Global consumption is growing almost twice as fast as for oil, it is the cleanest-burning of the fossil fuels, and it is comparatively cheap: it currently trades at about half the cost of crude oil on an energy-equivalent basis.

In an energy-hungry world, it’s therefore not surprising that there’s now a mad scramble to procure long-term supplies and bring them to market.

Let’s take a look at some of the current major developments…

Pipelines. Russia, which has the world’s biggest reserves of natural gas, is building a direct link to Germany beneath the Baltic Sea, and planning others to China and Italy. These are enormous undertakings. The 3,000km Italian link, for example, is expected to cost $15bn.

Elsewhere, the ConocoPhillips-BP pipeline to bring North Slope gas from Alaska to Canada’s oil sands industry and the lower 48 US states will be the largest private-sector construction project in North America. And the pipeline China is building from Turkmenistan in Central Asia to Shanghai will stretch for 9,000 kms.

Liquefaction. An alternative means of moving gas is to liquefy it by freezing, ship the liquids across oceans, then turn it back into gas. The technology is not new, but LNG (Liquified Natural Gas) facilities are hugely expensive. For years this limited its transportation to countries not accessible by pipeline, mainly Japan.

But high energy prices have now made LNG viable on a large scale. And there are other advantages. European nations, for example, nervous about their increasing dependence on Russian gas, are looking to alternative sources such as North Africa, using LNG. China signed a $60bn deal with Qatar last month to buy three million tons of LNG a year over 25 years from 2011.

With its volumes growing 7% a year, LNG is the fastest growing of the fossil-fuel industries. Because of the massive investments required, it is dominated by a handful of very large multinationals.

New Reserves. Oil majors are boosting efforts to find and tap hydrocarbon deposits that are primarily gas, with oil as a side-product.

The newly-discovered Sugar Loaf field under the Atlantic off Brazil, claimed to be one of the world’s biggest, is primarily a natural gas resource. The Shtokman development in the Barents Sea off Russia’s Arctic coast, and several projects off the coast of north-west Australia, focus on production of gas, not oil.

There is also increasing interest in exploiting hard-rock resources that have been neglected in the past because it’s difficult to tap their gas. On the western slopes of the US Rockies, Exxon Mobil is starting to employ an explosive fracturing technique three times more effective than conventional technology to unlock the riches of the Piceance Basin.

Coal-bed Methane. The “fire-damp” found in coal deposits – the curse of miners throughout the ages – is almost pure methane and an excellent substitute for natural gas, which is about three-quarters methane. It may be recovered from worked-out collieries or from coal deposits left unexploited because they are so gassy they are too dangerous to mine, and already accounts for a tenth of natural gas production in the US.

BG Group, the global specialist in the discovery, extraction and supply of natural gas, plans to build the world’s first plant to produce LNG from coal-bed methane piped 400km from fields in the interior of Queensland, Australia.

Liquid fuels. Although currently used as gas to fuel central heating, industrial furnaces and power stations, natural gas can be converted into liquid fuels. In Qatar, which has the world’s third largest gas reserves, they’re building plants to do just that.

Worldwide demand for natural gas has been growing at an average rate of nearly 3% a year, compared to oil’s 1.7%. China’s gas consumption is forecast to triple over the next 12 years, India’s to double. Yet between them they have less than 2% of global reserves, so they will be forced to look to imports from the Mideast, Russia and Australia.

Investing in natural gas: major role in power stations

The strongest demand growth area for natural gas is in electricity generation. Dirk Beeusaert, chief executive of Suez, the world’s biggest operator in the field, says the investment cost per kilowatt of power from gas turbines is “half that of a coal plant, and a third of that from a nuclear plant of the same capacity.”

Gas power stations can be built quickly, are flexible in operation, reduce dependence on other resources such as coal, oil and nuclear – and have particular attractions in these times of ecomania. Not only do they produce less greenhouse gases than other fossil fuel, but they can be used efficiently to generate intermittent power, to fill the gaps when turbines driven by wind and water shut down because of calms or droughts.

A couple of decades ago, gas accounted for little of the world’s electricity generation; now it fuels almost one-fifth.

Although the oil majors are giving increasing attention to finding and producing natural gas, most of the world’s resources are closed to them, or are politically high-risk. Russia seeks to use its gas supplies as a strategic weapon in its dealings with Europe and is squeezing out foreign companies. Iran is a different kind of political minefield. Qatar is happy to partner international oil firms, but is also right in the middle of the potentially explosive Middle East.

One country that is benefiting from all this is Australia, which has reserves almost as large as those of the US, production that is likely to continue expanding for the next quarter-century, and a business-friendly environment. Chevron’s Gorgon project alone, which got its go-ahead from regulators a few months ago, expects to produce more than a trillion cubic metres of gas over its 60-year life.

Maryland Mayer and the Dakota Oil Rush

Isabella Lucy Bird (1831-1904) was an amazing traveler and a pretty good writer. I have a soft spot for adventurers. Especially for those who can write well. In her time, she traveled all over the world. She traveled throughout Asia. She lived for a time among the Ainu people in northern Japan. Bird also made it to Hawaii, where she climbed the Mauna Loa volcano. She also wandered in Australia and rode horses in Persia. This is just a snippet of her life’s itinerary. She got around.

In 1873, Bird set off for the Rocky Mountains. Back then, the Rocky Mountain region was an untamed wilderness, peopled with a few hardscrabble pioneers. Bird began her journey in San Francisco. She headed west across Nevada and then trudged into the Colorado Territory. Bird set her adventures down in a series of letters to her sister Henrietta. She stitched them together in a book, published in 1879.

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Here she records her vivid descriptions of the landscapes of the Rockies. She writes of the “snow-splotched mountains,” the glades and sloping lawns, the elk and the bears. One bear came so close she “heard the grass, crisp with hoar frost, crackle under his feet.” She writes of the profound stillness and “cherry-fringed beds of dry streams.” And the “deep, vast, canyons…[that] lie in purple gloom.”

It’s that vastness and beauty, that sense of exploring, that still gives the Rocky Mountains a romantic aura even to this day. I enjoyed reading Bird’s letters…and they got me in the mood for today’s column. Today, despite all of our sophisticated toys, the Rocky Mountains remain mysterious in ways of oil and gas.

Oilmen and speculators wonder just how much oil and gas might lie in this region. Some of the hottest exploratory regions in America lie in the Rocky Mountain region. In particular, in the so-called Bakken Trend.

Steven Ward is a former employee of Amoco Oil. He now works as an independent oil analyst specializing in Canadian and Western European oil companies. He wrote a neat piece that I stumbled on as I was researching my next recommendation. The title was “The Bakken Trend: Lost Dutchmen Mine of the Oil Patch?”

The Lost Dutchmen Mine is a legendary gold mine somewhere in the Superstition Mountains east of Phoenix. It’s a fascinating story. If you Google “Lost Dutchmen Mine,” you’ll come up with all kinds of interesting commentary. But Ward used the Dutchmen legend as a takeoff to talk about various similar legends about oil riches in oddball places. “Stories abound about great oil riches in faraway places yet undiscovered; the foot of the Himalayas, the Spratly Islands, the Atlantic Rockall volcanic peak,” Ward writes.

He relates how similar legends exist about the continental U.S. and Canada. Specifically, these legends proliferate around a region called the Bakken Trend. It lies in the giant Williston Basin that stretches across parts of the Dakotas, Montana, Manitoba and Saskatchewan.

He writes about geochemist L.C. Price, who worked for the U.S. Geological Survey. Price delivered a stunning report on the Bakken Trend. He concluded that it contained 200-500 billion barrels of oil. He turned in his report to the USGS, which began its review. But Price died in 2002 with the USGS still holding onto the report, refusing to release it.

Here you have similarities to the story of the Lost Dutchmen Mine. In this tale, a German immigrant named Jacob Walz supposedly found gold in the Superstition Mountains. He died before vindicating his claim. Ward writes, “Bakken oil remained elusive…the stuff that makes a good story around bars filled with oilmen.”

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Long story short, the Bakken is getting attention again. New work on the area confirms the essence of Price’s research, if not the 200-500 billion barrel estimate. “Finally,” Ward writes, “it now appears that the Bakken Rush is finally on in the U.S. as well as in Canada.”

A number of companies have been buying up unexplored land areas in the Bakken. EOG Resources is one significant producer in the Bakken. Marathon Oil, according to Ward, is the only integrated oil company with an office in North Dakota. Its sole mission: Explore the Bakken.

“Still doubting?” Ward writes. He offers more recent analysis by geologists, from 2006. This work put the estimated barrels in place at 300 billion in North Dakota and Montana alone. Also, geologist Julie LeFever, who worked with L.C. Price on his initial report, published a paper adding that additional barrels lie in various layers of the Bakken. “The rush for the Bakken is finally on,” Ward writes. “Investors should catch it if they can.”

I recently recommended a play on the Bakken Trend to the subscribers of my investment service, Mayer’s Special Situations. The company I recommended holds significant assets in the Bakken. It also has another, potentially bigger asset in a rich basin in Wyoming. This stock has already performed extremely well since I recommended it, but I’m still expecting larger gains.

Meanwhile, I’m continuing to explore for other stocks that are focused on the Bakken Trend. I would encourage all investors to do the same. The investment opportunities in the Bakken are just beginning to emerge.

Regards,

Chris Mayer -Whiskey & Gunpowder

Source: North Dakota Oil