What's new in production

	Vol. 228 No. 5
VICTOR SCHMIDT, DRILLING ENGINEERING EDITOR, schmidtv@worldoil.com

Organization of Gas Exporting Countries. OGEP has an interesting ring to it, doesn’t it?

Except for the organization part of the name; this is where the present limit exists and where 16 countries continued the conceptualization of such a body at the recent Gas Exporting Countries Forum (GECF) meeting. This editor doesn’t claim to understand all the details, but hopes that the following information will help the reader understand a bit more about this relatively new economic gathering.

GECF met first in 2001 in Tehran, Iran, when 15 countries gathered to discuss gas and economic issues in an oversupplied natural gas market. The countries have been meeting annually since that time, except for the 2006 meeting, which was rescheduled to Doha, Qatar, this April. This latest meeting raised angst among the consuming nations, particularly in the European Union. GECF will meet in Moscow, Russia, next year.

The membership of GECF has fluctuated, but members include Algeria, Bolivia, Brunei, Egypt, Equatorial Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, the UAE and Venezuela. Norway participates as an observer and other countries, including Bolivia, Indonesia, Libya, Oman and Turkmenistan, have been involved in the past. GECF serves as a way for these countries to sort out market forces and discuss legislative changes that affect their normal business practices and traditional contracting forms.

To state the obvious, gas and oil are physically different and their infrastructures reflect those differences. While oil can be poured into and transported in any manageable-sized container, pressure containment is not usually an issue, except in pipelines. However, gas requires constant pressure containment in either pipelines or storage vessels, including salt caverns. One way around gas’ transportation constraint is to chill it to a liquid.

LNG technology allows gas to be safely tankered and transported in ways more similar to oil. But, infrastructure expense drives the gas market to long-term contracts and relationships, and requires price stability to service construction debt. LNG is a growing business and the potential for more market flexibility through a spot LNG market is evolving. According to the International Energy Agency, global LNG capacity was 8.6 Tcf/yr in 2005 and, by 2010, it could be as much 16.8 Tcf/yr.

OPEC and GECF have some similarities: GECF has some members in OPEC and the world’s known gas reserves are concentrated in a few countries. Russia is the Saudi Arabia of natural gas with reserves of 1,688 Tcf and 21% of world production, according to the BP Statistical Review of World Energy 2006. Other major reserves lie in Iran (943 Tcf), Qatar (910 Tcf), United Arab Emirates (213 Tcf) and Nigeria (184 Tcf). There are many other countries with smaller reserves and many stranded Tcf in resources across the globe.

The apparent fear among consuming nations is that GECF will become OGEP, an OPEC-like cartel, and attempt to set and raise global gas prices. While this is possible, it is unlikely to happen any time soon, because the political cooperation and the infrastructure to support market control haven’t yet been built. GECF countries have different economic agendas, a need for foreign technology and capital, contracts that are long-term and control the LNG trade (with a small spot market), and importing countries will resist cartel development.

In fact, this resistance has already been expressed. The EU banned territorial restrictions in gas contracts and made the ruling retroactive. This bollixed many GECF countries’ long-established contracts with EU countries and fouled the stable economics of exporters’ projects. The change opened the European market to more competition, but the loss of the destination clause, which prohibited gas reselling, put the exporting countries at a disadvantage. Low-cost gas from a long-term contract in the recent high-demand market handed the consuming countries an arbitrage opportunity and pulled value from the exporting countries, which they felt should have been theirs.

Either a greatly expanded LNG fleet or a host of pipelines between continents would be needed to create a reliable, transworld delivery network that could control, trade and deliver gas. Of course, any sovereign nation, Russia or Canada for example, could act like a cartel, raising its gas price for or restricting the flow to a consuming nation like Ukraine or the US. But, that would produce an economic shock, which could affect future business, and no one really wants that.

For a thorough GECF analysis, I refer the interested reader to an excellent overview by Hadi Hallouche of the Oxford Institute for Energy Studies; see http://www.oxfordenergy.org/pdfs/NG13.pdf, and an interesting opinion series by Robert Amsterdam; see http://www.robertamsterdam.com/2007/04/russia_and_the_gas_cartel_part_2.htm.

New output

PA Resources AB began producing 20,000 bpd of oil from Didon field, offshore Tunisia. The field’s production start was delayed by weather, which slowed export system construction.

TransGlobe Energy Corp. is producing oil from the An Nagyah No. 24 well in Block S-1, Yemen. The well produces from a 2,595-ft lateral in the Lam A at 2,252 bpd with 600 Mcfd of associated gas.

China National Offshore Oil Corp. began producing almost 4 MMcfd and 42 bpd of oil from Tianwaitian gas field in the East China Sea. Control of the field, along with sister fields Chunxiao (called Shirakaba by Japan), Canxue and Duanqiao, is disputed by Japan, since the fields lie between the countries’ exclusive economic zones. Tianwaitian’s reserves are estimated at 500,000 bbl of oil and 348 MMcf of gas.

Transmeridian Corp. began producing oil from its first horizontal well in South Alibek field, Kazakhstan. The well is expected to stabilize at over 750 bpd from its 600-ft lateral section.

ExxonMobil Exploration and Production Malaysia Inc. (EMEPMI) began gas production from Tabu field, which will increase to 180 MMcfd. The field is 125 miles offshore Terengganu, Malaysia.

Pioneer Natural Resources Co. began production from a new gas field in Alberta, Canada. The field flowed about 18 MMcfd from three relatively shallow wells, two of which have 300-ft laterals. The wells are completed in a reservoir at about 2,000-ft TD and PNR expects flow to stabilize at 24 MMfcd.