February 2016, Vol. 243, No. 2

Features

In the News: Heating Oil Prices May Rise Slightly with Exports

An impending flood of U.S. shale gas into the global market stands to lower the price of the heating fuel in Asia by almost 5% while marginally raising costs to customers at home, a study commissioned by the U.S. Energy Department shows.

Exports of 20 Bcf of U.S. gas by 2025 may cut prices in the Asia-Pacific market by 73 cents per million Btu while increasing U.S. prices by 15 cents, according to the study authored by Oxford Economics and the Center for Energy Studies at Rice University. Despite the climb in domestic prices, the shipments would be “marginally positive” for the U.S. economy because of bigger profits and more spending on production of the fuel, the report said.

“As exports increase, the spread between U.S. domestic prices and international benchmarks narrows,” according to the report. “In every case, greater LNG exports raise domestic prices and lower prices internationally. The majority of the price movement (in absolute terms) occurs in Asia.”

The Energy Department has approved projects that may send as much as 10 Bcf/d of U.S. gas abroad and is considering applications for another 35 Bcf/d. The heightened interest is what prompted the latest report, an update of a 2012 study that found economic benefits from exporting 12 Bcf/d.

Oil, Gas Found Vital to Colorado’s Economy

The oil and gas industry in 2014 pumped $31.7 billion into Colorado’s economy, according to an economic study by the Business Research Division of the Leeds School of Business, University of Colorado at Boulder. Overall, the industry recorded $15.8 billion in production value, accounting for 38,650 direct jobs with average annual wages in excess of $105,000 – twice the average wage of all industries in Colorado. The total economic impact of the industry was $31.7 billion in 2014, supporting 102,700 jobs and $7.6 billion in compensation.

The report, Oil and Gas Industry Economic and Fiscal Contributions in Colorado by County, 2014, conducted by university researchers Brian Lewandowski and Richard Wobbekind, found that the oil and gas industry supported over 100,000 high-paying workers and their families.

“The capital investments and industry production create jobs, income, wealth, and taxes, notably concentrated where production exists; however, as tax dollars flow into the state general fund and cash fund, the outflow of these dollars impacts every citizen in the state through investments in education, transportation, and others, “ the report stated.

Corroded Pipe Blamed in Fatal Louisiana Explosion

A breakdown of metal has been named as a possible contributing factor in the Dec. 4 pipeline explosion in Louisiana that left an Alabama man dead. “We are looking at external corrosion as a strong factor,” said Kelly Merritt, spokesman for pipeline owner Columbia Gulf Transmissions. “We will be doing an internal inspection of the line from Delhi to the Mississippi River, a 38-mile section, and we’ll be inspecting the line as well.”

Corbin Fawcett, 47, of Haleyville, AL, was killed in the explosion. George McCaleb, 58, of Fayetteville was hospitalized with minor injuries. The two were eastbound on Interstate 20 in a pickup, driven by Fawcett, when the pipeline ruptured. The blast sparked a fire that burned for two hours. The 30-inch pipe, installed in 1954, ruptured near a small bridge that crosses a bayou. A second pipeline, installed in the 1960s and a third installed in the ’70s are also near the site but were not damaged.

Merritt said a 400-foot section of pipe beneath the highway will be replaced with new, heavy wall-coated steel pipe. In addition, the stretch of pipeline from Delhi east to the Mississippi River will be inspected.

Barnett Shale Much Richer in Gas than Earlier Estimates 

Texas’s Barnett Shale formation contains 53 Tcf of natural gas, twice as much as previously estimated, U.S. government researchers said. The formation also contains 172 MMbbls of shale oil and 176 MMbbls of natural gas liquids, the U.S. Geological Survey reported. The estimates are for “undiscovered, technically recoverable” reserves.

In 2003, relying solely on vertical drilling, the USGS estimated there was 26.2 Tcf of gas in the Barnett. Since then, over 16,000 horizontal wells have helped produce over 15 Tcf of natural gas and 59 MMbbls of oil.

“We decided to reassess the Barnett Shale following the successful introduction of horizontal drilling and hydraulic fracturing, setting the stage for the current shale gas boom,” said Kristen Marra, the USGS scientist who led the assessment.

New Jersey Natural Gas First in State to Eliminate All Cast Iron

 New Jersey Natural Gas crews replaced a section of 4-inch main that officially retired the last piece of cast iron main in its system. With that, NJNG is now the first utility in the state with no active cast iron in its pipeline network.

“Ensuring the safety of our customers and the reliability of our system is the most important thing we do,” said Laurence M. Downes, chairman and CEO of New Jersey Natural Gas. “By eliminating all of the cast iron main and associated services, we continue to strengthen our system and the lifeline service we provide. This is an important milestone in the history our company and an accomplishment of which we are all proud. It is also a credit to the dedication of the women and men of New Jersey Natural Gas and the leadership of our regulators.”

In the past three years, NJNG said it has replaced 62 miles of cast iron and 159 miles of unprotected steel main and associated services throughout its service territory as part of its Safety Acceleration and Facility Enhancement (SAFE) program. Approved by the New Jersey Board of Public Utilities (BPU) in October 2012, SAFE was designed to replace 276 miles of aged infrastructure. Cast iron and unprotected steel main were most commonly used prior to 1970, and are more susceptible to corrosion and leaks.

NJNG routinely replaces its facilities through its annual capital construction and accelerated infrastructure programs. The replacement of its aged main through the SAFE program is consistent with the state’s Energy Master Plan and its emphasis on infrastructure reliability and resiliency as a pathway to lower energy costs and enhanced energy security.

NJNG will continue the replacement of 55 miles of unprotected steel main and services through fiscal 2016, and filed with the BPU to replace another 276 miles.

Enterprise Contracts First Export of Crude Oil

A 600,000-barrel cargo of domestic light crude oil loaded early last month at the Enterprise Hydrocarbon Terminal on the Houston Ship Channel marked Enterprise Product Partner L.P.s’ first export of crude oil produced in the U.S.

“We are excited to announce our first contract to export U.S. crude oil, which to our knowledge may be the first export cargo of U.S. crude oil from the Gulf Coast in almost 40 years,” said A.J. “Jim” Teague, chief operating officer of Enterprise’s general partner.

“We applaud the actions of Congress and President Obama to remove the ban on U.S. crude oil exports,” Teague said. “This provides new markets to domestic producers, especially producers of light crude oil, and will provide global markets with supply diversification.”

Minor Pipeline Provision in House Energy Bill

 Federal agencies will have less of a chance to slow down applications for pipeline construction if the Senate passes the energy bill which cleared the House in December.

The North American Energy Security and Infrastructure Act of 2015 (H.R. 8) passed the House by a vote of 249-174, which means it had some Democrat support, leaving some hope the bill could be passed in some form by the Senate.

The bill contains a section which gives agencies with regulatory responsibilities for environmental programs a timetable for acting when the Federal Energy Regulatory Commission (FERC) considers an application for pipeline construction. The bill gives agencies such as the EPA, National Park Service and others 90 days after FERC finishes an environmental review to let FERC know if they have problems with an application.

The Interstate Natural Gas Association of America has applauded the provision but acknowledged that it improves pipeline permitting around the edges, not in any significant way. That is the only pipeline provision in a very large bill more concerned with the electricity grid, hydropower, and energy exports.

The bill also establishes a deadline for approval of LNG export facilities. The Department of Energy would have to approve those no later than 30 days after the conclusion of the review to site, construct, expand, or operate the LNG facilities required by the National Environmental Policy Act of 1969.—Stephen Barlas

ArcLight Capital Partners Affiliate Acquires Gulf Oil, LP

ArcLight Capital Partners, LLC, a private equity firms focused on energy infrastructure investments, announced that affiliate Chelsea Petroleum Products Holdings, LLC completed the purchase of Gulf Oil, LP from Cumberland Farms, Inc. The acquisition of Gulf is the second major terminal acquisition by ArcLight in the past year.

“Gulf is well-established among consumers as a top tier brand and in recent years has experienced significant growth of marketed volumes,” said Dan Revers, Managing Partner and co-founder of ArcLight.

Gulf is a terminal operator and wholesaler of refined petroleum products, including heating oil, diesel fuel, and gasoline, and marketed 3.3 billion gallons of products in 2014. Gulf owns and operates 12 proprietary refined product storage terminal, with connectivity via the Buckeye and Laurel pipelines as well as barge access that allows Gulf to source product from Canada, Europe, the Caribbean, and all major U.S. refining markets.

Jerry Ashcroft will be president and CEO of Gulf; he has held executive leadership roles at Buckeye (2009-14), Colonial Pipeline (2000-06, 2008-09) and JP Energy Partners (2014-15). Also on the leadership team is Mike Campbell, Chief Financial Officer, previously CFO at Crestwood Midstream Partners and Crestwood Equity Partners, general partner of CMLP (2012-15) and Inergy Midstream, LP (2003-12).

Navigant Forecasts 35 Million NGVs by 2025

A recent report from Navigant Research analyzes the market for natural gas refueling infrastructure and the factors expected to influence its deployment, including global market forecasts segmented by fuel type, station type, and region, through 2025.

Natural gas is an alternative to diesel for medium and heavy-duty vehicles in meeting regulatory standards and an appealing option for reducing operating costs and carbon emissions in many automotive applications.

But natural gas can only be used where refueling infrastructure is widely available and the current density of refueling options is tied mostly to government incentive programs. According to Navigant, total sales of natural gas vehicles (NGVs) are expected to reach over 35 million from 2015 to 2025.

“For NG to reach its full potential as a transport fuel, easy access to refueling stations and a large population of NGVs are required,” said Sam Abuelsamid, senior research analyst with Navigant Research. “Without a critical mass of vehicles in need of NG fuel, station operators are unwilling to invest in equipment – and without easy access to stations, retail customers won’t commit to purchasing NGVs.”

 Oklahoma Cracks Down on Some Injection Well Operators

The Oklahoma Corporation Commission ordered some injection well operators to reduce wastewater disposal volumes on Jan. 4 after at least a dozen earthquakes hit an area north of Oklahoma City in less than a week.

The agency said it was implementing a plan that affects five wastewater injection wells operating within 10 miles of the center of earthquake activity near Edmond, a suburb of Oklahoma City. Among the recent quakes to hit the area was a 4.2 magnitude temblor on New Year’s Day that caused minor damage but no injuries.

Ecopetrol Devastated by Crude Oil Price Decline

Colombia is holding paper losses exceeding $100 billion after its oil boom fell short of expectations, wiping out 90% of the value of what was once Latin America’s biggest company, according to Bloomberg. From being the world’s fifth-most valuable oil producer in 2012, worth more than BP Plc, state-controlled Ecopetrol SA now ranks 38th. Its market capitalization has fallen to $14.5 billion, down from its peak of $136.7 billion.

“They just haven’t found oil, it’s as simple as that,” said Rupert Stebbings, managing director of equity sales at Bancolombia. “The whole oil sector got massively overbought and people assumed that one day they’d hit an absolute gusher.”

Over the past year, Ecopetrol shares are down 55% in dollar terms, the worst performance among global oil drillers with a market capitalization over $10 billion. The 2015 production target of 1 MMbbls of oil equivalent was changed to 760,000 barrels and slumping prices may force it to downsize its reserves for 2016. A foray into Angola in 2014 was an expensive failure while hopes that shale exploration could boost reserves no longer look viable.

“The U.S. may be able to adapt to low prices and continue with its shale oil and gas industry,” said Ecopetrol Exploration Vice President Max Torres. “But for a new industry like ours it’s very difficult. It’s for the future, when prices improve.”

Enbridge Says Protester Tampering Caused Shutdown

Enbridge Inc. reported last month that flow on a pipeline through southwestern Ontario was shut down for several hours by protester activity near Cambridge, Ontario. Spokesman Graham White said the protesters partially restricted flow on Enbridge Line 7 on Jan. 3 by tampering with a manual valve.

The pipe was shut down for three hours as a safety precaution and so that maintenance workers could inspect the valve station. White said Enbridge has safely restarted the line — which carries various products from Sarnia to Westover – and there was no impact on client deliveries.

A post by “nopipelines” on the Reddit Anarchist News site claimed responsibility for the sabotage, saying it was to protest the flow of oil sands products through pipelines in Ontario.

TransCanada Corp. filed a lawsuit in federal court in Houston on Jan 6. in response to the Obama administration’s rejection of a permit for the Keystone XL Pipeline. The lawsuit claims the president’s decision exceeded his power under the Constitution.

TransCanada said it will initiate a claim under Chapter 11 of the North American Free Trade Agreement on the basis that “the denial was arbitrary and unjustified.” TransCanada seeks to recover over $15 billion in costs and damages through the NAFTA claim.  TransCanada also expects to write down $2.5-2.9 billion in the company’s fourth-quarter results due to the permit denial.

“TransCanada’s legal actions challenge the foundation of the U.S. administration’s decision to deny a presidential border crossing permit for the project,” TransCanada said.

“In its decision, the U.S. State Department acknowledged the denial was not based on the merits of the project. Rather, it was a symbolic gesture based on speculation about the perceptions of the international community regarding the administration’s leadership on climate change and the president’s assertion of unprecedented, independent powers.”

OPEC Forecasts Oil Below $100 Through at Least 2040

OPEC predicts oil prices will remain below $100 a barrel in the long term, but should bounce back from current low levels as global demand for crude will rise more than expected. International crude have fallen 15% since OPEC decided to maintain production. In extracts published Dec. 18 from its World Oil Outlook, OPEC said it now assumes the price of the reference basket of crude oil produced by its members would be $70 a barrel in 2020, rising to $95 a barrel by 2040.

This is a sharp downgrade from 2014 when OPEC foresaw prices at $95.40 a barrel in 2020 and $101.60 a barrel in 2040. With oil prices now expected to be lower than previously thought, the cartel anticipates more demand for oil in the long term. OPEC has raised its estimates for medium-term demand to above 97 MMbpd by 2020. That compares with 2015 demand of about 94.6 million, according to the International Energy Agency.