Australia Becoming World's Saudi Arabia of Natural Gas Suppliers

Australia has been a real mover with inked deals aimed at supply other nations with LNG:

Western Australia is set to become the "Saudi Arabia of natural gas" as other deals follow the signing of a A$50 billion (US$41.315 billion) agreement to supply liquefied natural gas to China, Premier Colin Barnett says.

The Chevron-led joint venture contract with Chinese energy giant PetroChina to supply LNG from the Gorgon development off the West Australian coast is Australia's biggest ever resources deal.

It comes a week after the signing of a A$25 billion contract to supply gas to India from the same project, breaking the A$12 billion record set a few years ago by the North West Shelf Pluto LNG project, now under construction.


Barnett said it appeared a "whole series of projects is queueing up."

"What you are seeing now is that the future production of Gorgon is being purchased around the world -- China, India, Japan and Europe and other places," Barnett told Fairfax Radio Network.

"Today I'm about to go to a signing between a major French group and Santos, who are are developing a relatively small field right up off the Kimberley coast.

[...]

This is for 2.25 million tonnes of LNG a year."

He said the Gorgon project would produce many times this amount and several other contracts were being pursued. He said while the state government had already given its final environmental approval to the project, the commonwealth had agreed on the issue of long-term liability for the carbon dioxide to be extracted from the gas.

The carbon dioxide would be reinjected below the surface as part of the largest geosequestration project ever implemented. Barnett said while the process was already being used in the North Sea, it was "world-breaking technology."

"The Gorgon gas reservoir, which is in commonwealth waters, has a 12 per cent carbon dioxide content that's naturally occurring," Barnett said. "

One of the conditions is that as the gas is brought on shore to Barrow Island, the gas is separated and reinjected hundreds, maybe even thousands of meters, below the surface into a porous body that's got a sealed structure above it. "

It will stay there during the life of the project, which will be 60 to 100 years.

- Brewskie

Three Trillion Cubic Feet

That's how much natural gas the US has in storage, 3.153 tcf to be precise - that's 19.7% above the five-year average and 23.2% above last year's level. (link)

The U.S. Energy Information Administration is expected to report that 64 billion cubic feet of gas were added to storage during the week ended Aug. 7, according to the average prediction of 17 analysts and traders in a Dow Jones Newswires survey. The storage estimate surpasses last year's 51-bcf build in storage and the five-year average injection, which was 42 bcf.

The EIA is scheduled to release its storage data Thursday at 10:30 a.m. EDT.

If the storage estimate is correct, inventories as of Aug. 7 will total 3.153 trillion cubic feet, 19.7% above the five-year average and 23.2% above last year's level.

Added: US gas demand is expected to decline 2.6% this year.

- Brewskie

14 Trillion Cubic Feet: Namibia's Blue Gold Strike

I won't have much news today, but here's a gold strike: Russian oil and gas exploration company Sintezneftegaz discovered what could be a 14 trillion cubic feet gas reservoir off the western coast of Namibia.

Russian oil and gas exploration company Sintezneftegaz (also rendered as Sintezneftgaz in western script) has discovered what could be a major natural gas reservoir off the coast of Namibia. According to Namibian Ministry of Mines and Energy Petroleum Commissioner Immanuel Mulunga the find could be a “gas resource of up to 14-trillion cubic feet”.

Quoted by upstreamonline.com, he added that it “was not possible to fully evaluate the hydrocarbon potential of the penetrated sections due to operational problems during testing.

The reservoir quality of the tested zones was not very good, perhaps due to nearby igneous activity.”If the estimated size of the new discovery proves to be accurate, it will be some ten times larger than Namibia’s Kudu gas field, which has reserves of some 1,3-trillion cubic feet. Kudu is expected to come into production in 2013.

The strike was made by the Kunene-1 well in offshore exploration Block 1711 in the Kunene Prospect region of the Namibian Basin. This lies on the northern part of Namibia’s continental shelf and forms part of the Kwanza-Cameroon oil and gas-bearing province.

- Brewskie

Gas Glut Can't Stop Gas Development

The WSJ has a post on the gas glut. It lists three impressive gas developments in process:

» If the emergence of big new gas fields such as the Haynesville, Barnett and Horn River weren’t enough, now comes the Granite Wash. It’s not a newfangled nconventional gas field, but its yielding some big wells. Newfield Exploration said on Wednesday night that its first seven horizontal wells in the Granite Wash play that straddles the Texas/Oklahoma border had average initial production rates of 22 million cubic feet a day. Those are big, big wells.

» Add another growing gas field that you probably never heard of: the Eagle Ford. Down in South Texas, near Laredo, companies are beginning to drill horizontal wells into the shale formation with encouraging results. A couple weeks ago, St. Mary Land & Exploration said one well was flowing at the oil and gas equivalent of 5.6 million cubic feet a day. More news should be coming when Petrohawk, an Eagle Ford participant reports its earning in the next few weeks.

» Range Resources recently said that its development of the Marcellus Shale, a big wedge of gas-bearing rock that covers much of Pennsylvania and bits of adjacent states, was going very well. The company is producing the oil and gas equivalent of 50 million cubic feet a day from the Marcellus – and expects to nearly double that by year-end 2009 and double it again by year end 2010.

- Brewskie

What Do CNG Vehicles Get? Five Dollar Fill-Ups

(Hat Tip: Benjamin)

This is an article from last year that descries the CNG situation in Utah, one of the nation's most CNG-friendly states (link):

Troy Anderson was at the gas pump and couldn't have been happier, filling up at a rate of $5 per tank. Anderson was paying 63.8 cents per gallon equivalent for compressed natural gas, making Utah a hot market for vehicles that run on the fuel.

It's the country's cheapest rate for compressed gas, according to the Natural Gas Vehicle Coalition, and far less than the $3.56 national average price for a gallon of gasoline.

"I'm totally celebrating," crowed Anderson, a 44-year-old social worker, who picked up a used Honda Civic GX two months ago. "This is the greatest thing. I can't believe more people aren't talking about it. This is practically free."

Personal ownership of natural gas-fueled vehicles in Utah soared from practically nothing a few years ago to an estimated 5,000 vehicles today, overwhelming a growing refueling network, where compressors sometimes can't maintain enough pressure to fill tanks completely for every customer.

[...]

Utah has 91 stations, including 20 open to the public, mostly in the Salt Lake City area. The others are reserved for commercial drivers, such as school districts, bus fleets and big businesses such as a Coca-Cola distributor.

It's possible to drive the interstates between Rock Springs, Wyo., and St. George, Utah -- a distance of 477 miles -- and find 22 places to pull off and fill up.

California has more stations but prices are much higher there, the equivalent of $2.50 a gallon for gasoline.

"Utah has the cheapest prices by a big margin," said Richard Kolodziej, president of the Natural Gas Vehicle Coalition, whose members include utilities, Honda Motor Co., environmental groups and transit agencies.

Earlier this year, Oklahoma legislation introduced a bill for CNG vehicles and refueling stations, and currently, the US Congress is debating legislation to extend and double tax credits for CNG vehicles.

- Brewskie

Breaking Russia's Gas Stranglehold

In regards to an earlier post, six countries have agreed to build a US-backed gas pipeline, the Nabucco, to break Russia's gas export monopoly to Europe:

Officials from six countries gathered Monday in Turkey and signed a deal to build a U.S.-backed pipeline, aimed at breaking Russia's near-monopoly on natural gas supplies to Europe.

The proposed Nabucco pipeline would run from Turkey's eastern border, through Bulgaria, Romania and Hungary, to a key gas terminal in Baumgarten, Austria.

Germany is also a partner in the deal, which is being signed in the Turkish capital, Ankara.Russia controls the current network of pipelines that supply Europe with natural gas.

To challenge the Nabucco proposal, Russia has proposed a competing natural gas pipeline to southeastern Europe. The South Stream pipeline would pass under the Black Sea and connect with Bulgaria. Russia and Italy would each control half of that pipeline.

[...]

Gas from Azerbaijan's Shah Deniz 2 field will be a crucial component of the project. European officials have raised hopes that other gas producers, such as Iraq and Turkmenistan, also might contribute to the pipeline.

Big hurdles remain for the pipeline project named after an opera by Verdi.

Consortium members must raise billions of dollars for the Nabucco project. Construction has not begun, and gas is not projected to be pumped through until 2014.Still, industry analysts called Monday's intergovernmental agreement a significant development.

"It's one of those steps that moves Nabucco out of the possible column and into the probable column," said John Roberts, an energy security specialist with Platts.

"My own guess is roughly by the end of the year, it will be pretty clear that Nabucco will be built."

- Brewskie

Exxon Discovers Canadian-Sized Gas Prize

Folks... you thought shale gas was big. You've been impressed by the America's jump in gas reserves - a prelude, to be precise. You've been impressed with the size of shale fields, that we have a 100-year supply of gas, that the whole world now wants to learn from our success. Folks... this isn't going to end anytime soon.

Congratulations, Canada. The Horn River Field, it turns out, may be the best shale play in N America:

Exxon is most encouraged by the exploration of 250,000 acres it has leased in the Horn River Basin, in northern British Columbia. Mr. Cejka said results from the first four wells lead the company to conclude that each well will produce between 16 million and 18 million cubic feet of gas a day.

That's five times the size of average wells in Texas's Barnett shale and comparable to big wells in Louisiana's Haynesville shale, two major shale-gas fields that already have moved the U.S. natural-gas market from scarcity to abundance.

Though Exxon is better known as the nation's largest oil company, "We are really interested in shale gas," Mr. Cejka said, detailing the company's push into the energy-exploration business, which was once dominated by scrappy independent companies.

[...]

Other energy companies also are excited about the Horn River field. "This may be the best shale play in North America," said Michael Graham, an executive vice president at EnCana Corp., a Calgary company that already has a big Horn River presence. Mr. Graham said EnCana's latest wells are approaching Exxon's in terms of initial production.

Exxon's Mr. Cejka said that his company also has pieced together substantial leases in prospective shale-gas formations in Germany, Hungary and Poland, and is still adding acreage. Tests on two wells in Hungary, where Exxon and partners hold 400,000 acres, are expected this year. It will be the first time the shale there has been tested.

"Depending on how that goes, we'll either be patting ourselves on the back or walking away," Mr. Cejka said.

The company also plans 10 wells on 750,000 acres it holds in northern German's Lower Saxony Basin this year to better study the geology.

- Brewskie

Leaving Canadian Gas Out to Freeze

Not long ago, when peakers and technologically ignorant experts were lamenting America's gas fate, they pointed to Canada, where America was obtaining 15% of her gas, and her production decline.

How quickly things change. With new gas supplies, yanks are saying, "Thanks, but no thanks, hosers."

A new natural gas pipeline in the United States is allowing cheap gas from the Rockies to displace more than 10% of Canada’s gas exports to the Midwest United States, forcing more Canadian gas into storage and lowering natural gas prices for Canadian producers.

The 1,679 mile, $4.4 billion Rockies Express pipeline, or REX, is providing about 1.5 billion cubic feet per day (bcf/d) of cheap gas from the Rockies through the Midwest to Ohio. The latest section of REX just opened June 29 (www.rexpipeline.com).

The new pipeline is displacing about 600 million cubic feet per day (mmcf/d) of Canadian production, says Jack Weixel, director of Energy Analysis for Bentek Energy. Bentek provides specialized energy pipeline information to clients in the oil and gas sector in North America. Weixel estimates the mid-continent corridor of pipelines send just over 5 bcf/d of gas, net, to the United States from Canada (some western Canadian gas goes back into Southern Ontario via Michigan).

[...]

Normally Canadian gas would flow through to the big consuming area of the US Northeast, but that market is having a lot less demand this year. Weixel says he sees slightly less Canadian gas being pushed off the grid in the fall, but adds that Canada needs to go find new markets for its gas.

“The US has solved its own problem, and we are less reliant on Canadian
gas. It’s still an important part, especially in the Northeast, but not so much for Midwest or California.” A new pipeline, called RUBY, is already being
planned to take Rockies gas to California -- another big market for Alberta gas,
Weixel says.

The Liquid Natural Gas export terminal from Kitimat, on the west coast of British Columbia, is a great idea for the Canadian industry he says. Alberta needs to do more to develop export markets for its natural gas.

Weixel adds,

“We could see US$2 gas (per mcf). It’s definitely possible. We haven’t seen the production declines down here yet. Rigs are dropping but they are more efficient
now. And the success rate is much higher in drilling wells into these new shale formations. (The production decline) is coming, but not as foretold as everybody
thought it would be.”

The displacement of Canadian gas imports was reported here earlier, plus the questionable need for the Alaska Natural Gas Pipeline (which carries an estimated price tag of $26 billion).

Amazing how quickly things change.

- Brewskie

"Cap and Trade" Coal for Gas

Coal is such hoary, obsolete fossil fuel that it should stick to its primordial glory days of Britain's industrial revolution. Regardless, it remains abundant and readily available, supplying America with 50% of her power, and China with roughly 70% of her power. Of course coal abundance has its skeptics (only 100 years of coal left(!?) - build the doom bunker!!). Nevermind Britain's coal production peaked in 1913; minus her once sprawled empire and its dirty "workshop of the world," Britain's average bloke living standards would leave 19th century highbrows slack-jawed.

A Seeking Alpha post looks at the "cap and trade" proposal, indicating it would push for less coal, and greater reliance on natural gas:

In any case, I jumped into commodities earlier this week (a few days too early), and am happy to hold UNG, FCG, WMB, WPZ, GSG, COP, and DBC. If approved, President Obama's cap and trade program will reduce coal and require more
natural gas and solar power. Thanks to environmentalists, America may finally be
able to reduce its dependence on foreign oil.

As I've already pointed out, the "cap and trade" program is not perfect--the government may end up artificially increasing certain commodity prices by transferring subsidies from coal to other energy sources. Even so, I'd
rather subsidize clean energy than environmentally harmful energy sources.

Owners of Market Vectors Coal ETF (KOL) might want to assess the impact of the cap and trade program very carefully. Although it provides some exposure to Chinese coal companies, all coal companies will remain an uncertain bet as cleaner energy becomes more viable. After all, why would power plants use coal when they can use natural gas? From the EIA:

In the electric power sector, natural gas is an attractive choice for new generating plants because of its relative fuel efficiency and low carbon dioxide intensity. Electricity generation [will account] for 35 percent of the world’s total natural gas consumption in 2030, up from 32 percent in 2006.

You might still be wondering, "Why natural gas? Why not nuclear, wind, or solar companies?" Elementary, my dear Watson--it's the simple process of elimination.

First, America has far more natural gas than petroleum. Many Americans already know we have more natural gas than oil, but I am very surprised to see so many people overestimating cap and trade's foreign policy implications. If you think switching to natural gas will crush foreign regimes, don't kid yourself--the Middle East still has the world's largest supply of natural gas. I am willing to bet that in ten years, Russia and Iran spearhead a new natural gas "OPEC." That's okay--America won't ever be as reliant on natural gas imports as it has been on petroleum imports. In fact, Canada will probably be the largest foreign beneficiary of increased natural gas use.

And with 100 years of natural gas, why not? Oh wait... only 100 years of gas, like the possible 100 years of coal!? Oh shit, we're fucked! Just like in 1913, when a dark cloud loomed over Britain's late 20th century fate...

- Brewskie

Natural Gas Fund Hits 27-Year Record (and Other Stories)

Investors are converging like a black cloud of moths on a light: they see that big gas flare above, and they're sinking their greedy teeth into natural gas.

The United States Natural Gas Fund climbed to a historic, record position in its 27-year history; the last of the shares have been snapped up, and investors are awaiting for government approval for more.

From Bloomberg:

The ETF can’t grow further for now because yesterday it ran out of new shares to issue. The ETF asked the Securities Exchange Commission on June 5 for permission to create 1 billion new shares, and is awaiting approval.

John Heine, spokesman for the SEC, said yesterday the timeline for approval varies from case to case.

The fund fell 1 cent, or 0.1 percent, to $12.17 at 12:43 p.m. It’s down 47 percent this year, while natural gas has fallen 40 percent on the Nymex.

“The size of their position is so big that it creates distortions in the market,” said Olivier Jakob, managing director of PetroMatrix in Switzerland. “And that doesn’t mean it just drives prices up. It can also drive prices down.”

On to other things...

Though there has been interest in converting semis, garbage trucks, buses and fleet vehicles to natural gas, natural gas commuter vehicles in the US remains a niche market. To stimulate interest, tax credits for natural gas vehicles may be doubled and extended:

Tax incentives for buying vehicles fueled by natural gas would be doubled in size and extended for a decade under legislation being introduced by U.S. Senate Majority Leader Harry Reid of Nevada.

The credits, which can be used to cover 80 percent of the added cost to buy natural gas-fueled vehicles over conventional automobiles, would jump to as high as $12,500 for passenger cars and light trucks and as much as $64,000 for higher weight-class vehicles, according to a summary of the legislation.

The bill would also expand and extend tax incentives for purchases of natural gas used as a vehicle fuel and for the installation of refueling stations. The credits were set up as part of a broad energy law passed in 2005 to help secure energy supplies and lower costs, issues that are back in the forefront of Congress following record-high oil and gas prices in 2008.

[...]

Refueling-station tax credits would be doubled to as much as $100,000, according to the Senate bill summary. The legislation also includes a provision that would allow businesses to claim 100 percent of the cost of building a manufacturing facility placed in service before Jan. 1, 2015.

Finally, Israel announced it has discovered more natural gas:

A natural gas reserve off the coast of Haifa is larger than first thought.

The Tamar 2 drilling site is nearly 30 percent larger than previously estimated and could reach 180 billion cubic meters, according to prospect partner Nobel Energy Inc., the Israeli business newspaper Globes reported. The value of the field could reach $30 billion.

The new estimate means the reserve could fill Israel's natural gas needs for about 20 years, according to Globes.

Israel's colossal gas find was initially reported here earlier.


Added: Freightliner Trucks just announced a natural gas-powered to its lineup, Freightliner Business Class M2 112 NG.

The company has said that the Freightliner Business Class M2 112 NG truck is its first natural gas-powered truck. The truck is powered by the Cummins Westport ISL G, an 8.9-liter stoichiometric cooled-exhaust gas recirculation engine.

The Cummins Westport ISL G engine is available in rating up to 320hp. The engine features a maintenance-free exhaust system with a three-way catalyst.

Melissa Clausen, director of product marketing for Freightliner Trucks, said: "The M2 112 is a versatile and hard-working truck, and adding a natural gas option only enhances its efficiency. As part of Daimler Truck's shaping future transportation initiative, we will continue to provide reliable trucks with both economic and environmental benefits."

- Brewskie

India's Gas Profile Rising

China's side-kick Asian tiger, "little" India, is a rising economy seen by many as gaining a thirst for oil similar to the leading, and rising protagonist partner. This picture is an envisioned nightmare to envioronmentalists, who fear one day, this car will multiply as if the Hindu Goddess Parvati herself started birthing these out:

India's not a big oil producer (660,000 bpd), but her natural gas production is demonstrating surprise rise. From Business-Standard:

Consider this: While India’s current oil production is around 660,000 barrels a day, that of gas has touched 676,000 barrels of oil equivalent a day. Reliance Industries Ltd (RIL), which has started pumping natural gas from its deepwater discovery in the Krishna Godavari (KG) basin, alone accounts for around 35 per cent of this. Before production from the D6 oilfield at the KG basin started on April 2 this year, the total gas production was 500,000 barrels of oil equivalent a day, which met only 55 per cent of the country’s demand.

P M S Prasad, RIL’s president, petroleum business, said the company was currently producing around 28 mmscmd, which is approximately 176,000 barrels of oil equivalent a day. “Once gas production from the KG D6 reaches the planned production level of 80 million standard cubic metre a day (mmscmd) — about 528,000 barrels a day of oil equivalent — the total gas production in the country would be about 1.5 times domestic oil production,” Prasad said.

This could still be quite a conservative estimate. Former Director General of Hydrocarbons Avinash Chandra said RIL had made several other discoveries in the
same block and as and when they came on stream, the combined output would be
much higher than 80 mmscmd.

[...]

Coal bed methane production by Great Eastern Energy, Essar and ONGC-CIL in Asansol – Durgapur region in West Bengal and in Jharia will also bring a significant change.

Compare this with the crude oil scenario. The projected increase would come only from Cairn’s oil find in Rajasthan besides the MA field of RIL. Rakesh Jain, general manager (Energy) at Feedback Ventures, said the increase in crude oil production was not keeping pace with the gas output. This is a direct result of ageing oilfields and new discoveries being more in gas than in crude oil though the two are found together.

Official figures prove that. Director General of Hydrocarbons VK Sibal, who heads the country’s oil and gas exploration and production regulatory body, said in the production sharing contract (PSC) regime, 106 discoveries had been made
so far, out of which 43 were oil discovery and 63 gas discoveries. These 106 discoveries did not cover the discoveries made by national oil companies in the
nomination blocks.

Going forward, the share of natural gas in the domestic energy basket would continue to rise. “In 2008-09, gas production at 32.481 bcm (214 million barrels of oil equivalent) in the country was marginally less than the oil production at 33.507 million tonne (245 million barrels). However, with gas from deepwaters in the KG basin by RIL, the gas production in the country is expected to exceed the oil production in the current year, Sibal said.

While these are projections, the actual production is a clear signal to the future scenario. The latest figures released by the ministry of petroleum and natural gas show that during the first two months of the current fiscal, domestic crude oil production stood at 40.3 million barrels, with natural gas production only a tad behind at 5.67 billion cubic metre (bcm), translating into around 37.4 million barrels of oil equivalent.

The sharp rise in natural gas production means that the energy consumption scenario is also expected to see a sea-change. The current share of natural gas in India’s total primary energy consumption is currently only 8-9 per cent
compared to the global average of 24 per cent. Prasad cited analyst reports to say that RIL’s 80 mmscmd of gas could lead to 3 per cent savings in India’s import bill.

Analysts said with the country importing 70 per cent of its crude oil requirement of about 100 million tonne, increased production of natural gas would obviously see a change in the user pattern, especially among industrial users. A case in point is the switchover seen in the fertiliser sector. Following the availability of gas from D6, fertiliser companies moved from naphtha, a refinery product derived from crude oil, to natural gas.

- Brewskie

Exxon Mobil's Shiny New Gas Facilities

This is an article about some new gas production facilities Exxon Mobil has:

Tuesday, dozens of Western Slope business and government leaders toured Exxon Mobile's new facilities to learn more about how the company operates. The new facilities are located between Rifle and Meeker on County Road 5.

Exxon Mobil has started using a new Central Treating Facility that can process 200 million cubic feet of natural gas per day. That's four times what their old facility could handle.

[...]

At the processing facility, carbon dioxide and water are removed from the gas. This is the first step in the process of getting the gas pipeline ready.

Exxon Mobile has 6 to 7 rigs working right now. The new facility will allow the company to move that natural gas from the ground to the pipeline faster.

[...]

Exxon Mobile says some of the new technology it uses also helps the company reduce it's environmental impact.

For example, rigs can drill 9 to 10 wells on a single pad. This cuts down on the number of pads being built in the area, reduces traffic and means crews will be on the land for a shorter amount of time.

- Brewskie

No Need for Arctic Gas; Alberta in Trouble?

Several posted articles postulated that shale gas may wipe out the need for gas from Alaska's North Slope, or from Canada's frigid Mackenzie Valley; a post from canada.com confirms the same:

Abundant cheap supplies of natural gas from new shale deposits, plus growing imports of liquefied natural gas flowing into the United States, push back by 15 years the need for Arctic gas and make it difficult for higher-cost gas from Western Canada to compete, says pipeline executive Steve Letwin.

The North American natural gas industry is "overbuilt," pointing to weak prices for a long time, said Mr. Letwin, Houston-based executive vice-president, gas transportation and international, at Canadian pipeline giant Enbridge Inc.

Years of worry about supply shortages because of the maturing of conventional supplies have been replaced by worries there aren't enough customers for the 1,200 trillion cubic feet of natural gas in shale deposits -- enough to last a century -- found in the past three years, plus liquefied natural gas coming from offshore that is "needed like a hole in the head," Mr. Letwin said in an interview.

"The biggest issue that we now have is [insufficient] demand," said Mr. Letwin. "And in the absence of demand, you are going to see a price for gas that is going to be kept between US$5 and US$7 for a long time to come."

[...]

Shale producers in the United States can make money at low prices, he said. But the trend is not promising for natural gas stranded in the Arctic, which has
been waiting for decades for pipelines to be built so it can be commercialized.

Another canada.com post speculates that America's shale gas resources may hurt Alberta's
fiances, of which has been a producer of gas exported to the US:

Major shale gas discoveries in the southern United States are threatening the financial lifeblood of Alberta: the royalties the province collects from natural gas, Premier Ed Stelmach says.

[...]

Energy companies aren't drilling in Alberta because of the new finds and a ``very, very depressed gas market right across North America,'' the premier explained.

He said the major new finds, including some estimated at a trillion cubic feet in Louisiana and Texas, are much closer to the market than Alberta ``and these are serious consequences for the revenue side in government.''

Stelmach couldn't say how much of an impact there will be on provincial revenues in terms of a dollar amount, but said ``royalties are at least a good third of our revenue stream.''

- Brewskie

Fat Bears Not Leaving Gas

I found this amusing Seeking Alpha piece on America's natural gas situation:

Natural gas prices stayed remarkably strong this week, despite two very bearish developments. This is actually bullish, when a market won’t go down on bad news. Yet I still think this downturn in natural gas prices could be longer than people think. I am not buying natural gas stocks right now.

The bearish points this week were:

1) An injection into storage this week of 114 bcf, the fourth week in a row of 100 bcf + injections. (I don’t think this has ever happened before.) Expectations were for 105 bcf, and almost double last year’s injection for the same week.

2) The rig counts in North America turned slightly higher this week, for the first time in 2009. In the regular Friday report from Baker Hughes, US gas rigs were up 6 over last week, and horizontal rigs were up 20 - which deliver a lot more gas than verticals. Canadian rigs had a much bigger percentage jump, up 35 to 143. About 66% of all rigs in Canada drill for gas (though this number is surely going lower). Of course, these numbers all half of what they were a year ago.

[...]

I think there are a couple points that could prolong this natural gas price downturn longer than people think:

1. Banks did not dramatically cut back on credit lines for the producers this year, despite a big drop in gas prices. So even though a natural gas producer was operating close to its debt limit, it wasn’t forced to make the tough choices to survive. This painful process of keeping alive a dying patient will now be drawn out longer than normal.

2. New junior companies cannot get financed. So when two or more companies merge, one management team is out of a job. And in this market, they won’t get a new one. So management has no incentive to sell or merge.

3. The banks are saying - I have two sick patients, each having 80% of their debt drawn, and they want to create one larger sick patient with 80% of its debt drawn….no thanks.

4. Most junior and perhaps even some intermediate companies are receiving very little cash flow right now and still have some fixed costs - like regular interests payments on their debt…even a little cash flow is better than none. So I think they will be hesitant to turn off the tap, no matter how the small the drip.

5. And again, LNG is a wild card. If Asian demand doesn’t pick up soon, the global fleet could be coming to North America and keeping prices here suppressed.

- Brewskie

Palin's Pipe Dream: R.I.P?

Alaska Govonor Sarah Palin has made the Alaska Natural Gas Pipeline a centerpiece to her political ambitions. However, with America practically overdosing on shale gas and plenty more in tow, the question begs: do we really need to squander billions building the pipeline?

No so, claims T. Boone Pickens. Pickens believes with practically an unlimited supply (for a long time anyway) of shale gas here in the continental US, he feels America is better fit drilling closer to home vs. piping afar.

Read below:

Billionaire oil investor T. Boone Pickens said on Wednesday he doubts a $26 billion natural gas pipeline from Alaska will be built any time soon as abundant new shale gas supplies reduce the need for the expensive project.

Pickens, who is promoting a plan to boost investment in wind power and natural gas to cut U.S. oil imports, said at a Calgary appearance that he sees little need for Alaskan gas given massive shale gas discoveries in the Barnett shale play in Texas and elsewhere.

"All the proven gas on the Arctic coast is 39 (trillion cubic feet). That's not as much as you have in the Barnett shale," Pickens said at a Calgary speech. "I don't think a pipeline from Alaska through Canada to the lower-48 makes sense."

[...]

Still, with the Barnett shale containing as much as 50 trillion cubic feet of gas, and new plays in Louisiana, Arkansas, Pennsylvania, British Columbia and elsewhere showing the potential to be even bigger, the need for an Alaska line is questionable, Pickens said.

"I don't think that pipeline gets built right now," he said. "I don't think the pipeline will be built for 10 to 15 years."

Added: It appears Alaska isn't the only place with dreams "going up in smoke;" Canada's Mackenzie Valley Pipeline also appears to be uncertain. Because of why?

The emergence in the last couple of years of large new deposits of shale gas close to major markets is seen as the latest stumbling block for Arctic resource development, although Mr. Sykes said natural gas in the Mackenzie Delta is competitive with most shale plays in North America.

- Brewskie

PA to Force Companies to Expose More Gas Data

In a follow-up to a previous story, the Pennsylvania Senate passed a bill that will ensure gas companies drilling the Marcellus Shale will disclose data publicly. The aim of this is to use production results, and encourage other companies to ponder the Marcellus (link).

A bill that would require faster disclosure about production results from wells drilled on the potentially lucrative Marcellus Shale gas formation in Pennsylvania is on the move.

The state Senate on Monday passed the bill unanimously and sent it to the House of
Representatives for consideration.

Under the bill, companies would have to report well-specific production to the state twice a year. Those reports would then be made public.

Current law prevents the state from releasing that data for five years, putting Pennsylvania out of step with the nation's biggest gas-producing states.

Advocates of the bill say revealing the information sooner will assure people that the industry is above-board and encourage other drilling companies to invest in Pennsylvania.

- Brewskie

Some Natural Gas Developments

Here's some news on natural gas that I've consolidated into one post.

First, we all know natural gas is cheap. Some people swear if I keep bringing this up, they're going to use me to cap off a retired oil well. But did you know it's the cheapest compared to oil since '92?

This year’s 31 percent decline in natural gas made it the worst performing commodity and the cheapest next to oil since the fall of the Soviet Union. That’s about to change, if history is any guide.

Natural gas lost 72 percent in 11 months as the U.S. fell into the deepest recession in 50 years and drillers failed to idle rigs fast enough to control inventories. Stockpiles are 22 percent larger than the five-year average, the Energy Department said. Oil costs 18 times more than gas, the biggest gap since 1992, when the collapse of communism cut supplies from Russia, according to data compiled by Bloomberg News.

The EIA sees total US gas consumption falling 2.2% this year:

The U.S. Energy Information Administration on Tuesday expects natural gas prices to remain below $4 a thousand cubic feet until late this year amid robust supplies and weaker demand resulting from the economic downturn.

Industrial gas consumption is forecast to decline by 8% this year, unchanged from last month's forecasted decrease, according to the EIA's Short-Term Energy Outlook.

Major industrial gas consumers, including companies in the fertilizer, chemicals and aluminum industries, have curbed gas use and cut spending.

Total natural gas consumption is expected to fall 2.2% in 2009 amid the ongoing economic downturn and increase slightly in 2010, said the EIA, the statistical arm of the U.S. Energy Department. The EIA had previously forecast a 1.9% drop in 2009.

U.S. marketed natural gas production is expected to fall 1.1% in 2009 and slip 2.6% in 2010 following a widespread pullback in drilling activity. Producers such as Chesapeake Energy Corp. (CHK), Devon Energy Corp. (HK) and SandRidge Energy (SD) have scaled back spending amid falling commodity prices. The companies idled rigs and trimmed production forecasts to cope with lower gas prices and stem the flow of gas into the marketplace.

[...]

Liquefied natural gas imports to the U.S. are expected to rise to 495 billion cubic feet in 2009, up from the 352 billion cubic feet received last year, as new global LNG production capacity comes on line worldwide.

Natural gas prices at the benchmark Henry Hub are expected to average $4.13 a thousand cubic feet in 2009 and 5.49 a thousand cubic feet in 2010, slightly higher than the previous forecast and down from an average $9.13 a thousand cubic feet in 2008, the EIA said.

Finally, with North Slope oil production dribbling close to a trickle, the long-awaited dream of building a natural gas pipeline to sap out Alaska's huge natural gas reserves and pipe it down to the lower-48 may be coming closer to fruition (assuming Governor Palin doesn't ditz this up):

Key U.S. lawmakers have reached a deal on legislation that would boost the federal government's loan guarantee for building a massive pipeline that would transport Alaska's huge natural gas reserves to the lower 48 States.

Senate Energy and Natural Resources Committee Democratic chairman Jeff Bingaman and top panel Republican Lisa Murkowski have agreed to a measure that would raise the 2004 loan guarantee program for the pipeline project to $30 billion from $18 billion.

TransCanada Corp (TRP.TO) received a state license in December to build a $26 billion pipeline from Alaska to a pipeline hub in Alberta. North Slope Gas producers BP Plc (BP.L) and ConocoPhillips (COP.N) have also proposed an Alaskan gas line project, however.Either project would be eligible for the Senate measure, which also clarifies that the federal government will step in and repay loans for up to 80 percent of the cost of the total project if the pipeline's owners default on the financing.

[...]

Since the 1970s government officials and industry groups have sought to construct a pipeline that would be used to ship the North Slope's known natural gas reserves of 35 trillion cubic feet.

- Brewskie

Sudan Rocks Huge Gas Find

Sudan reported it nailed a monster gas find:

White Nile Petroleum Operating Co., or WNPOC, has discovered significant amounts of dry, non-associated natural gas in onshore block eight, the company's Vice President Ali Faroug Abbas said Monday.

"We discovered gas in two wells -- Hosan and Tawakul -- in block eight," Abbas told Zawya Dow Jones in an exclusive interview in Abu Dhabi."Our plan now is to explore for more gas and oil in this block, and to commercialize it," Abbas said.

WNPOC, in which Sudan National Petroleum Corp., or Sudapet, and Malaysia's Petroliam Nasional Berhad, or Petronas, each own 50%, made a 108 billion cubic feet discovery in the block in March. In November, the company found 15 billion cubic feet of gas reserves at Hosan, Abbas said.

"We are hopeful we will find more gas in block eight. The potential (after initial tests) is for 16 trillion to 20 trillion cubic feet," he added.

[...]

So far, the only other gas discovery in Sudan was made in 2005 by Petroenergy E&P, which is a joint venture between Sudapet and China National Petroleum Corp., or CNPC, in block six. The gas will be used to fire a 400 megawatt power plant in the area.

- Brewskie

Drum Goonies Stooged on Shale Gas

(Another long one, girls. Grab a nightcap - it will be worth it:))

The lunar space goats of the Oil Drum fired this ballistic warhead into orbit back in 2006:

The scud missile erratically pierced through the lower-stratosphere, trailed by this sooty sky-writing about N America's natural gas production: “Doesn't this graph just chill you?”

This scary infection - perhaps - largely started from one source: the two-headed peak swine of Matthew Simmons and Mike Ruppert, who, in a conversation back in 2003, crooped about an impending natural gas shortage for the US, predicting a “natural gas crisis in two years,” warning that America’s natural gas production was about to “fall off a cliff.”

This peak gas influenza quickly metastasized into the fanatic, screaming lungs of practically every high peak priest, including:

Richard Heinberg,

James Kunstler,

LATOC,

Mobjectivist,

Dieoff.org

You get the picture...

Now personally, when I first heard this - way before shale gas become prevalent - I though this was the biggest cargo ship full of horse shit rotting up the port: “We’ll just buy gas from somewhere else,” says your average common sense genius; and it turns out America HAD embarked on the construction of LNG import terminals (and had a number in place), plus America was already well suited to handle vast amounts of imported natural gas.

But then came 2008 - word of shale gas started leakin’. Where was the Oil Drum on this? They had this to say:

But until some solid, repeatable well data emerges, the Haynesville will remain more diamond in the rough than diamond ring.

[...]

So there you have a brief explanation of how the new technology is slowing, though it won’t stop, the declining gas reserve in the United States

This was posted April 10, 2008 - right when America was experiencing a near-9% increase in natural gas production, the biggest increase since the late-1950s! While America was tootin’ dimethyl sulfide, the peak herd was swattin’ their fly encrusted asses in the doomer feedlot, percolating their Oreo pupils on doomer feed pumped with $100+ oil PGH. Tasty!

Finally, during September of last year, when the main stream media was catching a whiff, the Drum ‘fessed up:

Navigant Consulting Inc (NCI) recently prepared a report called North American Natural Gas Supply Assessment on behalf of a natural gas organization called the American Clean Skies Foundation. In this report, NCI estimates the amounts shale gas and tight gas production can be increased in the next decade. These estimates suggest that US natural gas production can be ramped up by nearly 50% by 2020. How reasonable are these estimates?

[...]

My analysis indicates that NCI is correct in some respects. There is indeed a great deal of unconventional natural gas resources in the United States, and recent improvements in technology point to the possibility of significantly greater production.

[...]

EIA has recently reported a big increase in US natural gas production (8.8%, comparing the first five months of 2008 with the first five months of 2007). Some have suggested that the EIA numbers must be wrong. It seems to me
that what we may be seeing is the effect of a recent technological
breakthrough.

No, Drum geeks, this wasn't a technological breakthrough we witnessed - it was a psychological breakthrough(!): you demonstrated to the world that you, like your fellow peak diaper-changing neanderthals, DO NOT demonstrate a clear-headed understanding of technology! Now we have a massive, gaseous gas glut - something I gave a heads up months ago.

Of course the diehard peak Rambos always have a standard fallback to everything in every forum: “But shale gas is expensive; it’s EROEI is too low to make sense for America’s long-term energy future… the wells have a short shelf-life. Blah, blah, blah…”

While it’s true shale gas will remain more costly than conventional gas production, I’ve been arguing for some time that as the industry comes to better understand shale gas formations plus effective production techniques, the production costs will decline, production will go up, and it will become more efficient. I’ve argued this before on the Oil Drum; naturally, my comments were deleted (they do that?), so call my a liar. But while the peakers are bitching, people out in the field are working hard:

"There will be many Barnetts," according to Robert Aquilera, one of the world's most foremost experts on tight gas engineering. What else does Robert say on shale gas's price prospect? Here's an excerpt from his interview with Energy Tribune (click the "many Barnetts" link):

ET: Speaking of prices, what is a sustainable price for natural gas? I ask because I’ve heard some producers insist that shale gas wouldn’t be profitable when prices are under $8. Now, I’m hearing $5. What’s your take on the relationship between the relatively high cost of drilling for tight gas and the market price which has been so volatile lately?

RA: My take is that $5 to $6 will work in most cases and will make most shale plays competitive.

In other shale gas related news...

Petrohawk's record-setting shale gas wells

Shale gas expected to meet half of N America's needs by 2020.

Plenty of foreign interest in shale gas, including China, Europe (here, here, here), Canada (here, here).

Despite scale-backs in US gas drilling, Chesapeake Energy is ADDING rigs to drill the Haynesville Shale, Barnett drilling is holding steady.

Haynesville poised to become the world's largest gas field by 2020.

Haynesville profitable at $5 per mcf, $4 per mcf.

And so on…

Remember - shale gas production is in its infancy. The Drum's wise peak blowhards - who, along with the other peak priests, foretold an impending gas shortage in the US years in advance - discounted shale gas right when the dimethyl sulfide was leaking up right under their noses!! I've runned this point into the ground, but it's this - along with the peak oil community's many blunders - is why the Drum cannot be taken seriously.

Anywho, for a short recap of the past few years, here’s a graph. Guess who turned out right? (I would have a better graph, but Blogger didn't like my Adobe pick for some reason. I'll get a better one up when I can.)



- Brewskie

Pass the Gas-X, Please; Supply Bump Expected

The Energy Department is expecting another jump in US natural gas reserves:

The Energy Department will likely report a 108 billion- to 113 billion-cubic foot jump in natural gas reserves on Thursday for the week ended May 22, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

[...]

A reading above or below estimates can influence market trading.

Last Thursday, the EIA said natural gas inventories held in underground storage in the lower 48 states rose by 103 billion cubic feet to about 2.12 trillion cubic feet for the week ended May 15.

- Brewskie