June 2009 Vol. 236 No. 6

In The News

June Newsreel: Enterprise, TEPPCO Pull Out of Offshore Project; El Paso Exec Supports Ruby Pipeline; and more

GE Oil & Gas Consolidates Operating Company Brands
CCSI Records Million Man Hours Without Lost Time Injury
Chuck Watson Leaves Eagle Energy Partners
Oregon LNG Receives Letter Of Recommendation From U.S. Coast Guard

Valve Industry’s Modest Decline Expected To Be Short
Enterprise, TEPPCO Pull Out Of Offshore Project

TEPPCO Partners, L.P. announced that its affiliate, TEPPCO O/S Port System, LLC, will exit from the Texas Offshore Port System partnership (TOPS) and forfeit its investment and its one-third ownership interest in the partnership. As a result, TEPPCO expects to record a non-cash charge of $34 million against its earnings for the second quarter. The decision to dissociate from TOPS was in connection with a disagreement with one of its partners, an affiliate of Oiltanking Holdings America, Inc. Enterprise Offshore Port System, LLC, an affiliate of Enterprise Products Partners L.P., also elected to dissociate from TOPS.

In August 2008, affiliates of TEPPCO, Enterprise and Oiltanking Holding Americas, Inc. formed a joint venture to design, construct, own and operate a new Texas offshore crude oil port and pipeline system for delivery of waterborne crude oil to refining centers along the upper Texas Gulf Coast. The TOPS project includes an offshore port, two onshore storage facilities with 5.1 million barrels of total crude oil storage capacity, and an associated 160-mile pipeline system with capacity to deliver up to 1.8 million bpd of crude oil. The cost of the project had been estimated at $1.8 billion.

Oiltanking has alleged that the dissociation of affiliates of TEPPCO and Enterprise was wrongful and in breach of the TOPS partnership agreement. TEPPCO defended its actions by insisting that it was permitted by, and in accordance with, the terms of the TOPS partnership agreement.

El Paso Executive Strongly Supports Proposed Ruby Pipeline

Jim Cleary, president of El Paso’s Western Pipeline held a press briefing on May 4 to discuss the proposed Ruby Pipeline project. His message was clear. Despite current economic conditions the Ruby Pipeline project is moving forward and is a “win-win” project for natural gas consumers and producers. Cleary said El Paso Corp., parent company of Ruby Pipeline, L.L.C., is working steadily on various aspects of the project with the four contractors charged with building the 675 mile, 42-inch pipeline on everything from route planning to minimizing environmental impacts.

He was also quick to point out that they are working to procure carbon offsets to ensure that Ruby is the first carbon neutral pipeline in the U.S. Cleary said the company made its FERC filing in January and hopes to see a final Environmental Impact Statement by October and receive a Notice To Proceed by January 2010.

The pipeline is expected to begin at the Opal Hub in Wyoming and terminate at interconnects near Malin, OR. It represents a $3 billion investment in new pipeline infrastructure that will connect competitively priced natural gas reserves in the Rocky Mountain region with growing markets in the western U.S.

The project will have an initial design capacity of up to 1.5 Bcf/d and will traverse portions of Wyoming, Utah, Nevada, and Oregon. Four compressor stations are proposed,: one near the Opal Hub in southwestern Wyoming; one south of Curlew Junction, Utah; one at the mid-point of the project, north of Elko, Nevada; and one in northwestern Nevada.
“The project is a good one, a solid one and we will work to begin service by the first quarter of 2011,” Cleary said.

GE Oil & Gas Consolidates Operating Company Brands

GE Oil & Gas has decided to streamline its operating company brands. The decision was made after market research among more than 800 customers worldwide to transition into a single GE Oil & Gas company brand interface in order to provide greater clarity and focus to all customers across GE’s entire upstream, midstream and downstream applications and service offerings.

The simplified brand and name structure involves using the GE Oil & Gas name for all acquired companies, notably VetcoGray, Hydril Pressure Control and PII, in the marketplace. To retain customer recognition and consistency, specific branded product, application and technology names will remain consistent.

The GE Oil & Gas portfolio of products, services and solutions will be re-grouped into six categories: Drilling and Production; LNG & Pipeline; Industrial Power Generation; PII Pipeline Solutions; Refinery & Petrochemical; and Global Services.

Western Canada Natural Gas Production Outlook To 2020

Ziff Energy Group has released an executive report analyzing the declining natural gas production outlook through 2020 within Western Canada, the second-largest natural gas producing region in North America. This report forecasts gas production by type (solution, existing, new conventional, tight gas, coalbed methane, and shale gas), and by Ziff Energy’s 10 gas strategy regions. The report provides a 10-year outlook of:

• expected gas well completions;
• productivity of new gas wells;
• gas production decline rates, for both new and existing gas wells; and
• gas production forecast for each strategy.

According to the report, Western Canada is maturing and high natural gas drilling is not able to maintain current production. Gas production peaked at 17 Bcf/d in 2001 and Ziff Energy believes gas production will decline to under 14 Bcf/d by 2020, even including strong growth of shale gas production from the Horn River basin in Northeast British Columbia. The analysis excludes the Mackenzie Delta and Alaska.

Ziff Energy’s analysis indicates that by 2020:

-half of today’s gas production comes from wells connected in the last five years.
-new gas well completions will likely contribute over 70% of gas production.
-2 Bcf/d of new gas is needed annually to replace declines.

The report notes that in 2007 and 2008 Alberta producers reduced gas drilling in response to poor economics. Gas prices have plummeted since summer 2008 and producers have reacted by slashing capital spending. In Alberta, the threatened royalty increases have made the cuts deeper.

For more information, contact Bill Gwozd, P.Eng., (403) 234-4299 or bill.gwozd@ziffenergy.com.

CCSI Records Million Man Hours Without Lost Time Injury

Commercial Coating Services International, Ltd. (CCSI), a subsidiary of Insituform Technologies, Inc.’s newly acquired subsidiary, The Bayou Companies, Inc., recently surpassed 1 million man hours worked without filing a single lost time injury report.

Dave Hammon, CCSI’s Human Resources, Health & Safety Manager, said there have been no lost time injury reports filed since Dec. 13, 2004. Gary Brown, CCSI President, notes, “Every CCSI employee has contributed to this significant milestone through daily dedication to following our defined safety procedures.”

Chuck Watson Leaves Eagle Energy Partners

Eagle Energy Partners, L.P., a wholly owned subsidiary of EDF Trading Limited, announced that Chuck Watson, co-founder and former chairman of Eagle Energy, would leave the company on May 1.

“I would like to thank Chuck for the invaluable support he has given EDF Trading during our acquisition and integration with Eagle Energy and look forward to the possibility of future business opportunities with him,” said John Rittenhouse, Chief Executive of EDF Trading.

Watson, who founded Dynegy in the 1980s, gave no indication of his future plans.

Oregon LNG Receives Letter Of Recommendation From U.S. Coast Guard

Oregon LNG will have a minimal security impact on the Columbia River, based on information in a Letter of Recommendation issued on April 24 by the U.S. Coast Guard. Because the Oregon LNG site in Warrenton is located near the mouth of the Columbia River, security measures required by the Coast Guard will have little or no impact on other river users.

The Oregon LNG project has fewer impacts than a competing project and would be much less intrusive because of its location near the mouth of the river, according to Peter Hansen, CEO of Oregon LNG. In addition, the proposed location in Warrenton will allow LNG tankers to have short, low-congestion transit to the proposed terminal.

“Our approach from the beginning has been to start with what’s best for Oregon,” said Hansen. “We spent considerable time and resources in finding the project site that will have the least impact on river traffic and urban waterfronts. The Coast Guard’s report demonstrates the benefit of putting local concerns first.”

The letter notes that Oregon LNG’s location could be suitable for the type of marine traffic that has been proposed. This confirms that Oregon LNG has the flexibility to accommodate all tanker sizes up to and including the new 266,000 cubic-meter Max Class tankers. This is another comparative advantage, since it could mean fewer tanker trips compared to upriver locations. Oregon LNG will be the only U.S. West Coast terminal able to accommodate the larger, more modern and efficient tanker, said Hansen.

Oregon LNG is the only LNG project in Oregon that has already received local land-use approvals and successfully completed all appeals. The company is proceeding with state approvals and anticipates approval from the Federal Energy Regulatory Commission in early 2010. Construction of the import facility and the associated pipeline is anticipated to begin by late 2010. The project is expected to begin serving customers in 2014.

A sister company, Oregon Pipeline, is a proposed pipeline that will deliver natural gas to customers in Oregon, Washington and other western states.

Valve Industry’s Modest Decline Expected To Be Short

The U.S. and Canadian industrial valve industry saw the steady climb in sales and profits of the last decade turn around in the last year to experience a decline. However, the decrease is slight compared to most other U.S. industries, and is not expected to last more than a year.

Valve and actuator shipments rise and fall with the fate of the industries that depend on those shipments, including power generation, chemical processing, oil & gas, water/wastewater, manufacturing and other industries. Noting the downward track those industries are now on, the Valve Manufacturers Association (VMA) estimates a 5% decrease in industrial valve shipments for 2009 – the first such decrease in a decade.

However, 2009 VMA Chairman Sam Bennardo remains optimistic. 

“We estimate shipments of valves and actuators to return to their 2007 levels of $3.8 billion,” said Bennardo, president of AUMA Actuators, Inc., Canonsburg, PA. “Still, compared to how other industries are faring this is a pretty modest decline, and total sales still should be considerably higher than just five years ago, when total shipments were at $3.2 billion.” 

Bennardo’s optimism is partly based on the make-up of the industry. The valve industry typically doesn’t have the dramatic highs and lows of other industries because of the diverse markets and make up of end-users, we don’t cycle up and down at the same time. “We’ve had years where a couple of key end-user markets are going gangbusters, while others are in decline.”

He predicted that the drop in valve shipments will not continue for more than a year. “The valve industry typically lags about 6 to 9 months behind end users as projects are planned or cancelled,” Bennardo said. With a huge number of infrastructure projects in the works, economists are predicting a bottoming out of the recession in late 2009.