US shale puts pressure on gas industry

•   by: ROBERT GOTTLIEBSEN
•   From: The Australian
•   November 15, 2012 12:00AM

AUSTRALIA needs to wake up and realise that what's happening in the US is not fantasy.
 
Fracking technology [ http://www.mikeygatal.com/connect/index.php?topic=15069.msg547051#msg547051 ] has enabled the energy equivalent of Saudi Arabia to be discovered in America. That's why the cost blowout at Chevron's Gorgon liquefied natural gas project is so dangerous to Australia -- it reinforces the chilling message that this is a difficult and high-cost country to operate in.

The new "Saudi" in the US is far more important than that country's fiscal cliff and will hit existing energy producers such as the Middle East and Australia.
The US shale discovery has already contributed to the demise of our thermal coal and is now set to contain future gas developments.
If you add the oil reserves of Iraq to the potential supplies of hydrocarbons, the global energy outlook is transformed.
Oil, gas and coal prices will be contained and go through some bad periods. High cost alternatives like renewables or even uranium will become even less economic.
In particular, the US will show it can lower its carbon count by switching from coal to gas.
It's highly likely that Australia also has huge shale gas reserves, but the energy policy morass in Canberra and our high costs will prevent development and we could have gas shortages in eastern states.
But guess what: one of the sheiks in the US "Saudi" is none other than BHP Billiton chief executive Marius Kloppers.
In Sheik Kloppers' home country of Australia, the mining boss is thought to be a bit of a dunce for supposedly paying too much for some of the prized fields in the new kingdom. But a remarkable ongoing series from Business Spectator's US correspondent Alex Liddington-Cox is revealing how Kloppers secured a key role in the new Saudi for BHP ("BHP's new shale swagger", November 13).
It's true that US gas prices fell after BHP purchased the US assets, forcing writedowns on the $20 billion acquisition. But in response, BHP temporarily shifted to liquids and then found more reserves.
I use the Saudi and sheik analogies to grab your attention, because the Liddington-Cox message for Australia is that American companies are not only setting up processing facilities to take advantage of the shale gas, but basing their developments on gas price projections that are very profitable to BHP.
And because BHP can move from shale gas to shale liquids it can to some extent dictate the terms. Right now there are a lot of US gas producers, but many are small, high-cost and are going to go out of business. BHP might have paid top dollar, but Kloppers bought a quality asset.
My people in the US predict that while some shale gas will be exported as LNG in the short to medium term, the US will use environmental laws to contain that export and ensure US gas is used in America to transform manufacturing and later transport.
The real impact on Australia is that China and Japan will both be affected by the resurgence in US manufacturing, based on low-cost energy, and this will affect our medium-term gas prices.
That's why cost blowouts at Gorgon are so serious.

Robert Gottliebsen is a columnist for Business Spectator.

Australian Mining 30 August, 2012 Andrew Duffy

Australian miners will be "hurt the most" as companies in the United States start exporting more coal [for that matter, any other resource] to China, say Bank of America analysts.

Business Insider reports falling natural gas prices in the US have most companies turning away from coal-fired power, forcing miners to search for an overseas market for their product.

According to Bank of America US producers have already started stealing market share from Australian miners, particularly in China, and this trend is set to continue.

"With US coal exports rising and grabbing share of China’s imports, Australia stands to get hurt the most, being the second-largest coal exporter to China (after Indonesia), in our view," they said.

"China’s coal imports from Australia dropped 2mn tons in June over May, while its imports from the US surged 1mn tons – signs of an early substitution effect that could impact demand for Australian coal, in our view."

Analysts also said rising competition from the US could lead to mining projects in Australia shutting down.

"...It is interesting to note that the substitution effect does not seem to have gained the attention of Australian mining companies yet," they said.

"If so, the damaging effect can potentially lead to large delays/cancellation of coal mining projects in Australia due to price pressure and excessive supply, in our view."

Earlier this week BHP Billiton CEO Marius Kloppers told journalists most coal producers in Queensland were struggling with tough market conditions and there was a "broad industry movement" toward reducing staff numbers and delaying projects.

Know why this is so? While Aussie labour is lima diez, US labour is pito singko lang. Not competitive due to high cost of labour. Gotta import cheap foreign labour (like Pinoy labour) to be competitive.

One reason chose Aus was because exchange rate was US$1.20 = Aus$1. Could send home more money. 3 yrs later, nosedived to US$0.57, 'coz of the opening of the iron mine in Brazil which has hi-grade iron ore deposit enough to supply earth for 500yrs. Competiting Aus, the biggest exporter of iron ore to Russia, China, and rest of Asia.
Also, a technological breakthrough in farming lead to surplus in USA. Rather than burn their surplus wheat, etc and slaughter their cows, etc, Uncle Sam subsidized farming in the form of reduced tariff. Leading to a drop in price. Again, competiting Aus, the largest exporter of these products to Russia, China, etc.
Has never recovered. But now, creeping up. Current rate is US$1.07. One advantage of living in Aus is its resilient ability. Yet another reason for sheilas to choose Aus instead of USA. Hehehe.

Can still remember the then PM Bob Hawke’s comment, “You, Americans, are hypocrites. Call us your friends. Then, stealing our market from us”. Hehehe. Will history repeat itself again?

Interesting to watch how the events will unfurl. Hehehe.

Not only Aussie labour is very expensive, it is also vey scarce. Australia has to import foreign labour.
Cheap foreign labour undermines Australia's pride http://www.mikeygatal.com/connect/index.php?topic=14881.0
So, to compete with US, Aussie labour wage must be at par with US labour wage. Envisaged it’s gonna be like this in the long run. Because of Australia’s proximity to Philippines, more advantageous for the Filipino to work here as FIFO and go back home during roster-out as he’ll be spending in peso. But he’s got to manage to hide from friends and relatives whenever he’s home. http://www.mikeygatal.com/connect/index.php?topic=15029.msg543961#msg543961 Hehehe.

Agree me sound cynical. But must admit was also like that ‘til got married. Priorities then changed to focus on the children.
Goes back to "The FIFO Pinoy's gotta discipline himself to assiduously monitor the flow of his money". Not gonna be easy. 'coz everytime he goes home, myriad of friends and relatives will be asking for pasalubongs. If no paslubong, then, let's go shopping, outing, etc. Otherwise, magmasama ang loob. Hehe

Business Spectator Published 3:25 AM, 13 Nov 2012 Last update 10:27 AM, 13 Nov 2012
________________________________________
BHP Billiton Ltd is considering a plan to ship a portion of its United States shale gas reserves to Asia as part of a plan that would pose a direct threat to exports from Australia's liquefied natural gas sector, according to The Australian Financial Review.
The combination of a collapse in US gas prices after the global miner acquired massive US gas reserves last year and rising appetite from Asian markets has prompted BHP to say it is “studying closely” opportunities for LNG exports from US to Asia.
“It's not just us that want to do this,” said Michael Yeager, chief executive of BHP petroleum division, according to the AFR.
“The Asian companies are calling us every day, wanting us to help them do it. Really, the pull is that strong.”
The sharply rising cost of LNG projects in Australia could see BHP decide it is more attractive to ship LNG to Asia from the US rather than from Western Australia, though Mr Yeager said BHP's shale gas assets had not reduced the company's interest for LNG from Australia. [the one in Broome]
“What's going through our mind in WA is the cost and the economics of what is going on,” Mr Yeager said, according to the AFR.
“We really just want to make sure the investments in WA are competitive.”
The budgets of new LNG projects in Australia and Papua New Guinea have blown out by some $16 billion since May of 2011, the report added.
The prospect of the Panama Canal being widened by 2014, allowing LNG tankers to travel directly to Asia from the Gulf of Mexico, is also raising interest in shipping US LNG to Asia.
However, US President Barack Obama's plan to reduce his country's dependency on foreign oil by boosting domestic use of US gas could get in the way of plans by BHP and other companies to export US gas to Asia. Currently, only one LNG export venture in the US, Cheniere Energy's Sabine Pass project, has secured full regulatory approval for exports, according to the AFR.
Meanwhile, BHP appears to have escaped a writedown on its $US15.1 billion Petrohawk Energy acquisition, according to The Australian.
In August, BHP wrote down $US2.8 billion ($A2.7 billion) from its purchases from Chesapeake Energy, but Mr Yeager said the view on the $US4.75 billion Chesapeake deal would appear much more optimistic today than in August.
“Since (the) writedown, the futures curve is up US50c-US70c,” Mr Yeager said, according to The Australian. “Our value of Fayetteville (the Arkansas asset acquired from Chesapeake) is much higher on the balance sheet.”
Those deals were struck before US natural gas prices fell from about $US4 per million British thermal units to a February low of less than $US2. Prices have since crested above $US3.50.
At 1025 AEDT, BHP shares had slipped 0.41 per cent to $34.16, against a benchmark index fall of 0.23 per cent.

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To read more on Broome click http://www.mikeygatal.com/connect/index.php?topic=13891.msg543830#msg543830

•   MIT Technology Review  By Kevin Bullis on November 15, 2012
___________________________________________________________________________________

The U.S. will still need more big breakthroughs to eliminate the need for imported oil.
 The U.S. trade deficit is dominated by money shipped overseas for oil. But if the U.S. wants to stop oil imports altogether, it will need to keep finding new oil resources and greatly reduce consumption.

The United States could see a surge in oil production that could make it the world’s leading oil producer within a decade, according to a new report from the International Energy Agency. But that lead will likely be temporary, and it still won’t allow the United States to stop importing oil. Barring technological breakthroughs in oil production and major reductions in consumption, the United States will need to rely on oil from outside its borders for the foreseeable future.
This week’s IEA report predicts that a relatively new technology for extracting oil from shale rock could make the United States the world’s leading oil producer within a decade, beating the current leader, Saudi Arabia.
The idea that the U.S. could overtake Saudi Arabia, even temporarily, is a stunning development after years of seemingly inexorable declines in domestic oil production. U.S. production had fallen from 10 million barrels a day in the 1980s to 6.9 barrels per day in 2008, even as consumption increased from 15.7 million barrels per day in 1985 to 19.5 million barrels per day in 2008. The IEA estimates that production could reach 11.1 million barrels per day by 2020, almost entirely because of increases in the production of shale oil, which is extracted using the same horizontal drilling and fracking techniques that have flooded the U.S. with cheap natural gas.
As of the end of 2011, production had already increased to 8.1 million barrels per day, almost entirely because of shale oil. Production from two major shale resources in the U.S.—the Bakken formation in North Dakota and Montana and the Eagle Ford shale in Texas, now total about 900,000 barrels per day. In comparison, Saudi Arabia is expected to produce 10.6 million barrels per day in 2020.The shale oil resource, however, is limited. The IEA expects production to start gradually declining by the mid-2020s, at which time Saudi Arabia will reclaim the top spot.
Shale oil is creating a surge in U.S. oil production in part because it’s easy to find, says David Houseknecht, a scientist at the U.S. Geological Survey. The oil is spread over large areas, compared to the relatively small pockets of more conventional oil deposits in the United States. So whereas wildcatters drilling for conventional oil might come up empty two-thirds of the time or more, over 95 percent of shale oil wells strike oil.
Just how much shale oil can be produced—and how fast—depends heavily on two factors: the price of oil, and how easy it is to overcome possible local objections to oil fracking, says Richard Sears, a former executive at Royal Dutch Shell and a visiting scientist at MIT. Oil shale costs significantly more to produce than oil in Saudi Arabia and many other parts of the world, so for oil companies to go after this resource, oil prices need to stay relatively high. It’s hard to put a firm number on it, but Sears estimates that $50 to $60 a barrel would be enough, compared to the $85 per barrel price of oil now. Houseknecht puts the cost of production at closer to $70 a barrel. Although costs for producing conventional oil in the Middle East also vary, they typically don’t change more than $10 per barrel.
The IEA concludes that prices are likely to stay high enough to prompt companies to produce shale oil. Recent comments from OPEC support this idea. It recently declared that it’s happy with the current prices, indicating that it’s not likely to increase oil production to bring them down. What’s more, demand for oil in poor countries is likely to keep growing, putting pressure on oil prices to rise.
The other potential issue is whether opposition to fracking in local communities might put the brakes on shale oil development, Sears says. Concerns that fracking will contaminate drinking water have led to objections in some areas, as have concerns that shale oil requires far more drilling wells than conventional oil production. Even if the U.S. is able to quickly develop its shale oil resource, it isn’t likely to be enough to completely eliminate oil imports. The IEA expects that the U.S. will still import 3.4 million barrels per day in 2035. The U.S. consumes nearly 19 million barrels per day, leaving a gap of more than 7 million even at the expected peak in shale oil production in the mid-2020s. However, the IEA expects the gap will be reduced partly by increased use of biofuels and natural gas in transportation, as well as improved vehicle efficiency, which could lower demand for oil.

The IEA does conclude that the United States will nearly be energy self-sufficient by 2035, but that’s after offsetting oil imports with exports of coal and natural gas. To be truly energy independent, the United States would have to invest in technology for converting natural gas and coal into the liquid fuels needed for transportation, or have other technical breakthroughs, such as improved batteries or biofuels, that would quickly reduce the demand for oil.

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By Michelle Costanza February 5, 2013 Updated Feb 5, 2013 at 1:04 AM EST

(WBNG Binghamton) A decision about whether high volume hydraulic fracturing should be permitted in New York is supposed to be made by by Feb. 27.

But like past deadlines for statewide rules that would govern the controversial method, this latest deadline could once again be made arbitrary.
Department of Environmental Conservation Commissioner Joe Martens told lawmakers Monday that final regulations would likely not be ready for at least a couple of weeks. The delay could be made longer as the DEC awaits a health impact study from the State Health Department.
Those in favor of bringing hydraulic fracturing to the Empire State say they've met their end, and that another missed deadline is unacceptable.
The Joint Landowners Coalition of New York, which supports the practice, says heath studies have already been done, as are social economic studies.
"Our 770,000 members are absolutely outraged by this," said JLCNY President Dan Fitzsimmons. "We've waited long enough for natural gas to come, this has been a four-and-a-half-year process. The governor has made a mockery of this whole process."

Fitzsimmons added that in the 28 states that allow fracking, there has been no contamination of drinking water aquifers. He also said New York needs the jobs and the economic boost that he says fracking can provide.

A Sienna Poll released Monday showed New Yorkers remain divided on the issue of fracking.

Robin McKie in Boston  guardian.co.uk, Saturday 16 February 2013 12.46 GMT

Boosting natural gas production could provide a 'bridge fuel' and cut carbon emissions

America will only achieve the ambitious climate change goals outlined by President Barack Obama http://www.guardian.co.uk/environment/2013/feb/13/barack-obama-act-climate-change-poll last week by encouraging wide-scale fracking for natural gas over the next few years. That is the advice of one of the nation's senior scientists, Professor William Press, a member of the president's Council of Advisors on Science and Technology http://www.whitehouse.gov/administration/eop/ostp/pcast.

Fracking – known officially as hydraulic fracturing – involves pumping high-pressure water through underground rocks to release natural gas trapped deep underground. It is believed that there are vast reserves of these subterranean gas fields across the US.

Thousands of wells have already been drilled in Texas, leading to a substantial rise in the use of natural gas in the US and a major decline in the burning of coal, a far more serious cause of carbon pollution. However, fracking is also controversial. Environmentalists say it can lead to the contamination of underground water reservoirs and the pollution of the surface with chemicals used to help to release subterranean gas stores. They also point out that burning natural gas releases carbon dioxide.

However Press, who is president of the American Association for the Advancement of Science http://www.aaas.org/ , said last week that natural gas obtained through fracking had potential to help mitigate climate change http://www.guardian.co.uk/environment/climate-change . "Coal is burnt to provide the US with almost half its electricity. This is done in huge central power plants and the process is very dirty. By contrast, the burning of natural gas is clean and can be done in smaller, local, more efficient power station," said Press.

"For the amount of heat you produce, coal is, effectively, three times more powerful an emitter of carbon dioxide than natural gas. Relying on gas will therefore cut our carbon emissions http://www.guardian.co.uk/environment/carbon-emissions substantially."

An astrophysicist by training, Press has turned to biology to use his talents at dealing with astronomical data in order to help researchers cope with the vast information sets generated by genome sequencing machines and other devices. He was speaking in Boston, where more than 8,000 delegates and 1,000 journalists have gathered for the association's annual meeting this weekend.

His opening address focused on the need to provide proper funding for basic research – "the cornerstone of science", as he put it. However, his remarks on climate change – made in a separate interview with the Observer – provided the most intriguing part of his message. In his state of the union address on Tuesday, Obama said he intended to be resolute in curbing emissions of carbon dioxide in the US – something that he had failed to do in his first term.

"For the sake of our children and our future, we must do more to combat climate change," Obama said. "The fact is the 12 hottest years on record have all come in the last 15. Heatwaves, droughts, wildfires and floods – all are now more frequent and intense." And the culprit, he made clear, was the amount of carbon dioxide pumped into the atmosphere by cars, power plants and factories.

Emissions would have to be cut back drastically, though Obama was not clear how this would be done. Republican intransigence makes it unlikely he will get congressional approval for cutbacks, as he acknowledged. "If Congress won't act soon to protect future generations, I will," he said. "I will direct my cabinet to come up with executive actions we can take, now and in the future."

The exact nature of that executive action was not defined. However, Press is convinced that encouraging fracking and boosting natural gas production would provide the US with "a bridge fuel" that would allow it to slash carbon emissions in the short term and give the nation time to build wind and other renewable energy sources. "The gas industry is straining to develop underground natural gas reserves across the nation and would love to know the exact rules and constraints by which it can carry out fracking in different states. Once they know that, they can get on with it."

The president could use executive orders to outline those rules in the very near future and so initiate widespread gas fracking in the US, added Press. By ensuring there were powerful regulations to protect the environment from such drilling, he would also be able to reassure campaigners that it would not cause widespread damage. Fracking would become widespread as a result.

"Rising use of natural gas in the US has already produced a major effect," said Press. "Our carbon emissions have been cut back http://www.guardian.co.uk/environment/2013/feb/01/us-carbon-emissions-lowest-levels  to their 1994 level because gas is already taking over from coal as a fuel for generating electricity." With more drilling for underground natural gas, deeper cuts in carbon emissions would give the US more time to introduce longer-term renewable energy sources.

The idea of using natural gas to remove coal as a power source has gone down badly with mining companies. But Press said: "In the past, when coal seemed cheap, they complained free market forces should allow them to expand. But those forces are turning on them. So they should have no complaints," he said.

However, the claim that natural gas is helping to cut back on US greenhouse gas emissions is questioned by some environmentalists. Greenpeace says no proper analysis has been done on gas leakage from fracking sites. In particular, there is a fear that methane – which is a far more dangerous greenhouse gas than carbon dioxide – may be escaping from wells and adding to the warming of the atmosphere. Campaigners also claim that there have been more than 1,000 cases of groundwater contamination in the US because of fracking and have urged a moratorium on underground drilling.