The big question for US shale: Is it permanent or just ‘permania?’

A pump jack used to help lift crude oil from a well in the South Texas Eagle Ford Shale formation. US shale oil producers have upended old assumptions in the global energy market. (Reuters)
Updated 08 March 2018
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The big question for US shale: Is it permanent or just ‘permania?’

LONDON: The Americans have a name for it — “Permania” — which they use to describe the frantic, even crazy, activity around the shale oil fields of West Texas.
In the past four years, the global energy market has been stood on its head by the boom in US crude production, to the point where the Americans are now producing more oil than Saudi Arabia and will soon overtake the world’s biggest producer, Russia.
The US’s 10 million barrels of oil per day account for roughly 10 percent of global output, and, as domestic demand for energy is saturated, they are being exported increasingly to the rest of the world.
That boom has unhinged the global oil market. The price collapse of 2014, the “Vienna Alliance” between OPEC countries and Russia, and the fiscal challenges of countries in the Gulf, are all down to the shale boom.
Sara Ortwein, president of Exxon Mobil’s shale business XTO Energy, told the CERAWeek by IHS Markit conference in Houston, Texas this week: “A decade ago, the idea of exporting US crude would have been seen as preposterous. Now, we have enough to satisfy US energy needs and sell it to the rest of the world.”
The Permian basin, west of Houston, Texas, and straddling New Mexico, is at the heart of the revolution. It produces 25 percent of American oil output, and has virtually changed the global oil equation on its own.
For traditional exporters like Saudi Arabia, it presents a big question: To join the party in Texas and other US shale fields, or to stick to pumping crude from the sands and seas of the Middle East?
“We have the golden goose, right before us,” said Tim Dove of Pioneer Natural Resources, one of the leading shale companies and among the first to exploit the Permian around the turn of the millennium. “We don’t drill dry holes, because we know the oil is there. Technology will only make it better. The sky is the limit,” he told the CERAWeek.
In a throwaway line, he seemed rather pleased about how he and other shale producers have caused confusion in the ranks of the traditional producers.
“I think that OPEC is impressed by what we’ve done, even if they are trying to get their arms about what it all means.”
He was speaking after a meeting with OPEC officials and traditional oil company executives in one of the many power-broking dinners around the CERAWeek venue.
It was the second year that OPEC had invited the shale barons to break bread in an attempt to end the undeclared hostilities between traditional oil producers and the Texans in place since the fall in prices in summer 2014.
Mohammed Barkindo, Opec general secretary, explains how the “peace” talks had come about. “We agreed last year to continue the dialogue with the Sahel industry. The last stage of the oil cycle has been the most injurious for all our members, and to everybody in the world. We all suffered. We had been operating in silos and we agreed to talk to the shale industry.”
Barkindo insisted that the meeting did not discuss oil prices or deals on limiting output, and Dove pointed out that US anti-cartel laws would make such agreements illegal.
“You cannot have these kind of talks in the US. We were invited and we went along. As far as I’m concerned, the dinner was congenial, and it may well become an annual event,” Dove said.
There has been speculation that some OPEC members might seek to do deals with shale producers as a way of balancing their portfolios and getting exposure to the upside in shale.
Amin Nasser, chief executive of Saudi Aramco, said that the company was always looking to get involved in growth areas, but he did not specify which ones.
But some in Houston questioned whether the shale industry had cured the “boom or bust” cycle of the past, when falling oil prices led to withdrawal of financial support from investors.
Others pointed out that shale still faced big problems in overcoming pipeline and shipping challenges, as well as opposition from the environmental lobby.
Mark Pappa, one of the pioneers of shale finance via his company EOG Resources, said that shale forecasts were too optimistic, and that the industry was exploiting cheap and easy assets that would quickly be exhausted.
“If shale does disappoint over the next four to five years, there are not a lot of safety valves in the system,” he said.
Dove dismissed these fears, pointing out that the shale industry’s cost breakeven price was only $19 per barrel. “There is no downturn price that would affect our profitability until it gets to below $40 a barrel,” he said.
Nonetheless, Papp’s skepticism was a wake-up call in Houston for an industry that was basking in its own considerable achievements.
But the convinced “Permaniacs” remained optimistic. Ortwein, who suggests the Permian could eventually be producing five million barrels of oil per day, half the total output of Saudi Arabia, said: “Permania is not a fad, it is permanent.”


Crisis at India’s Jet worsens as it grounds planes, faces strike

The debt-laden carrier has delayed payments to banks, suppliers, pilots and lessors. (Reuters)
Updated 20 March 2019
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Crisis at India’s Jet worsens as it grounds planes, faces strike

  • More than 20,000 people are employed in the company
  • The company had to stop more than 50% of their aircraft due to insufficient funds

MUMBAI: India's Jet Airways was fighting multiple crises Wednesday after grounding six planes, leaving it with only a third of its fleet flying, while pilots have threatened to walk out and a major shareholder is reportedly looking to offload its huge stake.

The problems at India's number-two carrier come as other airlines struggle to turn a profit despite the sector rapidly expanding in the country over recent years.

Jet, which employs more than 20,000 people, is gasping under debts of more than $1 billion and has now been forced to ground a total of 78 of its 119 aircraft after failing to pay lenders and aircraft lessors.

In a statement late Tuesday announcing its latest grounding, the firm it said it was "actively engaging" with lenders to secure fresh liquidity and wanted to "minimise disruption".

But with hundreds of customers left stranded, Jet's social media accounts have been flooded with often suddenly stranded passengers demanding information, new flight tickets and refunds.

"@jetairways We book our flights in advance so that we save on travel cost and you are sending cancellation (message) now?", read one irate tweet on Wednesday.

"I have sent a DM (direct message) regarding my ticket details. Please respond!", said Sachin Deshpande, according to his Twitter profile a design engineer.

Another, Ankit Maloo, wrote: "Received an email for all together cancellation of flight days before departure without any prior intimation or communication over phone!"

The firm is also facing pressure from its many pilots who have not been paid on time, with unions threatening they will walk off the job if salaries do not arrive soon.

"Pilots will stop flying jet planes from 1st April 2019 if the company does not disburse due salaries and take concrete decisions," a spokesperson for the National Aviator's Guild, a pilots union, told AFP.

India's aviation regulator on Tuesday warned Jet Airways to ensure that staffers facing stress are not forced to operate flights.

Meanwhile, Bloomberg reported that Etihad Airways of the United Arab Emirates has offered to sell its 24 percent stake in Jet to State Bank of India (SBI).

A collapse would deal a blow to Prime Minister Narendra Modi's pragmatic pro-business reputation ahead of elections starting on April 11.

India's passenger numbers have rocketed six-fold over the past decade with its middle-class taking advantage of better connectivity and cheaper flights.

The country's aviation sector is projected to become the world's third-largest by 2025.

But like other carries, Mumbai-based Jet has been badly hit by fluctuating global crude prices, a weak rupee and fierce competition from budget rivals.

Alarm bells for Jet first rang in August when it failed to report its quarterly earnings or pay its staff, including pilots, on time. It then later reported a loss of $85 million.

In February, it secured a $1.19 billion bailout from lenders including SBI to bridge a funding gap, but the crisis has since deepened.

"Jet Airways is rapidly reaching a point of no return and running out of assets to keep itself afloat," Devesh Agarwal, editor of the Bangalore Aviation website, told AFP.

"The only solution is equity expansion by diluting its stakes but Jet is just trying to cut losses and running out of options," Agarwal said.

Shares in Jet Airways were down more than five percent on Wednesday.