The Fightin' Side Of Me

More about natural gas, the economy, common sense, politics, the environment, the Obama Administration, and a little fun. The solution to America's energy, employment and national security is right under our feet, in our back yards. Wake up America.

Click on the link to the Merle Haggard song on youtube..
Peter

http://www.youtube.com/watch?v=0n552gP9X40

Who's Looking At Natural Gas Now? Big Oil

by Tom Gjelten

September 23, 2009

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Enlarge Tom Gjelten/NPR

Gastar Exploration, a small Texas company, is digging a shallow natural gas well in Clarksburg, W.Va. Gastar's business strategy is to limit its exploration and drilling to a minimum in the Appalachian region until it sees how larger gas companies fare in the area.

Tom Gjelten/NPR

Gastar Exploration, a small Texas company, is digging a shallow natural gas well in Clarksburg, W.Va. Gastar's business strategy is to limit its exploration and drilling to a minimum in the Appalachian region until it sees how larger gas companies fare in the area.

In the energy world, Big Oil has long been the key player — with one notable exception: The natural gas business in the United States is dominated by small, independent companies. More than 80 percent of U.S. natural gas supplies are produced by companies with a market capitalization of less than $500 million. On average, these companies have only a dozen employees.

But their business is booming. New production techniques in recent years have enabled companies to extract natural gas from shale rock formations deep underground. As a result, estimates of accessible natural gas reserves have been revised dramatically upward. Small gas producers can justifiably take the credit for the transformation of their industry.

Read The Shale Series

Rediscovering Natural Gas By Hitting Rock Bottom Sep. 22, 2009

With Little Clout, Natural Gas Lobby Strikes Out Sep. 23, 2009

"The major oil companies haven't been paying attention to the U.S. for decades," says Robert Hefner, a 50-year veteran of the natural gas business with a company of his own, GHK Exploration, in Oklahoma City. "It's been a lot of independents like us that have found all this gas, developed the technology and made it happen."

Hefner attributes the proliferation of small natural gas companies to the fact that individual landowners generally retain the mineral rights to their own property. "In America, if [your] dream is to drill a well, you can go out and drill a well," Hefner points out. "As a result, there's been about three-and-a-half-million wells drilled in America over the years, versus about a million and a half for the rest of the world."

Mom-And-Pop Businesses

Many of those natural gas wells are mom-and-pop operations, or began that way. Often they evolve into slightly larger companies, but even the publicly traded companies are generally small. Those that survive in the energy world have learned to leverage their size.

U.S. Energy Consumption, By Fuel Type

Natural gas accounts for just 22 percent of the nation's energy consumption. Natural gas advocates say that increased use would mean a cleaner environment and less dependence on foreign oil.

Notes

Percentages do not total 100.

Source: Energy Information Agency, U.S. Department of Energy

Credit: Alyson Hurt / NPR

"We certainly don't have an advantage when it comes to capital," says J. Russell Porter, chairman and chief executive of Gastar Exploration, a Houston-based company with just 23 employees. "The large companies can spend a lot more money than we can. But we can be very quick on the draw, if you will, to seize an opportunity and buy into a new concept or a new area that we think could be prospective for natural gas. If we do that, we usually have a first-mover advantage."

The agility of small companies is an important strength in a field where the ability to move fast is key to maintaining a competitive edge. But there is also a more practical reason small companies dominate the U.S. natural gas business. Typically, a new gas well produces in abundance in the year after it's opened, but then production begins to decline. If a natural gas company is to keep production and revenue steady, it has to keep drilling new wells. The energy majors may not have the patience for that effort.

"Big oil companies like big projects that they can manage over 30 and 40 years," says Nikos Tsafos, natural gas analyst at PFC Energy in Washington. "They prefer those over the project that you need to stay on top of every single day, every single month."

There's no dispute on that point from the oil majors. "With a company our size, we have to have a larger scale," says Patrick McGinn, spokesman for Exxon Mobil's exploration arm. "We have to have a potential resource that has more capability for us to go after."

More About The Quest For Shale

Modern Shale Gas Development In The United States: A Primer by the U.S. Department of Energy (PDF)

The American Clean Skies Foundation is a nonprofit devoted to educating the public about natural gas and its relation to renewable energy and energy efficiency.

The Ground Water Protection Council monitors regulation of natural gas drilling and production in the U.S.

Worldwatch Institute, an independent research group based in Washington, D.C., conducts research about energy and climate change.

Managing Innovation And Risk

The natural gas industry, in fact, serves as a case study demonstrating how business strategies vary according to a company's size. From small to large, energy companies manage innovation and risk in ways appropriate to their own circumstances.

Gastar Exploration, like many other natural gas companies, is currently focused on the Marcellus shale formation in the Appalachian basin, perhaps the most promising area for natural gas development in the United States today. But the company has so far limited its activity in the area to a few shallow wells in West Virginia, choosing to let a few larger gas companies take the lead in the area.

"We look at what they're doing," says Gastar CEO Porter. "[We] let them drill some of the early wells, try to determine which drilling techniques work the best, and then once they have done that trial and error and established a pattern that works, we can go in and design our wells without having that trial-and-error phase, which can be very expensive."

The challenge of managing risk is important in any new industrial venture. In the natural gas business, the smallest companies in some ways can be the most adventurous. The new investments they make are tiny compared with what a large company would make. But they will still try to shift as much of the risk to their rivals as they can, just as Gastar is doing.

A Magnet For Big Oil

Paradoxically, the biggest energy companies follow a similar strategy, though in their case they try to shift risk to their smaller rivals. Shale production in the United States looks so promising right now that the big oil companies are thinking about getting back into the natural gas business. Exxon, for example, is looking at some possible shale "plays" in the United States, but — like Gastar — the company is biding its time before making a big move.

Natural Gas: Traditional Drilling Areas And Shale Basins

"We've taken a couple of years to really work on the technology that's required to do the exploration and production of these kinds of shale plays," says spokesman McGinn. "Doing the homework and doing the technology development takes some time for us, and we are willing to wait for that."

The possibility of Exxon's entry into the U.S. shale gas business would have major implications for a "micro-cap" company like Gastar Exploration, but Porter, Gastar's CEO, is not overly concerned.

"We can live on the fringes if necessary," he says. Or Gastar could just let the big oil companies take over some of its gas operations — for the right price.

"If Exxon came in and wanted to become a dominant player in the Marcellus shale, I'm sure there are lots of small operators who would be willing to sell out to them if they were willing to pay full value," Porter says. "There's always going to be another play for us to go invest in and start creating value all over again."

It's all part of the natural gas business game.

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If We Make It Through December

According to the following article in the "Calgary Herald", the production of "conventional gas" in Canada and the United States is declining rapidly because of a lack of drilling activity. This could lead to rising gas prices. The big question is whether this production shortfall can be met by increasing production of "unconventional" shale gas. It is going to be an interesting winter. With that in mind, here's an appropriate song by Merle Haggard. Click on the youtube link to hear it.
Peter

http://www.youtube.com/watch?v=Z-IJxTd8dCo

Mapping the path for natural gas

By Peter Tertzakian, Calgary HeraldSeptember 21, 2009

Peter Tertzakian (source)

No birthday party is complete without balloons. Beyond livening up the venue with ornamental colour, balloons are meant to be popped. Kids love the festivity and it's all in good fun. Also, balloons can be blown up, pinched tight at the stem, and then let go to rocket around the room in a spastic rush of air. That's fun too, until someone loses an eye as your mother may point out; or unless you think of it in terms of the natural gas business.

It hasn't been much of party watching shrinking natural gas sales and producing companies on the brink of bankruptcy, but in a twisted way the party may just be beginning.

Like watching an airborne balloon deflate, Canada's conventional natural gas production is declining rapidly. Just this year we've lost about 1.0 Bcf/d of production (not including production that's been shut in). Since peaking in 2006 at well over 16 Bcf/d, volumes are now down 16% or 2.5 Bcf/d. By now everyone should know that much of the incentive to drill for natural gas in the Western Canadian Sedimentary Basin (nearly all in Alberta) has dried up due to high costs followed by low prices that have plagued the domestic industry for close to three years now. The dynamic is simple: if the rigs aren't out drilling at a certain pace, the physics of the rocks take over and natural gas reserves start declining. This dynamic is irrefutable and one of the few variables that the financial markets can count on as being predictable.

But Canada's situation is not unique. Production is now declining rapidly in high-cost, conventional geological regimes in the United States too. Back in August of 2008, the rig count in conventional US regions dropped precipitously from 800 to 200. That's when the fingers let go of the American balloon. The “blow down” hasn't been too noticeable up until now, because the aggressive growth of prolific, low-cost shale gas has been able to backfill what was being lost in the conventional regions. Behind the scenes it's been an almost seamless substitution of a high-cost product with a low-cost substitute, all facilitated by new technology applied on a large scale.

In fact, this gas-for-gas substitution is nothing new. Natural gas production from the US Gulf of Mexico has been on a steep decline since 2001, dropping from 14 Bcf/d back then down to about 7.0 Bcf/d this year. During that time period growing unconventional gas volumes from the onshore Barnett Shale in Texas backfilled the blow down in the Gulf almost one-for-one. But now shale gas regions have a challenge that is twice the size of the Gulf of Mexico: backfilling the 30 Bcf/d of conventional onshore production that's now declining by an estimated 17% per year.

The billion dollar question for 2010 is whether or not unconventional gas production in now-legendary plays like the Barnett, Haynesville, Fayetteville, Woodford, Marcellus and even Canada's Montney, to name a few, will be able to collectively respond fast enough to offset estimated conventional declines in 2010 of 5.0 Bcf/d in the US, plus another 1.0 Bcf/d in Canada. Theoretically it's possible, but nobody likes to talk theory at a party. Indeed, there are many practical constraints to boosting near term production including thin cash flows, stretched balance sheets, impatient bankers, tightened service industry capacity, and the strained logistics of mobilizing oilfield equipment once the price signals are convincing enough for E&P companies to spend money again.

In the long term, beyond 2010, shale gas and other large-scale unconventional gas plays will be increasingly dominant and able to offset conventional production declines. But that's the long term. Next year, it's quite possible that only half of the expected 6.0 Bcf/d of conventional losses in North America will be replenished. It's a scenario that speaks to benchmark continental prices rising above $US 6.00/MMBtu again, all else being equal.

This coming winter will be interesting. A mild combination of a colder-than-average temperatures, a gradual recovery in industrial demand and the gravitational pull of declining conventional production have a very good chance of collectively tightening up the oversupply that the natural gas industry has been living with for over a year. I give this near-term scenario at least even odds, and in part that's why natural gas prices have been rallying recently. After all, nobody wants to miss the party.

© Copyright (c) The Calgary Herald

National Public Radio Wakes Up To The Benefits Of Natural Gas

It is good to see the traditionally liberal, left-leaning National Public Radio (NPR) doing a story about energy and the environment without beating the "dead horse" of man-caused global warming or climate change.

The following story about the role natural gas can play in helping to solve America's (and the world's) energy problems is one that dearly needs being heard far and wide.
Peter

Rediscovering Natural Gas By Hitting Rock Bottom

by Tom Gjelten (source)

September 22, 2009

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Interactive Map

Natural Gas: Traditional Drilling Areas And Shale Basins

September 22, 2009

In recent years, natural gas producers in the United States have struggled, mostly in vain, to be taken more seriously in the energy world. Big oil companies like Exxon had concluded that natural gas reserves in the United States were not sufficiently abundant to warrant big investments in exploration and drilling. When small independent gas producers argued otherwise, they were often ridiculed.

"I once had to tell the Exxon people in front of a congressional committee that I respectfully disagreed with every single thing they had presented," recalls Robert Hefner, 74, a veteran gas producer from Oklahoma.

But the natural gas folks now have numbers on their side due to new successes in getting gas out of shale rock. Geologists have always known that shale rock, often found in combination with coal and oil deposits, holds substantial amounts of natural gas. If a piece of shale rock is broken and lit with a match, it will actually burn for a few moments with a small flame.

The shale gas was previously considered unreachable, but advances in drilling techniques have changed that assessment. The result is a dramatic increase in estimated natural gas reserves. The Potential Gas Committee, loosely affiliated with the Colorado School of Mines, reported in June that natural gas reserves in the United States are actually 35 percent higher than believed just two years ago, and some geologists say even that estimate is too conservative.

Drowning In Natural Gas

Enlarge Tom Gjelten/NPR

A deep drilling rig at the site of a shale rock formation in southwestern Pennsylvania. The rig, which was set up by Range Resources, a leading shale gas player, serves as a brace to support the drill.

Tom Gjelten/NPR

A deep drilling rig at the site of a shale rock formation in southwestern Pennsylvania. The rig, which was set up by Range Resources, a leading shale gas player, serves as a brace to support the drill.

"I used to say the nation is awash in natural gas," Hefner says. "Now I say we're drowning in it."

One area getting new attention is the Marcellus basin, a 400-million-year-old shale formation stretching from New York to West Virginia. That basin alone is believed to hold as much as 500 trillion cubic feet of natural gas, the equivalent of about 80 billion barrels of oil. (There are also large shale gas basins in Texas, Wyoming, Arkansas and Michigan.) It is not clear how much of the shale gas is recoverable, but the new production techniques have boosted all previous estimates.

Shale formations are deep underground — 6,000 feet or more — and the rock is relatively impermeable. Deep drilling is expensive, and in the past the amount of gas that could be reached was not considered sufficient to justify the cost.

Horizontal Drilling

In recent years, however, gas producers expanded the use of "horizontal" drilling. After boring more than a mile below the Earth's surface to reach the shale layer, a drill operator will slowly "steer" the drill bit to one side, until it is heading sideways across the shale layer, thus achieving access to more of the shale than a traditional vertical well could provide.

Enlarge Tom Gjelten/NPR

The drilling platform on a shale gas drilling rig. The shaft in the center is turning a drill bit deep underground. The drilling operation continues 24/7.

Tom Gjelten/NPR

The drilling platform on a shale gas drilling rig. The shaft in the center is turning a drill bit deep underground. The drilling operation continues 24/7.

Even so, the tightness of the shale rock would mean that relatively little of the trapped gas would seep into the pipeline. Gas producers therefore fracture the rock by forcing a water and sand mixture into the formation at very high pressure. This "water fracturing" technique opens millions of tiny cracks in the rock, enabling more of the gas to seep out.

Horizontal drilling and water fracturing are not new techniques in the oil and gas business, but only in recent years have producers used the procedures in combination to produce shale gas, and the results have been dramatic.

"It's the biggest thing I've ever even heard of," says Ray Walker, vice president of Range Resources, a gas exploration and production company. "It's huge. The ability to produce these shale reservoirs is going to revolutionize this industry all over the world."

Walker moved to Pennsylvania from Texas two years ago to direct his Fort Worth-based company's exploration of the Marcellus basin. Since then, Range Resources has dug more than 40 horizontal wells in Pennsylvania, and several dozen more are in preparation. In Texas, Wyoming and other areas, it's the same story.

Horizontal Drilling And Water Fracturing: The Keys To Shale Gas Production

Gas embedded in shale rock formations deep below the Earth's surface has long been considered inaccessible, due to high drilling costs. New horizontal drilling methods, combined with techniques to fracture the rock, have for the first time made shale gas production practical.

Credit: Tom Gjelten, Alyson Hurt and Avie Schneider/NPR

Spreading The Word

"[Shale gas] is the most important energy development since the discovery of oil," says Fred Julander, founder and chief executive of his own Denver-based gas company, Julander Energy.

But the word has not yet spread as far as gas advocates would like. Ian Cronshaw, the top gas analyst at the Paris-based International Energy Agency, highlighted the jump in estimated gas in his most recent energy outlook report, but noted that the news had gotten little notice. "If that had happened in the oil industry, it would be a headline item," Cronshaw said at a recent meeting in Washington. "But because it happened in gas, nobody seems to be paying any attention."

As an energy source, natural gas is cheaper than oil, and when burned it produces only about half the carbon dioxide that comes from burning coal. As long as natural gas reserves in the United States were believed to be nearing depletion, the fuel did not get much attention, but with the upward revision of estimated reserves, that has changed.

"Natural gas is the fuel that can change everything for our nation," says Robert Hefner, who lays out his case in a new book, The Grand Energy Transition. Hefner argues that a big boost in the use of natural gas would dramatically lower greenhouse gas emissions and reduce the U.S. dependence on foreign oil. Much of the nation's electrical power now generated by burning coal could instead come from natural gas, and a switch to natural gas-powered automobiles would produce dramatic results.

"If we were to convert half of our existing vehicle fleet [to natural gas], we would eliminate a little over half our oil imports," Hefner contends. He and other natural gas advocates have been supported in recent months by environmental organizations.

"There's a huge capacity of natural gas that is lying idle," says Timothy Wirth, a former Democratic senator from Colorado who now heads the United Nations Foundation. "That makes absolutely no sense at all when what we're trying to do is clean up the atmosphere."

A 'Transition' Fuel

Natural gas is still a fossil fuel, and when burned it does produce greenhouse gases. Environmentalists working for the use of renewable energy sources nonetheless see natural gas as a transition fuel. One idea is to build mini-power generating stations, each connected to the natural gas pipeline infrastructure. A station attached to a hospital or a shopping mall could produce heat as well as electrical power, cutting energy costs dramatically.

"You can combine that with improvements in end-use efficiency and the development of renewable energy sources, and really see these as a partnership," says Christopher Flavin, president of Worldwatch Institute, an environmental research organization.

"Even the International Energy Agency is saying the path for oil is downward, and suddenly we've got this very different picture for natural gas," says Flavin. "I think it's unfortunately not fully percolated into the understanding of what's possible among policymakers. But I think as that takes hold in the next few years, it's really going to change the game."

Natural Gas Versus Coal: Is there A Better Way?

Natural gas versus coal.......who and what will keep the lights on? When it becomes clear that windmills and solar panels can not do the job, then what?
Peter

Natural Gas Hits a Roadblock in New Energy Bill

By CLIFFORD KRAUSS (source)

HOUSTON — The natural gas industry has enjoyed something of a winning streak in recent years. It found gigantic new reserves, low prices are encouraging utilities to substitute gas for coal, and cities are switching to buses fueled by natural gas.

But its luck has run out in Washington, where the industry is having trouble making its case to Congress as it writes an energy bill to tackle global warming.

For all its pronouncements that gas could be used to replace aging, inefficient coal-fired power plants — and reduce greenhouse gas emissions in the process — lawmakers from coal-producing states appear committed to keeping coal as the nation’s primary producer of power.

Those influential lawmakers, from both parties, say that new technologies under development to capture and bury emissions of coal are a better bet than gas for long-term solutions to climate change.

The difference of opinion is about more than what is best for the environment, of course. Industry profits are riding on the outcome of the discussion — a rich mix of politics, environment, science and business.

A climate-change bill that passed the House in June, intended to cap greenhouse gas emissions, delivered benefits to renewable fuels like wind and solar and strengthened building codes to conserve energy.

But the cost of emitting carbon dioxide emissions under the terms of the bill remained at levels that would continue to provide a price advantage for coal in many regions of the country.

The Senate is planning to begin writing its own bill later this month.

“The Senate is more open to natural gas as a transition fuel than the House was,” said Senator Charles E. Schumer, Democrat of New York, “but the senators from the coal states who are crucial votes are going to want first consideration for coal.”

The gas industry’s leaders say they will descend on Capitol Hill in coming weeks to press their case about the advantage of gas, including that it emits about half the greenhouse gases as coal.

The industry has formed a new lobbying group, and it is planning a national campaign that includes television advertising. Executives want fewer allowances for coal. They also want legislation that gives incentives for companies to convert truck fleets from diesel to natural gas.

“Never in my life have I been confronted with something so obviously easy and good to do and have such Congressional apathy,” said Aubrey McClendon, chief executive of Chesapeake Energy and a leading voice in the industry. He added that he was still hopeful the Senate can improve the House bill.

But the coal industry will also be active. Vic Svec, a senior vice president at Peabody Energy, a large coal company, said coal was still a better fuel because its price is more stable than gas.

“Coal with carbon capture and storage is the low cost, low carbon solution and has fantastic implications for the nation’s energy security,” he said.

But it is not only coal-industry lobbyists and their Congressional supporters who favor the concept of carbon sequestration. David Hawkins, a climate change expert at the Natural Resources Defense Council, said simply replacing coal with natural gas for power generation was “not a viable strategy” because that would merely delay climate change by a few decades.

“A coal plant with carbon capture and storage is a cleaner plant than an uncontrolled natural gas plant,” he said.

Natural gas gets some benefits from the House bill, which includes a cap-and-trade system that sets limits on emissions of greenhouse gases while requiring manufacturers and utilities to acquire pollution permits.

Utilities that burn natural gas would earn $30 billion over 10 years in pollution credits that could be sold on the carbon-trading market. But utilities that burn coal will receive tens of billions of dollars worth of free pollution credits, savings that will be passed on to consumers but may serve to delay the closing of some coal plants.

The House bill also offers $10 billion for research and development of techniques to capture and store carbon dioxide emissions, which would help keep some coal plants open that might otherwise close.

The Environmental Protection Agency projects that if the House bill became law, electricity generation from gas would increase by less than 1 percent from 2015 to 2025, while generation from coal would remain nearly unchanged.

There will be more use of renewables, but power generation as a whole is expected to decline because of conservation efforts, including tightening of building energy codes.

“By allowing free emission allowances to maintain coal production from existing coal plants, while providing mandates that there be more wind and solar, you squeeze gas out in the middle,” said William F. Whitsitt, an executive vice president at Devon Energy, a major natural gas producer.

Without any new legislation, and if current policies remain in place, gas would beat out coal by a far larger margin, according to E.P.A. projections.

There would be nearly 30 percent more power generated by gas by 2025 than in 2015, while coal fired generation would grow by a more modest 7 percent.

Many legislators believe that carbon capture and sequestration — a largely untested system that would bury carbon at power plants so it does not escape into the atmosphere — can be made to work.

Developing the technology was particularly important for any global solution to climate change, since China and India depend on coal for their energy and growing economies, said Paul W. Bledsoe, director of communications and strategy at the National Commission on Energy Policy, a bipartisan research organization.

Currently, coal provides almost half the electrical power in the United States while natural gas provides more than 20 percent.

Proponents of natural gas say they can deliver immediate reductions in greenhouse gases, an advantage that should not be discarded for an untested technology.

Senate officials and energy officials say it will be difficult to develop legislation that benefits both the gas and coal industries and reduces greenhouse gases.

Gas executives say their day in Washington will come, especially as more jobs are produced in gas fields that now stretch across 32 states.

“The politics of natural gas are going to change dramatically,” predicted Rodney Lowman, president of the American Natural Gas Alliance, the new gas lobby group. But, he added, “it won’t be overnight.”