Colorado natural Gas Pipeline Complete

GRAND JUNCTION, Colo. (AP) - The lack of pipeline capacity to ship natural gas out of Colorado and the resulting lower prices for the state's producers are being addressed with the completion of new lines.

The Rockies Express $6.7 billion pipeline from the western Colorado to western Ohio began service this summer. A $60 million 26.-4-mile pipeline that will allow Williams Cos. Inc. to connect to lines going to the West Coast began operation earlier this month.

Another factor in the easing of the disparity in the price between gas produced in Colorado and other regions was a slowdown in production that helped reduce demand for pipelines.

Companies are waiting to see the degree to which low national natural gas prices and growing competition from new gas fields in other parts of the country will affect the industry's recovery in the Rockies.
http://www.dailymail.com/ap/ApTopStories/200911290241

Russian Natural Gas Black Sea Pipeline Partners with French EDF

PARIS — Moscow signed several deals in autos and energy with French companies on Friday at a meeting described by Prime Minister Vladimir V. Putin of Russia as a breakthrough in economic ties between the countries.
There was, however, no decision on the most sensitive topic at the gathering of top government and business representatives at Rambouillet, outside Paris: whether France will sell to Russia a Mistral-class warship, which carries helicopters, troops and can serve as a mobile command center.

A possible deal on that was being examined, Prime Minister François Fillon of France said on Friday.

But in agreements reached on Friday, the French electricity giant EDF will take a 10 percent stake in the Gazprom natural gas pipeline South Stream, to run under the Black Sea, said the chief executive of Gazprom, Aleksei Miller. Another French utility, GDF Suez, announced progress in taking part in a separate proposed pipeline, Nord Stream, under the Baltic Sea.

Both pipelines would compete with Nabucco, a proposed pipeline backed by the United States and the European Union.

“It looks like pretty good time to be positioning yourself to enter Russia,” said François Heisbourg, special adviser of the Foundation for Strategic Research in Paris. “Gas prices are down, the Russians are desperate for customers and their infrastructure needs are great.”

He said the French involvement in the pipelines would give Paris strategic options in the country’s natural gas supply, potentially a wise move in light of Russia’s decision to curb exports via Ukraine.

Separately, the French carmaker, Renault, confirmed a rescue plan for the Russian factory that makes Lada cars. The deal will pull the plant back from bankruptcy, but puts off until March questions of future ownership.

Renault, a Russian state company and a Moscow investment bank each own 25 percent of the Russian factory, known as Avtovaz. Under the agreement, Moscow will contribute 50 billion rubles ($1.7 billion) to pay down debt, and a regional government will pay the salaries of 14,600 laid-off Avtovaz workers shifted to a new subsidiary.

Renault had been pressured by the Russians to invest cash, but avoided doing so. Renault said it would provide Avtovaz the equivalent of 240 million euros ($359 million) in contributions via transfers, production machinery and technological expertise.

Igor Sechin, a deputy prime minister, said that Moscow would support Renault’s owning a controlling share but said that the French company had not yet decided if it wanted control. A decision on swapping debt or the value of technical aid for equity will be made in March, Igor Komarov, the president of Avtovaz, said, according to Interfax.

The two countries also have projects in mind for cooperation in the nuclear sector, despite the difficulty of talks on the issue, Reuters quoted Mr. Putin as saying.

French officials were taken aback by the announcement this year that Siemens of Germany would build nuclear reactors with Rosatom, the Russian atomic energy agency, rather than the French specialist Areva. Siemens sold its stake in Areva this year. Total, the French oil giant, said on Friday that it was expanding cooperation with the Russian state-owned company Zarubezhneft.

Total retains a 25 percent stake in the giant Shtokman field, expected to start production in 2014 to 2015, alongside Gazprom and Statoil.

Andrew E. Kramer reported from Moscow, and Matthew Saltmarsh from Paris.

United States Natural Gas Rig Count Up 22 This Week

NEW YORK, Nov 27 (Reuters) - The number of rigs drilling for natural gas in the United States rose by 22 to 748 this week, according to a report on Wednesday by oil services firm Baker Hughes in Houston.

The U.S. natural gas drilling rig count has gained in 15 of the last 19 weeks after bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

But the rig count is still down sharply since peaking above 1,600 in September of last year, standing at 695 rigs below the same week in 2008.

Many gas producers have scaled back drilling operations with credit still tight and natural gas cash prices hovering near $3 per million British thermal units (mmBtu), off more than 75 percent from July 2008 highs above $13.

While drilling has dropped sharply over the past year, traders noted production has not slowed much, with recent government data showing gross August gas output in the lower 48 states up 0.8 percent from July and 0.4 percent above year-earlier levels.

Many traders agreed more rig cuts may be necessary to balance an oversupplied market, with gas inventories at record highs and demand, particularly from the industrial sector, still down sharply due to the recession. (Reporting by Edward McAllister; Editing by Marguerita Choy) ((Edward.mcallister@thomsonreuters.com; +1 646 223 6221; Reuters Messaging:edward.mcallister.reuters.com@reuters.net))

Argentine Natural Gas Reserves Up

BUENOS AIRES, Nov 26 (Reuters) - Repsol's Argentine unit YPF (REP.MC)(YPFD.BA) announced an increase in its proven crude reserves of more than 300 million barrels of oil equivalent on Thursday, bucking a downward trend in the country.

YPF, Argentina's biggest energy company, said it had also increased its contingent crude resources by 500 million barrels of oil equivalent (boe) as part of a company drive to boost its reserves in the South American nation.

Contingent resources are subject to a final decision being made on whether to extract them.

"We've renewed projects that were already under way and launched new ones that have given us very good results in terms of oil and natural gas finds," YPF Chief Executive Sebastian Eskenazi said in a statement.

The company said it had invested some $3.75 billion in its exploration and production division over the last three years.

No significant new reserves have been found in 15 years in Latin America's No. 3 economy. Proven oil reserves fell 9 percent between 2001 and 2008, while proven reserves of natural gas sank 39 percent.

Oil and natural gas exports have plunged and drilling of exploratory wells has slumped due to the economic crisis that peaked in 2001/2002 and government price controls since then.

YPF, which controls more than half of Argentina's refining capacity and nearly 40 percent of its oil output, produced an averge 214,770 barrels of crude per day in 2008. (Reporting by Helen Popper; Editing by Jan Paschal) ((helen.popper@thomsonreuters.com; +54 11 4318 0655;

Reuters

Messaging: helen.popper.reuters.com@reuters.net)) ((For help: Click "Contact Us" in your desk top, click here [HELP] or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: training.americas@thomsonreuters.com ; +1 646-223-5546))

Bolivia Natura Gas Production Going Up

By Eduardo Garcia
LA PAZ, Nov 26 (Reuters) - Spain's largest oil company Repsol (REP.MC) will invest $1.5 billion to boost natural gas output in Bolivia, which will allow the country to increase exports to Argentina, the company's CEO said on Thursday.

Antonio Brufau, Repsol's chief executive officer, announced the investment after a meeting with Bolivia's leftist President Evo Morales in La Paz.

He said the investment will allow the company to increase output in its Huacaya and Margarita fields to 8 million cubic meters a day in 2012 from the current 2 million cubic meters, and to 14 million cubic meters a day by mid-2013.

The money will be spent to drill natural gas wells, build pipeline infrastructure and a natural gas processing plant, another Repsol official told Reuters.

Brufau added that in the area where Repsol will be investing there are proven reserves of 3.7 trillion cubic feet of natural gas, but the total amount could reach up to 12 trillion cubic feet.

Both Brufau and the head of Bolivia's state-run energy company YPFB Carlos Villegas said the bulk of Repsol's production increase will be exported to Argentina.

"We're going to have enough output for the Argentine market," said Villegas referring to a deal that Bolivia signed in 2006 to nearly quadruple natural gas exports to Argentina to 27.7 million cubic meters a day in the coming years from the current daily maximum of 7.7 million cubic meters.

Bolivia is reportedly renegotiating the terms of this contract with the Argentine government.

Villegas also said that Repsol will be the leading investor in Bolivia's natural gas sector in the next five years.

The Andean country's natural gas production has been stable at around 40 million cubic meters a day for at least three years, despite previous government announcements that foreign companies were planning to invest heavily to boost output.

Bolivia has the second largest reserves of natural gas in South America after Venezuela, and it is the region's main exporter, supplying the fuel to Argentina and Brazil.

The impoverished nation exported over $3 billion worth of natural gas to Argentina and Brazil in 2008 but it has been hard hit by falling prices and lower demand from Brazil. (Editing by Vivianne Rodrigues) ((eduardo.garcia@thomsonreuters.com; +59 1 2 244 4866; Reuters Messaging eduardo.garcia.reuters.com@reuters.net))

Shell Wants Russian Natural Gas Partnership

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6930649.ece

Royal Dutch Shell is hopeful that it will gain an equity stake in a giant Russian gas field that could supply all of the world’s needs for a decade.

Peter Voser, Shell’s chief executive, said that talks with the Russian government about the Yamal project in the Siberian Arctic were progressing well.

“Our understanding is that this would be based on equity participation,” he said, adding that a development plan for Yamal would be drawn up by the end of March 2010.

“We are preparing ourselves for a potential participation.”

Shell has estimated that development of the province may cost “several hundred billion” dollars and take more than 50 years.

Mr Voser, who visited Moscow last month to discuss the project, said that Shell hoped to be part of a consortium to develop the project, which would be at least 51 per cent controlled by Russian companies including Gazprom.

“Russia has such huge gas reserves we will try to be part of that,” he said.

The conditions in Yamal were so inhospitable that its development would require the development of new technologies, such as a ice-breaking liquefied natural gas tankers, he said.

Mr Voser, who took over as chief executive of the Anglo-Dutch oil giant in July, also said that another giant gas project in Qatar, called Pearl, was going well and would soon add 10 per cent or about 350,000 barrels per day to the company’s total production.

Royal Dutch Shell will gain cashflow of $4 billion a year from 2011 following the opening of the Pearl project, which aims to convert natural gas into a liquid fuel.

Mr Voser also said that a major cost-cutting drive at Shell was now on track for completion by January 1. The group had axed nearly 20 per cent of staff from some business units in a drive to shed a total of 5,000 staff.

A new technology and project management division had been created with 8,200 staff, allowing Shell to let go 1,800 un-needed staff from other divisions because of overlaps. “I am pleased with progress so far," Mr Voser said.

Shell was aggressively cutting costs across other parts of the business and drilling costs were likely to be down 15 per cent this year from $7 billion.

Mr Voser wanted Shell to increasingly focus on gas production, in part because of its lower carbon emissions.

He warned that Europe was losing its leadership in so-called carbon capture and storage (CCS) technology to countries such as Canada and Australia, who he said were pushing harder to commercialise the technology.

“Europe had a leading position for quite a long time but they are losing their CCS leadership. I have conveyed that message to Brussels and the UK government,” he said.

Pipeline Expansion Planned for North East Shale Natural Gas

NEW YORK, Nov 23 (Reuters) - Spectra Energy Corp's (SE.N) Texas Eastern Transmission, LP unit announced on Monday an open season to gauge interest in a proposed expansion delivering additional, emerging Appalachian and Marcellus Shale natural gas supplies to markets in the Northeast United States.

The TEAM 2013 open season is in addition to the previously announced TEAM 2012 expansion. The 2012 expansion will provide customers with up to 300 million cubic feet per day of capacity by the fourth quarter 2012, the company said in a statement.

The TEAM 2013 expansion, with an estimated late 2013 in service date, will target a capacity expansion of 500 mmcf per day of supply.

The expansion project is not restricted to the target capacity amount and will be scalable and sized to meet customer needs, Spectra said.

Interested shippers have the opportunity to nominate transportation services from multiple existing and proposed receipt points on the Texas Eastern system within the Appalachian and Marcellus Shale production regions to delivery points across Texas Eastern's market area.

As development of the Appalachian and Marcellus production regions increases, Texas Eastern said it would continue to develop expansion projects timed and sized to meet customer needs.

The open season will run through Jan. 15, 2010. (Reporting by Eileen Moustakis; Editing by Marguerita Choy)((eileen.moustakis@thomsonreuters.com; +1 646 223 6074; Reuters Messaging: eileen.moustakis.reuters.com@reuters.net)) ((For help: Click "Contact Us" in your desk top, click here [HELP] or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: training.americas@thomsonreuters.com; +1 646-223-5546))

$5.00/MMBtu Spot Price Predicted by EIA for 2010

By BRETT CLANTON Copyright 2009 Houston Chronicle
Nov. 21, 2009, 12:31AM
Natural gas produced from shale rock formations like Texas' Barnett shale play could account for one third of total U.S. natural gas supply by 2025, up from 14 percent today, a prominent energy forecaster said Friday.

The jump will come as the costs of unlocking the dense formations decline and demand for clean-burning natural gas rises over time, analysts with U.K.-based consultant Wood Mackenzie said said in a briefing with reporters.

But natural gas prices could remain low during the next few years as a spate of new coal-fired electricity plants open, reducing the overall amount of the fuel needed in the U.S. for power generation.

Once the plants are completed, however, natural gas demand could rise sharply as older coal-fired plants are retired and government policies show a greater preference for cleaner energy sources, said Jen Snyder, a North American gas analyst with Wood Mackenzie.

Prices could even spike to $10 per million British Thermal Units in the 2013-2014 timeframe as producers struggle to keep up, before falling back to the $6.50 range after that period, she said.

The oil and gas industry has recently touted shale gas formations as a clean source of domestic energy that can provide more than 100 years of natural gas at today's demand levels.

But natural gas production has fallen this year with the recession, spurring a decline in the number of natural gas drilling rigs in the U.S. to decline by more than 50 percent from a peak of 1,600 in August 2008.

Some oil and gas producers have reduced capital spending plans next year on concerns about the durability of the economic recovery. Yet, it is likely to be only a temporary time out, especially in emerging shale plays.

The annual average North American shale gas production will rise to 29.5 billion cubic feet per day in 2025, up from 8.8 billion cubic feet per day this year, Wood Mackenzie analyst Phani Gadde said.

This year, total U.S. natural gas consumption will decline by 1.9 percent to 62.2 billion cubic feet per day and by another 1.1 percent in 2010, according to a recent Energy Information Administration forecast.

Yet, with the economy growing again and producers trimming natural gas output amid record storage levels, the average spot price in 2009 should rise from $4.03 per million cubic feet to $5.01 in 2010, the EIA said.

On Friday, natural gas added 8.2 cents to settle at $4.42, while benchmark crude dropped 74 cents to settle at $76.72 a barrel.

brett.clanton@chron.com
http://www.chron.com/disp/story.mpl/business/energy/6732444.html

Europe Bidding Spanish Natural Gas

LONDON/MADRID, Nov 20 (Reuters) - Carlyle, CVC and funds linked to Morgan Stanley and Macquarie are readying binding bids for Gas Natural's Madrid gas-distribution assets ahead of a Nov. 30 deadline, people familiar with the matter said on Friday.

The deal, valued by sources at more than 500 million euros ($743 million), is part of a string of asset disposals aimed at cutting Gas Natural's (GAS.MC) 22 billion euro debt pile by the end of the year.

On Nov. 3 the Spanish power company's chief executive, Rafael Villalesca, said there were six or seven potential bidders for the assets but the sale process could take another two months. [ID:nL3268319]

The extra bidders could include European utilities that already distribute gas in Spain, as well as other infrastructure funds.

Carlyle, the U.S. private equity firm, is working with Iberian buyout firm Magnum Capital Industrial Partners, some of the people said. Carlyle [CYL.UL], Gas Natural, Macquarie (MQG.AX) and Morgan Stanley (MS.N) declined to comment.

Magnum Capital and CVC [CVC.UL] did not immediately reply to requests for comment.

The auction was first reported by Reuters in September. [ID:nL7604522]

(Reporting by Quentin Webb in London, Greg Roumeliotis in Amsterdam and Judy MacInnes in Madrid; Editing by David Cowell)

(Visit the Reuters DealZone blog here)

Natural Gas Pricing Down for November

By CHRIS KAHN (AP) – 8 hours ago

NEW YORK — Natural gas prices have dropped by more than 12 percent in the past month as the country continues to sip at its energy reserves and a balmy November allowed homeowners to leave the heat off.

Retail prices for natural gas, or what many consumers will pay to heat their homes, are expected to be substantially lower this year.

Spot prices for natural gas have dropped to almost half of what they were last year, though they've increased slightly this month, according to the Energy Information Administration.

The recession has kept natural gas demand low most of the year. With manufacturers shuttering factories and closing offices, the country is using less electricity and power plants are burning less natural gas.

Analyst Stephen Schork noted that with industrial production still weak, home heating would be the primary source of natural gas demand for the rest of the year.

"What does that say about the current recovery, or lack thereof?" Schork said in a research note.

The U.S. has added more natural gas into storage every week since March 27, and there is now more natural gas tucked away in the U.S. than at any point in history. Storage houses are crammed beyond their listed capacity in the West on the Gulf of Mexico, and they're nearing capacity elsewhere, according to data from the Department of Energy.

With so much in storage, natural gas futures prices have plunged on the New York Mercantile Exchange. The December contract fell from $5.045 to $4.424 per 1,000 cubic feet between Oct. 30 to Friday.

Benchmark crude also dropped Friday, giving up 74 cents to settle at $76.72 a barrel on the last trading day for the December contract. Crude prices for January delivery lost 58 cents to settle at $77.47.

At the pump, retail gas prices increased for the third straight day, adding less than a penny overnight to a new national average of $2.642 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 4.6 cents more expensive than last month and 62.2 cents more expensive than the same time last year, when prices were in free fall.

In other Nymex trading, heating oil fell 2.08 cents to settle at $1.9756 a gallon. Gasoline for December delivery added 1.11 cents to settle at $1.9806 a gallon. Natural gas added 8.2 cents to settle at 4.424 cents per 1,000 cubic feet.

In London, Brent crude for December delivery fell 42 cents to $77.22 on the ICE Futures exchange.

Associated Press Writers Barry Hatton in Portugal and Alex Kennedy in Singapore contributed to this report.

Copyright © 2009 The Associated Press. All rights reserved.

Natural Gas Pipeline Probe Underway

By Tom Doggett

WASHINGTON, Nov 19 (Reuters) - The U.S. Federal Energy Regulatory Commission said on Thursday it was investigating whether three interstate natural gas pipelines are overcharging their customers.

The agency said it is looking at rates charged by privately held MidAmerican Energy Holdings Co's Northern Natural Gas Company, TransCanada Corp's (TRP.TO) Great Lakes Gas Transmission LP and Natural Gas Pipeline Company of America LLC, which is operated by privately held Kinder Morgan Inc.

FERC said the probe concerns whether the companies "are over-recovering costs, causing rates to be unjust and unreasonable."

"Protecting consumers against unjust and unreasonable rates is a fundamental responsibility of the commission," FERC Chairman Jon Wellinghoff said.

The rates allowed the pipelines to earn returns ranging from nearly 21 percent to almost 25 percent, higher than what FERC allows.

The commission ordered the investigation after FERC staff reviewed data submitted by the pipelines on their cost-of-service and revenue information.

The commission never approves rates of return above 20 percent, an agency spokeswoman said. The American Public Gas Association (APGA) said the normal return for pipelines is about 12 percent.

The APGA, which represents public gas systems, praised the FERC's crackdown on the pipelines.

"There is no public interest served in allowing pipelines to keep billions of dollars of consumer's money, especially in the current economic climate," the trade group said.

FERC ordered an administrative law judge to convene within 30 days a prehearing conference to clarify the positions of the pipeline companies and the agency and consider any procedural issues and discovery dates necessary for the hearing.

FERC said the alleged higher rates of return were as follows:

* Northern Natural Gas' 15,141-mile system extends from the Permian Basin in Texas to the upper Midwest. FERC staff calculated Northern's total adjusted 2008 revenue to be $726 million, which appears to yield an estimated earned return on equity of 24.36 percent.

* Great Lakes' 2,100-mile system transports natural gas through Minnesota, Wisconsin and Michigan. FERC staff calculated Great Lakes' total adjusted 2008 revenue to be $290 million, which appears to yield an estimated earned return of 20.83 percent.

* Natural Gas Pipeline's 9,700-mile system consists primarily of two interconnected transmission pipelines, the Amarillo and Gulf Coast lines, which terminate in Chicago. FERC staff calculated Natural Gas' total adjusted 2008 revenue to be $656 million, which appears to yield an estimated earned return of 24.5 percent.
FERC also said Natural Gas Pipeline appears to be over-recovering fuel and lost and unaccounted for gas from its customers.

FERC said its staff calculated an over-recovery of 30.9 million dekatherms of gas.

"Natural's reports also show that for the fourth quarter of 2008 and the first quarter of 2009, it received $59.6 million and $48.7 million, respectively, in revenues from the sale of excess gas," the agency said. (Reporting by Tom Doggett; Editing by David Gregorio)

December Natural Gas $4.24/MMBtu

By CHRIS KAHN (AP) – 3 hours ago

NEW YORK — Oil prices increased for the third day in a row as the dollar weakened and AAA reported that more drivers are expected on the highways this Thanksgiving weekend.

Benchmark crude for December delivery added 44 cents Wednesday to settle at $79.58 a barrel on the New York Mercantile Exchange. Most of the trading had already passed to the January contract, which rose 38 cents to settle at $80.10 a barrel.

The weak dollar has helped boost oil prices most of the year. Crude prices, which are priced in U.S. currency, tend to rise as the dollar falls and investors holding strong international currencies get more buying power.

AAA also reported Wednesday that 33.2 million people would get in their cars and travel at least 50 miles over the Thanksgiving weekend, next Wednesday through Sunday. That's an increase of 2.1 percent from 2008, even though a gallon of gas is 56 cents more expensive than the same time last year.

AAA, which based its report on a telephone survey, said the increase was a sign that consumers are more confident in the economy.

Meanwhile, the Energy Information Administration reported that the country's stockpile of crude oil fell by 900,000 barrels last week. But the drop was hardly a sign of a recovering economy.

American petroleum consumption has dropped to the lowest level since July 17, and oil companies are importing much less oil as they scale back their refining operations.

"Demand is still very, very weak," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "It's keeping us from sharing in the bullish euphoria that you're seeing in the stock market."

Some analysts expect weak global economic growth to keep commodities like oil from surging much higher. Global growth will likely average 2.5 percent a year during the next three years, about half the rate between 2002 and 2007, said Stephen Roach, Asia Chairman for Morgan Stanley.

"I don't see commodities repeating the boom-like surges," Roach said in Singapore.

At the pump, retail gas prices increased for the first time since Oct. 30, rising less than a penny to $2.632 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 6.8 cents more expensive than last month and 56.4 cents more expensive than the same time last year.

In other Nymex trading, heating oil lost less than a penny to settle at $2.0486 a gallon. Gasoline for December delivery added less than a penny to settle at $2.0114 a gallon. Natural gas for December delivery gave up 27.6 cents to settle at $4.254 per 1,000 cubic feet.

In London, Brent crude for December delivery added 50 cents to settle at $79.47 on the ICE Futures exchange.

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

Copyright © 2009 The Associated Press. All rights reserved.

ETF Natural Gas Trading Today

http://www.etftrends.com/2009/11/new-natural-gas-etf-expected-begin-trading-tomorrow.html
November 17, 2009 at 2:00 pm by Tom Lydon

United States Commodity Funds recently won regulatory approval for its newest addition: a 12-month natural gas exchange traded fund (ETF). The fund is expected to begin trading tomorrow.

The U.S. 12 Month Natural Gas Fund (NYSEArca: UNL) has gotten the green light from regulators to issue about 30 million shares, which will purchase natural gas futures for delivery over the next 12 months. Asjylyn Loder for Bloomberg reports that it will sell the near-month contract as it approaches expiration and replace it with a contract for delivery in 12 months.

The ETF comes from U.S. Commodity Funds LLC, which also manages the popular $3.5-billion U.S. Natural Gas Fund (NYSEArca: UNG) and the $1.96-billion U.S. Oil Fund (NYSEArca: USO). (Natural gas ETF shifts strategy).

UNG differs from UNL in that UNG buys the near-month contract, then sells it each month as it nears expiration and buys the next month.

In terms of natural gas prices and futures, what’s the difference between UNG and UNL? UNL can help mitigate some of the impact of contango, which is when the front-month contract is higher priced than the contracts further out. By using the 12-month approach, the impact of contango is, on average, about one-third less than it would be in a fund that simply uses a front-month approach.

Which fund an investor chooses depends on what’s trying to be accomplished. When the markets are in contango, it’s no guarantee that a 12-month fund would do better. On the other hand, it could be beneficial for investors looking to lessen the impact contango can have. On the other hand, if someone is trading frequently and heavily, there might not be as much concern about contango. As the energy markets shift, it could be more advantageous to be in one fund over another – but it’s no guarantee in the volatile energy space. Many have learned that a single hurricane can change conditions rapidly.

Natural gas futures were wavering today. Below-normal temperatures in the Midwest and Northeast are anticipated to boost natural gas demand, but there’s only been modest growth in industrial production, reports Christine Buurma for Dow Jones Newswires. Until today, many traders had been betting that natural gas prices would fall in the coming months.

For more stories about natural gas, visit our natural gas category.

Natural Gas Inventory High on Monday

http://www.ogj.com/index/article-display/6929386134/articles/oil-gas-journal/general-interest-2/economics-markets/2009/11/market-watch__crude2.html

Nov 16, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 16 -- Energy prices fell in a second consecutive trading session Nov. 13 with crude touching a 1-month low in intraday trade in the New York market following reports of bigger-than-expected increases in US inventories of crude, gasoline, and distillate fuels.

The Energy Information Administration said US commercial benchmark crude inventories increased by 1.8 million bbl to 337.7 million bbl in the week ended Nov. 6, with gasoline stocks up 2.5 million bbl to 210.8 million, and distillate fuel inventories increased 300,000 bbl to 167.7 million bbl, triggering a 3% drop in the Nov. 12 price of crude (OGJ Online, Nov. 13, 2009).

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Crude oil held the $75[/bbl] level in Friday’s trade, but early gains were reversed due to a lower consumer confidence reading from the University of Michigan and comments from the…ExxonMobil Corp. [Chief Executive Officer] Rex Tillerson that record-high inventories around the globe will not be dented by winter seasonal demand. He added that he saw a ‘disconnect’ between the price of crude and the supply/demand picture for crude.”

Pritchard Capital analysts said, “The counter to Tillerson’s comments are growing demand figures out of China that were highlighted by [the Nov. 13] report that China’s power consumption is up 16% from 2008, and growing murmurs that the International Energy Agency (IEA) is exaggerating future global oil production—one report suggests oil production in 2030 will be closer to 75 million b/d vs. the 105 million b/d estimate.”

Meanwhile, analysts in the Houston office of Raymond James & Associates Inc. reported a rebound in crude prices in early trading Nov. 16 “driven by news…that the world's second-largest economy [China] beat expectations and grew at an annual rate of 4.8% in the third quarter.” They said, “Additionally, a declining dollar and growing speculation that the Organization of Petroleum Exporting Countries will leave production unchanged at its December meeting are helping to fuel crude's rally. Natural gas is also trading slightly higher today as a cold front brings an early-season snowfall to the Central Plains and parts of the Midwest.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The dollar index was pushed down…during the week and as well in overnight trading before the start of this week. There is not much else than the dollar index driving the global markets and not many solutions for the macrotraders than to continue selling the dollar if they want to maintain the positive returns on equities for the end of the year mark. The Nov. 13 close of West Texas Intermediate was the only noticeable outlier deviation to the calculated value based on the eurodollar correlation 2009 model. Based on the correlation model WTI should have been priced at $78/bbl rather than $76.35/bbl, hence it has some catching up to do as the euro tries again this morning to break the resistance of 1.50.”

Jakob also noted, “Peace continues to hold in the Nigerian Delta and over the weekend the managing director of the Nigerian National Petroleum Corp. was quoted in the local press as saying that crude oil production reached 2.4 million b/d Nov. 12. This compares with 1.9 million b/d used by the IEA for the October estimates.”

He advised, “One must always apply some caution to the quoted numbers out of the Nigerian press.” But “one way or another,” Jakob said, “we will see higher output in Nigeria over the next 3 months than over the last 6 months, and with their higher yields for light products these barrels will displace a considerable amount of heavier crude oil from the Middle East. It is not necessarily a coincidence that Saudi Arabia has restarted supplying term contracts to some Asian refiners, as they should face some competition in coming months from the increased Nigerian supplies.”

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, “The Saudis have reminded us in two ways why they are still major players in world oil markets. First, it was reported that Saudi Arabia will sell more crude oil to certain Asian customers and to major oil companies with global refining operations. In typical style the Saudi’s signal is not glaring; instead it is a subtle indication that they do not want to see oil prices rise too far, too fast, and risk damaging economic recovery. Specialist tanker tracking consultants reported that other OPEC countries have gradually increased shipments, but only to Asia where demand is growing and not to Europe and the US where demand remains very weak. This all means that compliance with OPEC’s 4.2 million b/d of output cuts has fallen to no more than about 63% compared [with] 80% earlier this year. With the benefit of hindsight it now looks as if OPEC’s cuts would have been far too severe had they been implemented. But they have done the job. The news of higher volumes from Saudi Arabia, combined with weak demand numbers from the US, helped send the front month WTI price down to is lowest close for a month on Thursday, albeit still a healthy $76.94/bbl.”

KBC analysts said, “The second way in which the Saudis demonstrated their muscle was when Saudi Aramco’s head of refining revealed…that two new refineries which will each process 400,000 b/d of Arab Heavy crude oil—Jubail, where Total is Aramco’s partner, and Yanbu, where ConocoPhillips is the partner—will go ahead having been postponed a year ago. In the meantime, there were tough negotiations between Saudi Aramco and the majors which yielded reported cost cuts of $2 billion for Jubail and a figure thought to be even higher for Yanbu. The revised project costs are about $10 billion each, still big bucks of course, but the recession has provided an opportunity for sponsors of big projects to force project-hungry bidders to cut their bills.”

At the Center for Global Energy Studies (CGES), London, analysts said, “With the passage of every week, evidence seems to be building that the world economy is now in the recovery room. Not so long ago we were told that US GDP in the third quarter had grown over the previous quarter by more than 3% at an annualized rate. Now we are informed that Chinese industrial production surged by 16% year-on-year in October and rises in the Baltic Dry Index suggest that world trade is picking itself slowly off the floor.”

However, CGES analysts said, “Despite such welcome tidings, the oil industry faces more confusion and uncertainty with the appearance in the news last week of two oil-related items having very different longer-term implications. On the one hand, there was the publication of the IEA's 2009 World Economic Outlook, which frightened everyone with its call for over $10 trillion of additional investments in energy infrastructure and energy-related capital stock to avert catastrophic climate change. On the other, there was the news that Iraq had agreed with a consortium led by Eni SPA to expand output at its giant Zubair oil field. New capacity from this field, when added to additional production from other massive Iraqi fields, means that in 7-10 years Iraq will be able to produce at least 8 million b/d, placing it among the world's largest oil producers, second only to Saudi Arabia in OPEC. We have in these two items the kernel of a severe problem that will surely increase by many notches the existing stresses and strains in the oil business.”

Energy prices
The December contract for benchmark US light, sweet crudes traded as low as $75.57/bbl Nov. 13 on the New York Mercantile Exchange but managed to close at $76.35/bbl, down 59¢ for the day. The January contract dropped 62¢ to $77.03/bbl. On the US spot market, WTI at Cushing, Okla., declined 59¢ to $76.35/bbl. Heating oil for December delivery lost 2.49¢ to $1.97/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month declined 2.43¢ to $1.92/gal.

The December natural gas contract gained 2.2¢ to $4.39/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., fell 68¢ to $2.52/MMbtu. Natural gas rose in the futures market despite a larger than expected storage injection of 25 bcf vs. an 16 bcf estimate.

“However, the real noise in the natural gas market was the divergence between NYMEX natural gas and the natural gas hubs where the natural gas is sold,” said Pritchard Capital Partners. “According to Bloomberg quotes the main natural gas hubs across the US were down 20-30%. …The divergence in prices between the Hubs and NYMEX could be attributed to the futures rolls of the US Natural Gas Fund. The December front month NYMEX contract expires on Nov. 24, but based on the prices on the hubs it is possible that NYMEX natural gas could trade lower early next week. The low price of the hubs indicates natural gas is approaching full storage as it always does during this period every year.”

In London, the December IPE contract for North Sea Brent crude was down 47¢ to $75.55/bbl. Gas oil for December lost $4.25 to $611/tonne.

The average price for OPEC’s basket of 12 reference crudes dropped 80¢ to $75.26/bbl on Nov. 13. So far this year, OPEC’s basket price has averaged $59.05/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Capture Versus Flaring Natural Gas

By JAMES MacPHERSON (AP) – 5 hours ago

BISMARCK, N.D. — The burning glow over North Dakota's oil patch is slowly dimming as companies work to capture and sell natural gas instead of flaring it.

Though the flares atop the oil fields have lessened in recent months, it's still tough to stomach for those in North Dakota who question rising heating bills in the light of the huge hissing flames that burn natural gas as waste.

"I've heard comments here and there that it's too bad all that gas is going to waste," said Greg Armitage, who runs the Hilltop Home of Comfort nursing home in Killdeer, a western North Dakota town of about 700 in the heart of the state's oil fields.

A year ago, almost one-third of natural gas that came to the surface in North Dakota went up in smoke as an unmarketable byproduct of oil production. The 26 billion cubic feet of natural gas that billowed flames and smoke from scores of oil wells was about twice the annual gas consumption of the state.

More than $350 million in infrastructure improvements are either planned or under way in North Dakota to capture natural gas and move it to market, said Justin Kringstad, director of the state Pipeline Authority.

"It's being captured for economic reasons as well as for the environment," Kringstad said. "There are several things pushing these investments and each is equally important."

State and industry officials say the amount of gas flared has decreased from 25 percent of total production to 11 percent in the past few months as the capacity has increased at processing plants in the state and as pipelines are being built.

Wayde Schafer, a North Dakota spokesman for the Sierra Club, said any level of wasted energy is unacceptable.

"It was absolutely horrible," Schafer said of the amount of natural gas flared in 2008. "Now it's just terribly horrible.

"I think it's pretty hard to justify wasting a fuel source," Schafer said. "We're still getting the pollution without the benefit of the energy."

Flaring natural gas creates carbon dioxide emissions blamed for global warming.

Jim Semerad, manager of permitting and compliance for the state Health Department, said the flare emissions in the state's oil patch are within acceptable air quality guidelines. Still, he said, "just because they meet air quality standards doesn't mean we're happy with the wasted fuel."

Beyond air quality standards, there are no laws to discourage flaring in North Dakota, he said.

"The waste issue is off our regulatory ability," Semerad said. "We can't mandate it."

The U.S. Energy Department's Energy Information Administration says less than 1 percent of natural gas is flared from oil fields nationwide, and less than 3 percent worldwide.

"The goal is to get North Dakota down to the national average, or lower," Kringstad said. He's not sure when that might happen.

"The challenge is keeping up with new wells coming on line," Kringstad said.

The problem of unwanted natural gas comes from the success of the state's oil patch, which government scientists say is home to the largest continuous crude accumulation they've assessed. Improved horizontal drilling technology in the rich Bakken shale and Three Forks-Sanish formations has led to record crude production in the state, elevating it to the fourth-largest oil-producing state in the nation, leapfrogging from ninth since 2006.

Ron Ness, president of the North Dakota Petroleum Council, a Bismarck-based group that represents about 160 companies, said record oil production meant the same for natural gas.

"It was more than our plants could handle," Ness said.

The gas is only valuable if it can be moved to market, he said.

"We're seen infrastructure being put in place as rapidly as possible," Ness said. "Nobody — not the least of which the operator — wants to flare it."

A rush to develop the North Dakota's rich oil patch amid record prices resulted in billions of cubic feet of wasted natural gas that could have heated every home in the notoriously frigid state through at least two winters.

"Haste makes waste," said the Sierra Club's Schafer, one of less than a handful of professional environmentalists in North Dakota. "We just go crazy and we don't do it right. We could be protecting ourselves and we should be."

North Dakota crude also continues to lack the pipelines needed to move it to market, but it is hauled by truck or rail rather than wasted.

The state is on track to set record oil and gas production this year and next, industry and state officials say.

Short of a crash in oil prices, an inordinate amount of gas flaring appears to be a reality in North Dakota until infrastructure can keep pace with oil production.

Said Kringstad: "As long as rigs stay in North Dakota, we're always going to be chasing that goal of reduced flaring."

Copyright © 2009 The Associated Press. All rights reserved.

Ohio Natural Gas Rate Lowest Yet

(AP) – 1 day ago

COLUMBUS, Ohio — Ohio's largest natural gas company says next month's rates will be the lowest for December in eight years.

Columbia Gas of Ohio informed state utility regulators Thursday that it plans to charge 49 cents per 100 cubic feet of natural gas, down from 70 cents a year ago. It means the typical customer will have a $92 December gas bill, compared to $170 for the same month in 2008.

The gas company says it's able to charge so little because gas supplies are plentiful and because commercial customers have cut back on the amounts they're using.

Copyright © 2009 The Associated Press. All rights reserved.

Natural Gas Rig Count Down 4 but Production Stable

NEW YORK, Nov 13 (Reuters) - The number of rigs drilling for natural gas in the United States fell by six this week to 728, according to a report on Friday by oil services firm Baker Hughes in Houston.

It was only the third time in the last 17 weeks that the U.S. natural gas drilling rig count lost ground after bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

But the rig count is still down sharply since peaking above 1,600 in September of last year, standing at 770 rigs, or 51 percent, below the same week in 2008.

Many gas producers have scaled back drilling operations with credit still tight and natural gas cash prices hovering near $3 per million British thermal units (mmBtu), off more than 75 percent from July 2008 highs above $13.

While drilling has dropped sharply over the past year, traders noted production has not slowed much, with recent government data showing gross August gas output in the lower 48 states climbed 0.8 percent from July and stood at about 0.4 percent above year-earlier levels.

Most traders agreed more rig cuts may be necessary to balance an oversupplied market, with gas inventories at record highs and demand, particularly from the industrial sector, down sharply due to the recession. (Reporting by Joe Silha; editing by Jim Marshall)

Natural Gas Debate Heating Up

http://www.washingtontimes.com/news/2009/nov/13/natural-gas-bill-seen-as-pipe-dream/

By Patrice Hill

Climate change legislation in Congress appears to be based in part on the optimistic view that the United States has a plentiful supply of natural gas and would push businesses to switch to gas from coal, critics say, even before the supply has been secured.

The legislation takes a cue from industry proponents who proclaim the United States has a century's supply of natural gas -- a clean, efficient fuel that could help solve the nation's energy problems -- from climate change to dependence on Middle Eastern oil.

But some environmental groups, scientists and analysts say the industry is raising false hopes, as fracturing techniques for releasing the gas found in shale rock underlying much of the country are not yet proved to be economical or safe, and could contaminate groundwater.

Natural gas is abundant in shale rock running from the Appalachians to the Rockies, but it has remained largely untapped because of the difficulty in reaching it. But in recent years, fracturing techniques have been developed that cause the shale to release the gas so it can be pumped to the surface.

Gas not only is cleaner and more efficient than coal or oil in generating energy, but it also produces the least amount of carbon dioxide -- the principal greenhouse gas -- when burned.

T. Boone Pickens, a Texas oil billionaire who has devoted himself to campaigning for greater energy independence, is one of the biggest proponents of diverting the nation's energy consumption into natural gas and away from imported oil. He advocates reducing oil use by using compressed natural gas to run more buses and trucks.

"America is the Saudi Arabia of natural gas. Its time for us to use this abundant resource to end the cycle of foreign oil dependency and addiction that is making us less safe and more economically insecure," Mr. Pickens said. "With new drilling techniques and technology giving us access to the incredible reserve of natural gas contained in the shale fields, we have more than 100 years' supply of natural gas."

He has been joined recently by former President Bill Clinton and his aide John Podesta, now chief executive of the Center for American Progress, in urging Congress to adopt a strategy of relying more on natural gas to increase energy independence and to reduce greenhouse gas emissions and generate "green" energy jobs.

Following their recommendations, climate change legislation pending in Congress would cap carbon dioxide emissions, pushing power plants and other businesses to switch to natural gas from coal for heating and electrical generation.

Industry enthusiasts point to a June study by the Potential Gas Committee, a panel of industry specialists, which found that the United States has about 2,074 trillion cubic feet of natural gas resources, much of that in shale underlying the Appalachian basin, the midcontinent, Gulf Coast and Rocky Mountain areas. That amount of gas rivals the amount of proven reserves in Russia, the world's largest gas producer, and is the highest estimate of U.S. gas resources in 44 years.
The report "shined a credible spotlight on the staggering amount of natural gas that exists here in our own country," said David Parker, president of the American Gas Association, a gas utility group. He said the study should encourage legislators who are trying to find inexpensive and proven solutions to climate change.

But critics say the industry may be leading the nation down a dead-end street. They point out that optimism about an abundance of gas resources has been proved wrong in the past. And they note that the federal Energy Information Administration -- the official arbiter of the nation's energy resources -- still has not recognized that large amounts of shale gas are economically feasible to develop.

A Congressional Research Service report last month said shale gas is only marginally economical to tap at today's low natural gas prices. More wide-scale production of shale gas will occur only if natural gas prices increase, it said. The report also noted that "no systematic assessment of shale gas resources has been conducted in the United States."

"Shale gas is the next panacea being pushed onstage," said Frank Clemente, professor at Pennsylvania State University. "Before policymakers jump on the bandwagon, they should take a careful look as to the vagaries of natural gas forecasting. ... Climate change policies founded upon erroneous energy projections are doomed to failure and will lead to expensive and unreliable energy across the country."

The natural gas industry in the past predicted huge discoveries and abundant supplies that never materialized from a variety of sources ranging from offshore wells to liquefied gas imports, Mr. Clemente said.

Optimism about the availability of gas in the 1990s led to the construction of a generation of power plants fueled by natural gas. But when the power plants came on line in the early 2000s, the price of gas spiked and led to record-high fuel costs for consumers. Prices were so high that many gas-dependent industries closed down, laid off workers and moved overseas.

"Do we really want to bet our energy future on this record?" Mr. Clemente asked.

While some environmental groups are backing the drive to produce more gas, other groups are attacking the hydraulic fracturing technology used to break up shale rock and release the gas. The technology involves injecting water and chemicals underground at high pressure to fracture the rock and liberate the gas it holds.

Opponents say drilling for gas should be banned in watersheds where untreated groundwater is used for drinking water for major cities.

"There are a number of cases in the U.S. where hydraulic fracturing is the prime suspect in incidences of impaired or polluted drinking water," said Gwen Lachelt, director of Earthworks' oil and gas accountability project, citing instances in Alabama, Colorado, New Mexico, Virginia, West Virginia and Wyoming.

She said Congress exempted the technology from regulation under the Safe Drinking Water Act in 2005, but congressional Democrats have introduced legislation this year to close that loophole. Industry groups say they can adopt safeguards to protect groundwater and avoid other pollution problems caused by drilling.

But even some industry proponents agree that Congress should be cautious about mandating the use of gas in transportation and power generation, since it may prove to be less abundant than thought.

Cal Dooley, president of the American Chemical Council, worries that congressional mandates to use gas could push up prices to prohibitive levels again, leading to further steep job losses in the chemical industry and others that depend heavily on natural gas as a feedstock and source of energy.

"Power companies are already in a dash for gas," based on their expectation that Congress will enact caps on carbon dioxide emissions that severely raise the cost of using coal, Mr. Dooley said.

"Placing a price on carbon will increase the use of natural gas. This is already happening. Natural gas demand for electricity was up 62 percent from 1997 to 2008, a trend that will accelerate as the United States seeks to further reduce greenhouse gas emissions. Additional incentives to entice utilities and others to use more natural gas are unnecessary

Colorado Natural Gas Pipline Opened by Williams

Williams Cos. Inc. said Tuesday that a 26.4-mile natural gas transmission pipeline is in service in the state.

The Tulsa, Okla.-based energy company said that Northwest Pipeline GP, its majority-owned subsidiary, received federal authorization to place the Colorado Connection Hub into service.

The Federal Energy Regulatory Commission granted the authorization.

The pipeline, which can carry about 360,000 dekatherms per day, measures 24 inches in diameter. One dekatherm is equal to 970 cubic feet of natural gas.
http://www.gjfreepress.com/article/20091111/COMMUNITY_NEWS/911109969/1001/NONE&parentprofile=1059

The pipeline links the Meeker-White River Hub with the Northwest Pipeline mainline system, which is in an area south of Rangely. The project cost about $60 million.

Phil Wright, president of Williams' gas pipeline business, said completion of the hub makes it “possible for us to connect the Piceance Basin supplies with the markets in the western” United States.

Shares of Williams (NYSE: WMB) were down 4 cents Tuesday to close at $20.14. The company's 52-week high of $20.81 was posted Nov. 10, 2008, with its 52-week low of $9.52 recorded March 6.

Pennsylvania Opens More Land for Natural Gas Drillers

(AP) – 7 hours ago

HARRISBURG, Pa. — Pennsylvania will open nearly 32,000 acres of additional state forest land to leasing by gas drilling companies, the state Department of Conservation and Natural Resources said.

The six tracts are located in the Elk, Moshannon, Sproul, Susquehannock and Tioga state forests in Cameron, Clearfield, Clinton, Potter and Tioga counties.

In selecting tracts for potential leasing, officials consider not only recommendations from drilling companies but environmental and aesthetic issues that may rule out certain areas, officials said.

"Our approach to making state lands available for natural gas drilling has always been to limit the impact on the surface and on other uses of the land," the department's acting Secretary John Quigley said Monday in a press release. "We've been exceptionally mindful of our obligations as we developed this plan to balance our environmental responsibilities and the budget."

Drilling for natural gas has intensified in regions of Pennsylvania that lie over the potentially lucrative Marcellus Shale formation. Currently, 660,000 acres of the 2.1 million acres of state forest land are under lease for gas production, the department said.

Prospective bidders in the upcoming lease sale of underground oil and gas rights have until Dec. 12 to provide proof that they are registered to do business in Pennsylvania. Pre-qualified bidders may submit sealed bids until Jan. 12, when the bid will be publicly opened.

The list of bidders and award decisions is to be posted on the department's Web site within 24 hours.

The 2009-10 state budget requires the department to raise $60 million from a lease sale on state forest land. This lease sale requires a minimum bid of $2,000 an acre and royalties of 18 percent on the volume of gas that is extracted.

Companies will be encouraged to use existing roads, and surface development is barred on some portions of the tracts to protect wild or natural areas, ecosystems, water bodies and recreational uses, Quigley said.

The department will allow 123 well pads on the six tracts, said department spokeswoman Christina Novak.

Leases run for 10 years, but can be extended based on the production of the wells on a tract.

Copyright © 2009 The Associated Press. All rights reserved.

Gazprom Still #1 in Natural Gas Europe

By GARY PEACH (AP) – 8 hours ago

MOSCOW — Russia's Gazprom saw its earnings halved in the first six months of the year due to lower natural gas prices and sinking demand in Europe, while overall debt jumped nearly a third, the company reported Monday.

The world's largest producer of natural gas said net profit amounted to 305.8 billion rubles ($10.6 billion) for the period, down from 609.3 billion rubles a year ago, according to financial results calculated to international standards.

Six-month sales only fell 7 percent to 1.6 trillion rubles from 1.7 trillion rubles in the same period last year as foreign currencies appreciated against the ruble. Sales to Europe fell 24 percent year-on-year.

Gazprom's outstanding debt increased 31 percent to 1.3 trillion rubles as the company borrowed heavily to finance an option to purchase a 20 percent stake in Gazprom Neft, an oil producing subsidiary, from Italian oil and gas company Eni SpA.

Many analysts criticized state-controlled Gazprom's management for the deal, since the company paid 40 percent more for the stake than its market value at the time. There was speculation the purchase was Moscow's way of getting Italy to approve the South Stream gas pipeline project — which, if completed, would connect Russia with southeastern Europe and deal a blow to Nabucco, a competing U.S.-backed pipeline.

Alexander Nazarov, an analyst at the Metropol investment group, said the third quarter would also be tough for Russia's largest corporation, but then the outlook would improve. "Prices are growing, and demand for gas is growing, so the fourth quarter will be good for the company," he said.

Analysts say, however, that over the long term Gazprom might be forced to rewrite gas purchase contracts with its European customers, who are not satisfied with the current system that pegs the price of gas to the price of oil and compels clients to purchase certain amounts of gas even if they don't use it.

"We're seeing is a change in relations between Gazprom and the companies that buy its gas," said Simon Pirani, a senior research fellow at the Oxford Institute for Energy Studies. "The most dramatic consequence of this change could be how prices are set."

Gazprom accounts for one-third of Western Europe's gas imports, according to the company.

Copyright © 2009 The Associated Press. All rights reserved.

Natural Gas Set to Grow in Pennsylvania

By Mario F. Cattabiani
Inquirer Staff Writer
HARRISBURG - When it became clear that the state budget was in crisis mode, three industries with much at stake in Harrisburg opened their wallets.

Gambling interests, natural-gas drillers, and tobacco companies have since January spent more than $4.5 million combined on lobbying efforts, according to expense reports filed last week with the state.

Those industries were among the few winners in a budget ravaged by the recession.

Casinos are poised to introduce poker and other newly legalized table games. Natural-gas drillers and tobacco companies fought off new taxes.

Six-figure lobbying campaigns are not new in Pennsylvania's capital. And it's hard to know the extent to which such activity changes legislators' minds. Even so, critics say the dollar amounts speak for themselves.

Industries "wouldn't spend money like that if it didn't work," said Barry Kauffman, executive director of Common Cause of Pennsylvania, a watchdog group.

Lobbying expenditures are, in Kauffman's view, "a key indicator of how Harrisburg really works: Invest a lot of money, and you are going to have a lot more clout at the bargaining table."

Comparing recent expenditures with past lobbying efforts is difficult. Pennsylvania didn't enact its disclosure law until late 2006, long after most states. And unless they provide gifts or lodging, those who try to influence state decision makers must report little detail other than the totals spent.

Arthur Zaretsky, for one, isn't shy about describing the details: He hosted receptions and made his case to legislators over food and cigars - the latter being his business.

Zaretsky never thought he would need a lobbyist until it became clear to him this year that Gov. Rendell and Democratic legislators had set their sights on his livelihood. They wanted to help close the budget gap by taxing cigars.

Zaretsky, owner of Famous Smoke Shop, an Easton Internet and mail-order retailer of premium cigars, hired Eckert Seamans Cherin & Mellott L.L.C., a Pittsburgh law firm with a Harrisburg office.

"I needed to educate the politicians about exactly what it is we do and how many people we employ and that putting on a tax would not be a good idea," he said.

Eventually, Republican legislative leaders defeated the proposed cigar tax, along with one proposed for smokeless products such as chewing tobacco and snuff. Left standing was a new tax on little cigars - cigarillos.

In all, tobacco interests large and small spent nearly $1.5 million on lobbying from January through Sept. 30, records show.

Reynolds American Inc., whose subsidiary Conwood Co. is the nation's second-largest producer of smokeless tobacco products, devoted the most - $670,658.

Lobbying in the capital takes many forms - meetings with legislators, letter-writing, and "blast" e-mail campaigns orchestrated by lobbyists. There are studies and polls and white papers commissioned by lobbyists.

"There is nothing wrong with lobbying per se. It is just delivering information. It's valuable," said Rep. Greg Vitali (D., Delaware). "The problem comes when lobbyists try to do more than inform, try to ingratiate themselves to you. And that happens a lot in Harrisburg."

To natural-gas drillers, too, the writing was on the wall as early as February. That was when Rendell announced in his budget address that he was pushing for a new tax on the odorless, colorless gas found deep below Pennsylvania's soil.

Rendell said the tax would bring in about $100 million this year, thanks to what he called the "gold rush" of new drilling for natural gas in the vast underground formation known as the Marcellus Shale.

But in late August, the governor - to the surprise of some of his aides - said drilling executives had convinced him that imposing the tax this year would stunt the growth of the industry. Rendell said he would abandon his push until next year. The companies won another major victory in the prolonged budget battle, persuading lawmakers to open up thousands of additional acres of state forest land to drillers despite the concerns of environmentalists. The industry's argument: The state could bring in more revenue by leasing the land to drillers than by taxing the gas extracted.

As a whole, the natural-gas industry reported spending about $1.6 million on lobbying thus far this year.

Range Resources Appalachia L.L.C., a Texas company that has invested heavily in drilling in the Marcellus Shale, led the way, spending $605,817 this year - nearly triple the expenditure of the next-closest natural-gas company, Chesapeake Appalachia L.L.C. By comparison, Range Resources reported spending less than $200,000 on lobbying here last year.

"Natural gas has a big story to tell and a good story to tell," said Matthew M. Pitzarella, spokesman and registered lobbyist for Range Resources. "It is critically important that our elected leaders and regulators have a healthy understanding of modern natural-gas development and the potential for Pennsylvania."

As the economy sank, the odds of adding table games to slots parlors, once just a dream for the casino industry, improved greatly. Expanding gambling options created a "full-time employment opportunity" for the lobbying community, said Kauffman, of Common Cause.

The millions in revenue that roulette, poker, and blackjack could raise was too great a lure for lawmakers and Rendell to ignore, and the industry was ready to trumpet the pros.

The Sands Casino Resort Bethlehem, which opened in May, reported spending about $307,000 so far this year lobbying - more than any other gaming company in the state.

Such an amount came as no surprise in Harrisburg. Since the state approved slots parlors in 2004, the casino lobby has become an "influential force in the halls of government," said Rep. Paul Clymer (R., Bucks), the legislature's leading gambling foe.

The industry's pitch was simple: Table games meant new jobs and new revenue for a state in dire need of both.

"They have deep pockets and have made the right connections and, as a result, have been successful in getting their agenda passed," Clymer said. "One-and-a-half million dollars might seem like a lot of money, but when you compare it to what they will make on table games, well, it's a great investment."

The lobbyists' work isn't complete. Legislative leaders in the House and Senate have yet to come to terms on the details of the table-games legislation. Sticking points include how much the state would charge the casinos in taxes and licensing fees.

Contact staff writer Mario F. Cattabiani at 717-787-5990 or mcattabiani@phillynews.com.

U.S. Natural Gas Rig Count Up by Six

NEW YORK, Nov 6 (Reuters) - The number of rigs drilling for natural gas in the United States climbed by six this week to 734, 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 14 of the last 16 weeks after bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

But the rig count is still down sharply since peaking above 1,600 in September of last year, standing at 805 rigs, or 52 percent, below the same week in 2008.

Many gas producers have scaled back drilling operations with credit still tight and natural gas prices around $4 per million British thermal units (mmBtu), off about 70 percent from July 2008 highs above $13.

But while drilling has dropped sharply over the past year, traders noted production has not slowed much, with government data last week showing gross August gas output in the lower 48 states climbed 0.8 percent from July and stood at about 0.4 percent above year-earlier levels.

Most traders agreed more rig cuts may be necessary to offset record high inventories and steep recession-related cuts in demand, particularly in the industrial sector. (Reporting by Joe Silha; Editing by Marguerita Choy)

Natural Gas Fire in Texas Panhandle

(AP) – 1 day ago

BUSHLAND, Texas — A natural gas pipeline exploded in the Texas Panhandle on Thursday, shaking homes, melting window blinds and shooting flames hundreds of feet into the air, authorities said.

Three people were injured in the blast, which occurred at 1 a.m. near Amarillo, and they were taken to an area hospital with burns, said Potter County Sheriff's Chief Deputy Roger Short.

"My home is about 20 miles something away and I could see the flames from my home," Short said. "You could hear the roar of the flames 20 miles away."

Firefighters were able to contain most of the flames by 5:30 a.m. though small grass fires continued to burn, Short said.

Nearby residents were evacuated, and the pipeline's gas was shut off, Short said. One house was destroyed, and several others were damaged in Bushland, about 15 miles west of Amarillo, he said.

"The heat onto the homes, it did a lot of damage. You could see blinds inside the homes that were melted. ... It was very hot," Short said.

Bushland Middle School's principal, Mark Reasor, said about 60 people who were evacuated took shelter at the school for a few hours before returning home before dawn. Gas service had been cut off to nearby homes and Bushland's schools, officials said.

One of those injured was in satisfactory condition at an Amarillo hospital, a spokeswoman there said. Another was treated and released and the third was transferred to a burn center at a Lubbock hospital, she said.

A team of investigators was heading to the pipeline, said Robert Newberry, a spokesman for El Paso Corp. Investigators with the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration also were en route, administration spokeswoman Pat Klinger said.

El Paso Natural Gas is a subsidiary of Houston-based El Paso Corp.

In 2007, the corporation agreed to a $15.5 million fine as part of a settlement with the U.S. Department of Justice and pipeline safety regulators involving an explosion near Carlsbad, N.M., that killed 12 members of a family who were camped near the pipeline.

The blast in 2000 occurred in a 50-year-old, 30-inch pipeline that left a 20-foot-deep crater 86 feet by 46 feet in size.

The corporation also committed to spending $86 million to modify the 10,000-mile pipeline system. Newberry said Thursday the modifications are 93 percent complete.

Richard Wheatley, spokesman for El Paso Corp., said it was not clear Thursday if the blast near Bushland involved pipeline not yet modified.

A civil trial involving emotional distress claims by first responders to the 2000 blast is under way in Roswell, N.M. and was expected to last several more weeks.

Copyright © 2009 The Associated Press. All rights reserved.

Russian Natural Gas Pipeline Permit to Europe Through Sweden

By Niklas Magnusson

Nov. 5 (Bloomberg) -- Sweden became the second country to grant final approval for OAO Gazprom’s Nord Stream AG natural- gas pipeline in the Baltic Sea, ending almost two years of Swedish opposition and wrangling over the energy project.

The country approved the 506-kilometer (314-mile) Swedish stretch of the 1,220-kilometer link that will pump gas from Russia to Germany, Zug, Switzerland-based Nord Stream and the government in Stockholm said today.

Opposition to the project was widespread in Sweden, where the public, politicians, media and fishermen questioned its impact on fish breeding grounds and the environmental risks of laying pipes on a seabed littered with mines and chemical weapons dumped during two world wars. Russia’s motives behind the project were also questioned, including concerns that pipeline facilities may be used for espionage.

“The government has made tough demands to secure that the sensitive environment in the Baltic Sea isn’t jeopardized,” Swedish Environment Minister Andreas Carlgren said today.

Denmark gave permission on Oct. 20 and Germany, Russia and Finland also have to give a go-ahead for the project on which construction is planned to start early next year. The venture, which also includes BASF SE’s Wintershall Holding AG and E.ON Ruhrgas AG, seeks to transport 55 billion cubic meters of gas a year when completed in 2012 and is designed to ease supplies from Russia to Western Europe by avoiding Ukraine.

All Permits

“Nord Stream is aiming to obtain all required permits by the end of 2009,” the company said today.

Sweden got the formal application in December 2007 and two months later requested more information about the environmental impact and asked the company to evaluate alternative routes. Nord Stream withdrew plans for a maintenance platform off the coast of the island of Gotland amid concern over Russian presence in Swedish territory.

“The starting point for the government’s decision is that all states has a right to put pipes in international waters and on a coastal state’s continental shelf,” Sweden said. “The government’s room for maneuver has therefore been significantly more limited than it’s in evaluations of applications regarding Swedish territorial waters or projects in Sweden.”

Nord Stream today cleared the second of three steps in the Finnish permitting process for the gas pipelines after that country’s government said the company may use its economic zone in the Baltic Sea. The venture requires a separate permit in Finland in order to begin construction.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

Last Updated: November 5, 2009 10:14 EST

Marcellus Leasholds Increased Natural Gas Production

DALLAS, Nov. 4 /PRNewswire/ -- Chief Oil & Gas LLC ("Chief") today provided a status update of its Marcellus Shale development. Chief's Marcellus leasehold has increased to more than 560,000 acres and leasing continues in selected areas. The Marcellus drilling program continues to expand, to date 39 wells have been drilled: 28 horizontal wells and 11 vertical wells. Currently, 20 horizontal wells are waiting on completion and 7 horizontal wells are being drilled or remain to be drilled in 2009. Chief has four horizontal rigs that are currently under long term-contract, three of which are new fit-for-purpose rigs.

"Since we entered the Marcellus in 2007, we have tested multiple drilling and completion methods and drilled wells in 9 counties in 2 states throughout our acreage gathering valuable knowledge for our drilling and completion program," said Michael Radler, Chief Operating Officer. "We are very pleased with our recent production rates and are seeing excellent EUR's on our horizontal wells. After analyzing our research and results, we have identified at least 3 key areas for development in the Northeast and Southwest. Our current goal is to focus on specific areas, such as Susquehanna County, where we have 15 wells planned in 2010 and will begin testing multi-well completion techniques."

Chief has set a 2010 development budget of $325-350 million depending upon
success and natural gas prices and expects to exit 2010 with 7 rigs running. "We have 70 wells planned, primarily horizontal, for 2010," said Radler. "As we ramp up production, we will continue to improve efficiencies and reduce costs while extending lateral length and improving completion rates."

Chief Gathering LLC, the midstream subsidiary of Chief Oil & Gas, continues to progress with the build out of its pipeline infrastructure and securing contracts from 3(rd) party producers. Chief Gathering has been operating in the Marcellus since November 2008 and has secured 7 interstate pipeline interconnects: 2 each in Lycoming and Fayette counties, and one each in Bradford, Susquehanna, and Clearfield counties. With gathering systems in place in multiple areas, Chief Gathering can move wells to production and sales quickly.

About Chief Oil & Gas LLC

Based in Dallas, Texas, Chief Oil & Gas is a privately held, independent oil &
gas company engaged in the exploration, development and production of oil and
natural gas throughout the continental United States. For more information,
visit www.chiefog.com.

The statements regarding future performance and results and any other
statements, which are not historical facts contained in this release are
forward-looking statements that involve risks and uncertainties, including,
but not limited to market factors of natural gas including the market price,
results of future drilling and marketing activity, drilling inventory, future
production and costs associated and future processing capacity.

Media Inquiries:
Kristi Gittins
Chief Oil & Gas
214-402-8137



SOURCE Chief Oil & Gas

Kristi Gittins, Chief Oil & Gas, +1-214-402-8137

Natural Gas Supply Up While Low Prices Stable

By BEN CASSELMAN

Energy companies started predicting a sharp cutback in the amount of natural gas pumped in the U.S. more than a year ago.

But even though gas prices now hover 30% below a year earlier, the promised reduction never came. And this week, two major natural-gas companies reported big increases in production, while a third, Devon Energy Corp., announced that its new East Texas well was yielding 31 million cubic feet of gas a day, one of the most prolific U.S. wells this year.

As a result, storage facilities are brimming with record gas supplies, and prices are likely to remain soft. The closing price Tuesday was $4.922 per million British thermal units, down 32% from $6.838 a year ago. In July 2008, the price was over $13.

The burgeoning supply is good news for consumers, who can expect their electricity rates and home-heating bills to be lower this winter. But it's bad news for gas producers, which could face low prices for longer than they expected.

On Tuesday, El Paso Corp., a Houston-based gas producer and pipeline company, said it would cut its quarterly payout from five cents to one cent and sell up to $500 million in assets to fund future projects and shore up credit. El Paso said its third-quarter earnings fell 85% to $67 million.

The continued production growth has caught energy experts and others off-guard. "Nobody seemed to anticipate this," said Rocco Canonica, director of energy analysis for the research firm Bentek Energy in Evergreen, Colo.

The challenge the industry faces was also evident in the results of Chesapeake Energy Corp. and Anadarko Petroleum Corp., two of the biggest U.S. gas producers. Late Monday the companies reported big increases in gas production despite a reduction in spending, and lower profits because of low prices.

Hampered by dwindling profits, big gas companies are drilling fewer new wells. Indeed, the number of rigs drilling for natural gas in the U.S. has fallen 53% in the past year, according to Baker Hughes Inc. But technological improvements let companies drill faster and more cheaply than before, and their new wells are very productive.

Gas production in the lower 48 states was up slightly in August, the most recent month available, compared with a year earlier, according to federal data released last week.

Some experts, including Jon Wolff, an energy analyst with Credit Suisse in New York, argue that production has remained so high because companies are choosing to drill only in the best areas and can demand the best gear and workers from contractors desperate for business.

http://online.wsj.com/article/SB10001424052748703294004574513713926109106.html

Natural Gas Profits Tied to Price MMBtu

HOUSTON (Reuters) - U.S. independent oil and gas companies Anadarko Petroleum Corp (APC.N) and Chesapeake Energy Corp (CHK.N) reported sharply lower quarterly profit on a steep drop in prices for natural gas and crude oil.

However, the more diversified Anadarko beat Wall Street expectations while Chesapeake, which is essentially a North American natural gas business, fell short on revenue.

The global economic slowdown has curbed demand for fuel to run power plants and factories. In response, U.S. natural gas stockpiles reached record levels, causing prices to fall 66 percent from the 2008 third quarter.

And U.S. oil prices which are now trading near $80 a barrel for the first time in a year averaged $68 a barrel last quarter, just over half that of a year ago.

Anadarko's third-quarter results were better than expected, and it raised its 2009 output forecast on improved operations and stable weather. Its shares rose 1.3 percent.

Chesapeake's quarterly profit also topped Wall Street estimates, but the company missed analysts' revenue projections and its shares fell 1 percent.

Meanwhile, oil and natural gas company Forest Oil Corp (FST.N) posted third-quarter results that missed market expectations, also hurt by lower commodity prices. [nBNG511894]

Huge supplies of natural gas prompted many energy companies to slow down drilling in North America. But that steep drop in the number of rigs have many analysts, companies and investors looking for a rebound in natural gas prices in 2010.

"It is amazing how much productivity these companies are getting with less money," Ray Deacon, analyst with Pritchard Capital, said. "Every single E&P company is growing production a lot more in 2010, and they are all basing their capex on $6 gas."

Anadarko is more diversified, with more oil production and deepwater operations in other parts of the world like West Africa and Brazil.

"The positive third-quarter results continue to demonstrate the value of Anadarko's portfolio, with strong performance from both our producing assets and deepwater exploration program," Anadarko Chairman and Chief Executive Officer Jim Hackett said in a statement.

Citing its improved operations and the lack of severe weather in the Gulf of Mexico, Anadarko said it now expects 2009 oil and gas output to be about 220 million barrels of oil equivalent, up 7 percent from a year ago.

Chesapeake's quarterly profit fell sharply from a year ago as lower natural gas prices hurt results and the year-ago period was boosted by a large gain related to hedging.

Net profit in the quarter was $186 million, or 30 cents per share, compared with $3.29 billion, or $5.62 per share in the same period a year ago.

Excluding one-time items, the Oklahoma City, Oklahoma company had earnings of $440 million, or 70 cents per share. On that basis analysts on average had expected a profit of 65 cents per share, according to Thomson Reuters I/B/E/S. Continued...

Natural Gas Mystery Methan in Colorado

By JUDITH KOHLER (AP) – 4 hours ago

WALSENBURG, Colo. — Bernice and Jerry Angely like to show visitors the singed T-shirt a friend was wearing when their water well exploded and shot flames 30 feet high.

The friend wasn't hurt. But that and an explosion at another home weeks earlier forced Colorado to suspend natural gas drilling around this southern plains town until someone could find out why dangerous levels of methane were getting into the groundwater.

Two years later, Walsenburg and surrounding Huerfano County are still waiting, its residents caught in a collision between two of the West's vital resources: Water and natural gas.

"The water is so saturated with methane and other chemicals it is not to be used for human consumption," said Bernice Angely, who's had water trucked to her home 10 miles west of town since her well blew up in July 2007.

Petroglyph Energy Inc., a Boise, Idaho-based firm that has worked the rolling plains of the Raton Basin since 1999, suspended drilling until it can stem the methane. Colorado also is rewriting rules that had allowed Petroglyph to discharge water runoff from its drilling into streams and creeks.

But Petroglyph says it's not clear the drilling caused the methane leaks or prompted other area water wells to run dry. Eying what it calls an extremely promising natural gas field, it believes a shallow water formation tapped by area homeowners isn't connected to a deeper one pumped by the company for its drilling operations.

Petroglyph chief operating officer Paul Powell also believes a growing number of new homes in the area could explain some of the dry water wells.

"We'll do what we need to do," Powell said, stressing that his firm is working with the state on a solution.

Petroglyph has a plan to prevent the flow of methane into water wells by creating a hydraulic barrier. The company has proposed pumping water from an underground formation and injecting it into a row of wells where gas drilling occurs. Powell said gas will migrate into a void, and "if the void is full of water, there isn't room for gas to migrate through it."

State regulators say the plan is plausible but that Petroglyph needs to prove it works. Democratic U.S. Rep. John Salazar, who farms in the nearby San Luis Valley, has asked the U.S. Geological Survey to weigh in by evaluating the area's water quality and formations to determine if the gas drilling is to blame for the problems.

Water coursing through porous rock and streams has allowed farming, ranching and new subdivisions to thrive in the semiarid area about 160 miles south of Denver.

It also helps trap methane gas in the vast coal seams that once made the area a mining hot spot. The coal mines are gone, but the methane that made digging for it dangerous is a valuable resource. Companies like Petroglyph pump huge volumes of water out of the ground to relieve the pressure trapping the natural gas.

Steve Gunderson, director of Colorado's water quality control division, said Petroglyph will have to build a water treatment plant before it gets a new permit to discharge water. The old permit allowed Petroglyph to release up to 8 million gallons of water daily.

Fourth-generation dairy farmer Brett Corsentino blames the discharges into the Cucharas River for ruining his corn crops. He uses river water to irrigate his crops just a few miles east of the homeowners having problems with their wells. He says the high levels of sodium in the wastewater has diminished his soil's ability to absorb water and stunted the corn's growth.

"They say, `Well, there's no proof,'" Corsentino said. "Well, we'd been getting along for generations just fine until they started pumping 8 million gallons out of this country."

Corsentino also says his herd suffered abnormally high birth and death rates and now numbers 400, down from 650. He believes the cows consumed too much sodium from the water and corn grown from it. His corn used to produce 6,000 tons of silage; this year's crop yielded 1,500 tons.

However, Corsentino says his herd is healthier and milk production has increased since drilling stopped.

"There's an obvious direct, substantial impact to Brett Corsentino's dairy," the state's Gunderson said of the drilling.

Petroglyph paid for soil tests on Corsentino's farm. They showed high levels of sodium but that it also needed more calcium, Powell said. Petroglyph and Corsentino are discussing possible treatments.

"We still don't believe we have liability for the situation," Powell said. "But we were willing to help him fix his land and get back to productivity."

Ten miles west of Walsenburg, a rushing sound emanates from a pipe that vents methane from Ben and Melanie Bounds' water well. The pipe was installed after a June 2007 explosion blew off a shed roof covering the well.

The Bounds had moved from Dallas to build what they call their dream home atop a hill with a breathtaking view of the Spanish Peaks. They say their problems started when Petroglyph began drilling nearby. They're suing the company and haul water from town to their cistern.

"If I could run the clock back, we'd have never tried this," Ben Bounds said.

"I had more methane coming out of my water well than they had out of any of their gas wells. It sounded like a locomotive going down the road," said Kent Smith, who also has a methane detector in his house. "The damage and the problems they've caused have got to be addressed, and they keep getting pushed aside and forgotten about."

Petroglyph insists it's a good neighbor. Despite the methane mystery, it's trucking water to 14 area homes and has supplied 15 homes with methane alarm systems.
On the Net:

* Walsenburg 2009 Drinking Water Consumer Confidence Report for Calendar Year 2008: http://www.cityofwalsenburg.com/reports/2009waterreport.pdf

Haynesville Shale's Big Natural Gas Play

Louisiana shale could change fate of U.S. energy supply
By TOM FOWLER
HOUSTON CHRONICLE
Oct. 31, 2009, 10:37PM
This is the first of several reports looking at the boom in natural gas produced from shale formations.

GRAND CANE, La. — Two miles beneath northwest Louisiana's patchwork quilt of forests, cotton fields and pastures, dozens of drill bits are grinding their way toward what may be the nation's energy future.

The region around Shreveport has known oil and gas exploration for decades, but it's now buzzing anew as companies try to capitalize on one simple fact — locked into cement-like shale formations thousands of feet underground are potentially huge quantities of natural gas.

The gas found in the area's Haynesville shale and in other shale formations throughout the country has changed the nation's energy outlook in just a few short years.

Some see abundant North American natural gas as the gateway to reduced dependence on foreign oil and a bridge toward carbon-free energy sources since gas is the lowest-emission fossil fuel.

Others say the surge in next-generation gas production isn't paying off as promised and threatens local water supplies.

Some even see it as another speculative bubble, driven by hype that will never deliver the fuel it promises.

What is happening in Haynesville is typical of what has happened and will likely occur in the other shale regions — millions of dollars in investment, plenty of lawsuits against the drilling companies and concerns about the safety of the drilling techniques being used.

Until just a few years ago, the story of natural gas supply in the U.S. had been one of decline. Dozens of liquefied natural gas terminals were on the drawing board in the earlier part of the decade to help import the fuel from overseas.

But the marriage of two long-used drilling techniques — hydraulic fracturing and horizontal drilling — is showing potential.

For years, companies have used hydraulic fracturing — injecting water into underground formations to break apart rocks and release more oil and gas. The Woodlands-based Mitchell Energy perfected the techniques in the Barnett shale formations in North Texas. But it wasn't until Devon Energy acquired Mitchell in 2002 that engineers added horizontal drilling — turning the drill bit at a 90-degree angle to tap into a larger section of the strata.

Suddenly these dense formations that companies thought too expensive to drill became economic.

And since companies have been drilling through them for decades to get at conventional oil and gas formations, the locations of the shale formations are well-known, said Rusty Braziel, managing director of Bentek Energy.

“You may as well drop the ‘E' from E&P,” Braziel said, using the common abbreviation for exploration and production. “They don't explore, just produce.”

In just two years the country's estimated natural gas resources rose 39 percent, from 1,320 trillion cubic feet in 2006 to 1,836 trillion cubic feet, according to the Potential Gas Committee, an industry think tank.
Climate change debate

The natural gas industry is using this boom as ammunition in the debate over climate change and energy security. They say the fuel is ideal for replacing coal to run power plants because it produces half as much carbon dioxide and note it also can run cars and trucks with modified fuel tanks and engines.

The Barnett shale formation around Fort Worth has been the busiest in recent years, followed by the Woodford and Fayetteville shale formations in Oklahoma and Arkansas, but Haynesville is now seeing its day.

Companies have scrambled over the past two years to lease as much acreage as possible. In 2008, oil and gas exploration companies in the Haynesville shale paid out about $3.1 billion in lease payments to property owners and $93 million in royalties, according to a survey done for the Louisiana Department of Natural Resources. That figure is considered conservative since only 70 percent of the companies responded.

State and local governments also collected about $56 million in state and local taxes related to the drilling and leasing.

The activity in the region is particularly clear from the air. Dozens of drilling-rig towers project above the treetops while acre-size red squares of freshly overturned earth mark future drill sites.Pathways cleared for new pipelines cross the region, with some pipelines recently buried and others exposed, their unconnected parts neatly arranged like hundreds of green drinking straws.

At a drilling site in rural Desoto Parish, Larry Strasheim, a drilling superintendent for El Paso Corp., says he has worked a lot of big prospects over the years, drilling in all kinds of formations. “But there's something special about this one,” he said.

Haynesville shale is deeper than many other shale formations, but the wells tend to produce more gas upon start-up than in other fields, often five times more.

That's why the new gas gathering and processing system CenterPoint Energy is building for Shell and EnCana's Haynesville production will be twice as large as a typical gathering system. The pipes running from the wellhead will be 24 inches in diameter instead of the standard 12 inches.

“The wells produce a lot more up front,” said Kerri Selsor, vice president of engineering and construction at CenterPoint.

“They are all working on an aggressive schedule and a very short time frame because they often have just three years to drill before leases expire.”

Not everyone is pleased with the boom.

Ben Wheeler, a retired truck driver in Desoto Parish, said he and his neighbors were among the first approached by natural gas companies in late 2007 about selling their mineral rights.
$125-$30,000 an acre?

He says the companies gave them a hard sell, saying everyone around them had signed up and that they had better do the same. Wheeler was offered $125 an acre.

Less than a year later Wheeler and his neighbors, who had agreed to sell for even less, were hearing of other landowners who had been offered up to $30,000 an acre. And the royalty payments have been more like a trickle than the torrent many were promised.

“If they had paid everyone a fair market value instead of taking advantage of us, we wouldn't have had all this,” said Wheeler, who is among landowners suing the owner of the gas well in their neighborhood.

Some are also skeptical that the boom in leasing and drilling in shale plays will deliver as promised. Houston energy consultant Arthur Berman likened the shale rush to speculative bubbles seen in financial services, real estate and technology in the past.

And famed energy investment banker Matt Simmons — a proponent of the “peak oil” premise that says the world already has reached its maximum oil production levels — has doubts about predictions that wells will continue to produce for years after their initial burst.

“In the past 40 years I don't think I've seen anything promoted as hard as shale in the oil and gas business,” Simmons said.

But investment in shale continues. Just last month Chesapeake Energy told analysts it expects to spend as much as $4.7 billion on drilling next year, a 40 percent increase over this year's budget. Plenty of others are following suit.

tom.fowler@chron.com

http://www.chron.com/disp/story.mpl/business/energy/6696966.html