Analysis: At margins of shale oil boom, a tempered euphoria – “(Reuters) - For the past three years, the boom in the U.S. shale oil industry has outstripped all expectations. Production surged far faster than any forecasts; drillers raced to secure space in new pipelines to get their crude to market. Now, at the periphery, that may be changing - at least for a while. News from two of the country's less developed shale plays in Colorado and Ohio last week offer a reality check for the wave of euphoria that has washed across the industry. The stumbles mark a break from the past few years, when nearly every new project was an overnight success and output grew and grew. On Thursday, Ohio, home to the Utica shale, finally released annual data on 2012 production that showed the state pumped less than 700,000 barrels of oil from its shale wells -- barely enough to fill a small oil tanker. North Dakota's Bakken shale pumps more than that every day. Even state officials said it the result was "lower than initially estimated." The day before, NuStar Energy LP had said it would shelve a plan to reverse a pair of underused refined products pipelines to ship crude from Colorado's Niobrara shale oil play to Texas. It failed, twice, to garner enough commitments from potential customers to justify investing in the conversion. Neither development was a surprise to industry experts, and both were likely affected by extenuating circumstances… "The bottom line is that this stuff is down there, it's just figuring out the sweet spot of where to get it and the right conditions to get it out." For now, few are questioning the notion that the booming Bakken and Eagle Ford and Permian Basin in Texas will keep growing, driving domestic oil production beyond its highest in two decades and shrinking America's reliance on imports. But the breakneck pace of the past three years was unlikely to last forever. "The companies have established their acreage positions, they have established sweet spots, but there are still a number of really enormous challenges in understanding how to most efficient and effective ways to maximize production in the long run," Pete Stark, senior research director at IHS… Just two years ago, Chesapeake Energy's former CEO Aubrey McClendon put the Utica on the map, proclaiming it could hold a $500-billion bounty and that it would be the "biggest thing to hit Ohio since the plow". Oil companies including Total spent billions of dollars buying drilling rights. State geologists estimated that it could hold between 1.3 billion and 5.5 billion barrels of oil reserves, a vast sum. "The Utica has failed so far to live up to its hype," said Ed Morse, managing director of commodity research at Citigroup. According to Reuters calculations, the average oil production per well per days the well was active, was 80 barrels per day - about one-tenth what it is in North Dakota. Jonathan Garrett at Wood Mackenzie in Houston says the Utica may yet prove to be a successful natural gas development, with close proximity to the East Coast demand center. But with natural gas trading at a low $4 per million British thermal units for the foreseeable future, that is not the outcome drillers had hoped for a few years ago… In Colorado, where oil production has risen by less than 100,000 bpd since serious development began on the Niobrara several years ago, NuStar's biggest problem was likely competition -- from other pipelines and railways. SemGroup Corp is building a 527-mile (848-km) crude pipeline to move oil from Colorado to the U.S. crude futures hub in Cushing, Oklahoma, by the first half of 2014, and already has twice expanded its capacity. Plains All American Pipeline LP is expanding and building new rail capacity in Colorado to haul oil out by train later this year. Those projects combined will be able to move 230,000 bpd, on top of 30,000 to 40,000 bpd of Niobrara crude that already goes to Suncor Energy's 93,000 bpd refinery in Commerce City, Colorado. "We're at a point now where we're going to see some of these lower-quality projects weeded out," said Bradley Olsen, director of midstream research at Tudor Pickering Holt & Co in Houston.”” (Reuters)
Number of women landing jobs in oil, gas industry growing – “As a paid engineering intern the last two summers at Exxon Mobil's Joliet Refinery in Channahon, Ill., Megan DeGraaf worked on projects that her full-time colleagues considered low priority. But the results she produced on equipment and pipe designs were solid enough that the oil giant offered her a permanent position. In August, the recent graduate of the University of Pittsburgh will join Exxon Mobil as a mechanical contact engineer at the Joliet downstream refinery where oil is processed for retail consumption. Though she didn't set her sights on a career in energy when she enrolled at Pitt, Ms. DeGraaf joins a steadily growing number of women landing jobs in the burgeoning oil and gas industry. Of 3,900 positions added in oil and gas nationwide in the first quarter of 2013, almost half or 1,800, were filled by women, according to preliminary data from the U.S. Bureau of Labor Statistics. It was the 13th straight quarter of job creation in the oil and gas sector. Not all of the new jobs were in engineering; the industry also hires people to work on drilling rigs and pipelines, and individuals qualified for research, sales and marketing positions… University engineering officials say the demand for female engineers in these fields is so strong that even those who don't specialize in the types of engineering most often associated with oil and gas -- such as chemical and petroleum -- can expect job offers. "The companies want them, and when we start to discuss a recruiting relationship, they always want to know the statistics about women. The companies want to have a balanced workforce; it's a big societal issue," said Don Shields, director at Pitt's Center for Energy in the Swanson School of Engineering. "Women don't have nearly the need to prove themselves as a decade ago," said M. Granger Morgan, director of the Wilton E. Scott Institute for Energy Innovation and head of the department of engineering and public policy at Carnegie Mellon University. Of 379 students scheduled to graduate with bachelor's degrees today from CMU's engineering school, 127, or about one-third, are female. The women account for just over half of the 74 students whose degrees are in chemical engineering. At Pitt, of an estimated 2,400 undergraduates in the 2012-13 class that graduated last month, about 23 percent were women. But while employers and universities may seek them out, women remain a minority in the engineering job ranks because relatively few have entered the traditionally male-dominated profession. In a study released last year by the Massachusetts Institute of Technology, researchers found women may not believe their own technical skills are strong enough to pursue engineering careers. And some found they weren't taken seriously during internships and were relegated to stereotypical female roles such as note-takers. Those are the kind of perceptions that advocates for women in the so-called STEM fields -- science, technology, engineering and math -- are trying to dispel. "There are a whole slew of potential obstacles, but they are not insurmountable," said Gabriella Gonzalez, a social scientist at Rand Corp. whose research focuses on STEM issues. She spoke Tuesday at CMU at a panel discussion on jobs in the energy industry. "It's sort of obvious that you stand out as a woman in engineering simply because of the numbers," said Casey Canfield, 25, a doctoral student in engineering and public policy at CMU. "There's still a novelty factor -- very few women end up doing engineering accidentally, so it tends to be a very purposeful path."… While earning her degree, she also completed coursework for a minor in material science and for Pitt's certificate in nuclear engineering. "That makes them very attractive in the job market," Mr. Shields said of students who earn the nuclear certificate. Besides a boom in the energy industry fueled by drilling in the Marcellus and other shale regions, new grads of both genders are benefiting from an aging engineering workforce. "A whole bunch of people are right on the edge of retiring," said Mr. Morgan, who also spoke at CMU's energy jobs panel. "It's good in the sense of opportunity. But the problem is that implicit knowledge needs to get transferred" from the older generation of engineers to the new hires. To that point, a Westinghouse engineer on the same panel said the Cranberry-based company that builds nuclear reactors is hiring engineers in almost every specialty -- including nuclear, materials, chemical, electrical, mechanical, civil, computer and systems -- because so many of its engineers are over 50 years old. "There's an aging workforce in the nuclear industry," said Dave Vaglia, a principal engineer for Westinghouse. Following the meltdown in 1979 at the Three Mile Island nuclear reactor near Harrisburg, he said, growth in the nuclear power sector slowed considerably as the industry coped with safety and regulatory issues. "So now we have a lot of new engineers and old engineers. People are retiring so jobs are out there."” (Pittsburgh Post-Gazette)
Insight: The fight for North Dakota's fracking-water market – “(Reuters) - In towns across North Dakota, the wellhead of the North American energy boom, the locals have taken to quoting the adage: "Whiskey is for drinking, and water is for fighting." It's not that they lack water, like Texas and California. They are swimming in it, and it is free for the taking. Yet as the state's Bakken shale fields have grown, so has the fight over who has the right to tap into the multimillion-dollar market to supply water to the energy sector. North Dakota now accounts for over 10 percent of U.S. energy output, and production could double over the next decade. The state draws water from the Missouri River and aquifers for its hydraulic fracturing, the process also known as fracking and the key that has unlocked America's abundant shale deposits. The process is water-intensive and requires more than 2 million gallons of water per well, equal to baths for some 40,000 people… The co-op has decided to sell 20 percent of its water to frackers to help keep prices low and pay back state loans. That has not gone down well with the Independent Water Providers, a loose confederation of ranchers, farmers and small businesses that for years has supplied fracking water. Since opening in January, the co-op has tried to limit the power of the confederation with an aggressive legal and lobbying strategy. The Independent Water Providers have fought back, arguing that the co-op shouldn't be selling fracking water at all. The state legislature stepped in with a law last month designed to quell the tension and nurture competition, but industry observers expect the acrimony to continue. "When all of us had nothing (before the oil boom), there was nothing to fight about," said Dan Kalil, a longtime commissioner in Williams County, home to many oil and natural gas wells. "Now, so many friendships have been destroyed because of water and oil." Jeanie Oudin, an analyst with energy consultancy Wood Mackenzie, predicts the competition could push down North Dakota fracking water prices at least 10 percent in the next few years, or roughly $170,000 per well. That's a sizeable savings in a state where fracking costs are the highest in the country (remoteness meant there was little infrastructure in place). The water accounts for 20 percent of the roughly $8.5 million it costs to drill a North Dakota oil well. "Regardless of where operators get their water from, the growth in active water depots should increase the availability of raw water for hydraulic fracturing and ultimately bring down costs," Oudin said. The depots are where energy companies buy most of their fracking water… Fracking water depots, which cost roughly $200,000 to build and can gross more than $700,000 per year, are typically small metal buildings on concrete slabs filled with pumps and small tanks connected to the Missouri River or local aquifers. They can have two to six hookups and fill water trucks with as much as 7,800 gallons of water per visit. The government-backed co-op has nine water depots to hold the fresh water that is piped from the treatment plant in Williston, about 45 miles north of Watford. It plans to build four more depots throughout the Bakken and hugely expand its pipeline system to bring fresh water to more homes. Small lines from the new pipelines will connect directly to some oil wells. On the other side, Independent Water Providers member JMAC Resources will build more water depots in the region and a massive pipeline just south of the Missouri River to supply oil wells. Other members of the group have also applied for depot permits. North Dakota water suppliers do not pay for water, and the state legislature rejected a proposed water tax earlier this year. Each side's plans will rapidly increase the options that energy companies have to access water, further depressing prices…. In Watford City, a dust-caked community of 2,000 dotted with oil-workers' run-down RVs, the sodium level of the drinking water had been 18 times higher than the level recommended by the U.S. Environmental Protection Agency. "You would drink (it) and get high blood pressure," said Mayor Brent Sanford. The high chemical content convinced Watford City officials in 2010 to support the co-op as it was being organized, Sanford said. By selling 20 percent of its water to frackers, the government-backed co-op hoped to keep water prices for homes low and generate enough revenue to pay back $110 million in state loans for the project. The co-op sells water to frackers at roughly 84 cents a barrel, compared to 21 cents a barrel for homes. (One barrel equals 31.5 gallons, about 119 liters.)… Steve Mortenson, the Independent Water Providers' chairman, says he supports the co-op's clean-water mission but believes private industry is best equipped to provide fracking water. "We don't feel we should have state-backed competition," he said. "We never expected they would use the leverage of government to oppose private business." Confederation members can chose at what price to sell their water; most sell at 50 cents to 75 cents per barrel. Mortenson sells at 65 cents per barrel at his depot in Trenton, a bedroom community on the state's western edge.”” (Reuters)
Pennsylvania landowners can get cash on spot for mineral rights – “You've heard of house flipping. Now, lease flipping has come to Pennsylvania's natural gas fields. A wave of investment firms hoping to cash in on drilling in the Marcellus Shale is appearing in deed books across the region. They operate much like traditional land agents, negotiating with landowners to secure rights to the lucrative shale gas underneath the acreage. The difference? The landowners have already leased access to the land to gas drillers, and signing away the rights now can mean forfeiting any future royalties that may come with gas production. "It's a gamble," said Martin Schardt, executive vice president of the American Association of Professional Landmen. "The landowner can get the money right now, or the company could drill on that land and it could be a real barn-burner." The practice has its roots in the early days of the drilling boom, when companies from around the world began leasing land as fast as they could -- locking the property into five-year deals that kept competitors at bay. Then, as drilling picked up, the increased supply of natural gas led to a record-setting drop in prices. Suddenly, it wasn't as easy to turn a profit on a well. Many companies pulled out of neighborhoods where rigs had been planned, leaving those leases behind in the process. That left many landholders unsure when -- if ever -- they'd see a well on their property that would bring a steady stream of royalty checks with it. The investment firms moving into the region are offering to buy those left-behind mineral rights. Landowners get money for that vacation home today, and the investment firm gets access to the royalty payments that may -- or may not -- come later. If there's one word associated with the practice, it's risk -- risk for the company that might acquire useless mineral rights, and risk for the landowner who could miss out on lucrative royalty payments in the future… Make no mistake: The practice carries a substantial amount of risk for the landowner as well, who rolls the dice on missing out on lucrative royalty streams in the future. That was the decision made by Curt and Rhiannon Brodmerkel, a couple in Karns City, Butler County, who leased their 40 acres of woods and horse trails to a driller in the early days of the boom. Any potential drilling activity, they thought, would probably come if their smaller plot was placed in a larger unit with adjoining properties. Then, late last year, notices started arriving in the mail from Fort Worth, Texas-based Bounty Minerals about how the couple could make money on the royalty stream today. "We asked for ridiculous money per-acre and never thought it would be sold," said Mrs. Brodmerkel. The company looked at the request and said OK… "In two or five years, could it plummet? Or could it increase?" said Mrs. Brodmerkel. "That's the risk you take."” (Pittsburgh Post-Gazette)
EU energy chief says EU to look at fracking this year – “(Reuters) - Environmental concerns over the practice of hydraulic fracturing to tap shale gas will be on the European Union's agenda this year, EU Energy Commissioner Guenther Oettinger told a German newspaper. "It is absolutely right to seek to protect areas where there is drinking and ground water, like at Lake Constance. At an EU level the topic of fracking and environmental protection will be looked at more closely this year," Die Welt quoted Oettinger as saying in an article published in its online edition on Monday... Oettinger repeated his warning that Germany should not be too quick to reject fracking as an option, according to Die Welt, saying the country "should see the potential that shale gas has and create the necessary legal framework for demonstration projects and practical tests." "If we allow test drilling we will be much smarter in a few years and know more about the costs, too. That would be very advisable for an engineering country like Germany," he said. Companies including ExxonMobil and BASF's oil and gas arm Wintershall are pushing to explore possibilities for fracking in Germany, and industrial gas consumers say they could benefit as they need a secure supply at reasonable prices. German Chancellor Angela Merkel has voiced reservations, saying risks to people and the environment needed to be evaluated carefully.”” (Reuters)
Foreign companies join in U.S. project to export natural gas – “LONDON -- In a sign that the United States shale gas boom is making global waves, two Japanese conglomerates and a big French energy player signed agreements Friday to invest as much as $7 billion in a liquefied natural gas project in Louisiana. The companies -- Mitsui and Mitsubishi of Japan and GDF Suez of France -- each plan to take a 16.6 percent stake in the gas export plant being developed at Hackberry, La. The complex is being built by Sempra Energy, a San Diego-based company with annual revenue of about $10 billion. The companies agreed last year to help develop the project. GDF Suez predicts that the plant will begin operations in 2017. It said the companies' final decision to make their investment will depend on the project's receiving necessary permits. International companies -- responding to a ravenous global appetite for natural gas, particularly in Japan and Europe --want access to shale gas from the United States, which has emerged as an important new source over the past few years. But because the United States has only recently shifted from being a gas importer to being self-sufficient in the fuel, the government has not yet agreed to allow exports, except in a few cases and to the 20 nations with which it has free-trade agreements, including Panama and Costa Rica. Export approval, under Energy Department consideration for several projects, will be necessary before the potential of shale gas can be realized fully. On Friday, the department approved a Texas project called Freeport LNG. It has also signed off on a facility being built by Cheniere Energy at Sabine Pass in Louisiana that is expected to start exporting in 2015. But international companies are investing all the same, betting that U.S. shale gas will eventually be able to go onto the global market. In a statement, Sempra Energy estimated that the foreign partners would be putting up $6 billion to $7 billion, in return for just under half the equity in the project, which is forecast to yield 12 million metric tons of liquefied natural gas annually for 20 years. In return, they will receive all the gas. Sempra will retain a stake of just more than 50 percent. "These agreements represent a major step forward in the development of our LNG export project," Sempra's president, Mark A. Snell, said in a statement… Japan's liquefied natural gas imports have surged after the nuclear power shutdown in the wake of the Fukushima disaster and were up by 11 percent last year. Japanese imports account for about one-third of the world's total liquid gas market, according to a recent study by Bernstein research. Japanese utility executives have said they want to reduce the prices they are paying by tying them to U.S. supplies. "It is a win-win situation," said Fadel Gheit, an analyst at Oppenheimer in New York. Such deals will help stabilize global fuel prices over the long term and benefit the U.S. economy, he said. A big worry in the industry is whether U.S. exports could contribute to lower prices around the world, eroding profits. "It will give buyers a choice, something they have never had before," said Jonathan Stern, gas program chairman at the Oxford Institute for Energy Studies. But industry executives think that surging demand, especially from Asia, will easily absorb the exports the U.S. government might eventually permit. U.S. gas "won't have a material effect on long-term pricing," Martin Houston, BG's chief operating officer, said in a recent presentation on the company's website.”” (New York Times)
Could fracking in China be a climate game changer? – “Here's the idea: it's time to help China master fracking safely. By now it's clear that fracking (the process of extracting shale gas) has dramatically lowered America's CO2 emissions. According to the U.S. Energy Information Administration, in 2006, a fifth of our electricity came from natural gas, while almost 50 percent came from coal. By 2012, natural gas had increased its share to 30 percent of our electricity. Coal's share dropped to 37 percent. The change was because of fracking: over that same period, shale gas production grew 800 percent. The reason this shift is important is that coal is the world's dirtiest source of energy – both in its emissions of CO2 and particle pollutants. Thanks in large part to our reduced dependency on coal, U.S. CO2 emissions hit an 18-year low in 2012. U.S. emissions fell over the last five years by more than all of Europe's did. So – and this is the first hitch – environmentalists have to understand that, whatever the fantasies, natural gas is in reality producing a dramatic reduction in carbon emissions. But now the second hitch. Why is it a good idea to help what some consider our greatest rival catch up with us? Why should we help China copy our winning formula? The answer is simple: it's a win-win scenario. In the past two decades, despite global investments in clean energy, the International Energy Agency says that net-net, the world's energy consumption has gotten cleaner by only 1 percent. We've essentially made no progress. Why? Well in large part, it is because of the means by which China is powering its super-fast growth. IEA data shows that if you exclude China, global consumption of coal has increased only slightly in the past decade. China, by comparison, has more than doubled its consumption. It now burns nearly as much coal as the rest of the world, combined. And it won't stop there. Every week, it opens new coal plants, leading to increasingly polluted and hazardous air. This, of course, is not just China's problem…but the whole world's problem. As it turns out, we're not the only ones sitting on top of a shale gold mine: China actually has shale gas reserves that are nearly 50 percent larger than ours. Beijing is going to try and mine these reserves in every way it can. But many experts worry that China lacks the experience and technology to frack effectively. As important, it really has no understanding of how to frack safely. Here in the United States, we have environmentalists and a free press to push authorities to regulate and monitor this very new industry. China, on the other hand, may not have the same checks and balances. This is why the United States needs to share its expertise, not keep it secret. One of the perennial dilemmas at any climate summit is how to wean developing countries off of the dirtiest forms of energy. China can – understandably – argue that its overriding priority is growth. As the last few decades have shown, a fast-growing China translates to a fast-growing world. A cleaner China would have a similar impact.”” (CNN – Global Public Square)
