Oil and gas journal volume 108, issue 49

International Petroleum News and Technology NEWSLETTER 25 STATISTICS | www.ogj.com Dec 27, 2010 10 LETTERS / CALENDAR 12 JOURNALLY SPEAKING 14 EDITORIAL 28 MARKETPLACE 30 EDITOR’S PERSPECTIVE / MARKET JOURNAL | Volume 108.49 24 EQUIPMENT 24 ADVERTISERS’ INDEX GENERAL INTEREST 16 Two accidents increase pipeline safety awareness Nick Snow Pipeline accidents in Michigan and San Bruno, Calif., raised public awareness about pipeline safety issues that companies and regulators already were trying to address 20 Chevron suspends pipeline use in Nigeria as ExxonMobil, Shell resume operations Eric Watkins 21 Chevron claims forged signatures in Ecuador lawsuit Eric Watkins 18 Government sues to recover costs from Macondo blowout, spill 21 WATCHING THE WORLD Pipeline diplomacy in Asia Nick Snow The US Department of Justice and Environmental Protection Agency jointly sued to recover damages from the Apr 20 Macondo well accident, which claimed 11 lives, and subsequent crude oil spill into the Gulf of Mexico 18 Court refuses to block EPA’s GHG regulation Nick Snow 22 Flow rate tops 10,000 b/d at Llanos discovery 22 EXPLORATION/DEVELOPMENT BRIEFS CLICK TO VIEW VIDEO Visit our video library www.ogj.com/index/video.html 19 FGE-FACTS: Chinese, India expand refining capacities 19 WATCHING GOVERNMENT Bromwich isn’t done 101227ogj_1 12/22/10 10:40 AM T W O C O M P R E S S O R B O D I E S I N S T E A D O F T H R E E Elliott has the answer One supplier’s bid required three sales gas compressors for a new gas separation plant Elliott’s answer needed only two, resulting in major savings in capital costs, installation, and operating and maintenance expenses All of Elliott’s equipment in the new plant, including pressure maintenance, low pressure and nitrogen compressors, provide the reliability, availability, and flexibility that oil and gas producers require for uninterrupted operation in even the most challenging environments For 50 years, the oil and gas industry has turned to Elliott for precision engineering, extraordinary reliability, and unparalleled service Any questions? T H L D C O M P R E S S O R S ■ 101227ogj_2 E W O R T U R N S T U R B I N E S T ■ O E L G L O B A L L I O T T S E R V I C E www.elliott-turbo.com 12/20/10 4:40 PM ADVERTISING SALES Houston U.S Sales Manager, Marlene Breedlove; Tel: (713) 9636293, E-mail: marleneb@pennwell.com Regional Sales Manager, Mike Moss; Tel: (713) 963-6221, E-mail: mikem@pennwell.com PennWell - Houston, 1455 West Loop South, Suite 400, Houston, TX 77027 Fax: (713) 963-6228 South / Southwest / Texas / Northwest / Midwest / Alaska Marlene Breedlove, 1455 West Loop South, Suite 400, Houston, TX 77027; Tel: (713) 963-6293, Fax: (713) 963-6228; E-mail: marleneb@pennwell.com PennWell, Houston office 1455 West Loop South, Suite 400, Houston, TX 77027 Telephone 713.621.9720 / Fax 713.963.6285 Web site: www.ogj.com Editor Chief Editor-Exploration Chief Technology Editor-LNG/Gas Processing Production Editor Pipeline Editor Senior Editor-Economics Senior Editor Northeast / Texas / Southwest Mike Moss, 1455 West Loop South, Suite 400, Houston, TX 77027; 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Kimie Takemura, Email: takemurakimie@ics-inc.co.jp; Manami Konishi, E-mail: konishimanami@ics-inc.co.jp; Masaki Mori, E-mail: masaki mori@ics-inc.co.jp Brazil Grupo Expetro/Smartpetro, Att: Jean-Paul Prates and Bernardo Grunewald, Directors, Ave Erasmo Braga 22710th and 11th floors Rio de Janeiro RJ 20024-900 Brazil; Tel: 55.21.3084.5384, Fax: 55.21.2533.4593; E-mail: jpprates@pennwell.com.br and bernardo@ pennwell.com.br Singapore / Australia / Asia-Pacific Michael Yee, 19 Tanglin Road #05-20, Tanglin Shopping Center, Singapore 247909, Republic of Singapore; Tel: 65 9616.8080, Fax: 65.6734.0655; E-mail: yfyee@singnet com.sg India Rajan Sharma, Interads Limited, 2, Padmini Enclave, Hauz Khas, New Delhi-110 016, India; Tel: +91.11 6283018/19, Fax: +91.11.6228 928; E-mail: rajan@ interadsindia.com Italy Ferruccio Silvera, Viale Monza, 24 20127 MILANO Italy; Tel:+02.28.46 716; E-mail: info@silvera.it 101227ogj_3 Senior Writer Senior Staff Writer Survey Editor/News Writer Publisher Vice-President/Group Publishing Director Vice-President/Custom Publishing Bob Tippee, bobt@ogjonline.com Alan Petzet, alanp@ogjonline.com Warren R True, warrent@ogjonline.com Guntis Moritis, guntism@ogjonline.com Christopher E Smith, chriss@ogjonline.com Marilyn Radler, marilynr@ogjonline.com Steven Poruban, stevenp@ogjonline.com Sam Fletcher, samf@ogjonline.com Paula Dittrick, paulad@ogjonline.com Leena Koottungal, lkoottungal@ogjonline.com Jim Klingele, jimk@pennwell.com Paul Westervelt, pwestervelt@pennwell.com Roy Markum, roym@pennwell.com PennWell, Tulsa office 1421 S Sheridan Rd., Tulsa, OK 74112 PO Box 1260, Tulsa, OK 74101 Telephone 918.835.3161 / Fax 918.832.9290 Presentation/Equipment Editor Associate Presentation Editor Statistics Editor Illustrators Editorial Assistant Production Director Production Manager Jim Stilwell, jims@pennwell.com Michelle Gourd, michelleg@pennwell.com Laura Bell, laurab@ogjonline.com Mike Reeder, Kay Wayne Donna Barnett, donnab@ogjonline.com Charlie Cole Shirley Gamboa Washington Tel 703.533.1552 Washington Editor Nick Snow, nicks@pennwell.com Los Angeles Tel 310.595.5657 Oil Diplomacy Editor Eric Watkins, hippalus@yahoo.com OGJ News Please submit press releases via e-mail to: news@ogjonline.com Subscriber Service P.O Box 2002, Tulsa OK 74101 Tel 1.800.633.1656 / 918.831.9423 / Fax 918.831.9482 E-mail ogjsub@pennwell.com Audience Development Manager Tommie Grigg, tommieg@pennwell.com PennWell Corporate Headquarters 1421 S Sheridan Rd., Tulsa, OK 74112 Chairman President/Chief Executive Officer P.C Lauinger, 1900-1988 Frank T Lauinger Robert F Biolchini Member Audit Bureau of Circulations & American Business Media Copyright 2010 by PennWell Corporation (Registered in U.S Patent & Trademark Office) All rights reserved Oil & Gas Journal or any part thereof may not be reproduced, stored in a retrieval system, or transcribed in any form or by any means, electronic or mechanical, including photocopying and recording, without the prior written permission of the Editor Permission, however, is granted for employees of corporations licensed under the Annual Authorization Service offered by the Copyright Clearance Center Inc (CCC), 222 Rosewood Drive, Danvers, Mass 01923, or by calling CCC’s Customer Relations Department at 978-750-8400 prior to copying Requests for bulk orders should be addressed to the Editor Oil & Gas Journal (ISSN 0030-1388) is published 12x per year - monthly the first Monday of each month in print and other Mondays in digital form by PennWell Corporation, 1421 S Sheridan Rd., Tulsa, Okla., Box 1260, 74101 Periodicals postage paid at Tulsa, Okla., and at additional mailing offices Oil & Gas Journal and OGJ are registered trademarks of PennWell Corporation POSTMASTER: send address changes, letters about subscription service, or subscription orders to P.O Box 3497, Northbrook, IL 60065, or telephone (800) 633-1656 Change of address notices should be sent promptly with old as well as new address and with ZIP code or postal zone Allow 30 days for change of address Oil & Gas Journal is available for electronic retrieval on Oil & Gas Journal Online (www.ogj.com) or the NEXIS® Service, Box 933, Dayton, Ohio 45401, (937) 865-6800 SUBSCRIPTION RATES in the US: yr $89; 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Versions: Current, 1985 to Current Oil Sands Projects: Survey of Canadian oil sands projects includes major production projects, mining upgrading projects, in situ projects, reserve estimates, and historical tables of wells drilled FOR MORE INFORMATION OR TO ORDER VISIT: www.PennEnergyResearch.com EMAIL: orcinfo@pennwell.com PHONE: 1.800.345.4618 // 1.918.832.9267 Follow Us On: www.PennEnergyResearch.com 101227ogj_4 12/20/10 4:40 PM OGJ Newsletter Dec 27, 2010 International News for oil and gas professionals GENERAL INTEREST Q U IC K TA K E S Producers to see strong cash flows in 2011 North American oil and gas producers can expect another year of “robust” cash flows supported by strong oil prices, stable though depressed gas prices, and modestly improving economic conditions, according to Fitch Ratings The discount of the gas price to the energy-equivalent price of oil will continue, the crediting-rating service said in an annual outlook “Few indicators point to a resurgence in natural gas pricing, which would likely require a sustained improvement in demand combined with an industry-wide reduction in natural gas-focused drilling,” the firm said “While Fitch would anticipate drilling to maintain leases will begin to slow in 2011, current natural gas rig counts far exceed the level required to only maintain existing supply levels.” Other Fitch expectations for 2011: • High merger and acquisition activity • Strong liquidity for companies focused on oil • The possible need for small gas-focused producers to redetermine their borrowing bases • Rising costs • Regulatory uncertainty related to the Gulf of Mexico and to shale drilling • Increased share repurchases and dividends for integrated and large producers Fitch’s base price assumptions for 2011 are $75/bbl for West Texas Intermediate crude and $4/Mcf for Henry Hub gas Its 2012 price projections are $65/bbl for oil and $4.50/Mcf for gas Its long-term price assumptions are $60/bbl and $5.50/Mcf The firm said it raised its oil price assumption modestly to reflect concerns about inflation after the recent monetary easing by the US Federal Reserve Strong demand in China and India also is supporting the crude price Fitch lowered its gas price outlook because of concerns about oversupply and cost-structure improvements related to efficiency gains in most new US shale plays A threat to creditworthiness of the US producing industry—not part of Fitch’s base-case outlook—is a “significant double-dip recession” and consequent reduction in oil demand by China and India Oil & Gas Journal 101227ogj_5 For up-to-the-minute news, visit www.ogjonline.com Cabot, DEP reach accord for Dimock area Cabot Oil & Gas Corp agreed to pay $4.1 million in a settlement with Pennsylvania’s Department of Environmental Protection that will allow the Houston independent producer to resume Susquehanna County well completion operations in early 2011 The Dec 15 agreement and consent order superseded previous orders and modifications It set out specific obligations related to claims by 19 households in the area, including the establishment of escrow accounts for the households Cabot also agreed to pay the Pennsylvania DEP $500,000 to offset the state’s expense of investigating stray gas migration complaints in the area for years, DEP said DEP Secretary John Hanger said each householder will receive twice the value of his or her home, with a minimum $50,000 payment Cabot also said it would install mitigation devices in each house, he said “In addition to the significant monetary component of this settlement, there is a requirement that Cabot continue to work with us to ensure that none of their wells allow gas to migrate,” said Hanger DEP also is dropping its plan to construct a 5.5mile pipeline from the Lake Montrose water treatment plant to the residences after the proposed project encountered significant opposition from local governments and from Cabot, which DEP planned to bill for the project “This agreement provides a reasonable and pragmatic way forward for all parties,” said Dan O Dinges, Cabot’s chairman, chief executive, and president “The common ground we found to settle provides the right balance of regulations, financial payments, timely execution, and operational safeguards that in the end will protect the resources of Pennsylvania.” Dinges said Cabot’s well completion operations in the Dimock-Carter Road area would resume during the first quarter 2011, and new drilling could begin during the second quarter 2011 BOEMRE issues additional drilling guidance The US Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) issued additional deepwater drilling guidance The information contained no new regulatory requirements, but was designed to assist offshore oil and gas producers in complying with recently issued rules, the US De- 12/22/10 10:42 AM IPE BRENT / NYMEX LIGHT SWEET CRUDE $/bbl 92.00 91.00 90.00 89.00 88.00 87.00 86.00 85.00 US INDUSTRY SCOREBOARD — 12/27 wk average Latest week 12/10 Dec 15 Dec 16 Dec 17 Motor gasoline Distillate Jet fuel Residual Other products Dec 15 Dec 16 Dec 17 0.6 3.9 –3.9 –0.8 11.3 3.2 9,102 3,765 1,409 488 4,470 19,234 9,063 3,608 1,403 539 4,236 18,849 0.4 4.4 0.4 –9.5 5.5 2.0 Crude production NGL production2 Crude imports Product imports Other supply2, TOTAL SUPPLY Refining, 1,000 b/d 5,581 2,022 8,553 2,404 2,020 20,580 5,514 2,058 8,315 2,767 1,666 20,320 1.2 –1.7 2.9 –13.1 21.2 1.3 5,494 2,028 9,140 2,561 1,886 21,109 5,310 2,048 9,163 2,762 1,732 21,015 3.5 –1.0 –0.3 –7.3 8.9 0.4 Crude runs to stills Input to crude stills % utilization 14,569 15,111 85.9 13,807 14,334 81.0 5.5 5.4 — 14,584 15,017 85.3 14,336 14,639 82.8 1.7 2.6 — Dec 20 Dec 21 Latest week 12/10 Latest week Previous week1 346,018 214,773 161,305 43,763 39,774 355,872 213,964 160,211 45,749 40,143 –9,854 809 1,094 –1,986 -369 Stock cover (days)4 Dec 15 Dec 16 Dec 17 Dec 20 Dec 21 Same week year ago1 Change Change Change, % Stocks, 1,000 bbl Crude oil Motor gasoline Distillate Jet fuel–kerosine Residual 332,387 217,213 164,363 41,013 36,474 13,631 –2,440 –3,058 2,750 3,300 Change, % Crude Motor gasoline Distillate Propane Futures prices5 12/17 23.8 23.7 43.3 50.4 24.7 23.9 43.0 56.8 88.25 4.20 88.50 4.47 –3.6 –0.8 0.7 –11.3 Change, % 23.9 24.1 45.8 39.9 –0.4 –1.7 –5.5 26.3 Change Light sweet crude ($/bbl) Natural gas, $/MMbtu Change –0.25 –0.27 4.1 –1.1 –1.9 6.7 9.0 71.53 5.09 16.72 –0.89 % 23.4 –17.5 Based on revised figures 2OGJ estimates 3Includes other liquids, refinery processing gain, and unaccounted for crude oil 4Stocks divided by average daily product supplied for the prior weeks 5Weekly average of daily closing futures prices Source: Energy Information Administration, Wall Street Journal Dec 15 Dec 16 Dec 17 Dec 20 Dec 21 PROPANE - MT BELVIEU / BUTANE - MT BELVIEU ¢/gal 172.00 171.00 170.00 BAKER HUGHES INTERNATIONAL RIG COUNT: TOTAL WORLD / TOTAL ONSHORE / TOTAL OFFSHORE 3,900 3,600 3,300 3,000 2,700 2,400 2,100 1,800 1,500 300 3,233 2,891 342 Nov 09 Dec 15 Dec 16 Dec 17 Dec 20 Dec 21 NYMEX GASOLINE (RBOB)2 / NY SPOT GASOLINE3 ¢/gal 242.00 240.00 238.00 236.00 234.00 232.00 230.00 228.00 Change, % Supply, 1,000 b/d IPE GAS OIL / NYMEX HEATING OIL 132.00 131.00 130.00 129.00 YTD avg year ago1 9,003 3,588 1,490 518 4,167 18,766 Dec 20 Dec 21 NYMEX NATURAL GAS / SPOT GAS - HENRY HUB ¢/gal 248.00 246.00 244.00 242.00 240.00 238.00 236.00 234.00 YTD average1 9,054 3,727 1,432 514 4,638 19,365 TOTAL PRODUCT SUPPLIED $/MMbtu 4.20 4.15 4.10 4.05 4.00 3.95 3.90 3.85 Change, % Product supplied, 1,000 b/d WTI CUSHING / BRENT SPOT $/bbl 92.00 91.00 90.00 89.00 88.00 87.00 86.00 85.00 wk avg year ago1 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sept 10 Oct 10 Nov 10 Note: Monthly average count BAKER HUGHES RIG COUNT: US / CANADA 1,709 1,800 1,600 1,400 1,193 1,200 1,000 800 50 68 400 200 Dec 15 1Not Dec 16 2Reformulated Dec 17 Dec 20 Dec 21 available gasoline blendstock for oxygen blending 3Nonoxygenated regular unleaded 101227ogj_6 10/2/09 10/16/09 10/30/09 11/13/09 11/27/09 10/9/09 10/23/09 11/6/09 11/20/09 12/11/09 12/4/09 10/1/10 10/15/10 12/18/09 10/8/10 10/29/10 11/12/10 10/22/10 11/5/10 11/26/10 12/10/10 11/19/10 12/3/10 12/17/10 Note: End of week average count Oil & Gas Journal | Dec 27, 2010 12/22/10 10:42 AM partment of the Interior agency said “As we continue to strengthen oversight and safety and environmental protections, we must ensure that the oil and gas industry has clear direction on what is expected,” BOEMRE Director Michael R Bromwich said on Dec 13 BOEMRE said that the issues addressed in the information document include compliance issues relating to the Drilling Safety Rule (or Interim Final Rule), NTL-6 (including Worst Case Discharge calculations), and NTL-10, as well as further information on BOEMRE’s inspections of blowout preventer testing, oil spill response plans, and environmental assessments for deepwater drilling plans BOEMRE develops programmatic EIS The US Bureau of Ocean Energy Management, Regulation, and Enforcement has begun work to develop the first geological and geophysical programmatic environmental impact statement for areas of the US Outer Continental Shelf off the South and MidAtlantic coasts It said that the PEIS would evaluate environmental effects of seismic surveys and other G&G activities to gather information about potential oil, gas, and renewable energy development on the OCS US Interior Secretary Ken Salazar said seismic surveys along the South and Mid-Atlantic coasts possibly could take place He removed the area from the 5-year OCS program that BOEMRE is developing for the 2012-17 period in response to questions arising from the Apr 20 Macondo well blowout BP PLC operated Macondo The blowout resulted in an explosion and fire on Transocean Ltd.’s Deepwater Horizon semisubmersible and a Gulf of Mexico crude oil spill Industry sources have expressed skepticism to OGJ that any such seismic studies will occur because producers customarily don’t pay for them without firm assurances that they will lead to development of identified resources, and Congress probably would not authorize what would be new funding in a climate emphasizing cutting costs and reducing the federal budget deficit interests in East Kalimantan Coalbed methane from the newly awarded Sanga Sanga CBM production sharing contract, if successful, could be liquefied at Bontang That VICO CBM Ltd joint venture is operated by Eni 50%, and BP PLC owns the other 50% Low-volume New York Marcellus fracs tap gas Montreal independent Gastem obtained gas flows from Utica shale and two members of the Marcellus shale using permitted low-volume frac jobs in a vertical well in Otsego County, NY Gastem ran separate fracs on the Chittenango and Union Springs members of Marcellus at the Ross-1 well Both succeeded, and the company completed the well for 200 Mcfd of gas Current flow is 150 Mcfd after weeks of flow BJ Services ran the fracs Gastem also put a frac on Utica in November 2009 and tested that interval at more than 100 Mcfd The frac involved a fluid volume under the state’s existing Supplemental Generic Environmental Impact Statement guidelines with a maximum volume of 80,000 gal The company said, “The combined economics of the multilayer targets (Utica, Oneida, and Marcellus) will provide development opportunities until the NYSDEC (Department of Environmental Conservation) completes their review process for horizontal shale wells now scheduled for release on June 1, 2011.” Gastem is completing a seismic program on existing leased property and plans to initiate development wells targeting “local gas for local use” in the area by mid-2011 Gastem is operator with 80% working interest in 33,000 acres Eni to operate Poland Baltic basin shale blocks Italy’s Eni SPA said it plans to start drilling for shale gas in the Baltic basin in northeastern Poland in 2011 The company will purchase Minsk Energy Resources and become operator of three licenses totaling 1,967 sq km The exploration commitment is for six wells Eni will apply knowledge and expertise acquired through its North Texas Barnett shale joint venture Poland is Eni’s first venture into unconventional gas in Europe EXPLORATION & DEVELOPMENT Q U IC K TA K E S DRILLING & PRODUCTION Q U IC K TA K E S East Kalimantan find exceeds 1.4 tcf of gas Three wells drilled off Indonesia’s East Kalimantan confirm more than 1.4 tcf of gas in place in Jangkrik field on the Muara Bakau permit, said operator Eni SPA Jangkrik-3, in 416 m of water 70 km off eastern Borneo, went to 2,849 m and encountered more than 60 m of net gas pay in excellent quality reservoir Pliocene sands Further exploration is planned nearby in 2011, Eni said Permit interests are Eni 55% and GDF Suez 45% The joint venture is studying fast-track development through the Bontang LNG plant, where Eni owns spare capacity Eni operates six of the 12 permits in which it has working Oil & Gas Journal | Dec 27, 2010 101227ogj_7 Chevron to spend $4 billion on Big Foot field Chevron Corp plans to spend $4 billion to develop Big Foot oil and gas field in the deepwater Gulf of Mexico Big Foot field lies in 5,200 ft of water about 225 miles south of New Orleans Discovered in 2006, Chevron estimates Big Foot field contains more than 200 million boe of total reserves Chevron plans to use an extended tension-leg platform with an onboard drilling rig and production capacity of 75,000 b/d of oil and 25 MMcfd of natural gas Oil production is scheduled to start in 2014 Primary pay sands are Middle to Upper Miocene Three exploration and ap- 12/22/10 10:42 AM praisal wells with multiple sidetracks have been drilled Chevron USA Inc has a 60% working interest in the Big Foot project Mobile nitrogen rejection unit takes the field EQT Corp., Pittsburgh, has placed in service the world’s first mobile nitrogen rejection unit for nitrogen frac flowback at a Devonian Huron shale well in eastern Kentucky Developed by private IACX Energy, Dallas, the unit covers 158 ft by 38 ft on five trailers at the wellsite and employs nitrogen sponge technology In eastern Kentucky, the lower-pressured Huron shale has responded especially well to nitrogen fracturing treatment, but large volumes must be flowed back and vented until the hydrocarbon gas reaches pipeline quality The clean-up period can last as long as months, depending on reservoir quality Nitrogen frac flow-back applications are especially challenging because of the ever-changing composition of the gas entering the system After a nitrogen frac, the percentage of nitrogen in the gross gas stream follows a steep gradient downward until most or all of the injected nitrogen is blown back The mobile iron sponge units yield 99+% recoveries of C3+ hydrocarbons, which contributes significantly to project economics where natural gas liquids are extracted and sold All of the unit’s processes function at lower volumes and pressures and not utilize chemicals or other environmentally undesirable materials, IACX noted Saudi Aramco to boost Shaybah production Saudi Aramco let contracts worth nearly $500 million to GE Energy for equipment to expand Shaybah field’s oil production and natural gas-processing capacities The expansion is expected to boost crude oil production capacity to million b/d compared with Shaybah’s current capacity of 750,000 b/d Shaybah, in southeastern Saudi Arabia, has undergone various expansions An upgrade completed in June 2009 boosted its crude capacity from 500,000 b/d to its current capacity Aramco also is working to boost its natural gas capacity at Shaybah by building an NGL plant to process 2.4 bscfd of lowsulfur, sweet gas and extract 264,000 b/d of NGLs GE agreed to supply 11 gas turbine-generators, 44 compressors, and motors With the latest contracts, GE has supplied a total of more than 110 GE gas turbines to Saudi Aramco and nearly 100 GE centrifugal compressors PROCESSING Q U IC K TA K E S Enterprise, Chesapeake outline Eagle Ford plans Enterprise Products Partners LP has entered into 10-year agreements to handle a substantial portion of Chesapeake Energy Corp.’s liquids-rich natural gas production in the Eagle Ford shale Chesapeake’s gross acreage position currently includes more 101227ogj_8 than 625,000 acres in and around the oil and NGL-rich areas of the Eagle Ford shale in the South Texas counties of Dimmit, LaSalle, McMullen, Webb, and Zavala The agreements provide Chesapeake with firm commitments for gas transportation, processing, and NGL transportation and fractionation services Chesapeake’s natural gas initially will be gathered, compressed, and moved by Chesapeake Midstream Development LLC for eventual transportation and processing by Enterprise at its existing facilities while a previously announced natural gas processing plant in Texas is completed Enterprise expects the new cryogenic processing facility to be completed early in 2012, at an initial processing capacity of 600 MMcfd and an initial NGL extraction capacity of 75,000 b/d The NGL production from Chesapeake’s gas ultimately will be transported from this processing plant to Enterprise’s previously announced 127-mile NGL pipeline, extending to its NGL fractionation complex in Mont Belvieu, Tex Earlier this month, Enterprise began operations at its fourth NGL fractionator at Mont Belvieu at 75,000 b/d, increasing nameplate capacity at the facility to 305,000 b/d (OGJ Online, Dec 1, 2010) The new NGL pipeline, scheduled for completion in early 2012, will have an initial capacity of more than 85,000 b/d and would be readily expandable to over 120,000 b/d, according to Enterprise Activity in the Eagle Ford Shale continues to increase as 115 rigs working in the play have drilled more than 330 wells completed to date, Enterprise says Enterprise estimated total current production from the play at about 425 MMcfd natural gas and 35,000 b/d crude oil and condensate Oneok to invest in Woodford shale Oneok Partners LP plans to invest $180-240 million by firsthalf 2012 for NGL projects in the Cana-Woodford shale and Granite Wash plays The projects will add 75,000-80,000 b/d of raw, unfractionated NGL to the partnership’s existing gathering systems Oneok’s investment includes: • Building more than 230 miles of 10-in and 12-in OD NGL pipelines that will expand the partnership’s existing gathering system by connecting to three new third-party natural gas processing facilities being constructed with total capacity of 510 MMcfd and to three existing third-party natural gas processing facilities undergoing expansion • Installing additional pump stations on the Arbuckle Pipeline to increase capacity to 240,000 b/d Arbuckle is a 440-mile NGL pipeline running from southern Oklahoma through the Barnett shale of north Texas to the partnership’s fractionation and storage facilities at Mont Belvieu on the Texas Gulf Coast Oneok expects these projects to be completed during firsthalf 2012 The additional raw NGLs from the expanded natural gas processing capacity will be fractionated at either the partnership’s fractionation facilities or by third parties Oneok already announced $1.3-1.6 billion in other projects Oil & Gas Journal | Dec 27, 2010 12/22/10 10:42 AM in 2010, including: • Construction of two 100 MMcfd natural gas processing facilities in the Bakken shale and related infrastructure • Construction of a 525- to 615-mile NGL pipeline to transport unfractionated NGL produced in the Bakken to the Overland Pass Pipeline, a 760-mile NGL pipeline extending from southwestern Wyoming to Conway, Kan • Related capacity expansions for Oneok Partners’ 50% interest in the Overland Pass Pipeline to transport the additional unfractionated NGL volumes from the new Bakken pipeline • Expansion of the partnership’s fractionation capacity at Bushton, Kan., by 60,000 b/d to accommodate the additional NGL volumes from Overland Pass Pipeline • Installation of seven additional pump stations along the existing Sterling I NGL distribution pipeline, increasing its capacity by 15,000 b/d • Other investments in the Woodford shale in Oklahoma, in both the natural gas gathering and processing and the natural gas liquids segments Qatar Petroleum, Shell to develop petchem project Qatar Petroleum and Shell have signed a memorandum of understanding to study development of a large petrochemicals complex in Ras Laffan Industrial City, Qatar The agreement was signed Dec 21 in Doha by Abdulla bin Hamad Al-Attiyah, deputy prime minister and minister of energy and industry for Qatar, and Shell CEO Peter Voser Under consideration is a monoethylene glycol plant of up to 1.5 million tonnes/year using Shell’s proprietary OMEGA (Only MEG Advantaged) technology and other olefin derivatives to yield more than million tpy of finished products In Qatar, Qatar Petroleum and Shell are jointly building the Pearl gas-to-liquids project and Qatargas LNG Train in Ras Laffan TRANSPORTATION Q U IC K TA K E S in 2007, pegged the project at $16 billion In addition to Imperial, the Mackenzie Valley Aboriginal Pipeline LP, ConocoPhillips Canada (North) Ltd., Shell Canada Ltd., and ExxonMobil Canada Properties hold shares in the project If the proponents decide to build the Mackenzie Gas Project, they would also be required to obtain various permits and authorizations from other boards and government agencies before construction could commence Imperial filed a letter with the NEB in March stating it would not decide whether to proceed with the project until late 2013, citing administrative delays in the approval process and subsequent difficulties keeping the project adequately staffed Koch Pipeline shareholders approve Eagle Ford line Koch Pipeline Co LP received final shareholder approval to build a pipeline into Karnes County, Tex., that will transport 120,000 b/d of Eagle Ford shale crude by late 2012 Engineering for the line to connect Eagle Ford producers to Corpus Christi, Tex., has begun, with construction pending permitting The 16-in OD line will be expandable to more than 200,000 b/d and includes direct pipeline connections to producer tank batteries in Karnes and DeWitt counties A new station, likely near Helena, Tex., will connect into Koch Pipeline’s existing crude system in Pettus and Refugio By yearend 2011, Koch plans to have completed several projects adding more than 140,000 b/d of pipeline capacity in South Texas The company is already building a line to expand delivery capability to Flint Hills Resources’ Ingleside waterborne terminal It has also leased 30,000 b/d capacity from NuStar Logistics on a line from Pettus to Corpus Christi (OGJ Online, Oct 19, 2010) In August, in conjunction with Arrowhead Pipeline LP, Koch announced an agreement and joint tariff to add 50,000 b/d of oil and condensate capacity during 2011 from the western counties of the Eagle Ford trend NEB approves Mackenzie Gas Project NEB export application filed for BC LNG plant Canada’s National Energy Board approved applications for the construction and operation of the Mackenzie Gas Project through northern Canada The proposed project includes the 1,196-km Mackenzie Valley Pipeline, three onshore natural gas fields, a 457-km pipeline to carry natural gas liquids from Inuvik, NWT, to an existing oil pipeline at Norman Wells, NWT, and other related facilities The Mackenzie Valley Pipeline, which would run from the Beaufort Sea to northwestern Alberta, is designed to carry up to 1.2 bcfd The NEB attached 264 conditions to the project’s approval in areas including engineering and safety provisions that must be met if the project is to be built If the federal cabinet approves NEB’s decision, the agency will issue appropriate approvals, including a certificate of public convenience and necessity Project operator Imperial Oil’s latest cost estimate, released KM LNG, an affiliate of Apache Corp., Houston, applied to Canada’s National Energy Board for approval to export LNG from the Kitimat LNG terminal planned for Bish Cove, BC The application requests permission to export as much as 10 million tonnes/year of LNG for 20 years The quantity matches the two-phased capacity design of the plant KM LNG is the operator of the proposed plant All LNG exported under the applied-for license will be produced by KM LNG In November, said the company’s announcement, members of the Haisla Nation approved a lease of reserve lands required for construction and operation of the plant Federal and provincial environmental authorizations for initial design of the plant have also been obtained The plant is owned by affiliates of Apache Canada Ltd (51%) and EOG Resources Canada Inc (49%) Oil & Gas Journal | Dec 27, 2010 101227ogj_9 9 12/22/10 10:42 AM LETTERS ETHANOL MANDATES Your ethanol editorial entitled “Subsidies and incentives” is right on target (OGJ, Dec 6, 2010, p 24) Last week a Wall Street Journal editorial made some of the same points that were included in your excellent opinion piece They pointed out that ethanol is the only product that enjoys 1) a federal subsidy, 2) tariff protection, and 3) federal consumption mandates However, as I am sure you know, this is not the whole story Neither the WSJ nor the OGJ mentioned how this ethanol “favorite nations” treatment has affected food prices The federal mandates and subsidies have resulted in significant increases in the prices of beef, corn, breakfast cereals, and many other corn-based food products As the federal government looks for ways to reduce unwise and unnecessary spending, the first place to look is ethanol policy Eliminating unnecessary and unwanted subsidies and mandates would free American taxpayers of $7 billion/year of wasted expenditures William H Barlow Houston 2010-2011 EVENT CALENDAR Denotes new listing or ME TECH 2011, Dubai, +44 20 7357 8394, +44 a change in previously 20 7357 8395 (fax), published information e-mail: conferences@ europetro.com, website: www.europetro.com/ JANUARY 2011 index.php?option=com_ event<emid=240 GEO India Conference & Exhibition, New Delhi, 24-26 europetro.com, website: www.europetro.com/ index.php?option=com_ event<emid=244 27-28 API Exploration and Production Winter Standards Meeting, Fort Worth, Tex., (202) 682-8000, (202) 682-8222 (fax), website: www.api.org 24-28 Offshore Production Technology Summit, London, +44 (0)20 7202 7690, +44 (0)207 202 7600 (fax), e-mail: nathan.robinson@ wtgevents.com, website: www.offshore-summit com Jan 31-Feb Annual Gas Arabia Summit, Abu Dhabi, +44 207 067 18 00, e-mail: c.pallen@theenergyex+44 (0)20 7840 2139, API Inspection Summit change.co.uk, website: +44 (0)20 7840 2119 & Expo, Galveston, Tex., www www.theenergy(fax), e-mail: geo@ (202) 682 8000, (202) exchange.co.uk/3/13/ oesallworld.com, website: 682-8222 (fax), website: articles/135.php Jan www.geo-india.com www.api.org 24-27 30-Feb 12-14 Gas Transport & Storage Summit, Berlin, +44 (0)20 7202 7690, +44 (0)20 7202 7600 (fax), e-mail: richard.jones@ wtgevents.com, website: www.gtsevent.com 19-20 PennEnergy Buyers Guide SEARCH | COMPARE | CONTACT | BUY PennEnergy Buyers Guide is an online resource with the most detailed and comprehensive data on products, systems, services, and companies to help you during the buying process Visit PennEnergy.com and click on the Buyers Guide link at the top of the page to get the most comprehensive and accurate product information available To list your products and services in the PennEnergyBuyers Guide, contact your PennEnergy Account Representative for details 10 101227ogj_10 10 Shale Gas Symposium, Calgary, Alta., (877) 927-7936, (877) 9271563 (fax), website: www.canadianinstitute com/energy_resources/ ShaleGas.htm 25-26 European Gas Conference, Vienna, +44 207 067 1800, +44 207 430 0552 (fax), e-mail: z.nathan@theenergyexchange.co.uk, website: http://www.theenergyexchange.co.uk/3/13/ articles/214.php 25-27 Global LNG Forum, Barcelona, +421 257 272 11, +421 255 644 490, e-mail; beata.kyblova@ jacobfleming.com, website: www.jacobfleming com 2-3 East African Petroleum Conference & Exhibition (EAPCE), Kampala, +256 414 320714, _256 414 320437 (fax), e-mail: eapce11@ petroleum.go.ug website: www.petroleumafrica.com/en/eventdetail php?Eventld=522 2-4 NACE Northern Area Western Conference, Regina, Sask., (281) 228-6200, (281) 228-6300 (fax), e-mail: firstservice@nace.org, website: www.events nace.org/sarwebsites/ SPE Middle East Uncon- NorthernAreaWestern/ ventional Gas Conference conference11/index and Exhibition, Muscat, asp 6-8 +971 390 3540, +971 366 4648 (fax), e-mail: Arctic Technology spedub@spe.org, web- Conference, Houston, site: www.spe.org Jan (888) 945-2274, ext 31-Feb 617, website: www.arct- FEBRUARY 2011 IADC Health Safety Environment and Training Conference & Exhibition, Houston, (713) 2921945, (713) 292-1946 API/AGA Joint Committee (fax), e-mail: info@iadc on Oil and Gas Pipeline org, website: www.iadc Welding Practices, Fort org/conferences 1-2 Worth, Tex., (202) 682 8000, (202) 682-8222 Topsides Conference & (fax), website: www.api Exhabition, Galveston, org 26-28 Texas, (918) 831-9160, (918) 831-9161 (fax), ePipe Tech Americas mail: wendyl@pennwell Summit, Houston, (416) com, website: www 214-1144, e-mail: lautopsidesevent.com/index rence.allen@wtgevents html 1-3 com, website: www pipetechamericas.com/ Global LNG Forum, program 27-28 Barcelona, +421 257 272 112, +421 255 Russian & CIS Executive 644 490, e-mail; beata Summit, Dubai, +44 kyblova@jacobfleming 20 7357 8394, +44 com, website: www 20 7357 8395 (fax), jacobfleming.com 2-3 e-mail: conferences@ ictechnologyconference org/ 7-9 Pipeline Coating International Conference, Vienna, +44(0)117 924 9442, +44(0)117 989 2128 (fax), e-mail: info@ amiplastics.com, website: www.2.amiplastics com/Events/Even code=C369&sec=1222 7-9 International Gas Analysis Symposium & Exhibition, Rotterdam, +31 (0) 15 690 147, +31 (0) 15 690 190 (fax), e-mail: gas@nen.nl, website: www.gas2011.org 9-11 SPE Project and Facilities Challenges Conference at METS, Doha, +971 390 3540, +971 366 4648 (fax), e-mail: spedub@spe.org, website: www.spe.org 13-16 Oil & Gas Journal | Dec 27, 2010 12/21/10 9:33 AM GENERAL INTEREST Two accidents increase pipeline safety awareness Nick Snow Washington Editor Pipeline accidents in Michigan and San Bruno, Calif., raised public awareness about pipeline safety issues that companies and regulators already were trying to address, officials of three trade associations told OGJ A July 26 crude oil leak on Enbridge Energy Partners Ltd.’s Line 6B generated public inquiries about the system’s age and integrity (OGJ Online, July 29, 2010) The Line 6B spill reached Talmadge Creek and 25 miles of the Kalamazoo River in Michigan A Sept explosion of Pacific Gas & Electric Co.’s natural gas gathering system in San Bruno raised the issue of encroachment—residential and business development over existing lines in previously rural areas Eight people died in the San Bruno accident (OGJ Online, Dec 15, 2010) The National Transportation Safety Board has yet to release its findings on those two accidents “San Bruno was an awful accident with a silver lining: it helped generate public consideration of encroachment’s effects,” said Andrew J Black, president of the Association of Oil Pipelines Christina Sames, vice-president of operations and engineering at the American Gas Association, said, “We can’t stop people from building, but we want them to build responsibly.” AGA, which has primarily local distribution companies (LDCs) as members, urges local governments issuing building permits to consider requiring that an apartment building’s parking lot be placed closer to a pipeline than the apartment building itself, she said 16 101227ogj_16 16 Enbridge Inc crews continued cleaning up crude oil in the Kalamazoo River on Oct 14 Oil leaked from its Line 6B into nearby Talmadge Creek on July 26 As of Nov 17, more than 7,000 people had worked in response to the pipeline rupture with more than 30 local, state, and federal agencies Photo from Enbridge Donald F Santa, president of the Interstate Gas Pipeline Association of America, said pipeline safety is a shared responsibility between industry and regulators at various levels of government “The industry needs to keep its systems in top shape, but San Bruno also showed that local government has a role in recognizing a pipeline is there and letting everyone know about it,” Santa said Wrong questions Martin E Edwards, INGAA’s vice-president for government affairs, said many questions raised after the San Bruno explosion did not take into account that the pipeline was laid a decade before the community grew over it The US Department of Transportation on Dec 16 released recommendations developed by the Pipelines and Informed Planning Allowance to address issues raised by development near pipelines DOT offered nearly 50 recommended practices for local communities, developers, and pipeline operators The recommendations suggest ways land-use planning and development decisions can protect existing pipelines and growing communities, said DOT It also provided recommendations on how communities can gather information about local transmission pipelines, and how local planners, developers, and pipeline operators can communicate during development phases to understand pipeline risks and minimize pipeline damage from excavation and construction Edwards said the goal is to help local governments evaluate the risks associated with developments near pipelines and make more informed decisions as they set zoning rules Oil & Gas Journal | Dec 27, 2010 12/22/10 10:40 AM and issue building permits Santa noted some officials not recognize that placing both sewer and water lines near gas lines can increase thirdparty excavation risks AGA’s Sames said the goal was not to increase regulations but rather to emphasize to local governments the importance of education about building along pipeline routes Integrity management She said federal lawmakers and DOT, through its US Pipeline and Hazardous Materials Safety Administration, have been working for years to address integrity management (IM) issues Witnesses testifying during 2010 congressional hearings to reauthorize the federal pipeline safety act noted a 2006 law imposed IM requirements on LDCs after a 2002 law placed IM requirements on interstate oil and gas lines, Sames told OGJ Lawmakers pushed reauthorization of the pipeline safety act into 2011 while Congress focused on the Macondo deepwater well accident and subsequent crude oil spill, Sames added Pipeline integrity involves more than age, she emphasized Factors can include whether the pipe is plastic or steel (and, if it’s steel, whether it is coated), if it is cathodically protected, if it’s in dry or wet soil, and whether there is a nearby power line, she said In-line inspections are improving, she said “They can be used on more sizes of pipe and over a broader range Some pigs can even go through tight turns.” Black said pipeline safety advocates recognize that pipeline integrity involves more than the age of the pipeline “There are questions about how the pipeline was constructed and laid, particularly the specific techniques and practices of the time, and how it has been maintained,” he told OGJ Corrosion is a key integrity issue for oil pipelines, Black said “Internal corrosion is a major cause of pipeline failures, most of which are not as dramatic as the accidents which capture the public’s attention,” Black said Sharing experiences US corrosion-related oil pipeline failures dropped 74% from 2001 to 2008, partly due to IM rules DOT imposed in 2001, Black said Oil pipeline operators try to continuously improve operations through an American Petroleum InstituteAOPL best-operating practices team where they share experiences with problems and compare operations with their peers, he said While requirements exist nationwide for developers to call a central pipeline information center before they begin to excavate, the 811 system is not yet in place everywhere, officials of the three associations indicated Oil & Gas Journal | Dec 27, 2010 101227ogj_17 17 Santa said INGAA suggested the pipeline safety reauthorization bill include federal support for states to adopt programs with minimal exemptions and strong enforcement “It’s incumbent on pipelines and PHMSA to remind policymakers that regulation and practices governing pipeline safety have been in place for a long time,” said Edwards “It has encouraged improvement, which has made it relatively safe over the last 50 years.” Santa said pipeline safety involves sound engineering, risk principles, and technology “It clearly would be judged to be a prudent investment There may be issues about how costs would be recovered, but never about whether they would.” He noted 14,000-15,000 miles of interstate gas pipeline were constructed during the last decade, the bulk of it in the last years That compares with 700 miles of new highvoltage electrical transmission, he added Sames said DOT and PHMSA moved from regulations built on prescriptions over specific intervals to risk-based rules that require operators to continuously identify potential problems and address them “This lets companies put resources where they have the most impact,” she explained “Where once you might have been in a desert environment having to inspect for corrosion every years, now you can redirect your efforts to damage prevention and education instead.” She believes DOT has taken steps that helped improve pipeline safety in the last 10 years using in-line inspections, hydrostatic tests, direct assessments, and pressure testing Assessing corrosion Sames said direct assessments, developed by the National Association of Corrosion Engineers, examine opportunities where corrosion could exist and determines what steps could be taken One unfortunate idea to emerge following the San Bruno accident was the notion that government and industry always should remain separate, she said “That’s not always the case, especially with integrity management and excavation notification Both of these work best when government and industry work together,” Sames said Black said restoring public confidence and securing funding for adequate enforcement are equally important “The record for oil pipelines has improved, but we don’t want any accidents to occur at all,” Black said “We don’t believe there are any regulatory gaps.” He pointed out that PHMSA does extensive investigations and asks questions during its audits Santa called pipeline safety a bipartisan issue “An accident can occur in a district represented by a Democrat or a Republican,” Santa said “Still, the incidents which happened in 2010 will frame the debate in 2011, although Congress not trying to act immediately has provided time to look more closely for the best solutions.” 17 12/22/10 10:40 AM GENERAL INTEREST Government sues to recover costs from Macondo blowout, spill Nick Snow Washington Editor The US Department of Justice and Environmental Protection Agency jointly sued to recover damages from the Apr 20 Macondo well accident, which claimed 11 lives, and subsequent crude oil spill into the Gulf of Mexico DOJ and EPA filed a civil action in US District Court in New Orleans naming nine defendants, including the well’s operator, BP Exploration & Production Inc.; partner Anadarko Exploration & Production LP; offshore drilling contractor Transocean Holdings LLC; and insurers QBE Underwriting Ltd./Lloyd’s Syndicate 1036 The complaint alleges violations of federal safety and operational regulations, including failures to take necessary precautions to secure the well before the blowout and explosion, use the safest drilling technology to monitor the well’s condition, maintain continuous surveillance of the well, and use and maintain equipment and materials necessary to protect personnel, property, natural resources, and the environment, US Atty Gen Eric Holder said “We intend to prove that these violations caused or contributed to this massive oil spill, and that the defendants are therefore responsible—under the Oil Pollution Act—for government removal costs, economic losses, and environmental damages,” he told reporters Holder said the federal government also is seeking fines under the Clean Water Act, which prohibits unauthorized discharges of oil and similar substances into US waters “We allege that the defendants named in this lawsuit were in violation of the act throughout the months that oil was gushing into the Gulf of Mexico,” he said “We intend to hold them fully accountable for their violations.” He said DOJ launched both civil and criminal probes into the accident and spill as initial response efforts were under way, and that lawyers and investigations from the department closely coordinated their efforts with local US attorneys’ offices and states’ attorneys general Investigations continue “While today’s civil action marks a critical step forward, it is not a final step,” Holder declared “Both our criminal and civil investigations are continuing Our work to ensure that the American taxpayers are not forced to bear the costs of restoring the gulf area—and its economy—goes on As I have said from the beginning, as our investigations continue, we will not hesitate to take whatever steps are necessary to hold 18 101227ogj_18 18 accountable those responsible for this spill.” DOJ worked with EPA, the US Coast Guard, the National Oceanic and Atmospheric Administration, and the US Department of Interior’s Fish and Wildlife Service and Bureau of Ocean Energy Management, Regulation, and Enforcement in its investigations for the civil suit, he noted In a response, BP said that the lawsuit “is solely a statement of the government’s allegations and does not in any manner constitute any finding of liability or any judicial finding that the allegations have merit,” adding, “BP will answer the government’s allegations in a timely manner and will continue to cooperate with all government investigations and inquiries.” Court refuses to block EPA’s GHG regulation Nick Snow Washington Editor A federal appeals court rejected a request by the oil and gas industry and others to delay the US Environmental Protection Agency’s plans to begin regulating greenhouse gas emissions on Jan The request did not meet “stringent standards required for a stay pending court review,” the appellate court for the District of Columbia circuit ruled on Dec 10 The National Petrochemical & Refiners Association was among business groups that had filed a motion for a partial stay of EPA’s greenhouse gas regulations Charles T Drevna, NPRA president, said, “Today’s action means Charles T Drevna that EPA’s invasive and misguided NPRA president regulations will be imposed on our nation’s businesses and manufacturers at the beginning of 2011.” Quentin Riegel, vice-president of litigation and general counsel at the National Association of Manufacturers, added, “EPA’s agenda places unnecessary burdens on manufacturers, drives up energy costs, and imposes even more uncertainty on the nation’s job creators We will continue our efforts to stop the EPA from pursuing its job-destroying agenda.” Environmental organizations were elated “This is a victory for every American who wants better gas mileage and cleaner cars,” said David Doniger, policy director at the Natural Resources Defense Council’s climate center Oil & Gas Journal | Dec 27, 2010 12/22/10 10:40 AM WATCHING GOVERNMENT Responding to an OGJ inquiry, EPA said in a Dec 13 statement that the court’s ruling confirmed what the agency “has been saying all along: that [EPA’s] reasonable actions to address carbon pollution will unfold in a manageable and sensible way.” EPA added, “Yet again, the doomsday predictions of special interest lobbyists have been proven wrong.” The groups filed their motion in August to prevent EPA’s implementation of its June Prevention of Significant Determination and Title V Greenhouse Gas Tailoring Rule, which would begin federal GHG emissions regulation by targeting refineries, chemical plants, and other large industries FGE-FACTS: Chinese, India expand refining capacities Refineries for national oil companies (NOCs) in China and India continued to expand capacities as 2010 closed Japanese refiners, on the other hand, headed into a second round of capacity reductions These are among the conclusions in a study of Asian refining by FGEFACTS Global Energy, Honolulu The study also said up to years will pass before any new major capacity will be commissioned by Asian refiners, securing crude from the Middle East is becoming more important for Asian refiners, and conversion capacity is added far more quickly than primary distillation capacity in the Asia Pacific FGE-FACTS said China will add about million b/d of new refining capacity from the start of 2010 to yearend 2020 Chinese NOCs’ investment in refining is not entirely driven by refining economics, and they have the financial resources and strategic intentions to make their planned refineries become reality Oil & Gas Journal | Dec 27, 2010 101227ogj_19 19 NICK SNOW Washington Editor | Blog at www.ogj.com Bromwich isn’t done As the US offshore oil and gas industry tried to adjust to new federal regulations in the wake of the Macondo well accident and crude oil spill, the US Bureau of Ocean Energy Management, Regulation, and Enforcement’s director signaled that more reforms are ahead “While we have already put in place significant pieces of our comprehensive reform agenda, our work is far from complete,” Michael R Bromwich told the First International Oil & Gas Law Conference in New Orleans on Dec He said that BOEMRE soon will move through the standard rulemaking process to implement further safety measures, including establishing additional requirements for blowout preventers and remotely operated vehicles The agency that formerly was the US Minerals Management Service also will consider additional workplace safety rules that will include requirements for independent third-party verifications of operators’ programs, he indicated Bromwich said that since BOEMRE announced its new rules at the end of September, “we have heard from countless companies, trade associations, and members of Congress of the significant anxiety that currently exists in the industry that we will soon change the rules of the permitting process significantly, thereby creating further uncertainty about what is required to conduct business on the OCS “This is not the case,” he contin- ued “Barring significant, unanticipated revelations from the ongoing investigations into the root causes of the [Macondo well] incident, I not anticipate further emergency rulemakings ‘Must keep pace’ “But at the same time, we can no longer accept the view that the appropriate response to a rapidly evolving, developing, and changing industry [that] employs increasingly sophisticated technologies is for the regulatory framework and the applicable rules to remain frozen Over time, the regulatory framework and the specific requirements must keep pace,” Bromwich said He said that BOEMRE will continue to analyze information that becomes available, including findings and recommendations of the ongoing investigations into the causes of the Apr 20 accident and subsequent spill It also will implement reforms to provide stronger worker and environmental protection offshore, he maintained “In developing these reforms, we will balance the need for regulatory certainty against the need to act on new insights and adapt to changing technology And, importantly, the processing of drilling permit applications and proposed drilling plans will not be delayed while these additional reforms are developed,” he declared Bromwich said that industry groups sometimes have reflexively opposed new rules in the past 19 12/22/10 10:40 AM GENERAL INTEREST Indian state refiners also have firm plans to expand refining capacities to meet domestic demand growth, said the study, while Essar Oil, a key Indian private company, will carry out its Vadinar Phase II expansion for export On the other hand, Japanese refiners JX Group, Idemitsu, and Showa Shell have announced plans to close 600,000 b/d of refining capacity to meet an ordinance from Japan’s Ministry of Economy, Trade, and Industry promulgated under the July 2009 law The ordinance requires refiners to meet a cracking/crude-distillation-unit capacity ratio of 13% or higher by March 2014 TonenGeneral Group (ExxonMobil) and Cosmo Oil’s strategies to meet the ordinance are key to the country’s industry reorganization, says the FGE-FACTS study If all refiners follow the METI ordinance, 1.1-1.3 million b/d of refining closures in Japan are likely by 2014 The study also says that 4-5 years’ breathing space is in store for Asian refiners, since no new major capacity is scheduled for commissioning before 2015 As a result, the refining surplus in Asia will shrink Refining margins, how- ever, will drop sharply again as new large complex Middle Eastern export refineries start to come on line after 2015 Supply source Indeed, says the study, securing crude supplies from the Middle East is becoming increasingly important for Asian refiners’ profitability and survival A large mismatch between Asian refiners’ designed crude slates and additional availability of Middle Eastern crudes, especially after 2015, is likely, as Middle East export refineries start to come on line Asian refiners may need to compete with each other for Middle Eastern crudes; some will be forced to use suboptimum crudes Also, the light, heavy, and sweet-sour crude differentials will narrow Conversion capacity is being added far more quickly than primary distillation capacity among Asia-Pacific refiners As a result, light-heavy product and light-heavy crude differentials will be lower A larger surplus in transportation fuels and larger deficit in fuel oil will create opportunities for trading companies based in Singapore Chevron suspends pipeline use in Nigeria as ExxonMobil, Shell resume operations Eric Watkins Oil Diplomacy Editor Chevron suspended operations of the Dibi-Abiteye oil pipeline in Nigeria’s Niger Delta in an effort to minimize potential environmental damage while investigating damage caused to the line after militant attacks on oil flow stations The line feeds the 123,000 b/d Escravos oil export stream, according to loading programs The Niger Delta Liberation Force (NDLF), a militant faction in Nigeria’s oil-producing wetlands region, claimed attacks on three oil flow stations operated by Chevron and Eni SPA “We have suspended production to minimize environmental impact and have informed relevant government agencies and other stakeholders,” Chevron said “The breach is being investigated and we are reviewing our operations.” The attack on Chevron and Eni coincided with separate announcements by Royal Dutch Shell PLC and ExxonMobil Corp that they also had resumed operations at sites earlier attacked by militants ExxonMobil resumed production of 15,000 b/d of Nigerian Oso condensate that was shut in following a militant raid on an offshore platform last month (OGJ, Nov 22, 2010) “We have restarted 15,000 b/d of condensate from the Oso field No firm time for restart of Natural Gas Liquids (NGL) production is available at this time,” Exxon said of 20 101227ogj_20 20 Oso, which produces 75,000 b/d from eight platforms Nigeria’s main militant group, the Movement for the Emancipation of the Niger Delta (MEND), claimed responsibility for the November attack in which eight Exxon workers were reported kidnapped and later rescued Shell also resumed shipments of oil from a key export terminal in southern Nigeria after repairing a leak on the Trans-Niger pipeline which feeds the terminal “The force majeure on Bonny Light exports was lifted effective Dec 14 following the repairs of the supply pipeline and stabilization of production,” said Shell, which declared force majeure on Nov 19 Earlier this year, the Shell Petroleum Development Co (SPDC) of Nigeria-operated Joint Venture raised an alarm over the recent increase in sabotage attacks on its pipelines around Bonny in Rivers State During Aug 1-12, SPDC recorded three separate sabotage incidents on its Cawthorne Channel—Bonny and Alakiri— Bonny pipelines, where suspected crude thieves drilled holes or inflicted hacksaw cuts to siphon oil “Last year, 98% of the oil spilled from SPDC operations was caused by sabotage,” said Babs Omotowa , Shell vicepresident for health, safety, and environment and infrastructure and logistics in Africa Nigerian militants claim to be fighting against the region’s endemic poverty and pollution which they say is Oil & Gas Journal | Dec 27, 2010 12/22/10 10:40 AM WATCHING THE WORLD caused by 50 years of oil production The militant groups typically blame the Nigerian National Petroleum Corp (NNPC)—and its IOC partners—for failing to address the region’s problems ERIC WATKINS Oil Diplomacy Editor | Blog at www.ogj.com Chevron claims forged signatures in Ecuador lawsuit Eric Watkins Oil Diplomacy Editor Chevron Corp said litigation against the firm in an Ecuadorian court should be terminated because a forensic specialist discovered many forged signatures on the document that initially authorized the legal action “The Ecuadorian authorities cannot continue to ignore the mounting evidence of fraud in the Lago Agrio litigation without violating their duties under the Ecuadorian constitution and international law,” said R Hewitt Pate, Chevron vice-president and general counsel Forensic document examiner Gus R Lesnevich said at least 20 of the 48 signatures were faked on the document that purported to ratify the 2003 complaint and appoint Ecuadorian lawyer Alberto Wray as plaintiffs’ counsel , Chevron said Lesnevich compared plaintiffs’ signatures on the legal document with their signatures from national identification cards In addition, an electrostatic detection device revealed the legal document bore indentations “consistent with someone practicing the writing of a signature.” The forensic analysis was filed in the Provincial Court of Sucumbios along with a motion calling on Judge Nicolas Zambrano to declare the lawsuit null and void Chevron also asked Oil & Gas Journal | Dec 27, 2010 101227ogj_21 21 Pipeline diplomacy in Asia The international oil and gas industry understands the need for diplomacy, a skill that is coming to dominate the matter of constructing and operating pipelines That is certainly the emphasis of a recent study published by the Seattlebased National Bureau of Asian Research entitled “Pipeline Politics in Asia: The Intersection of Demand, Energy Markets, and Supply Routes.” “The scramble for resources and transport has had uniquely important implications across East Asia and Eurasia while powerfully influencing regional energy market dynamics and geopolitical relationships,” said Mikkal Herberg, one of five authors of the report “At the nexus of these dynamics is a growing competition to develop a number of major Asian and Eurasian oil and gas pipelines to move oil and gas across the region,” Herberg said, citing three facts that drive the trend Three drivers The first of these, according to Herberg, involves the fact that an increasing share of Asia’s oil and liquefied natural gas supplies will have to transit the Indian Ocean, Malacca Strait, and the South China Sea Herberg cited figures from the International Energy Agency that indicate Asia’s oil imports passing through the Malacca Strait could double over the next decades to 22 million b/d from the current 11 million b/d “This has raised new concerns, particularly for China, over the growing risk of major maritime supply disruptions, as well as over US control of these vital sea lanes,” Herberg said, noting that this concern is “driving China’s efforts to diversify supply lines with new overland pipeline routes.” Asia’s scramble for oil and gas has also been triggered by the break-up of the former Soviet Union, which Herberg said freed up “enormous new potential reserves of oil and gas in Central Asia” as well as “scaled up production” from Russia, especially fields in East Siberia Zero-sum competition The rise of China and the country’s booming oil and gas needs in particular represent the third main drive behind the region’s scramble for supplies, touching off what Herberg called “a zero-sum competition over energy supplies and transit.” The essays in this report take up the broad geopolitics of cross-border pipeline development, the progress in development of new oil and gas pipelines from Russia’s Eastern Siberia to China and Northeast Asia, and prospects for Central Asian oil and gas pipelines to East Asia Also included are essays on India’s gas pipeline dilemmas and challenges, as well as the implications of new oil and gas pipelines being built by China across Myanmar into Southeast China This gives a heads up of what’s in the pipeline, so to speak 21 12/22/10 10:40 AM GENERAL INTEREST the judge to forward the matter to Ecuador’s Prosecutor General’s Office for criminal investigation “We intend to seek full redress against the harm that has been done in the name of the Ecuadorian plaintiffs and to hold accountable all of those who have knowingly participated in this unlawful scheme,” said Pate In responding to Chevron’s allegation of forgery, Pablo Fajardo, the lead Ecuadorian lawyer on the case, said most of the signatories on the lawsuit have no formal education and have signed via a fingerprint only a handful of documents in their entire lives “It should thus not be surprising that any two signatures a person makes over the course of an entire life would look different, but it does not suggest fraud as Chevron claims,” Fajardo said Chevron denies allegations it was responsible for environmental and social harms in Ecuador’s Amazon region The oil company said it never conducted oil production operations there, and Texaco Petroleum Co fully remediated its share of environmental impacts arising from oil production operations before 1992 After the remediation was certified by all responsible agencies of the Ecuadorian government, Texaco received a complete release from Ecuador’s national, provincial, and municipal governments before Chevron acquired Texaco in 2001, Chevron said “All legitimate scientific evidence submitted during the litigation in Ecuador proves…remediation was effective and that the sites it remediated pose no unreasonable risks for human health or the environment,” Chevron said Flow rate tops 10,000 b/d at Llanos discovery A discovery well on the Corcel block in Colombia’s Llanos basin has tested light oil at the rate of more than 10,000 b/d, said Petrominerales Ltd., Bogota Logs at the Caruto-1 well indicated 47 ft of potential net oil pay in the Lower Sand formation The well flowed at more than 10,000 b/d of light, 32° gravity oil on an initial 7-hr production test with no water on an electric submersible pump at 75% capacity Petrominerales, a 65% owned subsidiary of Petrobank Energy & Resources Ltd., Calgary, turned off the ESP due to facility and storage limits at the wellsite and has been producing the well on natural flow at 5,600 b/d Total depth is 13,024 ft measured depth Petrominerales said, “We are installing temporary facilities and expect to have the well producing at a controlled rate of 12,000 bbl of fluid per day within the following 22 101227ogj_22 22 week Additional facility capacity is expected to be available in mid-January.” Meanwhile, the Boa-2 well encountered the Lower Sand formation 10 ft structurally higher than in Boa-1 and is on production at an initial oil rate of 600 b/d of oil Corcel-E2 is drilled to 13,180 ft MD, and logs are being run A third rig is drilling in the area temporarily The first rig is moving from Caruto-1 to drill the Cardenal-1 prospect, and the second rig is drilling the Yatay-1 exploratory well on the Guatiquia block southwest of Corcel The third rig is to move from Corcel-E2 to the Amarillo well pad to drill a new exploratory prospect, Cobea-1 or Amarillo-2 Petrominerales will incorporate the Caruto-1 well results into its geological model and adjust the drilling order as required Arion remains a firm prospect for either a sidetrack or redrill Meanwhile, the Asarina-1 well on the Llanos basin Rio Ariari heavy oil block cut 79 ft of potential net pay in several Lower Mirador sands and was cased as a potential oil producer An initial testing program targeting four separate sands began Oct 30 The first Mirador test recovered 120 bbl of 10° gravity heavy oil at a maximum rate of 100 b/d with 85% water cut The second Mirador test in a stratigraphically higher sand recovered 10 b/d of 10° gravity heavy oil at 98% water cut The final two tests from two separate Mirador sands recovered water with trace amounts of oil The presence of oil in the Asarina well encouraged the company, which is considering alternatives including horizontal wells to evaluate the optimal completion, testing, and production techniques for future heavy oil wells The next well at Rio Ariari, Mochelo-1, spudded Oct 29 and reached 5,309 ft measured total depth Nov 18 Logs indicate 69 ft of net potential pay in the Mirador formation We cased the well and plan to perform a multi-interval test program The next well in the program, Borugo-1, is to spud in early-December The nine-well Rio Ariari exploratory drilling program is designed to target new exploration prospects and playtypes that could result in the identification of multiple large resource opportunities Petrominerales expects to run this program continuously into 2011 EXPLOR ATION / DEVELOPMENT BRIEFS Brazil A Petrobras group said early tests confirmed light oil potential of the western extent of the Tupi-Iracema accumulation in the deepwater Santos basin off Brazil Wireline tests at the Tupi W well, in 2,139 m of water on Oil & Gas Journal | Dec 27, 2010 12/22/10 10:40 AM GENERAL INTEREST the BM-S-11 block 11 km northwest of the Tupi discovery well, confirmed 28° gravity oil in presalt reservoirs at the western extreme of the Tupi Evaluation Plan Area The reservoir is 90 m thick at this location If formation tests scheduled in coming months meet with success, the group will consider dedicating a floating production, storage, and offloading vessel to the Tupi W area The final evaluation of volumes for the Tupi-Iracema area was being formulated and was to be released at the end of December Petrobras is operator with 65% interest BG Group has 25%, and Portugal’s Galp Energia has 10% Colombia Alange Energy Corp., Toronto, will appraise and may horizontally drill an unexpected heavy oil accumulation in the Cretaceous Lower Rumiyaco formation at the Topoyaco-2 exploratory well on the 60,034-acre Topoyaco block in Colombia’s Putumayo basin A zone at 7,532-7,624 ft that appears to be the Rumiyaco tested at 310 b/d of 10.5° gravity oil with 20% basic sediment and water on an electric submersible pump Rumiyaco has 48 ft of net pay TD is 8,700 ft The company will drill a new well to the deeper Villeta and Caballos, the intended targets in Topoyaco-2 Overall, Topoyaco-2 cut 114 ft of net pay sand and 125 ft of oil-saturated carbonates The definitive stratigraphic model will have to be validated by a thorough geological evaluation to encompass correlations with blocks to the south and northeast, Alange Energy said The company will start drilling Prospect D, the block’s most important objective, late in the 2011 first quarter targeting the subthrust Topoyaco-1 on Prospect B penetrated the whole sedimentary column of interest, reaching the Saldana formation in the Paleozoic Alange Energy, operator with 50% working interest, plans to run an ESP to start production testing in the next week Pacific Rubiales Energy Corp has the other 50% China The ZJS-02 well in the downthrown block of the 175,000acre Zijinshan gas asset in China’s Ordos basin intersected 68 bcf of gas in place, according to consulting engineers and in-house estimates, said Camac Energy Inc., Hartsdale, NY Camac, which owns 100% of the foreign contract interest in the block in partnership with PetroChina CBM Co., plans to drill the ZJS-03 well late in the 2011 first quarter on the larger upthrown block The block is in Shanxi Province near the West-East and Ordos-Beijing gas pipelines Oil & Gas Journal | Dec 27, 2010 101227ogj_23 23 Guinea Hyperdynamics Corp., Houston, has signed a nonbinding letter of intent with an undisclosed large independent oil and gas company to farm out part of its interest in a concession off Guinea, West Africa The companies are in a period of exclusive negotiations that ends Jan 27, 2011, unless the parties agree otherwise New Zealand Roc Oil Co Ltd., Sydney, heads a group that plans to bring the Kaheru prospect on PEP 52181 just off New Zealand’s North Island to the drilling phase The permit covers 42,379 acres in the main Taranaki basin oil and gas discovery fairway TAG Oil Ltd., Vancouver, BC, has joined the joint venture with 20% interest in the permit PEP 52181, km offshore, contains Kaheru and numerous leads and has extensive 2D and 3D seismic coverage Kaheru is a Miocene-aged prospect on the same thrust belt play fairway as many significant Taranaki oil and gas fields It is just east of Kupe gas-condensate field Turkey Oman Resources Ltd., private UK explorer, is pursuing a gas-condensate development program on the 49,821 Konya Block 4077 in the Tuz Golu basin of south-central Turkey The Gulhanim-2 well has encountered a previously unidentified but encouraging gas zone at 1,275-90 m and should reach the Lower Eocene-Upper Paleocene target by late January 2011 A workover rig was expected to reenter the Karapinar-1 well Construction is to start shortly on a compressed natural gas bottling plant that will provide an early, commercially attractive solution to monetize gas produced from the block until a 12-km pipeline can be installed Early interpretation of 14 lines of the 186 line-km of 2D seismic shot on the southern part of the block are supportive of further leads in the west and indicate possible structural closure to the east, said Niche Group PLC, an investor in Oman Resources Vietnam CGGVeritas has signed a term sheet with Petrovietnam Technical Services Corp to create a joint venture to operate 2D and 3D marine seismic vessels, primarily in Vietnamese waters The joint venture will provide seismic data acquisition services for the oil and gas clients operating locally in Vietnam and the region 23 12/22/10 10:40 AM EQUIPMENT | SOFTWARE | LITERATURE SOFTWARE ADDITION EXPANDS OIL FIELD MANAGEMENT SUITE Now available is this firm’s full operations management suite (OMS)—in conjunction with the launch of the production manager product—which provides a comprehensive, integrated data management platform to manage and optimize the life cycle of oil and gas assets from acquisition to drilling to production to divestiture With the introduction of production manager, OMS offers a common environment for master well data management through an integrated set of five software products: Property master—serves as the central OMS solutions to define and manage all field assets, including wells, facilities, subfacilities, and equipment AFE manager—enables work flows to handle creation, management, and tracking of approvals for authorization for expenditures (AFE) Well life cycle manager—focuses on the life cycle of the well for drilling and completion operations, tracking of well services, and summarization of field data for daily reporting Production manager—captures field data, supports construction of graphical delivery networks, prepares daily-monthly allocations, and generates production and regulatory reports Material transfer manager—implements work flows to track approval and movement of operational assets and equipment At the core of OMS is a centralized, relational database known as PetrisWINDS operations data model OMS has support for multiple languages, different currencies, and units of measurements The full suite is based on Microsoft SQL-Server and is written in NET The overall architecture of OMS makes it highly scalable, the firm says Source: Petris Technology Inc., 1900 St James Pl., Suite 700, Houston, TX 77056 NEW POROUS PLASTIC POWDER Newly developed GUR X 192 macropowder is a porous plastic powder suited for production operations The firm says that sintered products produced with this new material have excellent porosity and good strength for use in a variety of filtration applications for liquids and gases that require higher flow rates, lower pressure drops, and increased part strength At the heart of this new polyethylene resin is a patent pending technology It enables the material to be shaped and sintered—180-220o C (356-428o F.)—into porous objects with improved strength and porosity Its molecular weight is 600,000 g/ mol as determined by the German Institute for Standardization (DIN) 1628/ Margolies Source: Ticona Engineering Polymers, 8040 Dixie Highway, Florence, KY 41042 ADVERTISERS INDEX COMPANY NAME Elliott PAGE www.elliott-turbo.com OGJ Surveys www.PennEnergyResearch.com PennEnergy Buyer’s Guide 10 www.PennEnergy.com PennEnergyResearch 13 www.PennEnergyResearch.com ONE WORLD ONE SOURCE ONE HUNDRED YEARS PUBLICATIONS • EVENTS • DIGITAL MEDIA PennEnergy Directory Data 15 www.PennEnergyResearch.com PennWell Corporation 24 www.PennEnergyResearch.com www.pennwell.com This index is provided as a service The publisher does not assume any liability for errors or omission 24 101227ogj_24 24 Oil & Gas Journal | Dec 27, 2010 12/20/10 4:40 PM STATISTICS IMPORTS OF CRUDE AND PRODUCTS — Districts 1-4 — — District — 12-10 12-3 12-10 12-3 2010 2010 2010 2010 ––––––––––––––––––––––––— 1,000 b/d ———— Total US ———— 12-10 12-3 *12-11 2010 2010 2009 ––––––––––––––––––––––––— Total motor gasoline Mo gas blending comp Distillate Residual Jet fuel-kerosine Propane-propylene Other 865 730 253 281 15 110 –68 853 701 257 436 55 146 96 10 10 10 48 15 –38 114 13 13 0 76 –88 80 875 740 263 329 30 72 46 866 714 257 436 131 58 176 967 716 229 330 57 179 155 Total products 2,186 2,544 169 94 2,355 2,638 2,633 Total crude 6,889 7,740 801 1,313 7,690 9,053 7,772 Total imports 9,075 10,284 970 1,407 10,045 11,691 10,405 *Revised Source: US Energy Information Administration Data available in OGJ Online Research Center PURVIN & GERTZ LNG NETBACKS—DEC 17, 2010 –––––––––––––––––––––––––––– Liquefaction plant –––––––––––––––––––––––––––––––– Algeria Malaysia Nigeria Austr NW Shelf Qatar Trinidad –––––––––––––––––––––––––––––––– $/MMbtu –––––––––––––––––––––––––––––––––––– Receiving terminal Barcelona Everett Isle of Grain Lake Charles Sodegaura Zeebrugge 8.79 3.57 7.82 1.68 5.83 7.49 6.52 1.44 5.48 –0.23 8.18 5.20 7.88 3.19 7.11 1.44 6.06 6.77 6.42 1.54 5.38 –0.04 7.87 5.10 7.15 1.98 6.09 0.16 7.08 5.79 7.80 3.86 7.14 2.29 5.17 6.84 Additional analysis of market trends is available through OGJ Online, Oil & Gas Journal’s electronic information source, at http://www.ogj.com OGJ CRACK SPREAD *12-17-10 *12-18-09 Change Change, ———–—$/bbl ——–—— % SPOT PRICES Product value Brent crude Crack spread 99.99 91.73 8.26 FUTURES MARKET PRICES One month Product value 99.70 Light sweet crude 88.25 Crack spread 11.46 Six month Product value 102.61 Light sweet crude 90.59 Crack spread 12.02 78.53 71.89 6.64 21.46 19.84 1.62 27.3 27.6 24.4 79.40 20.31 25.6 71.77 7.62 16.48 3.84 23.0 50.3 85.37 17.24 20.2 76.70 8.67 13.89 3.35 18.1 38.6 *Average for week ending Source: Oil & Gas Journal Data available in OGJ Online Research Center Definitions, see OGJ Apr 9, 2007, p 57 Source: Purvin & Gertz Inc Data available in OGJ Online Research Center CRUDE AND PRODUCT STOCKS —–– Motor gasoline —–– Blending Jet fuel, ————— Fuel oils ————— PropaneCrude oil Total comp.1 kerosine Distillate Residual propylene ———————————————————————————— 1,000 bbl ————————————————————————— District PADD PADD PADD PADD PADD 9,314 92,788 173,369 16,224 54,323 54,285 49,211 73,959 7,091 30,227 43,520 24,942 49,796 1,995 25,288 9,637 7,983 15,258 700 10,185 67,497 28,697 47,572 3,568 13,971 14,027 1,444 19,884 198 4,221 5,770 26,948 27,391 1,717 — Dec 10, 2010 Dec 3, 2010 Dec 11, 20092 346,018 355,871 332,387 214,773 213,964 217,213 145,541 144,409 134,199 43,763 45,750 41,013 161,305 160,212 164,363 39,774 40,143 36,474 61,826 63,063 57,441 Includes PADD 2Revised Source: US Energy Information Administration Data available in OGJ Online Research Center REFINERY REPORT—DEC 10, 2010 REFINERY –––––– OPERATIONS –––––– Gross Crude oil inputs inputs ––––––– 1,000 b/d –––––––– District –––––––––––––––––––––––––––– REFINERY OUTPUT ––––––––––––––––––––––––––– Total motor Jet fuel, ––––––– Fuel oils –––––––– Propanegasoline kerosine Distillate Residual propylene –––––––––––––––––––––––––––––––– 1,000 b/d ––––––––––––––––––––––––––––––– PADD PADD PADD PADD PADD 1,113 3,369 7,789 534 2,682 1,113 3,314 7,539 528 2,480 2,920 2,283 2,283 329 1,530 70 193 695 28 397 407 1,004 2,436 182 517 55 41 249 10 140 44 232 717 54 — Dec 10, 2010 Dec 3, 2010 Dec 11, 20092 15,487 15,392 14,136 14,974 14,903 13,804 9,345 9,338 9,097 1,383 1,402 1,445 4,546 4,494 3,726 495 516 572 1,047 1,088 977 17,594 Operable capacity 88.0 utilization rate Includes PADD Revised Source: US Energy Information Administration Data available in OGJ Online Research Center Oil & Gas Journal | Dec 27, 2010 101227ogj_25 25 25 12/21/10 1:47 PM STATISTICS OGJ GASOLINE PRICES BAKER HUGHES RIG COUNT Price Pump Pump ex tax price* price 12-15-10 12-15-10 12-16-09 ————— ¢/gal ————— (Approx prices for self-service unleaded gasoline) Atlanta 254.1 293.3 Baltimore 256.0 297.9 Boston 251.0 292.9 Buffalo 242.8 306.0 Miami 255.0 307.4 Newark 268.5 301.4 New York 251.2 314.4 Norfolk 258.0 295.9 Philadelphia 244.7 295.4 Pittsburgh 255.3 306.0 Wash., DC 265.1 307.0 PAD I avg 254.7 301.6 256.9 259.4 259.4 270.9 275.9 251.4 270.9 249.4 266.9 265.4 268.9 263.2 Chicago Cleveland Des Moines Detroit Indianapolis Kansas City Louisville Memphis Milwaukee Minn.-St Paul Oklahoma City Omaha St Louis Tulsa Wichita PAD II avg 269.2 246.7 253.7 250.8 250.4 244.1 248.7 249.0 242.4 250.9 241.9 244.5 250.9 243.2 242.6 248.6 327.2 293.1 294.1 305.0 303.5 279.8 289.6 288.8 293.7 296.5 277.3 290.9 286.6 278.6 286.0 292.7 283.3 272.1 248.1 275.1 270.1 234.2 258.2 240.1 265.5 258.6 221.2 245.1 234.1 219.1 235.7 250.7 Albuquerque Birmingham Dallas-Fort Worth Houston Little Rock New Orleans San Antonio PAD III avg 241.7 243.7 240.0 238.9 238.3 240.6 245.5 241.2 278.9 283.0 278.4 277.3 278.5 279.0 283.9 279.9 249.4 253.9 246.4 248.4 243.4 254.4 250.9 249.6 Cheyenne Denver Salt Lake City PAD IV avg 238.6 238.6 238.2 238.5 271.0 279.0 281.1 277.0 254.4 259.4 253.9 255.9 Los Angeles Phoenix Portland San Diego San Francisco Seattle PAD V avg Week’s avg Nov avg Oct avg 2010 to date 2009 to date 252.0 253.1 261.5 259.8 272.4 269.0 261.3 250.1 240.2 234.3 231.4 182.5 319.4 290.5 304.9 327.2 339.8 324.9 317.8 295.4 285.5 279.6 276.3 232.0 296.6 257.0 278.7 296.7 302.7 293.1 287.5 259.4 263.6 253.6 — — * Includes state and federal motor fuel taxes and state sales tax Local governments may impose additional taxes Source: Oil & Gas Journal Data available in OGJ Online Research Center REFINED PRODUCT PRICES 12-10-10 ¢/gal 12-10-10 ¢/gal Spot market product prices Motor gasoline No Distillate (Conventional-regular) Low sulfur diesel fuel New York Harbor 234.70 New York Harbor Gulf Coast 226.40 Gulf Coast Los Angeles Motor gasoline Kerosine jet fuel (RBOB-regular) New York Harbor 237.90 Gulf Coast 245.60 242.00 243.20 241.50 Propane No heating oil New York Harbor 243.00 Mt Belvieu 126.30 OGJ PRODUCTION REPORT 12-17-10 12-18-09 Alabama Alaska Arkansas California Land Offshore Colorado Florida Illinois Indiana Kansas Kentucky Louisiana N Land S Inland waters S Land Offshore Maryland Michigan Mississippi Montana Nebraska New Mexico New York North Dakota Ohio Oklahoma Pennsylvania South Dakota Texas Offshore Inland waters Dist Dist Dist Dist Dist Dist Dist 7B Dist 7C Dist Dist 8A Dist Dist 10 Utah West Virginia Wyoming Others—NV-6; VA-2 37 35 35 64 4 26 175 124 14 16 21 0 67 145 149 103 749 2 56 52 47 45 76 60 62 194 29 38 77 30 23 43 37 26 25 44 0 19 12 177 120 13 13 31 0 50 62 93 62 478 22 16 33 28 68 59 15 44 93 20 36 42 17 22 41 10 Total US Total Canada 1,709 500 1,193 368 Grand total US Oil rigs US Gas rigs Total US offshore Total US cum avg YTD 2,209 756 941 23 1,532 1,561 409 773 34 1,086 (Crude oil and lease condensate) Alabama 18 Alaska 627 California 620 Colorado 73 Florida Illinois 26 Kansas 110 Louisiana 1,559 Michigan 15 Mississippi 63 Montana 67 New Mexico 170 North Dakota 329 Oklahoma 186 Texas 1,470 Utah 62 Wyoming 139 All others 67 Total 5,604 OGJ estimate 2Revised Source: Oil & Gas Journal Data available in OGJ Online Research Center Alaska-North Slope 27° South Louisiana Sweet California-Midway Sunset 13° Lost Hills 30° Wyoming Sweet East Texas Sweet West Texas Sour 34° West Texas Intermediate Oklahoma Sweet Texas Upper Gulf Coast Michigan Sour Kansas Common North Dakota Sweet Data available in OGJ Online Research Center WORLD CRUDE PRICES $/bbl1 0-2,500 2,501-5,000 5,001-7,500 7,501-10,000 10,001-12,500 12,501-15,000 15,001-17,500 17,501-20,000 20,001-over Total 155 66 134 294 365 277 159 141 60 1,651 3.8 54.5 14.1 3.4 10.6 3.6 — — — 7.2 INLAND LAND OFFSHORE 16 1,617 18 12-18-09 Rig Percent count footage* 84 60 130 232 256 162 165 65 31 1,185 17 1,131 37 *Rigs employed under footage contracts Definitions, see OGJ Sept 18, 2006, p 42 1.1 70.0 26.9 6.4 12.5 1.8 — — — 10.8 12-10-10 United Kingdom-Brent 38° Russia-Urals 32° Saudi Light 34° Dubai Fateh 32° Algeria Saharan 44° Nigeria-Bonny Light 37° Indonesia-Minas 34° Venezuela-Tia Juana Light 31° Mexico-Isthmus 33° OPEC basket Total OPEC2 Total non-OPEC2 Total world2 US imports3 SMITH RIG COUNT 12-17-10 Percent footage* 12-17-10 $/bbl* 78.21 90.75 81.15 89.10 79.27 84.00 79.50 84.50 84.50 77.50 76.50 83.25 73.25 *Current major refiner’s posted prices except North Slope lags months 40° gravity crude unless differing gravity is shown Source: Oil & Gas Journal Source: Baker Hughes Inc Data available in OGJ Online Research Center Rig count 19 659 616 74 25 105 1,502 16 67 69 168 244 179 1,420 60 141 71 5,437 US CRUDE PRICES Rotary rigs from spudding in to total depth Definitions, see OGJ Sept 18, 2006, p 42 Proposed depth, ft 12-17-10 12-18-09 –—— 1,000 b/d —–— 91.17 88.55 88.65 88.30 91.68 92.34 93.87 87.66 87.55 89.73 88.81 87.39 88.21 85.90 - - Estimated contract prices 2Average price (FOB) weighted by estimated export volume 3Average price (FOB) weighted by estimated import volume Source: DOE Weekly Petroleum Status Report Data available in OGJ Online Research Center US NATURAL GAS STORAGE1 12-10-10 Producing region Consuming region east Consuming region west Total US Total US2 12-3-10 12-10-09 Change, –——––—— bcf —––——– 1,204 1,246 1,131 1,891 2,002 1,981 466 477 484 3,561 3,725 3,596 Change, Sept 10 Sept 09 % 3,500 3,643 % 6.5 –4.5 –3.7 –1.0 –3.9 Source: DOE Weekly Petroleum Status Report Data available in OGJ Online Research Center 26 101227ogj_26 26 Source: Smith International Inc Data available in OGJ Online Research Center Working gas 2At end of period Source: Energy Information Administration Data available in OGJ Online Research Center Oil & Gas Journal | Dec 27, 2010 12/21/10 1:50 PM STATISTICS WORLD OIL BALANCE OECD TOTAL NET OIL IMPORTS –––– 2010 –––– –––––––––––– 2009 ––––––––– 2st 1st 4th 3rd 2nd 1st qtr qtr qtr qtr qtr qtr ————————– Million b/d ————————– DEMAND OECD US & Territories Canada Mexico Japan South Korea France Italy United Kingdom Germany Other OECD Europe Australia & New Zealand Total OECD 19.30 2.23 2.17 4.04 2.18 1.77 1.47 1.62 2.39 19.03 2.19 2.14 4.79 2.31 1.85 1.45 1.65 2.38 19.25 2.17 2.15 4.60 2.26 1.82 1.54 1.61 2.39 18.97 2.16 2.11 4.11 2.03 1.77 1.55 1.66 2.41 18.85 2.08 2.02 4.04 2.14 1.76 1.50 1.67 2.39 19.10 2.20 2.06 4.73 2.31 1.97 1.52 1.73 2.58 6.88 6.85 7.00 7.08 6.94 7.09 1.42 45.47 1.39 46.03 1.42 46.21 1.41 45.26 1.40 44.79 1.37 46.66 NON-OECD China FSU Non-OECD Europe Other Asia Other non-OECD Total non-OECD 9.31 4.33 0.77 9.89 16.61 40.91 8.88 4.31 0.79 9.77 15.64 39.39 8.59 4.32 0.82 9.45 15.78 38.96 8.43 4.23 0.82 9.29 16.52 39.29 8.55 4.19 0.77 9.65 16.06 39.22 7.72 4.09 0.77 9.43 14.95 36.96 TOTAL DEMAND 86.38 85.42 85.17 84.55 84.01 83.62 SUPPLY OECD US Canada Mexico North Sea Other OECD Total OECD NON–OECD FSU China Other non-OECD Total non-OECD, non-OPEC 9.54 3.30 2.99 3.74 1.53 21.10 9.46 3.29 3.02 4.07 1.56 21.40 9.40 3.36 2.98 4.06 1.59 21.39 9.33 3.32 2.96 3.81 1.60 21.02 9.10 3.11 2.99 4.01 1.57 20.78 8.78 3.39 3.06 4.40 1.59 21.22 13.20 4.23 12.86 13.16 4.16 12.80 13.12 4.03 12.65 13.00 4.02 12.51 12.89 3.99 12.46 12.61 3.94 12.46 Chg vs previous Aug July June Aug ——– year —— 2010 2010 2010 2009 Volume % –———————— Million b/d ––——————– Canada US Mexico France Germany Italy Netherlands Spain Other importers Norway United Kingdom Total OECD Europe Japan South Korea Other OECD –1,482 9,973 –1,093 1,751 2,415 1,515 755 1,478 3,709 –1,639 449 10,433 4,352 2,048 811 –1,391 10,123 –1,053 1,594 2,347 1,262 854 1,435 3,895 –1,845 382 9,924 4,272 2,175 772 –1,422 10,066 –724 1,644 2,109 1,394 1,097 1,338 3,867 –1,824 153 9,778 3,880 2,163 1,320 –1,257 9,064 –856 1,790 2,113 1,206 847 1,429 3,602 –1,896 479 9,570 4,273 2,124 875 –225 909 –237 –39 302 309 –92 49 107 257 –30 863 79 –76 –64 17.9 10.0 27.7 –2.2 14.3 25.6 –10.9 3.4 3.0 –13.6 –6.3 9.0 1.8 –3.6 –7.3 Total OECD 25,042 24,822 25,061 23,793 1,249 5.2 Source: DOE International Petroleum Monthly Data available in OGJ Online Research Center OECD* TOTAL GROSS IMPORTS FROM OPEC Chg vs previous Aug July June Aug ——– year —–— 2010 2010 2010 2009 Volume % –———————— Million b/d ––——————– Canada US Mexico 290 5,083 10 422 5,144 30 536 5,263 320 4,530 21 –30 553 –11 –9.4 12.2 –52.4 France Germany Italy Netherlands Spain Other importers 811 525 1,082 614 834 1,175 794 362 1,129 626 826 1,218 645 317 1,172 506 756 1,144 641 395 847 643 650 947 170 130 235 –29 184 228 26.5 32.9 27.7 –4.5 28.3 24.1 United Kingdom 333 272 272 259 74 28.6 30.29 30.12 29.80 29.53 29.34 29.01 OPEC* 34.65 34.45 33.87 34.26 33.60 33.37 TOTAL SUPPLY 86.04 85.97 85.06 84.81 83.72 83.60 Total OECD Europe 5,374 5,227 4,812 4,382 992 22.6 Stock change –0.34 0.55 –0.11 0.26 –0.29 –0.02 Japan South Korea 3,527 2,298 3,484 2,220 3,153 2,313 3,637 2,324 –110 –26 –3.0 –1.1 Other OECD 593 471 730 582 11 1.9 Total OECD 17,175 16,998 16,814 15,796 1,379 8.7 *Includes Angola Source: DOE International Petroleum Monthly Data available in OGJ Online Research Center *Organization for Economic Cooperation and Development Source: DOE International Petroleum Monthly Data available in OGJ Online Research Center US PETROLEUM IMPORTS FROM SOURCE COUNTRY Chg vs Average previous Aug July ——YTD—— ——– year —— 2010 2010 2010 2009 Volume % –———––––––—— 1,000 b/d ––—––––––———– Algeria Angola Kuwait Nigeria Saudi Arabia Venezuela Other OPEC Total OPEC 565 484 251 985 1,132 1,022 644 5,083 518 374 189 1,174 1,053 1,084 752 5,144 504 419 210 1,041 1,086 1,006 747 5,013 479 494 174 740 1,042 1,117 821 4,867 25 –75 36 301 44 –111 –74 146 5.2 –15.2 20.7 40.7 4.2 –9.9 –9.0 3.0 Canada Mexico Norway United Kingdom Virgin Islands Other non-OPEC Total non-OPEC TOTAL IMPORTS 2,483 1,282 57 266 339 2,831 7,258 12,341 2,534 1,289 119 351 239 2,925 7,457 12,601 2,543 1,253 99 290 257 2,534 6,976 11,989 2,468 1,228 120 247 292 2,784 7,139 12,006 75 25 –21 43 –35 –250 –163 –17 3.0 2.0 –17.5 17.4 –12.0 –9.0 –2.3 –0.1 Source: DOE Monthly Energy Review Data available in OGJ Online Research Center Oil & Gas Journal | Dec 27, 2010 101227ogj_27 27 OIL STOCKS IN OECD COUNTRIES* Chg vs previous Aug July June Aug ——– year —— 2010 2010 2010 2009 Volume % –———————— Million bbl ––——————– France Germany Italy United Kingdom Other OECD Europe Total OECD Europe 171 287 133 92 719 1,402 168 280 127 95 718 1,388 170 281 133 95 724 1,403 178 284 130 96 722 1,410 –7 3 –4 –3 –8 –3.9 1.1 2.3 –4.2 –0.4 –0.6 Canada US Japan South Korea Other OECD 198 1,857 597 169 115 197 1,853 598 170 116 189 1,839 597 167 120 201 1,834 610 160 111 –3 23 –13 –1.5 1.3 –2.1 5.6 3.6 Total OECD 4,338 4,322 4,315 4,326 12 0.3 *End of period Source: DOE International Petroleum Monthly Report Data available in OGJ Online Research Center 27 12/21/10 1:50 PM MARKETPLACE DEADLINE for MARKETPLACE ADVERTISING is 10 A.M Tuesday 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his ability to balance the complex interests of environmental groups, energy developers, utilities, and consumers; and, in an election year, for turning the tide against a regulatory framework that potentially supports legalized pollution.” On Dec 2, the US Environmental Protection Agency gave the movie star its Climate Change Champion Award “in recognition of his accomplishments in green energy, clean technology, but above all for his extraordinary leadership in the struggle against global climate change.” Californians must be very proud—at least those not on the receiving end of a state unemployment rate above 12% Schwarzenegger is proud Accepting the Beautiful Earth award, he said, “California is showing the world that you can protect the environment and grow the economy at the same time We are creating a new economic foundation for the 21st Century built on clean fuel, clean energy, and clean cars that is turning California into the green capital of the nation and the world, and I couldn’t be more proud of these accomplishments.” Never mind that Chief Executive magazine ranks California at the bottom of states in business climate, in part because of burdensome environmental regulations Never mind that California in October closed a $19 billion fiscal gap with a budget that the credit-rating service Moody’s said “relies heavily on one-time measures, optimistic revenue assumptions, and the receipt of funds some of which may not materialize.” Moody’s warned of future budget gaps of at least $12 billion The “green capital” is broke But its governor is an environmental champion Does anybody see a connection? by Sam Fletcher, Senior Writer As Edmund Burke, British statesman and philosopher, famously said, “Those who not learn from history are destined to repeat it.” Now, industry analysts are forecasting oil will again top $100/bbl in 2011 Goldman Sachs Group Inc., known for price predictions beyond the Wall Street consensus, said Dec 13 continued overproduction will reduce the Organization of Petroleum Exporting Countries’ spare production capacity and might push crude prices above $100/bbl in the second half of 2011 That prediction came as energy prices escalated after OPEC ministers decided at their Dec 11 meeting to maintain official production quotas at a total 24.9 million b/d although members actually are producing closer to 29 million b/d However, Paul Horsnell, managing director and head of commodities research at Barclays Capital in London, said, “There is nothing magical about $100/bbl, nor is there anything new It has been part of our 2011 forecast…since early 2009, and it continues to be part of that forecast.” Although he expects to see $100/bbl in 2011, he does not expect oil will average $100/bbl He said an average of $85/bbl a year likely would involve periods of trading above $100/bbl “Our original forecast [for an average $85/bbl in 2011] all the way back in April 2009 certainly assumed that $100/bbl would be seen at points When the forecast was put at $95/bbl, or like the current forecast $91/bbl, those averages also embody a certainty of an intrayear high above $100/bbl,” Horsnell said While key producers are now “somewhat on the slowish side” in reining in higher prices, Horsnell said, “We expect that ultimately control will be re-established An average above $100/bbl at this point would require an explosive upside that can only really be generated by an even greater injection of geopolitical concerns than the already significant escalation that we see as likely An assumption of limited producer control over the upside generating a $100/bbl average does not seem tenable to us The perfect storm of political and economic factors that generated a short-lived explosive upside in 2008 is no longer present.” Even in 2008, he said, “Prices did not average $100/bbl for the year, with the slide in the fourth quarter bringing the annual average for West Texas Intermediate to $99.75/bbl Our forecast of an average lower than the all-time high but within 10% of it appears to us to be the best base case for 2011 It is in 2012 that we expect the annual record to be broken Our 2012 forecasts are unchanged at $105/bbl for North Sea Brent crude and $106/bbl for WTI.” Straddling $90/bbl Analysts at KBC Energy Economics, a division KBC Advanced Technologies PLC in Surrey, UK, noted crude oil futures prices “continued to straddle $90/bbl” during trading sessions of Dec 13-17, with the February Brent contract priced just under $92/bbl and the WTI January contract just under $88/bbl on Dec 17 “The spread between the two marker grades is currently around $3.40/bbl for February; the January ICE Brent contract went off the board at a $4/bbl premium to the US grade, the biggest gap between the two grades since May,” said KBC analysts “The premium held by Brent reflects partly the high stocks that remain at landlocked Cushing, Okla., [storage] where tanks have been filling up as the region absorbs Canadian supply The inversion of what for many years had been a usual premium for WTI over Brent looks increasingly structural, however, and the futures strip reflects a premium for ICE Brent right out to the back end of the forward curve,” they said During that same week, retail gasoline prices ticked up to a new 2-year high, “although the national average stayed just a shade below $3/gal,” said Horsnell at Barclays “The national average for regular gasoline prices rose by 2.2¢ to now stand at $2.98/gal,” he reported ONLINE DEC 20, 2010 | samf@ogjonline.com ONLINE DEC 17, 2010 | bobt@ogjonline.com 30 101227ogj_30 30 Oil & Gas Journal | Dec 27, 2010 12/20/10 4:40 PM [...]... and transit.” The essays in this report take up the broad geopolitics of cross-border pipeline development, the progress in development of new oil and gas pipelines from Russia’s Eastern Siberia to China and Northeast Asia, and prospects for Central Asian oil and gas pipelines to East Asia Also included are essays on India’s gas pipeline dilemmas and challenges, as well as the implications of new oil. .. lines with new overland pipeline routes.” Asia’s scramble for oil and gas has also been triggered by the break-up of the former Soviet Union, which Herberg said freed up “enormous new potential reserves of oil and gas in Central Asia” as well as “scaled up production” from Russia, especially fields in East Siberia Zero-sum competition The rise of China and the country’s booming oil and gas needs in particular... develop a number of major Asian and Eurasian oil and gas pipelines to move oil and gas across the region,” Herberg said, citing three facts that drive the trend Three drivers The first of these, according to Herberg, involves the fact that an increasing share of Asia’s oil and liquefied natural gas supplies will have to transit the Indian Ocean, Malacca Strait, and the South China Sea Herberg cited figures... Zealand Roc Oil Co Ltd., Sydney, heads a group that plans to bring the Kaheru prospect on PEP 52181 just off New Zealand’s North Island to the drilling phase The permit covers 42,379 acres in the main Taranaki basin oil and gas discovery fairway TAG Oil Ltd., Vancouver, BC, has joined the joint venture with 20% interest in the permit PEP 52181, 8 km offshore, contains Kaheru and numerous leads and. .. transmission pipelines, and how local planners, developers, and pipeline operators can communicate during development phases to understand pipeline risks and minimize pipeline damage from excavation and construction Edwards said the goal is to help local governments evaluate the risks associated with developments near pipelines and make more informed decisions as they set zoning rules Oil & Gas Journal | Dec... make their planned refineries become reality Oil & Gas Journal | Dec 27, 2010 101227ogj_19 19 NICK SNOW Washington Editor | Blog at www.ogj.com Bromwich isn’t done As the US offshore oil and gas industry tried to adjust to new federal regulations in the wake of the Macondo well accident and crude oil spill, the US Bureau of Ocean Energy Management, Regulation, and Enforcement’s director signaled that more... holes or inflicted hacksaw cuts to siphon oil “Last year, 98% of the oil spilled from SPDC operations was caused by sabotage,” said Babs Omotowa , Shell vicepresident for health, safety, and environment and infrastructure and logistics in Africa Nigerian militants claim to be fighting against the region’s endemic poverty and pollution which they say is Oil & Gas Journal | Dec 27, 2010 12/22/10 10:40 AM... along with a motion calling on Judge Nicolas Zambrano to declare the lawsuit null and void Chevron also asked Oil & Gas Journal | Dec 27, 2010 101227ogj_21 21 Pipeline diplomacy in Asia The international oil and gas industry understands the need for diplomacy, a skill that is coming to dominate the matter of constructing and operating pipelines That is certainly the emphasis of a recent study published... traditional drop-side cribs “after the deaths of more than 30 infants and toddlers in the past decade and millions of recalls.” A new standard for fixedside cribs takes effect next June Oil & Gas Journal | Dec 27, 2010 12/22/10 10:40 AM from PennEnergy Research Most current information available Comprehensive international listings Oil, natural gas, & electric power industries Searchable & printable Online... funding their spending spree When Congress needs money, oil and gas companies should hide the cash box Obama’s vision Without question, Republican control of the House and gains in the Senate lower chances for realization of Obama’s vision for oil and gas taxation, with its repeal of producer incentives, denial of tax breaks available to other industries, and other such horrors But Republicans aren’t yelling