Energy Department holds LNG export decisions; awaits studies

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Latest Oil and Gas News: 
December 29, 2011

(Pittsburgh Tribune-Review; Dec. 28) - As much as one-fifth of U.S. natural gas production could go overseas to India, Japan, China and maybe elsewhere if the Department of Energy approves all of the pending LNG export applications, a senior department official confirmed Dec. 27. The government estimates 2011 U.S. natural gas production averaging 65.6 billion cubic feet a day. The applications seek to export a combined 12.5 bcf a day. Few expect that all of the projects will be approved and built.

In May, the department approved an export license for Cheniere Energy's proposed liquefaction terminal at Sabine Pass, La. In all, eight other companies have applied for licenses. DOE's John Anderson said the department will grant no further approvals until two studies it commissioned are finished in the first quarter 2012 examining the "impact on consumption, the economy, gross domestic product and balance of trade." The U.S. Energy Information Administration and a private firm are conducting the studies.

Price impact is key, Anderson said, as is "the energy security of the United States." Those hoping to export argue that America is awash in natural gas because of hydraulic fracturing and horizontal drilling techniques that revolutionized gas production from deep shale formations. They forecast a small impact on prices and an increase in American jobs.

1950s Pennsylvania coal-fired power plant
will switch to natural gas

(The Daily Item, Sunbury, PA; Dec. 28) - Pennsylvania's Sunbury Generation, one of the oldest coal-fired power plants in the nation, will soon be generating electricity by burning natural gas. The 400-megawatt plant, which began operations in 1953, was placed on a recent list of coal plants facing possible closure as the EPA announced tough new emission regulations.

Sunbury Generation's plans are to close five of its six coal-fired generators and replace them with two natural gas-fired turbines. "It's predominantly driven by the new regulations, as well as the cost involved in burning coal," said Ed Griegel, the plant's vice president of operations. The plant is along the Susquehanna River, less than 50 miles north of the state capital Harrisburg in the eastern half of Pennsylvania.

Engineering for the project is being worked on now, and an application has been placed with the state Department of Environmental Protection for an air quality permit. "We'd like the new plant to be online in 2015," Griegel said. The project still needs to be financed. Although similar projects could cost nearly $1 billion, Griegel said plant officials don't believe the cost of Sunbury Generation's conversion will be that high. The work will be done in phases, he said.

Senators express concern over EPA regulation of fracking

(Oil & Gas Journal; Dec. 21) - Four U.S. senators have expressed concern over the EPA's possible plans to regulate hydraulic fracturing under the Safe Drinking Water Act when diesel fuel is injected underground. "A key issue is whether EPA's actions will cause unnecessary confusion and open the door for states to lose their primacy for [underground injection control] permitting programs," the lawmakers said in a Dec. 21 letter to EPA Administrator Lisa P. Jackson.

Sens. James Inhofe, R-OK, the Environment and Public Works Committee's ranking minority member; Lisa Murkowski, R-AK, the Energy and Natural Resources Committee's ranking minority member; and Energy Committee members Mary Landrieu, D-LA, and John Hoeven, R-ND, signed the letter, noting that Congress in 2005 excluded the injection of fracking fluids (except for diesel fuel) from the Safe Water Drinking Act.

Diesel fuel is a component of some fracturing fluids although it is not used in all fracking operations. The EPA reversed an earlier position on underground injection control permitting last year, deciding it would look at regulating all fracked wells where diesel is used. The senators urged EPA to proceed carefully as it contemplates greater federal regulation of diesel fuel used in fracking, taking care not to unnecessarily harm U.S. energy producers. New EPA guidance on the subject could appear early in 2012.

FERC staff OKs environmental review of Cheniere LNG plant

(Bloomberg; Dec. 28) - Cheniere Energy's proposed liquefaction facility to export LNG from its Sabine Pass, La., terminal won't significantly affect the environment, Federal Energy Regulatory Commission staff said. "Approval of the proposed project, with appropriate mitigating measures, would not constitute a major federal action significantly affecting the quality of the human environment," according to a Dec. 28 statement.

Cheniere built Sabine Pass as a gas-import terminal, but that business has not materialized as Cheniere and other operators had expected - prompting many to look at getting into the export business. Cheniere has received approval from the Energy Department to export LNG and is awaiting a final decision from FERC commissioners on a certificate of public convenience and necessity to construct and operate the LNG plant. The liquefaction plant and terminal would initially cost as much as $5 billion.

Cheniere has announced several 20-year contracts for the facility, including a pair of agreements with BG Group and Gas Natural SDG of Spain to reserve and pay for capacity at the liquefaction plant.

Natural gas industry completes with
local employers for workers

(Williamsport Sun-Gazette, PA; Dec. 27) - It's hard to drive down most thoroughfares, go to a restaurant or stay in a motel or hotel without feeling the natural gas worker presence in northcentral Pennsylvania. The population of pickup trucks and Oklahoma and Texas license plates, not to mention the demand for Southern barbecue, clearly is on the rise. As is the numbers of locals enticed to switch jobs and join up.

Jeremy Street, of Cogan Station, PA, worked for a local heating and air conditioning contractor before being hired by Sooner Pipe. "This company offered the best total package as far as benefits and pay," he said. "Family-wise, I was better off here." Andrew Harvey, of Montoursville, worked for a local bottling company before signing up as an equipment operator with Frac Tech Services International, a hydrofracturing company. "It ended up being a lot better than it was at my previous job," he said.

Irv Gleason spent more than 27 years as a Williamsport firefighter. Following retirement, he launched a second career as environmental health and safety operations manager with gas explorer Range Resources. Lycoming County Commissioner Jeff Wheeland said the gas industry has created opportunities for locals, but that can be a two-edged sword. "Typically, the (gas) industry pays a higher wage than our legacy industries. ... That creates a challenge for our legacy industries to recruit or retain workers."

Drillers perform record-setting frack jobs in northern B.C.

(ProPublica; Dec. 28) - Early last year, deep in the forests of northern British Columbia, workers for Apache Corp. performed what the company proclaimed was the biggest hydraulic fracturing operation ever. The project used 259 million gallons of water and 50,000 tons of sand to frack 16 gas wells side by side. The record didn't stand for long. By the end of 2010, Apache and partner Encana topped it by half at a neighboring site.

"There definitely is concern on the part of people living in northeast B.C. on the scale of developments, which are quite significant already and are only in their infancy," said Ben Parfitt, with the Canadian Centre for Policy Alternatives. "We are seeing some of the largest fracking operations anywhere on Earth." B.C.'s financial incentives, combined with remote work conditions, spurred companies to partner and scale up operations to cut costs, experts say. The result is a string of record-breaking fracks.

To a large extent, the same themes as in the United States have emerged as Canada struggles to balance the economic benefits shale drilling has brought with the reports of water contamination and air pollution that have accompanied them. Canada's eastern regions have proceeded more cautiously than Alberta and British Columbia. In March, Quebec placed a moratorium on shale development pending further study. Protesters in New Brunswick are demanding the same.

China tests limited natural gas pricing
reform; sets cap at around $12

(Wall Street Journal; Dec. 27) - China will test natural gas-price reforms in the latest move intended to help rebalance the nation's economy and encourage industries to use less energy. The test will occur in China's southern Guangdong province and Guangxi Zhuang autonomous region, the National Development and Reform Commission said Dec. 27. Importers are losing money as they typically buy gas at overseas rates that are higher than the fixed domestic prices they can charge customers.

The move, effective immediately, will see prices in the two areas linked to the market rather than kept artificially low. As they do with other fuels, Chinese officials cap natural gas prices to keep factories humming and protect the population from inflation. But that has led to dependence on cheap energy and bolsters inefficient manufacturers in a time when Chinese leaders are keen to shift the economy more toward the consumer sector. It has also discouraged China's domestic exploration and production of gas.

Guangdong and Guangxi were chosen as tests because they rely on imported natural gas, said the NDRC, which is China's top economic body. As a result, gas prices in the region already are closer to international market prices, it said. Under its limited test, the government will cap the price at around $12 per million Btu in the two provinces. China's gas pricing differs by region but averages roughly $5 per million Btu. China last raised the onshore domestic price of natural gas in June 2010.

Analysts doubt Canada can grab long-term
share of Japan gas market

(Vancouver Sun opinion column; Dec. 27) - Though Canada's natural gas industry wants to sell LNG to Japan, some analysts in the island nation say it's not so clear that there'll be much long-term demand for natural gas from Canada. In a world where those who snooze lose, Canada's energy industry has been downright dozy when it comes to tapping into Asian markets. With construction not yet started on Canada's first LNG terminal in Kitimat, B.C., there's no way to start shipping LNG before 2015.

"That's too late," says Yoshihisa Inada, the research director of Kansail Institute for Social and Economic Research in Osaka. More nimble suppliers will have the available contracts sewn up long before then, he suggests. Inada foresees the possibility that some of Japan's older nuclear plants will be closed, but he also thinks new ones will be built incorporating safety lessons learned the hard way in the Fukushima disaster.

Tetsuya Iida of the Institute for Sustainable Energy Policies in Tokyo notes that surveys show about 80 percent of the Japanese public want to see an end to nuclear energy production, most of them favoring a fadeout over several years. This, he believes, will give Japan time to develop safer and greener options - offshore wind farms, large-scale solar and geothermal, plus an integrated Asian supergrid that would allow imported power to cover any temporary shortfalls.

Qatar boasts world's largest GTL and fertilizer plants

(Gulf Times; Dec. 29) - Qatar in 2011 consolidated its position as the top producer and exporter of LNG, gas-to-liquids and fertilizers such as ammonia and urea. The nation marked a milestone last month with formal inauguration of the world's largest GTL plant. When fully operational this year, Pearl GTL, a Qatar-Shell $18.5 billion joint venture, will be able to produce 140,000 barrels a day of GTL products such as diesel and aviation fuel, oils for advanced lubricants, and naphtha used to make plastics and paraffin.

It will also produce 120,000 barrels a day of natural gas liquids and ethane. Qatar Petroleum and Shell recently joined hands on another project to construct a $6.4 billion petrochemicals plant, expected to be commissioned by 2017. The plant will have a capacity of 2 million tons a year of mono-ethylene glycol and olefins, aimed primarily at Asian markets. Mono-ethylene glycol is used in the manufacture of polyester resins, films and fibres, antifreezes, coolants, aircraft de-icer and solvents.

Qatar last month inaugurated the $3.2 billion QAFCO-5 fertilizer plant expansion, boosting the plant's ammonia output by 73 percent to almost 4.2 million tons and urea by 43 percent to almost 4.8 million tons a year. QAFCO (Qatar Fertiliser Co.) is the world's largest single-site producer of ammonia and urea. It is 75 percent owned by Industries Qatar. On the LNG front, Qatar is now providing South Korea with one-fourth of its natural gas - a record 400 billion cubic feet in 2011.

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