December 2017, Vol. 244, No. 12

In The News

In the News

More Drones Helping Monitor Storage Tanks

After incidents that occurred during Hurricane Harvey, energy companies along the Houston Ship Channel are working to avoid and prevent leaks, emissions and spills, reports the Houston Chronicle. Royal Dutch Shell, for instance, is using flying drones to help monitor its tanks.

Now, Phillips 66 wants to put the drones inside the tanks and is partnering with the Boston startup Square Robot for robotics that can inspect tank floors, survey and map out any obstacles while they are filled with oil, gasoline or other petroleum products. They would identify weaknesses and upgrade or replace tanks before the tanks fail and release vapors and spills.

The region’s crude storage capacity has more than doubled in six years from 21 to 56 MMbbls, reports Morningstar. Additional capacity of 21 MMbbls is planned or under construction with at least 15 projects to expand or construct pipelines proposed to carry oil, natural gas and natural gas liquids from Permian Basin to Houston, Corpus Christi and Beaumont. All of those liquids will need temporary storage, the Chronicle reported.

Spill in Gulf of Mexico Caused by Broken Jumper Pipeline

LLOG Exploration Offshore reported Oct. 16 that oil had stopped escaping from a jumper pipeline operated by the company that fractured, causing a spill into the Gulf of Mexico three days earlier. The U.S. Bureau of Safety and Environmental Enforcement (BSEE) had reported that it was responding to an oil spill of about 7,950-9,350 barrels from an undersea pipe about 40 miles southeast of Venice, LA.

The estimated volume of the spill was unchanged, said Rick Fowler, vice-president of Deepwater Projects at LLOG Exploration Co. “The previously reported sheens have dissipated and there continues to be no detection of potentially related oil on the surface as confirmed by multiple flyovers.”

Offshore oil and gas operator, LLOG Exploration Offshore,  reported to the BSEE that the source of the spill was a jumper pipe from Mississippi Canyon Block 209, Well No. 1, and that production from the associated field was shut-in at the time of the incident.

“The fractured jumper will be recovered and a complete diagnostic will be performed. LLOG will not speculate on the cause of the fracture until that work is complete,” Fowler said.

Cold Winter Could Erode Stockpiles, Boost Prices

After nine years of booming U.S. natural gas production, this winter could be one of the rare instances when supply and demand conspire to drive up prices, according The Wall Street Journal. Those expecting higher prices have plenty to point to on the demand side of the equation: Scores of industrial plants have sprung up to take advantage of cheap fuel, the U.S. has become a major exporter of gas, and coal plants are closing in favor of cleaner and more flexible gas-fired generators.

The supply side has been just as dynamic. The recent boom in oil drilling in shale basins such as the Permian has unlocked cheap gas almost as a byproduct and new pipelines make it easier for the fuel to reach market. Gas output rose for the eighth month in a row in November to a new record. Even so, this winter could see prices go up. The heating season, which runs roughly from November through April, could deplete underground gas storage faster than supplies can replenish the stockpile, the Journal reported.

The Energy Information Administration (EIA) reported gas in underground storage stood at 3.646 Tcf, 4.7% less than the same week a year ago. That’s not a huge difference unless this winter is extra cold, as some climatologists predict. Analysts at The Natural Gas Supply Association, American Gas Association and Barclays Capital all have noted the possibility of a frigid winter.

Two Sentenced to Jail for Pipeline Protests

A North Dakota man and a Rhode Island woman are the first people to be sent to jail for protesting the Dakota Access pipeline. Mary Redway, 64, and Alexander Simon, 27, were convicted Oct. 19 of misdemeanor disorderly conduct during the protests in North Dakota.

Redway, of Providence, RI, was sentenced to four days in jail and Simon to 18 days. Simon comes from Fort Yates, ND, but The Bismarck Tribune reports he’s teaching in New Mexico. Protests against the pipeline resulted in 761 arrests from August 2016 to February 2017.

Appeals Court Rules in Favor of LNG Projects

A federal appeals court Nov. 1 upheld U.S. Energy Department decisions approving three liquefied natural gas export projects. The Sierra Club was seeking to overturn approvals of export terminals in Maryland, Louisiana and Texas, contending the projects would increase air and water pollution and contribute to global warming. All three terminals are under construction.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia said in a unanimous opinion that the Energy Department had fulfilled its legal obligations under the National Environmental Policy Act and other laws. The court said its decision was similar to one in August when it upheld approval of a different LNG terminal in Texas. In June 2016, the D.C. Circuit Court rejected a similar environmental challenge filed against Federal Energy Regulatory Commission approval of LNG export projects.

Cove Point LNG Getting Ready to Start on Chesapeake Bay

Dominion Energy reported that its $4 billion Cove Point LNG in Maryland is nearly complete and could  enter service by year end. The project will be able to produce about 5.25 mtpa of LNG, equal to about 700 MMcf/d of natural gas. The output is under contract to GAIL India and Japanese trading company Sumitomo, which will sell the LNG to Tokyo Gas and Kansai Electric.

For its feed gas, Sumitomo in 2013 agreed to buy 350 MMcf/d of gas for 20 years from Cabot Oil & Gas production in the Marcellus Shale in Pennsylvania and West Virginia. The Cove Point project is adding liquefaction and export capabilities to its underused 1970s LNG import terminal on Chesapeake Bay.

Crestwood Closes Buy-In with Shell Midstream

Crestwood Equity Partners LP closed its equity option agreement with Shell Midstream Partners, a master limited partnership formed by Royal Dutch Shell plc, to purchase a 50% equity interest in Crestwood Permian Basin, which owns the Nautilus gas gathering system.

The other 50% equity interest will still be owned by Crestwood Permian Basin Holdings LLC. The Nautilus system gathers the majority of Shell’s operated Delaware Basin gas under a 20-year tiered, fixed-fee contract.

Colonial, Enterprise Partner on Beaumont Fuel Exports 

Colonial Pipeline and Enterprise Products Partners are partnering to boost exports from the Beaumont refined oil products terminal in Texas to rival the Houston Ship Channel. Colonial Terminal Logistics is offering marine logistic services, that include blending, dock usage and access to as much as 2 MMbbls of new storage at Enterprise’s Beaumont facility.

Colonial’s shippers will be able to move fuel from 13 Gulf Coast refineries to the Beaumont terminal for vessel loading. Colonial is the biggest refined products system in the U.S. and has seen a surge in the past year from demand in Latin America and Europe.

Dakota Access Adds Value to Bakken Shale Production

Dakota Access Pipeline is improving oil prices in North Dakota, adding tens of millions of extra dollars into state coffers and potentially making the Bakken Shale field more viable.

North Dakota oil sold for about $5.61 less than West Texas Intermediate, the U.S. benchmark, in the first three months after the pipeline opened, said Justin Kringstad, head of the North Dakota Pipeline Authority. That’s an improvement of $2.10 per barrel compared to the same period in 2016.

Use of the pipeline has dropped the break-even cost of drilling in the Bakken to around $52 a barrel from $55, as drillers abandon costlier rail shipments. That compares with about $46 on average in Texas’s Permian play and $41 in Colorado’s DJ basin.

As recently as June, the differential was about $10 a barrel and it wasn’t clear if the pipeline was having an effect on North Dakota prices. The pipeline became operational June 1. “We still may see some ups and downs as the market continues to adjust with this new service in place,” Kringstad said. The price improvement means North Dakota will gain about $6 million a month in additional state tax revenue, he said.

North Dakota oil historically has sold below the national price because the state is so far from refineries in the Midwest and on the coasts. The region also lacked major pipelines for years, which forced companies to use more expensive transportation, including rail and trucks. The 1,172-mile Dakota Access pipeline can carry 570,000 bpd – over half of North Dakota’s output of about 1 MMbpd.

But is it a game-changer? Maybe not, said Erika Coombs, an analyst at BTU Analytics LLC. “The short answer: For the basin as a whole, not really.” It helps, she said, “but it’s not enough to attract capital away from the Permian or Scoop/Stack.”

New Natural Gas Water Heating Technology Comes to U.S. 

Rheem Manufacturing Co., the largest manufacturer of water heating products in North America, plans an international collaboration with energy innovation company SaltX and the Northwest Energy Efficiency Alliance (NEEA), an alliance of over 140 Northwest utilities and energy-efficiency groups.

Their goal is to speed development and conduct a market evaluation of a residential gas water heater that offers a reduction in gas usage, potentially saving consumers up to 50% on their gas water heating bills. Rheem and SaltX will design, test and commercialize a product that operates twice as efficiently as a standard gas water heater. NEEA will help build a strategy to create market demand for the product.

Tellurian Offers Equity Deal to Prospective Customers

LNG project developer Tellurian Inc. is offering billions of dollars in equity in its Driftwood project in Louisiana to make it more attractive for buyers, said a senior company official. According to Reuters, Tellurian is offering 60-75% equity interest in Driftwood Holdings, which comprises Tellurian’s upstream company, its pipeline and the upcoming terminal that can export 27.6 mtpa of LNG.

It will charge $1.5 billion payable over a four-year period for 1 million tons of LNG, or $1,500 per ton for the equity, said Martin Houston, co-founder and vice chairman of the firm. By taking a stake in the project, investors could eventually deliver LNG at even lower prices than the company claimed at a conference earlier this year since it has been able to cut costs at Driftwood, said Houston.

Tellurian said it can realize these lower costs because it already owns the gas it is feeding into the terminal and because the experience the company has in building terminals. Tellurian was co-founded by Charif Souki and Houston who were previously senior executives at LNG producer Cheniere and BG Group, respectively.

Loading LNG at Driftwood is expected to cost $3 per million MMBtu on a free-on-board (FOB) basis based on the combination of costs for the gas and the costs of cooling the fuel for transport at the terminal.

Gazprom Ponders LNG-Fueled Trains in Arctic 

Russia’s far northern Yamal Peninsula could soon get one of the first LNG-fueled railways in the world. Gazprom, the owner and operator of the Yamal railway line, has decided to introduce the new locomotives. Company subsidiaries GazpromTrans and Gazprom Gazomotornoye Toplivo signed an agreement that paves the way for the innovative technology in the heavily developed gas production region.

The deal includes a plan to build a small-volume LNG production complex near Obskaya, a rail junction south of the Yamal Peninsula, as well as a facility for LNG refueling. The 350-mile railway line opened in 2011 in connection with Gazprom’s development of the Bovanenkovo gas field.

LNG-fueled locomotives will make the Yamal line unique in international railway traffic. The technology is under testing several places but has not yet been introduced in commercial traffic. Transmashholding, Russia’s leading builder of rail cars and locomotives, has developed an LNG-fueled locomotive that is being tested.

Fracking Hastens Play Depletion, Ex-Weatherford CEO says

Despite helping increase initial flow rates by up to 30% in certain wells, current hydraulic-fracturing techniques may also be causing steeper decline rates in shale plays, said Bernard Duroc-Danner, former CEO of Weatherford International.

“If you’re going to be fracking closer zones like crazy, lots of sand, lots of water, lots of pressure, you drain the hell out of those zones which is why production goes up,” he said at the Oil & Money conference in London last month, as reported by Global Platts.

In another report, Global Platts quoted an executive as suggesting that as they drill longer laterals, natural-gas producers in the Appalachian Basin will eventually run into “sweet spot exhaustion,” causing per-well productivity to decline as drillers are forced to turn to lower expanses, according to Range Resources Senior Vice President Alan Farquharson. “They think technology can make tier-one acreage core acreage, but it can’t,” he said.