TX Progressives talk Cornyn, Whitley, climate change

The Texas Progressives, all here legally and commenting on voting in Texas legally, offer this week's roundup.

First, either John Cornyn personally or one of his staffers stepped in a big tub o shit. I'm guessing it was Big John himself, who's been walking around with his own personal Overton Window for years and years now, all while the Austin stenos equivalent of Beltway stenos in DC largely give him a pass.

Knowing that calling Hitler a socialist or democratic socialist doesn't fly, he went Mussolini instead:

“We were the first to assert that the more complicated the forms assumed by civilization, the more restricted the freedom of the individual must become.” Benito Mussolini

— Senator John Cornyn (@JohnCornyn) February 24, 2019

Non-duopoly (I think) journalist Tim Shorrock, who went to high school overseas with Big John, called him out:

Since Sen. Cornyn has decided to insult socialists with the lie that their thinking is "incompatible with freedom," let me remind him that he was a big supporter of George Wallace when he was in high school in Tokyo in 1968. I know because I was there. https://t.co/Oaugs2A3TY https://t.co/msHYCbb10P

— Tim Shorrock (@TimothyS) February 25, 2019

I'd never seen that Texas Observer piece before, but Shorrock nails Cornyn's hide to the wall like a coonskin. Remember, that piece is from way back in 2002. And, sorry, Tim, as you well know, Cornyn, more suavely than Havana Ted, continues to play this time of card game.

The Texas Observer looks beyond the Permian Basin to see how, with even less excuse, the natural gas flaring in the Eagle Ford is ridiculous.

That flaring — and the oil drilling that causes that flaring — contributes to global warming and other aspects of climate change. A new computer simulation says that, on a worst-case scenario, if we hit 1,200 ppm of carbon dioxide and equivalents in a century, not only will we have 7 degrees Fahrenheit (4C) of warming, we will so destroy cloud cover that that could add AN EXTRA 15 DEGREES FAHRENHEIT! Yes, alarmism! And needed! That's a total of 12C, or TWENTY DEGREES FAHRENHEIT,  of warming!

Houston Public Media reports all 12 Dems in the Texas Senate oppose David Whitely as Secretary of State. So, does he get Abbott off the hook and withdraw his name, or not?

Jim Schutze confirms what I suspected from early on — that the Dallas Morning Snooze's pitching of Big D as a spot for Amazon's second headquarters was predicated in part on flipping the Belo Building to Amazon. (The Snooze will still sell you a $25 "Beer" T-shirt, though!)

Socratic Gadfly mocked the owner of the New England Patriots with some Kraft Porkaroni and Cheese.

David Bruce Collins offered partial thoughts on the presidential candidacy of Tulsi Gabbard, while noting he's aware of "issues."

Brains has his latest prez candidate roundup, focused on Bernie Sanders entering the race. His admonition that ANY Dem will be called a socialist, as well as the face that Bernie IS a Dem, were both ignored by Ted, who has his post-Hillary knickers in an even tighter knot this year.

Off the Kuff quibbled with some of the conventional wisdom in the HD125 special election and runoff.

The Rag Blog reviews the new Eugene Debs graphic novel bio.

Bobby Hankinson refuses to be shamed out of supporting victims.

Beyond Bones highlights a few iconic symbols of Texas that actually have their origins outside the Lone Star State.

Mimi Swartz asks if the problem with standardized test results is the tests themselves.

The Bloggess urges you to have the talk (not that one, the other one) with your kids.

Add this to the list of items of Amazon as bad actor at its fulfillment centers in Dallas and elsewhere: It reportedly sells bootleg media.

Finally, the TPA highly recommends this profile of Monica Roberts and her mission to identify transgender murder victims. Monica had some issues with her TransGriot blog disappearing shortly after that piece was published, but that's been resolved (for now, at least) and it wouldn't have stopped her anyway.

#Oilprices poll — 1st quarter poll dead center

At right, for a few more days, still, you can see the poll I have up about where oil prices will be at the end of the first quarter.

Averaging the input has the "call" at about right at $50/bbl. Oil broke $51/bbl yesterday because of the outbreak of fighting in Yemen. I expect that to settle back down a bit soon enough. Meanwhile, settling of fighting in northern Iraq, or a nuclear deal with Iran, would drive prices even lower.

Meanwhile, don't look for things to get better in the near future. Chris Tomlinson notes that US shale oil (and gas) drillers are probably full of bluster more than reality in talking about finding efficiencies in shale drilling costs. He notes that for US shale oil and gas:

The full cost of producing oil and natural gas at a representative sample of U.S. companies, including capital spent to build the company and buy assets, is about $80 per barrel of oil equivalent, according to a new study from the Bureau of Economic Geology's Center for Energy Economics at the University of Texas. The analysis of 2014 corporate financial data from 15 of the top publicly traded producers, which I got an exclusive look at before it's published next week, determined that companies will have a hard time recovering the capital spent that year and maintaining production unless prices rise above $80 a barrel.

Now, things aren’t total doom and gloom, at least not at already-producing wells, as Tomlinson explains:

Low prices, though, won't mean that producers will shut in existing wells. Many of these same companies can keep pumping to keep cash coming into the company and they can still collect a 10 percent return above the well's operating costs at $50 a barrel of oil. They just won't make enough money to invest in new wells or recover the capital already spent.

That leaves this as the bottom line:

This harsh reality of what it will take to keep the shale revolution going shows how vulnerable it is to competition from cheap overseas oil.

Of course, the “shale revolution” is a lot more bubbly than a lot of  its proponents want to publicly admit.

As I have blogged previously, before the bursting of the latest oil bubble, the Eagle Ford play in Texas was expected to peak in 2016, as analyzed by an outside expert. The bubble surely shoved that back to 2017 and most likely to 2018, but it’s still a sobering thought.

Anyway, on prices? I'd take the Saudi guesstimates as solid — oil won't hit $100/bbl again for five years. There's flat demand and ready supply cooked into the books for years ahead.

Texas Comptroller Glenn Hegar, are you paying attention? Probably not; it's hard to extract one's head from being buried in a hole in the sand, ostrich-like.

Chris goes on to note an extended shale oil drilling slump will also affect natural gas prices because many shale oil wells are "wet gas" wells, producing various hydrocarbon condensates. Dry gas wells will be the worst off in the new environment.

How long before oil supply hits equilibrium?

That is, of course, a major question right now.

Besides particular wells in various "tight" oil formations, like the Eagle Ford in South Texas, the Wolfberry in the Permian Basin and the Bakken in North Dakota, that will continue to produce because they've already been drilled, the other big controlling factor is a place called Cushing, Oklahoma.

That's where a nexus of North American oil pipelines meet and empty their content, if it doesn't have a different immediate final destination, into a complex of storage facilities.

Storage facilities that are filling up rapidly because those already-developed oil wells continue to produce, and at a high initial rate, like most shale oil wells.

"With total crude stocks now about 425 million barrels and Cushing north of 46 million barrels, WTI is looking increasingly mispriced high above $52 per the April contract," said Jeffries Futures analysts in a note to traders.

Indeed, the note says that some commodities futures traders will probably bet on oil going higher with another drop in the rig count.

Folks, that means nothing, for the reasons just noted; we still have excess supply in current production, and that's probably not going to change for a few months. Meanwhile, producers in the US are scrambling for other storage facilities as Cushing nears being filled to the brim, currently at about 80 percent.

Unfortunately, people who write for websites like Slate, which should be hiring or retaining people that know better, someone like Daniel Gross, who puts himself out as a brainy business and investment consultant, is clueless about oil production, as shown here in Slate, believing (I guess, it's hard to tell for sure), that you just shut off a well, like a light switch, after it starts producing, ignoring the problems with capping and respudding, especially in shale oil, and also ignoring the problem with "lease-to-drill" issues. Admittedly, those are more punitive, or have been, with gas rather than oil, but can't be ignored in either sector.

The fact is that oil and gas, as vital commodities, are non-solids. One can stop digging at a coal mine (or an iron ore mine for steel) quite easily. One does not just "shut off" an oil or gas well.

Of course, many speculators are betting they can sit on this crude long enough to wait out the continued surplus, and then sell at higher prices.

Probably not. West Texas Intermediate, currently in the low $50s, won't rise more than $10/bbl for six months, maybe longer. And other storage facilities may also be full by then.

Gross then shows even less understanding of the oil patch with this:

What we’re seeing, I’d argue, is an example of yet another type of American business exceptionalism.

No, it’s nothing of the sort. That said, some oil companies are gambling that they can use this to force new market efficiencies in their production of tight oil, and thereby stay even with the Saudis.

I’d bet, just as much as futures speculators are betting on being able to round up adequate storage at Cushing or elsewhere, that both Daniel Gross and said oil companies would be wrong. As rain.

That said, I have little sympathy for oil futures speculators who may well be betting wrong, unless they get a very favorable, and long, lease contract.

I discussed some of this (with less detail, and with skepticism about President Obama's backbone) two months ago.

That said, per the graphic at left, right now, it's definitely unprofitable to mine for tar sands. And, contra former Texas Speaker of the House Tom Craddick, and perhaps contra claims that $45 is the break-even point here in Texas, as I previously blogged, right now, it's borderline unprofitable to be producing oil here in Texas, unless it's what's left in conventional plays.

That graphic comes from "the letter O" in an A-to-Z encyclopedia of the current oil situation from Canada's newsmagazine, Maclean's. The whole encyclopedia is well worth a read.

So, Daniel Gross? Even if US producers squeeze a full $10/bbl of "efficiencies" out of shale oil production, it will still cost them more than Mexican oil production. They could squeeze out $15/bbl and it would cost as much as Libyan oil production.

They could squeeze out $20/bbl in "efficiencies" (which no way is happening) and still cost more than the OPEC average, and still cost more than $10 a barrel more than the Saudis' average cost.

So, Daniel Gross, and others who think like him? Buy.A.Clue.

Meanwhile, the International Energy Agency expects crude prices to average $55/bbl for this year, and not to get above $70 for some time. Oh, and $100 oil? Not even on its current horizon.

The IEA story is worth a read right there. Going by Brent prices, which it expects to only get to the low-mid $70s by 2020 (yes!), this is not a one-year slump, it's potentially a multi-year readjustment.

And, the IEA is right to be concerned. Its U.S. counterpart, the Energy Information Agency, says current stockpiles are at an 80-year high for this time of year.

So, major new shale field work is likely just going to have to wait until current shale wells play out. That said, given predictions that both the Eagle Ford and Bakken might peak by the end of 2016 (which the current supply glut has probably pushed back a year or two) by 2020, things may pick up more and more. In the meanwhile, the US could be facing the biggest slump since the 1990s era after the end of the Iraq War.

Cheaper fracking sites may be profitable if $45 is indeed a break-even point, but newer exploration isn't going to happen in any great amount, if the IEA is right — because there will be no demand for it. US EPA gas mileage requirements will continue to rise. Older cars will come off the road in Europe and the US. Driving miles will remain flat in both countries. To the degree emerging economies buy cars, it will be inexpensive, economy ones with better fuel mileage than ever.

As for geopolitics? Russia as we know it can't live in $70 oil. Yes, it is still technically profitable at that point, but with the national budget highly dependent on oil revenues, that's not high enough, not if it's lasting 5 years. Either Putin finishes the move to full dictatorship, or he's thrown out of office well before 2020. More thoughts on this in a future post.

$40 oil, or why Glenn Hegar could be even wronger than rain

I've already dissected how I think Texas Comptroller Glenn Hegar's biennial budget estimate is probably $2 billion too high, if not more. (See new poll on right to vote on where you think oil will be on March 31.)

That said, that was based on the possibility that oil would not get above the low $50s in the first half of this year, and not break the middle $60s before the end of the year.

Well, what if even THAT was too optimistic?

What if oil sits in the low-mid $40s for 4-6 months, and doesn't break a flat $60 on a regular basis until the end of the year? That's especially if market psychology (as well as general first-quarter lulls) says  "keep it there."

The EIA has also weighed in, expecting the average 2015 price to be about $55.

What if even THAT is too optimistic. What if, per new estimates by British Petroleum, oil stays below $60 for three years?

Oops in spades. And that's the starting point of this post and some speculative thinking.

Add in that even more flush U.S. shale oil operators may not have money to buy out the weakest, at least not right away. Add in that major banks, both Texas-based and even bigger national players, are likely to tighten lending wallets, especially on "market mentality."

Add in that it, per the first link, with more info here, could take 4-6 months to soak up most the current excess supply.

That's especially true when, per the first link, nobody in the US has actually started sopping up any excess yet:

Oil output, however, is still at a record level. In the week that ended on January 2, when the number of rigs also dropped, it reached 9.13 million barrels a day, more than ever before. Oil companies are only stopping production at their worst wells, which only produce a few barrels a day – at current prices, those wells aren't worth the lease payments on the equipment. Since nobody is cutting production, the price keeps going down; today, Brent was at $US47.43 per barrel and trends are still heading downward.

So, yeah, 4-6 months is probably the correct time frame, for, let's say, mid-40s prices. Well, the state of Texas, Glenn Hegar, and even more so, the one responsible adult running Texas government, Speaker Joe Straus, had better hope that 4-6 months — and not something worse — is the correct time frame.

Because we haven't tackled one last point. 

And, the biggest issue. Financial reserves, not monetary ones.

The petrostates of the Middle East, in general, are flush with cash and can afford to burn money for some time. And, Saudi Arabia can really afford that much burning. Plus, some of the Gulf states have lower per-barrel prices than it.

Russia is also a petrostate, but cannot afford such money-burning.

The US is not a "petrostate," even if it's producing as much or a bit more oil than Saudi Arabia.

Publicly traded companies have shareholders to whom to answer, and debt to service to third parties — those Texas and national banks. Privately traded companies still have debt to service.

Yes, both of them also have leases to keep active. But, smaller companies, per my note above, may have to take a hard look at their lack of financial reserves, and negotiate lease buyouts.

Or, like subprime home mortgage holders facing balloon notes, some of the smaller oil companies may have to swallow even harder and do the equivalent of tossing the front door keys on the kitchen counter or in the mail slot.

That's what could be afoot. And, if that's what's up?

Well, in that case, Hegar's biennial revenue estimate could be off by $3 billion, not $2 billion. Beyond a deepened loss of oil and gas revenue will be lost sales taxes from oilfield-related businesses. And, there will be new unemployment claims, as the layoffs are already starting. And less retail, dining and entertainment spending.

Meanwhile, a note to the American Petroleum Industry: now is not the time to be greedy on a wish list.

That said, I'll end this with one last thought. Older Texans remember the savings and loan debacle of the 1980s. I'm not saying that this will be anything like that. But, as compared to previous oil price slumps, because shale oil requires more investment, political leaders should not bank on any "rosy scenarios" offering easy relief. And, they should doubly not bet on frivolous tax cuts that are based on "rosy scenarios."

POSTSCRIPT: What if what I wrote above is itself still too optimistic? There are summer 2015 futures contracts out there, already, for $20/bbl oil.

Meanwhile, Boone Pickens, per this piece, either has a "trick oil knee," or onset of some age-related mental decline or something else, if he really thinks oil will get back to $100 within 18 months, let alone 12.

Pickens has probably also been trumped by the biggest drop in active rigs in six years. The fact is that this is different than 2009, where the Great Recession cratered economies. Yes, there seems to be new signs of slowing growth in both Europe and China. But, not THAT slow. This is still mainly due to an industry-created surplus that's been building for six months. It's going to take 3-4 months to cut the spigots back enough to where that surplus can be mopped up over another likely 6-8 months. So, that's 9-12 months out before we're back to June 2014.

And, Texas Monthly is now weighing in, saying there's a fair possibility of a 1980s-style full oil bust.

My 2014 person of the year is ....

A guy who's influencing economies around the world right now, including internationally in Russia and domestically in Texas, and in other ways, around the world.

Who is the gentleman in that picture? Whom I have deliberately not captioned?

I'll explain that in a minute, and from there, you'll understand why he gets, and easily wins, the nomination for this important award.

So, with that said, that bit of suspense, let's move into the heart of things.

Drumroll?



Glad you asked for one?

It's Saudi Arabia's Minister of Petroleum Ali Al-Naimi.



Information/credit for photo above: Saudi Oil Minister Ali al-Naimi speaks to journalists ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting on Nov. 27, 2014.

SAMUEL KUBANI / AFP/Getty Images

I deliberately looked for one with him in Western suit, to increase the suspense a bit, lest readers immediately guess, at a minimum, that "this guy has something to do with oil."

Well, Al-Naimi has plenty to do with oil, not just "something."

This is the man who is keeping Saudi Arabia in the oil driver's seat. Even if it means, per Business Insider, oil falling to $20/bbl. And, not cutting production even if surpluses grow. Period.

This is the man who could cause a recession in Texas. With more fighting over school funding and other things.

This is the man who could cause a Great Recession in Russia, and maybe already is, along with Western sanctions.

This is the man who could make it easier for Dear Leader to keep saying no to Keystone. (Unfortunately, it is the man who could also make climate change agreements, even relatively toothless ones, harder to achieve.)

This is the man who will help the Kingdom of Saudi Arabia expand its influence throughout the Middle East, above all by weakening Iran, calling more shots in the Syrian civil war and leaning more on Israel to deal better with the Palestinian Authority in 2015.

Given that the global oil surplus was becoming evident by midyear of 2014, and that Al-Naami surely was already planning strategy, and talking strategy with King Abdullah himself by then, he's the winner.

Per the $20/bbl comment and the "we're not cutting" comment, he had to have Abdullah's stamp of approval. And, that means he's a powerful man with carte blanche.

Maybe I could almost be calling him, in advance, the frontrunner for 2015 person of the year. Let's actually hope not.

Meanwhile, even with the budgetary challenges, Saudi Arabia itself is likely among the net winners, primarily for all these geo-petro-political reasons. 

$60 oil looks locked in for next year — consequences both good and bad

First, Saudi Arabia has planned for oil to trade from the upper $50s to the low $60s next year. (And, in case it's not clear, when I talk about "$60 ... locked in," I'm talking about a range. Details of my guesstimates near the bottom.)

Yes, that means a budget deficit for the government, but "only" about 15 percent, which is still a bit less than the current US deficit, and easily handled by the Saudis.

Second, the Saudis are OK with the price going even lower. It's probably true that Russia and Iran are their main targets, but per this story, US fracking may be in their gunsights as well.

That said, I doubt that oil prices take a sustained drop below $55, but, it's certainly possible they flirt with $50/bbl for the next few months, with them continuing to slide now.

Effect? While it may be good overall globally, it will have fallout otherwise.

Russia is probably headed not just for recession, but a near-depression recession. Given today's Russian political news, more unrest is possible, as is harsher crackdown by Vlad the Impaler Putin.

Venezuela is likely headed in the same direction financially. Possibly a milder version of the same political results.

Not sure how this might affect religious tensions in Nigeria.

I'm sure that it won't be fantastic for Mexico.

And, domestically? Texas may also face some sort of recession even as Tricky Ricky Perry, with his exit, dodges the consequences of his alleged "miracle" collapsing.

Given that Gov. Greg Strangeabbott appealed John Dietz's Texas school finance ruling, weaker oil revenues could be a signal for him to side with wingnuts in the Texas Lege and slash at schools and other portions of the state budget.

The Texas state revenue stream faces a bit of a double whammy here, per the Dallas Morning News. First, state production taxes are based on the per-barrel price, which has of course nose-dived. Second, if less is being produced, of course, there's less to tax. That means the idea of giving TxDOT extra money out of the Rainy Day Fund (rather than something sensical like mandate 100 percent of state gas tax money go to transportation, then raise TAXES! elsewhere as needed), roads could get hamstrung again. (Cue up the toll roads Batsignal.)

That said, it's ridiculous that the state gas tax, which is a per-gallon rate, not a price-based rate, hasn't been changed since 1991.

Oil just has to stay at around the $60 for a couple more months to put significant crimps on US fracking for another six months after that. (I disagree with the SMU prof in the Snooze piece who expects oil to bottom out in another month or two and hit $75 relatively quickly thereafter.)

I wouldn't be surprised if it's at $65 or a touch higher by midsummer, but, it could slump back to near $60 again by September 2015.

It should be noted that tar sands oil will likely NOT be greatly affected at current prices; it would probably take sustained prices of $45 or so for that to happen. Therefore, with a new Congress about to enter into office, President Obama will have to face Keystone XL issues once again.

Meanwhile, even with the budgetary challenges, Saudi Arabia itself is likely among the net winners, primarily for all these geo-petro-political reasons.

Texas GOP? #Fracking bubble more reason to stop depleting Rainy Day Fund

The Texas Republican Party, rather than being responsible, and actually paying for general budget items out of the general budget, seems to be getting ever more fond of having voters make the tough choices for them by passing constitutional amendments to pay for necessary water supply improvements (Proposition 6, last year) and transportation upgrades (Proposition 1, this year). Unfortunately, for the second straight year, voters were suckers at the polls.

Not only is this an abdication of GOP responsibility, it may not be sustainable.

Those of us who know a bit about fracking, not just its environmental concerns but the difference between actual reserves and rate of extraction of reserves, have known for some time that natural gas fracking's claims of an explosion of new resources have been somewhat bubbly. And, the latest confirmation of that is here.

Now, the evidence that the same is true of fracked shale oil is continuing to increase.

(N)oted Canadian energy analyst David Hughes says that even if the drilling could somehow continue, the bounty simply will not last. 

Last month, Hughes released “Drilling Deeper,” a report he authored for Santa Rosa-based Post Carbon Institute, scrutinizing the U.S.’s two largest oil booms in the Bakken and Eagle Ford fields. By examining industry data, Hughes projects that the booms in both fields will peak before 2020 and, by 2040, will be producing at a tiny fraction of their current levels. “[If] the future of U.S. oil and natural gas production depends on resources in the country's deep shale deposits, as the Energy Department contends, we are in for a big disappointment in the longer term," Hughes said in a press release. 

The fundamental problem, Hughes explains, is the ephemeral nature of the average deep shale oil well, which declines in production by 83 percent after three years. This, Hughes explains, translates to an annual decline rate in the Bakken and Eagle Ford fields of over 40 percent. (The Bakken and Eagle Ford, he says, are not unique in this regard. All shale oil plays are afflicted with steep decline curves.)

In other words, the Texas GOP, as incorporated in the Texas Legislature passing these constitutional amendments, is officially running a Ponzi scheme. (All emphasis in the above quote is mine.) 

And, it's a Ponzi scheme based not only on ephemeral production, but also ephemeral production that's not's being adequately taxed for all of its destructiveness.

Click the links within that pull quote, as well as clicking the main link for more. It should open your eyes. For example, Hughes expects Eagle Ford oil production to peak in 2016! That's from his "Drilling Deeper" report. And, it needs to open the eyes of people at larger media companies than me. The latest installment of the alleged Texas miracle of economics simply doesn't appear to be sustainable.

And, in a related issue, feel free to vote on my poll about Obama and the Keystone XL, at top right. (Note: The plunge in oil prices may also affect Obama's decision.)

Meanwhile, on both oil and gas, it seems like the Energy Information Administration become less trustworthy all the time.

Update, Jan. 16, 2015: Houston Chronicle columnist Chris Tomlinson notes that more recently fracked wells give some signs of not declining so quickly. That said, Hughes' graphs, linked above, do not show a sharp decline for either the Eagle Ford or the Bakken formations, among others, so I don't think Chris' note really undercuts Hughes' analysis.