The coming "war" with Canada (natural gas)

[jpak]

http://www.energybulletin.net/18828.html

As I returned recently from a vacation in Canada, I took a detour along the Canadian side of the St. Clair River which divides Ontario from Michigan as it flows from Lake Huron into Lake St. Clair. The sunny, placid scene of sailboats, swimmers and the occasional motorboat or barge bore no witness to the fact that this was a border between two countries. As I passed two vast oil refineries I was reminded that I was indeed in Canada, a country so rich in oil and natural gas that that the docks next to these refineries were likely used to ship refined products to the United States which is now in perpetual need of them.

From such a vantage point it is hard to imagine that this apparently benign unconcern for where the United States ends and Canada begins might suddenly be transformed into a pitched battle of words and deeds. And yet, that is almost certainly where these two old friends are headed.

Behind this looming turnabout is one very troubling development: Natural gas production in North America has leveled off. Only warm winter weather has so far delivered the continent from a severe crisis. The glib confidence with which Wall Street analysts touted the buildup in gas storage earlier this year betrays their ignorance about how tenuous those supplies really are. Underground gas storage currently stands at 2.8 trillion cubic feet (tcf) and could reach well over 3 tcf if the current hot weather abates and reduces demand for gas used to produce electricity. But those figures amount to a very small buffer when compared to the approximately 26.5 tcf consumed each year across North America. In fact, it is so small that the U. S. Federal Energy Regulatory Commission is taking steps to encourage an expansion of gas storage in order to reduce the volatility in prices.

But you can't store what you don't produce. Even though gas drilling rig counts in the United States have steadily advanced from an average of under 500 in 1999 to 1,376 in June, production remains flat. This has led to high volatility in prices. Since February 2002 prices have risen from a low of a little over $2 per thousand cubic feet (mcf) to nearly $15 per mcf last October. Prices have since come down considerably. Even so they are unlikely to stay there if a hurricane again knocks out gas production infrastructure in the Gulf of Mexico or a truly cold winter descends on North America.

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[Ezlivin]

1. Jonesing for NG so bad they're drilling in residential areas in Texas

Here in D/FW we hear a lot of "good" news about the Barnett Shale Formation.

Some homeowners are not so sure about the wisdom of drilling for NG in neighborhoods.

Natural gas companies are eager to convince homeowners that wells are not only safe and environmentally sound, but also that owners of mineral rights can get rich off the royalties. But many homeowners complain that the new wells—in residential areas, on church property, beneath parks, even on school grounds—make bad neighbors. They point to noise, unsightly derricks, and the destruction of green space as intrusions into their daily lives. Moreover, on April 22, an explosion at a gas well in the suburb of Forest Hill killed one worker and led to the evacuation of more than 500 homes. Investigations by OSHA and the Texas Railroad Commission are pending.

Currently Fort Worth allows a well to be drilled as close as 300 feet to an existing home; new homes can be built within 200 feet of a well. A task force stacked with gas industry reps has recommended a 600-foot buffer between an existing home and a well (keeping the 200-foot provision for new home construction). The activist organization Fort Worth Citizens Against Neighborhood Drilling Ordinance, or FWCanDo, has agitated for a 3,000-foot buffer between wells and homes.

The proliferation of wells signals that many residents have been more than happy to invite drillers into their neighborhoods, but the politics of NIMBYism, race, and class are creating sharp divisions. “The people that stand to make big, big money have lots of acreage,” says Gary Hogan, a member of the task force, who is calling for a 1,000-foot minimum. “But the person that owns an average house lot—there’s no big fortune.” Says Don Young of FWCanDo, “People who don’t own mineral rights are really the victims.” (http://www.texasobserver.org/article.php?aid=2209)

[MrPrax]

2. Hoarding?

I don't think it's Canada per se...I think the US owners of Canadian natural gas, which Kinder Morgan just bought BC oil and natural gas distribution, as well as other natural gas assets and took the whole compnay private are hoarding to force the prices up, but then suggest it is some Canadian thing that is the problem.

Americans have a very good track record of demonizing others, when it is their own scumbags that actively leverage the whole market. The market is the US, not Canada -- that's where the money is and that is why there is a strong incentive for US gas and oil concerns to control this distribution. You don't want 'crowns' in Canada releasing natural gas to screw up the price.

It's a cartel.

Two Reports:

Natural gas, oil prices jump amid heat wave

Natural gas prices soared 14 per cent and crude oil jumped more than a dollar a barrel Monday as a heat wave enveloped the major energy consuming regions of the U.S. and led to increased power demand to run air conditioning.

Natural gas futures for September delivery were quoted at $8.21 US per million British Thermal Units in New York trading. That was a rise of $1.03, or 14.3 per cent, in one day.
CBC from July 31/06
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Later that day - a gov't press release

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Natural Gas Reserves Hit Historical High In B.C.

July 31, 2006, VICTORIA – The British Columbia Oil and Gas Commission released a report today showing the province’s estimated raw gas reserves are the highest ever in history, said Richard Neufeld, Minister of Energy, Mines and Petroleum Resources and Minister responsible for the OGC.

“Studies have revealed that British Columbia’s reserves of natural gas continue to expand, which is good news for gas operators, customers and all British Columbians,” Neufeld said. “The abundance of natural gas can play a key role in meeting energy needs and driving the provincial economy well into the future.”
WebWire

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So supply really doesn't have a lot to do with the price -- just like oil. It's not the finding of the oil, it's the control of it's refinement and distribution that is being gamed.

From the Kinder-Morgan Wiki for background:

"...In a controversial sale met with public protest, the company acquired Canada's BC-based Terasen Inc. on November 30, 2005, which was subsequently renamed Kinder Morgan Canada. On May 30, 2006 it was announced that a group led by co-founder Richard D. Kinder offered to buy the company for $22 billion. Its other co-founder is William Morgan. The company began in 1997 as a spinoff of some assets of Enron, and now employs many former Enron employees, including former Enron whistleblower Jordan Mintz.

Kinder-Morgan

Kinder Morgan, from the people that brought you, Enron, only owns distribution systems -- just like Enron. They also have a hell of a lot of debt and guess who will pay for all that consolidation...if your first guess was shareholders...you're wrong...try again!!