Cheap, plentiful natural gas is a “game changer” that will bring untold jobs and wealth to Americans, the top official with an organization representing oil and gas interests in the state said Thursday.

Don Briggs, president of the Louisiana Oil and Gas Association, was in Alexandria as part of a series of “State of the Industry” appearances. Much of his presentation focused on shale plays in Louisiana, in particular the vast deposits of natural gas they contain.

“It’s the bridge fuel of the future,” Briggs said. “We’re in a changing world. The neat thing is Louisiana is at the heart of it.”

Vast resources have already been discovered in the northwest part of Louisiana in the Haynesville Shale. As big as that discovery has been, Briggs believes barely a tenth of the wells that will eventually be drilled in the formation have come online thus far.

Companies are starting exploration into the Tuscaloosa Marine Shale, part of which runs through Central

Louisiana.

“You’ve got some good companies involved in it,” Briggs said of the Tuscaloosa Shale. “How far and how much bigger this thing can get, we don’t know. They have to do a lot of testing.”

The oil and gas found in such shale formations can be key to America’s energy future, Briggs said. Natural gas, in particular, has almost limitless potential as a power generator, feedstock for industrial plants, transportation fuel and commodity to be exported.

“I can’t tell you how critical it is to have natural gas for all our different businesses and industry,” Briggs said. “The jobs this kind of asset can bring are enormous.”

There are, however, challenges to taking advantage of that potential, including:

»Price.

Despite the potential of and demand for natural gas, the number of gas wells in the U.S. has shrunk recently as gas prices have remained low.

Natural gas prices went up more than 7 percent Thursday due to reports that supplies had shrunk more than analysts expected. Futures rose 17 cents to $2.55 per 1,000 cubic feet, but that’s still too low, Briggs said.

“We need that to be at least $4-$4.25 for wells to be economical,” he said.

»Regulations.

Natural gas in shale formations is accessed by hydraulic fracturing, or “fracking” — a process of horizontal drilling where shales are fractured to get to the gas they contain.

Fears in the industry are the Environmental Protection Agency will overregulate or outlaw fracking.

“Here’s my concern, we watched what happened in the Gulf of Mexico with one company doing something they shouldn’t have done,” Briggs said.

»Louisiana’s legal climate.

Briggs showed a study ranking the state 49th out of 50 among the worst states for lawsuits.

“We’re the worst of the worst,” he said. “And that does have an impact when people look where to invest their money.”

Despite those potential negatives, Briggs sees the country’s energy future and Louisiana’s role in it as overwhelmingly positive. By 2020, he said, the U.S. will pass Russia and Saudi Arabia as the world’s leading oil and gas producer.

“We are an energy state,” he said. “We are so important.”

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While unhappiness with the White House energy agenda colored the Louisiana Oil and Gas Association meeting held today at the Windsor Court Hotel in New Orleans, industry leaders were upbeat about a slew of new shale natural gas discoveries that could pump new life into the industry.

Though low natural gas prices have slowed activity in areas such as the Haynesville Shale in northwestern Louisiana, LOGA President Don Briggs said demand for natural gas in export markets and for domestic power generation and transportation fuel will only grow.

Briggs noted horizontal drilling and hydraulic fracturing, a technique that pumps water, sand and chemicals deep into rocks to push out natural gas and oil, continue to open new possibilities for the industry in Louisiana.

“This is a big thing for Louisiana in a lot of different ways,” Briggs said.

Industry leaders noted slow permitting for drilling offshore, the threat of tightened federal regulation on fracking and Obama administration rhetoric condemning oil and gas tax incentives remain major concerns.

But they highlighted a number of new prospects that could play a role in the future of the state’s oil and gas industry. Shale drilling activity is picking up in the Lower Smackover Brown Dense in northern Louisiana as well as the Tuscaloosa Marine Shale, also known as the Louisiana Eagle Ford, in central and south Louisiana.

In the shallow water Gulf of Mexico, companies are drilling for natural gas tens of thousands of feet below the ocean floor in areas previously thought tapped. New Orleans-based McMoRan Exploration is betting millions on ultra-deep natural gas plays.

“Plays like this could really be tremendous for us,” Briggs said.

One of the obstacles to growth is the price of natural gas, which plummeted to around $2.50 per MMBtu in January. The decrease has had an acute impact in the Haynesville Shale.

Last March, the Haynesville Shale surpassed the Barnett Shale in Texas as the top-producing natural gas play in the U.S., producing about 5.5 billion cubic feet of natural gas per day. Still, the number of active rigs has fallen from 135 rigs in 2009 to 68 now.

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Although the local economic gains may not be direct or immediate, three permitted oil wells and a flurry of mineral leasing activity in Morehouse Parish give cause for optimism.

“We don’t really know yet [what the impact will be],” said Morehouse Tax Assessor John Hill. “We’re hoping this oil exploration will really kick off in the next few years.”

Last fall, the Louisiana Department of Natural Resources announced the development of a new shale play (petroleum-bearing formation) called the Brown Dense, believed to span beneath Morehouse and other northeastern parishes.

Devon Energy of Oklahoma City began drilling the first well in Morehouse Parish in three years last September, followed by ExxonMobil subsidiary XTO Energy, which began drilling in November. A third well permitted to Dan A. Hughes Co. LP of Texas has yet to begin drilling in the parish.

Hill said the companies’ physical equipment used in Morehouse Parish was assessable on Jan.1, while the wells themselves can be assessed based on their vertical depth. Devon’s equipment was assessable because it was still in use at the well site on Jan. 1, while the ExxonMobil equipment had been removed and the well had been capped by the first of the year. The assessable value of Devon’s equipment will not be known until the company has returned their reports to Hill’s office by the deadline in April.

“We calculated about $9,000 in taxes [the Devon well] would have generated last year, not including the equipment,” he said.

Hill said productive wells could benefit the parish economy through the collection of severance taxes, which are levied on all natural resources in Louisiana. According to the LDNR, oil and gas extraction accounts for nearly 92 percent of severance tax collections in the state.

Energy companies have filed mineral leases on more than 36,000 acres in rural Morehouse Parish. Hill said the leases do not have a direct impact on agricultural and timber property values for assessment purposes, for two reasons. First, the mineral rights are often retained by someone other than the current property owner.

“[The oil companies] are talking to whoever owns the mineral rights, not the property owner per se,” he said.

Second, the state assesses “use value” rather than fair market value for agricultural and timber properties. The use value is determined by the land’s productivity and, in the case of farmland, the soil content.

“The state will adjust their [land use] values every four years, but it doesn’t fluctuate very much,” said Hill.

Regardless of mineral leases, he said rural property values have shown some increase because local growers have had “a couple of good years” in terms of productivity. He does not expect real estate values in general to change very much this year.

“It’s going to take a lot of wells to really help the parish with property taxes,” said Hill. “I’ve heard bits and pieces [of plans for more wells], but it’s just hearsay right now.”

Hill said the recent decline in activity in Haynesville Shale play in northwest Louisiana – a result of low natural gas prices — could lead to increased activity in the new oil play in Morehouse.

“That might help us right now,” he said. “If oil and gas exploration keeps up, and if companies will come in and set up shop here instead of somewhere else like Monroe, it will really help the economy.”

The Brown Dense activity is not limited to Morehouse Parish. According to the LDNR, the mineral rights for more than 6,000 acres of state-owned land have been leased in East Carroll Parish, and private interests have nominated for bid an additional 3,000-acre area spanning portions of East Carroll, West Carroll and Richland parishes.

In a recent press release, LDNR Secretary Scott Angelle also expressed optimism about the economic benefits of the Brown Dense play for northeast Louisiana.

“When the Haynesville Shale boom came to northwest Louisiana, it made an incredible positive economic impact in an area that already had a strong economy,” said Angelle.

“Responsible exploration of this new prospect, even if it does not reach the same fever pitch, could mean a welcome strengthening of the northeast Louisiana economy and greater opportunities for businesses and jobs.”

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BG Group announced recently that it has reached agreement with Sabine Pass Liquefaction, LLC (Sabine Liquefaction), a subsidiary of Cheniere Energy Partners, L.P., to purchase an additional 2 million tonnes of liquefied natural gas (LNG) over a 20-year period from the Sabine Pass terminal in Louisiana, USA.

In October 2011, BG Group announced it had signed a fully-termed sale and purchase agreement (SPA) with Sabine Liquefaction for the purchase of 3.5 mtpa of LNG over a 20-year period. The additional volumes associated with today’s announcement have been incorporated into the SPA.

BG Group Chief Executive Sir Frank Chapman said: “The purchase of additional volumes from the Sabine Pass facility builds on the ground-breaking agreement we entered into last year, in which BG Group secured LNG export volumes from the US Gulf Coast.

“The agreement adds further volume to our diversified global LNG supply portfolio and is underpinned by the recent material increases in US gas reserves as well as a favourable long-term outlook for global LNG demand.”

Construction of the liquefaction facilities at Sabine Pass is scheduled to begin in 2012, with an initial phase of two LNG trains. Construction of the second phase, an additional two trains, is expected to commence in 2013, with exports from the initial phase to start as early as 2015 and for the second phase from as early as 2017.

At the same time, BG Group is pursuing an expansion of the Lake Charles LNG terminal, in Louisiana, USA, to provide natural gas liquefaction services. The US Department of Energy (DoE) has authorised the terminal to export up to 730 Bcf of natural gas per year (approximately 15 mtpa) to countries that have a free trade agreement in place with the USA.

The DOE is reviewing an application to export natural gas from the Lake Charles LNG terminal to countries that do not have a free trade agreement with the USA.
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Korea Gas Corp. (036460) agreed to buy liquefied natural gas from Cheniere Energy Partners LP (CQP), the second such deal by an Asian company in two months, seeking to take advantage of the cheapest U.S. supplies in a decade.

The world’s largest LNG importer agreed to buy 3.5 million metric tons annually from the proposed Sabine Pass terminal in Louisiana for two decades starting 2017, Houston-based Cheniere said yesterday. The price will be linked to monthly levels at Henry Hub, a U.S. benchmark, plus a fixed component.

Asia accounts for more than 60 percent of global LNG demand and buyers are turning to North America, where record production from shale deposits has driven down U.S. prices. GAIL India Ltd. (GAIL) last month became the first Asian buyer of U.S. LNG at Henry Hub prices, weakening a 40-year-old oil-link currently used to price long-term supplies in Asia.

“More and more Asian buyers will look to buy LNG from the U.S., that will be their first choice because it’s cheaper,” said Osamu Fujisawa, an independent energy economist in Tokyo. “As more companies get U.S. LNG, Asia’s link to oil will start weakening over the years.”

Bank of America Corp. has said LNG shipments to Asia from the U.S. may slow the development of new projects in Australia, a traditional supplier of LNG to the region. Ventures in Australia and Qatar sell LNG to Asian buyers at prices linked to the so-called Japan Crude Cocktail.

Korea Gas declined 1 percent to 44,400 won at the close of trade in Seoul. Cheniere Energy Partners rose 0.6 percent to $21.43 at the close in New York. Cheniere Energy Inc. (LNG), the owner of 90.6 percent of Cheniere Energy Partners, fell 1 cent to $12.70.

South Korea, India

The contracts signed by the state-controlled companies from South Korea and India are subject to Cheniere getting approvals and financing to expand the proposed liquefaction facility at its Sabine Pass terminal, according to the Houston-based partnership.

Increased U.S. gas production from shale formations has helped drive prices to a 10-year low and led owners of LNG terminals to explore exports. U.S. gas production grew by a record 4.5 billion cubic feet a day in 2011, the Energy Department said in a Jan. 10 report, while demand growth lagged behind at 920 million. About 482 trillion cubic feet can be produced from U.S. shale basins, according to the department.

Gas in New York trading has declined 11 percent this month after falling 32 percent last year, a fourth straight annual decline. Prices were 2.3 percent lower at $2.65 per million Btu at 1:38 p.m. Singapore time.

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It became easier this month for motorists and fleet operators utilizing alternate fuel sources to find locations to fill their vehicles. And it should steadily improve as the year progresses, industry officials say.

Aiding in that process was the quiet opening in recent weeks of the first natural gas-supplied pumps in DeSoto Parish. Formal grand openings are scheduled in February.

They join stations already open in Bossier City and another near Coushatta. Sites have been selected in Caddo Parish.

“It’s a slow process but we’re letting people know that this is fuel produced in Louisiana and available locally,” said David Hill, vice president of operations for EnCana Natural Gas Inc.

EnCana partnered with the Relay Station, a truck stop and casino located at Interstate 49 and state Highway 175, to build the LNG, or liquefied natural gas, station — only the 15th in the United States. The Relay Station will add its own CNG, or compressed natural gas, pumps.

Then in Mansfield, Lott Oil Company added CNG pumps to its Chevron truck stop/convenience store at the corner of U.S. highways 171 and 84. Another also opened in Rapides Parish at the Air Base Road exit off I-49.

Getting the infrastructure in place and in strategic locations is considered essential if the public is to embrace the use of natural gas extracted from the Haynesville Shale underneath northwest Louisiana as another fuel source.

The need to fuel Heckmann Water Resources’ 200 LNG-fueled tractor-trailers is what pushed EnCana toward the Relay Station location. Heckmann’s trucks haul fresh, produced and disposed water to and from the Haynesville Shale drilling sites. A study of their routes and routine fueling locations led to the convenient access off I-49 where the fleet will be anchored.

“We hope this will be the beginning of an energy station at that truck stop. It’s kind of neat and how we see the future unfolding,” Hill said.

The pumps now are only open to Heckmann. The public will have access after the Feb. 24 grand opening.

EnCana opened a CNG station on U.S. Highway 84 between Armistead and Coushatta last year and has witnessed sales triple. Chesapeake Energy, LEAM Drilling and AT&T fleet trucks are frequent users, Hill said.

CNG pumps at Shop-a-Lott No. 3 in Mansfield now are open to the public — a grand opening is set Feb. 6. “We’re already getting pretty decent traffic,” said David Dollar, Lott Oil Company sales manager, who headed up the project. The company made the decision to move forward with its own pumps after prolonged discussion with Chesapeake and the realization that the need for stations would grow.

“The more we talked and looked at it, the dynamics made sense,” said Dollar, adding that a federal energy department grant funneled through the state Department of Natural Resources covered the equipment costs.

One of the pumps contains a transit dispenser that will fuel larger vehicles such as buses at a faster rate. That should be good news to the DeSoto Parish School Board, which plans to add three CNG buses to its fleet this year.

The School Board typically purchases six buses a year. Costs average about $100,000 each because of the addition of air conditioning that is now mandatory on new purchases. Schools Superintendent Walter Lee estimates CNG will add about $15,000 or so to the bottom line.

The three buses will be stationed in Mansfield because of the convenience of the Shop-a-Lott CNG pumps. Lee anticipates adding more as the number of fueling stations increases.

The stations need to be on or near bus routes so that drivers are not burning up more fuel traveling back and forth, Lee said. Still, he acknowledges CNG is cheaper and will save money in the long run for those utilizing it as a fuel source. Friday, CNG was selling for $1.799 per gasoline gallon equivalent at Shop-a-Lott.

Over a year ago, Lee DeSoto Parish Sheriff Rodney Arbuckle and representatives of the DeSoto Police Jury and city of Mansfield met with Chesapeake officials, who were exploring grant funds to aid the public agencies in conversion of their fleets to natural gas. But that grant effort fell through.

Arbuckle has given it more thought since then but is hesitant to move forward until technology improves to where more mileage can be realized on CNG vehicles.

“What they told me, with these Tahoes we are running right now, the conversion kit will only give a 100-mile range, where we get 300 with a tank of gas,” Arbuckle said. “I would love to do it and support the gas companies because they put a lot of money into this parish. But it has to be feasible to convert. My only problem is strictly on the capacity to store the gas to run off of.”

The Police Jury’s fleet is in good shape and no large acquisitions are planned, Administrator Steve Brown said. Converting some to CNG would be expensive without a subsidy, for which he said the governing body does not qualify.

“But I’ve got it in the back of my mind, constantly, as a matter of fact, seeing if there are opportunities now that these fueling stations are opening up. “» We did make a serious push to do it but there are no plans at this present time.”

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