Natural Gas

John Podesta is President-elect Obama’s transition chief. During a recent TV interview he aid the incoming president will probably look at reversing an executive order by President Bush that allows drilling for oil and gas in Utah.

Before the ink on the newspapers reporting his comments was even dry, the greens in the U.S. have come together with a very long laundry list of areas they don’t want to see any, or may just limited, E&P operations in.

In addition to Utah, the greens want Obama to reconsider allowing drilling in the Chukchi and Beaufort seas off Alaska, New Mexico and a very large part of Colorado.

And of course, the greens also brought up the fact that Bush lifted the executive order banning E&P off the East and West coasts. They didn’t bring up the fact that Congress let the congressional ban die without debate–mainly because more than 60% of Americans want to know why Congress forces the nation to continue to depend on foreign energy sources while refusing to allow drilling here at home.

The House of Representatives did pass an energy bill that allows offshore drilling 50 miles from the East and West coasts if the states involved allow it and completely open up areas 100 miles of the coast to E&P operations.

This has created a paradox–Congress continues to clamor for energy independence, but tie the hands of the industry that could come close to achieving that goal–the U.S. energy industry. And by continually saying “energy independence,” they continue the myth, says Gary P. Luquette, president of Chevron North America Exploration and Production Co. The correct phrase is energy security, he says.

In a recent presentation at the Houston Petroleum Club, Luquette said, “I say energy security because energy independence is a myth,” Luquette says. “It is a myth and it is not going to happen.” He says the U.S. will always have to import some energy from foreign sources, and that shutting off the OCS will only increase the nation’s dependency.

The new president and members of Congress are leaning towards boosting alternative energy sources such as tidal, solar, geothermal and wind–and that’s good. But what is not being said is that this conversion cannot be done overnight and the two fuels the nation will need until the infrastructure is built to sustain alternative energy developments will be oil and natural gas.

Stay tuned. More to come. Expect the greens to continue piling on the list of places they do not want to see drilling and expect Congress to continue saying “energy independence” at the same time. The next few years will be, if anything, very interesting.

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

El Paso Corp. reports that the California Public Utilities Commission has unanimously given final approval to Pacific Gas and Electric Co. to proceed with an agreement announced last year to obtain 375,000 dekatherms per day of capacity on the Ruby Pipeline for the delivery of natural gas to PG&E’s gas and electric customer.

CPUC’s approval of this “anchor” shipping agreement paves the way for El Paso to move forward with the approximately 680-mile interstate natural gas pipeline that will extend from the Opal Hub in Wyoming to a pipeline interconnect at Malin, Oregon, near California’s northern border.

“We are very pleased with this decision by the California Public Utilities Commission,” says Jim Cleary, president of El Paso’s Western Pipelines. “This was an important milestone in keeping Ruby Pipeline on schedule to provide a much needed outlet for an increasing amount of Rocky Mountain natural gas production as well as improved supply diversity for the Western United States. With this approval, Ruby remains on schedule for a planned first quarter of 2011 in-service date.”

In granting its approval, the CPUC agreed that Ruby will serve the public interest by enhancing competition, increasing reliability, and promoting gas supply diversity. In addition, the CPUC decision cited lower gas commodity and transportation costs, a reduction in environmental impacts, and favorable rates for consumers. Next, Ruby will file with the Federal Energy Regulatory Commission in January 2009 for necessary federal approvals.

Stay tuned. More to come. The race is on to open as much capacity as possible to get natural gas from the producing fields to the necessary markets.

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

Despite setbacks caused by Hurricane Ike, Cheniere Energy has completed 84% of its LNG terminal at Sabine Pass and expects to be finished by the third quarter of 2009.

Ike’s damage was limited to some temporary facilities and construction materials, Cheniere reported in its quarterly financial posting last week. Everything lost is being replaced.

Damage was caused to some temporary facilities and construction materials and these are being replaced as required, Cheniere said.

Cheniere is developing a network of three LNG receiving terminals and natural gas pipelines along the Gulf Coast. In its third-quarter report, the company reported a net loss of $67.4 million, compared with a loss of $53.5 million last year, with operating losses down to $39.1 million compared with $47.3 million for the same period last year.

Cheniere completed construction of the first phase of the Sabine Pass terminal this year. The terminal will have an import capacity of 2.6 billion cubic feet per day of LNG, though commissioning is not expected to be complete until the first quarter of 2009. The expansion phase will add another 1.4 billion cubic feet per day.

Even before the commissioning date, Cheniere will be facing some big challenges. The first being that the U.S. has never really been an attractive first-market for LNG. Asia gets that spot.

Stay tuned. More to come. With a new president coming into office who likes natural gas as a key U.S. power source, LNG imports may become even more important in the big picture.

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

With a new president in office, who’s energy policy seems to indicate he will favor natural gas development, a new study by the American Clean Skies Foundation and Navigant Consulting takes on a new importance.

The study indicates that there is enough undiscovered, yet recoverable reserves of natural gas to last, at the current rate of consumption, about 118 years.

“This is a positive new development and demonstrates that natural gas will be a key component of supply to met future demand,” says Independent Petroleum Association of America chief executive Barry Russell. “The findings also show that natural gas can play a significant role in a long-term compliance strategy to address global climate change.”

Russell says that exploration costs are increasing, unconventional sources–such as shale gas, tight sands and coalbed methane–are booming around the country, despite the current economic crisis. He adds that new technologies are helping produce more natural gas from fields that were once thought mature and uneconomic.

U.S. natural gas production increased 6.4% during 2007 as a direct result of independent producer development.

Natural gas currently meets 25% of the nation’s energy needs,is used to heat about half of U.S. homes and fuels 20% of America’s power needs. It is also a key feedstock for numerous products.

“The United States has the capability and the most stringent regulations in place for the safest, most environmentally friendly production on the planet,” Russell says. “As further proof surfaces on the tremendous supply resources beneath our land and beneath our oceans, it is time for policymakers to take the lead and embrace the power and potential of American natural gas.”

Stay tuned. More to come. Even though all eyes in D.C. are on the economy, there is enough buzz around now to hopefully draw their attention back to the energy issues facing the nation. The story is still developing and it will be interesting to see how President-elect Obama handles this issue.

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

To say this case is complex is like saying Alaska gets cold in the winter.

ExxonMobil Corp. and Alaska state officials are trying to settle a lawsuit over a North Slope gas field that is needed if the planned 1,700-mile pipeline project to the Lower 48 states is to work.

The supermajor, through its battalion of legal experts, has suggested that an unbiased three-member panel of mediators be seated to hear the case.

The disputed lease is at Point Thomson, which holds–according to some state and federal estimates–as much as one-fourth of the North Slope’s 35 trillion cubic feet of reserves. ExxonMobil has said developing this field is critical if the pipeline, which is planned to take 4 billion cubic feet per day to markets in the Lower 48.

Just about two years ago, state officials decided that ExxonMobil had not lived up to its obligations to develop the field and said they were going to pull the leases. Their reasons–the company has had almost 30 years to do something there and hasn’t done anything.

In December, Superior Court Sharon Gleason said the energy company needs to have a chance to make its case and keep the lease for the 106,200-acre unit. In February, the company filed a development plan with the state–the 23rd in 30 years.

This set off a virtual snowstorm of legal action with the state saying it wants to pull the leases and Exxon filing a lawsuit to keep them. If nothing else, the fight is keeping the coffers of legal firms across the land filled.

To add to the fight, ExxonMobil and its partners announced in late August it had started a massive shipping operation to move equipment and supplies to the drill site, which is about 600 miles to the north of Anchorage. Their plan calls for the company to begin producing about 200 million cubic feet of natural gas per day from the field by 2014.

And to add a little bit of what? to the mix–the state has said the companies can do surface work, but no drilling. The court hearing the case has not ruled on ExxonMobil’s call for a mediation panel, which state lawyers called premature and not needed at this time.

All of this is happening against the backdrop of two competing gas pipelines–TransCanada Corp., has been awarded an exclusive license to build a line from the North Slope to the Lower 48. Their license, by the way, calls for the state to give TransCanada $500 million in state incentives and there are no guarantees the line will be built.

They are going up against a private plan by ConocoPhillips and BP called Denalia–The Alaska Gas Pipeline. In April, the two decided to move ahead with their project.

And watching from the sidelines is ExxonMobil, which is not involved with either project, but is critical with its Point Thomson lease for either project to succeed.

Stay tuned. More to come. This is a story that is slowly developing and will be for quite some time.

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

Columbia Gas Transmission Corp. and MarkWest Energy Partners LP  have joined forces to expand natural gas gathering and processing services to support increased production volumes in the Appalachian Basin of central West Virginia.

The two companies have reported they talking with several natural gas producers regarding plans to provide new gathering and processing services near Columbia Gas’ Cobb aggregation system in Kanawha, Jackson and Roane counties of West Virginia.

The expansion includes MarkWest’s previously announced expansion of its Cobb gas plant, which will increase the total processing capacity to about 70 million cubic feet per day by mid-2009.

The two companies report that the natural gas liquids recovered at the Cobb gas processing plant will continue to be fractionated at MarkWest’s Siloam fractionation, marketing and storage complex, which is in the final stages of a significant expansion. The Cobb and Siloam expansions are currently under construction and require no additional capital beyond that included in MarkWest’s previously announced growth capital forecast.

The expansion plans include Columbia adding horsepower to its existing Cobb compressor station and installing new field gathering and compression facilities to bring new gas volumes to the Cobb gas processing plant. As increases in production warrant, additional capacity could be added with incremental horsepower and additional expansion of the Cobb gas processing plant.

These plans for expansion of gathering and processing services are in addition to the Columbia Gas Transmission and MarkWest announcement in August to expand similar services near Majorsville, W.Va., serving the northern panhandle area of West Virginia and western Pennsylvania.

Stay tuned. More to come. One of the big issues is take-away capacity from the rapidly developing gas fields such as this area. The developing global economic crisis may throw a crimp into many companies’ plans to expand and develop their resources. This story is just starting to unfold.

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

Progress Eenrgy has gotten the green-light from the North Carolina Utilities Commission to build a natural gas-fired power plant in Richmond County, North Carolina. The company still has to get an air permit from the state and that review is under way.

The move does signal a continued strength of natural gas as the fuel of choice for power generation in the U.S.

Plans for the plant were officially announced in October 2007 and the project will cost anywhere from $700 million to $750 million. Part of the costs includes a 64-mile, 230-kW transmission line between the power plant and a substation in Cumberland count, North Carolina. The utilities commission has not ruled on the transmission line, saying it is a separate project.

To meet the scheduled June 2011 operations date, Progress Energy reports site preparation must begin by early 2009 and construction will begin after the company gets the air permit from the state. The Richmond County Energy Complex will be built near Hamlet, N.C.

The area the plant will service is expected to grow by more than 20,000 houses and businesses this year.

The planned Richmond County project is an intermediate-level electrical generation supply, meaning it will operate 20% to 60% of the time to meet customer demand. The plant will use combined-cycle technology, where exhaust heat is captured and used to generate additional electrical power.

Stay tuned. More to come. The use of natural gas for electrical generation as a clean-burning and fairly environmentally friendly fuel is one of the few things that everyone–industry, government and environmental leaders–can agree on. Now, they just have to make sure there is enough supply to power these new plants.

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

International politics and energy politics will probably become a lot more intertwined in the new year, especially after the latest report from Cupet0–Cuba’s state-owned energy company.

Cupet has claimed that reserves in the Deep Cuban Basin may be as high as 20 billion barrels of oil–twice what had been originally reported.  The U.S. Geological Survey has estimated the the fields off Cuba’s Gulf Coast may contain up to 9 billion barrels of oil and 21 trillion cubic feet of natural gas.

Cupet officials have said they are basing their estimates on comparisons of known oil reserves in the Bay of Campeche.

The Cubans have defended their higher estimates by saying they have more up-to-date information that the USGS and therefore, their figures are closer to the real figures.

Whatever the numbers, one thing is for sure–Cuba is about to become a hot-key item for the world’s energy industry. Spain’s Repsol YPF is scheduled to start E&P operations in the North Cuba basin by mid-2009 with other operators expected to start after that–with the exception of any U.S. companies which are prohibited from commercial activities with Cuba because of a Cold War law that has not been repealed.

Stay tuned. More to come. Cuba’s growing energy industry–it only produces 60,000 barrels a day now–is about to become big news, especially with a new president to take office. The story is just beginning.

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

The natural gas-thirsty New England markets may soon be getting some help as Suez LNG has completed pipeline construction for its offshore LNG project, Neptune.

The first phase of construction began in late July and included the installation of a 13-mile sub-sea pipeline that will connect the Neptune LNG facility with the existing Spectra Energy HubLine. The second phase, scheduled to begin in early May 2009 and continue into September, includes connecting the new pipeline to the HubLine and installing two off-loading buoys.

Upon completion, the LNG facility will consist of an unloading buoy system where specially designed vessels will moor, offload their natural gas, and deliver it to New England markets in Massachusetts.

“We’re pleased to have completed phase one of our project with the least possible impact to the environment and what we hope has been minimal disruption to the local communities,” says Suez LNG president and chief executive officer Clay Harris. 

“Suez LNG has been providing about 20% of the natural gas to New England through our Everett LNG import facility, which has been in operation since 1971. The addition of Neptune will solidify and also reinforce our continued commitment to serving the region and helping meet its growing demand for natural gas. This month we have reached an important step in fulfilling this commitment.”

The City of Gloucester will serve as the home port for the Neptune project, representing a direct infusion of more than $10 million into the local economy over the expected lifespan of the project. This includes Suez’s lease at the Cruiseport, where it will dock its support and towing vessel for the project, as well as lease storage and office space.

The support vessel is equipped with fire-fighting equipment, and will be available to local emergency responders.

Pipeline installation activities for 2008 included: laying the pipeline, consisting of both a natural gas transmission line and a flowline that connects the buoys, on the sea bottom; plowing a sub-sea trench and placing the pipeline in the trench; and backfilling the trench and hydrotesting to ensure pipeline integrity. Next year, the company will focus on installing the buoy system, which will connect the LNG vessels to the sub-sea pipeline, and the connection between the new pipeline to the existing Spectra Energy HubLine^.

In case you’re wondering did you sleep through the protests over this project. No, there haven’t been many objections. This project is different from other LNG terminals that seem to draw protests like flies to sugar. This one doesn’t have giant tanks and terminal facilities–it’s a buoy system that is basically out-of-sight and out-of-mind when not in use.

The LNG is turned back into a gas onboard the tankers and then the gas is shipped through the buoys into the pipeline and then into existing networks to reach its intended markets.

Stay tuned. More to come. LNG may become a hot topic when the new president is sworn in–whether it’s Obama or McCain. Both say the nation needs more natural gas, but haven’t said where these new supplies will be coming from.

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

Brazil has up its ante in its move to build a military force to protect an offshore field that could be one of the largest discoveries in years.

The South American nation has publicly announced plans to add a nuclear-powered fast attack submarine based on the French Scorpeon design to their fleet. They are working with the French to develop the reactor for the vessel.

Their goal is to protect a field that was discovered by Petrobras that could contact as much as 5 billion to 8 billion barrels of oil. If even the most conservative estimates are correct, this would be one of the world’s largest discoveries in the past 20 years.

In the latest move, the Brazilians have short-listed Dassault in a bid for 36 aircraft that will have both a fighter and ground-attack role. In several public speeches, French President Nicolas Sarkozy has said his nation has agreed in principle to have French-designed submarines and military helicopters built in Brazil to help beef up its strategic presence in South America.

The Brazilians, according to President Luiz Inacio Lula da Silva, will spend about $880 million to develop the reactor for their submarine.

Brazil currently has five conventional, German-built submarines in their fleet. The millions being spent for the one nuclear boat would buy–at current prices–about 20 conventional, long-range boats. Either way, Brazil is on the fast-track to becoming a nation with one of the most advanced submarine fleets in the world.

The Brazilian air force is also in on the spending spree. In a bid for 100 next-generation fighter aircraft, they are looking at Boeing’s F-18 E/F Super Hornet, SAAB’s Gripen and Dassault’s Rafale as the top three finalists for a contract that would be worth billions.

Stay tuned. More to come. Even while critics inside and outside the country continue to raise eyebrows over the decision to build a nuclear submarine, Brazil is moving forward and selecting the French is a good decision since they did not accept either Russian or U.S. assistance. This story is far from over. Watch for more developments around the first of the year.

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