Israel Finds Large Natural Gas Field

Noble Energy, a US-based oil and gas firm, along with its Israeli exploration partners, have confirmed the discovery of a huge offshore gas field called Leviathan, 130km off the coast of the Mediterranean port of Haifa.

Delek Energy, one of the Israeli partners, said on Wednesday that the discovery was the largest deepwater natural gas find in the world in the past decade.

Leviathan is estimated to have 450 billion cubic metres of gas and could transform Israel into an exporter of gas.

Tamar, a nearby site already being drilled by Noble and Delek, was the largest gas find in the world in 2009, at 8.4 trillion cubic feet.

"A world power," read a headline in Israel's Maariv newspaper, describing the country's new energy potential.

But experts noted that there is currently a glut in natural gas and that unlike oil, which is sold on global markets, gas is geographic and needs a specific buyer.

"It's not a great time for Israel to enter a lot of the markets," Brenda Shaffer, an energy expert at the University of Haifa, told Reuters news agency.

"European consumption is going down, new suppliers are coming on. I'm not sure there's a buyer waiting by the door at this point."

Shaffer also said that larger amounts have been discovered onshore, where it is also cheaper to produce than in deep water.

Economic advantage

The find could potentially alter the geopolitical balance of the Middle East, with energy disputes already shaking regional relations.

Politicians in neighbouring Lebanon are trying to lure companies to explore their nearby waters, and the two countries have also threatened each other over offshore resources.

Beirut has also staked out its own claim to offshore gas. In August, politicians rushed the country's first oil-exploration law through parliament.

Gebran Bassil, Lebanon's oil minister, said in October that his ministry hopes to start auctioning off exploration rights by 2012.

Qazanfar Roknabadi, Tehran's ambassador to Lebanon, said last month that three-quarters of the Leviathan field actually belongs to Lebanon.

The Leviathan find also raises the chances of other major discoveries in Cyprus, Egypt and the Palestinian territories.

Energy map

Even before Leviathan, a series of finds had put the so-called Levant Basin, stretching offshore in the Mediterranean, on the international energy map.

In March, the US Geological Survey released its first assessment of the zone, estimating it contained 1.7 billion barrels of oil and 122 trillion cubic feet of gas.

That is equal to half the proven gas reserves of the US.

Even if the hurdles to export prove insurmountable, the gas at Leviathan will give Israel, which has always been dependent on imports, long-term energy security, with analysts saying gas at the site could be worth $95bn.

Production from Tamar is scheduled to begin in 2013 and it is being targeted for local consumption.

Leviathan, its developers say, will not be ready until 2017.

The Israeli energy companies have talked of exporting the resource through a pipeline or as liquefied natural gas (LNG).

Shaffer told Reuters that the chances of the gas being sold to Europe were small and probably the most viable option would be using existing LNG facilities in Egypt.

"Asian markets are growing in LNG imports but Israel would have to compete with Qatar, Russia and Australia, which are already producing LNG," she said.

Natural Gas Services Company Acquired

An Austin- and Dallas-based natural gas services provider was acquired by a group of equity funds, the companies announced Monday.

The Riverstone/Carlyle Global Energy and Power Funds purchased USA Compression Holdings LP, the parent company of USA Compression Partners LLC, for an undisclosed amount. Riverstone/Carlyle, an energy-focused private equity consortium, is overseen by $17 billion investment fund manager Riverstone Holdings LLC.

USA Compression, founded in 1998, is one of the largest natural gas compression service providers in the nation. The company services businesses in 13 states with more than 610,000 horsepower of compression equipment.

The Riverstone/Carlyle Global Energy and Power Funds in April invested an unspecified amount in Austin-based Three Rivers Operating Co. The Central Texas private upstream oil and gas enterprise at the same time acquired West Texas and New Mexico assets from the Chesapeake.

XTO Acquires Arkansas Shale Assets

Petrohawk Energy Corporation, which is engaged in the exploration and development of shale-based oil and natural gas resources, has completed the sale of its natural gas assets in the Fayetteville Shale, located primarily in Cleburne and Van Buren Counties, Arkansas, to XTO Energy Inc., a subsidiary of ExxonMobil, for $575 million.
The sale has an effective date of October 1, 2010. In addition, the Company has entered into a definitive agreement with XTO Energy to sell its midstream assets in the Fayetteville Shale for $75 million. The portion of the transaction involving the midstream assets is expected to close in early 2011 and is subject to regulatory approval and customary closing conditions.
As of December 31, 2009, Petrohawk had estimated proved reserves in the Fayetteville Shale of approximately 299 billion cubic feet of natural gas. Current production is approximately 98 million cubic feet of natural gas equivalent per day (Mmcfe/d). Bank of America Merrill Lynch acted as marketing and financial advisor to Petrohawk in connection with both transactions.

Americans Would Choose Clean Water versus Cheap Natural Gas

According to a new survey, nearly half of Americans (45 percent) are already very or somewhat aware of the controversy about hydraulic fracturing (fracking) drilling used to tap cheap natural gas supplies in the United States, says Infogroup/Opinion Research Corporation.

Infogroup conducted the survey for the nonprofit Civil Society Institute (CSI). Among Americans who already are aware of “fracking,” more than two out of three (69 percent) are concerned about the drilling technique’s possible threat to clean drinking water.

The first national poll to gauge the attitudes of Americans on the subject was released Dec. 21 along with two separate survey reports for more than 800 New York State/New York City residents and more than 400 Pennsylvanians.

The survey was conducted between Nov. 26-28, among a sample of 1,012 adults comprising 501 men and 511 women 18 years of age and older living in the Continental United States. Completed interviews are weighted by four variables: age, gender, region, and race to ensure reliable and accurate representation of the total population, 18 years of age and older. The margin of error for results based on the total sample is plus or minus 3 percentage points.Key findings include:

• 78 percent would “strongly” (49 percent) or “somewhat” (29 percent) support “tighter public disclosure requirements as well as studies of the health and environmental consequences of the chemicals used in natural gas drilling.”
• 56 percent who are very/somewhat aware of fracking think state and federal officials are either “not doing as much as they should” (42 percent) or “not doing anything at all” (14 percent) to “require proper disclosure of the chemicals used in natural gas drilling.”
• 72 percent of Americans say that they would tell their legislators they would vote for public health and the environment when it comes to energy production that requires large amounts of water or where water quality is in jeopardy as a result of the energy production
• Only about 21 percent would say that energy production priorities have to come first.

Pam Solo, founder and president, Civil Society Institute, said: “Fracking is a perfect illustration of the fact that Americans don’t think of an energy source as ‘cheap’ or ‘clean’ if there is a hidden price in terms of safe drinking water and human health.”

The Civil Society Institute has carried out more than 25 major national- and state-level opinion polls on energy issues since 2003. The 100-percent independent CSI think tank receives no direct or indirect support of any kind from any natural gas industry interest, or any other energy-related company, trade group or related individual, according to the group's press release.

Based in Newton, Mass., the nonprofit and nonpartisan Civil Society Institute is a think tank that serves as a catalyst for change by creating problem-solving interactions among people, and between communities, government, and business that can help to improve society. CSI also is the parent organization of 40MPG.org and the Hybrid Owners of America.

EIA Revises Shale Gas Estimates - Double

New information gleaned from drilling activity in the United States reveals shale gas reserves are about twice as abundant as previously thought, the EIA has reported. 

The U.S. Energy Information Agency said in its 2011 outlook that it projects technically recoverable unproven shale gas reserves sit at 827 trillion cubic feet, 474 trillion cf larger than the previous year's outlook. 

Shale deposits are considered an emerging energy resource for the United States. T. Boone Pickens, a Texas oil magnate, said abundant gas reserves in the United States made the country the "Saudi Arabia of natural gas." 

U.S. consumers by 2035 are projected to rely on imports to meet 18 percent of their energy demands compared with 24 percent in 2009, the EIA said. This is moderated, the agency said, by increased use of domestic biofuels, rising energy prices and better efficiency standards. 

Renewable energy resources and natural gas are the fastest growing fuels for electricity, though coal remains the dominant source of energy for electricity in the United States. 

This, the EIA said in its outlook, in part suggests carbon dioxide emissions should grow slowly but won't return to their 2005 highs until 2027. 

"Our reference case projection shows the growing importance of natural gas from domestic shale gas resources in meeting U.S. energy demand and lowering natural gas prices," said EIA Administrator Richard Newell in a statement. "Energy efficiency improvements and the increased use of renewables are other key factors that moderate the projected growth in energy-related greenhouse gas emissions." 

U.S. Shale Still Bullish

Enterprise Products Partners L.P. (NYSE:EPD) announced today that the partnership has entered into 10-year agreements to handle a substantial portion of Chesapeake Energy Corporation’s (NYSE:CHK) liquids-rich natural gas production in the Eagle Ford Shale. Chesapeake’s gross acreage position currently comprises more than 625,000 acres in and around the oil and natural gas liquids (NGL)- rich areas of the Eagle Ford Shale across Dimmit, LaSalle, McMullen, Webb, and Zavala counties located in South Texas. The agreements provide Chesapeake with a comprehensive package of midstream natural gas and NGL services, including firm commitments for gas transportation, processing, and NGL transportation and fractionation services.

“We are extremely pleased with our new agreements with Chesapeake, which represent one of the largest single producer commitments to date for Enterprise in the Eagle Ford Shale,” said Michael A. Creel, Enterprise’s president and chief executive officer. “The deal with Chesapeake marks the fifth major midstream transaction Enterprise has executed with Eagle Ford Shale producers in the past year, reflecting the strategic importance of our integrated and expanding assets serving the various demands of producers in the prolific region.”

Enterprise has previously announced long-term commitments with Petrohawk, EOG, Anadarko and Pioneer.

Chesapeake’s NGL-rich natural gas will initially be gathered and compressed by Chesapeake affiliate, Chesapeake Midstream Development, LLC, for delivery to a central location. Enterprise will then transport and process the NGL-rich gas at its existing facilities while a previously announced natural gas processing plant that is currently under development in Texas is completed. This cryogenic processing facility, expected to be completed early in 2012, is designed for an initial capacity of 600 million cubic feet per day (MMcf/d) and with an initial capability to extract as many as 75,000 barrels per day (BPD) of NGLs.

The NGL production from Chesapeake’s gas will ultimately be transported on Enterprise’s previously announced 127-mile NGL pipeline that will extend from the new gas processing plant to Enterprise’s NGL fractionation complex in Mont Belvieu, Texas. This new NGL pipeline, also scheduled for completion in early 2012, is expected to have an initial capacity of more than 85,000 BPD and would be readily expandable to over 120,000 BPD.

Activity in the Eagle Ford Shale continues to increase as approximately 115 rigs working in the play have drilled more than 330 wells completed to date. Total current production from the play is estimated at approximately 425 MMcf/d of natural gas and 35,000 BPD of crude oil and condensate.

Enterprise Products Partners L.P. is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals. The partnership’s assets include: 49,100 miles of onshore and offshore pipelines; approximately 195 million barrels of storage capacity for NGLs, refined products and crude oil; and 27 billion cubic feet of natural gas storage capacity. Services include: natural gas transportation, gathering, processing and storage; NGL fractionation, transportation, storage, and import and export terminaling; crude oil and refined products; offshore production platform services; petrochemical transportation and storage; and a marine transportation business that operates primarily on the United States inland and Intracoastal Waterway systems and in the Gulf of Mexico. Additional information is available atwww.epplp.com.

This press release includes “forward-looking statements” as defined by the Securities and Exchange Commission. All statements, other than statements of historical fact, included herein that address activities, events, developments or transactions that Enterprise expects, believes or anticipates will or may occur in the future, including anticipated benefits and other aspects of such activities, events, developments or transactions, are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including required approvals by regulatory agencies, the possibility that the anticipated benefits from such activities, events, developments or transactions cannot be fully realized, the possibility that costs or difficulties related thereto will be greater than expected, the impact of competition and other risk factors included in the reports filed with the Securities and Exchange Commission by Enterprise. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Except as required by law, Enterprise does not intend to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

Contacts

Enterprise Products Partners L.P.
Investor Relations
Randy Burkhalter, (713) 381-6812 or (866) 230-0745
or
Media Relations
Rick Rainey, (713) 381-3635

87% of Natural Gas Use Domestically Produced in the USA

The Greatest Commodity Story Ever Told
The Energy Report for Friday, December 16th 2010
By Phil Flynn, PFGBest.com

You are about to hear a story about the greatest commodity story ever told. Well ok, maybe it isn't the greatest commodity story ever told and perhaps I am inspired by the season but it is the greatest commodity story of our generation. It is the story of natural gas and the shale gas revolution. Yesterday Natural gas went below $4.00 MMBTU the lowest price in the month of December since 2001. That came even after the EIA reported a withdrawal from storage of 164 Bcf in a December whose chill has been colder than normal...Perhaps that is because supplies are an astounding 9.9 percent above the five year average a feat that would have been impossible just a few years ago. Oh sure you may have heard this story before the one where US natural gas production had peaked out. How our dwindling supplies and sharply rising gas prices of gas was one of the biggest threats to the US economy. We were warned from Canada our biggest foreign supplier that if push came to shove and it was a very cold winter they might have to cut the US off.  Countries like Iran and Russia who owned some of the world's largest proven reserves of gas were talking about forming an OPEC like cartel to press their advantage of the Gas starved U.S.A.  The situation was bleak.

But then something amazing happened! High prices cured high prices. Because natural gas prices soared to all time highs people started to wonder how they could profit or at least solve this problem Then one amazing entrepreneur decided to look at existing technology and none supply in a different way and before you knew it that ingenuity created an abundance of supply. They knew that gas was in shale rock but it was hard to get too. Shale rock shattered when drilled into and the recoverable gas was mostly lost making it uneconomical to produce.

Yet the idea that you could horizontally drill and shoot water and chemicals (hydraulic into the rock recovered the majority of that trapped gas and the world was changed forever. And it continues to change. In fact so quickly that yesterday the Energy Information Agency had to issue a press release yesterday to update their projections our energy future. The EIA says because of the growing reliance on natural gas from shale we will reduce energy imports as well as these countries greenhouse gas emissions.  First of all the EIA had to increase its estimate of domestic shale gas recoverable unproved shale gas resource at 827 trillion cubic feet  which is 474 trillion cubic feet larger than previously reported. The EIA says that this larger resource leads to about double the shale gas production and over 20 percent higher total lower-48 natural gas producing states.

Because of the EIA says that US energy Imports will meet a major but declining share of total US energy demand. The EIA says that projected demand for energy imports is moderated by increased use of domestically produced biofuels, demand reductions resulting from the adoption of efficiency standards, and rising energy prices. Rising fuel prices also spur domestic energy production across all fuels, which moderate growth in energy imports. The net import share of total U.S. energy consumption in 2035 is 18 percent, compared with 24 percent in 2009...

What is more because of our entrepreneurial ways the air will be cleaner. Even without government mandates or the Kyoto protocol. How is that possible? The EIA says that assuming no changes in policy related to greenhouse gases, carbon dioxide emissions grow slowly, but do not again reach 2005 levels until the year 2027.  After falling 3 percent in 2008 and nearly 7 percent in 2009, largely driven by the economic downturn, energy-related CO2 emissions do not return to 2005 levels (5,980 million metric tons) until 2027. CO2 emissions then rise by an additional 5 percent from 2027 to 2035, reaching 6,315 million metric tons in 2035.

So if you are worried about our foreign dependence on energy the EIA says that of f the natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. (Or by OPEC or Russia)  The availability of large quantities of shale gas will further allow the United States to consume a predominantly domestic supply of gas.

If you're worried about global warming (which I can't Imagine if you have been in Chicago this week) Natural gas is cleaner-burning than coal or oil. The EIA says that the combustion of natural gas emits significantly lower levels of key pollutants, including carbon dioxide (CO2), nitrogen oxides, and sulfur dioxide, than does the combustion of coal or oil. When used in efficient combined-cycle power plants, natural gas combustion can emit less than half as much CO2 as coal combustion, per unit of energy released.

Natural gas produced by shale will revolutionize our economy and our world. And it happened not because the government mandated it but because high prices inspired ingenuity. That is why I am so concerned about the CFTC position limits that could harm innovation in the future. Sometimes high prices are not a bad thing and actually have a function to move the economy forward. Proof that speculators drove up oil prices in 2008 the reason for this push for position limits In fact the truth is that in my mind we have proven the opposite. The spike in oil prices was a reaction and a reflection of the greatest economic crisis of modern times. But as we can see from the natural gas story if we allow the markets to work the benefits may far exceed our wildest expectations.  Make sure you are signed up for my daily buy and sell points!! Just call me at 800-935-6487 or email me at pflynn@pfgbest.com.  Also demand the Fox Business Network!

Rig Count Down 7 This Week

Gas drilling rig count slips for second straight week

* Horizontal rigs fall from record highs
 (Adds rig graphic)

NEW YORK, Dec 17 (Reuters) - The number of rigs drilling
for natural gas in the United States slid by seven this week to
941, oil services firm Baker Hughes said Friday.

The gas-directed rig count, which has lost ground for two
straight weeks, hit 992 in mid-August, its highest since
February 2009, when 1,018 rigs were drilling for gas.

Horizontal rigs -- the type most often used to extract oil
or gas from shale -- dropped by 12 to 954 after holding at a
record high of 966 in the previous two weeks.

Analysts estimate that two-thirds of horizontal rigs are
drilling for natural gas, and these comprise part of the
overall rig count. The rest are drilling for oil.

(Graphic: link.reuters.com/sup34k)

Front-month U.S. natural gas futures NGc1, which were up
3.2 cents at $4.08 per mmBtu just before the data were released
at 1 p.m. EST (1800 GMT), climbed to an intraday high of $4.11
right after the report before backing off to $4.094 by 1:15
p.m., still up 4.6 cents.

While some firms have said they will shift spending away
from gas due to low prices, gas drilling activity is down only
5 percent from its mid-August high, and recent government data
show production continues to be robust.

Most analysts expect no meaningful slowdown in gas
production until the second half of 2011, at the earliest.

The gas-drilling rig count is still up 276 since bottoming
at 665 on July 17, 2009, its lowest since the 640 posted on May
3, 2002.

While the gas rig count is 41 percent off its record peak
of 1,606 from September 2008, it still stands 168 rigs, or 22
percent, above the same week last year.

Rising output from shale gas has been the primary driver of
increased gas production in the last few years, and most
traders agree it will be difficult to tighten the gas market
unless drilling slows sharply.

Some analysts estimate the gas rig count will have to fall
well below 850 to tighten the supply-demand balance.

Recent estimates by the U.S. Energy Information
Administration put U.S. gas output this year at 22.66 trillion
cubic feet, a record high and the highest since 1973. Next year
EIA sees output dropping only fractionally.

With gas inventories heading into winter still at high
levels and production likely to remain strong into 2011, many
traders expect gas prices to remain cheap relative to oil, at
least until an improving economy boosts industrial demand,
which accounts for nearly 30 percent of U.S. gas consumption

Natural Gas Storage High

Following is the text of the weekly natural gas update as released by the U.S. Department of Energy in Washington D.C.:

Extremely cold weather conditions moving across the country boosted demand for space heating this report week (December 8- 15). Spot prices nonetheless decreased in most markets (with the exception of several in the Northeast), likely influenced by storage for winter usage remaining near historical highs and very strong current supplies. During the report week, the Henry Hub spot price decreased $0.24 to $4.22 per million Btu (MMBtu).

At the New York Mercantile Exchange (NYMEX), prices for futures contracts also decreased with expectations of ample supply levels for this winter, despite the current higher demand. The futures contract for January 2011 delivery decreased by $0.38 on the week to $4.22 per MMBtu.

The level of working gas in underground storage fell 164 billion cubic feet (Bcf) to 3,561 Bcf during the week ending Friday, December 10, according to the Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). Inventories are 9.9 percent above the 5-year (2005-2009) average.

The natural gas rotary rig count, as reported December 10 by Baker Hughes Incorporated, was 948, a decrease of 13 rigs from the previous week.

Prices

With cold temperatures gripping much of the country for the first half of December, the heating season is well underway with large storage withdrawals. Nonetheless, a trend of rising prices since Thanksgiving ended during this report week for most regions of the country. Following two weeks of increases, the price at the Henry Hub declined $0.24 per MMBtu to $4.22 and is now just one cent higher than its price at the beginning of December. During the report week, price changes at specific market locations depended largely on local weather conditions and constraints in transportation into local markets. While prices in the Gulf of Mexico region generally decreased in the range of $0.25-$0.30 per MMBtu, prices at several markets in the Northeast increased dramatically. In the Rockies and California, where weather conditions improved late in the report week, price decreases ranged from $0.05-$0.21 per MMBtu. The decline in prices this week, which appears counterintuitive and is a reversal of historically rising prices with extreme weather early in the season, in part reflects strength in current supplies. According to BENTEK Energy, LLC, U.S. production during the report week, which averaged close to 63 Bcf per day, was nearly 10 percent higher than the comparable period last year. At the same time, imports from Canada have also increased recently and natural gas in storage is near its historical high for this time of year (see Storage below). Because of the strength in current supplies, prices are far below their levels this time last year. On December 15, 2009, the Henry Hub price was $5.53 per MMBtu, or about 31 percent above Yesterday’s average of $4.22.

Nonetheless, the extreme temperatures in many parts of the country led to large consumption increases during the report week. Compared with the prior week, U.S. natural gas consumption increased about 4.3 percent to an average of 96 Bcf per day. Combined consumption in the residential and commercial sectors also increased 4.3 percent, and exceeded 50 Bcf for most of the days of the report week. In the electric power sector, increased demand for electricity for heating purposes, primarily in the Southeast, contributed to a 6.5-percent increase in natural gas consumption relative to the prior week. Overall, U.S. consumption was 6.6 percent higher than the comparable period in 2009, according to BENTEK.

In the Northeast, prices rose significantly at certain markets as temperatures dipped as much as 20 degrees below normal. This week’s cold front contributed to the highest spot natural gas settlement prices at Northeastern trading points along the Atlantic seaboard since January 2008. The spot natural gas price at the Transco Zone 6 trading point in New York City peaked during the report week at $20.43 per MMBtu for delivery on Tuesday, December 14. On the week, the price at Transco increased $2.13 per MMBtu, following a sharp decrease yesterday. In the western portions of the Northeast, prices generally declined on the week, and the sharp prices seen in New York and elsewhere did not occur. The spot price at Dominion South in western Pennsylvania settled at $4.88 per MMBtu yesterday, lower on the week by $0.18. The stark difference in intraregional prices resulted from pipeline constraints between west and east portions of the region. Estimated natural gas flows into the entire Northeast market on Tuesday topped 31 Bcf per day, or 55 percent greater than normal. This estimated Northeast gas consumption was the highest recorded for any December day since BENTEK began collecting this information starting in 2005. Short-duration price spikes in the winter have been fairly common in New York City and New England. However, almost 4 Bcf per day of new pipeline projects for the region are targeted to enter service before November 2011, in large part to move more gas from the new shale wells in the Marcellus play to downstream markets.

In the West, natural gas spot prices decreased as extreme cold subsided. Despite increased flows on pipelines that transport supplies to the east, such as Cheyenne Plains Gas Pipeline, prices in the Rockies decreased at all trading locations. For example, the price for supplies on the Questar Corporation system in Utah decreased $0.12 per MMBtu to $4.04. Prices declined moderately in the Northwest. At Sumas, Washington, the price decreased by $0.05 per MMBtu to $4.25 in trading since the prior report week.

U.S. imports were significantly higher during the report week in comparison with the prior week, resulting in part from increased withdrawals from storage in Canada to meet heating demand in the United States. U.S pipeline imports from Canada during the report week increased 5.2 percent relative to the prior week to about 8.6 Bcf per day. Liquefied natural gas (LNG) imports (as measured by sendout from regasification terminals) also increased to an average of 1.2 Bcf per day, or 13 percent more than the prior week. While Canadian imports were about 14 percent higher than last year at this time, LNG supplies were still almost 21 percent lower than last year during the comparable week.

Spot Prices

At the NYMEX, the price of the near-month contract for January delivery decreased $0.38, or 8.3 percent, during the report week to $4.22 per MMBtu. The decrease occurred likely in response to expectations of a reprieve from the extreme cold in consuming regions of the country, thus decreasing space-heating demand. While the early cold will likely result in large withdrawals from storage, the current strength in supplies may prevent any change in the pricing environment fundamental. The January 2011 contract is trading much lower than the settlement prices of contracts for comparable months over the last 2 years. The January 2010 and January 2009 contracts expired at $5.81 per MMBtu and $6.14 per MMBtu, respectively.

Storage

Working natural gas in storage fell to 3,561 Bcf as of Friday, December 10, according to EIA’s WNGSR http://tonto.eia.doe.gov/oog/info/ngw/storagefig.html. The net draw of 164 Bcf is larger than the 5-year average draw of 153 Bcf but less than last year?? draw of 186 Bcf for the report week. The Producing region storage levels are now 73 Bcf above last year?? level, while the East region is 90 Bcf below. Working gas stocks in the West region are 18 Bcf below last year.

The week’s draw was significantly less than last year despite lower temperatures and higher heating degree days this year. The difference is likely largely due to a large increase in domestic natural gas production, which has lessened the need to draw gas from storage. According to the Short-Term Energy Outlook, December 2009 marketed production was just 59.5 Bcf per day, compared to a projected value of 63.1 Bcf per day for December 2010.

Temperatures were colder than normal in the lower 48 States during the week ending December 9. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 34.0 degrees, 5.3 degrees below normal, and 1.6 degrees below last year (See Temperature Maps and Data http://tonto.eia.doe.gov/oog/info/ngw/maps.html. Every region except the Mountain and Pacific averaged colder temperatures than normal. The South Atlantic region had the coldest temperature relative to normal at 33.9 degrees, 12.1 degrees less than normal. Heating degree days in this region were 53.4 percent above normal compared to an increase of 19.2 percent for the lower 48 States as a whole.

Other Market Trends

EIA Projects Growth in Natural Gas Production Through 2035. Expanding domestic shale gas resources are expected to lead to increased domestic natural gas production at lower prices, according to EIA’s Early Release of the 2011 Annual Energy Outlook (AEO). According to the report, which was published on December 15, the technically recoverable unproved shale gas resource is 827 trillion cubic feet (Tcf), which is 474 Tcf larger than estimated in last year’s AEO. Growth in natural gas extracted from shale formations will drive an increase in domestic natural gas production from 21.50 Tcf in 2009 to 26.78 Tcf in 2035. Production from shale is expected to grow to 12 Tcf in 2035, more than offsetting a decline in conventional production. Natural gas prices at the Henry Hub are expected to increase from the 2009 level of $3.95 per MMBtu to an average of $7.19 per MMBtu in 2035. Natural gas and renewable power plants will comprise the majority of generation capacity additions, according to the AEO. The share of generation from natural gas increases from 23 percent in 2009 to 25 percent in 2035. The AEO includes projections through 2035 and is based on a reference case assuming the use of technology that is current or reasonably expected to become available over the next decade. Additionally, the reference case does not include the effects of possible future policies. More information is available here: http://www.eia.doe.gov/oiaf/aeo/index.html. The full AEO will be released in March 2011.

Regulations Proposed for Drilling the Delaware River Basin. The Delaware River Basin Commission (DRBC) released draft natural gas development regulationshttp://www.state.nj.us/drbc/notice_naturalgas-draftregs.htm that would conditionally allow natural gas development projects in the Basin areas of the Marcellus Shale. The proposed rules would allow water within the basin to be used for gas development if the water is within the physical boundaries of a DRBC-approved natural gas development plan. Under specified conditions, producers would be able to reuse treated wastewater, non-contact cooling water, recovered flowback and production water, and mine drainage waters for natural gas development. Additionally, the regulations call for a streamlining of the permitting process for gas development projects that demonstrate that they satisfy certain criteria this would shorten the current 6- to 9-month lag time to less than 30 days. Three public hearings will be scheduled during the 90-day comment period to receive oral testimony on the proposed rulemaking.

Natural Gas Transportation Update

Higher demand from cold weather this week prompted some pipelines to release alerts regarding their operations. On December 15, Florida Gas Transmission Company, LLC (FGT), issued an Overage Alert Day for customers in FGT market, with a 15% tolerance on negative daily imbalances. Mississippi River Transmission issued a System Protection Warning on December 15 and December 16 until further notice, due to cold weather in its market area. Due to significantly lower than normal system weighted temperatures, Northern Natural Gas issued a System Overrun Limitation in all market-area zones December 11 through December 15. Southern Natural Gas issued a Type 6 Operational Flow Order, effective December 12 through December 15, due to cold weather.

Texas Eastern Transmission, LP, experienced an outage at its Bernville, Pennsylvania, compressor station on December 13, which was repaired and operational the following gas day. However, their Entriken compressor station remains offline, with an approximate capacity reduction of 65,000 dekatherms through and downstream on Entriken. Texas Eastern is continuing to investigate repair options for that compressor.

Marcellus Shale Webinar

Region —

By now, many are aware of the huge volume of natural gas held in the deeply buried Marcellus Shale formation and its enormous economic potential for Pennsylvania and neighboring states.
For those who want to learn more about the Marcellus "play," Penn State Cooperative Extension is offering a free, Web-based seminar at 1 p.m. on Dec. 16, titled, "Plumbing the Depths in Pa.: A Primer on Marcellus Shale Geology and Technology."
During the one-hour webinar, Michael Arthur, professor of geosciences, will focus on the geology of the Marcellus Shale and technology for extraction as they influence exploration and development of the natural-gas resource. Co-director of the Penn State Marcellus Center for Outreach and Research, Arthur will answer questions from online participants during the session.
"The middle Devonian Marcellus Formation in the Appalachian Basin of Pennsylvania and New York is estimated to contain in excess of 486 trillion cubic feet of extractable natural gas," he said. "That is sufficient for more than 20 years supply at the United States' current rate of consumption."
Arthur pointed out that there is also the possibility of additional significant shale gas deposits that may be targeted within the same basin -- Devonian black shale units above the Marcellus Shale and the Ordovician Utica Shale below.
"In my presentation, I will discuss the geologic characteristics of the Marcellus Shale formation, the estimated volume of gas deposits at various points, and the process and effect of hydraulic fracturing," Arthur said. "I also will address the continuing concern that drilling operations could allow gas migration into shallow, fresh-water aquifers, which is now being studied intensively."
The webinar, "Plumbing the Depths in Pa.: A Primer on Marcellus Shale Geology and Technology," is part of an ongoing series of workshops and events addressing issues related to the state's Marcellus Shale gas boom. Information about how to register for the webinar is available on the webinar page of Penn State Cooperative Extension's "Natural Gas" website at http://extension.psu.edu/naturalgas/webinars.
Additional one-hour webinars will be held at 1 p.m. on the following dates:
--Jan. 20, 2011: "Marcellus Shale Legislation: What Was Accomplished in the 2009-10 Session and What Issues Remain to be Addressed."
--Feb. 16, 2011: "Dealing with Gas Tax Issues: What You Need to Know."
--Mar. 17, 2011: "Natural Gas Well Development and Emergency Response and Management."
Previous webinars, publications and other information on topics such as water use and quality, zoning, gas-leasing considerations for landowners and implications for local communities also are available on the "Natural Gas" website at http://extension.psu.edu/naturalgas.
For more information, contact John Turack, extension educator in Westmoreland County, at (724) 837-1402 or by e-mail at jdt15@psu.edu.

No Frac in New York

After months of debate, Gov. David Paterson on Saturday issued an executive order prohibiting the high-volume, horizontal hydraulic fracturing process of drilling for natural gas until at least July 1.

But the outgoing Democratic governor also vetoed a bill that would have suspended all new natural-gas and oil drilling permits in the state for five months.

Paterson’s move balances environmentalists’ worries about the potential harmful effects of the drilling on groundwater, and industry groups who said the moratorium would have hurt business and the state’s economy.

“We in government must always focus on protecting the well-being of those whom we represent and serve, but we also have an obligation to look to the future and protect the long-term interests for our state and its residents,” Paterson said in a news release. “Therefore, I am proud to issue this executive order, which will guarantee that before any high-volume, horizontal hydraulic fracturing is permitted, the Department of Environmental Conservation will complete its studies and certify that such operations are safe.”

The process of hydraulic fracturing, also known as hydrofracking, involves mixing millions of gallons of water with other chemicals and then pumping the mixture down wells to create fractures in the rock and allow natural gas from the rocks to be obtained.

Companies in the industry plan to combine hydraulic fracturing with horizontal drilling to tap into natural gas in the Marcellus Shale, a rock formation located beneath the earth’s surface between Appalachia and Central New York. The area includes several counties just south of Oneida and Herkimer counties.

Prior to Paterson’s decision Saturday, some said signing the state legislation would have negatively affected thousands of jobs and hurt economic development in the state.

But others said vetoing the bill would allow rushed approval of drilling techniques that, without proper regulation, could harm the environment and pollute drinking supplies.

The governor said the proposed moratorium was “principally symbolic” and would have negatively affected the state’s struggling economy.

“I cannot agree to put individuals out of work for a symbolic act,” he said in the release.

Before making his decision, Paterson reviewed the bill, talked to experts and listened to public comments, Paterson spokeswoman Jessica Bassett said late last week.

“There’s been an overwhelming constituent response from interested New Yorkers on both sides of the issue,” Bassett said.

The state Assembly voted 93-43 on Nov. 29 to approve the moratorium through May 15. The Senate passed its version of the bill in August.

Mixed messages

Norwich resident Steven Palmatier owns land where wells have been drilled and other land with the potential for drilling. He also is a consultant on the issue for Chenango County and has spent more than 150 hours at seminars and training sessions about the topic, he said.

Palmatier believes the regulatory decisions should be left in the hands of the state DEC — which is reviewing the procedure — and said prior to Paterson’s decision that the moratorium would have sent a message to companies in the industry that their investments in New York state aren’t safe.

“It is a horrible thing for our state to do,” he said.

William Cooke, director of government relations for the Citizens Campaign for the Environment, said his group would have liked the full moratorium to pass, but was pleased with Paterson’s final decision, regardless.

“We’re looking at this as a victory,” Cooke said. “We wanted him to sign the bill. He didn’t sign the bill … but he did an executive order moratorium that gets us to July, and that is a response to hearing from thousands and thousands of New Yorkers who are more than concerned about what this technology has the ability to do to our drinking water.”

Cooke said a “timeout” was needed for both vertical and horizontal drilling because of the volume of water being used and concerns about the chemicals added to it during the hydrofracking process. He said his group will ask Gov.-elect Andrew Cuomo to extend Paterson’s moratorium after he takes office in January.

The debate

Opponents of the moratorium legislation said the problem with the bill Paterson vetoed was that it limited not only the newer procedure of horizontal drilling, but also hydraulic fracturing for vertical wells.

Paterson’s executive order affects only high-volume, horizontal hydraulic fracturing, which already was effectively delayed by the DEC’s procedural review.

About 90 percent of vertical wells in the state use hydraulic fracturing, a process that became common in the state 60 years ago, said Jim Smith, spokesman for the Independent Oil and Gas Association of New York.

Smith said vetoing the bill was the right decision because, as worded, it would have affected “types of drilling that have been going on in New York for decades” and hurt 300 companies employing a total of about 5,000 people.

“The delay will prevent the expansion of the industry in New York, but the veto of the moratorium means that those companies who were planning to drill vertically and frack those vertical wells can now breathe a sigh of relief,” he said.

He added that the DEC has been evaluating hydofracking and horizontal drilling for nearly three years and has received tens of thousands of comments from all sides on its draft regulations.

“There’s no doubt in my mind that the DEC is doing a very thorough job,” he said. “We hope that what comes out of it are reasonable, achievable regulations.”

State Assemblyman Robert Sweeney, D-Lindenhurst, was the primary sponsor of the bill and is the chairman of the Assembly’s Environmental Conservation Committee.

Sweeney previously acknowledged the legislation affected both vertical and horizontal wells, but he said there were some instances of problems even with vertical wells, and the health of New Yorkers has to be the first priority.

Local legislators

State Assemblywoman RoAnn Destito, D-Rome, previously said she believed the bill was flawed because it affected vertical wells as well as the horizontal wells. But, faced with a decision on the bill as a whole, she voted for the moratorium to provide more time for the review process.

“Protecting the health and safety of the people was first and foremost on my mind and the quality of the water,” Destito said.

State Sen. Joseph Griffo, R-Rome, said Saturday that Paterson’s reasons for vetoing the bill mirrored the concerns that led him to vote against it earlier this year.

“I think we can grow the economy and preserve the environment; they don’t have to be polar opposites,” Griffo said. “And I think in this particular instance, what (Paterson) is saying is what I had indicated earlier – we need to wait for the experts.”

He added that he hopes the DEC finishes its study in “an expeditious way” so that legislators will have the guidance they need to balance economic interests against environmental concerns.

“We have an opportunity here to help ourselves economically,” Griffo said. “But we also have to make sure we’re doing everything to protect the watershed.”

Rig Count at 948

The number of rigs drilling
for natural gas in the United States slid by 13 this week to
948, oil services firm Baker Hughes said on Friday.

The gas-directed rig count, which had gained in the
previous two weeks, hit 992 in mid-August, its highest since
February 2009, when there were 1,018 rigs drilling for gas.

Horizontal rigs -- the type most often used to extract oil
or gas from shale -- were unchanged for the week, holding at
the record high of 966 hit last week.

Analysts estimate that two-thirds of horizontal rigs are
drilling for natural gas, and these comprise part of the
overall rig count. The rest are drilling for oil.

EPA Accuses Gas Driller in Texas of Contamination

The U.S. Environmental Protection Agency has accused a natural gas driller of contaminating an aquifer on which some North Texas residents depend.

The EPA has been frustrated by Texas' slow response to a water contamination issue near Dallas. So on Tuesday, it gave Range Resources in Fort Worth, Texas, 48 hours to provide clean drinking water to affected families and take other steps.

EPA regional director Al Armendariz says the action comes after the Texas Railroad Commission said it would be "premature" to take emergency steps. The commission oversees oil and gas drilling in the state.

Armendariz says the EPA found high levels of explosive methane gas in the drinking water wells of at least two residences in Parker County, where Range has been drilling for natural gas in the Barnett Shale.

Range and the Railroad Commission did not immediately comment.