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Wednesday, February 20, 2013

Shale Gas Bubble Looms

"Aided by Wall Street", from Counterpunch.org, 2-20-13, by Steve Horn. Read link here.

Two long-awaited reports were published today at ShaleBubble.org by the Post Carbon Institute (PCI) and the Energy Policy Forum (EPF).
Together, the reports conclude that the hydraulic fracturing (“fracking”) boom could lead to a “bubble burst” akin to the housing bubble burst of 2008.
While most media attention towards fracking has focused on the threats to drinking water and health in communities throughout North America and the world, there is an even larger threat looming.  The fracking industry has the ability – paralleling the housing bubble burst that served as a precursor to the 2008 economic crisis – to tank the global economy.
Playing the role of Cassandra, the reports conclude that “the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble…” a summary details. “Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes.”
PCI’s report is titled “Drill Baby, Drill,” authored by PCI Fellow and former oil and gas industry geoscientist J. Dave Hughes, while EPF’s report is titled “Shale Gas and Wall Street,” authored by EPF Director and former Wall Street financial analyst Deborah Rogers.
“100 Years of Natural Gas”? Uh huh… 
In President Barack Obama’s 2012 State of the Union address, he repeated the fracking industry’s favorite mantra: there are “100 years” of natural gas sitting beneath us.
“We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy,” he stated.
Hughes concludes that the “100 years” trope serves as a disinformationsmokescreen and at current production rates, there are – at best – 25 years under the surface.
Industry proponents rely on a figure known as “technically recoverable reserves” when they promote the potential of shale basins. The figure that actually matters though, is production rates, or what the wells actually pull out of the reserves when fracked.
In the case of U.S. shale gas, the booked reserves are operating on what Hughes coins a “drilling treadmill,” suffering from the law of “diminishing returns.”
Hughes analyzed the industry’s production data for 65,000 wells from 31 shale basins nationwide utilizing the DI Desktop/HPDI database, widely used both by the industry and the U.S. government. He sums up the quagmire he discovered in doing so, writing,
Wells experience severe rates of depletion…This steep rate of depletion requires a frenetic pace of drilling…to offset declines. Roughly 7,200 new shale gas wells need to be drilled each year at a cost of over $42 billion simply to maintain current levels of production. And as the most productive well locations are drilled first, it’s likely that drilling rates and costs will only increase as time goes on.
The reality, he explains, is that five shale gas basins currently produce 80 percent of the U.S. shale gas bounty and those five are all in steep production rate decline.
And shale oil? More of the same.
Over 80 percent of the oil produced and marketed comes from two basins: Texas’ Eagle Ford Shale and North Dakota’s Bakken Shale, both of which are visible from outer space satellites.
“[T]aken together shale gas and tight oil require about 8,600 wells per year at a cost of over $48 billion to offset declines,” Hughes writes. “Tight oil production is projected to…peak in 2017 at 2.3 million barrels per day [and be tapped by about 2025]…In short, tight oil production from these plays will be a bubble of about ten years’ duration.”
At current production rates, Hughes concludes, there is 5 billion barrels of shale oil located underneath the Bakken and Eagle Ford, which equates to a measly ten months worth of oil at current runaway climate change-causing U.S. oil consumption rates.
PCI accompanied Hughes’ report with 43 charts and graphs and a digital U.S. map with the production data of all 65,000 fracking wells in the lower 48.
Wall Street’s Complicity
Roughly 17 months ago, activists from around the country set up encampments outside of Wall Street, coining themselves Occupy Wall Street. As Rogers’ report demonstrates, they had the right target in mind.
Rogers opens the report on a defiant note.
“The recent natural gas market glut was largely effected through overproduction of natural gas in order to meet financial analyst’s production targets,” she wrote. “Further, leases were bundled and flipped on unproved shale fields in much the same way as mortgage-backed securities had been bundled and sold on questionable underlying mortgage assets prior to the economic downturn of 2007.”
In its early days operating in the U.S., the industry cloaked itself as a“mom-and-pop” shop start-up venture.
Rogers unpacked the reality behind this rhetorical ploy, writing that Wall Street firms are ”intricately married to [shale gas and oil corporations]…With the help of Wall Street analysts acting as primary proponents for shale gas and oil, themarkets were frothed into a frenzy.”
In other words, there are two spheres of economics unfolding: day-to-day in-field shale oil and gas production economics and Wall Street high finance economics. It’s the insane economics of Wall Street investors fueling the economic decisions of those working in the field, in what Rogers describes as a “financial co-dependency.”
Faulkner: “The past is never dead. It’s not even past.”
Are we witnessing another “Inside Job” of the sort Charles Ferguson portrayed in his Academy Award-winning documentary film by that namesake?
In his 1951 classic play, “Requiem for a Nun,” William Faulkner wrote, “The past is never dead. It’s not even past.”
These are the words of a sage, particularly given the past century of “The Great American Bubble Machine,” as Rolling Stone investigative journalist Matt Taibbi has documented of Wall Street’s behavior financing multiple economic spheres that have led to near system-wide collapse.
At the very least then, if it all “hits the fan,” we can’t say we weren’t forewarned.
Steve Horn is a Madison, WI-based freelance investigative journalist and Research Fellow at DeSmogBlog.

Fracking: An Urgent Conversation

By Marlo Thomas, from Huffington Post, 2-19-13 Read link here.

We are in the middle of a controversy, and it's about something we cannot afford to ignore -- our water supply. And what's happening to it could be deadly.
It's called fracking.
To be honest, I didn't know what fracking was until recently, and I'm guessing many of you didn't either. That's because fracking (short for "hydraulic fracturing, or the process by which natural gas is extracted from shale rock deep within the earth) is a complicated, hot-button issue that involves commerce and the environment. And whenever that happens (can you say "global warming?"), the facts are often drowned out by heated arguments and disinformation.
One of the most powerful things I've read about fracking was reported by the Associated Press just last month: that a man from Weatherford, TX, a husband and father of three whose community was affected by fracking, told the Environmental Protection Agency that his family's drinking water had begun "bubbling like champagne" and that his well contained "so much methane [gas] that the water pouring out of a garden hose could be ignited."
Then I read a quote by Robert Redford -- whose creds as an environmentalist are right up there with his film career -- who said, "Fracking for gas threatens drinking water supplies, contaminates the air and contributes to climate change. To make matters worse, the gas industry plans to ship much of our shale gas overseas, as we shoulder all the environmental and public health risk."
For every argument offered against fracking, another source is cited to contradict it. A Wall Street Journal editorial in June of 2011 argued that there have been no reported cases of water contamination by fracking; that toxic gasses are no more abundant in fracking areas than in other areas in the U.S.; and that it is up the states and local communities to decide if the air pollution from fracking is a fair trade-off for the economic benefits that may arise it.
So let's look at what we know:
About ten years ago, oil companies, notably in Texas, began combining their usual drilling process with fracking, a technique in which large amounts of sand, water and chemicals are pumped underground at high pressure, in order to loosen the shale rock and release that natural gas that's trapped there. Natural gas is the combustible fossil fuel we use in countless ways -- from heating our homes to gassing up our cars.
Supporters of fracking claim that this shale gas has helped create hundreds of thousands of news jobs, and can potentially inject up to $120 billion into the American economy. But what we're rapidly learning is that the process could cost us dearly, and potentially threaten our lives. Here's why:
  • In order to reach the shale rock, drills must pass through the "aquifer," the underground layer of earth where we get our drinking water, and water for our crops. If the drills explode or leak -- and they sometimes do -- this vital source of water is contaminated by chemicals. According to a Congressional investigation in 2011, fracking products contain 29 carcinogenic chemicals that are components of more than 650 different products used in hydraulic fracturing.
  • Each gas well used in fracking requires between one and eight million gallons of fresh water. Critics say that this water is contaminated by "chemicals, remnant oil and naturally occurring radioactive materials" that sink into communities where people work and live.
  • Studies have shown that fracking can significantly increase air pollution, due to methane gas leaks as well as emissions from the diesel- and gas-powered equipment used in the process. All of this, say the experts, breaks down in the atmosphere, contributing to greenhouse gasses.
  • Those who oppose fracking also warn of its global consequences. As the method continues to be employed, they say, more and more natural gas will be brought to market, then piped to the coastlands and sold overseas. In effect, we would be exporting immeasurable environmental damage around the world.
So who's right?
As with any environmental issue, you need to distill all of the facts and figures -- all of the ironclad arguments -- and then ask yourself a simple question: Are we comfortably sure we're safe?
Too many experts have weighed in on the debate, determining that fracking is, at best, a cause for alarm; and at worse, a deadly hazard. That's not a risk we should be willing to take.
So if you have not been up on this issue, check out What is FrackingDangers of Fracking or Artists Against Fracking for more information, or do your own independent research. I hope you'll recognize the seriousness and potency of this debate and that you'll lend your thoughts to the conversation as well.
(Highlighted emphasis by this blogger.)

Saturday, February 16, 2013

Walmart Sales Are A 'Total Disaster': Report

By Bonnie Kavoussi, on Huffington Post, 2-15-13  Read Link here.

Earlier this week, data from the Commerce Department showed slowing retail sales growth in January. But on Friday, a report from Bloomberg revealed a potentially more troubling economic indicator: Fewer shoppers are coming to Walmart.
"Sales are a total disaster," Jerry Murray, a vice president at Walmart, wrote in a recent email obtained by Bloomberg. Murray wrote February was off to the slowest start he'd seen in seven years.
Walmart said in a statement: "As with any organization, we often see internal communications that are not entirely accurate, that lack the proper context and represent individual opinions."
The news is another worrying sign that the end of the payroll tax holiday on Jan. 1has forced many Americans to cut back. The expiration of the tax cut raised taxes by about $1,000 on a worker making $50,000 per year, according to the Tax Policy Center. A recent report in the New York Times offered a look at the consequences of the tax increase, which hit Americans with the smallest paychecks hardest. Those Americans are indeed most apt to shop at Walmart.
The Bloomberg report sent Walmart's stock price tumbling around 2 p.m. on Friday. It was down 2.15 percent for the day with a share price of $69.30.

Friday, February 15, 2013

Ohio Fracking CEO Pleads Not Guilty in Federal Toxic Waste-Dumping Case

From Truth-out.org, by Michael Ludwig, 2-15-13 read link here.

Ben Lupo, owner of D&L Energy and Hardrock Excavating, pleaded not guilty Thursday to federal felony charges under the Clean Water Act.
Lupo is accused of ordering the dumping of thousands of gallons of chemical-laced fracking waste into streams in Youngstown, Ohio.
On the night of January 31, state investigators acted on an anonymous tip and caught Lupo's employees dumping oil and gas drilling waste - fluid, mud and oil - into a storm sewer that empties into a tributary of the Mahoning River, according to the Justice Department.
Lupo admitted to state authorities that he ordered the initial dumping and later told investigators he ordered employees to dump the contents of a fracking waste storage tank into the storm drain on six occasions. A Hardrock Excavating employee, however, told authorities that he was aware of 20 dumping incidents since November 2012, according to the Justice Department.
Lupo's storage tanks hold about 21,000 gallons of waste.
Hydraulic fracturing, or fracking, is a controversial drilling technique that is facilitating an oil and gas boom in Ohio and nearby states. Fracking produces large quantities of chemical-laced waste fluids and mud.
Lupo's D&L Energy operated the Northstar 1 fracking wastewater injection well that caused a series of earthquakes in 2011 and early 2012, including one quake that measured 4.0 on the Richter scale. Truthout published an investigative report on the earthquakes last summer.
Lupo has been charged with violating the Clean Water Act, a federal offense that carries a maximum penalty of a $250,000 fine and up to three years in prison, said to Steven M. Dettelbach, the US attorney for the Northern District of Ohio. State regulators also revoked operating permits for D&L Energy and Hardrock Excavating, a brine-hauling firm owned by Lupo.
Test results released by Ohio regulators on Thursday show the presence of harmful pollutants, including benzene and toluene, in the watersheds contaminated by the waste. The pollutants support the criminal charges against Lupo under the Clean Water Act, regulators said.
Brian Cook, chief counsel for the Ohio Environmental Protection Agency (OEPA), said on Thursday that ongoing cleanup efforts in the polluted watersheds are expected to continue into next week.
Ohio Attorney General Mike DeWine said his office is pursuing its own case against Lupo as the state-level investigation continues.
DeWine said during a news conference he is "very happy" that Lupo is facing criminal charges on the federal level because the federal government has "much stronger laws than the state of Ohio does."
"I believe it's time that Ohio law catches up to where federal law is," DeWine said.
Ohio has become a popular destination for fracking waste disposal, where a majority of the liquid waste is injected into underground wells. The state accepts large volumes of waste from other heavily fracked states, like Pennsylvania, and environmentalists are concerned that Ohio is becoming a fracking waste "dumping ground" due in part to lax regulations.
On February 12, a coalition of Ohio residents sent a letter to New York Gov. Andrew Cuomo asking him not to lift a moratorium on fracking in his state out of fear that even more waste will end up in Ohio. The letter accuses the Ohio Department of Natural Resources, which regulates fracking waste disposal, of approving injection well permits at "alarming rates" and having "a long history of ignoring repeated flagrant violations, not even enforcing its weak rules, ignor[ing] citizens' concerns and denying evidence of problems."

Thursday, February 14, 2013

How Congress Could Fix Its Budget Woes, Permanently

By Dr. Ellen Brown, from Seeking Alpha, 2-13-13, read link here. There are hundreds of comments at the link.

This is about debt-free money, similar to President Lincoln's Greenbacks.

As Congress struggles through one budget crisis after another, it is becoming increasingly evident that austerity doesn’t work. We cannot possibly pay off a $16 trillion debt by tightening our belts, slashing public services, and raising taxes. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession. After a thorough analysis of statistics from dozens of countries forced to apply austerity plans by the World Bank and IMF, former World Bank chief economist Joseph Stiglitz called austerity plans a “suicide pact.”
Congress already has in its hands the power to solve the nation’s budget challenges – today and permanently. But it has been artificially constrained from using that power by misguided economic dogma, dogma generated by the interests it serves. We have bought into the idea that there is not enough money to feed and house our population, rebuild our roads and bridges, or fund our most important programs — that there is no alternative but to slash budgets and deficits if we are to survive. We have a mountain of critical work to do, improving our schools, rebuilding our infrastructure, pursuing our research goals, and so forth. And with millions of unemployed and underemployed, the people are there to do it. What we don’t have, we are told, is just the money to bring workers and resources together.
But we do have it! Or we could.
Money today is simply a legal agreement between parties. Nothing backs it but “the full faith and credit of the United States.” The United States could issue its credit directly to fund its own budget, just as our forebears did in the American colonies and as Abraham Lincoln did in the Civil War.
Any serious discussion of this alternative has long been taboo among economists and politicians. But in a landmark speech on February 6, 2013, Adair Turner, chairman of Britain’s Financial Services Authority, broke the taboo with a historic speech recommending that approach. According to a February 7 article in Reuters, Turner is one of the most influential financial policy makers in the world. His recommendation was supported by a 75-page paper explaining why handing out newly created money to citizens and governments could solve economic woes globally and would not lead to hyperinflation.
Our Money Exists Only at the Will and Pleasure of Banks
Government-issued money would work because it addresses the problem at its source. Today, we have no permanent money supply. People and governments are drowning in debt because our money comes into existence only as a debt to banks at interest. As Robert Hemphill of the Atlanta Federal Reserve observed in the 1930s:
We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve.
In the U.S. monetary system, the only money that is not borrowed from banks is the “base money” or “monetary base” created by the Treasury and the Federal Reserve (the Fed). The Treasury creates only the tiny portion consisting of coins. All of the rest is created by the Fed.
Despite its name, the Fed is at best only quasi-federal; and most of the money it creates is electronic rather than paper. We the people have no access to this money, which is not turned over to the government or the people but goes directly into the reserve accounts of private banks at the Fed.
It goes there and it stays there. Except for the small amount of “vault cash” available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank. According to Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund:
[I]n a modern monetary system – fiat money, floating exchange rate world – there is absolutely no correlation between bank reserves and lending. . . . [B]anks do not lend “reserves”. . . .
Whether commercial banks let the reserves they have acquired through QE sit “idle” or lend them out in the internet bank market 10,000 times in one day among themselves, the aggregate reserves at the central bank at the end of that day will be the same.
Banks do not lend their reserves to us, but they do lend them to each other. The reserves are what they need to clear checks between banks. Reserves move from one reserve account to another; but the total money in bank reserve accounts remains unchanged, unless the Fed itself issues new money or extinguishes it.
The base money to which we have no access includes that created on a computer screen through “quantitative easing” (QE), which now exceeds $3 trillion. That explains why QE has not driven the economy into hyperinflation, as the deficit hawks have long predicted; and why it has not created jobs, as was its purported mission. The Fed’s QE money simply does not get into the circulating money supply at all.
What we the people have in our bank accounts is a mere reflection of the base money that is the exclusive domain of the bankers’ club. Banks borrow from the Fed and each other at near-zero rates, then lend this money to us at 4% or 8% or 30%, depending on what the market will bear. Like in a house of mirrors, the Fed’s “base money” gets multiplied over and over whenever “bank credit” is deposited and relent; and that illusory house of mirrors is what we call our money supply.
We Need Another Kind of “Quantitative Easing”
The quantitative easing engaged in by central banks today is not whatUK Professor Richard Werner intended when he invented the term. Werner advised the Japanese in the 1990s, when they were caught in a spiral of “debt deflation” like the one we are struggling with now. What he had in mind was credit creation by the central bank for productive purposes in the real, physical economy. But like central banks now, the Bank of Japan simply directed its QE firehose at the banks. Werner complains:
[A]ll QE is doing is to help banks increase the liquidity of their portfolios by getting rid of longer-dated and slightly less liquid assets and raising cash. . . . Reserve expansion is a standard monetarist policy and required no new label.
The QE he recommended was more along the lines of the money-printing engaged in by the American settlers in colonial times and by Abraham Lincoln during the American Civil War. The colonists’ paper scrip and Lincoln’s “greenbacks” consisted, not of bank loans, but of paper receipts from the government acknowledging goods and services delivered to the government. The receipts circulated as money in the economy, and in the colonies they were accepted in the payment of taxes.
The best of these models was in Benjamin Franklin’s colony of Pennsylvania, where government-issued money got into the economy by way of loans issued by a publicly owned bank. Except for an excise tax on liquor, the government was funded entirely without taxes; there was no government debt; and price inflation did not result. In 1938, Dr. Richard A. Lester, an economist at Princeton University, wrote“The price level during the 52 years prior to the American Revolution and while Pennsylvania was on a paper standard was more stable than the American price level has been during any succeeding fifty-year period.”
The Inflation Conundrum
The threat of price inflation is the excuse invariably used for discouraging this sort of “irresponsible” monetary policy today, based on the Milton Friedman dictum that “inflation is everywhere and always a monetary phenomenon.” When the quantity of money goes up, says the theory, more money will be chasing fewer goods, driving prices up.
What it overlooks is the supply side of the equation. As long as workers are sitting idle and materials are available, increased “demand” will put workers to work creating more “supply.” Supply will rise along with demand, and prices will remain stable.
True, today these additional workers might be in China or they might be robots. But the principle still holds: if we want the increased supply necessary to satisfy the needs of the people and the economy, more money must first be injected into the economy. Demand drives supply. People must have money in their pockets before they can shop, stimulating increased production. Production doesn’t need as many human workers as it once did. To get enough money in the economy to drive the needed supply, it might be time to issue a national dividend divided equally among the people.
Increased demand will drive up prices only when the economy hits full productive capacity. It is at that point, and not before, that taxes may need to be levied—not to fund the federal budget, but to prevent “overheating” and keep prices stable. Overheating in the current economy could be a long-time coming, however, since according to the Fed’s figures, $4 trillion needs to be added into the money supply just to get it back to where it was in 2008.
Taxes might be avoided altogether, if excess funds were pulled out with fees charged for various government services. A good place to start might be with banking services rendered by publicly owned banks that returned their profits to the public.
Taking a Lesson from Iceland: Austerity Doesn’t Work
The Federal Reserve has lavished over $13 trillion in computer-generated bail-out money on the banks, and still the economy is flagging and the debt ceiling refuses to go away. If this money had been pumped into the real economy instead of into the black hole of the private banking system, we might have a thriving economy today.
We need to take a lesson from Iceland, which turned its hopelessly insolvent economy around when other European countries were drowning in debt despite severe austerity measures. Iceland’s president Olafur Grimson was asked at the Davos conference in January 2013 why his country had survived where Europe had failed. He replied:
I think it surprises a lot of people that a year ago we were accepted by the world as a failed financial system, but now we are back on recovery with economic growth and very little unemployment, and I think the primary reason is that . . . we didn’t follow the traditional prevailing orthodoxies of the Western world in the last 30 years. We introduced currency controls; we let the banks fail; we provided support for the poor; we didn’t introduce austerity measures of the scale you are seeing here in Europe. And the end result four years later is that Iceland is enjoying progress and recovery very different from the other countries that suffered from the financial crisis. [Emphasis added.]
He added:
[W]hy do [we] consider the banks to be the holy churches of the modern economy? . . . The theory that you have to bail out banks is a theory about bankers enjoying for their own profit the success and then letting ordinary people bear the failure through taxes and austerity, and people in enlightened democracies are not going to accept that in the long run.
The Road to Prosperity
We are waking up from the long night of our delusion. We do not need to follow the prevailing economic orthodoxies, which have consistently failed and are not corroborated by empirical data. We need a permanent money supply, and the money must come from somewhere. It is the right and duty of government to provide a money supply that is adequate and sustainable.
It is also the duty of government to provide the public services necessary for a secure and prosperous life for its people. As Thomas Edison observed in the 1920s, if the government can issue a dollar bond, it can issue a dollar bill. Both are backed by “the full faith and credit of the United States.” The government can pay for all the services its people need and eliminate budget crises permanently, simply by issuing the dollars to pay for them, debt-free and interest-free.