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Oil and Gas Roundup — Jan. 3

January 03, 2014
TOPICS: In the news
A roundup of oil and natural gas industry news from around the state, nation and world:

Natural gas taking coal’s place in power plants
WHEELING, W.Va. — Robert Murray said if the U.S. Energy Information Administration's projection that natural gas will surpass coal as a fuel used for electricity generation by 2040 comes to pass, it will hurt "our families, our region and our country."

However, R. Dennis Xander, past president and member of the Independent Oil and Gas Association of West Virginia, said the continued emergence of Marcellus and Utica shale natural gas does not need to work against the coal industry, as he said "co-firing" power plants with gas and coal could be an option for the future.

The new federal report predicts that by 2040, 35 percent of U.S. electricity generation will come from natural gas, while only 32 percent will come from coal. The remainder will come from nuclear power and renewable sources such as wind, solar and hydroelectric.

By comparison, federal statistics show 42 percent of U.S. electricity came from coal in 2011 with 25 percent being drawn from natural gas. In 1993, 53 percent came from coal with only 13 percent coming from natural gas. Currently, nearly all of West Virginia's electricity comes from coal, as does most of Ohio's.

As more shale natural gas floods the marketplace, Xander believes prices should remain relatively low. He said adapting some coal-fired power plants to generate some of their wattage from natural gas could help the plants meet the more stringent federal emissions standards set to be imposed on them.

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USDA to stop using sugar purchase program in early 2014

The federal government will not purchase excess sugar in the market to sell to bioenergy producers in early 2014, the Agriculture Department announced this week.

The department is authorized to purchase sugar to sell to producers that convert it into fuel and power through the Feedstock Flexibility Program, a 2008 farm bill initiative.

USDA on Tuesday said it has determined, based on crop and consumption forecasts, that the purchases will not be needed to boost the U.S. sugar industry in the immediate future.

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Key trends impacting natural gas prices in the U.S.

Over the past few years, natural gas prices in the U.S. have diverged significantly from those in the international markets, primarily due to the surge in supply from unconventional sources, particularly shale.

After hitting a bottom of around $2.50 per thousand cubic feet in 2012, gas prices have rebound to an average of around $3.50 this year on improved demand growth prospects and the shift in energy companies’ focus towards liquids production for better returns.

The outlook for U.S. natural gas supply has changed significantly over the past few years, primarily due to the evolution of horizontal drilling and hydraulic fracturing; these techniques have enabled energy companies to tap the huge shale gas reserves in the U.S. at commercially sustainable rates.

Widespread use of these techniques started only during the early 2000s in the Barnett shale play in north-central Texas. However, since then, natural gas production in the U.S. has ramped up much faster than the growth in consumption, which has led to severely depressed commodity prices by international standards.

Today, natural gas prices in the U.S. are less than half of that in the Europe and less than one-third of that in the LNG (liquefied natural gas) dependent Asian economies, such as Japan. Huge recoverable reserve estimates lead the EIA to believe that shale gas would account for ~50% of the total natural gas production in the U.S. in 2040.

Additionally, as the industry’s understanding of the shale resource basins continues to grow, leading to more productive wells, drilling costs are expected to trend lower. We therefore expect natural gas prices in the U.S. to remain depressed by international standards in the medium to long term.

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As U.K.'s 'fuel poverty' rates begin to soar, green policies come under fire

For many U.K. residents, winter is getting a lot colder.
In Newcastle-upon-Tyne in northeast England, 43-year-old single mother of three Gemma (she did not want to provide her last name) can barely afford her utility bills.

"I find myself not eating at all just to keep the heating on," she said. Like many who live in one of the country's millions of unimproved houses, Gemma's gas heating is metered. So is her electricity. She pays for heat and light a pound coin at a time. She receives state benefits. At one point, she was £1,000 ($1,630) in debt to her energy supplier.

"You look at your meter and think, God! It's used £4 already, it's never going to last, and think, I'm going to have to switch it off. When it's cold and my gas is running out, I put hair dryers on under a blanket, as I had some electricity on the meter." With help from a charity, National Energy Action, Gemma has been put on a repayment system and now has a reduced energy tariff.

In some areas of Stoke-on-Trent, more than half of the households live in fuel poverty. Until last month, "fuel poverty" was defined as spending more than 10 percent of household income on paying energy bills.

This may be just the beginning of an increasingly ugly political issue. The government places much of the blame for increased energy prices at the feet of so-called green policies. Currently, such policies account for only about 10 percent of the heating bill, but these numbers are set to go up dramatically.

According to Department of Energy and Climate Change figures, they will add 33 percent to the cost of electricity by 2020 and 41 percent by 2030. Shutting down old coal-fired power plants and adding more expensive renewable energy -- particularly wind power -- to the grid will spur rising electricity costs.

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