Valero Refining Talking Natural Gas

SAN ANTONIO, April 29 (Reuters) - Leading independent U.S.
refiner Valero Energy Corp (VLO.N) is weighing a move into
natural gas production to supply its refineries and as a hedge
against future price increases, said Valero Chief Executive
Bill Klesse at the company's annual meeting on Thursday.

"If we can get into the natural gas business, get reserves
that are committed to Valero, you're getting into a $4 market,"
Klesse said to reporters following the annual meeting. "I don't
know where gas prices will be 10 years from now. I think we're
going to look at it seriously, but as to how we would do it, I
don't know."

Natural gas prices NGc1 have sunk to $4 per million
British thermal units, down from a record high above $13 in
2008. Several oil majors are increasing their investment in
natural gas, which is seen as a way for the United States to
slash greenhouse gas emissions and cut its dependence on
foreign oil.

Valero's 15 North American refineries consume 400 million
cubic feet of natural gas per day in part to supply hydrogen to
units that remove pollutants from motor fuel and boost the
production of diesel fuels from crude oil.

"Natural gas prices are low," Klesse said. "In a way it
would be a hedge on the future."

Fracking Still Under Pressure from Congress

By Tom Doggett

WASHINGTON, April 27 (Reuters) - Two U.S. lawmakers on Tuesday urged Congress to resist calls to pass federal regulations limiting a drilling technique that extracts natural gas from rock formations but has been blamed for contaminating drinking water supplies.

State governments, not the federal government, are now responsible for regulating the drilling technique called hydraulic fracturing. Natural gas producers are worried that federal regulation could hinder extraction of gas from shale rock formations, which account for 15 percent to 20 percent of U.S. output of natural gas.

Demand for natural gas has grown as electric utilities build gas-fired power plants that emit much less carbon dioxide than coal generators.

The House Energy and Commerce Committee is investigating hydraulic fracturing, also known as fracking, and some lawmakers are pushing legislation to regulate the practice.

Two committee members, Representatives John Sullivan, a Republican from Oklahoma, and Arkansas Democrat Mike Ross, said the panel would be short-sighted to pass a bill putting fracking under U.S. safe drinking water law before the Environmental Protection Agency completes a study of the drilling technique which is expected to take two years.

Allowing the EPA to oversee fracking "would add burdensome and unnecessary regulatory requirements to the drilling and completion of oil and gas wells which could result in increasing costs of producing domestic natural gas resources," the lawmakers said in a letter to Representative Henry Waxman, the energy committee's chairman.

"We believe that state regulatory agencies are the most appropriate regulatory bodies to provide oversight and protection of hydrologically and environmentally sensitive localities as they relate to hydraulic fracturing," they said.

Fracking injects a mixture of water, sand and chemicals into rock fomations to stimulate oil and natural gas production. Some environmental groups claim the technique can contaminate ground water and want the government to regulate it.

However, energy companies say improved fracking technology allows them to drill for oil and gas in an environmentally safe manner. They also say there is no evidence fracking has contaminated water supplies. (Reporting by Tom Doggett; Editing by David Gregorio)

Russia Determined to Own Ukraine Natural Gas Right of Way

Russia proposes Ukraine to create a joint venture to purchase and sell natural gas in Ukraine.

Ukrainian News learned this from a draft intergovernmental agreement proposed by the Russian Energy Ministry to the Ukrainian Fuel and Energy Ministry on expansion of the cooperation in the energy sector posted on the Web site of the Dzerkalo Tyzhnia weekly.

Moreover, the draft agreement proposes to provide experts with free access to the facilities of the Ukrainian gas transportation system to monitor the gas transit via Ukraine.

The draft agreement envisages guarantees of uninterrupted transit of natural gas via the territory of Ukraine in the volumes and terms agreed by Gazprom and the Naftohaz Ukrainy national oil and gas company and guarantees of absence of the transit natural gas siphoning by Ukraine.

The draft agreement also envisages the Ukrainian side's refusal from the immunity against court trials, provisional measures of securing claims and execution of court decisions.

The document also stipulates for an opportunity to cease the effect of the previous intergovernmental agreements in the gas sector viewed by the parties to the agreement as being inexpedient.

As Ukrainian News earlier reported, Ukraine and Russia are disposed to agree upon guarantees of minimum transit of natural gas through Ukraine before autumn.

On April 21, additional agreements were signed to the contracts on gas supplies and transit between the Naftohaz Ukrainy national oil and gas company and Russia's Gazprom gas monopoly.

Naftohaz Ukrainy will make payments with a discount equal to the amount of reduction in the export duty on gas supplies to Ukraine set by the Russian government.

Gazprom estimates the reduction to make USD 100 per thousand cubic meters but no more than 30% of the natural gas price and will apply to the volumes of supplies of 30 billion cubic meters in 2010 and 40 billion cubic meters in the following years

Bakersfield Apartments |

NY Drilling Getting Harder

By MARY ESCH (AP) – 3 days ago

ALBANY, N.Y. — New regulations announced Friday for natural gas drilling in the New York City and Syracuse watersheds will create a bureaucratic hurdle that effectively prevents drilling there, defusing concerns about possible drinking-water contamination.
Environmental Conservation Commissioner Pete Grannis said the watersheds will be removed from drilling regulations being developed for other parts of the Marcellus Shale region in southern New York. Instead, each gas well would require an individual environmental impact statement, which entails a long, costly and complicated process.
The state is drafting new drilling regulations because the gas exploration in the Marcellus Shale — a rock formation that, thanks to new drilling techniques, only recently became profitable to tap — uses high-volume hydraulic fracturing to release trapped natural gas. That involves injecting millions of gallons of water mixed with chemicals and sand into each well.
Under the broader regulations, companies applying for drilling permits would have to meet requirements spelled out in a "generic" environmental impact statement but wouldn't have to do impact statements for each well. The generic impact statement includes numerous special restrictions for sensitive watershed areas.
Grannis said it makes more sense to simply remove the watersheds from the generic impact statement.
The DEC and the state Health Department will work with Syracuse, New York City and communities within the watersheds to develop special restrictions for drilling companies seeking permits in the watersheds.
New York City officials had argued that the city would be forced to spend $10 billion on a water-filtration plant if gas exploration polluted its reservoirs.
The Marcellus Shale spans parts of New York, Pennsylvania, West Virginia and Ohio. There are 58 pending permit applications in New York's portion, but none are in those watersheds, Grannis said. Drilling has been on hold while new regulations are being developed. They're expected to be finished this fall.
The New York City watershed, covering more than 60 square miles, makes up about 8 percent of the Marcellus Shale region in New York. The Skaneateles watershed, which serves the city of Syracuse, is much smaller.
Officials in both regions had called on state regulators to ban drilling there, citing fears of polluting drinking water supplies for more than 9 million people. Grannis said that would pose legal issues because 80 percent of the land is privately owned.
Those two watersheds are the only areas of the state with special federal permits to use unfiltered surface water for drinking.
Brad Gill, executive director of the Independent Oil and Gas Association of New York, called the watershed regulations excessive and unnecessary.
"While the DEC's announcement does not constitute a drilling ban, the result will be the same," Gill said. "It will do irreversible fiscal harm to the local communities that would benefit from tax revenues through drilling, and it will harm landowners who want nothing more than to safely develop their land in a way that's in the best interest of their families and future generations."
Environmental advocates had a mixed reaction to Friday's announcement.
"This decision will not only help protect two of New York's great natural treasures, the Catskills and the Finger Lakes, it will also protect the drinking water supplies for roughly half of all New Yorkers," said Neil Woodworth, executive director of the Adirondack Mountain Club.
Alex Matthiessen, president of Riverkeeper, called it "a partial victory."
"We still have a lot more work to do to make sure the DEC issues the strictest possible regulations for drilling in the rest of upstate New York," Matthiessen said.
"Even if the practical effect is to stop development of the Marcellus Shale in these limited areas, we need to make sure there are across-the-board standards that will protect all New Yorkers from the health threats posed by industrial gas drilling," said Deborah Goldberg, an attorney for Earthjustice.
Manhattan Borough President Scott Stringer said nothing short of an outright ban on drilling in the city's watershed is acceptable.

Copyright © 2010 The Associated Press. All rights reserved.

Natural Gas Drilling Getting Harder for New York Owners

By MARY ESCH (AP) – 2 days ago

ALBANY, N.Y. — New regulations announced Friday for natural gas drilling in the New York City and Syracuse watersheds will create a bureaucratic hurdle that effectively prevents drilling there, defusing concerns about possible drinking-water contamination.

Environmental Conservation Commissioner Pete Grannis said the watersheds will be removed from drilling regulations being developed for other parts of the Marcellus Shale region in southern New York. Instead, each gas well would require an individual environmental impact statement, which entails a long, costly and complicated process.

The state is drafting new drilling regulations because the gas exploration in the Marcellus Shale — a rock formation that, thanks to new drilling techniques, only recently became profitable to tap — uses high-volume hydraulic fracturing to release trapped natural gas. That involves injecting millions of gallons of water mixed with chemicals and sand into each well.

Under the broader regulations, companies applying for drilling permits would have to meet requirements spelled out in a "generic" environmental impact statement but wouldn't have to do impact statements for each well. The generic impact statement includes numerous special restrictions for sensitive watershed areas.

Grannis said it makes more sense to simply remove the watersheds from the generic impact statement.

The DEC and the state Health Department will work with Syracuse, New York City and communities within the watersheds to develop special restrictions for drilling companies seeking permits in the watersheds.

New York City officials had argued that the city would be forced to spend $10 billion on a water-filtration plant if gas exploration polluted its reservoirs.

The Marcellus Shale spans parts of New York, Pennsylvania, West Virginia and Ohio. There are 58 pending permit applications in New York's portion, but none are in those watersheds, Grannis said. Drilling has been on hold while new regulations are being developed. They're expected to be finished this fall.

The New York City watershed, covering more than 60 square miles, makes up about 8 percent of the Marcellus Shale region in New York. The Skaneateles watershed, which serves the city of Syracuse, is much smaller.

Officials in both regions had called on state regulators to ban drilling there, citing fears of polluting drinking water supplies for more than 9 million people. Grannis said that would pose legal issues because 80 percent of the land is privately owned.

Those two watersheds are the only areas of the state with special federal permits to use unfiltered surface water for drinking.

Brad Gill, executive director of the Independent Oil and Gas Association of New York, called the watershed regulations excessive and unnecessary.

"While the DEC's announcement does not constitute a drilling ban, the result will be the same," Gill said. "It will do irreversible fiscal harm to the local communities that would benefit from tax revenues through drilling, and it will harm landowners who want nothing more than to safely develop their land in a way that's in the best interest of their families and future generations."

Environmental advocates had a mixed reaction to Friday's announcement.

"This decision will not only help protect two of New York's great natural treasures, the Catskills and the Finger Lakes, it will also protect the drinking water supplies for roughly half of all New Yorkers," said Neil Woodworth, executive director of the Adirondack Mountain Club.

Alex Matthiessen, president of Riverkeeper, called it "a partial victory."

"We still have a lot more work to do to make sure the DEC issues the strictest possible regulations for drilling in the rest of upstate New York," Matthiessen said.

"Even if the practical effect is to stop development of the Marcellus Shale in these limited areas, we need to make sure there are across-the-board standards that will protect all New Yorkers from the health threats posed by industrial gas drilling," said Deborah Goldberg, an attorney for Earthjustice.

Manhattan Borough President Scott Stringer said nothing short of an outright ban on drilling in the city's watershed is acceptable.

Copyright © 2010 The Associated Press. All rights reserved.

Gazprom and Austria Doing a Pipeline Deal

VIENNA, April 24 (Xinhua) -- Austria and Russia on Saturday signed a cooperation agreement on a proposed natural gas pipeline project known as the South Stream.
The deal will expand Russia's capability to supply more natural gas to the European Union through the planned 3,700-kilometer pipeline.
The cooperation agreement will allow Russia to meander the pipeline into Austria before turning west into Bulgaria, Turkey and Italy.
Russian Energy Minister Sergei Shmatko and Austrian Economy Minister Reinhold Mitterlehner signed the agreement during a ceremony witnessed by Russian Prime Minister Vladimir Putin and Austrian Chancellor Werner Faymann.
Austria has been a supporter of the Nabucco natural gas pipeline, which has been deemed as a competing route against the South Stream.
The Nabucco pipeline, planned by the United States and the European Union, is to measure 3,300 km.
Both the South Stream and Nabucco pipelines have bypassed Ukraine, which has been causing supply difficulties to EU countries due to its price disputes with Russia.
The South Stream was expected to completed in 2015 at an estimated cost of 20 billion U.S. dollars while the Nabucco pipeline also is to be finished in the same year at a cost of 12.3 billion dollars.
Russia supplies Austria with about 70 percent of its natural gas needs and provides all of Europe with about 20 percent of its requirements.

Natural Gas Rig Count Down 1st Time in 2010

By Moming Zhou

April 23 (Bloomberg) -- Natural gas futures rose in New York after data showed the number of gas drilling rigs in the U.S. fell for the first time this year, a sign that producers are cutting exploration and production.

The number of gas drilling rigs fell 17 to 956 this week, the first decline since Dec. 25, according to Baker Hughes Inc. Gas also gained as sales of new U.S. homes surged last month by the most in almost five decades, boosting optimism that demand for the industrial fuel will increase.

“This might be a sign that producers are starting to cut back,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The economy is getting better so demand should improve a little bit, and the market is trying to react to that.”

Natural gas for May delivery gained 12.9 cents, or 3.1 percent, to settle at $4.257 per million British thermal units on the New York Mercantile Exchange. The futures have fallen 24 percent this year.

The U.S. gas rig count fell to 665 on July 17, 2009, the lowest level since May 2002. The number rose to 973 in the week ended April 16, up 46 percent from July’s low.

The rig count could “retrace back toward the 900 level,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.

Power Demand

Gas also rose on anticipation demand for electricity from gas-fired power generators will increase as coal plants shut for annual maintenance.

U.S. power plants often schedule repairs for April and May after the winter heating season ends and before warm weather spurs demand for electricity. About 31 percent of gas demand comes from electricity generators, according to the Energy Department.

“Gas-fired power generation is again picking up share in the generation stack to the detriment of coal-fired generation,” said Horwitz. “With this dynamic in play, we believe gas prices have put in a floor at $4.”

U.S. gas inventories rose to 1.829 trillion cubic feet in the week ended April 16, 19 percent above the five-year average, the Energy Department reportedyesterday. Supplies were 5.5 percent higher than a year ago.

Supplies typically increase from April to November as utilities and other large consumers buy gas for use during the cold-weather months, when demand exceeds production and imports.

U.S. Production

U.S. production reached a record 26.4 trillion cubic feet in 2009, rising 2.4 percent from the previous year, according to the Energy Department. The increase came as purchases of the fuel by factories, chemical plants and steel mills declined 7.7 percent during the worst recession since the 1930s. Demand may increase 2.2 percent this year.

Since 2005, total gas output in the U.S. has risen 12 percent, while consumption has advanced 3.8 percent, according to Energy Department data.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 11.63 cents, or 2.9 percent, to $4.0661 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 222,686 contracts as of 2:36 p.m., compared with a three-month daily average total of 234,000. Volume was 300,623 yesterday. Open interest was 859,714 contracts, compared with the three- month average of 824,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Moming Zhou in New York atmzhou29@bloomberg.net.

Last Updated: April 23, 2010 15:12 EDT 

Up and Down and Back Up to $4.128/MMBTU

By DEBORAH JIAN LEE (AP) – 10 hours ago

NEW YORK — Natural gas prices shot up on Thursday after the government reported storage levels expanded less than expected.
The price of natural gas rose 17.3 cents to settle at $4.128 per 1,000 cubic feet on the New York Mercantile Exchange.
Earlier, the Energy Department said that the country's natural gas inventories grew by 73 billion cubic feet to about 1.83 trillion cubic feet for the week ended April 16. Analysts expected a bigger boost of between 76 billion and 80 billion cubic feet.
PFGBest analyst Phil Flynn said the news caught the market by surprise.
With recent mild weather and rising rig counts, "there was an expectation that we'd see more production, less demand and a bigger than expected increase in inventory," he said.
Flynn suggested that stronger manufacturing figures could have helped boost demand for natural gas and production may not have been as high as the rig count indicated.
"Traders got too bearish too soon," he said.
Meanwhile, oil prices tumbled as the stock market lost ground, then recovered to settle pennies higher as the Dow Jones Industrial Average and S&P 500 pared earlier losses. By mid-afternoon the Dow was down about 23 points and the S&P 500 was off about a point.
Benchmark crude for June delivery rose 2 cents to settle at 83.70 a barrel on the New York Mercantile Exchange. The price of crude is 80 percent higher than a year ago. The increase seems to be tracking the dollar and the direction of stocks on Wall Street, not U.S. energy demand.
Meanwhile, the debt crisis in Greece continues to dampen expectations for an economic recovery and stronger energy demand, Flynn added. Greece's mounting problems are also weighing on the euro, bolstering the dollar and hurting oil prices. A stronger dollar makes crude more expensive for holders of other currencies.
In other Nymex trading in May contracts, heating oil rose 0.92 cent to settle at $2.215 a gallon and gasoline added 1.75 cents to close at $2.3002 a gallon.
In London, Brent crude edged down 3 cents to settle at $85.67 on the ICE Futures exchange.
Associated Press writers Pablo Gorondi in Budapest, Hungary and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.

Exxon Looking at Australian Hydrocarbons

By Ben Sharples

April 22 (Bloomberg) -- Exxon Mobil Corp., operator of the Gippsland Basin oil and gas venture in southeastern Australia with BHP Billiton Ltd., said it’s evaluating a discovery in the Bass Strait.
Drilling encountered oil and gas at the South East Remora-1 well, 35 kilometers (22 miles) off the coast of Victoria state, Exxon’s Australian unit said in an e-mailed statement today. The discovery is near the Marlin A platform, Melbourne-based spokeswoman Rebecca Arnold said by telephone.
The Gippsland Basin venture, which includes 21 offshore platforms in the Bass Strait, has produced nearly 63 percent of Australia’s cumulative oil output since 1969, according to Exxon’s Web site. Exxon is analyzing the drilling results to determine flow rates and volumes at the well, Arnold said.
“Combining innovative ideas and new technology with in- depth knowledge and experience, we have been able to significantly extend the life of the existing Bass Strait fields, and to find and produce oil and gas from new locations,” John Dashwood, chairman of Exxon’s Australian unit, said in the statement.
The South East Remora-1 well was drilled in 57 meters of water to a total depth of 3,602 meters below sea level, Exxon said. “Decades” of oil and gas production remain in the Gippsland Basin, Irving, Texas-based Exxon said.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
Last Updated: April 21, 2010 21:56 EDT

Russian and Ukraine Negotiating Again

By Kateryna Choursina and Daryna Krasnolutska

April 20 (Bloomberg) -- Ukraine Prime Minister Mykola Azarov said his country’s talks with neighboring Russia over gas import prices are “extremely difficult,” as he urged companies to reduce energy consumption.

“Everything depends on Russia’s good will,” Azarov said today at a meeting with the country’s confederation of industrial companies in the capital Kiev. Manufacturers need to consume less energy because Ukraine “cannot buy such expensive gas,” he said.

Russian President Dmitry Medvedev and his Ukrainian counterpart Viktor Yanukovych will tomorrow try to finish talks to determine how much Ukraine must pay Moscow for gas imports. The meeting will be their third in two months. Ukraine, which relies on Russia for almost 50 percent of its gas, needs a lower price so it can cut local subsidies and reduce its budget deficit, a condition of its International Monetary Fund loan.

“I hope that we will review the contract and come to a mutually beneficial agreement with Russia,” Azarov said.

The country’s Fuel and Energy Minister Yuriy Boyko was in Moscow yesterday to discuss gas contracts, Russian state- controlled gas supplier OAO Gazpromsaid in a statement, without providing any details.

Gazprom may charge Ukraine an average of $250 to $260 per 1,000 cubic meters of natural gas this year, Vedomosti reported yesterday, citing two unidentified people who referred to Ukrainian Cabinet documents.

Budget Price

The two sides have an agreement in principle on the reduction, the Moscow-based newspaper said.

Russia raised the price it charges for 1,000 cubic meters of natural gas to $360 in the first quarter of 2009, compared with the $179.50 in 2008. The price fell to $305 in the first quarter of this year. The 2010 budget, which has yet to be approved, assumes a gas price of $334, Deputy Prime Minister Serhiy Tigipkosaid on April 15.

Ukraine’s economy contracted 15.1 percent last year, the deepest decline since 1994, as the financial crisis cut demand for its exports, weakened the currency and dried up investments.

To contact the reporter on this story: Kateryna Choursina in Moscow atkchoursina@bloomberg.net

Last Updated: April 20, 2010 09:33 EDT

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Gas Industry Pressure to Power Plants in Colorado

By COLLEEN SLEVIN (AP) – 1 hour ago

DENVER — Colorado is pushing its largest utility toward using more natural gas to cut power plant emissions in the Denver area under a new law backed by environmentalists and the gas industry.

Gov. Bill Ritter signed the bill into law Monday while surrounded by representatives of the unlikely alliance who now hope to persuade other states or even Congress to rely more on natural gas to reduce pollution and greenhouse gases. Minneapolis-based Xcel Energy Inc. also backed the new law, which lawmakers rushed to pass to head off expected stricter federal emissions rules and to boost natural gas drilling.

The coal industry, which spent nearly $2 million opposing Colorado's legislation, called the law a gas giveaway and said it would cost hundreds of jobs in mines, on the railroads that move the coal, and at coal-power plants, which are more labor intensive than gas-fired ones.

The bill had been quietly the works for months before the legislative session began in January, and Colorado Mining Association President Stuart Sanderson criticized those behind-the-scenes negotiations for excluding the coal industry.

Under the new law, Xcel must come up with a plan by Aug. 15 for how it will reduce pollutants like nitrogen oxide over the next seven years at power plants producing 900 megawatts — enough energy to power about 675,000 homes on an average day. Xcel must give primary consideration to using natural gas but it can also consider keeping some coal-fired units and adding emissions controls.

Three power plants in northern Colorado are being considered, but Xcel hasn't decided exactly which smokestacks would be affected.

Utility regulations have typically favored building plants powered by coal, which is cheaper than gas. But under the law, Xcel will be able to negotiate long-term contracts to lock in lower prices for natural gas and customers will be on the hook for paying that price even if gas prices drop below that.

Xcel estimates that it could cause average electric bills to rise between 4 and 6 percent, although prices can't start rising until 2012.

Pete Maysmith, executive director of Colorado Conservation Voters, said it was unprecedented for a state to develop a comprehensive plan for tackling pollutants from nitrogen oxides to mercury as well as carbon dioxide.

Three other states have passed laws to reduce carbon emissions — California, Washington and Massachusetts — that effectively prohibit any traditional power plants from being built, said Glen Andersen of the National Conference of State Legislatures. Meanwhile, he said utilities in other states such as Nevada and North Carolina have been moving on their own toward natural gas because of fears about how much it might cost to operate coal plants if Congress passes carbon restrictions.

It's an issue now because so many power plants, like Colorado's, are now 40 years and older and utilities have to think about whether it's worth building new coal plants to replace them.

Backers, including the Sierra Club, say the law could serve as an example to other states with homegrown natural gas supplies and older power plants.

Don McClure, vice president for government and stockholder relations at EnCana Oil & Gas, said Texas is one state the industry believes might be open to similar legislation.

Pam Kiely, a lobbyist for Environmental Colorado, said environmental groups like hers want to help pass similar bills with specific emissions reductions.

"We didn't build this relationship and this trust to have it end today," she said of the gas-environmental coalition.

Copyright © 2010 The Associated Press. All rights reserved.

$39/10 MMBTU versus Crude oil $148/MMBTU

Tom Dyson
Saturday, April 17, 2010

You probably already know there's a phenomenal investment opportunity in natural gas right now. But here's the background...

 

Natural gas is an extremely useful fuel. In 500 BC, the Chinese used natural gas to turn seawater into drinking water. In Victorian England, they used it to power streetlights. When I traveled around Asia back in August 2008, I found them using natural gas to fuel taxis. And in Canada, they run their busses on natural gas.

 

In America, we mainly use gas for heating our homes, generating electricity, and for running our factories and other industrial processes like pulp and paper manufacturing.

Main Ad

(There is also a small but growing market in America for fueling vehicles with natural gas. There are currently 120,000 natural gas vehicles on the roads and more than 1,100 natural gas fueling stations in the U.S.)

 

In total, natural gas accounts for about 23% of the total energy used in America.

 

And not only is it extremely useful, but it's the cleanest of all fossil fuels. According to the Energy Information Administration (EIA), at the same energy level, natural gas produces 29% less carbon dioxide than oil and 44% less carbon dioxide than coal. Burning natural gas also produces far less sulfur dioxide, nitrogen oxides, mercury, and particulates.

 

This is important to the world's bureaucrats, who are on a mission to reduce the amount of carbon dioxide and other pollutants we release into the atmosphere.

 

Lastly, America is loaded with natural gas. It's the second-largest producer of natural gas in the world after Russia and may have the world's largest reserves. This makes natural gas attractive from a strategic perspective, as we control the supply. It also makes it popular with the politicians. The more natural gas we use, the more American jobs the government can claim it has created. 

 

But here's the dealmaker for investors...

 

Over the last 18 months, natural gas has fallen over 70% in price and is now close to its lows of the last eight years.

 

While natural gas prices are still at 2002 levels, crude oil prices have tripled. So natural gas also looks extremely cheap when compared to its most important competitor...

 

To put this value in perspective, at today's prices, to generate 10 million British thermal units (BTUs) of energy using crude oil, you'd have to spend $148. To produce the same energy levels using natural gas, it would only cost you $39. So in terms of energy content, oil is 3.8 times more expensive than natural gas...

 

That's the basic investment case for natural gas. It is useful, clean, abundant, American, and very, very cheap.

 

So how do you invest in natural gas?

 

You can buy it directly with an exchange-traded fund (ETF) or invest in a company that produces natural gas. But utility companies that use natural gas to generate electricity are my personal favorite natural gas investments.

 

First of all, natural gas-burning power companies are going to be busy for many years to come. Because gas is so cheap, this business makes perfect economic sense. And it makes political sense too (remember, it burns clean and it's American).

 

Second, this idea is much safer than "pure" natural gas investments like the natural gas ETF or natural gas producers. Natural gas is one of the most volatile commodities in the market. By buying power producers, we benefit from natural gas' great investment thesis without having to put up with the incredible volatility.

 

And most importantly for readers of my income-focused advisory, The 12% Letter, power utilities pay dividends... usually between 4% and 6%. By investing in natural gas power utilities, you're able to leverage the excellent investment case for natural gas into a safe, high-income idea.

 

Right now, my favorite natural gas utility play is Atlantic Power (ATP-UN), which trades in Toronto. (You can usually buy Toronto stocks from your regular broker. Just give them a call and they'll walk you through it.) Atlantic produces 1,823 megawatts of power, and natural gas accounts for 80% of this generating capacity. Atlantic's most important power plants are in Florida, New York, California, and Texas. Formed in 2004, it has grown cash flows and raised the dividend per share three times in the last four years. At current prices, Atlantic pays a 10% dividend.

 

Natural gas has a powerful investment story right now. I consider Atlantic the safest, "high income" way to participate in the coming bull market...

 

Good investing,

 

Tom

P.S. I recommended Atlantic Power in my newsletter, The 12% Letter, nearly six months ago. We're already up double digits… And we're collecting dividends every month along the way. In my next issue, out next week, I'm releasing my latest safe high-yield recommendation. This one also pays a 10% dividend... To sign up, click here.

Futures Fall with Government Report

By Reg Curren

April 15 (Bloomberg) -- Natural gas futures fell the most in three months after a government report showed that U.S. inventories gained more than analysts anticipated, widening a surplus of the industrial and power-plant fuel.

Supplies rose 87 billion cubic feet in the week ended April 9 to 1.756 trillion cubic feet, the Energy Department report today showed. Analysts forecast a gain of 81 billion. Gas also fell as a report showing an increase in first-time jobless claims spurred concern that the economic recovery would be slow to develop.

“Everyone thought it would be a big number, but not this big,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “And in combination with the worse-than-expected unemployment number, it let the steam out of what was looking to be a good thing on the long side.”

Natural gas for May delivery fell 21.4 cents, or 5.1 percent, to settle at $3.985 per million British thermal units on the New York Mercantile Exchange, the biggest one-day drop on a percentage basis since Jan. 11. Gas has declined 28 percent this year.

“Big fluctuations in the jobless numbers make you pause, and that’s enough to pull” prices back, Rose said.

Gas will probably trade between $3.90 and $4.30 per million Btu before the start of the Atlantic hurricane season and higher summer temperatures, Rose said. The hurricane season runs from June 1 to the end of November.

Storms and Heat

Tropical storms can disrupt gas production in the Gulf of Mexico and hot weather lifts demand for power from gas-fired generating stations to run air conditioners.

Gas inventories were 16 percent above the five-year average, today’s report showed, up from 12 percent in the previous Energy Department report.

The number of gas rigs working in the U.S. increased to 959 in the week ended April 9, up 44 percent from July, according to Baker Hughes Inc. The higher total indicates output from gas fields may gain later this year.

U.S. imports of liquefied natural gas may rise 42 percent in 2010 to approximately 1.76 billion cubic feet per day, the Energy Department forecast on April 6 in its monthly Short-Term Energy Outlook.

‘Record Injections’

Warmer-than-normal weather in April will probably “lead to record injections in excess of the 10-year average inventory build of 168 billion cubic feet” for the month, Teri Viswanath, director of commodities research with Credit Suisse Securities USA in Houston, said in a note to clients.

Heating requirements were 46 percent lower than normal in the week ended April 8, according to data from the National Oceanic and Atmospheric Administration.

“The bottom line is that working gas in storage is filling at a faster clip than last year and should keep a lid on prices,” Viswanath said.

Gas inventories rose to a record 3.837 trillion cubic feet in November as increased output swamped a market where demand from factories, chemical plants and steel mills was depressed by the worst recession since the 1930s.

Concern that stockpiles may top the record this year is weighing on futures, said Kyle Cooper, a managing director at energy consultant IAF Advisors in Houston.

Supply Increases

“The builds are going to get quite a bit larger in two or three weeks and we may be in line for a couple of 100 billion builds at the beginning of May,” he said. “That will continue to build the surplus. Right now, I see over 4 trillion cubic feet” by the start of the cold-weather season.

Prices are getting some support on speculation that power- generators will favor gas over coal because it’s cheaper to burn at these levels, Cooper said.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, was little changed, rising 0.39 cent to $4.155 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 308,919 contracts as of 2:45 p.m., compared with a three-month daily average of 232,000. Volume totaled 379,581 yesterday. Open interest was 855,491 contracts, compared with the three-month average of 815,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

--Editors: Bill Banker, Richard Stubbe

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net

Rig Count Up and Growing Again

NEW YORK, April 16 (Reuters) - The number of rigs drilling for natural gas in the United States climbed 14 this week to a 14-month high of 973, according to a report on Friday by oil services firm Baker Hughes in Houston.

It was the 16th straight weekly gain and puts the gas rig count at its highest level since Feb. 20, 2009, when there were 1,018 gas rigs operating.

The U.S. natural gas drilling rig count has rebounded by 308 rigs, or 46 percent, since bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 active gas rigs.

While the rig count is still well off its peak above 1,600 in September 2008, it now stands at 213 rigs, or 28 percent, above the same week last year.

Many gas producers scaled back drilling early last year with credit tight and natural gas cash prices sinking late last summer to about $2 per million British thermal units, a 7-1/2 year low and down 85 percent from July 2008 highs above $13.

With current gas prices of about $4, down more than 30 percent since early January highs above $6, some analysts expect to see a slowdown in drilling, noting current prices were no longer a strong incentive to start new wells.

The break-even point for some key shale basins like Haynesville in Louisiana and Marcellus in Appalachia ranges between $3.50 and $4, according to some analysts.

Pickens Continues to Push Natural Gas

By Simon Lomax and Mark Drajem

April 14 (Bloomberg) -- T. Boone Pickens, the billionaire energy hedge-fund manager, said U.S. lawmakers should try this year to “jumpstart a natural-gas vehicle industry” instead of passing a greenhouse-gas trading measure he opposes.

“Natural gas is an excellent example of how we can create green jobs,” Pickens, chairman of Dallas-based BP Capital LLC, said today in testimony for a hearing of the House Ways and Means Committee.

Pickens is lobbying Congress to pass tax incentives that encourage the production of trucks fueled with natural gas instead of diesel. The incentives could spur the production of 236,000 “clean natural-gas trucks,” which would displace almost 2 billion gallons of diesel a year, Pickens said.

The debate over energy policy in Congress has been dominated by a plan to cut U.S. greenhouse-gas emissions through a cap-and-trade program, in which companies would buy and sell a declining number of pollution rights. Cap-and-trade legislation narrowly passed the House of Representatives in June. A similar plan in the Senate has failed to advance.

Senator John Kerry, a Massachusetts Democrat, is leading efforts to revamp the cap-and-trade proposal so it can pass this year. Boosting the use of natural gas produced in the U.S. as a transportation fuel has “wide, deep and bipartisan” support in Congress, Pickens said.

“I do not think cap-and-trade can make it,” Pickens said before today’s hearing in an interview on CNBC television. “This administration needs a nonpartisan issue that is huge, and this is huge.”

President Barack Obama should also reverse course on phasing out tax incentives for oil and gas production, Pickens said. Repealing the incentives would raise more than $40 billion over 10 years and help the U.S. “transition to a 21st century energy economy,” Michael Mundaca, an assistant Treasury secretary, said in his testimony.

“Don’t tax the industry,” Pickens said. “If I was going to tax anything, I would tax foreign oil.”

--Editors: Romaine Bostick, Larry Liebert.

To contact the reporter on this story: Simon Lomax in Washington at slomax@bloomberg.net; Mark Drajem in Washington at mdrajem@bloomberg.net.

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.