TPT September 2011

G lobal M arketplace

During the first three months of this year, according to the most recent available data, the Gulf has contributed just 7.4 per cent of total US production. In earlier years a storm-related shutdown would have a “logarithmic” impact on natural gas prices, Brian Habacivch, of the energy consultancy Fellon-McCord, told the Journal . “But now, he said, “You’re operating under a surplus and abundance, so that has really pulled the plug on hurricane-season fears.” › Mr Dezember observed that some people even view hurricanes as having the potential to push natural gas prices lower. The rationale here: the same storms that clip offshore production can also decrease onshore demand by knocking out power along the coast and shutting down big users such as refineries and petrochemical plants. “Not to mention the cooler temperatures that typically follow a hurricane and lessen the need for air conditioning,” Kyle Cooper, managing partner IAF Advisors, reminded the Journal . In Mr Cooper’s view, “Tropical storms over the next season or two are highly likely to be net bearish for natural gas.” With excitement running high over the Marcellus and Utica Shales in the US, drilling leases need to be well understood Large diversified oil and gas companies are rapidly buying up smaller players in the Marcellus Shale natural gas play that extends throughout much of the Appalachian Basin of the US. As noted by geology.com (10 June), Exxon Mobil recently spent $1.7bn to acquire Phillips Resources and TWP. Those transactions followed Chevron’s recent purchase, among others, of Atlas Energy for $4.3bn. But the Marcellus, as geology.com had observed previously, was only “the opening act.” The Utica Shale, a rock unit located a few thousand feet below the Marcellus, is also being touted as an enormous potential natural gas resource. Thicker than the Marcellus, the Utica is more geographically extensive. In the US it underlies portions of Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia. It is also present beneath parts of Lake Ontario, Lake Erie, and the province of Ontario, Canada. Grand prospects for eventual commercial production attract large- scale investment. An anomaly of these situations is that, however much money the energy majors commit to acquisitions and development, they do not own the land that generates their rewards. A query suggests itself: what can the property owners whose soil overlies the Marcellus and Utica Shales hope to realise from hosting their exploitation? Farm and Dairy (Salem, Ohio), a newspaper that has served the rural communities of Ohio, Pennsylvania and West Virginia for 94 years, sought an informed answer. The following, abridged and lightly edited, was prepared for the paper’s readers by two Ohio law firms, in Akron and Zanesville. (“Oil and Gas Leases: Know the Basics,” 10 June)

Oil and gas

Hurricane season 2011: Market-sensitive crude oil and refined products are more vulnerable to the big storms than natural gas The Atlantic storm season which commenced on 1 June will last through November. The US National Oceanic and Atmospheric Administration (NOAA) predicts above-average activity this year: some 12 to 18 named storms, six to 10 of them expected to be hurricanes. The first tropical storm of the season, Arlene, came ashore 30 June on the Mexican (western) Gulf Coast with winds of close to 65mph, and dissipated without doing major damage. A storm must achieve maximum sustained winds of 74mph to qualify as a hurricane. NOAA did not say how many storms would likely make landfall nor how many might enter the Gulf of Mexico and disrupt oil and gas production. As noted by Ryan Dezember of the Wall Street Journal , 2010 also saw an above-average hurricane season; but no significant damage was sustained by the energy infrastructure of the Gulf Coast. Reporting from Houston, Texas, Mr Dezember recalled the major disruptions of 2008 when Hurricanes Ike and Gustav pummelled US offshore oil fields, slashing production by about a million barrels of oil per day and by four billion cubic feet of natural gas. Then, the effect on prices was muted by the recession. But in 2005, the year Hurricanes Katrina and Rita caused similar declines in production, natural gas prices raced higher and oil prices surged. “Today, supply and demand dynamics have significantly changed,” wrote Mr Dezember at the start of the current season. (“Hurricanes Could Jolt Oil Markets, but Unlikely to Rock Natural Gas,” 2 June) He cited data from the US Energy Information Administration (EIA) showing that, in 2005, gas from the Gulf accounted for 16.5 per cent of total US output. By 2010, the Gulf produced less than 10 per cent.

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S eptember 2011

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