Helping America Navigate a New Energy Reality

Peak Oil Review – 19 Oct 2015

By on 19 Oct 2015 in Peak Oil Review

Quote of the Week

“Who is the top forecaster in the oil market? The surprising answer is that nobody knows because the accuracy of predictions is never properly tracked and measured after they are made…Weather forecasts have improved enormously over the last 50 years because they have been subjected to rigorous analysis. It is far less obvious that forecasts for oil prices and other financial markets have become any better. If we demand accuracy and accountability from weather forecasters and intelligence specialists, shouldn’t we do the same from oil market forecasters?”

John Kemp, energy columnist for Reuters

Contents

1.  Oil and the Global Economy
2.  The Middle East & North Africa
3.  China
4.  Russia/Ukraine
5. The Briefs

1.  Oil and the Global Economy

Oil prices fell on Monday and Tuesday in reaction to the previous week’s surge and then stabilized around $47 in New York and $50 in London – down about 5 percent for the week. This is about $2 a barrel above the trading range that has obtained since early September. The downside was supported by a 7.6-million-barrel increase in US stocks and more bad news about the US and Chinese economies. The upside was helped by the 8th consecutive drop in the US rig count, a drawdown in US oil product stocks, a 76,000 b/d drop in US production, and speculation that Russia might join other exporters in orchestrating supply cuts.  The overriding fundamental is that US crude stocks remain at an 80 year high of 468 million barrels – some 26 percent above last year’s levels and 22 percent above the five-year average.

Gloom is everywhere in the oil industry. For those companies making money, profits are falling – Schlumberger’s earnings in the 4th quarter were down 49 percent. Occidental Petroleum sold off its 300,000 acres in the Bakken shale to a hedge fund for $500 million – roughly one sixth what Wall Street thought the acreage was worth last year. Perhaps the biggest problem is the growing reluctance of Wall Street to continue financing shale oil producers in the hopes that they will someday be profitable. In March JPMorgan-Chase was able to help Whiting Petroleum raise $3.1 billion in stocks and bonds. Whiting used $2.9 billion of the money to pay off short term loans from its lenders including JPMorgan who earned $45 million in fees on the deal. Whiting, however, is in serious trouble and is on the way to spending $1 billion more than its revenues will be this year. Many more bankruptcies and instances of distressed selling of assets are expected shortly as the US oil industry contracts. Governments which have become dependent on oil revenue streams are feeling the pinch too.

In its monthly report, the IEA noted that at some European, Asian and US East coast trading hubs, crude and oil products are now being stored aboard ships despite the extra costs. This reinforces the notion of some analysts that global storage tank capacity is nearly full despite the occasional reassurance from the industry and government that there is still plenty of spare capacity. Some note that the need for swing space at storage facilities limits their ability to store liquids only to a level considerably below theoretical capacity. A lack of storage capacity to handle an ever increasing glut of oil is one of the reason some observers are talking about a further drop in oil prices below the $40-$50 range where they have hovered for the last few months.

A former director of the IEA, Nobuo Tanaka, recently opined that oil prices will not rebound above $100 a barrel before 2020 to 2025. Tanaka foresees US shale production fading away after that period so that prices could increase again.

There has been much rumination last week about where oil prices are going. The IEA currently sees the oil market remaining oversupplied with world demand rising by only 1.2 million b/d next year. The agency says that a marked slowdown in in economic growth coupled with Iran’s return to unfettered exporting suggests that oil prices will remain low. OPEC, a hardly disinterested observer, sees US shale oil production dropping by 280,000 b/d next year and prices climbing. One industry speaker at the London Oil Conference last week even foresees a new age of “energy plenty” with fossil fuel production costs falling; renewables dominating the electricity supply by 2040; and falling electricity demand due to efficiency decoupling electricity from economic growth.

The fourteen-fold increase in natural gas production from the Marcellus shale is outstripping the capacity of pipelines to move the gas to markets. Even though pipeline capacity has doubled in the last year and more is on the way, producers are continuing to lose money as prices plunge to ever lower levels. US natural gas prices have dropped 15 percent this year due to mild weather reducing heating and air conditioning demand and stockpiles approaching records. Increasing use of natural gas by the electric power industry, however, has kept prices from falling even lower than their current $2.43 per million.

2.  The Middle East & North Africa

Iran: Tehran seems to be making progress in its efforts to fulfill Iran’s obligations under the nuclear agreement, clearing the way to having the sanctions lifted. Last week Tehran met a deadline on supplying information to the IAEA on its past efforts to develop nuclear weapons. Over the weekend work began on mothballing 12,000 nuclear centrifuges, shipping 12 tons of low-enriched uranium out of the country and destroying the core of a giant plutonium reactor. The government has pledged to accomplish these tasks by end of November; however, little is being said openly about Iran’s obligations under the agreement in the Iranian media which portrays the agreement as a negotiating victory over the West. Tehran wants to have the sanctions eased prior to its March elections which are seen as a referendum on the Rouhani government’s ability to revive the economy.

Both sides are still worried that opponents of the treaty in Tehran and Washington will find a way to undermine the agreement. Tehran’s direct intervention with ground troops into the Syrian civil war last week on behalf of the Assad government would be an obvious reason for extending the sanctions.  Washington says that an Iranian test of a ballistic missile was a violation of a UN resolution but had no impact on the nuclear agreement.

Iran is still suffering from a lack of refining capacity due to the war with Iraq and the Western sanctions. The country will need to import some 50,000 b/d as soon as the sanctions are lifted. Iran currently imports some 41,000 b/d or about 9 percent of its consumption. If oil production increases and the economy improves after the sanctions, the demand for imported gasoline could increase to 70,000 b/d and foreign refiners are lining up for a share of this potential market.

Syria/Iraq:  As the fighting increases in Syria, the question arises as to just what this war has to do with oil. Syrian oil exports, with the exception of small amounts smuggled out by ISIL, has long ceased and the fighting is far from the major oil fields around the Persian Gulf.  Outside of the dangers that some unintended incident could provoke a much wider war, there is the increasing involvement of Iran, a major oil producer, in the fighting.  With the rise of ISIL, the Syrian civil war is turning into a religious confrontation between radical Sunnis and nearly every one else, but particularly the Shiites. The increasing animosities flowing from this confrontation are likely to eventually make their way into the countries where much of the world’s oil is produced.

Baghdad has recently been asking Moscow to help in the air war against ISIL in Iraq. The only plausible reason for this is that the Western and Arab governments already bombing ISIL are practicing considerable constraint to avoid killing civilians, while Moscow is showing no compunctions about killing civilians to gain military advantage. Hatreds in the region have now reached the point, as we have seen numerous times, that both sides have few qualms about carnage they are creating.  The situation is becoming similar to WWII where millions of civilians were killed by indiscriminate bombing.

While there seems to be no immediate threat to oil exports from the Middle East that keep much of the world functioning, the hatred being engendered by the many current conflicts, which have no end in sight, could easily lead to constrained oil exports from the region in coming years.

Last week the IEA said that it expects that Iraqi oil production will remain “broadly flat” at around 4.2 million b/d next year. Low oil prices have forced Baghdad to notify foreign companies drilling for oil that there will be less money for drilling new wells next year and they should plan on cutting back.

In Kurdistan, the government has made a $12 million payment to Gulf Keystone for the oil it has produced. However, the foreign companies operating in Kurdistan say they are currently owed $1 billion for the work they have done. Erbil is in the midst of a major financial crisis as Baghdad is not making all of the promised oil revenue payments and the government is badly burdened by the need to fight ISIL and support the massive refugee influx.

Saudi Arabia/Yemen: The fighting in Yemen continues as hundreds of Sudanese troops entered the country to join the Saudi-led coalition trying to push the Houthi rebels back into their own territory in the north of the country. Another UN effort to broker a peace settlement is underway. So far some 4,500 have been killed in the fighting including some 3,500 civilians. The UN says the humanitarian situation is continuing to get worse with some 500,000 children facing starvation.

The real issue of this war is its implications for the stability of Saudi Arabia. While the royal family is still firmly in control various economic and political developments suggest that there may be problems ahead. The new king is sponsoring a more aggressive foreign policy than his predecessors with a major effort to finance and arm the anti-Assad rebels in Syria and the civil war in Yemen.

A rare attack by an ISIL gunman killed five at a Shia meeting hall in Saudi Arabia last week. Although the government keeps dissidence under control through a combination of generous handouts and subsidies to the population, and harsh punishment for anti-government activity, the whole notion of a ruling family with hereditary leaders is becoming outdated in the 21st century. There are already signs of a power struggle brewing within the royal family suggesting that the next transition of power may not be as peaceful as previous ones.

The overriding issue is the price of oil. The Saudis are burning through the sovereign wealth funds they have accumulated during the past decade of high oil prices.  While these funds will last for several more years at current rates of expenditure, if oil prices do not move higher in the next five years, the Saudis will have to make serious decisions as to their priorities. Whether the royal family can survive in more austere times is a good question.

3.  China

As usual, the future of China’s economy remains the top issue. Beijing’s imports and exports fell in September as global demand remained weak. While exports fell 3.7 percent year over year, imports were down 20.4 percent suggesting that China may have trouble meeting its GDP growth goals for this year.

China’s GDP growth goal for the year is “around 7 percent”; however, last week a government spokesman said that a number as low as 6.5 percent would still be considered as meeting the goal. Beijing is expected to announce growth for the third quarter as just under 7 percent this week. As part of the GDP calculation China converts nominal GDP to real GDP by stripping out inflation. By manipulating the inflation assumption, the government can come up with a GDP change that is more politically palatable. In the first quarter, Beijing used a negative deflator, -0.33 which implies that the economy was in deflation but resulted in a better GDP number. If another negative deflator turns up this time, some will be suspicious of the result. Some economists believe that actual GDP growth is well below the official number as evidenced by other time series, such as electricity consumption.

Despite its sagging economy and the overall drop in imports, China managed to buy more iron ore, crude oil, and copper in September – likely because of the bargain prices for these commodities on the world economy. China’s crude imports in September were up by 1.3 percent year-over-year. Buying for October and November delivery is reported to be strong and evidenced by tanker charters and freight rates. Strong buying from China will give at least some support to oil prices for the rest of the year.

4. Russia/Ukraine

Most of the news about Russia now relates to its intervention in Syria; the possibility of an inadvertent confrontation with the US or some other power active in the region; or the possibility that it is joining a quagmire similar to its intervention in Afghanistan in 1979.  As part of the move into Syria, Moscow has pulled back from applying military pressure on Ukraine and Gazprom has resumed delivering natural gas to the Ukrainians – with upfront payments.

Russia’s economy is not doing well. Most of the problem is low oil prices, but the Western sanctions stemming from the Ukrainian situation are compounding the problem. Moscow’s economy is contracting. There is little Moscow can do about world oil prices other than agreeing to large production cuts, but President Putin would like to get out from under the sanctions. Some believe that President Putin’s intervention in Syria was not only to save the Assad regime in which Moscow has much invested, but also to get the EU’s sanctions lifted by getting itself into a position to broker a settlement that would stem the flood of Syrian refugees into the EU. Given the history and complexities of the Syrian/Iraqi civil wars, it is doubtful Russia’s bombing of rebels will create enough military success to lead to a settlement.

Moscow is becoming concerned about Saudi oil sales to East Europe which has been a captive market for Russian oil. Most European countries would be more than happy to diversify their oil and natural gas supplies away from such heavy dependence on Moscow and its effort to politicize oil and gas sales. Last week Russia’s energy minister said that Saudi entry into East European market was its “toughest competition.” It is doubtful that there is enough spare oil capacity in the world to replace the oil that Moscow sells to the EU, but the return of Iran to the oil markets and the increased completion to maintain market share is not going to do Moscow any good.

The drop in oil prices and increasing competition highlights the general weakness of Moscow’s economy which has failed to diversify in the post-Soviet period. Russia is dependent on the sales of fossil fuels, minerals, and other commodities as the basis of its economy.  Outside of military hardware there is little being produced in Russia that is marketable. If oil prices remain low and and oil production starts to decline, Russia may have a hard time bringing about an economic revival.

5.  The Briefs

A global battle for oil market share is under way among oil exporters. Those with the deepest pockets, such as Saudi Arabia, are using low prices to enter new markets – often at the expense of Russia, one of the world’s top crude producers. Saudi Arabia has started supplying crude to Poland, becoming another Middle Eastern producer to enter a market traditionally supplied mostly by Moscow. (10/14)

Oil gurus? Forecasts are routinely made but the results are almost never tracked. Prominent forecasters build reputations not because of their accuracy but because of their skill at telling a compelling story with conviction. (10/14)

Central bank and sovereign wealth fund assets will shrink by $1.2 trillion, or almost 7 percent, by the end of the year as China and petro states including Russia and Saudi Arabia dip into their savings amid slower growth and lower crude revenues, according to UBS Group AG. (10/14)

Norway’s petroleum and other liquids production, which had been declining since 2001, increased by close to 3 percent during 2014 and will likely continue increasing in 2015. The production growth in 2014 was mainly the result of four new fields coming online. During 2015 and early 2016, another four fields will come on line, but future growth prospects are dimming. After consecutive 15 percent/year increases in investment prior to 2014, investment last year dropped to 1 percent and will decline this year and next. (10/17)

Norway’s Statoil said it may be able to boost recovery rates from the Gullfaks gas field in the North Sea using a novel cost-effective solution–the first wet gas compression process on the seabed. Subsea compression gives companies more maneuverability in terms of gas processing and above-ground infrastructure. When testing the process in mid-2015, Statoil said the compression method could extend the production plateau at Gullfaks by about two years and will increase recovery from the Gullfaks South Brent reservoir by approximately 22 million barrels of oil equivalent. Until now compression plants have been installed on platforms or onshore, but this new facility is under almost 1,000 feet of water. (10/13)

Worst case? In 2013 a Swedish institute released a report about potential impacts on the country’s food supply from sudden oil import shocks. In the worst case scenario, where 75 percent of oil imports disappear, the authors stated that the diesel price could skyrocket and the country would likely experience widespread starvation. (10/15)

Russian natural gas company Gazprom could be divided into separate production and transportation groups, a federal anti-monopoly service said. The European community has looked to rival suppliers to advance its own energy security needs, expressing frustration with the monopoly Gazprom holds over transit and supplies. (10/17)

In Azerbaijan, construction or preliminary work has begun on three new pipelines designed to flow new supplies of natural gas to consumers in Turkey, Bulgaria, Greece, and Italy. For more than a decade, companies have been announcing proposals to build new natural gas pipelines to connect natural gas resources in Russia, Central Asia, and the Middle East with consumers in southern Europe. In contrast to the three new pipelines considered in this article, most of these projects have failed to advance. (10/15)

OPEC probably won’t cut back production for 2016, a survey from energy reporting group Platts finds. OPEC said in its latest monthly market report output from member states in September increased by 109,000 barrels per day for an average 31.6 million bpd. Declines elsewhere, however, meant the global oil supply fell by 340,000 bpd to average 94.2 million bpd. (10/15)

OPEC has accepted Indonesia’s request to reactivate the country’s membership. The Southeast Asian country withdrew from OPEC in 2009 citing growing internal demand for energy, declining crude oil and condensate production in mature fields, and limited investment to increase production capacity. Now as a net importer of petroleum and other liquids, Indonesian officials said that rejoining OPEC will strengthen its cooperation with oil-producing countries, provide greater access to crude oil supplies, and allow the country to be a link between energy producers and consumers. (10/16)

In Kuwait, three companies signed contracts to build the $16 billion Al Zour oil refinery, which will more than double the nation’s processing capacity. The refinery, with a capacity of 615,000 barrels a day, will raise Kuwait’s total refining capacity to 1.4 million barrels a day when completed in July 2019. (10/14)

In Pakistan’s Sindh province, Austrian energy company OMV said a new natural gas discovery means it could potentially boost production in the energy-starved country. (10/13)

BP and China’s CNPC will next week unveil a strategic alliance to develop oil resources in Iraq and other regions. The deal will aim to bolster cooperation between the two companies in Iraq, where they are developing the giant Rumaila oilfield. Rumaila, in southern Iraq, is the world’s second largest oilfield and produced 1.34 million barrels per day in 2014. (10/17)

Nepal: In recent days, during peak tourist season, visitors here have been confronted with a strange sight: miles of double- and triple-parked cars, buses, trucks and motorcycles along the ancient city’s avenues. The destination for all these vehicles? Gas stations. (10/15)

In Morocco’s shale basins, Irish energy company Circle Oil, which focuses on North African basins, said it had remarkable success with the early results of natural gas production. (10/14)

Angola cut oil industry spending by 53 percent this year following a plunge in oil prices. Oil accounts for about two-thirds of fiscal revenue in Angola, putting the nation at risk after crude prices more than halved since July of 2014. The central bank devalued the currency twice this year and raised the benchmark interest rate four times in response, while the government has sought funding from the World Bank and China to help cushion the fall. (10/16)

Ghana’s power crisis is set to worsen in the coming days as Nigeria threatens to cut gas supply to the Aboadze Thermal plant. The development has been occasioned by the failure of Ghana’s government to settle its indebtedness to the Nigerian gas authorities. (10/16)

Nigeria’s President Buhari will leave the post of petroleum minister in Africa’s biggest oil producer vacant after signaling that he would take the position. (10/12)

Nigeria lost $966 million to crude oil swap deals between 2009 and 2012, the Nigeria Extractive Industries Transparency Initiative said Friday. Crude swap deals allowed the Nigeria National Petroleum Corporation to trade crude oil for refined products. In 2012 alone, the cost of crude oil swapped was $6.4 billion, while value of refined products returned to Nigeria was $6.3 billion. This left the sum of $100 million as revenue loss incurred by government. (10/12)

South Africa doesn’t need another oil refinery because the slowing economy has curbed demand and the country has ample gasoline production, said Shash Rabbipal who heads Chevron’s local unit. State-owned PetroSA Ltd. has proposed a new plant on the south coast that would be the biggest on the continent. (10/12)

Auction failures: Mexico’s first attempt to open up its oil industry to foreign companies was a failure. Its auction only attracted $2.6 billion in potential investments, compared to $17 billion maximum potential. Brazil had a similar failure more recently, with only 10% of its blocks being auctioned receiving viable bids. These latest failed auctions, coupled with other facts, point to a permanent peak in oil production at current prices. (10/16)

Cuba has oil and gas. That is certain, say geologists. US Geological Survey estimates Cuba has at least 4.6 billion barrels of undiscovered oil and 9.8 trillion cubic feet of undiscovered natural gas. However, the natural resources industry may not be as aggressive in Cuba as they might have been back in 2014 when oil prices were hovering around $100 a barrel. (10/15)

Canadian rail companies are slashing rates for shipping crude in their first serious effort to revive an industry rocked by the rout in global oil prices, according to shippers and terminal operators who are seeing discounts of as much as 25 percent. (10/16)

Canadian energy companies have cut thousands of jobs and scrapped projects in a drive to cut costs. Now they’re raiding workers’ perks. Holiday parties, childcare benefits and Fridays off are being targeted as the rout in crude prices grinds into its 16th month. The clampdown on perks comes as firms dig deeper for savings after eliminating about 36,000 oil and natural gas jobs in the crash. (10/13)

Schlumberger reported revenue fell 4 percent for North American operations and 7 percent internationally. Year-on-year, revenue for Schlumberger’s North American operations alone dropped 34 percent. (10/17)

Spending update: A recovery in the global oil and gas industry has been delayed and companies will continue to cut their spending next year, said Schlumberger CEO Paal Kibsgaard. Back in July, he believed that a recovery might begin by the end of the year. Now he says it could be delayed. (10/16)

US refiner Phillips 66 set a lower capital budget for 2016. The company said on Monday it would spend $3.6 billion in capital expenditure next year compared to the company’s $4.6 capital budget for the current year. (10/13)

The US oil rig count declined by 10 for the week ended Oct 16, the seventh week of consecutive declines. The total oil rig count is now 595, a decline of 63 percent over last year and the lowest in over five years. The US offshore rig count was 33 in the latest week, down 24 from a year ago. Natural gas rigs were up 3 to 192. (10/17)

Oil import data from EIA for the week ending Oct. 9 show that total crude imports averaged 7.3 million barrels per day, up by about 247,000 bpd (3%) from the previous week. (10/17) [Reminder: passage of oil export legislation is unlikely to dramatically change the amount of oil imported daily by the U.S.]

Credit crunch: Small and mid-cap exploration and production (E&P) companies have been bracing for the fall recalculation of their bank lines of credit since the post-spring markets continued to leave oil in the ground and commodity prices on the floor. And an industry brief from Raymond James and Associates suggests the cuts this fall could be much deeper than those this past spring. (10/17)

The oiliest county in Texas has seen its new natural gas production capacity more than double as drillers hone in on their most profitable acreage. The peak output rate from new gas wells in Karnes County has surged 134 percent since January, estimates from Drillinginfo show. (10/16)

Marcellus logjam: For the first time since America’s shale boom began, the flow of natural gas from the nation’s biggest reservoir is close to dropping below year-ago levels. Output from the Marcellus basin in Pennsylvania and West Virginia is faltering as pipeline capacity fails to keep up with the surge in production. While space on Appalachian pipelines has more than doubled this year, it hasn’t been enough to keep the flow moving freely, resulting in some choking back on production from some wells in the play. Seven new pipeline projects are scheduled to go into operation this quarter, which should help cut the logjam. (10/16)

Pipeline developers looking to build infrastructure to move natural gas out of the Appalachian Basin face numerous challenges, from strengthening opposition from environmental groups to shifting market patterns and increased regulatory scrutiny. (10/17)

Fracking health risk: Expectant mothers who live near active natural gas wells operated by the fracking industry in Pennsylvania are at an increased risk of giving birth prematurely and for having high-risk pregnancies, new Johns Hopkins Bloomberg School of Public Health research suggests. (10/16)

In Pennsylvania, Gov. Tom Wolf signed into law a bill intended to encourage more oil and gas companies to use treated coal-mine wastewater for hydraulic fracturing. The law is scheduled to become effective in December.

An earthquake with a magnitude of 4.5 struck near the US crude oil hub of Cushing, Oklahoma on Saturday, just days after regulators imposed new rules meant to prevent temblors in the area and said more changes were possible. The Oklahoma Corporation Commission, which regulates the state’s oil and gas industry, ordered companies on Sept. 18 to shut or reduce usage of five saltwater disposal wells around the north-central Oklahoma city of Cushing. Saltwater, a normal byproduct of oil and gas work, is put into deep disposal wells that scientists say have contributed to a rash of small and medium-sized earthquakes in Oklahoma since 2009. (10/12)

As layoffs become the energy industry’s main response to low oil prices, a handful of producers are aiming to trim personnel costs without pink slips by spreading the pain among their employees. Companies including Occidental Petroleum and Canadian Natural Resources are employing hiring freezes, caps on bonuses, and even across-the-board wage cuts to preserve jobs. They and others that already have reduced payrolls—including many drilling and well servicing firms—are reluctant to slash further. (10/13)

State budgets hurting: The low price of crude oil is starting to eat away at the revenue stream for U.S. states that depend heavily on the energy sector, Fitch Ratings said. Beyond Texas, the No. 1 oil producer in the nation, Fitch said states with less diverse economies like Wyoming, Alaska and North Dakota, the No. 2 oil producer, will face the brunt of the pressure from low crude oil prices. (10/15)

In Alaska, a restructuring of Repsol SA’s drilling project is adding to the state’s woes in the midst of the biggest oil slump since 2009. Repsol sold stakes in development and exploratory acreage in northern Alaska to its partner, Armstrong Oil & Gas, for more than $800 million. The companies will defer the 2015-2016 drilling campaign initially scheduled to start this winter as part of the restructuring. (10/14)

Coal co. bankruptcies: The US mining sector is showing signs of serious decline brought on by bankruptcies in the coal industry. Fitch Ratings said a spate of coal defaults has resulted from unsustainably high debt leverage from past acquisitions amid an environment of weak coal pricing. (10/17)

CO2 plan okay? US coal companies and at least 16 state governments are working on challenges to the Obama administration’s new rule limiting carbon emissions from power plants. Most electric utilities have a different strategy: They are embracing it. The main reason is that economic forces are pushing the power industry inexorably toward a lower-carbon future. (10/12)

CO2 damper: Fear over the environmental impact of using oil, gas and coal reserves means we may never run out of untapped energy stores, according to a leading petroleum industry economist. It also means the relative price of oil will not necessarily increase over time. (10/15)

Nuke loss: Entergy, the New Orleans-based company which owns utilities in Arkansas, Louisiana, Mississippi and Texas, and sells power on the wholesale market, will close the Pilgrim nuclear power plant in Massachusetts by 2019.  Entergy has been pressured by low U.S. natural-gas prices that have pushed wholesale power prices lower, with total costs running more that power sells for. (10/14)

CA drought: In California, news of a historically powerful El Niño oceanic warming event is stoking hopes that winter rains will ease the state’s brutal drought. But for farmers in the Central Valley, one of the globe’s most productive agricultural regions, water troubles go much deeper—literally—than the current lack of precipitation. There, underground water reserves that farmers also rely on are in a state of decline that predates the current drought by decades. (10/17)

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