Category Archives: Natural Gas Utilization

Another Reason Why You Need a Good Gross Proceeds Clause

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West Virginia University is working on a project, together with a large number of other groups, that would significantly improve the royalties paid to mineral and royalty owners–if it works.

The issue is that West Virginia terrain is so rough that it’s difficult to install pipelines.  The pipelines are needed to transport the produced natural gas to centralized refineries, cracker plants, separation plants, and the like.  Since pipelines are so difficult to build that sometimes they’re not built, leaving gas “stranded”, unable to be transported to a place it can be used.

The U.S. Department of Energy has started a branch of its National Network of Manufacturing Institutes which it calls Rapid Advancement in Process Intensification Deployment, or RAPID.  RAPID will bring together people from academia, industry, government labs, and non-government labs to tackle “process intensification“.

Process intensification in the natural gas fields will combine multiple gas processing steps into one.

The result will be the ability to process gas at the wellpad using small, mobile, modular units.  The processed gas would be turned into products that could be transported in trucks.  The benefit to West Virginia is obvious.

West Virginia royalty owners could expect higher royalty checks, and in some cases where they wouldn’t see any real royalties at all, they would see significant royalties.

Of course, leases would have to be written with the idea of capturing those royalties for the mineral owners.  Companies will, of course, try to pay royalties on the lowest value they possibly can.  Mineral owners should be able to get the highest value they can.

Getting a strong gross proceeds clause into a lease will become even more important for our clients.

Methanol Plants for West Virginia

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This is excellent news for West Virginia.  A California based company, US Methanol, is in the process of dismantling some existing methanol plants overseas and installing them in the Kanawha River Valley.

The plants take natural gas and convert it to methanol which is used for a host of things.  Wikipedia is a good place to start if you want to get into those details.

We’ve been hoping for a cracker plant for West Virginia for a long time, mainly because it would be good for the West Virginia economy.  Right now, pretty much all of the natural gas produced here is shipped out of the state as a raw product.  Shipping a finished product would certainly be better, as would having the additional jobs.  These plants, while not as large as a cracker plant, would provide a more finished product and some jobs.  The nice thing is, they can be built in 12-14 months.  A cracker plant takes several years to build, after several years of planning.

Right now there are two methanol plants that are definitely being built, but US Methanol seems to be thinking of building more.

While this is good news for West Virginia residents, it’s also good for West Virginia royalty rights owners.  The increased use of natural gas here in the state will drive up demand, and consequently drive up royalty payments.

Ohio Natural Gas Fired Power Plants

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This article over at Energy In Depth shows that Ohio will eventually be powered entirely by natural gas.  There are seven natural gas-fired power plants either under construction or in the planning stages.  Once they are complete, they will create 6,458 megawatts of electricity, enough for 5.85 million homes.  Ohio has 4.5 million homes.  Ohio will be sharing electricity with surrounding areas through the grid, of course.

West Virginia is a net producer of electricity, but it’s all coal-fired.  We have several gas-fired plants in the works, with one in particular up in Moundsville, WV that will be the first to come online.  Last we heard they were hoping to start construction on it this spring, but that was last fall and there doesn’t seem to be any activity at this time.

West Virginia’s Politicians are Looking for Japanese Investments in Natural Gas

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There was a big event a few days ago down in Charleston.  Governor Tomblin and Senator Manchin hosted a bunch of Japanese businessmen, apparently in an attempt to interest Japanese money in investing in West Virginia natural gas.  While it certainly hasn’t been said outright, it seems that Odebrecht’s failure to move forward on the cracker plant has disappointed people.  It’s disappointed us for a while, and we’re excited to see public evidence that people in charge are working to bring in new investment partners.

We really need to make sure that West Virginia takes full advantage of the opportunity that has been presented to it.  We’re shipping natural gas out of the state in its raw form.  We need to be using it here and shipping electricity and plastics out instead.  We can piggy back on natural gas to improve our internet infrastructure, and our tourism.  The big plants and the technology that comes with them will not be content with poor internet, and the people that work in the plants are going to want nice places to live, work, and play.  Investing in the use of natural gas within the state is a great first step.

While this article about Governor Manchin’s trip to Japan which is coming up in a month focused mainly on the automobile parts industry, it’s still heartening to see that the Governor’s office had a talking point that included investment in natural gas.

A Virtual Pipeline to a Scottish Cracker Plant

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Ineos is a company that, hitherto, has been mostly in the news for it’s plans to build a “virtual pipeline” across the Atlantic Ocean using eight Dragon-class ships to haul ethane from the Marcus Hook deep water terminal to its two petrochemical sites in Norway and Scotland.  That gas originates from the Marcellus shale and makes its way to the Marcus Hook terminal by way of the Mariner East pipeline.  The first shipment of that gas arrived in Norway around the 23rd of March, not quite two weeks ago.

The latest news about Ineos is that it plans to re-open a cracker plant that it had previously mothballed because of a lack of gas.  The cracker plant had relied on gas from the North Sea, but that source dwindled and in 2008 Ineos had to close the plant down.  Now that a new, enormous source of ethane has opened up in the form of the Marcellus shale it has become possible, nay, advantageous to re-open the cracker plant.

Prepare yourself now for some opinionated opining on the part of the writer.

Why can’t we get a cracker plant in West Virginia?!  They’re going to ship ethane hundreds of miles through a pipeline to Marcus Hook, ship it across the Atlantic in eight enormous ships to Scotland and Norway, and crack it there.

Now we all know that the costs for a new cracker plant are measured in billions, and it’s obvious that bringing an already existing plant back into operation is a lot less expensive than that.  It seems, however, that at an average cost of $200 million dollars (that’s not even the actual cost of a Dragon-class ship which we suspect is a good bit more), a fleet of eight LNG transport ships comes to at least $1.6 billion, a good chunk of what a new cracker plant would cost.

The benefits to West Virginia in jobs and tax revenues would make up some of the rest of the difference, and consider the increase in the value of the product.  We would go from shipping the raw, relatively inexpensive ethane out of state to turning it into polyethylene resin, a much more expensive product that is the basis for all kinds of petrochemical products.  We would sell a more finished product at a higher price.

Seems like a pretty important thing for West Virginia, but it just doesn’t seem to be happening.

As an aside, this article tells the story of how the whole project came into being.  It’s a great read.  It also suggests that the cost for the first two Dragon ships was about a billion dollars.  That would have included quite a bit of R&D, so we can’t say that each Dragon ship costs $500 million dollars, but it does suggest that $200 million is probably on the low side.

The Future of American Liquefied Natural Gas (LNG)

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Daniel Gross, writing in the Dallas News, thinks that liquefied natural gas is going to be the next big international trade commodity for the United States.  He points out that natural gas sells for $8.25 per MCF in Japan while it sells for less than $2.00 per MCF here in the U.S.  With the first shipment of liquefied natural gas leaving the Cheniere facility in February and a shipment of ethane leaving the Marcus Hook facility in March, exports have begun.  Ineos, the company behind the Marcus Hook shipment, wants to have eight shipments per month within four years.  The Cheniere facility is supposed to eventually have four processing “trains” and only has one right now.  There is also a project, not mentioned in the article, in Canada called Bear Head LNG which is intended to process Marcellus shale gas and sell it to countries that don’t have free trade agreements with the United States.  There are quite a few other projects in the works, too.  Mr. Gross may be right.  LNG exports will at very least make a big splash in the natural gas market.

West Virginia Needs This Kind of Thing

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Primus Green Energy has announced that they are building a gas to liquids plant somewhere in the Marcellus Shale region.  The actual location has not been announced.  Since the plant is supposed to be up and running in 2017 it’s safe to assume that the location has already been decided.  If it hasn’t our governor, legislators, and county officials should be contacting Primus to see what they can do to get it located inside this State. Shoot, gas producers should be knocking their door down.  The plant will be able to use pretty much any type of gas that comes out of the ground and we have a real oversupply of wet gasses to the extent that wet gasses are costing producers money.

That said, Primus Green Energy hasn’t put together a commercial scale plant yet. They currently have one pre-commercial demonstration plant located in New Jersey.  Scaling up to commercial sizes may pose some difficulties.  However, the technology seems to be viable, and the company doesn’t seem to be a fly-by-night operation, so it seems that taking a bit of a risk would be worth it.

Perhaps the most interesting aspect of their technology is that it appears that it can be done on small scales.  There are currently only five gas to liquids plants operating globally, with four proposed, according to the EIA.  Most of them are pretty large.  The one pictured in the link above is certainly not large.  Perhaps this is the kind of plant that could be developed on a local basis with smaller capital funding costs.

CNG and LNG in Fleet Vehicles

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One use for natural gas is to power cars, trucks, buses, and other vehicles.  Right now the majority of compressed natural gas vehicles are fleet vehicles, due to a lack of infrastructure.  At one point in the past, some infrastructure was being built out for CNG, but when gasoline prices dropped people started moving away from CNG.  Gasoline prices have again dropped, but interest in CNG doesn’t seem to be disappearing.  Businesses and governments realize that this drop in prices isn’t going to last forever.  It will probably last a few years, but there is also the potential for a sudden jump in prices if something catastrophic happened; say a war in the Middle East (who could imagine?) or a hurricane in the Gulf Coast (ditto).

Companies like Clean Energy are providing some of that infrastructure.  So far it’s only to fleet vehicles, but someday the infrastructure will expand to us, the consumers.  The sooner the better.  CNG burns cleaner than gasoline and is cheaper to boot.  If the infrastructure is built out and the cars are manufactured, it will happen.

Also, USPS is adding CNG and LNG trucks to its fleet.  The more the merrier.

 

Ohio Cracker Plant Has a Website

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Man, these cracker plants move sloooow.  They’re awfully expensive, which is why they move slow.  Even spending $100 million dollars and then pulling the plug if the deal isn’t good is a good deal when you’re talking billions of dollars.  Here in West Virginia we’re hoping for a cracker plant of our own, but we don’t expect it for at least five years.

One good thing we can point at is that the cracker plant in Ohio now has a web site of its own.  Web sites are cheap relative to the size of this project, but it’s another step in the right direction.  Step by step by step these things will (hopefully) get built.

UPS to Expand Use of LNG

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The article is pretty short, but the news is good.  UPS will expand its use of liquefied natural gas.  They currently use about 1.5 million gallons equivalents, and will be bumping it up another 500,000, or a solid 1/3 of what they currently use.  While it’s not huge, the more use of natural gas there is the better.  It’s cleaner than gasoline and produced in ridiculous amounts here in the States.