OGJ Newsletter

Oct. 27, 2008
General Interest — Quick Takes

EU ministers agree on energy compromise

Strongly backed by France, which is president of the European Union through 2008, the unbundling compromise reached June 6 (OGJ, June 16, 2008, Newsletter) was adopted unanimously Oct. 10 at the Energy Ministers meeting in Luxembourg. Controversial legislation otherwise could have separated the network operation of electricity and gas from production and supply activities.

Described as “a major political agreement,” the compromise confirms that ownership of both transportation and marketing networks will be retained by the producers, but the units will be operated independently from the parent company and supervised by an Independent Transmission Operator.

A European regulatory agency will be set up, which will “considerably bolster the coordination of the national regulators,” according to the ministers’ press release.

The European Parliament definitely will adopt these texts in a second reading. In its first reading, the Parliament had opted for full unbundling.

The ministers also reaffirmed the crucial importance of energy efficiency both to achieve climate objectives and to guarantee energy security.

The ministers also discussed the energy-climate package and especially the renewables directive under which these energies should account for 20% of the energy mix by 2020. It is one of the leading priorities of the French presidency, and an agreement at its first reading is targeted by yearend.

France leads EU Council’s Kyoto extension push

France’s National Assembly voted almost unanimously Oct. 21 on the draft law implementing the country’s environment package, concluding a widespread debate with all relevant stakeholders over the past year.

The result “should considerably bolster France’s credibility and voice within the European and international climate negotiations” said Jean-Louis Borloo, minister of ecology, energy, and sustainable development.

Borloo was alluding to the back-tracking of a number of European Union member states on the energy-climate package, which France wants to see adopted at the next EU Council meeting Dec. 11-12. It will coincide with the United Nations climate conference in Poznan, Poland, Dec. 1-12 to extend the Kyoto Protocol treaty beyond 2012.

The energy-climate targets to 2020 are “the three 20s,” namely to reduce greenhouse gas emissions by 20%, increase the share of renewables in energy consumption to 20%, and improve energy efficiency by 20%. It is one of the priorities of France, which currently holds the rotating EU presidency until yearend, to have the package adopted in December.

President Nicolas Sarkozy, at the last 27 leaders summit meeting in Brussels Oct. 15-16, said solutions would be found for countries that have expressed concern over the cost of the package in the current unfavorable financial and economic environment.

Italy, Poland, and several new EU member states, including Bulgaria, Hungary, Latvia, Lithuania, Romania, and Slovakia, have threatened to veto the package, while a consensus is needed for its adoption. Many are coal-dependent countries that are also worried that the EU’s Emission Trading Scheme would be too costly for them, as they would need to buy certificates allowing them to emit carbon dioxide as of 2013. They want the deadline extended to 2020. Their view is that the EU’s policy should be “to reconcile environmental targets with the need for sustainable development.”

The European Commission has already provided for some flexibility in the application of the package. But as its president Jose Manuel Barroso firmly said at the Oct. 15-16 meeting: “What the Commission is adamantly opposed to is anything that undermines the overall architecture of the package” [the three 20s].

Any major backtracking would jeopardize the EU’s environmental leadership because it hopes to influence other countries worldwide to follow its suit.

Eni, Enel to develop Italy’s first CCS project

Italy’s Eni SPA and electric power utility ENEL will integrate their carbon capture and storage (CCS) projects to construct a pilot plant in Brindisi under a strategic cooperation agreement signed in Rome.

Eni, Enel, and the Italian Environment Ministry will also work on developing carbon dioxide capture technologies and renewable energy, according to separate memorandum of understanding.

At the Brindisi thermal power station, Enel is working on a pilot plant that will be able to remove 2.5 tonnes/hr of gas and transport it to the Cortemaggiore site in fall 2009. Eni has started an injection project that could offload 8,000 tonnes/year of CO2 into depleted, exhausted Stogit field at Cortemaggiore (Piacenza) in fall 2010. Both companies have committed to lay a pilot dense-phase CO2 transport line at the Brindisi site to bolster their experience in transporting CO2.

They will study Italy’s CO2 storage potential in partnership with Italian research bodies as the European Commission has strongly urged that this technology be widely deployed across its member states to enhance security of energy supplies. Enel and Eni plan to carry out a detailed feasibility study on the construction of a large-scale integrated demo plant for Enel’s clean-coal power station.

Industry Scoreboard
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Exploration & Development — Quick Takes

CNX Gas pushes Chattanooga shale exploration

CNX Gas Corp., Pittsburgh, has expanded its position the Devonian Chattanooga shale gas play to 235,000 acres in northeastern Tennessee and plans a two-rig program to drill 10 wells in the rest of 2008.

The acreage in Scott, Campbell, Anderson, and Morgan counties, Tenn., is largely contiguous and is composed of only a small number of leases, a rarity in the Appalachian basin, the company noted. It expanded by buying out its 50% partner Knox Energy Inc. and acquiring several other leases.

Chattanooga is 50-80 ft thick at about 3,500 ft and rich in total organic carbon. The company has drilled eight horizontal wells in the play.

The most recent well cost $900,000 to drill and complete. The wells were drilled with a truck-mounted, top-drive rig with a 185,000-lb hookload capacity.

CNX Gas, which connected the fifth well in mid-October, said gas rates at the first four wells are 230, 160, 100, and 230 Mcfd. Daily rates for the better wells have been stable.

New drilling is occurring in areas that have shown better initial results, and the company plans microseismic work in late 2008 to better understand the variances in individual well production.

PetroChina to drill in Uzbekistan

China National Petroleum Corp. subsidiary PetroChina will form a joint venture with state-owned Uzbekneftegaz to develop Mingbulak oil field in Namangan province on the northern edge of the Fergana Valley in northeastern Uzbekistan.

The joint venture “will help meet Uzbekistan’s demand for oil and boost the development of China’s natural gas upstream business and the Central Asia-China natural gas pipeline project,” CNPC said.

CNPC in January started building the CAC pipeline, which will transport gas from Turkmenistan, through Uzbekistan and southern Kazakhstan, to western China’s Xinjiang region. The pipeline, scheduled to start operations in 2009, will have a transmission capacity of 1.1 tcf/year of gas.

CNPC, which did not disclose any financial details of the new agreement, said production from Mingbulak field, which has reserves estimated at more than 30 million tonnes, is expected to reach 2 million tonnes/year.

Sentell Bossier-Haynesville well logged

Southern Star Energy Inc., Houston, said logs indicate that its Atkins-Lincoln 17-2 well in Sentell field, Bossier Parish, La., north of Shreveport, encountered gas in the Jurassic Lower Bossier and Haynesville shales.

The well logged 205 ft of highly laminated, silty, and naturally fractured shale zone with crossplot porosities of 9-12%. Mud logs indicated abundant gas shows throughout of 400-600 units with trip gas as high as 3,000 units. The interval exhibits the characteristics of the Lower Bossier shale, the company said.

Just below the laminated section it cut 185 ft of quality dark black organic rich shale with 1,100-3,000-unit gas shows. This interval exhibits the characteristics the industry classifies as Haynesville shale. TD is 11,300 ft.

The wellbore is suspended with 7-in. intermediate casing through the Cotton Valley formation at 9,500 ft to preserve the company’s options to complete as a vertical producer or reenter for horizontal drilling pending the development of completion techniques.

As a member of the Core Laboratories Integrated Reservoir Solution’s regional Haynesville Shale Study, the company’s data are being incorporated into the Core Lab database for use in designing optimum completion techniques for horizontal drilling in the Haynesville play.

Eagle Ford shale gas-condensate find gauged

Petrohawk Energy Corp., Houston, said it placed a horizontal new field discovery well in Upper Cretaceous Eagle Ford shale in South Texas on production at the rate of 7.6 MMcfd of gas and 250 b/d of condensate.

The South Texas find is in southwestern La Salle County just south of Stuart City gas field on the Edwards reef trend (see map, OGJ, Aug. 13, 2007, p. 38). Petrohawk Energy has leased more than 100,000 net acres in what it believes to be the most prospective areas for commercial production from the Eagle Ford.

The company drilled the STS 241-1H discovery well to 11,300 ft true vertical depth and ran fracs totaling more than 2 million lb of sand in 10 stages in a 3,200-ft lateral.

It also cored, logged, and is drilling the lateral at the Dora Martin 1H, a confirmation well 15 miles away, where Eagle Ford quality appears to be superior to that in the discovery well. Petrohawk Energy expects to spud a third well by mid-November.

The company estimated development well drilling and completion cost at $5-7 million. It plans to run one rig continuously and will access existing gathering and transportation facilities.

Drilling & Production — Quick Takes

Agip taps WorleyParsons group for contract

Agip KCO has chosen an engineering consortium led by WorleyParsons Europe Ltd. to design facilities for the second phase of massive Kashagan oil field in Kazakhstan.

In a letter of intent, valid until Dec. 31, Agip requested front-end engineering and design services for onshore and offshore facilities. The work is valued at $31 million.

“There are also options for services post-Phase II FEED, which include early works, detailed engineering and procurement services, technical assistance, and design-system integrity,” said Aker Solutions ASA, one of the companies in the engineering consortium.

Kashagan, which has 34.5 billion bbl of oil in place, is a challenging field having high pressure and high hydrogen sulfide levels. In addition, it is in an environmentally sensitive area with difficult weather conditions. An initial output of 150,000 b/d of production from the field was originally scheduled to start in 2005, but it has been delayed until fourth-quarter 2012 due to the technical challenges, cost increases, and a reconfiguration of the offshore plant to boost efficiency levels and safety standards (OGJ Online, Sep. 19, 2008).

Kashagan, 80 km southeast of Atyrau in the North Caspian Sea, will be developed in three phases.

WorleyParsons and Aker Solutions secured the engineering services, fabrication, and hookup for the first phase, which is expected to cost $19 billion.

Group seeks greater New Albany gas output

GTI is leading a research consortium to turn noncommercial natural gas wells into commercial producers in the Devonian New Albany shale in the Illinois basin.

GTI signed a contract for a multiyear program with the Research Partnership to Secure Energy for America, which is focused on meeting US gas demand and lowering costs for consumers. GTI is a research, development, and training organization.

The consortium involves GTI and 14 participants. They include Atlas Gas & Oil, Aurora Oil and Gas, BreitBurn Energy, CNX Gas Corp, Inflection Energy, NGAS Resources, Noble Energy, and Trendwell Energy Corp.

The consortium plans joint research targeting the 10.5 tcf of technically recoverable gas in the New Albany shale formation.

Processing — Quick Takes

Pennsylvania plant to process Marcellus gas

MarkWest Energy Partners LP has started up a 30 MMcfd refrigeration plant southwest of Pittsburgh to process natural gas from the Devonian Marcellus shale.

MarkWest, meanwhile, is installing a 30 MMcfd cryogenic gas processing plant next to the refrigeration unit near Houston in Chartiers Township in Washington County for start-up in the first quarter of 2009 and plans to build a 120 MMcfd cryogenic plant with a depropanizer by late 2009. It also is evaluating the addition of a fractionator.

The refrigeration plant represents Pennsylvania’s first large-scale gas processing infrastructure, said Mark West and Marcellus gas producer Range Resources Corp., Fort Worth.

MarkWest is investing $200 million in facilities to gather and process gas that Range Resources is extracting from the Marcellus, and Range has invested more than $700 million in leases, drilling, and facilities in the past 4 years.

The refrigeration plant “signals the beginning of material natural gas production from the Marcellus shale formation,” Range Resources said. The company plans to be producing 30 MMcfd by yearend 2008 and 80-100 MMcfd by yearend 2009.

Takreer moves ahead with Ruwais expansion

Abu Dhabi Oil Refining Co. (Takreer), an arm of state-owned Abu Dhabi National Oil Co. (ADNOC), has selected Honeywell unit UOP LLC to supply technology and engineering services for an expansion at the Ruwais refinery in the UAE.

The refinery will produce propylene, unleaded gasoline, naphtha, LPG, aviation turbine fuel, kerosine, gas oil, bunker fuel, and other products. Basic engineering design is currently in progress, and the refinery is expected to be complete in 2014.

Honeywell said the new facility will utilize “a wide range of UOP technologies for the production of clean, low-sulfur distillate and gasoline.”

In July, Takreer selected Shaw Group’s Energy & Chemicals Group to supply engineering services and licensing for its proprietary residue fluid catalytic cracking technology.

In addition to its RFCC technology, Shaw also will provide engineering services to integrate and coordinate 11 process units from other licensors at the site.

In February Takreer announced plans to more than double the capacity of the Ruwais facility to 817,000 b/d.

At the time Takreer general manger Jasem Ali al-Sayegh said the engineering and design study for the expansion should be completed by yearend 2008 or early 2009.

Refined products consumption in the UAE is set to rise about 4.5% this year, according to forecasts of analyst BMI, which also said, “Takreer sees the Ruwais expansion as one of its most important projects.”

Ruwais produces light products mainly for export to Japan and elsewhere in Asia. Fuel oil is sold as bunkers by the ADNOC and also used for domestic electric power generation.

Once expanded, Ruwais will be integrated with a petrochemicals complex and an oil lubricants plant, due online in 2012 and currently under construction by Takreer along with joint venture partners Neste Oil and OMV.

PDVSA awards JGC modernization contract

Venezuela’s state-owned Petroleos de Venezuela SA (PDVSA), as part of its on-going Siembra Petrolera plan, has signed an agreement with JGC Corp. to form a strategic alliance aimed at improving the country’s refining capacity. In particular, the accord with JGC will foster the development of Venezuela’s refining projects, especially those involving the conversion of heavy oil, according to Asdrubal Chavez, PDVSA refining, commerce, and supply vice-president.

JGC was involved in the construction of the Cerro Negro heavy crude upgrader in the Orinoco belt, and the Japanese firm also is completing basic engineering for an expansion at the Puerto La Cruz refinery.

The PDVSA announcement follows several earlier ones concerning financial arrangements for the projects.

In September, Venezuela said it signed a $1.2 billion loan with the Japanese Bank for International Cooperation.

According to Oil Minister Rafael Ramirez, who doubles as president of PDVSA, the loan will enable modernization of two refineries: at El Palito and Puerto La Cruz.

The amount of Japanese financing for the two projects is considerably lower than PDVSA had earlier hoped for. In May, PDVSA made an unsuccessful bid for $3.5 billion in credit from Japan’s Sumitomo Corp. and Itochu Corp. “For the expansion of the El Palito and Puerto La Cruz refineries we’re using technology…for deep crude conversion. For this we need specialized equipment manufactured overseas, and that’s why we’ve secured the Japanese company financing,” Ramirez said at the time.

The hoped-for accord was similar to a $3.5 billion loan PDVSA obtained in February 2007 from Marubeni Corp. and Mitsui & Co. as an advanced payment for oil shipments to be made later in the year. The Japanese funds were provided to PDVSA via two special purpose companies established in the Netherlands by Marubeni and Mitsui: Yucpa Finance and Caribe Financing Co.

PDVSA was expected to repay that loan through sales cash flow generated by its crude oil and petroleum products. The first oil exports to Japan¿20,000-30,000 b/d of oil and products¿were expected to begin by mid-2007.

In July, Venezuela’s El Universal newspaper reported that rising costs and rising oil prices had led PDVSA to “realign its Siembra Petrolera investment plan up to 2012.”

According to information provided by PDVSA to Banco Central de Venezuela, the firm now plans to invest $78.116 billion in 2007-12, an increase of 40% over the $56 billion calculated for the same period in 2005.

The paper said that 2008 is “the main” year for investment within the plan, with a total outlay of $15.671 billion planned. That amount includes $4.102 billion for production, $3.91 billion for natural gas, and $2.276 billion for refining.

Transportation — Quick Takes

Sakhalin-2 deliveries to start in early 2009

Shipments of LNG to Japan from the Sakhalin-2 project in far eastern Russia are expected to begin early next year, according to two Japanese partners in the project.

“We probably can start delivery in the first quarter,” said a spokesman of Mitsubishi Corp., while one for Mitsui & Co. said “Construction work is more than 98% completed, so we will be able to start delivery early next year.”

The Sakhalin Energy Investment Co. (SEIC) partners originally aimed to start delivery in 2008, but delayed the schedule to 2009 citing a shortage of resources. Russia also briefly froze the project, citing environmental problems, which contributed to the delay.

Earlier this month, Russian authorities visited the site and said it no longer posed any threat to the environment. “This project is exemplary from the point of view of the environment,” said Russian Natural Resources Minister Yuri Trutnev after the inspection.

In September, Sakhalin Energy started to send natural gas from the Molikpaq offshore drilling platform to a gas processing facility on the coast of Sakhalin Island. It said gas would then be piped from the processing facility to its LNG plant on the island.

Since then, there have been new developments concerning the arrangement for ships to transport the LNG to markets.

In early October, the Japan Bank of International Cooperation (JBIC) joined the two banks already financing Sovcomflot’s project to build two LNG tankers for the project.

In addition to JBIC, the consortium of creditor banks includes Mizuho Corporate Bank and Bayerische Landesbank. “JBIC’s entry into the project will make it possible to optimize [the] financing expense for the borrowers,” said Russia’s state-owned Sovcomflot, which is constructing the ships along with NYK.

The two 145,000 cu m ships¿the Grand Aniva and the Grand Yelena¿are being financed by a $320 million loan for 12 years.

The loan is secured by earnings from the operation of the vessels under long-term contracts to deliver LNG to Japan, South Korea, and the US. The Grand Elena, built in 2007, and the Grand Aniva, built in 2008, were delivered on schedule from Mitsubishi Heavy Industries.

Both vessels have since been sublet to Taiwan Maritime Transport (TMT) in the interim year before the Sakhalin-2 project gets ready for start-up. Delivery of the third and final ship ordered by the Sakhalin partners, the 147,200-cu m Grand Mereya, is due this month after several delays.

The ship was originally listed as being due for handover from Japan’s Mitsui Engineering & Shipbuilding Co. in April. Later, a date in May was given. In July, project officials said the vessel would be delivered in August.

“We are finally getting to the end of the technical problems,” one MES official said. “The delays were caused by failure of the [ship’s] low-duty boil-off gas compressors,” he said.

Industry sources also suggested that SEIC was in no hurry to take delivery of the vessel, which it had planned to trade on the spot market until exports from the project start next year. In terms of exports, SEIC already has signed long-term supply contracts with Japanese, South Korean, and US buyers for nearly all of the LNG from the island’s 9.6 million tonnes/year capacity plant.

More than 60% of that output will go to Japanese utilities firms including Tokyo Electric Power Co. and Tokyo Gas Co., accounting for 7.5% of Japan’s total natural gas imports. The remainder of Sakhalin-2’s output will be sold to the US and South Korea.

Pemex awards Ku-Maloob-Zaap pipeline contract

Petroleos Mexicanos (Pemex) has let a contract to Global Industries Ltd. for oil and natural gas pipeline work in Pemex’s Ku-Maloob-Zaap field in the Bay of Campeche, which it had announced in July.

The project, worth about $46 million, is scheduled to begin in March 2009 and be completed by the end of July 2009. Global will utilize its Shawnee construction vessel as the main pipelaying vessel, with additional support vessels assisting.

Global will install two pipelines in water about 300 ft deep: 2.1 km of 24-in. line extending from PP-Maloob-C platform to PP-Ku-H platform, and ½-km of 12-in. from a subsea connection to the PP-Maloob-C. The project also includes pipeline crossings, risers, and expansion curves, the firm said.

Ku-Maloob-Zaap is one of Pemex’s central projects for offsetting the natural decline at Cantarell field, which currently accounts for more than 40% of the company’s output.