More and more Liquified Natural Gas ( LNG ) expansion is
progressing across North America. Also, a new gas pipeline
has been proposed for Prince Rupert, British Columbia, with a
pipeline branch coming down a different inlet from the narrow,
delicate Skeena River valley. This is thought to enhance
the prospects for environmental clearance, as well as speedier
A new oil refining and export plant for Kitimat is also
proposed. Refining the oil into gasoline and diesel and jet
fuel will reduce damage a spill could cause in the tricky
passages out to open water. The total project may cost
CAD$25 billion (USD$24.5 billion), or even more, if it goes
Meanwhile, the gas pipelines to nearby Kitimat, and the LNG
facilities they entail, are being called into question on costs
and margins, as it seems that Australian and Russian competition
may put a ceiling on what prices the product may command in
Korean and Japanese markets, let alone in China, which has a wide
array of competitive choices, from Myanmar, Central Asia,
Australia and Russia.
East of the Rocky Mountains, the Alberta provincial government's
revenues are plummeting as royalties plunge, with the discount of
Alberta bitumen widening to record levels against light oil and
more centrally sourced Bakken product. The urgency of
having the Keystone XL pipeline built is greater than ever for
Alberta conventional and oil sands producers. New projects
are being delayed or cancelled, and existing ones are getting
The Enbridge oil line to Kitimat will take several more years to
get built, if it is approved at all. Native organizations,
or 'First Nations,' are getting more hardened in their
anti-development resolve. The reversal of Enbridge and
TransCanada lines to eastern Canada will not require much (if
any) environmental review, but, it turns out, will require many
more quarters of work before they become fully functional.
Update on the Keystone and Bakken Lines
The U.S. State department has given conditional approval to the
Keystone XL line, having found that there are no significant
environmental impediments to its construction, and also that the
oil it would transport would be produced and shipped whether the
line is built or not. That has not satisfied environmental
activists, who hope to influence President Obama to either
disapprove it or place onerous restrictions on it. In any
case, it will not be finished for years, and the build-up of
Canadian and Bakken crude may bring more pain to producers.
In efforts to get Bakken and Canadian oil moving, railroad
companies are stepping up their shipments of oil. Hundreds
of railcars are being ordered, delivered, and deployed, with
shipments by rail west and east by Canadian National and Canadian
Pacific jumping dramatically in recent months, as have shipments
by those companies to the U.S., and by several U.S. railroads in
The advantages of rail shipment are fast movement of products,
quick ramp-up of capacity, and avoidance of environmental
review. Nearly all pipelines in North America are at
capacity, and only those with existing approved line are able to
easily gain approval to expand that capacity. As a result
of the rail factor, and some incremental pipeline expansion, the
recent big discount of Alberta bitumen to light and U.S. oil has
narrowed, but not dramatically.
In Bakken developments, some explorers are now experimenting with
closer, denser spacing of drilling of wells, which appears to be
netting them higher recoveries of oil. As a result, some
very high figures are being bandied about for potential total
recoverable reserves, just in the Bakken formation, and the one
called Three Forks, which lies below it: nearly 900 billion
barrels. Even ten per cent of that number would be
impressive, added to all the other shale formations in North
America, whose potential and economically viable reserves could
also be expanded.
It looks like there could indeed be trillions of barrels of oil
in the shale of North America, and much more natural gas,
too. Since China is thought to have even more than North
America, that, along with coal bed methane, brings the total
potential nonconventional reserves of oil and gas to more than
that of all conventional sources, such as those in the Persian
Gulf. That does not even count the oil sands of Alberta and
Venezuela, very heavy oil deposits in California, or the kerogen
(what used to be called shale oil, in the 1980's) formations in
Wyoming, Colorado, Israel and Jordan.
What remains unclear is what the long-term depletion rates and
ongoing fracking costs of these types of shale wells are.
However, with some history in older Barnett and Bakken plays, the
depletion appears to be manageable.
Developments Down Under and Elsewhere
In Australia, a company called Linc Energy has found what it
claims could be a 200 billion barrel or more reservoir onshore
South Australia. This could be wishful thinking, or a
miscalculation. However, if even a small fraction of that
is proved up, Australia's onshore oil potential could be
huge. Also, this is a brand-new province; there could be
more reserves adjacent, and offshore, too.
China's shale development has been slow, owing to difficult
geological structures, and water shortages. However, Shell
is producing and sending gas into a local distribution system in
Sichuan province. Turkey is exploring aggressively on and
offshore, with some success.
Cyprus, Lebanon and Israel all have natural gas in their offshore
realms, with Israel now close to commercial sales, awaiting only
completion of a relatively short pipeline to the mainland.
However, there are some maritime border disputes.
Argentina's development has been cut short by political and
economic turmoil, and maltreatment of foreign investors.
Chevron, for instance, was on the brink of investing in a large
joint venture in shale oil there, but a dubious Ecuadorian court
judgment against the firm was validated as a claim by Argentinian
courts, causing the company to withdraw to forestall any risk of
Saudi Arabia announced its intention to begin shale oil and gas
development, with potential reserves of each roughly equal to its
current conventional resources. However, as water is a
major input in hydraulic fracturing, unless a way can be found to
use sea water or cheaply partly-desalinated sea water, the desert
kingdom is unlikely to be able to develop this resource quickly
Such a method may be imminent, as graphene (carbon in a unique
form), in a one-molecule-thick layer, is capable of straining out
sodium chloride, or salt, and letting through dihydrogen oxide,
or (pure) water, one hundred to one thousand times more
efficiently than current reverse osmosis desalination
systems. Graphene is still expensive, and not being
manufactured in mass quantities, so this could take some time to
benefit either Saudi Arabia or China, in shale gas or oil
exploitation (let alone other regions in irrigation or drinking
In Europe, the news from Polish shale efforts continues to
disappoint, but there are indications from Ukraine that they are
eager to attract considerable foreign investment and involvement
in potentially huge shale formations there. The nation is
in a protracted, perennial contract and market dispute with
Russia over natural gas transit and payment for supply, and would
like to diversify its supplier base, if not become
energy-independent entirely, eventually.
Venezuela Minus Chavez, and Closer to Home
With the death of its long-time populist authoritarian, socialist
president, Hugo Chavez, it may seem that Venezuela might become
more open to foreign investment and development of its
conventional and heavy oil resources. The government has
been using the nationalized oil company, PDVSA, as a cash cow,
taking nearly all its free cash flow, starving it of capital
needed to reinvest in operations to offset depletion.
However, its government, to this point, looks set to maintain
current anti-capitalist and anti-foreign policies, and foreign
investors remain wary of the country, which has stolen assets
from them and reneged on contracts and licenses in recent years.
Mexico's president, however, appears to be making some slow
progress in making his country's monopoly oil company, Pemex,
open to outside contractors and joint ventures, which could
arrest liquids decline and conceivably could lead to a reversal
of its net import of natural gas. Mexico has extensive
unexploited shale formations, too, but those seem to be a low
investment priority given all the work required on remediation of
U.S. energy production continues to hit new records. Both
oil and natural gas production are rising, continuing to push out
imports, improve the balance of payments, boost the dollar, and
lower prices for consumers and businesses. Gas prices remained
relatively strong over the winter, giving hope to producers, who
have been cautious in drilling plans, thus far, this year.
Drilling is slowing down, but well productivity and total
reserves keep rising. The firing and retirement of CEO's at
a number of aggressive explorers has led to reduced spending, and
a focus on high potential targets, and more liquids rather than
gas. Total gas inventories are well below what they were at
this time last year, but still above the five-year average.
Coal, Nat Gas and LNG
Coal displaced by the surging gas supply is being sent to Europe,
where it is filling in for when government-mandated solar and
wind electric power does not meet market demand. U.S.
production has risen to the point where it is having an effect on
world export patterns. It is displacing some Middle Eastern
and African crude, which is now having to be diverted to European
and Asian markets, putting pressure on world prices, which would
otherwise be rising with demand growth, and on OPEC, where some
countries are now having to trim production.
Meanwhile, a number of North American companies are plunging into
LNG as a transport fuel. Several are testing it in Canada
and the U.S., and some major fleet owners are prepared to convert
to LNG use if current price differentials to diesel prices stay
about the same in the future. Some big delivery and
trucking companies are involved, but are still at an early
stage. It now appears that LNG has the edge over compressed
natural gas, 'CNG,' systems.
Burlington Northern Santa Fe, a unit of
, is experimenting with LNG-burning locomotives. While the
cost of converting a diesel locomotive to LNG is currently
estimated at over $25,000, the potential savings in fuel could be
as much as 70%. There remain the difficulties of
establishing LNG refueling depots along rail lines, but this
could be overcome.
U.S. LNG export plans are getting more credibility, and are
beginning to crystallize. The earliest one, by
, on the Gulf of Mexico, is nearly certain to begin commercial
sales in 2015, with full capacity production in 2018.
Contracts with foreign buyers are already signed. No West
Coast facilities have been announced, as yet, but if difficulties
persist in Canada, it is conceivable that new LNG export
terminals could be announced in Washington state or Oregon.
In more esoteric news, Japan has conducted experiments designed
to develop commercial capture of seabed methane hydrates.
Apparently, the results were at least technically
successful. Japan has a very extensive continental shelf
within its maritime boundaries, so, should natural gas prices in
their market remain elevated, even without the premium they get
above all other markets around the world, this could conceivably
be a viable and substantial new domestic source of supply, but
not anytime very soon.
This is additional validation of the potential of this worldwide
ubiquitous resource, which earlier had a technically successful
test by U.S. researchers in Alaskan waters. While it is not
entirely clear, it seems likely that exploitation of this
resource is much less environmentally risky or contentious than
shale development, and subsea gathering systems and pipelines
would be much less controversial than that of oil wells and
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