Natural Gas

Peter the Great is coming to Venezuela and Hugo Chavez couldn’t be happier and the Bush administration unhappier.

Peter the Great is a Kirov Class battlecruiser and one of the jewels of the Russian navy. Armed with Granite anti-shipping missiles, the nuclear-powered warship will lead a task force of three other vessels and a detachment of anti-submarine and anti-shipping aircraft to Venezuela.

Once there, the vessels and 1,000 Russian naval infantry (their version of the U.S. Marines) will conduct wargames with the Venezuelan navy. The timetable is sometime in November or December, depending on which media you listen to: the Russians says the exercise may take place in November or December while Chavez, after announcing the joint exercise, will now only say that preparations are under way.

The Russian vessels and infantry are from their Pacific Fleet and while there is a lot of speculation about what their imaginary foe will be, most analysts agree it is aimed at protecting Venezuela’s energy links and its offshore oil and gas fields.

The Venezuelan navy consists of two 30-year-old submarines, six frigates and a number of patrol boats along with 7,800 marines will be working closely with the Russian vessels (if the exercises take place) to protect and defend the offshore oil and gas platforms from submarine, surface and aerial attack.

The Russians have said the exercise is not directed at any third party and is their way of helping a friendly state beef up its military presence. It comes on the heels of the visit to the Black Sea (which Russia has long considered its territory) of U.S. warships carrying aid to Georgia after its five-day war with the Russians.

Stay tuned. More to come. The Russians are preparing another exercise to hold and defend oil and gas fields in the Arctic Ocean they have claimed and are now working in the Caribbean to sharpen their skills in doing the same thing–only in warmer waters. An interesting story that probably won’t get a lot of play with Hurricane Ike roaring toward a landfall somewhere along the U.S. Gulf Coast.

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

If you had been watching the Republican National Convention last week, there was one moment that could have really summed up the feelings of most Americans now.

During one moment, a chant broke out among the delegates who began screaming “Drill, baby drill.” They seem to have picked up on something that the U.S. public has been telling Congress and everyone who will listen in a number of polls–they support opening up the restricted areas off the East and West coasts to exploration and production.

In June, a Zogby International telephone poll shows that three in four likely voters – 74% – support offshore drilling for oil in U.S. coastal waters and more than half (59%) also favor drilling for oil in the Alaska National Wildlife Refuge.

The poll showed that a majority of likely voters across the political spectrum support offshore oil drilling, with vast majorities of Republicans (90%) and independents (75%) in favor of drilling for oil off U.S. coastal waters more than half of Democrats (58%) also said they favor offshore drilling. Republicans (80%) and political independents (57%) are much more likely to favor drilling for oil in ANWR than Democrats (40%).

Congress will be returning from yet-another recess soon and like an 800-pound gorilla in the middle of the room, the energy crisis will be waiting for them and they won’t be available to ignore it. There is something you should know: Congress may adjourn at the end of September so the members can go and campaign for their respective candidates for the November elections.

Here are how things are shaping up: In the wake of Hurricane Gustav, President Bush has said he wants "a deal on energy" from Congress over drilling in the restricted offshore areas; House Speaker Nancy Pelosi has said Democrats will offer broad energy legislation that opens some offshore areas to drilling "without taxpayer subsidies to Big Oil;" 16 senators have offered a bi-partsian motion that would allow drilling 50 miles off the coasts of Georgia, the Carolinas and Virginia and provide billions for the research and development of alternative energy sources; and the Senate will hold a national energ summit on Aug. 12 to consider several legislative plans.

All that said, the clock is ticking. The odds-makers, looking at the amount of activity accomplished by the current Congress over the past year, are saying it is almost a sure bet that nothing will get done. They are saying Congress will convene, talk a lot and make lots of visits to TV talk shows and the adjourn at the end of September.

If that happens, don’t expect anything being done until after January.

Stay tuned. More to come. This story is definitely not over by a long-shot.

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

Hurricane Gustav is no more–just a series of thunderstorms swirling up north after coming ashore near Houma, La., sometime between 9 a.m. and 10 a.m. Sept. 1.

Houma is an energy town. A typical South Louisiana community that has its share of great restaurants and strong ties to the energy industry. A parish official said the damage assessment is still going on and will be for several days.

And the same goes with the the Gulf of Mexico E&P industry. All the GOM players are reporting their overflights of their rigs and platforms reveals no major damage. The Coast Guard has reported no major problems from any of the oil and gas fields their aircraft have flown over during the days following Gustav’s landing.

So, it appears the energy industry has passed its first major test since Gustav became the first major storm to enter the Gulf since hurricanes Katrina and Rita three years to the day .

American Petroleum Institute President Red Cavaney says that unlike the hours and days after hurricanes Katrina and Rita in 2005, the energy industry this time was able to get a real-time assessment of its fleet through a network of sensors attached to the rigs and platforms.

The sensors give onshore operators a feel for what conditions are like on the rigs and platforms and also, if that structure has sustained any direct damage.  The sensors are attached on hundreds of the offshore fleet, he says.

The federal Minerals Management Service and the American Petroleum Institute did help draft suggested safety rules that include such things as 12-point moorings as well as upgrades to communications equipment.

The energy industry has spent billions in its disaster response programs and it looks like the training and hard work pay=id of.

Stay tuned. More to come. The hurricane season is getting hotter every day and as Sept. 2, there are three systems churning away in the Atlantic with the possibility of two of them making landfall–one on the East Coast and a strong chance the second one will make it into the Gulf of Mexico. The season ends Nov. 1, so keep your fingers crossed and one eye on the Weather Channel.

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

All eyes are on the Gulf Coast now as Hurricane Gustav continues its relentless march across the Gulf of Mexico. But, even in the face of this monster storm, a miracle has taken place.

At any give day, according to the federal Minerals Management Service, there are about 25,000 men and women working offshore on the rigs and platforms that stretch across the Gulf or on the almost countless number of supply vessels that keep the energy industry fueled and running.

As Gustav began his deadly march towards the Gulf, the energy industry began a series of elegant and elaborate moves that saw thousands of these offshore workers moved without a single loss of life or serious injury.

There will be millions of words written over the next week days and weeks about Gustav and the impact it will have–as it should be. There will be talking heads on the nightly news describing what the economic impact will be — but no one should forget that a minor miracle occurred out there.

A small fleet of helicopters and boats began pulling workers off the rigs and platforms in a very deliberate and very-well ballet that energy companies prepare for all the time.

To all those involved in this miracle of logistics and movement, hats off for a job well done.

Stay tuned. More to come. The story of Hurricane Gustav is just beginning. The end of the beginning hasn’t even come yet. But it will.

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

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