May 2010 Vol. 237 No. 5

In The News

May Newsreel: Challenges Facing Natural Gas, Gallup Finds American Development Preferences, EIA Reports 0.7% Gas Increase

Report Identifies Challenges Facing Natural Gas
Gallup Poll Finds Americans Now Prefer Oil, Gas Development
EIA Sees U.S. Natural Gas Production Up 0.7% In 2010
NACE CORROSION 2010 Largest Conference In Decade
Washington Pushes Shale Gas Internationally
GE’s Energy Investing Unit Pumps $150 Million Into LNG Terminal
Denbury Agrees To Sell Oil, Natural Gas Properties
Fluor Venture In Qatar Wins Five-Year Contract For GTL Project
Excelerate Energy Accepting Value Propositions
Potential Oil, Gas Production From Offshore Atlantic Coast
GTI Adds Senior Program Manager For Intelligent Infrastructure Initiative
Statoil Increases Net Acreage Position In Marcellus Shale
Atmos Announces Agreement On Fort Necessity Storage Project
Air Products’ Hydrogen Pipeline To Begin Service
Ritchie Bros. Reports Successful Auction
Chevron Pipeline Leaks At Wildlife Refuge
Halliburton Acquiring Boots & Coots

Report Identifies Challenges Facing Natural Gas
A report by The Brattle Group evaluates several challenges facing natural gas demand growth in the coming decade under potential future climate legislation and recommends that U.S. policymakers revisit the role of natural gas in meeting climate goals.

In the discussion paper, Prospects for Natural Gas Under Climate Policy Legislation: Will There Be a Boom in Gas Demand? Brattle economists Steven Levine, Frank Graves, and Metin Celebi evaluate several factors that may adversely affect natural gas demand. They conclude demand growth may not necessarily be forthcoming despite its environmental and commercial advantages. These advantages include the lower emissions and carbon content of natural gas relative to coal, low construction costs, and short construction lead times of natural gas-fired electricity generation plants.

The authors find three primary reasons for low growth in gas demand. First, relatively high CO-2 price levels are needed for coal-fired electricity generation to be materially displaced by gas-fired generation. Such price levels may not be reached in the next decade under a cap and trade program, given the political constraints on regional impacts of energy price increases.

Second, the development of renewable electricity generation resources tends to reduce natural gas demand in some regions by backing out gas-fired generation on the margin. As a result, U.S. consumers may end up paying more for energy and CO-2 emission reductions than would have occurred if natural gas were to be used more heavily. Third, non-electric gas usage is likely to stay flat due to continuing growth in conservation and energy efficiency programs and the price response to carbon.

The authors conclude that prospects for a boom in natural gas demand due to climate policy look doubtful absent a significant retirement of coal-fired power plants in the U.S. To the extent that renewables and energy efficiency measures crowd out gas-fired generation, gas may become even more of a marginal resource than it is today, increasingly subject to unpredictable and short-term power market conditions. This could lead to increased reliance on gas spot markets and potentially higher spot gas price volatility.

The discussion paper can be found at www.brattle.com.

Gallup Poll Finds Americans Now Prefer Oil, Gas Development
For the first time in 10 years Americans are more likely to say the U.S. should give more priority to developing oil, natural gas and coal than to protecting the environment, according to a new Gallup Poll.

The poll was conducted a few weeks before President Obama announced he would open offshore oil drilling in some parts the U.S. East Coast, Alaska and the Gulf of Mexico. Half of 1,014 U.S. adults, who were surveyed March 4-7 by Gallup, said the country should give more priority to developing and producing the fossil fuels. Only 43% said protection of the environment should be given priority, even at the risk of limiting the amount of energy supplies.

The poll found 52% of Americans favored greater energy conservation while only 36% favored greater production of oil, natural gas, and coal as a means of solving the country’s energy problems. The Gallup data have a 4 percentage point margin of error.

EIA Sees U.S. Natural Gas Production Up 0.7% In 2010
The U.S. Energy Information Administration has reversed course and raised its estimate for domestic natural gas production in 2010, expecting output this year to rise from 2009 levels.

In its April Short-Term Energy Outlook, EIA said it expected marketed natural gas production to be up 0.4 Bcf/d or 0.7%, this year, reflecting the continuing increase in the number of working natural gas rigs. That estimate was sharply revised from EIA’s March outlook that had production down 2.7% in 2010.

EIA forecast natural gas consumption would average about 63.8 Bcf/d, up 1.9% from 2009 demand of 62.59 Bcf/d, following a fairly cold winter and expectations for more industrial consumption from an improved economy.

NACE CORROSION 2010 Largest Conference In Decade
CORROSION 2010 in San Antonio, TX launched on March 14, attracted more than 5,800 attendees from more than 40 countries. Officials said this was the largest NACE conference in a decade, a clear indication that the challenges and economic impact of corrosion are gaining overwhelming attention on the world scene despite the economic downturn.

Chris Fowler, corrosion director of U.K.-based Exova, was named president of NACE International. “This conference was remarkable on many levels,” he said. “Perhaps the most interesting was that I witnessed students from many nations – Spain, Israel, Germany, and Iraq, for example – working in harmony. Corrosion breaks down more than infrastructure – it breaks down cultural barriers.”

Washington Pushes Shale Gas Internationally
The Obama administration wants nearly a dozen countries, including China and India, to allow the U.S. to assess potential shale gas resources.

David Goldwyn, the State Department’s International Energy Affairs Coordinator, said if assessments confirm U.S. Geological Survey estimates for shale gas resources, the new fuel source could transform the nations’ energy policies and consumption.

He said if the countries consent to Washington’s pitch for the USGS to conduct assessments, it could potentially help lower global greenhouse gas emissions and prove a profitable opportunity for U.S. companies that have developed and are perfecting the technologies. Goldwyn said he expected the assessments could be completed by the end of 2011. China may give the go-ahead at an economic summit in May, he said.

GE’s Energy Investing Unit Pumps $150 Million Into LNG Terminal
GE Energy Financial Services said it is investing $150 million in a liquefied natural gas-receiving terminal under construction in Mississippi that will increase natural gas supplies to the Northeast and Southeast. The business unit of GE is acquiring Houston-based investor Crest Group’s 30% interest in the fully contracted $1.1 billion Gulf LNG Energy terminal, expected to be completed late next year.

The terminal, adjacent to the Bayou Casotte Ship Channel in the Port of Pascagoula on the Gulf Coast, will receive, store and regasify imported LNG. Under construction are two 160,000-cubic-meter natural gas storage tanks with a combined capacity of 6.6 Bcf, 10 vaporizers and connections to the Gulfstream, Destin, Florida Gas Transmission and Transco systems. The project has secured 20-year service agreements with major oil and gas companies to supply LNG for all of the terminal’s capacity.

Denbury Agrees To Sell Oil, Natural Gas Properties
Denbury Resources Inc. has agreed with Quantum Resources Management, LLC, a privately held Houston-based company, to sell some of its oil and natural gas properties acquired in the merger with Encore Acquisition Co. for $900 million. The properties are primarily located in the Permian Basin in West Texas and southeastern New Mexico; the Mid-continent area, which includes the Anadarko Basin in Oklahoma, Texas and Kansas; and the East Texas Basin.

Production attributable to the properties being sold is estimated at 13,000 barrels of oil equivalent per day (two-thirds natural gas) and December 2009 proved reserves on these properties based on SEC prices as of that date were estimated to be 54 million barrels of oil equivalent (64% natural gas).

Fluor Venture In Qatar Wins Five-Year Contract For GTL Project
Fluor Corp. said Qatar National Facilities Services, a new venture partly owned by Fluor, signed a major long-term maintenance and services contract with Qatar Shell Gas-to-Liquids Limited (QSGTL) for its Pearl Gas-to-Liquids (Pearl GTL) project in the industrial city of Ras Laffan, Qatar. The Pearl GTL project is being developed under a production-sharing agreement with Qatar Petroleum.

Following a competitive tendering process, the contract was awarded to provide maintenance services for the utilities and gas-to-liquids process sections of the plant. Upon completion, the Pearl GTL project will be the world’s largest gas-to-liquids plant. Major construction is expected to be complete by year end with production ramp-up in 2011.

Excelerate Energy Accepting Value Propositions
Excelerate Energy will participate in asset optimization discussions centered on its Gulf Gateway Deepwater Port. Excelerate will explore creative asset structures including capacity slots, regasification, options, swaps and discretionary dedicated shipping to maximize natural gas value within the strategic Atlantic basin.

CEO Rob Bryngelson said Gulf Gateway enjoys a competitive advantage over conventional land-based LNG receiving terminals due to its inherent flexibility, storage and reliability. The facility discharges natural gas directly into interstate and intrastate pipelines. Direct access to the Henry Hub provides arbitrage opportunities within the U.S natural gas pipeline grid. Gulf Gateway can accept virtually all qualities of LNG due to downstream processing.

Potential Oil, Gas Production From Offshore Atlantic Coast
The offshore U.S. Atlantic Continental Shelf could contain 3.8 billion barrels of oil and 137 Tcf of natural gas. First production could be as early as seven years in the area the Obama administration announced will be open to exploration, but current estimates are still very preliminary, according to IHS Cambridge Energy Research Associates (IHS CERA).

Hydrocarbon potential of the Offshore Atlantic Continental Shelf has been established by significant gas production offshore Nova Scotia and from flowing gas tests in five wells that were drilled some 30 years ago in the Baltimore Canyon Trough about 100 miles southeast of Atlantic City. 

Pete Stark, Vice President of IHS CERA said, “The evidence from three decades ago indicates the offshore U.S. Atlantic Continental Shelf is primarily gas-prone but it is certainly possible that deeper drilling may confirm the presence of untested  sub-salt formations that could boost the oil and gas potential substantially – as it is now doing off the coast of Brazil. With favorable results it could take seven years to realize first production of oil or gas. If the leasing were in the blocks where there had already been exploration, the lead time would be closer to five years.”

GTI Adds Senior Program Manager For Intelligent Infrastructure Initiative
Gas Technology Institute (GTI) named James Marean as Senior Program Manager for its Intelligent Infrastructure initiative. He will lead efforts to assess natural gas’ role and value as part of GTI’s Smart Energy Grid which is designed to grow the fuel’s market in power generation, distributed energy and transportation.

Marean spent 30 years at York State Electric & Gas where he was the Manager, Technical Support Services, with significant focus on new innovations in technology and demonstration deployment. He has wide-ranging experience with distribution engineering, natural gas and compressed air energy storage evaluation, alternative fuel and NGVs, environmental matters and remediation strategies.

Statoil Increases Net Acreage Position In Marcellus Shale
Statoil has signed an agreement with Chesapeake which will add 59,000 net acres to Statoil’s 600,000 net acre position in the Marcellus Shale. The transaction reportedly cost Statoil US$253 million.

As part of Statoil joint venture with Chesapeake in 2008, Statoil has the right to periodically acquire its share of leasehold that Chesapeake continues to acquire in the Marcellus Shale. Statoil expects to continue to grow its Marcellus position together with Chesapeake.

Atmos Announces Agreement On Fort Necessity Storage Project
Atmos Energy Corporation’s subsidiaries, Atmos Pipeline and Storage LLC and Fort Necessity Gas Storage LLC, have entered into an option and acquisition agreement and related agreements with Delhi Gas Storage LLC to provide Delhi the exclusive option to develop the proposed Fort Necessity salt-dome natural gas storage project in Franklin Parish, LA.

Air Products’ Hydrogen Pipeline To Begin Service
Air Products and its subsidiary Air Products Canada Ltd. will supply hydrogen by pipeline to Shell Canada Energy, Sherritt International Corporation, and Williams Energy (Canada) Inc. from the company’s Heartland Hydrogen Pipeline in Alberta, Canada.

Air Products won approval last year from the Alberta Energy Resource Conservation Board to build the 30-mile pipeline to provide hydrogen from its two operating production facilities in Strathcona County near Edmonton, Alberta. The pipeline will serve refiners, upgraders, chemical processors and other industries in the Alberta Industrial Heartland region and is scheduled to be commercial in 2010.

Ritchie Bros. Reports Successful Auction
Ritchie Bros. Auctioneers sold more than US$42 million of heavy equipment during a two-day unreserved public auction (March 24-25) at the company’s permanent auction site in Houston. Bidders from 53 countries, including 48 states, 10 Canadian provinces and one territory registered to participate on-site and online to compete on more than 3,300 lots sold during the multimillion-dollar auction.

Some 3,000 bidders registered at the unreserved auction – of which more than 1,300 were from outside the state. Buyers from outside Texas purchased more than US$24 million worth of equipment, trucks and real estate while American companies purchased 74% of the items in the auction (based on gross auction proceeds).

“We ended on a high note in Texas last year and it is clear that demand for equipment in the USA and around the world is still holding strong in 2010,” said Alan McVicker, Regional Manager, Ritchie Bros. Auctioneers.

Chevron Pipeline Leaks At Wildlife Refuge
Louisiana officials last month reported that a pipeline owned by Chevron Pipe Line Co. had spilled 18,000 gallons of crude oil into a canal in a wildlife refuge about 60 miles southeast of New Orleans. A cause was yet to be determined and there was no immediate word about the extent of the damage at Delta National Wildlife Refuge, according to published reports.

Halliburton Acquiring Boots & Coots
One week after Boots & Coots co-founder Edward Coots died, Halliburton announced that it has entered into a definitive agreement to acquire all of the outstanding stock of Boots & Coots. A new product-service line within Halliburton will be created to include Halliburton’s existing coiled tubing and hydraulic workover operations and Boots & Coots’ intervention services and pressure control business. Coots died March 31 at age 86.http://pipelineandgasjournal.com/may-newsreel-challenges-facing-natural-gas-gallup-finds-american-development-preferences-eia-reports