Shale Gas Revolution -- Shale Can Support [U.S.] LNG Exports: Chesapeake

Platts, May 26, 2011
Shale gas pioneer Chesapeake Energy is confident unconventional gas plays would support proposed US LNG export projects, and believes the US could produce more than 90 Bcf/d of gas at prices are "not that high," a company executive said Wednesday.

"We have a very strong mandate from our CEO to export (LNG from the US)," Bill Wince, vice president of transportation and business development at Chesapeake, said during a panel presentation at CWC’s Americas LNG Summit here. [...]

Chesapeake last year signed a preliminary agreement to supply as much as 500,000 Mcf/d to Cheniere Energy’s proposed LNG export project in Louisiana, which aims to start exporting in 2015. Chesapeake is also talking to the proposed LNG export project in Freeport, Texas, Wince told Platts on the sidelines of the conference, declining to comment on the relative merits of the two proposals.

Current US production stands at 64-65 Bcf/d, Wince said during his presentation. [Also, please see my post "Natural Gas Production/Consumption Retrospective 2010." -- D.R] [...]

The Marcellus play needs a price of only $2.45/Mcf to provide a 10% rate of return, according to a slide he [Wince] presented. The Haynesville play needs a $4.25/Mcf price to provide the same rate of return, while the Fayetteville play needs a price of $4.70/Mcf and the Barnett play needs a price of $5.05/Mcf, the slide showed. [...]

Current production from four major shale areas is 15 Bcf/d, he said, adding that the advent of low US gas prices in recent years coincided with shale production gains. [...]

US shale production is greatly reducing basis differentials in the US market, which historically have been caused by transportation costs between producing and consuming regions, Wince said.

"We crush the basis,” he said about Chesapeake, which ranks as the country’s second-largest gas producer [after ExxonMobil -- D.R.], producing 2.7 Bcf/d in the first quarter. [...]

A significant amount of LNG import infrastructure was built last decade before the shale boom was well understood, as industry players expected LNG to make up for projected decreases in domestic gas production.

Shale gas crowds out Yemen LNG 

Yemen LNG was primarily designed to sell significant LNG volumes to the US, but "the market disappeared,” Jean-Pierre Cave, head of commercial and shipping at Yemen LNG, said at the conference. [...]   

Based on last week’s ruling [May 20] by the US Department of Energy authorizing Cheniere to export US-produced LNG from Sabine Pass [please see my post "Cheniere Gets OK to Ship LNG Overseas," -- D.R.], Bill Cooper, president of the Center for LNG industry group, said he expects other proposed US export projects to get similar approval. [...] [Read full]

(According to the U.S. Energy Information Administration/EIA, in the past 10 years, U.S. shale gas production has increased more than 12-fold from 0.39 trillion cubic feet/tcf in 2000 to 4.87 tcf in 2010. In 2010, U.S. shale gas production constituted 23 percent of total U.S. natural gas production---please see here. In 2009, the U.S., with its big shale gas resources, even surpassed Russia as the world's largest natural gas producer---please see EIA's data, here. -- D.R.)

World Watch [Oil Markets]

by Matt Piotrowski, Washington, EI
Oil markets took a breather [sic] Wednesday [Mar 23], with little movement on either of the major benchmarks. It appears that Brent has settled down around the $115 per barrel level, while WTI looks comfortable in the $100-$105 range. The markets have already priced in an extended outage in Libya, but traders are having difficulty factoring in other pockets of instability in the Arab world. Unrest in Yemen, Syria and Bahrain this week is underpinning prices, and will likely do so for some time. There are some dangers on the downside, such as a fragile global economic recovery and a possible short-term decline in Japanese demand, but the risk to the upside appears greater. Societe Generale said this week that if another medium-sized oil producer similar to Libya were to lose output, Brent would rise to $125-$150. And if the turmoil spreads to Saudi Arabia, the world could be looking at $200 oil, the SocGen analysts said.

(U.S. crude ended at a 2-1/2 year high on Wednesday as Palestinian rocket strikes on Israel escalated Middle East geopolitical risks and U.S. gasoline inventories posted the biggest seasonal decline on record, amid ongoing unrest in MENA countries---Reuters. Light, sweet crude---benchmark WTI---for May delivery settled 78 cents higher at $105.75 a barrel on the New York Mercantile Exchange, the highest settlement since September 2008. In London, Brent May crude futures settled down 15 cents at $115.55 a barrel. -- D.R.)

Fitch: Long Production Cut Biggest MENA Threat

By OGJ editors, OGJ, Mar 3, 2011
Long interruption of production represents the largest threat from political turmoil to the financial stability of oil and gas companies with operations in the Middle East and North Africa (MENA) but remains unlikely, an international credit-reporting agency says.

A secondary risk, nationalization of assets by successor regimes in countries now experiencing unrest, is a “remote scenario,” although contract renegotiations by successor regimes remains possible, according to Fitch Ratings, New York and London.

A recent Fitch report covering North American companies with operations in the MENA region said credit pressures from unrest in Egypt, Libya, and other countries of concern are manageable.

Credit ratings are most sensitive to “widespread and long-lasting production” upsets, which Fitch doesn’t expect “due to the importance of oil revenues to the region’s economies.”

Most North American producers in the MENA region are large, integrated companies for which production in countries experiencing unrest is small in relation to total. Oil price increases mitigate the elevated risks of production losses and contract renegotiation.

Company exposures

Apache Corp. has the highest exposure among North American producers to any single country experiencing turmoil, Fitch said. Apache’s 163,300 boe/d of output in Egypt is 24% of Fitch’s assessment of the company’s recent total production.

Exposure levels in Libya include Marathon, 12% of total production; Suncor Energy Inc., 8%; Hess Corp., 5%; ConocoPhillips, 3%, and Occidental Petroleum Corp., 1%.

Fitch called Algeria “the other North African country that could present the largest concerns for North American-based upstream companies.” There, sizable exposure levels include Anadarko Petroleum Corp., 7% of total production, and Hess, 3%. ConocoPhillips produced 14,000 boe/d in Algeria in the third quarter last year, less than 1% of total production, according to Fitch estimates.

North American companies with production in restive Yemen include Nexen Inc., 11% of estimated total production, and Oxy, 6%.

Among European oil and gas companies tracked by Fitch, four have production in Libya or Egypt, the firm said in a separate report.

Eni, OMV, and Repsol have production exposure of 9-14% in Libya, “with Eni as the most exposed,” Fitch said. About one fourth of BG Energy Holdings Ltd.’s total oil and gas output is in Egypt.

“There could be a more pronounced impact on European oil and gas companies’ operations and financials if the political unrest spreads across Africa and/or the Middle East,” Fitch said, adding it “does not currently view this scenario as very likely.” [Full story]