Sumitomo considering US Marcellus shale purchase

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 2 -- Japan’s Sumitomo Corp., which last year bought a stake in Carrizo Oil & Gas’ Barnett shale acreage in Texas, now says it may also purchase stakes in the US firm’s Marcellus shale gas field blocks in Appalachia.

“Carrizo is a very good partner. We are going to expand our US shale gas business through the tie,” said an official of Sumitomo, which last December said it would pay an estimated ¥40-50 billion to acquire a 12.5% interest in the US firm’s Fort Worth basin Barnett shale project (OGJ, Dec. 15, 2009).

Kazuyuki Onose, general manager of Sumitomo's exploration and production business department, said the Japanese firm will continue to take part in shale gas projects by sharing part of the initial costs, especially as US firms appear to be selling off assets.

According to Onose, a number of US energy firms have been selling off assets to help in the repayment of loans taken during a debt-fueled growth spurt earlier this decade, and Sumitomo expects the asset-selling trend to continue.

Although Sumitomo sold off many of its own Gulf of Mexico gas assets in 2008, the Japanese firm apparently believes that exploitation of shale gas deposits represents a worthwhile investment, and it is looking at other shale gas assets in the US, among them sites in Texas and Arkansas. 

Sunitomo appears to be following a popular trend. According to a recent research report by Tudor, Pickering, Holt & Co. Securities Inc., much of the gas industry is expected to be investing in Appalachia’s Marcellus shale gas industry, with investment reaching more than $10 billion in 2009-13.

In their report, TPH analysts Becca Followill and Jessica Chipman predicted that current Appalachia gas production of about 2.5 bcfd will increase to 6 bcfd by 2013, to 7 bcfd by 2015, and to 9 bcfd by 2020.

TPH’s report said that plans call for more than 6 bcfd of new pipeline capacity, 250 MMcfd of processing capacity, and 40 MMcfd of fractionation capacity.

Penn State University recently released a study saying that the US Marcellus shale formation stretches across portions of West Virginia, Pennsylvania, Ohio, and New York and that the formation holds an estimated 50 tcf of recoverable reserves.

However, development of Marcellus shale gas reserves has piqued the ire of environmentalists, who claim that underground supplies of water are being tainted by the processes used to produce the gas.

Earlier this month, the US Environmental Protection Agency expressed "serious reservations" about allowing shale gas drilling in New York City’s watershed, and warned of a threat to the drinking water for 9 million people (OGJ, Jan 25, 2010).

Contact Eric Watkins at hippalus@yahoo.com.



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