Topic Report: September 2008 Highlights

by Britt Dearman

September 02, 2008

This topic report highlights events that occurred in August. In most cases, these events were not major headlines but were part of developing trends that affect the energy industry.

Natural Gas:

A survey of publicly traded natural gas companies conducted by Raymond James indicates that the year-over-year natural gas production in the U.S. is up 6.7 percent. Raymond James estimates that U.S. production has risen by about 5 billion cubic feet per day (Bcfd) compared to last year.

Californians will vote on a ballot initiative for the state to provide incentives for the compressed natural gas vehicle market.

The Farmers’ Almanac, which claims an 85 percent accuracy rate, said that most of the U.S. will experience colder-than-normal weather this winter. The National Weather Service forecasts warmer-than-normal weather this winter over most of the country.

Two liquefied natural gas (LNG) projects on the U.S. Gulf Coast have asked the Department of Energy for authorization to export LNG that it has imported and stored in its facilities. They want to sell into the much higher-priced international market.

South Korea has agreed to pay $20 per million British thermal units (MMBtu) — pegged to a $120 per barrel (Bbl) oil price — for delivery from Indonesia from 2010 to 2012.

Waterborne LNG Report forecasts that LNG liquefaction projects coming online in 2009 will increase global capacity by 34 percent to 11 trillion cubic feet (Tcf).

Russia wants to draft a charter for gas-exporting countries to develop natural gas pricing mechanisms and routes for new pipelines.

Exploration and Production:

The latest Western Gulf of Mexico lease sale generated $487 million in high bids. It was the highest level generated in the past 10 years.

The U.S. Geological Survey estimates that the Arctic holds 90 billion barrels and 1,670 Tcf of undiscovered hydrocarbons. Of all of the Arctic countries, Russia has the largest portion.

The Santa Barbara Board of Supervisors voted in favor of drilling off its coast. The environmental movement was sparked by a large oil spill on Santa Barbara’s coastline in 1969.

Electricity:

A total of 25,700 megawatts of nuclear-power plant capacity will be down for more than a month this fall for refueling.

Petroleum:

The new Neptune project in the Gulf of Mexico has reached its peak rate of 50,000 barrels per day (Bpd).

Quarterly oil production from the five largest publicly traded oil companies in the world fell by 614,000 Bpd in the second quarter. It was the fifth consecutive quarterly decline.

The University of Texas System plans to sell a forward contract over the next 10 years for its reserves for about $1 billion.

The new Texas Offshore Port System (TOPS) project will include storage facilities with approximately 5.1 million barrels (MMBbls) of total crude-oil-storage capacity, and a 160-mile, 1.8-million-barrels-per-day (MMBpd) capacity pipeline system. It can handle about 18 percent of total U.S. crude imports. The port will be located 36 miles offshore from Freeport, Texas, and is scheduled to be in service by the fourth quarter of 2010.

According to the Energy Information Administration (EIA), the year-over-year decline in U.S. oil consumption in May was 900,000 Bpd.

Total U.S. vehicle sales fell to a 16-year low in July, which was 19 percent lower than the same month a year ago.

The Wall Street Journal reported that the Commodity Futures Trading Commission changed the classification of a large oil trader to a “noncommercial” speculator. As a result, the number of futures and options contracts held by speculators rose from 38 percent to 49 percent.

Iraqi oil production set new records for the second quarter of 2008, with output reaching 2.43 MMBpd, the highest quarterly average since the 1993 invasion.

Petróleos Mexicanos (PEMEX) estimates that its oil production will be 2.8 MMBpd by the end of 2008, down 200,000 Bpd from 2007, despite a 4.1 percent increase in the number of wells drilled year over year. Crude exports in June were down to 1.38 MMBpd, from 1.42 MMBpd. The decline is primarily due to lower production from the Cantarell field.

Russian oil output in 2008 is expected to be flat to output in 2007. Production rose 2.3 percent last year, but year-to-date production has fallen by 1 percent compared to the same time last year.

State-owned oil companies in China are set to increase the amount of oil supplied to privately run refineries this year to help deal with shortages of refined products. However, Sinopec announced that it will indefinitely suspend imports of gasoline and diesel while it draws down the fuel stockpiled prior to the Olympics.

China has just started up a 400,000 Bpd expansion of a new refinery, and it will start up a new 240,000-Bpd refinery later this year.

Economy:

China’s economic growth rate is expected to slow from 11.9 percent in 2007 to about 10 percent in 2008. China has increased the amount banks can lend, which should stimulate the economy.

Japan’s economy, the world’s second largest, contracted at an annualized rate of 2.4 percent in the second quarter, which was the worst performance in seven years.

Russian newspaper Izvestia reported that Russia might send nuclear bombers to Cuba if the U.S. deploys anti-missile systems in Poland and the Czech Republic.

About the Author Britt Dearman is manager of Special Projects for Apache Corporation. He has 25 years of experience in the oil and gas industry, having held staff and management positions in production operations, construction, automation, reservoir engineering, gas plants and gas gathering, acquisitions and divestitures, and planning. In the Special Projects Department, Dearman has been involved in a variety of areas including: coalbed methane; CO2; power development; public policy; oil and gas marketing issues; environmental issues; business intelligence and strategic outlooks. He is the originator and editor of Weekly Energy Perspective.

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