By Garance Burke

The latest domestic energy boom is sweeping through some of the nation’s driest pockets, drawing millions of gallons of water to unlock oil and gas reserves from beneath the Earth’s surface.

Hydraulic fracturing, or the drilling technique commonly known as fracking, has been used for decades to blast huge volumes of water, fine sand and chemicals into the ground to crack open valuable shale formations.

But now, as energy companies vie to exploit vast reserves west of the Mississippi, fracking’s new frontier is expanding to the same lands where crops have shriveled and waterways have dried up due to severe drought.

In Arkansas, Colorado, New Mexico, Oklahoma, Texas, Utah and Wyoming, the vast majority of the counties where fracking is occurring are also suffering from drought, according to an Associated Press analysis of industry-compiled fracking data and the U.S. Department of Agriculture’s official drought designations.

While fracking typically consumes less water than farming or residential uses, the exploration method is increasing competition for the precious resource, driving up the price of water and burdening already depleted aquifers and rivers in certain drought-stricken stretches.

Some farmers and city leaders worry that the fracking boom is consuming too much of a scarce resource, while others see the push for production as an opportunity to make money by selling water while furthering the nation’s goal of energy independence.

Along Colorado’s Front Range, fourth-generation farmer Kent Peppler said he is fallowing some of his corn fields this year because he can’t afford to irrigate the land for the full growing season, in part because deep-pocketed energy companies have driven up the price of water.

“There is a new player for water, which is oil and gas,” said Peppler, of Mead, Colo., who also serves as president of the Rocky Mountain Farmers Union. “And certainly they are in a position to pay a whole lot more than we are.”

In a normal year, Peppler said he would pay anywhere from $9 to $100 for an acre-foot of water in auctions held by cities with excess supplies. But these days, energy companies are paying some cities $1,200 to $2,900 per acre-foot. The Denver suburb of Aurora made a $9.5 million, five-year deal last summer to provide the oil company Anadarko 2.4 billion gallons of excess treated sewer water.

In South Texas, where drought has forced cotton farmers to scale back, local water officials said drillers are contributing to a drop in the water table in several areas.

For example, as much as 15,000 acre-feet of water are drawn each year from the Carrizo-Wilcox Aquifer to frack wells in the southern half of the Eagle Ford Shale, one of the nation’s most profitable oil and gas fields.

That’s equal to about half of the water recharged annually into the southern portion of the aquifer, which spans five counties that are home to about 330,000 people, said Ron Green, a scientist with the nonprofit Southwest Research Institute in San Antonio.

The Eagle Ford, extending from the Mexican border into East Texas, began to boom in 2011, just as Texas struggled with the worst one-year drought in its history. While conditions have improved, most of the state is still dealing with some level of drought, and many reservoirs and aquifers have not been fully replenished.

“The oil industry is doing the big fracks and pumping a substantial amount of water around here,” said Ed Walker, general manager of the Wintergarden Groundwater Conservation District, which manages an aquifer that serves as the main water source for farmers and about 29,000 people in three counties.

“When you have a big problem like the drought and you add other smaller problems to it like all the fracking, then it only makes things worse,” Walker said.

West Texas cotton farmer Charlie Smith is trying to make the best of the situation. He plans to sell some of the groundwater coursing beneath his fields to drillers, because it isn’t enough to irrigate his lands in Glasscock County. Smith’s fields, like the rest of the county, were declared to be in a drought disaster area this year by the USDA.

“I was going to bed every night and praying to the good Lord that we would get just one rain on the crop,” said Smith, who hopes to earn several thousand dollars for each acre-foot of water he can sell. “I realized we’re not making any money farming, so why not sell the water to the oil companies? Every little bit helps.”

The amount of water needed to hydraulically fracture a well varies greatly, depending on how hard it is to extract oil and gas from each geological formation. In Texas, the average well requires up to 6 million gallons of water, while in California each well requires 80,000 to 300,000 gallons, according to estimates by government and trade associations.

Depending on state and local water laws, frackers may draw their water for free from underground aquifers or rivers, or may buy and lease supplies belonging to water districts, cities and farmers. Some of the industry’s largest players are also investing in high-tech water recycling systems to frack with gray or brackish water.

Halliburton, for instance, recently started marketing a new technology that allows customers to use recycled wastewater, calling it an “investment to further the sustainable development of the oil and gas industry.” The American Petroleum Institute, the principal lobbying group for the industry, said its members are working to become less dependent on fresh water, and instead draw on other sources.

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State-owned aluminium maker Nalco has commissioned a part of its Rs 283 crore wind power project in Rajasthan, taking its total green energy capacity to 65 MW.

“The company has set up its second wind power plant at Ludarva in Jaisalmer, Rajasthan, with a capacity of 47.6 MW. A part of the project has been commissioned. Power production has commenced from 18 wind energy generators,” an official statement said.

The Rs 283 crore project is being executed by Gamesa Wind Turbines and involves erection of 56 wind turbines, of 850 KW each.

As part of diversification plan, Nalco has been foraying into other metals and energy sectors. It had commissioned its first wind power plant of 50.4 MW capacity at a cost of Rs 274 crore in Kadapa district of Andhra Pradesh last year.

The Rajasthan project, its second, is scheduled to be fully completed by August 2013.

The company is also planning to set up its third wind power plant in its own mined out area of Panchpatmali bauxite deposit at Koraput in Odisha, the statement said.

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Speaking to the state-run television channel on Monday, Yildiz said, “The ministry is set to invest over one billion liras in coal plants in the frame of environmental investment. We don’t work against the nature but we work with it.”

Yildiz stated that Turkey had three major energy projects including two nuclear power plants and coal.

“They will be a great investment because it is going to make a major contribution to Turkey‘s economy.”

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South Korea’s imports of crude oil from Iran dropped 8.3 per cent in May from a year ago, validating the waiver on sanctions it won last week from the United States for reducing purchases from the Middle Eastern country.

The US and EU sanctions aimed at choking the flow of oil money into Iran and forcing Tehran to negotiate curbing its controversial nuclear programme slashed its crude exports to 700,000 bpd in May, the lowest in decades, according to industry sources and tanker-tracking data.

Last week, the US State Department renewed six-month waivers on Iran sanctions for South Korea and other Asian economies in exchange for their cuts in oil purchases from Iran.

Prior to that, South Korea had already cut its Iranian crude imports to 505,004 tonnes in May, preliminary data from Korea Customs Service showed on Saturday, down from 550,714 tonnes in the same month last year.

The world’s No.5 crude buyer and one of Iran’s top four customers bought 119,409 barrels per day (bpd) from Iran in May, down 3.8pc from a month ago on a daily basis, according to Reuters calculations based on the customs data.

Overall, South Korea imported a total 10.4 million tonnes of crude last month against 11.1m tonnes imported a year ago, the data showed.

Reuters calculations based on the customs data also showed South Korea’s Iranian oil imports from December through May decreased 20.2 percent to 150,239 bpd year on year.

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Iran’s newly-elected president said Monday he would follow a “path of moderation,” and urged his country not to be held back by past policies, emphasizing messages from Western leaders since his victory that have brought hope of new openings with Tehran.

Speaking Monday at his first news conference since his victory in Friday’s election, Hasan Rowhani said his victory would herald a “new era,” and vowed to “follow the path of moderation and justice, not extremism.”

Rowhani decried international sanctions against Iran — put in place over Tehran’s nuclear program — saying the Iranian people did nothing to deserve sanctions he characterized as “brutal” to his people and “detrimental” to the West as well.

He said that he hoped steps could be taken to alleviate the crushing economic sanctions on his country.

“First, taking steps toward transparency [in our] nuclear programs, make it clear to the whole world that measures and activities of Iran are within international regulations and mechanisms,” said the president-elect.

He called for “mutual trust between Iran and other countries,” suggesting Iran would “try to win back that trust.”

Rowhani said the solution to easing the sanctions was, “mutual respect and transparency within international law” by both sides in the dispute.

“Both sides will take steps and, God willing, reduce sanctions, alleviate them, and eventually remove them all,” he said.

Addressing the Iranian government’s fraught relations with Washington specifically, Rowhani said there was “nothing easy about it,” calling it a “very old wound that is there; we need to heal this injury.”

But when speaking of the conditions necessary for alleviating tensions, Rowhani added that American leaders, “need to say that they will never interfere with the domestic affairs of Iran. Nuclear wishes of Iran need to be recognized by Americans.”

He also called on Washington to end the “bullying” policies of unilateral sanctions.

And he made it clear that Iran was not about to back down entirely on its hallmark insistence that nuclear energy production is the right of any nation: “Everyone should realize the fact that the future government will defend the rights of the Iranian nation, we will never dispense with that.”

Iran’s president does not have the power to set policies for the Islamic Republic — that power is held exclusively by the ruling clerics, with the ultimate veto power wielded entirely by Ayatollah Ali Khamenei, the nation’s Supreme Leader. But Rowhani’s statements heralding a new moderate approach have been cautiously greeted by the U.S. and allies as a possible opportunity to ease tensions.

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By Presi Mandari

Masked protesters hurling Molotov cocktails clashed with police firing water cannons and tear gas in the Indonesian capital Monday, as thousands demonstrated nationwide against a plan to hike fuel prices.

Clashes erupted outside the gates of the national parliament in Jakarta as lawmakers inside debated passing a revised budget that would pave the way for a 33 percent average increase in the fuel price, the first hike since 2008.

Fuel prices have long been a flashpoint issue in Indonesia, with economists arguing that government subsidies which gobble up a huge chunk of the budget are damaging Southeast Asia’s top economy.

However, millions are opposed to lowering the payouts, which keep down the cost of living, and huge protests have in the past forced the government to abandon attempts to raise the fuel price.

About 3,000 protesters earlier gathered outside the gates of parliament in Jakarta, and as night fell some began hurling Molotov cocktails, fireworks, rocks and bottles at security forces around the legislature.

Police fired back numerous volleys of tear gas at the protesters, many of whom had their faces covered and were waving banners reading “Reject the fuel price rise” and “Hang SBY” (President Susilo Bambang Yudhoyono).

Two heavily armoured police vehicles rolled out of the grounds of the parliament and fired water cannon in a bid to disperse the demonstrators.

Earlier, demonstrators set tyres alight outside the parliament, sending a pall of black smoke into the air.

“All Indonesians must take to the streets so that the government won’t hike the fuel price,” one of the protesters, 24-year-old Slamet Riyadi, told AFP.

“The life of poor people will be much more difficult if there is an increase.”

About 19,000 police and military personnel were deployed across Jakarta, police said.

Protests also flared in other parts of the country. In the city of Ternate, in the eastern Maluku islands, five protesters, a journalist and seven policemen were injured at a demonstration, police said.

A 2,000-strong crowd hurled sticks and rocks at police, who responded by firing rubber bullets at the demonstrators, said a national police spokesman.

In Jambi, a city on Sumatra island, hundreds of protesters tried to push through the gate in front of the local legislature but police dispersed them by firing tear gas, police said.

While only a small percentage of Indonesians are private car owners, the plan to increase the price of fuel is expected to push up the cost of everyday goods as they will be more expensive to transport.

Late Monday, lawmakers were still debating amendments to the state budget in the lower house many hours after the parliamentary session began.

The amendments will provide financial assistance to poor households likely to be hardest hit by a fuel hike, and Yudhoyono has said that they must be approved before he hikes the price of petrol.

At 4,500 rupiah ($0.46) a litre, Indonesia has one of Asia’s cheapest fuel prices.

Some opposition parties oppose the amendments but the ruling coalition has a majority of seats in parliament and the revised budget is expected to be approved.

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For example, CNOOC’s purchase of Canada’s Nexen for $15.1 billion was finally approved in February. The same month Sinopec (China’s biggest oil refiner) bought a stake in Chesapeake Energy’s US shale assets for $1 billion.

The past eight years have seen Chinese state owned oil companies spend over $200 billion on foreign acquisitions and joint ventures, OilPrice.com wrote in a recent report.

China’s other oil major, PetroChina, is also in a buying frenzy. Publically traded PetroChina and its state-owned parent China National Petroleum Corp. (CNPC) have already announced plans to spend about $7 billion in the next six months on assets from Mozambique to Australia, according to data compiled by Bloomberg.

Unlike Western oil companies whose sole purpose is to make profits, China’s NOCs first obligation is to appease energy policy makers in Beijing and secure as much oil and gas as possible, both domestically and overseas, and supply China with the fuel it needs — often regardless of profits.

This fact is not lost on Wall Street where PetroChina’s stock has taken a hit in recent months. Late last year HSBC Securities downgraded the stock from Neutral to Underweight, and in April Zacks Investment Research downgraded the stock to Sell. Zacks said it expected PetroChina to perform below its peers and industry levels in the coming months.

The Wall Street Journal addressed this problem recently also. It said that China’s three state-owned oil giants have raised billions of dollars from global bond markets in recent weeks, bringing their debt levels to multiyear highs. Analysts claim that as Chinese NOCs continue to buy assets overseas, their ability to buy big will be limited.

In 2007 PetroChina’s debt to capital ratio was around ten percent, but by this March it had grown to 47 percent and could break 50 percent by 2015, said Neil Beveridge, Hong Kong-based head analyst for oil and gas in the Asia-Pacific region at Sanford C. Bernstein & Co.

Beveridge said that PetroChina will increasingly have to make the choice between growth, dividend or raising additional capital to fund growth. “Give[n] the infrastructure investment over the next decade on gas, pursuit of overseas growth and unconventional growth, it seems inevitable PetroChina will have to make some unpleasant choices ahead,” he said.

Cash flow is another problem. As PetroChina experiences lower domestic profit margins, cash flow will suffer, particularly as commodity prices flatten. In fact, the company’s cash flow from operating activities has dropped three years in a row. PetroChina is rated below average in cash flow from operations among related companies

Interference from Beijing

China’s National Development and Reform Commission (NDRC) sets the price that NOCs can sell fuel products at home and the result has been particularly hard for PetroChina whose domestic operations remain a drag on profits. The company’s profit fell 13 percent to 115.33 billion yuan from 132.96 billion yuan in 2011, in spite of a 9.6 percent increase in revenue generated from increased oil and gas output.

PetroChina Vice-President Sun Longde said in March that government price controls dampened his company’s margins, especially natural gas. PetroChina’s natural gas and pipeline business lost 2.11 billion yuan in 2012, compared with a 15.5 billion yuan profit in 2011.

However, on March 26 the NDRC announced that it launched a more market-oriented domestic fuel product pricing system to better reflect costs and adapt to fluctuations in global oil prices.

Though it was a step in the right direction and will curb the chance for operating losses going forward, most analysts think it still doesn’t go far enough to realize full marketization. Until then, China’s NOCs, particularly PetroChina (who accounts for 60 to 70 percent of the country’s total gas and oil output) will scramble to offset weak domestic profits with more profitable fuel product exports in addition to more overseas oil and gas M&As funded mostly by debt.

In fact, PetroChina’s situation is forcing it to raise cash by selling some of its domestic assets. On May 31 the Shanghai Daily reported that PetroChina is set to sell minority stakes in domestic oil and gas fields and also gas pipeline projects in West China to raise cash for overseas acquisitions.

Quoting an industry insider familiar with the plans, the newspaper said that the pipelines offer near double-digit investment returns and that talks are taking place with several parties, while investments will be worth billions of yuan. On May 23 PetroChina chairman Zhou Jiping said that PetroChina needs more private capital in the company’s domestic oil and gas businesses to relieve its financing burden.

In a sign of PetroChina’s financial plight, news broke in early May that the company may have actually tried to force the NDRC to raise domestic natural gas prices. On May 7 Xinhua reported that PetroChina’s Huabei subsidiary had restricted gas supplies to customers by 25% from May 2 in “an effort to urge Beijing to raise natural gas prices.” Gas customers in some provinces including Shandong, Shanxi and Hebei received notices about the lack of gas supplies.

PetroChina denied the allegations while Platts, reporting on the news, said the problem was worse because supply is curbed during the second and third quarters of the year, when demand is typically lower compared with colder winter months.

Yet, PetroChina’s financing problems will likely worsen unless the NDRC removes fixed domestic fuel prices altogether, which will usher in full marketization, allowing the NCOs to make healthier profits, thereby reducing over-reliance on debt. So it seems that China, with all of its recent adventures in capitalism and associated media hype, still has more lessons to learn before it comes full circle.

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By Erik Wasson and Ben Geman

House appropriators revealed Monday that they plan to cut Energy Department spending on renewable energy in half next year as part of their plan to cope with automatic sequestration cuts in fiscal 2014.

Renewable energy, a key priority of President Obama, would be cut to $1 billion, a reduction of $911 million compared to 2013.

The cut comes as part of an Energy and Water appropriations bill, the fifth that the House is moving as part of a plan to produce all 12 annual spending bills at the top line $967 billion level called for in the 2011 sequestration law.

The House is increasing defense spending above the sequester level and must cut non-defense spending below the sequester in order to offset the increases. The Energy bill contains some defense spending by virtue of the fact the Energy Department oversees the nation’s nuclear arsenal.

“In a challenging fiscal environment, we have to prioritize funding, and the Subcommittee chose to address the readiness and safety of the nation’s nuclear stockpile and to invest in critical infrastructure projects to protect lives and property and support economic growth,” said subcommittee Chairman Rodney Frelinghuysen (R-N.J.).

Nuclear security gets $661 million above the sequester level for a total of $11.3 billion in spending next year. This is a 2 percent or $235 million decrease from the 2013 level before sequestration went into effect on March 1. Within this area though, nonproliferation is cut by $334 million.

In addition to the renewable energy program cuts, the House GOP plan would also require steep cuts to the Advanced Research Projects Agency-Energy, a program authorized in 2007 legislation that first received funding under the 2009 stimulus law.

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Poland could generate up to 6 GW from expanding its offshore wind energy program, provided that 6 GW of marine turbines are built by 2025, Ernst & Young wrote in a report prepared for the Polish Wind Energy Association.

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China National Offshore Oil Corp., known as CNOOC, and Royal Dutch Shell plc are among companies which have committed to spend at least 180 million Australian dollars (US $173 million) over the next three years searching for new oil and gas deposits in Australia.

Resources and Energy Minister Gary Gray said 13 permits, mostly off the coast of Western Australia state, were awarded in the first round of a new release of exploration blocks.

Spending on drilling programs could rise to more than A$550 million, Mr. Gray said in the statement.

CNOOC’s Australian unit was awarded permit WA-484-P in the northern Carnarvon Basin, while Australia’s Woodside Petroleum Ltd. beat five other bidders to win the WA-483-P permit in the northern Exmouth sub-basin. Perth-based Woodside has committed to drill one exploration well.

Shell clinched three permits, while other winning bidders included Japan’s Inpex Corp., France’s Total SA and U.S.-based Apache Corp.

Mr. Gray welcomed the “high demand” for Australia’s offshore petroleum acreage, with 23 bids received for 15 new release areas.

“This new exploration commitment has the potential to add to our nation’s oil and gas reserves and continues to underpin new projects,” he said. “This ongoing investment will ensure the continuation of Australia’s impressive reputation as a safe, reliable exporter of liquefied natural gas.”

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