Losing Our Shirts on Natural Gas

So it's official - Exxon is not happy with dirt cheap natural gas (LINK):

On Wednesday Exxon Chief Executive Rex Tillerson broke from the previous company line that it wasn't being hurt by natural gas prices, admitting that the Irving, Texas-based firm is among those hurting from the price slump. 

"We are all losing our shirts today." Mr. Tillerson said in a talk before the Council on Foreign Relations in New York. "We're making no money. It's all in the red."

Alaska Pipeline Project - FERC Filing

LINK to Alaska Pipeline Project draft resource report:

NovaGold - LNG Imports

NovaGold has completed the updated feasibility study for the Donlin Creek project.  It's good reading and looks like a great project if it gets funded.  Alaska Gas angle - The project will build a 300 mile 12" diameter gas line to transport gas from the Anchorage area. The project will depend on gas from IMPORTED LNG. (LINK) and quote:

Natural gas will be delivered to site by a 500-kilometer-long, 12-inch-diameter pipeline. It will serve as the energy source for on-site power generation. This natural gas pipeline is a lower-cost alternative to the previously considered barging of diesel fuel. Operating costs include importing liquefied natural gas ("LNG") by ship to Anchorage and total delivery costs to site which includes ship based regasification of the LNG and delivery from Anchorage to the Donlin Gold project via the pipeline. There may be an opportunity in the future to source natural gas from within Alaska

I read this as LNG gas plus a small pipeline is the baseline cost that doesn't depend on other projects.  They can always switch to Alaskan gas when and if that becomes available.  If the project goes forward it would make a great anchor customer for some of the proposed Alaskan gas pipeline projects.

The Txchnologist

Interesting new e-zine, the Txchnologist, info from GE. As builders of combined cycle turbines they support development of natural gas.

The e-zine is somewhat shale gas centric, aside from that there's some good information there.

Thanks to Alaska Dispatch for posting a story about the e-zine.

BG outlook for LNG

Check out this presentation by BG: (LINK)

Items of note: Use of LNG will be constrained by supply. There's also a good table showing the cost of shale gas on page 52. The shale gas cost page supports my view that the longer term gas price will approach $6/MMBTU vs. free.

Long story short - there's still a market for Alaskan natural gas.

MIT: The Future Is A (Natural) Gas

From the Forbes blog (LINK): MIT has published an interim report titled "The Future of Natural Gas". The theme is carbon foot print theme in which shale gas comes to the rescue. The Alaska Gas Pipeline get mentioned as a future resource:

Around 15% of the U.S. resource is in Alaska; full development of this resource will require major pipeline construction to bring the gas to market in the lower 48 states (L48). Given the current abundance of L48 supplies, development of the pipeline is likely to be deferred yet again, but this gas represents an important resource for the future.

Alaska's methane hydate gas resource is mentioned:

Methane hydrates are unlikely to reach commercial viability for global markets for at least 15 to 20 years.

The report concludes

The share of natural gas in the energy mix is likely to be even larger in the near to intermediate term in response to CO2 emissions constraints.

I guess it's a given that our future energy policy will be crafted around the idea of climate change. Coal will become illegal, maybe nuclear will produce power for electric cars someday, but you can put nasty ole petroleum in your SUV or buy a combined cycle gas turbine power plant today for a lot less capital investment.

Point Thomson Success

ExxonMobil Reaches Target Depth at First Point Thomson Well.

Plan the work, work the plan - What's not to love about this news? Politicians be damned. This team has a plan to develop the gas that will fill the pipeline.

From the Press Release: ExxonMobil drilled the well to a measured depth of over 16,000 feet. The shore-based rig directionally drilled under the Beaufort Sea to the targeted gas reservoir more than 1.5 miles offshore.

“This is another successful milestone for the Point Thomson project,” said Dale Pittman, ExxonMobil Alaska production manager.

ExxonMobil Senior Project Manager Lee Bruce added, “PTU-15 pushed the limits of drilling technology and demonstrated that the Point Thomson drilling plan is sound.”

The rig will be moved to the second development well at Point Thomson (PTU-16) and continue drilling. Work continues on front-end engineering and design for the initial production system.

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.