Oil shale discovery in South Australia proves significant

By Phaedra Friend Troy

Junior explorer Linc Energy has discovered oil shale in the Arckaringa Basin of South Australia. The Arck 1 well was drilled into the Stuart Range formation, transecting an oil shale reservoir that measures between 406 feet and 124 feet deep and spans some 284,000 acres.

This is a major discovery, and will likely prove extremely profitable for Linc and South Australia.

Initial estimates as to the size of the discovery position the shale to hold more than 200 billion tonnes of unconventional oil.

"This is the first time shale oil has been specifically targeted in South Australia's Arckaringa Basin, which has historically been the focus of coal exploration," said Minister for Mineral Resources Development Tom Koutsantonis. "The discovery at Linc's Arck 1 stratigraphic well in PEL 122 reinforces the prospectivity for shale oil and the Arckaringa Basin."

Shale drilling and development was just made possible in the last decade with the combination of horizontal drilling and hydraulic fracturing. Shale development began in the natural gas shale formations of the Marcellus, Barnett, Haynesville and others in the US.

Operators have now perfected the drilling and development of liquids-rich shale formations, shifting interest to oil and condensate. Rigs are actively drilling the Bakken Shale of North Dakota and Eagle Ford Shale of South Texas, as well as the emerging Niobrara, Utica, Woodford, Wolfcamp and Monterrey Shales.

Other nations are trying to create shale booms of their own, with China, India, Poland and Argentina actively pursuing shale developments.

Nonetheless, this is the first announced shale oil discovery outside of the US, and the positive affect it will have on the economy in South Australia will be major – just look at the jobs forecast in North Dakota and South Texas. (Most hotels and real estate are full, and small towns are booming with oilfield workers and engineers.)

This shale discovery, alongside Western Australia's mega LNG projects and Queensland's innovative coal-seam-gas-to-LNG (CSG-to-LNG) projects may very well catapult the nation to a new high. Certainly, Australia is worth a second look for investments both in the energy industry and all the markets that would support the swelling workforce there.

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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Trucking Industry to Oil & Gas: 'Find more domestic supply'

Most oil and gas professionals are watching oil prices. We're aware of fundamentals and what's driving the current price, whether that’s supply and demand, or economic factors or an edgy market.

Oil prices are important because they determine the success of any given project. As investment decisions and development (and even re-development) projects are undertaken, there is a certain price point that makes any upstream project commercial. Everything over that is just icing on the cake.

Beyond the oil field, the price at the pump can affect demand, as well. American families drive less when gasoline reaches about $4 a gallon, but some consumers cannot afford to simply drive less.

The North American trucking industry is dependent on the oil and gas industry, from upstream to midstream to downstream and marketing. I got a chance to chat with Charles Wilson, the editor of Bulk Transporter, a trade publication that covers the tank truck and storage terminal operations in the US and Canada, about his take on the relationship between our industries.

The implications of increased domestic production are very present in the trucking industry. More oil and gas will help keep prices down, and that will help to keep the North American trucker profitable.

"The number one top question for the trucking industry is: What will diesel cost in coming years?" Wilson revealed.

He explained that trucking fleets are not as concerned with availability, but that the cost of fuel is paramount.

"North America is pretty much awash in diesel," Wilson said. "Fleets are reluctant to consider a switch to different fuels that are not comparable to diesel. Biodiesel is seen as transparent. Natural gas can be used in a diesel engine with relatively minimal modification. It all comes down to cost of the fuel."

While the trucking industry will be required to comply with new EPA regulations starting in 2014 that will call for a reduction in fuel consumption by up to 20 percent, the new trucks will cost more, which simply adds to the industry’s focus on fuel prices moving forward.

"How can the oil and gas industry help?" Wilson said. "Find more domestic supply that will help hold down prices and ensure adequate supply."

With an abundance of natural gas from prolific shale gas developments across North America, natural gas may prove to be the answer -- or at least one of them.

Various projects are under way to build natural gas and LNG fueling stations, and South American petrochemical company Sasol (NYSE:SSL) has just announced that it is looking to build a gas-to-liquids (GTL) plant in Louisiana based on its proprietary technology.

"Natural gas and GTL both hold considerable promise for trucking," Wilson said. "These fuels would make it much easier to meet the GHG reductions. LNG and CNG also are attractive because they offer the potential for much lower fuel costs, which would boost ROI for truck fleets."

While natural gas fleets require a costly upgrade to trucks, the GTL fuel can be distributed using existing infrastructure and used in existing engines.

"We see considerable interest in natural gas among tank truck fleets," Wilson said. "They like the fact that natural gas costs at least the price of diesel on a per-gallon basis, and they see natural gas as a potential cargo, since it will be distributed outside the existing pipeline infrastructure in many parts of the country. LNG probably holds the biggest potential as a cargo for the future."

The oil and gas industry is diligently working to increase domestic production and improve distribution (think Keystone XL pipeline). From the deepwaters of the Gulf of Mexico to Canada's oil sands, from oil shale developments to the potential offshore the East Coast, oil and gas abounds in North America. Now the question is: Will we be able to tap it?

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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Downstream solutions offer new opportunities for upstream developments

Natural gas has typically been a domestic product. Due to its gaseous state, natural gas is usually transported by pipeline, which limits the reach of the production in comparison to crude or other liquids.

Billion-dollar pipelines have been built to transport natural gas resources in the Caspian, Middle East and Russia to hungry markets nearby.

Liquefied Natural Gas

Enter: liquefied natural gas. LNG opened up myriad markets for stranded production or glutted natural gas markets. For decades, countries like Malaysia and Qatar have been transporting natural gas to under-served markets.

Up until very recently, the US was an LNG importer.

By combining horizontal drilling and hydraulic fracturing, prolific shale gas formations across North America have dramatically ramped up production in the US. Not only do US markets not require LNG imports, the country now has too much natural gas, causing the price to drop and some production to be shut-in.

Nonetheless, markets in South America, Europe and Asia are still hungry for natural gas, and many operations worldwide are increasing LNG production to fill that growing need.

A number of companies in the US and Canada are also jumping for downstream solutions to upstream production overloads. Various companies are attempting to reverse LNG import facilities and pipelines to allow Gulf Coast operations to liquefy and export LNG, and there are projects on Canada's west coast to build new LNG liquefaction and export facilities to deliver Horn River Shale production to eager Asian markets.

Gas-To-Liquids

On the other hand, new technologies may help North American markets to better use existing domestic production, rather than export excess natural gas.

This week, South African petrochemical firm Sasol (NYSE:SSL) announced that the company is planning to build a gas-to-liquids (GTL) plant on Louisiana's Gulf Coast. Sasol is presently sturying the feasibility of the downstream project, which would convert natural gas to transportation fuels.

Using a proprietary Sasol technology successfully deployed in other GTL facilities, the Louisiana GTL plant would create GTL transportation fuel that is cleaner-burning than conventional diesel and does not require modifications to be used in existing vehicles and fuel delivery infrastructure.

The GTL solution would offer a new market for area shale production and could possibly offset some crude oil imports.


Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Oil and gas industry fights negative PR

Did you read that actress Daryl Hannah got arrested in front of the White House, protesting the Keystone XL pipeline?

Ugh.

Although a few years have passed since Hannah was thought of as an American Sweetheart, she still holds that spot for many a mermaid lover. Lately she's been kicking up some negative dust around the Keystone XL pipeline.

Proposed by TransCanada (NYSE:TRP) (TSX:TRP) in 2008, the Keystone XL pipeline will transport up to 830,000 barrels of oil a day from Canada to markets in the US, all the way to the Texas Gulf Coast. The $7 billion pipeline project is expected to create some 20,000 American jobs, as well as offer the US much-needed energy security.

Nonetheless, people like Daryl Hannah oppose the pipeline because the source of the energy independence is Canada's oil sands.

Asia, on the other hand, does not have the same aversion to Canada's black gold, and has commercially supported Enbridge's (NYSE:ENB) (TSX:ENB) proposed $5.5 billion Northern Gateway Pipelines, which are also slated to export Canada's oil -- but this time to Asia.

Poor shale also can't seem to get a fair shake. A documentary comes out, and everyone believes it. Now, with drilling and development reaching new highs, shale gas and oil are expected to become the life-saver for growing demand in the country.

Again, negative PR comes in to ruin the day. Instead of news agencies heralding the new technologies that are allowing operators to produce ever-increasing amounts of unconventional natural gas, condensate and oil, they continue to focus on a misrepresentation of the truth.

I even saw that CSI did an episode on hydraulic fracturing. Really?


Where's the Hollywood endorsement for oil and gas? Who's going to step up and support the thousands upon thousands of Americans who earn their livelihoods from the upstream, downstream and midstream segments?

No, oil and gas is not necessarily pretty. It takes hard work, dedication, sweat and risk to develop our nation's natural resources. We've been doing it successfully for more than a century.

Thinking about it: Maybe the industry doesn't need a movie star to publicly support oil and gas -- we've got hard-working Americans, quietly toiling to ensure that US families can afford gasoline, electricity and heat.

Thank you.

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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Successful bomb detection on Oklahoma pipeline supports effective safety measures - expert

Last week, an improvised explosive device was discovered attached to an Oklahoma natural gas pipeline. The FBI and local authorities worked quickly to remove and safely diffuse the bomb, as well as arrest a suspect in the incident.

While much of the country was satisfied knowing that the suspect was apprehended, the oil and gas industry and midstream sector in particular remain vigilant in keeping energy infrastructure safe in the US -- and this attempted bombing is an example of that.

PennEnergy.com was able to get some insight from former CIA officer Fred Enochs, now a partner in Washington, DC-based TD International, a strategic advisory firm. Working in Houston, Enochs specializes in domestic and international energy, finance and commodity trading with a focus on government policy issues and project due diligence.

Enochs contends that the US has ample safety measures in place to ensure security for its pipelines and energy infrastructure.

"Following 9/11, energy infrastructure, including midstream assets, underwent a very thorough review and assessment process which encompassed extensive safety and security risk reviews," Enochs said. "These reviews determined the appropriate measures and response procedures based upon the overall threat, vulnerabilities and consequences."

Because of the amount of pipelines -- thousands of miles -- physically paroling the systems would prove impossible, but high-tech solutions have provided the next best thing. A combination of electronic and control room monitoring, redundancy and response measures help to keep pipelines across the US safe.

"For instance, a typical pipeline is supervised 24 hours a day by control room technicians using systems such as SCADA and checked regularly by field staff," Enochs said. "Of course their main focus is keeping the pipeline in operating order, but security measures are also built into this protocol."

"The risk assessment process also allows operators to focus their security and safety efforts, using tools like surveillance systems and actual manual checks, on the most critical areas of the pipelines thus ensuring the best use of resources," he added.

Enochs contends that our pipelines do not require any increased safety measures such as those enacted, somewhat successfully, in other regions of the world, because of the stable infrastructure in the US today.

Areas in South America, the Middle East and West Africa have a different risk profile than the US, because of increased poverty and greater threat of terrorism, as well as military strife, Enochs stated.

"For instance, in Columbia the FARC was a guerrilla terrorist group which tried in the past to harm the government by damaging pipelines in order to disrupt the nation's energy supply; while in the Nigeria Delta today you have various groups competing for political and economic power using pipelines and the country's energy infrastructure as a weapon in their arsenal," Enochs said.

The US has appropriate security measures and responses in place according to its risk assessment, he explained.

"It's about protecting the areas that have the most overall risk, which is a function of determining the threat probability, the consequence of a successful attack and your vulnerability to that attack," Enochs said. "The risk assessment methodology that has been applied allows these operators to make the best use of the resources that are available and ensures that the most critical areas are properly protected."

While suspenseful, the Oklahoma pipeline attempted bombing proves his midstream safety assessment. The bomb was quickly discovered, removed and diffused, and the man suspected of planting the device has been arrested.

Rest assured: They're on it.


Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Oil prices have fallen, but will they stay low?

Oil prices fell dramatically this week from the mid-$90s to $75 a barrel on worries that the global economy is headed for a double-dip recession.

With some positive jobs numbers, West Texas crude prices rose above $84 a barrel on the New York Mercantile Exchange Thursday. Brent crude in London has seen a similar drop and slight recovery, trading at more than $106 a barrel.

While the price of oil increased, investors are wary demand may drop if the economy is headed for a downfall. Stock markets also fell drastically, leaving many worried about the future.

While multiple economic data combine to affect the price of oil, including jobs, home sales, purchasing, imports and inventories, the most-recent drop was pinned on the reduction in the United States' credit rating.

While OPEC has dropped demand looking forward, which casts out any suspicion that the oil cartel might up production, many analysts see the current drop in oil prices as temporary – and $100 oil a long-lasting reality.

Oil Demand to Increase Worldwide

The fact of the matter is that demand and consumption in the United States is going to become less of a price driver – or at least not the biggest factor to be considered.

The US has held the spot as the world's largest oil consumer for some time, but the growing and industrializing massive populations of China and India will soon take the spotlight for demand.

Additionally, demand continues to rise despite spikes in oil prices in countries where oil subsidies exist, including many Latin American, Middle Eastern and Asian countries. Meaning, consumers that pull back on demand when prices at the pump escalate are outnumbered by those who do not see an increase.

As markets continue to absorb these fundamental changes, the market will see less volatility based on US consumption changes due to the price at the pump, summer driving season or even risk from hurricanes.

Emerging Oil Resources for a Growing Demand in the US

Nonetheless, the appetite for oil in the US continues to grow, and emerging reserves in new regions could soon prove major sources of future energy in the nation. Namely, the development of shale oil resources in the US is growing drastically in the Eagle Ford and Bakken Shale, and new liquids-rich shale plays are being aggressively sought.

Additionally, the development of Canada's vast oil sands resources could prove a major source of future oil for years to come. Currently, the US government is working to approve the development of a major pipeline that could increase imports of oil sands into the US.

Finally, the burgeoning oil resources offshore Brazil will likely supplement the demand in the US. Multiple basins in the pre- and post-salt reservoirs offshore Brazil are proving high productivity; and Petrobras (NYSE:PBR) and others are leading the way in developing these resources.


Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Devon Energy pioneers shale drilling and production

US independent Devon Energy Corp. (NYSE:DVN) has earned the distinction as the first company to combine horizontal drilling and hydraulic fracturing to produce hydrocarbons trapped in shale plays.

Prior to the 2001, this had never been done, and oil and gas in shale rock was considered uneconomic.
Announced in 2001 and completed in 2002, Devon bought junior oil and gas company Mitchell Energy. Mitchell held acreage in the Barnett Shale, and had been drilling vertical wells and hydraulically fracturing them to produce natural gas from the formation.

The Barnett Shale is located just above the Ellenberger aquifer, which if penetrated will ruin the well. In the Central Texas counties of Denton, Wise and Tarrant, the Barnett Shale is insulated from the aquifer by the Viola limestone.

After several unsuccessful tries in areas not protected by the limestone, Mitchell was drilling wells in the areas that posed no threat of water infiltrating the shale because of the Viola; but Devon had much more acreage -- about 300,000 acres beyond the limestone. That meant that the majority of Devon's acreage could not be produced with vertical wells.

"We realized that if we could drill horizontally across the non-core area of the Barnett, than we could use the bottom half of the formation as the barrier, protecting us from the Ellenberger aquifer," revealed Devon spokesperson Chip Minty.

That realization is what drove Devon to experiment with the combination of horizontal drilling and hydraulic fracturing in shale plays. While both practices were well-established technologies, no companies had ever used them together in shale.

While the first two wells drilling and completed this way were disappointing, the third was encouraging.

"What we found was these horizontal wells would produce three times more gas as a vertical one, and they only cost twice as much," Minty said.

What Devon started tinkering with in 2002 has become an industry-wide practice for developing shale, unconventional and tight gas formations in North America. Now many companies are starting to use horizontal drilling and hydraulic fracturing in other parts of the world, including China, Poland and Argentina.

"This company has a history of innovation and perseverance," Minty continued. "Devon pioneered production of natural gas from deep coal seams in northwestern New Mexico in the late 1980s and early '90s."

At its operations in the Fruitland coal formation in the San Juan Basin of New Mexico, Devon was one of the first companies in the US to economically produce natural gas from coal.

Applying its expertise to various shale plays across North America, Devon currently employs 72 rigs in North America. Devon is active in the Barnett Shale of Central Texas, Cana Woodford Shale in Western Oklahoma, Arkoma Woodford Shale in Southeastern Oklahoma, Haynesville Shale in East Texas, the Permian Basin in West Texas and Southeast New Mexico, Horn River Shale in British Columbia Canada, Utica Shale in Ohio and Michigan, and Tuscaloosa Shale in Louisiana. The company is also pursuing exploration and production drilling in oil sands and unconventional plays in Alberta.


Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.