Thursday, May 30, 2013

REPOST: Some in Europe Are Rethinking Opposition to Fracking

Can hydro-fracturing be done safely? This New York Times article has the story.

AUSTIN, Texas — In oil-rich parts of Texas, hydraulic fracturing has almost become a way of life. Drilling rigs and pumping equipment pepper the landscape, and enormous trucks carrying oil field supplies rumble down narrow, dusty roads.

In Europe, things could hardly be more different. Opposition to hydraulic fracturing — the process of injecting water, sand and chemicals into the earth to blast apart rock and retrieve oil or natural gas — is widespread and entrenched. Some countries, including France, ban the practice, which is also known as fracking.

“There is a head of steam up against fracking,” said Jonathan Stern, chairman of the natural gas research program at the Oxford Institute for Energy Studies in England.

In Germany, beer brewers recently urged a ban on fracking, citing concerns about groundwater contamination, according to the newspaper Bild.

Europe’s opposition is being put to the test, however, as pro-fracking forces lobby for exploring underground shale gas reserves. They argue that locally drilled natural gas can create jobs and increase energy security — a potent argument for a continent uncomfortably reliant on natural gas from Russia. Last week, a group of British business leaders, the Institute of Directors, put out a report saying that developing shale gas reserves could lead to tens of thousands of jobs.

“Shale gas could be a new North Sea for Britain,” Corin Taylor, the report’s author, said in a statement accompanying its release.

Mr. Stern noted that fracking is a long way from happening on a major scale in Europe, and some early results have not been promising. Several major international companies have scaled back their work in Poland after operations proved disappointing.

Even so, some countries are lifting their moratoriums on fracking in the hope of good results. Britain did so in December, though the prospect of exploratory drilling has brought protests. Romania also recently lifted its moratorium, and the gas-rich Netherlands will decide soon about whether to do the same.

Dutch politicians are awaiting the results of an independent study on shale gas that is due to be released this summer. Then the country will re-evaluate its moratorium, according to Bart Visser, a spokesman for the minister of economic affairs.

The study is about whether or not to allow test drilling in shale rock, Coby van der Linde, director of the Clingendael International Energy Program in the Hague, said in an e-mail. It will also determine the conditions under which the shale gas could be produced, she said.

At least one key political group is on the fence, according to Ms. Van der Linde. And the Dutch pro-environment party GroenLinks is firmly opposed to fracking.

“Whether or not it is an independent inquiry remains to be seen,” said Liesbeth van Tongeren, a member of Parliament and spokeswoman for GroenLinks on energy issues. She expressed concerns about water, truck traffic and fracking’s effect on the climate.

Groups with “dollar signs in their eyes” are promoting fracking, she said.

Some guidance on fracking may also be forthcoming on the European Union level. By the end of the year, the European Commission will craft a shale gas initiative that could lead to a risk-management strategy for fracking. A meeting in Brussels is being held on this issue next week.

As Europe makes its decisions on fracking, some are looking to the United States for ideas about the regulation of fracking. Each state in the United States generally has its own approach, slightly different from the others, and national regulations, applying to federally owned lands, are still being formulated.

John Tintera, former executive director of the Railroad Commission of Texas, the curiously named agency that regulates drilling in the leading oil-producing state, said he had been to Romania twice already to discuss fracking, and would soon go to Ukraine and perhaps Turkey.

When talking to Europeans, “the first thing they want to know is, can hydro-fracturing be done safely?” said Mr. Tintera, who is now a partner at Sebree & Tintera, an energy consulting firm based in Texas. “The second thing they want to know is, how do you ensure that?”

The answers, Mr. Tintera said, are that fracking can be done safely and that a comprehensive regulatory framework is necessary. Such regulation includes “boots in the field,” or trained inspectors, he said.

Mr. Stern, of the Oxford Institute for Energy Studies, said that Europe had “massively overhyped” both the downsides and the upsides of fracking and shale gas exploration. Europeans hold a bifurcated view of what has happened in the United States, he said: Some Europeans admire the U.S. fracking successes and believe that Europe should follow its example, perhaps with additional caution. In others’ minds, fracking in the United States has “all been a big disaster.”

Asked to predict the future of fracking in Europe, Mr. Stern forecast that in five years’ time, a few countries would be producing “very modest amounts of shale gas.” Those countries might be Poland, Britain and perhaps Romania or Bulgaria.

But “if there are any environmental problems, the whole thing will stop and not restart,” he said.

Dr. Ali Ghalambor is the former Director of the Energy Institute at the University of Louisiana and Head of the Department of Petroleum Engineering. See this Twitter page for more updates on the oil and gas industry.

Tuesday, May 28, 2013

REPOST: National oil companies reshape the playing field

The rise to prominence of national oil companies has shifted the balance of control over most of the world's oil and gas reserves. Find out more in this Oil and Gas Financial Journal article.

As the balance of power in the oil industry shifts from large international oil companies (IOCs) to national oil companies (NOCs), business models for players throughout the industry are shifting in response. Only a few years ago, the state-owned ventures – companies like Saudi Aramco, China National Petroleum Company, Mexico's Pemex, Brazil's Petrobras, Malaysia's Petronas and Rosneft in Russia -- depended on the expertise of large private companies, mostly based in the United States and Western Europe, to help them with everything from exploration through drilling, production, refining and marketing.

But as NOCs have taken more control over their resources, they have also become more comfortable sourcing their own talent and developing their own fields. In some cases, they now receive more favorable capital terms on the world's markets and are even investing more in R&D than the large international oil companies – $5.3 billion by the top five NOCs in 2011 compared to $4.4 billion by the supermajors.

NOCs have become more comfortable sourcing their own talent and developing their own fields. Here, the University of Petroleum & Energy Studies (UPES) in Dehradun,Uttarakhand, India.
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IOCs, who once controlled the lion's share of reserves, are facing ever-increasing challenges to their traditional business model, which depends on acquiring and booking reserves for future development. Their search for new resources leads them deep below the ocean's surface, up to the icy Arctic, and into complex unconventional fields – places where oil is harder and more expensive to extract. This drives up production costs even while reserve ratios decline, presenting a worrying trend for investors.

But if the rise of the NOCs poses a challenge for IOCs, it's a boon to the world's oilfield service companies. NOCs are turning to experienced oilfield service providers to manage less complex fields – those with relatively simple geology and access. Some of these companies are subsurface reservoir experts; others specialize in developing the infrastructure above ground. Both types are being tapped by the NOCs, and some are being asked to manage entire fields, above and below the surface, to free up the NOCs to focus their efforts on more complex reservoirs.

To make the most of this opportunity, oilfield service companies will need to learn new skills. One of the toughest may be learning to manage the risks that come with the kinds of contracts NOCs are offering. Oilfield service companies that built their businesses on a fee-for-service model, which allowed them to take on few production risks, are now being asked by the NOCs to put some skin in the game in these contract-operator models. The NOCs are asking them to work under risk-service contracts (RSCs) and production-enhancement contracts (PECs), which carry significant development and production risks and can affect their financial performance.

As they build new skills, oilfield service companies will also need to improve their technological know-how. As NOCs move into deeper waters and more remote regions, they will need partners and contractors who know how to work in those environments. This means oilfield services companies will need to invest more in R&D and hire top talent from around the globe, not just Houston and Europe. Since the technology moves quickly, the key skill here isn't only to master the application of a given technology, but to become adept at spotting emerging trends and placing the right bets. Project-management skills will become more important, too – not just managing their own teams, but also coordinating the activities of a host of contractors. NOCs want to focus on big complex projects, so they're eager to have partners who can manage simpler fields in their portfolios, including the infrastructure above and below the surface and during the development and production phases in the life cycle of these fields.

As for the big IOCs, they will need to decide whether they can move away from a model that depends on owning reserves to one that allows for different roles, including partnering with NOCs to help manage their reserves under contract-operator service agreements. Although NOCs' capabilities are developing, they still rely on the private sector's expertise to draw those reserves out of the ground in the most challenging environments: deep sea, Artic and unconventional geologies like shale. Their scale should help them, as will their world-class project-management capabilities. They should aspire to remain the partner of choice for NOCs, especially at the high end of the production curve. As with oilfield service companies, IOCs will need to remain on the cutting edge of technology and develop skills for spotting trends early.

But most importantly, they will have to shift from a mindset that seeks maximum control to one that balances mutual interests if they are to remain relevant in an industry dominated by the NOCs. OGFJ

More analysis on the oil and gas industry can be seen by visiting this Dr. Ali Ghalambor Facebook page. 

Sunday, May 26, 2013

Infrastructure development: Key to increased natural gas adoption

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Many people think that natural gas is better than traditional sources of energy, such as coal and nuclear energy, due to its cleaner burning properties and its sheer abundance in many countries, such as the US and Russia. However, even though natural gas is being used in residential and commercial heating and in many industrial processes, and even as fuel for transportation, it is still not reaching its full potential due to its low market share.

Why is an energy resource that is easily available at vast amounts not being taken advantage of? The answer is simple: because of the abundant supply and low demand, natural gas has become too cheap, which dampened energy companies’ enthusiasm to spend huge amounts of money to build infrastructure that would enable increased production, which in turn, could lead to an increase in consumer adoption. In fact, natural gas is so cheap that drilling it is no longer profitable.

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But some believe that the persistently low prices of natural gas is a result of mild winter (in the US) that resulted in an oversupply of stored gas, slow economy, and continuing expansion of supply, and that a change in development strategy and an increase in heating demand should result in supply balancing, which is the proper amount of supply to offset demand.

When natural gas supply returns to normal, its price can rise and production can be made profitable again. This can lead to an increased rate infrastructure development and an increased consumption of natural gas in the US, which can grow from 23.8 Tcf in 2010 to 31.5 Tcf in 2035.

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For more relevant news on the natural gas and petroleum industry, visit this Twitter page for Ali Ghalambor.

REPOST: Oil falls below $94 a barrel

Crude oil price was knocked below $94 per barrel. This Yahoo News article has the details. 

BANGKOK (AP) -- The price of oil fell Monday as traders concerned about global energy demand took profits ahead of economic data from China and the United States. Benchmark oil for July delivery was down 58 cents to $93.67 per barrel at midday Bangkok time in electronic trading on the New York Mercantile Exchange. The contract fell 10 cents to $94.15 a barrel on Friday.

Analysts said traders took profits before May unemployment data is released Tuesday in Washington, which should help clarify the state of the recovery in the world's biggest economy.

"We're starting to build confidence in the economic data, but that's not going to stop anyone from taking money off the table ahead of a long weekend," Carl Larry of Oil Outlooks and Opinions said in a market commentary, referring to the Memorial Day holiday in the U.S. on Monday.

The global economic picture was clouded last week by a private survey showing weak Chinese manufacturing. That raised questions about the strength of oil demand in the world's No. 2 economy. Qinwei Wang, an economist with Capital Economics, said in a market commentary that recent Chinese indicators suggest that "general economic conditions remain downbeat." The more closely watched official manufacturing survey is due Saturday, Wang said.

Brent crude, a benchmark for many international oil varieties, fell 12 cents to $102.46 a barrel on the ICE Futures exchange in London.

In other energy futures trading on Nymex:

— Wholesale gasoline fell 0.1 cent to $2.817 a gallon.

— Heating oil fell 0.6 cent to $2.851 a gallon.

— Natural gas fell 4.6 cents to $4.215 per 1,000 cubic feet.

This Facebook page for Dr. Ali Ghalambor shares updates on the global energy industry. 

Thursday, May 23, 2013

REPOST: Stubbed Toe? Blame Global Warming...or Fracking

This article tackles the real cause of  different harmful weather events happening around the globe.

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On his blog at The American Interest, policy expert Walter Russell Mead posted a piece on April 14 titled “Stubbed Toe? Blame Global Warming”. In his piece he correctly points out that, whatever one personally believes about theories of anthropogenic “global warming”, the credibility of the movement behind those theories suffers greatly due to the actions of climate alarmists who regularly knee-jerk to attribute every severe weather event that takes place, and all manner of other, unrelated things, to global warming.

The catalyst for Mr. Mead’s blog post was this report in the Washington Post detailing the findings of a federal report regarding the cause of the major drought that affected large parts of the nation last year. Where climate alarmists had quite predictably leapt to the conclusion that such a harmful weather event had to be caused by the all-encompassing “global warming”, the group of federal scientists who conducted this study found that the drought was actually caused by natural weather cycles. Here is the key excerpt:

Scientists say the lack of moisture usually pushed up from the Gulf of Mexico was the main reason for the drought in the nation’s midsection…Thursday’s report by dozens of scientists from five different federal agencies looked into why forecasters didn’t see the drought coming. The researchers concluded that it was so unusual and unpredictable that it couldn’t have been forecast.

What Mr. Mead wrote in response to this finding grabbed my attention:

At Via Meadia, we think there really is such a thing as climate change, but we also believe that there are plenty of emotionally unbalanced greens whose unrealistic climate alarmism gets in the way of thoughtful policy debate. To listen to the alarmists, floods, fires, droughts, hurricanes and blizzards are all the product of global warming. But, as this report shows, things aren’t that simple.

Unfortunately the climate alarmists are as bad at making policy as they are at reading the signals of the climate system. Until the nut cases and the Chicken Littles get sidelined by smart and responsible greens, it’s going to be hard to have the kind of debate our planet needs.

I found this analysis to be interesting because the very same points can easily be made about the ongoing debate around Hydraulic Fracturing – or “Fracking” as it has come to be commonly known in the news media. Fracking is a vital contributor to the recent renaissance in the U.S. oil and natural gas supply picture, as it is the technology, along with horizontal drilling, that makes producing oil and natural gas from very tight shale rock formations possible. The marriage of these technologies has already dramatically reduced U.S. imports of foreign oil and has made it realistically possible for North America to become completely independent from imported crude from overseas within the next decade.

But Fracking, like any heavy industrial process, has real and potential impacts that must be mitigated and properly regulated. Among those impacts are substantial water usage, damage to roads by heavy truck traffic, potential spillage of frac fluids and management of the chemicals used in the process. Everyone acknowledges these and other possible issues, and like the global warming issue, there are well-intentioned people – in the industry, in responsible environmental groups, in government and the general public – working diligently to find the best approaches to minimize impacts on the environment and the public.

But also like global warming, Fracking has become a money-raising and attention-grabbing boogeyman for all manner of nutcases, chicken littles and radicalized environmental organizations. To hear these anti-fracking agitators tell it, Fracking is responsible for everything from killing Bermuda grass lawns to under-weight cattle to flaming water faucets in “Gasland” to elevated rates of breast cancer to earthquakes to destruction of entire ecosystems. Noted anti-frack activist Yoko Ono was even quoted in the New York Times late last year as saying “Basically, if we don’t do something about it (Fracking), we’re all going to die.”

Yes, that’s a real thing. John Lennon’s widow actually said that, and with meaning. Imagine.
This article

These sorts of wild allegations are invariably disproven upon investigation, but that is of little consequence, because those who make the most noise – and anti-Frackers, like climate alarmists, are quite loud – get the most attention from a news media that thrives on conflict. So the allegations make lots of news and result in lots of calls and letters to policymakers who then feel the need to “do something”, even if that something is completely wrong-headed. Meanwhile, the truth comes out weeks and months later, doesn’t make much news and doesn’t generate much messaging volume into policymaker offices around the country.

As a consequence, good faith efforts by well-intentioned stakeholders in getting it right when it comes to regulating Hydraulic Fracturing and mitigating its real impacts have a difficult time cutting through all the noise in the system to get to real, sensible solutions. And responsible environmentalists who do choose to engage in such good faith efforts often find themselves shunned and vilified by the more radical greens.

This is a shame, and quite counterproductive to the ongoing development of good public policy.

Yet, progress continues to be made despite the anti-frackers’ best efforts to gum up the works. A good example is here in Texas, where the Texas Railroad Commission will soon finalize its rewrite of Statewide Rule 13, which governs well completions and Hydraulic Fracturing operations in the state. This will come after an 8 month long process of public consultation, an effort in which several responsible environmental groups participated in good faith. The final result will represent a great improvement over the pre-existing rule, which had not been updated in two decades.

In the final analysis, the opportunity for American national security and economic prosperity that shale oil and natural gas represent are too big and too important for policymakers to ignore. Thus, while the anti-fracker zealots will continue to make the most noise, make the most news, and raise lots of money, the search for and production of shale oil and natural gas will go on.

More updates on efficient natural gas production can be accessed by following this Dr. Ali Ghalambor Twitter page.

Methane and the environment: The EPA on shale gas production

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For years, the oil and gas field has been thinking that the Environmental Protection Agency (EPA) would limit shale gas production due to harmful emissions. But recent developments have shown that heat-trapping emissions from the production of shale gas, like methane, are much less than what experts originally thought.

The EPA has released an annual report on greenhouse gas emissions, stating that greenhouse gas releases decreased by 1.6 percent from 2011 to 2012. The reduced emissions were attributed to fuel switching, tougher regulations, and better equipment. Warm weather and improvements in fuel efficiency of vehicles have also contributed to the decrease in such emissions.

Pie chart that shows different types of gases. 84 percent is from carbon dioxide fossil fuel use, deforestation, decay of biomass, etc. 10 percent is from methane. 4 percent is from nitrous oxide and 2 percent is from fluorinated gases.
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"The new EPA numbers show both that methane leakage was never as high as was previously thought, and that leaks are being reduced through better drilling practices,” Michael Shellenberger, president of California-based Breakthrough Institute, says.

The EPA’s focus is on methane gas since it is the most potent among all greenhouse gases. Fortunately, the amount of methane leaked into the atmosphere during a shale gas production has fallen, and the numbers continue to decline. Shellenberger affirmed this when he said that it’s reasonable to expect drilling possibilities to continue to improve, and that leakage rates will continue to go down.

“This should be treated as very good news by anyone concerned about climate change,” Shellenberger notes.

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Get to know the latest in the oil and gas industry. This Ali Ghalambor Wordpress blog provides relevant updates.

REPOST: More Scientific Evidence Linking Fracking and Earthquakes

Significant earthquakes occurring within the United States are linked to hydraulic fracturing. This Huffington Post article has the details.

As the practice of hydraulic fracturing to produce natural gas continues to spread not only in the U.S. but worldwide, the scientific community has increasingly focused on the environmental consequences of the technique. The most worrisome side effect of "fracking" is the rise of earthquakes in areas where the practice is extensive.

The latest evidence comes in the form of an article in the March 26 issue of Geology, a publication of the Geological Society of America.

Entitled "Potentially induced earthquakes in Oklahoma, USA: Links between wastewater injection and the 2011 Mw 5.7 earthquake sequence," the study was coauthored by University of Oklahoma Geophysics Professor Katie Keranen, U.S. Geological Survey geophysicist Dr. Elizabeth Cochran and Columbia University's Lamont-Doherty Earth Observatory's seismologist Dr. Heather Savage and Dr. Geoffrey Abers.

The study focused its research on seismic activity in Oklahoma over the past two years and concluded that a 4.8-magnitude earthquake centered near Prague on Nov. 5, 2011, was "induced" by the injection wells. Two subsequent earthquakes, including a 5.7-magnitude "event" the following day, was the biggest in contemporary state history, were caused by the first earthquake and existing tectonic stresses in the earth.

Oklahoma's Nov. 6, 2011 earthquake was the state's largest recorded with modern instrumentation. Two people were injured in the quake, which destroyed 14 homes, buckled pavement and was felt in 17 states, as far north as Wisconsin.

Professor Keranen said during an interview that there is excellent seismic data to back up the paper's conclusions, stating, "The evidence that we collected supports this interpretation. We can say several things with certainty: That the earthquakes begin within hundreds of meters of the injection wells in the units they inject into, so spatially we don't have much doubt, there is a direct spatial link."

The credentials of Keranen's coauthors are impressive. Dr. Abers is Associate Director of Seismology, Geology and Tectonophysics of the Lamont-Doherty Earth Observatory and Dr. Savage Lamont, Assistant Research Director, while in October 2011, President Barack Obama named Dr. Cochran a recipient of a Presidential Early Career Award for Scientists and Engineers for her contributions to the understanding of earthquake physics and earthquake triggering, the physical properties and geometry of earthquake fault zones and their evolution after earthquakes, and to the development of a new method of earthquake monitoring using low-cost earthquake sensors, the "Quake-Catcher Network (QCN)."

The pair's methodology was thorough. The paper reported that within 24 hours of the first earthquake Dr. Keranen and Oklahoma Geological Survey research seismologist Austin Holland set up seismic recorders in the area. The Geology study reports that 1,183 aftershocks were recorded by the seismic network and subsequently examined, of which 798 were studied closely.

Oklahoma's official seismologist, the Geological Survey's Austin Holland is skeptical of the link between injection wells and earthquakes, stating that more research is needed, with the OGS stating, "The interpretation that best fits current data is that the Prague Earthquake Sequence was the result of natural causes." Holland's view is, not surprisingly, shared by the Corporation Commission and the Oklahoma Independent Petroleum Association, a trade group that lobbies for the interests of oil and gas producers.

Farther afield, seismologists suspect that oil and gas activity may have triggered earthquakes in Texas, Arkansas, Colorado and Ohio. States have adopted differing approaches to the issue, but there is now no doubt that the seismic issue is beginning to impact state legislatures considering fracking activities. Regulators in Arkansas voted to ban injection wells from one particular region after a series of earthquakes rattled the state two years ago. Oil and gas regulators in Colorado now require a review by a state seismologist before injection well permits are issued, and Illinois has passed legislation requiring injection wells to stop operating if related earthquakes cause a public safety risk. But as of yet, earthquake risk has not impacted state fracking regulations in California, Texas, New York or Oklahoma.

In any case, it would appear that Holland and his fellow skeptics will not have long to wait to comment yet again on local earthquakes, as on March 4, the U.S. Geological Survey reported that a 3.5-magnitude earthquake struck southern Oklahoma, also centered around Prague.

In the last four years, the number of quakes in the middle of the United States surged 11-fold from the three decades prior.

Something to ponder when you read the hydrocarbon industry rubbishes the latest scientific research on fracking as "fuzzy science."

Dr. Ali Ghalambor has published several notable works valuable to the oil and gas sector. Find more information about him by following this Twitter page.

Wednesday, May 22, 2013

REPOST: The Market Knows Best -- The Real Story Behind Drilling on Public Lands

This Huffington Post article talks about the new leasing and development on federal public lands that has not been sufficiently robust, according to some critics.

The evolution of horizontal drilling has caused a boom in oil and gas production throughout the United States. Indeed, our success in developing new resources has been so remarkable that the International Energy Association reported late last year that by around 2030, "North America becomes a net oil exporter... "

Yet this success has not quieted some critics of the Obama administration who complain that new leasing and development on our federal public lands has not been sufficiently robust. Industry allies have noted in particular that the current boom is largely occurring on private lands in states like North Dakota, Colorado and Texas. They argue that drilling on federal lands is not keeping pace and they blame the administration for a lackluster leasing record.

But market forces, not federal lands policy are driving oil and gas development. The current market favors oil and other liquid "plays" -- the industry term for areas with known oil or gas resources -- that are found primarily on private lands, over natural gas, which often occurs on public lands in the West.

Natural gas prices are so low that gas producers are unable to make a reasonable profit. It seems that the industry has been the victim of its own success. New drilling and fracking technologies led to more production, which flooded the domestic market and pushed down natural gas prices to the point that many gas fields are simply uneconomical to develop. Oil and gas companies have lost interest in leasing and developing the natural gas deposits that are so often found on Western public lands.

In North Dakota, where the oil-rich Bakken formation is driving a domestic oil boom, the resources underlie primarily private lands. Likewise in Colorado, companies are focused on the Niobrara formation, located largely on private lands in the eastern part of the state. The Niobrara is largely a liquid play. Liquids are the goodies, such as propane, butane and pentane that are profitable under today's market conditions. By contrast, development of the Williams Fork of the Piceance Basin, a natural gas play on Colorado's public land-dense Western Slope, has fallen off dramatically along with the decline in the price of natural gas.

Let's not forget that oil and natural gas are fundamentally different commodities. The price of crude oil is set on a global market. Despite the fact that we currently produce more oil in the U.S. than we have at any time over the past two decades, we have seen no noticeable impact on the price at the pump.

Natural gas, on the other hand, is a regional commodity with prices more easily influenced by sudden changes in domestic supply. That's why as production has surged, the price of natural gas has fallen by more than 66 percent from its 2008 record high.

You won't often hear the oil industry talking about the market dynamics behind the shift to oil and private lands, but they are clear when writing to their investors. As Halliburton's 2012 Annual Report explains: "In North America, the industry has experienced an activity shift from natural gas plays to oil and liquids-rich basins due to low natural gas prices resulting from continued strong natural gas production. As a result, operators have been optimizing their budgets by focusing on basins with better economics." Private land oil plays, of course, are the basins with "better economics."

Policymakers in Washington should welcome this shift to private land development since it offers our public land managers some breathing room to manage our public lands for their many other important public uses. For those of us who live in the West, these precious lands offer so much more than just extractive minerals. They are special places for recreation, protection of freshwater resources, wildlife habitat, and other consumptive uses like forage and timber.

No one is calling for a moratorium on oil and gas leasing on public lands, but our political leaders and the public should know that any softening of leasing activity is due to market forces and not some nefarious attempt by the Department of the Interior to subvert public lands development. Rather than calling into question the rate of government oil and gas leasing, we should welcome the respite from the pell-mell pace of leasing and development activity that we witnessed just a few years ago. Our public lands feed the soul, not just our automobiles. 

This Facebook page for Dr. Ali Ghalambor features fresh takes and up-to-date analysis on the oil and gas industry.

Tuesday, May 21, 2013

REPOST: RPT-INSIGHT-The road to a greener America is littered with road-kill

Nichola Groom of reports the status of "California Hydrogen Highway," spearheaded by then California Governor Arnold Schwarzenegger, and the other  dilemmas faced by the American government in making green energy projects.

May 20 (Reuters) - In October 2004, then California Governor Arnold Schwarzenegger rolled up to a pioneering fueling station at Los Angeles International Airport in a hydrogen-powered metallic blue Hummer loaned to him by General Motors Corp.

The "California Hydrogen Highway," Schwarzenegger's vision to ensure that every Californian would have access to a hydrogen fueling station by the end of 2010, called for the state to spend more than $50 million to help deploy up to 100 hydrogen fuel stations that would serve 2,000 fuel cell vehicles. "We got 200 stakeholders around a table, literally, and mapped out who could get stations where," said Terry Tamminen, a top adviser to Schwarzenegger.

But nearly nine years later, California has just nine hydrogen stations open for the public, and only about 200 fuel cell cars that can use them.

The global financial crisis helped slam the brakes on dreams of a Hydrogen Highway, but the roots of green energy's mid-life crisis - marked by a rash of recent corporate collapses in everything from electric cars to solar panels - run far deeper.

Other factors have contributed to the shakeout, which has happened as climate change has dropped down the list of Americans' top concerns. Many new companies were far too optimistic about their prospects and were selling products that could not compete on price against traditional transport and energy sources, not to mention increasingly cheap imports from China. Many were - and are - very reliant on fickle government support, and some were simply mismanaged.

Whether it's survival of the fittest or survival of the subsidized, there have been success stories, and there's even a little froth in the stock market. But as the sector moves beyond its youthful phase, it faces many of the same problems and nobody will be surprised by more failures.

"The general economic thesis of the renewable energy sector hasn't changed," said Karl Miller, chairman of Newco Energy Acquisition Holdings, LLC, which acquires energy-related assets. "It's still a heavily subsidized industry. It requires a major federal tax credit to make it work." It still doesn't appeal as "a capital market investment," he said.


Apart from the relative success of Tesla Motors Inc in putting nearly 10,000 of its pricey luxury electric cars on the road, the electric vehicle sector has been among the biggest duds in clean tech.

Major automakers like Nissan Motor Ltd, with its all-electric Leaf, and GM, with the Chevrolet Volt, bet heavily on electric vehicles (EVs). But they are struggling to get over the high cost and lack of charging infrastructure, as well as questions about the short driving range of some models. Both Leaf and Volt sales have lagged well behind company expectations, and vehicles from startups like Fisker Automotive and Coda Holdings Inc barely made it off the assembly line before the companies ran out of cash.

Nissan Chief Carlos Ghosn, who plowed $5 billion into battery-electric technology, has backed down from an earlier forecast of 10 percent market share for electric cars by 2020. Ghosn's company sold 9,819 Leafs last year in the United States, well under its target of 20,000.

The Obama administration has pulled back from its aggressive goal of putting 1 million electric cars on U.S. roads by 2015. Total plug-in car sales last year were only around 50,000 in the United States.

"EVs are a really difficult sell today," the CEO of Toyota's North American business, Jim Lentz, said in an interview. "Until we see substantial change in battery technology it's going to be difficult to see EVs really take off."

Even as electric car technology has proved disappointing, the clean-tech movement has helped make traditional combustion engines less polluting, with new models showing fuel efficiency gains that are popular with consumers both for environmental and economic reasons. A push to run more vehicles, especially trucks, on cleaner-burning natural gas is also gaining momentum.

Automakers are also heading back toward Schwarzenegger's old friend: hydrogen fuel cells.

Daimler AG, Ford and Nissan plan to launch affordable fuel-cell cars within five years, while Toyota and BMW aim to do so by 2020. Cars powered by hydrogen fuel cells, which emit only water vapor, can cover much longer distances and refuel more quickly than electric cars.

Toyota's Lentz even used Schwarzenegger's term "hydrogen highway" to describe a network of fueling stations he expected to see between Los Angeles and San Francisco in the next few years. The Golden State last year unveiled a revamped goal that envisions 68 hydrogen stations by 2016 that will serve 10,000 to 30,000 vehicles. The stations, some of which are already in the works, are expected to cost about $160 million. California has awarded nearly $28 million for stations under development and allocated an additional $29.9 million for future stations.


Development of renewable energy technology has been undermined by an explosion in fossil fuel production in the United States, particularly cleaner-burning natural gas - a development that wasn't expected when many green energy projects were being dreamt up.

Cheap natural gas "clearly has an impact on how much renewables we'll do," said Alex Urquhart, CEO of GE Energy Financial Services, the unit of General Electric Co that invests in energy projects.

The shale oil and gas boom in the United States has also provided opportunities for companies that had been more focused on pure green tech.

Take OriginOil, a U.S. startup that developed a process to convert algae into renewable crude oil. It now markets technology to oil and gas producers for the cleanup of water that is contaminated in the fracking process used to extract shale oil and gas.

Other water-focused startups, too - like Houston-based 212 Resources Corp and Everett, Washington-based WaterTectonics - are counting on the oil and gas industry's need to clean and recycle the millions of gallons of water that is mixed with chemicals and sand and injected into the ground to "frack" wells.

GE is one of the world's top two makers of wind turbines, but it isn't just banking on renewables. It is making significant bets on shale, scooping up oilfield pump maker Lufkin Industries Inc for $2.98 billion to add to the well services business it bought from John Wood Group Plc in 2011.


Some of the biggest failures in the green-tech sector have been in the solar energy sector - notably Solyndra, the maker of next-generation solar panels that collapsed in 2011 after receiving a $535 million loan guarantee from the U.S. Department of Energy. Its failure sparked an 18-month investigation by Republicans who faulted President Barack Obama's administration for failing to cut the government's losses, and suggested the loan was made in part as a favor to a Democratic donor. The White House said the decision to make the loan was "merit-based."

More than 18 months after Solyndra's fall, there's a lot more road-kill in the green energy sector. China's Suntech Power Holdings, once the world's largest solar company, filed for insolvency in the last few weeks, following the path of battery maker A123. And tiny SoloPower, which was awarded a $197 million DOE loan guarantee and opened a factory in Portland in September to much fanfare, has said it will suspend operations.

Clean-tech initial public offerings in the last year have either been canceled, as in the case of BrightSource Energy Inc, or priced below targets, like SolarCity and Enphase Energy. With investment "exits" a challenge, venture capital funding for clean-tech startups slid 29 percent last year to $3.33 billion after peaking at $4.6 billion in 2011, according to the National Venture Capital Association.

The U.S. solar market has suffered because top market Europe pared back its price guarantees to generators of solar power just as China built hundreds of panel factories that flooded the market with cheap products. In 2012 alone, the price of solar panels slid 50 percent, hammering industry profits and scaring investors away from clean-tech stocks.

But in the bigger picture, solar energy is still making strides.

Cheaper solar panels have made the clean energy source more affordable to many. Worldwide, photovoltaic solar installations are expected to increase 12 percent this year to 35 GW as growth in the Middle East, Africa, the U.S. and Asia will offset declines in Europe.

Wal-Mart Stores Inc, which began installing solar on its big box stores in 2007, plans to put panels on at least 1,000 of its buildings by 2020, up from about 200 currently.

"We really feel comfortable with where the prices and the technology are going," said Wal-Mart's vice president of energy, Kim Saylors-Laster.

The retailer initially focused its solar program on California and Hawaii, where high power prices make solar more competitive with electricity from the grid, but cheaper solar has helped it expand to new markets. Wal-Mart has saved $2 million since 2007 by using the renewable power generated on its rooftops.

Companies that install those panels are growing rapidly. SolarCity Corp, which put up many of Wal-Mart's solar systems, has seen its share price soar to $45 since December, when it struggled to get its IPO done at $8 a share. The company, which is backed by Tesla's Elon Musk, offers homeowners the chance to pay a monthly fee for solar, eliminating the large upfront investment.

Further signs of life in the sector: Swiss industrial group ABB made a $1 billion bet on solar with plans to buy U.S. solar inverter maker Power-One Inc at a premium of 57 percent; and First Solar Inc's shares rallied by 45 percent on April 9 after forecasting better-than-expected results for the next three years.


That kind of outsize stock move is a trademark of green tech. Tesla stock has soared 64 percent since May 8, when it reported its first ever quarterly profit after selling more battery-powered luxury cars than expected, and SolarCity stock jumped 40 percent in two days after announcing on Thursday it had secured $500 million in financing from Goldman Sachs.

The overall direction of the market, however, has been down. You can get a sense of the amount of money that has been lost by investors from the WilderHill Clean Energy Index, which tracks the performance of publicly traded green energy stocks ranging from solar and wind to rare earth minerals and water companies. The market value of the companies in the index has fallen from a peak level of $231 billion in late December 2007 to about $108 billion today, a decline of 53 percent, according to Reuters data. The S&P 500 over that period is up around 9 percent to an all-time high. And while the number of components in the WilderHill index has risen to 51 from 42 since 2007, the average market value of those companies has tumbled to $2.1 billion from $5.5 billion.

Moreover, the index only reflects publicly traded companies. More has been lost by venture capital firms and other early investors in companies that never got much past the start-up phase. Fisker and Solyndra, for instance, each raised close to $1 billion in venture capital money.

Some advocates for green investing say that thanks to a more realistic assessment of risk, a period of relative stability is setting in for green companies and their investors. The WilderHill Clean Energy index may be much lower than it was in 2004, but it is up 31 percent this year.

"The industry has become much more efficient, much more purposeful. There's not this sort of green hype," said Vinod Khosla, the co-founder of Sun Microsystems who later joined Kleiner Perkins. In 2004, he launched Khosla Ventures, which is known for investing in next-generation energy companies such as biofuels maker KiOR. "What has changed is we make fewer bets and we plan on investing more in them and take more time."

But investors like Shawn Kravetz, who manages several funds for Boston-based Esplanade Capital, including one focused on the solar industry, compares investing in the sector to "a long and bumpy flight."

"It will remain turbulent because policies change, companies will have issues," Kravetz said. "It's wise to keep your seatbelt fastened."


Government support has been a double-edged sword. It's hard for businesses and investors alike to make plans for the future in an environment of tight budgets and opposition from conservative lawmakers to taxpayer money being spent to favor one sector over another.

In the solar sector, for example, a 30 percent tax credit for solar system owners is set to fall to 10 percent at the end of 2016. Solar proponents want a more gradual decline and point to the experience of the U.S. wind industry, which is struggling with a dependency on a tax credit that keeps being extended by Congress in one-year increments.

GE has seen the impact of that directly. Wind turbine sales slowed in 2012 because a key tax credit had been expected to expire. It was renewed at the eleventh hour shortly after the new year, and that has helped GE sell 1 GW of wind turbines since January.

"The economics associated with the tax credits are how these projects get done," said GE's Urquhart. "Without those credits, investments would be far less attractive."

U.S. President Barack Obama's 2009 economic stimulus program allotted $90 billion to various clean energy programs, but those funds have been tapped. Big European players like Germany have slashed their generous green subsidies. And U.S. states that are requiring utilities to buy more renewable energy are close to fulfilling their goals.

U.S. green energy companies face a somewhat chaotic environment at the state level, with efforts underway in 16 states to weaken renewable energy mandates that have been key support mechanisms for solar and wind power. At the same time, 18 states have moved to strengthen those mandates.

That patchwork of policies in countries like the United States and India - which also has policies that vary from state to state - is a major concern.

"There is no way any reasonable management team of a company can do meaningful corporate planning without an understanding of what the rules of the road are," said Jonathan Silver, who oversaw the Department of Energy loan guarantee program from 2009 to 2011. "We've made it incredibly difficult for people in the energy industry."

This  Dr. Ali Ghalambor Twitter page shares updates on the events happening in and around the energy industry.

Monday, May 20, 2013

REPOST: Spread of Hydrofracking Could Strain Water Resources in West, Study Finds

This New York Times article reports the potential risks of hydraulic fracturing in water resources.

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The rapid expansion of hydraulic fracturing to retrieve once-inaccessible reservoirs of oil and gas could put pressure on already-stressed water resources from the suburbs of Fort Worth to western Colorado, according to a new report from a nonprofit group that advises investors about companies’ environmental risks.

“Given projected sharp increases” in the production of oil and gas by the technique commonly known as fracking, the report from the group Ceres said, “and the intense nature of local water demands, competition and conflicts over water should be a growing concern for companies, policy makers and investors.”

The overall amount of water used for fracking, even in states like Colorado and Texas that have been through severe droughts in recent years, is still small: in many cases 1 percent or even as little as a tenth of 1 percent of overall consumption, far less than agricultural or municipal uses.

But those figures mask more significant local effects, the report’s author, Monika Freyman, said in an interview. “You have to look at a county-by-county scale to capture the intense and short-term impact on water supplies,” she said.

“The whole drilling and fracking process is a well-orchestrated, moment-by-moment process” requiring that one million to five million gallons of water are available for a brief period, she added. “They need an intense amount of water for a few days, and that’s it.”

One of the options that oil and gas drillers have is recycling the water that comes back out of wells, which is called “produced water.” But the water injected into wells is laced with a proprietary mixture of chemicals and sand, and the water returning from thousands of feet below the surface can also contain natural pollutants or even radioactivity. Recycled water must therefore be treated, which can be expensive.

An earlier report done by engineers at the University of Texas, Austin, showed that 8,800 acre-feet — nearly 2.9 billion gallons — were used for fracking in 2011 in Tarrant County in North Texas, where Fort Worth is located and which has gone to the Supreme Court to get access to Oklahoma’s water.

And in the Eagle Ford shale formation in South Texas, particularly in Webb County, some researchers estimate that the amount of water used for fracking represents as much as one-third of the area’s annual groundwater recharge, the amount of surface water that percolates back to the underground aquifer supplying the region.

But the Ceres report notes that drillers in the Eagle Ford formation are also expanding their use of brackish, undrinkable water in place of fresh water.

While the local effects in Texas have been sufficient to spur the state’s Railroad Commission, which regulates the oil and gas industry there, to encourage recycling by loosening rules governing that process, it is Colorado that faces the most widespread potential conflicts between fracking and other water uses, according to Ceres’s new report.

Kenneth H. Carlson, an engineering professor at Colorado State University, saw little difference between drillers buying needed water and cities buying water from farmers. “It’s a private commodity that people can do with what they want,” he said. “We’re not going to go thirsty. We’re just going to have to pay more.”

Dr. Ali Ghalambor offers a comprehensive look when it comes to getting accurate information about natural gas production. More updates on petroleum industry can be found by visiting this Facebook page.

Commercializing Israel’s natural gas finds

When Texas-based oil and gas producer Noble Energy announced a huge natural gas discovery in Israel in 2011, the entire industry was taken by surprise.

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“This latest major discovery for Noble Energy is easily the largest exploration discovery in our history,” Noble CEO Charles Davidson said.

This year, the CEO is working with Isreali government and businesses to fulfill two goals:

1. To kick-off the commercialization of the huge natural gas deposits in the Mediterranean Sea’s Tamar field. The field has started to generate 300 million cubic feet of natural gas per day since its discovery, while its basin holds up to 10 trillion cubic feet of gas.

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2. To determine whether the gas will stay mostly in Israel or head somewhere else. Whether the Israeli gas will head to eastern and western Europe, the Middle East, or North Africa, it’s for Prime Minister Benjamin Netanyahu’s government to decide.

This historical find completely opens doors not just for the people in Israel, but also for the whole world. While Israel gets energy and economic security from this project, countries without oil sources will also have the benefit of importing affordable gas from Israel.

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Oil and gas expert Dr. Ali Ghalambor is one of the authors of The Natural Gas Engineering Handbook, which discusses essential aspects of the natural gas industry. For the latest developments in the oil and gas sector, follow this Twitter page.

Friday, May 17, 2013

REPOST: Interior Department offers new rules for 'fracking'

Federal standards gained criticism from environmentalists because of hydraulic fracturing. What was the action made to address the issue? This Los Angeles Times article has the details.

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WASHINGTON — The Interior Department proposed new rules to regulate hydraulic fracturing for oil and gas on federal land Thursday, drawing criticism from environmentalists that it had weakened an earlier draft to placate industry.

Industry officials were not mollified, however, reiterating their objections to federal standards. Last year, they criticized the department's earlier draft rules as inflexible and onerous.

"We are proposing some common-sense updates that increase safety while also providing flexibility and facilitating coordination with states and tribes," Interior Secretary Sally Jewell said. "As we continue to offer millions of acres of America's public lands for oil and gas development, it is important that the public has full confidence that the right safety and environmental protections are in place."

The changes did not satisfy industry officials.

"States have been successfully regulating fracking for decades, including on federal lands, with no incident of contamination that would necessitate redundant federal regulation," said Kathleen Sgamma, vice president of government and public affairs for Western Energy Alliance, a Denver-based trade group. "While the current rule is better than the first impractical rule, DOI still has not justified the rule from an economic or scientific point of view."

High-volume hydraulic fracturing involves shooting millions of gallons of water, sand and chemicals underground to crack shale formations and unlock oil and gas. Companies resist disclosing what chemicals they use.

Critics insist that a federal standard is needed to avoid the states' patchwork of rules, some of which are controversial or weak. They want to know what chemicals are being injected, and they want to ensure that air and water supplies are protected.

Environmentalists criticized the latest rules for allowing companies to submit a list of fracking chemicals after a well has been fractured, not before. The draft rules also allow companies to withhold information about chemicals they consider trade secrets. Nor do the rules call for baseline monitoring of nearby air or water before fracking and after.

The Interior Department will accept public comments on the draft rules for 30 days after their publication in the Federal Register.

"These rules protect industry, not people," said Frances Beinecke, president of the Natural Resources Defense Council. "They are riddled with gaping holes that endanger clean, safe drinking water supplies for millions of Americans nationwide. This draft is a blueprint for business-as-usual industrialization of our landscapes."

Dr. Ali Ghalambor is well-known for his expertise in the field of petroleum engineering. Follow this Twitter page for more updates.

Thursday, May 16, 2013

REPOST: Defending America's Greatest Treasures

Many national parks have become endangered because of the fracking and drilling operations across the country. That is why Ellis Richard, a former national park ranger, created ways to protect America's greatest treasures.

Oil and gas is booming across the country, from the shale oil fields of North Dakota to natural gas deposits in the Rockies to expansive shale gas fields of the northeastern Marcellus.

But the success of oil and gas development is not without risk. Today, fracking and drilling operations are encroaching on national parks throughout the West, endangering both the parks and the economic and cultural role they play. This is why my fellow former park rangers and I decided to create Park Rangers For Our Lands. Our goal is to raise awareness to the growing crisis that oil and gas fracking and drilling brings to the footsteps of America's national parks.

As park rangers, we have dedicated our professional lives to the protection of these iconic American landscapes. These parks have played a profound role in shaping who we are as a nation. Millions of people from across America and around the world visit our parks each year.

To see the dangers of reckless decisions about oil and gas drilling on our lands, you need only look at the recently proposed oil and gas leases threatening two iconic parks in western Colorado: Mesa Verde National Park and Dinosaur National Monument. Earlier in the year, Bureau of Land Management Colorado State Director Helen Hankins' office proposed oil and gas leases on thousands of acres around Dinosaur, including development just a mile from the visitor center. Her office also proposed oil and gas leases just to the east of Mesa Verde.

It was personally disappointing to see such disregard for Dinosaur National Monument. During my career, I served as acting superintendent of Dinosaur. The proposed leases would degrade air and water quality, increase industrial noise and traffic, impact the dark night skies, and threaten the park's economic value to local small business owners.

The story at Mesa Verde is not very different. Drilling on those leases would likely add to the already worsening air quality that, today, affects the scenic vistas and beauty experienced by park visitors and local residents. Wildlife populations in and around both parks could be impacted as their habitat and range become fragmented from multiple drilling sites.

Thanks to public outcry by local communities, businesses, and the National Park Service itself, Colorado BLM rightly withdrew the controversial proposals. Unfortunately, their office is already saying that the withdrawals were only temporary, and lands near Mesa Verde National Park could be offeredagain in late summer or fall of this year.

Park Rangers for Our Lands is urging the Colorado Bureau of Land Management and Dir. Hankins to take the balanced approach laid out in the Obama Administration's oil and gas leasing reforms set in motion back in 2010. These reforms were developed in response to widespread outcry over proposed oil and gas leases around Arches and Canyonlands National Parks in Utah. A key aspect of those reforms is the direction to develop a more comprehensive analysis and deeper understanding of the cultural and ecological values that could be impacted by oil and gas development particularly in areas near national parks.

Follow this Twitter page for Dr. Ali Ghalambor  to get more links on the events happening around the energy industry. 

Wednesday, May 15, 2013

Nobel Prize awardee Carlo Rubbia: Fulfilling the natural gas promise

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Natural gas experts laud the government’s move to use affordable and safe sources of energy. This includes Nobel prize winning physicist Carlo Rubbia, who says: “Of all the energy sources in play, natural gas offers the most immediate promise as a clean, abundant fuel that can meet society’s needs, including the need to mitigate global warming.”

To carry out this natural gas guarantee, Rubbia suggests two goals that society must achieve: the development of a technology that will burn natural gas without CO2 emissions and the conversion from using gasoline to methanol by the transportation industry.

With the eradication of CO2 emissions and the use of methane, there’s no reason to disregard natural gas’s purpose. And since natural gas offers a wide range of other benefits, the demand for this form of energy has elevated significantly.

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However, there are issues arising from Rubbia’s concepts. Among them is the emission of CO2 when natural gas is burned. To address this concern, the physicist says that these emissions can be reduced by “cracking” methane as what he is trying to do in his own laboratory.

With the help of private organizations that are committed to clean energy, natural gas can be integrated into human society with ease.

“It seems to me this will be a natural gas society,” Rubbia quips.

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Updates on developments to natural gas production and use can be found on this Dr. Ali Ghalambor Facebook page.

REPOST: Big Data And Microseismic Imaging Will Accelerate The Smart Drilling Oil And Gas Revolution

This article by Mark P. Mills discusses how technological advancements have greatly helped the oil and gas sector. 

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Looking for good news in American innovation? Over the past five years, technology has improved the productivity of the typical oil or gas rig on America’s shale fields between 200 and 300 percent according to industry experts at Bentek. This stunning gain in energy yielded per dollar of capital explains why U. S oil production has grown faster than anywhere in the world.

Technology has improved wind turbines and solar cells too. But with both of those, a 200 percent gain in productivity took 20 years. Consequently, in just two years American oil output has risen more than wind and solar have in over two decades, in fact five-fold and 200-fold more (in energy-equivalent terms) respectively.

Consider another important benchmark: the average cost to find and yield a new barrel. Globally, that cost has increased from $6 in 1998 to $27 a barrel today. But in America’s oil shale fields it’s now dropped to the $7 to $15 range. This reality explains why $150 billion of foreign direct investment flowed into U.S. shale fields over the past four years.

America’s on-shore oil output has grown more in the past five years than has output from off-shore Gulf of Mexico in twenty years. The International Energy Agency forecasts U.S. output will soon surpass Saudi Arabia’s.

These stunning changes in the domestic oil and gas markets have taken nearly everyone by surprise. But can this kind of productivity boom continue? You bet. And it will happen because of yet more technology — information technology to be specific.

Parked in the loading bay of a small tech company in the outskirts of Los Angeles – yes, L.A., not Houston or Silicon Valley — we see the future of big data in the emerging digital oil fields. We’re not talking about the racks of computers, optical convertors and interrogators on hand, but the hundreds of feet of dirty cables thick as a forearm lying on a flatbed trailer. Buried within the cables are the same hair-thin optical fibers that underpin the global Internet. But here U.S. Seismic [NASDAQ:ACFN] is using the exquisite properties of optical fiber to sense and generate massive data streams at the critical working end of oil and gas wells in the deep hot subsurface. This imaging technology does for seismic the equivalent of going from 20th century x-rays to 21st century MRI.

It’s technology like this that prompted IDC, the global information-tech consultancy, to assert that “unconventional resources (shale gas, tight oil) will drive innovation in the expanded use of Big Data.” Or, as Bill Gates recently said: “The one thing that is different today [in energy] is software, which changes the game.”

Information has been the sine qua non of the oil industry from inception. It’s always been about knowing where to look, where exactly to drill. But seeing through rock is hard. The earth is opaque to everything in the optical spectrum and essentially all radio waves. Only vibration – a.k.a. sound — propagates through rock. (Well, for the physics purists, gravity waves, neutrinos and other exotic things do pass through the earth as it if were nearly non-existent.)

Although horizontal drilling and hydraulic fracturing – fracking – have been widely reported as the reasons for the recent American oil & gas boom, neither of these is explanatory. In fact, the techniques are decades old. The boom emerged from smart drilling.

At the core of the hydrocarbon revolution we find 3D seismic maps that let you know where to drill, and down-hole sensors that tell you where to steer the drill underground. Analogously, a car and a highway are, tautologically, essential for taking a road trip — just as fracking and horizontal drilling are for shale production — but without a map and headlights, (it’s always dark underground), the drive would be fruitless.

And to stretch the analogy, what comes next in the oil fields is the equivalent of your car’s GPS; i.e., high-resolution microseismic imaging, the domain of tech players amongst which we count U.S. Seismic. Microseismic brings radically enhanced navigation and, critically, the opportunity for a new era of dynamically controlled subsurface operations. This will both sustain the current hydrocarbon revolution and unleash another round of productivity growth. But we’re getting ahead of the story.

To understand what the future holds requires a bit of a deep dive to see what subsurface information technology has already done. It begins with seismic maps.

Seismic technology uses acoustic vibrations that propagate and reflect back to the surface. Buried in the resulting interference patterns detected by geological microphones – geophones – one can divine the subsurface features. Blind bats use the same acoustic principles with great precision through air, as does the Navy through water, and doctors with ultrasound.

At the dawn of the oil industry in the 19th century, geologists tried to divine what was below by looking at the surface for oil seepages or landscape features that signaled the possibility of subterranean oil fields. Petroleum’s information age began early, in 1924 in Brazoria County, Texas, with the first two-dimensional (2D) seismic map that yielded a successful oil well. Then in 1972, Exxon, along with six oil majors jointly funded a defining field test using a 3D seismic survey. Even with the capability of the mainframe-class computing at that time, a month’s worth of 3D data took two years to process. But the test successfully identified new places to drill in a mature field.

With 3D seismic, the subsurface resolution jumped orders of magnitude by going from the mile-level spacing of the 2D sensors to 100-foot spacing. The quantity of data gushing out of 3D surveys would have overwhelmed petroleum engineers but for the happy coincidence of the dawn of modern computing.

It didn’t take long for the now-familiar combination – more data from better geophone sensors, better algorithms, and more compute power – to change the oil world forever. One perhaps unsurprising discovery: 3D showed that the 2D maps were not just low resolution but often wrong. U.S. drilling success rates rose from an average of barely 50 percent in 1972 – a coin-flip, hence “wild cat” drilling – to over 85 percent today.

Even with good 3D seismic maps, drilling still requires information about precisely what the head of the drill string is chewing through. While crude electrical and chemical sampling and measurements date back a century, it was the combination of the steerable drill (invented in the mid-1980s) packed with modern electronics and sensors that enables today’s measure-while-drilling capability. We are now firmly in the era of smart drilling. But it’s not quite smart enough.

In the shale fields in particular, the challenge and opportunity is clear from a singular fact. Fracking is done in sections called stages. Only one out of four of the stages produces a payday. Such low yields would be anathema in modern manufacturing. Oil bears see this as a warning sign. Tech companies see it as an opportunity.

The potential for huge gains in output are arithmetically obvious. But getting all the stages to be productive can only come from far more precision and far higher resolution of the underground domain. In particular, operators need to move from today’s static and episodic geophysics maps to dynamic models of how rocks and fluids change. The next revolution comes when, as 3D pioneer Roice Nelson puts it, “you can listen to the fluids in the reservoir.” Nelson should know. In 1984 he co-founded an early 3D survey company, Landmark, which Halliburton acquired in 1996.

Geophysicists like Nelson talk about “listening” to how and where fluids are flowing and how and where rocks are changing. The goal is to listen how and what parts of miles of 6 to 12-inch pipe thousands of feet down are producing. For that you need far more sensitive detection, with far more bandwidth than is possible with conventional seismic.

You need to see the micro-fractures from the real-time results of the fracking itself. Hearing the millimeter-scale cracks forming complex arrays in shale a mile away, then separating out the signals from confounding environmental noise is like hearing a whisper from the other side of a noisy auditorium. All of these “micro” events are not detectable with standard seismic. Enter the era of microseismic technology.

By oil industry standards microseismic is new, becoming commercial barely a decade ago through a familiar combination — better electronics yielding more sensitive sensors, higher-speed communications down-hole, and the fruits of the on-going computer revolution.

The giants of the oil services industry all have microseismic offerings: Schlumberger [NYSE:SLB] with StimMAP, Halliburton with FracTrac, Weatherford’s SeismicSpear, and Baker Hughes [NYSE:BHI] with IntelliFrac. Without microseismic fracture mapping, drillers are essentially wildcatting underground, the equivalent of what they used to do on the surface. And just as the advent of 3D not only expanded and illuminated the errors in 2D, so too are microseismic surveys quickly revealing the holes and even errors in 3D.

But today’s best-in-class geophones cannot fully unlock the potential of microseismic. The sensors need to see (hear) signals at 100 times the bandwidth, and be at least 100 times more sensitive (quieter). And, in an ideal world – which eventually becomes the standard operating procedure – imaging has to move from snap-shots to continuous real-time monitoring. Geophysics leader CGG-Veritas calls this SeisMovie. This will require a new class of sensors both cheap and robust enough to survive for long periods, even permanently in the hot underground. Conventional electronics cannot deliver that combination. This is where U.S. Seismic’s fiber optic technology changes the game.

Physicists have long known that fiber optics can be used to perform virtual magic with photons. For communications systems, information is encoded in the light carried in fibers. Similarly, used as a sensor, even a subtle environmental change like vibration encodes itself into a laser beam inside a fiber. The tantalizing feature of a fiber-optic sensor is not only its exquisite sensitivity to vibration, but that the fiber itself needs no power or electronics. And, despite being fabricated from glass, optical fiber is remarkably robust and temperature tolerant. While fiber optics are already in use for some tasks including temperature and crude acoustic sensing, the industry still lacks (until now) a viable fiber geophone.

Making practical fiber optic geophones has been devilishly difficult. The issue isn’t in the physics – though the physics-based algorithms are critical. The challenge has been to come up with a design that is simple, easy to manufacture, yielding a highly reliable and reproducible product. This is where U.S. Seismic’s CEO Jim Andersen brought unique experience.

A Naval Academy grad, Andersen served as the Engineering Officer on a submarine before starting his post-military career at Litton (acquired by Northrop in 2001). The daunting realities of submarines operating self-sufficiently in a terribly hostile environment forges a vital instinct – a near monomaniacal focus on ensuring that everything is reliable, practical and simple. At Litton, Andersen took over a team that had been struggling to develop a new sonar based on fiber optics. His drive to make-it-simple successfully culminated in a practical design and a $400 million contract to deploy the fiber sonars on submarines.

Fortunately for the oil & gas industry, Andersen brought that core team and intellectual property out of Northrop into U.S. Seismic where the technology was adapted for the geological subsurface, and the design further advanced for low-cost high-volume manufacturability. In the same practical spirit, the output data stream (from the entirely surface-located electronics) is directly compatible with existing seismic imaging software and analytics. So U.S. Seismic is now running the usual gauntlet of “show me” field trials; a standard procedure central to all industrial domains.

In a hotly competitive market it is doubtless frustrating to U.S. Seismic that many early customers, in particular the bigger players, require confidentiality. Fortunately, some of the boutique players are less reticent. One customer and partner, Gary Tubridy, CEO of Avalon Sciences, founded his oil & gas tech company to focus as well on supplying specialty high-performance tools to the big service companies like Baker Hughes and Weatherford. Tubridy, who began his career shooting high-resolution borehole 3D seismic in the North Sea, is bullish on the “game changer” that will come from fiber geophones. Once U.S. Seismic’s field trials are complete, along with the normal subsequent tweaks, he’s ready to begin the commercial roll-out with the fiber sensor incorporated into Avalon’s new BOSS, Borehole Optical Seismic System. Tubridy says his company is starting to get a lot of inquiries for permanent subsurface monitoring capabilities.

And Avalon has developed its own companion product: a down-hole acoustic source. In one mode, microseismic is passive, listening to flows and to the “snap crackle pop” of fracking, as one industry veteran phrases it. In an active mode, especially for exploration, the subsurface needs to be ‘illuminated’. With 3D seismic, both sensors and noise-makers are on the surface. But if you want a clearer underground picture using a down-hole microseismic ‘camera’, you need a ‘light’ underground too; hence Avalon’s borehole noise maker.

Cheaper, faster and better is a familiar trajectory. But the revolution really takes hold as the full power of U.S. Seismic’s richer data streams enable the emergence of better algorithms and better dynamic geophysics models that accommodate the complex mix of both plastic and brittle behavior of rocks in the subsurface. This will play directly into big data analytics where correlations become possible now across the entire suite of hydrocarbon information — surface survey maps, drill-bit sensors, flow rates, pressures, temperatures, chemical analyses, etc. There is no chicken-egg uncertainty in which comes first; better and richer data flows will drive the emergence of new big data analytics.

Here again the oil majors and service companies are either proprietary or coy about their software pursuits. But some of the big software companies are less so, seeing the potential in the oil & gas domains, including Oracle, IBM, SAP and Teradata [NYSE:TDC]. If history is any guide here, the smaller and near-start-up classes of IT companies may rapidly innovate around the bigger players as the hydrocarbon data tsunami grows.

Amongst the smaller companies we find the likes of Neos (where Bill Gates is an investor) and Sigma3 which acquired Fusion Geophysical shortly after we wrote about them in 2011. (We liked their clever software, and moniker, From The Geophone To The Drill Bit.) Then there are companies whose DNA is anchored in both the IT and geophysical domains, like SR2020, also in the L.A. area where CEO Bill Bartling is another U.S. Seismic customer and partner. Bartling’s pedigree, with his background in places like Silicon Graphics, software company SciFrame, and at Occidental Oil & Gas where he was manager of technical computing, telegraphs the IT-centric reality of hydrocarbons.

For Bartling there is no ambiguity about the future of oil and gas tech, especially in the productive shale fields. According to Bartling, microseismic capabilities are not only economically exciting, they promise collateral opportunity for greater safety and environmental monitoring at de minimis costs, or even as a ‘free rider’.

But it’s the disruptive potential for microseismic to change the operating paradigms for exploration itself that animates Bartling, predicting that it enables a migration from massive, expensive and long-duration 3D surface seismic, to modular, incremental and fast surveys. This is another familiar trajectory, like the change from central to distributed computing; from mainframe to PC. SR2020 intends to be on the front lines of the revolution and has already placed an order for one of the first big commercial fiber arrays from U.S. Seismic.

As Bartling points out, while the popular media has gushed (appropriately) about the billions of barrels in shale deposits, microseismic mapping and real-time monitoring provides the key to unlock more of what’s left behind in today’s horizontal wells (the 80 percent unproductive stages). And microseismic will play a critical role in figuring out how to optimize processes to unlock the geologically different shales both in America and around the world.

Ernie Majer, a geophysicist at the Lawrence Berkeley National Labs, is bullish about microseismic (and the performance of U.S. Seismic geophones, having tested them). He foresees the same kind of revolution that has altered the field in decades past. In particular, Majer expects that another emerging technology, micro-drilling, can be combined with microseismic in due course. Micro-drilling is precisely what the name implies, much smaller drill rigs that can drill smaller holes far more rapidly (10-fold) and thus far less expensive, making it ideal for exploration and subsurface sensor placement.

Big changes from big data are now coming fast to the oil & gas industry. First of course, big data will wring more efficiencies using all existing data. This always comes first. But the combination of the exaflood of new sensor data with increasingly ubiquitous access to Cloud-based super-computing, available at low cost and by-the-drink, is bullish for everyone, especially for smaller companies. Better sensors and the Cloud levelize the playing field between oil majors and ‘minors’. It was, after all, the 18,000 small and mid-sized oil & gas companies that were almost entirely responsible for pioneering the production boom on America’s shale fields.

The incendiary combination of America’s entrepreneurs and the inexorable force of technology was, and is, an anticipatable revolution. As my colleague and I wrote eight years ago in our book The Bottomless Well, when we predicted oil abundance:

“Satellite, acoustic imaging systems, and data processing play such a pivotal role in today’s search for oil that the modern drilling rig has been aptly described by Jonathan Rauch [in 2001] as a computer with a drill bit attached to one end. Brute force is still needed, but drilling for oil has become a delicate, high-precision process of keyhole surgery…” When we wrote that, it was a peak time for the peak oil theory, the ostensible imminent and inevitable demise of the age of hydrocarbons. You know the world has changed when the New York Times notes that America could become an oil exporter.

And it has only just begun. With the convergence of microprocessors and microseismic imaging, the revolution expands. As the trenchant Ed Morse, global head of commodities research at Citi, has said: “Peak oil is dead.” And Big Data will put a stake through its heart. <<>>

Dr. Ali Ghalambor has provided consultation services to over 50 petroleum production and service companies. For more updates on the developments in the energy industry, visit this Facebook page.