Russia,
LNG, and the US natural gas market
December 11th, 2008 Eurasia Daily Monitor
In 2006, when oil and natural gas prices began steadily
climbing, Russia’s state-owned gas company Gazprom announced that it
had ambitions to become a leading LNG (Liquefied Natural Gas) supplier
to the enormous US gas market.
Gazprom and its Kremlin masters were eager to claim more than 10% of
this market by 2010 and then increase its share to 20%. The company
also signaled its interests in downstream assets in the US, such as
transport and re-gasification terminals, the Moscow Times reported on
September 7, 2006. Gazprom spokesman Sergei Kuprianov told the paper
that “The US market has a great potential for growth. We can only reach
it using LNG technology. After all, you can’t build a pipeline from
Russia to the United States.”
Gazprom’s LNG ambitions at the time were fueled by various reports,
including one by Price Waterhouse that predicted that LNG would account
for a third of all gas trade by 2010 and 62% by 2020
(www.bloomberg.com/apps/news, March 1, 2007). Gazprom, however, has had
almost no experience in LNG and in order to develop its giant but
desolate Shtokman field in the Barents Sea is forced to rely on the
French oil and gas giant Total, which has been involved in numerous LNG
projects.
In July 2007 Gazprom and Total struck a $15 billion deal for the joint
development of Shtokman, in which Gazprom holds a 51% stake, Total
holds 25%, and Norwegian StatoilHydro a 24% stake. The new joint
venture company, Shtokman Development AG, is registered in Switzerland
and will be organizing the project engineering, development,
construction, financing, and exploitation of the first phase of the
Shtokman field development. Phase one provides for a yield of 23.7
billion cubic meters of natural gas per year with the start of pipeline
deliveries to commence in 2013 and LNG in 2014
(www.rigzone.com/news/article.asp?a_id=57133).
Initial plans called for part of the gas from Shtokman to be sent to
the United States as LNG, but the plans changed (possibly due to German
pressure on Gazprom) and the gas was slated to be shipped exclusively
to Europe via the controversial North Stream pipeline. Now, Russian
Prime Minister Vladimir Putin is apparently having second thoughts and
is contemplating building a vast project to ship LNG from Shtokman to
the United States, possibly abandoning the costly North Stream project
altogether (EDM, November 20). The planned route for Shtokman gas from
Murmansk to the east coast of the United States, according to the
Moscow Times on October 26, 2005, would be significantly shorter than
the distance for shipments from the Middle East to North America,
giving it an advantage over the Gulf exporters of LNG.”
Oil and Gas Eurasia reported on July 7, 2007, that “British Petroleum
could go as far as turning Atlantic LNG, a company based in Trinidad
and Tobago, into a joint venture with Gazprom and BP.” Trinidad and
Tobago have been the largest LNG suppliers to the US market. Gazprom
did not comment on the issue, but a spokesman for BP admitted the
company was in “ongoing discussions with Gazprom,” adding that the
negotiations were a part of the cooperation agreement. “We said then we
would discuss cooperation on future developments and would be looking
at everything in our portfolio; we had ruled nothing in and nothing
out.”
The Russian drive to gain a foothold in the US gas market has continued
unabated despite the world economic crisis and Gazprom’s serious
problems of rising domestic gas consumption in Russia and stagnant
production. On June 12 the Russian news agency Itar-Tass quoted Gazprom
deputy chief Alexander Medvedev as saying that ExxonMobil had offered
Gazprom a role in a $1 billion regasification terminal off the New
Jersey coast. The Blue Ocean Energy terminal would have the capacity to
supply about 1.2 billion cubic feet of natural gas per day to New
Jersey and New York. In what appears to be a quid pro quo, Medvedev
said that his company was considering the US companies ExxonMobil and
ConocoPhillips for involvement in its liquefied natural gas projects in
the Arctic Yamal Peninsula (Moscow Times, November 20).
Some experts in the natural gas industry are not convinced that Gazprom
is capable of taking on such a large and expensive project as supplying
Russian LNG to the United States. Furthermore, they claim that the US
market for LNG is rapidly slowing down. Companies have dropped plans to
build more LNG terminals in the USA, while large, recently discovered
gas fields in the country have made new and far more expensive LNG
imports a high-risk gamble. Will this temper Gazprom’s US strategy, or
is the Kremlin betting that by 2030, US needs for imported gas will
rise sharply and Gazprom will be in a position to fill them, thereby
exacting a political dividend? In the past few years Gazprom has spent
millions of dollars trying to improve its image in the United States in
order to be seen as a transparent and reliable company. To some extent
this is apparently paying off.
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Bolivia
Plants May Ease Brazil, Argentina Shortage
By Jonathan J. Levin Dec. 12 Bloomberg
Bolivia’s energy minister said two proposed liquefied petroleum gas
plants may allow the country to boost supplies to Brazil and Argentina
by 2010, easing a shortage of the fuel after a lack of investment
reduced output. The processing plants would be built in Santa
Cruz, eastern Bolivia and each would produce about 200 tons of
liquefied petroleum gas a day. The plants would help turn a deficit of
gas into a “surplus,” Bolivian Hydrocarbon and Energy Minister Saul
Avalos said in an interview at his La Paz office, speaking in front of
a portrait of Argentine revolutionary Che Guevara.
Bolivia, which exports most of its natural gas to Argentina and Brazil,
hasn’t been able to keep up with some contractual commitments, leading
to chronic shortages. Insufficient investment in Bolivian gas fields is
to blame for Argentine shortages, Standard & Poor’s Corp. said July
28. Bolivia has the second-largest gas reserves in South America after
Venezuela.
“It’s our goal to be able to industrialize our gas,” Avalos said in the
Dec. 10 interview in the Bolivian capitol. “We don’t want to continue
exporting raw materials.”
Bolivia plans to invest $20 billion to expand natural-gas production,
state-owned energy company YPF Bolivianos said yesterday in a
statement. The company plans to drill 50 to 60 wells in 2009 to meet
domestic and export demands.
Investment in Bolivia’s oil and gas industry fell to $149 million last
year, during a period of record energy prices, from a peak of $580.8
million in 1999. President Evo Morales said Sept. 24 in an interview in
New York that he’s seeking investment from Iran, Russia and Venezuela
to boost gas output.
Repsol Investments
“Repsol YPF Bolivia is planning important natural-gas investments in
Bolivia, especially in the Caipipendi block in southern Bolivia,” the
Spanish company said Dec. 11. An Argentine delegation met with
YPF Bolivianos on Dec. 1 to discuss fulfilling current gas supply
contracts, and agreed to continue talks in January 2009, according to a
statement on the Hydrocarbon and Energy Ministry’s Web Site. Bolivia’s
gas supply contract with Argentina runs through 2027, and a Brazil
contract will expire in 2018.
Bolivia’s domestic supply of liquefied petroleum gases, or LPGs, fell
short by about 50 tons a day from May to August, forcing the government
to import to meet demand, the Ministry’s 2008 National Hydrocarbon
Strategy said in a report. “At the moment we have a deficit of
fuels, among them liquid petroleum,” Avalos said in the interview.
Bolivia faces domestic fuel shortages partly because
government-subsidized fuel is often sold for a profit in neighboring
countries.
Nationalizing Assets
In October 2006, Morales nationalized the nation’s oil and gas reserves
and negotiated new contracts with energy companies that had interests
in Bolivia, including Spain’s Repsol YPF SA and Brazil’s
state-controlled Petroleo Brasileiro SA. On Jan. 25 the Morales
government plans to put a new constitution to a national referendum,
solidifying state ownership over the country’s mines and natural gas.
Avalos said foreign investment had dropped off as investors waited for
the government to reverse course, and that the new constitution was
proof that Bolivia’s policies were long term. “We want the
companies to keep working here,” Avalos said. “They can be our
partners, but will never again be our bosses.”
Repsol declined to comment on the possible consequences of the new
constitution when contacted by Bloomberg Dec. 11.
A politically motivated attack against a pipeline disrupted natural gas
supplies to Brazil for about two weeks this September as lawmakers
sought to set a date for the constitutional referendum. The country’s
army and national police were called in to safeguard Bolivia’s energy
infrastructure. The Bolivian government hasn’t made any plans to
protect those pipelines before the January referendum, Avalos said.
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EAGC: Credit
crisis affects European gas projects
Uchenna Izundu Oil & Gas Journal / Dec. 1, 2008 International Editor
Eni Gas & Power SPA
Chief Operating Officer Domenico Dispenza warned in a keynote address
at the European Autumn Gas Conference (EAGC) at Lake Como, Italy, that
the credit crisis could seriously affect the supply and diversity of
gas supply projects in Europe.
Dispenza said extreme volatility in stock and commodity
prices were complicating the planning of major developments, and the
drying up of financing has led to unprecedented government intervention
in the market.
“The forecasting of the medium and long-term European gas
demand will become a difficult exercise as the common wisdom of its
unstoppable growth is being challenged by 2 full years of decrease—the
combined effects of mild winters, marginal fuel competition, and
efficiency measures,” Dispenza said.
European gas companies have proposed a number of pipelines
and LNG import terminals to bring in natural gas from Russia, Algeria,
and Qatar to meet the growing deficit in gas supplies. But Dispenza
stressed that infrastructure developments would be difficult without
major finance and that strong upstream resources and a good project
framework would be crucial.
He was critical of the “dangerous inward attitude” regarding
development of the European single gas market and called for all actors
to display similar attitudes to action investment. Otherwise, he
warned, it would be difficult to encourage suppliers to establish
multibillion-dollar export infrastructure.
“The priority of any new regulator and the third European
liberalization package should therefore be on the promotion of a
favorable investment climate and a finally stable regulatory
framework,” Dispenza said.
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EAGC: Edison
official stresses European gas diversity
Uchenna Izundu OGJ.com 12/1/08 International Editor
Enhancing diversity of gas supplies is a key challenge for Europe, and
the Caspian could become an important source, said an Edison SPA senior
official at the European Autumn Gas Conference (EAGC) in Lake Como,
Italy. Riccardo Pasetto, executive vice-president of corporate
business development at Edison, said: “We want to promote new gas from
the Caspian; the advantage of our position is small compared with [that
of] Nabucco.”
Edison’s proposal is the IGI gas pipeline that would import 8-10
billion cu m/year of gas from the Caspian and the Middle East areas
through Turkey to connect Italy and Greece. Deliveries are expected to
start in 2012. Edison is working with the Greek company Depa to build
the 800-km long pipeline.
OMV AG is developing the 3,300-km Nabucco gas pipeline, which is of
strategic importance for the European Union. It has a planned capacity
of 3 1 billion cu m/year of gas to be delivered from the Caspian and
Central Asia beginning in 2013.
Energy security sought
Currently Russia is one of the biggest suppliers of natural gas to
Europe, but this reliance troubles European politicians as Russia
increasingly uses energy to shape its foreign policy.
In 2007, Russia provided 27% of Italy’s required 13.5 billion cu m of
gas, followed by Libya 11% and Norway 10%, according to Pasetto.
However the IGI pipeline in 2015 will supply 27% of the 24 billion cu m
required, with Qatar providing 26%, Algeria 17%, Libya 17%, and Russia
17%.
“Russia and North Africa will remain the main suppliers to Europe,
providing 35% of total demand,” Pasetto said. “Russia’s—incremental
supplies of 30-60 billion Cu m should be lower than the additional
capacity provided by the projects under development.”
Pasetto said LNG supplies will be essential to meeting future European
gas demand, but this could be subject to arbitrages on the US and Asian
markets. Qatar’s role will be crucial, and Edison is developing the 8
billion cu m/year North Adriatic LNG regasification terminal in
partnership with ExxonMobil Corp. and Qatar Petroleum.
RasGas II has agreed to supply 6.4 billion cu m/year for 25 years. The
remaining 20% of Adriatic’s capacity will be available to third
parties. The terminal is expected to become operational next year.
Gas storage is another major priority for Edison to optimize on
logistical flexibility, and the company is developing 1.6 billion cu m
of working gas storage capacity by 2013-14. Gas storage would provide
regular returns. The authorities are still considering exempting Edison
from offering access to third parties under European Union’s rules.
The project will cost ˆ550 million, of which ˆ230 million is for the
facilities and ˆ320 million is for the cushion gas. In 2006-07, Edison
provided 0.2 billion cu m of total gas capacity, but it expects this to
rise to 2.2. billion cu m by 2013-14.
Edison plans to increase its share of equity gas in its portfolio by
15%, concentrating on exploration and acquisition, Pasetto added.
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Oklahoma 700 wells to
date in the Woodford shale
By OGJ editors HOUSTON, Dec. 9
Industry has drilled well over 700 wells to date in the Woodford shale
in the Arkoma basin in southeastern Oklahoma, said Newfield Exploration
Co., Houston.
State regulators have permitted drilling 400-500 ft closer to the north
and south lines of spacing units, allowing longer laterals in the
Woodford. The company is also in planning stages for an 8,000-10,000-ft
"superextended" lateral in the Woodford.
Newfield expects its entire position of more than 165,000 acres to be
held by production by the end of 2009. The current figure is 85%.
Newfield is attempting to complete its first horizontal well in
fractured Pennsylvanian Wapanucka limestone above the Woodford.
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Italy region Gas
Natural Trieste LNG terminal
Wed Dec 10, 2008 MILAN, Dec 10 Reuters
Northern Italian region Friuli Venezia Giulia has backed Spain's Gas
Natural plan to build a liquefied natural gas (LNG) imports terminal
there, the region said in a statement. Earlier this year Gas
Natural won an approval from Italy's Environment Ministry to build the
regassifaction plant at the northern Italian port Trieste. But the
project also needs the backing of local authorities. The regional
government has confirmed its interest in the project and its commitment
to speed up the authorisation procedure, the regional government said
in a statement after it met Gas Natural's senior executives on Tuesday.
Gas Natural and its partners spent four years seeking environmental
approval for the 8 billion cubic meters plant, which it estimated will
cost 500 million euros ($646.7 million) and come on stream in
2012. The regional government said the total investment in the
project was about 600 million euros and Gas Natural would be able to
start work in the first half of 2010 and start up the terminal about 40
months later.
The region said the ministry's approval had yet to be formalised as a
decree and after that a debate at the regional level, involving about
20 local entities, would start.
Italy relies on natural gas imports to cover about 85 percent of its
energy needs and seeks to deversify supplies by building LNG terminals
and new pipelines. It has only one operating LNG terminal: the second
one should come onstream middle 2009.
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Natural gas
Sterlings delivered to ports
12/11/2008 www.todaystrucking.com LONG BEACH, Ca
Some 132 owner-operators contracted to California Cartage are now
driving near-zero-emission Sterling Set-Back 113 tractors in the ports
of Long Beach and Los Angeles.
Powered by 2010-compliant Cummins Westport ISL G engines running on
natural gas, the trucks have been made available on a lease-to-own
program -- for little more than $300 a month -- funded by $12 million
in grants provided by the Environmental Protection Agency through the
South Coast Air Quality Management District.
It’s actually an interesting public/private partnership that involved
several government agencies at the local, state, and federal levels as
well as Daimler Trucks North America and a family-run fleet, California
Cartage. Unlike most other such partnerships, this one produced results
quickly, less than two years after the idea first arose to clean up the
ports by mandating the replacement of older trucks.
Some of those ‘older’ trucks are in fact ancient. Given the slim
margins inherent in such work, many owner-operators serving the ports
run pre-1989 tractors and couldn’t possibly replace them with newer,
cleaner vehicles without financial assistance of some sort.
The Clean Air Action Plan devised for the two ports is an
aggressive piece of public policy that will see all 16,000 trucks
serving the ports adhere to at least 2007 EPA standards by Dec. 31,
2010. Retrofitting the requisite emissions equipment is an option, but
at a cost of US$35,000, it’s unlikely that anyone will take that route.
As well as the 132 LNG Sterlings delivered to Cal Cartage, another 100
such trucks will be delivered by DTNA for use by other carriers and
owner-operators working in the twin ports.
“This event sets a whole new standard for leadership, policy and
investment that will act as benchmarks for the future of harbor drayage
worldwide,” said Mark Lampert, DTNA senior vice president, sales, in
introducing the new trucks to an assemblage of press and dignitaries at
the Port of Long Beach this week. By introducing the Set-Back 113
with natural gas, we're giving our customers a hard-working truck that
reduces both costs and environmental emissions," added Chris Patterson,
DTNA president and CEO. “Each tractor will reduce the use of
imported oil by 500 barrels per year,” he said. “With 132 Cal Cartage
tractors plus 100 additional natural gas trucks to be operated by the
ports, that reduces our dependency on foreign oil by more than 116,000
barrels annually.”
Ironically, the Sterling brand is about to disappear as DTNA shuts down
that subsidiary. But the company is engineering a replacement for these
port trucks by way of the Freightliner Business Class M2 112 natural
gas tractor. It too will be powered by the 8.9-liter Cummins Westport
ISL G engine, which is 2010-compliant now. These trucks produce
virtually no emissions of sulfur dioxide or particulate matter and far
lower levels of greenhouse gases and nitrogen oxides than ’07 models.
The ISL G features a maintenance-free exhaust system with a three-way
catalyst -- they don’t have diesel particulate filters, so there’s no
regeneration or periodic cleaning required.
The balance of the Long Beach/Los Angeles order will be filled by the
ultra-clean M2 112 by April of next year.
Class 7/8 truck is useful in other applicationsl, such as LTL/regional
hauling, construction, municipal services, among others.
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Alaskan
Pipeline's Long-Term Impact
AJM Petroleum Consultants 12/10/2008
The gas pipeline license recently awarded to TransCanada Corporation by
Alaskan State Governor Sarah Palin could have a negative long-term
impact on Canada's natural gas industry, says AJM Petroleum
Consultants, an evaluation firm that specializes in the economic
evaluation of oil and gas reserves.
"While construction of the Alaskan pipeline will likely have a positive
impact on Canada's economy in the shorter term, once it is up and
running it will make Alaska into a direct and effective competitor for
Alberta and BC's natural gas industry," said Ralph Glass, VP Operations
of AJM Petroleum Consultants. "Looking ahead, we have to consider the
fact that the Alaskan pipeline will increase natural gas volumes into
the US market. This could keep natural gas prices low in future years -
low natural gas prices will have a significant impact on future
drilling here in Canada."
Recent studies have indicated that Western Canadian gas plays require
gas prices to be $7 - $8/Mcf to be viable, with even higher prices
required in Alberta's deeper Foothills areas.
The increase in gas production from the US shale gas plays has raised
natural gas storage levels in the US, depressing today's gas prices to
$6/Mcf. While Glass anticipates the additional quantities of gas
expected from Alaska could continue to keep gas prices low, he doesn't
feel the Alaskan pipeline needs to signify doom and gloom for Canada's
natural gas industry.
"We need to reduce our dependency on the US as the primary market for
our natural gas and now is the time to begin planning, rather than
waiting for the impacts of the pipeline to force us into action," says
Glass. "In light of the changes that will be inevitable with the
completion of the Alaskan pipeline, this is the ideal time to begin
aggressively pursuing an LNG and oil export terminal on BC's coast so
Western Canadian hydrocarbons can gain access to world markets."
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