What follows is a discussion in which I will post/share industry related articles that I believe to be of general interest to some who frequent this site.

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This article goes off on a bit of a tangent, but might offer insights into the extent of the potential economic landscape that might ultimately result from the Natural Gas renaissance.

 

Source: http://www.fool.com/investing/general/2013/03/17/are-warren-buffet-...

 

Are Warren Buffett and Natural Gas Killing the Golden Age?

By Douglas Ehrman

Earlier this month, The Wall Street Journal reported that Warren Buffett's BNSF Railway will initiate a pilot program to investigate the viability of using natural gas to power its locomotives. If the program is successful, it would have wide ramifications, as the company is believed to be one of the largest consumers of diesel fuel in the country, second only to the U.S. Navy. The path from the shale gas boom to improved economic conditions, curtailed oil prices, and a stronger U.S. dollar isn't a simple one, but it does follow a fairly straight series of connections. The ultimate result of this daisy chain of causes and effects is that gold prices are under legitimate pressure for the first time in many years.

 

The pilot program

While outfitting a locomotive to run on liquefied natural gas, or LNG, is not a simple procedure, it has the potential to result in significant cost savings. The price of a single locomotive that currently sits at roughly $2 million could rise by as much as $1 million for early conversations -- economies of scale would presumably lower costs over time. The company didn't fully disclose how much it would cost to retrofit its 6,900 existing engines.

 

Against this increase, where a single gallon of diesel went for an average of $3.97 last year, the comparable amount of LNG cost less than $0.50. Given the amount of fuel a locomotive burns, the additional cost would quickly be realized in savings from lower-cost operation. This number doesn't include the necessary cost of cooling the LNG, but the savings are still expected to be significant.

 

The path from LNG to lower gold prices

Let's start by accepting that the path I am about to describe is necessarily simplified, but it should serve as a good primer to understanding the larger issues. To begin with, as a result of exploding natural gas and shale oil reserves, the U.S. is importing significantly less oil. The Department of Energy has seen the country come off a peak of 60% of net oil imports to an expected 32% next year, and on a smaller number. That not only improves the trade deficit, but it also improves the current account deficit. This figure, which is measured in terms of a percentage of GDP, is expected to fall from nearly 3.6% of GDP down to 1.2% of GDP by 2020.

 

What all of these pressures mean is that globally, oil prices stabilize and U.S. costs fall. For example, in 2008, it's estimated that we spent $216 billion on natural gas. BofA Merrill Lynch estimates that for 2012, that number had fallen to $76 billion, somewhat driven by the fact that high supplies of natural gas mean that the wholesale price in the U.S. is roughly one-third of what it is in both Europe and Asia.

 

From low energy prices come Chairman Ben Bernanke's bailout from the certain inflation mess he would create running the Federal Reserve's printing press at a rate of $85 billion per month. While core inflation doesn't account for the fluctuation of energy prices, lower energy prices keep the costs of goods lower than they would otherwise be. Ultimately, these factors combine to make for a strong U.S. dollar. The combination of inflation kept in check and a strong dollar are very bearish for gold. Earlier this week, Barclays Capital slashed its price target on the metal from $1,778 per ounce to $1,646 per ounce. While the firm citing falling demand for the ETF as a major catalyst for the downgrade, gold has been struggling and may continue to do so for some time.

 

The behavior of the golden age

Since gold peaked late in 2011, the divergence between the commodity, as represented by the SPDR Gold Trust (NYSEMKT: GLD  ) , and gold miners such as Barrick Gold (NYSE: ABX  ) and Goldcorp (NYSE: GG  ) has been significant. Much of the difference can be explained by recessionary pressures that more negatively affect operating companies than the metal itself. As the economy stabilizes -- if that is, in fact, what's happening -- gold miners may begin to close the gap. Barrick reported a net loss for both the fourth quarter and for the full year, based largely on increased production costs and other impairments; Goldcorp faced similar pressures.

 

Looking ahead

While this is a fairly topical review of some of the complex forces at work within the economy, it illustrates how recent developments have led to significant structural shifts in the commodities markets and the financial markets in general. You shouldn't underestimate the importance of other factors such as sequestration and the political landscape, but at very least, it's important to look far below the surface to understand how these forces can interact. Many global macroeconomic forces still favor higher gold prices, but developments in the energy market should figure centrally in your thinking moving ahead.

thats all nice.  how do we deal with the sword of damacles though, 16 going on trillion of debt?

Source: http://news.yahoo.com/pa-pushes-drillers-frack-coal-181119414.html

Pa. pushes gas drillers to frack with polluted water from abandoned coal mines

By Michael Rubinkam, Associated Press

Each day, 300 million gallons of polluted mine water enters Pennsylvania streams and rivers, turning many of them into dead zones unable to support aquatic life. At the same time, drilling companies use up to 5 million gallons of fresh water for every natural-gas well they frack.

State environmental officials and coal region lawmakers are hoping that the state's newest extractive industry can help clean up a giant mess left by the last one. They are encouraging drillers to use tainted coal mine water to hydraulically fracture gas wells in the Marcellus Shale formation, with the twin goals of diverting pollution from streams and rivers that now run orange with mine drainage and reducing the drillers' reliance on fresh sources of water.

Drainage from abandoned mines is one of the state's worst environmental headaches, impairing 5,500 miles of waterways.

"It's a problem (the drillers) didn't create, but hopefully a problem they can help solve," said Sen. Richard Kasunic, a southwestern Pennsylvania Democrat who's co-sponsoring legislation to spur the use of mine water in fracking.

While not all mine water is chemically suitable for fracking — and a mine discharge has to be close enough to a well pad to make transport via truck or pipeline economical — experts believe Pennsylvania has more than enough polluted mine water to meet the needs of the drilling industry.

More than 10 drillers have already received Department of Environmental Protection permission to use mine discharges for fracking, a technique in which millions of gallons of water, along with chemical additives and sand, are pumped down a well to break apart gas-bearing shale deposits.

"There's a lot of potential here," said Doug Kepler, vice president of environmental engineering at Seneca Resources Corp. "People are looking for the right place to do it, the right commitment to do it, and it has to make sense for your operation."

Seneca has been withdrawing polluted water from the Arnot No. 5 coal mine in Tioga County since late 2010 and piping it some 6 miles to the well pad. DEP considers the mine, which discharges water at an average rate of 2,000 gallons a minute, one of the top contributors of pollution to the upper Tioga River watershed. Seneca's permit allows it to take up to 500,000 gallons per day from the Arnot discharge.

"We're not doing this to save money, and it's not really costing us any more money," said Kepler, a former environmental consultant. "It's just an alternative that we choose to do to try to minimize our impact."

 

The idea enjoys broad bipartisan support in Harrisburg. A bill that would encourage drillers to frack their wells with polluted water from abandoned mines cleared the state Senate by a unanimous vote last year, but passage came late in the legislative session, and the measure died in the House.

Kasunic's revised bill had been making its way through the Senate when it was tabled abruptly last week after environmental groups complained it would give drillers too much protection from liability.

The legislation would remove what had been seen as a barrier for drillers wanting to use coal mine water: the state's Clean Streams Law. The law's strict liability provisions could be interpreted as requiring drillers to treat a mine discharge in perpetuity once they begin withdrawing water from it, even though they had no role in creating it. The Senate bill would shield gas companies from that liability.

But PennEnvironment and other environmental activists claimed the bill also would give drillers immunity from responsibility for spills and other accidents at a well pad, too.

Republican Gov. Tom Corbett's administration supports the bill and contends it was fine as written.

It "does not provide blanket immunity for the act of hydraulic fracturing, and any assertion to the contrary would be false," John Stefanko, deputy DEP secretary, wrote to Kasunic and another of the legislation's co-sponsors, Republican Sen. Gene Yaw.

He said it does not "provide any protection to the transporter or user of the treated water when it is used for fracking or other well development purposes."

Lawmakers say they're willing to make adjustments and are hopeful it will win passage.

Source: http://www.startribune.com/business/194372251.html?refer=y

3M jumps into hot market with natural gas tanks

3M built upon its dental technology to create a durable tank to reach companies and consumers moving away from more costly diesel.

3M’s fresh entrance into the natural-gas fuel tank arena demanded testing in the extreme.

 

Researchers blasted the new tank with rifle shells, tossed it into bonfires, dropped it from towers and tried 22 other ways to get it to explode.

 

By passing the seemingly crazy safety tests, 3M just earned a coveted safety certification and the right to sell its thinner, lighter fuel tanks to truck fleets looking to switch from diesel fuel to cheaper, cleaner compressed natural gas, or CNG, as it’s known in the industry.

 

The fuels have different properties and require different systems and equipment.

 

Maplewood-based 3M Co. is jumping into this market at a hot time. More garbage trucks, semitractor trailers, city buses and small trucks are converting to natural gas tanks in an effort to cut fuel costs.

 

Natural gas is harvested domestically, so it’s cheaper — generally $1 to $2.50 a gallon, depending on the state. In contrast, diesel will set a driver back $4 a gallon.

 

So it’s no wonder that natural gas is becoming increasingly popular with companies and consumers alike.

 

Going forward, 3M will market its fuel tank to corporate fleet operators and to folks buying light and medium-weight trucks. Over time, 3M expects the fuel conversion trend to significantly tap passenger vehicles. When it does, the company will be ready.

 

“We are enthusiastic about the future of natural gas vehicles and are proud to introduce this tank to help companies take advantage of the benefits of natural gas as a transportation fuel,” said Mike Roman, vice president of 3M’s industrial adhesives and tapes division.

 

It took 3M three years and millions of dollars to create its new gas tank, which it says is thinner and lighter than models currently on the market. Being thinner allows the tanks to carry about 5 to 10 percent more gas.

 

Oddly, 3M’s new gas-tank technology morphed from an older and vastly different 3M product — dental fillings.

 

3M’s scientists built upon its tooth “nano composite” technology. It added specialty resins to create a strong, durable material that could be molded into a fuel tank. 3M’s first model spans 5 feet by 21 inches and is intended to be installed in the back of a pickup truck, right below the rear window.

 

Eventually other sizes for other types of vehicles will follow, said Rick Maveus, global business manager for 3M’s advanced composites.

 

Maveus won’t say what prospective sales might be. But he said, “We view it as a sizable attractive market particularly from a global standpoint.”

 

There are about 150,000 natural gas vehicles in the United States today and roughly 15 million worldwide. “And that is growing [every] year,” Maveus said.

 

According to Pike Research and the industry trade group Natural Gas Vehicles for America, natural gas vehicles will grow globally by 7.9 percent a year to 19.9 million vehicles by 2016.

 

Converting a Ford F-250 truck from diesel to natural gas will cost about $10,000 including parts, labor and the tank. 3M officials won’t discuss their tank’s price tag, except to say it’s a “significant part” of the total $10,000 tab.

 

3M will sell its fuel tank through five companies that specialize in fuel tank conversions. They are: OEM Systems in Oklahoma, Venchurs Vehicle Systems in Michigan, Alternative Fuel Solutions in Pennsylvania, AVS of Salt Lake City and World CNG in Kent, Wash.

 

Separately, 3M has partnered with Chesapeake Energy Corp. to explore all segments of the U.S. transportation sector.

 

Recently, both 3M and Andersen Windows and Doors partnered with the Eagan-based hauler Dart Transit to convert the fuel tanks of all the trucks used to deliver their products. The change helps 3M and Andersen capture fuel savings for themselves, officials said.

 

 

Dee DePass • 612-673-7725

Source:http://www.reuters.com/article/2013/03/20/pa-shale-gas-center-idUSn...

Center Formed to Provide to Shale Gas Producers Independent Certification of Performance Standards

Wed Mar 20, 2013 1:00pm EDT

Organization's Participants Include Environmental Organizations, Philanthropic
Foundations, and Energy Companies
PITTSBURGH,  March 20, 2013  /PRNewswire/ -- A group of leading environmental
organizations, philanthropic foundations, and energy companies have collaborated
to form a unique center to provide producers with certification of performance
standards for shale development.  The Center for Sustainable Shale Development
(CSSD) has established 15 initial performance standards designed to ensure safe
and environmentally responsible development of the Appalachian Basin's abundant
shale gas resources.  These standards will form the foundation of the CSSD's
independent, third-party certification process.

"CSSD is the result of an unprecedented effort that brought together a group of
stakeholders with diverse perspectives, working to create responsible
performance standards and a rigorous, third-party evaluation process for shale
gas operations," said  Robert Vagt, president of The Heinz Endowments. "This
process has demonstrated for us that industry and environmental organizations,
working together, can identify shared values and find common ground on standards
that are environmentally protective."

CSSD's founding participants are:

* Chevron 
* Clean Air Task Force 
* CONSOL Energy 
* Environmental Defense Fund 
* EQT Corporation 
* Group Against Smog and Pollution (GASP) 
* Heinz Endowments 
* Citizens for  Pennsylvania's Future (PennFuture) 
* Pennsylvania Environmental Council 
* Shell 
* William Penn Foundation

Technical support has been provided by Lawrence Livermore National Laboratory,
ICF International, and the law firm of  Eckert Seamans Cherin  & Mellott. 

"While shale development has been controversial, everyone agrees that, when
done, producers must minimize environmental risk," said  Armond Cohen, Executive
Director, Clean Air Task Force.  "These standards are the state of the art on
how to accomplish that goal, so we believe all Appalachian shale producers
should join CSSD, and the standards should also serve as a model for national
policy and practice."

Through discussions over the past two years, CSSD participants established a
shared vision of performance and environmental risk minimization for natural gas
development in the Appalachian region.  The group's participants have worked to
adopt a set of progressive and rigorous performance standards based on today's
understanding of the risks associated with natural gas development and the
technological capacity to minimize those risks. 

"CSSD is focusing on the establishment of standards that will initially address
the protection of air and water quality and climate, and will be expanded to
include other performance standards such as safety," said  Nicholas J. DeIuliis,
President, CONSOL Energy. "Fundamentally, the aim is for these standards to
represent excellence in performance."

Companies can begin seeking certification in these areas later this year. 

CSSD also plans to develop programs to share best practices.

"Raising the bar on performance and committing to public, rigorous and
verifiable standards demonstrates our companies' determination to develop this
resource safely and responsibly," said  Bruce Niemeyer,  President  of Chevron
Appalachia.  "Throughout the development of CSSD, the collaborative effort of
environmental organizations, foundations and energy companies has been the key
to achieving consensus on regional performance standards."

"This initiative is an important complement to strong regulatory frameworks.
It's also a model of the regional collaborations recommended by the Shale Gas
Production Subcommittee of the U.S. Secretary of Energy's Advisory Board to help
drive a process of continuous improvement," said  Jared Cohon, president of
Carnegie Mellon University  and a member of CSSD's Board of Directors.

"While the potential economic and environmental benefits of shale gas are
substantial, the public expects transparency, accountability and a fundamental
commitment to environmental safety and the protection of human health from the
companies operating throughout the region. CSSD is a sound step toward assuring
the public that shale development is being done to the requisite standards of
excellence," said Paul O'Neill, former Secretary of the Treasury and retired
Chairman of  Pittsburgh-based Alcoa and a member of CSSD's Board of Directors.

Members of CSSD's Board of Directors are:

* Armond Cohen, Executive Director, Clean Air Task Force; 
* Jared Cohon,  President  of  Carnegie Mellon University; 
* Nicholas Deluliis,  President  of CONSOL Energy; 
* Paul Goodfellow, Vice President, U.S. Unconventionals, Shell; 
* Paul King,  President, Pennsylvania  Environmental Council; 
* Fred Krupp,  President, Environmental Defense Fund; 
* Jane Long, Principal Associate Director/Fellow, Lawrence Livermore National
Laboratory (retired); 
* Bruce Niemeyer,  President, Chevron Appalachia; 
* Paul O'Neill, former Secretary of the U.S. Treasury Department and former CEO
of Alcoa; 
* David Porges,  President  and CEO of EQT Corporation; 
* Robert Vagt,  President, The Heinz Endowments; and 
* Christine Todd Whitman, former Administrator of the U.S. Environmental
Protection Agency and former Governor of  New Jersey.

About Center for Sustainable Shale Development (CSSD)
Based in  Pittsburgh, Pennsylvania, CSSD is an independent organization whose
mission is to support continuous improvement and innovative practices through
performance standards and third-party certification. Focused on shale
development in the Appalachian Basin, the Center provides a forum for a diverse
group of stakeholders to share expertise with the common objective of developing
solutions and serving as the center of excellence for shale gas development. 

Funded by philanthropic foundations and participating energy companies, CSSD is
intended to promote collaborative efforts by industry and its stakeholders
called for by the Shale Gas Production Subcommittee of the U.S. Secretary of
Energy's Advisory Board.

SOURCE  The Center for Sustainable Shale Development


Tim O'Brien, O'Brien Communications, +1-412-854-8845, timobrien@timobrienpr.com

Jack, this is important enough to start a separate discussion. When you get the Environmental Defense Fund and PennFuture to work with Big Oil, that is huge news. 

In the AP version was this quote;  paraphrased, environmentalists realize that the hundreds of billions of oil and gas is going to be developed one way or another and that working with the industry is the quickest way to making the process safer.

This is huge because it will give the O & Gs confidence to proceed with less interference from environmentalists. Now that they know what the rules will be it will be much easier to plan. Plus, this means there will be less pressure on the government to interfere.

On the downside, I see that the Sierra Club has already come out strongly against it. Just can't please some people.

Yes, this is a really big deal when active "environmental" groups choose to join the Oil & Gas Industry in what can be viewed as essentially joint acceptance (and tacit support) of fracing.

 

Are we hearing the "Death Rattle" of the "Silly People"?

 

I wonder what Yoko and Sean think of this?

Will Sean revise the lyrics of his song to "Frack my Mother!"?

 

All IMHO,

                   JS

 

Jack; here's another take on the CSSD from the Pitt PG;

http://pipeline.post-gazette.com/news/archives/25103-new-initiative...

Pretty interesting about how it all came about and some details about what they will do.

As Freddy Mercury was want to say .... "Another one bites the dust" ....

Source: http://www.bloomberg.com/news/2013-03-20/biggest-solar-collapse-in-...

 

Biggest Solar Collapse in China Imperils $1.28 Billion

By Ehren Goossens & Justin Doom - Mar 21, 2013 7:46 AM MT

Investors stand to lose most of the $1.28 billion they put into Suntech Power Holdings Co. (STP) after the solar manufacturer said it wouldn’t resist a bankruptcy petition filed in China.

The company, based in Wuxi, outside Shanghai, had more than $2 billion in debt and defaulted on $541 million in bonds due on March 15, prompting eight Chinese banks to ask a local court to push Suntech’s main unit into insolvency. The court accepted the petition today.

An employee inspects a solar panel on the production line at the Suntech Power Holdings Co. Ltd. facility in Goodyear, Arizona. For Suntech, which had more than $2.2 billion of debt at the end of March 2011, the outlook for survival is bleak. Photographer: Ken James/Bloomberg

March 7 (Bloomberg) -- Jiong Shao, head of China strategy at Macquarie Securities Ltd. in Hong Kong, talks about the outlook for China's economy, pollution and stocks. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)

An employee walks into Suntech Power Holdings Co. headquarters, which is covered by photovoltaic panels, in Wuxi, Jiangsu Province, China. Photographer: Qilai Shen/Bloomberg

“There’s a host of companies that have gone to Wall Street investors and gotten billions of dollars, and these investors are ultimately going to be on the hook and get nothing out of it,” Angelo Zino, an analyst at Standard & Poor’s Financial Services LLC in New York, said in an interview.

The failure underscores how risks to investors in the solar industry have spread after the collapse of Solyndra LLC in 2011 and bankruptcies in Germany of companies including Q-Cells SE (QCE), previously the biggest solar manufacturer. The bankruptcy will make financing more difficult, Xie Jian, the chief operating officer of JA Solar Holdings (JASO) Co., said today in an interview.

Bondholder Stakes

Mount Kellett Capital Management LP, Driehaus Capital Management LLC and Pioneer Investment Management Inc. were the Suntech’s largest bondholders, with about 23 percent of the debt, according to December public filings compiled by Bloomberg.

The largest outside owners of Suntech’s American depositary receipts are Renaissance Technologies Corp., Invesco Ltd (IVZ). and Shah Capital Management. None of the bondholders or shareholders were available for comment.

Sharp Corp (6753). of Japan, which led solar cell-making until 2006, is considering scaling back operations overseas. Solyndra collapsed despite $535 million of support from the U.S. Energy Department.

Suntech said last week that almost two-thirds of bondholders agreed to defer their rights for two months to give the company time to restructure its debt.

It’s unclear how the Chinese filing will affect U.S. creditors, said James Millar, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr LLP (1221L) in New York, who represents bondholders who own more than 1 percent of the debt.

Seeking Influence

“I can’t speak so much to the Chinese process,” Millar said in an interview. “Does a bondholder of a holding company have standing in a Chinese operating unit’s bankruptcy? I think the right answer is that the bondholders should have a seat at that table.”

Investors may lose everything, said Aaron Chew, an analyst with Maxim Group LLC in New York.

“This is about the Western bondholders versus the Chinese banks fighting for the assets, and there’s not enough to go around,” he said. “It’s going to be a nasty fight. I think this becomes a legal issue. One of the last companies I’d like to pick a fight with is Bank of China over an asset in China.”

Suntech raised $742.6 million in two stock offerings in New York, in 2005 and 2009. Combined with the $541 million principal on the convertible bonds that matured March 15, it’s received $1.28 billion.

Shares Slump

The ADRs, each worth one ordinary share, plunged 26 percent to 43 cents at 10:42 a.m. in New York. Earlier they reached 30 cents, a record low and a decline of more than 99 percent from the high of $88.35 in December 2007. Trading was halted yesterday after the company announced the bankruptcy filing.

“You can forget about the equity shareholders,” said Zino of Standard & Poor’s. “I don’t think there’s any way they’re getting anything out of this.”

China has supported solar companies through credit lines from local government or state-backed agencies, prompting panel makers to expand factories. Suntech more than quadrupled its annual production capacity to 2,400 megawatts in 2011 from 2007, according to data compiled by Bloomberg. That made it the biggest solar manufacturer at the time.

The U.S. and European governments cut back on renewable- energy subsidies, slowing demand for solar panels and creating a global oversupply that drove down prices 20 percent last year. Suntech hasn’t reported a profit since the first quarter of 2011.

UBS Hired

The company hired UBS AG in October to help it renegotiate the debt, and has been talking to local government agencies in Wuxi about receiving financial aid. It announced March 11 a forbearance deal with 63 percent of its bondholders, who agreed not to exercise their rights until May 15.

Not all the bondholders agreed to the deal and some said they were never contacted by Suntech.

Complicating the process is the fact that the Chinese bankruptcy filing names Suntech’s main unit, Wuxi Suntech Power Holdings Co., which is subject to Chinese law.

The parent company is incorporated in the Cayman Islands. The bondholders are creditors of the parent company, and the bond prospectus said the debt is governed by New York law. “Any litigation in China may be protracted and result in substantial costs,” Suntech said in its 2011 annual report.

U.S. creditors must contend with “a fundamental disadvantage that non-Chinese lenders have in a bankruptcy,” said Christopher Peterson, a partner at the law firm Kaye Scholer LLP (1192L). “They would need to get the consent of a Chinese court to get action in China, which the Chinese lenders don’t have to face.”

Production Continues

Suntech said it remains in production. That means the company’s failure won’t do much to alleviate the global panel glut, said Gordon Johnson, an analyst with Axiom Capital Management Inc.

“That capacity continues to exist in the market, which is clearly not good for the market,” he said in an interview.

Four of the six top panel manufacturers are based in China. Suntech fell to fifth in production capacity last year behind China’s Trina Solar Ltd (TSL). and Yingli Green Energy Holding (YGE) Co., Tempe, Arizona-based First Solar Inc (FSLR). and Canadian Solar Inc (CSIQ)., according to Bloomberg New Energy Finance.

Suntech named an executive from a government-backed development company in Wuxi to serve as its president March 19. Zhou Weiping previously worked as chairman of Guolian Futures Co., a unit of Wuxi Guolian Development Group Co., which is partly owned by the regional authority.

The company lost $1.01 billion in 2011 and was expected to report a loss of $460 million for 2012, the average of three analysts’ estimates compiled by Bloomberg.

“If you’re an investor and didn’t see this coming, it’s on you,” Alex Morris, an analyst at Raymond James & Associates Inc. in Houston, said in an interview.

To contact the reporters on this story: Ehren Goossens in New York at egoossens1@bloomberg.net; Justin Doom in New York at jdoom1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

 

Source: http://www.reuters.com/article/2013/03/25/energy-ohio-utica-idUSL1N...

RPT-INSIGHT-In Ohio, the fog begins to lift over the Utica shale

Mon Mar 25, 2013 6:59am EDT        

* April deadline for state to publish energy production data

* Data will reveal output on up to 60 new shale wells

* First major indicator of Utica's progress

By Edward McAllister

NEW YORK, March 25 (Reuters) - Shares of Gulfport Energy were in free fall last spring, dropping 55 percent in four months, until the oil and gas producer announced it had drilled its first three wells in the Utica shale formation in Ohio.

The Oklahoma-based company's value has since more than doubled, bolstered by a series of company production updates on those and a handful of other new wells located in what many believe to be the next frontier in America's oil and gas revolution.

The share price gain represents perhaps the clearest example of how investors, giddy about an expected boom in Ohio's energy production, have been betting on companies based on some optimistic, but preliminary, production data.

But next month a more comprehensive state report will publish new data from Ohio's oil and gas wells that will offer the most insight yet about whether the Utica is the next big thing or a potentially fizzling bust for companies operating there.

Energy producers in the Buckeye State have compared the Utica to the giant Eagle Ford shale play in Texas and declared it a boon for a state still weathering an economic downturn. However, enthusiasm has cooled somewhat since drilling began in 2011, after wells produced more cheap natural gas than the more lucrative oil.

On March 31 this year, data from between 50 and 60 wells drilled in 2012 will be given to the state. It will then be made available on the Ohio Department of Natural Resources' website in April, the department said. It did not give a specific date but last year the report came on the second of the month.

While around 500 drilling permits have been issued in the state since 2011, only those wells that have actually produced will be covered in the report. It will show output over the lifetime of every new well, its location, and its owner, providing some proof of which acreage, and which companies, are performing best.

"It is a meaningful sample of wells that will go a long way toward giving investors a sense of whether the Utica is the next big thing," said Morningstar analyst Mark Hanson, who covers companies operating in the state.

UTICA SILENCE

Ohio publishes well data only once a year, making it one of the least transparent states in reporting energy output. Most states publish every quarter. On April 2 last year, production was published from just five wells. That is the only official state record on the play two years after drilling began there.

Results from the five wells drilled by Chesapeake Energy in Carroll and Harrison counties showed lower than expected oil production, and stronger natural gas output, the state report said.

Since then, a long list of companies, including Britain's BP , Anadarko Petroleum and Hess Corp, have acquired acreage in Ohio. Most remain quiet about their progress for fear that it will push lease prices higher.

"It has to do with the competitive nature of things," said Mark Houser, chief executive officer of EV Energy Partners which, together with its parent company Enervest Ltd, owns more than 800,000 acres in the Utica. "If you have a good acreage position, you still may want to buy the acre next door. You don't want to have everything public."

BP, Anadarko and Hess did not respond to request for comment for this story.

Devon Energy is in the process of selling more than 200,000 acres in the Utica after drilling a series of what a company spokesman described as "disappointing" wells in what it expected to be oil-producing acreage. Chesapeake Energy, which did not immediately respond to calls for comment, has also sold off a portion of its more than 1 million acres there.

"The little I have seen from the Utica shows it has been a bit disappointing given the expectations," said Phil Weiss, an analyst with Argus Research who covers companies drilling there. "Given that the amount of information is relatively sparse, people will be paying attention."

PEAK RATE, SHAKE AND BAKE

Meanwhile, smaller companies such as Gulfport, Rex Energy and Magnum Hunter Resources, with a proportionately bigger stake in the Utica, have more to lose if the play turns out to be a dud.

Rex Energy and Magnum Hunter did not immediately respond to requests for comment.

Of the smaller companies, Gulfport's share price has shown the most remarkable rise since the first half of last year and the company in many ways encapsulates both the hype about the Utica and the difficulty in deciphering its true potential. (Share price graphic:)

Since June, 2012, when it announced it had drilled its first three Utica wells, Gulfport's share price has risen 156 percent, from below $17 to more than $43 on March 18, as the company began reporting initial flow rates from the new wells.

But as the April deadline for reporting well production looms, experts will be watching closely for whether Gulfport's preliminary data holds up to further scrutiny.

"Ultimately, the production and estimated ultimate recovery of our wells and those of our peers will provide definitive answers," said Paul Heerwagen, Gulfport's director of investor relations.

The company, which owns 128,000 net acres in the Utica, published impressive "peak rates" of gas and condensates from its Utica wells, a measurement of initial flows taken over a limited time period, usually no longer than 24 hours. A peak rate is typically much higher than eventual longer term output that declines over time.

"The peak rate is more a bragging type thing," said Randall Collum, a natural gas production analyst at data provider Genscape. "It is nice to know and gives some indication of potential production, but I would rather get a longer term outlook."

During a quarterly conference call with analysts on Feb 27, Gulfport chief executive James Palm revealed longer term rates for two wells, which had fallen off significantly from the first flows.

Natural gas output from the Wagner 1-28H well fell from a peak rate of 17.1 million cubic feet per day reported on August 7 to an average of 5.2 million cubic feet per day after 129 days of production. Output of gas condensates fell from 432 barrels per day to 94 bpd.

Decline rates are normal, and Gulfport executives said on Feb. 27 that output from the Wagner well has increased slightly since the end of the year.

Gulfport is not alone in reporting peak rates. Rex Energy chief executive Tom Stabley said he was "very excited" about output from three new Utica wells in a statement on March 18 that disclosed 24-hour test rates for the wells.

But the speed of the declines in the Gulfport wells, and the scarcity of longer term data, makes it hard for investors to judge whether it will be a good long-term investment.

"The first four months show that the peak rate was not over-representative of what could ultimately be recovered from the well," said Morningstar's Hanson.

Further muddying the water is a new technique known in the industry as 'shake and bake' or 'resting', where a well is plugged for a number of days or months after drilling to increase pressure in the well. Shake and bake, an unproven method that companies hope might improve recovery from a well over its lifetime, can increase initial flows by raising pressure, said Gulfport's Heerwagen, though it is not yet clear if it increases flows long term.

So far, more than 500 well permits have been issued in the Utica since 2011, many of which are expected to begin producing as new pipelines and processing plants are built to connect wells to markets as early as this spring.

As more wells are drilled, more information will be made available - but not for a while. The data on wells drilled in 2013 will remain largely unknown until April 2014.

Source: http://www.investingdaily.com/16360/the-coming-natural-gas-explosion

 

The Coming Natural Gas Explosion

by Igor Greenwald on March 25, 2013

in Energy Stocks, Natural Gas Stocks

At  a big energy industry conference in Houston earlier this month, an  industry executive turned around in an elevator and addressed a reporter  from Platts, the energy publisher.

“Today  was crazy crowded,” he said. “And I thought this was Gas Day. I didn’t  think people were interested any more. Guess it’s back.”

The reporter, blogging after the fact, wholeheartedly agreed, writing that the conference “was all about gas…because (it’s) so cheap.”

Yet,  as the same reporter pointed out, no one at the same venue wanted to  talk gas a year ago when it was being sold, often at a loss, at barely  half the current futures price of $3.92 per million British thermal  units (MMBtu).

gas futures chart
So  perhaps it’s not so much that natural gas is still cheap as the fact  that its price has nearly doubled in less than a year from the crash  levels brought about by the rapid increases in production. It’s also about the fact that natural gas would have to  appreciate another 25 to 35 percent to reach its long-run historical  average of $5 to $6 per MMBtu, and the fact that it could do sooner  rather than later.

At  first glance, this might seem like a pipe dream given the burgeoning  discovery and production of natural gas from rock shale formations using  advanced extraction technologies like hydraulic fracturing and  horizontal drilling. Last year, US natural gas output increased 5  percent largely as a result of shale drilling, outpacing the 4 percent  increase in gas consumption. That was on top of the 7 percent production  increase in 2011.

But  monthly totals reveal that much of the production gain took place in  the early months of 2012, with the output leveling off thereafter. Why?  Because low prices dramatically reduced drilling activity, but also  because of a significant decline of output from the Haynesville Shale  formation around the nexus of Louisiana, Arkansas and Texas. After flooding the  market with progressively cheaper gas in 2010 and 2011, the Haynesville  has seen monthly output decline by 14 percent between the peak in  November 2011 and February 2013.

Haynesville production chart

Source: Labyrinth Consulting (Berman & Pittinger)

That’s  only natural given the fast depletion rates of shale wells, though the  widespread drilling of them is so recent and the geology so debatable,  than the exact speed varies greatly with location and remains the subject of  heated disputes.

For instance, Houston geologists Arthur Berman and Lynn Pittinger argue that the Haynesville is declining faster than anticipated, reserves  remain overstated and that in general shale gas drilling is uneconomical  over the lifespan of the wells at prices below $7 per MMBtu.

The US Energy Information Administration (EIA), on the other hand, foresees shale gas output increasing steadily for decades and trapping prices  below $4 per MMBtu (in constant 2011 dollars) for the next five years.

But  the EIA also knows that, alongside Haynesville’s decline, production  from the Barnett Shale west of Dallas also began slipping slowly but  steadily late last year after a decade of exploitation. That leaves the  rapidly multiplying Marcellus Shale wells in Pennsylvania and West  Virginia to pick up the slack and drive growth. By 2009, the  Marcellus accounted for more than half of the undeveloped technically  recoverable gas reserves in known US shale plays, according to the EIA.

Marcellus  wells may decline less rapidly than those in the  Haynesville or the  Barnett but decline they will, and there is controversy over the extent  to which the strong recent production in the known “sweet spots” of the  Marcellus can be extrapolated to the rest of the formation.

shale depletion curves

Source: Energy Information Administration

So while the EIA’s long-range forecasts foresee a continued gas shale bounty, in the nearer term the agency expects no growth in overall US gas output this year or next, matched by similarly stagnant consumption.

I  doubt gas supply, demand and prices can really mark time for so long:  this market is subject to supply disruptions, economic booms and busts  and the vagaries of trader psychology. In the meantime pipelines  currently under construction will send growing volumes of US gas to  Mexico, the capacity to export liquefied natural gas will have gone up  and the modest use of natural gas as transportation fuel will keep  increasing.

There  are other shales out there that have been barely tapped, like the Utica  in Ohio and the New York part of the Marcellus, the latter off limits  to drillers for at least another two years. But the long-term  capacity of these formations to meet US gas needs remains in  question and almost certainly will require higher natural gas prices to  be fully tested. Meanwhile, the EIA optimistically projects that 5  percent of US gas production will be exported by 2035. We’ll see.

shale gas output chart

In  the near term, if the economy continues to improve, interest rates can  be expected to rise and with them the cost of financing new shale wells  and exploration. Berman and Pittinger estimate that the top 34 publicly  traded gas producers face a capital spending bill of $22 billion per  quarter to offset well declines, against aggregate quarterly cash flow  of $12 billion in 2010. If their math is anywhere close to right, the  price of natural gas will need to rise to cover the higher future  borrowing costs.

So  it’s possible, and maybe even necessary to be a bull on natural gas  while staying skeptical about the shares of natural gas producers,  especially those facing well productivity declines in mature formations.  For some of them, the higher natural gas prices will have come too  late. Whereas for many consumers of the fuel they might come much too  early.

Source: http://www.hardassetsinvestor.com/features/4643-chart-of-the-week-m...

Written by Sumit Roy  |
March 25, 2013

Chart Of The Week: Marcellus Fuels 69% Jump In Pennsylvania NatGas ...


Natgas output in Pennsylvania skyrocketed in 2012.

 

Annual NatGas well starts/prod. in Penn.

 

Though the number of wells drilled fell by nearly a third, natural gas production in Pennsylvania jumped a whopping 69 percent in 2012, according to the Energy Information Administration. Output in the state rose from 3.6 bcf/d to 6.1 bcf/d. The EIA said that improved drilling and well completion techniques led to higher production per well.  The administration also cited a large backlog of wells that had accumulated in recent years due to a lack of infrastructure. As additional infrastructure came online in 2012, those wells were completed, boosting output.

Going forward, Pennsylvania production should continue to increase, led by the giant Marcellus shale. The Marcellus is considered one of the lowest-cost, if not the lowest-cost, play in the country. Analysts at Societe Generale estimate that drilling in the Marcellus is profitable as long as natural gas prices remain above $1.90/mmbtu.

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