November 2018

Global News

Global News

Mexico’s New Administration Warns of Growing US Natural Gas Imports

Mexico should speed up development of its own natural gas reserves to curb a growing “supply risk” fed by excessive dependence on U.S. supplies, the country’s incoming industry regulator proposed.

“We need to diversify (sources of natural gas) because we are very concentrated,” said Juan Carlos Zepeda, president of the National Hydrocarbons Commission (CNH), Mexico’s oil and gas regulator.

While the country has long been a major oil and gas producer, an extended output slump forced Mexico last year to turn to foreign supplies for 84% of its total gas demand, almost all of which came from the United States. Natural gas is increasingly used to fuel the country’s growing manufacturing sector and electricity generation.

Noting Mexico’s shale gas resources estimated at more than 141 Tcf, Zepeda said, “The priority of our national security related to natural gas does not allow the luxury of turning our back on this potential,” he said.

Natural gas pipeline exports to Mexico have grown to record levels with expansions of cross-border pipeline capacity. Volumes to Mexico exceeded 5 Bcf/d for the first time in this summer after the commissioning of several key pipelines in Mexico. About three-quarters of U.S. pipeline exports to Mexico currently flow from Texas, primarily from the Eagle Ford Basin to serve industrial and power sector customers in northeastern Mexico, averaging 3.3 Bcf/d through the first five months of 2018.

Six more major pipelines are viewed as critical to Mexico’s five-year infrastructure strategy, transporting U.S. gas farther into the central and southern regions and providing an additional outlet for constrained Permian Basin production in West Texas. Four of these pipelines are scheduled to begin commercial operations in the United States by the end of 2018, but some construction has been delayed on the Mexican side of the border.

Russian Gas Exports to Boom Despite US Pressure

Russia is setting records in gas pipeline exports despite U.S. pressure on Europe to reduce imports and aims to become the world’s leading LNG exporter in the next decade. Russian government officials and executives told an industry conference in October they expect to export a record amount of gas this year, potentially exceeding 200 Bcm and beating last year’s all-time high of 194 Bcm.

“We have been hearing about the reduction in Russian supplies for many years now,” Russian energy minister Alexander Novak said. “But in spite of this, Europe keeps increasing Russian gas imports.”

Gazprom controls 35% of the gas market in Europe, larger than any other supplier, and aims to increase its share to 40% due to declining European production and the lower cost of extracting gas in Russia. Novak said Russia could double gas exports by 2030 to meet soaring global demand.

That would require Gazprom to build new pipelines to China and Europe, adding some 163 Bcm to its exports, while Russian LNG exports could reach 80-115 million tons. Russia is a fairly modest LNG producer. Its output comes from a Gazprom-led project on Sakhalin island off Russia’s Pacific coast, and a project led by private producer Novatek in the Arctic Yamal peninsula.

Nord Stream 2 pipelay has started in Finland. Source: Gazprom

Russia in Talks with China About Increasing Gas Deliveries

Russia’s Gazprom is in talks with China about additional natural gas supplies via the Power of Siberia pipeline, Interfax news agency quoted Gazprom’s CEO Alexei Miller as saying.

Interfax quoted Miller as saying that the existing pipeline contract is for almost 1.35 Tcf of gas per year and that the two sides are discussing the possibility of increasing the annual volume by 175 Bcf to 350 Bcf. Deliveries of gas to China via the pipeline are due to begin at the end of December 2019, but the project is not expected to reach full capacity until 2025.

The pipeline from Siberian gas fields to China stretches about 2,000 miles. The pipeline, along with gas field development costs, has been reported at $50 billion.

Big Oil: Natural Gas Here to Stay Beyond Energy Transition

Major oil companies are moving with growing urgency to develop cleaner energy sources, with growing investments in solar and wind power, electric vehicle technology and even forestation. But they’re also betting that demand for natural gas will rise at break-neck pace for decades

“Shell’s core business is, and will be for the foreseeable future, very much in oil and gas… and particularly in natural gas,” Shell Chief Executive Officer Ben van Beurden said in a speech at a recent London conference.

Natural gas is around 22% of the global energy mix, and van Beurden said Shell expects demand to grow annually by 2%, twice the pace of worldwide energy demand.

Qatar, one of the world’s largest gas suppliers, is set to grow its LNG capacity more than 40% by the next decade to around 110 mtpa to meet expected demand.

“We believe that natural gas will continue to play a key role, not as a so-called transition fuel but rather as a destination fuel,” Qatar Petroleum CEO Saad Al Kaabi said.

Small Producers Shift Strategy as Clogged Pipelines Cut Canada’s Oil Price

Small Canadian oil producers are striking complex deals with refineries, diversifying production and seeking marketing help as they try to soften the blow from record price discounts on heavy crude generated by pipeline congestion.

Unlike integrated companies with refineries and reserved pipeline space, small producers are often forced into finding new last-minute buyers, shaving another $5-$10 per barrel off already deeply discounted prices, said Rob Morgan, chief executive of private heavy oil producer Cona Resources.

More small Canadian oil producers are making sales to refineries that lock in a fixed price for the differential, allowing them to limit risk, Jihad Traya of HSB Solomon Associates. U.S. refiners, who benefit from the big discount, get to lock in supplies long-term.

Fourteen percent of Western Canadian crude in 2017 was produced by companies with output of 50,000 boe/d or less, not including private companies, according to the Canadian Energy Research Institute.

Firefighters Sue SoCal Gas over Aliso Canyon Leak

Firefighters who worked in and around the site of a massive natural gas leak have sued Southern California Gas Co. (SoCal Gas), alleging the utility knowingly let them be exposed to dangerous levels of toxic chemicals.

The lawsuit against SoCal Gas and its parent, Sempra Energy, alleges firefighters responded to the Aliso Canyon leak after it was discovered in October 2015 without any protective gear because SoCal Gas assured them there was no danger.  The lawsuit contents the utility knew the gas contained cancer-causing benzene and formaldehyde.

In August, SoCal reached a nearly $120 million settlement with state and local governments over the leak.  It agreed to pay up to $25 million for a long-term health study, reimburse agencies for response costs, monitor air quality for eight years, and not pass settlement costs to ratepayers.

California Jury Finds Plains Guilty in Oil Spill Trial

A California state jury found Plains All American Pipeline guilty of criminally fouling state waters or harming wildlife in a 2015 pipeline rupture that spilled more than 140,000 gallons of crude oil along the Pacific Coast.

The jury found Plains guilty of one felony count and eight misdemeanors but either couldn’t reach a decision or found the company not guilty on two other felony counts and several other charges, said Santa Barbara County Chief Deputy District Attorney John Savrnoch.

Plains said its operation of the pipeline exceeded legal and industry standards. It said it plans to evaluate legal options, including an appeal.

“The verdict reflected no knowing wrongdoing by Plains or our employees,” the company said in a statement. “We believe the jury erred in its verdict on one count where applicable California laws allowed a conviction under a negligence standard.”

The Houston-based company was charged over a May 2015 pipeline rupture that spilled more than 140,000 gallons of crude oil near Refugio State Beach and into the waters of the Gaviota Coast. A felony conviction for fouling state waters carries a fine of about $1.5 million. The state may oppose any request for a new trial and may retry the company on those counts that the jury could not reach a decision, Savrnoch said.

Senators Believe Columbia Gas ‘Woefully’ Unprepared

Two U.S. senators who reviewed internal company documents concluded that Columbia Gas of Massachusetts was “woefully unprepared” to prevent or respond to the series of pipeline explosions that occurred on their system near Boston in September.

Sens. Elizabeth Warren and Ed Markey wrote after a review of Columbia Gas statements and documents, including its “Distribution Integrity Management Plan and Operations and Maintenance Manual,” led them to conclude it did not “properly contemplate the possibility that a disaster like this could occur, did not have sufficient safety measures in place to prevent a disaster, and was not prepared to respond.”

They criticized the company for not instituting “commonsense” measures, such as knowing the exact location of control lines or having proper staff onsite during repair work. “The omission of these sorts of safety measures,” the senators wrote, “raises serious questions as to why these policies were not previously in place for Columbia Gas’ systems and whether that failure was the result of negligence, cost considerations, or incompetence.”

A spokesman for NiSource said its Columbia Gas subsidiary has cooperated with the senators but that the company can’t discuss the accident or ongoing investigation by the National Transportation Safety Board, which initially blamed the blasts on over-pressurization of the pipeline.

Canadian Pension Fund Takes 50% Stake in BridgeTex Pipeline

Plains All American and Magellan Midstream completed the sale of a 50% stake in BridgeTex Pipeline to OMERS, the defined benefit pension plan for municipal employees in Ontario, Canada, and its infrastructure investment manager. Plains retains a 20% interest following the $1.438 billion transaction, while Magellan will continue to operate the Permian-to-Gulf Coast pipeline and own a 30% interest.

BridgeTex currently has a capacity of 400,000 bpd and is being expanded to 440,000 bpd by early 2019. It delivers crude oil from Plains’ Basin and Sunrise pipeline systems in West Texas to Houston, with further connectivity to the Texas City area. P&GJ