OIL COMPANIES INCREASINGLY EYE NATURAL GAS
Published November 09, 2010 | Associated Press
Pretty soon, Big Oil will be more like Big Gas.
The major oil companies are increasingly betting their futures on natural gas, with older oil fields producing less crude and newer ones either hard to reach or controlled by unfriendly nations.
They are focusing more than ever on natural gas because it burns cleaner than oil and is gaining traction as a fuel for transportation. The latest move came Tuesday, when Chevron made a $4.3 billion deal to buy up natural gas fields in the Northeast.
Earlier this year, Exxon Mobil bought XTO Energy to become America's largest producer of natural gas. And Royal Dutch Shell expects natural gas to make up half its total global production in two years.
"If you look at most of the big developments now, they're not about oil, it's gas," said Oppenheimer & Co. analyst Fadel Gheit.
The world will continue to run on crude oil for years to come, but even with new discoveries, oil production is expected to flatten out during the next few decades, according to the latest estimates from the International Energy Association.
Far down the road, Gheit believes, Exxon and Shell will lead the energy industry into a new era where oil companies devote most of their efforts to producing natural gas. The Energy Information Administration expects worldwide natural gas production to increase 46 percent from 2007 to 2035,
compared with a 30 percent increase in world production of crude and natural gas liquids.
Gas is becoming more attractive to the oil companies because it's more accessible. While OPEC controls most of the world's oil reserves, it controls less than half of the natural gas reserves.
In the United States and Europe, natural gas is primarily used to heat homes. About three in five American homes use it for heat. And more and more power plants are using it to generate power. Natural gas is used to generate 23 percent of electricity in the U.S., up from 16 percent a decade ago.
If the country focuses more on reducing greenhouse gas emissions in years to come, the trend should accelerate. Natural gas emits less carbon dioxide than other fossil fuels. Natural gas is used in small amounts for transportation in the U.S., mostly for city buses and garbage trucks. The oil industry is pressing Congress to add financial incentives for trucking and freight companies to convert their fleets.
Until recently, Big Oil watched the rise of U.S. natural gas from the sidelines, and smaller companies drilled into underground layers of shale. New techniques allowed companies to drill
parallel to the ground and hit previously tough-to-reach deposits, helping them tap ever larger bounties of shale gas. Production costs fell. Drilling rigs started popping up along America's shale-rich regions in Appalachia, Texas and North Dakota. Experts now say the U.S. is sitting on enough natural gas to last the country for the next century.
This year, Big Oil jumped in. Exxon bought XTO for more than $30 billion, immediately making it America's largest natural gas producer. XTO so far has helped Exxon increase its natural
gas production by 50 percent.
Then Shell agreed to buy East Resources Inc. for $4.7 billion, and China's state-owned offshore oil and gas company, CNOOC Ltd., invested $2.16 billion in oil and gas fields owned by Chesapeake Energy
.
Production jumped to 1.94 trillion cubic feet in August, the highest monthly total since January 1973, according to available government data.
"Production is screaming," said E. Russell Braziel, managing director of BENTEK Energy, which tracks natural gas prices in the U.S.
The U.S. now holds about 3.82 trillion cubic feet of natural gas in storage, about 10 percent more than the average over the past five years. And the industry keeps pumping more out of the ground.
There are challenges. The same low prices that make the assets affordable have caused some companies, namely ConocoPhillips, to pull back on production. Natural gas has dropped about 24 percent this year.
And people near shale rigs complained that groundwater supplies were contaminated by the industrial chemicals used in the drilling process. The Environmental Protection Agency is studying the possible effects on drinking water and the public health.
Still, most of the big companies continue to press ahead with multibillion-dollar acquisitions.
"When the market is weak, that's when it's time to act," Argus Research analyst Phil Weiss said.
Views: 23
Replies to This Discussion
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Permalink Reply by adubu on -
As Warren Buffet always said buy when blood's in the street. NG is cheap now but invest not for today but for tomorrow. Reminds me when not but a decade ago crude was < $10 barrel. NG may do similar in next decade or more.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Yes, it's Fire Sale Season. Or the beginning of it. Timing the bottom of any commodity price cycle is always iffy. However, the Oil Majors not only have the financial ability to wade into a depressed asset value environment with cash to acquire those assets but the ability to influence national energy policy once they have secured their shale gas asset positions. It will make for an interesting test of clout in the next Congress. My prediction is that Big Oil will prevail and the next national energy bill will provide significant incentives for increased use of nat gas while beginning the process of eliminating the most inefficient and polluting of coal fired electrical generation plants. As a sop to the Coal Lobby, the legislation will provide for additional funding to develop "Clean Coal". It will be the beginning of the end of coal but that end will come long after I'm gone. It's just a reality of U.S. politics.
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Permalink Reply by MARG on
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Skip, it seems that natural gas will come into being great long after some of the wells are depleted and some of us are gone. WE NEED THE USES AND THE PRICES NOW. LOL
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Permalink Reply by Skip Peel - Mineral Consultant on
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Most of the wells should be commercial for twenty plus years. And it may take 10 or more years to drill all 8 or 16 in a section. The Haynesville Play will produce gas for 50 years. Yes, some of us here for the beginning will not be there for the end but I think the vast majority of that gas will be produced under higher prices. If the darn economy would improve and the Congress would recognize the opportunity and pass a logical energy bill, we could be back in the $6 - $7 range within two years. MARG, I hope you can stick around that long. LOL!
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Permalink Reply by JeffNParis on
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Skip....is it possible they'll drill 16 wells in a section? How would that work?
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Permalink Reply by JeffNParis on
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Thanks GD,
We're in the southern-most part of Caddo Parish (15-15-6) and I don't think the Bossier Shale comes up that far, does it?
Jeff
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Permalink Reply by JeffNParis on
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It's ok GD....I did look at some maps and at this point, I don't think the BS comes up to us. Thanks!
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Permalink Reply by Skip Peel - Mineral Consultant on
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Think 3D. Eight wells on eighty acre spacing at 11,500' and eight on eighty acre spacing at 10,700'. Those are arbitrary depths but the laterals would be approximately 800' apart vertically. The important part of the equation for the operators is that all the wells regardless of the exact number would be served by the same infrastructure. And the process of drilling alternate unit wells would be repeatable thus the references made to shale development being more like manufacturing than traditional exploration and production from unconventional reservoirs.
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Permalink Reply by JeffNParis on
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Thanks Skip. I'm guessing that 15-15-6 in southern Caddo Parish is just the Haynesville. Are there any other known goodies under us?
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Permalink Reply by Skip Peel - Mineral Consultant on
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Yeah, I don't think the Bossier would be productive however it does appear that you have Cotton Valley prospects in 6. The surrounding wells aren't great but 6 may get drilled in the future under higher gas prices.
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Permalink Reply by JeffNParis on
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Thanks Skip. Good to know!
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