Thursday, February 28, 2013

U.S. oil production the highest since 1992

U.S. crude oil production exceeded an average 7 million barrels per day (bbl/d) in November and December 2012, the highest volume since December 1992. The end-of-year data were reported on February 27 in EIA's Petroleum Supply Monthly.

U.S. Oil production 1990 2012

Increasing oil production in North Dakota and onshore Texas drove the increase in U.S. crude oil production over the last several months (although crude oil production in North Dakota took a dip in November, before increasing again in December). Much of the increase in crude oil production is coming from shale and other tight (very low permeability) formations.

monthly Texas crude oil production

Monthly North Dakota Crude Oil Production

Initial estimates for production in November were below 7 million bbl/d, but revisions based on additional data indicate that production exceeded 7 million bbl/d in November 2012. That was followed by December production estimated to be more than 7 million bbl/d.

Because of time constraints in publishing monthly petroleum supply statistics, EIA uses an estimate of production for the most recent month. This estimate is derived from actual data reported by federal and state agencies that supply the information in time for EIA's publication. For remaining states, EIA estimates crude oil production using the latest available data from those states. As reported data become available, EIA revises the estimated production data with actual production data. The revised data appear in the historical data series on EIA's website. In the future, EIA is proposing to collect crude oil production data directly from companies in the top-producing states in order to provide a more accurate and timely assessment of U.S. crude oil production volumes.

Tuesday, February 26, 2013

Norwegian Arctic Gas Field

Norway’s energy industry shifted its focus further north as oil and gas companies on Tuesday announced over US$10-billion worth of projects in the Arctic to extract and transport offshore natural gas.

Statoil unveiled plans to develop its 47 billion cubic metre Aasta Hansteen gas field in the Norwegian Sea for $5.7 billion, and a consortium of 10 firms agreed to spend a further $4.5 billion to build the 480 kilometre Polarled pipeline to bring the gas to an onshore processing plant.

Norway Russia Disputed area

“No other oil/gas pipeline of this dimension has ever been laid this deep before,” Statoil said. “Polarled will open a new region and facilitate further exploration activities and development of future discoveries in the area.”

The investments are likely to lead to further investment in the Arctic and have set the stage for this summer’s licensing round, in which Norway plans to sell 86 blocks, mostly in offshore Arctic areas.

Arctic Norway

“The Aasta Hansteen opens up a new gas province in the northern part of the Norwegian Sea,” Norway’s oil ministry said in a statement. “The creation of new infrastructure in the area will facilitate further development and increased exploration activity.”

Polarled, Norway’s biggest offshore gas pipeline since Langeled started to deliver Norwegian gas to Britain in 2007, will be finished by late 2016 and will also collect gas from several smaller fields, including Royal Dutch Shell’s Linnorm and RWE’s Zidane.

Map Norway political

It will bring gas to the Shell-operated Nyhamna processing plant on Norway’s western coast for export primarily to Britain, while possible tie-ins to other pipelines could open other export routes.

Aasta Hansteen, named after a late 19th century-early 20th century feminist painter and writer, will be running by the third quarter of 2017 in waters 1,300 metres deep and 300 kilometres from shore.

“If we make big finds, there will be big investments in infrastructure,” Statoil’s Norwegian development chief, Oeystein Michelsen, said in an interview.

Norway Natural Gas Production and Consumption

Some analysts see the development as a test for how the energy industry will handle its move into the Arctic waters, particularly the more remote Barents Sea, where infrastructure is scarce.

That area lacks the pipelines necessary for gas development and needs either liquefied natural gas facilities or a new 1,000 kilometre pipeline to tie into the existing facilities.

Norway, the world’s second-biggest piped gas exporter after Russia, supplies around a fifth of Europe’s consumption.

Norway Oil production and Consumption

Statoil already runs the Snoevhit LNG facility in Norway’s Arctic, while Italian energy firm ENI will start up its Goliat field next year, the first oil development in Norway’s part of the Barents Sea.

Partners in Polarled include Statoil, state-holding firm Petoro, OMV, Shell, Total, RWE, ConocoPhillips, Edison, Maersk and GDF Suez .

In Aasta Hansteen Statoil holds 75 percent, OMV has 15 percent and ConocoPhillips has 10 percent.

Wednesday, February 20, 2013

Sasol plans first GTL plant in U.S.

Natural gas in the United States will last for many years, a South African energy company announced on Monday that it would build America’s first commercial plant to convert natural gas to diesel and other liquid fuels.

The company, Sasol, which is based in Johannesburg, has been a pioneer in a technology that has tantalized energy scientists for decades over its potential to produce liquid fuels without using oil, which has historically cost far more than natural gas.

Having already built smaller plants in South Africa and Qatar, Sasol has designed its new Louisiana plant to produce 96,000 barrels of fuel a day using its “gas to liquids,” or G.T.L., technology. It will be the second-largest plant of its kind in the world, after Royal Dutch Shell’s Pearl plant in Qatar, and will cost $11 billion to $14 billion to build.

Sasol GTL Process

“By incorporating G.T.L. technology in the U.S.A.’s energy mix, states such as Louisiana will be able to advance the country’s energy independence through a diversification of supply,” said David Constable, Sasol’s chief executive, at a news conference here Monday near the project’s planned location.

The facility will include a gas processing plant, a chemical plant and a refinery. All are required to perform the alchemy of converting natural gas into diesel, jet fuel and other chemical products.

What makes this southwestern corner of Louisiana attractive to Sasol is its proximity to bountiful shale gas fields just north of here and west in Texas. A boom in shale drilling has reduced the price of natural gas in the United States in the last four years by more than two-thirds, encouraging many energy and chemical companies to build and expand manufacturing plants around the Gulf of Mexico to produce a variety of petrochemicals. 

relative prices natural gas vs. gasoline

Sasol estimated that the plant would create at least 1,200 permanent jobs and 7,000 construction jobs. Production is scheduled to begin in 2018.

The state encouraged the project with more than $2 billion worth of tax credits and other incentives.
The company said it would put off previously announced plans to build a separate gas-to-liquids plant in Canada, giving priority to the Louisiana effort.

The track record for the technology, conceived by German scientists in the 1920s, is not encouraging, mainly because of a history of construction cost overruns.

Shell’s Pearl plant in Qatar, built with Qatar Petroleum for $19 billion, was over budget by a factor of three and has had stubborn maintenance concerns. Many other oil companies have looked at the process and declined to make the huge investments necessary.

Only a handful of gas-to-liquid plants operate commercially in Malaysia, South Africa and Qatar, and they collectively produce a bit more than 200,000 barrels of fuels and lubricants a day — the equivalent of less than 1 percent of global diesel demand.

Nevertheless, Shell is considering building its own G.T.L. plant on the Gulf Coast. Sasol and the Malaysian oil company Petronas are building a plant in Uzbekistan, and Sasol is joining Chevron to build one in Nigeria. Rosneft is planning a pilot project in Russia.

Profits have been elusive for the technology. To make it work financially, natural gas prices must remain low and prices for oil, diesel and jet fuel must remain high for a prolonged period.

Natural gas and diesel prices have historically been very unpredictable, and if enough companies build gas-to-liquids plants or find other uses for natural gas, demand will rise, putting upward pressure on prices.

In the United States, various companies have plans to build natural gas export terminals and promote more use of compressed natural gas for vehicles, as is done in many countries like Pakistan, Iran and Argentina.

“If you didn’t have cost overruns, and if you didn’t have maintenance unscheduled downtime — if everything worked perfectly — then G.T.L. plants look pretty good on paper,” said Don Hertzmark, an international energy consultant who has worked on gas-to-liquids and other natural gas projects for 30 years. “These plants are only economic with very low gas prices.”

Mr. Hertzmark said that, with modest construction cost overruns, companies could make a decent profit on a gas-to-liquids plant. He said that at today’s price for natural gas in the United States, about $3.60 per thousand cubic feet, a company would need a retail price for diesel fuel of more than $4 a gallon — near the average price today — to make the process profitable.

At the news conference on Monday, Gov. Bobby Jindal said the Sasol project, which also includes a separate $5 billion ethane cracker to produce plastics and solvents, would be the largest manufacturing project in the history of Louisiana and one of the largest ever in the United States. “The global financial markets will be watching,” he said.

Wednesday, February 13, 2013

The Impact of Syrian Civil War on Syrian Oil Production

It was only a matter of time before Syria’s oil industry, sagging as it may be, became a target in the country’s civil war, a conflict that is rapidly devastating Syria’s infrastructure and economy. The latest casualty is now Syria’s modest oil industry, already suffering from lack of modernization. In two separate incidents in the past couple of days rebels fighting the regime of President Bashar Assad have announced the capture of an oil pumping station in the northern part of the country in what was described as fierce fighting that raged over several days, and have blown up a natural gas pipeline in the eastern part of the country. The attacks are no doubt intended to further weaken the government by denying it to use oil revenues to finance the military, currently engaged in trying to put down the 21-month old rebellion.Reports from the Syrian news agency blamed the attack on the pipeline on a “terrorist group,” the term used by the regime when referring to the rebels.The London-based Syrian Observatory for Human Rights, for its part issued a statement on Sunday claiming that rebel forces captured the oil pumping station in the province of Raqqa on Sunday. The station receives crude oil from Hassakha and pumps it to the Homs region in central Syria. Syria has two oil refineries, one of which is located in the Homs area. This is not the first time that rebel forces target Syria’ oil, but it demonstrates that the country’s miniscule oil industry has now become a target. A few months ago the rebels had captured a number of oil fields in the Deir el-Zour region, close to the Iraqi border.

Syria Oil production

Syria’s government-run news agency said on Monday that the attack occurred about 18 miles north of the city of Deir el-Zour. Damages were estimated at around 1.5 million cubic meters of gas.These attacks come on the heel of a previous attack last week when rebels were reported to have taken control of the al-Tanak oil field, also in eastern Syria.As in any war, the spoils of war includes civilians; the fighting in Syria is reported to have claimed between 41,000 and 57,000 lives so far. More than 500,000 others have sought shelter in refugee camps in Turkey, Iraq, Jordan and Lebanon. With the advent of winter conditions for many of those refugees will become critical.

Repeated efforts by the international community to find a political solution to the crisis have failed. A peace initiative launched by former United Nations Secretary General Kofi Annan has failed, as have efforts put forward by the Arab League.n Indeed, finding a peaceful solution to the Syrian crisis remains extremely difficult for a variety of reasons.

2011 Natural Gas Production and Consumption Syria

First, while numerous attempts have been made to unify the opposition, forces opposed to Bashar Assad and the Alawite-dominated regime remain greatly divided over core issues. That, of course, is seen as a plus card by the Syrian government who hopes to capitalize on the opposition’s fractures to solidify its position.

Second, although the United States and its European allies all want to see the end of the regime, many, including the US, are treading very softly, fearing that the victor in this war could well be an Islamist, pro-al-Qaida faction.

Third, both sides believe they could still defeat the other side militarily and therefore want to hold back on negotiating. The common view being why negotiate and have to give away part of the cake when you can win it all on the battlefield.

As recently as last weekend another attempt to negotiate a ceasefire by Lakhdar Brahimi, who represents the United Nations and the Arab League, failed to bring the two sides any closer.

The one “novelty” in the Syrian conflict is that the situation seems to be heading towards what Brahimi `described as the “Somalization” of Syria and the rule by warlords. This in fact would not a dissimilar to a situati0n that Syria helped establish in neighboring Lebanon when it went through its civil war – one that lasted 19 years.

2011 Oil Production and Consumption Sryia

Brahimi, a veteran diplomat, with a proven track record has however hit a brick wall in trying to bridge the vast schism existing between the numerous militia groups fighting to overthrown Assad.

The rebels are now demanding the unconditional departure of Assad prior to any talks with the government side, a condition that stands very little chance of becoming a reality. While observers in the Syrian conflict will disagree over most issues, the one point they all seem to converge on is that Bashar Assad will not abandon the presidency. At least not on his own free will.

Can natural gas replace gasoline in U.S.?

The natural gas revolution has brought big changes to the U.S. energy scene. Natural gas prices, which used to move closely together with oil prices, have plunged in the last five years, as the following chart shows. One result has been the rapid displacement of coal by natural gas in electric power generation. According to a recent report from the Union of Concerned Scientists, some 100 gigawatts of coal-fired electric plants, representing more than a quarter of coal capacity and nearly a tenth of total U.S. electric capacity, have either been closed or are likely soon to be closed because they have become uncompetitive with natural gas. Natural gas has also been displacing oil at a rapid rate as a home heating fuel. In transportation, however, the use of natural gas is spreading more slowly.

relative prices natural gas vs gasoline

Transportation ranks second only to electric power generation in total energy use. There are at least three ways to use natural gas to power transportation. One is to generate electricity with natural gas, which can then power electric cars or electrified rail lines. Another is to convert natural gas to liquids like methanol or synthetic gasoline.

As the next chart shows, there is nothing new about NGVs, which are in widespread use in many countries. Some governments have promoted them to reduce urban pollution and others to achieve greater energy independence. In many of these countries, gas is widely used for light vehicles like taxis and private cars. In the United States, on the other hand, the small number of NGVs now in service are mostly city busses, garbage trucks, delivery vans, and other fleet vehicles.

What is holding back the wider use of CNG in the U.S. transportation system? Not technology. Unlike hydrogen, cellulosic ethanol, algae diesel, and other futuristic alternatives, NGVs use simple, off-the-shelf technology. That is part of the reason they are popular in Pakistan, Bangladesh, Armenia, and other developing and emerging market countries. Instead, the slow spread of CNG as a transportation fuel in the United States is largely attributable to economic and political factors.

The network problem

As James Hamilton notes in a recent post, the spread of natural gas as a motor fuel, especially in its early stages, encounters a network problem. There is no point in owning an NGV if you have no place to refuel it, and no point in building refueling stations if no one owns NGVs. That explains why early adopters of CNG have mostly been fleet operators whose vehicles refuel when they return to base at the end of their shift. However, two factors are now breaking down the barrier posed by the network problem.

First, natural gas is particularly attractive as a replacement for diesel fuel in heavy trucks. Compared with light vehicles like passenger cars and pickups, heavy trucks drive more miles per year and consume more fuel per mile. Long-haul trucks further gain if they use LNG instead of CNG. LNG vehicles have greater initial costs but have more compact fuel tanks and greater driving range. All of these factors increase the payoff to the use of natural gas for long-haul vehicles, and they also increase the payoff to investments in fueling stations.

Not surprisingly, then, truck stops have been the pioneers in building fueling stations. Pilot-Flying J, a leader in the field, already has a network of natural gas filling stations that extends from coast to coast. By the end of 2013, the company’s natural gas highway will run from the Canadian to the Mexican border, as well. (Click here for a map.) These stations will at first offer LNG for long-haul trucks, but once they are in place, adding CNG will be a natural extension of service. A spokesperson says the company will do so on a station-by-station basis as local and regional demand develops.

Second, it is possible to build dual-fuel vehicles, which can run on either gasoline or CNG at the flip of a switch. In 2012, Ford, GM, and Chrysler all started offering dual-fuel versions of popular pickup models. True, dual-fuel vehicles cost a bit more than pure NGVs, and they require room for two sets of fuel tanks. The current offerings run $40,000 and up. Still, any three-quarter ton pickup is going to use a lot of fuel, and if used for business, is likely to run up a lot of miles. Dual-fuel pickups will appeal to farmers, building contractors, and others who may sometimes be within range of a CNG filling station, and sometimes not. As more such vehicles go on the road, they will create the necessary incentive to add more stations to the network.

Policy issues

Even if we assume that the network problem will gradually take care of itself, certain aspects of energy and environmental policy still retard the spread of NGVs in the United States. NGV advocates urge three kinds of changes.

First, they advocate changes in the taxation of motor fuel. For example, the LNG used by heavy trucks is now taxed at the same rate of $.243 per gallon as diesel fuel, despite the fact that it takes 1.7 gallons of LNG to supply the same energy as a gallon of diesel. NGVAmerica, an industry group, recommends equalizing the tax on an energy-equivalent basis. A more radical proposal would be to tax motor fuels on a carbon-equivalent basis. Because natural gas is less carbon intensive per unit of energy than diesel fuel, a carbon tax would further increase the attractiveness of LNG and CNG fuels. (Note: Some fracking opponents have disputed the premise that natural gas is less carbon-intensive, on a life-cycle basis, than diesel or gasoline.)

Second, advocates say that federal regulations should be at least as friendly toward NGVs as they are toward other clean and fuel-efficient vehicles. That has not always been the case. For example, up until 2011, the EPA maintained an onerous set of regulations for approving after-market CNG conversion kits for passenger cars and light trucks. Fortunately, those regulations have now been streamlined, which may increase the rate of after-market conversions. Even so, in some respects, tax incentives, fuel economy standards, and other regulations are tilted toward more fashionable technologies like hybrid-electric and all-electric vehicles, ignoring CNG.

percentage of natural gas vehicles top 10 and USA

Third, and more controversially, NGV advocates have pushed for subsidies and tax credits targeted directly at natural gas fuels, expansion of the fueling network, and purchase of NGVs. Legislation known as the NAT GAS Act, introduced in both the House and Senate during 2011, would have boosted NGVs in a number of ways. However, the legislation did not pass, in part because of opposition from conservative organizations like the Heritage Foundation, which objected to the NAT GAS Act as a market distorting subsidy. There is probably some truth to that, in the sense that under a national energy policy that required users of every kind of fuel to pay full costs, including environmental and national security costs, NGVs would be able to make it on their own merits without a need for specially targeted tax credits or subsidies. Adding subsidies for natural gas to a system that already underprices more carbon-intensive fuels seems like the wrong approach.

The bottom line

When all is said and done, CNG is a decidedly unfashionable entry in the fuel-of-the-future sweepstakes, yet it may be the dark horse that wins the race. If your goal is to flaunt your green credentials, then go ahead and trade in your hybrid Prius for an all-electric Leaf. Meanwhile, the contractor down the block will buy a new dual-fuel F-250, or buy an aftermarket conversion kit for the beat-up model already in service. Which vehicle will make the greater contribution to energy independence, national security, and a healthy planet? You guessed it. The NGV, hands down.

Saudi Arabia Cuts Oil Output: Rising Iraqi Oil Output

Iraq’s biggest jump in oil production since 1998 is increasing the burden on Saudi Arabia to lower crude exports to prevent price declines next year.

The kingdom curbed crude output in November to a 13-month low, according to OPEC. Iraq plans next year to pump as much as it did when Saddam Hussein came to power three decades ago, its oil minister said Dec. 9. Supply will also rise in Libya and Nigeria while the U.S. experiences an oil shale bonanza.

“Saudi Arabia’s dilemma is that while it is the key OPEC player willing to cut back oil production in order to sustain prices at desired levels, it is also accommodating Iraq’s rising output and market share,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “Ultimately, there will need to be an agreement between the two as how to balance these ambitions.”

Saudi Arabian Oil Minister Ali Al-Naimi needs to keep prices high enough to fund social spending plans without incurring the wrath of consumers for hurting the global economy. Iraq, now the second-biggest supplier in the Organization of Petroleum Exporting Countries, has a different priority: to rebuild its industry after decades of war and sanctions.

Arab states are spending billions of dollars on housing and local projects to allay popular unrest after uprisings toppled leaders in Libya, Egypt and Tunisia and sparked a civil war in Syria. Saudi Arabia has committed more than $600 billion in social and infrastructure projects in coming years.

Iraq Surge
Iraq’s production surged 650,000 barrels a day this year to 3.35 million, the biggest annual gain in 14 years, according to data compiled by Bloomberg, amid assistance from foreign oil companies that are paid a fixed amount per barrel produced, regardless of international price levels.

Iraq oil production

The Middle Eastern state plans to boost output to an average 3.7 million barrels a day in 2013 and at some point in the year match the 1979 record of 3.8 million, Oil Minister Abdul Kareem Al-Luaibi told reporters in Vienna on Dec. 9.

The nation has been free of strict OPEC quotas since 1998 and the resumption of any allocation is a “sovereign issue” rather than a decision to be made by an organization, Falah al- Amri, Iraq’s governor on the OPEC board, said on Dec. 12.

Brent crude traded as high as $109.48 a barrel today on the ICE Futures Europe exchange. It may sink to $88 by June if OPEC fails to rein back supply, according to Leo Drollas, chief economist at the London-based Centre for Global Energy Studies, which was founded by former Saudi Oil Minister Sheikh Ahmad Zaki Yamani in 1990. 

Iran Sanctions

Saudi Arabia’s task will become more difficult should Iran resolve its standoff with the international community over nuclear research and resume pumping oil at normal rates. Sanctions against the Islamic republic, once OPEC’s second- biggest producer, have cut its exports by 50 percent, according to the International Energy Agency.

While acknowledging its output will exceed customer needs in 2013, OPEC refrained from cutting its group target at a meeting in Vienna two days ago, judging prices were high enough for now. Iraq, Iran and Saudi Arabia also failed to agree on the appointment of a new OPEC secretary-general, opting instead to keep Abdalla El-Badri in the role for a further year.

Saudi Arabia reduced its output to 9.67 million barrels a day last month, according to a monthly report from OPEC that cited secondary sources for its data. In its own direct communication to OPE
C, the kingdom said November production was even lower, at 9.49 million.

Saudi Arabia oil production

Minimum Level

The country can tolerate crude oil prices falling no lower than about $90 a barrel, according to Jamie Webster, a Singapore-based consultant at PFC Energy.

The CGES estimates that Saudi Arabia’s budget-balancing price is $95 a barrel, more than $10 below current levels. Arab Light, Saudi Arabia’s largest export grade, was at $107.22 today, according to data compiled by Bloomberg.

National Commercial Bank, the nation’s largest lender by assets, said in a Nov. 27 report that the kingdom’s budgeted oil price for next year is $65.

Demand for OPEC’s crude will shrink to 29.7 million barrels a day in 2013, the organization’s secretariat said in a statement at the end of its meeting in Vienna. That’s 300,000 barrels a day less than its official target and 1.1 million a day below November’s actual output, OPEC data show.

Iran Slump

Iranian oil production, which slumped to 2.65 million barrels a day in October, the lowest level since February 1990, may climb if a new government can come to an agreement with Western nations, according to JBC Energy GmbH.

The country pumped as much as 6 million barrels a day in the 1970s before the Islamic revolution, which was followed by U.S. sanctions and the 1980-1988 Iran-Iraq War. Iran’s insistence on atomic research led to a toughening of sanctions this year, including an embargo by the European Union and reduced insurance cover for supertankers carrying its oil. An Iranian presidential vote is scheduled for June.

Libya, rebuilding its oil industry after last year’s uprising against Muammar Qaddafi, plans to raise output to 1.7 million barrels a day next year from about 1.5 million a day this month, Oil Minister Abdulbari Al-Arusi said in Vienna.

Nigeria, Africa’s largest producer, expects output to reach normal levels in the first quarter, Oil Minister Diezani Alison- Madueke said after the Vienna meeting. Output was hampered in the past months by floods, theft and pipeline leaks that forced several producers, including Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA), Total SA (FP) and Eni SpA (ENI), to halt pumping, curbing national production by as much as 500,000 barrels a day.

Outside of OPEC, the U.S. is producing oil at the fastest rate in almost two decades, using horizontal drilling and hydraulic fracturing, known as fracking, to unlock shale resources in North Dakota, Texas and Oklahoma. The nation pumped 6.85 million barrels a day in the week to Dec. 7, the most since January 1994, and met 83 percent of its energy needs in the first eight months of 2012, the Energy Department said.

Al-Naimi, Al-Luaibi and other OPEC ministers plan to meet next on May 31, by which time the group will have a better notion of how economic growth and supply are affecting 2013 prices.

OPEC has “rolled over the whole discussion you need to have about the Iraqis, on how to bring in production,” PFC’s Webster said in Vienna. “The timing of the discussion is going to be dictated by the market.”