NEW YORK - Crude oil fell more than $5 a barrel, dropping below $130 for the first time in six weeks, as global economic growth slows. Natural gas dropped more than 7 percent after a government report showed US supplies rose a greater-than-forecast 104 billion cubic feet last week. Some users can switch between oil-based fuels and gas depending on cost. Oil also fell because of reports showing the US and Chinese economies are slowing.
"The rout in natural gas is pulling oil lower," said Addison Armstrong, director of market research at TFS Energy LLS in Stamford, Conn. "The sheer weight of the decline is bound to impact all the energy markets. A consensus was already forming that [energy] prices were too high."
Crude oil for August delivery fell $5.31, or 4 percent, to settle at $129.29 a barrel on the New York Mercantile Exchange, the lowest close since June 5. Futures are up 75 percent from a year ago.
Futures have dropped almost $18 from last week's record $147.27 a barrel on signs that US consumption is falling. Oil is down 11 percent since July 14, the biggest three-day drop since December 2004.
Prices closed below the 50-day moving average for the first time since Feb. 8, an indication the bull market may be coming to an end. Traders use moving averages of different periods in conjunction with other statistical patterns for buying and selling decisions.
Oil also fell because August options expired at the close of Nymex trading yesterday. August $130 puts, which represent the right to sell at that price, were the most actively traded options contract on the Nymex yesterday.
Natural gas for August delivery declined 86.1 cents, or 7.6 percent, to settle at $10.54 per million British thermal units in New York, the lowest close since April 17.
US natural gas inventories were forecast to increase 88 billion cubic feet in the week ended July 11, according to the median of responses from 22 analysts surveyed by Bloomberg News.
China's economic expansion cooled to the slowest pace since 2005 as gross domestic product grew 10.1 percent in the second quarter from a year earlier, down from 10.6 percent in the first quarter, the statistics bureau said yesterday in Beijing.
Saturday, July 19, 2008
Friday, July 18, 2008
BP Bets Big on USA Natural Gas
By BEN CASSELMAN and RUSSELL GOLD
July 18, 2008
Oil giant BP PLC will pay $1.75 billion for natural-gas assets in Oklahoma, placing a big bet on North America's booming unconventional gas fields.
The deal with Oklahoma City-based Chesapeake Energy Corp. is the latest sign of a major shift in Big Oil's strategy. For years, the largest oil companies have all but ignored the continental U.S. in favor of huge oilfields overseas and offshore. Now, facing declining production, shrinking reserves and increasing political challenges, the companies are coming back.
They're returning to a rapidly changing North American energy scene. In recent years, smaller independent companies including Chesapeake have learned how to produce gas from unconventional reservoirs -- tightly packed sands, coal beds or dense rocks called shales -- that were long considered too difficult or too expensive to produce. That's led to a drilling boom in Texas, Colorado, Pennsylvania and elsewhere, spurred in part by soaring energy prices.
[Chart]
Global companies such as BP had largely remained on the sidelines, shunning the fields because they require hundreds of small wells managed by large numbers of employees. In years past, they'd sold most of their U.S. assets, arguing it was a mature region that didn't offer adequate returns.
Now that's changing as they face harsh political treatment in energy-rich nations and are losing access to the world's best remaining reserves.
BP's dive into unconventional U.S. gas is "a seminal event," said Ralph Eads, chairman of Jefferies Randall & Dewey, the energy investment banking arm of Jefferies & Co.
Like most big oil companies, BP has struggled recently to replace aging fields and grow its production. Its oil and gas production was down 2.8% in 2007 from a year earlier.
In Thursday's deal, the company is buying 90,000 acres of natural-gas leases, believed to contain two trillion cubic feet of gas, the equivalent of more than 350 million barrels of oil. Chesapeake produces about 50 million cubic feet per day production on the Oklahoma property.
BP's announcement comes three days after rival Royal Dutch Shell PLC announced a C$5.9 billion (about $6 billion) takeover bid for Canadian natural-gas producer Duvernay Oil Corp. Shell also has partnered with EnCana Corp. to enter what has become the hottest new unconventional play, the Haynesville Shale in east Texas and Louisiana.
In April, Exxon bought an interest in an unconventional gas field in Hungary and has plans for gas wells in Germany also. ConocoPhillips jumped ahead of the trend in 2005 when it purchased Texas-based gas-producer Burlington Resources Inc. for $35 billion.
Unconventional oil and gas fields offer significant advantages. Not only are they in politically stable areas, they offer relatively little risk. Because each well is much like another, costs can actually go down over time, a sharp contrast to the rapidly rising costs of wells overseas.
July 18, 2008
Oil giant BP PLC will pay $1.75 billion for natural-gas assets in Oklahoma, placing a big bet on North America's booming unconventional gas fields.
The deal with Oklahoma City-based Chesapeake Energy Corp. is the latest sign of a major shift in Big Oil's strategy. For years, the largest oil companies have all but ignored the continental U.S. in favor of huge oilfields overseas and offshore. Now, facing declining production, shrinking reserves and increasing political challenges, the companies are coming back.
They're returning to a rapidly changing North American energy scene. In recent years, smaller independent companies including Chesapeake have learned how to produce gas from unconventional reservoirs -- tightly packed sands, coal beds or dense rocks called shales -- that were long considered too difficult or too expensive to produce. That's led to a drilling boom in Texas, Colorado, Pennsylvania and elsewhere, spurred in part by soaring energy prices.
[Chart]
Global companies such as BP had largely remained on the sidelines, shunning the fields because they require hundreds of small wells managed by large numbers of employees. In years past, they'd sold most of their U.S. assets, arguing it was a mature region that didn't offer adequate returns.
Now that's changing as they face harsh political treatment in energy-rich nations and are losing access to the world's best remaining reserves.
BP's dive into unconventional U.S. gas is "a seminal event," said Ralph Eads, chairman of Jefferies Randall & Dewey, the energy investment banking arm of Jefferies & Co.
Like most big oil companies, BP has struggled recently to replace aging fields and grow its production. Its oil and gas production was down 2.8% in 2007 from a year earlier.
In Thursday's deal, the company is buying 90,000 acres of natural-gas leases, believed to contain two trillion cubic feet of gas, the equivalent of more than 350 million barrels of oil. Chesapeake produces about 50 million cubic feet per day production on the Oklahoma property.
BP's announcement comes three days after rival Royal Dutch Shell PLC announced a C$5.9 billion (about $6 billion) takeover bid for Canadian natural-gas producer Duvernay Oil Corp. Shell also has partnered with EnCana Corp. to enter what has become the hottest new unconventional play, the Haynesville Shale in east Texas and Louisiana.
In April, Exxon bought an interest in an unconventional gas field in Hungary and has plans for gas wells in Germany also. ConocoPhillips jumped ahead of the trend in 2005 when it purchased Texas-based gas-producer Burlington Resources Inc. for $35 billion.
Unconventional oil and gas fields offer significant advantages. Not only are they in politically stable areas, they offer relatively little risk. Because each well is much like another, costs can actually go down over time, a sharp contrast to the rapidly rising costs of wells overseas.
Thursday, July 17, 2008
Appalachian Basin Natural Gas Target for Shale Development
PITTSBURGH, Jul 16, 2008 (BUSINESS WIRE) -- A consortium of energy companies active in the Appalachian Basin have organized to form the Appalachian Shale Water Conservation and Management Committee (ASWCMC). The founding members include: Anadarko Petroleum, Cabot Oil & Gas, Chesapeake Energy, Chief Oil & Gas, EOG Resources, Equitable Resources, J-W Operating, Marathon Oil Corporation and Range Resources. The ASWCMC has joined with the Gas Technology Institute (GTI), a leading research, development and training organization, and selected Tom Hayes as the Managing Director for the committee.
The Marcellus Shale formation, one of several Appalachian potential shale plays, is an emerging resource for natural gas in the country with potential reserves estimated to be as high as 50-200 trillion cubic feet (Tcf). As the shale development continues and new companies enter the Appalachian Basin, the companies participating in the ASWCMC will likely increase.
The mission of the ASWCMC is to develop best management practices and technical solutions for shale developments in the Appalachian Basin. The committee will work cooperatively with the appropriate regulatory agencies to ensure that water resources are managed in an efficient and environmentally responsible manner. Initial goals of the ASWCMC will be to determine current and future water needs, water quality specifications for drilling and hydraulic fracturing, and to identify technologies that provide solutions for water management and water conservation. "There are several water treatment and recycling techniques, some of which are being tested in other shale fields. The consortium has engaged GTI to help us identify the options available and help us find the best techniques for use in Appalachia and the Marcellus Shale development," said Len Paugh, Operations Manager with Range Resources.
Only around 200 wells have been drilled into the Marcellus Shale in the Appalachian Basin, but the industry recognized the need to responsibly manage water resources early. In April 2008, the ASWCMC organizers submitted a cooperative government-industry research proposal to the U.S. Department of Energy - National Energy Technology Laboratory. "The proposed project would include funding for studies to obtain water management information, to develop solutions to manage water streams associated with energy development and methods that minimize the demands on public water supplies," said Tom Hayes, Managing Director of the ASWCMC. "We will pursue other opportunities for research of industry pilot water treatment and recycling tests."
ASWCMC is a consortium of energy companies focused on efficient and responsible use of water in drilling, completion, and production operations associated with shale development in the Appalachian Region.
The Marcellus Shale formation, one of several Appalachian potential shale plays, is an emerging resource for natural gas in the country with potential reserves estimated to be as high as 50-200 trillion cubic feet (Tcf). As the shale development continues and new companies enter the Appalachian Basin, the companies participating in the ASWCMC will likely increase.
The mission of the ASWCMC is to develop best management practices and technical solutions for shale developments in the Appalachian Basin. The committee will work cooperatively with the appropriate regulatory agencies to ensure that water resources are managed in an efficient and environmentally responsible manner. Initial goals of the ASWCMC will be to determine current and future water needs, water quality specifications for drilling and hydraulic fracturing, and to identify technologies that provide solutions for water management and water conservation. "There are several water treatment and recycling techniques, some of which are being tested in other shale fields. The consortium has engaged GTI to help us identify the options available and help us find the best techniques for use in Appalachia and the Marcellus Shale development," said Len Paugh, Operations Manager with Range Resources.
Only around 200 wells have been drilled into the Marcellus Shale in the Appalachian Basin, but the industry recognized the need to responsibly manage water resources early. In April 2008, the ASWCMC organizers submitted a cooperative government-industry research proposal to the U.S. Department of Energy - National Energy Technology Laboratory. "The proposed project would include funding for studies to obtain water management information, to develop solutions to manage water streams associated with energy development and methods that minimize the demands on public water supplies," said Tom Hayes, Managing Director of the ASWCMC. "We will pursue other opportunities for research of industry pilot water treatment and recycling tests."
ASWCMC is a consortium of energy companies focused on efficient and responsible use of water in drilling, completion, and production operations associated with shale development in the Appalachian Region.
Wednesday, July 16, 2008
EXCO Buys Natural Gas Assets in Texas
EXCO Resources, Inc. has closed an acquisition of producing oil and natural gas properties, acreage and other assets in Gregg, Rusk, and Upshur Counties, Texas for approximately $252 million from private sellers, subject to customary post-closing purchase price adjustments. EXCO’s average working interest in the properties is approximately 94% with an average net revenue interest of 72%. EXCO’s estimate of net proved reserves acquired is 109 Bcfe and estimated total net reserves (proved, probable and possible) exceed 370 Bcfe exclusive of Bossier/Haynesville shale potential, discussed below, all based on NYMEX strip pricing at the contract effective date of March 1, 2008.
The assets include producing properties with more than 15 Mmcfe per day of net production from 83 producing wells and approximately 11,000 gross acres. Also included in the assets is a 50 mile gathering system with compressors, a dehydration unit and a refrigeration plant. EXCO estimates that there are more than 500 additional drilling locations in the Cotton Valley and Travis Peak formations, of which 92 are proved. EXCO will operate the field and estimates a capital budget of $20 million to drill 9 wells during the remainder of 2008. The current primary productive formations in the field are the Upper Cotton Valley, Pettet and Travis Peak. A majority of the acquired leasehold covers rights to all depths, including the Bossier/Haynesville shale. In prior years, two vertical wells were drilled into the Bossier/Haynesville shale on this acreage and logged pay potential in these horizons. Recent industry activity in the vicinity of the acquired acreage has confirmed the presence of shale potential. EXCO plans to drill at least one vertical well in 2008 to further delineate potential of the Bossier/Haynesville, and EXCO estimates that there could be more than 100 potential shale locations across the acquired acreage.
The acquisition of these properties will be financed with a $300 million Senior Unsecured Term Loan due December 15, 2008, at our unrestricted subsidiary, EXCO Operating Company, LP, formerly known as EXCO Partners Operating Partnership, LP.
The assets include producing properties with more than 15 Mmcfe per day of net production from 83 producing wells and approximately 11,000 gross acres. Also included in the assets is a 50 mile gathering system with compressors, a dehydration unit and a refrigeration plant. EXCO estimates that there are more than 500 additional drilling locations in the Cotton Valley and Travis Peak formations, of which 92 are proved. EXCO will operate the field and estimates a capital budget of $20 million to drill 9 wells during the remainder of 2008. The current primary productive formations in the field are the Upper Cotton Valley, Pettet and Travis Peak. A majority of the acquired leasehold covers rights to all depths, including the Bossier/Haynesville shale. In prior years, two vertical wells were drilled into the Bossier/Haynesville shale on this acreage and logged pay potential in these horizons. Recent industry activity in the vicinity of the acquired acreage has confirmed the presence of shale potential. EXCO plans to drill at least one vertical well in 2008 to further delineate potential of the Bossier/Haynesville, and EXCO estimates that there could be more than 100 potential shale locations across the acquired acreage.
The acquisition of these properties will be financed with a $300 million Senior Unsecured Term Loan due December 15, 2008, at our unrestricted subsidiary, EXCO Operating Company, LP, formerly known as EXCO Partners Operating Partnership, LP.
Tuesday, July 15, 2008
U.S. Natural Gas Price Falls 4% on Fed Chief Economy Assessment
July 15 (Bloomberg) -- Natural gas futures fell to the lowest in almost seven weeks on concern demand will slow, after Federal Reserve Chairman Ben S. Bernanke said risks to U.S. growth have increased.
Gas fell after Bernanke, in Senate testimony, said there are ``significant downside risks to the outlook for growth.'' About 31 percent of the natural gas consumed in the U.S. is used by industrial companies, according to Energy Department data.
``Bernanke is saying the U.S. is really starting to falter,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``There is growing risk the U.S. could fall into a major recession, which would drag on the global economies.''
Natural gas for August delivery fell 48.2 cents, or 4 percent, to settle at $11.477 per million British thermal units at 3:16 p.m. on the New York Mercantile Exchange, the lowest closing price since May 29.
The Fed chief abandoned the message of the Fed's June policy statement that downside risks to growth had ``diminished somewhat,'' while maintaining a warning on inflation in semiannual testimony on the economy to the Senate Banking Committee.
Crude oil futures for August delivery fell for the first time in a week, dropping $6.44, or 4.4 percent, to settle at $138.74 a barrel on the New York.
Gas fell after Bernanke, in Senate testimony, said there are ``significant downside risks to the outlook for growth.'' About 31 percent of the natural gas consumed in the U.S. is used by industrial companies, according to Energy Department data.
``Bernanke is saying the U.S. is really starting to falter,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``There is growing risk the U.S. could fall into a major recession, which would drag on the global economies.''
Natural gas for August delivery fell 48.2 cents, or 4 percent, to settle at $11.477 per million British thermal units at 3:16 p.m. on the New York Mercantile Exchange, the lowest closing price since May 29.
The Fed chief abandoned the message of the Fed's June policy statement that downside risks to growth had ``diminished somewhat,'' while maintaining a warning on inflation in semiannual testimony on the economy to the Senate Banking Committee.
Crude oil futures for August delivery fell for the first time in a week, dropping $6.44, or 4.4 percent, to settle at $138.74 a barrel on the New York.
Exxon Moving Forward with Alaska Natural Gas & Oil
JUNEAU, Alaska — Exxon Mobil Corp. has hired contractors with plans to begin work on an oil and gas field the state of Alaska wants to take back.
The state's Department of Natural Resources rejected Exxon Mobil's most recent development plan for the Point Thomson field. The dispute is still in court, but the Irving, Texas, company announced Monday it's still moving forward with work.
The field's rich cache of oil and gas sit at the heart of a dispute over a proposed natural gas pipeline, which some lawmakers believe cannot be successful until the state's dispute gets resolved.
Exxon Mobil is the operator for leases purchased 31 years ago, but never developed; BP PLC and Chevron also have a stake in the unit.
The state has been trying to strip Exxon and its partners of the leases since late 2006 under both Gov. Sarah Palin and her predecessor, former Gov. Frank Murkowski.
Exxon Mobil recently told lawmakers that it's serious about this development plan and considers it vital to any gas pipeline project that would go into Canada and eventually serve U.S. markets.
The Alaska Legislature should within a week take a vote on whether to issue a state license to TransCanada Corp. to build a pipeline that would take natural gas from Alaska's North Slope into Canada and then down to the Lower 48.
ConocoPhillips and BP have joined forces on a competing pipeline that is not seeking a state license or the accompanying $500 million in state incentives.
Exxon Mobil's $1.3 billion Point Thomson plan includes drilling that will begin the 2008-2009 winter season.
It's considered a first phase that will initially produce about 200 million cubic feet of natural gas, plus 10,000 barrels per day of liquid condensate removed from the gas and sold through existing and new pipelines.
The state's natural resources commissioner Tom Irwin, however, rejected this plan proposed in February. A Superior Court ruling is expected by year's end.
The state's Department of Natural Resources rejected Exxon Mobil's most recent development plan for the Point Thomson field. The dispute is still in court, but the Irving, Texas, company announced Monday it's still moving forward with work.
The field's rich cache of oil and gas sit at the heart of a dispute over a proposed natural gas pipeline, which some lawmakers believe cannot be successful until the state's dispute gets resolved.
Exxon Mobil is the operator for leases purchased 31 years ago, but never developed; BP PLC and Chevron also have a stake in the unit.
The state has been trying to strip Exxon and its partners of the leases since late 2006 under both Gov. Sarah Palin and her predecessor, former Gov. Frank Murkowski.
Exxon Mobil recently told lawmakers that it's serious about this development plan and considers it vital to any gas pipeline project that would go into Canada and eventually serve U.S. markets.
The Alaska Legislature should within a week take a vote on whether to issue a state license to TransCanada Corp. to build a pipeline that would take natural gas from Alaska's North Slope into Canada and then down to the Lower 48.
ConocoPhillips and BP have joined forces on a competing pipeline that is not seeking a state license or the accompanying $500 million in state incentives.
Exxon Mobil's $1.3 billion Point Thomson plan includes drilling that will begin the 2008-2009 winter season.
It's considered a first phase that will initially produce about 200 million cubic feet of natural gas, plus 10,000 barrels per day of liquid condensate removed from the gas and sold through existing and new pipelines.
The state's natural resources commissioner Tom Irwin, however, rejected this plan proposed in February. A Superior Court ruling is expected by year's end.
Monday, July 14, 2008
Malaysia Government Pushing Natural Gas Vehicles for Buses
By Yamin Vong
FINALLY, we have some good news and some light at the end of the tunnel.
The government will be pushing for a transport fuel policy where natural gas for vehicles (NGV) will be used for buses.
This is one of the findings of the anti-inflation committee.
"We are looking at gas as a possibility to structure an energy policy. At the moment, we are swinging towards getting the public transport sector to use gas to reduce the use of diesel," said Domestic Trade and Industry Minister Datuk Shahrir Abdul Samad last Wednesday.
This is one of the best outcomes of the hike in fuel prices. It has made the government start to take the lead in how to diversify our addiction to petrol and diesel.
The next steps that the anti-inflation committee should do is to drive the public transportation agenda with an iron fist - the people who use buses should be treated with more care and respect by allocating special lanes for buses and taxis. Bus lanes should be re- implemented step by step so that the police can focus its resources and enforce strictly. And what are all the multi-million ringgit CCTVs being used for, if not to control traffic? Coming back to the point of gas playing a major role as a transport fuel, in a modern economy, the transport fuel policy is designed to diversify and minimise consumption. With this new direction, Malaysia can optimise its natural gas resources and substitute this for crude oil.
We'll have to wait for the full announcement of the transport fuel policy but as it is, the most important first step is the recognition of NGV as a public transport fuel.
This is one of the most natural things to do - using NGV for public transport. Firstly, it's logical for Malaysia to use this domestically rather than spend money liquefying it for export. Secondly, it's a clean fuel. Thirdly, it's a `sticky' fuel, i.e. it's not easy to smuggle or steal unlike diesel.
The issues that the government must address is the pricing and the availability of fuel. The technology of conversion has reached a stage where diesel buses can be retro-fitted to use diesel for starting and peak loads, and at cruising, NGV is injected into the combustion chamber.
Of course, there are also the diesel engines that are made for NGV.
The energy policy, which is expected to be announced in three months, will presumably also look at the transport fuel policy because transport fuel accounts for 40 per cent of total energy consumed.
With a clear transportation energy policy, Malaysians can pull together in one direction as a nation in solving the energy demand of the transportation sector.
Motor vehicles account for around 40 per cent of the nation's energy consumption, 99 per cent of which is petrol and diesel.
The transportation energy policy should include alternative fuel targets. For example, the European Union has established a target of replacing 20 per cent of petrol and diesel fuels with alternatives with the target of 10 per cent NGV and 5 per cent hydrogen by year 2020, and 5.75 per cent biofuels by 2010.
Targets are important because plans can be prepared, implemented and monitored.
If the decision is to substitute 10 per cent of the transportation fuel with NGV, then the authorities can calculate how much natural gas needs to be allocated to the transportation sector, how many and where NGV stations need to be built, how many and what types of vehicles should be converted, the skilled manpower that needs to be trained, etc.
We need the targets and specific numbers rather than just saying we need more NGV stations but later ending up with a natural gas supply problem.
NGV will not be able to fuel all 40 per cent of the energy demands of the transportation sector, hence we need to ensure that whatever percentage we target that there will be enough natural gas supply in the long term.
We can also determine whether other oil companies will be involved with Petronas to build NGV stations instead of Petronas doing it all by itself.
It seems that the other oil companies are not keen to build NGV stations as the rate of returns on the investment is not attractive.
The reaction of the managing director of one of Malaysia's biggest oil companies is that as a business entity, he's not keen to buy and be dependent on Petronas, its competitor.
"What happens if Petronas prioritises supplies to its own stations, and treats us like poor relatives?" he asked.
Clear policy is also needed in terms of the pricing mechanism for natural gas supply to NGV stations and retail price of NGV to consumers.
Worldwide, the retail price of NGV is much cheaper than petrol or diesel.
These lower price differentials are needed and must be maintained to ensure the long term viability and sustainability of the NGV programme.
How the price of NGV, compared with petrol and diesel, is determined depends on factors such as whether NGV is used to reduce dependence on imported oil, utilisation of local natural gas resources, reduction of air pollution and to enhance energy security.
Lee Giok Seng, executive director of the Asia Pacific Natural Gas Vehicles Association (ANGVA), is a champion for NGV in Malaysia.
He says that depending on how proactive the government wants to be, NGV in Malaysia can be as successful as in countries like Argentina (about 1.7 million natural gas vehicles), Brazil (1.4 million), Pakistan (1.7 million), India (500,000) and Thailand (75,000).
"In Europe, biogas produced from wastes and landfills are being upgraded as fuel for natural gas vehicles," said Lee.
"This upgraded biogas is known as biomethane, and is a renewable source of natural gas supply.
"In Sweden, around 20 per cent of the natural gas supply is from upgraded biogas production." Lee is, however, concerned that many people are jumping on the bandwagon of NGV without really understanding the whole structural requirement of providing NGV such as the availability of natural gas, the technical limitation of NGV, the safety issues, the operational cost, and the skilled manpower needed.
"It takes time to develop the infrastructure for NGV and the first basic requirement is that there must be adequate supply of natural gas, especially via pipelines," he said.
"Places like Kelantan, where currently there are no piped natural gas supply, will need considerable time, effort and funds to implement NGV projects."
There had been proposals recently that Kelantan converts to NGV.
ANGVA is a regional NGV industry association promoting the use of NGV in the Asia-Pacific region. It is now looking for drivers to participate in the Green Highway II, using NGV vehicles to drive from Kuala Lumpur to Donghae, South Korea.
The ANGVA secretariat is based in Bangi, Malaysia. Previously it was based in Chuncheon, South Korea.
More information on ANGVA can be viewed at www.angva.org.
FINALLY, we have some good news and some light at the end of the tunnel.
The government will be pushing for a transport fuel policy where natural gas for vehicles (NGV) will be used for buses.
This is one of the findings of the anti-inflation committee.
"We are looking at gas as a possibility to structure an energy policy. At the moment, we are swinging towards getting the public transport sector to use gas to reduce the use of diesel," said Domestic Trade and Industry Minister Datuk Shahrir Abdul Samad last Wednesday.
This is one of the best outcomes of the hike in fuel prices. It has made the government start to take the lead in how to diversify our addiction to petrol and diesel.
The next steps that the anti-inflation committee should do is to drive the public transportation agenda with an iron fist - the people who use buses should be treated with more care and respect by allocating special lanes for buses and taxis. Bus lanes should be re- implemented step by step so that the police can focus its resources and enforce strictly. And what are all the multi-million ringgit CCTVs being used for, if not to control traffic? Coming back to the point of gas playing a major role as a transport fuel, in a modern economy, the transport fuel policy is designed to diversify and minimise consumption. With this new direction, Malaysia can optimise its natural gas resources and substitute this for crude oil.
We'll have to wait for the full announcement of the transport fuel policy but as it is, the most important first step is the recognition of NGV as a public transport fuel.
This is one of the most natural things to do - using NGV for public transport. Firstly, it's logical for Malaysia to use this domestically rather than spend money liquefying it for export. Secondly, it's a clean fuel. Thirdly, it's a `sticky' fuel, i.e. it's not easy to smuggle or steal unlike diesel.
The issues that the government must address is the pricing and the availability of fuel. The technology of conversion has reached a stage where diesel buses can be retro-fitted to use diesel for starting and peak loads, and at cruising, NGV is injected into the combustion chamber.
Of course, there are also the diesel engines that are made for NGV.
The energy policy, which is expected to be announced in three months, will presumably also look at the transport fuel policy because transport fuel accounts for 40 per cent of total energy consumed.
With a clear transportation energy policy, Malaysians can pull together in one direction as a nation in solving the energy demand of the transportation sector.
Motor vehicles account for around 40 per cent of the nation's energy consumption, 99 per cent of which is petrol and diesel.
The transportation energy policy should include alternative fuel targets. For example, the European Union has established a target of replacing 20 per cent of petrol and diesel fuels with alternatives with the target of 10 per cent NGV and 5 per cent hydrogen by year 2020, and 5.75 per cent biofuels by 2010.
Targets are important because plans can be prepared, implemented and monitored.
If the decision is to substitute 10 per cent of the transportation fuel with NGV, then the authorities can calculate how much natural gas needs to be allocated to the transportation sector, how many and where NGV stations need to be built, how many and what types of vehicles should be converted, the skilled manpower that needs to be trained, etc.
We need the targets and specific numbers rather than just saying we need more NGV stations but later ending up with a natural gas supply problem.
NGV will not be able to fuel all 40 per cent of the energy demands of the transportation sector, hence we need to ensure that whatever percentage we target that there will be enough natural gas supply in the long term.
We can also determine whether other oil companies will be involved with Petronas to build NGV stations instead of Petronas doing it all by itself.
It seems that the other oil companies are not keen to build NGV stations as the rate of returns on the investment is not attractive.
The reaction of the managing director of one of Malaysia's biggest oil companies is that as a business entity, he's not keen to buy and be dependent on Petronas, its competitor.
"What happens if Petronas prioritises supplies to its own stations, and treats us like poor relatives?" he asked.
Clear policy is also needed in terms of the pricing mechanism for natural gas supply to NGV stations and retail price of NGV to consumers.
Worldwide, the retail price of NGV is much cheaper than petrol or diesel.
These lower price differentials are needed and must be maintained to ensure the long term viability and sustainability of the NGV programme.
How the price of NGV, compared with petrol and diesel, is determined depends on factors such as whether NGV is used to reduce dependence on imported oil, utilisation of local natural gas resources, reduction of air pollution and to enhance energy security.
Lee Giok Seng, executive director of the Asia Pacific Natural Gas Vehicles Association (ANGVA), is a champion for NGV in Malaysia.
He says that depending on how proactive the government wants to be, NGV in Malaysia can be as successful as in countries like Argentina (about 1.7 million natural gas vehicles), Brazil (1.4 million), Pakistan (1.7 million), India (500,000) and Thailand (75,000).
"In Europe, biogas produced from wastes and landfills are being upgraded as fuel for natural gas vehicles," said Lee.
"This upgraded biogas is known as biomethane, and is a renewable source of natural gas supply.
"In Sweden, around 20 per cent of the natural gas supply is from upgraded biogas production." Lee is, however, concerned that many people are jumping on the bandwagon of NGV without really understanding the whole structural requirement of providing NGV such as the availability of natural gas, the technical limitation of NGV, the safety issues, the operational cost, and the skilled manpower needed.
"It takes time to develop the infrastructure for NGV and the first basic requirement is that there must be adequate supply of natural gas, especially via pipelines," he said.
"Places like Kelantan, where currently there are no piped natural gas supply, will need considerable time, effort and funds to implement NGV projects."
There had been proposals recently that Kelantan converts to NGV.
ANGVA is a regional NGV industry association promoting the use of NGV in the Asia-Pacific region. It is now looking for drivers to participate in the Green Highway II, using NGV vehicles to drive from Kuala Lumpur to Donghae, South Korea.
The ANGVA secretariat is based in Bangi, Malaysia. Previously it was based in Chuncheon, South Korea.
More information on ANGVA can be viewed at www.angva.org.
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