Wednesday, September 30, 2009

Natural Gas Important Commodity for British Columbia Economy

By Richard Dunn, Special to the SunSeptember 29, 2009

As we officially recognized Oil and Gas Week in British Columbia this month, it is important to acknowledge the contribution that clean-burning natural gas makes to the province's financial and economic well-being.

Many British Columbians are not fully aware of the growing role that natural gas plays in our economy and our standard of living, and the role it can play in improving the environment.

In fact, over the past decade, new technologies, innovative industry practices and public policy changes have positioned B.C. in the forefront of a natural gas renaissance in North America.

This renaissance is marked by an increase in continental natural gas production of nine per cent in the past two years, due exclusively to unconventional natural gas reserves. Production from these unconventional gas sources, once difficult and uneconomic to extract, has grown from 10 per cent of total production to 50 per cent.

Technological improvements such as horizontal and pad drilling and advanced well stimulation techniques are the fundamental drivers behind the rapid growth in unconventional gas production.

Accessible natural gas was once a declining resource, but there is now enough in North America to last us 80 to 100 years at current production rates. Natural gas is abundant and affordable -- and it can go a long way toward helping address our most pressing challenges in energy use, our economy and the environment.

B.C. has a rich endowment of this unconventional gas. It was the only jurisdiction in Canada to record an increase in natural gas production last year.

Two of the hottest plays in North America are the Montney tight-gas play and the Horn River Basin Shale in Northeastern B.C.. The potential exists to grow the production levels from these plays some two to three times in the next 10 to 20 years.

EnCana's developments in the Montney and Horn River Basin are being accomplished in a sustainable, responsible manner through effective regulations, planning and using new technologies to lessen our environmental footprint.

All this translates into potential economic growth and jobs for British Columbians, today, tomorrow and well into the future.

Take EnCana, for example. Since 2000, we've invested approximately $10 billion in B.C. in pursuit of unconventional gas resources. Since 2001, the entire industry has invested about $38 billion in the province.

Along the way, employment in the industry has grown 65 per cent to 21,000 direct jobs in 2007. That has led to about 60,000 to 70,000 support and service jobs in B.C. and across Canada.

Then there is the revenue that the industry generates for the provincial treasury in the form of royalties, land bonuses and taxes. All told, our industry has contributed approximately $17 billion to the province since 2001.

As the cleanest burning fossil fuel, natural gas holds significant potential to reduce greenhouse gas emissions through expanded use in trucks, buses and cars and new electricity generation. While renewable energies such as wind and solar are expected to grow, there will not be enough to fulfill North America's energy needs in the foreseeable future.

A significant portion of the power-generation sector produces electricity from coal-fired power plants. Natural- gas electricity generation is 50 per cent cleaner and has a significant advantage because it reduces sulphur dioxide, which is linked to acid rain. Because natural gas is now so abundant, the price is also competitive with coal in regions where both fuels exist.

Switching to natural gas in our vehicles would not only grow our economy, but would cost consumers 30 per cent less than diesel or gas, and produce significantly fewer pollutants and carbon dioxide emissions.

Today there are 10 million natural gas vehicles on the world's roads; but only 150,000 in North America. While we have been slow to adopt natural gas vehicles, this is changing. U.S. lawmakers are examining several pieces of legislation designed to bring natural-gas vehicles and heavy duty trucks into the mainstream market.

Vancouver-based Westport Innovations, a builder of engines and fuel injection systems, is already among the leaders in the global shift to cleaner-burning transportation fuel, with more than 20,000 of its clean engines running on compressed or liquid natural gas in cities around the world.

B.C.'s abundant supply of natural gas is a key to the province's economic future.

As North America seeks to address climate change, B.C. is poised to play a key role in creating a new clean-energy economy.

Richard Dunn is vice-president of regulatory and external relations for EnCana's Foothill's Division.
© Copyright (c) The Vancouver Sun

Tuesday, September 29, 2009

Natural Gas Inventories at Record Levels

Sept. 28 (Bloomberg) -- The steepest rally in natural gas prices since 2006 is coming to an end as the 400 salt caverns, depleted oil fields and aquifers used to store the fuel in the U.S. reach capacity for the first time.

Stockpiles may surpass the record of 3.545 trillion cubic feet by as much as 350 billion cubic feet this fall, Energy Department estimates show. Gulf South Pipeline Co. says its fields in Louisiana and Mississippi are so full that customers will have to pay penalties for exceeding their limits. With no place to go, producers will be forced to dump excess fuel on the market.

The worst economic slump since the 1930s will cut demand from chemical plants to carmakers to households by 2.4 percent this year, according to government estimates. The November futures contract will drop about 19 percent to near $4 per million British thermal units, said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania.

“I don’t know where all of this gas is going to go,” said Schork, a former natural gas trader on the New York Mercantile Exchange, who in June forecast inventories would reach near 3.8 trillion cubic feet. “We’re a month away from significant heating demand. Something’s got to give.”

The November contract has climbed 32 percent from its low of $3.662 per million Btu on Sept. 3, after economic reports signaled that the recession is ending and fuel demand will rebound in 2010. October futures, which expired today, gained 49 percent from a seven-year low of $2.508 in the same period.

Gas for November delivery fell 11.8 cents, or 2.4 percent, to $4.83 per million Btu today in New York. The October contract fell 25.5 cents, or 6.4 percent, to $3.73.

Awaiting Rebound

Employers cut fewer jobs than expected in August, a report from the Labor Department on Sept. 4 showed. Output at factories, mines and utilities climbed 0.8 percent, in August, according to the Federal Reserve. The economy will probably expand 2.9 percent this quarter and 2.2 percent in the fourth, the median estimates of 61 economists surveyed by Bloomberg.

The signs of improvement haven’t translated into a turnaround in gas demand.

Consumption by factories and manufacturers will decline 9.8 percent this year, according to the Energy Department. Fuel production will increase 0.9 percent.

Even with this month’s rally, futures have dropped 73 percent from a 30-month high of $13.694 on July 2, 2008. The 34 percent decline this year makes gas the worst performer on the Reuters/Jefferies CRB Index of 19 commodities. The index has risen 9.8 percent, led by gains in copper, sugar and gasoline.

Natural gas will average $3.90 per million Btu in the third quarter, according a Bloomberg survey of 20 analysts, compared with $3.39 since July 1. Forecasts have retreated through the year. In March, the prediction for the third quarter was $6.

Outlook Revisions

The outlook for the fourth quarter, when demand for heating fuel typically increases, has also declined. Gas will average $5 in the next three months, according to the survey. The price expectation was $7.38 on Jan. 2 and $5.36 on Aug. 3.

With the U.S. economy recovering from the first global recession since World War II, some investors say gains will occur sooner. November futures will probably trade between $4.50 and $5.50 as demand strengthens, said Peter Linder, president of the DeltaOne Energy Fund in Calgary.

“We’re not going to see a collapse in gas prices over the next two months,” Linder said in a telephone interview. “We’re going to see significantly less production,” which will boost the fuel into 2010, he said.

Rising Prices

The December contract is likely to climb to around $6 from $5.588 now, Linder said.

“The entire move to the upside is predicated on recovery and stimulus, and if those two things hesitate or fail to materialize, so will higher prices for natural gas,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida.

Inventories rose to 3.525 trillion cubic feet in the week ended Sept. 18, 16 percent above the five-year average, and 91 percent of estimated peak capacity, according to Energy Department data. The previous record was reached in November 2007.

Supplies may hit maximum capacity of 3.899 trillion cubic feet before November, when utilities and power generators begin to withdraw the fuel for the heating season. The Energy Department will come out with the latest totals on Oct. 1.

The excess would be enough to meet almost a month’s worth of average daily consumption from stockpiles by households, factories and power plants during the cold-weather months, which averages about 12 billion cubic feet a day, according to government data. Total gas demand from November through March averages about 74 billion cubic feet a day.

Storage Operators

Storage site operators take gas from producing wells through pipelines, usually from April through October. Using compressors, they force it down wells drilled into permeable stone, which are covered by a cap-rock to contain the fuel. A year ago, the caverns were 80 percent full.

The stockpiles have grown even after companies cut back on exploration. The number of rigs drilling dropped 56 percent to 710 as of Sept. 25 from a peak of 1,606 a year ago, according to Houston-based Baker Hughes Inc., the world’s third-largest oilfield-services provider.

Lower prices will keep a lid on rigs, said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.

The total fell to 665 on July 17, a seven-year low, after stockpiles rose to the highest for any week in July since 1994. The surplus helped send gas to the lowest level since March 2002 earlier this month.

Near Capacity

“Gulf South is reaching full capacity,” said Allison McLean, a spokeswoman for the company’s parent, Boardwalk Pipeline Partners LP, in a Sept. 22 interview. “We don’t have flexibility to go above and beyond what customers have contracted for.”

The company, with about 83 billion cubic feet of storage, said Sept. 4 that it may “subject offending customers to penalties.”

Southern Natural Gas, a unit of Houston-based El Paso Corp., owner of the largest U.S. network of natural gas pipelines, said on Sept. 21 that 96 percent of its available 60 billion cubic feet of space was in use as of Sept. 17. A year earlier, it was at 78 percent.

“The storage situation is a pretty serious one,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “There’s no real remedy in sight.”

Futures advanced this month after Fed Chairman Ben S. Bernanke said on Sept. 15 the recession may have ended already. A report on Sept. 1 from the Institute of Supply Management showed manufacturing expanded for the first time in 19 months.

Slowing Losses

Price gains accelerated as traders who had sold expecting declines bought the contracts back. The rally was helped by speculators who were betting against U.S. Natural Gas Fund LP, the world’s largest exchange-traded fund in the fuel, according to Adam Felesky, chief executive officer of BetaPro Management Inc. in Toronto.

When those bets failed, speculators canceled positions by buying October futures, sending the contract higher, said Felesky, whose company manages exchange-traded funds.

The gain in the October contract was the biggest over a three-week span since September of 2006, after hedge fund Amaranth Advisors LLC lost more than $6 billion in bad bets in the gas market.

Futures in 2006 initially dropped, reaching a four-year low on Sept. 27, partly because the fund was forced to unload its holdings. Prices then surged 62 percent by Oct. 18.

Production Cost

Gas may have to climb above $6 or even $7 to ensure producers pump enough to meet demand, Aubrey McClendon, chief executive officer of Chesapeake Energy Corp., said in a presentation to investors on Sept. 10.

Chesapeake, the fourth-largest producer in the U.S., has been selling assets to conserve cash and reduce debt during the drop in prices. Anadarko Petroleum Corp., the second-biggest, reported a second-quarter loss of $226 million

Weeden cut its 2010 forecast to $4.25 per million Btu from $5 in a report on Sept. 14, saying that stockpiles at the end of the heating season in March will be at a record high for that time of year.

“You have to start thinking what next April will look like,” said Orr of Weeden. “Coming out of winter and going into spring, you’ll still have a situation where the market will be oversupplied.”

To contact the reporter on this story: Reg Curren in Calgary at
Last Updated: September 28, 2009 17:26 EDT

Monday, September 28, 2009

Natural Gas Industry Calls for Full Disclosure

Chesapeake, Range Resources call for disclosures

* Marcellus Shale a key natural gas development

* Industry says hydrofracturing process safe

By Matt Daily

NEW YORK, Sept 24 (Reuters) - Two top U.S. natural gas producers called on the industry to release data about the chemicals they use in the fast-growing Marcellus shale development to counter fears it was polluting water supplies.

The Marcellus, which stretches from West Virginia across most of Pennsylvania and into New York, could hold a 10-year supply of natural gas for the United States, but its development is sparking a backlash from some residents who say they are at risk.

New technologies have enabled gas drillers to tap into rock deposits and release natural gas using a process called "hydrofracturing" that injects water and chemicals into the deposits.

The vast energy potential of the field has drawn interest from dozens of companies, including Chesapeake Energy (CHK.N), who says the process is safe and will turn the Marcellus into a lucrative source of natural gas for decades.

"We as an industry need to demystify (hydrofracturing)," Aubrey McClendon, chief executive and chairman of Chesapeake, told an energy conference this week.

"We need to disclose the chemicals that we are using and search for alternatives to the chemicals we are using," he said.

Scientists have yet to find definitive evidence that drilling chemicals have seeped into ground, but dozens of anecdotal accounts have emerged that water supplies in gas-producing areas have been tainted.

People in gas-drilling areas say their well water has become discolored or foul-smelling, killing pets and farm animals who drink it and causing children to suffer from diarrhea and vomiting.

On Tuesday, Pennsylvania regulators cited Cabot Oil & Gas for spilling chemicals at a natural gas well. [ID:nN22368094]

Environmentalists have complained that the energy companies refuse to disclose the specific chemicals used in the fluids that are injected into wells and then later stored in pools before undergoing treatment.

That lack of disclosure prevents them from testing water and soil samples for specific incidents of pollution.

John Pinkerton, chief executive of Range Resources Corp (RRC.N), one of the first energy companies to enter the Marcellus, said producers' disclosures were limited by the oilfield service companies who do not want to release what they consider to be commercially sensitive information. Continued...

Sunday, September 27, 2009

Natural Gas Rig Count up to 710

NEW YORK, Sept 25 (Reuters) - The number of rigs drilling for natural gas in the United States climbed five this week to 710, according to a report on Friday by oil services firm Baker Hughes in Houston.

The U.S. natural gas drilling rig count has gained in nine of the last 10 weeks but is still down sharply since peaking above 1,600 in September last year, standing at 849 rigs, or 54 percent, below the same week last year.

During the week ended July 17, 2009, the natural gas rig count dipped to 665, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

Tighter access to credit and a 70 percent slide in natural gas prices since last summer to about $3.50 per mmBtu forced many producers to scale back gas drilling operations.

The steep declines in drilling this year have started to slow production and tighten supplies, but most traders agreed it has not been enough yet to offset concerns about record high inventories and recession-related cuts in demand, particularly from the industrial sector. (Reporting by Joe Silha; Editing by Christian Wiessner)

Saturday, September 26, 2009

Natural Gas Stocks Up and Down

By Steve Gelsi, MarketWatch

NEW YORK (MarketWatch) -- Wall Street had been content to bid up the prices of natural gas producers on bullish economic data of late, but generous gains by the NYSE Arca Natural Gas Index started to erode this week.

After touching a 2009 high of 514 on Tuesday, the index of major natural gas producers /quotes/comstock/10t!xng.x (XNG 492.35, -3.17, -0.64%) has fallen below 500 in the last two days, and may move lower on Friday. It's still up about 25% for the year, outperforming the S&P 500 since July.

The recovery in stock prices had come on hopes for 2010 because producers have drastically scaled back their drilling operations and cut the cost of getting natural gas out of the groundThe likes of Apache Corp. /quotes/comstock/13*!apa/quotes/nls/apa (APA 91.61, -0.37, -0.40%) , Devon /quotes/comstock/13*!dvn/quotes/nls/dvn (DVN 67.55, +0.38, +0.57%) , EOG Resources /quotes/comstock/13*!eog/quotes/nls/eog (EOG 78.94, -1.11, -1.39%) , XTO Energy /quotes/comstock/13*!xto/quotes/nls/xto (XTO 41.94, +0.07, +0.17%) ,Chesapeake Energy /quotes/comstock/13*!chk/quotes/nls/chk (CHK 27.60, +0.07, +0.25%) hope for prices in the range of $6 to $7 per thousand British thermal units in order to generate double-digit returns in 2010, according to some estimates.

But prices still remain under $4 per British thermal unit for now, and appear to be headed lower, as U.S. stockpiles grow to record levels.

Energy research specialists at Morgan Stanley cast a strong note of caution this week, while forecasting a healthier average natural gas price of $6.50 per BTU next year.

While noting that a cyclical recovery remains intact in the coming months, prices may disappoint after a trough in the third quarter of this year, analysts said.

"We believe balancing of the natural gas market in 2010 remains an investable theme," analyst Stephen Richardson said in a note to clients on Wednesday, while upgrading Apache Corp. to overweight and downgrading Bill Barrett /quotes/comstock/13*!bbg/quotes/nls/bbg (BBG 31.75, +0.07, +0.22%) to underweight.

Looking ahead, Richardson said once production declines are established and supply tightens, "we look for a six-to nine-month upcycle in prices to encourage increased activity in the natural gas upstream."

While oil prices bottomed below $40 a barrel in December and climbed back to the $70 range now, natural gas prices remained depressed until Sept. 3, when they hit a seven-year low.

From there, natural gas prices have rallied about 50%. See full story.

Steve Gelsi is a reporter for MarketWatch in New York.

Friday, September 25, 2009

Natural Gas Producer BP Tauting CO2 Reduction

By Matt Daily

NEW YORK (Reuters) - The head of BP Plc's Americas business said on Thursday the United States could sharply reduce its carbon dioxide emissions by expanding its use of natural gas over fuels such as coal.

"Natural gas has the greatest potential to provide the largest carbon reductions at the lowest cost using technology that is available today," Lamar McKay, chairman and president of BP Americas told a Financial Times' energy conference.

BP is one of the world's largest producers of natural gas, with an average output of 8.67 billion cubic feet per day in the first half of 2009.

In June, the U.S. House of Representatives passed a climate bill that would institute a trading regime for carbon credits and require power plants to begin capturing emissions of the gas that is blamed for contributing to climate change.

That bill faces stiff opposition in the U.S. Senate, which is currently considering alternatives to what could be the first U.S. law designed to reduce carbon dioxide.

About half the U.S. electricity supply comes from coal-fired power plants, many of which are decades-old "clunkers", McKay said.

Power plants that burn natural gas emit 60 percent less carbon dioxide than coal per kilowatt hour of electricity produced, and gas could allow the country to shut many of those inefficient plants.

"If we could ramp up natural gas use by one trillion cubic feet per year, we could retire 150 gigawatt hours of the oldest and dirtiest coal-fired plants," he said.

BP has calculated that as much as 30 percent of the carbon dioxide reductions targeted under the Waxman-Markey bill that passed the House could be delivered by expanded natural gas use.

About 20 percent of the electricity in the United States comes from natural gas power plants or roughly equal to the amount generated by nuclear power plants.

But the United States continues to add new coal-fired power generation, McKay said, and 36 new coal plants had received permits, were under construction or near construction as of June. Another 47 have been announced, he added.

BP, which also owns wind farms and a solar manufacturing business, has been working to develop Carbon Capture and Storage (CCS) technology to store carbon underground at projects in California, Algeria and Abu Dhabi.

"With the appropriate regulatory regime and an adequate carbon price, we believe CCS could be commercial by 2020 plus," he said.

(Reporting by Matt Daily, editing by Leslie Gevirtz)

Thursday, September 24, 2009

Natural Gas Prices Up for October 2009

By Christine Buurma

NEW YORK (Dow Jones)--Natural gas futures extended gains Wednesday, rising as traders continued to buy back previously sold contracts ahead of the winter heating season.

Natural gas for October delivery on the New York Mercantile Exchange settled 25.1 cents higher, or 6.95%, at $3.86 a million British thermal units after reaching a high of $3.935/MmBtu in combined electronic and floor trade earlier in the day. The intraday high was the highest price since early August.

The approach of colder weather has prompted a flurry of book-squaring among gas traders, who were betting heavily on falling prices over the summer.

"We've had a pretty sizable short-covering rally over the past few weeks," said Cameron Horwitz, an analyst with SunTrust Robinson Humphrey. "Some of the early winter forecasts that have been thrown out there are looking for some pretty cold weather. If you do get very cold weather at a time when we're only running plus or minus 700 rigs, we're going to have a problem."

Long-range winter weather forecasts remain mixed, however, with some forecasters predicting bitterly cold temperatures in the major gas-consuming regions and others expecting generally mild weather.

Ample gas supplies continue to place downward pressure on prices. Analysts and traders expect government data scheduled for release on Thursday to show an average injection into natural gas storage last week as production curtailments weigh against mild weather.

The U.S. Energy Information Administration is expected to report that 69 billion cubic feet of gas were added to storage during the week ended Sept. 18, according to the average prediction of 16 analysts and traders in a Dow Jones Newswires survey.

The storage estimate surpasses last year's 54 bcf build in storage but matches the five-year average injection. If analysts' predictions are correct, inventories as of Sept. 18 will total 3.527 trillion cubic feet, 16% above the five-year average and 16.9% above last year's level.

Gas producers have scaled back output over the past several months in response to tumbling prices. The number of gas rigs in use peaked at 1,606 in September 2008, and was most recently at 705 rigs. Meanwhile, ample inventories are forcing involuntary production shut-ins as storage facilities near full capacity. Analysts predict that inventories may reach capacity, an estimated 3.889 tcf, before the end of the winter heating season.

"Are injections smaller due to lower production or are injections smaller due to a lack of storage availability?" writes Kent Bayazitoglu, an analyst with Gelber & Associates, in a note to clients. "Both factors are in play as the market heads to record storage levels."

- By Christine Buurma, Dow Jones Newswires; 212-416-2143;

Wednesday, September 23, 2009

Natural Gas Prices Expected to be $6.00 MMBtu by July 2010

Aubrey McClendon, chief executive of Chesapeake Energy, told analysts on the August earnings call that he expected natural gas prices would rise to between $6 and $8 per thousand British thermal units (MMBtu) by summer of 2010. As natural gas comprises 92 percent of its total energy production, the company stands in good stead to take advantage of any recovery in prices — especially since it has ample recoverable reserves and the lowest drill bit finding costs in the industry.

Cash prices for natural gas were bouncing off seven-year lows last week, trading in the $2.50 -$2.70 per MMBtu range as underground storage and domestic gas supplies remained stronger than the fundamental demand for existing volumetric production. Working gas in storage as of Friday, September 4, was 3,392 billion cubic feet (Bcf), according to the Energy Information Administration (EIA). Stocks are 503 Bcf above the 5-year average of 2,889 Bcf, due to cool summer weather and slack consumption (from the economic downturn).

Nonetheless, there is emerging consensus among industry veterans that McClendon’s optimistic call on gas prices going forward could be prescient. Natural gas for October delivery on the New York Mercantile Exchange has rebounded sharply in the past week, closing at $3.76 per MMBtu in trading on September 16. The result of Fed Chairman Ben Bernanke stating that the U.S. recession has probably ended (helped also by an anticipated reversal in the supply picture from the lag-effect of curtailed industry production).

Chesapeake is one of the leading producers of natural gas in the United States, with interests in approximately 43,300 producing natural gas and oil wells pumping out approximately 2.54 bcf per day (a five-percent increase over last year). As the operator with the lowest domestic drill bit finding costs-a reported $0.87 per Mcf in the second quarter-and few hedge positions (about 21 percent of anticipated 2010 gas production), small changes in natural gas (and oil prices) have a significant impact on the company’s natural gas (and oil) revenues and cash flows, according to its second-quarter 10-Q filing:

Assuming the Current Period production levels, a change of $0.10 per mcf of natural gas sold would have resulted in an increase or decrease in revenues and cash flow of approximately $40 million and $39 million, respectively, and a change of $1.00 per barrel of oil sold would have resulted in an increase or decrease in revenues and cash flow of approximately $6 million without considering the effect of derivative activities.

By calculation, the recent $1.00 run-up in the price of natural gas would increase sales and cash flows by an estimated $400 million and $390 million (assuming constant production)!

Over the next two years, Chesapeake intends to increase its liquidity and reduce its financial leverage-long-term debt was 52 percent of total capitalization at June 30-through asset sales (in the range of $2.35 to $3.05 billion in 2009 and $1.25 to $1.8 billion in 2010) and growth of its proved reserve base (currently 12.5 trillion cubic feet). The company currently carries a Ba2 bond rating by Moody’s, defined as one step below junk status (reflecting the credit rating agency’s opinion that the E&P’s debt “obligations contain speculative elements subject to high credit risk”). Readers should note, however, that at quarter-end Chesapeake had drained 79 percent of its $3.5 billion revolving credit facilities.

Going forward, a debt reduction strategy combined with higher energy prices would considerably reduce the risk for its debt holders. Although aggressive in objective, the stated management goal of a stronger balance sheet with investment grade metrics by at least year-end 2010, including a key agency metric of long-term debt to proved reserves (of less than $0.75 per Mcf) is within reach-but will likely require $6.00 per MMBtu NYMEX gas.

Tuesday, September 22, 2009

Natural Gas LNG Plant for China

NEW YORK, Sept. 21 /PRNewswire-Asia/ -- China Natural Gas, Inc. ("China Natural Gas" or the "Company") (Nasdaq: CHNG), a leading provider of compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for industrial, commercial and residential use in Xi'an, China, today announced that it closed the sale of an additional 858,750 shares of common stock at the public offering price of $8.75 per share, pursuant to the over-allotment option exercised in full by the underwriter in connection with its public offering that closed on September 9, 2009.

The exercise of the over-allotment option brings the total number of shares sold by China Natural Guess in this public offering to 6,583,750. The aggregate net proceeds received by the Company totaled approximately $54.7 million, after deducting underwriting discounts and commissions and the Company's roadshow travel expenses but before other expenses.

Roth Capital Partners, LLC acted as the sole book runner for the offering, and Simmons & Company International acted as a co-manager for the offering.

The net proceeds from the offering will be used for the construction of the Company's liquefied natural gas (LNG) facility, the acquisition of eight CNG fueling stations, the purchase of eight CNG trucks to transport CNG and the establishment of a joint venture company with China National Petroleum Corporation Kunlun Natural Gas Co., Ltd., as well as for general working capital purposes.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction. Copies of the prospectus supplement relating to this offering may be obtained from Roth Capital Partners, LLC, Attention: Equity Capital Markets, 24 Corporate Plaza Drive, Newport Beach, CA 92660, by telephone at (949) 720-7194, or via email at .

About China Natural Gas, Inc.

China Natural Gas transports and sells natural gas to vehicular fueling terminals, as well as commercial, industrial and residential customers through its distribution networks in China's Shaanxi and Henan Provinces. The Company owns approximately 120 km of high pressure pipelines and operates 23 CNG fuelling stations in Shaanxi Province and 12 CNG fuelling stations in Henan Province. China Natural Gas' four primary business lines include: (1) the distribution and sale of CNG through Company-owned CNG fuelling stations for hybrid (natural gas/gasoline) powered vehicles; (2) the installation, distribution and sale of piped natural gas to residential, commercial and industrial customers through Company-owned pipelines; (3) the distribution and sale of gasoline through Company-owned CNG fuelling stations for hybrid (natural gas/gasoline) powered vehicles; and (4) the conversion of gasoline -- fueled vehicles to hybrid (natural gas/gasoline) powered vehicles through its auto conversion division.


This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. For example, statements about the future plans and goals of the joint venture with China National Petroleum Corporation Kunlun Natural Gas Co., Ltd. and its prospects are forward looking and subject to risks. China Natural Gas, Inc. may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q and 8-K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in the Company's filings with the U.S. Securities and Exchange Commission, including its registration statements on Forms S-1 and S-3, in each case as amended. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

This release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.

For more information, please contact:

China Natural Gas, Inc.
Jacky Shi, IR Director
Tel: +86-29-8845-4353
Cell: +86-139-9287-9998

ICR, Inc.
Michael Tieu
Tel: +86-10-6599-7960

Monday, September 21, 2009

Natural Gas Rig Count Up Last Week

NEW YORK, Sept 18 (Reuters) - The number of rigs drilling for natural gas in the United States climbed six this week to 705, according to a report on Friday by oil services firm Baker Hughes in Houston.

The U.S. natural gas drilling rig count has gained in eight of the last nine weeks but is still down sharply since peaking above 1,600 in September last year, standing at 884 rigs, or 56 percent, below the same week last year.

During the week ended July 17, the natural gas rig count dipped to 665, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

Tighter access to credit and a 70 percent slide in natural gas prices since last summer to about $3.50 per mmBtu forced many producers to scale back gas drilling operations.

The steep declines in drilling this year have started to slow production and tighten supplies, but most traders agreed it has not been enough yet to offset recession-related cuts in demand, particularly from the industrial sector. (Reporting by Joe Silha; Editing by Lisa Shumaker)

Sunday, September 20, 2009

Natural Gas ETF's from Canada - High Volume Trading

By Asjylyn Loder

Sept. 18 (Bloomberg) -- Two Canadian exchange-traded funds that aim to return double the performance of natural gas, both up and down, have reached record volumes as traders try to profit from the fuel’s volatility.

Volume in the Horizons BetaPro Nymex Natural Gas Bull Plus ETF reached a high on Sept. 16 of 23.6 million shares, and the Horizons BetaPro Nymex Natural Gas Bear Plus ETF set a record yesterday of 16.9 million shares traded.

“Investors could be looking to make up lost ground from the recession, which adds to the appeal of leveraged and inverse funds,” said Tom Lydon, president and chief executive officer at Global Trends Investments in Newport Beach, California. “Investors could be feeling confident about the direction of natural gas and feel secure in ‘doubling down.’”

Volatility in the natural gas market has reached its highest point since September 2006, when hedge fund Amaranth Advisors LLC collapsed because of losses on its natural gas bets.

The volatility has attracted investors hoping to amplify their returns through the leveraged funds, said Adam Felesky, chief executive officer of Toronto-based BetaPro Management Inc., which manages the two Canadian ETFs.

“The increased volatility we’ve seen in natural gas has presented huge potential returns, or losses I guess, for individuals who want that exposure,” Felesky said.

The Bull ETF tries to deliver double the return of the near-month natural gas contract on the New York Mercantile Exchange. The Bear fund seeks daily results that are two times the inverse of the future, rising when gas falls.

Gas Decline

Natural gas on the Nymex has fallen 33 percent this year, while the Bull fund has dropped 85 percent and the Bear fund has risen 78 percent. The funds rebalance daily, compounding their tracking error over time.

Natural gas rose 32 cents, or 9.3 percent, to $3.778 per million British thermal units today on the Nymex.

The C$998 million ($933 million) Bull fund traded 17.2 million shares today, rising 90 Canadian cents, or 6.3 percent, to C$15.12. The Bear fund fell 45 Canadian cents, or 7.2 percent, to C$5.80, with 16.5 million shares changing hands.

The 20-month-old funds have been growing in popularity since early July, when the U.S. Natural Gas Fund, traded under the ticker UNG, ran out of new shares. The Alameda, California- based fund is largest ETF in the fuel.

UNG, which ran out of new shares on July 7, began trading at a premium to its underlying natural gas assets. The premium grew after the fund said on Aug. 12 that it couldn’t issue 1 billion new shares approved by the Securities and Exchange Commission because of tightening position limits on energy speculation.

Alternative Fund

Investors turned to the iPath Dow Jones-UBS Natural Gas Total Return Sub-Index exchange-traded note until Barclays Bank PLC stopped issuing new notes on Aug. 21 because of the tighter position limits from the Commodity Futures Trading Commission. The notes also began trading at a premium.

“People likely started looking for alternatives to UNG,” said Scott Becker, an equity derivatives strategies at Jefferies Group Inc. in New York. The Canadian double-long fund provides “cheap leverage” and “probably benefited from the alternatives trading at a premium,” he said.

The 15-day average volume in the Bull fund more than tripled since the start of July to 16.2 million shares a day, up from an average of 4.94 million shares a day from the launch of the fund in January 2008 through the end of June. Average volume in the Bear fund more than doubled in that time to 9.65 million shares a day from 3.72 million.

Rapid Turnover

Shares in both funds turn over quickly, indicating that most investors are making short-term bets, Felesky said. The implied turnover of the Bull fund is every three days, while shares at the Bear fund are turning over daily, he said.

“Investors should make sure they understand leveraged ETFs, though,” Lydon said in an e-mail yesterday. “Don’t get into them if you don’t know how they work or you could get burned.”

The Financial Industry Regulatory Authority, the largest independent regulator for securities firms in the U.S., and the SEC issued a joint statement in August highlighting the risks leveraged and inverse products posed, including performance that can be unpredictable because of daily compounding.

Leveraged and inverse ETFs are extremely volatile and not well suited to buy-and-hold investors who don’t want to regularly rebalance their investment, said Bradley Kay, an ETF analyst with Morningstar Inc. in Chicago, in an interview yesterday.

“How much risk have you already taken on jumping into a commodity market that’s already volatile?” Kay said. “And you want to throw leverage on top of that? It’s a bit of a recipe for disaster if you’re looking for predictability in your portfolio.”

To contact the reporter on this story: Asjylyn Loder in New York
Last Updated: September 18, 2009 16:48 EDT

Saturday, September 19, 2009

Natural Gas Prices Good Up this Week - 9.18.2009

By CHRIS KAHN (AP) – 8 hours ago

NEW YORK — Natural gas prices have mostly moved in one direction this summer, down, and the vast caverns that hold it are close to reaching capacity. Yet since the beginning of the month prices have spiked 44 percent.

A record number of futures contracts were snapped up this week, most likely because buyers didn't see prices for natural gas getting much cheaper.

The jump in price would certainly be a troubling sign for people who use natural gas to heat their homes, save for the fact that, even with a 28 percent run-up this week, prices are still about a third of they were last year.

It's extremely cheap and no one expects that to change anytime soon.

"It's going to be very good winter for natural gas customers," analyst and trader Stephen Schork said.

Natural gas for October delivery added 32 cents Friday to settle at $3.778 per 1,000 cubic feet on the New York Mercantile Exchange.

All other types of fuel sank. Benchmark crude for October delivery gave up 43 cents to settle at $72.04 a barrel.

Just as oil prices spiked and then leveled off earlier this year, natural gas prices jumped more than 44 percent after sinking to $2.40 per 1,000 cubic feet on Sept. 4.

Investors flooded the market and natural gas futures reached a record 404,450 contracts on Tuesday, according to derivatives market CME Group.

The reason consumers and businesses that use a lot of electricity needn't worry is simple. The supply of natural gas is enormous.

American power plants are using a lot less natural gas because the recession has sapped demand for power. Stockpiles are quickly approaching the limit for what can be stored in underground caverns, and producers may start pushing excess supplies onto the open market.

"Where else will it go? We're not going to be able to put any more gas into the ground," Schork said.

The government said Thursday that there is nearly 3.5 trillion cubic feet of natural gas in storage, 16.4 percent more the five-year average for this time of year.

Analyst Addison Armstrong estimates that if producers keep pumping more gas into storage, the country's stockpiles will surpass the previous record of 3.545 trillion cubic feet in the next seven weeks.

It's not just natural gas, either.

The Energy Information Administration said Wednesday that the country is sitting on a sea of distillate fuels including heating oil, with stockpiles approaching a 27-year high. U.S. crude stockpiles are 14 percent larger than last year.

Other than natural gas, prices on Nymex sank to end the week.

Gasoline for October delivery slipped 1.88 cents to settle at $1.8324 a gallon, and heating oil fell 1.3 cents to settle at $1.8279 a gallon.

At the pump, retail gas prices were unchanged at $2.55 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 7.8 cents cheaper than last month and $1.285 cheaper than a year ago.

In London, Brent crude fell 23 cents to settle at $71.55 on the ICE Futures exchange.

Associated Press writers Pablo Gorondi in Budapest, Hungary and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.

Copyright © 2009 The Associated Press. All rights reserved.

Friday, September 18, 2009

Natural Gas Boys to Spend Money in Washington D.C.

By DAVE MICHAELS / The Dallas Morning News

WASHINGTON – Natural gas producers are planning a major lobbying effort to shape climate change legislation in the Senate, aiming for incentives to boost the use of their resource in power plants and vehicles.

The aggressive push is meant to make up for the gas lobby's relative absence from climate-change negotiations in the House, where a bill that passed in June reserved most goodies for coal-burning utilities and manufacturers seeking incentives to shield them from the cost of reducing greenhouse gas emissions.

"It's only when legislation is introduced that changes it from a level playing field to an unlevel playing field that we say, 'Wait a minute, you are rewarding those fuels that are less clean than natural gas,' " said Larry Nichols, chief executive of Oklahoma City-based Devon Energy.

For many of the companies, Washington's preference for coal couldn't come at a worse time. After several years of high prices and massive new discoveries such as North Texas' Barnett Shale, the price of gas has fallen to a seven-year low.

A supply glut is partly to blame. So gas kingpins like Dallas' T. Boone Pickens have asked Congress to underwrite new uses for natural gas, including a program to convert trucking fleets from diesel to natural gas.

Other gas producers are also touting the fuel's green credentials, since it emits 50 percent less carbon dioxide than coal. They emphasize that new fields are near East Coast cities – trying to break the view that gas is found only in Texas and Louisiana – and echo Pickens' argument that domestically produced gas could help reduce oil imports.

The gas lobby's new outfit, the America's Natural Gas Alliance, plans an $80 million campaign to tout its aims with ads in national and regional publications. The group is united in opposition to new oil and gas taxes proposed by the Obama administration, as well as a House bill that would federally regulate hydraulic fracturing – the water-and-chemical-infused drilling method used to produce most gas in the U.S.

They're also winning some allies in the environmental lobby. The Sierra Club, for instance, agrees that natural gas could be a bridge fuel as power plants reduce their use of coal. On Thursday, Sierra Club executive director Carl Pope lobbied Capitol Hill along with Aubrey McClendon, chairman and chief executive of Chesapeake Energy, one of the biggest players in the Barnett Shale.

"Basically, the House promised coal that it will get a shot at the future by investing heavily" in clean coal, said Dave Hamilton, director of global warming and energy programs for the Sierra Club. "The problem is by not inserting incentives for fuel switching, they are just passing on what are millions and millions of tons of quick carbon dioxide reductions."

The gas lobby wants senators to create a "bridge fuel credit," which would reward utilities that switch from coal to natural gas.

Fuel switching raises concerns in Texas, where gas price volatility has wreaked havoc with consumers' electric bills. The gas producers say today's huge reserves mean that gas won't be in short supply anytime soon, so prices are likely to stay between $5 and $8 per thousand cubic feet.

"Abundance is what will ensure price stability," said David Trice, chairman of Newfield Exploration Co., a Houston-based independent oil and gas producer.

Thursday, September 17, 2009

Natural Gas and Oil Program Ended by Interior Department

Interior ends troubled oil royalty program

By H. JOSEF HEBERT (AP) – 5 hours ago

WASHINGTON — The Interior Department said Wednesday it is ending a controversial program that allows companies to give the government in-kind payments instead of cash for oil and natural gas taken from federal land and waters.

The royalty-in-kind program has been criticized for lax enforcement that has cost the federal government tens of millions of dollars in royalty payments. It also was at the center last year of a sex and drug scandal involving employees of the office in charge of Interior's offshore energy leasing program.

Interior Secretary Ken Salazar said the program "has been a blemish on the department" and has "created problems and ethical lapses" among those who managed it.

"It's time for us to end the royalty-in-kind program," Salazar told a House hearing, promising to phase out the program in an orderly manner in favor of cash collections. About half of the more than $12 billion in oil and gas royalties are collected through the in-kind program.

Under the program, instead of cash, companies provide the government a comparably valued amount of oil or gas. Then the government sells the products on the open market.

Ending the in-kind program is the first step in a broader overhaul planned by Salazar of the leasing program.

"Bravo, bravo, bravo," responded Rep. Nick Rahall, D-W.Va., chairman of the Natural Resources Committee and a sharp critic of the leasing program and the way it's been managed. Rahall said a return to cash royalty payments "will end the opportunity for mischief, or the temptation, and perhaps provide a more decent return for the American taxpayer."

Rahall said a General Accounting Office report, to be presented in later testimony, estimated that the federal government may have lost as much as $160 million in royalties from oil and gas taken from offshore waters because of erroneous and missing information provided by oil and gas companies. Another GAO report released this week said the government may be owed $21 million — and risks losing millions more — because Interior officials are not adequately verifying how much companies produce from offshore leases.

It was not clear how much of the lost revenue was attributed directly to the in-kind payments.

The government in fiscal 2008 collected more than $12 billion in royalties from oil and gas production in federal coastal waters, mostly in the western Gulf of Mexico, of which $6.6 billion came through the royalty-in-kind program, according to the General Accounting Office. The Interior Department had somewhat lower numbers for the in-kind program, but does not include oil that is collected, but goes directly to the government's Strategic Petroleum Reserve.

The oil industry has favored the in-kind approach, which was significantly expanded during the Bush administration.

"The program is an effective means of ensuring that the American people receive fair compensation for development of federal resources," said Jack Gerard, president of the American Petroleum Institute, which represents the large oil companies.

"Terminating this straightforward method of handling royalty payments runs the risk of raising administrative costs and adding additional layers of paperwork required to determine the value of oil and gas production," Gerard said in a statement.

Copyright © 2009 The Associated Press. All rights reserved.

Wednesday, September 16, 2009

Natural Gas Prices Rise Again


NEW YORK -- Natural-gas futures soared Monday, driven by predictions the market has reached a floor as the winter heating season approaches.
Natural gas for October delivery on the New York Mercantile Exchange settled 33.7 cents, or 11%, higher at $3.297 a million British thermal units after reaching a high of $3.375 earlier in the day.

Gas traders, who have been betting heavily on falling prices over the past several months, have rushed to buy back previously sold contracts after the market fell to a 7½-year low in early September. Spurts of bargain buying have often been followed by selloffs the following day, causing wild price fluctuations, as when gas for October delivery fell 9% Friday after rallying 15% the previous day.

"We're rebounding off of Friday's price decline," said Pax Saunders, an analyst with Gelber & Associates, a Houston energy-advisory firm. "I think the market's now stalling here and looking for its next meaningful peak."

Traders have been trying to gauge whether an oversupply of the fuel and tepid demand will continue to depress prices, or whether a cold winter, drilling cutbacks and hints of economic recovery will send prices rallying in the coming months.

Gas prices often rise in September as traders look ahead to the winter, when demand for the fuel used to heat homes and businesses rises. Still, the front-month Nymex futures contract is down 55% from a year ago, and total gas in U.S. inventories as of Sept. 4 stood at 3.392 trillion cubic feet, about 17% higher than the five-year average and the year-earlier level.

Meanwhile, moderate temperatures as fall arrives are likely to limit demand for gas, adding to the glut. Meteorologists were predicting mostly normal temperatures across the eastern two-thirds of the U.S. through Oct. 14.

"With weather conditions still moderate around the country and industrial demand still severely constricted, prices will not be able to rally too far in the near term," wrote Mike Fitzpatrick, a broker with MF Global in New York, in a note to clients Monday.

In other commodity markets

SUGAR: Prices rose, supported by speculative buying as the market moved above an important technical chart level. Nearby October ICE Futures U.S. sugar rose 0.85 cent to 22.06 cents a pound.

COFFEE: Prices hit a four-week high, as roasters bought following recent price weakness. ICE December coffee rose 6.45 cents to $1.3310 a pound.

Write to Christine Buurma at
Printed in The Wall Street Journal, page C8

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit

Tuesday, September 15, 2009

Natural Gas Price on September 14, 2009 is UP at $3.29/mcf

By DIRK LAMMERS (AP) – 4 hours ago

Natural gas demonstrated again how much it has split from the direction of crude, as prices spiked more than 13 percent despite an enormous glut in supply.

Crude prices fell for the second straight trading day.

Analysts at Goldman Sachs said prices for natural gas may even triple over the winter, though most energy experts believe there is a far greater chance that prices will plunge again.

There are two big factors that support the latter view, which would mean extremely cheap heating bills for a lot of people over the next few months.

The first is that natural gas in storage is 17 percent greater than it was last year and has even neared the maximum storage capacity in some places. And the U.S Energy Information Administration said in its short-term energy outlook that it expects another 12 percent buildup through October.

At the same time meteorologists predict a very mild winter for most of the country. With demand already way down from industrial utility customers, the U.S. has an enormous amount of unused natural gas.

Natural gas prices settled 33.7 cents higher at $3.297 per 1,000 cubic feet.

Meanwhile, managers of the United States Natural Gas fund, an exchange-traded fund that tracks natural gas prices, said it will again offer shares before the end of the month. The fund allows any investor to buy shares, which UNG uses to buy natural gas contracts on Nymex and the ICE Futures exchange.

UNG shares have been selling at a premium because they are in short supply. The fund over the summer sought permission from the Securities and Exchange Commission to offer another billion units.

Contrary to how they have traded in the past, natural gas and crude futures have taken divergent paths throughout the year, and that was true again on Monday.

Benchmark crude for October delivery fell 43 cents to settle at $68.86 a barrel. On Friday, the contract tumbled $2.65 to settle at $69.29.

A lot of pressure has been placed on the dollar-based crude because the dollar has rebounded in recent days. Still, prices have doubled from earlier this year during what may have been the depth of the recession.

A lot of experts believe that optimism is premature on both counts because crude now held in in storage, like natural gas, remains at very high levels.

"At some point hope has to become a reality or prices will have to adjust accordingly," said PFGBest analyst Phil Flynn.

At the pump, the average price for a gallon of regular gasoline fell a tenth of a cent to $2.572, according to auto club AAA, Wright Express and Oil Price Information Service. That's 7.3 cents more than a month ago, but $1.22 less than at this time last year.

Gasoline for October delivery on the Nymex fell 1.65 cents to settle at $1.7433 a gallon.

Prices have most certainly peaked for most motorists this year, barring some disruption in the Gulf of Mexico.

"The 'driving season' is over ... and supplies are greater today than in May," analyst and trader Stephen Schork wrote in his morning report.

In other Nymex trading, heating oil for October delivery rose 1.14 cents to settle at $1.7422 a gallon.

In London, Brent crude fell 13 cents to $67.56 on the ICE Futures exchange.

Associated Press Writers Pablo Gorondi in Budapest, Hungary, Alex Kennedy in Singapore and Stephen Bernard in New York contributed to this report.

Copyright © 2009 The Associated Press. All rights reserved.

Monday, September 14, 2009

Natural Gas Project for Chevron in Australia
Andrew S. Ross
Sunday, September 13, 2009

Even by its own standards, Chevron Corp.'s latest deal is big. And it has nothing to do with crude oil. The San Ramon company is about to officially sign off on a contract involving 40 trillion cubic feet of natural gas to be tapped in Australia and shipped in super-cool, liquid form to burgeoning energy markets in China and elsewhere

"On a capital basis, it will be our largest project ever," said a Chevron spokesman. He would not put a dollar amount on the investment in Australia's vast Gorgon field, but estimates put the total cost, shared with ExxonMobil and Royal Dutch Shell, Chevron's minority partners in the project, at $40 billion.

The payoff is likely to be enormous. Australian Prime Minister Kevin Rudd said the liquefied natural gas sales from the Gorgon field could total $249 billion over 20 years. Japan and South Korea have committed to buying $60 billion worth of the fuel from Chevron once the gas starts pumping in 2014.

A Chinese energy company already struck a $41 billion deal with ExxonMobil, which like Royal Dutch Shell has a 25 percent stake in the project. Expect more such agreements to be announced in the coming weeks.

The project ( has passed muster with the environmentally conscious Australian government. Lloyd Avram, a Chevron spokesman, said the project "underwent a rigorous environmental assessment" that resulted in "stringent conditions." Among Chevron's initiatives are plans to build a giant carbon dioxide injection facility in the area, and special lighting technologies to protect flatback turtles on Barrow Island, a protected nature reserve, where the gas is to be processed.

"Gorgon is a key part of Chevron's future," said Avram. "The project feeds long-term demand for natural gas in the growing Asia-Pacific region. It also highlights the importance of Australia to Chevron's gas strategy, commercializing our equity gas resource base to grow a global gas business."

"It transforms Chevron's portfolio," was the way Robin West, CEO of PFC Energy Inc., a global energy consultancy, put it to the Financial Times.

Reading material: Looking for something to commemorate "Lehman weekend," the first anniversary of the Lehman Bros. collapse and the ensuing worldwide crash? Check out "A Colossal Failure of Common Sense," by Lawrence McDonald, a former Lehman VP who was present at the destruction. It's a real page-turner.

Apart from Lehman's own astounding follies, there are lots of local contributors to McDonald's bird's-eye view of the madness. They include the city of Stockton, pioneer of the "NINJA" mortgage ("no income, no job, no assets"), San Jose's Calpine Corp., a prime example of a "crazily overleveraged U.S. corporation" with its "now-you-see-it-now-you-don't-balance sheet," and former S.F. Supervisor Roberta Achtenberg, who as an assistant secretary at HUD pushed banks to provide what turned out to be disastrous mortgages to low-income and minority borrowers.

McDonald's biggest villains are former Lehman CEO Richard Fuld and his toady, the firm's president, Joe Gregory, both of whom give whole new meanings to the word hubris, not to mention "dumb and dumber," as they allowed, nay encouraged, Lehman to compile "almost three quarters of a trillion dollars of pure, unadulterated risk." That brought Lehman, plus Wall Street and much of the financial world, down, in his view.

"It never should have happened," McDonald concludes. If you want to get some insight into why it did, his book is one worthy avenue.

Mark your calendars: Two for Tuesday.

-- A "ChinaBio Day" conference. An offshoot of the city's ChinaSF program, the all-day conference is designed, say its organizers, to facilitate "collaborations and partnerships among biotech decision-makers from the U.S. and China." The conference precedes the three-day BioPharm America 2009 gathering that opens Wednesday. Both take place at the San Francisco Marriott. Registration, speakers, agendas and other details at

-- "Hopenhagen." A ad agency-led campaign to support a proposed climate-change treaty in Copenhagen is the topic at San Francisco's Commonwealth Club. Adam Werbach, CEO of Saatchi and Saatchi S, and Seth Farbman, managing director of Ogilvy & Mather, are among the speakers. Details at

Really? "Recession Takes Toll on Living Standards" - Headline in Friday's Wall Street Journal.

Tweeting at Blogging at columns/ bottomline. Tips, feedback: E-mail

Read more:

Sunday, September 13, 2009

Natural Gas Short Selling High All Times
By Jeff Kearns

Sept. 11 (Bloomberg) -- Short sellers bet against the U.S. Natural Gas Fund in record numbers last month as prices for the fuel plunged to the lowest level since 2002 and the fund quit issuing new shares.

Short interest for the exchange-traded fund tracking gas futures surged 135 percent to 30.9 million shares in the two- week period ended Aug. 31, according to data compiled by the New York Stock Exchange. The fund, known by its UNG ticker symbol, slipped 5.3 percent to $10.59 in New York, extending its retreat to 54 percent this year.

UNG has been trading at a premium to its underlying natural gas assets since Aug. 12, when it announced that it couldn’t issue new shares because of limits on how many natural gas contracts it can buy. Today, shares cost 15 percent more than the value of the fund’s gas contracts.

“Due to the lofty premium it makes sense that investors would prefer using futures directly instead of the ETF,” said Scott Becker, an equity derivatives strategist at Jefferies Group Inc. in New York. “As the premium on the UNG expands it becomes increasingly less attractive as a vehicle for investing in natural gas.”

Natural gas futures dropped 47 percent from the start of the year through the end of August as the worst economic slowdown since the Great Depression cut demand for the factory and power-plant fuel, sending stockpiles toward a record high. Prices have advanced 0.6 percent so far this month and 21 percent since touching a seven-year low of $2.409 on Sept. 4.

Gas futures for October delivery plunged the most since May, losing 29.6 cents, or 9.1 percent, to $2.96 per million British thermal units at the 2:55 p.m. settlement of floor trading on the New York Mercantile Exchange.

In a short sale, investors sell borrowed securities and agree to buy and return them to the shareholder later, profiting from any drop in the stock.

To contact the reporter on this story: Jeff Kearns in New York at
Last Updated: September 11, 2009 16:54 EDT

Thursday, September 10, 2009

Canadian Banks Positive as Natural Gas Prices Rise

By Matt Walcoff

Sept. 10 (Bloomberg) -- Canadian stocks rose, led by energy companies, as the Bank of Canada said growth in the second half of 2009 may be stronger than earlier projected and natural gas prices climbed for a fourth day.

Royal Bank of Canada and Bank of Nova Scotia advanced after the central bank kept its key interest rate at a record low. Magna International Inc., Canada’s largest auto-parts company, gained 3.5 percent after winning the battle for General Motors Co.’s Opel unit. Suncor Energy Inc., Canada’s biggest energy company, gained 3.1 percent as natural gas rallied.

The Standard & Poor’s/TSX Composite Index rose 103.17 points, or 0.9 percent, to 11,103.34 at 12:10 p.m. in Toronto. The benchmark index has surged 47 percent since March 9 as commodity prices have rebounded on economic data showing the global recession is easing.

“The comments by the Bank of Canada this morning seem to underscore the fact that the recovery is in place, and they’re fighting now on how quick it’s going to be,” said Rick Hutcheon, chief investment officer of RKH Financial in Toronto. Even central bankers “are taken aback by the pace at which the economy seems to be expanding,” he said.

The Bank of Canada kept its key interest rate at a record- low 0.25 percent. The central bank said information on inventory adjustments and automotive production suggests economic growth in the second half of the year may surpass the bank’s July projection of 1.3 percent on an annualized basis. Royal Bank gained 0.4 percent to C$56.11. Bank of Nova Scotia climbed 1.6 percent to $44.57.

GM Board’s Selection

Magna added 3.5 percent to C$49. GM’s board selected Magna as the lead buyer of a 55 percent stake in Opel, GM’s European- based unit. Magna had been competing with RHJ International SA of Belgium for the car line. German Chancellor Angela Merkel had backed Magna’s bid on hopes the Aurora, Ontario, company would help save most of the Opel jobs in Germany.

Natural gas futures rebounded from early declines after the Energy Department said U.S. stockpiles rose less than forecast last week. Natural gas for October delivery rose 6.5 cents, or 2.3 percent, to $2.894 per million British thermal units on the New York Mercantile Exchange.

Suncor, which completed the purchase of Petro-Canada last month, rose 3.1 percent to C$35.85. Encana Corp., the world’s largest natural-gas producer, gained 1.4 percent to C$58.63. Its leading rival, Canadian Natural Resources Ltd., added 1.7 percent to C$67.36.

Raw-Materials Producers Rise

All 10 industries on the S&P/TSX advanced, led by a 1.6 percent jump in raw-materials producers.

With gold prices fluctuating, the largest bullion producers, Goldcorp Inc. and Barrick Gold Corp. rallied at least 2.1 percent. Silver Standard Resources Inc. gained 4.3 percent to C$23.56 as silver for December delivery rose 0.3 percent in New York.

BlackBerry-maker Research In Motion Ltd., Canada’s largest technology company, advanced 0.9 percent to C$85.07. Texas Instruments Inc. increased its third-quarter sales and profit forecasts because of improving demand for chips used in some industrial applications, computers and consumer electronics.

Transat A.T. Inc., Canada’s biggest tour operator and the owner of airline Air Transat, led S&P/TSX stocks with a 6.6 percent gain to C$13.65. The Montreal-based company reported third-quarter earnings of 20 cents a share, excluding certain items, more than doubling the average estimate of analysts surveyed by Bloomberg. Fellow carrier WestJet Airlines Ltd. plunged 4.8 percent to C$11.14 after saying yesterday that it will raise about $150 million in a share sale.

To contact the reporter on this story: Matt Walcoff in Toronto at

Environmentalists Protesting about Natural Gas in Pennsylvania

By Jon Hurdle

PHILADELPHIA, Sept 9 (Reuters) - Environmentalists accused Pennsylvania regulators of failing to protect public lands from damage by energy companies drilling for natural gas in the massive Marcellus Shale formation.

It is the latest potential environmental obstacle to the development of the Marcellus Shale, a reserve estimated to contain enough natural gas to meet total U.S. needs for at least a decade.

The Chesapeake Bay Foundation filed an appeal on Wednesday with the state's Environmental Hearing Board, claiming that the state Department of Environmental Protection did not properly assess the impact of erosion caused by Fortuna Energy Inc drilling in state forests in Tioga County, northern Pennsylvania.

Tom Rathbun, a DEP spokesman, said the department does not comment on pending litigation.

A spokeswoman for Fortuna's parent company, Talisman Energy Inc (TLM.TO) of Calgary, Canada, said the company was surprised by the foundation's appeal and that Fortuna meets or exceeds all government regulations in all of its operations.

"Environmental stewardship is an absolute top priority for us. Our environmental record since our inception in 2002 is something we've always been very proud of," spokeswoman Phoebe Buckland said.

The DEP issued a permit in March for the project under a new expedited applications process that failed to meet legal requirements for a study of the effect of drilling on erosion and sediment control, the foundation said.

The appeal, filed on Tuesday, is the first legal challenge to the DEP's regulation of the Marcellus Shale, and is likely to set a precedent, whatever the outcome, said Matt Royer, an attorney for the Chesapeake Bay Foundation.

The move follows criticism by drilling opponents the DEP is failing to adequately protect public and private lands from suspected water contamination and other environmental damage by energy companies developing the Marcellus Shale.

Some rural communities have also accused natural gas companies of polluting ground water during the process of drilling into the shale. The industry argues that its safeguards prevent any escape of toxic chemicals into water supplies.

"The DEP is rubber-stamping permit applications without any formal review whatsoever," Royer told a conference call with reporters. "Our state environmental protection agency is not doing what it should do to protect our environment."

The foundation argues that restraints on drilling companies were weakened when the DEP told county conservation districts in March that they no longer had authority to review permit applications for erosion and sediment control. They are urging the agency to restore the local oversight of drilling applications.

The DEP's new policies violate environmental laws including the federal Clean Water Act, the appeal alleges. (Editing by Daniel Trotta and Philip Barbara)

Wednesday, September 9, 2009

China Naturl Gas Speaking in New York City

China Natural Gas to Present at Rodman & Renshaw Annual Global Investment

NEW YORK, Sept. 8 /PRNewswire-Asia/ -- China Natural Gas, Inc. ("China
Natural Gas" or the "Company") (Nasdaq: CHNG), a leading provider of
compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for
industrial, commercial and residential use in Xi'an, China, today announced
that the Company will attend the Rodman & Renshaw Annual Global Investment
The Rodman & Renshaw Annual Global Investment Conference is being held
from Wednesday, September 9, 2009, through Friday, September 11, 2009, at the
New York Palace Hotel in New York, NY. Management is currently scheduled to
meet with institutional investors and to present at 3:15 p.m. ET on September
10, 2009. A webcasting of the presentation will be available at .
For more information regarding the conference, please contact your Rodman
& Renshaw sales representative.
About China Natural Gas, Inc.
The Company transports, distributes and sells natural gas to commercial,
industrial and residential customers through its natural gas pipeline networks
in China'sXi'an area, including Lantian County and the districts of Lintong
and Baqiao, in Shaanxi Province. The Company owns approximately 120 km of
high-pressure pipelines in Xi'an, Shaanxi Province and, as of June 30, 2009,
operates 23 CNG fuelling stations in Shaanxi Province and 12 CNG fuelling
stations in Henan Province.
The Company's four primary business lines include: (1) the distribution
and sale of CNG through Company-owned/leased CNG fuelling stations for hybrid
(natural gas/gasoline) powered vehicles; (2) the installation, distribution
and sale of piped natural gas to residential, commercial and industrial
customers through Company-owned pipelines; (3) the distribution and sale of
gasoline through Company-owned/leased CNG fuelling stations for hybrid
(natural gas/gasoline) powered vehicles; and (4) the conversion of
gasoline-fuelled vehicles to hybrid (natural gas/gasoline) powered vehicles
through its auto conversion division.
This press release includes statements that may constitute forward-looking
statements made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
be identified by terminology such as "will," "expects," "anticipates,"
"future," "intends," "plans," "believes," "estimates" and similar statements.
China Natural Gas, Inc. may also make written or oral forward-looking
statements in its periodic reports to the U.S. Securities and Exchange
Commission on forms 10-K, 10-Q and 8-K, in its annual report to shareholders,
in press releases and other written materials and in oral statements made by
its officers, directors or employees to third parties. Statements that are not
historical facts, including statements about the Company's beliefs and
expectations, are forward-looking statements. Forward-looking statements
involve inherent risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. A number of important
factors could cause actual results to differ materially from those contained
in any forward-looking statement. Potential risks and uncertainties include,
but are not limited to, risks outlined in the Company's filings with the U.S.
Securities and Exchange Commission, including its registration statements on
Forms S-1 and S-3, in each case as amended. The Company does not undertake any
obligation to update any forward-looking statement, except as required under
applicable law.
This release is not an offer of securities for sale in the United States.
Securities may not be offered or sold in the United States absent registration
or an exemption from registration. Any public offering of securities to be
made in the United States will be made by means of a prospectus that may be
obtained from the issuer or selling security holder and that will contain
detailed information about the company and management, as well as financial
For more information, please contact:

China Natural Gas Inc.

Kewa Luo
Tel: +1-212-401-1233
Cell: +1-917-880-8726

Jacky Shi
Tel: +86-29-88454353
Cell: +86-139-9287-9998


ICR, Inc.
Michael Tieu
Tel: +86-10-6599-7960

SOURCE China Natural Gas, Inc.

China Natural Gas Inc. - U.S.: Kewa Luo, +1-212-401-1233 (Tel), or
+1-917-880-8726 (Cell), or CHINA: Jacky Shi, +86-29-88454353 (Tel), or
+86-139-9287-9998 (Cell); or; ICR, Inc. - Michael
Tieu, +86-10-6599-7960, or

Tuesday, September 8, 2009

Gazprom Prepays Ukraine for Natural Gas Transit Through March 2010

By Anna Shiryaevskaya and Lyubov Pronina

Sept. 7 (Bloomberg) -- OAO Gazprom must reject any requests from Ukraine for advance payment of natural-gas transit fees after already prepaying more than $2.2 billion, Russian President Dmitry Medvedev said.

Russia’s gas-export monopoly must uphold its transit agreement with Ukrainian state energy company NAK Naftogaz Ukrainy, Medvedev told Gazprom Chief Executive Officer Alexei Miller at a meeting today, after the CEO confirmed that the accord doesn’t call for advance payment.

“We should act in accordance with the obligations the sides assumed,” Medvedev said, according to a transcript of the meeting published on the president’s Web site. “These are not the easiest times.”

Russia, which supplies a quarter of the European Union’s gas, ships 80 percent of that through neighboring Ukraine. The countries signed a gas-supply and transit contract in January, ending a spat over debt and fees that had disrupted deliveries to Europe for the second time in three years.

Gazprom has paid Ukraine in advance to ensure gas transit this year and up until the second quarter of 2010, Miller told Medvedev.

“I don’t think this is a conflict,” Pavel Sorokin, an analyst at UniCredit SpA in Moscow, said today by telephone. “They are negotiating. Ukraine is interested in keeping its gas-transit role.”

Under the January accord, the countries agreed to keep Russia’s transit fees unchanged this year and subsequently raise them to European levels, along with the price Ukraine pays for Russian gas.

Gazprom expects the average 2010 transit fee to be $2.56 to $2.70 for 1,000 cubic meters of gas transported over 100 kilometers (62 miles), company spokesman Sergei Kupriyanov said by telephone. That’s an increase of as much as 58 percent from this year.

To contact the reporters on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.netLyubov Pronina in Ulan Bator at

Last Updated: September 7, 2009 11:09 EDT

Natural Gas Topic of Conversation Even at $1.88 Spot mmBtu

September 07, 2009

A natural gas analyst said gas production can fuel the world’s needs for years to come, thanks to technological advancements of the past and those coming in the future.

Guntis Moritis, production editor of Oil & Gas Journal, said the vast resources of coalbed methane, shale gas and tight-sand gas worldwide are a hot topic, with experts increasingly debating their economic potential.

Moritis spoke on behalf of PennWell Corp. (the publication’s parent) and Oil & Gas Journal in advance of their Unconventional Gas International Conference & Exhibition, which begins Sept. 29 at the Fort Worth Convention Center. Conference topics are expected to include how to make the leap from North America to the world, the outlook for crude oil, government regulations, future technologies and more.

Gas prices are low, Moritis admitted, but should increase as the gas-consuming winter season gets under way. Gas futures currently trade around $2.50 per million British thermal units, as of publication. That price is far from economic, most producers and analysts agree, but a cold winter season could spike demand and increase the commodity’s price.

In a separate statement, University of North Texas professor Terry Clower, director of the university’s Center for Economic Development and Research, said natural gas companies’ recovery could follow that of the general economy.

“As the economy picks up steam, demand for natural gas will increase and prices should firm up at significantly higher levels,” Clower said in a Sept. 2 statement. “Here’s hoping for a cold, early winter.”

He added job losses in the energy sector, especially in North Texas, will hamper the area’s recovery, even though initially it helped insulate cities from the downturn.

“Thousands of gas-field jobs have disappeared in 2009 as natural gas prices have fallen below $4,” he said. “Unfortunately, this is also sparking layoffs in other sectors of the economy as drillers and gas field service providers slow down operations and spend less for goods and business services.”

Despite the current malaise, shale gas represents one-half of the total unconventional gas resources worldwide, with North America claiming 3,840 trillion cubic feet, according to 2001 estimates, which no doubt will change with new study, Moritis said. Sparked by the success of the Barnett Shale – the first deep shale play, whose interest took off in the mid-1990s – new plays have been found nationwide, with subsequent successes in the Woodford and Fayetteville shales.

“This proved that the Barnett was not the only productive deep shale out there,” Moritis said. New production is taking off in the Haynesville Shale and Marcellus Shale.

“In the past three or four years, shale gas production has seen a sizeable increase,” said Moritis, adding growth has doubled from about 4 billion cubic feet per day to current levels of about 8 billion cubic feet of gas per day coming from shale plays.

Companies continue to explore gas plays abroad, too, in North Africa, South America, Australia, southern Africa, India, Asia and Russia.

Future and developing technologies, such as seismic mapping, and different types of chemicals used to make fracing more effective, will help spur increased gas production.

As for the concern that current estimates of worldwide gas are overblown, Moritis said: “The indications are that there is quite a lot of it, whether it’s all economic to get out is still out there.”

For information on the conference, visit

Monday, September 7, 2009

Natural Gas Lobbying Washington

HOUSTON — The natural gas industry has enjoyed something of a winning streak in recent years. It found gigantic new reserves, low prices are encouraging utilities to substitute gas for coal, and cities are switching to buses fueled by natural gas.

But its luck has run out in Washington, where the industry is having trouble making its case to Congress as it writes an energy bill to tackle global warming.

For all its pronouncements that gas could be used to replace aging, inefficient coal-fired power plants — and reduce greenhouse gas emissions in the process — lawmakers from coal-producing states appear committed to keeping coal as the nation’s primary producer of power.

Those influential lawmakers, from both parties, say that new technologies under development to capture and bury emissions of coal are a better bet than gas for long-term solutions to climate change.

The difference of opinion is about more than what is best for the environment, of course. Industry profits are riding on the outcome of the discussion — a rich mix of politics, environment, science and business.

A climate-change bill that passed the House in June, intended to cap greenhouse gas emissions, delivered benefits to renewable fuels like wind and solar and strengthened building codes to conserve energy.

But the cost of emitting carbon dioxide emissions under the terms of the bill remained at levels that would continue to provide a price advantage for coal in many regions of the country.

The Senate is planning to begin writing its own bill later this month.

“The Senate is more open to natural gas as a transition fuel than the House was,” said Senator Charles E. Schumer, Democrat of New York, “but the senators from the coal states who are crucial votes are going to want first consideration for coal.”

The gas industry’s leaders say they will descend on Capitol Hill in coming weeks to press their case about the advantage of gas, including that it emits about half the greenhouse gases as coal.

The industry has formed a new lobbying group, and it is planning a national campaign that includes television advertising. Executives want fewer allowances for coal. They also want legislation that gives incentives for companies to convert truck fleets from diesel to natural gas.

“Never in my life have I been confronted with something so obviously easy and good to do and have such Congressional apathy,” said Aubrey McClendon, chief executive of Chesapeake Energy and a leading voice in the industry. He added that he was still hopeful the Senate can improve the House bill.

But the coal industry will also be active. Vic Svec, a senior vice president at Peabody Energy, a large coal company, said coal was still a better fuel because its price is more stable than gas.

“Coal with carbon capture and storage is the low cost, low carbon solution and has fantastic implications for the nation’s energy security,” he said.

But it is not only coal-industry lobbyists and their Congressional supporters who favor the concept of carbon sequestration. David Hawkins, a climate change expert at the Natural Resources Defense Council, said simply replacing coal with natural gas for power generation was “not a viable strategy” because that would merely delay climate change by a few decades.

“A coal plant with carbon capture and storage is a cleaner plant than an uncontrolled natural gas plant,” he said.

Natural gas gets some benefits from the House bill, which includes a cap-and-trade system that sets limits on emissions of greenhouse gases while requiring manufacturers and utilities to acquire pollution permits.

Utilities that burn natural gas would earn $30 billion over 10 years in pollution credits that could be sold on the carbon-trading market. But utilities that burn coal will receive tens of billions of dollars worth of free pollution credits, savings that will be passed on to consumers but may serve to delay the closing of some coal plants.

The House bill also offers $10 billion for research and development of techniques to capture and store carbon dioxide emissions, which would help keep some coal plants open that might otherwise close.

The Environmental Protection Agency projects that if the House bill became law, electricity generation from gas would increase by less than 1 percent from 2015 to 2025, while generation from coal would remain nearly unchanged.

There will be more use of renewables, but power generation as a whole is expected to decline because of conservation efforts, including tightening of building energy codes.

“By allowing free emission allowances to maintain coal production from existing coal plants, while providing mandates that there be more wind and solar, you squeeze gas out in the middle,” said William F. Whitsitt, an executive vice president at Devon Energy, a major natural gas producer.

Without any new legislation, and if current policies remain in place, gas would beat out coal by a far larger margin, according to E.P.A. projections.

There would be nearly 30 percent more power generated by gas by 2025 than in 2015, while coal fired generation would grow by a more modest 7 percent.

Many legislators believe that carbon capture and sequestration — a largely untested system that would bury carbon at power plants so it does not escape into the atmosphere — can be made to work.

Developing the technology was particularly important for any global solution to climate change, since China and India depend on coal for their energy and growing economies, said Paul W. Bledsoe, director of communications and strategy at the National Commission on Energy Policy, a bipartisan research organization.

Currently, coal provides almost half the electrical power in the United States while natural gas provides more than 20 percent.

Proponents of natural gas say they can deliver immediate reductions in greenhouse gases, an advantage that should not be discarded for an untested technology.

Senate officials and energy officials say it will be difficult to develop legislation that benefits both the gas and coal industries and reduces greenhouse gases.

Gas executives say their day in Washington will come, especially as more jobs are produced in gas fields that now stretch across 32 states.

“The politics of natural gas are going to change dramatically,” predicted Rodney Lowman, president of the American Natural Gas Alliance, the new gas lobby group. But, he added, “it won’t be overnight.”

Sunday, September 6, 2009

Natural Gas Profits for Company and 15% for Land Owners

Aug 16, 2009 (The Dominion Post - McClatchy-Tribune Information Services via COMTEX) -- JFFHF | Quote | Chart | News | PowerRating -- Bob Richmond's 505 acres slope away from his back porch, then crest and dive back into each other. They sprawl before the foot of the house that Col. John Fairfax built in 1818. It's all Richmond's now: the four stately walls of gray stone block, the garden (which the rabbits won't vacate even as you approach) and the green, rolling hills of Preston County, a couple miles east of Kingwood.

"Look at the turkeys out in the field," Richmond says, pointing 700 yards off to a grassy hilltop. Five or six of them strut about, blurred by distance.

Beyond them, a taller, tree-covered ridge conceals the Cheat River Valley. Richmond owns a portion of the bank, but "only a mile and a half," he says with a sarcastic grin, as if to say: "How much beautiful riverbank do you own ?"

It would take a lot to convince Richmond to let an energy company bulldoze part of it and suck the natural gas out of that land. He didn't allow it for $50 an acre. And when they offered him $100 an acre, he still refused.

Of course he refused, he says. They gave him a raw deal because they thought they could get away with it.

"I told them, I said, 'I'm just a simple hillbilly,' " Richmond says with that same sarcastic grin. " 'I don't understand these things.' "

The landmen who came to him in late 2007 couldn't have known that he's anything but a simple hillbilly.

As a diplomat for the State Department, Richmond maneuvered economic development in Vietnam during the war. He helped Mobil (it hadn't yet merged with Exxon) get the rights to a still-producing well off the coast of Southeast Asia.

He worked with Haitians to arrange a lease with a Colorado energy company that "drilled five wells dry as a bone."

For 30 years he did that sort of thing.

Then he started getting letters from landmen, people hired by oil and gas companies to negotiate leases on mineral rights.

Landmen from Mason Dixon Energy Inc., on behalf of Marathon Oil, wanted to lease his mineral rights for a price Richmond didn't think was fair. He says his land is worth more like $3,000 an acre and that he should get at least 20 percent of all the profits for selling the gas underneath it, not the state minimum 12.5 percent royalties they wanted to give him.

"I knew they were trying to screw me," he says.

One woman in Star City, who didn't want her name published to protect her privacy, says she inherited 121 acres of mineral rights in Monongalia County. Soon a landman representing Dominion Energy came to her door and told her not to pass up a $5-an-acre lease and 12.5 percent royalties.

She signed the contract, collected the few hundred dollars for the lease and waited to get rich. That was five years ago, and no one's drilled a single well. The lease didn't say they had to, and with gas prices so low, it hasn't been profitable to drill.

Dominion Energy renewed the five-year lease on her mineral rights once it expired. The language in the lease allows them to continue renewing as many times as they want.

There are stories like that all over the Marcellus Shale target area: north-central West Virginia and southwest Pennsylvania. The friend down the road who got $5. The guy who took a subpar contract because he owed the hospital. The landman who told the neighbors Bob Richmond had signed his lease (Richmond has never signed a lease), and you should, too.

It's all just hearsay. But then there's a lot of hearsay -- and misinformation -- floating around these hills.

All eyes on Appalachia

Four hundred million years ago, a fish died and sank to the bottom of the ocean.

It decayed and left its carbon in the earth. As Europe and Africa collided with the Eastern Seaboard, creating the Appalachian Mountains, the carbon from that fish was bonding with hydrogen, creating methane and other hydrocarbons, the chief ingredients of natural gas.

Those hydrocarbons stuck in the sediments that were being packed together under tremendous pressure a mile and a half underground. That layer of sedimentary rock became the Marcellus Shale, and the fuel from that fish is still trapped in its pores.

Until the late 1990s, there wasn't any way to extract enough of that trapped gas to make drilling worthwhile. Then, new technology came into use in other shales around the country.

They used hydraulic fracturing, blasting apart hard rock and sucking up large amounts of natural gas. And they dug horizontal wells, drilling down to the shale and then horizontally along it to cover more ground and multiply production. People started looking at the Marcellus Shale.

Energy companies began paying attention to the Appalachian region like they had been paying attention to Fort Worth, Texas, site of the Barnett Shale, and to rural Arkansas
, north of Little Rock, where the Fayetteville Shale lies.

Chesapeake Energy snatched up roughly 1.45 million acres of leasehold in the Marcellus Shale including large chunks of Monongalia, Preston and Marion counties. It controls more of the Marcellus Shale than any other company.

"The Marcellus Shale may ultimately become the largest natural gas field in the U.S.," Chesapeake wrote to investors in an August presentation.

Look at it by the numbers: A gas well in the Marcellus Shale can be expected to produce 4.2 billion cubic feet (bcf) of natural gas in its life, second among the "Big 4" shales, according to Chesapeake figures.

The Haynesville Shale, in east Texas and north Louisiana averages 6.5 bcf per well, the Barnett Shale averages 2.65 bcf and the Fayetteville Shale averages 2.4 bcf.

But Chesapeake doesn't pay the same royalties to mineral rights owners from each region.

In Fort Worth, where the Barnett Shale won't produce as much as the Marcellus, Chesapeake pays, on average, 25 percent royalties on their gas profits. They also pay $12,900 an acre up front.

In Preston County, where the Marcellus Shale may soon be "the largest natural gas field," the average Chesapeake pays in royalties is 15 percent and $610 an acre up front.

And Aubrey Shultz was lucky to get $100 an acre.

'Sitting on a gold mine'

Shultz's house sits on a bald knob two miles outside of Albright. It overlooks his mom's land and the cattle grazing on it. He can even see as far as Coal Lick Road where the spire of a Tenaska drilling rig shoots into the air.

His father died when he was a senior in high school and left his mother and her children with about 220 acres.

He says a landman from Honor Resources Co. came to him in 2007 wanting to lease his land and mineral rights for Chesapeake.

"They were pretty gung-ho, you know, acted like this was going to be the next Texas," Shultz says.

So he signed -- for $30 an acre, "which was the going rate back then."

The going rate, says Vanessa Richter, human resources manager for Mason Dixon Energy, is determined by their clients, the oil and gas companies.

"Our landmen are given an area -- this is the minimum we'll pay; this is the maximum we'll pay," Richter says. "Our landmen will then go out there and negotiate, and if they don't take it for the minimum, then of course, we have a little bit of bargaining room."

Lee Warren, a spokeswoman for Marathon Oil, says the bargaining room they allow is often based on how proven a shale is in producing gas.

"In certain land areas, they know how much gas is there and what it's likely to produce, and it's very well defined based on hundreds and hundreds of wells that have been drilled in that area," she says. Hundreds and hundreds of wells have been drilled in the Barnett Shale. There aren't as many in the Marcellus.

Fortunately for Shultz, there was a mix-up with the deed to the property -- Honor Resources wasn't sure the Shultzes owned the mineral rights. But Shultz was able to prove they did and renegotiated for $100 an acre and 12.5 percent royalties in 2008.

"I think the exploration companies get a bad shake on this," says Darryl Griwatz, vice president of Honor Resources Co. "They didn't know any more than the people out there with large tracts of land what prices were going to go to."

Early on in land acquisition, Marcellus Shale land was plentiful. The market was flooded with cheap acres. As demand increased, so did the price.

"Now I guess $100 an acre is just a drop in a bucket," Shultz says.

Getting what you want

More importantly, in Shultz's new lease, Chesapeake decided to add stipulations about how they could use the surface for its drilling.

The first lease didn't say anything about fencing off the drilling rig to protect his stepfather's cattle. It didn't say anything about correcting any disturbances to the groundwater. It didn't say anything about preventing the company from storing gas in underground formations on the property (essentially keeping the land an active drill site without actually drilling).

"That's something I didn't think about," Shultz says.

The only state legislation on surface owners' rights was enacted in 1983. It requires oil and gas developers to pay for any damages to a property or its water supply and to cover any decrease in the value of the land as a result of the drilling.

Shultz would have been covered by law if his cattle were affected.

But there's a lot the state code doesn't mention.

It doesn't say how far a well must be from a house or how many wells can be drilled in a given space. It doesn't stop the wells from being noisy.

And there's not much oversight from any regulating agency, says Delegate Tim Manchin, D-Marion, about where developers can get the massive amounts of water needed for Marcellus Shale drilling or what to do with it once it's been used.

"People are used to signing consumer contracts, car loans, where almost all the terms are regulated by some law," says David McMahon, cofounder of the West Virginia Surface Owners' Rights Organization. "When it comes to signing a [mineral rights] lease, the only thing regulated by law is that it's got to be notarized."

Griwatz, for Honor Resources, says his company's job isn't out to cheat anyone out of a profitable agreement. In fact, he'd like to make it profitable for everyone.

"Our people do all they can to be fair and honest with property owners even though they're paid by the exploration companies," he says. "When these leases that aren't drilled upon expire, we want to go back and deal with these people again."

Griwatz says his landmen will ask rights owners what concerns they have about the drilling to see if they can address them in the contract. He says his goal is to bring the companies and the landowners to common ground.

Shultz negotiated for the common ground himself and sat back, ready to collect the royalties on his natural gas.

"We were pretty excited that we were sitting on a gold mine," Shultz says.

He doesn't know if he is or not. With the economy in recession, the market for natural gas is in the dumps. Consequently, companies have been reluctant to drill, and Shultz hasn't seen any revenue from his lease.

But as the economy recovers and gas prices return to normal, Marcellus Shale drilling will resume. Warren, of Marathon Oil, says the company is planning some drilling in the region toward the end of the year.

And when they do, Manchin wants West Virginia to be ready.

West Virginia for sale

Bob Richmond taps his forefinger hard on the table in the dining room of "Fairfax Manor."

"The state should protect its citizens," he says in rhythm with the taps.

Sure, he'd sign over his mineral rights if the price was right, he says. But he won't do it through a landman.

McMahon, from the Surface Owners' Rights Organization, says, "If a lawyer is unethical, he loses his license. If a doctor is incompetent, he loses his license. If a CPA cooks the books, he loses his license. But if a landman is unethical, is incompetent and cooks the books, the next day he's still a landman."

Despite the lack of regulation in the industry and disparity between the going rate in the Marcellus versus other shales, leasing mineral rights can be profitable.

Keith Pitzer did it. He's an environmentalist, executive director of Friends of the Cheat, which for years has fought to keep the Cheat River watershed clean.

He says he got the price for the land and the percentage of royalties he wanted.

Though he wouldn't say what that price was, he did say it was "enough to help me make a decision."

He says it can be financially rewarding for him. He says his well won't destroy the environment any more than the dozens of others they'll drill around him.

Besides, he says, most people say it's safe. Then, with resignation, "Who do we believe ?"

To see more of The Dominion Post or to subscribe to the newspaper, go to Copyright (c) 2009, The Dominion Post, Morgantown,
W.Va. Distributed by McClatchy-Tribune Information Services. For reprints, email, call 800-374-7985 or 847-635-6550, send a fax
to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave.,
Suite 303, Glenview, IL 60025, USA.

For full details for JFFHF click here.