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Prices & supplies - April 20

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Australia: The good oil is that stocks are already running thin

Allan Fels and Fred Benchley, The Melbourne Age
AUSTRALIA'S abundant endowment of natural resources has provided a cushion against the need for energy security policies. No longer.

Declining domestic oil production, refinery disruptions, extended supply lines, geopolitical turmoil and the carbon constrained future are all sending warning signals: Australia's easy energy ride is over, and moves to encourage renewable transport energy sources are long overdue.

It is a message the Howard government ignored. Rudd so far has shown little interest.

Given Australia's increasing reliance on oil imports, and our relative isolation, such political apathy is a mystery.
(18 April 2009)

Funds try to spot the great oil rebound

Ambrose Evans-Pritchard , Telegraph
Oil is too cheap. At around $50 a barrel, it is trading far below the production costs of almost all new sources of crude and energy substitutes.
... So unless the world economy tips into acute deflation (possible: prices are already falling in the US, China, Japan, Spain, and Switzerland) and unless the G20's monetary stimulus fails to prevent a slide into protracted depression, it is a safe bet that oil prices will roar back.

Investors are already itching to buy tickets for the great rebound. ETF Securities reports a "meteoric rise" in flows into its family of oil funds, which trade like equities on global bourses. Their funds alone have jumped sixfold to $1.3bn (£880m) since October. Buying reached a crescendo early this year as OPEC production cuts began to stabilise crude after prices touched $34 – a long way down from the giddy heights of $147 last July.

But investors are discovering that it is harder to play the energy rally than it looks. The crude oil fund (CRUD) has fallen by 27pc since early January, though oil itself has risen 9pc since then. The leveraged oil fund (LOIL) has halved. This is the painful story of countless commodity funds. You make the right strategic call, but come to grief on the details.
(19 April 2009)

Just a ‘FRAC’ away

Peter McKenzie-Brown, Language Matters
If unconventional natural gas is a revolution in the making, so are the services required to make it happen. Industry spending patterns are shifting, with much bigger investments now being poured into operations below the ground.

Traditional ways of doing business are changing. Multiple wells are drilled from single sites, known as “pads,” to tap the new gas target. The old oilfield rhythm of busy winters and quiet summers is also changing as work grows in the warm seasons.

Despite the economic downturn, there is even a hint of a gas counterpart to the former oil sands labor shortage in the air. There is a risk that in the near future Western Canada will find itself short of powerful hydraulic equipment needed to make the networks of underground channels that make unconventional gas deposits flow. This would be a blow to exploration and production companies, but possibly a considerable financial boon to service companies with the right stuff to do the rock fracturing, a field known as “fraccing” in the industry.

The specialty is a well stimulation technique which improves production from geological formations where natural flow is restricted. Hydraulic fracturing pushes a mix of water, sand and some soluble chemicals into well bores at high pressure, both to spread cracks across the formation and hold them open for gas and oil to flow.

Originally a simple operation, fraccing has evolved into a high industrial art that uses multi-stage techniques in horizontal wells, reports Dave Russum, geosciences vice-president for AJM Petroleum Consulting. “Between the heel [start] and the toe [end] of a horizontal well, you isolate an interval close to the toe and frac that region,” Russum says. “Then you move back towards the heel, isolate another interval and do another frac.”

The technique is a powerful production tool. “This breaks up a lot of rock, making a lot more gas available. These new technologies are enabling us to access a whole lot more low-permeability [poorly flowing] rock than you would ever be able to reach with a vertical well,” Russum says. ...

This article appears in the April 2009 issue of Alberta Oil magazine.
(18 April 2009)

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