Lawmaker concerned U.S. LNG exports could lead to higher prices

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January 6, 2012

(Reuters; Jan. 4) - Another lawmaker is raising questions about whether the U.S. government should approve pending applications for expanded exports of natural gas, a decision that some worry could lead to higher prices for businesses and utilities. Rep. Edward Markey wants Energy Secretary Steven Chu to explain the impact on prices for consumers and manufacturers if Chu finds the export applications are in the "public interest" and allows them to proceed.

The Energy Department is studying the impact of U.S. gas exports on energy prices and jobs in two reports slated for completion in the first quarter of this year. "I am worried that exporting America's natural gas would raise energy costs for American consumers, reduce the global competitiveness of U.S. businesses, make us more dependent on foreign sources of energy, and slow our transition away from dirtier fuels," said Markey, the top Democrat on the House Natural Resources Committee, in a letter to Chu Jan. 4.

The Energy Department last year approved the first LNG export application by Cheniere Energy and other companies want to follow suit, hoping to tap higher-priced Asian markets. The Senate Energy committee examined the issue of natural gas exports in November, when Sen. Ron Wyden said he is concerned about where the Energy Department will "draw the line" on allowing domestic prices to rise as a result of exports.

Top health official says U.S. should study fracking hazards

(Bloomberg; Jan. 5) - The U.S. should study whether hydraulic fracturing used to produce natural gas is a hazard to people or food sources, a top official at the Centers for Disease Control and Prevention said.

The Environmental Protection Agency, which is preparing regulations to govern fracking with the Interior Department, plans to study the effect of fracking on drinking water. Additional studies should examine whether wastewater from the wells can harm people or animals and vegetables they eat, said Christopher Portier, director of the CDC's National Center for Environmental Health and Agency for Toxic Substances and Disease Registry.

Fracking compounds should be monitored, Portier said, and drinking water wells should be tested before and after drilling. Studies also should address "all the ways people can be exposed" to fracking products, including through air, water, soil, plants and animals. Portier wouldn't say whether fracking should be stopped or more tightly regulated until studies are completed. "Our role is to determine what the risks are, and it is up to the public to decide if they are OK with that risk," he said.

Fracking sand mining worries some neighbors

(The Associated Press; Jan. 5) - Largely overlooked in the national debate over fracking is the emerging fight in the U.S. heartland over mining "frac sand," grains of soft sandstone of an ideal size, shape, strength and purity for hydraulic fracturing. Mining companies say the work provides good jobs in rural areas, but some residents fear the increase in mining could harm human health and the environment.

U.S. frac sand producers sold or used more than 6.5 million metric tons worth $319 million in 2009, according to the U.S. Geological Survey. The tonnage likely will have doubled when 2010 data is released, said Thomas Dolley, a USGS mineral commodity specialist. Nearly three-fourths of frac sand comes from the Midwest. It's shipped by rail to the oil and gas fields of Texas, Pennsylvania and North Dakota, where drillers mix it with water and chemicals, forcing it underground to fracture shale oil and gas deposits.

Not everyone is excited about the growth. On a recent windy day, Heather Andersen, of Bloomer, Wis., a retired schoolteacher turned activist, watched as gusts blew dust off sand piles at a mine. She said she saw no signs the mine kept the sand watered down to suppress the dust. "That stuff you see is not dangerous," Andersen said. "It's the stuff you can't see." Activists say frac sand isn't ordinary sand. They fear fine silica dust will make people sick, spoil the landscape and contaminate ground water.

Injection well moratorium will not stop Ohio production

(Bloomberg; Jan. 3) - A New Year's Eve earthquake in Youngstown, Ohio, that prompted the state to stop injection operations at five wells used to dispose of wastewater from natural gas and oil drilling won't affect production. Gov. John Kasich and the Ohio Department of Natural Resources consider the earthquakes isolated occurrences and will continue to allow use of the state's other 177 disposal wells without interrupting shale gas production, said Rob Nichols, a spokesman for Kasich.

"We are not going to stand by and let someone drive a stake through the heart of what could be an economic revival in Eastern Ohio," Nichols said Jan. 3. State Rep. Robert Hagan of Youngstown said he also supports the job creation of shale gas development; he just wants it done safely. "Some people have accused me of screaming, 'The sky is falling,'" Hagan said. "But when the earth is moving, we have obligation to find out why."

The quakes in Youngstown, roughly equidistant from Cleveland and Pittsburgh, join temblors in states including Arkansas and Texas that researchers say may have been caused by wastewater wells that inject fluid under pressure. About 300 million gallons of drilling wastewater are injected annually into Ohio wells without incident, said Thomas Stewart of the Ohio Oil and Gas Association. It's possible the injection well triggered an unknown fault, said Michael Hansen, a geologist at the Ohio Seismic Network.

Youngstown mayor buys earthquake insurance on his home

(Bloomberg; Jan. 4) - The mayor of Youngstown, Ohio, says he wonders whether a well used to dispose of wastewater from oil and natural gas drilling is making his city shake. Just to be safe, he bought earthquake insurance. "You lose your whole house, that's your life savings, and if you have no money or no insurance to replace it, then what do you do?" Mayor Charles Sammarone said. "Information is needed to make the homeowner and the residents feel safe."

There have been 11 earthquakes in this northeastern Ohio city since D&L Energy began injecting drilling brine, a byproduct of hydraulic fracturing, 9,200 feet underground in December 2010. The strongest, at a magnitude 4.0, hit last week on New Year's Eve. Injections at the D&L well near Youngstown have stopped, pending further investigation. Injections will continue at 177 other such wells in Ohio. Sammarone said he hopes state officials will give the city more information next week.

The mayor said he decided to buy a policy on his one-story brick house after the Dec. 31 quake because before March, there was no recorded seismic activity in the city.

Sinopec agrees to $2.5 billion buy-in
for U.S. shale assets, technology

(Wall Street Journal; Jan. 3) - China Petrochemical Corp. has struck a $2.5 billion deal with Devon Energy for a stake in five U.S. shale oil and gas fields, another move by a Chinese state-owned firm to play a bigger role in the rush to tap unconventional fossil fuels.  Under the deal, expected to close in the current quarter, Devon will serve as the operator. Sinopec, as the Chinese oil giant is known, will pay Devon $900 million at closing for a one-third stake in each of the five shale fields.

The payment includes $300 million in reimbursements for money Devon already spent on acreage and drilling acquisition. In addition, Sinopec will pay $1.6 billion to Devon in the form of a "drilling carry" - for work in the five fields - expected to be realized by the end of 2014. For Devon, the agreement helps cover operating expenses at a time when natural gas prices are low. Sinopec is making its first foray into the U.S. oil patch through the deal with Devon, one of the first companies to successfully tap shale fields.

The Sinopec deal and earlier buy-ins by China's CNOOC give Chinese state oil giants an avenue to learn and adapt U.S. fracking technology to shale plays in China. The U.S. Energy Information Administration estimates China's technically recoverable shale-gas reserves at nearly 1.28 quadrillion cubic feet, by far the most in the world and more than the agency's combined estimates for the volumes in the U.S. and Canada, which amount to 1.25 quadrillion cubic feet.

Russia, Japan complete feasibility study
of Vladivostok LNG project

(Platts; Jan. 4) - The joint feasibility study on Japan and Russia's planned LNG project near the Russian far eastern city of Vladivostok has been completed, a source close to the matter told Platts Jan. 4. The two countries will now verify the results of the feasibility study and decide whether to progress further at their next senior-level bilateral meeting in Japan, which could be held this month, the source said.

The two countries carried out the feasibility study, which included the pre-front end engineering and design phase, following an agreement signed in January 2011. Russia's gas monopoly Gazprom and Japan's Ministry of Economy, Trade and Industry co-chair the senior-level bilateral committee. The study looked at an LNG export plant capable of handling an average 1.3 billion cubic feet of gas per day.

If they decide to go ahead, Russia is expected to make a landmark decision on the project before the Asia-Pacific Economic Cooperation summit in Vladivostok in September, according to sources. The joint study was completed by Japan Far East Gas Co., a joint venture between Japan Petroleum Exploration Co., Itochu, Marubeni and Inpex, and by Itochu Oil Exploration Co., and has been sent to Gazprom. Moscow and Tokyo have not said where the gas for the Vladivostok projects would be sourced from.

Russia OKs Norway LNG tanker to travel
Northeast Passage to Japan

(Barents Observer; Jan. 5) - Norwegian gas from the Snøhvit gas field outside Hammerfest can for the first time be shipped through the Northeast Passage this summer. The Norwegian company Knutsen OAS Shipping has received permission from Russian authorities to transport LNG from Snøhvit to Japan along the Northern Sea Route, says Synnøve Seglem in the shipping company to Skipsrevyen.

The 3,500-mile journey from Murmansk to the Strait of Bering is planned to take around two weeks. Transportation along the Northern Sea Route is normally possible in the months June to October, and the Norwegian LNG tanker can make a maximum of three trips in one season. The entire journey from Hammerfest to Japan will take about one month, about half of the time it takes to take the route through the Suez Canal.

Traffic along the Northern Sea Route has increased considerably in course of the past two years, and the route is expected to become even more important in the future.

U.K. rises to third largest LNG buyer in the world

(Bloomberg; Jan. 4) - The U.K. may have surpassed Spain last year to become the world's third-biggest LNG buyer, a U.S. consultant said. Britain imported a record 19.6 million metric tons of LNG last year (an average of almost 2.6 billion cubic feet of gas per day), up 32 percent from 2010, according to Zach Allen, an analyst at Pan EurAsian Enterprises in Raleigh, N.C. Spanish LNG imports fell by about 18 percent to an average 2.3 bcf a day, while French imports rose 16 percent to 1.53 bcf a day, he said.

"A combination of economic problems in Spain plus the availability of gas via the Transmed pipeline are reducing Spain's purchases of LNG," Allen said. "I expect they have worked out a beneficial price arrangement with Algeria for gas via pipeline that makes that a better alternative than LNG imports." Spain was the world's third-biggest buyer of the fuel in 2010, according to data by BP's Annual Energy Review. Japan and South Korea were the world's biggest LNG consumers.

Japan's imports of spot and term LNG through November last year increased by 12 percent to 71.4 million tons (averaging 10.3 billion cubic feet per day)from a year earlier, according to the nation's finance ministry. South Korean LNG purchases in the first 11 months of 2011 rose about 9 percent to 31.93 million tons (4.6 bcf a day), according to data from Korea Customs Service.

Enbridge expands rail capacity to move Bakken oil

(Oil & Gas Journal; Jan. 3) - Enbridge Energy Partners will expand its Berthold, N.D., rail terminal capacity in North Dakota's Bakken Shale by 80,000 barrels per day, including a rail car loading facility to accommodate the additional volume. Enbridge has contractual commitments for 70 percent of the rail loading capacity and said it anticipates it will soon finalize agreements for the remaining capacity.

The expanded project will have capacity to stage three crude-loading trains at Berthold at any given time. After an initial Phase I start-up in July 2012, the full 80,000 barrels per day of rail export capacity will enter service in early 2013. Enbridge said the $145 million rail project will complete its Bakken Expansion Program, integrating gathering pipeline capacity in western North Dakota and eastern Montana with increased North Dakota export capacity.

Enbridge expects its cross-border Bakken Expansion, announced August 2010, to add 145,000 barrels a day of takeaway capacity from the Bakken and Three Forks formations in Montana, North Dakota, and southeast Saskatchewan. The entire Bakken Expansion program for North Dakota, Montana and Saskatchewan will cost roughly $370 million for U.S. projects and $190 million for Canadian projects.

Producers sign precedent agreements
for Enbridge oilsands pipeline

(Calgary Herald; Jan. 4) - On the eve of public hearings into the proposed Northern Gateway pipeline, five major oilsands producers have signaled their support for the controversial $5.5 billion line from the Alberta oilsands to the B.C. coast. More than 4,000 people have registered to speak at a series of public hearings by a joint panel of the National Energy Board and Environment Canada across British Columbia and Alberta in the next several months.

Cenovus Energy, MEG Energy, Nexen, Suncor Energy and Total Canada all filed statements with the National Energy Board that supported the proposal from pipeline proponent Enbridge.

The five producers each signed "precedent agreements," which are described at the first step toward the companies committing actual volumes of oil that will flow on the 725-mile line that would carry up to 525,000 barrels a day. In the documents, Cenovus, Nexen and MEG revealed that they are also helping to fund development of the pipeline.

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