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James Stafford

James Stafford

James Stafford is the Editor of Oilprice.com

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This week in energy…Welcome to ‘Sunnistan’

The Islamic State, or IS (formerly ISIS), continues to gain ground in Syria and Iraq, taking control of a swath of land bridging the two countries, including over a dozen cities along an 85-mile stretch between the city of Deir EzZor and the Iraq border crossing point of Albu Kamal. This inevitable blending of the Syrian and Iraqi conflicts brings the creation of a Sunni Islamic caliphate in this territory into sharp reality—complete with a new “Osama bin Laden”.

And energy is a key element of the caliphate equation, with IS managing to take control of all of Syrian key oil and gas fields as well as a major pumping station distributing Iraqi oil to Syria. Among the captures is Syria’s largest oil field – the 75,000 barrel a day Al-Omar. A military airport and a local military base have also fallen to IS. Although IS has controlled parts of both Syria and Iraq for some time now, the connection between its holdings in both countries is something IS has long fought for and is further cementing its presence in the region.

Meanwhile, Russia is feeling (or pretending it is feeling, as President Vladimir Putin often does) the increasing pressure of international sanctions. This week Russia threatened “more serious countermeasures” if the European Union and the U.S. imposed further asset freezes and travel bans on Russian officials and businesspeople close to Putin or linked to the unrest in Ukraine. Although some predict that further sanctions might push Russia into a recession, the world’s biggest energy exporter is not feeling direct pressure on its oil and gas sector.

In the U.S., the fracking industry is facing a shaky future in Oklahoma. The state has been experiencing more than double the number of earthquakes as the notoriously seismic California. Oklahoma’s seismology chief, Austin Holland, suspects that the increased activity is directly related to the practice of pumping wastewater from oil and gas drilling back into the earth. Holland says that he plans to put the state’s safety ahead of the fracking industry’s interest. If his research proves that the safest thing to do is stop injection – and therefore production – that exactly what is going to happen.

This isn’t just an Oklahoma problem. Fracking states from Colorado to Ohio have experienced growth in their seismic activity. Seismologists around the country believe that the practice of injecting wastewater back into the ground after the gas is extracted is “jolting fault lines” and triggering earthquakes. According to the Oklahoma Corporation Commission, between 2006 and 2012 the amount of wastewater disposed in Oklahoma wells jumped 24 percent to more than 1 billion barrels annually.  As of 2011 there were 40,000 producing gas wells in Oklahoma.

Also in the U.S., a Lafayette Senate hearing discussed lessening restrictions on deep-water oil drilling. U.S. Senator Mary Landrieu (D-New Orleans), who led the hearing as chair of the Senate Committee on Energy and Natural Resources, made the case for the “elimination of American dependence on oil from war-torn countries over-seas.” The timing of the hearing is not a coincidence - it served as a way for members of the offshore supply chain to argue for more offshore oil and gas production to the U.S. Department of the Interior as it begins to draft its new five-year offshore energy plan. The current plan with expire in August 2017. One participant of the hearing said that it was possible for the U.S. to be self-sufficient from net oil imports by 2030, or soon after.

A group known as “Dragonfly,” suspected to be Russian in origin, laid cyber siege to the energy industry in the United States and Western Europe. The attack is focused on taking over industrial control systems with a look to possibly disable them in the future. Dragonfly isn’t a new operation, in its early days back in 2011 it began by targeting defense and aviation companies in the United States and Canada. In February of 2013 it shifted its focus to U.S. and European energy firms. According to a security adviser at F-Secure, “this is a very broad-based campaign to cripple adversaries, including via manufacturers that supply their armies with food and other crucial items.” People are hesitant to call this an all-out cyber war, but it certainly has the makings of one.

By James Stafford of Oilprice.com

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