Natural gas producers
seek long-term contracts
Source: http://www.rigzone.com / The Wall Street
Journal by Ben Casselman and Rebecca Smith
In a sign that low natural-gas prices are probably here to stay, big US
energy companies are pushing to sign long-term contracts with electric
utilities and other customers.
Major producers such as Chesapeake Energy and Devon Energy are trying
to reach multiyear deals -- likely 5 or 10 years long -- that would
guarantee them buyers for their gas but would deny them the benefits
from any sudden price increases.
For a decade, energy companies have shunned such agreements because
they wanted to profit when gas prices soared, as they often did,
especially in advance of rising winter demand for gas heat. But huge
new gas fields in Texas, Louisiana, Pennsylvania and elsewhere have led
to a surge in US natural-gas production, glutting the market even as
the recession has sapped demand for all forms of energy. Prices have
plummeted to less than $ 6 per mm Btu, less than half their price in
July 2008.
"The days of double-digit gas prices in the US are over," said
Chesapeake Chairman and Chief Executive Aubrey McClendon.
Gas executives, however, are finding that long-term deals are an
unexpectedly tough sell. The same price stability that has made
producers eager to sign contracts has made their customers reluctant,
because they are less worried that prices will suddenly rise.
"Producers would like contracts, but as a buyer, I don't think we need
them," said Steve Warnick, senior vice president of energy-supply
services for NiSource Gas Distribution, a unit of electricity and gas
distributor NiSource in Merrillville, Indiana.
Low prices are good news for homeowners, who can expect to pay 11 %
less on average for gas heat this winter than last and who have also
seen electricity prices fall. But producers have been forced to slash
budgets and sell assets as their revenues have dropped.
Long-term contracts are common outside the US, where international
shipments of liquefied natural gas are sold under contracts that often
stretch 20 years or more. Long-term deals are also often used in the US
to sell coal; boosters of long-term contracts say they will make
natural gas more competitive with coal, which is usually cheaper but
emits more pollutants when burned.
Until recently, energy companies needed to hunt continuously for
relatively small, short-lived gas fields, making it hard to guarantee
supplies far into the future, and prices had generally been rising. The
new gas fields are changing the equation because they contain vast
quantities of gas that is relatively inexpensive to pump and is
expected to last for decades, making it easier for producers to make
long-term commitments.
"There's certainly the potential for the natural-gas producers and the
utilities to develop a new relationship that has not been possible
historically," said Larry Nichols, chairman and chief executive of
Devon Energy.
Earlier, ExxonMobil agreed to buy US natural-gas producer XTO Energy in
a $ 31 bn stock deal that was widely seen as an endorsement of the new
gas fields' long-term viability. Exxon has experience with long-term
sales contracts through its large liquefied-natural-gas operations
overseas, and many experts think the company will pursue them in the US
Exxon hasn't discussed its plans.
Long-term contracts also face obstacles in markets where energy
contracts are subject to government review. If market prices rise above
the contract price, consumers benefit. But if prices fall, local gas
and electric customers could be stuck paying above-market prices, a
risk regulators would prefer to avoid.
"We'd have to go back to regulators and get approval," said Joe Hopf,
who heads trading operations for Public Service Enterprise Group, a New
Jersey-based power company. The company is building three new gas-fired
generating plants but has no plans to enter into long-term
fuel-purchase deals, Hopf said.
Producers, however, remain optimistic. Devon's Nichols said he expects
to see a gradual shift toward long-term contracts, beginning with some
relatively smalldeals to test the idea.
Smoothing out volatile prices makes sense for both producers and their
customers, he said, adding, "The peaks are politically unattractive,
and the valleys are economically unattractive."
|
California Trucking and Oil Industries Protest Fuel
Mandate
By SINDYA N. BHANOO NY times 2/6/2010
California’s new mandate for cleaner, low-carbon fuels is being met
with resistance by the trucking and petroleum industries.
Several groups came together Tuesday to jointly file a lawsuit against
the state, claiming the mandate makes doing business prohibitively
expensive and violates federal laws regarding interstate
commerce. The new mandate calls for California to reduce
petroleum dependence by 20 percent by 2020. It also requires that all
gasoline and diesel sold in the state be 10 percent less carbon
intensive by 2020. “We felt the need to challenge it because it will
increase the cost of fuel produced in California,” said Rich Moskowitz,
vice president of the American Trucking Association, one of the groups
involved in the suit. He added that the overhead costs to individual
truck drivers and companies would also be crippling — especially if
drivers are forced to move from diesel to natural gas to meet the new
standards. “A new clean-diesel truck that emits virtually no
particulate matter is about $100,000,” he said. “A natural gas engine
adds a 40- to 80-thousand-dollar premium on top of that.”
State officials have responded by saying that the industry is acting
selfishly. ”Their actions are shameful; this is a critical tool to help
us break our dependence on fossil fuels,” Mary Nichols, chairwoman of
the California Air Resources Board, told The Associated Press in
reference to the lawsuit.
But. Mr. Moskowitz said that the trucking industry supported
clean-diesel technology, citing federal compliances in 2004 to improve
exhaust gas circulation in trucks and in 2007 to install
particulate-matter traps. “I know that Mary Nichols has said this is
shameful, But the trucking industry is still very committed to
embracing clean- diesel technology.”
Others joining in the suit include the Center for North American Energy
Security, the Consumer Energy Alliance and the National Petrochemical
and Refiners Association.
|
BNSF Railway yard in
San Bernardino state's most polluted rail facilities.
Trucking firm pulls out of plan to retrofit trucks for cleaner air
February 3, 2010 By DUG BEGLEY The Press-Enterprise
Days before San Bernardino officials were set to ink a deal for cleaner
trucks at a local rail yard, the trucking company partnering on the
project has pulled out of the project. San Bernardino Associated
Governments officials learned this week that J.B. Hunt Transportation
was postponing the planned retrofit of 262 of the company's trucks from
diesel engines to natural gas.
"This was based on business priorities," said Michelle Kirkhoff,
director of air quality programs for SANBAG.
The project, to develop trucks that run on natural gas as opposed to
diesel fuel, was funded by $19.2 million in state and federal grants
aimed at pollution reduction. Officials chose to partner with
J.B. Hunt because of the company's huge fleet in San Bernardino
County. The goal is to develop cleaner trucks that will reduce
pollution from cargo movement, which contributes to the area's
perennially-challenged air quality. The proposal was to help the
company buy 262 engines that run on natural gas, and build two natural
gas fueling stations and maintenance facilities. The grant would also
pay to provide training for company mechanics.
J.B. Hunt would have paid $23 million to replace the trucks, slightly
more than the grant was contributing, Kirkhoff said. The company
told officials Jan. 29 it's 2009 revenue declines forced it to rethink
its commitment. Kirkhoff said SANBAG officials urged them to
reconsider, but received word Tuesday that the company was pulling
out. In a three-paragraph letter, Gary Whicker, senior vice
president of engineering at the Arkansas-based company, said J.B. Hunt
wanted to focus "scarce company resources on our core business
activities."
San Bernardino Mayor Pat Morris said after months of work, the
company's decision was a setback. He noted the BNSF Railway intermodal
yard in San Bernardino is among the state's most polluted rail
facilities. "To get this close and then take a step back in
clearing the air, it is stunning," Morris said.
He said one-quarter of the Santa Fe Depot's pollution comes from the
long-haul trucks that carry goods to and from the site, north of Third
Street on San Bernardino's west side.
Officials hope to salvage the project, which has already cleared U.S.
Department of Energy approvals. Kirkhoff said federal officials have
agreed to let SANBAG find another private partner for the grant, which
must be used by December 2011.
"We would like to give it one more college try...," she said. "We feel
very hopeful we can continue with this project. We've got some folks
who want to talk with us already." Reach Dug Begley at
951-368-9475 or dbegley@PE.com
|
BG Group entering new
decade of high growth
2/5/10 BG Group will today present its annual strategy update and
Fourth Quarter and Full Year 2009 results.
US
EXCO alliance: net production expected to exceed 600 mmscfd (100 000
boed) by 2015.
16 rigs operating in 2010. Net shale gas reserves and resources 3.2 tcf
(circa 530 mmboe), acquired at less
than $0.40/mcf.
Excellent initial production rates across suite of shale wells: 20-30
mmscfd per well.
Further upside potential in Cotton Valley and Bossier shale.
|
Dominican Republic
Latin America’s First LNG Distribution
SANTO DOMINGO 2/5/10
Power company AES Dominicana has inaugurated a liquefied natural gas
distribution terminal east of Santo Domingo, the first facility of its
type in the Dominican Republic and Latin America. The LNG terminal will
yield annual savings of more than $1 billion, AES Dominicana officials
said. The terminal will allow the Dominican Republic to “significantly”
reduce its high dependence on petroleum, AES Dominicana chief Marco De
la Rosa said.
“With the distribution of natural gas in its liquid state to all
sectors of the economy, we are in the forefront of the future of energy
in the Dominican Republic,” De la Rosa said.
The fuel can be transported over long distances from countries that
have large supplies of natural gas to those where the fuel is in demand.
The LNG terminal, among other benefits, will allow the Dominican
Republic to replace 35 percent of its fuel mix, create around 300 new
direct and indirect jobs, and reduce emissions of CO2, the gas believed
to contribute to global warming, by more than 300 tons annually, De la
Rosa said. The use of LNG “will help achieve total savings on the
order of $1.1 billion annually, representing a sum relative to 2.5
percent of the gross domestic product,” the AES Dominicana chief
said. The fuel savings can be used in the health and education
sectors, “improving, at the same time, the country’s strategic position
by having a more balanced fuel mix” for generating electricity, De la
Rosa said.
Dominican officials are crafting strategies for making the Caribbean
nation less dependent on fossil fuels and more focused on alternative
and renewable energy sources. The Dominican Republic, according
to official figures, currently consumes about 165,000 barrels per day
of petroleum. AES Dominicana, a unit of U.S.-based AES Corp. and
the largest private power generator in the Dominican Republic, started
using natural gas to produce electricity in 2003 at the AES Andres
plant located 35 kilometers (21 miles) east of Santo Domingo. EFE
|