Japan Public, Private Sectors to Create LNG Futures

Japan is planning to launch the world's first futures contract for liquefied natural gas, marking the latest step toward creating a global market for the fuel.

The market for LNG--the chilled and exportable form of natural gas--is poised to expand rapidly in the coming years, analysts say, as the U.S. ramps up exports and global demand rises. The price of gas varies widely across different regions. Japan, the world's biggest importer of LNG, pays about $18 per British thermal units, versus $4 for the product in gaseous form in the U.S.

Japan's LNG imports rose after the March 2011 Fukushima disaster sidelined most of the country's nuclear reactors. The cost of those imports is linked to crude oil, reflecting historic ties between prices in the two energy markets. But many users say U.S. production unleashed by the shale boom has weakened the connection between LNG and the oil market. A futures contract would allow LNG producers and consumers to determine gas prices independently from oil, and provide a way to protect themselves against price swings.

While oil is a global market, the price of natural gas varies among regions because consumers tend to buy from suppliers within their own region. In the U.S., abundant supplies have caused gas prices to plunge from as high as $15 per million Btus in 2005. Japan pays a premium because it has little domestic output and transporting LNG is expensive.

"Japan definitely has an interest in something more in line with a global price of LNG to offset their price with regions that have weaker demand," said Eric Bickel, commodity analyst with Schneider Electric, an energy-consulting firm. "They're sort of spreading that load."

The parties behind the push for the new contract--which include electricity and gas utilities, trading houses, traders and government officials--will aim to list the dollar-denominated futures on the Tokyo Commodity Exchange by March 2015.

Certain details of the contract still have to be worked out, said Takashi Ishizaki, who oversees futures-trading regulations in Japan as the commerce director for the Ministry of Economy, Trade and Industry.

LNG prices could fall if U.S. exports rise, analysts say. The U.S. Energy Department is reviewing more than a dozen applications for liquefied natural-gas export terminals and may begin to make decisions as soon as early this year. However, U.S. manufacturers, utilities and others that benefit from cheap domestic gas have spoken out against exports.

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Oil Futures Finish Higher as S&P 500 Aims for Record

Oil futures finished higher Thursday, setting a six-week high as the Standard & Poor's 500 was poised to finish at a record.

Light, sweet crude for May delivery settled 65 cents, or 0.7%, higher, at $97.23 a barrel on the New York Mercantile Exchange. That's the highest settlement since Feb. 14.

Brent crude on the ICE futures exchange settled 33 cents, or 0.3% higher, at $110.02 a barrel.

Futures rallied as the benchmark S&P 500 pushed higher and was set to surpass its previous record set in October 2007. The index recently rose 0.3%, to 1567.08.

"The stock-market record for the S&P is chipping in here," said John Kilduff, founding partner at Again Capital in New York. "It's a risk-on day."

Oil futures and equities often trade in tandem since both are considered risky assets that investors use as a bet on economic growth. In addition, crude traders often turn to equities as a barometer of broader economic sentiment.

Despite Thursday's strong stock market performance, several reports put a damper on the crude market earlier in the session, keeping it in negative territory for much of the morning.

Jobless claims rose by a bigger-than-expected 16,000 to a seasonally adjusted 357,000 last week. The figure was the second straight weekly increase in the filing of unemployment benefits, underscoring the weak pace of hiring in the U.S.

Meanwhile, the U.S. government released its final revision on fourth-quarter economic growth, saying the U.S. grew at an annualized rate of 0.4%, below the 0.5% rate forecast by economists.

"The jobs numbers today were not very inspiring and GDP was kind of in line," said Phil Flynn, analyst at Price Futures Group, a brokerage in Chicago.

Nymex crude prices have notched gains of roughly 6% so far in March. But analysts have attributed the rally to expectations that the supply glut in the central U.S. had begun to ease, lifting prices there.

The price of Brent crude, regarded as a more reliable global benchmark, is down about 1.2% in March.

Front-month April reformulated gasoline blendstock, or RBOB, settled 1.01 cent, or 0.3%, lower, at $3.1054 a gallon. April heating oil settled 0.02 cent lower at $2.9152 a gallon.

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New Energy Minister Faces Australian Cost Challenge

Gary Gray, a former Woodside Petroleum Ltd. corporate affairs chief, has been named Australia's new Minister for Resources and Energy following a cabinet reshuffle of the country's governing Labor Party.

The West Australian replaces Martin Ferguson in the role.

Industry bodies have welcomed Gray to the position, but warned he would be challenged by Australia's ongoing issue of the rising cost of doing business in the country.

The Australian Petroleum Production and Exploration Association (APPEA) believed Gray's appointment, while a positive move for the industry, came at a crucial time in its history.

David Byers, APPEA chief executive, said the industry was presently investing $208 billion (AUD $200 billion) in new projects, including seven major liquefied natural gas (LNG) ventures.

He added the industry was at a turning point, with numerous new projects on the drawing board, but not yet committed.

"Australian oil and gas project costs are among the highest in the world and there are several critical policy areas that require genuine reform if hurdles that currently hinder the local industry's ability to compete internationally are to be removed," he said.

"Most important of these is the need for a stable, predictable and competitive taxation regime that encourages exploration and development investments.

"The oil and gas industry's long-term projects need long-term stability. Yet over the past five years the industry has been confronted with a range of disruptive changes to the taxation regime, affecting the company and resources taxation settings."

The Chamber of Minerals and Energy of Western Australia (CME) also applauded Gray's appointment to the portfolio.

Reg Howard-Smith, CME chief executive officer, said it was good news the important portfolio had been given to a Western Australian, given the state's resources sector accounted for 46 percent of Australia's export income.

"Policy initiatives that focus on reducing costs, duplication and red tape will deliver ongoing economic benefits to all Western Australians," Howard-Smith said.

"Unfortunately we are becoming a less attractive place to develop resources projects when compared with global resource rich nations and investment may be driven to other lower cost regions because of additional layers of taxation and charges, which are continuing to drive up cost for doing business."

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For House Republicans, the season of oil and gas giveaways has begun

As reported by Politico’s Andrew Restuccia, Tuesday, House Republicans will spend the summer trying to breathe new life into tired ideas filled with industry giveaways. It’s no wonder given these politicians receive huge contributions from the oil and gas industry. Ironically, these “conservatives” want more mandates and quotas for oil companies while also cutting common sense protections for our air and water.

What Congress should focus its energy on – and what people in the West support – is balance between conservation and energy development. Instead of handouts to oil companies, our leaders in Washington should promote a diverse and thriving economy that supports main street businesses, farming and ranching, tourism, and outdoor recreation.

GOP House leadership has already said it will move the same failed giveaways it tried to push through last year, and the year before that. The problem they’re already running into is that they’ve already tried – and failed – to dupe Americans into thinking these handouts are anything else. Even a Republican energy adviser quoted in Restuccia’s story said, “It’s probably going to look a lot like it’s looked in the last four or five years.”

Westerners want more out of their elected officials than repeated political plays and messaging bills for the oil and gas industry. They want a real balance between protecting the public lands that support and attract high-wage businesses and using them to produce American-made energy.

Here’s a quick preview of the rhetoric we can expect to hear from House Republicans this summer, and the facts they will ignore:

The economy

Shot: Failure to open more federal lands to drilling will hurt job creation and economic growth in Western communities.

Chaser: Western states have grown out of the boom and bust cycle that comes with relying solely on energy development. Protecting as much public land as we lease will further build out the outdoor recreation industry, which already accounts for $64 billion in annual spending, 6 million jobs and nearly $80 billion in local, state and federal taxes.

Price at the pump

Shot: These bills are an important step toward bringing down gasoline prices.

Chaser: In 2012, an Associated Press study showed that oil production has no effect on gas prices. Meanwhile, a Goldman Sachs analysis found that Wall Street speculation was adding more than $23 to the price of crude, or as much as $0.56 per gallon at the pump.

Drilling on private lands

Shot: Increased pressure to develop on private lands is just one result of the slowdown of public lands energy development by this administration .

Chaser: The latest oil boom in the lower 48 states is due largely to an unconventional resource known as “shale oil,” (oil trapped within shale rock). The vast majority of both “shale oil” and “shale gas” (natural gas trapped within shale rock) is found under private, not public, lands. The location of these resources – not safeguards to protect air quality and water supplies – explain the shift in drilling from public to private lands.
Adam Sieminski, U.S. House, Subcommittee on Energy and Power Committee on Energy and Commerce, 2 August 2012

Permitting delays

Shot: Regulatory hurdles, long delays, and policies that keep federal lands under lock-and-key have become all too common.

Chaser: Industry is responsible for the majority of permitting delays. Last year, BLM announced it is moving to an online permitting system that will hopefully help companies cut down the time it takes them to properly file permit applications.
BLM Table of Average Application for Permit to Drill (APD) Approval Timeframes: FY2005 – FY2012

Permits

Shot: The Obama administration is playing fast and loose with drilling permit pledges.

Chaser: Industry does not use the drilling permits that have already been issued for oil and gas development. In fact, there are nearly 7,000 unused drilling permits that industry could develop on federal public lands.
BLM Approve Permits – Not Drilled table

Idle lands

Shot: President Obama and his Administration have actively blocked, hindered and delayed American energy production.

Chaser: According to the Department of Interior’s Oil and Gas Lease Utilization, Onshore and Offshore report, issued May 2012, “As of March 31, 2012, approximately 56 percent (20.8 million acres) of total onshore acres under lease on public lands in the Lower 48 States were conducting neither production nor exploration activities.
DOI Oil and Gas Lease Utilization Report

The facts are not on House Republicans’ side, and neither is public opinion. A recent poll shows 9 out of 10 Westerners agree that national parks, forests, monuments and wildlife areas are an essential part of the economy. Seventy-four percent believe they help attract high quality employers and good jobs to western states.

It’s time we put conserving our treasured public lands back on equal ground with leasing them for oil and gas drilling. If oil- and gas-funded politicians continue to try and resurrect these industry giveaways, they’re just showing where their priorities lie – with the companies that fund them rather than the people they represent.

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ConocoPhillips: Natural Gas Prices Too Low for New San Juan Basin Wells

ConocoPhillips said it is temporarily suspending new drilling in the San Juan Basin in New Mexico and Colorado, citing low natural gas prices that make it uneconomical to drill new wells in the area.

"Natural gas prices have continued to be rather low," Conoco spokesman Jim Lowry said, adding that the company would be watching natural gas prices and resume drilling "as soon as it becomes economical," though he declined to set a specific target price.

Natural gas futures have rallied in recent weeks as cold weather has prompted demand for fuel. Natural gas for May delivery settled at $4.02 Thursday.

The company had three drilling rigs working in the area. Mr. Lowry said the suspension will only affect new wells. ConocoPhillips continues to produce more than 1 billion cubic feet of natural gas per day in the San Juan basin.

The company told its employees of the decision Tuesday, Mr. Lowry said Thursday

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TNK-BP Boosts Production, Reserves

Russia's TNK-BP reported results for 2012 Thursday in which the firm revealed that its oil and gas production increased by 1.8 percent during the year to 2,023 million barrels of oil equivalent per day. The firm said that its total proved reserves reach 9.8 billion barrels of oil equivalent, representing a 210-percent reserve replacement ratio.

Chief Financial Officer Jonathan Muir commented in a statement:

"We have been successfully moving our Yamal greenfields to the execution stage, with Suzunskoye the first field ready for launch and the Rospan natural gas project moving to Phase 1 full-field development."

Muir added that all of TNK-BP's international projects showed "positive momentum" with incremental production being achieved in Vietnam and Venezuela, along with gas discoveries in Brazil.

"We continue to focus on business fundamentals and bottom line enhancement and will carry out our operations safely and with minimum damage to the environment," he said.

The takeover of TNK-BP by Rosneft is scheduled to be complete by the end of this month now that the Russian state oil company has bought out BP and the Alfa-Access-Renova consortium, which together previously owned the business.

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Sec. Jewell brings home a trophy from Senate committee hearing

Secretary of Interior Sally Jewell showed up at today’s Senate Energy and Natural Resources Committee hearing loaded for bear, and she bagged an Alaskan grizzly.

Sen. Lisa Murkowski started her time by regurgitating often-repeated – and totally flawed – oil and gas industry talking points about oil and gas production on public lands. Sec. Jewell fired back, using actual statistics to point out the truth: onshore oil production on federal lands is at its highest level in more than a decade.

And when Sen. Murkowski, a true politician, tried to change the topic to offshore production, her colleague Sen. Al Franken, and Deputy Secretary of Interior David Hays pointed out that offshore numbers had (appropriately) dipped in the wake of BP’s Deepwater Horizon disaster in the Gulf – but that offshore oil production, and offshore drilling and exploratory activity are now back at pre-spill levels and growing.

Unable to dispute cold, hard facts, Sen. Murkowski was forced to acknowledge the truth. And her admission that oil production is up on federal lands demonstrates the need for a more balanced approach between energy development and conservation.

With onshore oil production at its highest level in 10 years, the Obama Administration should adopt an equal ground policy – conserving an acre of land for every acre they lease, consistent with the balanced approach achieved by Presidents such as Bill Clinton and George H. W. Bush.

Sec. Jewell pointed out in her testimony that in 2011, recreational visits contributed an estimated $49 billion in economic benefits to local communities. Balancing appropriate energy production with protecting our treasured lands also attracts high-wage businesses and entrepreneurs to Western states – strengthening our economy for future generations.

As oil- and gas-funded politicians in the House and Senate get ready for yet another summer of pushing the same failed giveaways to oil and gas companies they’ve tried before, they’re going to have to deal with the same facts that stopped Sen. Murkowski in her tracks today. It’s tough to lose a top talking point.

A few other facts from Sec. Jewell’s testimony:

The amount of producing acreage continues to increase, and was up by about 200,000 acres between 2011-2012.The 2010 onshore leasing reforms resulted in the lowest number of protests in 10 years – fewer than 18 percent of parcels offered in FY 2012 were protested.BLM field offices’ processing and approval time for drilling applications fell by 40 percent between FY 2006 and FY 2012.The Colorado River Basin Water Supply and Demand Study, released in December 2012, estimates the number of people that rely on water from the Colorado River Basin could double to nearly 76 million people by 2060.

TRANSCRIPT OF THE EXCHANGE

Sen. Murkowski, opening statement:  “A related concern is the rate of falling production on federal lands. It’s true that our nation is in the midst of an historic oil and gas boom, but it’s also true that production on federal lands is in trouble. Contrary to some of the statements of the rhetoric we’ve heard, oil production from the federal estate actually fell 5% last year after falling by even more than that in 2011. Natural gas production from the same federal areas meanwhile is in virtual free fall, down 8% last year and down 23% since 2009. The fact of the matter is that America’s energy boom is happening in spite of federal policies that stymie our production. We should be opening new lands to development, making sure the permits are approved on time, and preventing regulation and litigation from locking down our lands, and if anyone’s looking for a place to start, I’ll invite you to look to Alaska.”

Sec. Sally Jewel, responding in her testimony and opening statement said: “I want to start with energy, energy onshore. Onshore oil production on federal lands is actually at its highest level in over a decade, the amount of producing acreage continues to increase and I’m very happy, Ranking Member Murkowski, to provide you with some statistics that are a little different than the comments that you just referenced in terms of oil production. I have looked at the leasing reforms that the BLM have put in place, they changed them in 2010. They’ve actually had the lowest number of protests on lease sales in ten years, so we are making progress there, and I know the team is working hard on the time for permitting approval of new projects. That will be facilitated by automation. Sequestration has impacted that a bit but we’re still committed to getting that done….and now there are more deepwater rigs operating in the Gulf of Mexico than there were prior to the deepwater horizon spill.”

Sen. Murkowski, following Wyden’s first round of questions: “but I did just want to put a statement on the record, that, you had noted in your opening statement that oil production from federal onshore lands is at its highest level in over a decade, you had noted that perhaps our commentaries differed, I had noted that oil production from the federal estate actually fell 5% and the reference there, and I think it is important to just give some of the numbers here very briefly because I think it can be confusing. Federal onshore production was at 89.5 million barrels back in 2003, its gone up to 108.7 million in 2012, so you do have a substantial increase there, but it’s not the full picture, and that was my point. Because on federal offshore production we’ve seen that fall from 532.7 million barrels in ’03, to 438.6 million barrels in 2012, so what we’ve got is federal onshore production which rose by about 20 million barrels, and federal offshore production fell by 100 million barrels, more than five times the onshore increase. So I think that it’s important that when we’re talking about this we look at the full picture so if your numbers are different than mine, I’d be happy to share them.”

Sen. Franken, rebuttal: “Can I ask, did the moratorium after the BP oil spill… isn’t that really what caused that dip? I mean, (with laughter) we had a huge thing happen, and so there was a moratorium after that. Is that ok if I ask that of Mr. Hays?”

Deputy Sec. Hays: “Yes, Senator. It is true that oil production in the Gulf did decline because of the safety issues that arose and the need to upgrade our safety standards. The good news is that EIA recently reported a very strong upward trend now, in the Gulf. The Secretary mentioned a major discovery, there have been ten major new discoveries. There are now more than fifty rigs drilling in the offshore, lease sales are very strong that we’ve had and are having in the central Gulf and the western Gulf, so we expect to be back to where we were and further, but there certainly was a time that we did a pause, and increase the safety standard and change the way we did business and that did effect we believe temporarily in the offshore.

Sen. Franken: “I just wanted to clarify that.”

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