Natural Gas

At the IPAA-sponsored OGIS San Francisco, most of those attending spent a lot of time this week in front of a large-screen TV set up in the lobby. They weren’t watching the Saints game or even the top college game, but instead, the news from Wall Street and especially, a screen showing how their companies were doing.

The following are some of the comments heard (actually, the comments that can be printed):

“Hello. My company is a double-digit loser today, so we are a very good buy.”

“Man. I started my presentation, my stock was $2.40 and now it’s $1.40. Give me another beer.”

“Oh man.”

“What do you think?”

“Do you think this is going to go lower? It’s got to bottom out eventually.”

“Give me another drink–make it strong.”

“That hurt.”

“Man.”

“My suggestion: Put on your helmet and buckle your chin-strap. It’s going to be a wild ride.”

“Good lord.”

“Maybe it won’t be so bad tomorrow. What do you think?”

“I don’t even want to guess what’s next.”

You can’t blame them for being concerned. On Oct. 6, while companies were showing would-be investors why they would be a good investment, Wall Street tanked and at one point was down about 800 points and it briefly went into positive territory on Oct. 7 before retreating into triple-digit losses.

Stay tuned. More to come. The economic version of The Perfect Storm is just beginning and it looks like it will be a very long time before it blows itself out.

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

With all eyes on Capitol Hill as Congress continued to wrestle with the economic crisis, there was some good news in a report from the Natural Gas Supply Association.

An analysis indicates that natural gas production in the U.S. this winter is expected to be about 8% higher than last year, says Patrick J. Kuntz, the association’s chairman and vice president of natural gas and oil sales for Marathon Oil Co.

“In response to what continues to be a tight energy market, natural gas producers have responded to market signals, resulting in a forecast for natural gas production to reach the highest levels since the early to mid-1970s,” Kuntz says. He adds that a great deal of the stability in the gas marketplace is there because of “billions of dollars” the industry has spent to get the natural gas to market.

“More wells will be completed this winter–nearly double the amount of wells from just six years ago and nearly 750 more than last year,” Kuntz says. “In addition, technological advances in drilling and completion methods are proving to be very successful in improving resource recovery.”

He adds that other factors affecting the natural gas market for the upcoming winter: warmer than predicted weather, the economy, mild growth in natural gas demand and relatively higher natural gas storage levels.

“Federal forecasters anticipate this will be a slightly warmer than normal winter with about the same number of heating degree days as last winter,” Kuntz says. “However, this is the most difficult factor to predict, and the severity of winter weather may likely have the biggest, single impact on the market.”

The association noted that lat year, for the first time, the electric generation sector exceeded the industrial sector’s annual demand for energy. Kuntz says another forecast is for that to happen again this year.

“As utilities build plants to generate electricity, they are increasingly choosing clean-burning natural gas,” Kuntz says. “Natural Gas now fuels about 20% of the nation’s electrical generating capacity and that consumption is expected to grow again this winter.”

The association’s study noted that last winter, the industry went into the heating season with 3,545 billion cubic feet of inventory. This year, the association expects the another healthy storage inventory.

Kuntz did have a cautionary note, though.

“For some end-users, though, it is important to note that many will still be feeling the effects of higher prices from this past summer,” Kuntz says, “making household efficiency and conservation as important as ever.”

Stay tuned. More to come. Just several months ago, a news program was suggesting people begin saving their money to help pay for their winter utility bills. Can’t predict the weather, but will say that a lot of people will be looking at the association’s report.

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

Several days ago, the National Marine Fisheries Service sent a letter to the U.S. Coast Guard stating their objections to the proposed Bienville Offshore Energy Terminal by Houston-based TORP (Terminal Offshore Regas Plant) Technology.

Under TORP’s plans, the terminal would be located 63 miles south of Dauphin Island, Alabama, in 425 feet of water.  The terminal would have a maximum send-out capacity of 1.4 billion cubic feet per day and would be capable of docking up to the largest 250,000-square-meter tankers that are now being built. The location is a strategic one for the company, because of its proximity to the Henry Hub and key U.S. markets.

The NMFS filed an official objection with the  over TORP’s plans to use an open-loop system to reheat the LNG and turn it back into a gas. In filing its protest, the fisheries service cited the potential damage to marine life. The service said the open-loop system could result in the destruction of both commercial and sports fishing stocks as well as damage other marine life. The open-loop system uses the ambient heat of fresh seawater to heat up the LNG and the cooled down water is then discharged back into the Gulf.The service has recommended TORP use the closed-loop system instead. This system uses part of the cargo to reheat the LNG. Industry backers have been against that system because it adds to their operating costs.

TORP Terminal chief executive Joe Berno has cried foul. From his Houston office, Berno says the NMFS has based their objection on inaccurate data.

In his response, Berno says, “TORP is extremely disappointed in the National Marine Fisheries Service (NMFS) letter released yesterday, as it appears that the agency formed its conclusion based upon inaccurate data.

“NMFS’ strongest argument against the facility is based upon the cumulative fishery impact of ‘existing and approved LNG terminals in the Gulf of Mexico proposing to use open-loop systems.’ We are working with NMFS to understand how they came up with the cited impacts, because there are only two potential open-loop projects in the Gulf–TORP’s Bienville Terminal and the Gulf Gateway project in Louisiana that has been in operation since 2005. This latter project only operates about once per year and is largely dormant. It appears that the NMFS has included other previously submitted projects named in the final EIS [Environmental Impact Statement] that have either been withdrawn or denied, and which should not to be used to determine a cumulative impact.

“We are hopeful that NMFS will correct the information used in its letter and re-evaluate its decision in light of the material difference caused by the error.”

Neither the Coast Guard nor the NMFS would comment on Berno’s challenge to the objection.

Stay tuned. More to come. This story is just beginning, so expect more news in the very near future.

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

In the latest round of “grab it while you can” in the Arctic frontier, Canadian Prime Minister Stephen Harper says his country is extending its jurisdiction in the region by doubling the range at which the country’s environmental laws and shipping regulations will be enforced.

Canada is laying claim to vast Arctic frontier regions as national territory and has said it sees the Northwest Passage as an internal waterway and not an international transit point. An ice-free Northwest Passage would be a huge benefit for tankers and ships going from Europe to Asia and from Asia back to Europe or the East Coast of the U.S. Canada is preparing to defend its claims with the building of a Northern Fleet of Arctic-class patrol ships.

“Whether it is the thawing of the Northwest Passage or the suspected resource riches under the Arctic seabed, more and more countries are taking an interest in the waterways of the Canadian Arctic,” Harper says. “We will be sending a clear message to the world that our environmental standards and sovereignty are not up for debate — if you are in Canada’s Arctic you will be playing by Canada’s rules.”

Harper says that his government will introduce changes to the Arctic Waters Pollution Prevention Act. As currently written, the act allows Canada to regulate all shipping in zones up to 100 miles from the nearest Canadian land. Under the proposed rule, this zone will now be extended to 200 miles.

In addition, Harper says his government will set up new rules under the Canada Shipping Act of 2001 that will require mandatory reporting from all ships–commercial or military–enroute to Arctic waters inside the same 200-mile zone.

“As an environmental matter, as a security matter and as an economic matter we are making it perfectly clear that not only do we claim jurisdiction over the Canadian Arctic, we are also going to put the full resources of the government of Canada behind enforcing that jurisdiction,” Harper says. “We are acting today to protect our environment, improve the security of our waterways and ensure that all Northern residents – and, in particular, the Inuit – have a strong say in the future of our Arctic for generations to come.”

Canada joins Russia in making major frontier claims for the Arctic. As the ice pack thaws, some scientists have speculated that huge oil and gas deposits may become open to E&P operations. If Canada controls those regions, then it controls who can drill there as well as reap the economic benefits of any drilling that does take place.

Stay tuned. More to come. The great land rush into the Arctic is just beginning. It probably won’t make a lot of big headlines, but it is interesting to watch as nations rush to secure their place at the energy table as more and more of the Arctic becomes accessible.

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

Mark up another proposed LNG receiving terminal that has come under fire.

The latest is Houston-based TORP (Terminal Offshore Regas Plant) Technology’s planned Bienville Offshore Energy Terminal. Under TORP’s plans, the terminal would be located 63 miles south of Dauphin Island, Alabama, in 425 feet of water.  The terminal would have a maximum send-out capacity of 1.4 billion cubic feet per day and would be capable of docking up to the largest 250,000-square-meter tankers that are now being built.

In making their application, the company says it selected the offshore Alabama site because of its strategic location downstream of the the Henry Hub and the high takeaway capacity to some key U.S. gas markets.

But, as my grandmother use to say, the fly in the buttermilk is their proposed method of cooling the LNG when it comes off the tanker. Their plan would use an open-loop system that would use the ambient temperature of millions of gallons of seawater to heat the LNG and turn it back into a gas. The cooled-down water is then discharged back into the Gulf.

A similiar plan by Freeport McMoRan Energy for its proposed Main Pass Energy Hub LNG terminal was vetoed in May 2006 by former Louisiana Gov. Kathleen Blanco. The McMoRan plan also used an open-loop system. Blanco became the first governor to veto an LNG project and the company withdrew its plan, retooled it to use a closed-loop system where part of the LNG cargo itself is used to warm up the frozen cargo and turn it back into a gas.

This past week, the U.S. National Marine Fisheries Service filed an official objection with the U.S. Coast Guard over TORP’s plans. In filing its protest, the fisheries service cited the potential damage to marine life. The service said the open-loop system could result in the destruction of both commercial and sports fishing stocks as well as damage other marine life.

The service has recommended TORP use the closed-loop system instead. LNG industry backers have been against that system because it adds to their operating costs. However, without it, there is very little chance that it will succeed.

Under federal law, offshore LNG terminals are under the jurisdiction of the U.S. Maritime Administration and the Coast Guard and the governors of the states where the terminals are located off their coasts have veto authority. On the land, LNG terminals are under FERC jurisdiction and states do not have the authority to reject the plans–leading to several states’ rights vs. federal authority fights that are still ongoing.

Stay tuned. More to come. The Coast Guard has not ruled on TORP’s proposal yet, but the fisheries service report will carry a lot of weight in the decision-making process. This story will be ongoing for some time to come.

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

What could be the perfect set-up for a science-fiction novel or movie, scientists have found evidence of methane gas escaping into the atmosphere in an uncontrolled release from the Arctic Ocean seabed off the Siberian coast as the water gets warmer.

Orjan Gustafsson, a researcher from Stockholm University in Sweden, and one of the expedition leaders, sent out his observations in an e-mail. He said the expedition has found “an extensive area of intense methane release.

“At earlier sites we had found elevated levels of dissolved methane. Yesterday, for the first time, we documented a field where the release was so intense that the methane did not have time to dissolve into the seawater but was rising as methane bubbles to the sea surface. These ‘methane chimneys’ were documented on echo sounder and with seismic [instruments].”

Besides a very odd thing to happen, the discovery has elevated the arguments about global climate change again. Methane is a greenhouse gas that is considered to be about 20 times more potent that carbon dioxide.

In his e-mail, Gustafsson says, “The conventional thought has been that the permafrost ‘lid’ on the sub-sea sediments on the Siberian shelf should cap and hold the massive reservoirs of shallow methane deposits in place.

“The growing evidence for release of methane in this inaccessible region may suggest that the permafrost lid is starting to get perforated and thus leak methane. The permafrost now has small holes.

“We have found elevated levels of methane above the water surface and even more in the water just below. It is obvious that the source is the seabed.”

Scientists from the U.S., Russia, Canada, Japan and India have been working for years to try and safely unlock the secret of methane hydrates–naturally occurring methane gas trapped by cold and pressure in ice. These hydrates are found on the seabed of every ocean and the Gulf of Mexico. China has joined the crowd, announcing this year that over the next 10 years, it will budget about $100 million to study finding ways of harvesting methane hydrates.

In 2008, Canadian and Japanese researchers extracted a constant stream of natural gas from a test project at the Mallik gas hydrate field in the Mackenzie River delta–this site was featured in the TV-show “Ice Road Truckers.” This was the second such drilling at Mallik: the first took place in 2002 and used heat to release methane. In the newest experiment, researchers were able to extract the gas by lowering the pressure, without heating, requiring significantly less energy.

The Japanese government has said research suggests there is enough methane available in deep deposits off the coast of the Japan to satisfy their gas needs for more than 100 years.

Now, though, an uncontrolled release means an unknown amount of methane has been bubbling to the surface off the coast of Siberia and bleeding off into the atmosphere. The researchers said they want more time to try and determine what is going to happen next.

Stay tuned. More to come. If this doesn’t get the environmentalists and politicians upset, nothing will. It should also reheat the global warming argument again. This story is far from being over, but in the meantime, keep your eyes on the Arctic.

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

How many times have you, or someone you know, looked at a utility bill and said you wish you could set your own rates for natural gas?

Ohio residents will soon have their say as they take matters into their own hands using the online auction site eBay. Those  Ohio residents served by Columbia Gas or Dominion East Ohio can visit www.mxenergy.com/eBay to participate and outbid their neighbors for a chance to set their own price for a year’s supply of natural gas.

“This online auction will ‘empower’ bidders to set their own rate for natural gas and help manage energy costs,” says MXenergy president and chief executive Jeffrey Mayer. “As homeowners struggle with a tightening economy and skyrocketing energy costs, MXenergy is offering a unique way for them to set their own price for natural gas.”

Mayer says that pricing is explained on the auction site and can be accessed at www.mxenergy.com/ebay. If the final bid price exceeds MXenergy’s current 12 month fixed rate, the excess will be donated to an Ohio charity. In no uncertain terms, he says that the offer is available only to bidders who live in the Columbia Gas of Ohio or Dominion East markets.

Mayer says that MXenergy knows that energy costs strain household finances. While energy costs are among the top concerns, an MXenergy survey of American households show that only 30% of those responding understand how home energy prices are set and 90% feel they have limited or no control over their home energy costs.

“We want our customers to take control of their home energy spend and make the best energy choices, and there’s no better way to exercise that control by asking consumers to set the price they’ll pay - in a very out-of-the box way,”  Mayer says.

Founded in 1999, MXenergy serves about 500,000 customers in 37 utility territories in the United States and Canada.

Stay tuned. More to come. This will be an interesting experiment to watch and see what happens.

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

Houston-based NorthernStar Natural Gas has been given the go-head by the Federal Energy Regulatory Commission for its proposed LNG receiving terminal on the Columbia River near Astoria, Oregon.

NorthernStar must still get state approval for its proposed $650 million Bradwood Landing. In giving its approval,  FERC gave the company more than 100 conditions it must meet over safety and environmental issues. The company has said it will working with federal and state officials to meet those conditions.

The Bradwood project has become the first LNG terminal on the West Coast to get FERC approval. The commission gave its approval with a 4-1 vote. The commission chairman says the LNG that would come into the terminal is needed for the West Coast.

And as is the case with any LNG terminal, this isn’t the end.

Oregon Gov. Ted Kulongoski says his state will request federal officials conduct a new hearing on the project to ensure that state and local communities’ concerns are addressed.

“Today’s decision by the federal government lacks accountability to the environment and the people of Oregon,” Kulongoski said in a statement on his web site. “The commission has decided to ignore the law and instead approve a project with incomplete mitigation plans and without regard to Oregon’s important concerns.”

Columbia Riverkeeper executive director Brent Foster says, “We expected FERC to rubber stamp the LNG project from day one. At this point Oregon needs to use all the authority it has to stop this project.” Columbia Riverkeeper is an environmental group opposed to any LNG terminals along the West Coast.

NorthernStar must now get permission from the State Lands Board and that may seal the fate of this project. Oregon Treasurer Randall Edwards and Secretary of State Bill Bradbury, two of the three members on the board, have already publicly announced they oppose LNG projects in Oregon.

Stay tuned. More to come. Expect a firestorm anytime you mention LNG terminal along the West Coast. Seems like NorthernStar may have a huge obstacle to overcome with the State Lands Board. That should be a very interesting hearing when it is scheduled.

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

Every storm and hurricane leaves certain mysteries in its path–ships blown miles inland, people found unhurt miles from what’s left of their homes, animals that left before the storm, tiny boats left unharmed while giant oil and gas platforms and drilling rigs are tossed about like toys and sunk. Hurricane Ike is no exception.

About six miles from Fort Morgan, the waves uncovered a shipwreck that archaeologists say could be a two-masted Civil War schooner that ran aground in 1862 or another ship from some 70 years later. The wreck had been partially uncovered by Hurricane Camille in 1969.

Early indications are that is is the CSS Monticello, a warship that ran aground when it tried running the Union Navy’s blockade of Mobile Bay during the Civil War. A Museum of Mobile marine expert has said that, based on photos of the Monticello, the wreck could be the ship, which had left Havana in 1861 for its desperate try to slip past the cordon of Union warships.

The mystery deepens, or as my favorite detective, Sherlock Holmes, would says, “the game’s afoot.”

The wreck could also be an early 20th century ship that ran aground on the Alabama coast in 1933.

The wreck ship is 136.9 feet long with a 25-foot beam. The Monticello was 136-feet long. But, a report by the U.S. Army Corps of Engineers filed in 2000 suggests the vessel is the Rachel, a two-masted schooner built in 1919 that came to a dreadful end in 1933 on the Alabama coast.

Some details about the wreck, such as it having steel cables, seems to indicate it is the Rachel and not the Civil War blockade runner.

While federal officials continue to tally Ike’s damage–49 oil and gas platforms and at least four jack-up drilling rigs in the Gulf–the storm did leave a bit of a diversion to take our minds off the destruction caused by this monster storm.

Stay tuned. More to come. A full excavation might solve the mystery, but for now, the wreck uncovered by Ike is enough to make us think of other things–if but for a few brief moments.

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

Sen. Ron Wyden (D-Oregon) wants to shut down the only LNG shipping terminal in the U.S.

In a letter to Energy Secretary Samuel Bodman, Wyden has asked the Department of Energy to revoke the the Department of Energy’s recent authorization for the export of 98.1 billion cubic feet of Alaskan gas to Japan and other Pacific nations.

The department approved a request earlier this summer from ConocoPhillips and Marathon Oil to export up the LNG to long-standing customers through March 2011. The LNG would be shipped from the export terminal in Kenai, Alaska.

In his letter to Bodman, Wyden says the gas would meet the needs of 1.4 million American families. In his letter, he doesn’t mention the fact he is trying to order the federal government to make a company cut a long-standing contract with a Japanese utility.

“The administration is trying to have it both ways–arguing that we need to drill everywhere because we don’t have adequate energy supplies, while finding that we have so much energy that big oil companies can export it overseas and keep prices here at home higher than they would otherwise be,” Wyden wrote.

In his letter, Wyden charges that the DOE failed to meet the interest test required by the Natural Gas Act. He says that not only did the DOE fail to consider options for delivering Alaskan gas to the Lower 48, it rejected requests by the an Alaskan utility that the agency “condition the export of Alaskan gas on assurances that Alaska’s own need for natural gas was met.”

It is not sure how the senator wants the LNG to get to the Lower 48, since the nearest receiving terminal would be Costa Azul in Baja California. The nearest U.S. receiving terminals after that are along the U.S. Gulf Coast. He’s also pretty unclear where this much gas would be stored and who would use it.

Under federal law, any company that wants to export LNG must first obtain permission from the DOE to make sure the export would not harm U.S. energy supplies. In granting the request, the DOE said allowing the LNG exports to continue “will not be inconsistent with the public interest.”

Wyden is calling for a secretary-level review of the DOE’s export permission.

Neither Marathon or ConocoPhillips, or for that matter Bodman or the DOE have responded to Wyden’s letter.

Stay tuned. More to come. This is just the beginning of how political the energy crisis has become and will become even more. Don’t expect the DOE to rescind an order that would drive the Japanese to Russia or other countries for their LNG cargoes. And don’t expect a very warm response from the Japanese government when they get word of this either.

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