OGJ Newsletter

Dec. 13, 2010
International News for oil and gas professionals

WoodMac: Third-quarter oil demand sets record

Worldwide oil demand for this year's third quarter will set a record at 88.3 million b/d, said Wood Mackenzie Ltd., Edinburgh, in its latest analysis.

According to the report, provisional data shows that global oil demand for the recent quarter will almost certainly exceed the previous highest quarter—the fourth quarter of 2007—when demand averaged 88 million b/d.

Just 3 years from the onset of the great recession, global oil demand has recovered to the pre-recession peak seen in 2007, the report said.

The analysis finds that world oil demand in 2010 will likely reach an annual average of 86.7 million b/d, 100,000 b/d more than in 2007.

Further, WoodMac expects worldwide oil demand in 2011 to exceed pre-recession levels, averaging a new all-time high of 88.1 million b/d. Oil demand in 2012 will climb to almost 90 million b/d, according to the forecast.

The latest projections from the International Energy Agency, released last month, forecast 2011 worldwide oil demand at 88.5 million b/d, up from this year's 87.3 million b/d average.

Leading the recovery in oil demand are China and the rest of Asia. WoodMac's provisional data through September shows that gasoline, diesel, and gas oil demand in China are growing at a rate of about 8%/year. In India, diesel and gas oil are growing at 7%/year and gasoline at 11%/year. As a comparison, this year the Asian market will be 3 million b/d larger than the North American market; in 2008 it was 1.4 million b/d larger, WoodMac said.

EPA seeks extension for boiler, incinerator rule

The American Petroleum Institute supports the US Environmental Protection Agency's request for an extension in a court-ordered schedule for issuing rules to reduce air emissions from boilers and solid-waste incinerators used by various industries, including petrochemical plants.

EPA officials sought more time to develop and finalize the rule following an extensive public comment period on proposed standards released in April. The US District Court for the District of Columbia told EPA to issue final rules on Jan. 16, 2011, but the agency asked the court to extend the deadline to April 2012.

Gina McCarthy, assistant administrator for EPA's Office of Air and Radiation, said EPA requested more time to ensure the rules are practical to implement and protect Americans from pollutants such as mercury and soot.

After reviewing more than 4,800 comments on the proposed standards, EPA said it wants to issue a revised proposal and then receive additional public comment.

"This approach is essential to meeting the agency's legal obligations under the Clean Air Act," EPA said in a Dec. 7 news release.

Howard Feldman, API director of regulatory and scientific affairs, praised EPA's decision to delay its final rules for boilers and incinerators.

"API welcomes EPA's request for more time to reconsider its proposed rules for boilers and incinerators. They appear to have recognized that their current proposal was unworkable and would have harmed American businesses and cost jobs," Feldman said.

"Consistent with our previous comments, we believe the reproposed and final rule should reflect that work practices are the only appropriate controls for all gas-fired units," he said.

Cal Dooley, American Chemistry Council president and chief executive officer, said he is encouraged the EPA wants more time.

"Industry has provided additional data, which EPA can use to develop a realistic methodology based on real-world facilities, emissions, and impacts," Dooley said. "We hope the court grants EPA's request for more time to work on these complex regulations."

EPA said the public comments it received "shed new light on a number of key areas, including the scope and coverage of the rules and the way to categorize the various boiler types."

New European Union gas regions proposed

In a move to bolster cross-border regional energy cooperation, European Union Energy Commissioner Gunther Oettinger suggested the Regional Iniative and the European Regulators Group for Electricity & Gas target specific goals.

These would include natural gas market couplings by 2015, pilot tests of experimental procedures, identifying regional infrastructure priorities, and coordinating cross-border investment to secure supply and cope with gas crises.

Oettinger proposed geographic regions for gas be adapted by adding Italy to the South Region (France, Spain, Portugal) and by splitting the current South and Southeast regions into three new regions:

• Central-South region, including Italy, Austria, Slovakia, Slovenia, Hungary, Romania, Bulgaria, and Greece.

• Central-East region with Germany, Poland, Czech Republic, Slovakia, and Austria.

• A new Baltic region comprised of Sweden, Finland, Estonia, Latvia, Poland, Germany, and Denmark.

Regulators, transmission system operators, and other stakeholders may share their views with authorities through Feb. 15, 2011.

Exploration & DevelopmentQuick Takes

Husky to develop South China Sea Liwan gas

Husky Energy Inc.'s China subsidiary will develop Liwan 3-1 deepwater gas field on Block 29/26 in the South China Sea off China.

Husky will operate the deepwater part of the project including development drilling and completions, subsea equipment and controls, and subsea tiebacks to a shallow-water platform. China National Offshore Oil Corp. Ltd. will operate the rest of the project involving the shallow-water platform, 270 km of subsea pipeline, and a gas processing plant onshore.

In signing the heads of agreement, Husky noted that appraisal and front-end engineering design are complete. It expects to submit the development plan to regulatory authorities in early 2011.

Husky continues to hold 49% working interest for Liwan 3-1. Production is to start in late 2013 and ramp up through 2014.

Husky's other Asia-Pacific assets include gas discoveries the Liuhua 29-1 and Liuhua 34-2 gas discoveries on Block 29/26, the producing Wenchang oil field off China, and growth opportunities at Madura BD and MDA gas field off Indonesia. The company also holds the North Sumbawa II exploration block off Indonesia.

RWE has oil find near remote North Sea hub

RWE Dea Norge AS reported an oil discovery it termed "promising" at the Titan prospect near Gjoa field in the North Sea off Norway.

The 35/9-6 S well on the Titan prospect found oil in a 435-m column in the Heather formation, the Brent Group, the Drake formation, and the Cook formation. The company said each reservoir is in a different pressure regime. The well found no oil-water contact.

Preliminary estimates of discovery size are 2 to 10 million cu m of oil equivalent, mostly oil. Minidrillstem tests indicated reservoir quality variations.

The well is in Production License 420 some 96 km northwest of Mongstad and 16 km west of Gjoa oil and gas field, where production began Nov. 7. Gjoa, operated since start-up by GDF Suez E&P Norge, serves as a hub for production from the nearby Vega fields and is likely to host production from other fields during its expected 30-year life (see map, OGJ, Oct. 4, 2010, p. 59).

The Bredford Dolphin semisubmersible drilled the Titan well, which will be permanently plugged, to 3,664 m in Upper Triassic rocks in 370 m of water.

Titan is the first well on the license, and appraisal is needed, the company said. RWE believes the license has further exploration potential.

License interests are RWE Dea Norge operator with 30%, Statoil 40%, and Idemitsu 30%.

Another RWE Dea Norge group made a gas-condensate discovery earlier this year when the 6507/07-14S Zidane well in PL 435 15 km northwest of Heidrun field found 5-18 bscm of gas in the Fangst Group. It was the first exploratory well on that license, and RWE said the possibility of finding more hydrocarbons there is good.

New Brunswick shale results perplexing

Low recovery of frac water and natural gas from two horizontal wells in the Frederick Brook shale near Elgin, NB, is "unexpected and perplexing," said Corridor Resources Inc., Halifax, NS.

The Green Road B-41 well has recovered 1,758 cu m or 10% of frac fluid and no gas to date, and Will DeMille G-59 has recovered 805 cu m of frac fluid or 4% of that pumped and negligible gas. Apache Canada, operator pursuant to a joint venture program with Corridor, is running extensive analysis to determine why the wells have so responded, Corridor said.

Corridor also reports that Apache and Corridor have agreed to conduct tests on the South Branch G-36 oil well.

Apache drilled the wells in mid-2010. Both yielded strong gas shows in the horizontal section while drilling with high mud weights that averaged 1,350 kg/cu m at B-41 and 1,450 kg/cu m at G-59.

Five slickwater fracs were completed in each well with the fracs averaging 230 tonnes of proppant and 3,560 cu m of water. The final frac in the "silty interval" of the Green Road B-41 horizontal well is 630 m from the silty interval of the Green Road G-41 vertical well drilled by Corridor in 2009. That interval in the vertical G-41 well was fraced with propane in 2009 and produced 42.4 MMscf over 185 hr, peaking at 11.7 MMscfd with a final rate of 3.0 MMscfd at about 700 psi.

Steps are being undertaken to recover additional amounts of frac water which could encourage the flow of gas into the wellbore, Corridor said.

"Although the well response to date is perplexing, it is important to recognize that the evaluation of the development potential of the Elgin shale gas resource play is in its early stages," Corridor noted.

Drilling & ProductionQuick Takes

Gulf of Suez well tests 1,700 b/d of light oil

National Petroleum Co., Cairo, said a new well in Shukheir Bay field in the Gulf of Suez about 125 km north of Hurghada, Egypt, has flowed 1,700 b/d of 41° gravity oil during tests.

The operator, Offshore Shukheir Petroleum Co., tested two intervals of the Miocene Kareem sandstone on a ½-in. choke. GOR was 750 scf/bbl.

Open hole logs indicated new potential in the Kareem formation with a total of 18 m of net sand with average porosity of 18% and water saturation of 26%, NPC said.

Further tests are planned to delineate reservoir size and volumes.

NPC expects the well to produce at an average rate of about 1,500 bo/d during the coming year.

Offshore Shukheir Petroleum is a joint venture of NPC unit Petzed Investment & Project Management Ltd. and Egyptian General Petroleum Co.

Zubair output hits cost-recovery threshold

Crude oil production from Zubair field in southern Iraq has achieved the 10% boost triggering cost recovery for companies redeveloping the field under a technical service contract.

Zubair production has climbed to 201,000 b/d from 183,000 b/d, its level when the contract took effect last Feb. 18. Members of the contractors' group now earn a remuneration fee of $2/bbl on incremental oil production.

Eni SPA is lead contractor with a 32.81% share. Other group members are state-owned Missan Oil Co. of Iraq, 25%, Occidental Petroleum Corp., 23.44%, and Korea Gas Corp., 18.75%.

The group expects to invest $20 billion under the 20-year contract with state-owned South Oil Co., targeting production of 1.2 million b/d within 6 years. The contract term can be extended to 25 years.

When it received the contract, Eni said the project would include the drilling of more than 200 wells, construction of treatment facilities and the required collection network, and refurbishment of existing plants.

Eni estimates Zubair holds recoverable reserves exceeding 6 billion bbl.

Underground coal gasification proposed

Clean Global Energy Ltd. intends to purchase an existing Farrell Cooper Mining Co. coal mine and supply syngas generated from underground coal gasification to AES Corp.'s Shady Point power station, near Panama, Okla. The mine site is about 15 miles from the power station.

For Stage 1, the Australian company plans to produce sufficient UCG syngas to generate as much as 25 Mw of electricity by mid- to late 2012. Its planned Stage 2 will expand the UCG facility to produce enough syngas to generate 100 Mw of co-fired power at the AES power station. The final Stage 3 will increase syngas production to generate 300 Mw by mid-2015.

The company envisions Stage 3 to entail the AES Shady Point power plant adding a new combined-cycle gas-fired generator to its existing generating capacity.

Clean Global Energy estimates that the UCG project cost for the full 300-Mw syngas plant is about $140-150 million (Aus.) and will generate revenues at full production in excess of $41 million (Aus.)/year.

The company uses a process called linear controlled retractable injection point underground coal gasification to produce syngas. In the process, the raw UCG syngas from the production well passes through several processes to produce regular, premium, or ultra syngas depending on market requirements.

Clean Global Energy expects to formalize binding agreements with AES and Farrell Cooper within the next 120 days, during which time it will seek regulatory amendments and approval to use the mine site for UCG production along with easement access for a 15-mile pipeline and funding commitments.

The company currently has projects in Australia and Inner Mongolia, China. It expects to complete its $400 million Inner Mongolia UCG project in stages over 3 years.


FTC: US ethanol market still unconcentrated

The US ethanol market is still unconcentrated, with 160 firms nationwide either producing the motor fuel additive or likely to be producing it in the next 18 months, according to the Federal Trade Commission in its sixth annual report.

The annual examination, which is required under the 2005 Energy Policy Act, found that there were the same number of US ethanol producers as of Sept. 30 as the federal antitrust regulator listed in its 2009 report.

It said the largest producer's share of total US production capacity grew to 12% this year from 11% in 2008 and 2009, but remained below its 16% share from 2001 to 2007 and its 41% share in 2000. The Dec. 3 report did not identify the producer.

Ethanol production and production capacity both increased this year, the report said. US production increased 23% to 12.3 billion gal in 2010 from 10 billion gal in 2009, reaching a level more than 750% of what it was in 2000 when it was 1.6 billion gal, it said.

"Domestic ethanol production capacity, including capacity under construction, also rose from 14.5 billion annualized gal as of October 2009 to 15.2 billion gal as of October," it continued. "Industry participants expect some of the expansion projects currently under way to come online by the end of 2010."

The report said that while there is enough ethanol production capacity in existence and under construction to meet federal Renewable Fuel Standard requirements this year, additional capacity will be needed to meet future RFS mandates under the 2007 energy Independence and Security Act, including volume requirements for advance biofuels (defined as cellulosic ethanol and other biofuels derived from feedstocks other than corn starch).

It said that while there is no commercial-scale cellulosic ethanol production in operation today, investment in its research and development is continuing.

PBF unit to buy Toledo refinery from Sunoco

Toledo Refining Co. LLC, a wholly owned subsidiary of PBF Holding Co. LLC, has agreed to buy Sunoco Inc.'s 170,000-b/d refinery in Toledo, Ohio, for about $400 million.

PBF Holding earlier bought two refineries—in Delaware City, Del., and Paulsboro, NJ—from Valero Energy Corp. (OGJ, Oct. 4, 2010, Newsletter).

Sunoco has been trimming operations, last year shutting its 150,000-b/d refinery at Eagle Point, NJ, and selling an 85,000-b/d refinery in Tulsa to a unit of Holly Corp.

It retains refineries in Philadelphia (330,000 b/d) and Marcus Hook (175,000 b/d), Pa. It also has shed polypropylene manufacturing assets.

The Toledo refinery has 60,000 of fluid catalytic cracking, 45,600 b/d of semiregenerative catalytic reforming, and 28,200 of catalytic hydrocracking (for diesel upgrading) capacity.

CPC Talin refinery due desulfurization unit

CPC Corp. of Taiwan let contract to Jacobs Engineering Group Inc. for a desulfurization unit at its 300,000-b/d Talin refinery in Kaoshiung, Taiwan.

The unit will be the first to combine the contractor's proprietary Euroclaus technology with proprietary DynaWave sulfuric acid technology of MECS Inc., Jacobs said.

A CPC upgrade of the refinery includes addition of an 80,000-b/d residual fluid catalytic cracking unit (OGJ, June 1, 2009, Newsletter).


El Paso, KKR form midstream joint venture

El Paso Midstream Group Inc., a subsidiary of El Paso Corp., and Kohlberg Kravis Roberts & Co. have created a midstream joint venture covering producing areas from Utah to Pennsylvania to Texas. El Paso Midstream will operate the venture, with each company owning 50%.

KKR will acquire a 50% interest in El Paso's Altamont gathering and processing assets in the Northern Uinta basin, Utah, for $125 million. These assets include about 800 miles of pipelines, 3,800 b/d of fractionation capacity, and 40 MMcfd natural gas processing capacity, serving both El Paso Exploration & Production Co. and third-party producers. El Paso expects to increase its drilling activity at Altamont from a current two-rig program to three rigs in 2011 and six rigs by 2013.

KKR and El Paso will also each invest up to roughly $500 million in future midstream projects including, but not limited to, the Marcellus Ethane Pipeline System in the Marcellus shale and the Camino Real Pipeline in the Eagle Ford shale in South Texas. El Paso is partnering with Spectra Energy to develop MEPS, and is seeking a partner for Camino Real.

KKR and Houston independent Hilcorp Energy Co. agreed in June to form a partnership to develop Hilcorp's 100,000-net acre Eagle Ford holding (OGJ, June 28, 2010, p. 8).

Rangeland to build North Dakota oil terminal

Rangeland Energy LLC will build, own, and operate a crude oil loading terminal and pipeline in Williams County, ND, serving the Bakken and Three Forks shale oil producing areas. Rangeland expects the COLT Hub and COLT Connector terminal and pipeline facilities to enter service by December 2011 as the first open-access oil marketing hub in North Dakota.

Rangeland filed a letter of intent with the North Dakota Public Service Commission Nov. 24 to build the COLT Connector, a 20-mile, 40,000 b/d crude oil transmission pipeline in Williams County. The pipeline will connect Rangeland's planned oil terminal, the COLT Hub, located near Epping, ND, to a point of interconnect with multiple existing and planned oil pipelines 8 miles south of Tioga, ND.

The COLT Hub will aggregate oil produced in Williams and neighboring counties using gathering pipelines and trucks. The hub will also provide oil handling and storage services through on-site tankage and access to multiple downstream oil markets through the COLT Connector and 60,000 b/d railcar loading facilities. Rangeland will initially build two 90,000 bbl tanks and one 30,000 bbl tank for a total of 210,000 bbl on-site storage. As demand grows, Rangeland has acquired the acreage to continue building tanks and expanding on-site storage capacity.

Served by BNSF Railway Co., the COLT Hub will load both unit-train and manifest shipments of oil to markets throughout North America, including crude oil receiving terminals along the Gulf Coast.

Velocity begins construction of gathering system

Velocity Midstream Partners LLC has begun construction on the initial 53 miles of its oil and condensate gathering system for Rosetta Resources Inc. and other producers in the liquids-rich portion of the Eagle Ford shale. Velocity expects Phase I of the gathering system, including a truck-loading terminal near Catarina, Tex., to be in service by January 2011.

Plans and agreements supporting Phase II construction of a pipeline from Catarina to the Gardendale Hub are progressing, as Velocity focuses on oil and condensate transportation and storage for Webb, Dimmit, La Salle, and surrounding Eagle Ford counties.

Rosetta had reached total depth on seven Eagle Ford wells as of June, saying that about 80% of their value consisted of liquids. The lateral length of the seven drilled wells averaged 4,650 ft, roughly a 20% increase compared with Rosetta's two 2009 horizontal wells. Three of the seven drilled wells were fracture-stimulated during first quarter with 12-14 frac stages/well (OGJ, May 17, 2010, p. 38).

Chesapeake Energy Corp. expanded its Eagle Ford acreage and Marathon Oil took its first stake in the play, both in late November (OGJ Online, Nov. 30, 2010).

More Oil & Gas Journal Current Issue Articles
More Oil & Gas Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com