OGJ Newsletter

July 23, 2007
General Interest - Quick Takes

House GOP panel members press for bill markup

Republicans on the US House Science and Technology Committee continue to press for a markup of HR 2337, which was originally scheduled for July 11 but was abruptly postponed by Chairman Bart Gordon (D-Tenn.).

Gordon began the markup and then quickly recessed it to negotiate with the House Natural Resources Committee, which passed the bill on June 13.

The measure would repeal several provisions in the 2005 Energy Policy Act, introduce new produced water disposal regulations, limit royalty in-kind payments to oil for refilling the Strategic Petroleum Reserve, require the US Minerals Management Service to conduct at least 550 annual audits by 2009, significantly increase surface landholders’ rights in federal split-estate situations, and raise onshore oil and gas reclamation fees and bonds.

On July 12 Gordon said he would negotiate with the Natural Resources Committee to avoid forcing House parliamentarians to make a ruling on the Science and Technology Committee’s jurisdiction. Republicans on his committee urged him to go before the parliamentarians because the bill contains at least seven sections that fall under that jurisdiction.

A spokesman for the committee’s Republicans told OGJ on July 16 that they also would like a markup so they can introduce amendments to HR 2337, but they currently don’t expect one.

Roan Plateau drilling opponents blocked

An amendment intended to prevent leasing on the Roan Plateau in Colorado was itself blocked for procedural reasons, but its proponents said they will continue efforts to prevent leasing on federal land within the Piceance basin. US Reps. John Salazar and Mark Udall, both Democrats from Colorado, had sought to amend the US Department of the Interior appropriations bill. DOI oversees the Bureau of Land Management, which would lease the area.

The amendment sought to stop funding for BLM leasing in that western Colorado area (OGJ, June 25, 2007, p. 30).

Questions were raised about financial estimates regarding potential Roan Plateau leasing revenues, and the amendment was blocked from being attached to the 2008 DOI Appropriations bill that passed the House floor on June 27.

“In effect, the [George W.] Bush administration is using exaggerated estimates of uncertain oil and gas revenue as an excuse to force additional oil and gas drilling on the West,” Salazar said in a news release issued by his Washington, DC, office.

“Serious questions remain about the federal plan to open up more of the Roan to oil and gas drilling,” Salazar said. “Had we been able to get a vote on our amendment, we are confident that we would have prevailed. We would have been successful in spite of the misinformation put out by proponents of drilling.”

BLM authorized the drilling of as many as 1,570 gas wells over 20 years on part of the Roan Plateau in western Colorado. BLM indicated it probably will be at least 6 months before any leases are offered (OGJ, June 18, 2007, p. 31).

The decision issued by the Glenwood Springs BLM field office covers 70% of the 73,602 acres of the Roan. A final decision on the remaining 30%, which includes scenic and environmentally sensitive areas, is expected later this year following conclusion of a public comment period.

Mexico beefs up security after pipeline bombings

Mexico has increased security measures at strategic installations in the country following a series of bombings on fuel pipelines operated by state-run Petroleos Mexicanos (Pemex).

The Interior Ministry condemned the rebel group Ejército Popular Revolucionario (EPR), which claimed responsibility for blasts on the pipelines in central Mexico July 5 and 10 and said the attacks were “the start of a national campaign of harassment against the oligarchy and this illegitimate government.”

The group said it would continue the “harassment” until Mexican President Felipe Calderon Hinojosa and Oaxaca governor Ulises Ruiz show that three EPR members, arrested in Oaxaca, are alive. According to reports, no one has seen EPR members Edmundo Reyes Amaya, Raymundo Rivera Bravo or Gabriel Alberto Cruz Sanchez since their arrest May 25.

The July 10 explosion forced suspension of service on the 36-in. pipeline that runs between Mexico City and Guadalajara, but caused no injuries or damage outside of the pipeline’s installations, Pemex said.

The July 5 explosions at a Pemex pipeline in nearby Guanajuato state forced evacuations but caused no injuries.

The Procuraduria General de la Republica said its forensic tests showed that the three bombs that exploded in Guanajuato were all of the same type and had exploded simultaneously.

As a result of the attacks-the first time EPR has hit Mexico’s economic infrastructure-automakers Nissan and Honda halted production at plants in Aguascalientes and Guadalajara due to the lack of gas, and Mexican glass maker Vitro temporarily shut down two glass container plants at Queretaro and Guadalajara.

Pemex said July 10 that it expected to restore service on the Mexico City-Guadalajara pipeline in 3-4 days.

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Exploration & Development - Quick Takes

Total, Gazprom to develop for Shtokman field

Russia’s OAO Gazprom and France’s Total SA have signed a framework agreement for the joint development of the first phase of the giant Shtokman gas-condensate field in the central part of the Barents Sea off Russia.

Shtokman field reserves are estimated at 3.7 trillion cu m of gas and more than 31 million tons of condensate.

The companies will establish a special purpose vehicle to organize the design, financing, construction, and operation of the infrastructure of the delelopment’s first phase, which will produce 23.7 billion cu m/year of gas. The SPV will own this infrastructure for 25 years from field commissioning.

Gazprom will hold a 75% participating interest in the vehicle and Total will have 25%. Upon completion of phase one operations, Total will transfer its share to Gazprom. The agreement also provides for the possibility for other foreign partners to join the project up to a 24% participating interest at the expense of Gazprom’s share.

Deliveries of pipeline gas are expected to start in 2013. First LNG will be delivered in 2014.

PTTEP finds large gas deposit in Gulf of Martaban

Thailand’s PTT Exploration & Production PLC discovered a large offshore natural gas deposit in Myanmar’s Gulf of Martaban, according to state media.

The New Light of Myanmar newspaper said PTT discovered a deposit of gas estimated at 8 tcf. PTT confirmed the discovery but declined to comment on the specific amount of gas in the reserve.

The appraisal well, Zawtika-5, reached a TD of 2,527 m and encountered seven zones of gas-bearing formation with a total thickness of 100½ m. It was the eighth well (four exploration and four appraisal wells) drilled on that block, which lies 300 km south of Yangon (OGJ Online, June 25, 2007).

PTTEP Pres. Maroot Mrigadat said the field shows promising potential for further development, but added that a precise estimate of the reserves awaited additional exploration.

PTTEP plans to start production from the block, designated M-9, next April. The field will likely be one of Thailand’s main sources of gas, Mrigadat said.

PTTEP signed a production-sharing contract with Myanmar for exploration and production of oil and gas from Block M-9 in November 2003.

OGDC taps gas, condensate in Pakistan well

Oil & Gas Development Co. Ltd. (OGDC) has made a natural gas and condensate discovery with its Chandio-No. 1 well on Tando Allah Yar block in the Hyderabad district of Pakistan’s Sindh province. The exploration effort is a joint venture of operator OGDC, with 95%, and Government Holdings (Pvt.) Ltd. (GHP) 5%.

Chandio No. 1, which was drilled to 3,660 m TD, targeted the Massive, Basal, and A-Sands Cretaceous Age Lower Goru formation. Based on drilling and electric log data, four zones were selected for testing, and hydrocarbons were found in Zone-3 (Massive-Sands) of the Lower Goru formation.

Initial short-duration testing produced 2.45 MMscfd of gas and 70 b/d of condensate at a wellhead flowing pressure of 540 psi through a 32/64-in. choke.

Separately, Pakistan has granted an offshore exploration license to GHP and has executed a production-sharing agreement with GHP and OGDC for Block No. 2366-6 (Eastern Offshore Indus-A) in the Arabian Sea.

The block covers 2,500 sq km. OGDC said it will invest $2.75 million during the first 2 years of the license’s initial term.

Sudan awards Red Sea PSC to China’s CNPC

China National Petroleum Corp. has signed a production-sharing contract with Sudan for exploration areas off northern Sudan.

Under the 20-year contract, CNPC will have exploration rights to Block 13 with an area of about 3.8 million sq km in shallow water on the Red Sea. The exploration period is 6 years.

CNPC will conduct exploration jointly with Sudan’s state-run Sudapet Ltd. and Indonesia’s state oil and gas company PT Pertamina.

Drilling & Production - Quick Takes

US drilling activity sets 21-year high

US drilling activity hit a new 21-year high, up 39 rotary rigs with 1,791 now working, Baker Hughes Inc. said July 13.

That surpasses the previous record of 1,775 set 2 weeks ago and is up from 1,668 units drilling during this same period a year ago.

All of the gain was on the land side, with a jump of 42 rigs to 1,693 active. Inland waters activity was unchanged at 22 rigs drilling. Offshore operations dropped 3 rotary rigs to 75 in the Gulf of Mexico and 76 in federal waters as a whole.

Texas’ rig count jumped by 12 to 837 this week despite recent rains that caused flooding in some parts of the state. Colorado increased by 4 to 112, and California was up 3 to 38. Louisiana added 1 for a total of 182 rotary rigs working.

Oklahoma, which also had heavy rains, was down 5 rigs to 186 drilling. New Mexico and Wyoming dropped 2 rigs each to respective counts of 85 and 69. Alaska was down 1 to 8.

Canada’s weekly rig count shot up by 74 to 360 units working. That’s down from 571 during the same period last year, however.

Cavendish gas field production starts off the UK

RWE Dea UK Development Ltd. has begun commercial gas production of 60 MMcfd from one well in Cavendish gas field on Block 43/19a in the UK Southern Gas basin. The field lies in 18.5 m of water.

Field operator RWE Dea and equal partner Dana Petroleum PLC are drilling second and third wells that are expected to come on stream before yearend. Cavendish, a Carboniferous gas field discovered in 1989, is RWE Dea’s first operated development project in the UK.

The development consists of a 6-slot, minimum-facilities fixed platform tied back to the Murdoch platform via 47 km of newly laid pipeline. Murdoch is part of the Caister Murdoch system operated by ConocoPhillips, which transports the gas onward to the Theddlethorpe gas terminal in the UK.

Cavendish field production originally was expected to start in the first quarter with an initial flow of 100 MMcfd and to continue until 2016 (OGJ Online, Nov. 26, 2006).

India proclaims first coalbed methane sale

London concern Great Eastern Energy Corp. said it has made India’s first sale of coalbed methane as compressed natural gas for vehicles in Asansol, West Bengal, 125 miles northwest of Calcutta.

The company said it is receiving $13-15/Mcf for the gas.

Great Eastern has drilled 23 production wells and plans to drill 80 more in phases over 3 years. It holds a CBM license on 210 sq km in the Raniganj coal field in West Bengal, where consulting engineers estimated original gas in place at 1.92 tcf (see map, OGJ, Dec. 13, 2004, p. 35).

Chevron to replace Tahiti spar’s mooring shackles

Chevron Corp. said it is pursuing “alternate actions” to ensure new shackles are available “in the shortest time-frame possible” for its Tahiti project in deepwater Gulf of Mexico, after a second round of tests identified a metallurgical problem with the facility’s existing mooring shackles.

Several scenarios are being considered, but Chevron does not yet have an “absolute clear picture” as to when the project will be operational, a company spokesman said. The $3.5 billion project 190 miles south of New Orleans was scheduled for completion in mid-2008.

Major components of the project are nearing completion, and installation work is expected to continue once timing for the new shackles is determined.

The company also has initiated an investigation to uncover why initial tests failed to identify the problems with the shackles, the spokesman said.

Additional tests were conducted after Chevron’s contractor discovered a metallurgical problem with shackles on a similar installation for another company. Metallurgical problems were subsequently discovered in the Tahiti shackles as well.

Chevron says the spar’s integrity is not impacted by the problem with the mooring shackles, as they are not part of the spar hull.

Processing - Quick Takes

Total to build two units at Lindsey refinery

Total SA has begun construction of a hydrodesulfurization unit and a hydrogen production unit at its 221,286 b/cd Lindsey refinery, near Immingham in the UK.

The HDS unit will have a 1 million tonne/year capacity. The hydrogen production unit-more specifically a steam methane reformer-is key to the desulfurization process.

The two units together represent a €300 million investment. Commissioning is scheduled for 2009, Total said.

The units will increase Total’s production of ultralow-sulfur diesel and will increase the refinery’s capacity to process less-expensive sour crudes.

Faster work urged on Vietnamese projects

Vietnamese Prime Minister Nguyen Tan Dung has asked contractors to speed up construction of several oil and gas projects, including the Dung Quat refinery, the Nghi Son refinery and petrochemical complex, and the Ca Mau combined-cycle project.

Regarding the 140,000 b/d Dung Quat refinery in the central coastal province of Quang Ngai, Nguyen instructed state-owned PetroVietnam to work with Technip to address problems that he said have caused delays (OGJ Online, Feb. 19, 2007).

Nguyen wants the refinery to become operational by February 2009.

The $2.5-billion refinery is being built in the Dung Quat Economic Zone in Binh Son district’s Binh Tri and Binh Thuan communes.

Construction of the refinery began in June 2005, 7 years after the target date stipulated by a 1997 National Assembly resolution.

Meanwhile, the Nghi Son refinery and petrochemical project is being built on 325 hectares in the Tinh Gia district of Thanh Hoa province, with completion set for 2011.

The project includes a 140,000-b/d refinery, a 150,000-350,000-tonne/year polypropylene plant, and a 260,000-tonne/year polyester fiber plant.

Construction of the Ca Mau combined-cycle project in U Minh district, 15 km from Ca Mau City, started in March 2001. PetroVietnam said the complex will include a gas pipeline, a power plant, and a nitrogen fertilizer plant.

Siemens planned to deliver two 250-Mw gas-fired turbines and generators to the Ca Mau project last August and to start them by March.

Nguyen specifically requested a speed-up of installation of heat-control units on the 332-km PM3-Ca Mau pipeline, which is to carry 2 billion cu m/year of gas from offshore fields to the complex.

Interest in a Central America refinery progresses

Mexico’s Ministry of Energy said four international companies have expressed interest in constructing a refinery in Central America under terms of the Mezo-American Energy Integration Program (PIEM).

The ministry named the companies as Colombia’s state-owned oil company Ecopetrol; Itochu Corp. of Japan, Reliance Industries Ltd. of India; and US company Valero Energy Corp.-all four of which have been preselected by PIEM.

Benefits offered by the bidding include an 8-year buy-sale contract of Mexican oil, plus bank credits from Inter-American Development Bank and Central American Economic Integration Bank.

Costa Rica, Guatemala, Honduras, and Panama have ratified the PIEM, which will allow the investor to build a refinery in their countries.

PIEM, which first met in December 2005, aims to complete four tasks: to build a refinery in a Central American nation, create a “spine” of electricity links among the PIEM nations, harmonize energy regulation across the region, and promote the use of sustainable and renewable energy.

PIEM nations include Belize, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, and the Dominican Republic.

Coffeyville Resources restarts flooded plant

Coffeyville Resources LLC has restarted its fertilizer plant after record flooding on the Verdigris River caused both the Coffeyville, Kan., nitrogen fertilizer plant and a nearby refinery to be shut down and evacuated in early July.

Both facilities are owned by subsidiaries of Coffeyville Resources. The fertilizer plant is on higher ground and sustained less damage than the refinery, which remains down pending repairs (OGJ, July 16, 2007, Newsletter).

Coffeyville Resources Refining & Marketing LLC said its 100,000 b/cd refinery is expected to resume operations by mid-September. Nearly 1,000 contract workers are helping repair and replace flood-damaged equipment.

Kevan A. Vick, executive vice-president and general manager for Coffeyville Resources Nitrogen Fertilizer, said bringing the fertilizer plant back on line involved replacing or repairing 30% of all electric drives and repairing 60% of the motor control centers.

The fertilizer plant delivers its products to customers primarily in Missouri, Kansas, Texas, Nebraska, and Iowa. The plant uses petroleum coke as the primary feedstock to produce nitrogen fertilizers. In 2006, it produced 369,300 short tons of ammonia of which 66% was upgraded to 633,100 short tons of urea ammonium nitrate.

Transportation - Quick Takes

BP takes delivery of ‘world’s largest’ LNG carrier

BP Shipping has taken delivery in early July of the British Emerald LNG carrier, which the company called the “world’s largest” with a capacity of 155,000 cu m. The vessel has an overall length of 288 m and a width of 44.2 m.

British Emerald is powered by four diesel-electric engines and is equipped with a bow thruster to assist in mooring operations. It’s the first in a series of four diesel-electric gas ships.

Built by Hyundai Heavy Industries in South Korea, the vessel was designed for reduced fuel costs and greenhouse gas emissions compared with conventional LNG carriers. The dual-fuel technology allows the diesel engines to run on “boil-off” gases from the cargo tanks or on conventional diesel fuel.

The 23-man crew will put the vessel through an extensive commissioning program that is scheduled to take 10 days.

This vessel is the first of a fleet of four Gem class LNG carriers. The British Diamond, British Ruby, and British Sapphire are scheduled to be delivered in 2008.

Shell to buy Qatargas 4 output

A Royal Dutch Shell PLC affiliate signed an agreement with Qatar Liquefied Gas Co. Ltd. (4) in Doha to buy effectively the entire output-7.8 million tonnes/year-of LNG from the Qatargas 4 project.

Shell will send the LNG to its Elba regasification terminal for eastern US markets. Elba is being expanded to process 2.1 bcfd of gas by mid-2010 under an $850 million investment plan.

The sales contract underpins the development of Qatargas 4 which brings Qatar closer to its 77 million tonne/year target of becoming the world’s leader in LNG production.

First LNG cargoes from Qatargas 4 are expected at the end of the decade, and the liquefaction complex will produce 1.4 bcfd of gas, including an average 24,000 b/d of LPG and 46,000 b/d of condensate from Qatar’s North Field over the 25-year life of the project. The main engineering, procurement, and construction contract for onshore facilities was awarded in December 2005 and construction activities are progressing in Ras Laffan.

Linda Cook, Shell’s executive director of gas and power, said the integrated project “is another clear illustration of our ‘more upstream, profitable downstream’ strategy in action.” This is the seventh LNG project in which Shell has an equity stake.

Qatar Petroleum (QP) and Shell incorporated Qatargas 4 as a joint venture between an affiliate of QP (70%) and an affiliate of Shell (30%). The JV will own the Qatargas 4 project’s onshore and offshore assets.

Trans-Afghan gas pipeline back in play

Turkmenistan and Afghanistan have agreed to cooperate on several energy-related projects, including revival of the long-mooted Trans-Afghan natural gas pipeline.

The two sides signed several agreements following talks between Turkmen President Gurbanguly Berdymukhammedov and Afghan President Hamid Karzai, who visited Turkmenistan July 5-6.

Berdymukhammedov said his country remains interested in the $2 billion project to build a gas line more than 1,460 km across Afghanistan to Pakistan and then to India. He said Turkmenistan would be ready to send 30 billion cu m/year of gas through the line.

The original plan was to deliver gas from Turkmenistan’s Dauletabad field to Kandahar, Afghanistan; Multan in central Pakistan, and onward to India (OGJ Oct. 28, 2002, p. 47).

The two leaders also agreed to construct additional electric power lines and related infrastructure in Afghanistan.