Weekly Recap

On April 1, 2013 five students from the University of Colorado were given the opportunity to start this thenaturalgas ALTERNATIVE blog  to inform our readers about natural gas as an alternative source of energy and to emphasize its driving force behind a more sustainable future.

Throughout the course of this blog we will be discussing the concerns about natural gas based on the principles of its exploration, development, scientific background and environmental impacts, which will all be our main focus points. A few other areas of emphasis may include natural gas as a bridging technology and its transportation networks, natural gas as an automotive fuel, its impact on economic growth and a whole bunch more.

This week, we touched briefly on some major US natural gas companies who have contributed copious amounts to the health care systems, with Cabot Oil and Gas leading the way and many others following in their footsteps. Their contributions provide a positive image for natural gas and are having major impacts on health care.

Another topic discussed this week was about the breakthrough in the development of floating liquefied natural gas and how Shell is leading the charge. Shell has set forth what is known as the Prelude Project, in which shell is poised to be the first company in the world to create a vessel which can extract remote deposits of floating liquefied natural gas.

This post goes hand in hand with the discussion on US exports of natural gas controversies. Both give a nice contrast to the other and provide the readers with both positive examples within natural gas production and the road bumps companies face in this market.

We hope you enjoyed reading the discussions this week and we look forward to providing you with more discussions in the future.

Liquefied Natural Gas (LNG) Export Controversies in the US

For the past 20 years, the US has been an importer of natural gas with an average of 15.7 percent of its annual consumption coming from Canada. However, the production of this resource in the US has risen over 25 percent since 2005, which comes primarily from the previously inaccessible shale deposits deep in the earth, and is expected to continue growing in the future.

Presently, the production of natural gas in the US is greater than its national consumption and is causing quite the controversy on whether or not the US should export the resource in the global market. A few years ago, liquefied natural gas (LNG) import terminals were constructed across North America in response to the country’s diminishing natural gas supplies. Today, due to the rise of production, major natural gas companies in the US are trying to convert these terminals into export terminals which will transport LNG overseas.

Cheniere Energy Inc., a natural gas company based out of Houston, TX, is the only company in the US with an approved LNG terminal. It was in January of 2012 when Cheniere Energy was given approval by the Department of Energy to export LNG through its Sabine Pass Liquefaction terminal in Cameron Parish, LA, which has the potential to ship up to 2 billion cubic feet of gas per day by the year 2015. The company also intends to open a new export terminal in Corpus Christi, TX by 2017 but will only see production if Cheniere gets the approval.

Chevron’s Gorgon project in Australia.

Other US natural gas companies, who are unable to export domestically, have turned to alternative plans by building exporting facilities on foreign soil (where there are little to no restrictions on natural gas production). For example, Chevron Corporation is one of the leading suppliers of LNG exports with its Wheatstone and Gorgon projects in Australia. The Gorgon Project is Australia’s largest single-resource project, with a 15 million-metric ton per-year LNG facility.

KBR Inc., another US company, is a leading LNG production facility developer, with already having constructed over 40% of LNG facilities around the world.

What is causing all the controversy over exporting LNG?

Industrial consumers of natural gas are worried the exportation of natural gas will increase oil and natural gas prices as well as their production costs.

Alliances are starting to form together and fight against the approval given by the Department of Energy for exporting natural gas. The alliances include utilities dependent on natural gas to fuel electricity generation, chemical companies that use it as a feedstock for making myriad industrial chemicals, and heavy industrial users such Alcoa and Nucor who use natural gas to fire their metal-making operations.

America’s Energy Advantage, a group backed by six large industrial companies including Dow Chemical, Huntsman, and Alcoa, believe tens of billions of dollars for potential investment in US industry are at risk if the government allows for the substantial increase in exported LNG. The group also argues an increase in exporting LNG will hurt the US economy by eliminating domestic jobs and increase natural gas prices.

Today the US price of natural gas is $3.27 per thousand cubic feet, compare this  price to those in the world market, you will see the Europeans pay upwards of $12 per thousand cubic feet and the Japanese pay more than $17. If the US were to start exporting, domestic natural gas prices will increase significantly.

It looks like right now the controversies surrounding natural gas production and exportation in the US will only get resolved if there can be an agreement on some sort of compromise otherwise the issue will never go away.

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Shell Floating LNG Plant

The most recent big development in the area of natural gas exploration is the movement towards FLNG or floating liquefied natural gas, and Shell is leading the charge.  With the development of their Prelude project, Shell is poised to be the first company in the world to create a vessel or platform which can extract remote deposits of LNG according to Bloomberg.  The ability to tap additional reserves of LNG means not only advancement in the movement towards natural gas energy but further economic development for Australia and less environmental impacts.

The $10.8-12.6 billion project means constructing the largest vessel on Earth at a weight of 600,000 tonnes and a length nearly equal to that of the Empire State Building.  The construction of the hull began at Samsung Heavy Industries in South Korea in 2009 and the project is set to begin operation over the Prelude LNG reserve in 2015.  The vessel will be towed to the Prelude reserve after completion and moored at said location for 25 years.

Extracting LNG from remote deposits at sea has always been a sought after goal for natural gas companies but was never economical because locations were either too remote or the costs were astronomical with the amount of pipeline and energy it would take to get the LNG to coastal plants.  Thanks to groundbreaking technology however, scientists have found that by chilling the extracted LNG to -162 degrees Celsius, the volume of LNG can be shrunk by 600 times what it is in its natural state.  Thus allowing for enormous amounts of LNG to be shipped to mainland rather than pumped through pipelines.

The benefits for northwest Australia and Australia as a whole will be immense both environmentally and economically.  The permits to build LNG plants on land in Australia have become few and far between recently and with seven plants currently under construction, they will be even more rare to acquire.  In a sense, the LNG industry is capped at the moment in Australia with nowhere to expand to.  However with the arrival of FLNG plants, the gates are again open for companies to explore and tap previously inaccessible LNG reserves, meaning many more jobs for Australian workers and more money for Australia to tax.

Not only is the development of FLNG good for the Australian economy, it is also a more environmentally responsible means of natural gas extraction.  Thanks to the ability to condense the extracted LNG for transportation, pipelines are virtually eliminated in this segment of the market meaning that there is more LNG production with no more pipelines taking up land.  LNG plants are also more environmentally friendly because it again adds to LNG production while not needing land to be developed for roads, laydown areas, and accommodation facilities.

FLNG plants are becoming a significant part of LNG exploration. With their potential to provide more LNG, stimulate the Australian economy, and do so in a more environmentally responsible manor, this will likely become a much more popular form of exploration and extraction for companies around the world.

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Natural gas distributors hedging risk

Cash flow for natural gas distributors is seasonal (about half of U.S. homes are heated using natural gas), varying with demand for heating.  And while demand for natural gas this winter has been stronger than usual, the coming summer months are full of uncertainty. So what are the options for a natural gas distributor when it comes to hedging risk?

Natural gas distributors are applying their industry knowledge towards electricity generation, gas marketing, and energy trading. One option, that BG Group has successfully explored, is the sale of natural gas to developing nations. BG Group has been looking to hedge its risk in the United Kingdom natural gas distribution industry by moving abroad but up until recently, most countries have been hesitant to enter into long-term contracts. BG Group, a natural gas company based in London, completed its first agreement to sell Liquefied natural gas to India, a nation that is quickly growing and whose energy needs are rising sharply.

BG has agreed to supply a state-owned utilities company (Gujarat State Petroleum Corporation Ltd.) with up to 2.5 million metric tons of Liquefied natural gas per year, the Wall Street Journal reports. The contract will last for 20 years.

Last year, BG Group sold its stake in a Brazilian gas distributor as part of its strategy to move away from solely distribution and transmission. BG Group has shifted its focus to exploration, production, and marketing of natural gas, most recently Liquefied natural gas.

India’s natural gas demand is expected to triple by 2025, providing BG Group with a bright outlook for the future. BG Group’s Chief Executive, Chris Finlayson forecasts that by 2025, India will be 3^rd in natural gas importers, below China and Japan.

BG Group isn’t placing all its bets in marketing to India, however. The company has been exploring new areas of the globe for natural gas. This has led to its current interest in Tanzania, a country in East Africa. BG Group completed its appraisal of offshore Tanzania and plans to use it as a new natural gas resource. Many other companies have started looking at East Africa as a source of natural gas, including Exxon Mobil, Statoil, and Royal Dutch Shell. BG is currently selecting an on-shore Liquefied Natural Gas terminal.

When it comes to hedging risk for natural gas distributors, some deserve the medal, like BG Group for leveraging their knowledge of the natural gas industry to move away from simple distribution and towards natural gas marketing and exploration.

Cabot Oil & Gas and Chesapeake Energy

Many Natural Gas companies around the world are going beyond the call of duty to help their local communities. I am going to take this time to tell you about a few companies, Cabot Oil & Gas and Chesapeake Energy, which have certainly gone beyond the call of duty and have influenced others to follow in their footsteps.

In February last year, Cabot Oil & Gas became a leading partner with the Endless Mountains Health Systems. They are partnered on a $45 million hospital project in Montrose. A spokesman for Cabot said, “Similar to job and education, health care helps define a community. Cabot plans to invest heavily in all three. We plan to be a major partner on this project all the way through to completion.”

Cabot did exactly that and stayed true to their word through the year. They start by donating $1million as a leadership gift to the project fund. Throughout the rest of the year Cabot continued donating funds and matched every dollar raised. By the end of the year Cabot was voted “Business of the Year” by the Susquehanna Economic Development Board and the Progress Authority.

During the time they were raising funds for the hospital project, they had a Chili Cook-off which inspired another natural gas company, Williams, to hold its own Barbecue Cook-off in Nicholson to benefit the United Ways of Wyoming County.

Chesapeake Energy has also been working with their local United Way. In October 2012 Chesapeake became the first-ever corporate sponsor for the Bradford County’s United Way 2013 Campaign. The United Way wrote them a thank you letter where they said, “We are excited to work with Chesapeake Energy during our 2013 Campaign and very pleased with the Partnership. We look forward to continuing to work together in the future. Together, we’re building a better community for all of us, and that’s what matter.”

Apart from supporting the United Way, Chesapeake has also been extremely helpful in the ongoing flood recovery efforts in Bradford County. According to the 2012 Northeast Driller, Chesapeake Energy donated $10,000 to the Athens Township Fir Department and $20,000 to the American Red Cross to assist them in their flood relief efforts. During the Northeast Driller’s Golf Tournament, Chesapeake was further recognized for their relief help and was presented with the Community Service Award from the Northeast Driller Publisher Greg Zyla.

It is great to see so many Natural Gas Companies going beyond the call of duty and helping their local communities in times of need.

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The Issue and Structure

America and indeed the world has an ever growning need to expand. Humanity continuously moves forward and settles new lands. We discover new ways to create luxuries that uplift our lives and increase our ever growing need for energy. However, for this growth to continue to be a reality, humanity must find a new energy source. Our current means of powering the world have begun to decline and worst yet contribute it deteriorates the climate and increases the  level of pollution worldwide. For this reason 5 students from the University of Colorado have come together to put forth what we believe to be a current solution to the worlds dwindiling enregy supply.

We highly believe for reasons we will spell out throughout this blog that Natural Gas will be the energy source that allows us to begin to address the issues of climate change and pollution. As well as help further develop technologies that will contribute directly and have spill over benefits to sustainable energy sectors such as more efficient generators, power plants and energy transportation and storage.

Make no mistake about the harm that can come from the misuse of  Natural Gas. There are many environmental problems that can arise if it is not generated and extracted in a safe and reliable manner. For this reason we will also address the dangers of Natural Gas and ways to help prevent them.

We strongly encourage anyone to join our blog and become a contributing member. Natural Gas is on track to play a significant role in all of our lives no matter where we stand on the position and it would benefit everyone from investors to curious parties to learn more about the issue and the publics stance.

Though out this blog Jaylen, Arnas, Alex, Cory, and Rachel will deliver findings, studies and reports on what we believe to be the bridging fuel that will take us from our reliance on fossil fuels to a sustainable future. We will use multiple platforms and we highly recommend people to post other sources of information and studies they believe are relevant.

During the course of this blog we will have multiple subsections. We hope that readers will be able to jump in and out based on the desired topic areas. Wherein, we will have more specified discussion on the issues. Our areas of focus will be based on principles of exploration, development, scientific background and environmental impacts. Some discussions will be solely informative while others will be purposefully given an opinion to help spark debate amongst readers. We are excited to speak about the following sections in the future…

• Natural Gas as Automotive Fuel
• Hydraulic Fracturing
• Industry Insights
• Natural Gas as a Bridging Technology
• Natural Gas Transportation Network
• Natural Gas Creation & Technological Impact on Development
• Environmental Impacts
• Exploration
• Impacts on Economic Growth

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