Canadian Rig Worker Shortage Prevails, Despite Innovative Training

The jobs are plentiful. They pay very well, $29 per hour entry-level and up. No college degree is required, not even always a high school diploma. Training is provided, beyond prerequisite basic drilling and first aid classes.

Yet Canada expects limited growth in drilling next year, due to a severe shortage of rig workers.

"The greatest limiting factor when examining overall utilization rates will be the shortage of skilled rig workers," said the Canadian Association of Oilwell Drilling Contractors (CAODC) in a November statement. "Industry suffered a great loss of skills and knowledge during the downturn of 2009 and it has struggled to attract these experienced workers back," CAODC continued. "While the numbers of new workers joining industry is encouraging, it will take time to develop their skills. In addition to outside labor competition, the drilling rigs lose many skilled people to positions within industry – particularly specialized positions like directional drilling."

The association's recent forecast projects only a 1 percent increase in drilling in 2012, due in large part to the worker shortage.

However, rig training is in anything but short supply in Canada.

The country's industry-sponsored Enform provides dozens of safety courses for rig workers, along with the required basic drilling course for newcomers.

"They have a fully functioning drilling rig here in Alberta and pretty much everyone that comes out is guaranteed a job," said rig worker Alan McDonald. "The industry really promoted the school or they would be in a worse shortage without it."

In addition, CAODC sponsors RigTech, a website full of training and background information for current and hopeful rig workers, and ServiceRigDrive, a site bringing attention to the need for service rig workers as a distinct career path.

Canada is the first country in the world to introduce formalized apprenticeship training for more experienced oil and gas drilling rig crews.

The CAODC-sponsored Rig Technician trade program is a combination of documented on-the-job training and classroom technical training. The three-year program covers the three senior positions on the rig crew – motorhand, derrickhand and driller – and is available in Canada's Alberta, BC, Saskatcheawn and the Northwest Territories.

For each level of training, the apprentice logs 1,500 hours of on-the-job training and completes a four week technical training course.

"Recognizing the rig hand as a tradesperson identifies what every rig hand knows: operating a drilling rig is a highly skilled job," said CAODC President Don Herring. "With trade designation, they will receive standardized, high quality training and the recognition they deserve."

An Inside Look at Europe's Energy Challenges

An Inside Look at Europe's Energy Challenges

Source: Dr. Kent Moors, Global Energy Strategist, Money Morning  (11/23/11)

"Europe is structuring a new financial and organizational approach to developing Polish shale gas. A successful outcome would have an impact on both continental energy sources and the ongoing debt crisis."

I am in Frankfurt, Germany, right now attending three days of meetings, and I must say they're shaping up to be quite interesting.

The focus is on structuring a new financial and organizational approach to developing Polish shale gas.

A successful outcome would have an impact on both continental energy sources and the ongoing European debt crisis. And the stakes have become even higher in the past several weeks.

In focus this week are the rising energy needs across Europe and what securing considerably greater sources of domestic natural gas will mean to the debt crisis. Meanwhile, we have to consider the potential for some North American companies to generate significant profits by meeting these growing energy demands.

As I noted during my last advisory trip to Poland, Warsaw has decided to fast-track its shale gas development. With reserves now estimated to be much higher than initially thought, the country has the opportunity to become self-sufficient and to start exporting gas to other European countries and elsewhere as early as a decade from now.

That would have a serious impact on the energy balance in Europe as a whole. With the prospects of additional domestically produced energy, the balance of payments will be improved, and with it the debt picture.

Now, reinvigorating the Polish picture is not going to do this on its own. Here is where it gets very interesting.

What takes place in Poland will expand elsewhere into Western Europe. There are shale gas reserves in Germany, Hungary, Austria, France, the Baltic countries, Sweden and even the UK.

Political opposition has suspended activities in France, and the Greens in Germany have given notice that they intend to target shale gas operations after their successes in phasing out the country's nuclear power stations.

Poland, however, has no significant opposition to drilling. At least, not at the moment. But as I advised the government in September, that situation is likely to change as the number of wells increases. In order to combat any opposition, the country is going to need to access to drilling technologies developed in the Western Hemisphere, technologies that address the primary concerns about hyrdofracking and horizontal drilling.

The North American Advantage

The eight- to 10-year head start North America has had on the rest of the world means there have been significant technological and operational developments in the U.S. and Canada to meet a number of the environmental and logistical problems related to hydrofracking and horizontal drilling.

It's these two advances that have ushered in this whole new world of energy in the United States. Now, eight to 10 years may not sound like a huge advantage. . .

But it most certainly is.

Eight years ago, we were still talking about how much liquefied natural gas (LNG) would need to be imported into the U.S. and Canada to meet energy demands. But today, we don't require any imports, and both countries now plan to begin exporting LNG based on excess shale gas.

There have been big changes. Massive new volumes have come on line and reserve figures are skyrocketing. These have forced North America to confront problems well before other parts of the world. In terms of technology, a decade is a generation.

And this sets the stage for some rare opportunities during my meetings in Frankfurt.

Three Measures of Success

Three primary issues are on the table this week.

• First, companies need to be established in both Poland, and more broadly in Europe, to coordinate the required field exploration, preparation, drilling, water usage, drilling, processing, environmental protection, supply and support dynamics, gas storage, pipeline networks, terminals, compressor stations and a range of other matters from training personnel to protecting the transparency necessary in a democratic environment.


• Second, companies need to have access to funding in ways that will prevent Poland (and other European countries as well) from being dependent upon outside finance. This must be a European Union (EU)-based financing scheme to parallel European-controlled field development and drilling programs.


• Third, the Polish-then-broader-Europe requirements include immediate access to North America's "generationally leading" technology.

It is at this point that an attitude I have held with companies for years will become operational. The development of shale gas reserves elsewhere in the world will comprise one of the most profitable applications of technology, know-how and experience ever seen.

Structural Requirements Ahead

Let me be very clear on this score. U.S. and Canadian companies are set to make significant returns from the Polish experiment--both in Poland itself, and as the applications there move across borders into neighboring states.

But this will have to remain a Polish (or German or Austrian or Hungarian) initiative translated into in an EU-wide opportunity. The trick is to structure this as a win-win creation of joint ventures, limited liability companies, holding strategies and other approaches.

Outside companies coming into pan-European major plays like this cannot succeed merely by setting up European-based subsidiaries.

This must be a European company in which an American or Canadian company has a vested, but not controlling, interest.

The advantage to the European market is access to technology and expertise. The advantage to the outside company is a very lucrative potential revenue flow and an expansion of such work moving forward.

Setting up a way of accomplishing this on all three levels--establishing new European companies, finance and access to North American experience--is going to require some ingenuity. The devil most certainly will be in the details.

I'll let you know how the meetings turn out.

Money Morning

The Saudi Oil Confession: The Unconventional Road Ahead

Source: Keith Kohl, Editor, Energy and Capital
  (11/23/11)

"Make no mistake: The Saudis are well aware of this shift to unconventional sources that's taking place. . .and they're scared to death of it. OPEC expects this unconventional production surge to come from two places: Canada and the United States."

What could possibly have the Saudis so spooked?

As the dominant member of OPEC, you'd think they would feel more confident about their future. . .

After all, OPEC can boast having about three-quarters of the world's oil reserves under its belt--as well as 40% of global crude production.

Believe me, this isn't some newly found fortune, especially considering OPEC leaders like the Saudis have been in clear control for the past 40 years.

A few weeks back, we briefly touched on one of the Saudis' worst fears.

It's true that the Saudi population is becoming just as addicted to crude oil as we are here in the United States.

Granted, it may be a drop in the bucket by comparison. But don't forget that every year their demand grows translates to less oil available for export.

Unfortunately, the Saudis' troubles are just beginning. . .

Saudi Nightmares Surface

You see, losing a few million barrels here or there to feed their own addiction isn't the only problem they face.

What they fear the most is losing control. And that much is becoming a reality.

We already know that an overwhelming amount of the Saudis' oil production--more than 90%--stems from about seven giant oil fields. Here are a few of those heavy producers:

• Abqaiq field


• Safaniya-Khafji field


• Berri field


• Ghawar field

If you want an even better idea of how dependent they are on these fields, just remember that the Ghawar field accounts for more than 60% of all Saudi oil produced during the last 63 years.

Now tack on a conservative 6.7% decline rate (some, like the Ghawar field, are declining at a rate of 8% per year), and we're looking at a lot of new oil that must be found each year just to keep up with demand.

Losing just one of those fields would be a disaster.

It's not a problem of the Saudis putting all of their eggs in one basket, either. There's also a problem with the quality of that oil.

When Libyan production was shut-in over the summer, we found out just how poor the Saudis' spare capacity was.

But we won't be too hard on them, because we're seeing the same thing everywhere. Last year, over 40% of the world's oil supply was medium sour crude coming out of the Middle East, Russia and Central Asia.

In fact, oil of the light, sweet variety is becoming harder to find, only accounting for 16% of global production.

Make no mistake: The Saudis are well aware of this shift to unconventional sources that's taking place. . .and they're scared to death of it.

OPEC expects this unconventional production surge to come from two places: Canada and the United States.

Saudi Aramco's chief executive recently confessed that the country's grip controlling the world's oil supply is slipping, giving way to the new unconventional reserves being developed in North America.

By 2035, production from unconventional sources in those two countries will reach nearly seven million barrels per day.

The majority of that, of course, is coming from one place. . .

. . .Alberta. It's safe to say Canadian oil sands will dominate the share of unconventional oil production going forward.

Not entirely convinced of that?

In 25 years, production from the oil sands will make up 80% of Canada's total production. Today it accounts for more than half.

A few years ago, a colleague joked that the oil sands would eventually be considered a conventional source of oil. . .

With the dismal state of conventional fields--particularly of those massive Saudi fields--he may not have been far off the mark.

And right now, we're witnessing a fundamental shift in Alberta's oil sands industry.

What most people don't realize is a vast majority of this resource is far too deep to be mined. New methods need to be developed and perfected to extract the resources. . .

Keith Kohl, Editor, Energy and Capital


India Anticipates $76B Investment in O&G Sector

NEW DELHI (Dow Jones Newswires), Nov. 29, 2011

India expects INR3.90 trillion ($76 billion) to be invested developing its oil and gas sector from April 2012 to March 2017, the country's junior oil minister said Tuesday.

The development plan includes exploration, production, refining, marketing, storage, petrochemicals and related engineering activities to increase availability of petroleum and petroleum products, RPN Singh said in a written reply to lawmakers in the upper house of Parliament.

India currently meets 80% of its total crude needs through imports. Crude oil imports accounted for 29% of its total import bill of $350 billion in the year ended March 31. Imports are expected to surge over the next few years as an expanding economy drives demand for fuel products, pressuring the country's fiscal position.

The South Asian nation is seeking to ramp up exploration in its largely unexplored 3.14 million square kilometers of sedimentary basin over the coming years as it aims to cut its import bill and its dependence on other countries to meet its energy needs.

The country's flagship explorer, Oil & Natural Gas Corp. (500312.BY), plans to spend INR1.75 trillion over the five years ending March 2017. Its smaller state-run rival, Oil India Ltd. (533106.BY), has chalked out an investment of INR190 billion over the same time as they both aim to sharply raise oil and gas production.

"Keeping in view the growing requirement of energy in the country, government of India has adopted a multi-pronged strategy for giving momentum to production of hydrocarbons during the next five years," Singh said.

India's investment plans in its energy sector are in-line with a global spending spree that is being driven by high oil prices, which recovered quickly from the financial crisis and have remained above $100 per barrel in the current year. In June, Barclays Capital said it expects double-digit percentage annual growth rates in international spending by oil companies through 2015.

Copyright (c) 2011 Dow Jones & Company, Inc.

U.S. Shale Boom Reduces Russian Influence Over European Gas Market

The U.S. shale gas boom has not only virtually eliminated the need for U.S. liquefied natural gas (LNG) imports for at least two decades, but significantly reduced Russia's influence over the European natural gas market and "diminished the petro-power" of major gas producers in the Middle East and Venezuela.

According to a study by Rice University's Baker Institute, "Shale Gas and U.S. National Security", U.S. shale gas has substantially reduced Russia's market share in Europe from 27 percent in 2009 to 13 percent by 2040, reducing the chances that Moscow can use energy as a tool for political gain.

European customers now have an alternative supply to Russian gas in the form of LNG displaced from the U.S. market. The shale boom also has exerted pressure on the status quo by indexing gas sales to a premium marker determined by the price of petroleum products.

Russia already has had to accept lower prices for its gas and is now allowing a portion of its sales in Europe to be indexed to spot gas markets, or regional market hubs, rather than oil prices.

"This change in pricing terms signals a major paradigm shift," noted study authors Kenneth B. Medlock III, Amy Myers Jaffe, and Peter R. Hartley.

Investment in LNG export facilities in the Middle East and Africa during the 1990s also have been rendered obsolete as the North American shale boom reversed forecasts saying the U.S. would need to import growing amounts of LNG to meet domestic demand.

Shale gas will also help limit global dependence on gas supplies from the same unstable regions that are currently uncertain sources of global oil supply.

"In this way, shale gas can play a critical role in averting a reinforcement of the political risk we currently face in the global oil market," the study authors noted.

Shale Boom Reduces Share of Russian, Iranian, Venezuelan Gas Supply

The U.S. shale gas boom reduces the future share of world gas supply from Russia, Iran and Venezuela. Without shale discoveries, these nations would have accounted for about 33 percent of global gas supply in 2040, but with shale, this is reduced to 26 percent, said Medlock III, a James A. Baker III and Susan G. Baker Fellow in Energy and Resources Economics, at the Rice Energy Finance Summit in Houston last month.

The abundance of U.S. shale gas reduces the opportunity for Venezuela to become a major LNG exporter, and thereby lowers long-term dependence in the Western Hemisphere and in Europe on Venezuelan LNG.

"It also reduces competition for LNG supplies from the Middle East, thereby moderating prices and spurring greater use of natural gas, an outcome with significant implications for environmental objectives," said Medlock.

The study, released in July and funded by the U.S. Department of Energy, found that expanded U.S. shale production reduces U.S. and Chinese dependence on Middle East natural gas supplies, lowering the incentives for geopolitical and commercial competition between the two largest consuming countries and providing both countries with new opportunities to further diversify their energy supply.

Other geopolitical repercussions of the expanding U.S. shale production is the limit it places on Iran's ability to tap energy diplomacy as a means to strengthen its regional power or to buttress its nuclear aspirations," said Medlock.

Additionally, U.S. shale gas will lower the likelihood of a long-term potential monopoly power of a "gas OPEC: or a single producer such as Russia that exercises dominance over large gas consumers in Europe or elsewhere.

Shale Boom Reverses Demand Forecast

The North America shale gas boom reversed the 2000 forecast that North America would be short on gas supply, and would need significant amounts of LNG imports to meet demand. Instead, growth opportunities for LNG developers are seen primarily in Asia.

In the aggregate, average annual capacity utilization of U.S. LNG regasification terminals may not approach 15 percent until the late 2030s, Medlock told attendees at the Rice Energy Finance Summit.

Not only has North American shale gas effect rippled across the globe, displacing supplies in global trade, but creating interest in developing shale gas resources worldwide. Advanced Resources International this year estimated that global shale resources in place are large than previously estimated, with total technically recoverable resources pegged at 6,600 Tcf.

However, sustained, rapid development of shale gas is not a certainty. The unique market structure of the U.S. also enabled the U.S. shale boom to happen. Ownership of transportation capacity rights is unbundled from pipeline ownership in the U.S., which made it possible for a producer to access markets through a competitive bid for pipeline throughput capacity.

"Absent this, many of the small producers that first ventured into shale might not have been willing to do so, specifically because access to markets could have been limited," said the study authors. "This is inherently a problem in most other markets globally, where pipeline capacity is not unbundled from facility ownership and large incumbent monopolies control much of the transportation infrastructure."

The U.S.'s well-developed, competitive regulatory framework governing gas infrastructure development, transportation services, marketing and mineral rights ownership and acreage acquisition also helped promote rapid development of shale resources.

This development pace "may not be fully or quickly replicable in other markets around the globe where state involvement in resource development and transportation is more prevalent," including ownership of mineral rights.

European policies favoring resources that compete with natural gas, or new U.S. or Chinese laws that would reduce gas demand also could hamper future shale resource investment.

Changes to U.S. tax policy for upstream oil and gas, including proposed changes to expensing rules, investment credits, and/or royalty rates, could also make shale exploration and production unprofitable at current prices.

Send your nominations for the 2012 Regional SPE Honours and Awards

The 2012 Regional SPE Honours and Awards Ceremony  December 2012, Kuwait The Society of Petroleum Engineers (SPE) has a distinguished tradition of recognising its members for their contributions to the industry. Members can receive awards for their technical contributions, professional excellence, career achievements, service to colleagues, and industry leadership. You can start sending nominations for the 2012 Regional SPE Awards now! Simply follow the steps below to submit your nomination: Download and complete the nomination form (incomplete forms will not be accepted) Include a statement of the reasons for proposing the candidate Send to sections@spe.org before 15 February 2012 A resume or CV is not necessary. Nominations are considered confidential. For more information about the 2012 Regional SPE Honours and Awards, contact Zain Al Hassan at zalhassan@spe.org.   Extra Links… 2011 Regional Award Winners FAQs Nomination Form     Plan to Attend! Tickets will be available to purchase soon.      Plan to Sponsor this Prestigious Event! For more information, contact Sween Rajan at srajan@spe.org.   Society of Petroleum Engineers - 222 Palisades Creek Drive; Richardson, Texas, USA 75080-2040 SPE Privacy Policy

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Abu Dhabi's Gasco to offer 1,800 jobs in big expansion

Gillian Duncan and Neil Parmar

May 25, 2011 

Abu Dhabi Gas Industries (Gasco)is recruiting hundreds of engineers and technicians as part of a major expansion.

The company hopes to recruit some 1,800 staff over the next 18 months, increasing its workforce by about 40 per cent.

Gasco, a unit of Abu Dhabi National Oil Company, is on the verge of starting several major projects, including expansions of existing plants as well as the installation of new gas processing facilities at various locations. A dozen projects worth more than US$13 billion (Dh47.74bn) are at various stages of execution.

Once those projects have been completed, Gasco will be one of the world's largest gas processing companies.

The initiative comes as data suggest Middle East oil and gas companies are hiring again after dramatic cutbacks at the height of regional unrest in recent months. According to a job index by Monster Gulf, listings for jobs with oil and gas companies declined 31 per cent between November and April.

But Mark Guest, the managing director of OilCareers.com, said the number of projects hiring in the region could increase as much as 60 per cent this year over last year. He said his site "has definitely seen a growing trend since the beginning of 2011, with visits to the site, CVs uploaded, jobs posted and applied for consistently climbing month on month".

At the same time, recruiters say Gulf companies are struggling to find enough qualified people.

"We've had a lot of requests for specialised persons, including in oil and gas. But the problem is with the supply, because now there is difficulty in finding the right people," said Panos Manolopoulos, the managing partner of Stanton Chase International in Dubai.

One reason for this, he said, is that the economies are improving in countries that have historically sent labour abroad, such as India.

"People are finding equally good conditions in their own country, so they don't necessarily want to emigrate," said Mr Manolopoulos.

Wassim Karkabi, a Stanton Chase managing partner, said the difficulty was particularly being felt in the search for executives, in part because many multinational companies had drastically scaled back pay packages.

"Companies are not paying what they used to be paying before the crisis happened," Mr Karkabi said. "There's been a lot of correction on the packages."

Gasco is seeking employees across a number of categories and said it intended to adopt more creative recruiting methods to find them.

"We are looking at different ways of doing it but we are not lowering our standards," said Ken Nikolai, an adviser in the company's human capability division.

Gasco participated in a recruitment fair in Dubai on Monday in an effort to identify potential talent and will conduct interviews elsewhere in the UAE at weekends to accommodate other job seekers. Mr Nikolai said the company would also send recruiters to South America, Europe and Asia.

Abu Dhabi's Integrated Gas Development project, valued at about $6bn, includes developing offshore drilling platforms, gas processing plants and a pipeline capable of carrying 1 billion cubic feet a day of gas from the big Umm Shaif oilfield in the Gulf to Habshan, the location of the emirate's biggest onshore deposit. The company is building a plant in Habshan to strip valuable liquids from the gas.

Gasco has awarded contracts for a plant to be built at Ruwais, the industrial port in the west of Abu Dhabi, which would split the gas liquids into products such as propane and butane. Both have markets as petrochemical feedstock.

In January, Gasco awarded $1bn of contracts to build a sulphur granulating plant near Ruwais. Sulphur is an important by-product of oil and gas production in the Gulf.

* additional reporting by Tamsin Carlisle

nparmar@thenational.ae

Upcoming Winter Could Be A Repeat Of Last Year's Winter

Recently, ImpactWeather, a Houston-based weather forecasting and consulting firm, held a webinar in which they discussed their view of the weather trends that will impact temperatures and precipitation in the United States during both the next 30 days and the winter period of December through February. The bottom line is that the developing La Niña in the South Pacific Ocean is controlling the weather patterns. So far the pattern has allowed an active hurricane season to develop but has contributed to only a few of the storms entering the Gulf of Mexico and making landfall on the U.S. coast.

ImpactWeather showed a chart that contained the various global sea surface temperature (SST) anomalies that are influencing global weather patterns. ENSO (El Niño/La Niña Southern Oscillation) is probably the most prominent SST anomaly, but the Pacific Decadal Oscillation (PDO) Pattern, the Atlantic Multi-decadal Oscillation (AMO) Pattern and the Indian Ocean Dipole (IOD) Pattern are also strong weather influencing factors. As shown in the accompanying chart (Exhibit 3), ENSO and PDO are in their cold phase while the AMO and IOD are in their warm phase. 

Exhibit 4.  La Niña Dominates Winter Weather

Source:  ImpactWeather

The impact of the PDO and La Niña phases is best shown by the forecasts showing the deviation in temperatures that can be expected in the future as a result of these patterns. As shown in Exhibit 5, the 2011-2012 winter forecast shows that temperatures should average between 1°C and 1.4°C below normal. The forecast for November called for a 1.4°C lower temperature range, which would seem to be consistent with the cooling that has been experienced since late October. The chart shows a multitude of temperature forecasts generated by computer models, virtually all of them showing negative deviations. If one compares the forecasted temperatures for this winter with the temperatures experienced last winter (the far left side of the chart), they look similar, but the forecasted temperature anomalies don't show the move back to zero as experienced last summer. That would suggest that in the United States we may not experience the extreme heat witnessed last summer. That doesn't mean that the drought conditions will end, but lower temperatures would be a welcome relief.

Exhibit 5.  Cold Winter But Cooler Summer?

Source:  ImpactWeather

The dominant weather influencing patterns for the upcoming winter include a large, strong low pressure mass covering western Canada and the Pacific Northwest and Mountain states, which will bring arctic air to the region and push the jet stream and colder temperatures lower than normal and across the middle of the United States this winter. At the same time, there will be a large high pressure mass over the tip of New England and the eastern provinces of Canada that has the impact of directing the jet stream virtually straight north into the Arctic region. We suspect that jet stream pattern could help lead to less ice being formed in the Arctic Ocean region this winter that would allow the opening up of an ice-free ocean route to Asia. 

Exhibit 6.  Weather Patterns Much Like Last Winter

Source:  ImpactWeather

For those of us living and working in the oil patch across Texas, Oklahoma and the Southeast states, the winter weather is expected to be drier than normal and slightly warmer than normal. This pattern is best demonstrated by the charts in Exhibits 7 and 8 on the next page. 

In Exhibit 7, we have the expected temperature deviations from normal for North America. The chart shows that western Canada should be -2°F to -4°F colder than normal. The expected temperature trend anticipated for Alaska and across the very northern region of Canada calls for deviation trend nearly twice that of the rest of the region. A large portion of the United States and a small strip of eastern and central Canada are expected to see normal temperatures this winter. The Southwest and Southeast states should see winter temperatures between 1°F to 3°F warmer than normal.

Exhibit 7.  2011-12 Winter Temps To Be Colder

Source:  ImpactWeather

The winter outlook for precipitation calls for most of North America to experience normal wet weather with only some small pockets of above normal precipitation. The coastal region extending from north eastern Mexico around the Texas Gulf Coast and through the Southeast states and up to the Mid-Atlantic states should experience less moisture than normal. 

Exhibit 8.  Winter Precipitation To Be About Normal

Source:  ImpactWeather

We found one of the last charts prepared by ImpactWeather for its presentation very interesting. The chart showed a range of potential hazards that could be experienced by regions of North America this coming winter. The hazards show where there could be greater than expected snowfall, greater rainfall, hard freezes and lower than normal snowfalls. It will be interesting to watch the winter weather develop and especially how the media covers any of the extreme weather events that might occur. Given the large number of potential weather hazards ImpactWeather foresees, there should be no shortage of extreme weather events for the media to report on.

Exhibit 9.  Plenty Of Winter Hazards Exist

Source:  ImpactWeather

What could another cold winter mean for the natural gas market and gas prices? We went back and looked at natural gas storage volumes over the past two winters compared to where we are today.  It is interesting to compare where storage volumes were at the end of the first week of November for each of the three years – 2009, 2010 and 2011. This year there was 3,831 billion cubic feet (Bcf) in storage compared to 3,840 Bcf in 2010 and 3,813 Bcf in 2009. The first week in November 2010 was the peak for that winter, but the peak in 2009 was not reached for an additional three weeks as the total storage volume reached 3,837 Bcf. This year the second week in November, which is the latest data available, showed storage volumes had increased from the first week to 3,850 Bcf, now in excess of the peak storage volume registered in 2010. 

We decided to look at what happened to natural gas prices as gas volumes expanded and contracted. Prices have been, and continue to be, influenced by the growth of shale gas production. Before we looked at the comparison, we plotted weekly spot natural gas prices versus the futures price in order to see exactly how they compared from 2009 to 2011. As shown in Exhibit 10, the two prices moved together for most of the period with the exception of the fall of 2009 and briefly again in late fall of 2010. It is interesting to note that in the past several weeks the two prices appear to be diverging once again. The fact that the divergence in prices coincides with the late fall time frame suggests that spot prices are more sensitive to temperature variations, i.e., short–term supply and demand factors at work, than are futures prices. This is the impact of physical versus financial factors. 

Exhibit 10.  Spot And Futures Gas Prices Track Closely

Source:  EIA, PPHB

Exhibit 11.  Shale Gas Production Is Keeping Gas Prices Down

Source:  EIA, PPHB

When we examined the seasonal swings in gas storage volumes with spot natural gas prices it was quite striking to note the dramatically different pattern experienced in 2009 compared to 2010 and so far in 2011. In 2009, as gas storage volumes were climbing, natural gas spot prices were falling. Once winter demand set in and gas storage volumes began being withdrawn at a rapid rate due to the early cold weather, natural gas prices responded by rising sharply. The winter of 2009 was colder than the prior several winters that were unseasonably warm. Commodity market expectations were that the early cold temperatures might signal an extraordinarily cold winter that would deplete gas supplies and impact gas supply availability. As a result, the gas market assigned a large premium to near-term gas supply volumes, hence the sharp jump in spot gas prices.

In contrast, the 2010 winter, which was also a cold winter, did not experience the sharp upward move in natural gas spot prices in response to falling storage volumes because shale gas production was rising sharply and helping to meet the increased demand. As a result, the natural gas market anticipated there was little chance of a supply crisis even with a colder than normal winter so there was little need to bid spot prices up to bring forth more supply and reduce demand.

The current downward spot price trend compared to the new peak storage volumes suggests the gas market anticipates another winter season like last year. The growing shale gas production, coupled with continued strong gas-related drilling activity – both for dry gas and associated gas from liquids-rich prospects, is being translated into lower spot prices. This pattern suggests that unless the winter of 2011-2012 is much colder (not the current weather forecast) than last year, we are likely to be looking at continued low spot gas prices.  If gas-directed drilling begins to fall, maybe by sometime next fall we could see sharply higher spot gas prices. Pray for a colder winter if you want to see higher natural gas prices, but until producers become more religious about the economics of their gas drilling spending, it will be hard for gas prices to rise to levels everyone is counting on.

G. Allen Brooks works as the Managing Director at Parks Paton Hoepfl & Brown. Reprinted with permission of PPH & B.

Kick suspected in Frade spill

 11/21/2011

Chevron continued to battle an oil sheen offshore Brazil over the weekend while accepting 'full responsibility' for a leak at the Frade field that spilled between 5000 and 8000 barrels of oil, the company said 20 November 2011.

Chevron said the sheen had been reduced to 18 barrels or less and that no further oil was escaping from the development well at the Campos Basin field. The well was shut in at the surface 9 November and drilling operations suspended while Chevron investigated the spill and deployed response vessels. Frade's 79,000boe/d production, however, has remained uninterrupted throughout the incident.

As many as 18 vessels have been deployed to support well plugging operations and spill cleanup, Chevron said. Droplets of residual oil continue to drain from seafloor seep lines but the company said it believed no new oil was being emitted.

'Chevron takes full responsibility for this incident,' said Chevron Brazil country manager George Buck. 'We are committed to deploying resources until the sheen can no longer be detected.'

Chevron was drilling the appraisal well when a kick opened a segment of the wellbore, allowing fluid to escape through fissures to the seafloor, according to the company's preliminary assessment of the incident.

Brazil's National Petroleum Agency estimated the amount of oil spilled at up to 8000 barrels. Chevron said a revised estimate would be complete 'within days.'

Oil production at Frade began in June 2009. The FPSO project, Chevron's first operated deepwater development in Brazil, is in 3700ft water depths.

Chevron holds 52% interest in the project. Petrobras and FJPL have 30% and 18%, respectively.

By: Russell McCulley,
rmcculley@offshore-engineer.com

U.S. energy prices cheapest in the world: T. Boone Pickens

Yadullah Hussain  Nov 21, 2011 – 3:35 PM ET | Last Updated: Nov 21, 2011 4:05 PM ET

Chip Somodevilla/Getty Images

BP Capital Management CEO T. Boone Pickens.

Oil tycoon T.Boone Pickens says that the United States treated Canadians like 'step children' by delaying TransCanada's Keystone XL Pipeline.

"The United States is silly enough to think Canada is a part of the United States because they are both in North America and so they treat the Canadians like step children," the candid Pickens told CNBC in an interview. [Watch the video here].

Taking broad swipes at the Obama adminstration's energy policy, Pickens said there are close to 50 pipelines crossing the Ogalla Aquifer in Nebraska. The ecologically sensitive area was a flashpoint in the green movement's objection to the $7-billion pipeline. The opposition prompted a State Department order to move the pipeline away from the area, further delaying the project.

"The Ogallala Aquifer extends from midland Texas to South Dakota across eight states. Now can you imagine how many pipelines cross that Aquifer? Hundreds…my ranch sits right in the middle of it in Roberts county, Texas. I have three pipelines across my ranch," said Pickens.

The entrepreneur, who made his billions via acquisitions of energy companies and runs BP Capital Management, said the U.S. energy sector has a great story to tell: "Natural gas prices in the U.S. is under $4, making it cheaper than European gas which is $13 and at $16-18 in the Middle East. We have the cheapest energy in the world in this country. Our oil is cheaper by $15 a barrel than the global price and our natural gas is cheaper by a fraction. Why isn't somebody saying we have the cheapest energy in the world? We can bring industry back into the country."

Natural Gas Storage at New High

Source: Zacks Equity Research  (11/21/11)

"The current storage level—at 3.85 trillion cubic feet (Tcf)—is at an all-time high, eclipsing the previous record of 3.84 Tcf reached last November."

The U.S. Energy Department's weekly inventory release showed a lower-than-expected rise in natural gas supplies. However, the increase in storage was still well above the 5-year average rate, as mild weather continues to restrict the commodity's demand for power burn amid robust production. In fact, the most recent inventory build has taken the storage level to a new all-time high.

The Weekly Natural Gas Storage Report—brought out by the Energy Information Administration (EIA) every Thursday since 2002—includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas.

It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays like Anadarko Petroleum Corp. (APC - Analyst Report), Chesapeake Energy (CHK - Analyst Report), EnCana Corp. (ECA - Analyst Report), Devon Energy Corp. (DVN - Analyst Report), Nabors Industries (NBR - Analyst Report), Patterson-UTI Energy (PTEN - Analyst Report), Helmerich & Payne (HP - Analyst Report) and Halliburton Co. (HAL - Analyst Report).

Stockpiles held in underground storage in the lower 48 states rose by 19 billion cubic feet (Bcf) for the week ended November 11, 2011, below the guidance range (of 23–27 Bcf gain) of the analysts surveyed by Platts, the energy information arm of McGraw-Hill Companies Inc (MHP - Analyst Report).

The increase—the thirty-second injection in as many weeks—is larger than last year's draw of 1 Bcf and the 5-year (2006–2010) average addition of 10 Bcf for the reported week. The current storage level—at 3.85 trillion cubic feet (Tcf)—is at an all-time high, eclipsing the previous record of 3.84 Tcf reached last November. It is up 14 Bcf (0.4%) from last year and has crept up by 224 Bcf (6.2%) over the five-year average.

A supply glut has pressured natural gas futures for most of 2011, as production from dense rock formations (shale)—through novel techniques of horizontal drilling and hydraulic fracturing—remain robust, thereby overwhelming demand. As a matter of fact, natural gas prices have dropped approximately 35% from this year's peak of about $5.00 per million Btu (MMBtu) in June to the current level of around $3.30 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

Of late, mild autumn weather has driven a string of above-average inventory builds, indicating a grossly oversupplied market. Natural gas demand is currently going through a lean period—with the end of the peak cooling loads for summer and ahead of the winter heating season, coupled with tepid industrial demand in a weak economy. As a result, commodity prices continue to be under pressure against the backdrop of sustained strong production.

-Zacks.com

Foreign Oil Companies Say Tough Terms Could Deter Libya Investment

LONDON (Dow Jones Newswires), Nov. 18, 2011

Foreign oil companies operating in Libya warned this week that current contracts could deter new investment, even though the fall of Col. Moammar Gadhafi has been sometimes perceived as paving the way for a new oil rush in the country holding Africa's largest oil reserves.

Libya's deputy oil minister says the country would show flexibility once new contracts are tendered but existing agreements won't be changed.

Contractual terms "determine what investment you are going to get," said Martin Bachmann, an exploration and production executive director at Germany's Wintershall Holding GmbH. "That's for the new leadership to consider."

But in an interview with Dow Jones Newswires, Omar Shakmak, a deputy to interim oil and gas minister Ali Tarhouni, ruled out any change to current deals. "We will honor our contracts," he said. But "it is not our intention to make any changes to existing contracts."

However, Shakmak didn't rule out new terms for future licenses, which won't be proposed before elections, due within eight months.

"For a new contract, it could be revised" from what was practiced under the previous regime, he said. "There could be more flexibility to protect the rights of both parties," referring to foreign oil companies and the government.

The remarks are part of an emerging debate in the Libyan oil industry as attention slowly turns from resuming production to attracting fresh cash after decades of underinvestment.

"There will arrive a point where there is a new phase of development" for each given acreage, Wintershall's Bachmann told Dow Jones Newswires on the sidelines of the Oil Council conference.

The contractual terms "are horrible" said Sara Akbar, chief executive of Kuwait Energy Co., who is considering bidding for Libyan acreage when new licenses are tendered.

Back in 2009, most foreign oil companies, including Wintershall AG, were forced to revise existing deals and cut stakes from 50% to as low as 12%.

The renegotiation was designed to align old contracts with the terms of new oil and gas rights granted in 2005. But a string of awardees from these recent licenses, such as Chevron, exited after finding the combination of harsh contracts and disappointing exploration results wasn't worth staying.

Experts concur Libya's oil and gas framework makes for a tough environment. Henry Smith, an analyst at consultancy Control Risks, says that in the last years of Gadhafi's regime, "the screw was tightened for some oil companies."

But Control Risks' Smith warned the government may have little room to maneuver in sweetening the terms of licenses. After toppling Gadhafi, "they would look like they are handing out the country's resources," he said. "That would go down badly on the street."

So in the new Libya, oil investors appear headed for a showdown. "Unless Libya changes its contracts," its oil potential won't be fulfilled, said Jon Ferrier, a business development vice president at Maersk Oil and Gas.

The Danish company is studying the possibility of entering the country. But Ferrier said that in such a global market companies are always able to invest elsewhere, citing a current boom in Iraqi Kurdistan.

Copyright (c) 2011 Dow Jones & Company, Inc.

History of Oil Careers

While many people take natural gas for granted when they turn on gas stove and cook today, they probably don’t know that the first natural gas was produced and sold in Fredonia, New York, in 1821. This well was drilled to a depth of 27 feet, and hollow wooden logs piped the gas to nearby houses. In 1859, Colonel Edwin Drake found oil at a depth of 69 feet in Titusville, Pennsylvania. By 1870, J.D. Rockefeller established the Standard Oil Company and controlled 10% of American oil refining. By 1872, he had increased his market share to 25% by taking over competitors, and by 1877, he held control of 90% of the refinery business. However, a few decades later, a Supreme Court ruling dismantled Rockefeller’s Standard Oil Company in 1911.

In 1895, the combustion engine was invented, followed by Henry Ford’s first motorcar in 1896. The opportunities for oil industry careers flourished with the growth in popularity of the automobile. After the Spindletop gusher in 1901, Texas and the Gulf Coast gained a reputation for being good oil country.

In 1921, the oil industry began using seismic waves to take pictures of the land’s subsurface in central Oklahoma. In 1933, the Texas Company began using the first submersible drilling barge in the estuaries of Louisiana. The following year, offshore drilling was born when the first floating rig entered the Caspian Sea.

Oil production and refining soon became an international venture after oil was discovered in Bahrain in 1932. Six years later, Pemex, the national oil company of Mexico, gained control of all the oil assets in that country. During World War II, Japan’s oil supply from the Middle East was cut off, this helped lead to the victory of the allies.

As demand for oil increased; the countries that exported oil formed the Organization of Petroleum Exporting Countries (OPEC) in 1960. At that time OPEC consisted of Saudi Arabia, Venezuela, Kuwait, Iraq, and Iran. OPEC began to control oil prices by limiting production in order to raise prices.

In 1969 oil was discovered in the North Sea, which increased the offshore drilling objectives of many oil companies. Throughout the years many countries have nationalized their oil assets. These include Libya, Syria, Iran and Iraq. This has affected foreign companies who have lost their investments in these countries. Those involved in oil careers in these countries have also been affected by changes in governments that sometimes are quite hostile to foreign workers.

In 1977 the Trans Alaska Pipeline was completed. This project required a very different type of construction in order to protect the wildlife and the region. About 420 miles of the 800 mile line were built above ground rather than buried under ground. This was done to protect the unstable permafrost layer that would have melted when the oil flowed through the line.

Between 1979 and 1981 the price of oil rose from $13.00 per barrel to $34.00 per barrel. In response to perceived “windfall profits” the Windfall Profits Tax was enacted in 1980. This tax was intended to capture some of the profits the oil companies were making. It had the unintended consequence of reducing the capital oil companies could invest in future projects, and slowing the exploration and production of oil and gas in the United States.

In 1989 the Exxon Valdez ran aground off the coast of Alaska, creating a vast environmental disaster and requiring a cleanup. This type of spill and the BP Deepwater Horizon spill in 2010 created intense pressures to improve environmental protection and also increased opportunities for these types of oil careers.

In the 1990s consolidation of the oil industry was flourishing. BP planned to acquire Amoco in 1998. In the same year Exxon planned to acquire Mobil. Then in 1999 Atlantic Richfield (ARCO) was acquired by BP-Amoco, and Total Fina and Elf Aquitaine agreed to merge. In 2002 Conoco and Phillips merged. These types of mergers led to reductions in staff, as oil companies tried to eliminate duplicated positions, especially in administrative areas.

Oil prices are sensitive to world events, and by 2006 the price per barrel rose to $78.40 primarily due to concerns about world politics, especially nuclear development in Iran, concern about supplies from Iraq, Nigeria and other sources as well as missile tests by North Korea. By 2008 the crude oil price per barrel was $147.27 because of concerns about supplies and the weak U. S. dollar. As the global recession became a reality in late 2008 and the first half of 2009, crude prices fell to $34 per barrel. The only true constant in the oil industry is change.

First Movers in 'Green' Drilling: Low-Footprint Rigs

Ecologically-friendly oil and natural gas drilling might sound like an oxymoron, but the specialty is growing briskly and also proving to be a way to cut operating costs.

One of the hot newer developments is the low "footprint" rig, increasingly automated, to take up less land space, transport more easily, use less energy and require smaller crews.

"This has been a wonderful and fulfilling journey for all of us, as we have added to our team some leaders from a variety of disciplines with one mission," said Tom Williams, senior advisor to the Environmentally Friendly Drilling Systems (EFD) program, an effort of the Houston Advanced Research Center (HARC) and Texas A&M University (TAMU). "Our funding comes from industry, the Research Partnership to Secure Energy for America (RPSEA) and other organizations who realize that collectively we can make a difference."

Williams originally became involved with low-footprint rigs when he was vice president of technology for Noble Drilling Technology Services.

"We (Noble and Anadarko) drilled the first dedicated gas hydrate well in the US on the North Slope – one of the most environmentally sensitive areas in the world. We used a platform and many creative methods to reduce our footprint. When we finished, you could not tell we had been there," Williams said.

Today, the low-footprint rig movement is beginning to take off commercially. Rigs operating in at least eight countries show strong environmental and economic results. 

"Our program has shown that … we can reduce the traffic (these new rigs have half the number of loads) and use fewer people to rig up; they are less of a mess to clean up; they do less damage to the roads, they are quieter, have lower emissions, lower profile (especially the super singles), and less down time," EFD's Williams added.

Rigs in Use

National Oilwell Varco's (NOV's) Rapid Rig is one example. Deployed today in West Texas, Brazil, Argentina, India, Columbia, Mexico, Venezuela, and California (geothermal), this is a full AC-powered rig and comes with some automation that can make drilling safer and more efficient.

"The physical presence of a drilling rig can interrupt the natural flow of any environment and it is critical to develop rigs that have limited impact and technologies that can help reduce the amount of moves or loads that need to be transported in any given field," said Natalie Wagner, an environmental engineer in the area of environmental innovation for NOV's corporate technology resource team. "If we can reduce the crew, we also reduce the trucks required to transport staff on and off the rig."

Netherlands-based Huisman is also active in developing small-footprint rigs.

"The small footprint was originally meant to reduce site costs, to reduce environmental impact of site construction, and to allow the rigs to work in locations where others simply cannot," said Eric Quinlan, Huisman's product manager for land drilling. "In combination with the containerized construction of the rigs, the rig can also be transported over smaller roads with lower weights, which further allows us to access areas that other rigs cannot reach. The original intent of the rigs was also to allow them to be used on platforms, which further pushed us to shrink the footprint."

"Through the rig development and the product development for the LOC 400, we have always been upgrading the controls of the rigs to make them more and more automated," Quinlan continued. "Our original goals with the automation were both to increase safety on the rig, but also to allow for a more consistent performance. The automation on the rigs allows for consistent top performance simulating what the best drillers can do. The rig automation is a continuing process and right now we are concentrating on full automation of surface equipment."

An American Association of Drilling Engineers paper by Quinlan and Robert van Kuilenburg of Huisman, Williams of EFD-US and Gerhard Thonhauser of EFD-Europe found significant environmental advantages of Huisman rigs. These included:

• Transporting the standard rig 'high case' caused the emissions of more than two times as much CO2 as containerized rigs. Compared to a diesel passenger car traveling 25,000 km per year, the CO2 emissions from transporting the containerized rig design by truck is the same as about 8.9 diesel passenger cars. "Train transport might be considered for environmentally friendly drilling rigs as an interesting option," the authors noted. "In principle, one train would be sufficient to transport an entire rig. Transporting the rig with a train would have a significant beneficial effect on the CO2 emissions."
• Using electricity from the grid resulted in around 39 percent less CO2 emissions compared to using diesel generators in the Netherlands. "Should the grid be powered by renewable energy sources (wind, geothermal, solar), the emissions would be reduced to next to zero. This reduction of emissions does not include the emissions that would have been eliminated by not having to supply fuel to the rig site."
• Powering the rigs from the grid, rather than diesel generators, also significantly reduced noise, making the rigs more suitable for projects in densely populated areas.

The paper also showed considerable economic advantages from the "low footprint" rig. For example: "Connecting the rig to the power grid also has a significant cost benefit for a typical well. Cost savings for a typical well can go up to 50 percent or more on fuel cost with the current energy price mix."

An average rig uses 21,000 gallons of fuel for a 10-day program, the authors noted. Assuming 30 wells a year and a 10 percent efficiency gain equates to a savings of $4,700 well or $142,000/year. Theoretically, using different drilling techniques and running from the power grid, a savings of $26,000 should be feasible, the paper said.

"This is more than a day's rig hire in fuel savings per well," the authors said.

Huisman's rigs are operated in the US by Innodrill, a Houston-based company formed this year to promote automated drilling, safety and cost-effectiveness.

The World Offshore Wind Market Forecast 2012-2016

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We have offices in London & Canterbury (England), Aberdeen (Scotland), Singapore and New York (USA) and to date have completed more than 750 projects for clients in 70 countries. Further Information   PDF terms and conditions. energy business advisors             douglas-westwood.com   Report Details Contents List Overview Leaflet "One of the few firms which has a professional approach to the economic aspects of the renewable energy industry" - Councillor to the European Commission Head Office Douglas-Westwood St Andrew's House Station Road East Canterbury CT1 2WD United Kingdom       t: +44 (0)1227 780999 f: +44 (0)1227 780880 e: research@ douglaswestwood.com Forward to a friend

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