Thursday, December 31, 2009

Natural Gas Industry Pressured by States

By Jon Hurdle

PHILADELPHIA, Dec 30 (Reuters) - As U.S. energy companies scramble to mine natural gas from shale deposits, state regulators are struggling to keep pace amid criticism that they lack the resources to enforce environmental laws.

Shale gas trapped deep underground is considered one of the most promising sources of U.S. energy and one that is generating jobs, royalties for landowners and tax revenue for cash-strapped state governments.

But environmentalists and small-town neighbors of drilling operations say officials have been slow to respond to their complaints of air and water pollution resulting from drilling, production or gas processing.

Neighbors of drilling sites complain their claims are often dismissed as insignificant or outside state control, though they received a morale boost last week when New York City asked New York state to ban shale gas drilling in the city's watershed. [ID:nN22207119]

Energy companies say they work hard to prevent spills and note that science has yet to link the chemicals used in the controversial technique to break through layers of rock to illness.

Agencies such as Pennsylvania's Department of Environmental Protection, which is monitoring the rapid development of the massive Marcellus Shale, argue that they keep a close watch on gas companies and don't hesitate to penalize rule-breakers.

"We are not turning a blind eye to the problem," DEP Secretary John Hanger told Reuters. "Our role is to maximize the benefits and minimize the costs."

Shale gas is being tapped by advances in horizontal drilling, and by hydraulic fracturing, or "fracking," a technique that critics say contaminates drinking water with chemicals that can cause cancer and a range of illnesses.

Hanger rejected claims the agency is facilitating Marcellus development with minimal regulation. He said the number of drilling inspectors has risen to 120 from 75 in February 2009. They regulate more than 800 Marcellus wells that have been drilled since 2005.

In September, the DEP fined Cabot Oil & Gas Corp. (COG.N) $56,500 for three spills of a drilling lubricant and banned it from hydraulic fracturing until it bolstered safeguards.

The increased oversight is being paid for by higher fees levied on energy companies, the secretary said.


In Wyoming, whose economy is heavily dependent on oil and gas, some in the farming community of Pavillion say the state's Department of Environmental Quality has shown little interest in complaints about trucks spilling drilling fluids on roads or requests to test water.

"There's a lot of pressure from the government to allow industry to proceed," said John Fenton, a Pavillion farmer whose water well is contaminated. "They are not hindering the industry in any way."

In New York state, 17 inspectors and other officials monitor about 15 traditional vertical wells in the Marcellus Shale, and the state is considering opening the formation to the type of horizontal drilling that critics fear.

Stephanie Hallowich, from the southwest Pennsylvania town of Hickory, said the DEP has downplayed or ignored her complaints about air and water contamination from a complex of gas installations near her home.

In October, a compressor station experienced what she said was a sudden, violent release of gas that shook her house and filled the air around it with foul-smelling gas. "It sounded like a jet engine," Hallowich said.

State inspectors found the incident to be a routine albeit loud depressurization of compressor station equipment.

"The company is now being required to alert area residents when they are doing scheduled blow downs," said Teresa Candori, a spokeswoman for the DEP.

Hallowich rejected the DEP's statements that it is adequately regulating the Marcellus boom.

"They have not been responsive," she said. "There have been no violations, and they have not been keeping up with inspections." (Reporting by Jon Hurdle; Editing by Daniel Trotta and Cynthia Osterman)

Wednesday, December 30, 2009

New Gas Fields a Deterent for Long Term Contracts


In a sign that low natural-gas prices are probably here to stay, big U.S. energy companies are pushing to sign long-term contracts with electric utilities and other customers.

Major producers such as Chesapeake Energy Corp. and Devon Energy Corp. are trying to reach multiyear deals—likely five or 10 years long—that would guarantee them buyers for their gas but would deny them the benefits from any sudden price increases.

For a decade, energy companies have shunned such agreements because they wanted to profit when gas prices soared, as they often did, especially in advance of rising winter demand for gas heat.

But huge new gas fields in Texas, Louisiana, Pennsylvania and elsewhere have led to a surge in U.S. natural-gas production, glutting the market even as the recession has sapped demand for all forms of energy. Prices have plummeted to less than $6 per million British thermal units, less than half their price in July 2008.

"The days of double-digit gas prices in the U.S. are over," said Chesapeake Chairman and Chief Executive Aubrey McClendon.

Gas executives, however, are finding that long-term deals are an unexpectedly tough sell. The same price stability that has made producers eager to sign contracts has made their customers reluctant, because they are less worried that prices will suddenly rise.

"Producers would like contracts, but as a buyer, I don't think we need them," said Steve Warnick, senior vice president of energy-supply services for NiSource Gas Distribution, a unit of electricity and gas distributor NiSource Inc. in Merrillville, Ind.

Low prices are good news for homeowners, who can expect to pay 11% less on average for gas heat this winter than last and who have also seen electricity prices fall. But producers have been forced to slash budgets and sell assets as their revenues have dropped.

Long-term contracts are common outside the U.S., where international shipments of liquefied natural gas are sold under contracts that often stretch 20 years or more. Long-term deals are also often used in the U.S. to sell coal; boosters of long-term contracts say they will make natural gas more competitive with coal, which is usually cheaper but emits more pollutants when burned.

Until recently, energy companies needed to hunt continuously for relatively small, short-lived gas fields, making it hard to guarantee supplies far into the future, and prices had generally been rising.

The new gas fields are changing the equation because they contain vast quantities of gas that is relatively inexpensive to pump and is expected to last for decades, making it easier for producers to make long-term commitments.

"There's certainly the potential for the natural-gas producers and the utilities to develop a new relationship that has not been possible historically," said Larry Nichols, chairman and CEO of Devon Energy.

Earlier this month, Exxon Mobil Corp. agreed to buy U.S. natural-gas producer XTO Energy Inc. in a $31 billion stock deal that was widely seen as an endorsement of the new gas fields' long-term viability. Exxon has experience with long-term sales contracts through its large liquefied-natural-gas operations overseas, and many experts think the company will pursue them in the U.S. Exxon hasn't discussed its plans.

Long-term contracts also face obstacles in markets where energy contracts are subject to government review. If market prices rise above the contract price, consumers benefit. But if prices fall, local gas and electric customers could be stuck paying above-market prices, a risk regulators would prefer to avoid.

"We'd have to go back to regulators and get approval," said Joe Hopf, who heads trading operations for Public Service Enterprise Group Inc., a New Jersey-based power company. The company is building three new gas-fired generating plants but has no plans to enter into long-term fuel-purchase deals, Mr. Hopf said.

Producers, however, remain optimistic. Devon's Mr. Nichols said he expects to see a gradual shift toward long-term contracts, beginning with some relatively small deals to test out the idea.

Smoothing out volatile prices makes sense for both producers and their customers, he said, adding, "The peaks are politically unattractive, and the valleys are economically unattractive."

Tuesday, December 29, 2009

Natural Gas Price Up Yesterday

12/28/2009 6:02 PM ET

(RTTNews) - Natural gas prices continued to extend a yearly high on Monday on optimism of strong demand.

January natural gas settled at $5.99 per million British thermal units, up 34.7 cents on the session.

Holiday shopping showed a modest increase this year, according to the MasterCard Advisors' SpendingPulse report, which tracks national retail and service sales. The report showed year-over-year growth in the period between Black Friday and Christmas Eve in all sectors measured. Retail stocks are seeing some strength following the report.The dollar was little moved near a 12-day low versus the euro. The dollar had dropped off a 3 1/2-month high last week. The buck also drifted lower versus the pound and remained range-bound with the sterling.

Natural gas prices posted strong gains last week. The Energy Information Administration reported on Thursday that natural gas stockpiles fell 166 billion cubic feet in the week ended December 18. Working gas in storage dropped to 3.4 billion cubic feet.

Light sweet crude for February rose to $78.77 per barrel, up 72 cents on the session. Prices earlier hit as high as $79.12.

by RTT Staff Writer

For comments and feedback: contact

Monday, December 28, 2009

Rig Count Down 15 Last Week

(AP) – 4 days ago

HOUSTON — The number of rigs actively exploring for oil and natural gas in the U.S. declined 15 this week to 1,178.

Houston-based Baker Hughes Inc. said Wednesday that 751 rigs were exploring for natural gas and 416 for oil. Eleven were listed as miscellaneous. A year ago this week, the rig count stood at 1,721.

Of the major oil- and gas-producing states, Arkansas and Colorado each were down by two while Alaska, California, New Mexico and Wyoming declined by one. Louisiana, North Dakota and Oklahoma each gained two and Pennsylvania was up one. Texas and West Virginia were unchanged.

The rig count tally peaked at 4,530 in 1981, during the height of the oil boom. The industry posted a record low of 488 in 1999.

The weekly report, normally released on Friday, moved early this week because of the Christmas holiday.

Copyright © 2009 The Associated Press. All rights reserved.

Sunday, December 27, 2009

PA Natural Gas $5.76 MMBtu

Gas prices are heading into Christmas Day unchanged, according to AAA Mid-Atlantic.

The average for a gallon of regular in the five-county Philadelphia area was $2.69 for the fourth consecutive day, and $2.46 in South Jersey for the seventh straight day.

The national average continued to be $2.58.

Diesel averaged 1 cent less in the Philly area ($2.99), but moved up 1 cent in South Jersey ($2.69).

The diesel price was unchanged ($2.78) in the country as a whole.

Meanwhile, benchmark crude for February delivery rose 44 cents to $77.11 on the Nymex.

In other Nymex trading in January contracts, heating oil rose 1.5 cents to $2.0269 while gasoline rose 1.6 cents to $1.9827. Natural gas fell 5.5 cents to $5.766 per 1,000 cubic feet.

In London, Brent crude for February delivery rose 40 cents to $75.85 on the ICE Futures exchange.

Saturday, December 26, 2009

N.Y. Mayor Grinches Natura Gas

The Bloomberg administration demanded a ban on natural gas drilling near upstate reservoirs Wednesday, saying it would pose "unacceptable risks" to the city's drinking water.

Drilling for gas in the watershed could leak toxic chemicals into drinking water, causing unknown health risks, a report by the city Department of Environmental Protection said.

To combat contamination, officials contend they would need to build a giant water filtration system that would cost $10 billion to build and $100 million a year to run.

That would translate to a 30% hike in city water rates, officials predicted.

"As staggering as that amount of money is, it's not just about the money," said Acting DEP Commissioner Steven Lawitts. "The risks are simply not worth it."

The state unveiled a plan this year that permits natural gas drilling in the so-called Marcellus Shale Formation, an energy-rich geological area running from upstate New York to western Virginia.

Experts say drilling could pump $1 billion a year into the state's struggling economy.

The city asked that its 2,000- square-mile watershed in the Catskills, which falls within the Marcellus Shale, be excluded.

Gov. Paterson favors natural gas drilling because it brings jobs and generates dollars to plug the widening budget deficit.

His office did not respond to the city report, but the issue is expected to pit Mayor Bloomberg against Paterson.

The nation is watching the debate unfold in New York as other cities see natural gas drilling as a quick way to generate cash without weighing the long-term health implications.

Environmental groups oppose the practice. Reports of contaminated drinking water associated with drilling have surfaced in Pennsylvania and Texas.

"The governor's wrong-headed gas drilling scheme could doom the city's unfiltered drinking water supply," said Eric Goldstein of the Natural Resources Defense Council.

The drilling process involves shooting large amounts of water and chemicals into rock to extract gas.

"This is not your father's gas drilling operation," said City Councilman James Gennaro (D-Queens), who heads the Council's Environmental Protection Committee.

The state asked for feedback on its draft drilling plan from the city and other counties by the end of the year, a study Lawitts found "seriously flawed" and full of "unacceptable risks" to the water supply.

Read more:

Friday, December 25, 2009

Natural Gas Storage Down by 166 BCF

The Associated Press
Thursday, December 24, 2009; 10:35 AM
NEW YORK -- Natural gas stockpile levels fell less than expected last week, the government said Thursday.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states dropped by 166 billion cubic feet to about 3.4 trillion cubic feet for the week ended Dec. 18.

Analysts had expected a draw of between 171 billion and 175 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The inventory level was 13.1 percent above the five-year average of about 3.01 trillion cubic feet, and 11.8 percent above last year's storage level of about 3.04 trillion cubic feet, according to the government data.

Natural gas fell 6.3 cents to $5.758 per 1,000 cubic feet on the New York Mercantile Exchange.

Thursday, December 24, 2009

NYC Not Full On with Shale

By MARY ESCH (AP) – 6 hours ago

ALBANY, N.Y. — New York City's Department of Environmental Protection called on state officials Wednesday to ban natural gas drilling in the Catskills watershed, saying it would pose too great a risk to the city's upstate drinking water system.

The DEP took that position in response to the state Department of Environmental Conservation's draft regulations on gas drilling in New York's portion of the Marcellus Shale region, which includes parts of the Catskills where reservoirs supply drinking water for 9 million people.

The state is taking public comments on its 800-plus page draft until Dec. 31. The city DEP had withheld comment pending its own lengthy review of the potential risks of gas exploration using hydraulic fracturing, which blasts millions of gallons of chemical-laced water deep into the shale to release trapped gas.

Chesapeake Energy, one of the nation's largest natural gas producers and the only leaseholder in the watershed region, has said it won't drill there because of opposition from politicians and environmental groups. But opponents have continued to call for a ban, saying the company's word isn't good enough.

"Based on the latest science and available technology, as well as the data and limited analysis presented by the New York State Department of Environmental Conservation, high-volume hydrofracking and horizontal drilling pose unacceptable threats to the unfiltered fresh water supply of 9 million New Yorkers," acting DEP Commissioner Steven Lawitts said in a prepared statement.

The city has a waiver from the U.S. Environmental Protection Agency that allows it to draw water from its upstate reservoirs without filtration. The city has spent about $1.5 billion to protect the water supply since 1997 and says it would cost at least $10 billion to build a filtration plant if the water supply were to become contaminated.

The Marcellus Shale formation runs through parts of West Virginia, Ohio, Pennsylvania, and New York. It underlies about 18,700 square miles in southern New York, including the city's entire 1,585-square-mile watershed west of the Hudson River.

The risks cited by the DEP's consulting team include:

_The infrastructure needed to support as many as 3,000 to 6,000 wells would result in millions of truck trips, thousands of acres of site clearing and grading, millions of tons of fracking chemicals, and millions of tons of contaminated wastewater.

_Chemicals injected into deep rock formations can travel for miles along underground fissures to groundwater and ultimately streams that feed reservoirs.

_High-volume hydraulic fracking could damage the city's water supply infrastructure, especially underground water tunnels.

The city also faults the state's document for not analyzing cumulative impacts of the industrial development necessary for drilling and not sufficiently addressing public health concerns.

"We appreciate the input from NYCDEP," said DEC spokesman Yancey Roy. "At this time we are still taking input from the public, and it would not be appropriate to respond to specific comments."

Landowner groups hoping to make millions of dollars from gas leases were frustrated with the city's call for further delays or a ban on drilling. Gas exploration in New York's part of the Marcellus Shale has been on hold for more than a year while the state drafted the new regulations.

Dan Fitzsimmons, leader of a Binghamton-area landowner coalition, pointed out the economic benefits of natural gas production such as low natural gas prices and energized trading on Wall Street. He said the state's regulatory proposal provides adequate safeguards.

Copyright © 2009 The Associated Press. All rights reserved.

Wednesday, December 23, 2009

Seneca Resources Flows Natural Gas in Pennsylvania

(AP) – 2 hours ago

WILLIAMSVILLE, N.Y. — Natural gas and oil company Seneca Resources Corp. said Tuesday that its third Seneca-operated horizontal well in the Marcellus shale in Tioga County, Pa., flowed at an initial 24-hour rate of more than 10 million cubic feet per day and averaged 9.5 million cubic feet over seven days.

The company also said its National Fuel Gas Midstream Corp. subsidiary has started flowing natural gas on its Covington Gathering System in Tioga County in November.

With two rigs running, Seneca plans drilling 50 to 70 horizontal wells during fiscal 2010, including those operated by EOG Resources in a joint venture with Seneca.

The company said the Covington system will serve area natural gas producers, including Seneca, and has a daily capacity of up to 100 million cubic feet.

Seneca Resources is a subsidiary of National Fuel Gas Co.

Copyright © 2009 The Associated Press. All rights reserved.

Tuesday, December 22, 2009

Natural Gas Potential Hero for Global Warming USA

By MARK WILLIAMS (AP) – 8 hours ago

An unlikely source of energy has emerged to meet international demands that the United States do more to fight global warming: It's cleaner than coal, cheaper than oil and a 90-year supply is under our feet.

It's natural gas, the same fossil fuel that was in such short supply a decade ago that it was deemed unreliable. It's now being uncovered at such a rapid pace that its price is near a seven-year low. Long used to heat half the nation's homes, it's becoming the fuel of choice when building new power plants. Someday, it may win wider acceptance as a replacement for gasoline in our cars and trucks.

Natural gas' abundance and low price come as governments around the world debate how to curtail carbon dioxide and other pollution that contribute to global warming. The likely outcome is a tax on companies that spew excessive greenhouse gases. Utilities and other companies see natural gas as a way to lower emissions — and their costs. Yet politicians aren't stumping for it.

In June, President Barack Obama lumped natural gas with oil and coal as energy sources the nation must move away from. He touts alternative sources — solar, wind and biofuels derived from corn and other plants. In Congress, the energy debate has focused on finding cleaner coal and saving thousands of mining jobs from West Virginia to Wyoming.

Utilities in the U.S. aren't waiting for Washington to jump on the gas bandwagon. Looming climate legislation has altered the calculus that they use to determine the cheapest way to deliver power. Coal may still be cheaper, but natural gas emits half as much carbon when burned to generate the same amount of electricity.

Today, about 27 percent of the nation's carbon dioxide emissions come from coal-fired power plants, which generate 44 percent of the electricity used in the U.S. Just under 25 percent of power comes from burning natural gas, more than double its share a decade ago but still with room to grow.

But the fuel has to be plentiful and its price stable — and that has not always been the case with natural gas. In the 1990s, factories that wanted to burn gas instead of coal had to install equipment that did both because the gas supply was uncertain and wild price swings were common. In some states, because of feared shortages, homebuilders were told new gas hookups were banned.

It's a different story today. Energy experts believe that the huge volume of supply now will ease price swings and supply worries.

Gas now trades on futures markets for about $5.50 per 1,000 cubic feet. While that's up from a recent low of $2.41 in September as the recession reduced demand and storage caverns filled to overflowing, it's less than half what it was in the summer of 2008 when oil prices surged close to $150 a barrel.

Oil and gas prices trends have since diverged, due to the recession and the growing realization of just how much gas has been discovered in the last three years. That's thanks to the introduction of horizontal drilling technology that has unlocked stunning amounts of gas in what were before off-limits shale formations. Estimates of total gas reserves have jumped 58 percent from 2004 to 2008, giving the U.S. a 90-year supply at the current usage rate of about 23 trillion cubic feet per year.

The only question is whether enough gas can be delivered at affordable enough prices for these trends to accelerate.

The world's largest oil company, Exxon Mobil Corp., gave its answer last Monday when it announced a $30 billion deal to acquire XTO Energy Inc. The move will make it the country's No. 1 producer of natural gas.

Exxon expects to be able to dramatically boost natural gas sales to electric utilities. In fact, CEO Rex Tillerson says that's why the deal is such a smart investment.

Tillerson says he sees demand for natural gas growing 50 percent by 2030, much of it for electricity generation and running factories. Decisions being made by executives at power companies lend credence to that forecast.

Consider Progress Energy Inc., which scrapped a $2 billion plan this month to add scrubbers needed to reduce sulfur emmissions at 4 older coal-fired power plants in North Carolina. Instead, it will phase out those plants and redirect a portion of those funds toward cleaner burning gas-fired plants.

Lloyd Yates, CEO of Progess Energy Carolina, says planners were 99 percent certain that retrofitting plants made sense when they began a review late last year. But then gas prices began falling and the recession prompted gas-turbine makers to slash prices just as global warming pressures intesified.

"Everyone saw it pretty quickly," he says. Out went coal, in comes gas. "The environmental component of coal is where we see instability."

Nevada power company NV Energy Inc. canceled plans for a $5 billion coal-fired plant early this year. That came after its homestate senator, Majority Leader Harry Reid, made it clear he would fight to block its approval, and executives' fears mounted about the costs of meeting future environmental rules.

"It was obvious to us that Congress or the EPA or both were going to act to reduce carbon emissions," said CEO Michael Yackira, whose utility already gets two-thirds of its electricity from gas-fired units. "Without understanding the economic ramifications, it would have been foolish for us to go forward."

Even with an expected jump in demand from utilities, gas prices won't rise much beyond $6.50 per 1,000 cubic feet for years to come, says Ken Medlock, an energy fellow at the James A. Baker III Institute for Public Policy at Rice University in Houston. That tracks an Energy Department estimate made last week.

Such forecasts are based in part on a belief that the recent spurt in gas discoveries may only be the start of a golden age for gas drillers — one that creates wealth that rivals the so-called Gusher Age of the early 20th century, when strikes in Texas created a new class of oil barons.

XTO, the company that Exxon is buying, was one of the pioneers in developing new drilling technologies that allow a single well to descend 9,000 feet and then bore horizontally through shale formations up to 1 1/2 miles away. Water, sand and chemical additives are pumped through these pipes to unlock trillions of cubic feet of natural gas that until recently had been judged unobtainable.

Even with the big increases in reserves they were logging, expansion plans by XTO and its rivals were limited by the debt they took on to finance these projects that can cost as much as $3 million apiece.

Under Exxon, which earned $45.2 billion last year, that barrier has been obliterated.

The wells still capture only about a quarter of the gas locked in the shale formations. Future improvements could double that recovery rate. Bottom line: this new source of gas supply in Texas, Louisiana, Pennsylvania, North Dakota, New York and other states holds out the promise of as much as 2,000 trillion cubic feet of supplies. It is estimated that the U.S. sits on 83 percent more recoverable natural gas than was thought in 1990.

"The question now is how does this change the energy discussion in the U.S. and by how much?" says Daniel Yergin, a Pulitzer Prize winning author and chairman of IHS CERA, an energy consultancy. "This is domestic energy ... it's low carbon, it's low cost and it's abundant. When you add it up, it's revolutionary."

Copyright © 2009 The Associated Press. All rights reserved.

Monday, December 21, 2009

Natural Gas Talk of Investments Last Week

The United States Natural Gas Fund (UNG) gained 1.5% on Friday, the seventh consecutive gain. UNG was boosted by drawdowns in gas inventories and Exxon’s bet on the natural gas sector. Last week, in fact, the news came out that Exxon Mobil (XOM) is taking out XTO Energy (XTO) for $31 billion becoming the fossil fuel of choice for power generation in the United States. On Thursday, the Energy Information Administration reported another drop in U.S. natural gas supplies. After nearly nine months of build-ups, natural gas in storage in the U.S. fell for the second week in a row, this time by 207 billion cubic feet, the EIA said. The drop was much bigger than expected. Expectations for cold weather were the drivers of UNG’s rally, but I suspect a lot of shorts covering in this volatile and argued fund.
UNG force indesx indicator is still up and prices continue to move within the upward channel initiated at the beginning of December with a breakaway gap. The %b indicator just left the overbought level.

In my charts, I used two indicators. The force Index indicator. I used the force index indicator, which is an indicator measuring the force of bulls during uptrends and the force of bears in downtrends. It takes into account price and volume. I applied a 13-day exponential moving average (EMA) of the force index to help track the trend. When the trend is positive, the color is blue; when the trend is negative, the color is red. You can see that the weekly trend has been up since last March. I applied also the %b indicator, which is derived from the Bollinger bands. It measures where the last price is in relation to the bands and it tells us where we are within the bands. %b in this time frame is near the overbought level.

Sunday, December 20, 2009

Spain Natural Gas Making Some Money

By Esteban Duarte and Joao Lima

Dec. 19 (Bloomberg) -- Gas Natural SDG SA, Spain’s biggest natural gas company, agreed to sell distribution assets in Madrid for 800 million euros ($1.2 billion) to Morgan Stanley and Galp Energia SGPS.

Morgan Stanley and Portugal’s Galp purchased facilities that provide natural gas and electricity to 38 towns in the region around the Spanish capital, Gas Natural said today in a regulatory filing. The Barcelona-based utility will make a gross capital gain of about 380 million euros with the deal.

Gas Natural this year completed the purchase of utility Union Fenosa SA to add power plants and clients as it faces greater competition in the domestic gas market. The company is now selling assets to meet competition guidelines and cut debt following that acquisition.

Chief Executive Officer Rafael Villaseca said Nov. 4 that Gas Natural planned to complete the sale of the natural-gas distribution assets through an auction this year. Gas Natural had received offers from “six or seven interested companies,” Villaseca said that day.

In July, Gas Natural agreed to sell other natural gas distribution units to Naturgas, a division of Portuguese utility Energias de Portugal SA.

Debt Target

With the sale of its stake in Empresa de Energia del Pacifico SA of Colombia in October, Gas Natural reached 2.3 billion euros in asset sales, and today’s transaction takes that total above 3 billion euros. Net debt increased to 21.9 billion euros at the end of September following the Fenosa purchase and Gas Natural plans to cut it to about 18 billion euros at the end of this year.

The latest transaction is pending approval from competition authorities and will be completed in the first half of 2010, the filing said.

Other assets that Gas Natural plans to sell are gas-fired plants with a combined capacity of 2,000 megawatts. Gas Natural is holding talks on the planned sale of the plants, Antonio Basolas, Gas Natural’s director of strategy, said Nov. 4. These units won’t be sold through an auction and the company is considering selling the plants for cash or exchanging them for other assets, Basolas said on that day.

Gas Natural shares have dropped 12 percent this year, underperforming the 3 percent decline on the Dow Jones Stoxx 600 Utilities Index for Europe over the same period and cutting the company’s market value to 13 billion euros.

The Fenosa purchase is helping to raise profit at Gas Natural. Earnings before interest, tax, depreciation and amortization will advance to more than 6 billion euros in 2012 from 2.56 billion euros in 2008, Gas Natural said June 26. The company will invest 8 billion to 9 billion euros in the period.

To contact the reporter on this story: Joao Lima in Lisbon at; Esteban Duarte in Madrid at
Last Updated: December 19, 2009 15:35 EST

Saturday, December 19, 2009

Exxon Natural Gas Investment


Exxon Mobil Corp.’s $31 billion stock deal to buy XTO Energy boosts natural gas as the country debates how to reduce reliance on foreign energy sources and minimize the impact on the environment, experts say.

Exxon’s impending purchase of Fort Worth-based XTO — a leading U.S. gas producer and expert in unconventional plays such as North Texas’ Barnett Shale — signifies the return of the world’s largest company to major U.S. production for the first time in years, a fact not lost on energy company CEOs.

"Exxon Mobil has been making significant investments worldwide in the liquefied natural gas sector, which all of us in the industry thought was really how they were going to play the gas game going forward," Glenn Darden, chief executive of Fort Worth’s Quicksilver Resources, said in an interview last week. For Exxon "to make such a significant investment in onshore, primarily U.S. gas was a fabulous endorsement of both demand and pricing."

Boone Pickens, the Dallas investor and natural gas advocate, said the Exxon-XTO deal is an important development in the country’s energy security.

"We’re importing 5 million barrels [of crude oil] a day from OPEC, 13 million total imports a day" of oil and refined fuels from all sources, Pickens said in an interview.

That’s about 68 percent of average U.S. daily consumption of 19 million barrels a day, according to Energy Department figures.

"We’ve got to get off that and get on our own resources," Pickens said. A start: pending federal legislation that would push government vehicles toward being powered by natural gas, he said. "Let’s get the heavy-duty vehicles on natural gas."

Energy company executives also said Exxon’s deal to buy XTO advances the argument for using natural gas as a "bridge fuel" toward renewable energy production.

Natural gas — a major fuel used in electricity generation — is still a fossil fuel, but "it has half the carbon footprint of coal" and a third less than oil, said John Pinkerton, CEO of Range Resources, another Fort Worth independent oil and gas company. "Of all the fossil fuels, it has the least impact in terms of the environment.

"You don’t have to be a rocket scientist to figure this out. There’s no silver bullet to this energy issue that we’ve got. We need a portfolio of alternatives."

Those include conservation, renewables, and nuclear, he said, "but at the end of the day, unless we’re all going to start walking to work, the fossil fuels have to play a role over the next two or three decades."

Opposition to gas

Jim Schermbeck, a leader of Downwinders at Risk, is not convinced that natural gas is so green. His group has weighed in on the environmental risks of cement kilns, coal use and natural gas drilling.

Schermbeck wants to see more evidence on emissions created by expanding Barnett Shale development, and he’s among critics who argue that the field’s producers have committed numerous "environmental abuses."

Friday, December 18, 2009

New York City Gate Spot is $8.02/MMBtu on 12/7/2009

By CHRIS KAHN (AP) – 8 hours ago

NEW YORK — Natural gas prices jumped Thursday after the government reported that supplies fell by the largest amount ever for this time of year as frigid weather chilled parts of the Midwest and Northeast.

A wintry mix of rain and snow kept heaters cranked on high, consuming large stores of natural gas in some of the country's largest markets like Chicago.

Still, the amount of gas in storage remains 14 percent above the five-year average for this time of year.

The Energy Information Administration said the country's supply of natural gas dropped by 207 billion cubic feet last week, the most ever for this time of year, according to analyst Stephen Schork.

"It was brutally cold," Schork said. "People have been saying for so long that natural gas is due for a rally and they've been wrong all year long. But with a big draw, I expect prices to move higher."

The natural gas contract for January delivery climbed 30.6 cents, nearly 6 percent, to settle at $5.768 per 1,000 cubic feet on the New York Mercantile Exchange.

Natural gas prices had slumped all year as the economy struggled to pull itself from recession. Supplies finally started falling this month, but only after underground storage caverns were crammed to near capacity.

Energy prices tend to rise when the weather cools, and this year is no different. Natural gas prices have doubled since September, but they're only slightly more expensive than a year ago.

Meanwhile, benchmark crude for January delivery dropped a penny to settle at $72.65 a barrel. In London, Brent crude for February delivery fell 92 cents to settle at $73.37 on the ICE Futures exchange.

At the pump, retail gas prices have been falling for more than a week. They dipped less than a penny overnight to a new national average of $2.59 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 3.7 cents cheaper than a month ago, but they're still 92.3 cents more expensive than the same time last year.

In other Nymex trading in January contracts, heating oil fell less than a penny to settle at $1.9574 a gallon while gasoline fell 2.19 cents to settle at $1.852 a gallon.

Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.

Copyright © 2009 The Associated Press. All rights reserved.

Wednesday, December 16, 2009

Exxon Optimistic on Natural Gas

By KATIE HOWELL of Greenwire
Published: December 15, 2009

After quietly grabbing up unconventional natural gas reserves for years, Exxon Mobil Corp. moved boldly yesterday to buy one of the largest U.S. independent gas companies, XTO Energy, in a deal valued at $41 billion.The oil and gas behemoth announced that it planned to use XTO to establish a new business unit that would develop and deploy technologies to extract fuels from shales, tight sands and coal seams.

Analysts see Exxon's bid -- the company's biggest financial move since its merger with Mobil in 1999 -- affirming the growing status of natural gas as a U.S. energy source.

"I think what it is is a fairly massive statement of optimism in the long-term future of natural gas in the United States," said David Bloom, a regulatory attorney covering energy issues at Mayer Brown.

Over the past decade, Exxon Mobil has built up its reserves of unconventional natural gas resources like shale gas, tight gas and coalbed methane, which could hold decades of energy supplies but have historically been difficult to extract. New technological developments, like those developed and employed by XTO, have allowed such plays to become a viable part of the global energy mix.

Exxon has socked away natural gas reserves in tight sands, shales and coal seams in Colorado, Pennsylvania, Canada, Germany, Hungary and Argentina.

"Over the last decade we have grown unconventional gas resources to approximately 7 percent of our resource base," David Rosenthal, vice president of investor relations at Exxon Mobil, said yesterday on a conference call.

XTO's resources would add nearly 14 trillion cubic feet of proven reserves to Exxon's portfolio, with nearly 80 percent of those natural gas. Together, the two companies would hold the largest unconventional natural gas acreage portfolio in the industry, at nearly 8 million acres. An XTO acquisition would also bring its significant oil shale position to the table.

"We have been securing a portfolio of unconventional opportunities globally, and we like the position we've got, but now we have large areas that require appraisal and ultimately require an organization to develop those in the most efficient and profitable way possible," Exxon Mobil CEO Rex Tillerson told reporters. "This opportunity provides us both access to what we believe is a high quality resource base within the United States and a ready-built, purpose-built organization."

Access to XTO's expertise and experience in unconventional plays would be a major asset to Exxon, according to a Morningstar analyst.

"Exxon also gets XTO's experienced unconventional gas development team, which could be considered icing on the cake," Eric Chenoweth, the analyst, wrote yesterday.

The move -- a show of confidence in the future of unconventional resources -- could also spur additional investment in domestic unconventional natural gas plays like the Barnett in Texas, Marcellus in Appalachia and Haynesville in Louisiana.

"The scale of Exxon's investment is an indication that it believes the progress made so far is well-founded, and I think that's an important sign to the entire sector," Bloom said. "It clearly makes available massive new amounts of money for the development of these plays, and we're quite likely to see other parties come into the industry and make financial contributions."

Chenoweth at Morningstar said other companies that are major players in unconventional natural gas resources could also be attractive targets for major oil and gas producers looking to expand their positions in unconventional plays. Among those are large independents Chesapeake, Devon and EnCana and smaller firms Range Resources -- which has significant acreage in the Marcellus Shale -- Petrohawk, Ultra Petroleum and Southwestern.

"All of these companies have meaningful positions in U.S. unconventional gas plays that could be attractive to a major, though it would be more of a bolt-on deal," Chenoweth wrote.

'A variety of formats'

Exxon's move is not necessarily a surprise. In its world energy outlook released last week, the company said it expected natural gas demand to grow at a faster rate than coal or oil, driven largely by significant growth demand for power generation.

"These resources are attractively positioned to increase natural gas production and to meet the growing demand for natural gas, which is expected to be the single biggest contributor to the U.S. and global energy mix over the coming decades," Rosenthal said.

Some see the move as a significant bet by the long-time stalwart against climate change that proposed climate legislation would boost natural gas over coal in the power sector by placing a price on greenhouse gas emissions (ClimateWire, Dec. 15).

"It's a statement of optimism that natural gas will play a role in addressing climate change issues, whether as a bridge fuel as we transition to a greater use of renewables or as a competitor to coal," Bloom said. "But it's a pretty important statement that there's going to be demand for natural gas."

Kert Davies, a research director at Greenpeace, agreed, adding that Exxon doesn't make any decisions lightly.

"This decision was made deliberately with calculation of how important natural gas will be in the future," Davies said. "The oil industry is all about putting their chips on the roulette wheel, and this is an indication that Exxon is seeing natural gas as one of those players."

The announcement comes just five months after the oil giant announced a $600 million investment in algae-based biofuels, a surprise move that stunned the industry. The algae investment and a major unconventional natural gas investment point toward Exxon's willingness to adapt to a changing energy future.

"Exxon wants to be an energy supplier in the long-term future," Bloom said. "And that's going to come in a variety of formats."

Copyright 2009 E&E Publishing. All Rights Reserved.

For more news on energy and the environment, visit

Tuesday, December 15, 2009

Exxon Buys XTO for Natural Gas Holdings

HOUSTON (Dow Jones)--Exxon Mobil Corp.'s (XOM) planned buyout of independent natural gas producer XTO Energy Inc. (XTO) provided a ringing endorsement for the commodity on Monday--and could signal a modest uptick in merger activity.

The deal is valued at $41 billion, including the assumption by Exxon of about $10 billion of XTO's debt, and is the largest energy transaction since Chevron Corp. (CVX) acquired Texaco in 2001. It underscores the increasing attention major oil companies have been paying to unconventional resources--and is likely to stoke some of the mergers and acquisitions that until recently have been frozen by uncertainty about the future of natural gas prices.

"We should see a slow and steady increase in M&A activity," said Stephen Davis, an associate portfolio manager for Alpine Mutual Funds.

While other major oil and gas companies have struck deals to develop expertise in shale fields, Monday's deal is the first full-blown buyout of a large independent oil and gas company, which explores for and produces natural gas but doesn't have refining or retail operations.

Shales are dense rich rock formations, rich in natural gas, that dot the U.S. Such independent energy companies as XTO Energy Inc., Devon Energy Corp. (DVN) and Chesapeake Energy Corp. (CHK) have pioneered the exploitation of shales, which are credited with creating a boom in domestic gas output. Stocks of those companies and other independents with shale gas operations surged on the news of the Exxon acquisition.

Last year, Chesapeake entered into a joint venture with BP Plc. (BP) to develop shale resources in the U.S. and inked a deal with Statoil ASA (STO) to develop resources both here and abroad. Italian oil giant Eni SPA (E) struck a deal with Quicksilver Resources (KWK) last May.

"Short-term, what is good for XTO is good for all independents," said Dan McSpirit, an analyst with BMO Capital Markets.

Analysts said that the next major targets could include EOG Resources Inc. (EOG), Southwestern Energy Co. (SWN), Petrohawk Energy Corp. (HK), Chesapeake and Anadarko Petroleum Corp. (APC). Devon was also listed as a possible target, with Credit Suisse boosting its rating to neutral from underperform and calling it next in line for a buyer.

"The industry has been expecting this kind of consolidation for some time," said Joan Dunlap, PetroHawk vice president of investor relations. "It is a signal in the right direction for resource-style assets."

Motley Fool senior analyst Joe Magyer said that such cash-rich majors as Chevron Corp (CVX), Royal Dutch Shell PLC (RDSA) and BP PLC (BP) could be interested in takeovers.

Natural gas prices were also lifted by news of the deal, which some analysts said implied natural gas prices in 2010 at more than $1 above their current level.

Natural gas futures for January delivery on the New York Mercantile Exchange settled 16.9 cents higher, or 3.3%, at $5.332 per million British thermal units. Prices, which are still down about 60% from their 2008 summer highs above $13/MMBtu, have faced pressure from soaring domestic production and tepid demand resulting from the economic downturn. Natural gas traded below $2.50 in early September, its lowest in more than seven years.

Davis, with Alpine Mutual Funds, said that the deal was also bullish for oil prices, as a big company like Exxon finds it hard to replenish its reserves with crude and resorts to natural gas. Exxon has agreed to buy a stake in a rich oilfield in offshore Ghana for $4 billion from private-equity backed company Kosmos Energy, but it faces competition from other big western and Asian oil companies.

"It highlights that it is hard to find oil these days," Davis said.

-By Jason Womack, Dow Jones Newswires; 713-547-9201;

(Shara Tibken in New York contributed to this story.)

Monday, December 14, 2009

CO2 at 350 the Talk in Copenhagen

By SETH BORENSTEIN (AP) – 7 hours ago
COPENHAGEN — As police cracked down on climate protesters, church bells tolled 350 times Sunday to impress on the U.N. global warming conference a number that is gaining a following, but is also awash in contradictions.
Conference negotiators went behind closed doors in talks to pin down an elusive new pact on climate, talks in which the figure 350 looms as a goal for true believers, but one that appears impossible based on progress so far.
It refers to 350 parts per million of carbon dioxide in the atmosphere, the highest concentration that some leading scientists say the world can handle without sparking dangerous climate effects.
"It's the most important number in the world," said Bill McKibben, founder of the environmental activist group "It's the line between habitability on this planet and a really, really desolate future."
Not everyone buys into that. But an entire environmental group has sprung up around the number, pushing 350 as a goal, sporting it on T-shirts and flags waved by throngs of protesters that marched to the conference center over the weekend. About 100 nations at the U.N. climate summit have signed on to the idea of heading for 350.
Actually, the world has lived with more than 350 for a while.
The last time the Earth had 350 ppm of carbon dioxide in the air was a generation ago, in the fall of 1989. This year CO2 pushed over the 390 level. When scientists started measuring carbon dioxide in 1958 it was 315.
Since the atmosphere passed the 350 level, ice sheets have been melting and other dramatic changes have been happening. Prominent scientists — notably NASA's James Hansen, one of the earliest to warn about global warming, and Rajendra Pachauri, head of the Intergovernmental Panel on Climate Change — have said 350 is the only safe level of carbon dioxide in the air.
Still, many economists, political leaders, and even some scientists believe that the worst effects of global warming can be avoided even with less stringent actions.
But there is general agreement among negotiators and climate scientists that continued global warming will lead to dramatic changes that mean more widespread drought in some regions, greater flooding along coastlines, stronger storms and the loss of species.
On Sunday, hundreds of churches around the world had signed up to ring bells at 3:50 p.m. in their respective time zones.
"It was an incredibly powerful moment and to know that there are bells ringing all over Europe, up to Greenland, down into the south Pacific and every corner of the planet," McKibben said moments after the bells stopped ringing in Copenhagen.
As they tolled, more than 40 government environment chiefs and other high-level negotiators were meeting at the Danish Foreign Ministry. They were trying to bridge the gap between their positions in informal talks before the second and last week of negotiations gets under way. The week will end with the arrival of President Barack Obama and more than 100 other national leaders for the final hours of negotiation.
Sharp divisions remain between rich and poor countries on greenhouse emissions cuts and financing for developing nations to deal with climate change and shift to cleaner energy.
"I think there was recognition around the table of the urgency of what we need to achieve in the coming days," Britain's Climate Change Secretary Ed Miliband said after Sunday's talks. "I think there needs to be more movement from everyone, more imagination, and I think we will all be striving for that."
Australia's Climate Change Minister Penny Wong also said a lot of work remains to be done.
"It's going to be tough to get an agreement by Friday but that's what we have to do," she told a news conference.
According to participants, the closed-door consultations focused on about a half-dozen plans on financing for poor countries to deal with climate change. One joint proposal by Mexico and Norway calls for a "Green Fund" for climate financing, starting with $10 billion a year in 2013, and increasing to $30 billion to $40 billion a year by 2020
Separately, a proposal aimed at saving the world's tropical forests suffered a setback Sunday, when negotiators ditched plans for faster action on the problem because of concerns that rich countries aren't willing to finance the plan. A deal on deforestation — a sizable global warming factor — is considered a key component of the larger pact.
For a second day in a row, police cracked down on climate activists marching through the Danish capital. More than 200 were detained as police stopped an unauthorized demonstration headed toward the city's harbor and carried out a security check of some of the participants.
Meanwhile, nearly all of the 1,000 detained on Saturday — from Europe, Africa, Asia, and the U.S — were released without charges. Thirteen of them were arraigned in court and faced preliminary charges of assaulting police or were let off with a warning for wearing masks, which are outlawed during demonstrations in Denmark, or carrying box-cutters or other sharp objects.
Reducing carbon dioxide levels to 350 would mean reversing the trend of the past couple of centuries. Carbon dioxide stays in the atmosphere for as long as 100 years. And the emissions cuts currently being pledged by developed countries, including the United States and European nations, are aimed at having CO2 levels peak at around 450, not 350, in coming decades.
And even that may not be possible. Some economists say the world should plan to stop at 550.
Economist Henry Jacoby, co-director of MIT's Joint Program on the Science and Policy of Global Change, has said that even 450 is "totally impossible, there's no way we can do that."
To get down to 350, civilization has to remove massive amounts of carbon dioxide from the skies, something talked about but not yet achieved. Trees and oceans suck CO2 from the atmosphere, but that process is overwhelmed by emissions from burning coal and oil. McKibben said it would probably take 40 years to get down to 350 even if emissions stopped today.
"It may be on the edge of impossible," he said Sunday. "We could do it. At the moment, there's no sign that we are going to do it."
MIT management professor John Sterman said scientifically 350 makes sense, even if economically it seem unreachable.
"We ought to have a goal of 350 and realize we're already above that," Sterman said.
Associated Press writers Jan M. Olsen, John Heilprin and Karl Ritter contributed to this report.
EDITOR'S NOTE _ Find behind-the-scenes information, blog posts and discussion about the Copenhagen climate conference at, a Facebook page run by AP and an array of international news agencies. Follow coverage and blogging of the event on Twitter at:
Copyright © 2009 The Associated Press. All rights reserved.

Natural Gas Supply and Price Solid

Vincent Fernando|Dec. 11, 2009,

Yesterday's huge natural gas rally has only made the U.S. an even more tempting market for seaborne Liquified Natural Gas (LNG) imports according to RBS. If the U.K. is any guide, this could be bad news for gas prices and, of course, great news for consumers.

RBS: The current rally has substantially lifted the prospects of LNG coming to the United States. LNG has done its job beating the price of UK gas down, and today's rally in US NG pricing certainly makes the US a considerably more attractive destination than it was only a couple of weeks ago. As the chart below suggests, as of today’s close, Transo-Z6 (non-NY) is at a $1.26 premium to NBP. Hello LNG.

Natural Gas

Thus the more natural gas rallies, the more foreign LNG will come and act to push prices downward. Still, there remain substantial U.S. infrastructure restrictions to accommodate LNG imports, so they can only grow so far... or go through Mexico.

Rianovosti: Gazprom CEO Alexei Miller met on Monday with Mexican Energy Minister Georgina Kessel and Mexican Ambassador to Russia Alfredo Perez Bravo to "consider deliveries to Mexico of liquefied natural gas with its consequent transportation to the U.S. market as part of the Sakhalin II project."

Long term, natural gas will be fine, but the global LNG glut just isn't helping right now.

(Chart via RBS, Natural Gas Weekly, Brison Bickerton, 10 December 2009)

Sunday, December 13, 2009

Iraq Awards Hydrocarbon Tenders

By Anthony DiPaola

Dec. 13 (Bloomberg) -- Royal Dutch Shell Plc and OAO Lukoil will join BP Plc and Exxon Mobil Corp. among Iraq’s top oil producers based on their pledges in winning bids this weekend as the country auctioned 28 percent of its crude assets.

Russia’s Lukoil and partner Statoil ASA of Norway won rights yesterday to develop the second phase of Iraq’s “super giant” West Qurna deposit, agreeing to pump 1.8 million barrels of oil from the field within six years. Shell and Malaysian partner Petroliam Nasional Bhd., or Petronas, committed on Dec. 11 in Baghdad to extract the same amount of crude from Iraq’s Majnoon field.

China National Petroleum Corp., Russia’s OAO Gazprom, and Angola’s Sonangol SA also won contracts in the two-day auction. The government in Iraq, which holds the world’s third-largest oil reserves, aims to boost production capacity to more than 12 million barrels a day, Oil Minister Hussain al-Shahristani said.

“When you have such huge reserves in a few fields, it’s only the giant oil companies that can win and afford to do the work,” said Tariq Shafiq, an adviser with London-based Petrolog & Associates and a former Oil Ministry official.

Iraq offered almost a third of its reserves in 10 blocs in the second round of oil licensing yesterday and Dec. 11. A first round in June assigned a similar amount of crude, with BP and China National Petroleum Corp. agreeing to develop Rumaila, the largest field awarded, with 17 billion barrels of reserves.

The Persian Gulf state is trying to attract investors to rebuild its economy after almost a decade of conflict and prior sanctions destroyed infrastructure. Iraq pumps about 2.4 million barrels a day and hasn’t exceeded 3 million since late 2000.

$200 Billion

Iraq will get about $200 billion a year from the development contracts awarded to international companies in the two rounds. The winning bidders will spend about $100 billion developing the deposits, al-Shahristani said after the auction ended in Baghdad yesterday. The work is scheduled to start about six months from the signing of the deals.

He called the second round a “success” after Iraq awarded seven contracts and got no bids for three blocs. In the first auction in June, Iraq signed only one contract out of 10 offered. The government agreed last month to two other deals and is in talks on a fourth field from the first round.

London-based BP and China National agreed in June to produce 2.85 million barrels a day at Rumaila, the only field locked up in that round.

Security Concerns

Exxon, based in Irving, Texas, and Shell, based in The Hague, agreed last month to terms for the first phase of West Qurna and pledged to pump 2.33 million barrels of crude a day there. Eni SpA agreed to pump more that 1 million barrels a day from the Zubair field, and Shell is still in talks over Kirkuk, all of which were offered in the first auction.

The opening of Iraq’s reserves persuaded more than 35 international and state-run oil companies to set aside concerns that insurgent attacks or political instability may disrupt operations. Bombings in Baghdad last week left at least 101 people dead and hundreds injured as violence escalates before elections planned in March.

Al-Shahristani has said the government would approve bids awarded this weekend by the end of year and said final approval for Exxon and Eni’s deals is imminent.

Petronas was one of the most active bidders in the second round, having been involved in four winning bids and one losing offer for West Qurna-2.

Total SA may be disappointed in the results after it won a stake in the Halfaya field and lost on two others, said Samuel Ciszuk, an analyst at IHS Global Insight in London.

Return to Iraq

Paris-based Total, seeking to return to the country it first explored in 1927, was interested in Majnoon and West Qurna-2, exploration and production head Yves-Louis Darricarrere said Dec. 2. Majnoon holds 12.6 billion barrels of reserves and Halfaya holds 4.1 billion barrels, according to U.S. estimates.

“We are pleased to resume our operations in Iraq with our partners at Halfaya,” Total spokeswoman Phenelope Semavoine said by telephone yesterday.

Lukoil, the Russian producer with the most oil assets abroad, beat out teams headed by BP, Total and Petronas in the bidding for West Qurna-2.

The winning bidders for two of Iraq’s largest fields, West Qurna and Majnoon, offered their services at one-quarter to one- third of the best bids proposed at the first auction in June, according to Oil Ministry data. BP agreed in the first round to develop Rumaila for $2 a barrel, half the initial bid.

Price Is Right

“The round is a success in the sense that the prices given for the fields were right,” said Shafiq.

Shafiq said he doubts Iraq can achieve 12 million barrels a day of capacity in the six years without damaging the field reservoirs and hurting potential production.

Thamir Ghadhban, an adviser to Iraqi Prime Minister Nuri Kamil Al-Maliki and former oil minister, questioned on Dec. 7 whether production from Rumaila, West Qurna-1 and Zubair will reach the levels proposed by BP, Exxon and Eni.

West Qurna, described as a “super giant” by Iraq’s Oil Ministry, is being developed in two licenses. The 12.9 billion barrels of oil reserves in West Qurna’s phase two make that deposit the biggest on offer in the second bidding round, according to U.S. Energy Department data. The first phase has about 8.7 billion barrels of reserves.

Saddam Hussein

Lukoil received a contract to develop the deposit from former Iraqi dictator Saddam Hussein in 1997. He then annulled it in 2002. Lukoil’s CEO unsuccessfully lobbied Iraqi Prime Minister Nuri al-Maliki to reinstate it this April.

Petronas and Japan Petroleum Exploration Co., known as Japex, won the Garraf field yesterday, outbidding groups led by Turkish Petroleum Corp., known as TPAO, and PT Pertamina, Indonesia’s oil company.

Gazprom led the only group bidding for rights to develop the Badra oilfield. It won the contract after lowering its cost for the work.

Sonangol, Angola’s state-run oil company, lowered its initial bids for the Qaiyarah and Najmah crude deposits to meet Iraq’s conditions. Iraq received no bids for the Middle Furat, or Middle Euphrates, fields, the Eastern Fields and the East Baghdad deposit.

Iraq, the third-largest producer in the Organization of Petroleum Exporting Countries, is the only member not subject to a production quota. It is “too early” for OPEC to set a quota for Iraq’s crude production, Oil Ministry spokesman Asim Jihad said yesterday. Boosting capacity as planned would enable Iraq to rival Saudi Arabia’s 12.5 million barrels of daily capacity, OPEC’s largest.

Iraq will hold a 25 percent stake in all field development licenses, with the remainder split between companies winning the bid. Bidders must accept service contracts with a flat fee for each barrel extracted, rather than production-sharing agreements in which they gain a stake in the crude produced. This means they are not positioned to benefit from a rise in oil prices.

CNPC, Petronas and Total won the contract to boost production at Halfaya to 535,000 barrels a day, beating groups led by Statoil, Italy’s Eni SpA and India’s Oil & Natural Gas Corp.

To contact the reporter on this story: Anthony DiPaola in Dubai at

Last Updated: December 12, 2009 15:46 EST

Saturday, December 12, 2009

Natural Gas Price Above $5.00/MMBtu

NEW YORK (MarketWatch) - Natural gas futures surged more than 8% Thursday to their highest level in 11 months after government data showed U.S. inventories fell more than expected, signaling a recovery in demand as cold weather hit major gas-consuming regions.

Crude-oil futures briefly fell below $70 a barrel for the first time in two months.

After nearly nine months of build-ups, natural gas stockpiles declined from their record highs, down 64 billion cubic feet in the week ended Dec. 4, the Energy Information Administration reported. Analysts surveyed by Platts had expected a withdrawal of 44 billion to 48 billion cubic feet.

Natural gas for January delivery rose 40 cents, or 8.2%, to $5.298 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since mid January, according to trading data collected by FactSet. The United States Natural Gas Fund /quotes/comstock/13*!ung/quotes/nls/ung (UNG 9.57, -0.18, -1.85%) gained 7%. Natural gas futures have gained about 9% this month, although they are still down 6% this year.

"It's the first draw on natural gas inventories of the heating season, and with the current cold weather and more expected, we are getting some overreaction to the numbers," said James Williams, an economist at energy research firm WTRG Economics. "Inventories should continue their decline from now on since we are already in the winter."

Despite the decline, natural gas stocks, at 3,773 billion cubic feet, were still 472 billion cubic feet higher than last year at this time and 513 billion cubic feet above the five-year average, the EIA data showed.

"Inventories normally start falling sometime in November, so this was a little late for the first draw of the heating season," said Williams.

Forecasts are predicting colder weather in the Northeast and Midwest, two major gas consumer regions in the U.S.
Crude falls below $70

In other energy trading Thursday, crude fell for a seventh straight session, briefly moving below $70 a barrel for the first time since Oct. 7, before reducing losses and ending slightly lower.

Crude for January delivery fell 13 cents, or 0.2%, at $70.54 a barrel on the Nymex. It fell as low as $69.73 earlier in the session. The United States Oil Fund /quotes/comstock/13*!uso/quotes/nls/uso (USO 35.43, -0.05, -0.14%) was last down 0.5%.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 76.57, +0.53, +0.69%) was almost flat at 76.041. The dollar and commodities prices have had a strong inverse relation in recent trading, with a stronger dollar pushing down gold and oil prices in the past few days. Read more on currencies.

In economic news, first-time jobless claims rose by 17,000 to a seasonally adjusted 474,000 in the week ending Dec. 5, the Labor Department said. Economists surveyed by MarketWatch had expected initial claims to fall to about 450,000. Read more on jobless claims. Meanwhile, the total number of people claiming benefits of any kind topped 10 million, a sign of very sluggish hiring.

Also in economic news, the U.S. trade deficit unexpectedly narrowed by 7.6% in October to $32.9 billion, the Commerce Department.

Friday, December 11, 2009

Natural Gas Above $5.00/MMBtu

By CHRIS KAHN (AP) – 6 hours ago

NEW YORK — Natural gas prices surged 7 percent Thursday as the government reported supplies dropped for the first time in nine months, yet crude fell for the seventh straight day.

It was the first time since October that oil prices fell below $70 per barrel.

Natural gas moved in the opposite direction as winter storms spread across the Midwest, meaning some homeowners are turning up the heat for the first time in what has been a very mild winter.

Temperatures dropped to 10 degrees from Des Moines to Chicago, and frigid winds have forced chill values as low as negative 25 in parts of Wisconsin, Iowa and Illinois, according to the National Weather Service.

"The weather is a significant driver here," analyst and trader Stephen Schork said. "It's about as bullish as it can get this year."

That's unlikely to mean higher heating costs where natural gas is used.

Utilities have long since locked in cheap prices and that is passed on to homeowners. A number of utilities have already sent out notifications that rates are coming down.

Heating oil is another story because it generally follows the price of oil which has almost doubled this year. Futures contracts have jumped nearly 40 percent since February.

That nasty weather is heading toward the Northeast, the most prevalent region for heating oil use in homes. About 18 inches of snow is expected in parts of central and western New York.

While heating oil levels are a little tight right now, the mild winter combined with the worst economic downturn in generations has led to unprecedented levels of natural gas being placed in storage. Major energy consumers like manufacturers have cut back severely on power use.

Storage is above listed capacity in the West, and at or near capacity everywhere else.

The Energy Information Administration reported that levels finally dropped by 64 billion cubic feet last week, the first reported draw since the week of March 13.

Natural gas for January delivery jumped 33.9 cents, or nearly 7 percent, to $5.237 per 1,000 cubic feet on the New York Mercantile Exchange. Prices rose as high as $5.335 earlier in the day.

Benchmark crude for January delivery gave up 59 cents to $70.08 a barrel on the Nymex. Prices dropped as low as $69.81 a barrel earlier in the day.

At the pump, retail gas prices dropped slightly overnight to a national average of $2.629 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 2.9 cents cheaper than last month but 94.6 cents more expensive than the same time last year.

In other Nymex trading in January contracts, heating oil lost 1.67 cents to $1.8926 while gasoline lost 2.83 cents to $1.829 a gallon.

In London, Brent crude for January delivery fell 92 cents to $71.47 on the ICE Futures exchange.

Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.

Copyright © 2009 The Associated Press. All rights reserved.

Thursday, December 10, 2009

New Mexico Natural Gas Industry Potential Less Scrutiny

By SUSAN MONTOYA BRYAN (AP) – 6 hours ago

ALBUQUERQUE, N.M. — The state agency responsible for preventing contamination from oil and natural gas operations and reclaiming past environmental damage will have to drastically reduce its routine field inspections as New Mexico searches for ways to plug a $650 million budget shortfall.

The Oil Conservation Division is just one agency within the state Energy, Minerals and Natural Resources Department that is unable to fill key vacancies because of the budget crunch.

Division director Mark Fesmire said Tuesday his agency is down seven inspectors. That means fewer people are in the field to make sure groundwater resources are protected.

"The big thing is without money, we're going to have to leave slots vacant," Fesmire said. "It all adds up to a pretty significant reduction in the number of inspections we can have."

State and federal employees performed more than 40,000 well inspections during the 2009 fiscal year as part of a cooperative agreement with the Bureau of Land Management. But Fesmire said the agreement has expired and the lack of state inspectors in southeastern New Mexico's Permian Basin means the division is expecting a 66 percent reduction in inspections next year.

State officials warned legislators during a meeting Monday that fewer inspections could place the environment and groundwater resources at risk and that the division's vacancy rate of more than 16 percent could cause delays in the processing of any new applications to drill for oil and gas.

New Mexico Oil and Gas Association President Bob Gallagher said the Oil Conservation Division has been balancing its responsibilities with a high vacancy rate for the past 18 months, so he doesn't expect the unfilled positions or additional budget cuts to affect the industry in the state.

But he added that better staffing would mean faster processing of applications for new development — and more taxes and royalties from oil and gas production flowing to the state coffers.

Despite the vacancies, Fesmire said the division will process drilling applications while making sure all state rules are followed.

"That's going to be one of our priorities, making sure environmental regulations are complied with and getting these applications processed so we can produce our way out of this fiscal problem," he said.

Oscar Simpson of the sportsmen's group New Mexico Wildlife Federation predicted that fewer inspections could have "huge implications" for water resources, wildlife and habitat.

"It's one thing to go out there and approve where a well will be drilled," he said. "But the other part of it is environmental inspections and remediation and investigations. And if they don't have the staff, it just stacks up."

The Oil Conservation Division said another challenge it faces is an increase in enforcement costs due to a recent New Mexico Supreme Court decision regarding administrative penalties for certain violations.

Now, the agency must have funding to cover costs such as attorney and witness per diems, document reproduction and payments to expert witnesses if it takes a case to district court.

Copyright © 2009 The Associated Press. All rights reserved.

Wednesday, December 9, 2009

Natural Gas Project by ExxonMobil Announced

Oil giant ExxonMobil (XOM: 73.01, -0.78, -1.06%) agreed on Tuesday to move forward with a planned $15 billion liquefied natural gas project in Papua New Guinea.

The project's approval is hinging on landing sales agreements in Asia. The deals are expected to be completed by early 2010, according to Exxon. The project has the ability to produce 6.6 million tons of LNG per year, and is one of the largest natural resource development projects in Papua New Guinea.

"Pending completion of these sales and financing arrangements, significant project activity will commence in 2010," according to a company statement by Peter Graham, head of Exxon Mobil subsidiary Esso Highlands.

Papua New Guinea has about a 17% stake, and other partners include Santos Ltd. and Nippon Oil Corp. Exxon has a 33% stake and is likely to contribute more than $5 billion to the project.

Exxon shares fell 1.1% to $72.95.

Tuesday, December 8, 2009

United States Natural Gas Rig Count Up by 4


The number of U.S. oil and natural-gas drililng rigs in operation continued to increase sequentially last month, according to data from oil-service company Baker Hughes Inc. (BHI), though they were still sharply lower than a year earlier amid weak demand and ample supply.

The oil-field services provider said the U.S. rig count rose 6% to 1,107 in November from 1,044 in October but still remained off by 43% from 1,935 a year earlier, according to Baker Hughes Inc.

The number of rigs drilling for oil in the U.S. has been increasing as energy producers move to take advantage of higher oil prices. The number of rigs drilling for natural-gas has stabilized in recent weeks as producers bet on colder winter weather and an economic recovery that could boost demand.

The international rig count during November was 1,025, up by 4.3% from 983 in October and off 6.5% from a year earlier.

-By Tess Stynes, Dow Jones Newswires; 212-416-2481;;

Monday, December 7, 2009

Natural Gas Purchase in Permian Basin

HOUSTON — Oil and natural gas company Vanguard Natural Resources LLC on Friday said it has closed its $55 million purchase of oil and gas assets in the Permian Basin in Texas from private sellers.

The company said the deal closed on Wednesday, two days after it was announced. Vanguard will operate the majority of the producing wells located on the property. Vanguard said it paid cash borrowed from a reserve-based credit facility.

It said the new properties have total estimated proved reserves of 3.2 million barrels of oil equivalent as of Oct. 1, of which 83 percent is oil and 65 percent is proven developed. The company plans to operate all but one of the wells.

Vanguard Natural Resources shares fell 27 cents to close at $18.05 on Friday.

Copyright © 2009 The Associated Press. All rights reserved.

Sunday, December 6, 2009

Pennsylvania Natural Gas Fever

When event coordinators for Hart Energy Publishing began planning a Pittsburgh conference for natural gas producers, they reserved space in the Westin William Penn Hotel for the gathering.

"We thought we'd be doing extremely well if we had 300 people," said Leslie Haines, editor in chief of Hart's trade journal, Oil and Gas Investor.

A month before the Oct. 19 conference date, the Houston company had a problem -- registrations exceeded the hotel's capacity. Rather than turn away registrants, it moved the conference to the David L. Lawrence Convention Center.

The conference turned into the largest one that Hart has ever produced, with some 1,400 attendees from across the country.

"It was an amazing thing," Ms. Haines said, and a small indicator of surging interest in the Marcellus Shale, a geological formation that sprawls from midstate New York across more than half of Pennsylvania and into Ohio and West Virginia. Little regarded five years ago, the Marcellus Shale is now viewed as one of the world's leading reservoirs of recoverable natural gas.
Untapped Riches

It was only in 2008 that interest in the Marcellus Shale exploded, a development triggered by the release of two reports.

In December 2007, Fort Worth, Texas, natural gas giant Range Resources released quarterly operating results documenting production from the first modern natural gas wells drilled in the Marcellus, thus giving Wall Street its first glimpse of the formation's profit potential.

The next month, an announcement by Penn State University geoscience professor Terry Engelder and City University of New York, Fredonia, geology professor Gary Lash made that potential appear much greater. In 2002, the U.S. Geological Survey had estimated the shale contained some 1.9 trillion cubic feet of natural gas. The professors estimated it contained between 168 trillion and 516 trillion cubic feet, between 80 and 250 times the government estimate.

The rush was on.

"That's when the bulls eye got painted on Pennsylvania," said Ray Walker, vice president of Range's Marcellus Shale division.

Suddenly investors and producers from all over the country and abroad swarmed into the state to lease land and to drill wells, more than 300 by year's end.

"It's always about capitalism and making money," Mr. Walker said. "That's why it all works."

At the October conference in the convention center, analyst Ray Deacon, with Pritchard Capital Partners LLC, presented a list of producers with leases or wells in the Marcellus Shale that read like a "Who's Who" of natural gas.

With rights to 1.45 million acres, Chesapeake Energy, based in Oklahoma City, Okla., edges out Range, with 1.4 million, as the biggest player in the Marcellus Shale. Third-place Cabot Oil & Gas holds 1.2 million acres.

In terms of company size, Norwegian colossus StatoilHydro Asa, with an $81 billion market cap, is the biggest kid on the block, towering over $30 billion Anadarko Petroleum of The Woodlands, Texas, and Houston-based $22 billion EOG Resources, and dwarfing everyone else.

Local companies involved in the gas rush include Atlas America Inc., with offices in Moon, which has 532,000 acres; Downtown-based EQT Corp., with 400,000 acres; and Cecil's CNX Gas, with 400,000 acres.

But there's still room in the Marcellus for little guys. Or at least there has been.

Petrol Development Corp., in Denver, holds 46,000 acres, and Houston-based Gastar Exploration Limited has leased 42,000 acres. Both have market caps of less than $500 million.

Talk to anyone in the industry about the Marcellus Shale and the conversation is likely to turn to its potential economic impact -- not just the money that a company hopes to make, but the jobs that could be created and the tax revenues that could be generated.

According to a report released in July by Penn State's College of Earth and Mineral Sciences, the Marcellus Shale helped create more than 29,000 new jobs in Pennsylvania in 2008. Of those, about 14,000 were directly related to Marcellus development. The remainder were created by what the study calls "indirect and induced impacts," such as a restaurant near a drilling site hiring more staff because it is serving a larger lunchtime crowd.

The study predicts more than a decade of dramatic growth, with more than 48,000 new jobs this year, then another 98,000 in 2010.

By 2020, the study says, Marcellus development could add $13.5 billion to the state's economy and create more than 176,000 new jobs in a single year.

As for tax revenues, the study predicted the Marcellus Shale would send $800 million into state and local coffers next year, and $1.4 billion by 2020.

Local executives already see evidence of that beginning.

At Range, Mr. Walker said local operations have grown from a one-person office to an office staff of about 150 in Southpointe, Cecil, with another 100 people working in the field in Washington County. He said Range was still "on our way to doubling or tripling" its presence here.

Nicholas J. DeIuliis, chief operating officer of CNX Gas and its largest shareholder, Consol Energy, said his business had added about 50 people over the past year to the Marcellus business unit, which was "three people in a trailer" four years ago, and he anticipates additional hiring across a range of job specialties within both companies. CNX has wells in Greene County.

In a meeting with news media at the October conference, EQT chairman and CEO Murry S. Gerber, credited Marcellus exploration with about 2,000 jobs within the company, and said it could produce 12,000 to 15,000 additional jobs within the next year and a half. EQT is drilling in Washington County.

Mr. Gerber also noted that so far much of the field work, as opposed to the administrative work, has not been done by Pennsylvanians but by migrants from states with more history and expertise in shale gas.

"We're mostly working with Texas crews, Oklahoma crews," he said. "They're coming here, working, then going home."

Even before those critical reports came out, it took a natural disaster to put the Marcellus back on the industry's map. Beginning in late August 2005, three mammoth storms -- Katrina, Rita and Wilma -- struck within two months, causing massive disruptions in the nation's natural gas supply, much of which comes from Louisiana, Texas and offshore rigs in the Gulf of Mexico.

As a result, the wholesale price of natural gas, which had already doubled from $2 per million British Thermal Units to $4 in 2002 and doubled again to reach $8 in 2004, rocketed to nearly $16 by the end of the 2005 (a million BTUs is roughly equivalent to a thousand cubic feet of gas).

Natural gas producers could see the potential payoff in producing more. But the Marcellus Shale was not high on the lists of places to look.

"Three to five years ago, it wasn't even discussed anywhere within the industry. It wasn't even contemplated," said Mr. DeIuliis, at Consol Energy.

Scientists and industry experts had long known the Marcellus Shale contained natural gas. Yet its deposits were buried so deep that extracting them did not make economic sense.

That began to change in 2004, when Range drilled the first modern well in the Marcellus Shale.

The well made use of a technology that had long been employed in other regions -- hydrofracking. As the name suggests, hydrofracking induces fractures in the shale by injecting it with water. This creates new spaces for the gas to move into, thus making more gas accessible.

The bigger breakthrough came the following year. Historically, drilling a natural gas well meant plunging a well bore straight down into the earth, with the hope of finding a pocket of gas lodged in a layer of rock. In 2005, Range drilled a well that went straight down for a distance, then turned sideways, extending its reach horizontally.

In shale formations, natural gas tends to reside in vertical fractures in the rock, so striking gas with a vertical well was literally a hit-or-miss proposition. With horizontal drilling joined to hydrofracking, Range saw a dramatic increase in production.

Neither horizontal drilling nor hydrofracking were new, either. In fact, Mr. Walker designed the first hydrofracking well in 1982. Producers used both horizontal drilling and fracking to extract gas from the Barnett Shale, a formation in the Fort Worth, Texas, area.

But no one before Range had bothered to bring those technologies to the Marcellus Shale.

Mr. Walker ascribed the failure to do so to a simple lack of interest. For decades, oil and gas producers focused their attention on the Gulf Coast. "Appalachia just became this kind of sleepy mom-and-pop" region, he said.

Maybe more of a sleeping giant.

A large part of the projected economic impact arises from the location of the Marcellus. While a portion of the Barnett lies underneath Fort Worth, the Marcellus underlies Pittsburgh, Cleveland, Erie and Buffalo, and stretches east nearly to New York and Philadelphia, making it a potentially huge source of convenient fuel for the entire northeast.

While natural gas producers are excited about the potential of the Marcellus, environmentalists are worried, especially about wastewater produced by hydrofracking.

Producers are responding to those concerns in different ways. Range has developed a system for recycling all of its wastewater. CNX recycles a small portion of the Marcellus flowback, disposing of the remainder through state- or federally approved facilities.

At the October conference, Mr. Gerber suggested another use for the wastewater. Noting that municipalities need large amounts of salt for snow removal, he suggested government and industry work together. "There's salt in that water. Why don't we extract that and use it?"

To advance discussions with environmentalists, as well as with government and representatives of other industries, producers have formed the Marcellus Shale Coalition, which recently elected Mr. Walker as its chairman. Its 62 members include both producers and support companies, as well as two trade associations, the Independent Oil and Gas Association of Pennsylvania and the Pennsylvania Oil and Gas Association.

Mr. Walker said the coalition has had ongoing meetings with the Nature Conservancy, Penn Future and the Sierra Club.

"We want to work with all of these conservation groups," he said. "We are not the enemy. We do not want to have a combative relationship."

On the government side, the group has received support from U.S. Rep. Tim Murphy, R-Upper St. Clair, who joined with Dan Boren, D-Okla., in October to form the Congressional Natural Gas Caucus. Three weeks later, in the Senate, Mary L. Landrieu, D-La., and Saxby Chambliss, R-Ga., announced the creation of the Senate Natural Gas Caucus.

But the future of development in the Marcellus Shale could be rocky.

"When it became, quote unquote, 'discovered,' gas prices were high, results for the Marcellus looked very strong," Mr. DeIuliis said. Now gas prices have fallen again. "That will change the environment in regard to what drives development in the Marcellus," he said. "The bubble will deflate."

"Some fallout's not a bad thing in the long term," he said. "The secret is to position yourself so that you're in it for the long haul."

While falling prices generally lead to pullbacks in production, Ms. Haines noted that some producers were tweaking their response.

"Activity has slowed down in many basins in the country, but it has not slowed down in the Marcellus," she said. "Sometimes companies will reduce their drilling elsewhere and redeploy their capital to the Marcellus."

At the conference, Mr. Gerber said EQT's production arm could break even on its Marcellus drilling when natural gas wholesales for $2.50 per million BTUs; when it sells for $3.50 to $4, the company sees a 10 percent after-tax profit.

So recent prices in the $5 range, while far below the prices that sparked the land rush, are still high enough to pay off.

Barring disruptions from government regulation or other unforeseen factors, the industry could see the Marcellus Shale continuing to fuel business in the region for years to come.
Elwin Green may be contacted at or 412-263-1969.

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Saturday, December 5, 2009

Natural Gas Futures in 2010 from $6 to $7 and Back to $4

Posted Friday, 4 December 2009 | Digg This ArticleDigg It! | Share this article | Source:

By Dr. Marc Bustin, Editor, Casey Energy Opportunities

Marc Bustin Ph.D., F RSC, is the senior researcher for unconventional oil and gas for Casey Research.

Considered to be one of the top authorities in the world, Marc is the go-to expert for multinational oil and gas conglomerates, and is brought in to help evaluate finds around the world. Marc has reviewed more projects on his own than some exploration teams put together.

Recently, at the Casey Research Energy Summit – a two-day event showcasing the top minds in the energy industry – a small group of investors became privy to Marc's take on the future of natural gas... his prediction for where prices are heading next year... and some of the companies he believes will profit when natural gas takes off.

For an excerpt of Marc's presentation, read on...

What You Need to Know About Natural Gas

Natural gas prices have plummeted. Natural gas storage is at a maximum. Producible gas reserves are up 35% in the United States. Demand for natural gas is down because of the economy.

Then suddenly a new-found U.S. natural gas producible reserve is suggesting that the U.S. in fact will be self-sufficient or close to it as soon as 2030.

Why are all of these things happening?

A bit of it, of course, is due to the drop in the overall economy, but it has a lot to do with the concept of gas shale, and that's really what we are going to focus on today.

Where does all this gas come from?

The gas comes from organic matter that is within the rocks. It evolves, bacteria work on it, it generates gas, and most of that gas and oil end up in reservoir rocks, such as the sandstone.

But the rocks with which the organic matter is in the first place, are fine-grained rocks that we use the loose word "shale" for. These are the rocks that have the organic matter that's cooked, that generates the gas. The gas is generated from the fine-grained rocks and it migrates out into our reservoir rocks, which is our conventional gas production.

If we were to look at the shales in more detail with an electron microscope, you would see that it's very fine grained and the pores are small. If we look at sandstone, the porosity and permeability (the ability of gas to flow through the rock) is great, and that's why we can produce it at commercial rates. Traditionally we haven’t been able to produce any gas from shales because there are no pathways for the gas to go out at a very fast rate. Until recently

we've pretty much ignored these rocks.

If we blew up the pore in a sandstone to the size of the Eiffel Tower – by comparison, the pores in shales are about the size of an eyelet on the compound eye of a bee. In other words, they’re really, really small. There's a tremendous size/scale difference and that's why the gas tends to be retained.

The reason that gas migrates out of the rocks is that they’re surrounded by water. All the other pores are filled with water, and because gas or oil is lighter than water, there is a buoyancy effect. It migrates until it's trapped.

But shales are so fine grained, you don’t need a conventional trapping mechanism. The gas does not move out of these shales because of capillary pressures, and also because the gas is actually absorbed into the mineral and organic surfaces.

That means when we find these shales and these types of deposits, they are not localized. They are very, very laterally extensive, so you don’t really have any exploration risk in terms of finding the shale. The exploration risk is really in whether or not you can develop it.

The economically recoverable gas from the shale is now possible due to development and success of horizontal drilling technology – the development of fracking technology. Higher gas prices in the past gave us the confidence and allowed us to develop the technology. A huge factor is confidence. We know we can do it economically, so we are willing to spend the big dollars that are required to drill and frack one of these wells.

Technology has now made it possible to produce gas from rocks that we couldn't produce gas economically 10 years ago.

In the past we were drilling more and more wells that produced less and less gas. All of a sudden, things have changed with these shale wells. We are drilling fewer wells, and each well is producing more and more gas – because of the frack technology and the wells being horizontal. Things have changed completely.

Finding and development cost

How much it costs to produce the gas, of course, is going to be equivalent to the resource size – the producible resource size. The bottom line is, there's lots of gas that could be produced at relatively low prices. For example, EnCana’s projection of producible natural gas is absolutely enormous.

What's happening in the rest of the world?

The rocks are a little bit different in North America than everywhere else, but there certainly are similar shales in Europe. North Africa has wonderful-looking shales, and so do a few other places – Eastern Australia, for example. There is no reason to suspect they won't be equally successful producing gas from tight rocks in those areas, as we have been in North America.

There are certainly lots of gas shale potentials in Europe and many companies like Conoco, Exxon, Shell are there – Shell is drilling some gas shale wells in Sweden, for example. Other companies are working in England.

So all of a sudden we are looking at a world where natural gas is perhaps not in a shortage anymore.

Part of the problem is, we have been a little bit too successful – if you're a service company, a drilling company, or a producer in North America. We've been so successful in finding gas, we've driven the price way down. The price, in fact, has been too low to sustain drilling and, in some cases, production.

We've got a market, we've got demand, and we have supply. U.S. natural gas storage is at a maximum. We're filled up; no more natural gas, please... for the time being at least.

So what does it mean for the price of natural gas?

Since gas prices have taken a major dive, so has the rig count. The rig count is how many rigs are actually drilling. Currently in North America, we're probably at a 35% to 40% usage of the rigs. This is way down, and the implication is important for the gas price.

Low gas prices means, suddenly we're drilling a lot fewer gas wells. No one wants to drill anymore.

Currently, in order to maintain U.S. production, we have to add between 17, 18, 19 Bcf (billion cubic feet) additional gas per day. At the current rate of drilling, we're adding 9 Bcf a day production, so there's obviously a shortfall.

And a shortfall means eventually the price of gas has to start going up.

Right now, there are a huge number of drillable wells – prospects all ready to be drilled. As soon as the natural gas price gets up above a certain level, these wells will suddenly become economic, and people will start developing them.

So it's not like we are going to find new "stuff," we're just going to start producing the "stuff" we already know exists.

Which companies are going to lose and which are going to win with the new metrics of natural gas?


· Gas-weighted companies are in trouble today.

· Small companies with debt, I think are finished – if they’re gas producers.

· Companies only operating in North America are going to have a tough time. If you're offshore, you're probably in a lot better shape.

· Companies with no technical expertise – producing gas from shale requires a team of people who actually understand what they’re doing.

Most small companies just can't play in that sandbox. When things go bad, they go bad. You have to be able to drill a number of wells successfully to be successful. If you can only drill one well and you have no operational experience, you should just take your wagon and go home. That leads me to the winners.


· Big companies with some capital to play with.

· Companies with operational experience, or companies that have the depth to develop that operational experience.

· Companies with early land position and low finding and development costs or finding and exploration costs.

· Technically competent companies.

· Small companies who have decent land and have big-company partners.

Some small companies got an early land position, opening the door for big companies to farm in on them. These are perfect situations. The big company is paying the load, and the small company will still get the advantage.

My prediction for gas prices

In my opinion, gas will be $6 or $7 next year. Prices will then soften down to $4 or $5 at the end of next year. Ultimately, the best buys for investors will be small-caps that are farmed out or big companies that have long-term positions.

As mentioned before, Dr. Bustin's expertise in unconventional gas and oil is unmatched in the industry. If you're interested in receiving Marc's entire presentation from the Casey Research Energy Summit... learning from his considerable acumen in natural gas... and getting the scoop on which stocks he believes are poised to profit from the inevitable increase in gas prices, here's your opportunity.

What's more, you'll also get the inside perspective of every energy expert at the summit – on subjects ranging from alternative energy to oil and natural gas, to lithium.

The information revealed at the Casey Research Energy Summit has been, up until now, only available to the small group of investors in attendance.

Now you, too, have the opportunity to arm yourself with the knowledge you need to prosper in the challenging years ahead. Click here for details.