Over One-Third of Natural Gas Produced in North Dakota is Flared or Otherwise Not Marketed

Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.

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Natural gas production in North Dakota has more than doubled since 2005, largely due to associated natural gas from the growing oil production in the Bakken shale formation. Gas production averaged over 485 million cubic feet per day (MMcfd) in September 2011, compared to the 2005 average of about 160 MMcfd.
However, due to insufficient natural gas pipeline capacity and processing facilities in the Bakken shale region, over 35% of North Dakota's natural gas production so far in 2011 has been flared or otherwise not marketed. (It is generally better to flare natural gas than to vent it into the atmosphere because natural gas—methane—is a much more powerful greenhouse gas than carbon dioxide.) The percentage of flared gas in North Dakota is considerably higher than the national average; in 2009, less than 1% of natural gas produced in the United States was vented or flared.

Natural gas production in the Bakken shale. North Dakota natural gas production from the Bakken shale, which is situated in the northwest portion of the State, increased more than 20-fold from 2007 to 2010, and the number of wells producing natural gas increased 7-fold.

Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.

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Natural gas infrastructure. The necessary natural gas infrastructure—gathering pipelines, processing plants, transportation pipelines—surrounding the Bakken shale play has not expanded at the same pace, effectively stranding the natural gas that is produced during oil production. A 2010 report by the North Dakota Pipeline Authority highlights an example of this, stating that one county was able to reduce its flaring from December 2008 to December 2009 by 62% with the addition of two new natural gas plants and the expansion of associated gas gathering systems. The report also details several other projects that have either come online recently or are planned to for the immediate future, which may reduce the amount of natural gas flared.

Natural gas flared or otherwise not marketed. The North Dakota Department of Mineral Resources estimated that in May 2011, nearly 36% of the natural gas produced did not make it to market. Most of this gas—29% of the total gas produced—was flared. The remaining natural gas that did not make it to market—7% of total gas produced—is unaccounted for or lost, which means the gas may have been used as lease and plant fuel, or encountered losses during processing or transportation.

Natural gas flaring regulations. According to current North Dakota state regulations, producers can flare natural gas for one year without paying taxes or royalties on it, and can ask for an extension on that period due to economic hardship of connecting the well to a natural gas pipeline. After one year, or when the extension runs out, producers can continue flaring but are responsible for the same taxes and royalties they would have paid if the natural gas went to market.

Crude Ends Below $98 As Rally Fades

Crude oil futures prices dropped Friday, tipping under $98 a barrel in further retreat from the triple digit levels hit earlier this week. After topping $100 Wednesday following the sale of a key U.S. pipeline, traders have pulled back due to concerns about ripple effects from Europe's debt crisis and worries that crude rallied too high, too fast.

While the sale and planned reversal of the Seaway Pipeline should ameliorate a U.S. supply glut beginning sometime next year, in the short term the effect on the physical crude markets will be minimal. For that reason, the spike in oil futures appeared to be an overreaction for many market participants, who opted to lock in returns.

"It's reached levels where you should be taking profits," said Brian LaRose, an energy analyst at brokerage United-ICAP. "There is the risk here in the short term for a substantial correction." Light, sweet crude for December delivery settled $1.41, or 1.4%, lower at $97.41 a barrel on the New York Mercantile Exchange, after falling as low as $96.64 in earlier trading.....Read the entire Rigzone article.

Pipeline Reversal Of Fortune

Don't think of it as crude oil prices rallying, think of it as Brent crude prices falling. Oil prices surge above $100 a barrel for the first time since last July as the "broken" global oil market gets fixed in a big way. Conoco Phillips had a big payday by selling its interest in Gulf Coast Seaway pipeline in Cushing, Oklahoma to Enbridge Corporation which will reverse the flow of oil out of instead of into the NYMEX delivery point in Cushing, Oklahoma. This is a big step to ending the bottleneck in Cushing and allow the bonanza of Canadian oil sands crude and shale crude to be sent to Gulf Coast refiners that have too often had to rely on foreign imports of crude.

Followers of crude imports realize the cost of imported crude was rising as evidenced by what became a record differential between the Brent Crude versus West Texas Intermediate spread. West Texas Intermediate (WTI), which historically Brent Crude traded at a premium to, reversed on a host of challenges. In Oklahoma the influx of crude exceeded refiners ability, or at least desire, to run crude at those rates that would use the influx of new sources of oil. In the Gulf Coast where supplies were tight the infrastructure did not exist to transport the oil in sufficient amount. The US pipelines remain the most popular transport option, carrying about two-thirds of U.S. oil.....Read the entire article.


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Obama Delays Decision on Keystone XL

The U.S. Department of State announced Thursday afternoon that it will postpone making a decision on whether TransCanada's proposed Keystone XL Pipeline project is in the national interest until at least early 2013.

Under Executive Order 13337, the State Department can issue Presidential Permits for transborder pipelines projects that it deems are in the national interest. The department has led what it calls a "transparent, thorough and rigorous" review of TransCanda's permit application for the Keystone XL project, and the executive order directs the secretary of state or a designee to consult with at least eight other federal agencies. The pipeline would carry crude oil approximately 1,661 miles from Alberta's Oil Sands to refineries along the Texas Gulf Coast.

This past summer, the State Department issued its Final Environmental Impact Statement (EIS) for the project under the National Environment Policy Act (NEPA). The agency found that the 36-inch-diameter pipeline would pose "no significant impacts" to most resources along the proposed route. Prior to Thursday's decision to delay making the national interest determination, the State Department accepted public comments during a 90-day review period. Click here for a timeline showing the agency's role in the permit review process......Read the entire article.


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Bertha Coombs: Cashing in on Crude

The likelihood of building a pipeline to carry new sources of oil from the northern part of the country to the south, with CNBC's Bertha Coombs. And it's up to President Obama to decide whether the pipeline should be built, over the objections of environmentalists.




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Zacks: Kinder Morgan-Valero Pipeline Pact

Leading petroleum product pipeline owner and operator Kinder Morgan Energy Partners L.P (KMP) has partnered with San Antonio based Valero Energy Corporation (VLO) to build a new 136 mile, 16 inch pipeline to transport gasoline, jet fuel and diesel. Known as Parkway Pipeline LLC, the proposed initiative is estimated to cost $220 million.

While both companies will own the pipeline system, Kinder Morgan will be the operator. Parkway Pipeline is expected to have an initial capacity of 110,000 barrels per day that can be eventually expanded to over 200,000 bpd.

The refined products would be shipped from refineries in Norco, Louisiana to the Collins, Mississippi hub, owned by a subsidiary of Kinder Morgan, Plantation Pipe Line Company. Kinder Morgan has a 51% stake in the petroleum transportation hub of which it is also the operator. Thereafter, the refined petroleum products will be distributed by the pipeline systems, including Plantation, to important markets in the southeastern United States from this hub.

The pipeline is expected to begin operations by mid 2013 after getting approvals from the concerned environmental and regulatory authorities. It is expected to be accretive for Kinder Morgan unitholders upon completion as the project has a long-term backing of a credit worthy shipper.

To curtail environmental impacts, Parkway Pipeline construction will follow prevailing utility rights of way wherever possible. The project is expected to boost fuel supply, and at the same time offer all shippers larger access to Gulf Coast refineries.

Kinder Morgan’s continuous effort to upgrade its portfolio is evident from its newest business segment, Trans Mountain Pipeline (now under Kinder Morgan Canada), an approximately 715 mile transport system overbooked by a wide margin for September. Trans Mountain has a pipeline capacity of approximately 300,000 barrels per day.

P{osted courtesy of Zacks on Seeking Alpha. Kinder Morgan holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock.

What's Surprising Me Most about Canadian Natural Gas

From guest analyst Keith Schaefer......

Western Canadian gas exports to the United States could be completely displaced into Northern California by....

1. Abundant, low cost US natural gas production,
2. And by several new gas pipelines in the US,

Says a new market study by Bentek, a US energy analysis company. Overall, Canadian gas exports to the US will drop 2 bcf/d over the next few years, almost 30%, and this impending loss of the northern California market builds upon the loss that western Canadian gas has in lower exports to the US northeast. Increased Canadian demand and declining Canadian supply will pick up some of the slack, but it won’t be enough to offset a significant loss of exports to the US market in the near term, they add.

Bentek’s report, titled “The Big Squeeze”, is a report that also outlines how fast growing production from the Marcellus shale in Pennsylvania is displacing Canadian gas to the lucrative Northeast US market, and how new pipeline capacity carrying low cost gas out of the Rocky Mountains is now set to displace much of Canadian gas to the US Midwest and lucrative California markets.

“What we outlined in our study was complete displacement of Canadian gas into Northern California by the summer of 2014,” says Jack Weixel, Director of Energy Analysis for Bentek.
Last summer I wrote about how the new $6 billion Rockies Express pipeline, or REX, going from Colorado to Ohio, was displacing western Canadian gas production by almost 10%. Lately, US natural gas production from the Marcellus shale has also been displacing Canadian gas to the US Northeast. Canadian suppliers have been able to send more natural gas into the Midwest and Western US to help make up for that drop.

But Bentek says even that market is at risk, and Canadians could see this market get curtailed within the next two weeks, in early December 2010. That’s when low cost Rockies gas supply will start flowing east on the newly installedBison Pipeline. This will give Rockies producers an additional 0.5 Bcf/d (billion cubic feet per day) of capacity out of the Powder River basin in Wyoming. The Bison connects into the Northern Border Pipeline, which moves mostly western Canadian supply.

Weixel expects the Bison Pipeline to create stiff competition for Canadian gas. He says Canadian gas has to get cheaper to stay competitive. “They (Canadian gas producers) need to drop 14 cents (an mcf). Let’s say Rockies gas is $3.50/mcf - that means that AECO (the Canadian natural gas benchmark price out of Edmonton) needs to be priced $3.36 to be competitive in northern California,” says Weixel, adding that the breakeven price for certain Rockies gas producers in the Pinedale and Jonah tight sands plays is “well below $3 per mcf.”

Weixel expects net Canadian exports to drop 2 bcf/d through 2015, out of a total of 6.9 bcf/d now. But it’s not all gloomy for producers – and their shareholde“At the same time exports are declining, you’ve got Canadian demand growing, primarily from oilsands in the west and coal retirements in the east,” he says. “You’ve also got production slipping from conventional gas plays in Alberta. So there is a tightening supply demand balance.

“Traditionally that would lend itself to gas prices getting stronger. But we believe that due to the drop in exports, that there will be just as much gas on hand in Canada as there is now. So if production drops 1.5 bcf/d but exports drop 2 bcf/d, they’re up half a “b” a day.
Canadian gas production is actually going up because of the unconventional plays in BC (read: MONTNEY), but Weixel says the gas rig count in Alberta dropped off a cliff this September, and is about half the number it was last year and about one quarter what it was in 2008.

What’s surprising to me is how little both the industry and investors appear to be concerned about this issue. The Calgary Herald ran a small story on this, and The Daily Oil Bulletin, which is ready by the industry only, ran a story (masthead, or lead story). There are thousands of high paying jobs at stake – mostly in Alberta but also in northern B.C.


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Venezuelan Black Sea Oil Route Threatens European Supplies

Deliveries of Venezuelan crude to Belarus from the Black Sea may pose a threat to Russian oil supplies bound for central Europe, Russia’s pipeline operator OAO Transneft said. Transneft is preparing a letter to the European Union explaining the situation, Igor Dyomin, a Transneft spokesman, said by telephone in Moscow. “The decision has increased risks to Russian oil deliveries to Europe,” he said.

Belarus reversed the direction of one line in the Druzhba link’s southern branch on Nov. 21 to carry crude east to the Mozyr refinery, Dyomin said. The branch’s parallel line continues to carry Russian oil west to the Czech Republic, Croatia, Slovakia, Hungary and Germany, he said.
Russia and Belarus, which are developing a customs union with Kazakhstan, have clashed over oil export taxes as Russia moved to roll back a discount that allowed Belarus to benefit from cheap oil supplies. Russian Prime Minister Vladimir Putin said the duty may be canceled once a free-trade area is created.

Belarus plans to take delivery of as much as 9 million metric tons of crude from Venezuela next year, a Belarusian presidential administration official said in September. Belarus’s use of the line means Transneft won’t be able to increase deliveries via Druzhba’s southern branch to meet additional winter demand and won’t have an alternative route in case of an accident, Dyomin said.

Transneft supplies to Europe have continued uninterrupted through the second line of Druzhba, which is operating at slightly more than its capacity of 17.5 million tons a year, Dyomin said. The crude Belarus received was Russian oil that Venezuela obtained via a swap at the Black Sea port of Novorossiysk, Dyomin said. The 80,000 ton cargo was carried from the Black Sea to Belarus via Ukraine’s Odessa-Brody pipeline, Dyomin said. The next delivery, of 78,200 tons of oil, is scheduled to arrive at the Odessa port on Nov. 25, Kommersant-Ukraine said yesterday.

“Why Belarus can’t take that same oil via Druzhba is beyond my understanding,” Dyomin said.


Posted courtesy of Bloomberg News. Reporter Stephen Bierman can be contacted in Moscow at sbierman1@bloomberg.net.



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Crude Oil Reverses Losses as Equities Closed Higher

Crude oil initially slumped as global stock market tumbled amid revision of Greece's debt deficits. Together with disappointing inventory report released Wednesday, the front month WTI contract plummeted to as low as 81.73. However, buying interests emerged at that level as price reversed and ended the day flat at 83.7. Strong rebound in equities and attack of Iraqi oil pipeline also supported oil.

After the EU released a report revising up 2009's Greek fiscal deficit to 13.6% of GDP from the 12.7% of GDP estimated previously, the Greek Financial Ministry reassured the market that will endeavor to shrink the deficit by 4%. With the upward revision and potential further revision, the country is unlikely to reduce the deficit to 8.7% of GDP as previously estimated.

Worse still, Moody's announced to cut its rating on Greek debt to A3 from A2. Moreover, Greek officials said that the country has prepared to ask the EU for a bridge loan. In US trading session, the market was further pressured by President Barrack Obama's call for new financial reform as well as the Senate's approval of derivative legislation requiring US lenders to spin off their swaps trading desks.

Despite the negative news, stocks managed to crawled back and DJIA and S&P 500 ended the day gaining +0.1% and +0.2%, respectively. Encouraging corporate earnings, mildly bigger than expected decline in initial jobless claims and stronger existing home sales data restored sentiment.

Specifically to the oil market, damage of an oil pipeline from Iraq to Turkey disrupted supply which will take around 3 days to resume.

Gold fell, halting a 2 day rally, as the euro tumbled to a new 11 month low against the dollar. However, the recovery after sliding to as low as 1132 signaled yellow metal's underlying strength. In fact, while the market has only focused on Greece's deficit issue, such problem has also rooted in other countries including the US, Japan and the UK. If worries intensify and spread to these countries, we believe gold should benefit.

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Oil Rises for Second Day on Demand Outlook, Supply Constraints

Crude oil rose for a second day on speculation increasing demand and constraints on supply will reduce global stockpiles and support prices. Oil imports by China, the world’s second largest consumer, climbed 24 percent in December to reach a record annual total of 203.8 million metric tons, according to a customs report yesterday. Chevron Corp. said the Makaraba-Utonana pipeline it operates in southern Nigeria’s Delta state was breached on Jan. 8, shutting-in 20,000 barrels a day of crude.

“Asia has obviously performed well throughout this recession,” said Toby Hassall, commodity analyst at CWA Global Markets Pty in Sydney. “Beyond the short term, the global economy, and the U.S. in particular, the largest consumer of oil, is in the early stages of a recovery, which suggests that demand is on the mend.” Crude oil for February delivery rose as much as 71 cents, or 0.9 percent, to $83.46 a barrel in after hours electronic trading on the New York Mercantile Exchange. It was at $83.43 at 8:07 a.m. Singapore time.

The contract rose 9 cents to $82.75 on Jan. 8 after the dollar tumbled on a report showing employment in the U.S. unexpectedly fell in December. Futures climbed 4.3 percent last week and gained in 11 of the past 12 sessions as freezing temperatures in Europe and North America boosted heating demand.....Read the entire article.

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Uncertain Future For Alaskan Gas

New technologies to unlock gas from shale deposits from the Lower 48 and declining prices make predictions on Alaska's potential uncertain, analysts say. Technological advancements for the extraction of gas from shale deposits make the resource more attractive. The sagging economy, however, has suppressed energy demand, making commercial extraction questionable for the time being. Meanwhile, Alaska hopes to build an ambitious gas pipeline network from the North Slope to markets in the Lower 48 by 2018.....Complete Story

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Light Trading Day as Market Eyes Oil

Monday's markets closed following a day of light trading. News of a pipeline attack boosted Exxon and Sallie Mae's SLM Corp. benefited from a government contract. Simon Constable reports after the closing bell.

Enterprise Products to Buy Teppco for $3.3 Billion

Enterprise Products Partners LP agreed to buy Teppco Partners LP for about $3.3 billion, combining pipeline operators controlled by Houston billionaire Dan Duncan to create the biggest U.S. energy partnership. Teppco owners will get 1.24 units of Enterprise for each of their units, a deal worth 15 percent more than when an initial offer was made in March, according to a statement today by the partnerships. The transaction is worth $31.36 per unit.....Complete Story

Crude Oil Industry Headline News

"Oil Declines as U.S. Crude, Fuel Inventories Increase More Than Expected"
Crude oil futures plunged after a U.S. government report showed a bigger than forecast increase in crude and fuel inventories as the recession curbed demand....Complete Story

"Saudi Arabia Will Cut Production 300,000 Barrels Below Quota, Khelil Says"
Saudi Arabia, the world’s top oil exporter, will cut production by 300,000 barrels a day below the quota agreed on with OPEC to prop up prices, Algerian Oil Minister Chakib Khelil said....Complete Story

"US Interior Department to Go Ahead with Offshore Drilling Plan"
A proposal issued in the final days of the Bush administration to expand offshore drilling in previously banned areas will move forward under the administration of U.S. President Barack Obama, Reuters reported Wednesday....Complete Story

"Iceland Opens First-Ever Offshore Licensing Round"
Applications are now being accepted in the First Oil and Gas Licensing Round in Icelandic Waters....Complete Story

"Energy Companies Find Money Pipeline Is Open Again"
Credit markets are showing some signs of life after months of inactivity, with energy companies helping to lead a surge in new debt and equity deals in recent weeks....Complete Story