April 2008 Update

In the news...

• Pipeline Setback Gives Oil A Lift (4/14/2008) ... . . Disruption in a major U.S. oil pipeline was a factor in causing the May-date West Texas Intermediate crude contract price to briefly trade above $111. Royal Dutch Shell's Capline pipeline shut down on April 11 after a leak was discovered by a Tennessee worker. The pipeline transports 1.1 million barrels of oil per day from Louisiana to Illinois, feeding BP's Whiting, Indiana refinery and Marathon Oil's refinery in Catlettsburg, Kentucky. A Shell representative was not sure when the pipeline will be back online. [More here]

• Denali Pipeline To Surpass Alaskan Pipe In Cost, Regs (4/11/2008) In addition to higher steel costs, the proposed Denali natural gas pipeline faces strict environmental laws and a mountain of regulatory challenges seldom seen in the 150-year history of the global oil industry. The pipeline project, which takes its name from North America’s tallest peak – Denali, also known as Mt. McKinley – is currently awaiting a critical $600 million open season process and will have to obtain approximately 1,000 permit approvals from the U.S., Alaska and Canada. The pipeline will follow the existing Trans Alaska pipeline thus avoiding the environmentally sensitive Arctic National Wildlife Refuge. Cost for metal to construct the pipeline could reach $6 billion alone and it could take 10 years to complete vs. the nine years needed for the Trans Alaska pipeline. The total cost is expected to be $30 billion, which, ironically is the same as the inflation-adjusted cost of the Trans-Alaska pipeline. When completed, the Denali pipeline could transport 8% of the current U.S. natural gas supply. [More here]

• Gas Plant in L.I. Sound Is Rejected (4/11/2008) . ........ . . New York Gov. David A. Patterson blocked a proposal to build the nation's first floating liquefied natural gas plant in the Long Island Sound. “One of my goals as governor is to protect Long Island Sound,” Mr. Paterson said at Sunken Meadow State Park, on Long Island. “Shame on us if we can’t develop a responsible energy policy without sacrificing one of our greatest natural and economic resources.” Gov. Patterson added the region can find other more responsible ways to obtain energy. The Broadwater Energy plan called for construction of a $700 million natural gas terminal as well as a 22-mile underwater pipeline that connects to the existing Iroquois pipeline that serves New York and Connecticut. John Hritcko, senior vice president and regional project director for Broadwater, an energy consortium consisting of Shell Oil and TransCanada Pipelines, said the rejection represents a “missed opportunity” to lower energy prices for consumers and businesses. Broadwater opponents argued the terminal would be vulnerable to a terrorist attack and jeopardize traditional industries like fishing and oyster harvesting. [More here]

• Exxon Mobil May Join BP, ConocoPhillips Pipeline (4/8/2008) Spokeswoman Margaret Ross confirmed Exxon Mobil was invited to participate in the new ConocoPhillips and BP PLC Denali natural gas pipeline project in Alaska. "ExxonMobil was only made aware of the ConocoPhillips-BP plan a few days prior to the announcement," she said. "We need to better understand their approach to ensure that it will lead to a commercially viable development on a cost and schedule basis that will deliver maximum benefits to the State of Alaska, the producers and consumers in the United States and Canada." [More here]

• JayHawk Energy Inc. Announces The Acquisition Of A 16-Mile Pipeline (4/1/2008) JayHawk Energy Inc. has purchased assets from Galaxy Energy Inc., a private company in Crawford and Bourbon counties of Kansas. The assets include a sixteen (16) mile gas pipeline and gas production within 6,500 acres of land bordering the pipeline for $2 million. [More here]

• Company Seeks Gas Pipeline (3/29/2008) . ....................... ConocoPhillips plans to develop a pipeline to transport natural gas from Alaska's North Slope to the lower 48 states and Canada. The company estimates the entire project will cost between $25 billion and $42 billion and move about 4 billion cubic feet of natural gas per day. The company also said it is "prepared to make significant investments, without state matching funds, to advance this project." In a prepared statement ConocoPhillips Chairman and CEO Jim Mulva said the company hopes to work directly with the state of Alaska to expedite the project, as well as partner with other companies including Exxon Mobil Corp., BP PLC and possibly a pipeline company. BP spokesman Steve Rinehart could not speculate on the offer and Exxon Mobil had no comment. ConocoPhillips is in the process of gathering data to support its pipeline permit application. A proposed deal between North Slope producers BP, Exxon Mobil and ConocoPhillips and former Alaskan Gov. Frank Murkowski fell through last year. [More here]

• More Than A Pipe Dream (3/28/2008) ............................ .... It seems like America is getting high on natural gas. With around 25 pipeline projects and 11 storage projects, natural gas pipeline builders are in the midst of a building boom. One of the longest pipelines ever built - the 1,678-mile Rockies Express - is near completion and the industry has not been this busy since the 1950s, according to consulting group Bentek Energy. However, many uncertainties lie ahead. Supply depends on drillers' ability to ramp up production and some pipeline builders face a labor shortage. Competition is fierce since pipeline builders need to get right-of-way before anybody else does while keeping costs under control for their customers. Although the need to construct pipelines is driven largely by the demand from energy consumers, it is also driven by the discovery of new supplies. Shallow natural gas fields in the Gulf of Mexico are almost exhausted but new drilling technology now enables access to the deepest fields. As a result, new construction is now based on speculation about future production instead of on current production. Government regulation of everything from utilities to right-of-way and greenhouses gases affects pipeline builders. The ongoing construction boom may lead to overcapacity, depending on the outcome of many of these factors. It will take years before that unknown will be resolved. [More here]

• Pipeline Would Take Rockies Gas To Markets In U.S. And Canada (3/26/2008) Two pipeline companies - Alliance Pipeline Inc. and Questar Overthrust Pipeline Company - plan to build a 42-inch, 800-mile Rockies Alliance Pipeline from Wyoming to Canada, U.S Midwest and Northeast. The estimated $3.5 billion project will transport natural gas from Wamsutter, Wyoming, traversing Wyoming, Montana and North Dakota, on its way to the Emerson trading hub located on the Minnesota-Canada border. Brian Jeffries, executive director of the Wyoming Pipeline Authority, said the Rockies Alliance project can provide new markets for the state's natural gas and is one of five pending pipeline proposals. A sixth, the Rockies Express, is already under construction. Questar and Alliance will start taking bids from customers interested in using the pipeline on May 1st. Subject to financing and regulatory approval, the companies plan to have the whole pipeline operating by fall of 2011. [More here]

• Alaska Senator Stresses Gas Line (3/19/2008) ................ U.S. Alaskan Senator Lisa Murkowski told members of the Alaskan Legislature that time is running short for Alaska to get a natural gas pipeline project started on its North Slope. During her annual speech she said, "We are slipping and cannot afford to slip any further. Our competitors are moving ahead. Our oil production is dropping. Steel and construction prices just climb higher every year." Although Sen. Murkowski didn't criticize Gov. Sarah Palin's Alaska Gasline Inducement Act (AGIA) she placed the onus to get things moving equally on pipeline companies, the federal government and North Slope lease holders - ConocoPhillips, Exxon Mobil Corp. and BP PLC. TransCanada was the only applicant to comply with regulations established in AGIA. However, ConocoPhillips is promoting a competing plan outside the state's bid requirements but it is seeking what it calls fiscal certainty - long-term tax and royalty terms for the North Slope lease holders before a pipeline license is awarded. Sen. Murkowski commented "I recognize the value of the AGIA process. But, clearly Conoco is on its own track. Is it wrong to have a duel track? In my opinion, anything that will get us a gas line sooner is worthwhile." [More here]

• New Pipelines Will Even Out Gas Prices (3/15/2008) . ....... . Last fall in the Rocky Mountain region of the U.S., due to excess production and limited pipeline capacity, spot prices for natural gas producers dropped to a low of only 5 cents per 1,000 cubic feet. For consumers in the region the surplus has been a boon. However, after years of low prices, things are about to change. A new pipeline - 1,678-mile Rockies Express from Meeker, Colorado to Clarington, Ohio - is almost finished and is now partly operational. The pipeline, with a capacity of 1.6 billion cubic feet per day, will allow gas suppliers to sell to other markets including California, Phoenix, Arizona and Midwest area. In addition to gas suppliers making more money, analysts predict the new pipeline will even out national supplies reducing price spikes elsewhere, especially in the East. This change could be at the expense of those consumers located the Rocky Mountain states. Producers counter as long as production continues to ramp up, local prices should stay under control. Although Texas is currently the country's biggest producer of gas, the Rockies region most likely contains more than 200 trillion cubic feet of natural gas reserves - enough to supply the U.S. for 10 years. [More here]

• TransCanada Ready To Start Building U.S. Oil Line (3/14/2008) TransCanada Corp. plans to start construction on its 2,148-mile, $5.2 billion Keystone oil pipeline the second quarter of this year. A key factor in the decision to start building was a presidential permit issued by the U.S. State Department for the construction of a 590,000 barrel per day pipeline at the Canada-United States border. "The U.S. Department of State has determined that this is in the national interest, so after a culmination of years of hard work we're certainly pleased to have the permit," said TransCanada spokeswoman Shela Shapiro. The pipeline, co-owned by ConocoPhillips, will extend from Alberta to Oklahoma and southern Illinois. Part of the Canadian side of the pipeline will use an existing natural gas pipeline converted for transporting oil. The pipeline is targeted to be in service in late 2009. [More here]

• Canadian Pleads Guilty In Oil Pipeline Bomb Plot (3/13/2008) Canadian Alfred Reumayr of British Columbia pleaded guilty to charges of plotting to blow up the Trans-Alaskan oil pipeline on January 1st, 2000, at the U.S. District Court in Santa Fe, New Mexico. After being arrested in August 1999 by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosive and the Royal Canadian Mounted Police, Mr. Reumayr was accused of soliciting the help of a U.S. citizen to bomb the Trans-Alaska Pipeline System. Prosecutors said Mr. Reumayr acquired explosives, which he planned to locate at three points along the pipeline in order to disrupt energy supplies. They said Mr. Reumayr also hoped to profit from the attacks by purchasing energy securities at low prices and then selling them after the attack during the market turmoil resulting from the attacks. [More here]