Ship-or-pay contracts protect new Ruby gas pipeline

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September 6, 2011

(The Oregonian) - El Paso Corp. cut the ribbon Sept. 2 on its newest pipeline, a 680-mile, 42-inch-diameter behemoth built to carry vast quantities of Rockies natural gas from the Opal hub in Wyoming to Malin, on Oregon's border with California.

The $3.5 billion project, which started shipments in late July, opens at a time when gas prices have collapsed from the heady levels when it was conceived. In the short term at least, that's likely to keep gas shipments well below the pipe's capacity of 1.5 billion cubic feet of gas per day and crimp profits accordingly.

Company officials, however, stress it's a long-term investment. Moreover, ship-or-pay contracts in place cover more than 70% of the pipe's capacity, so the company gets paid regardless whether contracted shippers move gas. Though the pipe terminates in Oregon, none of the gas - for now - will be heating homes, making electricity or powering factories in that state. Instead, it is aimed at consumers in California, including the San Francisco-based utility giant Pacific Gas & Electric.

TransCanada tries again to reduce mainline tariffs

(Reuters) - TransCanada is making another attempt to restructure the tariff on its natural gas mainline as it tries to keep the huge network viable while conventional gas volumes out of Western Canada dwindle. The company said Sept. 1 it has applied to the National Energy Board to make big changes to its tariff and regulated return structure for 2012-2013. It has made similar attempts before, without success.

The proposal offers much lower tolls for long-haul shippers by adjusting depreciation and modifying how tariffs are designed. Short-haul shippers, however, could see some of the current long-haul costs rolled into their tolls. Under the proposal, the 2012 charge for moving gas to southern Ontario from the Alberta-Saskatchewan border would be $1.41 per gigajoule (about 1,000 cubic feet), about 32% less than the current toll, TransCanada said. Mainline tolls accounted for 19% of the company's 2010 earnings.

Over the past several years, TransCanada has struggled with the costs of operating its massive pipeline network and charging competitive tolls as Alberta's gas production declines. The system once carried around 6 billion cubic feet a day but now ships less than half that volume. Shippers pay the line's costs as well as a return for TransCanada. But as volumes decline, there are fewer shippers to cover the fixed costs, threatening higher tolls that, at a time of weak gas prices, cut into producer profits.

Maryland LNG plant applies for export license

(Southern Maryland Newspapers Online) - Owners of the Dominion Cove Point LNG facility in Maryland want to start exporting natural gas by late 2016, in addition to continuing to operate as an import terminal. Dominion applied to the Department of Energy Sept. 1 for an export license. "It would turn Dominion Cove Point into a bi-directional facility, where at times we would import and at other times export," said company spokesman Dan Donovan.

The terminal has received only four LNG deliveries so far this year as domestic shale gas production has canceled out the need for imported gas. "Gas prices are lower in the U.S. than in the rest of the world, so in conditions like that we'd be able to export natural gas," Donovan said. "It's an effort to get more use out of our terminal since not many ships are coming in."

Assuming the Department of Energy approves the export license and the owners receive the required permits, construction is expected to begin in 2014, Donovan said. The company did not release a construction cost estimate.

New EPA rules target hydraulic fracturing

(Fort Worth Star-Telegram) - The EPA proposed new regulations Sept. 1 that it said would dramatically reduce toxic emissions from oil and natural gas operations, with "a net savings to the industry of tens of millions of dollars annually from the value of natural gas that no longer would escape in the air."

The regulations would apply to new wells that are hydraulically fractured to stimulate greater production, as well as older wells that are re-fractured. The rules would also cover facilities such as natural gas processing plants, gas compressor stations and storage tanks at well sites.

The regulations would take effect Feb. 28 after public comment. The rules would require "green completions" of wells to capture more emissions and increase the use of equipment such as low-bleed pneumatic valves and vapor recovery units to reduce leaks. The goal is to curb emissions of volatile organic compounds that contribute to harmful ground-level ozone and to reduce leaks of methane, a greenhouse gas.

Business group forms in N.J. to promote natural gas

(NJ Spotlight, Montclair, NJ) - Worried that New Jersey's access to natural gas supplies could be jeopardized by lobbying from environmentalists opposed to increased use of fossil fuels, a band of big business groups have organized a coalition to promote the use of the fuel.

Called Natural Gas for New Jersey, the coalition gives the governor support in his plans to rely more on natural gas to meet New Jersey's energy needs and to try and drive down steep electricity bills for both residents and businesses. The fuel is frequently mentioned in the draft energy master plan released by the administration in June.

Among other things, the plan calls for an expansion of natural gas pipelines in the state to more readily access Marcellus Shale production in Pennsylvania and New York. "We need cheaper electricity," said Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey, a coalition member. "Gas, hopefully, will be abundant and a significantly cheaper source of producing power for some time to come."

Shell looking at three states for Marcellus petrochemical refinery

(The Associated Press) - Big industry may be coming back to the northeast U.S.

Shell is nearing a decision on where in the Appalachians to build a huge new petrochemical refinery to take feedstock from the Marcellus Shale. The scale of the multibillion-dollar project is unlike anything seen for decades in the region, said David Hounshell, a professor of technology and social change at Carnegie Mellon University.

Shell spokeswoman Kelly op de Weegh said the company plans to decide soon where to build the ethylene cracker plant, which would convert natural gas liquids to other chemicals. "For this project, we are concentrating on three states - Pennsylvania, West Virginia and Ohio - and we expect to have a decision on a location by the end of this year," op de Weegh said.

The industrial complex would likely attract many smaller, specialized chemical plants, since the main product, ethylene, is used to produce chemicals that go into everything from plastics to tires to antifreeze, according to the American Chemistry Council. Shell, which paid $4.7 billion last year for rights to about 650,000 acres in the Marcellus region, says it's considering building several specialized types of refineries at a single complex.

ProPublica lists top 10 U.S. natural gas producers

(ProPublica) - Natural gas production has grown steadily in the United States since 2006, reaching new highs this year. But who are the leaders? More than 14,000 oil and gas companies, many of them small businesses, were active in the United States in 2009, according to the U.S. Energy Information Administration.

But multinational giants like ExxonMobil and BP now produce much of the nation's gas. The 10 biggest drillers account for one-third of all production, data from the Natural Gas Supply Association and the EIA show. The 40 largest producers pump more than half of all domestic natural gas.

ProPublica has compiled the top 10 drillers in the country, ranked by daily gas production in the first half of 2011 (also pulling together key facts about their operations): ExxonMobil, average daily production 3.9 billion cubic feet; Chesapeake Energy, 2.6 bcf per day; Anadarko, 2.4 bcf; Devon Energy, 2 bcf; BP, 1.9 bcf; Encana, 1.8 bcf; ConocoPhillips, 1.6 bcf; Southwestern Energy, 1.3 bcf; Chevron, 1.3 bcf; Williams Energy, 1.2 bcf.

Maine gas pipeline depends on local property tax breaks

(Kennebec Journal, Maine) - Now that a proposed $70 million to $80 million natural gas pipeline in central Maine has won conditional approval from state regulators, local officials are looking to see whether the project can attract large customers to justify the financial investment. A dozen communities will soon be asked to approve an agreement that specifies tax breaks for the 56-mile gas pipeline, with an additional 20 miles of distribution loops.

Kennebec Valley Gas Co. won conditional approval from the state Public Utilities Commission Aug. 16. Company officials are now turning their attention to lining up customers and then winning approvals from each of the dozen affected communities for tax breaks. The tax-increment financing districts would shelter the value of the pipeline in each community, funneling a portion of the property tax revenue back to the company to help finance the project.

The financing-district agreement will require individual approval in each community, by either municipal councils, selectmen, or by citizens at special town meetings.

South Dakota hopes it has some oil, too

(Prairie Business Magazine) - Derric Iles, South Dakota's state geologist, said the state is "under-explored" when it comes to oil and natural gas. With an eye on what it could mean for the state's economy, an effort is under way to change this by enticing industry to take a second look at what South Dakota has to offer.

"We're pulling together every shred of information the state has that could be relevant to the exploration of oil and gas," Iles said. "We're pulling it together and making it available electronically." By making all of these records and maps digital and collecting them in a single location, the state hopes that it will be easier for oil and gas companies to find the information they need without traveling to separate offices.

North Dakota's Bakken formation has garnered national attention for its vast crude oil reserves and the jobs and economic boom that have come with it. Contrast this with South Dakota, where fewer than 200 people are employed in the oil and gas industry. But South Dakota officials believe there is potential for growth. Iles said that although South Dakota's geologic setting is not quite as favorable as North Dakota, it has many of the same rock units.

Obama emissions decision may be good news for oilsands pipeline

(Calgary Herald) - The Obama administration has halted new EPA emissions rules in a surprise strategy shift that observers say suggests the White House is likely to approve TransCanada's Keystone XL pipeline. Obama, citing the need to reduce the regulatory burden on business and encourage jobs growth, reversed course on a key policy measure that would have limited smog pollution from power generators and factories.

The shift toward favoring jobs over more rigorous environmental controls has observers of the debate over TransCanada's proposed 1,700-mile pipeline predicting Obama will apply the same criteria when deciding later this year whether to approve construction of the contentious $7 billion project that would deliver Alberta oilsands production to refineries on the U.S. Gulf Coast.

The decision was the first "clear-cut" example of Obama choosing job creation over the environment in a bid to get re-elected in 2012, said Guy Caruso, senior adviser in the energy and national security program at the Center for Strategic and International Studies, a Washington-based public policy think-tank.

Malaysia caught between local demand and LNG export revenues

(Reuters) - Malaysia, the world's third largest LNG exporter, is making plans to import natural gas to meet its growing domestic needs as it struggles to push through gas pricing reform and brace for its own declining production. Malaysia has been forced to turn to imports as aging fields decline and demand rises from power plants, though it still exports a lot of gas for the cash revenues.

Malaysia will begin importing fuel next year into its Melaka LNG terminal to help protect the large amount of revenue it receives from LNG exports. While selling its own production at market prices to Japan, South Korea and Taiwan, the national oil and gas company will import LNG to sell at a subsidized price to local consumers. The current price in Malaysia is about $4.60 per million Btus, though the government has pledged to raise the price by about $1 per year until it reaches true market levels.

Petronas recently struck an LNG import deal with Qatar to buy an average 200 million cubic feet of gas per day starting in 2013 and an additional 500 million cubic feet per day from Australia's Gladstone LNG project. Malaysia's first LNG imports terminal is scheduled to come online mid-2012.


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