Energy: The pros and cons of shale gas drilling

Natural gas has been the ugly stepchild of our national energy debate: Never enjoying the political muscle of oil and coal, and never capturing the imagination like solar panels and wind farms. And to top it all off, it was in short supply.

But that's changing and now this stepchild is being touted as the hope of the future - the answer to our energy problems.

What's brought about the change is there's a new unconventional process for extracting natural gas from shale, a dense rock formation two miles underground.

And if you're sitting on top of it, you may become a new American phenomenon: A "shaleionaire."

And yet, if the BP spill last summer taught us anything, it's that exploring for energy has safety risks. But as we first reported in November, that can get lost in all the excitement.

What is increasingly evident is that shale gas is overwhelmingly abundant right here in the U.S.A.

"In the last few years, we've discovered the equivalent of two Saudi Arabias of oil in the form of natural gas in the United States. Not one, but two," Aubrey McClendon, the CEO of Chesapeake Energy, told "60 Minutes" correspondent Lesley Stahl.

"Wait, we have twice as much natural gas in this country, is that what you're saying, than they have oil in Saudi Arabia?" Stahl asked.

"I'm trying to very clearly say exactly that," he replied.

Chesapeake Energy is the largest independent gas producer in the country. McClendon is on a mission to get the U.S. off foreign oil and dirty coal.

Gas has nearly half the carbon emissions of coal, and no mercury.

"But natural gas is still a fossil fuel," Stahl pointed out.

"So is it perfect? No," McClendon said. "The answer is it's not perfect. But for the next 20 years, natural gas is probably our best bet. And the good news is, we've got it. And we've got as much of it as anybody else in the world."

There are shale formations across large parts of the country, and there is production or exploration in over 30 states. It's an American energy renaissance.

Some 10,000 wells will be drilled in northwest Louisiana, in some of the poorest communities in the country, where impoverished farmers are becoming overnight millionaires as they lease their land for drilling.

"I never dreamed of money like this," C.B. Leatherwood told Stahl. "

Leatherwood, a retired oil field worker, got a bundle to drill under his farm: $434,000.

His cousin, Mike Smith, also profited: he was paid nearly $2 million.

"So what'd you do that day?" Stahl asked Smith.

"I sat back and thought about it for a, all day. And I said, 'I'm a millionaire.' And that didn't sound right," he replied.

They actually call them "shaleionaires," and they don't mind putting up with the noisy, smelly drilling when the wells are built because they get a cut of the profits, which could last for years and add up to millions more.

Within a year, shale drilling generated almost $6 billion in Louisiana in new household earnings. As the rest of the nation plunged into a recession, the region added over 57,000 local jobs, and the Cadillac dealership in town is hopping.

People have known for a century that shale contained gas, but it was too difficult and pricy to extract.

Produced by Shachar Bar-On

Source: http://www.cbsnews.com

__________________________________________________________________________________

Shale Gas Will Rock the World

There's an energy revolution brewing right under our feet.


Over the past decade, a wave of drilling around the world has uncovered giant supplies of natural gas in shale rock. By some estimates, there's 1,000 trillion cubic feet recoverable in North America alone—enough to supply the nation's natural-gas needs for the next 45 years. Europe may have nearly 200 trillion cubic feet of its own.

We've always known the potential of shale; we just didn't have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag—and set the stage for shale gas to become what will be the game-changing resource of the decade.

I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.


To understand why, you have to consider that even before the shale discoveries, natural gas was destined to play a big role in our future. As environmental concerns have grown, nations have leaned more heavily on the fuel, which gives off just half the carbon dioxide of coal. But the rise of gas power seemed likely to doom the world's consumers to a repeat of OPEC, with gas producers like Russia, Iran and Venezuela coming together in a cartel and dictating terms to the rest of the world.


The advent of abundant, low-cost gas will throw all that out the window—so long as the recent drilling catastrophe doesn't curtail offshore oil and gas activity and push up the price of oil and eventually other forms of energy. Not only will the shale discoveries prevent a cartel from forming, but the petro-states will lose lots of the muscle they now have in world affairs, as customers over time cut them loose and turn to cheap fuel produced closer to home.


The shale boom also is likely to upend the economics of renewable energy. It may be a lot harder to persuade people to adopt green power that needs heavy subsidies when there's a cheap, plentiful fuel out there that's a lot cleaner than coal, even if gas isn't as politically popular as wind or solar.


But that's not the end of the story: I also believe this offers a tremendous new longer-term opportunity for alternative fuels. Since there's no longer an urgent need to make them competitive immediately through subsidies, since we can use natural gas now, we can pour that money into R&D—so renewables will be ready to compete without lots of help when shale supplies run low, decades from now.


To be sure, plenty of people (including Russian Prime Minister Vladimir Putin and many Wall Street energy analysts) aren't convinced that shale gas has the potential to be such a game changer. Their arguments revolve around two main points: that shale-gas exploration is too expensive and that it carries environmental risks.


I'd argue they are wrong on both counts.

Take costs first. Over the past decade, new techniques have been developed that drastically cut the price tag of production. The Haynesville shale, which extends from Texas into Louisiana, is seeing costs as low as $3 per million British thermal units, down from $5 or more in the Barnett shale in the 1990s. And more cost-cutting developments are likely on the way as major oil companies get into the game. If they need to do shale for $2, I am willing to bet they can, in the next five years.


When it comes to environmental risks, critics do have a point: They say drilling for shale gas runs a risk to ground water, even though shale is generally found thousands of feet below the water table. If a well casing fails, they argue, drilling fluids can seep into aquifers.


They're overplaying the danger of such a failure. For drilling on land, where most shale-gas deposits are, the casings have been around for decades with a good track record. But water pollution can occur if drilling fluids are disposed of improperly. So, regulations and enforcement must be tightened to ensure safety. More rules will raise costs—but, given the abundance of supply, producers can likely absorb the hit. Already, some are moving to nontoxic drilling fluids, even without imposed bans.


But the skeptics aren't just overstating the obstacles. They're missing two much bigger points. For one thing, they're ignoring history: The reserves and production of new energy resources tend to increase over time, not decrease. They're also not taking into account how quickly public opinion can change. The country can turn on a dime and embrace a cheaper energy source, casting aside political or environmental reservations. This has happened before, with the rapid spread of liquefied-natural-gas terminals over the past few years.


In short, the skeptics are missing the bigger picture—the picture I think is the much more likely one. Here's a closer look at what I'm talking about, and how I believe the boom in shale gas will shake up the world.


One of the biggest effects of the shale boom will be to give Western and Chinese consumers fuel supplies close to home—thus scuttling a potential natural-gas cartel. Remember: Prior to the discovery of shale gas, huge declines were expected in domestic production in U.S., Canada and the North Sea. That meant an increasing reliance on foreign supplies—at a time when natural gas was becoming more important as a source of energy.


Even more troubling, most of those gas supplies were located in unstable regions. Two countries in particular had a stranglehold over supply: Russia and Iran. Before the shale discoveries, these nations were expected to account for more than half the world's known gas resources.

Russia made no secret about its desire to leverage its position and create a cartel of gas producers—a kind of latter-day OPEC. That seemed to set the stage for a repeat of the oil issues that have worried the world over the past 40 years.


As far as I'm concerned, you can now forget all that. Shale gas will breed competition among energy companies and exporting countries—which in turn will help economic stability in industrial countries, and thwart petro-suppliers that try to empower themselves at our expense. Market competition is the best kryptonite for cartel power.


For one measure of the coming change, consider the prospects for liquefied natural gas, which has been converted to a liquid so it can be carried in a supertanker like oil. It's the easiest way to move natural gas very long distances, so it gives a good picture of how much countries are relying on foreign supplies.


Before the shale discoveries, experts expected liquefied natural gas, or LNG, to account for half of the international gas trade by 2025, up from 5% in the 1990s. With the shale boom, that share will be more like one-third.


In the U.S., the impact of shale gas and deep-water drilling is already apparent. Import terminals for LNG sit virtually empty, and the prospects that the U.S. will become even more dependent on foreign imports are receding. Also, soaring shale-gas production in the U.S. has meant that cargoes of LNG from Qatar and elsewhere are going to European buyers, easing their dependence on Russia. So, Russia has had to accept far lower prices from formerly captive customers, slashing prices to Ukraine by 30%, for instance.


But the political fallout from shale gas will do a lot more than stifle natural-gas cartels. It will throw world politics for a loop—putting some longtime troublemakers in their place and possibly bringing some rivals into the Western fold.


Again, remember that as their energy-producing influence grew, nations like Russia, Venezuela and Iran became more successful in resisting Western interference in their affairs—and exporting their ideologies and strategic agendas through energy-linked deal-making and threats of cutoffs.


In 2006 and 2007, disputes with Ukraine led Russia to cut off supplies, leaving customers in Kiev and Western Europe briefly without fuel in the dead of winter. That cutoff effectively shifted Ukraine's internal politics: The country turned away from the pro-NATO, anti-Moscow candidate and toward a coalition more to Moscow's liking.


It looked like the U.S. and Europe would see their global power eclipse as they kowtowed to their energy suppliers. But shale gas is going to defang the energy diplomacy of petro-nations. Consuming nations throughout Europe and Asia will be able to turn to major U.S. oil companies and their own shale rock for cheap natural gas, and tell the Chavezes and Putins of the world where to stick their supplies—back in the ground.


Europe, for instance, receives 25% of its natural-gas supply via pipelines from Russia, with some consumers almost completely dependent on the big supplier. In the wake of Russia's strong-arming of Ukraine, Europe has been actively diversifying its supply, and shale gas will make that task cheaper and easier.


Shale-gas resources are believed to extend into countries such as Poland, Romania, Sweden, Austria, Germany—and Ukraine. Once European shale gas comes, the Kremlin will be hard-pressed to use its energy exports as a political lever.


I would also argue that greater shale-gas production in Europe will make it harder for Iran to profit from exporting natural gas. Iran is currently hampered by Western sanctions against investment in its energy sector, so by the time it can get its natural gas ready for export, the marketing window to Europe will likely be closed by the availability of inexpensive shale gas.


And that may lead Tehran to tone down its nuclear efforts. Look at it this way: If Iran can't sell its gas in Europe, what options does it have? Piping to the Indian subcontinent is impractical, and LNG markets will be crowded with lower-cost, competing supplies.


It's admittedly a long shot, but if the regime acts rationally, it will realize it has a chance to win some global goodwill by shifting away from nuclear-power efforts—and using its cheap natural-gas supplies to generate electricity at home.


Overall, the Middle East might get a bit poorer as gas eats into the market for oil. If the drop in revenue is severe enough, it could bring instability.


Shale-gas development could also mean big changes for China. The need for energy imports has taken China to problematic nations such as Iran, Sudan and Burma, making it harder for the West to forge global policies to address the problems those countries create. But with newly accessible natural gas available at home, China could well turn away from imports—and the hot spots that produce them.


The less vulnerable China is to imported oil and gas, the more likely it would be to support sanctions or other measures against petro-states with human-rights problems or aggressive agendas. Moreover, the less Beijing worries about U.S. control of sea lanes, the easier it will be for the U.S. and China to build trust. So, domestic shale gas for China may help integrate Beijing into a Pax Americana global system.


With natural gas cheap and abundant, the prospects for renewable energy will change just as drastically. I have been a big believer that renewable energy was about to see its time. Prior to the shale-gas revolution, I thought rising hydrocarbon prices would propel renewables and nuclear power into the marketplace easily—albeit with a little shove from a carbon tax or a cap-and-trade system.


But the shale discoveries complicate the issue, making it harder for wind, solar and biomass energy, as well as nuclear, to compete on economic grounds. Subsidies that made renewables competitive with shale gas would get more expensive, as would loan guarantees and incentives for new nuclear plants. Shale gas also hurts the energy-independence argument for renewables: Shale gas is domestic, just like wind and solar, so we won't be shipping those dollars to the Middle East.


But that doesn't mean we should stop investing in renewables. As large as our shale-gas resources are, they're still exhaustible, and eventually we will still need to transition to energy that is cleaner and more plentiful. So, what should we do?


First, avoid the urge to protect coal states and let cheaper natural gas displace coal, which accounts for about half of all power generated in the U.S. Ample natural gas for electricity generation could also make it easier to shift to electric vehicles—once again helping the environment and lessening our dependence on the Middle East.


Then, I think we still need to invest in renewables—but smartly. States with renewable-energy potential, such as windy Texas or sunny California, should keep their mandates that a fixed percentage of electricity must be generated by alternative sources. That will give companies incentives and opportunities to bring renewables to market and lower costs over time through experience and innovation. Yes, renewables may seem relatively more expensive in those states as shale gas hits the market. And, yes, that may mean getting more help from government subsidies. But I don't think the cost would be prohibitive, and the long-term benefits are worth it.


Still, I don't believe we should set national mandates—which would get prohibitively expensive in states without abundant renewable resources. Instead of pouring money into subsidies to make such a plan work, the federal government should invest in R&D to make renewables competitive down the road without big subsidies.


***
In the end, what's important to understand is that shale gas may be the key to solving some of our most pressing short-term crises, a way to bridge the gap to a more-secure energy and economic future.


The trade deficit has crippled our economy and shows no signs of abating as long as we remain tethered to imported energy. Why ship dollars abroad where they can destabilize global financial markets—and then hit us back in lost jobs and savings—when we can develop the resources we have here in our own country? Shall we pay Vladimir Putin and Mahmoud Ahmadinejad to develop our natural gas—or the citizens of Pennsylvania and Louisiana?


Source: http://online.wsj.com
__________________________________________________________________________________

A fundamental shift in the geopolitics of oil

Last summer, Saudi Arabia put the final bolt in its largest-ever oil expansion project, opening a new field capable of pumping 1.2 million barrels a day – more than the entire production of Texas. The field, called Khurais, was part of an ambitious $60 billion program to increase the kingdom’s production to meet growing energy needs. 

It turns out the timing could not have been worse for Saudi Arabia. 

Only two years ago, consumers were clamoring for more supplies, OPEC producers were straining to increase their output, and prices were rising to record levels. But now, for the first time in more than a decade, the world has more oil than it needs. 

As demand slumped because of the global recession, Saudi Arabia was forced to shut about a quarter of its production. After raising its capacity to 12.5 million barrels a day, Saudi Arabia is pumping about 8.5 million barrels a day, its lowest output since the early 1990s. 

“2009 was painful for us as it was for everybody else,” said Khalid A Al-Falih, the president and chief executive of Saudi Aramco, the kingdom’s state-owned oil giant, and a company veteran who was promoted to the top post at the beginning of last year. “We experienced the same cash flow constraints that everybody did. But we adjusted quickly and, certainly, everything that was strategic to us was not touched.” 

The recession also precipitated a milestone for Saudi Arabia and the global energy market. While China’s successful economic policies paved the way for a quick rebound there, the recession caused a deeper slowdown in the United States, slashing oil consumption by 10 per cent from its 2005-07 peak. As a result, Saudi Arabia exported more oil to China than to the United States last year. 

While exports to the United States might rebound this year, in the long run, the decline in American demand and the growing importance of China mark a fundamental shift in the geopolitics of oil. 

“We believe this is a long-term transition,” Al-Falih said in a recent interview. “Demographic and economic trends are making it clear – the writing is on the wall. China is the growth market for petroleum.” 

Saudi officials have said they favor prices of around $80 a barrel. Despite soft demand and high inventories, oil futures in New York have averaged $75 a barrel over the last six months. On Friday, they closed at $80.97. 

In the United States, some experts believe that energy efficiency measures, as well as the government’s push for biofuels and its plans to limit carbon emissions, are putting the nation on a long-term path to lower oil consumption.

The American talk about energy independence rankles Saudi officials who maintain the goal is unrealistic and could end up damaging energy markets by undermining current investment, and thus leading to higher prices in the long run. Al-Falih said he welcomed energy efficiency measures but insisted that fossil fuels would dominate energy demand for decades. 

“I was here in the 1980s after the 1970s price shocks, and I remember all the debates,” Al-Falih said. “But ultimately the policies were reasonable. And the United States continues to search for that reasonable ground.” 

Saudi officials have recognised that structural changes are taking place in the United States. A few months ago, Aramco sold its storage depots in the Caribbean, a signal that it was abandoning the East Coast market, according to analysts. (The Saudis stopped striving to be the top foreign supplier to the United States years ago. The kingdom trails Canada, Mexico and Venezuela for exports to the United States.) 

That is not to say the Saudis are cutting ties with the United States. Aramco is expanding its Motiva refinery, in Port Arthur, Texas, which it owns with Royal Dutch Shell, to increase its capacity to 600,000 barrels a day. That will make it the largest refinery in the United States, overtaking Exxon Mobil’s Baytown refinery. Edward L Morse, an energy expert who heads global commodity research at Credit Suisse in New York, said the transformation was a healthy development in relations between Saudi Arabia and the United States. It also means the end of the “US discount,” where Aramco sold oil to American refiners for about one dollar a barrel less than to Asia. 

“The Saudis don’t see the need to subsidize their oil exports to the United States anymore,” Morse said. 

Last year, Saudi exports to the United States fell to 989,000 barrels a day, their lowest level in 22 years, down from 1.5 million barrels a day the previous year, according to the Energy Information Administration. Meanwhile, Saudi sales to China surged above a million barrels a day last year, nearly doubling from the previous year. The kingdom now accounts for a quarter of Chinese oil imports. 

Saudi Aramco recently inaugurated a huge refinery in the Fujian province, in the southeast coast of China, which is projected to receive 200,000 barrels a day of Saudi crude, and is looking at a second project in the northeast city of Qingdao. It is also planning to build two refineries in Saudi Arabia, as joint ventures with Total and ConocoPhillips, that are primarily destined to ship products to Asia. 

China is not alone in courting Saudi attention. After a visit in March to Riyadh by India’s prime minister, Saudi Arabia outlined a goal to double its exports to India. The kingdom already accounts for 25 per cent of the Indian market after its exports grew sevenfold from 2000 to 2008. 

“Oil flows are shifting from West to East, and Saudi supplies that used to go to Europe and the United States are now headed for Asia,” said Jean-Jacques Mosconi, the senior vice president for strategy at Total of France. 

Brad Bourland, a former State Department official who heads research at Jadwa Investment in Riyadh, said: “Saudi Arabia used to be very much an American story, but those days are gone forever. That’s just a reflection of a globalised world and the rise of Asia. They now see their relationship with China as very strategic, and very long term.” 

Some energy and security experts have pointed out that the Saudi government is keen on displacing Iranian oil sales to China to persuade Beijing to back tougher sanctions against Iran’s nuclear programme, a position that has the support of the United States. 

“We know the Saudis and others have delivered the message to the Chinese that instability in the gulf is not in their interest,” Douglas C Hengel, the deputy assistant secretary for energy, sanctions, and commodities at the State Department, said last week during a conference in Houston. 

But Jon B Alterman, a Middle East expert at the Center for Strategic and International Studies in Washington, said that the falling dependence of the United States on Saudi oil could turn into a problem for the Saudis, because the United States guarantees their security in the Persian Gulf. 

“The Saudis are particularly concerned about the shape of the global market where all the growth comes from the east and all the security comes from the west,” Alterman said. 

China’s oil demand is set to grow by 900,000 barrels a day in the next two years. Chinese oil consumption reached 8.5 million barrels a day last year, compared with 4.8 million in 2000. It will account for a third of the world’s total consumption growth this year. 

While China is by far the fastest-growing oil market in the world, the United States is still the top consumer: Despite the slump, Americans consumed 18.5 million barrels a day in 2009. That amounts to 22 barrels of oil a year for each American, compared with 2.4 barrels for each Chinese. 

“To me, this is a long-term business,” said Al-Falih during the interview. “And that is how I look at the United States and China – as markets for commodities that will be in demand for years.”

Source: Economic Times

__________________________________________________________________________________

Algerian oil, gas output 'unaffected' by corruption probe

Algeria’s oil and gas production is unaffected by allegations of corruption among officials at state-owned Sonatrach, according to Oil Minister Chakib Khelil. 

“Algeria's hydrocarbons output has not been affected,” he said. “There are capable people within the national company and 120 projects, some of which worth over billions of dollars, are underway.” 

“All the charges against Sonatrach's executives are [being] reported by the press,” Khelil said, adding that these managers are “presumed innocent until the court's decision.” 

The corruption probe involves alleged violations of laws on awarding public contracts, embezzlement, corruption, and criminal conspiracy at Sonatrach. It has resulted in the dismissal of the firm’s key leadership. 

Chief Executive Mohamed Meziane was dismissed, along with vice-presidents in charge of upstream exploration and production, including Boumediene Belkacem, Benamar Zenasni, and Chawki Rahal. 

Algeria’s daily El-Watan newspaper, which helped to break the story, reported that another 12 senior officials at the company have been implicated. 

El-Watan said most of the 15 officials were either arrested or put under severe travel restrictions, having to report to the court on a weekly basis. 

The probe also named the former chief executive of Algeria's Credit Populaire d'Algerie (CPA) bank Hachemi Meghaoui; his son, who heads a research and consulting firm; another unnamed private Algerian businessman; and two of Meziane's children, who also have not been named. 

According to El Watan, “No information has been released by the oil company, which thus finds itself decapitated since its entire management team is being prosecuted for embezzlement, violation of laws on awarding public contracts, corruption, and above all criminal conspiracy.” 

The investigation is being handled by the Direction de renseignements et de sécurité (DRS), the military intelligence service, headed by General Mohammed Mediene, regarded as one of the most powerful figures in the Algerian political system. 

According to El Watan, Algeria’s president Abdelaziz Bouteflika called on the DRS after personally learning of possible irregularities in Sonatrach. 

Reports suggested that Khelil himself could suffer political damage since Meziane, who became head of Sonatrach in 2003, is regarded as a close confidant of the oil minister. 

News of the scandal coincided with an announcement that Algeria signed contracts with consortiums led by Total, Repsol and CNOOC on the weekend to develop three oil and gas permits out of 10 offered: 

Ahnet 

No. of permits on offer: 1 

Winning bidder: Total consortium 

Area: 17,358 sq km 

Hassi Bir Rekaiz 

Winning bidder: CNOOC consortium 

Area: Hassi Bir Rekaiz is part of the Berkine basin with a total area of 20,943 sq km 

Southeast Illizi 

Winning bidder: Repsol consortium 

Area: The permit lies in the Illizi basin that stretches over an area of 15,208 sq km 

However, analyst IHS Global Insight said “dramatic turmoil” at the top of Sonatrach as a result of the probe and a “meager outcome” from its latest late-December upstream licensing round, indicate that the fortunes for the Algerian oil and gas industry are not about to improve in the near term. 

“Algeria’s eighth licensing round—completed in late December—proved to be another disappointment with only 3 out of 10 offered upstream licenses taken. The overall low interest from foreign investors has also meant that a lesser number of projects will go ahead then Algeria had planned for,” the analyst said.

Source: www.ogj.com

__________________________________________________________________________________

Chevron plans downstream restructuring

Chevron Corp. plans to restructure its global downstream business in a move company officials said would leave the organization smaller and less complex. 

A video message to employees from Mike Wirth, executive vice-president for the company’s global downstream business, warned of unspecified workforce reductions. 

According to a report by the Houston Chronicle, Wirth told employees details of the restructuring would be available in March. The plan is to be in place by the third quarter, he said. 

Chevron confirmed that employees had been told of the reorganization and the streamlining of staff that will result. A company official told Oil & Gas Journal the video message made no new announcement about assets or the markets in which Chevron works.  

The official said downstream assets and markets have been subject to “ongoing review” for many months and already have resulted in cutbacks of various forms. 

The video message follows a Jan. 11 interim financial update from Chevron that warned fourth-quarter 2009 downstream earnings would be “sharply lower, mainly due to significantly weaker refining margins.” 

Chevron’s global refining capacity totals 2 million b/d. 

According to the 2008 annual report, the company has 937,000 b/d of capacity in wholly owned refineries in the US, including 265,000 b/d at El Segundo, Calif.; 54,000 b/d at Kapolei, Ha.; 330,000 b/d at Pascagoula, Miss.; 243,000 b/d at Richmond, Calif.; and 45,000 b/d at Salt Lake City, Utah. It also has an 80,000-b/d asphalt plant at Perth Amboy, NJ. 

Outside the US, Chevron owns refineries at Burnaby, BC, 55,000 b/d; Cape Town, South Africa, 110,000 b/d; and Pembroke, UK, 210,000 b/d. 

It also owns shares in refineries outside the US through international affiliates with net capacities totaling 747,000 b/d. The international capacities include 350,000 b/d through Chevron’s 50% share of the Yeosu refinery in South Korea and 145,000 b/d through its 50% share of the Pualau Merlimau refinery in Singapore

Source: www.ogj.com

__________________________________________________________________________________

Poll finds Norwegians want oil exploration assessment

About 73% of Norwegians favor an investigation into the consequences of oil and gas exploration off the northern Lofoten islands, according to an opinion poll conducted on behalf of the country’s oil industry association. 

"The poll showed that people think reasonably and wish to get more knowledge before a decision to allow or not to allow exploration in these areas is made," said Gro Braekken, managing director of Norway’s Oljeindustriens Landsforening (OLF). 

In November 2009, Statoil estimated that the areas Nordland VI and VII off Lofoten contain 2-3 billion boe, representing a value of as much as $259.6 billion. Statoil said it was ready to start drilling in the area in 2011, but that it needed to wait for a “consequence study” and approval from authorities. 

The Statoil oil remarks followed earlier ones by the head of Norway’s petroleum directorate, the Oljedirektoratet (OD), which is responsible for regulation of petroleum resources on the country’s continental shelf. 

At the time, OD Chief Bente Nyland told industry journal Teknisk Ukeblad that seismic scans carried out in the previous 2 years confirmed favorable geological foundations with rocks from the Jura-era found at a proper depth for potential oil and gas deposits. 

"This is the type of geology where most discoveries on the Norwegian shelf have been made," said Nyland. "Because of that, we have much belief that there are good possibilities offshore Lofoten and Versteralen." 

Despite the upbeat remarks and the recent poll, exploration activities are still banned in Norway's northernmost territories, with continuing opposition from environmentalists and politicians who support the nation’s fishing industry. 

Lars Haltbrekke, who heads the Norwegian Society for the Conservation of Nature, suggested that the country’s oil industry is being disingenuous when it comes to launching the initiative for gathering more knowledge. 

"OLF's former head Per Terje Vold said last year that an investigation of consequences is synonymous with an opening process. The majority of such investigations, conducted previously, have led to an opening," said Haltbrekke. 

Earlier this month, the leader of the Center Party of Norway, Liv Signe Navarsete, expressed opposition to the launch of a consequence study of petroleum activities off Lofoten and Versteralen during the current parliamentary period. 

Navarsete, whose party is against exploration in Norway’s northern regions, said that protection of fish in the region has priority over the development of its oil. 

In 2009, the Norwegian government said it would not open for petroleum activity in Lofoten or Versteralen during the current governing period, which ends in 2013. However, the government also said it would determine in 2010 whether a consequence study should be undertaken for the region

Source: www.ogj.com

__________________________________________________________________________________

Shell begins drilling for shale gas in Sweden

Royal Dutch Shell PLC, despite opposition from environmentalists, has begun to drill for shale gas in Sweden, saying there may be enough gas to make the country self-sufficient for a decade. 

"There could be enough gas to cover Sweden's gas needs for at least 10 years," said a Shell spokesman, adding that the firm is drilling its first well now and expects to finish three wells by the end of March. 

Shell’s drilling program has met with resistance from local residents, according to the Skanska Dagbladet newspaper which last week said neighbors to the planned drilling site appealed to the Environmental Court over an earlier approval by the county administrative board. 

Last November, the county administrative board of Sjobo gave the green light to Shell's application to conduct test drilling for gas in the municipality. That approval came after an earlier one by the Swedish Mining Inspectorate. 

The approvals have been granted despite objections of some local residents and activists who fear the drilling program could have adverse effects on the environment, especially on the region’s water supplies. 

Goeran Gustafson, a science teacher active in a green group which seeks to stop the project, expressed concern about the impact on ground water, saying that it could be contaminated by heavy metals and other dangerous substances. 

Sweden is one of several countries in Europe where exploration for shale gas is being carried out by international oil and gas companies. Others include the UK, France, Germany, Austria, Poland, and Hungary. 

In addition to Shell’s work in Sweden, ExxonMobil is exploring Lower Saxony, while OMV is testing formations near Vienna. By yearend, ConocoPhillips and 3 Legs Resources are expected to have test results from northern Poland (OGJ Online, Sept. 21, 2009). 

The International Energy Agency estimates that unconventional gas resources in Europe, including coalbed methane, could amount to 35 trillion cu m, six times higher than the continent’s conventional gas resources.

Source: www.ogj.com

__________________________________________________________________________________

PTTEP joins Australian exploration project

Thailand's PTT Exploration & Production PLC (PTTEP) agreed to farm into a 20% interest in three exploration blocks off northwestern Australia. 

PTTEP became the fourth stakeholder in Blocks WA-378-P (3,634 sq km), WA-396-P (4,467 sq km), and WA-397-P (3,886 sq km), joining the joint venture led by Woodside Energy Ltd. 

The farmin represents PTTEP's fifth venture in Australia where the state-owned firm is seeking to further its presence. 

The JV plans to drill an exploration well this year after seismic showed “great potential for gas,” said PTTEP Chief Executive Anon Sirisaengtaksin. 

After PTTEP's 20% farmin, Woodside has a 50% stake in those permits, Mitsui E&P Australia Pty. Ltd. holds 20%, and Toyota Tsusho Gas E&P Browse Pty. Ltd. has 10%.

Source: www.ogj.com

__________________________________________________________________________________

Shell pulls out of Chinese refinery plans

Royal Dutch Shell PLC reported last week it has withdrawn from talks with China Petroleum & Chemical Corp. (Sinopec) and Kuwait Petroleum Corp. that were to lead to construction of a $9 billion, 300,000-b/d refinery in China’s Guongdong province. 

A Shell spokesperson told OGJ that, due to “strategic and commercial considerations, Shell has decided not to pursue the downstream opportunity currently in discussion between KPC and Sinopec.” 

Regional media speculation agreed that the move opens the way for other international oil companies to join the joint venture. In its quoted comments, Sinopec made clear it would retain a 50% interest, leaving any other party to carve out a stake from KPC’s 50% interest. 

Shell is seen as pulling away from new downstream ventures in favor of more oil and natural gas exploration and production. 

A memorandum of understanding is in force between state-run KPC and Sinopec to build the refinery and petrochemical complex that will produce 1 million tonnes/year of ethylene. Kuwait is to supply all the oil for the project. 

Chinese government approval for the project is expected in first-quarter 2010. 

Source: www.ogj.com

__________________________________________________________________________________

Petrobras invests more in ethanol production

Brazil’s state-run Petroleo Brasileiro SA (Petrobras) has entered into two new agreements aimed at further enhancing its presence in the fuel-ethanol market. 

Petrobras subsidiary Petrobras Biocombustível SA (PBio) and Petrochina International Co. Ltd. signed a 6-month memorandum of understanding for joint studies to assess the technical and economic feasibility of developing ethanol production projects in Brazil. 

Petrobras said the agreement comes as large areas in China need to mix ethanol with gasoline and that China has insufficient supplies. For its part, Brazil already mixes ethanol with gasoline in a combination that includes 25% ethanol. 

The MOU with Petrochina follows an earlier agreement in which PBio acquired 40.4% of shares in Minas Gerais sugarcane ethanol distillery Total Agroindustria Canavieira for 150 million reais. 

Petrobras said Total has a distillery in Bambui in Minas Gerais, with the capacity to produce 100,000 cu m/year of anhydrous ethanol. It said the partnership seeks to raise installed capacity to 203,000 cu m/year. 

Petrobras said participating in ethanol is in line with the firm’s strategic plan, and will help meet its ethanol production and marketing goals. Altogether, Petrobras envisages investments of $2.4 billion for ethanol and biodiesel production in 2009-13. 

Petrobras currently accounts for 15% of existing ethanol capacity in Brazil, which is the world's largest producer and exporter of sugarcane-based ethanol.

Source: www.ogj.com

__________________________________________________________________________________

Shell, Petronas sign Majnoon oil field contract with Iraq

Iraq’s Ministry of Oil has signed a 20-year contract with Royal Dutch Shell PLC and Malaysia’s Petronas to provide technical assistance in the development of the Majnoon oil field. 

The consortium targets a production plateau of 1.8 million b/d of oil, up from a current level of 45,000 b/d. Majnoon, which lies in southern Iraq, is one of the world’s largest oil fields. 

Lead operator Shell will hold a 45% share, with partner Petronas holding 30%. The Iraqi state holds 25% of the participating interests in all licenses. 

“Iraq’s oil and gas reserves are among the largest in the world and we look forward to applying our experience and technology to support ongoing efforts to rebuild the country’s energy infrastructure,” said Shell Chief Executive Officer Peter Voser. 

The signing follows the contract award on Dec. 11, 2009, and the approval of the Iraqi Council of Ministers on Jan. 5.

Source: www.ogj.com

__________________________________________________________________________________

Tajikistan: More investment needed to boost gas production

Tajikistan needs a considerable increase of investment for the quickest development of the country’s natural gas resources, according to a senior government official. 

"A record amount of natural gas was produced in Tajikistan in the 1970s, 525 million cu m/year, when huge funds were invested in this sphere,” said Azim Ibrohimov, who heads the country’s main geology directorate. 

Today—taking into account industrial enterprises—the country needs annual production of 800 million cu m to 1 billion cu m of gas, Ibrohimov said, adding, “A multifold increase of funding is needed today to produce at least similar amount of domestic gas.” 

Ibrohimov, who noted that five companies prospect for gas in the country, said there is still no fully encouraging information that Tajikistan could fully supply all of its own gas. 

"Taking into account prospecting work done by these companies, one cannot say that Tajikistan will (fully) be provided with its own natural gas in the near future," Ibrohimov said. 

The comments come as Tajikistan faces a crisis over its gas supplies from neighboring Uzbekistan. Earlier this month, Uzekistan’s state-owned Uzbektransgaz reduced its supplies of natural gas to Tajikistan by 50% due to a dispute over payment (OGJ Online, Jan. 11, 2010).

Source: www.ogj.com

__________________________________________________________________________________

Dana Gas makes ninth discovery in Nile Delta

Dana Gas reported a natural gas discovery with its Orchid-1 well in the West Manzala concession of the Nile Delta. The find marks the firm’s ninth discovery in the region in recent months. 

Dana said Orchid-1 was drilled 1.3 km west of its Azhar-1 well, and was spudded on Dec. 15, 2009, reaching a total depth of 1,700 m in the Pliocene Kafr El Sheikh formation. 

The well found 8.4 m of net pay of excellent sand reservoir of Kafr El Sheikh formation, and tested dry gas at 12.6 MMscfd. 

Dana said it is currently studying the options for producing Orchid-1 through either its El Wastani or South El Manzala gas plants. 

“The preliminary estimated recoverable reserves of the Orchid discovery range between 10-50 bcf of dry gas, pending further appraisal,” the firm said. 

Dana said the find follows its eight previous gas discoveries in Egypt announced in 2009: Salma-1, West Manzala-2, Azhar-1, Tulip-1, Sharabas-1, Sama-1, Faraskur-1, and Marzouk-2. 

As a result of the finds, Dana said it has successfully achieved its yearend production target for Egypt operations by delivering a production rate “in excess of 40,000 boe/d.” 

Overall, Dana Gas Egypt said it has delivered an average production rate of 34,750 boe/d during 2009. Compared to 2008, this represents an increase of 27% on the end of year production rate and is a 20% increase on the average daily production rate. 

Source: www.ogj.com

_________________________________________________________________________________

Consortium selects three floating LNG plant designers

Brazil’s state-run Petroleo Brasileiro SA (Petrobras) and its partners in a joint venture to build an onboard natural gas liquefaction unit (ONGU) for the presalt area, signed three agreements to develop the unit’s front-end engineering and design. 

Petrobras said agreements were signed with Italy's Saipem SPA, a Swiss-Japanese group comprised of SBM Offshore NV and Chiyoda Corp., and a French-Japanese team made up of Technip, JGC Corp., and Modec Inc. It said the tender was launched in August and the offers delivered in October. 

The groups have until Dec. 16, 2010, to develop the FEEDs, and the projects will be carried out in parallel, Petrobras said. 

It said a decision will be made in 2011 on the best option to outflow gas from the Santos basin’s presalt pole, based on the technical and economic feasibility analysis of the FEEDs and of other alternative solutions such as underwater pipelines. 

Once the most feasible design is selected, a new tender will be launched to choose the group in charge of building and operating the project, which is scheduled for completion in July 2015. 

The ONGU will operate in Blocks BM-S-9 and BM-S-11 300 km off Brazil. The unit will be installed near the oil and gas floating production, storage, and offloading units, and will receive, process, and liquefy up to 14 million cu m/day of associated gas. 

The ONGU will also store and transfer processed products (LNG, propane, and butane) to vessels, which, in turn, will transport them to markets. 

LNG will be delivered to regasification terminals and injected into the gas pipeline network. In Brazil, Petrobras’ LNG regasification terminals are installed in Pecem and in the Guanabara Bay. 

Petrobras holds 51.1% of the joint venture that will develop the FEEDs to build the ONGU unit. Partners BG, Repsol, and Galp Energia hold the remaining 48.9% equally, each with a 16.3% stake. 

The same companies also are partners in Blocks BM-S-9 (Petrobras, BG Group, and Repsol) and BM-S-11 (Petrobras, BG Group, and Galp Energia). 

Source: www.ogj.com

_________________________________________________________________________________

Noble Energy to sell gas to Israel Electric

Noble Energy Inc. and its partners have signed a letter of intent to sell natural gas from Tamar field, off Israel, to Israel Electric Corp. Ltd. (IEC). 

Noble Chairman and Chief Executive Officer Charles D. Davidson said the firm is upbeat about the LOI with IEC, which marks “a very important step” in the continuing development of the Tamar project. 

“The progress on both the development and marketing of Tamar continues to move us along towards first production in 2012, consistent with our original projections," Davidson said. 

Under the LOI, IEC expects to purchase at least 95 bcf/year of gas with the potential to procure higher quantities for a period of 15 years beginning at the startup of Tamar. 

Noble estimates that total revenue for the 15-year period to be $9.5 billion using expected sales volumes and prices calculated with current oil futures' prices. 

Nobel and its partners have now signed LOIs for gas sales from Tamar with cumulative total revenues estimated at $10.5 billion. 

Additional discussions are continuing with a number of potential customers regarding the supply of Tamar gas. Nobel estimates total gross mean resources in Tamar of 6.3 tcf. 

As part of a separate LOI, IEC expects to purchase gas from the Nobel and its partners to establish a strategic inventory reserve at Mari-B. 

Mari-B partners would provide IEC with injection, storage, and withdrawal capabilities for this inventory under a related service agreement. 

Israeli private power company Dalia Power Energies earlier signed an LOI to buy gas from the Noble group’s Tamar field (OGJ Newsletter, Dec. 21, 2009). 

Noble operates Tamar, which lies in the Matan license, with a 36% working interest. Other stakeholders are Isramco Negev 2 28.75%, Delek Drilling 15.625%, Avner Oil Exploration 15.625%, and Dor Gas Exploration 4%. 

Noble also is the operator of Mari-B with a 47.059% stake, while Delek Drilling has 25.5%, Avner Oil 23%, and Delek Investment 4.441%. 

Source: www.ogj.com

_________________________________________________________________________________