www.petroleumnewsalaska.com Gary Park PNA Canadian Correspondent

Energy consultant says LNG could claim 15% share of North American market by 2020; FERC eases regulations for import, storage, regasification facilities

The emergence of liquefied natural gas as a supply source in the United States could slow the pace of conventional frontier projects, including the Arctic, an energy consultant told a Calgary conference.

Benjamin Schlesinger, founding president of Benjamin Schlesinger and Associates Inc. of Maryland, said two or three new terminals could proceed in the Lower 48 by 2010.

That in turn could mean development of Arctic gas “will have to wait a little bit longer,” while the brakes could also be applied to plans for delivering more gas from offshore Nova Scotia to New York.

Schlesinger forecast that LNG’s share of the overall North American market is expected to climb from 1.4 percent to 5 percent by 2020 and could reach as high as 15 percent, with at least 15 new LNG receiving terminals proposed for the United States, Canada and Mexico.

As trading of LNG intensifies in the Atlantic region, eastern U.S. and Canadian gas markets will experience improved gas supplies, he said.

TransCanada bullish on LNG Hal Kvisle, president and chief executive officer of TransCanada PipeLines Ltd., is one of the most bullish supporters of LNG, predicting its contribution to the North American market will grow to 5.9 billion cubic feet per day by 2015.

In recognition of LNG’s potential, the U.S. Energy Information Administration has now started listing LNG as a significant potential supply source, while in mid-December the U.S. Federal Energy Regulatory Commission gave added impetus to LNG by easing regulations to open the way for import, storage and regasification facilities.

“We want to encourage participation of LNG in U.S. markets,” FERC commissioner William Massey said at the time. He said the policy changes will be the catalyst for development of new terminals.

FERC will now treat LNG terminals on the same terms as gas production plants, with regulation applying to services starting at the tailgate as regasified LNG enters the interstate pipeline network.

In the case of the planned 1.5 billion cubic feet per day Hackberry, La., LNG terminal due to come on stream by January 2007, FERC will not require commission-approved cost-based rates, nor an open access tariff for the new terminal services because the project sponsors will carry the full risk of the project.

But FERC chairman Pat Wood III emphasized that his agency will assert its jurisdiction if it receives complaints of discrimination or anti-competitive behavior.

Flurry of applications in Mexico Propelled by the California power crisis two years ago, Mexico’s energy regulator is dealing with a flurry of applications to build LNG facilities on its Pacific coast to bolster U.S. supplies and reverse the flow of gas between the two countries.

Currently, Mexico is importing about 600 million cubic feet per day from the U.S., largely because production of its vast gas reserves is controlled by state-owned Petroleos Mexicanos (Pemex).

Although LNG developers on both coasts of Mexico are waiting for new regulations governing natural gas storage, Marathon Oil Corp., ChevronTexaco, Royal Dutch/Shell and Sempra Energy have decided to submit proposals for LNG terminal permits in Baja California. They could import gas from as far away as Indonesia for sale in Mexico and the United States.

Schlesinger told the Canadian Energy Research Institute conference May 3 that Venezuela’s proved gas reserves of 140 trillion cubic feet could also be a major supply source for the U.S. East Coast.

West Africa could also enter picture So long as gas prices hold steady in the range of US$3.50-$4.50 per million British thermal units they should be sufficient to attract LNG supply.

Bob Nimocks, president of Zeus Development Corp., a Houston energy consultant, told the Calgary conference that West Africa could also enter the supply picture as producers such as Royal Dutch/Shell and ChevronTexaco move towards their 2008 commitment to stop flaring associated gas, which currently consumes about 4 billion cubic feet per day.

He said it would cost C$2-$2.50 per million Btu to deliver West African LNG to the U.S. East Coast, but the abundance of gas available from that region will intensify pressures to find an outlet.

Reinforcing the belief that LNG will become a key source of future U.S. gas needs, a December report by Standard & Poor’s said the U.S. Atlantic Basin is poised to become the “next major growth market” in response to economic growth, environmental concerns about conventional energy sources and declining domestic production.

Noting the 6 percent decline in U.S. gas production in 2002, S&P said the annual rig count needs to leap to 1,000 from 720 just to keep gas supplies flat.

But the growth in gas-fired power generation capacity and higher gas prices have contributed to the emergence of a “respectable spot or short-term LNG market.”

The fundamentals for LNG are continuing to improve, with liquefaction costs in the Atlantic Basin dropping as low as $200 per ton from more than $500 in 1988, S&P said.

It said that expansion projects where ample supplies exist, such as Trinidad & Tobago, Nigeria, Algeria, Oman and Qatar, are also lowering their all-in costs of liquefaction, accompanied by a lowering of the netback price needed to justify new investments, the report said.

www.zwire.com SHAWN CLUBB, The Telegraph March 14, 2003

The Telegraph/JIM BOWLING Jeff Senger of Senger Gas prepares to detach a hose after filling a tank with propane gas in rural Jersey County. Propane gas has skyrocketed in cost in recent months, with the increases blamed on a severe winter across much of Propane customers might have noticed a sharp increase in prices lately, which industry insiders attribute to multiple factors, including the probable war with Iraq and a long, cold winter. Barb Bollinger of Senger Gas in Grafton said the cost for her company to buy propane from a distributor had risen 48 cents per gallon in one week. "It’s hard to pass this on," she said. "Everything has totally been going up, up, up." Bollinger said a minimum delivery could be 300 gallons, which would cost the residential customer an extra $150 with the increase in price. "It’s hard to stomach and pass on when you’ve got people out there, elderly people, that are trying to make it," she said. Melissa Erker, a spokeswoman for ConocoPhillips, a producer of propane, said the company does not comment about pricing issues because of the multiple factors that come into play. Phil Squair, vice president of regulatory and technical services for the National Propane Gas Association, said the price increase is tied to the long, cold winter, the threat of war in the Middle East and workers’ strife in Venezuela. "Propane is produced from crude oil and/or natural gas," he said. "When you’re refining crude oil, propane is the first thing to come up. When cracking natural gas, propane is the first (product). As prices of crude oil and natural gas change, propane prices track that change." Squair said the prices have not been affected in the exact same way in every region of the countrybut that they haven’t been much different. "It’s been a pretty bad winter across the country," he said. "When you have a higher demand and you have a long, cold winter, and you have troubles overseas, all the winter heating fuels are seeing the same things as to price increases." Squair said the prices could drop a bit once the demand eases off. "I know the weather services are reporting average sustained temperature rises," he said. "A decline in use would, I think, cause prices to ease off. The price of propane is not a regulated thing. To the extent demand starts to dwindle, we’re going to see prices dropping. "I’m sure individual propane marketers are conscious of the prices they have to pass on to their customers," Squair said. "No one wants to keep going back to their customers with price increases." shawn_clubb@hotmail.com

finance.news.com.au By Nigel Wilson March 13, 2003

BHP Billiton has committed $US327 million ($541 million) to speeding up its oil and gas discoveries off Trinidad and Tobago. The aggressive plan announced yesterday will have oil production beginning by the end of next year - only five years after the discovery well Angostura-1.

Three other exploration wells have encountered significant hydrocarbons.

BHP Billiton Petroleum and its partners - France's Total Fina Elf and Canada's Talisman Energy - are expected to spend $US726 million on the first phase of the integrated development.

The fast-tracking program will see Angostura oil being sold in the North American market well ahead of gas.

www.globeandmail.com By MATHEW INGRAM Saturday, March 1, 2003 - Page C2

Closing Markets: Friday, Feb. 28

S&P/TSX -27.07 6555.12 DJIA 6.09 7891.08 S&P500 3.87 841.15 Nasdaq 13.58 1337.52 Venture 4.21 1106.55 DJUK 3.29 148.51 Nikkei 3.66 8363.04 HSeng -11.58 9122.66 DJ Net .72 39.57 Gold (NY) +4.10 350.30 Oil (NY) -0.60 36.60 CRB Index +1.10 247.19 30 yr Can. -0.02 5.44 30 yr U.S. -0.05 4.68 CDN$ buys US$ +0.0036 0.6724 Yen +0.8600 79.5000 Euro +0.0026 0.6239 US$ buys CDN$ -0.0081 1.4871 Yen +0.6400 118.2200 Euro -0.0012 0.9278

The price of crude oil has skyrocketed over the past several months, partly because of concerns about supply from Venezuela and partly because of market speculation as the United States gears up for a war with Iraq. On Thursday and Friday, crude came within a hair of $40 (U.S.) a barrel, close to the peak it hit after Iraq invaded Kuwait in 1990. So that means investors should run out and load up on oil stocks, right? Not so fast.

Like most heavily traded commodities -- such as gold, for example -- supply and demand are only part of the equation when it comes to oil prices. The current price, which is hovering in the $39 range, is a result of supply glitches in Venezuela and higher demand for fuel oil in the United States as a result of cold weather. But it is also driven by an army of commodity traders, and theories about what may happen a month or two from now.

Based on simple supply and demand, the price of crude should probably be somewhere in the mid- to upper $20s, depending on which market expert you talk to. The rest of the current price is a result of speculation by oil traders about what will happen if war is declared, whether Saddam Hussein will decide to blow up his own oil fields, whether OPEC will be able to deal with any supply disruptions, and so on.

Some traders are betting that a war with Iraq would be over fairly quickly, and that once it is finished, the price of oil will return to normal levels. This is based largely on the fact that it's exactly what happened after the Persian Gulf war. Traders betting on that scenario have been short-selling oil, and some of the price rise in recent days has been blamed on short-sellers having to buy to cover those bets.

The opposite end of the spectrum has traders not only betting that the war in Iraq will go on longer than it did in 1991, but also that it might destabilize the rest of the Middle East, which could make the supply of oil from other OPEC producers less reliable as well. The combination of those events has some oil industry watchers predicting that oil could stay above $40 for some time, and might even get to $70 or $80.

The chance of that more extreme version of events taking place is fairly low, most oil industry analysts say. According to Philip Verleger, an oil industry economist and senior fellow at the U.S. Council on Foreign Relations, even if a war stops the flow of oil from Iraq completely, the other OPEC nations -- and Saudi Arabia in particular, the cartel's largest producer -- will likely step in to help cover that supply.

As Mr. Verleger told the Institute for International Economics recently, the major oil-producing nations would likely do this for a couple of reasons, the first being that skyrocketing oil prices would be bad for the global economy -- and that would be bad for business in the long run. The other is that high prices would encourage non-OPEC nations such as Russia -- which already produces almost as much oil as Saudi Arabia -- to produce even more, and that would eat into OPEC's market share.

But even under a moderate scenario, won't producers enjoy windfall profits, and therefore aren't their stocks sure to go up? After all, Canadian Natural Resources just said its fourth-quarter profit tripled from last year, and it could make $1-billion (Canadian) more in profit this year than it expected to.

Unfortunately, it's not that easy to draw a straight line between higher crude prices and higher stock prices.

Take a look at what happened to Canadian Natural's stock after it made that announcement. You might expect that an extra $1-billion on the bottom line, even for a company that size, would make a major difference -- after all, it works out to more than $7 per share. And yet the stock has risen by just $2.52 since the news, and at $51.15 isn't even as high as it was last fall.

It has climbed by 25 per cent since October, but the price of crude oil has climbed by more than 60 per cent since then.

"Institutions never pay for peaks, nor do they pay for valleys," FirstEnergy analyst Martin Molyneaux told Globe and Mail reporter Guy Dixon recently. In other words, investors won't pay more for a stock if they don't think high oil prices are sustainable, even though the company might seem to be worth a lot more. The risk that the price increase won't be sustainable translates into a lower multiple for those stocks.

Of course, oil and gas stocks (because most companies do both) have been going up based on more than just crude prices. Natural gas is also high, in part because of cold winter weather, and a sharp drop in inventories.

That could help justify higher prices even if crude oil does come back down in price -- but it isn't going to produce a windfall for investors at this point, given how far some stocks have already climbed. Mathew Ingram writes analysis and commentary for globeandmail.com. mingram@globeandmail.ca

www.miami.com Posted on Fri, Feb. 28, 2003 H. JOSEF HEBERT Associated Press

WASHINGTON - Venezuela's oil production has been rebounding, but it's still too early to tell when American refineries will once again be able to rely on the South American country as they have in the past.

Venezuela's energy minister, Rafael Ramirez, gave an optimistic forecast during a visit Thursday, predicting that his country would be producing 2.4 million barrels of crude a day by the end of the month, about what the country's production quota is under guidelines laid down by the Organization of the Petroleum Exporting Countries.

But Bush administration officials did not eagerly embrace the upbeat assessment.

On Wednesday, Energy Secretary Spencer Abraham told a Senate hearing it might be two to three months before Venezuelan imports get back to normal.

"We appreciated their sharing the information with us," Energy Department spokeswoman Jeanne Lopatto said Thursday when asked for comment on Ramirez' forecast.

The loss of Venezuelan oil in December because of the country's political strife has been especially worrisome within a Bush administration preparing for possible war with Iraq.

Energy analysts have questioned whether other producing countries with spare production capacity, mainly Saudi Arabia, could replace both lost Venezuelan and Iraqi oil should war erupt in Iraq and Venezuela's problems not be resolved.

The world's fifth largest oil producer, Venezuela is a major source of oil for the United States, accounting for about 14 percent of U.S. oil imports last year, or about 1.4 million barrels of crude and refined gasoline per day.

In recent months U.S. refiners, purchasing through intermediaries, reportedly have been relying more heavily on Iraqi oil to replace the lost supplies from Venezuela. The two countries produce similar types of oil.

U.S. imports of Iraqi oil doubled to more than 1 million barrels a day in mid-February, The Washington Post reported recently, citing unpublished figures from the United Nations. Working through intermediaries, U.S. companies long have bought Iraqi oil under a U.N. food-for-oil program, but those imports dropped to almost nothing last summer when Iraq for a time tacked on an expensive surcharge.

The political turmoil in Venezuela caught U.S. officials by surprise. Energy analysts have blamed the recent jump in the price of crude, as well as heating oil and gasoline, to the loss of Venezuela's oil and jitters over possible war in Iraq.

Crude prices retreated somewhat Thursday after soaring to the highest level since the Gulf War 12 years ago, closing at $36.35 on the New York Mercantile Exchange spot market.

Analysts speculated that the decline_ nearly $1 from Wednesday's close - was more the result of profit taking than a signal of a downward trend. The price for crude to be delivered in April increased to just under $40, the highest since October 1990, shortly before the Gulf War.

The attempt by Ramirez, Venezuela's minister in charge of energy and mines, to reassure U.S. officials of his industry's recovery seemed to have little impact on traders, who have been worried more about Middle East supplies if war erupts in Iraq.

Ramirez said Venezuelan oil production, at a standstill in December and January, recovered significantly in February.

He said production rose from 150,000 barrels a day in early January to just over 2 million barrels a day, with 1.5 million barrels a day being exported. He said production is expected to reach 2.9 million barrels a day by the end of March.

He spoke at the Inter-American Dialogue, a Washington group specializing in Western Hemisphere affairs, and later to reporters.