Us dominance in crude shows no sign of faltering

 


THE US shale revolution has been a game-changer. Not only has it altered the global energy dynamics, but it has also impacted the associated geopolitics in a big, big way. In the backdrop, many saw the United States, and not Saudi Arabia, as the new oil king of the world.
Courtesy the shale output, for the first time since 1978, last September the States recorded a surplus in the petroleum trade. A month earlier, in August, the US Energy Information Agency (EIA) reported: Petroleum and natural gas production in the United States jumped by 16 per cent and 12pc, respectively, in 2018, setting new production records, making the US world’s single largest producer of oil and natural gas.
The Organisation of the Petroleum Exporting Countries (Opec) in its World Oil Outlook 2019 also conceded that the US will overtake it in terms of crude oil output within the next five years. “Non-Opec supply prospects have been revised up sharply, as US tight (shale) oil, in particular, has again outperformed expectations,” Mohammad Sanusi Barkindo, secretary-general of the Opec, emphasised.
But all this is currently under focus. The debate is intensifying: ‘With the current low, crude market prices, is the US shale revolution going bust?’
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The US oil production growth is in for a ‘major slowdown’. The IHS Markit outlook for oil market fundamentals for 2019-2021 expects the total US production growth to be 440,000 barrels per day (bpd) in 2020 before essentially flattening out in 2021. Modest growth is expected to resume in 2022. But those volumes would still be in stark contrast to the boom levels of recent years, Raoul LeBlanc, vice president for North American unconventionals, IHS Markit was quoted as saying.
“Going from nearly 2 million bpd annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” LeBlanc added. “This is a dramatic shift after several years where annual growth of more than one million barrels per day was the norm.”
With WTI prices expected to average around $50 in 2020 and 2021, IHS Markit forecasts capital spending for onshore drilling and completions to fall by 10pc to $102 billion this year, another 12pc to around $90bn in 2020 and another 8pc to around $83bn in 2021 – a nearly $20bn decline in annual spending over just three years.
“It all represents the strongest headwinds for shale producers since the oil price collapse in 2015,” LeBlanc says.
Investors no longer appear willing to write the industry a blank cheque. Companies that made the US emerge as the worlds eminent oil and gas producer, are in a crisis, struggling to stay afloat. Bankruptcies and layoffs are up, and, drilling is down. Halliburton has laid off nearly 3,000 workers. In the Permian Basin, the most prolific oil field in the US, employment has almost completely stalled out — after growing more than 11pc last year.
Meanwhile, many of the smaller producers who piled up debt are struggling to pay it back. That has led to a wave of bankruptcies — nearly three dozen so far this year. All this is constraining output growth.
Yet, the EIA is not giving up. In its November Short Term Energy Outlook (STEO), the EIA has revised up its forecast of WTI Crude prices by $2 a barrel to $56 in November, and by $1 per barrel in both December and January to $55 and $54 a barrel, respectively.
With the increase in price outlook, the EIA has also revised up its forecast of the US crude oil production by 30,000 bpd, or by 0.2pc, from the October STEO. Forecasts for next year’s production also went up by 119,000 bpd, or by 0.9pc, compared to the projections provided in the October outlook.
The current US administration is singularly focused on energy security, or “energy dominance” – as they put it. Last Thursday, it announced a plan that could allow oil drilling on over three-quarters of the nation’s largest piece of unprotected wilderness, the 23-million acre National Petroleum Reserve, Alaska. Ranked as one of the most ecologically valuable, yet, it holds promising oil prospects. Recent discoveries suggest it could hold as much as 8.7bn barrels in undiscovered oil. If the administration goes ahead with the plan, it could add significantly to the US output.
Despite real headwinds, the US energy dominance is here to stay for some more time, one needs to concede here.
Published in Paisa Kamao Dost  2019





$1.3bn ADB inflow takes reserves to eight-month high





KARACHI: The State Bank of Pakistan (SBP) on Tuesday received $1.3 billion just a day after signing an agreement with the Asian Development Bank (ADB) in Islamabad.
The $1.3bn inflow from the ADB pushed up central bank’s reserves to eight-month high at $10.41bn.
Moreover, the country’s total reserves including central bank and commercial bank holdings also jumped to eight-month high reaching $17.293bn. The government, as part of the agreement with the ADB, plans to utilise $1.3bn for economic stabilisation programme.
The ADB earlier said the aim of the loan is to reduce the social impact of macroeconomic stability measures.
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The purpose of the investment is to bring stability in the exchange rate while strengthening the public financial management.
The bank also said that of the total $1.3bn, around $300 million has been set aside for reforms in the energy sector to address the energy shortfall and shortcomings in the energy policy.
Since the beginning of the current financial year, inflows from bilateral and multilateral donors have helped increased central bank’s foreign exchange reserves and stabilise exchange rate.
The greenback also fell to six-month low in the open market on Saturday while it also fell below Rs155-mark in the inter-bank market on Monday.
Although foreign direct investment in the country has failed to pick up over the last fiscal year, the foreigners’ increasing interest in the government securities reached to $1bn.
Published in Paisa Kamao Dost.com





 NEW YORK: Wall Street hedge funds and lawyers have turned an arcane procedure of international treaties into a money machine, at the cost of the world’s poorest people. The latest shakedown is a $5.9 billion award against Pakistan’s government in favour of two global mining companies — Antofagasta PLC of Chile and Barrick Gold Corporation of Canada — for a project that was never approved by Pakistan and never carried out.
Here are the facts:
In 1993, a US-incorporated mining company, BHP, entered into a joint venture (JV) with the Balochistan Development Authority (BDA), a public corporation in Pakistan’s impoverished Balochis­tan province. The JV was set up to prospect for gold and copper, and in the event of favourable discoveries, to seek a mining license. BHP was not optimistic about the project’s profitability and dragged its feet on exploration. In the early 2000s, it assigned the prospecting rights to an Australian company, which created Tethyan Copper Company (TCC) for the project.
In 2006, Antofagasta acquired TCC for $167 million, and sold half to Barrick Gold. Soon after the purchase, however, the original JV agreement with BHP was challenged in Pakistan’s courts. In 2013, the Pakistan Supreme Court found that the JV’s terms violated Pakistan’s mining and contract laws in several ways and declared the agreement — and thus the rights claimed by TCC — to be null and void.
 
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Specifically, the Court ruled that the BDA did not have authority to bind Balochistan to the terms of the JV agreement; that it awarded the contract without competition or transparency; and that it had greatly exceeded its authority and violated the law by promising extensive deviations from the rules normally applicable to mining projects. Moreover, the JV failed to obtain, and even to pursue, many mandatory approvals from the state and federal governments, and BHP failed to undertake prospecting in a timely manner required under the mining law.
The Supreme Court’s decision came after years of public-interest litigation challenging the deal for violations of domestic law and the rights of the public. In the meantime, the BDA’s chairman was found to have conflicts of interest and to be living beyond the means afforded by his official salary, which in the Court’s words was tantamount to corruption.
In a normal world, the Court’s judgment would be respected absent proven evidence of corruption or other wrongdoing against the justices. But in the world we actually inhabit, the so-called international rule of law enables rich companies to exploit poor countries with impunity and disregard their laws and courts.
When TCC lost its case in Pakistan’s Supreme Court, it simply turned to the World Bank’s International Center for the Settlement of Investment Disputes (ICSID), in complete disregard of Pakistan’s laws and institutions. A panel of three arbitrators with no expertise in or respect for Pakistan’s legal system ruled that TCC deserved compensation for all future profits that it allegedly would have earned if the non-existent project, based on a voided agreement, had gone forward!
Because there was no actual project, and no agreement for one, the arbitrators had no basis to say what terms — royalties, corporate taxes, environmental standards, land area, and other basic provisions — the governments of Balochistan and Pakistan would have set. In fact, disagreement on many of those terms had stalled negotiations for years.
Nonetheless, the ICSID panel arbitrarily decided that TCC would have had the right to mine 1,000 square kilometres, though the mining law forbade licensing such a vast area. The arbitrators ruled that TCC would have received a tax holiday for 15 years, even though there is no evidence that such a tax holiday was in the offing — or even legal. The arbitrators decided that TCC would have benefited from a royalty rate several percentage points below the mandatory statutory rate, though there is no reason why Pakistan would have set such a low rate.
The arbitrators also ruled that TCC would have met all environmental standards, or that the government would have exempted TCC from relevant requirements, though the mining area is in a desert region subject to extreme water stress, and the mining project would have demanded vast amounts of water. And the arbitrators ruled that to obtain the land needed for TCC’s pipeline, the government would have taken it from its owners and inhabitants.
The arbitration ruling is utterly capricious. An illegal project, declared null and void by Pakistan’s Supreme Court and never pursued, was found by the World Bank’s arbitration panel to be worth more than $4 billion to TCC’s owners, who had paid $167m for it in 2006. Moreover, the tribunal declared that Pakistan must compensate TCC in full, with back interest, and cover its legal fees, raising the bill to $5.9bn, or roughly 2 per cent of Pakistan’s GDP. It is more than twice Pakistan’s entire public spending on health care for 200m people, in a country where 7pc of children die before their fifth birthday. For many Pakistanis, the World Bank’s arbitration ruling is a death sentence.
The ICSID is not an honest broker. One of the tribunal members in the TCC case is using the same expert put forward by TCC for another case in which the arbitrator is acting as counsel! When challenged about this obvious conflict of interest, the arbitrator refused to step down and the ICSID proceeded as if all were normal.
Thanks to the World Bank’s arbitrators, the rich are making a fortune at the expense of poor countries. Multinational companies are feasting on unapproved, non-existent projects. Fixing the broken arbitration system should start with a reversal of the outrageous ruling against Pakistan and a thorough investigation of the flawed and corrupt process that made it possible.
Written by Columbia University Professor Jeffrey D Sachs for Project Syndicate
Published in Paisa Kamao Dost
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