EPA releases outline of fracking study

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Latest Oil and Gas News: 
November 4, 2011

(The Associated Press; Nov. 3) - The Environmental Protection Agency Nov. 3 released the outlines of its long-awaited probe into whether hydraulic fracturing is contaminating drinking-water supplies. Investigators will try to determine the impact of large-scale water withdrawals, aboveground spills of drilling fluids, and the fracturing process itself on water quality and quantity in states where tens of thousands of wells have been drilled in recent years.

The industry has long contended that fracking is safe, but environmentalists and some residents who live near drilling sites say it has poisoned groundwater. The EPA study, mandated by Congress last year, is the agency's first look at the impact of fracking in shale deposits. EPA will examine drilling sites in Pennsylvania, Colorado, Louisiana, North Dakota and Texas. The earliest results will be available in 2012.

The EPA said it began work over the summer so that it could finish the study by 2014.

The agency has studied fracking before, in 2004, looking at its use in coal-bed methane deposits. It concluded then that the technology is safe, but its methodology was widely criticized. The new study will look at the entire water lifecycle of hydraulic fracturing in shale deposits, beginning with the industry's withdrawal of huge volumes of water from rivers and streams and ending with the treatment and disposal of tainted wastewater.

Senate committee to consider impact
of LNG exports on U.S. prices

(Globe and Mail, Toronto; Nov. 2) - North American gas producers are aggressively pursuing projects to sell large quantities of liquefied natural gas to Asia, raising alarm among U.S. consumer groups that rising exports could drive up domestic prices.

The U.S. Senate Energy committee will hold a hearing Nov. 8 in Washington, D.C., to consider the benefits and risks of expanding the country's ability to export natural gas, amid growing efforts by companies to supply Asian markets where prices currently are three times higher than in North America. Department of Energy approval is required for any export of U.S. natural gas.

U.S. and Canadian producers are eyeing LNG exports as the shale gas revolution continues to depress North America prices. In the U.S., the export issue has pitted producers that see an opportunity to earn premium prices against industrial gas users and some utilities that want continued access to low-cost fuel. Energy-intensive North American manufacturers like those in the chemical industry have seen their fortunes improve with access to low-cost natural gas, and are loath to lose that advantage.

Standard & Poor's says Cheniere faces cash squeeze

(Bloomberg; Oct. 31) - Cheniere Energy's 20-year contract to sell natural gas to a U.K. energy company from a proposed Gulf Coast liquefaction plant probably won't stave off a cash crunch that threatens to trigger a default on debt maturing in May, Standard & Poor's said.

On Oct. 26, Cheniere announced an agreement to sell liquefied natural gas to the U.K.'s BG Group from a Louisiana export terminal that has yet to be built. Cheniere had $162.6 million in cash as of June 30 and a $298 million debt payment due in seven months, according to data compiled by Bloomberg. Cheniere's stock has lost almost three-fourths of its value since April 2006, when it traded as high as $44.40. The stock was trading around $11.50 per share Nov. 3.

The company won't default because it will refinance its debt before the May payment is due, Cheniere CEO Charif Souki said Oct. 31, adding that the BG agreement will help attract lenders to the project. Cheniere has $3.14 billion in outstanding debt, most of it stemming from an LNG import terminal it operates in southwest Louisiana, according to a Standard & Poor's report. The export terminal is expected to cost $7 billion.

Canadians believe they will beat U.S.
to LNG export markets

(Environment & Energy Daily; Oct. 31) - Canada will likely beat the United States in establishing North America's first export terminals for LNG derived from shale gas, industry officials predicted. Though the United States is acknowledged to be opening its shale gas resources more quickly than its northern neighbor, oil and gas firms in Canada are rapidly acquiring acreages on proven shale gas reserves in western and eastern Canada, officials said at the World Energy Council business forum in Houston.

Officials also point to a combination of factors, including fewer regulatory and legal hurdles and a government anxious to diversify Canada's energy partners as creating a perfect environment for LNG producers. Those factors should see liquefied shale gas leaving Canada's shores for markets in Asia and Europe before U.S.-based firms complete their own export terminal projects, top energy company executives said.

"I think Canada will lead the way in LNG exports," said Patrick Daniel, CEO of Calgary-based Enbridge, which operates the world's largest pipeline system. The government's push to move away from dependence on the U.S. for energy exports favors LNG projects, Daniel and others said. Though several companies want to build an LNG terminal at Kitimat, B.C., many speakers at the forum said they believe New Brunswick will host the first facility to liquefy shale gas for shipment overseas, likely Europe.

CEO says TransCanada still focused
on line to serve Lower 48

(Calgary Herald; Nov. 2) - TransCanada says its Alaska project is still focused on sending natural gas to the Lower 48 states, despite a push from Alaska's governor to direct the gas to an LNG export project. A line to an LNG terminal would only be considered if the gas producers call for it, TransCanada CEO Russ Girling said Nov. 1, noting there's "only room for one project." Girling said during the company's third-quarter analysts call: "The producers will have to sort out where they want that gas to go."

Preliminary indications from an open season for the pipeline show the major North Slope producers favor moving gas to the Lower 48 states, Girling said. But an international price premium for LNG has potentially changed the game for producers, he admitted. And gas supply dynamics in the Lower 48 market have changed since the project was proposed, Girling said.

In the last two years, shale gas has become "abundant" in the United States and will make up a large portion of the additional 15 billion cubic feet of gas a day per year needed to replace annual production declines of 20% in the Lower 48, Girling said. "If you think about that over a five-year time frame, we have to replace 100% of the supply in the Lower 48 every five years," Girling said, reaffirming his view the Alaska Pipeline heading south is needed.

Utilities join forces on Wyoming's
first gas-fired power plant

(Casper Star-Tribune, WY; Nov. 1) - Black Hills Power announced Nov. 1 it will collaborate on building Wyoming's first natural gas-fired power plant after deciding to close three of its older coal-fired plants in the next couple of years. Black Hills, along with sister company Cheyenne Light, Fuel & Power, filed paperwork with the state Nov. 1 to begin work on a $237 million power plant in Cheyenne - an inroad for natural gas in a state dominated by electricity produced by burning coal.

If approved by the Wyoming Public Service Commission, construction on the 132-megawatt plant would begin in 2012 on a site three miles east of downtown Cheyenne, according to a joint media release by the two utilities, both of which are subsidiaries of Rapid City, S.D.-based Black Hills Corp. The facility would begin serving customers in 2014, according to officials with the two utilities.

Cheyenne Light had applied to state regulators in August to build a smaller natural gas plant to feed the city's growing demand for electricity. But Chuck Loomis, Black Hills Power's vice president for operations, said his company subsequently decided to join with Cheyenne Light in building a more powerful generating facility as a way to compensate for the planned closure of three of its older coal-fired plants.

Pennsylvania House committee
OK's natural gas drilling fee

(Reuters; Nov. 2) - A Pennsylvania House panel Nov. 2 approved a bill to levy a fee on natural gas drilling in the state as the governor looks to cash in on an energy boom and tighten regulations. The House bill, which mirrors proposals put forward by the governor, includes a drilling fee which the governor has said could raise about $120 million in its first year. The fee would stretch over 10 years on each gas well, totaling as much as $160,000 - estimated by critics at 1% of the production value over that time.

Democratic members of the House Finance Committee criticized the bill, saying it favors drillers and does not match drilling fees in other states. "If Arkansas can realize 3.5% and Texas can realize 5%, Pennsylvania's 1% impact fee is a searing factor in my negative vote," said Rep. Bill DeWeese, another Democrat whose district lies in the Marcellus Shale region. Industry-friendly Pennsylvania is currently the only state that does not tax natural gas production.

The legislation, which still has a ways to go before passage into law, also includes greater setbacks for drilling from water wells, streams and rivers in a bid to ease fears that hydraulic fracturing during drilling can contaminate water supplies.

Report links fracking to small earthquakes in U.K.

(The Wall Street Journal; Nov. 3) - The company leading efforts to unlock the U.K.'s potentially vast shale gas reserves suffered a setback Nov. 2 after a report found it was "highly probable" that hydraulic fracturing caused two small earthquake tremors in the country earlier this year.

The report, which was financed by U.K. energy company Cuadrilla Resources, pointed to "strong evidence" that the two minor earthquakes and 48 weaker seismic events resulted from Cuadrilla's pumping drilling fluids used in fracking. At the same time, the report said the events were the result of a "rare combination of geological factors." The report could complicate efforts by Cuadrilla to resume hydraulic fracturing that was halted after the two seismic incidents.

The U.K. has become the latest venue in Europe to open a debate over fracking, which has been heavily criticized by environmental groups. In June, France became the first nation to ban shale exploration. Cuadrilla in September announced a big shale gas discovery, but development is on hold after the company and government agreed in June to stop its test drilling until its potential consequences were better understood. U.K. regulators said they would review the findings before shifting policy.

Gazprom sees LNG export opportunity in India

(Platts; Nov. 1) - India is an "incredible" gas market where the domestic supply shortfall offers a huge opportunity for an LNG player such as Gazprom, Nigel Kuzemko, the global director of LNG development at the Russian state-owned company's trading arm said Nov. 1.

Demand for natural gas in India is growing, Kuzemko told the Australia Gas Conference in Sydney. "For organizations such as Gazprom Marketing & Trading, this obviously represents a huge opportunity and we see India as one of our key markets for LNG supplies, along with Japan, South Korea and other North Asian countries, as we continue to strengthen our presence in operations in the Asia Pacific region."

In recent months, Gazprom has signed four preliminary deals with Indian companies - state-owned gas distributor GAIL, Gujarat State Petroleum Corp., Petronet LNG and Indian Oil Corp. - to supply as much as 1.3 billion cubic feet of gas a day from its portfolio.

U.S. may delay Keystone pipeline
decision until next year

(PostMedia News; Nov. 2) - The U.S. State Department Nov. 2 backed away from its commitment to decide on the Keystone XL oilsands pipeline by the end of 2011, opening the door to potential new delays on a project that has become a political albatross for President Barack Obama.

In a briefing with reporters, State Department spokeswoman Victoria Nuland said the department still hopes to complete its review of the $7 billion pipeline by year's end. But the timeline is no longer set in stone. "We'd like to get it done by the end of the year, but if thoroughness demands a little more time nobody has slammed the door on that," Nuland said.

TransCanada issued a statement Nov. 2 that it expects the Obama administration to keep its previous commitment to decide on the 1,700-mile pipeline before the New Year. The president raised the issue's profile Nov. 1 when he told a Nebraska television reporter it could be "several months" before he receives a recommendation on the project from the State Department. Anti-pipeline protesters are planning a major demonstration against Keystone XL on Sunday at the White House.

Asia an option for Alberta oil if U.S. rejects pipeline

(Reuters; Oct. 31) - Canada is toughening its tone on the Keystone XL pipeline, warning the Obama administration that rejection of TransCanada's $7 billion project could prompt Ottawa to concentrate on selling its oilsands-derived crude to Asian customers instead of the U.S..

"What will happen if there wasn't approval - and we think there will be - is that we'll simply have to intensify our efforts to sell the oil elsewhere," Joe Oliver, Canada's natural resources minister, said Oct. 31. He said delay or disapproval of the U.S. segment of the pipeline would not change the fact that Canada is "a global energy superpower" with 174 billion barrels of oil reserves, the vast bulk of it in the oilsands of northern Alberta.

In the face of rising environmental opposition to the Keystone XL pipeline, which would carry 700,000 barrels per day from Canada's oilsands to U.S. Gulf Coast refineries, the Obama administration has signaled that it may miss a year-end target for a decision. A pipeline to West Coast British Columbia ports for oil exports to Asia, however, would face its own opposition. Several First Nations groups in British Columbia have said they will not support a line crossing their lands under any circumstances.

TransCanada questions constitutionality
of anti-Keystone bills

(Calgary Herald; Nov. 1) - TransCanada says Nebraska lawmakers will have a tough time introducing bills to regulate locating pipelines in the state that don't just target the company's Keystone XL project, rendering any resulting legislation unconstitutional.

"That's a very difficult, high bar hurdle for them to get over," the Calgary firm's CEO Russ Girling said Nov. 1.

Nebraska senators began a special session Nov. 1 to discuss introducing legislation that would give the state regulatory oversight of oil and gas pipeline location, so it can force TransCanada to reroute its proposed pipeline away from freshwater resources.

"Any legislation is going to be a very tricky and difficult thing to implement," Girling said on a conference call to discuss TransCanada's third-quarter financial results.

TransCanada's legal assessment of the Nebraska legislature special session said any pipeline-siting legislation that targets Keystone XL would violate the U.S. Constitution's Commerce Clause, in place to protect interstate commerce.

Most Bakken oil moves by truck
to rail terminals or pipelines

(The Wall Street Journal; Nov. 1) - A surge in North Dakota crude oil production is fueling a railroad boom as producers bet that trains will be a quick and lucrative way to break a transportation bottleneck. It has become a central challenge facing North Dakota's rise as an oil producer: How to get crude out of the massive Bakken Shale reserve and to the refineries far away that process it. More than 70% of the oil in North Dakota is moved from well to rail terminal or pipeline by tractor trailers. 

North Dakota's output has grown in the last three years from a trickle to nearly 450,000 barrels a day - trailing only Texas, Alaska and California - and could double by the middle of the decade, according to analyst and industry projections. Pipelines in the region already are operating at capacity, and major new lines aren't expected to start going into service until 2013. In response, companies are building rail terminals. Rail can be developed quickly, giving them an advantage for now over pipelines.

In the past, cost has led producers to prefer pipelines over rail. Traders estimate moving crude by rail can cost $5 to $10 a barrel more than by pipeline. But the light, sweet crude flowing from the Bakken, which refiners like for its quality, is inexpensive enough to eliminate those concerns. Refiners buy low-priced Bakken crude and move it by rail to Midwest, Southeast, East and West coast refineries, where they process it and fetch the same price for gasoline as their competitors that are using more costly imported oil.

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