As I have been extensively covering for a while now, the world is currently amidst a global energy crisis. The prices of natural gas, coal, propane and crude oil have been surging for the last several weeks as countries look to secure supplies as we approach the cold months of winter.
We continue to see European tension evolving around the Nord Stream Pipeline 2. It continues to be ongoing as some European leaders have accused Russia of weaponizing natural gas, which Putin has strongly dismissed.
Right now, there is an ongoing crisis in the U.K as numerous energy suppliers have collapsed due to extreme gas prices, which has forced almost 2 million households to switch suppliers since the beginning of August.
Europe is not the only one feeling the energy crunch as China, the world’s largest manufacturing country, has had factories halt production due to power outages.
In fact, earlier this month, China ordered its top state-owned energy companies – from coal, electricity and oil to secure supplies for this winter at all costs.
Even though Europe is leading Asia regarding LNG pricing, it is also making new record highs.
The weekly spot price of LNG for delivery to North Asia rose to $38.50 per million British thermal units (mmBtu) in the seven days to Oct. 15, which represents the third straight week of all-time highs and a 600% increase from the 2021 low of $5.60 per mmBtu in late February.
Moving forward, demand will remain very strong for LNG, especially in China and the developing countries in Asia, as they are increasingly looking at it as a transitional fuel.
Another country that is going to be heavily dependent on natural gas as a transition fuel, as many of my readers know, is Columbia.
NG Energy is getting very close to a transformational period as it evolves from a development company to a cash-flow producing natural gas player in Colombia, and the timing could not be better considering the energy transition that is happening around the world.
Colombia aims to meet its Paris Agreement CO2 target of decreasing emissions by 51% by 2030 and will heavily depend on natural gas to do so.
It is expected that the country will see a 200% increase in domestic natural gas demand over the next 30 years driven by a move to cleaner fuels and economic growth.
The Maria Conchita field is located in the Guajira Basin on Colombia’s Caribbean coast. The property neighbours one of the largest natural gas deposits in Colombia, the Chuchupa field, with more than 900 MMboe in reserves and accounting for 40% of Colombia’s daily natural gas output.
It is worth noting for my new readers that this asset neighbors the Chuchupa field, one of Colombia’s largest fields with 7 Tcf of natural gas reserves.
Production from the Maria Conchita Block is set to commence once all production facilities and a 14 kilometer pipeline are tied into the national pipeline system with completion expected in the next 6-8 weeks. When complete, the Aruchara-1 and Istanbul-1 wells will contribute 16-20 mmcf/d gross at full capacity.
Source: NG Energy Twitter
The Sinu-9 block covers an area of 311,353 acres and is located in the north part of Colombia, sharing area in Lower Magdalena and San Jacinto basins, two of the basins with the largest gas and light oil potential in the country.
The region has excellent infrastructure with open access to national oil and gas pipelines, 50km from port access, and reliable electricity grid coverage.
I have been covering NG Energy for months, and this is the asset as many of my readers know that really excites me as the exploration potential here is phenomenal as the contingent, and prospective resources at Sinu-9 are:
- Best Estimate Contingent Resources of 37.0 Bcf
- Best Estimate Prospective Resources (Prospects) Unrisked of 602.2 Bcf (Risked 182.4 Bcf) and Prospective Resources (Leads) of 459.0 Bcf
For comparison, Canacol ($700 million market capitalization) block has booked natural gas of 637 Bcf and production of 172 MMcf/d and is located to the east of the project.
The highly anticipated drill program is now underway as the company was recently granted an environmental license to begin drilling the SN9 block. The permit also covers the construction of civil works, production infrastructure, and the construction of up to 11 locations for a total of 22 wells.
I will be doing another editorial on the Company in the coming weeks and will elaborate more then, but today, I am joined by the Company’s CEO, Serafino Iacono, to provide Gold Telegraph readers with another corporate update:
Thanks, Serafino, for providing the Gold Telegraph readers with another update on NG Energy.
To start, can you update me on how construction is going at Maria Conchita and if the Company is still on track to be in production by the end of the year?
Big thank you to you and your subscribers for your continued interest in NG Energy, Alex. Construction is moving along at Maria Conchita, prior disruptions related to the pandemic and civil disputes have been resolved, and we expect to have all pipe laid and equipment connected before the end of the year.
Can you highlight the take or pay contracts that the Company is arranging with Colombian gas utilities for some of my new readers and what sort of pricing investors can expect with those fixed contracts?
One benefit of the extended time frame to complete the pipeline has been a price surge in natural gas, ultimately leading to higher fixed pricing for the Company on our gas. The Company has LOIs in place with two highly credible counterparties, Empresas Publicas de Medellin (EPM) and Vanti Gas Natural (Vanti), to receive US$5.08 for up to 24 MMSCFPD; however, given the current price environment, the final take or pay contracts are expected to be locked in at higher prices once all infrastructure is complete.
Does the Company have any internal estimates with regards to cash flow in 2021 at Maria Conchita?
Also, is the Company still planning a re-entry at Tinka-1 in 2022?
We are currently in the process of installing de-watering capilar technology at Instanbul-1 to deal with the water that exists downhole from when the well was first drilled. We as a management team expect that once the pump is in place, we will be able to complete the well and produce between 3 – 5 MMSCFPD, and this is in addition to the 16 MMSCFPD that we expect Aruchara-1 to produce at.
For a rough ‘back of napkin’ estimate the best quickest technique is to divide the MMSCFPD by 1,000 and multiply by the pricing. Because exact production and pricing are not locked in yet, I am hesitant to give an exact number, but your audience can use the estimate to come up with a range. If, for example, we produced 16 MMSCFPD from Aruchara-1 at $5.08 it would be approximately $81,000 / day or $30,000,000 / year in topline revenue.
Yes, once the production facilities and pipeline is complete and Aruchara-1 and Istanbul-1 are put into production, the Company plans to re-enter Tinka-1 sometime in 2022.
The Company recently received its environmental license for SINU-9 and has commenced its exploration program.
Can you highlight why the Company is so excited about this program considering Canacol’s recent discovery?
We as a management team refer to SINU-9 as the “jewel of the crown” because, with 1.5 TCF in prospective resources, the exploration potential is HUGE. Under the environmental license issued by the ANLA, the Company can develop up to 22 conventional onshore wells at only 4,500 – 6,000 feet of depth.
We will start our exploration program focusing on the Magico/Mago/Hechicero area, which shows strong evidence of gas-bearing formations due to the presence of class 6 AVO interpretations with several flat and bright spots.
Canacol’s discovery on its adjacent block of 402 feet of pay-zone at Agua Vivas 1 is extremely encouraging, with production expected at 35 MMSCFPD. Canacol also drilled Agua Vivas 2 and encountered 229 feet of pay-zone. These are fantastic wells right next door.
As I’m sure you are aware, the Company is in the process of closing an $8 million private placement which will allow us to build the four roads and pads for Magico, Mago, Hechicero and Hechizo concurrently rather that consecutively, which should save several weeks per well and allow the drilling rig to move more seamlessly from location to location. Construction of the road and the pad for Magico-1X is currently underway, and we expect to spud the well in November.
Finally, Serafino, many of my readers have been watching this energy crisis play out the past several weeks.
What is your current read on this situation, and can you highlight why natural gas will be an essential transition fuel in the years ahead, specifically in Colombia?
As COVID-19 restrictions loosen up and economic activity around the world accelerates, global energy demand has increased quickly. At the same time, though, the uncertainties of the pandemic have made producers reluctant to make significant capital investments, contributing to supply shortages.
To make matters worse, another major driver of this shocking price growth is the meteorological outlook for winter 2021. Harsh winters require more heating and more natural gas to get the job done. Demand is already running faster than supply, and if winter accelerates that trend, it could squeeze prices higher very quickly.
The situation in Colombia has been of concern long before the current global crisis with reserves projected to be cut in half this decade while at the same time the country, which is heavily reliant on hydropower, suffers droughts driving reservoir levels to historic lows and delays persist at Ituango. As a result, Colombian utilities are being forced to compete for expensive LNG just as more of the world is doing the same, with Europe and China facing enormous energy squeezes as well.
For now, I see one direction for prices and that is up.
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