Friday, July 30, 2010

Hot Weather May Drive Natural Gas Demand in the USA

Despite being sidelined for the most of the first half of the year, weather conditions, supply and demand imbalances, and Congress could lead to an opportunity in natural gas.
According to the National Weather Service, the next few months are expected to be warmer than usual, with average temperatures being above normal by 2 to 3 degrees across the nation.  What this means is that consumers will likely run their electric powered air conditioners more often and for longer periods of time.  This further translates to increased demand for electricity, which has a domino effect and increases demand for natural gas. 
On the supply forefront, an extremely active Hurricane season, the offshore drilling moratorium and the decline in active drilling rigs over the last few years is expected to cut production of the commodity in the Gulf of Mexico by nearly 10%.  Weather experts suggest that the current Hurricane season could produce as many as 23 named storms, 14 hurricanes and 7 major hurricanes in the Atlantic Basin, more than double the seasonal and historical averages.  This could potentially devastate natural gas production and push supply and demand forces out of whack. 
To further add to supply worries, the announced offshore drilling moratorium is anticipated to cut Gulf of Mexico production by an average of 0.05 Bcf/d for the rest of the year.  Another supply constraint that could provide price support to natural gas is the recent downward revision of imported liquefied natural gas(LNG: 2.82 0.00 0.00%) by the Energy Information Agency (EIA: 12.90 -0.19 -1.45%).  The EIA expects total imports of LNG to grow, but likely be diverted to Europe and Asia due to higher prices in those regions. 
As for demand of natural gas, an increase for the remainder of the year is expected, in particularly in the industrial sector.  It is expected that consumption will increase by nearly 7.5% in the industrial sector for the entire year. 
The last force that could give positive price support to natural gas is Congress.  On Tuesday, Senate Democrats outlined a $15 billion energy bill which would incentives the use of natural-gas trucks through rebates.  The bill proposes rebates of $10,000 to $64,000 per truck and provides grants to pay for natural gas fueling stations and loans to U.S. manufacturers that build natural-gas powered trucks.  If this bill makes it passed Republicans, it could push demand for natural gas as a source of fuel much higher.
Some plays on natural gas include:
  • United States Natural Gas Fund (UNG: 8.11 +0.22 +2.79%), which enables one to gain access to natural gas through futures contracts.  UNG closed at $8.11 on Thursday.
  • First Trust ISE-Revere Natural Gas (FCG: 15.99 -0.01 -0.06%), which holds 30 different companies that are involved in natural gas. Some of its holdings include Exxon Mobil (XOM: 60.34 -0.57 -0.94%), Questar Corp (STR: 16.47-0.17 -1.02%) and Total SA (TOT: 50.22 +0.30 +0.60%).  FCG closed at $15.99 on Thursday.
  • iShares Dow Jones US Oil & Gas Ex Index (IEO: 50.19 -0.09 -0.18%), which includes numerous holdings of companies which are involved in the exploration and production of natural gas.  Some of its holdings include Chesapeake Energy (CHK: 21.10 -0.02 -0.09%), Devon Energy (DVN: 62.50-0.15 -0.24%) and Apache Corp (APA: 95.40 +1.03 +1.09%).  IEO closed at $50.19 on Thursday.
  • iPath Dow Jones AIG Natural Gas ETN (GAZ: 10.93 +0.32 +3.02%), which is an unsecured, unsubordinated debt security that seeks to replicate the performance of the Dow Jones-UBS Natural Gas Total Return Sub-Index, which is composed of Henry Hub Natural Gas futures contracts. GAZ closed at $10.93 on Thursday.
Although an opportunity could exist in natural gas, it is important to consider the enhanced the volatility of the commodity.  To help protect against this, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to occur is important.

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Thursday, July 29, 2010

Fracking Point of Contention in U.S. Senate

WASHINGTON, July 28 (Reuters) - The U.S. Senate energy bill is supposed to promote vehicles fueled by natural gas, but industry is crying foul over provisions they say undercut a drilling technique essential to boosting domestic gas output.
The bill proposed by Senate Democrats would force companies using the hydraulic fracturing technique to tap shale gas to disclose by 2012 the chemicals used when drilling each well.
Hydraulic fracturing, or fracking, injects a mixture of water, sand and chemicals into rock formations at high pressure to force out oil and natural gas.
Environmentalists assail drillers for keeping secret the chemicals they use in fracking, saying the mixture is toxic and may be poisoning groundwater in the drilling process.
They argue the practice should not be exempt from the federal Safe Drinking Water Act.
Many energy companies have resisted releasing what they consider proprietary information about the chemicals they use, saying fracking is safe and all the fluids used in the process are already known to regulators.
The Senate measure, while not requiring the release of the precise formulas and amounts of fracking fluids used, still poses legal problems for oil and gas operators, said Lee Fuller of Energy In Depth, a leading group formed by independent drillers to promote fracking.
"It has the potential to create a series of legal responsibilities that operators, and even service companies, might not be able to fulfill, especially under a scenario where our folks are asked to post information that doesn't even belong to them," Fuller said.
Drilling proponents argue the Senate measure will discourage companies from developing new fracking solutions and reduce natural gas output.
Halliburton (HAL.N) and Schlumberger Ltd (SLB.N) are two major producers of hydraulic fracturing fluids.
Use of fracking has dramatically increased U.S. gas production by allowing companies to drill for gas in massive shale beds across the country.
The American Petroleum Institute said it supports some disclosure of chemicals used in hydraulic fracturing operations, but opposes federal involvement in reporting requirements.
"We believe that this provision overreaches," API spokeswoman Cathy Landry said. "State regulators are providing responsible oversight for drilling operations."
The expansion of natural gas drilling across the nation has sparked outrage in some areas, with some people near drilling sites complaining their well water has become contaminated and that children and farm animals have became sick. [ID:nN28199000]
"Citizens need to be protected from the chemicals used in hydraulic fracturing," said Cathy Carlson, senior policy analyst from environmental group Earthworks. Her group applauded the inclusion of the disclosure provision in the energy legislation.
Not all companies are opposed to disclosure. Range Resources Corp (RRC.N), a major U.S. shale gas producer, said this month it would begin disclosing more data on the fluids it uses to drill for gas in Pennsylvania to help ease environmental concerns. [ID:nN14126820]
Other major shale producers include Chesapeake Energy Corp (CHK.N) and Anadarko Petroleum Corp (APC.N).
FACTBOX: Risks to shale gas production [ID:nN28199000] (Additional reporting by Tom Doggett; Editing by Walter Bagley)

Wednesday, July 28, 2010

U.S. Senate Democrats Have $4 Billion for T Boone Gas Powered Vehicles

(Reuters) - U.S. Senate Democrats on Tuesday unveiled an energy bill that includes almost $4 billion in subsidies for natural gas powered vehicles as part of a plan long-championed by oil and gas executive T. Boone Pickens.
Although vehicles driven by compressed natural gas have been promoted as a cleaner-burning alternative to gas engines and a way to reduce the U.S. reliance on imported oil, very few have been sold in the United States.
House lawmakers are expected to vote on their version of the legislation before Congress breaks for recess in August. [ID:nN2797530]
The following are key provisions of the proposed legislation and background on the adoption of natural gas vehicles in the United States:
* The main barriers to natural gas vehicles in the United States have been their additional cost and the lack of a network of fueling stations. There are about 1,300 natural gas stations compared to almost 110,000 traditional gasoline and diesel stations in the United States.
* The proposed Senate legislation would provide a federal rebate of $10,000 for natural gas cars and up to $64,000 for heavy trucks. The rebate would be larger and more direct than the $7,500 tax credit now offered on electric vehicles like the Chevy Volt and the Nissan Motor Co (7201.T) Leaf.
* About 110,000 CNG vehicles have been sold in the United States and almost all of those are buses, delivery trucks and other commercial vehicles. By contrast, Toyota Motor Corp (7203.T) has sold about 900,000 Prius hybrids in the U.S. market over the past decade.
* Honda is the only major automaker to offer a natural gas passenger car to U.S. consumers. The Civic GX is available through 83 dealers in four states -- California, New York, Oklahoma and Utah. The Japanese automaker has sold about 3,500 Civic GX sedans in the past two and a half years.
*At a price just over $25,000, the natural gas version of the Honda Civic carries a roughly $7,000 premium over the gasoline version. A Honda effort to promote a home refueling station for its Civic GX unveiled in 2005 failed to make headway and it sold off the technology to a California firm.
* Ford Motor Co (F.N) offers a natural gas version of its Transit Connect van for use by taxi companies. General Motors also began offering a compressed natural gas version of its Chevrolet Silverado pickup truck earlier this decade. A range of firms offer after-market conversions for other vehicles.
* A Massachusetts Institute of Technology study issued this month partly funded by the natural gas lobby estimated that the fuel could provide 40 percent of U.S. energy needs in the coming decades, up from 20 percent now. It said high-mileage fleet vehicles like taxis could be economically converted to run on CNG.
* Despite the limited sales in the United States, the technology is in widespread use overseas. Pakistan, for example, leads the world with over 2.3 million natural gas vehicles on the road, according to the International Association for Natural Gas Vehicles. Taxi fleets in Tokyo and Seoul also run on liquefied natural gas.
(Reporting by Bernie Woodall and Kevin Krolicki)

Tuesday, July 27, 2010

OneOK Investing in Natural Gas Liquids

nvestments Include $450-$550 Million for Bakken NGL Pipeline; Related Expansions of Mid-Continent Fractionator and Overland Pass Pipeline

TULSA, Okla.July 26 /PRNewswire-FirstCall/ -- ONEOK Partners, L.P. (NYSE: OKS) today announced plans to build approximately $595 million to $730 million of natural gas liquids (NGL) projects between now and 2013.  
The preliminary cost estimates for the new projects are:
  • $450 million to $550 million to build a 525- to 615-mile NGL pipeline that will transport unfractionated NGLs from the Bakken Shale in the Williston Basin in North Dakota to the partnership's Overland Pass Pipeline, a 760-mile NGL pipeline extending from southern Wyoming to Conway, Kan.;
  • $35 million to $40 million for related capacity expansions for ONEOK Partners' anticipated 50-percent interest in the Overland Pass Pipeline to transport the additional unfractionated NGL volumes from the new Bakken Pipeline; and
  • $110 million to $140 million to expand the partnership's fractionation capacity at Bushton, Kan., by 60,000 barrels per day to accommodate the additional NGL volumes.  

In aggregate, these projects are expected to generate EBITDA (earnings before interest, taxes, depreciation and amortization) multiples of five to seven times.  The incremental fee-based earnings from these projects are expected to increase distributable cash flow and value to unitholders.
"As producers continue to aggressively develop NGL-rich natural gas production from crude oil-producing wells in the Bakken Shale and Three Forks formations, natural gas liquids takeaway capacity is required," said Terry K. Spencer, ONEOK Partners chief operating officer.
The proposed Bakken Pipeline will initially transport up to 60,000 barrels per day (bpd) of unfractionated NGL production from ONEOK Partners' extensive natural gas gathering and processing assets in the Bakken Shale and from third-party natural gas processing plants south through western North Dakota and eastern Montana to Wyoming, where it will connect to the Overland Pass Pipeline near Cheyenne, Wyo.  The volumes will then be delivered to ONEOK Partners' existing NGL infrastructure in the Mid-Continent.  Additional pump facilities could increase the new pipeline's capacity to 110,000 bpd.  
Supply commitments for the Bakken Pipeline will be anchored by NGL production from ONEOK Partners' natural gas processing plants and from third-party processors, which are in various stages of negotiation.
Following receipt of all necessary permits, construction of the 12-inch diameter pipeline will begin in the second quarter of 2012 and is currently expected to be complete during the first half of 2013.  
The additional raw NGL volumes from the new Bakken Pipeline and other supply sources under development in the Rockies will require an investment of $35 million to $40 million for ONEOK Partners' anticipated 50-percent interest in the Overland Pass Pipeline for additional pump stations and the expansion of existing pump stations, increasing its capacity to the maximum of 255,000 bpd.  
The partnership also will invest $110 million to $140 million to expand and upgrade its existing fractionation capacity atBushton, increasing its capacity up to 210,000 bpd from 150,000 bpd.  The fractionator was expanded to its current capacity inJune 2008.
The Bakken Pipeline project and related expansions follow ONEOK Partners' April 2010 announcement of more than $400 million of new growth projects in the Bakken Shale, including the construction of a new 100 million cubic feet per day natural gas processing facility in eastern McKenzie County in North Dakota – the Garden Creek Plant – that will double the partnership's processing capacity in the region.   ONEOK Partners is the largest independent operator of natural gas gathering and processing facilities in the Bakken Shale region, with a gathering system of more than 3,500 miles.
ONEOK Partners owns a natural gas liquids system in the Mid-Continent and Gulf Coast, which includes fractionators and storage in Mont Belvieu, TexasBushtonConway and Hutchinson, Kan.; and Medford, Okla.  It also owns interstate natural gas liquids distribution pipelines between Conway and Mont Belvieu, and NGL and refined petroleum products distribution pipelines that connect its Mid-Continent NGL infrastructure to Midwest markets, including Chicago.

Sunday, July 25, 2010

New Leadership for BP Coming Soon

P Plc Chief Executive Tony Hayward is discussing his departure from the company after a leak at one of its Gulf of Mexico wells caused the largest oil spill in U.S. history, two people familiar with the matter said today.
Robert Dudley, director of BP’s oil spill response unit, is the person most likely to succeed Hayward after a handover period, one of the people said. An announcement most probably will be made July 27, when the company releases its second- quarter results, the person said. Both people declined to be identified by name because final decisions haven’t been taken.
The board of London-based BP will meet tomorrow to discuss the future of Hayward, 53, one of the people said.
Hayward has faced public anger in the U.S. and criticism from lawmakers over his handling of the spill that was triggered by an April 20 explosion on the Deepwater Horizon rig, which killed 11 people. The well has now been sealed, and BP plans to permanently plug it with cement next month. The company’s market value has fallen by about 50 billion pounds ($77 billion) as it has battled to stop the spill.
Hayward “has the confidence of the board,” BP spokesman Toby Odone said by mobile phone today in London.
While seeking to contain public outrage over the environmental damage, Hayward made several gaffes, including saying he wanted his “life back” and calling the spill “relatively tiny” in a “very big ocean.” The well spewed 35,000 to 60,000 barrels of oil a day from a mile-deep in the water, according to a U.S. government-led panel of scientists.
‘Most Hated Man’
The New York Daily News said he was “the most hated -- and clueless -- man in America.” U.S. President Barack Obama said he would have fired Hayward, while White House Chief of StaffRahm Emanuel said on ABC in June that “Tony Hayward isn’t going to have a second career in PR consulting” and criticized the CEO for taking a yachting trip.
BP on June 23 appointed Dudley, 54, a Mississippian, to manage its response to the Gulf leak.
The company’s success capping the runaway Gulf of Mexico oil well after three months will keep its final liability for the spill to $33 billion, according to analysts.
The 40-foot stack of valves halted the flow a week before Tropical Storm Bonnie blew through and forced a temporary halt to drilling of a relief well that will seal the leak for good. Worst-case forecasts for the crisis had pegged the bill as high as $100 billion.
“The doomsday scenarios are looking very remote,” said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh who expects BP’s final bill to reach $28 billion. “The biggest estimates were based on massive criminal negligence and the worst-case of the well not being stopped at all.”
Second-Quarter Results
BP will probably say net income before extraordinary items rose to $5 billion from $4.4 billion a year earlier because of higher oil prices and better refinery earnings, according to the median of 12 estimates in a Bloomberg News survey. The $4 billion the company has spent on the spill so far won’t be included in that figure. The increase in underlying profit will help BP in its campaign to bolster its financial position.
“In terms of second-quarter performance, they’ll be quite strong aside from the spill,” saidAlastair Syme, an analyst at Nomura Holdings Inc. in London who predicts the bill will rise to about $17 billion. “The market will try to press them on future costs.”
The median estimate of the total costs is $33 billion, a Bloomberg News survey of 11 analysts shows, with predictions ranging from $17 billion to $60 billion. Louisiana Treasurer John Kennedy has said the total cost of the spill may reach $100 billion.
Capping Well
Tropical storm Bonnie stopped BP’s drilling operation near the Macondo well, setting back a permanent solution by about two weeks. Without the week-old cap holding back the flow, the spill would have worsened.
Exxon Mobil Corp., the biggest publicly traded oil company, and Royal Dutch Shell Group Plc, Europe’s largest, will report earnings July 29.
The spill has wiped about 40 percent of BP’s market value since the Deepwater Horizon blowout. That’s more than double the median estimate among analysts for the cost of the spill, suggesting investors are taking dimmer view of BP’s future. The stock dropped 2.1 percent last week.
Before the spill, Hayward led BP to become the biggest non- state producer of oil and gas last year and aimed to increase output by as much as 2 percent a year through 2015. The company now plans to sell assets, reduce investments and suspend the $10 billion annual dividend for three quarters to pay for the spill.
Asset Sales
BP Chairman Carl-Henric Svanberg agreed with President Obama last month to set aside $20 billion for spill victims and cleanup. The payments into the fund will take place over several quarters, starting with $3 billion in the third quarter and $2 billion in the fourth.
BP said last week that it sold $7 billion of assets in the U.S., Canada and Egypt to Apache Corp. It has also said it plans to sell holdings in Pakistan and Vietnam. BP may revive the sale of fields in Alaska after they failed to make it into the Apache deal, two people with knowledge of the matter said last week.
The 61 percent increase in oil prices since the beginning of 2009 may bolster BP’s revenue across the world. In the first quarter, BP profit more than doubled from a year earlier. In March, BP agreed to buy $7 billion of assets from Devon Energy Corp. in the Gulf of Mexico, Brazil and Azerbaijan.
Refining Margins
Refining margins are also picking up after averaging $5.49 in the second quarter from $3.08 in the first three months of the year, according to BP.
BP’s own survey of analysts showed a mean estimate of $5 billion for so-called replacement cost profit, with a range of $4.83 billion to $5.29 billion. Chief Financial Officer Byron Grote told investors on June 4 that the company will treat spill costs as a non-operating, identified item and that it will create a separate area on the income statement for it.
None of the analysts in the Bloomberg Survey had changed their cost estimates since BP stopped the flow of oil from the Macondo well this month. Politics will determine BP’s eventual bill, and the U.S. will ultimately want to keep BP alive, said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo.
“There has to be some limitation on the costs,” said Isfeldt. “If BP can go bankrupt, who will want to drill in the U.S. anymore?”

Natural Gas Shale Drilling Under Investigation


The residents of Pennsylvania have been battling with a contaminated water supply for a while now. The contaminated water supply was destroying everything in its wake from cattle to humans.
The ingestion of this foul water resulted in gastric diseases, skin infections. The water is also causing deformities in the livestock and poisoning the fish, in addition to causing itchy breakouts and infected skin in the humans. The residents ofPennsylvania recently attended a public meeting to exchange their personal encounters with the contaminated water and the ways in which it affected their lives.  
The contamination of the water is rumored to be the work of a close by natural gas plant. The process of extracting the gas involves blasting the underground layer of rock and using a complex mixture of sand and chemicals. The mixture also contains water. The process of natural gas extraction is called hydraulic fracturing mainly because it uses water as a hydraulic force to fracture the bed of rock.
The companies involved in natural gas extraction around the Pennsylvania borders claim that these accounts by the residents of the area are false. They claim that the contaminated water is not a direct result of their rock blasting processes. The companieshave been approached several times to get the process approved. To attain an approval the process will have to be ratified. Ratification may mean that the current process of extraction may be deemed unfit. The companies are therefore not keen to get their process approved by government agencies.
The effects that this process is having on the environment are all to clear. The extraction of fossil fuel has also greatly vexed the environment. The Gulf of Mexico is another example of how a lack of attention and failure to adhere to regulations can lead to an environmental related disaster. The E.P.A has concluded that companies have no conscience. The government will have to strictly regulate the processes if it wants to save natural life.

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Saturday, July 24, 2010

U.S. Rig Count Up 17 by Baker Hughes

izontal rigs down one, second straight weekly decline
 (Updates with link to graphic)
NEW YORK, July 23 (Reuters) - The number of rigs drilling
for natural gas in the United States climbed for a fifth
straight week to a fresh 17-month high of 982, according to a
report on Friday by oil services firm Baker Hughes in Houston.
The gas-directed rig count, which rose by three this week,
is at its highest level since Feb. 20, 2009, when there were
1,018 gas rigs operating.
Horizontal rigs -- the type used to extract gas from shale
-- declined for a second straight week, dropping by one to 858.
Prior to the recent declines, the horizontal count climbed for
nine straight weeks to a record high 863.
U.S. natural gas futures NGc1, which were down about 5
cents, or 1 percent, at about $4.59 per million British thermal
units just before the report was released at 1 p.m. EDT (1700
GMT), showed little reaction to the data.
Low gas prices in the first quarter had many analysts
expecting gas drilling to finally slow this year, but the rig
count is well above the 850 mark, which some analysts say is
necessary to turn year-on-year output negative.
Rising output from shale gas has been the primary driver of
increased gas production in the past few years, and some think
the recent drop in horizontal drilling, though small, may be an
early sign that shale output could eventually slow.
But recent Energy Information Administration estimates put
U.S. gas output this year at more than 22 tcf, its highest
level since 1973, and most traders agree a strong recovery in
industrial demand, which accounts for nearly 30 percent of
total gas consumption, may be needed to help balance an
oversupplied gas market.
The U.S. natural gas drilling rig count is up 317, or 48
percent, since bottoming at 665 on July 17, 2009, its lowest
level since May 3, 2002, when there were 640 active gas rigs.
While the gas rig count is about 39 percent off its record
peak of 1,606 in September 2008, it still stands 307 rigs, or
45 percent, above the same week last year.
With inventories still near record highs and 2010 gas
output likely to reach levels not seen since the early 1970s,
many traders expect the market to remain oversupplied this
year, unless demand picks up sharply with the economic
 (Reporting by Joe Silha; Editing by Walter Bagley)