Sunday, August 30, 2009

Alberta Clipper

Canada is hard at work providing heavy crude oil to the U.S. This article reports the U.S. approval of the Enbridge Alberta Clipper project (Link to project details). According to Enbridge the pipeline will carry 450,000 bbl/day in addition to another 1.6 bbl/day carried by other pipelines.

What does this mean to projects like the Alaska Gas Pipeline? - Nothing directly other than we should take note of the ongoing current and future demands for gas to fuel extraction of oil from the Canadian tar sands. Oil extraction requires about 1 BTU of energy for every 6 BTU of oil produced.

By my estimation production of 450,000 BOE/D tar sand oil requires about 435 MMSCFD of gas or about one tenth of the capacity of the Alaska Gas Pipeline. That gas has to come from somewhere and it might as well be from Alaska.

Projects like the Alberta Clipper and the Keystone Pipeline (500,000 bbl/d) point to the need to supply the Canadian Tar Sand projects with natural gas for the long term.

Maybe $2.75/MMBTU shale gas from East Texas can do the job, but then again maybe not.

Sunday, August 23, 2009

Economics of Natural Gas

Wow! NYMEX Gas dipped below $3/MMBTU last week. Here's brief article from the Economist discussing the current trends in natural gas (LINK to "The economics of natural gas - Drowning in it").

Here's the EIA chart on gas storage. This graph shows that current storage is above the history maximum (click to expand image).

Prices below $4/MMBTU and maxed out storage will tend to shut in some wells (deferred production) and slowdown exploration and development of new fields. Long term cheap gas will drive more electricity producers to gas vs. coal.

Of course the gas market is too complex to draw a conclusion about the future of the Alaska Gas Pipeline from a single data point in late August. New demand will come on line and old demand will come back as the recession eases.

Key an eye on crude as the price tops $70/bbl. Tar Sand crude still looks like the future and arctic gas will supply the energy to produce it.