not recognized, the biggest increase in global energy output has come from coal -- double that from oil and triple that from natural gas."
Tribal councils were set up by the federal government in the 1930s and 1940s as a way of organziing Indian tribal structure to fit into the American legal system.
Outside of early coastal settlement (Washington, Oregon, and California), no single entity did more to settle the Far West than the Mormons. Senator Harry Reid of Nevada is a non-tithing Mormon.
If one had to name one company that built most of the big projects in the Far West in the first half of the 20th century, one would not be wrong suggesting Bechtel.
Tuba City began as a Mormon settlement in the 1870s. Although is is on the Navajo reservation, it is near the Hopi town of Moencopi and names for a Hopi headman called Chief Toova.
In 1905, Senator William Clark, came to establish the new town site (eventually Las Vegas) for his railroad depot. Las Vegas is located in Clark County. Senator William Clark was originally from Butte, Montana. He bought the land from Helen Stewart; Clark earned $250,000 ($6 million in today's dollars) flipping that land to individual investors. The Spanish had named the spot las vegas, "the meadows."
An acre-foot is 326,000 gallons or the amount of water needed to cover a football field (roughly an acre) with a foot of water. One-acre foot is generally calculated as enough water to supply two families for one year.
Although Hoover Dam is generally believed to have been a great public works project of the New Deal administration during the Depression, it was actually a construction project built by private enterprise, funded by the government, and put in motion by the business-oriented Hoover administration to help the landowners of the Imperial Valley of Southern California.
Although some people still believe that Las Vegas sits on top of a liitless aquifer and that natural springs feed the lush green golf courses, the reality is that Las Vegas's unallocagted groundwater was mostly pumped out by the 1960s. Today, 90 percent of Las Vegas water comes from the three hundred thousand acre-feet allocated from Lake Mead and the ever-diminishing waters of the Colorado River.
The important Lake Mead numbers:
- 1,219 feet: high-water level mark, when the lake is full; was reached in June, 1941; reached again in 1983
- 1,083.3 feet: water level in February, 2010
- 1,075 feet: the number at which mandatory water cuts go into effect for California, Nevada, and Arizona
- 1,050 feet: the top of the Las Vegas upper intake pipe, a pipe installed in 1971 and from which the 2 million people of Las Vegas get 90 percent of their water. Below this level there is not enough water to run hoover Dam's generators that supply more than 1 million people with electricity. The hydroelectricity also pumps water of the mountains into California
- 1,000 feet: the top of Las Vegas' second intake pipe, built in the 1990s, which has a problem with quagga (zebra) mussels
- 895 feet: at this point Lake Mead is declared a dead pool in which evaporation exceeds inflow. Downriver water delivery to California stops. Electricity generation has already stopped (see above)
- 863 feet: the top of the third Las Vegas intake pipe currently under construction (scheduled for completion in 2014 but delayed until 2015. A special machine, built in Germany, is boring through solid rock a half-mile beneath the surface of the lake. At this level the intake pipe will be draining the dregs of the lake
- elsewhere: according to the Western States Petroleum Association, 323 acre-feet of water were used in fracking 830 wells in California in 2013, compared with 2.7 million acre-feet for agriculture here in Kern County, the heart of California’s oil industry
- elsewhere: aLL fracking in ALL of California used less water than the AVERAGE amount of water to irrigate ONE golf course in California.
ALL fracking in ALL of California used less water than the amount of water required to irrigate ONE AVERAGE golf course in California.
Of course, that begs the next question. How many golf courses ARE there in California? Drum roll ... drum roll ... 1,126