Interior Department close to decision on fracking rules

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October 7, 2011

(Fuel Fix, Hearst Newspapers; Oct. 5) - A rule that would impose new standards on shale gas extraction from federal lands "is still in formation," Interior Secretary Ken Salazar said Oct. 4. "We're maybe a month or so out before we actually put the specifics out." The Interior Department last year launched a broad review of whether it needed to step up oversight of natural gas drilling on the roughly 700 million acres of public lands under its control.

Salazar and other administration officials have signaled that they are likely to require oil and gas companies to disclose what chemicals they use when hydraulically fracturing wells. Salazar said fear about that process jeopardizes public support for natural gas, an essential part of the U.S. energy portfolio.

"The Achilles heel for natural gas in this country - a very important domestic source of energy for us - is that people don't yet know what is being injected underground," Salazar said. "So my view has been that there should be transparency and full disclosure. Otherwise people are going to get very understandably concerned about what is getting injected underground."

Texas water districts limit supplies for fracking

(Bloomberg; Oct. 6) - An intensifying drought in Texas is prompting limits on water consumption that for the first time target oil and natural gas producers. Local water districts, which have the authority to allocate water from subterranean aquifers, are adding hydraulic fracturing to some of the pumping restrictions they're imposing on farmers and small towns.

The city of Grand Prairie in the Barnett Shale in North Texas in August became the first municipality to ban the use of city water for fracking. Water officials for the Ogallala Aquifer in part of the Permian Basin included fracking when they approved the district's first-ever restrictions on water use in July.

Even before the drought, water was a sensitive issue for producers that use fracking to develop about 85% of the wells drilled in Texas, according to state regulators. "The rumblings have definitely started in the last six months," said Chris Faulkner, chief executive officer of Breitling Oil and Gas, a closely held producer in Irving, Texas. "It used to be, 'Are you going to contaminate my water;' now the concern is, 'You're going to use up all my water.'"

Pennsylvania judge allows public vote on anti-drilling referendum

(Pittsburgh Post-Gazette; Oct. 5) - Peters Township, Penn., officials do not plan to challenge a judge's decision to allow a controversial referendum question on the ballot for the Nov. 8 general election that, if passed, would prohibit new natural gas extraction and likely spur lawsuits over access to Marcellus Shale deposits.

A county judge Oct. 3 dismissed an attempt by the township to block the referendum. In a brief order, the judge wrote that he could not act before the election because there was no "immediate harm caused by the presence of the measure on the ballot."

Township solicitor William Johnson had argued the referendum would make illegal changes to Peters' home-rule charter. Johnson said the referendum is having a "chilling effect" on negotiations between drillers and people trying to lease their land. On the other side of the debate is the grass-roots group Peters Township Marcellus Shale Awareness, which wants the question on the ballot and favors a total ban on drilling.

Enbridge prefers Kitimat LNG site to Prince Rupert, B.C.

(Reuters; Oct. 6) - Pipeline operator Enbridge would prefer to supply natural gas to the proposed Kitimat LNG plant in British Columbia over any other export project in western Canada, the company's chief executive told Reuters Oct. 6.

Enbridge is interested in joining one of two proposed Canadian LNG projects to ship natural gas to Asia, it said this week, as ample North American supply pushes gas prices far below global levels. But the location of Kitimat has attracted Enbridge more than Shell's potential project in Prince Rupert, B.C., company CEO Patrick Daniel said.

"Kitimat is the preferred project. Pipelining into Kitimat is relatively straight forward compared to Prince Rupert," Daniel said, though talks continue with both projects. Kitimat, which could begin exports by 2015, is a joint venture between gas producers Apache, EOG Resources and Encana.

Anadarko believes Mozambique discovery holds at least 10 tcf

(Houston Chronicle; Oct. 5) - Anadarko Petroleum said it has "substantially increased" its estimate for the volume of natural gas that fields off Mozambique may hold in the wake of additional exploration success.

"The results of our activity to date provide high confidence that the Windjammer, Barquentine, Lagosta and Camarao complex holds at least 10 trillion cubic feet of recoverable natural gas," said Bob Daniels, Anadarko's senior vice president of worldwide exploration. Anadarko is moving a second deep-water drillship to the Rovuma Basin to accelerate development.

With the added potential, the company said it is also expanding its plan to build an LNG export plant in Mozambique. It now sees the opportunity to build at least two production trains, with total capacity to process about 1.3 billion cubic feet of gas per day.

Second floating LNG project planned for Australia slips to 2018

(Sydney Morning Herald; Oct. 7) - Plans by Santos and its French partner GDF Suez to develop a floating LNG project off Western Australia's northern coast appear to be slipping, with the Bonaparte venture not expected to be operational until 2018.

But the partners also say that output from Bonaparte, 150 miles west of Darwin, may be increased from an initially planned daily capacity of 250 million cubic feet of gas to almost 400 million cubic feet. Santos and GDF Suez said they expect to make a final investment decision on the development in late 2014.

The partners have yet to put a price on Bonaparte, which would become the second floating LNG project off Western Australia's coast after Shell's world-first Prelude development, expected to start operations in 2017.

Final investment decision expected this year on Australia LNG project

(Australian Associated Press; Oct. 6) - A $20 billion LNG project in Australia's far northwest will be a "game changer" for the region, federal Resources Minister Martin Ferguson said. The Ichthys LNG project, a joint venture between Japan's Inpex and France's Total, is planned to draw gas from the Browse Basin offshore from Western Australia and process it in Darwin.

Inpex general manager for Darwin, Sean Kildare, said there were "no roadblocks" to the joint venture making a final decision to proceed by the end of the year, with environmental approvals already in place. "There are no show stoppers or bottlenecks that would cause a substantial delay to delivering Ichthys' final investment decision," Kildare said.

If the venture decides later this year to go ahead with the project, first gas exports are scheduled for the fourth quarter of 2016. The venture already has signed up customers in Japan and Taiwan for the project, which is expected to produce an average 1.1 billion cubic feet of gas per day.

Bechtel says its three Australia LNG projects are on schedule

(Reuters; Oct. 7) - Bechtel, the largest U.S. engineering firm, said all of the LNG projects it is involved with in Australia's Queensland state are currently running on schedule. The privately owned company is working on three LNG projects in Queensland: the $16 billion Gladstone project, BG Group's $15 billion Curtis Island project and ConocoPhillips, and Origin Energy's $20 billion Asia Pacific LNG project.

The three LNG projects are on different timelines, so the company plans to shift workers from one project to the next along the way, in the face of a construction boom in the resources sector which has led to skills shortages. However, Bechtel Chief Executive Riley Bechtel said the company was likely to need to import workers like pipefitters, electricians and welders.

The company has locked in workers' wages typically with escalators of 2.5% every six months built into their contracts, so it is not worried about potential wage blowouts on its Australian resources projects. Other challenges included protecting dugong and sea turtle populations on and around Curtis Island and protecting the local community from "a surge of ill-behaved construction workers" on their days off, Bechtel said.

Total signs on as partner in Siberian LNG project

(Financial Times; Oct. 6) - Total, the French oil company, has joined forces with Novatek, Russia's biggest independent gas producer, to develop the Yamal LNG project in Siberia. Under a deal signed in Paris Oct. 6, Total will take a 20% stake in Yamal LNG, which aims to tap huge gas reserves on the Yamal Peninsula in west Siberia for export to Europe and Asia.

The Yamal deal has been under negotiation since early this year when Total invested $4 billion to acquire a 12% stake in Novatek, cementing a strategic partnership with Russia's second biggest gas producer after Gazprom. Yamal LNG plans to invest about $26 billion to develop a Siberian field to produce up to almost 2 billion cubic feet of gas per day at a new LNG plant on the coast of the Kara Sea that could start up in 2016.

Novatek is seeking additional foreign partners to join Yamal LNG, but intends to retain a 51% stake in the project. Russia has declared Yamal LNG a project of national importance. However, analysts say Yamal LNG, which plans to export gas via Russia's Arctic seas, will face strong competition from projects located closer to gas markets.

Wood Mackenzie predicts major tight-oil play for Alberta-Montana

(Calgary Herald; Oct. 4) - An early-stage tight-oil play that straddles the Alberta-Montana border will produce more than Canada's largest conventional pool, if a bold new prediction by Wood Mackenzie holds true.

The research and consulting firm said Oct. 4 that energy companies could recover 2.6 billion barrels of oil from the cross-border section of the Bakken formation that stretches from northern Montana northwest through Alberta and into British Columbia and the Northwest Territories. "That's a lot of oil," said analyst Gordon Tait of BMO Capital Markets.

Though early indications are "promising," a large degree of uncertainty surrounds development, with just a few horizontal wells targeting the formation to date, Wood Mackenzie said in its report. A 170-mile-long, over-pressurized fairway across the Alberta-Montana border suggests the potential for high-flowing wells at a relatively low cost, Wood Mackenzie said, but noted that early results are largely confidential.

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