Oil & Energy
Strong Earthquakes Spell Doom For America’s Oil Heartland
A week ago, an earth quake with a 4.5 magnitude struck Texas in the most prolific shale play in the country—the Permian. Days later, another quake shook America’s oil heartland. And seismic activity might eventually force drillers to curb production.
The December 27 quake was the strongest in Texas for the last ten years, the Midland Reporter-Telegram reported at the time. It happened at a depth of 4.3 miles near Stanton. And it followed a series of earlier quakes in December.
In the middle of December, the U.S. Geological Survey reported four earthquakes in the vicinity of Midland that occurred within 24 hours. The magnitude of these quakes ranged from 2.9 to 3.7, which is not a whole lot, but the number was concerning, especially since it came after more tremors were detected by the University of Texas at Austin’s Bureau of Economic Geology earlier in the year. And after the stronger quake, regulators have stepped in.
The Texas Railroad Commission banned the injection of wastewater from well drilling into deep wells just before the big quake. After the big quake, the commission sent out inspectors to the field as the quake had occurred in an area already under investigation for wastewater disposal in deep wells.
According to Reuters, if the inspection results in a halt of wastewater disposal in the area, this could lead to the shutdown of some 18 disposal wells that pump a combined 9,600 barrels of wastewater. And if drillers cannot dispose of wastewater, then they cannot really drill.
That hydraulic fracturing, or fracking, causes increased seismic activity has been one of the main weapons in the arsenal of anti-fracking activists. Indeed, according to the U.S. Geological Survey, the practice of splitting shale rock formation to extract the oil contained in it does cause increased seismic activity. Only it’s not the fracking itself. It’s the wastewater.
Fracking requires enormous amounts of liquid, and this liquid, called wastewater but in fact, a mixture of water and chemicals, needs to be disposed of. Disposal usually takes place in disposal wells, some of them quite deep to hold more wastewater. It is these underground wastewater reservoirs that have been linked to increased seismic activity in some oil regions.
Five years ago, for instance, Oklahoma drew media attention because of the significantly increased frequency of earthquakes since the start of the shale boom. The state, one of the big oil producers in the U.S., had negligible seismic activity before 2009 when fracking really took off. By 2016, Oklahoma was recording an average of two quakes a day, what was earlier the average for a year. To date, quakes are just as frequent.
According to website Earthquake Tracker, there have been 10 earthquakes in Oklahoma in the last seven days, 68 quakes in the past 30 days, and 2,063 quakes in the past year. Of course, most of these are minor, but due to their increased frequency, they can still cause and have caused material damage. The issue even led to litigation seeking insurance coverage against the effects of wastewater disposal from oil wells. Unfortunately for the plaintiffs in this case, the Supreme Court of Oklahoma this month ruled that no insurance coverage exists for bodily injury or property damage caused by wastewater disposal-related seismic activity.
Interestingly enough, there used to be insurance coverage for such damages until a few years ago. As seismic activity grew, Oklahoma insurers started getting increasingly aware of the fact that upping the premiums for earthquake coverage (by 200% in some cases) was not sufficient to avoid substantial losses at this rate of seismic activity. So they began removing this coverage from their service offering and rejecting claims for quake-caused damage, attributing it instead to houses settling or just being plain too old.
The Permian is a bigger producer of oil than Oklahoma. It is the biggest producing oil region in the United States and the driver of its production growth, seen as substantial this year as prices remain comfortably high. But unless producers can find an alternative to injecting wastewater into deep wells, some of that production growth might never happen in order to avoid turning Texas into the second earthquake capital of the U.S. after Oklahoma.
The alternatives include trucking the wastewater away and disposing of it elsewhere, therefore distributing the burden of tons of water that, if dumped into an underground well, could cause heightened seismic activity. Another alternative is to recycle the water, and it might be worth motivating drillers to consider it as the amounts of water used in shale wells drilling are not going any smaller: according to the Groundwater Protection Council, a single horizontal well requires 45 million liters of water.
The U.S. oil and gas industry generates hundreds of millions of gallons of wastewater every year. This water’s disposal can and does cause increased seismic activity in some places. Shutting down disposal wells cannot be a permanent decision, not for an industry that is just tentatively returning to growth.
By: Irina Slav
Slav reports for Oilprice.com
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
