1

Chapter 4 Oil and Gas We begin with a map from the 1990s showing energy production from all sources. The biggest energy producers are Russia, the U.S., and China.

http://www.wrsc.org/sites/default/files/images/2010/energy%202.png The same three countries are also the biggest energy consumers.

http://www.wrsc.org/sites/default/files/images/2010/energy%201.png

2

Come forward to 2016. What’s changed? The top three energy producers are still the top three.

http://energyatlas.iea.org/#!/tellmap/-297203538/0 The top three energy consumers, however, have shifted. India has replaced Russia.

http://energyatlas.iea.org/#!/tellmap/-1002896040/1

3

If we look at energy consumption on a per capita basis, the result is radically different, with Canada, Iceland, and Norway in the top spots. The U.S. follows them, along with Saudi Arabia and Australia. China hardly ranks, despite the fact that its absolute consumption is very high. Americans use at least 30 times as much energy, per capita, as the people of Afghanistan, Burma, and Cambodia. If that makes you uncomfortable, be glad you’re not from Canada, Iceland, or Norway.

http://burnanenergyjournal.com/wp-content/uploads/2011/12/WorldMap_EnergyConsumptionPerCapita_v4forweb.jpg

4

What do we see in the crystal ball? This projection from the International Energy Agency shows that consumption in the U.S. is predicted to decline slightly in the next 25 years, thanks mostly to greater efficiency. Europe’s consumption will decline even more. So will Japan’s. Everywhere else, consumption continues to rise.

http://www.iea.org/weo2017/

5

Combined, oil and gas are far and away the biggest source of energy worldwide. Coal is a distant second. All three combined produce more than three-quarters of the world supply. Want to stop using them? You have your work cut out for you.

http://www.economist.com/news/special-report/21710628-worlds-use-oil-approaching-tipping-point-writes-henry-tricks-dont-expect

6

The world today produces about one cubic mile of oil annually. If all the natural gas produced annually was converted to an energy-equivalent amount of oil, it would fill that same tank more than half full. We use so much oil and gas that we’ve spent most of the last century worrying about running out, particularly of oil The red line shows one prominent projection from the 1950s. It shows U.S. oil production peaking in 1970, then sliding to oblivion. This curve is well-known from the Peak Oil Theory, and it proved right until about 1990. Then, as the green line shows, it no longer held true at all.

https://en.wikipedia.org/wiki/Peak_oil#/media/File:Hubbert_Upper-Bound_Peak_1956.png

7

So how much oil and gas is there? “Proven reserves” are defined as oil and gas that is economically recoverable with current technology—which implies that proven reserves change in tandem with changes in technology and prices. Contrary to the long-held popular belief that the planet is running out of oil, proven oil reserves today are greater than they were 20 years ago—about 50 percent larger.

http://www.economist.com/news/special-report/21710630-industry-already-suffering-upheaval-part-it-still-denial-tricky Technical detail: the unit of measure in the graphs above is trillions of cubic meters. The more common one in the industry is the barrel, which with reference to oil means 42 U.S. gallons—enough to fill this bathtub, which holds exactly 42 gallons before overflowing. The conversion factor is 6.29 barrels per cubic meter. Handy to know when you’re trying to wow your friends. (“Gosh, Dan, you’re so smart!” “Aw, Becky, it’s no big deal.” Romance blooms.)

8

Where are those reserves located? Venezuela comes first. It has been a major producer since about 1920, but it only came into first place for reserves in the last decade or so, when foreign producers learned how to economically produce the heavy oils of the Orinoco Basin. Venezuela is followed Saudi Arabia, which has been a world leader since about 1950. Then there’s another relative newcomer, Canada, which moved higher on the list with the development of the Athabaska tar (or oil) sands.

https://www.eia.gov/beta/international/data/browser/#/?pa=0000000000000000000008&c=ruvvvvvfvtvnvv1urvvvvfvvvvvvfvvvou20evvvvvvvvvnvvuvo&ct=0&tl_id=5-A&vs=INTL.57-6-AFG-BB.A&cy=2018&vo=0&v=H&start=1980

9

Here’s proven reserves in tabular form: same top three. The next four countries are neighbors in the Middle East. Then come Russia and Libya, followed by the U.S. Remember: this is reserves, not production. Big difference!

http://en.wikipedia.org/wiki/List_of_countries_by_proven_oil_reserves

10

Here’s the list of leading oil producers. Venezuela, which was first in reserves, doesn’t make the top ten. China, which is fifth in production, didn’t even make the reserves list on the last page. Saudi Arabia is Number 2 in both reserves and production, but the most arresting thing is the position of the U.S.

https://www.eia.gov/tools/faqs/faq.php?id=709&t=6

11

Go back a decade, and the U.S. was in third place; now it’s at the top. The biggest decliner is probably Venezuela, where production has been cut in half with the country’s political crisis.

https://www.statista.com/statistics/273504/oil-production-in-selected-countries-since-2000/

12

Look how far the U.S. has risen in just three years.

13

It’s almost like the good old days. I mean that the U.S. in 1913 produced 63 percent of the world’s oil and 97 percent of its natural gas. Russia came next, followed by Mexico. The Middle East didn’t figure at all. Blue is oil shale, which at the time was mined in Scotland. The big producers in the U.S. back then, by the way, were California and Oklahoma. Texas was trivial.

USGS, World Atlas of Commercial Geology, 1921.

14

We’ve looked at oil reserves and production. Here’s consumption. It’s flat in the U.S. and many other countries but rising in China. Most of the big oil consumers are big countries by area and population, but there are exceptions, including Germany, Canada, South Korea and Saudi Arabia. The one with the fewest people is Saudi Arabia. Its population is smaller than California’s, but Saudi Arabia uses twice as much oil as California.

https://en.wikipedia.org/wiki/List_of_countries_by_oil_consumption

15

Saudi Arabia until recently had some of the cheapest gas in the world: about 91 cents a gallon late in 2017. It’s been about doubled since then, by government decree. At the other end of the spectrum, gas in Norway is about $7 a gallon, while France, Germany, and the UK are all about $6.

https://www.bloomberg.com/graphics/gas-prices/

16

Who produces all this stuff? Here’s a list of the 20 biggest companies, measured by revenue. I count five U.S. based companies (Exxon, Chevron, Valero, Phillips, and Marathon) but the list is dominated by government-owned companies like Sinopec and Saudi Aramco.

http://en.wikipedia.org/wiki/List_of_largest_oil_and_gas_companies_by_revenue

17

It’s hard to comprehend how big these companies are, but look at this sequence of maps showing Shell gasoline stations in Dallas, then in Texas and neighboring states, then across the U.S., in Europe, in Southeast Asia, and around the Indian Ocean. You’ll see that the company isn’t in every market but is a major presence in almost every market it chooses to enter.

18

19

Shell doesn’t seem to speak much French.

20

Or Vietnamese.

21

The company’s first oil reserves were in what was then the Netherlands East Indies, and Shell is still deeply engaged in what is now called Indonesia.

http://locator.shell.us/?country=US&language=en_US

22

Which is the most profitable oil company, worldwide? Over the last decade, at least, and among the biggest companies, Exxon (or ExxonMobil, to give it its full name) has topped the list. The number-two slot has generally been held by Shell, though you can see that this has shifted in the last few years to BP, Chevron, and Total, a French company. The striking thing about the graph is perhaps the dominance of Exxon, which the company would probably attribute to its corporate culture, emphasizing both competency and integrity.

https://www.wsj.com/articles/when-total-a-global-oil-giant-imagines-the-futureits-electric-1497366285

23

We can break production down not only by country but by oil field. The two biggest fields in the world are Ghawar in Saudi Arabia and Burgan in Kuwait. The only U.S. field on this list is the now declining Prudhoe Bay, on Alaska’s Arctic Ocean coast. Russia has five fields on the list, all but one in West Siberia.

http://en.wikipedia.org/wiki/List_of_oil_fields

24

Here’s a map of the biggest fields in the U.S. It’s almost illegible, but if you click on the link you can zoom way in.

http://www.eia.gov/oil_gas/rpd/topfields.pdf That’s what I’ve done here, to get the biggest fields. California is the state with the greatest number of oil fields in the top group; the trio at the bottom of the oil list are all in Kern County (the county seat is Bakersfield).

25

Mustn’t forget Texas, which remains the state with the greatest production. In 2005 it had 152,000 active oil wells and 67,000 active gas wells. The little map at the bottom helps categorize them into regions; the region to keep in mind above all others is the Permian Basin, around Midland-Odessa.

http://www.lib.utexas.edu/geo/pics/oilandgasmapfront.jpg

26

Nine years later, the number of Texas oil wells had risen from 152,000 to 166,000, and gas wells had risen from 67,000 to 96,000. You might (smartly) argue that the number of wells does not tell the whole story: Saudi Arabia has very few, but the ones they have beggar ours. So you should ask how oil and gas production in Texas changed over the same period, 2005-2014. The number of oil wells increased a bit over 30 percent, but the amount of oil Texas produced zoomed from 344 million barrels in 2005 to 900 million in 2014. Gas wasn’t so dramatic: the number of wells and the production from them both rose about 50 percent.

http://www.geoexpro.com/articles/2015/05/the-great-black-giant

27

Reported production looks especially strong from District 8. The table below shows that District 8 tops the rankings in both in number of wells (about 57,000) and monthly production (27 million barrels).

http://www.rrc.state.tx.us/media/35366/own423_20160916_rrc180_jul2016.pdf

http://www.rrc.state.tx.us/media/7100/districts_color_8x11.pdf

28

So what’s in District 8? Answer: the Permian Basin, a geologic (not topographic) bowl stretching south from Lubbock almost to the Mexican border. The name comes from the age of the rocks.

https://en.wikipedia.org/wiki/Permian_Basin_(North_America)

29

Can we call it a boom? I’d say so. The only question is when it levels off or begins to decline.

https://www.wsj.com/articles/rivals-vie-for-mastery-over-americas-hottest-oil-field-11557135001

30

You might think this was a vineyard or an orchard or a pin cushion, but it’s thousands of wells.

31

Chevron produces about 350,000 barrels daily in the Permian Basin; Occidental isn’t far behind. Any idea why Anadarko, at a bit over 100,000 barrels daily, is highlighted?

https://www.wsj.com/articles/rivals-vie-for-mastery-over-americas-hottest-oil-field-11557135001

32

Here’s why. In 2019 Chevron (red) offered to buy Anadarko (blue) for $33 billion. Occidental (yellow) jumped in with a bit for $38 billion. You can see how both companies would find Anadarko a good match, at least in terms of the location of its holdings.

https://www.wsj.com/articles/rivals-vie-for-mastery-over-americas-hottest-oil-field-11557135001

33

Occidental won the bidding war but probably regrets it, because the subsequent fall in oil and gas prices left Occidental terribly indebted. The chief executive of Occidental, Vicki Hollub, found herself on the hotseat, having pushed hard for the acquisition.

https://www.wsj.com/articles/occidental-ceo-says-revised-bid-for-anadarko-was-needed-to-win-11557157706

34

Much of western Oklahoma is in the neighboring and highly productive Anadarko basin, which ends just west of Cleveland County. Now you know why you don’t see many oil wells around Norman.

http://www.okenergytoday.com/2017/08/drilling-grows-anadarko-basin/

https://www.fractracker.org/2015/08/1-7-million-wells/

35

Nationally, Oklahoma ranks higher than either Alaska or North Dakota by number of wells but not by production. This goes back to the state’s early history, when oil wells were customarily and wastefully drilled close together, part of a scramble to produce before your neighbors did.

https://www.fractracker.org/map/national/

36

The U.S. has over a million operating oil wells, many more than any other country. Most wells in the United States produce less than 15 barrels daily. In industry jargon, they’re “strippers.” Saudi Arabia, which produces about as much oil as the U.S., has only about 3,000 wells.

https://www.eia.gov/petroleum/wells/pdf/full_report.pdf

37

In the 1980s, it seemed that oil production in the U.S. was entering the terminal decline predicted by Peak Oil theory, but several innovations bent the curve back up and will likely continue to do so until the petroleum age winds down, as it eventually must.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS1&f=A The first of these revolutions was secondary recovery which usually involves injecting high-pressure steam into a reservoir of heavy oil, which then becomes less viscous and moves toward production wells. See what this did for California's old Kern River field (at Oildale, just north of Bakersfield) where production sagged from 15 million barrels a year to about three million, then with steam injection jumped up to 50 million barrels, from which it is declining once again.

http://www.theoildrum.com/node/5098

38

Kern River used to look like this (I took this photo in the late 1960s).

Then steam came. The picture below shows steam generators and insulated steam pipes.

39

This picture shows the thicket of wells brought to life by steam. The wells are densely packed because the oil is thick and doesn’t migrate very far even when heated by the steam. In other words, sometimes the density of wells in a field is determined not by a mad scramble to take your neighbor’s oil but rather by the physical characteristics of the oil reservoir.

Here’s a bit of the Kern River field. You can make out the maze of service roads, along with steam generators and, if you squint, hundreds of wells.

40

A second revolution came with the development of oil from the outer continental shelf of the United States. This is, almost without exception, a story of the Gulf Coast, because drilling elsewhere is prohibited for fear of an environmental disaster. Donald Trump intended to lift this prohibition but so far has not, at least partly because many Republicans, otherwise supportive of him, oppose the change. (The exception is waters close to shore in California, where offshore drilling has gone on since the late 19th century. A much-publicized oil spill at Santa Barbara in 1969 probably led to the prohibition of drilling in other waters.)

https://www.google.com/search?q=santa+barbara+oilspill&rlz=1C1GCEV_en&oq=santa+barbara+oilspill&aqs=chrome..69i57j0l7.4863j0j7&sourceid=chrome&ie=UTF-8

41

Texas, Louisiana, and the other states bordering the Gulf of Mexico have not been so fussy. At least they’ve been willing to risk occasional messes in exchange for money and jobs. Here’s a general picture of the fields developed so far in the Gulf. The heavy line, at 200 meters, defines “deep water,” which has attracted development since the 1970s. About 80 percent of the oil produced in the Gulf comes from this deep water.

http://www.eia.gov/oil_gas/rpd/offshore_gas.pdf

42

There have been dozens of discoveries by now in water over a thousand feet deep. The frontier is in water over 7,500 feet deep.

http://www.eoearth.org/files/132901_133000/132973/deepwaterdiscoveries.jpg

43

The wells in shallow water aren’t so productive, but there are LOTS of them. Here’s a map of the Gulf’s drilling platforms.

https://databasin.org/maps/new#datasets=f8002840303b4576b3a0fce992d5e71d To secure property rights, the seafloor here has been organized as neatly as the wheat fields of Kansas. As blocks are opened for leasing by the federal government, which maintains ownership of all but a narrow coastal strip, interested companies bid competitively for drilling rights. They often offer hundreds of millions of dollars in so-called bonus payments, with the understanding that when the wells come into production the company will also have to pay the government a royalty or percentage of the oil’s value. If the wells in a block fail to produce, the government keeps the bonus.

http://www.permaculturemarin.org/gom-oil-lease-map/

44

And here are the operations of Williams, a comparatively small operator based in Oklahoma. I show you this just to emphasize the complexity of this business.

http://co.williams.com/williams/news-media/gulf-coast-profile/

45

Meanwhile, there’s been that third technological revolution, the spectacular (or dreadful, depending on who’s talking) development of fracking. Over the next 25 years, the production of oil and gas from conventional sources in the U.S. will decline sharply, but total oil and gas production will rise about 50 percent thanks to fracking of oil and gas locked in tight shale. Thanks to this technology, the executive director of the IAE says that the U.S. will “become the undisputed global oil and gas leader for decades to come.” Note on definition: fracking, in the literal sense of setting of breaking the reservoir rock, goes back to the 19th century and has been common since then. As the word “fracking” is used today, however, it usually implies two related technologies. The first is horizontal drilling, where the bit goes vertically down to the reservoir rock, then turns more or less horizontally and follows the layer of reservoir rock for hundreds or even thousands of feet. The second technology is fracturing not with explosives, as in earlier decades, but by injecting fluids under high pressure, then pushing sand into the fractured rock to prop open the cracks.

46

As you can see, the number of new conventional wells (those simply drilled vertically) has declined in the last 25 years from 70 percent to maybe 10 percent of all wells drilled in the United States. Horizontally driven wells, which begin vertically then change direction, have done the reverse and gone from about 10 percent to about 90 percent of all new wells.

https://www.oklahoman.com/gallery/articleid/5595141/1/pictures/?display=oklahomanApp

47

More than half the oil produced in this country now comes from horizontally drilled wells. They extract oil from rock that looks dry as cement but which under sufficient pressure yields oil and gas from microscopic rock pores.

Fracked wells really pop, at least for a while, and production from new wells today is four times as much as it was only a few years ago. Implication: fracking technology is improving.

48

Here’s more evidence of the improvement. A well drilled in 2013 took about three years to produce 180,000 barrels of oil; a well drilled in 2018 took less than one year to produce that much.

https://www.wsj.com/articles/frackers-chasing-fast-oil-output-are-on-a-treadmill-11554721202?mod=searchresults&page=1&pos=1

49

This map shows the basins (in magenta) in which frackable rock is known to exist and (in the brighter tint) where fracking is already important. The Barnett, Marfa, Eagle Ford, and Haynesville formations are all in Texas, Woodford is in Oklahoma, Marcellus straddles several states stretching south from New York, and Bakken is mostly in North Dakota.

https://www.eia.gov/analysis/studies/usshalegas/

50

Here’s a simplified version emphasizing the major areas where fracking is already important, not merely potentially important.

https://www.ft.com/content/d3d63bba-7653-11e9-be7d-6d846537acab

51

It’s hard to get an intuitive sense of how big a job it is to frack a well, but a thousand pounds of sand is often injected for every linear foot of the producing zone of the well. Which reminds me: lately I’ve seen several trains passing through Norman and consisting only of covered hopper cars. That’s all. I’m not sure, but fracking sand often comes from Wisconsin, so I’m thinking those trains are filled with sand for Texas wells.

o https://www.wsj.com/articles/latest-threat-to-u-s-oil-drillers-the-rocketing-price-of-sand-1490266800

52

The sand market is strong not only because lots of wells are being drilled but because the amount of sand per well is up from 5.3 million pounds per well in 2014 to 11.5 million in 2017. The market for Wisconsin sand, however, is likely to taper as new sand mines are developed in the Permian Basin itself. The sand isn’t quite as hard as Wisconsin sand, but some drillers will put up with slightly inferior sand if it costs $85 a ton instead of $140. You can see the area being mined east of Kermit, near Odessa. You don’t even have to dig for it: the area is dunes.

53

Think the sand miners in Wisconsin are going to cry? Save your sympathy: some of them, at least, are the same companies mining sand in West Texas. Here’s one of them, Hi-Crush. If you want to cry, save your tears for the railroads, which have lost many carloads of freight.

http://www.hicrush.com/facilities/overview-map/

54

Here’s the result of the fracking boom in the Barnett Field, which mostly yields gas. About 15,000 wells have been drilled, and many landowners have gotten rich from bonuses and royalties paid to them by the producing companies.

http://www.tceq.texas.gov/publications/pd/020/2012-NaturalOutlook/texas-in-vanguard-of-natiowide-oil-and-gas-energy-boom

55

Next time you fly into DFW, look down if you can and you’ll see some of these wells, which look like building sites. The view here is just west of Denton.

56

Here’s a bit of the Eagle Ford, fracked for oil. We’re about 70 miles due south of San Antonio. (The name is pronounced EAgleford, with the accent on the first syllable.)

57

Oklahoma has a small share of the action. Here’s an area around Great Salt Plains Lake, about 10 miles northwest of Enid. See the dozens of wells lined up along the section-line roads? The lower image is a close-up of the area I’ve marked.

58

Here’s North Dakota. In 2000, people thought it was done as an oil and gas producer.

59

Click on the link below and you can see an animation of the development of the state’s Bakken Shale. Production here has hit a million barrels daily, making the state Number Two in the country, after you-know-who.

http://www.aei-ideas.org/2012/08/animated-map-of-the-bakken-shale-production-1985-2010/

60

Want help visualizing a million barrels? An Olympic-size pool contains about 660,000 gallons, or about 15,000 oil barrels. Do the math: a million barrels will fill 65 of those pools. North Dakota does it every day with black gold. Sounds pretty messy, doesn’t it?

http://www.hd-wallpapersdownload.com/indoor-olympic-pool-hd-wallpaper/

61

Here's another animation, this one for the Eagle Ford of South Texas.

http://www.eia.gov/todayinenergy/detail.cfm?id=3770

62

Who’s producing shale oil and gas in the U.S.? Answer: not so much the big international companies. Instead, smaller companies led by Chesapeake and Devon, both based in OKC. (Note:You may wonder how it’s possible to report oil and gas production as a single number of barrels of oil. Answer: there’s a standard conversion, based on energy equivalence. The conversion is 6,000 cubic feet of gas to one barrel of oil.)

http://www.wsj.com/articles/too-big-to-frack-oil-giants-try-again-to-master-technology-that-revolutionized-drilling-1471362741

63

California’s production has slacked off after years of secondary recovery, but the loss there has been more than offset by gains elsewhere.

http://www.ft.com/intl/cms/s/0/e178031e-2cf4-11e4-8105-00144feabdc0.html?siteedition=intl#axzz3BXUCR6FO

64

And new fields keep turning up. Here’s one, the Alpine High in the Davis Mountains of West Texas. Depending who you talk to, the Apache Oil Company’s 300,000 acres here are worth $8 billion and possibly much more—or a whole lot less. The early wells, which mostly produced gas, were profitable even at 2016 prices ($2.72 per million BTUs). The company’s chief executive said, “This is a giant onion that is going to take us years to unveil and peel back.” The checkerboard ownership pattern is a result of a land grant made in that shape to the Texas and Pacific Railroad in 1873.

http://www.wsj.com/articles/apache-has-high-hopes-for-new-oil-field-discovery-in-texas-1473245702

65

Until fracking came along, nearly all the crude oil produced in the U.S. moved by pipeline, by far the cheapest way to carry it. The pipeline network is extraordinarily dense if you include gas pipelines and refined-product pipelines, but it you just strip it down to crude-oil trunk lines, as the map below does, it’s much sparser and is largely confined to the central third of the country, especially Texas, Louisiana, and Oklahoma. (NGL, on the legend, is “natural-gas liquids,” mostly ethane extracted from natural gas and used mostly to produce ethylene, a feedstock in the manufacture of plastics.)

http://www.pipeline101.org/where-are-pipelines-located

66

Here’s a close-up of the pipelines carrying oil from the Permian Basin. The busiest is the Basin Pipeline to Cushing, Oklahoma.

https://www.dallasnews.com/business/energy/2018/06/12/planned-permian-basin-pipeline-will-carry-1-million-barrels-crude-oil-per-day

67

Cushing holds more oil than any other tank farm in the country—or about 16 percent of all crude oil in storage in the U.S—and its capacity is growing. What’s going on here? Cushing is the default location for oil deliveries on New York Mercantile Exchange contracts. The tank owners aren’t household names, but the biggest is Plains All American Pipeline, which also owns the Basin Pipeline.

68

Here’s a map of the company’s assets, including the Basin Pipeline but also a line from Alberta.

https://www.plainsallamerican.com/what-we-do/view-our-assets

69

Pipeline capacity from the Permian Basin is likely to double in the next few years as lines are added to Cushing and the Gulf Coast.

https://www.wsj.com/articles/bigger-oil-pipelines-are-coming-to-west-texas-to-ease-bottleneck-1532943030?mod=searchresults&page=1&pos=1

70

I don’t have to tell you that there is huge popular resistance to new pipelines. The Dakota Access Pipeline (30-inches in diameter, 1,172 miles long, and with a capacity in excess of 500,000 barrels daily) was designed to bring Bakken oil down to Patoka, Illinois, but the pipeline was the subject of much-publicized protests, and President Obama in September, 2016 announced that permits to build across federal land near the Standing Rock Indian Reservation in North Dakota would be reconsidered. With the election of Donald Trump, that was reversed. Only a very small amount of work remained to be done on the pipeline, and on June 1, 2017, oil began flowing through it.

https://www.google.com/search?q=map+of+oil+pipelines+at+patoka+hub&rlz=1C1GGGE_enUS410US410&espv=2&biw=1280&bih=710&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiduKLara3PAhUl94MKHUOVB0wQ_AUIBygC#imgrc=D5SiZSt3zzhIvM%3A

71

Patoka, the Dakota Access pipeline’s destination, is an important pipeline hub, and oil in the Dakota Access will probably continue south in the Etcop line to East Texas. Etcop, which belongs to the same company that built the Dakota Access line, already exists as a gas pipeline and is being converted to handle oil.

http://www.energytransfer.com/documents/ETCOP_FactSheet10.pdf

72

Another controversial pipeline is the Keystone XL, which producers and the government of Alberta have hoped for years to use to ship Canadian oil to Texas. The line was originally routed through the Sand Hills of Nebraska but in the face of protests was relocated (as the map shows) to skirt the east edge of the hills. This did not mollify opponents. After a long delay, President Obama refused to allow the project to go forward, only to have President Trump give the pipeline the go-ahead. A year later, a federal judge stopped work once again on environmental grounds.

http://www.washingtonpost.com/wp-srv/special/nation/keystone-xl-map/

73

Will it actually be built? Apparently so. President Trump released the company from having to do further environmental studies, and the government of Alberta stepped forward in 2020 with funding and funding guarantees.

https://www.politico.com/story/2017/07/28/keystone-xl-status-timeline-241097

74

Here’s another gas pipe. It’s called the Rover and will take shale gas from the Appalachians west to a distribution hub in northwestern Ohio and also into Canada. Cheap? Sure: only $4.2 billion to build the thing. Who’s got that kind of money? About a third of the cost has been picked up by Blackstone, a private equity firm that’s invested in a million things, from Hilton Hotels to the Weather Channel.

http://www.roverpipelinefacts.com/index.html

75

A photo of the line under construction.

https://www.wsj.com/articles/why-blackstone-is-betting-7-billion-on-natural-gas-1502789402

76

Despite all these pipelines, there’s still not enough capacity for the huge volumes of oil produced with fracking, so oil producers have reverted to shipping bulk oil by railroad tank cars, something that they had rarely done for decades. Here are some of the terminals developed for that purpose in California. Between them, they deliver something over half a million barrels daily—about a quarter of the state's consumption. The state produces about 500,000 barrels daily, which means that it still needs to import a lot by sea.

http://online.wsj.com/articles/california-finally-to-reap-frackings-riches-1412700677?KEYWORDS=sider+sweet

77

Back around 2016 I often saw oil trains running south through Norman, too, which didn’t happen before the boom in North Dakota. It made me nervous, because an oil train wreck can be truly horrifying. One such case occurred in 2013 in Quebec, when a train like this was parked late at night with its brakes inadequately set. With its crew gone, the train started moving, picked up speed, and just about destroyed the town of Lac-Mégantic. True, that couldn’t happen in flat Norman, but other accidents could. The Canadian safety board released a good video explanation of the wreck. https://www.youtube.com/watch?v=wVMNspPc8Zc The CBC did a longer story about it. https://www.youtube.com/watch?v=qzWVSx_crUY

78

That’s why I’m happy with the recent decline in rail transport of oil.

http://www.wsj.com/articles/crude-slump-pipeline-expansion-mark-end-of-u-s-oil-train-boom-1469484016

79

Here’s an oil-loading terminal outside Stanley, North Dakota. It was built in 2009 to ship Bakken oil, but as of July, 2016, and thanks to a new pipeline, it hadn’t loaded a single car in a year. The BNSF railway a few years ago shipped 12 oil trains daily from North Dakota. Now it’s down to five. Maybe it will stabilize there.

80

North Dakota’s oil production has begun rising again, partly because of higher prices but also because new pipelines have reduced the transport bottleneck.

https://www.wsj.com/articles/the-hottest-oil-trade-is-no-longer-in-texas-1539086401?mod=searchresults&page=1&pos=2

81

The fracking boom has been so great that the U.S. is once again an oil exporter. Twenty years ago, people would have laughed if you had predicted this. The map below is from January, 2016, and shows a shipment produced by ConocoPhillips in Texas and sold to a buyer in Bavaria, Germany.

http://www.wsj.com/articles/u-s-exports-first-freely-traded-oil-in-40-years-1452643962

82

See a trend? I’d say. About half the exports are coming from the Port of Houston, which is getting congested, especially with the entry of big container ships. There’s probably going to be a cap on the number allowed to enter the Port.

https://www.wsj.com/articles/fight-brews-in-houstons-port-over-energy-exports-11545217200?mod=searchresults&page=1&pos=7 No slowdown in 2019:

https://www.wsj.com/articles/u-s-oil-exports-rising-amid-middle-eastern-turmoil-11561404481

83

Another solution: load your tankers offshore. Here’s a snip from the website of the Louisiana Offshore Oil Port. It’s about 20 miles offshore in 110 feet of water, and since 1981 it’s been a place where supertankers, too big to anchor in U.S. ports, pulled up and unloaded crude oil that was then pumped by underground pipeline to the coast. (YouTube has several videos of the operation.) As of 2018 the facility was testing a reverse flow: the plan is to pump oil from the mainland to LOOP and then load it onto supertankers for export, most probably to China.

https://www.loopllc.com/Services/Tanker-Offloading

84

Not just oil: LNG, too. In 2016 Shell shipped a load of liquefied natural gas (LNG) from the U.S. through the expanded Panama Canal to Yantian, near Hong Kong. It was the first LNG export ever from the U.S. but almost certainly not the last. Here’s the ship on its way west through the new channel of the Canal. The ship is Greek-owned and is 948 feet long and about 150 wide. (Note on definitions: LNG is liquefied methane. Sometimes you see cars or trucks running on CNG, or compressed natural gas, which is methane under less pressure than LNG and so remaining gaseous. People who are too lazy to barbecue with wood or charcoal often use LPG, which you see in small tanks at lots of supermarkets and so on. Like LNG, LPG is under enough pressure to be a liquid, but it’s not methane. It’s a blend of propane and butane—and has more energy per unit volume that LNG.)

http://www.wsj.com/articles/u-s-lng-for-china-arrives-via-panama-canal-1472044735

85

A couple of weeks later the same ship was headed back, maybe to get another load.

86

Also in 2016, at least two shipments of LNG went from the plant below, in Louisiana, to Kuwait and Dubai. An analyst says, “The old order is being overturned, and we haven’t seen the dust settle yet.”

87

No kidding. The surge began in 2015 or 2016.

https://www.wsj.com/articles/what-a-summer-scorcher-means-for-natural-gas-prices-1530014400?mod=searchresults&page=1&pos=2

88

Exports have continued to grow.

https://www.wsj.com/articles/natural-gas-exporters-struggle-to-lock-up-buyers-despite-freedom-gas-pitch-11582470018?mod=searchresults&page=1&pos=5

89

Who are the buyers? Look first to Asia. But look also at gas prices, which continue to fall. Good news for consumers, not so good for producers.

https://www.wsj.com/articles/natural-gas-exporters-struggle-to-lock-up-buyers-despite-freedom-gas-pitch-11582470018?mod=searchresults&page=1&pos=5 (e-reader only)

90

Most of the gas the U.S. exports, by the way, goes not as LNG but as gas in pipelines to Mexico and Canada.

http://www.wsj.com/articles/new-milestone-the-u-s-is-now-a-net-exporter-of-natural-gas-1480258801

91

Oklahoma gets involved in these deals. Continental Resources, led by Lexington-native Harold Hamm, is the major operator in North Dakota’s Bakken Formation, and in 2017 the company announced that it would send 35,000 barrels of oil daily from North Dakota down to Cushing, where it would be delivered to a company that would export the oil to China. This was Continental’s first oil-export deal, but Hamm said, “I think this is the first of several contracts.” http://www.oklahoman.com/oklahoma-city-based-continental-resources-to-export-oil-to-china/article/5568479 Almost half of U.S. oil exports, however, stay in North America. It may surprise you that Canada should import crude as well as export it, but crude oil varies in its chemistry. Canada sells one kind and buys another.

https://www.wsj.com/articles/u-s-boost-to-oil-drilling-will-barely-dent-russias-energy-monolith-1499981545

92

For the same reason, the U.S. continues to import oil even as it exports it. Canada’s our biggest supplier.

https://www.wsj.com/articles/u-s-weighs-sanctions-against-venezuelas-oil-industry-1501441035

93

On balance, we still import more than we export, but, as the red line shows, our net imports (imports minus exports) are declining sharply.

https://www.eia.gov/energyexplained/index.cfm?page=oil_imports

94

Worldwide, LNG imports are likely to rise for many countries, including the UK, India, and China. By 2040, LNG shipments will account for more than half of all gas exports, compared with about a third today.

https://www.wsj.com/articles/long-promised-the-global-market-for-natural-gas-has-finally-arrived-1496761392

95

Is too much oil being produced? Sometimes it seems so. The red squares in the image below are tankers at anchor in the North Sea. As of March 1, 2016, they were full but awaiting buyers.

http://www.marinetraffic.com/en/ais/home/centerx:4/centery:52/zoom:9 Here’s the same area on October 24, 2017. Anchored tankers are now shown as red circles, instead of squares. Otherwise, the picture is not very different.

96

Here’s the Strait of Hormuz as of Nov 10, 2017. There’s a bunch of tankers parked just outside.

97

I draw your attention to one ship, the Seaways Laura Lynn, which is boxed in with dots at the lower left corner of the map.

98

The ship is one of the world’s two surviving ultra-large crude carriers (the other one is called TI Europe), and it’s over 380 meters long. Its capacity is over three million barrels of oil, and at the time of this snip (November 10th, 2017) the ship had been parked here for over two years. A private trading firm called Vitol had chartered the ship in 2015, when oil was at about $30. Vitol had the ship filled up, then parked. The idea was to wait until prices rose. By November, 2017, political tensions between Saudi Arabia and Iran were high, and oil rose to $65. That week, smaller tankers came by the Laura Lynn and offloaded most of its oil. (We know this not because the sales were public but because imagery showed the ship riding higher in the water.) With oil at $65, Vitol stood to make close to $100 million on the deal. Of course you have to subtract the cost of chartering the ship for two years. How much was that? Good question, but probably a lot less than $100 million. (The ship belongs to Oceania Tanker Corporation of the Marshall Islands. Good luck tracking them down!)

99

By late 2015, with energy prices in the basement, a major new discovery could actually hurt the stock price of the company that made the discovery. That was the case for EQT Corporation, a Pittsburgh company operating in the prolific Utica Shale. One well there (Scotts Run 5911340) in its first day of operation in the summer of 2015 yielded enough gas to supply every home in Pittsburgh for three days. Six months later, investors, fearing a glut in the market for gas, had cut EQT stock 29 percent. Other gas producers suffered similar declines. During 2015, stock in Oklahoma’s once-high-flying Chesapeake Energy declined from about $20 a share to about $5.

http://www.wsj.com/articles/gas-driller-hits-a-gusherand-sinks-its-own-stock-1448533982

100

Thanks to fracking, world oil prices fell more than 50 percent during 2014 and 2015. They have yet to recover fully.

http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=7y

101

With the fall in prices, hundreds of drilling rigs went idle in the U.S.

http://www.wsj.com/articles/low-crude-prices-catch-up-with-the-u-s-oil-patch-1448066561

102

Oklahoma had 214 rigs operating in November of 2014. By April, 2016 it had 60. Taxes paid by the industry in Oklahoma fell from 14 percent of all state revenues in 2009 to 2 percent in 2016. With workers laid off, the state’s income-tax collection fell over eight percent between 2015 and 2016; sales-tax collections were down 4.5 percent. State agencies found their budgets slashed. School districts worked on budgets below 2008 levels, despite having more students.

103

Production fell most dramatically at Eagle Ford.

http://www.wsj.com/articles/in-west-texas-oil-drillers-keep-pumping-1446254165

104

Yet American producers eventually found ways to produce oil more cheaply than most people thought possible. In some areas, as you can see, Permian producers make money with oil at $30.

https://www.ft.com/content/899bf982-dd57-11e6-9d7c-be108f1c1dce

105

An executive at Hess said, “We compete very well with the Permian.” His company had 3,000 wells still to drill in the Bakken, he said, and half of them would yield a profit of 15 percent even if oil was $50.

https://www.wsj.com/articles/bakken-no-longer-booms-but-its-beyond-the-bust-1497178802

106

How was it possible for the industry to double or triple or even quadruple production without doubling or tripling or quadrupling the cost of production?

http://www.wsj.com/articles/two-years-into-oil-slump-u-s-shale-firms-are-ready-to-pump-more-1474968601

107

Here’s an example of how they did it. It’s “Propageddon,” a gas well drilled in Louisiana by Chesapeake. You can tell from the name that it was intended to be a whopper. In principle, the plan was simple: run the lateral arm of the well out farther and pump in lots more sand (“proppant” in the lingo). As you can see from the lower right, the lateral arm was almost 10,000 feet long. Over 50 million pounds of proppant went into the hole. That’s 25,000 tons of sand or more than two train loads of 100 cars each. The result: more gas for less money. (Those of you interested in careers in this field won’t be surprised to learn that the actual work was done for Chesapeake by Halliburton.)

http://www.worldoil.com/news/2016/10/21/chesapeake-declares-propageddon-with-record-frac-job

108

Here’s another experiment, one that didn’t work as well as hoped. The idea was to develop one block of land very intensively, with 30 wells packed in tight rows. Notice how the wells in each row tap a particular productive rock layers. The developers figured they’d get 600,000 barrels of oil from each of the wells over 30 years. Turns out that the wells are likely to produce a total of 300,000 each. Perhaps the wells were too close to one another. Back to the drawing boards. The positive interpretation is that American producers hustle. Put another way, if you never fail you’ll never succeed.

https://www.wsj.com/articles/a-fracking-experiment-fails-to-pump-as-predicted-11562232601?mod=searchresults&page=1&pos=2

109

As of 2019, producers were playing it safe, which means that they were concentrating on the Permian Basin. There, the number of active rigs had risen since 2015; elsewhere on the Great Plains, the number had declined.

https://www.wsj.com/articles/frackers-change-their-tune-focus-on-discipline-11568034098?mod=searchresults&page=1&pos=2

110

With oil at $52 a barrel in June, 2017, many oil-producing countries were running budget deficits. Poor Nigeria needed oil at $139 to climb out of its budget hole. Even Saudi Arabia needed oil at $83. Of course, those countries could balance their budgets by cutting expenses or finding other sources of revenue, but doing that is harder than writing “of course.”

https://www.wsj.com/articles/opec-has-a-crippling-problem-its-members-cant-stop-pumping-1501443711

111

Could these countries push prices up? That had been the purpose of OPEC, the Organization of Oil Exporting Countries, created in 1960 largely by Saudi Arabia and Venezuela but quiescent for some years. The pain caused by the resurgence of American oil brought it back to life. Here’s a list of the organization’s membership.

http://www.opec.org/opec_web/en/about_us/25.htm

112

OPEC’s power to limit production has always been limited, partly by the fact that its members often disregard OPEC’s own agreements and partly because several big producers aren’t in the club, including Russia, Canada, Mexico, Brazil, and of course the U.S.

T https://www.wsj.com/articles/opec-has-a-crippling-problem-its-members-cant-stop-pumping-1501443711

113

Despite these weaknesses, OPEC agreed to reduce its production late in 2016. An exception was made for Iran, which argued that it should be allowed to continue increasing its production, depressed for several years by international sanctions.

https://www.ft.com/content/2c31f822-d8d5-11e6-944b-e7eb37a6aa8e

114

This graph is a bit misleading: it looks like OPEC cut its production by a third, but as you can see from the ordinal scale the reduction was actually a bit over a million barrels daily.

https://www.wsj.com/articles/why-opecs-promises-arent-enough-to-please-the-oil-gods-1495402639

115

A year later, in 2017, OPEC with a few exceptions (especially Libya on life-support) agreed to cut production through 2018 and, the members hoped, keep oil above $60.

https://www.ft.com/content/79834f40-d5c3-11e7-a303-9060cb1e5f44?sharetype=share

116

Here’s the same graph from six months later (April, 2018). Saudi Arabia had made even deeper cuts. So had Venezuela. For Saudi Arabia, the cuts were intended to raise prices; for Venezuela, the cuts were instead the consequence of general economic collapse.

https://www.ft.com/content/c7dd7e82-446c-11e8-93cf-67ac3a6482fd

117

Despite Saudi Arabia’s efforts, U.S. production just kept rising.

So did U.S. exports (here combining crude with refined products).

118

Result: Saudi Arabia slipped to No. 3 in the global production rankings.

https://www.economist.com/news/special-report/21738582-energy-transitions-change-world-writes-henry-tricks-so-who-will-be-winners-and Now as much oil goes to Asia and Europe as to Canada (which is pretty much the same as the dark blue here).

119

Think the American boom has to end sooner or later? Sure, but most of our conventional wells were drilled decades ago with technology that’s now obsolete. One producer says that now “we’re taking new technology and going in and looking for what they missed.” Translation: some of these old wells can be boosted from 10 barrels a day to a hundred. And this can be done profitably even with oil at $40 a barrel. See the results: in the old area around Bakersfield, California, and even with low prices, the number of drill rigs tripled during 2017.

https://www.wsj.com/articles/old-oil-is-new-again-1503223201

120

Maybe there’s life yet in the many, many old wells scattered around Oklahoma like this one.

121

The $64 question is whether we find the means to revitalize them before the world shifts to renewable sources of energy so completely that we don’t need much oil.

122

Before we move on to other countries, here’s a summary chart of U.S. oil production over the last 100 years. Funny that we produce so much more oil now than we did in what we think of as the glory days of the 1920s and 30s.

https://www.ft.com/content/7da16504-06af-11e8-9650-9c0ad2d7c5b5

123

And here’s a summary of the world price of oil in the last 120 years. The low point was in the early 1930s, when Texas was running wild. The high points occurred during the Iranian Revolution and after the 2008 financial crisis. Takeaway: oil prices today are higher than their average price in the 20th century—and that’s true even if you express the prices in 2016 dollars, as this graph does.

https://www.economist.com/news/special-report/21738582-energy-transitions-change-world-writes-henry-tricks-so-who-will-be-winners-and

124

As of mid-2018, oil prices seemed to be rising, perhaps because OPEC’s efforts were paying off or perhaps because oil traders were nervous about troubles in Iran and Venezuela. For people in Oklahoma and Texas, this rise was good for jobs and tax revenues but bad for motorists at the pump. Detail: usually when journalists in the U.S. talk about oil prices they quote the standard benchmark crude called WTI, or West Texas Intermediate. The chart below, however, shows the Brent benchmark used in Europe. (Brent is a North Sea field). It usually runs a bit higher than WTI.

https://www.economist.com/graphic-detail/2018/05/15/the-price-of-oil-inches-towards-80-a-barrel For example, on May 16, 2018, Brent was about $7 higher than WTI.

https://markets.wsj.com/us

125

Sure enough, the number of drilling rigs in operation began rising once again.

https://www.oklahoman.com/gallery/articleid/5595141/1/pictures/?display=oklahomanApp

126

Prices late in 2018 cratered.

https://www.wsj.com/articles/in-oils-huge-drop-all-signs-say-made-in-the-u-s-a-1543003398?mod=hp_lead_pos1

127

Lots of OU students over the years have joined this industry, so here’s a cautionary note. Yes, oil production has doubled in the United States over the last decade. Oilfield jobs? They’ve been flat. Thank automation. Think you can make $100,000 a year, or more, out in the field? It’s getting harder. The guy below, who worked for Halliburton, a major technical-support company, now repairs wind turbines.

https://www.wsj.com/articles/oils-new-technology-spells-end-of-boom-for-roughnecks-1531233085?shareToken=st850078c1d20043a499892d3002b2ff42&ref=article_email_share

128

Let’s turn to friendly Canada, where the Athabaska tar sands of Alberta cover a large area west of Fort McMurray. Only a small fraction of the area is in production. Technically, they’re bitumen sands, though nobody calls them that colloquially.

http://www.sinoboil.com/about.php?lang=en&id=32&sid=31

129

North to south, the production zone measures about 30 miles. The ground has been allocated to different operators, many of whom have paid big bucks to play. They aren’t very happy these days. In 2016, Norway’s Statoil walked away from its operations and took a loss of $500 million. A year earlier, Shell quit one of its projects here for a loss of $2 billion. There was nothing wrong with the resource: the companies walked because of low oil prices.

http://cmr.chalgeo.com/mapprints.php

130

Here’s the Wikimapia image of part of the production area. The central plant is operated by Suncor, formed in 1979 by the Sun Company. It now markets in Canada under the brand name Petro-Canada.

http://wikimapia.org/#lang=en&lat=57.018309&lon=-111.555176&z=11&m=b&search=fort%20mcmurray

131

Here’s a zoomed-out image showing the approximately limits of the tar-sands operations.

http://wikimapia.org/#lang=en&lat=57.098960&lon=-111.552429&z=9&m=b&search=fort%20mcmurray%2C%20alberta

132

Alberta’s just a bit smaller than Texas, and if you didn’t know that the oil sands were around Fort McMurray you could spend a long time hunting for them. The image here shows only the part of the province north of the capital, Edmonton.

133

The tar sands yield a material properly called bitumen, which has the texture or viscosity of peanut butter but with processing and dilution can be pushed through a pipeline. Right now, about a million barrels of processed bitumen, or synthetic crude, is produced daily, but the Canadian government (and Alberta’s, of course) expects big increases.

http://www.albertacanada.com/files/albertacanada/AOSID_QuarterlyUpdate_Spring2018.pdf

134

The development of the sands has been intensely controversial in part because it takes energy to process the bitumen, which means that fuel from the sands produces more carbon dioxide than oil from most other fields.

http://www.wsj.com/articles/on-keystone-obama-missed-an-opportunity-1447263112

135

Bitter controversies have arisen, also, over the pipelines proposed to move the oil to markets. Some head east, some west, and most to the south. Yes, that’s the Keystone XL we talked about earlier. It’s No. 5 on the map.

http://www.albertacanada.com/files/albertacanada/AOSID_QuarterlyUpdate_Spring2018.pdf

136

Whether the Keystone XL gets finished or not, Canada already sends about three million barrels of oil daily to the U.S. through existing pipes. About half is from the Alberta sands. Here’s one of the pipes that carry it. The arrows pointing back to Canada seem counter-intuitive, but they carry refined oil that is mixed with the Athabaska synthetic crude so that it flows more easily.

http://www.enbridge.com/~/media/www/Site%20Images/Projects/Maps/AC-SL%20Projects%20Map.pdf?la=en The same line connects with another at Flanagan, Illinois to carry oil down to Cushing, Oklahoma, and, from there, to Texas.

http://www.enbridge.com/~/media/www/Site%20Documents/Delivering%20Energy/Projects/US/FlanaganSouthMap12-13-13.jpg

137

Here’s the proposal for the Energy East Pipeline, intended for export to Europe.

http://www.energyeastpipeline.com/home/route-map/

138

The competing Northern Gateway pipeline, heading west for export to China, got thoroughly snarled in litigation.

http://www.gatewayfacts.ca/About-The-Project/Project-Overview.aspx There’s more than one way to skin a cat, however: here’s the TransMountain pipeline, an existing line owned by Texas-based Kinder Morgan and shown in black. Capacity could be greatly expanded with the new, parallel pipe shown in blue.

http://www.neb-one.gc.ca/pplctnflng/mjrpp/trnsmntnxpnsn/index-eng.html

139

Here’s a headline from The Guardian announcing in late 2016 that Canada would approve the expanded TransMountain pipeline, while disallowing Northern Gateway. As you can infer from the headline, the approval of the Kinder Morgan line made some Canadians very unhappy.

https://www.theguardian.com/world/2016/nov/29/canada-approves-kinder-morgan-oil-pipeline-justin-trudeau?CMP=share_btn_link

140

The TransMountain pipeline still seemed blocked by litigation, so the Canadian federal government in 2018 decided to nationalize the project long enough to get it built. As you can see, this did not win Prime Minister Trudeau many friends in the environmentalist community.

141

Here’s our southern neighbor. It’s been a major oil producer for decades. Its biggest field by cumulative production is Cantarell, in shallow water off Yucatán, but it’s in decline. The biggest producer now, nearby Ku-Maloob-Zaap, is declining faster than predicted.

http://www.comptroller.texas.gov/economy/fiscal-notes/2015/june/energy.php How’s the industry doing overall? Not well.

https://www.ft.com/content/d5c3c1c0-e432-11e9-b112-9624ec9edc59

142

The industry has been a monopoly operated by Petróleos Mexicanos, or Pemex, since 1938, when President Cárdenas expropriated the foreign companies that had developed the industry. It was a very popular move, anticipating by several decades the nationalizations that swept across the Middle East in the 1970s. On the other hand, Pemex’s income was diverted to the Mexican budget, which helped meet social needs but starved Pemex of investment capital. Result: in 2014 President Peña Nieto pushed through legislation to open the industry once again to foreign investment and companies. Supporters say this will increase production greatly, especially in deeper offshore waters and with fracking for gas north of Monterrey.

https://en.wikipedia.org/wiki/L%C3%A1zaro_C%C3%A1rdenas#/media/File:Lazaro_Cardenas_Jijilpan.JPG https://www.forbes.com/profile/enrique-pena-nieto/

143

Here’s a map of the blocks opened to bidding in 2016. The northern ones (in the so-called Perdido Fold Belt) are part of a well-explored structure continuing on the U.S. side of the border. Call them low-risk, relatively low reward bets. The southern ones (the Salina Basin) were high risk but potentially huge reward. That one red block? All the blocks were open to bids from oil companies around the world, but anyone who bid and won on the red block would have to take Pemex as a partner. The logic may have been to teach Pemex the latest in drilling technology.

http://www.wsj.com/articles/mexican-oil-auction-offers-first-major-test-of-foreign-firms-interest-1480706526

144

Who won? You can see that winners in the northern group included Chevron, ExxonMobil (misspelled), and China National Offshore. The “red block,” here in black, went to BHP Billiton, a company better known for hard-rock mining, especially of iron ore. In the southern group, winners included BP and Statoil, the state-owned Norwegian oil company.

http://www.wsj.com/articles/australias-bhp-billiton-wins-bidding-for-stake-in-mexicos-trion-oil-field-1480957642 Pemex is a retail story, too, because for as long as almost anyone can remember, all the gas stations in Mexico have been flagged Pemex. No longer.

https://www.dallasnews.com/business/exxon-mobil/2017/12/06/exxon-open-eight-mobil-gas-stations-mexico-plans-50-early-2018

145

A Shell station on the highway south of León in 2019.

146

Following the election in 2018 of President López Obrador, Mexico reversed course. The new president froze the award of new concessions and ordered the company to add a phrase to its logo. Translation: “For the recovery of sovereignty.”

Amlo, as López Obrador is popularly known, ordered construction of an $8 billion Pemex refinery, Dos Bocas, at a town called Paraiso (“Paradise”)

147

Will revenues from a rejuvenated Pemex jumpstart the Mexican economy, as Amlo predicts, or will projects like the Dos Bocas refinery drain money better spent elsewhere? How you answer that question says a lot about your politics. Farther south, the two giants are Venezuela, with a long-established industry, and Brazil, with a much newer industry that is concentrated in technically difficult but rich fields far off the coasts of Rio de Janeiro and São Paulo. The map also shows important gas pipelines from Bolivia to Brazil, Argentina, and Chile.

http://www.theodora.com/pipelines/central_america_caribbean_and_south_america_oil_gas_and_products_pipelines.html

148

Venezuela’s resources are divided between conventional fields, shown in dark green, and the enormously rich area of heavy oil in the Orinoco belt. Development of the conventional areas go back to early in the 20th century, while the Orinoco Belt is a story of the last 20 years.

http://www.globalsecurity.org/intell/ops/images/venezuela-map.gif

149

The industry began around Lake Maracaibo, that brackish inlet visible on any map of the country. Here’s one of the oil fields there; it’s called Lagunillas. Notice the great density of wells (the little squares surrounded by green).

Here, in the lake offshore of the town of Cabimas, you can see wells in the water. They look like flyspecks.

150

Down on the ground, it’s not pretty. Fabiola Ferrero recently took some photos of the place that make it look pretty desperate.

Apparently fishermen come back to port and wash the oil off their bodies with gasoline.

151

Edible?

https://www.wsj.com/articles/former-hub-of-venezuelas-oil-wealth-turns-to-hunger-and-rust-1516357801?mod=searchresults&page=1&pos=2

https://www.wsj.com/articles/venezuelas-oil-industry-takes-a-fall-1516271401?mod=searchresults&page=1&pos=3

152

Where should the oil produced here be refined? Good question. See the peninsula with Punto Fijo. At its SW corner, PDVSA or Petróleos de Venezuela S.A., the national oil company, owns a refinery with 2/3’s of the country’s refining capacity.

153

But look also at the island of Curaçao, 50 miles offshore and visible on the map above. The refinery here was established in 1915 by Shell. Logic? Shell didn’t trust the Venezuelan government and so chose to protect its investment by locating its refinery on Curaçao, which was (and is) part of the Netherlands. Sure enough, in 1975 Shell’s holdings in Venezuela were nationalized. Ten years later, Shell sold the Curaçao refinery to the government of Curaçao, which has since leased the plant to PDVSA. At least Shell got something for its property.

154

Venezuela also has conventional oil fields in the east, around the town of Punta de Mata, developed in the 1940s and now the country’s major source of natural gas.

155

Political conditions in Venezuela are so unsettled that much of the gas is simply flared and wasted. Flaring is a global problem, but Punta de Mata boasts the world’s biggest flare: in 2012 it burned 768,000 metric tons of natural gas, about a week’s production from the Barnett Shale.

http://news.nationalgeographic.com/energy/2016/01/150113-methane-aliso-canyon-leak-noaa-flaring-map/ Here it is, up in smoke.

156

Ironically, locals have to line up to buy cooking gas (LPG) in canisters; there aren’t any pipelines to their houses.

https://www.wsj.com/articles/venezuelan-oil-is-largely-staying-in-ground-or-going-up-in-smoke-1477238401

157

The immense reserves that place Venezuela at the top of world rankings lie between Punta de Mata and the Orinoco River. The oil here, as in the Athabaska sands, requires special processing, but the technical problems have been overcome and pipelines have been built to carry the oil to export terminals.

http://images.pennwellnet.com/ogj/images/ogj2/9642jtr.gif

158

Here’s PDVSA’s heavy-oil export terminal at Puerto La Cruz.

159

Venezuela’s government under Hugo Chavez demanded that contracts be rewritten on terms more favorable to the government. Some companies complied; they’re shown below. ExxonMobil and ConocoPhillips refused and have been locked in litigation with the Venezuelan government for more than a decade.

https://www.ft.com/content/3264b33e-d680-11e7-a303-9060cb1e5f44

160

For several years after the forced contract modifications, it seemed as though Venezuela could manage just fine. If ExxonMobil and ConocoPhillips left, Venezuela would supply China with oil, and China would supply Venezuela with money. Fast forward to the collapse of the Venezuelan economy, and China has grown very uneasy. This table shows why. On the left, you see the money lent by the World Bank and the likelihood of default: Pakistan and Ethiopia are high on the list. On the right is money lent by the China Development Bank and the Export-Import Bank of China: see who’s become the riskiest borrower? A Chinese official says, “China had no choice but to lend a lot to risky countries because they had the commodities we needed and because the western multilateral organisations [the World Bank, for example, or the Asian Development Bank or the African Development Bank] dominated the rest of the world.” Now the tune is changing: the same official says, “We don’t want to back losers.” China has lent Venezuela $65 billion since 2007, and Venezuela still owes China over $20 billion. If Venezuela defaults, China can go after Venezuela’s overseas assets such as PDVSA’s refineries, but that will take years. What to do? In 2016 China agreed to refinance its loans so that Venezuela for now is making interest-only payments.

https://www.ft.com/content/5bf4d6d8-9073-11e6-a72e-b428cb934b78

161

The country’s oil production is sliding, which drags down GDP per capita.

Unemployment is projected to rise sharply, and airlines are cutting back their flights.

Food is becoming impossibly expensive, pushing Venezuelans to a diet of potatoes.

https://www.ft.com/content/0228db48-6e4b-11e7-bfeb-33fe0c5b7eaa

162

In a nutshell, oil production is down.

https://www.wsj.com/articles/sanctions-on-venezuelas-crude-hit-oil-market-in-vulnerable-spot-11549206001?mod=searchresults&page=1&pos=4 So are prices, which means that earnings are hit severely.

https://www.wsj.com/articles/venezuelas-oil-industry-takes-a-fall-1516271401?mod=searchresults&page=1&pos=3

163

The country’s GDP is falling more steeply than Russia’s fell after the collapse of the USSR, or Zimbabwe’s fell under Mugabe, or Greece’s fell after its financial collapse.

https://www.ft.com/content/d9be69d6-d7b0-11e8-ab8e-6be0dcf18713

164

A cartoonist’s view of the country, August 2017.

https://www.economist.com/news/world-week/21725819-kals-cartoon

165

Venezuela’s GDP forecast for 2020 is worse even than Zimbabwe’s. (Notice the astonishing prospects for neighboring Guyana. Thank anticipated revenue from Exxon’s newly developed offshore oil fields—and remember that you can grow your economy by 35 percent and still be poor.)

https://www.economist.com/graphic-detail/2020/01/01/another-lacklustre-year-of-economic-growth-lies-ahead

166

Venezuelans are voting with their feet. Over two million have left since 2014.

http://country.eiu.com/article.aspx?articleid=67145390&Country=Venezuela&topic=Politics

167

The map is dramatic, but photos give a better sense of the tragedy.

https://www.nytimes.com/2018/08/11/world/americas/ecuador-venezuela-migration.html

168

What now? Where to? This is a Brazilian border town, 3,000 miles from São Paulo. There are easy flights from Boa Vista, but... [gesture: rubbing fingers against thumb].

https://www.wsj.com/articles/backlash-against-venezuelan-refugees-grows-across-south-america-1535132655

169

In response to this disaster, the Trump Administration in 2019 decided to cripple Venezuela financially and in this way encourage regime change. The map below shows that Venezuela is the main source or one of the main sources of crude oil received at many Gulf Coast ports. Earnings from the oil are now blocked from being sent back to the Maduro government. The government’s natural response is to halt exports to the U.S. In theory, Venezuela might find other buyers, but that takes time. In the meantime, the government’s treasury shrinks.

https://www.wsj.com/articles/sanctions-on-venezuelas-crude-hit-oil-market-in-vulnerable-spot-11549206001?mod=searchresults&page=1&pos=4

170

Brazil is doing marginally better. Huge offshore oil discoveries attracted Statoil of Norway, Sinochem of China, and Repsol of Spain. That was ten years ago.

http://www.statoil.com/en/NewsAndMedia/News/2012/Pages/27feb_Brazil.aspx

171

As you can see from the number of exploratory wells and from production statistics, something went seriously wrong. First, the government decided that Petrobras, the national oil company, could develop the fields itself and had no need to share the work with foreigners. Big sales were cancelled. Then Petrobras got overwhelmed in a huge corruption scandal that devastated not only the company but the national government and economy. Now Brazil is on the verge of welcoming back the international companies it rejected, but with lower oil prices there’s no way Brazil will make as much money as it would have if it had allowed foreign companies to bid ten years ago. An industry hand says, “People thought Rio de Janeiro would turn into something like Houston. Instead it became Luanda.” (That would be the slum-choked capital of oil-rich Angola.)

https://www.wsj.com/articles/brazil-lets-in-big-oil-firms-a-decade-after-keeping-them-out-1506418201

172

Here’s a reminder of how such waters are surveyed into management and production blocks. An auction in 2019 failed to attract bids from anyone except Petrobras in partnership with Chinese companies. Exxon, Shell and BP all said the terms were too harsh.

http://thisbluemarble.com/showthread.php?t=10901

173

At last we come to the part of the world whose reserves and production have dominated the industry for 50 years. Most of the oil and gas is clustered in an axis aligned with the Persian Gulf and extending from Iraq and Iran south through Kuwait, Saudi Arabia, Qatar, and the UAE, especially Abu Dhabi.

http://energeopolitics.com/2010/04/09/usgs-identifies-potential-giant-oil-and-gas-fields-in-israelpalestine/

174

Here’s a rough map of the location of the fields in Saudi Arabia. You’ve seen the name Ghawar before. That's the giant.

http://libertarian-neocon.blogspot.com/2012/02/it-might-not-be-hormuz-but-saudi-oil.html

175

Here’s BP’s estimate of Saudi Arabia’s reserves. It’s based on a statement from Saudi Aramco in the 1980s, since when the company has produced almost 100 billion barrels of oil but apparently kept its reserves constant. This is possible, but is it true? Hard to say.

https://www.ft.com/content/7ed59bee-163b-11e7-b0c1-37e417ee6c76 If you accept its claimed reserves, Saudi Aramco controls about ten times as much oil as ExxonMobil.

http://www.wsj.com/articles/saudi-aramco-hires-firm-to-assess-oil-reserves-before-ipo-1485433607

176

Saudi Arabia not only has lots of oil, it produces oil fantastically cheaply because its wells aren’t very deep or complicated, and they don’t have to be pumped. The oil just flows. Great gig.

https://www.wsj.com/articles/the-2-trillion-dollar-question-hanging-over-aramcos-ipo-11572963542?mod=searchresults&page=1&pos=2

177

Here’s a snip of Ras Tanura, a Saudi export terminal near Dammam on the previous map. The terminal was developed originally by Aramco, the Arabian American Company. Until the 1970s, this was a consortium including Exxon, Mobil, Chevron, and Texaco. The company was nationalized in 1980, however, since when it’s officially been Saudi Aramco. Now and then you still hear it called Aramco, but everybody has politely forgotten the words bunched up in that name.

178

Here’s the Ran Tanura terminal.

https://www.nytimes.com/2018/06/16/business/energy-environment/saudi-arabia-aramco.html

179

The north end of the last snip includes the Dhahran Main Camp, built in the 1940s by Aramco for its American workers. You can see several tennis courts, along with a pool and streets with names in familiar English words like Hawk, Eagle, and Falcon. Here’s a seven-minute video trying to attract well-paid foreign workers. https://www.youtube.com/watch?v=Jwd8esu-S3c

180

Here we see another Aramco town, smack in the middle of Ghawar. Scan the neighborhood and you’ll see nothing like California’s Kern River Field. That’s because Ghawar measures about a thousand square miles but has only about 300 production wells. There are no pumps on the wells, because gGas pressure simply pushes oil to the surface. Together the wells produce about five million barrels daily, enough to fill 300 Olympic-sized swimming pools.

181

Here’s another Aramco production center: Shaybah. Here’s the general location, just south of the Emirates border.

You can see the name Shaybah in the center, surrounded by sand dunes.

182

Here’s the local airport, plus the residential compound just to its south and some production facilities at the upper left.

Here’s a close-up of the residential area, with accommodation for a thousand men. Any women? Good question; I don’t know.

183

A rare photo of the place. The field was developed in the 1990s. A pipeline takes the oil north.

https://www.economist.com/news/business/21729472-biggest-oil-company-has-good-story-tellif-it-can-disentangle-its-image

184

This snip includes about a hundred miles of coast north of Ran Tanura. I’ve added a white triangle pointing to something unusual.

185

Here it is, the Manifa Field, which can produce about 900,000 barrels daily. That’s twice as much as all of Oklahoma (455,000 b/d in 2017) and almost as much as North Dakota (1,000,000 b/d in 2017). You can see only one derrick on each of the six artificial islands, which are built in water about 50 feet deep, but there are about 360 wells in total. That’s several thousand barrels per day per well.

186

Despite its oil wealth, Saudi Arabia is running a deficit. You can see the problem: oil revenues are falling even though they constitute well over half of the national economy.

https://www.ft.com/content/7ed59bee-163b-11e7-b0c1-37e417ee6c76

187

What to do? At the urging of the young crown price, Mohammed bin Salman, Saudi Arabia decided to follow the path of Norway’s Statoil and Brazil’s Petrobras and privatize perhaps five percent or a bit more of Saudi Aramco. Assuming that the company is worth between two and three trillion dollars, the crown price hoped to raise $100 billion this way for investment in other sectors of the economy. Would it work? One problem is that Saudis have never been forthcoming with data about their oil reserves or their budget, so investors are naturally hesitant.

188

If I were a potential investor, I’d also be wondering how safe my investment was in a company where the king controlled 95 percent of the shares and where his absolute rule might come crashing down one fine day. Some people thought that the stock-market flotation would never happen and that China would simply agree to buy a five percent share of Aramco, along with a long-term oil-supply contract. This way, there’d be no fussing about data and stock-market legalities. Saudi Arabia would get its money and China would get some of the oil it needs. The Chinese would naturally worry about Saudi reserves. They’d also wonder if the Saudi monarchy would survive, and they’d have to make assumptions about the rate at which the world will turn away from oil. If they guessed wrong on that last score, they could lose a ton of money investing in a declining industry. From the Saudi side, there was also something else to worry about. Saudi Arabia has depended for decades on security assistance from the U.S. Cozying up with China might jeopardize that relationship and replace it with one no better and maybe worse. Outcome? In early 2018 Saudi Arabia announced that it would instead sell shares domestically. Patriotic or at least prudent Saudis were happy to buy shares and also, perhaps, keep the crown prince happy.

189

Iraq’s fields, like those in Saudi Arabia, are mostly worm-shaped. That’s because the rock layers have been folded into long, subterranean ridges and valleys. The oil accumulates along the ridges because it’s lighter than the water in the troughs. There are few places in the world where, from the geological and engineering perspective, oil is so easy and cheap to extract. Do you hear the qualifier in that statement? Sure you do: Iraq presents almost no geological or engineering risk, but it presents a ton of political risk. The only consolation for oil companies contemplating investing here is that other places usually present their own risks, if not political then physical.

http://esplift.com/Iraq-oilfields.html

190

Here’s one of Iraq’s political risks. The Kirkuk or Baba Gurgur Field will probably yield about eight billion barrels of oil, but between the fall of Saddam and 2017, it and the neighboring fields were operated by the regional government of the Kurds, based in Erbil. The Kurds very much want independence, but Baghdad forcibly regained control of Kirkuk in 2017, depriving the Kurds of what had been their greatest prize. The Kurds are fierce warriors, and it’s anyone’s guess how long Baghdad will hold the field.

https://www.economist.com/news/middle-east-and-africa/21726101-divorce-if-it-happens-will-not-be-amicable-referendum-kurdish

191

The shape of Iran’s fields will come as no surprise. Masjed-e Soleyman (“Mosque of Solomon”) was the first to be opened. This was in 1908 by Anglo-Persian, predecessor of BP. When the company’s Iranian properties were nationalized in 1951, BP had to find alternative supplies. It chose to focus heavily on Alaska's Prudhoe Bay and, later, the Gulf of Mexico. No political risk, but, as with the Macondo Well, a ton of engineering risk.

http://www.oilempire.us/iran.html

192

The Iranian industry has recently been in deep trouble, thanks mostly to sanctions imposed in an effort to stop Iran's development of nuclear weapons. With the lifting of sanctions in 2016, the Iranians dared to hope that they could quickly market at least a million barrels of oil daily. It wouldn’t fetch as much money as it would have a few years earlier, but the Iranians didn’t have much else to sell. Adding their oil to an already glutted market would in fact likely push prices down further. As it happened, the U.S. late in 2018 reimposed sanctions, though with exceptions for certain countries allowed to buy Iranian oil. One reason for the exceptions: the White House didn’t want prices to spike. Note for tourists: if you’re in London and happen to pass by Finsbury Circus, check out the old BP headquarters. The company’s moved to new space, but the old statue of Britannia stands on guard, while a Persian water carrier plays his subservient role.

193

The Iranians hope to ship gas by pipeline to India, which is exempted from the sanctions. The line shown here exists as far as the Pakistan border. Pakistan is hungry for fuel, and India would buy some, too, but who will pay to build the line across Pakistan? The most likely answer is China as part of its China Pakistan Economic Corridor, a $46 billion infrastructure program. The map also shows one of India’s alternative potential suppliers, Turkmenistan, but the security problems of building across Afghanistan are daunting.

194

For the moment, Qatargas is the biggest LNG producer in the world. It has so much gas that some is converted (losing much gas in the process) to a liquid fuel at Shell’s Pearl GTL (“gas to liquid”) plant. Other features on the map include RasGas, which exports LNG to Korea, and Rioc, which is the Ras Laffan Olefins Company, a joint venture of Qatar Petroleum and Chevron Phillips Chemical.

195

Where does Qatar’s LNG go? Most of it heads east to Asian markets.

http://www.economist.com/news/finance-and-economics/21689644-it-will-take-time-fragmented-market-verge-going-global-step

196

Some goes west to the UK and is unloaded on the southwest coast of Wales. From there, it goes into the UK’s national pipeline grid.

197

The UK, however, produces more gas from the North Sea than it imports. The same thing is true for the Netherlands. Notice that the sea floor has been precisely demarcated into exclusive economic zones for all the fringing countries.

198

The field boundaries are very, very complicated.

http://www.acorn-ps.com/web/page/oilgas/nsfields/nnsmap.htm

199

Norway may look like it got the short end of the stick, but it didn’t: its Ekofisk is one of the biggest North Sea fields. Production began in 1971, and the discovery well was drilled by Phillips Petroleum of Oklahoma after 250 exploration wells had been drilled. Ekofisk has subsequently become the center of a cluster of some 30 oil platforms. Oddly, though the field belongs to Norway, the oil is pumped to the UK. Norway collects its share of the proceeds, of course. (You can’t see it on this map, but Ekofisk produces gas, too, which is pipelined straight south to Germany).

https://www.eia.gov/todayinenergy/detail.php?id=12751

200

The UK fields are aging, which is why the area is sometimes called a “maritime used-car lot.” Ouch!

http://www.naturalgasintel.com/articles/103664-use-of-brent-oil-price-benchmark-for-european-natgas-declines-along-with-north-sea-supply

201

Rise and Decline of the North Sea Empire. But see the last couple of years?

http://www.crystolenergy.com/wp-content/uploads/2016/03/Norway-and-UK-Crude-Oil-Production.jpg

202

Just as in the United States, oil companies working in the North Sea have found ways to cut costs and make money even when prices are low. There’s no other explanation for why companies are still drilling here. The operators include Total (France), Premier (U.S), Apache (U.S.), StatOil (Norway), Repsol (Spain), Sinopec (China), and Maersk (Denmark). UK oil production, which declined steadily from 2000 to 2014, has since then turned around and begun rising. How long will that remain true? If I knew, I’d live in a Swiss castle. Btw, in 2018 Norway’s Statoil changed its name to Equinor. The new name is supposed to signal a move away from oil and toward equilibrium and Norway.

https://www.economist.com/news/britain/21728656-shot-private-equity-money-has-revived-spirits-not-enough-sustain-costly

203

You may have noticed on the last map a field west of the Shetland Islands. It’s called Clair, and it went into production late in 2018. It’s a new chapter in the story of the UK’s North Sea. Who’s operating it? BP, still clawing back from the Macondo Well disaster.

https://www.2b1stconsulting.com/wp-content/uploads/2013/04/BP_Greater_Clair_Project_map.jpg

204

Clair is a big project, with an anticipated production exceeding 100,000 barrels daily. To get it going took over $6 billion, enough that BP partnered with some other heavy hitters.

https://www.bp.com/en/global/corporate/investors/upstream-major-projects/major-projects-2018/clair-ridge.html

205

What does Norway do with its oil revenues? Here is a table of several so-called “sovereign-wealth funds.” With the exceptions of China and Singapore, they are all based on oil money. Norway’s fund is the most transparent, disclosing its holdings and policies most fully. The fund’s website (nbim.no/en/investments) reports that its largest stock holdings are in Nestle, Novartis, Apple, Shell, and Black Rock. The country lives off the interest, never the principle.

http://www.swfinstitute.org/fund-rankings/

206

For Central and Eastern Europe, gas comes mostly by pipeline from Russia. This makes many of those countries uncomfortably dependent, and they welcome the arrival of LNG shipments from the U.S.

http://www.wsj.com/articles/europes-escape-from-russian-energy-grip-u-s-gas-1456456892

207

Europe’s pipeline network also connects to Africa via pipelines across the Mediterranean. You can see one of the links here, at Gibraltar.

http://www.theodora.com/pipelines/europe_oil_gas_and_products_pipelines.html

208

Others cross through Sicily. Pipelines in the two big sub-Saharan producers do not show up equally. Nigeria has a pipeline network centered on the Niger delta, but Angola is blank because the fields are offshore and oil is exported without ever touching the mainland.

http://www.theodora.com/pipelines/africa_oil_gas_and_products_pipelines_map.html

209

Libyan production has been crippled since the fall of Muammar Qaddafi. Production fell from 1.6 million barrels a day in 2011 to about 600,000 a day in early 2017.

http://arthurzbygniew.blogspot.com/2011/02/libya-oil-map.html

210

Why? The country as of 2016 was carved up into several jurisdictions, chiefly (as shown here) two alliances of militias, “Operation Dignity” in the east and “Operation Dawn” in the west. In the middle was the growing area held by ISIS. Not good for business. ISIS was attacking the export terminals at Sidra and nearby Ras Lanuf.

http://www.economist.com/news/middle-east-and-africa/21690057-libyas-civil-war-has-given-caliphate-fresh-opportunities-western-military A year later, ISIS was gone, and the two sides had met in Paris and declared their intention to hold elections in 2018. It looked as if “Dignity” was likely to take charge of a unified country, mainly because it controlled the Libyan National Army. Oil production inched up to a million barrels daily.

https://www.economist.com/news/middle-east-and-africa/21725573-new-peace-deal-lends-legitimacy-libyas-most-powerful-general-after-conquering

211

Nigeria is doing a bit better, though the history of oil here is a sorry one, combining deep corruption with losses to sabotage. Corruption may have declined with the election in 2015 of President Buhari, but Shell reported in that same year that its pipelines suffered an average of nine spills every month, either from sabotage or theft. Like other international companies, Shell is increasingly inclined to sell its properties in the delta and focus instead on offshore developments, which are harder for militants to attack. Nigeria’s Aliko Dangote, reportedly Africa’s richest man, has been buying some of these delta properties, although it's unclear how he intends to run them profitably.

http://www.nairaland.com/606405/maps-oil-fields-nigeria

212

Here’s one of several Shell terminals in the Niger Delta. This one’s at Bonny, south of Port Harcourt.

The future for Shell? The company is not only moving away from onshore Nigeria but away from oil, period. It sees its future now in natural gas.

http://www.economist.com/news/special-report/21710630-industry-already-suffering-upheaval-part-it-still-denial-tricky

213

Because the oil companies return so little to the people of Nigeria, the companies have to stay behind high walls, in this case in the neighborhood of Lagos called simply Chevron. I counted three parallel fences but was reluctant to stick around for a better photograph. No need to attract attention.

214

Ironically, a small patch of natural forest has been protected nearby through the generosity of the same oil companies.

215

Here’s a jack-up platform intended for shallow water. Once towed to its destination, the legs you see here will be jacked down to the sea floor. When will that happen? Good question. This is Nigeria, and this particular rig was caught up in some financial tangle. The thing had been parked here at Lagos for a couple of years when I came by. (Deepwater rigs float in place, because the water’s too deep for legs to reach the bottom. Such rigs are held in place either by anchors and cables or by geopositioning with engines and propellers at each corner of the platform.)

216

Here’s the third of Africa’s Big Three. José Eduardo dos Santos, the president of the country from 1979 to 2017 was also the country’s richest man. Tells you something. His daughter, behind him here, is also a billionaire. Bad sign.

https://www.dailymaverick.co.za/article/2016-05-31-angola-africas-richest-womans-assets-were-paid-by-state-money-and-public-funds/#.WiRquUqnFaQ

217

Note the tidy arrangement of offshore leasing blocks. Look closely at the top end, and you’ll see a green block running offshore diagonally. It’s part of Cabinda, an Angola exclave embedded in the Democratic Republic of the Congo. Some four billion barrels of oil have come from here.

http://www.eia.gov/countries/cab.cfm?fips=ao

218

That’s not all. Here we have three countries: the Republic of the Congo (with Pointe-Noire), the DRC (including the towns of Boma and Matadi), and Angola (including the town of Soyo. Wedged in between, and shaded pink, is Angola’s Cabinda exclave.

But look closely at Soyo. What have we here? Why, it’s an LNG plant readying Cabinda gas for export. How does the gas get to the plant? You see the problem: the Congo River enters the sea just north of Soyo, and it has excavated a wide, deep canyon.

219

Solution: the Congo Canyon Pipeline, built by Chevron. Here’s a short video explaining how it was built.

https://www.youtube.com/watch?v=FRrMtB76hNY

220

Despite the fancy engineering, Angola’s long-term oil prospects aren’t great, because its cost of production is high, much higher than in North Dakota or Brazil or even Nigeria. Best hope: prices soar again someday soon.

221

Here’s a discouraging projection of Angola’s production in the next decade. I say “discouraging” not only because fewer barrels of oil will come from the ground but because two-thirds of the nation’s 30 million people live on two dollars a day. Where has all the money gone? Oh, I remember: the ex-president, his family, and his clique.

https://www.economist.com/middle-east-and-africa/2018/12/01/president-joao-lourenco-sees-himself-as-an-angolan-deng-xiaoping

222

Want to visit? The assumption is that you’re part of the oil crowd and don’t mind high prices. Almost none of the international hotel chains operate in Angola, and your safest choice might be this, but it’s no bargain.

Want to see recent reviews? They’re good for a chuckle so long as you’re not the guest.

https://www.tripadvisor.com/Hotel_Review-g293763-d2309991-Reviews-EPIC_SANA_Luanda_Hotel-Luanda_Luanda_Province.html#REVIEWS

223

We still have to look at Asia. We begin with the sedimentary basins of the former USSR. The biggest fields in Russia today are here, just east of the Urals in the West Siberian Lowland.

https://carnegieendowment.org/publications/interactive/russia-oil-map/

224

Ten years from now, assuming that western oil companies are active in Russia, you should anticipate lots of oil coming from the Kara Sea and lots more gas from the Taymyr Peninsula, to its south. For a time, it seemed as if that gas would be produced with the cooperation of ExxonMobil, whose CEO went on to become Donald Trump’s first secretary of state. Despite that connection, in 2018 Exxon announced that in view of international sanctions on Russia the company would abandon its Russian projects. Low oil prices probably confirmed the wisdom of the decision.

http://www.russiablog.org/2006/03/siberia_is_becoming_chinese.php

http://bittooth.blogspot.com/2012/01/ogpss-oil-in-western-siberian-basin.html

225

Here’s a bit of Samotlor, a Russian giant with some 17,000 wells. It’s more like the oil fields we saw earlier in California than it is like those of Saudi Arabia.

226

Tremendous amounts of oil and gas are in the underlying Bazhenov shale, the source rock for the oil that is now produced from shallower reservoir rocks at Samotlor. Fracking the Bazhenov could flood the world market. When will it happen? Sorry: above my pay grade.

http://en.wikipedia.org/wiki/Bazhenov_Formation#mediaviewer/File:USGS_-_Bazhenov_Formation_Oil_Reservoir.png

227

The Yamal Peninsular, however, which juts out into the Kara Sea, is already producing gas sent as LNG not only east to China, which financed the project, but potentially west to Saudi Arabia. Sound odd? “Buy our gas, save oil,” President Putin said to Saudi Arabia’s oil minister. “That’s why I’m here,” Minister Khalid al-Falih reportedly replied. More LNG from Yamal is probably on the way. One advantage: Siberia’s wicked winter temperatures make freezing the gas cheap. Also, retreating Arctic ice makes shipping easier. In the meantime, Yamal LNG has ordered 15 icebreaking tankers. The first carried a load to South Korea in August, 2017.

https://www.wsj.com/articles/russia-skirts-u-s-sanctions-with-27-billion-arctic-gas-plant-1512731306

228

Russia has historically exported most of its oil and gas westward, but that’s changing, Say hello to the Power of Siberia, a 55-inch gas pipeline running about 1,800 miles and finally getting to China through tunnels under the Amur River.

https://ig.ft.com/gazprom-pipeline-power-of-siberia/

229

China is the world’s fifth biggest oil producer. Its biggest field is Daqing (“Great Celebration”) in the northeast but in decline, despite lots of new wells over the years.

http://peakoilbarrel.com/mexico-china-and-beyond/ Here’s the location.

230

On the ground, Daqing is pretty messy.

231

Here’s a closeup.

Closer still.

232

What’s China to do? One solution is fracking. Potential areas are indicated on this map with dark shading. Don’t hold your breath, however; there are many things inhibiting development. One is limited water supply; another is the absence of the innovative companies that have driven the boom in the U.S.

233

Another possibility: offshore discoveries.

http://www.offshore-technology.com/projects/beibu-gulf-project/beibu-gulf-project1.html

234

The Chinese are pursuing this despite objections from neighbors who claim rights to the South China Sea. In 2016 the Permanent Court of Arbitration in The Hague held that China had no historic claim to this area. The Chinese replied that the court had no jurisdiction. (Don’t read any ownership claims into the name South China Sea. That name is just an English name growing out of old trade routes; the Chinese themselves simply call this the South Sea. Filipinos call it the West Philippine Sea, and Vietnam calls it the East Sea.)

http://www.wsj.com/article_email/chinas-claim-to-most-of-south-china-sea-has-no-legal-basis-court-says-1468315137-lMyQjAxMTA2MzE2MjgxODI4Wj

235

A third choice is to import more oil, which is exactly what China is doing.

http://www.wsj.com/articles/chinas-decline-in-oil-production-echoes-globally-1472122393

236

To that end, the Chinese are busy building short-cut pipelines such as this one across Burma. This route is a lot shorter than the sea voyage down around Singapore and up the Chinese coast. The terminal can handle oil and gas not only from the Persian Gulf but also from the Shwe (“Golden”) Gas field shown here just offshore. China beat India for rights to that field.

http://centerforworldconflictandpeace.blogspot.com/2011/10/theres-something-about-burmamyanmar.html

237

Chinese companies have gone on to develop ports elsewhere around the Indian Ocean, not only in Burma but in Sri Lanka and Pakistan. The three are intended to protect the shipping lanes between China and the Persian Gulf; other ports farther west are to protect other kinds of Chinese investments. Centuries ago, it used to be said that the Indian Ocean was a Portuguese lake; now India sees it becoming a Chinese one. The Chinese call their ports a “string of pearls.” The Indians see it as a choker.

http://www.wsj.com/articles/china-builds-first-overseas-military-outpost-1471622690?tesla=y

238

The Chinese are also trying to get oil from Kazakhstan's huge Kashagan field in the Caspian Sea.

Many international oil companies have wanted a piece of Kashagan. After spending billions of dollars trying to get the field into production, there are still big problems, which explains the field's nickname, "cash-all-gone." One of these days (or years) oil will probably flow from it both east and west.

239

Here’s a close-up. The wells have been built on artificial islands to reduce the possibility of damage from shifting winter ice. Speedboats stand ready to carry staff away if there’s a leak of hydrogen sulfide, which is poisonous.

240

Meanwhile, Australia is elbowing into the LNG game with enormously expensive projects that were planned at a time when everyone thought gas prices would stay much higher than they actually are. It’s been a painful readjustment for the companies, which have scaled back their plans. Still, a lot’s been built. Let’s look at Gorgon and Wheatstone, out in Western Australia.

http://www.crystolenergy.com/wp-content/uploads/2016/07/Australia_LNG_map.jpg_org.jpg Here’s Gorgon, a delightfully named megaproject in the middle of nowhere.

241

See that island just west of the letter P on Port Hedland? It’s Barrow Island, a barren place.

242

But see this detail from the east side of the island. Onshore, there are two LNG “trains” that convert the gas to a liquid. It’s pumped to storage, then put on tankers that come by weekly. Customers? China, India, Japan, and South Korea have signed contracts, but the contracts don’t cover all of Gorgon’s production, some of which may have to be sold at prices far below what the owners would like.

https://www.ft.com/content/f23e35e0-92b5-11e7-bdfa-eda243196c2c

243

Here’s Chevron’s infographic about the project.

https://www.chevron.com/stories/gorgon-by-the-numbers Here’s an aerial view of the neighboring Wheatstone project, which began operations in 2017. Together with Gorgon, Wheatstone has cost $88 billion so far.

https://www.chevron.com/projects/wheatstone

244

We’ve come five hundred miles northeast to Shell’s Prelude Field. We’re 125 miles off the coast at Broome, and so instead of building undersea pipelines to the coast Shell commissioned Samsung to build a Floating Liquified Natural Gas vessel. It arrived on site in 2017 and is supposed to be anchored in place for at least 20 years. It will liquefy gas produced in nearby waters and load it onto tankers that swing by weekly. The vessel is over 1,600 feet long.

http://www.shell.com/about-us/major-projects/prelude-flng.html

245

Ingenious, yes. Profitable? Doubtful. Shell gave the project the green light in 2011, when it presumably hoped that gas prices would regain the levels of earlier years. They haven’t. (Henry Hub, which this graph refers to, is a pipeline distribution center in Louisiana and generally sets the price for natural gas sold on the New York Mercantile exchange.)

https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm

246

Shell killed a similar project it had planned at Curtis Island, near Gladstone, on the other side of Australia, where there are already three LNG plants. All of them use gas found in local coal seams.

247

Hoping to run its Australian projects more profitably, Chevron has talked about collaborating with its competitors. One possibility would be building a pipeline and then inviting other producers to link up to it and share its costs. It sounds good, but one big unknown is the strength of the competition from American LNG exports to Asia.

248

By 2019, Australia had overtaken Qatar. How much money would the producing companies make? Maybe none.

http://www.wsj.com/articles/planned-futures-benchmark-could-revolutionize-lng-market-1481037093

249

Here’s one projection.

https://www.wsj.com/articles/how-energy-rich-australia-exported-its-way-into-an-energy-crisis-1499700859?shareToken=st1103d937b96745dd8b6b1f52cdea98d7&reflink=article_email_share

250

And there’s more in the pipeline, so to speak. Those specks below labelled Leviathan and Zohr belong respectively to Israel and Egypt. There’s more gas at Leviathan than Israel can use, so the Israelis have agreed to pipe gas east to Jordan. The Israelis would like to ship it north to Europe, too, but a pipeline through Lebanon and Syria is a non-starter, and Cyprus has its own gas to sell and so won’t allow an Israeli underwater pipeline to make landfall there. That leaves the Israelis having to build a 1,300-mile underwater pipe to Greece. Expensive! Alternatively, the Israelis could pipe the gas to Egypt via Jordan and use Egypt’s two LNG plants to ship the gas by sea to Europe. The plants have been idle for years, ever since Egypt found that it needed all its production for domestic use. Stay tuned.

https://www.economist.com/news/middle-east-and-africa/21726744-egypt-could-help-israel-get-rid-its-excess-gas-israel-has-gas-conundrum

251

Detailed as this survey may seem, it only scratches the surface of this huge industry, without which we'd all starve if we didn’t first freeze. Here’s a map of commercial tank farms, which I put in just to remind you how this industry is all around us.

252

Here's Western Europe.

China, South Korea, and Japan.

253

Home, sweet tank farm. After all, the U.S. uses about a fifth of the world's oil, or 20 million barrels daily. Can’t visualize it? Try visualizing 1,200 Olympic-sized swimming pools. The industry fills that many pools daily and then distributes the stuff to your car and my car and his car and her car and so on and on. You’d think we’d appreciate this, but no: most people hate the industry. Go figure.

https://www.tankterminals.com/

254

Do you think that John D. Rockefeller had the faintest clue about our dependence today on the stuff that he did so much to put on a modern industrial footing? I doubt it, at least early on. He lived long enough to see the trend, but he made his fortune with kerosene for lamp fuel. Convenient, but not something to fight world wars about. (He lived a long time: 1839 to 1937. The photograph on the right is a little scary, but the one on the left is maybe even scarier. Want to play with this guy?)

https://en.wikipedia.org/wiki/John_D._Rockefeller https://schedule.wttw.com/series/19630/John-D-Rockefeller-American-Experience/