The Weekly Wrap: Nov. 12, 2011

Annals of the court of public opinion:

Shale gas has a bad week … On the plane to California, I happen to sit next to a shale-gas driller. He waxed enthusiastic about the prospects of the Utica Shale, a relatively fresh discovery underlying eight U.S. states. Until now, the Marcellus has been the most promising shale gas formation in production, but the Utica may rival it in size and volume, the driller said. But what about the PR shellacking that shale gas has been enduring? I asked. That is quieting down, the driller replied, as folks digest the economic value of the shale. Perhaps in the long run he will be right. As for now, not so much. This week may have been the industry’s worst since Josh Fox released Gasland.

First came some audiotapes recorded during an industry gathering in Houston by an environmentalist blogger named Sharon Wilson, otherwise known as "Texas Sharon." In the tapes, Wilson runs her recorder as communications executives from two of the world’s biggest industry players use the unforgiving language of war to advise other hands how to deflect critics (CNBC’s Eamon Javers posts the recordings here.). A Range Resources official speaks of hiring combat veterans for expertise in "psy-ops," and an Anakarko Petroleum executive recommends that fellow industry hands read the U.S. Army/Marine Corps Counterinsurgency Field Manual. "Having that understanding of psy ops in the Army and in the Middle East has applied very helpfully here for us in Pennsylvania," Range’s Matt Pitzarella tells his audience. The cracked door into company boardrooms reinforced the impression of an industry that perceives itself to be under siege, not one necessarily focused on simply doing its best.

Go to the jump for more on shale gas and the rest of the Wrap

Just days later, a high-level expert report to Energy Secretary Steven Chu warned that the industry as a whole has been so remiss in how it works and communicates that it may jeopardize its production potential. "There is a real risk of serious environmental consequences and a loss of public confidence that could delay or stop this activity," wrote members of Chu’s natural gas advisory subcommittee on shale gas. The subcommittee is right — shale gas could change the energy supply calculus and geopolitics fundamentally, but first the industry needs to change its half-hearted approach to house-keeping. In a statement, the fracking industry’s lobbying association, America’s Natural Gas Alliance, objects to the suggestion that its response to public concern has been anemic. But the picture remains the same — some industry players are ultra-responsive, while many continue to be defensive, to think that the answer is assertive PR, and to dismiss critics as failing to conduct themselves within a "factual and science-based" matrix.

… and the oil sands had a setback, too: By this time, the developers of Canada’s absurdly rich oil sands expected to be well on their way to building a new export pipeline into the United States. But the Obama Administration now says it will reveal the fate of the Keystone Pipeline only in 2013, or after the ferocious re-election campaign confronting President Barack Obama. There is no mystery what is going on: Obama wants to approve Keystone because the flow of an additional 500,000 barrels a day of oil from Canada will mean 500,000 barrels a day that the United States does not have to import from further afield. But a vibrant U.S. environmental movement that some liken to the Tea Party has made Obama fear losing part of his political base. Ultimately, whether Obama or his Republican opponent wins next November, Keystone will probably be given the green light in 2013. There may be adjustments — refinements of the route around the Ogallala aquifer in Nebraska, and assurances of cleaner processing of the bitumen. But the calibration – the presence of 175 billion barrels of oil just over the northern U.S. border in Alberta – will prove too beguiling. TransCanada itself calls the setback temporary, reports Jeff Lewis at Alberta Oil magazine. Obama critics are accusing him of election-year politics. We are shocked at the suggestion, just as we were when then-President George W. Bush stigmatized gay marriage to vitalize his base in the heat of his re-election campaign. In terms of good reading on the subject, Michael Levi argues that Keystone opponents are short-sighted in how they are attempting to address global warming. And in a note to clients, CitiGroup’s Ed Morse writes that Keystone’s torment could be salvation for other proposed U.S. oil pipelines.

An Iraqi canary called ExxonMobil: The Iraq government has bristled when oil companies have signed direct deals with the leadership of Kurdistan. When it has happened, the folks in Baghdad have made the miscreant choose — them or us, and choosing the former has risked never getting one’s oil or gas to market;  two years ago, Baghdad cut off oil exports from Kurdistan entirely. In July, we were not surprised when former BP CEO Tony Hayward took the Kurdistan plunge — the top executives at BP are bred to be all about risk. But how to explain a similar decision by uber-conservative ExxonMobil? This week, an advisor to the Kurdish government let slip to the Financial Times’ Sylvia Pfeifer that, a month ago, Exxon signed an exploration agreement with Kurdistan. Why Exxon itself did not trumpet the deal became immediately clear in Baghdad, where an Iraqi official threatened to cancel the company’s contract for West Qurna, an oilfield in Iraq proper from which the company currently produces some 370,000 barrels of oil a day. I asked Exxon spokesman Alan Jeffers whether by signing the Kurdish agreement, the company was prepared to lose West Qurna. Jeffers declined to comment.

So here is the question: Have the challenging new times on the oil patch forced history’s most successful company to wholly abandon its steady-as-she goes, what-me-worry approach to business? I think the answer is no. Instead, what we are witnessing is a signal that Kurdistan and Baghdad are finally going to settle their differences, and that Kurdistan is open for business. Simply put, such a fundamental Exxon transformation is too far-fetched. Instead, Exxon expects to be drilling in both Kurdistan and Iraq proper. A Bloomberg piece suggests that this is the case. The article quotes a Kurdish adviser to Iraqi Prime Minister Nouri Kamil al-Maliki as saying that tentative agreement has been reached on revenue sharing for oil and gas production in Kurdistan. If accurate, the report would have meaning not only for Exxon, but for a host of others: Hayward’s deal would be prescient, and not rash; Iraq’s oil exports could rise substantially, delivering price-moderating supplies to the market; and Kurdish natural gas might be available to be drawn north into Europe, possibly reducing Russia’s dominance there.

If it’s spring in Libya, doesn’t that mean oil? Libya and the International Energy Agency agree on one thing — the country’s oil production is being restored much faster than expected. That is good news for global economies, which along with their other considerable problems have been burdened by high oil prices since March, when Libya’s uprising disrupted the country’s production of 1.6 million barrels a day of light, sweet crude, of which 1.1 million barrels were exported. Libyan Oil Minister Ali Tarhouni says production is up to 570,000 barrels a day, and ought to reach 700,000 barrels a day by the end of the year, reports the Wall Street Journal’s Margaret Coker; by next June, he says, Libya should be back to full production. The Paris-based IEA, which confers with oil companies working in Libya, thinks the restoration is going a bit more slowly — it forecasts that Libyan production will be a bit less than 1.2 million barrels a day even by the end of 2012, Reuters reports. For the record, IEA forecasts have been conservative on Libya for awhile — the agency for instance thought that the country would be producing just 400,000 barrels a day by the end of this year.