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This Week in Energy: Canadian Keystone Anxiety, Eagle Ford and Dow Chemicals

By James Stafford | Fri, 07 December 2012 19:37 | 1

This week in energy, we highlight Canadian anxiety over Keystone XL, new EPA regulations that could cost manufacturers billions, updates on Eagle Ford and a look at Dow Chemical’s massive energy savings in our special investment piece.

For Canadians, it’s all about Keystone XL—and as protests pick up momentum—it’s anyone’s guess right now how the Obama administration will deal with the issue. There’s a lot riding on this for Canada, which has spent quite a lot of money developing its tar sands and needs Keystone to get product to market. 

What’s at stake for the US? On a tangible level, much less. On a philosophical level, perhaps a bit more. Michael Levi of the Council of Foreign Relations (CFR) makes an interesting point in an exclusive interview with us this week:

“The Keystone XL Pipeline is non-essential to US energy security; it is also not disastrous to climate change. It has been overblown by both sides in the debate. It is one pipeline that would carry a modest, but non-trivial amount of crude, and that would help create economic incentives to increase production, again, by a modest but not earth-shattering amount.”

What is important, Levi told us, is “whether the US is going to let economically-rational infrastructure go ahead. I think if you replicate a pattern like the one that some would like to see for Keystone and you start blocking pipelines all over the place, then that becomes a larger economic problem.”

It’s also “hard to say that Canada gives the US potentially more security aside from in extreme situations,” Levi said.

While Keystone is stealing much of the speculation limelight these days, the Eagle Ford shale play has also been big news this week, thanks to Marathon Oil’s announcement that it will earmark one-third of its total $5 billion capital budget for 2013 for Eagle Ford development. Analysts are quite optimistic that Marathon will reach its target production level of 85,000 barrels of oil equivalent in 2013—especially since the company managed to double production from the 2nd to 3rd quarter this year alone. This is where we expect to see some buyouts pretty soon, though. The juniors own most of the Eagle Ford acreage right now, and the majors are likely eyeing it greedily, since it’s probably the most active US play right now.

This Weeks members Article: : One to Watch: Dow Chemical Cuts Energy Costs by $9 Billion

Switching to the negative, a new study from the National Association of Manufacturers claims that new EPA rules could end up costing US manufacturers billions of dollars, which in turn would result in millions of layoffs.

According to the report, which plays to the conservatives, the “cumulative” cost of upcoming EPA rules for the power sector (6 regulations in question here) could cost the industry around $138.2 billion, though the EPA itself puts that figure at $111.2 billion. In terms of TOTAL capital expenditures, the report projects $404 to $884 billion, while the EPA estimates $174 to $539 billion.

The link is this: The study concludes that the new regulations would result in an “immediate and incontrovertible” increase in electricity prices, which would in turn lead to higher prices for manufactured goods and services, lost sales and eventually, higher unemployment.

Across the Atlantic, we have elections in Romania this weekend, which foreign oil and gas companies are hoping will remove the anti-fracking pressure and lift the moratorium on shale exploration.

Nearby, Polish shale plays continue to experience disappointments. After worse-than-expected exploration results, ExxonMobil got rid of three concessions and this week announced it would sell two more of its remaining three concessions to Polish refiner PKN.

On the lighter side, we leave you with this renewable energy success story south of the border: Solar tortillas are becoming all the rage in Mexico, thanks to a German-designed solar oven. 

James Stafford
Editor, Oilprice.com

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James Stafford
Company: Oilprice.com
Position: Editor

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  • GlennB on December 10 2012 said:
    Apparently Mr Levi and several others the US have not heard the recent Canadian Government new release; Canada will allow Chinese Govt' owned Corporation, CNOOC, to take over Nexen, thereby sending a clear signal to the US administration - "you snooze, you loose!" Canadian oilsands production will be shipped overseas. The great part of this is that it will allow for an imporved free market system. The price of Canadian oil will be dictated by the world market and not just a single customer(US) therefore it will likely translate into a higher price to be paid by the US for having to compete for production.

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