Natural Gas

With a lot of fanfare, Sempra Energy’s  Energía Costa Azul LNG receiving terminal in Baja California, Mexico, has been dedicated and entered the history books as the first LNG receipt facility on the West Coast of North America. On hand were Mexican President Felipe Calderón and Sempra chief executive Donald E. Felsinger.

In operation since May 2008, the $975 million LNG receipt terminal is capable of processing up to 1 billion cubic feet per day of natural gas. At the peak of construction, the project employed more than 3,000 workers.

“Over the past decade Sempra Energy has invested about $2 billion in Mexico’s natural gas infrastructure and has worked with elected leaders, regulators and the citizens of Mexico in building new energy infrastructure for the Baja California region,” Felsinger said. “We welcome President Calderón to today’s historic dedication of Energía Costa Azul and look forward to continued cooperation with Mexico on future energy projects that address the region’s needs.”

Energía Costa Azul’s first LNG cargoes arrived in April and May 2008.

Felsinger says the terminal is already fully contracted. He explained that half of the storage and send-out service has been procured by Shell International Gas Ltd. under a 20-year agreement. The remaining half of the capacity will be supplied from a new liquefaction facility BP and its Tangguh LNG Partners are completing in Indonesia. Shipments from BP should begin arriving in the second quarter of 2009.

The gas processed at Energía Costa Azul will be used in Baja California and the U.S. Southwest. Natural gas from the terminal will meet both Mexico and U.S. gas pipeline quality standards. One of the key markets the gas will be flowing to will be California.

For California, the Sempra project is a way out of sticky situation. Everyone in official circles will tell anyone will listen that the state needs more supplies of gas to keep its incredible economy moving. But, they will also say they do not want any new drilling off their shore and want restricted drilling on state lands. This way, they get the gas they need and can still stand tall in saying they stood by their convictions.

In addition to the new Energía Costa Azul LNG receipt terminal, Sempra Energy projects in Baja California, Mexico, include: Termoeléctrica de Mexicali, a clean, efficient 625-megawatt natural gas fired power plant in Mexicali; natural gas distribution companies in Mexicali, Chihuahua and La Laguna-Durango that serve about 100,000 customers; and natural gas transmission pipelines.

Stay tuned: More to come. The issue of LNG receiving terminals is a very hot-button issue in California anytime, and in the rest of the nation now thanks to the presidential campaign where energy will become, if not the big issue, then one of the top three.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

Dallas-based Synfuels International has been awarded a patent by the federal government for Process for Liquid Phase Hydrogenation. The technology, discovered at Texas A&M University and commercialized by Synfuels International, is the key to converting gas to ethylene and gasoline.

“The critical and unique component of the Synfuels gas to ethylene and gas to liquids processes which gives Synfuels its economic advantage is our Liquid Phase Hydrogenation,” says Synfuels International president Tom Rolfe. “No one else in the world comes close to the elegance of our design and the efficiency of its operation. We could not be more pleased that we have received this patent which both recognizes and protects our unique design.”

Synfuels processes are designed to be located upstream, in the field where gas can be converted efficiently, at its source, into an easily transportable gasoline product or an ethylene-based product.

The process produces roughly one barrel of gasoline for every 10,000 cubic feet of natural gas. It’s not economic for gas close to a market where it’s worth $11.53 per thousand cubic feet. But it will make economic sense for gas in remote oil fields, where the gas liquids can be mixed with oil and shipped in the same pipeline.

Synfuels has a pilot plant in Bryan, Texas, busy converting gas to gasoline.

Stay tuned. There is more in store with this story. It does represent a major step forward for the gas industry.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

“Numb’s the word.”

That’s the forecast for the upcoming winter season by the 192-year-old Farmers’ Almanac. In its latest forecast, the venerable publication is predicting colder temperatures than normal for most of the U.S. For the natural gas industry, that could mean an increase strain on supply as power companies work to keep the country warm — and with that, a possible upward trend in gas prices.

According to the Energy Information Administration, the Henry Hub natural gas spot price averaged $7.17 per thousand cubic feet in 2007 and is expected to average $10 per Mcf in 2008 and $9 per Mcf in 2009.

Residential heating oil prices during the upcoming heating season (October though March) are projected to average $4.34 per gallon compared with $3.31 during the last heating season, an increase of about 31%. Residential natural gas prices over the same period are projected to average $15.58 per Mcf compared with $12.72 per Mcf, during the last heating season, an increase of about 22%.

Almanac editor Peter Geiger says at least two-thirds of the country can expect colder-than-average temperatures this winter, with only the Far West and Southeast in line for near-normal readings.

“This is going to be catastrophic for millions of people,” Geiger says. The almanac claims an 80% to 85% accuracy rating in its forecasts.

The usually wet Pacific Northwest could be a bit drier than normal in February.

Looking ahead to summer, the almanac foresees near-normal temperatures in most places. But much of the Southwest should prepare for unusually hot weather in June and July, while Florida, Georgia and the Carolinas will get oppressive July heat and humidity.

And of course, what would a forecast for the upcoming winter be without a little controversy.

The National Weather Service’s trends-based outlook calls for warmer than normal weather this winter over much of the country, including Alaska, said Ed O’Lenic, chief of the operations branch at NOAA’s Climate Prediction Center. The almanac and the weather service are in sync, however, in pointing to a chance of a drier winter in the Northwest.

Who to believe?

Stay tuned. More to come. The best for the upcoming winter–hope for the best and prepare for the worst. The news is filled with people recommending folks begin saving money now so they can pay their utility bills in the dead of winter. There’s no easy answers to this one.

Just be prepared.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

“The brain size of whales is much larger than that of humans. Their cerebral cortexes are as convoluted. They are at least as social as humans. Anthropologists believe that the development of human intelligence has been critically dependent upon these three factors: brain volume, brain convolutions, and social interactions among individuals. Here we find a class of animals where the three conditions leading to human intelligence may be exceeded, and in some cases greatly exceeded.

The Cetacea hold an important lesson for us. The lesson is not about whales and dolphins, but about ourselves. There is at least moderately convincing evidence that there is another class of intelligent beings on Earth beside ourselves. They have behaved benignly and in many cases affectionately towards us. We have systematically slaughtered them. Little reverence for life is evident in the whaling industry - underscoring a deep human failing…In warfare, man against man, it is common for each side to dehumanize the other so that there will be none of the natural misgivings that a human being has at slaughtering another…”
Carl Sagan,

After a six-year, $9.3-million study, a coalition of governmental and academic researchers have revealed that the Gulf of Mexico is home to a unique species of Sperm Whale–and they also determined that the whales seem to be existing rather peacefully with an ever-growing E&P industry. The whales did not to seem to mind seismic activity that was several kilometers away.

The study also showed that these sperm whales don’t migrate–they stay in the Gulf year-round and were found in family groups of 10 or so.

A lot of folks expressed surprise that the Gulf would be home to these incredible creatures. But they shouldn’t be.

According to several studies by the federal Minerals Management Service, the Gulf is home to a number of well-known and some lesser-known whales and dolphins.  All cetacean species are legally protected.  The U.S. passed the Marine Mammal Protection Act that protects all marine mammals–whales, dolphins, manatees and seals–from hunting and any activities that might harm them. Additional protections were added under the Endangered Species Act.

The upshot–all cetaceans are protected.

Besides the sperm whales, which according to the latest study, seem to be a little smaller than their other-ocean cousins, here are some of the whales and dolphins that have been spotted in the Gulf: humpback whales, Bryde’s whale, Orca (a pod of Orcas made the news several summers ago when they were spotted taking a leisurely swim off the Texas coast), Melon-headed whales, short-finned pilot whale, pantropical spotted dolphin, Clymene dolphin, spinner dolphin, bottlenose dolphin, striped dolphin, Atlantic spotted dolphin, Risso’s dolphins and the rough-toothed dolphin.

The study was refreshing in that it proved once more how great Nature is. We are neighbors to a unique species of sperm whale that calls the Gulf home–let’s hope that we are good neighbors.

Stay tuned. More to come. The Gulf is continuing to surprise everyone with the incredible richness and diversity of life that is being found. I imagine, actually I hope, there are more surprises waiting for us.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

There’s some great news for beer drinkers–especially those who are worried about the environment. And it’s really good for those who enjoy German beers and the province of Bavaria is home to some of the best.

World Brews has partnered with Bavaria (not to be confused with the province), one of Europe’s most energy efficient breweries, to be the exclusive US importer of its award-winning portfolio of beers that includes Bavaria, Bavaria Light, and Hollandia. Sounds great, but that’s not the whole story.

Bavaria is an independent family-owned company that has been continuously owned and operated by the Swinkels family, which is now in their seventh generation of brewing. In the 1980s, Bavaria began making significant capital investments to reduce its impact on the environment. In 1995, former CEO, Peter Swinkels, began actively promoting “green” sustainability at Bavaria.

Some of the ways the company has gone green:

Every year about 1 million cubic meters (m3) of methane gas are generated as a natural by-product of the waste water purification process. This gas is captured and used to produce steam and electricity and to fuel the combined heat power unit. The captured methane provides 10% of the brewery’s energy needs. The unit also stores excess energy that is later used for malting, brewing and packaging. In 2006, Bavaria implemented a new step in the brewing process that uses a vacuum to save up to 700,000 m3 of natural gas.

The carbon dioxide that is released during the beer fermentation process is captured and reused in the bottling and packaging department, rather than released into the atmosphere as a greenhouse gas. It is also sold on the open market.

Stay tuned. More to come. World Brews and Bavaria are just a couple of a very long and growing list on companies around the world that are going green. So, sit back and enjoy a good Bavarian beer and salute these two companies that are setting an example for beer lovers worldwide.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

The Federal Energy Regulatory Commission has given the green light to Tulsa-based Williams to expand its Transco gas pipeline to serve the energy-hungry northeastern U.S.

The Sentinel expansion project is designed to increase Transco’s firm transportation capacity by 142,000 dekatherms a day, according to Phil Wright, president of Williams’ gas pipeline business. He adds that Phase 1 of the expansion will provide 40,000 dekatherms a day as early as Nov. 1, while Phase 2 will provide the remaining 102,000 dekatherms per day a year later on Nov. 1, 2009.

“We appreciate the efforts of the FERC and other state and federal agencies in reviewing this application,” Wright says. “We are committed to continuing to work with the FERC, state and county permitting agencies and all of the stakeholders involved, to construct this project in a safe, responsible manner so that we can provide much-needed incremental natural gas capacity to tis part of the country.”

The project calls for adding or replacing about 18 miles of pipe at different locations in Pennsylvania and New Jersey, as well as modifying Transco Station 195 in Delta, Pa.

The Transco pipeline is a 10,500-mile system. This expansion will increase the total system capacity of the Transco line to about 8.3 billion cubic feet per day.

Stay tuned. More to come. The race to get more pipe in the ground is heating up as companies rush to get new supplies coming online to the major markets. Their challenges: rising cost of steel for pipes, a lack of resources, a lack of trained welders specializing in welding pipe to name just a couple. Watch the race heat up over the next few weeks and months.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

Brazil has joined Canada and Russia in openly declaring it is beefing up its military to protect offshore energy reserves. The Brazilians have taken it one step further — they are in the process of acquiring the technology from France to build a nuclear-powered submarine.

In an address to Brazilian lawmakers recently, Defense Minister Nelson Jobim said the county would use its nuclear submarine to defend its natural resources when it is built. He also told the lawmakers the nation is adding up to 50 warships to its fleet. And, Jobim said the nation is filing a claim with the United Nations to extend its territorial waters from the currently recognized 250-mile zone to 350 miles.

Included in that list are 27 new ocean-going patrol boats that will be tasked with defending the oilfields. Two of these vessels have already been delivered and five more are on order.

They are joining the Canadians who have started a multi-billion dollar building plan for a Northern Fleet to patrol the Northwest Passage. The Russians recently said they would be staging some of the largest wargames their nation has held since the collapse of the Soviet Union in the Arctic region with one purpose–to seize and hold the energy-rich frontier region. It’s not known if the current situation in Georgia will delay their plans.

For the Brazilians, their eyes are on a development of a field discovered by Petrobras that could hold as much as 5 billion to 8 billion barrels of oil. If event he conservative estimates are correct, this would be one of the largest energy discoveries in the past 20 years.

To show they really mean business, the Brazilian armed forces will hold Operation Atlantic from Sept. 12-26. This wargame will including 20 surface warships, several conventional submarines, 9,000 ground troops and up to 50 aircraft. The cost of this little show-and-tell: $12.3 million.

Stay tuned. More to come. As the cost of oil and gas continues to stay fairly high, even counting on the current drop in oil prices, expect more nations to use the military option to defend their natural resources.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

Based in Bowling Green, Ky., Allied Energy Inc. is continuing to beef up its infrastructure. The latest move is a new gas transmission sales line in Rogers County, Oklahoma.

The company has already prepared 3,800 feet of the total 8,500-foot gas line that is needed to connect Allied Energy’s Hickory Hollow and Cherokee leaseholds and begin selling gas from its southern fields in Rogers County.

“Ultimately, in the future, we plan to potentially have as many as 65 wells contributing  gas and or oil from our tw southern fields combined. These include wells drilled by Allied, existing producers and previously shut-in wells that have been or will be reworked or recompleted for production in the future,” says Allied president Steven Stengell.

Stengell says that for the short-term–the next six to nine months of production coming online–the company plans to equip the Cherokee production facility to up to 1.5 million cubic feet of gas per day. Right now, the company believes that 1.5 million cubic feet of gas per day is a reasonable future target estimate with an additional target estimate of 50 - 100 barrels of oil per day in the future coming from the existing oil producers, wells currently in completion and wells to be drilled this year and next in its southern fields.

The company has about 6,000 acres under lease, more than 60 wells under development and 18 wells yet to be drilled and its gas line transmission system and sales line in Rogers County.

Stay tuned. More to come. Expect more projects like this from a lot of other companies as everyone races to connect their supplies and reserves to lines to take the gas to market.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

The Canadian government has given the environmental green light for Newfoundland LNG Ltd. on its quest to build an LNG receiving terminal in Newfoundland.

The terminal–which carries a price tag of US$1.4 billion–will be located on Placentia Bay, near Harvest Energy Trust’s Come by Chance refinery, the Whiffen Head transshipment facility and the Bull Arm fabrication yard.

As planned, the facility would consist of a three-berth wharf, a tugboat basin and eight storage tanks with a capacity of 160,000 cubic meters.

According to earlier statements by Newfoundland LNG, the terminal could be operational by 2010.

Stay tuned. More to come. It’s pretty safe to say the North American LNG industry is in a state of flux–with greens hardening their stance against new facilities along the U.S. East and West coasts and even along the Gulf Coast and Canadian developers looking at a gas-hungry market in the U.S. North.

–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com

In the not-to-distant future, you might find yourself driving into your neighborhood filling station and topping the tanks off with natural gas — yes, natural gas. Efforts have started to make this scenario into reality — as quickly as possible.

Seal Beach, Calif.-based Clean Energy Fuels Group has joined a coalition to help fund and launch a natural gas-powered vehicle made in the U.S. for the nation’s taxi and paratransit fleets. Clean Energy Fuels has put up $10 million in a $160-million equity financing led by Perseus LLC, a merchant bank and private equity fund management company.

Clean Energy Fuels’ efforts don’t seem so strange when you realize that the co-founder is Texas oilman T. Boone Pickens. In a separate move, Pickens added another $10 million to the pot.

The money will be use by The Vehicle Protection Group LLC, the company that will make the multi-purpose vehicle.

“We are making this strategic investment to help bring new, efficient, clean natural gas vehicles to the market in the United States,” says Clean Energy Fuels chief executive Andrew Littlefair. “Demand for natural gas vehicles is surging, particularly with the high cost of petroleum fuel and the savings to be gained by using natural gas fuel.”

Pickens has been a larger-than-life support of alternative energy to cut the nation’s dependence on foreign fuels. He envisions a chain of wind farms stretching from the U.S.-Canadian border to the Texas Panhandle. These wind farms will be used to generate electricity–freeing up natural gas that can, instead, be used as a transportation fuel.

The first vehicles, which will be able to seat four passengers with additional space for a wheelchair or scooter, are expected to begin making their appearance by 2010.

Stay tuned. More to come. Pickens is a man on a mission who believes in his cause and has shown his almost tireless ability to support the cause of energy independence for the U.S.
–John A. Sullivan, News Editor, Oil and Gas Investor, www.OilandGasInvestor.com, jsullivan@hartenergy.com