A recent well explosion in Pennsylvania which blew contaminated gas and water 75 ft in the air has renewed awareness, and in some cases anxiety, over the highly productive yet controversial natural gas drilling technique known as hydraulic fracturing, or “fracking.”
Conventional gas drilling processes use approximately 80,000 gallons of water per well. However, the new method of horizontal drilling combined with “fracking” uses millions of gallons of water that has been laced with a cocktail of sometimes toxic chemicals. These new techniques have opened up gas resources in many previously inaccessible areas, and dramatically increased U.S. natural gas production.
However, environmental pollution concerns have steadily increased in New York, Pennsylvania, Ohio, and West Virginia, across which spans the giant Marcellus Shale formation. New York has already limited drilling in certain areas because of fears of possible groundwater contamination in watershed regions. It is likely that similar regulations will soon be put in place to ensure protection of the environment as fracking drilling expands.
BEIJING, May 27 (UPI) — China and the United States signed eight green energy deals Wednesday in Beijing but financial details were not disclosed, Chinese media reported.
The deals, designed to increase cooperation in the sector, cover areas such as aviation biofuel, distributed energy systems using natural gas as fuel, smart meters and cellulosic ethanol, the China Daily reported. A number of Chinese and U.S. companies would be involved in the eight deals.
The report quoted analysts that the agreements between the world’s two largest energy users would encourage global collaboration in increasing energy efficiency and protecting the environment.
The agreements came at the conclusion of the two-day China-U.S. Strategic and Economic Dialogues in Beijing.
Zhang Guobo, head of the National Energy Administration, also noted bilateral collaboration in renewable energy development, adding: “The United States has advanced technology, and China has a huge market,” the China Daily reported.
U.S. Ambassador to China Jon Huntsman was quoted as saying the two countries will “take every angle” to ensure their cooperation in energy and environment.
Zhang said renewable energy development is important for China to achieve goals of increasing the use of non-fossil energy to 15 percent of primary energy use by 2020, and reducing carbon intensity by 40 percent to 45 percent in 2020 from 2005 levels, China Daily reported.
He said China will continue to focus on the development of hydro, wind, solar, and biomass energy in the renewable sector.
U.S. Senators John Kerry and Joseph Liberman have unveiled a much anticipated climate bill as a counteroffer to the version passed nearly a year ago by the House of Representatives, calling it the “American Power Act.”
The bill’s main goal is to reduce U.S. carbon dioxide emissions; aiming for a reduction of 17% by 2020 and over 80% by 2050. These reductions would be achived by imposing new emission limits on factories, utilities and transportation vehicles, which in aggregate emit nearly 6.4 billion metric tons of pollution every year – a level second only to China. A regulated market for the trade of pollution credits is included in the legislation, as are tax and loan incentives to expand domestic nuclear power plant construction.
In response to the Gulf of Mexico oil spill catastrophe, the proposed expansion of offshore drilling now includes protection measures for states who do not want offshore rigs off their coasts. Concessions to the oil, coal and gas industries have been included in the hopes of drumming up support for the bill, which the Obama administration sees as essential to establishing a comprehensive energy policy in the United States. However, it appears unlikely that debate upon this legislation will commence this year.
To satisfy its booming energy and resources needs, India is stepping up investments in foreign oil and resources assets. The International Petroleum Company of India (ONGC) has already acquired offshore oil and natural gas resources in Myanmar, Russia, and Vietnam. Just like fellow developing nation China, which has put billions of dollars into overseas resources, India is looking to acquire additional assets.
ONGC’s Chairman R.S. Sharma is reportedly petitioning the federal government to establish a sovereign wealth investment fund to continue making these investments, as India is heavily reliant on imported oil. In fact, the relationship between India and Saudi Arabia has developed so much recently that the Saudis have committed to doubling crude oil shipments to India.
M&A activity in the global energy sector reached $150 billion in 2009 as corporate plays reached levels not seen since 2006, according to a new report from Wood Mackenzie.
“Unconventionals” and national oil companies were the major trends in the sector last year, the latter accounting for 17% of M&A spending during 2009. ExxonMobil’s $41 billion takeover of natural gas company XTO and Suncor’s buyout of PetroCanada for $18 billion were two of the most notable deals.
The chart below from Wood and Mackenzie depicts the growth rate after inclusion of foreign mergers and acquisitions by NOCs:
Voicing concerns over the potentially dangerous effects of shale gas drilling on the city’s water resources, New York City is pushing the State to ban drilling in the segment of the massive Marcellus Shale formation that makes up the city’s watershed.
The Marcellus Shale formation, the largest in the nation, extends over much of Pennsylvania and New York State. According to geologic estimates, the Marcellus formation could satisfy American demand for natural gas for over a decade.
Earlier this year, New York State proposed new rules to allow drilling via a new process called hydraulic fracturing, or “fracking.” Fracking uses a mixture of water, sand and chemicals to blast through shale rock to release trapped gas that could otherwise not be obtained. ”Fracking” has come under a barrage of criticism recently by those who claim the process leaks poisonous chemical residue into groundwater.
New York City’s opposition to the practice may give more weight to the “Frack Act” legislation reportedly being considered by the federal government. The legislation would require drilling companies to disclose the chemicals used when drilling, and could have implications for some of the largest energy companies in the nation, such as Halliburton and Exxon Mobil.
Exxon Mobil completed a $41 billion deal to purchase Houston-based XTO Energy, an independent natural gas producer, sending reverberations throughout the industry that a new M & A wave is approaching.
The addition of XTO’s resource base will add the equivalent of 45 trillion cubic feet (tcf) of gas, including shale gas, tight gas, coal bed methane and shale oil. New horizontal drilling and “fracking” techniques have contributed to boom in U.S. gas supply, yet kept prices low.
Exxon’s move shows strong support for the natural gas sector, which analysts say may experience a bump as demand responds to political pressure and moves away from high-emitting fuels like coal and oil.
Production has now hit over one million barrels of oil at the Parque das Conchas fields 120 kilometres off the coast of Brazil, where ultra-deep water and a constant swell makes for tough operating conditions.
A series of technology firsts unlocked major new resources beneath water nearly two kilometres deep. Huge technical challenges had to be overcome to bring the fields to production. Remote-controlled submarines operating in massive pressures on the ice-cold sea floor installed the equipment needed to produce the oil from deep beneath the seabed.
A vast network of wells and pipelines connect reservoirs scattered up to 20 kilometres apart. In a double technical first, oil and gas are separated on the seabed before powerful electric pumps push the oil upwards from the low-pressure reservoirs to a specially converted production vessel on the surface that stores it for shipping to shore.
And kilometres-long umbilical cables stretching out from the vessel channel continuous power and chemicals – vital to prevent frozen solids forming in the oil – to the production machinery far below.
As long-term energy demand soars, accessing hard-to-reach resources such as those at Parque das Conchas will be increasingly vital. To develop the fields economically, the reservoirs of Parque das Conchas were connected through a single production process centred on the converted vessel.
Production from the fields – currently ramping up – is the latest step in Shell’s strategy of delivering an additional 1 million barrels per day of oil and gas production in the coming years.
At the heart of the Parque das Conchas project – formerly known as BC-10 – is a floating production, storage and offloading vessel (FPSO) with the capacity to produce up to 100,000 barrels of oil and 50 million cubic feet of natural gas a day. Shell is the operator with a 50% share with partners Petroleo Brasileiro (Petrobras) holding 35% and India’s ONGC Campos Ltda. 15%.
‘Oil and gas will continue to play a major part in meeting the world’s growing energy demands, and bringing Parque das Conchas production on-stream marks an important milestone for oil production in the region,’ says Shell Upstream Americas Director Marvin Odum. ‘This also reinforces Shell’s presence in the country with a project that has created jobs and encouraged investments.’
Pumping up the oil
To combat the low pressure in the reservoirs, Shell installed 1,500-horsepower electric submersible pumps on the seabed. Each pump uses the thrust of a Formula 1 car engine to drive the oil to the surface. The oil travels through specially-developed steel pipes that are flexible enough to move with the ocean’s persistent swell.
Production comes from the Abalone, Ostra and Argonauta B-West fields lying at depths of between 950 to 2,500 metres below the seabed, south-east of the city of Vitória. Some 5,000 men and women worked together to overcome huge technical challenges to make Parque das Conchas a reality. The first phase of the project now on-stream involves nine producing wells. A second phase currently in planning will focus on the Argonauta O North field.
The pressure of water on the seabed is about 180 bar (2,600 pounds per square inch) – 180 times the average pressure at sea level – and too much for a human diver to bear. Temperatures are near-freezing and the sun’s rays cannot penetrate. Remotely operated submarines steered by crews at sea level installed the pumps, well-head machinery and other equipment piece by piece.
Adding to the challenges, the resources lie in small to medium-sized reservoirs under a seabed terrain made unstable by shifting sands. To prevent sand, mud and shale from falling back into the well while drilling, Shell pumped in a mix of synthetic oil with additives under high pressure to hold the hole open. And the geological make-up of each reservoir varies, with the density of oil ranging from very heavy in the Ostra field to light in Abalone.
Some of the oil at Parque das Conchas has a high gas content. To prevent this gas from entering the pumps and damaging them, Shell installed machines to separate the oil from gas on the seabed, rather than on a surface platform or onshore. Instead of burning this gas off, it is being pumped back into the Ostra field for storage until construction of a gas export pipeline system is complete.
Round-the-clock operations
The oil is pumped up to an FPSO because of the remote location of the fields, far from any pipelines, The vessel – a converted tanker – can store nearly 1.5 million barrels of oil for shipment to shore, enough to fill over 600 million soft drink cans. Laid end-to-end, the cans would circle the world twice. From there, tankers take it to markets.
In a further technical breakthrough, Shell developed huge steel umbilical cables to connect the FPSO to the seabed equipment in each of the reservoirs over a 270-square kilometre area. The electrical and hydraulic power they supply, along with the anti-freeze chemicals, is vital to keep operations running around the clock.
‘Developing breakthrough technologies and being successful in Parque das Conchas will allow the development of other deep-water projects in Brazil and elsewhere,’ says Steven Grant, Subsea Team Lead of the project at Shell Brasil.
According to a preliminary draft of the World Energy Outlook, the influential annual report published by the International Energy Agency (IEA), implementing policies which limit the emissions of carbon dioxide and other greenhouse gas will result in decreased global demand for natural gas.
Any global climate treaty reached at Copenhagen will most likely include provisions to expand energy efficiency programs and spur development of renewable energy technologies like wind and solar. As these alternative energy sources grow, natural gas demand may drop 5% by 2015, and 17% by 2030 compared with a “business as usual” scenario where nothing changes.
These shifting natural gas demand levels may have an interesting effect on geopolitics. Assuming natural gas demand falls, the IEA says the United States is likely to become more self-sufficient in the resource, while Europe’s dependenc on natural gas imports from Russia, long a point of tension for the European Union, will lessen.
New Study Puts Price Tag on Pollution Externalities
The “hidden costs” associated with energy production in the United States are much more significant than anyone realizes, says a new report from the National Research Council (NRC). Applying a price tag to the far-reaching side effects of energy production, such as the effect of air pollution from dirty power plants on human health, the NRC estimates that energy production cost us $120 billion in 2005. The true figure is likely a lot higher, as the report did not include environmental damage as a result of climate change, threats to national security or the effects of certain pollutants such as mercury.
If these externalities were included into the baseline price of the energy sources we rely upon, like coal or oil, the market price would increase dramatically. Because of this, many consumers and governments “may not realize the full impact of their choices.” When “market failures” like this occur, the report deems that “a case can be made for government interventions – such as regulations, taxes or tradable permits – to address these external costs.”
Coal plants are the “single largest source of greenhouse gas emissions in the United States” and supply the nation with approximately half its electricity needs. According to the NRC, total annual external damages from coal amounted to $62 billion. These damages would add on average about 3.2 cents for every kilowatt-hour (kwH) of coal- produced energy. The external costs from natural gas-burning plants were lower than coal-burning ones. This resource resulted in $740 million in total annual external damages in 2005, which would amount to a 0.16 cent increase per kwh. The life cycle damages of wind power are markedly lower than either coal or natural gas, as are nuclear power plants, concluded the NRC report.
Oil demand in industrialized nations likely reached its peak in 2005, according to research from IHS Cambridge Energy Research Associates (CERA). Demand has dropped since then, and CERA analysts doubt it will ever get back there again. Demand for oil began to fall in the developed world years before the global financial collapse. In fact, outside of the transportation sector, CERA data shows oil demand has been roughly flat since 1980. Population growth in developed nations has remained stagnant, and levels of vehicle ownership in these markets will soon hit their saturation point. Taken together, these factors will decrease the demand for oil from the transportation sector in the years ahead. The addition of hybrid and electric vehicles into the global auto marketplace will amplify this trend. CERA expects demand to decline gradually until 2030, and by no means implies the “oil age” in developed nations will come to an abrupt end. Rather, it predicts that as demand for oil weans, demand for natural gas will continue to grow. Natural gas supplies have jumped thanks to high production from the U.S., and new policy initiatives that support cleaner burning fuels will also help the industry to grow.
Russian-based Gazrpom is the largest producer of natural gas in the world and operates a vast pipeline network in Russia and Europe. With control of 17% of the planet’s natural gas reserves, Gazprom exports gas to over 30 countries worldwide and provides approximately 25% of total European demand. A new trading office in Houston, TX, signals that Gazprom is now expanding into a market previously deemed out of reach – the United States. Gazprom has begun trading liquefied natural gas (LNG) contracts and hopes to grab 5% of the U.S. market within the next five years. LNG can be shipped worldwide, and unlike conventional natural gas resources, it is not limited by span of regional pipeline networks. “LNG is a strategic way for Gazprom to get into markets that it can’t access by pipeline,” says John Hattenberger, president of Gazprom Marketing & Trading USA. “It makes a lot of sense for the world’s largest gas company to bring gas to the world’s largest gas market and it has to be done through LNG.” Gazprom’s move may have come at an opportune moment, as global demand for LNG is expected to double by 2020.
Despite Recent Price Gains, Analysts Wary of Continued Over-Supply
Natural gas prices have made positive strides recently, but many analyses emerging from influential banks and consultants are predicting a bearish future for the commodity. Credit Suisse, for example, reduced both its 2009 and 2010 price forecasts in light of continued over-supply in the United States. Despite the sluggish demand, natural gas producers are still pumping, the bank says, and U.S. output has fallen just 1.6% from its February peak. Energy consultants Wood Mackenzie agree, saying the “sudden arrival of lots of U.S. domestic gas” combined with the “demand destruction everywhere” has caused a “fundamental shift” in the global gas industry. The group believes the results of this short term over-supply will be felt further down the road. By 2015, Wood Mackenzie predicts annual demand for natural gas will be 200 billion cubic meters (bcm) below pre-economic crisis demand levels.
Oil Production in Decline, Natural Gas Reserves Remain Consistent
As Norway’s oil production falls, the nation is increasing its reliance on its steady natural gas reserves. Norway’s oil production – which supports most of its economy – is widely believed to have “peaked” in 2003. Even though Norway is still the second largest exporter of oil in Europe, over the past decade its daily production has decreased from 3.3 million barrels per day (mbpd) in 2000, to 2.2 mbpd in 2008, down to only 1.91 mbpd this year. In 2010, production is expected to sink lower, declining to 1.62 mbpd. Fortunately, Norway also possesses substantial natural gas reserves, enough to sustain current drilling rates for the next 28 years. Countries such as Mexico, Egypt, Denmark and Vietnam are also facing similar situations regarding their national oil and gas resources. In recent years, all of these nations have boosted their natural gas production to counteract the effects of declining oil production. Mexico’s giant Cantrell oil field once yielded 2.1 mbpd in 2005, but production has since contracted to only 500,000 bpd. On the other hand, Mexican natural gas production has jumped from 1,523 billion cubic feet (bcf) in 2004 to 1,842 bcf in 2008.
Sharp Increase in Britain’s Reliance on Foreign Imports
According to figures from the National Grid, Britain will reply on foreign natural gas imports to supply 50% of its winter heating gas supplies this year– the highest amount in history. Until only a few years ago, Britain was a net exporter of gas, but production from its aging fields has not keep up with growth in domestic energy demand. In 2004, Britain required foreign gas imports for the first time. That year, 5% of natural gas needs were met with imports. In 2007, that number jumped to 27%, and this year’s figure is almost double that. Britain’s natural gas imports come mainly from countries such as Norway, Qatar, Trinidad and Algeria. National Grid’s annual Winter Outlook reports that fuel production in the North Sea will likely fall 6% below last year’s levels, and will likely lead to even more imports as time goes on. “On the current trajectory we will have to import three quarters of our gas by 2015,” said a spokesman for Centrica, which owns British Gas. Britain relies on natural gas for electricity generation as well as heating purposes. Today, approximately 35% of electricity in the UK is generated from natural gas-fired plants, compared to less than 5% in 1990. Energy analysts warn that growing reliance on imports may increase volatility in UK gas prices, leading to higher costs for end consumers.
The government of Gujarat is supporting a $10 billion solar power project that would catapult the Indian state to the top of the world’s stage. The Gujarat government is setting aside an area of 58 sq. miles for the solar thermal plants, which will be obtained with help from the Clinton Climate Initiative, a part of the William J. Climate Foundation. Officials say the project could be completed within the next five to seven years, and will also incorporate hybrid plants using solar and natural gas to help generate power and keep costs down. “When there is sunshine we’ll generate using solar and when the sun is not shining we’ll generate using natural gas,” said Mr. S. Jagadeesan, Principal Secretary of the State Energy Department. When it is fully operational, the plant will be capable of generating 3,000+ MW of energy, and will help to reduce the equivalent of 5.2 million tons of greenhouse gas emissions per year.
Chevron Invests $40 Billion in Gorgon Natural Gas Project
Chevron has partnered with Exxon Mobil and Royal Dutch Shell to develop a massive liquefied natural gas project off the northwest coast of Australia. Plagued by delays and controversies, developers have finally been given the go-ahead to extract the 40 trillion cubic feet (tcf) of natural gas believed to be held in the Gorgon formation. Final costs for the project are projected to reach above $37 billion, and the project will likely employ upwards of 10,000 people. Chevron chief Dave O’Reilly sees natural gas as an essential investment as the world moves towards cleaner burning fuel sources and Asian markets continue to grow. The gas contained in Gorgon and the surrounding fields is equivalent to 6.7 billion barrels of oil, and is “strategically well positioned” for easy shipping to fuel-hungry nations like China and India, O’Reilly noted.
U.S. Senators John Kerry and Joseph Liberman have unveiled a much anticipated climate bill as a counteroffer to the version passed nearly a year ago by the House of Representatives, calling it the “American Power Act.”
According to a preliminary draft of the World Energy Outlook, the influential annual report published by the International Energy Agency (IEA), implementing policies which limit the emissions of carbon dioxide and other greenhouse gas will result in decreased global demand for natural gas.