Saturday, October 31, 2009

Natural Gas Rig Count Up by 3

NEW YORK, Oct 30 (Reuters) - The number of rigs drilling for natural gas in the United States climbed by three this week to 728, according to a report on Friday by oil services firm Baker Hughes in Houston.

The U.S. natural gas drilling rig count has gained in 13 of the last 15 weeks after bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

But the rig count is still down sharply since peaking above 1,600 in September of last year, standing at 824 rigs, or 53 percent, below the same week in 2008.

Many gas producers have scaled back drilling operations with credit still tight and natural gas prices around $4 per million British thermal units (mmBtu), off nearly 70 percent from July 2008 highs above $13.

The steep declines in drilling this year have started to slow production and tighten supplies, but most traders agreed it has not been enough yet to offset record high inventories and steep recession-related cuts in demand, particularly in the industrial sector. (Reporting by Joe Silha; Editing by Lisa Shumaker)

Friday, October 30, 2009

Storage High for Natural Gas

By DEBORAH JIAN LEE (AP) – 7 hours ago

NEW YORK — Natural gas stockpile levels rose last week to a new high, the government said Thursday.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states grew by 25 billion cubic feet to about 3.78 trillion cubic feet for the week ended Oct. 23.

Analysts had expected a boost of between 27 billion and 31 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The inventory level was 12.4 percent above the five-year average of about 3.35 trillion cubic feet, and 11 percent above last year's storage level of about 3.39 trillion cubic feet, according to the government data.

Natural gas 3 cents to $5.036 per 1,000 cubic feet on the New York Mercantile Exchange.

Thursday, October 29, 2009

Chesapeake Says No to New York Watershed

NEW YORK, Oct 28 (Reuters) - Chesapeake Energy (CHK.N) has decided not to drill for natural gas in the New York watershed, following pressure from environmentalists who say drilling could contaminate water supplies to the New York City area.

The U.S. natural gas producer said on Wednesday that it will not develop its leases in shale gas plays in upstate New York ahead of hearings on state rules on the drilling Wednesday.

"[Chesapeake] has no intention of drilling natural gas wells within the New York City watershed," the company said in a statement.

Extracting natural gas from shale formations involves a process called hydraulic fracturing, or fracking, in which a mixture of water, chemicals and other materials like sand are pumped into the shale formation to split the rock and free the trapped gas. Environmentalists say the process contaminates groundwater.

"It has become increasingly clear to us over the past few months that the concern for drilling in the watershed has become a needless distraction," said Aubrey K. McClendon, Chesapeake's Chief Executive Officer, in the statement.

Chesapeake is the largest shareholder in the massive Marcellus Shale gas formation which extends across much of Pennsylvania and parts of West Virginia, Ohio and New York. It is likely the nation's largest shale reservoir and geologists say it could satisfy U.S. natural gas demand for a decade or more.

Chesapeake said that drilling in shale gas is still safe, though environmentalists see this as a victory against shale development in New York.

"We've said all along that drilling in the New York City watershed is a terrible idea," said Deborah Goldberg, Managing Attorney at environmentalist group Earth Justice which has been campaigning against the development.

"We're glad to hear that Chesapeake Energy understands the risk and has promised not to drill in this area," she added. (Reporting by Edward McAllister)

Wednesday, October 28, 2009

Natural Gas Storgage Facilities Rising

his Dutch Company Is Taking the Natural Gas Sector by Storm

By Christian A. DeHaemer
Tuesday, October 27th, 2009
The greatest — and most ironic — thing about Chicago Bridge & Iron is that they aren't in Chicago. . . don't build bridges. . . and have very little to do with iron.

What the company does do, however, is all the rage. The Netherlands-based engineering company makes infrastructure for natural gas storage and transportation. This sector is so hot that they've picked up six contracts since September — including one just yesterday.
Gas is Expanding

Around the world, the total known reserves for natural gas are expanding rapidly. In the United States, known reserves have increased 48% over the past three years, due to new drilling techniques called fracting. A natural gas consortium is running television ads saying that we have a 100 year supply of this clean plentiful energy.

China has entire city fleets of buses and taxis that run on compressed natural gas. China also has massive amounts of coal-based methane — methane that sits on top of coal fields. Again, new technology is allowing China to utilize their resources.

Russia's Gasprom (OGZD.IL) has more BTU's in natural gas than Saudi Arabia has in oil, and is now exporting natural gas to California from Siberia.

T. Boone Pickens and his Clean Energy Fules Corp. (CLNE) are running port facilities where every vehicle is based on natural gas. He has had meetings with President Obama and Al Gore on the subject.

Honda has a natural gas car available for sale today that you can plug into a gas pipe in your garage.

Peterbuilt is selling natural gas long haul trucks because it makes fiscal sense to run on NG, as it's cheaper and cleaner. . .


The U.S. has too much natural gas. . . so much, in fact, that the price has dropped to ten-year lows — from $14 to $2.80, while oil went from $35 to $80 a barrel. (I should note, there's been a recent suckers' rally that pushed it back above $4).

"That's great," you say. . . "Cheap, clean energy for everyone. . . but how does this make me money?"

You can't buy the explorers; you can't buy the producers or the service guys; rig counts have fallen through the floor. . .

But what you can buy is the one company that builds storage and transfer stations.

Chicago Bridge and Iron (CBI:NYSE) is an engineering company that produces the infrastructure for natural gas storage and transportation. I mentioned earlier that the company has picked up six new contracts since September — these include a $70 million deal they picked up last week to build a facility in Siberia, and another $100 million deal on Friday.

According to Yahoo:

Chicago Bridge & Iron Co. NV, an energy-infrastructure construction company, on Friday said it received a contract worth more than $100 million from UGI LNG Inc. to engineer and construct the expansion of a Temple LNG peak shaving facility near Reading, PA.

Under the contract, CB&I will be responsible for the addition of a new 50,000 cubic meter liquefied natural gas storage tank and related processing facilities designed to provide 150 million cubic feet of natural gas per day during peak demand periods.

As you can see in the chart below, they have sliced through all resistance and appear to have none until they hit $30. They have a decent balance sheet, a P/E of 11, and should continue to grow with the expansion of the natural gas industry:



EAC_2

The company has a conference call today, and I think the sentiment will be bullish.

Sincerely,

Christian DeHaemer
Editor, Energy & Capital

Tuesday, October 27, 2009

Natural Gas Play from Shale

Vincent Fernando|Oct. 26, 2009, 11:39 AM

Production of natural gas from shale has been surprising both industry players and analysts on the upside, which clearly isn't helpful for natural gas prices either now or into 2010.

Dozens of companies are drilling shale or other unconventional sources due to what they see as the potential for very high returns, even despite the relatively low gas prices of late.

Thus the era of ultra-cheap natural gas could be upon us, which would be bad news for gas ETFs such as United States Natural Gas (UNG). Natural gas prices are currently down over 5%.

The Barrel: One recent example of just how jaw-dropping the US shale gas story has become came from big independent Newfield Exploration. Houston-based Newfield said in a conference call this week that its production from Oklahoma's Woodford Shale today is 308,000 Mcfe/d, versus about 240,000 Mcfe/d at June 30 -- up nearly 30% in less than four months. Moreover, the company has an inventory of 28 drilled but uncompleted Woodford wells waiting to be put online by early 2010, signalling the potential to boost production still higher.

The astounding output jump prompted a comment from analysts at investment bank Wells Fargo, who in an October 22 report called Newfield's gushing Woodford production trend "disturbing." They noted the company's output had "reached recent highs despite (a drilling) slowdown and deferred completions."

But Newfield, and the Woodford field, are hardly the only purveyors of ├╝ber-volumes of gas. Despite cutbacks in activity elsewhere, dozens of companies both large and small are drilling away at shale and other unconventional plays which they claim continue to offer towering economic rates of return. Their efforts have resulted in huge gas volumes flowing around the US and also recently in Canada. But with just a week left in the refill season, US gas storage bins are brimming over with the commodity. And current demand is not enough to use it all, which could continue the surplus into next year.

...

While prices are now teetering at the $5/Mcf level, many industry observers look at storage figures and scratch their heads. Says one: "Given the amount of gas sitting around out there, it's a mystery why prices are so high."

Read more here.http://www.businessinsider.com/shale-is-really-screwing-natural-gas-investors-2009-10

Monday, October 26, 2009

Pennsylvania Natural Gas Industry Update

http://www.philly.com/inquirer/local/20091025_How_Marcellus_Shale_gas_came_to_be_tax-exempt_in_Pa_.html

How Marcellus Shale gas came to be tax-exempt in Pa.

By Mario F. Cattabiani and Amy Worden
Inquirer Staff Writers

HARRISBURG - All through Pennsylvania's 101-day budget impasse, Gov. Rendell spoke of pain.

A recession-weary state had to tighten its belt. Revenues had to rise - income tax, sales tax, new taxes on whole industries. "We can't get this budget resolved," Rendell said, "without everyone feeling some pain."

But when the budget was finally signed Oct. 9, one industry came away pain-free.

The natural-gas industry's leaders and lobbyists beat back Rendell's proposal to tax gas as it is pulled to the surface from the rich black-rock reservoir known as the Marcellus Shale.

So, as drilling rigs are sprouting in the state's northern tier and southwestern corner, the gas those rigs are extracting still isn't taxed. That makes Pennsylvania unique among the 15 states that produce the most natural gas.

What's more, the industry persuaded Harrisburg to lease more public land to gas drillers - even as the state's budget for environmental protection was being sharply cut.

What happened to Rendell's gas-tax proposal?

He says the industry made good arguments for staving it off. He did not want to slow the "gold rush," as he called it, of jobs and commerce the drillers would bring.

One legislator came away with a more cynical view.

"The same old influential interest groups getting their way," said State Rep. Greg Vitali (D., Delaware). "It was just another day in Harrisburg."

What follows is a closer look at some key moments in the short life of Rendell's proposal to help balance the budget by taxing natural gas.

Tapping "the gold rush." As Rendell prepared his Feb. 4 budget address, a boom was under way. Natural-gas industry representatives were fanning out across the state, securing leases and drilling wells at twice last year's pace.

Rendell, a policy wonk, did his homework. He spoke with Gov. Joe Manchin III of West Virginia, a state that also sits atop the Marcellus Shale and has taxed natural gas for years.

In his budget address, Rendell proposed to tax gas extracted in Pennsylvania.

Rendell said Manchin, a fellow Democrat, had assured him that West Virginia's tax did not "inhibit gas extraction and that it is continuing at a record pace, and it's reaping critically needed revenues so the state can provide services to its citizens."

Rendell's plan matched West Virginia's - a 5 percent tax on the value of natural gas at the wellhead, plus 4.7 cents per 1,000 cubic feet of natural gas extracted.

By Rendell's estimates, such a tax could raise $107 million for Pennsylvania in its first year, helping fill a billion-dollar budget gap.

In a recent interview, Manchin described what he said to Rendell months ago.

"The Marcellus Shale is a tremendous producer. A severance tax will not deter" the drillers, Manchin said. "Believe me, if we didn't have the gas, they wouldn't be here."

Manchin said he had faced industry complaints in 2005 when he proposed to expand the tax, with some companies threatening to leave.

Sunday, October 25, 2009

Natural Gas Meetings in New York

http://www.farmanddairy.com/news/marcellus-shale-summit-set-in-ny/13395.html

OWEGO, N.Y. — Cornell Cooperative Extension, in collaboration with a number of local and statewide partners, will host a Marcellus Shale Natural Gas Summit at the Owego Treadway Inn, in Owego, N.Y., Nov. 30 from 8:30 a.m. to 5 p.m.

Local government officials, landowner coalition representatives, citizens seeking more information, industry representatives, environmental advocates, and researchers and educators are encouraged to attend.

Objectives

“The summit’s goals and objectives are to inform and educate; prepare for challenges and opportunities; gather information for ongoing research; and promote networking among multiple stakeholders,” said Rod Howe, assistant director of Cornell Cooperative Extension.

The summit coincides with the end of the NYS Department of Environmental Conservation’s comment period for the supplemental Generic Environmental Impact Statement (sGEIS) which is currently set for Nov. 30.

That document is available at www.dec.ny.gov/energy/58440.html.

Legislative and regulatory controls are being scrutinized as intensive gas drilling of the Marcellus Shale has the potential to transform the fabric of many-especially rural-communities in New York state in ways that are both positive and negative.

Intensive natural gas development in other states has been accompanied by substantial changes in population, land use, environment, community, and economy.

Questions

The summit will address two key questions: Where do the people and the communities of New York State go from here in addressing the myriad issues associated with gas drilling? What strategies can be implemented to protect the environment and help the regional economy?

“When concerned parties are proactively engaged in education and dialogue, they are better prepared to anticipate, shape, and respond to changes,” said Howe. “And the more likely it is that negative impacts will be minimized and positive aspects realized.”

Topics

Cornell faculty and educators will join with other professionals to address such educational workshop topics as the geology of the shale; municipalities and the Marcellus shale; environmental, water and regulatory issues; local government preparation; workforce development and small business application; landowner management; legal issues; water and wells; community development; taxation, revenues, and property valuation; state and national energy plans.

The summit is open to the public and will cost $40. Summit information, including a registration link, may be found at http://gasleasing.cce.cornell.edu.

Saturday, October 24, 2009

Natural Gas Rig Count at 725 in the USA

NEW YORK, Oct 23 (Reuters) - The number of rigs drilling for natural gas in the United States climbed by four this week to 725, according to a report on Friday by oil services firm Baker Hughes in Houston.

The U.S. natural gas drilling rig count has gained in 12 of the last 14 weeks after bottoming at 665 on July 17, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

But the rig count is still down sharply since peaking above 1,600 in September of last year, standing at 804 rigs, or 53 percent, below the same week in 2008.

Many gas producers have been forced to scale back drilling operations with credit still tight and natural gas prices around $5 per million British thermal units (mmBtu), down more than 60 percent from July 2008 highs above $13.

The steep declines in drilling this year have started to slow production and tighten supplies, but most traders agreed it has not been enough yet to offset record high inventories and steep recession-related cuts in demand, particularly from the industrial sector. (Reporting by Joe Silha; Editing by Lisa Shumaker)

Friday, October 23, 2009

Natura Gas Stock Rise Meets Expectation

By DEBORAH JIAN LEE (AP) – 9 hours ago

NEW YORK — Natural gas stockpile levels rose again last week, the government said Thursday.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states grew by 18 billion cubic feet to about 3.73 trillion cubic feet for the week ended Oct. 16.

Analysts had expected a boost between 16 billion and 20 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The inventory level was 13.1 percent above the five-year average of about 3.3 trillion cubic feet, and 11.9 percent above last year's storage level of about 3.34 trillion cubic feet, according to the government data.

Natural gas rose by 7.8 cents to $5.178 per 1,000 cubic feet on the New York Mercantile Exchange.

Copyright © 2009 The Associated Press. All rights reserved.

Thursday, October 22, 2009

Canadian Natural Gas Producers Have Tough Production Pricing Model

http://www.financialpost.com/news-sectors/story.html?id=2125977
Carrie Tait, Financial Post Published: Wednesday, October 21, 2009

Read more: http://www.financialpost.com/news-sectors/story.html?id=2125977#ixzz0Uc4WZ3Ti
The New Financial Post Stock Market Challenge starts in October. You could WIN your share of $60,000 in prizing. Register NOW


Rising natural-gas prices may bring some relief to Canada's dismal export picture but the fossil fuel's economic contribution may be muted by the strong Canadian dollar and declining output, the result of energy companies pulling back production plans during the past two years.

Natural gas settled at US$5.16 per million British thermal units on the New York Mercantile Exchange yesterday, up nearly 7% on the day. The spot price for natural gas dipped below US$3 in August, a seven-year low.

"It could end up being net neutral," said Peter Tertzakian, chief energy economist at Calgary's ARC Financial Corp. "The good news is price is going up; the bad news is volume is going down."

Energy's contribution to the Canadian economy has traditionally been split 50/50 between oil and gas, Mr. Tertzakian said.

That divide, however, has been shifting in oil's favour as bitumen production and demand are climbing and natural-gas efforts have slowed.

While oil's popularity makes up for natural gas's economic shortcomings, Canada loses its diversification advantage while heavily relying on one market, the United States.

"As long as [oil] is in demand, we're OK," Mr. Tertzakian said. "But if anything serves to challenge or threaten that product, you're...more vulnerable."

Indeed, a slew of legislators and lobby groups in the United States are trying to ban oil made from Alberta's bitumen, arguing greenhouse gases emitted as it is extracted and processed are especially high. The logistics of such an idea, along with continued healthy demand from south of the border, serve as a huge hurdle to the green campaign.

However, natural-gas producers will be reluctant to resume drilling until prices show long-term stability between US$5 and US$8 per mmBtu, Mr. Tertzakian said. And even when companies decide to head back into the field, there is a lag time of about a year before new gas hits the market.

Bart Melek, BMO Capital Markets' global commodities strategist, argues Canada will immediately benefit from higher prices.

"Higher prices...mean better trade numbers for Canada," the Toronto-based number-cruncher said. "It helps the current account balance almost immediately."

"It has an impact...in fairly quick order through the trade balances.... The implications, of course, are that it is good for the economy."

Canada posted a record trade deficit in August of $2.0-billion, dragged down by slumping manufacturing exports and lower values for commodities. Although commodity prices have rebounded in recent months, many remain below their highs. Natural gas has been decidedly slow to join in on the global economic recovery story.

Canada, Mr. Melek calculates, supplies between 13% and 14% of the natural gas used in the United States. While storage inventories are roughly 14% higher than they were a year ago and about 15% above the five-year average, winter is about to take control of North America's thermostat. Cold weather means rising demand.

But at the same time, Todd Hirsch, a senior economist at ATB Financial, argues natural-gas prices are bumping up against the top end of his price forecast. On the low end, gas could dip to US$3.50 per mmBtu, he said.

"Because of the shale gas in the United States, if the price gets any higher than US$5, it is going to be a signal for them to put more of it on the market," Mr. Hirsch said. "And they can [produce it economically] for US$4."

"At US$5, they just kind of shut it in [in Alberta] because they can't produce it economically," the Calgary-based economist said. "Gas producers [in Alberta] need around $6."

ctait@nationalpost.com

Read more: http://www.financialpost.com/news-sectors/story.html?id=2125977#ixzz0Uc3fOdUE
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Wednesday, October 21, 2009

Natural Gas Prices Breaks $5.00/MMBtu on Monday

By Reg Curren

Oct. 20 (Bloomberg) -- Natural gas advanced to a nine-month high in New York as Caterpillar Inc. topped third-quarter profit estimates and said there were signs of an economic recovery.

Fuel use may increase as Caterpillar, the world’s biggest maker of bulldozers and excavators, said industrial production has improved and forecast a 3 percent expansion in the world economy next year. Demand for gas from factories, steel mills and chemical plants accounts for 29 percent of U.S. consumption.

“Our expectation is that as the recession continues to be behind us and the economy improves, U.S. gas demand will come roaring back,” John Hattenberger, president of OAO Gazprom’s U.S. energy trading unit, said in an interview from Houston on Bloomberg Television. Gazprom, based in Moscow, is the world’s largest natural-gas producer.

Gas for November delivery rose 32.6 cents, or 6.7 percent, to $5.161 per million British thermal units at 2:49 p.m. on the New York Mercantile Exchange, the highest settlement price since Jan. 13. Prices have dropped 8.2 percent this year.

“There is this feel-good story out there that the things going on at Caterpillar and Apple mean that gas demand is not far away,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “It’s the recovery and you have cold weather, which means higher prices for natural gas.”

Industrial users trimmed gas purchases by 12 percent in the first seven months of the year amid the worst economic slowdown since the 1930s, according to the Energy Department.

Depressed Prices

“People are looking at corporate earnings and industrial demand picking up,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “It’s a bit of wishful thinking.”

Prices will be depressed for two to three years as the slowdown weighs on consumption, Paolo Scaroni, the head of Eni SpA, Italy’s biggest energy company, said at a London news conference.

Stockpiles rose to 3.716 trillion cubic feet in the week ended Oct. 9, a third consecutive record, an Energy Department report last week showed. Supplies may rise another 18 billion in the government’s next report, due Oct. 22, based on the median of six analyst estimates compiled by Bloomberg.

Speculators are in search of “cheap” energy investments and natural gas has lagged behind gains made by other commodities, Rose said. “When you look at the commodity board, the one thing that stands out, that has been beaten down, is natural gas.”

Commodity Index

Gas futures so far this year are the third-worst performer on the Reuters/Jefferies CRB Index of 19 commodities, after wheat and hogs. The index has advanced 21 percent since the end of December, led by gains in copper, sugar and gasoline.

“A close above $5.12 would bring a whole new set of people buying the breakout and it looks like it’s going to hold,” said Rose. “The $5.12 had been overhead resistance, and once they break through it, it becomes support,” said Rose, who said prices will probably rise to about $5.50 per million Btu.

A blast of cold weather in the U.S. last week limited the build-up of gas inventories and will keep storage from reaching capacity, said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary.

“It looks as though the ultimate worst-case scenario for gas storage topping out near or above 3.9 trillion cubic feet by the end of October has been avoided,” King said in a note to clients.

The Energy Department earlier this month forecast that supplies held in abandoned oil and gas fields, aquifers and salt caverns will probably reach 3.85 trillion cubic feet, just under its estimated storage capacity of 3.889 trillion, before cold weather begins to boost demand.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net
Last Updated: October 20, 2009 15:50 EDT

Tuesday, October 20, 2009

Chevron Natural Gas Find in Australia

Chevron makes natural gas discovery in Carnarvon basin

Published: Oct 19, 2009

Offshore staff

SAN RAMON, California -- The Achilles-1 exploration well in the Carnarvon basin has hit natural gas pay, according to operator Chevron Australia. The offshore-Australia well was drilled to a total depth of 14,800 ft (4,500 m) and encountered approximately 325 ft (100 m) of net gas pay, the company reports.

The Achilles-1 well is in the WA-374-P permit area. Chevron Australia is the operator with a 50% interest, while Shell Development (Australia) and ExxonMobil Australia each hold 25%. Chevron is currently spudding the Satyr-1 exploration well in the permit area.

“As we expand our Australia natural gas business, additional discoveries in the most prospective areas in the region will be expected to be tied into facilities already under construction or being planned,” says Jim Blackwell, president of Chevron Asia Pacific exploration and production.

10/19/2009

Monday, October 19, 2009

Natural Gas Prices Expected to Rise & Fall & Rise

http://www.energytribune.com/articles.cfm?aid=2457

In the last six weeks natural gas futures prices have jumped from a modern day low to nearly $5 per thousand cubic foot (Mcf) as commodity traders and investors started to cover their short positions in this fuel as the days moved closer to the beginning of the winter heating season. The jump in the gas price ends what has been an extended price slide that started back in summer of 2008 when prices were in excess of $13 per Mcf and early signs of the developing global recession emerged.

The traders and investors who have been covering their negative bets on natural gas prices have been motivated by signs the nascent U.S. economic recovery is gathering strength, especially among sectors such as automobiles and home construction that are large consumers of natural gas and its components as feedstocks for petrochemical materials. Additionally, there was the realization that the ratio of crude oil to natural gas prices, which at one point this summer stood at 27:1 (27.08) in contrast to the inherent energy- value ratio of 6:1, was way out of line historically and certainly unsustainable.

At the start of 2009, the oil-to-gas price ratio stood at slightly under 8:1 (7.94). It subsequently dropped in early January to the low so far for the year of 7:1 (6.79). Since that point the ratio has climbed steadily, reaching its peak on September 3rd. After falling to a recent low of 13.67, the ratio has bounced around due to volatility in both crude oil and natural gas prices, but it seems to be locked into a range of 14 to 15:1. The big question is with winter energy demand about to arrive will cold temperatures drive natural gas prices higher while at the same time crude oil prices remain stable, or possibly weaken further, given the continuing sluggish economic recovery?
When we look at the ratio of crude oil to natural gas prices for the past 15 years, it is interesting to note how the ratio has become more volatile and higher in recent years following almost a dozen years of a relatively stable relationship fluctuating around a 7:1 ratio as shown by the dark blue line from 1994 up until 2006 on the accompanying chart. The most recent years have demonstrated considerably greater price volatility between the two energy fuels. It appears the ratio averaged closer to 11:1 from 2006 through 2008. Volatility in the ratio has exploded in 2009. We have marked the low, high and current ratios with small red lines. It was this volatility and the extreme undervalued nature of natural gas that enticed more and more investors and traders into the commodity trade of the decade, which was to buy natural gas futures while at the same time selling crude oil futures. For significant parts of this year that trade didn’t work, but in recent weeks it has. Part of the success of the trade has been the calendar working against commodity traders who earlier in the year had sold natural gas futures with the expectation that gas prices would continue to fall. If they sold them early enough in the year, then they had profits locked in when natural gas prices started to climb. As time passes, bringing the start of the winter heating demand season closer, the impetus for higher natural gas prices strengthens. As a result, these commodity traders are now covering their short positions by buying near-month natural gas futures adding upward pressure to the gas price.

If one looks at the current prices for physical deliveries of natural gas, there is almost a $1 spread between them and the current November futures price. If we average all the physical gas price points as of October 8th, contained in the Enerfax Daily schedule, it comes to $3.98 per Mcf. This is when the November natural gas futures price traded for $4.96, or a spread of $0.98. This spread is truly reflective of the near-term oversupply situation for natural gas and the optimistic demand outlook associated with the futures price.

The nearly 100 percent increase in natural gas prices since the beginning of September seems counter-intuitive given the industry’s fundamentals. Natural gas storage facilities and pipelines are nearly all at full capacity forcing gas producers to involuntarily shut-in some of their current production. In other words, near-term industry fundamentals suggest the market should be experiencing weaker natural gas prices, which is consistent with the physical gas prices. On the other hand, the intermediate and longer term outlooks for natural gas demand point to higher prices in the future.

The brighter over-the-horizon outlook reflects a universal belief that industrial demand for natural gas will recover with the economy and the recent growth in gas production volumes will slow and eventually reverse as the impact of the significant cutback in gas-focused drilling takes its toll on output.

Sunday, October 18, 2009

Spanish Natural Gas Bullish Acquisition

MADRID, Oct 17 (Reuters) - Spanish power group Gas Natural (GAS.MC) said on Saturday it has agreed to sell its nearly 64 percent stake in Colombian utility EPSA to a group led by Colombiana de Inversiones CLI.CN for $1.1 billion.

The deal is pending authorisation by the Columbian financial regulator of Colinversiones' proposal to buy Gas Natural's stake together with just over 2 percent of EPSA -- Empresa de Energia del Pacifico -- held by minority shareholders.

Gas Natural acquired its stake in EPSA when it bought the Cali-based utility's previous owner, Spanish power group Union Fenosa, earlier this year and has been selling non-core assets to reduce the debt it secured to finance the deal.

Gas Natural plans to cut its net debt to 18 billion euros by the end of 2009 from about 22 billion in June, much of which was secured to finance the acquisition of its Spanish peer. (Reporting by Jonathan Gleave; Editing by Alex Richardson)

Saturday, October 17, 2009

Natural Gas $4.60/MMBtu

By Christine Buurma
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Natural gas futures climbed Friday as traders bought back previously sold contracts ahead of an expected cold weekend in the major gas-consuming regions.

Natural gas for November delivery on the New York Mercantile Exchange was trading 22.3 cents higher, or up 4.98%, at $4.705 a million British thermal units after opening floor trade 4.7 cents higher at $4.529/MMBtu.

Traders, who have been betting heavily on the price of gas to fall over the past few weeks, were buying back contracts Friday ahead of a weekend expected to spark greater demand for natural gas for heating in the U.S. Midwest and Northeast.

"We're getting a nice push here into the weekend," said Larry Young, a trader with Infinity Futures in Chicago.

Commodity Weather Group, a Bethesda, Md. private forecaster, was predicting below-normal temperatures in the Northeast, Southeast and much of the Midwest through Oct. 20. Temperatures were expected to moderate somewhat later in the month, but meteorologists predict that colder-than-normal weather will persist in the Midwest.

"Cold, damp, nasty weather will remain in the East into the upcoming weekend, but the extreme cold leaves next week," wrote Joe Bastardi, a meteorologist with AccuWeather.com, in a note to clients Friday.

But gas supplies remain abundant, placing downward pressure on prices. High levels of production from onshore shale-gas formations have met with tepid demand during the U.S. economic downturn, leaving record amounts of gas in storage.

Total gas in storage as of Oct. 9 was 3.716 trillion cubic feet, 15% above the five-year average and 14% above the year-ago level.



-By Christine Buurma, Dow Jones Newswires; 212-416-2143; christine.buurma@dowjones.com

Friday, October 16, 2009

Unshackle Upstaate Coalition Wants Natural Gas Drilling in New York

ROCHESTER, NY (10/15/2009)(readMedia)-- The business coalition Unshackle Upstate today expressed its strong support for expanded natural gas drilling in New York, citing the outstanding potential for long-term economic development and job creation in Upstate New York.

The coalition submitted joint comments with the Greater Binghamton Chamber of Commerce to the Assembly Committee on Environmental Conservation, urging the body to consider the people who would like to continue to live in Upstate New York, as well as the sustained economic force that expanded natural gas exploration would have on Southern Tier communities decimated by years of job and industry loss.

"Our message is simple. All we want you to do is to remember three numbers: fourteen, eight-hundred and zero," said Brian Sampson, Unshackle Upstate's executive director. "Eight hundred is the number of natural resources jobs lost in the Southern Tier; fourteen is the number of miles separating Binghamton from Pennsylvania, where the economic benefits of natural gas exploration are clear; and Zero is the number of Marcellus Shale wells drilled in New York to date because of unnecessary delays."

The Assembly committee scheduled the hearing in response to the Department of Environmental Conservation's release of a draft Supplemental Generic Environmental Impact Statement, which analyzes the range of potential impacts of shale gas development using horizontal drilling and high-volume hydraulic fracturing.

"The oil and gas industry wants to expand current operations in New York State and, they are not seeking state assistance. Instead, they are asking downstate legislators to get out of the way and allow drilling to start," Sampson said. "Downstate legislators requesting continual delays should understand that delay comes at a price. Last year it was 800 jobs. Those who advocate for delay are shortsighted, and parochial. The Southern Tier needs the economic boost that could come from the Marcellus shale."

A recent study by Penn State University found that the Marcellus gas industry in Pennsylvania generated $2.3 billion in economic impact, created more than 29,000 jobs and resulted in $240 million in state and local taxes during 2008 alone. With a substantially higher pace of development during 2009, economic output will top $3.8 billion, state and local tax revenues will be more than $400 million and total job creation will exceed 48,000.

"If Broome County had 2,000 wells, drilling expenditures would total $7 billion and generate $7.6 billion in local economic activity and support more than 8,100 person-years of employment," according to the testimony.

###

Unshackle Upstate is a bi-partisan coalition of business and trade organizations representing nearly 45,000 companies that employ more than one million people. The coalition is stepping up its outreach programs in advance of the 2010 elections in an effort to promote government reform and fiscal responsibility. It has vowed to call out lawmakers who do not vote in the best interests of the people.

Thursday, October 15, 2009

Bossier Natural Gas Good but Not Haynesville

Bossier well flowing at 9.4 mln cubic feet/day

* CEO sees about $2 bln in annual asset sales as the norm

* Chesapeake shares fall 3 pct despite sector gain (Adds comments on Barnett shale, updates share prices)

HOUSTON/SAN FRANCISCO, Oct 14 (Reuters) - Initial results from Chesapeake Energy Corp's (CHK.N) Bossier shale play indicate there is a little less natural gas in place than in its high-performing Haynesville shale acreage, an executive said on Wednesday.

"It's not going to be quite as robust," John Sharp, Chesapeake's geoscience manager for Louisiana, told investors in New York in comments broadcast on the Internet.

Investors had been anxiously awaiting initial output data from a Chesapeake well drilled in August in the Bossier. Chesapeake said it had started flowing at a rate of 9.4 million cubic feet equivalent per day, below the Haynesville average.

Even so, Sharp said it was very early in the Bossier's development and that Chesapeake, one of the largest U.S. natural gas producers, has high hopes for the play.

The Bossier and Haynesville shales are both located in east Texas and northern Louisiana.

Chesapeake shares fell 3.3 percent to $28.49 on the New York Stock Exchange, compared with a near 1 percent gain in the American Stock Exchange index of natural gas companies .XNG.

Chief Executive Aubrey McClendon told the investors and analysts that his company would continue to sell off parts of its acreage. The company forecast $1.5 billion to $2 billion in asset sales for 2010, which McClendon said he saw as the norm.

Chesapeake is the most active U.S. driller, responsible for one in seven natural new gas wells in the country. But given the superior price of oil, the company aims to produce more oil as a share of output, up from just 8 percent currently.

Late on Tuesday, Chesapeake had increased its natural gas production forecasts for 2009 and 2010 and said it planned to spend as much as $4.7 billion on drilling in 2010, up from $3.15 billion to $3.35 billion this year. [ID:nN13201124]

Despite a recent sector-wide uptick in drilling, McClendon said U.S. natural gas production would drop in 2010, helping to push prices up toward the range of $7 to $9 per thousand cubic feet that makes drilling worthwhile for most U.S. gas.

McClendon said Oklahoma City-based Chesapeake would not exit the maturing Barnett shale play, which abuts the greater Dallas area, though he would consider taking on partners.

Allen Middleman, geoscience manager of what he called the "granddaddy" of shales in the Barnett, said Chesapeake could potentially double proved reserves there from the current 3.2 trillion cubic feet, which is up 17 percent in the past year. (Reporting by Anna Driver in Houston and Braden Reddall in San Francisco; Editing by Gerald E. McCormick, Phil Berlowitz and Bernard Orr)

Wednesday, October 14, 2009

UNG Looking at its Options for Natural Gas Investing

NEW YORK, Oct 13 (Reuters) - United States Natural Gas Fund (UNG.P), an exchange-traded fund in the natural gas market, said Tuesday that it could invest in interests other than futures contacts to comply with government-proposed position limits.

The move could expose UNG to potentially greater credit risk, the fund said in a filing Tuesday.

"Investments in over-the-counter swaps and other natural gas related interests expose UNG to potentially greater credit risk than futures contracts," UNG said.

UNG said it may invest in other interests including cash-settled options on futures contracts, forward contracts for natural gas, cleared swap contracts and over-the-counter transactions based on natural gas, crude oil and other petroleum-based fuels.

UNG told Reuters last month it rebalanced its portfolio to decrease positions in listed natural gas futures, while increasing the fund's holdings in over-the-counter natural gas swaps to fit with proposed government legislation. [ID:nN24189174]

UNG added that, despite the move, futures contracts will remain its principle investment. Currently, listed futures are around 50 percent of UNG's holdings, with cleared swaps (ICE Lots) around 30 percent and bilateral swaps about 20 percent.

However, going forward UNG could invest a larger proportion of investments outside of futures depending on regulatory changes.

"UNG may need to invest a larger portion, or potentially all, of its investments in other natural gas-related investments in order to continue to meet its investment objective and comply with these regulatory changes." (Reporting by Edward McAllister; Editing by Christian Wiessner)

Tuesday, October 13, 2009

Natural Gas Peak Oil Conference Full of Future Viewpoints

By JUDITH KOHLER (AP) – 1 hour ago

DENVER — The promise of enough natural gas to last the United States more than 100 years based on discoveries of vast shale formations could be the country's next speculative bubble to burst, a speaker warned Monday at a conference exploring the notion that the world's oil and gas are diminishing rapidly.

Arthur Berman, a Texas-based geological consultant, likened the optimistic projections for production from gas shale fields across the country to banks buying into mortgage securitizations, which spurred the housing market crisis and economic meltdown.

"In the midst of a boom or a bubble, it's hard to sit on the sidelines," Berman said during the Association for the Study of Peak Oil and Gas conference. "If you're not in one of these plays, then Wall Street says, 'Well, what's the matter with you guys?'"

That was the psychology leading into the current financial crunch, Berman said. Analyses show that gas shale fields in Texas and elsewhere aren't as profitable and likely don't contain as much retrievable gas as the industry and others portray, he added.

Based on the experience in the Barnett Shale in Texas, Berman said he doesn't expect the yields from the wells to be high enough or last long enough to make the gas shales that profitable, even when current low gas prices rise.

His view contrasts with that of other analysts and the industry who see natural gas as playing a key role in the face of concerns about declining oil supplies and climate change. The Potential Gas Committee at the Colorado School of Mines in Golden said in June that the U.S. natural gas reserves total nearly 2,000 trillion cubic feet, up about 35 percent from 2006 estimates and mostly due to such unconventional gas fields as shale and the Rockies' sandstone formations.

Peter Dea, chief executive of Denver-based Cirque Resources, said the abundance of natural gas "truly is an American treasure." He called the vast layers of rock containing gas in Texas, the Northeast and elsewhere game-changers.

"It really gives us surety of this 100-plus-year supply that we now have in America," Dea said.

New technology and hydraulic fracturing — injecting liquids, sands and chemicals underground to open pathways for gas — have increased the efficiency and decreased production costs, Dea said. Natural gas, he added, has the potential to replace coal as the country's main source of electricity and fuel the nation's vehicles.

Natural gas is "truly a win-win-win" for the economy, environment and national security, because it's a domestic energy source, Dea said. Natural gas is 60 percent to 75 percent cleaner than coal, he said.

Energy analyst Randy Udall said after the panel discussion that the peak-oil group, which he co-founded, is studying the implications of discovery of the gas shales.

"The increase in production would suggest that natural gas will play a larger role in the future," Udall said.

But to boost the role of gas to the levels promoted by Dea and others would require a significant increase in development, Udall said. The U.S. gas production peaked 35 years ago, Udall said, and the roughly 10 percent jump in production over the last four years required doubling the drilling rate.

"It would have big impacts on the Rocky Mountain West," Udall said.

Subscribers of the peak oil theory believe the world is at or near its maximum oil production and that demand will soon eclipse supply levels. Most of the big oil companies disagree and point to the federal Energy Information Administration's projection that the world's oil production peak could be as far as 40 years away.

The peak oil conference runs through Tuesday.
On the Net:

* http://www.peakoil.net/

Copyright © 2009 The Associated Press. All rights reserved.

Sunday, October 11, 2009

Colorado Natural Gas Competes with Solar

By DINA CAPPIELLO – 1 day ago

DURANGO, Colo. — The sun had just crested the distant ridge of the Rocky Mountains, but already it was producing enough power for the electric meter on the side of the Smiley Building to spin backward.

For the Shaw brothers, who converted the downtown arts building and community center into a miniature solar power plant two years ago, each reverse rotation subtracts from their monthly electric bill. It also means the building at that moment is producing more electricity from the sun than it needs.

"Backward is good," said John Shaw, who now runs Shaw Solar and Energy Conservation, a local solar installation company.

Good for whom?

As La Plata County in southwestern Colorado looks to shift to cleaner sources of energy, solar is becoming the power source of choice even though it still produces only a small fraction of the region's electricity. It's being nudged along by tax credits and rebates, a growing concern about the gases heating up the planet, and the region's plentiful sunshine.

The natural gas industry, which produces more gas here than nearly every other county in Colorado, has been relegated to the shadows.

Tougher state environmental regulations and lower natural gas prices have slowed many new drilling permits. As a result, production — and the jobs that come with it — have leveled off.

With the county and city drawing up plans to reduce the emissions blamed for global warming and Congress weighing the first mandatory limits, the industry once again finds itself on the losing side of the debate.

A recent greenhouse-gas inventory of La Plata County found that the thousands of natural gas pumps and processing plants dotting the landscape are the single largest source of heat-trapping pollution locally.

That has the industry bracing for a hit on two fronts if federal legislation passes.

First, it will have to reduce emissions from its production equipment to meet pollution limits, which will drive up costs. Second, as the county's largest consumer of electricity, gas companies probably will see energy bills rise as the local power cooperative is forced to cut gases released from its coal-fired power plants or purchase credits from other companies that reduce emissions.

"Being able to put solar systems on homes is great, you take something off the grid, it is as good as conserving," said Christi Zeller, the executive director of the La Plata Energy Council, a trade group representing about two dozen companies that produce the methane gas trapped within coal buried underground.

"But the reality is we still need natural gas, so embrace our industry like you are embracing wind, solar and the renewables," she said.

It's a refrain echoed on the national level, where the industry, displeased with the climate bill passed by the House this summer, is trying to raise its profile as the Senate works on its version of the legislation.

In March, about two dozen of the largest independent gas producers started America's Natural Gas Alliance. In ads in major publications in 32 states, the group has pressed the case that natural gas is a cleaner-burning alternative to coal and can help bridge the transition from fossil fuels to pollution-free sources such as wind and solar.

"Every industry thinks every other industry is getting all the breaks. All of us are concerned that we are not getting any consideration at all from people claiming they are trying to reduce the carbon footprint," said Bob Zahradnik, the operating director for the Southern Ute tribe's business arm, which includes the tribes' gas and oil production companies. None is in the alliance.

Politicians from energy-diverse states such as Colorado are trying to avoid getting caught in the middle. They're working to make sure that the final bill doesn't favor some types of energy produced back home over others.

At a town hall meeting in Durango in late August, Sen. Mark Udall, who described himself as one of the biggest proponents of renewable energy, assured the crowd that natural gas wouldn't be forgotten.

"Renewables are our future ... but we also need to continue to invest in natural gas," said Udall, D-Colo.

Much more than energy is at stake. Local and state governments across the country also depend on taxes paid by natural gas companies to fund schools, repair roads and pay other bills.

In La Plata County alone, the industry is responsible for hundreds of jobs and pays for more than half of the property taxes. In addition, about 6,000 residents who own the mineral rights beneath their property get a monthly royalty check from the companies harvesting oil and gas.

"Solar cannot do that. Wind cannot do that," said Zeller, whose mother is one of the royalty recipients. In July, she received a check for $458.92, far less than the $1,787.30 she was paid the same month last year, when natural gas prices were much higher.

Solar, by contrast, costs money.

Earlier this year, the city of Durango scaled back the amount of green power it was purchasing from the local electric cooperative because of the price. The additional $65,000 it was paying for power helped the cooperative, which is largely reliant on coal, to invest in solar power and other renewables.

"It is a premium. It is an additional cost," said Greg Caton, the assistant city manager.

Instead, the city decided to use the money to develop its own solar projects at its water treatment plant and public swimming pool. The effort will reduce the amount of power it gets from sources that contribute to global warming and make the city eligible for a $3,000 rebate from the La Plata Electric Association.

Yes, the power company will pay the city to use less of its power. That's because the solar will count toward a state mandate to boost renewable energy production.

"In the typical business model, it doesn't work," said Greg Munro, the cooperative's executive director. "Why would I give rebates to somebody buying someone else's shoes?"

The same upfront costs have prevented homeowners from jumping on the solar bandwagon despite the tax credits, rebates and lower electricity bills.

Most of Shaw's customers can't afford to install enough solar to cover 100 percent of their homes' electricity needs, which is one reason why solar supplies just a fraction of the power the county needs.

The higher fossil-fuel prices that could come with climate legislation would make it more competitive.

"You can't drive an industry on people doing the right thing. The best thing for this country is if gas were $10 a gallon," said Shaw, as he watched two of his three full-time workers install the last solar panels on a barn outside town.

The private residence, nestled in a remote canyon, probably will produce more power from the sun than it will use, causing its meter to spin in reverse like the Smiley Building's. The cost, however, is steep: more than $500,000.
On the Net:

* Smiley Building: http://smileybuilding.com/solar/conservation.html
* La Plata Energy Council: http://www.energycouncil.org/
* Durango: http://www.durangogov.org/environmental.cfm
* La Plata Electric Association: http://tinyurl.com/ya5qx6x

Detroil Natural Gas Heating Bills Projected Lower in 2009

Michigan winter utilities costs fall
Natural gas, oil price slides lead to lower bills for consumers
Christina Rogers / The Detroit News

Flipping on the furnace this winter is going to cost Michigan residents a little bit less.

Consumers can expect to pay an average 12 percent less for natural gas this winter, and heating bills could be down as much as 16 percent, according to a report released Friday by the Michigan Public Service Commission. That could translate into hundreds of dollars in savings this winter with utility customers paying an average of $30 less a month, compared to last year.

"There are a couple bright spots this year," said Judy Palnau, spokeswoman for the state's public service commission.

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Natural gas and oil prices have been sliding due to supply outpacing demand in the global markets, she said. Prices also benefitted from the lack of hurricanes this summer, which have curtailed refinery supplies in previous years and sent oil prices soaring.

Petroleum prices also are expected to remain stable because the global recession has curbed demand for oil, according to the Public Service Commission's, Winter Energy Appraisal report the group puts out each year. In early October, gasoline prices averaged about $2.45 a gallon, down substantially from their record high in summer 2008 of $4.21 a gallon.

Propane prices also have fallen dramatically. Homeowners can expect to pay about 28 percent less this year for propane, bringing their bills to $1,391 for the five-year period between November and March.

In Michigan, 78 percent of homes are heated by natural gas, 9 percent by propane and 7 percent by electricity.

But for the 4 percent of Michigan homes that use heating oil, there's bad news. Heating oil customers will see their bills rise slightly, from $1,252 between November and March in 2008 to $1,302 this year.

Lower prices, however, may not last for long. MichCon and Consumers Energy are seeking state approval to raise rates on natural gas bills. At this point, it's unclear by how much those prices will go up and will depend on what state utility regulators decide, Palnau said.

The report also predicts electricity sales will decrease this year because cool summer months and fewer customers clicking on their air conditioners this year.

Monthly electricity bills are expected to stay the same or increase slightly if Consumers and Detroit Edison get approval from the state to raise rates.

In addition to lower heating bills, forecasters anticipate a milder winter that could further help reduce the need for heating fuel. The falling prices also could provide some much-need relief for local businesses struggling to survive the recession.

"In this economy, any break a small business can get on their costs is going to be positive," said Michael Rogers, a spokesman for the Small Business Association of Michigan, which has 6,400 members statewide.

cvrogers@detnews.com (313) 222-2300

Saturday, October 10, 2009

Natural Gas Rig Count Up to 726

NEW YORK, Oct 9 (Reuters) - The number of rigs drilling for natural gas in the United States climbed by 14 this week to 726, according to a report on Friday by oil services firm Baker Hughes in Houston.

The U.S. natural gas drilling rig count has gained in 11 of the last 12 weeks but is still down sharply since peaking above 1,600 in September last year, standing at 822 rigs, or 53 percent, below the same week last year.

During the week ended July 17, 2009, the natural gas rig count slipped to 665, its lowest level since May 3, 2002, when there were 640 gas rigs operating.

Tighter access to credit and a 70 percent slide in natural gas prices over the past 15 months to below $4 per mmBtu forced many producers to scale back gas drilling operations.

The steep declines in drilling this year have started to slow production and tighten supplies, but most traders agreed it has not been enough yet to offset record high inventories and steep recession-related cuts in demand, particularly from the industrial sector. (Reporting by Joe Silha; Editing by Walter Bagley)

Friday, October 9, 2009

Iowa Natural Gas Heating Bills to be Lower this Winter

Energy Dept. report says natural gas prices lower

by Matt Kelley on October 7, 2009

in Business & Economy

A new federal report is backing up predictions from Iowa’s two largest utilities that foresee a drop in Iowans’ heating bills in the winter ahead. The U.S. Department of Energy report says natural gas supplies are up while demand — and prices — are down. Roger Cooper, executive vice president with the American Gas Association, says it translates to more money in consumers’ pockets.

Cooper says, “If you’re heating your home with natural gas, you can expect your heating bill to be lower this winter, about 12% lower nationally and if you are fortunate enough to live in the Midwest, it may be down as much as 15%.” A report last month from MidAmerican Energy estimated Iowans’ heating bills could be as much as 40%lower this winter, while Alliant Energy predicted a 20-percent drop. Cooper says there are several reasons for the natural gas price decline.

“Production is up about two-percent over last year and secondly, the economy is bad,” Cooper says. “About a-third of the natural gas used in this country goes into industrial use. So, if factories are slowing down or closed, we’re not using as much natural gas, that puts more natural gas out into the marketplace and it drives down the price.” Cooper expects more people will use natural gas in the future, though there is only a fixed supply.

“The current estimate from the potential gas committee at the Colorado School of Mines, which is the authoritative expert on this, is that we have over a hundred years supply of natural gas in the United States with today’s existing technologies,” Cooper says. “So, if we can improve technologies, we can look at improving the supply from 100 years to a few hundred years.” Cooper says all energy needs to be used wisely and even with lower prices, people should continue to conserve energy and weatherize their homes.

Thursday, October 8, 2009

Natural Gas Giant ConocoPhillips Selling Assets

http://www.forbes.com/2009/10/07/conocophillips-oil-mergers-business-energy-conocophillips.html

HOUSTON -- ConocoPhillips announced Wednesday that it planned to sell $10 billion in assets, slash capital spending to $11 billion next year, boost its dividend and pay down debt.

Is this window dressing ahead of putting the company up for sale?

The third-largest U.S. oil company, with production of 1.78 million barrels of oil (and gas equivalents) per day, is probably too big to be bought. But it could be an excellent merger partner for a mid-sized oil company with a strong exploration team.

Last May the head of ConocoPhillips' ( COP - news - people ) upstream division, James Gallogly, left the company. The two guys who had the job before Gallogly had also departed in recent years. ConocoPhillips Chairman and Chief Executive James Mulva plans to retire in a couple years. This has led to analyst concerns about the depth of the company's bench.

Oil industry dealmakers have been predicting this year that the U.S. recession won't end without meaningful consolidation among oil companies. Names bandied about include the big independents Anadarko Petroleum ( APC - news - people ), Apache ( APA - news - people ) Energy, Devon Energy ( DVN - news - people ), each of which has about half the market cap of ConocoPhillips ($73 billion). Another potential match-up could be Marathon Oil ( MRO - news - people ), which likewise has sizable refining operations.

It's been a tough year for ConocoPhillips. In January it took $34 billion in writedowns on its 20% stake in Russia's Lukoil and its 2005 acquisition of U.S. natural gas player Burlington Resources. It also overpaid in a $8 billion deal for gas assets of Australia's Origin Energy. With gas prices plunging further since then, bottoming out below $3 per million BTU last month, neither deal has looked smart.
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That's not to say ConocoPhillips doesn't have its share of sterling assets. Deutsche Bank ( DB - news - people ) analyst Paul Sankey has drawn attention in recent days for a 61-page research report in which he says that Conoco's long-lived, mature oil fields will require little new investment but generate enormous cash flows once oil spikes again in the years to come. Conoco gets roughly 25% of its production from fields in Lower 48, where it has more oil and gas production than any other company, with 13,000 wells in the San Juan Basin of Colorado and New Mexico and 1,800 wells in the Lobo field of South Texas.

But the biggest opportunities lie overseas. For the past decade ConocoPhillips has been part of the consortium developing the Kashagan field in Kazakhstan at a cost upward of $40 billion. With first production scheduled for 2012, Kashagan is expected to pump 1.5 million barrels per day within a decade. In Qatar, the company is building a mammoth liquefied natural gas project to help tap Qatar's North Field, the biggest gas field in the world. In Queensland, Australia, the company hopes to apply lessons learned over 50 years in the San Juan basin to similar coal-bed methane plays.

So what is Conoco likely to jettison in its $10 billion of planned sales? International operations in higher risk areas. Last week the junta-led government of Myanmar reportedly sent troops to the border with Bangladesh after complaining that offshore blocks Conoco was exploring for Bangladesh were actually in Myanmar waters. What oil company wants to deal with that headache?

Likewise, last week it sold its rights in a Venezuelan gas field back to state-run Petroleos de Venezuela (Pdvsa). It also has an oil venture in Libya with Marathon Oil and Amerada Hess. Yet Deutsche Bank's Sankey suggests that the best way for Conoco to free up cash would be to sell its 20% stake in Lukoil back to the company. Further, says Sankey, Lukoil could be a willing buyer for Conoco's European refineries, as the Russian major has recently made refining investments there.

Conoco is the fifth-largest refiner in the world. That's a terrible business right now, with fuel demand plummeting, and its unlikely that any buyers would materialize for those assets until after the uncertainty surrounding potential carbon cap-and-trade legislation is resolved.

The drag on profits from those refining assets would likely scare off the upstream pure plays like Anadarko and Apache from linking up with ConocoPhillips. But it could very well appeal to Marathon Oil, which recently shelved a plan to separate its upstream and downstream into two separate companies.

Marathon, which has a lot of international operations for its size ($23 billion market cap), is a partner of Conoco's in Libya and on an LNG terminal in Alaska. Marathon's LNG project in Equatorial Guinea uses Conoco technology. For added synergy, both companies' headquarters are close by, on the west side of Houston. Why not?

Wednesday, October 7, 2009

Natural Gas Price Speculation Continues

http://www.forbes.com/2009/10/06/natural-gas-drilling-business-energy-winter.html

Warmer Winter Could Chill Natural Gas
Jesse Bogan, 10.06.09, 05:00 PM EDT
Some battered producers are turning optimistic, but a government forecast suggests little near-term upside.

HOUSTON -- A bump in natural gas prices and lower operating costs are causing some independent exploration and production companies to talk about picking up drilling activity. However, a report from the U.S. government predicting a milder winter than last could dampen producers' spirits, while lifting those who pay utility bills.

Chesapeake Energy ( CHK - news - people ), which produces 2.2 billion cubic feet of natural gas a day in the U.S., said in a recent investor presentation, "It's a great time to drill!" Costs are down 30% to 50% from highs in 2007 and 2008. (The company wouldn't say if it was planning to add more rigs in the near term.)
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Independent exploration and production company CNX Gas ( CXG - news - people ) of Pittsburgh, Pa., says it is training rig crews to boost its position in the Marcellus Shale, a popular unconventional play in the Northeast, once gas prices reach $6 per thousand cubic feet.

Pritchard Capital Partners analyst Ray Deacon said Tuesday that CNX's activity is a "very cogent call on higher gas prices."

Since natural gas prices began their plunge from a peak of $13 in 2008, the number of operating natural gas drilling rigs in the U.S. has fallen from 1,600 to 700 (Chesapeake's rig count dropped from 158 to 101 currently). Storage is nearly full at 3.6 trillion cubic feet. The lack of available storage space partly explains the unusual pricing in the market: The spot price is nearly $3, and November contracts are trading at a $2 premium. (See "Natural Gas Threatens To Overflow Storage.")

A rebound in natural gas prices usually starts in the fall, as storage injections stop and demand picks up for the winter months. "If past cycles are repeated, natural gas could have a significant amount of upside between now and the end of winter," Deacon says. "As the storage overhang is reduced by two-thirds this winter, the upside in natural gas could be greater than many are forecasting."

Pritchard forecasts natural gas will average $6.50 in 2010.

Gene Sheils, who helps track the national drilling rig count at Baker Hughes ( BHI - news - people ), isn't as optimistic. "I think it's too soon to call the absolute bottom," he says of the rig count. Companies will be less likely to add rigs if spot prices remain weak and the winter is mild.

"If we go back into the injection season with still very high levels of natural gas in storage, there could potentially be some weakening of the gas rig count again," he says. "So much depends on the weather."

If the U.S. Energy Information Administration is correct, it won't be good for the natural gas sector. The agency reported on Tuesday that it expects lower heating bills for consumers due to record storage and forecasts that winter in the Lower 48 will be 1% warmer this year compared to last.

It expects household bills for space-heating fuels will be 8% lower than last year, with the average household spending $960 in the October through March winter heating season, a decrease of $84 from last winter.

"The lower bills primarily reflect lower fuel prices, although slightly milder weather than last winter will also contribute to less fuel use in many areas," EIA Administrator Richard Newell said in an announcement. "We expect the largest decreases in fuel expenses in households using natural gas and propane."

The EIA expects spot gas prices to average $4.31 this winter, down from $5.66 last winter. However, with the economy on the mend, it expects the annual average spot price to rise from $3.85 in 2009 to $5.02 in 2010.

Tuesday, October 6, 2009

Natural Gas Prices Up Today at $4.96/MMBtu

By Kerry Grace Benn

DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Coal companies' shares rose Monday as natural gas prices increased and after Barron's said shares of Peabody Energy Corp. (BTU) could double in the next few years because of its exposure to Australia.

Natural gas futures climbed about 25 cents, or 5.3%, to $4.96 a million British thermal unit as traders looked ahead to forecasts of cold weather in the major gas-consuming regions. Meteorologists' predictions of brisk weather in the Midwest and Northeast over the next two weeks were supporting prices; cold temperatures boost the demand for natural gas for heating.

Expectations for gas prices in the near term support investor interest in coal, because over the past decade or so, there's been a tight correlation between an appetite for coal stocks and the outlook for natural gas, Stifel Nicolaus analyst Paul Forward said.

Plus, coal stocks have been under pressure for the past few weeks, Johnson Rice's William Burns said. With a market upturn like the one going on Monday, the stocks will rise at a multiple of what the market is doing because they tend to move with the market, he said.

In recent trading, Patriot Coal Corp. (PCX) had gained 6.5% to $11.61, Massey Energy Co. (MEE) 6.1% to $28.37 and Consol Energy Inc. (CNX) 6.2% to $45.69. Peabody was up 4% at $36.60 and Arch Coal Inc. (ACI) 4.7% at $21.45.

Forward at Stifel Nicolaus added that the positive Barron's report on Peabody could have helped the sector a bit, but the report focused on Australia, and Peabody is the only U.S. coal company that has large exposure in Australia. That country is mostly an export market into Asia, which means Peabody has exposure directly into recovering markets in both metallurgical and thermal coal in China and the rest of Asia, he said.

Barron's said Monday that global coal use is expected to jump 55% by 2025, propelled by growing demand from China and India. It said that's good news for companies like Peabody that have a growing presence in Asia. Peabody has invested heavily in mines in Australia in recent years and gets about 10% of its total production from the country. The production of low-cost, high-quality Australian coal could account for about one-third of the company's pretax profits, Barron's said.


-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com

Monday, October 5, 2009

New York Marcellus Natural Gas is a Maybe

NEW YORK, Oct 1 (Reuters) - New York State's proposed new environmental rules allowing drilling for natural gas in the multi-state Marcellus Shale formation face opposition from environmental groups and, potentially, from New York City.

The proposed state rules would allow drilling around water wells but require extra reviews, depending on whether the work was within 2,000 feet or 1,000 feet of the well.

Some green groups want buffer zones created around upstate reservoirs to protect the city's water from pollution. Mayor Michael Bloomberg said he had not yet read the proposed rules, while executives for energy companies said the regulations would raise natural gas drilling costs but help calm public fears of water contamination.

Kevin Cahill, a Democrat who chairs the Assembly's energy committee, said the concept was controversial although new fuel supplies could shield consumers from price spikes. New York gets 95 percent of its natural gas from other regions with less strict environmental rules, Cahill said in a statement.

"The extraction of natural gas we extract from other states is not environmentally benign," he said. "New Yorkers simply cannot leave their environmental concerns at the state line," he said.

New York City's Council Speaker Christine Quinn said she was skeptical the state's rules would protect the city's water system, which carries a billion gallons a day for nearly 9 million people.

"We have already heard reports from Pennsylvania about the negative consequences of gas drilling on water resources in that state," Quinn, a Democrat, said in a statement issued late Wednesday.

The huge Marcellus Shale formation, which extends across much of Pennsylvania and parts of West Virginia, Ohio and New York, is likely the nation's largest shale reservoir.

Shale gas, or gas trapped in sedimentary beds, is seen as having the potential to provide the United States with affordable fuel that will help drive economic growth, reduce dependence on foreign oil and limit emissions for decades.

But concerns are growing that the drilling techniques used to fracture the gas-bearing rock could contaminate drinking water. Quinn called for amending the federal Safe Drinking Water Act to tighten rules for hydraulic fracturing.

In this process, also known as fracking, a mixture of water, chemicals and other materials like sand are pumped into the shale formation to split the rock and free the trapped gas.

While the chemicals used may be only a small part of the mix of fracking fluid, some are considered toxic or are known causes of cancer, raising concerns about the potential for ground water contamination.

Bloomberg told reporters the city has bought land in the watershed to protect the city's drinking water. "Unless we are satisfied, you can rest assured we will fight that," he said.

Brad Gill, executive director of the Independent Oil and Gas Association of New York, said the new regulations would increase costs but would not make gas drilling impossible.

"They certainly will increase the cost of exploring for and producing our gas," he said. "It's an increased burden but I think it's doable." (Reporting by Joan Gralla and Joseph Silha in New York, Jon Hurdle in Philadelphia; Editing by David Gregorio)

Sunday, October 4, 2009

Natural Gas for November is $4.50/M

NEW YORK - Natural gas prices tumbled yesterday after the government reported the United States is using so little that it has more in storage now than at any other time on record.
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The report was welcome news for homeowners who use natural gas. Suppliers already have cut rates in many parts of the country, and a continued drop in natural gas prices should convince others to cut prices.

Natural gas for November delivery fell 34.7 cents, or 7.2 percent, to $4.49 per 1,000 cubic feet in New York.

The Energy Information Administration reported that underground aquifers and caverns in the lower 48 states stored 3.589 trillion cubic feet of natural gas last week, topping the previous record high of 3.545 trillion cubic feet, set on Nov. 2, 2007. Government records go back to 1975.

Analyst Steven Schork said supplies have grown so much that the country is nearing its storage capacity for natural gas. If that happens, producers could dump more of it on the open market, dropping prices even more.
© Copyright 2009 Globe Newspaper Company.

Saturday, October 3, 2009

Natural Gas Prices Higher Today

By Jason Womack
Of DOW JONES NEWSWIRES


HOUSTON (Dow Jones)--Natural gas futures climbed higher on Friday as traders weighed record natural gas storage levels against the prospect of a cold winter and increased heating demand.

Natural gas for November delivery on the New York Mercantile Exchange was recently trading 7.3 cents, or 1.63%, higher at $4.539 a million British thermal units. The front-month contract fell as low as $4.351/MMBtu in earlier, choppy trading.

Natural gas futures have been under pressure from rising natural gas storage levels - which now stand at an all-time high. But the approach of winter heating season was spurring some buying.

"There are people that want to get into this market based on the idea that winter will be cold," said Mike Rose, director of the energy trading desk for the Fort Lauderdale-based brokerage Angus Jackson.

The onset of cold weather can spur gas prices higher, ratcheting up demand for the fuel used to heat homes and businesses.

At the same time, natural gas storage levels continue to rise, despite a pullback in U.S. natural gas drilling.

On Thursday, the U.S. Energy Information Administration reported that natural gas storage levels for the week ended Sept. 25 grew to 3.589 trillion cubic feet. Storage levels have now surpassed the Oct. 2007 record of 3.565 trillion cubic feet.

"Surpassing that record storage level yesterday has taken the wind out of the sails of some of the bulls," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn.

However, analysts said that storage levels could be drawn down quickly if the economy recovers and demand for the fuel improves.

Natural gas drilling activity has turned down with prices, which are still down more than 65% from their summer 2008 highs above $13/MMBtu and they hit a 7 1/2 low last month.

The natural gas rig count has fallen by more than half over the last year, creating concern that producers may not be able to ramp up production to meet rising demand, analysts said.



-By Jason Womack, Dow Jones Newswires; 713-547-9201; jason.womack@dowjones.com

Friday, October 2, 2009

Natural Gas Storage at All Time High

By CHRIS KAHN (AP) – 4 hours ago

NEW YORK — Natural gas prices tumbled nearly 8 percent Thursday after the government reported consumption has dropped so low that the U.S. is now storing more than at any other time on record.

The report was welcome news for homeowners who heat their homes and cook their meals with natural gas. Suppliers already have cut rates in many parts of the country as stockpiles ballooned above the five-year average, and a continued drop in natural gas prices should convince others to cut prices as well.

Natural gas for November delivery lost 37.5 cents to settle at $4.466 per 1,000 cubic feet on the New York Mercantile Exchange.

The Energy Information Administration reported Thursday that underground aquifers and caverns in the lower 48 states stored 3.589 trillion cubic feet of natural gas last week, topping the previous all-time high of 3.545 trillion cubic feet set on Nov. 2, 2007. Government records go back to 1975.

Analyst Steven Schork said supplies have grown so much that the U.S. is nearing its storage capacity for natural gas. If that happens, producers could dump more of it on the open market, dropping prices even more.

But Peter Beutel at Cameron Hanover said prices have dropped so low this summer that they'll likely spring back as winter approaches.

"We'll start drawing down those supplies," Beutel said "especially if it's cold and the economy starts to pick back up."

Elsewhere, oil prices ticked higher as the dollar strengthened and traders mulled a mixed bag of economic reports that suggested the country wouldn't enjoy a swift economic recovery.

Benchmark crude for November delivery added 21 cents to settle at $70.82 on the Nymex. In London, Brent crude lost 12 cents to settle at $69.19 on the ICE Futures exchange.

Reports by the Commerce and Labor departments said that while consumer and construction spending grew in August, the number of people claiming first-time unemployment benefits increased more than expected last week.

Although the Institute for Supply Management's index of manufacturing activity showed a second straight month of growth in September, the reading was well below what analysts expected.

The mixed economic news helped equities markets start the fourth quarter on a sour note. The Dow Jones industrial average lost about 147 points, and the Standard & Poor's 500 index gave up 21, down about 2 percent.

At the pump, retail gas prices fell by a penny overnight to a new national average of $2.469 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular gas is 13.8 cents cheaper than last month and $1.15 cheaper than the same time last year.

In other Nymex trading, gasoline for November delivery added less than a penny to settle at $1.7579 a gallon, and heating oil lost a half cent to settle at $1.8274 a gallon.

Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.

Copyright © 2009 The Associated Press. All rights reserved.