Investing In Shale Gas

How to Invest In Shale Gas Fields Like The Marcellus And Eagle Ford Shale

By Doodlebugs, eHow Member

The United States is the Saudi Arabia of natural gas, thanks to the discovery of new shale gas deposits like the Marcellus Formation. Here is how you can invest in what could be our primary energy source in the future. (source)

Instructions

1. Step 1

   Learn as much as you can about shale gas and its economic importance. The United States has an abundance of clean natural gas trapped in shale formations such as the Marcellus Shale of Appalachia, the Barnett Shale near Fort Worth, the Haynesville Shale in Louisiana and newly discovered gas shales such as the Eagle Ford shale in South Texas. Many experts believe that there is enough natural gas in these shale formations to last the United States a hundred years or more. According to oil man T. Boone Pickens this clean fuel may one day power our cars as well as our homes. How can you invest in this growing industry? There are a couple of ways to invest in shale gas. Some are more risky than others.

2. Step 2

   Consider direct investment in a well. One way to invest in shale gas is to invest directly in a wildcat well being planned. This type of investing is for the rich only since there is a high probability it could be a dry hole but potential rewards could be very high. For direct investment you will often need as much as $100,000. If you have the stomach for this kind of investing contact companies like Petrohawk Resources, symbol HK, and inquire about direct investment.
   The second, and less risky way of investing in shale gas is to buy shares of the companies that are most active in drilling in gas shales such as the Marcellus shale formation. These include Chesapeake, symbol CHK, XTO Energy, symbol XTO, Petrohawk, symbol HK, Devon Energy, symbol DVN, and EOG Resources, symbol EOG.
   Petrohawk (HK) and TXCO Resources (TXCO) are active in the newly discovered Eagle Ford Shale in South Texas. Chesapeake, Devon and XTO are active in the Barnett Shale and Marcellus formation.

3. Step 3

   Buy shares on the open market. A third option for investing in shale natural gas is to buy shares of an Exchange Traded fund or ETF. You can invest in natural gas as a commodity with the ETF whose symbol is UNG or you can focus on exploration and production with an ETF called First Trust ISE Revere Natural Gas, symbol FCG and listed on the NYSE, which is composed of companies like the ones mentioned in step 2 that explore for and produce natural gas.
   For more info on the Marcellus Formation see the resources section.

Gas Production Boom

APRIL 30, 2009

U.S. Gas Fields Go From Bust to Boom

• By BEN CASSELMAN (source)

CADDO PARISH, La. -- A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation's energy landscape. After an era of declining production, the U.S. is now swimming in natural gas.

Even conservative estimates suggest the Louisiana discovery -- known as the Haynesville Shale, for the dense rock formation that contains the gas -- could hold some 200 trillion cubic feet of natural gas. That's the equivalent of 33 billion barrels of oil, or 18 years' worth of current U.S. oil production. Some industry executives think the field could be several times that size.

"There's no dry hole here," says Joan Dunlap, vice president of Petrohawk Energy Corp., standing beside a drilling rig near a former Shreveport amusement park.

From Rock to Gas

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Jared Moossy/Redux

Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand.

The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering "greenhouse gas" emissions and speeding the transition to renewable fuels.

A climate-change bill being pushed by President Barack Obama could boost reliance on natural gas. The bill, which could emerge from the House Energy and Commerce Committee in May, is expected to set aggressive targets for reducing emissions of carbon dioxide, the most prevalent man-made greenhouse gas.

Meeting such goals would require quickly moving away from coal-fired power plants, which account for substantial carbon emissions. President Obama wants the U.S. to rely more on renewable energy such as wind and solar power, but those technologies aren't ready to shoulder more than a fraction of the nation's energy burden. Advocates for natural gas argue that the fuel, which is cleaner than coal, would be a logical quick fix. In addition, billionaire energy investor T. Boone Pickens has been touting natural gas as an alternative to gasoline and diesel for cars and trucks.

"The availability of natural-gas generation enables us to be much more courageous in charting a transition to a low-carbon economy," says Jason Grumet, executive director of the National Commission on Energy Policy, who was a senior adviser to President Obama during the campaign.

Just three years ago, the conventional wisdom was that U.S. natural-gas production was facing permanent decline. U.S. policy makers were resigned to the idea that the country would have to rely more on foreign imports to supply the fuel that heats half of American homes, generates one-fifth of the nation's electricity, and is a key component in plastics, chemicals and fertilizer.

But new technologies and a drilling boom have helped production rise 11% in the past two years. Now there's a glut, which has driven prices down to a six-year low and prompted producers to temporarily cut back drilling and search for new demand.

The natural-gas discoveries come as oil has become harder to find and more expensive to produce. The U.S. is increasingly reliant on supplies imported from the Middle East and other politically unstable regions. In contrast, 98% of the natural gas consumed in the U.S. is produced in North America.

Coal remains plentiful in the U.S., but is likely to face new restrictions. To produce the same amount of energy, burning gas emits about half as much carbon dioxide as burning coal.

Natural gas has never played more than a supporting role in the nation's energy supply. Crude oil, refined into gasoline or diesel, fuels nearly all U.S. cars or trucks. Coal is the dominant fuel for generating electricity.

Natural-gas production in the U.S. peaked in the early 1970s, then fell for a decade due to weak prices and declining gas fields in Texas, Louisiana and elsewhere. Production bounced back in the 1990s with the discovery of new fields in New Mexico and Wyoming, but by 2002, output was falling again -- this time, most experts thought, for good. Believing the U.S. would soon need to import liquefied natural gas from overseas, companies such as ConocoPhillips, El Paso Corp. and Cheniere Energy Inc. spent billions on terminals, pipelines and storage facilities.

The supply fears drove up prices, which spurred innovation. Oil-and-gas companies had known for decades that there was gas trapped in shale, a nonporous rock common in much of the U.S. but considered too dense to produce much gas.

In the 1980s, Texas oilman George Mitchell began trying to produce gas from a formation near Fort Worth, Texas, known as the Barnett Shale. He pumped millions of gallons of water at high pressure down the well, cracking open the rock and allowing gas to flow to the surface.

Oklahoma City-based Devon Energy Corp. bought Mr. Mitchell's company in 2002. It combined his methods with a technique for drilling straight down to gas-bearing rock, then turning horizontally to stay within the formation. Devon's first horizontal wells produced about three times as much gas as traditional vertical wells.

The development of the Barnett Shale almost single-handedly reversed the decline in U.S. natural-gas production. Last year, the Barnett produced four billion cubic feet of gas a day, making it the largest field in the U.S. Other companies such as Newfield Exploration Co., Southwestern Energy Co. and Range Resources Corp. found shale fields across the U.S.

One of the most aggressive companies was Oklahoma City-based Chesapeake Energy Corp., which got into the Barnett a couple of years behind cross-town rival Devon, and was an early entrant into the second big U.S. field, the Fayetteville Shale in Arkansas. In 2005, Chesapeake Chief Executive Aubrey McClendon sent teams of geologists across the country with a mission: Find the next Barnett. Less than two years later, they told him they had it, in Louisiana.

The Haynesville Shale is centered in northern Louisiana, one of the country's oldest oil- and gas-producing regions. Wildcatters had explored beneath the lush cow pastures and cotton fields as far back as the 1870s. Shreveport, the region's largest city, saw decades of booms and busts until the 1980s, when a glut of cheap oil from overseas all but killed the region's oil industry.

Oil companies knew about the Haynesville Shale, but it was considered a less viable prospect than the Barnett. The shale lies 10,000 or more feet below ground, where high pressure and 300-degree temperatures are enough to fry high-tech drilling equipment.

But in 2006, Chesapeake drilled an exploratory well and decided the results were promising enough to justify the higher cost of drilling in such harsh conditions. By late 2007, Mr. McClendon says, "we knew that we had a tiger by the tail."

In March 2008, as oil and gas prices were soaring, Chesapeake went public with its findings. The rush was on: Dozens of companies dispatched agents to the area to lease land for drilling, turning farmers and ranchers into millionaires overnight.

"There was excitement in the air," recalls Jeffrey Wellborn, a Shreveport resident who sits on the board of the local Sierra Club. "You thought everyone in the world had won the lottery."

The frenzy marked the peak of a nationwide drilling boom that was fueled by a combination of soaring energy prices and easy credit. It didn't last. Between July and October, oil and gas prices fell by more than 50%, and kept falling.

The weakening economy eroded demand for both oil and gas. Natural gas, unlike oil, suffered from a supply glut. U.S. gas production rose 7.2% last year, while oil production fell 1.9%. As a result, oil prices are up 12% since the start of 2009. Natural-gas prices have fallen 41% to their lowest since 2002.

Gas producers saw their profits evaporate and share prices slump. Liquefied-natural-gas imports plunged, leaving import terminals nearly idle. Worried about a glut, companies cut back sharply on drilling and formed a lobbying group to try to boost demand.

The growing supply created opportunities for policy makers and environmentalists, who saw natural gas as a possible solution to the nation's energy problems. Some groups suggested burning more gas and less coal for power generation. Others favor its use in vehicles.

Mr. Pickens has spent millions promoting an energy plan that aims to, among other things, convert thousands of big-rig trucks to run on natural gas. Mr. Pickens has large investments in natural gas and stands to benefit if his plan is adopted. In TV ads, Internet videos and speeches, he emphasizes a different goal: reducing U.S. dependence on foreign oil.

Environmental Capital

• Green Ink: Mixed Blessings of a Natural-Gas Boom

Mr. Pickens arrived for a recent speech in Dallas in a natural-gas-fueled Honda Civic with a bright blue "Pickens Plan" logo. He told a packed auditorium that the U.S. is importing two-thirds of its oil even as the country is "absolutely overwhelmed with natural gas." If the reverse were true, he said, he would favor burning oil.

Some environmentalists have embraced Mr. Pickens's plan as a way to fight climate change. Carl Pope, executive director of the Sierra Club, says he sees natural gas as a "bridge fuel" that could help the U.S. burn less coal and oil until renewable sources of energy are ready to take over.

The dual message of energy security and environmental responsibility has helped Mr. Pickens win powerful allies, including Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and dozens of elected officials from both parties. A bipartisan bill providing tax incentives for natural-gas cars looks likely to pass this year.

Not everyone shares Mr. Pickens's enthusiasm for natural-gas vehicles. Major users of natural gas, such as utilities and chemicals companies, are concerned the plan would drive up prices -- an outcome that would benefit producers.

Energy Secretary Steven Chu and some other policy makers have expressed doubts about the practicality of retrofitting hundreds of thousands of service stations to offer natural gas. Some environmental groups, including the Natural Resources Defense Council, have argued that natural gas is better used to replace coal for power generation, and that cars should run on electricity generated by the sun, wind and natural gas.

Market forces are already helping natural gas make inroads against coal and oil. Gas is now cheaper than coal in many parts of the country, leading utilities to burn more gas. Of the 372 power plants expected to be built in the U.S. over the next three years, 206 will be fired by gas and just 31 by coal, according to the Energy Information Administration.

Natural gas is gaining market share far more slowly in transportation. Earlier this year, AT&T announced it would convert up to 20% of its truck fleet to run on natural gas, largely because it has been cheaper than gasoline in recent years. Cities including New York, Los Angeles and Atlanta have converted part of their bus fleets to run on natural gas, for air-quality reasons.

Shreveport could be the next city to make the switch. In March, Mayor Cedric Glover announced that the oil capital turned natural-gas boomtown would abandon diesel and convert its bus fleet to natural gas.

—Russell Gold contributed to this article.

Write to Ben Casselman at ben.casselman@wsj.com

The Challenge Of Producing Gas From Shale

The following article comes from the May, 2009 issue of the "AAPG Explorer". Reading about the many logging tools and other methods allegedly used to evalute these shales and make drilling, fracing, and completion decisions, leads me to wonder if maybe some people are making this more complex than it needs to be. Of course service companies want to sell as many of their products and services as possible, and that should be taken into consideration.

At the same time, these shale gas plays are relatively new and experience will provide more efficiency. Meanwhile I think there is much to be learned.
Peter

Shale Calls for the Unconventional

By LOUISE S. DURHAM
EXPLORER Correspondent (source)

Natural gas prices in the $3/Mcf-and-under range understandably are causing many operators to scale back on budgets, production and new drilling projects.

Just don’t expect this to be a permanent scenario.

The consensus is that once the economy turns around, hydrocarbon demand will make an about-face as well.

The waiting game doesn’t necessarily imply wasted time as it offers continued opportunity to delve deeper into potential techniques to better evaluate some of the more challenging and often perplexing plays being explored/ produced.

High on this list are the numerous shale gas plays that have sprung to life over the past couple of years in various regions of the country.

Gas shales differ from conventional reservoirs in that they function not just as reservoir rock but also source rock and seal. Economical production from this complex rock demands extensive hydraulic fracturing and often requires horizontal wells.

Successful wells depend on an in-depth understanding of the geology, petrophysics and geomechanics of the particular shale formation. In fact, an integrated approach to shale gas evaluation can be key to conquering the complexities of these rocks to optimize production of the natural gas they hold.

“It’s fairly obvious to anyone who works in these plays that conventional methods just don’t work,” said Duane Sommer, senior petrophysical engineer at Baker Hughes.

“Our integrated interpretation methodology designed specifically to evaluate shale gas reservoirs focuses on conventional resistivity, neutron, density, advanced acoustic logs,” Sommer said, “and we add magnetic resonance, geochemical, geomechanics and borehole image logs to determine an array of information.”

That array includes lithology, mineralogy, rock mechanical properties, total organic carbon and gas-in-place in the formation, he added.

Specific Challenges

However, not all shales are created equal, so there are differing factors that must be taken into account.

For instance, borehole imaging is not that important in the high-profile Haynesville shale play because there’s no significant fracturing in the Haynesville, Sommer said. In contrast, it’s quite important in the Barnett play and some others.

He noted also that in the Haynesville the actual presence of gas is a given, but it presents other challenges:

• How to optimize getting that gas out of the ground.
• Selecting the best intervals for the completion.
• How to implement the frac job to get the best production possible.
• Where to place the horizontal leg if going lateral.

The goal with all the shales is to gather all the data possible.

“One of the things we found in the Haynesville, especially, is the intervals that seem to produce the best and have the most silicious material,” Sommer said. “They have more quartz than limestone.

“Part of that is the geomechanics,” he explained. “That rock breaks easier – making it easier to frac – so we look at the geochemical logs in combination with the advanced acoustics which we do rock mechanical properties with and look at what intervals will frac easiest.”

Identifying the Interval

The next step is to look at some of the standard logs or magnetic resonance to try to get a better idea of porosity. This can vary significantly in different plays, e.g., porosity is quite low in the Barnett but ranges from 8 to 10 percent in the Haynesville, according to Sommer.

“When we put all our information together, first we find which intervals in the well will fracture easiest,” he said. “Of those we identify which have the best porosity, which has total organic carbon in or near that interval to supply the gas itself.

“We’re trying to pick the interval we think will be most successful for completion,” Sommer noted. “If you’re going lateral instead of just perfing and fracing, you still want to drill the lateral in that same interval.”

The acquired data are presented to the client in a large, wide plot that Sommer likens to a facies curve that shows crucial information such as:

• The target type of rock.
• A piece of rock that would be a barrier to a fracture.
• Rock to stay away from.

“We’re trying to make it as simple as possible for someone to look at the well,” Sommer said, “and even if they don’t understand all the pieces, to be able to say OK, this is where we need to be, where we need to frac, where we need to perf or where to drill our lateral.

“In a nutshell, that’s our approach,” said Sommer, who noted the overall presentation remains the same even though the individual pieces change from basin to basin.

“The general process,” he said, “usually works for all.”

Pioneer Natural Resources And Horizontal Drilling

Pioneer Natural Resources of Dallas announced the success of two projects in distinctly different settings, but with at least one thing in common: the utilization of horizontal drilling. The first is the completion of a gas and condensate well producing from the Eagle Ford Shale in south Texas. The second success is better-than-expected oil production from horizontal wells in the Nuiqsut Sand from the Oooguruk Field on Alaska's North Slope.

A significant factor in each case is neither project would be economic without utilizing horizontal drilling technology. This seems to represent a continuing trend in the oil and gas industry.
Peter

Pioneer Natural Resources updates Texas, ANS drilling

By OGJ editors
HOUSTON, June 10 -- Pioneer Natural Resources Co., Dallas, completed its first horizontal well in the Eagle Ford shale play.

The Friedrichs Gas Unit No. 1 well, drilled in Dewitt County, Tex., initially flowed 3.7 MMcfd of gas equivalent, including 2.7 MMcfd of natural gas and 160 b/d of condensate, after partially completing only five stages of a planned eight-stage completion.

Mechanical problems in the original lateral required a sidetrack with a modified well path that reduced the well’s exposure to the main reservoir section in the brittle shale at the base of the Eagle Ford formation. Pioneer estimates only two stages of the fracture stimulation, representing less than 500 ft of the 3,000-ft lateral, penetrated the brittle shale and are contributing to gas production.

Scott Sheffield, Pioneer’s chairman and chief executive, said, “We have drilled more than 150 wells through the Eagle Ford shale as we developed the deeper Edwards formation and recognize the potential that underlies our 310,000 gross acres in the play.” The company plans to drill a second Eagle Ford well more than 40 miles southwest of the first location in the third quarter. Additional wells are planned to high grade that acreage, including another well in the Friedrichs area.

Alaskan operations
At Pioneer’s Oooguruk project on Alaska’s North Slope, operations are under way to drill four horizontal laterals in the Nuiqsut formation during the second and third quarters. Two will be fracture-stimulated producing wells, and two will be water-injection wells.

The first water-injection well was completed and is being produced temporarily to measure the unstimulated productive capability of the Nuiqsut formation. It was tested initially at 2,500 b/d of oil and was put on production at a stabilized 1,000 b/d.

Initial production exceeded expectations, Sheffield said. Pioneer’s net production from Oooguruk was forecast to average 5,000 b/d in 2009, gradually increasing to 10,000-14,000 b/d in 2011 as development drilling continues. “Later this year, we will reevaluate our production profile to incorporate higher than expected performance from our Kuparuk wells, early waterflood results, and the performance of our planned fracture-stimulated Nuiqsut wells,” Sheffield said.

Pioneer operates the Oooguruk project with 70% working interest, and Eni Petroleum US LLC holds a 30% working interest.

US and Canadian Shale Gas Important Globaly

Study: US-Canadian shale could neutralize Russian energy threat to Europeans

New Baker Institute report looks at Russia and world energy balance (source)

Rising shale gas production in the United States and Canada as well as potential natural gas supplies from Iraq could be pivotal in curbing Russia’s ability to organize an “energy weapon” against European consumers, according to a new study released today by Rice University’s Baker Institute for Public Policy.

The study, "Russia and the Caspian States in the Global Energy Balance," examines Russia’s evolving energy relations with its Caspian neighbors, the Organization of Petroleum Exporting Countries and the West and considers potential scenarios for Russian and Caspian oil and natural gas strategies.

"Maintaining favorable tax conditions to support investment in onshore shale gas resources in the United States can play an important role of containing Russia’s leverage over an increasingly global natural gas market," said Kenneth Medlock, a Baker Institute researcher and lead author of the study. "In addition to North American resources, our scenario analysis shows that there are several supply sources that can serve as viable alternatives to heavy future global reliance on Russian natural gas."

The level of investment made by small U.S. independent oil and gas companies could be negatively affected by proposed new tax changes such as the abolition of IDC (intangible drilling costs) credits and adjustments in the depreciation allowance because in many cases, smaller drilling companies do not have the scale to absorb additional costs.

Medlock said that Russian efforts to organize a "gas troika" among three of the largest natural gas producers – Iran, Russia and Qatar – would result in all members of the troika losing significant market share over time with only minor, short-lived gains from higher prices. The development of alternative supplies from a variety of other sources, including North America, North Africa, Australia and Iraq, would serve as counterweights to attempts by the troika to exercise any market power. "Ironically, Russia could be one of the biggest losers in this scenario," Medlock said. Nonetheless, the Baker Institute recommends that the United States and Europe work together to promote the development of additional natural gas storage capacity (perhaps a strategic stockpile), particularly in Europe, to enhance energy security in the emerging global natural gas market. "Storage is vital to overcoming short-term market disruptions, but it is likely that market reform will be a precursor to substantially enhancing Europe’s storage capability," Medlock said. The study also notes that concerns about the vulnerability of Eastern European countries such as Ukraine and Poland could be best addressed by helping to finance projects to diversify the natural gas supplies of those countries.

The Baker Institute researchers recommend that the Obama administration consider new approaches to counter Russian interference in the energy sector of the Central Asian energy states and transit states in the Caucasus. The Baker Institute said U.S. diplomats should focus more on resolving territorial and ethnic conflicts in the region and on promoting overall energy market transparency and liberalization than on reviving stalled pipeline diplomacy. "For all the United States’ good intentions, U.S. pipeline diplomacy has not managed to significantly reduce the dependence of Central Asian states on Russia to transport their energy supplies," the study’s authors wrote. Although there was little damage to the U.S.-backed Baku-Tbilisi-Ceyhan pipeline and the Baku-Tbilisi-Erzurum pipelines that extended through Georgia during the Russo-Georgia war of 2008, the operation of Georgian ports was seriously disrupted, making apparent the risks that either accidental or deliberate damage could take place at Russian hands.

To access the executive summary of the study, visit here http://www.rice.edu/nationalmedia/multimedia/2009-05-07-RussEnergyExecSum.pdf.

For more information, or to speak to one of the authors, contact Franz Brotzen at franz.brotzen@rice.edu or 713-348-6775.

More Good News From Washington

Let us hope that Congress listens to the following message from The Ground Water Protection Council. The nations ground water resources are adequately protected. We do not need more oversight on the oil and gas industry from Washington.

The oil and gas industry has always tried to protect usable ground water reservoirs from damage during the drilling and production of wells. Historically this process is regulated by individual States, which makes sense because each area is different geologicaly and culturaly.

There is a proposal in Congress for the drilling and hydraulic fracturing (fracing) of wells to be controlled and regulated at the Federal Level, through the Enviromental Protection Agency (EPA). This would only confuse the issue, add unnecessary cost, harm the economy, and take control away from the local (State) level. Of course there are some who think Washington should control everything, but let us hope that wiser heads prevail.
Peter

GWPC: US state regulations adequately protect water resources

Nick Snow
Washington Editor (source) The Oil and Gas Journal

WASHINGTON, DC, May 31 -- Current US state oil and gas regulations adequately protect water resources, the Ground Water Protection Council said in a new report on May 28.

The assertion by one of the nation's leading groundwater protection organizations came as congressional discussions intensified on giving the US Environmental Protection Agency authority to regulate hydraulic fracturing, an essential part of producing natural gas from shale formations.

The study focused on eight regulatory aspects: permitting, well construction, hydraulic fracturing, temporary abandonment, well plugging, tanks, pits, and waste handling and spills. The resulting report was not intended as an evaluation of state programs, but rather, an evaluation of state programs, the GWPC said. (?????? Peter)

Each state covered in the study was invited to review the report's findings and provide any updated information, it added. Thirteen states provided responses, which were incorporated in the report, the council said.

GWPC also produced a regulations reference document containing excerpts from each state's oil and gas regulations related to the programmatic areas evaluated in the study, it said.

Oil from Canada's oil sands is also blended, without segregation, with other feedstocks at many US refineries, making it impossible to determine the content of fuels that are purchased, it added. The report and addendums are available online at www.gwpc.org.

Oil and gas organizations responded favorably. "The study confirms what the industry has been saying: Regulation of oil and gas field activities, including hydraulic fracturing, is best accomplished at the state level where regional and local conditions are best understood, and where state regulators are on hand to conduct inspections and oversee specific applications like well construction and testing and plugging as well as hydraulic fracturing," the American Petroleum Institute said in a statement.

"Hydraulic fracturing is a tried-and-true, more than 50-year-old technology, increasingly essential for producing the nation's natural gas," it added.

Some Uncommon Good Sense Coming From Washington

The following news comes The Financial Times of London. There has been talk about reducing American's use of oil and gas by increasing the taxes we pay on what we use. The idea is if it cost more, we would use less. This of course is economic insanity. It would only harm the consumer, the oil and gas industry, and put a damper on the entire economy.

The following article indicates that Steven Chu, the Obama Administration's new US Secretary of Energy understands this, if not from an economic perspective, then from a political one. With some more common sense like this coming from Washington, maybe there is hope for economic recovery.
Peter

Rise in taxes on US petrol ‘not feasible’

By Carola Hoyos, Fiona Harvey and Clive Cookson in London

Published: May 27 2009 22:29 Last updated: May 28 2009 00:44 (source)

Steven Chu, US secretary of energy, on Wednesday said that it would not be politically feasible for the country to lower its reliance on oil by raising petrol prices to Europe’s levels through higher taxes or regulation.

In the past Mr Chu, a Nobel laureate, has argued that if the US wanted to reduce its carbon emissions, policymakers would have to find a way to increase petrol prices to levels in Europe. But in an interview with the Financial Times, he said: “At this moment, let me be frank, it is not politically feasible.”

Mr Chu’s comments come as oil prices surged to their highest level this year after Saudi Arabia’s oil minister said the global economy had strengthened enough to cope with oil at $80 a barrel.

Prices rose to $63.82 a barrel, almost double their February low of $32.70, after Ali Naimi, speaking in Vienna ahead of Thursday’s Opec meeting, said the world could withstand prices of between $75 and $80. This is a shift in policy for the oil cartel, which this year gave the impression it would not push prices higher too quickly.

Mr Chu’s move against using taxes to raise US petrol prices is likely to frustrate environmental advocates who believe the only way to change Americans’ consumption habits is through higher prices. US fuel taxes are much lower than in Europe, leading to pump prices that are often one-third lower and to the average American consuming double the amount of oil as his European counterpart.

But Mr Chu warned that Americans will have to learn to live with higher petrol prices even if Washington does not enact policy that boosts them. “Regardless of what one does in any sort of taxation, I believe that prices of oil and natural gas will go up in the coming decades,” he said, adding: “They will naturally go up just because of fundamental supply and demand issues.”

Congress is considering a cap-and-trade system that opponents say will substantially increase petrol prices as oil prices soar to their highest level in six months.

Higher petrol prices are likely to be one of the biggest potential sticking points of the proposal when the bill moves from the Democrat-controlled House of Representatives to the more conservative Senate this year.

Mr Chu was adamant that a cap-and-trade system would be necessary to cut emissions. “We need to begin to put a price on carbon,” he said.

A key question, however, was “how to help the US make the transition”, as many states are heavily dependent on coal or have energy-intensive industries.

Additional reporting by Javier Blas in Vienna

Copyright The Financial Times Limited 2009