There has been plenty of bad news to go around this week in oil-related happenings.

Shallow-water drilling permits are nearly at a standstill. As our reporter Claire Taylor detailed Tuesday, only five new shallow-water permits have been approved since June 8 when a new set of regulations were put in place. According to Don Briggs, president of the Louisiana Oil and Gas Association, a normal number for that period of time would be about 70 approved permits.

BP’s town-hall meetings for those seeking aid from the victims compensation fund continue to go poorly, as well, with harsh criticisms of the claims process still ringing loudly. The story is not much brighter for those who have actually received aid, either. One shrimper, who says he’s receiving the equivalent of $3.30 a day, says he left a meeting in Houma with more questions than answers, a refrain that has not been unique since the fund was established.

But no news was as shocking as reports that layers of oil, some as thick as 2 inches, have been found on the bottom of the Gulf of Mexico. Testing still must be done to conclusively prove the oil is from the Deepwater Horizon accident, but the findings put in doubt previous optimistic claims by the federal government about how much spilled oil is still out there.

Scientists say the oil is about a mile beneath the water surface, and samples were found as far as 80 miles from the original spot of the spill. A host of dead sea life, including shrimp, were also found, according to the University of Georgia research team. Researcher Samantha Joye described it as “like having a blizzard where the snow comes in and covers everything.”

That brings to mind what to us is another scary description: Out of sight, out of mind.

The ability to forget, and to move on, is one of the greatest gifts ever given to people. In a case such as this one, however, it is also one of the most dangerous.

As Alaska would remind us from its experience with the Exxon Valdez, the only certainty we can say about the long-term effects of the Gulf spill is that there will be long-term effects. How broad and how lasting are questions we can’t answer.

That’s not to say the good signs we see on the water surface and on the shorelines aren’t cause for celebration. They are. They show the Gulf to be more resilient than we should be allowed to expect and hope for it to be.

But let’s not forget, or move on, too quickly. Ecologically, economically and, yes, emotionally, there is still much to be measured.

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A looming shift in oil supply heralds significant changes for two industries. Traditional crude output is forecast to plateau over the next five years with lighter liquids providing the bulk of supply growth instead. This should lower costs for chemical producers. It might also be a fresh ailment for just-recovering airlines.

Old-style oil is getting harder to find. Production growth should grind to a halt by 2015, according to Cambridge Energy Research Associates. From then, any extra supply will come from natural gas liquids and condensates, which were once discarded by oil producers.

Not all hydrocarbons are created equal, however. As voracious consumers of the growth variety, U.S. chemical producers stand to benefit from fatter margins. One of the best placed appears to be Westlake Chemical <WLK.N>, for whom ethane accounts for over half of input costs.

Yet it could turn into another festering problem for airlines. Natural gas liquids aren’t used to produce jet fuel. That means stagnant crude production could lead to higher prices. To make matters worse, as citizens in China and India increasingly take to the air, fuel demand is likely to outpace economic growth.

This is an ominous trend for beleaguered U.S. airlines. They have collectively lost $58 billion since 2001 and generated profit in just four of the past 10 years. True, having slimmed down and consolidated, the industry seems on track for its best financial year since the 1990s despite the anemic economy.

Still, every dollar rise in a barrel of fuel costs the industry close to $500 million, according to the Air Transport Authority trade group. And airlines historically have struggled to pass on the burden to penny-pinching consumers. Pre-tax margins, though improving, leave little room for error. Avondale Partners, for example, expects 2010 pre-tax profit margins of 3.8 percent at Continental Airlines, with a fleet heavy on antique gas-guzzlers, could be most vulnerable of all to a climb in fuel costs.

U.S. chemical stocks have outperformed the S&P 500 index by 13 percent this year. But airlines have done even better, ahead 22 percent. The oil supply effect suggests a change of fortunes may be in store.

Original Article

DIMOCK, Pa. — A private lab reports finding toxic chemicals in the drinking water of a Pennsylvania community already dealing with methane contamination from natural gas drilling.

Daniel Farnham tells The Times-Tribune of Scranton that his tests found ethylene glycol, propylene glycol and toluene in the well water of “almost everybody” living on Carter Road in Dimock Township, Susquehanna County. The chemicals are among dozens used to hydraulically fracture, or frack, shale deposits to release natural gas.

The wells are in the heart of the gas-rich Marcellus Shale. Dimock residents sued Houston-based Cabot Oil & Gas Corp. last year, alleging the drilling company polluted their wells with methane gas and other contaminants.

On Tuesday, 13 families in Lenox Township, Susquehanna County, sued another Houston driller, Southwestern Energy Co., claiming their wells were also contaminated with fracking fluids.

In the Dimock case, Cabot says the chemicals existed in some wells before drilling began. In Lenox, Southwestern denied any problems with its well.

FORTUNE — In Binghamton, New York on Wednesday, hundreds of locals filled the Broome County Theater to speak their minds, two minutes a time, to four members of the Environmental Protection Agency. They voiced opinions about a controversial process called hydraulic fracturing, or fracking, to tap into huge reserves of shale gas thousands of feet below ground. New York sits on one of the largest known reserves of natural gas, which many people, including President Obama, have called a new, crucial resource for the country.

But residents in places where fracking occurs have raised concerns that the process isn’t regulated enough — that it leaches dangerous chemicals into groundwater and contaminates it with methane gas. Proponents believe that natural gas development can be a huge boon for the area, and drilling needs to happen as soon as possible.

Fracking, which is state regulated, isn’t legal in New York yet, and there was enough of an uproar about these issues that locals called for the EPA to step in and study the process.

People on all sides are clamoring for the study, which is expected to be completed by 2012. The pro-fracking camp believes that good science will exonerate the practice. Anti-frackers want to know the process is safe before companies start drilling for shale. The EPA is under pressure.

After the hearing, Fortune spoke with Fred Hauchman, the Director of Science Policy about the task ahead of him. He offered insight about how to get good scientific results in a short timeframe, the EPA’s communication challenge and the benefit of getting face time with the people.

Why did the EPA agree to study this?

Natural gas is important to the country, but at the same time a lot of concerns have been expressed. And the public deserves to have answers to their questions.

How do you design a study that’s going to yield answers in just two years?

Unquestionably it will take resources and it will take a lot of focus and energy. I don’t think any of us have any illusions that we’ll have all the answers in two years. But we’re convinced that we can do research over this period of time that will be very informative.

What’s going to be the main focus?

We were directed by Congress to focus our efforts on drinking water. But people have said, several times, take a comprehensive look at hydraulic fracturing — you can’t just look at one part of it. We see a challenge there — obviously, we can only do so much with the resources we have and the time we have. But we need to consider those comments.

How long will it take?

We have this two-year timeframe, during which we expect to get good results, which we would characterize as preliminary. We know that there are going to continue to be questions. Any researcher will tell you we have to keep studying this. This is a big task we’ve taken on, and we anticipate that research will have to go on beyond that two-year period.

How many people in the EPA will work on this?

We’ve not fully resourced it. Right now we just know it’s going to take a sizeable effort.

It’s been identified as one of the top priorities for our Office of Research and Development. That came right out of the system administrator’s mouth.

Do you have an idea of the plan of attack?

We’re going to propose to the Science Advisory Board that some part of the study look at operations before they begin, in addition to testing sites during development and after drilling has started. We’re also looking retrospectively because the states have information through their regulatory activities. We’re looking at existing data that we have in hand that can help us, but we’re also looking at doing studies alongside fracturing operations.

People on both sides are so passionate about this. Is drilling for natural gas getting more scrutiny than methods of producing other kinds of fuels?

Everybody’s looking at this study. I think it’s fair to say that this administration has come in and told us from the get go that transparency is the hallmark of everything we do. I think this is a great example of that. It’s to our benefit. Venues like this with input from the public are very, very helpful.

Do you consider it the EPA’s responsibility to keep educating people once the results come out?

Sure, we’re going to need to go to great lengths to help with the interpretation of what’s likely to be a very complex study in the end. There are a lot of technical issues, and unless you’re an expert in that area, it’s difficult to get your head around it. We’re going to need to go the extra mile to translate and respond to questions.

You’ve sat through four four-hour sessions within the past two days. You must be exhausted.

Actually it’s good. It’s important for us to hear real concerns. What a great opportunity for science to really inform some very important decisions.

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Crude oil production from the 12-member Organization of the Petroleum Exporting Countries (OPEC) averaged 29.11 million barrels per day (b/d) in August, down 110,000 b/d from an estimated 29.22 million b/d in July, according to new data.

According to the Platts survey of OPEC and oil industry officials and analysts, the US Energy Information Administration (EIA) last week reported the highest-ever level of total US petroleum inventories.”And with refining margins in much of the world sliding, it’s no surprise that OPEC may have found a little less appetite on the part of its customers for its product,” said John Kingston, Platts global director of news.

The survey found that excluding Iraq, which does not participate in OPEC production agreements, the 11 members bound by quotas (OPEC-11) pumped an average 26.79 million b/d in August, down 30,000 b/d from an estimated 26.82 million b/d in July.

The August estimates show that the OPEC-11 exceeded its 24.845 million b/d target by 1.945 million b/d. This achieved a compliance rate of 53.7% with the 4.2 million b/d of output cuts agreed in late 2008 and which came into force in January 2009.

Decreases totalling 150,000 b/d from Iran, Nigeria, Qatar, the United Arab Emirates (UAE) and Iraq were partly offset by a 40,000 b/d increase in Angolan volumes. The biggest single production drop came from Iraq.

Original Article

Bacteria that attacked the plumes of oil and gas from the Deepwater Horizon gusher in the Gulf of Mexico mainly digested natural gas spewing from the wellhead — propane, ethane and butane — rather than oil, according to a study published in the journal Science.

The paper doesn’t rule out the possibility that bacteria also are consuming oil from the spill, the authors said. Instead, it suggests that natural gas primed the growth of bacteria that may have gone on to digest “more complex hydrocarbons” — oil — as the spill aged and propane and ethane were depleted.

Still, lead author David L. Valentine, a professor of microbial geochemistry at UC Santa Barbara, said the findings temper hopes that microorganisms detected by scientists in the gulf have eaten up most of the oil there, as other scientists had recently suggested. “It’s hard to imagine these bacteria are capable of taking down all components of oil,” he said. “These stories about superbugs taking down all the oil — it’s more complex than that.”

Valentine and his team conducted their research in the gulf during 10 days in June. Lowering an array of sensors over the side of their ship, they analyzed ocean water to determine the presence of oil, then collected water samples at 31 locations 0.6 to 7.7 miles from what was then the active spill site.

Comparing samples collected close to the leak’s origin with older samples collected farther away, the researchers detected declining proportions of propane and ethane the older the sample. As levels of propane and ethane declined, the number of bacteria believed to be capable of digesting those chemicals — Cycloclasticus, Colwellia and Oceanospirillaceae — grew.

The team observed other chemical changes that suggested the bacteria were at work digesting gas. They saw that types of propane and ethane that bacteria prefer to digest — ones containing carbon-12, a lighter isotope of carbon — were depleted in samples.

And they found that the levels of oxygen (which bacterial populations consume as they grow) in the water fell in step with the falling levels of propane and ethane. They concluded that 70% of oxygen depletion was the result of microbial digestion of these natural gas chemicals, suggesting that most of the bacterial action was against gas, not oil.

Richard Camilli, an associate scientist at the Woods Hole Oceanographic Institution in Massachusetts, said that these findings are the first to establish that the observed biodegradation in the deep plumes was limited mostly to natural gas.

“This paper is opening the door to other questions,” said Camilli, who was not involved with this research but published a paper in an August edition of Science on the size of the gulf spill’s oil plume. “If it’s disproportionately natural gas that’s being degraded, what’s going on with the crude oil components?”

But Terry Hazen, head of Lawrence Berkeley National Laboratory’s ecology department and lead author of another August paper in Science that documented growth of hydrocarbon-eating bacteria in the deep-sea plume and suggested microbes could consume much of the oil, said that “the three papers are complementary. All show different pieces of the puzzle.”

Valentine said he will now investigate whether the bacteria began eating the spilled oil, or some component of it, as time passed. “We know there’s gas consumption; we know these organisms are here. How did that transition over time?” he said. “Did they move to oil over time, or did they bias which components of the oil [were consumed] next? We don’t know yet.”

He noted that many organisms that consume propane and butane can also consume other components of oil. But, he said, these longer, more complex hydrocarbons can be harder to digest.

Original Article

Natural gas futures reversed their earlier losses Thursday, rising despite a large increase in inventories as the market regained momentum above the $4 mark.

Natural gas for October delivery on the New York Mercantile Exchange recently traded 7.2 cents, or 1.8% higher, at $4.067 a million British thermal units. Futures had fallen earlier in the day after a government report that the amount of gas in U.S. storage increased by more than expected.

“I think this shows you the reluctance of new sellers to enter the market,” said Gene McGillian, an analyst with Tradition Energy.

The gas market has been downtrodden since late July, as the coming end of summer cooling demand pressured prices lower. But after spending early September in choppy, range-bound trading, futures have posted gains in four consecutive sessions, leading to speculation that the typical autumn rally in anticipation of winter’s heating demand was on.

The U.S. Energy Information Administration reported earlier Thursday that gas inventories grew by 103 billion cubic feet last week, as cooler temperatures reduced demand for gas-fired electricity to meet air conditioning needs. Analysts and traders surveyed by Dow Jones Newswires were expecting a 90-bcf build.

The benchmark contract fell as low as $3.852/MMBtu after the report, but recovered as market participants digested the impact of the data.

“Abundant storage levels are already priced in,” McGillian said.

Gas in U.S. storage for the week ended Sept. 10 stood at 3.267 trillion cubic feet, 6.2% above the five-year average and 5.3% below recession-hit 2009 levels. The build was well above last year’s 67-bcf injection for the same week and the 77-bcf five-year average build for that week. Prices had received some support this summer from below-average storage builds, as record heat in parts of the country increased demand for gas-fired power.

Tropical storm activity isn’t expected to significantly lift prices this week. Hurricanes Igor and Julia both continued north through the Atlantic Thursday, away from the Gulf, the National Hurricane Center said. Karl reached hurricane status Thursday, but is projected to move west over Mexico from its current position in the southern end of the Gulf, missing U.S. energy infrastructure.

The Gulf is home to about 11% of U.S. gas production, and prices can jump if storms are seen shutting down production.

Original Article

A Texas company has won approval from Gov. Bob Riley to build a liquefied natural gas terminal off the Alabama coast after changing to a technology less hazardous to marine life in the Gulf of Mexico.

TORP Technology, based in Houston, agreed to use what is known as a “closed-loop” system to reheat the chilled gas at the terminal about 63 miles off the coast. The company also agreed to set up a $25 million fund to help with the protection, restoration and improvement of Alabama’s marine life and coast.

The plant is expected to create 250 jobs.

TORP Technology originally proposed an “open loop” system that would have used massive amounts of Gulf seawater to warm up the gas, which has been chilled to minus 260 degrees and is known as liquefied natural gas, or LNG. The governor, with authority under the federal Coastal Zone Management Act, rejected that plan in 2008.

Two years earlier he had rejected a similar plan by ConocoPhillips to build an LNG operation with the “open loop” technology 13 miless out from Dauphin Island.

State conservation officials said there is only one terminal in the Gulf using the “open loop” technology. They said it is off the Louisiana coast and is not currently in operation.

By changing to a technology less degrading to the environment, Riley said the company offered a plan that will “protect and enhance our environment, improve our economy with 250 new jobs and provide an important alternative source of natural gas for Alabama.”

Casi Callaway, executive director of the environmental group Mobile Baykeeper, said the change to the “closed loop” system eased the organization’s concerns.

“Governor Riley has been tenacious in protecting the state’s marine resources,” Callaway said in a statement released by the governor’s office.

Joe Berno, chief of TORP Terminal, said the agreement was a “win-win situation for everyone involved.”

Original Article