Tag: Shale gas

Sheila McNulty

The issue of hydraulic fracturing, or fracking, has taken on a life of its own. But with so much misinformation, it is hard for the general public to know whether it is a good thing or a bad thing. The truth is – as with any polarising issue – somewhere in the middle. New York appears to have accepted that and decided to move forward to permit fracking in all but the most sensitive areas of the state.

But even as New York is poised to lift its moratorium on fracking, New Jersey’s legislature has moved to impose one. What this illustrates is just how divisive this issue has become.

Let us look at some of the pros: Hydraulic fracturing in a series of stages, combined with horizontal drilling, has given the US oil and gas industry a new lease of life. After years of declining production, the technology has enabled the country to grow not only natural gas but oil production. And with a country that consumes so much energy and has yet to make any serious attempt to scale back its usage, this can only be a good thing. It means more domestic supply to meet demand, which translates into less money leaving the country for imports and heightened energy security. And more drilling, of course, means more jobs and more economic activity.

Now here are the cons: if drillers are irresponsible about how they use the technology – and with far more than 1,000 operators drilling and producing across the country there will always be some who are – it hurts everyone. The damage to the environment and people could be very real. One only needs to think of Macondo, BP’s well at the centre of last year’s accident in the Gulf of Mexico.

As the EPA investigates the environmental risks associated with fracking, the industry must ensure it has no Macondos. By proving the industry can safely and responsibly develop the US’ domestic resources, companies eventually win over the public, and politicians, who are so afraid of the technology they are banning it outright.

But the industry cannot do this if it is not permitted to frack at all. Take New Jersey, which has just  passed a ban on fracking this week. While New Jersey is not a major gas producer – and does not seem to have the geology ever to be – this is, nonetheless, a symbolic gesture that might well ensure that what it does have is never developed.  That leaves the burden to other states, such as Texas, to continue producing the gas used by those in New Jersey.

While this is not fair, the industry will say it would rather deal with states individually than have a restrictive federal law passed down that might, in the end, restrict the use of fracking in industry-friendly places such as Texas.

Certainly there are risks of that happening, but it seems to make the most sense for the US to approach this issue on the federal level. If a fair, science-based investigation can be conducted, and the industry be given an opportunity to defend itself against the charges of environmentalists, perhaps a workable solution can be found - one that permits fracking to continue across the country with the necessary safeguards to prevent a disastrous onshore event, such as Macondo was to the offshore industry.

That way states like New York – which was among the first of a string of places to put a temporary ban on fracking - and New Jersey will not scare off the public and politicians in other states from permitting something that might well be done safely  – and limit imports and grow energy security as much as possible. For a country that consumes so much energy and cannot seem to get its arms around a comprehensive plan to reduce carbon emissions with a real committment to renewables and energy efficiency, this seems the best course to take.

Sheila McNulty

The technological advances in the oil and gas patch just keep coming. While everyone has been scrambling to catch up with the shale gas revolution, the industry has been working on another potentially significant breakthrough in gas. This one is in producing gas that has long been stranded offshore in areas too far or too small to warrant a pipeline to shore.

Royal Dutch Shell recently announced it would be the first producer to invest in a multibillion dollar project to capture this gas. The project will be a floating liquified natural gas terminal – known as a FLNG terminal in the industry – that makes it economic to get at such gas fields. No pipelines need to be built. Shell just produces the gas until it runs out and then moves along to the next field.

Sheila McNulty

A shale gas wellAs questions about hydraulic fracturing – fracking as it is known in the industry – continue to build, the oil and gas industry is finding investors asking for more transparency as to how companies are going to face the growing risks to production.

France has banned fracking, and US federal regulators are investigating the safety of the process.

But the real risk to the industry at this point is how some US states and cities have taken the issue into their own hands: Pittsburgh has banned such drilling, and the New York State Assembly approved a temporary moratorium. There are other efforts under way in pockets across the US to further control or bar the process.

Sheila McNulty

The amount of private equity moving into the US oil and gas sector has risen dramatically over the past year, drawn by a long-term bet on rising commodity prices and heightened demand for energy infrastructure. This is according to PwC, the consultancy, which put out a report on US energy sector deals on Tuesday.

Overall, there were eight private equity-backed transactions in the first quarter of this year, representing $4.8bn, or 9 per cent of total deal value, compared to just one during the same period last year, worth $767m, the report said.

Chart showing overall value of PE-backed oil and gas deals

Figures from PwC

Kiran Stacey

How much shale gas is there outside the US? It sounds like an impossibly large question, but it is one the US Energy Information Administration has attempted to answer in a new report, carried out by Advanced Resources International.

Their findings are impressive. There is a huge amount of recoverable shale gas out there, says the report – so much that it would add 40 per cent to total global gas supplies. Unsurprisingly the report is already being seized on by gas lobbyists as evidence that shale will change the energy world.

FT Energy Source

- Industry thrown into turmoil

- Companies feel effects of Macondo disaster

- Opportunities west of Shetland

- Ice thaws on Canadian oil sands projects

- Huge prize lies under pristine Arctic wilderness

- Shale extraction technology leads to oversupplied market

- Two different disasters will have profound effects on US energy policy

- UK suffers from legacy of North Sea gas abundance

- Plant power seen as only viable long-term alternative to petrol

Kiran Stacey

In this week’s readers’ Q&A session, Alexander Medvedev, deputy chief executive of Gazprom, answers your questions.

In the first of two posts, he discusses changes to gas pricing, how reliable a partner his company is for EU countries and how Gazprom will respond to the shale gas boom.

In the second post, published later, he will answer questions on support from Vladimir Putin, the likelihood of a deal between South Stream and Nabucco and future Russian gas demand.

Next in the hotseat are Terry Duffy and Craig Donohue, chairman and chief executive of the CME Group. They will be answering your oil-price related questions next Friday, February 25th. Send in your questions for consideration by the end of Sunday, February 20th to energysource@ft.com.

But for now, over to Alexander:

Kiran Stacey

Alexander Medvedev, deputy CEO of Gazprom, has been laying out his thoughts on the US shale boom, which threatens to knock his company off its pedestal as the dominant player in the natural gas market.

He likened the shale boom to the internet bubble, “which first blew up enormously and then flattened itself out to some rational and logical size”.

Sheila McNulty

As US independents invite foreign and major oil and gas companies to invest in their shale assets to fund development, EOG Resources is refusing to follow the trend.

The Houston-based independent is transitioning from producing mostly natural gas to the more expensive business of producing mostly oil, but Mark Papa, EOG’s chairman and chief executive (pictured), told the FT he is not seeking partners for its shale oil assets:

We want to emerge from this transition without diluting these crown jewels and retain 100 percent of our best assets.

Sheila McNulty

The announcement by Chesapeake Energy that it will sell several assets to raise $5bn to put toward paying down debt was warmly greeted by analysts who have been lamenting prospects for a sector under intense pressure by low US natural gas prices.

Indeed,  Standard & Poor’s, the ratings agency, placed a BB rating on Chesapeake, BB senior unsecured issue ratings and B preferred stock issue ratings on CreditWatch with positive implications. Here is what Standard & Poor’s credit analyst Scott Sprinzen had to say:

We placed the ratings on Watch positive because Chesapeake today announced its plan to sell all of its Fayetteville Shale assets, as well as its equity investments in Frac Tech Holdings LLC and Chaparral Energy Inc. and that it plans to reduce its long-term debt through 2012.

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