A precipitous plunge in natural gas prices has turned the national shale gas rush into a retreat.

Oil and gas companies released a stream of announcements last week of plans to close off natural gas wells, pull out gas rigs and curtail spending in gas fields from Texas to Pennsylvania.

Oklahoma City-based Chesapeake Energy, the nation’s second-largest natural gas producer after Exxon Mobil Corp., launched the barrage with an announcement on Monday that it would slash natural gas drilling in half over the next few months.

Conoco- Phillips followed, reporting that it would close off natural gas wells and dial down spending in gas fields.

Then on Thursday, Noble Energy and Consol Energy released plans to cut 41 wells from their joint venture’s original 140-well shale gas drilling program in the Northeast.

“This situation has been a long time coming,” said Robert Ineson, head of the North American gas research group for IHS CERA.

The price of natural gas has plummeted from more than $13.50 in 2008 to under $3 per million British thermal units. Developments in drilling techniques, including hydraulic fracturing and horizontal drilling, led to a resurgence in North American drilling, particularly in dense shale rock formations. That released a glut of natural gas onto the U.S. market, causing prices to drop.

Hopes that a frigid winter would help, as homeowners used natural gas for heat, didn’t materialize. Instead, fall and winter temperatures have been warmer than usual for many Northern states, and natural gas prices have continued to fall.

“As it got below $4, you heard some grumbling,” Ineson said. “But when it got below $3, you saw things change pretty quickly.”

Shale rock cutbacks

Shale rock fields holding dry natural gas, or methane, are experiencing an exodus. Companies are chopping operations in the Barnett Shale in north Texas, the Marcellus Shale in the Northeast and the Haynesville Shale on the Louisiana-Texas border.

There are 780 natural gas drilling rigs operating in North America, down from 906 a year ago.

The U.S. Energy Information Administration noted that 2011 brought the largest increase in marketed natural gas volumes in history. Daily production grew by more than 7 percent over 2010. But year-over-year, growth will drop to 2 percent this year and to 1 percent in 2013, the federal agency projects.

“In the face of continued low spot and future prices, as well as record high storage levels for this time of year, drillers appear to have begun cutting back on new production plans for 2012,” the agency wrote.

Huge amount stored

But so much dry natural gas is in storage that it will be awhile before slower growth in production has much effect on the market, Ineson said.

Prices rose last week in response to the tightened production – closing Friday at $2.68, compared with $2.34 a week earlier.

But the United States is saddled with 3 trillion cubic feet of natural gas, 21 percent more than it typically has in stock at this time of year, according to federal data.

“It’s a huge, huge number,” Ineson said. “And it’s going to take awhile to absorb all that, even if companies dial back on production.”

Energy producers won’t completely curb natural gas production. Turning off a well’s spigot can damage the rock below. And some land use contracts go void if companies don’t drill or produce.

Plus, some natural gas wells produce high-value liquid fuels like butane, propane and ethane, making it worthwhile to keep them running.

ConocoPhillips executives said that’s what’s keeping them from pulling more rigs out of fields.

Of the 2.5 billion cubic feet of natural gas that ConocoPhillips produced in North America each day in the final months of 2011, two-thirds produced enough natural gas liquids to make them economic, Chief Financial Officer Jeff Sheets said.

“Off the top, there’s a portion of our portfolio where it’s just not going to make sense to shut in wells,” Sheets said. But, he added, “We will have some shut-ins of natural gas going forward, on the order of 100 million cubic feet a day.”

Chesapeake, one of the first companies to make a bet big on U.S. shale gas, plans to cut up to 16??percent of its daily natural gas production and curb drilling in areas including the Barnett Shale.

About 90 percent of the company’s capital spending budget targeted dry natural gas in 2009. This year, it is just 15 percent.

The rest will funnel into fields containing high amounts of oil and natural gas liquids.

More to come

Other energy companies are likely to follow suit, said Alan Lammey, an energy analyst for WeatherBell Analytics.

“By spring, we will see prices really run down, and more producers will put the brakes on supply.”

Because natural gas prices are closely tied to heating demand, the price tag slumps as temperatures moderate in March.

But the shale gas boom hasn’t become a bust, Lammey emphasized.

“We could very well have a bar-the-door, hellacious winter next year,” he said.

MANSFIELD — Slowing of the Haynesville Shale development continues to be reflected in DeSoto Parish sales and use tax collections even though totals still far exceed what was taken in prior to the natural gas activity.

The December report, which does not yet include Christmas retail sales, listed almost $7.5 million in collections for the eight taxing agencies, which is about $1.2 million less than a year ago.

Since July 1, collections have reached slightly more than $52 million, a decrease of $5.3 million during the same reporting period in 2010. Prior to the shale’s announcement in the spring of 2008, parishwide collections hovered in the $20 million range.

In a recent budget message to DeSoto Parish police jurors, Treasurer Linda Gatlin noted revenue from sales taxes that fund road, solid waste and jail operations decreased in the fourth quarter of 2011. Projections for this year are “conservatively” predicted to be 17 percent below 2011 collections.

The Police Jury has taken in almost $12.5 million, compared to slightly less than $14 million last year at this time. The DeSoto Parish School Board, which collects the most of any of the taxing entities at 2.5 percent, has generated $31 million, compared to about $35 million.

Bucking the downward trend are four of the parish’s municipalities. Sales tax collections in Mansfield, South Mansfield, Logansport and Grand Cane are up when compared to last year.

The breakdown:

Mansfield: $1.6 million, up from $1.2 million

Logansport: $152,413, up from $126,539

Grand Cane: $128,314, up from $117,703

South Mansfield: $78,945, up from $67,311

Other year-to-year comparisons include:

DeSoto Law Enforcement District: $6.2 million, down from $6.9 million

Stonewall: $131,489, down from $170,704

Keachi: $44,457, down from $64,334

Original Article

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By Don Briggs
President
Louisiana Oil & Gas Association
On 12/27/11, The Advocate newspaper in Baton Rouge published an opinion piece regarding the state’s horizontal well investment incentive and severance taxes generated from the Haynesville Shale.  You can read the Advocate article here.  Below is LOGA’s response sent as a letter to the paper’s editor.

The Advocate’s recent opinion article entitled, “Wells a bust for the state,” claims that while the Haynesville Shale is booming, it has been a bust for Louisiana because the state is not getting much tax benefit.

To say that the Haynesville Shale has been a bust is a far exaggeration of the truth. The article’s shortsighted focus on severance tax revenue does not pay credence to the larger, macro-level impact that the Haynesville has had on our state.

Natural gas extraction operations in the Haynesville generated over $40 billion in direct and indirect economic growth between 2008-2010.  Over that time period, the Haynesville Shale has supported over 100,000 jobs and provided Louisiana with nearly $1.3 billion in local and state tax revenue.  The state receives tax revenue in the form of corporate taxes, sales taxes, Ad valorem taxes, and personal income taxes.

While Haynesville wells are some of the most expensive wells to drill in the U.S., the state’s horizontal severance tax investment incentive has made Louisiana a more attractive place to do business.  Additionally, Haynesville production is driving investments that seek natural gas for fuel or as a raw material.  Many manufacturers are eyeing Louisiana as a viable place to construct plants that make chemicals, plastics, fertilizer, steel and other products.  These businesses, like Sasol and Cheniere Energy Partners, will generate thousands of jobs and billions in tax revenue that will far eclipse the amount received from severance taxes.

The Haynesville development has shielded our state from the global recession by generating significant economic growth, maintaining property values, and creating thousands of jobs.  It continues to be the most prolific natural gas producing field in the continental U.S.  However, the boom status noted within the opinion piece is no longer evident in the region, as natural gas prices have dropped significantly and companies are drawing down their rig count in order to exploit more competitive shale plays around the country.

Repealing this incentive would certainly result in an immediate and short-term influx of dollars to the state; however, the greatest threat to future state budgets would be a complete absence of the Haynesville development from the long-term effects of a repeal.  Losing the incentive would make Louisiana less attractive in a tough market, resulting in even less overall tax revenue to the state.

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By Patti Domm
CNBC

The more than $25 billion in energy deals this week suggest there could be a lot more merger activity among companies looking to gain a foot hold in the oil and gas shale boom that is transforming the American energy business.

Kinder Morgan Sunday announced its acquisition of El Paso Corp for $21.1 billion, a deal that would create the largest operator of natural gas pipelines in the U.S.  It is also seen as a play on the growth of shale gas production which will need new distribution.

The new company would have 67,000 miles of natural gas pipelines spanning the U.S. and reach every major natural gas production center. It would also take Kinder Morgan into Florida and connect Pennsylvania, Arkansas and Texas.

The second deal was Statoil’s $4.4 billion acquisition of Brigham Exploration. Brigham has assets in the Williston Basin in North Dakota and Montana, which includes the Bakken and Three Forks oil formations. Statoil said it expects current equity production of 21,000 barrels oil equivalents per day to potentially ramp up to 60,000 to 100,000 boe per day equity production over five years.

Norwegian state-owned Statoil already has a stake with Chesapeake Energy the Marcellus shale formation, centered in Pennsylvania. It also owns acreage in the Eagle Ford prospect in Texas with Talisman Energy.

“Marcellus is primarily dry gas, Eagle Ford is a combination of dry gas and liquids and this (Brigham) is oil. We now have a good deep position in the U.S. in unconventionals,” said Statoil Chief Executive Helge Lund.

Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, said this type of deal activity is bound to continue, as the growth in shale oil and gas exploration and production was off the radar of many big industry players just several years ago. “These pioneers went into it a few years ago, when nobody was paying attention. It was thought to be a thing for independents, but it’s clear it’s a big resource play for majors who have the capital these developments require,” he said in an interview from Seattle Monday.

“We reached the high point in terms of (oil) imports in 2005. Sixty percent of our domestic consumption was net imports. Today, it’s down to 47 percent. Part of it is conservation, efficiency. A big part of it is increasing production. What we’re seeing is a reversal in what seemed to be an irreversible trend in terms of dependence on foreign oil. It shows what technology and innovation can do. It wasn’t in very many peoples’ play books several years ago,” he said

“Suddenly, U.S. oil production is up 10 percent since 2008. This is like a new burst of life in the U.S. upstream, and it’s driven by technology,” he said.

Yergin, also CNBC’s global energy analyst, is currently on tour with his new best-selling book, “The Quest: Energy, Security, and the Remaking of the Modern World.”

In his book, Yergin explores what he calls the “natural gas revolution,” which came with the breakthrough in horizontal drilling and hydraulic fracturing technology. For instance, the U.S. recovered just 1 percent of the natural gas supply from shale in the year 2000. It is now about 30 percent, and Yergin expects it to be 50 percent within the next several years.

“It turns out the U.S. is no longer suffering from tired geography,” he said.

While creating a boom, the so called “fracking” process is not without its critics. It has raised concerns about water contamination, a topic Yergin also discusses in the book.

The El Paso deal was clearly spurred by the boom in U.S.-produced shale gas, and Kinder Morgan said it will take whatever steps it needs in order to get the deal approved by regulators.

“As natural gas expands and becomes an even larger component of our energy economy, it positions this combined company to have an integrated national system and clearly as this new production comes on line in places as far apart as Pennsylvania and North Dakota, there is going to be a need for new pipeline,” Yergin said.

Natural gas futures have been trading around $4 or less per million British thermal units, well below the highs of $15.78 reached in December, 2005.

Yergin points out that perennial shortages of natural gas gave way to substantial surplus, which is keeping prices low. “…these prices are very low. As to where prices are bound, we have to see when we come out of this near recession we’re in. I think the whole industry is adjusting to a much lower price than it had been anticipating,” he said

“Certainly gas is headed to be the default fuel for electric generation, and I think we’re going to see more activity in terms of converting buses and other fleets, where people will have a central refueling station that makes it easier to make gas a transportation fuel,” he said.

Yergin said Bakken has put North Dakota on the map as the fourth largest oil producing state in the U.S. “The Bakken formation not so many years ago was producing 10,000 barrels a day. Now it’s 450,000. We expect altogether tight [unconventional] oil in the U.S. to reach as much as two million barrels a day by 2020 and perhaps even more,” he said.

Original Article

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Posted on October 7, 2011 at 10:45 am by Michael Economides
FuelFix

By Peter C. Glover & Michael J. Economides

As The High Stakes Pipeline Game points out, Russia clearly holds now the balance of power when it comes to European energy security. However, the current Eurozone economic crisis and the development of massive European shale gas reserves are set to combine to re-shape entirely the landscape of European power politics – no matter what the politicking of Brussels or Moscow.

Of the rich band of shale gas across much of northern and Eastern Europe, and large deposits are thought to be beneath Ukraine, Poland, Germany, France, the UK, Hungary, Bulgaria and Romania. In early September 2011, the Ukraine, once again clashing with its Russian gas providers over prices and outstanding payments, and committed to cutting Russian gas imports from 34 billion to 12 cubic metres within five years, has just signed a deal by which Shell expect to invest up to $800 million in a bid to speed up the Ukraine’s domestic natural gas production. The country’s reserves could well prove to be the biggest in Europe.

Across in the Balkans, Chevron is also currently prospecting shale deposits in NE Bulgaria, believed to be between 300 billion and 1 trillion standard cubic feet (Tcf) of gas. But it is in Poland that shale gas development is currently full steam ahead – creating a potential dilemma for the European Union.

With France and Switzerland having already banned the hydraulic fracturing procedure vital to shale extraction on environmental grounds, there is always the possibility of the EU creating regulations that would derail Poland’s ambitions to become a gas exporter. Poland like the Ukraine and European Union, is looking to break its dependency on Russian gas imports and slash its energy costs.

Coincidentally, as the Russian-backed Nord Stream pipeline was opening for business in September, Poland’s Deputy Treasury Minister, Mikolaj Budzanowksi, was insisting before an economic forum in Krynica in the south of the country that special legislation controlling shale gas exploitation was unnecessary as sufficient environmental regulations already existed under EU law.

It is no wonder Budzanowski and his government are sensitive towards an EU thwarting his government’s aim to avail itself of around 200 Tcf of shale gas – equivalent to 300 years of domestic consumption – at present the largest shale gas resource known in Europe. As PM Donald Tusk has pointed out, shale gas represents the country’s “great chance” to turn Poland from an energy importer to one of the world’s leading exporters. With Poland’s election on October 9, Tusk’s ruling party has already dangled the carrot of a four-year deal that includes creating a special fund to pay future pensions from shale gas revenues. No surprise then that a rig belonging to PGNiG, Poland’s energy conglomerate torched the first gas flare at Lubocino in the north of the country.

But even Poland’s massive shale gas reserves are comparable to the 200 Tcf that the UK’s Cuadrilla claims are sitting under England’s north-western coastline. The UK too is currently a net importer of much of its natural gas as its North Sea reserves steadily diminish. With Cuadrilla’s assessment Britain will find itself with the equivalent of ‘another North Sea’ natural gas resource. With the British Government thus far quite clear that fracking poses no environmental or geological threat, the development of such a massive resource could yet make the UK once again self-reliant in natural gas for decades to come – slashing or ending current gas imports, including from Russia.

How the politics of shale gas plays in Brussels then is of no small consequence in the halls of the Kremlin. A Russian Government overly-dependent economically on foreign gas sales is only too aware of what the extensive development of shale gas in Western Europe will mean for its future balance of payments.

Polish gas self-reliance alone would seriously impact Russia’s gas export market. Add to that the prospective threat of greater UK and, longer-term, Ukrainian energy independence and the freeing up of LNG deliveries for other markets and the prospect for Russian gas exports look positively Siberian.

Of course, all of this is reckoning without the EU’s ever-demonstrable capacity for shooting itself in the economic foot. If the EU chooses to follow France’s lead on hydraulic fracking by imposing ‘death by a thousand regulations’, Europe’s shale gas revolution could be on hold indefinitely.

Left to market devices, the potential for Polish and Ukrainian, and the fast-tracking of other European shale gas reserves, could well undermine the power politics of Russian energy imperialism within less than ten years – at least as far as Europe is concerned. While the launch of the Nord Stream pipeline currently ensures Russian gas hegemony will hold sway for a few years yet, shale gas offers EU member states the very real prospect of much greater domestic energy security beyond that.

As Huge UK Shale Gas Play Could Split Coalition argues the case for the economics afforded by the shale gas revolution winning when it comes to power politics in Britain, so our money is on the economics of shale gas forcing a win in Brussels, too. With no economic respite in sight for Europe and its global economy-affecting Eurozone crisis, shale gas simply offers too great an economic windfall. An opportunity for Europe to achieve a greater degree of energy security while diversifying away from Russian gas dependency.

Even by the time of the centenary celebrations of the 1917 uprising, shale gas is likely to threaten Russia’s elites with a very different kind of revolution.

Michael Economides is Editor-in-Chief of the Energy Tribune

Original Article

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By Ed Crooks
Financial Times
Now the technology exists to extract the reserves, the promise is of an industrial renaissance

In eastern Ohio, brand-new tractors have been zooming off the dealers’ lots, snapped up by local farmers. Suddenly cash-rich after being showered with bonuses for leasing oil and gas drilling rights on their land, typically worth $1,500-$4,000 an acre, they have been quick to invest their windfalls in new equipment.

A few years ago, those same leases would have sold for just $15 per acre. The difference now is that eastern Ohio is at the heart of the region that has become the most exciting area for oil and gas development in North America: the Utica shale.

Within the past two years, the industry has woken up to the prospect that the rock layer stretching across the north-east of the continent from Kentucky to Ontario is rich in oil, gas and the “natural gas liquids” such as ethane and propane that are used as feedstock for the chemicals industry. Leading companies – including Chesapeake Energy, ExxonMobil and Hess – have between them spent billions of dollars building land holdings with drilling rights.

Estimates of the Utica shale’s reserves are imprecise but Aubrey McClendon, Chesapeake chief executive, has said he thinks the region could hold 25bn barrels of oil and gas: almost as much as the entire proved reserves remaining in the North Sea. Chesapeake is already reporting “very strong initial drilling results” from its first Utica wells in eastern Ohio and western Pennsylvania.

The implications for long-depressed rust belt US states are momentous. The east Ohio tractor boom is one small harbinger of what many people believe is an impending economic revolution.

For decades, as factory employment declined inexorably and US pre-eminence in manufacturing was eroded, its industry has been looking for a lifeline. Now it may have found one, in the shape of shale gas and oil: resources that were long thought impossible to access commercially but have been unlocked by techniques perfected during the past decade.

Many other countries, including China, are also thought to hold large shale gas reserves. Britain was gripped last month by reports of a huge discovery in Lancashire in north-west England. The US, however, is way out in front in terms of knowing how to extract the gas. That knowledge creates a crucial competitive advantage that American companies are determined to exploit, not just in gas and oil extraction but in chemicals, steel and other sectors.

By creating fast-growing markets for production equipment and services, and providing cheap energy and raw materials, the shale producers are holding out the promise of an American industrial renaissance. “It’s a phenomenal opportunity,” says Andrew Liveris, the chief executive of Dow Chemical, who is a vocal supporter of US manufacturing. “This is a gift that American entrepreneurs, the wildcatters, the oil and gas drillers, have given the country: 100 years of natural gas supply. There’s no country on the planet that wouldn’t love to get that, and then use it.”

As with most fairy tales, however, the gift comes with a curse. Plans for using this lavish hydrocarbon endowment are threatened by public disquiet over hydraulic fracturing – “fracking” – the process used to release gas and oil by pumping water and chemicals underground at high pressure. President Barack Obama is broadly supportive of shale; the Republicans generally even more so. Yet if the industry causes any serious pollution, a public backlash could keep those resources trapped underground.

At a gloomy time for the US economy, the oil and gas sector is a light that burns brightly. As well as direct employment in exploration and production, which is up by 17,000 over the past year to 177,000, the industry is creating thousands of jobs in its suppliers. In Youngstown in eastern Ohio, for instance, France’s Vallourec is building a $650m plant to make steel tubes for oil and gas wells. For an area that has not fully recovered from the decline of the steel industry in the 1970s, the plant is a blessing unimaginable a few years ago.

“When we watch the national news about the state of the US economy being negative, we’re not seeing that here. We’re seeing the optimism,” says Walt Good of the Youngstown/Warren business chamber. “People thought they’d never see an industrial investment of this scale again, and now they see this 1m sq ft plant going up. It really gives heart to the psychology of everyone in the area.”

The Pennsylvania-based US Steel is another company investing in Ohio to make tubes for oil and gas wells, committing $100m to a new facility to revitalise a plant that first started production in 1905. As well as benefiting from supplying shale gas producers, it is making growing use of their product as a raw material.

John Surma, US Steel chief executive, explained recently how the company has been substituting cheap gas for expensive coal in its blast furnaces, saving tens of millions of dollars a year, and is exploring techniques to yield even bigger savings. “We are thankful”, he said in a speech to industry executives last month, for “the natural gas your revolutionary work is helping to bring to market”.

Shale gas is particularly important because it is stranded in US, with no facilities to sell it on world markets, although the country’s first liquefaction plant to enable the gas to be exported is now under development. As a result, gas is much cheaper in North America than in other leading economies. The US price of about $3.60 per million British thermal units compares with about $8 in the UK and $16 in Japan.

The cost comparison is even more favourable for US manufacturers of petrochemicals that use gas as a raw material and compete with international rivals using oil-based feedstocks. The US gas price works out at the equivalent of $22 a barrel, about one-fifth of the Brent crude price of more than $100.

“Natural gas is to the chemicals industry as flour is to a bakery,” says Cal Dooley, president of the American Chemistry Council, an industry group. “Cheap gas means both international and American companies are now looking at the US as the preferred location for new investment.”

The big prize in this competition is ethylene, an essential intermediate product used to make many plastics. Dow said this week that while Middle Eastern ethylene producers had the lowest costs of all, the US was now lower-cost than south-east Asia and well below western Europe or north-east Asia. Those calculations have inspired the company to restart one ethylene plant in Louisiana next year and to build a new one in the US to start operating in 2017.

Other companies are reaching similar conclusions. Royal Dutch Shell has said it plans to build an ethylene plant in the Appalachia region, meaning Pennsylvania, Ohio or West Virginia. Other oil and gas groups, including Chevron and ConocoPhillips, are also looking at possible new plants. LyondellBasell, the chemicals company, and Williams, which operates gas pipelines, are looking at adding to their US production capacity.

For the first decade of the millennium, high and volatile gas prices made US production uncompetitive relative to producers in emerging economies. Jeffrey Lipton, a former chief executive of Canada’s Nova Chemicals who now spreads the shale gas gospel, says the balance of power has shifted back to North America. Unlike in some industrial sectors, China has no competitive advantage in chemicals, because it is an importer of gas and oil.

As the effect of cheaper American raw materials works through the value chain, Mr Dooley says, other manufacturers will also be encouraged back to the US to take advantage. “Even in the auto industry we are starting to see a response,” he says. “There are composite and plastic components presently being made outside the US, because it has been cheaper. That competitive advantage no longer exists. In the future the US will be in a far stronger position to be a supplier to the auto industry.” The ACC estimated in March that a 25 per cent increase in ethane production could create 400,000 jobs.

There will be limits to how far the gas-powered industrial comeback can go, however. The importance of raw material and energy costs varies widely between industries, and in some they are only marginally significant. US industry is still struggling with problems of weak demand and a currency that is overvalued relative to China’s renminbi. The ACC’s 400,000 jobs to be created compares with 2m manufacturing jobs – and 6.5m jobs in total – that have been lost in the US over the past four years.

Like other resource booms, the shale revolution offers the US a chance to rebuild vital parts of its industrial base. The fear shared by many of the people who hope to profit from it is that the country will not seize that opportunity.

As shale gas production has grown during the past decade, and development has migrated north and east from the Barnett Shale in Texas where it began, concerns about possible pollution from fracking have grown. In August, Friends of the Earth and 68 other environmental groups wrote to Mr Obama urging him to “employ any legal means to put a halt to hydraulic fracturing . . .a highly controversial and dangerous method of ‘natural’ gas exploration”.

Peter Voser, Shell chief executive, told the Financial Times recently that he thought the gas industry had been “not clever” in its communications strategy and had “let it go for too long” without responding properly to its critics. An independent advisory panel to the US government warned in August that unless the industry raised its standards, “public opposition will grow, thus putting continued production at risk”.

In Pennsylvania, about 100 municipalities have adopted bans or restrictions on fracking, even though the state has approved it.

For companies hoping to benefit from shale production, the conclusion is clear: oil and gas producers have to make sure they avoid an incident that could impede the shale industry in the way last year’s Deepwater Horizon disaster hit offshore drilling.

“If I was the CEO of one of those companies, I’d have to be absolutely sure that everything we were doing in terms of drilling and other operations was as environmentally effective as possible,” Mr Lipton says. “It’s incumbent on the oil and gas industry to be purer than most people expect

it to be, and to make a real investment not just in communications but in the real practical work that they do.”

If the industry does not make sure that its environmental performance is watertight, the possibilities for job creation could vanish on the breeze.

Original Article

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By IBTimes Staff Reporter

Second, long-term, natural gas will likely at least remain competitive with oil, and probably remain cheaper on an energy delivered per dollar basis. The primary reason? Large storage capacity in the United States, and the to-date unwillingness of natural gas producers to cutback production, despite the oversupply. New technology, including a process called hydraulic fracturing, enables the tapping of natural gas sources in the previously cost-prohibitive U.S. regions of Appalachia, the Mid-Continent, the Gulf Coast, and in the Rocky Mountains.

Hydraulic fracturing, or “fracking” has come under fire for groundwater pollution, a legitimate concern, but investors should keep in mind that many sites accessible by innovative technology will not involve such risks.

What’s more, estimated U.S. natural gas reserves have increased 23 percent, mostly on the ability to access those new sources, with estimated reserves totaling 1,898 trillion cubic feet as of the end of 2010, up from 1,532 trillion cubic feet in 2006, according to the Potential Gas Committee.

Third, oil and natural gas, which compete with eachother but which do not have identical customers or uses, are currently orbiting in distant solar systems. Oil, currently trading about $86 per barrel, is now about 21.5 times the price of natural gas, compared to a historical average of about 8.4 times natural gas over the past decade.

What’s more, oil, for a variety of reasons, shows little sign of trending lower, although it has pulled back recently on concerns about government bond woes in Europe and the slowdown in U.S. gdp growth.

Whether its oil-as-an-asset-play, the threat of inflation, a weakening dollar, OPEC production cuts, or the prospect of rising demand in emerging markets, oil has (so far) found a way to remain in the stratosphere, despite high inventories and high U.S. unemployment (which reduces the number of U.S. drivers on the road).

Further, there’s always some oil sector analyst who argues oil is overpriced and predicts a price collapse. But it doesn’t happen.

Will Natural Gas Make Energy In-Roads This Decade?

That aforementioned price disparity creates a new opportunity for natural gas to displace both oil and coal. Regarding transportation, more vehicles, especially fleets of buses, vans, and trucks will likely shift toward natural gas-powered engines.

Regarding utility-based electric power generation, coal is still much cheaper than natural gas for generating electricity, but new Congressional legislation to penalize carbon emissions will probably decrease that edge: coal is inherently dirtier than natural gas. And in an increasingly green world, that does not bode well for coal.

Still, after price, perhaps natural gas’ most important selling point is its location: it’s a domestic energy source. All one has to do is experience an oil shock, read about the civil war in oil exporter Libya, or sample some of the $4 per gallon (and higher) gasoline prices around the nation to understand the importance of a domestic energy source.

Energy Analysis: Natural gas presently accounts for about 25 percent of the nation’s energy production, and 22 percent of electricity production. Natural gas is not without environmental concerns: it has a lower impact on climate change, not no impact, and some environmental groups are concerned that hydraulic fracturing will pollute drinking water sources.

That said, the view from here argues that advantages of natural gas — energy abundance, energy independence, enhanced foreign policy flexibility, ample reserves, wealth retained in the United States, more domestic jobs, and a lower impact on climate change — push the needle in favor of a much bigger role for natural gas for the nation’s energy needs, in the decades ahead.

Original Article

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By Matt Smith
(FuelFix)

Think more Tracy Chapman than The Beatles. Ok, good deal. Despite the current lackadaisical price action in natural gas, the whole energy market - if not the whole world – is aware that the natural gas revolution is coming. It is just that at the moment…..it sounds like a whisper.  

This latest rumination about the future of natural gas was kick-started by a colleague mentioning ‘The Pickens Plan’ earlier this week. While being up to speed with the potential longer-term impacts on natural gas by LNG exports and shale plays, I wanted to know more about Mr T-Boone Pickens’ plan for a future fueled by the stuff. So some digging inadvertently sent me off on a wild goose chase through all things natural gas-like; here are some bits and bobs I discovered along the way:

This first tidbit relates to natural gas transportation (also one of the pillars of The Pickens Plan). But this is not just the transportation fuel of the future, it is of the now. Amazingly, 61% of vehicles in Pakistan are currently powered by natural gas, while the number in the US is…0.04%:

This is because compressed natural gas (CNG) vehicles are more prevalent in the Asia-Pacific region and in Latin America as these regions look to combat rising fuel costs. For the US to increase the number of natural gas-powered vehicles on the road, it would likely take government subsidies; higher costs are involved to configure vehicles to run on natural gas than diesel while the economies of scale are not in place to mass-produce CNG vehicles.

The idea of natural gas for vehicles dovetails nicely into ‘The Pickens Plan‘, which is based on four pillars:

–Create 22% of electricity in the US from wind
–Build a 21st century backbone electrical transmission grid
–Use natural gas to replace imported oil as a transportation fuel
–Incentivize homeowners and owners of commercial buildings to upgrade their insulation and other energy savings options

According to the plan, nearly 33% of every barrel of oil imported by the US is used by 18-wheelers to move goods across the country. The Pickens Plan targets fleet vehicles such as buses, taxis, delivery trucks, and municipal and utility vehicles to be replaced by natural gas-powered vehicles. This is a sentiment echoed by the government in their energy policy document, ’A Blueprint For a Secure Energy Future‘, released in late March of this year.

To target such demand growth in natural gas means an incredible reliance placed on the shale revolution coming to fruition. Yet these fears can be assuaged by taking a look at a simple snapshot of the EIA’s projection for shale growth in the latest Annual Energy Outlook:

Despite the current backlash experienced by shale and hydraulic fracturing (‘fracking‘), the dependency placed on it in the recent energy policy release by the government only goes to highlight that environmental issues will be resolved, most likely through increased regulation.

Another large piece of the long-term natural gas puzzle is LNG exports. As the above chart illustrates, the domestic supply of natural gas is to ramp up in coming years. One way for domestic producers to take advantage of higher global prices is to export natural gas in its liquid form (LNG). The problem is, to build an LNG export terminal takes up to six years; up to half of this time for the engineering and permit approval, and the other half for construction.

There are currently two terminals proposed in the US; one at Sabine Pass, LA, and another at Freeport, TX, which would create up to 4 Bcfd of export capacity. The terminal at Sabine Pass received approval to export from the Department of Energy (DOE) in May, and now awaits approval from the Federal Energy Regulatory Commission (FERC). The Freeport site submitted its application to the DOE in December 2010. Based on current timelines, LNG exports should be underway from 2015 onward.

So where does this leave us? After the announcements so far this year, from energy policy to LNG export approvals, the forward curve is weighing up the potential impact from these changing dynamics. While immediate near-record supply continues to weigh on the front end of the curve, the expectation for higher demand as we reach the middle of this decade is driving up prices at the longer end. Given the timeframe for these impacts to take hold, there is likely to be a whole lot more talkin bout this revolution before it actually takes place.

Original Article