Drilling Deeper: Interview with J. David Hughes

Off the microphones of J. David Hughes, Monsta & RE

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Aired on the Doomstead Diner on December 1, 2014

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Discuss this Interview at the Podcast Table inside the Diner

Drilling Deeper: A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom

cover_Drilling-Deeper_300w (2)https://i2.wp.com/shalebubble.postcarbon.org/wp-content/uploads/2013/02/David-Hughes-debate.jpgAbout a month ago, we had an opportunity to interview J. David Hughes, author of the recent report Drilling Deeper for the Post Carbon Institute. The report takes a detailed look at the fracking plays being made around the country which the MSM and Oil Industry shills have claimed will develop energy Independence for the FSoA. We held onto the podcast until December 1st, at the request of the PCI media department.

In the intervening time since we recorded the broadcast, the price of Oil has further dropped from the $80 or so it was then, now down to around $69 in the last price quote I saw for WTI Crude. This price is now down so low it is below the “Best Estimate” and is a worst case scenario for the drillers. Oil Rigs are already being shut in in the Bakken, and the longer the low prices are maintained, the more will go down.

From the Texas Star-Telegram:

Falling oil prices could cause pullback in Texas production

Posted Friday, Nov. 28, 2014

OPEC’s decision to maintain production levels instead of cutting them caused oil prices to plummet, leading some analysts to predict a “pullback” in domestic oil production.

The price of U.S. crude fell by 10 percent Friday to $66.15 a barrel after the oil cartel decided at its meeting in Vienna on Thursday to leave production at 30 billion barrels a day. Member nations are worried they’ll lose market share if they lower production.

Shares of companies across the energy industry fell, with Chevron sliding 5 percent and Irving-based Exxon Mobil falling 4 percent. Halliburton, the oil field services company, saw its shares drop nearly 11 percent.

Bernard Weinstein, an economist at Southern Methodist University’s Maguire Energy Institute, said it is too early to tell the full impact of the falling oil prices. But for Texas, the No. 1 oil- and gas-producing state, it is not “good news.”

“I think we’re definitely going to see some pullback. We’ll see the rig count go down,” Weinstein said. “Wells that are already producing will not be shut down, but we’ll see less drilling activity.”

Tom Kloza, chief oil analyst at the Oil Price Information Service, had told the Star-Telegram that Thanksgiving week would be a “Super Bowl week on oil fundamentals” because of the OPEC meeting. He now expects the price to fall an additional $5 or $10 a barrel before stopping.

“It’s that kind of rout,” Kloza told The Associated Press on Friday .

Partly because of the shale production boom in the U.S., the world is awash in oil at a time when demand from major economies is weak — so prices are falling. Citibank analysts wrote in a report Thursday that global supplies exceed demand by about 700,000 barrels a day now.

Overall, the slide is a boon for consumers, with gasoline prices at their lowest point since 2010.

The national average was $2.79 on Friday. Kloza expects gas to eventually be a full $1 below its June peak of about $3.70 a gallon. That would save typical households $60 a month for those that burn 60 gallons of fuel.

“It’s a nice easy calculation,” Kloza said. “These are numbers that we would have regarded three or four months ago as something from the lunatic fringe.”

The bottom should come between $2.50 and $2.70, Kloza said.

But there are some negatives to the euphoria over paying less at the pump, Weinstein said.

A decade ago, the oil and gas industry accounted for about 2 percent of the gross domestic product. Now it’s more like 8 percent, he said.

Besides the energy companies themselves, the industry includes those that provide materials needed for drilling, he said.

The companies that will immediately feel the impact are the small to midsize energy firms that started in the past few years and took on too much debt, he said.

“They went to the bank and they borrowed $100 million and so their revenue stream is down and they can’t cover their costs,” Weinstein said. “They will cut back first.”

So a big drop in the price of oil sends a “ripple effect throughout the economy,” Weinstein said.

In our interview, David also highlights the CapEx problems with natural gas, and the reason building expensive pipelines and export terminals doesn’t make economic sense given the rapid depletion of these fields, even in the “sweet spots”.

For the rest, listen to the Interview, and read the report if you have a lot of time on your hands.

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