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By Robert Rapier on Apr 12, 2012 with 29 responses

The Impact of $5 Gas Prices, and Eco-Proppants — R-Squared Energy TV Ep. 18

In this week’s episode of R-Squared Energy TV, I talk about the impact I believe $5 gasoline will have on most people, and whether there are any environmentally friendly proppants that can be used for hydraulic fracturing.

Some of the topics discussed this week are:

  • My observations here in Hawaii on the impact of $5 gasoline
  • Why I think gasoline prices have peaked (for now)
  • What proppants are and how they are used in hydraulic fracturing (fracking)

One thing I meant to mention in the video, but forgot, is this. I was paying over $4 a gallon for gasoline in Germany a decade ago, and the roads were still packed with cars. In the Netherlands in 2008, gasoline ran up to about $9 a gallon, and there seemed to be no let-up in traffic. If there was a good solution for gasoline at $5 (or higher), then the Europeans certainly have not figured it out. True, they use a lot less as a result of many years of high gas taxes, but over the short term there isn’t a lot that most people can do but pay more when prices run up. In the video I point out that the price of oil has doubled in the past five years, but U.S. oil consumption has only fallen by about 10% over that time. So we are using less and paying a lot more overall.

Readers who have specific questions can send them to ask [at] consumerenergyreport [dot] com or leave the question after this post (at the original source). Consider subscribing to our YouTube channel where you’ll be able to view past and future videos.

Link to Original Article: The Impact of $5 Gas Prices, and Eco-Proppants — R-Squared Energy TV Ep. 18

By Robert Rapier

  1. By Ed on April 12, 2012 at 8:53 am

    Robert,

    The concern with fracking, as I understand it, is not with the proppants, which must be structurally and chemically stable to remain in place and keep the fractures open. The concern is with the chemicals which are used to keep the proppants in suspension in the fracking fluid until they are carried out into the fractures.

    Sand has been the most common proppant for decades, because of its low cost and structural stability. The interest in materials such as walnut shell fragments is based on their lower density, which allows particles of the desired size to be kept in suspension more easily and with the use of less chemicals. The use of epoxy with walnut shell fragments would increase their structural strength, while still remaining less dense than sand.

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  2. By Robert Rapier on April 12, 2012 at 1:27 pm

    The concern with fracking, as I understand it, is not with the proppants, which must be structurally and chemically stable to remain in place and keep the fractures open.

    Agreed, and if the question had been phrased in a way to suggest this would alleviate environmental concerns over fracking, I would have pointed that out. In fact, even if fracking was done with just water and sand, people are still going to be concerned about oil migrating into their water supply.

    RR

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    • By Ed on April 12, 2012 at 6:09 pm

      Oil or gas migration into aquifers would be the result of a failure to properly cement the upper portion of the well bore, rather than a result of the fracking. In the case of the Marcellus shales, there are 4000+ feet between the top of the shale formation and the typical aquifer elevations. The chances that the fractures would extend up into the aquifers are somewhere between slim and none. 

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      • By Robert Rapier on April 12, 2012 at 6:15 pm

        I agree, but that will be the concern. Those fears were exploited nicely in Gasland by lighting people’s tapwater on fire. So regardless of whether that methane got there as a result of fracking, it created a frightening image for people and they will oppose it on that basis.

        RR

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        • By Seth P. on April 13, 2012 at 1:25 am

          There is the theoretical justification and seismic data to confirm that the fractures will not propagate close to overlaying aquifers in the major shales plays. It appears to me that the concern of water contamination has died down with new state legislation on completions methods.

          However, there are still concerns in regards to methane leakage and the air quality around the fracture sites. Does anyone have a comment on this? I heard somewhere that Dallas has a higher asthma rate due to high concentrations of benzene in the air(allegedly from hydraulic fracturing)? 

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  3. By Paul Stoller on April 12, 2012 at 2:34 pm

    I have to wonder if the lack of good public transportation in the most of the US if we might see a larger movement to things like hybrids and electric vehicle here in US vs Europe since we lack the other alternatives.

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    • By Paul Stoller on April 12, 2012 at 2:37 pm

      I should have said ” I have to wonder if due to the lack of good public transportation in most of the US.”  Sorry for the poor wording.  

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  4. By Tom G. on April 12, 2012 at 3:06 pm

    Robert:

    While looking up some of the different types of “stuff” used for fracking, I came across the below article.  If some of your other readers are like me and not all that close to the oil and gas industry, the article can be quite informative.  Readers should as usual, replace the [DOT's] with a period. 

    http://wwwDOTspeDOTorg/jpt/print/archives/2011/04/11ProppantShortageDOTpdf

    Different topic:

    First of all let me thank you for doing this site.  I visit the site almost everyday and enjoy the discussions that take place.   One minor comment about the last 2 or 3 video productions.  

    I find the AUDIO level to be a little on the LOW side.  Not enough to be problematic; just enough to make turning up the volume a little for comfortable listening.  I don’t believe it is being caused by the placement of the microphone around your neck but rather by the volume level set at the recording device.  

    Have a great day. 

     

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    • By Robert Rapier on April 12, 2012 at 4:57 pm

      I find the AUDIO level to be a little on the LOW side.

      My hard drive crashed this week, and I restored it back to the previous backup which was over a month ago. Until you mentioned it, I hadn’t thought about it, but I had turned up the input volume settings since then. I will need to remember to do this for next week. I do have a new lapel mic, but I need to get a USB adapter because my mic input port doesn’t work. I should have this by next week.

      Cheers, RR

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      • By Tom G. on April 12, 2012 at 5:56 pm

        I am sure glad you had things backed up.  Some people don’t do backups or they forget.  I have been considering an offsite backup service like Carbonite but for now am using an old 200 GB IDE drive I have connected to a USB port.    

         Thank you for fixing the [DOTs] in the above posting.  I use Google Chrome and now when I click on the link it goes directly to the article.  Very nice – thank you. 

         

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      • By Matej Zalar on April 13, 2012 at 7:53 am

        I actually think audio level is great. Clear and undistorted. Overall a very nice episode: informative, smooth and rounded — I like it very much!

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  5. By Optimist on April 12, 2012 at 8:47 pm

    Robert,

    I have to take issue with your comment (not the exact quote) that OPEC is strangling us to death. This would imply that OPEC is in perfect control of oil prices, and able to control is in a very narrow range. That’s not the way I see it, and I would put 2008 up as evidence that OPEC first couldn’t keep prices down, and then, when the Wall Street bubble finally burst, the couldn’t keep it above $30/bbl.

    The Saudi’s can certainly affect prices with their swing capacity, but I view OPEC as increasingly irrelevant to oil prices. The events of 2008 suggest that there isn’t enough swing capacity for full control.

    More likely, I think, is that supply is catching up with demand, and that price is merely reflecting that fact, as it does in a (relatively) free market. Prices will continue to climb until there is either significantly more supply, or significantly less demand. Place your bets now…

    Exciting times!

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    • By Robert Rapier on April 13, 2012 at 1:34 am

      I have to take issue with your comment (not the exact quote) that OPEC is strangling us to death.

      I believe over the long haul that is a serious threat, because they continue to increase the prices they need for oil to balance their budgets. 10 years ago $25 was just fine, 5 years ago they needed $50, and today many are saying that $100 is a fair price. That slowly strangles the economy, and should be viewed as a serious threat and a very good reason to reduce our dependence on foreign oil.

      RR

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      • By Optimist on April 13, 2012 at 2:35 pm

        I still think I would phrase it differently: what they need is not as crucial as what we are willing to pay. Thanks to the “drill, baby, drill” mentality we are essentially willing to pay whatever, betting the house on the fact that there is plenty of oil out there, we just need to pump it.

        OPEC would be fools not to take full advantage of our stupidity.

        And, as Andrew’s article shows and your observations confirm, for all the complaining, it’s not hurting enough yet to make us change anything. $40/week for gasoline (on average) is not enough to make large changes happen. Not sure if his numbers are right, but we’re only spending $13/week on leisure driving (not sure if that includes everything outside the commute). It would probably take several times $5/gal before you’ll see real change.

        Fasten your seatbelt. This is about to get intertesting scary exciting.

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  6. By Benny BND Cole on April 12, 2012 at 11:55 pm

    As usual, I think RR is a bit too negative on the ability of Saudi Arabia to keep ratcheting up oil prices. 

    Already, we are seeing global demand for crude oil flatline, and there is a delay between higher oil prices, and the reduction in demand. Demand is short-term inelastic. Bigger declines in demand  are one to two years out.

    Sheesh, you see what is happening in gasoline demand in the USA?  And new model cars will exaggerate that. 

    OPEC and other thug-monkey state that unfortunately control the world’s oil supply are operating a business model probably not taught at Harvard:  Treat your customers to erratic and soaring prices, and uncertain supply. Honor no contracts, burnish an image of unreliability and treacherousness. Add on a dubious NYMEX trading system. 

    Yes, they have gotten away with it, yes we do not have total alternatives today, but remember we got hooked again on cheap oil through the 1990s.  And oil cracked in 2008 back down to $47 a barrel.

    We may see another crack like that, or we may see stagnation in prices and demand going forward.  Other liquid fuels will come forward, as well as conservation.

    Due to the over-representation of rural states in the US Senate, we probably never will tax gasoline as we should.  Instead we get the dubious ethanol boondoggle, another rural sop.

     

    Despite all that, the price signal works relentlessly. I see a cleaner and more-prosperous future. 

    You may also soon see oil flowing out of California again. 

     

     

     

     

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    • By Justin on April 13, 2012 at 9:53 am

      “Already, we are seeing global demand for crude oil flatline”

      Is this actually true. I thought demand was declining in the western world, while in developing nations, demand is increasing enough to make up for the declines?

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  7. By Benny BND Cole on April 13, 2012 at 11:46 am

    Justin-

     

    We are seeing annual global growth under 1 percent now.  As I said, there is inertia in oil demand.  An improving global economy and oil at $70 a barrel (last year) boosted demand.  But now with oil at $100, demand will not rise as quickly, and will start to retreat, of oil stays above $100.

     

    Not only will demand flatline or even retreat, but at $100 a barrel there is almost no place on earth you can’t drill and make a lot of money.  That will not boost production in the monkey-yhug states such as Venezuela, Nigeria, Russia, Saudi Arabia, Iraq etc etc etc. It is really bad luck where the oil is.

    But look for big increases in fossil fuel production in the USA, Canada, Brazil. 

     

     

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  8. By Optimist on April 13, 2012 at 2:45 pm

    Benny,

    I doubt 1% growth will hold if the Chinese and Indian economies take off. OTOH, I have no doubt that they will NOT squander their riches on large cars the way some others did. As you say, the price signal works, and the growing middle classes in those countries will probably be fuel efficient right off the bat, and get only more so over time.

    Add on a dubious NYMEX trading system.

    Come on, Benny! Don’t spoil a fairly sensible, optimistic post with a wild and unsupported conspiracy theory.

    Also, remeber: speculators are our friends. Speculators, when they make money, help to keep prices stable, because they buy low (when supply exceeds demand) and sell high (when demand exceeds supply). Not rocket science.

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  9. By Big A on April 13, 2012 at 3:00 pm

    All this discussion about the price of oil??? Supply and demand , sure, but the real truth is a commodity priced in US$. Pick a year 15-20 years ago. 1/10 th of an ounce of gold would probably buy a barrel of oil. Same 1/10 ounce today would do the same +. What we hate most are the number of dollars that leave our country to buy oil. I blame our policies as much as anything in creating these price increases real or imagined.

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  10. By Tom G. on April 13, 2012 at 9:05 pm

    On January 17th, 2012, T. Boon Pickens had this to say. “U.S. Spent Nearly Half-Trillion Dollars on Foreign Oil in 2011”.  

    I believe that oil is costing us a whole lot more than an extra $20-40 bucks when we fill our tanks.  It is costing us hundreds of new bridges, sewer systems, subways, schools, teachers, fire and police, water treatment plants and millions of American jobs.  I haven’t looked at the statistics lately but about 12 million Americans seem to be out of work or can’t find full time employment.  That is a staggering number of people living in or near the POVERTY level and you can see the result of our inaction as you drive down almost any street in America.

    The Bureau of Labor Statistics [BLS] states the average wage in American hovers around $43,000/year.  Take $450 billion and divide it by that number and you get about 10,465,000 potential jobs.  Just think about that; $450 billion sent out of our country and one heck of a lot of people left living next to a foreclosed home.

    That is one heck of a lot of potential jobs but of course not all of our problems are caused by excessive oil consumption.  HOWEVER, this very simplistic example does lead me to believe that we are way pass the time for some serious action.  We are way past the time of drill-baby-drill because we need that AND alternative energy AND more fuel efficient vehicles AND more efficient factories AND homes.  It is not just about drilling but also about doing all of the above.  We can drill-baby-drill until the cows come home and never become energy independent.  “Energy Independence” is nothing more than a political buzz word or phrase in a world where oil is a commodity.  Oil is a finite commodity and we are going to need to find a replacement for it sooner or later.  Of course almost everyone know that if we started making ONLY electric drive vehicle this week; it would still take us more than 20 years to get to a reasonable level of oil consumption.  So it’s not just about the dollars we pay for oil at the pump but also about the cost of wars to preserve access to it.  Its also about lighter and more fuel efficient vehicles, renewable energy, and more energy efficient heating systems for our homes.  Maybe we should ACTUALLY consider developing an action plan that is something more than lip service for the next 4 years or election cycle.  

    I guess in the end it boils down to the fact that we KNOW what we NEED to do – we just don’t seem to have the COURAGE to get it done.

     

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  11. By Benny BND Cole on April 13, 2012 at 11:58 pm

    Optimist,

    I will never convince you, but I have convinced Jim Cramer, for what it is worth:

    In Summer 2011 Jim Cramer drew the public’s attention to a corner of the oil market [15].

    the cartel of nonconsumers who are using oil futures as part of an investing strategy that includes endless attempts to corner the market for crudes in order to make fortunes for them. that’s what they did in 2008 when they cornered it and took it to $147. we know the futures markets are thin for oil. almost all the execs on the show confirm to me these futures are unreliable and easily manipulated. the price can be the benchmark for real commerce, meaning they can make a lot of money so long as no one seeks to bust the cartel price.

     

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    • By Optimist on April 16, 2012 at 7:19 pm

      Congratulations! You convinced a madman! You want a sticker with that?

      Get a grip, Benny. OPEC is NOT manipulating the oil market. They don’t HAVE to. We addicts are doing all the heavy lifting for them. Their focus is to sell us all the good stuff we will buy…

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  12. By Jim Takchess on April 14, 2012 at 8:53 pm

    A fun article on what an local agra-energy economy could look like.

    http://www.smithsonianmag.com/science-nature/A-Little-Independent-Energy-Experiment-on-the-Prairie.html?c=y&page=1

     

     

     

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    • By Robert Rapier on April 14, 2012 at 10:27 pm

      That was a great story, Jim. Thanks for sharing it. I agree with her views on local use and production, but I think the pyrolysis route is going to be more expensive than they might imagine. The true test will be whether people are willing to pay a bit more for their fuel in order to sustain the local economy.

      RR

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  13. By Benny BND Cole on April 18, 2012 at 12:50 pm

    The Obama Administration is going after NYMEX manipulators. 

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  14. By mac on April 22, 2012 at 12:11 am

    It takes a real fool to think that the markets cannot be gamed.

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  15. By mac on April 22, 2012 at 2:24 am

    We will never experience a shortfall of oil. again.

    Yup…………………………

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