DOE to continue RIK fill program for SPR
The US Department of Energy on Oct. 10 solicited contracts to exchange as much as 13 million bbl of crude oil from federal Gulf of Mexico leases for crude that meets Strategic Petroleum Reserve specifications. Bids are due by Nov. 6.
DOE said the solicitation follows provisions of the 2005 Energy Policy Act, which directs that the SPR be filled to its authorized 1 billion bbl capacity. The reserve’s current capacity is 727 million bbl. It currently holds 693 million bbl of inventory.
The solicitation calls for about 70,000 b/d to be added over 6 months. DOE said the royalty in-kind (RIK) contracts would begin in January 2008, with deliveries to begin on or around Feb. 1 and completed by July 31.
Under the federal RIK program, federal lessees deliver crude in lieu of royalties to the US Minerals Management Service, which then resells it on the open market. MMS has said the program is more efficient and saves the government money.
House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) has been critical of the RIK program’s operation, however, and the energy bill that cleared the committee earlier this year contained a provision limiting future oil royalties in-kind to SPR refills. It was not part of a later energy bill that the full House approved, a committee spokeswoman told OGJ.
DOE said that in such purchases, lessees deliver the royalty crude to market centers along the Gulf Coast, and ownership is transferred to DOE from the Department of the Interior. Contractors are required to take the full contracted amount from the market centers and deliver exchange oil to the SPR. Actual volumes delivered to the reserve reflect account adjustments for quality differences and transportation costs, DOE said.
EU’s Solana promotes EU-Asia energy cooperation
European Union foreign policy chief Javier Solana in Central Asia Oct. 10 expressed hope that disagreement over the Kashagan oil field project will be solved in terms of the existing agreement.
“We hope that the solution to this issue will soon be found in terms of the [production-sharing] agreement that has been signed, and that the solution will be found without modifying the agreement,” said Solana, referring to the dispute between the Kazakh government and the Eni SPA-led consortium developing the field (OGJ Online, Oct. 8, 2007).
“I am sure this issue will be solved in a positive and constructive manner,” said Solana, who added that Europe intends to cooperate with Kazakhstan in the exploitation of energy resources.
In particular, he said a trans-Caspian pipeline should be built to transmit gas from Central Asia to Europe.
“It’s a project that has to be implemented,” said Solana, who added that the project had been discussed at meetings with Kazakh and Turkmen leaders.
Solana was in Kazakhstan as part of a Central Asian tour to promote cooperation between the region and the EU, particularly in the field of energy resources.
On Oct. 9, Solana visited Turkmenistan, where he also promoted energy cooperation with the EU and construction of the trans-Caspian pipeline.
Exploration proceeds off Myanmar as crisis boils
Exploration work on Myanmar’s Block M9 in the Gulf of Martaban is progressing “normally,” according to Thailand’s majority state-owned PTT Exploration & Production PLC, despite Myanmar’s biggest street protests in 20 years. A major natural gas discovery was made on the block, which lies 300 km south of Yangon, just a week before the violent crackdown on demonstrations began.
Four exploration and four appraisal wells have already been drilled on Block M9, and plans are afoot to drill an additional four to five appraisal wells to confirm petroleum reserves. Drilling will take place between December and April 2008 (OGJ Online, Aug. 15, 2007).
Exploration results have confirmed the commercial potential of Block M9, and PTTEP executives indicated earlier that 300 MMcfd could be brought on stream in 2011 or 2012 (OGJ Online, May 23, 2007).
PTTEP has held a Block M9 production-sharing contract with Myanmar since 2003 and holds 100% interest in the block.
Meanwhile, Thai Energy Minister Piyasvasti Amranand has postponed talks with the current Myanmar regime for purchase of gas from the block. The crisis is complicating negotiations, which are not expected to begin any time soon.
However Piyasvasti reiterated Thailand’s intention to secure more gas supplies from Myanmar when the kingdom can ensure that any deal will be secure.
Thai officials indicated the talks could wait until PTTEP fully completes its exploration program.
NEB: Canada’s gas deliverability to decline
Canadian conventional natural gas deliverability is forecast to decline, Canada’s National Energy Board (NEB) said in a recent report.
Canada’s average gas deliverability is forecast to decrease to 14.5-15.8 bcfd in 2009 from 17.1 bcfd in 2006.
“The drilling pace that sustained Canadian natural gas deliverability is gone for the moment,” said NEB Chairman Gaetan Caron.
Most Canadian gas resources are in the Western Canada Sedimentary Basin. Production from WCSB has decreased gradually as the basin matures. WCSB drilling slowed during 2006 because of continued high project costs. Meanwhile, oil sands development projects compete with conventional gas projects for investment dollars.
With less drilling, gas production is starting to decrease. The flow of gas from the maturing WCSB alone is expected to drop to an average of 13.7 bcfd in 2009 from 16.2 bcfd for 2006, NEB said.
Drillers are concentrating on the WCSB’s deeper western side, which requires complex, expensive drilling with a potential for large returns.
“We see cause for optimism as deeper drilling and improved techniques help producers deliver tighter gas from deeper wells,” Caron said. “In the longer term, Canadians should rest assured that their natural gas needs will be met as other sources, such as unconventional gas, liquefied natural gas, or gas from frontier areas, enter Canada’s energy market.”
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Exploration & Development - Quick TakesJapan, China still in talks over E. China Sea dispute
Japan and China Oct. 11 ended their 10th round of talks aimed at resolving the dispute over gas exploration rights in the East China Sea without reaching any agreement.
There is still a substantial gap between the two sides’ positions on the matter, according to Kenichiro Sasae, Japan’s main negotiator during the most recent talks in Beijing. Sasae expressed hope that agreement could still be reached this fall, as further talks are due to be held in Tokyo next month.
The disagreement over gas exploration stems from a disputed maritime boundary between the two countries in the East China Sea, where China has already started production in the Tianwaitian area.
In April China said its exploration for oil and gas in the East China Sea does not fall into waters shared with Japan and can be conducted on a unilateral basis (OGJ Online, Apr. 12, 2007).
RWE Dea finds oil in Libya’s Sirte basin
RWE Dea AG has tested 393 b/d of oil from its C1-NC193 exploration well in the Sirte basin onshore Libya.
Oil flowed from the Hon formation at 878 m through a 32/64-in. choke. RWE Dea used Adwoc Rig 2 to drill the well. This is the fourth discovery in the Sirte basin.
RWE Dea’s acreage covers 30,000 sq km over six concessions. It will continue drilling other promising hydrocarbon prospects in concessions NC194, NC195, and NC197 and will appraise other discoveries in NC193 and NC195.
RWE Dea is the operator with a 100% participation interest in the concessions.
Celtic Sea appraisal well finds oil, gas
An appraisal well on the Hook Head structure in the North Celtic Sea basin off Ireland found 75 ft of net pay in 484 ft of gross hydrocarbons in the main target zone and a combined 20 ft of net pay in three shallower exploration targets.
Providence Resources PLC, Dublin, operator of License 2/07, drilled the well 60 km offshore in 240 ft of water on the crest of a structure penetrated by earlier wells in 1971 and 1975. TD is 4,880 ft true vertical depth.
The four Cretaceous reservoirs had porosities as high as 27% with 30° gravity oil and associated gas.
Providence and partners recovered good quality oil and were hampered in testing by a poor casing cement job. They demobilized the rig due to rig contract time limits and were discussing further appraisal and development drilling early in the 2008 drilling season. The site is 60 km east of Kinsale Head gas field.
Working interests are Providence 43.5294%, Challenger Minerals (Celtic Sea) Ltd. 16.3235%, Dyas BV 16.3235%, Forest Gate Resources Inc. 7.5%, Atlantic Petroleum (Ireland) Ltd. 10.8824%, and Sosina Exploration Ltd. 5.4412%.
PTTEP, Oxy awarded blocks off Bahrain
Thailand’s PTT Exploration & Production PLC (PTTEP) has won the bid for Block 2, a 2,228-sq-km tract off northern Bahrain that is said to have to have oil potential.
The formal awarding will take place following negotiation and formulation of an exploration and production-sharing agreement with Bahrain’s National Oil and Gas Authority, PTTEP said.
PTTEP will serve as operator with a 100% participation interest.
Separately, Occidental Petroleum Corp. won the bid for two other blocks off Bahrain, while Russia’s state-owned Zarubezhneft, a third contender, was unsuccessful for the fourth offshore block, which was offered for right holdings.
Drilling & Production - Quick TakesIOGCC: Marginal wells continue to boost US supply
Marginal wells continue to play an important role in boosting US oil and gas supply, according to the latest report from the Interstate Oil & Gas Compact Commission. In 2006 marginal wells produced nearly 1.03 billion bbl of oil and 14.9 tcf of natural gas, IOGCC said.
The report, “Marginal Wells: Fuel for Economic Growth,” also stated that while marginal gas production decreased slightly from the previous year, the number of marginal gas wells rose by 3%. And marginal oil production increased by 4%.
Furthermore, IOGCC’s report outlines the economic benefits that these wells create. It said in 2006 states collected more than $1.2 billion in severance taxes from producing marginal wells. On a national level, every $1 million of marginal oil and gas produced creates nine jobs, it said.
However, even at current prices, the small operators which typically run marginal wells find them expensive to maintain, according to the report. In 2006, plugged and abandoned marginal wells resulted in a loss of $1.77 billion in economic output, $369.2 million in earnings reductions, and 8,223 jobs.
“We must assure that appropriate efforts are made to extend the life of marginal wells so energy from domestic sources will continue to be available,” said Roy Edwards, executive director of the Oklahoma Marginal Well Commission, which cofunded the report.
IOGCC Acting Executive Director Gerry Baker said, “The states, industry, and federal government must work together to make certain marginal well operators and the states that regulate them have the information and tools necessary to ensure they are not prematurely abandoned.”
Colorado gas plant catches CO2 for EOR
Blue Source LLC announced the startup of a carbon dioxide reduction, carbon offset project at the Apple Tree LLC gas processing plant in Huerfano County, Colo.
The CO2 is being sold for use in enhanced oil recovery in the Permian basin. A carbon capture and storage (CCS) developer, Blue Source said the Apple Tree gas plant is at the foothills of the Rocky Mountains near La Veta, Colo.
Gas produced from Oakdale field is 22% methane and 78% CO2. The gas is separated using membrane modules. Before start of the CCS project, CO2 was vented into the atmosphere. The CCS project is reducing CO2 emissions by about 400,000 tonnes/year.
On Oct. 8, Blue Source announced CO2 was captured from the vent stack and transported via the Sheep Mountain CO2 pipeline to be used for EOR projects. The Apple Tree vent stack and an associated 16-mile pipeline cost $8 million, Blue Source said.
“This will further help produce a considerable amount of domestic oil in underused oil fields,” said Russell Martin, Blue Source executive vice-president. He said confidentiality agreements prevent Blue Source from naming CO2 buyers or outlining EOR projects.
Apple Tree Holdings LLC is managed by Manzano LLC of Roswell, NM.
Processing - Quick TakesChevron to upgrade Pascagoula refinery
Chevron USA Inc. plans to invest $500 million to build a continuous catalyst regeneration (CCR) unit at its 325,000 b/cd refinery in Pascagoula, Miss.
Project construction is scheduled to begin in early 2008, with completion anticipated by mid-2010. The company already has secured environmental permits.
The CCR unit, which replaces two older units, will improve equipment reliability and utilization, and allow the refinery to optimize product yields. The refinery’s oil capacity will remain the same, but its gasoline production is expected to increase by about 10%, or 600,000 gpd.
This increase in gasoline production follows a previous increase of 10% to about 5.5 million gpd of gasoline production that was realized when the company brought online its fluid catalytic cracking unit in late 2006 (OGJ Online, Dec. 19, 2006).
Separately, Chevron announced that after further damage assessments of an Aug. 16 fire at the Pascagoula facility, it expects refinery repairs to be completed during first quarter 2008.
The fire damage was largely isolated to the refinery’s No. 2 crude unit. Plans and preparations for the repairs are under way. Additional conversion units, which were already off line for planned turnaround activities, have been recommissioned to increase the production of gasoline and distillates from the facility.
The company is utilizing its system of manufacturing plants and downstream infrastructure to minimize supply disruptions, and it said it expects to continue to meet all of its supply requirements and customer product commitments.
Chevron, in coordination with the appropriate local, state, and federal agencies, is still in the process of conducting a thorough investigation of the cause of the fire. There were no injuries related to the fire.
Pakistan approves Khalifa Point refinery near Hub
Pakistan has approved construction of the $4-5 billion coastal refinery project at Khalifa Point near the Hub area of Balochistan province.
Ashfaq Hassan Khan, briefing adviser to the finance ministry, said preliminary work has begun on the refinery, which will have a capacity of 200,000-300,000 b/d.
The facility would be established as a 74:26 joint venture of Abu Dhabi-based International Petroleum Investment Co. (IPIC) and Pak-Arab Refinery Co. The project is expected to be completed and commissioned by first quarter 2011.
The Ministry of Petroleum and Natural Resources was authorized to sign the implementation agreement with IPIC within a month.
Various concessions had been announced for the project, including a 20-year tax holiday, exemption from 5% workers’ profit participation, and exemption from 0.5% services charges under the export processing zones rules.
Pakistan also advises Oil & Gas Development Corp. to dedicate at least 80% of the liquefied petroleum gas produced from Chanda field for distribution in the Federally Administered Tribal Areas of northern Pakistan.
QP lets petrochem contracts for Mesaieed complex
Qatar Petroleum subsidiary Qatar Intermediate Industries Holding Co. Ltd. has awarded contracts to two subsidiaries of Foster Wheeler’s Global Engineering & Construction Group for work on a proposed grassroots petrochemical complex at Mesaieed, Qatar.
One contract calls for Foster Wheeler to execute the front-end engineering and design, while the other is to provide project management and construction management services. Foster Wheeler said its work also includes procurement of long-lead items.
For this project, Qatar Holding is establishing a joint venture company with South Korea’s Honam Petrochemical Corp.
The firm said the new complex, slated for completion in 2011, will include world-scale olefins and aromatics units, which will supply ethylene, propylene, and benzene to the downstream polypropylene, ethylbenzene, styrene monomer, and polystyrene facilities.
GCC’s refining capacity to rise 45% by 2010
The total refining capacity of the six Gulf Cooperation Council (GCC) countries is expected to increase by 45.5% in 2010-to 6.3 million b/d from 4.33 million b/d, according to a report by the Emirates Industrial Bank (EIB).
“The potential increase is a result of four new refineries planned in Kuwait, Saudi Arabia, Qatar, and Oman, as well as of renovating old refineries and increasing their production capacity in the UAE and Kuwait,” it said.
EIB noted that while the GCC’s oil production currently comprises 19% of world output, the current capacity of the group’s 20 existing refineries constitutes just 5% of the world’s overall refining capacity of 85.4 million b/d.
The report blamed the lack of refining capacity around the world for the reduced supply of products and their consequent high costs. “The rise in the cost of oil refining and the closure of 15 refineries in the world have led to a shortage in oil products...in the past 3 years,” it explained.
“The rise in oil refining capacity in some countries has contributed to curbing this gap, which eventually helped in curbing oil prices and creating huge inflation rates in world countries, including oil producing and exporting countries,” EIB said.
GCC member countries are Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the UAE.
Transportation - Quick TakesSakhalin-2 receives LNG for plant testing, startup
Sakhalin Energy Investment Co., operator of the Sakhalin-2 project, has received a second shipment of LNG for use in testing and start-up operations at its gas liquefaction plant on Sakhalin Island.
The company said it took a day to offload Marathon Oil Corp.’s Arctic Sun shipment of 85,000 cu m of Alaskan LNG into two LNG storage tanks at Prigorodnoye on southern Sakhalin Island.
Sakhalin Energy said the primarily methane Alaskan LNG is “ideally suited” for commissioning and testing the LNG facility. It said the process began in July, with the initial shipment of LNG delivered from Indonesia.
Sakhalin Energy said the Arctic Sun would return to its normal duties in Alaska, where, along with its sister ship the Polar Eagle, it normally transports LNG to Japan. The firm did not say why the sourcing shifted to Alaska from Indonesia.
The arrival of the Alaska LNG came just days after a naming ceremony Oct. 4 for two new 147,000 cu m LNG carriers-the Grand Elena and Grand Aniva-at Mitsubishi Heavy Industries Ltd.’s Nagasaki facility.
The two carriers were built for a Japanese-Russian joint venture of Nippon Yusen Kabushiki Kaisha (NYK Line) and Russia’s state-owned JSC Sovcomflot under a contract awarded Nov. 15, 2004.
Sakhalin Energy has chartered the carriers long-term to deliver LNG to customers in Asia-Pacific. The two tankers are ice-strengthened and designed to operate at low temperatures to ensure year-round operations from Sakhalin.
Earlier this month, the Russian government announced plans to build a new port at Ilyinsky on Sakhalin Island to export oil and gas from offshore fields (OGJ Online, Oct. 1, 2007).
Meanwhile, an environmental impact report, produced by AEA Technology for potential lenders to the Sakhalin-2 oil and gas development project in Russia’s Far East, gave an overall green light, with some reservations, to the project.
Prior to the report’s publication, Russian Natural Resources Minister Yuri Trutnev said he would travel to Sakhalin “around November” to assess the situation.
Gassco starts gas flow through Tampen Link
Gas deliveries to the UK have started from the Anglo-Norwegian Statfjord field via the Tampen Link pipeline, which came on stream on Oct. 12.
Norwegian pipeline operator Gassco AS said the 23.1-km, 32-in. Tampen Link line will transport 25 million cu m/day and will tie Statfjord into Britain’s existing Flags system, which extends to St. Fergus, Scotland.
Gassco is operator for Tampen Link, which was incorporated in the company’s integrated network on Sept. 1.
The Statfjord partners will convert three Statfjord field platforms from handling oil with associated gas, to handling gas with associated oil. The work enables Statfjord to continue Statfjord production to 2020, with partners investing just over $2.7 billion.
Statfjord field’s late-life additional resources are estimated at 32 billion cu m of gas, 25 million bbl of oil, and 60 million bbl of condensate. The expected recovery ratio is as high as 70% for oil and 75% for gas.
Urals gets Transneft approval for ESPO line tie-in
Urals Energy, Nicosia, said it received approval from Russia’s state-run OAO Transneft to build a pipeline tie-in from its Dulisminskoye field to the Eastern Siberia Pacific Ocean (ESPO) pipeline.
Following approval of proposed technical designs and projected construction work, Urals said it intends to commence field preparation work in the fourth quarter.
The Dulisminskoye field in Eastern Siberia is estimated to have 464 million boe, and is projected to produce 30,000 b/d by 2011. First oil from the field is expected to flow into Transneft’s ESPO in the first half of 2009.
In late September, Russia’s Natural Resources Ministry dropped accusations of falsifying hydrocarbon estimates against Urals Energy.
Following an appeal by Urals, the ministry working group confirmed estimates supplied by the company to the State Reserves Commission exceeded the DeGolyer and MacNaugton estimate by 30%.
Urals expects production to reach a minimum of 12,000 b/d of oil by the end of 2007, instead of its previously announced target of 15,000 b/d, which it now expects to reach by mid-2008. Urals’ output was reduced by a disappointing performance at its onshore field on Sakhalin Island and by repairs to the pipeline used to transport oil from its Dulisminskoye field.
