Monday, November 2, Arthur Berman wrote in his blog:

Pressure from Petrohawk helps cancel World Oil column

In an act of extraordinary courage, a top Petrohawk executive threatened to cancel his free subscription to World Oil if the magazine continued to publish my column. Today, John Royall, President and CEO for Gulf Publishing, cancelled my November column.

I have accordingly resigned as contributing editor.

Heading Out (Dave Summers) and I have been talking about the issues Arthur Berman raises for quite a while now. Most recently, Dave wrote a post called Shale Gas Estimates Perhaps Optimistic - An Interesting and Worrying Talk at ASPO.

So what are the issues involved?

Unfortunately I have had to miss the ASPO Meeting in Denver this week, and so cannot provide the daily reports that I have written in the past. But I notice that at least one of the talks has already caught a significant amount of press, and that is the one by Arthur Berman on the gas production from shale deposits such as the Barnett, Haynesville and Marcellus.

There has been a considerable hype in the press about the value of the gas from these shales, and the ability that they provide to bring in an “Age of Natural Gas”. Commenting on the situation last year, the CEO of Chesapeake noted:

. . .the U.S. today consumes about 63 billion cubic feet of natural gas per day - in energy BTU equivalency terms, that’s 10.5 million barrels of oil per day, or about half of the amount of oil that the U.S. consumes each day. Of that 63 bcf per day of natural gas consumption, we import about 1 bcf in the form of liquefied natural gas, or LNG, and we import about 8 bcf per day from Canada. This means that we are about 98.5% self-reliant on natural gas supply from North America and about 86% self-reliant on natural gas supply from the U.S. Contrast that with oil, where we are only about 41% North American self-reliant and only about 27% self-reliant from U.S. sources.

Turkmenistan holds significantly large quantities of natural gas (they hold the world’s fourth largest reserves) and these have, over the years, proved attractive to Russia, China and the West. Until fairly recently, despite some bad relationships from time to time, the natural gas that the country produced made its way towards the West through Russia. With only Russian pipes as the conduit, Turkmen gas was under the real control of those who chose whether to pump the gas, or not.

The Age reports that the Exxon has signed up its first customer for LNG from the Gorogn field off WA, with India's Petronet LNG signing a 20-year agreement to take gas from the project (First Australia-India long-term LNG deal reached).

Under the agreement, Exxon will supply about 1.5 million tonnes per annum from its 25% share of LNG from the project over 20 years (the project as a whole will produce 15 million tonnes a year) - the gas will be delivered to Petronet's new LNG terminal under construction at Kochi in southern India.

WA Environment Minister Donna Faragher has given final environmental approval for the proposed development on Barrow Island, removing one of the remaining obstacles to construction (Green light for Gorgon in time for lucrative deal), and the local press is already reporting on some of the activity required to support the construction of the project (Hercules to airlift Gorgon materials).

Federal Environment minister Peter Garrett also needs to approve the project, though given his recent stance on large scale energy developments he seems unlikely to oppose it (Chevron set to go ahead with big gas project). The Australian reports the project partners are aiming to tick off on developing Gorgon in mid-September. If approved, Gorgon will be the largest Australian resources project and, as federal Resources Minister Martin Ferguson has pointed out, will provide a greater investment than the Rudd government's $42bn stimulus package.

Annual sales from Gorgon would be worth around $12.5bn at current prices and would boost the nation's mineral and energy revenues by 10 per cent, based on government export forecasts for this year (as I've noted previously if all of Australia's proposed gas developments proceed - especially if we include coal seam gas - we'll have to be wary of the "dutch disease").

The Gorgon plant will have three 5 million tonnes a year LNG trains and will produce LNG using the 40 trillion cubic feet of gas in the two Greater Gorgon fields.

The fields, Gorgon and Io/Janz, contain Australia's biggest gas reserves and are expected to support the project, which will start production in 2014 and ramp up to full output 18 months later, for more than 40 years.

The strangest and most unsettling aspect of the project is that the federal government and WA state government will bear the costs for any problems related to sequestration of carbon dioxide from the project in future years, which seems like a spectacularly risky bet for taxpayers over the long run - (Gorgon deal on carbon).

In other Australian gas news, Gas Today has a report on the various projects under consideration further north in the Browse Basin (Browsing gas fields).

And the UK Daily Telegraph has a report on Shell's bid the purchase the rest of coal seam gas producer Arrow Energy (Royal Dutch Shell tables £1.5bn bid for Australia's Arrow Energy).

Gas Today also has a look at the wisdom of exporting LNG in such large quantities over the long term and what this means for local gas consumers (Are we exporting our energy future?).