JAN 3, 2011 | USD 10 International Petroleum News and Technology | www.ogjonline.com US POLITICAL OUTLOOK FORECAST & REVIEW US UNCONVENTIONALS: PRICE FACTORS PLAQUEMINES SHALLOW GAS PIPELINE COST EQUATIONS EU REFINERS SQUEEZED 110103ogj_C1 C1 12/22/10 1:50 PM Shouldn’t you know your safety loops from the inside out? With a smart safety instrumented system you can DeltaV SIS Smart DeltaV SIS is the only logic solver to digitally diagnose and automatically proof test components of your entire safety loop No more second guessing–the health of each element in the safety loop is continuously monitored This valuable information is easily accessed by operators without data-mapping and multiple databases DeltaV SIS shuts down your plant when needed for safety, but keeps you running safely when components fail–reducing spurious trips DeltaV SIS is the first to use predictive intelligence and device diagnostics to enable safer facilities, improve availability, lower life-cycle costs, and ease regulatory compliance For more insight, visit: www.DeltaVSIS.com The Emerson logo is a trademark and a service mark of Emerson Electric Co ©2010 Emerson Electric Company 110103ogj_C2 C2 12/22/10 1:50 PM CONTENTS Jan 3, 2011 Volume 109.1 SPECIAL REPORT US POLITICAL OUTLOOK 24 37 Beyond Macondo: Industry faces range of issues in 2011 Nick Snow 24 47 SPECIAL REPORT FORECAST & REVIEW GENERAL INTEREST Beyond Macondo: Industry faces range of issues in 2011 Nick Snow EPA assumes GHG authority in eight states as carbon regulation begins 32 Nick Snow 29 Mixed outlook seen in ’11 for N American refiners IHS Herold outlines 2011 outlook for oil services, drillers 34 24 CSB chief to Bromwich: Macondo well blowout preventer examination compromised WATCHING THE WORLD Baghdad’s Brave New World Paula Dittrick Texas leads North Dakota in 2009 oil reserves hike 29 34 Iraq promotes al-Shahristani; appoints Luaibi as oil minister Total, Suncor sign $1.75 billion Canada oil sands deal Eric Watkins 35 Nick Snow 26 FWS clarifies polar bear designation; Alaska ponders suit WATCHING GOVERNMENT The 2010 ‘Watchies’ 28 37 Modest drilling gains await US, Canada in 2011 30 Chevron: No scientific basis for $113-billion Ecuador claim Trinidad and Tobago awards four shallow-water blocks Curtis Williams 36 Eric Watkins 31 47 Eric Watkins EXPLORATION/ DEVELOPMENT BRIEFS 36 COVER Suncor Energy Inc.’s refinery in Commerce City, Colo., has a capacity of 90,000 b/d Total US operable refining capacity was slightly down in 2010 but input to crude stills was up 2.9% See p 37 for more information on US refinery runs, supply and demand, pricing, and production in the 2011 Forecast & Review special report Photo courtesy of Suncor Energy 110103ogj_1 Marilyn Radler, Laura Bell Alan Petzet Nick Snow 26 US, worldwide energy demand growth rates to slow in 2011 REGULAR FEATURES NEWSLETTER CALENDAR 16 JOURNALLY SPEAKING 20 EDITORIAL 22 EQUIP./SOFTWARE/LITERATURE 126 SERVICES/SUPPLIERS 127 STATISTICS 129 MARKETPLACE 132 ADVERTISERS’ INDEX 135 EDITOR’S PERSPECTIVE/ MARKET JOURNAL 136 12/29/10 11:12 AM We didn’t invent the compressor We’re perfecting it Ariel Corporation 35 Blackjack Road Mount Vernon, OH 43050 www.arielcorp.com 110103ogj_2 12/22/10 9:28 AM EXPLORATION & DEVELOPMENT DRILLING & PRODUCTION PROCESSING TRANSPORTATION SOUTHEAST LOUISIANA SHALLOW GAS—2 (Conclusion): Louisiana lagniappe: Case study from Grand Bay gas prospects Price scenarios may alter gas-to-oil strategy for US unconventionals National lab uses OGJ data to develop cost equations Ruud Weijermars EU REFINING—1: Needs to meet distillate demand, export gasoline squeeze refiners 74 90 Andy Clifford, Elizabeth Goodman 50 Downhole tests show benefits of distributed acoustic sensing Greenland awards seven licenses in Baffin Bay Mathieu Molenaar, David Hill, Vianney Koelman DCS advanced control improves Chinese ethylene cracker operation 71 82 Photo from BP PLC 90 Daryl Brown, Jim Cabe, Tyson Stout 108 Honggang Wang, Zhenlei Wang, Hua Mei, Feng Qian, Zhiwu Tang Approach allows for robust, flexible valve protection Jaime Farinas, Gary Nunez 112 96 New USGS report confirms big Caspian stakes Eric Watkins 72 CLOSED-LOOP CIRCULATING—2: Manual pressure management enhances safety, efficiency GUIDE TO WORLD CRUDES: Updated Cusiana assay reveals lighter crude oil David Pavel, Brian Grayson 104 86 Nelson-Farrar monthly cost indexes ASSET INTEGRITY—1: New model predicts internal corrosion likelihood Fengmei Song, John McFarland, Barron Bichon, Luc Huyse, Fraser King, Laurie Perry, Mark Piazza 116 105 NELSON-FARRAR QUARTERLY COSTIMATING: Refinery fuel indexes since 2007 show unsteady track Gary Farrar 106 50 110103ogj_3 112 12/29/10 11:45 AM PennWell, Houston office 1455 West Loop South, Suite 400, Houston, TX 77027 Telephone 713.621.9720 / Fax 713.963.6285 Web site www.ogj.com 5BDUJDBM 5FDIOPMPHZu JO BDUJPO 4FDVSF %SJMMJOH 4FSWJDFT (BJO B TFOTF PG TFDVSJUZ XJUI 8FBUIFSGPSEnT FYQBOEFE SBOHF PG TFSWJDFT UIBU NJOJNJ[F SJTL BOE PQUJNJ[F MJGFPGXFMM QFSGPSNBODF Editor Chief Editor-Exploration Chief Technology Editor-LNG/Gas Processing Production Editor Pipeline Editor Senior Editor-Economics Senior Editor Senior Writer Senior Staff Writer Survey Editor/News Writer Publisher Vice-President/Group Publishing Director 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5IF DIBOHF XJMM EP ZPV HPPE XFBUIFSGPSEDPN „  8FBUIFSGPSE "MM SJHIUT SFTFSWFE *ODPSQPSBUFT QSPQSJFUBSZ BOE QBUFOUFE 8FBUIFSGPSE UFDIOPMPHZ 110103ogj_4 Chairman President/Chief Executive Officer P.C Lauinger, 1900-1988 Frank T Lauinger Robert F Biolchini Member Audit Bureau of Circulations & American Business Media Copyright 2011 by PennWell Corporation (Registered in U.S Patent & Trademark Office) All rights reserved Oil & Gas Journal or any part thereof may not be reproduced, stored in a retrieval system, or transcribed in any form or by any means, electronic or mechanical, including photocopying and recording, without the prior written permission of the Editor Permission, however, is granted for employees of corporations licensed under the Annual Authorization Service offered by the Copyright Clearance Center Inc (CCC), 222 Rosewood Drive, Danvers, Mass 01923, or by calling CCC’s Customer Relations Department at 978-750-8400 prior to copying Requests for bulk orders should be 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JO        JO                 %BZT 0VS BVUPNBUFE TZTUFN NFBTVSFT BOBMZ[FT BOE DPOUSPMT DIBOHJOH XFMMCPSF DPOEJUJPOT JO SFBM UJNF /PX ZPV DBO ESJMM XFMMT UIBU XFSF PODF DPOTJEFSFE VOESJMMBCMF 8FBUIFSGPSEnT JDSPỗVY DPOUSPM TZTUFN JT NPSF UIBO NBOBHFE QSFTTVSF ESJMMJOH *UnT TFDVSF ESJMMJOH 8F DBMM JU 5BDUJDBM 5FDIOPMPHZu :PVnMM DBMM JU NPOFZ JO UIF CBOL 7JTJU XFBUIFSGPSEDPNNJDSPỗVY PS UBML UP B 8FBUIFSGPSE SFQSFTFOUBUJWF 8F NJHIU DIBOHF UIF XBZ ZPV MPPL BU BMM PG ZPVS TFSWJDF OFFET %SJMMJOH &WBMVBUJPO $PNQMFUJPO 1SPEVDUJPO 'ULOOLQJ KD]DUG PLWLJDWLRQ ‡ 'ULOOLQJZLWKFDVLQJ 'Z&Œ V\VWHPV ‡ 6HFXUH 'ULOOLQJ60 VHUYLFHV  &RPSUHVVLRQ VHUYLFHV  'RZQKROH WRROV  )OXLG V\VWHPV  0DQDJHG SUHVVXUH GULOOLQJ  3UHVVXUHFRQWURO HTXLSPHQW  8QGHUEDODQFHG GULOOLQJ ‡ 6ROLG H[SDQGDEOH V\VWHPV 5IF DIBOHF XJMM EP ZPV HPPE XFBUIFSGPSEDPN *OUFSWFOUJPO 110103ogj_5 „  8FBUIFSGPSE "MM SJHIUT SFTFSWFE *ODPSQPSBUFT QSPQSJFUBSZ BOE QBUFOUFE 8FBUIFSGPSE UFDIOPMPHZ 12/16/10 10:37 AM OGJ Newsletter Jan 3, 2011 International News for oil and gas professionals GENERAL INTEREST Q U IC K TA K E S US court denies NPRA-API challenge of RFS changes The federal appeals court for the District of Columbia rejected the National Petrochemical & Refiners Association’s and American Petroleum Institute’s petition to set aside changes the US Environmental Protection Agency made in the federal renewable fuels standard NPRA and API argued the changes violated 2009 and 2010 biomass-based diesel fuel requirements, were impermissibly retroactive, and did not comply with statutory lead time and compliance provisions for renewable fuels established by the 2005 Energy Policy Act and expanded by the 2007 Energy Independence and Security Act “EPA had clear albeit implicit authority under EISA to apply both the 2009 and 2010 volume requirements in the 2010 calendar year in order to achieve the statutory purpose,” Judge Judith W Rogers wrote in her Dec 21 opinion “The structure of EISA demonstrates that Congress anticipated the possibility of some retroactive impacts in the first year of the expanded renewable fuel program.” NPRA President Charles T Drevna expressed disappointment and concern over the ruling “The legal petition before the court did not seek to challenge or call into question the important role biofuels play in our nation’s transportation policy,” he said “Rather, the issue is one of fundamental fairness in EPA’s rulemaking process This retroactive regulation by a federal agency establishes a deeply troubling and potentially farreaching precedent.” “This is a disappointing decision Setting requirements to blend certain biofuels for the previous year is a legally questionable retroactive action,” said Patrick Kelly, a senior policy advisor in API’s downstream fuels issues group API supports a realistic and workable RFS and its members are committed to meeting the regulatory requirements, he continued “This decision significantly complicates compliance and may set a dangerous precedent allowing retroactive requirements for past compliance periods,” Kelly said Sasol to buy stake in Montney shale gas Sasol Ltd agreed to buy a 50% stake in Talisman Energy Inc.’s Montney shale gas play in the Farrell Creek project in north- 110103ogj_6 For up-to-the-minute news, visit www.ogjonline.com eastern British Columbia for $1.05 billion (Can.), and the two companies plan a Farrell Creek area partnership that Talisman will operate Talisman Pres and Chief Operating Officer John A Manzoni said Sasol’s expertise will help Talisman decide whether to build a gas-to-liquids plant in western Canada Terms of the transaction call for an economic feasibility study regarding a GTL plant “This could provide a strategic alternative to traditional North American pipeline or liquefied natural gas marketing,” Talisman said Sasol uses its Fischer-Tropsch technology to transform natural gas into gasoline and diesel in South Africa and Qatar “The outlook for GTL could be very positive if North American natural gas prices continue to decouple from oil prices,” Talisman said Closing, subject to regulatory approval, is expected during the first half of 2011 The 51.6 acre site holds an estimated 9.6 tcf, said Sasol, which agreed to pay $260 million upon closing and carry 75% of Talisman’s future capital commitments in Farrell Creek up to $790 million total Farrell Creek production is expected to reach 40-60 MMcfed by yearend Previously, Talisman expanded its Farrell Creek processing facilities to 120 MMcfd Talisman and Sasol also agreed to collaborate on certain other western Canadian natural gas opportunities EXCO buying Marcellus assets from Chief EXCO Resources Inc will acquire Marcellus shale interests from Chief Oil & Gas LLC and related parties for $459.4 million, subject to price adjustments at closing Both companies are based in Dallas The deal includes properties with gross production of 40 MMcfd of gas (16 MMcfd net) from 15 wells, 11 wells awaiting completion, and more than 50,000 net acres in northeastern Pennsylvania, primarily Lycoming and Sullivan counties BG Group, a partner of EXCO in an Appalachian basin joint venture, has the right to buy 50% of the acquisition Big Chief recently said that its Marcellus basin production had reached 100 MMcfd of gas equivalent from 42 wells and that it expected output to reach 115 MMcfd by yearend (OGJ Online, Nov 10, 2010) Oil & Gas Journal 12/29/10 12:18 PM CLEAN INNOVATION Announcing the world’s first hydraulic fracturing system made from ingredients sourced from the food industry How ingredients sourced exclusively from food industry suppliers are helping produce more natural gas The world asked for cleaner fracturing chemistry and Halliburton delivered it The new CleanStim™ formulation provides an extra margin of safety to people, animals and the environment Laboratory testing indicates that it also produces higher retained conductivity than conventional fracturing fluids under many conditions The CleanStim recipe is designed for downhole use, not dinner tables But it will help satisfy the world’s appetite for natural gas See if it’s right for you Learn more at Halliburton.com/cleanstim Solving challenges.™ © 2011 Halliburton All rights reserved 110103ogj_7 12/28/10 3:21 PM TRANSPORTATION Oil & Gas Journal | Jan 3, 2011 110103ogj_121 121 DEWPOINTS, PREDICTED VS ACTUAL FIG Saturation limit, lb/MMscf FIG 9a True values Simple model Error 80 80 60 60 40 40 20 20 0 Jan 1, 2005 12 July 20, 2005 Feb 5, 2006 Aug 24, 2006 Saturation limit variance, lb/MMscf Data plot 100 -20 Mar 12, Sept 28, 2007 2007 Variance plots FIG 9b Sample quantities neither is as significant as CO2 H2S in low concentrations was actually found to mitigate CO2 corrosion.6 Oxygen (O2) can result in a high rate of IC but is not commonly present in pipelines Oxygen’s presences requires considering the corrosion rate resulting from it The importance of understanding the contents of the corrosive constituents in gas justifies a brief review of an earlier study conducted in 1999 by the Gas Machinery Research Council and Southwest Research Institute.7 The 1999 study sought to understand at what content the gas was regulated to be controlled under for a particular corrosive constituent or TL For this study, the terms of agreement for 70 companies were collected and collated to identify how the gas threshold limits were dealt with given the minor quantity of corrosive components in natural gas in the US Fig plots the original survey data.7 The value shown on each segment of a column is the TL for that specific corrosive constituent, labeled at the bottom of the column including the TL unit Of the 70 companies surveyed, the number that responded to follow a TL is shown on the left vertical and the percent on the right Fig shows the TL for WC at lb/MMscf to be most widely accepted Other WC are lower and more applicable to colder climates where water dewpoint is lower The two predominant TLs for CO2 content are 2% and 3% by volume Using nitrogen as an inert element moves the TL’s combined limit to 3%, or CO2 alone to 2% Many companies thought O2 to be nonexistent in gas pipelines, as noted by the rather large number of companies missing a standard for it A 0.20% nitrogen content appears to be the majority limit The most common standard for H2S content is one-quarter grain/100 cu ft gas, or ppm Close to half the TLs support this value while the ones deviating from it are all on the high side An H2S content of 16 ppm also appears to be widely accepted For total sulfur in all forms, over half the industry recognizes 20 grains/100 cu ft gas as an upper limit Over onethird more are below this level, grains being the second most popular threshold The probabilistic modeling uses the TLs for water and CO2 The water threshold limit helps develop the operating charts, while the CO2 TL is used for determining the corrosion rate when the de Waard-Lotz equation is being used.8 The standard methods used by the gas industry for determining water saturation limit (SL) or dewpoint include AGA Monograph 8, IGT-8/ASTM D1142, GPA Engineering Data Book, and the GERGWATER method The third-order PengRobinson equation of state (EOS) can also serve this purpose.9 Comparing the different methods showed the IGT-8 method offering predictions between those of the other methods, suggesting its predictions are modest relative to the others IGT-8 determines water SL in this article (Equation 4) The values of A and B are tabulated in the IGT-8 manual5 -4 -8 -12 -4 -2 Theoretical quantities and yield Equations and if fitted by polynomial expressions Fig shows the fit of Equations and to the tabulated data given by IGT-8 to be excellent The fitting curves pass through the center of each data point within the conditions shown in the figure, which cover the limits of normal pipeline operations well Field conditions Developing a probabilistic model for field application requires understanding actual distributions of the operating parameters Operators collected field data of pipeline operating temperature, pressure, and water content at different locations along their systems Comprehensive statistical analysis of the data sought to understand variability with time of the operating temperature, pressure, and WC, assumed sufficiently to represent variability of the operating conditions across the industry within the US and Canada The statistical results of temperature and pressure can determine the distribution of dewpoints with Equation The probability of water content exceeding dewpoint is the probability of water condensation, a basis used for developing the probabilistic model The project collected field time-dependent temperature and pressure data for a total of 38 independent lines from six operators across the US and Canada, gathering at least 121 12/16/10 3:23 PM TRANSPORTATION DEWPOINTS STANDARD DEVIATIONS FIG 10 FIG 11a Saturation limit, lb/MMscf 100 10 80 60 40 20 0 FIG 11 FIG 10a 12 Predicted standard deviation DEWPOINT DATA 10 Jan 1, 2005 12 True values July 20, 2005 Feb 5, 2006 90% confidence bounds Aug 24, 2006 Mar 12, 2007 Sept 28, 2007 True standard deviation 50 25 0