Daily Archives: July 30, 2012

GIGANTIC MISS: DALLAS FED REPORT PLUNGES TO -13.2

Joe Weisenthal

Texas factory activity continued to increase in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 15.5 to 12, suggesting slightly slower output growth.

Other measures of current manufacturing activity also indicated slower growth in July. The new orders index was positive for the second month in a row, although it moved down from 7.9 to 1.4. Similarly, the shipments index posted its second consecutive positive reading but edged down from 9.6 to 7.4. The capacity utilization index came in at 8.7 after rising to 13.3 last month.

Perceptions of broader economic conditions were mixed in July. The general business activity plummeted to -13.2 after climbing into positive territory in June. Nearly 30 percent of manufacturers noted a worsening in the level of business activity in July, pushing the index to its lowest reading in 10 months. The company outlook index remained positive for the third month in a row but fell from 5.5 to 1.6.

Labor market indicators reflected stronger labor demand. Employment growth continued in July, although the index edged down from 13.7 to 11.8. Twenty-one percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index was 4.1, up slightly from its June reading.

Price pressures were largely unchanged in July, although compensation costs rose at a faster pace. The raw materials price index held steady at 3, suggesting only slight increases in input costs this summer after strong upward pressure earlier in the year. Selling prices fell for the fifth consecutive month in July; the finished goods price index was -5.5, virtually unchanged from last month’s reading. The wages and benefits index rose nearly 10 points to 22.9, largely due to a marked rise in the share of firms noting increased compensation costs. Looking ahead, 36 percent of respondents anticipate further increases in raw materials prices over the next six months, while 25 percent expect higher finished goods prices.

Expectations regarding future business conditions were less optimistic in July. The index of future general business activity slipped from 1.3 to -7.3, registering its first negative reading in 10 months. The index of future company outlook remained positive but fell from its June level, coming in at 5.3. Indexes for future manufacturing activity also decreased, although all remained in strong positive territory.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected July 17–25, and 89 Texas manufacturers responded to the survey. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease.

More to come… Source

McDermott Bags Offshore Installation Gig in U.S. GOM

McDermott International, Inc. announced today that one of its subsidiaries has been awarded a contract by the Discovery system for offshore facilities in the Gulf of Mexico. The value of this contract is included in McDermott’s second quarter 2012 backlog.

Williams Partners L.P.owns 60 percent of the Discovery system and operates it. DCP Midstream Partners, LP owns the other 40 percent of the Discovery system.

The project is to deliver new junction facilities for Discovery’s Keathley Canyon Connector™ pipeline system with a 3,300-ton, four-leg platform in 350 feet of water. The unmanned platform will provide pipeline junction facilities for incoming deepwater pipelines from the Hadrian South and Lucius fields and for outgoing shallow-water pipelines to shore.

Fabrication is expected to commence this summer at McDermott’s Morgan City facility in Louisiana. Offshore installation is expected to commence during the third quarter of 2013, and is intended to be ready for operational start-up before the end of the year.

McDermott’s deepwater combination heavy lift and pipelay vessel DB50 is expected to perform the installation. The DB50 has recently undergone extensive enhancement to its power and propulsion systems, and has a new deepwater lowering system.

Source

U.S. Expected to Approve Expanded LNG Exports to Japan

The US policy of LNG exports to Japan is expected to see a significant change in near future as more export approvals are considered.

A report published by Baker & McKenzie has said that last year the US government approved exports from a second terminal, and decisions on eight other applications for export approval are expected later this year.

Implications for Japanese LNG buyers and investors

The report stressed that expanded U.S. LNG exports represents an opportunity not only for Japanese LNG buyers to diversify their supply sources with shale gas but also at more competitive pricing linked to Henry Hub prices rather than oil prices.  Japanese companies also could establish value chains in the U.S. by investing in projects to build export facilities and by acquiring interests in shale gas fields.

Since 1967 the Kenai LNG Plant in Alaska, which produced all eight of the LNG cargoes shipped from the U.S. to Japan in 2011, had been the only LNG plant with export approval.  This changed last year when the Sabine Pass facility in Louisiana obtained export approval.  Eight other applications for export approval are now pending.

Export approval process and outlook

Under the Natural Gas Act gas exports require permission from the federal government.  Such permission is only granted if the Department of Energy (DOE) determines that the proposed exports are consistent with the public interest.  Exports to 17 countries which have free trade agreements (FTAs) with the U.S. are deemed consistent with the public interest and the DOE must approve exports to these countries “without modification or delay”.  In contrast, approvals for exports to non-FTA countries, including Japan, are subject to a lengthy public interest finding process which allows for comments, protests, and motions to intervene from interested parties.

The applicable legislation does not require the DOE to take action on applications within a certain timeframe.  After Sabine Pass received approval for exports to non-FTA countries in May last year, the DOE suspended consideration of all applications pending the results of a study on the impact of exports on the domestic energy market.  This followed complaints from some U.S. lawmakers who were concerned that exports might increase domestic prices.  The domestic market impact study was initially scheduled to be completed by the first quarter of this year, but it is still pending and is now expected to be completed later this summer.  Accordingly, none of the pending applications are likely to be approved until the fourth quarter of this year at the earliest.

There are, however, some reasons to believe there is political support for expanding LNG exports to non-FTA countries such as Japan.  For example, on July 2, 2012, a bipartisan group of 21 members of Congress from states with shale gas deposits sent a letter to Energy Secretary Steven Chu urging the DOE to expedite the pending LNG export applications.  In February, Secretary Chu said he supports LNG exports, and Prime Minister Yoshihiko Noda also said he discussed expanding LNG exports when he met with President Barack Obama on April 30, 2012.

Actions to consider 

• Conduct preliminary due diligence on LNG projects with pending non-FTA export approval applications, as these projects are likely to be now seeking LNG buyers and equity investors.

• Monitor the DOE’s non-FTA export approval process.

• Investigate the compatibility of LNG produced from U.S. shale gas with regasification facilities and pipeline networks in Japan

Conclusion

Given the currently wide differential between the Henry Hub spot price used for trading on the New York Mercantile Exchange (NYMEX) and JCC pricing, expanded LNG exports produced from U.S. shale gas fields is a potential game changer for the gas market in Northeast Asia, and Japan in particular.  From the Japanese buyer’s perspective, it is clear that approvals for further export terminals is an important development to monitor in order to position themselves as potential buyers and equity investors.  For more information, please contact Colin Cook or Hiromitsu Kato.

Source: Baker & McKenzie via: Source

Eagle Ford a contender for top U.S. play

By Vicki Vaughan

Highly productive wells and the vast size of the Eagle Ford Shale are combining to make the South Texas shale play a contender for being the nation’s best, according to a new report.

The report, from information and analytics firm IHS, looked at well performance for oil and oil-rich liquids in the Eagle Ford as well as in the Bakken Shale of North Dakota and Montana, currently the nation’s top play. The Bakken has more wells than the Eagle Ford, but so far, on a per-well basis, the Eagle Ford seems to be producing more than the Bakken.

The Bakken is more established, and the Eagle Ford is still developing.South Texas

This IHS report is part of a broader study that’s under way of 27 of the nation’s shale plays.

The IHS analysis shows that “Eagle Ford drilling results appear to be superior to those of the Bakken,” said Andrew Byrne, director of equity research at IHS and the study’s author.

The Bakken shale is the play against which others are measured, Byrne said, because “it was the key play that really opened up development of unconventional resources” using high-tech drilling methods and hydraulic fracturing.

The Bakken first began to show great promise about 12 years ago, Byrne said.

“The results from the Bakken were so strong that it set the standard by which all others will be measured. It was the one play that incited the industry into pursuing these opportunities,” he said.

Now, though, comes the Eagle Ford.

Wells in the Eagle Ford Shale have a stronger flow – 300 to 600 barrels a day or oil and oil-rich liquids, based on average production in a peak month – than in the Bakken, where flow ranges from 150 to 300 barrels a day.

“One of the reasons we really like the Eagle Ford is its potential as a large total resource. It could be one of the best, if not the best, in North America,” Byrne said.

“The Eagle Ford covers such a vast area. That also makes this such a strong play.”

The Eagle Ford sweeps 400 miles from East Texas to counties south of San Antonio and on to the border.

The play “gets uniformly strong results, and that’s making the play look that much bigger and better,” Byrne said.

“All plays essentially have sweet spots. What makes the Eagle Ford so good is that the noncore stuff is delivering strong results also. In some other plays, it’s only the sweet spot that’s economic.”

2012 prediction

The Center for Community and Business Research at the University of Texas at San Antonio has also prepared studies of the Eagle Ford Shale. Center Director Thomas Tunstall predicts that the Eagle Ford Shale will produce 65 million barrels of oil for 2012. Oil production in the Eagle Ford reached 36.6 million barrels in 2011, according to Texas Railroad Commission data.

It’s somewhat difficult to predict production from the shale because the rate of production is accelerating, Tunstall said.

IHS doesn’t yet have an estimate of all the oil that is in the Eagle Ford.

“We’re working on that,” Byrne said.

Last week, Steve Trammel, senior manager of industry affairs for HIS, said in an interview that rig counts are declining in shale plays with much more natural gas than oil because of low natural gas prices.

But drilling is on the rise in shale with oil and “liquids-rich” areas, where wells can tap a mix of oil and condensate, a light oil, and “wet,” or liquid, natural gas, Trammel said.

Looking ahead

In fact, the highest average monthly production in the Eagle Ford is coming from the formation’s liquids-rich window, Byrne said.

Asked which might be the next hot play, Byrne said: “We haven’t officially put out that opinion yet. That will have to be reserved until we finish our study.”

The energy industry is “very creative,” he noted. “It seems like every quarter another play shows up.”

vvaughan@express-news.net

Source

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