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Energy industry - Aug 29

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How To Get A Pipeline Built
Jerome a Paris, The Oil Drum: Europe
There are regularly stories in the media or in the blogosphere about various pipeline projects that are announced with much publicity, and are seen to have major strategic consequences, or conversely about projects that are more discreet but are seen as the "real" justification for various military or diplomatic acts. For instance, the announcement last month of an agreement between Russia and several central Asian republics about a new pipeline was widely interpreted as a major move against European energy security. Similarly, the war in Afghanistan has often been blamed on a long mooted Turkmenistan-Afghanistan-Pakistan pipeline.

These analyses (which are absurd to anyone with a basic knowledge of the oil&gas industry) completely ignore the dynamics of what it takes to actually get a pipeline deal done, and what it means for relations between the parties involved. Therefore they fail to understand the significance (or lack thereof) of announcements by energy companies or governments and wrongly interpret the geopolitical implications of both pipelines, and announcements of pipelines.

So, in order to help oildrummers better interpret pipeline news, here's a primer on why and how pipelines get built - which essentially means how they get financed.
(29 August 2007)

Running out of Roughnecks

Toni Johnson, Council on Foreign Relations
The prospect of a work stoppage by more than twenty-thousand construction workers in Canada's oil-rich province of Alberta has sent tremors far beyond North America. "Unions know they have oil companies by the neck," writes the Financial Post's Claudia Cattaneo, pointing out Alberta's labor shortage, which gives workers the clout to reject a 24 percent pay increase over four years that would make most Canadians "cringe with envy." Some of the workers consider a four-year contract too long (Global Investor) and say they are "simply fighting for the best deal as employers book record profits."

The possible strike highlights a growing international trend-the shortage of oil industry workers and the increasing cost to retain them. Alberta's labor problems could disrupt some of the world's largest construction projects involving the conversion of giant fields of oil sands into crude oil.
(28 August 2007)

Big Oil Sees GoM as Pricey But Accessible

Brian Baskin, Wall Street Journal and Dow Jones Newswires via Rigzone
As geopolitical turmoil makes Big Oil's portfolio more risky, the Gulf of Mexico is fast becoming the energy world's savings bonds. While it's unlikely to match expanding production in West Africa or the Middle East, the area is immune to sudden shocks that come from working under unpredictable governments that control most reserves world-wide.

Companies are snapping up drilling rights in the Gulf on a scale not seen since the late '90s, when heavy bidding was fueled by the first hard evidence of deep water's oil-drilling potential and a lower tax rate. The hope of discovering the next half-billion-barrel oil field is still a big lure. But for the international oil companies that rule the Gulf, the new oil rush has as much to do with the lack of options elsewhere as the size of undiscovered reserves.

The deep-water Gulf is one of the last places where independent oil companies can get first crack at untapped oil -- relatively free of competition from national oil companies backed by increasingly aggressive host governments. And that sort of security is enough to trump skyrocketing development costs, bureaucratic hurdles and mounting evidence that the Gulf's oil will prove far more difficult to extract than expected.
(27 August 2007)

Carnegie Mellon researchers question investing in LNG

Carnegie Mellon University (press release)
PITTSBURGH-A team of Carnegie Mellon University researchers report that the choices U.S. officials make today could limit how the nation's future energy needs are met and could cost consumers billions in idle power plants and associated infrastructure systems.

In the upcoming Sept. 1 edition of the journal Environmental Science and Technology, Carnegie Mellon researchers Paulina Jaramillo, W. Michael Griffin and H. Scott Matthews show that liquefied natural gas (LNG) imported from foreign countries and used for electricity generation could have 35 percent higher lifecycle greenhouse gas emissions than coal used in advanced power plant technologies.

"Investing in LNG infrastructure today could make sense if it helps moderate natural gas prices and keeps existing natural gas power plants running. But making this investment ultimately locks us into certain technologies that make it harder for us to change paths in an increasingly carbon-constrained world," said Matthews, an associate professor in Carnegie Mellon's Civil and Environmental Engineering Department.

The 1990s saw a surge in construction of natural gas power plants, fueled by cheap natural gas, low investment requirements and the idea that natural gas was less carbon-intensive than coal. Since these plants were constructed, natural gas prices have skyrocketed as the North American natural gas supply has become more limited. These gas plants are now operating at a very low capacity, fueling the energy industry's interest in increasing gas supply by using LNG.

Those decisions are complicated by the fact that natural gas prices may stay high because of maturing North American gas fields. Natural gas production in North America has been flat or down in each of the past six years, according to the federal government's Energy Information Administration. Increasingly, domestic natural gas will be drawn from nontraditional and more expensive sources that require the development of more complex networks to extract and deliver it to the U.S. market.

However, the increased imports of LNG and all of its indirect impacts could eliminate the environmental benefits of natural gas over coal when future carbon mitigation technologies are adopted.

The researchers point out that LNG has many indirect impacts compared to domestic gas. LNG is extracted in a foreign country, liquefied, put into a tanker to cross oceans, and then regasified and put into pipelines when it reaches the U.S. Each of these steps leads to indirect environmental impacts, such as carbon dioxide emissions from changing from gas to liquid and back. In addition, the facilities and tankers necessary to liquefy, move and regasify the natural gas expected are not plentiful and those in the works will not be up-and-running for several years.

"We continue to see that all emerging energy choices have indirect impacts," said Jaramillo, a graduate researcher in the Department of Civil and Environmental Engineering.

The Carnegie Mellon research team also argues that the U.S. shouldn't rush to invest large amounts in a new infrastructure, such as the LNG infrastructure, without analyzing all the indirect implications of those investments compared to alternative supply options. In addition, utilities and the government should put more effort into conservation and energy efficiency that could help reduce the need for large investments. "As the options grow more complicated, the choices become harder and harder," said Griffin. "We just want to make certain that all the choices - and their impacts - are understood.''
(22 August 2007)

A New Method of Extracting Heavy Oil: Toe to Heel Air Injection (THAI)

Gail the Actuary and "1observer", The Oil Drum: Canada
This post reflects collaboration between Don, also known as 1observer, and myself. Don is an arms-length investor in Petrobank Energy and Resources Ltd., the company that patented THAI. Otherwise, he has no ties with the company. This post is based on an analysis of publicly available documents. I want to thank Don for all of his hard work that went into this.

1. What is toe to heel air injection technology?

Toe to heel air injection (THAI) is a new method of extracting oil from heavy oil deposits which may have significant advantages over existing methods. The method was developed by Malcolm Greaves of the University of Bath and has been patented by Petrobank. According to the Petrobank website:

THAIâ„¢ is a evolutionary new combustion process, that combines a vertical air injection well with a horizontal production well. During the process a combustion front is created where part of the oil in the reservoir is burned, generating heat which reduces the viscosity of the oil allowing it to flow by gravity to the horizontal production well. The combustion front sweeps the oil from the toe to the heel of the horizontal producing well recovering an estimated 80 percent of the original oil-in-place while partially upgrading the crude oil in-situ.

(27 August 2007)
Contributor David Beach writes:
Article posted yesterday on The Oil Drum on a technology for producing and upgrading tarsands insitu that is moving to the commercial phase. Introduction a few weeks back are at The Oil Drum: Canada (my introductory comments and a discussion.

As THAI is accepted by the industry, I believe it will have the effect of extending the global production "plateau".

What do you think? Leave a comment below.

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