Uncertainty over the future development of shale natural gas plays is limiting investment in both conventional and unconventional gas projects in Western Europe and the US and setting the stage for possible higher fuel costs in the future, according to a report released by Chatham House, a London-based think tank.

The US has taken the lead in shale gas development both because of government policies favoring unconventional gas and the large reserves of such gas, the report said. Shale gas’ share of total US production has risen from 1% in 2000 to 20% in 2009, the report added.

These gains in shale production have taken LNG investors by surprise, the study said, adding that market analysts had predicted that LNG would play an ever-greater role in international energy commerce, as rising demand for the fuel made ship-borne transportation more economical, leading to the development of a global gas market. But the global economic downturn and the rise of shale gas production in the US has left much of the existing LNG infrastructure under-utilized, costing investors. Because of that, investors have been reluctant to provide money for LNG facilities until it is clear just how broad a role shale gas will play in the future.

“Because of the shale gas revolution there are now huge investor uncertainties at all stages of the gas value chain,” the report said. “There are already signs of gas export projects being canceled or postponed,” Chatham House said. And any lack of investment now could mean tighter supply and higher gas prices in the future if the shale gas industry falls short of current expectations, the report said.

“Markets will eventually solve the problem as higher prices encourage a revival of investment, but given the very long lead times on most gas projects consumers could face high prices for a considerable time,” it said.

The report raised several issues that could raise the likelihood that shale’s impressive ascent might end in the US, and be difficult to replicate in Western Europe. Among them are the fact that for more than 20 years, the US shale gas industry has benefited from a 53-cent/Mcf tax credit for alternative fuel production. But that credit ended in 2002. Further, the report said the industry also is facing the prospect of tighter environmental restrictions on hydraulic fracturing, a process in which a mixture of chemicals and water is injected into the well to fracture the shale formation and allow the gas to flow upward.

The US Environmental Protection Agency is due to release a study in 2012 that examines the environmental effects of the practice and legislation has been introduced in the US Senate that would require producers to disclose more of the chemical constituents they use in their fracking mix, the report said.

Europe, meanwhile, lacks both the practical and policy advantages that have been key to the US industry’s growth, the report said. It said Europe is far more densely populated than the US and energy leases are generally smaller, while shale gas production requires more acreage than conventional production. Technology used to produce onshore gas is less widely available in Europe, and public tolerance for proximity to oil production is lower, the organization said. In contract, the report said “it should be borne in mind that oil and gas operations are commonplace in the US and widely seen as ‘normal’ by local populations.”

These factors contribute to the likelihood that the gas industry may be overestimating the future contributions of shale gas, the report said.

Original Article

BY AUBREY MCCLENDON

Without question, the best way to start breaking our foreign oil addiction is to pass the NAT GAS Act (HR 1835). This bill, co-sponsored by Oklahoma U.S. Reps. John Sullivan and Dan Boren, has languished in Congress for 16 months.

But Oklahoma moved ahead with its own plan. Under the leadership of Speaker Chris Benge, the state enacted policies last year promoting the building of compressed natural gas fueling stations, and the private sector took it from there.

In the next few months, 11 CNG fueling stations will open in nine Oklahoma cities, bringing the number statewide to more than 60. How do we do it? Simple — build strategic alliances. At Chesapeake, we engaged with several Oklahoma fuel retailers who, like us, recognize the enormous potential of natural gas — now, not later.

By working with On-Cue Express, Love’s Travel Stops and Country Stores and Hutchinson Oil, CNG stations in Arkoma, Edmond, Elk City, El Reno, Kingfisher, Lindsay, Oklahoma City, Waynoka, Weatherford and Wilburton will soon offer CNG to the public approximately 30 percent to 40 percent cheaper than gasoline and diesel.

Chesapeake applauds these fuel retailers for their leadership in making Oklahoma-produced natural gas available to a significantly larger number of Oklahomans. The new CNG stations make it possible for companies such as Chesapeake, Apache, AT&T, UPS, Verizon, Airport Express, Total Environment and others to convert their fleets to natural gas.

Fueling our trucks with natural gas instead of carbon-heavy gasoline or diesel is better for America’s economy, energy security and environment. It also is better for Oklahoma, since approximately 25 percent of the state’s tax base is tied to natural gas.

I drive a Chevy Tahoe that runs on natural gas. It feels great to refuel my vehicle with a clean fuel that is made in Oklahoma, creates Oklahoma jobs and costs almost half as much as gasoline. Working together, I hope more Oklahomans will have a similar opportunity sooner rather than later.

Oklahoma is doing it right. Now is the time to advance long-term national policies to accelerate this transition before gasoline and diesel prices skyrocket again. We should immediately begin the transition to a transportation system led by natural gas, as many nations have already done.

There is no doubt natural gas is ready to fuel America’s future. Please encourage our leaders in Washington to embrace American natural gas as the best alternative to imported oil by supporting the NAT GAS Act.

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WASHINGTON — After several missteps, the federal government finally got it right, accurately estimating how much oil spilled into the Gulf of Mexico, an independent scientific study found.

Nearly 185 million gallons of oil spilled from the broken BP well into the Gulf of Mexico this summer, according to a study by two Columbia University researchers who made their estimates based on video of the oil spewing from the well.

The federal government’s final estimate was a shade more than 172 million gallons.

The Columbia researchers’ estimate is 12.6 million gallons more than the federal figure. However, because it’s so difficult to get a precise estimate, there is a large margin of error for the government figure and the Columbia number.

The margin is so large that the two estimates essentially overlap, the researchers said. Their study was published online Thursday in the journal Science.

U.S. Geological Survey Director Marcia McNutt, who oversaw federal estimates of the spill size, called the Columbia study “a completely independent and unbiased verification of the government result.”

Tim Crone of Columbia, the lead researcher who calculated his estimate based on detailed flow formulas determined by watching video of the leak, “Our numbers overlap, so sure, we agree.”

But Crone said he is more confident in his estimate because it went through the rigorous independent peer review required to be published in a respected journal.

He added that it is hard to compare in depth to federal numbers “because few details of their methods have been released.”

Crone used a different technique to study video than most scientists who analyze flow rates from video.

Usually, scientists track particles and calculate a speed as they travel across a screen, sort of like watching a car race down a highway. But in this case the particles were hard to track, so Crone used a technique he’s been working on for a decade. Crone studies individual points in the video — all the points — and watches their changes in color and texture. For this study, Crone reviewed video from two dates, May 15 and June 3, and extrapolated for the spill estimate.

The Columbia estimate has a margin of error of 20 percent, so the spill would be somewhere between 148 million and 222 million gallons.

The federal estimate had a 10 percent margin of error, so the spill would be somewhere between 155 million and 189 million gallons.

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NEW DELHI: The government is finalising a new policy for exploring shale gas that will provide states a share of the profit booty that exploration companies give as profit petroleum to the Centre.

Profit petroleum is a part of the revenue earned by the exploration company when it sells oil or gas. Proposed to be called shale gas payment as opposed to profit petroleum, this revenue will be shared between the centre and the state.

This new policy is being scripted to get proactive support from state governments in this new field of energy that is set to be a game changer. The profit share will be over and above the royalty that state government would earn from the oil company, a senior official at the Director General of Hydrocarbon’s office said.

DGH, a technical arm of the oil ministry, is directly involved with the policies on oil and gas exploration. It would be essential to get the state governments as a partner in the development of shale gas as this new unconventional gas involves exploration over large areas.

The profit share for the state would incentivise states to help with the land acquisition as it is under the direct jurisdiction of the state governments. It is expected that the resource-rich states would invest these revenues in the development of the region to avoid conflicts with local populace such as agitation against bauxite mining in Niyamgiri, the official who is working on the policy said.

Shale gas is non-conventional natural gas found in non-porous rock and requires fracing technology to extract gas from shale. Global majors like Exxon, Chesapeake, Davon and Pioneer are the market leaders in shale gas. India’s Reliance Industries has taken a lead in this new source of energy by acquiring stakes and forming joint ventures with shale gas companies in the US.

Petroleum secretary S Sundareshan confirmed that the government is framing new profit-sharing rules for shale gas production.“Quality of investments in shale gas (exploration and production) is different. We will consider international practices before framing profit sharing mechanism for it,” Mr Sundareshan told ET.

The government plans to invite bids for shale gas exploration by 2011-12, he said. India has huge shale deposits in Assam, Gujarat, Rajasthan, the Gangetic plain, the Cambay basin and the Gondwana basin.

This comes at a time when the first well for producing shale gas has been drilled by the national oil company ONGC. “The first (shale gas) well was drilled at Ichapur near Durgapur in Damodar valley on Tuesday,” ONGC chairman & managing director RS Sharma said.

The well is targeted to a depth of 2,000 mts and will be assessing the shale gas potential of about 700 mts thick shale. The contract has been awarded to Schlumberger and the results of this well is expected by October 30, 2010. ONGC has undertaken a Rs 128-crore pilot project for exploration of shale gas in the Damodar basin in Jharkhand and plans to drill three wells by March 31, 2012.

The new profit sharing norms is particularly being designed for shale gas exploration companies as this unconventional gas production requires wells to be drilled over large acerages in a much quicker time frame. In the US and Canada, where shale gas production has emerged as a game changer accounting for almost 17% of the gas consumption in the US, energy companies have acquired large tracts of land to take up shale gas production.

Unlike the conventional natural gas production process, where fewer wells are drilled and the volume of gas from each is much higher, shale gas wells have small volumes where almost 80% of the production of gas is done within the first year. “Its a volume game and the developer has to have a mindset of a manufacturer, “ R S Butola, managing director of ONGC Videsh said.

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BATON ROUGE — Lt. Gov. Scott Angelle and officials of  BP will meet again next week to discuss the state’s request that the oil giant come up with $75 million to promote Louisiana’s tourism and seafood industries that have been hurt by the Deepwater Horizon-BP oil spill.

tourism-ad-new-orleans.JPGOne of the ads New Orleans tourism officials created using the $5 million they received from BP. The state hopes to obtain another $75 million from the company.

Angelle and three key BP officials met for an hour today but reached no decisions, much to his frustration.

The meeting “did not meet my expectations,” he said. “I was disappointed they didn’t come here (to Baton Rouge) with their sleeves rolled up and ready to dive into the data.

“They said they needed another week and didn’t come prepared to discuss the data. But this is their problem. It is not going to go away.”

BP officials in Houston said the meeting with Angelle was part of “an ongoing dialog” and a “continuing conversation” with state officials on the tourism issue.

They said the company will “carefully consider” the request but another meeting will be scheduled. BP declined further comment.

The British-based oil company has already given the state $15 million to help it market tourism during the summer vacation months.

Tourism officials say 97 percent of that has been spent or committed.

Angelle, who oversees the state Department of Culture, Recreation and Tourism, the state’s chief tourism promotions agency, said that recent studies have indicated that of the tourists who were planning to visit Louisiana, 29 percent canceled or postponed those trips because of the Gulf of Mexico oil spill.

The study also said that 48 percent of the national poll’s respondents believe that seafood from the Gulf is not safe, a misconception several state agencies have been working to overcome.

Angelle said that although the three BP officials he met with may not have known the specifics of the tourism studies, “I have a very difficult time believing BP has not seen the data. I clearly believe I got their attention; I think I have their focus.

“They told me they are committed (to addressing the problem) I take them at their word. They have had a lot of balls in the air and they dropped the tourism ball. . . They were very apologetic. I’m not interested in an apology; I am interested in results.”

Angelle said he wrote letters to BP officials in July and earlier this month that went unanswered.

He said today’s meeting was scheduled Wednesday because he e-mailed BP and said that he intends to tell a presidential commission probing the spill the effects it has had on the state’s seafood and tourism programs.

The BP officials who attended the meetings were Luke Keller, executive vice president for BP America’s Gulf Coast Restoration Organization; Iris Cross, a New Orleans native and general manager of external affairs of the restoration organization who is featured in BP’s ads; and Mary Jo Jacobi, special adviser for external affairs to the restoration organization.

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Shale gas has become a hot favourite among most of the oil and gas companies. Going by it, India is likely to sign a shale gas pact, reports CNBC-TV18 quoting government sources.

The pact, expected to boast Indian companies’ investment in the US shale gas fields, is likely to be signed when US President Barack Obama visits India.

India, US may sign shale gas pact.

It is learnt that the draft of the memorandum of understanding (MoU) had been send to the US in August itself and feedback is expected shortly. The MoU is expected to boost co-operation between private sector companies.

Sources add that India wants US’ help for resource assessment and training in shale gas exploration. US assistance is likely to help India to carve out shale fields in future. It is also learnt that once the pact is signed between the two countries, US companies may share technology for shale gas development.

RIL has three shale gas joint ventures in the US while ONGC and Oil India are looking at shale gas assests overseas.

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Oil and gas drilling groups are so upset over a new federal policy requiring workers to wear flame-resistant clothing on well-drilling rigs that they may sue the Occupational Safety and Health Administration.

The Association of Energy Service Companies, a large industry group that includes Halliburton and Key Energy, is weighing all its options — including legal and political steps — to fight OSHA on the issue, the group’s executive director told The Huffington Post, arguing that the new requirement could cost the industry up to $50 million to implement and then $100 million annually after that.

“We’re not going to rule anything out at this point,” said Kenny Jordan, adding that AESC and other major oil industry groups, including the American Petroleum Institute and the International Association of Drilling Contractors, sent a letter to OSHA on September 2 to express their concerns about the enforcement memorandum. Jordan said that he plans to give OSHA on Thursday or Friday a deadline by which to respond to his group’s concerns. (h/t BNA’s Occupational Safety and Health Reporter)

The memo, issued on March 19, requires workers in oil and gas well drilling, servicing, and production-related operations to wear flame-resistant clothing to protect against flash fires, citing a 2005 fatality study that found 16 percent of deaths in oil fields were the result of fires and explosions.

Jordan argued that the memo’s requirements are too extensive. The group is not opposed to the use of flame-resistant clothing, he said, but OSHA bypassed the rulemaking process in this instance.

“We believe we should keep our people safe and we do this on a daily basis,” he said. “But we don’t think that throwing a blanket over every situation is the right way to go about it. The people in the field, that own these companies, they’re the ones who best know. Even the employees will tell us that they’re hot and uncomfortable and don’t like wearing them… We know that there are certain situations when they should be required but requiring them 100 percent of them is not the answer.”

And Jordan and industry groups dispute the statistics cited by OSHA. “The stats they quoted are erroneous, we believe,” Jordan said. A review by the International Association of Drilling Contractors concluded that none of the fatalities cited by OSHA were the result of drilling operations and two of them were not flash-fire explosions, BNA reported.

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A union that represents some oil drilling workers in Alaska — most oil drilling workers are not unionized — was outraged at the industry’s opposition.

“I think it is ridiculous that the oil industry say it’s too expensive to have workers wear protective suits that could possibly save their lives,” said Lynne Baker, communications director for United Steelworkers. “The industry is very lucrative, they’ve made billions of dollars and protecting workers should be first and foremost… It shows me they’d rather pay for a death than pay to prevent a death.”

Jordan emphasized that he is most concerned about OSHA bypassing a long-established rulemaking process, which ordinarily would entail lengthy deliberations before the safety measures could be implemented.

“OSHA decided to issue the policy as an enforcement memo rather undergo a rulemaking because the latter could take years, and OSHA had received little cooperation from industry, agency officials told six associations at an Aug. 15 meeting,” reports BNA.

Jordan said he worries about future regulations issued by the agency. “What’s next, that is what really concerns us…” he said, “what’s sliding under the door tomorrow?”

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It’s time to buy if you’re a long-term bull on the black gold

Jessica Mead

AFTER the furore following the BP oil well disaster, it now seems like crude oil is the only commodity that people aren’t talking about. Surges in the price of cotton, wheat and even orange juice mean soft commodities are hitting the headlines on a daily basis. In contrast, movements in the oil price have been rather predictable in comparison, with crude fluctuating between $70 and $82 a barrel – a range it has held since the start of May. Spot Brent crude oil was yesterday trading at nearly $79 a barrel while the West Texas Intermediate futures contract was at $75.

While no immediate break out of this range is expected, most analysts hold at least a moderately bullish view on the oil price in the long-term thanks to emerging markets’ thirst for energy. If you have a long-term view, then this should ensure plenty of upside for the price of oil.

And although oil is some $5 a barrel more expensive than it was at the end of August, now appears as good a time as any to go buy oil through longer-term investment vehicles such as exchange-traded funds (ETFs) and covered warrants.

“Better demand conditions should lead to a fall in commercial inventories, supporting a higher oil price at the end of 2010. Our short-term price forecast are for only a modest rise in the oil price to $78 a barrel by the end of 2010 and $81 a barrel by the end of 2011,” says Carl Paraskevas at Lloyds TSB Corporate Markets.

And it is not just demand that is supporting the oil price. In fact Killik & Co believe that it is the supply side of the equation that is particularly positive for the oil price: “In the short term, supply is being constrained following the slowdown in capital expenditure during the recession. Further out, the International Energy Agency believes the rate of production decline from existing fields will rise from 6.7 per cent per annum to 8.6 per cent per annum in 2030 – and possibly higher if infrastructure investment falls short,” they write in a research note on the oil sector.

Although there has been plenty of volatility in the oil price over the past couple of years, $70 a barrel is seen as a strong fundamental support level. On the upside, a real oil price above $120 a barrel remains a key fundamental resistance level, as a sustained period of prices above this level risks further substitution of oil for other fuels by OECD economies, warns Lloyds TSB’s Paraskevas.

For those using ETFs, you can get exposure to crude oil through providers such as db x-trackers, ETF Securities and Source. And both RBS and Societe Generale offer covered warrants on Brent crude oil futures. For example, Societe Generale has call warrants with strike prices ranging from $75 to $150. These will be in-the money if the oil price exceeds the strike price on or before a pre-determined date.

While it might be worth waiting for some short-term dips to buy in to the market at a cheaper level, those with a long-term view should be looking to take a bullish position on oil before the price rises further.

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